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SCIENCE BASED. MARKET DRIVEN.
Future: Focused
The Dow Chemical Company
2015 Annual Report


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Table of contents

  • Page 1
    Future: Focused SCIENCE BASED. MARKET DRIVEN. The Dow Chemical Company 2015 Annual Report

  • Page 2
    2015 ANNUAL REPORT Future: Focused Dow passionately innovates what is essential to human progress - delivering market-driven solutions that extract value from materials, polymers, chemicals and biological science to address many of the world's greatest challenges. Our Company has a vision of ...

  • Page 3
    ... & Chemicals $11,973 Performance Plastics $18,357 Corporate: $294 (1) For a reconciliation to the most directly comparable U.S. GAAP measure, see supplemental information located in the Appendix, or visit www.dow.com/en-us/investor-relations/financial-reporting Certain statements in this report...

  • Page 4
    ... Company history with $9.6 billion of operating EBITDA. • Increased the annual dividend to a new historical high of $1.84/share and share buybacks of $2.7 billion.(4) • Advanced our drive to consolidate or deconsolidate our major joint ventures by: • Received six 2015 R&D 100 Awards: 21 Dow...

  • Page 5
    ...as a percentage of reported sales. (4) Includes $1.5 billion in non-cash share repurchases related to the Dow Chlorine Products transaction. (5) Operating Return on Capital is defined as Adjusted Net Operating Profit After Tax divided by Average Total Capital. "Adjusted Net Operating Profit After...

  • Page 6
    ... Dow Chlorine Products transaction in October, where we closed on a momentous chapter of our 119-year history by separating a substantial portion of the chlorine value chain - the chemistry upon which Dow was founded. Dow also moved forward with plans to optimize the ownership of our joint venture...

  • Page 7
    ... significant investments on the U.S. Gulf Coast and in the Middle East ramp to full production over the next 24 to 36 months. • Value-expanding market focus through an accelerated strategy, narrowing our industry participation and going deeper in targeted, highervalue markets. • Returning cash...

  • Page 8
    ... Vice President and President of Dow Europe, Middle East, Africa and India; Peter Holicki, Senior Vice President, Operations, Manufacturing and Engineering; Environment, Health and Safety Operations; Emergency Services and Security; Torsten Kraef, Corporate Vice President, Strategy and New Business...

  • Page 9
    ... James A. Bell Former Executive Vice President, Corporate President and Chief Financial Officer, The Boeing Company Director since 2005 Robert S. (Steve) Miller President and Chief Executive Officer, International Automotive Components (IAC) Group Director since 2015 Richard K. Davis Chairman...

  • Page 10
    ...and DuPont's Net Sales as reported in each company's 2015 Form 10-K filing. Note: Numbers may not sum due to rounding. Performance Performance Plastics Materials Performance Materials & Chemicals Infrastructure Solutions Consumer Solutions: Consumer Care Dow Automotive Systems 8 The Dow Chemical...

  • Page 11
    ... (as defined in Rule 12b-2 of the Act). The aggregate market value of voting common stock held by non-affiliates as of June 30, 2015 (based upon the closing price of $51.17 per common share as quoted on the New York Stock Exchange), was approximately $59.1 billion. For purposes of this computation...

  • Page 12
    ..., 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 and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary Data. Changes in...

  • Page 13
    ... as used herein mean The Dow Chemical Company and its consolidated 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...

  • Page 14
    ..., Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics. Strategy Dow's strategy is to invest in a market-driven portfolio of advantaged and technology-enabled businesses that create value for our shareholders and customers. Dow DuPont Planned...

  • Page 15
    ... providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agricultural, industrial and commercial pest management, and food service. The segment has...

  • Page 16
    ... Sciences has significant technology-driven growth, led by plant biotechnology traits and crop protection products that utilize proprietary formulations. As a result, the Company uses patents, trademarks, licenses and registrations to protect its investment in germplasm, traits and proprietary...

  • Page 17
    ... new product development enables it to maximize opportunities in emerging geographies and high-growth consumer market segments. Details on Consumer Solutions' 2015 sales, by business and geographic area, are as follows: Consumer Care Consumer Care provides global and regional brand owners in food...

  • Page 18
    ... Chemical. Joint Ventures The Consumer Solutions segment includes a portion of the Company's share of the results of Dow Corning Corporation ("Dow Corning"), a joint venture that manufactures silicone and silicone products, which is owned 50 percent by the Company. On December 10, 2015, the Company...

  • Page 19
    ... from sea water, creating a closed loop water system for oil field operations, and removing impurities in dairy processing. Performance Monomers The Performance Monomers business produces monomer products that are sold externally as well as consumed internally as building blocks used in downstream...

  • Page 20
    ...-Corning and Shin-Etsu Chemical. Joint Ventures The Infrastructure Solutions segment includes a portion of the Company's share of the results of Dow Corning, a joint venture that manufactures silicone and silicone products, which is owned 50 percent by the Company. On December 10, 2015, the Company...

