filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
299K characters. Original on sec.gov ·
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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.
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 matter communicated below is a matter arising from the current-period audit of the financial statements that was 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has a complex legal structure involving numerous domestic and foreign locations with constantly changing tax laws, regulations, and legal interpretations. The Company’s management is required to interpret and apply these tax laws and regulations in determining the amount of its income tax liability and provision. When an uncertain tax position is identified by management, the Company must evaluate if it is more likely than not, based on the technical merits, that the uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be
realized. The Company establishes a liability for unrecognized tax benefits that do not meet this threshold. The evaluation of each uncertain tax position requires management to apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
-
We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
-
We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain tax positions.
–Identifying key judgements underlying the Company’s position and evaluating whether the conclusions are consistent with our interpretation of the relevant laws and regulations.
–Evaluating the Company’s method of measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the basis for certain intercompany transactions, such as transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| /s/ DELOITTE & TOUCHE LLP | ||
| Midland, Michigan | ||
| January 31, 2024 |
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, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 January 31, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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.
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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Positions — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company has a complex legal structure involving numerous domestic and foreign locations with constantly changing tax laws, regulations, and legal interpretations. The Company’s management is required to interpret and apply these tax laws and regulations in determining the amount of its income tax liability and provision. When an uncertain tax position is identified by management, the Company must evaluate if it is more likely than not, based on the technical merits, that the uncertain tax position will be sustained upon examination. The Company recognizes a benefit for tax positions using the highest cumulative tax benefit that is more likely than not to be realized. The Company establishes a liability for unrecognized tax benefits that do not meet this threshold. The
evaluation of each uncertain tax position requires management to apply specialized skill, knowledge, and significant judgment related to the identified position. The Company’s liability for unrecognized tax benefits and related accrued interest and penalties as of December 31, 2023 was $513 million and $561 million, respectively.
Because of the complexity of tax laws, regulations and legal interpretations relevant to numerous taxing jurisdictions in which the Company operates, auditing uncertain tax positions and the determination of whether the more likely than not threshold was met requires a high degree of auditor judgment and increased extent of effort, including the involvement of our income tax specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to uncertain tax positions included the following, among others:
-
We tested the effectiveness of internal controls over income taxes, including those over identifying uncertain tax positions and measuring liabilities.
-
We evaluated, with the assistance of our income tax specialists, the Company’s uncertain tax positions by performing the following:
–Obtaining Company and third-party opinions or memoranda regarding the uncertain tax positions.
–Identifying key judgements underlying the Company’s position and evaluating whether the conclusions are consistent with our interpretation of the relevant laws and regulations.
–Evaluating the Company’s method of measuring its liability for unrecognized tax benefits, including underlying data and assumptions.
–Evaluating the basis for certain intercompany transactions, such as transfer pricing, by comparison to economic studies performed by management and third-party data.
–Evaluating matters raised by taxing authorities in former and ongoing tax audits.
–Assessing changes and interpretation of applicable tax law.
| /s/ DELOITTE & TOUCHE LLP | ||
| Midland, Michigan | ||
| January 31, 2024 |
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, | 2023 | 2022 | 2021 | ||||||||
| Net sales | $ | 44,622 | $ | 56,902 | $ | 54,968 | |||||
| Cost of sales | 39,742 | 48,338 | 44,191 | ||||||||
| Research and development expenses | 829 | 851 | 857 | ||||||||
| Selling, general and administrative expenses | 1,627 | 1,675 | 1,645 | ||||||||
| Amortization of intangibles | 324 | 336 | 388 | ||||||||
| Restructuring and asset related charges - net | 528 | 118 | 6 | ||||||||
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | 268 | 975 | ||||||||
| Sundry income (expense) - net | (280) | 727 | (35) | ||||||||
| Interest income | 229 | 173 | 55 | ||||||||
| Interest expense and amortization of debt discount | 746 | 662 | 731 | ||||||||
| Income before income taxes | 656 | 6,090 | 8,145 | ||||||||
| Provision (credit) for income taxes | (4) | 1,450 | 1,740 | ||||||||
| Net income | 660 | 4,640 | 6,405 | ||||||||
| Net income attributable to noncontrolling interests | 71 | 58 | 94 | ||||||||
| Net income available for Dow Inc. common stockholders | $ | 589 | $ | 4,582 | $ | 6,311 | |||||
| Per common share data: | |||||||||||
| Earnings per common share - basic | $ | 0.82 | $ | 6.32 | $ | 8.44 | |||||
| Earnings per common share - diluted | $ | 0.82 | $ | 6.28 | $ | 8.38 | |||||
| Weighted-average common shares outstanding - basic | 705.7 | 721.0 | 743.6 | ||||||||
| Weighted-average common shares outstanding - diluted | 709.0 | 725.6 | 749.0 |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 | ||||||||
| Net income | $ | 660 | $ | 4,640 | $ | 6,405 | |||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Unrealized losses on investments | — | (312) | (45) | ||||||||
| Cumulative translation adjustments | 43 | (579) | (425) | ||||||||
| Pension and other postretirement benefit plans | (609) | 2,457 | 2,225 | ||||||||
| Derivative instruments | 24 | 272 | 123 | ||||||||
| Total other comprehensive income (loss) | (542) | 1,838 | 1,878 | ||||||||
| Comprehensive income | 118 | 6,478 | 8,283 | ||||||||
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | 58 | 94 | ||||||||
| Comprehensive income attributable to Dow Inc. | $ | 47 | $ | 6,420 | $ | 8,189 |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Balance Sheets
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 2,987 | $ | 3,886 | ||||
| Accounts and notes receivable: | ||||||||
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | 5,611 | ||||||
| Other | 1,896 | 2,144 | ||||||
| Inventories | 6,076 | 6,988 | ||||||
| Other current assets | 1,937 | 1,848 | ||||||
| Total current assets | 17,614 | 20,477 | ||||||
| Investments | ||||||||
| Investment in nonconsolidated affiliates | 1,267 | 1,589 | ||||||
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | 2,793 | ||||||
| Noncurrent receivables | 438 | 666 | ||||||
| Total investments | 4,445 | 5,048 | ||||||
| Property | ||||||||
| Property | 60,203 | 58,055 | ||||||
| Less: Accumulated depreciation | 39,137 | 37,613 | ||||||
| Net property | 21,066 | 20,442 | ||||||
| Other Assets | ||||||||
| Goodwill | 8,641 | 8,644 | ||||||
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | 2,442 | ||||||
| Operating lease right-of-use assets | 1,320 | 1,227 | ||||||
| Deferred income tax assets | 1,486 | 960 | ||||||
| Deferred charges and other assets | 1,323 | 1,363 | ||||||
| Total other assets | 14,842 | 14,636 | ||||||
| Total Assets | $ | 57,967 | $ | 60,603 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Notes payable | $ | 62 | $ | 362 | ||||
| Long-term debt due within one year | 117 | 362 | ||||||
| Accounts payable: | ||||||||
| Trade | 4,529 | 4,940 | ||||||
| Other | 1,797 | 2,276 | ||||||
| Operating lease liabilities - current | 329 | 287 | ||||||
| Income taxes payable | 419 | 334 | ||||||
| Accrued and other current liabilities | 2,704 | 2,770 | ||||||
| Total current liabilities | 9,957 | 11,331 | ||||||
| Long-Term Debt | 14,907 | 14,698 | ||||||
| Other Noncurrent Liabilities | ||||||||
| Deferred income tax liabilities | 399 | 1,110 | ||||||
| Pension and other postretirement benefits - noncurrent | 4,932 | 3,808 | ||||||
| Asbestos-related liabilities - noncurrent | 788 | 857 | ||||||
| Operating lease liabilities - noncurrent | 1,032 | 997 | ||||||
| Other noncurrent obligations | 6,844 | 6,555 | ||||||
| Total other noncurrent liabilities | 13,995 | 13,327 | ||||||
| Stockholders’ Equity | ||||||||
| Common stock (authorized 5,000,000,000 shares of $0.01 par value each; issued 2023: 778,595,514 shares; 2022: 771,678,525 shares) | 8 | 8 | ||||||
| Additional paid-in capital | 8,880 | 8,540 | ||||||
| Retained earnings | 21,774 | 23,180 | ||||||
| Accumulated other comprehensive loss | (7,681) | (7,139) | ||||||
| Treasury stock at cost (2023: 76,302,081 shares; 2022: 66,798,605 shares) | (4,374) | (3,871) | ||||||
| Dow Inc.’s stockholders’ equity | 18,607 | 20,718 | ||||||
| Noncontrolling interests | 501 | 529 | ||||||
| Total equity | 19,108 | 21,247 | ||||||
| Total Liabilities and Equity | $ | 57,967 | $ | 60,603 |
See Notes to the Consolidated Financial Statements.
Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| (In millions) For the years ended Dec 31, | 2023 | 2022 | 2021 | ||||||||
| Operating Activities | |||||||||||
| Net income | $ | 660 | $ | 4,640 | $ | 6,405 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 2,611 | 2,758 | 2,842 | ||||||||
| Provision (credit) for deferred income tax | (1,222) | 79 | 278 | ||||||||
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | 696 | (651) | ||||||||
| Net periodic pension benefit cost | 548 | 23 | 39 | ||||||||
| Pension contributions | (142) | (235) | (1,219) | ||||||||
| Net gain on sales of assets, businesses and investments | (70) | (19) | (105) | ||||||||
| Restructuring and asset related charges - net | 528 | 118 | 6 | ||||||||
| Other net loss | 796 | 212 | 921 | ||||||||
| Changes in assets and liabilities, net of effects of acquired and divested companies: | |||||||||||
| Accounts and notes receivable | 1,161 | 1,187 | (2,132) | ||||||||
| Inventories | 844 | 347 | (1,768) | ||||||||
| Accounts payable | (734) | (1,255) | 2,458 | ||||||||
| Other assets and liabilities, net | (203) | (1,065) | (5) | ||||||||
| Cash provided by operating activities - continuing operations | 5,164 | 7,486 | 7,069 | ||||||||
| Cash provided by (used for) operating activities - discontinued operations | 32 | (11) | (60) | ||||||||
| Cash provided by operating activities | 5,196 | 7,475 | 7,009 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (2,356) | (1,823) | (1,501) | ||||||||
| Investment in gas field developments | (215) | (190) | (92) | ||||||||
| Purchases of previously leased assets | (7) | (7) | (694) | ||||||||
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | 32 | 68 | ||||||||
| Acquisitions of property and businesses, net of cash acquired | (114) | (228) | (129) | ||||||||
| Investments in and loans to nonconsolidated affiliates | (5) | (148) | — | ||||||||
| Distributions and loan repayments from nonconsolidated affiliates | 2 | 52 | 51 | ||||||||
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | 11 | — | ||||||||
| Purchases of investments | (2,288) | (1,366) | (1,366) | ||||||||
| Proceeds from sales and maturities of investments | 1,958 | 747 | 759 | ||||||||
| Other investing activities, net | (61) | (50) | (10) | ||||||||
| Cash used for investing activities | (2,928) | (2,970) | (2,914) | ||||||||
| Financing Activities | |||||||||||
| Changes in short-term notes payable | (249) | 253 | (48) | ||||||||
| Proceeds from issuance of short-term debt greater than three months | — | — | 144 | ||||||||
| Payments on short-term debt greater than three months | — | (14) | (130) | ||||||||
| Proceeds from issuance of long-term debt | 104 | 1,667 | 109 | ||||||||
| Payments on long-term debt | (446) | (1,006) | (2,771) | ||||||||
| Collections on securitization programs | 18 | — | — | ||||||||
| Purchases of treasury stock | (625) | (2,325) | (1,000) | ||||||||
| Proceeds from issuance of stock | 188 | 212 | 320 | ||||||||
| Transaction financing, debt issuance and other costs | (2) | (24) | (537) | ||||||||
| Employee taxes paid for share-based payment arrangements | (42) | (35) | (12) | ||||||||
| Distributions to noncontrolling interests | (89) | (83) | (73) | ||||||||
| Dividends paid to stockholders | (1,972) | (2,006) | (2,073) | ||||||||
| Cash used for financing activities | (3,115) | (3,361) | (6,071) | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | (237) | (99) | ||||||||
| Summary | |||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | 907 | (2,075) | ||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | 3,033 | 5,108 | ||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | $ | 3,940 | $ | 3,033 | |||||
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | 54 | 45 | ||||||||
| Cash and cash equivalents at end of year | $ | 2,987 | $ | 3,886 | $ | 2,988 |
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, | 2023 | 2022 | 2021 | ||||||||
| Common Stock | |||||||||||
| Balance at beginning and end of year | $ | 8 | $ | 8 | $ | 8 | |||||
| Additional Paid-in Capital | |||||||||||
| Balance at beginning of year | 8,540 | 8,151 | 7,595 | ||||||||
| Common stock issued / sold | 188 | 212 | 320 | ||||||||
| Stock-based compensation and allocation of ESOP shares | 276 | 258 | 236 | ||||||||
| Treasury stock issuances - compensation and benefit plans | (124) | (79) | — | ||||||||
| Other | — | (2) | — | ||||||||
| Balance at end of year | 8,880 | 8,540 | 8,151 | ||||||||
| Retained Earnings | |||||||||||
| Balance at beginning of year | 23,180 | 20,623 | 16,361 | ||||||||
| Net income available for Dow Inc.'s common stockholders | 589 | 4,582 | 6,311 | ||||||||
| Dividends to stockholders | (1,972) | (2,006) | (2,073) | ||||||||
| Common control transaction | — | — | 46 | ||||||||
| Other | (23) | (19) | (22) | ||||||||
| Balance at end of year | 21,774 | 23,180 | 20,623 | ||||||||
| Accumulated Other Comprehensive Loss | |||||||||||
| Balance at beginning of year | (7,139) | (8,977) | (10,855) | ||||||||
| Other comprehensive income (loss) | (542) | 1,838 | 1,878 | ||||||||
| Balance at end of year | (7,681) | (7,139) | (8,977) | ||||||||
| Unearned ESOP Shares | |||||||||||
| Balance at beginning of year | — | (15) | (49) | ||||||||
| Allocation of ESOP shares | — | 15 | 34 | ||||||||
| Balance at end of year | — | — | (15) | ||||||||
| Treasury Stock | |||||||||||
| Balance at beginning of year | (3,871) | (1,625) | (625) | ||||||||
| Treasury stock purchases | (627) | (2,325) | (1,000) | ||||||||
| Treasury stock issuances - compensation and benefit plans | 124 | 79 | — | ||||||||
| Balance at end of year | (4,374) | (3,871) | (1,625) | ||||||||
| Dow Inc.'s stockholders' equity | 18,607 | 20,718 | 18,165 | ||||||||
| Noncontrolling Interests | 501 | 529 | 574 | ||||||||
| Total Equity | $ | 19,108 | $ | 21,247 | $ | 18,739 | |||||
| Dividends declared per share of common stock | $ | 2.80 | $ | 2.80 | $ | 2.80 |
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, | 2023 | 2022 | 2021 | ||||||||
| Net sales | $ | 44,622 | $ | 56,902 | $ | 54,968 | |||||
| Cost of sales | 39,738 | 48,332 | 44,187 | ||||||||
| Research and development expenses | 829 | 851 | 857 | ||||||||
| Selling, general and administrative expenses | 1,627 | 1,675 | 1,645 | ||||||||
| Amortization of intangibles | 324 | 336 | 388 | ||||||||
| Restructuring and asset related charges - net | 528 | 118 | 6 | ||||||||
| Equity in earnings (losses) of nonconsolidated affiliates | (119) | 268 | 975 | ||||||||
| Sundry income (expense) - net | (327) | 714 | (79) | ||||||||
| Interest income | 239 | 181 | 56 | ||||||||
| Interest expense and amortization of debt discount | 746 | 662 | 731 | ||||||||
| Income before income taxes | 623 | 6,091 | 8,106 | ||||||||
| Provision (credit) for income taxes | (4) | 1,450 | 1,738 | ||||||||
| Net income | 627 | 4,641 | 6,368 | ||||||||
| Net income attributable to noncontrolling interests | 71 | 58 | 94 | ||||||||
| Net income available for The Dow Chemical Company common stockholder | $ | 556 | $ | 4,583 | $ | 6,274 |
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, | 2023 | 2022 | 2021 | ||||||||
| Net income | $ | 627 | $ | 4,641 | $ | 6,368 | |||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Unrealized losses on investments | — | (312) | (45) | ||||||||
| Cumulative translation adjustments | 43 | (579) | (425) | ||||||||
| Pension and other postretirement benefit plans | (609) | 2,457 | 2,225 | ||||||||
| Derivative instruments | 24 | 272 | 123 | ||||||||
| Total other comprehensive income (loss) | (542) | 1,838 | 1,878 | ||||||||
| Comprehensive income | 85 | 6,479 | 8,246 | ||||||||
| Comprehensive income attributable to noncontrolling interests, net of tax | 71 | 58 | 94 | ||||||||
| Comprehensive income attributable to The Dow Chemical Company | $ | 14 | $ | 6,421 | $ | 8,152 |
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
| (In millions, except share amounts) At Dec 31, | 2023 | 2022 | ||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 2,987 | $ | 3,886 | ||||
| Accounts and notes receivable: | ||||||||
| Trade (net of allowance for doubtful receivables - 2023: $81; 2022: $110) | 4,718 | 5,611 | ||||||
| Other | 1,997 | 2,211 | ||||||
| Inventories | 6,076 | 6,988 | ||||||
| Other current assets | 1,898 | 1,815 | ||||||
| Total current assets | 17,676 | 20,511 | ||||||
| Investments | ||||||||
| Investment in nonconsolidated affiliates | 1,267 | 1,589 | ||||||
| Other investments (investments carried at fair value - 2023: $1,877; 2022: $1,757) | 2,740 | 2,793 | ||||||
| Noncurrent receivables | 424 | 650 | ||||||
| Total investments | 4,431 | 5,032 | ||||||
| Property | ||||||||
| Property | 60,203 | 58,055 | ||||||
| Less: Accumulated depreciation | 39,137 | 37,613 | ||||||
| Net property | 21,066 | 20,442 | ||||||
| Other Assets | ||||||||
| Goodwill | 8,641 | 8,644 | ||||||
| Other intangible assets (net of accumulated amortization - 2023: $5,374; 2022: $5,022) | 2,072 | 2,442 | ||||||
| Operating lease right-of-use assets | 1,320 | 1,227 | ||||||
| Deferred income tax assets | 1,486 | 960 | ||||||
| Deferred charges and other assets | 1,323 | 1,363 | ||||||
| Total other assets | 14,842 | 14,636 | ||||||
| Total Assets | $ | 58,015 | $ | 60,621 | ||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Notes payable | $ | 62 | $ | 362 | ||||
| Long-term debt due within one year | 117 | 362 | ||||||
| Accounts payable: | ||||||||
| Trade | 4,529 | 4,940 | ||||||
| Other | 1,818 | 2,349 | ||||||
| Operating lease liabilities - current | 329 | 287 | ||||||
| Income taxes payable | 419 | 334 | ||||||
| Accrued and other current liabilities | 2,575 | 2,613 | ||||||
| Total current liabilities | 9,849 | 11,247 | ||||||
| Long-Term Debt | 14,907 | 14,698 | ||||||
| Other Noncurrent Liabilities | ||||||||
| Deferred income tax liabilities | 399 | 1,110 | ||||||
| Pension and other postretirement benefits - noncurrent | 4,932 | 3,808 | ||||||
| Asbestos-related liabilities - noncurrent | 788 | 857 | ||||||
| Operating lease liabilities - noncurrent | 1,032 | 997 | ||||||
| Other noncurrent obligations | 6,702 | 6,415 | ||||||
| Total other noncurrent liabilities | 13,853 | 13,187 | ||||||
| Stockholder's Equity | ||||||||
| Common stock (authorized and issued 100 shares of $0.01 par value each) | — | — | ||||||
