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This Quarterly Report on Form 10-Q is a combined report being filed byDow Inc. andThe Dow Chemical Company and its consolidated subsidiaries ("TDCC" and together withDow Inc. , "Dow" or the "Company") due to the parent/subsidiary relationship betweenDow Inc. and TDCC. The information reflected in the report is equally applicable to bothDow Inc. and TDCC, except where otherwise noted. Each ofDow Inc. and TDCC is filing information in this report on its own behalf and neither company makes any representation to the information relating to the other company.
Pursuant to General Instruction H(1)(a) and (b) for Form 10-Q “Omission of
Information by Certain Wholly-Owned Subsidiaries,” TDCC is filing this Form 10-Q
with a reduced disclosure format.
Except as otherwise indicated by the context, the term “Union Carbide” means
Corporation
Russia and Ukraine Conflict InFebruary 2022 ,Russia invadedUkraine resulting inthe United States ,Canada , theEuropean Union and other countries imposing economic sanctions onRussia . Dow is monitoring and evaluating the broader economic impact, including sanctions imposed, the potential for additional sanctions and any responses fromRussia that could directly affect the Company's supply chain, business partners or customers. At the time of this filing, the conflict betweenRussia andUkraine has not had and is not expected to have a material impact on the Company's financial condition or results of operations. In the first quarter of 2022, the Company recorded pretax asset related charges of$186 million due to theRussia andUkraine conflict and the expectation that certain assets will not be recoverable. The Company's remaining net asset exposure is not significant.
OUTLOOK
In the near-term, Dow expects the macro environment to remain dynamic. As a result, Dow has outlined a playbook of actions that have the potential to deliver more than$1 billion in cost savings in 2023 while Dow continues to leverage its scale, geographic diversity and feedstock and derivative flexibility. Dow remains focused on advancing its decarbonize and grow strategy with higher-return investments that will extend its competitive advantages and industry leadership positions. Dow's strong financial position and balance sheet as well as its continued focus on cash flow generation give it ample flexibility to execute on its capital allocation priorities, including attractive shareholder remuneration, as it maximizes value creation over the longer-term. 46 -------------------------------------------------------------------------------- Table of Contents OVERVIEW The following is a summary of the results for the three months endedSeptember 30, 2022 : •The Company reported net sales in the third quarter of 2022 of$14.1 billion , down 5 percent from$14.8 billion in the third quarter of 2021, with decreases in Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure, partially offset by an increase in Performance Materials & Coatings. Net sales decreased in theU.S. &Canada andEurope ,Middle East ,Africa andIndia ("EMEAI"), were flat inAsia Pacific and increased inLatin America . Net sales were down 10 percent from$15.7 billion in the second quarter of 2022, with decreases across all operating segments and geographic regions. •Local price increased 3 percent compared with the third quarter of 2021 with a decrease in Packaging & Specialty Plastics (down 2 percent) which was more than offset by increases in Industrial Intermediates & Infrastructure (up 5 percent) and Performance Materials & Coatings (up 15 percent). Local price increased in all geographic regions, except theU.S. &Canada , compared with the third quarter of 2021. Local price decreased 6 percent compared with the second quarter of 2022. •Volume decreased 4 percent compared with the third quarter of 2021. Volume was flat in Packaging & Specialty Plastics and decreased in Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Volume decreased 12 percent in EMEAI, which was partially offset by 2 percent increases in theU.S. &Canada andAsia Pacific . Volume decreased 3 percent compared with the second quarter of 2022. •Currency had an unfavorable impact of 4 percent on net sales compared with the third quarter of 2021, driven by EMEAI (down 10 percent) andAsia Pacific (down 4 percent). •Equity in losses of nonconsolidated affiliates was$58 million in the third quarter of 2022, compared with equity in earnings of nonconsolidated affiliates of$249 million in the third quarter of 2021, primarily due to margin compression in polyurethanes atSadara Chemical Company ("Sadara") and monoethylene glycol ("MEG") at theKuwait joint ventures. •Net income available forDow Inc. and TDCC common stockholder(s) was$739 million and$747 million , respectively, in the third quarter of 2022, compared with$1,683 million and$1,679 million in the third quarter of 2021. Earnings per share forDow Inc. was$1.02 per share in the third quarter of 2022, compared with$2.23 per share in the third quarter of 2021. These decreases reflect margin compression due to higher energy costs, primarily in EMEAI. •Cash provided by operating activities - continuing operations was$1.9 billion in the third quarter of 2022, down$779 million compared with the same period last year. Compared with the second quarter of 2022, cash provided by operating activities - continuing operations increased$84 million .
•Dow Inc. repurchased
quarter of 2022.
•OnAugust 10, 2022 ,Dow Inc. announced that its Board of Directors ("Board") declared a dividend of$0.70 per share, which was paid onSeptember 9, 2022 , to shareholders of record as ofAugust 31, 2022 .
