Dow Reports Second Quarter 2019 Results

Midland, Michigan - July 25, 2019 -

FINANCIAL HIGHLIGHTS

  • GAAP EPS from continuing operations was $0.10; Op. EPS¹ of $0.86.
  • GAAP Net Income was $90 million; Op. EBIT¹ of $1.1 billion.
  • Net Sales were $11.0 billion, in-line with the Company’s guidance and down 14% versus pro forma results in the year-ago period, driven primarily by local price declines in polyethylene, siloxanes and isocyanates and lower sales of hydrocarbon co-products.
  • Volume declined 3% versus pro forma results in the year-ago period, driven primarily by higher ethane feedstock usage and lower hydrocarbon co-product sales, due to increased ethylene integration from the startup of new downstream assets. This was partly offset by demand growth in plastics packaging applications, supported by new capacity on the U.S. Gulf Coast.
  • Local price declined 9% versus pro forma results in the year-ago period, with declines in all segments. Currency decreased sales by 2%, driven primarily by Europe, Middle East, Africa & India (EMEAI).
  • Equity losses were $15 million, compared to pro forma equity earnings of $193 million in the year-ago period. The reduction was primarily driven by margin compression in monoethylene glycol (MEG) and polyethylene at the Kuwait joint ventures and isocyanates at the Sadara joint venture.
  • Operating EBIT was $1.1 billion, down 35% versus pro forma results in the year-ago period. Margin compression in polyethylene, isocyanates and siloxanes, as well as lower equity earnings, more than offset volume gains in packaging applications, contributions from new capacity on the U.S. Gulf Coast and savings from cost synergies and stranded cost removal.
  • Delivered more than $130 million of cost synergy savings and $45 million of stranded cost removal.
  • Cash provided by operating activities - continuing operations was $960 million, up 26% versus results in the year-ago period.
  • Returned $0.8 billion to shareholders in the quarter, including $0.5 billion in dividends and $0.3 billion in share repurchases.

SUMMARY FINANCIAL RESULTS

  Three Months Ended
June 30
Three Months Ended
March 31
In millions, except per share amounts 2Q19
As Reported
2Q182
Pro Forma
vs. SQLY
[B / (W)]
1Q192
Pro Forma
vs. PQ
[B / (W)]
Net Sales $11,014 $12,851 $(1,837) $11,016 $(2)
Operating EBIT1 $1,059 $1,639 $(580) $1,143 $(84)
Op. EBIT Margin1 9.6% 12.8% (320) bps 10.4% (80) bps
Operating EBITDA1 $1,802 $2,362 $(560) $1,886 $(84)
Operating EPS1 $0.86 $1.41 $(0.55) $0.98 $(0.12)
Cash provided by operating
activities – continuing operations
$960 $760 $200 $1,043 $(83)

1. Op. EPS, Op. EBIT, Op. EBIT Margin and Op. EBITDA are non-GAAP measures. See page 13 for further discussion.
2. Financial information for the three months ended March 31, 2019, three months ended June 30, 2018 and the six months periods ended June 30, 2019 and 2018, was prepared on a pro forma basis and determined in accordance with Article 11 of Regulation S-X.

CEO QUOTE

Jim Fitterling, chief executive officer, commented on the quarter:

“In spite of challenging market conditions, our results reflect the benefits of Dow’s streamlined and more focused portfolio, continued cost synergy savings and stranded cost removal. In the quarter, we faced margin compression in our intermediate products in both our core business and equity earnings. However, we achieved demand growth in packaging applications, supported by new capacity on the U.S. Gulf Coast. We delivered more than $175 million of savings from cost synergies and stranded cost removal. We also moved quickly to further tighten our expense and capital spending in response to the macro environment. We delivered higher cash flow from operations. And on a sequential basis, after adjusting for higher planned maintenance spending, the Dow team achieved core earnings growth. This result underscores our discipline and focus on agile operational and financial management.”

SEGMENT HIGHLIGHTS

Performance Materials & Coatings

  Three Months Ended
June 30
Three Months Ended
March 31
In millions, except per share amounts 2Q19 2Q18 vs. SQLY
[B / (W)]
1Q19 vs. PQ
[B / (W)]
Net Sales $2,356 $2,673 $(317) $2,320 $36
Operating EBIT $214 $292 $(78) $271 $(57)
Op. EBIT Margin 9.1% 10.9% (180) bps 11.7% (260) bps
Equity Earnings $1 $1 $0 $0 $1

Performance Materials & Coatings net sales were $2.4 billion, down 12% versus pro forma results in the year-ago period. Volume and local price each declined 5%. Currency decreased net sales by 2%.

Consumer Solutions net sales declined as gains in the U.S. & Canada were more than offset by declines in all other regions. Local price declines were driven by ongoing siloxane price pressures, primarily in Asia Pacific. Volume decreased modestly, reflecting slower demand, particularly in automotive and consumer electronics end-markets.

Coatings & Performance Monomers net sales declined, driven primarily by lower volume and local price. Coatings demand was impacted by wet weather in the United States and Europe, which led to delays in seasonal demand. Performance Monomers sales were impacted by shipping restrictions from a facility in Deer Park, Texas, due to ongoing repairs at a nearby third-party storage and terminal facility.

