ML20214C512
| ML20214C512 | |
| Person / Time | |
|---|---|
| Site: | Dow Chemical Company |
| Issue date: | 12/31/1985 |
| From: | Oreffice P DOW CHEMICAL CO. |
| To: | |
| Shared Package | |
| ML20214C494 | List: |
| References | |
| NUDOCS 8611210133 | |
| Download: ML20214C512 (43) | |
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IllGill.lGIITS OF TIII: YEAll
!!)S5 19SI Ni Cliange (in luillions tuiloss otherw ise staleill 1:estaic41 Net salew $ 11 J.:17 $ 11,1 l x !
( )peruting ineoine 6:17 8:16 - 11 Net income ast 560' - !H } Net inroine per sluu e (in clollars ) .:ll t 2.S 9 ' - S9 llis i<lenils paial per share (in dollars) 1.SO 1.SO O Sit >rkluslders' etltlity (;tt ye;1r ellil) 1,792 0.010 - 3 ( ';lpithl PN] >PIH liit t res MOh aS1 4 :) I )ellrerialit ill 977 90S + S I!ese;tirh alHI (le\ ch pl)filent t'N}icittliittles 5 14 30 7
- S Tintal taxes 270 3!Hi :12 Wages, Nllaries alHl lienell!s 2,000 1,9:10 6 Einployees (iii iliiittsariils at 3 c;ir-etut) 3:L2 19.S t 7 I Average shares outstanding 190 191 - 2
'{tre inrics n ilntuolitan t pt inn an o .
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($ in laillinn.s ] (S in uni!!wns t (inrinflarm) 11.5 637 '-
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11.4 836 2.89
!!.0 501 1.68 I 11.9 10.6 862 2 _74 2 82 1.66 y
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p it E SI D I: N T'S 1.E TTI:lt
'Ib Our Stockholders 19S3 - a 3 ear of many accomplishments, a y ear of major frust rations. Ilow can a y ear base so in:my lu aks aint s alleys 1'I,et me explain.
A lot of things went right in '85, but this w as in great pan obseturd by the fact that a harulful of our basic businesses sullered s ery badly. The arithmetic is simple: fisc basic pnnincts of u hich we sell a total of 10 billion pounds per year dropped in pure an as erage of lise cents per pound - that's $300 tuillion of profit down ihe drain.This major
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sluutfall tends to obscure ihe good things that happened. and their are a great many w hich deserve comment.
/# - ()nr safety reconi w as the best in history and one of the best NY of any company in the world in any business.
The phannaceutical business shaqily increased its profitability and had a s ery successfoi I LS. introduction of Schlane, Merrell llow's unique non-sedaling antihistamine.
. (lur consumer products business had a tecont ycar with the 1)ow consumer business and Texim both making imponant contributions.
The urethanes business had a good year and the acquisition of the l'pjohn poly mer chemicals business strengihened its perfo n na nce.
* ()ur relatis ely sinall separation systems business u as erhanced by the acquisition of Fihn'ler. E believe that there is an excellent future in this fiehl.
- Europe had anoiher excellent year and was again the most profitable geogniphic area in the ('ompany.
* (lur emphasis on quality continued to hear fniit, amt we remain detennined to be the best at u hateser ne do.
* ()ur legal department achieved some notable s ictories in 19s3.This is particularly important in view of the ever rising tide oflitigation in the l'nited States.
-()ur IMI) elTort continued to pay ott Dow ins entors received 1,3:lS patents around the worki and applied for 2.hD9 more, both all-tim reconts.
* ()ur linancial people turned in another superb pertonnance mut, m a <tuncult environment.
Inanaged to pnIdure yet another exchange gain. As u e go into 19% we have several important exu nut factors u orking in our favor.
- Starting in the sununer of'S5, the dollar linally began to weaken against major foreign currencies mal this u a impnwe the competitive position ofl'.S. industry interest rates base ho o trending dow nu anl aiul will reduce our interest expense for the f oreseeable future.
The prices for large.sohune plaMies an stemlily improving after a long dow nwant spiral. The cost of our mw tuaterials is stable to down and the supply alipears to he ample. I am not saying that then aren't any clouds on our honzon because there un . But it is good to have some solid. positis e f actors going into a new year. OfIhe potentially negatis e influences.1 wouhl highlight the potential clTects of our litigious society.The tort law s of this country are shan>ly increasing the costs of operating a business in the l'.S., and obtaining satisfactory insurance coverage at a rea.sonable price has become a serious problem. This is one area when I belies e legislation w dl he necessary to bring back some sanity in the litigation explosion. Near the end of the y ear, w e detennined that the lack of recovery in some of our basic businesses required that we take certain write-downs and w rite offs of facilities and that w e ivduce the hital 5tallillg el[ the (iiin}lany. $5 a resu!! ilI this, We UHik a $3!'2 milli <ln wnte dow n aint saw 2,700 employees leas e the ('ompany pnneipally through a voluntary 2
I retiternent iirentive progrant.The result is a h aner cuinpany, better structureti to fiur the
< hallenges of the future.
As u e go to pre.ss,llob Lundeen has announced Ihat he will not stand for reelection as chainnan of the boani since he will reach llow's inalatatory retiivment age in June. The la rani has intlicated that they intend appointing fue to the additional post as chainnan of the boani following the .Tlay stockhohlers meeting. I will retain my responsibilities as president and chief executive oflicer. I ghully accepted this athlitional responsibility, particularly since I will be turning over Ihejobs of president and CE() before the esal of IM7. As Ihat time approaches,I feel \ery good about ihe wcalth of excellent people in I)owi nmks and our ability to have a smooth tnmsition in the top management. In the fall, we launched a inajor public aHitirs ratupaign to itierease publir awareness sif the inany contributions I)ow makes to a better society. We felt that this was necessary. particularly heranse our employees weir constantly telling us. "The media seems to rany only bad things about us. Why alon't we talk mon about the good things we do?' W hope this -1)ow lets you do great things" campaign will surreed in creating a better umler-standing of our m tivities and cont ributions. At a ret ent management inecting, we reaflinne'l the principles that guide your company, atal w( sununarized these in a statement of core values that you can find belou. We live by this code and will work hant to contine" to make y ou proud of being one of the ou ners of this Company. 1%al1:nnpior Prrul< ut <n.J ( his 1 Co cutu e officer 31id!<ont,3fichimin D hrust ry ll,1!IM Dow Core Values Long tenn p:olit growth is essential to ensure the poisperity and well being ofI)ow einployees, stockhohlers and rustomers. Ilow we achies e this obierti\ e is as important as the objectis e itself. Futulamental to our success are the core values we believe in and pnictice. Emplur/ns are the source ofI)ow's success. We treat Ihem uith n spect, pmmote teamwork, and encourage personal freedom arul gniwth. Excellence in perfonnance is sought amt n ew anled. (',tA/signTN 1'ercive titir sinillgest poasil)le Colutllitment h) Incet their lleetts with high qllality pn Hiticl5 alHI 5ttperior ser\ kre. ()ttr /*/Tn/nt'/N alv based till contillnillg excellence and illutivation ill chemistry-related 5cientT5 alltl terll H bh lgy. ()ur ('omin< t demonstrates a deep concern for ethics, citizenship, safety. health and the en\ irt11tilit lit. l
A STl! ATEGIC Diltl CTION FOlt Tile YI? AltS TOW AltD 2000 The Dow ('heinical Conipany is in one of the most dynamic lutimls in its history, for ran ly has the global roinpelitive environment for cheinicals experictice<l sta h tnuisition. Inen ased participalhui by todrocm hon rich comitries is en ating new supply patterns for chemicals alul plast tes anel a reoniering of global competitors. Technological advance-ments are changing historical pn wluction and geographie relationships. ('hange is also creating many new oppot tunities. hidustriali/.alion atul tu banization in less descioped countries now call for chemically related materials aiul processes to pr. nluce linished products and reduce pollution. Increased fowl production is a high priority w ith most nations. Virtually everyw here there are more calls for phannaceuticals of all 'ypes u hile worhlwhle demand for consumer conveniences continues to rise and become more homogeneous. Important to Dow in this en\ ironment is not.ritni.:itnj ginns th ami narintaining irrulership int rertli:ing the best emrreli ng opjnirinnitics. That uas the focal point of the most impor1 ant event in 1985 for the future of The Dow Cheinical Company. In September, Don's operating cominittee convened a cross section of Iwy Inanagers to review t he ('4 pmpan)'5 filf ulainental st rategic di!Wtid en alul a(hlress plantlitig refinements fleetled 11)"Unal>le 1)oW tt) reach the end of this retittliy as a gn"it, RIs tu ing alul pn ditable colHpany7 as I h)w presidelli alul chief executive ollicer Paul F ()rellice said to attemlees. llcre is a synopsis of their discussions and operating conunittee Olintnents on cat'h inajiir eleinellt. Emphasis on To attain superior grow th in earnings per share mul return on equity,1)ow's strategic Specialties objective will continue to be: to grow atul diversify through emphasis on speciahy chemicals aiul services u hile Inaintaining great strength in basic chemicals mul plastics. The Cornpany will concentrate on products and services in chemistry-related technologies. Six major priorities will be applied to each business:
. continuous improvement in the quality of1)ow products ami serTices:
. maintenance or the earning power of existing strong assets. Divestiture aiul de-emphasis of some products aiul businesses will occur w here necessary:
*O ttilintu. tis redlictit >n (if nists lhn Rlgli ellicielley alul gt H ul nlattagelnellt;
. selective arquisitions as an mhled basis for further growth aiul diversification:
*cffecti\e administrati(>n. u ith a focll5 on UnHluctivity, luft I41reaticnicy;
- N1fety in every as]H'ct antl ptliteetitan (if the environment.
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.111 are members (iku's Hanter W llenni. llolucrt M Kril. c r vruto re K< ith R.1b Kerorna.
hoa ni of'<lin vtur s. v.rrentire vi< v presiah n t vier prnirient responsi- finn,p ris e po sident arol a mi pi cs. den t, l k nr Mc_ lor the t 'omturny;\ dirrrtor ot o m arch I 'S . t.. n mj u un vMe_tu r n wrornal avlivitin as a nd der e I spment. He is ihr's laryjest operatimi a n 11 as its ojb>bal agri also respamsible for ison's area; rultural chemicals awl b q<d oh por twent ame a vusa mer prodm is q~ro rument ront pahlir basino su s att<o ry
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Business Priority: We will continue to strive to optimize pn>fitability in Dow's basic chemicals, ba.sie plastics, Itefine and Itebalance iruhistrial specialties anal consumer specialties segments. Ihtsic chemicals arul basic plastics will receive n sources consistent with their ability to contribute to the Company's pnifit. Especially, Dow's technological lea <lership will be I maintaineal in those businesses. Decisions to acht significant new capacity in this segment will be base <1 on market re<luitrments rather than on perceived futunulemand. At the s:une time, we will continue to apply n sources to industrial ami consumer specialty products that generate high rrturns fnim our investments.
-ILisie chemicals aiul basic plastics represent an inihspensable base for dis ersifying into a wale range of dou nst m;un pnulurt opportunities. Tin steps neTe taken in the last few years to rebalance caprity re<piirernents in basic cheniirals lun e helped greatly to assure its rash genciating abihty. Those ariions w ere entical lo maintainmu this segment's support roh for dn ersific:Hion. ('omlitions < hange of course. And shouhl lhe need arise to hirther reduce capacities in t hese segments. we'n preivrnt to pniceed appnipriatt ly. Ilow must reinain among the lowest cost manufariun rs in all products of strategic importance" '
-Those prmhirts in ! >ou's industrial special t ies segment that w ill contrihum to future profitability desen e full support. Ilut < learly, we need to regularly re es ahiate t he contiibunon of indis iihial pnnlucts. Some have not show n acceptable gn m th Some inay us er time become a pool lit w ith our struegic duertion. ( Jur torus shouhl be on teshapmg our ronunercial aciis ity in Ihese proi mis to num closely inatch new opportunifics. As a result, prolits w ill be restored to prei u ms imels t hen imprm e fort her. since they'll hate a nun h stronger f oundation:
"(;rowIh in lion 's agricultural chenurals. Inunan brahh and househohl pnnha is businesses shoubt be nurtured with the full slate of n sounts they nent to achine their global grow th potential, Ifisi u as t he year consmner speciallies as a gmup began lis ing up to its promise of bollom line resuhx They am u cIl on t heir n a3 to prm idmg the superior grou lb. recessim. resistance and the high returns w e espect f rom quaht3 investments?
"l >ou has been highly successf ul in managing the internanon il linancuil aspects of its I businesses. ()nr esperli~e in loreign runency managenu ni has been inst nnnental in transfonning the potentially negative e!!cets of nurtnating runenr3 values into a positae contribution to onr activities around t he wor bl And t he ereahw nse nf lorehm h, sol lebt insinunents has hi Ipnl considerabl3 to balance merall financial nsk. Hoth e!cuu nts are key to llow's continued success ni pmsen inn financial neubility and st rength. Ilut the heart of d at activity will be ensuiing that rapital spending. mveshnent prognuns. ihs idend policy amt im els of itulchiedness mlate to the lewis of I g ;
internall> generated funds and t he n puty base "In the fmal analysis. n e are here lo sen e our stock-hohlers. Aini u hil we most mach the resuh in thifemnt w ays. the measure that rounts most at t he end of t h" tally is return on stockhohlers's quity That will be our piincipal measure of performance: i.. C 3 l _ w JE Frani,1.'1%;qt eu catin .1- ph t i kwp!i . .f r . rire preshirnt o sju on.si
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;ruphic area, vutshie the h aavin b alth salnblo o q.
I<frie tor emplum I ' rote eiStatr~ ibur% , 3h ro il Ihor l'iviav u va reinth ats noui nurn utar to ah la, . liv s ut.a r eyo u ble fra q!Jal I orhnt awla wiim e riw;; p u >1,:, t pla n n out ,, ral i noen,p n, cut t!,; i wh lia e n rp a n to po ni.n I th pro tna vt.
