Dow reports third quarter 2020 results

October 22, 2020

MIDLAND, Mich.--(BUSINESS WIRE)-- Dow (NYSE: DOW):

FINANCIAL HIGHLIGHTS

  • GAAP loss per share was $0.04; Operating EPS¹ was $0.50 and excludes significant items in the quarter totaling $0.54 per share, primarily related to restructuring and asset-related charges, net of a gain on the divestiture of non-revenue generating rail infrastructure assets.
  • Net sales were $9.7 billion, down 10% versus the year-ago period, primarily driven by decreased local prices due to lower global energy prices. Dow’s third quarter sales increased 16% versus the prior quarter.
  • Local price declined 9% versus the year-ago period. Currency was flat. Local prices increased 5% sequentially, with an additional 2% benefit from currency.
  • Volume declined 1% versus the year-ago period. Sequentially, volume increased 9% with all operating segments and regions delivering gains on improved industry demand trends across furniture & bedding, appliances, packaging, construction and automotive end markets.
  • Equity earnings were $60 million, compared to an equity loss of $44 million in the year-ago period, a $104 million increase primarily driven by improved financial results at Sadara.
  • GAAP Net Loss was $1 million. Operating EBIT1 was $761 million, down from $1.1 billion in the year-ago period. Targeted expense reductions were more than offset by Op. EBIT margin compression. Sequentially, Dow delivered a 710-basis point Op. EBIT margin improvement with gains in every operating segment.
  • Cash provided by operating activities – continuing ops. was $1.8 billion, approximately flat compared to the year-ago period. Cash conversion increased to 119% in the period. Free cash flow1 was $1.5 billion, up $156 million year-over-year.
  • Dividend returns to shareholders totaled $518 million in the quarter.
  • Total cash and available committed liquidity at quarter-end was in excess of $13.5 billion, representing an increase of more than $1.5 billion over the prior quarter.
  • The Company achieved a net debt improvement of more than $1.8 billion year-to-date, enabled by strong cash generation and prudent liquidity management. Dow also continued to take proactive liability management actions with a $2 billion debt neutral bond issuance resulting in no substantive long-term debt maturities due until the second half of 2024.
  • Dow completed the divestiture of its North American rail infrastructure assets, receiving $315 million in the quarter. The Company also signed an agreement to divest certain U.S. Gulf Coast marine and terminal operations and assets, with expected cash proceeds of $620 million at close before year end.

SUMMARY FINANCIAL RESULTS

 

Three Months Ended Sep 30

Three Months Ended Jun 30

In millions, except per share amounts

3Q20

3Q19

vs. SQLY

[B / (W)]

2Q20

vs. PQ

[B / (W)]

 

Net Sales

$9,712

 

$10,764

 

$(1,052)

 

$8,354

 

$1,358

GAAP Income (Loss), Net of Tax

$(1)

 

$347

 

$(348)

 

$(217)

 

$216

Operating EBIT1

$761

 

$1,117

 

$(356)

 

$57

 

$704

Operating EBIT Margin1

7.8 %

 

10.4 %

 

(260) bps

 

0.7 %

 

710 bps

Operating EBITDA1

$1,485

 

$1,856

 

$(371)

 

$757

 

$728

GAAP Earnings (Loss) Per Share

$(0.04)

 

$0.45

 

$(0.49)

 

$(0.31)

 

$0.27

Operating Earnings (Loss) Per Share1

$0.50

 

$0.91

 

$(0.41)

 

$(0.26)

 

$0.76

Cash Provided by Operating Activities - Continuing Ops

$1,761

 

$1,790

 

$(29)

 

$1,599

 

$162

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:

“The Dow team delivered improved sequential results well above second quarter lows and robust operating cash flow in line with the year-ago period, enabled by rebounding demand and the early actions we took to focus on cash, reduce expenses and pay down debt. We increased our operating rates to match rising demand as the recovery gained momentum. In polyethylene, we achieved pricing gains of 12% over the prior quarter as demand for packaging remained resilient, and in polyurethanes, we delivered higher volumes and margins underpinned by improving consumer durable demand.

"At the same time, we enhanced our competitiveness by implementing our restructuring program – set to deliver $300 million in annualized EBITDA benefit. We also announced a second infrastructure asset sale for select marine and terminal assets on the U.S. Gulf Coast aligned with our best-owner mindset. Throughout the quarter, we also advanced our sustainability initiatives, creating new opportunities for growth, driving innovative solutions for our customers, and increasing efficiencies throughout our operations.”