Operating EBIT for the segment was $214 million, down 27% versus pro forma results in the year-ago period, primarily due to margin compression in siloxanes as well as higher planned turnaround costs and the shipping restrictions in the Performance Monomers business.

Industrial Intermediates & Infrastructure

  Three Months Ended
June 30
Three Months Ended
March 31
In millions, except per share amounts 2Q19 2Q18 vs. SQLY
[B / (W)]
1Q19 vs. PQ
[B / (W)]
Net Sales $3,342 $3,972 $(630) $3,489 $(147)
Operating EBIT $154 $502 $(348) $277 $(123)
Op. EBIT Margin 4.6% 12.6% (800) bps 7.9% (330) bps
Equity Earnings $(78) $96 $(174) $(48) $(30)

Industrial Intermediates & Infrastructure net sales were $3.3 billion, down 16% versus pro forma results in the year-ago period. Volume declined 1%, local price decreased 12% and currency decreased net sales by 3%.

Polyurethanes & Construction Chemicals reported a net sales decline, primarily driven by lower isocyanate prices, as well as currency headwinds in EMEAI. Volume gains in isocyanates and systems applications were offset by declines in polyols and propylene oxide/propylene glycol.

Industrial Solutions reported lower net sales, led by a decline in local price. Volume growth in Asia Pacific and Latin America was more than offset by declines in the U.S. & Canada and EMEAI, primarily driven by soft demand in agriculture, automotive and electronics end-markets.

Equity losses for the segment were $78 million, down from pro forma equity earnings of $96 million in the year-ago period, primarily due to margin compression in MEG and polyethylene at the Kuwait joint ventures and in isocyanates at the Sadara joint venture.

Operating EBIT was $154 million, down 69% versus pro forma results in the year-ago period, primarily due to local pricing declines, margin compression in isocyanates, volume declines and equity losses.

Packaging & Specialty Plastics

  Three Months Ended
June 30
Three Months Ended
March 31
In millions, except per share amounts 2Q19 2Q18 vs. SQL
[B / (W)]
1Q19 vs. PQ
[B / (W)]
Net Sales $5,205 $6,134 $(929) $5,138 $67
Operating EBIT $768 $926 $(158) $690 $78
Op. EBIT Margin 14.8% 15.1% (30) bps 13.4% 140 bps
Equity Earnings $74 $108 $(34) $38 $36

Packaging & Specialty Plastics net sales were $5.2 billion, down 15% versus pro forma results in the year-ago period. Volume declined 4%, driven primarily by feedstock selection in the United States and Europe and a planned maintenance turnaround at an ethylene production facility in Germany, both of which reduced net sales of Hydrocarbons & Energy co-products. Local price declined 9%, and currency decreased net sales 2%.

Packaging and Specialty Plastics business net sales declined due to reduced polyethylene product prices and currency headwinds. Volume grew, led by double-digit gains in Asia Pacific and demand growth in EMEAI, supported by new capacity additions. The business reported the strongest end-market growth in industrial and consumer packaging and health and hygiene applications.

Hydrocarbons & Energy net sales declined on both price and volume. Sales volume declined primarily due to increased ethylene integration from the startup of new downstream assets, as well as a lighter feedstock slate in the United States and Europe and a planned maintenance turnaround at an ethylene production facility in Germany, both of which led to reduced hydrocarbon co-product production.

Equity earnings for the segment were $74 million, down 31% versus pro forma results in the year-ago period. The decline was driven by lower earnings from the Kuwait joint ventures.

Operating EBIT was $768 million, down 17% versus pro forma results in the year-ago period. The benefits from increased supply from growth projects and cost synergy savings were more than offset by margin compression across polyethylene products and reduced equity earnings.

OUTLOOK

“Looking ahead, we still see global growth, but the pace of that expansion has slowed, as buying patterns remain cautious due to ongoing trade and geopolitical uncertainties,” said Fitterling. “In this environment, we will maintain cost and operating discipline by continuing cost synergy and stranded cost removal actions, by reducing our planned capital expenditures for the year from $2.5 billion to $2 billion, without sacrificing high-return growth projects, and by continuing with disciplined margin management. These near-term steps are responsive to the current market environment.

“Over the longer-term, our purpose-built portfolio and leading business positions, combined with a leaner cost structure and a suite of incremental, high-return growth investments, will continue to differentiate Dow and drive our earnings growth trajectory.”

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 accompanies the conference call will be posted on the Dow Investor Relations events and presentations page of www.dow.com.

About Dow

Dow (NYSE: DOW) combines one of the broadest technology sets in the industry with asset integration, focused innovation and global scale to achieve profitable growth and become the most innovative, customer centric, inclusive and sustainable materials science company. Dow’s portfolio of performance materials, industrial intermediates and plastics businesses delivers a broad range of differentiated science-based products and solutions for our customers in highgrowth segments, such as packaging, infrastructure and consumer care. Dow operates 113 manufacturing sites in 31 countries and employs approximately 37,000 people. Dow delivered pro forma sales of approximately $50 billion in 2018. References to Dow or the Company mean Dow Inc. and its subsidiaries. For more information, please visit www.dow.com or follow @DowNewsroom on Twitter.

