"1995 annual rept for dow chemical co."
TRANSCRIPT
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FinancialHighlights cfI995*
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In muliom, except echere noted,
1995 1994 Ment aange
Net Sales $20,200 $ 16,742 +21
Operating Income 3,891 1,820 +114
Net Income Available for Commen Stockholders 2,071 931 +122
Research and Development Expenses 808 783 +3
Capital Expenditures 1,417 1,183 +20Return on Equity 26.9 % 11.3% +15.6 pntsEarnings per Share (in do#an) 7.72 3.37 +129
Dividends Declared per Share (in doNan) 2.90 2.60 +12
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* Resultsfurpmiousyears hat e been restated to show Dute spharmaceuticalbusinesses as discontinued opations due to their sale in the second guarter ofI995
4var con cwiuscu commy 480 suosiouairs
_
3
SharedPriorities For Success |
To Our Stockholders
This has been a year of significant achievement and change for farnfingarleteletrLeflitformance%e Dow Cl mical Company. From our overall business mix to As we create a new level of perfonnance for the company, we baseour fundamental work processes, we continue to build a stronger established a series of financial objectives. By implementing ourDow-a Dow that has the focus, resources and organizational strategy for long-term success, we will strive to attain:
'
|capabilities to achieve our mission to be the most productive, best %e creation of value over the life of the business cycle. I
{*
value-growth chemical company in the world. Economic profit, which we define as return in excess of the cost I
This is my first opportnnity as Dow's new CEO to write to you of capital, now drises our business decisions. We will strive to I,
about the exciting strategy we have put in place to achieve a new generate economic profit every year. The objective for us, however,level of performance focused on value growth. On the strength is to create value over the life of the business cycle.of new innovations and expanding world markets, the global A targeted return on capital that exceeds the cost of capital by*
chemical industry will experience substantial growth in the 3 percent over th, life of the business cyde.,
A return on equity of about 20 percent, averaged over the life |coming years. We at Dow intend to be part of that growth by *
capturing the best opportunities for value creation. We are making of the cycle. !good progress toward this end. Stantegyforlang-TeretAccru
We could not, however, be as well positioned as we are tcjay To meet our objectives, we have outlined a four-part strategy. Thewithout the leadership of my predecessor, Frank Popoff. His key elements of this strategy are: maximizing shareholder valueconunitment to Dow's long-term success has helped create our from a gmwing portfolio of chemistry-related businesses; settingcurrent level of perfonnance. As Chainnan of the Board, he will the competitise standard business by business; gaining competitivecontinue to provide insight and guidance. advantage and increased productivity by leveraging site and
The company has also benefited from the direction provided product-line integration, technology, customer relationships andby Board members Andrew J. Butler, Fred W. Lyons, Jr, and shared business services; and acting globally with investments andEnrique J. Sosa, all w ho retired during 1995. I would like to resources deployed in local markets. %ese elements are embodiedextend my appreciation to them for their service to the company. in the company's Strategic Blueprint, which Dow people are using fI would also like to extend a special thank-you to Enrique C. Falla to guide their efforts.who has stepped down from his post as Dow's Chief Financial In 1995, we made significant progress on each of these fronts.Ollicer after many years of outstanding sersice. He will continue Crowing Nffo/io of Gemistry-Re/nie</ Busincuesto provide leadership on our Board of Directors. We made strategic shifts in our business portfolio. % rough a*
Our new Board members, Anthony J. Carbone, Atlan D. series of purposefully executed divestitures and acquisitions, weCilmour, Michael D. Parker and J. Pedro Reinhard, bring with shifted our business portfolio to focus our resources on our corethem a weahh of experience and base already begun to make competencies. %e most significant of the divestitures was the saleoutstanding contributions. %ey have been joined by John C. of our phannaceutical interests. The sale of Marion Merrell DowDanforth, who was elected to the Board in February 1996. and our Latin American pharmaceutical businesses marked a key1S91Einancinuligelights turning point in the company's long-term growth strategy. With thisI am pleased to report that 1995 was an excellent year for Dow. sale, we made the strategic decision to focus our resources in
Our sales of $20.2 billion set a new record, and our earnings per Dow's core chemistry-related businesses, rather than to make the
share were the third highest in the company's history. All of our large-scale investments necessary to stay competitive in the
business segments reponed higher sales in 1995 compared to pharmaceutical industry.1994. Our Perfonnance Chemicals and Performance Plastics Some other businesses we divested include our aspirin business,segments had a particularly strong year. Operating income from Generon Systems Inc, the Personal Care Business of DowBrands,
these businesses increased 53 percent over last year. and Advanced Cleaning Systems.
Our earnings were $7.72 per share in 1995 versus $3.37 per Collectively, this year's divestitures have generated neadyshare in 1994. Excluding earnings from discontinued operations $5.3 billion of cash to pursue new value-growth opportunities.and other special items, earnings were $8.27 per share, up We expanded current businesses to add value. During the last-
152 percent versus $3.28 in 1994. two years, we placed in service more than $3 billion of additional ,%e company is in excellent financial condition. Since 1992, capacity to meet our customers' increased demand. For ekample,
we have reduced our net debt by $4.9 billion. %is gives us addi- during 1995 we added to our position in the Asia-Pacific,
tional financial flexibility to pursue opportunities to create value. geography by bringing on stream plants in Thailand and Indonesia ,
in our effons to improve shareholder value, we increased our to meet the needs of the emerging southeast Asia market.
quarterly dividend by 15 percent. We also repurchased 29 million We are developing new products and services with a clear-
shares, slightly over 10 percent of our outstanding shares. We focus on chemistry-related businesses. We are rapidly pursuingbelieve Dow stock is an excellent value and its repurchase a wise commercial opponunities based on our Insite technology and ouruse of our cash. environmental expenise. DuPont Dow Elastomers LLC. and Radian
4 n.: con couicu coum, no sussmums
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.
International LLC are two examples of how, through partnenhips lhe productivity gains we base made are the result ofwith other ccmpanies, we are accelerating commercialization of employee innovation. Employees began by simply looking forthese capabilities. ways to cut costs but,in doing so, unearthed a world of opportu-
1hrough the acquisition of Enichem's INCA International spa nity to do things faster, smarter and more efficiently. Each of ourin Italy, we base entered into the purified terephthalic acid (l'rA) work processes is being reengineered, with the ultimate goal ofand polyethylene terephthalate (PET) businesses. We also plan to leveraging onr strengths globally and across all businesses toenter into the polypnspylene business. Polypropylene and PET are eliminate duplication and ensure world-class practices. IIere aretwo of the fastest growing polymers in the world and proside us a few of the many examples of employee efforts:with tremendous value-growth potential.1 hey complement our Oser the past three years, our polystyrene employees achieved-
current strength in plastics, allowing us to leverage our technology a 30 percent reduction in conversion costs, which translatedalong with our exi. sting market and raw material positions. They into a $41 million earnings improvement in 1995.also allow us to respond to our customers' growing needs in the Since 1992, employees at our polyol plant in Texas increased the-
pacLaging and durables markets. production capacity of their unit by 59 percent, reducing conver-Setting the Cornpetirire Sinne/an/1/usiness by Business sion costs by 45 percent, with a capital invesunent of just over $1
We resuuctured our operatium around our 15 global million.1he result was a $30 million imprmement in earnings.-
businesses. Our new structure bener enables our businesses to seize By reengineering and integrating our supply chain witha
opportmuties for salue growth. By organizing around our businesses, 75 companies in North America, employees saved $8 millionwe are now able to leverage our functional and geographic expertise for Dow and $4 million for our customers.*,
globally and are better able to unden tand our marketplaces and sene Productisity improvements such as these will continue.our customers. Ea< h of our 15 busines es can t reate its own future Int esting C/ohn//y, linpleinenting locn//y
*within the context of Dow's strategy. We are combining the speed. We expanded geographically. The changing global market-*
*
llexibility, know kxlge and focus of a small company with the place offers great growth opportunities. We continue to invest andtechnology, global reach and financial resources of a large company. expand in emerging markets around the world. As we expand, ourCaining Competitite.fi/enninge by Leccinging our Atirngths business strategies will be set globally, but implemented locally.
We significantly imprmed productisity. We have reduced our This will ensure that local differences and customer preferences*
annual controllable costs by $"10 million, on a comparable basis, will be respected.over the last three 3 ears, surpassing our goal of $M0 million.
4n. co* csimcu comu m sussems
We have received European Union approval to acquire three I am particularly proud that we not only met, but surpassed, our
formerly state-owned production sites in eastern Germany, giving goal to reduce emissions of 17 priority compounds by 50 percent.
us the opportunity to expand our business in central and eastern Our commitment was to achieve these reductions by 1995, using
Europe. Putting together a transaction as large and complex as 1988 as a baseline, flowever, we accomplished the goal one year
this one required a great deal of energy and dedication from both early. In 1994, Dow achieved a 67 percent reduction for our U.S.Dow and government people. 'Iheir work will result in long-term operations and a 65 percent reduction globally.
growth for Dow and in renewed economic prosperity for the I am also pleased that safety has remained a top priority during
Cennan plant communities. this time of rapid change. In 1995, Dow had a record safety perfor- ,
Our recent acquisitions in Argentina give us a strong ethylene mance, reducing total recordable incidents for Dow employees and ,
and polyethylene position in the important Mercosur trading bloc contractors by 12 percent compared to 1994.
fonned by Argentina, Brazil, Paraguay and Uruguay. Our invest- Certainly one issue that has garnered a number of headlines
ment in the Asia-Pacific geography provides us with access to that this year involves silicone get breast implants. Although 'Ihe Dow ,
important marketplace. Chemical Company never developed, tested, manufactured or sold
Combined, our current value-growth initiatives should enable silicone breast implants, we have found ourselves facing lawsuits
us to add $3-4 billion in annual sales by the end of the decade, related to implants. Because of the American tort system, which is
Ornfing> ace!/thtfultwar in need of refonn, we ara being unjustly asked to defend a
It is our people who bring our strategy to life. Therefore, we are product developed, produced and sold by another company, Dow
actively renewing our corporate culture to create a workplace Corning Corporation. Dow Corning is owned equally by Dow and
where geographic, functional and business barriers are eliminated, Corning Inc.allowing Dow people to leverage their expertise across the entire We feel compassion for women who are ill, regardless of the
company. cause. In our view, the results of the first phase of the Brigham
A key to our new culture is increased individual accountability. and Women's Hospital Study, along with the 22 previous studiesWe are delayering the organization so that there will be no more from the Mayo Clinic, John llopkins, llarvard Medical Schoolthan 4 to 6 layers versus the traditional organization that has 8 to and others that show no link between breast implants and
10 layers. By doing so, we will increase the speed of decision- disease, should be reassuring news for women with breast
making, enhance our organization's flexibility to meet customer imphnts.needs, and make people's careers more fulfilling. Personal contri- We are confident this issue will be resofved based on the strength
bution will be measured not by position on the organizational of the legal funda:nentals and the mounting medical evidence. I want f
chart, but by job knowledge and performance. to assure you Dow Chemical will take the necessary measures-today
To ensure we recognize our employees' contributions appro- and in Ae future-to refute these unjustified challenges.,
priately in our new culture, we are revising our employee Locking *hendcompensation program. We are adding a business link to our We have made significant accomplishments in 1995, and we are
existing variable pay progam which ties a ponion of most Dow well positioned to seize opponunities to create additional value
employees' compensation directly to the company's economic growth. I would like to thank our employees, customers and share-
profit perfonnance. We will begin a pilot with senior managers to holders for their suppon during this year cf rapid change. Change
tie their variable pay directly to the economic profit perfonnance is necessary, but it is not always easy. I am especially proud of the
of their business. This will allow us to reward employees for their way employees are meeting the challenges before them with
contributions to the success of their business. creativity and innovation.
L'Haning11xcellencc_ittfntimnntentn/,1(en/thatnd Throughout 1996, we will stay focused on our strategy. I am
M/c&lhffnmnnre confident we will experience another good year.,
I have dedicated the majority of this tener to discussing our Achieving the objectives we have set for ourselves will bring
financial objectives and our strategy for long-tenu success. about success for all of our stakeholders. 'Ihat is why we have
Equally important is our ability to manage the environmental, chosen " Shared Priorities" as the theme for this year's Annual
health and safety issues that affect our businesses. Achieving Report. I hope as you read through the following pages you will
environmental excellence is a business issue, and our goal is to see that our value creation efforts are moving us full force toward
make the environment part of every business decision we make. our vision of being the best at applying chemistry for the benefit of
It is a tough goal, but we're building on our experience and our customers, employees, shareholders and society.
expertise, and we will continue to improve.
AY -
.
,
William S. Stavropoulos
President and ChiefErecutive Ofcer
February 28,1996
,
f Hi DOW Chf MIC AL COMPANY AND susSIDI ARiis
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C:rporale PmfileDow is a diversified, worldwide mamfacturer andsupplier ofchemicals, plastics, energy, agricidturalproducts, consumergoods and eiwironmentalservices.
Gesnien/4 & J/ern/4 Viis segment includes a wide range of products that are used primarily as raw materials in the manufacture 5
of customers' products. Dow is the largest manufacturer of chlorine and caustic soda in the world, with about twice as much capacity as
the next largest producer. Some uses of chlorine include pharmaceuticals, water purification and the manufacture of plastics. Caustic
soda is used in detergents, pulp and paper, petroleum refining and the manufacture of aluminum. Other important products include'
ethylene dichloride, ethylene glycol, ethylene oxide, magnesium, propylene glycol, propylene oxide and vinyl chloride monomer.
Itsforsnance Gesnients 'Ihe products within these businesses include ingredients in many formulated products and processing |aids, as well as end-use products. Specialty Chemicals includes products like Drytech superabsorbent polymers, used to producethinner, more absorbent disposable diapers; Methocel multifunctional food gums, used in formulations when there is a need to
replace fat, retain moisture and contribute pleasing texture; and Dowtherm fluids, used to control process temperature. He Emulsion
Polymers business includes latex coatings and binders, which are used in the building and construction and the pulp and paperindustries. Dow is the largest and most globally diverse of the styrene-butadiene latex suppliers and is the largest supplier oflatex tothe paper industry. DowElanco produces agricultural products like Broadstrike herbicides and Dursban and Lorsban insecticides,
which are used in crop protection and production and for industrial pest control.
P/nstics Dow ranks among the world leaders in plastics production, with uses in such industries as electronics, food service, health
care, packaging and recreation. Dow is the leading producer of polyethylene, such as low-density polyethylene and Dowlex linear
low-density polyethylene, and polystyrene, such as Styron polystyrene and Aim advanced styrenic resins. The PET (polyethyleneterephthalate polyester) and polypropylene businesses will be included in this segment.
Ibrfonnance P/nstics Dow ofTers the broadest range of engineering thermoplastic and thermoset materials of any manufacturer.His segment consists of the following businesses: Polyurethanes; Epoxy Products & Intermediates; Engineering Plastics; Adhesives,Sealants & Coatings; Insite technology licensing; and Fabricated Products.
Polyurethane products, like Voranol polyether polyols and isocyanates, are used by such industries as automotive, furniture, and
building and construction. Dow is the leading producer of allyl chloride and epichlorohydrin globally, which are basic products forthe epoxy product chain. Dow's epoxy products and intennediates are used in a variety of applications, including the protective coat-ings, electronics and personal care industries. Engineering Plastics,like Calibre polycarbonate resins, Magnum ABS resins and Pulse
engineering resins, sene such industries as appliances, automotive and electronics. %e Adhesives, Sealants & Coatings business
manufactures products like Betascal window adhesives. Insite technology enables Dow and Dow's customers to produce a range of
plastics that perfonn better and are easier to process. Styrofoam brand plastic foam, used in the building and construction industry,is the key product for the Fabricated Products business.
//pdrocas6ons & Enesgy Dow is the world leader in olefins and styrene production. This segment encompasses procurement offuels and crude oil-based raw materials as well as the production of olefins, aromatics, styrene and cogenerated power and steam for
use in the company's operations. Destec Energy, Inc., a Dow subsidiary, is one of the larger independent power producers in the
world. It develops independent power projects and sells electrical and thermal energy.
I>itersified Businesses & run//ocated Diversified Businesses includes DowBrands, Radian International LLC, New Businesses,
and Insurance & Finance. DowHrands produces household products such as Dow bathroom cleaner with Scrubbing Bubbles,,
Fantastik all-purpose cleaner, Class Plus multi-surface cleaner, Saran Wrap plastic film and Ziploc plastic bags. Radian International
LLC is a joint venture fonned in January 1996 between Dow Environmental Inc. and Radian Corporation that will provide,
environmental,information technology and strategic chemical management services to industry and government. New Businesses
consists of advanced electronic materials like Cyclotene advanced electronic resins, used for dielectric coatings, and aluminum nitride
ceramic powder, used for thennal management of electronic device packaging; advanced structural materials such as tungsten
carbide-based powders; technology licensing; catalysts and new developments. Insurance & Finance includes Dorinco Reinsurance
Company, a wholly owned subsidiary of Dow, and all other Dow financial companies and holdings. Unallocated includes activitiesand overhee.d cost variances not allocated to other segments.
TH E DOW CHE MIC AL COM PANY AND SU BSIDiA Alf s
. _ _
In 1996, Destec plans to pursue aggressively additional Sales for the llome Care value center remained flat. Volumeopportunities to place its available Texas power. With regard to growth for Dow bathroom cleaner with Scrubbing Bubbles,international markets, Destec plans to continue to proceed toward Spray'N Wash tough stain remover and Smart Cleanser softf'malization ofits power purchase agreement for the Taiwan scouring cleanser, which earned a 21 percent market share afterproject, finance the project in the Netherlands, and finance and its first full year on the market, was of fset by declines in laundrybegin operations of the projects in the United Kingdom and the products.
