DOW INC.

DOW
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DOW : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

10/22/2021 | 07:54am


This Quarterly Report on Form 10-Q is a combined report being filed by Dow Inc.
and The Dow Chemical Company and its consolidated subsidiaries ("TDCC" and
together with Dow Inc., "Dow" or the "Company") due to the parent/subsidiary
relationship between Dow Inc. and TDCC. The information reflected in the report
is equally applicable to both Dow Inc. and TDCC, except where otherwise noted.
Each of Dow 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
Union Carbide Corporation and the term "Dow Silicones" means Dow Silicones
Corporation
, both wholly owned subsidiaries of the Company.




STATEMENTS ON COVID-19 and U.S. GULF COAST FREEZE
COVID-19
Additional information regarding actions taken by Dow since the onset of the
pandemic can be found in the combined Dow Inc. and TDCC Annual Report on Form
10-K for the year ended December 31, 2020 ("2020 10-K").

The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all
geographic regions where Dow products are produced and sold. During this public
health crisis, the Company is focused on the health and safety of its employees,
contractors, customers and suppliers around the world as well as maintaining
safe and reliable operations of its manufacturing sites. Although supply
disruptions and related logistical issues challenge all modes of transportation,
the Company's manufacturing sites have continued to operate during the COVID-19
pandemic, with no significant impact to manufacturing, whether through shutdowns
or shortages in labor, raw materials or personal protective equipment. Supply
chain and logistical challenges are expected to stabilize in 2022. Contingency
plans remain in place in the event of significant impacts from COVID-19
infection resurgences.

At the time of this filing, approximately half of Dow's global workforce is
working remotely. The Company continues to encourage its workforce to practice
safe behaviors both in the workplace and while away from work to help prevent
community spread of COVID-19. The Company continues to monitor the ongoing
mitigation efforts of each region to appropriately implement its comprehensive
Return to Workplace plan. All regions continue to follow on-site workforce
restrictions in accordance with government regulations. Certain locations have
implemented advanced phases of the Company's Return to Workplace plan and it is
expected that more locations will progress to their next phase as infection
rates subside.

The Company entered 2021 with sequential momentum and is well-positioned for
continued profitable growth in the ongoing economic recovery and improving
industry cycle. The Company will maintain its disciplined focus on capital
allocation priorities as it benefits from an improving cost structure, financial
flexibility and a low-cost operating model. Through the ongoing market recovery,
Dow has experienced increasing margins as differentiated parts of the portfolio
see improved demand and underlying market dynamics, which has enabled a return
to pre­COVID­19 sales levels and end-market growth across most businesses.

The Company has continued to maintain a strong financial position and liquidity
throughout the economic recession triggered by the COVID-19 pandemic and its
ongoing recovery. At September 30, 2021, the Company had cash and committed and
available forms of liquidity of $12.4 billion. The Company also has no
substantive long-term debt maturities due until 2026.

U.S. Gulf Coast Freeze
In the first quarter of 2021, Winter Storm Uri had a broad impact on the U.S.
Gulf Coast
and in particular across the entire state of Texas, which resulted in
widespread utility and raw material supply disruptions and industry-wide
production outages. All Dow ethylene production facilities located on the U.S.
Gulf Coast
were operational by March 31, 2021, along with all sites. As a result
of the winter storm, the product and supply chain impacts across the industry
created very tight supply dynamics and generated pricing momentum for both raw
materials and finished goods. The Company remains close to its customers and
continues to work diligently to meet demand needs.

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OUTLOOK
Dow continues to see robust end-market demand that is expected to extend into
2022, coupled with near-term logistics constraints and low inventory levels
across its value chains. Longer term, Dow is well-positioned to increase
earnings, cash flow and returns as it decarbonizes its footprint and achieves
its 2030 and 2050 carbon emissions reduction targets. Dow will continue to build
on its competitive advantage with growth from higher-margin,
sustainability-driven, downstream solutions, and value-accretive investments to
replace end-of-life assets with carbon-efficient and higher return production.
Dow expects to deliver significant long-term value for shareholders as it
continues to apply its balanced capital allocation approach to grow earnings
while maintaining its strong operational and financial discipline.


OVERVIEW



The following is a summary of the results for the three months ended
September 30, 2021:
•The Company reported net sales in the third quarter of 2021 of $14.8 billion,
up 53 percent from $9.7 billion in the third quarter of 2020, and up 7 percent
from $13.9 billion in the second quarter of 2021, with increases across all
operating segments and geographic regions.
•Local price increased 50 percent compared with the third quarter of 2020 with
increases in all operating segments and geographic regions, driven by tight
supply and demand dynamics across key value chains. Local price increased in
Packaging & Specialty Plastics (up 63 percent), Industrial Intermediates &
Infrastructure (up 49 percent) and Performance Materials & Coatings (up
23 percent). Local price increased 5 percent compared with the second quarter of
2021.
•Volume increased 2 percent compared with the third quarter of 2020 with
increases in Packaging & Specialty Plastics (up 5 percent) and Performance
Materials & Coatings (up 2 percent), partially offset by a decrease in
Industrial Intermediates & Infrastructure (down 4 percent). Volume increased
2 percent compared with the second quarter of 2021.
•Currency had a favorable impact of 1 percent on net sales compared with the
third quarter of 2020, driven by Europe, Middle East, Africa and India ("EMEAI")
(up 2 percent) and Asia Pacific (up 2 percent).
•Equity in earnings of nonconsolidated affiliates was $249 million in the third
quarter of 2021, compared with $60 million in the third quarter of 2020,
primarily driven by margin expansion at Sadara Chemical Company ("Sadara") and
the Kuwait joint ventures.
•Net income available for Dow Inc. and TDCC common stockholder(s) was
$1,683 million and $1,679 million, respectively, in the third quarter of 2021,
compared with a net loss of $25 million in the third quarter of 2020. Earnings
per share for Dow Inc. was $2.23 per share in the third quarter of 2021,
compared with a loss of $0.04 per share in the third quarter of 2020.
•Cash provided by operating activities - continuing operations was $2.7 billion
in the third quarter of 2021, up $958 million compared with the same period last
year and an increase of $698 million compared with the second quarter of 2021.
•Dow reduced gross debt by $1.1 billion in the quarter. The Company's proactive
liability management actions to tender existing notes have resulted in no
substantive long-term debt maturities due until 2026 and reduced annual interest
expense by more than $60 million.
•On August 12, 2021, Dow Inc. announced that its Board of Directors ("Board")
declared a dividend of $0.70 per share, which was paid on September 10, 2021, to
shareholders of record as of August 31, 2021.
•Dow Inc. repurchased $400 million of the Company's common stock in the third
quarter of 2021.

