- Earnings Per Share of $1.07; Operating
Earnings Per Share of $1.08, up 14%
- Sales Increase to $13.8B; Ex. M&A
Sales Rise 8% with Gains in all Segments and Geographies
- Volume Grows 11%, or 3% Ex. M&A,
with Broad-Based Growth in all Segments and Geographies
- Price Increases 5% with Gains in all
Geographies
- EBITDA of $2.8B; Operating EBITDA
Increases 12%, or $295 Million
The Dow Chemical Company (NYSE: DOW):
Second Quarter 2017 Highlights
- Dow reported earnings per share of
$1.07, or operating earnings per share of $1.08.(1) This compares
with earnings per share of $2.61 in the year-ago period, or
operating earnings per share of $0.95. Certain Items in the quarter
reflected an $0.08 per share charge for transactions and
productivity actions and a $0.07 per share gain for a patent
infringement award. Results in the year-ago period primarily
reflected a $2.20 per share gain related to the Dow Corning
ownership restructure and a $0.27 per share charge related to a
restructuring program.
- Sales increased to $13.8 billion, up 16
percent year-over-year. Sales rose 8 percent excluding the addition
of Dow Corning’s silicones business, with increases in all
operating segments and all geographic areas. Sales gains were led
by Performance Materials & Chemicals (up 13 percent) as well as
Performance Plastics and Consumer Solutions (each up 8 percent),
and by EMEAI (up 12 percent), Asia Pacific (up 8 percent) and North
America (up 7 percent).
- Volume grew 3 percent excluding the
impact of acquisitions, reflecting broad-based gains in all
operating segments and all geographic areas, led by the Middle East
and Africa (up 17 percent), India (up 14 percent), Asia Pacific (up
6 percent) and Europe (up 4 percent). Volume growth was led by
businesses aligned to Dow’s downstream consumer-driven end-markets
of automotive, infrastructure, consumer care, electronics and
agriculture. Operating segment highlights include Consumer
Solutions (up 9 percent), Agricultural Sciences (up 6
percent) and Infrastructure Solutions and Performance Materials
& Chemicals (each up 3 percent).
- Price rose 5 percent, with gains in all
geographic areas. Price increases were achieved in Performance
Materials & Chemicals, Performance Plastics and Infrastructure
Solutions.
- Operating EBITDA(2) rose 12 percent to
$2.8 billion, with gains in all operating segments, except
Performance Plastics, driven by higher prices, broad-based demand
growth, new product introductions, cost controls and productivity
measures, and the contribution of Dow Corning’s silicones business.
These gains more than offset higher feedstock costs, commissioning
and startup costs at Sadara and in the U.S. Gulf Coast and planned
maintenance spending.
- Dow generated $1.3 billion of cash flow
from operations(3) in the quarter, down $889 million from the
year-ago period, driven by broad-based sales gains as well as
increased investments in working capital related to Sadara product
marketing activities. Dow continued to further enhance working
capital efficiency,(4) with an improvement of more than 8 days
versus the year-ago period.
- Productivity and cost savings were $215
million in the quarter, an increase of $125 million versus the same
quarter last year. In the quarter, Dow also completed its 2015
restructuring program.
- The Company achieved several milestones
related to its strategic growth investments. On the U.S. Gulf
Coast, Dow completed construction of its new ELITE™ enhanced
polyethylene unit and continued to progress this unit and its new
world-scale ethylene facility toward startup, which is imminent. In
the Middle East, the Sadara joint venture continued its startup
activities, and now has achieved commercial operations at 25 of the
26 production units, with the final unit preparing to start up this
month.
- Dow recently entered into an agreement
to sell a portion of Dow AgroSciences' corn seed business in Brazil
for $1.1 billion in connection with conditional regulatory
clearance of the proposed merger.
- Dow and DuPont advanced their proposed
merger transaction. The companies reaffirmed the expectation to
close the merger in August 2017, announced the Board of Directors
for DowDuPont and achieved conditional regulatory clearance in key
jurisdictions.
Comment
Andrew Liveris, Dow’s chairman and chief executive officer,
stated:
“This quarter extended Dow’s track record of execution. We have
now achieved nearly five years – 19 consecutive quarters – of
year-over-year operating earnings growth and nearly 4 years – 15
consecutive quarters – of volume growth. This also marked our third
consecutive quarter of delivering an all-time operating EBITDA
record. And we continued our relentless focus on self-help
productivity and cost-out. Our results speak to the power of our
strategy and its key pillars of low-cost integration strength and
world-class innovation capabilities, targeted to a focused set of
core end-markets that value our materials science expertise. Our
portfolio delivers, over and over again, under all economic
conditions.
“Just as importantly, we ended the quarter on the cusp of
delivering the most comprehensive slate of growth investments in
our industry – across the U.S. Gulf Coast, at our Sadara joint
venture and through the ongoing integration of our silicones
platform. And we made significant advancements toward our historic
merger with DuPont, which will enhance our leadership as the
world’s premier materials science company.
“The value creation Dow continues to deliver through our
industry-leading integration and world-class innovation is clear
and powerful. Our business model – enabled by the strategy we put
in place more than a decade ago and tested in increasingly volatile
business conditions – has proven its ability to deliver long-term,
sustainable shareholder value. Our shareholders have benefited from
our strong dividend, share buybacks and TSR outperformance versus
all of our relevant peers.”
Three Months Ended June 30, June 30, In
millions, except per share amounts 2017
2016 Net Sales $13,834 $11,952 Adjusted Sales(5) $12,964 $11,952
Net Income Available for Common Stockholders $1,321 $3,123
Net Income Available for Common Stockholders,
Excluding Certain Items
$1,333 $1,075 Earnings per Common Share – Diluted $1.07
$2.61 Operating Earnings per Share $1.08
$0.95
Agricultural Sciences
Agricultural Sciences reported second quarter sales of $1.6
billion, up 3 percent year-over-year, driven by a double-digit
increase in the Seeds business. Volume increased 6 percent, with
gains in both Seeds and Crop Protection businesses, while price
declined 3 percent.