SEGMENT HIGHLIGHTS

Packaging & Specialty Plastics

 

Three Months Ended Sep 30

Three Months Ended Jun 30

In millions, except margin percentages

 

3Q20

 

3Q19

 

vs. SQLY

[B / (W)]

 

2Q20

 

vs. PQ

[B / (W)]

Net Sales

$4,565

 

$5,062

 

$(497)

 

$4,001

 

$564

Operating EBIT

$647

 

$798

 

$(151)

 

$318

 

$329

Operating EBIT Margin

14.2 %

 

15.8 %

 

(160) bps

 

7.9 %

 

630 bps

Equity Earnings

$71

 

$23

 

$48

 

$20

 

$51

Packaging & Specialty Plastics net sales were $4.6 billion, down 10% versus the year-ago period. Volume increased 1% due to integrated plastics demand, partly offset by lower licensing activity. Local price declined 12% versus the year-ago period from lower global energy prices, and currency increased net sales by 1%. On a sequential basis, the segment recorded a 14% net sales improvement driven by strong pricing momentum as evidenced by four consecutive months of polyethylene price increases in consumer packaging applications.

Equity earnings for the segment were $71 million, compared to $23 million in the year-ago period. Gains were driven by improved integrated olefin and aromatics margins at the Sadara and Thai joint ventures.

Operating EBIT was $647 million, compared to $798 million in the year-ago period. Targeted expense reductions and volume gains were more than offset by integrated margin compression. Sequentially, the segment expanded Op. EBIT margins by 630 basis points driven by a strong rebound in consumer and industrial sectors.

Packaging and Specialty Plastics reported a net sales decline driven by reduced polyethylene prices compared to the year-ago period. Volume was flat as gains in Asia Pacific and double-digit gains in Latin America were offset by declines in the rest of the world. Notably, the decline in the U.S. & Canada was primarily driven by lower licensing revenue and hurricane-driven outages. The business captured strong demand growth in flexible food and specialty packaging; infrastructure, consumer and transportation packaging; and health and hygiene applications. Compared to the prior quarter, the business delivered local price gains in all regions and double-digit gains in the U.S. & Canada and Latin America.

Hydrocarbons & Energy reported lower net sales as volume gains were more than offset by reduced prices compared to the year-ago period. Declines were driven by lower global energy prices as well as decreased by-product prices resulting from soft end-market demand. Sequentially, the business delivered double-digit local price gains in all regions in line with the global energy price recovery.

Industrial Intermediates & Infrastructure

 

Three Months Ended Sep 30

Three Months Ended Jun 30

In millions, except margin percentages

3Q20

3Q19

vs. SQLY

[B / (W)]

2Q20

vs. PQ

[B / (W)]

Net Sales

 

$3,058

 

$3,365

 

$(307)

 

$2,417

 

$641

 

Operating EBIT

 

$104

 

$193

 

$(89)

 

$(220)

 

$324

 

Operating EBIT Margin

 

3.4 %

 

5.7 %

 

(230) bps

 

(9.1)%

 

1,250 bps

 

Equity Losses

 

$(13)

 

$(70)

 

$57

 

$(113)

 

$100

 

Industrial Intermediates & Infrastructure net sales were $3.1 billion, down 9% versus the year-ago period. Volume declined 3% due to reduced demand in automotive, industrial and energy end markets, particularly in the U.S. & Canada. Local price decreased 7% and currency increased net sales by 1%. On a sequential basis, the segment recorded a 27% net sales improvement driven by significant volume recovery in polyurethane applications as demand for durable goods, construction and automotive improved.

Equity losses for the segment were $13 million, an improvement of $57 million compared to equity losses of $70 million in the year-ago period, driven by higher sales volume, margin expansion and improved operations at our Sadara joint venture, partly due to a third party gas supplier outage in the year-ago period and improved end-market demand.

Operating EBIT was $104 million compared to $193 million in the year-ago period due to weaker demand and margin compression in the core businesses. Sequentially, the segment expanded Op. EBIT margins by 1,250 basis points driven by significant recovery in sales volume and improvement in margin-over-raw material costs in polyurethane applications.

Polyurethanes & Construction Chemicals reported a net sales decline compared to the year-ago period primarily on lower local prices driven by reduced global energy costs and impacts from the COVID-19 pandemic. Following broader macroeconomic recovery patterns, volume growth in EMEAI and Asia Pacific was more than offset by declines in the U.S. & Canada and Latin America. Demand in furniture & bedding and appliances exceeded the year-ago period. And sequentially, the business delivered double-digit volume growth overall, primarily driven by a rebound in consumer durables, construction and automotive end markets.

Industrial Solutions reported lower net sales driven by decreased local prices and volume compared to the year-ago period. Improved demand for electronics and pharma applications was more than offset by declines in materials for industrial and energy sectors as a result of the pandemic. Volume gains in EMEAI – driven by catalyst sales as well as heat transfer fluids for concentrated solar power applications – were more than offset by declines in other regions. Sequentially, demand improved driven by industrial market recovery.