I 1 , JUrs<nnect I*riorily: We will contintie to reentit high-quality individuals and maintain a work envin>nment that Maintain Great Depth stimulates rapid personal and pn>fessional gn>wth. Compensation programs will properly in People n wani perfonnance azul recognize that different incentives may be required to realize l optimum results in ditTen nt segments of Dow's business.
-Innovation in Ih ncs organization is as impor1 ant to gnm th as any innovation m:ule in researth ami devlopment or elsen here in tiu Company. Continual renewal through recruitment of quality peoph - people with ginul training and bright ideas - is key to inaintaining gn at depth in skill and talent.()ne of the secrets to n cnuting elTertively is making sun some of:he best in ople in the Conipany are init finding and hiring the best people they can. That appn uch has w orked very w ell for I)ow. We've litun,1 fluit, put simply, first class tah-nt likes to associate with first class talent?
"I.et's not fiirget that strategies an en ated atulimplemented by decision-makers throughout the organization. hi other wonis, decision makers and deci~ ion making ability are the real key to gnnvth for Iknv ('hemical. Early challenge aiul n sponsibility are nuportant to their developnient process, as is exin sure to the different facets of Dow l
ihrough a vanety ofjob assigmnents. Without question, w e lutve the experience ami all the tools we ne"d to ensure that Dow retains its reputation Ibr quahty management.The challenge will be to use those elements uith the increased elTectiwness the market will I demand of this ('ompany?
-As Dow becomes more diwrse, we'll haw to ensure that we continue to compensate ; people well mul faidy malin ways that tiuS lhui particularly renaniur? ways that are consistent with the experience of their peers in an inulustry. It only makes sense to ensure that ourcompensation pntctices retlect the nonnal pmetires for an iiulivulual business l
l Ilescorch nm/ Continuous development of new pnxlucts mul services is the essence of competitive Derciopment l*riority: advantage for Dow Chemical. Manage on a Emphasis will be appropriately balanced between new product development ami pure Global Scale research.The budgeting of tvsearch expense and capital will be integrated with global l product strategies. Increased attention will be placed on coonlinating global research and W technoloev manacement so that new developments can be moved worldwide more efficiently and quickly. N iur conunilment to research is designed to cicate many more oppoitunities than we will ewr have resources to completely develop. t )n the new business development front, for instance, w c've decided to pursue enuTgmg opportunities in nu mbnme sepamtion technology, engineering thernmplasth s and engincenng cenunits, to cite three of the most attractiw areas.The point is, we can speiul our money on research ami development. on other discretionary resources. on capital projects or on acquisitions. Ilut ue can never have enough money and good people at ilm same time to pursue all opponunities. We nmst set priorities. ()ur 1xTronnance w ill be gnaled on how well and how creatively we strike the optimum balance: tesearch produs tit ity in Ih m continues to rise. We have conunercialized more pnnlurts in the last tu o years than in any similar period in our history. So planning and deploying n scarch resources on a truly gloh.d scale at thisjuncture make a great deal of sense for thew. It will result in greater tiexibility in n search and the highest possible a tliciency in matching research resources u tth the best emergmg opportunities?
-The professional relationships that characterized past success in new product development u ill In greatly enh.uurd by t he integration of diwrse tecimical dist iplines.
Chemists, for example. air linding that u hile they must contmue to u oik closely wi:h physicists. electrical engineers or molecular biologists. they must alsii spemi more time in the customer's shop, dealing directly w ith his problems and opportunities. That in lut is only gomg to arreleiate And so it shoubt It is a highly positiw trend.one tha: u ill lead to some wry intriguing new products" I I
Ortpmi:nti<m Priority: I)ow has evolve <l since the IT30s from a simple single natiorml, fully functional m,ganiza-llemain Flexible ami tion to a complex multinational, threcalimensional matrix organization. The total change Evolutionary has been emirnu>us, but emplo3ves have remaineal very elTertive asul have a lapteil well because the organization has evolve <l in Imnnony with the Company's stnitegic clirection. ()ur objective has been, ami will continue to be, to organize to the skills ami stirngt hs of people, not to a format, aiul to remain llexible in our appmaches. In aihlition, Dow's stnitegic din cJon will be implemented on a global basis acconting l to business-specific plans which have at Iheir center Iwo key principles:
. geographic and ftmetional strengths will be maintained:
. planning and management on a global scale will tvceive inen ased attention.
"lluihl the organization needed witimut en ating a vast taucaurrary. Is that possible?
Certainly, by deliberately tilling staf f balances towant ' doers' atul an ay from ' helpers: More salespeople rather than onter imiressing sui!T. More pnuhu t discoverers. leu er
;ulministrators. More ennepreneurs and fewer analysts?
-liow is u idely n" inized as being among the most inter nati mal of all global chemical companies, pet haps uniqiie in that we have an ellectis e presence in so inany locations in Ihe u ot hl. ( hir geogniphical sirength is pivotal 1o our success in global product inarmgement aiul our ability to capture opportunities in Ihe Pariric liasin countries aiul
('hina, to name tuo areas of interest. Ihn in no w ay does a global approach to managing our organization and businesses mean rentralization?
-lly whatever means ue ran muster. ne nmst atoid the anificial azul psychological baniers to maintaining a highly mlaptis e organization, which can arise as an organization grows mul disersilies. Am t u herever we 11191 them in Ilow. we'll seek to tear them down
-Surressful development of specialties has dennathled a strong 'outshje in' orientation mal considemble flexibility. A market dris en apiumch. essentially that relates llow's activities directly to current aint prospective rustomer needs as well as industry treruls.
Along uith more attention to inarket research. imlnstry oriented organizations within Dow give us the opportunity to analyze tresuls. lorerast needs. innre rapidly ronuncreialize new pmducts or technologies or extetut an existing line to fill specific market niches"
-industry orientation chann terizes our agricultural chemicals aint pharmaceuticals businesses. ()nr househohl nn ulurts business,in part throuch the recent crealion of Dow
('onsmner l>nnlurts. Inc., is assuming a similar approach. Each of these businesses is very distinct within !)ow mul is organized to focus sharply on ituhtidual customers arul itubistry segnu'nts. Weie orgamzed for inihtstry orientation in sescral other portions of rurrent businesses, too.1:lectronic materials is one example
-The electronics irulusny is the largest in the l'nited States Aml.although many Dow pnulurts today enjoy wide use in the itulustry, we have given this mar ket a much higher priority because we ran readily hmiu on current pnulurt mul chemical innovation capabilities mul process strengths to deliver the ivqnired ultra high-quality rmv materials
< ustomers demami. Ilerently a team of key prof essionals was assembled to help align our pnHhn 1 mix more closely with current atul eiolving op]n utunities in ciertronics . . Io look way be3 oiul inutis idual < ustomers for totally new applications for I)ow exiu rtise . In a short I period of tinus the3 've bn night bai k some extremely interesting new business possibilities.
Es cryt hing from a new use for llow 's ined mul truc zippered bag technology to oppot1 unities for h.uulling u aste problems" I -This approach represents an eiolunonary -tep for lion. not wholesale change. From a strategic l'oeus on supply ing large solunu"s of cornin muively low-value chemicals. we're sic;ulil3 shitiing :owant supplying an increasingly wide range of customers u ho need lower solumes of high value pnnlurts anal sersires? No company can know the futuiv. Ilut the future can be shaped by foresightful management.The strategies in place for its businesses, people, vsearch aiul develoinnent activities and organization help ensure Dow tvmains vital to the challenges of the years towant 2000. I I '
r 3, s SYNOPSIS OF SIG NIFIC ANT I:VIONTS IOnch year is niore es entful lhan the last for a company as d3 namic as i mw Clu miral, and the past 3 ear u as no excepti,in.19% u as a year til: New Safety Records !!M was t he safest year in Ih m's history.There were mi fatal injuries during the year, and t he ( 'om pa n3% frequency rate for lost time iluuries per 1.000.000 work hotun u as 0.11. signihrantly lower than the best pres ions perfonnance ot 017 in 19s2, and ucll below the avruge f or major i N chernical companies. The number azul dollar value of property damane and busmess inter ruption ;u ridents were seromt lowesh in terms of assets. in I now histoiy In !!M. the ('ompany completed two worblwide review s for possible loss of containment ha/ anis related to < hemical production ami storage, implementing new pn.erams u here required for emergenc3 planmng and more rigorous hazant rethiction and conn ot Cost Reduction A major < ost reduriion progrmn compnsmg asset wnte oils and u nte downs ami personnel reductions resulted in a %92 nullion pretax charge against 1% carmngs.The pronnnn and its unp.u t me addressed in a letter to stockhohlers from 1)ow president and chiel executise officer, pant F. ()rellire, beginning page 2 and on pages 1-1 aint 17 in Manag" ment's I hsrussion and Analysix Key Acquisitions Among arquisitions comph led in 19si, four in particular w ere noteworthy:
.t he IWnTer ('orporation: a Minneapohs, Minnesota based mannlacturer of thin film, spim!
woinul rewrse osmosis inemluunes used in u aler purification and other separation l,l apphrations, FilmTer ('or poration represent s an excellent complement to I)ow's leadership 5 m hollow fiber membrane technology; , ajqm)xunalcly 20 lHTrellt (if Filnal l'harniacrutis'ais (illitpany <1f()saka,3ajlan: this l pun base niws I)ou a direct pnsem e in the second largest phannamutical market in Ihe w ork! and holstered Ihe estabhshed global position of Merreil llow l'hannareaticals Inc
.Ihe 'liwe operations 01 Mor ton Thiokol Inc.: complen d January 1. this acquisition doubled the size of Iion 's < onsmner produc:s husmess u orblu ide and became instnunental in the l lonnation of the subsh tiary Ih m ('on ,umer l'roducts Inc. in Novemberfli xize brands of E ricaning ami pohshing prodiu ts include Spray 'n Wash, Glass I'lus. Yes, and Fantastik;
.t he u or hin ide poly mer chemicals business of The l'piohn Con.pany: representing i approxnnately 22 peu ent of t he nor hl's diphenyl methane diisoryanate (M1)!) capacity, l'pjohn's polyf uer i hemit als business reconled 19s I sales of 8257 million. The addition of Ml)I capacity complements l >ow's current ghibal position in ihe other Iwo key components of poly urethane loams -- toluene diisory anale (TI)l) and pol 3 0ts - and will enabh the l
< ompany 1o considerably expand its artis ily in the urethanes business. W Change on the 1: curing Irom Iion's hoant of dirn iors were: .LM. (Irvd Irat hers. a lion vice president; lloard of Directors l',iul W % ('rm ken. IGhnund Ezra i na y I rishngnished I rolessor ofIlusiness Administration at t he l'nis ersity of Mit higan; and (i. . Lunes Wilhmus. a senior consultant.
Tlq H el!Iteil 11i Ihe IH hlni n ere: IhTilanj ll l$1in lHT. a s ice ])re5itlent iifI hIW ('hetnical and dit crior of lhe corporam product depmiment: Ennque (' Falla,1)ow financial vice president: and ll.irohl T. 5hapini. president of t he I'mwrsity of Michigan. s
f I New benior Management Amireer J.11ntler w as named president, Dow Chemicel 1 un >pe Assignments Josep/s L IAurney was named a vice pn sident of Dow Chemical and president and chief exert.tive olTicer of Dow Con.sumer Products Inc., follow ing the creation of that subsidiary. I lihune 37. IInncork was named a vice president of Dow. Ilancock serves as geneml counsel to the company. Keith R. 3/cKeionm, a group vice president, was named din etor of research an.1 development. McKennon n>tained his responsibilities for Dow's legal department and gove,nment and public affairs. Ile was also elected a member of the executive committee of ' the boant of directors. Frank IfIbpoff beca ne an executive vice president and a member of Dow's executive committee. lie is responsible for Dow's five geographic areas outside the l'nited States and for employee relations and manufacturing and engineering. IAiri<ll?Shrrt: was elected a senior vice president and assumed new responsibilities as Dow's first chief scientist. Enri</uc J.Nosn was appointed a commercial vice president of Dow U.S.A., n sponsible for specialty chemicals. lt'illiam S.SInen>poulos was named commercial vice president for Dow U.S.A., I responsible for basit chemicals. Res llohillier was appointed president ofI)ow latin Amenca. Ihsri<l TIta : cili was named president and chief executive ollicer of Dow Chemical I Canada ine., early in 1986. llichnn/ J. Firler was appointed president of Dow Chemical ihnzil. ' Increased Corporate Corporate contributions totaled more than $11 million in 19Sa, an eight percent increase I Contributions over the previous year. Appniximately one half was desoted to various pnsjects in aid to higher education. Contributions included $1.1 million in support of public education on organ transplants with the American Council on 'lhmsplantation. Enhanced Commitment Capital expenditures associated with enviromnental contn>l projects increased to 682 to Environmental million in 19S.1 TI:e company's conunitment to environmental protection was further , Protection strengthened by:
. formation of a global network of em inmmental <luality coonlinators to bolster conununications and consistency in environmental progmtus and priorities:
. expanding and bringing together the Company's gnnmdwater technical resources to establish a compn hensive and proactive approach in dealing with existing and potential gniundwater problems;
.inen asing solid and hazantous waste incineration capacity and etliciency with modern I facilities planned and und, r mestruction.
