10-K 1 dow201610k.htm 10-K Document

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, 2016
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, 2016 (based upon the closing price of $49.71 per common share as quoted on the New York Stock Exchange), was approximately $55.8 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, 2016, was 1,123,496,434 shares.
Total common stock outstanding at January 31, 2017, was 1,213,311,580 shares.
DOCUMENTS INCORPORATED BY REFERENCE

Part III: Proxy Statement for the 2017 Annual Meeting of Stockholders.



The Dow Chemical Company
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2016
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 ("DowDuPont") and then, subsequent to the merger, Dow and DuPont intend to pursue the separation of DowDuPont's agricultural business, specialty products 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 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 anticipated timing, and 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 DowDuPont 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, are more fully discussed in the joint proxy statement/prospectus that is included in the registration statement on Form S-4 (File No. 333-209869) that was 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 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/investor-relations), 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 material, polymer, chemical and biological science to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, energy efficiency, more durable infrastructure, and increasing agricultural productivity. Dow's integrated, market-driven portfolio delivers a broad range of technology-based products and solutions to customers in 175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics and agriculture. In 2016, Dow had annual sales of $48 billion and employed approximately 56,000 people worldwide. The Company's more than 7,000 product families are manufactured at 189 sites in 34 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.

Dow and DuPont remain focused on closing the transaction and continue to work constructively with regulatory agencies in all relevant jurisdictions, including the United States, European Union, China, Brazil and Canada. Given current regulatory agency status, closing is expected to occur in the first half of 2017, subject to satisfaction of customary closing conditions, including receipt of all 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 the Note About Forward-Looking Statements; 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 material, polymer, chemical 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. 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 seed products.

Details on Agricultural Sciences' 2016 sales, by business and geographic area, are as follows:
dow201610k_chart-25296.jpg dow201610k_chart-26080.jpg
(1)
Europe, Middle East, Africa and India

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
x
Herbicides
x
x
x
x
x
x
x
x
x
x
Seeds
x
x
x
x
x
 
x
x
 
x
Other
x
 
x
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™; RESICORE™; RINSKOR™; SPIDER™; STARANE™; SURESTART™; TORDON™
Seed Brands
AGROMEN™(1); BRODBECK™ Seeds; DAIRYLAND SEED™; DOW™ Seeds; MYCOGEN™ Seeds; NEXERA™; Omega-9 Healthier Oils; PFISTER™ Seeds; PHYTOGEN™; PRAIRIE BRAND™ Seeds; PROPOUND™
Seed Traits and Technologies
ENLIST™; ENLIST DUO™; EXZACT™ Precision Technology; POWERCORE™ Insect Trait Technology(2); REFUGE ADVANCED™ powered by SmartStax®(2); SmartStax® Insect Trait Technology(2)
Other
INSTINCT®; 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 registration of ENLIST DUO™ for use with ENLIST™ Corn, Soybeans and Cotton in 34 states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST E3™ Soybeans, ENLIST™ Soybean Seeds and ENLIST™ Corn Seeds in Brazil and Canada. ENLIST DUO™ is also approved for use with ENLIST™ crops in Canada. Regulatory approvals for ENLIST™ products in certain other countries are still pending.

Patents, Trademarks and Licenses
Agricultural Sciences has significant technology-driven growth, driven by crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. 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.

Competition
Agricultural Sciences competes with producers of crop protection and seed/plant biotechnology products on a global basis. 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 crop protection companies 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 more than 50 percent of the segment's annual sales are generated. Accounts receivable tends to be higher during the first half of the year, consistent with the peak sales period in the northern hemisphere.

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. See Note 5 to the Consolidated Financial Statements for additional information on this transaction.



6


CONSUMER SOLUTIONS
The Consumer Solutions segment consists of four global businesses: Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions - Silicones. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications including semiconductors and organic light-emitting diodes ("OLEDs"), adhesives and foams used by the transportation industry, cellulosics and other polymers for innovative pharmaceutical formulations and food solutions, and silicone solutions used in consumer goods and automotive applications. 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 in nearly 110 countries.

Details on Consumer Solutions' 2016 sales, by business and geographic area, are as follows:

dow201610k_chart-25136.jpg dow201610k_chart-25959.jpg

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™(1)
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.
(1)
On December 31, 2016, the Company sold its SAFECHEM™ business. SAFECHEM™ was reported as part of the Consumer Solutions segment through the date of divestiture.


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 OLEDs; metalorganic precursors for light-emitting diodes; 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

Consumer Solutions - Silicones
Consumer Solutions - Silicones provides innovative silicone solutions and ingredients to customers in beauty and personal care, household care, healthcare, consumer goods and automotive market segments around the world. Backed by extensive application expertise and industry knowledge, Consumer Solutions - Silicones features a broad, diverse portfolio of elastomers, emulsifiers, film formers, fluids, antifoams, additives, tubing and molded assemblies and adhesives.


8


Consumer Solutions - Silicones principal businesses offer the following technologies and serve the following market segments:

Business
Applications/Market Segments
Technologies
Beauty and Personal Care
Hair care, skin care, sun care and color cosmetics
Innovative beauty care ingredients that help improve product performance and meet the needs of consumers. Notable silicone technologies include elastomers, emulsifiers, rheology modifiers, film formers-resins, gums and acrylates, powders and fluids.
Household Care
Laundry and fabric care, hard surface care
Proven solutions to deliver benefits to both consumers and manufacturers alike. Notable silicone technologies include antifoams, processing aids, polishing gloss aids and softening agents.
Healthcare
Drug delivery, medical device, wound care and topical ingredient applications
Innovative silicone solutions backed by industry application and regulatory expertise. Notable silicone technologies include elastomers, emulsifiers, excipients, tubing and molded assemblies, adhesives, antifoams and fluids.
Consumer Goods
Electronics, packaging, sporting goods, household goods, infant care
Elastomer and thermal plastic technologies with proven performance delivering benefits to consumers around the world in multiple applications. Notable technology includes liquid silicone rubbers, high consistency rubbers, TPSiV, thermoplastic additives and food-grade materials.
Automotive
Safety, lighting, sealing, electronics, NVH (noise, vibration, harshness), exterior trim
Notable technology includes: elastomers, liquid silicone rubbers, high consistency rubbers, thermoplastics, additives, coatings, thermal management materials, sealants and lubricants.

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, Bluestar, JSR Micro, Momentive, Shin-Etsu Chemical and Wacker.