  • Page 21
    ... of major national and international oil companies. Performance Materials & Chemicals back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a full-service supplier with a global technical service network located close to the customer...

  • Page 22
    ... Performance Materials & Chemicals segment markets its products primarily through the Company's sales force and also utilizes distributors worldwide. Joint Ventures The Performance Materials & Chemicals segment includes a portion of the Company's share of the results of the following joint ventures...

  • Page 23
    ... Performance Plastics segment includes chemical divisions of major national and international oil companies, which provide competition in the United States and abroad. Dow competes worldwide on the basis of product quality, product supply, technology, price and customer service. Performance Plastics...

  • Page 24
    ...Co. This business was reported in the Performance Plastics segment through the date of divestiture. Future Investments The Company announced a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and NGLs derived from shale gas. As a result of...

  • Page 25
    INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS See Note 26 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 ...

  • Page 26
    ...is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $357 million in 2015, $388 million in 2014 and $327...

  • Page 27
    ... 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 15 to the Consolidated Financial Statements. In addition, detailed information on Dow's performance regarding environmental matters and goals can be found online...

  • Page 28
    ...time basis, with approximately 50 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and 25 percent located in other locations. OTHER ACTIVITIES Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited...

  • Page 29
    .... The Company has a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and natural gas liquids ("NGLs") from shale gas including a new, on-purpose propylene production facility in Freeport, Texas, which commenced operations in December 2015...

  • Page 30
    ... Company'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 consolidated financial...

  • Page 31
    ... or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. Chemical Safety: Increased concerns regarding the safe use of chemicals in commerce and...

  • Page 32
    ... operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations. The Company has also announced a number of portfolio management actions as part of Dow...

  • Page 33
    PART I, Item 1B. Unresolved Staff Comments. UNRESOLVED STAFF COMMENTS None. The Dow Chemical Company and Subsidiaries 23

  • Page 34
    ... Performance Plastics x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x Including the major production sites, the Company has plants and holdings in the following geographic areas: Asia Pacific: Canada: Europe, Middle East, Africa...

  • Page 35
    ...Asbestos-Related Matters of Union Carbide Corporation in Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 15 to the Consolidated Financial Statements. Environmental Matters In a meeting on July 22, 2015, Rohm and Haas Company and Rohm and Haas Chemicals...

  • Page 36
    PART I, Item 4. Mine Safety Disclosures. MINE SAFETY DISCLOSURES Not applicable. The Dow Chemical Company and Subsidiaries 26

  • Page 37
    ... SECURITIES 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...

  • Page 38
    ... DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. As a result of this pending transaction, the Company will not repurchase shares under the share repurchase program until after the shareholder vote...

  • Page 39
    ... Cash dividends declared per share of common stock $ 1.72 $ 1.53 $ 1.28 $ 1.21 Book value per share of common stock $ 23.06 $ 19.71 $ 22.59 $ 17.73 Year-end Financial Position Total assets (1) $ 68,026 $ 68,687 $ 69,402 $ 69,492 Long-term debt (1) $ 16,215 $ 18,741 $ 16,732 $ 19,819 Financial Ratios...

  • Page 40
    ...of Operations. The Dow Chemical Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Table of Contents 2015 Overview Results of Operations Segment Results Sales Volume and Price Charts Agricultural Sciences Consumer Solutions Infrastructure...

  • Page 41
    ...chlorine value chain and initiating the restructure of the Company's joint ventures. Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Sales decreased in all operating segments and geographic areas. Volume increased...

  • Page 42
    ... to develop breakthrough product innovations, positively impact the lives of one billion people and deliver $1 billion in cost savings or new cash flow for the Company by valuing nature in business decisions. On April 28, 2015, Dow's Polyurethanes business announced the successful start-up of a new...

  • Page 43
    ... & Technology Park with the construction of a new Dow Middle East Research and Development Center. Working Mother magazine named Dow to the 2015 Working Mother 100 Best Companies list. Dow was named to the Dow Jones Sustainability Index - the 15th time the Company has received this recognition since...

  • Page 44
    ...(reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic Materials business (reflected in Consumer Solutions). See Notes 12 and 15 to the Consolidated Financial Statements for additional information regarding these items. Gross margin in 2013 was...

  • Page 45
    ... of total production costs and operating expenses of Dow. More information about each of these components can be found in other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes to the Consolidated Financial Statements. Production Costs and...

  • Page 46
    ...in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted. In 2014, the Company performed qualitative testing for 9 of the 14 reporting...

  • Page 47
    ... Solutions). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all remaining polycrystalline silicon assets might be impaired. Dow Corning's estimates of future undiscounted cash flows indicated the polycrystalline silicon asset group...

  • Page 48
    ... totaled $946 million in 2015, $983 million in 2014 and $1,101 million in 2013. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the Consolidated Financial Statements for additional information related to debt...

