MIDLAND, Mich., Feb. 3 /PRNewswire-FirstCall/ --
Fourth Quarter 2008 Highlights
-- The Company reported a loss of $1.68 per share; excluding certain
items, the loss was $0.62 per share. Earnings in the fourth quarter of 2007
were $0.49 per share; excluding certain items, earnings in the fourth quarter
of 2007 were $0.84 per share. (See Supplemental Information at the end of the
release for a description of these items.) In addition, earnings for the
quarter were reduced by a much higher effective tax rate, which was
unfavorably impacted by several items totaling $295 million, equivalent to
$0.32 per share.
-- The Company delivered on its fourth quarter commitments related to
generating cash and controlling costs as outlined in October 2008. Management
interventions contributed to cash provided by operating activities of $2.2
billion and free cash flow(1) of $1.2 billion in the quarter.
-- Sales for the fourth quarter were down 23 percent from the same period
last year to $10.9 billion. Volume declined 17 percent, and was down in all
operating segments and in all geographic areas, reflecting the global economic
downturn as well as the de-stocking that occurred through most value chains.
-- The Company reduced production to match market conditions. This
resulted in historically low operating rates, particularly in December which
was 44 percent. For the quarter, the operating rate was 64 percent, a rate not
seen in more than 25 years.
-- Price was down 6 percent in the quarter, as a 4 percent increase in the
Performance segments was more than offset by a 15 percent decline in the
Basics segments. The decline in Basics was principally due to a 23 percent
drop in feedstock and energy costs versus the same quarter last year.
2008 Full-Year Highlights
-- Cash provided by operating activities was $4.7 billion in 2008, an
improvement of more than $200 million versus 2007, against deteriorating
economic conditions.
-- Despite the sales decline in the fourth quarter, 2008 sales increased 7
percent compared with 2007, setting another record for the Company of $57.5
billion. Price increased 12 percent, while volume was down 5 percent.
-- Dow AgroSciences reported full-year sales and EBIT(2) records. Sales
grew 20 percent to $4.5 billion, reflecting an 8 percent increase in volume
and a 12 percent increase in price, and delivering EBIT of $761 million.
-- Equity earnings declined to $787 million from $1.1 billion in 2007,
reflecting the global demand destruction that took place in the fourth quarter
of 2008.
-- Dow reported full-year earnings of $0.62 per share; excluding certain
items, earnings for the year were $1.82 per share. Earnings for 2007 were
$2.99 per share; excluding certain items, earnings for 2007 were $3.76 per
share. (See Supplemental Information at the end of the release for a
description of these items.)
Comment
Andrew N. Liveris, Dow's chairman and chief executive officer, stated:
"With a global economic crisis unfolding during the quarter, we responded
with speed and urgency to get ahead of the demand destruction that continued
to accelerate as we approached the end of the year. We immediately put in
place a full array of aggressive cash generation and cost and capital control
measures that delivered results. We remain intensely focused on those actions
that we can control and will continue to do so throughout 2009."
3 Months Ended 12 Months Ended
(In millions, except for per Dec. 31 Dec. 31
share amounts) 2008 2007 2008 2007
Net Sales $10,899 $14,227 $57,514 $53,513
Net Income (Loss) $(1,552) $472 $579 $2,887
Earnings (Loss) per Common Share $(1.68) $0.49 $0.62 $2.99
Earnings (Loss) per Common Share
Excluding Certain Items $(0.62) $0.84 $1.82 $3.76
Review of Fourth Quarter Results
The Dow Chemical Company (NYSE: DOW) reported sales of $10.9 billion for
the fourth quarter of 2008, representing a 23 percent decline compared with
the same period last year.
The Company reported a net loss of $1,552 million, reflecting the impact
of net after-tax charges of $978 million related to restructuring activities,
goodwill impairment losses, the impact of Hurricanes Gustav and Ike, K-Dow
related expenses, purchased in-process research and development charges
("IPR&D"), and expenses related to the Company's announced acquisition of Rohm
and Haas Company. This compares with net income of $472 million in the fourth
quarter of 2007, which reflected the impact of after-tax charges of $447
million related to restructuring activities and an adjustment to IPR&D, which
were partially offset by a reduction in the provision for income taxes of $113
million related to a change in the legal ownership structure of EQUATE. (See
Supplemental Information at the end of the release for a description of these
items.)
