DOW INC

RESULTS OF OPERATIONS

Net Sales

The following tables summarize net sales and sales variances by operating segment and geographic region from the prior year:

Net sales in the second quarter of 2024 were $10.9 billion, down 4 percent from $11.4 billion in the second quarter of 2023, with local price down 4 percent, volume up 1 percent and an unfavorable currency impact of 1 percent. Net sales decreased in all operating segments except Performance Materials & Coatings, and across all geographic regions. Local price decreased in Packaging & Specialty Plastics (down 4 percent), Industrial Intermediates & Infrastructure (down 7 percent), and Performance Materials & Coatings (down 4 percent), and in all geographic regions. Volume increased in the U.S. & Canada and Asia Pacific and was flat in EMEAI and Latin America. Volume decreased in Packaging & Specialty Plastics (down 3 percent), and increased in Industrial Intermediates & Infrastructure (up 1 percent) and Performance Materials & Coatings (up 7 percent). Currency unfavorably impacted net sales by 1 percent, driven by Asia Pacific (down 3 percent) and EMEAI (down 1 percent). Excluding the Hydrocarbons & Energy business, net sales decreased 3 percent.

Net sales for the first six months of 2024 were $21.7 billion, down 7 percent from $23.3 billion in the same period last year, with local price down 7 percent, volume up 1 percent and an unfavorable currency impact of 1 percent. Net sales decreased in all operating segments and geographic regions. Local price decreased in all geographic regions and in Packaging & Specialty Plastics (down 6 percent), Industrial Intermediates & Infrastructure (down 11 percent), and Performance Materials & Coatings (down 6 percent), driven by lower global feedstock and energy costs. Volume increased in all geographic regions except EMEAI. Volume decreased in Packaging & Specialty Plastics (down 3 percent), and increased in Industrial Intermediates & Infrastructure (up 3 percent) and Performance Materials & Coatings (up 5 percent). Currency unfavorably impacted net sales by 1 percent, driven by Asia Pacific. Excluding the Hydrocarbons & Energy business, net sales decreased 5 percent.

Cost of Sales

Cost of sales ("COS") was $9.6 billion in the second quarter of 2024, compared with $9.9 billion in the second quarter of 2023. For the first six months of 2024, COS was $19.1 billion compared with $20.5 billion in the first six months of 2023. COS for the three and six months ended June 30, 2024 decreased primarily due to lower raw material costs, lower global energy and feedstock costs and the impact of structural cost improvements, partially offset by increased planned maintenance turnaround spending. COS as a percentage of net sales was 87.9 percent in the second quarter of 2024 (86.5 percent in the second quarter of 2023) and 88.0 percent for the first six months of 2024 (88.1 percent for the first six months of 2023), reflecting lower sales driven by a decrease in local price.

Research and Development Expenses

Research and development ("R&D") expenses totaled $196 million in the second quarter of 2024, compared with $205 million in the second quarter of 2023. R&D expenses decreased in the second quarter of 2024 primarily due to lower performance-based compensation costs. R&D expenses for the first six months of 2024 were $400 million compared with $419 million in the first six months of 2023. R&D expenses for the first six months of 2024 decreased primarily due to lower fringe benefit expense, the impact of structural cost improvements, and lower performance based compensation costs.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses totaled $390 million in the second quarter of 2024, compared with $408 million in the second quarter of 2023. SG&A expenses decreased in the second quarter of 2024 primarily due to lower performance-based compensation costs and the impact of structural cost improvements. For the first six months of 2024, SG&A expenses were $832 million, compared with $836 million in the first six months of 2023. SG&A expenses for the first six months of 2024 decreased primarily due to the impact of structural cost improvements and lower performance based compensation costs, which were partially offset by higher bad debt expense as a result of a resolution of a dispute with a customer.

Amortization of Intangibles

Amortization of intangibles was $77 million in the second quarter of 2024 compared with $81 million in the second quarter of 2023. In the first six months of 2024, amortization of intangibles was $158 million, compared with $162 million in the first six months of 2023.

