MIDLAND, Mich., Oct. 24 /PRNewswire-FirstCall/ --
Third Quarter of 2002 Highlights
* Sales grew 5 percent from a year ago to $7 billion, with a 3 percent
increase in volume and a 2 percent increase in price.
* Excluding unusual items in both periods, earnings per share were $0.16,
flat with last year, and EBIT rose 12 percent to $433 million.
* The Company experienced slight margin contraction in the quarter,
primarily due to increased purchased feedstock and energy costs, which
were up more than $120 million from a year ago.
* Dow announces additional steps to improve earnings and cash flow.
3 Months Ended 9 Months Ended
(In millions, except for per September 30 September 30
share amounts) 2002 2001 2002 2001
Net Sales $ 7,041 $ 6,729 $ 20,520 $ 21,459
Earnings (Loss) Before Interest,
Income
Taxes and Minority Interests
("EBIT") 401 253 1,183 (71)
Earnings (Loss) Per Common Share $ 0.14 $ 0.06 $ 0.51 $ (0.39)
Excluding Unusual Items:
EBIT $ 433 $ 385 $ 1,264 $ 1,203
Earnings Per Common Share $ 0.16 $ 0.16 $ 0.51 $ 0.53
Review of Third Quarter Results
The Dow Chemical Company today reported third quarter sales of $7 billion,
compared with $6.7 billion a year ago, an increase of 5 percent. Reported net
income was $128 million, or $0.14 per share. Excluding unusual items,
earnings before interest, income taxes and minority interests ("EBIT") were
$433 million, net income was $148 million and earnings per share were $0.16.
For a description of unusual items that impacted third quarter results in
2002 and 2001, see "Supplemental Information" at the end of this release.
"Dow's results this quarter fell below our earlier expectations. Although
there was margin improvement in some of the basics businesses, it was not as
much as anticipated primarily because of higher feedstock and energy costs,"
said J. Pedro Reinhard, executive vice president and chief financial officer.
He also cited slower than expected improvement in September demand as a factor
affecting the Company's performance relative to expectations.
Purchased feedstock and energy costs in the third quarter were up 6
percent, more than $120 million, compared with the third quarter of 2001 and
the second quarter of 2002, contrary to expectations in July that these costs
would be relatively flat. The increase was more pronounced in Europe than in
the United States.
The 5 percent increase in sales in the quarter, compared with a year ago,
was due to a 3 percent increase in volume and a 2 percent increase in price.
The Agricultural Sciences segment recorded strong volume gains, due in part to
higher sales of acquired products and late season sales in North America.
Volume in the remaining segments, excluding Hydrocarbons & Energy, was up
about 1 percent compared with last year. Prices were up in the basics
segments, with Plastics showing the first year-over-year gain since the third
quarter of 2000. Prices in the Performance businesses were flat to slightly
down. On a geographic basis, prices increased in the U.S. and Europe, but
declined in the rest of the world, primarily due to weaker economic conditions
in Latin America. Overall, price increases were more than offset by higher
feedstock and energy costs, resulting in overall margin compression.
EBIT increased 12 percent from a year ago to $433 million, excluding
unusual items in both periods. The Agricultural Sciences segment posted
improved EBIT, excluding unusuals, due to increased volume and improved
productivity. In Performance Plastics and Performance Chemicals, EBIT
declined 28 percent, as these businesses were not able to offset the higher
feedstock and energy costs.
The Plastics segment achieved substantial EBIT gains on higher margins, as
prices moved up from the historically low levels of early 2002. In the
Chemicals segment, EBIT declined by $19 million from the same quarter last
year, with strong gains in ethylene oxide/ethylene glycol being more than
offset by lower results in key chlor-alkali products and other chemicals.
According to Reinhard, the outlook for the fourth quarter is challenging
because of current geopolitical uncertainty and its impact on the volatility
of feedstock and energy costs. "Fourth quarter results will depend on whether
improved volumes can offset anticipated margin contraction, primarily in the
basics," he said. Dow expects that earnings in the fourth quarter of 2002
will be better than the fourth quarter of last year.
"The lack of market momentum in September highlighted the challenges Dow
faces for the rest of this year and into 2003," said Reinhard. "Therefore,
Dow's Corporate Operating Board is announcing significant steps to improve
Dow's earnings and cash flow."
Effective immediately, Dow intends to implement the following steps:
* Decrease 2003 capital spending by 20 percent from 2002 levels;
* Intensify efforts on supply chain optimization, improving cash flow
through inventory reduction, reduced logistics costs, and savings in
raw material purchases; and
* Cut other costs and expenses through reinforced efforts on cost
reduction.
"Through these measures, Dow expects to improve cash flow by more than
$1 billion as we continue to focus on ways to enhance our competitive position
and maximize long-term shareholder value," said Reinhard.