Dow reported a loss per share of $1.68, which included charges totaling
$1.06 for the items referenced above. This compares with earnings per share of
$0.49 in the year ago period, which included net charges of $0.35 per share
for the items referenced above.
Price was down 6 percent versus the same quarter last year, as a 15
percent decline in the combined Basics segments was partially offset by an
increase of 4 percent in the combined Performance segments. Performance
Chemicals reported price gains of 9 percent, while Agricultural Sciences was
up 6 percent.
Volume declined 17 percent, and was down in all operating segments and in
all geographic areas, reflecting the global economic downturn as well as the
de-stocking that occurred through most value chains.
Purchased feedstock and energy costs were down 23 percent versus the same
quarter last year, contributing to the decline in prices reported in the
Basics segments.
Despite prices declining at a slower pace than feedstock and energy costs,
the widespread demand destruction in the quarter resulted in margin
compression. The Company reduced production to match poor market conditions,
which resulted in historically low operating rates, particularly in December
which was 44 percent. For the full quarter, the operating rate was 64 percent
- a rate not seen in more than 25 years - which led to higher unabsorbed fixed
costs.
Equity earnings/losses were a net loss of $4 million, as nonconsolidated
affiliates reported margin compression due to volume and price declines
brought on by global recessionary pressures.
Selling, Administrative and Research and Development ("SARD") expenses
decreased 9 percent year over year, reflecting the Company's strict spending
discipline even as strategic bolt-on acquisitions by Dow AgroSciences
continued.
The Company delivered on its fourth quarter commitments related to
generating cash and controlling costs as outlined in October 2008. Management
interventions contributed to cash provided by operating activities of $2.2
billion and free cash flow of $1.2 billion in the quarter.
Dow's effective tax rate for the quarter was unfavorably impacted by
several items totaling $295 million (equivalent to $0.32 per share), including
higher foreign income taxes, principally in Canada; U.S. tax on increased
dividends from foreign subsidiaries; and valuation allowances recorded against
deferred tax assets.
"With a global economic crisis unfolding during the quarter, we responded
with speed and urgency to get ahead of the demand destruction that continued
to accelerate as we approached the end of the year," said Andrew N. Liveris,
chairman and chief executive officer. "We immediately put in place a full
array of aggressive cash generation and cost and capital control measures that
delivered results. We remain intensely focused on those actions that we can
control and will continue to do so throughout 2009."
Performance Plastics
Sales in the Performance Plastics segment were $3.16 billion, down 20
percent from the same period last year. Price increased 1 percent, while
volume declined 21 percent. Polyurethanes reported a loss of volume reflecting
global weakness in furniture, automotive, appliance and bedding applications.
Dow Epoxy reported stable demand in metal coating applications used in food
packaging, marine coatings and in coatings for pipelines and other
infrastructure applications, as ongoing projects progressed on schedule. These
gains, however, were more than offset by declines in industrial coatings used
in building and construction applications. Dow Automotive reported significant
volume declines, due to the broadening global downturn in vehicle production.
The Specialty Plastics and Elastomers business also posted a decrease in
volume, due to sluggish demand in automotive, footwear and building
applications. Demand for telecommunication fiber optic cables in the Wire and
Cable business increased, as did demand for power cable used in commercial
construction segments. The Performance Plastics segment reported a loss in
fourth quarter EBIT of $479 million, which included charges of $111 million
for restructuring, a goodwill impairment loss of $209 million, and $13 million
related to the impact of Hurricanes Gustav and Ike. This compares with fourth
quarter EBIT of $158 million in the same quarter last year, which included
restructuring charges of $184 million.
Performance Chemicals
Performance Chemicals reported a 7 percent decrease in sales to $1.97
billion versus sales of $2.13 billion in the fourth quarter of 2007. Globally,
price was up 9 percent while volume decreased 16 percent. Pricing showed
resilience in the quarter, and was up in all geographic areas and in all
businesses. However, results were negatively impacted by double-digit declines
in volume in all geographic areas. Price was up in Designed Polymers, due in
part to strength in food and pharmaceutical end-use markets served by Dow
Wolff Cellulosics, and in Dow Water Solutions, which reported favorable demand
for reverse osmosis membranes used in sulfate removal applications. Continued
volume declines for cellulosics used in the automotive and construction
industries negatively impacted overall results at Dow Wolff Cellulosics. Dow
Emulsion Polymers reported ongoing weakness in paper and carpet applications,
the latter reflecting the global slowdown in the housing sector. Equity
earnings increased year over year, driven by results at Dow Corning. EBIT for
Performance Chemicals was $174 million for the quarter, reflecting charges of
$25 million for restructuring and the impact of the two hurricanes. This
compares with EBIT of $124 million in the same quarter last year, which
included a net $83 million of restructuring charges and an adjustment to
IPR&D.