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Dominican llepublic. Destec also plans to begin operations ofits 'Ihe New Businesses unit performs research aimed at devel.project in Ontario, Canada, in lat a 1996. oping new high-value products. New product development has
been targeted on wo key market segments: advanced structural
DIVERSIFIED BUSINESSES AND UNALLOCATED matnials and advanced electronie materials.These businessesrepresent sigmficant value-growth opportunities that would allow
The operating results of DowBrands, New Businesses, including Dow to leverage its existing strength in polymer chemistry. Dow'sDow Envi6onmental Inc, and consolidated insurance and finance
goal is to have all these research and development projects cashsubcidiaries are grouped in this segment together with activities neutral in the fifth year of development. To achieve this goal, theand overhead cost variances not allocated to other segments. company has set strict project milestones.
Sales for this segment were $966 million, $953 million and in 1995, Dow ended its collaboration with Ballard Power$927 million,in 1995,1994 and 1993, respectively. Systems Inc. to develop fuel cell technology, sold its Advanced
This segment reported an operating loss of $363 million in Cleaning Systems business, and announced it would sell Boride1995, versus an operating loss of $2C million in 1994. In 1993, Products Inc., as the company worked to focus its resources onthis segment had an operating income of $78 million. high-value businesses.These divestitures will not have a material
DowBrands, Dow's consumer products affiliate, had sales of impact on the company.$866 million, up from $845 million in 1994 and $846 in 1993. The primary components of the 1995 operating loss in
DowBrands restructured its organization in the third quarter, this segment were severance costs of $181 million, research andn ducing the U.S. workforce by 4 percent and lowering other expenses of$109 million related to new developmentaladministrative costs. The sale of the Personal Care Business was activities in New Businesses, and overhead cost variances notcompleted in November. allocated to other segments of $119 million. These costs were,
lhe llome l'ood Management value center had a strong year partially offset by pretax income from the insurance and financewith cales in Nonh America up 11 percent versus the prior year. company operations of $61 million. The 1994 operating lossZiploc brand bags had record sales despite new competition was related to severance costs of $124 million, activities in New,
introduced in the U.S. early in 1995. Sales in the rest of the world Businesses of $91 million, and asset write-offs and provisions forwere down 2 percent. In early environmental remediation of $381996, a letter ofintent was signed pxf e m M (4 million not assigned to Dow's
U ooM other industry segments. 'lhesebetween DowBrands Europe and [ .-
lhe Melitta Group of Germany to s" - ; costs were partially offset by pre-J|@i[kW%yO /h2 tax income from the insuranceform a joint venture that com-
bines both food care businesses 6mmeneemtemenessue and finance company operationsin the European area. of $40 million. The l'993 operat-*
ing income of this segment wascomprised primarily of pretax
'"-m income from the insurance and
annaW finance company operations of$98 million and favorable vari-a
g ances resulting from resource use"
reduction of$60 million, which
were partially offset by expenses<
related to new developmentalactivities in the New Businesses
mv of $70 million..
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ers m em m m m m annur eenemmswemmmesa4
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THE DOW CHEMIC AL COMhhY AND SUS $1DI ARIE3
Outlookfor Diemijierfihuincue.e Operating Gut.s andEtpensesIn January 1996 Dow Environmental Inc. formed a joint 1994 1993senture with the Radian subsidiary oflhe liartford Steam Boiler Can Components as a Itrcent o/ Total 1995 Ruraus Rutaud
Inspection and Insurance Company to provide emironmental, flydrocarbons and energy 25 % 26 % 25 %infonnation technology, and strategic chemical management Wages, salaries and
services.1he joint venture, named Radian International LLC, is employee benelits 21 22 25
expected to have sales of nearly $400 million in 1996. Maintenance 5 6 7*
Overall performance for Dow Brands is expected to improve, Depreciation 8 8 9
in part through the introduction of several product improvements supplies, services andther raw materials 41 38 34 *
and line extensions. Manufacturing costs are expected to decreasewith the improved productivity at the Urbana, Ohio, facility and Total 100 % 100* tw4the closing of the Mauldin, South Carolina, plant.
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.
*"' P * "E '"''' '' " " ' " " * " P'''ucs businesses were 92 percent of capacity in 199a[and 1994 and* ECDMPANY SUMMARY
operatingIncome 85 percent in 1993.The 1995 sales volume growth of 4 percentOperating incoine was $3.9 billion in 1995, up 114 percent from over 1994 was primarily achieved by new capacity while the 1994 1
$1.8 billion in 1994 and 263 percent from $1.1 billion in 1993. growth of 8 percent over 1993 was primarily achieved by higherCross margin improved by $2.3 billion versus 1994, primarily as plant operating rates. Depreciation expense was $1.4 billion ina result of higher selling prices. 1995, $1.2 billion in 1994 and $1.3 billion in 1993.
The ratio of operating income to sales was 19 percent in Research and development, promotion and advertising, and1995, versus 11 percent in 1994 and 7 percent in 1993. Sales selling and administrative expenses increased by $207 million orprice increases across all segments and volume increases in 7 percent compared to 1994.Performance Chemicals and Performance Plastics led to the Research and development expenses were $808 millionimproved 1995 results. Operating income substantially improved for 1995, up 3 percent compared to 1994 while 1994 was flatin most segments. Prices began to show noticeable improvement compared to 1993.
1in the latter half of 1994 and this continued until late 1995. The Promotion and advertising expenses of $416 million w ere flat'
United States contributed 41 percent of the total operating against $411 million in 1994; 1993 costs were $367 million.income in 1995 compared to 56 percent in 1994 and 74 percent Selling and administrative expenses for 1995 were $1.8in 1993. The United States portion of the total decreased as a billion, up il percent from $1.6 billion in 1994 which was upresult of operating income improvements in Europe and the rest 7 percent from $1.5 billion in 1993.1he increase in 1995 wasof the world. Operating income in Europe was $1.1 billion in primarily the result of variable compensation accruals based on1995 versus $237 million in 1994 and a $23 million loss in 1993. improved company earnings and the negative impact of exchange iOperating income from Rest of World showed continued improve- rate changes on expenses inenrred outside the U.S. Selling and |ment, increasing to $1.2 billion in 1995 from $559 million in 1994 administrative expenses represented 9 percent of sales in 1995and $302 million in 1993. and 10 percent in 1994 and 1993.
|
Sales Price and Iblume
1993 1994 1993
lhtentage rhanhsfrumprioryear lhe Iblume Total 1%r iblume Total Pria lblume 7htal
Geographic Areas:12% - 12 % 1% 7% 8% - 3% 3%United States
'
25 8% 33 4 8 12 (12)% (2) (14)Europe i
l
Rest of World 16 8 24 3 15 18 (3) 4 1
All Areas 17 4 21 3 8 11 (5) 2 (3)
Industry Segments:Chemicals and Metals 33 % 1% 34 % 4% 3% 7% (6)% ~ (6)%Ibrformance Chemicals 6 9 15 (1) 9 8 (2) 2% -
*Plastics 29 (1) 28 12 10 22 (8) 2 (6)
'
IYrformance Plastics 13 5 18 (1) 11 10 (4) 2 (2)liydrocarbons and Energy 9 7 16 6 7 13 (6) 9 3
Disersified Businesses and Unallocated - 1 1 (2) 5 3 2 (9) (7)All Segments 17 4 21 3 8 11 (5) 2 (3)
4 m oow cecu covem no susswams
_.
The personnel count at December 31,1995 was 39,537 Dow's share of the earnings of 20450% ow ned companiesversus 53,730 at the end of 1994,55,436 at the end of 1993 and amounted to $70 million compared to $29 million in 1994 and a61,353 at the end of 1992. Excluding the discontinued pharma- loss of $ 127 million in 1993. The major impact on this was fromceutical businesses, the personnel count has been reduced by Dow Corning Corporation in which the company is a 50 percent21 percent over the last three years 'lhis reduction in personnel shareholder. Exclud:ng Dow Corning. Dow's shares of 20450%reflects continuing rationalization and work process improve- company earnings were $44 million, $26 million and $16 million
*
*
ments throughout the company. for 1995,1994 and 1993, respectively. Dow Corning reportednet losses of $7 million in 1994 and $287 million in 1993. In 1995
M Income the company did not record its share of equity earnings in Dow,
Net income available for common stockholders in 1995 wa, Corning after the first quarter due to Dow Corning's filing for$2.1 billion or $7.72 per share, an increase of 122 percent com- Protection under Chapter 11 and the company's write-down ofitspared to net income of $931 million or $3.37 per share in 1994. investment as discussed below. Dow Corning's 1994 and 1993
The increase is primarily attributable to increased sales prices. losses reflected after tax charges against income related to breast
The increase of 46 percent in 1994, compared to 1993 net income implant litigation of $152 million and $415 million, respectively.of $637 million or $2.33 per share, was primarily due to stronger Die negative impact of these charges on Dow's net income was
operating results. $70 million or 25 cents per share in 1994 and $192 million or
The following table summarizes the impact of special items 70 cents per share in 1993. See Note Q to the Financial Statements
on earnings per common share. for further discussion of breast implant litigation.Interest expense (including capitalized interest) and amorti-
199./ 1993 zation of debt discount increased $72 million to $434 million in1995 #a** #"*d 1995, up 20 percent from $362 million in 1994 and up 5 percent
Impact of Dow Corning Corporation from $413 million in 1993.%e apparent increase in 1995 wasbreast implant charges - $ (.25) $ (.70) primarily due to the apportionment ofinterest to discontinued
Net gain (loss) on investments $(1.24) (.26) 1.31 operations in the restatement of 1994 results (see Note C toDiscontinued operations .69 .60 .26
the Financial Statements).* Other earnings 8.27 3.28 1.46 Intere, ono and foreign exchange-net improved,
Net earnings per common share $ 7,72 $ 3.37 $ 2.33 $191 millic : to $289 million in 1995 versus $98 million in 1994.~
%e gain was primarily attributable to the investment of the cash*
received from the sale of the pharmaceutical businesses. For a-
discussion of the company's risk management program for bothforeign currency and interest
Mm.; 4 rate risk, see Note j to thep m,c .3 4+e ! Financial Statements.1..~, y-
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'Ihe loss on investments of $330 million in 1995 was due to earned from the operations of the pharmaceutical businesses inthe company's write-down ofits investment in Dow Corning as a the first quaner 1995. Provision for taxes was $418 million, $382 |
result of Dow Corning's decision to file for Chapter 11 (see Note million on the sale and $36 million from operations. The income, |Q to the Financial Statements). In 1994, Dow recorded a loss on net of taxes, from operations in 1994 and 1993 was $166 million |
investments of $42 million. %e loss was due to a $ 132 million and $71 million with provision for taxes of $125 million and $92 |pretax charge related to the pending sale of the Personal Care million, respectively (see Note C to the Financial Statements). j'
Business of DowBrands. Partially offsetting this charge was a pre-*
tax gain of $90 million recorded by the company on the sale ofits nicidendecommon shares of Magma Power Company, primarily as a result The Board of Directors has announced a quartedy dividend ofof the merger agreement between Magma and California Energy 75 cents per share, payable April 30,1996, to stockholders of
*
Company,Inc. In 1993, Dow recorded a net gain on im estments record on March 29,1996. Ris will be the 337th consecutiveof $592 million, primarily due to the sale ofits interest in Dowell quanerly dividend since 1912. Dow has maintained or increased |Schlumberger and ponions ofits interests in Magma and Crestar the dividend throughout that time. In 1995, the company ;
Energy Inc. Acquisitions and divestitures are discussed in Note C increased declared dividends to $2.90 per common share from )to the Financial Statements. $2.60 in 1994 and 1993. |
%e provision for taxes on income was $1.4 billion in 1995|
versus $654 million in 1994 and $514 million in 1993. Dow's over- Ent iswement I
all effective tax rate for 1995 was 40.9 percent versus 40.2 percent Dow's global operations are subject to incieasingly stringent laws |for 1994 and 40.9 percent for 1993.%e underlying factors affect- and government regulations related to environmental protectioning Dow's overall effective tax rates are discussed in Note D to the and remediation. Dow's environmental respomibilities andFinancial Statements. U.S. and other tax law and rate changes potential liabilities receive direct and ongoing scrutiny by man.during the year did not have a material impact on Dow. agement to ensure compliance with these laws and regulations.
Minority interests' share of net income in 1995 was Dow's Environmental Management Standard clearly defines the$196 million compared to $200 million in 1994 and $171 million overall environmental management system, performance objec-
|in 1993.The 1994 increase reflected the improved profitability tives and design requirements needed to minimize the long term
'Iof DowElanco, which is 60 percent owned, as well as the full year cost of environmental protection as well as to comply with theseimpact of cenain limited partnerships (see Note K to the laws and regulations.This standard was reviewed, revised and re-
Financial Statements). communicate .I throughout the organization in 1995. h is Dow'sDiscontinued operations accounted for an after tax gain stated policy that all global operations and products meet Dow's i
of $187 million in 1995, $169 million of which resulted from the Environmental Management Standard or their country's laws and Isale of Dow's shares of Marion regulations, whichever is more |
Iqf 7..g g- Merrell Dow to Hoechst A.C. for A M , NW ? ].7/ stringent. Assessments are used
j% f iO f j-~ ;
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- - ..1 Dj maceutical businesses to RousselWhT -] company's Latin American phar- -. tinually and report Dow'sM.c#TMj progress against this standardc .m
- - - - - - ' | Uclaf S.A. for $133 million in the . . - . . . . . , and its perfonnance objectives.- v - second quarter 1995. A further
- ' ' ~-L It has been Dow's policy towesensinnC . 1 .. !'. E $18 million income after tax was adhere to a waste n'anagementMf: y .. a- hierarchy that minimizes the
|'I.' impact of wastes and emissions$f~/(' ' ,' ' ' on the environment. First, Dow-. . , .
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the generation of waste and emissions at the source through A to the Financial Statements. To assess the impact on the finan-researt h, process design, plant operations and maintenance, cial statements, environmental experts review currendy available,
Second, Dow finds ways to reuse and recycle materials. Finally, facts to evaluate the probability and scope of potential liabilities. junusable or non recyclable hazardous waste is treated before dis- Inherent uncertainties exist in such evaluations primarily due to i
posal to eliminate or reduce the hazardous nature and volume of unknown conditions, changing governmental regulations and |the waste. Treatment may include destruction by chemical, physi- legal standards regarding liability, and evolving technologies for )
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cal, biological or thennal (incineration) means. Disposal of waste handling site remediation and restoration. Viese liabilities are jmaterials in landfills is considered only after all other options adjusted periodically as remediation elTorts progress or as addi-have been thoroughly evaluated and determined infeasible. Dow tional technical or legal information becomes available.
'
has specific requirements for wastes that are transferred to non- Dow has been named as a potentially responsible partyDow facilities. Wastes that are recycled, treated or recovered for (PRP) under federal or state Superfund statutes at approxi-energy off site represent less than I percent of the total amount mately 85 sites. Dow readily cooperates in remediation at sitesof wastes reported as part of the Pollution Prevention Act. w here its liability is clear, thereby minimizing legal and adminis-
'
| Dow's policy of treating its wastes on-site has r sulted in less trative costs. However, at several of these Superfund sites, Dow: than 10 percent ofits total environmentalliability being directed has had no known involvement and is contesting allliability; at
at remediation under federal or state "Superfund'' statutes. Dow's many others, Dow disputes major liability, believing its responsi-focused approach to waste and emission reduction resulted in bility to be de minimis. Because current law imposes joint andachieving its public commitment to reduce global emissions of severalliability upon each party at a Superfund site, Dow has17 priority compounds (as defined by the U.S. Environmental evaluated its potential liability in light of the number of otherProtection Agency's 33/50 program) and emissions of an companies which have also been named PRPs at each site, theexpanded list of compounds (defined by each geographic area) estimated apportionment of costs among all PRPs and the finan-by 50 percent by 1995 (1988 base year). Global reductions of cial ability and commitment of each to pay its expected share.65 percent and 53 percent, respectively, were achieved one year blanagement has estimated that the company's probableahead of schedule in 1994. Dow is in the process of developing liability for the remediation of Superfund sites at December 31,new environmental, health and safety perfonnance improvement 1995 was $17 million, which has been accrued. In addition.