In addition to the highlights above, the following events occurred subsequent to
the third quarter of 2021:
•On October 6, 2021, Dow Inc. held an Investor Day event where it announced the
following: investment plans to deliver more than $3 billion of additional
underlying EBITDA growth with a clear path to zero-carbon emissions; the
addition of eight new renewable power agreements, reducing emissions by more
than 600,000 metric tons of carbon dioxide equivalent per year; a plan to build
the world's first net-zero carbon emissions ethylene and derivatives complex;
and expansion of global capabilities for circular plastics, with initial
products available for customers in 2022.
•On October 14, 2021, Dow Inc. announced that its Board declared a dividend of
$0.70 per share, payable on December 10, 2021, to shareholders of record as of
November 30, 2021.

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Selected Financial Data - Dow Inc. Three Months Ended Nine Months Ended
In millions Sep 30, 2021


Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales


$ 14,837 $ 9,712 $ 40,604 $ 27,836

Cost of sales ("COS") $ 11,611 $ 8,371 $ 32,413 $ 24,211
Percent of net sales 78.3 % 86.2 % 79.8 % 87.0 %

Research and development ("R&D") expenses $ 210 $ 193 $ 632 $ 554
Percent of net sales 1.4 % 2.0 % 1.6 % 2.0 %

Selling, general and administrative ("SG&A") expenses $ 403 $ 372 $ 1,209 $ 1,063
Percent of net sales 2.7 % 3.8 % 3.0 % 3.8 %

Effective tax rate 24.1 % 102.4 % 22.9 % 84.3 %

Net income (loss) available for Dow Inc. common
stockholders $ 1,683 $ (25) $ 4,575 $ (11)



Selected Financial Data - TDCC Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 14,837 $ 9,712 $ 40,604 $ 27,836

COS $ 11,610 $ 8,371 $ 32,410 $ 24,209
Percent of net sales 78.3 % 86.2 % 79.8 % 87.0 %

R&D expenses $ 210 $ 193 $ 632 $ 554
Percent of net sales 1.4 % 2.0 % 1.6 % 2.0 %

SG&A expenses $ 403 $ 372 $ 1,209 $ 1,062
Percent of net sales 2.7 % 3.8 % 3.0 % 3.8 %

Effective tax rate 24.2 % 102.4 % 22.9 % 84.3 %

Net income (loss) available for The Dow Chemical
Company common stockholder $ 1,679 $ (25) $ 4,576 $ (11)




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RESULTS OF OPERATIONS
Net Sales
The following tables summarize net sales and sales variances by operating
segment and geographic region from the prior year:

Summary of Sales Results Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 14,837 $ 9,712 $ 40,604 $ 27,836




Sales Variances by Operating Segment and Geographic Region



Three Months Ended Sep 30, 2021 Nine Months Ended Sep 30, 2021
Local Price & Local Price &


Percentage change from prior year Product Mix Currency Volume Total Product Mix Currency Volume



Total



Packaging & Specialty Plastics 63 % 1 % 5 % 69 % 52 % 3 % 4 % 59 %
Industrial Intermediates &
Infrastructure 49 2 (4) 47 41 3 - 44
Performance Materials & Coatings 23 1 2 26 14 3 3 20
Total 50 % 1 % 2 % 53 % 40 % 3 % 3 % 46 %
Total, excluding the Hydrocarbons &
Energy business 45 % 1 % (1) % 45 % 36 % 3 % - % 39 %
U.S. & Canada 56 % - % 5 % 61 % 44 % - % 2 % 46 %
EMEAI 55 2 3 60 45 6 5 56
Asia Pacific 28 2 (6) 24 24 3 - 27
Latin America 60 - (1) 59 51 - - 51
Total 50 % 1 % 2 % 53 % 40 % 3 % 3 % 46 %



Net sales in the third quarter of 2021 were $14.8 billion, up 53 percent from
$9.7 billion in the third quarter of 2020, with local price up 50 percent,
volume up 2 percent and a favorable currency impact of 1 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 across key value chains. Local price increased
in Packaging & Specialty Plastics (up 63 percent), Industrial Intermediates &
Infrastructure (up 49 percent) and Performance Materials & Coatings (up
23 percent). Volume increases in the U.S. & Canada and EMEAI were partially
offset by volume decreases in Latin America and Asia Pacific. Volume increased
in Packaging & Specialty Plastics (up 5 percent) and Performance Materials &
Coatings (up 2 percent) and decreased in Industrial Intermediates &
Infrastructure (down 4 percent). Currency favorably impacted net sales
1 percent, driven by EMEAI (up 2 percent) and Asia Pacific (up 2 percent).
Excluding the Hydrocarbons & Energy business, sales increased 45 percent.

Net sales for the first nine months of 2021 were $40.6 billion, up 46 percent
from $27.8 billion in the same period last year, with local price up 40 percent,
volume up 3 percent and a favorable currency impact of 3 percent. Net sales
increased in all operating segments and geographic regions. Local price
increased in all operating segments and geographic regions, primarily reflecting
price gains due to tight supply and demand dynamics. Local price increased in
Packaging & Specialty Plastics (up 52 percent), Industrial Intermediates &
Infrastructure (up 41 percent) and Performance Materials & Coatings (up
14 percent). Volume increased in Packaging & Specialty Plastics (up 4 percent)
and Performance Materials & Coatings (up 3 percent) and was flat in Industrial
Intermediates & Infrastructure. Currency favorably impacted net sales 3 percent,
driven by EMEAI (up 6 percent) and Asia Pacific (up 3 percent). Excluding the
Hydrocarbons & Energy business, sales increased 39 percent.



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Cost of Sales
COS was $11.6 billion in the third quarter of 2021, up from $8.4 billion in the
third quarter of 2020, primarily due to increased sales volume and higher
feedstock, energy and other raw material costs. For the first nine months of
2021, COS was $32.4 billion, up from $24.2 billion in the first nine months of
2020, primarily due to increased sales volume, higher feedstock and energy costs
and impacts from Winter Storm Uri, which included higher raw material costs and
repair costs. The third quarter of 2021 included $36 million ($106 million for
the first nine months of 2021) of costs associated with implementing the
Company's digital acceleration program (related to Corporate). COS as a
percentage of net sales in the third quarter of 2021 was 78.3 percent (86.2
percent in the third quarter of 2020) and 79.8 percent for the first nine months
of 2021 (87.0 percent for the first nine months of 2020).

Research and Development Expenses
R&D expenses totaled $210 million in the third quarter of 2021, compared with
$193 million in the third quarter of 2020. R&D expenses for the first nine
months of 2021 were $632 million, compared with $554 million in the first nine
months of 2020. R&D expenses increased primarily due to higher performance-based
compensation costs, fringe benefit expenses driven by stock market increases
compared with the same period last year and increased spending due to the
economic recovery from the COVID-19 pandemic.

