10-K 1 dow201510k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number:   1-3433
THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
38-1285128
State or other jurisdiction of
incorporation or organization
 
(I.R.S. Employer Identification No.)
2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 989-636-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $2.50 per share
 
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ  Yes    ¨  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨  Yes    þ  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                 þ  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                    þ  Yes    ¨  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes      þ No
The aggregate market value of voting common stock held by non-affiliates as of June 30, 2015 (based upon the closing price of $51.17 per common share as quoted on the New York Stock Exchange), was approximately $59.1 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors and Officers would be deemed to be stock held by affiliates. Non-affiliated common stock outstanding at June 30, 2015 was 1,154,841,365 shares.
Total common stock outstanding at January 31, 2016 was 1,117,112,448 shares.
DOCUMENTS INCORPORATED BY REFERENCE

Part III: Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 2016.



The Dow Chemical Company
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2015
TABLE OF CONTENTS
 
 
PAGE
 
 
 
 
 
 
 
Business.
 
 
 
Risk Factors.
 
 
 
Unresolved Staff Comments.
 
 
 
Properties.
 
 
 
Legal Proceedings.
 
 
 
Mine Safety Disclosures.
 
 
 
 
 
 
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
 
 
Selected Financial Data.
 
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
 
 
Quantitative and Qualitative Disclosures About Market Risk.
 
 
 
Financial Statements and Supplementary Data.
 
 
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
 
 
Controls and Procedures.
 
 
 
Other Information.
 
 
 
 
 
 
 
Directors, Executive Officers and Corporate Governance.
 
 
 
Executive Compensation.
 
 
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
 
 
Certain Relationships and Related Transactions, and Director Independence.
 
 
 
Principal Accounting Fees and Services.
 
 
 
 
 
 
 
Exhibits, Financial Statement Schedules.
 
 
 

2


 
The Dow Chemical Company and Subsidiaries
 

Throughout this Annual Report on Form 10-K, except as otherwise noted by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report including, without limitation, the following sections: “Item 1. Business,” “Management's Discussion and Analysis,” and “Risk Factors.” These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “should,” “strategy,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

This document also contains statements about Dow's agreement to effect an all-stock, merger of equals strategic combination with E. I. du Pont de Nemours and Company ("DuPont") resulting in a new combined company ("Diamond-Orion HoldCo") and then, subsequent to the merger, Dow and DuPont intend to pursue the separation of Diamond-Orion HoldCo's agriculture business, specialty business and material science business through one or more tax-efficient transactions (collectively, the "Transaction"). Many factors could cause actual results to differ materially from these forward-looking statements with respect to the Transaction, including (i) the completion of the proposed Transaction on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the ability of Dow and DuPont to integrate the business successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separation, including timing anticipated, any changes to the configuration of businesses included in the potential separation if implemented, (iii) potential litigation relating to the proposed Transaction that could be instituted against Dow, DuPont or their respective directors, (iv) the risk that disruptions from the proposed Transaction will harm Dow’s or DuPont’s business, including current plans and operations, (v) the ability of Dow or DuPont to retain and hire key personnel, (vi) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, (vii) uncertainty as to the long-term value of Diamond-Orion HoldCo common stock, (viii) continued availability of capital and financing and rating agency actions, (ix) legislative, regulatory and economic developments, (x) potential business uncertainty during the pendency of the merger that could affect Dow’s and/or DuPont’s economic performance, (xi) certain contractual restrictions that could be imposed on Dow and/or DuPont during the pendency of the merger that might impact Dow’s or DuPont’s ability to pursue certain business opportunities or strategic transactions and (xii) unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed merger, will be more fully discussed in the joint proxy statement/prospectus that will be included in the registration statement on Form S-4 that will be filed with the U.S. Securities and Exchange Commission in connection with the proposed merger. While the list of factors presented here is, and the list of factors to be presented in the registration statement on Form S-4 are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Dow nor DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.

A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A of this Form 10-K). The Dow Chemical Company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

3


 
The Dow Chemical Company and Subsidiaries
 
 
PART I, Item 1. Business.
 

THE COMPANY

The Dow Chemical Company was incorporated in 1947 under Delaware law and is the successor to a Michigan corporation, of the same name, organized in 1897. The Company's principal executive offices are located at 2030 Dow Center, Midland, Michigan 48674. Throughout this Annual Report on Form 10-K, except as otherwise indicated by the context, the terms “Company” or “Dow” as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

Available Information
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of the Company's website (www.dow.com/investors), as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains these reports as well as proxy statements and other information regarding issuers that file electronically. The SEC's website is at www.sec.gov. The Company's website and its content are not deemed incorporated by reference into this report.

General
Dow combines the power of science and technology to passionately innovate what is essential to human progress. The Company is driving innovations that extract value from materials, polymers, chemicals and biological sciences to help address many of the world's most challenging problems such as the need for clean water, clean energy generation and conservation, and increasing agricultural productivity. Dow's integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high-growth sectors such as packaging, electronics, water, coatings and agriculture. In 2015, Dow had annual sales of nearly $49 billion and employed approximately 49,500 people worldwide. The Company's more than 6,000 product families are manufactured at 179 sites in 35 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

Strategy
Dow’s strategy is to invest in a market-driven portfolio of advantaged and technology-enabled businesses that create value for our shareholders and customers.

Dow DuPont Planned Merger of Equals
On December 11, 2015, the Company and E. I. du Pont de Nemours and Company ("DuPont") announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-efficient transactions, including a leading global pure-play agriculture company, a leading global pure-play material science company and a leading technology and innovation-driven specialty products company. See Part I, Item 1A. Risk Factors and Note 27 to the Consolidated Financial Statements for further details on this transaction.



4


BUSINESS SEGMENTS AND PRODUCTS
Dow’s worldwide operations are managed through global businesses which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics. This operating structure maximizes Dow’s integration benefits and the value from materials, polymers, chemicals and biological sciences to help address many of the world's most challenging problems - either through molecular and value chain alignment, or through the benefits derived from Dow's enhanced, innovation-driven market focus. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 26 to the Consolidated Financial Statements for additional information concerning the Company’s operating segments.


AGRICULTURAL SCIENCES
The Agricultural Sciences segment is a global leader in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agricultural, industrial and commercial pest management, and food service. The segment has broad global reach with sales in nearly 130 countries and research and development ("R&D") and manufacturing facilities located in all geographic areas. Growth is achieved through the development of innovative new products and technologies, successful segmentation of market offerings with leading brands, diverse channels to market, competitive cost positions, strategic bolt-on acquisitions, and commercial and R&D collaborations. The Company is committed to the development of innovative new crop protection and biological products and technologies.

Details on Agricultural Sciences' 2015 sales, by business and geographic area, are as follows:

Products
Key product lines, including crop application, are listed below:

 
Crop Application
Key Product Lines
Canola
Cereals
Corn
Cotton
Range and Pasture
Rice
Soybeans
Sunflower
Trees, Fruits and Vegetables
Others
Insecticides
x
x
x
x
 
x
x
x
x
x
Fungicides
 
x
 
 
 
x
x
 
x
x
Herbicides
x
x
x
x
x
x
x
x
x
x
Seeds
x
x
x
x
x
 
x
x
 
x
Other
 
 
x
 
 
 
 
 
 
 

The Company's ability to produce seeds can be materially impacted by weather conditions, local political conditions and the availability of reliable contract growers.


5


Agricultural Sciences is focused on delivering results through technology leadership. Major brands and technologies, by key product line, are listed below:

Key Product Lines
Brands and Technologies
Insecticides
ISOCLAST™; LORSBAN™; RADIANT™; SENTRICON™; TRACER™
Fungicides
DITHANE™; INATREQ™
Herbicides
ARYLEX™; BROADWAY™; CLINCHER™; DURANGO™; FENCER™; GARLON™; LONTREL™; MILESTONE™; PANZER™; PRIMUS™; RINSKOR™; SPIDER™; STARANE™; SURESTART™; TORDON™
Seeds
AGROMEN™(1); BRODBECK™ Seeds; DAIRYLAND SEED™; DOW™ Seeds; MYCOGEN™ Seeds; NEXERA™; Omega-9 Healthier Oils; PFISTER™ Seeds; PHYTOGEN™; POWERCORE™ Insect Trait Technology(2); PRAIRIE BRAND™ Seeds; REFUGE ADVANCED™ powered by SmartStax®(2); SmartStax® Insect Trait Technology(2)
Other
N-SERVE™ Nitrogen Stabilizer; TELONE™
(1)
AGROMEN trademark used under license from Agromen Sementes Agricolas Ltda.
(2)
Smartstax® and POWERCORE™ multi-event technology developed by Dow AgroSciences LLC and Monsanto. Smartstax®, the Smartstax® logo, POWERCORE™ and the POWERCORE™ logo are trademarks of Monsanto Technology, LLC.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's ("EPA") registration of ENLIST DUO™ for use with ENLIST™ Corn and Soybeans in 15 key states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST™ Soybean Seeds and Corn Seeds in Brazil. Regulatory approvals for ENLIST™ products in certain other countries are still pending. After the EPA’s registration of ENLIST DUO™ for use with ENLIST™ Corn and Soybeans, the National Resources Defense Council, Center for Food Safety and other organizations filed suit against the EPA to set aside the registration in the United States Court of Appeals for the Ninth Circuit (the "Court"), and Dow AgroSciences intervened in the cases. In late November 2015, the EPA filed a motion to vacate and remand the registration to the EPA. Dow AgroSciences opposed the motion to vacate the registration. On January 25, 2016, the Court denied the EPA’s motion to vacate the registration, so the ENLIST DUO™ registration for use with ENLIST™ Corn and Soybeans remains fully intact.

Patents, Trademarks and Licenses
Agricultural Sciences has significant technology-driven growth, led by plant biotechnology traits and crop protection products that utilize proprietary formulations. As a result, the Company uses patents, trademarks, licenses and registrations to protect its investment in germplasm, traits and proprietary chemistries and formulations. The Company also licenses plant biotechnology traits from third parties and engages in research collaborations with global industry, academia and governments. The Company does not regard the Agricultural Sciences segment as being materially dependent on any single or group of related patents, trademarks, licenses or registrations.

Competition
Agricultural Sciences competes with producers of crop protection chemicals and agricultural biotechnology in the United States and abroad. The Company competes on the basis of technology and trait leadership, price, quality and cost competitiveness. Key competitors include BASF, Bayer, DuPont, Monsanto and Syngenta, as well as generic and regional seed companies.

Distribution
Agricultural Sciences has a diverse worldwide network which markets and distributes the Company's brands to customers globally. This network consists of the Company's sales and marketing organization partnering with distributors, independent retailers and growers, cooperatives and agents throughout the world.

Seasonality
Agricultural Sciences sales and EBITDA are strongest in the first half of the year, aligning with the planting and growing season in the northern hemisphere, where approximately 60 percent of the segment's annual sales are generated. Inventory tends to be at peak levels in the first half of the year, in advance of the northern hemisphere planting and growing season. Accounts receivable tends to be highest during the second quarter, consistent with the peak sales period in the northern hemisphere.


6


Divestiture
On July 31, 2015, the Company sold its AgroFresh business to AgroFresh Solutions, Inc ("AFSI"). The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is also reported in the Agricultural Sciences segment.


CONSUMER SOLUTIONS
The Consumer Solutions segment consists of three global businesses: Consumer Care, Dow Automotive Systems and Dow Electronic Materials. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications - including semiconductors and organic light-emitting diodes, adhesives and foams used by the transportation industry, and cellulosics and other polymers for innovative pharmaceutical formulations and food solutions. These businesses serve the needs of market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The segment's commitment to continuous innovation and rapid new product development enables it to maximize opportunities in emerging geographies and high-growth consumer market segments.

Details on Consumer Solutions' 2015 sales, by business and geographic area, are as follows:


Consumer Care
Consumer Care provides global and regional brand owners in food, pharmaceutical, personal care and home care markets with innovative formulations and ingredients designed to add value to their products and help consumers live healthier and more convenient lives.

