TIDMDOW
Dow Reports Fourth Quarter and Full-Year Results
Dow Reports 4Q Loss of $0.61 Per Share, or Adjusted Earnings Per
Share of $0.33 - Up 32 Percent versus 4Q11, Due to Higher Margins
Over Raw Materials and Improved Demand in North America and Asia
Pacific;
In 2012, Company Delivers $4 Billion of Cash Flow from
Operations, Continues Implementation of $2.5 Billion of Cost
Reduction and Efficiency Actions, Increases Full-Year Declared
Dividends by 34 Percent
The Dow Chemical Company (NYSE: DOW):
Fourth Quarter 2012 Highlights
-- Dow reported a loss of $0.61 per share, or earnings of $0.33 per share
on an adjusted basis(1). This compares with a loss of
$0.02 per share in the same quarter last year, or adjusted
earnings of
$0.25 per share. Certain items in the quarter totaled a loss
of
$0.94 per share, driven primarily by previously announced
restructuring actions, coupled with a goodwill impairment charge
in
the Company's Formulated Systems business.
-- Sales for the quarter were $13.9 billion, down 1 percent versus the
year-ago period. Agricultural Sciences achieved a new sales
record,
with sales growing 17 percent. Increases were also reported
in
Electronic and Functional Materials (up 3 percent),
Performance
Plastics (up 1 percent) and Coatings and Infrastructure
Solutions (up
1 percent). These increases were more than offset by declines
in
Feedstocks and Energy (down 9 percent) and Performance Materials
(down
5 percent).
-- Volume was flat for the quarter, as a 5 percent decline in Western
Europe offset volume growth in Asia Pacific (up 5 percent) and
North
America and Latin America (each up 1 percent). Excluding
Dow's
Feedstocks and Energy operating segment, volume in North
America
increased 7 percent, reflecting improving demand.
-- Price decreased $91 million, or 1 percent, while purchased feedstock
and energy costs declined $413 million versus the year-ago
period. On
a sequential basis, price was up $333 million, or 2 percent,
outpacing
increases of $218 million in purchased feedstock and energy
costs.
Sequentially, price increases were led by Performance Plastics
and
Feedstocks and Energy, each up 4 percent.
-- Equity earnings were $44 million, or $206 million excluding the impact
of certain items. This compares with $259 million in the
year-ago
period. Dow Corning represented the largest driver of the
decline.
-- EBITDA(2) was $125 million, or $1.6 billion on an adjusted
basis(3). Agricultural Sciences achieved a new fourth
quarter EBITDA record.
-- The Company leveraged the benefit of positive U.S. shale gas dynamics,
driving a 430 basis point increase in Performance Plastics
adjusted
EBITDA margin year over year(4). To further leverage this
advantage, Dow also achieved the first major milestone in its
U.S.
Gulf Coast integration investments, as its previously idled
St. Charles Operations ethylene cracker restarted in December,
in line
with Dow's year-end target.
-- Cash flow from operations was $1.6 billion for the quarter, bringing
full-year cash flow from operations to $4.1 billion.
-- The Company demonstrated its ongoing commitment to shareholder
remuneration, evidenced by the acceleration of its fourth
quarter
dividend payment.
Comment
Andrew N. Liveris, Dow's chairman and chief executive officer,
stated:
"The second half of 2012 saw significant deterioration in the
markets we serve, particularly in China. In response, Dow
identified and took aggressive action to mitigate the effects of a
slow-to-no-growth global environment - by deploying cost and cash
flow levers and by continuing to prudently manage our portfolio and
prioritize growth investments.
"Our Agricultural Sciences business continues to outperform,
driven by its technology pipeline. Performance Plastics also posted
strong results in the quarter, bolstered by feedstock advantages in
North America and the Middle East, coupled with improving pricing
momentum. In addition, our Kuwait joint ventures posted exceptional
results in the quarter.
"We delivered on our cash flow target for the year, and our
focus on rewarding shareholders remained resolute, as evidenced by
a 34 percent increase in declared dividends for 2012."
2012 Full-Year Highlights
-- Dow reported full-year 2012 earnings of $0.70 per share, or $1.90 per
share on an adjusted basis. This compares with prior-year
earnings of
$2.05 per share, or $2.54 per share on an adjusted basis.
-- Dow took action throughout the year to navigate volatile economic
conditions, including reducing structural costs, prioritizing
growth
investments and announcing the shutdown of down nearly 30
facilities.
In total, the Company has set in motion $2.5 billion in cost
reductions and cash flow improvements, with $1 billion expected
in
2013.
-- Sales were $56.8 billion, down 5 percent, or 3 percent on an adjusted
basis(5). Sales decreased in all operating segments
excluding Agricultural Sciences (up 13 percent) and in all
geographic
areas year over year, led by Western Europe.
-- Agricultural Sciences achieved record-level sales and EBITDA, posting
$6.4 billion and $977 million, respectively.
-- Volume decreased 2 percent, or increased 1 percent on an adjusted basis(6).
Asia Pacific and Europe reported volume growth during the year
(up
3 percent and 1 percent respectively). Volume in North
America
remained flat, primarily due to the impact of shutdowns in
Feedstocks
and Energy.
-- Price declined 3 percent. On an adjusted basis(7),
price was down 4 percent, or $2.1 billion. Currency accounted
for
$1.3 billion - nearly two-thirds of the decline. Purchased
feedstock
and energy costs decreased $2.5 billion, or 11 percent year over
year.
-- Equity earnings were $536 million, or $698 million excluding certain
items. This compares with 2011 equity earnings of $1.2 billion,
or
$1.1 billion excluding certain items. The decline was due
primarily to
Dow Corning.
-- For the full year, Dow reported EBITDA of $5.6 billion, or
$7.5 billion on an adjusted basis.
-- The Company's effective tax rate for the year was 34 percent, versus
an effective tax rate of 23 percent in 2011, driven in part by
a
change in the geographic mix of earnings, as well as lower
equity
earnings.
