The Dow Chemical Company

Transcription

1 The Dow Chemical Company 1Q 2017 Earnings Conference Call April 27, 2017 The Dow Chemical Company

2 SEC Disclosure Rules Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forwardlooking statements if our expectations change. If you would like more information on the risks involved in forward-looking statements, please see our Annual Report and our SEC filings. In addition, some of our comments reference non-gaap financial measures. Where available, presentation of and reconciliation to the most directly comparable GAAP financial measures and other associated disclosures are provided on the Internet at Trademark of The Dow Chemical Company or an affiliated company of Dow. Operating earnings per share is defined as earnings per share excluding the impact of Certain Items. See Supplemental Information at the end of the earnings release for a description of these items, as well as a reconciliation of Earnings per common share diluted to operating earnings per share. EBITDA is defined as earnings (i.e., Net Income ) before interest, income taxes, depreciation and amortization. Operating EBITDA is defined as EBITDA excluding the impact of Certain Items. Operating EBITDA margin is defined as Operating EBITDA as a percentage of reported net sales. Operating Return on Capital is on a trailing twelve month basis and defined as Adjusted Net Operating Profit After Tax divided by Average Total Capital. Adjusted Net Operating Profit After Tax is defined as Adjusted Net Income plus Preferred Stock Dividends plus Net Income Attributable to Noncontrolling Interests plus gross interest expense less tax on gross interest expense. Adjusted Net Income is defined as Net Income excluding the impact of Certain Items. Total Capital is defined as Total Debt plus The Dow Chemical Company s Stockholders Equity plus Redeemable Noncontrolling Interest plus Non-redeemable Noncontrolling Interests. Net debt equals total debt ( Notes payable plus Long-term debt due within one year plus Long-Term Debt ) minus Cash and cash equivalents. Free Cash Flow is defined as Cash from Operating Activities less Capital Expenditures. Sales ex. M&A excludes prior period sales of recent divestitures and current period sales of recent acquisitions. SQLY is defined as Same Quarter Last Year ; PQ is defined as Prior Quarter ; YoY is defined as Year over Year ; TTM is defined as Trailing Twelve Months. EMEAI is defined as Europe, Middle East, Africa and India; LAA is defined as Latin America Area; NA is defined as North America; EU is defined as Europe; APAC is defined as Asia Pacific. 2

3 1Q17 Results Underscore Strength of Dow s Portfolio Business Model Continues to Deliver All-time record quarterly Operating EBITDA Up 20% YoY, reaching $2.7B 18 th consecutive quarter of YoY Operating EPS growth Up 17%, rising to $1.04; highest 1Q EPS in over a decade 14 th consecutive quarter of YoY volume growth, ex. M&A Broad-based consumer-driven demand; gains in all geographic areas Price increases 7%; gains in all geographic areas Cash Flow from Operations rises $337 million Key milestones achieved in growth investments Dow Corning: Delivered $400MM cost synergy run-rate target in only 10 months USGC: Completed TX-9 construction; mid-2017 startup on-track Sadara: Progressed startups; 16 of 26 units in operating or startup mode Progressed pending merger with DuPont Received key conditional regulatory approvals Mutually agreed that intended Materials Science Co. will spin first¹ 1. If it would not adversely impact the value of the intended spin-off transactions 3

4 Agenda 1Q Financial Highlights 1Q Business Highlights Update on Dow Corning Dow s Growth Strategy 4

5 1Q16 Volume / Mix Equity Earnings Productivity + Synergies Silicones Turnarounds & Commissioning Margin Compression Conversion of Preferreds 1Q17 1Q17: Double-Digit Sales, Op. EBITDA and Op. EPS Growth Financial Performance Snapshot 1Q16 1Q17 B/(W) Net Sales ($MM) $10,703 $13,230 +$2,527 Sales ex. Acquisitions ($MM) $10,703 $11,942 +$1,239 Operating EBITDA ($MM) $2,253 $2,704 +$451 Operating EPS ($/share) $0.89 $1.04 +$0.15 Price: +7% Volume: +4% Improved Volume/Mix, Silicones & Productivity Drive Record Op. EPS Operating EPS ($/share) $1.04 $0.89 Tailwinds: $0.30 Headwinds: $0.15 Tailwinds: Broad-based volume growth Pricing momentum in most segments Record performance in Auto and EM; continue to outpace industry growth Dow Corning business strength and accelerated synergy capture Improved equity earnings Headwinds: Feedstock / raw material costs Higher planned maintenance activity Commissioning / start-up costs for both USGC growth projects & Sadara 5