Seeds volume rose double-digits, primarily due to increased
demand for POWERCORE® corn seeds in Latin America as well as higher
demand for cotton seeds in North America, including the highly
successful launch of ENLIST™ cotton. In the quarter, the business
also received the necessary import approvals to allow for the full
commercial launch of ENLIST™ corn seeds in the U.S. and Canada for
the 2018 growing season.
Crop Protection volume increased on higher demand for herbicides
and insecticides, which more than offset lower demand for
fungicides. The business also benefited from the ENLIST™ cotton
seeds launch through the increased, accompanying sales of ENLIST
DUO® herbicide. The business reported robust growth for its new
crop protection chemicals and formulations: sales of ARYLEX™
broadleaf herbicide nearly doubled year-over-year; ISOCLAST™
insecticide resumed its momentum in the marketplace after achieving
key regulatory milestones; and new corn herbicide formulations
gained traction in North America. Dow continues to see soft demand
for rice herbicides in China on generic pressure and high channel
inventories.
Operating EBITDA was $326 million, up from $232 million in the
year-ago period, driven by robust demand for the business’s novel
Seeds and Crop Protection technologies and benefits from lower
operating costs primarily driven by productivity actions.
Equity losses for the segment were $7 million, compared to
equity losses of $11 million in the year-ago period.
Consumer Solutions
Consumer Solutions reported second quarter sales of $1.7
billion, up from $1.3 billion in the year-ago period, with gains in
all businesses. The segment reported sales growth of 32 percent,
primarily driven by the contribution of Consumer Solutions –
Silicones. Excluding acquisitions, sales rose 8 percent with gains
in all businesses and geographic areas. Volume grew 9 percent, with
gains in all businesses and double-digit growth in Asia Pacific and
Latin America, more than offsetting a 1 percent price decline due
to currency headwinds.
Dow Automotive Systems delivered volume growth led by
double-digit gains in Asia Pacific and Latin America, partly offset
by a decline in the United States on softening industry production.
Despite flat year-over-year light vehicle production globally, the
business continued to grow well above the market due to sustained
momentum for its innovative adhesives platform that benefits from
trends favoring vehicle light-weighting to meet rising global fleet
fuel economy standards and enhanced crash durability. Consumer Care
delivered volume growth in all geographic areas, as well as
double-digit gains in pharmaceutical and food applications that
were driven by share gains and new business wins. Dow Electronic
Materials reported double-digit volume growth in all geographic
areas except Latin America, led by robust demand in semiconductor,
organic light emitting diode (OLED) and printed circuit board
applications. The business captured new wins across all of its
technology platforms, which helped extend its above-market
growth.
Operating EBITDA rose to a quarterly record of $541 million, up
from $341 million in the year-ago period. This result
represented the eighth consecutive quarter of year-over-year
operating EBITDA growth. The year-over-year increase reflected the
contribution from Consumer Solutions – Silicones, new commercial
wins, market share gains, and a one-time gain related to the sale
of the Company’s share in a non-core joint venture in Dow
Electronic Materials.
Equity earnings for the segment were $15 million, down from $18
million in the year-ago period.
Infrastructure Solutions
Infrastructure Solutions reported second quarter sales of $2.8
billion, up from $2.1 billion in the year-ago period, with gains in
all businesses. The segment reported sales growth of 34 percent,
driven by the contribution of Infrastructure Solutions – Silicones.
Excluding acquisitions, sales rose 7 percent with gains in all
businesses and all geographic areas, except Latin America which was
flat. Volume grew 3 percent, with gains in most businesses, and
price increased 4 percent, with gains across all geographic
areas.
Dow Building & Construction delivered modest volume growth
driven by demand for methyl cellulosics and acrylics-based
construction chemicals. Energy & Water Solutions captured
strong volume growth led by reverse osmosis membranes and higher
demand from the energy sector, particularly exploration and
production and microbial control applications. Dow Coating
Materials reported higher sales, as price increases gained traction
in most geographic areas, partly offset by a modest decline in
volume due to a delay in peak season activity in the northern
hemisphere that extended some demand into the third quarter.
Performance Monomers reported strong price and volume growth,
driven by opportunistic merchant sales of acrylates and
methacrylates.
Operating EBITDA increased to $556 million, up from $432 million
in the year-ago period. The year-over-year increase reflected the
contribution from Infrastructure Solutions – Silicones and volume
growth. These improvements more than offset margin compression, as
pricing initiatives lagged raw material cost increases,
particularly for styrene-based products in Dow Building &
Construction and Energy & Water Solutions.
Equity earnings for the segment were $28 million, compared to
$45 million in the year-ago period, reflecting the ownership
restructure of Dow Corning.
Performance Materials & Chemicals
Performance Materials & Chemicals reported second quarter
sales of $2.6 billion, up from $2.3 billion in the year-ago
period. The segment reported sales growth of 13 percent with
gains in all geographic areas. Price rose 10 percent and
volume grew 3 percent.
Polyurethanes sales grew double-digits with gains in all
geographic areas. The business reported strong demand and price
increases in downstream, higher-margin systems applications, as
well as higher merchant sales of methylene diphenyl diisocyanate
where short-term industry supply/demand fundamentals remained
tight. Industrial Solutions sales increased in all geographic areas
on continued demand into lubricants, crop defense and electronics
processing applications, as well as ethylene oxide (EO) catalyst
sales in Asia Pacific. Chlor-Alkali and Vinyl sales increased, led
by double-digit gains in caustic soda and vinyl chloride monomer
(VCM) in EMEAI resulting from tighter supply/demand fundamentals
that offset lower VCM volume in North America due to planned
maintenance activities at a supplier.
