Good day, and welcome to the Dow Chemical Company's third quarter 2015 earnings results conference call. [Operator Instructions] I would now like to turn the call over to Mr. Jack Broodo. Please go ahead, sir.

Good morning and welcome. I'm Jack Broodo, Vice President of Investor Relations. As usual, we are making this call available to investors and the media via webcast. This call is the property of the Dow Chemical Company; any redistribution, retransmission or reforecast of this call in any form without Dow's express written consent is strictly prohibited. On the call with me today are Andrew Liveris, Dow's Chairman and Chief Executive Officer; and Howard Ungerleider, Vice Chairman and Chief Financial Officer. Around 7:00 AM this morning, October 22, our earnings release went out on Business Wire and was posted on the internet on dow.com. We have prepared slides to supplement our comments in this conference call. These slides are posted on our website and through the link to our webcast. Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. We cannot guarantee the accuracy of any forecast or estimates and we don't plan to update any forward-looking statements during the quarter. If you would like more information on the risks involved in forward-looking statements, please see our SEC filings. In addition, some of our comments reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website. Unless otherwise specified, all comparisons presented today will be on a year-over-year basis. Sales comparisons exclude divestitures and acquisitions, EBITDA, EBITDA margins, return on capital and earnings comparisons exclude certain items. The agenda for today's call is on Slide 3. I will now turn the call over to Howard.

Thanks, Jack, and good morning, everyone. Turning to Slide 4, our results this quarter demonstrate once again the value of Dow's integrated structurally hedged portfolio, our focus on execution and the strong financial position the company has built. Operating EPS rose to $0.82, an increase of 14% year-over-year. Operating EBITDA rose to $2.4 billion versus the same quarter last year on continued demand growth, margin expansion and self-help actions. Volume grew in nearly all geographic areas, reflecting stable underlying demand for Dow's innovative solutions. And operating EBITDA margins expanded nearly all operating segments, reaching 20%, up 370 basis points year-over-year, the highest quarterly result since 2005. Our disciplined approach to price volume management enabled us to deliver these results even in the midst of ongoing and significant topline headwinds, with year-over-year price declines in oil of 50% and currency headwinds of 17% for the euro and 51% for the Brazilian real. The consistent earnings growth, margin expansion and strong cash flow results we delivered in Q3 continue the steady drumbeat over the last 12 quarters, and underpin our ability to return increasing value to our owners, as illustrated on Slide 5. As we have covered in past quarters, we benchmark our quarterly results against our key financial goals that provide a clear view on our performance. Quarterly EPS has grown at a 21% CAGR over the last three years on an operating basis. And I think it's important to note that the one-time gains resulting from portfolio actions has resulted in an additional $0.71 of as-reported EPS, above the year-to-date operating EPS of $2.58. ROC is now 11.9%, up more than 170 basis points versus the same quarter last year. And we expect ongoing improvement, as our growth levers particularly on the U.S. Gulf Coast and in Saudi Arabia continue…

Thank you, Howard. In Slide 16, you'll just see in a few moments I'm going to share the next series of goals that our Board and our management have come up with for our portfolio transformation over these next two to three years. So if you reference Slide 17, at our Investor Day 2014, we summarized what you could expect from Dow for the next 12 months. And this series of commitments was a continuum from our 2013 strategy reviews undertaken by our Board, which culminated in the series of choices in our growth engines and our self help actions. And what underpinned those reviews in 2013 and was reinforced by our statements at the Investor forum in 2014 is that: we are an emergent and are a cash flow story; that our portfolio fine tuning would continue with an acute focus on carving out our chlorine chain and cleaning up our joint ventures; that we would raise our divestment target to $7 billion to $8.5 billion; and that we would continue to fund innovation and organic growth with no big M&A; and that we would return cash to our shareholders with dividend increases in share buybacks. Slide 18 is a read out of how we did versus what we said. We have over-achieved our targets and there is no gap between what we said and what we did. We have build a portfolio that has as its foundation, both integration and intervention, and is structurally hedged to handle all economic conditions, and as already referenced, is a cash flow machine. Let's look at Slide 19. As a result of these achievements the Dow board and management have deliberated on our focus for the next 24 to 36 months. And we build a simple roadmap for this period. And the…

Thank you, Andrew. Now, we will move on to your questions. First, however, I would like to remind you that my comments regarding forward-looking statements and non-GAAP financial measures apply to both our prepared remarks and the following Q&A. Rochelle, could you explain the Q&A procedure?