For further information, please contact:

For further information, please contact:

Investors:

Neal Sheorey
nrsheorey@dow.com
+1 989-636-6347

Media:

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

Cautionary Statement about Forward-Looking Statements

This presentation 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 “believe,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “seek,” “should,” “strategy,” “will,” “will be,” “will continue,” “will likely result,” “would,” “target” and similar expressions, and variations or negatives of these words. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

Forward-looking statements include, but are not limited to, expectations as to future sales of Dow’s products; the ability to protect Dow’s intellectual property in the United States and abroad; estimates regarding Dow’s capital requirements and need for and availability of financing; estimates of Dow’s expenses, future revenues and profitability; estimates of the size of the markets for Dow’s products and services and Dow’s ability to compete in such markets; expectations related to the rate and degree of market acceptance of Dow’s products; the outcome of certain Dow contingencies, such as litigation and environmental matters; estimates of the success of competing technologies that may become available and expectations regarding the benefits and costs associated with each of the foregoing.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Forward-looking statements are based on certain assumptions and expectations of future events which may not be realized and speak only as of the date the statements were made. In addition, forward-looking statements also involve risks, uncertainties and other factors that are beyond Dow’s control that could cause Dow’s actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, but are not limited to: fluctuations in energy and raw material prices; failure to develop and market new products and optimally manage product life cycles; significant litigation and environmental matters; failure to appropriately manage process safety and product stewardship issues; changes in laws and regulations or political conditions; global economic and capital markets conditions, such as inflation, market uncertainty, interest and currency exchange rates, and equity and commodity prices; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, weather events and natural disasters; ability to protect, defend and enforce Dow’s intellectual property rights; increased competition; changes in relationships with Dow’s significant customers and suppliers; unanticipated expenses such as litigation or legal settlement expenses; unanticipated business disruptions; Dow’s ability to predict, identify and interpret changes in consumer preferences and demand; Dow’s ability to complete proposed divestitures or acquisitions; Dow’s ability to realize the expected benefits of acquisitions if they are completed; the availability of financing to Dow in the future and the terms and conditions of such financing; and disruptions in Dow’s information technology networks and systems. Additionally, there may be other risks and uncertainties that Dow is unable to identify at this time or that Dow does not currently expect to have a material impact on its business.

Risks related to achieving the anticipated benefits of our separation from DowDuPont Inc. include, but are not limited to, a number of conditions including risks outside the control of Dow including risks related to (i) our inability to achieve some or all of the benefits that we expect to receive from the separations, (ii) certain tax risks associated with the separations and distributions, (iii) our inability to make necessary changes to operate as a stand-alone company following the separations and distributions, (iv) the failure of our pro forma financial information to be a reliable indicator of our future results, (v) our inability to enjoy the same benefits of diversity, leverage and market reputation that we enjoyed as a combined company, (vi) restrictions under the intellectual property cross-license agreements, (vii) our inability to receive third-party consents required under the separation agreement, (viii) our customers, suppliers and others' perception of our financial stability on a stand-alone basis, (ix) non-compete restrictions under the separation agreement, (x) receipt of less favorable terms in the commercial agreements we will enter into with DuPont and Corteva than we would have received from an unaffiliated third party and (xi) our indemnification of 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 “Risk Factors” contained in Dow’s registration statement on Form 10, as amended, filed with the Securities and Exchange Commission.

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 previously announced separation ofits materials science business and Dow Inc. became the direct parent company ofThe Dow Chemical Company and its consolidated subsidiaries ("TDCC"and together with Dow Inc., "Dow" or the "Company"). As ofthe effective date and time of the distribution, DowDuPont does not beneficiallyown any equity interest in Dow and no longer consolidates Dow and itsconsolidated subsidiaries into its financial results. Beginning in the secondquarter of 2019, Dow's consolidated financial results reflect the results ofDow and its consolidated subsidiaries - that is, TDCC after giving effect tothe distribution of its agricultural sciences business (“AgCo”) and specialtyproducts business (“SpecCo”) and the receipt of E. I. du Pont de Nemours andCompany's ("Historical DuPont") ethylene and ethylene copolymers businesses(other than its ethylene acrylic elastomers business) (“ECP”). The consolidatedfinancial results of Dow for periods prior to April 1, 2019, reflect thedistribution of AgCo and SpecCo as discontinued operations for each periodpresented as well as reflect the receipt of ECP as a common control transactionfrom the closing of the Merger on August 31, 2017.

 

Unaudited Pro Forma FinancialInformation

In order to provide the mostmeaningful comparison of results of operations and results by segment,supplemental unaudited pro forma financial information has been included in thefollowing financial schedules. The unaudited pro forma financial information isbased on the consolidated financial statements of TDCC, adjusted to give effectto the separation from DowDuPont as if it had been consummated on January 1,2017. For the six months ended June 30, 2019 and the three and six months endedJune 30, 2018, pro forma adjustments have been made for (1) the margin impactof various manufacturing, supply and service related agreements entered intowith DuPont and Corteva in connection with the separation which provide fordifferent pricing than the historical intercompany and intracompany pricingpractices of TDCC and Historical DuPont, (2) the removal of the amortization ofECP's inventory step-up recognized in connection with the Merger, and (3) theelimination of the impact of events directly attributable to the Merger,internal reorganization and business realignment, separation, distribution andother related transactions (e.g., one-time transaction costs). The results forthe three months ended June 30, 2019, are presented under accounting principlesgenerally accepted in the United States of America ("U.S. GAAP").

