DOW INC. 
OnApril 1, 2019 , DowDuPont Inc. ("DowDuPont" and effectiveJune 3, 2019 , n/k/a DuPont de Nemours, Inc. or "DuPont") completed the separation of its materials science business andDow Inc. became the direct parent company ofThe Dow Chemical Company and its consolidated subsidiaries ("TDCC" and together withDow Inc. , "Dow" or the "Company"), owning all of the outstanding common shares of TDCC. For filings related to the period commencingApril 1, 2019 and thereafter, TDCC was deemed the predecessor toDow Inc. , and the historical results of TDCC are deemed the historical results ofDow Inc. for periods prior to and includingMarch 31, 2019 . As a result of the parent/subsidiary relationship betweenDow Inc. and TDCC, and considering that the financial statements and disclosures of each company are substantially similar, the companies are filing a combined report for this Quarterly Report on Form 10-Q. The information reflected in the report is equally applicable to bothDow Inc. and TDCC, except where otherwise noted. The separation was contemplated by the merger of equals transaction effectiveAugust 31, 2017 , under the Agreement and Plan of Merger, dated as ofDecember 11, 2015 , as amended onMarch 31, 2017 . TDCC andE. I. du Pont de Nemours and Company and its consolidated subsidiaries ("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. As of the effective date and time of the distribution, DowDuPont does not beneficially own any equity interest in Dow and no longer consolidates Dow and its consolidated subsidiaries into its financial results. The consolidated financial results of Dow for all periods presented reflect the distribution of TDCC's agricultural sciences business ("AgCo") and specialty products business ("SpecCo") as discontinued operations, as well as reflect the receipt of Historical DuPont's ethylene and ethylene copolymers businesses (other than its ethylene acrylic elastomers business) ("ECP") as a common control transaction from the closing of the Merger onAugust 31, 2017 . See Note 3 to the Consolidated Financial Statements for additional information.
Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Except as otherwise indicated by the context, the terms "Union Carbide" meansUnion Carbide Corporation , and "Dow Silicones" meansDow Silicones Corporation , both wholly owned subsidiaries of the Company. Items Affecting Comparability of Financial Results As a result of the separation from DowDuPont, pro forma net sales and pro forma Operating EBIT are provided in this section, which were based on the consolidated financial statements of TDCC, adjusted to give effect to the separation from DowDuPont as if it had been consummated onJanuary 1, 2017 . For the six months endedJune 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, Inc. ("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). These adjustments impacted the consolidated results as well as the reportable segments. For further information on the unaudited pro forma financial information, please refer to the Company's Current Report on Form 8-K datedJune 3, 2019 . STATEMENT ON COVID-19, OIL PRICE VOLATILITY AND THIRD QUARTER OUTLOOK Overview of Dow's Response to COVID-19 The pandemic caused by coronavirus disease 2019 ("COVID-19") has impacted all geographic regions where Dow products are produced and sold. Financial markets were volatile towards the end of the first quarter and early in the second quarter of 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic, coupled with fluctuations in crude oil prices due in part to the global spread of COVID-19. As the second quarter progressed, crude oil prices increased, driven by improved supply/demand fundamentals. Financial markets have also improved as economies in theU.S. andWestern Europe have started to reopen. 50 -------------------------------------------------------------------------------- Table of Contents The global, regional and local spread of COVID-19 resulted in significant global mitigation measures, including government-directed quarantines, social distancing and shelter-in-place mandates, travel restrictions and/or bans, and restricted access to certain corporate facilities and manufacturing sites. Most of the Company's manufacturing facilities have been designated essential operations by local governments. As a result, nearly all of the Company's manufacturing sites and facilities continue to operate and are doing so safely, having implemented social distancing and enhanced health, safety and sanitization measures as directed by Dow's regional Crisis Management Teams ("CMTs"). The CMTs continue to work closely with site leadership and are adjusting alert levels as warranted on a site by site basis. At the time of this filing, approximately half of Dow's global workforce is working remotely. The CMTs have initiated the implementation of the Company's comprehensive Return to Workplace plan that is tailored for each site and includes a number of health and safety measures to be followed in a gradual and phased approach. The Company is also encouraging its workforce to follow safety measures when away from work to help prevent community spread of COVID-19. Dow's materials science expertise and production capabilities are used to develop some of the most vital hygiene medical products and technologies to fight the COVID-19 pandemic, such as disinfectants, sanitizers, cleansers, plastics used in the production of disposable personal protective equipment for medical professionals, and memory foams for hospital beds. The Company has continued to look for ways to contribute time, talent and materials science expertise to help fight and combat the pandemic while opening some new opportunities for innovation and business. Dow's contributions to fighting the COVID-19 pandemic include: •The Company collaborated with nine key partners across a myriad of industries to develop and donate 100,000 isolation gowns to help equip frontline workers inTexas ,Louisiana andMexico . •Dow, Whirlpool Corporation and Reynolds Consumer Products jointly developed a powered, air-purifying respirator which takes the place of a traditional medical face mask and face shield. •Dow developed and shared an open source design for a simplified face shield and donated 100,000 face shields to hospitals inMichigan . •Five Dow sites in theU.S. ,Europe andLatin America produced more than 200 metric tons of hand sanitizer, equivalent to more than 880,000 eight-ounce bottles, which were primarily donated to local health systems and government agencies. •The Company committed$3 million to aid COVID-19 relief efforts, with donations going towards global relief organizations, as well as non-profits in communities where Dow operates. During this public health crisis, the Company is focused on the health and safety of its employees, contractors, customers and suppliers around the world and maintaining safe and reliable operations of its manufacturing sites. Although supply disruptions and related logistical issues have posed challenges across all modes of transportation, the Company's manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing whether through shutdowns or shortages in labor, raw materials or personal protective equipment. Supply chain and logistical challenges are expected to ease through the remainder of 2020, absent significant impacts from COVID-19 infection resurgences.
The Company continues to maintain a strong financial position and solid
liquidity in the midst of the economic recession triggered by the COVID-19
pandemic. The Company started 2020 with significant committed liquidity
facilities. As markets became more volatile and uncertain during the first
quarter of 2020, the Company took proactive measures to further bolster
liquidity by drawing down certain uncommitted credit facilities, which were
subsequently repaid in the second quarter of 2020, and partially monetizing
investments in company-owned life insurance policies. At
Recognizing the significant impact the COVID-19 pandemic would have on demand in the second quarter of 2020, the Company took proactive actions to electively focus on cash and maintain financial strength with a continued emphasis on safe, reliable operations and disciplined capital allocation. Those actions included: further reducing the 2020 capital expenditure target to$1.25 billion ; trimming operating expenses by$350 million ; and unlocking another$500 million from working capital. The Company has also temporarily suspended share repurchases and delayed planned maintenance turnaround spending, where appropriate, without compromising safety or its ability to serve customer needs. In addition, the Company announced the temporary idling of select manufacturing facilities to balance production to demand across markets more severely affected by restrained economic activity. This included the idling of three polyethylene production units and two elastomers units; running Dow's polyurethanes assets, including propylene oxide and methylene diphenyl diisocyanate ("MDI"), at reduced operating rates; reducing siloxanes operating rates globally and extending a planned maintenance turnaround at a silicones production unit in Zhangjiagang,China , which has now restarted. Based on current demand, the polyethylene production units have also restarted. The Company continues to monitor demand in automotive and other durable good end-markets and as conditions improve in those end-markets, is bringing units online where needed. 51 -------------------------------------------------------------------------------- Table of Contents Review of First Half 2020 Financial Impacts from COVID-19 and Third Quarter Outlook The Company's sales declined 18 percent in the first six months of 2020, as the COVID-19 pandemic significantly impacted the global economy and supply/demand fundamentals. Demand remained strong in food packaging, health and hygiene, home care and pharma end-markets. Volume declined for products used in consumer durable good end-markets, including construction, furniture and bedding and automotive, with the most notable impacts in the Industrial Intermediates & Infrastructure and Performance Materials & Coatings operating segments. Demand for products used in consumer durable goods remained lower through the second quarter largely due to the delayed restart in these industries from May to June. Local prices declined in the first quarter and continued to decline in the second quarter of 2020, largely impacted by lower global energy prices. In March andApril 2020 , crude oil prices declined significantly, due in part to the COVID-19 pandemic, coupled with increased supply from oil producers. Declines in crude oil prices impact the pace of oil drilling in theU.S. &Canada , which makes natural gas, a significant by-product of oil drilling and the primary feedstock used in theU.S. by Dow and other ethylene producers, less cost advantaged. The Company has feedstock flexibility driven by manufacturing assets that have the ability to produce ethylene from natural gas liquids or crude oil-based feedstocks, significant naphtha-based production capabilities, as well as comprehensive financial and physical hedging programs. The Company's feedstock flexibility, fully integrated feedstock position and differentiated product portfolio positions enable the Company to respond to the challenges from oil price volatility. The Company experienced margin compression in the second quarter, largely due to lower global energy prices. In the latter half of the second quarter, crude oil prices increased as supply/demand fundamentals improved, driving higher feedstock costs, which should be beneficial to product prices and margins in the third quarter of 2020. See Results of Operations in this report for additional discussion of results for the three and six months endedJune 30, 2020 . The Company expects results of operations to improve sequentially as the gradual and uneven recovery progresses. The Company expects net sales to increase 5 to 10 percent sequentially, with increases in all geographic regions and all operating segments. Volume is expected to increase, driven by continued robust consumer demand for food packaging and health and hygiene applications; the initial indicators of recovery in consumer durable good end-markets such as automotive, construction and furniture and bedding; stable demand for solvents and surfactants used in cleaning products; and solid demand in do-it-yourself architectural coatings applications, partially offset by normal seasonality. Local price is also expected to increase sequentially as global energy prices recover and polyethylene price increases take hold. The Company expects margins to expand in the third quarter, driven by sales growth. This outlook assumes virus containment will continue to progress without significant infection resurgences and with continued reopening of economies, with recovery taking a stronger hold inEurope andU.S. &Canada in the third quarter. The Company will continue to focus on a disciplined approach to cash generation, capital allocation and structural cost improvements, which will serve as a solid foundation for the Company to weather the downturn and capture value as markets lift. In addition to the actions announced in the second quarter, the Company will also increase its 2020 operating expense reduction from$350 million to$500 million through additional structural cost interventions. The Company will also initiate a restructuring program in the third quarter, targeting more than$300 million in annualized Operating EBITDA1 benefit by the end of 2021. This program includes a 6 percent reduction in Dow's global workforce as well as actions to exit uncompetitive assets. These actions are necessary to maintain competitiveness while the economic recovery gains traction. Dow has significant addressable market opportunities that are expected to drive growth as the economy recovers. Global economic indicators and end-markets have begun to show improvement, and Dow will continue to benefit from its unique competitive advantages - including its feedstock flexibility, extensive materials portfolio and geographic end-market diversity. At the time of this filing, the ultimate severity and duration of the COVID-19 pandemic and oil price volatility cannot be reasonably estimated. The COVID-19 pandemic has had and could continue to have a substantial negative impact on the Company's results of operations, financial condition and cash flows. The effects of the COVID-19 pandemic in the first six months of 2020 and the additional risks associated with these conditions are more fully discussed in this report in Part II, Item 1A, Risk Factors. The Company is actively monitoring for potential financial impacts from the COVID-19 pandemic and oil price volatility, including, but not limited to: gauging the financial health of its customers; assessing liquidity; evaluating the recoverability of its assets; enhancing cyber security monitoring; and evaluating ongoing appropriateness of its estimates.