-- Dow maintained its focus on lowering debt, reporting a $613 million
reduction in gross debt in 2012. In addition, year-over-year
interest
expense declined $72 million.
-- Dow continued to demonstrate its priorities for uses of cash,
rewarding shareholders with a 34 percent increase in
dividends
declared per share in 2012 versus 2011.
Three Months Ended
In millions, except per share amounts Dec. 31, Dec. 31,
2012 2011
Net Sales $13,917 $14,097
Adjusted Sales $13,917 $14,080
Net Income (Loss) Available for Common Stockholders $(716) $(20)
Net Income Available for Common Stockholders, $389 $289
excluding Certain Items
Earnings (Loss) per Common Share $(0.61) $(0.02)
Adjusted Earnings Per Share $0.33 $0.25
Twelve Months Ended
In millions, except per share amounts Dec. 31, Dec. 31,
2012 2011
Net Sales $56,786 $59,985
Adjusted Sales $56,786 $58,396
Net Income Available for Common Stockholders $842 $2,402
Net Income Available for Common Stockholders, $2,249 $2,959
excluding Certain Items
Earnings per Common Share $0.70 $2.05
Adjusted Earnings Per Share $1.90 $2.54
Review of Fourth Quarter Results
The Dow Chemical Company (NYSE: DOW) reported sales of $13.9
billion, down 1 percent. Record sales gains in Agricultural
Sciences (up 17 percent), together with gains in Electronic and
Functional Materials (up 3 percent) and Performance Plastics and
Coatings and Infrastructure Solutions (both up 1 percent), were
offset by declines in the remaining segments.
The Company reported flat volume growth for the quarter, as a 5
percent decline in Western Europe offset volume growth in Asia
Pacific (up 5 percent) and North America and Latin America (each up
1 percent). Excluding the Company's Feedstocks and Energy segment,
volume in North America increased 7 percent, reflecting improved
demand conditions.
Price was down 1 percent due largely to currency, while
purchased feedstock and energy costs declined $413 million versus
the same quarter last year. On a sequential basis, price was up 2
percent, outpacing increases of $218 million in purchased feedstock
and energy costs.
EBITDA for the quarter was $125 million, or $1.6 billion on an
adjusted basis.
Dow reported a loss of $0.61 per share, or earnings of $0.33 per
share on an adjusted basis. This compares with a loss of $0.02 per
share in the same quarter last year, or adjusted earnings of $0.25
per share. Certain items in the quarter totaled a loss of $0.94 per
share, driven primarily by the impact of previously announced
restructuring actions, coupled with a goodwill impairment charge in
the Company's Formulated Systems business.
Dow's global operating rate was 78 percent for the quarter, up 6
percentage points versus the year-ago period, as a result of
limited destocking in the value chain.
Research and Development (R&D) expenses and Selling, General
and Administrative (SG&A) expenses together increased $69
million versus the year-ago period, due primarily to ongoing
investments in Agricultural Sciences.
The Company reported equity earnings of $44 million for the
quarter, or $206 million excluding the impact of certain items.
This compares with $259 million in the year-ago period. Dow Corning
represented the largest driver of the decline.
"The second half of 2012 saw significant deterioration in the
markets we serve, particularly in China," said Andrew N. Liveris,
Dow's chairman and chief executive officer. "In response, Dow
identified and took aggressive action to mitigate the effects of a
slow-to-no-growth global environment - by deploying cost and cash
flow levers and by continuing to prudently manage our portfolio and
prioritize growth investments.
"Our Agricultural Sciences business continues to outperform,
driven by its technology pipeline. Performance Plastics also posted
strong results in the quarter, bolstered by feedstock advantages in
North America and the Middle East, coupled with improving pricing
momentum. In addition, our Kuwait joint ventures posted exceptional
results in the quarter.
"We delivered on our cash flow target for the year, and our
focus on rewarding shareholders remained resolute, as evidenced by
a 34 percent increase in declared dividends for 2012."
Electronic and Functional Materials
Sales in Electronic and Functional Materials were $1.1 billion,
up 3 percent from the same quarter last year, as price declined 4
percent and volume increased 7 percent. Dow Electronic Materials
reported modest revenue growth, driven primarily by Semiconductor
Technologies, where higher foundry utilization in Korea and Taiwan
contributed to stronger demand year over year. Semiconductor
Technologies experienced mid-to-high single-digit sales growth, as
double-digit volume growth was offset by price declines in the
business.
Functional Materials revenue increased in all geographic areas,
as volume gains outpaced price declines. Stronger year-end demand
in key market segments such as energy, water, pharmaceutical,
personal care and food drove volume gains. The food sector saw
particular strength during the year, driven by new product
introductions.
Equity earnings for the segment were $13 million, or $21 million
on an adjusted basis. This compares with $32 million in the
year-ago period. The decline was driven by Dow Corning as a result
of costs associated with the joint venture's recently announced
restructuring actions and ongoing polysilicon value chain weakness.
EBITDA was $155 million or $211 million on an adjusted basis. This
compares with $234 million in the year-ago period.
Coatings and Infrastructure Solutions
Coatings and Infrastructure Solutions reported sales of $1.6
billion, up 1 percent compared with the same period last year.
Volume increased 5 percent versus the prior year, while price
decreased 4 percent.
Dow Coating Materials reported sales gains as a result of
improving demand conditions and share gains in both Industrial and
Architectural Coatings, which drove volume improvements. This
offset price declines during the quarter. Lower pricing in
epoxy-based products continued to hamper sales and profitability.
Dow Building and Construction experienced a reduction in sales, as
volumes decreased versus same quarter last year - primarily as a
result of the 2012 implementation of previously announced
STYROFOAMtm asset closures in Europe. Dow Water and Process
Solutions reported a slight sales decline as a result of lower
volumes, which were driven by the timing of large capital projects
and softness in the industry.