 

The unaudited pro forma financialinformation has been presented for informational purposes only and is notnecessarily indicative of what Dow's results of operations actually would havebeen had the separation from DowDuPont been completed as of January 1,2017, nor is it indicative of the future operating results of Dow. Theunaudited pro forma information does not reflect restructuring or integrationactivities or other costs following the separation from DowDuPont that may beincurred to achieve cost or growth synergies of Dow. For further information onthe unaudited pro forma financial information, please refer to the Company'sCurrent Report on Form 8-K dated June 3, 2019.

 

Non-GAAP Financial Measures

This earnings release includesinformation that does not conform to U.S. GAAP and are considered non-GAAPmeasures. These measures include the Company's pro forma consolidated resultsand pro forma earnings per share on an adjusted basis. Management uses thesemeasures internally for planning, forecasting and evaluating the performance ofthe Company's segments, including allocating resources. Dow's managementbelieves that these non-GAAP measures best reflect the ongoing performance ofthe Company during the periods presented and provide more relevant andmeaningful information to investors as they provide insight with respect toongoing operating results of the Company and a more useful comparison ofyear-over-year results. These non-GAAP measures supplement the Company's U.S.GAAP disclosures and should not be viewed as an alternative to U.S. GAAP measuresof performance. Furthermore, such non-GAAP measures may not be consistent withsimilar measures provided or used by other companies. Non-GAAP measuresincluded in this release are defined below. Reconciliations for these non-GAAPmeasures to U.S. GAAP are provided in the Selected Financial Information andNon-GAAP Measures section starting on page 13. Dow does not provideforward-looking U.S. GAAP financial measures or a reconciliation offorward-looking non-GAAP financial measures to the most comparable U.S. GAAPfinancial measures on a forward-looking basis because the Company is unable topredict with reasonable certainty the ultimate outcome of pending litigation,unusual gains and losses, foreign currency exchange gains or losses andpotential future asset impairments, as well as discrete taxable events, withoutunreasonable effort. These items are uncertain, depend on various factors, andcould have a material impact on U.S. GAAP results for the guidance period.

 

Operating earnings per share isdefined as "Earnings per common share from continuing operations -diluted" excluding the after-tax impact of significant items. Pro formaoperating earnings per share is defined as "Pro Forma earnings per commonshare from continuing operations - diluted" excluding the after-tax impactof significant items.

 

Operating EBIT is defined asearnings (i.e., "Income from continuing operations before incometaxes") before interest, excluding the impact of significant items. Proforma operating EBIT is defined as pro forma earnings (i.e., "Pro Formaincome from continuing operations before income taxes") before interest,excluding the impact of significant items.

 

Operating EBIT margin is definedas Operating EBIT as a percentage of net sales. Pro forma Operating EBIT marginis defined as pro forma Operating EBIT as a percentage of pro forma net sales.

 

Operating EBITDA is defined asearnings (i.e., "Income from continuing operations before incometaxes") before interest, depreciation and amortization, excluding theimpact of significant items. Pro forma operating EBITDA is defined as pro formaearnings (i.e., "Pro Forma income from continuing operations before incometaxes") before interest, depreciation and amortization, excluding theimpact of significant items.

 

Cash flowsfrom operating activities - continuing operations, excluding the impact ofAccounting Standards Update 2016-15, "Statement of Cash Flows (Topic 230):Classification of Certain Cash Receipts and Cash Payments" ("ASU2016-15"), is defined as cash provided by (used in) operating activities -continuing operations, excluding the impact of ASU 2016-15 and relatedinterpretive guidance. Management believes this non-GAAP financial measure isrelevant and meaningful as it presents cash flows from operating activitiesinclusive of all trade accounts receivable collection activity, which Dowutilizes in support of its operating activities.

Dow Inc. and Subsidiaries
Consolidated Statements of Income

In millions, except per share amounts (Unaudited)

Three Months Ended

Six Months Ended

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

Net sales

$

11,014

 

$

12,789

 

$

21,983

 

$

25,026

 

Cost of sales

9,420

 

10,540

 

18,562

 

20,520

 

Research and development expenses

208

 

221

 

398

 

429

 

Selling, general and administrative expenses

422

 

485

 

870

 

967

 

Amortization of intangibles

104

 

118

 

220

 

236

 

Restructuring and asset related charges - net

65

 

40

 

221

 

127

 

Integration and separation costs

348

 

262

 

800

 

486

 

Equity in earnings (losses) of nonconsolidated affiliates

(15

)

193

 

(29

)

394

 

Sundry income (expense) - net

(1

)

(14

)

68

 

40

 

Interest income

21

 

18

 

39

 

38

 

Interest expense and amortization of debt discount

237

 

261

 

