UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended JUNE 30, 2007

 

Commission File Number:  1-3433

 

THE DOW CHEMICAL COMPANY

(Exact name of registrant as specified in its charter)

 

 

2030 DOW CENTER, MIDLAND, MICHIGAN  48674

(Address of principal executive offices)  (Zip Code)

 

989-636-1000

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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.  x Yes   o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes   x No

 

 

 

The Dow Chemical Company

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended June 30, 2007

TABLE OF CONTENTS

				PAGE
PART I - FINANCIAL INFORMATION
Item 1.		Financial Statements.		3
		Consolidated Statements of Income		3
		Consolidated Balance Sheets		4
		Consolidated Statements of Cash Flows		5
		Consolidated Statements of Comprehensive Income		6
		Notes to the Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.		26
		Disclosure Regarding Forward-Looking Information		26
		Results of Operations		27
		Changes in Financial Condition		33
		Other Matters		34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.		38
Item 4.		Controls and Procedures.		39
PART II - OTHER INFORMATION
Item 1.		Legal Proceedings.		40
Item 1A.		Risk Factors.		40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.		40
Item 4.		Submission of Matters to a Vote of Security Holders.		41
Item 6.		Exhibits.		41
SIGNATURE				43
EXHIBIT INDEX				44

 

 

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

 

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Income

 

		Three Months Ended						Six Months Ended
		June 30,			June 30,			June 30,			June 30,
In millions, except per share amounts (Unaudited)		2007			2006			2007			2006
Net Sales		$	13,265		$	12,509		$	25,697		$	24,529
Cost of sales		11,398			10,624			22,003			20,427
Research and development expenses		320			287			622			565
Selling, general and administrative expenses		477			402			895			790
Amortization of intangibles		18			12			29			24
Restructuring credit		4			—			4			—
Equity in earnings of nonconsolidated affiliates		258			232			532			400
Sundry income — net		123			53			192			83
Interest income		33			38			73			80
Interest expense and amortization of debt discount		129			151			275			307
Income before Income Taxes and Minority Interests		1,341			1,356			2,674			2,979
Provision for income taxes		277			310			612			694
Minority interests’ share in income		25			23			50			48
Net Income Available for Common Stockholders		$	1,039		$	1,023		$	2,012		$	2,237
Share Data
Earnings per common share — basic		$	1.09		$	1.06		$	2.10		$	2.32
Earnings per common share — diluted		$	1.07		$	1.05		$	2.07		$	2.29
Common stock dividends declared per share of common stock		$	0.42		$	0.375		$	0.795		$	0.75
Weighted-average common shares outstanding — basic		954.8			963.5			959.0			965.7
Weighted-average common shares outstanding — diluted		968.0			975.6			971.7			978.2
Depreciation		$	474		$	471		$	940		$	926
Capital Expenditures		$	462		$	407		$	792		$	698

 

See Notes to the Consolidated Financial Statements.

 

 

3

The Dow Chemical Company and Subsidiaries

Consolidated Balance Sheets

		June 30,			Dec. 31,
In millions (Unaudited)		2007			2006
Assets
Current Assets
Cash and cash equivalents		$	1,976		$	2,757
Marketable securities and interest-bearing deposits		79			153
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables — 2007: $114; 2006: $122)		6,028			4,988
Other		3,276			3,060
Inventories		6,497			6,058
Deferred income tax assets — current		173			193
Total current assets		18,029			17,209
Investments
Investment in nonconsolidated affiliates		2,849			2,735
Other investments		2,288			2,143
Noncurrent receivables		266			288
Total investments		5,403			5,166
Property
Property		45,328			44,381
Less accumulated depreciation		31,433			30,659
Net property		13,895			13,722
Other Assets
Goodwill		3,686			3,242
Other intangible assets (net of accumulated amortization — 2007: $659; 2006: $620)		511			457
Deferred income tax assets — noncurrent		3,564			4,006
Asbestos-related insurance receivables — noncurrent		693			725
Deferred charges and other assets		1,134			1,054
Total other assets		9,588			9,484
Total Assets		$	46,915		$	45,581
Liabilities and Stockholders’ Equity
Current Liabilities
Notes payable		$	285		$	219
Long-term debt due within one year		1,393			1,291
Accounts payable:
Trade		4,185			3,825
Other		1,871			1,849
Income taxes payable		771			569
Deferred income tax liabilities — current		246			251
Dividends payable		422			382
Accrued and other current liabilities		2,124			2,215
Total current liabilities		11,297			10,601
Long-Term Debt		7,966			8,036
Other Noncurrent Liabilities
Deferred income tax liabilities — noncurrent		805			999
Pension and other postretirement benefits — noncurrent		3,250			3,094
Asbestos-related liabilities — noncurrent		1,071			1,079
Other noncurrent obligations		3,307			3,342
Total other noncurrent liabilities		8,433			8,514
Minority Interest in Subsidiaries		389			365
Preferred Securities of Subsidiaries		1,000			1,000
Stockholders’ Equity
Common stock		2,453			2,453
Additional paid-in capital		803			830
Retained earnings (includes cumulative effect of adopting FIN No. 48 of $(290))		17,940			16,987
Accumulated other comprehensive loss		(1,986		)	(2,235		)
Treasury stock at cost		(1,380		)	(970		)
Net stockholders’ equity		17,830			17,065
Total Liabilities and Stockholders’ Equity		$	46,915		$	45,581

 

See Notes to the Consolidated Financial Statements.

