NONCONSOLIDATED AFFILIATES

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

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



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

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



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


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

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

Sadara

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

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

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

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

EQUATE

The Company had a negative investment balance in EQUATE of $80 million at December 31, 2019, classified as "Other noncurrent obligations" in the consolidated balance sheets. At December 31, 2018, the Company had an investment balance in EQUATE of $131 million, classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. The Company's investment in EQUATE was $489 million less than the Company's proportionate share of EQUATE's underlying net assets at December 31, 2019 ($502 million less at December 31, 2018), which represents the difference between the fair values of certain MEGlobal assets acquired by EQUATE and the Company's related valuation on a U.S. GAAP basis. A basis difference of $169 million at December 31, 2019 ($184 million at December 31, 2018) is being amortized over the remaining useful lives of the assets and the remainder is considered a permanent difference.

AFSI

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

Transactions with Nonconsolidated Affiliates

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

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

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

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

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

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



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

Principal Nonconsolidated Affiliates

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



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


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

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



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



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

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



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



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

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