In addition to the highlights above, the following events occurred subsequent to
the third quarter of 2022:
•OnOctober 13, 2022 ,Dow Inc. announced that its Board declared a dividend of$0.70 per share, payable onDecember 9, 2022 , to shareholders of record as ofNovember 30, 2022 . •OnOctober 17, 2022 Dow Inc. announced it will accelerate the sustainability targets the Company set in 2020 by expanding its Stop the Waste target to a Transform the Waste target. By 2030, Dow will transform plastic waste and other forms of alternative feedstock to commercialize 3 million metric tons of circular and renewable plastics solutions annually. 47 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
Net Sales
The following tables summarize net sales and sales variances by operating
segment and geographic region from the prior year:
Summary of Sales Results Three Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net sales$ 14,115 $ 14,837 $ 45,043 $ 40,604
Sales Variances by Operating Segment and
Three Months Ended Sep 30, 2022 Nine Months Ended Sep 30, 2022
Local Price & Local Price &
Percentage change from prior year Product Mix Currency Volume Total Product Mix Currency Volume
Total
Packaging & Specialty Plastics (2) % (3) % - % (5) % 12 % (3) % 2 % 11 % Industrial Intermediates & Infrastructure 5 (5) (9) (9) 15 (5) (5) 5 Performance Materials & Coatings 15 (5) (5) 5 29 (4) (3) 22 Total 3 % (4) % (4) % (5) % 16 % (4) % (1) % 11 % Total, excluding the Hydrocarbons & Energy business 4 % (4) % (8) % (8) % 15 % (4) % (3) % 8 % U.S. & Canada (5) % - % 2 % (3) % 12 % - % 3 % 15 % EMEAI 11 (10) (12) (11) 24 (9) (7) 8 Asia Pacific 2 (4) 2 - 12 (3) (1) 8 Latin America 1 - - 1 11 - 3 14 Total 3 % (4) % (4) % (5) % 16 % (4) % (1) % 11 % Net sales in the third quarter of 2022 were$14.1 billion , down 5 percent from$14.8 billion in the third quarter of 2021, with local price up 3 percent, volume down 4 percent and an unfavorable currency impact of 4 percent. Net sales decreased in Packaging & Specialty Plastics and Industrial Intermediates & Infrastructure, which were partially offset by an increase in Performance Materials & Coatings. Local price decreased in Packaging & Specialty Plastics (down 2 percent) and increased in Industrial Intermediates & Infrastructure (up 5 percent) and Performance Materials & Coatings (up 15 percent). Volume was flat in Packaging & Specialty Plastics and decreased in Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 5 percent). Volume decreased in EMEAI reflecting the impact of inflation and high energy costs on demand and was partially offset by increases in theU.S. &Canada andAsia Pacific . Currency unfavorably impacted net sales by 4 percent, driven by EMEAI (down 10 percent) andAsia Pacific (down 4 percent). Excluding the Hydrocarbons & Energy business, net sales decreased 8 percent. Net sales for the first nine months of 2022 were$45.0 billion , up 11 percent from$40.6 billion in the same period last year, with local price up 16 percent, volume down 1 percent and an unfavorable currency impact of 4 percent. Net sales increased in all operating segments and geographic regions. Local price increased in all operating segments and geographic regions, primarily driven by tight supply and demand dynamics and increasing raw material prices. Local price increased in Packaging & Specialty Plastics (up 12 percent), Industrial Intermediates & Infrastructure (up 15 percent) and Performance Materials & Coatings (up 29 percent). Volume increased in Packaging & Specialty Plastics (up 2 percent) and decreased in Industrial Intermediates & Infrastructure (down 5 percent) and Performance Materials & Coatings (down 3 percent). Volume decreases in EMEAI andAsia Pacific were partially offset by increases in theU.S. &Canada andLatin America . Currency unfavorably impacted net sales by 4 percent compared with the same period last year, driven by EMEAI (down 9 percent) andAsia Pacific (down 3 percent). Excluding the Hydrocarbons & Energy business, net sales increased 8 percent. 48 -------------------------------------------------------------------------------- Table of Contents Cost of Sales Cost of sales ("COS") was$12.4 billion in the third quarter of 2022, up from$11.6 billion in the third quarter of 2021, primarily due to higher feedstocks, energy, other raw material costs, and logistics costs, partially offset by insurance recoveries related to certain weather-related events in the prior year. For the first nine months of 2022, COS was$37.7 billion , up from$32.4 billion in the first nine months of 2021, primarily due to higher feedstocks, energy, other raw material costs, and logistics costs, partially offset by insurance recoveries related to certain weather-related events in the prior year. The third quarter of 2022 included$55 million ($36 million in the third quarter of 2021) and$137 million in the first nine months of 2022 ($106 million in the first nine months of 2021) of costs associated with implementing the Company's digital acceleration program (related to Corporate). Cost of sales as a percentage of net sales in the third quarter of 2022 was 87.7 percent (78.3 percent in the third quarter of 2021) and 83.7 percent for the first nine months of 2022 (79.8 percent for the first nine months of 2021). Research and Development Expenses Research and development ("R&D") expenses totaled$191 million in the third quarter of 2022, compared with$210 million in the third quarter of 2021. R&D expenses for the first nine months of 2022 were$626 million , compared with$632 million in the first nine months of 2021. R&D expenses for the three and nine months endedSeptember 30, 2022 decreased primarily due to lower performance-based compensation costs and a decrease in fringe benefit expenses which reflected stock market declines. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses totaled$356 million in the third quarter of 2022, compared with$403 million in the third quarter of 2021. SG&A expenses decreased in the third quarter of 2022 due to lower performance-based compensation costs and a decrease in fringe benefit expenses which reflected stock market declines. In the first nine months of 2022, SG&A expenses were$1,289 million , compared with$1,209 million in the first nine months of 2021. SG&A expenses for the first nine months of 2022 increased primarily due to higher bad debt reserves which more than offset lower performance-based compensation costs and a decrease in fringe benefit expenses which reflected stock market declines. Amortization of Intangibles Amortization of intangibles was$83 million in the third quarter of 2022, compared with$100 million in the third quarter of 2021. In the first nine months of 2022, amortization of intangibles was$256 million , compared with$301 million in the first nine months of 2021. See Note 10 to the Consolidated Financial Statements for additional information on intangible assets. Restructuring and Asset Related Charges - Net Asset Related Charges In the first quarter of 2022, the Company recorded pretax asset related charges of$186 million due to theRussia andUkraine conflict and the expectation that certain assets will not be recoverable. These charges included the write-down of inventory, the recording of bad debt reserves and the impairment of other assets. Asset related charges by segment were as follows:$31 million in Packaging & Specialty Plastics,$109 million in Industrial Intermediates & Infrastructure,$16 million in Performance Materials & Coatings and$30 million in Corporate. 2020 Restructuring Program Actions related to the restructuring program approved by theDow. Inc. Board onSeptember 29, 2020 were substantially complete at the end of 2021, with the exception of certain cash payments that will continue through 2022 and into 2023. For the nine months endedSeptember 30, 2021 , the Company recorded pretax restructuring charges of$12 million for asset write-downs and write-offs and$10 million for costs associated with exit and disposal activities. Restructuring charges by segment were as follows:$8 million in Packaging & Specialty Plastics,$1 million in Industrial Intermediates & Infrastructure,$10 million in Performance Materials & Coatings and$3 million in Corporate. Equity in Earnings (Losses) of Nonconsolidated AffiliatesThe Company's share of equity in losses of nonconsolidated affiliates was$58 million in the third quarter of 2022, compared with equity in earnings of nonconsolidated affiliates of$249 million in the third quarter of 2021, primarily due to margin compression in polyurethanes at Sadara and MEG at theKuwait joint ventures. Equity in earnings of nonconsolidated affiliates was$311 million in the first nine months of 2022, compared with$751 million in the first nine months of 2021, primarily due to lower equity earnings at Sadara due to planned maintenance turnaround activity, pandemic-related lockdowns inChina and margin compression in polyurethanes, as well as MEG margin 49
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Table of Contents
compression at the
Financial Statements for additional information.