Selling, General and Administrative Expenses
SG&A expenses totaled $403 million in the third quarter of 2021, compared with
$372 million in the third quarter of 2020. For the first nine months of 2021,
SG&A expenses were $1,209 million, compared with $1,063 million in the first
nine months of 2020. SG&A expenses increased primarily due to higher
performance-based compensation costs, fringe benefit expenses driven by stock
market increases compared with the same period last year and increased spending
due to the economic recovery from the COVID-19 pandemic. The first nine months
of 2020 were favorably impacted by the recovery of legal costs related to the
Nova Chemicals Corporation ("Nova") ethylene asset matter and the reversal of a
bad debt reserve related to an arbitration judgment.

Amortization of Intangibles
Amortization of intangibles was $100 million in the third quarter of 2021 and
2020. In the first nine months of 2021, amortization of intangibles was
$301 million, compared with $300 million in the first nine months of 2020. See
Note 10 to the Consolidated Financial Statements for additional information on
intangible assets.

Restructuring and Asset Related Charges - Net
2020 Restructuring Program
On September 29, 2020, Dow Inc.'s Board approved restructuring actions to
achieve the Company's structural cost improvement initiatives in response to the
continued economic impact from the COVID-19 pandemic. The restructuring program
is designed to reduce structural costs and enable the Company to further enhance
competitiveness while the COVID-19 economic recovery continues. These actions
are expected to be substantially complete by the end of 2021, except for certain
cash payments in 2022.

For the nine months ended September 30, 2021, the Company recorded pretax
restructuring charges of $22 million, consisting of $12 million for asset
write-downs and write-offs and $10 million for costs associated with exit and
disposal activities, impacting Packaging & Specialty Plastics ($8 million),
Industrial Intermediates & Infrastructure ($1 million), Performance Materials &
Coatings ($10 million) and Corporate ($3 million). For the three months ended
September 30, 2020, the Company recorded pretax restructuring charges of $575
million
, consisting of severance and related benefit costs of $297 million,
asset write-downs and write-offs of $197 million and costs associated with exit
and disposal activities of $81 million, impacting Packaging & Specialty Plastics
($11 million), Industrial Intermediates & Infrastructure ($22 million),
Performance Materials & Coatings ($174 million) and Corporate ($368 million).

DowDuPont Cost Synergy Program
In September and November 2017, DowDuPont Inc. ("DowDuPont") approved
post-merger restructuring actions under the DowDuPont Cost Synergy Program (the
"Synergy Program") which was designed to integrate and optimize the organization
following the merger and in preparation for the business separations. For the
three months ended September 30, 2020, the Company recorded a favorable
adjustment to the Synergy Program related to severance and related benefit costs
of $4 million. For the nine months ended September 30, 2020, the Company
recorded pretax restructuring charges of $90 million for severance and related
benefit costs, related to Corporate. These were the final charges related to the
Synergy Program.


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Asset Related Charges
The Company recognized pretax impairment charges of $46 million and $58 million
for the three and nine months ended September 30, 2020, respectively. Pretax
impairment charges for the three months ended September 30, 2020, included a
$15 million charge for the write-down of a non-manufacturing asset and the
write-off of a capital project (related to Performance Materials & Coatings) and
a $24 million charge associated with the write-down of certain corporate leased
equipment (related to Corporate). Pretax impairment charges also included $7
million
and $19 million for the three and nine months ended September 30, 2020,
respectively, related to capital additions made to a bio-ethanol manufacturing
facility in Santa Vitoria, Minas Gerais, Brazil, which was impaired in 2017 and
divested in 2020 (related to Packaging & Specialty Plastics).

Integration and Separation Costs
Integration and separation costs, which reflect costs related to business
separation activities, were $63 million in the third quarter of 2020 and $174
million
for the first nine months of 2020. Integration and business separation
activities were completed as of December 31, 2020. Integration and separation
costs are related to Corporate.

Equity in Earnings (Losses) of Nonconsolidated Affiliates
The Company's share of equity in earnings of nonconsolidated affiliates was
$249 million in the third quarter of 2021, compared with equity earnings of
$60 million in the third quarter of 2020. Equity in earnings of nonconsolidated
affiliates was $751 million in the first nine months of 2021, compared with
equity losses of $124 million in the first nine months of 2020. The improvement
from the prior year was primarily due to equity earnings at Sadara compared with
equity losses in the same period last year, and higher equity earnings at the
Kuwait and Thai joint ventures. See Note 9 to the Consolidated Financial
Statements for additional information.

Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expense items
such as foreign currency exchange gains and losses, dividends from investments,
gains and losses on sales of investments and assets, non-operating pension and
other postretirement benefit plan credits or costs, losses on early
extinguishment of debt and certain litigation matters.

For the three months ended September 30, 2021, Sundry income (expense) - net was
expense of $350 million and $356 million for Dow Inc. and TDCC, respectively,
compared with income of $182 million and $181 million, respectively, for the
three months ended September 30, 2020. The third quarter of 2021 included a $472
million
loss on the early extinguishment of debt (related to Corporate and
included in "Other net loss" in the consolidated statements of cash flows). 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). The third quarter of 2020 included a
$233 million gain related to the sale of rail infrastructure in the U.S. &
Canada (related to Packaging & Specialty Plastics and Corporate) and
non-operating pension and postretirement benefit plan credits. These were
partially offset by a $63 million loss on the early extinguishment of debt
(related to Corporate and included in "Other net loss" in the consolidated
statements of cash flows); a $13 million loss related to the divestiture of a
bio-ethanol manufacturing facility in Brazil (related to Packaging & Specialty
Plastics); and foreign currency exchange losses.

For the nine months ended September 30, 2021, Sundry income (expense) - net was
expense of $225 million and $231 million for Dow Inc. and TDCC, respectively,
compared with income of $154 million and $150 million, respectively, for the
nine months ended September 30, 2020. The first nine months of 2021 included a
$574 million loss on the early extinguishment of debt (related to Corporate and
included in "Other net loss" in the consolidated statements of cash flows), and
foreign currency exchange losses. These were partially offset by non-operating
pension and postretirement benefit plan credits, gains on the sale 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 charge 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 first nine months of 2020 included
a $233 million gain related to the sale of rail infrastructure in the U.S. &
Canada (related to Packaging & Specialty Plastics and Corporate), a $6 million
gain related to the Nova ethylene asset matter (related to Packaging & Specialty
Plastics) and non­operating pension and postretirement benefit plan credits.
These were partially offset by a $149 million loss on the early extinguishment
of debt (related to Corporate and included in "Other net loss" in the
consolidated statements of cash flows); a $13 million loss related to the
divestiture of a bio­ethanol manufacturing facility in Brazil (related to
Packaging & Specialty Plastics); and foreign currency exchange losses. See
Notes 6, 11, 16 and 22 to the Consolidated Financial Statements for additional
information.
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Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount was $178 million in the third
quarter of 2021, compared with $202 million in the third quarter of 2020.
Interest expense and amortization of debt discount was $561 million in the first
nine months of 2021, compared with $617 million in the first nine months of
2020. The decrease in interest expense is primarily due to lower coupon rates
and the redemption of debt.

