Dow (NYSE: DOW):
FINANCIAL HIGHLIGHTS
- GAAP loss per share was $0.31; Operating loss per share1 was
$0.26 and excludes significant items in the quarter, totaling $0.05
per share, primarily related to integration and separation
costs.
- Net sales were $8.4 billion, down 24% versus the year-ago
period driven by both local price and volume declines, as the
COVID-19 pandemic dramatically impacted results.
- Local price declined 14% versus the year-ago period, primarily
reflecting lower global energy prices. Currency decreased sales by
1%.
- Volume declined 9% versus the year-ago period. Demand growth in
food packaging, health and hygiene, home care and pharma
applications was more than offset by weakness in durable good
end-markets. Notably, the Company reported 3% year-over-year and
13% sequential volume improvements in Asia Pacific as the economy
reopened in China.
- Equity losses were $95 million versus equity losses of $15
million in the year-ago period, primarily driven by lower results
at the Kuwait joint ventures on continued margin compression
stemming from COVID-19.
- GAAP Net loss from continuing operations was $217 million.
Operating EBIT1 was $57 million, down from $1.1 billion in the
year-ago period. Margin compression and increased equity losses
were partially mitigated by the progress against our previously
announced expense reduction actions.
- Cash provided by operating activities – continuing ops. was
$1.6 billion, including a release of $526 million of working
capital as we managed production to demand. Dow delivered a $639
million increase in cash flow from ops. versus the year-ago period,
driven by a strong working capital improvement as well as a $461
million ethylene capacity reservation payment from Olin. Capital
expenditures were $273 million and free cash flow1 was $1.3
billion, up $836 million year-over-year. The Company’s ongoing
prioritization of cash since spin has resulted in a cash flow
conversion1 of 110% on a trailing 12 month basis.
- Dividend returns to shareholders totaled $516 million in the
quarter.
- Total cash and available committed liquidity at quarter-end was
approximately $12 billion, including $3.7 billion of cash and
equivalents. The Company paid down nearly $600 million of debt in
the quarter, which included full repayment of the previously
accessed uncommitted lines, achieving a net debt improvement of
more than $740 million year-to-date. Dow has no substantive
long-term debt due until the second half of 2023.
- Dow signed a definitive agreement to sell its rail
infrastructure assets and related equipment at six major North
American sites to Watco Companies on July 2, with expected cash
proceeds at close in excess of $310 million by year end.
SUMMARY FINANCIAL RESULTS
Three Months Ended June
30
Three Months Ended March
31
In millions, except per share
amounts
2Q20
2Q19
vs.
SQLY
[B /
(W)]
1Q20
vs.
PQ
[B /
(W)]
Net Sales
$8,354
$11,014
$(2,660)
$9,770
$(1,416)
GAAP Income (Loss) from Continuing Ops,
Net of Tax
$(217)
$90
$(307)
$258
$(475)
Operating EBIT¹
$57
$1,059
$(1,002)
$843
$(786)
Operating EBIT Margin¹
0.7%
9.6%
(890) bps
8.6%
(790) bps
Operating EBITDA¹
$757
$1,802
$(1,045)
$1,567
$(810)
GAAP Earnings (Loss) Per Share
$(0.31)
$0.10
$(0.41)
$0.32
$(0.63)
Operating Earnings (Loss) Per
Share¹
$(0.26)
$0.86
$(1.12)
$0.59
$(0.85)
Cash Provided by Operating Activities –
Continuing Ops
$1,599
$960
$639
$1,236
$363
1 Op. Earnings (Loss) Per Share,
Op. EBIT, Op. EBIT Margin, Op. EBITDA, Free Cash Flow, Cash Flow
Conversion and Net Debt are non-GAAP measures. See page 6 for
further discussion.
CEO QUOTE
Jim Fitterling, Dow’s chairman and chief executive officer,
commented on the quarter:
“Recognizing the significant impact that COVID-19 would have on
demand in the quarter, Dow took proactive actions to electively
focus on cash and maintain our financial strength with a continued
emphasis on safe, reliable operations and disciplined capital
allocation. As a result, Dow once again generated higher cash flow
in the quarter. We captured solid demand growth in packaging,
health and hygiene, home care and pharma end-markets, which
partially offset weakness in consumer durable goods. Extended
economic lockdowns shifted the inflection point for demand recovery
in key markets and geographies into June, where we began to see
gradual improvements across most industries. The growing recovery
in China and early signs of improvement in Western Europe are
positive indicators for the United States and Latin America.