1. Operating EBITDA is a non-GAAP measure. Dow defines Operating EBITDA as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, depreciation and amortization, excluding the impact of significant items.
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The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted
on March 27, 2020 in the U.S. The Company continues to assess the provisions and
potential impacts of this legislation; however, there have been no significant
impacts to the Company's results of operations or financial position resulting
from the CARES Act in the three and six months ended June 30, 2020 .
OVERVIEW
The following is a summary of the results from continuing operations for the
three months ended
•The Company reported net sales in the second quarter of 2020 of$8.4 billion , down 24 percent from$11.0 billion in the second quarter of 2019, with declines across all geographic regions and operating segments. The sales decline was driven by both local price and volume declines. •Local price decreased 14 percent compared with the same period last year, primarily in response to lower global energy prices, with double-digit declines in all geographic regions. Local price declined in Packaging & Specialty Plastics (down 22 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 6 percent). •Volume decreased 9 percent compared with the second quarter of 2019. Packaging & Specialty Plastics volume was flat. Volume decreased in Industrial Intermediates & Infrastructure (down 18 percent) and Performance Materials & Coatings (down 14 percent). Volume declined in all geographic regions, exceptAsia Pacific (up 3 percent).
•Currency had an unfavorable impact of 1 percent on net sales in all operating
segments and geographic regions, except
•Research and development ("R&D") expenses were $182 million in the second
quarter of 2020, compared with $208 million in the second quarter of 2019.
Selling, general and administrative ("SG&A") expenses were $357 million and
$356 million for Dow Inc. and TDCC, respectively, in the second quarter of 2020,
compared with $422 million and $418 million for Dow Inc. and TDCC, respectively,
in the second quarter of 2019. R&D and SG&A expenses decreased primarily due to
cost reductions.
•Integration and separation costs were
•Equity in losses of nonconsolidated affiliates was$95 million in the second quarter of 2020, compared with$15 million in the second quarter of 2019, primarily due to lower equity earnings from theKuwait joint ventures due to margin compression stemming from the COVID-19 pandemic. •Sundry income (expense) - net forDow Inc. and TDCC was income of$53 million and income of$51 million , respectively, in the second quarter of 2020, compared with expense of$1 million forDow Inc. and income of$109 million for TDCC in the second quarter of 2019. Sundry income (expense) - net forDow Inc. increased primarily due to one-time charges in the second quarter of 2019 for post-closing adjustments related to a previous divestiture and agreements entered into with DuPont and Corteva as part of the separation and distribution, which did not impact TDCC. •Net income (loss) available forDow Inc. and TDCC common stockholder(s) was a loss of$225 million in the second quarter of 2020, compared with income of$75 million and$202 million forDow Inc. and TDCC, respectively, in the second quarter of 2019. Earnings (loss) per share forDow Inc. was a loss per share of$0.31 in the second quarter of 2020, compared with earnings per share of$0.10 in the second quarter of 2019.
•On
•Dow Inc. did not repurchase any of the Company's common stock in the second quarter of 2020.
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•In May 2020 , the Company's global headquarters community of Midland, Michigan ,
experienced widespread devastation caused by heavy rain and two dam failures,
which led to extensive flooding and damage to homes and businesses in the area.
The Company's manufacturing facilities were not significantly impacted by the
flooding. In response to this natural disaster, Dow pledged $1 million in
financial support for immediate relief and long-term recovery efforts associated
with the impact of the flooding and its aftermath.
•In June 2020 , the Company launched Dow ACTs (Advocacy, Community and Talent), a
strategic framework that outlines a new set of actions Dow will take to support
inclusion and advance anti-racism. In addition, Dow pledged $5 million over the
next five years to help advance racial equality and social justice.
•In June 2020 , Dow announced new sustainability targets, which align to and
build upon its 2025 Sustainability Goals, including targets to Protect the
Climate, Stop the Waste and Close the Loop. By 2030, Dow expects to reduce its
net annual carbon emissions by five million metric tons, or 15 percent from its
2020 baseline. Additionally, Dow intends to be carbon neutral by 2050, in
alignment with the Paris Agreement. By 2030, Dow plans to help stop the waste by
enabling one million metric tons of plastic to be collected, reused or recycled
through its direct actions and partnerships. By 2035, Dow will help close the
loop with a target to have 100 percent of its products sold into packaging
applications be reusable or recyclable.
In addition to the highlights above, the following event occurred subsequent to the second quarter of 2020:
•OnJuly 2, 2020 , TDCC entered into a definitive agreement to sell its rail infrastructure assets and related equipment at six sites in theU.S. &Canada for expected cash proceeds in excess of$310 million . The assets are located at Dow's sites inPlaquemine andSt. Charles, Louisiana ;Freeport andSeadrift, Texas ; andFort Saskatchewan and Prentiss,Alberta, Canada . The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, and the Company expects to record a gain on the transaction. Six Months Selected Financial Data - Dow Inc. Three Months Ended Ended Jun 30, Jun 30, Jun 30, Jun 30, In millions 2020 2019 2020 2019 Net sales$ 8,354 $
11,014
Cost of sales ("COS") $ 7,610 $ 9,420 $ 15,840 $ 18,562
Percent of net sales 91.1 % 85.5 % 87.4 % 84.4 %
R&D$ 182 $ 208 $ 361 $ 398 Percent of net sales 2.2 %
1.9 % 2.0 % 1.8 %
SG&A$ 357 $ 422 $ 691 $ 870 Percent of net sales 4.3 %
3.8 % 3.8 % 4.0 %
Effective tax rate (18.6) %
58.1 % 80.8 % 52.0 %
Net income (loss) available for common stockholders
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Six Months
Selected Financial Data - TDCC Three Months Ended Ended
In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019
Net sales $ 8,354 $ 11,014 $ 18,124 $ 21,983
Cost of sales ("COS") $ 7,608 $ 9,419 $ 15,838 $ 18,561
Percent of net sales 91.1 % 85.5 % 87.4 % 84.4 %
R&D $ 182 $ 208 $ 361 $ 398
Percent of net sales 2.2 % 1.9 % 2.0 % 1.8 %
SG&A $ 356 $ 418 $ 690 $ 866
Percent of net sales 4.3 % 3.8 % 3.8 % 3.9 %
Effective tax rate (18.6) % 36.5 % 80.8 % 41.6 %
Net income (loss) available for common stockholder
202 $ 14 $ 758
55-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONSNet Sales The following tables summarize net sales, pro forma net sales and sales variances by operating segment and geographic region from the prior year: Summary of Sales Results Three Months Ended Six Months Ended In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019 Net sales$ 8,354 $ 11,014 $ 18,124 $ 21,983 Pro forma net sales$ 22,030
Sales Variances by Operating Segment and
Three Months Ended Jun 30, 2020 Six Months Ended
Local Price & Local Price & Portfolio &
Percentage change from prior year Product Mix Currency Volume Total Product Mix Currency Volume Other 1 Total
Packaging & Specialty Plastics (22) % (1) % - % (23) % (16) % (1) % - % - % (17) %
Industrial Intermediates &
Infrastructure (9) (1) (18) (28) (9) (1) (10) - (20)
Performance Materials & Coatings (6) (1) (14) (21) (7) (1) (9) 2 (15)
Total (14) % (1) % (9) % (24) % (12) % (1) % (5) % - % (18) %
Total, excluding the Hydrocarbons
& Energy business (11) % (1) % (10) % (22) % (10) % (1) % (6) % 1 % (16) %
U.S. & Canada (11) % - % (17) % (28) % (10) % - % (10) % 1 % (19) %
EMEAI 2 (21) (1) (5) (27) (14) (2) (4) - (20)
Asia Pacific (13) (1) 3 (11) (11) (1) - - (12)
Latin America (13) (1) (13) (27) (13) - (5) - (18)
Total (14) % (1) % (9) % (24) % (12) % (1) % (5) % - % (18) %
1. Portfolio & Other includes the sales impact of various manufacturing, supply
and service related agreements entered into with DuPont and Corteva in
connection with the separation which provide for different pricing than the
historical intercompany and intracompany pricing practices of TDCC and
Historical DuPont.