[Operator Instructions] And our first question, we'll hear from PJ Juvekar with Citi.

Howard, I like your win-win-win comment.

It was PJ. I mean, it was a tremendous transaction for both Dow, for Olin and for all of our shareholders, I mean really it was.

So my question is on ag. Andrew, you mentioned that you want fair value, and there's pressure to do something. But is it the right time to divest ag, given that ag markets are depressed? And then on seeds, it doesn't make any money today, but you have this great pipeline, so how do you capture all that in your divestiture comments?

You got to take it from the two angles that we are taking it with. You've just given us one angle, which is the retention angle. And then in consolidating ag market, the affordability of R&D budgets and the capturing of synergies is another angle. And if you look at our total market cap and you look at the contribution of Dow AgroSciences, both revenue and EBITDA, then projected EBITDA, you could take some multiples, and say, that as a percent of market cap is higher than as percent of either revenues or profit in the enterprise. So that begs value release and we have talked to many, all of our owners about that. You can entrust upon us, so all of our owners, that we will definitely compare it, as I've said in my remarks, to the value of retention. But look, we believe that over time the hurdle of doing business in this sector will only keep increasing. We've done a phenomenal job through collaboration of building our capabilities and we've done a tremendous job, as you acknowledged on building the pipeline of both chemistry and traits. And we will extract full value in whatever construct we come out with that beats anything towards retention.

And next we'll move on to Steve Byrne with Bank of America.

Your outlook comments include an indication of a widening oil/gas spread benefiting your polyethylene chain. I was wondering what your thoughts were on the outlook for a looming surge of anthracite-based petrochemical production, and do you see that as an opportunity for China to become more competitive in this area? Any leverage you think they can pull to lower the variable cost of that industry?

I really appreciate the question and it's a recurring question. Actually, way back in '03, '04 China's coal-to-olefins projects were looming large, especially with the oil and gas price structures that existed back then. Look, we have been part of it. We have actually assisted one of our partners there to actually move through the approval process. We have one point-in-time even considered participating ourselves. But in our view, despite the variable cost comment you just made, it is unlikely to be any new projects being brought forward. These are very hard to run, highly polluting projects, very water-intensive. They're all in the wrong place. And we believe that their ability to operate even is suspect, as already witnessed by the one that's online. And if you throw on top of that that there will be sub-world scale on the derivative side and actually be mostly in the commodity areas like glycol and gas based, commodity-based polyethylenes and polyprop it will have little or no effect on the value chain comparisons to either the Middle East production, which we're part of or the U.S. production, which we are part of.

And our next question, we'll hear from Frank Mitsch with Wells Fargo Securities.

What about the Mets, Frank?

Andrew, I was just going to say, that I'm not sure who is doing a better job of managing, you or Terry Collins of the Mets, so key point.

Terry is a Midland guy. He's born and bred in Midland.

I did not know that. I did not know that. Sorry, Howard, about the Yankees.

But are you going to write the check for Cespedes? I mean, I think Detroit helped the Mets this season.

We are very grateful and we're keeping Murphy. Andrew, you made the comment no large M&A, and then obviously you indicated that you are in discussions with Corning. I was wondering if you could, at least, conceptually speak about the positioning of the Dow Corning joint venture within Dow proper, the logic behind it, what your expectations might be if in fact you are able to execute on that.

