SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
FOR THE YEAR ENDED DECEMBER 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $2.50 per share Common Stock registered on the
New York, Midwest and Pacific
Stock Exchanges
Debentures: Debentures registered on the
6.85%, final maturity 2013 New York Stock Exchange
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 [ ].
The aggregate market value of voting stock held by nonaffiliates as of
January 31, 1996, (based upon the closing price of $74.50 per common
share as quoted on the New York Stock Exchange) is approximately
$18,507 million. For purposes of this computation, the shares of
voting stock held by Directors, Officers and the Employees' Retirement
Plan were deemed to be stock held by affiliates. Nonaffiliated common
stock outstanding at January 31, 1996 numbered 248,412,902 shares.
Documents Incorporated by Reference
Part III: Proxy Statement for the Annual Meeting of Stockholders to
be held May 9, 1996.
1
THE DOW CHEMICAL COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 10
Executive Officers of the Registrant 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 48
PART III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 48
Signatures 51
2
PART I
ITEM 1. BUSINESS
THE COMPANY
The Dow Chemical Company was incorporated in 1947 under Delaware
law and is the successor to a Michigan corporation, of the same
name, organized in 1897. The Company is engaged in the manufacture
and sale of chemicals, plastic materials, agricultural and
consumer products and other specialized products and services.
Its principal executive offices are located at 2030 Dow Center,
Midland, Michigan 48674, telephone 517-636-1000. Except as
otherwise indicated by the context, the terms "Company" or "Dow"
as used herein mean The Dow Chemical Company and its consolidated
subsidiaries.
BUSINESS AND PRODUCTS
Products and Services
Dow was organized in 1897 to extract chemicals from the native
brine deposits of central Michigan. From an initial concentration
on products derived from these chemicals, the Company has
expanded its activities into six industry segments. Aggregation
of products is generally made on the basis of process technology,
end-use markets and channels of distribution. Key products and
services by segment follow:
Chemicals & Metals
This segment includes a wide range of products that are used
primarily as raw materials in the manufacture of customers'
products. Dow is the largest manufacturer of chlorine and
caustic soda in the world, with about twice as much capacity as
the next largest producer. Some uses of chlorine include
pharmaceuticals, water purification and the manufacture of
plastics. Caustic soda is used in detergents, pulp and paper,
petroleum refining and the manufacture of aluminum. Other
important products include ethylene dichloride, ethylene
glycol, ethylene oxide, magnesium, propylene glycol, propylene
oxide and vinyl chloride monomer.
Performance Chemicals
The products within these businesses include ingredients in many
formulated products and processing aids, as well as end-use
products. Specialty Chemicals includes products like Drytech
superabsorbent polymers, used to produce thinner, more
absorbent disposable diapers; Methocel multifunctional food gums,
used in formulations when there is a need to replace fat,
fluids, used to control process temperature. The Emulsion
Polymers business includes latex coatings and binders, which are
used in the building and construction and the pulp and paper
industries. Dow is the largest and most globally diverse of
the styrene-butadiene latex suppliers and is the largest supplier
of latex to the paper industry. DowElanco produces agricultural
products like Broadstrike herbicides and Dursban and Lorsban
insecticides, which are used in crop protection and production
and for industrial pest control.
Plastics
Dow ranks among the world leaders in plastics production, with
uses in such industries as electronics, food service, health
care, packaging and recreation. Dow is the leading producer of
polyethylene, such as low-density polyethylene and Dowlex linear
low-density polyethylene, and polystyrene, such as Styron
polystyrene and Aim advanced styrenic resins. The other
businesses included in this segment are PET (polyethylene
terephthalate polyester) and polypropylene.
Performance Plastics
Dow offers the broadest range of engineering thermoplastic and
thermoset materials of any manufacturer. This segment
consists of the following businesses: Polyurethanes; Epoxy
Products & Intermediates; Engineering Plastics; Adhesives,
Sealants & Coatings; Insite technology licensing; and Fabricated
Products.
Polyurethane products, like Voranol polyether polyols and
isocyanates, are used by such industries as automotive,
furniture, and building and construction. Dow is the leading
producer of allyl chloride and epichlorohydrin globally,
which are basic products for the epoxy product chain. Dow's
epoxy products and intermediates are used in a variety of
applications, including the protective coatings, electronics and
personal care industries. Engineering Plastics, like
Calibre polycarbonate resins, Magnum ABS resins and Pulse
engineering resins, serve such industries as appliances,
automotive and electronics. The Adhesives, Sealants &
Coatings business manufactures products like Betaseal window
adhesives. Insite technology enables Dow and Dow's customers
to produce a range of plastics that perform better and are easier
to process. Styrofoam brand plastic foam, used in the
building and construction industry, is the key product for the
Fabricated Products business.
3
Hydrocarbons & Energy
Dow is the world leader in olefins and styrene production. This
segment encompasses procurement of fuels and crude oil-based
raw materials as well as the production of olefins, aromatics,
styrene and cogenerated power and steam for use in the Company's
operations. Destec Energy, Inc., a Dow subsidiary, is one of the
larger independent power producers in the world. It develops
independent power projects and sells electrical and thermal
energy.
Diversified Businesses & Unallocated
Diversified Businesses includes DowBrands, Radian International
LLC, New Businesses, and Insurance & Finance. DowBrands
produces household products such as Dow bathroom cleaner with
Scrubbing Bubbles, Fantastik all-purpose cleaner, Glass Plus
multi-surface cleaner, Saran Wrap plastic film and Ziploc plastic
bags. Radian International LLC is a joint venture between Dow
Environmental Inc. and Radian Corporation that will provide
environmental, information technology and strategic chemical
management services to industry and government. New
Businesses consists of advanced electronic materials like
Cyclotene advanced electronic resins, used for dielectric
coatings, and aluminum nitride ceramic powder, used for thermal
management of electronic device packaging; advanced structural
materials such as tungsten carbide-based powders; technology
licensing; catalysts and new developments. Insurance & Finance
includes Dorinco Reinsurance Company, a wholly owned
subsidiary of Dow, and all other Dow financial companies and
holdings. Unallocated includes activities and overhead cost
variances not allocated to other segments.
Industry Segments and Geographic Area Results
See Note S to the Financial Statements for a discussion of sales,
operating income and identifiable assets by industry segment and
geographic area.
Raw Materials
The Company operates in an integrated manufacturing environment.
Basic raw materials are processed through many stages to produce
a number of products that are sold as finished goods at various
points in those processes.
The two major raw material streams, that feed the integrated
production of the Company's finished goods, are Chlor-Alkali and
Hydrocarbon based raw materials.
Salt, limestone and natural brine are the base raw materials
used in the production of Chlor-Alkali products and derivatives.
The Company owns salt deposits in Louisiana, Michigan and Texas;
Alberta, Canada; Brazil; and Germany. The Company also owns
natural brine deposits in Michigan and limestone deposits in
Texas.
Hydrocarbon raw materials include liquefied petroleum gases
(LPG), crude oil, naphtha, natural gas, benzene, fuel oil and
coal. These raw materials are used in the production of both
salable products and energy. Expenditures for these raw
materials account for 25% of the Company's operating costs and
expenses. These raw materials are purchased by the Company both
on long-term contracts and as they become available on the global
markets. The Company owns the rights to deposits of lignite in
Texas and Louisiana, and natural gas deposits in Germany.
Other significant raw materials include ammonia, acrylonitrile,
aniline, bisphenol, cellulose, octene, organic acids, and toluene
diamine. These raw materials are purchased by the Company both on
long-term contracts and as they become available on the global
markets.
The Company has, and expects to continue to have, adequate
supplies of raw materials during 1996 and subsequent years.
Method of Distribution
All products and services are marketed primarily through the
Company's sales force, although in some foreign markets more
emphasis is placed upon sale through distributors. No significant
portion of the business of any industry segment is dependent upon
a single customer.
Competition
The Company experiences substantial competition in each of its
industry segments. During 1995, the Company was the second
largest chemical company in the United States in terms of sales
and in the top five in terms of sales worldwide. The chemical
industry has been historically competitive and this condition is
expected to continue. The chemical divisions of the major
international oil companies also provide substantial competition
both in the U.S. and abroad. The Company competes worldwide on
the basis of price, quality and customer service.
4
Patents, Licenses and Trademarks
The Company consistently applies for and obtains United States
and foreign patents. As of December 31, 1995 the Company and its
consolidated subsidiaries owned approximately 4,000 active United
States patents and approximately 9,200 active foreign patents,
which can be classified as follows: Chemicals and Metals, 300
U.S. and 500 foreign; Performance Chemicals, 1,000 U.S. and 3,200
foreign; Plastics, 500 U.S. and 800 foreign; Performance
Plastics, 1,100 U.S. and 2,600 foreign; Hydrocarbons and Energy,
100 U.S. and 200 foreign; and Diversified Businesses/Unallocated,
1,000 U.S. and 1,900 foreign. Dow's primary purpose in obtaining
patents is to protect the results of its research for use in
operations and licensing. Dow is also party to a substantial
number of patent licenses and other technology agreements. The
Company had patent and technology royalty income of $23 million
in 1995, $19 million in 1994 and $15 million in 1993, and paid
royalties to others of $6 million in 1995, $8 million in 1994,
and $7 million in 1993. Dow also has a substantial number of
trademarks and trademark registrations in the United States and
in other countries, including the "Dow in Diamond" trademark.
Although the Company considers that, in the aggregate, its patents,
licenses and trademarks constitute valuable assets, it does not
regard its business as being materially dependent upon any single
patent, license or trademark.
Research and Development
The Company is engaged in a continuous program of basic and
applied research to develop new products and processes, to
improve and refine existing products and processes and to develop
new applications for existing products. Research and Development
expenses were $808 million in 1995 compared to $783 million in
1994 and $786 million in 1993. The Company employs approximately
5,500 people in various research and development activities.
Other Activities
Dow owns, through its Liana Limited subsidiary, 100 percent of the
stock of Dorinco Reinsurance Company, a Michigan stock property
and casualty company which engages in the insurance and
reinsurance business. In addition, the Company effectively owns
100 percent of the stock of two Bermuda and one Irish insurance
companies.
Principal Partly Owned Companies
Principal companies in which Dow owns a 50 percent interest
include Dow-United Technologies Composite Products, Inc., a
manufacturer of composite products; Gurit-Essex, A.G., a Swiss
company, which supplies European automobile manufacturers with
proprietary specialty products; and Dow Corning Corporation, a
manufacturer of silicone and silicone products, which voluntarily
filed for protection under Chapter 11 of the United States
Bankruptcy Code (see Note Q to the Financial Statements). In
addition, Dow has a 45 percent interest in Total Raffinaderij
Nederland N.V., which provides feedstocks for Dow's major
petrochemical site at Terneuzen, the Netherlands, and also
services the Benelux and nearby markets.
Protection of the Environment
Matters pertaining to the environment are discussed in Legal
Proceedings, Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes A and Q to the
Financial Statements.
Financial Information About Foreign and Domestic Operations and
Export Sales
In 1995, the Company derived 55 percent of its sales and had 47
percent of its plant investment outside the United States. While
the Company's international operations may be subject to a number
of additional risks, such as changes in currency exchange rates,
the Company does not regard its foreign operations, on the whole,
to carry any greater risk than its operations in the United
States. Information on sales, operating income and identifiable
assets by geographic area for each of the last three years
appears in Note S to the Financial Statements and a discussion of
the Company's risk management program for foreign exchange and
interest rate risk management appears in Note J to the Financial
Statements.
Number of Products
Dow manufactures and supplies more than 2,500 product families
and services and no single one accounted for more than 5 percent
of the Company's consolidated sales in 1995. No significant
portion of the business of any industry segment is dependent upon
a single customer.
Employees
The personnel count at December 31, 1995 was 39,537 versus 53,730
at the end of 1994, 55,436 at the end of 1993 and 61,353 at the
end of 1992. Excluding the discontinued pharmaceutical
businesses, the personnel count has been reduced by 21 percent
over the last three years. This reduction in personnel reflects
continuing rationalization and work process improvements
throughout the company.
5
ITEM 2. PROPERTIES
The Company operates 94 manufacturing sites in 30 countries. The
Company considers that its properties are in good operating condition
and that its machinery and equipment have been well maintained. The
Company's Chemicals and Plastics production facilities and plants
operated at approximately 92 percent of capacity during 1995. On a
global basis, Dow operates 12 major production plants, the locations
of which are as follows:
United States: Midland, Michigan; Freeport, Texas; Pittsburg,
California; Plaquemine, Louisiana;
Canada: Sarnia, Ontario; Fort Saskatchewan, Alberta.
Germany: Stade; Rheinmuenster.
France: Drusenheim
The Netherlands: Terneuzen.
Spain: Tarragona.
Brazil: Aratu.
Including the major production facilities, the Company has plants and
holdings in the following geographic areas:
United States: 36 manufacturing locations in 15 states
Canada: 8 manufacturing locations in 3 provinces.
Europe: 27 manufacturing locations in 15 countries.
Latin America: 12 manufacturing locations in 6 countries.
Pacific: 11 manufacturing locations in 7 countries.
All of the above Dow plants are owned in fee, subject to certain
easements of other persons which, in the opinion of Dow, do not
substantially interfere with the continued use of such properties or
materially affect their value.
A summary of plant properties, classified by type, is contained in
Note G to the Financial Statements.
ITEM 3. 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 (now consolidated) 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 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.
6
Breast Implant Matters (Continued)
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 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 a global
Breast Implant Litigation Settlement Agreement (the "Settlement
Agreement"); 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.
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 recognized a pretax charge against
income of $330 million for the second quarter of 1995, 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 September 1, 1994, Judge Sam C. Pointer, Jr. of the United States
District Court for the Northern District of Alabama approved the
Settlement Agreement pursuant to which plaintiffs choosing to
participate in the Settlement Agreement released the Company from
liability. The Company was not a participant in the Settlement
Agreement nor was it required to contribute to the settlement. On
October 7, 1995, Judge Pointer issued an order which concluded that
the Settlement Agreement was not workable in its then-current form
because the funds committed to it by industry participants were
inadequate. The order provided that plaintiffs who had previously
agreed to participate in the Settlement Agreement could opt-out after
November 30, 1995.
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 a total of 13,141
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, concert of action and
negligence.
Judge Pointer 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.
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, fraud,
aiding and abetting, conspiracy and concert of action. 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.
7
Breast Implant Matters (Continued)
After Judge Pointer's initial ruling in December 1993, summary
judgment was granted to the Company in 4,006 breast implant cases
pending in state courts in California, Indiana, Michigan, New Jersey
and New York, and 121 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 the negligence claim. Plaintiffs in New York filed
a motion to reconsider based on Judge Pointer's April 25, 1995 ruling.
On September 22, 1995, Judge Lobis, presiding over the consolidated New
York breast implant litigation, dismissed all counts of all cases
filed against the Company in New York on the ground that no reasonable
jury could find against the Company. Plaintiffs have appealed Judge
Lobis' ruling. Other rulings that are not final decisions are also
subject to reconsideration by the trial courts. The Company expects
that plaintiffs will file motions to reconsider in some states as a
result of Judge Pointer's April 25 decision. The Company remains a
defendant in other breast implant product liability cases originally
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 state product liability cases.
The Company is also a defendant in ten 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.
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 the Harris County product liability cases. In those
cases (and in cases brought 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 judged to be 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 product liability cases.
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 the Dallas County product liability cases. It is
impossible to predict the outcome or to estimate the cost to the
Company of resolving any of these actions.
Three breast implant product liability cases brought against the
Company have now gone to trial. In February 1995, a Harris County
jury exonerated the Company in one case and found the Company jointly
and severally liable with Dow Corning for $5.23 million on a single
count in a second case. After the verdict, however, the Court
overturned the jury's verdict and entered judgment for the Company.
On October 30, 1995 a state court jury in Reno, Nevada found the
Company liable for $4.15 million in compensatory damages and $10
million in punitive damages. The Company intends to appeal the
verdict. The Company will also file a claim in Dow Corning's
bankruptcy proceedings to recover from Dow Corning its share of any
monies the Company might pay as a result of the Nevada verdict.
With the principal exception of the cases filed in Michigan and
approximately 150 cases filed in Texas, Dow Corning or the Company
have removed virtually all cases originally filed in state courts
across the country to various federal courts. The removed cases have
been, in most instances, transferred to Judge Pointer. Plaintiffs
have asked Judge Pointer to remand those cases back to their states of
origin, and the Company has opposed that motion.
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.
8
Seldane
In July 1992, two class actions lawsuits were filed in the United
States District Court for the Western District of Missouri alleging
that Marion Merrell Dow Inc. ("MMD"), then a subsidiary of the
Company, violated the federal securities laws as a result of alleged
false statements and omissions regarding the drug Seldane. The suits,
which were brought by purchasers of MMD stock and sought unquantified
damages, also named the Company as a defendant, principally because of
its status as an alleged "controlling person" of MMD. In addition to
seeking recovery against MMD and the Company, the suits named as
defendants a variety of entities and individuals including certain
Directors of MMD (some of whom are also Directors of the Company) and
certain underwriters of a 1992 offering of MMD stock. Subsequently,
plaintiffs filed a consolidated amended class action complaint in the
same court consolidating the two previously filed complaints and
captioned In re Marion Merrell Dow Securities Litigation. The
consolidated amended class action complaint does not name the Company
as a defendant but reserves the right to name the Company in the
future should discovery disclose a basis for doing so. In December
1992, plaintiffs and the Company entered into an agreement
conditionally tolling the statute of limitations as to any action
against the Company.
In addition, in July 1992, a derivative suit captioned Harris J.
Sklar v. Ewing M. Kauffman, et al. was filed in the Court of Chancery
of the State of Delaware against MMD (as nominal defendant) and
certain past and present Directors of MMD, including Messrs. Falla,
Popoff and Stavropoulos, who are also Directors of the Company. The
suit sought unquantified damages allegedly suffered by MMD as a result
of alleged breaches of fiduciary duty and waste of corporate assets by
its Directors in connection with the marketing of Seldane and alleged
disclosures and omissions regarding Seldane made to consumers and to
the investing public. On February 28, 1993, the Court entered an
order dismissing without prejudice the complaint as against all
defendants.
Management believes that the above actions are without merit.
Furthermore, it is the opinion of the Company's management that the
possibility that litigation of these claims would materially impact
the Company's consolidated financial statements is remote.
Transaction with Hoechst A.G.
Between February 28 and April 7, 1995, following an announcement of
discussions between the Company and Hoechst A.G. and its affiliates
("Hoechst") regarding the possible acquisition by Hoechst of Marion
Merrell Dow Inc. ("MMD") for $25.75 per share and of the Company's
Latin American pharmaceuticals business for $200 million, eleven class
action complaints were filed in the Delaware Chancery Court for New
Castle County against MMD, its Directors (certain of whom are also the
Company's Directors) and the Company. Hoechst is also a defendant in
one of those lawsuits. In general, the complaints allege that the
Company violated its fiduciary duties to MMD's shareholders by failing
to maximize the purchase price of MMD's shares in negotiating the
transactions. Plaintiffs seek class certification, injunctive relief,
compensation for an unspecified amount of losses and damages, and, in
some cases, to have the Company ordered to evaluate alternatives,
ensure no conflicts of interest, and appoint an independent special
committee or shareholder committee to review all offers. (See page 31
of this Annual Report on Form 10-K for a description of the
transaction between the Company and Hoechst as finally agreed and
closed.) It is impossible to predict the outcome or to estimate the
cost to the Company of resolving these 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.
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 some time during 1996.
On September 27, 1993, February 23, 1994, and October 31, 1994, the
U.S. Environmental Protection Agency (the "EPA") filed actions against
the Company alleging violations of the boiler and industrial furnace
regulations. The Company agreed to pay a total of $388,983 in
settlement of $1,029,204 of proposed civil fines with respect to four
Company sites. Proposed civil fines for one additional Company site
total $576,790.
On May 31, 1994, the EPA filed an action against the Company
alleging violations of the Clean Water Act at the Company's Ludington,
Michigan site. Proposed civil fines total $125,000.
On July 1, 1994, the Louisiana Department of Environmental Quality
served a Penalty Notice on the Company alleging three spills which
violated the Louisiana Clean Water Act, seeking proposed civil fines
totaling $120,740, including administrative expenses.
DowElanco, a general partnership 60% owned by the Company, received a
letter dated November 30, 1994 from the EPA regarding incident
reporting under Section 6(a)(2) of the Federal Insecticide, Fungicide
and Rodenticide Act. On August 17, 1995, a United States Environmental
Appeals Board approved a consent agreement between DowElanco and the
EPA under which DowElanco paid a civil fine of $876,000 to resolve the
matter.
9
Environmental Matters (Continued)
On December 19, 1994, the Texas Natural Resource Conservation
Commission sent a proposed order to the Company seeking administrative
civil penalties of $519,350 for alleged violations of the Texas Clean
Air Act.
On August 11, 1995, the EPA filed an administrative enforcement
action against the Company in connection with the Company's report of
exceedances of its limits for the discharge of phosphorus and certain
other chemicals to the Tittabawassee River for several months in 1994
and 1995. No demand for monetary sanctions was made. Based on the
same facts, Michigan's Attorney General and the Michigan Department of
Natural Resources filed an action against the Company on August 18,
1995 in the Circuit Court for Ingham County, Michigan, seeking
"appropriate penalties" in excess of $50,000. A third action, also
based on the same facts, was filed on August 15, 1995 in the U.S.
District Court for the Eastern District of Michigan by PIRGIM Public
Interest Lobby. That action seeks the payment of unspecified amounts,
costs and attorney fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company's executive
officers as of March 11, 1996.
Anthony J. Carbone, 55, Dow Group Vice President for Plastics,
Hydrocarbons and Energy. Director since 1995.
Employee of Dow since 1962. Dow Latin America Marketing Director for
Plastics 1974-76. Dow Business Manager for STYROFOAM 1976-80,
Director of Marketing for Functional Products and Systems 1980-83.
Dow U.S.A. General Manager of the Coatings and Resins Department 1983-
86, General Manager of Separation Systems 1986-87, Vice President Dow
Plastics 1987-91. Dow North America Group Vice President for Plastics
1991-93. Group Vice President, Dow Plastics 1993-95. Group Vice
President - Plastics, Hydrocarbons and Energy 1995 to date. Director,
Dow-United Technologies Composite Products, Inc.* Board member of the
Society of Plastics Industries and the American Plastics Council.
Michael D. Parker, 49, Dow Group Vice President, Vice President for
Chemicals and Metals,and President of Dow North America. Director since
1995. Employee of Dow since 1968. Dow Europe S.A.* Product
Marketing Manager for Epoxy Resins 1977-79, Director of Marketing for
Inorganic Chemicals 1979-82, Director of Marketing for Organic
Chemicals 1982-83, Commercial Director for the Functional Products
Department 1983-84. Dow U.S.A. General Manager of the Specialty
Chemicals Department 1984-87. Dow Chemical Pacific Limited*
Commercial Vice President 1987-88, President 1988-93. Dow Group Vice
President 1993 to date, Group Vice President - Chemicals and
Hydrocarbons 1993-95, Vice President for Chemicals and Metals 1995 to
date. President Dow North America 1995 to date. Director of Destec
Energy, Inc.* and the National Association of Manufacturers.
Frank P. Popoff, 60, Chairman of the Dow Board of Directors. Director
since 1982.
Employee of Dow since 1959. Dow Europe S.A.* Executive
Vice President 1980-81, President 1981-85. Dow Executive Vice
President 1985-87, President 1987-93, President and Chief Operating
Officer 1987, Chief Executive Officer 1987-95. Chairman of the Board
1992 to date. Director of American Express Company, U S WEST, Inc.
and Chemical Financial Corporation. Past Chairman of the Chemical
Manufacturers Association. Member of The Business Council, The
Conference Board, the American Chemical Society, the National LEAD
Council and the Michigan Business Partnership.
J. Pedro Reinhard, 50, Dow Financial Vice President, Treasurer and
Chief Financial Officer. Director since 1995.
Employee of Dow since 1970. Dow Brazil Area Finance Director 1978-81.
Dow Europe S.A.* Finance Director 1981-85, Vice President 1985-88.
Managing Director, Dow Italy 1985-88. Dow Assistant Treasurer 1984-
85, Treasurer 1988 to date, Vice President 1990-95, Financial Vice
President and Chief Financial Officer 1995 to date. Director of
DowElanco* and Destec Energy, Inc.* Chairman of the Board of Liana
Limited.* Member of the Financial Accounting Standards Advisory
Council, National Association of Corporate Treasurers and the
Financial Executives Institute.
10
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
William S. Stavropoulos, 56, Dow President and Chief Executive
Officer. Director since 1990. Employee of Dow since 1967. President
of Dow Latin America 1984-85. Dow U.S.A. Commercial Vice President
for Basics and Hydrocarbons 1985-87. Group Vice President for
Plastics and Hydrocarbons 1987-90. President of Dow U.S.A. 1990-93.
Dow Vice President 1990-91, Senior Vice President 1991-93, President
1993 to date, Chief Operating Officer 1993-95, Chief Executive Officer
1995 to date. Director of Dow Corning Corporation,* Chemical
Financial Corporation, and Chemical Bank and Trust Company. Member of
the American Chemical Society, The Business Roundtable, and the
Society of Chemical Industry (Executive Committee). Serves on the
Joint Automotive Suppliers Governmental Action Council and the
University of Notre Dame Advisory Council for the College of Science.
Board member of the American Plastics Council (Executive Committee),
Chemical Manufacturers Association (Executive Committee), University
of Washington Foundation, American Enterprise Institute for Public
Policy Research, Midland Community Center, and U.S. Council for
International Business (Executive Committee).
Each of these executive officers was elected by the Board of Directors
to hold office until the next annual election of officers. As
provided by the Bylaws of the Company, the Board of Directors elects
the officers at its first meeting after each annual meeting of the
stockholders.