Performance Materials & Coatings

 

Three Months Ended Sep 30

Three Months Ended Jun 30

In millions, except margin percentages

3Q20

3Q19

vs. SQLY

[B / (W)]

2Q20

vs. PQ

[B / (W)]

Net Sales

 

$2,002

 

$2,250

 

$(248)

 

$1,855

 

$147

 

Operating EBIT

 

$75

 

$200

 

$(125)

 

$27

 

$48

 

Operating EBIT Margin

 

3.7 %

 

8.9 %

 

(520) bps

 

1.5 %

 

220 bps

 

Equity Earnings

 

$1

 

$2

 

$(1)

 

$2

 

$(1)

 

Performance Materials & Coatings net sales were $2 billion, down 11% versus the year-ago period. Volume declined 5% as growth in home care products as well as do-it-yourself (DIY) architectural coatings was more than offset by declines in automotive, construction, and oil & gas applications. Local price decreased 6%, and currency was flat. On a sequential basis, the segment recorded an 8% net sales improvement driven by volume recovery in coatings and silicones applications.

Operating EBIT was $75 million, compared to $200 million in the year-ago period, primarily driven by margin compression in siloxanes and reduced demand due to the COVID-19 pandemic. Sequentially, the segment expanded Op. EBIT margins by 220 basis points led by demand recovery in silicones offerings and coatings.

Consumer Solutions reported a decrease in net sales due to lower volumes in all regions except Latin America, which was flat compared to the year-ago period, as well as reduced local prices, primarily due to excess global supply of siloxanes. Demand growth in home care applications was more than offset by volume declines in automotive and construction end markets. High-end personal care applications continue to follow restricted workplace and social activities, which lag recovery in other industries. Compared to the prior quarter, the business delivered volume gains as industrial manufacturing activity, high-rise building projects, and mobility & transportation began to improve.

Coatings & Performance Monomers reported lower net sales as volume increases were more than offset by local price declines primarily due to weak supply/demand fundamentals in monomers compared to the year-ago period. Demand increased in architectural coatings as residential construction end-market dynamics improved and consumers continued DIY projects at home. The business achieved volume growth in all regions except the U.S. & Canada which was flat versus the year-ago period, despite lower demand for monomers used in oil & gas applications. Sequentially, the business captured demand growth – with double-digit increases in nearly all regions – led by architectural coatings.

OUTLOOK

“We enter the fourth quarter with sequential momentum, improved financial flexibility, and a consistent focus on cash which will continue to benefit us as the gradual recovery strengthens and broadens," said Fitterling. "I am tremendously proud of the Dow team’s discipline in the face of the pandemic and multiple natural disasters. Although the third quarter rebound was significant, the recovery has been uneven across markets, and we expect this will continue in the near term. We are determined to continue delivering against our strategic and operational objectives. Our proactive and agile approach to evolving market conditions – combined with our fundamental competitive advantages of industry-leading feedstock flexibility, geographic breadth, and participation in diverse end markets and technologies – will enable us to continue to build on our performance and advance our ambition."

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 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.

Cautionary Statement about Forward-Looking Statements

This 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; estimates regarding benefits achieved through contemplated restructuring activities, such as workforce reduction, manufacturing facility and/or asset closure and related 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 Dow's ability to realize the expected benefits of restructuring activities, such as manufacturing facility and/or asset closure and related exit and disposal activities. 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, Inc. (“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 de Nemours, Inc (“DuPont”) 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 quarters ended March 31, 2020 and June 30, 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 nine months ended September 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 nine months ended September 30, 2020 and 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 (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

Nine Months Ended

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

Net sales

$

9,712

 

$

10,764

 

$

27,836

 

$

32,747

 

Cost of sales

 

8,371

 

 

9,377

 

 

24,211

 

 

27,939

 

Research and development expenses

 

193

 

 

194

 

 

554

 

 

592

 

Selling, general and administrative expenses

 

372

 

 

388

 

 

1,063

 

 

1,258

 

Amortization of intangibles

 

100

 

 

100

 

 

300

 

 

320

 

Restructuring and asset related charges - net

 

617

 

 

147

 

 

719

 

 

368

 

Integration and separation costs

 

63

 

 

164

 

 

174

 

 

964

 

Equity in earnings (losses) of nonconsolidated affiliates

 

60

 

 

(44

)

 

(124

)

 

(73

)

Sundry income (expense) - net

 

182

 

 

301

 

 

154

 

 

369

 

Interest income

 

6

 

 

19

 

 

27

 

 

58

 

Interest expense and amortization of debt discount

 

202

 

 

233

 

 

617

 

 

711

 

Income from continuing operations before income taxes

 

42

 

 

437

 

 

255

 

 

949

 

Provision for income taxes on continuing operations

 

43

 

 

90

 

 

215

 

 

356

 

Income (loss) from continuing operations, net of tax

 

(1

)

 

347

 

 

40

 

 

593

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

 

445

 

Net income (loss)

 

(1

)

 

347

 

 

40

 

 

1,038

 

Net income attributable to noncontrolling interests

 

24

 

 

14

 

 

51

 

 

74

 

Net income (loss) available for Dow Inc. common stockholders

$

(25

)

$

333

 

$

(11

)

$

964

 

 

 

 

 

 

 

 

Per common share data:

 

 

 

 

Earnings (loss) per common share from continuing operations - basic

$

(0.04

)