  • Page 49
    Preferred Stock Dividends Preferred stock dividends of $340 million were recognized in 2015, 2014 and 2013. These dividends related to the Company's Cumulative Convertible Perpetual Preferred Stock, Series A. See Note 22 to the Consolidated Financial Statements for additional information. Net Income...

  • Page 50
    ... of diluted earnings per share (reported U.S. GAAP amount). (6) The Company used "Net Income Attributable to The Dow Chemical Company" when calculating diluted earnings per share (reported U.S. GAAP amount) for the years ended December 31, 2015 and 2013, as it excludes preferred dividends of $340...

  • Page 51
    ... of performance. Due to the completion of several acquisitions and divestitures (see Notes 4 and 5 to the Consolidated Financial Statements), the change in sales volume from 2014 to 2015, 2013 to 2014 and 2012 to 2013 excluding acquisitions and divestitures is also provided by operating segment...

  • Page 52
    ... (15) (21) 2 Chemicals Performance Plastics 5 (23) (18) - Total 1 % (17)% (16)% 2% Geographic Areas: United States - % (14)% (14)% 2% Europe, Middle East, Africa and - (22) (22) 3 India Rest of World 1 (13) (12) (1) Total 1 % (17)% (16)% 2% Sales Volume and Price by Operating Segment and Geographic...

  • Page 53
    ...and markets products for use in agricultural, industrial and commercial pest management, and food service. Agricultural Sciences consists of two businesses - Crop Protection and Seeds. On January 30, 2015, DAS acquired Coodetec's seed business. See Note 4 to the Consolidated Financial Statements for...

  • Page 54
    ...Consumer Care, Dow Automotive Systems and Dow Electronic Materials - and includes a portion of the Company's share of the results of Dow Corning, a joint venture of the Company. Consumer Care includes Dow Home, Institutional & Personal Care Solutions; Dow Pharma and Food Solutions; and SAFECHEM. Dow...

  • Page 55
    ...the following businesses: Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, and Performance Monomers; and includes a portion of the Company's share of the results of Dow Corning, a joint venture of the Company. Infrastructure Solutions In millions Sales Price change from...

  • Page 56
    ...except North America, and all businesses, except Energy & Water Solutions. Dow Building & Construction reported volume growth in EMEAI and North America, as demand continued to be strong for innovative product offerings, primarily in construction chemicals. Dow Coating Materials volume increased due...

  • Page 57
    ... business and the split-off of the chlorine value chain. Excluding these divestitures, volume increased 1 percent. Volume increased in Polyurethanes driven by increased demand, lower raw material costs and growth in energy efficiency, consumer and industrial market sectors in North America...

  • Page 58
    ... the Performance Plastics segment through the date of divestiture. See Note 5 to the Consolidated Financial Statements for additional information on these divestitures. Sales for the Energy business are primarily opportunistic merchant sales driven by market conditions and sales to customers located...

  • Page 59
    ...2014 as growth in North America was offset by volume declines in EMEAI and Latin America. Volume declined in the Energy business due to reduced sales in North America which more than offset increased volume from new supply agreements with Olin as a result of the split-off of the chlorine value chain...

  • Page 60
    ...depending on changes in input costs, global GDP growth and global operating rates. Volume in the Hydrocarbons and Energy businesses is expected to increase due to new supply agreements with Olin as a result of the split-off of the chlorine value chain. Volume is expected to increase in Dow Packaging...

  • Page 61
    ..., EBITDA improved in 2015 as gains related to Ventures and asset sales more than offset an increase in performancebased compensation costs. See Notes 3, 6, 13, 15 and 17 to the Consolidated Financial Statements for additional information on these matters. 2014 Versus 2013 Sales for Corporate were...

  • Page 62
    ... of the chlorine value chain as these businesses traditionally had lower than average days-sales-in-inventory. Cash Flows from Investing Activities Cash used in investing activities in 2015 was primarily for capital expenditures; purchases of investments, including the repayment of outstanding loans...

  • Page 63
    ... to the Consolidated Financial Statements for capital expenditures by operating segment. Cash Flows from Financing Activities Cash used in financing activities in 2015 included dividends paid to stockholders, $1.2 billion in purchases of treasury stock, and payments on long-term debt, including the...

  • Page 64
    ...by operating activities. The generation of cash from operations and the Company's ability to access capital markets is expected to meet the Company's cash requirements for working capital, capital expenditures, debt maturities, dividend payments, share repurchases, contributions to pension plans and...

  • Page 65
    ...-off of the Company's chlorine value chain, the sale of the Company's interest in MEGlobal and other business divestitures. See Notes 5 and 6 to the Consolidated Financial Statements for further information on the split-off of the Company's chlorine value chain and other divestitures. Total Debt at...

  • Page 66
    ... 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program, with the repurchase of the Company's common stock timed to proceeds received from portfolio management actions and increases in operating cash flows. As a result of these actions, the total authorized...