The Company will host a live audio Webcast of its earnings conference call
with investors to discuss its business results and outlook at 10 a.m. Eastern
Time today on http://www.dow.com. A replay of the Webcast will be available
on Dow's Web site until mid-November.
Dow is a leading science and technology company that provides innovative
chemical, plastic and agricultural products and services to many essential
consumer markets. With annual sales of $28 billion, Dow serves customers in
more than 170 countries and a wide range of markets that are vital to human
progress, including food, transportation, health and medicine, personal and
home care, and building and construction, among others. Committed to the
principles of sustainable development, Dow and its approximately 50,000
employees seek to balance economic, environmental and social responsibilities.
Supplemental Information
The following tables show the impact of the unusual items recorded in the
three-month and nine-month periods ended September 30, 2002 and 2001 on
earnings (loss) before interest, income taxes and minority interests ("EBIT");
net income (loss); and earnings (loss) per common share -- diluted.
Description of Unusual Items -- Third Quarter of 2002 and 2001
Results in the third quarter of 2002 were unfavorably impacted by
additional merger-related integration costs of $6 million, additional
merger-related severance of $21 million, and severance related to a workforce
reduction program at Dow AgroSciences of $5 million. These costs are shown on
the income statement as "Merger-related expenses and restructuring."
In the third quarter of 2001, earnings were impacted by additional
merger-related expenses of $46 million, a charge of $69 million for purchased
in-process research and development costs associated with the acquisition of
Rohm and Haas' agricultural chemicals business, a $6 million reinsurance
Company loss on the World Trade Center ("WTC"), and an $11 million
restructuring charge (Dow's share) recorded by Dow Corning.
EBIT Net Income Earnings Per
Share
Three Months Three Months Three Months
Ended Ended Ended
Sept. Sept. Sept. Sept. Sept. Sept.
In millions, except per 30, 30, 30, 30, 30, 30,
share amounts 2002 2001 2002 2001 2002 2001
Unusual items:
Merger-related expenses
and restructuring $ (32) $ (46) $ (20) $ (34) $ (0.02) $ (0.03)
Purchased in-process R&D -- (69) -- (43) -- (0.05)
Reinsurance Company loss
on WTC -- (6) -- (5) -- (0.01)
Dow Corning restructuring -- (11) -- (11) -- (0.01)
Total unusual items $ (32) $(132) $ (20) $ (93) $ (0.02) $ (0.10)
As reported $ 401 $ 253 $ 128 $ 57 $ 0.14 $ 0.06
Excluding unusual items $ 433 $ 385 $ 148 $ 150 $ 0.16 $ 0.16
Description of Unusual Items - Year-to-Date 2002 and 2001
Results in the first three quarters of 2002 were unfavorably impacted by:
additional merger-related expenses and restructuring of $55 million, a
$10 million restructuring charge (Dow's share) recorded by UOP LLC, goodwill
impairment losses of $16 million related to investments in nonconsolidated
affiliates, and a net after-tax gain of $67 million related to the adoption of
two new accounting standards (SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets").
In the first nine months of 2001, earnings were impacted by: a special
charge of $1,454 million for costs related to the Union Carbide merger, a
charge of $69 million for purchased in-process research and development costs
associated with the acquisition of Rohm and Haas' agricultural chemicals
business, a $6 million reinsurance Company loss on the WTC, an $11 million
restructuring charge (Dow's share) recorded by Dow Corning, a gain of
$266 million on the sale of stock in Schlumberger Ltd, and an after-tax
transition adjustment gain of $32 million related to the adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
EBIT Net Income Earnings Per
Share
Nine Months Nine Months Nine Months
Ended Ended Ended
Sept. Sept. Sept. Sept. Sept. Sept.
In millions, except 30, 30, 30, 30, 30, 30,
per share amounts 2002 2001 2002 2001 2002 2001
Unusual items:
Merger-related expenses
and restructuring $ (55) $ (1,454) $ (35) $ (970) $ (0.04) $(1.07)
Purchased in-process R&D -- (69) -- (43) -- (0.05)
Reinsurance Company loss
on WTC -- (6) -- (5) -- (0.01)
Dow Corning restructuring -- (11) -- (11) -- (0.01)
UOP restructuring (10) -- (7) -- (0.01) --
Goodwill impairment losses
in non-consolidated
affiliates (16) -- (16) -- (0.02) --
Gain on sale of
Schlumberger stock -- 266 -- 168 -- 0.18
Cumulative effect of
changes in accounting
principles -- -- 67 32 0.07 0.04
Total unusual items $ (81) $ (1,274) $ 9 $ (829) $ -- $(0.92)
As reported $ 1,183 $ (71) $ 471 $ (348) $ 0.51 $(0.39)
Excluding unusual items $ 1,264 $ 1,203 $ 462 $ 481 $ 0.51 $ 0.53
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.