Joint Ventures
The Consumer Solutions segment includes a portion of the Company's share of the results of the Hemlock Semiconductor Group ("HSC Group"), a U.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

As of June 1, 2016, Dow Corning Corporation ("Dow Corning"), previously a 50:50 joint venture with Corning Incorporated ("Corning"), became a wholly owned subsidiary of Dow as a result of an ownership restructure ("DCC Transaction"). Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.



9


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 and materials, adhesives, microbial protection for the oil and gas industry, telecommunications, light 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' 2016 sales, by business and geographic area, are as follows:
   
dow201610k_chart-25195.jpg dow201610k_chart-26018.jpg

Dow Building & Construction
Dow Building & Construction is comprised of two businesses - Dow Building Solutions and Dow Construction Chemicals. Leveraging more than 70 years of building science experience and deep application expertise that go well beyond the business's 75 years of STYROFOAM™ brand insulation 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 and building material solutions, as well as 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 includes the following businesses - Dow Microbial Control; Dow Oil, Gas & Mining; 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. 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.

Infrastructure Solutions - Silicones
Infrastructure Solutions - Silicones is a global leader in providing solutions to pressing challenges customers face in the infrastructure segment delivered via proven and innovative silicon-based technology. The diverse portfolio provides solutions

10


to the building and construction, telecommunications, lighting and energy sectors. In construction particularly, silicone materials enable buildings that promote occupant comfort, safety and security, improved productivity and design freedom.

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, LIQUIDARMOR™ 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
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
Infrastructure Solutions - Silicones
Commercial glazing, building envelope, construction chemicals, window and door infrastructure, wire and cable, electrical and high voltage insulation, power transmission, sleeving, optical devices, light-emitting diodes, lamp and luminaire, oil and gas, solar
Elastomers, fluids, pottants, potting agents, thermal interface materials, adhesives and sealants, encapsulants, gels, resins, antifoams, demulsifiers, lubricants

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 its sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Arkema, Ashland, BASF, Bluestar, Elementis, Hydranautics, Lanxess, Lonza, Momentive, Owens-Corning, Shin-Etsu Chemical and Wacker.

Joint Ventures
The Infrastructure Solutions segment includes a portion of the Company's share of the results of the HSC Group, a U.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

11


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' 2016 sales, by business and geographic area, are as follows:
   
dow201610k_chart-25236.jpg dow201610k_chart-26249.jpg

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 as 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 more than 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, Covestro, Eastman, INEOS, Huntsman, LyondellBasell, Olin and Oxea.

(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.

12


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; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; 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 Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; 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. See Notes 5 and 6 to the Consolidated Financial Statements for additional information on these transactions.


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 approximately 110 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' 2016 sales, by business and geographic area, are as follows:
   
dow201610k_chart-25198.jpg dow201610k_chart-25960.jpg


13


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 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 producer and purchaser 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, transmission pipe and photovoltaics
Acrylics, polyethylene, low-density polyethylene, linear low-density polyethylene, high-density polyethylene, 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 BASF, Borealis, Braskem, CP Chem, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC.


14


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 listed below:

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 - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; 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 Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; 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. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

Current and Future Investments
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 derived from shale gas including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 kilotonnes per annum ("KTA") and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. 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 feedstocks. Dow’s ethylene production capabilities are expected to increase by as much as 20 percent.

In 2016, the Company completed an expansion of a gas-phase polyethylene production facility in Seadrift, Texas. Expansion projects are also currently underway at two of the Company's gas-phase polyethylene units in St. Charles, Louisiana, with expected start-up in mid-2018. The Company is also building four new production facilities on the U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value Performance Plastics franchise which includes an ELITE™ Polymer production facility, a Low Density Polyethylene (LDPE) production facility and a NORDEL™ Metallocene EPDM production facility, which are all expected to start up in 2017, and a High Melt Index (HMI) AFFINITY™ Polymer production facility, which is expected to start up in the second half of 2018.


CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, 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 and processing costs and reserve adjustments); and, foreign exchange results.



15


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 major raw material stream that feeds the production of the Company’s finished goods is hydrocarbon-based raw materials. 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. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

Expenditures for hydrocarbon feedstocks and energy accounted for 24 percent of the Company’s production costs and operating expenses for the year ended December 31, 2016. The Company purchases these raw materials on both short- and long-term contracts.

The Company had adequate supplies of raw materials during 2016, and expects to continue to have adequate supplies of raw materials in 2017. 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
x
 
Ammonia
 
 
x
x
x
Aniline (1)
 
 
 
x
 
Benzene
 
 
 
x
x
Butane
 
 
 
 
x
Butene
 
 
 
x
x
Butyl Acrylate (1)
 
x
x
 
x
Carbon Black
 
x
 
 
x
Carbon Monoxide
 
 
 
x
 
Caustic Soda (1)
x
x
x
x
 
Chlorine (1)
x
x
x
x
 
Condensate
 
 
 
 
x
Electric Power
 
 
 
x
x
Ethane
 
 
 
 
x
Ethanol
x
x
x
x
 
Ethylene (1)
 
 
x
x
x
Formaldehyde
 
x
x
x
 
Hexene
 
 
 
 
x
Hydrogen Peroxide (2)
 
 
 
x
 
Isopropanol
 
x
 
x
 
Methanol
x
x
x
x
x
Naphtha
 
 
 
 
x
Natural Gas
 
 
 
 
x
Nitrogen
 
 
 
x
x
Octene (1)
 
 
 
 
x
Polystyrene
 
 
x
 
x
Propane
 
x
x
 
x
Propylene (1)
 
x
x
x
x
Pygas
 
 
 
 
x
Silica
 
x
x
 
 
Silicon Metal (1)
 
x
x
 
 
Styrene
 
 
x
x
 
Wood Pulp
 
x
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.



16


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 2016.


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 $1,584 million in 2016, $1,598 million in 2015 and $1,647 million in 2014. At December 31, 2016, the Company employed approximately 7,200 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, 2016, the Company owned 5,651 active U.S. patents and 25,449 active foreign patents as follows:
 
Patents Owned at December 31, 2016

 
United States

 
Foreign

Agricultural Sciences
 
1,041

 
4,603

Consumer Solutions
 
1,645

 
6,189

Infrastructure Solutions
 
1,338

 
6,827

Performance Materials & Chemicals
 
375

 
2,332

Performance Plastics
 
1,150

 
5,283

Corporate
 
102

 
215

Total
 
5,651

 
25,449


 
Remaining Life of Patents Owned at December 31, 2016
  
 
United States

 
Foreign

Within 5 years
 
1,384

 
5,170

6 to 10 years
 
1,187

 
8,000

11 to 15 years
 
2,312

 
10,843

16 to 20 years
 
768

 
1,436

Total
 
5,651

 
25,449

 
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 $394 million in 2016, $357 million in 2015 and $388 million in 2014. The Company incurred royalties to others of $191 million in 2016, $198 million in 2015 and $170 million in 2014. 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.



