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Solutionismâ„¢
2011 Annual Report
Welcome to
•

Table of contents

  • Page 1
    2011 Annual Report Welcome to Solutionismâ„¢

  • Page 2
    ... and drives Dow's growth strategy. It has led us to invest in new breakthrough technologies, in new sectors and in new regions. As a result, our diverse portfolio is delivering value across a wide range of end-markets and geographies, while our innovations are pioneering breakthrough solutions that...

  • Page 3
    ... Share Data (dollars) 2011 Sales by Operating Segment (dollars in millions) Electronic and Functional Materials $4,599 Coatings and Infrastructure Solutions $7,200 Agricultural Sciences $5,655 Performance Materials $14,647 Total Sales $59,985 Performance Plastics $16,257 Feedstocks and Energy...

  • Page 4
    ... delivering real value to the bottom line - today. • Finally, we retired $4.8 billion of debt in 2011, generated nearly $4 billion of cash from operating activities, and brought our net debt to total capitalization ratio to 40.8 percent - ahead of our projected path to delivering our 2012 net debt...

  • Page 5
    ...-growing regions • Commercialized new solutions that anticipate and address the needs of our customers • Generated nearly $4 billion of cash from operating activities and brought our net debt to total capitalization ratio to 40.8 percent We have transformed our great Company and reinvented it...

  • Page 6
    ... The year was shaped by a number of significant events and investments in innovation, integration and global expansion. SECOND QUARTER › Dow announces that its Board of Directors has declared a 67 percent increase in the Company's quarterly dividend, raising it to $0.25 per share. › Dow begins...

  • Page 7
    ...related to growing middle classes in developing regions. The Boards of Directors of both companies approved the building and operation of a world-scale, fully integrated chemical complex in Jubail Industrial City, Kingdom of Saudi Arabia. › Dow Water and Process Solutions announces plans to invest...

  • Page 8
    ...Vice President, Ventures, New Business Development & Licensing and Chief Technology Officer Joe E. Harlan Executive Vice President of The Dow Chemical Company and President, Performance Materials Executive Vice President of The Dow Chemical Company; President of Dow Europe, Middle East and Africa...

  • Page 9
    ... on Internal Control Over Financial Reporting, as required by Section 404. The certifications were filed as exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and copies are included herein. In addition, Mr. Liveris certified to the New York Stock Exchange...

  • Page 10
    energize 8 The Dow Chemical Company

  • Page 11
    ... is energizing our growth while delivering powerful technologies worldwide ...clean-energy solutions like lithium-ion battery systems for electric vehicles, DOW POWERHOUSEâ„¢ Solar Shingles and AIRSTONEâ„¢ Systems for Wind Energy. In 2011, we turned the home of two Dow employees into a "POWERHOUSE...

  • Page 12
    ... Control System.2 At the same time, Advanced Materials continues to build on its leadership positions in electronic materials, launching a new LED Technologies business to capture current and future demand for LEDs in the global solid-state lighting market. Finally, our Feedstocks & Energy division...

  • Page 13
    ...us to use different feedstocks in response to price conditions, providing additional advantage. In 2011, we announced plans to further the advantage of our downstream businesses by connecting our U.S. operations with cost-advantaged ethane and propane feedstocks available from increasing supplies of...

  • Page 14
    ...• New product sales continue to exceed expectations, with 2011 sales up >30 percent versus 2010 2011 Sales by Business $11,799 2011 Sales by Key Product Lines $5,655 Dow Electronic Materials Functional Materials Dow Building and Construction Dow Coating Materials Dow Water and Process Solutions...

  • Page 15
    ... feedstock advantage through growth partnerships and strategic integration investments 2011 Sales by Business $14,647 2011 Sales by End-Market $16,257 Sales/Internal Usage by Volume Amines Chlorinated Organics Dow Automotive Systems Dow Formulated Systems Dow Plastics Additives Epoxy...

  • Page 16
    .... Performance Plastics is developing its ts comm high-performance hi igh-per packaging with active chemistries that can ca an help manage ripening and reduce spoilage. Solutions from Dow are everywhere, improving people's lives, addressing global challenges and creating more value for our customers...

  • Page 17
    ..., to the chip packaging ckaging that adds greater capabilities to the device. Water, Water Everywhere Dow Water and Process Solutions' technologies produce 15 million gallons of clean ean water a minute globally. A New N w Twist on o Wire Wi Dow Electrical and Telecommunications is meeting the...

  • Page 18
    ... our R&D investments to global megatrends that together represent $350 billion in addressable market opportunities, our innovations are creating value for customers and top-line growth for Dow. Take Dow AgroSciences' REFUGE ADVANCED® Powered by SMARTSTAX® as an example. Launched in 2011, REFUGE...

  • Page 19
    ... science and technology footprint globally. In the past five years, we have invested in new state-of-the-art technology centers in China, Korea, the Middle East, Brazil and Spain - strengthening our technical capabilities to meet customer needs in high-growth regions and end-markets. Through unique...

  • Page 20
    ...Operations in Midland. Production start-up is planned for late 2012, which is expected to coincide closely with Dow Kokam's Midland Battery Park opening. AET also plans to construct manufacturing facilities in China and Europe. The addition of formulated electrolytes complements Dow Energy Materials...

  • Page 21
    ...meet energy regulations without impacting design or production costs. • Innovation starts with knowing what the customer needs, as with the Enlist™ Weed Control System, a game-changing combination of chemistry and herbicide-tolerant technology in elite corn, soybean and cotton germplasm. The new...

  • Page 22
    ... smart devices are manufactured using products roducts from Dow. Our innovations tions may begin in a world the size of a nanometer, but ultimately make a big g impact by helping connect the globe." George Lu Marketing Director, Core Lithography Dow Electronic Materials 20 The Dow Chemical Company

  • Page 23
    .... At the same time, our global reach and investments in fast-growing regions help Dow quickly connect with our customers' needs and capture growth where it is occurring most rapidly. For example, Dow Electronic Materials' investments of $400 million in production and research facilities in Korea...

  • Page 24
    ... to begin operation in 2013. When complete, the project will be the world's largest biopolymers play and Dow's largest investment in Brazil, bringing new, biomass-based feedstocks to Dow while diversifying the Company's raw material streams from traditional fossil fuels. GROWTH PROJECTS In 2011, we...

  • Page 25
    ...expand on Aksa's existing carbon fiber production assets in Yalova, Turkey. Currently, the carbon fiber composites industry is estimated at $10 billion globally and is expected to reach $40 billion by 2022. 23 The Dow Chemical Company 2011 Annual Report 2011 Sales 2012 Target 32% 35% Emerging...

  • Page 26
    ... • 65 manufacturing sites Solutions at Work: • New U.S. Gulf Coast investments based on shale gas advantage • Multiple investments in innovations that address energy challenges: - New production line for ENLIGHT™ Polyolefin Encapsulant Films in Findlay, Ohio of global sales - Large-scale...

  • Page 27
    ...,554 • 8,000 employees • 44 manufacturing sites Solutions at Work: of global sales • Dow Electronic Materials: $400 million in capital investments in Korea - Dow Seoul Technology Center to house 200 to 300 scientists, serving semiconductor and display customers - TMG plant to supply the LED...

  • Page 28
    ... growth for Dow. CAMO provides medical care to more than 160,000 people each year. Throughout mountainous and remote terrain, CAMO distributes life-saving medical equipment and supplies to more than 120 facilities, operates 16 full-time health programs and supports sustainable community development...

  • Page 29
    ... this project was a life-changing experience for me. It was a privilege to be able to use my technical knowledge to help provide medical supplies to these remote areas. I am grateful to Dow for giving me this oppor tunity and proud to work for a company that lives out its values in such an impactful...

  • Page 30
    ...a clean, affordable water supply. In 2011, Dow opened its Global Water Technology Development Center in Spain and announced plans to invest in a manufacturing facility for DOW™ FILMTEC™ Reverse Osmosis Elements in Saudi Arabia. • On the renewable energy front, Dow's line of AIRSTONE™ Systems...