2. Europe , Middle East , Africa and India
Net sales in the second quarter of 2020 were $8.4 billion , down 24 percent from
$11.0 billion in the second quarter of last year, with local price down 14
percent, volume down 9 percent and an unfavorable impact from currency of 1
percent. Net sales decreased in all geographic regions and operating segments,
reflecting the impact of the COVID-19 pandemic on global economies and
supply/demand fundamentals. Local price declined in all operating segments and
all geographic regions, primarily due to lower global energy prices. Local price
decreased in Packaging & Specialty Plastics (down 22 percent), Industrial
Intermediates & Infrastructure (down 9 percent) and Performance Materials &
Coatings (down 6 percent) and declined double-digits in all geographic regions.
Volume decreased in all geographic regions, except Asia Pacific which was up 3
percent, largely driven by China as economies in Asia Pacific reopened. Volume
was flat in Packaging & Specialty Plastics and declined in Industrial
Intermediates & Infrastructure (down 18 percent) and Performance Materials &
Coatings (down 14 percent) as the COVID-19 pandemic drove volume growth in food
packaging, health and hygiene, home care and pharma applications and demand
weakness for products used in durable good end-markets. Currency unfavorably
impacted net sales 1 percent compared with the same period last year, driven by
currency fluctuations in Europe , Middle East , Africa and India ("EMEAI"), Asia
Pacific and Latin America (all down 1 percent). Excluding the Hydrocarbons &
Energy business, sales declined 22 percent.
Net sales for the first six months of 2020 were $18.1 billion , down 18 percent
from $22.0 billion in the same period last year, with local price down 12
percent, volume down 5 percent and an unfavorable impact from currency of 1
percent. Net sales decreased in all geographic regions and operating segments.
Local price decreased in all operating segments and in all geographic regions,
primarily in response to lower global energy prices. Local price decreased in
Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates &
Infrastructure (down 9 percent) and in Performance Materials &
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Coatings (down 7 percent). Volume decreased 5 percent with declines in all
geographic regions, except Asia Pacific which was flat. Volume was flat in
Packaging & Specialty Plastics and decreased in Industrial Intermediates &
Infrastructure (down 10 percent) and Performance Materials & Coatings (down 9
percent). Currency unfavorably impacted net sales 1 percent compared with the
same period last year, driven primarily by EMEAI (down 2 percent) and Asia
Pacific (down 1 percent). Excluding the Hydrocarbons & Energy business, sales
declined 16 percent.
Sales Variances by Operating Segment and Geographic Region - Pro Forma Basis
Six Months Ended Jun 30, 2020
Local Price &
Percentage change from prior year Product Mix Currency Volume Total
Packaging & Specialty Plastics (16) % (1) % - % (17) %
Industrial Intermediates & Infrastructure (9) (1) (10) (20)
Performance Materials & Coatings (7) (1) (8) (16) Total (12) % (1) % (5) % (18) % Total, excluding the Hydrocarbons & Energy business (10) % (1) % (5) % (16) % U.S. & Canada (10) % - % (9) % (19) % EMEAI (14) (2) (4) (20) Asia Pacific (11) (1) - (12) Latin America (13) (1) (4) (18) Total (12) % (1) % (5) % (18) % Net sales for the first six months of 2020 were$18.1 billion , down 18 percent from pro forma net sales of$22.0 billion in the same period last year, with local price down 12 percent, volume down 5 percent and an unfavorable impact from currency of 1 percent. Net sales decreased in all geographic regions and operating segments. Local price decreased in all operating segments and in all geographic regions, primarily in response to lower global energy prices. Local price decreased in Packaging & Specialty Plastics (down 16 percent), Industrial Intermediates & Infrastructure (down 9 percent) and Performance Materials & Coatings (down 7 percent). Volume decreased 5 percent, with declines in all geographic regions, exceptAsia Pacific , which was flat. Volume was flat in Packaging & Specialty Plastics and decreased in Industrial Intermediates & Infrastructure (down 10 percent) and Performance Materials & Coatings (down 8 percent). Currency unfavorably impacted net sales 1 percent compared with the same period last year, driven primarily by EMEAI (down 2 percent),Asia Pacific (down 1 percent) andLatin America (down 1 percent). Excluding the Hydrocarbons & Energy business, sales declined 16 percent. Cost of Sales COS was$7.6 billion in the second quarter of 2020, down from$9.4 billion in the second quarter of 2019, primarily due to lower feedstock and other raw material costs and decreased sales volume. Operating rates were lower in the second quarter of 2020, as the Company temporarily idled certain manufacturing facilities and selectively adjusted operating rates at other facilities to balance production to demand. For the first six months of 2020, COS was$15.8 billion , down from$18.6 billion in the first six months of 2019, primarily due to lower feedstock and other raw material costs and decreased sales volume. COS as a percentage of net sales in the second quarter of 2020 was 91.1 percent (85.5 percent in the second quarter of 2019) and 87.4 percent for the first six months of 2020 (84.4 percent for the first six months of 2019). Research and Development Expenses R&D expenses totaled$182 million in the second quarter of 2020, compared with$208 million in the second quarter of 2019. R&D expenses for the first six months of 2020 were$361 million , down from$398 million in the first six months of 2019. R&D expenses for the three and six months endedJune 30, 2020 decreased primarily due to cost reductions and lower performance-based compensation costs. 57 -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative ExpensesDow Inc. SG&A expenses were$357 million in the second quarter of 2020, down from$422 million in the second quarter of 2019. For the first six months of 2020, SG&A expenses were$691 million , down from$870 million in the first six months of 2019. SG&A expenses for the three and six months endedJune 30, 2020 decreased compared with the same periods last year primarily due to cost reductions, lower performance-based compensation costs, and the recovery of legal costs related to theNova Chemicals Corporation ("Nova") ethylene asset matter. SG&A expenses were also favorably impacted in the first six months of 2020 by the reversal of a bad debt reserve related to an arbitration judgment.