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M AN AG EM ENT'S DISCUSSION AND AN AIJSIS j Financial Condition anil F ~ects ofInrentory Accounting Chamr>: As a n sult of high inflation in many Ibn ign itesults of Operations countries mul the <levaluation of many currencies against the l'.S. dollar, Dow changed its accounting method for nmst ofits foreign inventories as of humary 1,198T>, from the last-in, first-out (f.lFO) accounting meth<nt.The first-in, first-out (FIFO) or avemge cost method was adopted for those inventories to pn> vide a better matching of costs azul n venue, consistent with conservative accounting practices. Inventories in the l'nited States azul ' Dow's Foreign Sales Corpomtion, plus fon ign hydnicarbon inventories w hich an largely denominated in l'.S. dollars, will n main on i IFO. ' The accounting change required the restatement of n sults for the four prior years.The elTect of t!iis was to n duce earnings for 19S 1 mul 198:1 by $.13 per share aml $.9.1 per share, respectively, and for 1982 and 1981 by $.11 per share mut $.18 per share, respectively. All relerences to results for the prior years in the Management's Discussion and Analysis section reflect the impact of the inventory accounting change aml restatement. ResnIIs of Opernfi<ms: 19S5 carnings were ariversely alTected by sluggish dematul and intense price competition in many key markets mal by the strungth of the U.S. dollar I 3 overseas. (1perating income was $637 million. a dern ase of 21"o compan d to the previous year. Sales rose slightly. Ilusic ChemienIs: 11perating income for liasic Chemicals u as $165 inillion compared to 19S 1 operating income of $250 million.1985 sales uen $5,237 million, a decrease from the prior year. l Again this year, results in this segment were hampered by excess global capacity mul 5 an um'avorable pricing climate exacerbated by the negalis e impact ofimports into the l'nited States. Imports cliectively capped prices at unacceptable levels for many pnnlu(ts. g Sales and profits for caustic sinta were down versus 19S 1 and were essentially nat Ihr g chlorine over the same period. Pnnhietion cutbacks in ethylene oxide ami derivative pnniucts mal vinyl chloride monomer resulted in lower sales for both pnnlucts. Ilowever, the cutbacks an expected to significantly impnive the quality of business for these l pnnlucts beginning in 19S6. l Ethylencamines, chlorinated solvents mal magnesium metal pnnlucts posted stnmg sales ami profit performances. Profits for glycerine reacned an all-time high as a result of continued n > bust demami and positive priemg moves. A m w plant for the pnninetion of aspirin was opened in 1985 at llow's Michigan Division la Midlatul. linsic l'Instics: Sales for ihis segment fell 10"o against 19S I sales. ()pemting income decreased to $60 million due primarily to declines in pricing. In anticipation of the start-up of major new capacity in gasaich countries, prices dnipped dnunatically late in 19S 1 but n coven d somewhat in the latter half of 19S5. as Ihe last of the nmjor plants for polyethylene aint styrene monomer in those countries came on+tream. Ilowes er,19S5 also saw excellent gnm th in worhl markets for polyethylene aml Styn>n polyst) rene plastics. Dow's low density polyethylene (1,DpM) volume n turned to its 1979 peak uith Dowlex attaining volume gnm th of18% Ad,litional production capacity for Dowlex was bnmght on stream at Fort Saskatchewan. Alberta in the secom! half of the year arul another new plant for Dow lex was authorized for Terneuzen, The Netherlamis. Start-up is scheduled for late 19S7. I I 10
With the denuuul gn>wth that characterized 1987, arul the nunlemte gnnvth planned for the next few years, ghibal supplyalemand pattents are moving into a more favontble balance. 1987, was also marked at I)ow by the rationalization of some styn ne nmnomer capacity, the streamlining of In>lystyrene capacity, the intnniuction of several new Styron pnniucts, and a signincant rise in sales ofI)owlex products in the Pacific Area as a result of two years ofincreased resource conunitinent to this nurket. Sn/cs ti ,i omiurt scffment f,yf,,3f,.f,,f Specf,,yggy,. Sales for liulust nal Specialtles n ese Mi. Ilowever, operating income ($ in ,"illi<ms) 6 Hmd 11'>u as a result of dec eased earnings in key components of this segment. un Sales and operating income for the cluixy resin and latex pnnluct gniups fell fnim the 7,,[" recont levels of 1981. The epoxy business was adversely impacted by a worklwide slump 4-? m the ciertnmics iruhistry, which chameterized much of the year, while softening in coated N paper markets and highly aggressive competition in carpet markets significantly con-g- stmined perfonnance in the latex gniup.1)ow continues to seek opportunities to broaden tus the laiex pnnluct family outside these tnulitional markets thn> ugh the development of 37ms q designed latexes for architectural coatings and adhesives, among other applications. I Perfonnance in urethanes products impnwed over 1981, despite the impact of costs associated with the acquisition and integration of the polymer chemicals business of The Upjohn Company. Progress in I)ow's expanding engineering thennoplastics business was highlighted by the start-up of the Company's first plant for the pnniuction of Calibre polycarbonates and the en ation of sevend important new applications for this product. Costs associated with the start up constrained 1987> perfonnance for the group but are expected to decline rapidly in 19S0. Hovel weathemble polymers saw a significant volume increase while volume for Alls (acrylonitrile-butadiene-styrene) was essentially llut over 19S 1, reflecting the offset of increased sales to the auto industry by lower demand uorldwide for consumer electronic nun 4 n pn ninct s. 1)ecreased demand for Saran resins in cellophane coating applications was countered by new gniwth opportunities in rigid packaging.1)ow introduced a pelletized fonn of Sanm e liosu.3rtu nu.ents ;n ,99., ,a ,g a;9 a gg,g, gm gg,.g a 9,7 g7 g n am e m.,na .,
= /mlustrial omsumcr The fabricated products gmup ofIndustrial Specialties reconfed a 2"o sales gain for Sp. cintrics 19STt ( >pemting income was o!T significantly, how es er, retlecting Ihe impact of costs associated with the start up of a plant in Fnmee for the production of Trycite-oriented polystyrene Glm and Zetabon plastic clad metal cable wrap operations in .Tlexico and,in a joint venture plaat.11alaysia.This was the first I)ow pnnluction outside the United States for these pnnlucts.1986 is expected to be a turnanmrul year for fabricated pnnlucts opentting income as these expenses drop sharply.
l.ower demand for oil fieht service pnniucts due to reduced activity in that market led to a sales decline of 2% for the functional chemicals group ()perating income decreased as a result of this volume loss as well as increased costs associated with the development aint launch of several new pnnlucts including a new I aqueous nuid absor hent pnninct and Genenm air separation systems which provide on-site genemtion of nitrogen and oxygen using llow's hollow fiber membnme technology.The acquisition of FihnTec Corpomtion in 19SS strengthened the Company's global position in membrane technology for reverse osmosis. I I "
1985 saw the start-up of newly modernized pn> cesses at all three pnxtuction facilities for Methocel products. These unique pnicesses give Dow an additional 15% of capacity worhlwide azul an enhanced capability to pnxluce premium gmdes of Methocel for the fmxi azul pharmaceutical industries. Dow Chemical also increased its worhlwide resin capacity with the acquisition of the ion exchange n sin business of the Avsitut Division of Montedison, S.p.A.The purchase includes Montedison's resin pnxtuct line and that company's manufacturing plant in selling Price arul Fumbio, Italy. tblame .11LrInde.ws fl* h 100) OmsnmerNpecialtics: Sales for this segment nise 21% while opemting income climbed 24 71"o to $226 million. Profit impn>vement resulted primarily fnim the growing contribution g m of Dow's hmnaa health and Dow's househohl pnnlucts subsidiaries. g O' A 7"-o increase in sales and a dramatic increase in profits helped earn the largrst gain of rio any business category for the Company's global human health subsidiary.
@~
rol ~ Major elements of this achievement inchuled the mpid growth of probucol following its launch in. Japan amt continued growth of terrenadine abmad and mpid market penetration following its U.S. introduction. Terfen:uline, a non-sedating antihistamine sohl under 1he I inutemarks Schlane, Tehlane and lYiludan, became the largest selling bnuuled anti. histamine in the workl. Nicorette smoking cessation gum also continued to show strength l in the U.S. and Canada. Merrell Dow earnings wen significantly aided by earlier cost reduction,integmtion aiul consolidation activities.The best gains were posted by the United States,.lapan and Canada. Significant pn>gress was made in the development of new prescription and over-the-counter products. The spring of 1986 will see the U.S. launch of Citnicel, methyl cellulose-n n su n n I based bulk laxative. Then are also plans to file at least one new dnig application for a im jor pmduct in Europe as well as applications in many other areas of the work! for the nrst major line extension of terrenadine, The househohl pro <hicts gnmp reconled a 13% sales gain during 1985, excluding Texize and discontinued pnnhirts. Operating income rose significantly as a result of strong perfonn-ances by Ziploc, Sanm Wrap and llandi-Wrap products and D()W Hathroom Cleaner. m sqling Pripc Imlex Ilesults for the Texize pnnluct group. 'vhich was acquired from Morton Thiokol Inc., were punctuated by a 7"o sales increase and a highly successful promotion entitled
"()peration Kidsafe"The pn> motion involved most Texize bnuuls mul helped raise more than
$700.000 for the (U.S.) National Center For Missing arul Exploited Children and the National Crime Prevention Council.
% foster better coonlination of global pnnluct stmtegies for this group, the Company consolidated the operations of Texize and Dow's existing househohl pn nlucts business into a separate subsidiary, Dow Consumer Pnnlucts Inc.
Agricultural chemical sales rose 5"o but operating income fell due to depressed l cotulitions in U.S. fann markets with prvseason onlers moving into 19S6. Start.up of several 5 major facilities azul a significant resource infusion also impacted 1985 pn> lits.The group is expected to return to previous n turn-on-sales levels in 1986. Early in 1986, the United States Envinmmental Protection Agency gnmted the registra-tion of'Ihndem herbicide for the post-emergent control of weeds in corn.The pnxtuct will be ininxtured in the U.S. during the 1986 growing season. Stanme herbicide for small grains was successfully launched in the United Kingdom and France adding another new com-pound to Dow's extensive herbicide and insecticide line. l l 12
i I 5Ar/cs: Net sales increaseil 1% to $11.5 billion in 19S5, after rising by 400 in 1984. Physical volume was up ti% in 1985, following a 4% v<>hune inen ase in 1984. Physical volume in the U.S. n>se 2"o in 1985, while the collective inen ase in Eunipe arnt the rest of worhi was 9%. I Selling prices fell 4% in 1985. Prices wen Rat in 1984 after a price en>sion of 2% in 1983. Prices decrease <l in the U.S. arul Europe by 4% while the rest of the Company experienced price enision of Too for the year. Ilowever, then, was some price restoration in the last three quaners of the year aner sharp declines in the founh quarter of 1984 ami the nrst quaner of 19S5.This together with the weakening of the dollar, especially in Europe in Regennp <out threlopment the secorul half of 19S5, indicate an impnived pricing climate for the Company in 1986. ($ w milliams) , y ., g , , in the Product Segment Sales Analysis on page 37. Pen ent changes in sales by geogniphic and industry segments were: sai n2 (Percent change from prior year) 1985 198-8 no Geographic areas: g4 (?nited States (2) 1 1.u n spe , 8 Rest of world (2) 6 Indusuy segments (excluding 1) mell): liasic Chemicals (2) h liasic Pla.stics (10) 1 Indust rial Specialues . . I Consumer Specialties 21 12 Openstint/ Income: Operating income for 1985 was $637 million compared to $836 million in 1981, renecting the impact oflower sales prices in 1985. This was partially ofTset by at unna continued cost containment and lower hydrocarbons and energy prices. Operating income in 1983 was $591 million. The ratio of operating income to sales was 6% in 1985, Too in 1984, and 500 in 1983. , 1)ow Chemical Europe n alized another excellent year with an operating income of I
$286 million in 1985 or 45% of the Company's total; in contrast, the l!.S. business was experiencing soit prices and sluggish demand, generating operating income of $255 million or400o of the Company's total.
Opemting income by geogniphic and industry segment can be foumi m gniater detail in the Notes to Financial Statements. Manufacturing plants operating rate remained unchanged at 81% of capacity in 19S5 mul 1984 versus 76% in 1983. A n daction of certain inventories in 19S5 arul 1984 resulted in liquidation of some quantities of LIFO inventory. The elTect of these liquidations was to dern ase pn tax income $11 million in 19S5 arul to increase pretax income $7 million arul
$95 million for 19S 1 arul 19S3, n spectively.
Major components of operating costs arul expense were: (Percent of total) I!)H5 1981 !!)S3 Ilydrocarbons arnt energy 29 35 37 "1
"""""""""'""*""""'"""""~"'"" "* " ""
L.'4 hlaintenance ti 7 6 I)epreciation 9 8 8 I Salaries. u ages and benefits 18 100 18 100 t!) 100 I I g 1,
Manufacturing costs were 6% lower in 1985 adjusted for volume. The most significant , decrease was in hydmearbon and energy prices, which declined by 8% in 1985, following a 5% decline in 1984 and a 1% decline in 1983. Ilesearch and development costs increased by 8% and 3% in 1985 and 1984, n spectively. Salaries, wages and benefits increased by 6% in 1985, as personnel count increased by more than 3,400 people, following a decline of more than 4,700 in 1984. Of the personnel increase in 1985, some 3,000 came by way of acquisitions and the inclusion of all the Dow Inwrgy rout fly,Irocorhon Financial Service Corporation personnel. The primary n'ason for the decline during 1984 lannim^" was the sale of 50% of Dowell to Schlumberger I.imited. I' rice in<!cx (1968 - 100)
- Net hicome: Equity in earnings of 20%50% owned companies increased $101 million in I 1985 following a decrease of $34 million in 1984. Dow's share of earnings in Dow Corning 8)2 i and MT Partnership increased by more than $18 million, and the Dowell Schlumberger su companies by $64 million in 1985. Equity in earnings wen reduced by $50 million in 1981 g ; due to write-offs and consolidation expenses taken by the Dowell Schlumberger companies.
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Interest expense was down by $47 million in 1985, despite a debt increase related to q l acquisitions completed during the year. Interest expense is expected to remain at this level l i in 1986, reflecting lower U.S. interest mtes. Total debt inen ased by .$507 million in 1985, following a decline of $341 million in 1984, and $187 million in 1983. Foreign currency tnmsaction gains of consolidated subsidiaries wen $52 million in l 1985, an increase of $38 million fmm 1984. Cumulative tnmslation adjustments resulted in a $20 million increase to stockholders' equity at year-end 1985 as compared to a
$37 million decrease at year-end 1984. 'lhmslation adjustments of $135 million in 1985 were III4 partially o!Tset by $78 million oflosses rom hedges, net of related income taxes.
r Ilesults for 1985 included a special pretax charge of $592 million for a pnigram of g personnel reductions and asset-related write-ofTs and write-downs. Ileductions of more 3 than 2,700 employees worhlwide will n sult from the shutdown of some opemtions and ouunn through various inmsition programs. The provision for costs associated with this element g 2 of the progmm was $121 million.The asset-reb.ted element of the program was g concentrated in Dow's basic chemicals and plastics businesses, primarily in the U.S.