 

4

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Cash Flows

		Six Months Ended
		June 30,			June 30,
In millions (Unaudited)		2007			2006
Operating Activities
Net Income Available for Common Stockholders		$	2,012		$	2,237
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,041			1,006
Provision for deferred income tax		154			92
Earnings of nonconsolidated affiliates less than (in excess of) dividends received		(56		)	44
Minority interests’ share in income		50			48
Pension contributions		(75		)	(232		)
Net gain on sales of investments		(70		)	(3		)
Net gain on sales of property and businesses		(43		)	(47		)
Other net gain		(87		)	(7		)
Restructuring credit		(4		)	—
Excess tax benefits from share-based payment arrangements		(13		)	(3		)
Changes in assets and liabilities:
Accounts and notes receivable		(991		)	(67		)
Inventories		(348		)	(531		)
Accounts payable		338			(460		)
Other assets and liabilities		54			(142		)
Cash provided by operating activities		1,962			1,935
Investing Activities
Capital expenditures		(792		)	(698		)
Proceeds from sales of property and businesses		69			55
Purchase of previously leased assets		(12		)	(100		)
Investments in consolidated companies — net of cash acquired		(742		)	—
Investments in nonconsolidated affiliates		(15		)	(29		)
Distributions from nonconsolidated affiliates		5			4
Proceeds from sale of nonconsolidated affiliate		30			—
Purchases of investments		(839		)	(448		)
Proceeds from sales and maturities of investments		851			364
Cash used in investing activities		(1,445		)	(852		)
Financing Activities
Changes in short-term notes payable		25			(5		)
Payments on long-term debt		(2		)	(590		)
Proceeds from issuance of long-term debt		13			—
Purchases of treasury stock		(855		)	(506		)
Proceeds from sales of common stock		245			78
Excess tax benefits from share-based payment arrangements		13			3
Distributions to minority interests		(25		)	(32		)
Dividends paid to stockholders		(717		)	(684		)
Cash used in financing activities		(1,303		)	(1,736		)
Effect of Exchange Rate Changes on Cash		5			9
Summary
Decrease in cash and cash equivalents		(781		)	(644		)
Cash and cash equivalents at beginning of year		2,757			3,806
Cash and cash equivalents at end of period		$	1,976		$	3,162

See Notes to the Consolidated Financial Statements.

 

 

5

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Comprehensive Income

 

		Three Months Ended						Six Months Ended
		June 30,			June 30,			June 30,			June 30,
In millions (Unaudited)		2007			2006			2007			2006
Net Income Available for Common Stockholders		$	1,039		$	1,023		$	2,012		$	2,237
Other Comprehensive Income (Loss), Net of Tax
Net unrealized gains (losses) on investments		16			(21		)	9			(25		)
Translation adjustments		60			257			134			364
Minimum pension liability adjustments		—			—			—			(2		)
Adjustments to pension and other postretirement benefit plans		38			—			76			—
Net gains (losses) on cash flow hedging derivative instruments		(12		)	(7		)	30			(40		)
Total other comprehensive income		102			229			249			297
Comprehensive Income		$	1,141		$	1,252		$	2,261		$	2,534

 

See Notes to the Consolidated Financial Statements.

6

Notes to the Consolidated Financial Statements
(Unaudited)

NOTE A — CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements of The Dow Chemical Company and its subsidiaries (“Dow” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Certain reclassifications of prior year amounts have been made to conform to current year presentation.

NOTE B — RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 was effective for fiscal years beginning after December 15, 2006.

On January 1, 2007, the Company adopted the provisions of FIN No. 48. The cumulative effect of adoption was a $290 million reduction of retained earnings. At January 1, 2007, the total amount of unrecognized tax benefits was $865 million, of which $704 million would impact the effective tax rate, if recognized.

Interest and penalties associated with uncertain tax positions are recognized as components of the “Provision for income taxes.” The Company’s accrual for interest and penalties was $123 million upon adoption of FIN No. 48.

The tax years 1998-2003 are currently under audit by the U.S. Internal Revenue Service, and the review of these years is expected to be completed during 2007. It is reasonably possible that a reduction in the unrecognized tax benefits may occur; however, quantification of an estimated range cannot be made at this time.

The tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:

Tax Years Subject to Examination for Major Tax
Jurisdictions at January 1, 2007

1998 – 2006		United States — federal income tax
2001 – 2006		Argentina
		Brazil
2002 – 2006		Germany
		Italy
		United States — state and local income tax
2003 – 2006		Spain
2004 – 2006		Canada
		France
		Switzerland
2005 – 2006		United Kingdom
2006		The Netherlands

 

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This Statement, which was effective December 31, 2006 for the Company, required employers to recognize the funded status of defined benefit postretirement plans as an asset or liability on the balance sheet and to recognize changes in that funded status through comprehensive income. See Note G for the Company’s disclosures related to pension and other postretirement benefits.

7

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SAB No. 74 Disclosures for Accounting Standards Issued But Not Yet Adopted

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting this Statement.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115,” which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating if it will elect the fair value option for any of its eligible financial instruments and other items.

In April 2007, the FASB issued FASB Staff Position (“FSP”) No. FIN 39-1, “Amendment of FASB Interpretation No. 39.” This FSP replaces certain terms in FIN No. 39 with “derivative instruments” (as defined in SFAS No. 133) and permits the offsetting of fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The FSP is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of applying the guidance in this FSP.

NOTE C — INVENTORIES

The following table provides a breakdown of inventories:

 

Inventories
In millions		June 30, 2007			Dec. 31, 2006
Finished goods		$	3,739		$	3,498
Work in process		1,481			1,319
Raw materials		674			672
Supplies		603			569
Total inventories		$	6,497		$	6,058

 

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $1,221 million at June 30, 2007 and $1,092 million at December 31, 2006.

NOTE D — ACQUISITION OF WOLFF WALSRODE

Consistent with the Company’s strategy to invest in its Performance businesses, the Company announced on December 18, 2006, that it had reached an agreement with the Bayer Group to acquire Wolff Walsrode AG and certain related affiliates and assets (“Wolff Walsrode”), subject to regulatory approval. Wolff Walsrode, headquartered in Bomlitz, Germany, specializes in cellulose derivatives, food casings and site services. Following approval from the European Commission on June 20, 2007, Dow acquired Wolff Walsrode on June 30, 2007 for a cash purchase price of approximately $603 million.

On July 2, 2007, the Company announced the creation of a new specialty business unit, Dow Wolff Cellulosics, which combines the newly acquired Wolff Walsrode with Dow’s Water Soluble Polymers business. Dow Wolff Cellulosics will encompass cellulosics and related chemistries, providing application formulation expertise and other technical services to a broad range of strategic industry sectors, including construction, paint, personal care, pharmaceuticals, food and a number of specialty industrial applications.

The following table summarizes the values of the assets acquired and liabilities assumed at the date of the acquisition. These amounts were included in the Company’s consolidated balance sheet at June 30, 2007. Allocation of the purchase price is subject to third-party valuation and has not been completed for this acquisition. Final determination of the values to be assigned may result in adjustments to the preliminary values recorded at the date of the acquisition.

