Dow (NYSE: DOW):
FINANCIAL HIGHLIGHTS
- GAAP EPS from continuing operations of $0.45; Operating EPS¹ of
$0.91 versus pro forma results of $1.34 in the year-ago period.
Operating EPS excludes significant items in the quarter, totaling
$0.46 per share, primarily related to: environmental charges;
integration and separation costs; and a gain associated with
litigation matters.
- GAAP Net Income of $347 million; Operating EBIT¹ of $1.1
billion versus pro forma results of $1.6 billion in the year-ago
period.
- Net Sales were $10.8 billion, down 15% versus pro forma results
in the year-ago period, driven by lower local prices primarily due
to declines in global energy prices.
- Volume declined 2% versus pro forma results in the year-ago
period. Demand growth in packaging, polyurethanes and silicones
applications was more than offset by lower hydrocarbon co-product
sales, resulting from a lighter feedstock slate in Europe, and
increased ethylene integration from the startup of new U.S. Gulf
Coast assets. Excluding the Hydrocarbons & Energy business,
volume rose 1%.
- Local price declined 12% versus pro forma results in the
year-ago period, driven primarily by decreases in polyethylene,
hydrocarbon co-products, siloxanes and isocyanates. Currency
decreased sales by 1%.
- Equity losses were $44 million, compared to pro forma equity
earnings of $135 million in the year-ago period. The reduction was
primarily due to lower results at the Kuwait joint ventures, driven
by margin compression in monoethylene glycol (MEG) and
polyethylene.
- Operating EBIT was $1.1 billion, down from pro forma results of
$1.6 billion in the year-ago period, reflecting margin compression
and the impact from lost production in Argentina. These factors
were partly offset by savings from cost synergies and stranded cost
removal, as well as new capacity on the U.S. Gulf Coast.
Sequentially, Operating EBIT rose $58 million and Operating EBIT
Margin expanded 80 basis points (bps), driven by lower planned
maintenance spending in the Industrial Solutions business and
margin expansion in Packaging & Specialty Plastics.
- Completed the Materials Science Division $1.365 billion cost
synergy program and removed $40 million of stranded costs in the
quarter.
- Cash provided by operating activities – continuing operations
was $1.8 billion, up $1.6 billion versus the year-ago period.
Capital expenditures in the quarter were $472 million and free cash
flow2 was $1.3 billion.
- Returned $0.6 billion to shareholders in the quarter, including
$0.5 billion in dividends and $0.1 billion in share
repurchases.
SUMMARY FINANCIAL RESULTS
Three Months Ended September
30
Three Months Ended June
30
In millions, except per share
amounts
3Q19
As Reported
3Q183
Pro Forma
vs.
SQLY
[B /
(W)]
2Q19
As Reported
vs.
PQ
[B /
(W)]
Net Sales
$10,764
$12,697
$(1,933)
$11,014
$(250)
Operating EBIT¹
$1,117
$1,611
$(494)
$1,059
$58
Operating EBIT Margin¹
10.4%
12.7%
(230) bps
9.6%
80 bps
Operating EBITDA¹
$1,856
$2,343
$(487)
$1,802
$54
Operating EPS¹
$0.91
$1.34
$(0.43)
$0.86
$0.05
Cash provided by operating activities –
continuing ops
$1,790
$203
$1,587
$960
$830
- Op. EPS, Op. EBIT, Op. EBIT Margin and Op. EBITDA are non-GAAP
measures. See page 13 for further discussion.
- Free cash flow is defined as cash flows from operating
activities - continuing operations, excluding the impact of ASU
2016-15, less capital expenditures.
- Financial information for the three months ended September 30,
2018 was prepared on a pro forma basis and determined in accordance
with Article 11 of Regulation S-X.
CEO QUOTE
Jim Fitterling, chief executive officer, commented on the
quarter:
“Our results this quarter demonstrated the Dow team’s focus on
managing operational levers in response to a difficult business
environment. We grew volume in our packaging, polyurethanes and
silicones businesses, and once again successfully leveraged our
industry-leading feedstock flexibility in the U.S. and Europe. Our
team also took actions to improve pricing – with notable
improvements in the Packaging and Specialty Plastics business
toward the end of the quarter. Further, we continued to drive down
our cost structure, completing the $1.365 billion cost synergy
program and removing $40 million of stranded costs. Together, these
factors delivered sequential earnings, margins and free cash flow
improvements. Overall, our results showcased the strengths of the
Dow portfolio and team.”
SEGMENT HIGHLIGHTS
Packaging & Specialty Plastics
Three Months Ended September
30
Three Months Ended June
30
In millions, except margin
percentages
3Q19
3Q18
vs.
SQLY
[B /
(W)]
2Q19
vs.
PQ
[B /
(W)]
Net Sales
$5,062
$6,157
$(1,095)
$5,205
$(143)
Operating EBIT
$798
$857
$(59)
$768
$30
Operating EBIT Margin
15.8%
13.9%
190 bps
14.8%
100 bps
Equity Earnings (Losses)
$23
$83
$(60)
$74
$(51)
Packaging & Specialty Plastics net sales were $5.1 billion,
down $1.1 billion versus pro forma results in the year-ago period.
Volume declined 4% as growth in Packaging and Specialty Plastics
was more than offset by a decline in Hydrocarbons & Energy.
Local price declined 13%, and currency decreased net sales by
1%.
Packaging and Specialty Plastics
reported a decline in net sales as volume growth was more than
offset by reduced prices. Volume gains were reported in Asia
Pacific and Europe, Middle East, Africa & India. Lower volume
in Latin America was due to restricted monomer supply as ethylene
operations in Argentina were offline through the quarter. The
business reported the strongest end-market growth in industrial and
consumer packaging, flexible food and specialty packaging, and
health and hygiene applications.