$

0.45

 

$

(0.02

)

$

0.71

 

Earnings per common share from discontinued operations - basic

 

 

 

 

 

 

 

0.58

 

Earnings (loss) per common share - basic

$

(0.04

)

$

0.45

 

$

(0.02

)

$

1.29

 

Earnings (loss) per common share from continuing operations - diluted

$

(0.04

)

$

0.45

 

$

(0.02

)

$

0.71

 

Earnings per common share from discontinued operations - diluted

 

 

 

 

 

 

 

0.58

 

Earnings (loss) per common share - diluted

$

(0.04

)

$

0.45

 

$

(0.02

)

$

1.29

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

740.5

 

 

739.8

 

 

740.0

 

 

743.3

 

Weighted-average common shares outstanding - diluted

 

740.5

 

 

743.0

 

 

740.0

 

 

746.1

 

Dow Inc. and Subsidiaries

Consolidated Balance Sheets

 

In millions, except share amounts (Unaudited)

Sep 30,
2020

Dec 31,
2019

Assets

 

 

Current Assets

 

 

Cash and cash equivalents (variable interest entities restricted - 2020: $53; 2019: $37)

$

4,549

 

$

2,367

 

Accounts and notes receivable:

 

 

Trade (net of allowance for doubtful receivables - 2020: $45; 2019: $45)

 

4,689

 

 

4,844

 

Other

 

2,383

 

 

2,711

 

Inventories

 

5,609

 

 

6,214

 

Other current assets

 

559

 

 

679

 

Total current assets

 

17,789

 

 

16,815

 

Investments

 

 

Investment in nonconsolidated affiliates

 

1,281

 

 

1,404

 

Other investments (investments carried at fair value - 2020: $1,374; 2019: $1,584)

 

2,183

 

 

2,588

 

Noncurrent receivables

 

739

 

 

1,063

 

Total investments

 

4,203

 

 

5,055

 

Property

 

 

Property

 

56,132

 

 

54,910

 

Less accumulated depreciation

 

35,719

 

 

33,914

 

Net property (variable interest entities restricted - 2020: $230; 2019: $330)

 

20,413

 

 

20,996

 

Other Assets

 

 

Goodwill

 

8,854

 

 

8,796

 

Other intangible assets (net of accumulated amortization - 2020: $4,276; 2019: $3,886)

 

3,442

 

 

3,759

 

Operating lease right-of-use assets

 

1,809

 

 

2,072

 

Deferred income tax assets

 

2,273

 

 

2,213

 

Deferred charges and other assets

 

1,162

 

 

818

 

Total other assets

 

17,540

 

 

17,658

 

Total Assets

$

59,945

 

$

60,524

 

Liabilities and Equity

 

 

Current Liabilities

 

 

Notes payable

$

329

 

$

586

 

Long-term debt due within one year

 

347

 

 

435

 

Accounts payable:

 

 

Trade

 

3,400

 

 

3,889

 

Other

 

1,964

 

 

2,064

 

Operating lease liabilities - current

 

405

 

 

421

 

Income taxes payable

 

354

 

 

522

 

Accrued and other current liabilities

 

3,408

 

 

2,762

 

Total current liabilities

 

10,207

 

 

10,679

 

Long-Term Debt (variable interest entities nonrecourse - 2020: $19; 2019: $34)

 

16,698

 

 

15,975

 

Other Noncurrent Liabilities

 

 

Deferred income tax liabilities

 

337

 

 

347

 

Pension and other postretirement benefits - noncurrent

 

9,759

 

 

10,083

 

Asbestos-related liabilities - noncurrent

 

1,027

 

 

1,060

 

Operating lease liabilities - noncurrent

 

1,488

 

 

1,739

 

Other noncurrent obligations

 

7,497

 

 

6,547

 

Total other noncurrent liabilities

 

20,108

 

 

19,776

 

Stockholders’ Equity

 

 

Common stock (authorized 5,000,000,000 shares of $0.01 par value each;
issued 2020: 754,555,065 shares; 2019: 751,228,644 shares)

 

8

 

 

8

 

Additional paid-in capital

 

7,497

 

 

7,325

 

Retained earnings

 

15,472

 

 

17,045

 

Accumulated other comprehensive loss

 

(9,941

)

 

(10,246

)

Unearned ESOP shares

 

(57

)

 

(91

)

Treasury stock at cost (2020: 12,803,303 shares; 2019: 9,729,834 shares)

 

(625

)

 

(500

)

Dow Inc.’s stockholders’ equity

 

12,354

 

 

13,541

 

Noncontrolling interests

 

578

 

 

553

 

Total equity

 

12,932

 

 

14,094

 

Total Liabilities and Equity

$

59,945

 

$

60,524

 

Dow Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

In millions (Unaudited)

Nine Months Ended

Sep 30,
2020

Sep 30,
2019

Operating Activities

 

 

Net income

$

40

 

$

1,038

 

