CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The unaudited interim consolidated financial statements of The Dow Chemical Company and its subsidiaries (“Dow” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. 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, 2017.

Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017, Dow and E. I. du Pont de Nemours and Company ("DuPont") each merged with subsidiaries of DowDuPont Inc. ("DowDuPont") and, as a result, Dow and DuPont became subsidiaries of DowDuPont (the "Merger"). In accordance with the accounting guidance for earnings per share, the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

Following the Merger, Dow and DuPont intend to pursue, subject to certain customary conditions, including, among others, the effectiveness of registration statements filed with the Securities and Exchange Commission and approval by the board of directors of DowDuPont, the separation of the combined company's agriculture, materials science and specialty products businesses through one or more tax-efficient transactions ("Intended Business Separations").

Beginning September 1, 2017, transactions between DowDuPont, Dow and DuPont and their affiliates are reflected in these consolidated financial statements and will be disclosed as related party transactions, when material. Transactions between Dow and DuPont primarily consist of the sale and procurement of certain feedstocks, energy and raw materials that are consumed in each company's manufacturing process. See Note 19 for additional information.

Effective with the Merger, Dow’s business activities are components of its parent company’s business operations. Dow’s business activities, including the assessment of performance and allocation of resources, are reviewed and managed by DowDuPont. Information used by the chief operating decision maker of Dow relates to the Company in its entirety. Accordingly, there are no separate reportable business segments for the Company under Accounting Standards Codification ("ASC") Topic 280 “Segment Reporting” and the Company’s business results are reported in this Form 10-Q as a single operating segment.

Except as otherwise indicated by the context, the term "Union Carbide" means Union Carbide Corporation, a wholly owned subsidiary of Dow, and "Dow Silicones" means Dow Silicones Corporation (formerly known as Dow Corning Corporation, which changed its name effective as of February 1, 2018), a wholly owned subsidiary of Dow.

Changes to Prior Period Consolidated Financial Statements

As a result of the Merger, certain reclassifications of prior period amounts have been made to improve comparability with DowDuPont and conform with the current period presentation. Presentation changes were made to the consolidated statements of income, consolidated statements of cash flows and consolidated statements of equity. In addition, certain reclassifications of prior period data have been made in the Notes to the Consolidated Financial Statements to conform with the current period presentation.

In the first quarter of 2018, the Company adopted new accounting standards that required retrospective application. The Company updated the consolidated statements of income as a result of adopting Accounting Standards Update ("ASU") 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The consolidated statements of cash flows were updated as a result of adopting ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" and ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." See Note 2 for additional information.

Changes to the consolidated financial statements as a result of the Merger and the retrospective application of the new accounting standards are summarized as follows:



Summary of Changes to the Consolidated Statements of Income	Three Months Ended Mar 31, 2017
In millions	As Filed			Merger Reclass ¹			ASU Impact ²			Updated
Cost of sales	$	10,197		$	—		$	(3	)	$	10,194
Research and development expenses	$	416		$	—		$	3		$	419
Selling, general and administrative expenses	$	867		$	(109	)	$	1		$	759
Integration and separation costs	$	—		$	109		$	—		$	109
Sundry income (expense) - net	$	(470	)	$	25		$	1		$	(444	)
Interest income	$	25		$	(25	)	$	—		$	—


1.	Costs associated with integration and separation activities are now separately reported as “Integration and separation costs” and were reclassified from “Selling, general and administrative expenses.” In addition, “Interest income” was reclassified to “Sundry income (expense) - net.”


2.	Reflects changes resulting from the adoption of ASU 2017-07. See Note 2 for additional information.



Summary of Changes to the Consolidated Statements of Cash Flows	Three Months Ended Mar 31, 2017
In millions	As Filed			Merger Reclass			ASU Impact ¹			Updated
Operating Activities
Net periodic pension benefit cost	$	—		$	112		$	—		$	112
Net gain on sales of assets, businesses and investments	$	—		$	(17	)	$	—		$	(17	)
Net gain on sales of investments	$	(12	)	$	12		$	—		$	—
Net gain on sales of property, businesses and consolidated companies	$	(8	)	$	8		$	—		$	—
Net loss on sale of ownership interests in nonconsolidated affiliates	$	3		$	(3	)	$	—		$	—
Other net loss	$	33		$	108		$	—		$	141
Proceeds from interests in trade accounts receivable conduits	$	114		$	—		$	(114	)	$	—
Accounts and notes receivable	$	(890	)	$	—		$	(437	)	$	(1,327	)
Accounts payable	$	322		$	161		$	—		$	483
Other assets and liabilities, net	$	254		$	(381	)	$	(1	)	$	(128	)
Cash provided by (used for) operating activities	$	476		$	—		$	(552	)	$	(76	)
Investing Activities
Payment into escrow account	$	(130	)	$	—		$	130		$	—
Acquisitions of property, businesses and consolidated companies, net of cash acquired	$	(26	)	$	—		$	26		$	—
Proceeds from interests in trade accounts receivable conduits	$	—		$	—		$	551		$	551
Cash used for investing activities	$	(1,060	)	$	—		$	707		$	(353	)
Financing Activities
Contingent payment for acquisition of businesses	$	—		$	—		$	(26	)	$	(26	)
Cash used for financing activities	$	(231	)	$	—		$	(26	)	$	(257	)
Summary
Decrease in cash, cash equivalents and restricted cash	$	(759	)	$	—		$	129		$	(630	)
Cash, cash equivalents and restricted cash at beginning of period	$	6,607		$	—		$	17		$	6,624
Cash, cash equivalents and restricted cash at end of period	$	5,848		$	—		$	146		$	5,994

Reflects the adoption of ASU 2016-15 and ASU 2016-18. See Note 2 for additional information. In connection with the review and implementation of ASU 2016-15, the Company also changed the prior year value of “Proceeds from interests in trade accounts receivable conduits” due to additional interpretive guidance of the required method for calculating the cash received from beneficial interests in the conduits.