“Our proactive cost and cash interventions enabled us to
continue to maximize our financial flexibility through the
pandemic. We delivered another quarter of improved year-over-year
cash flow from operations as we have every quarter since spin. We
maintained our liquidity position, further reduced our net debt,
and we progressed our strategic priorities by announcing an
agreement to divest certain rail infrastructure assets. And
importantly, we continued to stay close to our customers, providing
new channels to access our solutions, such as our new
MobilityScience™ platform for the transportation industry, and
implementing enhanced supply chain visibility for them as we
managed through this historic period.”
SEGMENT HIGHLIGHTS
Packaging & Specialty Plastics
Three Months Ended June
30
Three Months Ended March
31
In millions, except margin
percentages
2Q20
2Q19
vs.
SQLY
[B /
(W)]
1Q20
vs.
PQ
[B /
(W)]
Net Sales
$4,001
$5,205
$(1,204)
$4,609
$(608)
Operating EBIT
$318
$768
$(450)
$580
$(262)
Operating EBIT Margin
7.9%
14.8%
(690) bps
12.6%
(470) bps
Equity Earnings
$20
$74
$(54)
$5
$15
Packaging & Specialty Plastics net sales were $4 billion,
down 23% versus the year-ago period. Volume was flat, as growth in
non-durable packaging end-market applications was offset by
declines from durable end-market exposure. Local price declined 22%
from lower global energy prices, and currency decreased net sales
by 1%.
Equity earnings for the segment were $20 million, compared to
equity earnings of $74 million in the year-ago period. Lower
integrated olefin and aromatics margins at the Kuwait and Sadara
joint ventures were partially mitigated by improved margins at our
Thai joint ventures.
Operating EBIT was $318 million, compared to $768 million in the
year-ago period. Targeted expense reductions as well as volume
gains and incremental integrated margin improvement in non-durable
packaging applications were more than offset by lower demand and
integrated margins in durable end-markets.
Packaging and Specialty Plastics
reported a net sales decline, driven by reduced polyethylene
pricing. Volume was flat as gains in Asia Pacific and Europe,
Middle East, Africa and India (EMEAI) were offset by declines in
the U.S. & Canada. Latin America volume was flat. The business
captured strong demand growth in flexible food and specialty
packaging, industrial and consumer packaging, and health and
hygiene applications, which was offset by declines in higher-margin
functional polymers’ exposure to durable end-markets, notably
automotive, infrastructure and construction.
Hydrocarbons & Energy reported
lower net sales driven by price declines and flat volume. Declines
were driven by lower global energy prices as well as lower cracker
by-product prices as result of weak end-market demand.
Industrial Intermediates & Infrastructure
Three Months Ended June
30
Three Months Ended March
31
In millions, except margin
percentages
2Q20
2Q19
vs.
SQLY
[B /
(W)]
1Q20
vs.
PQ
[B /
(W)]
Net Sales
$2,417
$3,342
$(925)
$3,045
$(628)
Operating EBIT
$(220)
$154
$(374)
$175
$(395)
Operating EBIT Margin
(9.1)%
4.6%
(1370) bps
5.7%
(1480) bps
Equity Losses
$(113)
$(78)
$(35)
$(76)
$(37)
Industrial Intermediates & Infrastructure net sales were
$2.4 billion, down 28% versus the year-ago period. Volume declined
18% due to reduced demand for durable good end-markets primarily in
Polyurethanes & Construction Chemicals. Local price decreased
9%, and currency decreased net sales by 1%.
Equity losses for the segment were $113 million compared to
equity losses of $78 million in the year-ago period, primarily due
to margin compression in MEG at EQUATE.
Operating EBIT was a loss of $220 million compared to earnings
of $154 million in the year-ago period due to much weaker demand,
margin compression and increased equity losses.
Polyurethanes & Construction
Chemicals reported a net sales decline primarily on lower
volume and local prices. Local price decreased due to lower global
energy costs. Demand was significantly impacted by the COVID-19
pandemic, particularly in construction, furniture and bedding, and
automotive. Volume growth in Asia Pacific was more than offset by
declines in other regions.
Industrial Solutions reported lower
net sales driven by decreased local prices and volume. Improved
demand for pharma and home care applications was more than offset
by declines in industrial and oil applications, as well as consumer
athleisure apparel. Volume growth in Asia Pacific was more than
offset by reduced demand in other regions due to the impact of
COVID-19. Local prices declined due to lower global energy prices,
with Industrial Specialties prices showing more resilience.