Consumer Care's principal businesses each serve one or more key market segments, as noted below:

Business
Market Segments
Technologies
Dow Home, Institutional & Personal Care Solutions
Personal care, home care and specialty applications with key focus on hair care, skin care, sun care, cleansing, as well as, fabric, dish, floor, hard surface and air care applications
From polymers and emollients to chelants and dispersants, Dow offers unique innovations that empower consumer brands around the world to deliver exceptional product performance and process enhancements that create value. Other notable technologies include opacifiers, rheology modifiers, surfactants and solvents.
Dow Pharma and Food Solutions
Pharmaceutical, food and nutrition
Cellulosic and other technologies help bring new classes of medicines to market and enable foods that are healthier (gluten-free, reduced oil/fat content). Notable technologies include excipients and active pharmaceutical ingredients, solubility enhancers, reagents, granulation and binders, as well as coatings and controlled release.
SAFECHEM™
A service business responsible for the sustainable and innovative use of solvents
Offers cleaning solutions, equipment and services for metal and dry cleaning applications. Provides closed-loop SAFE-TAINER™ System delivery systems to ensure emission free use of cleaning agents.


7


Dow Automotive Systems
Dow Automotive Systems is a leading global provider of collaborative solutions and advanced materials for original equipment manufacturers, tier suppliers, aftermarket customers and commercial transportation manufacturers. Dow Automotive Systems’ leading technologies, materials engineering, testing and service support are complemented by a robust line of structural, elastic and rubber-to-substrate adhesives; composite materials technologies; polyurethane foams and acoustical management systems; and films and fluids.

Dow Automotive Systems’ principal businesses offer the following technologies and serve the following market segments:

Business
Market Segments
Technologies
Adhesives
Elastic, structural and specialty adhesives
Innovative and differentiated adhesive technologies to meet customer specifications for durability and crash performance
Performance Solutions
Performance plastics, fluids and polyurethane foam solutions
Technologies that differentiate customers’ products with improved performance characteristics

Dow Electronic Materials
Dow Electronic Materials is a leading global supplier of enabling materials for a broad range of consumer electronics including smartphones, tablets, television monitors and personal computers, as well as electronic devices and systems used in a variety of industries. The business produces materials for chemical mechanical planarization ("CMP"); materials used in the production of electronic displays, including films, filters and organic light-emitting diodes ("OLEDs"); metalorganic precursors for light-emitting diodes ("LEDs"); products and technologies that drive leading-edge semiconductor design; materials used in the fabrication of printed circuit boards; and integrated metallization processes for metal finishing and decorative applications.

Dow Electronic Materials is comprised of four principal businesses, each serving one or more key market segments, as noted below:

Business
Market Segments
Technologies
Semiconductor Technologies
Integrated circuit fabrication for memory and logic
CMP consumables, photolithography materials
Interconnect Technologies
Printed circuit board, electronic and industrial finishing
Interconnect metallization and imaging process chemistries
Display Technologies
Display materials
Display films and filters, OLED materials
Growth Technologies
New and emerging technologies
Advanced chip packaging materials, metalorganic precursors, optical and ceramic materials

Competition
The Consumer Solutions segment experiences competition in each business within the segment. The competitors include many large, multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high-level of customer service and technical expertise from the Company's sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Ashland, BASF, Bayer, JSR Micro and Shin-Etsu Chemical.

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

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning Incorporated ("Corning"). Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.



8


INFRASTRUCTURE SOLUTIONS
The Infrastructure Solutions segment is comprised of an industry-leading portfolio of businesses utilizing advanced technology to deliver products such as architectural and industrial coatings, construction material ingredients, building insulation, adhesives, microbial protection for the oil and gas industry, and water technologies. With unmatched R&D capabilities, a broad range of chemistries, extensive geographic reach and strong channels to market, this segment is well positioned to capitalize on market trends. The segment has broad geographic reach with sales in nearly 150 countries and R&D and manufacturing facilities located in key geographic areas.

Details on Infrastructure Solutions' 2015 sales, by business and geographic area, are as follows:
   

Dow Building & Construction
Dow Building & Construction is comprised of two businesses - Dow Building Solutions and Dow Construction Chemicals. Leveraging more than 60 years of building science experience and deep application expertise, as well as 75 years of STYROFOAM™ brand products, Dow creates high-performance solutions designed to help make residential and commercial buildings more comfortable, last longer, save energy and reduce emissions. The business group offers extensive lines of industry-leading durable insulation solutions and functional ingredients that provide improved thermal performance, air sealing, weatherization, waterproofing and fire retardancy for construction products.
 
Dow Coating Materials
The Dow Coating Materials business manufactures and delivers solutions that leverage high quality, technologically advanced product offerings for architectural paint and coatings, as well as industrial coatings applications, including paper, leather, concrete, wood, automotive, maintenance and protective industries. Dow Coating Materials introduced the industry's first waterborne technology in 1953 and has since led the industry's conversion away from solvent borne technology to allow for lower volatile organic compounds and an improved sustainability profile while pushing performance boundaries.

Energy & Water Solutions
Energy & Water Solutions is comprised of four businesses - Dow Microbial Control; Dow Oil, Gas & Mining; Dow Solar; and Dow Water and Process Solutions. Dow Microbial Control provides technology used to predict, diagnose and sustainably solve the planet’s most difficult microbial challenges while Dow Oil, Gas & Mining is helping to provide energy to the world by supplying smart, innovative and customized solutions to enable the tapping of both conventional and unconventional sources. Providing building-integrated photovoltaics, Dow Solar enables energy solutions in the infrastructure market sector. Also aligned to the infrastructure market sector is Dow Water and Process Solutions, a leading provider of purification and separation technologies including reverse osmosis membranes and ion exchange resins to help customers with a broad array of separation and purification needs such as reusing waste water streams, making fresh drinking water from sea water, creating a closed loop water system for oil field operations, and removing impurities in dairy processing.

Performance Monomers
The Performance Monomers business produces monomer products that are sold externally as well as consumed internally as building blocks used in downstream polymer businesses. The business' products are used in several applications, including dispersions and emulsions for adhesives, coatings, inks, woven and non-woven textiles, plastics and polymers and superabsorbent products. Included in this portfolio is Plastics Additives, a worldwide supplier of additives used in a large variety of applications ranging from construction materials and packaging containers to consumer appliances and electronics, business machines and automotive parts.

9


Products
Infrastructure Solutions' businesses each serve one or more key market segments, as noted below:

Business
Applications/Market Segments
Major Products
Dow Building & Construction
Rigid and spray foam insulation; weatherization, waterproofing and air sealing; caulks and sealants; elastomeric roof coatings; exterior insulation finishing systems; roof tiles and siding; industrial non-wovens; cement-based tile adhesives; plasters and renders; tape joint compounds; and concrete additives
AQUASET™ acrylic thermosetting resins, DOW™ latex powder, FROTH-PAK™ foam insulation and sealants, GREAT STUFF™ insulating foam sealants and adhesives, RHOPLEX™ and PRIMAL™ acrylic emulsion polymers, STYROFOAM™ brand insulation products, THERMAX™ exterior insulation, WALOCEL™ cellulose ethers, WEATHERMATE™ house wrap, XENERGY™ high performance insulation, LIQUID ARMOR™ flashing and sealant
Dow Coating Materials
Acrylic binders for architectural paint and coatings, industrial coatings, and paper; dispersants; rheology modifiers; opacifiers and surfactants for both architectural and industrial applications; protective and functional coatings
ACRYSOL™ Rheology Modifiers, AVANSE™ acrylic binders, EVOQUE™ Pre-Composite Polymer, FORMASHIELD™ acrylic binder, RHOPLEX™ acrylic resin, TAMOL™ Dispersants, MAINCOTE™ acrylic epoxy hybrid, PARALOID™ Edge ISO-free technology and ACOUSTICRYL™ liquid-applied sound damping technology
Energy & Water Solutions
Helping customers in exploration, production, transmission, refining and gas processing to optimize supply, improve efficiencies and manage emissions. Providing expertise and localized solutions for microbial control for well souring, industrial cooling water, fabric odor elimination, in-can preservation and dry film protection. Providing advanced, cost effective separation and purification technology for water treatment and filtration, pharmaceutical, food and beverage, and chemical processing
Demulsifiers, drilling and completion fluids, heat transfer fluids, rheology modifiers, scale inhibitors, shale inhibitors, specialty amine solvents, surfactants, water clarifiers, DOW ADSORBSIA™ selective media, DOW EDI™ modules, DOWEX™ and AMBERJET™ ion exchange resins, DOWEX™ OPTIPORE™ polymeric adsorbent resins, DOW FILMTEC™ reverse osmosis and nanofiltration elements, TEQUATIC™ PLUS fine particle filter, AMBERLYST™ polymeric catalysts, AQUCAR™, BIOBAN™, SILVADUR™ antimicrobial, DOW POWERHOUSE™ Solar Shingles
Performance Monomers
Super absorbents, water treatment, flocculants and detergents, acrylic sheets, coatings, inks and paints, molding compounds, impact modifiers, processing aids, electronic displays, adhesives, textiles, automotive and architectural safety glass, and plastics additives
Acrylates, methacrylates, vinyl acetate monomers, high-quality impact modifiers, processing aids, foam cell promoters and weatherable acrylic capstock compounds for thermoplastic and thermosetting materials

Competition
Competitors of the Infrastructure Solutions segment include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high level of customer service and expertise from our sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Arkema, Ashland, BASF, Elementis, Hydranautics, Lanxess, Lonza, Owens-Corning and Shin-Etsu Chemical.

Joint Ventures
The Infrastructure Solutions segment includes a portion of the Company's share of the results of Dow Corning, a joint venture that manufactures silicone and silicone products, which is owned 50 percent by the Company.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning. Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.



10


PERFORMANCE MATERIALS & CHEMICALS
The Performance Materials & Chemicals segment is comprised of three technology-driven, customer-centric global businesses that are advantaged through integration and driven by innovative technology and solutions: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. Products produced by this segment are back-integrated into feedstocks, supporting a low-cost manufacturing base and consistent, reliable supply. The Performance Materials & Chemicals segment is positioned for growth through diverse markets and product offerings. The segment has broad geographic reach with sales in nearly 140 countries and manufacturing facilities located in all geographic areas. Performance Materials & Chemicals has a diverse product line that serves customers in a large number of industries including appliance, construction and industrial.

Details on Performance Materials & Chemicals' 2015 sales, by business and geographic area, are as follows:
   

Chlor-Alkali and Vinyl
The Chlor-Alkali and Vinyl business provides cost-advantaged chlorine and caustic soda supply and integration for the Polyurethanes business. Chlor-Alkali and Vinyl also includes the marketing of caustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer, essential for the production of polyvinyl chloride.

Industrial Solutions
The Industrial Solutions business enables manufacturing of the world’s goods and services with additive solutions that minimize friction and heat in mechanical processes, manage the oil and water interface, deliver active ingredients for maximum effectiveness, facilitate dissolvability and provide the foundational building blocks for the development of chemical technologies. The business supports industrial manufacturers associated with virtually all end-markets, notably electronics, agricultural chemicals, engine/heavy equipment, coatings, adhesives and inks, and detergents and cleaners. Industrial Solutions is also the world’s largest producer of purified ethylene oxide. Approximately 80 percent of the ethylene oxide produced by Dow is consumed within the Performance Materials & Chemicals segment.

Polyurethanes
Polyurethanes is comprised of four businesses: Isocyanates, Polyols, Polyurethane Systems and Propylene Oxide/Propylene Glycol ("PO/PG"). The Polyurethanes business is the world’s largest producer of propylene oxide and propylene glycol as well a leading producer of polyether polyols and aromatic isocyanates that serve energy efficiency, consumer comfort and industrial market sectors. Propylene oxide is produced using the chlorohydrins process as well as by hydrogen peroxide to propylene oxide manufacturing technology(1). Performance Materials & Chemicals businesses consume approximately 90 percent of the propylene oxide produced or procured by Dow.

Competition
Competition for the Performance Materials & Chemicals segment varies based on the business. Key competitors include large, international chemical companies as well as chemical divisions of major national and international oil companies. Performance Materials & Chemicals back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a full-service supplier with a global technical service network located close to the customer, which allows the Company to fuel growth in specialty applications and collaborate with customers to invent unique chemistries and tailored solutions. In addition to its competitive cost position, reliable supply and superior customer service, the Company also competes worldwide on the basis of quality, technology and price. Key competitors include BASF, Bayer, Hexion and Huntsman.

(1)
Hydrogen peroxide to propylene oxide manufacturing technology is utilized by MTP HPPO Manufacturing Company Limited, a Thailand-based consolidated variable interest entity ultimately owned 50 percent by the Company and 50 percent by SCG Chemicals Co. Ltd.; and BASF DOW HPPO Production B.V.B.A., a Belgium-based joint venture ultimately owned 100 percent by HPPO Holding & Finance C.V., which is owned 50 percent by the Company and 50 percent by BASF.