  • Page 31
    ...making. Work Operations in Freeport, where scientists from both organizations are conducting analyses of fresh water, air quality mitigation and coastal natural hazard mitigation. has begun at the collaboration's first pilot site, Dow's Texas 29 The Dow Chemical Company 2011 Annual Report 29

  • Page 32
    ... Local Protection of Human Health and the Environment GOAL: Double the percentage of sales to 10 percent for products that are highly advantaged by sustainable chemistry GOAL: Achieve, on average, a 75 percent improvement of key indicators for Environment, Health & Safety operating excellence...

  • Page 33
    ...; Freeport, Texas; and Rhine Center, France/Germany. Breakthroughs to World Challenges Energy Intensity Performance KEY RECOGNITIONS Named to the Dow Jones Sustainability World Index for the 11th time Achieved A+ Rating for Global Reporting Initiative annual sustainability report Chosen to receive...

  • Page 34
    ... chemical company in the world Mission Corporate Strategy Prefere Preferentially invest in a portfolio of technology-integrated, market-driven performance businesses that create value for marketstockholders and growth for our customers our stoc Manage a portfolio of asset-integrated, building...

  • Page 35
    ... of June 30, 2011 (based upon the closing price of $36.00 per common share as quoted on the New York Stock Exchange), was approximately $42.4 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors, Officers and the Rohm and Haas Master Trust would...

  • Page 36
    .... Principal Accounting Fees and Services. 157 157 157 157 157 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quantitative...

  • Page 37
    ... materials in the manufacture of customer products and services. The Company serves the following industries: appliance; automotive; agricultural; building and construction; chemical processing; electronics; furniture; housewares; oil and gas; packaging; paints, coatings and adhesives; personal care...

  • Page 38
    ... the energy efficiency in homes and buildings today, while also addressing the industry's emerging needs and demands. Dow Construction Chemicals provides solutions for increased durability, greater water resistance and lower systems costs. As a leader in insulation solutions, the business' products...

  • Page 39
    ... the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. AGRICULTURAL SCIENCES Applications: agricultural crop protection and pest management seeds, traits (genes) and oils Dow AgroSciences is a global leader in providing agricultural crop protection and plant...

  • Page 40
    ... technology, performance plastics, polyurethane products and systems, films, fluids and acoustical management solutions to original equipment manufacturers and tier, aftermarket and commercial transportation customers. With offices and application development centers around the world, Dow Automotive...

  • Page 41
    ... services to companies in the fine and specialty chemicals and polymers industries (the business was fully divested by December 31, 2011); and Dow Oil and Gas, providing products for use in exploration and production, refining and gas processing, transportation, and fuel and lubricant performance...

  • Page 42
    ... global provider of products, technology, solutions and expertise that set standards for reliability, longevity, efficiency, ease of installation and protection used by the power and telecommunications industries in the transmission, distribution and consumption of power, voice, video and data. Dow...

  • Page 43
    ... business was reported in the Performance Plastics segment through the date of the divestiture (see Note E to the Consolidated Financial Statements). FEEDSTOCKS AND ENERGY Applications: agricultural products alumina automotive antifreeze and coolant systems carpet and textiles chemical processing...

  • Page 44
    ... to supplement internal production. Expenditures for hydrocarbon feedstocks and energy accounted for 42 percent of the Company's production costs and operating expenses for the year ended December 31, 2011. The Company purchases these raw materials on both short- and long-term contracts. Other...

  • Page 45
    ... Company owned 3,546 active U.S. patents and 14,574 active foreign patents as follows: Patents Owned at December 31, 2011 Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Corporate Total...

  • Page 46
    ... U.S. limited liability company that develops, markets and licenses polyethylene process technology and related catalysts. See Note H to the Consolidated Financial Statements for additional information. Financial Information About Foreign and Domestic Operations and Export Sales In 2011, the Company...

  • Page 47
    ...2010. Dow Executive Vice President and President, Plastics and Hydrocarbons August 2010 to September 2011. Dow Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to date. Chairman and Director of Univation Technologies, LLC.* Board member of Chemical...

  • Page 48
    ...Limited 2003-2004. Executive Vice President of Electro and Communications Business, 3M Company 2004-2009. Executive Vice President of Consumer & Office Business, 3M Company 2009-August 2011. Dow Executive Vice President, Performance Materials September 2011 to date. Director of Flowserve Corporation...

  • Page 49
    ... and Chief Financial Officer March 2010 to date. Director of Dow Corning Corporation,* Dorinco Reinsurance Company* and Liana Limited.* Member of the Dow AgroSciences LLC* Members Committee. Director of the Dow Chemical Employees' Credit Union and Family and Children's Services of Midland. Board and...

  • Page 50
    ... Vice President Chlor-Alkali Assets 2000-2003. Vice President Global Purchasing 2003-2004. R&D Vice President Hydrocarbons & Energy, Chemicals & Intermediates and Corporate R&D 2004-2005. Vice President Business Development Market Facing Businesses 2005-2006. Vice President R&D, Performance Plastics...

  • Page 51
    ...sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Economic conditions around the world and in certain industries...

  • Page 52
    ...impact on the Company's results of operations. Local, state and federal governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs and interruptions in normal business...

  • Page 53
    ...raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect Dow's results of operations. Company Strategy...

  • Page 54
    PART I, Item 1B. Unresolved Staff Comments. UNRESOLVED STAFF COMMENTS None. The Dow Chemical Company and Subsidiaries 20

  • Page 55
    The Dow Chemical Company and Subsidiaries PART I, Item 2. Properties. PROPERTIES The Company operates 197 manufacturing sites in 36 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow's products....

  • Page 56
    ...In addition, the Company will undertake certain supplemental environmental projects with a total cost of approximately $100,000. Rohm and Haas Texas Incorporated, a wholly owned subsidiary of the Company, received an Administrative Complaint dated May 17, 2011 from the Texas Council of Environmental...

  • Page 57
    ...class of participants in the Rohm and Haas Pension Plan (the "Rohm and Haas Plan") who had retired from Rohm and Haas, now a wholly owned subsidiary of the Company, and who elected to receive a lump sum benefit from the Rohm and Haas Plan, the right to a cost-of-living adjustment ("COLA") as part of...

  • Page 58
    PART I, Item 4. Mine Safety Disclosures. MINE SAFETY DISCLOSURES Not applicable. The Dow Chemical Company and Subsidiaries 24

  • Page 59
    ... for information relating to the Company's equity compensation plans. The Company does not currently have a share repurchase program, and there were no purchases of the Company's common stock by the Company during the three months ended December 31, 2011. The Dow Chemical Company and Subsidiaries...

  • Page 60
    ... Total assets Working capital Property - gross Property - net Long-term debt Total debt The Dow Chemical Company's stockholders' equity Financial Ratios Research and development expenses as percent of net sales (2) Income (Loss) from continuing operations before income taxes as percent of net sales...

  • Page 61
    ... Total assets Working capital Property - gross Property - net Long-term debt Total debt The Dow Chemical Company's stockholders' equity Financial Ratios Research and development expenses as percent of net sales (2) Income (Loss) from continuing operations before income taxes as percent of net sales...

  • Page 62
    ... AND RESULTS OF OPERATIONS 2011 Overview Acquisition of Rohm and Haas Company Results of Operations Segment Results Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Sales Price and Volume...

  • Page 63
    ... its global footprint, and launching new, innovative solutions that address customer and consumer needs. Financial discipline and operational efficiency remained a priority - as evidenced by the Company's tight management of working capital and strong cash flow generation. Dow's sales increased 12...

  • Page 64
    ...new homes. Dow AgroSciences received registration from the U.S. Environmental Protection Agency for REFUGE ADVANCED™ powered by SmartStax®, completing federal regulatory authorization in the United States and becoming the industry's first single-bag refuge solution for corn. Dow received the 2012...

  • Page 65
    ... share, less any applicable exercise price. Total cash consideration paid to Rohm and Haas shareholders was $15.7 billion. The Company achieved its synergy targets related to the acquisition a full quarter ahead of schedule, with realized savings of $1.4 billion including increased purchasing power...