  • Page 67
    ... million to its pension plans in 2016. See Note 18 to the Consolidated Financial Statements for additional information concerning the Company's pension plans. Restructuring The activities related to the 2015 restructuring program are expected to result in additional cash expenditures of $153 million...

  • Page 68
    ... U.S. and increasingly from China. The Company believes low energy prices are a net benefit and will help overcome negative investment sentiment in other sectors. Dow has the portfolio that serves these consumer-driven markets, and the Company remains committed to flawless operational and commercial...

  • Page 69
    ...limited to, GDP 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 at the reporting unit level include, but are not limited to, changes in industry and market...

  • Page 70
    ...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, 2015 and 2014, Dow's market capitalization...

  • Page 71
    ... at December 31, 2015, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 18 to the Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the...

  • Page 72
    ... tax planning strategies and forecasted taxable income using historical and projected future operating results. At December 31, 2015, the Company had deferred tax assets for tax loss and tax credit carryforwards of $1,647 million, $197 million of which is subject to expiration in the years 2016-2020...

  • Page 73
    ... 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 2015. Dow's injury/illness rates and process safety performance were excellent in 2015...

  • Page 74
    ... similar, including increased cost of purchased energy, additional capital costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes), which are primarily related to energy use. It is...

  • Page 75
    ... 31, 2014). 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...

  • Page 76
    ... Company's results of operations, financial condition and cash flows. The amounts charged to income on a pretax basis related to environmental remediation totaled $218 million in 2015, $227 million in 2014 and $203 million in 2013. The amounts charged to income on a pretax basis related to operating...

  • Page 77
    ... to the Consolidated Financial Statements. K-Dow Arbitration In February 2009, the Company initiated arbitration proceedings against Petrochemical Industries Company (K.S.C.) ("PIC") alleging that PIC breached the Joint Venture Formation Agreement related to the establishment of K-Dow, a proposed 50...

  • Page 78
    ... 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 other...

  • Page 79
    ... such consolidated financial statements present fairly, in all material respects, the financial position of The Dow Chemical Company and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31...

  • Page 80
    ... - diluted Dividends declared per share of common stock Weighted-average common shares outstanding - basic Weighted-average common shares outstanding - diluted See Notes to the Consolidated Financial Statements. (In millions, except per share amounts) For the years ended December 31 $ $ 2015 48...

  • Page 81
    ...) For the years ended December 31 The Dow Chemical Company and Subsidiaries Net Income Other Comprehensive Income (Loss), Net of Tax Net change in unrealized gains on investments Translation adjustments Adjustments to pension and other postretirement benefit plans Net losses on cash flow hedging...

  • Page 82
    ... loss Unearned ESOP shares Treasury stock at cost (2015: 125,853,161 shares; 2014: 85,168,571 shares) The Dow Chemical Company's stockholders' equity Non-redeemable noncontrolling interests Total equity Total Liabilities and Equity See Notes to the Consolidated Financial Statements. $ $ $ $ $ 72

  • Page 83
    ...of noncontrolling interests Dividends paid to stockholders Cash used in financing activities Effect of Exchange Rate Changes on Cash Summary Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ 73 2015 7,783 2,521...

  • Page 84
    ... Balance at end of year Treasury Stock Balance at beginning of year Purchases Issuances - compensation plans Balance at end of year The Dow Chemical Company's Stockholders' Equity Non-redeemable Noncontrolling Interests Total Equity See Notes to the Consolidated Financial Statements. 2015 $ 4,000...

  • Page 85
    ... Geographic Areas Planned Merger with DuPont Planned Restructure of Dow Corning NOTE 1 - 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" or the...

  • Page 86
    ... financial instruments (such as forwards, options 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 foreign currency exchange rates, commodity...

  • Page 87
    ... a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less. Investments Investments in debt and marketable equity...

  • Page 88
    ... a direct deduction from the carrying value of the associated debt liability, and amortization of those costs should be reported as interest expense. This ASU is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted for financial statements that...

  • Page 89
    ... fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new...

  • Page 90
    ... record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance. NOTE 3 - RESTRUCTURING On April 29, 2015, Dow's Board of Directors...

  • Page 91
    ... Co., Ltd., a majority-owned joint venture located in Cheonan, South Korea. In the second quarter of 2015, the Company recorded a $51 million charge for asset write-downs and write-offs in the Dow Electronic Materials business, which is reflected in the Consumer Solutions segment. The facilities and...

  • Page 92
    ... Total Assets Acquired Fair Value of Liabilities Assumed Accrued and other current liabilities Goodwill In millions $ $ $ $ $ 169 24 35 81 140 2 31 (1) Includes $14 million of trademarks, $1 million of customer-related intangibles, $20 million of germplasm and $46 million of in-process research...

  • Page 93
    ... & Chemicals segment, to Vertellus Performance Chemicals LLC. The divestiture included a manufacturing facility located in Elma, Washington, as well as the associated business, inventory, customer contracts and lists, process technology, business know-how and certain intellectual property. The sale...

