- Earnings Per Share Increases to $2.61,
or $0.95 on an Operating Basis
- Delivers Record 2Q EBITDA ($4.2B) and
Record 2Q Operating EBITDA ($2.5B)
- Highest 2Q EBITDA Margin (35%) and
Highest 2Q Operating EBITDA Margin (21%) in a Decade
- Cash Flow from Operations in 2Q Grows
to $2.2B – Up 58% Versus Year-Ago Period
The Dow Chemical Company (NYSE: DOW):
Second Quarter 2016 Highlights
- Dow reported earnings per share of
$2.61, or operating earnings per share of $0.95(1). This compares
with earnings per share of $0.97 in the year-ago period, or
operating earnings per share of $0.91. Certain Items in the quarter
primarily reflected a $2.20 per share gain related to the Dow
Corning ownership restructure and a $0.27 per share charge for
costs associated with the restructuring plan announced in the
quarter. The tax rate was impacted by Certain Items. Excluding
these, the tax rate was within the Company’s modeling
guidance.
- Sales were $12.0 billion, down 7
percent versus the year-ago period primarily driven by lower
hydrocarbons and raw material prices and the impact from the Dow
Chlorine Products divestiture.
- Volume grew 2 percent on a reported
basis and 4 percent excluding the impact of divestitures and
acquisitions, reflecting broad-based, consumer-driven demand with
gains across all geographic areas – Asia Pacific
(up 7 percent); Europe, Middle East, Africa and India
(EMEAI) (up 4 percent); Latin America
(up 4 percent); and North America (up 3
percent). Regional highlights included Greater China (up
7 percent), Europe (up 6 percent) and the United States
(up 4 percent).
- Operating EBITDA(2) increased to $2.5
billion, as gains in Infrastructure Solutions, Consumer Solutions
and Performance Plastics more than offset lower equity earnings
primarily driven by reduced earnings from the Kuwait joint ventures
as well as Sadara start-up expenses.
- Operating EBITDA margin(3) improved
year-over-year by 160 basis points to 21 percent – reflecting
disciplined margin management, portfolio actions that improved mix
toward value-add products and targeted growth markets, as well as
other self-help measures. Gains were achieved in Infrastructure
Solutions (up 710 basis points), Consumer Solutions (up 540
basis points) and Performance Plastics (up 230 basis points).
Agricultural Sciences declined 70 basis points. Performance
Materials & Chemicals (down 460 basis points) declined due
primarily to lower equity earnings and the impact of prior period
divestitures.
- Cash flow from operations grew to $2.2
billion in the quarter, up from $1.4 billion in the year-ago
period, driven by ongoing disciplined actions to manage working
capital as well as higher earnings.
- Dow’s focused self-help measures
delivered $90 million in productivity savings, bringing the first
half contribution to nearly $180 million, tracking well above the
2016 target of $300 million.
- The Company completed the ownership
restructure of Dow Corning Corporation’s Silicones business on June
1. At full synergy run rate of $500 million – a $100 million
increase from the initial target – the transaction is expected to
add greater than $1 billion of EBITDA. Dow expects the transaction
to be accretive to operating earnings per share, cash flow from
operations and free cash flow(4) in the first full year after
transaction close.
Comment
Andrew N. Liveris, Dow’s chairman and chief executive officer,
stated:
“Dow’s relentless and disciplined execution once again delivered
another quarter of operating earnings growth and margin expansion –
marking our fifteenth quarter in a row – through a variety of
challenging geopolitical and market conditions, and outpacing our
peers.
“Our unique combination of world-class innovation, diversified
integration and a narrower and deeper market focus enabled
operating earnings growth in every business in our Consumer
Solutions and Infrastructure Solutions segments, while the strength
of our Plastics franchises was again on display. In areas where
business conditions have been challenging, we continually implement
proactive self-help measures. An example is in our Agricultural
Sciences segment, where our actions have generated earnings
year-to-date that have outperformed the industry downturn. Another
example is our recent restructuring announcement, where we continue
to intervene to accelerate earnings growth under these volatile
market conditions.
“Equally important, our teams continued to achieve key
milestones with both the Dow Corning and DowDuPont transactions. We
closed the Dow Corning silicones transaction, increasing our
synergy target to $500 million, while bringing in a new element for
growth and a powerful technology platform that will further drive
Dow’s focus in attractive, targeted market sectors, as well as
enhance the earnings power of the new Dow – the world’s leading
material science company.
“And we recently received overwhelming approval for the historic
DowDuPont transaction from our shareholders, illustrating the
market’s recognition of this pivotal opportunity to deliver value
to all stakeholders, as we drive the intended separation into three
independent, leading science-based companies that will redefine
their respective industries.”