| Additional paid-in capital | 9,091 | 8,627 | ||||||
| Retained earnings | 17,495 | 19,472 | ||||||
| Accumulated other comprehensive loss | (7,681) | (7,139) | ||||||
| The Dow Chemical Company’s stockholder's equity | 18,905 | 20,960 | ||||||
| Noncontrolling interests | 501 | 529 | ||||||
| Total equity | 19,406 | 21,489 | ||||||
| Total Liabilities and Equity | $ | 58,015 | $ | 60,621 |
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, | 2023 | 2022 | 2021 | ||||||||
| Operating Activities | |||||||||||
| Net income | $ | 627 | $ | 4,641 | $ | 6,368 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 2,611 | 2,758 | 2,842 | ||||||||
| Provision (credit) for deferred income tax | (1,222) | 80 | 278 | ||||||||
| Earnings of nonconsolidated affiliates less than (in excess of) dividends received | 387 | 696 | (651) | ||||||||
| Net periodic pension benefit cost | 548 | 23 | 39 | ||||||||
| Pension contributions | (142) | (235) | (1,219) | ||||||||
| Net gain on sales of assets, businesses and investments | (70) | (19) | (105) | ||||||||
| Restructuring and asset related charges - net | 528 | 118 | 6 | ||||||||
| Other net loss | 797 | 221 | 927 | ||||||||
| Changes in assets and liabilities, net of effects of acquired and divested companies: | |||||||||||
| Accounts and notes receivable | 1,161 | 1,187 | (2,132) | ||||||||
| Inventories | 844 | 347 | (1,768) | ||||||||
| Accounts payable | (734) | (1,255) | 2,458 | ||||||||
| Other assets and liabilities, net | (226) | (1,043) | 157 | ||||||||
| Cash provided by operating activities | 5,109 | 7,519 | 7,200 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (2,356) | (1,823) | (1,501) | ||||||||
| Investment in gas field developments | (215) | (190) | (92) | ||||||||
| Purchases of previously leased assets | (7) | (7) | (694) | ||||||||
| Proceeds from sales of property, businesses and consolidated companies, net of cash divested | 95 | 32 | 68 | ||||||||
| Acquisitions of property and businesses, net of cash acquired | (114) | (228) | (129) | ||||||||
| Investments in and loans to nonconsolidated affiliates | (5) | (148) | — | ||||||||
| Distributions and loan repayments from nonconsolidated affiliates | 2 | 52 | 51 | ||||||||
| Proceeds from sales of ownership interests in nonconsolidated affiliates | 63 | 11 | — | ||||||||
| Purchases of investments | (2,288) | (1,366) | (1,366) | ||||||||
| Proceeds from sales and maturities of investments | 1,958 | 747 | 759 | ||||||||
| Other investing activities, net | (61) | (50) | (10) | ||||||||
| Cash used for investing activities | (2,928) | (2,970) | (2,914) | ||||||||
| Financing Activities | |||||||||||
| Changes in short-term notes payable | (249) | 253 | (48) | ||||||||
| Proceeds from issuance of short-term debt greater than three months | — | — | 144 | ||||||||
| Payments on short-term debt greater than three months | — | (14) | (130) | ||||||||
| Proceeds from issuance of long-term debt | 104 | 1,667 | 109 | ||||||||
| Payments on long-term debt | (446) | (1,006) | (2,771) | ||||||||
| Collections on securitization programs | 18 | — | — | ||||||||
| Proceeds from issuance of stock | 188 | 212 | 320 | ||||||||
| Transaction financing, debt issuance and other costs | (2) | (24) | (537) | ||||||||
| Employee taxes paid for share-based payment arrangements | (42) | (35) | (12) | ||||||||
| Distributions to noncontrolling interests | (89) | (83) | (73) | ||||||||
| Dividends paid to Dow Inc. | (2,510) | (4,375) | (3,264) | ||||||||
| Cash used for financing activities | (3,028) | (3,405) | (6,262) | ||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (45) | (237) | (99) | ||||||||
| Summary | |||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (892) | 907 | (2,075) | ||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 3,940 | 3,033 | 5,108 | ||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | 3,048 | $ | 3,940 | $ | 3,033 | |||||
| Less: Restricted cash and cash equivalents, included in "Other current assets" | 61 | 54 | 45 | ||||||||
| Cash and cash equivalents at end of year | $ | 2,987 | $ | 3,886 | $ | 2,988 |
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, | 2023 | 2022 | 2021 | ||||||||
| Common Stock | |||||||||||
| Balance at beginning and end of year | $ | — | $ | — | $ | — | |||||
| Additional Paid-in Capital | |||||||||||
| Balance at beginning of year | 8,627 | 8,159 | 7,603 | ||||||||
| Issuance of parent company stock - Dow Inc. | 188 | 212 | 320 | ||||||||
| Stock-based compensation and allocation of ESOP shares | 276 | 258 | 236 | ||||||||
| Other | — | (2) | — | ||||||||
| Balance at end of year | 9,091 | 8,627 | 8,159 | ||||||||
| Retained Earnings | |||||||||||
| Balance at beginning of year | 19,472 | 19,288 | 16,300 | ||||||||
| Net income available for The Dow Chemical Company's common stockholder | 556 | 4,583 | 6,274 | ||||||||
| Dividends to Dow Inc. | (2,510) | (4,375) | (3,264) | ||||||||
| Other | (23) | (24) | (22) | ||||||||
| Balance at end of year | 17,495 | 19,472 | 19,288 | ||||||||
| Accumulated Other Comprehensive Loss | |||||||||||
| Balance at beginning of year | (7,139) | (8,977) | (10,855) | ||||||||
| Other comprehensive income (loss) | (542) | 1,838 | 1,878 | ||||||||
| Balance at end of year | (7,681) | (7,139) | (8,977) | ||||||||
| Unearned ESOP Shares | |||||||||||
| Balance at beginning of year | — | (15) | (49) | ||||||||
| Allocation of ESOP shares | — | 15 | 34 | ||||||||
| Balance at end of year | — | — | (15) | ||||||||
| The Dow Chemical Company's stockholder's equity | 18,905 | 20,960 | 18,455 | ||||||||
| Noncontrolling Interests | 501 | 529 | 574 | ||||||||
| Total Equity | $ | 19,406 | $ | 21,489 | $ | 19,029 |
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 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 primarily accounted for using the equity method.
Dow Inc. owns all of the outstanding common shares of TDCC. As a result of the parent/subsidiary relationship between Dow Inc. and TDCC, and considering that the financial statements and disclosures of each company are substantially similar, the companies are filing a combined report for this 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. Transactions between TDCC and Dow Inc. are treated as related party transactions for TDCC. See Note 23 for additional information.
The Company conducts its worldwide operations through 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 24 for additional information.
Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation and the term "Dow Silicones" means Dow Silicones Corporation, both wholly owned subsidiaries of the Company.
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 14 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.
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. See Note 8 for additional information.
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. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are disposed. 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 (property, finite-lived intangible assets and lease right-of-use 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/amortization 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/amortization 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 developed technology, customer-related, trademarks, tradenames and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3 to 20 years.
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 assets.
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, establishing a new cost basis.
Leases
The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.
Operating lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate 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 nearly 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 Note 15 for additional information.
Revenue
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, 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 3 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.
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.
Government Assistance
The Company receives grants, subsidies and incentives (collectively "incentives") from governments in various jurisdictions in support of its operations and capital projects. The incentives are recorded when there is reasonable assurance that the Company will comply with the terms and conditions attached to the incentives and that the incentives will be received. Incentives are recognized on a systematic basis over the periods in which the related cost or expenditures occur and are included in the Company's financial statements as reductions of "Cost of sales" or "Research and development expenses" in the Company’s consolidated statements of income or as a reduction of "Property" in the consolidated balance sheets.
In 2023, the Company received $183 million of government incentives primarily related to the cost of energy used in the Company’s production processes ($260 million in 2022). These incentives, from various governments, are typically based on level of energy consumption and are recorded as a reduction to "Cost of sales" in the consolidated statements of income and as "Accounts and notes receivable - Other" until received or as a reduction to "Accounts payable - Trade" in the consolidated balance sheets. Other forms of government assistance received by the Company in 2023 and 2022 were not material.
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.
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.
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.
TDCC Dividends
TDCC is 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 Notes 16 and 23 for additional information.
NOTE 2 – RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2023, the Company adopted the disclosure requirements of Accounting Standards Update ("ASU") 2022-04, "Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," including early adoption of the requirement to disclose rollforward information on a prospective basis. The ASU, which is intended to enhance the transparency of supplier finance programs, requires buyers in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. See Note 5 for disclosures related to the Company's supplier finance program.
Accounting Guidance Issued But Not Adopted at December 31, 2023
In March 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-02, "Investments — Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The amendments permit reporting entities to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). The amendments also require certain disclosures in annual and interim reporting periods about an entity's tax credit programs. The new standard is effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the amendments must be applied on either a modified retrospective or a retrospective basis. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. Although the ASU only requires additional disclosures about the Company's operating segments, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Although the ASU only modifies the Company's required income tax disclosures, the Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
NOTE 3 – REVENUE
The majority of the Company's revenue is derived from product sales. In 2023, 98 percent of the Company's revenue related to product sales (99 percent in 2022 and 2021). The remaining sales were primarily related to the Company's insurance operations and licensing of patents and technologies.
Disaggregation of Revenue
Dow disaggregates its revenue from contracts with customers by operating segment and business, as the Company believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See details in the tables below:
| Net Trade Sales by Segment and Business | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Hydrocarbons & Energy | $ | 6,566 | $ | 9,414 | $ | 8,149 | |||||
| Packaging and Specialty Plastics | 16,583 | 19,846 | 19,979 | ||||||||
| Packaging & Specialty Plastics | $ | 23,149 | $ | 29,260 | $ | 28,128 | |||||
| Industrial Solutions | $ | 4,207 | $ | 5,682 | $ | 5,139 | |||||
| Polyurethanes & Construction Chemicals | 8,316 | 10,907 | 11,700 | ||||||||
| Others | 15 | 17 | 12 | ||||||||
| Industrial Intermediates & Infrastructure | $ | 12,538 | $ | 16,606 | $ | 16,851 | |||||
| Coatings & Performance Monomers | $ | 3,337 | $ | 4,051 | $ | 4,050 | |||||
| Consumer Solutions | 5,160 | 6,713 | 5,622 | ||||||||
| Performance Materials & Coatings | $ | 8,497 | $ | 10,764 | $ | 9,672 | |||||
| Corporate | $ | 438 | $ | 272 | $ | 317 | |||||
| Total | $ | 44,622 | $ | 56,902 | $ | 54,968 |
| Net Trade Sales by Geographic Region | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| U.S. & Canada | $ | 16,640 | $ | 20,945 | $ | 19,613 | |||||
| EMEAI 1 | 14,537 | 19,631 | 19,746 | ||||||||
| Asia Pacific | 8,266 | 10,344 | 10,043 | ||||||||
| Latin America | 5,179 | 5,982 | 5,566 | ||||||||
| Total | $ | 44,622 | $ | 56,902 | $ | 54,968 |
1.Europe, Middle East, Africa and India.
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, 2023, the Company had unfulfilled performance obligations of $744 million ($840 million at December 31, 2022) related to the licensing of technology and expects revenue to be recognized for the remaining performance obligations over the next seven years.
The Company has additional remaining performance obligations 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, and 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.
Contract Assets and Liabilities
The Company receives payments from customers based upon contractual billing schedules. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Contract liabilities include payments received in advance of performance under the contract and are recognized in revenue when the performance obligations are met. "Contract liabilities - current" primarily reflects deferred revenue from prepayments from customers for product to be delivered in 12 months or less and royalty payments that are deferred and will be recognized in 12 months or less. "Contract liabilities - noncurrent" includes advance payments that the Company has received from customers related to long-term supply agreements and royalty payments that are deferred and recognized over the life of the contract.
Revenue recognized in 2023 from amounts included in contract liabilities at the beginning of the period was approximately $315 million (approximately $250 million in 2022 and $295 million in 2021). In 2023, the amount of contract assets reclassified to receivables as a result of the right to the transaction consideration becoming unconditional was approximately $45 million (approximately $15 million in 2022). The Company did not recognize any asset impairment charges related to contract assets in 2023 (immaterial in 2022 and no impairment charges in 2021).
The following table summarizes contract assets and liabilities at December 31, 2023 and 2022:
| Contract Assets and Liabilities at Dec 31 | Balance Sheet Classification | 2023 | 2022 | |||||||||||
| In millions | ||||||||||||||
| Accounts and notes receivable - trade | Accounts and notes receivable - trade | $ | 4,718 | $ | 5,611 | |||||||||
| Contract assets - current | Other current assets | $ | 13 | $ | 48 | |||||||||
| Contract assets - noncurrent | Deferred charges and other assets | $ | 4 | $ | 16 | |||||||||
| Contract liabilities - current 1 | Accrued and other current liabilities | $ | 195 | $ | 275 | |||||||||
| Contract liabilities - noncurrent 2 | Other noncurrent obligations | $ | 1,642 | $ | 1,725 |
1.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of deferred royalty payments.
2.The decrease from December 31, 2022 to December 31, 2023 was primarily due to recognition of revenue on long-term product supply agreements.
NOTE 4 – RESTRUCTURING AND ASSET RELATED CHARGES - NET
The "Restructuring and asset related charges - net" line in the consolidated statements of income is used to record charges for restructuring programs and other asset related charges, which includes other asset impairments.
Restructuring Programs
2023 Restructuring Program
On January 25, 2023, the Board approved restructuring actions to achieve the Company's structural cost improvement initiatives in response to the continued economic impact from the global recessionary environment and to enhance its agility and long-term competitiveness across the economic cycle. As a result of these actions the Company recorded pretax restructuring charges of $541 million in the first quarter of 2023, additional pretax restructuring charges of $8 million in the second quarter of 2023, and a $14 million net credit adjustment in the fourth quarter of 2023. These actions are expected to be substantially complete by the end of 2024.
The following table summarizes the activities related to the 2023 Restructuring Program, including segment information:
| 2023 Restructuring Program | Severance and Related Benefit Costs | Asset Write-downs and Write-offs | Total | ||||||||
| In millions | |||||||||||
| Packaging & Specialty Plastics | $ | — | $ | 1 | $ | 1 | |||||
| Industrial Intermediates & Infrastructure | — | 50 | 50 | ||||||||
| Performance Materials & Coatings | — | 49 | 49 | ||||||||
| Corporate | 344 | 91 | 435 | ||||||||
| Total restructuring charges | $ | 344 | $ | 191 | $ | 535 | |||||
| Charges against the reserve | — | (191) | (191) | ||||||||
| Cash payments | (222) | — | (222) | ||||||||
| Reserve balance at Dec 31, 2023 | $ | 122 | $ | — | $ | 122 |
At December 31, 2023, $101 million of the reserve balance was included in "Accrued and other current liabilities" and $21 million was included in "Other noncurrent obligations" in the consolidated balance sheets.
The Company recorded pretax restructuring charges of $535 million inception-to-date under the 2023 Restructuring Program, consisting of severance and related benefit costs of $344 million and asset write-downs and write-offs of $191 million.
Severance and Related Benefit Costs
Severance benefits are provided to employees primarily under Dow's ongoing benefit arrangements and are accrued against the Corporate segment once management commits to a plan of termination. The 2023 Restructuring Program included a charge for severance and related benefit costs of $344 million for a global workforce reduction of approximately 2,000 employees. The majority of separations occurred by the end of the second quarter of 2023 with the remaining occurring primarily through the end of 2024.
Asset Write-downs and Write-offs
The 2023 Restructuring Program included charges related to the write-down and write-off of assets totaling $191 million. Details regarding the asset write-downs and write-offs are as follows:
-
Industrial Intermediates & Infrastructure charges relate to the shutdown of certain polyurethanes assets and the write-off of other assets. The majority of the impacted facilities are expected to be shutdown by the end of 2024.
-
Performance Materials & Coatings recorded charges to rationalize its asset footprint by shutting down certain coatings assets. These facilities are expected to be shutdown by the end of 2024.
-
Corporate recorded charges related to the write-down of Company owned and leased, non-manufacturing facilities, primarily related to office space rationalization.
Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions and costs associated with the Company's productivity and efficiency actions, are expected to result in additional cash expenditures of approximately $285 million, primarily through the end of 2024.
Asset Related Charges
In 2023, the Company recorded pretax asset related credits of $7 million in Corporate related to a prior restructuring program.
In 2022, the Company recorded pretax asset related charges of $118 million due to the Russia and Ukraine conflict and the expectation that certain assets would not be recoverable. These charges included the write-down of inventory, the recording of bad debt reserves and the impairment of other assets. Asset related charges by segment in 2022 were as follows: $8 million in Packaging & Specialty Plastics, $73 million in Industrial Intermediates & Infrastructure, $6 million in Performance Materials & Coatings and $31 million in Corporate.