17


PRINCIPAL PARTLY OWNED COMPANIES
Dow’s principal nonconsolidated affiliates at December 31, 2016, including direct or indirect ownership interest for each, are listed below:

Principal Nonconsolidated Affiliate
 
Ownership Interest

 
Business Description
Dow Corning Corporation (1)
 
N/A

 
A U.S. company that manufactures silicone and silicone products
EQUATE Petrochemical Company K.S.C.
 
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 HSC Group: (1)
 
 
 
 
DC HSC Holdings LLC (2)
 
50.00
%
 
A U.S.-based group of companies that manufactures polycrystalline silicon products
Hemlock Semiconductor L.L.C.
 
50.10
%
 
A U.S. company that sells polycrystalline silicon products
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 (4)
 
35.00
%
 
A Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational
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)
As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. Dow Corning was treated as a principal nonconsolidated affiliate through May 31, 2016. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the Company's consolidated statements of income. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.
(2)
DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations.
(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.
(4)
Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee.

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 2016, the Company derived 65 percent of its sales and had 37 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.



18


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.


EMPLOYEES
As of December 31, 2016, the Company permanently employed approximately 56,000 people on a full-time basis, with approximately 45 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and
30 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 9, 2017.

Name - Age
Present Position with Registrant
Year Elected to be an Officer
Other Business Experience since January 1, 2012
Ronald C. Edmonds, 59
Controller and Vice President of Controllers and Tax
2009
Vice President and Controller 2009 to date. Present position held since January 2016.
James R. Fitterling, 55
President and Chief Operating Officer
2010
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, 61
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, 57
Vice Chairman and Chief Commercial Officer
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, 56
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 Center September 2014 to present. Corporate Vice President October 2014 to October 2015. Present position held since 2015.
Charles J. Kalil, 65
Executive Vice President and General Counsel
2004
General Counsel 2004 to date. Executive Vice President 2008 to date. Corporate Secretary 2005 to February 2015.
Andrew N. Liveris, 62
Chief Executive Officer and Chairman of the Board
2003
President 2004 to February 2016. Chief Executive Officer 2004 to date. Chairman 2006 to date.
Johanna Söderström, 45
Corporate Vice President, Human Resources and Aviation, and Chief Human Resource Officer
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, 49
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, 48
Vice Chairman and Chief Financial Officer
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.

19



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 of additional regulations, controls and duties and tariffs or changes to 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 derived from shale gas including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. As a result of these investments, the

20


Company's exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks.

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 product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, 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 Chapter 11 related matters of Dow Corning as 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, 2016, Union Carbide's total asbestos-related liability, including defense and processing costs, was $1,490 million ($437 million at December 31, 2015, which excluded defense and processing costs).

In 1995, Dow Corning, a former 50:50 joint venture, voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve breast implant liabilities and related matters ("Chapter 11 Proceeding"). Dow Corning emerged from the Chapter 11 Proceeding on June 1, 2004, and is implementing the Joint Plan of Reorganization (the "Plan"). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. At December 31, 2016, Dow Corning's liability for breast implant and other product liability claims was $263 million and the liability related to commercial creditor claims was $108 million.

See Note 15 to the Consolidated Financial Statements for additional information on these matters.

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, 2016, the Company had accrued obligations of $909 million ($670 million at December 31, 2015) for probable environmental remediation and restoration costs, including $151 million ($74 million at December 31, 2015) 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 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.


21


Health and 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 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 or continued sales of certain 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, federal and foreign 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.

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 impact 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 geographic areas 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

22


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 impact 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.



23



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



24



The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.
PROPERTIES
The Company operates 189 manufacturing sites in 34 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 2016, 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
Bomlitz
 
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:
 
 
 
 
 
Carrollton, Kentucky
 
x
x
 
 
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
 
Wales, United Kingdom
 
x
x
 
 
Zhangjiagang, China
 
x
x
x
 
Including the major production sites, the Company has plants and holdings in the following geographic areas:

Asia Pacific:
  40 manufacturing locations in 11 countries.
Canada:
    6 manufacturing locations in 3 provinces.
Europe, Middle East, Africa and India:
  50 manufacturing locations in 17 countries.
Latin America:
  33 manufacturing locations in 4 countries.
United States:
  60 manufacturing locations in 25 states and 1 U.S. territory.

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.


25



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.

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 Notes 1 and 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, manufacturing facility. In a letter dated November 13, 2016, ROH was informed that after consideration of the information provided by the Company, the EPA has determined that it will not, at this time, pursue civil enforcement related to the alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky manufacturing facility.

Dow Corning Corporation ("Dow Corning"), a wholly owned subsidiary of the Company, has received the following notifications from the EPA, Region Five related to Dow Corning’s Midland manufacturing facility (the “Facility”): 1) a Notice of Violation and Finding of Violation (received in April 2012) which alleges a number of violations in connection with the detection, monitoring and control of certain organic hazardous air pollutants at the Facility and various recordkeeping and reporting violations under the Clean Air Act and 2) a Notice of Violation (received in May 2015) alleging a number of violations relating to the management of hazardous wastes at the Facility pursuant to the Resource Conservation and Recovery Act. While Dow Corning contests these allegations, resolution may result in a penalty in excess of $100,000. Discussions between the EPA and Dow Corning are ongoing.

On August 17, 2016, Dow Corning received notification from the Kentucky Department for Environmental Protection ("KDEP") of their intent to assess a civil penalty in excess of $100,000 for alleged air violations at Dow Corning's Carrollton, Kentucky, manufacturing facility. Discussions between Dow Corning and the KDEP are ongoing.

Rohm and Haas Texas Incorporated ("ROH Texas"), a wholly owned subsidiary of the Company, was informed by the EPA, Region 6 of concerns related to the operation and condition of certain flares installed at ROH Texas' Deer Park, Texas, manufacturing facility. This matter was resolved on January 12, 2017, through the issuance of an Administrative Complaint as well as a Consent Agreement and Final Order, under which ROH Texas does not admit the alleged violations but agrees to pay the U.S. Treasury $400,000 and commits to a mitigation plan involving additional monitoring and completion of two Supplemental Environmental Projects ("SEPs") to provide a local college with an air monitoring bench and improved energy efficient lighting. The SEPs are estimated to cost ROH Texas approximately $1.5 million.