Agricultural Sciences
The Agricultural Sciences segment posted record fourth quarter sales of
$885 million, 2 percent higher than the same quarter last year. This marked
the tenth consecutive quarter that Dow AgroSciences has recorded a sales
record versus the comparative period of the prior year. Volume declined 4
percent, and price increased 6 percent. Price was up in all geographic areas
except Asia Pacific, while both price and volume increased in North America.
Seed sales increased versus the same quarter last year, led by U.S. corn sales
and sunflower sales in Latin America. Sales of agricultural chemicals declined
due to product shortages and lack of available credit for farmers in some
regions. Continuing its strategic growth agenda, Dow AgroSciences acquired
Brodbeck Seeds, Sudwestsaat GbR and the corn assets of Coodetec in Brazil,
bringing the number of acquisitions since May 2007 to nine. New products
aminopyralid, penoxsulam, pyroxsulam and spinetoram continued to ramp-up
successfully. Fourth quarter EBIT for Agricultural Sciences was $34 million,
which included a charge of $17 million for IPR&D related to a recent
acquisition and $3 million in restructuring charges. This compares with a loss
of $38 million in the same period last year, which included restructuring
charges of $77 million.
Basic Plastics
Basic Plastics sales declined 38 percent to $2.17 billion compared with
sales of $3.49 billion in the same period last year. Price decreased 15
percent, due in large part to rapidly declining hydrocarbon and energy prices.
Volume was down 23 percent, reflecting the collapse in demand that took place
in the quarter. Double-digit volume declines were reported in all geographic
areas and across all polymer families. Volume was also negatively impacted by
the shutdown of polypropylene capacity in St. Charles, Louisiana, in 2007; the
sale of polyethylene assets in Cubatao, Brazil in 2007; the joint venture
formation of Americas Styrenics in May 2008; and the impact of Hurricanes
Gustav and Ike. Polyethylene reported stable demand in food and specialty
packaging applications as the global economic downturn resulted in more in-
home dining, while underlying demand for polypropylene was down due to global
slowdowns in the housing and automotive sectors. Equity earnings/losses were a
net loss of $54 million due to lower earnings at EQUATE, Equipolymers, and
Siam Polyethylene. EBIT for the Basic Plastics segment was a loss of $315
million, which included restructuring charges of $148 million, a goodwill
impairment loss of $30 million, and charges of $3 million related to the
impact of the hurricanes. This compares with EBIT of $394 million in the year-
ago period, which included restructuring charges of $88 million.
Basic Chemicals
Basic Chemicals sales for the quarter decreased 39 percent year over year
to $992 million from $1.63 billion in 2007. Volume was down 33 percent, while
price declined 6 percent. Double-digit volume declines were reported in all
geographic areas. Compared with the same period last year, volume was lower
due to the sale of the caustic soda business in Western Canada in December
2007. Caustic soda prices continued to benefit from ongoing favorable industry
supply/demand fundamentals, while demand for vinyl chloride monomer used in
polyvinylchloride ("PVC") production declined further, as end-use applications
for PVC, namely residential building and construction applications, remained
extremely weak. Volumes were down substantially in the Ethylene Oxide/Ethylene
Glycol ("EO/EG") business due to unfavorable industry fundamentals, new
capacity from Middle Eastern suppliers, and worsening demand for polyester
fiber in Asia Pacific. Equity earnings/losses were a net loss of $20 million
in the quarter, reflecting depressed operating results at MEGlobal, EQUATE and
OPTIMAL. Fourth quarter EBIT was a loss of $237 million, which included
restructuring charges of $103 million and charges of $15 million related to
the impact of the two hurricanes. This compares with EBIT of $309 million in
the same period last year, which included a restructuring charge of $7
million.
Review of Results for 2008
Dow reported record annual sales of $57.5 billion, 7 percent higher than
last year's record of $53.5 billion. Price increased 12 percent, with
increases in every operating segment and in all geographic areas, principally
due to higher feedstock and energy costs, which were up $5.9 billion compared
with 2007.
Volume was down 5 percent, with declines in all geographic areas except
India, Middle East and Africa, and in all segments except Agricultural
Sciences, which reported a volume gain of 8 percent, and Hydrocarbons and
Energy, which was up 5 percent.