* A number of Company entities are referred to in the biographies and
are defined as follows. (Some of these entities have had various
names over the years and the names and relationships to the Company,
unless otherwise indicated, are stated as they exist today.) Dow
Corning Corporation and Dow-United Technologies Composite Products,
Inc., corporations 50 percent-owned by Dow; DowElanco, a general
partnership 60 percent-owned by Dow; Destec Energy, Inc., a majority-
owned subsidiary of Dow; Dow Chemical Pacific Limited, Dow Europe
S.A. and Liana Limited, all ultimately wholly-owned subsidiaries of
Dow. Ownership by Dow described above may be either direct or indirect.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market for the Company's common stock is the New York
Stock Exchange. On February 8, 1996, the Company declared a cash
dividend of 75 cents per share, payable April 30, 1996, to
stockholders of record on March 29, 1996. This will be the 337th
consecutive quarterly dividend since 1912. There were 130,156 common
stockholders of record as of March 11, 1996.
Quarterly market and dividend information can be found in Part II,
Item 8 (Supplementary Data) on page 47.
11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The Dow Chemical Company and Subsidiaries
Five-year Summary of Selected Financial Data
<CAPTION>
In millions, except as noted (Unaudited) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations (Restated)
Net sales 20,200 16,742 15,052 15,493 15,822
Cost of sales 13,337 12,131 11,370 11,862 11,874
Insurance and finance company operations, pretax (income) (61) (40) (98) (15) (95)
Research and development expenses 808 783 786 799 773
Promotion and advertising expenses 416 411 367 381 366
Selling and administrative expenses 1,771 1,594 1,485 1,583 1,551
Amortization of intangibles 38 43 68 45 44
Special charge 0 0 0 433 370
---------------------------------------------------------------------------------------------------------
Operating income 3,891 1,820 1,074 405 939
Investment and sundry income (expense) (222) 77 462 145 450
Interest expense-net (140) (271) (278) (443) (368)
---------------------------------------------------------------------------------------------------------
Income before provision for taxes on income and
minority interests 3,529 1,626 1,258 107 1,021
Provision for taxes on income 1,442 654 514 67 269
Minority interests' share in income 196 200 171 120 56
Preferred stock dividends 7 7 7 7 7
---------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,884 765 566 (87) 689
Cumulative effect of accounting change - - - (765) -
Discontinued operations net of taxes on income 187 166 71 356 246
---------------------------------------------------------------------------------------------------------
Net income (loss) available for common stockholders 2,071 931 637 (496) 935
---------------------------------------------------------------------------------------------------------
Per share of common stock (dollars) :
Income (loss) from continuing operations 7.03 2.77 2.07 (0.32) 2.55
Net income available for common stockholders (1) 7.72 3.37 2.33 0.99 3.46
Cash dividends declared 2.90 2.60 2.60 2.60 2.60
Cash dividends paid 2.80 2.60 2.60 2.60 2.60
Average common shares outstanding (thousands) 268,243 276,094 273,620 271,647 270,477
Convertible preferred shares outstanding (thousands) 1,521 1,549 1,567 1,586 1,592
------------------------------------------------------------------------------------------------------------
Year-end Financial Position
Total assets $23,582 $26,545 $25,505 $25,360 $24,727
Working capital 4,953 2,075 2,001 1,802 1,584
Plant properties-gross 23,218 23,210 21,608 21,444 20,663
Plant properties-net 8,113 8,726 8,580 8,801 8,775
Long-term obligations and redeemable preferred stock 4,733 5,325 5,918 6,201 6,083
Total debt 5,403 6,578 6,944 7,469 7,652
Net stockholders' equity 7,361 8,212 8,034 8,064 9,441
-------------------------------------------------------------------------------------------------------------
Financial Ratios
Research and development expenses
as percent of net sales (restated) 4.0% 4.7% 5.2% 5.2% 4.9%
Income before provision for taxes and minority interests
as percent of net sales (restated) 17.5% 9.7% 8.4% 0.7% 6.5%
Return on average stockholders' equity (1) 26.9% 11.3% 7.9% 3.3% 9.9%
Book value per common share $30.69 $29.63 $29.36 $29.69 $34.90
Debt as a percentage of total capitalization 36.3% 38.0% 39.9% 42.5% 42.3%
------------------------------------------------------------------------------------------------------------
General
Capital expenditures $1,417 $1,183 $1,397 $1,595 $1,908
Depreciation (restated) 1,369 1,224 1,252 1,260 1,228
Wages and salaries paid 2,734 3,239 3,332 3,263 3,101
Cost of employee benefits 696 832 887 938 711
Number of employees at year-end (thousands) 39.5 53.7 55.4 61.4 62.2
Number of stockholders of record at year-end (thousands) (2) 111.1 114.5 102.5 105.9 108.4
------------------------------------------------------------------------------------------------------------
(1) Before cumulative effect of accounting change in 1992.
(2) Stockholders of record as reported by the transfer agent. The Company estimates that there are an additional
132.000 stockholders whose shares are held in nominee names, or in dividend reinvestment accounts without
underlying registered shares.
12
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The company's consolidated statements of income and cash flows for
1994 and 1993 have been restated to present Dow's pharmaceutical
businesses as discontinued operations due to their sale in the
second quarter of 1995.
To improve stockholders' ability to evaluate Dow's performance,
external industry segments have been revised to reflect the
company's reorganization around 15 global businesses. All segment
information for 1994 and 1993 has been restated to align with the new
reporting segments.
The discussions in this annual report contain both historical
information and forward-looking statements. The forward-looking
statements involve risks and uncertainties that affect the company's
operations, markets, products, services, prices and other factors
as discussed in the company's filings with the Securities and Exchange
Commission. These risks and uncertainties include, but are not
limited to, economic, competitive, governmental and technological
factors.
Results of Operations
Net sales for 1995 of $20.2 billion increased 21 percent from $16.7
billion in 1994 and 34 percent from $15.1 billion in 1993. Improved
economic conditions globally led to higher selling prices and an
increase in volume, as illustrated in the Sales Price and Volume table
on Page 17. All geographic areas and all industry segments had higher
sales versus 1994 with Europe showing particularly strong growth of 33
percent. Selling prices increased 17 percent versus 1994 and were up
across all geographic areas and segments. Volume increased 4 percent
versus 1994 with the gains occurring outside the United States. Sales
in the United States accounted for 45 percent of the total sales in
1995, 48 percent in 1994 and 50 percent in 1993. Sales and other data
by industry segment and geographic area are provided in Note S to the
Financial Statements.
Operating income more than doubled from $1.8 billion in 1994 to $3.9
billion in 1995 due to the stronger selling prices and a moderate
volume increase. Operating income for 1993 was $1.1 billion.
CHEMICALS AND METALS
Chemicals and Metals had a 34 percent gain in sales in 1995 compared
to 1994, reporting $3.3 billion in sales versus $2.5 billion. The
sales gain in 1995 represented a 1 percent increase in volume and a 33
percent increase in price versus 1994. In 1993, sales were $2.3
billion.
Operating income rose 237 percent to $1.1 billion from $337 million
in 1994. Operating income in 1993 was $154 million.
During 1995, caustic soda prices recovered, more than doubling from
1994 levels, as sales contracts were renewed at higher prices. Vinyl
chloride monomer (VCM) saw significant price gains in the first half
of the year. After mid-year, however, VCM prices weakened due to the
impact of inventory correction, particularly in the U.S. and western
Europe.
During the year, Dow announced a number of capacity expansions in
its Chemicals and Metals business. In order to supply growing internal
derivative demands, the company plans to add 750 million pounds of
chlor-alkali capacity over the next two years with expansions at its
Freeport, Texas, and Stade, Germany, manufacturing sites.
To keep pace with the long-term growth in the global polyvinyl
chloride market, Dow intends to bring an additional 350 million pounds
of VCM capacity on line at its Fort Saskatchewan, Alberta,
manufacturing site by 1997. The company also plans to expand capacity
further on the U.S. Gulf Coast.
As a result of continued growth in the propylene oxide and
derivatives market, especially polyurethanes, Dow plans to add 500
million pounds of capacity by the end of 1998, with capacity coming on
line as driven by demand. This capacity increase is in addition to the
500 million pounds of propylene oxide capacity Dow previously
announced it would add at its manufacturing sites in Texas, Louisiana,
Germany and Brazil by the end of 1996.
In the spring of 1996, Dow will start up new technology at its Texas
facility to manage by-products of the propylene oxide manufacturing
process. The technology will recover raw materials in the waste
stream, which will result in lower waste management costs.
Chlorinated organics started up a new plant in Stade, Germany, to
convert perchloroethylene to trichlorethylene in order to meet the
growing demand for that product. At year-end, Dow exited the methyl
chloroform business, following guidelines established by the Montreal
Protocol. This exit did not have a material impact on the Chemicals
and Metals segment.
A new cogeneration facility, constructed and partially owned by
Destec Energy, Inc., is now supplying the steam and power requirements
for Dow's cal/mag business in Ludington, Michigan. The facility will
be a key factor in the future competitiveness of the business as it
lowers manufacturing costs.
13
Outlook for Chemicals and Metals
In 1996, it is expected that prices for ethylene dichloride and VCM
will rise from the low base of the fourth quarter of 1995. This,
coupled with anticipated stable pricing for caustic soda, magnesium,
propylene oxide and many of the chlorinated organics, should result in
a favorable pricing environment for Chemicals and Metals in 1996.
In the first two quarters of 1996, Chemicals and Metals volume is
expected to remain flat with the second half of 1995, consistent with
the global market cycle for these products. Volume is expected to rise
in the last half of the year.
PERFORMANCE CHEMICALS
Sales for Performance Chemicals were up 15 percent in 1995 compared to
the previous year and up 25 percent versus 1993. Sales were $4.2
billion, $3.7 billion, and $3.4 billion for 1995, 1994 and 1993,
respectively. Volume gains of 9 percent and price increases of 6
percent contributed to higher sales in 1995 versus 1994.
Operating income was $670 million, up 30 percent from $514 million
in 1994. In 1993, operating income was $403 million.
During the year, emulsion polymers experienced higher sales and
profits as a result of favorable styrene pricing and growing demand in
the U.S. and Europe. Toward the end of the year, a weakening in demand
in the pulp and paper industry led to some price softening, which is
expected to continue into 1996.
To meet growing demand in the emerging markets of southeast Asia and
the Middle East, Dow brought on line about 50 million pounds of latex
capacity in Indonesia and Saudi Arabia. The company divested its latex
interests in Sumitomo Dow Limited as part of a restructuring of that
joint venture.
Dow's Specialty Chemicals business had a very strong year with many
products setting new global records for sales and volume. GAS/SPEC
solvents and services set its third consecutive record for sales and
profitability as the result of solid price and demand. Polyglycols,
Ethocel ethylcellulose resins, Versene chelants, Methocel cellulose
ethers, oxygenated solvents, Dowfax surfactants, and diphenyl oxide
(DPO) all achieved record profits.
Dow added polyglycol capacity in Europe and butylene oxide capacity
in North America to meet growing global demand for these products. New
DPO production technology is being installed in Texas, allowing phenol
to be integrated as a raw material. This technology will be brought on
line in the first half of 1996 and will replace an older unit in
Michigan, which will be shut down.
Volume growth for liquid separations was strong during the year, but
prices softened. As part of a global restructuring of its liquid
membranes business, the company is closing a manufacturing unit in
Nakskov, Denmark.
Drytech superabsorbents saw substantial price weakening in 1995 as a
result of new capacity added to the industry.
In 1995, Dow sold its aspirin business and Generon Systems as the
company made strategic shifts in its business portfolio to focus its
resources on core businesses. None of the divestitures undertaken
during the year will have a material impact on the Performance
Chemicals segment.
Dow had record sales of agricultural products through DowElanco,
which is a global joint venture between Dow and Eli Lilly, with Dow
holding a 60 percent share. The record sales and profits were due to
price increases of 4 percent and volume gains of 9 percent. Strong
growth in demand in the Pacific and higher sales in Europe, driven by
improved conditions in the cereal grain market, contributed to the
record performance.
In 1995, DowElanco introduced the Sentricon termite colony
elimination system. Sentricon uses new technology to eliminate entire
colonies of termites. DowElanco expects U.S. registration in late 1996
for a new line of Naturalyte insecticides based on fermentation
technology, initially targeted at the cotton and vegetable markets.
DowElanco announced in January 1996 that it would form a strategic
alliance with Mycogen Corporation, a diversified agricultural
biotechnology company. This new alliance will increase the company's
participation in this exciting new technology.
Outlook for Performance Chemicals
The Performance Chemicals segment is expected to experience another
good year in 1996 based on the strength of demand and pricing for many
of the specialty chemicals. Prices for emulsion polymers are expected
to soften in 1996. DowElanco sees opportunities for continued growth
in 1996, especially in Europe and the Pacific.
PLASTICS
Plastics reported sales of $3.9 billion in 1995, an increase of 28
percent versus the previous year. Sales were $3.1 billion in 1994 and
$2.5 billion in 1993. Prices rose 29 percent, compared to 1994, while
volume declined 1 percent.
Operating income rose 178 percent to $1.5 billion, versus $531
million in 1994. Operating income in 1993 was $89 million.
Plastics had a record 1995, with solid price and volume increases in
the first half of the year resulting in record sales in the first and
second quarters. In the third quarter, demand weakened as the result
of inventory correction in the U.S. and Europe and actions taken by
China to cut off imports of plastics.
Polyethylene experienced record sales and profits in 1995 on the
strength of increased prices, notably in the first half of the year.
14
PLASTICS (Continued)
Polystyrene had another outstanding year. Results were driven by
significant price increases supported by increased industry pricing
for styrene monomer. Dow was also able to retain the significant
volume increases achieved in 1994.
Dow's polystyrene business added the equivalent of two world scale
plants in 1995: a joint venture with Siam Cement resulted in a new 200
million pound grassroots plant in Map Ta Phut, Thailand, and
proprietary manufacturing technology yielded an additional 165 million
pounds around the world.
During the year, a number of significant acquisitions were
undertaken in the pursuit of value-growth opportunities.
The company received European Union approval for the acquisition of
three formerly state-owned chemical companies in eastern Germany
(BSL). As part of this acquisition, Dow plans to build a linear low
density polyethylene plant, as well as upgrade an existing low density
polyethylene plant.
During 1995, the company announced its intention to enter the
polypropylene and purified terephthalic acid (PTA)/poly-ethylene
terephthalate (PET) markets. Dow plans to construct a polypropylene
unit at BSL to come on line in 1998. In January 1996, Dow acquired
EniChem's INCA International SpA, providing the company with PTA/PET
production capability.
The company also led a consortium that acquired Petroquimica Bahia
Blanca (PBB) in Argentina, giving the company a strong polyolefins
position in the important four-nation Mercosur trading bloc of
Argentina, Brazil, Paraguay and Uruguay.
Outlook for Plastics
During the first half of 1996, the Plastics segment is expected to see
greater pricing stability and a modest increase in demand. During the
second half of the year, pricing is expected to trend upward as demand
again approximates supply in large volume plastics markets.
PERFORMANCE PLASTICS
Sales for Performance Plastics were $5.4 billion in 1995, an increase
of 18 percent versus $4.5 billion in 1994. In 1993, sales were $4.1
billion. Increases of 13 percent in price and 5 percent in volume
contributed to the sales gains in 1995 versus 1994.
Operating income rose 73 percent to a record $1.1 billion in 1995.
Operating income was $611 million and $304 million for 1994 and 1993,
respectively.
In 1995, polyurethanes and epoxies had record sales and
profitability. Prices for these products increased steadily during the
year, showing less quarter-to-quarter volatility than the Plastics
segment. Engineering thermoplastics (ETPs) sales increased versus a
year ago as higher prices offset lower demand from the auto industry.
Dow divested its ABS interests in Sumitomo Dow, leaving the joint
venture to focus on polycarbonate applications. In the first half of
the year, Sumitomo Dow added 50 million pounds of additional
polycarbonate capacity to meet the demands of the small appliance,
computer and automotive markets. The ABS divestiture will not have a
material impact on the Performance Plastics segment.
Lower manufacturing costs and reduced expenses contributed to record
profitability for Fabricated Products. Prices were up slightly and
volume held steady with growth in Europe offsetting a modest volume
decline in the U.S. A new production facility for Styrofoam brand
products was brought on line mid-year in Turkey to supply the European
market.
The global commercialization of Insite technology continues. Sales
of polymers produced via Insite technology are exceeding expectations.
These product families are gaining rapid acceptance by customers
globally because of their unique functionality and cost performance.
To meet growing demand, Dow has converted two production units in
Texas to produce polymers based on Insite technology and has announced
that another conversion will take place at its operations in Spain,
with an expected start-up date of April 1996.
Outlook for Performance Plastics
Demand is expected to continue to grow for Performance Plastics,
although at a slightly lower rate than in 1995. Prices are expected to
increase modestly.
DuPont Dow Elastomers L.L.C., a planned 50-50 joint venture between
Dow and DuPont which will produce a broad portfolio of general purpose
and specialty elastomers, announced the formation of a leadership team
for the new company in September 1995. The official start-up of the
enterprise is planned in the first quarter of 1996. Combined global
elastomer sales for the two companies currently are about $1 billion.
The new enterprise has the potential to grow at more than twice the
industry rate, leading to total revenues of $2 billion within five
years. This growth will be led by application development programs for
Insite technology.
HYDROCARBONS AND ENERGY
Hydrocarbons and Energy reported sales of $2.4 billion in 1995, up 16
percent from $2 billion in 1994 and 31 percent compared to $1.8
billion in 1993. This segment saw price gains of 9 percent and volume
gains of 7 percent compared to the previous year.
15
HYDROCARBONS AND ENERGY (Continued)
Hydrocarbons and Energy reported an operating loss of $83 million,
compared to operating income of $74 million in 1994 and $46 million in
1993.
Operating rates in the industry were high during the first half of
the year due to strong derivatives demand, coupled with the need to
rebuild ethylene inventories that were critically low at the end of
1994. As a result, incremental capacity expansions were brought on
line within the industry. In the second half of the year, there was a
slowdown in ethylene demand as derivatives were in a destocking mode.
This led to lower operating rates and price decreases that bottomed at
the end of the year.
Ethylene and styrene production for Dow continued at high operating
rates that were above the industry average.
Overall, yearly average unit feedstock costs for Hydrocarbons and
Energy were up 8 percent in 1995 compared to the previous year, in
line with crude oil increases for liquid feedstocks, although energy
and light feedstocks were down about 3 percent. In December 1994, an
ethylene plant in Texas, with an annual capacity of 1.5 billion
pounds, was brought on line, and the associated aromatics integration
was successfully completed. Preliminary engineering work was
undertaken for a staged expansion of the ethylene cracker in Alberta,
Canada. The initial phase of the expansion is expected to be completed
by mid-1998, and will increase plant capability to between 1.8 and 2
billion pounds. Future expansion will occur as ethylene is required to
meet demand. Capacity is planned ultimately to be increased to 2.3
billion pounds per year.
The acquisition of Petroquimica Bahia Blanca (PBB) gives Dow access
to ethane-based ethylene in Argentina. PBB currently has a production
capacity of 539 million pounds of ethylene per year. It is the only
regional producer using ethane as its principal raw material,
providing a cost advantage to the company.
A cogeneration project for the Terneuzen site was approved and is
due to start up in 1997. The new cogeneration plant, which will
replace less efficient facilities, will be built by Destec Energy,
Inc., under a joint venture with local utility companies.
Independent power producer Destec Energy, Inc., a publicly traded
Dow subsidiary (77 percent owned), reported revenues for 1995 of $641
million, compared with $727 million in 1994 and $674 million in 1993.
Operating results were down substantially, reflecting the losses
experienced by its Texas cogeneration facilities following the
expiration of major utility power sales contracts in 1995 and 1994. In
1995, Destec placed some of its available Texas capacity and will
place additional amounts in 1996.
Destec has increased activity in international markets with the
announcement of power project developments in England and Taiwan,
which were added to an international portfolio of developing projects
that includes Canada and the Netherlands. Destec acquired interests in
a fifth international project in the Dominican Republic, and the
Crockett cogeneration project near San Francisco. Destec also
successfully completed and started up the Wabash River Coal
Gasification Repowering Project in Terre Haute, Indiana.
In 1995, Destec put the equivalent of 768 megawatts of new
generating capacity into operation. At year-end, Destec had seven
projects in construction or advanced development, representing
additional capacity of more than 1,700 megawatts.
Outlook for Hydrocarbons and Energy
As derivative demand trends upward in 1996, ethylene operating rates
are expected to increase, leading to a stronger market in the second
half of the year. No major expansions are being added in 1996.
Dow's joint venture styrene plant with Siam Cement in Thailand is
expected to be brought on line at the end of the year to capture
growth in southeast Asia countries.
In 1996, Destec plans to pursue aggressively additional
opportunities to place its available Texas power. With regard to
international markets, Destec plans to continue to proceed toward
finalization of its power purchase agreement for the Taiwan project,
finance the project in the Netherlands, and finance and begin
operations of the projects in the United Kingdom and the Dominican
Republic. Destec also plans to begin operations of its project in
Ontario, Canada, in late 1996.
DIVERSIFIED BUSINESSES AND UNALLOCATED
The operating results of DowBrands, New Businesses, including Dow
Environmental Inc., and consolidated insurance and finance
subsidiaries are grouped in this segment together with activities and
overhead cost variances not allocated to other segments.
Sales for this segment were $966 million, $953 million and $927
million, in 1995, 1994 and 1993, respectively.
This segment reported an operating loss of $363 million in 1995,
versus an operating loss of $247 million in 1994. In 1993, this
segment had an operating income of $78 million.
DowBrands, Dow's consumer products affiliate, had sales of $866
million, up from $845 million in 1994 and $846 in 1993.
DowBrands restructured its organization in the third quarter,
reducing the U.S. workforce by 4 percent and lowering administrative
costs. The sale of the Personal Care Business was completed in
November.
The Home Food Management value center had a strong year with sales
in North America up 11 percent versus the prior year. Ziploc brand bags
had record sales despite new competition introduced in the U.S. early in
1995. Sales in the rest of the world were down 2 percent. In early 1996,
a letter of intent was signed between DowBrands Europe and The Melitta
Group of Germany to form a joint venture that combines both food care
businesses in the European area.
16
DIVERSIFIED BUSINESSES AND UNALLOCATED (Continued)
Sales for the Home Care value center remained flat. Volume growth
for Dow bathroom cleaner with Scrubbing Bubbles, Spray'N Wash tough
stain remover and Smart Cleanser soft scouring cleanser, which earned
a 21 percent market share after its first full year on the market, was
offset by declines in laundry products.
The New Businesses unit performs research aimed at developing new
high-value products. New product development has been targeted on two
key market segments: advanced structural materials and advanced
electronic materials. These businesses represent significant value-
growth opportunities that would allow Dow to leverage its existing
strength in polymer chemistry. Dow's goal is to have all these
research and development projects cash neutral in the fifth year of
development. To achieve this goal, the company has set strict project
milestones.
In 1995, Dow ended its collaboration with Ballard Power Systems Inc.
to develop fuel cell technology, sold its Advanced Cleaning Systems
business, and announced it would sell Boride Products Inc., as the
company worked to focus its resources on high-value businesses. These
divestitures will not have a material impact on the company.
The primary components of the 1995 operating loss in this segment
were severance costs of $181 million, research and other expenses of
$109 million related to new developmental activities in New
Businesses, and overhead cost variances not allocated to other
segments of $119 million. These costs were partially offset by pretax
income from the insurance and finance company operations of $61
million. The 1994 operating loss was related to severance costs of
$124 million, activities in New Businesses of $91 million, and asset
write-offs and provisions for environmental remediation of $38 million
not assigned to Dow's other industry segments. These costs were
partially offset by pretax income from the insurance and finance
company operations of $40 million. The 1993 operating income of this
segment was comprised primarily of pretax income from the insurance
and finance company operations of $98 million and favorable variances
resulting from resource use reduction of $60 million, which were
partially offset by expenses related to new developmental activities
in the New Businesses of $70 million.
Outlook for Diversified Businesses
In January 1996, Dow Environmental Inc. formed a joint venture with
the Radian subsidiary of The Hartford Steam Boiler Inspection and
Insurance Company to provide environmental, information technology,
and strategic chemical management services. The joint venture, named
Radian International LLC, is expected to have sales of nearly $400
million in 1996.
Overall performance for DowBrands is expected to improve, in part
through the introduction of several product improvements and line
extensions. Manufacturing costs are expected to decrease with the
improved productivity at the Urbana, Ohio, facility and the closing of
the Mauldin, South Carolina, plant.
COMPANY SUMMARY
Operating Income
Operating income was $3.9 billion in 1995, up 114 percent from $1.8
billion in 1994 and 263 percent from $1.1 billion in 1993. Gross
margin improved by $2.3 billion versus 1994, primarily as a result of
higher selling prices.
<TABLE>
Sales Price and Volume
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
Percentage changes Price Volume Total Price Volume Total Price Volume Total
from prior year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Geographic Areas:
United States 12% - 12% 1% 7% 8% - 3% 3%
Europe 25 8% 33 4 8 12 (12)% (2) (14)
Rest of World 16 8 24 3 15 18 (3) 4 1
All Areas 17 4 21 3 8 11 (5) 2 (3)
- ------------------------------------------------------------------------------------------------------
Industry Segments:
Chemicals and Metals 33% 1% 34% 4% 3% 7% (6)% - (6)%
Performance Chemicals 6 9 15 (1) 9 8 (2) 2% -
Plastics 29 (1) 28 12 10 22 (8) 2 (6)
Performance Plastics 13 5 18 (1) 11 10 (4) 2 (2)
Hydrocarbons and Energy 9 7 16 6 7 13 (6) 9 3
Diversified Businesses - 1 1 (2) 5 3 2 (9) (7)
and Unallocated
All Segments 17 4 21 3 8 11 (5) 2 (3)
17
</TABLE>
Operating Income (Continued)
The ratio of operating income to sales was 19 percent in 1995,
versus 11 percent in 1994 and 7 percent in 1993. Sales price increases
across all segments and volume increases in Performance Chemicals and
Performance Plastics led to the improved 1995 results. Operating
income substantially improved in most segments. Prices began to show
noticeable improvement in the latter half of 1994 and this continued
until late 1995. The United States contributed 41 percent of the total
operating income in 1995 compared to 56 percent in 1994 and 74 percent
in 1993. The United States portion of the total decreased as a result
of operating income improvements in Europe and the rest of the world.
Operating income in Europe was $1.1 billion in 1995 versus $237
million in 1994 and a $23 million loss in 1993. Operating income from
Rest of World showed continued improvement, increasing to $1.2 billion
in 1995 from $559 million in 1994 and $302 million in 1993.