478

 

523

 

Income from continuing operations before income taxes

215

 

1,059

 

512

 

2,210

 

Provision for income taxes on continuing operations

125

 

249

 

266

 

475

 

Income from continuing operations, net of tax

90

 

810

 

246

 

1,735

 

Income from discontinued operations, net of tax

 

554

 

445

 

1,068

 

Net income

90

 

1,364

 

691

 

2,803

 

Net income attributable to noncontrolling interests

15

 

31

 

60

 

66

 

Net income available for Dow Inc. common stockholders

$

75

 

$

1,333

 

$

631

 

$

2,737

 

 

 

 

 

 

Per common share data:

 

 

 

 

Earnings per common share from continuing operations - basic

$

0.10

 

$

1.05

 

$

0.26

 

$

2.26

 

Earnings per common share from discontinued operations - basic

 

0.73

 

0.58

 

1.40

 

Earnings per common share - basic

$

0.10

 

$

1.78

 

$

0.84

 

$

3.66

 

Earnings per common share from continuing operations - diluted

$

0.10

 

$

1.05

 

$

0.26

 

$

2.26

 

Earnings per common share from discontinued operations - diluted

 

0.73

 

0.58

 

1.40

 

Earnings per common share - diluted

$

0.10

 

$

1.78

 

$

0.84

 

$

3.66

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

742.8

 

747.2

 

745.0

 

747.2

 

Weighted-average common shares outstanding - diluted

747.9

 

747.2

 

747.6

 

747.2

 

Dow Inc. and Subsidiaries
Consolidated Balance Sheets

In millions, except share amounts (Unaudited)

Jun 30,
 2019

Dec 31,
 2018

Assets

 

 

Current Assets

 

 

Cash and cash equivalents (variable interest entities restricted - 2019: $26; 2018: $71)

$

2,446

 

$

2,724

 

Marketable securities

20

 

100

 

Accounts and notes receivable:

 

 

Trade (net of allowance for doubtful receivables - 2019: $40; 2018: $42)

5,661

 

5,646

 

Other

2,908

 

3,389

 

Inventories

6,841

 

6,899

 

Other current assets

761

 

712

 

Assets of discontinued operations - current

 

19,900

 

Total current assets

18,637

 

39,370

 

Investments

 

 

Investment in nonconsolidated affiliates

2,968

 

3,320

 

Other investments (investments carried at fair value - 2019: $1,688; 2018: $1,699)

2,558

 

2,646

 

Noncurrent receivables

785

 

360

 

Total investments

6,311

 

6,326

 

Property

 

 

Property

54,937

 

53,984

 

Less accumulated depreciation

33,687

 

32,566

 

Net property (variable interest entities restricted - 2019: $657; 2018: $683)

21,250

 

21,418

 

Other Assets

 

 

Goodwill

9,848

 

9,846

 

Other intangible assets (net of accumulated amortization - 2019: $3,657; 2018: $3,379)

4,000

 

4,225

 

Operating lease right-of-use assets

2,183

 

 

Deferred income tax assets

1,857

 

1,779

 

Deferred charges and other assets

803

 

735

 

Total other assets

18,691

 

16,585

 

Total Assets

$

64,889

 

$

83,699

 

Liabilities and Equity

 

 

Current Liabilities

 

 

Notes payable

$

544

 

$

298

 

Long-term debt due within one year

297

 

338

 

Accounts payable:

 

 

Trade

4,188

 

4,456

 

Other

2,179

 

2,479

 

Operating lease liabilities - current

421

 

 

Income taxes payable

370

 

557

 

Accrued and other current liabilities

3,606

 

2,931

 

Liabilities of discontinued operations - current

 

4,488

 

Total current liabilities

11,605

 

15,547

 

Long-Term Debt (variable interest entities nonrecourse - 2019: $45; 2018: $75)

17,155

 

19,253

 

Other Noncurrent Liabilities

 

 

Deferred income tax liabilities

500

 

501

 

Pension and other postretirement benefits - noncurrent

8,674

 

8,926

 

Asbestos-related liabilities - noncurrent

1,113

 

1,142

 

Operating lease liabilities - noncurrent

1,779

 

 

Other noncurrent obligations

5,563

 

4,709

 

Total other noncurrent liabilities

17,629

 

15,278

 

Stockholders’ Equity

 

 

Common stock (authorized 5,000,000,000 shares of $0.01 par value each;
issued 2019: 749,025,762 shares; 2018: 100 shares)

7

 

 

Additional paid-in capital

7,186

 

7,042

 

Retained earnings

20,110

 

35,460

 

Accumulated other comprehensive loss

(8,988

)

(9,885

)

Unearned ESOP shares

(99

)

(134

)

Treasury stock at cost (2019: 5,813,756 shares; 2018: zero shares)

(305

)

 

Dow Inc.’s stockholders’ equity

17,911

 

32,483

 

Noncontrolling interests

589

 

1,138

 

Total equity

18,500

 

33,621

 

Total Liabilities and Equity

$

64,889

 

$

83,699

 

Dow Inc. and Subsidiaries
Consolidated Statements of Cash Flows

In millions (Unaudited)

