SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1995
Commission file number 1-3433
THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 38-1285128
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 517-636-1000
Not applicable
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the
registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes X No
Outstanding at
Class June 30, 1995
----------------------------- ------------------
Common Stock, $2.50 par value 268,971,121 shares
THE DOW CHEMICAL COMPANY
Table of Contents
Page
Part I - Financial Information
Item 1.Financial Statements
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Commitments and Contingent Liabilities
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
Second Quarter Earnings Announcement
Acquisitions and Divestitures
Changes in Financial Condition
Results of Operations
Second Quarter 1995 vs Second Quarter 1994
First Six Months 1995 vs First Six Months 1994
Part II - Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Dow Chemical Company and Subsidiar
Consolidated Statements of Income
<CAPTION>
Three Months End Six Months Ended
June 30, June 30, June 30, June 30,
In millions, except for share amounts (Unaudited) 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales $5,517 $4,126 $10,722 $7,914
Operating Costs and Expenses Cost of sales 3,571 2,978 6,897 5,713
Insurance and finance company
operations, pretax income (9) (14) (22) (41)
Research and development expenses 193 190 406 386
Promotion and advertising expenses 109 113 226 208
Selling and administrative expenses 437 391 913 759
Amortization of intangibles 9 10 20 20
Total operating costs and expenses 4,310 3,668 8,440 7,045
Operating Income 1,207 458 2,282 869
Other Income (Expense) Equity in earnings of 20%-50%
owned companies (Note B) 15 32 40 58
Interest expense (98) (113) (199) (208)
Interest income and foreign exchange 35 50 73 40
Net loss on investments (Note B) (330) 0 (330) 0
Sundry 3 30 14 33
Total other income (expense) (375) (1) (402) (77)
Income before Provision for Taxes on Income and Minority Interests 832 457 1,880 792
Provision for Taxes on Income 420 174 834 306
Minority Interests' Share in Income 77 76 145 136
Preferred Stock Dividends 1 1 3 3
Income from Continuing Operations $334 $206 $898 $347
Discontinued Operations Income from pharmaceutical business, net
(Note C): of taxes on income 0 44 18 74
Gain on sale of pharmaceutical business,
net of taxes on income 169 0 169 0
Net Income Available for Common Stockholders $503 $250 $1,085 $421
Average Common Shares Outstanding 273.5 275.9 275.2 275.3
Earnings per Common Share from Continuing Operations $1.22 $0.75 $3.26 $1.26
Earnings per Common Share $1.84 $0.91 $3.94 $1.53
Common Stock Dividends Declared per Share $0.75 $0.65 $1.40 $1.30
Depreciation $309 $307 $668 $614
Capital Expenditures (Note D) $575 $271 $778 $523
See Notes to Financial Statements.
Note A: The unaudited interim financial statements reflect all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are considered necessary for a fair presentation of the
results for the periods covered. Certain reclassifications of prior
year amounts have been made to conform to current year presentation.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 1994.
Note B: On May 15, 1995, Dow Corning Corporation announced that it had filed
for protection under Chapter 11 of the United States Bankruptcy Code
with the United States Bankruptcy Court in Bay City, Michigan. The
Company is a 50 percent shareholder in Dow Corning Corporation. The
Company's investment in Dow Corning was $374 million at March 31, 1995.
Dow Corning reported an after tax net loss of $167 million for the
second quarter of 1995, of which the Company's share amounted to $83
million. Dow Corning's second quarter loss was a result of a $221
million after tax charge taken to reflect a change in accounting method
for its contribution to a breast implant global settlement. The change
in the method of accounting from a present value or discounted basis,
to an undiscounted basis, resulted from uncertainties arising from Dow
Corning's filing for protection under Chapter 11.
As a result of Dow Corning's Chapter 11 filing and its 1995 second
quarter loss, the Company has recognized a pretax charge against
income of $330 million, has fully reserved its net investment in
Dow Corning and will not recognize its 50 percent share of future
equity earnings while Dow Corning remains in Chapter 11. The charge
impacted the Company's second quarter of 1995 earnings by $1.24 per
share.
Note C: On June 28, 1995, the Company completed the sale of its approximately
197 million shares of Marion Merrell Dow to Hoechst for about $5.1
billion or $25.75 per share. In addition, subsidiaries of the Company
have completed the sale of the Company's Latin American pharmaceutical
business based in Argentina, Brazil and Mexico to Roussel Uclaf S.A.
for about $133 million. These two transactions, net of taxes on
income of $382 million, increased the Company's second quarter of 1995
earnings by approximately $169 million or 62 cents per share.
The Company's consolidated statements of income and cash flows have
been restated to reflect the pharmaceutical business as a discounted
operation. Net sales attributable to the pharmaceutical business for
the three months ended March 31, 1994, June 30, 1994, and March 31,
1995, were $753, $808 and $757 million, respectively. Taxes on income
from the pharmaceutical business for the three months ended March 31,
1994, June 30, 1994, and March 31, 1995, were $25, $33 and $36 million,
respectively.
Note D: Capital expenditures for the second quarter of 1995 increased $304
million compared to the second quarter of 1994 as a result of the
Company investing $318 million in acquiring assets formerly leased.
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiar
Consolidated Balance Sheets
<CAPTION>
June 30, Dec. 31,
In millions (Unaudited) 1995 1994
<S> <C> <C> <C>
Assets
Current Assets Cash and cash equivalents $4,751 $569
Marketable securities and interest-bearing deposits 522 565
Accounts and notes receivable:
Trade (less allowance for doubtful receivables-
1995, $53; 1994, $104) 3,145 3,359
Other 1,504 1,099
Inventories:
Finished and work in process 2,004 2,079
Materials and supplies 602 633
Deferred income taxes receivable-current 400 389
Total current assets 12,928 8,693
Investments Capital stock at cost plus equity in accumulated
earnings of 20%-50% owned companies 548 931
Other investments 1,448 1,529
Noncurrent receivables 254 330
Total investments 2,250 2,790
Plant Properties Plant properties 23,271 23,210
Less accumulated depreciation 14,884 14,484
Net plant properties 8,387 8,726
Other Assets Goodwill (net of accumulated amortization-
1995, $170; 1994, $676) 678 4,365
Deferred income taxes receivable-noncurrent 956 1,132
Deferred charges and other assets 770 839
Total other assets 2,404 6,336
Total Assets $25,969 $26,545
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiar
Consolidated Balance Sheets
<CAPTION>
June 30, Dec. 31,
In millions (Unaudited) 1995 1994
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities Notes payable $848 $741
Long-term debt due within one year 593 534
Accounts payable:
Trade 1,470 1,928
Other 827 634
Income taxes payable 1,125 664
Deferred income taxes payable-current 94 56
Dividends payable 206 202
Accrued and other current liabilities 1,652 1,859
Total current liabilities 6,815 6,618
Long-Term Debt 5,184 5,303
Deferred Taxes and Deferred income taxes payable-noncurrent 697 644
Other Liabilities Pension and other postretirement benefits-noncurrent 1,938 1,987
Other noncurrent obligations 1,109 1,253
Total deferred taxes and other liabilities 3,744 3,884
Minority Interest in Subsidiary Companies 1,852 2,506
Temporary Equity Temporary equity-other 309 0
ESOP held preferred stock at redemption value 132 133
Guaranteed ESOP obligation (111) (111)
Total temporary equity 330 22
Stockholders' Equity Common stock 818 818
Additional paid-in capital 289 326
Retained earnings 9,559 8,857
Unrealized gains (losses) on investments 46 (21)
Cumulative translation adjustments (348) (330)
Treasury stock, at cost (2,320) (1,438)
Net stockholders' equity 8,044 8,212
Total liabilities and stockholders' equity $25,969 $26,545
See Notes to Financial Statements.
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiary
Consolidated Statements of Cash Flows
<CAPTION>
Six Months Ended
In millions (Unaudited) June 30, 1995 June 30, 199
<S> <C> <C> <C>
Operating Activities Income from continuing operations $898 $347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 679 618
Provision (credit) for deferred income tax 60 (14)
Undistributed earnings of 20%-50%
owned companies (14) (55)
Minority interests' share in income 145 134
Net loss on investments 330 0
Net gain on sales of sundry investments (53) 0
Net gain on sales of plant properties (12) (16)
Other 22 (6)
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (765) 30
Inventories (225) (78)
Accounts payable (20) (27)
Other assets and liabilities 227 (34)
Operating activities related to discontinued operat 84 245
Cash provided by operating activities 1,356 1,144
Investing Activities Purchases of plant properties (770) (504)
Proceeds from sales of plant properties 20 21
Investments in unconsolidated affiliates (5) (20)
Proceeds from sale of pharmaceutical business
(net of cash divested) 5,060 0
Purchases of investments (1,644) (782)
Proceeds from sales of investments 1,285 783
Investing activities related to discontinued operat (28) (63)
Cash used in investing activities 3,918 (565)
Financing Activities Changes in short-term notes payable 88 202
Payments on long-term debt (262) (81)
Proceeds from issuance of long-term debt 100 27
Purchases of treasury stock (693) (2)
Proceeds from sales of common stock 72 64
Distributions to minority interests (51) (49)
Dividends paid to stockholders (363) (359)
Financing activities related to discontinued operat 17 44
Cash used by financing activities (1,092) (154)
Effect of Exchange Rate Changes on Cash 0 0
Summary Increase in cash and cash equivalents 4,182 425
Cash and cash equivalents at beginning of year 569 407
Cash and cash equivalents at end of period $4,751 $832
See Notes to Financial Statements.
</TABLE>
COMMITMENTS AND CONTINGENT LIABILITIES
In January 1994, Dow Corning Corporation (Dow Corning), in which
Dow is a 50 percent shareholder, announced a pretax charge of
$640 million ($415 million after tax) for the fourth quarter of
1993. In January 1995, Dow Corning announced a pretax charge of
$241 million ($152 million after tax) for the fourth quarter of
1994. These charges included Dow Corning's best estimate of its
potential liability for breast implant litigation based on the
settlement approved by Judge Sam C. Pointer, Jr. of the U.S.