TDCC
SG&A expenses were$356 million in the second quarter of 2020, down from$418 million in the second quarter of 2019. For the first six months of 2020, SG&A expenses were$690 million , down from$866 million in the first six months of 2019. Amortization of Intangibles Amortization of intangibles was$100 million in the second quarter of 2020, down from$104 million in the second quarter of 2019. In the first six months of 2020, amortization of intangibles was$200 million , down from$220 million in the first six months of 2019. See Note 10 to the Consolidated Financial Statements for additional information on intangible assets. Restructuring and Asset Related Charges - Net DowDuPont Cost Synergy Program In September andNovember 2017 , DowDuPont approved post-merger restructuring actions under the DowDuPont Cost Synergy Program (the "Synergy Program") which was designed to integrate and optimize the organization following the Merger and in preparation for the business separations. The restructuring charges below reflect charges from continuing operations. The final charges related to the Synergy Program were incurred in the first quarter of 2020 and the Company expects cash expenditures related to the Synergy Program to be substantially complete by the end of 2020. For the three months endedJune 30, 2020 , the Company did not record any pretax restructuring charges. For the six months endedJune 30, 2020 , the Company recorded pretax restructuring charges of$90 million for severance and related benefit costs. For the three months endedJune 30, 2019 , the Company recorded pretax restructuring charges of$59 million , consisting of severance and related benefit costs of$25 million , asset write-downs and write-offs of$29 million and costs associated with exit and disposal activities of$5 million . For the six months endedJune 30, 2019 , the Company recorded pretax restructuring charges of$203 million , consisting of severance and related benefit costs of$77 million , asset write-downs and write-offs of$105 million and costs associated with exit and disposal activities of$21 million . Asset Related Charges The Company recognized additional pretax impairment charges of$6 million and$12 million for the three and six months endedJune 30, 2020 , respectively, related to capital additions made to a biopolymers manufacturing facility inSanta Vitoria ,Minas Gerais, Brazil , which was impaired in 2017 (charges of$6 million and$18 million for the three and six months endedJune 30, 2019 ). The impairment charges were related to the Packaging & Specialty Plastics segment. See Note 5 to the Consolidated Financial Statements for details on the Company's restructuring and asset related charges, including charges by segment. Integration and Separation Costs Integration and separation costs, which reflect costs related to business separation activities, were$46 million in the second quarter of 2020, down from$348 million and$324 million forDow Inc. and TDCC, respectively, in the second quarter of 2019. In the first six months of 2020, integration and separation costs were$111 million , down from$800 million and$776 million forDow Inc. and TDCC, respectively, in the first six months of 2019. Further decreases in integration and separation costs are expected as business separation activities wind down. Integration and separation costs are related to Corporate. Equity in Losses of Nonconsolidated AffiliatesThe Company's share of equity in losses of nonconsolidated affiliates was$95 million in the second quarter of 2020, up from losses of$15 million in the second quarter of 2019, primarily due to margin compression at theKuwait joint ventures and higher equity losses fromSadara Chemical Company ("Sadara") which were partially offset by improved results at the Thai joint ventures. Equity in losses of nonconsolidated affiliates was$184 million in the first six months of 2020, compared with$29 million in the first six months of 2019, primarily due to lower equity earnings from theKuwait and Thai joint ventures and higher equity losses from Sadara. See Note 9 to the Consolidated Financial Statements for additional information. 58 -------------------------------------------------------------------------------- Table of Contents Sundry Income (Expense) - Net Sundry income (expense) - net includes a variety of income and expense items such as foreign currency exchange gains and losses, dividends from investments, gains and losses on sales of investments and assets, non-operating pension and other postretirement benefit plan credits or costs, and certain litigation matters.Dow Inc. For the three months endedJune 30, 2020 , "Sundry income (expense) - net" was income of$53 million compared with expense of$1 million for the three months endedJune 30, 2019 . The second quarter of 2020 included a$6 million gain related to the Nova ethylene asset matter (related to Packaging & Specialty Plastics), non-operating pension and postretirement benefit plan credits and foreign currency exchange losses. The second quarter of 2019 included a$58 million loss on post-closing adjustments related to a previous divestiture, a$52 million charge associated with agreements entered into with DuPont and Corteva and a$44 million loss on the early extinguishment of debt (all related to Corporate), which were partially offset by non-operating pension and postretirement benefit plan credits and foreign currency exchange gains. For the six months endedJune 30, 2020 , "Sundry income (expense) - net" was expense of$28 million compared with income of$68 million for the six months endedJune 30, 2019 . In addition to the items previously disclosed, "Sundry income (expense) - net" for the six months endedJune 30, 2020 included an$86 million loss on the early extinguishment of debt (related to Corporate). See Notes 3, 11, 16 and 22 to the Consolidated Financial Statements for additional information.
TDCC
For the three months endedJune 30, 2020 , "Sundry income (expense) - net" was income of$51 million compared with income of$109 million for the three months endedJune 30, 2019 . The second quarter of 2020 included a$6 million gain related to the Nova ethylene asset matter (related to Packaging & Specialty Plastics), non-operating pension and postretirement benefit plan credits and foreign currency exchange losses. The second quarter of 2019 included a$44 million loss on the early extinguishment of debt and a gain of$14 million on post-closing adjustments related to a previous divestiture (both related to Corporate), which were partially offset by non-operating pension and postretirement benefit plan credits and foreign currency exchange gains. For the six months endedJune 30, 2020 , "Sundry income (expense) - net" was expense of$31 million compared with income of$178 million for the six months endedJune 30, 2019 . In addition to the items previously disclosed, "Sundry income (expense) - net" for the six months endedJune 30, 2020 included an$86 million loss on the early extinguishment of debt (related to Corporate). See Notes 11, 16 and 22 to the Consolidated Financial Statements for additional information. Interest Expense and Amortization of Debt Discount Interest expense and amortization of debt discount was$200 million in the second quarter of 2020, down from$237 million and$249 million forDow Inc. and TDCC, respectively, in the second quarter of 2019. Interest expense and amortization of debt discount was$415 million in the first six months of 2020, down from$478 million and$490 million forDow Inc. and TDCC, respectively, in the first six months of 2019. The decreases are primarily due to the redemption of long-term debt in 2019. Provision for Income Taxes The Company's effective tax rate fluctuates based on, among other factors, where income is earned, the level of income relative to tax attributes and the level of equity earnings, since most earnings from the Company's equity method investments are taxed at the joint venture level. The effective tax rate for the second quarter of 2020 forDow Inc. and TDCC was negative 18.6 percent, compared with 58.1 percent and 36.5 percent forDow Inc. and TDCC, respectively, for the second quarter of 2019. For the first six months of 2020, the effective tax rate forDow Inc. and TDCC was 80.8 percent, compared with 52.0 percent and 41.6 percent forDow Inc. and TDCC, respectively, for the first six months of 2019. The tax rate forDow Inc. and TDCC in the second quarter and first six months of 2020 was unfavorably impacted primarily by equity losses and geographic mix of earnings and, to a lesser extent, non-deductible restructuring costs and an increase in tax reserves. The tax rate forDow Inc. and TDCC in the second quarter of 2019 was unfavorably impacted by non-deductible restructuring costs and was favorably impacted as a result of a change in deferred taxes related to fixed assets. The tax rate for the first six months of 2019 was unfavorably impacted by tax impacts related to spin preparation activities and favorably impacted by tax benefits related to the issuance of stock-based compensation and deferred tax remeasurement in foreign jurisdictions. Income from Discontinued Operations, Net of Tax Income from discontinued operations, net of tax was$445 million for the first six months of 2019, related to the distribution of AgCo and SpecCo to DowDuPont as a result of the separation. See Note 3 to the Consolidated Financial Statements for additional information. 59 -------------------------------------------------------------------------------- Table of Contents Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests from continuing operations was$8 million in the second quarter of 2020, down from$15 million in the second quarter of 2019. For the first six months of 2020, net income attributable to noncontrolling interests from continuing operations was$27 million , compared with$47 million for the same period last year. Net income attributable to noncontrolling interests from discontinued operations was$13 million for the first six months of 2019, related to the distribution of AgCo and SpecCo to DowDuPont as a result of the separation. See Note 15 to the Consolidated Financial Statements for additional information. Net Income Available for Common Stockholder(s)Dow Inc. Net income (loss) available forDow Inc. common stockholders was a loss of$225 million , or$0.31 per share, in the second quarter of 2020, compared with income of$75 million , or$0.10 per share, in the second quarter of 2019. Net income available forDow Inc. common stockholders was$14 million , or$0.01 per share, in the first six months of 2020, compared with$631 million , or$0.84 per share, in the first six months of 2019. See Note 7 to the Consolidated Financial Statements for details onDow Inc.'s earnings per share calculations.