Hydrocarbons & Energy reported
a net sales decline on lower volume and price. The sales volume
decline was driven primarily by: lighter feedstock usage in Europe,
leading to lower co-product production volumes; increased ethylene
integration (lower merchant sales) from the startup of new U.S.
Gulf Coast assets; and planned turnaround activity in Europe.
Equity earnings for the segment were $23 million, down from pro
forma equity earnings of $83 million in the year-ago period. The
decline was primarily driven by lower earnings from the Kuwait
joint ventures and increased equity losses from Sadara.
Operating EBIT was $798 million, down $59 million versus pro
forma results in the year-ago period. Margin expansion,
contributions from new capacity and cost synergy savings were more
than offset by lower equity earnings.
In September, a judgment was entered by The Court of the Queen’s
Bench in Alberta, Canada ordering Nova Chemicals to pay the Company
approximately CAD$1.43 billion (equivalent to approximately
USD$1.08 billion). The judgment relates to an initial ruling in
June 2018 where the court found that Nova violated several
contractual agreements related to ethane allocation and ethylene
production under a jointly-owned ethylene asset. The judgment is
subject to appeal. On October 10, 2019, Dow received the related
cash payment (net of tax withholding) of USD$0.8 billion.
Subsequently, the Company issued a make whole call for the full
redemption of $1.25 billion of notes due in 2021, further reducing
debt.
Industrial Intermediates & Infrastructure
Three Months Ended September
30
Three Months Ended June
30
In millions, except margin
percentages
3Q19
3Q18
vs.
SQLY
[B /
(W)]
2Q19
vs.
PQ
[B /
(W)]
Net Sales
$3,365
$3,913
$(548)
$3,342
$23
Operating EBIT
$193
$466
$(273)
$154
$39
Operating EBIT Margin
5.7%
11.9%
(620) bps
4.6%
110 bps
Equity Earnings (Losses)
$(70)
$54
$(124)
$(78)
$8
Industrial Intermediates & Infrastructure net sales were
$3.4 billion, down $548 million versus pro forma results in the
year-ago period. Volume was flat, local price declined 13%, and
currency decreased net sales by 1%.
Polyurethanes & Construction
Chemicals reported a net sales decline, as modest volume
growth was more than offset by price declines, led by lower
components (isocyanates and polyols) prices. Local price declines
were reported in all geographic regions. Volume growth was led by
the U.S. & Canada on improved supply of methylene diphenyl
diisocyanate (MDI), as the year-ago period was impacted by planned
turnaround activity. In addition, volume growth continued in
polyurethane systems, as the business marked 25 consecutive
quarters of year-over-year volume growth.
Industrial Solutions reported lower
net sales, primarily driven by price declines that reflected lower
feedstock costs. The business reported a modest decline in volume,
driven by reduced demand in energy, agricultural and automotive
end-markets, which more than offset growth in catalyst applications
and pharma end-markets.
Equity losses for the segment were $70 million, down from pro
forma equity earnings of $54 million in the year-ago period,
primarily due to margin compression in isocyanates at Sadara and
MEG at the Kuwait joint ventures.
Operating EBIT was $193 million, down $273 million versus pro
forma results in the year-ago period, primarily due to lower equity
earnings and margin compression in isocyanates and MEG.
Performance Materials & Coatings
Three Months Ended September
30
Three Months Ended June
30
In millions, except margin
percentages
3Q19
3Q18
vs.
SQLY
[B /
(W)]
2Q19
vs.
PQ
[B /
(W)]
Net Sales
$2,250
$2,552
$(302)
$2,356
$(106)
Operating EBIT
$200
$398
$(198)
$214
$(14)
Operating EBIT Margin
8.9%
15.6%
(670) bps
9.1%
(20) bps
Equity Earnings (Losses)
$2
$3
$(1)
$1
$1
Performance Materials & Coatings net sales were $2.3
billion, down $302 million versus pro forma results in the year-ago
period. Local price declined 10%, volume declined by 1%, and
currency decreased net sales by 1%.
Consumer Solutions reported a
decline in net sales as volume growth in Asia Pacific and the U.S.
& Canada was more than offset by local price declines in all
geographic regions, led by lower siloxanes prices. The business
reported year-over-year volume growth in the infrastructure
end-market, as well as improved demand for siloxanes in Asia
Pacific. These more than offset demand contraction in automotive
and consumer electronics end-markets.
Coatings & Performance Monomers
reported lower net sales on declines in local price and volume.
Coatings volume declined, primarily driven by lower demand in U.S.
& Canada architectural coatings and in Asia Pacific industrial
coatings end-markets. Performance Monomers volume declined,
primarily due to lower merchant sales of acrylates in North
America.
Operating EBIT was $200 million, down $198 million versus pro
forma results in the year-ago period, primarily due to margin
compression in siloxanes and lower coatings and monomers
demand.
OUTLOOK
“Over the past year, we have made strong progress on our
operational and financial playbook for the new Dow,” said
Fitterling. “We have taken prudent actions to adapt quickly to the
macro environment and to preserve our financial strength. Moving
forward, we will continue to leverage our feedstock flexibility;
advance lower-risk, higher-return growth investments; and achieve
our stranded cost removal target. We will also remain steadfast in
driving improvements to our free cash flow – demonstrated by our
recent debt redemption announcement, which will use the cash
payment from the Nova judgment. These actions enable us to manage
the current environment and place us in a strong competitive
position when the industrial economy rebounds.”
Conference Call
Dow will host a live webcast of its third quarter earnings
conference call with investors to discuss its results, business
outlook and other matters today at 8:00 a.m. ET. The webcast and
slide presentation that accompany the conference call will be
posted on the events and presentations page of
investors.dow.com.