  • Page 94
    ...February 2, 2015, the Company sold ANGUS Chemical Company ("ANGUS"), part of the Performance Materials & Chemicals segment, to Golden Gate Capital. The divestiture included the business headquarters and research and development facility in Buffalo Grove, Illinois; manufacturing facilities located in...

  • Page 95
    ..." in the consolidated statements of cash flows. Divestiture of Polypropylene Licensing and Catalysts Business On December 2, 2013, the Company sold its global Polypropylene Licensing and Catalysts business to W. R. Grace & Co. for $490 million, net of working capital adjustments and costs to sell...

  • Page 96
    ...common stock outstanding. As a result of this non-cash share exchange offer, the Company recorded an increase of $1,523 million in "Treasury stock at cost" in the consolidated balance sheets, which is valued based on Dow's opening stock price on October 5, 2015. The Company's outstanding shares were...

  • Page 97
    ... businesses does not represent a strategic shift that will have a major effect on the Company's operations and financial results. However, the chlorine value chain is considered an individually significant component and select income statement information is presented below: Dow Chlorine Value Chain...

  • Page 98
    ... U.S. chemicals and plastics product inventories, represented 30 percent of the total inventories at December 31, 2015 and 29 percent of total inventories at December 31, 2014. A reduction of certain inventories resulted in the liquidation of some of the Company's LIFO inventory layers, increasing...

  • Page 99
    ... Company's share of AFSI's results of operations included in "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income, aligned with the Agricultural Sciences segment. If the Company valued its investment in AFSI based on the December 31, 2015, closing stock price...

  • Page 100
    ... of Dow Corning, currently a 50:50 joint venture between Dow and Corning Incorporated ("Corning"). Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016. (2) The Kuwait Styrene Company K.S.C. was...

  • Page 101
    ...of total net sales in 2013). Sales of ethylene glycol to MEGlobal are reflected in the Performance Materials & Chemicals segment and represented 2 percent of the segment's sales in 2015 (2 percent in 2014 and 2 percent in 2013). Sales of ethylene to MEGlobal are reflected in the Performance Plastics...

  • Page 102
    ...limited to, GDP 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 at the reporting unit level include, but are not limited to, changes in industry and market...

  • Page 103
    ... (1) In-process research and development ("IPR&D") purchased in a business combination. On January 30, 2015, DAS acquired Coodetec's seed business resulting in an increase to intangible assets of $81 million, which included $14 million of trademarks, $1 million of customer-related intangibles, $20...

  • Page 104
    ... to customer-related, trademarks and intellectual property intangible assets in the Dow Electronic Materials business, which is recorded in "Goodwill and other intangible asset impairment losses" in the consolidated statements of income and reflected in Consumer Solutions. During 2013, the Company...

  • Page 105
    .... Presented net of cash collateral, as disclosed in Note 12. Cost approximates fair value for all other financial instruments. Investments The Company's investments in marketable securities are primarily classified as available-for-sale securities. The following table provides the investing results...

  • Page 106
    ... also has holdings in Exchange Traded Funds that represent emerging markets. The Company considers the evidence to support the recovery of the cost basis of a security including volatility of the stock, the length of time the security has been in a loss position, value and growth expectations, and...

  • Page 107
    ... the net cash requirements arising from counterparty risk associated with risk management activities are not expected to be material in 2016. The Company revises its strategies as market conditions dictate and management reviews its overall financial strategies and the impacts from using derivatives...

  • Page 108
    ..., 2014 and 2013, there was no material impact on the consolidated financial statements due to commodity hedge ineffectiveness. At December 31, 2015 and 2014, the Company had the following gross aggregate notionals of outstanding commodity forward, options and futures contracts to hedge forecasted...

  • Page 109
    ... dates to buy, sell or exchange foreign currencies with a gross notional U.S. dollar equivalent of $14,515 million at December 31, 2015 ($20,156 million at December 31, 2014) and had no open interest rate swaps at December 31, 2015 and December 31, 2014. The following table provides the fair value...

  • Page 110
    ... 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 $ $ $ $ $ $ $ $ $ $ $ $ - (14) (52) (66) $ (1) Cash collateral amounts represent the estimated...

  • Page 111
    ...cash collateral at December 31, 2014). 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 112
    ... written down to $7 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets. In addition, a change in the Company's strategy to monetize and exit certain Venture Capital portfolio investments resulted in the write-down...

  • Page 113
    ..., including assumptions a market participant would use to measure the fair value of the group of assets, which included projected cash flows. 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...

  • Page 114
    ... balance sheets. $ $ 2015 850 $ 58 792 $ 2014 869 767 102 During the fourth quarter of 2015, the Company repaid $697 million of principal outstanding loan amounts plus accrued interest, which is reflected in "Purchases of investments" in the consolidated statements of cash flows. 104

  • Page 115
    ... tables provide the earnings per share calculations for the years ended December 31, 2015, 2014 and 2013: Net Income for Earnings Per Share Calculations - Basic In millions Net income attributable to The Dow Chemical Company Preferred stock dividends Net income attributable to participating...

