Dow Chemical 2015 Annual Report Download - page 99

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NOTE 9 – NONCONSOLIDATED AFFILIATES AND RELATED COMPANY TRANSACTIONS
The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”) were
$3,810 million at December 31, 2015, of which $3,958 million is classified as "Investment in nonconsolidated affiliates" and
$148 million is classified as "Other noncurrent obligations" in the consolidated balance sheets, and $4,201 million at
December 31, 2014, classified as "Investment in nonconsolidated affiliates." At December 31, 2015, the carrying amount of the
Company’s investments in nonconsolidated affiliates was $97 million more than its share of the investees’ net assets, exclusive
of additional differences for Dow Corning Corporation (“Dow Corning”) and EQUATE Petrochemical Company K.S.C.
("EQUATE"), which are discussed separately below. At December 31, 2014, the carrying amount of the Company’s
investments in nonconsolidated affiliates was $56 million more than 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 $816 million in 2015, $961 million in 2014 (including accrued dividends of $5 million) and $905 million in 2013.
At December 31, 2015, the Company’s investment in Dow Corning was $149 million less than the Company’s proportionate
share of Dow Corning’s underlying net assets ($149 million less at December 31, 2014). This amount is considered a
permanent difference related to the other-than-temporary decline in the Company's investment in Dow Corning, triggered by
Dow Corning's May 15, 1995, bankruptcy filing, and Dow Corning's purchase of additional ownership interests in its Hemlock
Semiconductor Group entities in 2013. Dow Corning emerged from bankruptcy in 2004.
On December 23, 2015, the Company sold its interest in MEGlobal to EQUATE. The Company eliminated 42.5 percent of the
gain on the sale (equivalent to Dow's ownership interest in EQUATE), or $555 million, against the Company's investment in
EQUATE, resulting in a negative investment of $148 million at December 31, 2015, which is classified as "Other noncurrent
obligations" in the consolidated balance sheets. The Company's investment in EQUATE was $555 million less than the
Company's proportionate share of EQUATE's underlying net assets, which represents the difference between the preliminary
fair values of certain MEGlobal assets acquired and the Company's related valuation on a U.S. GAAP basis, of which
approximately $250 million is being amortized over the remaining useful lives of the assets and approximately $305 million is
considered a permanent difference. Final determination of the fair value of MEGlobal assets acquired by EQUATE may result
in adjustments to the preliminary values assigned at the date of acquisition, and could impact the difference between the
Company's investment in EQUATE and its proportionate share of EQUATE's assets and the amount of the difference assigned
to goodwill and assets to be amortized.
At December 31, 2014, the Company’s investment in MEGlobal was $177 million less than the Company’s proportionate share
of MEGlobal’s underlying net assets. This amount represented the difference between the value of certain assets of the joint
venture and the Company’s related valuation on a U.S. GAAP basis, of which $41 million was being amortized over the
remaining useful lives of the assets and $136 million was considered to be a permanent difference. In the fourth quarter of
2014, MEGlobal purchased the noncontrolling interest of a subsidiary, which resulted in a $3 million reduction in the
permanent difference.
On July 31, 2015, the Company sold its AgroFresh business to AFSI. Proceeds received on the divestiture of AgroFresh
included 17.5 million common shares of AFSI, which were valued at $210 million and represent an approximate 35 percent
ownership interest in AFSI. The Company has accounted for its ownership interest in AFSI using the equity method of
accounting with the Company's investment in AFSI classified as "Investment in nonconsolidated affiliates" in the consolidated
balance sheets and the 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 of AFSI, the value of this investment would have been
lower than the carrying value by $80 million. See Note 5 for further information on this transaction.
The Company and Saudi Arabian Oil Company formed Sadara Chemical Company ("Sadara") to build and operate a world-
scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. Sadara achieved its first
polyethylene production in December 2015 and will follow a phased approach to start up the remaining manufacturing
facilities. At December 31, 2014, the Company had a $193 million note receivable with Sadara, included in "Noncurrent
receivables" in the consolidated balance sheets, that was converted to equity in the first quarter of 2015 and reclassified to
"Investment in nonconsolidated affiliates" in the consolidated balance sheets. During 2015, the Company loaned an additional
$753 million to Sadara, of which $280 million has been converted to equity. Approximately $460 million of the outstanding
note receivable is expected to be converted to equity in the first quarter of 2016.
The nonconsolidated affiliates in which the Company has investments, excluding AFSI, are privately held companies;
therefore, quoted market prices are not available.