Derivative Litigation
In April 2016, Stephen Levine ("Levine"), purportedly in the name of and on behalf of the Company, served the Company with a complaint filed in the United States District Court for the Eastern District of Michigan (the “Court”) against certain officers and directors of the Company (the “Defendants”) alleging, among other things, that Defendants breached certain fiduciary obligations with respect to the urethanes antitrust class action litigation and the underlying conduct alleged therein, and the use of corporate assets. Defendants and the Company moved to dismiss the complaint on July 13, 2016, arguing that Levine had not alleged sufficient facts to establish his ability to assert claims on the Company's behalf and that the allegations were not sufficient to state a legal claim. On October 19, 2016, the Court entered an order granting Defendants' motion to dismiss and entering judgment for the Defendants. In November 2016, the shareholder appealed the Court’s judgment to the United States Court of Appeals for the Sixth Circuit.

26



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

Not applicable.


27



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, 2016, there were 57,838 registered common stockholders. The Company estimates there were an additional 855,171 stockholders whose shares were held in nominee names at December 31, 2016. At January 31, 2017, there were 57,651 registered common stockholders.

On December 15, 2016, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 30, 2017, to stockholders of record on December 28, 2016. On February 9, 2017, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 28, 2017, to stockholders of record on March 31, 2017. 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 105-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, 2016:

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 2016
 

 
$

 

 
$
1,896

November 2016
 
8,822,551

 
$
53.64

 
8,822,551

 
$
1,423

December 2016
 
493,480

 
$
54.25

 
493,480

 
$
1,396

Fourth quarter 2016
 
9,316,031

 
$
53.67

 
9,316,031

 
$
1,396

(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.



28



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

SELECTED FINANCIAL DATA

In millions, except as noted (Unaudited)
2016

2015

2014

2013

2012

Summary of Operations
 
 
 
 
 
Net sales
$
48,158

$
48,778

$
58,167

$
57,080

$
56,786

Net income (1)
$
4,404

$
7,783

$
3,839

$
4,816

$
1,100

Per share of common stock (in dollars):
 
 
 
 
 
Net income per common share - basic (1)
$
3.57

$
6.45

$
2.91

$
3.72

$
0.71

Net income per common share - diluted (1)
$
3.52

$
6.15

$
2.87

$
3.68

$
0.70

Cash dividends declared per share of common stock
$
1.84

$
1.72

$
1.53

$
1.28

$
1.21

Book value per share of common stock
$
21.70

$
23.06

$
19.71

$
22.59

$
17.73

Year-end Financial Position
 
 
 
 
 
Total assets (2) (3)
$
79,511

$
67,938

$
68,639

$
69,380

$
69,462

Long-term debt (2)
$
20,456

$
16,215

$
18,741

$
16,732

$
19,819

Financial Ratios
 
 
 
 
 
Research and development expenses as percent of net sales
3.3
%
3.3
%
2.8
%
3.1
%
3.0
%
Income before income taxes as percent of net sales (1)
9.2
%
20.4
%
9.1
%
11.9
%
2.9
%
Return on stockholders’ equity (1)
15.3
%
34.4
%
18.6
%
19.4
%
5.0
%
Debt as a percent of total capitalization
44.0
%
39.7
%
45.5
%
38.9
%
48.7
%
(1)
The 2016 values include the impact of a change in accounting policy for asbestos-related defense and processing costs. See Notes 1 and 15 to the Consolidated Financial Statements for additional information.    
(2)
Adjusted for the reclassification of debt issuance costs related to the adoption of ASU 2015-03 in 2015. See Note 2 to the Consolidated Financial Statements for additional information.
(3)
Adjusted for the adoption of ASU 2015-17 in 2016. See Notes 1 and 2 to the Consolidated Financial Statements for additional 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 material, polymer, chemical and biological science to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, energy efficiency, more durable infrastructure, and increasing agricultural productivity. Dow's integrated, market-driven portfolio delivers a broad range of technology-based products and solutions to customers in 175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics and agriculture. In 2016, Dow had annual sales of $48 billion and employed approximately 56,000 people worldwide. The Company's more than 7,000 product families are manufactured at 189 sites in 34 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 2016, 38 percent of the Company’s sales were to customers in North America; 30 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 32 percent were to customers in Asia Pacific and Latin America.

In 2016, 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 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


2016 OVERVIEW
Dow had another strong year in 2016, delivering on a number of strategic priorities including progress on growth investments and portfolio actions. A summary of financial highlights and other notable events are as follows:

Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Sales declined in Performance Materials & Chemicals (down 23 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent) which more than offset sales increases in Consumer Solutions (up 25 percent) and Infrastructure Solutions (up 17 percent), both of which include Dow Corning Corporation's ("Dow Corning") silicones business. Performance Plastics sales were flat. Sales declined in all geographic areas, except Asia Pacific (up 10 percent).

Volume increased 5 percent in 2016 compared with 2015, as increases in Consumer Solutions (up 29 percent), Infrastructure Solutions (up 23 percent), and Performance Plastics (up 8 percent) more than offset volume declines in Performance Materials & Chemicals (down 14 percent) and Agricultural Sciences (down 3 percent). Volume increased in all geographic areas, except Latin America (down 1 percent), including a double-digit increase in Asia Pacific (up 16 percent). Excluding the impact of recent acquisitions and divestitures(1), volume was up 4 percent with increases in all operating segments, except Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which was flat.

Price was down 6 percent in 2016 compared with 2015, driven by lower feedstock and raw material prices and competitive pricing pressures. Price declines were reported in all operating segments, except Agricultural Sciences which was flat, and all geographic areas.

Dow's Board of Directors approved a restructuring plan in the second quarter of 2016 that incorporates actions related to the ownership restructure of Dow Corning. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. As a result, the Company recorded pretax restructuring charges of $449 million in 2016 related to this plan.

In the fourth quarter of 2016, the Company changed its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability through the expected terminal date of 2049, resulting in a charge of $1,009 million. The Company also increased its asbestos-related liability for pending and future claims through the expected terminal date of 2049, resulting in an additional charge of $104 million.