About Dow
Dow (NYSE: DOW) combines one of the broadest technology sets in
the industry with asset integration, focused innovation and global
scale to achieve profitable growth and become the most innovative,
customer centric, inclusive and sustainable materials science
company. Dow’s portfolio of performance materials, industrial
intermediates and plastics businesses delivers a broad range of
differentiated science-based products and solutions for our
customers in high-growth segments, such as packaging,
infrastructure and consumer care. Dow operates 113 manufacturing
sites in 31 countries and employs approximately 37,000 people. Dow
delivered pro forma sales of approximately $50 billion in 2018.
References to Dow or the Company mean Dow Inc. and its
subsidiaries. For more information, please visit www.dow.com or
follow @DowNewsroom on Twitter.
Cautionary Statement about Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of the federal securities laws, including Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In this context,
forward-looking statements often address expected future business
and financial performance, financial condition, and other matters,
and often contain words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,”
“plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,”
“will be,” “will continue,” “will likely result,” “would” and
similar expressions, and variations or negatives of these words.
Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may
cause actual results to differ materially from the forward-looking
statements.
Forward-looking statements include, but are not limited to,
expectations as to future sales of Dow’s products; the ability to
protect Dow’s intellectual property in the United States and
abroad; estimates regarding Dow’s capital requirements and need for
and availability of financing; estimates of Dow’s expenses, future
revenues and profitability; estimates of the size of the markets
for Dow’s products and services and Dow’s ability to compete in
such markets; expectations related to the rate and degree of market
acceptance of Dow’s products; the outcome of certain Dow
contingencies, such as litigation and environmental matters;
estimates of the success of competing technologies that may become
available and expectations regarding the benefits and costs
associated with each of the foregoing.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. Forward-looking statements
are based on certain assumptions and expectations of future events
which may not be realized and speak only as of the date the
statements were made. In addition, forward-looking statements also
involve risks, uncertainties and other factors that are beyond
Dow’s control that could cause Dow’s actual results to differ
materially from those projected, anticipated or implied in the
forward-looking statements. These factors include, but are not
limited to: fluctuations in energy and raw material prices; failure
to develop and market new products and optimally manage product
life cycles; significant litigation and environmental matters;
failure to appropriately manage process safety and product
stewardship issues; changes in laws and regulations or political
conditions; global economic and capital markets conditions, such as
inflation, market uncertainty, interest and currency exchange
rates, and equity and commodity prices; business or supply
disruptions; security threats, such as acts of sabotage, terrorism
or war; weather events and natural disasters; ability to protect,
defend and enforce Dow’s intellectual property rights; increased
competition; changes in relationships with Dow’s significant
customers and suppliers; unanticipated expenses such as litigation
or legal settlement expenses; unanticipated business disruptions;
Dow’s ability to predict, identify and interpret changes in
consumer preferences and demand; Dow’s ability to complete proposed
divestitures or acquisitions; Dow’s ability to realize the expected
benefits of acquisitions if they are completed; the availability of
financing to Dow in the future and the terms and conditions of such
financing; and disruptions in Dow’s information technology networks
and systems. Additionally, there may be other risks and
uncertainties that Dow is unable to identify at this time or that
Dow does not currently expect to have a material impact on its
business.
Risks related to achieving the anticipated benefits of our
separation from DowDuPont Inc. include, but are not limited to, a
number of conditions including risks outside the control of Dow
including risks related to (i) Dow’s inability to achieve some or
all of the benefits that it expects to receive from the separation
from DowDuPont, (ii) certain tax risks associated with the
separation, (iii) Dow’s inability to make necessary changes to
operate as a stand-alone company, (iv) the failure of Dow’s pro
forma financial information to be a reliable indicator of Dow’s
future results, (v) Dow’s inability to enjoy the same benefits of
diversity, leverage and market reputation that it enjoyed as a
combined company, (vi) Dow’s inability to receive third-party
consents required under the separation agreement, (vii) Dow’s
customers, suppliers and others' perception of Dow’s financial
stability on a stand-alone basis, (viii) non-compete restrictions
under the separation agreement, (ix) receipt of less favorable
terms in the commercial agreements we entered into with E. I. du
Pont de Nemours and Company n/k/a/ DuPont de Nemours,
Inc.(“DuPont”) and Corteva, Inc. (“Corteva”), including
restrictions under intellectual property cross-license agreements,
than Dow would have received from an unaffiliated third party; and
(x) Dow’s obligation to indemnify DuPont and/or Corteva for certain
liabilities.
Where, in any forward-looking statement, an expectation or
belief as to future results or events is expressed, such
expectation or belief is based on the current plans and
expectations of management and expressed in good faith and believed
to have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or accomplished.
For a more detailed discussion of Dow’s risks and uncertainties,
see the section titled “Risk Factors” contained in Dow Inc. and
TDCC’s combined Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2019, in the Current Report on Form 8-K of
Dow Inc. and TDCC, filed with the SEC on July 25, 2019, recasting
portions of the TDCC 10-K for the fiscal year ended December 31,
2018, and in Part I, Item 1A of the Annual Report on Form 10-K of
TDCC for the fiscal year ended December 31, 2018. Dow Inc. and TDCC
assume no obligation to update or revise publicly any
forward-looking statements whether because of new information,
future events or otherwise, except as required by securities and
other applicable laws.