NOTE 5 – SUPPLEMENTARY INFORMATION
| Dow Inc. Sundry Income (Expense) – Net | 2023 | 2022 | 2021 | |||||||||||||||||
| In millions | ||||||||||||||||||||
| Non-operating pension and other postretirement benefit plan net (cost) credits 1 | $ | (264) | $ | 358 | $ | 332 | ||||||||||||||
| Foreign exchange losses 2 | (340) | (117) | (8) | |||||||||||||||||
| Gain on sales of other assets and investments 3 | 80 | 78 | 105 | |||||||||||||||||
| Asset impairments and related costs 4 | (18) | — | — | |||||||||||||||||
| Gain (loss) on early extinguishment of debt 5 | 5 | (8) | (574) | |||||||||||||||||
| Indemnification and other transaction related costs 6 | 26 | 4 | 30 | |||||||||||||||||
| Gain related to Nova legal matter 7 | 106 | 321 | — | |||||||||||||||||
| Dow Silicones breast implant liability adjustment | — | 60 | — | |||||||||||||||||
| Luxi arbitration award 7 | — | — | 54 | |||||||||||||||||
| Gain on divestitures and asset sale 8 | — | — | 16 | |||||||||||||||||
| Other - net | 125 | 31 | 10 | |||||||||||||||||
| Total sundry income (expense) – net | $ | (280) | $ | 727 | $ | (35) |
1.The year ended December 31, 2023, includes pretax pension settlement charges of $642 million related to the transfer of certain plan benefit obligations to insurance companies. See Note 18 for additional information about the Company's pension and other postretirement plans, including pension settlement charges.
2.Foreign exchange losses in 2023 relate primarily to exposures in the Argentine peso, including $109 million related to the devaluation of the Argentine peso by the Argentina government in December 2023. Foreign exchange losses in 2022 relate primarily to exposures in the Argentine peso.
3.The year ended December 31, 2023, includes gains associated with the sale of shares of a previously impaired equity method investment.
4.Certain obligations associated with a previously impaired equity method investment.
5.See Note 13 for additional information.
6.Primarily related to charges associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution.
7.See Note 14 for additional information.
8.The year ended December 31, 2021, includes post-closing adjustments on a previous divestiture, related to Packaging & Specialty Plastics.
Sundry income (expense) - net for TDCC for the years ended December 31, 2023, 2022 and 2021, is substantially the same as that of Dow Inc., with the primary difference related to indemnification and other transaction related costs recorded on Dow Inc. Therefore, TDCC sundry income (expense) - net is not disclosed separately.
Other Investments
The Company has investments in company-owned life insurance policies ("COLI"), which are recorded at their cash surrender value as of each balance sheet date, as provided below:
| Investments in Company-Owned Life Insurance | Dec 31, 2023 | Dec 31, 2022 | ||||||
| In millions | ||||||||
| Gross cash value | $ | 623 | $ | 708 | ||||
| Less: Existing drawdowns 1 | 97 | — | ||||||
| Investments in company-owned life insurance 2 | $ | 526 | $ | 708 |
1.Classified as "Proceeds from sales and maturities of investments" in the consolidated statements of cash flows.
2.Classified as "Other investments" in the consolidated balance sheets.
The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. At December 31, 2023, the Company had monetized $97 million of its existing COLI policies' value (zero at December 31, 2022).
Supplier Finance Program
The Company facilitates a supply chain financing (“SCF”) program in the ordinary course of business in order to extend payment terms with vendors. Under the terms of this program, a vendor can voluntarily enter into an agreement with a participating financial intermediary to sell its receivables due from the Company. The vendor receives payment from the financial intermediary, and the Company pays the financial intermediary on the terms originally negotiated with the vendor, which generally range from 90 to 120 days. The vendor negotiates the terms of the agreements directly with the financial intermediary and the Company is not a party to that agreement. The financial intermediary may allow the participating vendor to utilize the Company’s creditworthiness in establishing credit spreads and associated costs, which may provide the vendor with more favorable terms than they would be able to secure on their own. The Company does not provide guarantees related to the SCF program. At December 31, 2023, outstanding obligations confirmed as valid under the SCF program were $285 million ($267 million at December 31, 2022), included in “Accounts payable – Trade” in the consolidated balance sheets.
The following table summarizes the outstanding obligations confirmed as valid under the SCF program for the year ended December 31, 2023:
| Supplier Finance Program Activity | 2023 | |||||||
| In millions | ||||||||
| Confirmed obligations outstanding at Jan 1 | $ | 267 | ||||||
| Invoices confirmed to financial intermediary | 1,308 | |||||||
| Confirmed invoices paid to financial intermediary | (1,290) | |||||||
| Confirmed obligations outstanding at Dec 31 | $ | 285 |
Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $2,704 million and $2,575 million at December 31, 2023 and $2,770 million and $2,613 million at December 31, 2022, for Dow Inc. and TDCC, respectively. Accrued payroll, which is a component of "Accrued and other current liabilities" and includes liabilities related to payroll, performance-based compensation and severance, was $714 million at December 31, 2023 and $650 million at December 31, 2022. 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, 2023, 2022 and 2021:
| Supplemental Cash Flow Information | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Cash paid during year for: | |||||||||||
| Interest | $ | 800 | $ | 675 | $ | 801 | |||||
| Income taxes | $ | 735 | $ | 793 | $ | 731 |
NOTE 6 – 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, 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 (Credit) for Income Taxes | |||||||||||
| In millions | 2023 | 2022 | 2021 | ||||||||
| Income (loss) before income taxes | |||||||||||
| Domestic | $ | (602) | $ | 2,383 | $ | 1,523 | |||||
| Foreign | 1,258 | 3,707 | 6,622 | ||||||||
| Income before income taxes | $ | 656 | $ | 6,090 | $ | 8,145 | |||||
| Current tax expense (benefit) | |||||||||||
| Federal | $ | 249 | $ | 434 | $ | (46) | |||||
| State and local | 18 | 82 | 48 | ||||||||
| Foreign | 951 | 855 | 1,460 | ||||||||
| Total current tax expense | $ | 1,218 | $ | 1,371 | $ | 1,462 | |||||
| Deferred tax expense (benefit) | |||||||||||
| Federal | $ | (445) | $ | 63 | $ | 130 | |||||
| State and local | 3 | 1 | 26 | ||||||||
| Foreign | (780) | 15 | 122 | ||||||||
| Total deferred tax expense (benefit) | $ | (1,222) | $ | 79 | $ | 278 | |||||
| Provision (credit) for income taxes | $ | (4) | $ | 1,450 | $ | 1,740 | |||||
| Net income | $ | 660 | $ | 4,640 | $ | 6,405 |
| Reconciliation to U.S. Statutory Rate | 2023 | 2022 | 2021 | ||||||||
| Statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||
| Equity earnings effect | 4.2 | (1.2) | (2.2) | ||||||||
| Foreign income taxed at rates other than the statutory U.S. federal income tax rate | 8.3 | (1.4) | (1.3) | ||||||||
| U.S. tax effect of foreign earnings and dividends | (13.0) | 1.2 | 1.7 | ||||||||
| Unrecognized tax benefits | 33.1 | 1.3 | 4.7 | ||||||||
| Changes in valuation allowances | 18.8 | (2.8) | 2.6 | ||||||||
| Federal tax accrual adjustment | (21.2) | 0.6 | (5.3) | ||||||||
| State and local income taxes | 3.0 | 2.8 | 0.2 | ||||||||
| Change in tax basis in foreign assets 1 | (56.0) | — | — | ||||||||
| Other - net | 1.2 | 2.3 | — | ||||||||
| Effective tax rate | (0.6) | % | 23.8 | % | 21.4 | % |
1.The 2023 impact primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| Deferred Tax Balances at Dec 31 | 2023 | 2022 | ||||||||||||
| In millions | Assets | Liabilities | Assets | Liabilities | ||||||||||
| Property | $ | 404 | $ | 2,663 | $ | 505 | $ | 3,001 | ||||||
| Tax loss and credit carryforwards | 1,754 | — | 1,472 | — | ||||||||||
| Postretirement benefit obligations | 983 | 196 | 749 | 239 | ||||||||||
| Other accruals and reserves | 1,923 | 521 | 1,497 | 279 | ||||||||||
| Intangibles 1 | 2,090 | 331 | 36 | 415 | ||||||||||
| Inventory | 114 | 272 | 129 | 278 | ||||||||||
| Investments | 166 | 34 | 116 | 41 | ||||||||||
| Other – net | 733 | 115 | 999 | 131 | ||||||||||
| Subtotal | $ | 8,167 | $ | 4,132 | $ | 5,503 | $ | 4,384 | ||||||
| Valuation allowances 1 | (2,948) | — | (1,269) | — | ||||||||||
| Total | $ | 5,219 | $ | 4,132 | $ | 4,234 | $ | 4,384 |
1.The change in 2023 primarily represents the initial recognition of tax basis in intangible assets in foreign jurisdictions and the related valuation allowance.
| Operating Loss and Tax Credit Carryforwards at Dec 31 | 2023 | 2022 | ||||||
| In millions | Assets | Assets | ||||||
| Operating loss carryforwards | ||||||||
| Expire within 5 years | $ | 213 | $ | 158 | ||||
| Expire after 5 years or indefinite expiration | 727 | 752 | ||||||
| Total operating loss carryforwards | $ | 940 | $ | 910 | ||||
| Tax credit carryforwards | ||||||||
| Expire within 5 years | $ | 80 | $ | 77 | ||||
| Expire after 5 years or indefinite expiration | 317 | 96 | ||||||
| Total tax credit carryforwards | $ | 397 | $ | 173 | ||||
| Capital loss carryforwards | ||||||||
| Expire within 5 years | $ | 417 | $ | 389 | ||||
| Total tax loss and tax credit carryforwards | $ | 1,754 | $ | 1,472 |
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $7,148 million at December 31, 2023 and $6,013 million at December 31, 2022. Undistributed earnings are 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 | 2023 | 2022 | 2021 | ||||||||
| Total unrecognized tax benefits at Jan 1 | $ | 520 | $ | 580 | $ | 373 | |||||
| Decreases related to positions taken on items from prior years | (58) | (47) | (3) | ||||||||
| Increases related to positions taken on items from prior years | 89 | 53 | 187 | ||||||||
| Increases related to positions taken in the current year | 77 | 46 | 44 | ||||||||
| Settlement of uncertain tax positions with tax authorities | (109) | (111) | (18) | ||||||||
| Decreases due to expiration of statutes of limitations | (11) | — | (1) | ||||||||
| Foreign exchange loss (gain) | 5 | (1) | (2) | ||||||||
| Total unrecognized tax benefits at Dec 31 | $ | 513 | $ | 520 | $ | 580 | |||||
| Total unrecognized tax benefits that, if recognized, would impact the effective tax rate | $ | 513 | $ | 520 | $ | 501 | |||||
| Total amount of interest and penalties expense (benefit) recognized in "Provision for income taxes" | $ | 126 | $ | (27) | $ | 359 | |||||
| Total accrual for interest and penalties recognized in the consolidated balance sheets | $ | 561 | $ | 498 | $ | 502 |
The Company files tax returns in multiple jurisdictions. These returns are subject to examination and possible challenge by the tax authorities. Open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The ultimate resolution of such uncertainties is not expected to have a material impact on the Company's results of operations. The earliest open tax years are 2004 for state income taxes and 2007 for federal income taxes in the United States and 2011 for taxes in foreign jurisdictions.
NOTE 7 - EARNINGS PER SHARE CALCULATIONS
The following tables provide earnings per share calculations of Dow Inc. for the years ended December 31, 2023, 2022 and 2021. In accordance with the accounting guidance for earnings per share, earnings per share of TDCC is not presented as this information is not required in financial statements of wholly owned subsidiaries.
| Net Income for Earnings Per Share Calculations | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Net income | $ | 660 | $ | 4,640 | $ | 6,405 | |||||
| Net income attributable to noncontrolling interests | 71 | 58 | 94 | ||||||||
| Net income attributable to participating securities 1 | 11 | 24 | 32 | ||||||||
| Net income attributable to common stockholders | $ | 578 | $ | 4,558 | $ | 6,279 |
1.Restricted stock units are considered participating securities due to the Company's practice of paying dividend equivalents on unvested shares.
| Earnings Per Share - Basic and Diluted | 2023 | 2022 | 2021 | ||||||||
| Dollars per share | |||||||||||
| Earnings per common share - basic | $ | 0.82 | $ | 6.32 | $ | 8.44 | |||||
| Earnings per common share - diluted | $ | 0.82 | $ | 6.28 | $ | 8.38 |
| Share Count Information | 2023 | 2022 | 2021 | ||||||||
| Shares in millions | |||||||||||
| Weighted-average common shares outstanding - basic | 705.7 | 721.0 | 743.6 | ||||||||
| Plus dilutive effect of equity compensation plans | 3.3 | 4.6 | 5.4 | ||||||||
| Weighted-average common shares outstanding - diluted | 709.0 | 725.6 | 749.0 | ||||||||
| Stock options and restricted stock units excluded from EPS calculations 1 | 9.6 | 7.6 | 5.8 |
1.These outstanding options to purchase shares of common stock and restricted stock units were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.
NOTE 8 – INVENTORIES
The following table provides a breakdown of inventories:
| Inventories at Dec 31 | ||||||||
| In millions | 2023 | 2022 | ||||||
| Finished goods | $ | 3,413 | $ | 4,150 | ||||
| Work in process | 1,234 | 1,476 | ||||||
| Raw materials | 746 | 954 | ||||||
| Supplies | 992 | 892 | ||||||
| Total | $ | 6,385 | $ | 7,472 | ||||
| Adjustment of inventories to the LIFO basis | (309) | (484) | ||||||
| Total inventories | $ | 6,076 | $ | 6,988 |
At December 31, 2023, approximately 29 percent, 60 percent and 11 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively. At December 31, 2022, approximately 27 percent, 64 percent and 9 percent of the Company's inventories were accounted for under the LIFO, FIFO and average cost methods, respectively.
NOTE 9 – PROPERTY
The following table provides a breakdown of property:
| Property at Dec 31 | Estimated Useful Lives (Years) | 2023 | 2022 | ||||||||
| In millions | |||||||||||
| Land and land improvements | 0-25 | $ | 2,218 | $ | 2,129 | ||||||
| Buildings | 5-50 | 5,216 | 5,045 | ||||||||
| Machinery and equipment | 3-25 | 43,343 | 42,131 | ||||||||
| Other property | 3-50 | 6,865 | 6,622 | ||||||||
| Construction in progress | — | 2,561 | 2,128 | ||||||||
| Total property | $ | 60,203 | $ | 58,055 |
| In millions | 2023 | 2022 | 2021 | ||||||||
| Depreciation expense | $ | 1,932 | $ | 1,958 | $ | 2,063 | |||||
| Capitalized interest | $ | 88 | $ | 63 | $ | 59 |
NOTE 10 – NONCONSOLIDATED AFFILIATES
The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”), by classification in the consolidated balance sheets, and dividends received from nonconsolidated affiliates are shown in the following tables:
| Investments in Nonconsolidated Affiliates at Dec 31 | 2023 1 | 2022 1 | ||||||
| In millions | ||||||||
| Investment in nonconsolidated affiliates | $ | 1,267 | $ | 1,589 | ||||
| Other noncurrent obligations | (229) | (144) | ||||||
| Net investment in nonconsolidated affiliates | $ | 1,038 | $ | 1,445 |
1.The carrying amount of the Company’s investments in nonconsolidated affiliates at December 31, 2023 and 2022, was $55 million less than its share of the investees’ net assets, exclusive of additional differences relating to Sadara, EQUATE Petrochemical Company K.S.C.C. ("EQUATE") and AgroFresh Solutions Inc. ("AFSI"), which are discussed separately in the disclosures that follow.
| Dividends Received from Nonconsolidated Affiliates | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Dividends from nonconsolidated affiliates 1 | $ | 268 | $ | 964 | $ | 324 |
1.Included in "Earnings of nonconsolidated affiliates less than (in excess of) dividends received" in the consolidated statements of cash flows.
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 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara’s finished products to levels more consistent with each partner’s equity ownership, which is being implemented through 2026. This transition will not impact equity earnings, but is expected to reduce the Company's sales of Sadara products over the five year period.
The Company’s investment in Sadara was $1,387 million less than Dow’s proportionate share of the carrying value of the underlying net assets held by Sadara at December 31, 2023 ($1,464 million less at December 31, 2022). This basis difference, which resulted from the 2019 impairment of the investment, is primarily attributed to the long-lived assets of Sadara and is being amortized over the remaining useful lives of the assets. At December 31, 2023, the Company had a negative investment balance in Sadara of $128 million classified as "Other noncurrent obligations" ($322 million at December 31, 2022 included in “Investment in nonconsolidated affiliates”) in the Company’s consolidated balance sheets. See Note 14 for additional information related to guarantees.
EQUATE
At December 31, 2023, the Company had a negative investment balance in EQUATE of $101 million classified as "Other noncurrent obligations" ($144 million at December 31, 2022) in the consolidated balance sheets. The Company's investment in EQUATE was $432 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 2023 ($447 million less at December 31, 2022), 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 $111 million at December 31, 2023 ($126 million at December 31, 2022), is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.
AFSI
At March 31, 2023, the Company's previously impaired investment in AFSI was converted to cash upon completion of the AFSI shareholder-approved go-private transaction. The Company had an investment balance in AFSI of zero at December 31, 2023 and 2022. At December 31, 2022, the Company's investment in AFSI was $72 million less than the Company's proportionate share of AFSI's underlying net assets. At December 31, 2023, the Company held no ownership interest in AFSI (40 percent ownership interest in AFSI at December 31, 2022).
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 2023, 2022 and 2021. Sales of ethylene to MEGlobal are reflected in the Packaging & Specialty Plastics segment and represented 2 percent of the segment's sales in 2023, 2022 and 2021. Sales of ethylene glycol to MEGlobal are reflected in the Industrial Intermediates & Infrastructure segment and represented 1 percent of the segment's sales in 2023, 2022 and 2021.
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 6 percent of "Cost of sales" in 2023 (7 percent in 2022 and 9 percent in 2021).
The Company purchases products from The SCGC-Dow Group, primarily for marketing and distribution in Asia Pacific. Purchases of products from The SCGC-Dow Group represented 3 percent of "Cost of sales" in 2023, 2022 and 2021.
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, 2023 and 2022, were as follows:
| Balances Due To or Due From Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 | ||||||
| In millions | ||||||||
| Accounts and notes receivable - Other | $ | 189 | $ | 307 | ||||
| Accounts payable - Other | $ | 823 | $ | 1,083 | ||||
Principal Nonconsolidated Affiliates
The Company had an ownership interest in 38 nonconsolidated affiliates at December 31, 2023 (37 at December 31, 2022). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 2023, 2022 and 2021, are as follows:
| Principal Nonconsolidated Affiliates at Dec 31 | Country | Ownership Interest | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||
| EQUATE Petrochemical Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % | |||||||
| The Kuwait Olefins Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % | |||||||
| The Kuwait Styrene Company K.S.C.C. | Kuwait | 42.50 | % | 42.50 | % | 42.50 | % | |||||||
| Map Ta Phut Olefins Company Limited 1 | Thailand | 32.77 | % | 32.77 | % | 32.77 | % | |||||||
| Sadara Chemical Company | Saudi Arabia | 35.00 | % | 35.00 | % | 35.00 | % | |||||||
| The SCGC-Dow Group: | ||||||||||||||
| Siam Polyethylene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % | |||||||
| Siam Polystyrene Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % | |||||||
| Siam Styrene Monomer Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % | |||||||
| Siam Synthetic Latex Company Limited | Thailand | 50.00 | % | 50.00 | % | 50.00 | % | |||||||
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 12.50 percent through its equity interest in Siam Polyethylene Company Limited.