Equity earnings declined to $787 million from $1.1 billion in 2007,
reflecting the global demand destruction that took place in the fourth quarter
of 2008, as well as the decline in global energy markets.
Net income for the year was $579 million, which included certain items
with a net unfavorable impact of $1.1 billion. This compares with net income
in 2007 of $2.9 billion, which included certain items with a net unfavorable
impact of $735 million. (See Supplemental Information at the end of the
release for a description of these items.)
Cash provided by operating activities was $4.7 billion in 2008, an
improvement of more than $200 million versus 2007, despite deteriorating
economic conditions.
At year-end, the funded status of the Company's defined benefit pension
plans declined due to the reduction in global equity markets, resulting in an
after-tax charge to equity of $3.3 billion.
Earnings per share were $0.62 in 2008 and $2.99 in 2007. Excluding certain
items in both periods, earnings per share were $1.82 in 2008, down from $3.76
in 2007. (See Supplemental Information at the end of the release for a
description of certain items.)
Commenting on the Company's outlook, Liveris said: "As we enter 2009 we
are assuming that the late 2008 demand levels will continue for several
quarters and possibly beyond. Most of our value chains are running at very low
inventory levels, and when a recovery begins, possibly through government
stimuli in the back half of the year, the recovery could be rapid. Having said
that, we are planning for a global recession throughout 2009 and will continue
to take actions on managing our cash and controlling our costs with the same
intensity that we demonstrated in the fourth quarter."
-- 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 10:00 a.m. ET on www.dow.com.
(R)(TM) Trademark of The Dow Chemical Company or an affiliated company of
Dow.
(1) Free cash flow is defined as "Cash provided by operating activities"
of $2,249 million less "Capital expenditures" of $692 million less
"Dividends paid to stockholders" of $389 million.
(2) Earnings before interest, income taxes and minority interests
("EBIT"). A reconciliation of EBIT to "Net Income (Loss) Available
for Common Stockholders" is provided following the Operating Segments
table.
About Dow
With annual sales of $58 billion and 46,000 employees worldwide, Dow is a
diversified chemical company that combines the power of science and technology
with the "Human Element" to constantly improve what is essential to human
progress. The Company delivers a broad range of products and services to
customers in around 160 countries, connecting chemistry and innovation with
the principles of sustainability to help provide everything from fresh water,
food and pharmaceuticals to paints, packaging and personal care products.
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 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.
Supplemental Information
Description of Certain Items Affecting Results:
Fourth Quarters of 2008 and 2007
Results for the fourth quarter of 2008 were negatively impacted by the
following items:
-- Pretax costs totaling $54 million related to Hurricanes Gustav and Ike,
which hit the U.S. Gulf Coast in the third quarter. These costs, which
primarily included the repair of property damage and unabsorbed fixed costs,
are included in "Cost of sales" in the consolidated statements of income and
reflected in the operating segments as follows: $13 million in Performance
Plastics, $1 million in Performance Chemicals, $3 million in Basic Plastics,
$15 million in Basic Chemicals, $16 million in Hydrocarbons and Energy, and $6
million in Unallocated and Other.
-- Pretax legal expenses and other costs of $69 million related to the K-
Dow transaction that were expensed upon Petrochemical Industries Company's
refusal to close the K-Dow transaction on January 2, 2009. These costs are
shown as "Cost of sales" in the consolidated statements of income and
reflected in Unallocated and Other.
-- Goodwill impairment losses of $239 million related to the Dow
Automotive ($209 million against Performance Plastics) and Polypropylene ($30
million against Basic Plastics) reporting units. The losses are shown as
"Goodwill impairment losses" in the consolidated statements of income.
-- Net pretax restructuring charges of $839 million. In December 2008, the
Company's Board of Directors approved a restructuring plan as part of a series
of actions to advance the Company's strategy and respond to the recent, severe
economic downturn. The restructuring plan includes the shut down of a number
of facilities and a global workforce reduction. As a result, the Company
recorded restructuring charges totaling $785 million, including asset write-
downs and write-offs of $336 million, severance costs of $321 million and
costs associated with exit or disposal activities (such as pension curtailment
costs and environmental remediation) of $128 million. In addition, the Company
recorded a $60 million unfavorable adjustment to restructuring charges
recorded in the fourth quarter of 2007 and a $6 million favorable adjustment
to restructuring charges recorded in the third quarter of 2006. The net impact
of the fourth quarter charges and adjustments, which is shown as
"Restructuring charges" in the consolidated statements of income, impacted all
operating segments.