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Analysis of special charge (millions of dollars) personnel related costs: $121 Asset-n lated costs: Basic Chemicals plastics $110 Industrial Specialties 27 5 Consumer Specialties 17 Other 17 171 Total special charge $592 In 19S 1, Dow's mothballed crude oil processing plant (COPP) was written down. resulting in a pretax chame of $157 million. In 1953. pretax charges for plant closings and cancelled pmjects amounted to $58 million. Gains from the sale of 50% of Dowell to Schlumberger Limited in the second and thint quarters of 1981 generated pretax income of $183 million.This compan's to a pn tax gain in 19S3 of $101 million fmm asset sales.These included selected oil and gas properties sold by Maligne flesources, a Canadian subsidiary, to Dome Petroleum Ltd., and depositary units of Apache Petroleum Company. ] l1
s Taxes other than income for Dow including payn sil, property, franchise, Superfund and other taxes amounted to .$298 million, $293 million, and $286 million in 1985,1984 and 1983, respectively.The pnivision fier taxes on income was a ennlit of $28 million in 1985, primarily due to future tax ef'i ets related to the 1985 special charge pn>gmm.This com-pares to a tax pn> vision, excluding taxes related to extraonlinary items, of $139 million and $144 million in 1981 and 1983, respectively.The factors that influenced the Company's overall efTective tax nue for the past three years are described in the Notes to Financial Statements. I 7hralnipitalienti<m vs. Net income in 1984 inchided an extnuintinary gain of $30 million fn>m the realization of 7htal lh;b'. Ibn ign tax loss carrylbrwants, whereas net income in 1983 includ i extraonlinary gains of (s in m,Ilums)
$11 million from the redemption oflong-tenn debt.
Y Mit m['S Diri<lemis: The Company paid divideruls of $1.80 per share in 1985, the same amount paid H14 since 1981.The Company has paid consecutive quarterly dividends ihr 73 years. un d
$j - Capitall:'apemlitun's: Athlitions to plant proper 1ies for Ihe year were $806 million osu - companxl to $781 million in 1981 and $630 million in 1983. Capital spending in support of nu the Company's specialty businesses continued to grow as a percentage of total capital expenditures. Industri .I arul Consumer Specialties consumed 17% of capital spending versus 38% and 31% in 1981 and 19S3, respectively. Opemting leases with an asset value of $85 million were contracted in 1985, compared to $188 million in 1981 aml $325 million in 1983.
Liqui <lity aml Capilnl Resoun es: Funds provided fnim opemtions decreased $587 million after increasing $231 million in the previous year. The sale of 50% of Dowell genemted
$ 140 million of cash before tax in 1981, while asset sales contributed mon than $200 million in 1983.
The mtio of debt to debt-plus-equity at year-end 1985 was 43%, up from 38% in 19S 1 y enun and 41% in 1983. Total debt was $3.7 billion at December 31,1985, an inen ase of $507 million over 1981 and $163 million higher than the 1983 level. In 1983, the Company issued 1.2 million common shan s plus cash in a tax-free exchange Ihr long term debt having a face , _a lhlal Gwitali:ntism , es,n, u a lhtalih b! Mbrking capital remained at $1.3 billion at year-end 1985, the same as 1984 and 1983. The ratio of current assets over current liabilities was 1.5:1 in 1985, compared to 1.5:1 and 1.1:1 in 1981 and 1983, respectively. Inventories and Inute receivables increased $277 million at year-end 19S5 after a decrease of $330 million in 1981. Inventories were 1% higher, while days-sales-in-inventory was 91 days at December 31,1985, companxl to 96 days in IDS I and 90 days in 19S3. Days-sales-outstanding in accounts receivable were I 52 days at year-end,51 days in 19S 1 and 53 days in 1983. Short-tenn borrowings at December 31,1985 and 1981 were $289 million and $250 million, respectively, substantially lower than the $691 million outstanding in 1983. In 1985 new long-tenu debt inen ased $639 million. In Alay, the Company issued zero coupon Eunn sterling bonds with a maturity amount of 300 million pounds sterling due in 12 years that netted $105 million. In August, the Company issued $200 million of extendible promissory notes, which were issued under the shelf n gistration filed by Dow in August of 1983 with I the linited States Securities and Exchange Conunission. In addition, in October, Dow issued 300 million Deutsche mark bonds yielding $111 million, Eunnlollar pn>missory notes of
$100 million and $S6 million in pollution contnil bonds used to finance qualified projects.
The Company expects to continue to utili/.e the latter fonn of financing when available. 15
The Company has unused and available enxtit facilities with various United States and foreign banks totaling $1.4 billion in support of conunercial paper borrowings and working capital requirements.These arnmgements are supplemented by a variety of other credit facilities available for use by foreign subsidiaries. In mhlition, the Company filed a shelf registration in August 19S3 with the United States Securities and Exchange Commission covering $500 million of debt securities, of which 6200 million has been issued to date. Present committed lines of credit are considered to be in excess of estimated needs and will be reduced in 1986. Ilased on pmjected internal cash generation, current levels of M I'de'r^' liquid assets and the projected credit capacity in suppon of athlitional financing, the (5 m. riollums) L'o ets to continue to Gnance competitively operating cash requirements, planned capital expansion and dividend requirements. 313 Qomrterly Statistics (umamliteri): sts (in milhons. except per share amounts)
,os ist 2ml 3nt 4th 19S5 Quarter Quarter Quarter Quarter Year Net sales $2,753 $.l.002 $2.873 $2,909 $ 11,537 Operating income til 227 128 111 637 Net income I10 155 107 (314) SS Earnings per common share .5S .S l .56 ( l.fil) .31 Cashdividenilspaial per common share .15 .45 .15 .45 1.50 Market price range of common slock:
IIl 61 n s3 ne s.> 1981 Net sales liigh Low 30.S S 27.00
$2.916 36.13 28.00 32,986 37.13 33.63
$2,S29 11.88 33.50
$2.6S7 41.SS 27.00
$ 11,118 l
Operating income 241 291 205 99 S36 income before extraonlinary items 132 172 150 70 521 Net income 1:r: imi las na anu Earnings per common share: Income before extraonlinary items .67 .h9 .77 .37 2.70 Net income .67 .96 .81 .45 2.b9 Cash dividemis paid per common share .45 .15 .15 .45 1.S0 Market price range of common stock: liigh 31.30 33.13 32.00 30.38 34.50 g low 27.13 26.58 25.75 26.S S 25.75 I 16
r The fotu th quarter of 1985 included a special pretax charge of $592 million for a prognun of personnel reductions and asset-related write-o!Ts and write-downs. Personnel-related costs repn sented $121 million of the pn>gmm. The remainder, $471 million, was composed of asset-related write-ofTs and write-downs.The bulk of these were concentmted in Dow's basic chemicals and plastics businesses and had the elTect of signincantly reducing excess capacity m those businesses. 3 The pnigram included 23 idled facilities or plants with scheduled shuhtowns and 11 cancelled projects wen written o!T. Write-downs were taken for 16 operating plants. The " Omitol Espcmlit<nts most noteworthy capacity changes included a permanent reduction of: (5 in millimie J _
.appn>ximately 204o of Dow's vinyl chloride capacity;
.almost 15"o of Dow's chlorine capacity which represents a n duction of nearly 3% (or two 84 years' gn>wth) in global indust ry capacity.
ist Penefits of this pnignun will begin in the first quarter of1986 and an expected to sio re:pilt in a nearly atual division of personnel-related savings and asset-related cost IPUIICEIOUh-S ' 829
~~
g3 The second and thint quaders of 198 I included pretax gains of $163 million and $20 million, respectively, from the sale of 50% of Dowell.The after-tax elTect was $.55 per share g in the second quarter and 8.10 per shan in the thini quarter. The second quarter also included a pn tax charge of $157 million fn>m the write-down of COPP, which reduced net earnings by $.13 per share. Earnings benefited fnim changes in federal tax law that cancelled defern d taxes on Domestic International Sales Corporations (DISC). The elTect on the changes was $32 million ($.17 per shmv) in the second quarter and $39 million ($.20 per share) in the thint quarter of 1981. Earnings for the last thn e quarters of1984 included extraonlinary income from the realization of foreign tax loss carryforwants of $11 million, $7 million and $15 million, respectively, a total of $.19 per shan for the year. At 83 83 84 85 Supplementary injhrmatiem em Mects qf rimnging Prices: Refer to page 36 for the disclostur of suplilementary financial information on elTects of changing prices.
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I I I I I - ir
CONSOLIDATED STATE 31ENT OF INCO31E I December 31 1985 1984 1983 (in millions, except per share amounts) Itestated Itestated Net sales $11,537 $11,418 $10,951 Operating costs and expenses Cost of sales 9,615 9,528 9,461 Selling and administmtive 1,285 1,054 989 Tbtal opemting costs and expenses 10,900 10,582 10,450 , Operating income 637 836 501 Other income (expense) Equity in earnings: Nonconsolidated subsidiaries 48 23 12 20%50% owned companies 151 50 84 Interest income 49 89 106 Interest and amortization of debt discount and expense (385) (432) (424)l 66 m Gains on fomign currency transactions 52 14 Gains on sale ofinvestments 183 101 Special charges (592) (157) (58) Sundry income - net 40 57 43 Income before provision for taxes on income 30 663 431 Provision for taxes on income (28) 139 144 g Income before extraordinary items 58 524 287 g i Extraordinary items l 1hx benefit fmm malization of foreign tax loss (arryforwants 36 Gain on redemption oflong-tenu debt 41 Net income $ 58 $ 560 $ 328 Earnings per common share Income before extnwnlinary items $ .31 $ 2.70 $ 1.47 Extraonlinary items: ,
' lax Deneiit imm ieaiization or ioreigri tax loss carryforwants .19 Gain on mdemption oflong-term debt .21 Net income $ .31 $ 2.89 $ 1.68 See Acmanting I%Iicies and Notes to FimsneialStaternents.
I I
'8 I
CONSOLID ATED ll AL ANCE SIIF,ET December 31 1985 1984 (in millions) Restateil Assets Current Assets Cash $ 11 $ 19 31arketable securities and interest-bearing deposits (at cost, appmximately market) 103 102 Accounts and notes receivable:
'Ihule (.less allowance for doubtful receivables - 1985, $41; 1984, $37) 1,5SO 1,380 Other 60, 003 Inventories:
Finished and work in pn> cess 1,554 1,442 hinterials arul supplies 469 504 Total current assets 4,324 3.950 Investments Capital stock of mlated companies - at cost plus equity in accumulated earnings: llanking and insurance subsidiaries 257 214 20%-50% owned companies 993 938 Other investments (at cost) 196 33S Noncurrent mecivables 274 384 Total investments 1,720 1,874 Plant properties 11,875 11,256 Less - accumulated depreciation 6,748 6.083 Net plant propenies 5.12, 0.173 Goodwill 265 202 Deferred charges and other assets 394 164
'Ihtal $11,830 $11,363
. E
- 8-bin 8* 8 er l Current liabilities Notes payable $ 289 $ 250 Long-tenu debt due within one year 174 234 Accounts payable:
Tnule 1,628 947 Other 255 EOF United States and foreign taxes on income 295 305 Accrued and other current liabilities 934 737 Total current liabilities 2.975 2.676 Long-term debt 3,198 2,670 Deferred taxes and other liabilities Deferred income taxes 331 617 Other noncurrent obligations 508 339 Total defermd taxes azul other liabilities 839 956 311nority interests in subsidiary companies 26 21 Stockholders' equity Common stock (authorized 500,000,000 shares of.$2.50 par value each; issued - 1985,211,158,318;1981,208.613,652) 528 522 I Additional paid in capital Retained earnings Cumulative tmnslation adjustments 652 4.058 20 597 4,341 (37)
'lreasury stock, at cost (1985. 20,998,026: 1984,18,521.367 shares) (466) (383)
Net stockhohlers' equity 4,792 5,040 Total SI 1.830 $11.363 See .trant ntin!) 1%licies coul ,%tes to Fina ncial Statenien ts.
CONSOLID ATED STATEMENT OF STOCKilOLDEllS' EQUITY December 31 1985 1981 1983 (in millions) llestated llestated Common stock Italance at beginning of year $ 522 $ 516 $ 510 Sold to employees 6 6 6 Italance at end of year $ 528 $ 522 $ 516 Additional paid-in capital llalance at beginning of year $ 597 $ 552 $ 516 Sale of common stock to employees in excess of par 55 45 44 Excess of cost over market value of treasury shams issued in exchange for long-term debt (8) llalance at end of year S 652 8 597 $ 552 lietained earnings llalance at beginning of year (as previously reponed) $4,361 $4,123 $ 1,141 Iletroactive inventory accounting change (Note A) (20) 5 11 Italance at beginning of year (as a(Uusted) 4,341 4,128 4,152 Net income a8 560 328 Cash dividends declared ($1.80 per share) . (341) (347) (352) llalance at end of year $4.058 $ 1.311 $4.128 Cumulative translation adjustments Italance at beginning of year $ (37) $ 8 $ 18 Current year translation a(Uustment 57 (45) (10) Italance at end of year $ 20 $ (37) $ 8 Treasury stock Italance at beginning of year $ 383 $ 153 $ 127 litrehase of stock 83 230 73 Exchanged for long term debt (17) llalance at end of year $ 466 $ 383 $ 153 See Accountiruj 1%licies arul Notes to FinancialStatements. E 20
CONSOLID ATED STATEMENT OF Cll ANGES IN FIN ANCI AL POSITION , December 31 1985 1984 1983 (in millions) Itestated Ilestated Operations income belbre extraonlinary items S 58 $ 524 $ 287 Charges (credits) to income not re luiring (providing) funds: Depreciation 977 908 841 Equity in net income of nonconsolidated companies. I tess dividends received Deferred income taxes Famis provided from operations (58) (183) 794 49 (100) 1,381 21 1,150 1 Working capital Current accounts arul notes receivable (235) 269 (232) Inventories (9) (71) (195) Ao ,unts payable and accrued liabilities 275 (156) 409 Note. payable and long-tenu debt due within one year (21) (270) 488 Funds provided (used) for working capital 10 (237) 470 Investment activities and other New plant properties (806) (781) (630) Acquisition of businesses: Plant pmperties arul intangibles (377) Working capital (92) Goodwill (69) Investment in related companies (39) 22 (14) Book value of asset disposals 303 181 Noncurrent receivables and sundry assets 210 (329) (126) Noncurrent liabilities 170 75 23 Extmonlinary items 36 41 Other 27 60 (50) Funds used for investment activities and other (976) (614) (575)
- O Financings activis to.