TDCC
Net income (loss) available for the TDCC common stockholder was a loss of$225 million in the second quarter of 2020, compared with income of$202 million in the second quarter of 2019. Net income available for the TDCC common stockholder was$14 million in the first six months of 2020, compared with$758 million in the first six months of 2019. Following the separation from DowDuPont, TDCC's common shares are owned solely byDow Inc. SEGMENT RESULTS Dow's measure of profit/loss for segment reporting purposes is Operating EBIT (for the three and six months endedJune 30, 2020 and the three months endedJune 30, 2019 ) and pro forma Operating EBIT (for the six months endedJune 30, 2019 ) as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, excluding the impact of significant items. The Company defines pro forma Operating EBIT as earnings (i.e., "Income (loss) from continuing operations before income taxes") before interest, plus pro forma adjustments, excluding the impact of significant items. Operating EBIT and pro forma Operating EBIT by segment include all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate. The Company also presents pro forma net sales for the six months endedJune 30, 2019 , as it is included in management's measure of segment performance and is regularly reviewed by the CODM. Pro forma net sales includes the impact of various manufacturing, supply and service related agreements entered into with DuPont and Corteva in connection with the separation from DowDuPont which provide for different pricing than the historical intercompany and intracompany pricing practices of TDCC and Historical DuPont. See Note 22 to the Consolidated Financial Statements for reconciliations of these measures and a summary of the pro forma adjustments impacting segment measures for the six months endedJune 30, 2019 . PACKAGING & SPECIALTY PLASTICS Packaging & Specialty Plastics consists of two highly integrated global businesses: Hydrocarbons &Energy and Packaging and Specialty Plastics. The segment employs the industry's broadest polyolefin product portfolio, supported by the Company's proprietary catalyst and manufacturing process technologies, to work at the customer's design table throughout the value chain to deliver more reliable and durable, higher performing, and more sustainable plastics to customers in food and specialty packaging; industrial and consumer packaging; health and hygiene; caps, closures and pipe applications; consumer durables; automotive; and infrastructure. Ethylene is transferred to downstream derivative businesses at market-based prices, which are generally equivalent to prevailing market prices for large volume purchases. This segment also includes the results ofThe Kuwait Styrene Company K.S.C.C. and The SCG-Dow Group , as well as a portion of the results ofEQUATE Petrochemical Company K.S.C.C . ("EQUATE"),The Kuwait Olefins Company K.S.C.C . ("TKOC"),Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company. 60 -------------------------------------------------------------------------------- Table of Contents The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. Six Months Packaging & Specialty Plastics Three Months Ended Ended In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019 Net sales$ 4,001 $ 5,205 $ 8,610 $ 10,343 Pro forma net sales$ 10,343 Operating EBIT$ 318 $ 768 $ 898 Pro forma Operating EBIT$ 1,458 Equity earnings $ 20$ 74 $ 25 $ 112 Packaging & Specialty Plastics Three Months Ended Six Months Ended Percentage change from prior year Jun 30, 2020 Jun 30, 2020 Change inNet Sales from Prior Period due to: Local price & product mix (22) % (16) % Currency (1) (1) Volume - - Portfolio & other - - Total (23) % (17) % Change in ProForma Net Sales from Prior Period due to: 1 Local price & product mix (16) % Currency (1) Volume - Total (17) %
1. As reported net sales for the six months ended
Packaging & Specialty Plastics net sales were$4,001 million in the second quarter of 2020, down 23 percent from net sales of$5,205 million in the second quarter of 2019, with local price down 22 percent, an unfavorable currency impact of 1 percent, primarily in EMEAI, and volume flat. Local price decreased in both businesses and across all geographic regions, driven by lower global energy prices and reduced polyethylene pricing. Price declines were reported in Hydrocarbons & Energy as prices for co-products are generally correlated to Brent crude oil prices, which, on average, declined 51 percent compared with the second quarter of 2019, as well as lower cracker co-product prices due to weak end-market demand. Volume was mixed by geographic region as increases inAsia Pacific and EMEAI were offset by declines inU.S. &Canada andLatin America . Packaging and Specialty Plastics reported volume growth in flexible food and specialty packaging, industrial and consumer packaging and health and hygiene applications, which was offset by reduced demand for functional polymers used in durable good end-markets, notably automotive, infrastructure and construction. Operating EBIT was$318 million in the second quarter of 2020, down 59 percent from Operating EBIT of$768 million in the second quarter of 2019. Operating EBIT decreased primarily due to margin compression in both businesses, driven by lower demand in durable good end-markets and reduced equity earnings due to lower integrated olefin and aromatics margins at theKuwait and Sadara joint ventures, which more than offset improvement at the Thai joint ventures. These declines more than offset cost reductions as well as demand growth and margin improvement in packaging applications. Packaging & Specialty Plastics net sales were$8,610 million in the first six months of 2020, down 17 percent from net sales and pro forma net sales of$10,343 million in the first six months of 2019, with local price down 16 percent, an unfavorable currency impact of 1 percent, primarily in EMEAI, and volume flat. Local price decreased in both businesses and across all geographic regions, driven by reduced polyethylene prices and lower global energy prices. Price declines were reported in Hydrocarbons & Energy as prices for co-products are generally correlated to Brent crude oil prices, which, on average, declined 36 percent compared with the first six months of 2019. Volume decreased in Hydrocarbons & Energy, primarily inU.S. &Canada andAsia Pacific , more than offsetting increases in EMEAI. Volume increased in Packaging and Specialty Plastics inAsia Pacific ,Latin America and EMEAI, partially offset by declines inU.S. &Canada primarily due to the COVID-19 pandemic. 61 -------------------------------------------------------------------------------- Table of Contents Operating EBIT was$898 million in the first six months of 2020, down 38 percent from pro forma Operating EBIT of$1,458 million in the first six months of 2019. Operating EBIT decreased primarily due to margin compression in both businesses and reduced equity earnings due to margin compression at theKuwait and Sadara joint ventures. These declines more than offset cost reductions. INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE Industrial Intermediates & Infrastructure consists of two customer-centric global businesses - Industrial Solutions and Polyurethanes & Construction Chemicals - that develop important intermediate chemicals that are essential to manufacturing processes, as well as downstream, customized materials and formulations that use advanced development technologies. These businesses primarily produce and market ethylene oxide and propylene oxide derivatives that are aligned to market segments as diverse as appliances, coatings, infrastructure and oil and gas. The global scale and reach of these businesses, world-class technology and R&D capabilities and materials science expertise enable the Company to be a premier solutions provider, offering customers value-add sustainable solutions to enhance comfort, energy efficiency, product effectiveness and durability across a wide range of home comfort and appliances, building and construction, adhesives and lubricant applications, among others. This segment also includes a portion of the results of EQUATE, TKOC,Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company. The Company is responsible for marketing a majority of Sadara products outside of theMiddle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee. Six Months Industrial Intermediates & Infrastructure Three Months Ended Ended In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019 Net sales$ 2,417 $ 3,342 $ 5,462 $ 6,822 Pro forma net sales$ 6,831 Operating EBIT$ (220) $ 154 $ (45) Pro forma Operating EBIT$ 431 Equity losses$ (113) $ (78) $ (189) $ (126) Industrial Intermediates & Infrastructure Three Months Ended Six Months Ended Percentage change from prior year Jun 30, 2020 Jun 30, 2020 Change inNet Sales from Prior Period due to: Local price & product mix (9) % (9) % Currency (1) (1) Volume (18) (10) Total (28) % (20) %
Change in Pro
(9) %
Currency (1)
Volume (10)
Total (20) %
1. As reported net sales for the six months ended
Industrial Intermediates & Infrastructure net sales were$2,417 million in the second quarter of 2020, down 28 percent from$3,342 million in the second quarter of 2019, with volume down 18 percent, a decline in local price of 9 percent and an unfavorable currency impact of 1 percent. Volume decreased in Polyurethanes & Construction Chemicals and Industrial Solutions and in all geographic regions, exceptAsia Pacific , reflecting the impact of the COVID-19 pandemic. Polyurethanes & Construction Chemicals volume decreased primarily due to weak demand in consumer durable good end-markets, notably construction, furniture and bedding and automotive. Volume decreased in Industrial Solutions as improved demand for pharma and home care applications was more than offset by declines in industrial and oil applications and consumer textiles. Local price decreased in both businesses and in all geographic regions. The decrease in local price was primarily driven by lower global energy costs and the impact of the COVID-19 pandemic on supply/demand fundamentals. 62 -------------------------------------------------------------------------------- Table of Contents Operating EBIT was a loss of$220 million in the second quarter of 2020, compared with Operating EBIT of$154 million in the second quarter of 2019. Operating EBIT decreased primarily due to demand destruction, margin compression and lower equity earnings from theKuwait joint ventures. Industrial Intermediates & Infrastructure net sales were$5,462 million in the first six months of 2020, down 20 percent from net sales of$6,822 million in the first six months of 2019. Net sales decreased 20 percent compared with pro forma net sales of$6,831 million in the first six months of 2019, driven by a decrease in volume of 10 percent, a decline in local price of 9 percent and an unfavorable currency impact of 1 percent. Volume declined in both businesses and in all geographic regions, exceptAsia Pacific , which was flat. Volume decreased in Polyurethanes & Construction Chemicals in all geographic regions and was attributable to weaker demand for products used in consumer durable good end-markets, including construction, furniture and bedding, and automotive, along with lower demand for aircraft deicing applications. Volume decreased in Industrial Solutions due to weakened demand for consumer durable goods and oil and gas and industrial applications, which was offset by stronger demand in pharma, cleaning and home care applications. Industrial Solutions volume declined in all geographic regions, exceptAsia Pacific . Local price decreased in both businesses and all geographic regions. The decrease in local price was primarily driven by lower global energy and raw material costs.
Operating EBIT was a loss of
PERFORMANCE MATERIALS & COATINGS
Performance Materials & Coatings includes industry-leading franchises that
deliver a wide array of solutions into consumer and infrastructure end-markets.
The segment consists of two global businesses: Coatings & Performance Monomers
and Consumer Solutions. These businesses primarily utilize the Company's
acrylics-, cellulosics- and silicone-based technology platforms to serve the
needs of the architectural and industrial coatings, home care and personal care
end-markets. Both businesses employ materials science capabilities, global reach
and unique products and technology to combine chemistry platforms to deliver
differentiated offerings to customers.