The segment reported equity losses of $46 million, or equity
earnings of $35 million on an adjusted basis. This compares with
$102 million in the same period last year. The decline was driven
by Dow Corning, as a result of costs associated with the joint
venture's recently announced restructuring actions and ongoing
polysilicon value chain weakness. EBITDA for the segment was $36
million or $129 million on an adjusted basis. This compares with
EBITDA of $177 million or $237 million on an adjusted basis in the
year-ago period.
Agricultural Sciences
Agricultural Sciences reported record fourth quarter sales of
$1.6 billion, up 17 percent versus the year-ago period. Volume
increased 13 percent and price rose 4 percent. The segment also
reported record sales for the year of $6.4 billion, driven by
increased customer adoption of new products and healthy industry
fundamentals.
Fourth quarter sales of Crop Protection rose 10 percent versus
the year-ago period, driven by broad-based gains across all
geographic areas. Sales of new crop protection products grew 11
percent for the quarter and 19 percent for the full year, placing
the business on track to exceed its target of $800 million in
annual sales from these products by 2013.
Seeds, Traits and Oils reported a 44 percent sales gain in the
quarter versus the year-ago period, driven by continued strong
growth in both North America and Latin America. For the year,
Seeds, Traits and Oils sales increased 27 percent, with significant
increases in key crops, including corn, soybeans and healthy oils.
Strong farmer demand fueled gains for SmartStax® corn hybrids.
EBITDA for the segment was a new fourth quarter record of $156
million, up from $145MM last year.
Performance Materials
Sales in Performance Materials were $3.4 billion, down 5 percent
versus the year-ago period. Volume declined 2 percent and price
declined 3 percent on an adjusted basis compared with the same
period last year. Europe, Asia Pacific and Latin America all
reported price and volume declines. Double-digit volume gains in
Polyurethanes, Amines and Oxygenated Solvents drove sales growth in
North America.
Propylene Oxide / Propylene Glycol sales declined, driven
primarily by lower prices in all regions. Polyurethane sales were
lower principally due to the shutdown of toluene diisocyanate
capacity in Brazil. Sales declined in Polyglycols, Surfactants and
Fluids due to lower volume in Europe and Asia Pacific. Volume gains
in Oxygenated Solvents and Chlorinated Organics were more than
offset by lower prices in all geographic areas. Revenue increased
in Epoxy, due to new Liquid Epoxy Resin capacity in Europe, as well
as higher Phenolics sales.
Equity losses for the quarter were $25 million. The segment
reported EBITDA losses of $137 million on a reported basis, or
EBITDA of $267 million on an adjusted basis. This compares with
EBITDA of $225 million, or $344 million on an adjusted basis during
the year-ago period.
Performance Plastics
Sales in Performance Plastics were $3.7 billion, up 1 percent
compared with the same quarter last year. Price increased 2
percent, as volume declined 1 percent. Volume gains were achieved
in North America, Latin America and Asia Pacific.
Fourth quarter sales increased in Performance Packaging, driven
by gains in North America and Latin America. Performance Packaging
volumes declined in Europe, Middle East and Africa (EMEA),
partially offset by increases in North America. EMEA recorded the
most price improvement over the same quarter last year.
Dow Elastomers sales declined versus the year-ago period,
despite volume growth in North America, Latin America, and Asia
Pacific. Dow Electrical and Telecommunications sales were down as
increases in Asia Pacific were offset by declines in other areas.
Dow Hygiene and Medical increased both volume and price in the
quarter, with double-digit volume gains in Latin America and Asia
Pacific.
Equity earnings for the segment were $33 million, which compares
with $32 million in the year-ago period. EBITDA for the segment was
$803 million, or $829 million excluding certain items. This
compares with EBITDA of $667 million in the same period last
year.
Feedstocks and Energy
Sales in Feedstocks and Energy were $2.6 billion, down 9 percent
versus the same period last year. In Hydrocarbons, sales declined
as a result of lower sales of olefins due to lighter feedslates, as
well as the expiration of contract sales related to the divestiture
of Dow's Polypropylene business. The Chlor-Alkali / Chlor-Vinyl
business benefited from higher caustic soda prices due largely to
stable demand and tight supply conditions in North America and
Europe. These prices were more than offset by lower year-over-year
vinyl chloride monomer sales, as a result of lower volumes, driven
by asset shutdowns in 2011. Sales declined in Ethylene Oxide /
Ethylene Glycol compared with the year-ago period. These declines
were due in part to lower available volume stemming from planned
maintenance activities.
Equity earnings were $152 million, up from $115 million in the
same quarter last year. EBITDA for the segment was $186 million, or
$193 million on an adjusted basis. This is up from $175 million in
the same quarter last year.
Review of Results for 2012
Sales were $56.8 billion, down 5 percent, or 3 percent on an
adjusted basis, with currency representing nearly two-thirds of the
decline. Sales decreased in most operating segments and in all
geographic areas. This was led by Western Europe, which was down 4
percent.
On a reported basis, volume decreased 2 percent in 2012.
Adjusted volume increased 1 percent, as Asia Pacific and EMEA
reported volume growth during the year (up 3 percent and 1 percent
respectively). Volume in North America remained flat year over
year, while Latin America reported a volume decline of 1
percent.
Price was down 3 percent, or 4 percent on an adjusted basis.
Currency was a key driver, contributing $1.3 billion - or more than
half of the decline. Purchased feedstock and energy costs decreased
$2.5 billion.
EBITDA for the full year was $5.6 billion, or $7.5 billion on an
adjusted basis.
Dow reported full-year earnings of $0.70 per share, or $1.90 per
share on an adjusted basis. This compares with prior-year earnings
of $2.05 per share, or adjusted earnings of $2.54 per share.
Dow's global operating rate was 81 percent, up 1 percentage
point versus 2011.
Research and Development (R&D) expenses and Selling, General
and Administrative (SG&A) expenses together increased $135
million on a full-year basis. Agricultural Sciences represented
$128 million of this increase, reflecting the Company's commitment
to prioritize spending in key growth sectors.
Throughout the year, the Company maintained its focus on
lowering debt, reporting a gross debt reduction of $613 million in
2012. In addition, year-over-year interest expense declined $72
million.
