DOW Dow Inc

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Dow reported earnings per share of $0.89 (1) on an operating basis, or earnings per share of $0.15 on a reported basis. This compares with earnings per share of $0.84 on an operating basis in the year-ago period, or $1.18 per share on a reported basis. Certain Items in the quarter reflected a $0.70 per share charge for the urethane matters legal settlements and a $0.04 per share charge for costs associated with portfolio and productivity actions.

•	Sales were $10.7 billion, down 13 percent versus the year-ago period, or 8 percent excluding the impact of divestitures and acquisitions (2) . The decrease was primarily due to local price declines, of which the largest contributor was the Hydrocarbons business, and ongoing global currency headwinds.

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Volume rose 4 percent, excluding the impact of divestitures and acquisitions. Growth in North America (up 6 percent), Europe, Middle East, Africa and India (up 4 percent) and Asia Pacific (up 3 percent) more than offset a decline in Latin America (down 4 percent). Volume grew in the emerging geographies, as results in Greater China (up 5 percent) and India (up 13 percent) reflected solid consumer-driven demand in these regions.

•	EBITDA (3) was $2.3 billion on an operating basis (4) , or $1 billion on a reported basis, compared to $2.4 billion on an operating basis in the year-ago period. Operating EBITDA improvement from targeted end-markets such as transportation, infrastructure and electronics was more than offset by the impact of lower equity earnings and divestitures.

•	Operating EBITDA margin (5) expanded from 19 percent to 21 percent - the highest level in more than a decade - reflecting disciplined margin management and the benefits of self-help actions. Gains were delivered in most operating segments, led by Consumer Solutions (up 400 basis points), Agricultural Sciences (up 250 basis

(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)	Sales excluding divestitures and acquisitions excludes prior period sales of recent divestitures and current period sales of recent acquisitions.

(3)	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.

(4)	Operating EBITDA is defined as EBITDA excluding the impact of “Certain Items.”

(5)	Operating EBITDA margin is defined as EBITDA excluding the impact of “Certain Items” as a percentage of reported sales.

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•	Dow's focus on reliability and operational excellence delivered an 88 percent operating rate for the quarter and, excluding the impact of divestitures, the highest production volume quarter in the Company’s history.

•	Dow returned $506 million to shareholders through its highest regular quarterly paid dividend to date.

	Three Months Ended
In millions, except per share amounts	Mar 31, 2016	Mar 31, 2015
Net Sales	$10,703	$12,370
Adjusted Sales (6)	$10,658	$11,638
Net Income Available for Common Stockholders	$169	$1,393
Net Income Available for Common Stockholders, Excluding Certain Items	$993	$974
Earnings per Common Share - Diluted	$0.15	$1.18
Operating Earnings per Share	$0.89	$0.84

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Financial Statements (Note A)

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Income

	Three Months Ended
In millions, except per share amounts (Unaudited)	Mar 31, 2016				Mar 31, 2015
Net Sales	$	10,703			$	12,370
Cost of sales	7,951				9,535
Research and development expenses	361				383
Selling, general and administrative expenses (Note B)	742				752
Amortization of intangibles	103				102
Restructuring credits	(2		)		—
Equity in earnings of nonconsolidated affiliates	39				168
Sundry income (expense) - net (Note C)	(1,241		)		663
Interest income	20				17
Interest expense and amortization of debt discount	201				241
Income Before Income Taxes	165				2,205
Provision (Credit) for income taxes	(110		)		686
Net Income	275				1,519
Net income attributable to noncontrolling interests	21				41
Net Income Attributable to The Dow Chemical Company	254				1,478
Preferred stock dividends	85				85
Net Income Available for The Dow Chemical Company Common Stockholders	$	169			$	1,393
Per Common Share Data:
Earnings per common share - basic	$	0.15			$	1.22
Earnings per common share - diluted (Note D)	$	0.15			$	1.18
Dividends declared per share of common stock	$	0.46			$	0.42
Weighted-average common shares outstanding - basic	1,102.9				1,135.7
Weighted-average common shares outstanding - diluted (Note D)	1,117.3				1,246.7
Depreciation	$	456			$	486
Capital Expenditures	$	820			$	903