)goals for the year 2005. These goals, as well as other perfonnance receivables of $ 14 million for probable third-party recoveries,
data, will be made available in Slay 1996 with the publication of have been recorded related to these sites. Other recoveries are ;
Dow's EH&S Progress Report. possible since Dow has numerous insurance policies secured |-
%e costs of site remediation are accrued as a part of the from many carriers at various times that may provide coverage.
j shutdown of a facility or,in the case of a landfill, over its useful at different levels for environmental liabilities. %e company is I^
life. %e nature of such remedia- currently involved in litigation toDW 9 N gh contamination and the closure of
fJ W @ Q jg detennine the scope and extent ofS tion includes the cleanup of soil1 - - . -
. n ~- "i""#L such coverage. Dow has not. ., V E 7 M landfills and other waste manage-
DWQ NM hpM possible recoveries.phky$[@k Jd recorded any receivables for these
%@Mment facilities. %e policies
==---- 133 adopted to reflect properly the'
g.j monetary impacts of environmen- 5*****umar
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In addition to the Supefand-related liability referenced products, while about 10 percent was committed to projects i
above, Dow had an accrued liability of $258 million at December 31, related to environmental protection, safety and loss prevention,1995 representing the total probable costs that the company could and industrial hygiene. The remaining capital was utilized to lincur related to the remediation of current or former Dow-owned maintain the company's existing asset base, including projects i
sites. The company had not recorded as a receivable any third- related to cost reduction, energy conservation and facilities sup-party recovery related to these sites. port. Major projects underway during 1995 included an s/b latex -
In total, Dow's accrued liability for probable environmental plant at Menak, Indonesia; an expansion of waste trea ment'
remediation and restoration costs was $275 million at December facilities in Terneuzen, the Netherlands; an upgrade of the MDI {31,1995, as compared to $234 million at the end of 1994. This is facilities in La Porte, Texas; and a new parabis and bisphenol-A jmanagement's best estimate of these liabilities, aldmugh possible plant and an allyl chloride / epichlorohydrin rehabilitation in
'
costs for environmental remediation and restoration could range Stade, Germany. Start-up on each of these plants has been com-up to 50 percent higher. pleted and they are now operational. Because the company
The amounts charged to income on a pretax basis related to designs and builds most ofits capital projects in-house,it hadenvironmental remediation totaled $b9 million in 1995, $64 mil- no major capital commitments, other than for the purchase of .
lion in 1994 and $69 million in 1993. Capital expenditures for materials from fabricators.environmental protection were $80 million in 1995, $103 millionin 1994 and $149 million in 1993. Capital expenditures for envi- I.igui</ity ant / CapitalResousm
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ronmental protection are currently projected at $76 million in The sale of Marion Merrell Dow Inc. (MMDI) to Hoechst A.C. I
1996 and $82 million in 1997. for $5.1 billion had a very positive effect on the liquidityIt is the opinion of the company's management that the possi- and capital resources of the company. The impact can be seen
bilityis remote that costs in excess of those accrued or disclosed in the improvement in working capital, decreased short-termwill have a material adverse impact on the company's consolidated borrowings, decreased long-term debt and increased purchase 3
financial statements. of treasury shares, l
Operating activities provided $3.3 billion in cash in 1995,rapit.</ Erpent/ituin as compared to $2.7 billion in 1994 and $2.1 billion in 1993 |Capital spending for the year was $1.4 billion, up 21 percent from (see the Consolidated Statements of Cash Flows). The iten's 6
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$1.2 billion in 1994 and flat with $1.4 billion in 1993. Capital affecting operating activities are discussed in the operningspending in 1994 and 1993 includes spending in pharmaceuticals income and net income analyses. Cash provided by investingof $109 million and $193 million, respectively. The increase of activities was $2.9 billion in 1995, due to the MMDI sale, versus$245 million in 1995 was the direct result of the company's cash used in investment activities of $1.3 billion in 1994 and
investment of $318 million to $615 million in 1993.ef9W eyWQ purchase assets formerly leased. .TN9 Vi:<n "7:% Total working capital at
e y, gp[$y Approximately 40 percent of the ic. ; ; M c y , y7Q year-end was $5.0 billion versuse. -
,.yg. 4 " WM company's capital expenditures v.H J t i p $2.1 billion at the end of 1994.
f|% h[3!Z.[M2 was directed toward additional fk%[jd Cash, cash equivalents, mar-
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$23 billion. Inventories and trade receivables together decreased by the sale of the phannaceutical businesses, $2.1 billion worth of$680 million in 1995, primarily as a result of the sale of the phar- common stock was purchased in 1995 versus $38 million in 1994maceutical businesses. Days-sales-in-inventory were 90 days, and $17 million in 1993 (see Note L to the Financial Statements 180 days and 82 days at the end of 1995,1994 and 1993, respec- The company has unused and available credit facilities withtively. Days sales-outstanding-in-receivables were 56 days at the various U.S. and foreign banks totaling $1.9 billion in suppon ofend of 1995 and 52 days for 1994 and 1993, its working capital requirements and commercial paper borrow-,
Short-term borrowings at December 31,1995 were $323 mil- ings. Additionalimused credit facilities totaling $13 billion are'
lion, a decrease of $418 million from year-end 1994. Long-term available for use by foreign subsidiaries.debt due within one year decreased $159 million to $375 million At December 31,1995, there was a total of $1.4 biliion in
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at the end of 1995 compared to $534 million at the end of 1994. available SEC registered debt securities between Dow and DowLong-tenn debt due in 1996 will be funded by operating cash Capital plc., a wholly owned subsidiary, and 30 billion in availableflows. Accounts payable decreased by $316 million to $2.2 billion Japanese yen (approximately $291 million) registered withand income taxes payable increased $127 million during the year. Japan's Ministry of Finance.
Long-term debt was $4.7 billion, a decrease of $598 million Minority interest in subsidiary companies decreased duringfrom year-end 1994. During the year, $247 million of new long- the year from $2.5 to $1.8 billion at the end of 1995, as a resulttenn debt was incurred while $951 million oflong-term debt was of the sale of MMDI.retired and $375 million was transferred to long-term debt due 'Ihe company's strong position of $2.8 billion in cashwithin one year. and cash equivalents will support its involvement in new
Total debt was $5.4, $6.6 and $6.9 billion at December 31, acquisitions and joint ventures as discussed in Note C to the1995,1994 and 1993, respectively. Net debt, which equals total Financial Statements. There are two other possibilities for sub-debt less cash, cash equivalents, marketable securities and interest- stantial cash requirements. Eli Lilly and Company (Lilly) holdsbearing deposits, was $2.0, $5.4 and $6.1 billion at December 31, a put option w hich could require the company to purchase1995,1994 and 1993, respectively. The debt to total capitaliza- Lilly's 40 percent interest in DowElanco at fair market valuetion ratio decreased to 36 percent at year-end 1995 from (see Note Q to the Financial Statements). And,in 1996, the38 percent at the end of 1994. outside investors in DowBrands L.P. could liquidate or terminate
In 1989 and 1995, the Board of Directors authorized, subject the limited partnership which would cause the partners' capital,
to cenain business and market conditions, the purchase of the accounts to be redeemed at current fair value (see Note K tocompany's common stock. Due to the favorable cash flow created the Financial Statements).
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T H E OC W CM E MIC AL C OM PA NY AN D $ U 6 310l A R e t $
Responsibilityfor Financial Statements andIndependentAuditors' Report
Jianagement Statement ofResponsibility
%e management of The Dow Chemical Company and its %e internal control structure provides for appropriatesubsidiaries prepared the accompanying consolidated fmancial division of responsibility and is documented by written policies ,
statements, and has responsibility for their integrity, objectivity and procedures that are communicated to employees with signifi-and freedom from material misstatement or error.These state. cant roles in the fmancial reporting process and updated as (ments were prepared in accordance with generally accepted necessary. Management continually monitors internal controlscecounting principles. %e financial statements include amounts for compliance. The Company maintains a strong internal audit-that are based on management's best estimates and judgments. ing program that independently assesses the effectiveness of the
,
Management also prepared the other information in this annual internal controls and recommends possible improvements.report and is responsible forits accuracy and consistency with Deloitte & Touche u.r, independent auditors, with directthe financial statements. The Board of Directors, through its access to the Board of Directors through its Audit Committee,Audit Committee, assumes an oversight role with respect to the has audited the consolidated financial statements prepared bypreparation of the financial statements. the Company, and their report follows.
Management recognizes its responsibility for fostering a Management has considered recommendations from the
strong ethical climate so that the Company's affairs are conducted internal auditors and Deloitte & Touche us concerning the inter-according to the highest standards of personal and corporate nal control structure and has taken actions that are cost-effectiveconduct. Management has established and maintains an internal in the cironmstances to respond appropriately to these recommen-control structure that provides reasonable assurance as to the dations. Management further believes the controls are adequateintegrity :~l reliability of the financial statements, the protection to accomplish the objectives discussed herein.of assets from unauthorized use or disposition, and the preven-tion and detection of fraudulent financial reporting.
IndependentAuditors* Report
To the Stockholden andBoardofDirectors ofTheDow ChemicalCompany:
,
We have audited the accompanying consolidated balance In our opinion, such consolidated financial statements presentsheets of The Dow Chemical Company and its subsidiaries as of fairly, in all material respects, the financial position of %e DowDecember 31,1995 and 1994, and the related consolidated state- Chemical Company and its subsidiaries at Decembu 31,1995ments ofincome, stockholders' equity and cash flows for each of and 1994, and the results of their operations and their cash flows jthe three years in the period ended December 31,1995. These for each of the three years in the period ended December 31,1995 I
financial statements are the responsibility of the Company's man- in confonnity with generally accepted accounting principles. Iagement. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with generallyaccepted auditing standards. Those standards require that weplan and perfonn the audit to obtain reasonable assurance aboutw hether the financial statements are free of material misstatement. yAn audit mcludes examining, on a test basis, endence supportingthe amounts and disclosures in the financial statements. An audit DELOITTE &TOUCllE LLPalso includes assessing the accounting principles used and signifi- Midland, Michigancant estimates made by management, as well as evaluating the February 7,1996overall financial statement presentation. We believe that our :audits proside a reasonable basis for our opinion. j
,
4
TH E DOW CH E MIC AL COM PANY AN D SUB8IDI ARIE S
-- - - . _- --
;
Consolittatest Statements cfIncome1994 1993
In miHiens, eurptforpershan amounts 1995 Restated Festated
i Net Sn/es $20,200 $ 16,742 $ 15,052|
Opesweimg Costs Cost of sales 13,337 12,131 11,370
! ~
andExpenses . Insurance and finance company operations,pretax income (61) (40) (98)
[ Research and development expenses 808 783 786
Promotion and advertising expenses 41 F, 411 367 ,
; Selling and administrative expenses 1;771 1,594 1,485
| Amortization ofintangibles ' 38 43 68
! Total operating costs and expenses 16,309 - 14,922 13,978
OpesweingIncome 3,891 1,820 1,074
OtherIncome (Expeme) _ Equity in earnings (losses) of 20%-50%| owned companies 70- 29 (127)| Interest expense and amortization of debt discount (434) (362) (413) ;
Interest income and foreign exchange-net 289 98 140'
; Net gain (loss) on investments (330) (42) 592 |
Sundry income (expense)-net - 43 83 (8)
Total other income (expense) (362) (194) 184
| Income before Phwisionfer Taxes on income andMinority Inteorses 3,529 1.626 1,258
I Ikcisionfer Taxes on Income 1,442 654 514 );'!
| Minority interwets' Share in Income 196 200 171
' .f. u.: Stock INeidends 7 7 7
incomefoon,e Continuing Operations 1,884 765 566
| Discontinued Opeswrions Income from pharmaceutical businesses, !
net of taxes on income 18 166 71
Gain on sale of pharmaceutical businesses,
net of taxes on income 169 - -
Net Income Atwilablefer Common Stockholders - $ 2,071 $ 931 $ 637
/xswge Common SAarrs outstanding 268.2 276.1 273.6
Earningsper Common Sharefrom Continuing Operations $ 7.03 $ 2.77 $ 2.07
Earningsper Common SAase S 7,72 $ 3.37 $ 2.33
Common Stock Dividends Declaredper SAarv $ 2.90 $ 2.60 $ 2.60
See Noen h> Fm' ancialStatemenu.
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T H E DDW C H E MIC AL CO M PA NY AN D S U 8 51DI A RIE 5
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C:nsolidatedBahmte Sheets |
Duember 31
In millions 1995 1994
Assets
CurrentAssets Cash and cash equivalents - $ 2,839 $ 569
Marketable securities and interest-bearing deposits 611- 565
Accounts and notes receivable:'
Trade (less allowance for doubtful receivables- .
1995, $53; 1994, $104) 2,729 3,359 ;
Other 1,380 1,099 I
Inventories: *
Finished and work in process 2,197 2,079
Materials and supplies 551- 633
Deferred income tax assets-current 247 389
Total current assets 10,554 8,693
Im'estments Capital stock at cost plus equity in accumulated earningsof 20450% owned companies 848 931 i
Other investments 1,558 1,529 |Noncurrent receivables 314 330
Total investments 2,720- 2,790
Mont Awperties Plant properties 23,218 23,210
Less accumulated depreciation 15,105 14,484 -
Net plant properties 8,113 8,726 ]-
OtAerAssets Goodwill (net of accumulated amortization . f1995, $177; 1994, $676) 658 4,365
Deferred income tax assets-noncurrent 779 1,132
. Deferred charges and other assets 758 : 839
Total other assets 2,195 6,336
Tote / Assess $23,582 $26,545
sa nur a rmanc,at sum,,ena
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TH E DOW CH E MIC AL C O M P AN Y A N D $ U 681DI ARIE S
.- - -
December 31
ho millions, exwptfor share amounts 1995 19 5
Liabilities and Stockholders' Equity
Curwnt Liabilities Notes payable $ 323 $ 741
Long-term debt due within one year 375 534
Accounts payable:,
Trade 1,529 1,928-
Other 717 634
Income taxes payable 791 664'
Deferred income tax liabilities-current 55 56
Dividends payable 192 202
Accrued and other current liabilitio 1,619 1,859
Total current liabilities 5,601 6,618
Long-Term Debt 4,705 5,303
OtherXencursent Deferred income tax liabilities-noncurrent 659 644
Liabilities Pension and other postretirement benefits-noncurrent 1,880 1,987
Other noncurrent obligations 1,260 1,253
Total other liabilities 3,799 3,884
Minority Interest in Subsidiary Companies 1,775 2,506
Temposway Eguity Temporary equity-other 313 -
Preferred stock (authorized 250,000,000 shares of.
$1.00 par value each; issued Series A-1995: 1,521,175;1994: 1,549,014) at redemption value 131 133
Cuaranteed ESOP obligation (103) (111)
Total temporary equity 341 22
StocAAelders' Equity Common stock (authorized 500,000,000 shares of$2.50 par value each; issued 1995 and1994:327,125,854) 818 818
Additional paid-in capital 315 326
Retained earnings 10,159 8,857
Unrealized gains (losses) on investments 62 (21)Cumulative translation adjustments (349) (330)Treasury stock, at cost
I(shares 1995:76,168,614;1994:50,002,967) (3,644) (1,438)
'
Net stockholders' equity 7,361 8,212
14*talLiabilities and Stockholders' Equity $23,582 $26,545
See Notes to financialStatemeA1 |
|-
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THE DOW CHEMIC AL COMPANY AND SUS $1DI ARIE8
Ccnsolidated Statements cfStockholders' Equity
in mihar 1995 1994 1993
Common Stock Balance at beginning and end of year $ 818 $ 818 $ 818
Addittoma/Meid-in Balance at beginning of year 326 366 350Capital Tax benefit of contingent value rights - - 34
Issuance of treasury stock at less than cost (11) (40) (18)_
,
'
Balance at end of year 315 326 366
Retnimed Earmings Balance at beginning of year 8,857 8,645 8,720Net income 2,078 938 644Preferred stock dividends declared (7) (7) (7)Common stock dividends declared (769) (719) (712)
Balance at end of year 10,159 8,857 8,645
Unrealized Cains Balance at beginning of year (21) 105 (2)(Larses) on Intestments Unrealized gains (losses) 83 (126) 107
Balance at end of year 62 (21) 105
Cumularity Trumslation Balance at beginning of year (330) (304) (107)Adjustments Translation adjustments (19) (26) (197)
Balance at end of year (349) (330) (304)
Tiensusy Stock Balance at beginning of year (1,438) (1,596) (1,715)Purchases (2,115) (38) (17) ,
Reclassification to Temporary Equity (313) - -
Issuance to employees and employee plans 222 196 136
Balance at end of year (3,644) (1,438) (1,596)
Net StocAAelders'Eguity $ 7,361 $ 8,212 $ 8,034
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Censolidated Statements of Cash Flows| 1994 1993 1
In millions 1995 Re tated Restated |
OpesntingJctivitics Income from continuing operations $ 1,884 $ 765 $ 566Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization 1,442 1,302 1,352
:. Provision for deferred income taxes 268 41 47Undistributed (earnings) losses of 20450%
)owned companies (35) (17) 162
Minority interests' share in income 196 200 171
Net (gain) loss on investments 330 42 (592)Net gain on sale of plant properties - (24) (73) (48)Other net (99) (69) 52
Changes in assets and liabilities -that provided (used) cash:
Accounts receivable (311) (612) (78)Inventories (369) (245) 176
Accounts payable 15 456 78
Other assets and liabilities (40) 689 (354)Operating activities related to discontinued operations 84 250 554
Cash provided by operating activities 3,341 2,729 2,086
InrcstingActivities Purchases of plant properties (1,417) (1,074) (1,204)Investments in unconsolidated alliliates (325) (43) (27)
;* Purchases of consolidated companies(net of cash acquired) (10) - -
Proceeds from sales of plant properties 107 108 77
Proceeds from outside investors in limitedpartnerships - - 200
Proceeds from sale of pharmaceutical businesses
(net of cash divested) 5,060 - -
Purchases ofinvestments (2,260) (1,419) (237)Proceeds from sales ofinvestments 1,751 1,358 952
Investing activities related to discontinued operations (28) (219) (376)
Cash provided by (used in) investing activities 2,878 (1,289) (615)
finnacingActivitics Changes in short-term notes payable (390) (29) 121 |Proceeds from issuance oflong-term debt 247 100 1,056 |Payments on long-term debt (951) (340) (1,598) )Purchases of treasury stock (2,115) (38) (17) !
Proceeds from sales of common stock 158 110 82
Distributions to minority interests (155) (187) (111)
| Dividends giaid to stockholders (766) (723) (719) !
| Financing activities related to discontinued operations 16 (170) (251) |!. i
Cash used in financing activities (3,956) (1,277) (1,437)
Efect ofExchange Rate Changes on Cash 7 (l) (2),
Summasy Increase in cash and cash equivalents 2,270 162 32 j;
Cash and cash equivalents at beginning of year 569 407 375
Cash and cash equivalents at end of year $2,839 $ 569 $ 407 j|
|Su Men to nnannat Scaremena
THE DOW CHE MIC AL COMPANY AND SUS $1DI ARIES
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$otes to FinancialStateneents
In mi%ns, excepfer &are amounu
Table of Contents . ,
A Summary of Significant Accounting Iblicies.. 30 J FinancialInstruments.. 36B Accounting Change.. 31 K Limited Partnerships.. 37. .
C Acquisitions and Divestitures.. 32 L Stockholders' Equity.. 37
D Taxes on Income.. 33 M Stock Option Plans.. 38.*
E Inventories.. 34 N Redeemable Preferred Stock... 38. .
F Related Company Transactions.. 34 O Pension Plans.. 38.
C Plant Properties. . 34 P Other Postretirement Benefits.. 39 'II Leased Properties.. 34 Q Commitments and Contingent Liabilities.. 40.
i Notes Payable, Long-Term Debt and R Supplementary Information.. 42.
Available Credit Facilities .- 35 S Industry Segments and Geographic Areas. .. 42
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A Summary ofSignipcant Accounting Iblicies intentenes inventories are stated at the lower of cost ormarket. %e method of determining cost is used consistently
PWnciples ofConsolidation and Basis of14rsentation from year to year at each subsidiary and varies among the !