Outlook
Commenting on the Company's outlook, Liveris said:
"Dow enters 2013 squarely focused on driving earnings growth,
increasing cash flow and rewarding shareholders. And while our
business plans do not call for material macroeconomic tailwinds, we
will fully harvest our feedstock strength, particularly in
Performance Plastics, and further accelerate growth in our
technology-driven Agricultural Sciences segment. In addition, we
have deployed $2.5 billion of cost reductions and cash flow
improvements, and are aggressively managing our portfolio - by
prioritizing our growth programs and driving selective, non-core
divestitures. Collectively these actions demonstrate our firm
resolve to control what we can control, and proactively implement
the right strategic decisions to accelerate Dow's performance.
"We have the right catalysts firmly in place. Our feedstock
advantage, particularly as the ethylene cycle unfolds, and the
commercialization of our technology pipeline, as well as our
integration investments in the U.S. Gulf Coast and Sadara as a
whole differentiate Dow, and will continue to propel our strategy
to deliver higher earnings growth and increasingly reward
shareholders."
Dow will host a live Webcast of its fourth 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) "Adjusted 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 adjusted 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 (Loss) Available for The Dow Chemical Company Common
Stockholders" is provided following the Operating Segments table.
(3) Adjusted EBITDA is defined as EBITDA excluding
the impact of "Certain Items."
(4) Adjusted EBITDA margin is defined as EBITDA excluding the impact
of Certain Items as a percentage of reported sales.
(5) "Adjusted sales" is defined as "Net Sales" excluding
sales related to prior-period divestitures.
(6) "Adjusted volume" is defined as reported volume excluding
the impact of prior-period divestitures.
(7) "Adjusted price" is defined as reported price excluding
the impact of prior-period divestitures.
®tm* Trademark of The Dow Chemical Company ("Dow") or an
affiliated company of Dow
®SmartStax multi-event technology developed by Dow AgroSciences
LLC and Monsanto. SmartStax is a trademark of Monsanto Technology
LLC.
About Dow
Dow (NYSE: DOW) combines the power of science and technology to
passionately innovate what is essential to human progress. The
Company connects chemistry and innovation with the principles of
sustainability to help address many of the world's most challenging
problems such as the need for clean water, renewable energy
generation and conservation, and increasing agricultural
productivity. Dow's diversified 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 160 countries and in high
growth sectors such as electronics, water, energy, coatings and
agriculture. In 2012, Dow had annual sales of $57 billion and
employed approximately 54,000 people worldwide. The Company's more
than 5,000 products are manufactured at 188 sites in 36 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 financial measures: Dow's management believes
that measures of income adjusted to exclude certain items
("non-GAAP" financial measures) provide relevant and meaningful
information to investors about the ongoing operating results of the
Company. Such financial measures 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 financial measures of performance. Reconciliations of non-GAAP
financial measures to GAAP financial measures are provided in the
Supplemental Information tables.
Note: The forward-looking statements contained in this document
involve risks and uncertainties that may affect the Company's
operations, markets, products, services, prices and other factors
as discussed in filings with the Securities and Exchange
Commission. These risks and uncertainties include, but are not
limited to, economic, competitive, legal, governmental and
technological factors. Accordingly, there is no assurance that the
Company'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 Twelve Months Ended
In millions, Dec 31, Dec 31, Dec 31, Dec 31,
except 2012 2011 2012 2011
per share
amounts
(Unaudited)
Net Sales $ 13,917 $ 14,097 $ 56,786 $ 59,985
Cost of sales 11,939 12,433 47,792 51,029
Research and 463 433 1,708 1,646
development
expenses
Selling, general 741 702 2,861 2,788
and
administrative
expenses
Amortization of 117 123 478 496
intangibles
Goodwill 220 -- 220 --
impairment
loss (Note B)
Restructuring 986 -- 1,343 --
charges
(Note C)
Acquisition-related -- -- -- 31
integration
expenses (Note D)
Equity in 44 259 536 1,223
earnings
of
nonconsolidated
affiliates
(Note E)
Sundry income (50 ) 6 (27 ) (316 )
(expense)
- net (Note F)
Interest income 15 14 41 40
Interest expense 310 331 1,269 1,341
and amortization
of debt discount
Income (Loss) (850 ) 354 1,665 3,601
Before
Income Taxes
Provision (Credit) (99 ) 271 565 817
for
income taxes
(Note G)
Net Income (Loss) (751 ) 83 1,100 2,784
Net income (loss) (120 ) 18 (82 ) 42
attributable
to noncontrolling
interests
Net Income (Loss) (631 ) 65 1,182 2,742
Attributable
to The Dow
Chemical
Company
Preferred stock 85 85 340 340
dividends
Net Income (Loss) $ (716 ) $ (20 ) $ 842 $ 2,402
Available
for The Dow
Chemical Company
Common
Stockholders
Per Common Share
Data:
Earnings (Loss) $ (0.61 ) $ (0.02 ) $ 0.71 $ 2.06
per common
share - basic
Earnings (Loss) $ (0.61 ) $ (0.02 ) $ 0.70 $ 2.05
per common
share - diluted
Common stock $ 0.32 $ 0.25 $ 1.21 $ 0.90
dividends
declared
per share of
common stock
Weighted-average 1,175.6 1,154.3 1,169.7 1,149.0
common shares
outstanding
- basic
Weighted-average 1,175.6 1,154.3 1,176.4 1,158.2
common shares
outstanding
- diluted
Depreciation $ 527 $ 553 $ 2,057 $ 2,177
Capital $ 1,009 $ 1,067 $ 2,614 $ 2,687
Expenditures
See Notes to the Consolidated Financial Statements:
The Dow Chemical Company and Subsidiaries
Notes to the Consolidated Financial Statements
Note A: The unaudited 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, 2011. 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: During the fourth quarter of 2012, the Company recorded
a pretax charge of $220 million for a goodwill impairment loss
related to the Dow Formulated Systems reporting unit.
