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The Dow Chemical Company
2013 Annual Report

Table of contents

  • Page 1
    Maxi z g V ue Op Ex ce ll ce M k cu Fo s t In e gr In n a The Dow Chemical Company 2013 Annual Report

  • Page 2
    ... Executive Team, Corporate Officers, Board of Directors and Corporate Governance Market-Driven Strategy Operational and Capital Efficiency Science-Driven Innovation Cost Advantage Sustainability Appendix Mission, Vision, Corporate Strategy and Values - Form 10-K for the Year Ended December 31, 2013...

  • Page 3
    ... 2013 Sales by Operating Segment (dollars in millions) Electronic and Functional Materials $4,591 Coatings and Infrastructure Solutions $7,132 Agricultural Sciences $7,137 Total Sales $57,080 Performance Materials $13,415 Performance Plastics $14,645 Feedstocks and Energy $9,854 Corporate...

  • Page 4
    ... below Dow's historic average. • We advanced key growth investments - strategic projects such as those on the U.S. Gulf Coast to take advantage of low-cost feedstocks, or with Sadara in Saudi Arabia, to do exactly the same. These low-cost feedstocks give us the building blocks to add value...

  • Page 5
    ... to these markets and deliver this unique competitive advantage. As a result, our scale, low-cost feedstocks and differentiated technology enable us to win across attractive value chains, and our key investments - both on the U.S. Gulf Coast as well as Sadara in the Middle East - will enable...

  • Page 6
    .... †† Dow and its joint venture partner TASNEE Sahara Olefins Company announce the mechanical completion of the first acrylic monomer production facility in the Middle East. The plant will help provide a reliable, cost-advantaged supply of acrylic emulsion polymers for coatings and adhesives...

  • Page 7
    ...future transactions represent $4 billion to $5 billion in annual revenue and include Dow's U.S. Gulf Coast Chlor-Alkali/Chlor-Vinyl business, global Chlorinated Organics business, the Epoxy business, and brine and select assets supporting operations in Freeport, Texas. †† Dow closes the sale...

  • Page 8
    ...Haller Executive Vice President, Chief Commercial Officer and President of Dow Europe, Middle East and Africa Joe E. Harlan Executive Vice President, Chemicals, Energy and Performance Materials Peter Holicki Corporate Vice President, Manufacturing and Engineering and Environmental, Health and Safety...

  • Page 9
    ...-K for the year ended December 31, 2013, and copies are included herein. In addition, Mr. Liveris certified to the New York Stock Exchange (NYSE) on May 15, 2013, that he was unaware of any violations by the Company of the NYSE corporate governance listing standards in effect as of that date. The...

  • Page 10
    ... top-line growth in 2013 through the ramp-up of new product sales and solid industry demand - outperforming the industry and achieving sales records. Total Sales $7,137 Crop Protection Seeds, Traits and Oils (dollars in millions) 77% 23% Strategy from Chemicals to Growth Businesses q We...

  • Page 11
    ...margin expansion over the near term. Coatings and Infrastructure Solutions Dow Building and Construction Dow Coating Materials Dow Water and Process Solutions Performance Monomers (dollars in millions) 25% 38% 13% 24% Total Sales $7,132 Performance Materials Chlor-Alkali/Chlor-Vinyl Total Sales...

  • Page 12
    ... key growth initiatives with the majority of our forward capital allocation put toward these high-return projects. This has enabled a strong bridge to new earnings streams that will continue to ramp up in 2015 when investments in Sadara and our new PDH unit on the U.S. Gulf Coast come on line...

  • Page 13
    ... Epoxy business, our global Chlorinated Organics business, and our Chlor-Alkali/Chlor-Vinyl business in the U.S. Gulf Coast region. Together, these businesses represent $4 billion to $5 billion in total annual revenue that we expect to divest over the next 12-24 months. • We closed the sale...

  • Page 14
    ... chemistry position to accelerate the commercialization of solutions for our customers, and strengthen our leadership position in high-growth end-markets. Science-Driven Innovation Investment Focus on Attractive Markets As a global leader in science and technology, Dow is uniquely positioned to...

  • Page 15
    ...the speed of technology in the electronics industry, Dow researchers work closely with customers at our advanced technology centers worldwide to provide the products and technical service necessary for next-generation electronics. Dow Scientists Making a Worldwide Impact through Water The world...

  • Page 16
    ... Gulf Coast investment strategy, we also announced plans for new specialty material production units that will further connect our differentiated Performance Plastics product slate with cost-advantaged feedstocks. Our investment in the Sadara Chemical Company, a joint venture developed by Dow...

  • Page 17
    ...tons of value-add performance plastics and specialty chemical products annually to serve high-growth end-markets such as packaging, electronics, coatings, transportation, oil and gas, consumer durables, hygiene and medical, infrastructure and water. Dow will be responsible for marketing Sadara...

  • Page 18
    ... As Dow executes against its growth strategy in select end-markets, we continue to drive value for our customers by innovating products and materials that help prevent waste, reduce the carbon footprint and use less energy, among other benefits: Infrastructure EVOQUEâ„¢ Pre-Composite Polymer...

  • Page 19
    ... in our energy-efficiency efforts. However, given our current mix of businesses, we are not currently on track to meet our targeted 2015 Energy Intensity Performance Goal. Absolute Greenhouse Gas Emissions (million metric tons of CO2-equivalent) 60 Local Protection of Human Health and the...