Separation from DowDuPont
On April 1, 2019, DowDuPont Inc. ("DowDuPont" and effective June
3, 2019, n/k/a DuPont de Nemours, Inc. or "DuPont") completed the
separation of its materials science business and Dow Inc. became
the direct parent company of The Dow Chemical Company and its
consolidated subsidiaries ("TDCC" and together with Dow Inc., "Dow"
or the "Company"), owning all of the outstanding common shares of
TDCC. For filings related to the period commencing April 1, 2019
and thereafter, TDCC was deemed the predecessor to Dow Inc., and
the historical results of TDCC are deemed the historical results of
Dow Inc. for periods prior to and including March 31, 2019. The
information in this report reflects the results of Dow and its
consolidated subsidiaries, after giving effect to the distribution
to DowDuPont of TDCC’s agricultural sciences business (“AgCo”) and
specialty products business (“SpecCo”) and the receipt of E. I. du
Pont de Nemours and Company and its consolidated subsidiaries'
(“Historical DuPont”) ethylene and ethylene copolymers business
(other than its ethylene acrylic elastomers business) ("ECP").
The separation was contemplated by the merger of equals
transaction effective August 31, 2017, under the Agreement and Plan
of Merger, dated as of December 11, 2015, as amended on March 31,
2017. TDCC and Historical DuPont each merged with subsidiaries of
DowDuPont and, as a result, TDCC and Historical DuPont became
subsidiaries of DowDuPont (the “Merger”). Subsequent to the Merger,
TDCC and Historical DuPont engaged in a series of internal
reorganization and realignment steps to realign their businesses
into three subgroups: agriculture, materials science and specialty
products. Dow Inc. was formed as a wholly owned subsidiary of
DowDuPont to serve as the holding company for the materials science
business.
Unaudited Pro Forma Financial Information
In order to provide the most meaningful comparison of results of
operations and results by segment, supplemental unaudited pro forma
financial information has been included in the following financial
schedules. The unaudited pro forma financial information is based
on the consolidated financial statements of TDCC, adjusted to give
effect to the separation from DowDuPont as if it had been
consummated on January 1, 2017. For the nine months ended September
30, 2019 and the three and nine months ended September 30, 2018,
pro forma adjustments have been made for (1) the margin impact of
various manufacturing, supply and service related agreements
entered into with DuPont and Corteva in connection with the
separation which provide for different pricing than the historical
intercompany and intracompany pricing practices of TDCC and
Historical DuPont, (2) the removal of the amortization of ECP's
inventory step-up recognized in connection with the Merger, and (3)
the elimination of the impact of events directly attributable to
the Merger, internal reorganization and business realignment,
separation, distribution and other related transactions (e.g.,
one-time transaction costs). The results for the three months ended
September 30, 2019, are presented under accounting principles
generally accepted in the United States of America ("U.S.
GAAP").
The unaudited pro forma financial information has been presented
for informational purposes only and is not necessarily indicative
of what Dow's results of operations actually would have been had
the separation from DowDuPont been completed as of January 1, 2017,
nor is it indicative of the future operating results of Dow. The
unaudited pro forma information does not reflect restructuring or
integration activities or other costs following the separation from
DowDuPont that may be incurred to achieve cost or growth synergies
of Dow. For further information on the unaudited pro forma
financial information, please refer to the Company's Current Report
on Form 8-K dated June 3, 2019.
Non-GAAP Financial Measures
This earnings release includes information that does not conform
to U.S. GAAP and are considered non-GAAP measures. These measures
include the Company's pro forma consolidated results and pro forma
earnings per share on an adjusted basis. Management uses these
measures internally for planning, forecasting and evaluating the
performance of the Company's segments, including allocating
resources. Dow's management believes that these non-GAAP measures
best reflect the ongoing performance of the Company during the
periods presented and provide more relevant and meaningful
information to investors as they provide insight with respect to
ongoing operating results of the Company and a more useful
comparison of year-over-year results. These non-GAAP measures
supplement the Company's U.S. GAAP disclosures and should not be
viewed as alternatives to U.S. GAAP measures of performance.
Furthermore, such non-GAAP measures may not be consistent with
similar measures provided or used by other companies. Non-GAAP
measures included in this release are defined below.
Reconciliations for these non-GAAP measures to U.S. GAAP are
provided in the Selected Financial Information and Non-GAAP
Measures section starting on page 13. Dow does not provide
forward-looking U.S. GAAP financial measures or a reconciliation of
forward-looking non-GAAP financial measures to the most comparable
U.S. GAAP financial measures on a forward-looking basis because the
Company is unable to predict with reasonable certainty the ultimate
outcome of pending litigation, unusual gains and losses, foreign
currency exchange gains or losses and potential future asset
impairments, as well as discrete taxable events, without
unreasonable effort. These items are uncertain, depend on various
factors, and could have a material impact on U.S. GAAP results for
the guidance period.
Operating earnings per share is defined as "Earnings per common
share from continuing operations - diluted" excluding the after-tax
impact of significant items. Pro forma operating earnings per share
is defined as "Pro Forma earnings per common share from continuing
operations - diluted" excluding the after-tax impact of significant
items.
Operating EBIT is defined as earnings (i.e., "Income from
continuing operations before income taxes") before interest,
excluding the impact of significant items. Pro forma operating EBIT
is defined as pro forma earnings (i.e., "Pro Forma income from
continuing operations before income taxes") before interest,
excluding the impact of significant items.
Operating EBIT margin is defined as Operating EBIT as a
percentage of net sales. Pro forma Operating EBIT margin is defined
as pro forma Operating EBIT as a percentage of pro forma net
sales.
Operating EBITDA is defined as earnings (i.e., "Income from
continuing operations before income taxes") before interest,
depreciation and amortization, excluding the impact of significant
items. Pro forma operating EBITDA is defined as pro forma earnings
(i.e., "Pro Forma income from continuing operations before income
taxes") before interest, depreciation and amortization, excluding
the impact of significant items.
Cash flows from operating activities - continuing operations,
excluding the impact of Accounting Standards Update 2016-15,
"Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments" ("ASU 2016-15"), is defined as
cash provided by (used in) operating activities - continuing
operations, excluding the impact of ASU 2016-15 and related
interpretive guidance. Management believes this non-GAAP financial
measure is relevant and meaningful as it presents cash flows from
operating activities inclusive of all trade accounts receivable
collection activity, which Dow utilizes in support of its operating
activities.