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 2021 was 24.1 percent and 24.2 percent for Dow Inc. and TDCC,
respectively, compared with 102.4 percent for the third quarter of 2020. For the
first nine months of 2021, the effective tax rate was 22.9 percent compared with
84.3 percent for the first nine months of 2020. The tax rate in the third
quarter and for the first nine months of 2021 was favorably impacted by
geographic mix of earnings and higher equity earnings. The tax rate in the third
quarter and for the first nine months of 2020 was unfavorably impacted primarily
by equity losses and geographic mix of earnings, non-deductible restructuring
costs and an increase in tax reserves and was favorably impacted by a capital
loss resulting from the divestiture of a bio-ethanol manufacturing facility in
Brazil.

Net Income (Loss) Available for Common Stockholder(s)
Dow Inc.
Net income available for Dow Inc. common stockholders was $1,683 million, or
$2.23 per share, in the third quarter of 2021, compared with a net loss of
$25 million, or $0.04 per share, in the third quarter of 2020. Net income
available for Dow Inc. common stockholders was $4,575 million, or $6.06 per
share, in the first nine months of 2021, compared with a net loss of $11
million
, or $0.02 per share, in the first nine months of 2020. See Note 7 to the
Consolidated Financial Statements for details on Dow Inc.'s earnings per share
calculations.


TDCC



Net income available for the TDCC common stockholder was $1,679 million in the
third quarter of 2021, compared with a net loss of $25 million in the third
quarter of 2020. Net income available for the TDCC common stockholder was $4,576
million
in the first nine months of 2021, compared with a loss of $11 million in
the first nine months of 2020. TDCC's common shares are owned solely by Dow 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
Packaging & Specialty Plastics consists of two highly integrated global
businesses: Hydrocarbons & Energy and Packaging and Specialty Plastics. The
segment employs the industry's broadest polyolefin product portfolio, supported
by the Company's proprietary catalyst and manufacturing process technologies, to
work at the customer's design table throughout the value chain to deliver more
reliable and durable, higher performing, and more sustainable plastics to
customers in food and specialty packaging; industrial and consumer packaging;
health and hygiene; caps, closures and pipe applications; consumer durables;
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 of The Kuwait Styrene Company K.S.C.C. and The SCG-Dow
Group
, as well as a portion of the results of EQUATE 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 currently responsible for marketing a majority of Sadara products
outside of the Middle 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 March 2021, Dow and the Saudi Arabian Oil
Company agreed to transition the marketing rights and responsibilities for
Sadara's finished products to levels more consistent with each partner's equity
ownership. This transition began in July 2021 and is being implemented over the
next five years.

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Packaging & Specialty Plastics Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 7,736 $ 4,565 $ 20,939 $ 13,175
Operating EBIT $ 1,954 $ 647 $ 5,196 $ 1,545
Equity earnings $ 124 $ 71 $ 360 $ 96



Packaging & Specialty Plastics Three Months Ended Nine Months Ended
Percentage change from prior year Sep 30, 2021 Sep 30, 2021
Change in Net Sales from Prior Period due to:
Local price & product mix 63 % 52 %
Currency 1 3
Volume 5 4

Total 69 % 59 %



Packaging & Specialty Plastics net sales were $7,736 million in the third
quarter of 2021, up 69 percent from net sales of $4,565 million in the third
quarter of 2020, with local price up 63 percent, volume up 5 percent and a
favorable currency impact of 1 percent, primarily in EMEAI. Local price
increased in both businesses and across all geographic regions, driven by tight
supply and demand dynamics. Local price increased in Hydrocarbons & Energy as
prices for co-products are generally correlated to Brent crude oil prices, which
increased 69 percent compared with the third quarter of 2020. Local price
increased in Packaging and Specialty Plastics driven by tight supply and demand
dynamics in polyethylene, notably in industrial and consumer packaging and
flexible food and beverage packaging applications. Volume increased in
Hydrocarbons & Energy, primarily in the U.S. & Canada, more than offsetting
decreased volume in Packaging and Specialty Plastics driven by weather-related
supply constraints.


Operating EBIT was $1,954 million in the third quarter of 2021, up $1,307
million
from Operating EBIT of $647 million in the third quarter of 2020.
Operating EBIT increased primarily due to integrated margin expansion and
increased equity earnings at Sadara and the Thai and Kuwait joint ventures.




Packaging & Specialty Plastics net sales were $20,939 million in the first nine
months of 2021, up 59 percent from net sales of $13,175 million in the first
nine months of 2020, with local price up 52 percent, volume up 4 percent and a
favorable currency impact of 3 percent, primarily in EMEAI. Local price
increased in both businesses and across all geographic regions, driven by tight
supply and demand dynamics. Local price increased in Hydrocarbons & Energy as
prices for co-products are generally correlated to Brent crude oil prices,
which, on average, increased 60 percent compared with the first nine months of
2020. Local price increased in Packaging and Specialty Plastics driven by
favorable supply and demand dynamics in polyethylene, notably in industrial and
consumer packaging and flexible food and beverage packaging applications. Volume
increased in Hydrocarbons & Energy, primarily in the U.S. & Canada and EMEAI,
more than offsetting decreased volume in Asia Pacific. Volume decreased in
Packaging and Specialty Plastics, primarily in Latin America and Asia Pacific,
more than offsetting increases in the U.S. & Canada and EMEAI as supply
constraints continue to lower exports.

Operating EBIT was $5,196 million in the first nine months of 2021, up $3,651
million
from Operating EBIT of $1,545 million in the first nine months of 2020.
Operating EBIT increased primarily due to integrated margin expansion and
increased equity earnings at Sadara and the Thai and Kuwait joint ventures.

INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE
Industrial Intermediates & Infrastructure consists of two customer-centric
global businesses - Industrial Solutions and Polyurethanes & Construction
Chemicals - that develop important intermediate chemicals that are essential to
manufacturing processes, as well as downstream, customized materials and
formulations that use advanced development technologies. These businesses
primarily produce and market ethylene oxide and propylene oxide derivatives that
are aligned to market segments as diverse as appliances, coatings, electronics,
surfactants for cleaning and sanitization, infrastructure and oil and gas. The
global scale and reach of these businesses, world­class technology and R&D
capabilities and materials science expertise enable the Company to be a premier
solutions provider, offering customers value-add sustainable solutions to
enhance comfort, energy efficiency, product effectiveness and durability across
a wide range of home comfort and appliances, building and construction,
adhesives and lubricant applications, among others. This segment also includes a
portion of the results of EQUATE, TKOC, Map Ta Phut and Sadara, all joint
ventures of the Company.
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The Company is currently responsible for marketing a majority of Sadara products
outside of the Middle 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 March 2021, Dow and the Saudi Arabian Oil
Company agreed to transition the marketing rights and responsibilities for
Sadara's finished products to levels more consistent with each partner's equity
ownership. This transition began in July 2021 and is being implemented over the
next five years.

Industrial Intermediates & Infrastructure Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 4,481 $ 3,058 $ 12,303 $ 8,520
Operating EBIT $ 713 $ 104 $ 1,687 $ 59
Equity earnings (losses) $ 122


$ (13) $ 381 $ (202)






Industrial Intermediates & Infrastructure Three Months Ended Nine Months Ended
Percentage change from prior year Sep 30, 2021 Sep 30, 2021
Change in Net Sales from Prior Period due to:
Local price & product mix 49 % 41 %
Currency 2 3
Volume (4) -

Total 47 % 44 %



Industrial Intermediates & Infrastructure net sales were $4,481 million in the
third quarter of 2021, up 47 percent from $3,058 million in the third quarter of
2020, with local price up 49 percent, a favorable currency impact of 2 percent
and volume down 4 percent. Local price increased in both businesses and in all
geographic regions, driven by strong supply and demand dynamics. Volume
decreased in Polyurethanes & Construction Chemicals, with decreases in the U.S.
& Canada and Asia Pacific, partially offset by an increase in Latin America,
primarily driven by a planned transition of a low-margin co-producer contract.
Industrial Solutions volume increased in all geographic regions, except EMEAI,
due to strong consumer demand in industrial specialties which more than offset
decreased volume in performance intermediates. Currency favorably impacted sales
in both businesses driven by Asia Pacific and EMEAI.

Operating EBIT was $713 million in the third quarter of 2021, up $609 million
from Operating EBIT of $104 million in the third quarter of 2020. Operating EBIT
increased primarily due to margin expansion from strong supply and demand
dynamics in both businesses and higher equity earnings at Sadara and the Kuwait
joint ventures.

Industrial Intermediates & Infrastructure net sales were $12,303 million in the
first nine months of 2021, up 44 percent from net sales of $8,520 million in the
first nine months of 2020, driven by an increase in price of 41 percent and a
favorable currency impact of 3 percent. Volume was flat. Local price increased
in both businesses and in all geographic regions, driven by strong supply and
demand dynamics and rising energy prices. Currency favorably impacted sales in
both businesses and in EMEAI and Asia Pacific. Volume in Polyurethanes &
Construction Chemicals increased due to gains in Latin America and EMEAI,
partially offset by decreased volume in the U.S. & Canada and Asia Pacific, and
was primarily due to robust consumer demand in polyurethane systems which more
than offset a decrease in vinyl chloride monomers mainly due to a planned
transition of a low-margin co-producer contract. Volume in Industrial Solutions
decreased in all geographic regions, except Latin America, largely driven by
supply constraints which more than offset strengthening consumer demand.

Operating EBIT was $1,687 million in the first nine months of 2021, up $1,628
million
from Operating EBIT of $59 million in the first nine months of 2020.
Operating EBIT increased primarily due to margin expansion from strong supply
and demand dynamics in Polyurethanes & Construction Chemicals and higher equity
earnings at Sadara and the Kuwait joint ventures.

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PERFORMANCE MATERIALS & COATINGS
Performance Materials & Coatings includes industry-leading franchises that
deliver a wide array of solutions into consumer and infrastructure end-markets.
The segment consists of two global businesses: Coatings & Performance Monomers
and Consumer Solutions. These businesses primarily utilize the Company's
acrylics-, cellulosics- and silicone-based technology platforms to serve the
needs of the architectural and industrial coatings; home care and personal care;
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 offerings to customers.

Performance Materials & Coatings Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 2,526 $ 2,002 $ 7,114 $ 5,922
Operating EBIT $ 284 $ 75 $ 571 $ 264
Equity earnings $ 3 $ 1 $ 5 $ 4



Performance Materials & Coatings Three Months Ended Nine Months Ended
Percentage change from prior year Sep 30, 2021 Sep 30, 2021
Change in Net Sales from Prior Period due to:
Local price & product mix 23 % 14 %
Currency 1 3
Volume 2 3

Total 26 % 20 %



Performance Materials & Coatings net sales were $2,526 million in the third
quarter of 2021, up 26 percent from net sales of $2,002 million in the third
quarter of 2020, with local price up 23 percent, volume up 2 percent and a
favorable currency impact of 1 percent. Local price increased in both businesses
and all geographic regions. Local price increased in Consumer Solutions
primarily due to favorable supply and demand dynamics in siloxanes. Local price
increased in Coatings & Performance Monomers primarily in response to higher raw
material costs and favorable supply and demand dynamics. Volume increased in
Consumer Solutions, which was partially offset by a decrease in Coatings &
Performance Monomers. The increase in Consumer Solutions volume was driven by
strong demand for downstream silicones. Volume decreased in Coatings &
Performance Monomers as an increase in Latin America was more than offset by
decreases in Asia Pacific, the U.S. & Canada and EMEAI as a result of supply
constraints.

Operating EBIT was $284 million in the third quarter of 2021, up $209 million
from Operating EBIT of $75 million in the third quarter of 2020. Operating EBIT
increased due to margin expansion and higher volume in Consumer Solutions.

Performance Materials & Coatings net sales were $7,114 million in the first nine
months of 2021, up 20 percent from net sales of $5,922 million in the first nine
months of 2020, with local price up 14 percent, volume up 3 percent, and a
favorable currency impact of 3 percent. Local price increased in both businesses
and all geographic regions. Consumer Solutions local price increased primarily
in upstream siloxanes due to favorable supply and demand dynamics. Local price
increased in Coatings & Performance Monomers primarily due to improved supply
and demand dynamics in acrylic monomers and architectural coatings. Volume
increases in Asia Pacific, Latin America and EMEAI were partially offset by a
decrease in volume in the U.S & Canada. Consumer Solutions volume increased due
to higher demand in all regions. Volume decreased in Coatings & Performance
Monomers as decreases in the U.S. & Canada and EMEAI were partially offset by
increases in Asia Pacific and Latin America, primarily due to supply
availability challenges due to weather-related outages and third-party supply
and logistics constraints. The favorable currency impact was driven by Asia
Pacific
and EMEAI.