  • Page 20
    ... LNG Development, L.P.4 Gain on sale of ownership interest in Dow Kokam LLC 4 Gain on sale of a contract manufacturing business Loss on early extinguishment of debt 4 Adjustment of uncertain tax positions4 Total certain items4 Dilutive effect of assumed preferred stock conversion into shares of...

  • Page 21
    ... of debt discount Income Before Income Taxes - Provision for income taxes - Net income (loss) attributable to noncontrolling interests - Preferred stock dividends Net Income Available for The Dow Chemical Company Common Stockholders Adjusted EBITDA Calculation In millions Twelve Months Ended...

  • Page 22
    ...Our refined Corporate Strategy reflects our drive to become a strong, agile leader in a select group of high-growth markets. Values Integrity • Respect for People • Protecting Our Planet Our Values have not changed and remain core to who we are as a company. 20 The Dow Chemical Company

  • Page 23
    ... the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of voting common stock held by non-affiliates as of June 30, 2013 (based upon the closing price of $32.17 per common share as quoted on the New York Stock Exchange), was approximately $38...

  • Page 24
    ..., and Director Independence Principal Accounting Fees and Services 143 143 143 143 143 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...

  • Page 25
    The Dow Chemical Company and Subsidiaries FORWARD-LOOKING STATEMENTS Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those ...

  • Page 26
    ... chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high growth sectors such as packaging, electronics, water, coatings and agriculture. In 2013, Dow had annual sales...

  • Page 27
    ... Materials The Functional Materials portfolio of businesses creates performance-enhancing solutions that enable customers to differentiate their products in the global pharmaceutical, food, water, energy and home and personal care markets. This group also provides key materials for industrial...

  • Page 28
    ... Segment Personal care, home care, industrial materials and specialty applications Energy (oil and gas), industrial and consumer goods, water and water processing Pharmaceutical, food and nutrition; energy (oil and gas); industrial materials Technologies Technologies that differentiate our customers...

  • Page 29
    ... and industrial applications Providing the right, cost effective separation technology for water treatment and filtration; energy (power, oil and gas); pharmaceutical; food and beverage; chemical processing Dow Coating Materials Dow Water and Process Solutions Performance Monomers Super...

  • Page 30
    ... crop protection and plant biotechnology products, urban 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. The segment has broad global reach with sales...

  • Page 31
    ... located in all geographic areas. Performance Materials has a diverse product line that serves customers in a large number of industries, including automotive, consumer, construction, infrastructure, oil and gas, appliance and electronics. Details on Performance Materials' 2013 sales, by business...

  • Page 32
    ... oil companies. Performance Materials back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a fullservice supplier with a global technical service network located close to the customer, which allows the Company to fuel growth...

  • Page 33
    ...ethylene. • A portion of the results of Sadara Chemical Company - a development-stage Saudi Arabian company that will manufacture chlorine, ethylene and propylene for internal consumption and will produce and sell high-value added chemical products and performance plastics; owned 35 percent by the...

  • Page 34
    ... were reported in the Performance Plastics segment through the date of divestiture. Future Investments During 2013, the Company announced the location of four new Performance Plastics production units to be built on the U.S. Gulf Coast. Leveraging an advantaged feedstock position from U.S. shale gas...

  • Page 35
    .... In North America, new shale gas opportunities - and the resulting increased supplies and stabilized raw material prices - have made the Company's ethane- and propane-based production more cost-competitive and also offer cost benefits to the energy-intensive chlor-alkali manufacturing process. The...

  • Page 36
    ... AREA RESULTS See Note 24 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area. SIGNIFICANT CUSTOMERS AND PRODUCTS All products and services are marketed primarily through the Company's sales...

  • Page 37
    ...The Company purchases natural gas, mainly to generate electricity, and purchases electric power to supplement internal generation. Expenditures for hydrocarbon feedstocks and energy accounted for 38 percent of the Company's production costs and operating expenses for the year ended December 31, 2013...

  • Page 38
    ... Company owned 3,879 active U.S. patents and 15,556 active foreign patents as follows: Patents Owned at December 31, 2013 Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy Corporate Total...

  • Page 39
    ...this report. EMPLOYEES As of December 31, 2013, the Company employed approximately 53,000 people on a full-time basis, with approximately 50 percent located in North America, 25 percent located in Europe, Middle East and Africa, and 25 percent located in other locations. OTHER ACTIVITIES Dow engages...

  • Page 40
    ... Plastics and Chemicals 2007 to 2009. Executive Vice President, Health, Agriculture and Infrastructure Group February 2009 to May 2009. Executive Vice President, Performance Systems May 2009 to August 2010. Executive Vice President and Chief Commercial Officer August 2010 to September 2012. Present...

  • Page 41
    ...decrease in sales volume and have a negative impact on Dow's results of operations. The Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage...

  • Page 42
    Also, if the Company's key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations. Supply/Demand Balance: Earnings generated by the Company's chemical and plastic products vary based ...

  • Page 43
    ..., and the supply of certain 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...

  • Page 44
    ... issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding...