Dow's earnings from nonconsolidated affiliates totaled $442 million in 2016, down from $674 million in 2015. In 2016, equity earnings decreased as higher earnings from The SCG-Dow Group, Map Ta Phut Olefins Company Limited and the HSC Group were more than offset by higher equity losses from Sadara Chemical Company ("Sadara") related to start-up expenses, and lower equity earnings from the Kuwait joint ventures as a result of lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE Petrochemicals Company K.S.C. ("EQUATE")). Equity earnings also declined as a result of the ownership restructure of Dow Corning ("DCC Transaction").

Sundry income (expense) - net was income of $1,202 million in 2016, reflecting a gain related to the DCC Transaction partially offset by a loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation.

The provision for income taxes was $9 million in 2016, which resulted in an effective tax rate of 0.2 percent, down from $2,147 million in 2015, or an effective tax rate of 21.6 percent. The provision for income taxes decreased primarily due to the non-taxable gain on the DCC Transaction, a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge resulting from the change in accounting policy.

The Company resumed its share repurchase program in the third quarter of 2016 after the shareholder vote on the DowDuPont merger on July 20, 2016. During 2016, the Company executed $916 million in share repurchases. At December 31, 2016, $1.4 billion of the share buy-back authorization remained available for repurchases.


(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); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics).

31


On December 30, 2016, the Company converted 4 million shares of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into 96.8 million shares of the Company's common stock. As a result of this conversion, the annual Preferred Stock dividend of $340 million will be eliminated.

Other notable events and highlights from 2016 include:

On March 7, 2016, the Company announced its new, on-purpose propylene production facility in Freeport, Texas, successfully completed the performance test, certifying that the 750 kilotonnes per annum ("KTA") unit is capable of operating at full operating capacity.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture. As a result, Dow is now the 100 percent owner of Dow Corning's silicones business.

On June 9, 2016, DowDuPont's registration statement filed with the U.S. Securities and Exchange Commission on Form S-4 (File No. 333-209869), as amended, was declared effective. The registration statement was filed in connection with the proposed merger with E. I. du Pont de Nemours & Company ("DuPont") and includes a joint proxy statement of Dow and DuPont and a prospectus of DowDuPont.

In connection with the planned merger of equals transaction with DuPont, Dow held a special meeting of stockholders on July 20, 2016. Stockholders of the Company voted to approve all stockholder proposals necessary to complete the merger of equals transaction.

On August 29, 2016, the Company announced that its joint venture in the Middle East - Sadara - achieved a significant milestone with the successful start-up of its mixed feed cracker and a third polyethylene train, which added to the two polyethylene trains already in operation.

On December 9, 2016, the Company announced that it will invest in a new, state-of-the-art innovation center in Midland, Michigan, which will support approximately 200 research and development jobs in Michigan, including 100 newly created jobs while repatriating 100 jobs from other Dow facilities throughout the globe to Midland.

Dow launched two additional Pack Studios in 2016 - the opening of Pack Studios Singapore, the second Pack Studios center for Asia Pacific, and Pack Studios Ringwood, located in North America and focused on laminating adhesives.

Dow completed expansions of its Louisiana ethylene and Seadrift, Texas, gas-phase polyethylene production facilities, delivering further integration strength to complement the Company's market-focused downstream investments.

Dow was named to the Dow Jones Sustainability World Index - marking the 16th time the Company has been named to this global benchmark.

Dow received seven R&D 100 Awards from R&D Magazine for revolutionary technologies including: BETAFORCE™ 2817 Structural Adhesive, two awards for CANVERA™ Polyolefin Dispersions, Dow Corning® TC-3040 Thermal Gel, Flexible Acrylic Resin, PARADIGM™ WG Herbicide with ARYLEX™ Active and DOW AGILITY™ Performance LDPE.

Dow received two 2016 Sustainability Awards from the Business Intelligence Group including the Sustainability Initiative of the Year Award for RETAIN™ Polymer Modifiers and the Sustainability Product of the Year Award for CANVERA™ Polyolefin Dispersions.

Dow AgroSciences LLC was the recipient of a Presidential Green Chemistry Challenge Award from the U.S. Environmental Protection Agency for INSTINCT® Nitrogen Stabilizer.

Dow was recognized in the Top 10 Best Companies for Leaders by Chief Executive magazine.

Dow was named to the 2016 Working Mother 100 Best Companies list, marking the 12th time Dow has received this prestigious recognition.

Dow was named to Forbes Just 100: America's Best Corporation Citizens in 2016 list - recognizing the Company's strategic vision and actions to deliver long-term value to society as a whole while earning the right to operate.


32


Dow was named the ICIS Company of the Year, based on financial metrics, by weekly global publication ICIS Chemical Business. The selection takes into account year-on-year growth in profits at the operating and net levels, as well as margins.

Dow was honored for the 12th consecutive year by the Human Rights Campaign for achieving a 100 percent rating on its corporate equality index - a global benchmarking tool on corporate policies and practices related to lesbian, gay, bisexual and transgender (LGBT) employees.

On February 2, 2016, Dow announced the planned transition 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.

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 April 15, 2016, Gary McGuire was elected Vice President and Treasurer, succeeding Fernando Ruiz, Corporate Vice President and Treasurer, who announced his intention to retire from the Company.

Dow’s results of operations and financial condition for the year ended December 31, 2016, are described in further detail in the following discussion and analysis.


RESULTS OF OPERATIONS
Net Sales
Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Price decreased in all operating segments, except Agricultural Sciences which was flat, and all geographic areas, due to lower feedstock and raw material prices and competitive pricing pressures. Volume increases in Consumer Solutions (up 29 percent) and Infrastructure Solutions (up 23 percent), both of which include Dow Corning's silicones business, and Performance Plastics (up 8 percent) more than offset lower volume in Performance Materials & Chemicals (down 14 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent). Volume increased in Asia Pacific (up 16 percent), North America (up 5 percent), EMEAI (up 3 percent) and declined in Latin America (down 1 percent). Excluding recent acquisitions and divestitures(1), volume was up 4 percent as increases in Performance Plastics (up 9 percent), Consumer Solutions (up 4 percent) and Performance Materials & Chemicals (up 2 percent) more than offset declines in Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which remained flat.

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 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).

Sales in the United States accounted for 35 percent of total sales in 2016 (35 percent in 2015 and 33 percent in 2014). 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.


(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); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation, acquired on May 5, 2015 (Performance Plastics).