The Company’s investment in and equity earnings from its principal nonconsolidated affiliates are as follows:
| Investment in Principal Nonconsolidated Affiliates at Dec 31 | 2023 | 2022 | ||||||
| In millions | ||||||||
| Investment in principal nonconsolidated affiliates | $ | 754 | $ | 1,116 | ||||
| Other noncurrent obligations | (229) | (144) | ||||||
| Net investment in principal nonconsolidated affiliates | $ | 525 | $ | 972 |
| Equity in Earnings (Losses) of Principal Nonconsolidated Affiliates | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Equity in earnings (losses) of principal nonconsolidated affiliates | $ | (192) | $ | 192 | $ | 918 |
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 | 2023 | 2022 | ||||||
| In millions | ||||||||
| Current assets | $ | 4,904 | $ | 6,241 | ||||
| Noncurrent assets | 21,832 | 22,526 | ||||||
| Total assets | $ | 26,736 | $ | 28,767 | ||||
| Current liabilities | $ | 3,490 | $ | 3,754 | ||||
| Noncurrent liabilities | 18,794 | 18,999 | ||||||
| Total liabilities | $ | 22,284 | $ | 22,753 | ||||
| Noncontrolling interests | $ | 157 | $ | 223 |
| Summarized Income Statement Information 1 | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Sales | $ | 11,102 | $ | 14,026 | $ | 14,969 | |||||
| Gross profit | $ | 289 | $ | 1,246 | $ | 3,219 | |||||
| Income (loss), net of tax | $ | (1,053) | $ | (91) | $ | 2,013 |
1.The results in this table include purchase and sale activity between certain principal nonconsolidated affiliates and the Company, as previously discussed in the "Transactions with Nonconsolidated Affiliates" section.
NOTE 11 – 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, 2023 and 2022:
| Goodwill | Packaging & Specialty Plastics | Industrial Intermediates & Infrastructure | Performance Materials & Coatings | Total | ||||||||||
| In millions | ||||||||||||||
| Balance at Jan 1, 2022 | $ | 5,105 | $ | 1,096 | $ | 2,563 | $ | 8,764 | ||||||
| Foreign currency impact | (5) | (3) | (112) | (120) | ||||||||||
| Balance at Dec 31, 2022 | $ | 5,100 | $ | 1,093 | $ | 2,451 | $ | 8,644 | ||||||
| Foreign currency impact | 3 | 1 | (7) | (3) | ||||||||||
| Balance at Dec 31, 2023 | $ | 5,103 | $ | 1,094 | $ | 2,444 | $ | 8,641 |
At December 31, 2023, goodwill was carried by all reporting units except Coatings & Performance Monomers.
Goodwill Impairments
The carrying amounts of goodwill at December 31, 2023 and 2022, were net of accumulated impairments of $309 million in Industrial Intermediates & Infrastructure and $2,530 million in Performance Materials & Coatings.
Goodwill Impairment Testing
The Company performs an impairment test of goodwill annually in the fourth quarter. In 2023, the Company performed qualitative testing for all reporting units that carried goodwill. Based on the results of the qualitative testing, the Company did not perform quantitative testing on any reporting units in 2023, 2022, and 2021. The qualitative testing on the reporting units indicated that it was not more likely than not that fair value was less than the carrying value for the reporting units.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:
| Other Intangible Assets at Dec 31 | 2023 | 2022 | ||||||||||||||||||
| In millions | Gross Carrying Amount | Accum Amort | Net | Gross Carrying Amount | Accum Amort | Net | ||||||||||||||
| Intangible assets: | ||||||||||||||||||||
| Developed technology | $ | 2,634 | $ | (2,181) | $ | 453 | $ | 2,651 | $ | (2,025) | $ | 626 | ||||||||
| Software | 1,352 | (981) | 371 | 1,358 | (962) | 396 | ||||||||||||||
| Trademarks/tradenames | 352 | (346) | 6 | 352 | (345) | 7 | ||||||||||||||
| Customer-related | 3,108 | (1,866) | 1,242 | 3,103 | (1,690) | 1,413 | ||||||||||||||
| Total other intangible assets | $ | 7,446 | $ | (5,374) | $ | 2,072 | $ | 7,464 | $ | (5,022) | $ | 2,442 |
The following table provides information regarding amortization expense related to intangible assets:
| Amortization Expense | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Other intangible assets, excluding software | $ | 324 | $ | 336 | $ | 388 | |||||
| Software, included in "Cost of sales" | $ | 70 | $ | 80 | $ | 90 |
Total estimated amortization expense for the next five fiscal years, including amounts expected to be capitalized, is as follows:
| Estimated Amortization Expense for Next Five Years | |||||
| In millions | |||||
| 2024 | $ | 379 | |||
| 2025 | $ | 288 | |||
| 2026 | $ | 213 | |||
| 2027 | $ | 178 | |||
| 2028 | $ | 157 |
NOTE 12 – TRANSFERS OF FINANCIAL ASSETS
Accounts Receivable Programs
The Company maintains accounts receivable facilities with various financial institutions, with committed and uncommitted facilities in the United States and a committed accounts receivable facility in Europe (collectively, "the Programs"), which are both set to expire in November 2025. Under the terms of the Programs, the Company may sell certain eligible trade accounts receivable at any point in time, up to $900 million for the U.S. committed facility, and €500 million for the Europe committed facility. Under the terms of the Programs, the Company continues to service the receivables from the customer, but retains no interest in the receivables, and remits payment to the financial institutions. The Company also provides a guarantee to the financial institutions for the creditworthiness and collection of the receivables in satisfaction of the facility. See Note 14 for additional information related to guarantees. In 2023, the Company sold $112 million of receivables under the Programs ($391 million in 2022).
Beginning in 2023, the Company has access to an accounts receivable discounting facility that covers receivables generated from sales in EMEAI. Under the terms of the discounting facility, the Company retains no interest in the transferred receivables once sold and receivables are transferred with limited recourse. In 2023, the Company sold $91 million of receivables into the facility.
NOTE 13 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
| Notes Payable at Dec 31 | ||||||||
| In millions | 2023 | 2022 | ||||||
| Commercial paper | $ | — | $ | 299 | ||||
| Notes payable to banks and other lenders | 62 | 63 | ||||||
| Total notes payable | $ | 62 | $ | 362 | ||||
| Year-end average interest rates 1 | 33.84 | % | 6.55 | % |
1.The average interest rate increase from 2022 to 2023 is primarily due to interest rates in Argentina.
| Long-Term Debt at Dec 31 | 2023 Average Rate | 2023 | 2022 Average Rate | 2022 | ||||||||||
| In millions | ||||||||||||||
| Promissory notes and debentures: | ||||||||||||||
| Final maturity 2023 | — | % | $ | — | 7.63 | % | $ | 250 | ||||||
| Final maturity 2025 | 5.63 | % | 333 | 5.63 | % | 333 | ||||||||
| Final maturity 2028 | 4.80 | % | 600 | 4.80 | % | 600 | ||||||||
| Final maturity 2029 and thereafter 1 | 5.40 | % | 10,228 | 5.39 | % | 10,264 | ||||||||
| Other facilities: | ||||||||||||||
| Foreign currency notes and loans, various rates and maturities | 1.18 | % | 2,653 | 1.16 | % | 2,562 | ||||||||
| InterNotes®, varying maturities through 2053 | 4.12 | % | 595 | 3.87 | % | 543 | ||||||||
| Finance lease obligations 2 | 873 | 790 | ||||||||||||
| Unamortized debt discount and issuance costs | (258) | (282) | ||||||||||||
| Long-term debt due within one year 3 | (117) | (362) | ||||||||||||
| Long-term debt | $ | 14,907 | $ | 14,698 |
1.Cost includes net fair value hedge adjustment gains of $49 million at December 31, 2023 ($46 million at December 31, 2022). See Note 20 for additional information.
2.See Note 15 for additional information.
3.Presented net of current portion of unamortized debt issuance costs.
| Maturities of Long-Term Debt for Next Five Years at Dec 31, 2023 | |||||
| In millions | |||||
| 2024 | $ | 115 | |||
| 2025 | $ | 443 | |||
| 2026 | $ | 120 | |||
| 2027 | $ | 1,261 | |||
| 2028 | $ | 683 |
2023 Activity
In the fourth quarter of 2023, the Company redeemed $23 million aggregate principal amount of 2.100 percent notes due November 2030, $14 million aggregate principal amount of 4.625 percent notes due October 2044, and $1 million aggregate principal amount of 4.375 percent notes due November 2042. As a result of the redemption, the Company recognized a pretax gain on the early extinguishment of debt of $5 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In 2023, the Company issued an aggregate principal amount of $80 million of InterNotes®. Additionally, the Company repaid $250 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2022 Activity
In the second quarter of 2022, the Company redeemed $750 million aggregate principal amount of 3.625 percent notes due May 2026. As a result of the redemption, the Company recognized a pretax loss on the early extinguishment of debt of $8 million, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In the fourth quarter of 2022, the Company issued $1.5 billion of senior unsecured notes. The offering included $600 million aggregate principal amount of 6.30 percent notes due 2033 and $900 million aggregate principal amount of 6.90 percent notes due 2053.
In 2022, the Company issued an aggregate principal amount of $167 million of InterNotes®. Additionally, the Company repaid $121 million of long-term debt at maturity and approximately $3 million of long-term debt was repaid by consolidated variable interest entities.
2021 Activity
In the second quarter of 2021, the Company redeemed $208 million aggregate principal amount of 3.15 percent notes due May 2024 and $811 million aggregate principal amount of 3.50 percent notes due October 2024. As a result of the redemptions, the Company recognized a pretax loss of $101 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate.
In the third quarter of 2021, the Company completed cash tender offers for certain debt securities. In total, $1,042 million aggregate principal amount was tendered and retired. As a result, the Company recognized a pretax loss of $472 million on the early extinguishment of debt, included in "Sundry income (expense) – net" in the consolidated statements of income and related to Corporate. In addition, the Company voluntarily repaid $81 million of long-term debt due within one year.
In 2021, the Company issued an aggregate principal amount of $109 million of InterNotes®, and redeemed an aggregate principal amount of $31 million at maturity. In addition, the Company voluntarily repaid an aggregate principal amount of $213 million of InterNotes® with various maturities. As a result, the Company recognized a pretax loss of $1 million on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and related to Corporate. Additionally, the Company repaid $259 million of long-term debt at maturity and approximately $25 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, 2023 | |||||||||||||||||
| In millions | Committed Credit | Credit Available | Maturity Date | Interest | |||||||||||||
| Five Year Competitive Advance and Revolving Credit Facility | $ | 5,000 | $ | 5,000 | November 2028 | Floating rate | |||||||||||
| Bilateral Revolving Credit Facility | 375 | 375 | October 2024 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | March 2025 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | March 2025 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 200 | 200 | September 2025 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 175 | 175 | September 2025 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 300 | 300 | November 2025 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 300 | 300 | February 2026 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | March 2026 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 150 | 150 | November 2026 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 200 | 200 | November 2026 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 250 | 250 | March 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | May 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 350 | 350 | June 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 200 | 200 | September 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | October 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 100 | 100 | November 2027 | Floating rate | |||||||||||||
| Bilateral Revolving Credit Facility | 300 | 300 | May 2028 | Floating rate | |||||||||||||
| Total Committed and Available Credit Facilities | $ | 8,400 | $ | 8,400 |
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 $600 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 0.70 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement") dated November 23, 2021, 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.
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 14 – COMMITMENTS AND CONTINGENCIES
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, 2023, the Company had accrued obligations of $1,180 million for probable environmental remediation and restoration costs ($1,192 million at December 31, 2022), including $241 million for the remediation of Superfund sites ($244 million at December 31, 2022). This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company’s results of operations, financial condition and cash flows. It is the opinion of the Company’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Company’s results of operations, financial condition 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.
The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 2023 and 2022:
| Accrued Obligations for Environmental Matters | 2023 | 2022 | ||||||
| In millions | ||||||||
| Balance at Jan 1 | $ | 1,192 | $ | 1,220 | ||||
| Accrual adjustment | 211 | 184 | ||||||
| Payments against reserve | (229) | (204) | ||||||
| Foreign currency impact | 6 | (8) | ||||||
| Balance at Dec 31 | $ | 1,180 | $ | 1,192 |
The amounts charged to income on a pretax basis related to environmental remediation totaled $203 million in 2023, $176 million in 2022 and $158 million in 2021. Capital expenditures for environmental protection were $228 million in 2023, $137 million in 2022 and $65 million in 2021.
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 as river levels allow. 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. In 2023, Dow started evaluation of the final geographic segment of the first Operable Unit. Dow also has entered into a separate order to perform a limited remedial action for certain properties located within the second Operable Unit. In 2022, the Company implemented the limited remedial action in the second Operable Unit and, in 2023, submitted a Completion Report for those limited remedial actions.
Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice 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 July 20, 2020, the U.S. District Court for the Eastern District of Michigan ("District Court") entered a final consent decree in 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. The consent decree required the Company to pay a $15 million cash settlement to be used for long-term maintenance and trustee-selected remediation projects with an additional $7 million to specified local projects managed by third parties. These funds were paid in December 2020. The consent decree further requires the Company to complete or fund 13 additional environmental restoration projects which are valued by the trustees at approximately $77 million, to be conducted over the next several years. To date, three projects have been completed, including two environmental restoration projects/public amenities opened to the public. The Company continues to work with the trustees on the remaining projects.
At December 31, 2023, the accrual for these off-site matters was $89 million (included in the total accrued obligation of $1,180 million). At December 31, 2022, the Company had an accrual for these off-site matters of $92 million (included in the total accrued obligation of $1,192 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
Union Carbide has engaged Ankura Consulting Group, LLC ("Ankura") to perform periodic studies to estimate 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. 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. At each balance sheet date, Union Carbide also compares current asbestos claim and resolution activity, including asbestos-related defense and processing costs, to the results of the most recent Ankura study to determine whether the accrual continues to be appropriate.
In December 2021, Ankura stated that an update of its December 2020 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that 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 2022, Ankura completed a study of Union Carbide's historical asbestos claim and resolution activity through September 30, 2022, 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, 2022, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $947 million, and approximately 23 percent of the recorded liability related to pending claims and approximately 77 percent related to future claims.
In December 2023, Ankura stated that an update of its December 2022 study would not provide a more likely estimate of future events than the estimate reflected in that study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's internal review process and Ankura's response, Union Carbide determined that no adjustment to the accrual was required. At December 31, 2023, the asbestos-related liability for pending and future claims against Union Carbide and Amchem, including future asbestos-related defense and processing costs, was $867 million, and approximately 25 percent of the recorded liability related to pending claims and approximately 75 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.
Groundwater Contamination
The Company is the subject of various complaints related to alleged groundwater contamination based on decades-old sales and applications of certain agricultural chemical products ("Legacy Liabilities"). The costs associated with these Legacy Liabilities were previously covered by insurance policies that have since been depleted. In the first quarter of 2023, the Company completed a study of the Legacy Liabilities now deemed to be probable and estimable based on the public reporting of sampling data and historical information to develop a reasonable estimate of the cost of pending and future claims. As a result, the Company recorded a pretax charge of $177 million, included in "Cost of sales" in the consolidated statements of income and related to Industrial Intermediates & Infrastructure. At December 31, 2023, the total liability related to such alleged Legacy Liabilities settlements was $232 million, which was included in “Accrued and other current liabilities” and "Other noncurrent obligations" in the consolidated balance sheets.
The Company is also the subject of other groundwater contamination complaints, including claims related to1,4-dioxane. The Company continues to defend itself in this litigation and it has determined that the Company's exposure to liability, if any, is not currently probable or estimable.
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 Incorporated ("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, 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 billion between May 31, 2018 and May 31, 2023, and no recoveries are permitted on claims initially submitted after May 31, 2023. The Company had indemnification assets of $100 million at December 31, 2023 ($98 million at December 31, 2022), which was included in "Other current assets" and "Noncurrent receivables" in the consolidated balance sheets.
Gain Contingency - Dow v. Nova Chemicals Corporation Patent Infringement Matter
In December 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 ("Canadian Supreme Court"), which dismissed Nova’s petition in April 2017. As a result, Nova exhausted all appeal rights on the merits, and it was undisputed that Nova owed the Company the profits it earned from its infringing sales as determined in the trial for the damages phase.
In April 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. In June 2017, the Federal Court ordered Nova to pay $645 million Canadian dollars to the Company, plus pre- and post-judgment interest, for which the Company received payment equivalent to $501 million U.S. dollars in July 2017. Although Nova was appealing portions of the damages judgment, certain portions of it were indisputable and could be retained by the Company regardless of the outcome of any further appeals by Nova. As a result of these actions and in accordance with ASC Topic 450-30 "Gain Contingencies," the Company recorded a $160 million pretax gain in the second quarter of 2017.
On September 15, 2020, the Canadian Federal Court of Appeal dismissed Nova's appeal of the damages judgment, thus affirming the trial court's decision in its entirety. In November 2020, Nova filed an application for leave to appeal this decision to the Canadian Supreme Court. In November 2022, the Canadian Supreme Court dismissed Nova's appeal, thereby exhausting all of Nova's appeal rights for the damages judgment. As a result, the Company recorded a pretax gain of $341 million in the fourth quarter of 2022 for the previously disputed portion of the damages judgment, of which $321 million was included in "Sundry income (expense) - net," related to Packaging & Specialty Plastics, and $20 million was included in "Selling, general and administrative expenses" in the consolidated statements of income.
Gain Contingency - Dow v. Nova Chemicals Corporation Ethylene Asset Matter
On September 18, 2019, the Court of the King'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, which has been received by the Company. The Court of the King's Bench in Alberta, Canada, 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 deprived the Company of millions of pounds of ethylene. Nova appealed the judgment; however, certain portions were no longer in dispute and would be retained by the Company regardless of the outcome of any further appeals by Nova. As a result and in accordance with ASC Topic 450-30 “Gain Contingencies,” the Company recorded a $186 million pretax gain in 2019. In 2020 and 2023, further actions by Nova and/or related court decisions upholding the majority of Dow's damages made additional portions of the ruling in Dow's favor final and no longer subject to dispute. As a result, the Company recorded additional pretax gains of $570 million in 2020 and $122 million in 2023. In 2023, $106 million of the pretax gain was included in "Sundry income (expense) - net," related to Packaging & Specialty Plastics, and $16 million was included in "Selling, general and administrative expenses" in the consolidated statements of income.