  • Page 45
    PART I, Item 1B. Unresolved Staff Comments. UNRESOLVED STAFF COMMENTS None. The Dow Chemical Company and Subsidiaries 23

  • Page 46
    ... Company's major production sites, including consolidated variable interest entities, are as follows: Segment using manufacturing facility Electronic and Functional Materials Coatings and Infrastructure Solutions Agricultural Sciences Performance Materials Performance Plastics Feedstocks and Energy...

  • Page 47
    ... Carbide subsidiary, Amchem Products, Inc. It is the opinion of Dow's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestosrelated claims, including future defense costs, could have a material impact on the Company's results of operations and cash flows...

  • Page 48
    ... and the 2012 Stock Incentive Plan (the "Plans") with respect to the tax-deductible nature of certain awards under the Plans. The relief sought in this litigation includes the recovery of certain equity awards and injunctive relief, as well as monetary damages and attorneys' fees. The Company first...

  • Page 49
    PART I, Item 4. Mine Safety Disclosures. MINE SAFETY DISCLOSURES Not applicable. The Dow Chemical Company and Subsidiaries 27

  • Page 50
    ... The principal market for the Company's common stock is the New York Stock Exchange, traded under the symbol "DOW." Quarterly market and dividend information can be found in Quarterly Statistics at the end of Part II, Item 8. Financial Statements and Supplementary Data. At December 31, 2013, there...

  • Page 51
    ...assets Long-term debt Financial Ratios Research and development expenses as percent of net sales Income from continuing operations before income taxes as percent of net sales Return on stockholders' equity Debt as a percent of total capitalization (1) The Dow Chemical Company and Subsidiaries 2013...

  • Page 52
    ... and Functional Materials, Coatings and Infrastructure Solutions, Agricultural Sciences, Performance Materials, Performance Plastics and Feedstocks and Energy. In 2013, 36 percent of the Company's sales were to customers in North America; 32 percent were in Europe, Middle East and Africa ("EMEA...

  • Page 53
    ... 18, 2013, the Company announced its intention to build several new Performance Plastics production units on the U.S. Gulf Coast, further connecting the Company's U.S. manufacturing operations with cost-advantaged feedstocks resulting from increasing supplies of shale gas in North America. These...

  • Page 54
    ... Company announced that Bill Banholzer, Chief Technology Officer and Executive Vice President, had elected to retire. A. N. Sreeram was named Corporate Vice President of Research and Development, effective August 1, 2013. On December 31, 2013, Carol Williams, Executive Vice President, Manufacturing...

  • Page 55
    ... feedstock and energy costs and increased performance-based compensation costs. Gross margin in 2013 was reduced by $181 million for asset impairments and related costs, including the shutdown of manufacturing facilities, in the Chlor-Alkali/Chlor-Vinyl business, Dow Building and Construction...

  • Page 56
    ...Financial Statements. Production Costs and Operating Expenses Cost components as a percent of total Hydrocarbon feedstocks and energy Salaries, wages and employee benefits Maintenance Depreciation Restructuring charges Supplies, services and other raw materials Total 2013 38% 15 4 4 - 39 100% 2012...

  • Page 57
    ... that the estimate of undiscounted cash flows could change in the near term, resulting in the write-down of assets to fair value. If an asset impairment is recorded at Dow Corning related to the polycrystalline silicon asset group, the maximum potential after-tax impact to Dow is estimated to be...

  • Page 58
    ... business (reflected in Performance Plastics) and gains on other small divestitures and asset sales, $25 million of dividend income received from the Company's ownership interest in Styron (reflected in Corporate), gains from the mark-to-market of trading securities, favorable working capital...

  • Page 59
    ... total earnings, earnings in foreign locations taxed at rates less than the U.S. statutory rate, the sale of a contract manufacturing business and the reorganization of a joint venture. The tax rate for 2011 was negatively impacted by a $264 million valuation allowance recorded in the fourth quarter...

  • Page 60
    ... (credits)" in 2012 include $304 million of asset impairments and severance costs related to Dow Kokam LLC ("Dow Kokam") which, at the time of the charge, was owned 63.6 percent by Dow. The Dow Kokam restructuring impact on "Net Income Available for The Dow Chemical Company Common Stockholders" was...

  • Page 61
    ... Japanese yen. Functional Materials sales in 2013 increased 5 percent from 2012, with volume up 5 percent and price flat. Volume increased in all geographic areas, except EMEA, driven by higher demand for home and personal care products, specialty biocides used in energy applications and acrolein...

  • Page 62
    ...the industry in 2012 and higher demand for chemical mechanical planarization pads and slurries drove volume growth in the Semiconductor Technologies business unit. Functional Materials sales in 2012 were down 2 percent from 2011, entirely related to the unfavorable impact of currency on price. Price...

  • Page 63
    ... 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. Coatings and Infrastructure Solutions In millions Sales Price change...

  • Page 64
    ... global leader in providing crop protection and plant biotechnology products, urban 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...

  • Page 65
    ... by the 2012 introduction of POWERCORE™ Insect Trait Technology in Latin America and REFUGE ADVANCED® in North America. Crop Protection sales increased 10 percent, with volume up 8 percent and price up 2 percent. New Crop Protection product sales were up 19 percent compared with the year ago...