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Consolidated Balance Sheets

In millions (Unaudited)	Mar 31, 2016				Dec 31, 2015
Assets
Current Assets
Cash and cash equivalents (variable interest entities restricted - 2016: $202; 2015: $158)	$	6,610			$	8,577
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables - 2016: $99; 2015: $94)	4,491				4,078
Other	4,270				3,768
Inventories	7,298				6,871
Other current assets	665				647
Total current assets	23,334				23,941
Investments
Investment in nonconsolidated affiliates	4,197				3,958
Other investments (investments carried at fair value - 2016: $1,892; 2015: $1,866)	2,939				2,923
Noncurrent receivables	572				765
Total investments	7,708				7,646
Property
Property	52,152				50,802
Less accumulated depreciation	33,732				32,948
Net property (variable interest entities restricted - 2016: $1,079; 2015: $1,717)	18,420				17,854
Other Assets
Goodwill	12,214				12,154
Other intangible assets (net of accumulated amortization - 2016: $3,917; 2015: $3,770)	3,591				3,617
Deferred income tax assets - noncurrent	2,537				2,140
Asbestos-related insurance receivables - noncurrent	48				51
Deferred charges and other assets	588				535
Total other assets	18,978				18,497
Total Assets	$	68,440			$	67,938
Liabilities and Equity
Current Liabilities
Notes payable	$	491			$	454
Long-term debt due within one year	256				541
Accounts payable:
Trade	3,729				3,577
Other	2,324				2,287
Income taxes payable	312				452
Dividends payable	595				592
Accrued and other current liabilities	3,975				3,212
Total current liabilities	11,682				11,115
Long-Term Debt (variable interest entities nonrecourse - 2016: $485; 2015: $487)	16,229				16,215
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent	575				587
Pension and other postretirement benefits - noncurrent	8,752				9,119
Asbestos-related liabilities - noncurrent	374				387
Other noncurrent obligations	4,394				4,332
Total other noncurrent liabilities	14,095				14,425
Stockholders’ Equity
Preferred stock, series A	4,000				4,000
Common stock	3,107				3,107
Additional paid-in capital	4,809				4,936
Retained earnings	28,074				28,425
Accumulated other comprehensive loss	(8,262		)		(8,667		)
Unearned ESOP shares	(264		)		(272		)
Treasury stock at cost	(5,865		)		(6,155		)
The Dow Chemical Company’s stockholders’ equity	25,599				25,374
Non-redeemable noncontrolling interests	835				809
Total equity	26,434				26,183
Total Liabilities and Equity	$	68,440			$	67,938

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Operating Segments

	Three Months Ended
In millions (Unaudited)	Mar 31, 2016				Mar 31, 2015
Sales by operating segment
Agricultural Sciences	$	1,646			$	1,864
Consumer Solutions	1,054				1,123
Infrastructure Solutions	1,594				1,828
Performance Materials & Chemicals	2,181				3,209
Performance Plastics	4,165				4,269
Corporate	63				77
Total	$	10,703			$	12,370
EBITDA (1)  by operating segment
Agricultural Sciences	$	403			$	409
Consumer Solutions	310				286
Infrastructure Solutions	293				295
Performance Materials & Chemicals	(900		)		1,223
Performance Plastics	991				985
Corporate	(144		)		(135		)
Total	$	953			$	3,063
Certain items (increasing) decreasing EBITDA by operating segment (2)
Agricultural Sciences	$	—			$	—
Consumer Solutions	—				—
Infrastructure Solutions	—				—
Performance Materials & Chemicals	(1,235		)		688
Performance Plastics	—				—
Corporate	(65		)		(26		)
Total	$	(1,300	)		$	662
EBITDA excluding certain items by operating segment
Agricultural Sciences	$	403			$	409
Consumer Solutions	310				286
Infrastructure Solutions	293				295
Performance Materials & Chemicals	335				535
Performance Plastics	991				985
Corporate	(79		)		(109		)
Total	$	2,253			$	2,401

Continued

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The Dow Chemical Company and Subsidiaries

Operating Segments (Continued)

	Three Months Ended
In millions (Unaudited)	Mar 31, 2016				Mar 31, 2015
Equity in earnings (losses) of nonconsolidated affiliates by operating segment (included in EBITDA)
Agricultural Sciences	$	7			$	—
Consumer Solutions	20				20
Infrastructure Solutions	51				76
Performance Materials & Chemicals	(31		)		55
Performance Plastics	(1		)		23
Corporate	(7		)		(6		)
Total	$	39			$	168

(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
In millions (Unaudited)	Mar 31, 2016				Mar 31, 2015
EBITDA	$	953			$	3,063
- Depreciation and amortization	607				634
+ Interest income	20				17
- Interest expense and amortization of debt discount	201				241
Income Before Income Taxes	$	165			$	2,205
- Provision (Credit) for income taxes	(110		)		686
- Net income attributable to noncontrolling interests	21				41
- Preferred stock dividends	85				85
Net Income Available for The Dow Chemical Company Common Stockholders	$	169			$	1,393

(2)	See Supplemental Information for a description of certain items affecting results in 2016 and 2015.