6 Agenda 1Q Financial Highlights 1Q Business Highlights Update on Dow Corning Dow s Growth Strategy 6

7 Ag. Sciences: Slow Crop Protection Market Partly Offset By Innovation- Led Growth Innovation Driven Gains More than Offset by Macro Headwinds Seeds growth in LA more than offset by lower sales in NA, led by reduced corn demand due to projected acreage shift Cotton seeds demand gains driven by launch of ENLIST cotton in US and early grower adoption New Crop Protection product demand gains driven by adoption of Arylex broadleaf herbicide Soft rice herbicide demand in China due to inventory overhang created by flooding during last year s season Robust insecticides growth driven by new labels and registrations for spinetoram and spinosad, as well as strong demand in the EU on warmer weather ($MM) Quarterly Segment Performance $1,646 $1,568 Sales 1Q16 $403 1Q17 $351 Op. EBITDA 24% 22% Op. EBITDA Margin Broad Portfolio of Crop Protection Chemicals with Industry Leading Pipeline 2016 Revenue Split Herbicides, ex: Pyroxsulam Penoxsulam Insecticides, ex: Spinosad Spinetoram Fungicides, ex: Mancozeb Comprehensive Pipeline Combats Global Resistance* Insecticide >$400MM Herbicide Herbicide Fungicide Total: *Est. global maturity sales of new molecules >$600MM >$200MM >$200MM >$1,400MM 1Q17 Sales Split by Business Seeds Crop Protection 7

8 Consumer Solutions: Record First Quarter Operating EBITDA Dow Automotive Systems: All-Time Quarterly Operating EBITDA Record Quarterly Segment Performance Double-digit volume gains driven by growth in emerging markets, led by Greater China, Mexico and Brazil; notable growth in EMEAI Achieved 9th consecutive quarter of YoY Op. EBITDA growth, driven by continued adoption of light weighting technologies ($MM) $1,599 1Q16 1Q17 $500 29% 31% Consumer Care: Volume Gains Led By Personal & Home Care Segments $1,054 $310 Volume gains led by strong demand for personal hygiene applications Op. EBITDA lower as pricing initiatives were outpaced by rising raw materials costs Consumer Solutions Silicones: Demand Growth & Cost Synergies Sales Op. EBITDA Op. EBITDA Margin Volume gains in Asia Pacific, particularly in automotive and advanced lighting end-markets Earnings growth on volume gains, cost synergies and higher HSC equity earnings contribution Dow Electronic Materials: 7 th Consec. Quarter of YoY Op. EBITDA Growth Consumer Solutions - Silicones 1Q17 Sales Split by Business Dow Automotive Systems Continued above-market volume growth, led by share gains and new business wins in semiconductor and OLED technologies Record 1Q Op. EBITDA driven by top-line organic growth Dow Electronic Materials Consumer Care 8

9 Infrastructure Solutions: Higher Op. EBITDA on Construction Demand Dow Bldg. & Construction: Innovation Drives Tilt Towards Non-Res. Sector Strong volume growth driven by STYROFOAM insulation, methyl cellulosics and BLUEDGE polymeric flame retardant Decline in Op. EBITDA from record 1Q16 as implementation of pricing initiatives lagged the raw material cost increases ($MM) Quarterly Segment Performance 1Q16 1Q17 $2,525 $511 20% 18% Energy & Water Solutions: Resurgence in Energy End-Market Demand $1,594 $293 Volume growth led by oil & gas and microbial control end-markets RO demand growth in waste water and residential end-markets more than offset by lower volumes for ion exchange applications Infrastructure Sol ns Silicones: Volume Growth in Packaging & Construction Sales Op. EBITDA Op. EBITDA Margin Robust demand for label stock release liners and building & construction applications Earnings growth on volume gains, cost synergies and basic silicones pricing momentum Perf. Monomers: VAM & Methacrylates Drive Volume Growth Dow Coating Materials: Higher Sales on Price and Volume Gains Monomers delivered strong volume growth in VAM and on merchant sales of methacrylates Coatings volume growth continued, with notable gains in architectural sector in Asia Pacific 1Q17 Sales Split by Business Infrastructure Solutions - Silicones Performance Monomers Dow Building & Construction Energy & Water Solutions Dow Coating Materials 9