Yes, 72-year JV. Despite the comments on execution with the Mets, we are not foreshadowing an easy execution play here in terms of the partnership being such a strong one. But the good news is both partners know the company inside out, as you might imagine having been on the Boards of this company for a long time. We know the company. Look, Frank, it's just down the road here in Midland, Michigan. These synergies are very unique and are available to one partner, i.e. Dow. And then of course, there's more than that. There's the point you just made about market synergy. As we've rebuilt our portfolio these last many years, Dow Corning's become a much more logical fit on the market side, that wasn't true 10 years ago. And clearly whether it's in the consumer sector, the infrastructure sector, there's electronic materials, building construction, home and personal care, we also see growth synergies on the market side. This will only happen, if it's value accretive to both companies. The win/win/win of Olin, if we can construct it here, something might happen. But we've been very public about JVs and bringing them on balance sheet or off balance sheet. The Kuwaiti announcement is obviously moving in the other direction. And we anticipate that if something happens here, it will only happen, because it's hugely value creating.

And next we'll move on to Jeff Zekauskas with JPMorgan.

Maybe I can ask Frank's question in a different way. If there are no large M&A transactions that you plan, but there is something that you plan with Dow Corning, is it that we would rule out that Dow would buy the piece of Dow Corning, that it doesn't own because you don't plan to make large acquisitions or is that not the right inference?

Look, I don't want to be -- there's no vagueness in the two commentaries, just to be very clear. There's no big M&A outside of our joint venture work. We've been very clear, our joint venture work is our joint venture work and we'll consolidate or deconsolidate. And yes, some people might say that's big M&A. But no, it's not big M&A, because it's a joint venture that we're either consolidating or deconsolidating. There's no problem with those statements coexisting, Jeff, but I understand your point. There could be cash outlay here, but there will only be cash outlay if it's hugely accretive, I mean just to be very clear.

And next we'll move on to Peter Butler with Glen Hill Investments.

Is, in fact, your stock market goal is to become a sustainable earnings growth story to replace the old Dow cyclical growth story? And if so, could you talk some about what remains to be done on your M&A and restructuring program? What might reasonably happen in the next, say, year-and-a-half?

So the three year goals that we punched out today are very clear. We believe that the Kuwait joint venture and the way we're restructuring that will yield cash. And of course, for them it will yield growth. So it's a win/win/win. We believe that we have got bolt-on M&A in our future but no big M&A, to Jeff's question, other than whatever we end up doing with Dow Corning. We believe that Sadara and U.S. Gulf Coast, which by the way Sadara is already sold out on first product and we are pre-marketing as we speak on polyethylene. We're bringing those assets on at exactly the right time. So the $3 billion EBITDA run rate from the US Gulf Coast assets and the $700 million net income boost steady - state run rate on Sadara is new cash flow. And Peter, I think the way we should all think about the company is that it's going to be a cash flow machine these next several years. As you can already see, our cash flows are being boosted substantially. If we do any degree of monetization on ag of any sort, that just adds even further. And so this is all going to be returned to the shareholder. We're going to be a consistent dividend payer at the payout ratio of roughly 45% and we're going to be a buyer of our shares, while our shares in our view are undervalued. And I think the collective view is you generate cash, you spend that cash to grow organically. We have done that. We've got a lot of organic growth in our innovation pipeline. And we'll keep returning cash to our shareholders.

And next we'll move on to David Begleiter with Deutsche Bank.

Andrew, nearer term, can you discuss polyethylene price expectations for Q4 volumes as well. And Performance Plastics, how do you view the business versus Q3 sequentially on EBITDA basis?

Howard, why don't you take that?

I would say, look, I mean when you think about polyethylene around the world, and I'd point you to the slide and some of the prepared comments. But November price increases are in the market, positive sentiment is building. I think Andrew made some comments in some his interviews earlier this morning about Dow and other producers in Europe closing their order book. So October order books for Dow have been closed for about two weeks and a few other producers as well. So that tells you a couple of things. One, inventory through the chain are low and fundamental underlying demand in Europe is good. We've had really strong demand in Asia. I mean, at a company level, this a company comment, not specific to polyethylene, we had 12% volume growth in China versus same quarter year ago. And our packaging business was north of 20%. So you're seeing demand growth in Asia, you're seeing demand growth in Europe. The U.S. economy still is a bright spot. You've got unplanned events happening. There was a big issue in Brazil in the last week, so that just reinforces a point. So margins over the next several years should continue to move up, that is the expectation. Fundamental underlying demand will outstrip the additional supply growth, and that's our view.