Performance Materials & Coatings
Three Months Ended June
30
Three Months Ended March
31
In millions, except margin
percentages
2Q20
2Q19
vs.
SQLY
[B /
(W)]
1Q20
vs.
PQ
[B /
(W)]
Net Sales
$1,855
$2,356
$(501)
$2,065
$(210)
Operating EBIT
$27
$214
$(187)
$162
$(135)
Operating EBIT Margin
1.5%
9.1%
(760) bps
7.8%
(630) bps
Equity Earnings
$2
$1
$1
$1
$1
Performance Materials & Coatings net sales were $1.9
billion, down 21% versus the year-ago period. Volume declined 14%
as growth in home care products as well as do-it-yourself (DIY)
architectural coatings in the U.S. & Canada was more than
offset by a decline in siloxanes. Local price decreased 6%, and
currency decreased net sales by 1%.
Operating EBIT was $27 million, compared to $214 million in the
year-ago period, primarily due to margin compression in siloxanes
and lower demand due to regional lockdowns in response to the
COVID-19 pandemic.
Consumer Solutions reported a
decrease in net sales due to local price and volume declines in all
regions. Demand growth in home care applications was more than
offset by volume declines in automotive, construction and personal
care end-markets as consumer activities and buying patterns were
limited by pandemic-related government mandates. Prices in
formulated silicone applications were more resilient than siloxane
prices which experienced weaker supply/demand fundamentals.
Coatings & Performance Monomers
reported lower net sales due to declines in local price and volume
in all regions. Local price declined primarily due to lower monomer
prices. While Coatings volume was down overall, the business
reported growth in architectural coatings in the U.S. & Canada
as consumers favored DIY activities. Acrylic monomers pricing
remained under pressure globally on weaker supply/demand
fundamentals.
OUTLOOK
“Based on what we’ve seen in the second quarter and into July,
we continue to expect a gradual and uneven recovery and, therefore,
remain intensely focused on the actions within our control and
maximizing our operational advantages,” said Fitterling. “Our
disciplined approach to cash generation and capital allocation, in
addition to our structural cost improvements, will continue to
serve as a solid foundation for us to weather this downturn and
position us to capture significant value as markets lift.
“For that reason, we will upsize our 2020 operating expense
reduction target from $350 million to $500 million through
additional structural cost interventions. We will also initiate a
restructuring program during the quarter, targeting more than $300
million in annualized EBITDA benefit by the end of 2021. This
program includes a 6% reduction in Dow’s global workforce as well
as actions to exit uncompetitive assets. While these are difficult
decisions, they are necessary to maintain competitiveness while the
economic recovery gains traction.
“Going forward, we have significant addressable market
opportunities that will drive growth as the economy recovers.
Global economic indicators and end-markets have begun to show
improvement, and we will continue to benefit from our unique
competitive advantages – our industry-leading feedstock
flexibility, unmatched materials portfolio, and geographic and
end-market diversity – enabling us to continue to outperform our
peers for the long-term.”
Conference Call
Dow will host a live webcast of its second 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 global breadth, asset integration and
scale, focused innovation and leading business positions to achieve
profitable growth. The Company’s ambition is to become the most
innovative, customer centric, inclusive and sustainable materials
science company. Dow’s portfolio of plastics, industrial
intermediates, coatings and silicones businesses delivers a broad
range of differentiated science-based products and solutions for
its customers in high-growth market segments, such as packaging,
infrastructure and consumer care. Dow operates 109 manufacturing
sites in 31 countries and employs approximately 36,500 people. Dow
delivered sales of approximately $43 billion in 2019. 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.