8

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Assets Acquired and Liabilities Assumed at June 30, 2007

In millions
Current assets		$	188
Property		233
Goodwill (See Note E)		364
Other assets		19
Total assets acquired		$	804
Accounts payable		$	27
Long-term debt		10
Accrued and other liabilities		47
Pension benefits		117
Total liabilities assumed		$	201
Net assets acquired		$	603

 

Since the acquisition was completed on June 30, 2007, the results of Wolff Walsrode’s operations were not reflected in the Company’s consolidated income statement for the second quarter of 2007.

The Company evaluated the materiality of assets acquired and liabilities assumed, individually and in the aggregate, and concluded that such assets and liabilities were not material to the consolidated financial statements at June 30, 2007.

NOTE E — GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows the carrying amount of goodwill by operating segment:

 

Goodwill In millions		Performance Plastics			Performance Chemicals			Agricultural Sciences			Basic Plastics			Hydrocarbons and Energy			Total
Balance at December 31, 2006		$	915		$	850		$	1,320		$	94		$	63		$	3,242
Purchase price allocation adjustment - Zhejiang Omex Environmental Engineering Co. LTD		—			(52		)	—			—			—			(52		)
Increase related to acquisition of:
Additional 50% interest in Styron Asia Limited		—			—			—			6			—			6
Wolff Walsrode		—			364			—			—			—			364
Hyperlast Limited		126			—			—			—			—			126
Balance at June 30, 2007		$	1,041		$	1,162		$	1,320		$	100		$	63		$	3,686

 

On May 1, 2007, Dow Chemical Company Limited, a wholly owned subsidiary of the Company, acquired Hyperlast Limited, British Vita’s polyurethane systems business, for $151 million. The initial recording of the acquisition resulted in goodwill of $126 million, none of which is expected to be deductible for tax purposes. Final determination of the values to be assigned to the assets acquired and liabilities assumed may result in adjustments to the preliminary values assigned at the date of acquisition.

On June 30, 2007, the Company completed the acquisition of Wolff Walsrode. The initial recording of the acquisition resulted in goodwill of $364 million, approximately $22 million of which is expected to be deductible for tax purposes. Final determination of the values to be assigned to the assets acquired and liabilities assumed may result in adjustments to the preliminary values assigned at the date of acquisition. See Note D for additional information regarding this acquisition.

In the second quarter of 2007, the Company completed the purchase price allocation related to the acquisition of Zhejiang Omex Environmental Engineering Co. LTD (“Omex”), resulting in the recording of $51 million of intangible assets as follows:

9

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Omex Intangible Assets		Gross
		Carrying			Weighted-average
In millions		Amount			Amortization Period
Intangible assets with finite lives:
Trademarks		$	23		10 years
Patents		19			17 years
Other		9			2-5 years
Total		$	51		11 years

 

The following table provides information regarding the Company’s other intangible assets:

Other Intangible Assets		At June 30, 2007									At December 31, 2006
In millions		Gross Carrying Amount			Accumulated Amortization			Net			Gross Carrying Amount			Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property		$	241		$	(154	)	$	87		$	234		$	(142	)	$	92
Patents		152			(108		)	44			148			(117		)	31
Software		497			(290		)	207			452			(269		)	183
Trademarks		156			(46		)	110			133			(40		)	93
Other		124			(61		)	63			110			(52		)	58
Total		$	1,170		$	(659	)	$	511		$	1,077		$	(620	)	$	457

 

The following table provides information regarding amortization expense:

Amortization Expense		Three Months Ended						Six Months Ended
In millions		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Other intangible assets, excluding software		$	18		$	12		$	29		$	24
Software, included in “Cost of sales”		$	11		$	11		$	21		$	21

 

Total estimated amortization expense for 2007 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
2007		$	97
2008		$	88
2009		$	78
2010		$	75
2011		$	64
2012		$	35

 

10

NOTE F — COMMITMENTS AND CONTINGENT LIABILITIES

Litigation

Breast Implant Matters

On May 15, 1995, Dow Corning Corporation (“Dow Corning”), in which the Company is a 50 percent shareholder, voluntarily filed for protection under Chapter 11 of the Bankruptcy Code to resolve litigation related to Dow Corning’s breast implant and other silicone medical products. On June 1, 2004, Dow Corning’s Joint Plan of Reorganization (the “Joint Plan”) became effective and Dow Corning emerged from bankruptcy. The Joint Plan contains release and injunction provisions resolving all tort claims brought against various entities, including the Company, involving Dow Corning’s breast implant and other silicone medical products.

To the extent not previously resolved in state court actions, cases involving Dow Corning’s breast implant and other silicone medical products filed against the Company were transferred to the U.S. District Court for the Eastern District of Michigan (the “District Court”) for resolution in the context of the Joint Plan. On October 6, 2005, all such cases then pending in the District Court against the Company were dismissed. Should cases involving Dow Corning’s breast implant and other silicone medical products be filed against the Company in the future, they will be accorded similar treatment. It is the opinion of the Company’s management that the possibility is remote that a resolution of all future cases will have a material adverse impact on the Company’s consolidated financial statements.

As part of the Joint Plan, Dow and Corning Incorporated have agreed to provide a credit facility to Dow Corning in an aggregate amount of $300 million. The Company’s share of the credit facility is $150 million and is subject to the terms and conditions stated in the Joint Plan. At June 30, 2007, no draws had been taken against the credit facility.

DBCP Matters

Numerous lawsuits have been brought against the Company and other chemical companies, both inside and outside of the United States, alleging that the manufacture, distribution or use of pesticides containing dibromochloropropane (“DBCP”) has caused personal injury and property damage, including contamination of groundwater. It is the opinion of the Company’s management that the possibility is remote that the resolution of such lawsuits will have a material adverse impact on the Company’s consolidated financial statements.

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. At June 30, 2007, the Company had accrued obligations of $340 million for environmental remediation and restoration costs, including $31 million 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 the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. At December 31, 2006, the Company had accrued obligations of $347 million for environmental remediation and restoration costs, including $31 million for the remediation of Superfund sites.