Six Months Ended

Jun 30,
 2019

Jun 30,
 2018

Operating Activities

 

 

Net income

$

691

 

$

2,803

 

Less: Income from discontinued operations, net of tax

445

 

1,068

 

Income from continuing operations, net of tax

246

 

1,735

 

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

 

 

Depreciation and amortization

1,486

 

1,451

 

Provision (credit) for deferred income tax

(63

)

7

 

Earnings of nonconsolidated affiliates less than dividends received

880

 

196

 

Net periodic pension benefit cost

57

 

169

 

Pension contributions

(152

)

(373

)

Net gain on sales of assets, businesses and investments

(27

)

(26

)

Adjustment to gain on step acquisition of nonconsolidated affiliate

 

20

 

Restructuring and asset related charges - net

221

 

127

 

Other net loss

115

 

241

 

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

 

 

Accounts and notes receivable

239

 

(1,115

)

Inventories

58

 

(912

)

Accounts payable

(450

)

1,299

 

Other assets and liabilities, net

(607

)

(1,315

)

Cash provided by operating activities - continuing operations

2,003

 

1,504

 

Cash provided by operating activities - discontinued operations

253

 

289

 

Cash provided by operating activities

2,256

 

1,793

 

Investing Activities

 

 

Capital expenditures

(912

)

(868

)

Investment in gas field developments

(48

)

(46

)

Purchases of previously leased assets

(9

)

 

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

9

 

14

 

Investments in and loans to nonconsolidated affiliates

(228

)

(2

)

Distributions and loan repayments from nonconsolidated affiliates

 

55

 

Purchases of investments

(393

)

(900

)

Proceeds from sales and maturities of investments

735

 

751

 

Proceeds from interests in trade accounts receivable conduits

 

656

 

Cash used for investing activities - continuing operations

(846

)

(340

)

Cash used for investing activities - discontinued operations

(34

)

(112

)

Cash used for investing activities

(880

)

(452

)

Financing Activities

 

 

Changes in short-term notes payable

162

 

345

 

Proceeds from issuance of long-term debt

2,010

 

 

Payments on long-term debt

(4,221

)

(568

)

Purchases of treasury stock

(305

)

 

Proceeds from issuance of parent company stock

34

 

85

 

Transaction financing, debt issuance and other costs

(56

)

 

Employee taxes paid for share-based payment arrangements

(50

)

(70

)

Distributions to noncontrolling interests

(7

)

(39

)

Purchases of noncontrolling interests

(127

)

 

Dividends paid to stockholders

(517

)

 

Dividends paid to DowDuPont Inc.

(535

)

(2,110

)

Settlements and transfers related to separation from DowDuPont Inc.

1,963

 

(215

)

Other financing activities, net

 

3

 

Cash used for financing activities - continuing operations

(1,649

)

(2,569

)

Cash used for financing activities - discontinued operations

(18

)

(43

)

Cash used for financing activities

(1,667

)

(2,612

)

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

10

 

(69

)

Summary

 

 

Decrease in cash, cash equivalents and restricted cash

(281

)

(1,340

)

Cash, cash equivalents and restricted cash at beginning of period

2,764

 

6,208

 

Cash, cash equivalents and restricted cash at end of period

$

2,483

 

$

4,868

 

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

37

 

45

 

Cash and cash equivalents at end of period

$

2,446

 

$

4,823

 

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, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

As Reported

Pro Forma

Pro Forma

Pro Forma

Net sales

$

11,014

 

$

12,851

 

$

22,030

 

$

25,147

 

Cost of sales

9,420

 

10,591

 

18,594

 

20,613

 

Research and development expenses

208

 

220

 

398

 

430

 

Selling, general and administrative expenses

422

 

486

 

870

 

968

 

Amortization of intangibles

104

 

116

 

220

 

235

 

Restructuring and asset related charges - net

65

 

32

 

221

 

104

 

Integration and separation costs

348

 

234

 

750

 

441

 

Equity in earnings (losses) of nonconsolidated affiliates

(15

)

193

 

(29

)

394

 

Sundry income (expense) - net

(1

)

(12

)

68

 

41

 

Interest income

21

 

19

 

40

 

39

 

Interest expense and amortization of debt discount

237

 

262

 

477

 

523

 

Income from continuing operations before income taxes

215

 

1,110

 

579

 

2,307

 

Provision for income taxes on continuing operations

125

 

261

 

281

 

497

 

Income from continuing operations, net of tax

90

 

849

 

298

 

1,810

 

Net income attributable to noncontrolling interests

15

 

37

 

47

 

58

 

Net income from continuing operations available for Dow Inc.

common stockholders

$

75

 

$

812

 

$

251

 

$

1,752

 

 

 

 

 

 

Per common share data:

 

 

 

 

Earnings per common share from continuing operations - basic

$

0.10

 

$

1.08

 

$

0.33

 

$

2.34

 

Earnings per common share from continuing operations - diluted

$

0.10

 

$

1.08

 

$

0.33

 

$

2.34

 

 

 

 

 

 

Weighted-average common shares outstanding - basic 1

742.8

 

747.2

 

745.0

 

747.2

 

Weighted-average common shares outstanding - diluted 1

747.9

 