®TM Trademark of The Dow Chemical Company (“Dow”) or an
affiliated company of Dow
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; the continuing global and regional economic impacts of
the coronavirus disease 2019 ("COVID-19") pandemic and crude oil
supply and price volatility; estimates regarding benefits achieved
through contemplated restructuring activities, such as workforce
reduction, exit and disposal activities; 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; disruptions in Dow’s information technology networks and
systems; the continuing risks related to the COVID-19 pandemic and
crude oil supply and price volatility; and Dow’s ability to realize
the expected benefits of restructuring activities if they are
approved and completed. 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 Dow's
separation from DowDuPont include, but are not limited to, a number
of conditions 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) the failure
of Dow's pro forma financial information to be a reliable indicator
of Dow's future results; (iv) Dow's inability to receive
third-party consents required under the separation agreement; (v)
non-compete restrictions under the separation agreement; (vi)
receipt of less favorable terms in the commercial agreements Dow
entered into with DuPont and Corteva, Inc. ("Corteva"), including
restrictions under intellectual property cross-license agreements,
than Dow would have received from an unaffiliated third party; and
(vii) 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 Part II, Item 1A
of the combined Dow Inc. and TDCC Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2020 and Part I, Item 1A of
the combined Dow Inc. and TDCC Annual Report on Form 10-K for the
fiscal year ended December 31, 2019. 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 six months ended June 30,
2019 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 and (2) 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 and six months ended June 30, 2020 and the three months
ended June 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 (loss) per share is defined as "Earnings
(loss) 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 (loss) 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 (loss)
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.
Free cash flow is defined as "Cash provided by operating
activities - continuing operations," 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.
Cash flow conversion is defined 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.
Net debt is defined as total gross debt minus "Cash and cash
equivalents" and "Marketable securities." The Company believes net
debt is the best representation of its financial leverage at this
point in time.
Dow Inc. and
Subsidiaries
Consolidated Statements of
Income
In millions, except per share amounts
(Unaudited)
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
Net sales
$
8,354
$
11,014
$
18,124
$
21,983
Cost of sales
7,610
9,420
15,840
18,562
Research and development expenses
182
208
361
398
Selling, general and administrative
expenses
357
422
691
870
Amortization of intangibles
100
104
200
220
Restructuring and asset related charges -
net
6
65
102
221
Integration and separation costs
46
348
111
800
Equity in losses of nonconsolidated
affiliates
(95
)
(15
)
(184
)
(29
)
Sundry income (expense) - net
53
(1
)
(28
)
68
Interest income
6
21
21
39
Interest expense and amortization of debt
discount
200
237
415
478
Income (loss) from continuing operations
before income taxes
(183
)
215
213
512
Provision for income taxes on continuing
operations
34
125
172
266
Income (loss) from continuing operations,
net of tax
(217
)
90
41
246
Income from discontinued operations, net
of tax
—
—
—
445
Net income (loss)
(217
)
90
41
691
Net income attributable to noncontrolling
interests
8
15
27
60
Net income (loss) available for Dow Inc.
common stockholders
$
(225
)
$
75
$
14
$
631
Per common share data:
Earnings (loss) per common share from
continuing operations - basic
$
(0.31
)
$
0.10
$
0.01
$
0.26
Earnings per common share from
discontinued operations - basic
—
—
—
0.58
Earnings (loss) per common share -
basic
$
(0.31
)
$
0.10
$
0.01
$
0.84
Earnings (loss) per common share from
continuing operations - diluted
$
(0.31
)
$
0.10
$
0.01
$
0.26
Earnings per common share from
discontinued operations - diluted
—
—
—
0.58
Earnings (loss) per common share -
diluted
$
(0.31
)
$
0.10
$
0.01
$
0.84
Weighted-average common shares outstanding
- basic
739.3
742.8
739.7
745.0
Weighted-average common shares outstanding
- diluted
739.3
747.9
741.0
747.6
Dow Inc. and
Subsidiaries
Consolidated Balance
Sheets
In millions, except share amounts
(Unaudited)
Jun 30, 2020
Dec 31, 2019
Assets
Current Assets
Cash and cash equivalents (variable
interest entities restricted - 2020: $41; 2019: $37)
$
3,724