E Long-tenn debt 639 303 158 Long-tenu debt reduction (111) (364) (833) Treasury stock purrhases (83) (230) (73) Dividends declared (311) (347) (352) Sale of common stock to employees 61 51 50 _ Funds provided (usedlfrom financing activities 165 (587) (1.050) Net funds used (7) (57) (5) Cash and marketable securities, beginning of year 121 178 183 Cash and marketable securities, end of year $ 114 $ 121 $ 178 See sinusualitog 1%licies awl Notes to FinancialStatements. I I '
I Responsibility for The consolidated financial statements and mlated notes of The Iknv Chemical Company Financial Statements and its subsidiades were pmpared by management in accontance with generally accepted accounting principles. The boant of directors, thmugh its audit committee, assumes an oversight n>le with respect to the prepamtion of the financial statements. The Company is msponsible for the integrity and objectivity of the consolidated financial statements, which am presented in a consistent manner on the accrual basis of accounting. Established accounting procedures are designed to pmvide accurate books, reconis and accounts, which fairly milect tbra transactions of the Company. The tmining of qualified personnel and the assignment of duties am intended to l provide internal controls at a cost appropriate to management's evaluation of the risks involved. Such controls are monitored by an internal audit staff, providing wasonable , assuiances that tmnsactions are executed in acconlance with management's authorization and that adequate accountability for the Company's assets is maintained. Deloitte llaskins & Sells, independent pubhc accountants, with direct access to the boani of directors thmugh its audit committee, have examined the consolidated financial statements prepared by the Company, and their wport follows. Opinion ofIndependent 7b the Stockholders and Bonni ofDirectors Public Accountants of The IAm Chemical Company
' bi We have examined the consolidated balance sheets of The Dow Chemical Company and its consolidated subsidiaries as of December 31,1985 and 1984 and the related consolidated b statements of income, stockholders' equity and changes in financial position for each of the three years in the period ended Dccember 31,1985. Our examinations were made in acconlance with generally accepted auditing standants and, accontingly, included such tests of the accounting reconis and such other auditing pmcedures as we considered necessary in the circumstances.
In our opinion, such financial statements present fairly the financial position of The g... cu .q.m como.,ov oa i.e ono ona,,oa unnonno ;o or %,mn.., m t om; 2na t omt and the results of their operations and the changes in their financial position for each of the , three years in the period ended December 31,1985,in confonnity with generally accepted accounting principles applied on a consistent basis, after restatement for the change, with which we concur, in the method of accounting for fomig i inventodes as described in Note A to the consolidated financial statements. i f[ l'l 12,19 I Summary of Significant Consolidation. The accompanying consolidated financial statements include the assets, Accounting Policies liabilities, mvenues and expenses of all significant majority-owned subsidiaries except for banking and insurance companies. Ilecause of the nature of their opemtions, the accounts of these companies are not consolidated. llowever, their earnings are included in consolidated net income under the equity method of accounting. Nmconsolidated Incestments. Investments in companies 20%-50% owned are carried on the equity basis. .\larketable securities are carried at the lower of cost or market. Other investments am carried at cost less reserves. Foreign Currency 7hmslation. EiTective Jai.uary 1,1983. foreign curmney transactions and financial statements am translated in acconlance with Statement of Financial Accounting Standants No. 52 (SFAS No. 52).The United States dollar is used as the functional currency 23 thmughout the worht except for operations in Germany, Japan and Dow I'inancial Services
Coquimtion, for which local currencies are used. Where the 1:nited States dollar is use 1 as the functional cuirency, foreign currency gains and losses are n llected in income currently.
'lhmslation gains and losses of those opemtions that use local currencies as the functional curn ncy, the elTects of exchange rate changes on tmnsactions designated as hedges of net foreign investments, and foreign currency inten ompany tmnsactions are included as a separate comiment of stockholders' equity.
Inventories. Inventories are stated at cost, which is less than market value.The cost of substantially all domestic, foreign hydmcarbon and Fon ign Sales Corpomtion inventories were determined by the last-in, first-out method for raw material and product inventories. The cost of the Company's opemting supplies and non-hydrocarbon forrign raw material and product inventories were detennined by the first-in. first-out or average cost method. PInnt Pmperties und Depreciation. Lamd, buildings and equipment, including property under capital lease agreements, arv carried at cost less accumulated depreciation. Depn ciation is based on the estimated service lives of depreciable assets and is generally provided using the declining balance method. Fidly depreciated assets arv xtained in the property and depreciation accounts until they are n moved from service. In the case of disposais, the assets and Irlated depn ciation are removed fmm the accounts and the net amount,less pmceeds from disposal,is charged or credited to income. . Goodwill. The excess of the cost ofinvestments in subsidiaries over the carrying value of assets acquired is shown as goodwill. Goodwill arising since October 1970 is amortized over 40 years. In the opinion of management, goodwill prior to that date irquires no amortization. Itetirement Plans. The Company and certain subsidiaries have plans which provide retire- - g ment benefits for eligible employees The major plan covers substantially all full-time linited
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E hres on Income and Incestment Credits. The Company and its subsidiaries compute and reconi income taxes cunrntly payable based upon their detennination of taxable income + which may be dilTerent from pretax accounting income.These difTerences may arise from g reconting in pretax accounting income tnmsactions which enter into the detennination of taxable income in another period. The tax elTect of these timing ditTerences is recognized by an adjustment to the pmvision for taxes. Provision is made for taxes on that income of subsidiaries taxable in the l'nited States , as earned, and on unremitted earnings of subsidiary and related companies to the extent that such earnings are not deemed to be pennanently invested. I ' I;tws governing the detennination of1:nited States and certain foreiga :rcome taxes - pmvide for investment errdits for acqui> ition of qualitied facilities. Such cretiits ar, . reflected as a reduction ofincome tax expense on the flow-through basis in the year it which they are earned. In addition to tax credits, certain foreign countries provide incentives which I are gmnted to encourage new investment. Genemlly, such grants are credited to income as earned. Dirnings per Onnmon Sharv. 'I he calculation of carnings per sharv is based on the weighted avemge number of common shan s outstanding during the applicable period. Reclass{/ication. The Company has trelassified the presentation of certain prior year infonnation to confonn with the cunrnt presentation fonnat. M
1 1 NOTES TO FIN ANCI AL STATEMENTS otollarsin millions,except per share) A Accounting Change As a msult of continued high innation rates in many foreign countries and the devaluation of their currencies against the U.S. dollar, Dow's worhlwide use of the last-in, nrst-out (LIFO) inventory accounting method no longer yichts the best matching of costs r.nd mvuiue. EITective January 1,1985, management has decided to change its method of accounting for most of the foreign inventories fnim IJFO and adopt the Erst-in, nrwt out (FIFO) or average cost methods to provide a better matching of costs and revenue, consistent with conservative accounting practices. Inventories in the United States and Dow's Fomign Sales Cor,) oration, plus foreign hydn> carbon inventories, remained on LIFO. On a restated basis, net income was mduced $25 or $.13 per sham and $6 or $.03 per share in 1984 and 1983, respectively, and $78 or $.11 per sham and $34 or $.18 per share in 1982 and 1981, respectively. All miemnce to results for these years in the Notes to Financial Statements renect the impact of the accounting change and mstatement 11 Interest Cost Interest and Amortization of Debt Discount and Expense 1985 1984 1983 Interest incurred on debt $413 $460 $471 Less - interest capitalized 28 28 47 Net $385 6432 S124 C Supplementary Accmed and Other Current Information Liabilities 1985 1981 Acent( d vacations $133 $121 Employees' retirement plan 135 110 La.t.a , ,.;m IC *0 4 Sundry 539 396 Total $931 $737 l Sundty Income - Net lloyalty income 1985
$ 15 1984
$ 16 1983 8 22 Iil l
Profit on secunties 10 11 f Dividend income S 10 Other - net 7 20 15 Total $ 40 $ 57 $ 43 Supplementary income Statement Infonnation 1985 1984 1983
.\laintenance and repairs $711 $704 $614 Depreciation and depletion 977 90S S11 llescarch and development 51. 007 192 Taxes other titan income:
pniperty and other taxes 156 143 136 l'ayn ell taws 142 150 150 Provision f or doubt ful receivables 6 6 21 3.; Advertising 193 127 112
o I D Acquisitions and On January 1,1985, the Company acquins! the Texize Division of 51orton Thiokol Inc., a Divestitures manufacturer and marketer of househohl cleaning and other related pnalucts, for $123 in cash and approximately 4.2 million shares of 51onon Thiokol common stock owned by Dmv. The acquisition was accounted for ns a purchase, and the excess cost over the fair value of the net avsets acquired of $52 is being amortized on a straight-line basis over 40 years. Effective August 1,1985, the worhtwide polymer chemicals business of The Upjohn Company was acquinul for cash. The acquisition was accounted for as a purchase and con-sideration of $232 approximated the fair value of the net assets acquimd. In athlition, Dow acquired for cash on August 7,1985, all of the capital stock of FilmTec Corpomtion, a manu-factumr of reverse osmosis membmr.es used in water purification and other sepamtion applications. The total purchase cost of $75 exceeded the fair value of net assets acquimd by $17 which is being amortized over 40 years. The operating results of 1985 acquisitions are included in the consolidated Gnancial statements fmm the dates acquired. Them wouhl have been no material impact on revenue, income before extraonlinary items, net income and cormsponding per share amounts had those acquisitions been eIIected January 1,1983. I During 1984, the Company completed the sale of 50% ofits Dowell oil Geld service business and assets in the United States and Canada to Schlumbemer Limited for appmximately $440 in cash. A pmtax gain of $183. or $.65 per share after tax, was meognized.The Company also acquired several small specialty businesses in 1984, each of which was accounted for as a purchase. The Company acquimd the remaining 50% interest in Confis Dow Corp. and four other small subsidiaries in 1983. Also during 1983, Alaligne liesources Limited, a Canadian subsidiary, sold selected oil and gas pn perties to Dome Petmleum Ltd. for appmximately
$88. Pretax income realized was $51 and Dome's obligation to purchase additional oil and gas properties from 51aligne was cancelled.
E Special Charges The fourth quarter of 1985 included a special pretax chame of $471 for asset-mlated write-offs and write-downs and $121 for personnel related costs. These asset-related elements wem concentrated in Dow's basic chemicals and plastic businesses, primarily in the United States, with the effect of mducing excess capacity. In 1984, the Company reduced the carrying value ofits mothballed crude oil processing plant in Texas based on an independent appraisal. The adjustment reduced pretax profits by $157. Farnings foc the fourth quarter of 1983 included a pretax charge of $58, reDecting the decision to close permanently idle plants and cancel some expansion projects. These write-ofTs included plants for chlorinelaustic soda, ethylene oxidetthylene glycol and ethylene. F 'Ihxes on Income The tax pmvision was reduced by genera' business and other tax credits of $59 in 1985, $35 in 1984 and $67 in 1983. The Company had available at December 31,1985, general business credit carryfonvants totaling $128 for tax purposes, which expire beginning in 1998. In addition, certain subsidiaries had net operating loss canyforwants totaling approximately $133 (at December 31,1985, exchange rates) which expire in 1986 through 1999. Current deferred taxes payable included in the Consolidated llalance Sheet caption
" United States and foreign taxes on income" were $88 and $70 at December '1,1985 and 1984, mspectively.
.g 25
Taxes on Income Unmmitted ( trnings of subsidiary and related companies accounted for by the equity (continued) method, which are deemed to be permanently invested, amounted to $1,644 and $1,553 at December 31,1985 and 1984, respectively. Domestic and Foreign Components of Pretax Income (Inss) 1985 1981 1983 Domestic $(197) $198 $ 98 Foreign 227 465 333 Income befere tax $ 30 $663 $431 Provision for Taxes on income 1985 ~
!!)s4 19832 Current Inefernd Tstal Current Defernst Total Current Deferred Total Federal .$ (25) $(171) $(196) $ 43 $(120) $(77) $(16) $(18) $(34)
State and local o a 2 2 Forrign 175 (12) 163 158 20 178 139 39 178 hx benefit ofloss carryforwants _ 36 36 Total $155 $(183) $ (28) $239 $(100) $139 $123 $ 21 $144 Deterred Tax Pmvisions 1985 1984 1983 Tax benefits of tax cralit and loss carryforwants $ 13 $ 26 $(161) Ex elTects of foreign exchange transactions 21 11 (9) Di!Temnce in depreciation, depletion, and pn> visions claimed for tax purposes and book amounts (130) (55) 125 I ndistributed earnings of foreign subsidiari( s deemeti not to be permanently invested (1) 12 hx efTects of deferred compensa. ion plans (35) (12) 9 income of export and shipping companies operating outside the l'nited States (2) (15) (8) 1 hx etTects of installment sales (21) 10 l DISC deferred tax reversal (71) DilTen ece between LIFO method claimed for tax puq>oses and book amounts (16) (4) 45 Other - net (12) 10 8 Total $(183) $(100) $ 21 Edor DitTerences in Taxes on Income 1985 1984 1983 Taxes all'.S. statutory rate $ 14 $305 $ 198 U.S. investment and other domestic tax credits (42) (26) (58) hxes on foreign operations at rates different from U.S. statutory rate (including DISC /FSC) 42 (56) 12 DISC defermd tax mversal (71) Untaxed equity in income of companies u hose accounts are not consolidated (25) 21 (4) Capital gains (8) (48) Other (9) 14 (4) Total tax pnn ision S (28) $ 139 $ 144
'lk:thw extroonlinary items, *198J data e.rcimles $13 ta.r classified primarily by the wlated to the e.rtmonlimsry domicile qf* ach ctmopany. item.
