Dow Chemical 2011 Annual Report Download - page 63

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2011 OVERVIEW
Dow and the chemical industry as a whole experienced improvements in the pace of global economic recovery in the first half
of 2011. However, persistent headwinds in key developed geographies led to deterioration in the pace of global economic
recovery during the second half of 2011. Positive signs of a slow upturn in the first half of the year were overshadowed in the
latter half by the deepening financial crisis in Europe, persistently high unemployment in the United States, and inflationary
pressures in emerging geographies. This led to a reduction in consumer confidence and consequently, steep customer inventory
de-stocking as the year ended.
In the face of these challenges, Dow remained focused on its strategy, delivering revenue and earnings growth, expanding
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 percent from 2010 to $60 billion - representing a new Company record. Excluding the impact of
divestitures,(1) sales rose 18 percent compared with 2010, with double-digit gains in every geographic area and every operating
segment excluding Electronic and Functional Materials, which was up 9 percent. Dow's sales in the emerging geographies
reached $19.4 billion in the year, a record for the Company. Sales in Asia Pacific surpassed $10 billion for the first time in the
Company's history.
The Company reported a 1 percent decline in volume from 2010. Excluding the impact of divestitures, volume was up
4 percent, with gains in all geographic areas and all operating segments except Coatings and Infrastructure (down 1 percent),
which continued to be impacted by the weak construction industry. Compared with 2010, price rose 14 percent, largely driven
by a significant increase in feedstock costs. Double-digit price gains were reported in all geographic areas, as well as in
Feedstocks and Energy, Coatings and Infrastructure Solutions, Performance Materials and Performance Plastics. The
Company's purchased feedstock and energy costs were $4.3 billion higher than 2010, an increase of 22 percent. Dow's earnings
from joint ventures totaled $1.2 billion for the year, representing the highest level in the Company's history. Net income
available for common stockholders increased from $1.72 per share in 2010 to $2.05 per share in 2011.
The Company continued to invest for growth during the year, reinforcing its strategic focus on science-based innovation
and technology integration. Research and development (“R&D”) expenses for the year were $1.65 billion, in line with the prior
year as selected cost-reduction initiatives offset Dow's continued investment in its technology pipeline, with the most notable
investments made in Agricultural Sciences, Electronic and Functional Materials, and Coatings and Infrastructure Solutions.
Selling, General and Administrative (“SG&A”) expenses increased 7 percent compared with 2010, reflecting increased
spending in Agricultural Sciences and Electronic and Functional Materials to support new product launches and commercial
activities.
The Company delivered $3.9 billion of cash from operating activities, and reduced its net debt to total capitalization ratio
180 basis points below year-end 2010. Throughout the year, the Company had sufficient liquidity and financial flexibility to
meet all of its financial obligations.
During 2011, Dow demonstrated the strength of its strategic formula and its clear focus on execution, delivering earnings
growth and enhanced financial flexibility despite challenging economic conditions. The year was shaped by a number of
significant events and investments in innovation, integration and global expansion. Actions taken during 2011 included:
• The Board of Directors of Dow and Saudi Arabian Oil Company approved the building and operation of a world-scale,
fully integrated chemical complex in Jubail Industrial City, Saudi Arabia. This joint venture, Sadara Chemical Company,
will address rapid demand growth across a variety of end-markets, particularly those related to growing middle classes in
developing regions.
• Dow announced that one of its joint ventures with the SCG-Dow Group started up its new propylene oxide facility in
Thailand. The world-scale plant uses innovative hydrogen peroxide to propylene oxide ("HPPO") technology jointly
developed by Dow and BASF. The joint venture also began commercial operation of its new world-scale specialty
elastomers plant in Thailand, enabling Dow to meet growing worldwide customer demand for a full range of elastomer
products.
(1) Excludes sales of the Salt business of Rohm and Haas Company divested on October 1, 2009, sales related to Total Raffinaderij
Nederland N.V. ("TRN") divested on September 1, 2009, sales of a portion of the acrylic monomer and specialty latex businesses
divested on January 25, 2010, sales of the Powder Coatings business divested on June 1, 2010, sales of Styron divested on June 17,
2010, and sales of the Polypropylene business divested on September 30, 2011.