Midland Site Environmental Matters

On June 12, 2003, the Michigan Department of Environmental Quality (“MDEQ”) issued a Hazardous Waste Operating License (the “License”) to the Company’s Midland, Michigan manufacturing site (the “Midland site”), which included provisions requiring the Company to conduct an investigation to determine the nature and extent of off-site contamination in Midland area soils; Tittabawassee and Saginaw River sediment and floodplain soils; and Saginaw Bay. The License required the Company, by August 11, 2003, to propose a detailed Scope of Work for the off-site investigation for the City of Midland and the Tittabawassee River and floodplain for review and approval by the MDEQ. Revised Scopes of Work were approved by the MDEQ on October 18, 2005. The Company was required to submit a Scope of Work for the investigation of the Saginaw River and Saginaw Bay by August 11, 2007. The Company submitted the Scope of Work for the Saginaw River and Saginaw Bay on July 13, 2007.

Discussions between the Company and the MDEQ that occurred in 2004 and early 2005 regarding how to proceed with off-site corrective action under the License resulted in the execution of the Framework for an Agreement Between the State of Michigan and The Dow Chemical Company (the “Framework”) on January 20, 2005. The Framework committed the Company to propose a remedial investigation work plan by the end of 2005, conduct certain studies, and take certain immediate interim remedial actions in the City of Midland and along the Tittabawassee River.

11

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Remedial Investigation Work Plans

The Company submitted Remedial Investigation Work Plans for the City of Midland and for the Tittabawassee River on December 29, 2005. By letters dated March 2, 2006 and April 13, 2006, the MDEQ provided two Notices of Deficiency (“Notices”) to the Company regarding the Remedial Investigation Work Plans. The Company responded, as required, to some of the items in the Notices on May 1, 2006, and as required responded to the balance of the items and submitted revised Remedial Investigation Work Plans on December 1, 2006.

Studies Conducted

On July 12, 2006, the MDEQ approved the sampling for the first six miles of the Tittabawassee River. On December 1, 2006, the MDEQ approved the Sampling and Analysis Plan in Support of Bioavailability Study for Midland (the “Plan”). The results of the Plan were provided to the MDEQ on March 22, 2007. On May 3, 2007, the MDEQ approved the GeoMorph® Pilot Site Characterization Report for the first six miles and approved this approach for the balance of the Tittabawassee River with some qualifications. On July 12, 2007, the MDEQ approved, with qualifications, the sampling for the next 11 miles of the Tittabawassee River.

Interim Remedial Actions

The interim remedial actions required by the Framework are currently underway. The Company has been working with the MDEQ to implement Interim Response Activities and Pilot Corrective Action Plans in specific areas in and along the Tittabawassee River, where elevated levels of dioxins and furans were found during the investigation of the first six miles of the river.

·                  Removal Actions

On June 27, 2007, the U.S. Environmental Protection Agency (“EPA”) sent a letter to the Company demanding that the Company enter into consent orders under Section 106 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for three areas identified during investigation of the first six miles as areas for interim remedial actions under MDEQ oversight. The EPA sought a commitment that the Company immediately engage in remedial actions to remove soils and sediments. The three removal orders were negotiated and were signed on July 12, 2007, and the work has commenced under EPA oversight.

The Framework also contemplates that the Company, the State of Michigan and other federal and tribal governmental entities will negotiate the terms of an agreement or agreements to resolve potential governmental claims against the Company related to historical off-site contamination associated with the Midland site. The Company and the governmental parties began to meet in the fall of 2005 and entered into a Confidentiality Agreement in December 2005. The Company continues to conduct negotiations with the governmental parties under the Federal Alternative Dispute Resolution Act.

At the end of 2006, the Company had an accrual for off-site corrective action of $7 million (included in the total accrued obligation of $347 million at December 31, 2006) based on the range of activities that the Company proposed and discussed implementing with the MDEQ and which is set forth in the Framework. At June 30, 2007, the accrual for off-site corrective action was $18 million (included in the total accrued obligation of $340 million at June 30, 2007).

Environmental Matters Summary

It is the opinion of the Company’s management that the possibility is remote that costs in excess of those disclosed will have a material adverse impact on the Company’s consolidated financial statements.

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 three 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. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide’s products.

Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including Union Carbide and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of

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filing has significantly abated. Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since then, Union Carbide has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate.

In November 2004, Union Carbide requested ARPC to review Union Carbide’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In January 2005, ARPC provided Union Carbide with a report summarizing the results of its study. At December 31, 2004, Union Carbide’s recorded asbestos-related liability for pending and future claims was $1.6 billion. Based on the low end of the range in the January 2005 study, Union Carbide’s recorded asbestos-related liability for pending and future claims at December 31, 2004 would be sufficient to resolve asbestos-related claims against Union Carbide and Amchem into 2019. As in its January 2003 study, ARPC did provide estimates for a longer period of time in its January 2005 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

In November 2005, Union Carbide requested ARPC to review Union Carbide’s 2005 asbestos claim and resolution activity and determine the appropriateness of updating its January 2005 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2005. In January 2006, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on Union Carbide’s own review of the asbestos claim and resolution activity and ARPC’s response, Union Carbide determined that no change to the accrual was required. At December 31, 2005, Union Carbide’s asbestos-related liability for pending and future claims was $1.5 billion.

In November 2006, Union Carbide requested ARPC to review Union Carbide’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2005 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2006 and concluded that the experience from 2004 through 2006 was sufficient for the purpose of forecasting future filings and values of asbestos claims filed against Union Carbide and Amchem, and could be used in place of previous assumptions to update its January 2005 study. The resulting study, completed by ARPC in December 2006, stated that the undiscounted cost of resolving pending and future asbestos-related claims against Union Carbide and Amchem, excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2005 study, ARPC provided estimates for a longer period of time in its December 2006 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Based on ARPC’s December 2006 study and Union Carbide’s own review of the asbestos claim and resolution activity, Union Carbide decreased its asbestos-related liability for pending and future claims to $1.2 billion at December 31, 2006 which covers the 15-year period ending in 2021 (excluding future defense and processing costs). The reduction was $177 million and was shown as “Asbestos-related credit” in the consolidated statements of income for 2006. At December 31, 2006, approximately 25 percent of the recorded liability related to pending claims and approximately 75 percent related to future claims.

Based on Union Carbide’s review of 2007 activity, Union Carbide determined that no adjustment to the accrual was required at June 30, 2007. Union Carbide’s asbestos-related liability for pending and future claims was $1.2 billion at June 30, 2007. Approximately 29 percent of the recorded liability related to pending claims and approximately 71 percent related to future claims.

At December 31, 2002, Union Carbide increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined by Union Carbide after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which Union Carbide and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of Union Carbide’s insurance policies and to resolve issues that the insurance carriers may raise.