And Don Carson with Susquehanna Financial will have our next question.

A question on ag, just on near-term. On Slide 15, you talk about 3% to 5% down sequentially. So are you expecting ag to lose money again in fourth quarter kind of a reversal from last year? And then more broadly, as you look to restructure ag or monetize your position, is DCP the model, where you might do a Reverse Morris Trust, and then distribute the shares in the combined entity to Dow shareholders, so they can continue to participate in the growth of ag?

Why don't I take the first question, then I'll throw it to Andrew for the strategic. But when you think about ag, no I don't think we're going to lose money in the fourth quarter. But it is soft. The market is soft, highly-competitive price environment. We're still dealing with significant currency headwinds. I mean Brazil in the third quarter was a 50% drop versus a year ago. You got economic issues in Brazil. Argentina is certainly where we potentially have a devaluation coming here in the fourth quarter after the elections, so we've got to get through that. But my point would be in a down market we are winning. We're winning with our new molecules on the chemistry side. I highlighted earlier that we are now number two in Brazil corn. That's a new fact. We were number three, we are now number two. So we are winning. And I think we are really seeing the pipeline start to come through the market on both the chemistry side and the biotech side. Andrew, you want to go head with strategy?

Yes. And, Don, look, we're open to all constructs. That was a great construct with a win-win-win of Olin. So we're open to all constructs that release more value, and actually that value stays with the shareholders. It doesn't atrophy away in a tax disadvantage deal.

And next we'll move on to Hassan Ahmed with Alembic Global.

Two-part question on Performance Plastics, if I may. Obviously, a nice sequential bump-up in EBITDA. So the first question is that you mentioned in the press release that Europe, obviously European margins was strong. How did North America fair? Was it sort of flat, down? Just trying to get a sense of how feedstocks flexibility within North America sort of played a role in the quarter. So that's the first one. The second one is, as you look at 2016, there seems to be a pretty heavy turnaround schedule on the ethylene side of things globally. So do you expect to see effective utilization rates tighten materially from here, particularly through the first half of 2016?

Howard, why don't you take those?

I mean, certainly Europe margins were strong in the third quarter. North America came off a little bit, but not as much as everybody was expecting or the third-party pundits were pontificating. We've got North American operating rates in the industry are in the either the very high 80s or low-to-even mid-90s. The ACC data, you had below 40 days of inventory. So again that tells that you fundamental underlying demand is there. And we're taking advantage of that. And if you project forward the next few years, we've added in on our slide in the slide deck, we've added in all the new capacity. I think, frankly, we've been conservative. We added nine crackers on the Gulf Coast coming on between now and 2020. I don't think it's going to be nine, but we wanted to stress test it, and operating rates still go higher from here between now and 2020.

And we'll move on to John Roberts with UBS.

Why is the new executive leadership counsel separate from the Office of Chairman/CEO? Could you talk a little bit about the shuffling you did there?

Look, I wouldn't over-read anything about team structures. Every company does their own thing. We've got the most important part of the team announcement you saw today, John, is the team at the top. The top three of this company, Howard, Jim and I, we're going to run the company. Howard and Jim have got significant responsibilities, new responsibilities, very excited by that. It's a very strong team. Actually, we've had this team in place for a long time now, and they continue to show exceptional performance, as this quarter has shown. But the team that also reports to the CEO or the governance functions, some of the key functions that now report to Jim and Howard, we're going to pull that together as an executive leadership council that gets together and makes sure that we leverage every aspect of this company. Well, the three of us have everything. And the three of us, there was a term used at Dow for historians, from back in the 70s and early 80s, called a troika. I don't know whether that means anything to anyone, but you can call us that if you like. But the three of us run the company in terms of the big decisions and the operational decisions.

Maybe you just gave at least one of them a headline.

Of course.

And we'll move on to Bob Koort with Goldman Sachs.