  • Page 66
    ... higher selling prices, which more than offset a $5.0 billion increase in purchased feedstock and energy costs; increased volume in Electronic and Functional Materials, Agricultural Sciences, and other higher margin product lines; and significantly higher operating rates. In 2010, gross margin was...

  • Page 67
    ... by management in which discounted cash flows did not support the carrying value of the goodwill. As a result, the Company recorded a goodwill impairment loss of $7 million, impacting the Performance Materials segment. See Note I to the Consolidated Financial Statements for additional information...

  • Page 68
    ...million in acquisition-related retention costs. These costs were recorded in "Cost of sales," "Research and development expenses," and "Selling, general and administrative expenses" in the consolidated statements of income and reflected in Corporate. The integration of Rohm and Haas was completed in...

  • Page 69
    ... of debt discount totaled $1,341 million in 2011, $1,473 million in 2010 and $1,571 million in 2009. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding debt financing activity. 35

  • Page 70
    ... jurisdictions with tax rates that are lower than the U.S. statutory rate. On June 30, 2009, the Company sold the Calcium Chloride business and recognized a $162 million pretax gain. The results of operations related to the Calcium Chloride business have been reclassified and reported as income from...

  • Page 71
    ...: One-time increase in cost of sales related to fair valuation of Rohm and Haas inventories Labor-related litigation matter Asset impairments and related costs Warranty accrual adjustment of exited business Goodwill impairment loss Restructuring charges Purchased in-process research and development...

  • Page 72
    ... of 2011, the Company changed its reportable segments due to recent changes in the Company's organization. Following are the new segments Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy...

  • Page 73
    ... for home and personal care products. EBITDA for 2011 was $1,084 million, up from $1,052 million in 2010. EBITDA improved from last year as price increases and volume growth more than offset higher raw material costs, higher SG&A expenses, increased investment in growth initiatives and slightly...

  • Page 74
    ... businesses: Dow Building and Construction, Dow Coating Materials, Dow Water and Process Solutions, and Performance Monomers; and includes a portion of the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. These businesses produce a wide variety of products...

  • Page 75
    ... membranes used in industrial water purification projects. Performance Monomers sales increased due to higher prices, with double-digit increases across all geographic areas and products. Volume decreased in all geographic areas except Asia Pacific, as the business shed low margin contracts to free...

  • Page 76
    ...crop protection and plant biotechnology products, pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agriculture, industrial and commercial pest management, and food service. Agricultural Sciences Actual Results In millions Sales...

  • Page 77
    ... as sales volume gains in the Seeds, Traits and Oils business, new product growth, and continued portfolio management more than offset lower pricing on commodity agricultural chemicals and increased investment in R&D and SG&A to support growth initiatives. Results for 2009 were favorably impacted by...

  • Page 78
    ...; Dow Formulated Systems; Dow Plastic Additives; Epoxy; Oxygenated Solvents; Polyglycols, Surfactants and Fluids; Polyurethanes; Dow Haltermann (which was fully divested by December 31, 2011); and Dow Oil and Gas. These businesses produce a wide variety of products with a broad range of applications...

  • Page 79
    ...new products in 2012 is expected to drive volume growth for Dow Plastic Additives. Oxygenated Solvents expects volume growth as demand increases for end-use applications. Higher feedstock and energy and other raw material costs are expected in 2012 as the economy strengthens, driving price increases...

  • Page 80
    ..., LLC, as well as a portion of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C. and the SCG-Dow Group, all joint ventures of the Company. On June 17, 2010, Dow sold Styron to an affiliate of Bain Capital Partners. Businesses sold within the Performance Plastics...

  • Page 81
    ... as higher selling prices, improved margins and a small gain on the sale of the Polypropylene business in the third quarter of 2011 were more than offset by the unfavorable impact of higher feedstock and other raw material costs, higher freight costs, and increased costs related to turnarounds...

  • Page 82
    ... the procurement of natural gas liquids and crude oil-based raw materials, as well as the supply of monomers, principally for use in Dow's global operations. The business regularly sells its by-products and buys and sells products in order to balance regional production capabilities and derivative...

  • Page 83
    ...by market conditions and sales to customers located on Dow manufacturing sites. The Company uses derivatives of crude oil and natural gas as feedstock in its ethylene facilities. The Company's cost of purchased feedstock and energy increased $4.3 billion in 2011, a 22 percent increase over last year...

  • Page 84
    ... 2012, the Company expects crude oil prices, on average, to remain close to 2011 levels while natural gas prices in the United States are expected to decline due to increasing supplies of U.S. shale gas. Ethylene margins are expected to improve due to tightening supply and demand balances. VCM sales...

  • Page 85
    ... Employees' Stock Purchase Plan), $25 million in dividend income related to the Company's ownership interest in Styron, gains on the sale of various businesses and lower Corporate expenses. EBITDA for 2010 was reduced by integration costs of $143 million related to the acquisition of Rohm and Haas...

  • Page 86
    ... Percent change from prior year Operating Segments: Electronic and Functional Materials Coatings and Infrastructure Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Total Geographic Areas: United States Europe, Middle East and Africa Rest of World Total Volume...

  • Page 87
    ...increase in working capital requirements primarily driven by an increase in trade accounts receivable. The increase in trade accounts receivable reflected the increase in sales toward the end of 2009 primarily due to the acquisition of Rohm and Haas in 2009. Cash used in investing activities in 2011...

  • Page 88
    ... Board of Directors approved a restructuring plan related to the Company's acquisition of Rohm and Haas (the "2009 Plan"). The restructuring activities under this plan were substantially completed in the first quarter of 2011, with remaining liabilities primarily related to environmental remediation...

  • Page 89
    ... depositary shares, debt securities, warrants, stock purchase contracts and stock purchase units with pricing and availability dependent on market conditions; and, on February 19, 2010, registered an unlimited amount of securities for issuance under the Company's U.S. retail medium-term note program...

  • Page 90
    ... units and accrued dividends were redeemed for a total of $520 million. See Note U to the Consolidated Financial Statements for additional information. On August 21, 2009, the Company executed a buy-back of Euro 175 million of private placement debt acquired from Rohm and Haas and recognized a $56...

  • Page 91
    Financing Activities Related to the Acquisition of Rohm and Haas On April 1, 2009, the Company completed the acquisition of Rohm and Haas. Pursuant to the July 10, 2008 Agreement and Plan of Merger (the "Merger Agreement"), Ramses Acquisition Corp., a direct wholly owned subsidiary of the Company, ...

  • Page 92
    ...initiatives. Additional major projects included installation of a new furnace system in Deer Park, Texas, to support methyl methacrylate production; and design and construction of a global research and development center in Seoul, South Korea, to support Dow Electronic Materials. Because the Company...

  • Page 93
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  • Page 95
    ... of June 30, 2011 (based upon the closing price of $36.00 per common share as quoted on the New York Stock Exchange), was approximately $42.4 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors, Officers and the Rohm and Haas Master Trust would...

  • Page 96
    .... Principal Accounting Fees and Services. 157 157 157 157 157 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quantitative...

  • Page 97
    ... materials in the manufacture of customer products and services. The Company serves the following industries: appliance; automotive; agricultural; building and construction; chemical processing; electronics; furniture; housewares; oil and gas; packaging; paints, coatings and adhesives; personal care...

  • Page 98
    ... the energy efficiency in homes and buildings today, while also addressing the industry's emerging needs and demands. Dow Construction Chemicals provides solutions for increased durability, greater water resistance and lower systems costs. As a leader in insulation solutions, the business' products...

  • Page 99
    ... the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. AGRICULTURAL SCIENCES Applications: agricultural crop protection and pest management seeds, traits (genes) and oils Dow AgroSciences is a global leader in providing agricultural crop protection and plant...

  • Page 100
    ... technology, performance plastics, polyurethane products and systems, films, fluids and acoustical management solutions to original equipment manufacturers and tier, aftermarket and commercial transportation customers. With offices and application development centers around the world, Dow Automotive...

  • Page 101
    ... services to companies in the fine and specialty chemicals and polymers industries (the business was fully divested by December 31, 2011); and Dow Oil and Gas, providing products for use in exploration and production, refining and gas processing, transportation, and fuel and lubricant performance...