Operating EBITDA was $347 million, up from $295 million in the
year-ago period, as pricing momentum and broad-based demand growth
more than offset the impact of higher raw material costs.
Equity losses for the segment were $13 million, compared to a
loss of $12 million in the same quarter last year, as higher
earnings from the Kuwait joint ventures were more than offset by
lower earnings from Map Ta Phut Olefins joint venture and greater
losses from Sadara due to increased commissioning and startup
activities.
Performance Plastics
Performance Plastics reported second quarter sales of $5.1
billion, up from $4.7 billion in the year-ago period. The segment
reported sales growth of 8 percent, achieving its fourth
consecutive quarter of year-over-year sales growth. Price rose 7
percent, primarily on higher co-product values, and volume grew 1
percent.
Dow Packaging and Specialty Plastics delivered volume growth on
gains in most geographic areas, led by double-digit increases in
EMEAI and Asia Pacific. Volumes from the new facilities in the
Sadara joint venture supplemented Dow production to meet demand
growth in emerging geographies. Volume grew in most end-markets as
well, highlighted by food and specialty packaging and industrial
and consumer packaging. Dow Elastomers achieved volume gains in
most geographic areas, led by a double-digit increase in EMEAI on
demand growth in automotive and infrastructure applications. Dow
Electrical and Telecommunications volume declined as the business
was impacted by extended turnaround activity.
Operating EBITDA for the segment was $1.1 billion, down from a
second quarter record of $1.2 billion in the year-ago period,
consistent with the Company’s previously stated modeling guidance.
Price gains were more than offset by commissioning and startup
costs associated with the new ethylene unit and derivative
facilities in the United States, increased feedstock and energy
costs and planned maintenance activity.
Equity earnings for the segment were $33 million, down from $45
million in the same quarter last year as reduced Sadara losses were
more than offset by lower contributions from the Company’s joint
ventures in Thailand.
Outlook
Commenting on the Company’s outlook, Liveris said:
“Global economic activity is increasing, with notable strength
in manufacturing, investment and trade. Robust growth fundamentals
continue to fuel expansion in the U.S., led by the strength of the
consumer. Europe’s improvement is expected to remain on a steady
path. Latin America is stabilizing with particular upside from its
agriculture sector, and Brazil is showing early signs of recovery
from a prolonged recession, though political uncertainty persists.
China and India continue to establish themselves as consumption
economies, underpinned by fiscal stimulus and infrastructure
investments, which are driving domestic growth.
“Dow remains well-positioned to capture consumer-led demand and
deliver superior solutions to customers around the world through
our narrower and deeper end-market focus, industry-leading
innovation and broad geographic reach. Our track record of
disciplined execution and outperformance these last several years
underscores the resilience, agility and value creation power of our
business model.
“Looking forward, our team remains focused and disciplined, with
a sharp execution mindset on the successful close of our merger
with DuPont, rapid achievement of the synergies and realizing the
value-creation of the intended companies, as well as a strong focus
on delivering the materials science company, with a portfolio that
will be unrivaled versus its peer group. Going into the merger
close, Dow is coming from a position of incredible strength, with a
proven track record of success. We have the right strategy, the
right long-term growth drivers and the right portfolio. Dow has
never been better positioned to continue delivering for our
customers, employees, communities and shareholders.”
Dow will host a live webcast of its second quarter earnings
conference call with investors to discuss its results, business
outlook and other matters today at 9:00 a.m. ET on www.dow.com.
(1) Operating earnings per share is defined as earnings per
share excluding the impact of “Certain Items.” See Supplemental
Information at the end of the release for a description of these
items, as well as a reconciliation of ‘Earnings per common share –
diluted” to “Operating earnings per common share – diluted.” (2)
EBITDA is defined as earnings (i.e., “Net Income”) before interest,
income taxes, depreciation and amortization. Operating EBITDA is
defined as EBITDA excluding the impact of “Certain Items.” A
reconciliation of "Net Income Available for The Dow Chemical
Company Common Stockholders" to “Operating EBITDA” is provided
following the Operating Segments table. (3) Prior year cash flow
changed due to implementation of Accounting Standards Update
2016-09 and applied retrospectively. (4) Working capital efficiency
is defined as the combination of days sales outstanding (DSO) and
days sales in inventory (DSI). (5) “Adjusted Sales” is defined as
“Net Sales” adjusted for acquisitions.
™Trademark of The Dow Chemical Company
(“Dow”) or an affiliated company of Dow.
About Dow
Dow (NYSE: DOW) combines the power of science and technology to
passionately innovate what is essential to human progress. The
Company is driving innovations that extract value from material,
polymer, chemical and biological science to help address many of
the world's most challenging problems, such as the need for fresh
food, safer and more sustainable transportation, clean water,
energy efficiency, more durable infrastructure, and increasing
agricultural productivity. Dow's integrated, market-driven
portfolio delivers a broad range of technology-based products and
solutions to customers in 175 countries and in high-growth sectors
such as packaging, infrastructure, transportation, consumer care,
electronics, and agriculture. In 2016, Dow had annual sales of $48
billion and employed approximately 56,000 people worldwide. The
Company's more than 7,000 product families are manufactured at 189
sites in 34 countries across the globe. References to "Dow" or the
"Company" mean The Dow Chemical Company and its consolidated
subsidiaries unless otherwise expressly noted. More information
about Dow can be found at www.dow.com.
Use of non-GAAP measures: Dow’s management believes that
measures of income excluding certain items (“non-GAAP” measures)
provide relevant and meaningful information to investors about the
ongoing operating results of the Company. Such measurements are not
recognized in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) and should not be
viewed as an alternative to GAAP measures of performance.