Sundry Income (Expense) - Net Sundry income (expense) - net includes a variety of income and expense items such as foreign currency exchange gains and losses, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other postretirement benefit plan credits or costs, losses on early extinguishment of debt and certain litigation matters. For the three months endedSeptember 30, 2022 , Sundry income (expense) - net was income of$69 million and$73 million forDow Inc. and TDCC, respectively, compared with expense of$350 million and$356 million , respectively, for the three months endedSeptember 30, 2021 . The third quarter of 2022 included non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments. These were partially offset by foreign currency exchange losses. In addition,Dow Inc. included a$7 million loss associated with agreements entered into with DuPont de Nemours, Inc. ("DuPont") and Corteva, Inc. ("Corteva") as part of the separation and distribution (related to Corporate). The third quarter of 2021 included a$472 million loss on the early extinguishment of debt (related to Corporate). This was partially offset by non-operating pension and postretirement benefit plan credits and a$54 million gain related to an arbitration award (related to Industrial Intermediates & Infrastructure). For the nine months endedSeptember 30, 2022 , Sundry income (expense) - net was income of$292 million and$287 million forDow Inc. and TDCC, respectively, compared with expense of$225 million and$231 million forDow Inc. and TDCC, respectively, for the nine months endedSeptember 30, 2021 . The first nine months of 2022 included non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments. These were partially offset by foreign currency exchange losses and an$8 million loss on the early extinguishment of debt (related to Corporate). In addition,Dow Inc. included a$3 million loss associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate). The first nine months of 2021 included a$574 million loss on the early extinguishment of debt (related to Corporate) and foreign currency exchange losses. These were partially offset by non-operating pension and postretirement benefit plan credits, gains on the sales of assets and investments and a$54 million gain related to an arbitration award (related to Industrial Intermediates & Infrastructure). In addition,Dow Inc. included a$5 million loss associated with agreements entered into with DuPont and Corteva as part of the separation and distribution (related to Corporate). Interest Expense and Amortization of Debt Discount Interest expense and amortization of debt discount was$155 million in the third quarter of 2022, compared with$178 million in the third quarter of 2021. Interest expense and amortization of debt discount was$487 million in the first nine months of 2022, compared with$561 million in the first nine months of 2021. The decrease in interest expense is primarily due to the liability management actions taken in 2021. Provision for Income Taxes The Company's effective tax rate fluctuates based on, among other factors, where income is earned, the level of income relative to tax attributes and the level of equity earnings, since most earnings from the Company's equity method investments are taxed at the joint venture level. The effective tax rate for the third quarter of 2022 was 24.1 percent and 24.0 percent forDow Inc. and TDCC, respectively, compared with 24.1 percent and 24.2 percent for the third quarter of 2021. For the first nine months of 2022, the effective tax rate was 23.6 percent forDow Inc. and TDCC, compared with 22.9 percent for the first nine months of 2021. Net Income Available for Common Stockholder(s)Dow Inc. Net income available forDow Inc. common stockholders was$739 million , or$1.02 per share, in the third quarter of 2022, compared with$1,683 million , or$2.23 per share, in the third quarter of 2021. Net income available forDow Inc. common stockholders was$3,969 million , or$5.41 per share, in the first nine months of 2022, compared with$4,575 million , or$6.06 per share, in the first nine months of 2021. See Note 7 to the Consolidated Financial Statements for details onDow Inc.'s earnings per share calculations. 50 -------------------------------------------------------------------------------- Table of Contents TDCC Net income available for the TDCC common stockholder was$747 million in the third quarter of 2022, compared with$1,679 million in the third quarter of 2021. Net income available for the TDCC common stockholder was$3,975 million in the first nine months of 2022, compared with$4,576 million in the first nine months of 2021. TDCC's common shares are owned solely byDow Inc.
SEGMENT RESULTS
Dow's measure of profit/loss for segment reporting purposes is Operating EBIT as this is the manner in which the Company's chief operating decision maker assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. Operating EBIT by segment includes all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate.
PACKAGING & SPECIALTY PLASTICS
The Packaging & Specialty Plastics operating segment consists of two highly integrated global businesses: Hydrocarbons &Energy and Packaging and Specialty Plastics. The segment employs the industry's broadest polyolefin product portfolio, supported by the Company's proprietary catalyst and manufacturing process technologies. These differentiators, plus collaboration at the customer's design table, enable the segment to deliver more reliable, durable, higher-performing solutions designed for recyclability and enhanced plastics circularity and sustainability. The segment serves customers, brand owners and ultimately consumers in key markets including food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; mobility and transportation; and infrastructure. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases. This segment also includes the results ofThe Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group , as well as a portion of the results ofEQUATE Petrochemical Company K.S.C.C . ("EQUATE"),The Kuwait Olefins Company K.S.C.C . ("TKOC"),Map Ta Phut Olefins Company Limited ("Map Ta Phut") and Sadara, all joint ventures of the Company. The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. In 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara's finished products to levels more consistent with each partner's equity ownership, which is being implemented 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. Packaging & Specialty Plastics Three Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net sales$ 7,327 $ 7,736 $ 23,187 $ 20,939 Operating EBIT$ 785 $ 1,954 $ 3,455 $ 5,196 Equity earnings$ 55 $ 124 $ 303 $ 360 Packaging & Specialty Plastics Three Months Ended Nine Months Ended Percentage change from prior year Sep 30, 2022 Sep 30, 2022 Change inNet Sales from Prior Period due to: Local price & product mix (2) % 12 % Currency (3) (3) Volume - 2 Total (5) % 11 % Packaging & Specialty Plastics net sales were$7,327 million in the third quarter of 2022, down 5 percent from net sales of$7,736 million in the third quarter of 2021, with local price down 2 percent, volume flat and an unfavorable currency impact of 3 percent, primarily in EMEAI. Local price decreased in both businesses as gains in functional polymers were more than offset by lower polyethylene prices. Local price decreased in Hydrocarbons & Energy in theU.S. &Canada which more than offset increases in EMEAI. Local price decreased in Packaging and Specialty Plastics in theU.S. &Canada andLatin America which more than offset increases in EMEAI andAsia Pacific . 51 -------------------------------------------------------------------------------- Table of Contents Volume increased in Hydrocarbons & Energy, primarily in theU.S. &Canada . Volume decreased in Packaging and Specialty Plastics in EMEAI, theU.S. &Canada andAsia Pacific which more than offset an increase inLatin America . Operating EBIT was$785 million in the third quarter of 2022, down$1,169 million from Operating EBIT of$1,954 million in the third quarter of 2021. Operating EBIT decreased primarily due to higher raw material and energy costs, lower selling prices and decreased equity earnings which were partially offset by insurance recoveries related to certain weather-related events in the prior year. Packaging & Specialty Plastics net sales were$23,187 million in the first nine months of 2022, up 11 percent from net sales of$20,939 million in the first nine months of 2021, with local price up 12 percent, volume up 2 percent and an unfavorable currency impact of 3 percent, primarily in EMEAI. Local price increased in both businesses and all geographic regions. Local price increased in Hydrocarbons & Energy, primarily in EMEAI and theU.S. &Canada , as prices for co-products are generally correlated to Brent crude oil prices, which, on average, increased 50 percent compared with the first nine months of 2021. Local price increased in Packaging and Specialty Plastics, driven by favorable supply and demand dynamics in polyethylene and functional polymers, notably in flexible food and beverage packaging and infrastructure material applications. Volume increased in Hydrocarbons & Energy, primarily in theU.S. &Canada and EMEAI. Volume decreased in Packaging and Specialty Plastics in EMEAI, theU.S. &Canada andAsia Pacific which more than offset an increase inLatin America . Operating EBIT was$3,455 million in the first nine months of 2022, down$1,741 million from Operating EBIT of$5,196 million in the first nine months of 2021. Operating EBIT decreased primarily due to higher feedstock and raw material costs and lower equity earnings, which were partially offset by higher selling prices and insurance recoveries related to certain weather-related events in the prior year.
INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
The Industrial Intermediates & Infrastructure operating segment consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, electronics, surfactants for cleaning and sanitization, infrastructure and oil and gas. The businesses' global scale and reach, world-class technology, R&D capabilities and materials science expertise enable the Company to be a premier solutions provider offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliance, building and construction, mobility and transportation, and adhesive and lubricant applications, among others. This segment also includes a portion of the results of EQUATE, TKOC, Map Ta Phut and Sadara, all joint ventures of the Company. The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. In 2021, Dow and the Saudi Arabian Oil Company agreed to and began transitioning the marketing rights and responsibilities for Sadara's finished products to levels more consistent with each partner's equity ownership, which is being implemented 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. Industrial Intermediates & Infrastructure Three Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net sales$ 4,059 $ 4,481 $ 12,953 $ 12,303 Operating EBIT$ 167 $ 713$ 1,254 $ 1,687 Equity earnings (losses)$ (114) $ 122 $ 5 $ 381 52
-------------------------------------------------------------------------------- Table of Contents Industrial Intermediates & Infrastructure Three Months Ended Nine Months Ended Percentage change from prior year Sep 30, 2022 Sep 30, 2022 Change inNet Sales from Prior Period due to: Local price & product mix 5 % 15 % Currency (5) (5) Volume (9) (5) Total (9) % 5 % Industrial Intermediates & Infrastructure net sales were$4,059 million in the third quarter of 2022, down 9 percent from$4,481 million in the third quarter of 2021, with local price up 5 percent, volume down 9 percent, and an unfavorable currency impact of 5 percent. Local price increased in both businesses and across all geographic regions, exceptAsia Pacific . Currency had an unfavorable impact on sales in both businesses, driven by EMEAI andAsia Pacific . Volume declines in Polyurethanes & Construction Chemicals were partially offset by gains in Industrial Solutions. Volume increased in Industrial Solutions in all geographic regions, exceptLatin America , driven by strong demand in energy, pharmaceutical, and mobility end-markets and increased catalyst sales. Volume declines in Polyurethanes & Construction Chemicals in theU.S. &Canada and EMEAI were driven by inflationary pressure on demand for consumer durables, industrial, and building and construction applications. Operating EBIT was$167 million in the third quarter of 2022, down$546 million from Operating EBIT of$713 million in the third quarter of 2021. Operating EBIT decreased primarily due to lower demand in EMEAI, margin compression due to rising raw material and energy costs and lower equity earnings at Sadara and theKuwait and Map Ta Phut joint ventures, which were partially offset by higher selling prices and insurance recoveries related to certain weather-related events in the prior year. Industrial Intermediates & Infrastructure net sales were$12,953 million in the first nine months of 2022, up 5 percent from net sales of$12,303 million in the first nine months of 2021, with local price up 15 percent, volume down 5 percent, and an unfavorable currency impact of 5 percent. Local price increased in both businesses and across all geographic regions, primarily driven by rising raw material and energy prices. Currency had an unfavorable impact on sales in both businesses, driven by EMEAI andAsia Pacific . Volume in Industrial Solutions increased in all geographic regions driven by improved supply availability as the year-ago period was impacted by Winter Storm Uri, and by strong demand in agricultural, pharmaceutical and energy related applications. Volume in Polyurethanes & Construction Chemicals decreased in all geographic regions, exceptLatin America , primarily due to lower demand, particularly for consumer durables, combined with reduced supply from planned maintenance turnaround activity, Sadara and third-party outages. Operating EBIT was$1,254 million in the first nine months of 2022, down$433 million from Operating EBIT of$1,687 million in the first nine months of 2021. Operating EBIT decreased primarily due to inflationary pressure on demand, particularly for consumer durables, margin compression due to higher raw material and energy costs and lower equity earnings at Sadara and theKuwait and Map Ta Phut joint ventures, combined with reduced supply from planned maintenance turnaround activity and third-party outages, which were partially offset by local price increases in both businesses and insurance recoveries related to certain weather-related events in the prior year. 53 -------------------------------------------------------------------------------- Table of Contents PERFORMANCE MATERIALS & COATINGS The Performance Materials & Coatings operating segment includes industry-leading franchises that deliver a wide array of solutions into consumer, infrastructure and mobility end-markets. The segment consists of two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses primarily utilize the Company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings; home care and personal care; consumer and electronics; mobility and transportation; industrial and chemical processing; and building and infrastructure end-markets. Both businesses employ materials science capabilities, global reach and unique products and technology to combine chemistry platforms to deliver differentiated, market-driven and sustainable innovations to customers. Performance Materials & Coatings Three Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net sales$ 2,654 $ 2,526 $ 8,706 $ 7,114 Operating EBIT$ 302 $ 284$ 1,458 $ 571 Equity earnings$ 1 $ 3 $ 6 $ 5 Performance Materials & Coatings Three Months Ended Nine Months Ended Percentage change from prior year Sep 30, 2022 Sep 30, 2022 Change inNet Sales from Prior Period due to: Local price & product mix 15 % 29 % Currency (5) (4) Volume (5) (3) Total 5 % 22 % Performance Materials & Coatings net sales were$2,654 million in the third quarter of 2022, up 5 percent from net sales of$2,526 million in the third quarter of 2021, with local price up 15 percent, volume down 5 percent and an unfavorable currency impact of 5 percent. Local price increased in both businesses and across all geographic regions. Volume decreased in Consumer Solutions in EMEAI and theU.S. &Canada , driven by lower demand in siloxanes and planned maintenance turnaround activity, which was partially offset by increases inAsia Pacific andLatin America . Volume decreased in Coatings & Performance