Free cash flow is defined as cash flows from operating
activities - continuing operations, excluding the impact of ASU
2016-15, less capital expenditures. Under this definition, free
cash flow represents the cash generated by the Company from
operations after investing in its asset base. Free cash flow,
combined with cash balances and other sources of liquidity,
represent 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.
Dow Inc. and
Subsidiaries
Consolidated Statements of
Income
In millions, except per share amounts
(Unaudited)
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
Net sales
$
10,764
$
12,634
$
32,747
$
37,660
Cost of sales
9,377
10,456
27,939
30,976
Research and development expenses
194
193
592
622
Selling, general and administrative
expenses
388
409
1,258
1,376
Amortization of intangibles
100
117
320
353
Restructuring and asset related charges -
net
147
48
368
175
Integration and separation costs
164
313
964
799
Equity in earnings (losses) of
nonconsolidated affiliates
(44
)
135
(73
)
529
Sundry income (expense) - net
301
(3
)
369
37
Interest income
19
22
58
60
Interest expense and amortization of debt
discount
233
258
711
781
Income from continuing operations before
income taxes
437
994
949
3,204
Provision for income taxes on continuing
operations
90
280
356
755
Income from continuing operations, net of
tax
347
714
593
2,449
Income from discontinued operations, net
of tax
—
335
445
1,403
Net income
347
1,049
1,038
3,852
Net income attributable to noncontrolling
interests
14
36
74
102
Net income available for Dow Inc. common
stockholders
$
333
$
1,013
$
964
$
3,750
Per common share data:
Earnings per common share from continuing
operations - basic
$
0.45
$
0.91
$
0.71
$
3.17
Earnings per common share from
discontinued operations - basic
—
0.45
0.58
1.85
Earnings per common share - basic
$
0.45
$
1.36
$
1.29
$
5.02
Earnings per common share from continuing
operations - diluted
$
0.45
$
0.91
$
0.71
$
3.17
Earnings per common share from
discontinued operations - diluted
—
0.45
0.58
1.85
Earnings per common share - diluted
$
0.45
$
1.36
$
1.29
$
5.02
Weighted-average common shares outstanding
- basic
739.8
747.2
743.3
747.2
Weighted-average common shares outstanding
- diluted
743.0
747.2
746.1
747.2
Dow Inc. and
Subsidiaries
Consolidated Balance
Sheets
In millions, except share amounts
(Unaudited)
Sep 30, 2019
Dec 31, 2018
Assets
Current Assets
Cash and cash equivalents (variable
interest entities restricted - 2019: $36; 2018: $71)
$
2,823
$
2,724
Marketable securities
11
100
Accounts and notes receivable:
Trade (net of allowance for doubtful
receivables - 2019: $49; 2018: $42)
5,125
5,646
Other
3,683
3,389
Inventories
6,416
6,899
Other current assets
891
712
Assets of discontinued operations -
current
—
19,900
Total current assets
18,949
39,370
Investments
Investment in nonconsolidated
affiliates
3,007
3,320
Other investments (investments carried at
fair value - 2019: $1,709; 2018: $1,699)
2,737
2,646
Noncurrent receivables
881
360
Total investments
6,625
6,326
Property
Property
54,890
53,984
Less accumulated depreciation
33,887
32,566
Net property (variable interest entities
restricted - 2019: $621; 2018: $683)
21,003
21,418
Other Assets
Goodwill
9,785
9,846
Other intangible assets (net of
accumulated amortization - 2019: $3,748; 2018: $3,379)
3,859
4,225
Operating lease right-of-use assets
2,130
—
Deferred income tax assets
1,765
1,779
Deferred charges and other assets
821
735
Total other assets
18,360
16,585
Total Assets
$
64,937
$
83,699
Liabilities and Equity
Current Liabilities
Notes payable
$
517
$
298
Long-term debt due within one year
378
338
Accounts payable:
Trade
3,855
4,456
Other
2,025
2,479
Operating lease liabilities - current
418
—
Income taxes payable
490
557
Accrued and other current liabilities
3,518
2,931
Liabilities of discontinued operations -
current
—
4,488
Total current liabilities
11,201
15,547
Long-Term Debt (variable interest entities
nonrecourse - 2019: $44; 2018: $75)
17,213
19,253
Other Noncurrent Liabilities
Deferred income tax liabilities
380
501
Pension and other postretirement benefits
- noncurrent
8,447
8,926
Asbestos-related liabilities -
noncurrent
1,087
1,142
Operating lease liabilities -
noncurrent
1,735
—
Other noncurrent obligations
6,888
4,709
Total other noncurrent liabilities
18,537
15,278
Stockholders’ Equity
Common stock (authorized 5,000,000,000
shares of $0.01 par value each; issued 2019: 749,025,762 shares;
2018: 100 shares)
7
—
Additional paid-in capital
7,239
7,042
Retained earnings
19,873
35,460
Accumulated other comprehensive loss
(9,219
)
(9,885
)
Unearned ESOP shares
(95
)
(134
)
Treasury stock at cost (2019: 7,961,732
shares; 2018: zero shares)
(406
)
—
Dow Inc.’s stockholders’ equity
17,399
32,483
Noncontrolling interests
587
1,138
Total equity
17,986
33,621
Total Liabilities and Equity
$
64,937
$
83,699
Dow Inc. and
Subsidiaries
Consolidated Statements of
Cash Flows
In millions (Unaudited)