Note C: On March 27, 2012, the Company's Board of Directors
approved a restructuring plan ("1Q12 Restructuring") as part of a
series of actions to optimize its portfolio, respond to changing
and volatile economic conditions, particularly in Western Europe,
and to advance the Company's Efficiency for Growth program. The
1Q12 Restructuring plan includes the shutdown of a number of
manufacturing facilities and a workforce reduction. As a result of
these activities, the Company recorded pretax restructuring charges
of $357 million in the first quarter of 2012 that included asset
write-downs and write-offs, severance and costs associated with
exit and disposal activities. In the fourth quarter of 2012, the
Company recorded a pretax gain of $4 million for restructuring
charge adjustments related to asset write-downs and contract
cancellation fees.
On October 23, 2012, the Company's Board of Directors approved a
restructuring plan ("4Q12 Restructuring") to advance the next stage
of the Company's transformation and to address macroeconomic
uncertainties. The 4Q12 Restructuring plan accelerates the
Company's structural cost reduction program and will affect
approximately 2,800 positions. The 4Q12 Restructuring plan also
includes asset impairments related to the shutdown of 20
manufacturing facilities, the write-off of certain capital project
spending and an impairment charge related to the write-down of Dow
Kokam LLC's long-lived assets. As a result of these activities, the
Company recorded pretax restructuring charges of $990 million in
the fourth quarter of 2012 that included asset write-downs and
write-offs, severance and costs associated with exit or disposal
activities.
Note D: During the first quarter of 2011, pretax charges
totaling $31 million were recorded for integration costs related to
the April 1, 2009 acquisition of Rohm and Haas Company.
Note E: In the fourth quarter of 2012, the Company recognized an
$89 million loss related to the abandonment of a polycrystalline
silicon plant expansion as well as restructuring charges incurred
at Dow Corning Corporation, a nonconsolidated affiliate. In the
fourth quarter of 2012, the Company also recorded a $73 million
loss related to project development and other costs associated with
Sadara Chemical Company, a nonconsolidated affiliate. In the third
quarter of 2011, the Company recognized an $86 million gain related
to cash collected on a previously impaired note receivable related
to Equipolymers, a nonconsolidated affiliate.
Note F: In the fourth quarter of 2012, the Company recognized a
pretax loss of $99 million on the early extinguishment of debt; a
pretax loss of $24 million was recognized in the first quarter of
2012; and a pretax loss of $482 million was recognized in the first
half of 2011.
In the fourth quarter of 2012, the Company recognized a pretax
gain of $8 million related post-closing adjustments on the sale of
a contract manufacturing business; a pretax loss of $42 million
($44 million gain after tax) was recognized in the fourth quarter
of 2011.
Note G: In the fourth quarter of 2011, the Company established a
valuation allowance against the deferred tax assets of two Dow
entities in Brazil in the amount of $264 million.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
In millions (Unaudited) Dec 31, Dec 31,
2012 2011
Assets
Current Assets
Cash and cash equivalents (variable $ 4,318 $ 5,444
interest entities
restricted - 2012: $146; 2011: $170)
Marketable securities and interest-bearing -- 2
deposits
Accounts and notes receivable:
Trade (net of allowance for 5,074 4,900
doubtful receivables
- 2012: $121; 2011: $121)
Other 4,605 4,726
Inventories 8,476 7,577
Deferred income tax assets - current 877 471
Other current assets 334 302
Total current assets 23,684 23,422
Investments
Investment in nonconsolidated affiliates 4,121 3,405
Other investments (investments carried at fair 2,565 2,508
value - 2012: $2,061; 2011: $2,008)
Noncurrent receivables 313 1,144
Total investments 6,999 7,057
Property
Property 54,366 52,216
Less accumulated depreciation 36,846 34,917
Net property (variable interest 17,520 17,299
entities restricted
- 2012: $2,554; 2011: $2,169)
Other Assets
Goodwill 12,739 12,930
Other intangible assets (net 4,711 5,061
of accumulated amortization
- 2012: $2,785; 2011: $2,349)
Deferred income tax assets - noncurrent 3,333 2,559
Asbestos-related insurance 155 172
receivables - noncurrent
Deferred charges and other assets 464 724
Total other assets 21,402 21,446
Total Assets $ 69,605 $ 69,224
Liabilities and Equity
Current Liabilities
Notes payable $ 396 $ 541
Long-term debt due within one year 672 2,749
Accounts payable:
Trade 5,010 4,778
Other 2,327 2,216
Income taxes payable 251 382
Deferred income tax liabilities - current 95 129
Dividends payable 86 376
Accrued and other current liabilities 2,656 2,463
Total current liabilities 11,493 13,634
Long-Term Debt (variable interest entities 19,919 18,310
nonrecourse - 2012: $1,406; 2011: $1,138)
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent 837 1,091
Pension and other postretirement 11,459 9,034
benefits - noncurrent
Asbestos-related liabilities - noncurrent 530 608
Other noncurrent obligations 3,353 3,109
Total other noncurrent liabilities 16,179 13,842
Redeemable Noncontrolling Interest 147 147
Stockholders' Equity
Preferred stock, series A 4,000 4,000
Common stock 3,008 2,961
Additional paid-in capital 3,281 2,663
Retained earnings 18,495 19,087
Accumulated other comprehensive loss (7,516 ) (5,996 )
Unearned ESOP shares (391 ) (434 )
The Dow Chemical Company's 20,877 22,281
stockholders' equity
Noncontrolling interests 990 1,010
Total equity 21,867 23,291
Total Liabilities and Equity $ 69,605 $ 69,224
See Notes to the Consolidated Financial Statements.