33


Gross Margin
Gross margin was $10.5 billion in 2016, $10.9 billion in 2015 and $10.7 billion in 2014. Gross margin in 2016 was impacted by a $317 million loss associated with the fair value step-up in inventories acquired in the DCC Transaction, reflected in Consumer Solutions ($147 million) and Infrastructure Solutions ($170 million); a $295 million charge for environmental matters, reflected in Agricultural Sciences ($2 million), Performance Materials & Chemicals ($1 million), Performance Plastics ($2 million) and Corporate ($290 million); $124 million of costs associated with transactions and productivity actions (reflected in Corporate); and a $117 million charge for the termination of a terminal use agreement (reflected in Performance Plastics). Excluding these items, gross margin increased compared with 2015 as lower feedstock, energy and other raw material costs, cost cutting and productivity initiatives, higher sales volume and the favorable impact from the addition of Dow Corning's silicones business more than offset lower selling prices. See Notes 4 and 15 to the Consolidated Financial Statements for additional information regarding these items.

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 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 and reflected in the following segments: Infrastructure Solutions ($34 million) and Performance Plastics ($57 million). Gross margin was also reduced by $24 million of costs associated with transactions and productivity actions (reflected in Corporate) and a $12 million loss related to Univation Technologies, LLC ("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.

Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2016, flat compared with 2015 and 2014.

Personnel Count
The Company permanently employed approximately 56,000 people at December 31, 2016, up from approximately 46,500 at December 31, 2015. Headcount increased in 2016 primarily due to the DCC Transaction, which was partially offset by a decline related to the Company's restructuring programs. Personnel count at December 31, 2015, decreased from approximately 50,000 at December 31, 2014, primarily due to the separation of employees as a result of divestitures and the Company's restructuring programs.

Research and Development Expenses
Research and development (“R&D”) expenses were $1,584 million in 2016, compared with $1,598 million in 2015 and $1,647 million in 2014. In 2016, R&D expenses decreased slightly compared with 2015, as increased costs from Dow Corning's silicones business were more than offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, R&D expenses decreased primarily due to cost reduction initiatives, notably in Agricultural Sciences, which were partially offset by increased performance-based compensation costs.

Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $3,304 million in 2016, compared with $2,971 million in 2015 and $3,106 million in 2014. In 2016, SG&A was negatively impacted by $379 million of costs associated with transactions and productivity actions, reflected in Corporate ($51 million in 2015). Excluding these items, SG&A expenses were essentially flat in 2016 compared with 2015, as increased costs from Dow Corning's silicones business were nearly offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, SG&A expenses decreased as lower expenses, notably in Agricultural Sciences, and from the impact of divestitures, more than offset increased performance-based compensation costs.

34


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
 
2016

 
2015

 
2014

Hydrocarbon feedstocks and energy
 
24
%
 
27
%
 
38
%
Salaries, wages and employee benefits
 
17

 
18

 
15

Maintenance
 
4

 
5

 
4

Depreciation
 
5

 
4

 
4

Restructuring charges
 
1

 
1

 

Supplies, services and other raw materials
 
49

 
45

 
39

Total
 
100
%
 
100
%
 
100
%

Amortization of Intangibles
Amortization of intangibles was $544 million in 2016, $419 million in 2015 and $436 million in 2014. The increase in amortization in 2016 is primarily due to an increase in intangible assets as a result of the DCC Transaction. See Notes 4 and 10 to the Consolidated Financial Statements for additional information on intangible assets.

Goodwill and Other Intangible Asset Impairment Losses
The Company performs annual goodwill impairment tests in the fourth quarter of the year. In 2016, the Company performed qualitative testing for 11 of the 14 reporting units carrying goodwill (9 of 12 reporting units in 2015 and 9 of 14 reporting units in 2014) and quantitative testing for the remaining three reporting units (three in 2015 and five in 2014). No goodwill impairments were identified in 2016, 2015 and 2014. See Critical Accounting Policies in Other 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 the fourth quarter of 2014, the Company recognized a pretax charge of $50 million for the impairment of intangible assets in the Dow Electronic Materials business, reflected in the Consumer Solutions segment. See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

Restructuring Charges (Credits)
On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the DCC Transaction. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the DCC Transaction. These actions are expected to be substantially completed by June 30, 2018. As a result, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance costs of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million and reflected in the Company's segments results as follows: $28 million in Consumer Solutions, $97 million in Infrastructure Solutions, $10 million in Performance Plastics and $314 million in Corporate.

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 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 June 30, 2017. As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of severance costs of $196 million, asset write-downs and write-offs of $169 million and costs associated with exit and disposal activities of $10 million. In 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 was 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.

In 2016, the Company recorded an unfavorable restructuring charge adjustment of $6 million for additional accruals for costs associated with exit and disposal activities and a favorable adjustment of $3 million for the impairment of long-lived assets related to the 2015 Restructuring plan. The net charge was included in the Company's segment results as follows: $5 million charge in Agricultural Sciences, $1 million charge in Consumer Solutions and a $3 million gain in Infrastructure Solutions.

35


In 2014, the Company recognized a pretax gain of $3 million for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan, reflected in Performance Materials & Chemicals. See Note 3 to the Consolidated Financial Statements for details on the Company's restructuring activities.

Asbestos-related Charge
In 2016, the Company and Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary, elected to change the method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. As a result of this accounting policy change, the Company recorded a pretax charge of $1,009 million for asbestos-related defense costs through the terminal year of 2049. The Company also recorded a pretax charge of $104 million to increase the asbestos-related liability for pending and future claims through the terminal year of 2049. These charges were reflected in Corporate.

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 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 Notes 1 and 15 to the Consolidated Financial Statements for additional information on asbestos-related matters.

Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 2016 was $442 million, compared with $674 million in 2015 and $835 million in 2014. In 2016, equity earnings declined due to higher equity losses at Sadara related to start-up expenses, lower equity earnings from the Kuwait joint ventures due to lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE), and the DCC Transaction. Equity earnings for 2016 also declined due to a charge of $22 million for a loss on early redemption of debt incurred by Dow Corning and reflected in Consumer Solutions ($8 million) and Infrastructure Solutions ($14 million). These declines were partially offset by higher earnings at the HSC Group, The SCG-Dow Group and Map Ta Phut Olefins Company Limited. 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, The Kuwait Olefins Company K.S.C. ("TKOC") and MEGlobal. Equity earnings in 2015 were also impacted by a $29 million charge (reflected in Agricultural Sciences) 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 (reflected in Corporate). In 2014, equity earnings decreased primarily due to lower earnings at EQUATE, The Kuwait Styrene Company K.S.C. ("TKSC") and MEGlobal and increased losses at Sadara which were partially offset by increased earnings at Dow Corning.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture between Dow and Corning. As a result, Dow Corning became a wholly owned subsidiary of Dow. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

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 the HSC Group into China. During the fourth quarter of 2014, Dow Corning determined its polycrystalline silicon plant expansion in Clarksville, Tennessee, would not be economically viable and made the decision to permanently abandon the assets. 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.