Operating Costs and Expenses
1994 1993
Cost Components as a Percent of Total: 1995 Restated Restated
- --------------------------------------------------------------------------
Hydrocarbons and energy 25% 26% 25%
Wages, salaries and employee benefits 21 22 25
Maintenance 5 6 7
Depreciation 8 8 9
Supplies, services and other raw materials 41 38 34
- --------------------------------------------------------------------------
Total 100% 100% 100%
- --------------------------------------------------------------------------
Dow's global plant operating rates for its chemicals and plastics
businesses were 92 percent of capacity in 1995 and 1994 and 85 percent
in 1993. The 1995 sales volume growth of 4 percent over 1994 was
primarily achieved by new capacity while the 1994 growth of 8 percent
over 1993 was primarily achieved by higher plant operating rates.
Depreciation expense was $1.4 billion in 1995, $1.2 billion in 1994
and $1.3 billion in 1993.
Research and development, promotion and advertising, and selling and
administrative expenses increased by $207 million or 7 percent
compared to 1994.
Research and development expenses were $808 million for 1995, up 3
percent compared to 1994 while 1994 was flat compared to 1993.
Promotion and advertising expenses of $416 million were flat against
$411 million in 1994; 1993 costs were $367 million.
Selling and administrative expenses for 1995 were $1.8 billion, up 11
percent from $1.6 billion in 1994 which was up 7 percent from $1.5 billion
in 1993. The increase in 1995 was primarily the result of variable
compensation accruals based on improved company earnings and the negative
impact of exchange rate changes on expenses incurred outside the U.S.
Selling and administrative expenses represented 9 percent of sales in 1995
and 10 percent in 1994 and 1993.
The personnel count at December 31, 1995 was 39,537 versus 53,730 at
the end of 1994, 55,436 at the end of 1993 and 61,353 at the end of
1992. Excluding the discontinued pharmaceutical businesses, the
personnel count has been reduced by 21 percent over the last three
years. This reduction in personnel reflects continuing rationalization
and work process improvements throughout the company.
Net Income
Net income available for common stockholders in 1995 was $2.1 billion
or $7.72 per share, an increase of 122 percent compared to net income
of $931 million or $3.37 per share in 1994. The increase is primarily
attributable to increased sales prices. The increase of 46 percent in
1994, compared to 1993 net income of $637 million or $2.33 per share,
was primarily due to stronger operating results.
The following table summarizes the impact of special items on
earnings per common share.
1994 1993
1995 Restated Restated
- ---------------------------------------------------------------------------
Impact of Dow Corning Corporation
breast implant charges - $(.25) $(.70)
Net gain (loss) on investments $(1.24) (.26) 1.31
Discontinued operations 69 .60 .26
Other earnings 8.27 3.28 1.46
- ---------------------------------------------------------------------------
Net earnings per common share $ 7.72 $3.37 $2.33
- ---------------------------------------------------------------------------
18
Net Income (Continued)
Dow's share of the earnings of 20%-50% owned companies amounted to
$70 million compared to $29 million in 1994 and a loss of $127 million
in 1993. The major impact on this was from Dow Corning Corporation in
which the company is a 50 percent shareholder. Excluding Dow Corning,
Dow's shares of 20%-50% company earnings were $44 million, $26 million
and $16 million for 1995, 1994 and 1993, respectively. Dow Corning
reported net losses of $7 million in 1994 and $287 million in 1993. In
1995 the company did not record its share of equity earnings in Dow
Corning after the first quarter due to Dow Corning's filing for
protection under Chapter 11 and the company's write-down of its
investment as discussed below. Dow Corning's 1994 and 1993 losses
reflected after tax charges against income related to breast implant
litigation of $152 million and $415 million, respectively. The
negative impact of these charges on Dow's net income was $70 million
or 25 cents per share in 1994 and $192 million or 70 cents per share
in 1993. See Note Q to the Financial Statements for further discussion
of breast implant litigation.
Interest expense (including capitalized interest) and amortization
of debt discount increased $72 million to $434 million in 1995, up 20
percent from $362 million in 1994 and up 5 percent from $413 million
in 1993. The apparent increase in 1995 was primarily due to the
apportionment of interest to discontinued operations in the
restatement of 1994 results (see Note C to the Financial Statements).
Interest income and foreign exchange-net improved $191 million to
$289 million in 1995 versus $98 million in 1994. The gain was
primarily attributable to the investment of the cash received from the
sale of the pharmaceutical businesses. For a discussion of the
company's risk management program for both foreign currency and
interest rate risk, see Note J to the Financial Statements.
The loss on investments of $330 million in 1995 was due to the
company's write-down of its investment in Dow Corning as a result of
Dow Corning's decision to file for Chapter 11 (see Note Q to the
Financial Statements). In 1994, Dow recorded a loss on investments of
$42 million. The loss was due to a $132 million pretax charge related
to the pending sale of the Personal Care Business of DowBrands.
Partially offsetting this charge was a pretax gain of $90 million
recorded by the company on the sale of its common shares of Magma
Power Company, primarily as a result of the merger agreement between
Magma and California Energy Company, Inc. In 1993, Dow recorded a net
gain on investments of $592 million, primarily due to the sale of its
interest in Dowell Schlumberger and portions of its interests in Magma
and Crestar Energy Inc. Acquisitions and divestitures are discussed in
Note C to the Financial Statements.
The provision for taxes on income was $1.4 billion in 1995 versus
$654 million in 1994 and $514 million in 1993. Dow's overall effective
tax rate for 1995 was 40.9 percent versus 40.2 percent for 1994 and
40.9 percent for 1993. The underlying factors affecting Dow's overall
effective tax rates are discussed in Note D to the Financial
Statements. U.S. and other tax law and rate changes during the year
did not have a material impact on Dow.
Minority interests' share of net income in 1995 was $196 million
compared to $200 million in 1994 and $171 million in 1993. The 1994
increase reflected the improved profitability of DowElanco, which is
60 percent owned, as well as the full-year impact of certain limited
partnerships (see Note K to the Financial Statements).
Discontinued operations accounted for an after tax gain of $187
million in 1995, $169 million of which resulted from the sale of Dow's
shares of Marion Merrell Dow to Hoechst A.G. for $5.1 billion and the
sale of the company's Latin American pharmaceutical businesses to
Roussel Uclaf S.A. for $133 million in the second quarter 1995. A
further $18 million income after tax was earned from the operations of
the pharmaceutical businesses in the first quarter 1995. Provision for
taxes was $418 million, $382 million on the sale and $36 million from
operations. The income, net of taxes, from operations in 1994 and 1993
was $166 million and $71 million with provision for taxes of $125
million and $92 million, respectively (see Note C to the Financial
Statements).
Dividends
The Board of Directors has announced a quarterly dividend of 75 cents
per share, payable April 30, 1996, to stockholders of record on March
29, 1996. This will be the 337th consecutive quarterly dividend since
1912. Dow has maintained or increased the dividend throughout that
time. In 1995, the company increased declared dividends to $2.90 per
common share from $2.60 in 1994 and 1993.
Environment
Dow's global operations are subject to increasingly stringent laws and
government regulations related to environmental protection and
remediation. Dow's environmental responsibilities and potential
liabilities receive direct and ongoing scrutiny by management to
ensure compliance with these laws and regulations. Dow's Environmental
Management Standard clearly defines the overall environmental
management system, performance objectives and design requirements
needed to minimize the long term cost of environmental protection as
well as to comply with these laws and regulations. This standard was
reviewed, revised and re-communicated throughout the organization in
1995. It is Dow's stated policy that all global operations and
products meet Dow's Environmental Management Standard or their
country's laws and regulations, whichever is more stringent.
Assessments are used by management to measure continually and report
Dow's progress against this standard and its performance objectives.
19
Environment (Continued)
It has been Dow's policy to adhere to a waste management hierarchy
that minimizes the impact of wastes and emissions on the environment.
First, Dow works to eliminate or minimize the generation of waste and
emissions at the source through research, process design, plant
operations and maintenance. Second, Dow finds ways to reuse and
recycle materials. Finally, unusable or non-recyclable hazardous waste
is treated before disposal to eliminate or reduce the hazardous nature
and volume of the waste. Treatment may include destruction by
chemical, physical, biological or thermal (incineration) means.
Disposal of waste materials in landfills is considered only after all
other options have been thoroughly evaluated and determined
infeasible. Dow has specific requirements for wastes that are
transferred to non-Dow facilities. Wastes that are recycled, treated
or recovered for energy off-site represent less than 1 percent of the
total amount of wastes reported as part of the Pollution Prevention Act.
Dow's policy of treating its wastes on-site has resulted in less
than 10 percent of its total environmental liability being directed at
remediation under federal or state "Superfund" statutes. Dow's focused
approach to waste and emission reduction resulted in achieving its
public commitment to reduce global emissions of 17 priority compounds
(as defined by the U.S. Environmental Protection Agency's 33/50
program) and emissions of an expanded list of compounds (defined by
each geographic area) by 50 percent by 1995 (1988 base year). Global
reductions of 65 percent and 53 percent, respectively, were achieved
one year ahead of schedule in 1994. Dow is in the process of
developing new environmental, health and safety performance
improvement goals for the year 2005. These goals, as well as other
performance data, will be made available in May 1996 with the
publication of Dow's EH&S Progress Report.
The costs of site remediation are accrued as a part of the shutdown
of a facility or, in the case of a landfill, over its useful life. The
nature of such remediation includes the cleanup of soil contamination
and the closure of landfills and other waste management facilities.
The policies adopted to reflect properly the monetary impacts of
environmental matters are discussed in Note A to the Financial
Statements. To assess the impact on the financial statements,
environmental experts review currently available facts to evaluate the
probability and scope of potential liabilities. Inherent uncertainties
exist in such evaluations primarily due to unknown conditions,
changing governmental regulations and legal standards regarding
liability, and evolving technologies for handling site remediation and
restoration. These liabilities are adjusted periodically as
remediation efforts progress or as additional technical or legal
information becomes available.
Dow has been named as a potentially responsible party (PRP) under
federal or state Superfund statutes at approxi-mately 85 sites. Dow
readily cooperates in remediation at sites where its liability is
clear, thereby minimizing legal and administrative costs. However, at
several of these Superfund sites, Dow has had no known involvement and
is contesting all liability; at many others, Dow disputes major
liability, believing its responsibility to be de minimis. Because
current law imposes joint and several liability upon each party at a
Superfund site, Dow has evaluated its potential liability in light of
the number of other companies which have also been named PRPs at each
site, the estimated apportionment of costs among all PRPs and the
financial ability and commitment of each to pay its expected share.
Management has estimated that the company's probable liability for
the remediation of Superfund sites at December 31, 1995 was $17
million, which has been accrued. In addition, receivables of $14
million for probable third-party recoveries have been recorded related
to these sites. Other recoveries are possible since Dow has numerous
insurance policies secured from many carriers at various times that
may provide coverage at different levels for environmental
liabilities. The company is currently involved in litigation to
determine the scope and extent of such coverage. Dow has not recorded
any receivables for these possible recoveries.
In addition to the Superfund-related liability referenced above, Dow
had an accrued liability of $258 million at December 31, 1995
representing the total probable costs that the company could incur
related to the remediation of current or former Dow-owned sites. The
company had not recorded as a receivable any third-party recovery
related to these sites.
In total, Dow's accrued liability for probable environmental
remediation and restoration costs was $275 million at December 31,
1995, as compared to $234 million at the end of 1994. This is
management's best estimate of these liabilities, although possible
costs for environmental remediation and restoration could range up to
50 percent higher.
The amounts charged to income on a pretax basis related to
environmental remediation totaled $89 million in 1995, $64 million in
1994 and $69 million in 1993. Capital expenditures for environmental
protection were $80 million in 1995, $103 million in 1994 and $149
million in 1993. Capital expenditures for environmental protection are
currently projected at $76 million in 1996 and $82 million in 1997.
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.
Capital Expenditures
Capital spending for the year was $1.4 billion, up 21 percent from
$1.2 billion in 1994 and flat with $1.4 billion in 1993. Capital
spending in 1994 and 1993 includes spending in pharmaceuticals of $109
million and $193 million, respectively. The increase of $245 million
in 1995 was the direct result of the company's investment of $318
million to purchase assets formerly leased. Approximately 40 percent
of the company's capital expenditures was directed toward additional
capacity for new and existing products, while about 10 percent was
committed to projects related to environmental protection, safety and
loss prevention, and industrial hygiene. The remaining capital was
utilized to maintain the company's existing asset base, including
projects related to cost reduction, energy conservation and facilities
support. Major projects underway
20
Capital Expenditures (Continued)
during 1995 included an s/b latex plant at Menak, Indonesia; an
expansion of waste treatment facilities in Terneuzen, the Netherlands;
an upgrade of the MDI facilities in La Porte, Texas; and a new parabis
and bisphenol-A plant and an allyl chloride/epichlorohydrin
rehabilitation in Stade, Germany. Start-up on each of these plants has
been completed and they are now operational. Because the company
designs and builds most of its capital projects in-house, it had no
major capital commitments, other than for the purchase of materials
from fabricators.
Liquidity and Capital Resources
The sale of Marion Merrell Dow Inc. (MMDI) to Hoechst A.G. for $5.1
billion had a very positive effect on the liquidity and capital
resources of the company. The impact can be seen in the improvement in
working capital, decreased short-term borrowings, decreased long-term
debt and increased purchase of treasury shares.
Operating activities provided $3.3 billion in cash in 1995, as
compared to $2.7 billion in 1994 and $2.1 billion in 1993 (see the
Consolidated Statements of Cash Flows). The items affecting operating
activities are discussed in the operating income and net income
analyses. Cash provided by investing activities was $2.9 billion in
1995, due to the MMDI sale, versus cash used in investment activities
of $1.3 billion in 1994 and $615 million in 1993.
Total working capital at year-end was $5.0 billion versus $2.1
billion at the end of 1994. Cash, cash equivalents, marketable
securities and interest-bearing deposits increased by $2.3 billion.
Inventories and trade receivables together decreased $680 million in
1995, primarily as a result of the sale of the pharmaceutical
businesses. Days-sales-in-inventory were 90 days, 80 days and 82 days
at the end of 1995, 1994 and 1993, respectively. Days-sales-
outstanding-in-receivables were 56 days at the end of 1995 and 52 days
for 1994 and 1993.
Short-term borrowings at December 31, 1995 were $323 million, a
decrease of $418 million from year-end 1994. Long-term debt due within
one year decreased $159 million to $375 million at the end of 1995
compared to $534 million at the end of 1994. Long-term debt due in
1996 will be funded by operating cash flows. Accounts payable
decreased by $316 million to $2.2 billion and income taxes payable
increased $127 million during the year.
Long-term debt was $4.7 billion, a decrease of $598 million from
year-end 1994. During the year, $247 million of new long-term debt was
incurred while $951 million of long-term debt was retired and $375
million was transferred to long-term debt due within one year.
Total debt was $5.4, $6.6 and $6.9 billion at December 31, 1995,
1994 and 1993, respectively. Net debt, which equals total debt less
cash, cash equivalents, marketable securities and interest-bearing
deposits, was $2.0, $5.4 and $6.1 billion at December 31, 1995, 1994
and 1993, respectively. The debt to total capitalization ratio
decreased to 36 percent at year-end 1995 from 38 percent at the end of
1994.
In 1989 and 1995, the Board of Directors authorized, subject to
certain business and market conditions, the purchase of the company's
common stock. Due to the favorable cash flow created by the sale of
the pharmaceutical businesses, $2.1 billion worth of common stock was
purchased in 1995 versus $38 million in 1994 and $17 million in 1993
(see Note L to the Financial Statements).
The company has unused and available credit facilities with various
U.S. and foreign banks totaling $1.9 billion in support of its working
capital requirements and commercial paper borrowings. Additional
unused credit facilities totaling $1.3 billion are available for use
by foreign subsidiaries.
At December 31, 1995, there was a total of $1.4 billion in available
SEC registered debt securities between Dow and Dow Capital plc., a
wholly owned subsidiary, and 30 billion in available Japanese yen
(approximately $291 million) registered with Japan's Ministry of
Finance.
Minority interest in subsidiary companies decreased during the year
from $2.5 to $1.8 billion at the end of 1995, as a result of the sale
of MMDI.
The company's strong position of $2.8 billion in cash and cash
equivalents will support its involvement in new acquisitions and joint
ventures as discussed in Note C to the Financial Statements. There are
two other possibilities for substantial cash requirements. Eli Lilly
and Company (Lilly) holds a put option which could require the company
to purchase Lilly's 40 percent interest in DowElanco at fair market
value (see Note Q to the Financial Statements). And, in 1996, the
outside investors in DowBrands L.P. could liquidate or terminate the
limited partnership which would cause the partners' capital accounts
to be redeemed at current fair value (see Note K to the Financial
Statements).
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Responsibility for Financial Statements and Independent Auditors' Report
- ---------------------------------------------------------------------------
Management Statement of Responsibility
The management of The Dow Chemical Company and its subsidiaries
prepared the accompanying consolidated financial statements, and has
responsibility for their integrity, objectivity and freedom from
material misstatement or error. These statements were prepared in
accordance with generally accepted accounting principles. The
financial statements include amounts that are based on management's
best estimates and judgments. Management also prepared the other
information in this annual report and is responsible for its accuracy
and consistency with the financial statements. The Board of Directors,
through its Audit Committee, assumes an oversight role with respect to
the preparation of the financial statements.
Management recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. Management has established and
maintains a system of internal control that provides reasonable
assurance as to the integrity and reliability of the financial
statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial
reporting.
The system of internal control provides for appropriate division of
responsibility and is documented by written policies and procedures
that are communicated to employees with significant roles in the
financial reporting process and updated as necessary. Management
continually monitors the system of internal control for compliance.
The Company maintains a strong internal auditing program that
independently assesses the effectiveness of the internal controls and
recommends possible improvements.
Deloitte & Touche LLP, independent auditors, with direct access to
the Board of Directors through its Audit Committee, has audited the
consolidated financial statements prepared by the Company, and their
report follows.
Management has considered recommendations from the internal auditors
and Deloitte & Touche LLP concerning the system of internal control
and has taken actions that are cost-effective in the circumstances to
respond appropriately to these recommendations. Management further
believes the controls are adequate to accomplish the objectives
discussed herein.
- ---------------------------------------------------------------------------
Independent Auditors' Report
To the Stockholders and Board of Directors of The Dow Chemical Company:
We have audited the accompanying consolidated balance sheets of The
Dow Chemical Company and its subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement
schedule listed at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The Dow
Chemical Company and its subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents
fairly, in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Midland, Michigan
February 7, 1996
22
<TABLE>
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
<CAPTION>
1994 1993
In millions, except for per share amounts 1995 Restated Restated
- --------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
Net Sales $20,200 $16,742 $15,052
- --------------------------------------------------------------------------------------------------------------
Operating Costs and Expenses Cost of sales 13,337 12,131 11,370
Insurance and finance company
operations, pretax income (61) (40) (98)
Research and development expenses 808 783 786
Promotion and advertising expenses 416 411 367
Selling and administrative expenses 1,771 1,594 1,485
Amortization of intangibles 38 43 68
--------------------------------------------------------------------------------
Total operating costs and expenses 16,309 14,922 13,978
- --------------------------------------------------------------------------------------------------------------
Operating Income 3,891 1,820 1,074
Other Income (Expense) Equity in earnings (losses) of
20%-50% owned companies 70 29 (127)
Interest expense and amortization of debt discount (434) (362) (413)
Interest income and foreign exchange-net 289 98 140
Net gain (loss) on investments (330) (42) 592
Sundry income (expense)-net 43 83 (8)
---------------------------------------------------------------------------------
Total other income (expense) (362) (194) 184
- ---------------------------------------------------------------------------------------------------------------
Income before Provision for Taxes on Income and Minority Interests 3,529 1,626 1,258
Provision for Taxes on Income 1,442 654 514
Minority Interests' Share in Income 196 200 171
Preferred Stock Dividends 7 7 7
- ---------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 1,884 765 566
Discontinued Operations Income from pharmaceutical businesses,
net of taxes on income 18 166 71
Gain on sale of pharmaceutical businesses,
net of taxes on income 169 - -
- ---------------------------------------------------------------------------------------------------------------
Net Income Available for Common Stockholders $2,071 $931 $637
- ---------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 268.2 276.1 273.6
- ---------------------------------------------------------------------------------------------------------------
Earnings per Common Share from Continuing Operations $7.03 $2.77 $2.07
Earnings per Common Share $7.72 $3.37 $2.33
Common Stock Dividends Declared per Share $2.90 $2.60 $2.60
- ---------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
23
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31
In millions 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Assets
- -------------------------------------------------------------------------------------------------------------
Current Assets Cash and cash equivalents $2,839 $569
Marketable securities and interest-bearing deposits 611 565
Accounts and notes receivable:
Trade (less allowance for doubtful receivables-
1995, $53; 1994, $104) 2,729 3,359
Other 1,380 1,099
Inventories:
Finished and work in process 2,197 2,079
Materials and supplies 551 633
Deferred income tax assets-current 247 389
---------------------------------------------------------------------------------
Total current assets 10,554 8,693
- ---------------------------------------------------------------------------------------------------------------
Investments Capital stock at cost plus equity in accumulated
earnings of 20%-50% owned companies 848 931
Other investments 1,558 1,529
Noncurrent receivables 314 330
---------------------------------------------------------------------------------
Total investments 2,720 2,790
- ---------------------------------------------------------------------------------------------------------------
Plant Properties Plant properties 23,218 23,210
Less accumulated depreciation 15,105 14,484
---------------------------------------------------------------------------------
Net plant properties 8,113 8,726
- ---------------------------------------------------------------------------------------------------------------
Other Assets Goodwill (net of accumulated amortization-
1995, $177; 1994, $676) 658 4,365
Deferred income tax assets-noncurrent 779 1,132
Deferred charges and other assets 758 839
---------------------------------------------------------------------------------
Total other assets 2,195 6,336
- ---------------------------------------------------------------------------------------------------------------
Total Assets $23,582 $26,545
- ---------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
24
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31
In millions, except for share amounts 1995 1994
<S> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------
Current Liabilities Notes payable $323 $741
Long-term debt due within one year 375 534
Accounts payable:
Trade 1,529 1,928
Other 717 634
Income taxes payable 791 664
Deferred income tax liabilities-current 55 56
Dividends payable 192 202
Accrued and other current liabilities 1,619 1,859
---------------------------------------------------------------------------------
Total current liabilities 5,601 6,618
- ---------------------------------------------------------------------------------------------------------------
Long-Term Debt 4,705 5,303
Other Noncurrent Deferred income tax liabilities-noncurrent 659 644
Liabilities Pension and other postretirement benefits-noncurrent 1,880 1,987
Other noncurrent obligations 1,260 1,253
---------------------------------------------------------------------------------
Total other liabilities 3,799 3,884
- ---------------------------------------------------------------------------------------------------------------
Minority Interest in Subsidiary Companies 1,775 2,506
- ---------------------------------------------------------------------------------------------------------------
Temporary Equity Temporary equity-other 313 -
Preferred stock (authorized 250,000,000 shares of $1.00 par
value each; issued Series A-1995: 1,521,175; 1994: 1,549,014)
at redemption value 131 133
Guaranteed ESOP obligation (103) (111)
---------------------------------------------------------------------------------
Total temporary equity 341 22
- ---------------------------------------------------------------------------------------------------------------
Stockholders' Equity Common stock (authorized 500,000,000 shares of $2.50 par
value each; issued 1995 and 1994: 327,125,854) 818 818
Additional paid-in capital 315 326
Retained earnings 10,159 8,857
Unrealized gains (losses) on investments 62 (21)
Cumulative translation adjustments (349) (330)
Treasury stock, at cost (shares 1995: 76,168,614;
1994: 50,002,967) (3,644) (1,438)
---------------------------------------------------------------------------------
Net stockholders' equity 7,361 8,212
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $23,582 $26,545
- ---------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
25
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
In millions 1995 1994 1993
<S> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Common Stock Balance at beginning and end of year $818 $818 $818
- --------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital Balance at beginning of year 326 366 350
Tax benefit of contingent value rights - - 34
Issuance of treasury stock at less than cost (11) (40) (18)
--------------------------------------------------------------------------------
Balance at end of year 315 326 366
- ---------------------------------------------------------------------------------------------------------------
Retained Earnings Balance at beginning of year 8,857 8,645 8,720
Net income 2,078 938 644
Preferred stock dividends declared (7) (7) (7)
Common stock dividends declared (769) (719) (712)
---------------------------------------------------------------------------------
Balance at end of year 10,159 8,857 8,645
- ----------------------------------------------------------------------------------------------------------------
Unrealized Gains (Losses) Balance at beginning of year (21) 105 (2)
on Investments Unrealized gains (losses) 83 (126) 107
---------------------------------------------------------------------------------
Balance at end of year 62 (21) 105
- ---------------------------------------------------------------------------------------------------------------
Cumulative Translation Balance at beginning of year (330) (304) (107)
Adjustments Translation adjustments (19) (26) (197)
---------------------------------------------------------------------------------
Balance at end of year (349) (330) (304)
- ---------------------------------------------------------------------------------------------------------------
Treasury Stock Balance at beginning of year (1,438) (1,596) (1,715)
Purchases (2,115) (38) (17)
Reclassification to Temporary Equity (313) - -
Issuance to employees and employee plans 222 196 136
---------------------------------------------------------------------------------
Balance at end of year (3,644) (1,438) (1,596)
- ---------------------------------------------------------------------------------------------------------------
Net Stockholders' Equity $7,361 $8,212 $8,034
- ---------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
26
</TABLE>
<TABLE>
The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
1995 1994 1993
In millions Restated Restated
- ---------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
Operating Activities Income from Continuing Operations $1,884 $765 $566
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,442 1,302 1,352
Provision for deferred income tax 268 41 47
Undistributed (earnings) losses of 20%-50%
owned companies (35) (17) 162
Minority interests' share in income 196 200 171
Net (gain) loss on investments 330 42 (592)
Net gain on sale of plant properties (24) (73) (48)
Other net (99) (69) 52
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (311) (612) (78)
Inventories (369) (245) 176
Accounts payable 15 456 78
Other assets and liabilities (40) 689 (354)
Operating activities related to
discontinued operations 84 250 554
---------------------------------------------------------------------------------
Cash provided by operating activities 3,341 2,729 2,086
- ---------------------------------------------------------------------------------------------------------------
Investing Activities Purchases of plant properties (1,417) (1,074) (1,204)
Investments in unconsolidated affiliates (325) (43) (27)
Purchases of consolidated companies
(net of cash acquired) (10) - -
Proceeds from sales of plant properties 107 108 77
Proceeds from outside investors
in limited partnerships - - 200
Proceeds from sale of pharmaceutical businesses
(net of cash divested) 5,060 - -
Purchases of investments (2,260) (1,419) (237)
Proceeds from sales of investments 1,751 1,358 952
Investing activities related to
discontinued operations (28) (219) (376)
---------------------------------------------------------------------------------
Cash provided by (used in) investing activities 2,878 (1,289) (615)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities Changes in short-term notes payable (390) (29) 121
Proceeds from issuance of long-term debt 247 100 1,056
Payments on long-term debt (951) (340) (1,598)
Purchases of treasury stock (2,115) (38) (17)
Proceeds from sales of common stock 158 110 82
Distributions to minority interests (155) (187) (111)
Dividends paid to stockholders (766) (723) (719)
Financing activities related to
discontinued operations 16 (170) (251)
---------------------------------------------------------------------------------
Cash used in financing activities (3,956) (1,277) (1,437)
- ---------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 7 (1) (2)
Summary Increase in cash and cash equivalents 2,270 162 32
Cash and cash equivalents at beginning of year 569 407 375
---------------------------------------------------------------------------------
Cash and cash equivalents at end of year $2,839 $569 $407
- ---------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
27
</TABLE>
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
Table of Contents
Page
A Summary of Significant Accounting Policies 28
B Accounting Change 30
C Acquisitions and Divestitures 30
D Taxes on Income 32
E Inventories 33
F Related Company Transactions 33
G Plant Properties 33
H Leased Properties 33
I Notes Payable, Long-Term Debt and
Available Credit Facilities 34
J Financial Instruments 36
K Limited Partnerships 38
L Stockholders' Equity 38
M Stock Option Plans 39
N Redeemable Preferred Stock 39
O Pension Plans 40
P Other Postretirement Benefits 41
Q Commitments and Contingent Liabilities 42
R Supplementary Information 44
S Industry Segments and Geographic Areas 45
A Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements of The Dow Chemical
Company and its subsidiaries (the Company) include the assets,
liabilities, revenues and expenses of all majority-owned subsidiaries.