District Court for the Northern District of Alabama (the Court);
litigation and claims outside of this breast implant settlement;
and provisions for legal, administrative and research costs
related to breast implants. The charges for 1993 and 1994
included pretax amounts of $1,240 million and $441 million,
respectively, less expected insurance recoveries of $600 million
and $200 million, respectively. The 1993 amounts reported by Dow
Corning were determined on a present value basis. On an
undiscounted basis, the estimated liability above for 1993 was
$2,300 million less expected insurance recoveries of $1,200
million.
As a result of the Dow Corning actions, the Company recorded its
50 percent share of the charges, net of tax benefits available to
Dow. The impact on the Company's net income was a charge of $192
million for 1993 and a charge of $70 million for 1994.
Dow Corning reported an after tax net loss of $167 million for
the second quarter of 1995, of which the Company's share amounted
to $83 million. Dow Corning's second quarter loss was a result
of a $221 million after tax charge taken to reflect a change in
accounting method from the present value basis noted above to an
undiscounted basis
resulting from the uncertainties associated with its voluntary
filing for protection under Chapter 11 of the United States
Bankruptcy Code on May 15, 1995. As a result of Dow Corning's
1995 second quarter loss and Chapter 11 filing, the Company has
recognized a pretax charge against income of $330 million, has
fully reserved its investment in Dow Corning and will not
recognize its 50 percent share of future equity earnings while
Dow Corning remains in Chapter 11.
In March 1994, Dow Corning signed a Breast Implant Litigation
Settlement Agreement (the Settlement Agreement) which was
preliminarily approved by the Court in April 1994. The
Settlement Agreement received final approval by the Court on
September 1, 1994. The Company is not a signatory to the
Settlement Agreement and is not required to contribute to the
settlement. In certain circumstances, if any defendant who is a
signatory to the Settlement Agreement considers the number of
plaintiffs who have opted out and maintained lawsuits against
such defendant to be excessive, such defendant may withdraw from
participation in the Settlement Agreement.
Various preliminary estimates of the aggregate number of
plaintiffs who have indicated an intent to opt out of the
settlement (the Opt Out Plaintiffs) have been made public. Dow
Corning has reported that, since July 1, 1994, many former Opt
Out Plaintiffs have rejoined the settlement. The Court is
continuing to collect information relating to the number of Opt
Out Plaintiffs. Dow Corning will continue to evaluate the nature
and scope of the current or potential future claims of these Opt
Out Plaintiffs. Opt Out Plaintiffs were able to rejoin the
settlement until the March 1, 1995 date established by the Court.
The Court has indicated that Opt Out Plaintiffs may be allowed to
rejoin the settlement even after March 1, 1995, on a case-by-case
basis.
The date by which Dow Corning was required to decide whether to
remain as a participant in or to exercise the first of its
options to withdraw from the Settlement Agreement was extended to
September 9, 1994. On September 8, 1994, Dow Corning's Board
of Directors approved Dow Corning's continued participation in
the Settlement Agreement. Initial claims were required to be
filed with the Court by September 16, 1994. After these claims
and the supporting medical records have been evaluated by the
Court for validity, eligibility, accuracy, and consistency, the
Court will determine whether contributions to the settlement are
sufficient to pay validated claims. On May 1, 1995, the Court
stated that its initial review of a sample of the claims
indicated that the total amount of current claims likely to be
approved for payment would substantially exceed the amount of
contributions committed to pay such claims. If contributions are
not sufficient, claimants with validated claims may choose to
become Opt Out Plaintiffs during another specified period. In
that event, if any defendant who is a signatory to the Settlement
Agreement considers the number of new Opt Out Plaintiffs to be
excessive, such defendant may decide to exercise a second option
to withdraw from participation in the Settlement Agreement.
Although it has been reported that settlement discussions are
continuing, there can be no assurance that Dow Corning will not
withdraw from participation in the Settlement Agreement.
COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Company's maximum exposure for breast implant product
liability claims against Dow Corning is limited to its investment
in Dow Corning which, after the second quarter charge noted
above, is zero. As a result, any future charges by Dow Corning
related to such claims or as a result of the Chapter 11
proceeding would not have an adverse impact on the Company's
consolidated financial statements.
The Company is separately named as a defendant in many of the
breast implant claims and lawsuits. It is the opinion of the
Company's management that the possibility is remote that
plaintiffs will prevail on the theory that the Company should be
liable in the breast implant litigation because of its
shareholder relationship with Dow Corning. The Company's
management believes that there is no merit to plaintiffs' claims
that the Company is liable for alleged defects in Dow Corning's
silicone products because of the Company's alleged direct
participation in the development of those products, and the
Company intends to contest those claims vigorously. Management
believes that the possibility is remote that a resolution of
plaintiffs' direct participation claims, including the vigorous
defense against those claims, would have a material adverse
impact on the Company's financial position or cash flows.
Nevertheless, in light of Judge Pointer's April 25 ruling (see
Legal Proceedings), it is possible that a resolution of
plaintiffs' direct participation claims, including the vigorous
defense against those claims, could have a material adverse
impact on the Company's net income for a particular period,
although it is impossible at this time to estimate the range or
amount of any such impact.
Numerous lawsuits have been brought against the Company and other
chemical companies alleging that the manufacture, distribution or
use of pesticides containing dibromochloropropane (DBCP) has
caused, among other things, property damage, including
contamination of groundwater. To date, there have been no
verdicts or judgments against the Company in connection with
these allegations. It is the opinion of the Company's management
that the possibility is remote that the resolution of such
lawsuits will have a material adverse impact on the Company's
consolidated financial statements.
The Company has accrued $223 million at June 30, 1995, for
probable environmental remediation and restoration liabilities,
including $29 million for the remediation of Superfund sites.
This is management's best estimate of these liabilities, although
possible costs for environmental remediation and restoration
could range up to 50 percent higher. It is the opinion of the
Company's management that the possibility is remote that costs in
excess of those accrued or disclosed will have a material adverse
impact on the Company's consolidated financial statements.
In addition to the breast implant, DBCP and environmental
remediation matters, the Company and its subsidiaries are parties
to a number of other claims and lawsuits arising out of the
normal course of business with respect to commercial matters,
including product liabilities, governmental regulation and other
actions. Certain of these actions purport to be class actions
and seek damages in very large amounts. All such claims are
being contested.
Except for the possible effect on the Company's net income for
breast implant litigation described above, it is the opinion of
the Company's management that the possibility is remote that the
aggregate of all claims and lawsuits will have a material adverse
impact on the Company's consolidated financial statements.
On behalf of Destec Energy, Inc. (Destec), a 77 percent owned
subsidiary, the Company has guaranteed the lease payments of a
Destec subsidiary which leases the Lyondell cogeneration facility
near Houston, Texas. The guarantee, which is cancelable upon
proper notice on any anniversary date of the guarantee, amounted
to $150 million at June 30, 1995.
Destec entered into an agreement with the U.S. Department of
Energy, PSI Energy Inc. (PSI), and a third party owner to design,
construct, and operate a 262 megawatt syngas facility which will
repower an existing PSI turbine. Destec will provide coal
gasification services under a 25-year contract. Associated with
the above agreement, Destec assumed a construction performance
obligation of $166 million with project completion scheduled for
third quarter 1995, at which time Destec will lease the plant.
The lease commitments are included in Note H to the Financial
Statements of the Company's Form 10-K for the year ended December
31, 1994.
Destec contracted to design, engineer, build and operate a
cogeneration facility in central Florida for a partnership in
which Destec owns approximately 50 percent. Commercial
operations commenced in January 1995 as planned. Destec has
guaranteed $33 million to fund its equity contribution.
COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Destec contracted to design, engineer and build a 424 megawatt
cogeneration facility in Freeport, Texas and is a 50 percent
partner in Oyster Creek Limited which owns the facility. Destec
has guaranteed $36 million to fund its equity contribution. The
Company has agreed to purchase steam and power from the facility
and estimates that its minimum annual obligation to outside
parties is $20 million, increasing 3 percent annually through
2014.
Eli Lilly and Company (Lilly) is a 40 percent partner with the
Company in DowElanco, a global agricultural products joint
venture. Lilly holds a put option requiring the Company to
purchase Lilly's interest in DowElanco at fair market value.
Lilly notified the Company in September 1994 that it did not plan
to exercise the put option at that time. No subsequent
notification has been received.
A Canadian subsidiary has entered into two 20-year agreements to
purchase 89 percent of the output of an ethylene plant (Plant No.
1) and 40 percent of the output of a second ethylene plant (Plant
No. 2). The purchase price of the output is determined on a cost-
of-service basis which, in addition to covering all operating
expenses and debt service costs, provides the owner of the plants
with a specified return on capital. Total purchases under the
agreements were $252 million, $237 million and $236 million in
1994, 1993 and 1992, respectively. The contracts related to
Plants No. 1 and No. 2 expire in 1998 and 2004, respectively.
DCS Capital Corporation (the Corporation) is 100 percent owned by
DCS Capital Partnership. The Corporation was organized to assist
DCS Capital Partnership in raising funds to finance construction
of an ethylene plant. DCS Capital Partnership is owned by Shell
Canada, Union Carbide and Dow through its 100 percent owned
subsidiary, Dofinco, Inc. As part of the ownership agreement,
Dofinco indirectly guarantees approximately 52 percent of the
debt of the Corporation. Dofinco's indirect guarantee amounted to
$64 million at June 30, 1995.