During the fourth quarter of 2014, 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. 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 and Note 15 for additional information on Dow Corning's implant liability.


36


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, and litigation. Sundry income (expense) - net for 2016 was net income of $1,202 million, compared with net income of $4,592 million in 2015 and net expense of $27 million in 2014.

In 2016, sundry income (expense) - net included a $2,445 million gain related to the DCC Transaction (reflected in Consumer Solutions ($1,301 million) and Infrastructure Solutions ($1,144 million)), a $6 million gain adjustment on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals), a $27 million favorable adjustment related to a decrease in Dow Corning's implant liability (reflected in Consumer Solutions) and gains on sales of assets and investments. These gains more than offset a $1,235 million loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation (reflected in Performance Materials & Chemicals), a $143 million impairment charge related to the Company's investment in AgroFresh Solutions, Inc., a $20 million charge for post-closing adjustments related to non-cash consideration for the AgroFresh divestiture (both reflected in Agricultural Sciences), $41 million of costs associated with transactions and productivity actions (reflected in Corporate) and foreign currency exchange losses. See Notes 4, 5, 6, 9, 12, 13 and 15 to the Consolidated Financial Statements for additional information.
  
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 transactions 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 transactions and productivity actions (reflected in Corporate).

Net Interest Expense
Net interest expense (interest expense less capitalized interest and interest income) was $751 million in 2016, down from $875 million in 2015 and $932 million in 2014. In 2016, net interest expense decreased primarily due to the impact of approximately $2.5 billion of debt retired in 2015. 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. Interest income was $107 million in 2016, $71 million in 2015 and $51 million in 2014. Interest expense (net of capitalized interest) and amortization of debt discount totaled $858 million in 2016, $946 million in 2015 and $983 million in 2014. 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 Company's effective tax rate fluctuates based on, among other factors, where income is earned, reinvestment assertions regarding foreign 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 provision for income taxes was $9 million in 2016, down from $2,147 million in 2015 and $1,426 million in 2014. The tax rate for 2016 was favorably impacted by the non-taxable gain on the DCC Transaction and a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning. The tax rate was also favorably impacted by the geographic mix of earnings, the availability of foreign tax credits and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge. A reduction in equity

37


earnings and non-deductible costs associated with transactions and productivity actions unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 0.2 percent for 2016.

The tax rate for 2015 was favorably 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 favorably impacted by the geographic mix of earnings, with the most notable components being improved profitability in Europe and Asia Pacific. Equity earnings were 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 unfavorably 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.

Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $86 million in 2016, $98 million in 2015 and $67 million in 2014. Net income attributable to noncontrolling interests decreased in 2016 compared with 2015, primarily due to losses incurred by a cogeneration facility in Brazil, which more than offset earnings from Dow Corning's consolidated joint ventures. 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. See Notes 3, 20 and 25 to the Consolidated Financial Statements for additional information on these matters.

Preferred Stock Dividends
Preferred Stock dividends of $340 million were recognized in 2016, 2015 and 2014. The final Preferred Stock dividend was paid on December 30, 2016. See Note 22 to the Consolidated Financial Statements for additional information.

Net Income Available for Common Stockholders
Net income available for common stockholders was $3,978 million ($3.52 per share) in 2016, compared with $7,345 million ($6.15 per share) in 2015 and $3,432 million ($2.87 per share) in 2014.

Certain Items Impacting Results
The Company provides certain financial measures - Income before income taxes, Net income and Earnings per share - excluding the impact of certain items ("non-GAAP" financial measures). Due to the nature of these certain items, they do not reflect the ongoing operating performance of the Company. Accordingly, Dow's management believes presenting financial measures excluding certain items is useful for investors as it provides financial information on a more comparative basis for the periods presented. Non-GAAP financial measures are not recognized in accordance with principles generally accepted in the United State of America ("U.S. GAAP") and should not be viewed as an alternative to U.S. GAAP financial measures of performance. In addition, these measures are not intended to replace U.S. GAAP measures.


38


The following table summarizes the impact of certain items recorded in 2016, 2015 and 2014:
Certain Items Impacting Results
Pretax
Impact (1)
 
Impact on
Net Income (2)
 
Impact on
EPS (3) (4) (5)
In millions, except per share amounts
2016

 
2015

 
2014

 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

Reported U.S. GAAP Amounts (6)
 
 
 
 
 
 
$
3,978

 
$
7,345

 
$
3,432

 
$
3.52

 
$
6.15

 
$
2.87

- Certain items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Environmental charges
$
(295
)
 
$

 
$

 
(205
)
 

 

 
(0.17
)
 

 

Charge for termination of a terminal use agreement
(117
)
 

 

 
(74
)
 

 

 
(0.06
)
 

 

Impact of Dow Corning ownership restructure
(317
)
 

 

 
(216
)
 

 

 
(0.19
)
 

 

Asset impairments and related costs

 
(91
)
 
(23
)
 

 
(70
)
 
(14
)
 

 
(0.06
)
 
(0.01
)
Warranty accrual adjustment of exited business

 

 
(100
)
 

 

 
(63
)
 

 

 
(0.05
)
Univation step acquisition

 
(12
)
 

 

 
(8
)
 

 

 
(0.01
)
 

Transactions and productivity costs
(124
)
 
(24
)
 

 
(79
)
 
(16
)
 

 
(0.06
)
 
(0.01
)
 

Selling, general and administrative expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transactions and productivity costs
(379
)
 
(51
)
 

 
(307
)
 
(38
)
 

 
(0.27
)
 
(0.03
)
 

Goodwill and other intangible asset impairment losses

 

 
(50
)
 

 

 
(33
)
 

 

 
(0.03
)
Restructuring charges
(454
)
 
(415
)
 

 
(308
)
 
(274
)
 

 
(0.27
)
 
(0.24
)
 

Asbestos-related charge
(1,113
)
 

 
(78
)
 
(701
)
 

 
(49
)
 
(0.58
)
 

 
(0.04
)
Equity in earnings of nonconsolidated affiliates:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of Dow Corning ownership restructure
(22
)
 

 

 
(20
)
 

 

 
(0.02
)
 

 

Joint venture actions

 
(36
)
 
(93
)
 

 
(26
)
 
(87
)
 

 
(0.02
)
 