Monomers in EMEAI,Asia Pacific and theU.S. &Canada , driven by lower demand for architectural coatings, which was partially offset by an increase inLatin America . The unfavorable currency impact was driven by EMEAI andAsia Pacific . Operating EBIT was$302 million in the third quarter of 2022, up$18 million from Operating EBIT of$284 million in the third quarter of 2021. Operating EBIT increased due to insurance recoveries related to certain weather-related events in the prior year in Coatings & Performance Monomers and price increases in Consumer Solutions offset by higher raw material costs. Performance Materials & Coatings net sales were$8,706 million in the first nine months of 2022, up 22 percent from net sales of$7,114 million in the first nine months of 2021, with local price up 29 percent, volume down 3 percent and an unfavorable currency impact of 4 percent. Local price increased in both businesses and across all geographic regions due to favorable supply and demand dynamics and higher raw material prices. Volume decreased in both businesses and in EMEAI,Latin America andAsia Pacific , which was partially offset by an increase in theU.S. &Canada . Volume decreased in Consumer Solutions in EMEAI, theU.S. &Canada andLatin America , which was partially offset by an increase inAsia Pacific . Volume decreased in Coatings & Performance Monomers inAsia Pacific and EMEAI, which was partially offset by an increase in theU.S. &Canada , primarily due to improved supply availability as the year-ago period was impacted by Winter Storm Uri, andLatin America . The unfavorable currency impact was driven by EMEAI andAsia Pacific . Operating EBIT was$1,458 million in the first nine months of 2022, up$887 million from Operating EBIT of$571 million in the first nine months of 2021. Operating EBIT increased primarily due to margin expansion in Consumer Solutions and insurance recoveries related to certain weather-related events in the prior year in Coatings & Performance Monomers. 54 -------------------------------------------------------------------------------- Table of Contents CORPORATE
Corporate includes certain enterprise and governance activities (including
insurance operations, environmental operations, etc.); non-business aligned
joint ventures; non-business aligned litigation expenses; and discontinued or
non-aligned businesses.
Corporate Three Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Net sales$ 75 $ 94$ 197 $ 248 Operating EBIT$ (59) $ (65)$ (178) $ (186) Equity earnings (losses) $ - $ -$ (3) $ 5 Net sales for Corporate, which primarily relate to the Company's insurance operations, were$75 million in the third quarter of 2022, a decrease from net sales of$94 million in the third quarter of 2021. Net sales were$197 million in the first nine months of 2022, a decrease from net sales of$248 million in the first nine months of 2021. Operating EBIT was a loss of$59 million in the third quarter of 2022, compared with a loss of$65 million in the third quarter of 2021. Operating EBIT was a loss of$178 million in the first nine months of 2022, compared with a loss of$186 million in the first nine months of 2021. Operating EBIT improved primarily due to lower costs.
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of$2,216 million atSeptember 30, 2022 and$2,988 million atDecember 31, 2021 , of which$1,216 million atSeptember 30, 2022 and$1,745 million atDecember 31, 2021 was held by subsidiaries in foreign countries, includingU.S. territories. For each of its foreign subsidiaries, Dow makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated tothe United States . Cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. Dow has the ability to repatriate additional funds to theU.S. , which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/orU.S. state income taxes and the impact of foreign currency movements. AtSeptember 30, 2022 , management believed that sufficient liquidity was available inthe United States . The Company has and expects to continue repatriating certain funds from its nonU.S. subsidiaries that are not needed to finance local operations; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company. 55 -------------------------------------------------------------------------------- Table of Contents The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table: Cash Flow Summary Dow Inc. TDCC Nine Months Ended Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Sep 30, 2022 Sep 30, 2021 Cash provided by (used for): Operating activities - continuing operations$ 5,408 $ 4,512 $ 5,441 $ 4,634 Operating activities - discontinued operations (11) (78) - - Operating activities 5,397 4,434 5,441 4,634 Investing activities (1,339) (1,535) (1,339) (1,535) Financing activities (4,513) (4,974) (4,557) (5,174) Effect of exchange rate changes on cash, cash equivalents and restricted cash (261) (57) (261) (57)
Summary
Decrease in cash, cash equivalents and restricted cash (716) (2,132) (716) (2,132)
Cash, cash equivalents and restricted cash at beginning
of period
3,033 5,108 3,033 5,108
Cash, cash equivalents and restricted cash at end of
period
$ 2,317 $
2,976
Less: Restricted cash and cash equivalents, included in
“Other current assets”
101 65 101 65 Cash and cash equivalents at end of period$ 2,216 $
2,911
Cash Flows from Operating Activities Cash provided by operating activities from continuing operations in the first nine months of 2022 was primarily driven by the Company's cash earnings and dividends from equity method investments, which were partially offset by cash used for working capital requirements and performance-based compensation payments. Cash provided by operating activities from continuing operations in the first nine months of 2021 was primarily driven by the Company's cash earnings and dividends from equity method investments, which were partially offset by elective pension contributions, cash used for working capital requirements and performance-based compensation payments. Net Working Capital Dow Inc. TDCC In millions Sep 30, 2022 Dec 31, 2021 Sep 30, 2022 Dec 31, 2021 Current assets$ 19,777 $ 20,848 $ 19,739 $ 20,837 Current liabilities 12,315 13,226 12,158 13,046 Net working capital$ 7,462 $ 7,622 $ 7,581 $ 7,791 Current ratio 1.61:1 1.58:1 1.62:1 1.60:1 Working Capital Metrics Three Months Ended Sep 30, 2022 Jun 30, 2022 Sep 30, 2021 Days sales outstanding in trade receivables 45 43 43 Days sales in inventory 59 56 56 Days payables outstanding 63 58 58 Cash used for operating activities from discontinued operations in the first nine months of 2022 and 2021 was related to cash payments and receiptsDow Inc. had with DuPont and Corteva that related to certain agreements and matters related to the separation from DowDuPont Inc. ("DowDuPont"). See Note 3 to the Consolidated Financial Statements for additional information. 