At December 31, 1994, the Company had various outstanding
commitments for take or pay and throughput agreements, including
the Canadian subsidiary's take or pay ethylene contract, for
terms extending from one to 20 years. In general, such
commitments were at prices not in excess of current market
prices. The table below shows the fixed and determinable portion
of the take or pay and throughput obligations:
Fixed and Determinable Portion of Obligations (in millions)
1995 $200
1996 168
1997 155
1998 142
1999 73
2000 through expiration of contracts 197
Total $935
In addition to the take or pay and throughput obligations, the
Company had other outstanding commitments at December 31, 1994,
including ship charters, purchase commitments for materials and
property, and other purchases used in the normal course of
business. Total purchase obligations under the agreements were
$244 million. In general, such commitments were at prices not in
excess of current market prices.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER EARNINGS ANNOUNCEMENT (July 27, 1995)
Dow Earnings, Excluding Dow Corning Charge and Gain on
Pharmaceutical Sale, Tripled To $2.46
Second Quarter of 1995 Highlights
- Sales were up 34 percent to $5.5 billion.
- Operating income increased by $749 million to $1.2 billion.
- Earnings more than tripled to $2.46 per share, excluding a
Dow Corning related charge of $1.24, and a gain of 62
cents on the divestment of the pharmaceutical business.
Three Months Ended Six Months Ended
June 30 June 30
(In millions, except for share amounts) 1995 1994 1995 1994
Net Sales $5,517 $4126 $10,722 $7,914
Operating Income 1,207 458 2,282 869
Income from Continuing Operations 334** 206 898 347
Net Income * 503 250 1,085 421
Earnings per Common Share from
Continuing Operations 1.22** 0.75 3.26 1.26
Earnings Per Common Share 1.84 0.91 3.94 1.53
*Available for Common Stockholders
**Includes impact of a Dow Corning related pretax charge of $330
million or $1.24 per share.
Note: Results for 1994 and first quarter 1995 have been
restated to show Dow's pharmaceutical business as
a discontinued operation after its sale in second
quarter of 1995.
Review of Quarterly Results
The Dow Chemical Company today announced sales of $5.5 billion in
the second quarter of 1995, up 34 percent versus the same period
in 1994, reflecting a volume gain of 9 percent and a price
increase of 23 percent. Operating income was $1.2 billion,
almost tripling from $458 million in the second quarter of 1994.
Results from second quarter 1994 have been restated to reflect
the sale of Dow's pharmaceutical business in 1995.
Income from continuing operations, it is important to note,
excludes the gain on the sale of the pharmaceutical business, as
well as earnings from that business in prior periods. Income
from continuing operations of $672 million was reduced to $334
million as a result of a pretax charge of $330 million related to
Dow Corning's filing for protection under Chapter 11 of the
United States Bankruptcy Code. Dow, a 50 percent shareholder in
Dow Corning, has fully reserved its net investment in that
company and will not record any proportional share of future
equity earnings from Dow Corning. Excluding this charge, second
quarter of 1995 earnings from continuing operations more than
tripled to $2.46 per share, compared to 75 cents per share for
the same period last year.
Net income available to common shareholders was $503 million, or
$1.84 per share. This included an after tax gain on the sale of
Dow's pharmaceutical business of 62 cents per share, as well as
the Dow Corning charge of $1.24 per share.
Chemicals and Performance Products had strong second quarter
sales of $1.5 billion, up 47 percent versus a year ago.
Operating income was $425 million, an increase of 338 percent
from the second quarter of 1994. Improved prices for chlor-
alkali products contributed to these strong results. Performance
Products set a quarterly record for sales and profitability.
SECOND QUARTER EARNINGS ANNOUNCEMENT (July 27, 1995) (Continued)
Plastics had sales of $2.4 billion in the second quarter of 1995,
up 37 percent compared to the same period in 1994. Operating
income increased by 188 percent to $712 million. An improved
pricing environment versus the second quarter of last year
contributed to the strong performance of the plastics segment.
Thermoplastics, Thermosets and Fabricated Products each posted
record sales and profits for the quarter.
Hydrocarbons and Energy experienced a 37 percent sales increase
to $697 million with an operating loss of $21 million versus a
gain of $27 million in the same period in 1994. The decline in
operating income was due in large part to the expiration of two
major power contracts for Destec Energy Inc.
Consumer Specialties had $816 million in sales, an increase of 8
percent versus the same period a year ago. The 1994 results have
been restated to reflect the sale of Dow's pharmaceutical
business. Operating income increased to $152 million from $144
million in the second quarter of 1994, reflecting continued
strength in Agricultural Products, as well as restructuring
efforts in Consumer Products.
"We are very pleased with our second quarter results. Our
businesses are strong. We experienced a significant turnaround
in sales and profits in Europe, while the United States showed
excellent performance in the quarter," said Enrique C. Falla, Dow
executive vice president.
"As we approach the second half of 1995, we are anticipating
continued improvements over last year. While there is softening
in some markets, reflecting inventory adjustments, Dow will
continue to enjoy strong results for the year as we remain
focused on our strategy for value growth and our commitment to
cost reduction."
ACQUISITIONS AND DIVESTITURES
On April 6, 1995, the Company announced that it signed an
agreement with Bundesanstalt fuer vereinigungsbedingte
Sonderaufgaben (BvS) for the privatization of three state-owned
chemical companies in eastern Germany. The agreement completes
negotiations between the two parties for the privatization of
Buna GmbH in Schkopau. Buna GmbH operates electrochemical units
and derivative operations and wholly owns Saechsische Olefinwerke
GmbH, which operates a steam cracker in Boehlen, and LEUNA-
Polyolefine GmbH, which has polyolefin operations in Leuna.
The agreement is subject to approval of the German Finance
Ministry and the European Commission. Economic transfer of
business operations to the Company occurred June 1, 1995, with
legal closing anticipated by
December 31, 1995.
Saechsische Olefinwerke GmbH and LEUNA-Polyolefine GmbH have been
merged into Buna GmbH which will be renamed BSL Olefinwerke GmbH
(BSL). On closing, the Company will take an 80 percent stake in
BSL for a cost of approximately $200 million. BvS will maintain
a 20 percent stake in the operations during a Restructuring
Period of five years. After the Restructuring Period, the
Company will have a call option and the BvS a put option for the
remaining 20 percent of BSL for a cost of approximately $167
million. BvS will provide certain incentives to BSL during the
Restructuring Period to cover portions of reconstruction capital,
cash flow shortfalls and certain long-term structural
disadvantages.
The Company intends to build several new facilities at these
sites including a Dowlex linear low density
polyethylene plant and polypropylene, aniline and acrylic acid
plants, and to upgrade the chlorine plant at Schkopau and the
steam cracker at Boehlen. A 16-inch multi-feedstock liquid
pipeline will be constructed from the port of Rostock to the
Boehlen site, as will harbor facilities, terminals and pump
stations. As part of the restructuring of the three sites,
several facilities will be closed and demolished. The investment
plan for the sites is approximately $2.7 billion.
On June 28, 1995, the Company completed the sale of its
approximately 197 million shares of Marion Merrell Dow to Hoechst
for about $5.1 billion or $25.75 per share. In addition,
subsidiaries of the Company have completed the sale of the
Company's Latin American pharmaceutical business based in
Argentina, Brazil and Mexico to Roussel Uclaf S.A. for about $133
million. These two transactions, net of taxes on income of $382
million, increased the Company's second quarter of 1995 earnings
by approximately $169 million or 62 cents per share.
CHANGES IN FINANCIAL CONDITION
The following table represents current assets, current
liabilities and debt at June 30, 1995 versus
December 31, 1994. The Company's pharmaceutical business was
sold on June 28, 1995. The Company's consolidated balance sheet
at December 31, 1994 has not been restated for the disposal of
this business.
June 30, Dec. 31, Increase
In millions 1995 1994 (Decrease)
Cash and cash equivalents $4,751 $569 $4,182
Marketable securities and
interest-bearing deposits 522 565 (43)
Accounts and notes receivable - net 4,649 4,458 191
Inventories:
Finished and work in process 2,004 2,079 (75)
Materials and supplies 602 633 (31)
Deferred income taxes 400 389 11
Total current assets 12,928 8,693 4,235
Total current liabilities 6,815 6,618 197
Working capital 6,113 2,075 4,038
Notes payable 848 741 107
Long-term debt due within one year 593 534 59
Long-term debt 5,184 5,303 (119)
Total debt $6,625 $6,578 47
During the first six months of 1995, cash and cash equivalents
increased by $4.2 billion, primarily as a result of the proceeds
received from the sale of the Company's pharmaceutical business
on June 28. Total debt of $6.6 billion increased 1 percent
compared to December 31, 1994, while net debt, which equals total
debt less cash, cash equivalents, marketable securities and
interest-bearing deposits, decreased from $5.4 billion to $1.4
billion at
June 30, 1995. Long-term debt decreased by $119 million to $5.2
billion.
The Consolidated Statements of Cash Flows have been restated to
reflect the pharmaceutical business as a discontinued operation.
Operating activities provided $1.4 billion in cash during the
first six months of 1995, up $212 million from the corresponding
period a year ago. Increased income from continuing operations,
particularly when excluding a Dow Corning related noncash pretax
charge of $330 million, was largely offset by additional working
capital requirements. Accounts receivable increased primarily
due to the Company's increased sales versus a year ago. As a
result of the net cash proceeds from the sale of the
pharmaceutical business, cash provided by investing activities
was $3.9 billion this year versus cash used in investing
activities of $565 million in the first six months of 1994.
Purchases of plant properties of $770 million increased $266
million from the corresponding 1994 period, as a result of the
Company investing $318 million in acquiring assets formerly
leased. Cash used in financing activities was $1.1 billion
versus $154 million in the first six months of 1994. This
increase in the use of cash was largely due to increased
purchases of treasury stock.