$
2,367
Marketable securities
2
21
Accounts and notes receivable:
Trade (net of allowance for doubtful
receivables - 2020: $48; 2019: $45)
4,353
4,844
Other
2,528
2,711
Inventories
5,784
6,214
Other current assets
606
658
Total current assets
16,997
16,815
Investments
Investment in nonconsolidated
affiliates
1,211
1,404
Other investments (investments carried at
fair value - 2020: $1,457; 2019: $1,584)
2,271
2,588
Noncurrent receivables
678
1,063
Total investments
4,160
5,055
Property
Property
55,459
54,910
Less accumulated depreciation
34,841
33,914
Net property (variable interest entities
restricted - 2020: $284; 2019: $330)
20,618
20,996
Other Assets
Goodwill
8,801
8,796
Other intangible assets (net of
accumulated amortization - 2020: $4,130; 2019: $3,886)
3,532
3,759
Operating lease right-of-use assets
1,881
2,072
Deferred income tax assets
2,150
2,213
Deferred charges and other assets
1,137
818
Total other assets
17,501
17,658
Total Assets
$
59,276
$
60,524
Liabilities and Equity
Current Liabilities
Notes payable
$
853
$
586
Long-term debt due within one year
451
435
Accounts payable:
Trade
3,296
3,889
Other
1,736
2,064
Operating lease liabilities - current
388
421
Income taxes payable
331
522
Accrued and other current liabilities
2,731
2,762
Total current liabilities
9,786
10,679
Long-Term Debt (variable interest entities
nonrecourse - 2020: $20; 2019: $34)
16,288
15,975
Other Noncurrent Liabilities
Deferred income tax liabilities
321
347
Pension and other postretirement benefits
- noncurrent
9,780
10,083
Asbestos-related liabilities -
noncurrent
1,038
1,060
Operating lease liabilities -
noncurrent
1,562
1,739
Other noncurrent obligations
7,404
6,547
Total other noncurrent liabilities
20,105
19,776
Stockholders’ Equity
Common stock (authorized 5,000,000,000
shares of $0.01 par value each; issued 2020: 753,924,753 shares;
2019: 751,228,644 shares)
8
8
Additional paid-in capital
7,431
7,325
Retained earnings
16,017
17,045
Accumulated other comprehensive loss
(10,225
)
(10,246
)
Unearned ESOP shares
(69
)
(91
)
Treasury stock at cost (2020: 12,803,303
shares; 2019: 9,729,834 shares)
(625
)
(500
)
Dow Inc.’s stockholders’ equity
12,537
13,541
Noncontrolling interests
560
553
Total equity
13,097
14,094
Total Liabilities and Equity
$
59,276
$
60,524
Dow Inc. and
Subsidiaries
Consolidated Statements of
Cash Flows
In millions (Unaudited)
Six Months Ended
Jun 30, 2020
Jun 30, 2019
Operating Activities
Net income
$
41
$
691
Less: Income from discontinued operations,
net of tax
—
445
Income from continuing operations, net of
tax
41
246
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
1,424
1,486
Credit for deferred income tax
(59
)
(63
)
Earnings of nonconsolidated affiliates
less than dividends received
455
880
Net periodic pension benefit cost
129
57
Pension contributions
(112
)
(152
)
Net gain on sales of assets, businesses
and investments
(39
)
(27
)
Restructuring and asset related charges -
net
102
221
Other net loss
163
115
Changes in assets and liabilities, net of
effects of acquired and divested companies:
Accounts and notes receivable
696
239
Inventories
429
58
Accounts payable
(896
)
(450
)
Other assets and liabilities, net
502
(607
)
Cash provided by operating activities -
continuing operations
2,835
2,003
Cash provided by (used for) operating
activities - discontinued operations
(6
)
253
Cash provided by operating activities
2,829
2,256
Investing Activities
Capital expenditures
(668
)
(912
)
Investment in gas field developments
(5
)
(48
)
Purchases of previously leased assets
(2
)
(9
)
Proceeds from sales of property and
businesses, net of cash divested
14
9
Investments in and loans to
nonconsolidated affiliates
(236
)
(228
)
Distributions and loan repayments from
nonconsolidated affiliates
6
—
Purchases of investments
(462
)
(393
)
Proceeds from sales and maturities of
investments
790
735
Other investing activities, net
29
—
Cash used for investing activities -
continuing operations
(534
)
(846
)
Cash used for investing activities -
discontinued operations
—
(34
)
Cash used for investing activities
(534
)
(880
)
Financing Activities
Changes in short-term notes payable
181
162
Proceeds from issuance of short-term debt
greater than three months
163
—
Payments on short-term debt greater than
three months
(100
)
—
Proceeds from issuance of long-term
debt
2,509
2,010
Payments on long-term debt
(2,359
)
(4,221
)
Purchases of treasury stock
(125
)
(305
)
Proceeds from issuance of stock
30
34
Transaction financing, debt issuance and
other costs
(99
)
(56
)
Employee taxes paid for share-based
payment arrangements
(26
)
(50
)
Distributions to noncontrolling
interests
(19
)
(7
)
Purchases of noncontrolling interests
—
(127
)
Dividends paid to stockholders
(1,034
)
(517
)
Dividends paid to DowDuPont Inc.
—
(535
)
Settlements and transfers related to
separation from DowDuPont Inc.