10 Perf. Materials & Chemicals: Price and Volume Gains in all Businesses Polyurethanes: Robust Demand for Systems, Tight MDI Conditions Quarterly Segment Performance Price and volume gains across all geographic areas ($MM) 1Q16 1Q17 Strong demand for systems applications, particularly in infrastructure and household appliances Op. EBITDA higher on volume growth, opportunistic merchant MDI sales and PDH uplift, which more than offset the impact of higher raw material costs $2,181 $2,442 $335 $435 15% 18% Industrial Solutions: Improved Equity Earnings, Volume and Price Growth Pricing gains in most geographic areas and volume growth Double-digit volume growth in Asia Pacific, including gains in high-value applications for textiles, lubricants and electronics Op. EBITDA expansion on higher equity earnings due to improved MEG pricing, volume and price improvement that more than offset higher raw material costs Chlor-Alkali and Vinyl: Op. EBITDA Rises on Improved Fundamentals Double-digit price improvement in VCM and EDC; doubledigit volume increase in VCM Caustic volume increased, driven primarily by improvement in demand from the pulp and paper sector Sales Polyurethanes Op. EBITDA Op. EBITDA Margin 1Q17 Sales Split by Business Industrial Solutions Chlor-Alkali And Vinyl 10

11 Performance Plastics: Pricing Momentum, Record Volume Offset by Higher Feedstock Costs Dow Packaging and Specialty Plastics: Record 1 st Quarter Sales Volume Demand gains led by strength in the industrial & consumer packaging end-market; notable gains in several emerging regions Pricing rose in all geographies except EMEAI, which decreased due to the impact of currency Op. EBITDA increased as pricing and volume gains drove variable margin expansion, partly offset by the expected cost increases from feedstocks, planned maintenance activity and USGC commissioning activities ($MM) $4,165 Quarterly Segment Performance $5,025 1Q16 1Q17 $991 $984 24% 20% Dow Elastomers: Record 1 st Quarter Sales Volume Led By Consumer Demand Volume growth across all geographies on demand for applications for consumer packaging, transportation and high performance athletic footwear Operating EBITDA declined from a record level on planned maintenance activity and USGC commissioning costs Sales Op. EBITDA Op. EBITDA Margin 1Q17 Sales Split by Business Energy Dow Packaging and Specialty Plastics Dow Electrical and Telecom: Lower Earnings on Reduced Volume Sales flat as pricing momentum in NAA and APAC was offset by volume constraints as business ramped back to full operations Op. EBITDA lower as operations gradually ramped to full rates following significant planned turnaround and de-bottleneck activity in 4Q16 Hydrocarbons Dow Electrical and Telecommunications Dow Elastomers 11

12 Agenda 1Q Financial Highlights 1Q Business Highlights Update on Dow Corning Dow s Growth Strategy 12

13 Dow Corning Integration Ahead of Expectations Cost Synergies Target Achieved; Increasingly Focused on Growth Financial Results Exceed Expectations Cost Synergy Capture 1+ Year Ahead of Plan EPS accretive since first month post-close Accelerated cost synergy capture; achieved full 2-year run-rate in only 10 months Secured early revenue synergy wins via cross-selling and broader channel access Progress ($MM) $360 $120 YE16 Commitment ($MM) $400 $200 1Q17 Focus Increasingly Pivots to Growth Expanded Addressable Market by $4B Aligned and focused silicones platform to Dow s core material science markets Finalized innovation playbook to achieve at least $100MM growth synergies target Rapidly cross-fertilizing technology capabilities and talent/expertise 13

14 Packaging Transportation Infrastructure Consumer Execution of Growth Synergies Underway Well-defined synergy playbook to achieve at least $100MM in synergies >400 opportunities identified and systematically tracked Secured early wins in auto, building & construction and personal care ~$400MM of Growth Revenue Potential; Aligned with Dow s Core Markets Exceptional skin feel personal care offerings Improved durability and reduced moisture, vibration and shock impacts in appliances Increased building design alternatives & improved durability Diversified heat transfer fluids for energy efficiency Enriched coatings properties Home & Personal Care Building & Construction Packaging Automotive Polyurethanes Industrial Solutions Coatings Energy & Water Solutions Other 0% 5% 10% 15% 20% % of Total Revenue Potential >70% of growth synergies aligned to Dow s core end-markets Broader set of materials for sealing and lubrication Enhanced lighting, component manufacturing and device assembly Improved surface properties for packaging rigids & films Increased processability Clear Line of Sight to Achieve Growth Synergy Targets for Key Customers in Dow s Growth Markets 14