Operating EBIT was $571 million in the first nine months of 2021, up $307
million
from Operating EBIT of $264 million in the first nine months of 2020.
Operating EBIT increased due to margin expansion and higher volume in Consumer
Solutions.


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

Corporate Three Months Ended Nine Months Ended
In millions Sep 30, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Net sales $ 94 $ 87 $ 248 $ 219
Operating EBIT $ (65) $ (65) $ (186) $ (207)
Equity earnings (losses) $ - $ 1 $ 5 $ (22)



Net sales for Corporate, which primarily relate to the Company's insurance
operations, were $94 million in the third quarter of 2021, an increase from net
sales of $87 million in the third quarter of 2020. Net sales were $248 million
in the first nine months of 2021, up from net sales of $219 million in the first
nine months of 2020.

Operating EBIT was a loss of $65 million in the third quarter of 2021 and 2020.
Operating EBIT was a loss of $186 million in the first nine months of 2021,
compared with a loss of $207 million in the first nine months of 2020. Operating
EBIT improved primarily due to reduced equity losses.

CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $2,911 million at September 30,
2021
and $5,104 million at December 31, 2020, of which $1,699 million at
September 30, 2021 and $862 million at December 31, 2020 was held by
subsidiaries in foreign countries, including U.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 to the United States.

The cash held by foreign subsidiaries for permanent reinvestment is generally
used to finance the subsidiaries' operational activities and future foreign
investments. Dow has the ability to repatriate additional funds to the U.S.,
which could result in an adjustment to the tax liability for foreign withholding
taxes, foreign and/or U.S. state income taxes and the impact of foreign currency
movements. At September 30, 2021, management believed that sufficient liquidity
was available in the U.S. 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.

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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, 2021 Sep 30, 2020 Sep 30, 2021 Sep 30, 2020
Cash provided by (used for):
Operating activities - continuing operations $ 4,512 $ 4,596 $ 4,634 $ 4,604
Operating activities - discontinued operations (78) - - -
Operating activities 4,434 4,596 4,634 4,604
Investing activities (1,535) (616) (1,535) (616)
Financing activities (4,974) (1,809) (5,174) (1,817)
Effect of exchange rate changes on cash, cash
equivalents and restricted cash (57) 4 (57) 4


Summary



Increase (decrease) in cash, cash equivalents and
restricted cash (2,132) 2,175 (2,132) 2,175


Cash, cash equivalents and restricted cash at beginning
of period


5,108 2,380 5,108 2,380


Cash, cash equivalents and restricted cash at end of
period


$ 2,976 $


4,555 $ 2,976 $ 4,555
Less: Restricted cash and cash equivalents, included in
"Other current assets"


65 6 65 6
Cash and cash equivalents at end of period $ 2,911 $


4,549 $ 2,911 $ 4,549






Cash Flows from Operating Activities
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. Cash provided by operating activities
from continuing operations in the first nine months of 2020 was primarily driven
by the Company's cash earnings, cash receipts related to an advance payment from
a customer and the Nova ethylene asset matter, dividends from equity method
investments and working capital improvements. These items were partially offset
by pension contributions.

Net Working Capital Dow Inc. TDCC

In millions Sep 30, 2021 Dec 31, 2020 Sep 30, 2021 Dec 31, 2020
Current assets $ 20,393 $ 19,084 $ 20,359 $ 18,998
Current liabilities 12,793 11,108 12,505 10,574
Net working capital $ 7,600 $ 7,976 $ 7,854 $ 8,424
Current ratio 1.59:1 1.72:1 1.63:1 1.80:1



Working Capital Metrics Three Months Ended

Sep 30, 2021 Jun 30, 2021 Sep 30, 2020
Days sales outstanding in trade receivables 41 39 43
Days sales in inventory 56 56 63
Days payables outstanding 58 55 58



Cash used for operating activities from discontinued operations in the first
nine months of 2021 primarily related to cash payments and receipts Dow Inc. had
with DuPont and Corteva that related to certain agreements and matters related
to the separation from DowDuPont. See Note 3 to the Consolidated Financial
Statements for additional information.


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Cash Flows from Investing Activities
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. Cash used for investing activities in the first nine
months of 2020 was primarily for capital expenditures, purchases of investments,
investments in and loans to nonconsolidated affiliates (related to Sadara) and
acquisitions of property and businesses, which were partially offset by proceeds
from sales and maturities of investments, which included partial monetization of
the Company's investment in company-owned life insurance policies, and proceeds
from sales of property and businesses.


The Company's capital expenditures were $1,035 million in the first nine months
of 2021, compared with $955 million in the first nine months of 2020. The
Company expects full year capital spending in 2021 to be approximately
$1.6 billion.




As a result of Sadara's debt re-profiling completed in the first quarter of
2021, the Company does not expect to provide any shareholder loans or equity
contributions to Sadara in 2021. In the first nine months of 2020, the Company
loaned $280 million to Sadara.

Cash Flows from Financing Activities
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 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 and TDCC included a cash outflow for dividends paid
to Dow Inc. Cash used for financing activities in the first nine months of 2020
included payments on long-term debt, changes in short-term notes payable and
transaction financing, debt issuance and other costs, which were partially
offset by proceeds from issuance of long-term debt. In addition, Dow Inc.
included cash outflows for dividends paid to common stockholders and purchases
of treasury stock and TDCC included cash outflows for dividends paid to Dow Inc.
See Note 11 to the Consolidated Financial Statements for additional information
related to the issuance and retirement of debt.

Dow Inc. Non-GAAP Cash Flow Measures
Free Cash Flow
Dow defines free cash flow as "Cash provided by 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.
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These financial measures are not recognized in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP") and
should not be viewed as alternatives to U.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, 2021 Sep 30, 2020
Cash provided by operating activities - continuing operations (GAAP) $ 4,512 $ 4,596
Capital expenditures (1,035) (955)
Free cash flow (non-GAAP) 1


$ 3,477 $ 3,641



1.Free cash flow in the first nine months of 2021 reflects a $1 billion elective
pension contribution.