26
G Extraordinary Items Earnings for 1984 included an extraonlinary gain of $36, or $.19 per sham, resulting fmm realizatio: : of fomign tax loss carryforwants. Net income for 1983 included $15, or $.08 per share, of extraordinary gain, net of related income taxes of $14, from the cash redemption of Dow bonds having an aggregate face value of$107. In 1983, the Company also issued 1.2 million shams ofits common stock plus cash in a I tax-free exchange for Dow bonds having a face value of $100. This exchange of long-tenn debt for equity resulted in an extmonlinary gein of $26, or $.13 per share. 11 Inventories A mduction of certain inventories in each of the three years in the t>eriod ended December 31, 1985, msulted in the liquidation of some quantities of LIFO inventory. The efTects of these liquidmions wem to deemase pretax income $14, and to increw pretax income $7 and $95 for the years ended December 31,1985,1981 and 1983, mspectively. The amount of reserve mquired to reduce inventories from the first-in, first-out basis to the last-in, first-out basis at December 31,1985 and 1984, was $155 and $168, respectively. At December 31,1985,54% of the total inventories were valued on a LIFO basis. I Itelated Company The Company's investments in nonconsolidated subsidiaries and companies 20%-50% Transactions owned at December 31,1985 and 1981, wem $1,250 and $1.152, respectively.These amounts approximate the Company's equity in the net assets of those investments. Dividends received from mlated companies were $141 in 1985, $122 in 1984 and $97 in 1983. Noncurrent receivables at Decembe- 31,1985 and 1984, included $98 and $141, mspec-tively, from related companies. Intemst income fmm related companies was $6 in 1985, $11 in 1981 and $18 in 1983. All other transactions with mlated companies, and balances due to or from related companies, were not material in amount. I J Plant Properties plant Pn>perties 1985 Land .$ J .: a Land and wateavay improvements 362 1U Huildings 1,060 USS Machinery and equipment 8,987 8,4 IS I Wells and brine systems Ofr:ce furniture and equipment Oil and gas land and leaseholds 270 225 15 256 193 13 I Other Constnwtion in progress Total 182 553
$11.875 224 636
$ 11.256 I
I -- 27
G K Leased Properties Minimum operating lease commitments have not been reduced by minimum sublease n ntals of $6 due in the future under tioncancellable subleases. Minimum Lease Commitments _ Operating Capital Leases Leases 1986 $ 168 $ 12 1987 151 11 1958 139 10 1989 122 9 1990 112 8 1991 and thereafter 1,068 45
'Ihtal minimum lease payments $ 1,760_ 95 Less - estimated to represent interest 33 Present value of minimum lease obligations 62 Less - current accounts payable 7 Long term capital lease obligations $ 55 Capital Leases' 1985 1981 Iluildings $ 1 $ 1 Machinery and equipment 115 120 _
Subtotal 116 121 Less - accumulatal depreciation 88 89 Net $ 28 $ 32 Ilental Isxpenses Under Operating Leases 1985 1981 1983 Minimum rentals $222 $232 $206 Contingent rentals 4 3 3 Less - Sublease rt ntals (12) (19) (2) Net $211 $216 $207 I L Notes Payable Notes payable at 1)ecember 31,1985 mul 1981 consisted of obligations due banks with a variety ofinterest rates and maturities. Notes payable at 1)ecember 31,1985, also included commercial paper in the amount of $3. I M Long-term Debt and Long-term debt is stated net of debentun s purchased to satisfy future sinking fu..d Available Credit recluirements. Facilities The average interest rate on long tenu debt was S.8% in 1985 compared to 9.5% in 19S 1. - Annual installments on long-tenn debt and capital lease obliga; ions for the next five years are as follows: 1986, $174; 1987, $51; 198S, $63; 1989, $85; 1990, $131.
'lucimled reith orenc<lporperty on I>nla nce .shrrt.
28
I Unused and available cmdit facilities fmm various United States banks totaling $80 at December 31,1985, required the mtention of average cash balances aggregating approximately $4.These mquimments were generally satisfied by balances maintained for normal business operations. Additional unused and available credit facilities with various United States and foreign banks totaling $1,335 at December 31,1985, required the payment of commitment fees. Iloth of these gmups of facilities, totaling $1,415, am available in support of commemial paper bormwings and working capital mquimments. Additional unused credit facilities totaling $520 at December 31,1985, am available for use by foreign subsidiaries. In August 1983, the Company registered with the Securities and Exchange Commission
$500 of debt securities, of which $200 has been issued.
long-term Debt 1985 1984 Promissory notes 8.00%, final maturity 1986 $ 120 4.50%, final maturity 1990 $ 40 45 5.00%, final maturity 1991 36 40 10.25%, final maturity 1992 100 9.50%, final maturity 2015 200 _ Debentures I 4.35%, final maturity 1988 6.70%, final maturity 1998 7.75%, final maturity 1999 34 42 9 11 34 42 8.85% final maturity 1999 49 52 8.88%, final maturity 2000 62 62 8.90%, final maturity 2000 72 72 7.40%, final maturity 2002 43 43 7.63%, final maturity 2003 45 45 8.50%, final maturity 2005 162 162 8.50%, final maturity 2006 160 160 7.88%, final maturity 2007 241 241 8.63%, final maturity 2008 275 275 11.25%. final maturity 2010 400 400 llonds 11.25%, final maturity 1988, Kuwaiti dinar 17 17 8.50%, nnal maturity 1992, Japanese yen 91 79 I 9.63%, final maturity 1994, t!.S. (:ollar 7.00%, final maturity 1994, Japanese yen 6.75%, final maturity 1995, Deut. sche mark 186 249 122 192 199 I 10.99%. tinal maturity 1997, pound sterling Other facilities - Various rates and maturities Fon ign currency loans 432 90 55 I U.S. dollar loans lbilution control industrial revenu honds l'nexpended construction funds 15 400 (l19) 18 334 (75) I Capital lease obligations 55 50 Suhtotal 3,508 2,682 Less unamortized debt discount 310 12 Total $3,198 $2,670 3 2e
I N Stockholders' Equity The authorized capital stock consists of 25 million pn ferred shams with a par value of
$1.00 per share, none of which has been issued, and 500 million shares of common stock with a par value of $2.50 per share.
At December 31,1985,1984 and 1983, shams of common stock outstanding (in g thousands) were 190,160; 190,092 and 105,846, after deducting 20,998; 18,522 and 10,703 5 shares of treasury stock, respectively. Retained earnings of the parent company wem approximately $2,129 at December 31, 1985, and there were no signincant restrictions limiting the availability for dividend purposes. Undistributed earnings of 20%-50% owned companies included in retained earnings were $476 and $432 at December 31,1985 and 1984, respectively. In computing earnings per sham, no a@ustment was made for common shares issuable under award, option and stock purchase plans because them would be no material dilutive elTect. Number ofissued Shares (in thousands) 1985 1984 1983 Beginning of the year 208,614 206,549 201,117 Sold to employees 2.54 e 2,065 2,432 End of the year 211,158 208,614 2n6,549 Reserved Common Stock (in thousands) 1985 1984 1983 Stock option and award plans 9,061 10,544 10,813 Employees' stock purchase plan 1,227 1,380 1,576 Total shares resetved 10,288 11,924 12,389 0 Pension Plans and The Company and its subsidiaries have several retirement plans covering substantially Postretirement all employees, including cedain employees in foreign countries. The cost of all retirement llenefits plans was $150 in 1985, $124 in 1984 and $123 in 1983. The Company makes annual contributions to the plans equal to the amounts accrued for pension expense, as deter-mined by the aggregate cost method of valuation. The assumed rate of return used in determining the actuarial pr(sent value of accumu-lated benefits was 8% for 1986 and 1985. The actuarial assumptions used in determining the funding and pension costs for the principal domestic denned benefit plan for 1985 and 1984 included an 8% intemst valuatian rate, an annual compensation inemase of 6%, an average retirement age of 62 and tumover based on experience. The Company's fomign pension plans are not required to report purs have not determined for 1985 the actuarial value of accumulated benents or net assets available for benents as calculated and disclosed. Ilowever, as of January 1,1985 and 1984, available assets in other plans exceeded vested berdits by appmximately .$81 and $100, l respectively. In ar dition to providing pension benents, the Company and its subsidiaries provida i certain health care and life insurance benefits to retired employees. Substantially all employees of the Company and its Canadian subsidiaries, including employees in a limited number of foreign subsidiaries, may become eligible for those benents if they reach retimment age while working for a participating employer. The Company may modify these benefits at any time. The cost of retiree health care and life insurance benents is recognized as an exliense as benents are paid; in 1985 and 1984 those costs totaled $27 and $21, respectively. 30
I The chart shows a comparison of accumulated plan benefits and plan assets at January I for the Company's domestic defined benefit plans, representing more than 850o of accumulated pension plan benefits for the Company and its consolidated subsidiaries. I Accumulated plan llenefits January 1 1986 1985 Actuarial present value of accumulate <i plan benefits: Vested $1,416 $ 1,19u Nonvested 150 273 Total $1,596 $1.163 Net assets available for benefits $ 1.654 $ 1.31 1 I P Stock Option and Award Plans Stock option plans and management incentive awants am described in the Company's Proxy Statement of Alarch 1986. Options under all plans am granted at market price of the shares on the date of the grants. Aggregate amounts charged to expense for all plans were $14 in 1985 and $15 in 1981 and 1983. The Company made offerings of common stock to its employees, excluding directors, in
'985 and 1984 at $21.00 per share and $24.80 per share, respectively, payable generally through payroll deductions. Unfiiled subscriptions (in thousands), cancellable at the option of the employee, were 1,227 and 1,380 shares at December 31,1985 and 1984, respectively.
Partial payments on these subscriptions aggmgating $18 and $20 at December 31,1985 and 1981, respectively, are included in curmnt liabilities. Stock "Ihmsactions 1985 1981 (in thousands) Deferred Dividend Deferre i Divides I Granted during year Outstanding at December 31 Stock 114 717 Units 112 1,517 Stock 128 658 Units 587 1,108 Availat le ihr grant at December 31 2.578 2,786 2.679 2.8!m I Common Stock Under Option (in thousands) 1985 Number price Shares ihmge 1984 Number price Shares ihmge Options expired or terminated during year I ti4 30 Options exercisable at December 31 3,1 N J,840 Options available for grant at December 31 1,816 2,576 Outstanding at December 31 3,950 $20.13-$36.13 4,630 $20.13-$36.13 Granted during y ear 787 29.19- 35.31 796 27.69- 29.88 Exercised during year 1,403 22.31 35.31 100 22.31- 33.sh I In addition, when the Company purchased Film'Ibc in 1985, FilmTec stock options were converted to 75 thousand equivalent Dow common stock options with a price nmge of
$9.44-$27.50, of which 73 thousand wem outst:mding at year-end. These options will be fully vested over five years. Options exercised during the year and options exercisable at year-end were 2 thousand and 13 thousand, with price ranges of $9.44-$18.88 and $9.11-
$27.50, respectively.
31
1 Q Commitments and The Company and its subsidiades are panies to a number of claims and lawsuits arising Contingent Liabilities out of the nomial course of business with respect to commercial matters including product liabilities, governmental mgulation including environmental matters, and other actions. Certain of these actions purpon to be class actions and seek damages in very large amounts. All such claims am being contested. The amounts of ultimate liability thervunder am indetenninable at December 31,1985. The Company is also a pany to several lawsuits arising out ofinsurance policies issued to the Company and its subsidianes. These lawsuits involve the recoverability under these insurance policies of certain losses and expenses incurred by the Company. In the opinion of management, msolution of these matters will not materially alTect the consolidated financial position or results of operations of the Company and its subsidiaries. As a geneml panner of several partr.erships, the Company may be liable for any denciencies which may arise in meeting the terms ofloan obligations incurred by the partnemhips. Assets of the partnerships which have been pledged as secudty for these loans am currently in excess of the loan obligations. The Company has various purchase commitments for materials, supplies and items of lll
=
I pennanent investmerit related to the onlinary conduct of business. Such commitments are I not at prices in excess of current markel While certain of these commitments are for E quantities in excess of the Company's present requirements, they am not expected to have any material adverse efTect on the consolidated financial position or msults of opemtions of E the Company. 3 On July 14,1983, the Company terminated the General Agreement with Consumers Power Company dated June 21,1978, under which Consumers had agreed to supply pmcess steam to Dow's Michigan Division upon completion of the Midland Nuclear Facility. Concurrently, Dow filed suit in Midland, Michigan Circuit Court seeking a declamtory l judgment that all obligations of Dow with respect to the General Agreement are cancelled and discharged due to Consumers' wrongful conduct or, alternatively, if Dow's obligations have not been completely cancelled and discharged that any termination payment under the General Agreement be substantially reduced. Dow further seeks a declaration that it is owed damages arising from Dow's expenditums of more than $60 in reliance on Consumers Power's misrepresentations and nondisclosums as well as such additional relief as the Court deems proper. Consumers claims timt Dow is obligated to pay a termination fee of
$460, in addition to money damages for bad faith breach of contract. 'hial commenced in Midland, Michigan Circuit Court on October 9,1984, and with numerous scheduled meesses is still continuing. In the opinion of Dow and its legal counsel, the ultimate amount of any such liability is indeterminable at this time. Accontingly, Dow has not reconfed any pmvision for possible loss on the contract tennination.