Equity in Earnings (Losses) of Nonconsolidated Affiliates

The Company's share of equity in earnings of nonconsolidated affiliates was $26 million in the second quarter of 2024, compared with equity in losses of nonconsolidated affiliates of $57 million in the second quarter of 2023, an increase of $83 million, primarily due to improved performance and lower planned maintenance turnaround activity at the Kuwait and Sadara joint ventures. The Company's share of equity in earnings of nonconsolidated affiliates was $43 million for the first six months of 2024, compared with equity in losses of nonconsolidated affiliates of $105 million for the first six months of 2023, primarily due to improved performance and lower planned maintenance turnaround activity at the Kuwait and Sadara joint ventures. Cash dividends from nonconsolidated affiliates were $199 million in the first six months of 2024, compared with $162 million in the first six months of 2023.

Sundry Income (Expense) – Net

Sundry income (expense) - net for the three months ended June 30, 2024 was income of $76 million and $74 million for Dow Inc. and TDCC, respectively, compared with income of $31 million and $29 million, respectively, for the three months ended June 30, 2023. The second quarter of 2024 and 2023 included non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments, which were partially offset by foreign currency exchange losses. The increase in sundry income is primarily due to lower foreign currency exchange losses, which were partially offset by a decrease in non-operating pension and postretirement benefit plan credits.

Sundry income (expense) - net for the six months ended June 30, 2024 was income of $137 million and $135 million for Dow Inc. and TDCC, respectively, compared with income of $110 million and $98 million, respectively, for the six months ended June 30, 2023. The first six months of 2024 and 2023 included non-operating pension and postretirement benefit plan credits and gains on the sales of assets and investments, which were partially offset by foreign currency exchange losses. The increase in sundry income is primarily due to lower foreign currency exchange losses, which were partially offset by a decrease in non-operating pension and postretirement benefit plan credits and gains on sales of other assets and investments.

Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount was $197 million in the second quarter of 2024, compared with $172 million in the second quarter of 2023. Interest expense and amortization of debt discount was $396 million in the first six months of 2024 compared with $357 million in the first six months of 2023. The increase in interest expense is primarily due to borrowings outside of the United States and $1.25 billion of senior unsecured notes issued in the first quarter of 2024.

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. In the second quarter of 2024, the Company reported a provision for income taxes of $150 million, resulting in an effective tax rate of 24.7 percent and 24.6 percent for Dow Inc. and TDCC, respectively. In the second quarter of 2023, the Company reported a provision for income taxes of $210 million, resulting in an effective tax rate of 29.5 percent for Dow Inc. and TDCC. For the first six months of 2024, the Company reported a provision for income taxes of $61 million, resulting in an effective tax rate of 5.8 percent and 5.7 percent for Dow Inc. and TDCC, respectively. For the first six months of 2023, the Company reported a provision for income taxes of $163 million, resulting in an effective tax rate of 27.6 percent and 27.8 percent for Dow Inc. and TDCC, respectively. See Note 7 to the Consolidated Financial Statements for additional information about the Company's income taxes and effective tax rates.

The Company continues to monitor and evaluate legislative developments related to the Global Anti-Base Erosion Proposal Regime ("GloBE") established by the Organization of Economic Cooperation and Development’s ("OECD") Pillar Two framework. Several countries in which the Company operates have adopted GloBE into their legislation and several others are expected to enact these rules in the future. To date, such legislation has not materially impacted the Company's effective tax rate.

Net Income Available for Common Stockholder(s)

Dow Inc.

Net income available for Dow Inc. common stockholders was $439 million, or $0.62 per share, in the second quarter of 2024, compared with $485 million, or $0.68 per share, in the second quarter of 2023. Net income available for Dow Inc. common stockholders was $955 million, or $1.35 per share, in the first six months of 2024, compared with $392 million, or $0.54 per share, in the first six months of 2023. See Note 8 to the Consolidated Financial Statements for details on Dow Inc.'s earnings per share calculations.