Reconciliation of Cash Flow Conversion (Operating EBITDA to Cash Flow from
Operations)



Nine Months Ended




In millions Sep 30, 2021 Sep 30, 2020
Net income (GAAP) $ 4,644 $ 40
+ Provision for income taxes 1,383 215
Income before income taxes $ 6,027 $ 255
- Interest income 35 27
+ Interest expense and amortization of debt discount 561 617
- Significant items ¹ (715) (816)
Operating EBIT (non-GAAP) $ 7,268 $ 1,661
+ Depreciation and amortization 2,187 2,148
Operating EBITDA (non-GAAP) $ 9,455 $ 3,809


Cash provided by operating activities - continuing operations (GAAP) $ 4,512 $


4,596


Cash flow conversion (Operating EBITDA to cash flow from operations)
(non-GAAP) 2


47.7 % 120.7 %


1.The nine months ended September 30, 2021 includes costs associated with the
Company's digital acceleration program; restructuring, implementation costs and
asset related charges - net; a loss on early extinguishment of debt; litigation
related charges, awards and adjustments; and indemnification and other
transaction related costs. The nine months ended September 30, 2020 includes
integration and separation costs; restructuring, implementation costs and asset
related charges - net; a net gain on divestitures; a loss on early
extinguishment of debt; and a gain related to a legal matter with Nova. See Note
22 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. The generation of cash from operations and the Company's
ability to access capital markets is expected to meet the Company's cash
requirements for working capital, capital expenditures, debt maturities,
contributions to pension plans, dividend distributions to stockholders, share
repurchases and other needs. In addition to cash from operating activities, the
Company's current liquidity sources also include TDCC's U.S. and Euromarket
commercial paper programs, committed and uncommitted credit facilities,
committed accounts receivable facilities, a U.S. retail note program
("InterNotes®") and other debt markets.

The Company continues to maintain a strong financial position with all of its
committed credit facilities undrawn and fully available at September 30, 2021.
Cash and committed and available forms of liquidity were $12.4 billion at
September 30, 2021. The Company also has no substantive long-term debt
maturities due until 2026. Additional details on sources of liquidity are as
follows:

Commercial Paper
TDCC issues promissory notes under its U.S. and Euromarket commercial paper
programs. TDCC had no commercial paper outstanding at September 30, 2021 and
December 31, 2020. TDCC maintains access to the commercial paper market at
competitive rates. Amounts outstanding under TDCC's commercial paper programs
during the period may be greater, or less than, the amount reported at the end
of the period. Subsequent to September 30, 2021, TDCC issued approximately $2.4
billion
of commercial paper.


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Committed Credit Facilities
The Company also has the ability to access liquidity through TDCC's committed
and available credit facilities. At September 30, 2021, TDCC had total committed
and available credit facilities of $8.1 billion. See Note 11 to the Consolidated
Financial Statements for additional information on committed and available
credit facilities.

Committed Accounts Receivable Facilities
In addition to the above committed credit facilities, the Company maintains a
committed accounts receivable facility in the U.S. where eligible trade accounts
receivable, up to $900 million, may be sold at any point in time. The Company
also maintains a committed accounts receivable facility in Europe where eligible
trade accounts receivable, up to €400 million, may be sold at any point in time.
At September 30, 2021, there were no receivables sold under the U.S. and Europe
committed accounts receivable facilities. For additional information, see Note
14 to the Consolidated Financial Statements included in the 2020 10-K.

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. In the first quarter of 2021, the Company
monetized $200 million of its existing COLI policies' surrender value. In the
second quarter of 2021, the Company repaid the drawdown against the cash
surrender value. The Company had no outstanding monetization of its existing
COLI policies' surrender value at September 30, 2021.

Uncommitted Credit Facilities
The Company has entered into various uncommitted bilateral credit arrangements
as a potential source of excess liquidity. These lines can be used to support
short-term liquidity needs and for general purposes, including letters of
credit. The Company had no drawdowns outstanding at September 30, 2021.


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." At September 30, 2021, net debt as a percent of total
capitalization decreased to 40.4 percent and 39.9 percent for Dow Inc. and TDCC,
respectively, compared with 47.9 percent and 46.8 percent at December 31, 2020.

Total Debt Dow Inc. TDCC

In millions Sep 30, 2021 Dec 31, 2020 Sep 30, 2021 Dec 31, 2020
Notes payable $ 270 $ 156 $ 270 $ 156
Long-term debt due within one year 291 460 291 460
Long-term debt 14,027 16,491 14,027 16,491
Gross debt $ 14,588 $ 17,107 $ 14,588 $ 17,107
- Cash and cash equivalents 2,911 5,104 2,911 5,104
- Marketable securities 1 141 45 141 45
Net debt $ 11,536 $ 11,958 $ 11,536 $ 11,958
Total equity $ 17,028 $ 13,005 $ 17,393 $ 13,569
Gross debt as a percent of total capitalization 46.1 % 56.8 % 45.6 % 55.8 %
Net debt as a percent of total capitalization 40.4 % 47.9 % 39.9 % 46.8 %



1.Included in "Other current assets" in the consolidated balance sheets.



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.




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. In addition, the Company voluntarily repaid $81 million of
long-term debt due within one year.
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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 0.65 to 1.00 at
any time the aggregate outstanding amount of loans under the Five Year
Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit
Agreement") equals or exceeds $500 million. The ratio of TDCC's consolidated
indebtedness to consolidated capitalization as defined in the Revolving Credit
Agreement was 0.44 to 1.00 at September 30, 2021. Management believes TDCC was
in compliance with all of its covenants and default provisions at September 30,
2021
. For information on TDCC's debt covenants and default provisions, see Note
15 to the Consolidated Financial Statements included in the 2020 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 2021.


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
At September 30, 2021, TDCC's credit ratings were as follows:

Credit Ratings Long-Term Rating Short-Term Rating Outlook
Standard & Poor's BBB A-2 Stable
Moody's Investors Service Baa2 P-2 Stable
Fitch Ratings BBB+ F2 Stable




On April 13, 2021, Fitch Ratings reaffirmed TDCC's BBB+ and F2 rating, and
revised its outlook from negative to stable. The decision was made as part of
Fitch's annual review process.




On June 10, 2021, Standard & Poor's ("S&P") announced a credit rating upgrade
for TDCC from BBB- and A-3 to BBB and A-2, maintaining stable outlook. The
decision from S&P reflects the expectation for an ongoing macroeconomic
recovery, the Company's supportive financial policies and the strengthening of
its operating performance in 2021 relative to 2020.


Dividends



Dow Inc.
Dow Inc. has paid dividends on a quarterly basis since the separation from
DowDuPont and expects to continue to do so, subject to approval by the Board.
The dividends declared by the Board align to the Company's strategy announced in
2018 of returning approximately 45 percent of operating net income1 to the
shareholders through the dividend and total shareholder remuneration of
approximately 65 percent, when including share repurchases, over the economic
cycle. The following table summarizes cash dividends declared by the Board and
paid to common stockholders of record by Dow Inc. in 2021.