In September 2003, Union Carbide filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds. This lawsuit was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with Union Carbide regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Although the lawsuit is continuing, through the end of the second quarter of 2007, Union Carbide had reached settlements with several of the carriers involved in this litigation.

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Union Carbide’s receivable for insurance recoveries related to its asbestos liability was $478 million at June 30, 2007 and $495 million at December 31, 2006. At June 30, 2007 and December 31, 2006, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

In addition to the receivable for insurance recoveries related to its asbestos liability, Union Carbide had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

 

Receivables for Costs Submitted to Insurance Carriers In millions		June 30, 2007			Dec. 31, 2006
Receivables for defense costs		$	37		$	34
Receivables for resolution costs		257			266
Total		$	294		$	300

 

Union Carbide expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $25 million in the second quarter of 2007 ($14 million in the second quarter of 2006) and $42 million in the first six months of 2007 ($28 million in the first six months of 2006), and was reflected in “Cost of sales.”

After a review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, Union Carbide continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

The amounts recorded by Union Carbide for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for Union Carbide to be higher or lower than those projected or those recorded.

Because of the uncertainties described above, Union Carbide’s management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. Union Carbide’s management believes that it is reasonably possible that the cost of disposing of Union Carbide’s asbestos-related claims, including future defense costs, could have a material adverse impact on Union Carbide’s results of operations and cash flows for a particular period and on the consolidated financial position of Union Carbide.

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

Synthetic Rubber Industry Matters

In 2003, the U.S., Canadian and European competition authorities initiated separate investigations into alleged anticompetitive behavior by certain participants in the synthetic rubber industry. Certain subsidiaries of the Company (but as to the investigation in Europe only) have responded to requests for documents and are otherwise cooperating in the investigations.

On June 10, 2005, the Company received a Statement of Objections from the European Commission (the “EC”) stating that it believed that the Company and certain subsidiaries of the Company (the “Dow Entities”), together with other participants in the synthetic rubber industry, engaged in conduct in violation of European competition laws with respect to the butadiene rubber and emulsion styrene butadiene rubber businesses. In connection therewith, on November 29, 2006, the EC issued its decision alleging infringement of Article 81 of the Treaty of Rome and imposed a fine of Euro 64.575 million (approximately $85 million) on the Dow Entities. Several other companies were also named and fined. Subsequently, the Company has been named in various related U.S. civil actions. In the fourth quarter of 2006, the Company recognized a loss contingency of $85 million related to the fine. The Company has appealed the EC’s decision.

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Additionally, on March 10, 2007, the Company received a Statement of Objections from the EC stating that it believed that DuPont Dow Elastomers L.L.C. (“DDE”), a former 50:50 joint venture with E.I. du Pont de Nemours and Company (“DuPont”), together with other participants in the synthetic rubber industry, engaged in conduct in violation of European competition laws with respect to the polychloroprene business. This Statement of Objections specifically names the Company, but only in its capacity as a former joint venture owner of DDE. The Company transferred its joint venture ownership interest in DDE to DuPont in 2005, and DDE then changed its name to DuPont Performance Elastomers L.L.C. (“DPE”). Based on agreements reached between the Company and DuPont in 2004, DuPont will manage DPE’s response to this Statement of Objections. Further, based on the Company’s allocation agreement with DuPont, it is the opinion of the Company’s management that the possibility is remote that its financial responsibility with respect to any potential DDE liabilities will have a material adverse impact on the Company’s consolidated financial statements.

Polyurethane Subpoena Matter

On February 16, 2006, the Company, among others, received a subpoena from the U.S. Department of Justice as part of an antitrust investigation of polyurethane chemicals, including methylene diphenyl diisocyanate, toluene diisocyanate and polyols. The Company is fully cooperating with the investigation.

Other Litigation Matters

In addition to breast implant, DBCP, environmental, synthetic rubber industry, and polyurethane subpoena matters, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. Dow has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies provide coverage that will be utilized to minimize the impact, if any, of the contingencies described above.

Summary

Except for the possible effect of Union Carbide’s asbestos-related liability described above, it is the opinion of the Company’s management that the possibility is remote that the aggregate of all claims and lawsuits will have a material adverse impact on the Company’s consolidated financial statements.

Purchase Commitments

The Company has numerous agreements for the purchase of ethylene-related products globally. The purchase prices are determined on a cost-of-service basis, which, in addition to covering all operating expenses and debt service costs, provides the owners of the manufacturing plants with a specified return on capital. Total purchases under these agreements were $1,356 million in 2006, $1,175 million in 2005 and $1,063 million in 2004. The Company’s commitments at December 31, 2006 associated with these agreements are included in the table below.

The Company also has various commitments for take or pay and throughput agreements. Such commitments are at prices not in excess of current market prices. The terms of all but one of these agreements extend from one to 25 years. One agreement has terms extending to 80 years. The determinable future commitment for this agreement is included for 10 years in the following table which presents the fixed and determinable portion of obligations under the Company’s purchase commitments at December 31, 2006:

 

Fixed and Determinable Portion of Take or Pay and Throughput Obligations at December 31, 2006
In millions
2007		$	2,107
2008		1,802
2009		1,579
2010		1,339
2011		889
2012 and beyond		5,281
Total		$	12,997

 

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In addition to the take or pay obligations at December 31, 2006, the Company had outstanding commitments which ranged from one to six years for steam, electrical power, materials, property and other items used in the normal course of business of approximately $459 million. Such commitments were at prices not in excess of current market prices.

Guarantees

The Company provides a variety of guarantees, as described more fully in the following sections.

Guarantees

Guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s guarantees relate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to eight years, and trade financing transactions in Latin America and Asia Pacific, which typically expire within one year of their inception.

Residual Value Guarantees

The Company provides guarantees related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties.

The following tables provide a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for each type of guarantee:

 

Guarantees at June 30, 2007		Final		Maximum Future			Recorded
In millions		Expiration		Payments			Liability
Guarantees		2014		$	292		$	14
Residual value guarantees		2015		1,044			6
Total guarantees				$	1,336		$	20

 

Guarantees at December 31, 2006		Final		Maximum Future			Recorded
In millions		Expiration		Payments			Liability
Guarantees		2014		$	340		$	20
Residual value guarantees		2015		1,044			6
Total guarantees				$	1,384		$	26

 

Asset Retirement Obligations

In accordance with SFAS No. 143, as interpreted by FIN No. 47, the Company has recognized asset retirement obligations for the following activities:  demolition and remediation activities at manufacturing sites in the United States and Europe; capping activities at landfill sites in the United States, Canada, Italy and Brazil; and asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States, Canada and Europe.