%e accompanying consolidated financial statements of The Dow last-in, first-out (LIFO) method: the first-in, first-out (FIFO)Chemical Company and its subsidiaries (the Company) include method; and the average cost method.the assets, liabilities, revenues and expenses of all majority-ownedsubsidiaries. Intercompany transactions and balances are elimi. Plant l+wpesties, Investments and otAcrJssetsnated in consolidation. Investments in companies 20%50% Land, buildings and equipment, including property underowned (related companies) are accounted for on the equity basis. capital lease agreements, 2re carried at cost less accumulated
%e Company's consolidated statements ofincome and cash depreciation. Depreciation is based on the estimated service livesflows have been restated to reflect the pharmaceutical businesses of depreciable assets and is generally provided using the declin-as discontinued operations (see Note C). Certain reclassifications ing balance method. Fully depreciated assets are retained in
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of prior years' amounts have been made to conform to the presen- property and depreciation accounts until they are removed from 1
tation adopted for 1995. service. In the case of disposals, assets and related depreciationare removed from the accounts and the net amount,less pro-
Cre offstimates in financia/ Statement Psepaowtion ceeds from disposal,is charged or credited to income. |
%e preparation of financial statements in conformity with %e excess of the cost ofinvestments in subsidiaries over jgenerally accepted accounting principles requires estimates the carrying value of assets acquired is shown as goodwill, which iand assumptions that affect the reported amounts of assets and is amortized on a straight-line basis over its estimated useful life jliabilities and disclosure of contingent assets and liabilities at with a maximum of 40 years.
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the date of the financial statements and the reported amounts The Company es aluates long-lived assets for impairmentof revenues and expenses during the reporting period. %e based on the recoverahility of the asset's carrying amount. When
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JCompany's financial statements include amounts that are based it is probable that undiscounted future cash flows will not be suf-on management's best estimates and judgments. Actual results ficient to recover the asset's carrying amount, the asser is writtencould differ from those estimates. down to its fair value.
Foreign Curovncy hastation The local currency has Cain Recognition on Sale ofSubsidiaries' Stockprimarily been used as the functional currency throughout the Company policy is to record gains from the sale or otherworld. Translation gains and losses of those operations that use issuance of previously unissued stock by its subsidiaries.local currency as the functional currency, and the effects ofexchange rate changes on transactions designated as hedges of Iinancia/ Instruments Interest differentials on swaps andnet foreign investments, are included as a separate component forward rate agreements designated as hedges of exposmes toof stockholders' equity. Where the U.S. dollar is used as the interest rate risk are recorded as adjustments to interest expensefimetional currency, foreign currency gains and losses are over the contract period. Premiums for early termination of
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reflected in income currently. derivatives designated as hedges are amortized as adjustments,
to interest expense over the original contract period. InterestCash and Casa Eguitwlents Cash and cash equivalents derivatives not designated as hedges are marked-to-market at
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include time deposits and readily marketable securities with the end of each accounting period.original maturities of three months or less.
' IHE DOW CHEMsC AL COMPANY AND sUBslDI ARif S
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In minions, exceptfordarr amounu
A Summary ofSigsfilcant Accounting hilcies(continuerf)
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The Company calculates the fair value of fmancial instru- ' from insurance or other third parties. Accruals for insurancements using quoted market prices whenever available. When or other third party recoveries for environmental liabilities
' quoted market prices are not available, the Company uses stan- are recorded when it is probable that a claim will be realized.dard pricing models for various types of financialinstruments Accruals for recoveries are included in the balance sheet as !
(such as forwards, options, swaps, etc.) which take into account "Noncurrent receivables."the present value of estimated future cash flows. Environmental costs are capitalized if the costs extend I
investments in debt and marketable equity securities are the life of the property, increase its capacity, and/or mitigate orcla:cified as either Trading, Available-for-Sale orIIeld-to-Maturity. prevent contamination from future operations. Costs related i
investments classified as Trading are reported at fair value with to environmental contamination treatment and cleanup areunrealized gains and losses included in income. Investments classi- charged to expense,fled aa Available-for-Sale are reported at fair value with unrealizedgains and losses recorded in a separate component of stockhold- Taxes on Income The Company accounts for taxes on incomeers equity. Investments classified as IIeld-to-Maturity are recorded using the asset and liability method wherein deferred tax assets
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1 at amortized cost. and liabilities are recognized for the future tax consequences of
| '1he cost ofinvestments sold is determined by specific temporary differences between the carrying amounts and tax~.
identification. bases of assets and liabilities using enacted rates.Provision is made for taxes on undistributed earnings of
Enriswnment Accruals for environmental matters are foreign subsidiaries and related companies to the extent that suchrecorded when it is probable that a liability has been incurred earnings are not deemed to be pennanently invested.and the amount of the liability can be reasonably estimated, Certain countries provide tax incentives which are grantedba:ed on current law and existing technologies. These accruals to encourage new investment. Generally, such grants are creditedare adjusted periodically as assessment and remediation efforts to income as earned.
''progress or as additional technical or legal infonnation becomesavailable. Accruals for environmental liabilities are generally Earningsper Common SAnse The calculation of earningsincluded in the balance sheet as "Other noncurrent obligations" per share is based on the weighted average number of commonat undiscounted amounts and exclude claims for recoveries shares outstanding during the applicable period.
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B Jccennting CAnnge pro forma impact on net income and earnings per share of the
| The Financial Accounting Standards Board issued Statement of application of the fair value based method of accounting.
; Financial Accounting Standards (SFAS) No.123 (Accounting for SFAS No.121 (Accounting for the Impairment of Long-
| Stock Based Compensation)in October 1995. Under SFAS No. Lived Assets and for Long-Lived Assets to Be Disposed Of)
;- 123, companies are permitted to either adopt this new standard requin that long-lived assets and certain identifiable intangiblesand record expense for stock options and other stock-based be revi wed for impairment whenever events or changes in cir-
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| employee compensation plans based on their fair value at date cumstances indicate that the carrying amount of an asset may not! - of grant, or continue to apply Accounting Principles Board (APB) be recoverable. 'lhe Company will adopt S FAS No.121 in 1996 .
| Opinion No. 25 and increase its footnote disclosure. The and has not yet determined what impact,if any, adoption of the j
| Company has decided to continue to apply APB Opinion No. 25 new stande d will have on the Company's financial statements. !
|and. in 1996, to increase footnote disclosures to include the ,
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THE DOW CHIMIC AL COMPANY AND SU B81DI Anit t
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Note.s 13 Firoetireial Staterrseret.s
in millions, exceptfor dare amounts
C Jcquisitions <rndDicessitum chemical management senices to industries and governmentsin April 1995, the Company signed an agreement with worldwide. The joint venture was formed by both partnersBundesanstalt fuer s ereinigungsbedingte Sonderaufgaben (BvS) transferring net assets. The value of assets transferred by thefor the privatization of three state-owned chemical companies in Company was approximately $32. Radian International LLC iseastern Germany (referred to herein as BSL). Economic transfer expected to have annual revenues of nearly $400.
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of business operations to the Company, through management In January 1996, the Company acquired an 80 percent shareconsulting and sen ice agreements, occurred in June 1995 with in EniChem's INCA International spa subsidiary, a producer oflegal closing anticipated in mid-1996. %e Company will polyethylene terephthalate (PET) resin and its major precursor,consolidate BS L effective with the legal closing date. purified terephthalic acid (l'fA). The investment by the Company
On closing, the Company will take an 80 percent stake in was $161.
BSL for an investment of approximately $200. EvS will maintain In January 1996, DowElanco, a 60 percent joint venture,a 20 percent stake in the operations during a restructuring period announced agreements with Mycogen Corporation and theof five years. After the restructuring period, the Company will Lubrizol Corporation for transactions through which DowElanco,have a call option and BvS a put option for the remaining 20 per- for a cash investment of $152, will take approximately a 46 per-cent of BSL for an additionalinvestment of approximately $167. cent equity stake in Mycogen and Mycogen will acquireBvS is providing certain incentives to USL during the restructur- DowElanco's United Agriseeds subsidiary,ing period to cover portions of the reconstruction program and In June 1995, the Company completed the sale ofitshas retained all environmental cleanup obligations for operations 197 million shares of Marion Merrell Dow to Hoechst A.C. forthrough the legal closing date. $5.1 billion or $25.75 per share. In addition, subsidiaries of the
%e Company intends to build several new facilities at the Company completed the sale of the Company's Latin AmericanBS L sites including a Dowlex linear low density polyethylene phannaceutical businesses based in Argentina, Brazil and Mexicoplant and polypropylene, aniline and acrylic acid plants, and .o to Roussel Uclaf S.A. for $133. %ese two transactions, net of taxes
upgrade the chlorine plant and steam cracker. A 16-inch muhi- on income of $382, increased the Company's second quarter offeedstock liquid pipeline will be constructed from the port of 1995 earnings by $169 or 62 cents per share. Net sales of theRostock to the Boehlen site, as well as harbor facilities, tenninals phannaceutical businesses were $757 for the period January 1,and pump stations. As part of the restructuring of the acquired 1995 through March 31,1995 and $3.3 billion and $3.0 billion forsites, several facilities will be closed and demolished. the years 1994 and 1993, respectively. Provisions for taxes on
In December 1995, a Company-controlled consortium income were $36, $125 and $92 for the same periods. Discontinuedacquired the shares of Petroquimica Bahia Blanca (PB B) and operations included interest expense of $77, $159 and $150 forIndupa owned by the Argentine Covernment for $358. The the periods 1995,1994 and 1993, respectively, allocated basedinvestment by the Company was $289.%is privatization resulted on net assets employed in the businesses.in the consortium owning a controlling interest in and operating In the fourth quarter of 1994, the Company recorded aP3B, the leading ethylene producer in Argentina, and Indupa. pretax charge of $132 related to the pending sale of the Personal%e consortium subsequently agreed,in 1996, to sellIndupa and Care Business of DowBrands. %e sale was completed inpurchase Polisur, a polyethylene manufacturer. %e additional net November 1995 to Electronic Hair Styling Inc. for $22.investment by the Company is expected to be $85. In separate transactions in 1994 and 1993, the Company sold
in January 1995, the Company and E.L duPont de Nemours its ownership in Magma Power Company and recognized pretaxand Company announced their intention to fonn a 50:50 joint gains of $90 and $62, respectively.senture to be named DuPont Dow Elastomers LLC. %e new In November 1993, Dow Chemical Canada Inc. (DCCI)
company will focus on the discoveq, development, production sold shares of Crestar Energy Inc. (Crestar). %e net proceeds toand sale of thermoset and thermoplastic elastomer products. the Company were $172 and generated a pretax gain of $101.The joint venture will be formed by both partners transferring As a result of the sale, DCCPs common share holding in Crestarnet assets. ne estimated book value of assets transferred by the was reduced from 50 percent to 17.5 percent.Company will be approximately $500. %e combined annual In January 1993, the Company sold its 50 percent ownershipsales of the existing businesses exceed $1 billion. Closing of this in the Dowell Schlumberger group of companies to Schlumbergertransaction is expected in the first quarter of 1996. Limited. ne selling price was $675 in cash and a warrant to pur-
In January 1996, the Company and He Hartford Steam chase 7.5 million shares of Schlumberger stock with an exercise*
Boiler Inspection and Insurance Company formed a 60:40 joint price of $59.95 per share. %e warrant is fully vested and non-venture named Radian International LLC. De new company transferable, and expires in the year 2000. %e sale generated awill provide environmental,infonnation technology and strategic pretax gain of $450.
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T H E D OW C D.E MIC A L C O M P A NY AN D S U S SIDI ARIE S
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HYDR 00ARB0NS AND ENERGY A cogeneration project for the Terneuzen site was approvedand is due to start up m 1997.%e new cogeneration plant, which
Ilydrocarbons and Energy reported sales of $2.4 billion in 1995, will replace less efficient facilities, will be built by Destec Energy,up 16 percent from $2 billion in 1994 and 31 percent compared inc., under a joint venture with local utility companies.to $1.8 billion in 1993.%is segment saw price gains of 9 percent Independent power producer Destec Energy, Inc., a publiclyand volume gains of 7 percent compared to the previous year. traded Dow subsidiary (77 percent owned), reported revenues for,
Ilydrocarbons and Energy reported an operating loss of 1995 of $641 million, compared with $727 million in 1994 and'
$83 million, compared to operating income of $74 million in 1994 $674 million in 1993.and $46 million in 1993. Operadng results were down substantially, reflecting the
Operating rates in the industry were high during the first losses experienced by its Texas cogeneration facilities followinghalf of the year dt.e to strong derivatives demand, coupled with the expiration of major utility power sales contracts in 1995 andthe need to rebuild ethylene inventories that were critically low 1994. In 1995, Destec placed some ofits available Texas capacityat the end of 1994. As a result, incremental capacity expansions and will place additional amounts in 1996.were brought on line within the industry. In the second half of Destec has increased activity in international markets with
; the year, there was a slowdown in ethylene demand as derivatives the announcement of power project developments in Englandwere in a destocking mode. This led to lower operating rates and and Taiwan, which were added to an international portfolio ofprice decreases that bottomed at the end of the year. developing projects that includes Canada and the Netherlands.
;Ethylene and styrene production for Dow continued at high Destec acquired interests in a fifth international project in the '
operating rates that were above the industry average. Dominican Republic, and the Crockett cogeneration project near-
Overall, yearly average unit feedstock costs for flydrocarbons San Francisco. Destec also successfully completed and started upand Energy were up 8 percent in 1995 compared to the previous the Wabash River Coal Casification Repowering Project in Terreyear, in line with crude oil increases for liquid feedstocks, although IIaute, Indiana.energy and light feedstocks were down about 3 percent. In In 1995, Destec put the equivalent of 768 megawatts of newDecember 1994, an ethylene plant in Texas, with an annual capac- generating capacity into operation. At year-end, Destec had sevenity of 1.5 billion pounds, was brought on line, and the associated projects in construction or advanced development, represennng )aromatics integration was successfully completed. Preliminary additional capacity of more than 1,700 megawatts.
|engineering work was undertaken for a staged expansion of the|
ethylene cracker in Alberta, Canada. The initial phase of the Oudockfo, //ydsweniinom andEncigy.
expansion is expected to be completed by mid-1998, and will As derivative demand trends upward in 1996, ethylene operatingincrease plant capability to between 1.8 and 2 billion pounds. rates are expected to increase, leading to a stronger market in the
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! Future expansion will occur as second half of the year. No major. ethylene is required to meet - . - - . - -
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;- demand. Capacityis planned -
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ultimately to be increased to.
~. Dow's joint venture.
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2.3 billion pounds per year. M9mir=w ~. f styrene plant with Siam Cement" - ' ~-
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Petroquimica Bahia Blanca (PBB) .- . J _'
brought on line at the end of-
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gives Dow access to ethane-based ''. ' -( the year to capture growth in<
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ethylene in Argentina. PBB cur- " ..J1P''' southeast Asia countries.rently has a production capacity s%?-of 539 million pounds of ethyleneper year. It is the only regionalproducer using ethane as its prin-cipal raw material, providing acost advantage to the company.
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TH E DOW CHE MICAL COMPANY AND SU BSIDI ARit S
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During 1995, the company announced its intention to enter Dow divested its ABS interests in Sumitomo Dow, leavingthe polypropylene and purified terephthalic acid (I'TA)/ poly- the joint venture to focus on polycarbonate applications. In theethylene terephthalate (PET) markets. Dow plans to construct a first half of the year, Sumitomo Dow added 50 million poundspolypropylene unit at BSL to come on line in 1998. In January of additional polycarbonate capacity to meet the demands of the1996, Dow acquired EniChem's INCA International Sp A, provid- small appliance, computer and automotive markets.%e ABSing the company with PTA/ PET production capcbility. divestiture will not have a materialimpact on the Perfonnance .
The company also led a consonium that acquired Petroquimica Plastics segment.Bahia Blanca (PBB)in Argentina, giving the company a strong Lower manufacturing costs and reduced expenses con-polyolefins position in the impoaant four-nation Mercosur trading tributed to record profitability for Fabricated Products. Pricesbloc of Argentina, Brazil, Paraguay and Uruguay, were up slightly and volume held steady with growth in Europe
offsetting a modest volume decline in the U.S. A new productionOut/ookforPlastics facility for Styrofoam brand products was brought on line mid-During the first half of 1996, the Plastics segment is expected year in Turkey to supply the European market.to eee greater pricing stability and a modest increase in demand. The global commercialization ofInsite technology continues.During the second half of the year, pricing is expected to trend Sales of polymers produced via Insite technology are exceedingupward as demand again approximates supply in large volume expectations. nese product families are gaining rapid acceptanceplastics markets. by customers globally because of their unique functionality and
cost performance. To meet growing demand. Dow has converted
pr duction units in Texas to produce polymers based ontwPERF0RMANCE PLAST |CSInsite technology and has announced that another conversion
Sales for Performance Plastics were $5.4 billion in 1995, anwill take place at its operations in Spain, with an expected start-up
increase of I8 percent versus $4.5 billion in 1994. In 1993, sales date of April 1996.were $4.1 billion. Increases of 13 percent in price and 5 percentin volume contributed to the sales gains in 1995 versus 1994. Outlookfor /bformance F/nstics
Operating income rose 73 percent to a record $1.1 billion Demand is expected to continue to grow for Performance Plastics,in 1995. Operating income was $611 million and $304 million although at a slightly lower rate than in 1995. Prices are expected
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for 1994 and 1993, respectively. to increase modestly.In 1995, polyurethar.es and epoxies had record sales and DuPont Dow Elastomers LLC., a planned 50-50 joint ven- *
'profitability. Prices for these products increased steadily during ture between Dow and DuPont which will produce a broad port-the year, showing less quarter-to-quarter volatility than the folio of general purpose and specialty elastomers, announced the
Plastics segment. Engineering formation of a leadership team for7. thermoplastics (ETPs) sales
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the new company in September-.