—
1,963
Cash used for financing activities -
continuing operations
(879
)
(1,649
)
Cash used for financing activities -
discontinued operations
—
(18
)
Cash used for financing activities
(879
)
(1,667
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(66
)
10
Summary
Increase (decrease) in cash, cash
equivalents and restricted cash
1,350
(281
)
Cash, cash equivalents and restricted cash
at beginning of period
2,380
2,764
Cash, cash equivalents and restricted cash
at end of period
$
3,730
$
2,483
Less: Restricted cash and cash
equivalents, included in "Other current assets"
6
37
Cash and cash equivalents at end of
period
$
3,724
$
2,446
Dow Inc. and
Subsidiaries
Pro Forma Consolidated
Statements of Income
Three Months Ended
Six Months Ended
In millions, except per share amounts
(Unaudited)
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
As Reported
As Reported
As Reported
Pro Forma
Net sales
$
8,354
$
11,014
$
18,124
$
22,030
Cost of sales
7,610
9,420
15,840
18,594
Research and development expenses
182
208
361
398
Selling, general and administrative
expenses
357
422
691
870
Amortization of intangibles
100
104
200
220
Restructuring and asset related charges -
net
6
65
102
221
Integration and separation costs
46
348
111
750
Equity in losses of nonconsolidated
affiliates
(95
)
(15
)
(184
)
(29
)
Sundry income (expense) - net
53
(1
)
(28
)
68
Interest income
6
21
21
40
Interest expense and amortization of debt
discount
200
237
415
477
Income (loss) from continuing operations
before income taxes
(183
)
215
213
579
Provision for income taxes on continuing
operations
34
125
172
281
Income (loss) from continuing operations,
net of tax
(217
)
90
41
298
Net income attributable to noncontrolling
interests
8
15
27
47
Net income (loss) from continuing
operations available for Dow Inc. common stockholders
$
(225
)
$
75
$
14
$
251
Per common share data:
Earnings (loss) per common share from
continuing operations - basic
$
(0.31
)
$
0.10
$
0.01
$
0.33
Earnings (loss) per common share from
continuing operations - diluted
$
(0.31
)
$
0.10
$
0.01
$
0.33
Weighted-average common shares outstanding
- basic 1
739.3
742.8
739.7
745.0
Weighted-average common shares outstanding
- diluted 1
739.3
747.9
741.0
747.6
1.
The weighted-average common shares
outstanding - basic and diluted for the six months ended June 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
Six Months Ended
In millions (Unaudited)
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
As Reported
As Reported
As Reported
Pro Forma
Packaging & Specialty Plastics
$
4,001
$
5,205
$
8,610
$
10,343
Industrial Intermediates &
Infrastructure
2,417
3,342
5,462
6,831
Performance Materials & Coatings
1,855
2,356
3,920
4,676
Corporate
81
111
132
180
Total
$
8,354
11,014
$
18,124
$
22,030
U.S. & Canada
$
2,944
$
4,072
$
6,494
$
8,038
EMEAI 1
2,711
3,725
6,122
7,613
Asia Pacific
1,932
2,170
3,777
4,278
Latin America
767
1,047
1,731
2,101
Total
$
8,354
$
11,014
$
18,124
$
22,030
Net Sales Variance by Segment
and
Geographic Region
Three Months Ended Jun 30,
2020
Six Months Ended Jun 30, 2020
2
Local
Price &
Product
Mix
Currency
Volume
Total
Local
Price &
Product
Mix
Currency
Volume
Total
Percent change from prior year
Packaging & Specialty Plastics
(22)
%
(1)
%
—
%
(23)
%
(16)
%
(1)
%
—
%
(17)
%
Industrial Intermediates &
Infrastructure
(9)
(1)
(18)
(28)
(9)
(1)
(10)
(20)
Performance Materials & Coatings
(6)
(1)
(14)
(21)
(7)
(1)
(8)
(16)
Total
(14)
%
(1)
%
(9)
%
(24)
%
(12)
%
(1)
%
(5)
%
(18)
%
Total, excluding the Hydrocarbons &
Energy business
(11)
%
(1)
%
(10)
%
(22)
%
(10)
%
(1)
%
(5)
%
(16)
%
U.S. & Canada
(11)
%
—
%
(17)
%
(28)
%
(10)
%
—
%
(9)
%
(19)
%
EMEAI 1
(21)
(1)
(5)
(27)
(14)
(2)
(4)
(20)
Asia Pacific
(13)
(1)
3
(11)
(11)
(1)
—
(12)
Latin America
(13)
(1)
(13)
(27)
(13)
(1)
(4)
(18)
Total
(14)
%
(1)
%
(9)
%
(24)
%
(12)
%
(1)
%
(5)
%
(18)
%
1.