Andrew, I'm curious, as you look about the JVs, and then maybe doing something with ag, historically Dow has been pretty flexible. So is there an opportunity to maybe use earn-outs or other mechanisms, if you can't come to an agreement on current values for those assets? And then secondly, I'm guessing as we go through earnings season we're not going to find many companies that produce the numbers you showed in China, the numbers Howard talked about in the architectural paint markets in Europe. So can you give us some sense of were there some one-offs, was there some trade opportunities, arbitrages or what kind of confidence do you have that you can sustain those really pretty surprisingly strong volume trends?

I'll take the first one and give Howard the second. There is no question that the Dow AgroSciences property is at the top of that beta pyramid, low beta that you saw on one of the slides in the deck. We've nurtured it, grown it, cared for it, fed it in terms of R&D, and it's grown, grown, grown, and it now has a technology pipeline. In the many years we've been doing that, the Board has done extensive reviews, certainly no less than semiannually and some very big deep drills, where we spent days at a time. To look at the ag market, because it's been obvious that since 15 years, 10 years ago, that another round of consolidation will come one day. And whenever it does, Dow should be able to answer the questions of releasing the value in the portfolio in the best available construct. So, yes, all options are available to us, including the one you just spoke about. Howard, do you want to take the polyethylene thing and the China thing?

On the flexibility side, I would just say, Bob, we have had a track record of being flexible with our divestitures. So you look at in just in last 12 months, Angus and SBH were straight divests. You look at AgroFresh, which was a SPAC, I think we're the first Fortune 50 company to do that. I think at the time we announced $900 million of value for AgroFresh, embedded in that transaction was an earn-out. So that will bring future value, assuming AgroFresh delivers on their financial plan, which we're confident that they will. There is also a tax receivable agreement. When you add the value of the earn-out and the tax receivable agreement, that brings the AgroFresh value on an NPV back to Dow of north of $1 billion of value. And then the Olin RMT, I mean it just shows that we're willing to look at everything. This management team has a very large focus on return on capital, and we've been increasing ROC between 100 basis points and 150 basis points a year. And our focus is any transaction we do, we want it to be a help in EVA momentum and ROC increase.

The China question?

I'm not even sure I remember what the China question was?

I mean, why are we seeing the contrarian --

It's simple. It plays to our portfolio. And if you think about where China is, they've exited this heavy industry phase, and it really is all about light industry/consumer. So you think about our materials, whether it's RO membranes in water, whether it's our elastomers, whether it's our architectural paints, where 10 years ago you would sell very low-end paint to a developer who would look to spray an entire building. Today you've got people in China who have been in their apartments or their homes for 10 years, they are making the choice, and their value proposition is going to be very different from a developer. They are looking for technology, they are looking for things, whether it's our FORMASHIELD, to take formaldehyde out of the air and trap it in the formulation or one-coat hiding. These are the kinds of products that we have, and you're starting to really see that through each of the three quarters of the year.

And next we'll move to Jonas Oxgaard with Bernstein.

One comment first. I would stay away from the troika. I would suggest respectfully a triumvirate. Much better.

Thank you, Jonas. You may have saved the headline for me.

So that said. I was curious on the ag side, have you already started discussions with potential partners, other owners or where are you on that timeline?

So Jonas, really, literally, since the Monsanto Syngenta conversations began in May, you could imagine that every player talks to everyone. And on previous call, I think it was the last quarter's earnings call, I basically said Dow will have a seat at the table. So, yes, we're all talking to everyone. And there's no imminent deal. I just want you to obviously listen to the questions that were asked a couple times about, is this a good time, is this the right value, dah-dah-dah, all that is very key questions that we have to answer for our shareholders. But look, the answer is, everyone is talking to everyone.

And next we'll move on to Vincent Andrews with Morgan Stanley.

I unfortunately have another follow-on question on the ag situation. It sounds like you're considering either a sale or keeping it internally. And I'm just wondering, are you also considering intermediate options such as a spin-off or a sub-IPO tracking stock, those types of things? Particularly in the event if the timing or the bid/ask spreads would suggest it might make sense to wait a little bit longer before complete monetization?

Thank you, Vincent, for allowing my shortest answer, yes.