-- Pretax charge of $17 million for purchased in-process research and
development ("IPR&D") related to the recent acquisition of assets of
Suwestsaat GbR. The charge is shown as "Purchased in-process research and
development charges (credit)" in the consolidated statements of income and
reflected in Agricultural Sciences.
-- Pretax charges totaling $31 million for legal expenses and other
transaction costs related to the pending acquisition of Rohm and Haas Company.
These charges are shown as "Acquisition-related expenses" in the consolidated
statements of income and reflected in Unallocated and Other.
Results for the fourth quarter of 2007 were impacted by the following
items:
-- Net pretax restructuring charges of $582 million. In December 2007, the
Company's Board of Directors approved a restructuring plan that included the
shut down of a number of assets and organizational changes within targeted
support functions to enhance the efficiency and cost effectiveness of the
Company's global operations. As a result, the Company recorded restructuring
charges totaling $590 million in the fourth quarter of 2007. The charges
included asset write-downs and write-offs of $422 million, costs associated
with exit or disposal activities of $82 million and severance costs of $86
million. In addition, in the fourth quarter of 2007 the Company recorded an $8
million favorable adjustment to restructuring charges originally recorded in
the third quarter of 2006. The net impact of the charges is shown as
"Restructuring charges" in the consolidated statements of income.
-- A favorable adjustment of $2 million to IPR&D, reducing the amount
originally recorded in the third quarter of 2007 related to the acquisition of
Wolff Walsrode.
-- A reduction of $113 million in the provision for income taxes related
to a change in the legal ownership structure of the Company's 42.5 percent
interest in EQUATE Petrochemical Company K.S.C.
Years ended December 31, 2008 and 2007
In addition to the items described above for the fourth quarter of 2008,
earnings for 2008 were unfavorably impacted by the following third quarter
items:
-- Pretax costs totaling $127 million related to Hurricanes Gustav and
Ike. These costs, which included the repair of property damage, clean-up
costs, unabsorbed fixed costs and inventory write-offs, are included in "Cost
of sales" and reflected in the operating segments as follows: $35 million in
Performance Plastics, $14 million in Performance Chemicals, $2 million in
Agricultural Sciences, $11 million in Basic Plastics, $26 million in Basic
Chemicals, $36 million in Hydrocarbons and Energy, and $3 million in
Unallocated and Other.
-- Pretax charges totaling $27 million for IPR&D related to the recent
acquisitions of assets of Texas Triumph Seed Co., Inc.; Dairyland Seed Co.,
Inc.; and Bio-Plant Research Ltd; these charges are reflected in Agricultural
Sciences.
-- Pretax charges totaling $18 million for legal expenses and other
transaction costs related to the pending acquisition of Rohm and Haas Company;
these charges are reflected in Unallocated and Other.
In addition to the items described above for the fourth quarter of 2007,
earnings for 2007 were unfavorably impacted by the following items:
-- Pretax charges totaling $59 million in the third quarter for IPR&D
related to the 2007 acquisitions of assets of Agromen, Exelixis, Duo Maize and
Maize Technologies International and the 2007 acquisition of Wolff Walsrode.
-- A $362 million charge against the provision for income taxes related to
a change in German tax law enacted in August 2007, which reduced the German
income tax rate, resulting in a reduction in the value of the Company's net
deferred tax assets in Germany.
A table showing the impact of these items by operating segment is included
with the Operating Segments tables.