  • Page 66
    ...and Oxygenated Solvents businesses in Michigan and Texas. EBITDA in 2012 was also impacted by an $8 million gain related to post-closing adjustments on the sale of a contract manufacturing business. See Notes 3, 5, 9 and 11 to the Consolidated Financial Statements for additional information on these...

  • Page 67
    ... low margin marketing agreement in late 2013. Equity earnings are expected to be down due to increased start-up costs for the Sadara joint venture. On December 2, 2013, the Company announced the planned carve-out of a portion of its chlorine chain, including the Company's global Chlorinated Organics...

  • Page 68
    ... the Consolidated Financial Statements for additional information. On August 27, 2013, the Company announced the location of four new Performance Plastics production units to be built on the U.S. Gulf Coast. Leveraging an advantaged feedstock position from U.S. shale gas, these production units will...

  • Page 69
    ... driven by market conditions and sales to customers located on Dow manufacturing sites. In 2013, Energy business sales increased 28 percent compared with 2012. Price increased 20 percent due to higher natural gas prices in North America while volume increased 8 percent. The Company uses derivatives...

  • Page 70
    ... as new industry capacity in the U.S. Gulf Coast outweighs demand growth and global chlorine operating rates gradually improve. EDC/VCM prices and margins are expected to improve with the continued recovery of the global construction market and North America housing activity. Crude oil and feedstock...

  • Page 71
    ... Capital; • gains and losses on sales of financial assets; • stock-based compensation expense and severance costs; • asbestos-related defense and resolution costs; • foreign exchange results; • non-business aligned technology licensing and catalyst activities; • environmental operations...

  • Page 72
    ... loss related to the early extinguishment of debt, $31 million of integration costs related to the April 1, 2009 acquisition of Rohm and Haas and foreign currency losses. See Notes 4 and 16 to the Consolidated Financial Statement for additional information on these matters. SALES VOLUME AND PRICE BY...

  • Page 73
    ...projects related to the Company's U.S. Gulf Coast investments, which was partially offset by proceeds received from the sale of businesses and assets, including the sale of the Polypropylene Licensing and Catalysts business in the fourth quarter of 2013. Cash used in investing activities in 2012 was...

  • Page 74
    ... 24 to the Consolidated Financial Statements for capital expenditures by operating segment. Cash Flows from Financing Activities Cash used in financing activities in 2013 included dividends paid to stockholders; purchases of treasury stock; payments on short- and long-term debt, including the early...

  • Page 75
    ... impact of the K-Dow arbitration award; and favorable adjustments to the Company's defined benefit pension plans as a result of higher discount rates. Total Debt at December 31 In millions Notes payable Long-term debt due within one year Long-term debt Gross debt Cash and cash equivalents Net debt...

  • Page 76
    ... in the Company's credit ratings will increase borrowing costs on certain indentures and could have a negative impact on the Company's ability to access credit markets. Dividends For the years ended December 31, 2013, 2012, and 2011, the Company paid dividends to common and preferred shareholders as...

  • Page 77
    ... debt discount of $336 million. Includes $41 million of capital lease obligations. (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...

  • Page 78
    ... Company's 2014 business plan assumes a macroeconomic environment that is largely unchanged from 2013. Dow will continue to allocate capital carefully, focusing on highly-accretive growth projects. The Company's strategic investments in the U.S. Gulf Coast and the Middle East are progressing on time...

  • Page 79
    ... Union Carbide subsidiary, Amchem Products, Inc. Each year, Analysis, Research and Planning Corporation ("ARPC") performs a review for Union Carbide based upon historical asbestos claims and resolution activity. Union Carbide compares current asbestos claim and resolution activity to the results of...

  • Page 80
    ... and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned...

  • Page 81
    ... 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 that exceeded carrying values for all reporting units tested except for Dow Coating Materials and Performance Monomers...

  • Page 82
    ... fixed income instruments at the measurement date. Future expected actuarially determined cash flows of Dow's major U.S. plans are matched against the Towers Watson RATE:Link yield curve (based on 60th to 90th percentile bond yields) to arrive at a single discount rate by plan. The weighted average...

  • Page 83
    ... basis point change in the long-term return and discount rate assumptions would have an immaterial impact on the other postretirement benefit expense for 2014. Income Taxes Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases...

  • Page 84
    ...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 2013. Dow's injury/illness rates and process safety...

  • Page 85
    ... matters. Dow also has a dedicated commercial group to handle energy contracts and purchases, including managing emissions trading. The Company has not experienced any material impact related to regulated GHG emissions. The Company continues to evaluate and monitor this area for future developments...

  • Page 86
    ..., 2012). 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 (3) Number of sites at December 31 Dow...

  • Page 87
    ... in 2012) on environmental remediation at the Midland site. On April 1, 2009, the Company acquired Rohm and Haas' Philadelphia Plant, which has been an industrial site since the early 1700s, and since the 1920s used by Rohm and Haas for the manufacture of a wide range of chemical products. Chemical...

  • Page 88
    ... 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 consolidated financial position of the Company. The table below provides information regarding asbestos-related claims filed against Union...

  • Page 89
    ... 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 has assets, liabilities and cash flows in currencies...

  • Page 90
    ... present fairly, in all material respects, the financial position of The Dow Chemical Company and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting...