At December 31, 2023, $201 million ($323 million at December 31, 2022) was included in "Other noncurrent obligations" in the Company's consolidated balance sheets related to the disputed portion of the damages judgment. Dow continues to seek an award of additional damages for the period from 2013 through 2018 to account for the ethylene shortfall during those years. The damages hearing that began in the trial court in November 2021 to resolve the impact of the appellate ruling and quantify Dow's damages for the 2013-2018 period has concluded; the parties are awaiting the court's ruling. Dow has also filed a new lawsuit in the same Alberta, Canada court to account for damages due to lost ethylene after June 2018.
Luxi Chemical Group Breach of Contract Matter
In November 2017, an arbitration panel of the Stockholm Chamber of Commerce held that Luxi Chemical Group Co., Ltd. (“Luxi”), based in Shandong Province, China, violated a secrecy and non-use agreement related to the Dow and Johnson Matthey Davy Technologies Limited (“JM”) LP OXOSM Process by using Dow and JM protected information in the design, construction, and operation of its butanol and 2-ethylhexanol plants, awarding damages, fees and costs, plus interest, to both Dow and JM. In September 2021, Luxi paid the arbitration award and interest assessment and, as a result, Dow recorded a pretax gain of $54 million included in “Sundry income (expense) – net” in the consolidated statements of income and related to Industrial Intermediates & Infrastructure.
Brazilian Tax Credits
In March 2017, the Federal Supreme Court of Brazil (“Brazil Supreme Court”) ruled in a leading case that a Brazilian value-added tax ("ICMS") should not be included in the base used to calculate a taxpayer's federal contribution on total revenue known as PIS/COFINS (the “2017 Decision”). Previously, three of the Company’s Brazilian subsidiaries filed lawsuits challenging the inclusion of ICMS in their calculation of PIS/COFINS, seeking recovery of excess taxes paid. In response to the 2017 Decision, the Brazilian tax authority filed an appeal seeking clarification of the amount of ICMS tax to exclude from the calculation of PIS/COFINS. In May 2021, the Brazil Supreme Court ruled in a leading case related to the amount of ICMS tax to exclude from the calculation of PIS/COFINS, which resolved two of the lawsuits filed by the Company and, in May 2022, a court decision related to the remaining lawsuit, ruling in favor of the Company's Brazilian subsidiary, became final and unappealable. As a result, the Company recorded pretax gains of $112 million in 2022 and $67 million in 2021 for certain excess PIS/COFINS paid from 2009 to 2019, plus applicable interest, which the Company expects to apply to future required federal tax payments, and the reversal of related liabilities. The pretax gains were recorded in “Cost of sales” in the consolidated statements of income. At December 31, 2023, related tax credits available and expected to be applied to future required federal tax payments totaled $114 million ($126 million at December 31, 2022).
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, 2023 and 2022.
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, 2023 | Dec 31, 2022 | ||||||||||||||||||
| In millions | Final Expiration | Maximum Future Payments 1 | Recorded Liability | Final Expiration | Maximum Future Payments 1 | Recorded Liability | ||||||||||||||
| Guarantees | 2038 | $ | 1,385 | $ | 196 | 2038 | $ | 1,236 | $ | 200 | ||||||||||
1.In addition, TDCC has provided guarantees, in proportion to the Company's 35 percent ownership interest, of all future interest payments that will become due on Sadara’s project financing debt during the grace period, which Dow's share is estimated to be $298 million at December 31, 2023 ($393 million at December 31, 2022). The Company does not expect to be required to perform under the guarantees.
Guarantees arise during the ordinary course of business from relationships with customers, committed accounts receivable facilities and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to 15 years. The
Company’s current expectation is that future payment or performance related to the non-performance of others is considered remote.
TDCC has entered into guarantee agreements related to Sadara, a nonconsolidated affiliate. Sadara reached an agreement with its lenders to re-profile its outstanding project financing debt in the first quarter of 2021. In conjunction with the debt re-profiling, TDCC entered into a guarantee of up to approximately $1.3 billion of Sadara’s debt, proportionate to the Company's 35 percent ownership interest. The debt re-profiling includes a grace period until June 2026, during which Sadara is obligated to make interest-only payments which are guaranteed by TDCC in proportion to the Company's 35 percent ownership interest. As part of the debt re-profiling, Sadara established a $500 million revolving credit facility guaranteed by Dow, which would be used to fund Dow’s pro-rata share of any potential shortfall during the grace period. See Note 10 for additional information on Dow's investment in Sadara.
Asset Retirement Obligations
The Company has 98 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 demolition and remediation activities at manufacturing sites primarily in Europe, the United States, Canada, Japan, Brazil, China, Singapore and United Arab Emirates, and capping activities at landfill sites in the United States, Brazil and Canada. 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 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 $21 million at December 31, 2023 ($11 million at December 31, 2022).
The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 2023 and 2022:
| Asset Retirement Obligations | 2023 | 2022 | ||||||
| In millions | ||||||||
| Balance at Jan 1 | $ | 119 | $ | 118 | ||||
| Additional accruals | 26 | 14 | ||||||
| Liabilities settled | (2) | (8) | ||||||
| Accretion expense | 3 | 2 | ||||||
| Revisions in estimated cash flows | 1 | (9) | ||||||
| Other | (7) | 2 | ||||||
| Balance at Dec 31 | $ | 140 | $ | 119 |
The discount rate used to calculate the Company’s asset retirement obligations at December 31, 2023, was 5.07 percent (5.53 percent at December 31, 2022). 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 35 underground storage wells and 129 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 15 - 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, 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 51 years. See Note 1 for additional information on leases.
The components of lease cost for operating and finance leases for the years ended December 31, 2023, 2022 and 2021, were as follows:
| Lease Cost | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Operating lease cost | $ | 426 | $ | 397 | $ | 494 | |||||
| Finance lease cost | |||||||||||
| Amortization of right-of-use assets - finance | 106 | 105 | 76 | ||||||||
| Interest on lease liabilities - finance | 34 | 32 | 27 | ||||||||
| Total finance lease cost | 140 | 137 | 103 | ||||||||
| Short-term lease cost | 255 | 255 | 238 | ||||||||
| Variable lease cost | 929 | 611 | 381 | ||||||||
| Sublease income | (9) | (10) | (6) | ||||||||
| Total lease cost | $ | 1,741 | $ | 1,390 | $ | 1,210 |
The following table provides supplemental cash flow and other information related to leases:
| Other Lease Information | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows for operating leases | $ | 424 | $ | 393 | $ | 497 | |||||
| Operating cash flows for finance leases | $ | 34 | $ | 32 | $ | 27 | |||||
| Financing cash flows for finance leases | $ | 127 | $ | 114 | $ | 74 | |||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases 1 | $ | 309 | $ | 151 | $ | (25) | |||||
| Finance leases 1 | $ | 234 | $ | 62 | $ | 512 |
1.In 2023, $98 million of leased assets were reclassified from Operating leases to Finance leases due to an amendment that extended the term of the agreement. In 2021, $193 million of leased assets were reclassified from Operating leases to Finance leases due to an amendment that extended the term of the agreement.
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at December 31, 2023 and 2022:
| Lease Position | Balance Sheet Classification | Dec 31, 2023 | Dec 31, 2022 | ||||||||
| In millions | |||||||||||
| Assets | |||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ | 1,320 | $ | 1,227 | ||||||
| Finance lease assets | Property | 1,328 | 1,167 | ||||||||
| Finance lease amortization | Accumulated depreciation | (538) | (441) | ||||||||
| Total lease assets | $ | 2,110 | $ | 1,953 | |||||||
| Liabilities | |||||||||||
| Current | |||||||||||
| Operating | Operating lease liabilities - current | $ | 329 | $ | 287 | ||||||
| Finance | Long-term debt due within one year | 117 | 109 | ||||||||
| Noncurrent | |||||||||||
| Operating | Operating lease liabilities - noncurrent | 1,032 | 997 | ||||||||
| Finance | Long-Term Debt | 756 | 681 | ||||||||
| Total lease liabilities | $ | 2,234 | $ | 2,074 |
In 2023, the Company amended an agreement to extend leases of certain assets. The amendment and related remeasurement resulted in a reclassification of $47 million from "Operating lease liabilities - noncurrent" to "Long-Term Debt" and $10 million from "Operating lease liabilities - current" to "Long-term debt due within one year." In addition to the reclassifications, the amendment increased "Long-Term Debt" by $61 million and decreased "Long-term debt due within one year" by $4 million.
The weighted-average remaining lease term and discount rate for leases recorded in the consolidated balance sheets at December 31, 2023 and 2022 are provided below:
| Lease Term and Discount Rate | Dec 31, 2023 | Dec 31, 2022 | ||||||
| Weighted-average remaining lease term | ||||||||
| Operating leases | 6.9 years | 7.6 years | ||||||
| Finance leases | 10.5 years | 11.0 years | ||||||
| Weighted-average discount rate | ||||||||
| Operating leases | 4.82 | % | 4.49 | % | ||||
| Finance leases | 4.84 | % | 4.29 | % |
The following table provides the maturities of lease liabilities at December 31, 2023:
| Maturities of Lease Liabilities | Operating Leases | Finance Leases | ||||||
| In millions | ||||||||
| 2024 | $ | 378 | $ | 153 | ||||
| 2025 | 287 | 144 | ||||||
| 2026 | 225 | 96 | ||||||
| 2027 | 174 | 88 | ||||||
| 2028 | 135 | 82 | ||||||
| 2029 and thereafter | 421 | 545 | ||||||
| Total future undiscounted lease payments | $ | 1,620 | $ | 1,108 | ||||
| Less: Imputed interest | 259 | 235 | ||||||
| Total present value of lease liabilities | $ | 1,361 | $ | 873 |
At December 31, 2023, Dow had additional leases of approximately $359 million, primarily for buildings and equipment, which had not yet commenced. These leases are expected to commence between 2024 and 2026, with lease terms of up to 20 years.
Dow provides guarantees related to certain leased assets, specifying the residual value that will be available to the lessor at lease termination through the sale of the assets to the lessee or third parties. The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for residual value guarantees at December 31, 2023 and 2022. The lease agreements do not contain any material restrictive covenants.
| Lease Guarantees | Dec 31, 2023 | Dec 31, 2022 | ||||||||||||||||||
| In millions | Final Expiration | Maximum Future Payments | Recorded Liability | Final Expiration | Maximum Future Payments | Recorded Liability | ||||||||||||||
| Residual value guarantees | 2031 | $ | 295 | $ | — | 2031 | $ | 258 | $ | — |
NOTE 16 – STOCKHOLDERS’ EQUITY
Common Stock
The principal market for Dow Inc.'s common stock is the New York Stock Exchange, traded under the symbol “DOW.” Dow Inc. is the direct parent company of The Dow Chemical Company and its consolidated subsidiaries, ("TDCC" and together with Dow Inc., "Dow" or the "Company"), owning all of the outstanding common shares of TDCC.
The Company may issue shares of Dow Inc. common stock out of treasury stock or as new shares of common stock for options exercised and for the release of restricted stock units ("RSUs"), performance stock units ("PSUs"), the Employee Stock Purchase Plan ("ESPP") and the Employees' Savings Plan (the "Savings Plan"). Common stock shares issued to employees and non-employee directors was approximately 6.9 million in 2023 (7.5 million in 2022 and 8.2 million in 2021). See Note 19 for additional information on the Company's equity awards.
Retained Earnings
Dow Inc.
There are no significant restrictions limiting Dow Inc.’s ability to pay dividends. Dow Inc. declared dividends of $2.80 per share in 2023, 2022 and 2021.
Undistributed earnings of nonconsolidated affiliates included in retained earnings was $684 million at December 31, 2023 and $669 million at December 31, 2022.
TDCC
TDCC's Board of Directors determines whether or not there will be a dividend distribution to Dow Inc. TDCC declared and paid dividends to Dow Inc. of $2,510 million in 2023, $4,375 million in 2022 and $3,264 million in 2021.
Employee Stock Ownership Plan
The Dow Employee Stock Ownership Plan (the “ESOP”) allocated the remaining shares in 2022 and no shares remained unallocated at December 31, 2022 and December 31, 2023. Unallocated shares at December 31, 2021, were excluded from the Company's earnings per share calculation.
Compensation expense for allocated shares is recorded at the fair value of the shares on the date of allocation. As all remaining ESOP shares were allocated in 2022, there was no compensation expense recorded in 2023 for allocated ESOP shares. Compensation expense reflected in income before income taxes for ESOP shares allocated was $31 million in 2022 and $77 million in 2021.
Treasury Stock
On April 1, 2019, the Board ratified the share repurchase program originally approved on March 15, 2019, authorizing up to $3.0 billion for the repurchase of the Company's common stock, with no expiration date. The Company completed the April 1, 2019 share repurchase program in the second quarter of 2022. On April 13, 2022, the Board approved a new share repurchase program authorizing up to $3.0 billion for the repurchase of the Company's common stock, with no expiration date. In 2023, the Company repurchased $625 million of its common stock ($2,325 million in 2022 and $1,000 million in 2021). Excise tax for repurchased shares was $2 million in 2023 (zero in 2022 and 2021), and was included in treasury stock at cost. At December 31, 2023, $1,425 million of the share repurchase program authorization remained available for repurchases.
The Company began issuing treasury shares to satisfy its obligations to make matching contributions to plan participants under The Dow Employees' Savings Plan in the first quarter of 2022. The Company issued 2.3 million treasury shares under its compensation and benefit plans in 2023 and 1.5 million in 2022
Compensation expense for issued shares is recorded at the fair value of the shares on the date of issuance. Compensation expense reflected in income before income taxes for treasury shares issued was $120 million in 2023 and $94 million in 2022.
The following table provides a reconciliation of Dow Inc. common stock activity for the years ended December 31, 2023, 2022 and 2021:
| Shares of Dow Inc. Common Stock | Issued | Held in Treasury | ||||||
| Balance at Jan 1, 2021 | 755,993,198 | 12,803,303 | ||||||
| Issued 1 | 8,233,684 | — | ||||||
| Repurchased | — | 16,208,270 | ||||||
| Balance at Jan 1, 2022 | 764,226,882 | 29,011,573 | ||||||
| Issued 1 | 7,451,643 | (1,499,610) | ||||||
| Repurchased | — | 39,286,642 | ||||||
| Balance at Jan 1, 2023 | 771,678,525 | 66,798,605 | ||||||
| Issued 1 | 6,916,989 | (2,347,747) | ||||||
| Repurchased | — | 11,851,223 | ||||||
| Balance at Dec 31, 2023 | 778,595,514 | 76,302,081 |
1.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, 2023, 2022 and 2021 were as follows:
| Accumulated Other Comprehensive Loss | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Unrealized Gains (Losses) on Investments | |||||||||||
| Beginning balance | $ | (253) | $ | 59 | $ | 104 | |||||
| Unrealized gains (losses) on investments | (6) | (326) | (21) | ||||||||
| Tax (expense) benefit | 54 | 13 | 5 | ||||||||
| Net unrealized gains (losses) on investments | 48 | (313) | (16) | ||||||||
| (Gains) losses reclassified from AOCL to net income 1 | (63) | 2 | (38) | ||||||||
| Tax expense (benefit) 2 | 15 | (1) | 9 | ||||||||
| Net (gains) losses reclassified from AOCL to net income | (48) | 1 | (29) | ||||||||
| Other comprehensive income (loss), net of tax | — | (312) | (45) | ||||||||
| Ending balance | $ | (253) | $ | (253) | $ | 59 | |||||
| Cumulative Translation Adjustment | |||||||||||
| Beginning balance | $ | (1,934) | $ | (1,355) | $ | (930) | |||||
| Gains (losses) on foreign currency translation | 57 | (557) | (375) | ||||||||
| Tax (expense) benefit | — | 24 | (40) | ||||||||
| Net gains (losses) on foreign currency translation | 57 | (533) | (415) | ||||||||
| (Gains) losses reclassified from AOCL to net income 3 | (14) | (46) | (10) | ||||||||
| Other comprehensive income (loss), net of tax | 43 | (579) | (425) | ||||||||
| Ending balance | $ | (1,891) | $ | (1,934) | $ | (1,355) | |||||
| Pension and Other Postretirement Benefits | |||||||||||
| Beginning balance | $ | (4,877) | $ | (7,334) | $ | (9,559) | |||||
| Gains (losses) arising during the period | (1,454) | 2,611 | 2,094 | ||||||||
| Tax (expense) benefit | 349 | (630) | (464) | ||||||||
| Net gains (losses) arising during the period | (1,105) | 1,981 | 1,630 | ||||||||
| Amortization of net loss and prior service credits reclassified from AOCL to net income 4 | 648 | 622 | 776 | ||||||||
| Tax expense (benefit) 2 | (152) | (146) | (181) | ||||||||
| Net loss and prior service credits reclassified from AOCL to net income | 496 | 476 | 595 | ||||||||
| Other comprehensive income (loss), net of tax | (609) | 2,457 | 2,225 | ||||||||
| Ending balance | $ | (5,486) | $ | (4,877) | $ | (7,334) | |||||
| Derivative Instruments | |||||||||||
| Beginning balance | $ | (75) | $ | (347) | $ | (470) | |||||
| Gains (losses) on derivative instruments | (201) | 638 | 155 | ||||||||
| Tax (expense) benefit | 30 | (87) | 3 | ||||||||
| Net gains (losses) on derivative instruments | (171) | 551 | 158 | ||||||||
| (Gains) losses reclassified from AOCL to net income 5 | 250 | (313) | (38) | ||||||||
| Tax expense (benefit) 2 | (55) | 34 | 3 | ||||||||
| Net (gains) losses reclassified from AOCL to net income | 195 | (279) | (35) | ||||||||
| Other comprehensive income (loss), net of tax | 24 | 272 | 123 | ||||||||
| Ending balance | $ | (51) | $ | (75) | $ | (347) | |||||
| Total AOCL ending balance | $ | (7,681) | $ | (7,139) | $ | (8,977) |
1.Reclassified to "Net sales" and "Sundry income (expense) - net."
2.Reclassified to "Provision for income taxes."
3.Reclassified to "Sundry income (expense) - net."
4.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 18 for additional information.
5.Reclassified to "Cost of sales," "Sundry income (expense) - net" and "Interest expense and amortization of debt discount."