The
Dow Chemical
Company
and
Subsidiaries
Operating
Segments
Three Months Ended Twelve Months Ended
In Dec 31,2012 Dec 31,2011 Dec 31,2012 Dec 31,2011
millions
(Unaudited)
Sales
by
operating
segment
Electronic $ 1,098 $ 1,063 $ 4,481 $ 4,599
and
Functional
Materials
Coatings 1,577 1,561 6,898 7,200
and
Infrastructure
Solutions
Agricultural 1,566 1,344 6,382 5,655
Sciences
Performance 3,355 3,550 13,608 14,647
Materials
Performance 3,677 3,659 14,479 16,257
Plastics
Feedstocks 2,582 2,846 10,695 11,302
and Energy
Corporate 62 74 243 325
Total $ 13,917 $ 14,097 $ 56,786 $ 59,985
EBITDA
(1) by
operating
segment
Electronic $ 155 $ 234 $ 958 $ 1,084
and
Functional
Materials
Coatings 36 177 823 1,167
and
Infrastructure
Solutions
Agricultural 156 145 977 913
Sciences
Performance (137 ) 225 1,036 1,748
Materials
Performance 803 667 3,018 3,440
Plastics
Feedstocks 186 175 718 940
and Energy
Corporate (1,074 ) (211 ) (1,939 ) (1,507 )
Total $ 125 $ 1,412 $ 5,591 $ 7,785
Certain
items
increasing
(decreasing)
EBITDA
by
operating
segment (2)
Electronic $ (56 ) $ -- $ (73 ) $ --
and
Functional
Materials
Coatings (93 ) (60 ) (134 ) (60 )
and
Infrastructure
Solutions
Agricultural -- -- -- --
Sciences
Performance (404 ) (119 ) (590 ) (119 )
Materials
Performance (26 ) -- (26 ) 86
Plastics
Feedstocks (7 ) -- (7 ) --
and Energy
Corporate (895 ) -- (1,032 ) (513 )
Total $ (1,481 ) $ (179 ) $ (1,862 ) $ (606 )
EBITDA
excluding
certain
items
by
operating
segment
Electronic $ 211 $ 234 $ 1,031 $ 1,084
and
Functional
Materials
Coatings 129 237 957 1,227
and
Infrastructure
Solutions
Agricultural 156 145 977 913
Sciences
Performance 267 344 1,626 1,867
Materials
Performance 829 667 3,044 3,354
Plastics
Feedstocks 193 175 725 940
and Energy
Corporate (179 ) (211 ) (907 ) (994 )
Total $ 1,606 $ 1,591 $ 7,453 $ 8,391
Continued
The
Dow Chemical
Company
and
Subsidiaries
Operating
Segments
(Continued)
Three Months Ended Twelve Months Ended
In Dec 31, Dec 31, Dec 31, Dec 31,
millions 2012 2011 2012 2011
(Unaudited)
Equity in
earnings
(losses) of
nonconsolidated
affiliates
by operating
segment
(included in
EBITDA)
Electronic and $ 13 $ 32 $ 94 $ 104
Functional
Materials
Coatings (46 ) 102 50 321
and
Infrastructure
Solutions
Agricultural (2 ) 1 1 4
Sciences
Performance (25 ) (11 ) (92 ) (31 )
Materials
Performance 33 32 134 303
Plastics
Feedstocks 152 115 452 561
and Energy
Corporate (81 ) (12 ) (103 ) (39 )
Total $ 44 $ 259 $ 536 $ 1,223
(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 (Loss) Available for The
Dow Chemical Company Common Stockholders" is provided below.
Reconciliation of
EBITDA to "Net
Income (Loss)
Available
for The
Dow Chemical Company Three Months Ended Twelve Months Ended
Common Stockholders"
In Dec 31, Dec 31, Dec 31, Dec 31,
millions (Unaudited) 2012 2011 2012 2011
EBITDA $ 125 $ 1,412 $ 5,591 $ 7,785
- Depreciation and 680 741 2,698 2,883
amortization
+ Interest income 15 14 41 40
- Interest expense 310 331 1,269 1,341
and amortization
of debt discount
Income (Loss) Before $ (850 ) $ 354 $ 1,665 $ 3,601
Income Taxes
- Provision (Credit) (99 ) 271 565 817
for income taxes
- Net income (loss) (120 ) 18 (82 ) 42
attributable
to noncontrolling
interests
- Preferred stock 85 85 340 340
dividends
Net Income (Loss) $ (716 ) $ (20 ) $ 842 $ 2,402
Available
for The Dow
Chemical Company
Common
Stockholders
(2) See Supplemental Information for a description of certain
items affecting results in 2012 and 2011.
Sales by Geographic
Area
Three Months Ended Twelve Months Ended
In Dec 31, Dec 31, Dec 31, Dec 31,
millions (Unaudited) 2012 2011 2012 2011
North America $ 4,814 $ 4,872 $ 20,294 $ 21,345
Europe, Middle 4,505 4,644 19,185 20,840
East
and Africa
Asia Pacific 2,662 2,669 10,247 10,554
Latin America 1,936 1,912 7,060 7,246
Total $ 13,917 $ 14,097 $ 56,786 $ 59,985
Continued
Sales
Volume
and Price
by
Operating
Segment
and
Geographic
Area
Three Months Ended Twelve Months Ended
December 31, 2012 December 31, 2012
Percentage Volume Price Total Volume Price Total
change
from
prior
year
Electronic 7 % (4 )% 3 % -- (3 )% (3 )%
and
Functional
Materials
Coatings 5 (4 ) 1 2 (6 ) (4 )
and
Infrastructure
Solutions
Agricultural 13 4 17 10 3 13
Sciences
Performance (2 ) (3 ) (5 ) (1 ) (6 ) (7 )
Materials
Performance (1 ) 2 1 (7 ) (4 ) (11 )
Plastics
Feedstocks (10 ) 1 (9 ) (3 ) (2 ) (5 )
and
Energy
Total -- (1 )% (1 )% (2 )% (3 )% (5 )%
North 1 % (2 )% (1 )% (3 )% (2 )% (5 )%
America
Europe, (6 ) 3 (3 ) (4 ) (4 ) (8 )
Middle
East
and
Africa
Asia 5 (5 ) -- 3 (6 ) (3 )
Pacific
Latin 1 -- 1 (2 ) (1 ) (3 )
America
Total -- (1 )% (1 )% (2 )% (3 )% (5 )%
Sales
Volume
and Price
by
Operating
Segment
and
Geographic
Area
Excluding
Divestitures
(1)
Three Months Ended Twelve Months Ended
December 31, 2012 December 31, 2012
Percentage Volume Price Total Volume Price Total
change
from
prior
year
Electronic 7 % (4 )% 3 % -- (3 )% (3 )%
and
Functional
Materials
Coatings 5 (4 ) 1 2 (6 ) (4 )
and
Infrastructure
Solutions
Agricultural 13 4 17 10 3 13
Sciences
Performance (2 ) (3 ) (5 ) -- (6 ) (6 )
Materials
Performance (1 ) 2 1 1 (4 ) (3 )
Plastics
Feedstocks (10 ) 1 (9 ) (3 ) (2 ) (5 )
and
Energy
Total -- (1 )% (1 )% 1 % (4 )% (3 )%
North 1 % (2 )% (1 )% -- (2 )% (2 )%
America
Europe, (6 ) 3 (3 ) 1 (5 ) (4 )
Middle
East
and
Africa
Asia 5 (5 ) -- 3 (6 ) (3 )
Pacific
Latin 1 -- 1 (1 ) (1 ) (2 )
America
Total -- (1 )% (1 )% 1 % (4 )% (3 )%
(1) Excludes sales of the Polypropylene business, divested on September
30, 2011, and sales of Dow Haltermann divested during 2011.