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Operating Activities
Net income
$
1,038
$
3,852
Less: Income from discontinued operations,
net of tax
445
1,403
Income from continuing operations, net of
tax
593
2,449
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
2,225
2,183
Provision (credit) for deferred income
tax
(146
)
5
Earnings of nonconsolidated affiliates
less than dividends received
927
81
Net periodic pension benefit cost
101
252
Pension contributions
(206
)
(1,533
)
Net gain on sales of assets, businesses
and investments
(48
)
(24
)
Adjustment to gain on step acquisition of
nonconsolidated affiliate
—
20
Restructuring and asset related charges -
net
368
175
Other net loss
143
327
Changes in assets and liabilities, net of
effects of acquired and divested companies:
Accounts and notes receivable
994
(1,422
)
Inventories
483
(1,120
)
Accounts payable
(926
)
1,453
Other assets and liabilities, net
(715
)
(1,139
)
Cash provided by operating activities -
continuing operations
3,793
1,707
Cash provided by operating activities -
discontinued operations
187
817
Cash provided by operating activities
3,980
2,524
Investing Activities
Capital expenditures
(1,384
)
(1,445
)
Investment in gas field developments
(71
)
(82
)
Purchases of previously leased assets
(9
)
—
Proceeds from sales of property and
businesses, net of cash divested
47
15
Acquisitions of property and businesses,
net of cash acquired
—
(20
)
Investments in and loans to
nonconsolidated affiliates
(333
)
(11
)
Distributions and loan repayments from
nonconsolidated affiliates
—
55
Purchases of investments
(784
)
(1,301
)
Proceeds from sales and maturities of
investments
973
1,025
Proceeds from interests in trade accounts
receivable conduits
—
657
Cash used for investing activities -
continuing operations
(1,561
)
(1,107
)
Cash used for investing activities -
discontinued operations
(34
)
(203
)
Cash used for investing activities
(1,595
)
(1,310
)
Financing Activities
Changes in short-term notes payable
149
425
Proceeds from issuance of long-term
debt
2,146
—
Payments on long-term debt
(4,271
)
(859
)
Purchases of treasury stock
(406
)
—
Proceeds from issuance of parent company
stock
39
106
Transaction financing, debt issuance and
other costs
(61
)
—
Employee taxes paid for share-based
payment arrangements
(54
)
(76
)
Distributions to noncontrolling
interests
(16
)
(41
)
Purchases of noncontrolling interests
(131
)
—
Dividends paid to stockholders
(1,033
)
—
Dividends paid to DowDuPont Inc.
(535
)
(3,158
)
Settlements and transfers related to
separation from DowDuPont Inc.
1,935
(276
)
Other financing activities, net
—
2
Cash used for financing activities -
continuing operations
(2,238
)
(3,877
)
Cash used for financing activities -
discontinued operations
(18
)
(44
)
Cash used for financing activities
(2,256
)
(3,921
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(54
)
(59
)
Summary
Increase (decrease) in cash, cash
equivalents and restricted cash
75
(2,766
)
Cash, cash equivalents and restricted cash
at beginning of period
2,764
6,208
Cash, cash equivalents and restricted cash
at end of period
$
2,839
$
3,442
Less: Restricted cash and cash
equivalents, included in "Other current assets"
16
31
Cash and cash equivalents at end of
period
$
2,823
$
3,411
Dow Inc. and
Subsidiaries
Pro Forma Consolidated
Statements of Income
Three Months Ended
Nine Months Ended
In millions, except per share amounts
(Unaudited)
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
As Reported
Pro Forma
Pro Forma
Pro Forma
Net sales
$
10,764
$
12,697
$
32,794
$
37,844
Cost of sales
9,377
10,505
27,971
31,118
Research and development expenses
194
191
592
621
Selling, general and administrative
expenses
388
409
1,258
1,377
Amortization of intangibles
100
118
320
353
Restructuring and asset related charges -
net
147
48
368
152
Integration and separation costs
164
289
914
730
Equity in earnings (losses) of
nonconsolidated affiliates
(44
)
135
(73
)
529
Sundry income (expense) - net
301
(4
)
369
37
Interest income
19
21
59
60
Interest expense and amortization of debt
discount
233
258
710
781
Income from continuing operations before
income taxes
437
1,031
1,016
3,338
Provision for income taxes on continuing
operations
90
288
371
785
Income from continuing operations, net of
tax
347
743
645
2,553
Net income attributable to noncontrolling
interests
14
20
61
78
Net income from continuing operations
available for Dow Inc.
common stockholders
$
333
$
723
$
584
$
2,475
Per common share data:
Earnings per common share from continuing
operations - basic
$
0.45
$
0.97
$
0.78
$
3.31
Earnings per common share from continuing
operations - diluted
$
0.45
$
0.97
$
0.78
$
3.31
Weighted-average common shares outstanding
- basic 1
739.8
747.2
743.3
747.2
Weighted-average common shares outstanding
- diluted 1
743.0
747.2
746.1
747.2
- The weighted-average common shares outstanding - basic and
diluted for the nine months ended September 30, 2019, are the same
under both U.S. GAAP and on a pro forma basis.