A United Kingdom partnership has entered into a 15-year operating lease agreement for a semisubmersible drilling rig to be used for oil and gas dnlling operations. A subsidiary of g the Company is a 50% participant in the partnership, and the Company has severally 3 guaranteed the lease payments to be made by the partnership. The guamntee amounted to $80 at December 31,1985. The Company receives funds periodically from the sale of financial instruments with full recoume, the amount of these mcourse agreements was $110, outsttnding at December 31,1985, was $109. A Canadian subsidiary has entered into two 20-year agreements to purchase substantially all the output of an ethylene phmt (Plant No.1) and 40% of the output of a second ethylene plant (Plant No. 2).The purchase price of the output is detennined on a cost-of-service basis which,in addition to covering all operating expenses and debt service costs, provides the owner of the plants with a specif%d mturn on capital. Total purchases under the agreements were $153, $159 and $146 in 1985,1984 and 1983, respectively. The following table shows the fixed and determinable portion of obligations under such l purchase commitments (at December 31,1985 exch:mge mtes) net of noncancellable sales 5 commitments. 32
d l'ixe(! ant! Detenninable Obligations 19sti $ 92 19N7 89 I 1958 hs 19s9 86 1990 s3 1991 - exluranon orcontracts 917 Subtotal 1.%3 1.ess amounts extinuned to tepresent interest 1I1 IWal $ 1.211 The ow ner of the plants, The Alberta Gas Ethylene Company Ltil. ( AGEC),luis borrow-ings out.stan< ling of SIS 5 which wcre use<l for the constniction of Plant No. I ami are guarantee <l as to principal azul interest by the Company. The Company has ses enilly guar-anteed the performance ofits subsidiaries under agreements to purchase output of Plant No. 2 and to futui its share of any cash denciencies (as defined in the agreement) in the plant's opentting and debt service costs. R Combined Financial The sununarized financial statements represent the combined accounts of principal Statements of companies in which Dow owns a 50% interest. Amounts presented include the assets, Principal 50% liabilities, revenues arul expenses (until the dates of purchase or sale prior to year-emi) of Owned Companies the following inajor international companies: Dow Corning Corponttion. a manufacturer of silicone asul silicone products; Dowell Schhnnberger companies, which perfonn sen ices for oil aiul gas wells; and MT Partnership, engaged in oil and gas activities. The ('ompany's e<luity interest in these companies was $837 and $S00 in 1985 and 1981. respectively. and its interest in earnings was $132, $ 19 and $81 in IDS 5,1HS I and 1983, respectively. ('ombined Italance Sheet 1983 198 I Curn nt assets plant l>n perty - net ( H her assets
$ 1,019 2cl19 33
$ l .002 2,133 31 I Total assets Cuirent lialulities 1.ong term debt 81.321 S f,S t 762 8 3.311s
$ 616 ws I Other liabilities 5tockhohleri equity Total liabihtics and stockhol.icrs' equity 209 1.s6f;
$3 321 179 1.793 93 30s I Statement of('ombined Income arul itetained Eantings 1983 1981 1983 I Sales Cost of sales
?2.:117 1.719
.1 1 isi i $ 1.701 1.103 t inher expenses - net 213 113 E7 income bcDre luos isliin list laws El 19' 'IJ Taxes on income 71 70 79 Net income 2s2 122 ini I elained ear nings at Jan. I sno 97i !"d I)ivalends deel.n ed (196) 1236: (!1%)
Adjusnnent for disestitures I .~o lh rained e.u nin,1.s en I of scar 4 916 4 sno
- 971
S Condensed Consolidated Ikdance Sheet 1985 198i Consolidated Financial cash and due from banks $~ Edl~ s 5 di-Statements of Dow Markeralde secunties 2xs 176 Financial Services mils discounted 9s 121 Corporation and
- aans and m erdraf ts 1.26i sus Subsidiaries Other assets 167 135 Total assets $2.-151 $ 1.750 Demand and titne deposits $2.1 10 $ 1,511 Other liabihties Is8 12S Stockholders
- equity 1 T,3 111 Total liabilities and stockholders' equity $2.181 $ 1.750 l
Consohdated Statement of income 1985 1981 1983 l Operating inconm 3219 $226 $177 ( lperating expenses 231 219 169 Profit before taxes on income 15 7 S Taxes on income 3 2 Net income $ 12 $ 5 $ 8 Cumulative 'llanslation Adjustments 1985 1988 1983 lleginning or year $(30) $ (9) $ (1) Current year translation adjust ments 26 (21) (h) End of ycar $ (-1) $(3u) $ h)) T Industry Segments The Company conducts its worldwide operations thnmgh separate geographic area and Geographic organizations which represent ma.jor mar kets or combinations of related nuirkets. Transfers l Areas between an'as are valued at cost plus a markup.There were no direct sales to foreign customers from domestic openttions.
.\ggregation of products is genenilly made on the basis of pnicess technology, end-use f markets and channels of distribution.The liasic Chemicals segment embcdies inorganic g chemicals, organic chemicals and hydrocarbons and energy. The liasic Plastics segnmnt is g comprised of plastic materials and pn> ducts. Industrial Specialties encompasses functional chemicals, polymeric materials and fabiicated prociucts. Consumer Specialtie., includes ,
agricuhund chemicals. human health care products and househohl fihns and cleaning pn > duct s. Transfers bw.u en industry segments nre genendly valued at standanl cost. Dou ell, which was a sepanite segment prior to the sale in 19S 1, accounts for the l'nalkirated. Depnscialion related to industry segments includes costs associated u ith tite special cha rges. 31
I Industry Segment flesults Corporate liasic Ilasic Industrial Consumer Unallo. and Consoli-Chemicals 11astics Specialties Specialties cated Elim. daus! 1985 Sales to unalfiliated customers $5.237 $ 1.506 $2,765 $2,029 $ 11,537 Intersegment transfers 1,416 120 26 6 $( 1,568) ( )peraling income 165 60 186 226 637 Identifial>1e a-sets 1,762 1.079 2.206 1,645 2,13S 11,S30 liepreciation 619 92 182 76 $ 8 977 Ca pital ex pendit u res 373 55 26S 111 806 1981 Sales to nnafliliated rustomers $5.337 $ 1.671 $2.583 $ 1.675 $152 $ 11,118 Intersegment hansfers 1.552 125 17 14 $(1.70s) ( )perating income 250 169 313 130 (26) S36 I idenafiatile assets 1.968 1,095 1,582 1,513 2,205 11,363 liepretration 602 72 121 97 13 908 __.- . - .- - .( _'a lpita ex pendit
. . _ . - u- -res
- 397 82 211 87 ~1 781 1983 Sales to nnalliliated rustomers $4,93S $1,613 $2,111 $ 1.196 $-193 $ 10.951 Intersegment transfers 1,511 116 16 14 $( 1,657)
( )per ating income i15 79 30. a9 (h!6) 501 Identilialile asset s 5,139 1,117 1,3n6 1,152 520 1,989 11,946
!)cprecianon . >21 77 109 4i .n 8 iI Ca pital ex pendit u res 3 11: 57 13S 60 26 630
(;cogral> hic Area llesulls Corporate I----.- 1985 5 ales to unallihated customers l'nited States
$5,211 Europe
$ 1.100 Rest of World
$2,226 and Elim.
Consoli. dated
$11,537
'D ansfers lict u ren areas 909 216 $(1,353)
I 229 Oper ating income 255 286 96 637 ldentilialde assets 6.197 2.939 2,570 121 11,830 Gross plant properties 6,S03 2.770 2.302 11,875 I 198 i Ca pital ex pendit u res S.,les to unalliliated customers 506
$5.293 16S
$3,815 132
$2.280 806
$ 11,41 S Transfers lictu een areas h51 227 261 $(1,339)
I ( >perat ing income Identiriable asseis Gross plant propernes 3S3 6.073 6,521 292 2,5S 8 2,lS 5 161 2.65S 41 836 11,363 2 250 L 1,256 rapital es pendihin-s 133 203 1 15 781 1983 Sales to unalTdiated customers $5.225 53.508 $2,158 $ 10.951
'lhnsfers lictui en areas 821 173 2s6 $( 1,283)
I ( >perating income Identi6able as,cis Gross plant properties 2 116 6,547 6,916 tha 2.602 2,377 111 2.731 2.231 60 501 11.916 11.521 I Canital ex pe ndit u res 356 139 105 630 )
.'l ~n
SUPPLEMENTARY INFORM ATION ON EFFECTS OF CII ANGING PRICES (unatulited) Supplementary financial information, prepan <l in accontmee with Statement of Financial E Accounting Standants No. 33 anel S2, Financial I?cporting an<l Changing ths, shows 5 certain income < lata presentcal in the historical cost income statement on page 18 ailjusicit to current costs expresse<l in clollar vahms generally at the average 19S3 price level. < Comparison of Selected Financial I)ata in llistorical I)ollars ami Current Costs (dollars in millions, except per share amounts) Sales 1985
$ 11.537 1981
$ 11,118 1983 F 10,951 1982
$10.6 t h 1981
$ 11.873 I6 ,
11,537 11,821 11,833 I Adjusted for generalinnatinn 11.821 11.013 Inconne before extraordinary items $ SS $ 521 $ 287 $ 2fi t $ 530 Current costs 31 162 111 51 187 Unrealized gain attributable to holding net monetary liabilities $ 1 12 $ 151 $ I tio $ !!Ni $ 172 " I:arnings per conunon share before WL ext raordinary items s .31 $ 2.70 $ 1.17 $ 1.36 $ 2.82 f Current costs .l ei 2.38 .57 .27 .99 i Current rosts in(liuling umealized gain .91 3.18 1.39 1.28 3.51 Stockhohlers' equity at 3 ear-erut $ 1,792 $ 5.010 $ 5.051 S 5.051 $ 1,990 Current costs 6.820 7,719 N.875 9.620 10.911 . Debt ratio (%) at 3 ear-end 13.2 % 3s.1% lo.SN -12.0"o 16.5 % ! Current rusts 31.0 29.3 29.l 29.6 31.S ( I)isidends declared per cumn:on share $ 1.50 $ 1.50 $ 1.80 $ 1.50 $ 1.80 ; l Mjusted Ihr general intiation 1.79 1.86 1.91 2.no 2.12 Market price per common share at year-erul $ -11.00 $ 27 30 $ 33.3s $ 25.Ss $ 26.25 f Adjusted Ihr general inflation 10.35 28US 35 I1 2S.52 30.01 Increase in general price les el of insentories amt net plant over change in specific prh e , $ 577 $ 785 9 599 A 391 S 121 As erage Itulex CPI U (1967 = 100) 322.2 311.1 29s. l 289.1 272.1 t At1)ecemtv. 'l,19SS, the curtrnt cost foi inventories was $2.170 (average imentory vahtes appnixim ied current cost) mal net plant pniperty was $7,101 (valued at chemical plant construct.on rost indexes). Current cost tiepreciation of $079 was calculated on a straight line lusis el historical depreciation of $977 was calculated using the double- = ,
<leclining balance method, both of which inchnied the special write-olT prognun.
I(i , I I l 36
W PitODUCT SEGMENT SALES ANALYSIS hmandited) I Sales of Principal Pn xlucts a nel Sen ices (in tuillions) 1985 19S1 198:1 I Itasic Chemicals lnorganic e hemtrals Organir < hemicals llydrocarin.ns
$ 1.633 1.116 2.15S
$ 1,766 1.519 J J17,2
$ 1,651 1.188 1.796 Total liasic Clmmirals $5237 15.337 $ 1 'US liasic Plastirs Total liasm P!astics 11. aerials S I,506 91.671 91.613
'Ibralliasic Chemmals 1% tics Will $7.00s $6.551 industrial Specialties Fum tional clmmirals $ 421 $ -112 A 108 Polymerie materia:s 1.717 1.537 1,13 1 Fabrit ated pnnlurts 625 61-1 569 Total Indust rial Specia hics $2,7Wi $ 2.5S3 S2. I 11 Consumer Specialties A gricult u ral chemicals 5 678 $ 618 $ 517 iluman health 758 706 661 Ilouschold prodort3 93 32! 2xx
'liital Consumer Specialties $2M29 $1675 $ 1,196
'lblaiIndustri.d Consuiner $ 1.79 i $ 4/258 53.907 Cnallocated l'nallo< ated - t h m ell services $ 15' A 193 Principal Po ulucts alul Sen it es liasic Chemirais Inorganic chemicals (isostic soda, rulvia m < /doride,, hloriont< d sadcruts, c hhorine, ethy!rne rii< ldoride o iroil a hloride, hydo yen
< bloride, mmpiedam hydnivide, mminesoum im tal.
Organic rhemleals 3r, t,me, n/Aomdomim s, hi. spin md,I h m anol glavnt vther pn> darts, rpichh rohydrin, rth ulera am tm s, r th ylene yhtred. rthyh or a ldr, qlyes rine, phe nul, propylenr yhp ol, propyleur o ide, styr nn rennanero: Ily drocarbons Ethalenc 'propylenejrvdstm bs and rt_linrry pnodm ts. sten m and pou rr: liasic Plastirs Plastic mat erials I h m lex Iim or bnr den.si / poly, th y!, nr. hiah
<h nsity polyethyh ne, har sh nsity polq< thylev ,5ty run painstyrrne resins.
Ind ust rial Specialties Functional chemicals ih m rx vm r.uhamic n sins. lkm fax surlarta n's.1lowiride amt i h m iril antimiend<in!.s,1).m 1herm h vnt tiansio r thrids.Genen en holhnc_liher morahr unrw \1ethoi el o < Hninse viher s, Separan jb>cenhu n t. \k rs< ac < hclulirni mp nts. Polymeno materials ,tr ryh mitrile-'mtmlivne styn nr ( UW), ('ahln e pohlrat honalrs,1 >rrakane ringl ester onins, c po ry n sina, Pt imaror adhrsir e pohnorrs. Faran r, sin arullate vs s ty rene baladierar latr.n s.'l\ ril stun m -> r ruhinitt ile n sins. \i.ranate is.orgenasin s and % nra nol pohtols' I Fabricated prinhirts F.thafo.un ph' stir t"nin. nanva sium 3h< < t, plate a mi r.: trasinn.s. Pela span V.w pl sstic lira d pipe pro.larts,
- 51) roh kam pohl styrene.loarn, Ti3 rite p<,ht stu rem; nim Zetahi m phssin enni na tal.