THE DOW CHEMICAL COMPANY - 3Q02 EARNINGS
FINANCIAL STATEMENTS (Note A)
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
Three Months Ended Nine Months Ended
Sept. 30, Sept.30, Sept. 30, Sept. 30,
In millions, except per share 2002 2001 2002 2001
amounts (Unaudited)
Net Sales $ 7,041 $ 6,729 $ 20,520 $ 21,459
Cost of sales 6,008 5,639 17,319 18,232
Research and development expenses 262 261 784 804
Selling, general and administrative
expenses 389 433 1,185 1,341
Amortization of intangibles 16 50 49 118
Purchased in-process research and
development charges (Note B) -- 69 -- 69
Merger-related expenses and
restructuring (Note C) 32 46 55 1,454
Insurance company operations,
pretax income (loss) 2 (5) 12 20
Equity in earnings of
nonconsolidated affiliates 47 11 42 84
Sundry income - net 18 16 1 384
Interest income 13 21 43 61
Interest expense and amortization
of debt discount 194 194 571 555
Income (Loss) before Income Taxes
and Minority Interests 220 80 655 (565)
Provision (Credit) for income taxes 67 20 202 (200)
Minority interests' share in income 25 3 49 15
Income (Loss) before Cumulative Effect
of Changes in Accounting Principles 128 57 404 (380)
Cumulative effect of changes in
accounting principles (Note D) -- -- 67 32
Net Income (Loss) Available for
Common Stockholders $ 128 $ 57 $ 471 $ (348)
Share Data
Earnings (Loss) before cumulative
effect of changes in accounting
principles per common share -
basic $ 0.14 $ 0.06 $ 0.44 $ (0.42)
Earnings (Loss) per common
share - basic $ 0.14 $ 0.06 $ 0.52 $ (0.39)
Earnings (Loss) before cumulative
effect of changes in accounting
principles per common share -
diluted $ 0.14 $ 0.06 $ 0.44 $ (0.42)
Earnings (Loss) per common
share - diluted $ 0.14 $ 0.06 $ 0.51 $ (0.39)
Common stock dividends declared
per share of common stock $ 0.335 $ 0.335 $ 1.005 $ 0.96
Weighted-average common shares
outstanding - basic 911.7 902.8 909.9 900.6
Weighted-average common shares
outstanding - diluted 917.9 913.6 917.3 900.6
Depreciation $ 417 $ 402 $ 1,207 $ 1,174
Capital Expenditures $ 398 $ 349 $ 1,086 $ 998
Notes to the Consolidated
Financial Statements:
Note A: The unaudited interim consolidated financial statements reflect
all adjustments (consisting of normal recurring accruals) which,
in the opinion of management, are considered necessary for a fair
presentation of the results for the periods covered. Certain
reclassifications of prior year amounts have been made to conform
to current year presentation. 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
filed on March 20, 2002, for the year ended December 31, 2001.
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 third quarter of 2001, a pretax charge of $69 million
was recorded for purchased in-process research and development
costs associated with the acquisition on June 1, 2001 of Rohm and
Haas' agricultural chemicals business.
Note C: In the first nine months of 2001, pretax costs of $1,454 million
were recorded for merger-related expenses and restructuring.
These costs included transaction costs, employee severance, the
write-down of duplicate assets and facilities, and other
merger-related expenses.
In the first nine months of 2002, the Company recorded one-time
merger and integration costs of $29 million. Other costs recorded
in the third quarter of 2002 included additional merger-related
severance of $21 million and severance related to a workforce
reduction program at Dow AgroSciences of $5 million.
Note D: On January 1, 2001, the Company recorded a cumulative transition
adjustment gain of $32 million (net of related income tax of
$19 million), upon adoption of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
On January 1, 2002, the Company adopted SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." The cumulative effect of adoption was a net gain of
$67 million and was primarily due to the write-off of negative
goodwill related to BSL, partially offset by the write-off of
unrelated goodwill impairments. Total goodwill amortization
expense, including equity method goodwill, was $45 million in
the third quarter of 2001 and $99 million in the first nine months
of 2001.