Dow Inc. and
Subsidiaries
Net Sales by Segment and
Geographic Region
Net Sales by Segment
Three Months Ended
Nine Months Ended
In millions (Unaudited)
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
As Reported
Pro Forma
Pro Forma
Pro Forma
Packaging & Specialty Plastics
$
5,062
$
6,157
$
15,405
$
18,339
Industrial Intermediates &
Infrastructure
3,365
3,913
10,196
11,688
Performance Materials & Coatings
2,250
2,552
6,926
7,596
Corporate
87
75
267
221
Total
$
10,764
$
12,697
$
32,794
$
37,844
U.S. & Canada
$
3,932
$
4,658
$
11,970
$
13,744
EMEAI 1
3,621
4,390
11,234
13,270
Asia Pacific
2,193
2,372
6,471
7,056
Latin America
1,018
1,277
3,119
3,774
Total
$
10,764
$
12,697
$
32,794
$
37,844
Pro Forma Net Sales Variance by Segment
and Geographic Region
Three Months Ended Sep 30, 2019
2
Nine Months Ended Sep 30,
2019
Local Price & Product Mix
Currency
Volume
Portfolio / Other
Total
Local Price & Product Mix
Currency
Volume
Portfolio / Other
Total
Percent change from prior year
Packaging & Specialty Plastics
(13
)%
(1
)%
(4
)%
—
%
(18
)%
(11
)%
(2
)%
(3
)%
—
%
(16
)%
Industrial Intermediates &
Infrastructure
(13
)
(1
)
—
—
(14
)
(12
)
(2
)
1
—
(13
)
Performance Materials & Coatings
(10
)
(1
)
(1
)
—
(12
)
(5
)
(2
)
(2
)
—
(9
)
Total
(12
)%
(1
)%
(2
)%
—
%
(15
)%
(10
)%
(2
)%
(1
)%
—
%
(13
)%
Total, excluding the Hydrocarbons &
Energy business
(12
)%
(1
)%
1
%
—
%
(12
)%
(10
)%
(2
)%
1
%
—
%
(11
)%
U.S. & Canada
(13
)%
—
%
(2
)%
(1
)%
(16
)%
(10
)%
—
%
(3
)%
—
%
(13
)%
EMEAI 1
(10
)
(3
)
(5
)
—
(18
)
(8
)
(4
)
(3
)
—
(15
)
Asia Pacific
(14
)
(1
)
7
—
(8
)
(12
)
(1
)
5
—
(8
)
Latin America
(14
)
—
(6
)
—
(20
)
(14
)
—
(3
)
—
(17
)
Total
(12
)%
(1
)%
(2
)%
—
%
(15
)%
(10
)%
(2
)%
(1
)%
—
%
(13
)%
- Europe, Middle East, Africa and India.
- As reported net sales for the three months ended September 30,
2019 compared with pro forma net sales for the three months ended
September 30, 2018.
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Operating EBIT by Segment
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
In millions (Unaudited)
As Reported
Pro Forma
Pro Forma
Pro Forma
Packaging & Specialty Plastics
$
798
$
857
$
2,256
$
2,754
Industrial Intermediates &
Infrastructure
193
466
624
1,428
Performance Materials & Coatings
200
398
685
1,045
Corporate
(74
)
(110
)
(246
)
(280
)
Total
$
1,117
$
1,611
$
3,319
$
4,947
Depreciation and Amortization by
Segment
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
In millions (Unaudited)
As Reported
Pro Forma
Pro Forma
Pro Forma
Packaging & Specialty Plastics
$
366
$
352
$
1,103
$
1,048
Industrial Intermediates &
Infrastructure
149
149
441
448
Performance Materials & Coatings
217
222
655
664
Corporate
7
9
26
23
Total
$
739
$
732
$
2,225
$
2,183
Operating EBITDA by Segment
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
In millions (Unaudited)
As Reported
Pro Forma
Pro Forma
Pro Forma
Packaging & Specialty Plastics
$
1,164
$
1,209
$
3,359
$
3,802
Industrial Intermediates &
Infrastructure
342
615
1,065
1,876
Performance Materials & Coatings
417
620
1,340
1,709
Corporate
(67
)
(101
)
(220
)
(257
)
Total
$
1,856
$
2,343
$
5,544
$
7,130
Equity in Earnings (Losses) of
Nonconsolidated Affiliates by Segment
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
In millions (Unaudited)
As Reported
Pro Forma
Pro Forma
Pro Forma
Packaging & Specialty Plastics
$
23
$
83
$
135
$
250
Industrial Intermediates &
Infrastructure
(70
)
54
(196
)
299
Performance Materials & Coatings
2
3
3
4
Corporate
1
(5
)
(15
)
(24
)
Total
$
(44
)
$
135
$
(73
)
$
529
Reconciliation of "Income from
continuing operations, net of tax" to "Operating EBIT"
Three Months Ended
Nine Months Ended
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
In millions (Unaudited)
As Reported
Pro Forma
Pro Forma
Pro Forma
Income from continuing operations, net of
tax
$
347
$
743
$
645
$
2,553
+ Provision for income taxes on continuing
operations
90
288
371
785
Income from continuing operations before
income taxes
$
437
$
1,031
$
1,016
$
3,338
- Interest income
19
21
59
60
+ Interest expense and amortization of
debt discount
233
258
710
781
- Significant items
(466
)
(343
)
(1,652
)
(888
)
Operating EBIT
$
1,117
$
1,611
$
3,319
$
4,947
+ Depreciation and amortization
739
732
2,225
2,183
Operating EBITDA
$
1,856
$
2,343
$
5,544
$
7,130
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Significant Items Impacting Results for
the Three Months Ended Sep 30, 2019
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Reported results
$
437
$
333
$
0.45
Less: Significant items
Integration and separation costs
(164
)
(132
)
(0.18
)
Integration and separation costs
Restructuring and asset related charges -
net
(147
)
(115
)
(0.15
)
Restructuring and asset related charges -
net
Warranty accrual adjustment of exited
business
39
30
0.04
Cost of sales
Environmental charges 4
(399
)
(311
)
(0.42
)
Cost of sales
Litigation related charges, awards and
adjustments 5
205
178
0.24
Sundry income (expense) - net
Loss on divestitures
—
4
0.01
Provision for income taxes on continuing
operations
Total significant items
$
(466
)
$
(346
)
$
(0.46
)
Operating results (non-GAAP)
$
903
$
679
$
0.91
Significant Items Impacting Results for
the Three Months Ended Sep 30, 2018
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Pro forma results
$
1,031
$
723
$
0.97
Less: Significant items
Integration and separation costs
(289
)
(251
)
(0.33
)
Integration and separation costs
Restructuring and asset related charges -
net
(48
)
(37
)
(0.05
)
Restructuring and asset related charges -
net
Loss on early extinguishment of debt
(6
)
(5
)
(0.01
)
Sundry income (expense) - net
Income tax related items 6
—
17
0.02
Provision for income taxes on continuing
operations
Total significant items
$
(343
)
$
(276
)
$
(0.37
)
Operating pro forma results (non-GAAP)
$
1,374
$
999
$
1.34
- "Income from continuing operations before income taxes" or pro
forma "Income from continuing operations before income taxes."