Intercompany transactions and balances are eliminated in
consolidation. Investments in companies 20%-50% owned (related
companies) are accounted for on the equity basis.
The Company's consolidated statements of income and cash flows have
been restated to reflect the pharmaceutical businesses as discontinued
operations (See Note C). Certain reclassifications of prior years' amounts
have been made to conform to the presentation adopted for 1995.
Use of Estimates in Financial Statement Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. The Company's financial statements include
amounts that are based on management's best estimates and judgments.
Actual results could differ from those estimates.
Foreign Currency Translation
The local currency has primarily been used as the functional currency
throughout the world. Translation gains and losses of those operations
that use local currency as the functional currency, and the effects of
exchange rate changes on transactions designated as hedges of net
foreign investments, are included as a separate component of
stockholders' equity. Where the U.S. dollar is used as the functional
currency, foreign currency gains and losses are reflected in income
currently.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and readily marketable
securities with original maturities of three months or less.
28
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
A Summary of Significant Accounting Policies (Continued)
Inventories
Inventories are stated at the lower of cost or market. The method of
determining cost is used consistently from year to year at each
subsidiary and varies among the last-in, first-out (LIFO) method; the
first-in, first-out (FIFO) method; and the average cost method.
Plant Properties, Investments and Other Assets
Land, buildings and equipment, including property under capital lease
agreements, are carried at cost less accumulated depreciation.
Depreciation is based on the estimated service lives of depreciable
assets and is generally provided using the declining balance method.
Fully depreciated assets are retained in property and depreciation
accounts until they are removed from service. In the case of
disposals, assets and related depreciation are removed from the
accounts and the net amount, less proceeds from disposal, is charged
or credited to income.
The excess of the cost of investments in subsidiaries over the
carrying value of assets acquired is shown as goodwill, which is
amortized on a straight-line basis over its estimated useful life with
a maximum of 40 years.
The Company evaluates long-lived assets for impairment based on the
recoverability of the asset's carrying amount. When it is probable
that undiscounted future cash flows will not be sufficient to recover
the asset's carrying amount, the asset is written down to its fair
value.
Gain Recognition on Sale of Subsidiaries' Stock
Company policy is to record gains from the sale or other issuance of
previously unissued stock by its subsidiaries.
Financial Instruments
Interest differentials on swaps and forward rate agreements designated
as hedges of exposures to interest rate risk are recorded as
adjustments to interest expense over the contract period. Premiums for
early termination of derivatives designated as hedges are amortized as
adjustments to interest expense over the original contract period.
Interest derivatives not designated as hedges are marked-to-market at
the end of each accounting period.
The Company calculates the fair value of financial instruments using
quoted market prices whenever available. When quoted market prices are
not available, the Company uses standard pricing models for various
types of financial instruments (such as forwards, options, swaps,
etc.) which take into account the present value of estimated future
cash flows. Investments in debt and marketable equity securities
are classified as either Trading, Available-for-Sale or Held-to-
Maturity. Investments classified as Trading are reported at fair value
with unrealized gains and losses included in income. Investments
classified as Available-for-Sale are reported at fair value with
unrealized gains and losses recorded in a separate component of
stockholders' equity. Investments classified as Held-to-Maturity are
recorded at amortized cost.
The cost of investments sold is determined by specific
identification.
Environment
Accruals for environmental matters are recorded when it is probable
that a liability has been incurred and the amount of the liability can
be reasonably estimated, based on current law and existing
technologies. These accruals are adjusted periodically as assessment
and remediation efforts progress or as additional technical or legal
information becomes available. Accruals for environmental liabilities
are generally included in the balance sheet as "Other noncurrent
obligations" at undiscounted amounts and exclude claims for recoveries
from insurance or other third parties. Accruals for insurance or other
third party recoveries for environmental liabilities are recorded when
it is probable that a claim will be realized. Accruals for recoveries
are included in the balance sheet as "Noncurrent receivables."
Environmental costs are capitalized if the costs extend the life of
the property, increase its capacity, and/or mitigate or prevent
contamination from future operations. Costs related to environmental
contamination treatment and cleanup are charged to expense.
29
The Dow Chemical Company and Subsidiaries
- --------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
A Summary of Significant Accounting Policies (Continued)
Taxes on Income
The Company accounts for taxes on income using the asset and liability
method wherein deferred tax assets and liabilities are recognized for
the future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities using enacted
rates.
Provision is made for taxes on undistributed earnings of foreign
subsidiaries and related companies to the extent that such earnings
are not deemed to be permanently invested.
Certain countries provide tax incentives which are granted to
encourage new investment. Generally, such grants are credited to
income as earned.
Earnings per Common Share
The calculation of earnings per share is based on the weighted average
number of common shares outstanding during the applicable period.
B Accounting Change
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123 (Accounting for Stock-Based
Compensation) in October 1995. Under SFAS No. 123, companies are
permitted to either adopt this new standard and record expense for
stock options and other stock-based employee compensation plans based
on their fair value at date of grant, or continue to apply Accounting
Principles Board (APB) Opinion No. 25 and increase its footnote
disclosure. The Company has decided to continue to apply APB Opinion
No. 25 and, in 1996, to increase footnote disclosures to include the
pro forma impact on net income and earnings per share of the
application of the fair value based method of accounting.
SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of) requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company will adopt SFAS
No. 121 in 1996 and has not yet determined what impact, if any,
adoption of the new standard will have on the Company's financial
statements.
C Acquisitions and Divestitures
In April 1995, the Company signed an agreement with Bundesanstalt fuer
vereinigungsbedingte Sonderaufgaben (BvS) for the privatization of
three state-owned chemical companies in eastern Germany (referred to
herein as BSL). Economic transfer of business operations to the
Company, through management consulting and service agreements,
occurred in June 1995 with legal closing anticipated in mid-1996. The
Company will consolidate BSL effective with the legal closing date.
On closing, the Company will take an 80 percent stake in BSL for an
investment of approximately $200. 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 BvS
a put option for the remaining 20 percent of BSL for an additional
investment of approximately $167. BvS is providing certain incentives
to BSL during the restructuring period to cover portions of the
reconstruction program and has retained all environmental cleanup
obligations for operations through the legal closing date.
30
The Dow Chemical Company and Subsidiaries
- --------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
C Acquisitions and Divestitures (Continued)
The Company intends to build several new facilities at the BSL sites
including a Dowlex linear low density polyethylene plant and
polypropylene, aniline and acrylic acid plants, and to upgrade the
chlorine plant and steam cracker. A 16-inch multi-feedstock liquid
pipeline will be constructed from the port of Rostock to the Boehlen
site, as well as harbor facilities, terminals and pump stations. As
part of the restructuring of the acquired sites, several facilities
will be closed and demolished.
In December 1995, a Company-controlled consortium acquired the
shares of Petroquimica Bahia Blanca (PBB) and Indupa owned by the
Argentine Government for $358. The investment by the Company was $289.
This privatization resulted in the consortium owning a controlling
interest in and operating PBB, the leading ethylene producer in
Argentina, and Indupa. The consortium subsequently agreed, in 1996, to
sell Indupa and purchase Polisur, a polyethylene manufacturer. The
additional net investment by the Company is expected to be $85.
In January 1995, the Company and E.I. duPont de Nemours and Company
announced their intention to form a 50:50 joint venture to be named
DuPont Dow Elastomers L.L.C. The new company will focus on the
discovery, development, production and sale of thermoset and
thermoplastic elastomer products. The joint venture will be formed by
both partners transferring net assets. The estimated book value of
assets transferred by the Company will be approximately $500. The
combined annual sales of the existing businesses exceed $1 billion.
Closing of this transaction is expected in the first quarter of 1996.
In January 1996, the Company and The Hartford Steam Boiler
Inspection and Insurance Company formed a 60:40 joint venture named
Radian International LLC. The new company will provide environmental,
information technology and strategic chemical management services to
industries and governments worldwide. The joint venture was formed by
both partners transferring net assets. The value of assets transferred
by the Company was approximately $32. Radian International LLC is
expected to have annual revenues of nearly $400.
In January 1996, the Company acquired an 80 percent share in
EniChem's INCA International SpA subsidiary, a producer of
polyethylene terephthalate (PET) resin and its major precursor,
purified terephthalic acid (PTA). The investment by the Company was
$161.
In January 1996, DowElanco, a 60 percent joint venture, announced
agreements with Mycogen Corporation and the Lubrizol Corporation for
transactions through which DowElanco, for a cash investment of $152,
will take approximately a 46 percent equity stake in Mycogen and
Mycogen will acquire DowElanco's United Agriseeds subsidiary.
In June 1995, the Company completed the sale of its 197 million
shares of Marion Merrell Dow to Hoechst A.G. for $5.1 billion or
$25.75 per share. In addition, subsidiaries of the Company completed
the sale of the Company's Latin American pharmaceutical businesses
based in Argentina, Brazil and Mexico to Roussel Uclaf S.A. for $133.
These two transactions, net of taxes on income of $382, increased the
Company's second quarter of 1995 earnings by $169 or 62 cents per
share. Net sales of the pharmaceutical businesses were $757 for the
period January 1, 1995 through March 31, 1995 and $3.3 billion and
$3.0 billion for the years 1994 and 1993, respectively. Provisions for
taxes on income were $36, $125 and $92 for the same periods.
Discontinued operations included interest expense of $77, $159 and
$150 for the periods 1995, 1994 and 1993, respectively, allocated
based on net assets employed in the businesses.
In the fourth quarter of 1994, the Company recorded a pretax charge
of $132 related to the pending sale of the Personal Care Business of
DowBrands. The sale was completed in November 1995 to Electronic Hair
Styling Inc. for $22.
In separate transactions in 1994 and 1993, the Company sold its
ownership in Magma Power Company and recognized pretax gains of $90
and $62, respectively.
In November 1993, Dow Chemical Canada Inc. (DCCI) sold shares of
Crestar Energy Inc. (Crestar). The net proceeds to the Company were
$172 and generated a pretax gain of $101. As a result of the sale,
DCCI's common share holding in Crestar was reduced from 50 percent to
17.5 percent.
In January 1993, the Company sold its 50 percent ownership in the
Dowell Schlumberger group of companies to Schlumberger Limited. The
selling price was $675 in cash and a warrant to purchase 7.5 million
shares of Schlumberger stock with an exercise price of $59.95 per
share. The warrant is fully vested and nontransferable, and expires in
the year 2000. The sale generated a pretax gain of $450.
31
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
D Taxes on Income
Operating loss carryforwards at December 31, 1995 amounted to $609 of
which $240 is subject to expiration in the years 1996 through 2000.
The remaining balances expire in years beyond 2000 or have an
indefinite carryforward period.
Tax credit carryforwards at December 31, 1995 amounted to $18 of
which $12 is subject to expiration in the years 1996 through 2000. The
remaining balances expire in years beyond 2000 or have an indefinite
carryforward period.
Undistributed earnings of foreign subsidiaries and related companies
which are deemed to be permanently invested amounted to $3,026,
$2,053, and $1,782 at December 31, 1995, 1994 and 1993, respectively.
It is not practicable to calculate the unrecognized deferred tax
liability on those earnings.
Domestic and Foreign Components of Income before
Taxes on Income and Minority Interests
1995 1994 1993
- -------------------------------------------------------------
Domestic $1,513 $773 $761
Foreign 2,016 853 497
- -------------------------------------------------------------
Total $3,529 $1,626 $1,258
- -------------------------------------------------------------
Reconciliation to U.S. Statutory Rate
1995 1994 1993
- -------------------------------------------------------------
Taxes at U.S. statutory rate $1,235 $569 $440
Write-down of investment 124 - -
Amortization of nondeductible
intangibles 2 52 17
Foreign rates other than 35% 15 28 48
Other-net 66 5 9
- -------------------------------------------------------------
Total tax provision $1,442 $654 $514
- -------------------------------------------------------------
Effective tax rate 40.9% 40.2% 40.9%
- -------------------------------------------------------------
Provision for Taxes on Income
1995 1994 1993
- ------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
- ------------------------------------------------------------------------------
Federal $ 535 $112 $647 $329 $23 $352 $279 $10 $289
State and
local 132 - 132 13 3 16 48 2 50
Foreign 507 156 663 271 15 286 140 35 175
- ------------------------------------------------------------------------------
Total $1,174 $268 $1,442 $613 $41 $654 $467 $47 $514
- -------------------------------------------------------------------------------
Deferred Tax Balances at December 31
1995 1994
- ---------------------------------------------------------
Property $(801) $(716)
Tax loss and credit carryforwards 204 330
Long-term debt 177 112
Postretirement benefit obligations 596 673
Other accruals and reserves 75 370
Other - Net 77 75
- ---------------------------------------------------------
Subtotal $328 $844
Less: Valuation allowance 16 23
- ---------------------------------------------------------
Total $312 $821
- ---------------------------------------------------------
32
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
E Inventories
The amounts of reserve required to reduce inventories from the first-
in, first-out (FIFO) basis to the last-in, first-out (LIFO) basis at
December 31, 1995 and 1994, were $66 and $119, respectively. The
inventories that were valued on a LIFO basis represented 34 and 35
percent of the total inventories at December 31, 1995 and 1994,
respectively.
A reduction of certain inventories resulted in the liquidation of
some quantities of LIFO inventory, which increased pretax income by $8
in 1995 and $16 in 1994, and decreased pretax income by $18 in 1993.
F Related Company Transactions
In May 1995, Dow Corning Corporation (Dow Corning), in which the
Company is a 50 percent shareholder, filed for protection under
Chapter 11 of the United States Bankruptcy Code. As a result the
Company 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 (see Note Q).
The Company's investments in other related companies, accounted for
by the equity method, approximate the Company's equity in the net
assets of these companies.
Dividends received from related companies were $33 in 1995, $15 in
1994 and $36 in 1993. All other transactions with related companies,
and balances due to or from related companies, were not material in
amount.
G Plant Properties
Plant Properties at December 31
1995 1994
- --------------------------------------------------------------------
Land $ 371 $ 414
Land and waterway improvements 678 660
Buildings 2,043 2,337
Transportation and construction equipment 236 211
Machinery and equipment 16,452 15,332
Utility and supply lines 1,340 1,315
Office furniture and equipment 749 836
Wells and mineral reserves 383 355
Other 74 184
Construction in progress 892 1,566
- --------------------------------------------------------------------
Total $23,218 $23,210
- --------------------------------------------------------------------
Depreciation expenses were $1,369 in 1995, $1,224 in 1994 and $1,252
in 1993. Maintenance and repair costs were $895 in 1995, $941 in 1994
and $964 in 1993. Capitalized interest was $28 in 1995, $66 in 1994
and $65 in 1993.
H Leased Properties
The Company routinely leases premises for use as sales and
administrative offices, warehouses and tanks for product storage,
motor vehicles, railcars, computers, office machines and equipment
under operating leases. In addition, a 77% owned U.S. subsidiary
leases a 262 megawatt syngas facility and a Canadian subsidiary leases
an ethylene plant. The Company has the option to purchase the ethylene
plant and certain other leased equipment and buildings at the
termination of the leases. During 1995, the company purchased
approximately $318 of leased assets.
Rental expenses under operating leases were $433, $371 and $427 for
1995, 1994 and 1993, respectively. The minimum future lease
commitments for all operating leases follow:
Minimum Operating Lease Commitments
- ------------------------------------------------
1996 $ 262
1997 253
1998 404
1999 196
2000 148
2001 and thereafter 1,050
- ------------------------------------------------
Total minimum lease commitments $2,313
- ------------------------------------------------
33
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
I Notes Payable, Long-Term Debt and Available Credit Facilities
Notes payable consists of obligations due to banks with a variety of
interest rates and maturities. The notes payable outstanding at
December 31, 1995 and 1994 were $323 and $741, respectively, on which
the year-end weighted average interest rates were 4.29 percent and
4.80 percent, respectively, excluding the effects of short-term
borrowings in highly inflationary countries. Included in notes payable
at December 31, 1995 and 1994 were commercial paper amounts of $4 and
$191, respectively.
The average interest rate on long-term debt was 6.73 percent in 1995
compared to 6.64 percent in 1994. Annual installments on long-term
debt for the next five years are as follows: 1996, $375; 1997, $610;
1998, $308; 1999, $201; 2000, $175.
The Company had unused and available credit facilities at December
31, 1995, with various U.S. and foreign banks totaling $1.9 billion,
which required the payment of commitment fees. Additional unused
credit facilities totaling $1.3 billion at December 31, 1995 were
available for use by foreign subsidiaries. These facilities are
available in support of commercial paper borrowings and working
capital requirements.
Promissory Notes and Debentures at December 31
1995 1994
- --------------------------------------------------------
4.63%, final maturity 1995 - $ 150
8.25%, final maturity 1996 $ 150 150
5.75%, final maturity 1997 197 200
5.75%, final maturity 2001 - 15
7.38%, final maturity 2002 145 150
9.35%, final maturity 2002 194 200
7.13%, final maturity 2003 148 150
8.63%, final maturity 2006 187 200
8.55%, final maturity 2009 140 150
9.00%, final maturity 2010 125 150
9.20%, final maturity 2010 193 200
6.85%, final maturity 2013 138 150
7.13%, final maturity 2015 - 24
9.00%, final maturity 2021 219 300
8.85%, final maturity 2021 188 200
8.70%, final maturity 2022 96 138
7.38%, final maturity 2023 150 150
- --------------------------------------------------------
Subtotal $2,270 $2,677
- --------------------------------------------------------
34
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
I Notes Payable, Long-Term Debt and Available Credit Facilities
(Continued)
Foreign Bonds at December 31
1995 1994
- ------------------------------------------------------------------
6.75%, final maturity 1995, German mark - $ 194
5.63%, final maturity 1996, German mark $ 209 194
10.87%, final maturity 1997, British pound sterling 345 374
4.00%, final maturity 1998, Japanese yen 194 201
4.75%, final maturity 1999, Swiss franc 173 152
4.63%, final maturity 2000, Swiss franc 130 114
6.38%, final maturity 2001, Japanese yen 242 251
- ------------------------------------------------------------------
Subtotal $1,293 $1,480
- ------------------------------------------------------------------
Other Facilities - Various Rates and Maturities at December 31
1995 1994
- ------------------------------------------------------------------
U.S. dollar loans $ 126 $ 4
Foreign currency loans 168 255
9.42%, final maturity 2004, Dow ESOP 103 111
9.11%, final maturity 2005, MMDI ESOP - 90
Medium-term notes, final maturity 2022 380 585
Pollution control/industrial revenue bonds,
final maturity 2024 781 707
Unexpended construction funds (4) (20)
Capital lease obligations 11 32
- ------------------------------------------------------------------
Subtotal $1,565 $1,764
- -------------------------------------------------------------------
Long-Term Debt at December 31
1995 1994
- ------------------------------------------------------------------
Promissory notes and debentures $2,270 $2,677
Foreign bonds 1,293 1,480
Other facilities 1,565 1,764
Less unamortized debt discount (48) (84)
Less long-term debt due within one year (375) (534)
- ------------------------------------------------------------------
Long-term debt $4,705 $5,303
- ------------------------------------------------------------------
35
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
J Financial Instruments
<TABLE>
Fair Value of Financial Instruments at December 31
1995 1994
- ---------------------------------------------------------------------------------------------------
Cost Gain Loss Fair Value Cost Gain Loss Fair Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nonderivatives:
Interest-bearing deposits $ 571 - - $ 571 $ 92 - - $ 92
Marketable equity and
debt securities:
Trading 2,293 - - 2,293 414 $20 - 434
Available-for-Sale:
Debt securities 1,256 $ 38 $ (1) 1,293 824 3 $(22) 805
Equity securities 367 100 (33) 434 454 64 (45) 473
Held-to-Maturity 54 - - 54 408 1 (1) 408
Other 262 26 - 288 337 - (7) 330
- ---------------------------------------------------------------------------------------------------
Total investments $ 4,803 $ 164 $ (34) $ 4,933 $ 2,529 $88 $(75) $ 2,542
- ---------------------------------------------------------------------------------------------------
Long-term debt $(4,705) - $(442) $(5,147) $(5,303) $33 - $(5,270)
- ---------------------------------------------------------------------------------------------------
Derivatives relating to:
Foreign currency - $ 48 $ (46) $ 2 - $52 $(70) $ (18)
Interest - 23 (53) (30) - 37 (45) (8)
Cross-currency swaps - 1 (161) (160) - 15 (93) (78)
- ---------------------------------------------------------------------------------------------------
The cost approximates the fair value for all other financial
instruments.
</TABLE>
Investments
Total investments at December 31, 1995 and 1994 included cash
equivalents of $2,738 and $455, marketable securities and interest-
bearing deposits of $611 and $565, and other investments of $1,558 and
$1,529, respectively.
The proceeds from sales of Available-for-Sale securities were $1,292
and $981 and the sales resulted in gross realized gains of $61 and $55
and losses of $20 and $26 in 1995 and 1994, respectively.
Maturities for most debt securities ranged from one to ten years for
the Available-for-Sale classification and one to five years for the
Held-to-Maturity classification at December 31, 1995 and 1994.
Foreign Currency Risk Management
The Company's global operations require active participation in the
foreign exchange markets. The Company enters into foreign exchange
forward contracts and options to hedge various currency exposures or
create desired exposures. Exposures primarily relate to (a) assets and
liabilities denominated in foreign currency in Europe, Asia and
Canada; (b) bonds denominated in foreign currency; and (c) economic
exposure derived from the risk that currency fluctuations could affect
the dollar value of future cash flows at the operating income level.
The primary business objective of the activity is to optimize the U.S.
dollar value of the Company's assets, liabilities and future cash
flows with respect to exchange rate fluctuations. Hedging is done on a
net exposure basis. Namely, assets and liabilities denominated in the
same currency are netted and only the balance is hedged.
At December 31, 1995 and 1994, the Company had forward contracts
outstanding with various expiration dates (primarily in January of the
next year) to buy, sell or exchange foreign currencies with a U.S.
dollar equivalent of $5,805 and $6,573, respectively. The unrealized
gains or losses on these contracts, based on the foreign exchange
rates at December 31, 1995 and 1994, were a gain of $2 and a loss of
$18, respectively, and were included in income in "Interest income and
foreign exchange-net."
At December 31, 1995 and 1994, the Company had cross-currency swaps
outstanding with a notional principal amount of $2,247 and $1,427,
respectively. The $1 in gains and $161 in losses in 1995 and the $15
in gains and $93 in losses in 1994 related to cross-currency swaps
were primarily recognized in income in "Interest income and foreign
exchange-net" and offset the gains and losses from the assets and
liabilities being hedged.
36
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
J Financial Instruments (Continued)
Interest Rate Risk Management
The Company enters into various interest rate contracts with the
objective of lowering funding costs, diversifying sources of funding
or altering interest rate exposure. In these contracts, the Company
agrees with other parties to exchange, at specified intervals, the
difference between fixed and floating interest amounts calculated on
an agreed upon notional principal amount.
The notional principal on all types of interest derivative contracts
at December 31, 1995 and 1994 totaled $3,455 and $2,837, with a
weighted average remaining life of 2.7 and 3.3 years, respectively.
The $23 in gains and $53 in losses in 1995 and the $37 in gains and
$45 in losses in 1994 related to interest derivatives were not
recognized in income as they represented hedges of debt-related
exposures.
Interest Derivatives at December 31, 1995
Notional Weighted Average Rate
---------------------
Amount Maturities Receive Pay
- -----------------------------------------------------------------------------
Receive fixed hedge 1,282 1996-2003 6.5% 5.9%
Receive floating hedge 1,507 1996-2004 5.9% 7.0%
Other 666 1996-2005 - -
- -----------------------------------------------------------------------------
Interest Derivatives at December 31, 1994
Notional Weighted Average Rate
---------------------
Amount Maturities Receive Pay
- -----------------------------------------------------------------------------
Receive fixed hedge 1,630 1995-2005 6.1% 5.5%
Receive floating hedge 1,024 1996-2005 5.5% 6.8%
Other 183 1995-1998 - -
- -----------------------------------------------------------------------------
The Company's risk management program for both foreign currency and
interest rate risk is based on fundamental, mathematical and technical
models that take into account the implicit cost of hedging. Risks
created by derivative instruments and the mark-to-market valuations of
positions are strictly monitored at all times. The Company uses value
at risk and stress tests to monitor risk. Because the counterparties
to these contracts are major international financial institutions,
credit risk arising from these contracts is not significant and the
Company does not anticipate any such losses. The net cash requirements
arising from risk management activities are not expected to be
material. The Company's overall financial strategies and impacts from
using derivatives in its risk management program are reviewed
periodically with the Finance Committee of the Company's Board of
Directors and revised as market conditions dictate.