Dow Inc. Cash Dividends Declared and Paid



Declaration Date Record Date Payment Date Amount (per share)
February 11, 2021 February 26, 2021 March 12, 2021 $ 0.70
April 15, 2021 May 28, 2021 June 11, 2021 $ 0.70
August 12, 2021 August 31, 2021 September 10, 2021 $ 0.70
October 14, 2021 November 30, 2021 December 10, 2021 $ 0.70





1.Operating net income is a non-GAAP measure that Dow defines as "Net income
(loss) available for Dow Inc. common stockholders," excluding the impact of
significant items.



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TDCC
TDCC has committed to fund Dow Inc.'s dividends paid to common stockholders and
share repurchases, as approved by Dow Inc.'s Board from time to time, as well as
certain governance expenses. Funding is accomplished through intercompany loans.
TDCC's Board reviews and determines a dividend distribution to Dow Inc. to
settle the intercompany loans. For the three months ended September 30, 2021,
TDCC declared and paid a dividend to Dow Inc. of $919 million ($2,361 million
for the nine months ended September 30, 2021). At September 30, 2021, TDCC's
intercompany loan balance with Dow Inc. was insignificant. See Note 21 to the
Consolidated Financial Statements for additional information.

Share Repurchase Program
On April 1, 2019, Dow Inc.'s Board ratified the share repurchase program
originally approved on March 15, 2019, authorizing up to $3.0 billion to be
spent on the repurchase of the Company's common stock, with no expiration date.
The Company repurchased $400 million of its common stock in the third quarter of
2021 ($600 million in the first nine months of 2021). At September 30, 2021,
approximately $1,775 million of the share repurchase program authorization
remained available for repurchases. The Company intends to, at a minimum,
repurchase shares to cover dilution and will continue to evaluate value creating
share repurchases as economic conditions develop. The share repurchases, when
coupled with the Company's dividends, intend to ensure that total 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 in the 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.




On March 4, 2021, the Company announced changes to the design of its U.S.
tax-qualified and non-qualified pension plans (collectively, the "U.S. Plans")
and, effective December 31, 2023, the Company will freeze the pensionable
compensation and credited service amounts used to calculate pension benefits for
employees who participate in the U.S. Plans. Additionally, the Company elected
to contribute $1 billion to its U.S. tax-qualified pension plans. As a result,
the Company increased its estimated global 2021 pension contributions to
approximately $1,230 million, of which $1,165 million has been contributed
through September 30, 2021.

In connection with the foregoing plan amendments and inclusive of the additional
discretionary contributions to the U.S. tax-qualified pension plans, the Company
remeasured the U.S. Plans effective February 28, 2021, which resulted in a
decrease of approximately $200 million in the expected net periodic pension
benefit cost for 2021, inclusive of curtailment gains of $19 million, recognized
in the first quarter of 2021. The Company's total net periodic pension benefit
cost is expected to be approximately $40 million in 2021, inclusive of
curtailment gains and subject to foreign currency fluctuations and events or
actions that may require additional plan remeasurements.


See Note 16 to the Consolidated Financial Statements and Note 20 to the
Consolidated Financial Statements included in the 2020 10-K for additional
information related to the Company's pension plans.



Restructuring



The actions related to the 2020 Restructuring Program are expected to result in
additional cash expenditures of $212 million, primarily through the first
quarter of 2022, consisting of severance and related benefit costs and costs
associated with exit and disposal activities, including contract cancellation
penalties and environmental remediation. Restructuring implementation costs,
primarily decommissioning and demolition activities related to asset actions,
are expected to result in additional cash expenditures of approximately $80
million
, primarily through the third quarter of 2022. Restructuring
implementation costs totaled $16 million in the third quarter of 2021 ($47
million
in the first nine months of 2021).

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.


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Digital Acceleration
In the first quarter of 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 $280 million, primarily through the end of 2022. Digital
acceleration expenses totaled $40 million in the third quarter of 2021 ($121
million
in the first nine months of 2021).

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 2020
10-K. With the exception of the items noted below, there have been no material
changes in the Company's contractual obligations since December 31, 2020.

Contractual Obligations at Sep 30, 2021 Payments Due In
2026 and
In millions 2021 2022-2023 2024-2025 beyond Total

Long-term debt obligations 1 $ 122 $ 536 $ 405 $ 13,568 $ 14,631
Expected cash requirements for interest 2 $ 157 $ 1,226 $ 1,173 $ 7,907 $ 10,463
Pension and other postretirement benefits $ 71 $ 655 $ 649 $ 7,367 $ 8,742
Operating leases 3 $ 140 $ 785 $ 474 $ 744 $ 2,143


1.Excludes unamortized debt discount and issuance costs of $313 million.
Includes finance lease obligations of $542 million.
2.Cash requirements for interest on long-term debt was calculated using current
interest rates at September 30, 2021, and includes $110 million of various
floating rate notes.
3.Includes imputed interest of $302 million.

Off-Balance Sheet Arrangements
Off-balance sheet arrangements are obligations the Company has with
nonconsolidated entities related to transactions, agreements or other
contractual arrangements. The Company holds variable interests in joint ventures
accounted for under the equity method of accounting. The Company is not the
primary beneficiary of these joint ventures and therefore is not required to
consolidate these entities (see Note 20 to the Consolidated Financial
Statements).

Guarantees arise during the ordinary course of business from relationships with
customers, committed accounts receivable facilities and nonconsolidated
affiliates when the Company undertakes an obligation to guarantee the
performance of others if specific triggering events occur. Additional
information related to guarantees can be found in the "Guarantees" section of
Note 12 to the Consolidated Financial Statements.

Fair Value Measurements
See Note 19 to the Consolidated Financial Statements for information concerning
fair value measurements.

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OTHER MATTERS
Recent Accounting Guidance
See Note 2 to the Consolidated Financial Statements for a summary of recent
accounting guidance.

Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance
with accounting principles generally accepted in the 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 2020 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 2020 10-K. Since December 31, 2020, there
have been no material changes in the Company's accounting policies that are
impacted by judgments, assumptions and estimates.

Asbestos-Related Matters of Union 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 2021 2020
Claims unresolved at Jan 1 9,126 11,117
Claims filed 3,177 3,623
Claims settled, dismissed or otherwise resolved (3,340)


(5,099)



Claims unresolved at Sep 30 8,963


9,641



Claimants with claims against both Union Carbide and Amchem (2,312) (3,168)
Individual claimants at Sep 30


6,651


6,473






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 Union Carbide
Corporation
in Note 12 to the Consolidated Financial Statements and Note 16 to
the Consolidated Financial Statements included in the 2020 10-K, and Part II,
Item 1. Legal Proceedings.


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