- "Net income available for Dow Inc. common stockholders" or pro
forma "Net income available for Dow Inc. common stockholders." The
income tax effect on significant items was calculated based upon
the enacted tax laws and statutory income tax rates applicable in
the tax jurisdiction(s) of the underlying non-GAAP adjustment.
- "Earnings per common share from continuing operations -
diluted" or pro forma "Earnings per common share from continuing
operations - diluted."
- Related to environmental remediation, primarily resulting from
the culmination of long-standing negotiations with regulators
and/or agencies and review of additional costs to manage ongoing
remediation activities resulting from Dow’s separation from
DowDuPont and related agreements with Corteva and DuPont.
- Includes a gain associated with a legal settlement with Nova,
as well as a gain related to an adjustment of the Dow Silicones
breast implant liability and a charge related to the settlement of
the Dow Silicones commercial creditor matters.
- Related to effects of U.S. Tax Reform.
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Significant Items Impacting Results for
the Nine Months Ended Sep 30, 2019
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Pro forma results
$
1,016
$
584
$
0.78
Less: Significant items
Integration and separation costs
(914
)
(735
)
(0.99
)
Integration and separation costs
Restructuring and asset related charges -
net
(368
)
(318
)
(0.42
)
Restructuring and asset related charges -
net
Loss on divestitures
(44
)
(43
)
(0.05
)
Sundry income (expense) - net
Loss on early extinguishment of debt
(44
)
(34
)
(0.04
)
Sundry income (expense) - net
Litigation related charges, awards and
adjustments 4
205
178
0.24
Sundry income (expense) - net
Environmental charges 5
(399
)
(311
)
(0.42
)
Cost of sales
Indemnification and other transaction
related costs 6
(127
)
(240
)
(0.32
)
Cost of sales ($75 million); Sundry income
(expense) - net ($52 million); Provision for income taxes on
continuing operations ($113 million)
Warranty accrual adjustment of exited
business
39
30
0.04
Cost of sales
Total significant items
$
(1,652
)
$
(1,473
)
$
(1.96
)
Operating pro forma results (non-GAAP)
$
2,668
$
2,057
$
2.74
Significant Items Impacting Results for
the Nine Months Ended Sep 30, 2018
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Pro forma results
$
3,338
$
2,475
$
3.31
Less: Significant items
Impact of Dow Silicones ownership
restructure 7
(20
)
(18
)
(0.02
)
Sundry income (expense) - net
Integration and separation costs
(730
)
(613
)
(0.82
)
Integration and separation costs
Restructuring and asset related charges -
net
(152
)
(125
)
(0.17
)
Restructuring and asset related charges -
net
Gain on divestiture 8
20
15
0.02
Sundry income (expense) - net
Loss on early extinguishment of debt
(6
)
(5
)
(0.01
)
Sundry income (expense) - net
Income tax related items 9
—
10
0.01
Provision for income taxes on continuing
operations
Total significant items
$
(888
)
$
(736
)
$
(0.99
)
Operating pro forma results (non-GAAP)
$
4,226
$
3,211
$
4.30
- Pro forma "Income from continuing operations before income
taxes."
- Pro forma "Net income available for Dow Inc. common
stockholders." The income tax effect on significant items was
calculated based upon the enacted tax laws and statutory income tax
rates applicable in the tax jurisdiction(s) of the underlying
non-GAAP adjustment.
- Pro forma "Earnings per common share from continuing operations
- diluted."
- Includes a gain associated with a legal settlement with Nova,
as well as a gain related to an adjustment of the Dow Silicones
breast implant liability and a charge related to the settlement of
the Dow Silicones commercial creditor matters.
- Related to environmental remediation, primarily resulting from
the culmination of long-standing negotiations with regulators
and/or agencies and review of additional costs to manage ongoing
remediation activities resulting from Dow’s separation from
DowDuPont and related agreements with Corteva and DuPont.
- Primarily related to charges associated with agreements entered
into with DuPont and Corteva as part of the separation and
distribution which, among other matters, provides for
cross-indemnities and allocations of obligations and liabilities
for periods prior to, at and after the completion of the
separation.
- Post-closing adjustments related to the Dow Silicones ownership
restructure.
- Reflects a pretax gain related to the sale of equity interests
in MEGlobal.
- Related to effects of U.S. Tax Reform.
Reconciliation of Non-GAAP Cash Flow
Measures
Three Months Ended
Nine Months Ended
In millions
Sep 30, 2019
Sep 30, 2018
Sep 30, 2019
Sep 30, 2018
Cash provided by operating activities -
continuing operations (GAAP)
$
1,790
$
203
$
3,793
$
1,707
Impact of ASU 2016-15 and related
interpretive guidance
—
1
—
657
Cash flows from operating activities -
continuing operations, excluding impact of ASU 2016-15
(non-GAAP)
$
1,790
$
204
$
3,793
$
2,364
Capital expenditures
(472
)
(577
)
(1,384
)
(1,445
)
Free cash flow (non-GAAP)
$
1,318
$
(373
)
$
2,409
$
919
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191024005421/en/
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