The Company's global orientation in diverse businesses with a large
number of diverse customers and suppliers minimizes concentrations of
credit risk. No concentration of credit risk existed at December 31,
1995.
37
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
K Limited Partnerships
In April 1993, three wholly owned subsidiaries of the Company
contributed assets with an aggregate fair value of $977 to Chemtech
Royalty Associates L.P. (Chemtech), a newly formed Delaware limited
partnership. In August and October 1993, outside investors acquired
limited partner interests in Chemtech totaling 20 percent in exchange
for $200.
In December 1991, three wholly owned subsidiaries of the Company
contributed assets with an aggregate market value of $2 billion to
DowBrands L.P., a newly formed Delaware limited partnership. Outside
investors made cash contributions of $45 in December 1991 and $855 in
June 1992 in exchange for an aggregate 31 percent limited partner
interest in DowBrands L.P.
The two partnerships (Chemtech and DowBrands L.P.) are separate and
distinct legal entities from the Company and its affiliates and have
separate assets, liabilities, businesses and operations. Each
partnership has as a general partner a wholly owned subsidiary of the
Company which directs the business activities of the partnership and
has fiduciary responsibilities to the partnership and its other
partners.
The outside investors in each partnership will receive a cumulative
annual priority return on their investments in the partnership and
participate in residual earnings. The annual priority return is $14
and $67 for Chemtech and DowBrands L.P., respectively.
The partnerships will not terminate unless a termination or
liquidation event occurs. One such event, which is within the control
of outside investors, occurs in the year 2000 for Chemtech and 1996
for DowBrands L.P. In addition, the partnership agreements provide
for various windup provisions wherein subsidiaries of the Company may
purchase at any time the limited partnership interests of the outside
investors. Upon windup, liquidation or termination, the partners'
capital accounts will be redeemed at current fair values.
For financial reporting purposes, the assets (other than
intercompany loans, which are eliminated), liabilities, results of
operations and cash flows of the partnerships and subsidiaries are
included in the Company's consolidated financial statements and
outside investors' limited partnership interests are reflected as
minority interests.
Supplemental contractual disclosures required by the partnership
agreements are contained within Note R to the Financial Statements of
the December 31, 1993 Form 10-K of The Dow Chemical Company.
L Stockholders' Equity
In 1989, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to 18,000,000
shares of the Company's common stock. In August 1995, the purchases
under this authorization were completed.
In 1995, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to 25,000,000
shares of the Company's common stock. At December 31, 1995, the number
of shares purchased under this authorization was 14,888,000. The
Company is utilizing options as part of its 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 $313 at December 31, 1995.
The number of treasury shares purchased was 29,188,000 in 1995,
591,000 in 1994, and 300,000 in 1993. The number of treasury shares
issued to employees under option and purchase programs was 3,022,000
in 1995, 2,836,000 in 1994, and 1,946,000 in 1993. The number of
treasury shares contributed to the U.S. pension plan for funding
future retiree health care benefits through a 401(h) account was
391,000 in 1994 and 251,000 in 1993.
There are no significant restrictions limiting the Company's ability
to pay dividends.
Gross undistributed earnings of 20%-50% owned companies included in
retained earnings were $95 and $428 at December 31, 1995 and 1994,
respectively.
In computing earnings per common share, no adjustment was made for
common shares issuable under award, option and stock purchase plans,
or conversion of preferred shares issued, because there would be no
material dilution.
Reserved Treasury Stock at December 31
In thousands of shares 1995 1994 1993
- --------------------------------------------------------------
Stock option plans 16,735 16,517 15,807
Employees' stock purchase plan 1,080 894 1,040
- --------------------------------------------------------------
Total shares reserved 17,815 17,411 16,847
- --------------------------------------------------------------
38
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
M Stock Option Plans
The Company has various stock option plans. Options under all plans
are granted at the market price of the shares on the date of the
grants. The Company follows APB Opinion No. 25 in accounting for
these plans.
Stock options were exercised at prices ranging from $23.54 to $67.75
in 1995, $18.46 to $65.06 in 1994 and $18.46 to $59.75 in 1993.
The Company made offerings of common stock to its employees,
excluding directors, in 1995, 1994 and 1993 at $55.00, $54.50 and
$45.00 per share, respectively, payable generally through payroll
deductions. Unfilled subscriptions, cancelable at the option of the
employee, were 1,080,000, 894,000 and 1,040,000 shares at December 31,
1995, 1994 and 1993, respectively. Partial payments received on these
subscriptions aggregating $39, $32 and $28 at December 31, 1995, 1994
and 1993, respectively, were included in current liabilities.
Option Plans
In thousands of shares 1995 1994 1993
- ------------------------------------------------------------------------
Outstanding at January 1 14,735 14,059 11,657
Granted 2,682 2,634 3,431
Exercised (2,355) (1,862) (567)
Expired (42) (96) (462)
- ------------------------------------------------------------------------
Outstanding at December 31 15,020 14,735 14,059
Price Range $36.04-$74.63 $23.54-$74.63 $18.46-$60.88
- ------------------------------------------------------------------------
Exercisable at December 31 12,373 12,189 10,776
Available for future grant 523 559 407
- -----------------------------------------------------------------------
N Redeemable Preferred Stock
The Company has an employee stock ownership plan (the ESOP), which is
an integral part of the Salaried Employees Savings Plan.
The ESOP borrowed funds at a 9.42 percent interest rate with a final
maturity in 2004, and used the proceeds to purchase convertible
preferred stock from the Company. The preferred stock is convertible
into approximately 1.5 million shares of the Company's common stock at
$86.125 per common share. The dividend yield on the preferred stock is
7.75 percent of the $86.125 redemption value.
In the event the Company consummates certain merger or consolidation
transactions involving the Company's common stock, the preferred stock
must be redeemed by the Company for cash at a redemption price equal
to 105 percent of the $86.125 per share redemption value, plus accrued
and unpaid dividends.
The convertible preferred stock issued to the ESOP is reported as
temporary equity in the Company's balance sheet. Since the Company has
guaranteed the ESOP's borrowings, the principal amount of the ESOP
loan is reported as long-term debt and a reduction of temporary equity
in the Company's balance sheet.
39
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
O Pension Plans
The Company has defined benefit pension plans which cover employees in
the U.S. and a number of foreign countries. The Company's funding
policy is to contribute annually, at a rate that is intended to
approximate a level percentage of compensation for the covered
employees, to those plans where pension laws and economics either
require or encourage funding.
The U.S. funded plan is the largest plan. Its benefits are based on
length of service and the employee's three-highest consecutive years
of compensation. The weighted average discount rate and rate of
increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligations were 7.25
and 5.5 percent, respectively, for 1995 and 7.75 and 5.5 percent,
respectively, for 1994. The assumed long-term rate of return on assets
was 9 percent for 1995 and 1994.
All other pension plans used assumptions in determining the
actuarial present value of the projected benefit obligations that are
consistent with (but not identical to) those of the U.S. plan.
Defined contribution plans cover employees in some subsidiaries in
the U.S. and in other countries, including Australia, France, Spain,
and the United Kingdom. In addition, employees in the U.S. are
eligible to participate in defined contribution plans (Employee
Savings Plans) by contributing a portion of their compensation which
is then matched by the Company. Contributions charged to income for
defined contribution plans were $75 in 1995, $49 in 1994, and $50 in
1993.
The net periodic pension cost for all significant defined benefit
plans was as follows:
Net Periodic Pension Cost
1995 1994 1993
- ------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 146 $ 150 $ 133
Interest cost on projected benefit obligation 374 334 322
Actual (return) on assets (1,062) (94) (485)
Amortization and deferred amounts 686 (256) 151
Employee contributions to the plans (8) (8) (8)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 136 $ 126 $ 113
- ------------------------------------------------------------------------------
The funded status of significant defined benefit plans for the Company
was as follows:
Defined Benefit Plans at December 31
Fully Funded Partially Funded
-------------- ----------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------
Actuarial present value of
benefit obligation:
Vested $(4,098) $(3,287) $(372) $(467)
Nonvested (310) (292) (39) (40)
- ------------------------------------------------------------------------------
Accumulated benefit obligation (4,408) (3,579) (411) (507)
Effect of projected compensation
increases (787) (826) (101) (125)
- ------------------------------------------------------------------------------
Projected benefit obligation
for services rendered to date (5,195) (4,405) (512) (632)
Plan assets at market value, primarily
publicly traded stocks and bonds 5,321 4,439 56 221
- ------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 126 34 (456) (411)
Unrecognized transition obligation 34 28 27 45
Unrecognized net (gains) losses (154) 57 19 (1)
Unrecognized prior service cost 193 9 35 39
Additional minimum liability - - (65) (49)
- ------------------------------------------------------------------------------
Accrued pension asset (liability) $ 199 $ 128 $(440) $(377)
- ------------------------------------------------------------------------------
40
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
P Other Postretirement Benefits
The Company provides certain health care and life insurance benefits
to retired employees. The Company funds most of the cost of these
health care and life insurance benefits as incurred.
The U.S. plan covering the parent company is the largest plan. The
plan provides health care benefits, including hospital, physicians'
services, drug and major medical expense coverage, and life insurance
benefits. The plan provides benefits supplemental to Medicare after
retirees are eligible for these benefits for employees hired before
January 1, 1993. The cost of these benefits is shared by the Company
and the retiree, with the Company portion increasing as the retiree
has increased years of credited service. The Company has the ability
to change these benefits at any time.
Effective October 1993, the Company amended its health care benefits
plan in the U.S. to cap the cost absorbed by the Company at
approximately twice the 1993 cost per person for employees who retire
after December 31, 1993. Effective April 1994, the Company extended
this amendment to cover all other retired employees. The effect of the
October 1993 amendment was to reduce the net periodic postretirement
cost by $21 for 1993 and the accumulated postretirement benefit
obligation by $327 at December 31, 1993. The effect of the April 1994
amendment was to reduce the net periodic postretirement cost by $71
for 1994 and the accumulated postretirement benefit obligation by $101
at December 31, 1994.
For 1995, a discount rate of 7.25 percent and weighted average
medical cost trend rates starting at 7.52 percent and declining to
4.60 percent in 2004 were assumed. For 1994, the discount rate
assumption was 7.75 percent and the medical cost trend rate
assumption was 9.47 percent declining to 5.53 percent in 2004. The
assumed long-term rate of return on assets was 9 percent for 1995 and
1994. Increasing the assumed medical cost trend rate by 1 percentage
point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1995 by $48 and the net periodic
postretirement benefit cost for the year by $3.
All other postretirement health care and other benefit plans used
assumptions in determining the actuarial present value of accumulated
postretirement benefit obligations that are consistent with (but not
identical to) those of the U.S. parent company plan.
The net periodic benefit cost of all significant plans was as
follows:
Net Periodic Postretirement Cost
1995 1994 1993
- ------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 21 $ 24 $ 34
Interest cost on accumulated postretirement
benefit obligation 86 88 122
Actual (return) on assets (16) - -
Amortization and deferred amounts (36) (42) (9)
- ------------------------------------------------------------------------------
Net periodic postretirement cost $ 55 $ 70 $147
- ------------------------------------------------------------------------------
The postretirement benefit obligations of all significant plans were
as follows:
Partially Funded Postretirement Plans at December 31
- -----------------------------------------------------------------------------
1995 1994
Accumulated postretirement benefit obligation:
Retirees $ (697) $ (676)
Fully eligible active plan participants (199) (290)
Other active plan participants (214) (210)
- -----------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (1,110) (1,176)
Plan assets at market value, primarily publicly traded
stocks and bonds 103 52
----------------------------------------------------------------------------
Unfunded accumulated postretirement
benefit obligation (1,007) (1,124)
Unrecognized gain from experience favorable
to assumptions (224) (166)
Negative prior service costs (312) (373)
- -----------------------------------------------------------------------------
Accrued postretirement benefit liability $(1,543) $(1,663)
- -----------------------------------------------------------------------------
41
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
Q 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 ($415
after tax) for the fourth quarter of 1993. In January 1995, Dow
Corning announced a pretax charge of $241 ($152 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 a global Breast Implant Litigation Settlement Agreement (the
Settlement Agreement); litigation and claims outside of 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 and $441, respectively, less expected
insurance recoveries of $600 and $200, 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 less expected insurance recoveries of $1,200.
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 for 1993
and a charge of $70 for 1994.
Dow Corning reported an after tax net loss of $167 for the second
quarter of 1995, of which the Company's share amounted to $83. Dow
Corning's second quarter loss was a result of a $221 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 recognized a pretax charge against income of $330
for the second quarter of 1995, 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 September 1, 1994, Judge Sam C. Pointer, Jr. of the United States
District Court for the Northern District of Alabama approved the
Settlement Agreement, pursuant to which plaintiffs choosing to
participate in the Settlement Agreement released the Company from
liability. The Company was not a participant in the Settlement
Agreement nor was it required to contribute to the settlement. On
October 9, 1995, Judge Pointer issued an order which concluded that
the Settlement Agreement was not workable in its then-current form
because the funds committed to it by industry participants were
inadequate. The order provided that plaintiffs who had previously
agreed to participate in the Settlement Agreement could opt out after
November 30, 1995.
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 over 13,000 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, concert of action and negligence.
Judge Pointer 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.
Initially, in a ruling issued on December 1, 1993, Judge Pointer
granted the Company's motion for summary judgement, 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.
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.
42
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
Q Commitments and Contingent Liabilities (Continued)
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 $275 at December 31, 1995, for probable
environmental remediation and restoration liabilities, including $17
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.
Dow has an active risk management program consisting of numerous
insurance policies secured from many carriers at various times. These
policies provide coverage which will be utilized to minimize the
impact, if any, of the contingencies described above.
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.
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, which
expire in 1998 and 2004, to purchase ethylene. The purchase price 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 manufacturing plants with a specified return on capital. Total
purchases under the agreements were $204, $252 and $237 in 1995, 1994
and 1993, respectively.
At December 31, 1995, the Company had various outstanding
commitments for take or pay and throughput agreements, including the
Canadian subsidiary's ethylene contracts, 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
- ---------------------------------------------
1996 $248
1997 204
1998 185
1999 102
2000 73
2001 through expiration of contracts 174
- ---------------------------------------------
Total $986
- ---------------------------------------------
In addition to the take or pay obligations at December 31, 1995, the
Company had outstanding purchase commitments which range from one to
eighteen years for steam, electrical power, materials, property, and
other items used in the normal course of business of approximately
$588. In general, such commitments were at prices not in excess of
current market prices. In addition, the Company had other outstanding
direct and indirect commitments for construction performance and lease
payment guarantees and other obligations of approximately $423.
43
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
R Supplementary Information
Accrued and Other Current Liabilities at December 31
1995 1994
- ---------------------------------------------------------
Accrued vacations $ 178 $ 200
Employees' retirement plans 152 163
Interest payable 125 124
Accrued payroll 288 316
Accrued miscellaneous taxes 123 146
Insurance companies' reserves 192 168
Sundry 561 742
- ---------------------------------------------------------
Total $1,619 $1,859
- ---------------------------------------------------------
Sundry Income (Expense) - Net
1995 1994 1993
- -----------------------------------------------------------------------
Royalty income $ 23 $ 21 $ 14
Gain (loss) on securities 79 (15) (55)
Gain on sale of assets 24 73 48
Dividend income 8 32 86
Other-net (91) (28) (101)
- -----------------------------------------------------------------------
Total $ 43 $ 83 $ (8)
- -----------------------------------------------------------------------
Other Supplementary Information
1995 1994 1993
- -----------------------------------------------------------------------
Cash payments for interest $ 501 $568 $603
Cash payments for taxes on income 1,203 334 494
Provision for doubtful receivables 18 7 18
- -----------------------------------------------------------------------
44
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
S Industry Segments and Geographic Areas
The Company is a diversified, worldwide manufacturer and supplier of
more than 2,500 product families, which are grouped into the following
industry segments: Chemicals and Metals, Performance Chemicals,
Plastics, Performance Plastics, Hydrocarbons and Energy, and
Diversified Businesses and Unallocated. The Company's wide range of
products are used primarily as raw materials in the manufacture of
customer products and services. Industries served by the Company
include aerospace, appliances, automotive, agriculture, building and
construction, chemical processing, consumer products, electronics,
environmental services, furniture, housewares, insurance and finance,
metalworking, oil and gas, packaging, processed foods, pulp and paper,
utilities and water treatment.
The Company operates 94 manufacturing sites in 30 countries. The
Company conducts its worldwide operations through 15 global businesses
which represent the aggregation of products on the basis of process
technology, end-use markets and channels of distribution. To improve
stockholders' ability to evaluate the Company's performance, external
industry segments have been revised to better reflect market
conditions and the Company's business strategies. Results have been
restated to align with the new reporting segments.
Chemicals and Metals contains a wide range of products that are used
primarily as raw materials in the manufacture of customer products, or
which aid in the processing of customer products and services.
Performance Chemicals includes ingredients in many formulated
products and processing aids, as well as end-use products. This
segment covers the Company's specialty chemicals, emulsion polymers
and agricultural chemicals.
Plastics encompasses the product ranges of polyethylene,
polystyrene, polypropylene and polyethylene terephthalate polyester
(PET). These are used in a wide variety of applications in markets
which include electronics, food service, health care, packaging and
recreation.
Performance Plastics consists of a broad range of engineering
thermoplastic and thermoset materials. The product ranges are
polyurethanes; epoxy products and intermediates; engineering plastics;
adhesives, sealants and coatings; Insite technology licensing; and
fabricated products.
Hydrocarbons and Energy encompasses procurement of fuels and
petroleum-based raw materials as well as the production of olefins,
aromatics, styrene and cogenerated power and steam for use in the
Company's manufacturing operations. Destec Energy, Inc. is also
recorded in this segment.
Diversified Businesses and Unallocated includes household consumer
products; a joint venture providing environmental, information
technology and strategic chemical management services to industry and
government; New Businesses such as advanced electronics materials,
advanced structural materials, technology licensing, and catalysts;
and the consolidated insurance and finance companies. Unallocated
includes activities and overhead cost variances not allocated to other
segments.
Transfers between area and industry segments are generally valued at
cost. The exception is that movements between the agricultural
chemicals and consumer products businesses and the other businesses
are generally valued at market-based prices.
45
The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Notes to Financial Statements
In millions, except for share amounts
- ---------------------------------------------------------------------------
S Industry Segments and Geographic Areas (Continued)
<TABLE>
Industry Segment Results
Diversified Corporate,
Chemicals Performance Performance Hydrocarbons Bus. and Elim. &
& Metals Chemicals Plastics Plastics & Energy Unallocated Disc. Oper. Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S>
1995 <C> <C> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $3,322 $4,240 $3,932 $5,369 $2,371 $ 966 - $20,200
Intersegment transfers 710 26 106 19 2,247 - $(3,108) -
Operating income (loss) (1) 1,136 670 1,475 1,056 (83) (363) - 3,891
Identifiable assets 2,660 4,066 3,422 3,962 2,743 717 6,012 23,582
Depreciation 280 320 327 294 104 44 - 1,369
Capital expenditures 516 274 81 175 342 29 - 1,417
- ---------------------------------------------------------------------------------------------------------------------------------
1994
Sales to unaffiliated customers $2,471 $3,672 $3,064 $4,538 $2,044 $ 953 - $16,742
Intersegment transfers 680 28 104 18 2,365 - $(3,195) -
Operating income (loss) (1) 337 514 531 611 74 (247) - 1,820
Identifiable assets 2,705 3,842 3,785 3,834 2,108 699 9,572 26,545
Depreciation 241 273 311 263 92 44 - 1,224
Capital expenditures 152 253 83 134 388 64 109 1,183
- ---------------------------------------------------------------------------------------------------------------------------------
1993
Sales to unaffiliated customers $2,301 $3,390 $2,510 $4,116 $1,808 $ 927 - $15,052
Intersegment transfers 683 42 85 17 2,338 - $(3,165) -
Operating income (1) 154 403 89 304 46 78 - 1,074
Identifiable assets 2,519 3,631 3,525 3,570 1,933 692 9,635 25,505
Depreciation 246 279 318 269 94 46 - 1,252
Capital expenditures 215 204 126 173 426 60 193 1,397
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Geographic Area Results Discontinued
Rest of Operations &
United States Europe World Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Sales to unaffiliated customers $ 9,035 $6,411 $4,754 - $20,200
Intersegment transfers 1,728 515 454 $(2,697) -
Operating Income (1) 1,603 1,112 1,176 - 3,891
Identifiable assets 10,127 6,914 6,541 - 23,582
Gross plant properties 12,416 7,466 3,336 - 23,218
Capital expenditures 1,008 295 114 - 1,417
- ---------------------------------------------------------------------------------------------------------
1994
Sales to unaffiliated customers $ 8,093 $4,809 $3,840 - $16,742
Intersegment transfers 1,424 447 341 $(2,212) -
Operating income (1) 1,024 237 559 - 1,820
Identifiable assets 9,399 5,516 4,867 6,763 26,545
Gross plant properties 11,729 6,725 3,337 1,419 23,210
Capital expenditures 692 234 148 109 1,183
- ---------------------------------------------------------------------------------------------------------
1993
Sales to unaffiliated customers $ 7,486 $4,299 $3,267 - $15,052
Intersegment transfers 1,042 325 304 $(1,671) -
Operating income (loss) (1) 795 (23) 302 - 1,074
Identifiable assets 9,475 5,010 4,034 6,986 25,505
Gross plant properties 11,326 5,901 3,165 1,216 21,608
Capital expenditures 762 266 176 193 1,397
- ----------------------------------------------------------------------------------------------------------
(1)The reconciliation between "Operating Income" and "Income before Provision for Taxes on Income and
Minority Interests" consists of "Other Income (Expense)" items and can be found in the Consolidated
Statements of Income on Page 23.
46
</TABLE>
Quarterly Statistics
(Unaudited)
In millions, except for share amounts
- ------------------------------------------------------------------------------
1st
1995 Restated 2nd 3rd 4th Year
- ------------------------------------------------------------------------------
Net sales $5,205 $5,517 $4,884 $4,594 $20,200
Operating income 1,075 1,207 946 663 3,891
Income before taxes on
income and minority interests 1,048 832 955 694 3,529
Income from continuing operations 564 334 571 415 1,884
Net income available for common
stockholders 582 503 571 415 2,071
Earnings per common share from
continuing operations 2.03 1.22 2.15 1.36 7.03
Earnings per common share 2.10 1.84 2.15 1.63 7.72
Common stock dividends declared
per share 0.65 0.75 0.75 0.75 2.90
Market price range of common stock:
High 74.63 75.00 78.00 74.38 78.00
Low 61.38 68.00 71.63 65.50 61.38
- ------------------------------------------------------------------------------
1994 (Restated) 1st 2nd 3rd 4th Year
- ------------------------------------------------------------------------------
Net sales $3,788 $4,126 $4,216 $4,612 $16,742
Operating income 411 458 433 518 1,820
Income before taxes on
inccome and minority interests 335 457 454 380 1,626
Income from continuing operations 141 206 237 181 765
Net income available for common
stockholders 171 250 288 222 931
Earnings per common share from
continuing operations 0.51 0.75 0.86 0.65 2.77
Earnings per common share 0.62 0.91 1.04 0.80 3.37
Common stock dividends declared
per share 0.65 0.65 0.65 0.65 2.60
Market price range of common stock:
High 66.50 70.13 79.25 78.13 79.25
Low 56.50 58.75 64.88 60.75 56.50
- ------------------------------------------------------------------------------
See Notes to Financial Statements.
47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no reported disagreement on any matter of accounting
principles or procedures or financial statement disclosure in 1995
with the Independent Auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and executive officers of the
Company is contained in the definitive Proxy Statement for the Annual
Meeting of Stockholders of The Dow Chemical Company to be held on May
9, 1996, and is incorporated herein by reference. See also the
information concerning executive officers of the registrant set forth
in Part I under the caption "Executive Officers of the Registrant" in
reliance on General Instruction G to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is contained in the
definitive Proxy Statement for the Annual Meeting of Stockholders of
The Dow Chemical Company to be held on May 9, 1996, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to beneficial ownership of the common stock
as of January 31, 1996, by each Director and all Directors and
officers of the Company as a group is contained in the definitive
Proxy Statement for the Annual Meeting of Stockholders of The Dow
Chemical Company to be on held May 9, 1996, and is incorporated herein
by reference.
Neither the Company nor any of its Directors or officers is aware of
any person who beneficially owns in excess of 5 percent of the total
outstanding shares of Dow common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director John C. Danforth is a partner of Bryan Cave LLP, a law firm
that was retained by a subsidiary of the Company for legal services in
1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The Company's 1995 consolidated Financial Statements and
Independent Auditors' Report are included in Item 8 of Part II.
2. Financial Statement Schedules.
The following Financial Statement Schedule should be read in
conjunction with the Financial Statements
included in Item 8 of this Annual Report on Form 10-K.
Page
Schedule II - Valuation and Qualifying Accounts 49
Schedules other than the one listed above are omitted because
of the absence of the conditions under which they
are required or because the information called for is included in
the Financial Statements or Notes thereto.