  • Page 102
    ... global provider of products, technology, solutions and expertise that set standards for reliability, longevity, efficiency, ease of installation and protection used by the power and telecommunications industries in the transmission, distribution and consumption of power, voice, video and data. Dow...

  • Page 103
    ... business was reported in the Performance Plastics segment through the date of the divestiture (see Note E to the Consolidated Financial Statements). FEEDSTOCKS AND ENERGY Applications: agricultural products alumina automotive antifreeze and coolant systems carpet and textiles chemical processing...

  • Page 104
    ... to supplement internal production. Expenditures for hydrocarbon feedstocks and energy accounted for 42 percent of the Company's production costs and operating expenses for the year ended December 31, 2011. The Company purchases these raw materials on both short- and long-term contracts. Other...

  • Page 105
    ... Company owned 3,546 active U.S. patents and 14,574 active foreign patents as follows: Patents Owned at December 31, 2011 Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Corporate Total...

  • Page 106
    ... U.S. limited liability company that develops, markets and licenses polyethylene process technology and related catalysts. See Note H to the Consolidated Financial Statements for additional information. Financial Information About Foreign and Domestic Operations and Export Sales In 2011, the Company...

  • Page 107
    ...2010. Dow Executive Vice President and President, Plastics and Hydrocarbons August 2010 to September 2011. Dow Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to date. Chairman and Director of Univation Technologies, LLC.* Board member of Chemical...

  • Page 108
    ...Limited 2003-2004. Executive Vice President of Electro and Communications Business, 3M Company 2004-2009. Executive Vice President of Consumer & Office Business, 3M Company 2009-August 2011. Dow Executive Vice President, Performance Materials September 2011 to date. Director of Flowserve Corporation...

  • Page 109
    ... and Chief Financial Officer March 2010 to date. Director of Dow Corning Corporation,* Dorinco Reinsurance Company* and Liana Limited.* Member of the Dow AgroSciences LLC* Members Committee. Director of the Dow Chemical Employees' Credit Union and Family and Children's Services of Midland. Board and...

  • Page 110
    ... Vice President Chlor-Alkali Assets 2000-2003. Vice President Global Purchasing 2003-2004. R&D Vice President Hydrocarbons & Energy, Chemicals & Intermediates and Corporate R&D 2004-2005. Vice President Business Development Market Facing Businesses 2005-2006. Vice President R&D, Performance Plastics...

  • Page 111
    ...sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Economic conditions around the world and in certain industries...

  • Page 112
    ...impact on the Company's results of operations. Local, state and federal governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs and interruptions in normal business...

  • Page 113
    ...raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect Dow's results of operations. Company Strategy...

  • Page 114
    PART I, Item 1B. Unresolved Staff Comments. UNRESOLVED STAFF COMMENTS None. The Dow Chemical Company and Subsidiaries 20

  • Page 115
    The Dow Chemical Company and Subsidiaries PART I, Item 2. Properties. PROPERTIES The Company operates 197 manufacturing sites in 36 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow's products....

  • Page 116
    ...In addition, the Company will undertake certain supplemental environmental projects with a total cost of approximately $100,000. Rohm and Haas Texas Incorporated, a wholly owned subsidiary of the Company, received an Administrative Complaint dated May 17, 2011 from the Texas Council of Environmental...

  • Page 117
    ...class of participants in the Rohm and Haas Pension Plan (the "Rohm and Haas Plan") who had retired from Rohm and Haas, now a wholly owned subsidiary of the Company, and who elected to receive a lump sum benefit from the Rohm and Haas Plan, the right to a cost-of-living adjustment ("COLA") as part of...

  • Page 118
    PART I, Item 4. Mine Safety Disclosures. MINE SAFETY DISCLOSURES Not applicable. The Dow Chemical Company and Subsidiaries 24

  • Page 119
    ... for information relating to the Company's equity compensation plans. The Company does not currently have a share repurchase program, and there were no purchases of the Company's common stock by the Company during the three months ended December 31, 2011. The Dow Chemical Company and Subsidiaries...

  • Page 120
    ... Total assets Working capital Property - gross Property - net Long-term debt Total debt The Dow Chemical Company's stockholders' equity Financial Ratios Research and development expenses as percent of net sales (2) Income (Loss) from continuing operations before income taxes as percent of net sales...

  • Page 121
    ... Total assets Working capital Property - gross Property - net Long-term debt Total debt The Dow Chemical Company's stockholders' equity Financial Ratios Research and development expenses as percent of net sales (2) Income (Loss) from continuing operations before income taxes as percent of net sales...

  • Page 122
    ... AND RESULTS OF OPERATIONS 2011 Overview Acquisition of Rohm and Haas Company Results of Operations Segment Results Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Sales Price and Volume...

  • Page 123
    ... its global footprint, and launching new, innovative solutions that address customer and consumer needs. Financial discipline and operational efficiency remained a priority - as evidenced by the Company's tight management of working capital and strong cash flow generation. Dow's sales increased 12...

  • Page 124
    ...new homes. Dow AgroSciences received registration from the U.S. Environmental Protection Agency for REFUGE ADVANCED™ powered by SmartStax®, completing federal regulatory authorization in the United States and becoming the industry's first single-bag refuge solution for corn. Dow received the 2012...

  • Page 125
    ... share, less any applicable exercise price. Total cash consideration paid to Rohm and Haas shareholders was $15.7 billion. The Company achieved its synergy targets related to the acquisition a full quarter ahead of schedule, with realized savings of $1.4 billion including increased purchasing power...

  • Page 126
    ... higher selling prices, which more than offset a $5.0 billion increase in purchased feedstock and energy costs; increased volume in Electronic and Functional Materials, Agricultural Sciences, and other higher margin product lines; and significantly higher operating rates. In 2010, gross margin was...

  • Page 127
    ... by management in which discounted cash flows did not support the carrying value of the goodwill. As a result, the Company recorded a goodwill impairment loss of $7 million, impacting the Performance Materials segment. See Note I to the Consolidated Financial Statements for additional information...

  • Page 128
    ...million in acquisition-related retention costs. These costs were recorded in "Cost of sales," "Research and development expenses," and "Selling, general and administrative expenses" in the consolidated statements of income and reflected in Corporate. The integration of Rohm and Haas was completed in...

  • Page 129
    ... of debt discount totaled $1,341 million in 2011, $1,473 million in 2010 and $1,571 million in 2009. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding debt financing activity. 35

  • Page 130
    ... jurisdictions with tax rates that are lower than the U.S. statutory rate. On June 30, 2009, the Company sold the Calcium Chloride business and recognized a $162 million pretax gain. The results of operations related to the Calcium Chloride business have been reclassified and reported as income from...

  • Page 131
    ...: One-time increase in cost of sales related to fair valuation of Rohm and Haas inventories Labor-related litigation matter Asset impairments and related costs Warranty accrual adjustment of exited business Goodwill impairment loss Restructuring charges Purchased in-process research and development...

  • Page 132
    ... of 2011, the Company changed its reportable segments due to recent changes in the Company's organization. Following are the new segments Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy...

  • Page 133
    ... for home and personal care products. EBITDA for 2011 was $1,084 million, up from $1,052 million in 2010. EBITDA improved from last year as price increases and volume growth more than offset higher raw material costs, higher SG&A expenses, increased investment in growth initiatives and slightly...

  • Page 134
    ... businesses: Dow Building and Construction, Dow Coating Materials, Dow Water and Process Solutions, and Performance Monomers; and includes a portion of the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. These businesses produce a wide variety of products...

  • Page 135
    ... membranes used in industrial water purification projects. Performance Monomers sales increased due to higher prices, with double-digit increases across all geographic areas and products. Volume decreased in all geographic areas except Asia Pacific, as the business shed low margin contracts to free...

  • Page 136
    ...crop protection and plant biotechnology products, pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agriculture, industrial and commercial pest management, and food service. Agricultural Sciences Actual Results In millions Sales...

  • Page 137
    ... as sales volume gains in the Seeds, Traits and Oils business, new product growth, and continued portfolio management more than offset lower pricing on commodity agricultural chemicals and increased investment in R&D and SG&A to support growth initiatives. Results for 2009 were favorably impacted by...