NOTE 17 – 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, 2023, 2022 and 2021:
| Noncontrolling Interests | |||||||||||
| In millions | 2023 | 2022 | 2021 | ||||||||
| Balance at Jan 1 | $ | 529 | $ | 574 | $ | 570 | |||||
| Net income attributable to noncontrolling interests 1 | 71 | 58 | 94 | ||||||||
| Distributions to noncontrolling interests 2 | (81) | (76) | (66) | ||||||||
| Cumulative translation adjustments | (19) | (28) | (25) | ||||||||
| Other | 1 | 1 | 1 | ||||||||
| Balance at Dec 31 | $ | 501 | $ | 529 | $ | 574 |
1.2022 includes the portion of asset related charges attributable to noncontrolling interests related to a joint venture in Russia. See Note 4 for additional information.
2.Distributions to noncontrolling interests are net of $8 million in 2023 ($7 million in 2022 and 2021) in dividends paid to a joint venture, which were reclassified to "Equity in earnings (losses) of nonconsolidated affiliates" in the consolidated statements of income.
NOTE 18 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Defined Benefit Pension Plans
The Company has both funded and unfunded defined benefit pension plans in the United States and a number of other countries. The U.S. tax-qualified plan administered by the parent company is the largest plan. On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified pension plans, which covered substantially all U.S. employees. As a result, effective December 31, 2023, the Company froze the pensionable compensation and credited service amounts used to calculate pension benefits for substantially all employees who participate in its U.S. tax-qualified and non-qualified retirement programs (collectively, the "U.S. Plans"), and, therefore, impacted employees will not accrue additional benefits for future service and compensation. In connection with these plan amendments, the Company remeasured its U.S. Plans in the first quarter of 2021, which resulted in a pretax actuarial gain of $1,268 million, included in other comprehensive income and a pretax curtailment gain of $19 million.
Separately, in the fourth quarter of 2023, certain Company pension plans in the United States and Canada purchased or converted to nonparticipating group annuity contracts from certain insurance companies, irrevocably transferring approximately $1,681 million of benefit obligations and $1,617 million of related plan assets to the insurers. These transactions did not require any cash funding from the Company and did not impact the pension benefits of participants. As a result of these transactions, the Company recognized pretax, non-cash settlement charges of $642 million in 2023, primarily related to the accelerated recognition of a portion of the accumulated actuarial losses of the plans, recorded in “Sundry income (expense) – net” in the consolidated statements of income and related to Corporate.
The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. Total global pension contributions were $142 million in 2023, which includes contributions necessary to fund benefit payments for the Company's unfunded pension plans. Additionally, in the second quarter of 2023, the Company received a pension plan reversion of approximately $90 million for a portion of the excess funding of one of its plans in Europe, included in "Other assets and liabilities, net" in the consolidated statements of cash flows. The Company expects to contribute approximately $150 million to its pension plans in 2024.
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit cost for all plans are summarized in the table below:
| Weighted-Average Assumptions for All Pension Plans | Benefit Obligations at Dec 31 | Net Periodic Benefit Cost for the Year Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||
| Discount rate | 4.73 | % | 5.18 | % | 5.26 | % | 2.57 | % | 2.40 | % | |||||||
| Interest crediting rate for applicable benefits | 3.99 | % | 4.19 | % | 4.19 | % | 3.57 | % | 3.55 | % | |||||||
| Rate of compensation increase | 3.80 | % | 4.05 | % | 4.05 | % | 3.94 | % | 3.91 | % | |||||||
| Expected return on plan assets | 6.62 | % | 6.68 | % | 6.86 | % |
The weighted-average assumptions used to determine pension plan obligations and net periodic benefit cost 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 Benefit Cost for the Year Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||
| Discount rate | 5.30 | % | 5.64 | % | 5.76 | % | 3.04 | % | 3.03 | % | |||||||
| 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 | 7.46 | % | 7.95 | % | 7.96 | % |
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 2023, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2023. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2024.
The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit cost 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 Benefit Cost for the Year Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | |||||||||||||
| Discount rate | 5.23 | % | 5.57 | % | 5.57 | % | 2.85 | % | 2.38 | % | |||||||
| Health care cost trend rate assumed for next year | 6.61 | % | 6.79 | % | 6.79 | % | 6.50 | % | 6.75 | % | |||||||
| 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 | 2033 | 2033 | 2033 | 2028 | 2028 |
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 United States and other selected countries. Under the spot rate approach, the Company calculates service cost and interest cost 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. 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’s mortality assumption used for the U.S. plans is a benefit-weighted version of the Society of Actuaries’ RP-2014 base table with future rates of mortality improvement based on a modified version of the assumptions used in the Social Security Administration’s 2021 trustees report.
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 | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Change in projected benefit obligations: | ||||||||||||||
| Benefit obligations at beginning of year | $ | 22,861 | $ | 32,977 | $ | 893 | $ | 1,251 | ||||||
| Service cost | 272 | 392 | 4 | 6 | ||||||||||
| Interest cost | 1,110 | 680 | 45 | 26 | ||||||||||
| Plan participants' contributions | 9 | 12 | — | — | ||||||||||
| Actuarial changes in assumptions and experience | 1,086 | (8,433) | 65 | (318) | ||||||||||
| Benefits paid | (1,385) | (1,539) | (94) | (67) | ||||||||||
| Plan amendments | 6 | (25) | — | — | ||||||||||
| Acquisitions/divestitures/other 1 | 6 | (602) | — | — | ||||||||||
| Effect of foreign exchange rates | 279 | (600) | 1 | (5) | ||||||||||
| Termination benefits/settlements 2 | (1,777) | (1) | — | — | ||||||||||
| Benefit obligations at end of year | $ | 22,467 | $ | 22,861 | $ | 914 | $ | 893 | ||||||
| Change in plan assets: | ||||||||||||||
| Fair value of plan assets at beginning of year | $ | 21,231 | $ | 28,167 | $ | — | $ | — | ||||||
| Actual return on plan assets | 1,228 | (4,556) | — | — | ||||||||||
| Employer contributions | 142 | 235 | — | — | ||||||||||
| Plan participants' contributions | 9 | 12 | — | — | ||||||||||
| Benefits paid | (1,385) | (1,539) | — | — | ||||||||||
| Settlements 3 | (1,777) | — | — | — | ||||||||||
| Other 4 | (73) | (592) | — | — | ||||||||||
| Effect of foreign exchange rates | 259 | (496) | — | — | ||||||||||
| Fair value of plan assets at end of year | $ | 19,634 | $ | 21,231 | $ | — | $ | — | ||||||
| Funded status: | ||||||||||||||
| U.S. plans with plan assets | $ | (1,192) | $ | (545) | $ | — | $ | — | ||||||
| Non-U.S. plans with plan assets | (1,017) | (473) | — | — | ||||||||||
| All other plans | (624) | (612) | (914) | (893) | ||||||||||
| Funded status at end of year | $ | (2,833) | $ | (1,630) | $ | (914) | $ | (893) | ||||||
| Amounts recognized in the consolidated balance sheets at Dec 31: | ||||||||||||||
| Deferred charges and other assets | $ | 889 | $ | 1,035 | $ | — | $ | — | ||||||
| Accrued and other current liabilities | (67) | (66) | (86) | (88) | ||||||||||
| Pension and other postretirement benefits - noncurrent | (3,655) | (2,599) | (828) | (805) | ||||||||||
| Net amount recognized | $ | (2,833) | $ | (1,630) | $ | (914) | $ | (893) | ||||||
| Pretax amounts recognized in accumulated other comprehensive loss at Dec 31: | ||||||||||||||
| Net loss (gain) | $ | 7,709 | $ | 7,045 | $ | (402) | $ | (523) | ||||||
| Prior service credit | (84) | (116) | — | — | ||||||||||
| Pretax balance in accumulated other comprehensive loss at end of year | $ | 7,625 | $ | 6,929 | $ | (402) | $ | (523) |
1.The 2022 impact relates to the transfer of certain benefit obligations in the United States through the purchase of annuity contracts from an insurance company.
2.The 2023 impact primarily relates to the transfer of certain pension benefit obligations in the United States and Canada through the purchase of or conversion to annuity contracts from insurance companies, triggering settlement accounting.
3.The 2023 impact primarily relates to the purchase of annuity contracts associated with the transfer of certain pension benefit obligations to insurance companies, triggering settlement accounting.
4.The 2023 impact primarily relates to a reversion of pension plan funds for a portion of the excess funding of one of its plans in Europe. The 2022 impact primarily relates to the purchase of annuity contracts associated with the transfer of certain pension benefit obligations to insurance companies.
A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2023, was due to the irrevocable transfer of certain benefit obligations to third-party insurance companies, partially offset by the change in weighted-average discount rates, which decreased from 5.18 percent at December 31, 2022, to 4.73 percent at December 31, 2023. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2022, was due to the change in weighted-average discount rates, which increased from 2.57 percent at December 31, 2021, to 5.18 percent at December 31, 2022.
The accumulated benefit obligation for all significant pension plans was $22.3 billion and $22.6 billion at December 31, 2023 and 2022, respectively.
| Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31 | 2023 | 2022 | ||||||
| In millions | ||||||||
| Accumulated benefit obligations | $ | 18,612 | $ | 18,300 | ||||
| Fair value of plan assets | $ | 14,962 | $ | 15,723 |
| Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31 | 2023 | 2022 | ||||||
| In millions | ||||||||
| Projected benefit obligations | $ | 18,783 | $ | 18,388 | ||||
| Fair value of plan assets | $ | 15,060 | $ | 15,723 |
| Net Periodic Benefit Cost (Credit) for All Significant Plans for the Year Ended Dec 31 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | ||||||||||||||||||
| In millions | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||
| Net Periodic Benefit Costs: | ||||||||||||||||||||
| Service cost | $ | 272 | $ | 392 | $ | 387 | $ | 4 | $ | 6 | $ | 7 | ||||||||
| Interest cost | 1,110 | 680 | 594 | 45 | 26 | 23 | ||||||||||||||
| Expected return on plan assets | (1,539) | (1,686) | (1,724) | — | — | — | ||||||||||||||
| Amortization of prior service credit | (26) | (21) | (22) | — | — | — | ||||||||||||||
| Amortization of unrecognized (gain) loss | 89 | 658 | 822 | (57) | (15) | (6) | ||||||||||||||
| Curtailment/settlement/other 1 | 642 | — | (18) | — | — | — | ||||||||||||||
| Net periodic benefit cost (credit) | $ | 548 | $ | 23 | $ | 39 | $ | (8) | $ | 17 | $ | 24 | ||||||||
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | ||||||||||||||||||||
| Net (gain) loss | $ | 1,395 | $ | (2,231) | $ | (1,980) | $ | 64 | $ | (317) | $ | (98) | ||||||||
| Prior service cost (credit) | 6 | (25) | 2 | — | — | — | ||||||||||||||
| Amortization of prior service credit | 26 | 21 | 22 | — | — | — | ||||||||||||||
| Amortization of unrecognized gain (loss) | (89) | (658) | (822) | 57 | 15 | 6 | ||||||||||||||
| Curtailment and settlement gain (loss) 1 | (642) | — | 18 | — | — | — | ||||||||||||||
| Total recognized in other comprehensive (income) loss | $ | 696 | $ | (2,893) | $ | (2,760) | $ | 121 | $ | (302) | $ | (92) | ||||||||
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 1,244 | $ | (2,870) | $ | (2,721) | $ | 113 | $ | (285) | $ | (68) |
1.The 2023 impact relates to the settlement of certain pension benefit obligations in the United States and Canada through the purchase of or conversion to annuity contracts from insurance companies. The 2021 impact primarily relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the U.S. Plans.
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 5 for additional information.
Estimated Future Benefit Payments
The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:
| Estimated Future Benefit Payments at Dec 31, 2023 | Defined Benefit Pension Plans | Other Postretirement Benefit Plans | ||||||
| In millions | ||||||||
| 2024 | $ | 1,493 | $ | 88 | ||||
| 2025 | 1,359 | 86 | ||||||
| 2026 | 1,374 | 83 | ||||||
| 2027 | 1,393 | 82 | ||||||
| 2028 | 1,416 | 80 | ||||||
| 2029-2033 | 7,160 | 348 | ||||||
| Total | $ | 14,195 | $ | 767 |
Plan Assets
Plan assets consist primarily of equity and fixed income securities of United States and foreign issuers, and include alternative investments, such as real estate, private equity and absolute return strategies. Plan assets totaled $19.6 billion at December 31, 2023 and $21.2 billion at December 31, 2022 and included no directly held common stock of Dow Inc.
The Company's investment strategy for 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 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. A 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.
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, 2023 | Target Allocation | ||||
| Asset Category | |||||
| Equity securities | 20 | % | |||
| Fixed income securities | 53 | ||||
| Alternative investments | 26 | ||||
| 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, 2023 and 2022:
| Basis of Fair Value Measurements | Dec 31, 2023 | Dec 31, 2022 | ||||||||||||||||||||||||
| In millions | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,050 | $ | 987 | $ | 63 | $ | — | $ | 1,240 | $ | 989 | $ | 251 | $ | — | ||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| U.S. equity securities | $ | 1,443 | $ | 1,431 | $ | 11 | $ | 1 | $ | 1,855 | $ | 1,845 | $ | 7 | $ | 3 | ||||||||||
| Non - U.S. equity securities | 1,720 | 1,584 | 132 | 4 | 2,120 | 1,924 | 193 | 3 | ||||||||||||||||||
| Total equity securities | $ | 3,163 | $ | 3,015 | $ | 143 | $ | 5 | $ | 3,975 | $ | 3,769 | $ | 200 | $ | 6 | ||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||
| Debt - government-issued | $ | 4,665 | $ | 47 | $ | 4,618 | $ | — | $ | 3,885 | $ | 57 | $ | 3,827 | $ | 1 | ||||||||||
| Debt - corporate-issued | 4,277 | 584 | 3,692 | 1 | 4,231 | 441 | 3,790 | — | ||||||||||||||||||
| Debt - asset-backed | 43 | — | 43 | — | 128 | 44 | 84 | — | ||||||||||||||||||
| Total fixed income securities | $ | 8,985 | $ | 631 | $ | 8,353 | $ | 1 | $ | 8,244 | $ | 542 | $ | 7,701 | $ | 1 | ||||||||||
| Alternative investments: | ||||||||||||||||||||||||||
| Private markets | $ | 1 | $ | — | $ | — | $ | 1 | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||||
| Real estate | 21 | 21 | — | — | 48 | 48 | — | — | ||||||||||||||||||
| Derivatives - asset position | 190 | 1 | 189 | — | 348 | 5 | 343 | — | ||||||||||||||||||
| Derivatives - liability position | (223) | — | (223) | — | (479) | (6) | (473) | — | ||||||||||||||||||
| Total alternative investments | $ | (11) | $ | 22 | $ | (34) | $ | 1 | $ | (78) | $ | 47 | $ | (130) | $ | 5 | ||||||||||
| Other investments | $ | 609 | $ | 3 | $ | 606 | $ | — | $ | 1,103 | $ | 16 | $ | 1,087 | $ | — | ||||||||||
| Subtotal | $ | 13,796 | $ | 4,658 | $ | 9,131 | $ | 7 | $ | 14,484 | $ | 5,363 | $ | 9,109 | $ | 12 | ||||||||||
| Investments measured at net asset value: | ||||||||||||||||||||||||||
| Hedge funds | $ | 820 | $ | 964 | ||||||||||||||||||||||
| Private markets | 3,350 | 3,873 | ||||||||||||||||||||||||
| Real estate | 1,741 | 1,956 | ||||||||||||||||||||||||
| Total investments measured at net asset value | $ | 5,911 | $ | 6,793 | ||||||||||||||||||||||
| Items to reconcile to fair value of plan assets: | ||||||||||||||||||||||||||
| Pension trust receivables 1 | $ | 42 | $ | 31 | ||||||||||||||||||||||
| Pension trust payables 2 | (115) | (77) | ||||||||||||||||||||||||
| Total | $ | 19,634 | $ | 21,231 |
1.Primarily receivables for investment securities sold.
2.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, 2023 and 2022:
| 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, 2022 | $ | 6 | $ | 1 | $ | 5 | $ | — | $ | 12 | |||||||
| Actual return on assets: | |||||||||||||||||
| Relating to assets held at Dec 31, 2022 | (6) | — | (6) | — | (12) | ||||||||||||
| Purchases, sales and settlements, net | — | — | 6 | — | 6 | ||||||||||||
| Transfers into Level 3, net | 6 | — | — | — | 6 | ||||||||||||
| Balance at Dec 31, 2022 | $ | 6 | $ | 1 | $ | 5 | $ | — | $ | 12 | |||||||
| Actual return on assets: | |||||||||||||||||
| Relating to assets held at Dec 31, 2023 | 1 | — | (4) | — | (3) | ||||||||||||
| Purchases, sales and settlements, net | (2) | — | — | — | (2) | ||||||||||||
| Balance at Dec 31, 2023 | $ | 5 | $ | 1 | $ | 1 | $ | — | $ | 7 |
Defined Contribution Plans
U.S. employees may participate in defined contribution 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 Brazil, The Netherlands, Canada, Korea, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $214 million in 2023, $150 million in 2022 and $165 million in 2021.
On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified defined contribution plans. Effective January 1, 2022, contributions to U.S. tax-qualified and non-qualified defined contribution plans were harmonized across the Company's U.S. eligible employee population. The matching contribution allows all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.
NOTE 19 – STOCK-BASED COMPENSATION
The Company provides stock-based compensation in the form of the Employee Stock Purchase Plan, which grants eligible employees the right to purchase shares of the Company's common stock at a discounted price. The Company also grants stock-based compensation to employees and non-employee directors under stock incentive plans, in the form of stock options, stock appreciation rights, PSUs and RSUs.
The total stock-based compensation expense included in the consolidated statements of income was $212 million, $211 million and $276 million in 2023, 2022 and 2021, respectively. The income tax benefits related to stock-based compensation arrangements were $47 million, $47 million and $62 million in 2023, 2022 and 2021, respectively.
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 based on historical activity.