48
<TABLE>
<CAPTION>
SCHEDULE II
THE DOW CHEMICAL COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31
(In millions)
- -----------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at Additions Deductions Balance
Beginning to from at End
Description of Year Reserves Reserves of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $104 $23 $74 (b) $53
Other investments and noncurrent receivables 168 322 (a) 158 332
Accumulated goodwill amortization 676 52 551 (c) 177
1994
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $93 $33 $22 (b) $104
Other investments and noncurrent receivables 177 43 (a) 52 168
Accumulated goodwill amortization 563 139 26 676
1993
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $95 $34 $36 (b) $93
Other investments and noncurrent receivables 147 43 (a) 13 177
Accumulated goodwill amortization 429 136 2 563
</TABLE>
(a) Additions to reserve represent: 1995 1994 1993
Charges to profit and loss $263 $43 $36
Miscellaneous other 59 0 7
----------------------
$322 $43 $43
----------------------
(b) Deductions represent:
Notes and accounts receivable written off $16 $12 $11
Credits to profit and loss 2 6 22
Miscellaneous other 1 4 3
Sale of Pharmaceutical Businesses 55 0 0
---------------------
$74 $22 $36
---------------------
(c) Includes deduction of $551 due to sale of Pharmaceutical Businesses
49
3. Exhibits---See the Exhibit Index on pages 52 and 53 of this
Annual Report on Form 10-K for exhibits filed with this
Annual Report on Form 10-K (see below) and for exhibits
incorporated by reference.
The Company will provide a copy of any exhibit upon receipt of
a written request for the particular exhibit or exhibits
desired and upon receipt of payment of an amount equal to a
charge of twenty-five cents for each exhibit page, with a
minimum charge of two dollars per request. All requests
should be addressed to the Vice President and Controller of
the Company at the address of the Company's principal
executive offices.
The following exhibits listed on the Exhibit Index are filed
with this Annual Report on Form 10-K:
3(ii) A copy of the Bylaws of The Dow Chemical Company, as re-
adopted in full on February 8, 1996.
10(m) A copy of The Dow Chemical Company Executive Split Dollar Life
Insurance Plan Agreement, as amended effective as of December 19,1994.
11 Computation of Earnings per Common Share.
21 Subsidiaries of The Dow Chemical Company.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1995.
The following trademarks of The Dow Chemical Company appear in this
report: Affinity, Aim, Calibre, Cyclotene, Derakane, Dowlex, Dowtherm,
Dowfax, Drytech, Engage, Ethocel, GAS/SPEC, Insite, Isoplast, Magnum,
Methocel, Pulse, Saran Wrap, Styrofoam, Styron, Trymer, Versene and
Voranol.
The following trademarks of DowBrands or an international affiliate
appear in this report: Fantastik, Glass Plus, Scrubbing Bubbles,
Smart Cleanser, Spray'N Wash and Ziploc.
The following trademarks of DowElanco or its affiliates appear in this
report: Broadstrike, Dursban, Lorsban, Sentricon, Tracer naturalyte.
The following trademark of Essex Specialty Products, Inc. appears in
this report: Betaseal.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 14th day of March, 1996.
THE DOW CHEMICAL COMPANY
By: R. L. Kesseler
------------------------------------
R. L. Kesseler
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed on the 14th day of
March, 1996 by the following persons in the capacities indicated:
F. P. Popoff M. L. Dow
- --------------------------------- ------------------------------
F. P. Popoff, Director, Chairman M. L. Dow, Director
of the Board
W. S. Stavropoulos J. L. Downey
- --------------------------------- ------------------------------
W. S. Stavropoulos, Director, J. L. Downey, Director
President and Chief
Executive Officer
R. L. Kesseler E. C. Falla
- --------------------------------- ------------------------------
R. L. Kesseler, Vice President E. C. Falla, Director and
and Controller Executive Vice President
J. K. Barton B. H. Franklin
- --------------------------------- ------------------------------
J. K. Barton, Director B. H. Franklin, Director
D. T. Buzzelli A. D. Gilmour
- --------------------------------- ------------------------------
D. T. Buzzelli, Director and A. D. Gilmour, Director
Vice President
A. J. Carbone W. J. Neely
- --------------------------------- ------------------------------
A. J. Carbone, Director and W. J. Neely, Director
Vice President
F. P. Corson M. D. Parker
- --------------------------------- -------------------------------
F. P. Corson, Director and M. D. Parker, Director and
Vice President Vice President
J. C. Danforth J. P. Reinhard
- --------------------------------- ------------------------------
J. C. Danforth, Director J. P. Reinhard, Director,
Financial Vice President,
Treasurer and Chief Financial
Officer
W. D. Davis H. T. Shapiro
- --------------------------------- ------------------------------
W. D. Davis, Director H. T. Shapiro, Director
P. G. Stern
-----------------------------
P. G. Stern, Director
51
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3(i) Restated Certificate of Incorporation of The Dow Chemical
Company, incorporated by reference to Exhibit 3(a) to The
Dow Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992.
3(ii) A copy of the Bylaws of The Dow Chemical Company, as re-adopted
in full on February 8, 1996.
10(a) The Dow Chemical Company Executive Supplemental Retirement Plan,
incorporated by reference to Exhibit 10(a) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992.
10(b) The Dow Chemical Company 1969 Award Plan (included as part of and
incorporated by reference to the Prospectus contained in The Dow
Chemical Company's Registration Statement on Form S-7, File,
No. 2-32525, filed April 7, 1969), as amended on August 6, 1974
(incorporated by reference to Exhibit 41 to The Dow Chemical Company
Annual Report on Form 10-K for the year ended December 31, 1974),
as amended on August 9, 1979 (incorporated by reference to Exhibit 4
to The Dow Chemical Company Annual Report on Form 10-K for the
year ended December 31, 1979), as amended on October 30,
1987 (incorporated by reference to Exhibit 10(j) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended
December 31, 1987).
10(c) The Dow Chemical Company 1972 Option Plan, as amended through
December 31, 1982 (included as a part of and incorporated by
reference to the Prospectus contained in Post-Effective Amendment
No. 13 to The Dow Chemical Company's Registration Statement on Form
S-8, File No. 2-44789, filed June 23, 1983).
10(d) The Dow Chemical Company 1976 Option Plan, as amended through
December 31, 1982 (included as a part of and incorporated by
reference to the Prospectus contained in Post-Effective Amendment
No. 8 to The Dow Chemical Company's Registration Statement on Form
S-8, File No. 2-55837, filed June 23, 1983).
10(e) The Dow Chemical Company 1979 Award and Option Plan, as amended
through May 1983 (included as part of and incorporated by
reference to the Prospectus contained in Post-Effective Amendment
No. 4 to The Dow Chemical Company's Registration Statement on Form
S-8, File No. 2-64560, filed June 23, 1983), as amended
April 12, 1984 (incorporated by reference to Exhibit 10(ff) to The
Dow Chemical Company Annual Report on Form 10-K for the year
ended December 31, 1984), as amended April 18, 1985
(incorporated by reference to Exhibit 10(fff) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended
December 31, 1985), as amended October 30, 1987 (incorporated by
reference to Exhibit 10(j) to The Dow Chemical Company Annual Report
on Form 10-K for the year ended December 31, 1987).
10(f) The Dow Chemical Company Voluntary Deferred Compensation Plan for
Outside Directors, as amended effective as of July 1,
1994, incorporated by reference to Exhibit 10(f) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended
December 31, 1994.
10(g) The Dow Chemical Company Executive Post Retirement Life Insurance
Program, incorporated by reference to Exhibit 10(g) to
The Dow Chemical Company Annual Report on Form 10-K for the year
ended December 31, 1992.
10(h) The Dow Chemical Company Outside Directors' Pension Plan,
incorporated by reference to Exhibit 10(h) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992.
10(i) A written description of the Management Achievement Recognition
System adopted on April 8, 1987 (incorporated by reference
to Exhibit 10(k) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31, 1987).
52
EXHIBIT INDEX (Continued)
EXHIBIT NO. DESCRIPTION
10(j) The Dow Chemical Company Dividend Unit Plan, incorporated by
reference to Exhibit 10(j) to The Dow Chemical Company
Annual Report on Form 10-K for the year ended December 31, 1992.
10(k) The Dow Chemical Company 1988 Award and Option Plan (included as
part of and incorporated by reference to the Prospectus
contained in The Dow Chemical Company's Registration Statement on
Form S-8, File No. 33-21748, filed May 16, 1988), as amended during
1991 (incorporated by reference to Exhibit 10(k) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1991).
10(l) The Dow Chemical Company Executive Award Plan, incorporated by
reference to Exhibit 10(l) to The Dow Chemical Company Annual
Report on Form 10-K for the year ended December 31, 1992.
10(m) A copy of The Dow Chemical Company Executive Split Dollar Life
Insurance Plan Agreement, as amended effective as of December 19,
1994.
10(n) The Dow Chemical Company 1994 Executive Performance Plan,
incorporated by reference to the definitive Proxy Statement
for the Annual Meeting of Stockholders of The Dow Chemical Company
held on May 12, 1994.
10(o) The Dow Chemical Company 1994 Non-Employee Directors' Stock Plan,
incorporated by reference to Exhibit 10(o) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1994.
10(p) A written description of the one-time grant of shares of the
common stock of The Dow Chemical Company to nonemployee
Directors, incorporated by reference to the definitive Proxy
Statement for the Annual Meeting of Stockholders of The Dow Chemical
Company held on May 11, 1995.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of The Dow Chemical Company.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
53
EXHIBIT 3(ii)
THE DOW CHEMICAL COMPANY
BYLAWS
As of February 8, 1996
54
THE DOW CHEMICAL COMPANY
BYLAWS*
(As re-adopted in full on November 21, 1985, effective December 1, 1985;
and as amended February 13, 1986; October 9, 1986; May 14, 1987; November
12, 1987; July 11, 1991; November 12, 1992; April 8, 1993; February 10,
1994; April 14, 1994; July 14, 1994; and February 8, 1996.)
SECTION I
CAPITAL STOCK
Section 1.1. Certificates. Every holder of stock in the Company shall
be entitled to have a certificate signed in the name of the Company by the
Chairman of the Board of Directors or the President or an Executive Vice
President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company,
representing the number of shares registered in certificate form. Any or
all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Company with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue. (As
amended February 8, 1996.)
Section 1.2. Record Ownership. The certificates of each class or series
of a class of stock shall be numbered consecutively. A record of the name
and address of the holder of each certificate, the number of shares
represented thereby and the date of issue thereof shall be made on the
Company's books. The Company shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof, and accordingly
shall not be bound to recognize any equitable or other claim to or interest
in any share on the part of any other person, whether or not it shall have
express or other notice thereof, except as required by the laws of the
State of Delaware.
Section 1.3. Transfer of Record Ownership. Transfers of stock shall be
made on the books of the Company only by direction of the person named in
the certificate or such person's attorney, lawfully constituted in writing,
and only upon the surrender of the certificate therefor and a written
assignment of the shares evidenced thereby, which certificate shall be
canceled before the new certificate is issued.
Section 1.4. Lost Certificates. Any person claiming a stock certificate
in lieu of one lost, stolen or destroyed shall give the Company an
affidavit as to such person's ownership of the certificate and of the facts
which go to prove its loss, theft or destruction. Such person shall also,
if required by policies adopted by the Board of Directors, give the Company
a bond, in such form as may be approved by the General Counsel or his or
her staff, sufficient to indemnify the Company against any claim that may
be made against it on account of the alleged loss of the certificate or the
issuance of a new certificate.
Section 1.5. Transfer Agents; Registrars; Rules Respecting Certificates.
The Board of Directors may appoint, or authorize any officer or officers to
appoint, one or more transfer agents and one or more registrars. The Board
of Directors may make such further rules and regulations as it may deem
expedient concerning the issue, transfer and registration of stock
certificates of the Company.
Section 1.6. Record Date. The Board of Directors may fix in advance a
date, not exceeding sixty days preceding the date of any meeting of
stockholders, payment of dividend or other distribution, allotment of
rights or change, conversion or exchange of capital stock or for the
purpose of any other lawful action, as the record date for determination of
the stockholders entitled to notice of and to vote at any such meeting and
any adjournment thereof, or to receive any such dividend or other
distribution or allotment of rights, or to exercise the rights in respect
of any such change, conversion or exchange of capital stock, or to
participate in any such other lawful action, and in such case such
stockholders and only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to such notice of and to vote at
such meeting and any adjournment thereof, or to receive such dividend or
other distribution or allotment of rights, or to exercise such rights, or
to participate in any such other lawful action, as the case may be,
notwithstanding any transfer of any stock on the books of the Company after
any such record date fixed as aforesaid.
SECTION II
MEETINGS OF STOCKHOLDERS
Section 2.1. Annual. The annual meeting of stockholders for the
election of Directors and the transaction of such other proper business
shall be held during the month of May each year at a time and place, within
or without Delaware, as determined by the Board of Directors.
55
Section 2.2. Special. Special meetings of stockholders for any purpose
or purposes may be called only by the Board of Directors, pursuant to a
resolution adopted by a majority of the entire Board of Directors, either
upon motion of a Director or upon written request by the holders of at
least fifty percent of the voting power of all the shares of capital stock
of the Company then entitled to vote generally in the election of
Directors. Special meetings may be held at any place, within or without
Delaware.
Section 2.3. Notice. Written notice of each meeting of stockholders,
stating the time, place and purpose thereof, shall be mailed by the
Secretary or an Assistant Secretary not less than ten days nor more than
sixty days before such meeting to every stockholder entitled to vote
thereat.
Section 2.4. List of Stockholders. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder, shall be prepared by the
Secretary and shall be open to the examination of any stockholder, either
at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held, for at least ten days before
the meeting and at the place of the meeting during the whole time of the
meeting.
Section 2.5. Quorum. The holders of at least fifty percent of the
issued and outstanding stock of the Company entitled to vote with
respect to any one of the purposes for which the meeting is called,
present in person or represented by proxy, shall constitute a
quorum, except as otherwise required by the General Corporation Law
of Delaware. In the event of a lack of quorum, the chairman of the
meeting or a majority in interest of the stockholders present in
person or represented by proxy may adjourn the meeting from time
to time without notice other than announcement at the meeting, until a
quorum shall be obtained. At any such adjourned meeting at which there is
a quorum, any business may be transacted that might have been transacted at
the meeting originally called. (As amended February 10, 1994.)
Section 2.6. Organization. The Chairman of the Board, or, in the
absence of the Chairman of the Board, the President, or, in the absence of
both, any Executive Vice President or Vice President, shall preside at
meetings of stockholders. The Secretary of the Company shall act as
secretary, but in the absence of the Secretary, the presiding officer may
appoint a secretary.
Section 2.7. Voting. Subject to all of the rights of the Preferred
Stock provided for by resolution or resolutions of the Board of Directors
pursuant to Article IV of the Certificate of Incorporation or by the
General Corporation Law of Delaware, each stockholder shall be entitled to
one vote, in person or by written proxy, for each voting share held of
record by such stockholder. The votes for the election of Directors and,
upon the demand of any stockholder, the vote upon any matter before the
meeting shall be by written ballot. Except as otherwise required by the
General Corporation Law of Delaware or as specifically provided for in the
Certificate of Incorporation or these Bylaws, in any question or matter
brought before any meeting of stockholders (other than the election of
Directors), the affirmative vote of the holders of voting shares present in
person or by proxy representing a majority of the votes actually cast on
any such question or matter shall be the act of the stockholders. Directors
shall be elected by a plurality of the votes of the voting shares present
in person or represented by proxy at the meeting and entitled to vote and
actually cast on the election of Directors. (As amended February 13, 1986,
effective May 8, 1986, and further amended February 10, 1994.)
Section 2.8. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors or the chairman of the meeting shall
appoint one or more inspectors to act at the meeting and make a written
report thereof. The chairman of the meeting may designate one or more
persons as alternate inspectors to replace any inspector who fails or is
unable to act. Each inspector, before entering upon the discharge of his
or her duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of his or
her ability. The inspector(s) shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented
at the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the
inspector(s), and certify the inspectors' determination of the number of
shares represented at the meeting and the count of all votes and ballots.
The inspector(s) may appoint or retain other persons or entities to assist
the inspector(s) in the performance of the duties of the inspector(s). (As
amended February 8, 1996.)
SECTION III
BOARD OF DIRECTORS
Section 3.1. Number and Qualifications. The business and affairs of the
Company shall be managed by or under the direction of its Board of
Directors. The number of Directors constituting the entire Board of
Directors shall be not less than six nor more than twenty-one, as
authorized from time to time exclusively by a vote of a majority of the
entire Board of Directors. As used in these Bylaws,* the term "entire
Board of Directors" means the total authorized number of Directors that the
Company would have if there were no vacancies. Each Director shall at all
times be the holder of Common Stock of the Company.
56
Section 3.2. Resignation. A Director may resign at anytime by giving
written notice to the Chairman of the Board, to the President or the
Secretary. Unless otherwise stated in such notice of resignation, the
acceptance thereof shall not be necessary to make it effective; and such
resignation shall take effect at the time specified therein or, in the
absence of such specification, it shall take effect upon the receipt
thereof.
Section 3.3. Regular Meetings. Regular meetings of the Board of
Directors may be held without further notice at such time and place as
shall from time to time be determined by the Board of Directors. A meeting
of the Board of Directors for the election of officers and the transaction
of such other business as may come before it may be held without notice
immediately following the annual meeting of stockholders.
Section 3.4 . Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President or at
the request in writing of one-third of the Directors then in office.
Section 3.5. Notice of Special Meetings. Notice of the time and
place of each special meeting shall be mailed to each Director at least two
days before the meeting or telegraphed or telecopied to such Director at
least one day before the meeting. The notice need not state the purposes
of the special meeting.
Section 3.6. Place of Meetings. The Directors may hold their meetings
and have an office or offices outside of Delaware.
Section 3.7. Quorum. A majority of the total number of Directors then
holding office shall constitute a quorum. In the event of lack of a
quorum, a majority of the Directors present may adjourn the meeting from
time to time without notice, other than announcement at the meeting until a
quorum shall be obtained.
Section 3.8. Organization. The Chairman of the Board, or, in the absence
of the Chairman of the Board, the President, or, in the absence of both, a
member of the Board selected by the members present, shall preside at
meetings of the Board. The Secretary of the Company shall act as
secretary, but in the absence of the Secretary, the presiding officer may
appoint a secretary.
Section 3.9. Compensation of Directors. Directors shall receive such
compensation for their services as the Compensation Committee may determine
pursuant to Section 4.4(a) of these Bylaws.* or as the Board of Directors
may determine. Any Director may serve the Company in any other capacity
and receive compensation therefor. (As amended July 14, 1994.)
Section 3.10. Notification of Nominations. Nominations for the election
of Directors may be made by the Board of Directors or by any stockholder
entitled to vote for the election of Directors. Any stockholder entitled
to vote for the election of Directors at a meeting may nominate persons for
election as Directors only if written notice of such stockholder's intent
to make such nomination is given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Company not later
than (i) with respect to an election to be held at an annual meeting of
stockholders, 90 days in advance of such meeting, and (ii) with respect to
an election to be held at a special meeting of stockholders for election of
Directors, the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be
nominated, (b) a representation that such stockholder is a holder of record
of Common Stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (c) a description of all arrangements
or understandings between such stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such stockholder, (d) such
other information regarding each nominee proposed by such stockholder as
would have been required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had each
nominee been nominated, or intended to be nominated, by the Board of
Directors, and (e) the consent of each nominee to serve as a Director of
the Company if elected. The person presiding at the meeting of
stockholders may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedure. (As adopted February 10,
1994.)
SECTION IV
COMMITTEES OF THE BOARD
Section 4.1. Creation and Organization. The standing committees of the
Board of Directors shall be an Executive Committee; an Audit Committee; a
Compensation Committee; a Committee on Directors; an Environment, Health
and Safety Committee; a Finance Committee; an Investment Policy Committee;
and a Public Interest Committee, having the respective duties assigned to
each in this Section IV and any other duties assigned to such committee by
resolution passed by a majority of the entire Board of Directors from time
to time. Each such standing committee shall consist of one or more
Directors and such other ex officio members as the Board of Directors shall
from time to time determine. The chairman of each standing committee shall
be one of
57
such committee's members who shall be designated as that committee's
chairman by a majority of the entire Board of Directors. Members of each
standing committee shall be elected by a majority of the entire Board of
Directors at its first meeting after each annual meeting of stockholders.
Vacancies in any standing committee shall be filled by a majority vote of
the entire Board of Directors. The Board of Directors may appoint
executive employees of the Company or its subsidiaries to be ex officio
members of any standing committee except the Executive Committee. Ex
officio members of standing committees shall be entitled to be present at
all meetings of their respective committees and to participate in committee
discussions, but shall not be entitled to vote or be counted for quorum
purposes. Each standing committee shall fix its own rules of procedure and
shall meet where and as provided by such rules, but the presence of a
majority of its members shall be necessary to constitute a quorum. The
Board of Directors may from time to time appoint such special committees
with such powers and such members as it may designate in a resolution or
resolutions adopted by a majority of the entire Board of Directors. (As
amended February 8, 1996.)
Section 4.2. Executive Committee. During the intervals between the
meetings of the Board of Directors, the Executive Committee shall possess
and may exercise all the powers of the Board of Directors in the management
and direction of the business and affairs of the Company, including the
power and authority:
(a) To authorize the issuance of stock;
(b) To the extent authorized in a resolution or resolutions providing
for the issuance of shares of Preferred Stock adopted by the Board of
Directors, to fix the designations and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Company or the conversion into, or the
exchange of such shares for, shares of any other class or any other
series of any class of stock of the Company, to fix the number of
shares of any series of Preferred Stock or to authorize the increase
or decrease of the shares of any series of Preferred Stock;
(c) To declare dividends on stock; and
(d) To adopt a certificate of ownership and merger in accordance with
the General Corporation Law of Delaware.
The Executive Committee shall consist of the officer who serves as the
chief executive officer pursuant to Section 5.17 and not fewer than three
other Directors. The Executive Committee shall keep minutes of its
meetings. (As amended April 14, 1994.)
Section 4.3. Audit Committee. The Audit Committee shall:
(a) Prior to each annual meeting of stockholders, submit a
recommendation in writing to the Board of Directors for the selection
of independent auditors to be appointed by the Board of Directors in
advance of the annual meeting of stockholders and to be submitted for
ratification or rejection at such meeting;
(b) Annually consult with the independent auditors with regard to the
proposed plan of audit and from time to time consult privately with
them and also with the Corporate Auditor and the Controller with
regard to the adequacy of internal controls;
and
(c) Upon completion of the report of audit by the independent auditors
and before the date of the annual meeting of stockholders, (i)
review the financial statements of the Company, and (ii) meet with
the independent auditors and review with them the results of their
audit and any recommendations made to the management.
(As amended April 8, 1993.)
Section 4.4. Compensation Committee. The Compensation Committee shall
consist of three or more members, all of whom shall be "disinterested
persons" as defined in Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, or any future rule
of the Securities and Exchange Commission with respect to the same subject
matter, and who also comply with the rules for eligibility to serve as
members of the award and option committees hereinafter described.
(a) The Compensation Committee may establish rates of salary, bonuses,
retirement and other compensation for all Directors and
officers of the Company as defined in the Securities Exchange Act
of 1934, as amended, or the regulations of the Securities and
Exchange Commission, and for such other personnel as the Board of
Directors may from time to time delegate to it; provided, however,
that no member of the Committee may vote upon his or her own rate of
salary or his or her own bonus, retirement or other
compensation except for such items as are applicable to a group that
also includes personnel who are not Directors or officers, or where
his or her participation in such items is determined by formula; and
(b) The Compensation Committee shall exercise all functions of the
award and option committees under the Company's incentive
and option plans. (As amended July 14, 1994.)
58
Section 4.5. Committee on Directors. The Committee on Directors
shall:
(a) Recommend to the Board the individuals to constitute the nominees
of the Board of Directors for election at the next annual meeting
of stockholders and who will be named as such nominees in
the proxy statement used for solicitation of proxies by
the Board;
(b) Recommend and nominate an individual for Director to fill the
unexpired term of any vacancy existing in the Board of
Directors or created by an increase in the size of the Board;
(c) Conduct continuing studies of the size and composition of the
Board of Directors and from time to time make
recommendations to the Board for enlargement or reduction in size
of the Board; and
(d) Recommend and nominate individuals for election as officers and
members of committees.
Section 4.6. Environment, Health and Safety Committee. The Environment,
Health and Safety Committee shall have the authority and responsibility to
assess all aspects of the Company's environment, health and safety policies
and performance and to make recommendations to the Board of Directors and
the management of the Company with regard to promoting and maintaining
superior standards of performance. (As amended April 8, 1993.)
Section 4.7. Finance Committee. The Finance Committee shall have the
responsibility of periodically reviewing the financial affairs of the
Company and making recommendations to the Board of Directors concerning the
financial needs of the Company and the methods of providing funds for such
needs.
Section 4.8. Investment Policy Committee. The Investment Policy
Committee shall have the authority and responsibility to:
(a) Establish investment policy for The Dow Chemical Company Employees'
Retirement Plan or any other retirement plan or fund maintained by the
Company for its employees or employees of its subsidiaries ("Plans");
(b) Employ, replace, discharge and supervise, and review the performance
of trustees and investment advisers acting pursuant to the Plans;
(c) Enter into, modify, alter, amend or revoke any existing or future
trust agreement or trust relating to the Plans;
(d) Review and advise upon the investment policy of, and performance of
trustees and investment advisers acting pursuant to or on behalf of,
any retirement plan or fund maintained by any directly or indirectly
wholly owned subsidiary or subsidiaries of the Company for the benefit
of its or their employees or the employees of its or their
subsidiaries; and
(e) Perform similar duties with respect to such other retirement or
in vestment plan or fund, or on behalf of such other entities
affiliated with the Company, as the Board of Directors from time to
time shall designate. (As amended November 12, 1992.)
Section 4.9. Public Interest Committee. The Public Interest Committee
shall have the authority and the responsibility to assess any and all
aspects of the Company's decisions to determine their social impact, as
well as the responsibility to develop a worldwide contributions program
including an annual budget. The most socially desirable alternatives for
accomplishing the commercial objectives of the Company and a program and
annual budget for contributions shall be recommended to the Board of
Directors and the management of the Company. Recognizing that positive
perceptions of the Company's policies and actions among its several
constituencies are extremely valuable assets, the Committee will keep
itself informed of these perceptions and will recommend to the Board and
management actions directed at continually enhancing the Company's public
image.
Section 4.10. Powers Reserved to the Board. No committee of the Board
of Directors shall have the power or authority to:
(a) Recommend the amendment of the Certificate of Incorporation or amend
these Bylaws;*
(b) Adopt or approve any agreement of merger or consolidation with
relation to the Company;
59
(c) Recommend to the stockholders a sale, lease or exchange of all or
substantially all of the assets and property of the Company; or
(d) Recommend a dissolution of the Company or a revocation of a
dissolution of the Company.