56 -------------------------------------------------------------------------------- Table of Contents Cash Flows from Investing Activities Cash used for investing activities in the first nine months of 2022 was primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments. Cash used for investing activities in the first nine months of 2021 was primarily for capital expenditures, purchases of investments and acquisitions of property and businesses, which were partially offset by proceeds from sales and maturities of investments. The Company's capital expenditures were$1,224 million in the first nine months of 2022, compared with$1,035 million in the first nine months of 2021. The Company expects full year capital spending in 2022 to be approximately$1.9 billion . The Company will adjust its spending through the year as economic conditions evolve. Cash Flows from Financing Activities Cash used for financing activities in the first nine months of 2022 was primarily for payments on long-term debt. In addition,Dow Inc. included cash outflows for dividends paid to stockholders and purchases of treasury stock. TDCC included cash outflows for dividends paid toDow Inc. Cash used for financing activities in the first nine months of 2021 included payments on long-term debt and transaction financing, debt issuance and other costs, which were partially offset by proceeds from issuance of common stock and proceeds from issuance of short-term debt greater than three months. In addition,Dow Inc. included cash outflows for dividends paid to stockholders and purchases of treasury stock. TDCC included cash outflows for dividends paid toDow Inc. See Note 12 to the Consolidated Financial Statements for additional information related to the issuance and retirement of debt.Dow Inc. Non-GAAP Cash Flow Measures Free Cash Flow Dow defines Free Cash Flow as "Cash provided by operating activities - continuing operations," less capital expenditures. Under this definition, Free Cash Flow represents the cash generated by Dow from operations after investing in its asset base. Free Cash Flow, combined with cash balances and other sources of liquidity, represents the cash available to fund obligations and provide returns to shareholders. Free Cash Flow is an integral financial measure used in the Company's financial planning process. Operating EBITDA Dow defines Operating EBITDA as earnings (i.e., "Income before income taxes") before interest, depreciation and amortization, excluding the impact of significant items. Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations) Dow defines Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations) as "Cash provided by operating activities - continuing operations," divided by Operating EBITDA. Management believes Cash Flow Conversion is an important financial metric as it helps the Company determine how efficiently it is converting its earnings into cash flow. 57 -------------------------------------------------------------------------------- Table of Contents These financial measures are not recognized in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP") and should not be viewed as alternatives toU.S. GAAP financial measures of performance. All companies do not calculate non-GAAP financial measures in the same manner and, accordingly, Dow's definitions may not be consistent with the methodologies used by other companies. Reconciliation of Free Cash Flow
Nine Months Ended
In millions Sep 30, 2022 Sep 30, 2021 Cash provided by operating activities - continuing operations (GAAP)$ 5,408 $ 4,512 Capital expenditures (1,224) (1,035) Free Cash Flow (non-GAAP) 1
1.Free cash flow in the first nine months of 2021 reflects a
pension contribution.
Reconciliation of Cash Flow Conversion (Operating EBITDA to Cash Flow from Operations) Nine Months Ended In millions Sep 30, 2022 Sep 30, 2021 Net income (GAAP)$ 3,993 $ 4,644 + Provision for income taxes 1,232 1,383 Income before income taxes$ 5,225 $ 6,027 - Interest income 105 35 + Interest expense and amortization of debt discount 487 561 - Significant items ¹ (382) (715) Operating EBIT (non-GAAP)$ 5,989 $ 7,268 + Depreciation and amortization 2,104 2,187 Operating EBITDA (non-GAAP)$ 8,093 $ 9,455
Cash provided by operating activities – continuing operations (GAAP)
4,512
Cash Flow Conversion (Operating EBITDA to cash flow from operations)
(non-GAAP) 2
66.8 % 47.7 % 1.The nine months endedSeptember 30, 2022 includes costs associated with implementing the Company's Digital Acceleration program and 2020 Restructuring Program, asset related charges due to theRussia andUkraine conflict, a loss on the early extinguishment of debt and activity related to the separation from DowDuPont. The nine months endedSeptember 30, 2021 includes costs associated with implementing the Company's Digital Acceleration program and 2020 Restructuring Program, a loss on early extinguishment of debt, litigation related charges, awards and adjustments and activity related to the separation from DowDuPont. See Note 23 to the Consolidated Financial Statements for additional information. 2.Cash flow conversion in the first nine months of 2021 reflects a$1 billion elective pension contribution. Liquidity & Financial Flexibility The Company's primary source of incremental liquidity is cash flows from operating activities. In addition to cash from operating activities, the Company's current liquidity sources also include TDCC'sU.S. and Euromarket commercial paper programs, committed and uncommitted credit facilities, committed accounts receivable facilities, a medium-term notes program, aU.S. retail note program ("InterNotes®") and other debt markets. The Company continues to maintain a strong financial position with all of its committed credit facilities undrawn and fully available atSeptember 30, 2022 . Cash and committed and available forms of liquidity were$12 billion atSeptember 30, 2022 . The Company also has no substantive long-term debt maturities due until 2027. As a well-known seasoned issuer the Company may issue debt at any time as an additional source of liquidity. Additional details on sources of liquidity are as follows: Commercial Paper TDCC issues promissory notes under itsU.S. and Euromarket commercial paper programs. TDCC had$100 million of commercial paper outstanding atSeptember 30, 2022 . TDCC maintains access to the commercial paper market at competitive rates. Amounts outstanding under TDCC's commercial paper programs during the period may be greater, or less than, the amount reported at the end of the period. Subsequent toSeptember 30, 2022 , TDCC issued approximately$600 million of commercial paper. 58