Reconciliations of non-GAAP measures to GAAP measures are provided
in the Supplemental Information tables.
Note: The forward looking statements contained in this document
involve risks and uncertainties that may affect Dow’s operations,
markets, products, services, prices and other factors as discussed
in filings with the Securities and Exchange Commission (“SEC”).
These risks and uncertainties include, but are not limited to,
economic, competitive, legal, governmental and technological
factors. Accordingly, there is no assurance that Dow’s expectations
will be realized. The Company assumes no obligation to provide
revisions to any forward-looking statements should circumstances
change, except as otherwise required by securities and other
applicable laws.
Financial Statements (Note A) The Dow
Chemical Company and Subsidiaries Consolidated Statements of
Income Three Months Ended
Six Months Ended In millions, except per share amounts (Unaudited)
Jun 30, 2017 Jun 30, 2016 Jun
30, 2017 Jun 30, 2016 Net Sales $ 13,834
$ 11,952 $ 27,064
$ 22,655 Cost of sales (Note B) 10,764 9,275 20,961
17,226 Research and development expenses 405 399 821 760 Selling,
general and administrative expenses (Note C) 855 787 1,722 1,529
Amortization of intangibles 157 122 312 225 Restructuring charges
(credits) (Note D) (12 ) 454 (13 ) 452 Equity in earnings of
nonconsolidated affiliates (Note E) 54 82 250 121 Sundry income
(expense) - net (Note F) 299 2,550 (171 ) 1,309 Interest income 22
18 47 38 Interest expense and amortization of debt discount
226 208 445
409 Income Before Income Taxes 1,814
3,357 2,942 3,522 Provision for
income taxes (Note G) 455 130
668 20 Net Income 1,359
3,227 2,274 3,502
Net income attributable to noncontrolling interests
38 19 65 40 Net
Income Attributable to The Dow Chemical Company 1,321
3,208 2,209 3,462
Preferred stock dividends — 85
— 170 Net Income Available for The Dow
Chemical Company Common Stockholders $ 1,321
$ 3,123 $ 2,209 $ 3,292
Per Common Share Data: Earnings per common share -
basic $ 1.08 $ 2.79 $ 1.82 $ 2.96 Earnings per common share -
diluted $ 1.07 $ 2.61
$ 1.79 $ 2.83
Dividends declared
per share of common stock $ 0.46 $ 0.46 $ 0.92 $ 0.92
Weighted-average common shares outstanding - basic 1,211.8 1,111.1
1,207.2 1,107.0 Weighted-average common shares outstanding -
diluted (Note H) 1,229.0 1,222.8
1,225.5 1,218.5
Depreciation $ 534 $ 511 $ 1,112 $ 967 Capital Expenditures
$ 795 $ 997 $ 1,549
$ 1,817
Notes to the Consolidated Financial Statements:
Note A: The unaudited interim consolidated financial
statements reflect all adjustments which, in the opinion of
management, are considered necessary for a fair presentation of the
results for the periods covered. These statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2016. Except as otherwise
indicated by the context, the terms "Company" and "Dow" as used
herein mean The Dow Chemical Company and its consolidated
subsidiaries.
Note B: In the second quarter of 2017, the Company
recognized pretax charges of $19 million for costs associated
with transactions and productivity actions ($23 million in the
first quarter of 2017). In the second quarter of 2016, the Company
recognized pretax charges of $34 million for costs associated
with transactions and productivity actions ($23 million in the
first quarter of 2016) and a pretax loss of $105 million
associated with the fair value step-up in inventories assumed in
the Dow Corning Corporation ("Dow Corning") ownership
restructure.
Note C: In the second quarter of 2017, the Company
recognized pretax charges of $139 million for costs associated
with transactions and productivity actions ($112 million in
the first quarter of 2017). In the second quarter of 2016, the
Company recognized pretax charges of $73 million for costs
associated with transactions and productivity actions ($42 million
in the first quarter of 2016).
Note D: On June 27, 2016, the Board of Directors of the
Company approved a restructuring plan that incorporates actions
related to the ownership restructure of Dow Corning. These actions,
aligned with Dow’s value growth and synergy targets, will result in
a global workforce reduction of approximately 2,500 positions, with
most of these positions resulting from synergies related to the Dow
Corning transaction. As a result, the Company recorded pretax
restructuring charges of $449 million in the second quarter of 2016
consisting of severance charges of $268 million, asset write-downs
and write-offs of $153 million and costs associated with exit and
disposal activities of $28 million. In the second quarter of 2017,
the Company recorded a pretax gain of $3 million related to
adjustments to the Company's 2016 restructuring program.
In the second quarter of 2017, the Company recorded a pretax
gain of $9 million related to adjustments to the Company's 2015
restructuring program (a pretax charge of $5 million related to
adjustments in the second quarter of 2016).
Note E: In the second quarter of 2016, the Company
recognized a pretax loss of $22 million related to a loss on
the early redemption of debt incurred by Dow Corning.
Note F: In the second quarter of 2017, the Company
recorded a pretax gain of $137 million related to a patent
infringement award against Nova Chemicals Corporation and a pretax
gain of $7 million related to post-closing adjustments on the
Company's 2015 split-off of the chlorine value chain (pretax gain
adjustments of $6 million were recorded in the second quarter of
2016). In the first quarter of 2017, the Company recognized a
pretax charge of $469 million related to the Bayer CropScience
arbitration matter. In the second quarter of 2016, the Company
recognized a pretax gain of $2,445 million gain (after-tax gain of
$2,586 million) on the Dow Corning ownership restructure. In
the first quarter of 2016, the Company recognized a pretax loss of
$1,235 million related to the settlement of the urethane matters
class action lawsuit and opt-out cases.