TDCC

Net income available for the TDCC common stockholder was $441 million in the second quarter of 2024, compared with $487 million in the second quarter of 2023. Net income available for the TDCC common stockholder was $962 million in the first six months of 2024, compared with $387 million in the first six months of 2023. TDCC's common shares are owned solely by Dow Inc.

SEGMENT RESULTS

For further discussion of the Company's segments, see Part I, Item 1. Business of the combined Dow Inc. and TDCC Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("2023 10-K"), filed with the SEC on January 31, 2024.

Dow’s measure of profit/loss for segment reporting purposes is Operating EBIT as this is the manner in which the Company's chief operating decision maker assesses performance and allocates resources. The Company defines Operating EBIT as earnings (i.e., "Income before income taxes") before interest, excluding the impact of significant items. Operating EBIT by segment includes all operating items relating to the businesses; items that principally apply to Dow as a whole are assigned to Corporate.

PACKAGING & SPECIALTY PLASTICS

Packaging & Specialty Plastics net sales were $5,515 million in the second quarter of 2024, down 7 percent from net sales of $5,940 million in the second quarter of 2023, with local price down 4 percent, volume down 3 percent and currency flat. Local price decreased in Packaging and Specialty Plastics in all geographic regions, driven by lower pricing of downstream polymers and polyethylene primarily due to lower energy prices. Local price increased in Hydrocarbons & Energy, primarily in EMEAI, as prices for co-products are generally correlated to Brent crude oil prices, which on average increased 9 percent compared with 2023. Volume increased in Packaging and Specialty Plastics, primarily in the U.S. & Canada, due to higher downstream polymers and polyethylene demand which more than offset a decrease in non-recurring licensing sales. Volume decreased in Hydrocarbons & Energy in all geographic regions, led by EMEAI, primarily driven by lighter feedslate cracking.

Operating EBIT was $703 million in the second quarter of 2024, down $215 million from Operating EBIT of $918 million in the second quarter of 2023. Operating EBIT decreased due to lower selling prices, reduced demand, higher planned maintenance activity and lower non-recurring licensing sales, which were partially offset by lower raw material, feedstock and energy costs.

Packaging & Specialty Plastics net sales were $10,945 million in the first six months of 2024, down 9 percent from net sales of $12,054 million in the first six months of 2023. Local price decreased in Packaging and Specialty Plastics in all geographic regions, driven primarily by lower raw material and energy prices. Local price decreased in Hydrocarbons & Energy, primarily in Latin America and the U.S. & Canada, due to lower energy and feedstock costs. Volume increased in Packaging and Specialty Plastics, with increases in all geographic regions led by Asia Pacific, due to higher downstream polymers and polyethylene demand, which more than offset a decrease in non-recurring licensing sales. Volume decreased in Hydrocarbons & Energy primarily driven by higher internal derivative demand and lighter feedslate cracking.

Operating EBIT was $1,308 million in the first six months of 2024, down $252 million from Operating EBIT of $1,560 million in the first six months of 2023. Operating EBIT decreased primarily due to lower selling prices, reduced demand and higher planned maintenance costs, which were partially offset by lower raw material, energy and feedstock costs.

INDUSTRIAL INTERMEDIATES & INFRASTRUCTURE

Industrial Intermediates & Infrastructure net sales were $2,951 million in the second quarter of 2024, down 7 percent from $3,177 million in the second quarter of 2023, with local price down 7 percent, volume up 1 percent and an unfavorable currency impact of 1 percent. Local price decreased in both businesses and across all geographic regions. Volume increased in Polyurethanes & Construction Chemicals, with gains in EMEAI, led by building and construction and industrial applications, partially offset by declines in Asia Pacific and the U.S. & Canada, which included the impact of a third-party supplier outage. Volume was flat in Industrial Solutions, with increases in Asia Pacific and EMEAI, offset by a decline in the U.S. & Canada due to an outage from 2023 related to a significant unplanned event at the Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana, which successfully restarted at the end of June. Currency had an unfavorable impact on sales in both businesses, driven by EMEAI and Asia Pacific.