15 Agenda 1Q Financial Highlights 1Q Business Highlights Update on Dow Corning Dow s Growth Strategy 15

16 Building Blocks Platforms Solutions Dow: Growth Strategy Narrower and Deeper Market Focus Enabled by Technology Platforms, Operational Excellence and Flexible Integration ADVANTAGED BACK-INTEGRATION Ethylene INTEGRATION & INNOVATION WORLD-CLASS SCIENCE AND ENGINEERING CAPABILITIES High-Throughput Research Catalyst Discovery & Ligand Synthesis Polymer Science NARROWER, DEEPER END-MARKET PRESENCE Packaging Transportation Propylene Material Science Infrastructure Formulation Sciences Consumer Silicones Process Engineering High-Performance Computer Modeling Energy/Water Application Development Durables & Industrial INTEGRATION & INNOVATION Consumer-Driven Demand in Core End-Markets Propels Growth, Driven By Sustainable Urbanization Trends in All Geographies Excludes Electronic Materials and Agricultural Sciences 16

17 Consumer Care Beauty and Personal Care Transportation Global SAAR Infrastructure Packaging Global PE Consumption Consumer-Led Markets Increasingly Demand Unique Materials Toolkit Global Spend ($B) 1 Per Capita (lbs) 1 Demand for PE Grows at 0.5 lb/yr per Capita Global Spending Grows $150B per Year 4,500 3,500 2,500 1, Capabilities Required to Meet Customers Needs in Core Markets Rapid Innovation & Scalability One-Stop Shop for Combinatorial Solutions End-User/OEM Specification Urbanization Drives Mobility (+2.2MM Units a Year) (MM units) 1 Seat at the Design Table Customer Intimacy Global Spend ($B) 2 Emerging Middle Class Drives 5% CAGR Local Presence with Global Interconnectivity High Quality & Supply Reliability 17 Sources: 1. IHS; 2. Euromonitor International Beauty and Personal Care Passport Data

18 World-Class Innovation Capabilities & Market Focus Meets Customer Needs, Drives Demand in Core End-Markets & Lifts Margins Dow s R&D Leadership Commercialization Success >20% of Dow s revenue from patentadvantaged sales >5,000 new products introduced per year 2x higher than 10 years ago 8x increase in patent grants from 2006 to consecutive years of record U.S. patent grants Innovation Recognition 7 R&D 100 Awards in 2016 More than any other company 10 Presidential Green Chemistry Awards More than any other company 10 Edison Awards since 2011 Drives Innovation & Yields Business Value Creation Dow Business Dow Automotive Systems Dow Packaging and Specialty Plastics Dow Elastomers Dow Building & Construction Examples of New Products BETAMATE ; BETAFORCE ; VORAFORCE ; SPECFLEX INNATE ; AGILITY ; RecycleReady; SYMBIEX EVERCAP ; ELITE AT INFUSE ; INTUNE ; ENGAGE ; AFFINITY GP BLUEDGE Polymeric Flame Retardant; LIQUIDARMOR Consec. Qtrs of YoY Volume Growth 1 AFFINISOL HPMC HME; Consumer Care 4 EcoSmooth OptiTouch As of 1Q17 18

19 Investments Provide Cost-Advantaged Hubs to Deploy Technology-Rich Products & Capture Geographic Growth 10 integrated feedstock advantaged plants Foundational Springboards for Further Growth & Cash Flow Over the Next Decade 19

20 Consistent Track Record of Delivering on Financial Priorities Over Last Five Years Progress on Key Financial Metrics ( ) Operating EPS CAGR of 18% Operating ROC improved by ~400 bps Maintained strong liquidity and financial position Net debt to cap down from ~43% to ~35% Net debt to EBITDA down from 2.2x to 1.5x 1Q17 TTM free cash flow doubled while investing for growth $4.25 $3.50 $2.75 $2.00 $ % 11% 9% 7% 5% Operating EPS: >2x Increase $1.90 $ Q17 TTM Operating ROC: Up 390 bps 7.6% 11.5% Q17 TTM ($B) $8 $6 $4 $2 $0 Operating Cash Flow 1 : Up 50% $4.1 $1.5 CAPEX Op. Free Cash Flow $6.7 $ Q17 TTM Cum. Cash to Shareholders 3 : >$17B ($B) $18 $12 $6 $0 $ Q Cash flow from operations excluding the post-tax impacts of K-Dow arbitration award and Urethanes settlements 2. Operating cash flow less CAPEX 3. Common dividends paid + share re-purchases (includes $1.5B in non-cash share repurchases related to the Dow Chlorine Products transaction) Significant Earnings & Cash Flow Growth Drivers in Place to Support Future Shareholder Returns 20