Six Months
Performance Materials & Coatings Three Months Ended Ended
In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019
Net sales $ 1,855 $ 2,356 $ 3,920 $ 4,638
Pro forma net sales $ 4,676
Operating EBIT $ 27 $ 214 $ 189
Pro forma Operating EBIT $ 485
Equity earnings $ 2 $ 1 $ 3 $ 1
Performance Materials & Coatings Three Months Ended Six Months Ended
Percentage change from prior year Jun 30, 2020 Jun 30, 2020
Change in Net Sales from Prior Period due to:
Local price & product mix (6) % (7) %
Currency (1) (1)
Volume (14) (9)
Portfolio & other - 2
Total (21) % (15) %
Change in Pro Forma Net Sales from Prior Period due to: 1
Local price & product mix (7) %
Currency (1)
Volume (8)
Total (16) %
1. As reported net sales for the six months ended
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Performance Materials & Coatings net sales were $1,855 million in the second
quarter of 2020, down 21 percent from net sales of $2,356 million in the second
quarter of 2019, with volume down 14 percent, local price down 6 percent, and an
unfavorable currency impact of 1 percent. Volume declined across all geographic
regions, reflecting the impact from the COVID-19 pandemic. Consumer Solutions
volume decreased as growth in home care applications was more than offset by
lower demand for products used in automotive, construction and personal care
end-markets as consumer activities and buying patterns were limited by the
COVID-19 pandemic. Volume declined in Coatings & Performance Monomers primarily
due to lower demand for industrial coatings, which more than offset growth for
architectural coatings in U.S. & Canada . Local price decreased in both
businesses and across all geographic regions. Local price decreased in Coatings
& Performance Monomers due to weaker supply/demand fundamentals. Consumer
Solutions local price decreased primarily due to lower pricing in siloxanes
across all geographic regions due to weaker supply/demand fundamentals.
Operating EBIT was $27 million in the second quarter of 2020, down 87 percent
from Operating EBIT of $214 million in the second quarter of 2019. Operating
EBIT decreased primarily due to margin compression in siloxanes and lower demand
due to the COVID-19 pandemic.
Performance Materials & Coatings net sales were $3,920 million in the first six
months of 2020, down 15 percent from net sales of $4,638 million in the first
six months of 2019. Net sales decreased 16 percent compared with pro forma net
sales of $4,676 million in the same quarter last year, with volume down 8
percent, local price down 7 percent, and an unfavorable currency impact of 1
percent. Volume declines in Asia Pacific , EMEAI and U.S. & Canada , which
reflected the impact from the COVID-19 pandemic, were partially offset by volume
growth in Latin America . Consumer Solutions volume decreased due to lower demand
in Asia Pacific , EMEAI and U.S. & Canada , partially offset by demand growth in
upstream siloxanes in Latin America . Coatings & Performance Monomers volume
decreased in Asia Pacific , EMEAI and Latin America primarily due to the impact
of the COVID-19 pandemic, which was partially offset by strong demand for home
improvement applications in U.S. & Canada . Local price decreased in both
businesses and all geographic regions. Consumer Solutions local price declined
primarily in upstream siloxanes due to weak supply/demand fundamentals. Local
price decreased in Coatings & Performance Monomers in response to lower
feedstock and other raw material costs.
Operating EBIT was $189 million in the first six months of 2020, down 61 percent
from pro forma Operating EBIT of $485 million in the first six months of 2019.
Operating EBIT decreased primarily due to margin compression in siloxanes and
lower demand as a result of the COVID-19 pandemic.
CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, environmental operations, etc.); non-business aligned joint ventures; non-business aligned litigation expenses; and discontinued or non-aligned businesses. Corporate Three Months Ended Six Months Ended In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019 Net sales$ 81 $ 111 $ 132 $ 180 Pro forma net sales $ 180 Operating EBIT$ (68) $ (77) $ (142) Pro forma Operating EBIT $ (172) Equity losses$ (4) $ (12) $ (23) $ (16) Net sales for Corporate, which primarily relate to the Company's insurance operations, were$81 million in the second quarter of 2020, a decrease from net sales of$111 million in the second quarter of 2019. Net sales were$132 million in the first six months of 2020, down from net sales and pro forma net sales of$180 million in the first six months of 2019. Operating EBIT was a loss of$68 million in the second quarter of 2020, compared with a loss of$77 million in the second quarter of 2019. Operating EBIT was a loss of$142 million in the first six months of 2020, compared with a pro forma Operating EBIT loss of$172 million in the first six months of 2019. Operating EBIT improved primarily due to cost reductions and stranded cost removal throughout 2019. 64 -------------------------------------------------------------------------------- Table of Contents CHANGES IN FINANCIAL CONDITION The Company had cash and cash equivalents of$3,724 million atJune 30, 2020 and$2,367 million atDecember 31, 2019 , of which$1,186 million atJune 30, 2020 and$986 million atDecember 31, 2019 was held by subsidiaries in foreign countries, includingUnited States territories. For each of its foreign subsidiaries, Dow makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated tothe United States . The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. Dow has the ability to repatriate additional funds to theU.S. , which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/orU.S. state income taxes and the impact of foreign currency movements. During 2020, Dow has repatriated and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations or separation activities; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company. The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table: Cash Flow Summary Dow Inc. TDCC Six Months Six Months Ended Ended In millions Jun 30, 2020 Jun 30, 2019 Jun 30, 2020 Jun 30, 2019 Cash provided by (used for): Operating activities - continuing operations$ 2,835 $ 2,003 $ 2,842 $ 1,977 Operating activities - discontinued operations (6) 253 - 346 Operating activities 2,829 2,256 2,842 2,323 Investing activities - continuing operations (534) (846) (534) (846) Investing activities - discontinued operations - (34) - (34) Investing activities (534) (880) (534) (880) Financing activities - continuing operations (879) (1,649) (892) (1,716) Financing activities - discontinued operations - (18) - (18) Financing activities (879) (1,667) (892) (1,734) Effect of exchange rate changes on cash, cash equivalents and restricted cash (66) 10 (66) 10
Summary
Increase (decrease) in cash, cash equivalents and restricted cash 1,350
(281) 1,350 (281) Cash, cash equivalents and restricted cash at beginning of period
2,380 2,764 2,380 2,764 Cash, cash equivalents and restricted cash at end of period
$ 3,730 $
2,483
6 37 6 37
Cash and cash equivalents at end of period $ 3,724 $
2,446
Cash Flows from Operating Activities Cash provided by operating activities from continuing operations increased in the first six months of 2020 compared with the first six months of 2019. The improvement was primarily due to improvements in working capital, a decrease in performance-based compensation payments, a cash receipt for the refund of withholding tax related to the Nova ethylene asset matter and an increase in advance payments from customers, which were partially offset by a decrease in dividends received from nonconsolidated affiliates. Net Working Capital Dow Inc. TDCC In millions Jun 30, 2020 Dec 31, 2019 Jun 30, 2020 Dec 31, 2019 Current assets$ 16,997 $ 16,815 $ 16,930 $ 16,733 Current liabilities 9,786 10,679 9,308 10,150 Net working capital$ 7,211 $ 6,136 $ 7,622 $ 6,583 Current ratio 1.74:1 1.57:1 1.82:1 1.65:1 65
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Working Capital Metrics Three Months Ended
Jun 30, 2020 Jun 30, 2019
Days sales outstanding in receivables 1 50 47
Days sales in inventory 2 72 67
Days payables outstanding 3 68 63
1. The increase in days sales outstanding in receivables was primarily due to a
decrease in net sales, which more than offset a decrease in average accounts
receivable.
2. The increase in days sales in inventory was primarily due to a decrease in
COS, which more than offset a decrease in average inventory.
3. The increase in days payables outstanding was primarily due to a decrease in
COS and a decrease in the change in inventory, which more than offset a decrease
in average accounts payable.
Cash used for operating activities from discontinued operations in the first six
months of 2020 decreased compared with cash provided by operating activities
from discontinued operations in the first six months of 2019 due to the
separation of AgCo and SpecCo on April 1, 2019 . See Note 3 to the Consolidated
Financial Statements for additional information.
Cash Flows from Investing Activities
Cash used for investing activities from continuing operations in the first six
months of 2020 was primarily for capital expenditures, purchases of investments
and investments in and loans to nonconsolidated affiliates (related to Sadara),
which were partially offset by proceeds from sales and maturities of
investments, and included partial monetization of the Company's investment in
company-owned life insurance policies. Cash used for investing activities from
continuing operations in the first six months of 2019 was primarily for capital
expenditures, purchases of investments and investments in and loans to
nonconsolidated affiliates (related to Sadara), which were partially offset by
proceeds from sales and maturities of investments.
The Company's capital expenditures, including capital expenditures of
consolidated variable interest entities, were $668 million in the first six
months of 2020, compared with $912 million in the first six months of 2019. In
April 2020 , the Company reduced its capital expenditure target and expects full
year capital spending in 2020 to be approximately $1.25 billion . The Company
will adjust its spending through the year as economic conditions develop.