  • Page 91
    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 92
    ... years ended December 31 The Dow Chemical Company and Subsidiaries Net Income Other Comprehensive Income (Loss), Net of Tax Net change in unrealized gains (losses) on investments Translation adjustments Adjustments to pension and other postretirement benefit plans Net gains (losses) on cash flow...

  • Page 93
    ...: Trade (net of allowance for doubtful receivables - 2013: $148; 2012: $121) Other Inventories Deferred income tax assets - current Other current assets Total current assets Investments Investment in nonconsolidated affiliates Other investments (investments carried at fair value - 2013: $2,056; 2012...

  • Page 94
    ... of effects of acquired and divested companies: Accounts and notes receivable Proceeds from interests in trade accounts receivable conduits Inventories Accounts payable Other assets and liabilities Cash provided by operating activities Investing Activities Capital expenditures Construction of assets...

  • Page 95
    ...acquired Shares allocated to ESOP participants Balance at end of year Treasury Stock Balance at beginning of year Purchases Issuance to employees and employee plans Balance at end of year The Dow Chemical Company's Stockholders' Equity Noncontrolling Interests Balance at beginning of year Net income...

  • Page 96
    ... Affiliates and Related Company Transactions Goodwill and Other Intangible Assets Financial Instruments Fair Value Measurements Supplementary Information Earnings Per Share Calculations Commitments and Contingent Liabilities Transfers of Financial Assets Notes Payable, Long-Term Debt and Available...

  • Page 97
    ... account the present value of estimated future cash flows. The Company utilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes...

  • Page 98
    ... is written down to fair value, establishing a new cost basis. Revenue Sales are recognized when the revenue is realized or realizable, and the earnings process is complete. Approximately 99 percent of the Company's sales in 2013 related to sales of product (99 percent in 2012 and 99 percent in...

  • Page 99
    ... to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued. The Company recognizes the financial statement effects of an uncertain income tax position when it is more...

  • Page 100
    ... tax benefit, in the financial statements. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and retrospective application is permitted, but not required. The Company is currently evaluating the impact...

  • Page 101
    ...Electronic and Functional Materials Coatings and Infrastructure Solutions Performance Materials Performance Plastics Feedstocks and Energy Corporate Total 4Q12 Restructuring charges Adjustments to 4Q12 Restructuring charges 2013 - Performance Plastics Net 4Q12 Restructuring charges Costs Associated...

  • Page 102
    ...down a number of small manufacturing, research and development, and administrative facilities to optimize the assets of the Company. Write-downs of $42 million were recorded in the fourth quarter of 2012, impacting Performance Materials ($20 million), Electronic and Functional Materials ($13 million...

  • Page 103
    ...Company's segment results as shown in the following table: 1Q12 Restructuring Charges by Operating Segment Costs Associated with Exit or Disposal Activities $ - 4 146 - $ 150 In millions Electronic and Functional Materials Coatings and Infrastructure Solutions Performance Materials Corporate Total...

  • Page 104
    ... and Functional Materials ($17 million) segments. • During the fourth quarter of 2012, the Company recorded a favorable adjustment to the 1Q12 Restructuring charge related to the impairment of long-lived assets and other assets of $4 million, impacting the Coatings and Infrastructure Solutions...

  • Page 105
    ...in the consolidated statements of income and reflected in Corporate. In the fourth quarter of 2012, the Company recorded a restructuring charge related to the impairment of Dow Kokam's long-lived assets (see Note 3 for additional information). As a condition of the sale, Dow acquired the third party...

  • Page 106
    ... 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 proceeds subject to customary post-closing...

  • Page 107
    ...its share of the investees' net assets, exclusive of additional differences for Dow Corning and MEGlobal. Dividends received from the Company's nonconsolidated affiliates were $905 million in 2013, $823 million in 2012 and $1,016 million in 2011. At December 31, 2013, the Company's investment in Dow...

  • Page 108
    ... Ta Phut Olefins Company Limited (2) MEGlobal Sadara Chemical Company (3) The SCG-Dow Group: Siam Polyethylene Company Limited Siam Polystyrene Company Limited Siam Styrene Monomer Co., Ltd. Siam Synthetic Latex Company Limited Univation Technologies, LLC Ownership Interest 2013 2012 N/A N/A 50% 50...

  • Page 109
    ...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's plants in the United States and Europe is sold to MEGlobal and represented 1 percent of total net sales in...

  • Page 110
    ...fair value of a reporting unit is less than its carrying amount. The qualitative factors assessed by the Company include, but are not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial...

  • Page 111
    ... units. The Company utilized a discounted cash flow methodology to calculate the fair value of the reporting units. Based on the fair value analysis, management concluded that fair value exceeded carrying value for all reporting units except Dow Formulated Systems. Management completed the second...

  • Page 112
    ...mark-to-market adjustments recognized in earnings on trading securities held at the end of the year was a $13 million loss in 2013, a $1 million gain in 2012 and a $13 million gain in 2011. The following table provides the fair value and gross unrealized losses of the Company's investments that were...

  • Page 113
    ... market value or fair value is not readily determinable. These investments are reviewed quarterly for impairment indicators. The Company's impairment analysis resulted in a $6 million reduction in the cost basis of these investments for the year ended December 31, 2013; the analysis in 2012 resulted...