Three Months Ended June 30, June 30,
In millions, except per share amounts
2016 2015 Net Sales $11,952 $12,910
Adjusted Sales(5) $11,486 $12,212 Net Income Available for
Common Stockholders $3,123 $1,135 Net Income Available for Common
Stockholders,
Excluding Certain Items
$1,075 $1,064 Earnings per Common Share – Diluted $2.61
$0.97 Operating Earnings per Share $0.95
$0.91
Agricultural Sciences
Agricultural Sciences reported second quarter sales of $1.6
billion, down from $1.7 billion in the year-ago period. Sales were
impacted by low crop commodity prices, high industry inventories
and currency headwinds.
Crop Protection volume was lower primarily due to reduced demand
for generic herbicides and the AgroFresh divestiture, which more
than offset new product innovations, including continued adoption
of Spinetoram insecticide and Arylex™ herbicide. Seeds volume
declined as double-digit growth in corn was more than offset by
soft demand in sunflower and soybeans.
EBITDA for the segment declined to $228 million from $255
million in the year-ago period. Operating EBITDA was $232 million,
down from $269 million in the year-ago period, primarily reflecting
the impact of prior period divestitures. Excluding the impact of
these portfolio actions, year-to-date operating EBITDA was modestly
lower compared to the first-half of 2015, as benefits from
productivity improvements and proactive self-help mostly offset
challenging macros.
Equity losses for the segment were $11 million in the
quarter.
Consumer Solutions
Consumer Solutions delivered second quarter sales of $1.3
billion, up from $1.1 billion in the year-ago period, primarily on
the addition of the Consumer Solutions - Silicones business.
Volume increased 19 percent, primarily reflecting the addition
of Consumer Solutions – Silicones, starting in June. Excluding the
impact of the Dow Corning transaction, volume grew 4 percent, with
gains across all businesses. Dow Automotive Systems achieved
double-digit volume growth, continuing its trend of growing above
the rate of the global automotive end-market. The business also
achieved multiple new commercial wins across several geographic
areas, benefiting from its unique market participation strategy and
innovative product technologies, particularly in structural
adhesives. Consumer Care grew market share supported by new product
launches, contributing to a double-digit volume increase in
personal care applications and solid demand in home care market
sectors, which more than offset lower volume in the pharmaceutical
chain, driven by inventory de-stocking. Dow Electronic Materials
grew volume on new business wins and share gains in the
semiconductor and display sectors.
EBITDA increased to a record-level of $1.6 billion, primarily
due to the gain related to the Dow Corning ownership restructure.
Operating EBITDA rose to a quarterly record of $341 million, up
significantly from $236 million in the year-ago period, with
increases in all businesses enabled by new commercial wins, robust
demand for innovative products and market share gains. Notable
highlights included double-digit earnings growth in both Dow
Electronic Materials and Dow Automotive Systems.
Equity earnings for the segment were $18 million, compared to
$19 million in the year-ago period.
Infrastructure Solutions
Infrastructure Solutions reported second quarter sales of $2.1
billion, up from $2 billion in the year-ago period as a result of
the addition of the Infrastructure Solutions - Silicones business
which more than offset lower pricing in all other businesses.
Volume increased 12 percent, primarily reflecting the addition
of Infrastructure Solutions - Silicones, starting in June.
Excluding the impact of the Dow Corning transaction, volume
declined 2 percent. Dow Building & Construction delivered
volume growth in most geographies – led by double-digit gains in
EMEAI and Latin America – on strong demand for construction
chemicals, BLUEDGE™ licensing technology and spray foam insulation
applications. Energy & Water Solutions reported volume declines
due to soft demand in the US shale gas market. Dow Coating
Materials achieved volume increases – gaining share in most
geographic areas – led by double-digit growth in China and gains in
both the industrial and architectural market sectors. Performance
Monomers reported a volume decrease, primarily due to the
business’s strategic decision to reduce its merchant monomer
exposure.
EBITDA for the segment was $1.4 billion, primarily due to the
gain related to the Dow Corning ownership restructure. Operating
EBITDA for the segment increased to $432 million, up
significantly from $267 million in the year-ago period, with
growth in all businesses. Notable highlights included double-digit
earnings improvement in Dow Building & Construction and
Performance Monomers.
Equity earnings for the segment were $45 million, up from $35
million in the year-ago period.
Performance Materials & Chemicals
Performance Materials & Chemicals reported second quarter
sales of $2.3 billion, down from $3.2 billion in the year-ago
period, reflecting the impact of the split-off of Dow Chlorine
Products and pricing declines.