The Company is contemplating several alternatives for the cash
proceeds realized from the sale of the pharmaceutical business
including stock repurchase and debt reduction. On July 13, 1995,
the Company announced that it will purchase 25 million shares of
its own stock, which will be bought over a period of time on the
open market or in private transactions. The Company has
purchased 9.7 million shares during the first half of 1995 under
a previously authorized program. At June 30, 1995, the Company
had 269 million shares outstanding. The Company is also
utilizing options as part of its overall stock repurchase
program. The Company's potential repurchase obligation related
to these options has been reclassified from stockholders' equity
to temporary equity and amounted to $309 million at June 30,
1995.
In May, the Board of Directors announced a quarterly dividend of
75 cents per share, which was paid on July 28, 1995 to
stockholders of record June 30, 1995. This dividend reflects a
quarterly increase of 10 cents per share.
At June 30, 1995, the Company had unused and available credit
facilities with various United States and foreign banks totaling
$2.0 billion in support of commercial paper borrowings and
working capital requirements. These arrangements are
supplemented by a variety of other credit facilities available
for use by foreign subsidiaries.
June 30, Dec. 31,
Balance Sheet Ratios 1995 1994
Current assets over current liabilities 1.9:1 1.3:1
Days-sales-outstanding-in-receivables 52 54
Days-sales-in-inventory 80 80
Debt as a percentage of total capitalization 39.3 38.0
RESULTS OF OPERATIONS
As a result of the sale of the Company's pharmaceutical business,
the amounts reported for prior periods have been restated to
reflect the pharmaceutical business as discontinued operations.
Second Quarter 1995 vs Second Quarter 1994
The following table represents geographic sales and operating
income for the three months ended June 30, 1995 and 1994. Price
and volume changes are presented for sales.
Three Months Ended Percentage
June 30, June 30, 1995 vs 1994 Change * due to
In millions 1995 1994 Dollars % Price Volume
Geographic sales
United States $2,443 $2,012 $431 21% 17% 4%
Europe 1,814 1,194 620 52% 30% 17%
Rest of world 1,260 920 340 37% 25% 10%
Total $5,517 $4,126 $1,391 34% 23% 9%
Geographic operating income
United States $475 $272 $203 75%
Europe 365 71 294 414%
Rest of world 367 115 252 219%
Total $1,207 $458 $749 164%
The following table represents industry segment sales and operating income
for the three months ended June 30, 1995 and 1994. Price and volume changes
are presented for sales.
Three Months Ended Percentage
June 30, June 30, 1995 vs 1994 Change * due to
In millions 1995 1994 Dollars % Price Volume
Industry segment sales
Chemicals &
Performance Products $1,536 $1,048 $488 47% 30% 13%
Plastic Products 2,440 1,787 653 37% 29% 6%
Hydrocarbons & Energy 697 507 190 37% 14% 21%
Consumer Specialties 816 754 62 8% 5% 3%
Unallocated 28 30 (2) (7) nm nm
Total $5,517 $4,126 $1,391 34% 23% 9%
Industry segment operating income
Chemicals &
Performance Products $425 $97 $328 338%
Plastic Products 712 247 465 188 %
Hydrocarbons & Energy (21) 27 (48) (178)%
Consumer Specialties 152 144 8 6%
Unallocated (61) (57) (4) nm
Total $1,207 $458 $749 164%
* not intended to add
nm - not meaningful
Second Quarter 1995 vs Second Quarter 1994 (Continued)
The following are selected data for the three months ended June 30, 1995
and 1994.
Three Months Ended
Dollars in millions, June 30, June 30, 1995 vs 1994
except for share amounts 1995 1994 Dollars %
Cost of sales $3,571 $2,978 $593 20%
% of sales 65% 72% (7) points
Research and development,
promotion and advertising, selling
and administrative expenses 739 694 45 6%
Operating income 1,207 458 749 164%
% of sales 22% 11% 11 points
Equity in earnings of
20%-50% owned companies 15 32 (17) (53)%
Effective tax rate
from continuing operations 50.5% 38.1% 12.4 points
Income from continuing operations 334 206 128 62%
Net income available
for common stockholders 503 250 253 101%
Earnings per common share
from continuing operations $1.22 $0.75 $0.47 63%
Earnings per common share $1.84 $0.91 $0.93 102%
Operating Rate Percentage 94% 91% 3 points
Company Summary
Sales for the second quarter of 1995 were $5.5 billion, up 34
percent from $4.1 billion in the same period last year. The
result was due to increases of 23 percent in selling prices and 9
percent in volume. Generally, the U.S. dollar weakened versus
foreign currencies compared to the second quarter of 1994. This
resulted in a favorable impact on sales of approximately $120
million or 3 percentage points of the increase in selling prices.
Sales in the United States of $2.4 billion were higher by $431
million or 21 percent when compared to the same period a year ago
resulting primarily from a 17 percent increase in selling prices.
Sales in Europe of $1.8 billion increased 52 percent versus the
second quarter of 1994 as selling prices increased 30 percent and
volume increased 17 percent. Sales in the rest of the world were
up 37 percent to $1.3 billion as selling prices increased 25
percent and volume increased 10 percent.
Operating income of $1.2 billion was up 164 percent for the
quarter versus $458 million in the second quarter of 1994.
Operating income in the United States increased 75 percent to
$475 million. Non-U.S. operating income showed dramatic
improvement. In Europe, operating income increased to $365
million from $71 million in the second quarter last year, up 414
percent. Operating income in the rest of the world was up 219
percent to $367 million from $115 million in the same period a
year ago. These results reflected the impact of higher selling
prices and stronger volume in all geographic areas. The impact
of the weaker dollar on operating income versus the second
quarter of 1994 was not significant.
Chemicals and Performance Products
Sales of Chemicals and Performance Products were $1.5 billion, an
increase of 47 percent compared to the corresponding period a
year ago, as selling prices were up 30 percent and volume
increased 13 percent. Operating income of $425 million increased
338 percent versus $97 million in the second quarter of 1994.
Chemicals and Metals sales of $997 million were up 61 percent
versus the same period a year ago. Selling prices increased 43
Second Quarter 1995 vs Second Quarter 1994 (Continued)
percent with increases strong across all geographic areas.
Selling prices for caustic soda improved substantially
versus last year's low levels. Selling prices for ethylene
glycol, propylene glycol and vinyl chloride monomer also showed
significant improvement. Volume was up 10 percent globally, with
increases of over 20 percent in Europe, the Pacific area and
Latin America. Price increases and volume gains generated more
than an eight-fold increase in operating income for Chemicals and
Metals. Sales of Performance Products were up 26 percent versus
the second quarter of 1994. Volume increased 14 percent and
selling prices 10 percent compared to the corresponding period a
year ago. Volume increased in all geographic areas with Latin
America and Europe achieving the largest gains. The selling
price increase of 21 percent in Europe was the largest among the
geographic areas. Operating income increased 51 percent as a
result of strong contributions from numerous businesses in
Performance Products, including latex and methocel. Start-up of
a new plant in Indonesia and a joint venture plant in Saudi
Arabia added needed latex capacity.
Plastic Products
Sales of Plastic Products were $2.4 billion, an increase of 37
percent compared to the second quarter of 1994. Selling prices
were up 29 percent and volume increased 6 percent versus the
corresponding period a year ago. Operating income for this
segment improved 188 percent to $712 million from $247 million in
the second quarter of 1994, primarily as the result of price
increases. Thermoplastics sales were $1.3 billion, up 53 percent
from a year ago. Selling prices were up 47 percent with all
geographic areas contributing to the increase. Price increases
were the largest in Europe and Latin America versus last year's
difficult pricing environment. Volume was up 4 percent with the
Pacific area and Europe showing the most strength. Polyethylene
prices were up substantially from the second quarter of 1994 but
flat with the first quarter of 1995 with some modest softening in
North America at the end of the quarter. European polyolefin
prices continued to rise during the quarter. Restrictions on
trade with China have had a negative impact on the thermoplastics
industry, particularly on polystyrene and some engineering
thermoplastics. Operating income for Thermoplastics was up six-
fold versus the second quarter of 1994. Sales of Thermosets were
$836 million, up 24 percent from the corresponding 1994 period as
volume increased 13 percent. While demand for polyols and TDI
declined in North America because of slowdowns in automobile
production and housing, global demand for these products outside
North America continued very strong. Sales of Fabricated
Products were $262 million, an increase of 12 percent compared to
the $233 million recorded in the second quarter of 1994. Higher
selling prices accounted for all of the sales increase. The
anticipated slowdown in North American residential construction
was mitigated by strong performance in the commercial sector.
European results improved as a result of an excellent
construction sector, particularly in Germany. Operating income
for Fabricated Products increased 30 percent versus the second
quarter of 1994.
Hydrocarbons and Energy
Sales in the Hydrocarbons and Energy segment were $697 million,
an increase of 37 percent compared to the second quarter of 1994.
Volume was up 21 percent and selling prices increased 14 percent
versus the same period a year ago. An operating loss of $21
million was reported for this segment in the second quarter of
1995 compared to operating income of $27 million for the
corresponding period a year ago. The lower results are primarily
due to a decline in Destec's earnings as discussed below.
Purchased hydrocarbon and energy costs were up more than 15
percent, as higher styrene costs in the Pacific area and higher
crude oil and condensate costs in Europe outweighed declines in
fuel gas and power in the United States. European feedstock
prices have been trending down in recent months and the year-over-
year increase is expected to moderate. Ethylene in North America
has reached a more balanced situation as a result of new capacity
and some inventory destocking by derivative purchasers.