747.2

 

747.6

 

747.2

 

1. The weighted-average common shares outstanding -basic and diluted for the six months ended June 30, 2019, are the same underboth 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, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

As Reported

Pro Forma

Pro Forma

Pro Forma

Performance Materials & Coatings

$

2,356

 

$

2,673

 

$

4,676

 

$

5,044

 

Industrial Intermediates & Infrastructure

3,342

 

3,972

 

6,831

 

7,775

 

Packaging & Specialty Plastics

5,205

 

6,134

 

10,343

 

12,182

 

Corporate

111

 

72

 

180

 

146

 

Total

$

11,014

 

$

12,851

 

$

22,030

 

$

25,147

 

U.S. & Canada

$

4,072

 

$

4,601

 

$

8,038

 

$

9,086

 

EMEAI 1

3,725

 

4,476

 

7,613

 

8,880

 

Asia Pacific

2,170

 

2,487

 

4,278

 

4,684

 

Latin America

1,047

 

1,287

 

2,101

 

2,497

 

Total

$

11,014

 

$

12,851

 

$

22,030

 

$

25,147

 

 

Pro Forma Net Sales Variance by Segment and Geographic Region

Three Months Ended Jun 30, 2019 2

Six Months Ended Jun 30, 2019

Local Price & Product Mix

Currency

Volume

Portfolio / Other

Total

Local Price & Product Mix

Currency

Volume

Portfolio / Other

Total

Percent change from prior year

Performance Materials & Coatings

(5

)%

(2

)%

(5

)%

%

(12

)%

(3

)%

(2

)%

(2

)%

%

(7

)%

Industrial Intermediates & Infrastructure

(12

)

(3

)

(1

)

 

(16

)

(12

)

(3

)

3

 

 

(12

)

Packaging & Specialty Plastics

(9

)

(2

)

(4

)

 

(15

)

(10

)

(2

)

(3

)

 

(15

)

Total

(9

)%

(2

)%

(3

)%

%

(14

)%

(9

)%

(2

)%

(1

)%

%

(12

)%

U.S. & Canada

(9

)%

%

(2

)%

%

(11

)%

(8

)%

%

(3

)%

(1

)%

(12

)%

EMEAI 1

(6

)

(5

)

(6

)

 

(17

)

(7

)

(5

)

(2

)

 

(14

)

Asia Pacific

(11

)

(2

)

 

 

(13

)

(11

)

(2

)

4

 

 

(9

)

Latin America

(15

)

 

(4

)

 

(19

)

(14

)

 

(2

)

 

(16

)

Total

(9

)%

(2

)%

(3

)%

%

(14

)%

(9

)%

(2

)%

(1

)%

%

(12

)%

1. Europe,Middle East, Africa and India.

2. As reported net sales for the threemonths ended June 30, 2019 compared with pro forma net sales for the threemonths ended June 30, 2018.

Dow Inc. and Subsidiaries
Selected Financial Information and Non-GAAP Measures

Operating EBIT by Segment

Three Months Ended

Six Months Ended

 

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

In millions (Unaudited)

As Reported

Pro Forma

Pro Forma

Pro Forma

Performance Materials & Coatings

$

214

 

$

292

 

$

485

 

$

647

 

Industrial Intermediates & Infrastructure

154

 

502

 

431

 

962

 

Packaging & Specialty Plastics

768

 

926

 

1,458

 

1,897

 

Corporate

(77

)

(81

)

(172

)

(170

)

Total

$

1,059

 

$

1,639

 

$

2,202

 

$

3,336

 

 

 

 

 

 

Depreciation and Amortization by Segment

Three Months Ended

Six Months Ended

 

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

In millions (Unaudited)

As Reported

Pro Forma

Pro Forma

Pro Forma

Performance Materials & Coatings

$

219

 

$

220

 

$

438

 

$

442

 

Industrial Intermediates & Infrastructure

147

 

152

 

292

 

299

 

Packaging & Specialty Plastics

370

 

344

 

737

 

696

 

Corporate

7

 

7

 

19

 

14

 

Total

$

743

 

$

723

 

$

1,486

 

$

1,451

 

 

 

 

 

 

Operating EBITDA by Segment

Three Months Ended

Six Months Ended

 

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

In millions (Unaudited)

As Reported

Pro Forma

Pro Forma

Pro Forma

Performance Materials & Coatings

$

433

 

$

512

 

$

923

 

$

1,089

 

Industrial Intermediates & Infrastructure

301

 

654

 

723

 

1,261

 

Packaging & Specialty Plastics

1,138

 

1,270

 

2,195

 

2,593

 

Corporate

(70

)

(74

)

(153

)

(156

)

Total

$

1,802

 

$

2,362

 

$

3,688

 

$

4,787

 

 

 

 

 

 

Equity in Earnings (Losses) of Nonconsolidated Affiliates by Segment

Three Months Ended

Six Months Ended

 

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

In millions (Unaudited)

As Reported

Pro Forma

Pro Forma

Pro Forma

Performance Materials & Coatings

$

1

 

$

1

 

$

1

 

$

1

 

Industrial Intermediates & Infrastructure

(78

)