The aggregate carrying amount of asset retirement obligations recognized by the Company was $106 million at June 30, 2007 and December 31, 2006. The discount rate used to calculate the Company’s asset retirement obligation was 4.6 percent. These obligations are included in the consolidated balance sheets as “Other noncurrent obligations.”

The Company has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. It is the opinion of the Company’s management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material adverse impact on the Company’s consolidated financial statements based on current costs.

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NOTE G — PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost for All Significant Plans		Three Months Ended						Six Months Ended
In millions		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Defined Benefit Pension Plans:
Service cost		$	72		$	71		$	143		$	141
Interest cost		217			207			434			411
Expected return on plan assets		(292		)	(275		)	(583		)	(548		)
Amortization of prior service cost		6			5			12			10
Amortization of net loss		50			56			99			110
Termination benefits/curtailment costs		—			—			1			—
Net periodic benefit cost		$	53		$	64		$	106		$	124
Other Postretirement Benefits:
Service cost		$	5		$	6		$	10		$	12
Interest cost		29			29			57			58
Expected return on plan assets		(9		)	(7		)	(18		)	(14		)
Amortization of prior service credit		(1		)	(2		)	(2		)	(4		)
Amortization of net loss		1			2			2			4
Net periodic benefit cost		$	25		$	28		$	49		$	56

 

NOTE H — STOCK-BASED COMPENSATION

The Company grants stock-based compensation to employees under the Employees’ Stock Purchase Plans (“ESPP”) and the 1988 Award and Option Plan (the “1988 Plan”), and to non-employee directors under the 2003 Non-Employee Directors’ Stock Incentive Plan. Most of the Company’s stock-based compensation awards are granted in the first quarter of each year. Details for awards granted in the first quarter of 2007 are included below.

During the first quarter of 2007, employees subscribed to the right to purchase 5.3 million shares with a weighted-average exercise price of $30.81 per share and a weighted-average fair value of $10.62 per share under the ESPP.

During the first quarter of 2007, the Company granted the following stock-based compensation awards to employees under the 1988 Plan:

·                  7.6 million stock options with a weighted-average exercise price of $43.59 per share and a weighted-average fair value of $9.81 per share.

·                  1.8 million shares of deferred stock with a weighted-average fair value of $43.58 per share.

·                  1.0 million shares of performance deferred stock with a weighted-average fair value of $43.59 per share.

During the first quarter of 2007, the Company granted the following stock-based compensation awards to non-employee directors under the 2003 Non-Employee Directors’ Stock Incentive Plan:

·                  48,400 stock options with a weighted-average fair value of $9.83 per share.

·                  9,200 shares of restricted stock with a weighted-average fair value of $41.97 per share.

Total unrecognized compensation cost at March 31, 2007, including unrecognized cost related to first quarter 2007 activity, is provided in the following table:

 

Total Unrecognized Compensation Cost at March 31, 2007 In millions		Unrecognized Compensation Cost			Weighted-average Recognition Period
ESPP purchase rights		$	45		4.6 months
Unvested stock options		$	106		1.00 year
Deferred stock awards		$	163		1.94 years
Performance deferred stock awards		$	75		1.02 years

 

There was minimal grant activity in the second quarter of 2007.

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NOTE I — 2006 RESTRUCTURING

On August 29, 2006, the Company’s Board of Directors approved a plan to shut down a number of assets around the world as the Company continues its drive to improve the competitiveness of its global operations. As a consequence of these shutdowns, which are scheduled to be completed by the end of 2008, and other optimization activities, the Company recorded pretax restructuring charges totaling $591 million in the third and fourth quarters of 2006. The charges consisted of asset write-downs and write-offs of $346 million, costs associated with exit or disposal activities of $172 million and severance costs of $73 million. The impact of the charges was shown as “Restructuring charges” in the 2006 consolidated statements of income.

The following table summarizes 2007 activities related to the Company’s restructuring reserve:

Activities Related to 2006 Restructuring In millions		Costs associated with Exit or Disposal Activities			Severance Costs			Total
Reserve balance at December 31, 2006		$	171		$	69		$	240
Cash payments		(1		)	(8		)	(9		)
Reserve balance at March 31, 2007		$	170		$	61		$	231
Adjustments to reserve		(4		)	—			(4		)
Cash payments		(40		)	(9		)	(49		)
Reserve balance at June 30, 2007		$	126		$	52		$	178

 

As a result of the Company’s plans to shutdown assets around the world, and conduct other optimization activities principally in Europe, the restructuring charges recorded in 2006 included severance of $73 million for the separation of approximately 810 employees under the terms of Dow’s ongoing benefit arrangements, primarily over the next two years. As of June 30, 2007, severance of $21 million had been paid to 268 employees, and a liability of $52 million remained for approximately 540 employees.

In the second quarter of 2007, the Company reached agreements with certain suppliers regarding the early cancellation of supply agreements related to the shutdown of manufacturing assets, resulting in a $4 million reduction of the restructuring reserve for contract termination fees. The adjustment was credited against the Performance Plastics segment.

Dow expects to incur future costs related to its restructuring activities, as the Company continually looks for ways to enhance the efficiency and cost effectiveness of its operations, to ensure competitiveness across its businesses and across geographic areas. Future costs are expected to include demolition costs related to the closed facilities, which will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities, and pension plan settlement costs. These costs cannot be reasonably estimated at this time.