No committee of the Board of Directors shall take any action that is
required by these Bylaws,* the Certificate of Incorporation or the General
Corporation Law of Delaware to be taken by a vote of a specified proportion
of the entire Board of Directors.
SECTION V
OFFICERS
Section 5.1. Designation. The officers of the Company shall be a
Chairman of the Board, a President, one or more Executive Vice Presidents,
one or more Vice Presidents, a Treasurer, one or more Assistant Treasurers,
a Secretary, one or more Assistant Secretaries, a Controller, one or more
Assistant Controllers and a General Counsel. The Board of Directors also
may elect or appoint, or provide for the appointment of, such other
officers or agents as may from time to time appear necessary or advisable
in the conduct of the business and affairs of the Company. (As amended
February 13, 1986.)
Section 5.2. Election and Term. At its first meeting after each annual
meeting of stockholders, the Board of Directors shall elect the officers.
The term of each officer shall be until the first meeting of the Board of
Directors following the next annual meeting of stockholders and until such
officer's successor is chosen and qualified.
Section 5.3. Resignation. Any officer may resign at any time by giving
written notice to the President or the Secretary. Unless otherwise stated
in such notice of resignation, the acceptance thereof shall not be
necessary to make it effective; and such resignation shall take effect at
the time specified therein or, in the absence of such specification, it
shall take effect upon the receipt thereof.
Section 5.4. Removal. Except where otherwise expressly provided in a
contract authorized by the Board of Directors, any officer elected by the
Board of Directors may be removed at any time with or without cause by the
affirmative vote of a majority of the entire Board of Directors.
Section 5.5. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
Section 5.6. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may be assigned by the Board
of Directors. (As amended May 14, 1987; November 12, 1987;
November 12, 1992; effective December 1, 1992; and April 14, 1994.)
Section 5.7. President. The President shall have such other powers and
perform such other duties as may be assigned by the Board of Directors. (As
amended May 14, 1987; November 12, 1987; November 12, 1992; effective April
1, 1993; and April 14, 1994.)
Section 5.8. Executive Vice Presidents. The Executive Vice Presidents
shall assist the President in the management of the business and affairs of
the Company and shall perform such other duties as may be assigned by the
President or the Board of Directors.
Section 5.9. Vice Presidents. Each Vice President shall have such
powers and perform such duties as may be assigned by the President or the
Board of Directors. The Board of Directors may designate a Financial Vice
President and one or more Vice Presidents as Senior Vice Presidents or
Group Vice Presidents.
Section 5.10. Treasurer. The Treasurer shall have charge of all funds
of the Company and shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors.
Section 5.11. Assistant Treasurers. Each Assistant Treasurer shall
have such powers and perform such duties as may be assigned by the
Treasurer or the Board of Directors.
Section 5.12. Secretary. The Secretary shall keep the minutes and give
notices of all meetings of stockholders and Directors and of such
committees as directed by the Board of Directors. The Secretary shall have
charge of such books and papers as
60
the Board of Directors may require. The Secretary (or any Assistant
Secretary) is authorized to certify copies of extracts from minutes and of
documents in the Secretary's charge, and anyone may rely on such certified
copies to the same effect as if such copies were originals and may rely
upon any statement of fact concerning the Company certified by the
Secretary (or any Assistant Secretary). The Secretary shall perform all
acts incident to the office of Secretary, subject to the control of the
Board of Directors.
Section 5.13. Assistant Secretaries. Each Assistant Secretary shall
have such powers and perform such duties as may be assigned by the
Secretary or the Board of Directors.
Section 5.14. Controller. The Controller shall be in charge of the
accounts of the Company. The Controller shall have such other powers and
perform such other duties as may be assigned by the Board of Directors and
shall submit such reports and records to the Board of Directors as it may
request.
Section 5.15. Assistant Controllers. Each Assistant Controller shall
have such powers and perform such duties as may be assigned by the
Controller or the Board of Directors. (As adopted on February 13, 1986.)
Section 5.16. General Counsel. The General Counsel shall be in charge
of all matters concerning the Company involving litigation or legal
counseling. The General Counsel shall have such other powers and perform
such other duties as may be assigned by the Board of Directors and shall
submit such reports to the Board of Directors as it may request. (As
renumbered on February 13, 1986.)
Section 5.17. Designation of an Officer as the Chief Executive Officer.
The Board of Directors shall designate one of the elected officers as the
chief executive officer of the Company. The chief executive officer shall
be in general and active charge of the business and affairs of the Company.
(As amended February 8, 1996.)
Section 5.18. Designation of an Officer as the Chief Operating Officer.
The Board of Directors may designate one of the elected officers the chief
operating officer of the Company with such powers and duties as may be
assigned by the Board of Directors. (As adopted on April 14, 1994.)
Section 5.19. Compensation of Officers. The officers of the Company
shall receive such compensation for their services as the Compensation
Committee may determine pursuant to Section 4.4(a) of these Bylaws.* (As
renumbered on February 13, 1986 and April 14, 1994.)
SECTION VI
INDEMNIFICATION
Section 6.1. Mandatory Indemnification of Directors, Officers and
Employees. The Company shall indemnify, to the full extent permitted by
the laws of the State of Delaware, any person who was or is a defendant or
is threatened to be made a defendant to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person (a)
is or was a Director, officer or employee of the Company, or (b) is or was
a Director, officer or employee of the Company and is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding. Any repeal, amendment or
modification of this Section 6.1 shall not affect any rights or obligations
then existing between the Company and any then incumbent or former
Director, officer or employee with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon such state of facts. (As
amended February 13, 1986, effective May 8, 1986; and July 11, 1991.)
Section 6.2. Permitted Indemnification of Directors, Officers, Employees
and Agents. The Company may indemnify, to the full extent permitted by the
laws of the State of Delaware, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person (a) is or was a
Director, officer, employee or agent of the Company, or (b) is or was a
Director, officer, employee or agent of the Company and is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding. (As amended February 13,
1986, effective May 8, 1986.)
61
Section 6.3. Judicial Determination of Indemnification. Any incumbent or
former Director, officer or employee may apply to any court of competent
jurisdiction in the State of Delaware to order indemnification to the
extent mandated under Section 6.1 above. The basis of such order of
indemnification by a court shall be a determination by such court that
indemnification of the incumbent or former Director, officer or employee is
proper in the circumstances. Notice of any application for indemnification
pursuant to this Section 6.3 shall be given to the Company promptly upon
the filing of such application. (As amended February 13, 1986, effective
May 8, 1986; and July 11, 1991.)
Section 6.4. Expenses Payable in Advance. Expenses incurred by any
Director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Director or officer to repay such amount
if it ultimately shall be determined that the Director or officer is not
entitled to be indemnified by the Company as authorized in this Section VI.
Such expenses incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors deems
appropriate. (As amended February 13, 1986, effective May 8, 1986; and
October 9, 1986.)
Section 6.5. Nonexclusivity. The indemnification and advancement of
expenses mandated or permitted by, or granted pursuant to, this Section VI
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
Bylaw,* agreement, contract, vote of stockholders or disinterested
Directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise both as to action by the person in an
official capacity and as to action in another capacity while holding such
office, it being the policy of the Company that indemnification of the
persons specified in Sections 6.1 or 6.2 above as defendants shall be made
to the fullest extent permitted by the laws of the State of Delaware. The
provisions of this Section VI shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 6.1 or 6.2
above, but whom the Company has the power or obligation to indemnify under
the laws of the State of Delaware or otherwise. (As amended February 13,
1986, effective May 8, 1986; and October 9, 1986.)
Section 6.6. Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was a Director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against and incurred by such person in any such capacity, or arising out of
the person's status as such, whether or not the Company would have the
power or the obligation to indemnify the Director, officer, employee or
agent of the Company against such liability under the provisions of this
Section VI. (As amended February 13, 1986, effective May 8, 1986.)
Section 6.7. Definitions. For the purposes of this Section VI
references to "the Company" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify
its directors, officers and employees or agents, so that any person who is
or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section VI with
respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued. The term "other enterprise" as used in this Section VI shall
include employee benefit plans. References to "fines" in this Section VI
shall include excise taxes assessed on a person with respect to an employee
benefit plan. The phrase "serving at the request of the Company" shall
include any service as a Director, officer, employee or agent of the
Company that imposes duties on, or involves services by, such Director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries. (As amended February 13, 1986, effective May
8, 1986.)
Section 6.8. Survival. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section VI shall continue as to a
person who has ceased to be a Director, officer, employee or agent of the
Company and shall inure to the benefit of the heirs, executors and
administrators of such person. (As amended October 9, 1986.)
SECTION VII
MISCELLANEOUS
Section 7.1. Seal. The corporate seal shall have inscribed upon it the
name of the Company, the year "1947" and the words "Corporate Seal" and
"Delaware." The Secretary shall be in charge of the seal and may authorize
a duplicate seal to be kept and used by any other officer or person.
Section 7.2. Waiver of Notice. Whenever any notice is required to be
given, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
62
Section 7.3. Voting of Stock Owned by the Company. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Company may be executed in the name of
and on behalf of the Company by the President, any Executive Vice
President, any Vice President or the General Counsel. Any such officer
may, in the name of and on behalf of the Company, take all such action as
any such officer may deem advisable to vote in person or by proxy at any
meeting of security holders of any corporation in which the Company may own
securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which,
as the owner thereof, the Company might have exercised and possessed if
present. The Board of Directors may from time to time confer like powers
upon any other person or persons.
Section 7.4. Executive Office. The principal executive office of the
Company shall be located in the City of Midland, County of Midland, State
of Michigan, where the books of account and records shall be kept. The
Company also may have offices at such other places, both within and without
Delaware, as the Board of Directors from time to time shall determine or
the business and affairs of the Company may require.
SECTION VIII
AMENDMENT OF BYLAWS*
Section 8.1. The Board of Directors shall have power to amend, alter,
change, adopt and repeal the Bylaws* of the Company at any regular or
special meeting. The stockholders also shall have power to amend, alter,
change, adopt and repeal the Bylaws* of the Company at any annual or
special meeting subject to the requirements of the Certificate of
Incorporation.
* Spelling as amended April 8, 1993.
63
EXHIBIT 10(m)
THE DOW CHEMICAL COMPANY
EXECUTIVE SPLIT DOLLAR LIFE INSURANCE PLAN AGREEMENT
________________________________________________
This amended and restated agreement is made this 19th day of December,
1994, by and between THE DOW CHEMICAL COMPANY, a Delaware corporation
having its principal place of business in Midland, Michigan (the
"Corporation"), and _______________________________(the "Executive").
WITNESSETH
WHEREAS, the Executive is a valued employee of the Corporation who has
attained the threshold job level for this plan; and
WHEREAS, the Corporation wishes to assist the Executive with his or her
personal life insurance program in recognition of the Executive's ongoing
valuable contribution to the business success of the Corporation; and
WHEREAS, the Executive is the owner of an insurance policy on his or her
life, including all supplemental riders or endorsements to such insurance
policy, which policy the Executive and Corporation wish to make subject to
a life insurance plan pursuant to the terms and conditions of this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth below, the Corporation and Executive agree as follows:
ARTICLE I
OWNERSHIP OF POLICY
1.1 Executive as Owner.
The Executive (or the Trustee of a Trust, or other third party owner) shall
be the owner of the policy (including all supplemental riders or
endorsements) (the "Policy") and may exercise all ownership rights granted
to the owner by the terms of the Policy, except as may otherwise be
provided in this Agreement. When the Trustee of a Trust, or other third
party owner is owner, the word Trustee or Owner shall be substituted for
the word Executive throughout this Agreement where appropriate. The
Executive and the Corporation agree that the Policy shall be subject to the
terms and conditions of this Agreement.
1.2 Assignment.
The Executive agrees to execute an assignment (the "Assignment") to the
Corporation to secure the Corporation's rights under this Agreement, in the
form required by or acceptable to the issuer of the Policy, Metropolitan
Life Insurance Company (the "Issuer"), a copy of which is attached. The
Assignment shall set forth the rights of the Corporation in and with
respect to the Policy pursuant to the terms and conditions of this
Agreement. The Executive and the Corporation agree to be bound by the
terms of the Assignment.
1.3 Corporation's Rights.
The Corporation's Rights with respect to the Policy shall be limited to the
following:
(a) The right to obtain one or more loans or advances against the
cash surrender value of the Policy; however, such loans shall be
limited to the amount set forth in Section 4.3 below (the "Corporate
Interest");
(b) The sole right to pledge or assign the Corporate Interest as
security for loans or advances;
(c) The right to fully or partially surrender the Policy upon
termination of the Agreement;
(d) The sole right to realize up to the Corporate Interest in the
cash surrender value of the Policy on the full or partial
surrender of the Policy;
(e) The right to exercise all non-forfeiture or lapse option rights
permitted by the terms of the Policy;
(f) The right to realize the proceeds of the Policy as set forth in
Section 3.2 below (the "Corporation's Death Benefit Portion")
upon the Executive's death; and
(g) The right to release the Assignment upon receipt of the Corporate
Interest.
1.4 Executive's Rights.
The Executive shall retain all other rights as owner of the Policy,
including, but not limited to, the following:
(a) The right to designate and to change the beneficiary or
beneficiaries on the portion of the proceeds of the Policy
payable to the Executive's beneficiary pursuant to subsection 3.1
below (the "Executive's Death Benefit Portion") upon the Executive's
death;
(b) The right to elect any optional form of settlement available with
respect to the Executive's Death Benefit Portion; and
(c) The right to assign the Executive's rights in and with respect to
the Policy, including the right to assign ownership of the
Policy to a third party.
64
ARTICLE II
INSURANCE PREMIUMS
2.1 Amount of Premium
For purposes of this Agreement, the term "premium" shall mean the yearly
premium necessary to provide a life insurance benefit at least equal to the
Executive's Death Benefit Portion (as defined in Section 3.1). "Premium"
shall also include all costs associated with all supplemental riders and
endorsements to the Policy. The premium shall be apportioned into two
parts known as the "Executive's Portion" and the "Corporation's Portion."
2.2 Payment of Premium
The Corporation shall pay the Premium (with respect to the Executive's
Portion, on behalf of the Executive) on or before the due date of each
Premium payment, and in any event, not later than the grace period under
the Policy for the Premium payment. If the Corporation fails to make any
premium payment within 20 days after it is due, the Executive may make the
Premium payment, in which case the Corporation shall reimburse the
Executive for such payment within ten days.
The Executive's Portion of the Premium shall be equal to the greater of:
(a) an amount equal to his annual salary as of July 1, or if retired,
his final annual salary, divided by 1000, multiplied by the
appropriate rate on the Executive Split Dollar Life Insurance
Premium Schedule then in effect (see attached Schedule A); or
(b) the amount of taxable income on the amount of the annual cost of
pure protection on the life of the Executive under the
Policy for the ensuing policy year calculated by using the lower
of the PS-58 rates or the applicable rates published by the Issuer
of the Policy.
The Corporation shall deduct the Executive's Portion of the Premium from
the Executive's salary by payroll deduction.
This is a U.S. dollar based program with premiums and benefits payable in
U.S. dollars. For the purposes of this program, the initial coverage level
for participants on a non-U.S. dollar payroll will be determined by taking
the salary in effect on July 1 of the Agreement year and applying the
intercompany exchange rate for the month of July. Any annual salary
increase for participants on a non-U.S. dollar payroll will be determined
by using the average increase of a U.S. peer.
ARTICLE III
RIGHTS UPON DEATH OF EXECUTIVE
3.1 Executive's Death Benefit Portion
Subject to the provisions of the Policy, upon the death of the Executive,
the Executive's designated beneficiary or beneficiaries shall be entitled
to receive the Executive's Death Benefit Portion. Prior to retirement, the
Executive's Death Benefit Portion will be an amount equal to two (2) times
the Executive's annual salary in effect on July 1 prior to the last plan
anniversary. After retirement, the Executive's Death Benefit Portion will
be an amount equal to two (2) times the Executive's annual salary at
retirement or, where applicable, as stated in the Executive's Deceleration
Agreement.
3.2 Corporation's Death Benefit Portion
Subject to the provisions of the Policy, upon the death of the Executive,
the Corporation shall be entitled to receive an amount equal to the
Corporation's Death Benefit Portion. The Corporation's Death Benefit
Portion shall be an amount equal to the remaining net death benefit under
the Policy after paying the Executive's Death Benefit Portion.
3.3 Beneficiary Designation
The Executive and the Corporation agree to conform the beneficiary
designation of the Policy to the provisions of this Agreement.
ARTICLE IV
TERMINATION OF AGREEMENT
4.1 Termination Defined
This Agreement shall automatically terminate upon the occurrence of any of
the following events:
(a) The bankruptcy, receivership or dissolution of the Corporation.
(b) The Executive's retirement from the Corporation; provided,
however, if the retirement occurs within ten years after the
date the Policy was issued or before the policy can be endowed at
age 95 (as described in Article 4.2) without creating a Modified
Endowment Contract (MEC) as described in Section 7702A of the
Internal Revenue Code of 1986 (Code) or before an amount equal to
the Corporate Interest can be withdrawn from the policy without
attracting tax under the Code Section 7702 (f)(7), the following
applies;
65
(i) If the Executive waives all post-retirement life insurance
benefits from the Corporation, The Executive's
retirement shall be the termination event.
(ii) If the Executive does not waive all post-retirement life
insurance benefits from the Corporation, the termination
event shall be the latest of the tenth anniversary of the date
the Policy was issued or the Policy anniversary following the
final premium payment, with level premium payments made to
endow the Policy at age 95 (as described in Section 4.2) at the
earliest possible date without creating a MEC or the Policy
anniversary following the final premium payment before an
amount equal to the Corporate Interest can be withdrawn from the
Policy without attracting tax under Code Section 7702(f)(7).
(c) The termination of employment of the Executive with the
Corporation (other than by reasons of death or retirement).
(d) The mutual written agreement of the Executive and the
Corporation.
(e) The Corporation terminates the Agreement with regard to the
Executive for any reason; provided however, the Corporation
shall not have the right to terminate the Agreement with regard
to the Executive during any period that a change of control of the
Corporation (as defined in Section 5.3) is being
contemplated, negotiated or effected, except as provided in
Section 5.2.
For purposes of this Section, the term "retirement" means a termination of
employment with the Corporation after satisfying the requirements for an
early or normal retirement benefit. Also, if the Executive is receiving
long-term disability benefits under a plan sponsored by the Corporation,
the Executive shall not be deemed to have terminated employment with the
Corporation.
4.2 Rights Upon Termination
Upon termination of the Agreement pursuant to Section 4.1 (c), the
Executive shall pay to the Corporation the Corporate Interest determined
pursuant to Section 4.3. Upon termination of this Agreement pursuant to
Section 4.1 (a), (b), (d), or (e), the Executive shall pay to the
Corporation all amounts in excess of the amount required to endow the
Policy at the Executive's age of 95 assuming the Policy's then current face
amount, interest rate and mortality cost assumptions as of the date of
termination of employment and that the Executive will pay $l.62 per month
per thousand of 50% of the face amount until age 95. Upon receipt of such
amount from the Executive, the Corporation shall take all steps necessary
to release the Assignment so that the Executive (or his assignee as owner
of the Policy) shall own the Policy free of all encumbrances in favor of
the Corporation required by this Agreement. The Executive (or his
assignee) may then take any action with regard to the Policy that is
available under the terms of the Policy to the Policy's owner.
4.3 Corporate Interest
For purposes of this Agreement, the term "Corporate Interest" means an
amount payable from the cash surrender value of the Policy equal to the
amount of all premiums paid and expected to be paid by both parties
assuming that the Agreement will be terminated upon the retirement of the
Executive or as described in Section 4.1(b)(ii) minus the sum of any
indebtedness described in Section 1.3(a) and the surrender charges, if any,
imposed by the Issuer. In no event shall the Corporate Interest exceed the
amount of the Policy's cash surrender value.
The Corporate Interest shall be paid by the Executive as specified in
Section 4.2 above, or by the Issuer upon surrender of the Policy.
ARTICLE V
CHANGE OF CONTROL
5.1 Article Supersedes Other Provisions
Notwithstanding any other provision of this Agreement, the provisions in
this Article shall apply if the Corporation has change in control, as
defined in Section 5.3.
5.2 Effect of Change in Control
No later than 60 days after a change in control of the Corporation, this
Agreement shall terminate and the Corporation shall abandon its rights to
the Corporate Interest.
5.3 Definition of Change in Control
For purposes of the Agreement, a "change in control" of the Corporation
occurs when:
(a) Any person, partnership, corporation, trust or similar entity or
group acquires or controls more than 20% of the voting
securities of the Corporation in a transaction or series of
transactions; or
66
(b) At any time during any two-year period a majority of the Board of
Directors of the Corporation is not comprised of individuals
who were members of the Board of Directors at the beginning of
the two-year period.
For purposes of this definition, the term "group" shall mean any person who
acts in concert within the meaning of Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended.
ARTICLE VI
ADMINISTRATIVE PROVISION
6.1 No Other Life Insurance Provided by Corporation
The Corporation shall have no obligation to provide the Executive with life
insurance benefits, either during employment by the Corporation or after
retirement, other than pursuant to this Agreement.
6.2 Issuer's Responsibility
Except with regard to Section 6.12, no provision of this Agreement shall in
any way change the obligations of the Issuer as expressly provided in the
Policy, except as the Agreement may become a part of the Policy by the
Issuer's acceptance of the Assignment.
6.3 Amendment
This Agreement may be amended only by a written agreement signed by both
the Executive and a duly authorized representative of the Corporation.
6.4 Notice
Any and all notices required to be given under the terms of the Agreement
shall be given in writing and signed by the appropriate party, and shall be
sent by certified mail, postage prepaid, to the appropriate address set
forth below:
(a) To the Executive at:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
(b) To the Corporation at:
The Dow Chemical Company
Global Compensation and Benefits Department
2030 Dow Center
Midland, MI 48674
Attn: Administrator, Executive Split Dollar Life Insurance
6.5 Heirs, Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of the
Executive, his or her successors, heirs and the executors or administrators
of the Executive's estate, and to the Corporation and its successors. The
Executive and the Corporation agree that either party may assign its
interest under this Agreement upon the prior written consent of the other
party, and any assignee shall be bound by the terms and conditions of this
Agreement as if an original party to the Agreement.
6.6 Interpretation
This Agreement shall be governed by and construed in accordance with the
Employee's Retirement Income Security Act (ERISA). In the event that ERISA
does not preempt state law, the laws of the State of Michigan shall apply.
6.7 Terms
This Agreement shall be effective as of the date first above written, and
shall continue until terminated as provided in Section 4.1 or until all
covenants under the Agreement activated by the death of the Executive are
fully carried out.
67
6.8 Headings
Any headings or captions in the Agreement are for reference purposes only,
and shall not change or affect the meaning of any provisions of this
Agreement.
6.9 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one
and the same Agreement.
6.10 Employment Rights
The existence of this Agreement shall not grant the Executive any legal
right to continue as an employee of the Corporation nor affect the right of
the Corporation to discharge the Executive.
6.11 Administrator
The administration of the Executive Split Dollar Life Insurance Plan (the
"Plan") shall be under the supervision of the Corporation as the Plan
Administrator ("Administrator"), except for the processing and approval of
claims, which shall be under the direction of the Issuer (the "Claims
Administrator"). The Administrator shall have full power to administer the
Plan as set forth in this Agreement in all of its details, subject,
however, to the requirements of ERISA or other applicable law. For this
purpose, the Administrator's powers will include, but will not be limited
to, the following discretionary authority:
(a) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of
the Plan;
(b) To have complete discretion to resolve any inconsistencies and
interpret the Plan, its interpretation thereof in good faith to be
final and conclusive, and its decisions shall be upheld absent any
arbitrary and capricious action on its part;
(c) To decide all questions concerning the Plan;
(d) To determine the eligibility of any person to participate in the
Plan;
(e) To appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the
Plan;
(f) To allocate and delegate its responsibilities under the Plan and
to designate other persons to carry out any of its
responsibilities under the Plan. The procedures for such
allocation, delegation or designation are:
(i) The Administrator shall review the qualifications of the
candidates for allocation, delegation or designation of
fiduciary responsibility to determine whether such candidate(s)
is capable and qualified to perform the subject fiduciary
responsibilities;
(ii) If the Administrator determines that Section 6.11(f)(i) has been
met, then the Administrator shall set forth the services the
Administrator expects the candidate to perform in writing and
require the candidate to agree in writing to provide such services.
Further, the Administrator shall require such candidate to
acknowledge in writing that it will comply with the standards
required of fiduciaries under ERISA.
6.12 Claims Appeal Procedure
The Claims Administrator is authorized to review claims, compute the
amounts of benefits which will be payable under the Plan, conclusively
determine beneficiaries, and authorize payment of benefits. The review of
a claim appealed by an Executive and final decision on a claim for benefits
under the Plan shall be made in accordance with the procedures set forth in
this Section 6.12 of this Agreement. The Claims Administrator (and not the
Plan Administrator) shall be the "named fiduciary" of the Plan with regard
to any review and final decision on a claim for benefits under this Plan.
The Claims Administrator shall be entitled to use its discretion in good
faith in reviewing claims submitted under this Plan, and its decisions
shall be upheld absent any arbitrary and capricious action on the part of
the Claims Administrator.
Any controversy arising out of a claim for benefits shall be filed with the
Claims Administrator, which shall make all determinations concerning the
claim. Any decision by the Claims Administrator denying the claim shall be
in writing and shall be delivered to all parties in interest in accordance
with the notice provisions of Section 6.4. The decision shall set forth
the reasons for denial in plain language. Pertinent provisions of the
Agreement shall be cited and, where appropriate, an explanation as to how
the Executive can perfect the claim will be provided. This notice of
denial of benefits shall be provided within 90 days of the Claims
Administrator's receipt of the Executive's claim for benefits. If the
Claims Administrator fails to notify the Executive of its decision
regarding his claim within the 90 day period, the claim shall be considered
denied, and the Executive shall then be permitted to proceed with his
appeal as provided in this Section.
68
An Executive who has been completely or partially denied a benefit shall be
entitled to appeal this denial of his claim by filing a written statement
of his position with the Claims Administrator no later than 60 days after
receipt of the written notification of the claim denial. The Claims
Administrator shall schedule an opportunity for a full and fair review of
the issue within 30 days after receipt of the appeal.