Europe, Middle East, Africa and India.
2.
As reported net sales for the six months
ended June 30, 2020 compared with pro forma net sales for the six
months ended June 30, 2019.
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Operating EBIT by Segment
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
In millions (Unaudited)
As Reported
As Reported
As Reported
Pro Forma
Packaging & Specialty Plastics
$
318
$
768
$
898
$
1,458
Industrial Intermediates &
Infrastructure
(220
)
154
(45
)
431
Performance Materials & Coatings
27
214
189
485
Corporate
(68
)
(77
)
(142
)
(172
)
Total
$
57
$
1,059
$
900
$
2,202
Depreciation and Amortization by
Segment
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
In millions (Unaudited)
As Reported
As Reported
As Reported
Pro Forma
Packaging & Specialty Plastics
$
334
$
370
$
686
$
737
Industrial Intermediates &
Infrastructure
145
147
295
292
Performance Materials & Coatings
215
219
431
438
Corporate
6
7
12
19
Total
$
700
$
743
$
1,424
$
1,486
Operating EBITDA by Segment
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
In millions (Unaudited)
As Reported
As Reported
As Reported
Pro Forma
Packaging & Specialty Plastics
$
652
$
1,138
$
1,584
$
2,195
Industrial Intermediates &
Infrastructure
(75
)
301
250
723
Performance Materials & Coatings
242
433
620
923
Corporate
(62
)
(70
)
(130
)
(153
)
Total
$
757
$
1,802
$
2,324
$
3,688
Equity in Earnings (Losses) of
Nonconsolidated Affiliates by Segment
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30
2019
Jun 30
2020
Jun 30,
2019
In millions (Unaudited)
As Reported
As Reported
As Reported
Pro Forma
Packaging & Specialty Plastics
$
20
$
74
$
25
$
112
Industrial Intermediates &
Infrastructure
(113
)
(78
)
(189
)
(126
)
Performance Materials & Coatings
2
1
3
1
Corporate
(4
)
(12
)
(23
)
(16
)
Total
$
(95
)
$
(15
)
$
(184
)
$
(29
)
Reconciliation of "Income (loss) from
continuing operations, net of tax" to "Operating EBIT"
Three Months Ended
Six Months Ended
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
In millions (Unaudited)
As Reported
As Reported
As Reported
Pro Forma
Income (loss) from continuing operations,
net of tax
$
(217
)
$
90
$
41
$
298
+ Provision for income taxes on continuing
operations
34
125
172
281
Income (loss) from continuing operations
before income taxes
$
(183
)
$
215
$
213
$
579
- Interest income
6
21
21
40
+ Interest expense and amortization of
debt discount
200
237
415
477
- Significant items
(46
)
(628
)
(293
)
(1,186
)
Operating EBIT (non-GAAP)
$
57
$
1,059
$
900
$
2,202
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Significant Items Impacting Results for
the Three Months Ended Jun 30, 2020
In millions, except per share amounts
(Unaudited)
Pretax 1
Net
Income 2
EPS 3
Income Statement
Classification
Reported results
$
(183
)
$
(225
)
$
(0.31
)
Less: Significant items
Integration and separation costs
(46
)
(36
)
(0.05
)
Integration and separation costs
Restructuring and asset related charges -
net
(6
)
(6
)
(0.01
)
Restructuring and asset related charges -
net
Litigation related charges, awards and
adjustments
6
6
0.01
Sundry income (expense) - net
Total significant items
$
(46
)
$
(36
)
$
(0.05
)
Operating results (non-GAAP)
$
(137
)
$
(189
)
$
(0.26
)
Significant Items Impacting Results for
the Three Months Ended Jun 30, 2019
In millions, except per share amounts
(Unaudited)
Pretax 1
Net
Income 2
EPS 3
Income Statement
Classification
Reported results
$
215
$
75
$
0.10
Less: Significant items
Integration and separation costs
(348
)
(277
)
(0.37
)
Integration and separation costs
Restructuring and asset related charges -
net
(65
)
(53
)
(0.07
)
Restructuring and asset related charges -
net
Loss on divestiture
(44
)
(47
)
(0.06
)
Sundry income (expense) - net
Loss on early extinguishment of debt
(44
)
(34
)
(0.04
)
Sundry income (expense) - net
Indemnification and other transaction
related costs4
(127
)
(163
)
(0.22
)
Cost of sales ($75 million); Sundry income
(expense) - net ($52 million); Provision for income taxes on
continuing operations ($36 million)
Total significant items
$
(628
)
$
(574
)
$
(0.76
)
Operating results (non-GAAP)
$
843
$
649
$
0.86
1.