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increased versus a year ago~
1995. %e official start-up of the- -
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a4.a.ma.=L - -| demand from the auto industry. M a'ia h . - ; . quarter of 1996. Combined global- elastomer sales for the two com-
.T' .J '.~ panies currently are about $1 bil-
tion.The new enterprise has thepotential to grow at more thantwice the industry rate, leading tototal revenues of $2 billion within
- five years.This growth will be led
M by application developmentmeasumusuur programs forInsite technology.
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TH[ DQW CHE MIC AL COMPANY AND SUBSIDI ARIES
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Drytech superabsorbents saw substantial price weakening PLASTICSin 1995 as a result of new capacity added to the industry.
In 1995, Dow sold its aspirin business and Generon Systems Plastics reported sales of $3.9 billion in 1995, an increase of
as the company made strategic shifts in its business portfolio to 28 percent versus the previous year. Sales were $3.1 billion in ,
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focus its resources on core businesses. None of the divestitures 1994 and $2.5 billion in 1993. Prices rose 29 percent, compared
undertaken during the year will have a material impact on the to 1994, while volume declined I percent. ).
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Perfonnance Chemicals segment. Operating income rose 178 percent to $1.5 billion, versus
Dow had record sales of agricultural products through $531 million in 1994. Operating income in 1993 was $89 million.
DowElanco, which is a global joint venture between Dow and Plastics had a record 1995, with solid price and volume
Eli Lilly, with Dow holding a 60 percent share. %e record sales increases in the first half of the year resulting in record sales in the
and profits were due to price increases of 4 percent and volume first and second quarters. In the third quarter, demand weakened
gains of 9 percent. Strong growth in demand in the Pacific and as the result ofinventory correction in the U.S. and Europe and
higher sales in Europe, driven by improved conditions in the actions taken by China to cut offimports of plastics.
cereal grain market, contributed to the record perfonnance. Polyethylene experienced record sales and profits in 1995
In 1995, DowElanco introduced the Sentricon termite colony on the strength ofincreased prices, notably in the first half of
elimination system. Sentricon uses new technology to eliminate the year,
entire colonies of tennites. DowElanco expects U.S. registration Polystyrene had another outstanding year. Results were
in late 1996 for a new line of Naturalyte insecticides based on driven by significant price increases supported by increased
fermentation technology, initially targeted at the cotton and industry pricing for styrene monomer. Dow was also able to
vegetable markets. retain the significant volume increases achieved in 1994.
Dow Elanco announced in January 1996 that it would form a Dow's polystyrene business added the equivalent of two
strategic alliance with Mycogen Corporation, a diversified agricul. world scale plants in 1995: a joint venture with Siam Cement
tural biotechnology company. This new alliance will increase the resuhed in a new 200 million pound grassroots plant in Map Ta
company's participation in this exciting new tedmology. Phut, Thailand, and proprietsry manufacturing technologyyielded an additional 165 million pounds around the world.
Osn/ookfor Nformanec Gendenh During the year, a number of significant acquisitions were
The Performance Chemicals segment is expected to experience undertaken in the pursuit of value-growth opportunities.
another good year in 1996 based on the strength of demand and %e company received European Union approval for the J*
pricing for many of the specialty chemicals. Prices for emulsion acquisition of three formerly state-owned chemical companies
polymers are expected to soften in 1996. DowElanco sees oppor. in eastern Germany (BSL). As part of this acquisition, Dow plans
tunities for continued growth in to build a linearlow density
1996, especially in Europe and Polyethylene plant, as well as
the Pacific. upgrade an existing low densitypolyethylene plant.
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THE DOW CHE MIC AL COM PANY AND SUBSIDI ARIE S
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In the spring of 1996, Dow will start up new technology at its PERF0RMANCE CHEMICALSi
Texas facility to manage by-products of the propylene oxide manu.facturing process. 'Ihe technology will recover raw materials in the Sales for Performance Chemicals were up 15 percent in 1995 com-
waste stream, which will result in lower waste mamgement costs. pared to the previous year and up 25 percent versus 1993. Sales
Chlorinated organics staned up a new plant in Stade, were $4.2 billion, $3.7 billion, and $3.4 billion for 1995,1994 and
Germany, to convert perchloroethylene to trichlorethylene in 1993, respectively. Volume gains of 9 percent and price increases ,
order to meet the growing demand for that product. At year-end, of 6 percent contributed to higher sales in 1995 versus 1994.
Dow exited the methyl chloroform business, following guidelines Operating income was $670 million, up 30 percent from
established by the Montreal Protocol This exit did not have a $514 million in 1994. In 1993, operating income was $403 million.
materialimpact on the Chemicals and Metals segment. During the year, emulsion polymers experienced higher sales
A new cogeneration facility, constructed and panially owned and profits as a result of favorable styrene pricing and growing
by Destec Energy, lac.,is now supplying the steam and power demand in the U.S. and Europe. Toward the end of the year, a
requirements for Dow's cal / mag business in Ludington, Michigan. weakening in demand in the pulp and paper industry led to some
'the facility will be a key factor in the future competitiveness of the Pnce softening, which is expected to continue into 1996.
business as it lowers manufacturing costs. To meet growing demand in the emerging markets of south-east Asia and the Middle East, Dow brought on line about 50 mil-
Outlookfor Chemicah am/Merah lion pounds oflatex capacity in Indonesia and Saudi Arabia. The
in 1996,it is expected that prices for ethylene dichloride and company divested its latex interests in Sumitomo Dow Limited as
VCM will rise from the low base of the founh quarter of 1995. Part of a restructuring of that joint venture.
Utis, coupled with anticipated stable pricing for caustic soda. Dow's Specialty Chemicals business had a very strong year |magnesium, propylene oxide and many of the chlorinated with many products setting new global records for sales and I
organics, should result in a favorable pricing environment for volume. CAS/S PEC solvents and senices set its third consecutive
Chemicals and Metals in 1996. record for sales and profitability as the result of solid price and
In the first two quarters of 1996, Chemicals and Metals demand. Polyglycols, Ethocel ethylcellulose resins, Versene
volume is expected to remain flat with the second half of 1995, chelants, Methocel cellulose ethers, oxygenated solvents, Dowfax
consistent with the global market cycle for these products. surfactants, and diphenyl oxide (DPO) all achieved record profits.<
Volume is expected to rise in the lest half of the year. Dow added polyglycol capacity in Europe and butyleneoxide capacity in Nonh America to meet growing global demand .
for these products. New DPO production technology is beinginstalled in Texas, allowing phenol to be integrated as a raw mate-
rial.Etis technology will bebrought on line in the first half
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of 1996 and will replace an older, -
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. ~ L. unit in Michigan,which will be&&*#&* ~ ' .' ~JAJers m &&at ' - . shut down.
- Volume growth for liquid
ammusmaammusummensamme separations was strong during the"""'""""""'""''' year, but prices softened. As part
of a global restructuring ofitsliquid membranes business, thecompany is closing a manufactur-ing unit in Nakskov, Denmark.
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THE DOW CHEMICAL COMPANY AND SUBSIDI ARl(S
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1993 kles By Ceopwphie Awas I993 Sales Byinclustry Stgmente|
(in milliom): (in million.r):'
Ivrformance PlanicsUnited Staca
ilydrocarbons & Energy
thversined BusinessesEun4" & Unallocated
$966
Chemicals & bIe ls
IVrformance Chemicals*
Rest Of %rldPlastics,
f ue oow cus picAL COMPANY AND SUB8IDI ARIES
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Managernent's Discussion anti Analysis ofFinancial Conefiti nanetResults ofOperettions
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. %e company's consolidated statements ofincome and casht
CHEMICALS AND METALSflows for 1994 and 1993 have been restated to present Dow'sphannaceutical businesses as discontinued operations due to Chemicals and Metals had a 34 percent gain in sales in 1995 com- )their sale in the second <1uarter of 1995. pared to 1994, reporting $3.3 billion in sales versus $2.5 bi. lion. )
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. To improve stockholders' ability to evaluate Dow,s perfor- %e sales gain in 1995 represented a 1 percent increase in volume
mance, external industry segments have been revised to reflect and a 33 percent increase in price versus 1994. In 1993, sdes ,
were $2.3 billion.the company's reorganization around 15 global businesses. All i
segment information for 1994 and 1993 has been mstated t Operating income rose 237 percent to $1.1 billion from !i
abgn w th the new reportmg segments. $337 million in 1994. Operating income in 1993 was $154 million.During 1995, caustic soda prices recovered, more than dou-
The discussions in this annual report contain both historicalbling from 1994 levels, as sales contracts were renewed at higher
information and forward-looking statements. The forward-prices. Vinyl chloride monomer (VCM) saw significant price gains |looking statements involve risks and uncertainties that affectn the first half of the year. After mid-year, however, VCM prices
'
the company's operations, markets, products, senices, pricesweakened due to the impact ofinventory correction, panicularly
,
and other factors as discussed in the company's filings with the in the U.S. and western Europe.,
'Securities and Exchange Commission.%ese risks and uncer-
During the year, Dow announced a number of capacitytainties include, but are not limited to, economic, competitive, expansions in its Chemicals and Metals business in order to
} govenunental and technological factors-supply growing internal derivative demands, the company plansto add 750 million pounds of chlor-alkali capacity over the next
Results of Opmulo*two years with expansions at its Freeport, Texas, and Stade,
j Net sales for 1995 of $20.2 billion increased 21 percent from Cennany, manufacturing sites.$16.7 billion in 1994 and 34 percent from $15.1 billion in 1993.
To keep pace with the long-tenn growth in the global>
improved economic conditions globally led to higher selling polyvinyl chloride market. Dow intends to bring an additional 350prices and an increase in volume, as illustrated in the Sales Pnce
million pounds of VCM capacity on line at its Fon Saskatchewan,,
and Volume table on Page 18. All geographic areas and allindus- Alberta. manufacturing site by 1997.%e company also plans toi
; try segments had higher sales versus 1994 with Europe showing expand capacity further on the U.S. Colf Coast. I
particularly strong growth of 33 percent. Selling prices increased As a result of continued growth in the propylene oxide and17 percent versus 1994 and were up across all geographic areas derivatives market, especially polyurethanes, Dow plans to add *|and segments. Volume increased 4 percent versus 1994 with the
500 million pounds of capacity by the end of 1998, with capacitygains occurring outside the United States. Sales in the United
coming on line as driven by demand. %is capacity increase is inStates accounted for 45 percent of addition to the 500 million -
the total sales in 1995,48 percent7 .; pjyg pp,n. M in 1994 and 50 percent in 1993. p
gg,3.g. .,g'm pounds of propylene oxide4,
i y ,,.- o. ,. ,s., .. i. gd capacity Dow previously
ey ;'q..J@h y%%Sales and other data by industry b m 3 .9 :.y;6 [ announced it would add at itsi
. 4.YNierwh h segment and geographic area are .h 7[$ manufacturing sites in Texas,i
y provided in Note S to the ae r w unse m d e nem Louisiana, Cennany and lirazil byfinancial Statements. ETb,,mmmmmenggi the end of 1996.
Operating income more than y ydoubled from $1.8 billion in 1994 amw V<
| to $3.9 billion in 1995 due to the Amewdidnamenawwanesent mmwm
stronger selling prices and a =same
moderate volume .merease. swmme1 Operating income for 1993 was IEEEw
$1.1 billion. Evm mmnormmmmW W&as48WmMMInweenotsam
. $3|WtfWW4mmRIMit! $3MM#eest' t%M?
l BAmpeuppNIWitfIm*#
. wmemem| } R MsMC
RW.WM4 temm%mM i
BMM 4
BM$tlitttsumM4M *
i
IM m _! ...s s . . . , . . . . g 4.;g .'.c' ; 4 M C ..v.
[Y| . -i.
f M E DOW CHIMIC AL COMP ANY AN D SU BSI0l AHIE S
iI
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In millions, exceptfordarr amounts j
4
0 firxes em Income through 2000.'Ihe remaining balances expire in years beyond ).
Operating loss carryforwards at December 31,1995 amounted ' 2000 or have an indefinite carryfomard period.to $609 of which $240 is subject to expiration in the years 1996 Undistributed earnings of foreign subsidiaries and relatedthrough 2000. 'lhe remaining balances expire in years beyond companies which are deemed to be pennanently invested )2000 or have an indefinite carryfomard period. amounted to $3,026, $2,053, and $1,782 at December 31,1995,
* Tax credit carryforwards at December 31,1995 amounted 1994 and 1993, respectively. It is not practicable to calculate dieto $18 of which $12 is subject to expiration in the years 1996 unrecognized deferred tax liability on those earnings. ' .!
Domestic andIkn&n Components offncome before jbes onincome andMinorityIntensts Rearnciliation to U.S. Statutory Rate J
1995 1994 1993 1995 1994 1993
Domestic $1,513 $ 773 $ 761 Taxes at U.S. statutory rate , $ 1,235 $569 $440- Forei n' ~ : 2,016 - 853 497 Write-down ofinvestment ! 124 - -
16
knonization of '
Total $3,529 $1,626 $ 1,258nondeductible intan6ibles.. ~2 52 17
Foreign rates other than 35% 15 28 48Other-net 66 5 9
Total tax provision - $ 1,442 < $654 $514
Effective tax rate ' 40.9% - 40.2 % 40.9 % )I
ikkionfor kes on income |
1995. 1994 1993
Curnnt ' De erred Tons! Current &fernd Total Cumnt &ferred 1otalf- Fid tral - $ 535 $112 $ 647 $329 $23 $352 $279 $10 $289State and local '132'*
132 13 3 16~ 48 2 50-
Foreign ~ - 507 -156 663. 271 15 286 140 35 175
~ Tot:1- $1.174 .$268 $ 1,442 $613 $41 $654 $467 $47 $514..
. Dfe erred &BalanasatDecember311993 1994
- Property -, -|$(801)' $(716)
Tax loss and credit carryforwards : 204 '330Long term debt |
_177 112 |
lbstretirement benefit obligations. - 5% 673' Other accruals and reserves - 75- 370 1
- Other-net 77 75
Subtotal. . $ 328 - $ 844
less: Valuation allowance 16 - 23
Total . $ 312 $ 821
,
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4
THE Dow CHE MICAL COMPANY ANO sues 101 Antis
-. __
_
Notes tyIenancialStateneents
in milliam, emptfor share arounui
E Inrenseries A reduction of certain inventories resulted in the liquidation- Tie amounts of reserve required to reduce inventories from the of some quantities of LIFO inventory, which increased pretaxfirst-in, first-out (flFO) basis to the last-in, first-out (LIFO) hasis income by $8 in 1995 and $16 in 1994, and decreased pretax
-
at December 31,1995 and 1994, were $66 and $119, respectively. income by $18 in 1993.Tie inventories that were valued on a LIFO basis represented 34and 35 percent of the totalinventories at December 31,1995 and "
,
1994, respectively.
1
F . ActasedCompany Tsumsactions Tie Company's investments in other related companies,In May 1995, Dow Corning Corporation (Dow Corning), in accounted for by the equity method, approximate the Company'swhich the Company is a 50 percent shareholder, filed for protec- equity in the net assets of these companies.tion under Chapter 11 of the United States Bankruptcy Code. As Dividends received from related companies were $33 ina result the Company fully reserved its investment in Dow 1995, $15 in 1994 and $36 in 1993. All other transactions withCorning and will not recognize its 50 percent share of future related companies, and balances due to or from related compa-equity earnings while Dow Corning remains in Chapter 11 (see nies, were not materialin amount.
Note Q).
G M a nt h p cifies Depreciation expenses were $1,369 in 1995, $1,224 in 1994 and .Plant ovpertiesatDemnber31 $1,252 in 1993. Maintenance and repair costs were $895 in 1995,
jppg jppy $941 in 1994 and $964 in 1993. Capitalized interest was $28 in" "" "Land $ 371 $ 414 *
Land and waterway improvements 1 .678- 660Buildings
_
2,043 2.337:
Transportation and construction equipment 236 211Machinen and equipment' 16,452- 15,332 a 4
Utility and supplylines 1,340 1,315
- Office furniture and equipment 749 836Wells and mineral reserves 383 355 .;Other ' _ 74 ' 184Construction in progress 892- 1,566
Total. $23,218 $23,210
H LeasedMperties Minimum OperatingLease Commitments'Ihe Company routinely leases premises for use as sales andadministrative offices, warehouses and tanks for product storage'
1996 $ 262motor vehicles, railcars, computers, office machines and equip-
1997 253ment under operating leases. In addition, a 77% owned U.S.
1998 404- subsidiary leases a 262 megawatt syngas facility and a Canadian 1999 196subsidiary leases an ethylene plant 'the Company has the option 2000 148to purchase the ethylene plant and certain other leased equipment 2001 and thereafter 1,050and buildings at the termination of the leases. During 1995, the Total minimum lease commitments $2,313company purchased approximately $318 ofleased assets.
Rental expenses under operating leases were $433, $371 and$427 for 1995,1994 and 1993, respectively 'Ihe minimum future
,
lease commitments for all operating leases are included at right.
.
THE DOW CMtuiC AL COMPANY ANO susstDI A Alts
._ _ _ _ _ _ qI
In millions, exceptforshare amounts
I| . Notes AryeMe, Leseg-Tense De6t arsed . %e average interest rate on long-term debt was 6.73 percent i
OsrileMe Geditfweilities.
in 1995 compared to 6.64 percent in 1994. AnnualinstallmentsNotes payable consists of obligations due to banks with a on long-term debt for the next five years are as follows: 1996, -variety ofinterest rates and maturities. %e notes payable out. $375; 1997, $610; 1998, $308; 1999, $201; 2000, $ 175. -
standing at December 31,1995 and 1994 were $323 and $741, %e Company had unused and available credit facilities? respectively, on which the year-end weighted average interest at December 31,1995, with various U.S. and foreign banks
rates were 4.29 percent and 4.80 percent, respectively, excluding ' totaling $1.9 biUion, which required the payment of commitment |'
the effects of short-term borrowings in highly inflationary coun- fees. Additional unused credit facilities totaling $1.3 billion attries. Included in notes payable at December 31,1995 and 1994 December 31,1995 were available for use by foreign subsidiaries. |
were commercial paper amounts of $4 and $191, respectively. %ese facilities are available in support of commercid paper .borrowings and working capital requirements. -
1%missory Nota and&bentura at krember 31 ' OtherFacilitia-IariousRataandMaturitiuat&cember31 "
1995 1994 .1995 1994
4.63% fmal maturity 1995 '- .$ $ 150 U.S. dollarloans $ ; 126, $ 4,
8.25% fmal maturity 1996.- 150 150 foreign currencyloans ;168 255 i
5.75% final maturity 1997 .197. 200 9.42% final maturity 2004, Dow ESOP J103- 111
c- 15 9.11% final maturity 2005, MMDI ESOP5.75% final maturity 2001 -~ 90 ,
238% final maturity 2002 :. '145 150 Medium-term notes, final maturity 2022 , 380 585
9.35% final maturity 2002 ~ 194; 200 Pbilution control / industrial revenue bonds, -.