11


Distribution
The Performance Materials & Chemicals segment markets its products primarily through the Company's sales force and also utilizes distributors worldwide.

Joint Ventures
The Performance Materials & Chemicals segment includes a portion of the Company's share of the results of the following joint ventures:

EQUATE Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a development-stage Saudi Arabian company that will manufacture chlorine, ethylene and propylene for internal consumption and will produce and sell high-value added chemical products and performance plastics; owned 35 percent by the Company.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturer and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal.

Divestitures
On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture.


PERFORMANCE PLASTICS
The Performance Plastics segment is the world’s leading plastics franchise, and is a market-oriented portfolio composed of five global businesses: Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach, with sales in 115 countries and manufacturing facilities located in all geographic areas. It also benefits from Dow’s R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in key strategic markets.

Details on Performance Plastics' 2015 sales, by business and geographic area, are as follows:
   

Dow Elastomers, Dow Electrical and Telecommunications, and Dow Packaging and Specialty Plastics serve high-growth, high-value sectors where Dow's world-class technology and rich innovation pipeline creates competitive advantages for customers

12


and the entire value chain. Together, these three global businesses have complimentary market reach, asset capabilities and technology platforms that provide the Company with immediate and long-term growth synergies. Market growth is expected to be driven by major shifts in population demographics, improving socioeconomic status in emerging geographies, consumer and brand owner demand for increased consumer convenience, efforts to reduce food waste, growth in telecommunications networks, specifically broadband and LTE networks, and global development of electrical transmission and distribution infrastructure and renewable energy applications. Market segments served by these businesses include adhesives, construction, food and specialty packaging, footwear, industrial and consumer packaging, hygiene and medical, infrastructure, pipe, telecommunications and transportation.

The Energy business is one of the world’s largest industrial energy producers. This business produces or procures the energy used by Dow, sells energy to customers located on Dow manufacturing sites and also engages in opportunistic merchant sales driven by market conditions. Because of its unparalleled scale, purchasing power and global reach, the Energy business offers Dow tremendous knowledge of world energy markets and the agility to respond to sudden changes in conditions.

The Hydrocarbons business is one of the largest global producers of ethylene, an internal feedstock that is consumed primarily within Performance Plastics. The Hydrocarbons business is also a large purchaser and producer of propylene. The Company strategically locates its polyethylene production facilities near its ethylene production facilities to optimize integration benefits and drive low costs. Dow's global scale, operational discipline and feedstock flexibility create a cost-advantaged foundation for the Company's downstream, market-driven businesses. In North America, shale gas opportunities - and the resulting increased supplies of natural gas and natural gas liquids (“NGLs”) - remain a key, cost-competitive position for the Company's ethane- and propane-based production. The Company's U.S. and European ethylene production facilities allow Dow to use different feedstocks in response to price conditions. Meanwhile, the Company's U.S. Gulf Coast investments will strengthen ethylene and propylene integration and establish a platform for growth of Dow's downstream businesses.

Products
Major applications/market segments and products are listed below by business:

Business
Applications/Market Segments
Major Products
Dow Elastomers
Adhesives, footwear, housewares, infrastructure, sports recreation, toys and infant products, transportation
Elastomers, polyolefin plastomers, ethylene propylene diene monomer elastomers ("EPDMs")
Dow Electrical and Telecommunications
Building and construction, electrical transmission and distribution infrastructure, telecommunications infrastructure
Wire and cable insulation, semiconductive and jacketing compound solutions, bio-based plasticizers
Dow Packaging and Specialty Plastics
Adhesives, food and specialty packaging, hygiene and medical, industrial and consumer packaging, photovoltaic
Acrylics, polyethylene, low-density polyethylene, linear low-density polyethylene, high-density polyethylene, polyolefin emulsions, polyolefin plastomers
Energy
Principally for use in Dow’s global operations
Power, steam and other utilities
Hydrocarbons
Purchaser of feedstocks; production of cost competitive monomers utilized by Dow’s derivative businesses
Ethylene, propylene, benzene, butadiene, octene, aromatics co-products, crude C4

Advantaged feedstock positions in the United States, Canada, Argentina and the Middle East

Competition
Competition for the Performance Plastics segment includes chemical divisions of major national and international oil companies, which provide competition in the United States and abroad. Dow competes worldwide on the basis of product quality, product supply, technology, price and customer service. Performance Plastics will continue to benefit from an advantaged feedstock position, including favorable shale gas dynamics in the United States, which will further strengthen the Company's low-cost position and enhance global cost competitiveness. Key competitors include Borealis, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC.

Joint Ventures
Joint ventures play an integral role within the Performance Plastics segment by dampening earnings cyclicality and improving earnings growth. Principal joint ventures impacting Performance Plastics are noted in the following section.


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Aligned 100 percent with Performance Plastics:
The Kuwait Styrene Company K.S.C. - a Kuwait-based company that manufactures styrene monomer; owned 42.5 percent by the Company.
The SCG-Dow Group consists of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; and Siam Synthetic Latex Company Limited. These Thailand-based companies manufacture polyethylene, polystyrene, styrene and latex; owned 50 percent by the Company.

Performance Plastics includes a portion of the results of:
EQUATE Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a development-stage Saudi Arabian company that will manufacture chlorine, ethylene and propylene for internal consumption and will produce and sell high-value added chemical products and performance plastics; owned 35 percent by the Company.

On May 5, 2015, Univation Technologies, LLC, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company, became a wholly owned subsidiary of Dow.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturer and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with the Performance Materials & Chemicals segment through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE.

Divestitures
On December 2, 2013, the Company sold its Polypropylene Licensing and Catalysts business to W. R. Grace & Co. This business was reported in the Performance Plastics segment through the date of divestiture.

Future Investments
The Company announced a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and NGLs derived from shale gas. As a result of these investments, the Company’s exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane based feedstocks. The Company announced investments in a new on-purpose propylene production facility, which commenced operations in December 2015, and a new, world-scale ethylene production facility, which is expected to start-up in the first half of 2017, both located in Freeport, Texas. As a result of these U.S. Gulf Coast investments, Dow’s ethylene production capabilities are expected to increase by as much as 20 percent.

The Company announced the location of four new Performance Plastics production facilities to be built on the U.S. Gulf Coast, which include an ELITE™ Polymer production facility in Freeport, Texas; a Low Density Polyethylene (LDPE) production facility in Plaquemine, Louisiana; a NORDEL™ Metallocene EPDM production facility in Plaquemine, Louisiana; and a High Melt Index (HMI) AFFINITY™ Polymer production facility in Freeport, Texas. Leveraging a low cost ethylene supply from advantaged feedstock positions from U.S. shale gas, these production facilities will support expected profitable growth of the Company's high value Performance Plastics franchise.


CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, Company branding initiatives, etc.); the results of Ventures (including business incubation platforms and non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense costs and reserve adjustments); and, foreign exchange results.



14


INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS
See Note 26 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area.


SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of any operating segment's sales is dependent upon a single customer. No single product accounted for more than five percent of the Company’s consolidated net sales in 2015.


RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The two major raw material streams that feed the production of the Company’s finished goods are hydrocarbon-based and chlorine-based raw materials. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. Expenditures for hydrocarbon feedstocks and energy accounted for 27 percent of the Company’s production costs and operating expenses for the year ended December 31, 2015. The Company purchases these raw materials on both short- and long-term contracts.

The Company had adequate supplies of raw materials during 2015, and expects to continue to have adequate supplies of raw materials in 2016. Significant raw materials, by operating segment, are listed below:

Significant Raw Materials
Performance Materials & Chemicals
 
Raw Material
Agricultural Sciences
Consumer Solutions
Infrastructure Solutions
Performance Plastics
Acetone
 
 
x
 
 
Ammonia
 
 
x
x
x
Aniline
 
 
 
x
 
Benzene
 
 
 
x
x
Butadiene
 
 
x
 
x
Butanol (1)
 
 
x
 
 
Butene
 
 
 
x
x
Carbon Black
 
x
 
x
 
Carbon Monoxide
 
 
 
x
x
Chlorine
x
x
x
x
 
Condensate
 
 
 
 
x
Electric Power
 
 
 
x
x
Ethane
 
 
 
 
x
Ethanol
x
x
x
x
x
Ethylene (1)
 
 
x
x
x
Formaldehyde
 
x
x
x
 
Hexene
 
 
 
 
x
Hydrogen Peroxide (2)
 
 
 
x
 
Liquified Petroleum Gases
 
 
 
 
x
Methanol
x
 
x
x
x
Naphtha
 
 
 
 
x
Natural Gas
 
 
 
 
x
Octene
 
 
 
 
x
Polystyrene
 
 
x
 
x
Propane
 
x
 
 
x
Propylene (1)
 
x
x
x
x
Pygas
 
 
 
 
x
Styrene
 
 
x
x
 
Wood Pulp
 
x
 
 
 
(1)    Produced by the Company and procured from external sources for internal consumption.
(2)    Primarily produced and procured by a consolidated variable interest entity.

15


RESEARCH AND DEVELOPMENT
The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products. Research and development expenses were $1,598 million in 2015, $1,647 million in 2014 and $1,747 million in 2013. At December 31, 2015, the Company employed approximately 6,800 people in various research and development activities.


PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2015, the Company owned 4,651 active U.S. patents and 19,541 active foreign patents as follows:
 
Patents Owned at December 31, 2015

 
United States

 
Foreign

Agricultural Sciences
 
940

 
3,886

Consumer Solutions
 
1,187

 
3,686

Infrastructure Solutions
 
950

 
5,185

Performance Materials & Chemicals
 
363

 
1,994

Performance Plastics
 
1,102

 
4,559

Corporate
 
109

 
231

Total
 
4,651

 
19,541


 
Remaining Life of Patents Owned at December 31, 2015
  
 
United States

 
Foreign

Within 5 years
 
969

 
3,053

6 to 10 years
 
1,023

 
5,540

11 to 15 years
 
1,479

 
8,209

16 to 20 years
 
1,180

 
2,739

Total
 
4,651

 
19,541

 
Dow’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $357 million in 2015, $388 million in 2014 and $327 million in 2013. The Company incurred royalties to others of $198 million in 2015, $170 million in 2014 and $198 million in 2013. Dow also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.



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PRINCIPAL PARTLY OWNED COMPANIES
Dow’s principal nonconsolidated affiliates at December 31, 2015, including direct or indirect ownership interest for each, are listed below:

Principal Nonconsolidated Affiliate
 
Ownership Interest
 
Business Description
Dow Corning Corporation (1)
 
50.00
%
 
A U.S. company that manufactures silicone and silicone products
EQUATE Petrochemical Company K.S.C. (2)
 
42.50
%
 
A Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins
The Kuwait Olefins Company K.S.C.
 
42.50
%
 
A Kuwait-based company that manufactures ethylene and ethylene glycol
The Kuwait Styrene Company K.S.C.
 
42.50
%
 
A Kuwait-based company that manufactures styrene monomer
Map Ta Phut Olefins Company Limited (3)
 
32.77
%
 
A Thailand-based company that manufactures propylene and ethylene
Sadara Chemical Company
 
35.00
%
 
A development-stage Saudi Arabian company that will manufacture chlorine, ethylene and propylene for internal consumption and will produce and sell high-value added chemical products and performance plastics
The SCG-Dow Group:
 
 
 
 
Siam Polyethylene Company Limited
 
50.00
%
 
A Thailand-based company that manufactures polyethylene
Siam Polystyrene Company Limited
 
50.00
%
 
A Thailand-based company that manufactures polystyrene
Siam Styrene Monomer Co., Ltd.
 
50.00
%
 
A Thailand-based company that manufactures styrene
Siam Synthetic Latex Company Limited
 
50.00
%
 
A Thailand-based company that manufactures latex
(1)
On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning. Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.
(2)
On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. Dow indirectly owns 42.5 percent of MEGlobal through its equity interest in EQUATE. MEGlobal was treated as a separate principal nonconsolidated affiliate through the date of divestiture.
(3)
The Company's effective ownership of Map Ta Phut Olefins Company Limited is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited.
See Note 9 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.


FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
In 2015, the Company derived 65 percent of its sales and had 38 percent of its property investment outside the United States. While the Company’s international operations may be subject to a number of additional risks, such as changes in currency exchange rates and geopolitical risks in emerging geographies, the Company does not regard its foreign operations, on the whole, as carrying any greater risk than its operations in the United States. Information on sales and long-lived assets by geographic area for each of the last three years appears in Note 26 to the Consolidated Financial Statements, and discussions of the Company’s risk management program for foreign exchange and interest rate risk management appear in Part I, Item 1A. Risk Factors; Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk; and Note 11 to the Consolidated Financial Statements.


PROTECTION OF THE ENVIRONMENT
Matters pertaining to the environment are discussed in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 15 to the Consolidated Financial Statements. In addition, detailed information on Dow's performance regarding environmental matters and goals can be found online on Dow's Sustainability webpage at www.dow.com. The Company's website and its content are not deemed incorporated by reference into this report.



17


EMPLOYEES
As of December 31, 2015, the Company employed approximately 49,500 people on a full-time basis, with approximately 50 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and 25 percent located in other locations.


OTHER ACTIVITIES
Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited subsidiaries.


EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company’s executive officers as of February 12, 2016.

Name - Age
Present Position with Registrant
Year Elected to be an Officer
Other Business Experience since January 1, 2011
Ronald C. Edmonds, 58
Vice President and Controller
2009
Vice President and Controller 2009 to date.
James R. Fitterling, 54
President and Chief Operating Officer
2010
Dow Executive Vice President and President, Plastics and Hydrocarbons August 2010 to September 2011. Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to September 2012. Executive Vice President, Feedstocks, Performance Plastics, Asia and Latin America September 2012 to December 2013. Executive Vice President, Feedstocks, Performance Plastics and Supply Chain December 2013 to October 2014. Vice Chairman, Business Operations October 2014 to October 2015. Vice Chairman and Chief Operating Officer October 2015 to February 2016. Present position held since February 2016.
Heinz Haller, 60
Executive Vice President and President of Dow Europe, Middle East, Africa and India
2006
Executive Vice President and Chief Commercial Officer August 2010 to September 2012. Present position held since September 2012.
Joe E. Harlan, 56
Vice Chairman and Chief Commercial Officer
2011
Executive Vice President of Consumer & Office Business, 3M Company 2009 to August 2011. Executive Vice President, Performance Materials September 2011 to September 2012. Executive Vice President, Chemicals, Energy and Performance Materials September 2012 to October 2014. Chief Commercial Officer and Vice Chairman, Market Businesses October 2014 to October 2015. Present position held since October 2015.
Peter Holicki, 55
Senior Vice President, Operations, Manufacturing & Engineering, Environment, Health & Safety Operations, and Emergency Services & Security
2014
Global Manufacturing Vice President, Hydrocarbons May 2009 to October 2012. Vice President for Manufacturing and Engineering Europe, Middle East and Africa May 2009 to October 2012. Vice President of Operations for Europe, Middle East and Africa and the Ethylene Envelope October 2012 to December 2013. Emergency Services and Security Expertise September 2014 to present. Corporate Vice President October 2014 to October 2015. Present position held since 2015.
Charles J. Kalil, 64
General Counsel and Executive Vice President
2004
General Counsel 2004 to date. Executive Vice President 2008 to date. Corporate Secretary 2005 to February 2015.
Andrew N. Liveris, 61
Chief Executive Officer and Chairman of the Board
2003
President 2004 to February 2016. Chief Executive Officer 2004 to date. Chairman 2006 to date.
Fernando Ruiz, 60
Corporate Vice President and Treasurer
2001
Vice President 2001 to 2005. Treasurer 2001 to date. Corporate Vice President 2005 to date.
Johanna Söderström, 44
Corporate Vice President, Human Resources and Aviation
2015
Global Human Resources Director, Performance Materials Division January 2011 to October 2012. Vice President, Human Resource Center of Expertise October 2012 to January 2015. Present position held since January 2015.
A. N. Sreeram, 48
Senior Vice President, Research & Development and Chief Technology Officer
2013
Vice President, Research & Development, Dow Advanced Materials 2009 to October 2013. Corporate Vice President, Research & Development October 2013 to October 2015. Present position held since October 2015.
Howard I. Ungerleider, 47
Vice Chairman and Chief Financial Officer
2011
Vice President, Investor Relations 2008 to March 2011. Senior Vice President and President, Performance Plastics March 2011 to September 2012. Executive Vice President, Advanced Materials September 2012 to October 2014. Chief Financial Officer and Executive Vice President October 2014 to October 2015. Present position held since October 2015.


18



The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS

The factors described below represent the Company's principal risks.

Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations, trade agreements, import and export controls, and duties and tariffs. The imposition by foreign governments of additional regulations, controls and duties and tariffs or the enactment of bilateral and regional trade agreements could result in lower sales volume which could negatively impact the Company's results of operations.

Economic conditions around the world, and in certain industries in which the Company does business also impact sales prices and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which Dow sells its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on Dow's results of operations.

In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on Dow's results of operations. The Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, Dow enters into hedging transactions pursuant to established guidelines and policies. If Dow fails to effectively manage such risks, it could have a negative impact on the Company's results of operations.

Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions could reduce the Company's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Raw Materials: Availability of purchased feedstocks and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.

Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.

The Company has a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and natural gas liquids ("NGLs") from shale gas including a new, on-purpose propylene production facility in Freeport, Texas, which commenced operations in December 2015; and a new, world-scale ethylene production facility in Freeport, Texas, with start-up expected in the first half of 2017. As a result of these and other investments, the Company’s exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks.


19


While the Company expects abundant and cost-advantaged supplies of NGLs in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations.

Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Company's results of operations.

Litigation: The Company is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters including product liability, governmental regulation and other actions.
Certain of the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) and certain urethane matters, described below, it is the opinion of the Company's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company's consolidated financial statements.

Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2015, Union Carbide's asbestos-related liability for pending and future claims was $437 million ($513 million at December 31, 2014) and its receivable for insurance recoveries related to the asbestos liability was $10 million ($10 million at December 31, 2014). At December 31, 2015, Union Carbide also had receivables of $51 million ($69 million at December 31, 2014) for insurance recoveries for defense and resolution costs. It is the opinion of the Company's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-related claims, including future defense costs, could have a material impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position of the Company.

The Company, among others, was named as a defendant in multiple civil class action lawsuits alleging a conspiracy to fix the price of various urethane chemical products, namely polyurethane chemicals, including methylene diphenyl diisocyanate, toluene diisocyanate, polyether polyols and system house products. These lawsuits were consolidated in the U.S. District Court for the District of Kansas (the "District Court") or have been tolled. On July 29, 2008, the District Court certified a class of purchasers of the products for the six-year period from 1999 through 2004. In January 2013, the class action lawsuit went to trial in the District Court with the Company as the sole remaining defendant, the other defendants having previously settled. On February 20, 2013, the jury returned a damages verdict of approximately $400 million against the Company, which ultimately was trebled by the District Court under applicable antitrust laws, less offsets from other settling defendants, resulting in a judgment entered in July 2013 in the amount of $1.06 billion. The Company appealed this judgment to the U.S. Tenth Circuit Court of Appeals ("Tenth Circuit" or "Court of Appeals"), and on September 29, 2014, the Court of Appeals issued an opinion affirming the District Court judgment. On October 14, 2014, the Company filed a petition for Rehearing or Rehearing En Banc (collectively the "Rehearing Petition") with the Court of Appeals, which was denied on November 7, 2014.

On March 9, 2015, the Company filed a petition for writ of certiorari ("Writ Petition") with the U.S. Supreme Court, seeking judicial review by the Supreme Court and requesting that it correct fundamental errors in the Circuit Court opinion. While it is unknowable whether or not the Supreme Court will accept the Writ Petition for review, there are several compelling reasons why the Supreme Court should grant the Writ Petition and, if it is accepted, the Company believes it is likely that the District Court judgment will be vacated. Specifically, it is the Company's position that the Tenth Circuit decision violates the law as expressed by the Supreme Court as set out in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Tenth Circuit also did not follow accepted law from other federal circuits on dispositive case issues, including legal precedent from the U.S. First, Second, Third, Fifth, Ninth and D.C. Circuit Courts. Finally, the Company argues that the erroneous law applied by the Tenth Circuit is not supported by any other federal circuit court. In April 2015, six amici filed amicus briefs in support of the Company's Writ Petition. The parties briefing is now complete. Dow filed its reply brief on May 22, 2015. On June 8, 2015, the Supreme Court granted a petition for a writ of certiorari in another case, Tyson Foods, Inc. v. Bouaphakeo, PEG, et al., ("Tyson Foods") (Supreme Court No. 14-1146), which presented an issue core to the questions presented in the Company's Writ Petition: whether class-wide damages can be determined by simply applying the average injury observed in a sample. The Company's case was considered by the Supreme Court in conference on June 11, 2015. On June 15, 2015, the Supreme Court issued its decisions from its conference and did not rule on the Company's Writ Petition. Subsequently, the Writ Petition has not been listed for further consideration by the Supreme Court at its weekly

20


conferences. The Company has been advised that this means that the Supreme Court is withholding further consideration of the Company's Writ Petition while it considers the Tyson Foods case on the merits. As a result, the Company does not expect any further action on its Writ Petition until sometime in 2016. The Company believes that the Supreme Court has accepted Tyson Foods for the compelling reasons also advanced by the Company in its Writ Petition and that the Supreme Court will issue an opinion in Tyson Foods that is favorable to the Company's case. Accordingly, on August 14, 2015, the Company filed an amicus brief in Tyson Foods supporting Tyson Foods’ position. The Tyson Foods oral argument occurred before the Supreme Court on November 10, 2015. The Company expects a decision from the Supreme Court on Tyson Foods in the first half of 2016, after which, depending on the result, the Supreme Court likely will consider the Company's Writ Petition. The Company has concluded it is not probable that a loss has been incurred and, therefore, a liability has not been recorded with respect to this matter. While the Company believes it is not probable a loss will occur, the existence of the jury verdict, the Court of Appeals' opinion, and subsequent denial of the Company's Rehearing Petition indicate that it is reasonably possible that a loss could occur.

Shortly after the July 2008 class certification ruling, a series of "opt-out" cases were filed by a number of large volume purchasers who elected not to be class members. These opt-out cases are substantively identical to the class action lawsuit, but expanded the period of time to include 1994 through 1998. On September 30, 2014, the opt-out cases, which had been consolidated with the class action lawsuit for purposes of pre-trial proceedings were remanded from the District Court to the U.S. District Court for the District of New Jersey. A consolidated trial of the opt-out cases is set to begin on March 7, 2016. As with the class case, the Company denies plaintiffs' allegations of price fixing and maintains that the opt-out plaintiffs cannot prove a compensable injury. As a result, the Company has concluded it is not probable a loss has been incurred and, therefore, a liability is not recorded with respect to these cases.

In addition to the matters described above, there are two separate but inter-related matters in Ontario and Quebec, Canada. In March 2014, the Superior Court of Justice in London, Ontario, ruled in favor of the plaintiffs’ motion for class certification.  The Company filed its Notice of Motion for Leave to Appeal in March 2014, which was subsequently denied. This matter is currently in the pretrial stage, but no trial date has been set. The Quebec case has been stayed pending the outcome of the Ontario case. For the same reasons stated above, a liability has not been recorded with respect to either Canadian matter.

Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2015, the Company had accrued obligations of $670 million ($706 million at December 31, 2014) for probable environmental remediation and restoration costs, including $74 million ($78 million at December 31, 2014) for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.

Chemical Safety: Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment as well as perceived impacts of plant biotechnology on health and the environment have resulted in more restrictive regulations from local, state and federal governments and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment and the perceived impacts of plant biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.

Local, state and federal governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.

21


Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations, the transportation of products, cyber attacks, or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.

Major hurricanes have caused significant disruption in Dow's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect Dow's results of operations.

Cyber Vulnerability: The risk of loss of the Company’s intellectual property, trade secrets or other sensitive business information or disruption of operations could negatively impact the Company’s financial results.
Cyber attacks or security breaches could compromise confidential, business critical information, cause a disruption in the Company’s operations or harm the Company's reputation. The Company has attractive information assets, including intellectual property, trade secrets and other sensitive, business critical information. While the Company has a comprehensive cyber security program that is continuously reviewed, maintained and upgraded, a significant cyber attack could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on the Company’s financial results.