-------------------------------------------------------------------------------- Table of Contents Committed Credit Facilities The Company also has the ability to access liquidity through TDCC's committed and available credit facilities. AtSeptember 30, 2022 , TDCC had total committed and available credit facilities of$8.4 billion . See Note 12 to the Consolidated Financial Statements for additional information on committed and available credit facilities. Committed Accounts Receivable Facilities In addition to the above committed credit facilities, the Company maintains a committed accounts receivable facility in theU.S. where eligible trade accounts receivable, up to$900 million , may be sold at any point in time. The Company also maintains a committed accounts receivable facility inEurope where eligible trade accounts receivable, up to €500 million, may be sold at any point in time. In the third quarter of 2022, the Company sold no receivables under theU.S. andEurope committed accounts receivable facilities ($391 million in the first nine months of 2022). See Note 11 to the Consolidated Financial Statements for additional information.Company-Owned Life Insurance The Company has investments in company-owned life insurance ("COLI") policies, which are recorded at their cash surrender value as of each balance sheet date. The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. The Company had no outstanding monetization of its existing COLI policies' surrender value atSeptember 30, 2022 . For additional information, see Note 7 to the Consolidated Financial Statements included in the 2021 10-K. Uncommitted Credit Facilities The Company has entered into various uncommitted bilateral credit arrangements as a potential source of excess liquidity. These lines can be used to support short-term liquidity needs and for general purposes, including letters of credit. The Company had no drawdowns outstanding atSeptember 30, 2022 . Shelf Registration -U.S. OnJune 13, 2022 ,Dow Inc. and TDCC filed a shelf registration statement with theU.S. Securities and Exchange Commission . The shelf indicates thatDow Inc. may offer common stock; preferred stock; depositary shares; debt securities; guarantees; warrants to purchase common stock, preferred stock and debt securities; and stock purchase contracts and stock purchase units, with pricing and availability of any such offerings depending on market conditions. The shelf also indicates that TDCC may offer debt securities, guarantees and warrants to purchase debt securities, with pricing and availability of any such offerings depending on market conditions. OnJuly 22, 2022 , TDCC filed a prospectus supplement under this shelf registration to register an undetermined amount of securities for issuance under InterNotes®. Also, onJuly 22, 2022 , TDCC filed a prospectus supplement under this shelf registration to register an undetermined amount of securities for issuance under a medium-term notes program. 59 -------------------------------------------------------------------------------- Table of Contents Debt As the Company continues to maintain its strong balance sheet and financial flexibility, management is focused on net debt (a non-GAAP financial measure), as the Company believes this is the best representation of its financial leverage at this point in time. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents" and "Marketable securities." Total Debt Dow Inc. TDCC In millions Sep 30, 2022 Dec 31, 2021 Sep 30, 2022 Dec 31, 2021 Notes payable $ 185 $ 161 $ 185 $ 161 Long-term debt due within one year 364 231 364 231 Long-term debt 12,921 14,280 12,921 14,280 Gross debt$ 13,470 $ 14,672 $ 13,470 $ 14,672 - Cash and cash equivalents 2,216 2,988 2,216 2,988 - Marketable securities 1 148 245 148 245 Net debt$ 11,106 $ 11,439 $ 11,106 $ 11,439 Total equity$ 18,629 $ 18,739 $ 18,877 $ 19,029 Gross debt as a percent of total capitalization 42.0 % 43.9 % 41.6 % 43.5 % Net debt as a percent of total capitalization 37.3 % 37.9 % 37.0 % 37.5 %
1.Included in “Other current assets” in the consolidated balance sheets.
In the second quarter of 2022, the Company redeemed
principal amount of 3.625 percent notes due
The Company may at any time repurchase certain debt securities in the open
market or in privately negotiated transactions subject to: the applicable terms
under which any such debt securities were issued, certain internal approvals of
the Company, and applicable laws and regulations of the relevant jurisdiction in
which any such potential transactions might take place. This in no way obligates
the Company to make any such repurchases nor should it be considered an offer to
do so.
TDCC's public debt instruments and primary, private credit agreements contain,
among other provisions, certain customary restrictive covenant and default
provisions. TDCC's most significant debt covenant with regard to its financial
position is the obligation to maintain the ratio of its consolidated
indebtedness to consolidated capitalization at no greater than 0.70 to 1.00 at
any time the aggregate outstanding amount of loans under the Five Year
Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit
Agreement") equals or exceeds $500 million . The ratio of TDCC's consolidated
indebtedness to consolidated capitalization as defined in the Revolving Credit
Agreement was 0.39 to 1.00 at September 30, 2022 . Management believes TDCC was
in compliance with all of its covenants and default provisions at September 30,
2022 . For information on TDCC's debt covenants and default provisions, see Note
15 to the Consolidated Financial Statements included in the 2021 10-K. There
were no material changes to the debt covenants and default provisions related to
TDCC's outstanding long-term debt and primary, private credit agreements in the
first nine months of 2022.
While taking into consideration the current economic environment, management
expects that the Company will continue to have sufficient liquidity and
financial flexibility to meet all of its business obligations.
Credit Ratings AtSeptember 30, 2022 , TDCC's credit ratings were as follows: Credit Ratings Long-Term Rating Short-Term Rating Outlook Fitch Ratings BBB+ F2 Positive Moody's Investors Service Baa1 P-2 Stable Standard & Poor's BBB A-2 Positive 60
-------------------------------------------------------------------------------- Table of Contents OnMay 31, 2022 , Moody's Investors Service announced a credit rating upgrade for TDCC from Baa2 to Baa1, affirmed its P-2 rating and maintained a stable outlook. OnJune 8, 2022 ,Standard & Poor's affirmed TDCC's BBB and A-2 rating, and revised its outlook to positive from stable. OnJune 16, 2022 , Fitch Ratings affirmed TDCC's BBB+ and F2 rating, and revised its outlook to positive from stable. These credit agencies' decisions were made as part of their annual review process and reflect the Company's supportive financial policies and strong operating performance.