(0.08
)
Sundry income (expense) - net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Implant liability adjustment
27

 

 

 
17

 

 

 
0.01

 

 

Charges related to AgroFresh
(163
)
 

 

 
(103
)
 

 

 
(0.08
)
 

 

Impact of Dow Corning ownership restructure
2,445

 

 

 
2,586

 

 

 
2.28

 

 

Urethane matters legal settlements
(1,235
)
 

 

 
(778
)
 

 

 
(0.70
)
 

 

Gain on split-off of chlorine value chain
6

 
2,233

 

 
6

 
2,215

 

 
0.01

 
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

 

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
)
 

 

 
(5
)
 

 

 

 

Transactions and productivity costs
(41
)
 
(119
)
 
(49
)
 
(48
)
 
(99
)
 
(31
)
 
(0.05
)
 
(0.09
)
 
(0.03
)
Provision for income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Uncertain tax position

 

 

 
(13
)
 

 

 
(0.01
)
 

 

Total certain items
$
(1,782
)
 
$
3,730

 
$
(393
)
 
$
(243
)
 
$
3,291

 
$
(277
)
 
$
(0.16
)
 
$
2.90

 
$
(0.24
)
+ Dilutive effect of assumed preferred stock conversion into shares of common stock
 
 
 
 
 
 
 
 
 
 
 
 
$
0.04

 
$
0.22

 
N/A

= Operating Results (Non-GAAP) (7)
 
 
 
 
 
 
$
4,221

 
$
4,054

 
$
3,709

 
$
3.72

 
$
3.47

 
$
3.11

(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)
The assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was excluded from the calculation of "Earnings per common share - diluted" for the twelve-month periods ended December 31, 2016 and December 31, 2014. The assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was excluded from the calculation of "Operating earnings per common share - diluted" (Non-GAAP) as well as the certain items earnings per share impact for the twelve-month periods ended December 31, 2015 and December 31, 2014 because the effect of including them would have been antidilutive.
(5)
For the twelve-month period ended December 31, 2016, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of "Operating earnings per common share - diluted" (Non-GAAP). For the twelve-month period ended December 31, 2015, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of "Earnings per common share - diluted" (GAAP).
(6)
The Company used "Net Income Attributable to The Dow Chemical Company" when calculating "Earnings per common share - diluted" (GAAP) for the twelve-month period ended December 31, 2015, as it excludes preferred dividends of $340 million.
(7)
"Operating earnings per common share - diluted" (Non-GAAP) for the twelve-month period ended December 31, 2016, excludes preferred dividends of $340 million.

39


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. In the segment discussions that follow, the Company provides EBITDA excluding certain items. Due to the nature of these certain items, they do not reflect the ongoing operating performance of the Company. Accordingly, Dow's management believes presenting EBITDA excluding certain items is useful for investors as it provides financial information on a more comparative basis for the periods presented. EBITDA excluding certain items is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP financial measures of performance. Additional information regarding the Company's operating segments and a reconciliation of “Income Before Income Taxes” to EBITDA can be found in Note 26 to the Consolidated Financial Statements.

Due to the completion of several acquisitions and divestitures (see Notes 45 and 6 to the Consolidated Financial Statements), the change in sales volume from 2015 to 2016, 2014 to 2015 and 2013 to 2014 excluding acquisitions and divestitures is also provided by operating segment, where applicable.



SALES VOLUME AND PRICE BY OPERATING SEGMENT AND GEOGRAPHIC AREA
Sales Volume and Price by Operating Segment and Geographic Area
 
2016
 
2015
 
2014
Percent change from prior year
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

Operating Segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agricultural Sciences
(3
)%
 
 %
 
(3
)%
 
(4
)%
 
(8
)%
 
(12
)%
 
3
 %
 
(1
)%
 
2
 %
Consumer Solutions
29

 
(4
)
 
25

 
1

 
(7
)
 
(6
)
 
3

 
(1
)
 
2

Infrastructure Solutions
23

 
(6
)
 
17

 
2

 
(14
)
 
(12
)
 
1

 

 
1

Performance Materials & Chemicals
(14
)
 
(9
)
 
(23
)
 
(6
)
 
(15
)
 
(21
)
 
2

 

 
2

Performance Plastics
8

 
(8
)
 

 
5

 
(23
)
 
(18
)
 

 
2

 
2

Total
5
 %
 
(6
)%
 
(1
)%
 
1
 %
 
(17
)%
 
(16
)%
 
2
 %
 
 %
 
2
 %
Geographic Areas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
5
 %
 
(6
)%
 
(1
)%
 
 %
 
(14
)%
 
(14
)%
 
2
 %
 
2
 %
 
4
 %
Europe, Middle East, Africa & India
3

 
(7
)
 
(4
)
 

 
(22
)
 
(22
)
 
3

 
(1
)
 
2

Rest of World
7

 
(6
)
 
1

 
1

 
(13
)
 
(12
)
 
(1
)
 

 
(1
)
Total
5
 %
 
(6
)%
 
(1
)%
 
1
 %
 
(17
)%
 
(16
)%
 
2
 %
 
 %
 
2
 %


Sales Volume and Price by Operating Segment and Geographic Area, Excluding Acquisitions and Divestitures (1)
 
2016
 
2015
 
2014
Percent change from prior year
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

 
Volume

 
Price

 
Total

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

 
(4
)
 

 
1

 
(7
)
 
(6
)
 
3

 
(1
)
 
2

Infrastructure Solutions
(3
)
 
(6
)
 
(9
)
 
2

 
(14
)
 
(12
)
 
1

 

 
1

Performance Materials & Chemicals
2

 
(11
)
 
(9
)
 
1

 
(16
)
 
(15
)
 
2

 

 
2

Performance Plastics
9

 
(8
)
 
1

 
5

 
(23
)
 
(18
)
 
1

 
2

 
3

Total
4
 %
 
(7
)%
 
(3
)%
 
2
 %
 
(17
)%
 
(15
)%
 
2
%
 
 %
 
2
%
Geographic Areas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
4
 %
 
(7
)%
 
(3
)%
 
2
 %
 
(14
)%
 
(12
)%
 
2
%
 
2
 %
 
4
%
Europe, Middle East, Africa & India
4

 
(8
)
 
(4
)
 
3

 
(23
)
 
(20
)
 
4

 
(1
)
 
3

Rest of World
3

 
(6
)
 
(3
)
 
2

 
(13
)
 
(11
)
 

 

 

Total
4
 %
 
(7
)%
 
(3
)%