Summary of Changes to the Consolidated Statements of Equity	Three Months Ended Mar 31, 2017
In millions	As Filed			Merger Reclass			Updated
Dividend equivalents on participating securities	$	(10	)	$	10		$	—
Other	$	—		$	(10	)	$	(10	)

Changes to the January 1, 2018 Consolidated Balance Sheet

In the first quarter of 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" and the associated ASUs (collectively, "Topic 606"), ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." See Note 2 for additional information on these ASUs. The cumulative effect of changes made to the Company's January 1, 2018, consolidated balance sheet as a result of the adoption of these accounting standards is summarized in the following table:



Summary of Changes to the Consolidated Balance Sheet	Dec 31, 2017			Adjustments due to:								Jan 1, 2018
In millions	As Filed			Topic 606			ASU 2016-01			ASU 2016-16		Updated
Assets
Inventories	$	8,376		$	(11	)	$	—		$	—	$	8,365
Other current assets	$	627		$	29		$	—		$	31	$	687
Total current assets	$	27,244		$	18		$	—		$	31	$	27,293
Deferred income tax assets	$	1,722		$	25		$	—		$	10	$	1,757
Deferred charges and other assets	$	829		$	43		$	—		$	—	$	872
Total other assets	$	22,038		$	68		$	—		$	10	$	22,116
Total Assets	$	79,940		$	86		$	—		$	41	$	80,067
Liabilities
Accounts payable - Other	$	3,062		$	10		$	—		$	—	$	3,072
Income taxes payable	$	694		$	(2	)	$	—		$	—	$	692
Accrued and other current liabilities	$	4,025		$	50		$	—		$	—	$	4,075
Total current liabilities	$	14,377		$	58		$	—		$	—	$	14,435
Other noncurrent obligations	$	5,994		$	117		$	—		$	—	$	6,111
Total other noncurrent liabilities	$	18,789		$	117		$	—		$	—	$	18,906
Stockholders' Equity
Retained earnings	$	28,050		$	(89	)	$	(20	)	$	41	$	27,982
Accumulated other comprehensive loss	$	(8,591	)	$	—		$	20		$	—	$	(8,571	)
The Dow Chemical Company's stockholders' equity	$	25,823		$	(89	)	$	—		$	41	$	25,775
Total equity	$	27,009		$	(89	)	$	—		$	41	$	26,961
Total Liabilities and Equity	$	79,940		$	86		$	—		$	41	$	80,067

The most significant changes as a result of adopting Topic 606 relate to the Company's contract liabilities which includes payments received in advance of performance. Contract liabilities, which are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets, increased as certain performance obligations, which were previously recognized over time and related to the licensing of certain rights to patents and technology, as well as other performance obligations, are now recognized at a point in time as none of the three criteria for 'over time' recognition under Topic 606 are met.

Current Period Impact of Topic 606

The following table summarizes the effects of adopting Topic 606 on the Company's consolidated balance sheets, which was applied prospectively to contracts not completed at January 1, 2018. The effect of adopting Topic 606 did not have a material impact on the consolidated statements of income and the consolidated statements of cash flows.



Summary of Impacts to the Consolidated Balance Sheets	As Reported at Mar 31, 2018		Adjustments			Balance at Mar 31, 2018 Excluding Adoption of Topic 606
In millions	As Reported at Mar 31, 2018		Adjustments			Balance at Mar 31, 2018 Excluding Adoption of Topic 606
Assets
Inventories	$	9,577	$	30		$	9,607
Other current assets	$	658	$	(43	)	$	615
Total current assets	$	28,514	$	(13	)	$	28,501
Deferred income tax assets	$	1,784	$	(27	)	$	1,757
Deferred charges and other assets	$	946	$	(43	)	$	903
Total other assets	$	22,250	$	(70	)	$	22,180
Total Assets	$	81,371	$	(83	)	$	81,288
Liabilities
Accounts payable - Other	$	3,682	$	(10	)	$	3,672
Income taxes payable	$	756	$	2		$	758
Accrued and other current liabilities	$	3,348	$	(34	)	$	3,314
Total current liabilities	$	15,094	$	(42	)	$	15,052
Other noncurrent obligations	$	6,121	$	(120	)	$	6,001
Total other noncurrent liabilities	$	18,710	$	(120	)	$	18,590
Stockholders' Equity
Retained earnings	$	28,261	$	79		$	28,340
The Dow Chemical Company's stockholders' equity	$	26,781	$	79		$	26,860
Total equity	$	27,971	$	79		$	28,050
Total Liabilities and Equity	$	81,371	$	(83	)	$	81,288

Significant Accounting Policy Update

The Company's significant accounting policy for revenue was updated as a result of the adoption of Topic 606:

Revenue

The Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 3 for additional information on revenue recognition.

Revenue related to the Company's insurance operations includes third-party insurance premiums, which are earned over the terms of the related insurance policies and reinsurance contracts.

Dividends

Prior to the Merger, the Company declared dividends of $0.46 per share for the three months ended March 31, 2017. Effective with the Merger, Dow no longer has publicly traded common stock. Dow's common shares are owned solely by its parent company, DowDuPont. As a result, following the Merger, the Company’s Board of Directors ("Board") determines whether or not there will be a dividend distribution to DowDuPont. See Note 19 for additional information.