The following tables summarize the impact of certain items recorded in the
three-month and twelve-month periods ended December 31, 2008 and 2007, and
previously described in this section:
Certain Items Impacting Results
Pretax Impact on Impact on
Impact (1) Net Income (2) EPS (3)
Three Months Three Months Three Months
In millions, except Ended Ended Ended
per share amounts Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007 2008 2007
Goodwill impairment
losses $(239) - $(230) - $(0.25) -
Restructuring charges (839) $(582) (628) $(436) (0.68) $(0.46)
Impact of Hurricanes
Gustav and Ike (4) (54) - (34) - (0.03) -
K-Dow related expenses (69) - (44) - (0.05) -
Purchased in-process
research and
development (charges)
credit (17) 2 (17) (11) (0.02) (0.01)
Acquisition-related
expenses (31) - (25) - (0.03) -
Change in EQUATE legal
ownership structure - - - 113 - 0.12
Total $(1,249) $(580) $(978) $(334) $(1.06) $(0.35)
Certain Items Impacting Results
Pretax Impact on Impact on
Impact (1) Net Income (2) EPS (3)
Twelve Months Twelve Months Twelve Months
In millions, except Ended Ended Ended
per share amounts Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007 2008 2007
Goodwill impairment
losses $(239) - $(230) - $(0.25) -
Restructuring charges (839) $(578) (628) $(436) (0.68) $(0.46)
Impact of Hurricanes
Gustav and Ike (4) (181) - (115) - (0.12) -
K-Dow related expenses (69) - (44) - (0.05) -
Purchased in-process
research and
development charges (44) (57) (44) (50) (0.05) (0.05)
Acquisition-related
expenses (49) - (43) - (0.05) -
German tax law change - - - (362) - (0.38)
Change in EQUATE legal
ownership structure - - - 113 - 0.12
Total $(1,421) $(635) $(1,104) $(735) $(1.20) $(0.77)
(1) Impact on "Income (Loss) before Income Taxes and Minority Interests"
(2) Impact on "Net Income (Loss) Available for Common Stockholders"
(3) Impact on "Earnings (Loss) per common share - diluted"
(4) In addition, the interruption of operations caused by the hurricanes
resulted in an estimated pretax $15 million in the fourth quarter of
2008 and $50 million in the third quarter of 2008 in lost margin on
lost sales, the equivalent of $0.01 per share in the fourth quarter
and $0.03 per share in the third quarter, which is not included in the
amounts presented in the table.
Financial Statements (Note A)
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
Three Months Ended Twelve Months Ended
In millions, except per share Dec. 31, Dec. 31, Dec. 31, Dec. 31,
amounts (Unaudited) 2008 2007 2008 2007
Net Sales $10,899 $14,227 $57,514 $53,513
Cost of sales 10,493 12,533 52,019 46,400
Research and development
expenses 310 354 1,310 1,305
Selling, general and
administrative expenses 458 493 1,969 1,864
Amortization of intangibles 24 21 92 72
Goodwill impairment losses
(Note B) 239 - 239 -
Restructuring charges (Note C) 839 582 839 578
Purchased in-process research
and development charges
(credit) (Note D) 17 (2) 44 57
Acquisition-related expenses
(Note E) 31 - 49 -
Asbestos-related credit (Note F) 54 - 54 -
Equity in earnings (losses) of
nonconsolidated affiliates (4) 294 787 1,122
Sundry income - net 40 62 89 324
Interest income 14 29 86 130
Interest expense and
amortization of debt discount 192 161 648 584
Income (Loss) before Income Taxes
and Minority Interests (1,600) 470 1,321 4,229
Provision (Credit) for income
taxes (Note G) (60) (27) 667 1,244
Minority interests' share in
income 12 25 75 98
Net Income (Loss) Available for
Common Stockholders $(1,552) $472 $579 $2,887
Share Data
Earnings (Loss) per common
share - basic $(1.68) $0.50 $0.62 $3.03
Earnings (Loss) per common
share - diluted $(1.68) $0.49 $0.62 $2.99
Common stock dividends
declared per share of
common stock $0.42 $0.42 $1.68 $1.635
Weighted-average common
shares outstanding - basic 924.4 945.4 930.4 953.1
Weighted-average common
shares outstanding - diluted 931.2 957.5 939.0 965.6
Depreciation $519 $520 $2,016 $1,959
Capital Expenditures $692 $764 $2,276 $2,075
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, 2007. 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 2008, the Company recorded pretax
charges totaling $239 million for goodwill impairment losses
related to the Dow Automotive ($209 million) and Polypropylene
($30 million) reporting units.
Note C: In December 2008, Dow's Board of Directors approved a
restructuring plan as part of a series of actions to advance the
Company's strategy and respond to the recent, severe economic
downturn. The restructuring plan includes the shut down of a
number of facilities and a global workforce reduction. As a
result, the Company recorded restructuring charges totaling $785
million in the fourth quarter of 2008. The charges included asset
write-downs and write-offs, severance costs and costs associated
with exit or disposal activities. In the fourth quarter of 2008,
the Company also recorded a $60 million unfavorable adjustment to
the 2007 restructuring charges and a $6 million favorable
adjustment to the 2006 restructuring charges.