Consuf ner Specialtles Agricult u ral chemicals lh m pon yrn3s Ail.'er. l tu rst mn ai J _ _ 1.or-han inserti< nh s. l.ont n I herbir.de, pho no rq la i bicides Phr ran milicide.Telone sod l'orni,pr ,t.'liinion and( sailon in rbn i h v I _ _ _ _ _ Iluman healt b .irtilirmt A idm us,('eparut pmd," /s,l.oreb o h ypo chuh sten >lem or, .Mo n e' t e o n. .nmiring aid. Noutn~tinv pordarts. Ihfadm and IMorm ant,6<nin s. 5ehlane amI'h idane u ntP ism m l llousehold product s l H )W llothn,"n. ( L om <. F.ocashk "N pu rpw < h aus r; t ,las, VIu~ ulos 8 a h aver:lland, Wwp p!m tir_ tam P no Lar m ulti parpm, < l. o m r, Nu a n Wrap pl.r sti Ida, Sprav 'n Wa~ h bra ndr q sta r n ern. ore r. Ik mgh ,\.1 i h r:m v. \ n in bh m h. Yes I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ la.oalry el. tr r u, n t, Ltph ,e ho+ l .,
ELEVEN-YE AR SUMM ARY OF SELECTED FIN ANCI AL DATA (m millions. except per share data) 1985 Summary of operations Net rates $ I1.537 3 Cost of sales
- 9,615 Selling and administrative ___
1.285 Operating income' 637 Investment and sundry income (expense) (301) Interest expense - net (306) Income before pnivision for taxes
- 30 Taxes on income i (28) locome before extmordinary items and cumulative effect of accounting change' $ 58 Per share of common stock (dollars)'
Income before extraordinary items and cumulative effect of accounting thange i $ .31 Cash dis idends paid per shar" $ 1.S0 Average conunen shares outstanding (thousands)' 190,386 Year-end financial position Total assets" $ 11,8:?O Working capital' l.3 19 Property, plant and n piipment - gross 11,875 Property, plant and equipment - net 5.127 g Long tenu debt 5 .1,198 g Total debt 5 3,66i Stockholders' equity' 4.79.2 Financial ra tios Ilesearch and development expense as percent of sales 1.7"o income before provision for taxes as percent of sales * .34o
!!eturn on average stockhohlers' equity
- 1.2"a llook value per coinmon share ' $ 25.S5 llorrow ings as a percentage of total capital invested' 5 43.2"o General Capital expenditures $ S06 Depn ciation 977 I:esearch and development expenses 517
'Ihtal taxes2 4 270 Wages and salaries paid 1E63 -
Cost of emplos ee benefits 2 387 Number of employ ees at year end (thousands) 53.2 Erket price of common stock W liigh $ l l .h8 Low 27.00 t ' lose on Ikcember 31 41.00 Number of stockhohlers at 3 car-end (thousands) 1224 _
'.ldjustalJhr sto< k splits.
*FIC1 tax is ira luulett in total ta.o es and cost <tiernploys e in nofits.
/ Ob
1988 1983 1982 1981 1980 1979 1978 1977 1976 1975 I 511.118$ 10.951 $ 10,618 $ 11,S73 $ 10,626 $ 9.2 5'> $ 6,558 $ 6.231 % a.652 5 1.55s 9.528 9,161 9.392 10,073 M,619 7.231 5.281 1,731 1,125 3.1 h 038 I 1,051 989 95' 765 690 352 B0 131 113 836 001 271 862 1.212 1,331 1,052 1.020 1,0! ni 1.077 170 2 18 363 254 315 237 111 126 97 135 (,113) (318) (406) (410) (2?N) (272) (237) (220) (161) (103) 663 431 231 686 1,229 1/J99 959 926 1.032 1,101 139 lit (33) 156 12 1 515 351 372 120 til
$ 521 3 $ 287' $ 261' ? 530 $ h05 $ TSI $ 575 $ 351 $ 612 $ 630
$ 2 70' $ l.17' $ 1.36' $ 2.h2 $ l.12 $ 1.33 $ 3.16 $ 3.00 $ 3.30 $ 3.10 I$ 110 $ 1.80 $ 1.S0 $ 1.80 $ 1.06 $ 1.15 $ 1.25 $ 1.10 $ .90 3 .,3 l93.79; 198.999 193,221 187.961 182,162 IS I .1 19 1M2.091 151,331 1h5.112 IST205
$ 11,916 $ 11,768 $ 12,503 $ 11,600 $ 10.2 31 $ 8.789 $ 7,752 $ 6.911 $ 912 I $11,363 1.271 1.301 1,776 1,931 1,619 1,13S 1.165 571 711 766 11,256 l 1,521 11,199 10.981 9,873 H.909 8,038 7.158 6,171 5.10 1 5,173 5,69a a.961 6,171 5,672 5.236 1.762 1.277 3,619 2.855 2,670 2,731 3,109 3.861 3,138 3,035 2,937 2,173 1.998 1/W 1 3.151 3.198 3,6M 5 1.300 1,171 3.656 3/Mh 3.056 2.506 2,042
'.010 5,051 5.051 8.9MO 1,563 3,h97 3,395 3.097 2.817 2,132 1.1% 1.5N 1.3N 3.-IN 3.0% 2.9N llN 3.3 % 1h 3.1" ,
58'o 3.9 % 2.2 N 5NN 11.6 % 1 1.2N 1 1.1 N I 1.9 ' , 1 x. l' , !2.7" 11.1 % 6.5N 6.1% 11.1% 19.0"u 21.5"o 17.7N 18 0"4 23.2" > 2shN
$ 26.55 $ 25.79 $ 25.h3 6 25.20 A 2115 $ 21.51 $ INT! $ 16.95 $ 15% 5 13 12 38.1% -lo.SN 12.0 % 16 5N 17.5 % is.2% 19.7' 1% > 46.1% 15 2',
$ TX1 $ 630 $ h29 $ 1.176 $ 1,lMI $ 1.265 $ 1,075 $ 1.163 3 1.200 $ 915 90s SII S70 806 ,28 6.11 562 193 120 361 507 ,192 160 101 311 269 23' "03 lbs 167 306 til 271 160 679 718 572 550 59, n36 1,518 1,627 1,668 1.675 1,16M 1,301 1.113 976 Sss 791 3x2 381 390 361 339 297 261 221 205 171 I 1Rh
$ 31 Iso G l.a
$ 38.3 %
a6.6
$ 28.hh 63 9
$ 3R00 56.8
$ 39.25 55 J
$ 31.88 ila
$ 30.ss
- a. L2 5 13 516 11.0 4 57.25 3
51 1
$ 17.75 25.75 2300 1R61 213S 2M.25 21.3% 22.00 25.27 3838 26 5s 27.50 313M 25.88 26.25 32.13 32.13 21.58 26.75 13 1s 15 E l 1317 136.1 14Il 1116 137.0 1 11.5 136.7 125.l l12.3 982
'E.rtntonfionsry alerns, nrt qf tiLY, Ol'Yior rp'tirs' n nr.rpriulrel rrriv ra n a,blition to ru'l im onn- t onstruction lamb 11one rvrrh a.
I - rel $.16, or $.]!I per slus yr, in IUh ); henul bornuritujs nn,I ria e r
$ bl, or $2] per shiirr in l!h i;
$3 7, or $ lH pt r slus n , in l!I.%'.
* )iars l!!51 th r nayh l!Ib 3 Jun e russoriatrol in ts rest it,cono luv' heen n rbsssllir el to Inn!t I, rm rh ht arnt ip frn rf r rpense in the be en untirinl to njit vi the fjerns 10bl thinnyh 19 % )
int e nfory net onnliruj rhnnfje fnnn IJFt I to FIFt DJhr unnst jorrign iro enturies. I I .
DiltECTolts AND OFFICERS lioani of 1)ii ret ors (lllieers atul Assist:mt ()lk ers Enurorunent. Ilealth arnt 1:obrit W l.iunteen P. nil l' t ircilh v Salcty ( 'om mit tec 4 hainnan q1the Bonn! ! % r whicut amt i hia.1lln e atirr ItonahlA.lhkani lier nant 11. Ilun her in er i kiirma n Un r 19 cs hlen t 1.n 3111. lil:u r- Ilernant 11. Itutcher Amlrew .f. I?utler Fier />n shh ni liar b.n a 11. Franklin l'"whh ni llenunt li. Ilun her Wilham N.1.ipscomb. Jr. Ihne i k noiralI:n rupe l'i< < l*rrs hlen t I nas hl I.. ltooke lierbert 1). Ih un lierbert II. I)ow I On iil l'. sheetz ( h,:inna n, Nrortain Joseph G. Tem ple. .ir. lioon th son n , s ( 'orp. JustphIm I h m ncy Ete) i 11. Illair. c.r-q(ticio* (a renture < apilni c ompany) Vice1%rshlent I:obert A. Smit h. rx-qllicio
!!cibert II. Ih w Ennir se (1 Falla hern tary Fimtm ini Vice l'rrsioh ut V\erntis e Conunit tee 1:niiipic ( '. Falla Wilson A Gay l'an! E t Irellire l'ina ncial \ is e l'rvshh nt Tn as a rer 4 intinnan liar bara 11. Fr ankhn Way oc M. I hmeork lier hert it [>oan Senior Fo lhnr, \\'hartom .% hool ol' \ irr />n soient ami eicnvrn! llet hert Il. Ibow The l 'nir < rsita re! !'u n us u!rania t hun. sci flunier W elenry llunre W llenry llunter W llenry 1:ober t M. Keil I:n entio e \ are 1*ressh nt ann fin entire \ ice /*n shh nt I:obert W l.umleen l'n s uh of. lhor t hem n nI t 't \. 1 obert \l. Keil Keith IL Mehenr.an 1:obert M heil /U rratire fier l'n shfen t Frank it l'opolT tln entis , \hrl'rrsulent iloger I.. hesseler Joseph R Temple, Jr.
Wilh nu N. I;pscomb, Jr. Vice 14 rsislent a ml 4 imin lier l'n,trssor of ' h, v istrq. 1:ober t W l.uniteen Finant e Conunittee Ibtn not i T o < rsity 4 hairman of the floani 1 obert M. Neil hvit h IL McKennon heith IL Mehennon ( kiirma n tiroup \ h r 1*rrsulent noni tiroup \ ^irr 1%
- s hirnt A mtrew .l. I tutler lin,rrocthuonhom/ I:obert E. Naegele lierbert 11. Ilow l >rr o lopmen t tinsop \'h r l'n sblent 1:ntnple(*.Falla 1:oben 11 Nacerle Frank P. l'opofT Keith it % Kennon g Gn>np \i<rl% sialent I .u ratio e 1 ivr l'rrshh nt I:obert C. Navnele P.ml I . 4 )rcilire Ikinabi A. Ihkant l'aul E ()relTire l*rrshlent amt I hict f.b venin v Yhe 1% shh nt Frank I'. PopolT t it/o , e lias iil l'. Sheet / % ilson A Ga3. rf effie lo I n ank it l'opolT henior Vier l*resulen! I:ouer 1 Nesseler. r> yltirio t;n , u to , Un c 15csbh nt Joseph ( . Temple. Jr. Itobert % Feitries. Jr. < r q(licio llonalil A lhkan! Ils crutie e \ irc l'reshh n t (ilenn W % hite. <1 ollicio
\n. Pn s escnt it Wilham ILn her leas ell _ I ooke .\ ssistant Nrrn tary inwstment Pohry ('onumttee liarohl T 5hapiro llow ant W lluulett llunter W llenry I'u snient. . \ s si.s ta n t Treas u n r i *hairma n I 'n n , i sity gr .1/n h ina n llale A. ll) u ater llernant ll. Ilun her ItniilP.5heciz .\mlitor Aruhen J. ltuller S. n ror Fh ,19 rs hh n t a mi 1.ois J. llovrieni Enrn ine (1 Falla t h a i he u uti.st .\ssistant ha en tary 1:obert M. keil Joseph G. Temp!r. J r. A rnolil !.. J oh nson 1:obert F,. Naeucle lln ratio e Vn v 1% snient . \ ssista nt Tn n.s n o r I rack P. Popoli Wilh.un ('. Si hnnill I La oi !! Shertz
.\ssi.sta nt ( nn tn>Ih r Wilu in A (;ay. r r q[lirio i;lenn W % her 1:ober t McVettnes, .ir.. cr q(ticio
. \ s u.,la n t herrrla rq l'ubim Interest Conunittee Aniht I'(pitunill 1' hellh Il % heluHin I Ln ba ra !!. Franklm Ihainnon
( Inn rnor n ib bert 11. lion I ha iil I.. llooke Itu bara 11. FranLim liaiohl I Shapiro llunter W llenry Wilh:un N IJpscomb. .ir.
*lk to , ri Comnut tee on lin ei ton Itober t W I,unaleen 1:obert W !.umleen l >onabl A. Ihkant t 'hoirnune lla roh l T. Sha pir o lirr ber t 1) I h un lha ul I 5hectz 1 ober t M heil .loseph (i. Temple, f r.
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' The Dow Chemical Company-Midland, Micialgan 48674 I:
I I I I I I l Il I I' I I , I I I i
I I I I mcmem o I 1 Certification of Operating and Decomissioning Funds I I
- I I
I I ll I I I 'I
DOW CHEMICAL U.S.A. MIDLAND MICHIGAN 48674 November 13, 1986 Director, Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555 DOCKET NO. 50-264
Dear Sir:
The Dow Chemical Company certifies that it will provide the funds necessary for the operation and for the eventual decommissioning of the Dow TRIGA Research Reactor. Very truly yours,
/ /
THE HEMyAICOEPAN By: .
'Lt(/PAf .O '.
I ." G . Snyder, VicePresidentg. '[' ' Director of R&D Dow Chemical U.S.A. I Sworn to and subscribed before me by the above person on this date VLm& /7 , 1986. I I LAL Np)fary Public JANET G. GARY NOTARY PU8t.C, MIDLAND COUNTY, MICHIGAN MY COMMISSION EXPtRE5 MAY 1,1980
= Quality =
PEiformance AN OPERATING UNIT OF THE DOW WMICAL COMPANY %w6 M u At t> w _ _ _ _ .}}