96

 

(126

)

245

 

Packaging & Specialty Plastics

74

 

108

 

112

 

167

 

Corporate

(12

)

(12

)

(16

)

(19

)

Total

$

(15

)

$

193

 

$

(29

)

$

394

 

 

 

 

 

 

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

Three Months Ended

Six Months Ended

Jun 30, 2019

Jun 30, 2018

Jun 30, 2019

Jun 30, 2018

In millions (Unaudited)

As Reported

Pro Forma

Pro Forma

Pro Forma

Income from continuing operations, net of tax

$

90

 

$

849

 

$

298

 

$

1,810

 

+ Provision for income taxes on continuing operations

125

 

261

 

281

 

497

 

Income from continuing operations before income taxes

$

215

 

$

1,110

 

$

579

 

$

2,307

 

-  Interest income

21

 

19

 

40

 

39

 

+ Interest expense and amortization of debt discount

237

 

262

 

477

 

523

 

-  Significant items

(628

)

(286

)

(1,186

)

(545

)

Operating EBIT

$

1,059

 

$

1,639

 

$

2,202

 

$

3,336

 

Dow Inc. and Subsidiaries
Selected Financial Information and Non-GAAP Measures

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 costs 4

(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

 

 

 

Significant Items Impacting Results for the Three Months Ended Jun 30, 2018

In millions, except per share amounts (Unaudited)

Pretax 1

Net Income 2

EPS 3

Income Statement Classification

Pro forma results

$

1,110

 

$

812

 

$

1.08

 

 

Less: Significant items

 

 

 

 

Impact of Dow Silicones ownership restructure 5

(20

)

(18

)

(0.02

)

Sundry income (expense) - net

Integration and separation costs

(234

)

(201

)

(0.27

)

Integration and separation costs

Restructuring and asset related charges - net

(32

)

(28

)

(0.04

)

Restructuring and asset related charges - net

Total significant items

$

(286

)

$

(247

)

$

(0.33

)

 

Operating pro forma results (non-GAAP)

$

1,396

 

$

1,059

 

$

1.41

 

 

1. "Income from continuing operations beforeincome taxes" or pro forma "Income from continuing operations beforeincome taxes."

2. "Net income available for DowInc. common stockholders" or pro forma "Net income available for DowInc. common stockholders." The income tax effect on significant items wascalculated based upon the enacted tax laws and statutory income tax ratesapplicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.

3. "Earnings per common share fromcontinuing operations - diluted" or pro forma "Earnings per commonshare from continuing operations - diluted."

4. Primarily related to chargesassociated with agreements entered into with DuPont and Corteva as part of theseparation and distribution which, among other matters, provides forcross-indemnities and allocations of obligations and liabilities for periodsprior to, at and after the completion of the separation.

5. Post-closing adjustments related tothe Dow Silicones ownership restructure.

Dow Inc. and Subsidiaries
Selected Financial Information and Non-GAAP Measures

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

 

 

 

Significant Items Impacting Results for the Six Months Ended Jun 30, 2018

In millions, except per share amounts (Unaudited)

Pretax 1

Net Income 2

EPS 3

Income Statement Classification

Pro forma results

$

2,307

 

$

1,752

 

$

2.34

 

 

Less: Significant items

 

 

 

 

Impact of Dow Silicones ownership restructure 5

(20

)

(18

)

(0.02

)

Sundry income (expense) - net

Integration and separation costs

(441

)

(362

)

(0.49

)

Integration and separation costs

Restructuring and asset related charges - net

(104

)

(88

)

(0.12

)

Restructuring and asset related charges - net

Gain on divestiture 6

20

 

15

 

0.02

 

Sundry income (expense) - net

Income tax related items 7

 

(7

)

(0.01

)

Provision for income taxes on continuing operations

Total significant items

$

(545

)

$

(460

)

$

(0.62

)

 

Operating pro forma results (non-GAAP)

$

2,852

 

$

2,212

 

$

2.96

 

 

1. Pro forma "Income from continuing operationsbefore income taxes."

2. Pro forma "Net income availablefor Dow Inc. common stockholders." The income tax effect on significantitems was calculated based upon the enacted tax laws and statutory income tax ratesapplicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.

3. Pro forma "Earnings per commonshare from continuing operations - diluted."

4. Primarily related to chargesassociated with agreements entered into with DuPont and Corteva as part of theseparation and distribution which, among other matters, provides forcross-indemnities and allocations of obligations and liabilities for periodsprior to, at and after the completion of the separation.

5. Post-closing adjustments related tothe Dow Silicones ownership restructure.

6. Reflects a pretax gain related to thesale of equity interests in MEGlobal.

7. Related to effects of U.S. Tax Reform.

 

 


Reconciliation of Non-GAAP Cash Flow Measure

Six Months Ended

In millions

Jun 30, 2019

Jun 30, 2018

Cash provided by operating activities - continuing operations (GAAP)

$

2,003

 

$

1,504

 

Impact of ASU 2016-15 and related interpretive guidance

 

656

 

Cash flows from operating activities - continuing operations, excluding impact of ASU 2016-15 (non-GAAP)

$

2,003

 

$

2,160