Note G: In the second quarter of 2016, the Company
recognized a tax charge of $57 million for the adjustment of
an uncertain tax position associated with a historical change in
the legal ownership structure of a nonconsolidated affiliate.
Note H: On December 30, 2016, the Company converted its
outstanding shares of Cumulative Convertible Perpetual Preferred
Stock, Series A ("Preferred Stock") into shares of the Company's
common stock. As a result of this conversion, no shares of
Preferred Stock are issued or outstanding.
"Earnings per common share - diluted" for the three- and
six-month periods ended June 30, 2016, assumes the conversion of
the Preferred Stock into potential shares of the Company's common
stock due to the net income reported for the three- and six-month
periods, which includes the after-tax gain on the Dow Corning
ownership restructure. In accordance with U.S. GAAP,
"Weighted-average common shares outstanding - diluted" increased by
96.8 million shares and "Net Income Attributable to The Dow
Chemical Company" was used in the calculation of "Earning per
common share - diluted" for the three- and six-month periods ended
June 30, 2016. See Supplemental Information for further
details.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets In millions (Unaudited)
Jun 30, 2017 Dec 31, 2016
Assets
Current Assets Cash and cash
equivalents (variable interest entities restricted - 2017: $87;
2016: $75) $ 6,218 $ 6,607 Accounts and notes receivable: Trade
(net of allowance for doubtful receivables - 2017: $123; 2016:
$110) 5,307 4,666 Other 5,557 4,358 Inventories 8,163 7,363 Other
current assets 690 665
Total current assets 25,935
23,659 Investments Investment in nonconsolidated affiliates
3,665 3,747 Other investments (investments carried at fair value -
2017: $1,999; 2016: $1,959) 2,985 2,969 Noncurrent receivables
755 708 Total investments
7,405 7,424 Property
Property 59,573 57,438 Less accumulated depreciation
35,457 33,952 Net property (variable
interest entities restricted - 2017: $942; 2016: $961)
24,116 23,486 Other Assets
Goodwill 15,439 15,272 Other intangible assets (net of accumulated
amortization - 2017: $4,708; 2016: $4,295) 5,812 6,026 Deferred
income tax assets 2,922 3,079 Deferred charges and other assets
618 565 Total other
assets 24,791 24,942
Total Assets $ 82,247 $ 79,511
Liabilities and Equity Current Liabilities Notes
payable $ 480 $ 272 Long-term debt due within one year 955 635
Accounts payable: Trade 4,623 4,519 Other 3,113 2,401 Income taxes
payable 531 600 Dividends payable 559 508 Accrued and other current
liabilities 3,168 3,669
Total current liabilities 13,429
12,604 Long-Term Debt (variable interest entities
nonrecourse - 2017: $306; 2016: $330) 20,072
20,456 Other Noncurrent Liabilities Deferred
income tax liabilities 916 923 Pension and other postretirement
benefits - noncurrent 11,195 11,375 Asbestos-related liabilities -
noncurrent 1,301 1,364 Other noncurrent obligations
5,745 5,560 Total other noncurrent
liabilities 19,157 19,222
Stockholders’ Equity Common stock 3,107 3,107 Additional paid-in
capital 4,202 4,262 Retained earnings 31,417 30,338 Accumulated
other comprehensive loss (9,074 ) (9,822 ) Unearned ESOP shares
(198 ) (239 ) Treasury stock at cost (1,033 )
(1,659 ) The Dow Chemical Company’s stockholders’ equity
28,421 25,987
Noncontrolling interests 1,168
1,242 Total equity 29,589
27,229 Total Liabilities and Equity $ 82,247
$ 79,511
See Notes to the Consolidated Financial
Statements.
The Dow Chemical Company and Subsidiaries
Operating Segments Three Months Ended
Six Months Ended In millions (Unaudited)
Jun 30, 2017 Jun 30, 2016 Jun 30, 2017
Jun 30, 2016 Sales by segment Agricultural
Sciences $ 1,629 $ 1,577 $ 3,197 $ 3,223 Consumer Solutions 1,676
1,265 3,275 2,319 Infrastructure Solutions 2,789 2,085 5,314 3,679
Performance Materials & Chemicals 2,566 2,264 5,008 4,445
Performance Plastics 5,079 4,694 10,104 8,859 Corporate
95 67 166
130 Total $ 13,834 $ 11,952
$ 27,064 $ 22,655 EBITDA
by segment Agricultural Sciences $ 326 $ 228 $ 208 $ 631 Consumer
Solutions 541 1,575 1,041 1,885 Infrastructure Solutions 559 1,390
1,070 1,683 Performance Materials & Chemicals 347 301 782 (599
) Performance Plastics 1,199 1,237 2,183 2,228 Corporate
(215 ) (504 ) (427 ) (648 )
Total $ 2,757 $ 4,227
$ 4,857 $ 5,180 Certain items impacting
EBITDA by segment (1) Agricultural Sciences $ — $ (4 ) $ (469 ) $
(4 ) Consumer Solutions — 1,234 — 1,234 Infrastructure Solutions 3
958 3 958 Performance Materials & Chemicals — 6 — (1,229 )
Performance Plastics 137 (10 ) 137 (10 ) Corporate
(142 ) (421 ) (277 ) (486 ) Total
$ (2 ) $ 1,763 $ (606 )
$ 463 Operating EBITDA by segment (2) Agricultural
Sciences $ 326 $ 232 $ 677 $ 635 Consumer Solutions 541 341 1,041
651 Infrastructure Solutions 556 432 1,067 725 Performance
Materials & Chemicals 347 295 782 630 Performance Plastics
1,062 1,247 2,046 2,238 Corporate (73 ) (83 )
(150 ) (162 ) Total $ 2,759
$ 2,464 $ 5,463 $
4,717
Continued
The Dow Chemical Company and Subsidiaries
Operating Segments (Continued) Three
Months Ended Six Months Ended In millions (Unaudited)
Jun 30, 2017 Jun 30, 2016 Jun
30, 2017 Jun 30, 2016 Equity in earnings (losses) of
nonconsolidated affiliates by segment (included in EBITDA)
Agricultural Sciences $ (7 ) $ (11 ) $ (8 ) $ (4 )
Consumer Solutions 15 18 55 38 Infrastructure Solutions 28 45 83 96
Performance Materials & Chemicals (13 ) (12 ) 60 (43 )
Performance Plastics 33 45 66 44 Corporate (2 )
(3 ) (6 ) (10 ) Total $
54 $ 82 $ 250 $
121 (1) See Supplemental Information for a
description of certain items affecting results in 2017 and 2016.