,
213% final maturity 2003 148 150 finalmaturity 2024 7781L 707
8.63% final maturity 2006 - f187: 200 Unexpended construction funds . -(4) (20)8.55% fmal maturity 2009 140: 150 Capitallease obligations =. I1" 32
9.00% final maturity 2010 '125 150 Subtotal - $1,565 $1,7649.20% final maturity 2010 .193- 200
6.85% final maturity 2013 138' 150.
7.13% fmal maturity 2015 24.-Long-Term &btatarember3/
9.00% final matunty 2021 - 219- 3008.85% final maturity 2021 188 200 1995 1994
8.70%, fmal maturity 2022 |96. 138 Promissory notes and debentures $2,270 " $2,677 .
738% finalmaturity 2023 150. 150 Forei n bonds . 1,293.- ' 1,4806:1,565 7 1,764Subtotal . $2,270 : $2,677 Other facilities
._
(48) (84)-Less unamortized debt discount'
Less long-term debt due within one year - (375) (534)
Foreign Bondsat&cember31 Long-term debt - $4,705 - $5,303 ,
1995 1994
6.75% final maturity 1995, German mark $ =. $ 1945.63% final maturity 1996, German mark -
.
209 194
10.87% fmal maturity 1997, British pound sterling 345- 374
4.0C% final maturity 1998, Japanese yen 194 201
4.75% fmal maturity 1999, Swiss franc 173 152
4.63% final maturity 2000, Swiss franc 130 114
6.38% final maturity 2001, Japanese yen 242 251
Subtotal $1,293 $ 1,480'
_
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in: Dow CMIMICAL COMPANY AND sussIDI Aftits
Eotes to fInancialStateneents .
In millions, erceptforshare amounts
J MancialInstruments- Fair IWue ofFinancialInstruments at Deamber 31
1995 1994'
Cut Cain far Fair Hi!ue Cut Cain far Fair HulueNonderivatim: *
.. Interest bearing deposits $'571' - - $. 571 $ 92 - - $ 92- Marketable equity'and debt securities:
'ltading - 2,293 - - 2,293; 414 $20 - 434Available-for-Sale
' Debt securities , 1,256 - $ 38 $ (1) 1,293 824 3 $(22) 805.. Equity securities 367.' 100 (33) 434- 454 64 (45) 473IIeld-to-Maturity ' 54 ' -
- - 54 - 408 1 (1) 408. Other 262 26 - 288 337 - (7) 330
Total investmenti $ 4,803 - $164 $ (34) $ 4,933 $ 2,529 $88 $(75) $ 2,542
Long-term debt ~ $(4,705) -- $(442) $(5,147) $(5,303) $33 - $(5,270)
Ikrivatives relating to:.
.
Foreign currency . -$ 48 $(46) $ 2 - $52 $(70) $ (18),
Interest - . 231 (53) (30) - 37 (45) (8)+
'. Cross-cunency swaps 1 (161) (160) - 15 (93) (78)
-
The aut appensimam thefainaluefor allwarrfmancialimtrumenu
' Intestments Total investments at December 31,1995 and January of the next year) to buy, sell or exchange foreign curren-<
1994 included cash equivalents of $2,738 and $455, marketable cies with a U.S. dollar equivalent of $5,805 and $6,573, respec-securities and interest-bearing deposits of $611 and $565, and tively. The unrealized gains or losses on these contracts, based onother investments of $1,558 and $1,529, respectively. the foreign exchange rates at December 31,1995 and 1994, were
%e proceeds from sales of Available-for-Sale securities a gain of $2 and a loss of $18, respectively, and were included in4 *
were $1,292 and $981 and the sales resulted in gross realized income in " Interest income and foreign exchange-net""
gains of $61 and $55 and losses of $20 and $26 in 1995 and At December 31,1995 and 1994, the Company had cross-1994, respectively, currency swaps outstanding with a notional principal amount of
*
' Maturities for most debt securities ranged from one to ten $2,247 and $1,427, respectively. The $1 in gains and $161 in lossesyears for the Available-for-Sale classiftcation and one to five years in 1995 and the $15 in gains and $93 in losses in 1994 related to
][ for the IIeld-to-Maturity classification at December 31,1995 cross-currency swaps were primarily recognized in income in'
and 1994. " Interest income and foreign exchange-net" and offset the gainsand losses from the assets and liabilities being hedged.
krign Cursemy Risk Management %e Company's globaloperations require active participation in the foreign exchange Imretret Rate Risk Management The Company enters into ). markets. %e Company enters into foreign exchange forward various interest rate contracts with the objective oflowering ;
contracts and options to hedge various currency exposures or funding costs, diversifying sources of funding or altering interestcreate desired exposures. Exposures primarily relate to (a) assets rate exposure. In these contracts, the Company agrees with otherand liabilities denominated in foreign currency in Europe, Asia parties to exchange, at specified intervals, the difference betweenand Canada;(b) bonds denominated in foreign currency; and fixed and floating interest amounts calculated on an agreed j
.
(c) economic exposures derived from the risk that currency flue- upon notional principal amount.tuations could affect the dollar value of future cash flows at the %e notional principal on all types ofinterest derivative con-
, operating income. level. The primary business objective of the tracts at December 31,1995 and 1994 totaled $3,455 and $2,837,activity is to optimize the U.S. dollar value of the Company's with a weighted average remaining life of 2.7 and 3.3 years,
4
assets, liabilities and future cash flows with respect to exchange respectively. %e $23 in gains and $53 in losses in 1995 and the .
rate fluctuations. liedging is done on a net exposure basis. $37 in gains and $45 in losses in 1994 related to interest deriva-4
Namely, assets and liabilities Jenominated in the same currency tives were not recognized in income as they represented hedgesare netted and only the balan:e is hedged. of debt-mlated exposures. ,
At December 31,1995 ard 1994, the Company had forwardcontracts outstanding with vacious expiration dates (primarily in
<
THE DOW CHIMIC AL COMPANY AND sUssIDI ARIES
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In miUions, exceptfor share amountst _
J Firmncirst frutruments (contimet)
Interrst Derivatives at December 31,1993 Interest Derivatives at December 31,1994.
III'K tedAverageRate National UI'NbledAve''"Ke RatehNationalAmount Maturities Receive thy Amount Maturities Retrice Iby
*Receive fixed hedge $ 1,282 1996-2003 6.5% 5.9% Iteceive fixed hedge $ 1,630 1995-2005 6.1 % 5.5%Receive floating hedge 1,507 1996-2004 5.9% 7.0% Receise floating hedge 1,024 1996-2005 5.5% 6.8%Odier 666 1996-2005 - - Other 183 1995-1998 - -
'Ihe Company's risk management program for both foreign management activities are not expected to be material. Thecurrency and interest rate risk is based on fundamental, mathe- Company's overall financial strategies and impacts from using ,
matical and technical models that take into account the implicit derivatives in its risk management program are reviewed periodi- |cost of hedging. Risks created by derivative instruments and the cally with the Finance Committee of the Company's Board of |mark to-market valuations of positions are striedy monitored at Directors and revised as market conditions dictate,
all times.The Company uses value at risk and stress tests to moni- The Company's global orientation in diverse businessestor risk. Because the counterparties to these contracts are major with a large number of diverse customers and suppliers mini-international financial institutions, credit risk arising from these mizes concentrations of credit risk. No concentration of creditcontracts is not significant and the Company does not anticipate risk existed at December 31,1995.
,
any such losses. %e net cash requirements arising from risk |
K Limitedihrtnerships and participate in residual earnings. The annual priority return i
in April 1993, three wholly owned subsidiaries of the Company is $ 14 and $67 for Chemtech and DowBrands LP, respectively. |contributed assets with an aggregate fair value of $977 to %e partnerships will not terminate unless a tennination|
Chemtech Iloyalty Associates LP. (Chemtech), a newly formed or liquidation event occurs. One such event, w hich is within the ;
Delaware limited pa tnership. In August and October 1993, out- control of outside investors, occurs in the year 2000 for Chemtech |side imestors acquired limited partner interests in Chemtech and 1996 for DowBrands LP. In addition, the pannershiptotaling 20 percent in exchange for $200. agreements provide for various windup provisions wherein.
In December 1991, three wholly owned subsidiaries of the subsidiaries of the Company may purchase at any time the limitedCompany contributed assets with an aggregate market value of partnership interests of the outside investors. Upon windup,$2 billion to DowBrands LP., a newly formed Delaware limited liquidation or tennination, the partners' capital accounts will be.
partnership. Outside investors made cash contributions of $45 redeemed at current fair values.in December 1991 and $855 in June 1992 in exchange for an For financial reporting purposes, the assets (other thanaggregate 31 percent limited partner interest in DowBrands L.P. intercompany loans, which are eliminated), liabilities, results of
The two partnerships (Chemtech and DowBrands LP.) operations and cash flows of the partnerships and subsidiaries areare separate and distinct legal entit s from the Company and its included in the Company's consolidated financial statements andsffiliates and have separate assets, liabilities, businesses and oper- outside investors' limited partnership interests are reflected as .
ations. Each partnership has as a general partner a w holly owned minority interests.subsidiary of the Company which directs the business activities Supplemental contractual disclosures required by the part-of the partnership and has fiduciary responsibilities to the part- neahip agreements are contained within Note R to the Financialnership and its other partners. Statements of the December 31,1993 fonn 10-K ofThe Dow
The outside investors in each partnership receive a cumula- Chemical Company.
tive annual priority retunt on their investments in the partnership
__
k Stockholders'Eguity tion related to these options has been reclassified from su>ck-
In 1989, the Board of Directors authorized, subject to certain holders' equity to temporary equity and amounted to $313 atbusiness and market conditions, the purchase of up to 18,000,000 December 31,1995.
,
shares of the Company's common stock. In August 1995, the pur- The number of treasury shares purchased was 29,188,000
chases under this authorization were completed. in 1995,591,000 in 1994, and 300,000 in 1993. The number
in 1995, the Board of Directors authorized, subject to certain of treasury shares issued to employees under option and,
business and market conditions, the purchase of up to 25,000,000 purchase programs was 3,022,000 in 1995,2,836,000 in 1994,shares of the Company's common stock. At December 31,1995, and 1,946.000 in 1993. The number of treasury shares con-
the number of shares purchased under this authorization was tributed to the U.S. pension plan for funding future retiree heahh14,888,000.%e Company is utilizing options as part ofits stock care benefits through a 401(h) account was 391,000 in 1994
repurchase program. The Company's potential repurchase obliga- and 251,000 in 1993.
TH E D O W C H E MIC AL CO M P A NV A N D S U 651DI A RIE S
.. .-, - ~. . ~- . . . - - . .- - _ - -.
Notes as FinancialStateneents
' In millions, exnptforshan amounts
L- Stockholders' Equity (continued) Resm ed Treasury 'tock atL)ecember 31
In thousandsofsham 1995 1994 1993There are no significant restrictions limiting the Company's '
St ck option plans . . 16,735 : 16,517 15,807ability to Pay dividends-
Employees' stock purchase plan 1,080 894 1,040Cross undistributed earnings of 20%-50% owned companies
Total shares reserved 17,815 17,411 16,847included in retained earnings w ere $95 and $428 at December 31. .
1995 and 1994, respectively.In computing earnings per common share, no adjustment
was made for common shares issuable under award, option andstock purchase plans, or conversion of preferred shares issued,because there wouhl be no material dilution.
M Stock Option Ihns The Company made offerings of common stock to its,
The Company has various stock option plans. Options under all employees, excluding directors,in 1995,1994 and 1993 atplans are granted at the market price of the shares on the date of $55.00, $54.50 and $45.00 per share, respectively, payable gener-the grants.%e Company follows APB Opinion No. 25 in account. ally through payroll deductions. Unnlied subscriptions, cancel-ing for these plans. able at the option of the employee, were 1,080,000,894,000 and
Stock options were exercised at prices ranging from $23.54 1,040,000 shares at December 31,1995,1994 and 1993, respec-to $67.75 in 1995, $18.46 to $65.06 in 1994 and $18.46 to $59.75 tively. Partial payments received on these subscriptions aggregat-in 1993. ing $39, $32 and $28 at December 31,1995,1994 and 1993,'
respectively, were included in current liabilities.. g
In thowands ofsham 1995 1994 1993
Outstanding at January 1. 14,735 14,059 11,657Cranted 2,682 2,634 3,431
- Exercised (2,355) (1,862) (567) ,
Expired .(42) (96) (462)
Outstanding at December 31 ' 15,020 14,735 14,059Price Range - $36.04-$ 74.63 $23.54-$ 74.63 $ 18.46.-$ 60.88 *'
Exercinable at December 31' 12.373 12,189 10,776Available for future grant 523' 559 407
N RedeemaMe &ferredStock in the event the Company consummates certain merger orThe Company has an employee stock ownership plan (the ESOP), consolidation transactions involving the Company's commonwhich is an integral part of the Salaried Employees Savings Plan. stock, the preferred stock must be redeemed by the Company for
'Ihe ESOP borrowed funds at a 9.42 percent interest rate cash at a redemption price egaal to 105 percent of the $86.125with a final maturity in 2004, and used the proceeds to purchase per share redemption value, plus accrued and unpaid dividends.convertible preferred stock from the Company. The preferred The convertible preferred stock issued to the ESOP isstock is convertible into approximately 1.5 million shares of the reported as temporary equity in the Company's balance sheet. SinceCompany's common stock at $86.125 per common share. The div- the Company has guaranteed the ESOP's borrowings, the princi-
'idend yield oti the preferred stock is 7.75 percent of the $86.125 pal amount of the ESOPloan is reported as long-term debt and aredemption value. reduction of temporary equity in the Company's balance sheet.
O I&nsion Plans The U.S. funded plan is the largest plan. Its benefits are .
%e Company has defined benefit pension plans which cover based on length of service and the employee's three-highest con-employees in the U.S. and a number of foreign countries. The secutive years of compensation. The weighted average discountCompany's funding policy is to contribute annually, at a rate that rate and rate ofincrease in future compensation levels used in .
is intended to approximate a level percentage of compensation determining the actuarial present value of the projected benefitfor the covered employees, to those plans where pension laws obligations were 7.25 and 5.5 percent, respectively, for 1995 andand economics either require or encourage funding. 7.75 and 5.5 percent, respectively, for 1994.The assumed long-
terin rate of return on assets was 9 percent for 1995 and 1994.
' THE DOW CHEMIC AL CDMPAhv AND SUS 5IDI APIES
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In million.r, erceptfordare amount.|10 lirsuien IWu, (continued) %e net periodic pension cost for all significant defined
benefit plans was as follows:'
All other pension plans used assumptions in determiningthe actuarial present value of the projected benefit obligations that NetIlriodic&nsion Cutare consistent with (but not identical to) those of the U.S. plan. jppy fppy 1995'
, Defined contribution plans cover employees in some sub- ge, , ice cost-benefits earnedstdiaries in the U.S. and m other countries, including Austraha,
during the period $ 146 $ 150 $ 133France, Spain, and the United Kingdom. In addition, employees in
Interest cost on projectedthe U.S. are eligible to participate in defined contribution plans benefit obligation - 374 334 322(Employee Savings Plans) by contributing a portion of their com- Actual (return) on assets (1,062) (94) (485)pensation which is then matched by the Company. Contributions Amonization and deferred amounts 686 (256) 151charged to income for defined contribution plans were $75 in Employee contributions to the plans (8) (8) (8)1995, $49 in 1994, and $50 in 1993-
Net periodic pension cost $ 136 $ 126 $ 113
%e funded status of significant defined benefit plans for the Company was as follows:
IkjnedBenejtPlans atDewmber31
Fully Funded ihrtially Funded1995 1994 1995 1994
Actuarial present value of benefit obligation:Vested $ (4,098) $(3.287) $(372) $(467)Nonvested (310) (292) (39) (40)
Accumulated benefit obligation (4,408) (3,579) (411) (507)Effect of projected compensation increases (787) (826) (101) (125)Projected benefit obligation for services rendered to date (5,195) (4,405) (512) (632)Plan assets at market value, primarily publicly traded stocks and bonds 5,321 4,439 56 221,
Plan assets in excess of(less than) projected benefit obligation 126 34 (456) (411)Unrecognized transition obligation 34 28 27 45Unrecognized net (gains) loues (154) 57 19 (1),
Unrecognized prior service cost 193 9 35 39Additional minimum liability - - (65) (49)Accrued pension asset (liability) $ 199 $ 128 $(440) $(377)
P OtherIturretisesnent Benefits was to reduce the net periodic postretirement cost by $21 for%e Company provides certain health care and life insurance 1993 and the accumulated postretirement benefit obligation bybenefits to retired employees. %e Company funds most of the $327 at December 31,1993.%e effect of the April 1994 amend-cost of these heahh care and life insurance benefits as incurred. ment was to reduce the net periodic postretirement cost by $71
he U.Si plan covering the parent company is the largest plan. for 1994 and the accumulated postretirement benefit obligationLe plan provides health care benefits, including hospital, physi- by $101 at December 31,1994. |cians' services, drug and major medical expense coverage, and life l'or 1995, a discount rate of 7.25 percent and weighted aver-incurance benefits. %e plan provides benefits supplemental to age medical cost trend rates starting at 7.52 percent and declining 1
Medicare aher retirees are eligible for these benefits for employ- to 4.60 percent in 2004 were assumed. For 1994, the discountees hired before January 1,1993. %e cost of these benefits is rate assumption was 7.75 percent and the medical cost trend rate jshared by the Company and the retiree, with the Company assumption was 9.47 percent declining to 5.53 percent in 2004. I
portion increasing as the retiree has increased years of credited The assumed long-term rate of return on assets was 9 percent for |,
service %e Company has the ability to change these benefits 1995 and 1994. Increasing the assumed medical cost trend rate |at any time, by 1 percentage point in each year would increase the accumulated i
Effective October 1993, the Company amended its health postretirement benefit obligation at December 31,1995 by $48 and,
care benefits plan in the U.S. to cap the cost absorbed by the the net periodic postretirement benefit cost for the year by $3. I|Company at approximately twice the 1993 cost per person for All other postretirement health care and other benefit plans
employees w ho retire after December 31,1993. Effective April used assumptions in determining the actuarial present value of1994, the Company extended this amendment to cover all other accumulated postretirement benefit obligations that are consistent |
retired employees. %e effect of the October 1993 amendment with (but not identical to) those of the U.S. parent company plan. |
!