Following its review of any additional information submitted by the
Executive, either through the hearing process or otherwise, the Claims
Administrator shall render a decision on its review of the denied claim in
the following manner:
(a) The Claims Administrator shall make its decision regarding the
merits of the denied claim within 60 day following its receipt of
the request for review (or within 120 days after receipt, in a case
where there are special circumstances requiring extension of time
for reviewing the appealed claim). The Claims Administrator
shall deliver the decision to the claimant in writing. If an
extension of time for reviewing the appealed claim is required
because of special circumstances, written notice of the extension
shall be furnished to the Executive prior to the commencement of
the extension. If the decision on review is not furnished within
the prescribed time, the claim shall be deemed denied on review.
(b) The decision on review shall set forth specific reasons for the
decision, and shall cite specific references to the pertinent
Agreement provisions on which the decision is based.
6.13 Reliance on Tables, Etc.
The Administrator is entitled to rely conclusively on all tables,
valuations, certificates, opinions and reports which are furnished by any
accountant, counsel or other expert who is employed or engaged by the
Administrator.
6.14 Gender
All pronouns or adjectives in the masculine gender in this Agreement
include the female gender, and the singular includes the plural, unless the
context clearly indicates otherwise.
IN WITNESS OF WHICH, the Corporation and Executive (and Trustee if Trust is
to be Owner, or third party owner) have duly executed this Agreement.
THE DOW CHEMICAL COMPANY
X_____________________________________________
The Dow Chemical Company, Chief Executive Office
X_______________________________________
Executive
Name of Trustee if Trust is to be Owner, or third party owner(s)
SCHEDULE A
Executive Split-Dollar Life Insurance Premium Schedule
Monthly Contribution per $1,000 of Coverage Rate
------------------------------------------- ----
Less than 30 years of age $0.06
30-34 years of age $0.06
35-39 years of age $0.08
40-44 years of age $0.12
45-49 years of age $0.18
50-54 years of age $0.28
55-59 years of age $0.40
60-64 years of age $0.45
65 years of age and older $1.62
69
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands except for per share amounts)
Year ended December 31
------------------------
1995 1994 1993
Primary:
Average common shares outstanding 368,243 276,094 273,620
------- ------- -------
Net income available for common stockholders $2,071,000 $931,000 $637,000
---------- -------- --------
Net earnings per common share $7.72 $3.37 $2.33
------ ----- -----
Note:In computing primary earnings per common share, no adjustment was made for
the net effect of dilutive stock options. The aggregate dilution produced
by common stock equivalents, based on the treasury stock method, is not
material.
Fully Diluted:
Average common shares outstanding 268,243 276,094 273,620
Net effect of dilutive stock options - based on
treasury stock method using the ending
market price, if higher than average
market price 4,975 4,907 5,085
------- ------- -------
Total 273,218 278,527 278,705
======= ======= =======
Net income available for common
stockholders $2,071,000 $931,000 $637,000
========== ======== ========
Net earnings per common share $7.58 $3.31 $2.29
===== ===== =====
Note:The aggregate dilution produced by common share equivalents is not
material and accordingly the fully diluted earnings per common share
need not be reported in the Company's Financial Statements as of
December 31, 1995.
75
EXHIBIT 21
SUBSIDIARIES OF THE DOW CHEMICAL COMPANY
as at December 31, 1995
Location of Percent
Incorporation Ownership
or Organization*
The Dow Chemical Company Delaware
Admiral Nihon K.K. Japan 100
Arabian Chemical Company Limited Saudi Arabia 50
Arabian Chemical Company (Latex) Limited Saudi Arabia 50
Boride Products, Inc. Michigan 100
DC Partnership Management Inc. Delaware 100
DowBrands L.P. (6) Delaware 1
DCOMCO, Inc. Delaware 100
DCU/LB Trust (1) California 50
DVCA-21 Holding, C.A. Venezuela 100
Dow Venezuela, C.A. Venezuela 100
CV Services Ltd. Cayman Islands 100
Destec Energy, Inc. Delaware 77
Alamo Land Company Louisiana 57
Atlantic Power, Inc. Delaware 100
Tri-State Peaker, L.P. (11) Texas 60
Black Mountain Cogen, Inc. Delaware 100
Blue Mountain Power, Inc. Delaware 100
Blue Mountain Power, L.P. (12) Pennsylvania 60
DCG, Inc. Delaware 100
Delta CoGen Limited Partnership (13) Texas 20
Delta CoGen, Inc. Delaware 100
Delta CoGen Limited Partnership (13) Texas 80
Demex, Inc. Delaware 100
Destec Energia de Mexico, S.A. de C.V. (14) Mexico 50
Demsa, Inc. Delaware 100
Destec Energia de Mexico, S.A. de C.V. (14) Mexico 50
Destec Taiwan, Inc. Delaware 100
Destec Constructors, Inc. Delaware 100
Destec-Crockett, Inc. Delaware 100
Destec Energy Canada, Inc. Ontario 100
Blackhorse CoGen, Inc. Ontario 100
Houston Power Partners, Inc. Ontario 100
Kingston Power Partners, Inc. Ontario 100
Kingston Southern Lights Ontario 1
Limited Partnership(15)
Kingston CoGen Limited Partnership (16) Ontario 50
Kingston Northern Lights, Inc. Ontario 100
Kingston CoGen Limited Partnership (16) Ontario 50
Kingston Southern Lights Ontario 99
Limited Partnership(15)
Destec Operating Canada, Inc. Ontario 100
Destec Energy (Asia) Pte. Ltd. Singapore 100
Destec Energy Mexico, Inc. Delaware 100
Destec Europe Netherlands 100
Destec Europe, S.A. Netherlands 100
Destec Gas Properties, Inc. Delaware 100
Destec Gas Properties, L.P. (17) Texas 50
Destec Gas Services, Inc. Delaware 100
Destec Miskolc, Inc. Delaware 100
Destec North American Ventures Delaware 100
Chesapeake Power, Inc. New York 100
James River Energy Corp. Texas 100
Patowmack Power Partners, L.P. Virginia 99
Destec Power Services, Inc. Delaware 100
*Primary location of organization is reported for partnerships.
71
Location of Percent
Incorporation Ownership
or Organization*
Destec Properties, Inc. Delaware 100
Destec Properties Limited Partnership (18) Nevada 1
Destec Sterling, Inc Texas 100
Destec Ventures, Inc Delaware 100
Destec Properties Limited Partnership (18) Nevada 99
Dominion Trail Energy, Inc. Delaware 100
Dry Creek Power, Inc. Delaware 100
Dry Creek Power, L.P. (19) Georgia 80
European Power Holdings BV Netherlands 100
Terneuzen CoGen BV Netherlands 100
Florida CoGen Development, Inc. Delaware 100
Florida CoGen Gas Services, Inc. Delaware 100
Gasification Services, Inc. Delaware 100
Wabash Coal Gasification, Ltd. (20) Texas 40
Georgia Peaker, Inc. Delaware 100
Middle Georgia Peaker, L.P. (21) Georgia 20
Greenbay CoGen, Inc. Delaware 100
Hart County IPP, Inc. Delaware 100
Hartwell Independent Power Partners, Inc. Delaware 100
Lime Rock Energy, Inc. Delaware 100
Louisiana Gasification Technology, Inc. Delaware 100
MGP, Inc. (Georgia) Delaware 100
Middle Georgia Peaker, L.P. (21) Georgia 80
Michigan CoGen, Inc. Delaware 100
Michigan Power, Inc. Delaware 100
OCG CoGen, Inc. Delaware 100
Oyster Creek CoGen, Inc. Delaware 100
Palm Beach CoGen, Inc. Delaware 100
Piedmont (GP), Inc. Delaware 100
Piedmont Power Limited (22) Texas 60
Piedmont (LP), Inc. Delaware 100
Piedmont Power Limited (22) Texas 40
Pilgrim Power, Inc. Delaware 100
Polk County Cogen Delaware 100
Tiger Bay Limited Partnership (23) Delaware 50
Central Florida DGE, Inc. Delaware 40
Tiger Bay Limited Partnership (23) Delaware 1
Port Arthur CoGen, Inc. Delaware 100
CoGen Power, L.P. (24) Delaware 3
Sandy Creek Power, Inc. Delaware 100
Dry Creek Power, L.P. (19) Georgia 20
Tiger Bay Gas Services Delaware 100
Tri-State Peaker, Inc. Delaware 100
Tri-State Peaker, L.P. (11) Texas 40
Twin Rivers Power, Inc. Delaware 100
Blue Mountain Power, L.P. (12) Pennsylvania 40
UK Energy Holdings Limited Netherlands 100
Indian Queens Power Limited Netherlands 100
WR Coal Gasification, Inc. Delaware 100
Wabash Coal Gasification, Ltd. (20) Texas 60
Warsaw Transmission, Inc. Delaware 100
Destec Holdings, Inc. Delaware 100
BCC CoGen, Inc. Texas 100
Poso Creek Limited (25) Texas 50
Bear Claw CoGen, Inc. Delaware 100
Bear Mountain CoGen, Inc. Texas 100
Brea Canyon CoGen, Inc. Texas 100
CC CoGen, Inc. Texas 100
Chalk Cliff CoGen, Inc. Texas 100
72
Location of Percent
Incorporation Ownership
or Organization*
CoGen Kern Bluff, Inc. Texas 100
CoGen Lyondell, Inc. Texas 100
CoGen Poso Creek, Inc. Texas 100
PSE CC Investment, L.P. (26) Texas 1
Kern Front Investment, L.P. (27) Texas 1
PSE HS Investment, L.P. (28) Texas 1
Poso Creek Limited (25) Texas 50
CoGen Power, Inc. Texas 100
CoGen Power, L.P. (24) Delaware 97
Corona Energy Corporation California 100
CEC Prime, Inc. California 100
Destec Engineering Inc. Texas 100
Destec FSC Corp. (Barbados) Barbados 100
Destec Fuel Resources, Inc. Texas 100
Destec Gas Properties, L.P. (17) Texas 50
Destec Management Services, Inc. Texas 100
Destec Operating Company Texas 100
Double "C" CoGen, Inc. Texas 100
PSE CC Investment, L.P. (26) Texas 99
HEP CoGen, Inc. Texas 100
Harriman Energy Partners, Ltd. (29) Texas 60
Kern Front CoGen, Inc Texas 100
Kern Front Investment, L.P. (27) Texas 99
Live Oak CoGen, Inc. Texas 100
Northway CoGen, Inc. Texas 100
Harriman Energy Partners, Ltd. (29) Texas 40
Rio Grande CoGen, Inc. Texas 100
SJC CoGen, Inc. Texas 100
San Joaquin CoGen, Inc. Texas 100
Sierra CoGen, Inc. Texas 100
PSE HS Investment, L.P. (28) Texas 99
Dexco Polymers (1) Texas 50
Diamond Capital Management Inc. Delaware 100
Diamond Technology Partnership Company (7) Delaware 88
Chemtech Royalty Associates, L.P. (8) Delaware 81
Chemtech Portfolio Inc. Texas 100
Ifco Inc. Delaware 100
Dofinco, Inc. Delaware 100
Dow America Latina S.A. Uruguay 100
Dow Austria GmbH Austria 100
Dow Centroamerica S.A. Costa Rica 100
Dow Chemical (Australia) Limited Australia 100
Dow Australia Superannuation Fund A Pty Ltd Australia 100
Dow Australia Superannuation Fund B Pty Ltd Australia 100
Dow Chemical Canada Inc. Canada 100
Dow Capital B.V. Netherlands 100
Dow International Financial Services Ireland 100
Dow Capital Public Limited Company Ireland 100
Dow International Service Center, N.V. Belgium 100
Dow Pipeline Ltd. Canada 100
DowBrands Canada Inc. Canada 100
Fort Saskatchewan Ethylene Storage Canada 50
Limited Partnership
H-D Tech Inc. (1) Canada 50
1069284 Ontario Inc., Canada Canada 100
Dow Chemical (China) Ltd. Delaware 100
Dow Chemical Company Limited United Kingdom 100
Cromarty Petroleum Company Limited (1) United Kingdom 50
Dow Chemical Delaware Corp. Delaware 100
Dow Chemical (Hong Kong) Limited Hong Kong 100
73
Location of Percent
Incorporation Ownership
or Organization*
Dow Chemical International Inc. (Panama) Panama 100
Dow Chemical International Ltd. Delaware 100
Dow Chemical Thailand Limited Thailand 100
Petroquimica-Dow S.A. (Petrodow) Chile 70
Dow Chemical Japan Limited (10) Japan 88
Dow Chemical Korea Limited Korea 100
Dow Chemical (NZ) Limited New Zealand 100
Dow Chemical Pacific Limited Hong Kong 100
Ulsan Pacific Chemical Corporation Korea 80
Dow Chemical (Singapore) Private Limited Singapore 100
Dow Chemical Taiwan Ltd. Taiwan 100
Dow Credit Corporation Delaware 100
Dow Deutschland Inc. Delaware/Germany 100
Dow Chemical Inter-American Limited Delaware 100
Dow Quimica de Colombia S.A. (5) Colombia 10
Dow Deutschland Anlagengesellschaft GmbH Germany 100
Dow Hungary Chemicals Limited Liability Company Hungary 100
Dow Portugal Produtos Quimicos S.A. Portugal 100
Dow Turkiye A.S. (3) Turkey 40
DowBrands GmbH Germany 100
Epoxital S.R.L. (1) Italy 50
SafechemUmwelt Service GmbH Germany 51
Dow Engineering Company Delaware 100
Dow Engineering, Inc. Michigan 100
Dow Environmental Inc. Delaware 100
Dow Environmental Overseas Management Company Delaware 100
D-R Holding NV Netherlands 100
Dow Environmental Canada Inc. Canada 100
Dow Umweltservice GmBH Germany 100
Ecobilan SA France 100
Ecoaudit SA France 100
Ecobalance Inc. Delaware 100
Dow Europe Holding N.V. Netherlands 100
Dow Belgium Belgium 100
Dow Benelux N.V. Netherlands 100
DowBrands B.V. Netherlands 100
Polyol Belgium N.V. (30) Belgium 1
Rofan Automation and Information Systems B.V. Netherlands 100
Dow Chemical Iberica S.A. Spain 99
DowBrands Espanola S.A. Spain 100
Transformadora De Estileno S.A. (1) Spain 50
Dow Danmark A/S Denmark 100
Dow France S.A. France 100
DowBrands SA France 100
Dow Norge A/S Norway 100
Dow Southern Africa (Pty) Ltd. South Africa 100
Dow Suomi OY Finland 100
Dow Sverige AB Sweden 100
Polyol International B.V. Netherlands 100
Polyol Belgium N.V. (30) Belgium 99
Dow Europe S.A. Switzerland 100
Chemtech Royalty Associates, L.P. (8) Delaware 1
Dow Export S.A. Switzerland 100
Dow Turkiye A.S. (3) Turkey 1
Dow Factoring Company S.A. Switzerland 100
Dow Financial Holdings Inc. Delaware 100
DowBrands L.P. (6) Delaware 38
74
Location of Percent
Incorporation Ownership
or Organization*
Dow Holdings Inc. Delaware 100
Dow Corning Corporation (1) Michigan 50
Dow Hydrocarbons and Resources Inc. Delaware 100
Cayuse Pipeline, Inc. Texas 100
Dow Intrastate Gas Company Louisiana 100
Dow Pipeline Company Texas 100
Midland Pipeline Corp. Delaware 100
Fort Saskatchewan Ethylene Canada 50
Storage Corporation
Promix System Louisiana 100
Dow Hellas A.E. Greece 100
Dow International B.V. Netherlands 100
Dow Italia S.p.A. Italy 100
First Chemical Factoring SpA Italy 100
Dow Kakoh Kabushiki Kaisha Japan 65
Dow Mitsubishi Chemical Ltd(1) Japan 50
Dow Quimica Argentina S.A. (9) Argentina 55
Dow Quimica Chilena S.A. Chile 100
Anticorrosivos Industriales Limitada (1) Chile 50
Dow Quimica de Colombia S.A. (5) Colombia 90
Dow Quimica Mexicana S.A. de C.V. Mexico 100
Dow Environmental de Mexieo, S.A. de C.V. Mexico 100
Dow Quimica S.A. Brazil 100
Dow Produtos Quimicos Ltda. Brazil 100
Mineracao e Quimica do Nordeste S.A. Brazil 100
Dommell Ind. Com. Produtos Quimicos Ltda. (2)Brazil 14
Spuma-Pac Industria e Comercio de Brazil 100
Embalagens e Participacoes Ltda.
Dommell Ind. Com. Produtos Quimicos Ltda. (2) Brazil 86
Keytil Sociedad Anonima Uruguay 100
Dow Services Singapore Pte Ltd. Singapore 100
Dow Financial Holdings Singapore Pte Ltd. Singapore 100
Dow Trading S.A. Switzerland 100
Dow Turkiye A.S. (3) Turkey 59
Dow-United Technologies Composite Products, Inc.(1)Delaware 50
DowBrands Inc. Delaware 100
DowBrands L.P. (6) Delaware 31
El Dorado Terminals Company (1) New Jersey 50
Essex Chemical Corporation New Jersey 100
Pioneer Pharmaceuticals, Inc. New Jersey 100
Essex Specialty Products, Inc. New Jersey 100
Diamond Technology Partnership Company (7) Delaware 12
Essex Specialty Products, Inc., Canada Canada 100
Expandite-Essex Pty. Limited (1) Australia 50
Gurit-Essex A.G. (1) Switzerland 50
Etoxilados del Plata S.A. Argentina 100
FilmTec Corporation Delaware 100
Great Western Pipeline Company, Inc. California 100
HD Polyurethane Company (1) Korea 50
Joliet Marine Terminal Trust Estate (1) Illinois 50
Latin American Pharmaceuticals, Inc. Delaware 100
Dow Quimica Argentina S.A. (9) Argentina 45
Lepetit International Inc. Panama 100
Liana Limited Delaware 100
Dorinco Insurance (Ireland) Ltd. Ireland 100
Dorinco Reinsurance Company Michigan 100
Dorintal Reinsurance Limited Bermuda 100
Timber Insurance Limited Bermuda 100
P.T. Dow Polymers Indonesia Indonesia 80
P.T. Pacific Indomas Plastic Indonesia (1) Indonesia 50
75
Location of Percent
Incorporation Ownership
or Organization*
Primera-Industria e Comercio Ltda. Brazil 100
Productos Quimicos Peruanos S.A. Peru 100
RH Acquisition Corp. Delaware 100
Rofan Services Inc. Delaware 100
Airco Generon Systems LP (1) Delaware 50
DH Compounding Company (1) Delaware 50
DowElanco Indiana 60
Dintec Agrichemicals Indiana 66
DowElanco AgricultuMI Products Limited Mauritius 100
DowElanco China Ltd. Delaware 100
DowElanco International Ltd. Delaware 100
DowElanco (Thailand) Ltd. Thailand 100
United AgriSeeds, Inc. Delaware 100
DowElanco B.V. Netherlands 60
Dintec Agroquimica Produtos Quimicos Lda Portugal 66
Dow Chemical Japan Limited (10) Japan 12
DowElanco Argentina S.A. Argentina 100
DowElanco Australia Limited Australia 100
DowElanco Canada Inc. Canada 100
DowElanco Chile S.A. Chile 100
DowElanco Danmark A/S Denmark 100
DowElanco de Colombia S.A. Colombia 100
DowElanco Export S.A. FMnce 100
DowElanco GmbH Germany 100
DowElanco Gualemale S.A. Gualemale 100
DowElanco Iberica S.A. Spain 100
DowElanco Industrial Ltda. Brazil 100
DowElanco Italia S.r.L. Italy 100
DowElanco Limited United Kingdom 100
DowElanco (Malaysia) Sdn Bhd Malaysia 100
DowElanco Mexicana, S.A. de C.V. Mexico 100
DowElanco (NZ) Limited New Zealand 100
DowElanco Pfanzenschutzmittel Vertriebs GmbH Austria 100
DowElanco Pacific Limited Hong Kong 100
DowElanco S.A. France 100
DowElanco Sverige AB Sweden 100
DowElanco Taiwan Ltd. Taiwan 100
DowElanco Tarim A.S. Turkey 100
DowElanco Uruguay SA Uruguay 100
DowElanco Venezuela, C.A. Venezuela 100
P.T. Pacific Chemicals Indonesia Indonesia 100
Generon Systems (1) Delaware 50
Generon Systems A.G. (1) Switzerland 50
Generon Systems Inc. Delaware 100
Generon Systems Canada Canada 100
Styron Asia Limited (1) Hong Kong 50
Sumitomo Dow Limited (1) Japan 50
Tecnica Petroquimica de Centro America S.A. Guatemala 100
The Cynara Company (4) Texas 90
Zhejiang Pacific Chemical Corporation (1) China 50
76
(1) Separate financial statements for these companies have been
omitted because of the absence of the conditions under
which they are required.
(2) Dow Quimica S.A. effective ownership of this company is 100%,
86% of which is held by Dow Quimica S.A. and 14% of which is
held by Mineracao e Quimica do Nordeste S.A.
(3) The Dow Chemical Company effective ownership of this company is
100% of which The Dow Chemical Company owns 59%, Dow Deutschland Inc.
owns 40%, and Dow (Europe) S.A. owns 1%.
(4) The Cynara Company is a Texas limited partnership of which The
Dow Chemical Company is the sole general partner.
(5) The Dow Chemical Company effective ownership of this company is
100% of which The Dow Chemical Company owns 90%, and Dow
Chemical Inter-American Limited owns 10%.
(6) The Dow Chemical Company effective ownership of this company is
68.98% of which DowBrands Inc. owns 31.02%, Dow Financial Holdings Inc.
owns 37.92%, and DC Partnership Management Inc. owns .04%.
(7) The Dow Chemical Company effective ownership of this company is
100% of which The Dow Chemical Company owns 88.4848%, and Essex
Specialty
Products owns 11.5152%.
(8) The Dow Chemical Company effective ownership of this company is
82.1627% of which Diamond Technology Partnership Company owns 81.0972%,
and Dow (Europe) S.A. owns 1.0655%.
(9) The Dow Chemical Company effective ownership of this company is
100% of which The Dow Chemical Company owns 54.75%, and Latin American
Pharmaceuticals, Inc. owns 45.25%.
(10) The Dow Chemical Company effective ownership of this company is
100% of which The Dow Chemical Company owns 87.5%, and DowElanco B.V.
(whose effective ownership by The Dow Chemical Company is 60%)
owns 12.5%.
(11) Destec's effective ownership of this company is 100% of which
Atlantic Power, Inc. owns 60%, and Tri-State Peaker, Inc. L.P.
owns 40%.
(12) Destec's effective ownership of this company is 100% of which
Blue Mountain Power, Inc. owns 60%, and Twin Rivers Power, Inc.
owns 40%.
(13) Destec's effective ownership of this company is 100% of which
DCG, Inc. L.P. owns 20%, and Delta CoGen, Inc. owns 80%.
(14) Destec's effective ownership of this company is 100% of which
Demex, Inc. owns 50%, and Demsa Inc. owns 50%.
(15) Destec's effective ownership of this company is 100% of which
Kingston Power Partners, Inc. owns 1%, and Destec Energy Canada,
Inc. owns 99%.
(16) Destec's effective ownership of this company is 100% of which
Kingston Northern Lights, Inc. owns 50%, and Kingston Southern
Lights Limited Partnership owns 50%.
(17) Destec's effective ownership of this company is 100% of which
Destec Fuel Resources, Inc. owns 50%, and Destec Gas Properties, Inc.
owns 50%.
(18) Destec's effective ownership of this company is 100% of which
Destec Properties, Inc. owns 1%, and Destec Ventures, Inc. owns 99%.
(19) Destec's effective ownership of this company is 100% of which
Dry Creek Power, Inc. owns 80%, and Sandy Creek Power, Inc. owns 20%.
(20) Destec's effective ownership of this company is 100% of which
WR Coal Gasification, Inc. owns 60%, and Gasification Services, Inc.
owns 40%.
(21) Destec's effective ownership of this company is 100% of which
MGP, Inc. owns 80%, and Georgia Peaker, Inc. owns 20%.
(22) Destec's effective ownership of this company is 100% of which
Piedmont (GP), Inc. owns 60%, and Piedmont (LP), Inc. owns 40%.
(23) Destec's effective ownership of this company is 51.4% of which
Central Florida DGE, Inc. owns 1%, and Polk County CoGen, Inc.
owns 50.4%.
(24) Destec's effective ownership of this company is 100% of which
CoGen Power, Inc. owns 97.5%, and Port Arthur CoGen, Inc. owns 2.5%.
(25) Destec's effective ownership of this company is 100% of which
CoGen Poso Creek, Inc. owns 50%, and BCC CoGen, Inc. owns 50%.
(26) Destec's effective ownership of this company is 100% of which
Double "C" CoGen, Inc. owns 99%, and CoGen Poso Creek, Inc. owns 1%.
(27) Destec's effective ownership of this company is 100% of which
Kern Front CoGen, Inc. owns 99%, and CoGen Poso Creek, Inc. owns 1%.
(28) Destec's effective ownership of this company is 100% of which
Sierra CoGen, Inc. owns 99%, and CoGen Poso Creek, Inc. owns 1%.
(29) Destec's effective ownership of this company is 100% of which
Northway CoGen, Inc. owns 40%, and HEP CoGen, Inc. owns 60%.
(30) The Dow Chemical Company effective ownership of this company is
100% of which Dow Benelux NV owns .5%, and Polyol International BV
owns 99.5%.
77
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Dow Chemical Company:
We consent to the incorporation by reference of our report dated
February 7, 1996 appearing in this
Annual Report on Form 10-K of The Dow Chemical Company for the year
ended December 31, 1995, in
the following Registration Statements of The Dow Chemical Company:
Form S-3:
Nos. 33-37052
33-44369
33-51673
33-52980
Form S-8:
Nos. 2-32525
2-44789
2-55837
2-64560
33-21748
33-37345
33-44603
33-51453
33-52841
33-56136
33-56138
33-56140
33-58205
33-58211
33-58223
33-61795
DELOITTE & TOUCHE LLP
Midland, Michigan 48640
March 15, 1996
78
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