21 Op. EBITDA Margin Poised for Enhanced Earnings As Growth Drivers Deliver Earnings Trajectory On Track; Generating >$10B Op. EBITDA Differentiated, Technology-Rich Products and Cost-Advantaged Integration Drive Results Op. EBITDA Q17 TTM > $10B Future New Dow ~ $15B Growth Strategy Re-Affirmed in 2013 Narrower and deeper focus in consumeroriented markets Prioritize organic growth through innovation Acquire strategic, growth oriented businesses Divest low-roc, non-strategic businesses and assets Investment in cost-advantaged integration Disciplined cost management and productivity focus < $8B 40% 60% 80% % Consumer Driven Sales Realizing Growth Drivers Organic growth through innovation Accelerated silicones integration & growth Uplift from USGC & Sadara investments DowDuPont merge-and-spin Growth Strategy Will Continue to Deliver Greater, Higher Quality Earnings & Strong Cash Flows 21

22 Growth Strategy 1. Deliver strong cash flow from USGC & Sadara investments 2. Expand downstream positions in four key market verticals of Packaging, Infrastructure, Transportation and Consumer Care 3. Invest in innovation and integration, while maintaining capex in-line with depreciation & amortization 4. Deliver Materials Science Co. cost synergies from intended DowDuPont merge-and-spin transaction 5. Deliver a Materials Science Co. upon intended spin, with a clear growth strategy and strong shareholder remuneration 22

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24 Appendix

25 Relative Portion of Dow Revenue¹ Developed Asia Eastern Europe, ME, Africa, India Latin America Developing Asia Western Europe US & Canada Market Pulse 1Q17 Heat Map 1Q17 Up 3X global GDP or greater Flat Demand Growth 1Q17 Down Double-digit or Greater Market 2 Lower Participation Participation (includes Silicones) of ~$1B or more in 2016 Infrastructure Packaging Agriculture Consumer & Food Durables & Industrials Electronics Transportation Relative Portion of Dow Revenue¹ 1. Based on 2016 Revenue (includes Silicones) 2. Heat map based on volume growth excluding acquisitions 25

26 Corporate 2Q17 Modeling Guidance Dow Revenue $ B D&A $ MM Operational Tax Rate 23-27% Net Interest Expense $ MM Share Count ~1,230MM Corp. Segment EBITDA $(75)-(100)MM YoY FOREX $(0.03)-(0.06)/sh. headwind, at prompt exchange rates, largely offsets continued productivity YoY Dow Op. EBITDA Margin impact from Sadara: bps decline on marketing arrangement Segments Key EBITDA Drivers (2Q17 v 2Q16) Agricultural Sciences Consumer Solutions Infrastructure Solutions Perf. Materials & Chemicals Performance Plastics Flat 1H17 vs. 1H16 as new product offerings (Arylex, Isoclast, ENLIST cotton) offset projected US acreage rotation from corn to soy and high channel inventories for Asian rice herbicides. Dow Corning Silicones consolidation, net of 2Q16 one-time benefit from inventory step-up, adds ~$60MM. Silicones synergies add $50MM. Equity earnings lower ~$20MM, on DCC consolidation. Dow Corning Silicones consolidation, net of 2Q16 one-time benefit from inventory step-up, adds ~$40MM. Silicones synergies add $50MM. PDH tailwind (1/3 of total). Higher T/A spend ~$30MM. Equity earnings lower ~$25MM, driven by DCC consolidation. PDH tailwind (2/3 of total). Equity earnings lower ~$25MM on increased Sadara startup activity and lower sequential MEG pricing. Higher TX-9 and derivatives start-up expenses ($100MM) and planned maintenance costs ($50-75MM), driven by a Terneuzen cracker. Higher volume from LA-3 and TX PE debottleneck adds ~$30-40MM. Equity earnings flat as Sadara benefit from start-ups offset by lower Asian PE pricing. 26