(2) The Company uses Operating EBITDA as its measure of profit/loss
for segment reporting purposes. The Company defines Operating
EBITDA as EBITDA (which Dow defines as earnings (i.e., "Net
Income") before interest, income taxes, depreciation and
amortization) excluding the impact of certain items. Operating
EBITDA by segment includes all operating items relating to the
businesses, except depreciation and amortization; items that
principally apply to the Company as a whole are assigned to
Corporate. A reconciliation of "Net Income Available for The Dow
Chemical Company Common Stockholders" to Operating EBITDA is
provided below.
Reconciliation of "Net Income Available
for The Dow Chemical Company Common Stockholders" to Operating
EBITDA Three Months Ended Six
Months Ended In millions (Unaudited) Jun 30, 2017
Jun 30, 2016 Jun 30, 2017 Jun 30, 2016
Net Income Available for The Dow Chemical Company Common
Stockholders $ 1,321 $ 3,123 $ 2,209 $ 3,292 +
Preferred stock dividends — 85 — 170 + Net income attributable to
noncontrolling interests 38 19 65 40 + Provision for income taxes
455 130 668
20 Income Before Income Taxes $ 1,814
$ 3,357 $ 2,942 $ 3,522 +
Interest expense and amortization of debt discount 226 208 445 409
- Interest income 22 18 47 38 + Depreciation and amortization
739 680 1,517
1,287 EBITDA $ 2,757 $
4,227 $ 4,857 $ 5,180 - Certain
items (2 ) 1,763 (606 )
463 Operating EBITDA $ 2,759 $
2,464 $ 5,463 $ 4,717
Sales by Geographic Area
Three Months Ended Six Months
Ended In millions (Unaudited) Jun 30, 2017 Jun
30, 2016 Jun 30, 2017 Jun 30, 2016 North
America $ 5,265 $ 4,630 $ 10,503 $ 8,799 Europe,
Middle East, Africa and India 4,385 3,730 8,626 7,254 Asia Pacific
2,645 2,152 5,060 3,944 Latin America 1,539
1,440 2,875 2,658 Total
$ 13,834 $ 11,952
$ 27,064 $ 22,655
The Dow Chemical Company
and Subsidiaries Sales Volume and Price by Segment and
Geographic Area Three Months Ended
Six Months Ended Jun 30, 2017 Jun 30, 2017 Percentage change
from prior year Volume Price Total
Volume Price Total Agricultural
Sciences 6 % (3 )% 3 % 1 % (2 )% (1 )%
Consumer Solutions 33 (1 ) 32 42 (1 ) 41 Infrastructure Solutions
30 4 34 41 3 44 Performance Materials & Chemicals 3 10 13 5 8
13 Performance Plastics 1 7
8 3 11 14
Total 11 % 5 % 16 %
13 % 6 % 19 % North America 8 % 6 % 14 % 12 %
7 % 19 % Europe, Middle East, Africa and India 11 6 17 12 7 19 Asia
Pacific 21 2 23 26 2 28 Latin America 4
3 7 5 3
8 Developed geographies 10 % 6 % 16 % 13 % 7 % 20 %
Emerging geographies (1) 13 3
16 15 3 18
Sales Volume and Price by Segment and Geographic
Area,
Excluding Acquisitions(2)
Three Months Ended Six Months
Ended Jun 30, 2017 Jun 30, 2017 Percentage change from prior year
Volume Price Total Volume
Price Total Agricultural Sciences 6 % (3 )%
3 % 1 % (2 )% (1 )% Consumer Solutions 9 (1 )
8 8 (1 ) 7 Infrastructure Solutions 3 4 7 4 3 7 Performance
Materials & Chemicals 3 10 13 5 8 13 Performance Plastics
1 7 8
3 11 14 Total
3 % 5 % 8 % 4 % 6 %
10 % North America 2 % 5 % 7 % 4 % 7 % 11 % Europe, Middle
East, Africa and India 6 6 12 5 7 12 Asia Pacific 6 2 8 6 2 8 Latin
America 1 3 4
1 3 4 Developed
geographies 3 % 6 % 9 % 4 % 7 % 11 % Emerging geographies (1)
5 3 8
4 3 7 (1) Emerging
geographies includes Eastern Europe, Middle East, Africa, India,
Latin America and Asia Pacific excluding Australia, Japan and New
Zealand. (2) Excludes current period sales from January 1, 2017
through May 31, 2017 related to the ownership restructure of Dow
Corning announced on June 1, 2016 (Consumer Solutions and
Infrastructure Solutions).