Company Strategy: Implementing certain elements of the Company's strategy could negatively impact the Company's financial results.
The Company currently has manufacturing operations, sales and marketing activities, joint ventures, as well as proposed and existing projects of varying size in emerging geographies. Activities in these geographies are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement. If the manufacturing operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.

The Company has also announced a number of portfolio management actions as part of Dow's ongoing transformation, including a proposed all-stock merger of equals transaction with E.I. du Pont de Nemours and Company as well as transactions to restructure the Company's ownership interest in certain joint ventures. If the execution or implementation of these transactions is not successful, it could adversely impact the Company's financial condition, cash flows and results of operations.

Goodwill: An impairment of goodwill could negatively impact the Company's financial results.
At least annually, the Company assesses goodwill for impairment. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings. Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.

Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively affect Dow's financial condition and results of operations.
The Company has defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries. The assets of the Company's funded plans are primarily invested in fixed income and equity securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.



22



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



23



The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.
PROPERTIES
The Company operates 179 manufacturing sites in 35 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow’s products. During 2015, the Company’s production facilities and plants operated at 85 percent of capacity. The Company’s major production sites, including consolidated variable interest entities, are as follows:

Location
Agricultural
Sciences
Consumer Solutions
Infrastructure Solutions
Performance
Materials & Chemicals
Performance Plastics
Bahia Blanca, Argentina
 
 
 
 
x
Candeias, Brazil
 
 
 
x
 
Canada:
 
 
 
 
 
Fort Saskatchewan, Alberta
 
 
 
 
x
Joffre, Alberta
 
 
 
 
x
Germany:
 
 
 
 
 
Boehlen
 
 
x
x
x
Leuna
 
 
 
 
x
Schkopau
 
x
x
x
x
Stade
x
x
x
x
x
Terneuzen, The Netherlands
 
x
x
x
x
Tarragona, Spain
 
 
x
x
x
Map Ta Phut, Thailand
 
 
x
x
x
United States:
 
 
 
 
 
Louisville, Kentucky
 
 
x
 
 
Hahnville (St. Charles), Louisiana
 
 
x
x
x
Plaquemine, Louisiana
 
x
x
x
x
Midland, Michigan
x
x
x
x
x
Deer Park, Texas
 
 
x
x
 
Freeport, Texas
x
 
x
x
x
Seadrift, Texas
 
x
x
x
x
Texas City, Texas
 
 
x
x
 
Including the major production sites, the Company has plants and holdings in the following geographic areas:

Asia Pacific:
  39 manufacturing locations in 11 countries.
Canada:
    6 manufacturing locations in 3 provinces.
Europe, Middle East, Africa and India:
  51 manufacturing locations in 18 countries.
Latin America:
  28 manufacturing locations in 4 countries.
United States:
  55 manufacturing locations in 22 states.
All of Dow’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value.
A summary of properties, classified by type, is provided in Note 8 to the Consolidated Financial Statements. Additional information regarding leased properties can be found in Note 19 to the Consolidated Financial Statements.




24



The Dow Chemical Company and Subsidiaries
PART I, Item 3. Legal Proceedings.
LEGAL PROCEEDINGS

Asbestos-Related Matters of Union Carbide Corporation
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc.

It is the opinion of Dow’s management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-related claims, including future defense costs, could have a material impact on the Company’s results of operations and cash flows for a particular period and on the consolidated financial position of the Company.

For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 15 to the Consolidated Financial Statements.

Environmental Matters
In a meeting on July 22, 2015, Rohm and Haas Company and Rohm and Haas Chemicals LLC (collectively, “ROH”), wholly owned subsidiaries of the Company, were informed by representatives of the U.S. Environmental Protection Agency (“EPA”) of the EPA’s intent to seek injunctive relief and assess a civil penalty in excess of $100,000 for alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky, site. Discussions between ROH and the EPA are ongoing.

Dow Benelux B.V. ("Dow Benelux"), a Netherlands-based wholly owned subsidiary of the Company, received a summons dated July 20, 2012 from the Public Prosecutor in The Netherlands to appear before the criminal section of the District Court in Breda, The Netherlands (which venue was subsequently changed to the District Court of Middelburg) (the "Court"). The allegations contained in the summons relate to seven process safety incidents and environmental spills that occurred between 2005 and 2008 at Dow Benelux's Terneuzen manufacturing facility. The Public Prosecutor alleges that each of the incidents constitutes a violation of certain Netherlands safety procedures and environmental regulations, notably Section 5 of the Major Accidents Decree 1999 and/or Section 18.18 of the Environmental Act. In addition, five of the incidents allegedly also constitute a violation of Section 173a of the Dutch Criminal Code. The trial in the first instance on this matter was held from January 14, 2014 through February 7, 2014. On March 24, 2014, the Court issued a guilty verdict and imposed a Euro 1.8 million fine against Dow Benelux. The Court's judgment is subject to an appeal with the Court of Appeal in Den Bosch ("Court of Appeal"), and Dow Benelux has filed a notice of appeal. A new and independent trial will be held by the Court of Appeal. As a first procedural step in the appeal, a pre-trial hearing was held on January 18, 2016, to discuss scheduling of the proceedings on the merits, which Dow Benelux expects to occur during the second half of 2016.

Derivative Litigation
On March 6, 2013, Jeffrey Kaufman ("Kaufman"), purportedly in the name of and on behalf of the Company, commenced an action in the United States District Court for the District of Delaware (the "Court") against the Company and certain officers and directors of the Company (the "Defendants") alleging, among other things, that between 2007-2012, Defendants violated federal securities and state law surrounding equity awards and disclosures involving the 1988 Award and Option Plan and the 2012 Stock Incentive Plan ("2012 Plan") (collectively, the "Plans") with respect to the tax-deductible nature of certain awards under the Plans. The relief sought in this litigation includes the recovery of certain equity awards and injunctive relief, as well as attorneys' fees. The Company first moved to dismiss the complaint on May 14, 2013 and, in response to the subsequent filing by Kaufman of an amended complaint, the Company filed an amended motion to dismiss on August 30, 2013. On September 30, 2014, the Court entered an order in favor of the Defendants dismissing the complaint in its entirety. On November 18, 2014, the Court granted Plaintiff’s motion for reargument on one count, alleging that the 2012 proxy failed to include the approximate number of persons eligible to receive awards under the 2012 Plan. The Company believes the lawsuit to be without merit, has filed an answer on the remaining count, and will continue to vigorously defend the lawsuit.


25



The Dow Chemical Company and Subsidiaries
PART I, Item 4. Mine Safety Disclosures.
MINE SAFETY DISCLOSURES

Not applicable.


26



The Dow Chemical Company and Subsidiaries
PART II, Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company’s common stock is the New York Stock Exchange, traded under the symbol “DOW.”

Quarterly market and dividend information can be found in Quarterly Statistics at the end of Part II, Item 8. Financial Statements and Supplementary Data.

At December 31, 2015, there were 61,001 registered common stockholders. The Company estimates that there were an additional 682,435 stockholders whose shares were held in nominee names at December 31, 2015. At January 31, 2016, there were 60,390 registered common stockholders.

On October 21, 2015, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 29, 2016, to stockholders of record on December 31, 2015. On February 11, 2016, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 29, 2016, to stockholders of record on March 31, 2016. Since 1912, the Company has maintained or increased the amount of the quarterly dividend, adjusted for stock splits, with the exception of February 12, 2009. During this 104-year period, Dow has increased the amount of the quarterly dividend 52 times (approximately 13 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 87 percent of the time.

See Part III, Item 11. Executive Compensation for information relating to the Company’s equity compensation plans.

Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended December 31, 2015:

Issuer Purchases of Equity Securities
 
Average price paid per share

 
Total number of shares purchased as part of the Company's publicly announced share repurchase
program (1)

 
Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1)
(In millions)

Period
 
Total number of shares purchased

October 2015 (2)
 
35,098,198

 
$
44.81

 
35,098,198

 
$
2,927

November 2015
 
9,630,236

 
$
51.93

 
9,630,236

 
$
2,427

December 2015
 
2,195,537

 
$
52.63

 
2,195,537

 
$
2,312

Fourth quarter 2015
 
46,923,971

 
$
46.63

 
46,923,971

 
$
2,312

(1)
On February 13, 2013, the Board of Directors approved a share buy-back program, authorizing up to $1.5 billion to be spent on the repurchase of the Company’s common stock. On January 29, 2014, the Board of Directors announced an expansion of the Company's share buy-back authorization, authorizing an additional amount not to exceed $3 billion to be spent on the repurchase of the Company's common stock over a period of time. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion.
(2)
On October 5, 2015, (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses ("chlorine value chain") into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a wholly owned subsidiary of Olin Corporation in a tax-efficient Reverse Morris Trust transaction (collectively, the "Transaction"). Dow shareholders who participated in the public exchange offer tendered 34.1 million shares of Dow common stock in exchange for 100 million shares of Splitco. As a result of this non-cash share exchange offer, the Company included the 34.1 million tendered shares as part of the share repurchase program and recorded an increase of $1,523 million in “Treasury stock at cost” in the consolidated balance sheets, which was valued based on Dow’s opening stock price on October 5, 2015. See Note 6 to the Consolidated Financial Statements for additional information on this Transaction.


27


On December 11, 2015, the Company and E. I. du Pont de Nemours and Company announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. As a result of this pending transaction, the Company will not repurchase shares under the share repurchase program until after the shareholder vote on the DowDuPont merger. The Company expects to complete approximately $2 billion of share repurchases in 2016.


28



The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

In millions, except as noted (Unaudited)
2015

2014

2013

2012

2011

Summary of Operations
 
 
 
 
 
Net sales
$
48,778

$
58,167

$
57,080

$
56,786

$
59,985

Net income
$
7,783

$
3,839

$
4,816

$
1,100

$
2,784

Per share of common stock (in dollars):
 
 
 
 
 
Net income per common share - basic
$
6.45

$
2.91

$
3.72

$
0.71

$
2.06

Net income per common share - diluted
$
6.15

$
2.87

$
3.68

$
0.70

$
2.05

Cash dividends declared per share of common stock
$
1.72

$
1.53

$
1.28

$
1.21

$
0.90

Book value per share of common stock
$
23.06

$
19.71

$
22.59

$
17.73

$
19.28

Year-end Financial Position
 
 
 
 
 
Total assets (1)
$
68,026

$
68,687

$
69,402

$
69,492

$
69,119

Long-term debt (1)
$
16,215

$
18,741

$
16,732

$
19,819

$
18,219

Financial Ratios
 
 
 
 
 
Research and development expenses as percent of net sales
3.3
%
2.8
%
3.1
%
3.0
%
2.7
%
Income before income taxes as percent of net sales
20.4
%
9.1
%
11.9
%
2.9
%
6.0
%
Return on stockholders’ equity
34.4
%
18.6
%
19.4
%
5.0
%
13.1
%
Debt as a percent of total capitalization (1)
39.7
%
45.5
%
38.9
%
48.7
%
47.8
%
(1)
Adjusted for reclassification of debt issuance costs related to the adoption of ASU 2015-03. See Note 2 to the Consolidated Financial Statements for further information.

                    


29


 
The Dow Chemical Company and Subsidiaries
 
 
PART II, Item 7. Management’s Discussion and
 
(Unaudited)
Analysis of Financial Condition and Results of Operations.
 



ABOUT DOW
Dow combines the power of science and technology to passionately innovate what is essential to human progress. The Company is driving innovations that extract value from materials, polymers, chemicals and biological sciences to help address many of the world's most challenging problems such as the need for clean water, clean energy generation and conservation, and increasing agricultural productivity. Dow's integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high-growth sectors such as packaging, electronics, water, coatings and agriculture. In 2015, Dow had annual sales of nearly $49 billion and employed approximately 49,500 people worldwide. The Company's more than 6,000 product families are manufactured at 179 sites in 35 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

In 2015, 38 percent of the Company’s sales were to customers in North America; 31 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 31 percent were to customers in Asia Pacific and Latin America.

In 2015, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Cuba (until September 2015), Iran, Sudan and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.









30


2015 OVERVIEW
In 2015, Dow had another strong year of earnings growth in a challenging and volatile macroeconomic environment that included significant declines in crude oil and feedstock prices and currency headwinds from a strengthening U.S. dollar. In this economic environment, the Company demonstrated financial discipline and executed against its priorities - divesting of non-strategic businesses, completing the split-off of the chlorine value chain and initiating the restructure of the Company's joint ventures.

Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Sales decreased in all operating segments and geographic areas.

Volume increased 1 percent in 2015 compared with 2014, as increases in Performance Plastics (up 5 percent), Infrastructure Solutions (up 2 percent) and Consumer Solutions (up 1 percent) more than offset volume declines in Performance Materials & Chemicals (down 6 percent) and Agricultural Sciences (down 4 percent). Volume increased in Asia Pacific (up 3 percent) and remained flat in EMEAI, North America and Latin America. Excluding the impact of recent acquisitions and divestitures(1), Performance Materials & Chemicals volume was up 1 percent and Agricultural Sciences volume was down 3 percent. Volume increased in all geographic areas led by Asia Pacific (up 4 percent).

Price was down 17 percent in 2015 compared with 2014, driven primarily by a decline in crude oil prices and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent) and Consumer Solutions (down 7 percent).

Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the split-off of the chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 2,250 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. As a result of these actions, the Company recorded pretax restructuring charges of $415 million in 2015. These actions are expected to be completed primarily by March 31, 2017.

Dow's earnings from nonconsolidated affiliates totaled $674 million in 2015, down from $835 million in 2014. In 2015, equity earnings decreased as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara Chemical Company ("Sadara"), lower equity earnings from Univation Technologies, LLC ("Univation") resulting from the May 5, 2015, step acquisition and lower earnings from EQUATE Petrochemicals Company K.S.C. ("EQUATE"), The Kuwait Olefins Company K.S.C. ("TKOC") and MEGlobal.

Sundry income (expense) - net was net sundry income of $4,592 million in 2015, up from net sundry expense of $27 million in 2014, primarily due to a gain on the split-off of the chlorine value chain, a gain on the sale of the Company's interest in MEGlobal, a gain on the Univation step acquisition and gains from the divestitures of AgroFresh and ANGUS Chemical Company.

The Company delivered $7.5 billion of cash flows from operating activities in 2015 and ended the year with $8.6 billion of cash and cash equivalents.

The Company reduced gross debt in 2015 by $2.5 billion, primarily due to the split-off of the chlorine value chain which resulted in a $1.7 billion reduction in debt, and the early redemption of $724 million in InterNotes with various interest rates and maturities between 2016 and 2024.
 
On October 22, 2015, the Company announced the Board of Directors declared a 10 percent increase in the Company's quarterly dividend, from $0.42 per share to $0.46 per share.

During 2015, the Company executed $2.7 billion in share repurchases which included $1.5 billion of shares redeemed as part of the Company's split-off of the chlorine value chain. At December 31, 2015, the Company had $2.3 billion of common stock

(1)
Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics), the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences), ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals), the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales of recent acquisitions including Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics) and Cooperativa Central de Pesquisa Agrícola, acquired on February 1, 2015 (Agricultural Sciences).

31


available to repurchase under the share buy-back program. Due to the pending transaction with DuPont, the Company will not repurchase shares under the share repurchase program until after the shareholder vote on the DowDuPont merger. The Company expects to complete approximately $2 billion of share repurchases in 2016.

Other notable events and highlights from 2015 include:

On January 30, 2015, the Company completed the divestiture of its global Sodium Borohydride business, part of the Performance Materials & Chemicals segment, to Vertellus Performance Chemicals LLC.

On January 30, 2015, Dow AgroSciences LLC completed the acquisition of Cooperativa Central de Pesquisa Agricola's ("Coodetec") seed business. The acquisition of Coodetec's seed business is expected to advance the development of Dow AgroSciences' soybean program and strengthen the Company's position in the corn market segment.

On February 2, 2015, the Company completed the divestiture of ANGUS Chemical Company, part of the Performance Materials & Chemicals segment, to Golden Gate Capital.

On April 15, 2015, the Company announced its 2025 Sustainability Goals, the third set of sustainability-related goals since 1995. The 2025 Sustainability Goals include aggressive sustainability targets designed to develop breakthrough product innovations, positively impact the lives of one billion people and deliver $1 billion in cost savings or new cash flow for the Company by valuing nature in business decisions.

On April 28, 2015, Dow's Polyurethanes business announced the successful start-up of a new state-of-the-art polyether polyols plant in Asia Industrial Estate, Rayong, Thailand.

On May 5, 2015, the Company completed the step acquisition of Univation, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company ("ExxonMobil").

On July 31, 2015, the Company completed the divestiture of its AgroFresh business, part of the Agricultural Sciences segment, to Boulevard Acquisition Corp., subsequently renamed AgroFresh Solutions, Inc. ("AFSI").

On October 5, 2015, the Company completed the split-off of its chlorine value chain including the U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation ("Olin").

On December 8, 2015, the Company announced that its joint venture in the Middle East – Sadara – had achieved its first polyethylene production. Sadara’s 26 manufacturing assets remain on schedule for a sequenced start-up process, beginning with the polyolefins envelope to maximize timing in the ethylene cycle, followed by ethylene oxide/propylene oxide and their derivatives.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning Corporation ("Dow Corning"). Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning Incorporated ("Corning"). Dow and Corning will maintain their current equity stake in Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.

On December 11, 2015, the Company and DuPont announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-efficient transactions, including a leading global pure-play agriculture company, a leading global pure-play material science company and a leading technology and innovation-driven specialty products company.

On December 18, 2015, the Company announced its new, on-purpose propylene production facility, located at the Oyster Creek site in Freeport, Texas, commenced operations.

On December 23, 2015, the Company announced that it sold its ownership interest in MEGlobal to EQUATE for $1.5 billion in pretax proceeds.

32


James R. Fitterling was appointed Vice Chairman and Chief Operating Officer. In this capacity, he will have accountability for all of Dow’s businesses, except Dow AgroSciences; Operations, including Environment, Health & Safety and Sustainability, Manufacturing and Engineering, and Supply Chain; as well as, Research & Development.

Howard I. Ungerleider added the position of Vice Chairman to his existing role as Chief Financial Officer. He will also assume responsibility for leading Dow AgroSciences. Dow’s Corporate Strategy Development, Corporate Planning, Finance, and Information Technology & Business Services functions will also now report to Ungerleider.

Dow was recognized as a leader in climate change reporting and disclosure by Climate Disclosure Project. Dow earned the highest possible disclosure score of 100 percent. Dow was also selected to the S&P 500 Climate Disclosure Leadership Index (CDLI) in 2015, which recognizes only the top 10 percent of companies reporting for disclosure of high-quality carbon emissions and energy data.

Dow's ACRYSOL™ RM-725 Rheology Modifier, BETAMATE™ Structural Adhesives, DOW ENDURANCE™ HFDC-4202 EC Insulation Compound, PacXpert™ Packaging Technology, Polyethylene (PE) Stand-up Pouch and SOLDERON™ BP TS6000 Tin-Silver were honored by R&D Magazine as part of its R&D 100 Awards.

Dow announced it signed an agreement with King Abdullah University of Science and Technology (KAUST) to expand its facilities at the KAUST Research & Technology Park with the construction of a new Dow Middle East Research and Development Center.

Working Mother magazine named Dow to the 2015 Working Mother 100 Best Companies list.

Dow was named to the Dow Jones Sustainability Index - the 15th time the Company has received this recognition since the index was launched. This year's announcement ties Dow as the longest-standing representative in the chemical category since the list's inception in 1999.

Dow was honored for the 11th consecutive year by the Human Rights Campaign (HRC) for achieving a 100 percent rating on its corporate equality index (CEI) - a global benchmarking tool on corporate policies and practices related to lesbian, gay, bisexual and transgender (LGBT) employees.

Dow was named Manufacturer of the Year, large enterprise, at the 11th Annual Manufacturing Leadership Summit.

Announcements made in 2016 include:

On February 2, 2016, James R. Fitterling was appointed President and Chief Operating Officer. He succeeds Andrew N. Liveris as President with Mr. Liveris continuing as the Company’s Chairman and Chief Executive Officer.

On February 2, 2016, Dow announced the planned transition out of the Company of Chairman and Chief Executive Officer Andrew N. Liveris. The transition will occur on the earlier of the material completion of the anticipated spins following the closing of the announced DowDuPont merger transaction or June 30, 2017.

Dow’s results of operations and financial condition for the year ended December 31, 2015 are described in further detail in the following discussion and analysis.



33


RESULTS OF OPERATIONS
Net Sales
Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Price decreased in all operating segments and geographic areas, driven primarily by a decline in average crude oil prices of approximately 45 percent and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent) and Consumer Solutions (down 7 percent). Volume increases in Performance Plastics (up 5 percent), Infrastructure Solutions (up 2 percent) and Consumer Solutions (up 1 percent) more than offset lower volume in Performance Materials & Chemicals (down 6 percent) and Agricultural Sciences (down 4 percent). Volume increased in Asia Pacific (up 3 percent) and remained flat in North America, EMEAI and Latin America. Excluding recent acquisitions and divestitures(1), Performance Materials & Chemicals volume was up 1 percent and Agricultural Sciences volume was down 3 percent. Volume increased in all geographic areas, led by Asia Pacific (up 4 percent).
 
Net sales for 2014 were $58.2 billion, up 2 percent from $57.1 billion in 2013, with volume up 2 percent and price flat. Volume increased in all operating segments, except Performance Plastics which remained flat, with notable increases in Agricultural Sciences and Consumer Solutions (both up 3 percent). Excluding the impact of recent divestitures, Performance Plastics volume was up 1 percent. Volume increased in all geographic areas, led by EMEAI (up 4 percent). Price was flat as increased selling prices were offset by the unfavorable impact of currency. Price increases in Performance Plastics (up 2 percent) were offset by price declines in Agricultural Sciences and Consumer Solutions (both down 1 percent). Infrastructure Solutions and Performance Materials & Chemicals price remained flat. Price increased in North America (up 2 percent) and Latin America (up 1 percent), which was offset by a decline in EMEAI (down 1 percent). Price in Asia Pacific remained flat.

Sales in the United States accounted for 35 percent of total sales in 2015, 33 percent of total sales in 2014 and 33 percent of total sales in 2013. See the Sales Volume and Price tables at the beginning of the section titled “Segment Results” for details regarding the change in sales by operating segment and geographic area. In addition, sales and other information by operating segment and geographic area are provided in Note 26 to the Consolidated Financial Statements.

Gross Margin
Gross margin was $10.9 billion in 2015, $10.7 billion in 2014 and $9.5 billion in 2013. Gross margin increased in 2015 driven by an $8,542 million decrease in purchased feedstock and energy costs and the favorable impact of currency on costs which was partially offset by lower selling prices, including the unfavorable impact of currency. In 2015, gross margin was reduced by $91 million of pretax charges for asset impairments and related costs, including the shutdown of manufacturing assets and facilities in the Dow Building & Construction, Energy & Water Solutions and Dow Packaging and Specialty Plastics businesses and the abandonment of certain capital projects in the Dow Building & Construction and Dow Coating Materials businesses, which was reflected in the following segments: Infrastructure Solutions ($34 million) and Performance Plastics ($57 million). Gross margin was also reduced by $24 million of pretax charges for nonrecurring transaction costs associated with portfolio and productivity actions (reflected in Corporate) and a $12 million pretax loss related to Univation for the fair value step-up of inventories assumed in the step acquisition (reflected in Performance Plastics). See Notes 4 and 12 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2014 was positively impacted by increased sales volume, a $392 million decrease in purchased feedstock and energy costs, lower other raw material costs and increased operating rates. Gross margin in 2014 was reduced by a $100 million warranty accrual adjustment related to an exited business (reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic Materials business (reflected in Consumer Solutions). See Notes 12 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2013 was positively impacted by higher selling prices, lower maintenance turnaround costs, and lower expenses resulting from the 2012 Restructuring activities which more than offset a $319 million increase in purchased feedstock and energy costs and increased performance-based compensation costs. Gross margin in 2013 was reduced by $181 million for asset impairments and related costs, including the shutdown of manufacturing facilities in the Chlor-Alkali and Vinyl business, Energy & Water Solutions business, Polyurethanes business, Performance Monomers business, Epoxy business


(1)
Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics), the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences), ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals), the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals), the Polypropylene Licensing and Catalysts business, divested on December 2, 2013 (Performance Plastics) and sales related to Nippon Unicar Company Limited, divested on July 1, 2013. Also excludes current period sales of recent acquisitions including Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics) and Coodetec, acquired on February 1, 2015 (Agricultural Sciences).