Less: Income from discontinued operations, net of tax

 

 

 

445

 

Income from continuing operations, net of tax

 

40

 

 

593

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

2,148

 

 

2,225

 

Credit for deferred income tax

 

(198

)

 

(146

)

Earnings of nonconsolidated affiliates less than dividends received

 

515

 

 

927

 

Net periodic pension benefit cost

 

195

 

 

101

 

Pension contributions

 

(188

)

 

(206

)

Net gain on sales of assets, businesses and investments

 

(283

)

 

(48

)

Restructuring and asset related charges - net

 

719

 

 

368

 

Other net loss

 

288

 

 

143

 

Changes in assets and liabilities, net of effects of acquired and divested companies:

 

 

Accounts and notes receivable

 

339

 

 

994

 

Inventories

 

587

 

 

483

 

Accounts payable

 

(560

)

 

(926

)

Other assets and liabilities, net

 

994

 

 

(715

)

Cash provided by operating activities - continuing operations

 

4,596

 

 

3,793

 

Cash provided by operating activities - discontinued operations

 

 

 

187

 

Cash provided by operating activities

 

4,596

 

 

3,980

 

Investing Activities

 

 

Capital expenditures

 

(955

)

 

(1,384

)

Investment in gas field developments

 

(5

)

 

(71

)

Purchases of previously leased assets

 

(4

)

 

(9

)

Proceeds from sales of property and businesses, net of cash divested

 

295

 

 

47

 

Acquisitions of property and businesses, net of cash acquired

 

(130

)

 

 

Investments in and loans to nonconsolidated affiliates

 

(280

)

 

(333

)

Distributions and loan repayments from nonconsolidated affiliates

 

7

 

 

 

Purchases of investments

 

(582

)

 

(784

)

Proceeds from sales and maturities of investments

 

1,009

 

 

973

 

Other investing activities, net

 

29

 

 

 

Cash used for investing activities - continuing operations

 

(616

)

 

(1,561

)

Cash used for investing activities - discontinued operations

 

 

 

(34

)

Cash used for investing activities

 

(616

)

 

(1,595

)

Financing Activities

 

 

Changes in short-term notes payable

 

(267

)

 

149

 

Proceeds from issuance of short-term debt greater than three months

 

163

 

 

 

Payments on short-term debt greater than three months

 

(163

)

 

 

Proceeds from issuance of long-term debt

 

4,649

 

 

2,146

 

Payments on long-term debt

 

(4,347

)

 

(4,271

)

Purchases of treasury stock

 

(125

)

 

(406

)

Proceeds from issuance of stock

 

53

 

 

39

 

Transaction financing, debt issuance and other costs

 

(175

)

 

(61

)

Employee taxes paid for share-based payment arrangements

 

(26

)

 

(54

)

Distributions to noncontrolling interests

 

(19

)

 

(16

)

Purchases of noncontrolling interests

 

 

 

(131

)

Dividends paid to stockholders

 

(1,552

)

 

(1,033

)

Dividends paid to DowDuPont Inc.

 

 

 

(535

)

Settlements and transfers related to separation from DowDuPont Inc.

 

 

 

1,935

 

Cash used for financing activities - continuing operations

 

(1,809

)

 

(2,238

)

Cash used for financing activities - discontinued operations

 

 

 

(18

)

Cash used for financing activities

 

(1,809

)

 

(2,256

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

4

 

 

(54

)

Summary

 

 

Increase in cash, cash equivalents and restricted cash

 

2,175

 

 

75

 

Cash, cash equivalents and restricted cash at beginning of period

 

2,380

 

 

2,764

 

Cash, cash equivalents and restricted cash at end of period

$

4,555

 

$

2,839

 

Less: Restricted cash and cash equivalents, included in "Other current assets"

 

6

 

 

16

 

Cash and cash equivalents at end of period

$

4,549

 

$

2,823

 

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,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

As Reported

As Reported

As Reported

Pro Forma

Net sales

$

9,712

 

$

10,764

 

$

27,836

 

$

32,794

 

Cost of sales

 

8,371

 

 

9,377

 

 

24,211

 

 

27,971

 

Research and development expenses

 

193

 

 

194

 

 

554

 

 

592

 

Selling, general and administrative expenses

 

372

 

 

388

 

 

1,063

 

 

1,258

 

Amortization of intangibles

 

100

 

 

100

 

 

300

 

 

320

 

Restructuring and asset related charges - net

 

617

 

 

147

 

 

719

 

 

368

 

Integration and separation costs

 

63

 

 

164

 

 

174

 

 

914

 

Equity in earnings (losses) of nonconsolidated affiliates

 

60

 

 

(44

)

 

(124

)

 

(73

)

Sundry income (expense) - net

 

182

 

 

301

 

 

154

 

 

369

 

Interest income

 

6

 

 

19

 

 

27

 

 

59

 

Interest expense and amortization of debt discount

 

202

 

 

233

 

 

617

 

 

710

 

Income from continuing operations before income taxes

 