Sales by Geographic Area

	Three Months Ended
In millions (Unaudited)	Mar 31, 2016				Mar 31, 2015
North America	$	4,169			$	4,770
Europe, Middle East, Africa and India	3,524				3,974
Asia Pacific	1,792				2,048
Latin America	1,218				1,578
Total	$	10,703			$	12,370

 

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The Dow Chemical Company and Subsidiaries

Sales Volume and Price by Operating Segment and Geographic Area

	Three Months Ended
	Mar 31, 2016
Percentage change from prior year	Volume			Price			Total
Agricultural Sciences	(8	)%		(4	)%		(12	)%
Consumer Solutions	—			(6	)		(6	)
Infrastructure Solutions	(2	)		(11	)		(13	)
Performance Materials & Chemicals	(18	)		(14	)		(32	)
Performance Plastics	12			(14	)		(2	)
Total	(2	)%		(11	)%		(13	)%
North America	—	%		(13	)%		(13	)%
Europe, Middle East, Africa and India	(3	)		(8	)		(11	)
Asia Pacific	(3	)		(10	)		(13	)
Latin America	(10	)		(13	)		(23	)
Developed geographies	(2	)%		(11	)%		(13	)%
Emerging geographies (1)	(3	)		(11	)		(14	)

	Three Months Ended
	Mar 31, 2016
Percentage change from prior year	Volume			Price			Total
Agricultural Sciences	(7	)%		(3	)%		(10	)%
Consumer Solutions	—			(6	)		(6	)
Infrastructure Solutions	(2	)		(11	)		(13	)
Performance Materials & Chemicals	2			(17	)		(15	)
Performance Plastics	13			(15	)		(2	)
Total	4	%		(12	)%		(8	)%
North America	6	%		(14	)%		(8	)%
Europe, Middle East, Africa and India	4			(9	)		(5	)
Asia Pacific	3			(10	)		(7	)
Latin America	(4	)		(14	)		(18	)
Developed geographies	4	%		(12	)%		(8	)%
Emerging geographies (1)	2			(12	)		(10	)

(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 of the recent acquisition of Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics).

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Supplemental Information

Description of Certain Items Affecting Results

The following table summarizes the impact of certain items recorded in the three-month periods ended March 31, 2016 and March 31, 2015 :

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)	Mar 31, 2016				Mar 31, 2015				Mar 31, 2016				Mar 31, 2015				Mar 31, 2016				Mar 31, 2015
Operating Results (non-GAAP measures)									$	993			$	974			$	0.89			$	0.84
Certain items:
Gain on the divestiture of ANGUS Chemical Company	$	—			$	670			—				451				—				0.39
Divestiture of the Sodium Borohydride business	—				18				—				(9		)		—				(0.01		)
Urethane matters legal settlements	(1,235		)		—				(778		)		—				(0.70		)		—
Costs associated with portfolio and productivity actions	(65		)		(26		)		(46		)		(23		)		(0.04		)		(0.02		)
Total certain items	$	(1,300	)		$	662			$	(824	)		$	419			$	(0.74	)		$	0.36
Dilutive effect of assumed preferred stock conversion into shares of common stock																	N/A				$	(0.02	)
Reported GAAP Amounts (5) (6)									$	169			$	1,393			$	0.15			$	1.18

(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-month period ended March 31, 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-month period ended March 31, 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-month period ended March 31, 2015 , as it excludes quarterly preferred dividends of $85 million.

Common Shares - Diluted	Three Months Ended
In millions	Mar 31, 2016			Mar 31, 2015
Share count - diluted, excluding assumed preferred stock conversion to common shares	1,117.3			1,149.9
Potential common shares from assumed conversion of preferred stock, included in reported U.S. GAAP EPS calculation	N/A			96.8
Share count - diluted, including assumed preferred stock conversion to common shares	1,117.3			1,246.7

•	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.

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Pretax charges of $65 million for nonrecurring transaction 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 planned 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"). These charges are included in "Cost of

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•	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.

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Pretax charges of $26 million for nonrecurring transaction 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.