34


and Corporate. The asset impairments and related costs were reflected in the following segments: Infrastructure Solutions
($95 million), Performance Materials & Chemicals ($70 million) and Corporate ($16 million). Gross margin in 2013 was also reduced by $40 million in implementation costs related to the Company's 2012 Restructuring programs (reflected in Corporate). See Note 12 to the Consolidated Financial Statements for additional information regarding these asset impairments.

Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2015, compared with 85 percent in 2014 and 81 percent in 2013. Operating rates improved in 2014 primarily due to increased demand and actions taken by management to increase asset utilization.

Personnel Count
Personnel count was 49,495 at December 31, 2015, down from 53,216 at December 31, 2014. Headcount decreased in 2015 primarily due to the separation of employees as a result of divestitures and the Company's 2015 restructuring program. Personnel count at December 31, 2014, increased from 52,731 at December 31, 2013, as hiring to support the Company's growth initiatives more than offset declines due to the Company's 2012 Restructuring programs.

Research and Development Expenses
Research and development (“R&D”) expenses were $1,598 million in 2015, compared with $1,647 million in 2014 and $1,747 million in 2013. R&D expenses decreased 3 percent in 2015 primarily due to cost reduction initiatives, notably in Agricultural Sciences, which were partially offset by increased performance-based compensation costs. In 2014, R&D expenses decreased primarily due to cost reduction initiatives, notably in Performance Materials & Chemicals. In 2013, R&D expenses were impacted by increased performance-based compensation costs and $2 million of implementation costs related to the Company's restructuring programs (reflected in Corporate).

Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $2,971 million in 2015, compared with $3,106 million in 2014 and $3,024 million in 2013. In 2015, SG&A expenses decreased 4 percent from 2014, as lower expenses, notably in Agricultural Sciences and from the impact of divestitures, more than offset increased performance-based compensation costs. In 2015, SG&A expenses were also impacted by $51 million in pretax charges for costs associated with portfolio and productivity actions (reflected in Corporate). In 2014, SG&A expenses increased 3 percent from 2013, due to increased spending on growth initiatives, primarily in Agricultural Sciences, and increased spending on Company branding initiatives. In 2013, SG&A expenses were impacted by $2 million of implementation costs related to the Company's Restructuring programs (reflected in Corporate).
       
Production Costs and Operating Expenses
The following table illustrates the relative size of the primary components of total production costs and operating expenses of Dow. More information about each of these components can be found in other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes to the Consolidated Financial Statements.

Production Costs and Operating Expenses
Cost components as a percent of total
 
2015

 
2014

 
2013

Hydrocarbon feedstocks and energy
 
27
%
 
38
%
 
38
%
Salaries, wages and employee benefits
 
18

 
15

 
15

Maintenance
 
5

 
4

 
4

Depreciation
 
4

 
4

 
4

Restructuring charges
 
1

 

 

Supplies, services and other raw materials
 
45

 
39

 
39

Total
 
100
%
 
100
%
 
100
%

Amortization of Intangibles
Amortization of intangibles was $419 million in 2015, $436 million in 2014 and $461 million in 2013. In 2013, amortization of intangibles was impacted by a $3 million asset impairment charge (reflected in Corporate). See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

Goodwill and Other Intangible Asset Impairment Losses
The Company performs annual goodwill impairment tests during the fourth quarter of the year. In 2015, the Company performed qualitative testing for 9 of the 12 reporting units carrying goodwill and quantitative testing for the remaining three reporting units. As a result of this testing, no goodwill impairments were identified. See Critical Accounting Policies in Other

35


Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted.
 
In 2014, the Company performed qualitative testing for 9 of the 14 reporting units carrying goodwill and quantitative testing for the remaining five reporting units. As a result of this testing, no goodwill impairments were identified.

In the fourth quarter of 2014, the Company recognized a pretax charge of $50 million related to the impairment of intangible assets in the Dow Electronic Materials business, which is included in "Goodwill and other intangible asset impairment losses" in the consolidated statements of income and reflected in Consumer Solutions. See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

In 2013, the Company performed qualitative testing for 14 of the 19 reporting units carrying goodwill and quantitative testing for the remaining five reporting units. As a result of this testing, no goodwill impairments were identified.

Restructuring Charges (Credits)
On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the split-off of the chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. These actions are expected to be completed primarily by March 31, 2017. As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of costs associated with exit or disposal activities of $10 million, severance costs of $196 million and asset write-downs and write-offs of $169 million. During the fourth quarter of 2015, the Company recorded a restructuring charge adjustment of $40 million, primarily related to severance costs for the separation of approximately 500 additional positions. The impact of these charges is shown as "Restructuring charges (credits)" in the consolidated statements of income and reflected in the Company's segment results as follows: $16 million in Agricultural Sciences, $67 million in Consumer Solutions, $26 million in Infrastructure Solutions, $12 million in Performance Plastics and $294 million in Corporate. See Note 3 to the Consolidated Financial Statements for details on the Company's 2015 restructuring program.

In 2014, the Company recognized a pretax gain of $3 million for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. The gain was included in "Restructuring charges (credits)" in the consolidated statements of income and reflected in Performance Materials & Chemicals.

In 2013, the Company recognized a pretax gain of $16 million for adjustments to asbestos abatement costs and contract cancellation fees related to the 1Q12 Restructuring plan and a $6 million pretax gain for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. These gains were included in "Restructuring charges (credits)" in the consolidated statements of income and reflected in Performance Materials & Chemicals ($15 million), Performance Plastics ($6 million) and Infrastructure Solutions ($1 million).

Asbestos-related Charge
In 2014, the Company recorded a pretax charge of $78 million (reflected in Corporate) for an increase in the asbestos-related liability for pending and future claims (excluding defense and processing costs). Union Carbide Corporation, a wholly owned subsidiary of the Company, determined that an adjustment to the asbestos accrual was required due to an increase in mesothelioma claim activity compared with what had been previously forecasted. See Note 15 to the Consolidated Financial Statements for details on the asbestos-related charge.

Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 2015 was $674 million, compared with $835 million in 2014 and $1,034 million in 2013. In 2015, equity earnings decreased as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara, lower equity earnings from Univation resulting from the May 5, 2015, step acquisition and lower earnings from EQUATE, TKOC and MEGlobal. Equity earnings in 2015 were also impacted by a $29 million loss related to AgroFresh Solutions' fair value step-up of its inventories and start-up costs and a loss recognized by Sadara related to the write-off of design engineering work for an Epoxy Plant, of which Dow's share was $27 million. In 2014, equity earnings decreased primarily due to lower earnings at EQUATE, TKSC and MEGlobal and increased losses at Sadara which were partially offset by increased earnings at Dow Corning. In 2013, equity earnings included a $10 million loss related to asset impairment charges at a formulated electrolytes manufacturing joint venture (reflected in Corporate).


36


In January 2014, the Chinese Ministry of Commerce issued a final determination that China's solar-grade polycrystalline silicon industry suffered material damage because of dumping, which resulted in antidumping duties of 53.3 percent and countervailing duties of 2.1 percent on future imports from Dow Corning's Hemlock Semiconductor Group into China. During the fourth quarter of 2014, Dow Corning determined its polycrystalline silicon plant expansion in Clarksville, Tennessee, which was delayed in 2012, would not be economically viable and made the decision to permanently abandon the assets. This decision was made after review of sustained adverse market conditions and continued oversupply, the cost of operating the facility and the ongoing impact of tariffs on polycrystalline silicon imported into China. Dow's share of the charge related to this asset abandonment was $500 million (reflected in Infrastructure Solutions). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all remaining polycrystalline silicon assets might be impaired. Dow Corning's estimates of future undiscounted cash flows indicated the polycrystalline silicon asset group was recoverable.

In May 1995, Dow Corning filed for protection under Chapter 11 of the U.S Bankruptcy Code to address pending and claimed liabilities arising from breast implant product lawsuits. On June 1, 2004, Dow Corning's Joint Plan of Reorganization (the "Plan") became effective and Dow Corning emerged from bankruptcy. Under the Plan, Dow Corning established and agreed to fund a products liability settlement program (the "Settlement Facility"). The Plan contains a cap on the amount of payments required from Dow Corning to fund the Settlement Facility. During the fourth quarter of 2014, Dow Corning, with the assistance of a third-party advisor, developed an estimate of the future Implant Liability based on evidence that the actual funding required for the Settlement Facility is expected to be lower than the full funding cap set forth in the Plan. As a result, Dow Corning reduced its Implant Liability by approximately $1.3 billion. The revised Implant Liability reflected Dow Corning’s best estimate of its remaining obligations under the Plan. Dow’s share of the Implant Liability reduction was $407 million ($155 million reflected in Consumer Solutions and $252 million reflected in Infrastructure Solutions). In the fourth quarter of 2015, Dow Corning further reduced its Implant Liability. Dow's share of the Implant Liability reduction was $20 million ($8 million reflected in Consumer Solutions and $12 million reflected in Infrastructure Solutions). See Note 9 to the Consolidated Financial Statements for additional information on nonconsolidated affiliates.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning. Dow and Corning will maintain their current equity stake in Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.

Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income (expense) - net for 2015 was net income of $4,592 million, compared with net expense of $27 million in 2014 and net income of $2,554 million in 2013.

In 2015, sundry income (expense) - net included a $2,233 million gain on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals (gain of $1,984 million), Performance Plastics (gain of $317 million), and Corporate (loss of $68 million)), a $723 million gain on the sale of MEGlobal (reflected in Performance Materials & Chemicals), a $682 million gain on the divestiture of ANGUS Chemical Company (reflected in Performance Materials & Chemicals), a $20 million gain on the divestiture of the global Sodium Borohydride business (reflected in Performance Materials & Chemicals), a $618 million gain related to the divestiture of the AgroFresh business (net of an $8 million loss for mark-to-market adjustments on the fair value of warrants receivable and reflected in Agricultural Sciences), a $361 million gain on the Univation step acquisition (reflected in Performance Plastics) and gains on sales of assets and investments. These gains more than offset foreign currency exchange losses, including a $98 million loss related to the impact of the Argentine peso devaluation (reflected in Corporate), a $53 million loss on asset impairments and related costs (reflected in Infrastructure Solutions), an $8 million loss related to the early extinguishment of debt (reflected in Corporate) and $119 million of costs associated with portfolio and productivity actions (reflected in Corporate). See Notes 4, 5, 6, 9, 12, 13 and 17 to the Consolidated Financial Statements for additional information.

In 2014, sundry income (expense) - net included a gain related to the termination of an off-take agreement and gains on asset sales which were more than offset by foreign currency exchange losses, venture capital investment losses and $49 million of costs associated with portfolio and productivity actions (reflected in Corporate).

In 2013, sundry income (expense) - net included a gain of $2,161 million related to damages awarded to the Company in the K-Dow arbitration proceeding (reflected in Corporate), a $451 million gain on the sale of the Polypropylene Licensing and Catalysts business (reflected in Performance Plastics), an $87 million gain on the sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. (reflected in Performance Plastics), a $26 million gain on the sale of the Company's

37


ownership interest in Dow Kokam (reflected in Corporate), gains on asset sales and equity method investments and a $326 million loss on the early extinguishment of debt (reflected in Corporate). See Notes 5, 13 and 17 to the Consolidated Financial Statements for additional information.
  
Net Interest Expense
Net interest expense (interest expense less capitalized interest and interest income) was $875 million in 2015, down from $932 million in 2014 and $1,060 million in 2013. In 2015, net interest expense decreased due to the impact of higher capitalized interest as a result of increased capital spending, primarily related to U.S. Gulf Coast projects, which more than offset higher interest expense related to the issuance of $2 billion of debt in 2014. In 2014, net interest expense decreased reflecting the impact of the Company's 2013 deleveraging activities and lower debt financing costs. Interest income was $71 million in 2015, $51 million in 2014 and $41 million in 2013. Interest expense (net of capitalized interest) and amortization of debt discount totaled $946 million in 2015, $983 million in 2014 and $1,101 million in 2013. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the Consolidated Financial Statements for additional information related to debt financing activity.