Dividends
Dow Inc. Dow Inc. has paid dividends on a quarterly basis since the separation from DowDuPont and expects to continue to do so, subject to approval by theDow Inc. Board. Dividends declared by the Board align to the Company's strategy announced in 2018 of returning approximately 45 percent of operating net income1 to the shareholders through the dividend and total shareholder remuneration of approximately 65 percent, when including share repurchases, over the economic cycle. The following table summarizes cash dividends declared by the Board and paid to common stockholders of record byDow Inc. in 2022:
Declaration Date Record Date Payment Date Amount (per share) February 10, 2022 February 28, 2022 March 11, 2022 $ 0.70 April 13, 2022 May 31, 2022 June 10, 2022 $ 0.70 August 10, 2022 August 31, 2022 September 9, 2022 $ 0.70 October 13, 2022 November 30, 2022 December 9, 2022 $ 0.70 TDCC TDCC has committed to fundDow Inc.'s dividends paid to common stockholders and share repurchases, as approved by theDow Inc. Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board reviews and determines a dividend distribution toDow Inc. to settle the intercompany loans. For the three months endedSeptember 30, 2022 , TDCC declared and paid a dividend toDow Inc. of$1,301 million ($3,755 million for the nine months endedSeptember 30, 2022 ). AtSeptember 30, 2022 , TDCC's intercompany loan balance withDow Inc. was insignificant. See Note 22 to the Consolidated Financial Statements for additional information. Share Repurchase Program OnApril 1, 2019 , theDow Inc. Board ratified the share repurchase program originally approved onMarch 15, 2019 , authorizing up to$3 billion for the repurchase of the Company's common stock, with no expiration date. The Company completed theApril 1, 2019 share repurchase program in the second quarter of 2022. OnApril 13, 2022 , theDow Inc. Board approved a new share repurchase program authorizing up to$3 billion for the repurchase of the Company's common stock, with no expiration date. The Company repurchased$800 million of its common stock in the third quarter of 2022 ($2,200 million in the first nine months of 2022). AtSeptember 30, 2022 , approximately$2,175 million of the new share repurchase program authorization remained available for repurchases. As previously announced, the Company intends to repurchase shares to cover dilution over the cycle. With the announcement of the new share repurchase program, the Company may from time to time expand its share repurchases beyond dilution, based on a number of factors including macroeconomic conditions, free cash flow generation, and the Dow share price. Any share repurchases, when coupled with the Company's dividends, are intended to implement the long-term strategy of ensuring shareholder remuneration is approximately 65 percent over the economic cycle. Pension Plans The Company has both funded and unfunded defined benefit pension plans that cover employees inthe United States and a number of other countries. The Company's funding policy is to contribute to funded plans when pension laws and/or economics either require or encourage funding. The Company expects to contribute approximately$250 million to its pension plans in 2022, of which$156 million has been contributed throughSeptember 30, 2022 . See Note 17 to the Consolidated Financial Statements and Note 20 to the Consolidated Financial Statements included in the 2021 10-K for additional information related to the Company's pension plans. 1.Operating net income is a non-GAAP measure that Dow defines as "Net income available forDow Inc. common stockholders," excluding the impact of significant items. 61 -------------------------------------------------------------------------------- Table of Contents Restructuring The actions related to the 2020 Restructuring Program are expected to result in additional cash expenditures of$92 million , primarily through 2022 and into 2023, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including contract cancellation penalties and environmental remediation. Restructuring implementation costs, primarily decommissioning and demolition activities related to asset actions, are expected to result in additional cash expenditures of approximately$10 million , primarily through the end of 2022. Restructuring implementation costs totaled$11 million in the third quarter of 2022 ($31 million in the first nine months of 2022). The Company expects to incur additional costs in the future related to its restructuring activities, which will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits related to its other optimization activities. These costs cannot be reasonably estimated at this time. See Note 5 to the Consolidated Financial Statements for additional information on the Company's restructuring activities. Digital Acceleration In 2021, Dow announced plans to further advance and expand its digitalization efforts to deliver long-term value creation by accelerating investment in three key areas: expanding digital tools to accelerate materials science innovation; further enhancing the e-commerce buying and fulfillment experience for Dow's customers; and adopting real-time digital manufacturing insights, operational data intelligence and demand sensing to enhance the productivity and reliability of Dow's operations. The Company expects more than$300 million in incremental annual run rate Operating EBITDA generation by the end of 2025 related to digital acceleration, with an additional one-time$100 million in structural working capital efficiency gains, driven in part by enhanced planning from digital tools. The activities related to digital acceleration are expected to result in additional cash expenditures of approximately$80 million , primarily through the end of 2022. Digital acceleration expenses totaled$62 million in the third quarter of 2022 ($154 million in the first nine months of 2022). Contractual Obligations Information related to the Company's contractual obligations, commercial commitments and expected cash requirements for interest can be found in Notes 15, 16, 17 and 20 to the Consolidated Financial Statements included in the 2021 10-K. With the exception of the items noted below, there have been no material changes in the Company's contractual obligations sinceDecember 31, 2021 . Contractual Obligations at Sep 30, 2022 Payments Due In 2027 and In millions 2022 2023-2024 2025-2026 beyond Total Dow Inc. Long-term debt obligations 1$ 34 $ 474 $ 465 $ 12,579 $ 13,552 Expected cash requirements for interest 2$ 151 $ 1,151 $
1,104
1.Excludes unamortized debt discount and issuance costs of
Includes finance lease obligations of
2.Cash requirements for interest on long-term debt was calculated using current
interest rates at
floating rate notes.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with
nonconsolidated entities related to transactions, agreements or other
contractual arrangements. The Company holds variable interests in joint ventures
accounted for under the equity method of accounting. The Company is not the
primary beneficiary of these joint ventures and therefore is not required to
consolidate these entities (see Note 21 to the Consolidated Financial
Statements).
Guarantees arise during the ordinary course of business from relationships with
customers, committed accounts receivable facilities and nonconsolidated
affiliates when the Company undertakes an obligation to guarantee the
performance of others if specific triggering events occur. Additional
information related to guarantees can be found in the "Guarantees" section of
Note 13 to the Consolidated Financial Statements.
Fair Value Measurements
See Note 20 to the Consolidated Financial Statements for information concerning
fair value measurements.
62
--------------------------------------------------------------------------------
Table of Contents OTHER MATTERS Critical Accounting Estimates The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted inthe United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements included in the 2021 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The Company's critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 10-K. Since December 31, 2021, there have been no material changes in the Company's accounting policies that are impacted by judgments, assumptions and estimates. Asbestos-Related Matters ofUnion Carbide Corporation Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestoscontaining products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary,Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide's products. The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants: Asbestos-Related Claim Activity 2022 2021 Claims unresolved at Jan 1 8,747 9,126 Claims filed 3,662 3,177 Claims settled, dismissed or otherwise resolved (5,823)
(3,340)
Claims unresolved atSep 30 6,586
8,963
Claimants with claims against both Union Carbide and Amchem (1,502) (2,312)
Individual claimants at
5,084
6,651
Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to Union Carbide, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide's litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.
For additional information, see Asbestos-Related Matters of
Corporation
1. Legal Proceedings; and Note 16 to the Consolidated Financial Statements
included in the 2021 10-K.
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