42

 

 

437

 

 

255

 

 

1,016

 

Provision for income taxes on continuing operations

 

43

 

 

90

 

 

215

 

 

371

 

Income (loss) from continuing operations, net of tax

 

(1

)

 

347

 

 

40

 

 

645

 

Net income attributable to noncontrolling interests

 

24

 

 

14

 

 

51

 

 

61

 

Net income (loss) from continuing operations available for Dow Inc.

common stockholders

$

(25

)

$

333

 

$

(11

)

$

584

 

 

 

 

 

 

Per common share data:

 

 

 

 

Earnings (loss) per common share from continuing operations - basic

$

(0.04

)

$

0.45

 

$

(0.02

)

$

0.78

 

Earnings (loss) per common share from continuing operations - diluted

$

(0.04

)

$

0.45

 

$

(0.02

)

$

0.78

 

 

 

 

 

 

Weighted-average common shares outstanding - basic 1

 

740.5

 

 

739.8

 

 

740.0

 

 

743.3

 

Weighted-average common shares outstanding - diluted 1

 

740.5

 

 

743.0

 

 

740.0

 

 

746.1

 

1.

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,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

As Reported

As Reported

As Reported

Pro Forma

Packaging & Specialty Plastics

$

4,565

 

$

5,062

 

$

13,175

 

$

15,405

Industrial Intermediates & Infrastructure

 

3,058

 

 

3,365

 

 

8,520

 

 

10,196

Performance Materials & Coatings

 

2,002

 

 

2,250

 

 

5,922

 

 

6,926

Corporate

 

87

 

 

87

 

 

219

 

 

267

Total

$

9,712

 

 

10,764

 

$

27,836

 

$

32,794

U.S. & Canada

$

3,391

 

$

3,932

 

$

9,885

 

$

11,970

EMEAI 1

 

3,272

 

 

3,621

 

 

9,394

 

 

11,234

Asia Pacific

 

2,073

 

 

2,193

 

 

5,850

 

 

6,471

Latin America

 

976

 

 

1,018

 

 

2,707

 

 

3,119

Total

$

9,712

 

$

10,764

 

$

27,836

 

$

32,794

Net Sales Variance by Segment and Geographic Region

Three Months Ended Sep 30, 2020

 

Nine Months Ended Sep 30, 2020 2

Percent change from prior year

Local
Price &
Product
Mix

 

Currency

 

Volume

 

Total

 

Local
Price &
Product
Mix

 

Currency

 

Volume

 

Total

Packaging & Specialty Plastics

(12

)%

1

%

1

%

(10

)%

(14

)%

%

%

(14

)%

Industrial Intermediates & Infrastructure

(7

)

1

 

(3

)

(9

)

(8

)

 

(8

)

(16

)

Performance Materials & Coatings

(6

)

 

(5

)

(11

)

(6

)

(1

)

(7

)

(14

)

Total

(9

)%

%

(1

)%

(10

)%

(11

)%

%

(4

)%

(15

)%

Total, excluding the Hydrocarbons & Energy business

(6

)%

%

(2

)%

(8

)%

(9

)%

%

(5

)%

(14

)%

U.S. & Canada

(5

)%

%

(9

)%

(14

)%

(8

)%

%

(9

)%

(17

)%

EMEAI 1

(16

)

2

 

4

 

(10

)

(15

)

 

(1

)

(16

)

Asia Pacific

(5

)

 

 

(5

)

(9

)

(1

)

 

(10

)

Latin America

(9

)

(1

)

6

 

(4

)

(11

)

 

(2

)

(13

)

Total

(9

)%

%

(1

)%

(10

)%

(11

)%

%

(4

)%

(15

)%

1.

Europe, Middle East, Africa and India.

2.

As reported net sales for the nine months ended September 30, 2020 compared with pro forma net sales for the nine months ended September 30, 2019.

Net Sales Variance by Segment and Geographic Region

Three Months Ended Sep 30, 2020

Percent change from prior quarter

Local
Price &
Product
Mix

 

Currency

 

Volume

 

Total

Packaging & Specialty Plastics

11

%

2

%

1

%

14

%

Industrial Intermediates & Infrastructure

2

 

2

 

23

 

27

 

Performance Materials & Coatings

(2

)

2

 

8

 

8

 

Total

5

%

2

%

9

%

16

%

Total, excluding the Hydrocarbons & Energy business

3

%

2

%

10

%

15

%

U.S. & Canada

6

%

%

9

%

15

%

EMEAI 1

6

 

5

 

10

 

21

 

Asia Pacific

3

 

1

 

3

 

7

 

Latin America

8

 

 

19

 

27

 

Total

5

%

2

%

9

%

16

%

1.

Europe, Middle East, Africa and India.

