Dow Inc. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 10-K rather than a standalone fourth-quarter filing; fourth-quarter share repurchase information is separately disclosed. Dow Inc. and The Dow Chemical Company filed a combined report. Dow operates through Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings.
Business Context
Dow is a global materials science company focused on plastics, industrial intermediates, coatings, silicones and related products. It operated 104 manufacturing sites in 31 countries and employed approximately 35,700 people. Annual sales were concentrated across the U.S. and Canada, EMEAI, Asia Pacific and Latin America, with no significant dependence on a single customer.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $54.968 billion | $38.542 billion | +43% |
| Income from continuing operations, net of tax | $6.405 billion | $1.294 billion | +395% |
| Net income available to Dow Inc. common stockholders | $6.311 billion | $1.225 billion | +415% |
| Diluted EPS | $8.38 | $1.64 | +411% |
| Operating EBIT | $9.533 billion | $2.715 billion | +251% |
| Cash flow from continuing operations | $7.069 billion | $6.252 billion | +13% |
| Capital expenditures | $1.501 billion | $1.252 billion | +20% |
| Free cash flow | $5.568 billion | $5.000 billion | +11% |
| Cash and cash equivalents | $2.988 billion | $5.104 billion | -$2.116 billion |
| Gross debt | $14.672 billion | $17.107 billion | -$2.435 billion |
| Net debt | $11.439 billion | $11.958 billion | -$519 million |
Reported cost of sales was $44.191 billion, or 80.4% of sales versus 86.5% in 2020. Approximate gross margin was 19.6%, net margin was 11.5%, and Operating EBIT margin was 17.3%. The 2021 free cash flow calculation reflects a $1 billion elective pension contribution.
Segment Performance
| Segment | 2021 Sales | Sales Change | 2021 Operating EBIT | 2020 Operating EBIT |
|---|---|---|---|---|
| Packaging & Specialty Plastics | $28.128 billion | +54% | $6.638 billion | $2.325 billion |
| Industrial Intermediates & Infrastructure | $16.851 billion | +40% | $2.282 billion | $355 million |
| Performance Materials & Coatings | $9.672 billion | +22% | $866 million | $314 million |
| Corporate | $317 million | +18% | $(253) million | $(279) million |
Sales growth was driven primarily by a 40% increase in local price and product mix, supported by a 1% volume increase and a 2% favorable currency impact. Tight supply and demand conditions, higher energy and feedstock prices, logistics constraints and weather-related disruptions supported pricing.
Material Changes Versus 2020
- Profitability improved substantially as margins expanded across all operating segments and equity earnings from nonconsolidated affiliates increased to $975 million from a $18 million loss.
- The 2020 restructuring program was substantially complete by year-end 2021. Restructuring and asset-related charges declined to $6 million from $708 million.
- Dow recorded a $574 million pretax loss on early debt extinguishment, while 2020 included significant gains from legal matters and divestitures, including the Nova ethylene matter and marine and terminal asset sales.
- Debt declined through redemptions, tenders and repayments. Dow reported no substantive long-term debt maturities until 2026 and reduced net debt as a percentage of total capitalization to 37.9% from 47.9%.
- Dow paid $2.073 billion of common dividends, or $2.80 per share, and repurchased $1 billion of common stock. Approximately $1.4 billion remained under the $3 billion authorization at year-end.
- Working capital remained positive at $7.622 billion, although the current ratio declined to 1.58 from 1.72. Receivables and inventories increased materially with higher sales and costs.
Liquidity, Debt and Capital Allocation
Dow reported $12.6 billion of cash and committed and available liquidity at December 31, 2021, including $8.1 billion of committed credit facilities, all undrawn. The company had no commercial paper outstanding at year-end. Its principal revolving credit facility matures in November 2026. Management stated that liquidity and financial flexibility were sufficient to meet business obligations.