  • Page 116
    ..., 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 the Company's management, however, that the possibility is...

  • Page 117
    ... million). Environmental Matters Summary It is the opinion of the Company's management that the possibility is remote that costs in excess of those disclosed will have a material impact on the Company's results of operations, financial condition or cash flows. Litigation Asbestos-Related Matters of...

  • Page 118
    ... 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 then, Union Carbide has compared current asbestos claim and resolution activity to the results...

  • Page 119
    ... of Union Carbide's asbestos-related claims, including future defense costs, could have a material impact on Union Carbide's results of operations and cash flows for a particular period and on the consolidated financial position of Union Carbide. It is the opinion of Dow's management that it is...

  • Page 120
    ...advised that this means that the Supreme Court is withholding further consideration of the Company's Writ Petition while it considers the Tyson Foods case on the merits. As a result, the Company does not expect any further action on its Writ Petition until sometime in 2016. The Company believes that...

  • Page 121
    ..., of certain contingencies described above. It is the opinion of the Company's management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company. 111

  • Page 122
    ... to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to six years, and trade financing transactions in Latin America, which typically expire within one year of inception. The Company's current expectation is that future payment or performance related to...

  • Page 123
    ... quarter of 2014, the Company recorded a pretax charge of $100 million for a warranty accrual adjustment related to an exited business. The charge was included in "Cost of sales" in the consolidated statements of income and reflected in Infrastructure Solutions. Asset Retirement Obligations Dow has...

  • Page 124
    ... on the Company's consolidated financial statements based on current costs. K-Dow Arbitration In February 2009, the Company initiated arbitration proceedings against Petrochemical Industries Company (K.S.C.) ("PIC") alleging that PIC breached the Joint Venture Formation Agreement related to the...

  • Page 125
    ...18 $ 22,951 $ 1,034 $ 2014 98 $ 26,479 $ 1,079 $ 2013 34 25,864 1,028 (1) Presented in "Operating Activities" in the consolidated statements of cash flows. Following is additional information related to the sale of receivables under these facilities: Trade Accounts Receivable Sold at December 31...

  • Page 126
    ...and other lenders Notes payable to related companies Notes payable trade Total notes payable Year-end average interest rates Long-Term Debt at December 31 In millions $ $ 2015 277 $ 171 6 454 $ 4.00% 2015 Average Rate 2014 353 189 9 551 4.08% 2014 Average Rate 2.74% $ 2.52% 5.66% 5.44% 8.41% 4.37...

  • Page 127
    ... maturities in 2019, 2021 and 2024, at various interest rates averaging 2.94 percent. The Company also repaid $346 million of long-term debt related to the purchase of an ethylene production facility (see Note 20 for additional information), redeemed $124 million of tax-exempt bonds at maturity...

  • Page 128
    ... was amended or replaced in 2015 to extend its maturity date and incorporate substantially similar terms and conditions to the new Five Year Competitive Advance and Revolving Credit Facility. Debt Covenants and Default Provisions The Company's outstanding long-term debt has been issued under...

  • Page 129
    ...31 2015 2014 2013 4.40% 4.04% 4.92% 4.50% 4.50% 4.50% - - - Net Periodic Costs for the Year 2015 2014 4.04% 4.92% 4.50% 4.50% 7.85% 7.82% 2013 4.02% 4.50% 7.85% The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market...

  • Page 130
    ... these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change these benefits at any time. Employees hired...

  • Page 131
    ... cost for the year by $1 million. Net Periodic Benefit Cost for All Significant Plans Defined Benefit Pension Plans In millions 2015 2014 2013 Service cost $ 484 $ 411 $ 471 $ Interest cost 975 1,096 1,012 Expected return on plan assets (1,382) (1,322) (1,248) Amortization of prior service cost...

  • Page 132
    ... service credit" lines. On October 5, 2015 ("Closing Date"), (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company...

  • Page 133
    ... return strategies. At December 31, 2015, plan assets totaled $18.8 billion and included no Company common stock. At December 31, 2014, plan assets totaled $19.6 billion and included no Company common stock. Investment Strategy and Risk Management for Plan Assets The Company's investment strategy...

  • Page 134
    ... the years ended December 31, 2015 and 2014: Basis of Fair Value Measurements of Pension Plan Assets at December 31, 2015 In millions Cash and cash equivalents Equity securities: U.S. equity (1) Non-U.S. equity - developed countries Emerging markets Convertible bonds Equity derivatives Total equity...

  • Page 135
    ... 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 for...

  • Page 136
    ... available, audited financial statements are obtained and reviewed for the investments as support for the manager's investment valuation. The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 2014 and 2015: Fair Value Measurement of...

