Business Context and Reporting Period
This Form 8-K filing by Dow Inc. (DOW) and The Dow Chemical Company covers events occurring on September 29 and September 30, 2020. The report details a Board-approved restructuring program designed to reduce structural costs and enhance competitiveness in response to the economic impact of the COVID-19 pandemic. Additionally, the filing confirms the accelerated sale of rail infrastructure assets.
Key Financial Metrics and Restructuring Costs
The Company expects to record a total charge in the third quarter of 2020 for restructuring activities ranging from $500 million to $600 million. The breakdown of these costs is as follows:
- Severance and related benefit costs: $250 million to $300 million.
- Exit and disposal activities: $60 million to $90 million (primarily contract termination fees and environmental remediation).
- Asset write-downs and write-offs: $190 million to $210 million.
Cash Flow and Liquidity:
- Future cash payments for severance, contract termination, and remediation are anticipated to be $310 million to $390 million, paid primarily over the next two years.
- The Company closed the sale of rail infrastructure assets at six North American sites for cash proceeds in excess of $310 million.
- A separate divestiture of marine and terminal operations to Vopak Industrial Infrastructure Americas is expected to close by year-end for proceeds of $620 million.
Capital Expenditures: The Company remains on target for a reduced 2020 capital expenditure target of $1.25 billion, down from $2 billion in 2019.
Material Changes and Operational Actions
The restructuring program involves a global workforce cost reduction of approximately six percent. Specific asset rationalization actions include:
- Industrial Intermediates & Infrastructure: Shutting down certain amines and solvents facilities in the U.S. and Europe, plus select small-scale downstream polyurethanes facilities.
- Performance Materials & Coatings: Shutting down small-scale coatings reactors and rationalizing upstream assets in Europe, the U.S., and Canada by adjusting siloxane and silicon metal supply.
- Corporate Actions: Write-off of leased, non-manufacturing facilities and miscellaneous assets.
The sale of rail infrastructure assets closed three months earlier than initially planned.
Guidance, Outlook, and Risks
Outlook and Management Commentary:
- The restructuring program is expected to result in total annualized EBITDA savings of more than $300 million by the end of 2021.
- Management notes the program is in addition to $500 million of operating expense savings to be achieved by the end of 2020.
- CEO Jim Fitterling stated the Company remains focused on delivering strong cash flow and is well-positioned to capture growth as market conditions improve, despite a gradual and uneven global economic recovery.
Risks and Contingencies:
- Forward-looking statements are subject to risks including the continuing impact of the COVID-19 pandemic, crude oil supply and price volatility, and global economic conditions.
- Risks related to the separation from DowDuPont include tax risks, failure to achieve expected benefits, and potential unfavorable terms in commercial agreements with DuPont and Corteva.
- The Company may file an amendment if actual charges and cash payments differ materially from current estimates.
Investor Verification Checklist
- Verify the final Q3 2020 financial statement impact of the $500 million to $600 million restructuring charge.
- Confirm the actual cash proceeds received from the rail infrastructure asset sale and the closing date of the Vopak divestiture.
- Monitor the timeline for the $310 million to $390 million in future cash outflows related to severance and exit costs.
- Track progress toward the $300 million annualized EBITDA savings target by the end of 2021.
- Review subsequent filings for any material deviations from the estimated restructuring costs or capital expenditure targets.