In the first six months of 2020, the Company loaned $236 million to Sadara. The
Company expects to loan Sadara up to $500 million in 2020. Due to the potential
for Dow to continue providing financial support to Sadara, the Company will
continue to recognize its share of equity losses reported by Sadara.
Cash used in investing activities from discontinued operations in the first six
months of 2019 was primarily for capital expenditures, partially offset by
proceeds from the sale of property and businesses and proceeds from sales of
ownership interests in nonconsolidated affiliates.
Cash Flows from Financing Activities
Cash used for financing activities from continuing operations in the first six
months of 2020 included proceeds from issuance of long-term debt and changes in
short-term notes payable, which were partially offset by payments on long-term
debt. In addition, Dow Inc. included cash outflows for dividends paid to
stockholders and purchases of treasury stock and TDCC included cash outflows for
dividends paid to Dow Inc. Cash used for financing activities from continuing
operations in the first six months of 2019 included payments on long-term debt
and dividends paid to DowDuPont, which were partially offset by proceeds from
the issuance of long-term debt. In addition, Dow Inc. received cash as part of
the separation from DowDuPont, which more than offset dividends paid to common
stockholders and repurchases of common stock. TDCC was further impacted by the
change in the note payable with Dow Inc. See Note 11 to the Consolidated
Financial Statements for additional information related to the issuance and
retirement of debt.
Cash used for financing activities from discontinued operations in the first six
months of 2019 primarily related to distributions to noncontrolling interests
and employee taxes paid for share-based payment arrangements.
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Dow Inc. Non-GAAP Cash Flow Measures
Free Cash Flow
Dow defines free cash flow as cash flows from 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, represents 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.
Operating EBITDA and Pro Forma Operating EBITDA
Dow defines Operating EBITDA (for the three months ended June 30, 2020 and 2019
and the six months ended June 30, 2020 ) 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 (for the six months ended June 30, 2019 ) is defined as earnings (i.e.,
"Income (loss) from continuing operations before income taxes") before interest,
depreciation and amortization, plus pro forma adjustments, excluding the impact
of significant items.
Cash Flow Conversion (Operating EBITDA or Pro Forma Operating EBITDA to Cash
Flow From Operations)
Dow defines cash flow conversion (Operating EBITDA or pro forma Operating EBITDA
to cash flow from operations) as cash flows from operating activities -
continuing operations, divided by Operating EBITDA or pro forma 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 to cash flow.
These financial measures are not recognized in accordance with U.S. GAAP and
should not be viewed as alternatives to U.S. GAAP financial measures of
performance. All companies do not calculate non-GAAP financial measures in the
same manner and, accordingly, Dow's definitions may not be consistent with the
methodologies used by other companies.
Reconciliation of Free Cash Flow Six Months Ended
In millions Jun 30, 2020 Jun 30, 2019 Cash provided by operating activities - continuing operations (GAAP)$ 2,835 $ 2,003 Capital expenditures (668) (912) Free cash flow (Non-GAAP)$ 2,167 $ 1,091
Reconciliation of Cash Flow Conversion (Operating EBITDA or Pro Forma Operating
Six Months Ended
EBITDA to Cash Flow From Operations)
In millions Jun 30, 2020 Jun 30, 2019 1
Income from continuing operations, net of tax (GAAP) $ 41 $ 246
+ Provision for income taxes on continuing operations 172 266
Income from continuing operations before income taxes $ 213 $ 512
- Interest income 21 39
+ Interest expense and amortization of debt discount 415 478
+ Pro forma adjustments ² - 65
- Significant items ³ (293) (1,186)
Operating EBIT (Non-GAAP) $ 900 $ 2,202
+ Depreciation and amortization 1,424 1,486
Operating EBITDA (Non-GAAP) $ 2,324 $ 3,688
Cash flows from operating activities - continuing operations (GAAP) $ 2,835 $ 2,003
Cash flow conversion (Operating EBITDA or pro forma Operating EBITDA to
cash flow from operations) (Non-GAAP) 122.0 % 54.3 %
1. Operating EBIT, depreciation and amortization and Operating EBITDA for the six months endedJune 30, 2019 are presented on a pro forma basis. 2. Pro forma adjustments for the six months endedJune 30, 2019 include: (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). 3. The six months endedJune 30, 2020 include integration and separation costs, restructuring and asset related charges - net, a loss on early extinguishment of debt and a gain related to a legal settlement with Nova. The six months endedJune 30, 2019 include integration and separation costs, restructuring and asset related charges - net, a loss on early extinguishment of debt, a loss related to a previous divestiture and a loss associated with agreements entered into with DuPont and Corteva as part of the separation and distribution. See Note 22 to the Consolidated Financial Statements for additional information. 67 -------------------------------------------------------------------------------- Table of Contents Liquidity & Financial Flexibility The Company's primary source of incremental liquidity is cash flows from operating activities. The generation of cash from operations and the Company's ability to access capital markets is expected to meet the Company's cash requirements for working capital, capital expenditures, debt maturities, contributions to pension plans, dividend distributions to stockholders, share repurchases and other needs. In addition to cash from operating activities, the Company's current liquidity sources also include TDCC'sU.S. and Euromarket commercial paper programs, committed and uncommitted credit facilities, a committed accounts receivable facility, aU.S. retail note program ("InterNotes®") and other debt markets. The Company continues to maintain a strong financial position and solid liquidity in the midst of the economic recession triggered by the COVID-19 pandemic. The Company started 2020 with significant committed liquidity facilities. As markets became more volatile and uncertain during the first quarter of 2020, the Company took proactive measures to further bolster liquidity by drawing down certain uncommitted credit facilities, which were subsequently repaid in the second quarter of 2020, and partially monetizing investments in company-owned life insurance policies. AtJune 30, 2020 , the Company had approximately$12 billion in committed forms of liquidity, which included$3.7 billion in cash and cash equivalents. The Company also has no substantive long-term debt maturities until the second half of 2023. Additional details on sources of liquidity are as follows: Commercial Paper TDCC issues promissory notes under itsU.S. and Euromarket commercial paper programs. TDCC had$500 million of commercial paper outstanding atJune 30, 2020 ($151 million atDecember 31, 2019 ). TDCC maintains access to the commercial paper market at competitive rates. Amounts outstanding under TDCC's commercial paper programs during the period may be greater, or less than, the amount reported at the end of the period. Subsequent toJune 30, 2020 , TDCC issued approximately$500 million of commercial paper. Committed Credit Facilities The Company also has the ability to access liquidity through TDCC's committed and available credit facilities. AtJune 30, 2020 , TDCC had total committed credit facilities of$8.7 billion and available credit facilities of$7.4 billion . In the first quarter of 2020, Dow Silicones voluntarily repaid$750 million of principal under a certain third party credit agreement. See Note 11 to the Consolidated Financial Statements for additional information on committed and available credit facilities. Committed Accounts Receivable Facility In addition to the above committed credit facilities, the Company maintains a committed accounts receivable facility inNorth America where eligible trade accounts receivable, up to$900 million , may be sold at any point in time. For additional information, see Note 15 to the Consolidated Financial Statements included in the combinedDow Inc. and TDCC Annual Report on Form 10-K for the year endedDecember 31, 2019 .Company-Owned Life Insurance The Company has investments in company-owned life insurance ("COLI") policies, which are recorded at their cash surrender value as of each balance sheet date. The Company has the ability to monetize its investment in its COLI policies as an additional source of liquidity. AtJune 30, 2020 , the Company had monetized$293 million of its existing COLI policies' value ($85 million atDecember 31, 2019 ). See Note 6 to the Consolidated Financial Statements for additional information. Uncommitted Credit Facilities Dow has entered into various uncommitted bilateral credit arrangements as a potential source of excess liquidity. These lines can be used to support short-term liquidity needs and for general purposes, including letters of credit. In the first quarter of 2020, the Company took proactive measures to further bolster liquidity by drawing down certain uncommitted credit facilities, which were subsequently repaid in the second quarter. See Note 11 to the Consolidated Financial Statements for additional information. 68 -------------------------------------------------------------------------------- Table of Contents Debt As the Company continues to maintain its strong balance sheet and financial flexibility, management is focused on net debt (a non-GAAP financial measure), as the Company believes this is the best representation of its financial leverage at this point in time. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents" and "Marketable securities." AtJune 30, 2020 , net debt as a percent of total capitalization increased to 51.4 percent and 50.0 percent forDow Inc. and TDCC, respectively, compared with 50.9 percent and 49.6 percent atDecember 31, 2019 . Total Debt Dow Inc. TDCC In millions Jun 30, 2020 Dec 31, 2019 Jun 30, 2020 Dec 31, 2019 Notes payable$ 853 $ 586 $ 853 $ 586 Long-term debt due within one year 451 435 451 435 Long-term debt 16,288 15,975 16,288 15,975 Gross debt$ 17,592 $ 16,996 $ 17,592 $ 16,996 - Cash and cash equivalents 3,724 2,367 3,724 2,367 - Marketable securities 2 21 2 21 Net debt$ 13,866 $ 14,608 $ 13,866 $ 14,608 Total equity$ 13,097 $ 14,094 $ 13,852 $ 14,862 Gross debt as a percent of total capitalization 57.3 % 54.7 % 55.9 % 53.3 % Net debt as a percent of total capitalization 51.4 %
50.9 % 50.0 % 49.6 %
InFebruary 2020 , the Company issued €2.25 billion aggregate principal amount of notes ("Euro Notes"). The Euro Notes include €1 billion aggregate principal amount of 0.50 percent notes due 2027, €750 million aggregate principal amount of 1.125 percent notes due 2032 and €500 million aggregate principal amount of 1.875 percent notes due 2040. The Euro Notes have a weighted average coupon rate of approximately 1.0 percent. In addition, the Company redeemed$1.25 billion of 3.0 percent notes issued by the Company with maturity in 2022. The Company may at any time repurchase certain debt securities in the open market or in privately negotiated transactions subject to: the applicable terms under which any such debt securities were issued, certain internal approvals of the Company, and applicable laws and regulations of the relevant jurisdiction in which any such potential transactions might take place. This in no way obligates the Company to make any such repurchases nor should it be considered an offer to do so. TDCC's public debt instruments and primary, private credit agreements contain, among other provisions, certain customary restrictive covenant and default provisions. TDCC's most significant debt covenant with regard to its financial position is the obligation to maintain the ratio of its consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Five Year Competitive Advance and Revolving Credit Facility Agreement ("Revolving Credit Agreement") equals or exceeds$500 million . The ratio of TDCC's consolidated indebtedness to consolidated capitalization as defined in the Revolving Credit Agreement was 0.53 to 1.00 atJune 30, 2020 . Management believes TDCC was in compliance with all of its covenants and default provisions atJune 30, 2020 . For information on TDCC's debt covenants and default provisions, see Note 16 to the Consolidated Financial Statements included in the combinedDow Inc. and TDCC Annual Report on Form 10-K for the year endedDecember 31, 2019 . There were no material changes to the debt covenants and default provisions related to TDCC's outstanding long-term debt and primary, private credit agreements in the first six months of 2020.