"Income (loss) from continuing
operations before income taxes."
2.
"Net income (loss) 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.
3.
"Earnings (loss) per common share
from continuing operations - diluted."
4.
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.
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Significant Items Impacting Results for
the Six Months Ended Jun 30, 2020
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Reported results
$
213
$
14
$
0.01
Less: Significant items
Integration and separation costs
(111
)
(87
)
(0.12
)
Integration and separation costs
Restructuring and asset related charges -
net
(102
)
(85
)
(0.12
)
Restructuring and asset related charges -
net
Loss on early extinguishment of debt
(86
)
(70
)
(0.09
)
Sundry income (expense) - net
Litigation related charges, awards and
adjustments
6
6
0.01
Sundry income (expense) - net
Total significant items
$
(293
)
$
(236
)
$
(0.32
)
Operating results (non-GAAP)
$
506
$
250
$
0.33
Significant Items Impacting Results for
the Six Months Ended Jun 30, 2019
In millions, except per share amounts
(Unaudited)
Pretax 1
Net Income 2
EPS 3
Income Statement
Classification
Pro forma results
$
579
$
251
$
0.33
Less: Significant items
Integration and separation costs
(750
)
(603
)
(0.81
)
Integration and separation costs
Restructuring and asset related charges -
net
(221
)
(203
)
(0.27
)
Restructuring and asset related charges -
net
Loss on divestiture
(44
)
(47
)
(0.06
)
Sundry income (expense) - net
Loss on early extinguishment of debt
(44
)
(34
)
(0.04
)
Sundry income (expense) - net
Indemnification and other transaction
related costs 4
(127
)
(240
)
(0.32
)
Cost of sales ($75 million); Sundry income
(expense) - net ($52 million); Provision for income taxes on
continuing operations ($113 million)
Total significant items
$
(1,186
)
$
(1,127
)
$
(1.50
)
Operating pro forma results (non-GAAP)
$
1,765
$
1,378
$
1.83
1.
"Income from continuing
operations before income taxes" or pro forma "Income from
continuing operations before income taxes."
2.
"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.
3.
"Earnings per common share from
continuing operations - diluted" or pro forma "Earnings per common
share from continuing operations - diluted."
4.
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.
Dow Inc. and
Subsidiaries
Selected Financial Information
and Non-GAAP Measures
Reconciliation of Non-GAAP Cash Flow
Measures
Three Months Ended
Six Months Ended
In millions (Unaudited)
Jun 30,
2020
Jun 30,
2019
Jun 30,
2020
Jun 30,
2019
Cash provided by operating activities -
continuing operations (GAAP)
$
1,599
$
960
$
2,835
$
2,003
Capital expenditures
(273
)
(470
)
(668
)
(912
)
Free cash flow (non-GAAP)
$
1,326
$
490
$
2,167
$
1,091
Reconciliation of Cash Flow Conversion
- Trailing Twelve Months
(Operating EBITDA to Cash Flow From
Operations)
Three Months Ended
Sep 30,
2019
Dec 31,
2019
Mar 31,
2020
Jun 30,
2020
In millions (Unaudited)
Cash provided by operating activities -
continuing operations (GAAP)
$
1,790
$
1,920
$
1,236
$
1,599
Operating EBITDA (Non-GAAP)
$
1,856
$
1,746
$
1,567
$
757
Cash flow conversion - trailing twelve
months (Operating EBITDA to cash flow from operations)
(Non-GAAP)
110.4
%
Reconciliation of Net Debt
Jun 30,
2020
Dec 31,
2019
In millions (Unaudited)
Notes payable
$
853
$
586
Long-term debt due within one year
451
435
Long-term debt
16,288
15,975
Gross debt (GAAP)
$
17,592
$
16,996
- Cash and cash equivalents
3,724
2,367
- Marketable securities
2
21
Net debt (Non-GAAP)
$
13,866
$
14,608
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200723005385/en/
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