  • Page 137
    ... loss is reflected in the Performance Materials & Chemicals segment. See Note 6 for additional information on this Transaction. The Company held a 49 percent equity interest in a joint venture that managed the growth, harvest and conditioning of soybean seed and grain, corn and wheat in the United...

  • Page 138
    ... $346 million as "Payments on long-term debt" and $60 million as "Purchases of noncontrolling interests" in the consolidated statements of cash flows. The Company's consolidated financial statements include the assets, liabilities and results of operations of variable interest entities ("VIEs") for...

  • Page 139
    ... weighted-average of U.S. Treasury strip rates over the contractual term of the options. The expected life of stock options granted was based on an analysis of historical exercise patterns. Employee Stock Purchase Plan On February 9, 2012, the Board of Directors authorized The Dow Chemical Company...

  • Page 140
    ... The Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by stockholders at the Company's annual meeting on May 10, 2012 ("Original Effective Date") and became effective on that date. On February 13, 2014, the Board of Directors adopted The Dow Chemical Company...

  • Page 141
    ...market price at exercise and the price paid by the employee to exercise the options. Total unrecognized compensation cost related to unvested stock option awards of $20 million at December 31, 2015 is expected to be recognized over a weighted-average period of 0.74 years. Deferred Stock The Company...

  • Page 142
    ... in the reporting year, equal to the value of the stock award on the date of delivery. Total unrecognized compensation cost related to performance deferred stock awards of $83 million at December 31, 2015 is expected to be recognized over a weighted-average period of 0.81 years. At December...

  • Page 143
    ...at December 31, 2015 and $2,703 million at December 31, 2014. Employee Stock Ownership Plan The Company has the Dow Employee Stock Ownership Plan (the "ESOP"), which is an integral part of The Dow Chemical Company Employees' Savings Plan (the "Plan"). A significant majority of full-time employees in...

  • Page 144
    ... 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program, with the repurchase of the Company's common stock timed to proceeds received from portfolio management actions and increases in operating cash flows. As a result of these actions, the total authorized...

  • Page 145
    ... gain related to the sale of Dow's Polypropylene Licensing and Catalysts business. Provision for Income Taxes In millions Federal (1) State and local Foreign Total Current $ 583 38 1,221 $ 1,842 2015 Deferred Total $ 358 $ 941 (8) 30 (45) 1,176 $ 305 $ 2,147 2014 Current Deferred Total $ (161...

  • Page 146
    ... to conform to current year presentation. Gross operating loss carryforwards amounted to $10,364 million at December 31, 2015 and $11,080 million at December 31, 2014. At December 31, 2015, $1,655 million of the operating loss carryforwards were subject to expiration in 2016 through 2020. The...

  • Page 147
    ... returns filed in 2015 for years 2006 and 2009. The Company is currently under examination in a number of tax jurisdictions. It is reasonably possible that some of these examinations may be resolved within twelve months. As a result, it is reasonably possible that the total gross unrecognized...

  • Page 148
    ... Accumulated Derivative Gain (Loss) at beginning of year Net hedging results (net of tax of $(79), $(25), $5) Reclassification to earnings - Cost of sales (net of tax of $9, $2, $(8)) (1) Balance at end of period Total accumulated other comprehensive loss In millions $ 2015 141 $ (40) (49) (5) 47...

  • Page 149
    ...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; pharmaceutical; processed foods...

  • Page 150
    ... needs of market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The Consumer Solutions segment also includes a portion of the Company's share of the results of Dow Corning, a joint venture that manufactures silicone...

  • Page 151
    ... joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense costs and reserve adjustments); and, foreign exchange results. The Company operates 179 manufacturing sites...

  • Page 152
    ...7,059 88 189 319 Includes revenues generated by transfers of product to Agricultural Sciences from other segments, generally at market-based prices. Other transfers of products between operating segments are generally valued at cost. See Note 12 for information regarding intangible asset impairment...

  • Page 153
    ... exchange ratio and appropriate adjustments to reflect the consummation of the Mergers. After the Effective Time, HoldCo Common Stock will be listed on the New York Stock Exchange ("NYSE"). The Company expects the Mergers to close in the second half of 2016, subject to customary closing conditions...

  • Page 154
    NOTE 28 - PLANNED RESTRUCTURE OF DOW CORNING On December 10, 2015, the Company entered into a definitive agreement with Corning to restructure the ownership of Dow Corning, a 50:50 joint venture between Dow and Corning. Under the terms of the agreement, Corning will exchange with Dow Corning its 50 ...

  • Page 155
    ...) 2015 Net sales Cost of sales Gross margin Restructuring charges Net income Net income available for common stockholders Earnings per common share - basic (1) Earnings per common share - diluted (1) (2) Dividends declared per share of common stock Market price range of common stock: (3) High Low...