NOTE J — EARNINGS PER SHARE CALCULATIONS

 

Earnings Per Share Calculations		Three Months Ended June 30, 2007						Three Months Ended June 30, 2006
In millions, except per share amounts		Basic			Diluted			Basic			Diluted
Net income available for common stockholders		$	1,039		$	1,039		$	1,023		$	1,023
Weighted-average common shares outstanding		954.8			954.8			963.5			963.5
Add dilutive effect of stock options and awards		—			13.2			—			12.1
Weighted-average common shares for EPS calculations		954.8			968.0			963.5			975.6
Earnings per common share		$	1.09		$	1.07		$	1.06		$	1.05
Stock options and deferred stock awards excluded from EPS calculations (1)					13.3						18.7

 

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Earnings Per Share Calculations		Six Months Ended June 30, 2007						Six Months Ended June 30, 2006
In millions, except per share amounts		Basic			Diluted			Basic			Diluted
Net income available for common stockholders		$	2,012		$	2,012		$	2,237		$	2,237
Weighted-average common shares outstanding		959.0			959.0			965.7			965.7
Add dilutive effect of stock options and awards		—			12.7			—			12.5
Weighted-average common shares for EPS calculations		959.0			971.7			965.7			978.2
Earnings per common share		$	2.10		$	2.07		$	2.32		$	2.29
Stock options and deferred stock awards excluded from EPS calculations (1)					17.7						16.9

(1)                                  Outstanding options to purchase shares of common stock and deferred stock awards that were not included in the calculation of diluted earnings per share because the effect of including them would have been anti-dilutive.

NOTE K — SUBSEQUENT EVENT

A change in German tax law, which includes a reduction in the German income tax rate, is expected to be enacted during the third quarter of 2007. As a result, the Company expects to record a charge of $350-$400 million against the provision for income taxes in the third quarter of 2007 related to the adjustment of its net deferred tax assets in Germany due to the rate reduction.

NOTE L — OPERATING SEGMENTS AND GEOGRAPHIC AREAS

Corporate Profile

Dow is a diversified chemical company that offers a broad range of innovative chemical, plastic and agricultural products and services to customers in more than 175 countries, helping them to provide everything from fresh water, food and pharmaceuticals to paints, packaging and personal care. In 2006, Dow had annual sales of $49 billion and employed approximately 42,600 people worldwide. The Company has 150 manufacturing sites in 37 countries and produces more than 3,100 products. The following descriptions of the Company’s operating segments include a representative listing of products for each business.

PERFORMANCE PLASTICS

Applications: automotive interiors, exteriors, under-the-hood and body engineered systems • building and construction, thermal and acoustic insulation, roofing • communications technology, telecommunication cables, electrical and electronic connectors • footwear • home and office furnishings:  kitchen appliances, power tools, floor care products, mattresses, carpeting, flooring, furniture padding, office furniture • information technology equipment and consumer electronics • packaging, food and beverage containers, protective packaging • sports and recreation equipment • wire and cable insulation and jacketing materials for power utility and telecommunications

Dow Automotive serves the global automotive market and is a leading supplier of plastics, adhesives, sealants and other plastics-enhanced products for interior, exterior, under-the-hood, vehicle body structure and acoustical management technology solutions.  With offices and application development centers around the world, Dow Automotive provides materials science expertise and comprehensive technical capabilities to its customers worldwide.

·                  Products: AFFINITY™ polyolefin plastomers; AMPLIFY™ functional polymers; BETABRACE™ reinforcing composites; BETADAMP™ acoustical damping systems; BETAFOAM™ NVH and structural foams; BETAGUARD™ sealants; BETAMATE™ structural adhesives; BETASEAL™ glass bonding systems; CALIBRE™ polycarbonate resins; DOW™ polyethylene resins; DOW™ polypropylene resins and automotive components made with DOW™ polypropylene; IMPAXX™ energy management foam; INSPIRE™ performance polymers; INTEGRAL™ adhesive film; ISONATE™ pure and modified methylene diphenyl diisocyanate (MDI) products; ISOPLAST™ engineering thermoplastic polyurethane resins; MAGNUM™ ABS resins; PAPI™ polymeric MDI; PELLETHANE™ thermoplastic polyurethane elastomers; Premium brake fluids and lubricants; PULSE™ engineering resins; SPECFLEX™ semi-flexible polyurethane foam systems; SPECTRIM™ reaction moldable polymers; STRANDFOAM™ polypropylene foam; VERSIFY™ plastomers and elastomers; VORANATE™ specialty isocyanates; VORANOL™ polyether polyols

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Dow Building Solutions manufactures and markets an extensive line of insulation, weather barrier, and oriented composite building solutions, as well as a line of cushion packaging foam solutions. The business is the recognized leader in extruded polystyrene (XPS) insulation, known industry-wide by its distinctive Blue color and the Dow STYROFOAM™ brand for more than 50 years. The business also manufactures foam solutions for a wide range of applications including cushion packaging, electronics protection and material handling.

·                  Products: EQUIFOAM™ comfort products; ETHAFOAM™ polyethylene foam; FROTH-PAK™ polyurethane spray foam; GREAT STUFF™ polyurethane foam sealant; IMMOTUS™ acoustic panels; INSTA-STIK™ roof insulation adhesive; QUASH™ sound management foam; SARAN™ vapor retarder film and tape; STYROFOAM™ brand insulation products (including XPS and polyisocyanurate rigid foam sheathing products); SYMMATRIX™ oriented composites; SYNERGY™ soft touch foam; TILE BOND™ roof tile adhesive; TRYMER™ polyisocyanurate foam pipe insulation; WEATHERMATE™ weather barrier solutions (housewraps, sill pans, flashings and tapes)

Dow Epoxy is a leading global producer of epoxy resins, intermediates and specialty resins for a wide range of industries and applications such as coatings, electrical laminates, civil engineering, adhesives and composites. With plants strategically located across four continents, the business is focused on providing customers around the world with differentiated solution-based epoxy products and innovative technologies and services.

·                  Products: D.E.H.™ epoxy curing agents or hardeners; D.E.N.™ epoxy novolac resins; D.E.R.™ epoxy resins (liquids, solids and solutions); Epoxy intermediates (Acetone, Allyl chloride, Bisphenol-A, Epichlorohydrin, OPTIM™ synthetic glycerine and Phenol); Peroxymeric chemicals (CYRACURE™ cycloaliphatic epoxides, FLEXOL™ plasticizers; and TONE™ monomers, polyols and polymers); Specialty acrylic monomers (Glycidyl methacrylate, Hydroxyethyl acrylate and Hydroxypropyl acrylate); UCAR™ solution vinyl resins

The Polyurethanes and Polyurethane Systems business is a leading global producer of polyurethane raw materials and polyurethane systems. Differentiated by its ability to globally supply a high-quality, consistent and complete product range, this business emphasizes both existing and new business developments while facilitating customer success with a global market and technology network.