In December 2007, Dow's Board of Directors approved a
restructuring plan that included the shut down of a number of
assets and organizational changes within targeted support
functions to enhance the efficiency and cost effectiveness of the
Company's global operations. As a result, the Company recorded
restructuring charges totaling $590 million in the fourth quarter
of 2007. The charges included asset write- downs and write-offs,
severance costs, contract termination fees, and costs for
environmental remediation. In the fourth quarter of 2007, the
Company also recorded an $8 million favorable adjustment to the
2006 restructuring charges.
Note D: During the third and fourth quarters of 2008, pretax charges
totaling $27 million and $17 million, respectively, were recorded
for estimated values assigned to purchased in-process research and
development related to recent acquisitions within the Agricultural
Sciences segment. In 2007, pretax charges totaling $57 million
were recorded for estimated values assigned to purchased in-
process research and development. $50 million was related to
acquisitions within the Agricultural Sciences segment; $7 million
was related to the acquisition of Wolff Walsrode on June 30, 2007.
Note E: On July 10, 2008, Dow and Rohm and Haas Company announced a
definitive agreement under which the Company will acquire Rohm and
Haas Company. During the third and fourth quarters of 2008, pretax
charges totaling $18 million and $31 million, respectively, were
recorded for legal expenses and other transaction costs related to
the pending acquisition.
Note F: In December 2008, Union Carbide reduced its asbestos-related
liability $54 million based on a new study completed in the fourth
quarter by Analysis, Research & Planning Corporation using
historical claims data for Union Carbide and Amchem.
Note G: In August 2007, a change in German tax law, which included a
reduction in the German income tax rate, was enacted. As a result,
the Company adjusted the value of its net deferred tax assets in
Germany and recorded a charge of $362 million against the
provision for income taxes in the third quarter of 2007. In
December 2007, the Company changed the legal ownership structure
of EQUATE Petrochemical Company K.S.C., a 42.5 percent joint
venture, resulting in a $113 million reduction of the provision
for income taxes in the fourth quarter of 2007.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
Dec. 31, Dec. 31,
In millions (Unaudited) 2008 2007
Assets
Current Assets
Cash and cash equivalents $2,800 $1,736
Marketable securities and interest-bearing deposits - 1
Accounts and notes receivable:
Trade (net of allowance for doubtful
receivables - 2008: $124; 2007: $118) 3,782 5,944
Other 3,074 3,740
Inventories 6,036 6,885
Deferred income tax assets - current 368 348
Total current assets 16,060 18,654
Investments
Investment in nonconsolidated affiliates 3,204 3,089
Other investments 2,245 2,489
Noncurrent receivables 276 385
Total investments 5,725 5,963
Property
Property 48,391 47,708
Less accumulated depreciation 34,097 33,320
Net property 14,294 14,388
Other Assets
Goodwill 3,394 3,572
Other intangible assets (net of accumulated
amortization - 2008: $825; 2007: $721) 829 781
Deferred income tax assets - noncurrent 3,900 ,126
Asbestos-related insurance receivables - noncurrent 658 696
Deferred charges and other assets 614 2,621
Total other assets 9,395 9,796
Total Assets $45,474 $48,801
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $2,360 $1,548
Long-term debt due within one year 1,454 586
Accounts payable:
Trade 3,306 4,555
Other 2,227 1,981
Income taxes payable 637 728
Deferred income tax liabilities - current 88 117
Dividends payable 411 418
Accrued and other current liabilities 2,625 2,512
Total current liabilities 13,108 12,445
Long-Term Debt 8,042 7,581
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent 746 854
Pension and other postretirement benefits - noncurrent 5,466 3,014
Asbestos-related liabilities - noncurrent 824 1,001
Other noncurrent obligations 3,208 3,103
Total other noncurrent liabilities 10,244 7,972
Minority Interest in Subsidiaries 69 414
Preferred Securities of Subsidiaries 500 1,000
Stockholders' Equity