Supplemental Information
Description of Certain Items Affecting Results
The following tables summarize the impact
of certain items recorded in the three- and six-month periods ended
June 30, 2017 and June 30, 2016:
Certain Items Impacting Results
Pretax Impact (1) Net Income (2)
EPS - Diluted (3) (4) Three Months Ended Three Months
Ended Three Months Ended In millions, except per share amounts
(Unaudited) Jun 30, 2017 Jun 30, 2016
Jun 30, 2017 Jun 30, 2016 Jun 30, 2017
Jun 30, 2016 Reported U.S. GAAP Amounts (5) (6) $
1,321 $ 3,123 $ 1.07 $ 2.61 - Certain items:
Restructuring charges and adjustments $ 12 $ (454 ) 8 (308 ) 0.01
(0.27 ) Impact of Dow Corning ownership restructure — 2,318 — 2,494
— 2.20 Nova patent infringement award 137 — 90 — 0.07 — Bayer
CropScience arbitration matter — — (10 ) — (0.01 ) — Gain
adjustment on split-off of chlorine value chain 7 6 5 6 — 0.01
Costs associated with transactions and productivity actions (158 )
(107 ) (105 ) (87 ) (0.08 ) (0.08 ) Uncertain tax position
adjustment — — —
(57 ) — (0.05 ) Total
certain items $ (2 ) $ 1,763
$ (12 ) $ 2,048 $ (0.01 )
$ 1.81 + Dilutive effect of assumed preferred stock
conversion into shares of common stock
N/A
$ 0.15 = Operating Results (Non-GAAP)
$ 1,333 $ 1,075
$ 1.08 $ 0.95
Certain Items
Impacting Results Pretax Impact (1)
Net Income (2) EPS - Diluted (3)
(4) Six Months Ended Six Months Ended Six Months Ended In
millions, except per share amounts (Unaudited) Jun
30, 2017 Jun 30, 2016 Jun 30, 2017 Jun
30, 2016 Jun 30, 2017 Jun 30, 2016 Reported
U.S. GAAP Amounts (5) (6) $ 2,209 $ 3,292 $ 1.79
$ 2.83 - Certain items: Restructuring charges and
adjustments $ 12 $ (454 ) 8 (308 ) 0.01 (0.27 ) Impact of Dow
Corning ownership restructure — 2,318 — 2,494 — 2.20 Nova patent
infringement award 137 — 90 — 0.07 — Bayer CropScience arbitration
matter (469 ) — (305 ) — (0.25 ) — Urethane matters legal
settlements — (1,235 ) — (778 ) — (0.70 ) Gain adjustment on
split-off of chlorine value chain 7 6 5 6 — 0.01 Costs associated
with transactions and productivity actions (293 ) (172 ) (196 )
(133 ) (0.16 ) (0.12 ) Uncertain tax position adjustment
— — — (57 )
— (0.05 ) Total certain items
$ (606 ) $ 463 $ (398 ) $
1,224 $ (0.33 ) $ 1.07 +
Dilutive effect of assumed preferred stock conversion into shares
of common stock
N/A $ 0.09 =
Operating Results (Non-GAAP)
$ 2,607 $ 2,068 $
2.12 $ 1.85 (1) Impact on "Income
Before Income Taxes." (2) "Net Income Available for The Dow
Chemical Company Common Stockholders." The income tax effect for
each certain item was calculated based on the statutory tax rate
for the jurisdiction(s) in which the certain item was taxable or
deductible. (3) "Earnings per common share - diluted." (4) For the
three- and six-month periods ended June 30, 2016, an assumed
conversion of the Company's Cumulative Convertible Perpetual
Preferred Stock, Series A ("Preferred Stock") into shares of the
Company's common stock was excluded from the calculation of
"Operating earnings per common share - diluted" (Non-GAAP) as well
as the earnings per share impact of certain items because the
effect of including them would have been antidilutive. On December
30, 2016, the Company converted its outstanding shares of Preferred
Stock into shares of the Company's common stock. As a result of
this conversion, no shares of Preferred Stock are issued or
outstanding. (5) For the three- and six-month periods ended June
30, 2016, an assumed conversion of the Company's Preferred Stock
into shares of the Company's common stock was included in the
calculation of "Earnings per common share - diluted" (GAAP). (6)
The Company used "Net Income Attributable to The Dow Chemical
Company" when calculating "Earnings per common share- diluted"
(GAAP) for the three- and six-month periods ended June 30, 2016, as
it excludes quarterly preferred dividends of $85 million.
The following table presents U.S. GAAP and
Non-GAAP share counts for the three- and six-month periods ended
June 30, 2017 and June 30, 2016.
Share counts Three Months Ended
Six Months Ended
In millions
Jun 30, 2017
Jun 30, 2016
Jun 30, 2017
Jun 30, 2016
Weighted-average common shares outstanding - basic (U.S.
GAAP) 1,211.8 1,111.1 1,207.2 1,107.0
Plus: dilutive effect of options and awards (U.S. GAAP) 17.2 14.9
18.3 14.7 Plus: common shares from assumed conversion of preferred
stock (U.S. GAAP) (1) N/A 96.8
N/A 96.8
Weighted-average
common shares outstanding - diluted (U.S. GAAP)
1,229.0 1,222.8 1,225.5
1,218.5 Less: common shares from assumed conversion
of preferred stock (Non-GAAP) (1) (2) N/A
(96.8 ) N/A (96.8 )
Weighted-average common shares outstanding - diluted
(Non-GAAP) 1,229.0 1,126.0
1,225.5 1,121.7 (1) On
December 30, 2016, the Company converted its outstanding shares of
Preferred Stock into shares of the Company's common stock. As a
result of this conversion, no shares of Preferred Stock are issued
or outstanding. (2) For the three- and six-month periods ended June
30, 2016, the assumed conversion of Preferred Stock into shares of
the Company's common stock was excluded from the calculation of
"Operating earnings per common share - diluted" (Non-GAAP) because
the effect of including them would have been antidilutive.