Operating EBIT was $7 million in the second quarter of 2024, up $42 million from a loss of $35 million in the second quarter of 2023. Operating EBIT increased primarily due to lower raw material, energy and feedstock costs, improved results at the EQUATE and Sadara joint ventures, and volume gains, which were partially offset by lower selling prices in both businesses.

Industrial Intermediates & Infrastructure net sales were $5,959 million in the first six months of 2024, down 9 percent from $6,555 million in the first six months of 2023. Local price decreased in both businesses and across all geographic regions. Volume increased in Polyurethanes & Construction Chemicals, led by building and construction and industrial applications primarily in EMEAI. Volume decreased in Industrial Solutions, primarily in the U.S. & Canada, due to an outage from 2023 related to a significant unplanned event at the Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana, which successfully restarted at the end of June, offset by increases in Asia Pacific and EMEAI. Currency had an unfavorable impact on sales in both businesses, driven by Asia Pacific and EMEAI.

Operating EBIT was $94 million in the first six months of 2024, up $6 million from Operating EBIT of $88 million in the first six months of 2023. Operating EBIT increased primarily due to lower raw material, energy and feedstock costs and improved results at the EQUATE and Sadara joint ventures, which were partially offset by lower selling prices in both businesses and an outage from 2023 at the Louisiana Operations Glycol-2 unit in Plaquemine, Louisiana, which successfully restarted at the end of June.

PERFORMANCE MATERIALS & COATINGS

Performance Materials & Coatings net sales were $2,243 million in the second quarter of 2024, up 2 percent from net sales of $2,197 million in the second quarter of 2023, with volume up 7 percent, local price down 4 percent, and an unfavorable currency impact of 1 percent. Volume increased in both businesses and in all geographic regions, driven by increased demand. The volume increase in Coatings & Performance Monomers was broad-based and led by acrylic monomers. The volume increase in Consumer Solutions was led by home and personal care and consumer and electronics applications. Local price decreased in Coatings & Performance Monomers in all geographic regions except Asia Pacific. Local price decreased in Consumer Solutions across all geographic regions. Currency unfavorably impacted sales in both businesses, driven by Asia Pacific.

Operating EBIT was $146 million in the second quarter of 2024, up $80 million from Operating EBIT of $66 million in the second quarter of 2023. Operating EBIT increased in both businesses primarily due to improved demand, higher operating rates, and lower planned maintenance activity, which were partially offset by lower selling prices.

Performance Materials & Coatings net sales were $4,395 million in the first six months of 2024, down 2 percent from net sales of $4,473 million in the first six months of 2023, with local price down 6 percent, volume up 5 percent and an unfavorable currency impact of 1 percent. Local price decreased in Consumer Solutions across all geographic regions primarily driven by unfavorable supply and demand dynamics. Local price decreased in Coatings & Performance Monomers in all geographic regions except Asia Pacific, which was flat. Volume increased in both businesses and in all geographic regions, driven by increased demand. The volume increase in Consumer Solutions was led by consumer and electronics, home and personal care, and industrial and chemical processing applications, and in Coatings & Performance Monomers the increase was led by acrylic monomers. Currency unfavorably impacted sales in both businesses, driven by Asia Pacific.

Operating EBIT was $187 million in the first six months of 2024, up $86 million from Operating EBIT of $101 million in the first six months of 2023. Operating EBIT increased primarily due to higher operating rates and improved demand, which were partially offset by lower selling prices.

CORPORATE

Net sales for Corporate, which primarily relate to the Company's insurance operations, were $206 million in the second quarter of 2024, an increase from net sales of $106 million in the second quarter of 2023. Net sales were $381 million in the first six months of 2024, an increase from net sales of $189 million in the first six months of 2023.

Operating EBIT was a loss of $37 million in the second quarter of 2024, compared with a loss of $64 million in the second quarter of 2023. Operating EBIT was a loss of $96 million in the first six months of 2024, compared with a loss of $156 million in the first six months of 2023. Operating EBIT increased primarily due to lower environmental costs and increased income from insurance operations.