Destec Energy Inc. reported higher second quarter sales but
substantially lower net income compared to the second quarter of
1994. Destec's second quarter 1995 results were impacted by the
expiration of two major Texas power purchase contracts during
1994. Destec's remaining Texas power purchase contract expired
on April 30, 1995. Destec is attempting to negotiate new
contracts to sell the available capacity from the CoGen Lyondell
facility and from Dow's Freeport facility to industrials,
utilities, municipalities and cooperatives. However, no
assurances can be made that new contracts can be obtained or that
the revenues generated from any new contracts will replace the
revenue and gross margin generated by the recently expired
contracts. Destec's net income for the second quarter of 1994
was favorably impacted by agreements on two of their development
projects.
Manufacturing Costs
Dow's global plant operating rate for its Chemicals and Plastics
businesses was 94 percent, up from 91 percent in the second
quarter of 1994. Manufacturing costs for these businesses,
adjusted for volume, were up 6 percent compared to the same
period a year ago, primarily due to higher purchased costs for
Hydrocarbons and Energy and a weaker U.S. dollar which increased
costs outside the United States.
Second Quarter 1995 vs Second Quarter 1994 (Continued)
Consumer Specialties
Sales for Consumer Specialties were $816 million, up 8 percent
versus the same period last year. Selling prices increased 5
percent while volume was up 3 percent. Operating income was $152
million, an increase of 6 percent from $144 million in the second
quarter of 1994 with both Agricultural Products and Consumer
Products contributing to the improvement.
Agricultural Products sales of $591 million were up 11 percent
from the second quarter of 1994. Selling prices increased 6
percent and volume was up 5 percent for the quarter. Volume
growth was strongest in Europe and the Pacific area, up nearly 15
percent. Latin American volume was down slightly due to some
softening in Brazilian markets. Volume increased across a broad
spectrum of product lines, from newer products such as
Broadstrike and Sentricon, to core products like Dursban and
Lorsban. Operating income for the second quarter of 1995
increased 4 percent from last year's high levels, moderated in
part by higher planned expenses for selling, and research and
development in support of DowElanco's new products.
Consumer Products sales were $225 million, up 5 percent from the
second quarter of 1994. Volume and selling prices each increased
about 2 percent compared to a year earlier. The North American
Home Food Management group led by Ziploc storage bags remains the
strongest business for Consumer Products. During the past twelve
months, DowBrands has improved its leading position in this
market despite the introduction of competitive products.
Consumer Products' operating income improved in the second
quarter of 1995 compared to the same quarter last year despite
increased employee severance costs related to cost reduction
efforts.
Unallocated
In the second quarter of 1995, a loss of $61 million was reported
for this segment compared to a loss of $57 million in the second
quarter of 1994. The losses in both years are due primarily to
expenses in the Ventures businesses and employee severance costs
related to the Company's continued focus on cost reduction.
Other Income (Expense)
On May 15, 1995, Dow Corning Corporation announced that it had
filed for protection under Chapter 11 of the United States
Bankruptcy Code with the United States Bankruptcy Court in Bay
City, Michigan. The Company is a 50 percent shareholder in Dow
Corning Corporation. The Company's investment in Dow Corning was
$374 million at March 31, 1995.
Dow Corning reported an after tax net loss of $167 million for
the second quarter of 1995, of which the Company's share amounted
to $83 million. Dow Corning's second quarter loss was a result
of a $221 million after tax charge taken to reflect a change in
accounting method for its contribution to a breast implant global
settlement. The change in the method of accounting from a
present value or discounted basis, to an undiscounted basis,
resulted from uncertainties arising from Dow Corning's filing for
protection under Chapter 11.
As a result of Dow Corning's Chapter 11 filing and its 1995
second quarter loss, the Company has recognized a pretax charge
against income of $330 million, has fully reserved its net
investment in Dow Corning and will not recognize its 50 percent
share of future equity earnings while Dow Corning remains in
Chapter 11. The charge impacted the Company's second quarter of
1995 earnings by $1.24 per share.
Equity in earnings of 20%-50% owned companies decreased $17
million compared to the corresponding period a year ago,
primarily due to reduced equity earnings from Dow Corning.
Net financial expenses, which are the total of interest expense,
interest income and foreign exchange, amounted to $63 million
this quarter, flat with the second quarter of 1994.
Provision for Taxes on Income
The effective tax rate from continuing operations for the second
quarter was 50.5 percent compared to 38.1 percent in the second
quarter of 1994. The increase this quarter was primarily due to
the Company reserving the full amount of its net investment in
Dow Corning Corporation with no related tax benefit. Excluding
the impact of the charge related to Dow Corning , the tax rate
would have been approximately 36 percent.
Second Quarter 1995 vs Second Quarter 1994 (Continued)
Income from Continuing Operations
The second quarter's income from continuing operations of $334
million or $1.22 per share, was reduced by $1.24 per share as a
result of the Company reserving the full amount of its net
investment in Dow Corning Corporation. Excluding this charge,
earnings per share from continuing operations would have been
$2.46 per share. In the second quarter of 1994 income from
continuing operations was $206 million or 75 cents per share.
This increase reflects improved operating results, primarily in
the Company's chemicals and plastics businesses.
Discontinued Operations
On June 28, 1995, the Company completed the sale of its
approximately 197 million shares of Marion Merrell Dow to Hoechst
for about $5.1 billion or $25.75 per share. In addition,
subsidiaries of the Company have completed the sale of the
Company's Latin American pharmaceutical business based in
Argentina, Brazil and Mexico to Roussel Uclaf S.A. for about 133
million. These two transactions, net of taxes on income of $382
million, increased the Company's second quarter of 1995 earnings
by approximately $169 million or 62 cents per share.
Income from the pharmaceutical business in the second quarter of
1994 was $44 million. Net sales attributed to the pharmaceutical
business for the three months ended March 31, 1994, June 30, 1994
and March 31, 1995 were $753, $808 and $757 million,
respectively. Taxes on income from the pharmaceutical business
for the three months ended March 31, 1994, June 30, 1994 and
March 31, 1995 were $25, $33 and $36 million, respectively.
The sale of the pharmaceutical business is not expected to have a
material impact on the Company's future earnings and cash flows
due to the alternatives being contemplated for the net cash
proceeds from the sale. In 1994, Pharmaceuticals accounted for
$3.3 billion of the Company's $20.0 billion sales total.
Net Income Available for Common Stockholders
The second quarter's net income available for common stockholders
was $503 million or $1.84 per share. This compares with net
income for the corresponding period last year of $250 million or
$0.91 per share.
First Six Months 1995 vs First Six Months 1994
The following table represents geographic sales and operating
income for the six months ended June 30, 1995 and 1994. Price
and volume changes are presented for sales.
Six Months Ended Percentage
June 30, June 30, 1995 vs 1994 Change * due to
In millions 1995 1994 Dollars % Price Volume
Geographic sales
United States $4,802 $3,924 $878 22% 16% 5%
Europe 3,487 2,251 1,236 55% 28% 21%
Rest of world 2,433 1,739 694 40% 23% 14%
Total $10,722 $7,914 $2,808 35% 22% 11%
Geographic operating income
United States $876 $549 $327 60%
Europe 705 140 565 404%
Rest of world 701 180 521 289%
Total $2282 $869 $1,413 163%
The following table represents industry segment sales and
operating income for the six months ended June 30, 1995 and 1994.
Price and volume changes are presented for sales.
Six Months Ended Percentage
June 30, June 30, 1995 vs 1994 Change * due to
In millions 1995 1994 Dollars % Price Volume
Industry segment sales
Chemicals &
Performance Products $2,998 $2,056 $942 46% 28% 14%
Plastic Products 4,755 3,403 1,352 40% 28% 9%
Hydrocarbons & Energy 1,285 925 360 39% 14% 22%
Consumer Specialties 1,647 1,464 183 13% 4% 9%
Unallocated 37 66 (29) (44)% nm nm
Total $10,722 $7,914 $2,808 35% 22% 11%
Industry segment operating income
Chemicals &
Performance Products $825 $206 $619 300%
Plastic Products 1,338 408 930 228%
Hydrocarbons & Energy (33) 26 (59)(227)%
Consumer Specialties 295 274 21 8%
Unallocated (143) (45) (98) nm
Total $2,282 $869 $1,413 163%
* not intended to add
nm - not meaningful
First Six Months 1995 vs First Six Months 1994 (Continued)
The following are selected data for the six months ended June 30,
1995 and 1994.
Six Months Ended
Dollars in millions, June 30, June 30, 1995 vs 1994
except for share amounts 1995 1994 Dollars %
Cost of sales $6,897 $5,713 $1,184 21%
% of sales 64% 72% (8) points
Research and development,
promotion and advertising, selling
and administrative expenses 1,545 1,353 192 14%
Operating income 2,282 869 1,413 163%
% of sales 21% 11% 10 points
Equity in earnings of
20%-50% owned companies 40 58 (18) (31)%
Effective tax rate
from continuing operations 44.4% 38.6% 5.8 points
Income from continuing operations 898 347 551 159%
Net income available
for common stockholders 1,085 421 664 158%
Earnings per common share
from continuing operations $3.26 $1.26 $2.00 159%
Earnings per common share $3.94 $1.53 $2.41 158%
Operating Rate Percentage 94% 89% 5 points
Company Summary
Sales for the first six months of 1995 were $10.7 billion, up 35
percent from $7.9 billion in the same period last year. The
result was due to increases of 22 percent in selling prices and
11 percent in volume. Generally, the U.S. dollar weakened versus
foreign currencies compared to the first half of 1994. This
resulted in a favorable impact on sales of approximately $200
million or 3 percentage points of the increase in selling prices.
Sales in the United States of $4.8 billion were higher by $878
million or 22 percent when compared to the same period a year ago
as selling prices increased 16 percent and volume was up 5
percent. Sales in Europe of $3.5 billion increased 55 percent
versus the second quarter of 1994 as volume increased 21 percent
and selling prices increased 28 percent. Sales in the rest of
the world were up 40 percent to $2.4 billion as selling prices
increased 23 percent and volume increased 14 percent.