Supplemental Information
Description of Certain Items Affecting Results:
The following table summarizes the impact of certain items
recorded in the three-month periods ended December 31, 2012 and
December 31, 2011:
Certain Pretax Impact (1) Net Income (2) EPS - Diluted (3)
Items
Impacting
Results
Three Months Ended Three Months Ended Three Months Ended
In Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
millions, 2012 2011 2012 2011 2012 2011
except
per share
amounts
(Unaudited)
Adjusted $ 389 $ 289 $ 0.33 $ 0.25
to
exclude
certain
items
(non-GAAP
measures)
Certain
items:
Asset $ -- $ (77 ) -- (51 ) -- (0.05 )
impairments
and
related
costs
Warranty -- (60 ) -- (38 ) -- (0.03 )
accrual
adjustment
of exited
business
Restructuring (22 ) -- (14 ) -- (0.01 ) --
plan
implementation
costs
Goodwill (220 ) -- (220 ) -- (0.19 ) --
impairment
1Q12 4 -- 7 -- -- --
Restructuring
credit
4Q12 (990 ) -- (671 ) -- (0.57 ) --
Restructuring
charge
Charge (89 ) -- (82 ) -- (0.07 ) --
related
to
Dow
Corning
restructuring
and
asset
abandonment
Charge (73 ) -- (70 ) -- (0.06 ) --
for
Sadara
related
development
and other
costs
Gain 8 (42 ) 8 44 0.01 0.04
(Loss)
on sale
of
contract
manufacturing
business
Loss (99 ) -- (63 ) -- (0.05 ) --
on
early
extinguishment
of debt
Tax -- -- -- (264 ) -- (0.23 )
valuation
allowance
Total $ (1,481 ) $ (179 ) $ (1,105 ) $ (309 ) $ (0.94 ) $ (0.27 )
certain
items
Reported $ (716 ) $ (20 ) $ (0.61 ) $ (0.02 )
(GAAP
amounts)
(1) Impact on "Income (Loss) Before Income Taxes."
(2) "Net Income (Loss) Available for The Dow
Chemical Company Common Stockholders."
(3) "Earnings (Loss) per common share - diluted."
Results in the fourth quarter of 2012 were impacted by the
following items:
-- Pretax charges of $22 million for implementation costs related to the
Company's restructuring programs. The charges were included in
"Cost
of sales" ($1 million) and "Selling, general and
administrative
expenses" ($21 million) in the consolidated statements of income
and
reflected in Corporate.
-- Pretax charge of $220 million for a goodwill impairment loss related
to the Dow Formulated Systems reporting unit. The charge was
included
in "Goodwill impairment loss" in the consolidated statements of
income
and reflected in Performance Materials.
-- Pretax gain of $4 million ($7 million gain after tax) for adjustments
to asset write-downs and contract cancellation fees related to
the
1Q12 Restructuring plan. The gain was included in
"Restructuring
charges" in the consolidated statements of income and reflected
in
Coatings and Infrastructure Solutions.
-- Pretax restructuring charges of $990 million. On October 23, 2012, the
Company's Board of Directors approved a restructuring plan
("4Q12
Restructuring") to advance the next stage of the Company's
transformation and to address macroeconomic uncertainties. The
4Q12
Restructuring plan accelerates the Company's structural cost
reduction
program and will affect approximately 2,800 positions. The
4Q12
Restructuring plan also includes asset impairments related to
the
shutdown of 20 manufacturing facilities, the write-off of
certain
capital project spending and an impairment charge related to
the
write-down of Dow Kokam LLC's long-lived assets. As a result of
these
activities, the Company recorded pretax restructuring charges
of
$990 million in the fourth quarter of 2012 consisting of
costs
associated with exit and disposal activities of $39 million,
severance
costs of $375 million and costs associated with asset
write-downs and
write-offs of $576 million. The charges were included in
"Restructuring charges" in the consolidated statements of income
and
reflected in the Company's segment results as follows: $48
million in
Electronic and Functional Materials, $16 million in Coatings
and
Infrastructure Solutions, $192 million in Performance
Materials,
$26 million in Performance Plastics, $7 million in Feedstocks
and
Energy and $701 million in Corporate.
-- Pretax loss of $89 million related to the abandonment of a
polycrystalline silicon plant expansion as well as
restructuring
charges incurred at Dow Corning Corporation, a
nonconsolidated
affiliate. The loss was included in "Equity in earnings of
nonconsolidated affiliates" in the consolidated statements of
income
and reflected in Electronic and Functional Materials ($8
million) and
Coatings and Infrastructure Solutions ($81 million).