Dow Inc. and Subsidiaries

Selected Financial Information and Non-GAAP Measures

 

Operating EBIT by Segment

Three Months Ended

Nine Months Ended

 

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

In millions (Unaudited)

As Reported

As Reported

As Reported

Pro Forma

Packaging & Specialty Plastics

$

647

 

$

798

 

$

1,545

 

$

2,256

 

Industrial Intermediates & Infrastructure

 

104

 

 

193

 

 

59

 

 

624

 

Performance Materials & Coatings

 

75

 

 

200

 

 

264

 

 

685

 

Corporate

 

(65

)

 

(74

)

 

(207

)

 

(246

)

Total

$

761

 

$

1,117

 

$

1,661

 

$

3,319

 

 

 

 

 

 

Depreciation and Amortization by Segment

Three Months Ended

Nine Months Ended

 

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

In millions (Unaudited)

As Reported

As Reported

As Reported

Pro Forma

Packaging & Specialty Plastics

$

344

 

$

366

 

$

1,030

 

$

1,103

 

Industrial Intermediates & Infrastructure

 

155

 

 

149

 

 

450

 

 

441

 

Performance Materials & Coatings

 

217

 

 

217

 

 

648

 

 

655

 

Corporate

 

8

 

 

7

 

 

20

 

 

26

 

Total

$

724

 

$

739

 

$

2,148

 

$

2,225

 

 

 

 

 

 

Operating EBITDA by Segment

Three Months Ended

Nine Months Ended

 

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

In millions (Unaudited)

As Reported

As Reported

As Reported

Pro Forma

Packaging & Specialty Plastics

$

991

 

$

1,164

 

$

2,575

 

$

3,359

 

Industrial Intermediates & Infrastructure

 

259

 

 

342

 

 

509

 

 

1,065

 

Performance Materials & Coatings

 

292

 

 

417

 

 

912

 

 

1,340

 

Corporate

 

(57

)

 

(67

)

 

(187

)

 

(220

)

Total

$

1,485

 

$

1,856

 

$

3,809

 

$

5,544

 

 

 

 

 

 

Equity in Earnings (Losses) of Nonconsolidated Affiliates by Segment

Three Months Ended

Nine Months Ended

 

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

In millions (Unaudited)

As Reported

As Reported

As Reported

Pro Forma

Packaging & Specialty Plastics

$

71

 

$

23

 

$

96

 

$

135

 

Industrial Intermediates & Infrastructure

 

(13

)

 

(70

)

 

(202

)

 

(196

)

Performance Materials & Coatings

 

1

 

 

2

 

 

4

 

 

3

 

Corporate

 

1

 

 

1

 

 

(22

)

 

(15

)

Total

$

60

 

$

(44

)

$

(124

)

$

(73

)

 

 

 

 

 

Reconciliation of "Income (loss) from continuing operations, net of tax" to "Operating EBIT"

Three Months Ended

Nine Months Ended

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

In millions (Unaudited)

As Reported

As Reported

As Reported

Pro Forma

Income (loss) from continuing operations, net of tax

$

(1

)

$

347

 

$

40

 

$

645

 

+ Provision for income taxes on continuing operations

 

43

 

 

90

 

 

215

 

 

371

 

Income (loss) from continuing operations before income taxes

$

42

 

$

437

 

$

255

 

$

1,016

 

- Interest income

 

6

 

 

19

 

 

27

 

 

59

 

+ Interest expense and amortization of debt discount

 

202

 

 

233

 

 

617

 

 

710

 

- Significant items

 

(523

)

 

(466

)

 

(816

)

 

(1,652

)

Operating EBIT (non-GAAP)

$

761

 

$

1,117

 

$

1,661

 

$

3,319

 

Dow Inc. and Subsidiaries

Selected Financial Information and Non-GAAP Measures

 

Significant Items Impacting Results for the Three Months Ended Sep 30, 2020

In millions, except per share amounts (Unaudited)

Pretax 1

Net Income 2

EPS 3

Income Statement Classification

Reported results

$

42

 

$

(25

)

$

(0.04

)

 

Less: Significant items

 

 

 

 

Integration and separation costs

 

(63

)

 

(49

)

 

(0.06

)

Integration and separation costs

Restructuring and asset related charges - net 4

 

(617

)

 

(495

)

 

(0.67

)

Restructuring and asset related charges - net

Net gain on divestitures 5

 

220

 

 

195

 

 

0.26

 

Sundry income (expense) - net

Loss on early extinguishment of debt

 

(63

)

 

(52

)

 

(0.07

)

Sundry income (expense) - net

Total significant items

$

(523

)

$

(401

)

$

(0.54

)

 

Operating results (non-GAAP)

$

565

 

$

376

 

$

0.50

 

 

 

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 6

 

(399

)

 

(311

)

 

(0.42

)

Cost of sales

Litigation related charges, awards and

adjustments 7

 

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

 

 

1.

"Income 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.

The three months ended September 30, 2020 include pretax restructuring charges of $575 million related to the 2020 Restructuring Program, including the following charges: $297 million for severance and related benefit costs, $197 million for asset write-downs and write-offs and $81 million for contract terminations and environmental remediation costs. Also includes other asset impairment charges of $46 million.