Volume was down 19 percent, reflecting the impact of the Dow
Chlorine Products transaction. Excluding divestitures, volume was
flat as double-digit gains in Asia Pacific were offset by declines
in North America and EMEAI. Polyurethanes delivered volume growth
led by double-digit increases in demand for downstream,
higher-margin system house applications, particularly in Asia
Pacific, where sustainable urbanization continues to drive consumer
demand, which more than offset lower volumes due to planned
turnaround activity. Industrial Solutions reported a modest volume
decline due to the expiration of a long-term supply arrangement and
reduced heat transfer fluid demand into solar applications, which
more than offset higher ethylene oxide licensing and catalyst
sales. Chlor-Alkali and Vinyl saw volume declines on lower
production due to a major planned turnaround at one of its European
facilities.
EBITDA was $301 million down from $572 million in the same
period last year. Operating EBITDA for the segment was $295
million, down from $572 million in the year-ago period, primarily
driven by the impact of lower equity earnings, reduced earnings due
to prior period divestitures and pricing pressures.
Equity losses for the segment were $12 million, down from equity
earnings of $122 million in the same quarter last year, on Sadara
start-up costs as well as reduced earnings from the Kuwait joint
ventures due to the change in ownership of the MEGlobal joint
venture and lower monoethylene glycol prices.
Performance Plastics
Performance Plastics reported second quarter sales of $4.7
billion, down from $4.8 billion in the year-ago period as volume
gains in all businesses and geographies were more than offset by
pricing headwinds, primarily in Hydrocarbons.
The segment reported volume growth of 12 percent. Excluding the
impact of acquisitions, volume grew 13 percent, with gains
across all businesses. Dow Packaging and Specialty Plastics
achieved a second quarter record sales volume on continued
operational excellence and demand, notably in emerging geographies.
Growth in the business was led by demand in industrial and consumer
packaging applications and the health and hygiene market sectors.
Dow Elastomers volume increases from strong demand for its
innovative technologies in automotive components, hot melt
adhesives and high-performance athletic footwear were balanced by
the impact to production from higher turnaround activity. Dow
Electrical and Telecommunications realized volume gains across all
geographies, led by double-digit growth in North America and Latin
America, on continued demand for fiber optics and coaxial and
jacketing solutions. The Hydrocarbons and Energy businesses
reported volume gains with growth in all geographic areas.
EBITDA for the segment was $1.2 billion down from $1.5 billion
in the year-ago period which benefited from the gain on the
Univation step acquisition. Operating EBITDA was $1.2 billion, up 7
percent, or $80 million, from same period last year, enabled by
Dow’s geographic breadth, differentiated product platforms, and
robust consumer-driven demand in packaging, transportation and
infrastructure.
Equity earnings for the segment were $45 million, down from
equity earnings of $101 million in the same quarter last year,
primarily due to Sadara start-up costs and a lower contribution
from EQUATE.
Outlook
Commenting on the Company’s outlook, Liveris said:
“The pace of economic growth remains uneven across the major
geographies. Consumption remains a key growth driver, wherever
growth exists. We continue to see healthy demand in North America,
led by the strength of the consumer. Measured recovery in Europe
continues, despite heightened geopolitical uncertainties. Latin
America is showing early signs of improvement from a low base. And
the rise of increasingly affluent consumers across Asia continues
to validate Dow’s strategic portfolio shift towards an enhanced
focus on consumer-driven products and solutions.
“Despite the varied economic landscape, we continue to see
favorable conditions and robust demand in our core consumer-led
markets of packaging, automotive and construction throughout the
world. We will increasingly capture value from these selected
market sectors through our differentiated products underpinned by
our geographic breadth, our integrated and diversified portfolio,
our global scale and our deep material science technology
platforms.
“Ongoing macroeconomic volatility demands a resolute focus. Our
resilient business portfolio, strategic investments and self-help
productivity actions, including our recently announced
restructuring program, position Dow well to continue delivering
through a variety of market conditions. Our teams remain squarely
focused on our priorities of delivering our near-term financial
commitments while also enabling our future with the Dow Corning and
DowDuPont transactions. As we have shown these last many years, we
will continue to maximize value for our customers and returns for
our shareholders in both the short- and long-term.”