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TH E 00W CHE MIC AL COM PANY AND SU 8slDI ARIE 8|
|
Notes 12 FinancialStateneents
in nillions, exceptfor share amounts
P Other hatortiorment Benefits (continued) lbrtially Funde</lbstretirement Plans at I)ecember 31,
1995 1994%e net periodic benefit cost of all significant plans was
,
Accumulated postretirement benefit obligation:"'I"**' Retirees $ (697) $ (676)
NetIlriodiclbstutimnent Cart Fully eligible active plan participants (199) (290) ,
1995 1994 1995 Other active plan participants '(214) (210) 'jI
Service costs-benefits earned Total accumulated postretirement
during the period . $ 21 $ 24 $ 34 benefit obligation (1,110) (1,176) '
Interest cost on accumulated Plan assets at market value, primarily
postretirement benefit obligation < 86 88 '122 Publicly traded stocks and bonds 103 52
Actual (return) on assets 16). - - Unfunded accumulated. j(
Amortization and deferred amounts (36) (42) (9) postretirement benefit obligation . (1,007) (1,124)'
Net periodic postretirement cost . $ 55 $ 70 $147 Unrecognized gain from experience favorableto assumptions .(224) (166) |
The postretirement benefit obligations of all significant plans Negative prior service costs (312) (373)were as follows: Accrued postretirement benefit liability . - $(1,543) $(1,663)
Q Commitments amt Contingent Lin6ilities choosing to participate in the Settlement Agreement released theIn January 1994, Dow Corning Corporation (Dow Corning), Company from liability The Company was not a participant inin which Dow is a 50 percent shareholder, announced a pretax the Settlement Agreement nor was it required to contribute to j
charge of $640 ($415 after tax) for the fourth quarter of 1993. In the settlement. On October 9,1995, Judge Pointer issued an |IJanuary 199.5, Dow Corning announced a pretax charge of $241 order which concluded that the Settlement Agreement was not
($152 after tax) for the fourth quarter of 1994.1hese charges workable in its then-current form because the funds committedincluded Dow Corning's best estimate ofits potential liability to it by industry participants were inadequate. The order providedfor breast implant Jitigation based on a global Breast Implant that plaintiffs who had previously agreed to participate in theLitigation Settlement Agreement (the Settlement Agreement); Settlement Agreement could opt out after November 30,1995. -
litigation and claims outside of the Settlement Agreement; and The Company's maximum exposure for breast implantprovisions for legal, administrative and research costs related to product liability claims against Dow Corning is limited to itsbreast implants. The charges for 1993 and 1994 included pretax investment in Dow Corning which, after the second quarter -|
amounts of $1,240 and $441, respectively, less expected insurance charge noted above,is zero. As a result, any future charges byrecoveries of $600 and $200, respectively. The 1993 amounts Dow Corning related to such claims or as a result of the Chapterreported by Dow Corning were determined on a present value 1 I proceeding would not have an adverse impact on thebasis. On an undiscounted basis, the estimated liability above for Company's consolidated financial statements.1993 was $2,300 less expected insurance recoveries of $1,200. The Company is separately named as a defendant in over i
As a resuh of the Dow Corning actions, the Company 13,000 breast implant produce liability cases. In these situations,recorded its 50 percent share of the charges, net of tax benefits plaintiffs have alleged that the Company should be liable foravailable to Dow. The impact on the Company's net income was Dow Corning's alleged torts based on the Company's 50 percenta charge of $192 for 1993 and a charge of $70 for 1994. stock ownership in Dow Con ing and that the Company should
Dow Corning reported an after tax net loss of $ 167 for the be liable by vinue of alleged " direct participation" by thesecond quarter of 1995, of which the Company's share amounted Company or its agents in Dow Corning's breast implant business,to $83. Dow Corning's second quarter loss was a result of a $221 These latter, direct participation claims include counts soundingafter tax charge taken to reflect a change in accounting method in strict liability, fraud, aiding and abetting, conspiracy, concenfrom the present value basis noted above to an undiscounted of action and negligence.basis resulting from the uncertainties associated with its voluntary Judge Pointer has been appointed by the Federal Judicialfiling for protection under Chapter 11 of the United States Panel on Multidistrict Litigation to oversee all of the product liabil-Bankruptcy Code on May 15,1995. As a result of Dow Corning's ity cases involving silicone breast implants fded in the U.S. federal
,
1995 second quarter loss and Chapter iI fding, the Company courts. Initially,in a ruling issued on December 1,1993, Judgerecognized a pretax charge against income of $330 for the second Pointer granted the Company's motion for summary judgement,quarter of 1995, fully reserved its investment in Dow Corning and finding that there was no basis on which a jury could conclude ,
will not recogr.ize its 50 percent share of future equity earnings that the Company was liable for any claimed defects in the breastwhile Dow Corning remains in Chapter 11. implants manufactured by Dow Corning. In an interlocutory opin-
On September 1,1994, Judge Sam C. Pointer, Jr. of the ion issued on April 25,1995, however, Judge Pointer affirmed hisUnited States District Court for the Northern District of Alabama December 1993 ruling as to plaintiffs' corporate control claims butapprosed the Settlement Agreement, pursuant to which plaintiffs vacated that ruling as to plaintiffs' direct participation claims.
TMt 00W CHEMICAL COMPANY AND SUOsIDI ARits
In mulions, exceptforshare amounu\
0 Cosseinitinerets ain</ reistisegessi Liabilities Except for the possible effect on the Company's net income(cosatinsses/) for brea t implant litigation described above,it is the opinion of
'
the Compmy's management that the possibility is remote that theh is the opinion of the Company's management that the pos. aggregate >f all claims and lawsuits will have a material adverse
sibility is remote that plaintiffs will prevail on the theory that the impact on the Company's consolidated financial statements.'
Company should be liable in the breast implant litigation because Eli Lilly and Company (Lilly) is a 40 percent partner withofits chareholder relationship with Dow Corning. The Company's the Company in DowElanco, a global agricultural products jointmanagement believes that there is no merit to plaintiffs' claims ventare. Lilly holds a put option requiring the Company to pur-thet the Company is liable for alleged defects in Dow Corning's chase Lilly's interest in DowElanco at fair market value. Lillysilicone products because of the Company's alleged direct partici- notified the company in September 1994 that it did not plan topation in the development of those products, and the Company exercise the put option at that time. No subsequent notificationintends to contest those claims vigorously. Management believes has been received.that the possibility is remote that a resolution of plaintiffs' direct A Canadian subsidiary has entered into two 20-year agree-participation claims, including the vigot ous defense against those ments, which expire in 1998 and 2004, to purchase ethylene. Theclaims, would have a material adverse impact on the Company's purchase price is detennined on a cost-of-service basis which, in |
financial position or cash flow s. Nevertheless, in light of Judge addition to covering all operating expenses and debt service costs,i
Pointer's April 25 ruling, it is possible that a resolution of plain- provides the owner of the manufacturing plants with a specified !tiffb' direct participation claims, including the vigorous defense return on capital. Total purchases under the agreements were I
against those claims, could have a material adverse impact on the $204, $252 and $237 in 1995,1994 and 1993, respectisely. |Company's net income for a particular period, although it is At December 31,1995, the Company had various outstand-
;
impossible at this time to estimate the range or amount of any ing commitments for take or pay and throughput agreements, jsuch impact. including the Canadian subsidiary's ethylene contracts, for tenns |
Numerous lawsuits have been brought against the Company extending from one to 20 years. In general, such commitmentsand other chemical companies alleging that the manufacture, dis- were at prices not in excess of current market prices. The tabletribution or use of pesticides containing dibromochloropropane below shows the fixed and detenninable portion of the take or(DBCP) has caused, among other things, property damage, pay and throughput obligations:including contamination of groundwater. To date, there havebeen no verdicts orjudgments against the Company in connec- Fived andDeterminable hedon of 06/gationstion with these allegations. It is the opinion of the Company'smanagement that the possibility is remote that the resolution of I
'
such lawsuits will have a material adverse impact on theCompany's consolidated financial statements. 1998 585
The Company has accrued $275 at December 31,1995, for 1999 102probable environmental remediation and restoration liabilities, 2000 73including $17 for the remediation of Superfund sites. 'lhis is man- 2001 through expiration of contracts 174
agement's best estimate of these liabilities, although possible costs Toul $986for enviromnental remediation and restoration could range up to50 percent higher. It is the opinion of the Company's managementthat the possibility is remote that costs in excess of those accrued in addition to the take or pay obligations at December 31,
or dieclosed will have a material adverse impact on the Company's 1995, the Company had outstanding purchase commitments
consolidated financial statements. which range from one to eighteen years for steam, electrical
In addition to the breast implant, DBCP and environmental Power, materials, property, and other items used in the normal
remediation matters, the Company and its subsidiaries are parties course of business of approximately $588. In general, such com-
to a number of other claims and lawsuits arising out of the normal mitments were at prices not in excess of current market prices. In
course of business with respect to commercial matters, including addition, the Company had other outstanding direct and indirect
product liabilities, governmental regulation and other actions. commitments for construction performance and lease payment
Certain of these actions purport to be class actions and seek dam- guarantees and other obligations of approximately $423.'
ages in very large amounts. All such claims are being contested.
Dow has an active risk management program consisting ofnumerous insurance policies secured from many carriers at various
,
times 'Ihese policies provide coverage which will be utilized tominimize the impact,if any, of the contingencies described above.
THE 00w CHE MIC AL COMPANY AND SUBSIDI ARIE S
-. --. - -- - _. - .. . _.
!
Eotes 12 FinancialStatements |
In millions enrytfor Aare amount.1
R - Supplementasy informationArruedand Other Current Liabilitie.1 at December 31 Sundryincome (Erpense)-Net
'
1995 1994 1995 1994 1993
Accrued vacations $ 178 $ 200 Royalty income $ 23 $ 21 $ 14Employees' retirement plans 152' 163 Cain (loss) on securities 79 (15) (55) ,Interest payable ' 125 124 Cain on sale of assets 24 73 48
Accrued payroll 288 316 Dividend income 8 32 86Accrued miscellaneous taxes 123. 146 Other-net (91) (28) (101)Insurance companies' reserves 192 168 Total $ 43 $ 83 $ (8)Sundry 561 742
Total $ 1,619 $ 1,859
OtherSupplementaryInformation
1995 1994 1993
Cash payments forinterest $ 501 $568 $603Cash payments for taxes on income 1,203 334 494Provision for doubtful receivables 18 7 18
_ . _ _ . _ _ _ _ ___ __
S Imlustry Segments an<I Ceogswphic Areas Plastics encompasses the product ranges of polyethylene,The Company is a diversified, worldwide manufacturer and polystyrene, polypro},ylene and polyethylene terephthalatesupplier of more than 2,500 product families, which are grouped polyester (PET). These are used in a wide variety of applications
'into the following industry segments: Chemicals and hletals, . in markets which include electronics, food service, heahh care,Perfonnance Chemicals, Plastics, Perfonnance Plastics, packaging and recreation.Ilydrocarbons and Energy,and Diversified Businesses and Performance Plastics consists of a broad range of engineeringUnallocated. 'Ihe Company's wide range of products are used thermoplastic and thennoset materials. The product ranges are
. primarily as raw materials in the manufacture of customer polyurethanes; epoxy products and intermediates; engineering,
products and services. Industries served by the Company include plastics; adhesives, sealants and coatings; Insite technology licens-. aerospace, appliances, automotive, agriculture, building and ing; and fabricated products.constniction, chemical processing, consumer products, flydrocarbons and Energy encompasses procurement of ,
electronics, environmental services, furniture, housewares, fuels and petroleum-based raw materials as well as the productioninsurance and finance, metalworking, oil and gas, packaging, of olefins, aromatics, styrene and cogenerated power and steamprocessed foods, pulp and paper, utilities and water treatment. for use in the Company's manufacturing operations. Destec
The Company operates 94 manufacturing sites in 30 coun- Energy,Inc. is also recorded in this segment.tries. The Company conducts its worldwide operations through Diversified Businesses and Unallocated includes household
15 global businesses which represent the aggregation of products consumer products; a joint venture providing environmental,on the basis of process technology, end-use markets and channels information technology and strategic chemical managementof distribution. To improve stockholders' ability to evaluate the services to industry and government; New Businesses such asCompany's perfonnance, external industry segments have been advanced electronics materials, advanced structural materials,
revised to better reflect market conditions and the Company's technology licensing, and catalysts; and the consolidatedbusiness strategies. Results have been restated to align with the insurance and finance companies. Unallocated includes activitiesnew reporting segments. and overhead cost variances not allocated to other segments.
Chemicals and hietals contains a wide range of products Transfers between area and industry segments are generallythat are used primarily as raw materials in the manufacture of valued at cost. 'Ihe exception is that movements betw een the agri-customer products, or which aid in the processing of customer culturalchemicals and consumer products businesses and theproducts and services. other businesses are generally valued at market-based prices.
Perfonnance Chemicals includes ingredients in many formu-lated products and processing aids, as well as end-use products. '
%is segment covers the Company's specialty chemicals, emulsionpolymers and agricultural chemicals.
\*i
TH E DOW CHE MIC AL COMPANY AND su8stDI ARIE S
!_ -_ __ _ J
|In millwn.r, exceptfor share amounts \
S Industry Seginents and Geogonphic Arras (continued)
industry Segment Results,
Diversyied Corporate,
Chemicals ltrfbrmamr Ikrformance Hydncarbons Bus. and Elim. && Metah Chemimh Plastics Plastics & Energy Unallocated Disc. 0 n consolidatedi
1995 ISales to unaffiliated customers $3,322 $4,240 $3,932 $5,369 $2.371 $ 966 - $20,200
i
Intersegment transfers 710 26 106 19 2,247 - $(3,108) - |
Operating income (loss)I 1,136 670 1,475 1,056 (83) (363) - 3,891 |Identifiable assets 2,660 4,066 3,422 3,962 2,743 717 6,012 23,582
|Depreciation . 280 320 327 294 104 44 - 1,369 '
Capital expenditures 516 274 81 175 342 29 - 1,417
1994
Sales to unaffiliated customers $2,471 $3,672 $3,064 $4,538 $ 2,044 $ 953 - $ 16,742
Intercegment transfers 680 28 104 18 2,365 - $(3,195) -
Operating income (loss)I 337 514 531 611 74 (247) - 1,820
Identifiable assets 2.705 3,842 3,785 3,834 2,108 699 9,572 26,545
Depreciation 241 273 311 263 92 44 - 1,224 |
|Capital expenditures 152 253 83 134 388 64 109 1,l83
1993
Salec to :maffiliated eustomers $ 2,301 $ 3,390 $2,510 $ 4,116 $ 1.808 $ 927 - $ 15,052 |
Interwegment transfers 683 42 85 17 2,338 - $(3,165) -'
lOperating inenme 154 403 89 304 46 78 - 1,074
IdentifiaUe assets 2,519 3,631 3,525 3,570 1,933 692 9,Gs5 25,505
Depreciation 246 279 318 269 94 46 - 1,252
Capital expenditures 215 204 126 173 426 60 193 1,397
.
|GeographicArea Results '
> DirmntinteedOperations &
United Statu Eumpe Rest ofIIbrid Elimination.1 C<mroFdated
1995|
Salec to unalliliated customers $9,035 $6,411 $4,754 - $20,200|
Intersegment transfers 1,728 515 454 $(2,697) - '
lOperating income 1,603 1,112 1,176 - 3,891 )Identifiable assets $ 10,127 6,914 6,541 - 23,582
Cruce plant properties 12,416 7,466 3,336 - 23,218
Capital expenditures 1,008 295 114 - 1,417
1994
Sales to unaffiliated customers $8,093 $ 4,809 $ 3,840 - $ 16,742
Intersegment tran*fers 1,424 447 341 $(2,212) -
tOperating income 1,024 237 559 - 1,820
identifiable assets 9,399 5,516 4,867 6,763 26,545
Cross plant properties 11,729 6,725 3,337 1,419 23,210
Capital expenditures 692 234 148 109 1,183
1993,-
Sales to unaffiliated customers $ 7,486 $ 4,299 $3,267 - $ 15,052
Intersegment transfers 1,042 325 304 $(1,671) -
Operating income (loss)I 795 (23) 302 - 1,074*
Identifiable assets 9,475 5,010 4,034 6,986 25,505
Cross plant properties 11,326 5,901 3,165 1,216 21,608
Capital expenditures 762 266 176 193 1,397
! 1he murahanon bene mu Tymanng imome*end *brewme befm 1%n hionpr 7kseson humne and. hmwory Intemu *consho of 9kher hwome (Espense)*iterar andcan be
fundon the Coruohdawd Statements of/meme on ikge 23
l
| 4r,u oo. emu cu couun . o su uomans
!|
.__1 __. - _ _ _ . _ . . _ _ ~ ._ . . . _ _ _ _ _ _ . _ _ _ . , _ _ _ _ _ . . . . _ . ___
Q8 tarter $ Sfa454t$C83f
' In miHions, exceptforper sharr amounu (Unaudited)_
lst1995 Restated . 2nd 3rd 4th har
,
Net sales $5,205 $5,517 $4,884 $4,594 $20,200
Operating income 1,075 ' 1,207 946 663 3,891
Income before taxes on income and minority interests 1,048 832 955 694 3,529 *
Income from continuing operations 564 334 571 415 1,884
Net income available for common stockholders 582 503 571 415 2,071-
Earnings per common sharc fmm continuing cperations 2.03 1.22 2.15 1.63 7.03
Earnings per common share 2.10 1.84 2.15 - 1.63 7.72
Common stock dividends declared per share 0.65 0.75 0.75 0.75 2.90 :
Market price range ofcommon stock:liigh 74.63 75.00 78.00 - 74.38 78.00Low 61.38 68.00 71.63 65.50 61.38
1994 (Restated) 1st 2nd 3rd 4th har
Net sales $3,788 $4,126 $4,216 $4,612 $16,742
. Operating income 411 458 433 518 1,820
income before taxes on income and minority interests 335 457 454 380 1,626;
Income from continuing operations 141 206 237 181 765,
Net income available for common stockholders 171- 250 288 222 931
Earnings per common share from continuing operations 0.51 0.75 0.86 0.65 2.77
Earnings per common share 0.62 0 91 1.04 0.80 3.37 .