  • Page 114
    ... forecasted inventory purchases. At December 31, 2013, the Company had futures contracts, options and swaps to buy, sell or exchange commodities. These agreements had various expiration dates through the fourth quarter of 2015. Accounting for Derivative Instruments and Hedging Activities Cash Flow...

  • Page 115
    ... of debt discount" in the consolidated statements of income. The short-cut method is used when the criteria are met. At December 31, 2013 and 2012, the Company had no open interest rate swaps designated as fair value hedges of underlying fixed rate debt obligations. Net Foreign Investment Hedges...

  • Page 116
    ... the fair value and gross balance sheet classification of derivative instruments at December 31, 2013 and 2012: Fair Value of Derivative Instruments In millions Balance Sheet Classification Other current assets Other current assets Accounts and notes receivable - Other Other current assets Accounts...

  • Page 117
    ...(5) Corporate bonds Derivatives relating to: (6) Commodities Foreign currency Total assets at fair value Liabilities at fair value: Long-term debt (7) Derivatives relating to: (6) Interest rates Commodities Foreign currency Total liabilities at fair value In millions Quoted Prices in Active Markets...

  • Page 118
    ...cash collateral at December 31, 2012). For assets and liabilities classified as Level 1 measurements (measured 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...

  • Page 119
    ...Total Losses (178) (693) (220) (27) 2013 Fair Value Measurements on a Nonrecurring Basis As a result of Dow's announcement of its new market-driven growth strategy, the Company recognized a $178 million asset impairment charge in the fourth quarter of 2013, including charges for manufacturing plant...

  • Page 120
    ...fair value of the investment, which included projected cash flows. These impairment charges, totaling $576 million, were included in "Restructuring charges (credits)" in the consolidated statements of income. See Note 3 for additional information. In the fourth quarter of 2012, the Company performed...

  • Page 121
    ... doubtful receivables (1) $ 2013 59 $ 2012 13 $ 2011 18 (1) Included in "Selling, general and administrative expenses" in the consolidated statements of income. Supplemental Disclosure of Cash Flow Information In millions Cash payments for interest Cash payments for income taxes $ $ 2013...

  • Page 122
    ... share calculations for the years ended December 31, 2013, 2012 and 2011: Net Income for Earnings Per Share Calculation - Basic In millions Net income Net (income) loss attributable to noncontrolling interests Net income attributable to The Dow Chemical Company Preferred stock dividends Net income...

  • Page 123
    ... to approximately two and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company's results of operations, financial condition and cash flows. It is the opinion of...

  • Page 124
    ... a material impact on the Company's consolidated financial statements. Asbestos-Related Matters of Union Carbide Corporation Introduction Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed...

  • Page 125
    ... 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 126
    ... of collection. Summary The amounts recorded 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...

  • Page 127
    ...the Company's share of this fine (which DuPont previously caused to be paid) did not have a material impact on the Company's consolidated financial statements and there was no financial impact to Dow as a result of this final ruling. This matter is now considered resolved. Rohm and Haas Pension Plan...

  • Page 128
    ... products for the six-year period from 1999 through 2004. Shortly thereafter, a series of "opt-out" cases were filed by a number of large volume purchasers; these cases are substantively identical to the class action lawsuit, but expanded the time period to include 1994 through 1998. In January 2013...

  • Page 129
    ... has numerous agreements for the purchase of ethylene-related products globally. The purchase prices are determined primarily on a cost-plus basis. Total purchases under these agreements were $405 million in 2013, $304 million in 2012 and $552 million in 2011. The Company's take-or-pay commitments...

  • Page 130
    ..., the Company considers identification of legally enforceable obligations, changes in existing law, estimates of potential settlement dates and the calculation of an appropriate discount rate to be used in calculating the fair value of the obligations. Dow has a well-established global process to...

  • Page 131
    ... in "Cost of sales" in the consolidated statements of income and reflected in Corporate. The K-Dow arbitration is considered final and settled in full. NOTE 15 - TRANSFERS OF FINANCIAL ASSETS Sale of Trade Accounts Receivable in North America and Europe The Company sells trade accounts receivable of...

  • Page 132
    ... the years ended December 31, 2013, 2012 and 2011, the Company recognized insignificant losses on the sale of the participating interests in the receivables, which is included in "Interest expense and amortization of debt discount" in the consolidated statements of income. The Company receives cash...

  • Page 133
    ... Notes payable to banks Notes payable to related companies Notes payable trade Total notes payable Year-end average interest rates $ $ 2013 300 $ 137 6 443 $ 3.23% 2012 319 66 11 396 3.14% Long-Term Debt at December 31 In millions 2013 Average Rate - $ 5.33% 2.89% 2.53% 5.65% 5.43% 5.94% 1.44...

  • Page 134
    ... on Long-Term Debt for Next Five Years In millions 2014 2015 2016 2017 2018 $ $ $ $ $ 697 407 1,366 775 930 2013 Activity On November 18, 2013, the Company concluded cash tender offers for $700 million aggregate principal amount of certain notes issued by the Company. As a result of the tender...

  • Page 135
    ... net" in the consolidated statements of income and reflected in Corporate. During 2011, the Company issued $436 million of InterNotes with varying maturities in 2016, 2018 and 2021, at various interest rates averaging 3.71 percent; and approximately $1.2 billion of long-term debt was entered into by...