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 operating earnings per share
to “Earnings per common share – diluted.” (2) EBITDA is defined as
earnings (i.e., “Net Income”) before interest, income taxes,
depreciation and amortization. A reconciliation of EBITDA to "Net
Income Available for The Dow Chemical Company Common Stockholders"
is provided following the Operating Segments table. Operating
EBITDA is defined as EBITDA excluding the impact of “Certain
Items.” (3) EBITDA margin is defined as EBITDA as a percentage of
reported net sales. Operating EBITDA margin is defined as operating
EBITDA as a percentage of reported net sales. (4) Free cash flow is
defined as cash flow from operations less capital expenditures. (5)
“Adjusted Sales” is defined as “Net Sales” adjusted for
divestitures and 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 clean
water, clean energy generation and conservation, and increasing
agricultural productivity. Dow’s integrated, market-driven,
industry-leading portfolio of specialty chemical, advanced
materials, agrosciences and plastics businesses delivers a broad
range of technology-based products and solutions to customers in
approximately 180 countries and in high-growth sectors such as
packaging, electronics, water, coatings and agriculture. In 2015,
Dow had annual sales of nearly $49 billion and employed
approximately 49,500 people worldwide. The Company’s more than
6,000 product families are manufactured at 179 sites in
35 countries across the globe. On June 1, 2016, Dow became the
100 percent owner of Dow Corning Corporation’s silicones business,
a global company with sales of greater than $4.5 billion in 2015,
25 manufacturing sites in 9 countries and approximately 10,000
employees worldwide. 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
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions, except per share amounts
(Unaudited)
2016
2015
2016
2015
Net Sales $ 11,952 $ 12,910
$ 22,655 $ 25,280 Cost of sales (Note
B) 9,275 10,146 17,226 19,681 Research and development expenses 399
429 760 812 Selling, general and administrative expenses (Note C)
787 773 1,529 1,525 Amortization of intangibles 122 109 225 211
Restructuring charges (Note D) 454 375 452 375 Equity in earnings
of nonconsolidated affiliates (Note E) 82 272 121 440 Sundry income
(expense) - net (Note F) 2,550 385 1,309 1,048 Interest income 18
11 38 28 Interest expense and amortization of debt discount
208 232 409
473 Income Before Income Taxes 3,357
1,514 3,522 3,719 Provision for
income taxes (Note G) 130 317
20 1,003 Net Income 3,227
1,197 3,502 2,716
Net income (loss) attributable to noncontrolling interests
19 (23 ) 40 18 Net
Income Attributable to The Dow Chemical Company 3,208
1,220 3,462 2,698
Preferred stock dividends 85 85
170 170 Net Income Available for The
Dow Chemical Company Common Stockholders $ 3,123
$ 1,135 $ 3,292 $
2,528
Per Common Share Data: Earnings per common
share - basic $ 2.79 $ 0.99 $ 2.96 $ 2.21 Earnings per common share
- diluted (Note H) $ 2.61 $ 0.97
$ 2.83 $ 2.15
Dividends
declared per share of common stock $ 0.46 $ 0.42 $ 0.92 $ 0.84
Weighted-average common shares outstanding - basic 1,111.1 1,138.1
1,107.0 1,136.9 Weighted-average common shares outstanding -
diluted (Note H) 1,222.8 1,249.4
1,218.5 1,248.0
Depreciation $ 511 $ 483 $ 967 $ 969 Capital Expenditures
$ 997 $ 998 $ 1,817
$ 1,901
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, 2015. 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 2016, the Company
recognized 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 and pretax charges of $34
million for costs associated with portfolio and productivity
actions. In the first quarter of 2016, the Company recognized $23
million in costs associated with portfolio and productivity
actions. In the second quarter of 2015, the Company recognized a
pretax loss of $12 million associated with the fair value step-up
in inventories assumed in the Univation Technologies, LLC
("Univation") step acquisition.
Note C: In the second quarter of 2016, the Company
recognized pretax charges of $73 million for costs associated with
portfolio and productivity actions ($42 million in the first
quarter of 2016 and $6 million in the second quarter of 2015).
Note D: On June 27, 2016, the Board of Directors of the
Company approved a restructuring plan that incorporates actions
related to the recent 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 completed during the next two years. 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.
On April 29, 2015, Dow's Board of Directors approved actions to
further streamline the organization and optimize the Company’s
footprint as a result of the pending separation of a significant
portion of Dow’s chlorine value chain. These actions, which will
further accelerate Dow’s value growth and productivity targets,
will result in a reduction of approximately 1,750 positions across
a number of businesses and functions and adjustments to the
Company's asset footprint to enhance competitiveness. As a result,
the Company recorded pretax restructuring charges of $375 million
in the second quarter of 2015, which included asset write-downs and
write-offs, severance and costs associated with exit and disposal
activities.
In the second quarter of 2016, the Company recorded a pretax
charge of $5 million related to adjustments to the Company's 2015
restructuring program.
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 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 and a
pretax gain of $6 million (after-tax gain of $6 million)
related to post-closing adjustments on the split-off of the
Company's chlorine value chain. 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 the
opt-out cases. In the second quarter of 2015, the Company
recognized a pretax gain of $361 million (after-tax gain of $359
million) related to the step acquisition of Univation and a pretax
loss of $43 million related to costs associated with portfolio and
productivity actions. In the first quarter of 2015, the Company
recognized a pretax gain of $670 million related to the
divestiture of ANGUS Chemical Company ("ANGUS"), a pretax gain of
$18 million (after-tax loss of $9 million) related to the
divestiture of the Sodium Borohydride business and pretax charges
of $26 million for costs associated with portfolio and productivity
actions.