The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:
| Weighted-Average Assumptions | 2023 | 2022 | 2021 | ||||||||
| Dividend yield | 4.74 | % | 4.59 | % | 4.86 | % | |||||
| Expected volatility | 30.30 | % | 30.20 | % | 33.40 | % | |||||
| Risk-free interest rate | 3.83 | % | 2.00 | % | 0.68 | % | |||||
| Expected life of stock options granted during period (years) | 6.00 | 6.25 | 6.25 | ||||||||
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 2023, 2022 and 2021 on Dow Inc. common stock. The expected volatility assumptions for the 2023, 2022 and 2021 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 2023, 2022 and 2021 PSU awards were based on historical daily volatility for the term of the award. The risk-free interest rate was based on the U.S. Treasury strip rates over the expected life of the 2023, 2022 and 2021 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 TDCC Board of Directors 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 TDCC Board of Directors 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 granted options, RSUs, PSUs, restricted stock, stock appreciation rights and stock units to employees and non-employee directors, subject to an aggregate limit and annual individual limits. The terms of the grants were 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, 2023, there were approximately 46 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 year to three years and have a maximum term of ten years. The following table summarizes stock option activity for 2023:
| Stock Options | 2023 | |||||||
| Shares in thousands | Shares | Exercise Price 1 | ||||||
| Outstanding at Jan 1, 2023 | 14,425 | $ | 53.84 | |||||
| Granted | 1,137 | $ | 59.08 | |||||
| Exercised | (2,156) | $ | 38.15 | |||||
| Forfeited/Expired | (103) | $ | 58.64 | |||||
| Outstanding at Dec 31, 2023 | 13,303 | $ | 56.79 | |||||
| Remaining contractual life in years | 4.72 | |||||||
| Aggregate intrinsic value in millions | $ | 34 | ||||||
| Exercisable at Dec 31, 2023 | 11,030 | $ | 56.24 | |||||
| Remaining contractual life in years | 3.96 | |||||||
| Aggregate intrinsic value in millions | $ | 34 |
1.Weighted-average per share.
| Additional Information about Stock Options | |||||||||||
| In millions, except per share amounts | 2023 | 2022 | 2021 | ||||||||
| Weighted-average fair value per share of options granted | $ | 12.13 | $ | 11.08 | $ | 10.37 | |||||
| Total compensation expense for stock option plans | $ | 13 | $ | 13 | $ | 14 | |||||
| Related tax benefit | $ | 3 | $ | 3 | $ | 3 | |||||
| Total amount of cash received from the exercise of options | $ | 77 | $ | 109 | $ | 217 | |||||
| Total intrinsic value of options exercised 1 | $ | 40 | $ | 73 | $ | 121 | |||||
| Related tax benefit | $ | 9 | $ | 16 | $ | 27 |
1.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 $4 million at December 31, 2023, is expected to be recognized over a weighted-average period of 1.60 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 | 2023 | |||||||
| Shares in thousands | Shares | Grant Date Fair Value 1 | ||||||
| Nonvested at Jan 1, 2023 | 3,825 | $ | 55.13 | |||||
| Granted | 2,036 | $ | 58.39 | |||||
| Vested | (1,851) | $ | 52.71 | |||||
| Canceled | (152) | $ | 58.69 | |||||
| Nonvested at Dec 31, 2023 | 3,858 | $ | 57.87 |
1.Weighted-average per share.
| Additional Information about RSUs | |||||||||||
| In millions, except per share amounts | 2023 | 2022 | 2021 | ||||||||
| Weighted-average fair value per share of RSUs granted | $ | 58.39 | $ | 58.60 | $ | 57.96 | |||||
| Total fair value of RSUs vested 1 | $ | 117 | $ | 102 | $ | 33 | |||||
| Related tax benefit | $ | 26 | $ | 23 | $ | 7 | |||||
| Total compensation expense for RSU awards | $ | 103 | $ | 99 | $ | 95 | |||||
| Related tax benefit | $ | 23 | $ | 22 | $ | 21 | |||||
1.Includes the fair value of shares vested in prior years and delivered in the reporting year.
Total unrecognized compensation cost related to RSU awards of $89 million at December 31, 2023 is expected to be recognized over a weighted-average period of 1.83 years. At December 31, 2023, approximately 1.7 million RSUs with a grant date weighted-average fair value per share of $58.76 had previously vested, but were not issued. These shares are scheduled to be issued to employees within six months to three years or to non-employee directors upon retirement.
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, cumulative cash from operations, environmental, social and governance metrics, and relative total shareholder return, over a predetermined period, generally one year to three years. 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 | ||||||||||
| 2023 | Dec 18, 2023 – Dec 18, 2026 | 13 | $ | 54.25 | |||||||
| 2023 | Jan 1, 2023 – Dec 31, 2025 | 1,233 | $ | 64.04 | |||||||
| 2022 | Jan 1, 2022 – Dec 31, 2024 | 1,157 | $ | 65.83 | |||||||
| 2021 | Jan 1, 2021 – Dec 31, 2023 | 1,223 | $ | 61.48 | |||||||
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 for the Jan 1 - Dec 31, 2023, 2022 and 2021 awards, and zero to 100 percent of target shares granted for the Dec 18, 2023 - Dec 18, 2026 awards.
2.Weighted-average per share.
The following table shows changes in nonvested PSUs:
| PSUs | 2023 | |||||||
| Shares in thousands | Shares | Grant Date Fair Value 1 | ||||||
| Nonvested at Jan 1, 2023 | 3,640 | $ | 57.93 | |||||
| Granted | 1,247 | $ | 63.94 | |||||
| Vested | (1,355) | $ | 48.35 | |||||
| Canceled | (107) | $ | 63.90 | |||||
| Nonvested at Dec 31, 2023 | 3,425 | $ | 63.76 |
1.Weighted-average per share.
| Additional Information about PSUs | |||||||||||
| In millions, except share amounts | 2023 | 2022 | 2021 | ||||||||
| Total fair value of PSUs vested and delivered 1 | $ | 77 | $ | 51 | $ | — | |||||
| Related tax benefit | $ | 17 | $ | 11 | $ | — | |||||
| Total compensation expense for PSU awards | $ | 67 | $ | 70 | $ | 138 | |||||
| Related tax benefit | $ | 15 | $ | 16 | $ | 31 | |||||
| Shares of PSUs settled in cash (in thousands) 2 | 369 | 162 | — | ||||||||
| Total cash paid to settle PSUs 3 | $ | 21 | $ | 10 | $ | — |
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 $26 million at December 31, 2023, is expected to be recognized over a weighted-average period of 1.67 years.
Employee Stock Purchase Plan
The Board unanimously approved the Dow Inc. 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which was approved by the Company's stockholders at the 2021 Annual Meeting of Stockholders held on April 15, 2021. Under the 2023 ESPP offering, most employees were eligible to purchase shares of common stock of Dow Inc. valued at up to 10 percent of their annual total base salary or wages. The number of shares purchased was determined using the amount contributed by the employee divided by the plan price. The plan price of the stock was equal to 85 percent of the fair market value (closing price) of the common stock at May 1, 2023 (beginning) or November 3, 2023 (ending) of the offering period, whichever was lower.
In 2023, employees subscribed to the right to purchase approximately 2.6 million shares at a weighted-average price of $42.27 per share. The plan price was fixed upon the close of the offering period. The shares were delivered to employees in the fourth quarter of 2023.
In 2022, employees subscribed to the right to purchase approximately 2.7 million shares at a weighted-average price of $37.75 per share. The plan price was fixed upon the close of the offering period. The shares were delivered to employees in the fourth quarter of 2022.
| Additional Information about Employee Stock Purchase Plan | |||||||||||
| In millions, except per share amounts | 2023 | 2022 | |||||||||
| Weighted-average fair value per share of purchase rights granted | $ | 11.75 | $ | 14.28 | |||||||
| Total compensation expense for ESPP | $ | 29 | $ | 29 | |||||||
| Related tax benefit | $ | 6 | $ | 7 | |||||||
| Total amount of cash received from the exercise of purchase rights | $ | 111 | $ | 103 | |||||||
| Total intrinsic value of purchase rights exercised 1 | $ | 20 | $ | 18 | |||||||
| Related tax benefit | $ | 4 | $ | 4 |
1.Difference between the market price at exercise and the price paid by the employee to exercise the purchase rights.
NOTE 20 – FINANCIAL INSTRUMENTS
Refer to Note 21 for a summary of the fair value of financial instruments at December 31, 2023 and 2022.
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, 2023, 2022 and 2021.
| Investing Results | |||||||||||
| In millions | 2023 | 2022 | 2021 | ||||||||
| Proceeds from sales of available-for-sale securities | $ | 985 | $ | 543 | $ | 424 | |||||
| Gross realized gains | $ | 89 | $ | 43 | $ | 50 | |||||
| Gross realized losses | $ | 26 | $ | 45 | $ | 12 |
The following table summarizes the contractual maturities of the Company’s investments in debt securities:
| Contractual Maturities of Debt Securities at Dec 31, 2023 | Cost | Fair Value | ||||||
| In millions | ||||||||
| Within one year | $ | 66 | $ | 62 | ||||
| One to five years | 1,124 | 970 | ||||||
| Six to ten years | 443 | 407 | ||||||
| After ten years | 505 | 421 | ||||||
| Total | $ | 2,138 | $ | 1,860 |
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 2023, 2022 or 2021.
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, 2023 and 2022, 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 | ||||||||||||||||||||
| 2023 | ||||||||||||||||||||
| Government debt 1 | $ | 37 | $ | (2) | $ | 546 | $ | (105) | $ | 583 | $ | (107) | ||||||||
| Corporate bonds | 255 | (98) | 660 | (93) | 915 | (191) | ||||||||||||||
| Total temporarily impaired debt securities | $ | 292 | $ | (100) | $ | 1,206 | $ | (198) | $ | 1,498 | $ | (298) | ||||||||
| 2022 | ||||||||||||||||||||
| Government debt 1 | $ | 273 | $ | (37) | $ | 333 | $ | (96) | $ | 606 | $ | (133) | ||||||||
| Corporate bonds | 818 | (110) | 158 | (49) | 976 | (159) | ||||||||||||||
| Total temporarily impaired debt securities | $ | 1,091 | $ | (147) | $ | 491 | $ | (145) | $ | 1,582 | $ | (292) |
1.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
Equity Securities
There were no material adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the year ended December 31, 2023. The net unrealized gain recognized in earnings on equity securities totaled $7 million for the year ended December 31, 2023 ($8 million net unrealized loss for the year ended December 31, 2022).
| Investments in Equity Securities | Dec 31, 2023 | Dec 31, 2022 | ||||||
| In millions | ||||||||
| Readily determinable fair value | $ | 17 | $ | 10 | ||||
| Not readily determinable fair value | $ | 171 | $ | 186 |
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 exposure 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, 2023. 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 2024.
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 Board and/or relevant committees thereof.
Derivative Instruments
The notional amounts of the Company's derivative instruments at December 31, 2023 and 2022, were as follows:
| Notional Amounts 1 | Dec 31, 2023 | Dec 31, 2022 | ||||||
| In millions | ||||||||
| Derivatives designated as hedging instruments | ||||||||
| Interest rate contracts | $ | 3,000 | $ | 1,500 | ||||
| Foreign currency contracts | $ | 2,316 | $ | 2,408 | ||||
| Derivatives not designated as hedging instruments | ||||||||
| Interest rate contracts | $ | 59 | $ | 3 | ||||
| Foreign currency contracts | $ | 5,824 | $ | 8,837 |
1.Notional amounts represent the absolute value of open derivative positions at the end of the period. Multi-leg option positions are reflected at the maximum notional position at expiration.
The notional amounts of the Company's commodity derivatives at December 31, 2023 and 2022, were as follows:
| Commodity Notionals 1 | Dec 31, 2023 | Dec 31, 2022 | Notional Volume Unit | ||||||||
| Derivatives designated as hedging instruments | |||||||||||
| Hydrocarbon derivatives | 3.7 | 19.2 | million barrels of oil equivalent | ||||||||
| Derivatives not designated as hedging instruments | |||||||||||
| Hydrocarbon derivatives | 1.4 | — | million barrels of oil equivalent | ||||||||
1.Notional amounts represent the net volume of open derivative positions outstanding at the end of the period.
| Maturity Dates of Derivatives Designated as Hedging Instruments | Year | ||||
| Interest rate contracts | 2025 | ||||
| Foreign currency contracts | 2025 | ||||
| Commodity contracts | 2026 |
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, except for amounts excluded from the assessment of effectiveness that are recognized in earnings through an amortization approach.
Commodity swaps, futures and option contracts with maturities of not more than 60 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. The Company also 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 $2,629 million at December 31, 2023 ($152 million at December 31, 2022).
The following tables provide the fair value and balance sheet classification of derivative instruments at December 31, 2023 and 2022:
| Fair Value of Derivative Instruments | Dec 31, 2023 | Dec 31, 2022 | ||||||||||||||||||
| In millions | Gross | Counterparty and Cash Collateral Netting 1 | Net 2 | Gross | Counterparty and Cash Collateral Netting 1 | Net 2 | ||||||||||||||
| Asset derivatives | ||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||
| Interest rate contracts 3 | $ | 73 | $ | (73) | $ | — | $ | 351 | $ | (246) | $ | 105 | ||||||||
| Interest rate contracts 4 | 59 | (56) | 3 | — | — | — | ||||||||||||||
| Foreign currency contracts 3 | 21 | (5) | 16 | 58 | (39) | 19 | ||||||||||||||
| Foreign currency contracts 4 | 5 | — | 5 | — | — | — | ||||||||||||||
| Commodity contracts 3 | 27 | (21) | 6 | 199 | (148) | 51 | ||||||||||||||
| Commodity contracts 4 | 2 | (1) | 1 | — | — | — | ||||||||||||||
| Total | $ | 187 | $ | (156) | $ | 31 | $ | 608 | $ | (433) | $ | 175 | ||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||
| Interest rate contracts 3 | $ | 4 | $ | (3) | $ | 1 | $ | — | $ | — | $ | — | ||||||||
| Foreign currency contracts 3 | 33 | (16) | 17 | 146 | (50) | 96 | ||||||||||||||
| Commodity contracts 3 | 33 | (28) | 5 | 22 | (1) | 21 | ||||||||||||||
| Total | $ | 70 | $ | (47) | $ | 23 | $ | 168 | $ | (51) | $ | 117 | ||||||||
| Total asset derivatives | $ | 257 | $ | (203) | $ | 54 | $ | 776 | $ | (484) | $ | 292 | ||||||||
| Liability derivatives | ||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||
| Interest rate contracts 5 | $ | 95 | $ | (73) | $ | 22 | $ | 246 | $ | (246) | $ | — | ||||||||
| Interest rate contracts 6 | 56 | (56) | — | — | — | — | ||||||||||||||
| Foreign currency contracts 5 | 8 | (5) | 3 | 58 | (39) | 19 | ||||||||||||||
| Commodity contracts 5 | 34 | (22) | 12 | 258 | (198) | 60 | ||||||||||||||
| Commodity contracts 6 | 2 | (1) | 1 | — | — | — | ||||||||||||||
| Total | $ | 195 | $ | (157) | $ | 38 | $ | 562 | $ | (483) | $ | 79 | ||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||
| Interest rate contracts 5 | $ | 3 | $ | (3) | $ | — | $ | — | $ | — | $ | — | ||||||||
| Foreign currency contracts 5 | 38 | (16) | 22 | 61 | (50) | 11 | ||||||||||||||
| Commodity contracts 5 | 34 | (28) | 6 | 12 | (11) | 1 | ||||||||||||||
| Total | $ | 75 | $ | (47) | $ | 28 | $ | 73 | $ | (61) | $ | 12 | ||||||||
| Total liability derivatives | $ | 270 | $ | (204) | $ | 66 | $ | 635 | $ | (544) | $ | 91 |
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.
2.Represents the net amounts included in the consolidated balance sheets.
3.Included in "Other current assets" in the consolidated balance sheets.
4.Included in "Deferred charges and other assets" in the consolidated balance sheets.
5.Included in "Accrued and other current liabilities" in the consolidated balance sheets.
6.Included in "Other noncurrent obligations" in the consolidated balance sheets.
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 $22 million at December 31, 2023 ($80 million at December 31, 2022). No cash collateral was posted by counterparties with the Company at December 31, 2023 ($2 million at December 31, 2022).
The following table summarizes the gain (loss) of derivative instruments in the consolidated statements of income and comprehensive income for the years ended December 31, 2023, 2022 and 2021:
| Effect of Derivative Instruments | Gain (loss) recognized in OCI 1 | Gain (loss) recognized in income 2 | ||||||||||||||||||
| In millions | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||
| Fair value hedges: | ||||||||||||||||||||
| Interest rate contracts 3, 4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (25) | ||||||||
| Excluded components 3, 5 | (18) | — | 2 | — | — | — | ||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||
| Interest rate contracts 3 | 5 | 239 | (62) | (10) | (10) | (9) | ||||||||||||||
| Foreign currency contracts 6 | 20 | 5 | 13 | 2 | 13 | (15) | ||||||||||||||
| Commodity contracts 6 | (152) | 166 | 133 | (242) | 310 | 62 | ||||||||||||||
| Excluded components 5, 6 | (4) | — | — | — | — | — | ||||||||||||||
| Net foreign investment hedges: | ||||||||||||||||||||
| Foreign currency contracts | 60 | 34 | 31 | — | — | — | ||||||||||||||
| Excluded components 5, 7 | 36 | 59 | 54 | 29 | 44 | 11 | ||||||||||||||
| Total derivatives designated as hedging instruments | $ | (53) | $ | 503 | $ | 171 | $ | (221) | $ | 357 | $ | 24 | ||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||
| Interest rate contracts 3 | $ | — | $ | — | $ | — | $ | — | $ | (1) | $ | (8) | ||||||||
| Foreign currency contracts 7 | — | — | — | (156) | (249) | (253) | ||||||||||||||
| Commodity contracts 6 | — | — | — | 1 | 48 | (46) | ||||||||||||||
| Total return swap 6 | — | — | — | 14 | — | — | ||||||||||||||
| Total derivatives not designated as hedging instruments | $ | — | $ | — | $ | — | $ | (141) | $ | (202) | $ | (307) | ||||||||
| Total derivatives | $ | (53) | $ | 503 | $ | 171 | $ | (362) | $ | 155 | $ | (283) |
1.OCI is defined as other comprehensive income (loss).
2.Pretax amounts.
3.Included in "Interest expense and amortization of debt discount" in the consolidated statements of income.
4.Gain (loss) recognized in income of derivatives is offset by gain (loss) recognized in income of the hedged item.
5.The excluded components are related to the time value of the derivatives designated as hedges.
6.Included in "Cost of sales" in the consolidated statements of income.
7.Included in "Sundry income (expense) - net" in the consolidated statements of income.