Results in the second quarter of 2017 were impacted by the
following items:
- Pretax gains of $3 million related to
adjustments to the Company's 2016 restructuring program and $9
million related to adjustments to the Company's 2015 restructuring
program, included in "Restructuring charges (credits)" in the
consolidated statements of income and reflected in Infrastructure
Solutions ($3 million) and Corporate ($9 million).
- In the second quarter of 2017, a
federal court in Canada found that Nova Chemicals Corporation
infringed on certain patent rights of Dow. As a result, the Company
recorded a pretax gain of $137 million, included in "Sundry income
(expense) - net" in the consolidated statements of income and
reflected in the Performance Plastics segment.
- A pretax gain of $7 million
related to post-closing adjustments on the 2015 split-off of the
Company's chlorine value chain, included in "Sundry income
(expense) - net" in the consolidated statements of income and
reflected in Corporate.
- Pretax charges of $158 million for
costs associated with transactions and productivity actions,
primarily financial, legal and professional advisory fees,
including costs associated with the planned all-stock merger of
equals with E.I. du Pont de Nemours and Company ("DuPont"),
implementation costs associated with the ownership restructure of
Dow Corning, implementation costs associated with the Company's
restructuring programs and other productivity actions
(collectively, "Costs associated with transactions and productivity
actions"). The charges were included in "Cost of sales"
($19 million) and "Selling, general and administrative
expenses" ($139 million) in the consolidated statements of
income and reflected in Corporate.
- A tax charge of $10 million related to
an adjustment of the income tax effect on the Bayer CropScience
arbitration matter.
Results in the second quarter of 2016 were impacted by the
following items:
- Pretax restructuring charges of $449
million. On June 27, 2016, the Board of Directors of the Company
approved a restructuring plan that incorporates actions related to
the ownership restructure of Dow Corning. These actions, aligned
with Dow’s value growth and synergy targets, will result in a
global workforce reduction of approximately 2,500 positions, with
most of these positions resulting from synergies related to the Dow
Corning transaction. These actions are expected to be substantially
completed by June 30, 2018. As a result, the Company recorded
pretax restructuring charges of $449 million in the second
quarter of 2016 consisting of severance charges of $268 million,
asset write-downs and write-offs of $153 million and costs
associated with exit and disposal activities of $28 million.
The impact of these charges is shown as "Restructuring charges
(credits)" in the consolidated statements of income and reflected
in the Company's operating segments as follows: Consumer Solutions
($28 million), Infrastructure Solutions ($97 million),
Performance Plastics ($10 million) and Corporate ($314
million).
- Pretax charge of $5 million related to
adjustments to the Company's 2015 restructuring program, included
in "Restructuring charges (credits)" in the consolidated statements
of income and reflected in Agricultural Sciences ($4 million) and
Consumer Solutions ($1 million).
- Pretax gain of $2,318 million
(after-tax gain of $2,494 million) related to the ownership
restructure of Dow Corning, previously a 50:50 joint venture. The
pretax gain included a $2,445 million gain (after-tax gain of
$2,586 million) on the ownership restructure, included in
"Sundry income (expense) - net" and reflected in Consumer Solutions
($1,301 million) and Infrastructure Solutions ($1,144 million); a
pretax loss of $105 million for a one-time increase in "Cost of
sales" related to the fair value step-up of inventories assumed in
the ownership restructure, reflected in Consumer Solutions ($30
million) and Infrastructure Solutions ($75 million); and a pretax
loss of $22 million related to a loss on the early redemption
of debt incurred by Dow Corning, included in "Equity in earnings of
nonconsolidated affiliates" in the consolidated statements of
income and reflected in Consumer Solutions ($8 million) and
Infrastructure Solutions ($14 million).
- A pretax gain of $6 million
(after-tax gain of $6 million) related to post-closing
adjustments on the 2015 split-off of the Company's chlorine value
chain, included in "Sundry income (expense) - net" in the
consolidated statements of income and reflected in Performance
Materials & Chemicals.
- Pretax charges of $107 million for
costs associated with transactions and productivity actions,
primarily financial, legal and professional advisory fees,
including costs associated with the planned all-stock merger of
equals with DuPont, costs associated with the ownership restructure
of Dow Corning, implementation costs associated with the Company's
2015 Restructuring program, and other productivity actions
(collectively, "Costs associated with transactions and productivity
actions"). The charges are included in "Cost of sales" ($34
million) and "Selling, general and administrative expenses"
($73 million) in the consolidated statements of income and
reflected in Corporate.
- A tax charge of $57 million for
the adjustment of an uncertain tax position associated with a
historical change in the legal ownership structure of a
nonconsolidated affiliate.
Results in the first quarter of 2017 were impacted by the
following items:
- Pretax charge of $469 million related
to the Bayer CropScience arbitration matter. The pretax charge was
included in "Sundry income (expense) - net" in the consolidated
statements of income and reflected in Agricultural Sciences.
- Pretax charges of $135 million for
costs associated with transactions and productivity actions. The
charges were included in "Cost of sales" ($23 million) and
"Selling, general and administrative expenses" ($112 million)
in the consolidated statements of income and reflected in
Corporate.
Results in the first quarter of 2016 were impacted by the
following items:
- Pretax loss of $1,235 million related
to the Company's settlement of the urethane matters class action
lawsuit and the opt-out cases litigation. The pretax loss was
included in "Sundry income (expense) - net" in the consolidated
statements of income and reflected in Performance Materials &
Chemicals.
- Pretax charges of $65 million for costs
associated with transactions and productivity actions, included in
"Cost of sales" ($23 million) and "Selling, general and
administrative expenses" ($42 million) in the consolidated
statements of income and reflected in Corporate.
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version on businesswire.com: http://www.businesswire.com/news/home/20170727005624/en/
The Dow Chemical CompanyKyle Bandlow+1 989 638
2417kbandlow@dow.com
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