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: "Earnings per common share - diluted" for the
three- and six-month periods ended June 30, 2016 and June 30, 2015,
assumes the conversion of the Company's Cumulative Convertible
Perpetual Preferred Stock, Series A 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, the after-tax gain on the
divestiture of ANGUS and the after-tax gain on the Univation step
acquisition. 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 and June 30, 2015.
See Supplemental Information for further details.
The Dow Chemical Company and Subsidiaries Consolidated
Balance Sheets
Jun 30,
Dec 31,
In millions (Unaudited)
2016
2015
Assets Current Assets Cash and cash equivalents (variable
interest entities restricted - 2016: $109; 2015: $158) $ 7,309 $
8,577 Accounts and notes receivable: Trade (net of allowance for
doubtful receivables - 2016: $106; 2015: $94) 5,171 4,078 Other
4,102 3,768 Inventories 8,212 6,871 Other current assets
1,516 647 Total current assets
26,310 23,941 Investments
Investment in nonconsolidated affiliates 3,576 3,958 Other
investments (investments carried at fair value - 2016: $1,960;
2015: $1,866) 2,985 2,923 Noncurrent receivables 753
765 Total investments
7,314 7,646 Property Property 56,700
50,802 Less accumulated depreciation 33,917
32,948 Net property (variable interest
entities restricted - 2016: $1,054; 2015: $1,717)
22,783 17,854 Other Assets Goodwill
15,442 12,154 Other intangible assets (net of accumulated
amortization - 2016: $4,009; 2015: $3,770) 6,463 3,617 Deferred
income tax assets 2,558 2,140 Asbestos-related insurance
receivables - noncurrent 39 51 Deferred charges and other assets
615 535 Total other
assets 25,117 18,497
Total Assets $ 81,524 $ 67,938
Liabilities and Equity Current Liabilities Notes
payable $ 235 $ 454 Long-term debt due within one year 259 541
Accounts payable: Trade 4,441 3,577 Other 2,607 2,287 Income taxes
payable 625 452 Dividends payable 597 592 Accrued and other current
liabilities 4,117 3,212
Total current liabilities 12,881
11,115 Long-Term Debt (variable interest entities
nonrecourse - 2016: $393; 2015: $487) 20,852
16,215 Other Noncurrent Liabilities Deferred
income tax liabilities 982 587 Pension and other postretirement
benefits - noncurrent 9,894 9,119 Asbestos-related liabilities -
noncurrent 357 387 Other noncurrent obligations 6,324
4,332 Total other noncurrent
liabilities 17,557 14,425
Stockholders’ Equity Preferred stock, series A 4,000 4,000 Common
stock 3,107 3,107 Additional paid-in capital 4,890 4,936 Retained
earnings 30,680 28,425 Accumulated other comprehensive loss (7,845
) (8,667 ) Unearned ESOP shares (232 ) (272 ) Treasury stock at
cost (5,664 ) (6,155 ) The Dow Chemical
Company’s stockholders’ equity 28,936
25,374 Non-redeemable noncontrolling interests
1,298 809 Total equity
30,234 26,183 Total Liabilities
and Equity $ 81,524 $ 67,938
See Notes to the Consolidated Financial
Statements.
The Dow Chemical Company and Subsidiaries
Operating Segments Three Months Ended
Six Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions (Unaudited)
2016
2015
2016
2015
Sales by operating segment Agricultural Sciences $ 1,577 $ 1,747 $
3,223 $ 3,611 Consumer Solutions 1,265 1,096 2,319 2,219
Infrastructure Solutions 2,085 1,961 3,679 3,789 Performance
Materials & Chemicals 2,264 3,241 4,445 6,450 Performance
Plastics 4,694 4,806 8,859 9,075 Corporate 67
59 130 136 Total $
11,952 $ 12,910 $ 22,655
$ 25,280 EBITDA (1) by operating segment Agricultural
Sciences $ 228 $ 255 $ 631 $ 664 Consumer Solutions 1,575 169 1,885
455 Infrastructure Solutions 1,390 240 1,683 535 Performance
Materials & Chemicals 301 572 (599 ) 1,795 Performance Plastics
1,237 1,503 2,228 2,488 Corporate (504 ) (362 )
(648 ) (497 ) Total $ 4,227
$ 2,377 $ 5,180 $ 5,440
Certain items (increasing) decreasing EBITDA by operating
segment (2) Agricultural Sciences $ (4 ) $ (14 ) $ (4 ) $ (14 )
Consumer Solutions 1,234 (67 ) 1,234 (67 ) Infrastructure Solutions
958 (27 ) 958 (27 ) Performance Materials & Chemicals 6 —
(1,229 ) 688 Performance Plastics (10 ) 337 (10 ) 337 Corporate
(421 ) (304 ) (486 ) (330 )
Total $ 1,763 $ (75 ) $ 463
$ 587 EBITDA excluding certain items by