  • Page 138
    ...; Dow Formulated Systems; Dow Plastic Additives; Epoxy; Oxygenated Solvents; Polyglycols, Surfactants and Fluids; Polyurethanes; Dow Haltermann (which was fully divested by December 31, 2011); and Dow Oil and Gas. These businesses produce a wide variety of products with a broad range of applications...

  • Page 139
    ...new products in 2012 is expected to drive volume growth for Dow Plastic Additives. Oxygenated Solvents expects volume growth as demand increases for end-use applications. Higher feedstock and energy and other raw material costs are expected in 2012 as the economy strengthens, driving price increases...

  • Page 140
    ..., LLC, as well as a portion of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C. and the SCG-Dow Group, all joint ventures of the Company. On June 17, 2010, Dow sold Styron to an affiliate of Bain Capital Partners. Businesses sold within the Performance Plastics...

  • Page 141
    ... as higher selling prices, improved margins and a small gain on the sale of the Polypropylene business in the third quarter of 2011 were more than offset by the unfavorable impact of higher feedstock and other raw material costs, higher freight costs, and increased costs related to turnarounds...

  • Page 142
    ... the procurement of natural gas liquids and crude oil-based raw materials, as well as the supply of monomers, principally for use in Dow's global operations. The business regularly sells its by-products and buys and sells products in order to balance regional production capabilities and derivative...

  • Page 143
    ...by market conditions and sales to customers located on Dow manufacturing sites. The Company uses derivatives of crude oil and natural gas as feedstock in its ethylene facilities. The Company's cost of purchased feedstock and energy increased $4.3 billion in 2011, a 22 percent increase over last year...

  • Page 144
    ... 2012, the Company expects crude oil prices, on average, to remain close to 2011 levels while natural gas prices in the United States are expected to decline due to increasing supplies of U.S. shale gas. Ethylene margins are expected to improve due to tightening supply and demand balances. VCM sales...

  • Page 145
    ... Employees' Stock Purchase Plan), $25 million in dividend income related to the Company's ownership interest in Styron, gains on the sale of various businesses and lower Corporate expenses. EBITDA for 2010 was reduced by integration costs of $143 million related to the acquisition of Rohm and Haas...

  • Page 146
    ... Percent change from prior year Operating Segments: Electronic and Functional Materials Coatings and Infrastructure Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Total Geographic Areas: United States Europe, Middle East and Africa Rest of World Total Volume...

  • Page 147
    ...increase in working capital requirements primarily driven by an increase in trade accounts receivable. The increase in trade accounts receivable reflected the increase in sales toward the end of 2009 primarily due to the acquisition of Rohm and Haas in 2009. Cash used in investing activities in 2011...

  • Page 148
    ... Board of Directors approved a restructuring plan related to the Company's acquisition of Rohm and Haas (the "2009 Plan"). The restructuring activities under this plan were substantially completed in the first quarter of 2011, with remaining liabilities primarily related to environmental remediation...

  • Page 149
    ... depositary shares, debt securities, warrants, stock purchase contracts and stock purchase units with pricing and availability dependent on market conditions; and, on February 19, 2010, registered an unlimited amount of securities for issuance under the Company's U.S. retail medium-term note program...

  • Page 150
    ... units and accrued dividends were redeemed for a total of $520 million. See Note U to the Consolidated Financial Statements for additional information. On August 21, 2009, the Company executed a buy-back of Euro 175 million of private placement debt acquired from Rohm and Haas and recognized a $56...

  • Page 151
    Financing Activities Related to the Acquisition of Rohm and Haas On April 1, 2009, the Company completed the acquisition of Rohm and Haas. Pursuant to the July 10, 2008 Agreement and Plan of Merger (the "Merger Agreement"), Ramses Acquisition Corp., a direct wholly owned subsidiary of the Company, ...

  • Page 152
    ...initiatives. Additional major projects included installation of a new furnace system in Deer Park, Texas, to support methyl methacrylate production; and design and construction of a global research and development center in Seoul, South Korea, to support Dow Electronic Materials. Because the Company...

  • Page 153
    ... debt discount of $393 million. (2) Deferred income tax liabilities may vary according to changes in tax laws, tax rates and the operating results of the Company. As a result, it is impractical to determine whether there will be a cash impact to an individual year. All noncurrent deferred income tax...

  • Page 154
    ... revenue and earnings growth; further expanded its global footprint; launched new, innovative technologies that address customer and consumer needs; and generated strong cash flow from operating activities, which enabled a further reduction in net debt to total capitalization. Looking to 2012, Dow...

  • Page 155
    ... a study completed by Analysis, Research & Planning Corporation ("ARPC") in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Union...

  • Page 156
    ... growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed for each of the reporting units carrying goodwill included, but were not limited to, changes in industry...

  • Page 157
    ... reporting units that carry goodwill. Additional sensitivity analysis was completed on the combined impact of a 100 basis point increase in the discount rate and a 100 basis point decrease in the terminal value NOPAT growth rate. This analysis resulted in fair values, based on discounted cash flows...

  • Page 158
    ... and internal discounted cash flow analysis. As part of the annual goodwill impairment test, the Company also compares market capitalization with the most recent total estimated fair value of its reporting units to ensure that significant differences are understood. At December 31, 2011, 2010...

  • Page 159
    ..., tax planning strategies and forecasted taxable income using historical and projected future operating results. At December 31, 2011, the Company had deferred tax assets for tax loss and tax credit carryforwards of $2,294 million, $56 million of which is subject to expiration in the years 2012-2016...

  • Page 160
    ...Care® and has worked to broaden the application and impact of Responsible Care® around the world through engagement with suppliers, customers and joint venture partners. Dow's EH&S policies helped the Company achieve excellent EH&S performance in 2011. Dow's injury/illness rates and process safety...

  • Page 161
    ... reduces GHG emissions. The Company's STYROFOAMâ„¢ insulation is installed in over 20 million buildings worldwide, saving over $10 billion in energy costs annually. Dow's DOWTHERMâ„¢A heat transfer fluids are used in 14 large, concentrating solar power plants, with a total capacity of over 700...

  • Page 162
    ... The Company has not recorded any third-party recovery related to these sites as a receivable. Information regarding environmental sites is provided below: Environmental Sites Number of sites at January 1 Sites added during year Sites closed during year Number of sites at December 31 Dow-owned Sites...

  • Page 163
    ...possibility is remote that costs in excess of the range disclosed will have a material impact on the Company's results of operations, financial condition and cash flows. The amounts charged to income on a pretax basis related to environmental remediation totaled $261 million in 2011, $158 million in...

  • Page 164
    ... a study completed by Analysis, Research & Planning Corporation ("ARPC") in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since...

  • Page 165
    ...which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as "Asbestos-related credit" in the consolidated statements of income. At December, 31, 2010, the asbestos-related liability for pending and future claims was $728...

  • Page 166
    ...Carbide. It is the opinion of Dow's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-related claims, including future defense costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the...

  • Page 167
    ... Company and Petrochemical Industries Company (K.S.C.) ("PIC") of Kuwait, a wholly owned subsidiary of Kuwait Petroleum Corporation ("KPC"), announced plans to form a 50:50 global petrochemicals joint venture. The proposed joint venture, K-Dow Petrochemicals ("K-Dow"), was expected to have revenues...

  • Page 168
    ... potential impact of creating such additional exposures is not material to the Company's results. The global nature of Dow's business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Company...

  • Page 169
    ... financial statements present fairly, in all material respects, the financial position of The Dow Chemical Company and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in...

  • Page 170
    The Dow Chemical Company and Subsidiaries Consolidated Statements of Income (In millions, except per share amounts) For the years ended December 31 Net Sales Cost of sales Research and development expenses Selling, general and administrative expenses Amortization of intangibles Goodwill ...

  • Page 171
    ...-related insurance receivables - noncurrent Deferred charges and other assets Total other assets Total Assets Liabilities and Equity Current Liabilities Notes payable Long-term debt due within one year Accounts payable: Trade Other Income taxes payable Deferred income tax liabilities - current...