And if I could just follow-up on the price declines and crop chemistry vis-à-vis the inventory levels, how much of that do you think is just a function of weather-related demand issues? How much of it is a function of, maybe in Brazil, the financing issues? And are you extending more credit to farmers or bartering or those types of things? And how much of it is just sort of the dollar has made, maybe in the past made purchasing power and pricing power higher and now that tides gone out a bit? How do you sort of shuffle the deck between those buckets?

Yes, I would say it's really -- you literally answered the question, because it really is a little bit currency, it's a little bit lower crop prices, which you look at a rented piece of land and the farmer's not able to make money in Brazil on that basis. And there has been -- you throw some weather in there and you mix it all together and it makes for a really challenging environment after three years of pretty high yields with high inventories.

And next we'll move on to Jim Sheehan with SunTrust.

Regarding your flame retardant technology, you're gaining some new license revenue there. I was wondering if you could just comment on where you see that technology going in the future. Do you think you can grow it outside of Europe?

I would say, yes, the medium- to long-term plan is that's going to be global technology. So we're seeing nice licensing income. I mean, it plays right into our technology material science strength. And boy, talk about EVA and ROC, it really has been a nice tailwind for building and construction and we see that continuing to expand over time.

And next we'll move on to Aleksey Yefremov with Nomura Securities.

What is the EBITDA associated with any global stake being sold? And also, could you comment on the magnitude of the equate stake sale as well, how does it compare in terms of proceeds and EBITDA?

So we don't look at it on an EBITDA basis. Do we, Howard?

I would say this, Phase 1. I mean, this is the beautiful thing, and why I would differentiate in terms of JV consolidation, deconsolidation, its hidden EBITDA. Remember, because of 20-50 equity accounting, you don't see the EBITDA of our joint ventures. You only see our percentage ownership of the net income after tax of the joint ventures in our EBITDA. So when you look at Phase 1 that we announced today, you're talking about probably in the range of $30 million to $50 million of lost Dow EBITDA in exchange for the $1.5 billion of proceeds. So it's a pretty nice EVA positive.

And that will be all the time we have for questions. I would like to turn the call back over to Mr. Broodo for any additional or closing remarks. End of Q&A

Thank you, everyone, for your questions. Andrew, did you have some closing remarks?

Yes, I do. We packed a lot into this call. We appreciate your questions. You've got our earnings release. You've also got our pathway for the next two or three years release as well. We have a company that's closing out one year early from its goals that we announced in 2013. Our divestment targets were exceeded. We are in the position now of talking about the next two or three years with great clarity, and that clarity has been provided on the call. This is a company that has delivered on its promises. There's no gap between what we've said and what we've done and we intend to continue that. And we're getting little to no help from a consistent economy. Witness all the questions on volatility. Look at the proof points of our portfolio performing in this economy, which we now have got quite a few quarters in a row. Those who worried about low oil, look at our results. Those who worried about China going away, look at our results. The results of the company and the consistency of performance enables us, as a Board, and management team to continue to deliver that growth in terms of earnings and cash flow. We are strong cash flow machine, getting stronger back to you. There is no big M&A. We will consolidate JVs where it makes sense. There is no need to think about this company directing itself to anything in terms of big CapEx. We've got the big projects starting up. We have done this the last five years with your perseverance, and we are now in the throes of starting up some of the biggest industrial chemical complexes of all time, the one in Saudi Arabia, and of course, the big expansion on the US Gulf Coast. We're advantaged on the inputs and we're advantaged on the outputs. That's a structurally hedged portfolio that's very unique to this enterprise. We commit to you consistent return to shareholders, consistent return of that cash over these last five years. And last but not least, I'm very proud of the team announcements we've made today. We have the team to drive this company for the next five to 10 years in place. It's a team that has consistently grown and delivered for you, the shareholder, and I'm very proud of that. Thank you.

Thank you, Andrew. As always we appreciate your interest in the Dow Chemical Company. For your reference, a copy of our prepared comments will be posted on Dow's website later today. This concludes our call for today. We look forward to speaking with you again soon.