operating segment Agricultural Sciences $ 232 $ 269 $ 635 $ 678
Consumer Solutions 341 236 651 522 Infrastructure Solutions 432 267
725 562 Performance Materials & Chemicals 295 572 630 1,107
Performance Plastics 1,247 1,166 2,238 2,151 Corporate (83 )
(58 ) (162 ) (167 ) Total $
2,464 $ 2,452 $ 4,717
$ 4,853
Continued
The Dow Chemical Company and Subsidiaries
Operating Segments (Continued) Three Months
Ended Six Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions (Unaudited)
2016
2015
2016
2015
Equity in earnings (losses) of nonconsolidated affiliates by
operating segment (included in EBITDA) Agricultural Sciences $ (11
) $ — $ (4 ) $ — Consumer Solutions 18 19 38 39 Infrastructure
Solutions 45 35 96 111 Performance Materials & Chemicals (12 )
122 (43 ) 177 Performance Plastics 45 101 44 124 Corporate
(3 ) (5 ) (10 ) (11 ) Total
$ 82 $ 272 $ 121
$ 440 (1) The Company uses EBITDA
(which Dow defines as earnings (i.e., "Net Income") before
interest, income taxes, depreciation and amortization) as its
measure of profit/loss for segment reporting purposes. EBITDA by
operating 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 EBITDA to "Net Income Available for
The Dow Chemical Company Common Stockholders" is provided below.
Reconciliation of EBITDA to "Net Income Available for The
Dow Chemical Company Common Stockholders" Three
Months Ended Six Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions (Unaudited)
2016
2015
2016
2015
EBITDA $ 4,227 $ 2,377 $ 5,180 $ 5,440 - Depreciation and
amortization 680 642 1,287 1,276 + Interest income 18 11 38 28 -
Interest expense and amortization of debt discount
208 232 409 473
Income Before Income Taxes $ 3,357 $
1,514 $ 3,522 $ 3,719 -
Provision for income taxes 130 317 20 1,003 - Net income (loss)
attributable to noncontrolling interests 19 (23 ) 40 18 - Preferred
stock dividends 85 85
170 170 Net Income Available for The Dow
Chemical Company Common Stockholders $ 3,123
$ 1,135 $ 3,292 $ 2,528
(2) See Supplemental Information for a description of
certain items affecting results in 2016 and 2015.
Sales by Geographic Area
Three Months Ended Six Months
Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions (Unaudited)
2016
2015
2016
2015
North America $ 4,630 $ 5,058 $ 8,799 $ 9,828 Europe, Middle East,
Africa and India 3,730 4,086 7,254 8,060 Asia Pacific 2,152 2,178
3,944 4,226 Latin America 1,440 1,588
2,658 3,166 Total
$ 11,952 $ 12,910 $ 22,655
$ 25,280
The Dow Chemical Company and
Subsidiaries Sales Volume and Price by Operating Segment and
Geographic Area Three Months Ended
Six Months Ended Jun 30, 2016 Jun 30, 2016 Percentage change
from prior year Volume Price Total
Volume Price Total Agricultural
Sciences (8 )% (2 )% (10 )% (8 )% (3 )%
(11 )% Consumer Solutions 19 (4 ) 15 9 (5 ) 4 Infrastructure
Solutions 12 (6 ) 6 5 (8 ) (3 ) Performance Materials &
Chemicals (19 ) (11 ) (30 ) (18 ) (13 ) (31 ) Performance Plastics
12 (14 ) (2 ) 12
(14 ) (2 ) Total 2 % (9
)% (7 )% — % (10 )% (10 )% North
America 2 % (10 )% (8 )% 1 % (12 )% (11 )% Europe, Middle East,
Africa and India (1 ) (8 ) (9 ) (1 ) (9 ) (10 ) Asia Pacific 8 (9 )
(1 ) 3 (10 ) (7 ) Latin America 1 (10 )
(9 ) (4 ) (12 ) (16 ) Developed
geographies 1 % (9 )% (8 )% (1 )% (10 )% (11 )% Emerging
geographies (1) 4 (10 ) (6 )
1 (11 ) (10 )
Sales
Volume and Price by Operating Segment and Geographic Area,
Excluding Acquisitions and
Divestitures (2)
Three Months Ended
Six Months Ended Jun 30, 2016 Jun 30, 2016 Percentage
change from prior year Volume Price
Total Volume Price Total Agricultural
Sciences (7 )% (1 )% (8 )% (6 )% (3 )%
(9 )% Consumer Solutions 4 (4 ) — 2 (5 ) (3 ) Infrastructure
Solutions (2 ) (6 ) (8 ) (2 ) (8 ) (10 ) Performance Materials
& Chemicals — (14 ) (14 ) 1 (16 ) (15 ) Performance Plastics
13 (14 ) (1 ) 13
(14 ) (1 ) Total 4 % (10
)% (6 )% 4 % (11 )% (7 )% North
America 3 % (11 )% (8 )% 4 % (12 )% (8 )% Europe, Middle East,
Africa and India 4 (9 ) (5 ) 4 (9 ) (5 ) Asia Pacific 7 (10 ) (3 )
5 (10 ) (5 ) Latin America 4 (11 )
(7 ) 1 (13 ) (12 )
Developed geographies 4 % (10 )% (6 )% 4 % (11 )% (7 )% Emerging
geographies (1) 5 (10 ) (5 )
4 (11 ) (7 ) (1) Emerging
geographies includes Eastern Europe, Middle East, Africa, India,