The following table provides the net after-tax gain (loss) expected to be reclassified from AOCL to income within the next 12 months:
| Expected Reclassifications from AOCL within the next 12 months | Dec 31, 2023 | ||||
| Cash flow hedges: | |||||
| Interest rate contracts | $ | (7) | |||
| Commodity contracts | $ | (9) | |||
| Foreign currency contracts | $ | 2 | |||
| Excluded components | $ | (3) | |||
| Net foreign investment hedges: | |||||
| Excluded components | $ | 2 |
NOTE 21 – 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:
| Fair Value Measurements on a Recurring Basis | Dec 31, 2023 | Dec 31, 2022 | |||||||||||||||||||||||||||
| In millions | Fair Value Level | Cost | Gain | Loss | Fair Value | Cost | Gain | Loss | Fair Value | ||||||||||||||||||||
| Assets at fair value: | |||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||
| Held-to-maturity securities 1 | Level 2 | $ | 485 | $ | — | $ | — | $ | 485 | $ | 872 | $ | — | $ | — | $ | 872 | ||||||||||||
| Money market funds | Level 2 | 663 | — | — | 663 | 355 | — | — | 355 | ||||||||||||||||||||
| Marketable securities 2 | Level 2 | 1,361 | — | (61) | 1,300 | 927 | 12 | — | 939 | ||||||||||||||||||||
| Nonconsolidated affiliates 3 | Level 3 | 7 | 7 | ||||||||||||||||||||||||||
| Other investments: | |||||||||||||||||||||||||||||
| Debt securities: 4 | |||||||||||||||||||||||||||||
| Government debt 5 | Level 2 | 766 | 3 | (107) | 662 | 754 | 1 | (133) | 622 | ||||||||||||||||||||
| Corporate bonds | Level 1 | 24 | — | (3) | 21 | 38 | — | (3) | 35 | ||||||||||||||||||||
| Corporate bonds | Level 2 | 1,148 | 17 | (99) | 1,066 | 1,236 | 10 | (156) | 1,090 | ||||||||||||||||||||
| Corporate bonds | Level 3 | 200 | — | (89) | 111 | — | — | — | — | ||||||||||||||||||||
| Equity securities 4, 6 | Level 1 | 5 | 12 | — | 17 | 5 | 5 | — | 10 | ||||||||||||||||||||
| Derivatives relating to: 7 | |||||||||||||||||||||||||||||
| Interest rates | Level 2 | — | 136 | — | 136 | — | 351 | — | 351 | ||||||||||||||||||||
| Foreign currency | Level 2 | — | 59 | — | 59 | — | 204 | — | 204 | ||||||||||||||||||||
| Commodities | Level 1 | — | 2 | — | 2 | — | 63 | — | 63 | ||||||||||||||||||||
| Commodities | Level 2 | — | 60 | — | 60 | — | 158 | — | 158 | ||||||||||||||||||||
| Total assets at fair value | $ | 4,589 | $ | 4,706 | |||||||||||||||||||||||||
| Liabilities at fair value: | |||||||||||||||||||||||||||||
| Long-term debt including debt due within one year 8 | Level 2 | $ | (15,024) | $ | 1,089 | $ | (747) | $ | (14,682) | $ | (15,060) | $ | 1,683 | $ | (498) | $ | (13,875) | ||||||||||||
| Guarantee liability 9 | Level 3 | (178) | (199) | ||||||||||||||||||||||||||
| Derivatives relating to: 7 | |||||||||||||||||||||||||||||
| Interest rates | Level 2 | — | — | (154) | (154) | — | — | (246) | (246) | ||||||||||||||||||||
| Foreign currency | Level 2 | — | — | (46) | (46) | — | — | (119) | (119) | ||||||||||||||||||||
| Commodities | Level 1 | — | — | (2) | (2) | — | — | (103) | (103) | ||||||||||||||||||||
| Commodities | Level 2 | — | — | (68) | (68) | — | — | (167) | (167) | ||||||||||||||||||||
| Total liabilities at fair value | $ | (15,130) | $ | (14,709) |
1.The Company's held-to-maturity securities primarily included treasury bills and time deposits.
2.The Company's investments in marketable securities are included in "Other current assets" in the consolidated balance sheets.
3.Estimated asset for an investment in a limited liability company included in "Investment in nonconsolidated affiliates" in the consolidated balance sheets.
4.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.
5.U.S. Treasury obligations, U.S. agency obligations, U.S. agency mortgage-backed securities and other municipalities' obligations.
6.Equity securities with a readily determinable fair value.
7.See Note 20 for the classification of derivatives in the consolidated balance sheets.
8.Cost includes fair value hedge adjustment gains of $49 million at December 31, 2023 and $46 million at December 31, 2022 on $4,479 million of debt at December 31, 2023 and $2,279 million of debt at December 31, 2022. See Note 20 for information on fair value measurements of long-term debt.
9.Estimated liability for TDCC's guarantee of Sadara's debt which is included in "Other noncurrent obligations" in the consolidated balance sheets. See Note 14 for additional information.
Cost approximates fair value for all other financial instruments.
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 20 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, 2023 and 2022.
For assets classified as Level 3 measurements, fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The Level 3 asset value represents the fair value of an investment in a corporate bond, accounted for as a debt security and an investment in a limited liability company, accounted for as an investment in nonconsolidated affiliates. There was no unfunded commitment on the investment in a limited liability company at December 31, 2023 and 2022.
The following table summarizes the changes in fair value measurements of the investment in a corporate bond using Level 3 inputs for the year ended December 31, 2023:
| Fair Value Measurements Using Level 3 Inputs for Investment in Corporate Bond at Dec 31, | 2023 | ||||
| In millions | |||||
| Balance at Jan 1 | $ | — | |||
| Recognition of asset 1 | 200 | ||||
| Loss included in AOCL 2 | (89) | ||||
| Balance at Dec 31 | $ | 111 |
1.Included in "Other investments" in the consolidated balance sheets.
2.Included in "Accumulated other comprehensive loss" in the consolidated balance sheets.
For liabilities classified as Level 3 measurements, the fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The fair value of the Company’s accrued liability related to the guarantee of Sadara's debt is in proportion to the Company's 35 percent ownership interest in Sadara. The estimated fair value of the guarantee was calculated using a "with" and "without" method. The fair value of the debt was calculated "with" the guarantee less the fair value of the debt "without" the guarantee. The "with" and "without" values were calculated using a discounted cash flow method based on contractual cash flows as well as projected prepayments made on the debt by Sadara. See Note 14 for further information on guarantees classified as Level 3 measurements. The following table summarizes the changes in fair value measurements using Level 3 inputs for the years ended December 31, 2023 and 2022:
| Fair Value Measurements Using Level 3 Inputs for Accrued Liability of Sadara Guarantee at Dec 31, | 2023 | 2022 | ||||||
| In millions | ||||||||
| Balance at Jan 1 | $ | (199) | $ | (220) | ||||
| Gain included in earnings 1 | 21 | 21 | ||||||
| Balance at Dec 31 | $ | (178) | $ | (199) |
1.Included in "Equity in earnings (losses) of nonconsolidated affiliates" in the consolidated income statements.
For equity securities calculated at net asset value per share (or its equivalent), the Company had $86 million in private equity and $18 million in real estate at December 31, 2023 ($92 million in private equity and $20 million in real estate at December 31, 2022). There are no redemption restrictions and the unfunded commitments on these investments were $75 million at December 31, 2023 ($54 million at December 31, 2022).
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:
| Basis of Fair Value Measurements on a Nonrecurring Basis at Dec 31 | (Level 3) | Total Losses | |||||||||
| In millions | |||||||||||
| 2023 | |||||||||||
| Assets at fair value: | |||||||||||
| Long-lived assets and other assets | $ | 9 | $ | 191 | |||||||
2023 Fair Value Measurements on a Nonrecurring Basis
As part of the 2023 Restructuring Program, the Company has or will shut down a number of manufacturing facilities, corporate facilities and miscellaneous assets around the world. The assets associated with this plan were written down to zero. 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 $9 million using unobservable inputs. The impairment charges related to the 2023 Restructuring Program, totaling $191 million, were included in "Restructuring and asset related charges - net" in the consolidated statements of income and related to Packaging & Specialty Plastics ($1 million), Industrial Intermediates & Infrastructure ($50 million), Performance Materials & Coatings ($49 million) and Corporate ($91 million).
See Note 4 for additional information on the Company's restructuring activities.
The Company's fair value measurements on a nonrecurring basis were insignificant in 2022 and 2021.
NOTE 22 – 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.
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.
Accounts Receivable Monetization
The Company holds a variable interest in an entity created to monetize accounts receivable of select European entities. The Company is the primary beneficiary of this entity as a result of holding subordinated notes while maintaining servicing responsibilities for the accounts receivable.
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, 2023 and 2022:
| Assets and Liabilities of Consolidated VIEs at Dec 31 | ||||||||
| In millions | 2023 | 2022 | ||||||
| Cash and cash equivalents | $ | 26 | $ | 17 | ||||
| Other current assets | 130 | 36 | ||||||
| Net property | 139 | 157 | ||||||
| Other noncurrent assets | 15 | 17 | ||||||
| Total assets 1 | $ | 310 | $ | 227 | ||||
| Current liabilities | $ | 26 | $ | 30 | ||||
| Other noncurrent obligations | 12 | 12 | ||||||
| Total liabilities 2 | $ | 38 | $ | 42 |
1.Restricted assets totaled $216 million and $227 million at December 31, 2023 and 2022, respectively.
2.All liabilities were nonrecourse at December 31, 2023 and 2022.
Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 2023 and 2022, are adjusted for intercompany eliminations.
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, 2023, the Company's investment in these joint ventures was $134 million ($113 million at December 31, 2022), classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, representing the Company's maximum exposure to loss.
NOTE 23 – RELATED PARTY TRANSACTIONS
TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and share repurchases, as approved by the Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board of Directors reviews and determines a dividend distribution to Dow Inc. to settle the intercompany loans. The following table summarizes cash dividends TDCC declared and paid to Dow Inc. for the years ended 2023, 2022 and 2021.
| TDCC Cash Dividends Declared and Paid | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Cash dividends declared and paid | $ | 2,510 | $ | 4,375 | $ | 3,264 |
At December 31, 2023 and 2022, TDCC's intercompany loan balance with Dow Inc. was insignificant.
NOTE 24 – SEGMENTS AND GEOGRAPHIC REGIONS
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 | ||||||||||||||
| 2023 | ||||||||||||||
| Sales to external customers | $ | 15,328 | $ | 14,537 | $ | 14,757 | $ | 44,622 | ||||||
| Long-lived assets | $ | 15,012 | $ | 2,681 | $ | 3,373 | $ | 21,066 | ||||||
| 2022 | ||||||||||||||
| Sales to external customers | $ | 19,336 | $ | 19,631 | $ | 17,935 | $ | 56,902 | ||||||
| Long-lived assets | $ | 14,638 | $ | 2,578 | $ | 3,226 | $ | 20,442 | ||||||
| 2021 | ||||||||||||||
| Sales to external customers | $ | 18,083 | $ | 19,746 | $ | 17,139 | $ | 54,968 | ||||||
| Long-lived assets | $ | 14,425 | $ | 2,703 | $ | 3,427 | $ | 20,555 |
See Part I, Item 1. Business for further discussion of the Company's segments.
Dow’s measure of profit/loss for segment reporting purposes is Operating EBIT as this is the manner in which the CODM assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. Operating EBIT by segment includes all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate.
| Segment Information | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | ||||||||||||
| In millions | |||||||||||||||||
| 2023 | |||||||||||||||||
| Net sales | $ | 23,149 | $ | 12,538 | $ | 8,497 | $ | 438 | $ | 44,622 | |||||||
| Restructuring and asset related charges - net 1 | 1 | 50 | 49 | 428 | 528 | ||||||||||||
| Equity in earnings (losses) of nonconsolidated affiliates | 130 | (276) | 20 | 7 | (119) | ||||||||||||
| Operating EBIT 2 | 2,700 | 124 | 219 | (265) | 2,778 | ||||||||||||
| Depreciation and amortization | 1,285 | 524 | 778 | 24 | 2,611 | ||||||||||||
| Total assets | 28,692 | 11,993 | 12,080 | 5,202 | 57,967 | ||||||||||||
| Investments in nonconsolidated affiliates | 705 | 384 | 136 | 42 | 1,267 | ||||||||||||
| Capital expenditures | 1,457 | 477 | 422 | — | 2,356 | ||||||||||||
| 2022 | |||||||||||||||||
| Net sales | $ | 29,260 | $ | 16,606 | $ | 10,764 | $ | 272 | $ | 56,902 | |||||||
| Restructuring and asset related charges - net 1 | 8 | 73 | 6 | 31 | 118 | ||||||||||||
| Equity in earnings (losses) of nonconsolidated affiliates | 359 | (91) | 10 | (10) | 268 | ||||||||||||
| Operating EBIT 2 | 4,110 | 1,418 | 1,328 | (266) | 6,590 | ||||||||||||
| Depreciation and amortization | 1,396 | 550 | 789 | 23 | 2,758 | ||||||||||||
| Total assets | 30,017 | 12,883 | 13,028 | 4,675 | 60,603 | ||||||||||||
| Investments in nonconsolidated affiliates | 846 | 454 | 115 | 174 | 1,589 | ||||||||||||
| Capital expenditures | 1,069 | 385 | 369 | — | 1,823 | ||||||||||||
| 2021 | |||||||||||||||||
| Net sales | $ | 28,128 | $ | 16,851 | $ | 9,672 | $ | 317 | $ | 54,968 | |||||||
| Restructuring and asset related charges (credits) - net 1 | 8 | 1 | 10 | (13) | 6 | ||||||||||||
| Equity in earnings (losses) of nonconsolidated affiliates | 490 | 471 | 7 | 7 | 975 | ||||||||||||
| Operating EBIT 2 | 6,638 | 2,282 | 866 | (253) | 9,533 | ||||||||||||
| Depreciation and amortization | 1,358 | 612 | 842 | 30 | 2,842 | ||||||||||||
| Total assets | 30,556 | 13,750 | 13,810 | 4,874 | 62,990 | ||||||||||||
| Investments in nonconsolidated affiliates | 1,230 | 670 | 111 | 34 | 2,045 | ||||||||||||
| Capital expenditures | 808 | 359 | 334 | — | 1,501 |
1.See Note 4 for information regarding the Company's restructuring programs and other asset related charges.
2.Operating EBIT for TDCC in 2023, 2022 and 2021, is substantially the same as that of Dow Inc. and therefore is not disclosed separately in the table above. A reconciliation of "Net income" to Operating EBIT is provided in the following table.
| Reconciliation of "Net income" to Operating EBIT | 2023 | 2022 | 2021 | ||||||||
| In millions | |||||||||||
| Net income | $ | 660 | $ | 4,640 | $ | 6,405 | |||||
| + Provision (credit) for income taxes | (4) | 1,450 | 1,740 | ||||||||
| Income before income taxes | $ | 656 | $ | 6,090 | $ | 8,145 | |||||
| - Interest income | 229 | 173 | 55 | ||||||||
| + Interest expense and amortization of debt discount | 746 | 662 | 731 | ||||||||
| - Significant items | (1,605) | (11) | (712) | ||||||||
| Operating EBIT | $ | 2,778 | $ | 6,590 | $ | 9,533 |
The following tables summarize the pretax impact of significant items by segment that are excluded from Operating EBIT:
| Significant Items by Segment for 2023 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | ||||||||||||
| In millions | |||||||||||||||||
| Restructuring, implementation and efficiency costs, and asset related charges - net 1 | $ | (1) | $ | (50) | $ | (67) | $ | (623) | $ | (741) | |||||||
| Litigation related charges, awards and adjustments 2 | 106 | (177) | — | — | (71) | ||||||||||||
| Argentine peso devaluation 3 | (52) | (16) | — | (109) | (177) | ||||||||||||
| Pension settlement charges 4 | — | — | — | (642) | (642) | ||||||||||||
| Indemnification and other transaction related costs 5 | — | — | — | 26 | 26 | ||||||||||||
| Total | $ | 53 | $ | (243) | $ | (67) | $ | (1,348) | $ | (1,605) |
1.Includes restructuring charges and implementation and efficiency costs associated with the Company's 2023 Restructuring Program, partially offset by a credit related to a prior restructuring program. Also includes certain gains and losses associated with previously impaired equity investments.
2.Includes a loss associated with legacy agricultural products groundwater contamination matters, partially offset by a gain associated with a legal matter with Nova Chemicals Corporation. See Note 14 for additional information.
3.Foreign currency losses and inventory valuation impacts related to the devaluation of the Argentine peso by the Argentina government in December 2023.
4.Non-cash settlement charges related to the purchase of nonparticipating group annuity contracts for certain Company pension plans in the United States and Canada. See Note 18 for additional information.
5.Primarily related to charges 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.
| Significant Items by Segment for 2022 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | ||||||||||||
| In millions | |||||||||||||||||
| Digitalization program costs 1 | $ | — | $ | — | $ | — | $ | (230) | $ | (230) | |||||||
| Restructuring, implementation costs and asset related charges - net 2 | — | — | — | (40) | (40) | ||||||||||||
| Russia / Ukraine conflict charges 3 | (8) | (73) | (6) | (31) | (118) | ||||||||||||
| Loss on early extinguishment of debt 4 | — | — | — | (8) | (8) | ||||||||||||
| Litigation related charges, awards and adjustments 5 | 321 | — | — | 60 | 381 | ||||||||||||
| Indemnification and other transaction related costs 6 | — | — | — | 4 | 4 | ||||||||||||
| Total | $ | 313 | $ | (73) | $ | (6) | $ | (245) | $ | (11) |
1.Includes costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program.
3.Asset related charges due to the Russia and Ukraine conflict. See Note 4 for additional information.
4.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 13 for additional information.
5.Includes a gain associated with a legal matter with Nova Chemicals Corporation and a gain related to an adjustment of the Dow Silicones breast implant liability. See Note 14 for additional information.
6.Primarily related to charges 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.
| Significant Items by Segment for 2021 | Pack. & Spec. Plastics | Ind. Interm. & Infrast. | Perf. Materials & Coatings | Corp. | Total | ||||||||||||
| In millions | |||||||||||||||||
| Digitalization program costs 1 | $ | — | $ | — | $ | — | $ | (169) | $ | (169) | |||||||
| Restructuring, implementation costs and asset related charges - net 2 | (8) | (1) | (10) | (50) | (69) | ||||||||||||
| Loss on early extinguishment of debt 3 | — | — | — | (574) | (574) | ||||||||||||
| Net gain on divestitures and asset sale 4 | 16 | — | — | — | 16 | ||||||||||||
| Litigation related charges, awards and adjustments 5 | — | 54 | — | — | 54 | ||||||||||||
| Indemnification and other transaction related costs 6 | — | — | — | 30 | 30 | ||||||||||||
| Total | $ | 8 | $ | 53 | $ | (10) | $ | (763) | $ | (712) |
1.Includes costs associated with implementing the Company's Digital Acceleration program.
2.Includes costs associated with implementing the Company's 2020 Restructuring Program, and asset related charges, which include other asset impairments. See Note 4 for additional information.
3.The Company redeemed outstanding long-term debt resulting in a loss on early extinguishment. See Note 13 for additional information.
4.Includes post-closing adjustments on a previous divestiture.
5.Related to an arbitration award received from Luxi Chemical Group Co., Ltd. See Note 14 for additional information.
6.Primarily related to charges 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.
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