5.

Primarily related to a gain on the sale of rail infrastructure in the U.S. & Canada.

6.

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.

7.

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.

Dow Inc. and Subsidiaries

Selected Financial Information and Non-GAAP Measures

Significant Items Impacting Results for the Nine Months Ended Sep 30, 2020

In millions, except per share amounts (Unaudited)

Pretax 1

Net Income 2

EPS 3

Income Statement Classification

Reported results

$

255

 

$

(11

)

$

(0.02

)

 

Less: Significant items

 

 

 

 

Integration and separation costs

 

(174

)

 

(136

)

 

(0.18

)

Integration and separation costs

Restructuring and asset related charges - net 4

 

(719

)

 

(580

)

 

(0.79

)

Restructuring and asset related charges - net

Net gain on divestitures 5

 

220

 

 

195

 

 

0.26

 

Sundry income (expense) - net

Loss on early extinguishment of debt

 

(149

)

 

(122

)

 

(0.16

)

Sundry income (expense) - net

Litigation related charges, awards and adjustments

 

6

 

 

6

 

 

0.01

 

Sundry income (expense) - net

Total significant items

$

(816

)

$

(637

)

$

(0.86

)

 

Operating results (non-GAAP)

$

1,071

 

$

626

 

$

0.84

 

 

 

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 6

 

205

 

 

178

 

 

0.24

 

Sundry income (expense) - net

Environmental charges 7

 

(399

)

 

(311

)

 

(0.42

)

Cost of sales

Indemnification and other transaction related costs 8

 

(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

 

 

1.

"Income from continuing operations before income taxes" or pro forma "Income from continuing operations before income taxes."

2.

"Net income (loss) 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 (loss) per common share from continuing operations - diluted" or pro forma "Earnings per common share from continuing operations - diluted."

4.

The three months ended September 30, 2020 include pretax restructuring charges of $575 million related to the 2020 Restructuring Program, including the following charges: $297 million for severance and related benefit costs, $197 million for asset write-downs and write-offs and $81 million for contract terminations and environmental remediation costs. Also includes other asset impairment charges of $46 million.

5.

Primarily related to a gain on the sale of rail infrastructure in the U.S. & Canada.

6.

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.

7.

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.

8.

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 Common Shares Outstanding

Three Months Ended

 

Nine Months Ended

Shares in millions

Sep 30,
2020 1

 

Sep 30,
2019

 

Sep 30,
2020 1

 

Sep 30,
2019

Weighted-average common shares outstanding - basic

740.5

739.8

740.0

743.3

Plus dilutive effect of equity compensation plans

1.9

3.2

1.5

2.8

Weighted-average common shares outstanding - diluted

742.4

743.0

741.5

746.1

1.

For the three and nine months ended September 30, 2020, the Company reported "Net loss from continuing operations available for Dow Inc. common stockholders." In accordance with U.S. GAAP, "Weighted-average common shares outstanding - basic" was used in the reported calculation of "Loss per common share from continuing operations - diluted."

Reconciliation of Non-GAAP Cash Flow Measures

Three Months Ended

Nine Months Ended

In millions (Unaudited)

Sep 30,
2020

Sep 30,
2019

Sep 30,
2020

Sep 30,
2019

Cash provided by operating activities - continuing operations (GAAP)

$

1,761

 

$

1,790

 

$

4,596

 

$

3,793

 

Capital expenditures

 

(287

)

 

(472

)

 

(955

)

 

(1,384

)

Free cash flow (non-GAAP)

$

1,474

 

$

1,318

 

$

3,641

 

$

2,409

 

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

Three Months Ended

In millions (Unaudited)

Dec 31,
2019

Mar 31,
2020

Jun 30,
2020

Sep 30,
2020

Cash provided by operating activities - continuing operations (GAAP)

$

1,920

 

$

1,236

 

$

1,599

 

$

1,761

 

Operating EBITDA (non-GAAP)

$

1,746

 

$

1,567

 

$

757

 

$

1,485

 

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

 

110.0

%

 

78.9

%

 

211.2

%

 

118.6

%

Cash flow conversion - trailing twelve months (non-GAAP)

 

 

117.3

%

Reconciliation of Net Debt

In millions (Unaudited)

Sep 30,
2020

Dec 31,
2019

Notes payable

$

329

$

586

Long-term debt due within one year

 

347

 

435

Long-term debt

 

16,698

 

15,975

Gross debt (GAAP)

$

17,374

$

16,996

- Cash and cash equivalents

 

4,549

 

2,367

- Marketable securities 1

 

30

 

21

Net debt (non-GAAP)

$

12,795

$

14,608

1.

The Company’s investments in marketable securities are included in “Other current assets” in the consolidated balance sheets.

 

For further information, please contact:

Investors:
Colleen Kay
ckay@dow.com
+1 989-636-0920

Media:
Kyle Bandlow
kbandlow@dow.com
+1 989-638-2417

Source: Dow