Latin America and Asia Pacific excluding Australia, Japan and New
Zealand. (2) Excludes prior period sales of recent divestitures
including the chlorine value chain, divested on October 5, 2015
(primarily Performance Materials & Chemicals and Performance
Plastics), the AgroFresh business, divested on July 31, 2015
(Agricultural Sciences), ANGUS Chemical Company, divested on
February 2, 2015 (Performance Materials & Chemicals) and the
global Sodium Borohydride business, divested on January 30, 2015
(Performance Materials & Chemicals). Also excludes current
period sales related to the ownership restructure of Dow Corning
announced on June 1, 2016 (Consumer Solutions and Infrastructure
Solutions) and the step acquisition of Univation Technologies, LLC,
acquired on May 5, 2015 (Performance Plastics).
Supplemental Information Description of Certain Items
Affecting Results
The following table summarizes the impact
of certain items recorded in the three- and six-month periods ended
June 30, 2016 and June 30, 2015:
Certain Items Impacting Results
Pretax Impact (1) Net Income (2)
EPS - Diluted (3) (4) Three Months Ended Three Months
Ended Three Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions, except per share amounts (Unaudited)
2016
2015
2016
2015
2016
2015
Reported U.S. GAAP Amounts (5) (6) $ 3,123 $ 1,135 $ 2.61 $ 0.97 -
Certain items: 2Q16 Restructuring charges $ (449 ) $ — (305 ) —
(0.27 ) — 2Q15 Restructuring charges (5 ) (375 ) (3 ) (246 ) —
(0.21 ) Impact of Dow Corning ownership restructure 2,318 — 2,494 —
2.20 — Univation step acquisition — 349 — 351 — 0.30 Gain
adjustment on split-off of chlorine value chain 6 — 6 — 0.01 —
Costs associated with portfolio and productivity actions (107 ) (49
) (87 ) (34 ) (0.08 ) (0.03 ) Uncertain tax position adjustment
— — (57 ) —
(0.05 ) — Total certain items
$ 1,763 $ (75 ) $ 2,048
$ 71 $ 1.81 $ 0.06
+ Dilutive effect of assumed preferred stock conversion into
shares of common stock
0.15 N/A =
Operating Results (Non-GAAP)
$ 1,075 $ 1,064 $
0.95 $ 0.91
Certain Items Impacting
Results Pretax Impact (1)
Net Income (2) EPS - Diluted (3) (4)
Six Months Ended Six Months Ended Six Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions, except per share amounts (Unaudited)
2016
2015
2016
2015
2016
2015
Reported U.S. GAAP Amounts (5) (6) $ 3,292 $ 2,528 $ 2.83 $ 2.15 -
Certain items: 2Q16 Restructuring charges $ (449 ) $ — (305 ) —
(0.27 ) — 2Q15 Restructuring charges (5 ) (375 ) (3 ) (246 ) —
(0.21 ) Impact of Dow Corning ownership restructure 2,318 — 2,494 —
2.20 — Urethane matters legal settlements (1,235 ) — (778 ) — (0.70
) — Univation step acquisition — 349 — 351 — 0.30 Gain adjustment
on split-off of chlorine value chain 6 — 6 — 0.01 — Gain on
divestiture of ANGUS Chemical Co — 670 — 451 — 0.39 Divestiture of
Sodium Borohydride business — 18 — (9 ) — (0.01 ) Costs associated
with portfolio and productivity actions (172 ) (75 ) (133 ) (57 )
(0.12 ) (0.05 ) Uncertain tax position adjustment —
— (57 ) —
(0.05 ) — Total certain items $
463 $ 587 $ 1,224
$ 490 $ 1.07 $ 0.42 +
Dilutive effect of assumed preferred stock conversion into shares
of common stock
0.09 0.03 =
Operating Results (Non-GAAP)
$ 2,068 $ 2,038 $
1.85 $ 1.76 (1) Impact on "Income
Before Income Taxes." (2) "Net Income Available for The Dow
Chemical Company Common Stockholders." (3) "Earnings per common
share - diluted." (4) For the three- and six-month periods ended
June 30, 2016 and June 30, 2015, 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 "Diluted earnings per share
adjusted to exclude certain items" as well as the earnings per
share impact of certain items because the effect of including them
would have been antidilutive. (5) For the three- and six-month
periods ended June 30, 2016 and June 30, 2015, an assumed
conversion of the Company's Preferred Stock into shares of the
Company's common stock was included in the calculation of diluted
earnings per share (reported GAAP amount). (6) The Company used
"Net Income Attributable to The Dow Chemical Company" when
calculating diluted earnings per share (reported GAAP amount) for
the three- and six-month periods ended June 30, 2016 and June 30,
2015, as it excludes quarterly preferred dividends of $85 million.