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
Sept. 30, Dec. 31,
In millions (Unaudited) 2002 2001
Assets
Current Assets
Cash and cash equivalents $ 500 $ 220
Marketable securities and interest-bearing deposits 48 44
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables -
2002: $106; 2001: $123) 3,161 2,868
Other 2,050 2,230
Inventories 4,480 4,440
Deferred income tax assets - current 522 506
Total current assets 10,761 10,308
Investments
Investment in nonconsolidated affiliates 1,649 1,581
Other investments 1,632 1,663
Noncurrent receivables 1,010 802
Total investments 4,291 4,046
Property
Property 37,394 35,890
Less accumulated depreciation 23,706 22,311
Net property 13,688 13,579
Other Assets
Goodwill 3,188 3,130
Other intangible assets (net of accumulated
amortization - 2002: $410; 2001: $346) 602 607
Deferred income tax assets - noncurrent 2,336 2,248
Deferred charges and other assets 1,922 1,597
Total other assets 8,048 7,582
Total Assets $ 36,788 $ 35,515
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 903 $ 1,209
Long-term debt due within one year 725 408
Accounts payable:
Trade 2,438 2,713
Other 1,388 926
Income taxes payable 182 190
Deferred income tax liabilities - current 206 236
Dividends payable 305 323
Accrued and other current liabilities 2,294 2,120
Total current liabilities 8,441 8,125
Long-Term Debt 10,360 9,266
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent 922 760
Pension and other postretirement benefits -
noncurrent 2,413 2,475
Other noncurrent obligations 3,514 3,539
Total other noncurrent liabilities 6,849 6,774
Minority Interest in Subsidiaries 366 357
Preferred Securities of Subsidiaries 1,000 1,000
Stockholders' Equity
Common stock 2,453 2,453
Additional paid-in capital -- --
Unearned ESOP shares (86) (90)
Retained earnings 10,654 11,112
Accumulated other comprehensive loss (1,016) (1,070)
Treasury stock at cost (2,233) (2,412)
Net stockholders' equity 9,772 9,993
Total Liabilities and Stockholders' Equity $ 36,788 $ 35,515
See Notes to the Consolidated Financial Statements.
The Dow Chemical Company and Subsidiaries
Operating Segments and Geographic Areas
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
In millions (Unaudited) 2002 2001 2002 2001
Operating segment sales
Performance Plastics $ 1,815 $ 1,829 $ 5,369 $ 5,614
Performance Chemicals 1,316 1,306 3,877 3,856
Agricultural Sciences 551 477 2,082 1,891
Plastics 1,667 1,606 4,783 5,072
Chemicals 917 857 2,463 2,798
Hydrocarbons and Energy 711 578 1,779 2,005
Unallocated and Other 64 76 167 223
Total $ 7,041 $ 6,729 $ 20,520 $ 21,459
Operating segment EBIT (1)
Performance Plastics $ 140 $ 214 $ 532 $ 571
Performance Chemicals 172 218 535 476
Agricultural Sciences (25) (150) 190 69
Plastics 170 83 214 158
Chemicals 38 57 (30) 95
Hydrocarbons and Energy 9 (11) 50 (14)
Unallocated and Other (103) (158) (308) (1,426)
Total $ 401 $ 253 $ 1,183 $ (71)
Geographic area sales
United States $ 2,800 $ 2,741 $ 8,339 $ 9,149
Europe 2,384 2,190 6,898 6,825
Rest of World 1,857 1,798 5,283 5,485
Total $ 7,041 $ 6,729 $ 20,520 $ 21,459
(1) The reconciliation between "Earnings (Loss) before interest, income
taxes and minority interests ("EBIT")" and "Income (Loss) before
income taxes and minority interests" is shown below:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
Earnings (Loss) before
interest, income taxes
and minority interests
("EBIT") $ 401 $ 253 $ 1,183 $ (71)
Interest income 13 21 43 61
Interest expense and
amortization of debt
discount 194 194 571 555
Income (Loss) before
income taxes and
minority interests $ 220 $ 80 $ 655 $ (565)
The Dow Chemical Company and Subsidiaries
Sales Volume and Price by Operating Segment and Geographic Area
Three Months Ended Nine Months Ended
Sept. 30, 2002 Sept. 30, 2002
Percentage change from
prior year Volume Price Total Volume Price Total
Operating segments
Performance Plastics -- (1)% (1)% 2% (6)% (4)%
Performance Chemicals 1% -- 1% 4% (3)% 1%
Agricultural Sciences 18% (2)% 16% 12% (2)% 10%
Plastics -- 4% 4% 8% (14)% (6)%
Chemicals 6% 1% 7% 4% (16)% (12)%
Hydrocarbons and Energy 14% 9% 23% 5% (16)% (11)%
Total 3% 2% 5% 5% (9)% (4)%
Geographic areas
United States -- 2% 2% (1)% (8)% (9)%
Europe 2% 7% 9% 9% (8)% 1%
Rest of World 9% (6)% 3% 10% (14)% (4)%
Total 3% 2% 5% 5% (9)% (4)%
SOURCE Dow Chemical Company
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Related links:
http://www.dow.com
Company News On-Call:
http://www.prnewswire.com/comp/252850.html
CONTACT:
Cindy Newman, The Dow Chemical Company,
+1-989-636-2876
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