While taking into consideration the current economic environment, management expects that the Company will continue to have sufficient liquidity and financial flexibility to meet all of its business obligations.
69-------------------------------------------------------------------------------- Table of Contents Credit Ratings AtJune 30, 2020 , TDCC's credit ratings were as follows: Credit Ratings Long-Term Rating Short-Term Rating Outlook Standard & Poor's BBB- A-3 Stable Moody's Investors Service Baa2 P-2 Stable Fitch Ratings BBB+ F2 Negative OnApril 9, 2020 , S&P announced a credit rating change for Dow from BBB and A-2 to BBB- and A-3, maintaining stable outlook. The decision was made as part of S&P's broader review of the chemicals sector, in light of the global impact of COVID-19 and lower oil prices. OnApril 13, 2020 , Fitch re-affirmed Dow's BBB+ and F2 rating, and revised its outlook to negative from stable. The decision was made as part of Fitch's annual review process.
Downgrades in TDCC's credit ratings will increase borrowing costs on certain indentures and could impact its ability to access debt capital markets.
Dividends
Dow Inc. OnFebruary 13, 2020 ,Dow Inc. announced that its Board declared a dividend of$0.70 per share, which was paid onMarch 13, 2020 , to shareholders of record as ofFebruary 28, 2020 . OnApril 9, 2020 ,Dow Inc. announced that its Board declared a dividend of$0.70 per share, which was paid onJune 12, 2020 , to shareholders of record as ofMay 29, 2020 .
TDCC
Effective with the separation from DowDuPont onApril 1, 2019 , TDCC became a wholly owned subsidiary ofDow Inc. TDCC has committed to fundDow Inc.'s dividends paid to common stockholders and share repurchases, as approved byDow Inc.'s Board from time to time, as well as certain governance expenses. Funding is accomplished through intercompany loans. TDCC's Board of Directors reviews and determines a dividend distribution toDow Inc. to settle the intercompany loans. For the three months endedJune 30, 2020 , TDCC declared and paid a dividend toDow Inc. of$529 million ($1,172 million for the six months endedJune 30, 2020 ). AtJune 30, 2020 , TDCC's intercompany loan balance withDow Inc. was insignificant. See Note 21 to the Consolidated Financial Statements for additional information. Share Repurchase Program OnApril 1, 2019 ,Dow Inc.'s Board ratified the share repurchase program originally approved onMarch 15, 2019 , authorizing up to$3.0 billion to be spent on the repurchase of the Company's common stock, with no expiration date. The Company did not repurchase any of its common stock in the second quarter of 2020 (repurchased$125 million of the Company's common stock in the six months endedJune 30, 2020 ). AtJune 30, 2020 , approximately$2.4 billion of the share repurchase program authorization remained available for repurchases. At this time,Dow Inc. does not expect to repurchase additional shares in 2020, but will continue to evaluate as the year progresses. Pension Plans The Company has both funded and unfunded defined benefit pension plans that cover employees inthe United States and a number of other countries. The Company's funding policy is to contribute to funded plans when pension laws and/or economics either require or encourage funding. The Company expects to contribute approximately$290 million to its pension plans in 2020, of which$112 million has been contributed throughJune 30, 2020 . See Note 16 to the Consolidated Financial Statements and Note 21 to the Consolidated Financial Statements included in the combinedDow Inc. and TDCC Annual Report on Form 10-K for the year endedDecember 31, 2019 for additional information concerning the Company's pension plans.
Restructuring
The activities related to the Synergy Program are expected to result in additional cash expenditures of approximately$100 million , primarily through the end of 2020, consisting of severance and related benefit costs and costs associated with exit and disposal activities, including environmental remediation (see Note 5 to the Consolidated Financial Statements). The Company expects to incur additional costs in the future related to its restructuring activities. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these costs will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time. 70 -------------------------------------------------------------------------------- Table of Contents Integration and Separation Costs Integration and separation costs related to business separation activities are expected to result in additional cash expenditures of$125 million to$150 million through the end of 2020. Contractual Obligations Information related to the Company's contractual obligations, commercial commitments and expected cash requirements for interest can be found in Notes 16, 17, 18 and 21 to the Consolidated Financial Statements included in the combinedDow Inc. and TDCC Annual Report on Form 10-K for the year endedDecember 31, 2019 . With the exception of the items noted below, there have been no material changes in the Company's contractual obligations sinceDecember 31, 2019 . Contractual Obligations at Jun 30, 2020 Payments Due In In millions 2020 2021-2022
2023-2024 2025 and beyond Total
Long-term debt obligations 1$ 277 $ 721 $ 3,201 $ 12,890 $ 17,089 Expected cash requirements for interest 2$ 371 $ 1,428 $ 1,323 $ 7,758 $ 10,880 Operating leases 3$ 232 $ 775 $ 506 $ 808$ 2,321 Total$ 880 $ 2,924 $ 5,030 $ 21,456 $ 30,290 1.Excludes unamortized debt discount and issuance costs of$350 million . Includes finance lease obligations of$415 million . Assumes the option to extend will be exercised for the Dow Silicones Term Loan Facility. 2.Cash requirements for interest on long-term debt was calculated using current interest rates and exchange rates atJune 30, 2020 , and includes$1,571 million of various floating rate notes. 3.Includes imputed interest of$371 million . Off-Balance Sheet Arrangements Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the primary beneficiary of these joint ventures and therefore is not required to consolidate these entities (see Note 20 to the Consolidated Financial Statements).
Guarantees arise during the ordinary course of business from relationships with
customers, committed accounts receivable facilities and nonconsolidated
affiliates when the Company undertakes an obligation to guarantee the
performance of others if specific triggering events occur. The Company had
outstanding guarantees at
Fair Value Measurements See Note 19 to the Consolidated Financial Statements for additional information concerning fair value measurements. OTHER MATTERS Recent Accounting Guidance See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance. Critical Accounting Estimates The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements included in the combinedDow Inc. and TDCC Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 10-K") describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The Company's accounting policies that are impacted by judgments, assumptions and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2019 10-K. SinceDecember 31, 2019 , there have been no material changes in the Company's accounting policies that are impacted by judgments, assumptions and estimates. 71 -------------------------------------------------------------------------------- Table of Contents Asbestos-Related Matters ofUnion Carbide Corporation Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary,Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide's products. The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants: Asbestos-Related Claim Activity 2020 2019 Claims unresolved at Jan 1 11,117 12,780 Claims filed 2,194 2,819 Claims settled, dismissed or otherwise resolved (2,488)
(3,477)
Claims unresolved atJun 30 10,823
12,122
Claimants with claims against both Union Carbide and Amchem (3,555) (4,217)
Individual claimants at
7,268 7,905
Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to Union Carbide, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide's litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.
For additional information, see Asbestos-Related Matters of
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