Common stock dividends declared per share 0.65 0.65 0.65 0.65 2.60
Market price range ofcommon stock:
High 66.50 70.13 79.25 78.13 79.25 *
Low 56.50 58.75 64.88 60.75 56.50
SeeNous to1inancnalStatemerar
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4
TH E DDW CH E MIC AL COMPANY AND SUBSIDI ARIES
_ _ _ _ _ _ _ _ _ _ _ . _ _ _ _
._ . - . . ..
r !| \;~ .
- Eleven-kr Review cfMarket AMeeper Share cf Ccmm:n Stock'
' 'Adjwedfor stak split in 1989.
los dollars ' 1985 1986 1987 1988 1989 1990 1991 1992 1995 1994 1995 i
Io
$100
>. 90 i.I
80
50
40_
| 30|-
20
10
0
liigh $ 27.92 $41.17 $ 73.08 $62.67 $ 72.25 $ 75.75 $58.00 $62.88 $62.00 $ 79.25 $ 78.00Close on December 31 27 33 39 00 60.00 58.50 71.38 ' 47.50- 53.75 57.25 56.75 67.25 70.38Low 18.00 26.59 39.17 51.17 55.50 37.00 44.13 51.25 49.00 56.50 61.38
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THE DOW CHEMIC AL COMPANY AND SUSSIDIARIES
. .. --. .. - _ _ _ _ _ _ _ .. _ _ .-_ .
);1
Eleven-year Summary cfSelecteelIinancialData
In mioions. except as noted (Unaudited) 199.5
Surninary ofOperations Net sales $20,200
(Re tated) Cost of sales 13,337 jInsurance and finance company operations, pretax (income) expense (61)
*
Research and development expenses 808Promotion and advertising expenses 416 ,
Selling and administrative expenses 1,771
Amortization ofintangibles 38 i
'Special charge. -
_._.
Operating income 3,891
Investment and sundry income (expense) (182)Interest expense-net (180)
Income (loss) before provision for taxes on income and minority interests 3,529
Provision (credit) for taxes on income 1,442 |hiinority interests' share in income 196
Preferred stock dividends 7
Income (loss) from continuing operations 1,884
Cumulative effect of accounting change -
Discontinued operations net of taxes on income 187
Net income (loss) available for common stockholders 2,071
Per share of common stock (dollars)l:Income (loss) from continuing operations 7.03
,
Net income (loss) available for common stockholders 2 7.72Cash dividends declared 2.90Cash dividends paid 2.80 1
Average common shares outstanding (thousands)1 - 268,243
Convertible preferred shares outstanding (thousands) 1,521
Nwr-endITnancialIbsition Total assets $23,582 !
Working capital 4,953 |
Plant properties-grces 23,218
Plant properties-net 8,113
Long-term obligations and redeemable preferred stock 4,733
Total debt 5,403
Net stockholders' equity 7,361
17nancia/ Ratios Research and development expenses as percent of net sales (restated) 4.0%
Income before provision for taxes and minority interests as percent of net sales (restated) 17.5%2Return on average stockholders' equity 26.9 %
Book value per share of common stock (dollars)I $ 30.69Debt as a percent of total capitalization 36.3 % .
Cenern/ Capital expenditures $ 1,417Depreciation expenses (restated) 1,369 5
Wages and salaries paid 2,734
Cost of employee benefits 696
Number of employees at year-end (thousands) 39.5
Number of stockholders of record at year-end (thousands)3 111.1
1 Aljuned)w3for2snwk oplitin i989. 2 Before amulative efut ofaaountirg change in i992.
T H f DOW C H E MIC AL C O M P ANY A N D S U S5101 A RIE S
||
.
1994 '1993 1992 1991- 1990 1989 1988 1987 1986 1985
$ 16,742 - $ 15,052 $ 15,493 $ 15,822 $ 17,151 $ 16,182 $15,409 $ 12,263 $10,179 - $ 9,79412,131 11,370 11,862- 11,874 12,309 10,040 9,448 8,304 7,424 7,769.
|* -(40)- (98) (15) (95) (65) (59)- (28) 20 (57) (55)783 786 '799 773 757 665 610 523 477- .440411 367 381 366 374 360 291 222 217 248,-
1,594 .1,485 1,583 1,551 1,528 1,396 1,305 1,123' 945 782'43 68 45 44 56 43 40 25 25 16
433 370 - - - - - 592|-
-
|| 1,820 1,074 405 939 2,192 3,737 3,743 2,046 1,148 2
77 462 145 450 259 249 92 119 101 268
(271)- (278) (443) (368) (425) (285) (274) (267) (253) -(286)
1,626 1,258 107 ~ 1,021 2,026 3,701 3,561 1,898 996 (16)|' .654 ~514 67 269 773 1,350 1,340 787 398 .(48)'
200 171 120 56 44 11 6 5 1 3
7 7 7 7 6 1 - - - --
765 566 (87) 689 1,203 2,339 2,215 1,106 597 29- - (765) - - - -
.
- -
166 71 356 246 175 147 183 134 135 29;
931 637 (496) 935 1,378 2,486 2,398 1,240 732 58
2.77 2.07 (0.32) 2.55 4.46 8.66 7.86 3.85 2.08 0.10,
3.37 2.33 0.99 3.46 5.10 9.20 8.51 4.31 2.55 0.202.60 2.60 2.60 2.60 2.60 2.37 1.73 1.43 1.27 1.20
;. 2.60- 2.60 2.60 2.60 2.60 2.18 1.63 1.40 1.23 1.20276,094 273,620 271,647 270,477 269,899 270,243 281,891 287,504 287,088 285,579
1,549 1,567 1,586 1,592 1,602 1,602 -.
- -
!. $26,545 $25,505 $25,360 $24,727 $23,953 $22,008 $ 16,073 $ 14,23n $ 12,553 $14,405| 2,075 2,001 1,802 1,584 2,265 909 2,218 2,307 1,749 1,281
|- 23,210 21,608 21,444 20,663 19,149 16,700 14,698 13,502 12,715 11,875
| 8,726 8,580 8,801 8,775 8,249 7,080 5,938 5,551 5,347 5,127
| 5,325 5,918 6,201 6,083 5,209 3,855 3,338 3,779 3,404 3,198
L 6,578 6,944 7,469 7,652 6,642 6,141 3,770 3,958 3,683 3,661!- 8,212 8,034 8,064 9,441 8,728 7,957 '7,255 5,769 5,178 4,806
4.7% 5.2% 5.2% 4.9% 4.4% 4.1% 4.0% 4.3% 4.7% 4.5%
9.7% 8.4% 0.7% 6.5% 11.8 % 22.9 % 23.1 % 15.5 % 9.8% (0.2)%11.3 % 7.9% 3.3% 9.9% 15.8 % 31.2 % 33.1 % 21.5 % 14.1 % 1.2%
$ 29.63 - $ 29.36 $ 29.69 $ ' 34.90 $ 32.33 $ 29.55 $ 26.35 $ 20.31 $ 18.05 $ 16.8538.0 % 39.9 % 42.5 % 42.3 % 41.3 % 41.8 % 34.0 % 40.5 % 41.4% - 43.1 %.
i $ 1,183 $ 1,397 $ 1,595 $ 1,908 $ 2,119 $ 1,756 $ 1,264 $ 995 $ 890 $ 806
!) 1,224 1,252 1,260 1,228 1,096 954 899 784 717 952
3,239 3,332 -3,263 3,101 3,104 2,482 2,314 2,045 1,800 1,663
| 832 887 938 711 690 554 518 474 464 387
[ 53.7 55.4 61.4 62.2 62.1 62.1 55.5 53.1 51.3 53.2
114.5 102.5 105.9 108.4 109.4 105.4 105.8 99.0 106.3 122.6
'Stockholdm ofnnmf at nyern.dby the trwufer agmt. The Company acimates that am an an additionalI51MC stockholders whosesham an heldin nominn names,or in de idendnimestment amuna a ithou* underlying ngkemdsharu
T H E DOW C H E MIC AL C OM P AN Y AND S U 881DI ARit 8
__ ___ m _
BoaniefDirecten(As ofJanuary 1. t996)
Jacqueline K. Barton, 45 111 Hie D. Datis, 61 Barbara 1L Emnklin,55 Frank R Ibpof 59Professor of Chemistry, President and President and Chairman of the BoardCalifornia Institute of Chief Executive Officer, Chief Executive Officer, Direaor since 1982
~
.
Technology All Pro Broadcasting, Inc. Barbara Franklin Enterprises; f. Itdm Reinhard 50Director since 1995 Direaor since 1988 Former U.S. Secretary'
Financial Vice President, Treasurerof CommerceDatid IBuzzeH4 54 Alichaelt Doce,60
' . and Chief Financial OflicerO'"#" """ ####' '"'"## Dinctor since 1995
'Vice President and Corporate Chairman
Denaufmm 1980 to 1992Director of Environment, Ilealth Michael L Dow, Associatesu Safety, Public Affairs and Director since 1988 AHan D. Gilmour, 61 flamid I Sh"P "> 60i
Pmident,.
Infonnation Systems Retired Vice Chainnan,Direnor since 1995 yW g g,,"##' gg
Ford Motor ComPan7Princeton University
b.etuor Consuhant; Dircaor since 1985M nas Anu 1995AnthonyJ. Carbone,54 Chainnan, DowElancoCroup Vice Presidcut Direaor since 1989 11iHiam J. Nely, 64 II'N''"* S S!"r"P* dos 56
si tDirector since 1995 Senior Consultanty,,;q,, c y;gj,,3g ;eg ,e t se Oflicer" """ "'"" I###FredR Corson,54 Executive Vice President Director since 1990Vice President and Director oi Direaor since 1985 AlichaelD. Ihrker,49
, ,g 3 ,Research & Deselopment Group \ ice President 1
Director since 1994 Direc:or since 1993 Panner, Thayer Capn.tal Partners |
Director ance 1992.
I1
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Committees ofthe BoardofDirectors
Audit Committee Encinnment,llealth and Iinana Comminee 1%blicIntems CommitteeB. II. Franklin, Chainnan Safety Committer J. P. Reinhard, Chairman D. I Buzzelli, ChainnanA. D. Gilmour W. J. Neely, Chainnan A. J. Carbone J. K. Barton i
11. I Shapiro J. K. Barton J. L Downey A. J. Carbone iP.C. Stern D. I Buzzelli E. C Falla E P. Corson l
E P. Corson M. D. Parker W. D. Davis '
Committee on himtor,. M. L Dow E P. Popoff M.L.DowW. D. Davis, Chainnan
M. D. Parker W. S. Stavropoulos J. L DowneyE P. Popoff P. D. 3 rink, ex-oflicio C J. Ilahn, ex-officio B. H. FranklinU I Shapim *
%;. S. StavroponlosJ. B. Martin, ex-officio R. L. Kesseler, ex-officio W. J. NeelyR. J. Pingel, ex-officio I S. LeBeau, ex-officio H.T ShapiroP.G. Stern J. Scriven, ex-officio J. Scriven, ex-officio W. S. Stavropoulosg,,,,,;,, (,,,;,,,, y,,,,,,,a fyy;,, (,,,;,,,, J. W. Tysse, ex-ohicio . ),Compensation Committw |
II T. Shapiro, Chairman B. Woodhouse, ex-officio%;. R Dam W. S. Stavropoulos, Chainnan M. L Dow, Chairman
A. J. Carbone E P. CorsonB. H. Frankhn
M. D. Parker J. L DowneyA. R gmour F. P. Popoff E. C FallaP.C. Stern
J. P. Reinhard J. P. ReinhardP.C. SternW. J. Burroughs, ex-officioN. L. Camp, ex-officio
Cooperate Organization
(d.1ofJanuary 1, t996)
Ofcers andArsistant Ofcers
Chairman ofthe Boant Gmuy Iice 1%sident Iice Prradent offluman Anistant SecretaryFrank P. Pbpoff Anthony J. Carbone Resounts Charles J. Hahn
Lawrence J. Washington. Jr.1%sident and Gmuy lice 1%sident Asastara SmtaryChiefErecurite Ofiwr Michael D. Parker II<f Iksident and Tina S. Van DamWilliam S. Stavropoulos CenemlCounsel
y 7ggjj,,g,g ( ,, j,j,,,,g 7,.,j hn S&enFinamiallice }WAdent, Dimtor ofEminnment,llealth ilenry Kahn
Tirasurer and & Safety,1%blic Afain and Iin 1%sident and ContmHerChieffinancialOfiwr information Systems Roger L Kesseler }4,,;,,,ames E Hicks LJ. Pedro Reinhard David T. Buzzelli S,c,,,,,.yErecurite Iice lhAdera 1 ice 1%sidera andDinctor of DonnaJ RobensEnrique C. Fatla Researrh & Derelopment 3,g,,,,g (,,g,gy,,,.
Fred P. Corson William C Schmidt
THE DOW CHE MIC AL COM PAN Y ANO sU 58tDI ARif s
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StockhoMerReferenceinformali:n
Rockholderinquiries TmnsferAgentsinquiries about stock, changes in name or address and Boston EquiServe Limited Partnershipother stock related questions may be directed to Dow's transfer P.O. Box 9155
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agent: Boston, MA 02205-9155. Telephone: 800-DOW-5606 (800-369-5606) in the U.S.Boston E . Serve Lm.uted Partnerslu.pf
or 617-575-3899. For the hearing impaired: 800-368-0328
Boston, MA 02205-9155 (avadable only on TDD phones)
Telephone: 800-DOW-5606 (800-369 5606) in the U.S. He R-M Trust Companyor 617-575-3899. For the hearing impaired:800-368-0328 393 University Avenue, Fifth Floor(available only on TDD phones) Toronto, Ontario, Canada MSG 2M7
Inqu..ines about Dow's business performance may be directed to: Telephone: 800-387-0825 (in North America) or 416-813-4600
Investor Relations RegistmrThe Dow Chemical Company Boston EquiSene Limited Partnership2030 Dow Center P.O. Box 9155Midland, MI, U.S.A. 48674 Boston, MA 02205-9155Telephone: 517-636-1463 or 800-422-8193 in the U.S.
kock F.schange Listings and Tmding 1+ivilegesAnnualMeeting NYSE Symbol: DOW%e 1996 Annual Meeting of Stockholders will be Amsterdam, Antwerp, Ba..el, Berlin, Brussels, Dusseldorf,conducted at 2 p.m. (ElJf) Thursday, May 9, at the Frankfurt, Geneva, Ilamburg, IIannover, London, Midwest,Midland Center for the Arts, Midland, MI. New York, Pacific Paris, Tokyo, Toronto and Zurich.
korkho(der financialReports DividendReinvestment1%n andDow's annual repon, quanerly earnings newsletter to stockhold- Din ciDeposit ofDiridendsers and annual report on Fonn 10-K filed with the Securities and Automatic reinvestment and direct deposit of dividends areExchange Commission will be provided without charge to those available to all Dow stockholders. For more information, call or
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requesting them in writing or by telephone. Please contact: write to:
[ Boston EquiServe Limited Partnership Boston EquiServe Limited PartnershipP.O. Box 9155 P.O. Box 9155Bo; ton, MA 02205-9155 Boston, MA 02205-9155Telephone: 800-DOW-5606 (800-369-5606) in the U.S. Telephone: 800-DOW-5606 (800 569-5606)in the U.S.or 617-575-3899. For the hearing impaired: 800-368-0328 or 617-575-3899. For the hearing impaired:800-368-0328(available only on TDD phones) (available only on TDD phones)
Cassette Tapes Available Internet AddressAudio cassette tapes of the 1995 Annual Report can be obtained Additionalinformation about Dow can be found on the Worldfor the blind by writing or calling: Wide Web at: www.dow.com.
Investor Relations
The Dow Chemical Company2030 Dow CenterMidland, MI, U.S.A. 48674 7hefoHowing trademarks of 7he Dow CAemicalCompany appearin ab report:
Telef> hone: 517-636-1463 or 800-422-8193 in the U.S-Amnity, Aim, Cabe, N tene, Dnakane, Dowledwthenn, Dowfax,Drytech, Engage, Ethocel, CAS/ SPEC, insite, Isoplant, Magnum, Methocel,Pulse, Saran % rap, Styrofoam, Styron, Trymer, Versene and Voranol.
Thefonowing trademarks of% Bmnds or an intemationalafiliate appearin tAir irport: Fantastik, Class Plus, Scrubbing Bubbles, Smart Cleanser.
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Spray'N Wh and Ziploc.
ThepHowing indemarks ofIkwElana or its affinates appear in db nport:Broadstrike, Dursban, Lorsban Sentricon, Tracer naturalyte.
) ThefoHowing trademark ofEssex Specialty hiucts, Inc. appears in this report:Betaseal
Dow latex was usedin theproduction o(this myclaldepaper: (h
TH E DOW CH E MIC AL CO M P ANY A N D B U B 810 t A Rit s
tac flow CAcmical Company Midland. Michigar 48674;
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