Operating income of $2.3 billion was up 163 percent for the first
six months of 1995 versus $869 million in the first six months of
1994. Operating income in the United States increased 60
percent to $876 million. In Europe, operating income increased
to $705 million from $140 million in the second quarter last
year, up 404 percent. Operating income in the rest of the world
was up 289 percent to $701 million from $180 million in the same
period a year ago. These results reflected the impact of higher
selling prices and stronger volume in all geographic areas. The
impact of the weaker dollar on operating income versus the first
six months of 1994 was not significant.
Chemicals and Performance Products
Sales of Chemicals and Performance Products were $3.0 billion, an
increase of 46 percent compared to the corresponding period a
year ago, as selling prices were up 28 percent and volume
increased 14 percent. Operating income of $825 million increased
300 percent versus $206 million in the first six months of 1994.
Chemicals and
First Six Months 1995 vs First Six Months 1994 (Continued)
Metals sales of $1.9 billion were up 61 percent versus the same
period a year ago. Selling prices increased 41
percent with increases strong across all geographic areas. The
improvement in selling prices coupled with a 14 percent increase
in volume resulted in a seven-fold increase in operating income
compared to the first half of 1994. Selling prices for caustic
soda improved substantially versus last year. Sales of
Performance Products were up 24 percent versus the first six
months of 1994. Volume increased 15 percent and selling prices 8
percent compared to the corresponding period a year ago. Volume
increased in all geographic areas with Latin America and Pacific
achieving the largest gains. The selling price increase of 17
percent in Europe was the largest among the geographic areas.
Operating income increased 47 percent as a result of strong
contributions from various businesses in Performance Products
during the first half of 1995.
Plastic Products
Sales of Plastic Products were $4.8 billion, an increase of 40
percent compared to the first six months of 1994. Selling prices
were up 28 percent and volume increased 9 percent versus the
corresponding period a year ago. Operating income for this
segment improved 228 percent to $1.3 billion from $408 million in
the first six months of 1994, primarily as the result of price
and volume increases. Thermoplastics sales were $2.7 billion, up
57 percent from a year ago. Selling prices were up 47 percent
with all geographic areas contributing to the increase. Price
increases were the largest in Latin America and Europe. Volume
was up 7 percent with Europe and the Pacific area showing the
most strength. Polyethylene, polystyrene and engineering
thermoplastics all showed substantial increases in profitability
resulting in nearly an eight-fold increase in operating income
for Thermoplastics versus the first six months of 1994. Sales of
Thermosets were $1.6 billion, up 25 percent from the
corresponding 1994 period as volume increased 14 percent and
selling prices were up 10 percent. Operating income for
Thermosets increased 34 percent over last year. Sales of
Fabricated Products were $483 million, an increase of 14 percent
compared to the $425 million recorded in the first six months of
1994 as selling prices increased 10 percent and volume was up 4
percent. Operating income for Fabricated Products increased 35
percent over the first half of 1994.
Hydrocarbons and Energy
Sales in the Hydrocarbons and Energy segment were $1.3 billion,
an increase of 39 percent compared to the first six months of
1994. Volume was up 22 percent and selling prices increased 14
percent versus the same period a year ago. An operating loss of
$33 million was reported for this segment in the first six months
of 1995 compared to operating income of $26 million for the
corresponding period a year ago. The lower results are primarily
due to a decline in Destec's earnings as discussed below.
Purchased hydrocarbon and energy costs were up more than 14
percent versus the first half of 1994.
Destec Energy Inc. reported higher first half sales but
substantially lower net income compared to the first half of
1994. Destec's first half 1995 results were impacted by the
expiration of two major Texas power purchase contracts during
1994. Destec's remaining Texas power purchase contract expired
on April 30, 1995.
Manufacturing Costs
Dow's global plant operating rate for its Chemicals and Plastics
businesses was 94 percent, up from 89 percent in the first half
of 1994. Manufacturing costs for these businesses, adjusted for
volume, were up 6 percent compared to the same period a year ago,
primarily due to higher feedstock costs, new capacity and the
impact of a weaker U.S. dollar.
Consumer Specialties
Sales for Consumer Specialties were $1.6 billion, up 13 percent
versus the same period last year. Volume increased 9 percent
while selling prices were up 4 percent compared to the first half
of 1994. Operating income was $295 million, an increase of 8
percent from $274 million in the first six months of 1994.
Agricultural Products sales of $1.2 billion were up 16 percent
from the first six months of 1994. Volume increased 11 percent
and selling prices were up 5 percent for the for the first half
of 1995. Volume was up in all geographic areas with the largest
increase in Europe. Improved performance across many product
lines resulted in operating income increasing 17 percent for
Agricultural Products versus a year ago.
First Six Months 1995 vs First Six Months 1994 (Continued)
Consumer Products sales were $421 million, up 2 percent from the
first half of 1994. Volume increased 3 percent while selling
prices declined 1 percent compared to a year earlier. Operating
income for the first half of 1995 declined from the first half of
1994 due largely to increased employee severance costs related to
cost reduction efforts as well as transition costs related to the
new liquids filling plant in Ohio and the shutdown of older
facilities.
Unallocated
In the first half of 1995, a loss of $143 million was reported
for this segment compared to a loss of $45 million in the same
period a year ago. The larger loss in 1995 is due primarily to
increased employee severance costs and lower earnings from the
consolidated insurance and finance subsidiaries versus the first
half of 1994.
Other Income (Expense)
On May 15, 1995, Dow Corning Corporation announced that it had
filed for protection under Chapter 11 of the United States
Bankruptcy Code with the United States Bankruptcy Court in Bay
City, Michigan. The Company is a 50 percent shareholder in Dow
Corning Corporation. The Company's investment in Dow Corning was
$374 million at March 31, 1995.
Dow Corning reported an after tax net loss of $117 million for
the first half of 1995, including an after tax net loss of $167
million for the second quarter. Dow Corning's 1995 first half
results were impacted by a $221 million after tax charge taken to
reflect a change in accounting method for its contribution to a
breast implant global settlement. The change in the method of
accounting from a present value or discounted basis, to an
undiscounted basis, resulted from uncertainties arising from Dow
Corning's filing for protection under Chapter 11.
As a result of Dow Corning's Chapter 11 filing and its 1995
second quarter loss, the Company has recognized a pretax charge
against income of $330 million, has fully reserved its net
investment in Dow Corning and will not recognize its 50 percent
share of future equity earnings while Dow Corning remains in
Chapter 11. The charge impacted the Company's second half of
1995 earnings by $1.24 per share.
Equity in earnings of 20%-50% owned companies decreased $18
million compared to the first six months of 1994, primarily due
to reduced equity earnings from Dow Corning.
Net financial expenses, which are the total of interest expense,
interest income and foreign exchange, amounted to $126 million in
the first six months of 1995 compared to $168 million a year ago.
Net financial expenses in the first half of 1994 were adversely
impacted by losses incurred by trading and hedging activities
which did not anticipate the increase in long-term European
interest rates.
Provision for Taxes on Income
The effective tax rate from continuing operations for the first
six months was 44.4 percent compared to 38.6 percent in the first
six months of 1994. The increase this year was due largely to
the Company reserving the full amount of its investment in Dow
Corning Corporation with no related tax benefit. Excluding the
impact of the charge related to Dow Corning, the tax rate would
have been approximately 37 percent.
Income from Continuing Operations
Income from continuing operations for the first half of 1995 of
$898 million or $3.26 per share, was reduced by $1.24 per share
as a result of the Company reserving the full amount of its net
investment in Dow Corning Corporation. Excluding this charge,
earnings per share from continuing operations would have been
$4.50 per share. In the first half of 1994 income from
continuing operations was $347 million or $1.26 cents per share.
This increase reflects improved operating results, primarily in
the Company's chemicals and plastics businesses.
First Six Months 1995 vs First Six Months 1994 (Continued)
Discontinued Operations
On June 28, 1995, the Company completed the sale of its
approximately 197 million shares of Marion Merrell Dow to Hoechst
for about $5.1 billion or $25.75 per share. In addition,
subsidiaries of the Company have completed the sale of the
Company's Latin American pharmaceutical business based in
Argentina, Brazil and Mexico to Roussel Uclaf S.A. for about $133
million. These two transactions, net of taxes on income of $382
million, increased the Company's first half of 1995 earnings by
approximately $169 million or 62 cents per share.
Income from the pharmaceutical business was $18 million in the
first half of 1995 compared to $74 million in the first half of
1994.
Net Income Available for Common Stockholders
Net income available for common stockholders for the first half
of 1995 was $1.1 billion or $3.94 per share. This compares with
net income for the corresponding period last year of $421 million
or $1.53 per share.
Expectations for the Remainder of 1995
As a result of the Company's geographic diversity (55 percent of
first half sales were outside the United States) and the strength
in the Company's major businesses, its is expected that the
second half of 1995 will reflect improved performance compared to
the second half of 1994. Due to the seasonality of both the
Agricultural Products business and the European area, results for
the second half of 1995 are expected to be down versus the first
half of 1995. It is anticipated that the fourth quarter of 1995
will improve over the third quarter of 1995 as demand improves
subsequent to inventory corrections by derivative purchasers and
chemicals and thermoplastics demand resumes in China. Even with
some softening, global industry supply and demand is reasonably
balanced in most major product areas. The Company continues to
emphasize cost reduction and expects the second half of 1995 and
beyond to benefit from the results of this effort. As a result
of the Dow Corning bankruptcy filing, the Company has reserved
the full amount of its net investment in Dow Corning and will not
recognize its 50 percent share of future equity earnings while
Dow Corning remains in Chapter 11. Any future charges, including
those related to breast implants, that may be recognized by Dow
Corning will not impact the Company's consolidated financial
statements.