  • Page 136
    ... 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 Benefit Obligations at December 31 2013 2012 2011 4.54% 3.88% 4.93% 4.15% 3.96% 4.14% - - - Net Periodic Costs for the Year 2013 2012 3.88...

  • Page 137
    ... asset performance is also considered. 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. Future expected actuarially determined cash flows of Dow...

  • Page 138
    ... Assumptions for Other Postretirement Benefits Discount rate Expected long-term rate of return on plan assets Initial health care cost trend rate Ultimate health care cost trend rate Year ultimate trend rate to be reached Benefit Obligations at December 31 2013 2012 2011 4.37% 3.67% 4.66% - - - 7.45...

  • Page 139
    .../curtailment cost/settlements (1) (85) 5 - 9 Benefit obligations at end of year $ 25,027 $ 26,840 $ 1,742 $ 2,210 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...

  • Page 140
    ...31, 2012, plan assets totaled $17.7 billion and included no Company common stock. In 2013, the Company received $32 million from residual plan assets after the completion of a non-U.S. pension plan wind-up. Investment Strategy and Risk Management for Plan Assets The Company's investment strategy for...

  • Page 141
    ...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 (1) Includes no Company common stock. Quoted Prices in Active Markets...

  • Page 142
    ...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 (1) Includes no Company common stock. Quoted Prices in Active Markets...

  • Page 143
    ... benefit plan assets at fair value for the year ended December 31, 2012: Basis of Fair Value Measurements of Other Postretirement Benefit Plan Assets at December 31, 2012 In millions Cash and cash equivalents Fixed income securities Total assets at fair value Quoted Prices in Active Markets...

  • Page 144
    ... shares of a subsidiary" in the consolidated statements of equity. A fourth 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 joint venture relate...

  • Page 145
    ... trust relates to the fixed purchase price option. Prior to February 1, 2013, the Company's variable interest in the owner trust related to a residual value guarantee provided to the owner trust, which was valued at $363 million at December 31, 2012. The facility was purchased on January 2, 2014 for...

  • Page 146
    ... used to calculate total stock-based compensation are included in the following table: Weighted-Average Assumptions Dividend yield Expected volatility Risk-free interest rate Expected life of stock options granted during period (years) Life of Employee Stock Purchase Plan (months) 2013 3.89% 29...

  • Page 147
    ... end of year Exercise Price - 27.05 27.05 27.05 - Additional Information about Employee Stock Purchase Plan 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 148
    ... Exercise Price (1) - 32.16 - 32.16 32.16 9.11 - - 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...

  • Page 149
    ...number of shares issued can range from zero to 250 percent of the target shares granted. (2) Weighted-average per share Additional Information about Performance Deferred Stock In millions Total fair value of performance deferred stock vested and delivered (1) Related tax benefit Total compensation...

  • Page 150
    ...shares for purchases under the Employee Stock Purchase Plan, for options exercised and for the release of deferred and restricted stock. The number of new common stock shares issued to employees and non-employee directors under the Company's stock-based compensation programs was 18.3 million in 2013...

  • Page 151
    ... or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under the Company's option and purchase programs was zero in 2013, zero in 2012 and 5.6 million in 2011. Subsequent Event On January 29, 2014, the Board of Directors announced an expansion...

  • Page 152
    ... in an effective tax rate of 33.9 percent for 2012. The tax rate for 2011 was positively impacted by a high level of equity earnings as a percentage of total earnings, earnings in foreign locations taxed at rates less than the U.S. statutory rate, the sale of a contract manufacturing subsidiary and...

  • Page 153
    ... Union Carbide's tax credit claim for supplies used in process-related research and development at its manufacturing facilities became final. As a result of these rulings, the Company adjusted uncertain tax positions related to these matters, resulting in a tax charge of $276 million in 2013. 131

  • Page 154
    ... United States: Federal income tax State and local income tax Earliest Open Year 2013 2012 2007 2006 2009 2008 2009 2008 2011 2010 2006 2006 2008 2003 2012 2012 2008 2008 2009 2009 2011 2008 2004 2004 2004 2004 The Company is currently under examination in a number of tax jurisdictions. It is...

  • Page 155
    ... 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 156
    ... Technologies. The Functional Materials portfolio of businesses creates performance-enhancing solutions that enable customers to differentiate their products in the global pharmaceutical, food, water, energy and home and personal care markets. This group also provides key materials for industrial...

  • Page 157
    ... commercial opportunities); Venture Capital; gains and losses on sales of financial assets; stock-based compensation expense and severance costs; asbestos-related defense and resolution costs; foreign exchange results; non-business aligned technology licensing and catalyst activities; environmental...

  • Page 158
    ... assets Investment in nonconsolidated affiliates Depreciation and amortization Capital expenditures 2011 Sales to external customers Intersegment revenues (1) Equity in earnings (losses) of nonconsolidated affiliates Acquisition-related integration expenses (5) EBITDA (3) Total assets Investment...

  • Page 159
    ...Europe, Middle East and Africa 18,244 3,210 19,185 3,374 20,840 3,546 Rest of World 20,124 4,924 19,210 5,193 19,771 5,102 $ $ $ $ $ $ Total 57,080 17,454 56,786 17,520 59,985 17,299 2013 Sales to external customers Long-lived assets 2012 Sales to external customers Long-lived assets 2011 Sales...