-- Pretax loss of $73 million related to expensed project development and
other costs associated with Sadara Chemical Company, a
nonconsolidated
affiliate. The loss was included in "Equity in earnings of
nonconsolidated affiliates" in the consolidated statements of
income
and is reflected in Corporate.
-- Pretax gain of $8 million related post-closing adjustments on the sale
of a contract manufacturing business. The gain was included in
"Sundry
income (expense) - net" in the consolidated statements of income
and
reflected in Performance Materials.
-- Pretax loss of $99 million on the early extinguishment of debt
included in "Sundry income (expense) - net" in the
consolidated
statements of income and reflected in Corporate.
Results in the fourth quarter of 2011 were impacted by the
following items:
-- Pretax charges totaling $77 million for asset impairments and related
costs in the Polyurethanes business. The charges were included
in
"Cost of sales" in the consolidated statements of income and
reflected
in Performance Materials.
-- Pretax charges of $60 million for a warranty accrual adjustment
related to an exited business. The charge was included in "Cost
of
sales" in the consolidated statements of income and reflected
in
Coatings and Infrastructure Solutions.
-- Pretax loss of $42 million ($44 million gain after tax) on the sale of
a contract manufacturing business. The pretax loss was included
in
"Sundry income (expense) - net" in the consolidated statements
of
income and reflected in Performance Materials.
-- A valuation allowance was established against the deferred tax assets
of two Dow entities in Brazil in the amount of $264 million.
The following table summarizes the impact of certain items
recorded in the years ended December 31, 2012 and December 31,
2011:
Certain Items Pretax Impact (1) Net Income (2) EPS - Diluted (3)
Impacting
Results
Twelve Months Ended Twelve Months Ended Twelve Months Ended
In millions, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
except 2012 2011 2012 2011 2012 2011
per share
amounts
(Unaudited)
Adjusted to $ 2,249 $ 2,959 $ 1.90 $ 2.54
exclude
certain
items
(non-GAAP
measures)
Certain items:
Asset $ -- $ (77 ) -- (51 ) -- (0.05 )
impairments
and
related costs
Warranty -- (60 ) -- (38 ) -- (0.03 )
accrual
adjustment
of exited
business
Restructuring (22 ) -- (14 ) -- (0.01 ) --
plan
implementation
costs
Goodwill (220 ) -- (220 ) -- (0.19 ) --
impairment
1Q12 (353 ) -- (280 ) -- (0.25 ) --
Restructuring
charge
4Q12 (990 ) -- (671 ) -- (0.57 ) --
Restructuring
charge
Acquisition-related -- (31 ) -- (20 ) -- (0.02 )
integration
costs
Gain -- 86 -- 86 -- 0.07
on collection
of impaired
note
receivable
Charge related (89 ) -- (82 ) -- (0.07 ) --
to Dow Corning
restructuring
and
asset
abandonment
Charge for (73 ) -- (70 ) -- (0.06 ) --
Sadara
related
development
and other
costs
Gain (Loss) 8 (42 ) 8 44 0.01 0.04
on sale
of a contract
manufacturing
business
Loss (123 ) (482 ) (78 ) (314 ) (0.06 ) (0.27 )
on
early
extinguishment
of debt
Tax valuation -- -- -- (264 ) -- (0.23 )
allowance
Total certain $ (1,862 ) $ (606 ) $ (1,407 ) $ (557 ) $ (1.20 ) $ (0.49 )
items
Reported (GAAP $ 842 $ 2,402 $ 0.70 $ 2.05
amounts)
(1) Impact on "Income Before Income Taxes."
(2) "Net Income Available for The Dow Chemical
Company Common Stockholders."
(3) "Earnings per common share - diluted."
In addition to the items described above for the fourth quarter
of 2012, results for the year ended December 31, 2012 were
unfavorably impacted by two items:
-- Pretax restructuring charges of $357 million. On March 27, 2012, the
Company's Board of Directors approved a restructuring plan
("1Q12
Restructuring") as part of a series of actions to optimize
its
portfolio, respond to changing and volatile economic
conditions,
particularly in Western Europe, and to advance the Company's
Efficiency for Growth program, initiated by the Company in the
second
quarter of 2011. The restructuring plan includes the shutdown of
a
number of manufacturing facilities and a workforce reduction. As
a
result of these activities, the Company recorded pretax
restructuring
charges of $357 million in the first quarter of 2012 consisting
of
costs associated with exit and disposal activities of $150
million,
severance costs of $113 million and costs associated with
asset
write-downs and write-offs of $94 million. The impact of the
charges
was shown as "Restructuring charges" in the consolidated
statements of
income and is reflected in the Company's segment results as
follows:
$17 million in Electronic and Functional Materials, $41 million
in
Coatings and Infrastructure Solutions, $186 million in
Performance
Materials and $113 million in Corporate.
-- Pretax loss of $24 million on the early extinguishment of debt,
included in "Sundry income (expense) - net" in the
consolidated
statements of income and reflected in Corporate.
In addition to the items described above for the fourth quarter
of 2011, results for the year ended December 31, 2011 were impacted
by the following items:
-- Pretax charges totaling $31 million for integration costs related to
the April 1, 2009 acquisition of Rohm and Haas. The charges
are
included in "Acquisition-related integration expenses" in
the
consolidated statements of income and reflected in
Corporate.
-- Pretax $86 million gain related to cash collected on a previously
impaired note receivable related to Equipolymers, a
nonconsolidated
affiliate. The gain is shown as "Equity in earnings of
nonconsolidated
affiliates" in the consolidated statements of income and
reflected in
Performance Plastics.
-- Pretax loss of $482 million on the early extinguishment of debt,
included in "Sundry income (expense) - net" in the
consolidated
statements of income and reflected in Corporate.
The Dow Chemical CompanyRebecca Bentley+1 989 638
8568rmbentley@dow.com
Dow Chem. (LSE:DOW)
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