General
In early May, the Board of Directors announced a quarterly
dividend of 75 cents per share that was paid July 28, 1995, to
stockholders of record June 30, 1995. This dividend level
reflects a quarterly increase of 10 cents per share. This was
the 334th consecutive quarterly dividend since 1912. Dow has
maintained or increased the dividend throughout that time.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Breast Implant Matters
The Company and Corning Incorporated ("Corning") are each 50
percent shareholders in Dow Corning Corporation ("Dow Corning").
Dow Corning, and in many cases the Company and Corning as well,
have been sued in a number of individual and class actions by
plaintiffs seeking damages, punitive damages and injunctive
relief in connection with injuries purportedly resulting from
alleged defects in silicone breast implants. In addition,
certain shareholders of the Company have filed separate
consolidated class action complaints alleging that the Company,
Dow Corning or some of their respective Directors violated duties
imposed by the federal securities laws regarding disclosure of
alleged defects in silicone breast implants. The Company and one
of its former officers have also been sued in two separate class
action complaints alleging that the defendants violated duties
imposed by the federal securities laws regarding disclosure of
information material to a reasonable investor's assessment of the
magnitude of the Company's exposure to direct liability in
silicone breast implant litigation. In a separate action, a
Corning shareholder has sued certain Dow Corning Directors
(including three current Company Directors and two former Company
Directors) alleging breaches of state law duties relating to the
manufacture and marketing of silicone breast implants and seeking
to recover unquantified money damages derivatively on Corning's
behalf.
Two separate derivative actions have been brought in the federal
court, Southern District of New York, by Company shareholders
purportedly on the Company's behalf. In Kas, et al. v. Butler,
et al., two Company shareholders brought suit in 1992, naming as
defendants all persons who were serving the Company as Directors
on December 31, 1990, certain Dow Corning Directors, Dow Corning,
Corning and certain Dow Corning officers, seeking derivatively on
the Company's behalf unquantified money damages. In Rubinstein,
et al. v. Ludington, et al., four Company shareholders brought
suit in 1992, naming as defendants Dow Corning's Directors
(Messrs. Falla, Popoff and Stavropoulos) who were also Company
Directors and three former Company Directors, also seeking
derivatively on the Company's behalf unquantified money damages.
Plaintiffs in both cases subsequently made demands that the
Company's Board bring suit on behalf of the Company. After the
Board rejected those demands, the plaintiffs refiled their
complaints alleging that the demands were wrongfully rejected.
On May 15, 1995, Dow Corning announced that it had voluntarily
filed for protection under Chapter 11 of the United States
Bankruptcy Code. Under Chapter 11, all claims against Dow
Corning (although not against its co-defendants) are
automatically stayed.
It is impossible to predict the outcome of each of the above
described legal actions. However, it is the opinion of the
Company's management that the possibility that these actions will
have a material adverse impact on the Company's consolidated
financial statements is remote, except as described below.
In September 1993, Dow Corning announced the possibility of a
global settlement concerning the silicone breast implant matter.
In January 1994, Dow Corning announced a pretax charge of $640
million ($415 million after tax) for the fourth quarter of 1993.
In January 1995, Dow Corning announced a pretax charge of $241
million ($152 million after tax) for the fourth quarter of 1994.
These charges included Dow Corning's best estimate of its
potential liability for breast implant litigation based on the
Settlement Agreement (defined below); litigation and claims
outside the Settlement Agreement; and provisions for legal,
administrative and research costs related to breast implants.
The charges for 1993 and 1994 included pretax amounts of $1,240
million and $441 million, respectively, less expected insurance
recoveries of $600 million and $200 million, respectively. The
1993 amounts reported by Dow Corning were determined on a present
value basis. On an undiscounted basis, the estimated liability
above for 1993 was $2,300 million less expected insurance
recoveries of $1,200 million. As a result of the Dow Corning
actions, the Company recorded its 50 percent share of the
charges, net of tax benefits available to the Company. The
impact on the Company's net income was a charge of $192 million
for 1993 and a charge of $70 million for 1994.
Breast Implant Matters (Continued)
Dow Corning reported an after tax net loss of $167 million for
the second quarter of 1995, of which the Company's share amounted
to $83 million. Dow Corning's second quarter loss was a result
of a $221 million after tax charge taken to reflect a change in
accounting method from the present value basis noted above to an
undiscounted basis
resulting from the uncertainties associated with its Chapter 11
filing. As a result of Dow Corning's 1995 second quarter loss
and Chapter 11 filing, the Company has recognized a pretax charge
against income of $330 million, has fully reserved its investment
in Dow Corning and will not recognize its 50 percent share of
future equity earnings while Dow Corning remains in Chapter 11.
On March 23, 1994, Dow Corning, along with other defendants and
representatives of breast implant litigation plaintiffs, signed a
Breast Implant Litigation Settlement Agreement (the "Settlement
Agreement"). The Settlement Agreement was approved by Dow
Corning's Board of Directors on March 28, 1994. Under the
Settlement Agreement, industry participants (the "Funding
Participants") would contribute up to approximately $4.2 billion
over a period of more than thirty years to establish several
special purpose funds. The Company is not a Funding Participant
and is not required to contribute to the settlement. The
Settlement Agreement, if implemented, provides for a claims-based
structured resolution of claims arising out of silicone breast
implants and defines periods during which breast implant
plaintiffs may "opt out" of the class subject to the settlement
by electing not to settle their claims by way of the Settlement
Agreement and instead continuing their individual breast implant
litigation against manufacturers and other defendants, including
the Company. In certain circumstances, if any defendant who is a
Funding Participant considers the number of plaintiffs who have
opted out and maintained lawsuits against such defendant to be
excessive, such defendant may withdraw from participation in the
Settlement Agreement. Pursuant to the Settlement Agreement, any
plaintiff who participates in the settlement releases the Company
from any breast implant related liability.
On April 1, 1994, the U.S. District Court for the Northern
District of Alabama (the "Court") preliminarily approved the
Settlement Agreement. A Court-supervised fairness review process
of the Settlement Agreement was completed on August 22, 1994.
The Settlement Agreement received final approval by the Court on
September 1, 1994. The Court's final approval of the Settlement
Agreement has been appealed to the U.S. Court of Appeals for the
Eleventh Circuit primarily by certain providers of health care
indemnity payments or services and by certain foreign claimants.
That appeal has been stayed by virtue of Dow Corning's Chapter 11
filing.
Various preliminary estimates of the aggregate number of
plaintiffs who have indicated an intent to opt out of the
settlement (the "Opt Out Plaintiffs") have been made public. Dow
Corning has reported that since July 1, 1994, many initial Opt
Out Plaintiffs with claims against Dow Corning have rejoined the
settlement. The Court is continuing to collect information
relating to the number of Opt Out Plaintiffs. Dow Corning will
continue to evaluate the nature and scope of the current or
potential future claims of these Opt Out Plaintiffs. Opt Out
Plaintiffs were able to rejoin the settlement until the March 1,
1995 date established by the Court. The Court has indicated that
Opt Out Plaintiffs may be allowed to rejoin the settlement even
after March 1, 1995, on a case-by- case basis.
The date by which Dow Corning was required to decide whether to
remain as a participant in or to exercise the second of its
options to withdraw from the Settlement Agreement was extended to
September 9, 1994. On September 8, 1994, Dow Corning's Board
of Directors approved Dow Corning's continued participation in
the Settlement Agreement. Initial claims were required to be
filed with the Court by September 16, 1994. After these claims
and the supporting medical records have been evaluated by the
Court for validity, eligibility, accuracy, and consistency, the
Court will determine whether contributions to the settlement are
sufficient to pay validated claims. On May 1, 1995, the Court
stated that its initial review of a sample of the claims
indicated that the total amount of current claims likely to be
approved for payment would substantially exceed the amount of
contributions committed to pay such claims. If contributions are
not sufficient, claimants with validated claims may choose to
become Opt Out Plaintiffs during another specified period. In
that event, if any defendant who is a Funding Participant
considers the number of new Opt Out Plaintiffs to be excessive,
such defendant may decide to exercise a second option to withdraw
from participation in the Settlement Agreement. Although it has
been reported that settlement discussions are continuing, there
can be no assurance that Dow Corning will not withdraw from
participation in the Settlement Agreement.
Breast Implant Matters (Continued)
The Company's maximum exposure for breast implant product
liability claims against Dow Corning is limited to its investment
in Dow Corning which, after the second quarter charge noted
above, is zero. As a result, any future charges by Dow Corning
related to such claims or as a result of the Chapter 11
proceeding would not have an adverse impact on the Company's
consolidated financial statements.
The Company is separately named as a defendant in 12,988 breast
implant product liability cases. In these situations, plaintiffs
have alleged that the Company should be liable for Dow Corning's
alleged torts based on the Company's 50 percent stock ownership
in Dow Corning and that the Company should be liable by virtue of
alleged "direct participation" by the Company or its agents in
Dow Corning's breast implant business. These latter, direct
participation claims include counts sounding in strict liability,
fraud, aiding and abetting, conspiracy and negligence.
Federal District Court Judge Sam C. Pointer, Jr. has been
appointed by the Federal Judicial Panel on Multidistrict
Litigation to oversee all of the product liability cases
involving silicone breast implants filed in the U.S. federal
courts. As of August 8, 1995, the Company was a defendant in
5,156 of such cases. Initially, in a ruling issued on December
1, 1993, Judge Pointer granted the Company's motion for summary
judgment, finding that there was no basis on which a jury could
conclude that the Company was liable for any claimed defects in
the breast implants manufactured by Dow Corning. In an
interlocutory opinion issued on April 25, 1995, however, Judge
Pointer affirmed his December 1993 ruling as to plaintiffs'
corporate control claims but vacated that ruling as to
plaintiffs' direct participation claims.
In his opinion, Judge Pointer reaffirmed the view he had
expressed in his December 1993 ruling that the Company is a
separate, independent entity from Dow Corning and therefore has
no legal responsibility as a result of its ownership of Dow
Corning stock for Dow Corning's breast implant business.