27 Crop Protection Pipeline Full with High-Value Solutions Name Discovery Development Est. Launch* Launched within 5 years Enlist Duo herbicide with Colex-D Arylex Active Inatreq TM Active Rinskor Active Launched after 5 years Fungicide 1 Fungicide 2 Insecticide 1 Insecticide 2 Insecticide 3 Herbicide 1 Fungicide 3 Insecticide 4 Herbicide 2 Insecticide 5 Fungicide 4 Fungicide 5 Insecticide Herbicide Fungicide *Launch timing is subject to regulatory approvals and other assumptions. A launch forecast range reflects the variation in the length of the anticipated regulatory approval process in multiple countries. Trademark of The Dow Chemical Company ( Dow ) or an affiliated company of Dow 27

28 Capacity and Demand (B lbs.) Global Operating Rate Days of NA PE Inventory Capacity and Demand (B lbs.) Global Operating Rate Operating Rates Remain High in Forecast Period Polyethylene Demand Capacity Operating Rate (%) % % % % 50 75% 0 70% Source: Dow Ethylene and PE Capacity Adds Match Demand Growth Ethylene Demand Capacity Operating Rate (%) % % % % 75 75% 0 70% Source: Dow Dow s View on Market Drivers Global operating rates likely stable over next few years Demand growth in consumer-driven markets Industry forecasts overstate capacity adds Significant new capacity destined for highly commoditized applications Current conditions Margins firm, inventories below average Dow s competitive advantages Global reach, customer intimacy, application development, innovation-driven value-add PE Inventories Near Bottom of Range Month Min/Max Range 2017 Source: ACC 28

29 1Q17 vs. 1Q16 Sales Trends by Business Agricultural Sciences Consumer Solutions 1 Infrastructure Solutions 1 Sales Price Volume Crop Protection $ $ $ Seeds $ # $ Dow Automotive Systems Sales Price Volume # $ # Consumer Care # $ # Dow Electronic Materials # $ # Dow Building & Construction Energy & Water Solutions Dow Coating Materials Performance Monomers Sales Price Volume # $ # # $ # # # # # # # Performance Materials & Chemicals Sales Price Volume Polyurethanes # # # Industrial Solutions # # # Chlor-Alkali and Vinyl # # # Dow Packaging and Specialty Plastics Sales Price Volume # # # Dow Elastomers # $ # Dow Electrical and Telecommunications Performance Plastics - # $ Hydrocarbons # # # Energy # # # 1. Excluding the impact of acquisitions 29

30 Quarterly Preliminary Results for Principal Joint Ventures Principal Joint Ventures 1 Total Dow Proportionate Share Dollars in millions (unaudited) 1Q17 1Q16 Dollars in millions (unaudited) 1Q17 1Q16 Sales $2,916 $1,862 Adjusted Sales 2 $761 $472 Adjusted Sales 2 $1,930 $1,228 Operating EBITDA 3 $345 $74 Operating EBITDA 3 $810 $163 Depreciation & Amortization $111 $76 Depreciation & Amortization $284 $194 Equity Earnings (Losses) $175 $(28) Operating EBITDA in Excess of Equity Earnings $170 $102 Net Debt 4 $6,318 $6, Dow Corning Corporation (thru 5/31/16), EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C., The Kuwait Styrene Company K.S.C., Sadara Chemical Company, The SCG-Dow Group, Map Ta Phut Olefins Company Limited, and HSC Group 2. Adjusted Sales defined as Sales for these joint ventures less sales to Dow and/or to other Dow joint ventures 3. Operating EBITDA is defined as EBITDA (which Dow defines as earnings (i.e., "Net Income") before interest, income taxes, depreciation and amortization) excluding the impact of certain items 4. Net Debt excludes debt owed to Dow and/or to other Dow joint ventures 30

31 Reconciliation of Non-GAAP Financial Measures Three Months Ended In millions 3/31/17 3/31/16 Net Income Available for The Dow Chemical Company Common Stockholders $888 $169 + Preferred stock dividends 85 + Net income attributable to noncontrolling interests Provision (credit) for income taxes 213 (110) Income Before Income Taxes $1,128 $165 + Interest expense and amortization of debt discount Interest Income Depreciation and amortization EBITDA $2,100 $953 - Certain Items (604) (1,300) Operating EBITDA $2,704 $2,253 31