  • Page 160
    The Dow Chemical Company and Subsidiaries Selected Quarterly Financial Data In millions, except per share amounts (Unaudited) 2013 Net sales Cost of sales Gross margin Restructuring charges (credits) Net income available for common stockholders Earnings per common share - basic (1) Earnings per ...

  • Page 161
    PART II, Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. The Dow Chemical Company and Subsidiaries 139

  • Page 162
    ... Andrew N. Liveris President, Chief Executive Officer and Chairman of the Board /s/ RONALD C. EDMONDS Ronald C. Edmonds Vice President and Controller /s/ WILLIAM H. WEIDEMAN William H. Weideman Chief Financial Officer and Executive Vice President The Dow Chemical Company and Subsidiaries 140

  • Page 163
    ... the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company and the financial statement schedule listed in the Index at Item 15(a)2 as of and for the year ended December 31, 2013 and our report dated February 14, 2014 expressed an unqualified...

  • Page 164
    The Dow Chemical Company and Subsidiaries PART II, Item 9B. Other Information. OTHER INFORMATION None. 142

  • Page 165
    ...'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 166
    ... Plan, effective as of July 19, 2013. Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements. Subsidiaries of The Dow Chemical Company. Consent of Independent Registered Public Accounting Firm. Analysis, Research & Planning Corporation...

  • Page 167
    ... to fair value the Company's interests held in trade accounts receivable conduits. See Notes 11 and 15 to the Consolidated Financial Statements for further information. (2) Deductions represent: Notes and accounts receivable written off Reclassification of reserve for cash discounts and returns to...

  • Page 168
    ..., thereunto duly authorized. THE DOW CHEMICAL COMPANY By Date /S/ R. C. EDMONDS R. C. Edmonds, Vice President and Controller February 13, 2014 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 169
    The Dow Chemical Company and Subsidiaries Trademark Listing The following trademarks or service marks of The Dow Chemical Company and certain affiliated companies of Dow appear in this report: ACRYSOL, ADSORBSIA, AFFINITY, AMBERJET, AMBERLYST, AQUASET, AVANSE, DOW, DOWEX, EDI, ELITE, EVOQUE, ...

  • Page 170
    ... Dow Chemical Company Current Report on Form 8-K/A filed on June 27, 2012. First Amendment, effective June 1, 2012, to the Shareholders' Agreement, dated as of October 8, 2011, between Performance Chemicals Holding Company, Dow Saudi Arabia Holding B.V., Saudi Arabian Oil Company, Dow Europe Holding...

  • Page 171
    ... The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. A written description of the 1998 Non-Employee Director's Stock Incentive Plan, incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Stockholders of The Dow Chemical Company...

  • Page 172
    ... Chemical Company Annual Report on Form 10-K for the year ended December 31, 2007. Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company 1994 Non-Employee Directors' Stock Plan, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed...

  • Page 173
    ... Plan, as amended, restated and effective as of January 1, 2009, incorporated by reference to Exhibit 10(z) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008. The Dow Chemical Company Voluntary Deferred Compensation Plan for Non-Employee Directors, effective...

  • Page 174
    ... Stock Dividend Requirements. Code of Ethics for Principal Executive Officer, Principal Financial Officer and Principal 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...

  • Page 175
    ... 1, 2009. Guarantee relating to the 9.80% Debentures of Rohm and Haas Company, incorporated by reference to Exhibit 99.6 to The Dow Chemical Company Current Report on Form 8-K filed on April 1, 2009. XBRL Instance Document. XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation...

  • Page 176
    ... 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) Income from Continuing Operations Before Income Taxes Add (deduct...

  • Page 177
    ... with respect to the period covered by this report; 3. Based on my knowledge, the 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...

  • Page 178
    ... b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 14, 2014 /s/ WILLIAM H. WEIDEMAN William H. Weideman Chief Financial Officer and Executive Vice President 156

  • Page 179
    ...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, 2013 as filed with the Securities and Exchange Commission (the "Report") fully complies...

  • Page 180
    ... H. Weideman, Chief Financial Officer and Executive Vice President 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, 2013 as filed with the Securities and Exchange Commission (the "Report") fully complies...

  • Page 181
    (THIS PAGE INTENTIONALLY LEFT BLANK) 159

  • Page 182
    ... the value of that investment over time until December 31, 2013, with all dividends reinvested in stock. Hypothetical investments of $100 in the Standard & Poor's 500 Stock Index and the Standard & Poor's 500 Chemicals Index are shown for comparison. Five-Year Cumulative Total Return Ten-Year...

  • Page 183
    ...(Customer Information Group) or (989) 832 1556 (800) 232 2436 (Customer Service Center) (989) 636 1000 (Dow Operator/Switchboard) For calls originating outside the United States and Canada, the international dialing code is +1. Investor Relations The Dow Chemical Company 2030 Dow Center Midland, MI...

  • Page 184
    ... trademark of Monsanto Technology LLC. The SmartStax multi-event technology is developed by Dow AgroSciences LLC and Monsanto. © 2014 Dow AgroSciences LLC The Dow Chemical Company Midland, MI 48674 U.S.A. Investor Relations (800) 422 8193 (989) 636 1463 [email protected] www.dow.com/investors Form...