The following table presents diluted share counts for the three-
and six-month periods ended June 30, 2016 and June 30,
2015, including the effect of an assumed conversion of the
Company's Cumulative Convertible Perpetual Preferred Stock, Series
A into shares of the Company's common stock:
Common Shares - Diluted Three Months Ended
Six Months Ended
Jun 30,
Jun 30,
Jun 30,
Jun 30,
In millions
2016
2015
2016
2015
Share count - diluted, excluding assumed preferred stock conversion
to common shares 1,126.0 1,152.6 1,121.7 1,151.2 Potential common
shares from assumed conversion of preferred stock, included in
reported U.S. GAAP EPS calculation 96.8 96.8
96.8 96.8 Share count - diluted,
including assumed preferred stock conversion to common shares
1,222.8 1,249.4 1,218.5
1,248.0
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 recent 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 completed
during the next two years. 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" 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" 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 split-off of the Company's chlorine value chain,
included in "Sundry income (expense) - net" and reflected in
Performance Materials & Chemicals.
- Pretax charges of $107 million for
costs associated with portfolio 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, 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 portfolio 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 second quarter of 2015 were impacted by the
following items:
- Pretax restructuring charges of $375
million. On April 29, 2015, Dow's Board of Directors approved
actions to further streamline the organization and optimize the
Company’s footprint as a result of the pending separation of a
significant portion of Dow’s chlorine value chain. These actions,
which will further accelerate Dow’s value growth and productivity
targets, will result in a reduction of approximately 1,750
positions across a number of businesses and functions and
adjustments to the Company's asset footprint to enhance
competitiveness. As a result of these actions, the Company recorded
pretax restructuring charges of $375 million in the second quarter
of 2015 consisting of costs associated with exit or disposal
activities of $10 million, severance costs of $196 million and
asset write-downs and write-offs of $169 million. The impact of
these charges is shown as "Restructuring charges" in the
consolidated statements of income and reflected in the Company's
segment results as follows: Agricultural Sciences ($14 million),
Consumer Solutions ($67 million), Infrastructure Solutions ($27
million), Performance Plastics ($12 million) and Corporate ($255
million).
- Pretax gain of $349 million (after-tax
gain of $351 million) related to the step acquisition of Univation,
previously a 50:50 joint venture. The gain, which is included
Performance Plastics, included a $361 million pretax gain on the
step acquisition (after-tax gain of $359 million), included in
"Sundry income (expense) - net" in the consolidated statements of
income, and a pretax loss of $12 million (after-tax loss of $8
million) for a one-time increase in "Cost of sales" related to the
fair value step-up of inventories assumed in the step
acquisition.
- Pretax charges of $49 million for costs
associated with portfolio and productivity actions, including the
planned separation of a significant portion of the Company’s
chlorine value chain, implementation costs associated with the
Company's 2015 restructuring program and other productivity
actions. These charges are included in "Selling, general and
administrative expenses" ($6 million) and "Sundry income (expense)
- net" ($43 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 is
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 portfolio 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.
Results in the first quarter of 2015 were impacted by the
following items:
- Pretax gain of $670 million on the
February 2, 2015, divestiture of ANGUS Chemical Company, included
in "Sundry income (expense) - net" in the consolidated statements
of income and reflected in Performance Materials &
Chemicals.
- Pretax gain of $18 million (after-tax
loss of $9 million) on the January 30, 2015, divestiture of the
Sodium Borohydride business. The pretax gain was included in
"Sundry income (expense) - net" in the consolidated statements of
income and reflected in Performance Materials & Chemicals.
- Pretax charges of $26 million for costs
associated with the separation of a significant portion of the
Company’s chlorine value chain, consisting primarily of financial
and professional advisory fees, legal fees and information systems
infrastructure costs ("Costs associated with portfolio and
productivity actions"). These charges were included in "Sundry
income (expense) - net" in the consolidated statements of income
and reflected in Corporate.
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version on businesswire.com: http://www.businesswire.com/news/home/20160728005697/en/
The Dow Chemical CompanyKyle Bandlow+1 989 638
2417kbandlow@dow.com
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