  • Page 172
    ... to net cash provided by operating activities: Depreciation and amortization Purchased in-process research and development charge Provision (Credit) for deferred income tax Earnings of nonconsolidated affiliates less than (in excess of) dividends received Pension contributions Net gain on sales of...

  • Page 173
    ... end of year Retained Earnings Balance at beginning of year Net income available for The Dow Chemical Company common stockholders Dividends declared on common stock (per share: $0.90 in 2011, $0.60 in 2010 and $0.60 in 2009) Other Impact of adoption of ASU 2009-17, net of tax Balance at end of year...

  • Page 174
    ...attributable to noncontrolling interests, net of tax 42 Comprehensive Income Attributable to The Dow Chemical Company $ 1,145 $ (In millions) For the years ended December 31 See Notes to the Consolidated Financial Statements. The Dow Chemical Company and Subsidiaries 2010 2,321 $ 2009 676 17 15...

  • Page 175
    ... Stocks Stockholders' Equity Income Taxes Operating Segments and Geographic Areas NOTE 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 ("Dow...

  • Page 176
    ... and swaps), the Company uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows. The Company utilizes derivatives to manage exposures to currency exchange rates, commodity prices and interest rate risk. The fair values of all...

  • Page 177
    ... to fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. See Note I for further information on goodwill. Finite-lived intangible assets such as purchased customer lists, licenses, intellectual property, patents, trademarks...

  • Page 178
    .... These severance costs are accrued once management commits to a plan of termination including the number of employees to be terminated, their job classifications or functions, their locations and the expected completion date. Income Taxes The Company accounts for income taxes using the asset and...

  • Page 179
    ... in the Company's Quarterly Reporting on Form 10-Q for the quarter ended March 31, 2012. NOTE C - RESTRUCTURING 2009 Restructuring On June 30, 2009, the Company's Board of Directors approved a restructuring plan related to the Company's acquisition of Rohm and Haas Company ("Rohm and Haas") as well...

  • Page 180
    ... 2009 to the 2009 plan, the 2008 plan and the 2007 plan. 2009 Restructuring Charges by Operating Segment In millions Electronic and Functional Materials Coatings and Infrastructure Solutions Performance Materials Performance Plastics Feedstocks and Energy Corporate Total 2009 restructuring charges...

  • Page 181
    ... the 2009 restructuring plan were substantially completed in the first quarter of 2011, with the remaining liabilities primarily related to environmental remediation to be paid over time. Dow expects to incur future costs related to its restructuring activities, as the Company continually looks for...

  • Page 182
    ... statements of income and was reflected in the following operating segments: Coatings and Infrastructure Solutions ($20 million), Electronic and Functional Materials ($8 million), and Corporate ($1 million). In 2010, the Company decreased the severance reserve for the 2008 restructuring plan...

  • Page 183
    ...see Note C), a one-time increase in cost of sales of $209 million related to the fair value step-up of inventories acquired from Rohm and Haas and sold in the second quarter of 2009, and a pretax loss of $56 million on the early extinguishment of debt. Rohm and Haas Results of Operations In millions...

  • Page 184
    ... deductible for tax purposes. See Note I for further information on goodwill. Goodwill largely consists of expected synergies resulting from the acquisition. Key areas of cost savings include increased purchasing power for raw materials; manufacturing and supply chain work process improvements; and...

  • Page 185
    ..., Germany, and Freeport and Seadrift, Texas; railcars; inventory; receivables; business know-how; certain product and process technology; and customer contracts and lists. On September 30, 2011, the sale was completed for $459 million, net of working capital adjustments and costs to sell, with...

  • Page 186
    ... and Infrastructure Solutions ($13 million) and Corporate ($1 million) (see Note C). The Company completed the sale of its hollow sphere particle business in the second quarter of 2010 and recognized additional costs associated with disposal activities of $7 million, related to contract termination...

  • Page 187
    ... Agreement used to fund the acquisition of Rohm and Haas (see Note P). The results of operations for the Salt business were reported in Corporate and were not material to the consolidated financial statements. Divestiture of Calcium Chloride Business On June 30, 2009, the Company completed the sale...

  • Page 188
    ...funded the development of this project to date. However, formal contribution of the development costs to Sadara will not occur until 2012. At December 31, 2011, the Company's cumulative investment in the development costs since inception of $824 million is recorded in "Noncurrent receivables" in the...

  • Page 189
    ... Noncurrent assets $ 23,789 Total assets $ 4,376 Current liabilities 12,045 Noncurrent liabilities $ 16,421 Total liabilities $ 789 Noncontrolling interests Summarized Income Statement Information In millions 2011 $ 16,396 Sales $ 4,176 Gross profit $ 2,470 Net income $ $ $ $ $ 2010 8,357 14,717...

  • Page 190
    The Company has service agreements with some of these entities, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase and lease agreements. Excess ethylene glycol produced in Dow...

  • Page 191
    ... the fair value of each reporting unit was less than its carrying value amount. The qualitative factors assessed for the Company included, but were not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and...

  • Page 192
    ... cost, which approximates fair value. At December 31, 2011, the Company had investments in money market funds of $1,090 million classified as cash equivalents ($35 million at December 31, 2010). The net unrealized gain from mark-to-market adjustments recognized in earnings during 2011 on trading...

  • Page 193
    ... to the nature of these investments, the fair market value is not readily determinable. These investments are reviewed quarterly for impairment indicators. During 2011, the Company's impairment analysis resulted in no reduction in the cost basis of these investments; the analysis in 2010 resulted in...

  • Page 194
    ... Cost includes reductions of $23 million at December 31, 2011 and $23 million at December 31, 2010 related to fair value adjustments. Risk Management Dow's business operations give rise to market risk exposure due to changes in interest rates, foreign currency exchange rates, commodity prices and...

  • Page 195
    ... fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCI and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period...

  • Page 196
    ... met. At December 31, 2011 and 2010, the Company had no open interest rate swaps designated as fair value hedges of underlying fixed rate debt obligations. Net Foreign Investment Hedges For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion...

  • Page 197
    ... from AOCI to Income (3) (1) $ (14 15 15) $ Additional Gain (Loss) Recognized in Income (3,4) (2) - - - (2) 155 5 160 158 Derivatives designated as hedges: Fair value: Interest rates Cash flow: Commodities Foreign currency Net foreign investment: Foreign currency Total derivatives designated as...

  • Page 198
    ... sales Cost of sales $ Gain (Loss) Reclassified from AOCI to Income (3) - $ Additional Gain (Loss) Recognized in Income (3,4) (1) - - (1) - (2) (32) 3 (29) (31) Derivatives designated as hedges: Fair value: Interest rates Cash flow: Interest rates Interest rates Commodities Foreign currency Total...

  • Page 199
    ... at fair value: Interests in trade accounts receivable conduits (2) Equity securities (3) Debt securities: (3) Government debt (4) Corporate bonds Derivatives relating to: (5) Foreign currency Commodities Total assets at fair value Liabilities at fair value: Derivatives relating to: (5) Foreign...

  • Page 200
    ... using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number...

  • Page 201
    ... the Polyurethanes business. The long-lived assets and supplies associated with this facility were written down to zero. The Company is evaluating strategic alternatives regarding the future use of this facility. The charge was included in "Cost of sales" in the consolidated statements of income and...

  • Page 202
    ... business (1) Gain on sales of other assets and securities Loss on early extinguishment of debt Obligation related to past divestiture Reclassification of cumulative translation adjustments (2) Foreign exchange gain (loss) Gain on consolidation of a joint venture Dividend income Other-net Total...

  • Page 203
    ...provide the earnings per share calculations for the year ended December 31, 2011: Net Income In millions Net income from continuing operations Net income attributable to noncontrolling interests Net income attributable to The Dow Chemical Company Preferred stock dividends Net income attributable to...

  • Page 204
    ... calculations for the years ended December 31, 2010 and 2009: Net Income In millions Net income from continuing operations Income from discontinued operations, net of income taxes Net income attributable to noncontrolling interests Net income attributable to The Dow Chemical Company Preferred stock...