·                  Products: ENFORCER™ Technology and ENHANCER™ Technology for polyurethane carpet and turf backing; ISONATE™ MDI; PAPI™ polymeric MDI; Propylene glycol; Propylene oxide; SPECFLEX™ copolymer polyols; SYNTEGRA™ waterborne polyurethane dispersions; VORACOR™, VORALAST™, VORALUX™ and VORASTAR™ polyurethane systems; VORANATE™ isocyanate; VORANOL™ and VORANOL™ VORACTIV™ polyether and copolymer polyols

Specialty Plastics and Elastomers is a business portfolio of specialty products including a broad range of engineering plastics and compounds, performance elastomers and plastomers, specialty copolymers, synthetic rubber, polyvinylidene chloride resins and films (PVDC), and specialty film substrates. The business serves such industries as automotive, civil construction, wire and cable, building and construction, consumer electronics and appliances, food and specialty packaging, and footwear.

·                  Products: AFFINITY™ polyolefin plastomers (POPs); AMPLIFY™ functional polymers; CALIBRE™ polycarbonate resins; DOW XLA™ elastic fiber; EMERGE™ advanced resins; ENGAGE™ polyolefin elastomers; FLEXOMER™ very low density polyethylene (VLDPE) resins; INTEGRAL™ adhesive films; ISOPLAST™ engineering thermoplastic polyurethane resins; MAGNUM™ ABS resins; NORDEL™ hydrocarbon rubber; PELLETHANE™ thermoplastic polyurethane elastomers; PRIMACOR™ copolymers; PROCITE™ window envelope films; PULSE™ engineering resins; REDI-LINK™ polyethylene-based wire & cable insulation compounds; SARAN™ PVDC resin and SARAN™ PVDC film ; SARANEX™ barrier films; SI-LINK™ polyethylene-based low voltage insulation compounds; TRENCHCOAT™ protective films; TYRIL™ SAN resins; TYRIN™ chlorinated polyethylene; UNIGARD™ HP high-performance flame-retardant compounds; UNIGARD™ RE reduced emissions flame-retardant compounds; UNIPURGE™ purging compound; VERSIFY™ plastomers and elastomers; ZETABON™ coated metal cable armor

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The Technology Licensing and Catalyst business includes licensing and supply of related catalysts, process control software and services for the UNIPOL™ polypropylene process, the METEOR™ process for ethylene oxide (EO) and ethylene glycol (EG), the LP OXO™ process for oxo alcohols, the QBIS™ bisphenol A process, and Dow’s proprietary technology for production of purified terephthalic acid (PTA). Licensing of the UNIPOL™ polyethylene process and sale of related catalysts, including metallocene catalysts, are handled through Univation Technologies, LLC, a 50:50 joint venture of Union Carbide.

·                  Products: LP OXO™ process technology and NORMAX™ catalysts; METEOR™ EO/EG process technology and catalysts; PTA process technology; QBIS™ bisphenol A process technology and DOWEX™ QCAT™ catalyst; UNIPOL™ PP process technology and SHAC™ catalyst systems

The Performance Plastics segment also includes a portion of the results of the Siam Group, a group of Thailand-based joint ventures.

PERFORMANCE CHEMICALS

Applications: agricultural and pharmaceutical products and processing • building materials • chemical processing and intermediates • electronics • food processing and ingredients • gas treating solvents • household products • metal degreasing and dry cleaning • oil and gas treatment • paints, coatings, inks, adhesives, lubricants • personal care products • pulp and paper manufacturing, coated paper and paperboard • textiles and carpet • water purification

Designed Polymers is a business portfolio of products and systems characterized by unique chemistry, deep expertise in regulated markets and specialty product qualities and features.  Within Designed Polymers, Dow Water Solutions offers world-class brands and enabling component technologies designed to advance the science of desalination, water purification, trace contaminant removal and water recycling. Other businesses in Designed Polymers, such as Water Soluble Polymers, develop and market a range of products that enhance the physical and sensory properties of end-use products in a wide range of applications including food, pharmaceuticals, oil and gas, paints and coatings, personal care, and building and construction.

·                  Products and Services: Acrolein derivatives; Basic nitroparaffins and nitroparaffin-based specialty chemicals of ANGUS Chemical Company, a wholly owned subsidiary of Dow; CELLOSIZE™ hydroxyethyl cellulose; Chiral compounds and biocatalysts; CYCLOTENE™ advanced electronics resins; DOW™ latex powders; DOWEX™ ion exchange resins; ETHOCEL™ ethylcellulose resins; FILMTEC™ membranes; FORTEFIBER™ soluble dietary fiber; Hydrocarbon resins; Industrial biocides; METHOCEL™ cellulose ethers; OMEXELL™ ultrafiltration; OMEXELL™ electrodeionization; Pfēnex Expression Technology™; POLYOX™ water-soluble resins; Quaternaries; SILK™ semiconductor dielectric resins

The Dow Latex business is a major global supplier of latexes, for a wide range of industries and applications. It provides the broadest line of styrene/butadiene (S/B) products supporting customers in paper and paperboard (for magazines, catalogues and food packaging) applications, and the carpet and floor covering industry. UCAR Emulsion Systems (UES) manufactures and sells acrylic, vinyl acrylic, vinyl acetate ethylene (VAE), and S/B and styrene acrylic latexes and NEOCAR™ branched vinyl ester latexes for use in the architectural and industrial coatings, adhesives, construction products such as caulks and sealants, textile, and traffic paint. It also offers the broadest product range in the dispersion area and produces and markets UCAR™ POLYPHOBE™ rheology modifiers.

·                  Products: Acrylic latex; EVOCAR™ specialty latex; FOUNDATIONS™ latex; NEOCAR™ branched vinyl ester latexes; Styrene-acrylate latex; Styrene-butadiene latex; Styrene-butadiene vinyl acetate ethylene (VAE); UCAR™ all-acrylic, styrene-acrylic and vinyl-acrylic latexes; UCAR™ POLYPHOBE™ rheology modifiers; UCARHIDE™ opacifier

The Specialty Chemicals business provides products and services used as functional ingredients or processing aids in the manufacture of a diverse range of products. Applications include agricultural and pharmaceutical products and processing, building and construction, chemical processing and intermediates, electronics, food processing and ingredients, gas treating solvents, fuels and lubricants, oil and gas, household and institutional cleaners, coatings and paints, pulp and paper manufacturing, metal degreasing and dry cleaning, and transportation. Dow Haltermann Custom Processing provides contract and custom manufacturing services to other specialty chemical, agricultural chemical and biodiesel producers.

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