However, Judge Pointer stated that under the law of at least some
states (although not necessarily all states), actions allegedly
taken by the Company independent of its role as a shareholder in
Dow Corning could give rise to liability under a negligence
theory. Judge Pointer declined to address plaintiffs' other
legal theories, including strict liability, corporate conspiracy,
concert of action, aiding and abetting, fraud and fraudulent
concealment. The Company has filed a motion asking Judge Pointer
to reconsider his decision. It is impossible to predict the
outcome or to estimate the cost to the Company of resolving any
of the federal product liability cases. The Company has filed
claims with its insurance carriers to recover in the event it is
held liable in the federal (or any other) breast implant
litigation.
After Judge Pointer's initial ruling in December 1993, summary
judgment was granted to the Company in 4,058 breast implant cases
pending in state courts in California, Indiana, Michigan, New
Jersey and New York, and 114 actions in Pennsylvania were
dismissed. Of these rulings, the California ruling was final and
has been appealed. The New Jersey ruling has been reconsidered
and all claims were again dismissed, except for a single claim of
negligence. Plaintiffs in New York have filed a motion to
reconsider which remains pending. Other rulings that are not
final decisions are also subject to reconsideration by the trial
courts. The Company expects that further motions to reconsider
may be filed in those states as a result of Judge Pointer's April
25 decision. In addition, the Company remains a defendant in
3,660 breast implant product liability cases brought in state
courts and continues to be named as a defendant as cases are
filed in various courts. It is impossible to predict the outcome
or to estimate the cost to the Company of resolving any of the
product liability cases pending in state courts.
The Company is also a defendant in five federal silicone jaw
implant cases involving implants manufactured by Dow Corning.
Federal District Court Judge Paul A. Magnuson has been appointed
by the Federal Judicial Panel on Multidistrict Litigation to
oversee all of the product liability cases involving silicone jaw
implants filed in the U.S. federal courts. On March 31, 1995,
Judge Magnuson granted the Company's motion for summary judgment,
concluding, based on virtually the same arguments that were
presented to Judge Pointer, that no reasonable jury could find in
favor of plaintiffs on any of their claims against the Company.
On June 13, 1995, Judge Magnuson denied plaintiffs' motion to
reconsider his ruling based on Judge Pointer's April 25 decision,
and granted the Company's request to enter a final judgment in
its favor. Plaintiffs have appealed the final judgment to the
U.S. Court of Appeals for the Eighth Circuit.
Breast Implant Matters (Continued)
On November 3, 1994, Judge Michael Schneider, presiding in the
consolidated breast implant cases in Harris County, Texas,
granted in part and denied in part the Company's motion for
summary judgment. Judge Schneider granted the Company's motion
as to (i) all claims based on the Company's shareholder status in
Dow Corning, (ii) the claim that the Company was liable in
negligence for failing to supervise Dow Corning, and (iii)
plaintiffs' licensor-licensee claim. Judge Schneider denied the
Company's motion with regard to plaintiffs' claims sounding in
fraud, aiding and abetting, conspiracy, certain negligence claims
and a claim brought under the Texas Deceptive Trade Practices
Act. As a result, the Company remains a defendant as to such
claims in 2,448 cases pending in Harris County litigation. In
those cases (and in cases pending in certain other jurisdictions
including those before Judge Pointer), the Company has filed
cross-claims against Dow Corning on the ground that if the
Company and Dow Corning are found jointly and severally liable,
Dow Corning should bear appropriate responsibility for the
injuries caused by its product. In certain jurisdictions, the
Company has also filed similar cross-claims against Corning. It
is impossible to predict the outcome or to estimate the cost to
the Company of resolving any of the Harris County actions.
The first of the Harris County cases went to trial in November
1994, and the jury returned a verdict on February 15, 1995.
At the conclusion of the evidence, plaintiffs voluntarily
withdrew their fraud and Deceptive Trade Practices Act claims
against the Company. The jury reached a verdict exonerating the
Company from all liability with respect to one plaintiff. As to
the second plaintiff, the jury found for the Company on
plaintiffs' conspiracy, concert of action and negligence counts.
The jury also found the Company jointly and severally liable with
Dow Corning in the amount of $5.23 million for having given Dow
Corning "substantial encouragement or assistance" in marketing
breast implants that had not been first adequately tested. The
jury allocated the Company's responsibility for plaintiffs'
damages at 20%. After the trial, Judge Schneider entered
judgment against Dow Corning on the jury's verdict, but granted
the Company's motion to disregard the one jury finding against
the Company and entered judgment in favor of the Company. Thus,
as it now stands, the Company has no responsibility for any
portion of the jury verdict in this case. Plaintiffs have asked
Judge Schneider to vacate the judgments and to order a new trial
in both cases. The Company has been severed from the cases to
allow plaintiffs to pursue separate trials against the Company.
In an order dated December 1, 1994, Judge Frank Andrews,
presiding in the consolidated breast implant cases in Dallas
County, Texas, granted the Company's motion for summary judgment
"in all respects except as to theories of conspiracy and strict
liability as a component supplier." As a result, the Company
remains a defendant as to such claims in 119 cases pending in
Dallas County litigation. It is impossible to predict the
outcome or to estimate the cost to the Company of resolving these
actions.
It is the opinion of the Company's management that the
possibility is remote that plaintiffs will prevail on the theory
that the Company should be liable in the breast implant
litigation because of its shareholder relationship with Dow
Corning. The Company's management believes that there is no
merit to plaintiffs' claims that the Company is liable for
alleged defects in Dow Corning's silicone products because of the
Company's alleged direct participation in the development of
those products, and the Company intends to contest those claims
vigorously. Management believes that the possibility is remote
that a resolution of plaintiffs' direct participation claims,
including the vigorous defense against those claims, would have a
material adverse impact on the Company's financial position or
cash flows. Nevertheless, in light of Judge Pointer's April 25
ruling, it is possible that a resolution of plaintiffs' direct
participation claims, including the vigorous defense against
those claims, could have a material adverse impact on the
Company's net income for a particular period, although it is
impossible at this time to estimate the range or amount of any
such impact.
Environmental Matters
The Company has agreed to participate in the Toxic Substances
Control Act, Section 8(e) compliance audit program and expects to
pay a civil penalty of $1 million sometime during the second half
of 1995.
DowElanco, a general partnership 60% owned by the Company,
received a letter dated November 30, 1994 from the U.S.
Environmental Protection Agency (the "EPA") regarding incident
reporting under Section 6(a)(2) of the Federal Insecticide,
Fungicide and Rodenticide Act. In that regard, DowElanco entered
into a consent agreement with the EPA on May 1, 1995, agreeing to
pay $732,000 in civil fines. That consent agreement was
subsequently rejected by a United States Environmental Appeals
Board. DowElanco is continuing its discussions with the EPA in
this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of The Dow Chemical Company
was held on May 11, 1995. At that meeting the following
directors were elected: Enrique C. Falla, Fred W. Lyons, Jr.,
Frank P. Popoff, Enrique J. Sosa and William S. Stavropoulos. In
addition, the terms of the following directors continued after
that meeting: Jacqueline K. Barton, Andrew J. Butler, David T.
Buzzelli, Fred P. Corson, Willie D. Davis, Michael L. Dow, Joseph
L. Downey, Barbara H. Franklin, William J. Neely, Harold T.
Shapiro and Paul G. Stern.
Separately, Andrew J. Butler and Fred W. Lyons, Jr. resigned from
the Board of Directors on May 11, 1995, and June 28, 1995,
respectively. And on July 13, 1995, the Company elected three
new directors: Anthony J. Carbone, group vice president of Dow
Plastics; Allan D. Gilmour, retired vice chairman of the Ford
Motor Company; and Michael D. Parker, Dow's group vice president
of Chemicals & Performance Products and Hydrocarbons & Energy.
The following table gives a brief description of each matter
voted upon at the above referenced annual meeting and, as
applicable, the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes.
Description of Matter Voting
Broker
For Against Withheld Abstentions Nonvotes
1. Election of Directors:
Enrique C. Falla 227,476,816 n/a 3,444,091 n/a n/a
Fred W. Lyons, Jr. 227,251,195 n/a 3,669,712 n/a n/a
Frank P. Popoff 227,723,318 n/a 3,197,589 n/a n/a
Enrique J. Sosa 227,557,146 n/a 3,363,761 n/a n/a
William S. Stavropoulos 227,495,107 n/a 3,425,800 n/a n/a
2. Ratification of the
Selection of Deloitte &
Touche LLP as the Company's
Independent Auditors for
1995 229,678,761 571,886 n/a 670,260 0.0
n/a - not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated May 3, 1995, was filed with
the Securities and Exchange Commission. Included within that
report were two (2) press releases describing the signing of
agreements providing for (i) the sale of the Company's shares of
Marion Merrell Dow to Hoechst and (ii) the sale of the Company's
Latin American pharmaceutical business to Roussel Uclaf S.A.
A Current Report on Form 8-K dated May 15, 1995, was filed with
the Securities and Exchange Commission. Included within that
report was the Company's press release describing the bankruptcy
filing by Dow Corning Corporation and certain accounting actions
taken by the Company in response thereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
A Current Report on Form 8-K dated June 28, 1995, was filed with
the Securities and Exchange Commission. Included within that
report were the Company's press release describing the sale of
its shares of Marion Merrell Dow to Hoechst and pro forma
financial information related to that transaction.
The following trademarks of DowElanco or its subsidiaries appear
in this report: Broadstrike, Dursban, Lorsban and Sentricon.
The following trademark of DowBrands or its subsidiaries appears
in this report: Ziploc.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE DOW CHEMICAL COMPANY
Registrant
Date: August 11, 1995
\s\E. C. Falla
E. C. Falla
Executive Vice President and
Chief Financial Officer
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