  • Page 205
    ...treatment. It is the opinion of the Company's management that the possibility is remote that a resolution of all future cases will have a material impact on the Company's consolidated financial statements. As part of the Joint Plan, Dow and Corning Incorporated agreed to provide a credit facility to...

  • Page 206
    ... to income on a pretax basis related to environmental remediation totaled $261 million in 2011, $158 million in 2010 and $269 million in 2009. Capital expenditures for environmental protection were $170 million in 2011, $173 million in 2010 and $219 million in 2009. Midland Off-Site Environmental...

  • Page 207
    ... a study completed by Analysis, Research & Planning Corporation ("ARPC") in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since...

  • Page 208
    ... by Union Carbide for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage...

  • Page 209
    ...Carbide. It is the opinion of Dow's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-related claims, including future defense costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the...

  • Page 210
    ...material adverse impact on the results of operations, financial condition and cash flows of the Company. Purchase Commitments The Company has numerous agreements for the purchase of ethylene-related products globally. The purchase prices are determined primarily on a cost-plus basis. Total purchases...

  • Page 211
    ...(1) The Company recorded a $60 million charge in the fourth quarter of 2011 related to an exited business, included in "Cost of sales" in the consolidated statements of income and reflected in Coatings and Infrastructure Solutions. Asset Retirement Obligations Dow has 197 manufacturing sites in 36...

  • Page 212
    ... unable to reasonably forecast a time frame to use for present value calculations. As such, the Company has not recognized obligations for individual plants/buildings at its manufacturing sites where estimates of potential settlement dates cannot be reasonably made. In addition, the Company has not...

  • Page 213
    ... the sale of these receivables ($26 million loss for the year ended December 31, 2010), which is included in "Interest expense and amortization of debt discount" in the consolidated statements of income. The Company's interests in the conduits are carried at fair value and included in "Accounts and...

  • Page 214
    ... 31, 2010. NOTE P - NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES Notes Payable at December 31 In millions Notes payable to banks Notes payable to related companies Notes payable trade Total notes payable Year-end average interest rates $ $ 2011 421 $ 92 28 $ 541 3.06% 2010...

  • Page 215
    ... final maturity 2011 Pollution control/industrial revenue bonds, varying maturities through 2038 Capital lease obligations Unamortized debt discount Long-term debt due within one year Total long-term debt Annual Installments on Long-Term Debt for Next Five Years In millions 2012 2013 2014 2015 2016...

  • Page 216
    ...-plus based floating rate notes due 2011. The Company used the net proceeds received from this offering for refinancing, renewals, replacements and refunding of outstanding indebtedness, including repayment of a portion of the Term Loan. The fair value of debt assumed from Rohm and Haas on April...

  • Page 217
    ...benefit costs for the plans are provided in the two tables below: Weighted-Average Assumptions for All Pension Plans Discount rate Rate of increase in future compensation levels Expected long-term rate of return on plan assets Weighted-Average Assumptions for U.S. Pension Plans Discount rate Rate of...

  • Page 218
    ...-term rate of return for assets held in the Company's other postretirement benefit plan trusts. The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans are based on the yield on high-quality fixed income investments at the measurement date...

  • Page 219
    ... periodic postretirement benefit cost for the year by $1 million. Net Periodic Benefit Cost for All Significant Plans Defined Benefit Pension Plans In millions 2009 2010 2011 $ 347 $ 270 $ 309 $ Service cost 1,081 1,098 1,121 Interest cost (1,212) (1,305) (1,254) Expected return on plan assets 31 28...

  • Page 220
    ... at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Currency impact Employer contributions Plan participants' contributions Acquisition/divestiture/other activity Benefits paid Fair value of plan assets at end of year Funded status at end...

  • Page 221
    ... and fixed income securities of U.S. and foreign issuers, and may include alternative investments such as real estate, private equity and absolute return strategies. At December 31, 2011, plan assets totaled $16.1 billion and included directly held Company common stock with a value of less than...

  • Page 222
    ...securities High yield bonds Other fixed income funds Fixed income derivatives Total fixed income securities Alternative investments: Real estate Private equity Absolute return Total alternative investments Other investments Total pension plan assets at fair value Quoted Prices in Active Markets for...

  • Page 223
    ... Fixed income derivatives Total fixed income securities Alternative investments: Real estate Private equity Absolute return Total alternative investments Other investments Total pension plan assets at fair value (1) Included $13 million of the Company's common stock. Quoted Prices in Active Markets...

  • Page 224
    ..., total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers provide valuations of the investment on a monthly or quarterly basis. These valuations are reviewed for...

  • Page 225
    ...note payable to preferred shares of a subsidiary" in the consolidated statements of equity. Another joint venture will construct, own and operate a membrane chlor-alkali facility to be located at the Company's Freeport, Texas integrated manufacturing complex. The Company's variable interests in this...

  • Page 226
    ...or-pay terms with pricing ensuring a guaranteed return to the joint venture; and favorably priced leases provided to the joint venture. The Company provides the joint venture with operation and maintenance services and utilities. The seventh joint venture is a development-stage enterprise located in...

  • Page 227
    ... period (years) Life of Employees' Stock Purchase Plan (months) The dividend yield assumption for 2011 was based on a 20 percent/80 percent blend of the Company's current declared dividend as a percentage of the stock price on the grant date and a 10-year dividend yield average. The dividend yield...

  • Page 228
    ... Price (1) - - 23.00 10,831 $ 23.00 (8,564) $ 23.00 (2,267) $ - - 2011 Additional Information about ESPP In millions, except per share amounts Weighted-average fair value per share of purchase rights granted Total compensation expense for ESPP Related tax benefit Total amount of cash received...

  • Page 229
    Additional Information about Stock Options In millions, except per share amounts Weighted-average fair value per share of options granted Total compensation expense for stock option plans Related tax benefit Total amount of cash received from the exercise of options Total intrinsic value of options...

  • Page 230
    ... Weighted-average per share 2011 Target Grant Date Shares Granted (1) Fair Value (2) 20.72 3,132 $ 38.07 1,109 $ 17.98 (2,210) $ 27.30 (127) $ 33.57 1,904 $ Additional Information about Performance Deferred Stock Total fair value of performance deferred stock vested and delivered (1) Related tax...

  • Page 231
    ... of the issuance date, if the common stock price exceeds $53.72 per share for any 20 trading days in a consecutive 30-day window, the Company may, at its option, at any time, in whole or in part, convert preferred series A into common stock at the then applicable conversion rate. Upon conversion...

  • Page 232
    ... at a price of $15.0561 per share for a total of $553 million. The treasury stock was carried at an aggregate historical cost of $1,529 million. Dividends on unallocated shares held by the ESOP are used by the ESOP to make debt service payments and to purchase additional shares if dividends exceed...

  • Page 233
    Treasury Stock The total number of treasury shares purchased by the Company, primarily shares received from employees and non-employee directors to pay taxes owed to the Company as a result of the exercise of stock options or the delivery of deferred stock, was 0.5 million in 2011, 0.5 million in ...

  • Page 234
    ... Operations Before Income Taxes." (2) The Company recognized a tax benefit of $231 million related to the sale of a contract manufacturing subsidiary, which was reduced by a $95 million valuation allowance. Provision (Credit) for Income Taxes In millions Federal State and local Foreign Total...

  • Page 235
    ... that the total gross unrecognized tax benefits of the Company at December 31, 2011 may be reduced in the next twelve months by approximately $45 million to $90 million as a result of these resolved examinations. The impact on the Company's results of operations is not expected to be material. 141

  • Page 236
    ... Solutions, Agricultural Sciences, Performance Materials, Performance Plastics, and Feedstocks and Energy. Corporate contains the reconciliation between the totals for the reportable segments and the Company's totals and includes research and other expenses related to new business development...

  • Page 237
    ... that address modern societal needs for clean water and air; material preservation; and improved health care, disease prevention, nutrition and wellness. Functional Materials includes Dow Home and Personal Care, Dow Microbial Control, Dow Wolff Cellulosics and Performance Additives. • Products and...