Provision for Income Taxes
The provision for income taxes was $2,147 million in 2015, compared with $1,426 million in 2014 and $1,988 million in 2013. The Company's effective tax rate fluctuates based on, among other factors, where income is earned, reinvestment assertions regarding earned income and the level of income relative to tax credits available. For example, as the percentage of foreign sourced income increases, the Company's effective tax rate declines. The Company's tax rate is also influenced by the level of equity earnings, since most of the earnings from the Company's equity method investments are taxed at the joint venture level. The underlying factors affecting the Company's overall tax rate are summarized in Note 23 to the Consolidated Financial Statements.

The tax rate for 2015 was positively impacted by portfolio actions, specifically the tax-efficient split-off of the Company's chlorine value chain, the non-taxable gain from the Univation step acquisition, and the sale of MEGlobal. The geographic mix of earnings favorably impacted the tax rate with the gain from the ANGUS Chemical Company divestiture and continued profitability improvement in Europe and Asia Pacific providing most of the benefit. The tax rate was unfavorably impacted by foreign subsidiaries repatriating cash to the United States which was primarily derived from divestiture proceeds. Reduced equity earnings and continued increases in statutory income in Latin America and Canada due to local currency devaluations also unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 21.6 percent for 2015.  

The tax rate for 2014 was positively impacted by the geographic mix of earnings, with the most notable components being improved profitability in Europe and Asia Pacific. Equity earnings remained strong, providing additional favorable impact on the tax rate. The tax rate was also favorably impacted by a reduction in the tax impact on remittances by foreign subsidiaries to the United States. The tax rate was negatively impacted by a continued increase in statutory income in Latin America due to local currency devaluations, and increases in valuation allowances, primarily in Asia Pacific. These factors resulted in an effective tax rate of 27.1 percent for 2014.

The tax rate for 2013 was favorably impacted by increased equity earnings; the K-Dow arbitration award, due to favorable tax treatment of certain components of the award; and changes in valuation allowances in the United States on state income tax attributes and capital loss carryforwards. The tax rate was unfavorably impacted by adjustments to uncertain tax positions related to court rulings on two separate tax matters and the establishment of valuation allowances outside the United States. Additionally, the tax rate was unfavorably impacted by an increase in statutory taxable income in Latin America, primarily due to local currency devaluation. These factors resulted in an effective tax rate of 29.2 percent for 2013.

Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $98 million in 2015, $67 million in 2014 and $29 million in 2013. Net income attributable to noncontrolling interests increased in 2015 compared with 2014, primarily due to higher earnings at most of the Company's consolidated joint ventures which was partially offset by an after-tax loss related to the exercise of an equity option by a noncontrolling interest in a variable interest entity. In addition to the items previously discussed, 2015 was also impacted by noncontrolling interests' portion of the 2015 restructuring charge. Net income attributable to noncontrolling interests increased in 2014 compared with 2013, primarily due to increased earnings at certain Performance Materials & Chemicals joint ventures and the 2013 divestiture of Dow Kokam. See Notes 3, 5, 20 and 25 to the Consolidated Financial Statements for additional information on these matters.


38


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

Net Income Available for Common Stockholders
Net income available for common stockholders was $7,345 million ($6.15 per share) in 2015, compared with $3,432 million ($2.87 per share) in 2014 and $4,447 million ($3.68 per share) in 2013.

Certain Items Impacting Results
The Company's management believes that measures of income adjusted to exclude certain items ("non-GAAP" financial measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such financial measures are not recognized in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should not be viewed as an alternative to U.S. GAAP financial measures of performance.

39


The following table summarizes the impact of certain items recorded in 2015, 2014 and 2013:

Certain Items Impacting Results
Pretax
Impact (1)
 
Impact on
Net Income (2)
 
Impact on
EPS (3) (4)
In millions, except per share amounts
2015

 
2014

 
2013

 
2015

 
2014

 
2013

 
2015

 
2014

 
2013

Adjusted to exclude certain items (non-GAAP measures)
 
 
 
 
 
 
$
4,054

 
$
3,709

 
$
2,981

 
$
3.47

 
$
3.11

 
$
2.48

Certain items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset impairments and related costs
$
(91
)
 
$
(23
)
 
$
(181
)
 
(70
)
 
(14
)
 
(124
)
 
(0.06
)
 
(0.01
)
 
(0.10
)
Warranty accrual adjustment of exited business

 
(100
)
 

 

 
(63
)
 

 

 
(0.05
)
 

Univation step acquisition
(12
)
 

 

 
(8
)
 

 

 
(0.01
)
 

 

Restructuring plan implementation costs

 

 
(40
)
 

 

 
(29
)
 

 

 
(0.03
)
Portfolio and productivity actions
(24
)
 

 

 
(16
)
 

 

 
(0.01
)
 

 

R&D:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring plan implementation costs

 

 
(2
)
 

 

 
(1
)
 

 

 

SG&A:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring plan implementation costs

 

 
(2
)
 

 

 
(2
)
 

 

 

Portfolio and productivity actions
(51
)
 

 

 
(38
)
 

 

 
(0.03
)
 

 

Amortization of intangibles:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset impairments and related costs

 

 
(3
)
 

 

 
(2
)
 

 

 

Goodwill and other intangible asset impairment losses

 
(50
)
 

 

 
(33
)
 

 

 
(0.03
)
 

Restructuring (charges) credits
(415
)
 

 
22

 
(274
)
 

 
21

 
(0.24
)
 

 
0.02

Asbestos-related charge

 
(78
)
 

 

 
(49
)
 

 

 
(0.04
)
 

Equity in earnings of nonconsolidated affiliates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joint venture actions
(36
)
 
(93
)
 

 
(26
)
 
(87
)
 

 
(0.02
)
 
(0.08
)
 

Asset impairments at a formulated electrolytes joint venture

 

 
(10
)
 

 

 
(6
)
 

 

 
(0.01
)
Sundry income (expense) - net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on split-off of chlorine value chain
2,233

 

 

 
2,215

 

 

 
1.96

 

 

Gain on sale of MEGlobal
723

 

 

 
589

 

 

 
0.52

 

 

Gain on 2015 business divestitures
1,320

 

 

 
823

 

 

 
0.71

 

 

Gain on Univation step acquisition
361

 

 

 
359

 

 

 
0.31

 

 

Gain from K-Dow settlement

 

 
2,161

 

 

 
1,647

 

 

 
1.37

Gain on sale of Polypropylene Licensing and Catalysts business

 

 
451

 

 

 
356

 

 

 
0.29

Gain on sale of a 7.5 percent interest in Freeport LNG Development, L.P.

 

 
87

 

 

 
69

 

 

 
0.06

Gain on sale of ownership interest in Dow Kokam

 

 
26

 

 

 
18

 

 

 
0.01

Asset impairments and related costs
(53
)
 

 

 
(53
)
 

 

 
(0.05
)
 

 

Impact of Argentine peso devaluation
(98
)
 

 

 
(106
)
 

 

 
(0.09
)
 

 

Loss on early extinguishment of debt
(8
)
 

 
(326
)
 
(5
)
 

 
(205
)
 

 

 
(0.17
)
Portfolio and productivity actions
(119
)
 
(49
)
 

 
(99
)
 
(31
)
 

 
(0.09
)
 
(0.03
)
 

Provision for income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncertain tax position adjustments

 

 

 

 

 
(276
)
 

 

 
(0.23
)
Total certain items
$
3,730

 
$
(393
)
 
$
2,183

 
$
3,291

 
$
(277
)
 
$
1,466

 
$
2.90

 
$
(0.24
)
 
$
1.21

Dilutive effect of assumed preferred stock conversion into shares of common stock
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.22
)
 
$

 
$
(0.01
)
Reported U.S. GAAP Amounts (5) (6)
 
 
 
 
 
 
$
7,345

 
$
3,432

 
$
4,447

 
$
6.15

 
$
2.87

 
$
3.68

(1)
Impact on "Income Before Income Taxes."
(2)
Impact on "Net Income Available for The Dow Chemical Company Common Stockholders."
(3)
Impact on "Earnings per common share - diluted."
(4)
For the years ended December 31, 2015 and 2013, conversion of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into shares of the Company's common stock was excluded from the calculation of "Diluted earnings per share adjusted to exclude certain items" as well as the earnings per share impact of certain items because the effect of including them would have been antidilutive.
(5)
For the years ended December 31, 2015 and 2013, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of diluted earnings per share (reported U.S. GAAP amount).
(6)
The Company used "Net Income Attributable to The Dow Chemical Company" when calculating diluted earnings per share (reported U.S. GAAP amount) for the years ended December 31, 2015 and 2013, as it excludes preferred dividends of $340 million.

40


SEGMENT RESULTS
The Company uses EBITDA (which Dow defines as earnings (i.e., "Net Income") before interest, income taxes, depreciation and amortization) as its measure of profit/loss for segment reporting purposes. EBITDA by operating segment includes all operating items relating to the businesses; items that principally apply to the Company as a whole are assigned to Corporate. Additional information regarding the Company's operating segments and a reconciliation of EBITDA to “Income Before Income Taxes” can be found in Note 26 to the Consolidated Financial Statements.

The Company's management believes that measures of income, including EBITDA, adjusted to exclude certain items ("non-GAAP" financial measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company. Such financial measures are not recognized in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should not be viewed as an alternative to U.S. GAAP financial measures of performance.

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



41


SALES VOLUME AND PRICE BY OPERATING SEGMENT AND GEOGRAPHIC AREA

Sales Volume and Price by Operating Segment and Geographic Area
 
 
2015
 
2014
 
2013
Percent change from prior year
 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

Operating Segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agricultural Sciences
 
(4
)%
 
(8
)%
 
(12
)%
 
3
 %
 
(1
)%
 
2
 %
 
11
 %
 
1
 %
 
12
 %
Consumer Solutions
 
1

 
(7
)
 
(6
)
 
3

 
(1
)
 
2

 
3

 
(2
)
 
1

Infrastructure Solutions
 
2

 
(14
)
 
(12
)
 
1

 

 
1

 
4

 
(1
)
 
3

Performance Materials & Chemicals
 
(6
)
 
(15
)
 
(21
)
 
2

 

 
2

 
(2
)
 
1

 
(1
)
Performance Plastics
 
5

 
(23
)
 
(18
)
 

 
2

 
2

 
(4
)
 
1

 
(3
)
Total
 
1
 %
 
(17
)%
 
(16
)%
 
2
 %
 
 %
 
2
 %
 
 %
 
1
 %
 
1
 %
Geographic Areas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
 %
 
(14
)%
 
(14
)%
 
2
 %
 
2
 %
 
4
 %
 
 %
 
2
 %
 
2
 %
Europe, Middle East, Africa and India
 

 
(22
)
 
(22
)
 
3

 
(1
)
 
2

 
(4
)
 

 
(4
)
Rest of World
 
1

 
(13
)
 
(12
)
 
(1
)
 

 
(1
)
 
4

 

 
4

Total
 
1
 %
 
(17
)%
 
(16
)%
 
2
 %
 
 %
 
2
 %
 
 %
 
1
 %
 
1
 %

Sales Volume and Price by Operating Segment and Geographic Area
Excluding Acquisitions and Divestitures
(1)
 
 
2015
 
2014
 
2013
Percent change from prior year
 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

Operating Segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agricultural Sciences
 
(3
)%
 
(8
)%
 
(11
)%
 
3
%
 
(1
)%
 
2
%
 
11
 %
 
1
 %
 
12
 %
Consumer Solutions
 
1

 
(7
)
 
(6
)
 
3

 
(1
)
 
2

 
3

 
(2
)
 
1

Infrastructure Solutions
 
2

 
(14
)
 
(12
)
 
1

 

 
1

 
4

 
(1
)
 
3

Performance Materials & Chemicals
 
1

 
(16
)
 
(15
)
 
2

 

 
2

 
(2
)
 
1

 
(1
)
Performance Plastics
 
5

 
(23
)
 
(18
)
 
1

 
2

 
3

 
(3
)
 
1

 
(2
)
Total
 
2
 %
 
(17
)%
 
(15
)%
 
2
%
 
 %
 
2
%
 
 %
 
1
 %
 
1
 %
Geographic Areas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
2
 %
 
(14
)%
 
(12
)%
 
2
%
 
2
 %
 
4
%
 
 %
 
2
 %
 
2
 %
Europe, Middle East, Africa and India
 
3

 
(23
)
 
(20
)
 
4

 
(1
)
 
3

 
(4
)
 

 
(4
)
Rest of World
 
2

 
(13
)
 
(11
)
 

 

 

 
6