2022 expected cash uses include approximately $2.2 billion of capital expenditures, $250 million of digital acceleration spending, approximately $175 million of restructuring-related cash outflows, and approximately $250 million of pension contributions according to the outlook section. A separate pension disclosure states expected 2022 pension contributions of approximately $180 million; investors should reconcile these disclosures in the filing.
Guidance, Outlook and Management Commentary
- Management expected above-average global GDP growth and continued industrial and consumer demand in 2022, with potential volume growth across the portfolio.
- Packaging & Specialty Plastics margins were expected to stabilize as industry capacity additions came online, while feedstock advantages were expected to offset elevated raw material and energy costs.
- Industrial Intermediates & Infrastructure was expected to benefit from demand in furniture, bedding, appliances, automotive, construction, electronics and pharmaceuticals, although new propylene oxide capacity could pressure margins.
- Performance Materials & Coatings was expected to benefit from downstream silicones growth and demand for architectural and industrial coatings.
- Planned maintenance spending was expected to increase by approximately $100 million in 2022, and equity earnings from nonconsolidated affiliates were expected to decline as industry supply increased and margins compressed.
- Dow expects digital acceleration initiatives to generate more than $300 million of incremental annual run-rate Operating EBITDA by the end of 2025, plus approximately $100 million of one-time structural working-capital benefits.
- Dow announced long-term sustainability objectives, including a 15% reduction in net annual greenhouse-gas emissions from the 2020 baseline by 2030 and carbon neutrality by 2050. The company also announced net-zero projects in Alberta and additional circular-plastics investments.
Risks, Contingencies and Unusual Items
- Key operating risks include volatility in hydrocarbon feedstock and energy prices, supply-demand imbalances, logistics constraints, severe weather, COVID-19, inflation, foreign exchange, interest rates and geopolitical disruption.
- Environmental remediation liabilities totaled $1.220 billion at year-end, including $237 million for Superfund sites. Management stated that ultimate costs could be approximately two times accrued amounts.
- Union Carbide asbestos-related liability was $1.016 billion, including projected future claims and defense costs through 2049. The company stated that actual costs could materially differ from current estimates.
- Dow Silicones’ remaining breast implant and related product liability obligation was estimated at $130 million. The plan has a maximum commitment of $2.350 billion net present value as of the 2004 effective date.
- Dow maintains guarantees related to Sadara, including up to approximately $1.3 billion of debt guarantees and an estimated $446 million share of future interest payments during the grace period. Management did not expect Sadara to require performance under these guarantees based on current forecasts.
- Dow had $580 million of unrecognized tax benefits and $502 million of accrued interest and penalties at year-end. Uncertain tax positions were the critical audit matter.
- Outstanding legal matters include the disputed portion of the Nova polyethylene patent damages judgment, the Nova ethylene asset matter, environmental proceedings in Texas, and other product liability, tax and commercial litigation.
- Winter Storm Uri caused Gulf Coast utility, raw material and production disruptions in the first quarter of 2021, although Dow reported that all Gulf Coast ethylene facilities were operational by March 31, 2021.
Investor Verification Checklist
- Verify that the annual 2021 results are being compared with continuing operations and understand the impact of the 2019 separation from DowDuPont on comparability.
- Reconcile GAAP earnings with Operating EBIT and free cash flow, including the $1 billion pension contribution and other significant items excluded from non-GAAP measures.
- Assess whether 2021 pricing gains and margins are sustainable after industry capacity additions, logistics normalization and potential feedstock-cost changes.
- Review debt maturities, interest requirements, covenant compliance and the effect of additional debt repayments or refinancing beginning in 2026.
- Evaluate environmental, asbestos, tax and Sadara guarantee exposures against recorded liabilities and management’s stated ranges and assumptions.
- Confirm 2022 capital spending, maintenance, pension, restructuring and digital-investment commitments against projected operating cash flow.
- Monitor progress and capital requirements for net-zero carbon, circular-plastics and other sustainability projects, including the Alberta and Terneuzen initiatives.