  • Page 238
    ... the energy efficiency in homes and buildings today, while also addressing the industry's emerging needs and demands. Dow Construction Chemicals provides solutions for increased durability, greater water resistance and lower systems costs. As a leader in insulation solutions, the business' products...

  • Page 239
    ... the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. AGRICULTURAL SCIENCES Applications: agricultural crop protection and pest management seeds, traits (genes) and oils Dow AgroSciences is a global leader in providing agricultural crop protection and plant...

  • Page 240
    ... systems Dow Plastic Additives is a worldwide supplier of additives and solutions used in a large variety of applications ranging from construction materials and packaging containers to consumer appliances and electronics, business machines and automotive parts. These additives and solutions...

  • Page 241
    ... services to companies in the fine and specialty chemicals and polymers industries (the business was fully divested by December 31, 2011); and Dow Oil and Gas, providing products for use in exploration and production, refining and gas processing, transportation, and fuel and lubricant performance...

  • Page 242
    ...to develop solutions that create value and that will sustain these industries for years to come. • Products: ENDURANCE™ family of semiconductive and insulation material for power cable insulation; ECOLIBRIUM™ bio-based plasticizers; SI-LINK™ moisture crosslinkable polyethylene-based wire and...

  • Page 243
    FEEDSTOCKS AND ENERGY Applications: agricultural products alumina automotive antifreeze and coolant systems carpet and textiles chemical processing dry cleaning household cleaners and plastic products inks metal cleaning packaging, food and beverage containers paints, coatings and adhesives personal...

  • Page 244
    ... generally at market-based prices. Other transfers of products between operating segments are generally valued at cost. See Note D for information regarding acquisition and integration related expenses. A reconciliation of EBITDA to "Income from Continuing Operations Before Income Taxes" is provided...

  • Page 245
    ... $ $ $ Europe, Middle East and Africa 20,840 3,546 18,464 4,501 16,010 4,021 Rest of World 19,771 5,102 17,713 4,774 14,720 4,908 $ $ $ $ $ $ Total 59,985 17,299 53,674 17,668 44,875 18,141 2011 Sales to external customers Long-lived assets (1) 2010 Sales to external customers Long-lived assets...

  • Page 246
    The Dow Chemical Company and Subsidiaries Selected Quarterly Financial Data In millions, except per share amounts (Unaudited) 2011 Net sales Cost of sales Gross margin Acquisition and integration related expenses Net income available for common stockholders Earnings per common share - basic (1) ...

  • Page 247
    The Dow Chemical Company and Subsidiaries PART II ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 153

  • Page 248
    ...deliver a new generation of information systems and work processes for all Dow businesses. During the fourth quarter of 2011, the Company completed the implementation of the ERP system for the businesses acquired from Rohm and Haas Company. For a discussion of the risks related to the ERP system see...

  • Page 249
    ... of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule listed in the Index at Item 15(a)2 of the Company as of and for the year ended December 31, 2011 and our report dated February 15, 2012 expressed an unqualified...

  • Page 250
    The Dow Chemical Company and Subsidiaries PART II ITEM 9B. OTHER INFORMATION. None. 156

  • Page 251
    ...'s Annual Report on Form 10-K for the year ended December 31, 2003. ITEM 11. EXECUTIVE COMPENSATION. Information relating to executive compensation and the Company's equity compensation plans is contained in the definitive Proxy Statement for the Annual Meeting of Stockholders of The Dow Chemical...

  • Page 252
    ... principal executive offices. The Company's website and its content are not deemed incorporated by reference into this report. (c) The consolidated financial statements of Dow Corning Corporation and Subsidiaries for the period ended December 31, 2011, were filed with the Company's Annual Report on...

  • Page 253
    The Dow Chemical Company and Subsidiaries Valuation and Qualifying Accounts For the Years Ended December 31 COLUMN B Balance at Beginning of Year Schedule II In millions COLUMN A Description COLUMN C Additions to Reserves COLUMN D Deductions from Reserves COLUMN E Balance at End of Year 2011...

  • Page 254
    ..., thereunto duly authorized. THE DOW CHEMICAL COMPANY By Date /S/ R. C. EDMONDS R. C. Edmonds, Vice President and Controller February 9, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant...

  • Page 255
    ... service mark of American Chemistry Council appears in this report: Responsible Care The following trademark of Antaria Limited appears in this report: ZinClear The following registered trademark of Monsanto Technology LLC appears in this report: SmartStax. SmartStax multi-event technology developed...

  • Page 256
    ... to the Stock Purchase Agreement, dated as of April 1, 2009, between Rohm and Haas Company and K+S Aktiengesellschaft, incorporated by reference to Exhibit 2(d)(i) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. Shareholders' Agreement, dated as of...

  • Page 257
    ... The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008. Employment Offer Letter for Joe Harlan, President, Performance Materials and Executive Vice President of The Dow Chemical Company, incorporated by reference to Exhibit 10.3 to The Dow Chemical Company Current...

  • Page 258
    ...(h) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008. The Dow Chemical Company 1994 Non-Employee Directors' Stock Plan, incorporated by reference to Exhibit 10(i) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2009...

  • Page 259
    ... 14, 2012. Amended and Restated 2003 Non-Employee Directors' Stock Incentive Plan, adopted by the Board of Directors of The Dow Chemical Company on December 10, 2007, incorporated by reference to Exhibit 10(u) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31...

  • Page 260
    ...Exhibit 10(ee) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Purchase and Sale Agreement dated as of September 30, 2005 between Catalysts, Adsorbents and Process Systems, Inc. and Honeywell Specialty Materials LLC, incorporated by reference to Exhibit...

  • Page 261
    ... & Co. Inc. and the Haas Family Trusts, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on May 11, 2009. Stock Purchase Agreement, dated May 11, 2009, between The Dow Chemical Company and Fidelity Management Trust Services, as trustee of a trust...

  • Page 262
    ... Accounting Officer, incorporated by reference to Exhibit 14 to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2003. Subsidiaries of The Dow Chemical Company. Consent of Independent Registered Public Accounting Firm. Analysis, Research & Planning Corporation...

  • Page 263
    The Dow Chemical Company and Subsidiaries Exhibit Index DESCRIPTION EXHIBIT NO. 101.LAB 101.PRE XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document 169

  • Page 264
    Selected Exhibits Follow The Dow Chemical Company and Subsidiaries EXHIBIT 12.1 Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements In millions, except ratios (Unaudited) 2011 $ For the Years Ended December 31 2008 2009 2010 2,...

  • Page 265
    ..., whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 4. 5. Date: February 15, 2012 /s/ ANDREW N. LIVERIS Andrew N. Liveris President, Chief Executive Officer and Chairman of the Board 171

  • Page 266
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 267
    ...N. Liveris, President, Chief Executive Officer and Chairman of the Board of The Dow Chemical Company (the "Company"), certify that: 1. the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 as filed with the Securities and Exchange Commission (the "Report") fully complies...

  • Page 268
    ... H. Weideman, Executive Vice President and Chief Financial Officer of The Dow Chemical Company (the "Company"), certify that: 1. the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 as filed with the Securities and Exchange Commission (the "Report") fully complies with...

  • Page 269
    (THIS PAGE INTENTIONALLY LEFT BLANK) 175

  • Page 270
    ... the cumulative total return to Dow stockholders over certain periods of time. They depict a hypothetical $100 investment in Dow common stock on December 31 of the first year of the charts, and show the value of that investment over time until December 31, 2011, with all dividends reinvested in...

  • Page 271
    ... (800) 258 2436 (Customer Information Group) or (989) 832 1556 (800) 232 2436 (Customer Service Center) (989) 636 1000 (Dow Operator/Switchboard) Investor Relations The Dow Chemical Company 2030 Dow Center Midland, MI 48674 U.S.A. Telephone: (800) 422 8193 (United States and Canada) (989) 636 1463...

  • Page 272
    ...pending. The information presented is not an offer for sale. Enlist Duo is not yet registered for sale or use as part of the Enlist Weed Control System. Always read and follow label directions. © 2012 Dow AgroSciences LLC ® The Dow Chemical Company Midland, MI 48674 U.S.A. Investor Relations (800...