Common stock 2,453 2,453
Additional paid-in capital 872 902
Retained earnings 17,013 18,004
Accumulated other comprehensive loss (4,389) (170)
Treasury stock at cost (2,438) (1,800)
Net stockholders' equity 13,511 19,389
Total Liabilities and Stockholders' Equity $45,474 $48,801
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Operating Segments
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
In millions (Unaudited) 2008 2007 2008 2007
Sales by operating segment
Performance Plastics $3,160 $3,968 $15,793 $15,116
Performance Chemicals 1,968 2,126 9,229 8,351
Agricultural Sciences 885 864 4,535 3,779
Basic Plastics 2,167 3,488 12,974 12,878
Basic Chemicals 992 1,630 5,693 5,863
Hydrocarbons and Energy 1,574 2,042 8,968 7,105
Unallocated and Other 153 109 322 421
Total $10,899 $14,227 $57,514 $53,513
EBIT (1) by operating segment
Performance Plastics $(479) $158 $264 $1,390
Performance Chemicals 174 124 1,010 949
Agricultural Sciences 34 (38) 761 467
Basic Plastics (315) 394 981 2,006
Basic Chemicals (237) 309 15 813
Hydrocarbons and Energy (69) (44) (70) (45)
Unallocated and Other (530) (301) (1,078) (897)
Total $(1,422) $602 $1,883 $4,683
Certain items reducing EBIT by
operating segment (2)
Performance Plastics $(333) $(184) $(368) $(180)
Performance Chemicals (25) (83) (39) (92)
Agricultural Sciences (20) (77) (49) (127)
Basic Plastics (181) (88) (192) (88)
Basic Chemicals (118) (7) (144) (7)
Hydrocarbons and Energy (34) (44) (70) (44)
Unallocated and Other (538) (97) (559) (97)
Total $(1,249) $(580) $(1,421) $(635)
Equity in earnings (losses) of
nonconsolidated affiliates by
operating segment (included
in EBIT)
Performance Plastics $(1) $13 $28 $68
Performance Chemicals 86 83 437 382
Agricultural Sciences - 3 4 4
Basic Plastics (54) 35 76 176
Basic Chemicals (20) 135 209 405
Hydrocarbons and Energy (8) 25 41 87
Unallocated and Other (7) - (8) -
Total $(4) $294 $787 $1,122
(1) The Company uses EBIT (which Dow defines as earnings before interest,
income taxes and minority interests) as its measure of profit/loss for
segment reporting purposes. EBIT includes all operating items related
to the businesses and excludes items that principally apply to the
Company as a whole. A reconciliation of EBIT to "Net Income (Loss)
Available for Common Stockholders" is provided below:
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
EBIT $(1,422) $602 $1,883 $4,683
+ Interest income 14 29 86 130
- Interest expense and
amortization of debt discount 192 161 648 584
- Provision (Credit) for income
taxes (60) (27) 667 1,244
- Minority interests' share in
income 12 25 75 98
Net Income (Loss) Available for
Common Stockholders $(1,552) $472 $579 $2,887
(2) See Supplemental Information for a description of certain items
affecting results in 2008 and 2007.
Sales Volume and Price by Operating Segment
Three Months Ended Twelve Months Ended
Percentage change from Dec. 31, 2008 Dec. 31, 2008
prior year Volume Price Total Volume Price Total
Operating segments
Performance Plastics (21)% 1% (20)% (4)% 8% 4%
Performance Chemicals (16)% 9% (7)% (3)% 14% 11%
Agricultural Sciences (4)% 6% 2% 8% 12% 20%
Basic Plastics (23)% (15)% (38)% (12)% 13% 1%
Basic Chemicals (33)% (6)% (39)% (16)% 13% (3)%
Hydrocarbons and Energy (1)% (22)% (23)% 5% 21% 26%
Total (17)% (6)% (23)% (5)% 12% 7%
The Dow Chemical Company and Subsidiaries
Sales by Geographic Area
Three Months Twelve Months
Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
In millions (Unaudited) 2008 2007 2008 2007
Sales by geographic area
North America $4,088 $5,224 $20,860 $20,498
Europe 3,859 5,267 21,850 19,614
Asia Pacific 1,301 1,668 6,728 6,186
Latin America 1,340 1,599 6,395 5,745
India, Middle East and Africa 311 469 1,681 1,470
Total $10,899 $14,227 $57,514 $53,513
Sales Volume and Price by Geographic Area
Three Months Ended Twelve Months Ended
Percentage change Dec. 31, 2008 Dec. 31, 2008
from prior year Volume Price Total Volume Price Total
Geographic areas
North America (17)% (5)% (22)% (10)% 12% 2%
Europe (15)% (12)% (27)% (3)% 14% 11%
Asia Pacific (22)% - (22)% (1)% 10% 9%
Latin America (18)% 2% (16)% (4)% 15% 11%
India, Middle East
and Africa (34)% - (34)% 3% 11% 14%
Total (17)% (6)% (23)% (5)% 12% 7%