  • Page 156
    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 146

  • Page 157
    ...is included in Part II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP's report on the Company's internal control over financial reporting is referenced therein and included herein. February 12, 2016 The Dow Chemical Company and Subsidiaries /s/ ANDREW N. LIVERIS Andrew...

  • Page 158
    ... Board of Directors and Stockholders of The Dow Chemical Company: We have audited the internal control over financial reporting of The Dow Chemical Company and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued...

  • Page 159
    The Dow Chemical Company and Subsidiaries PART II, Item 9B. Other Information. OTHER INFORMATION None. 149

  • Page 160
    ... by reference. Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of Dow common stock is contained in the definitive Proxy Statement for the Annual Meeting of Stockholders of The Dow Chemical Company to be on held May 12, 2016, and is...

  • Page 161
    ... of Exhibit 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's Consent. Certification...

  • Page 162
    ... relate to the Company's sale of trade accounts receivable. Anticipated credit losses in the portfolio of receivables sold are used to fair value the Company's interests held in trade accounts receivable conduits. See Notes 12 and 16 to the Consolidated Financial Statements for further information...

  • Page 163
    ..., thereunto duly authorized. THE DOW CHEMICAL COMPANY By Date /s/ R. C. EDMONDS R. C. Edmonds, Vice President and Controller February 11, 2016 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 164
    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: ACOUSTICRYL, ACRYSOL, ADSORBSIA, AFFINITY, AMBERJET, AMBERLYST, AQUASET, AQUCAR, AVANSE, BETAMATE, BIOBAN...

  • Page 165
    ...Saudi Arabian Oil Company, Dow Europe Holding B.V. and The Dow Chemical Company, incorporated by reference to Exhibit 99.1 to The Dow Chemical Company Current Report on Form 8-K filed on February 14, 2013. Agreement and Plan of Merger, dated as of March 26, 2015, among The Dow Chemical Company, Blue...

  • Page 166
    ...' Supplemental Retirement Plan, effective as of July 19, 2013, incorporated by reference to Exhibit 10(a)(ii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2013. Support Agreement, dated November 20, 2014, by and among The Dow Chemical Company and Third Point...

  • Page 167
    ... Company Current Report on Form 8-K filed on February 13, 2014. 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...

  • Page 168
    ... The Performance Shares Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2009, incorporated by reference to Exhibit 10(x) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December...

  • Page 169
    ...Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on May 20, 2014. Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements. Code of Ethics for Principal Executive Officer, Principal Financial Officer and Principal...

  • Page 170
    ...Dow Chemical Company Current Report on Form 8-K filed on April 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... Document. XBRL Taxonomy Extension Presentation Linkbase Document. 160

  • Page 171
    ... stock dividends Adjustment to pretax basis (at 35 percent) Preferred stock dividends - pretax Combined fixed charges and preferred stock dividend requirements Ratio of earnings to combined fixed charges and preferred stock dividend requirements $ For the Years Ended December 31 2015 2014 2013...

  • Page 172
    ... with respect to the period covered by this report; 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 173
    ... with respect to the period covered by this report; 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 174
    ... Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 2. /s/ ANDREW N. LIVERIS Andrew N. Liveris Chief Executive Officer and Chairman of the Board February 12, 2016...

  • Page 175
    ... Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 2. /s/ HOWARD I. UNGERLEIDER Howard I. Ungerleider Vice Chairman and Chief Financial Officer February 12, 2016...

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  • Page 182
    ... officers, including a description of their direct interests, by security holdings or otherwise, is contained in DuPont's Form 10-K for the year ended December 31, 2015, its proxy statement filed on March 23, 2015 and the joint proxy statement/prospectus of DuPont contained in the Form S-4, which...

  • Page 183
    ..., future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company's operations and other conditions to...

  • Page 184
    ... Joint venture actions Gain on split-off of chlorine value chain Gain on sale of MEGlobal Gain on 2015 business divestitures Gain on Univation step acquisition Costs associated with portfolio and productivity actions Impact of Argentine peso devaluation Loss on early extinguishment of debt Total...

  • Page 185
    ... - Preferred stock dividends Net Income Available for The Dow Chemical Company Common Stockholders 2015 $ 13,326 2,521 71 946 $ 9,930 2,147 98 340 $ 7,345 $ $ $ 2014 8,944 2,747 51 983 5,265 1,426 67 340 3,432 Operating EBITDA Calculation In millions (Unaudited) TWELVE MONTHS ENDED DECEMBER 31...

  • Page 186
    ... show the value of that investment over time until December 31, 2015, 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 250 250...

  • Page 187
    ... (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...

  • Page 188
    [email protected] www.dow.com/en-us/investor-relations Form No. 161-00820 ®™ The DOW Diamond Logo and the Solutionism name and design are trademarks of The Dow Chemical Company. ©2016 â„¢ ACRYSOL, BETAMATE, DOW ENDURANCE, PACXPERT, PURINZE and SOLDERON are trademarks of The Dow Chemical Company ("Dow...