Document 0JwzRzDY71XgkV0XZjrD0awwJ

(f o4 PLAINTIFF'S EXHIBIT : S I 0 U0 h 0 9 9 1958 ANNUAL REPORT for the year ended May 31, 1958 The Dow Chemical Company DIRECTORS AND OFFICERS DIRECTORS Earl W. Bennett, Chairman E. O. Barttow A. P. Bautol t H. bandy Calvin A. Camyball IL L Curtis Herbert D. Doan Island I. Doan Aldan B. Daw Herbert H. Dow Carl A. Garstackor N. D. Griswold Mark E. Putnam W. a Schuotta C. J. Strosockor EXECUTIVE COMMITTEE Inland I. Doan, Chairman E. O. lantow Earl W. Bannolt Calvin A. Campbell Carl A. Garstackor Mark E. Putnam C. J. Strosockor OFFICERS AND ASSISTANT OFFICERS Earl W. Bennett, Chairman of the Board Inland I. Doan, President Mark E. Putnam, Executive Vice President E. O. Barstow, Vice President A. P. Bautol, Vice President and General Manager Texas Division IL H. Bavndy, Vice President and Director of Research Calvin A. Campball, Kice President. Secretary and General Counsel K. L Curtis, Vice President and General Manager Western Division Carl A. Garstackor, Vice President and Treasurer J. D. Hanawait, Vice President C. J. Strosockor, Vice President Donald Williams, Vice President and Director of Corporate Relations Hobart B. Bonnatt, Assistant Treasurer and Assistant Secretary Prod H. Brawn, Assistant Treasurer and Assistant Secretary Inland A. Doan, Assistant Secretary Lutbor Evans, Assistant Secretary W. A. Groaning, Jr., Assistant Secretary Charfos Ponhaligan, Auditor TRANSFER AGENTS The Cleveland Trust Company Guaranty Trust Company of Now York FINANCE COMMITTEE Earl W. Bonnatt, Chairman Robert B. Bonnatt Prod H. Brown Calvin A. Campbell Carl A. Garstackor Charles Ponhaligan REGISTRARS The National City Bank of Cleveland The Now York Trust Company CERTIFIED PUBLIC ACCOUNTANTS Haskins Soils STOOP 100 THE ANNUAL MEETING The annual meeting of stockholders will be held on Wednesday, September 10, 1938, at two o'clock in the afternoon. EST, in the auditorium of the Central Intermediate School. Rodd and Rear don Streets. Midland, Michigan. A formal notice of the meeting, together with a proxy statement and form of proxy, will be mailed to each holder of Common Stock separately from this report. THE DOW CHEMICAL COMPANY Operations Summary 2 The President's Letter 3 Report to the Stockholders 4 Consolidated Balance Sheet 16, 17 Statement of Earnings 18 Statements of Surplus 19 Notes to Financial Statements 20 Ten Year Statement of Financial Condition Ten Year Statement of Earnings 23 22 CQAT1P Test and nn t'r papers n<ed in (his I9f8 -innnal Report are coated with Dow Latex. Hu ,.< n't;/v printed turn !encrp'vvi plates ciihul on Daw Maentwi.nn. OPERATIONS SUMMARY A Tivo Year Comparison 1958 1957 Combined* 1957 As Reported Net Sales Total Income Depreciation, Amortization, and Depletion United States and Foreign Taxes on Income Net Earnings Earnings per Share--Common Stock Cash Dividends Declared--Common Stock Common Stockholders' Interest $636,201,143 $673,397,909 $627,819,059 645,161,000 680.386.431 634,685.548 82,383,709 81,575,028 80.839,987 42,421,000 53,194,000 5 1.550,000 46,059,181 54,517,776 53.146.027 1.78 2.17 2.15 30.847.227 29.493.943 463,385,928 427,178,324 Shares of Common Stock Outstanding Common Stockholders 25.877.131 80,800 24.772.235 72,300 STOOO'i 102 During each of the above fiscal years the Company distributed Common Stock to its stockholders in the ratio of one share for each fifty shares held. * The combined figures include ihe former The Dobeckmun Company and its subsidiaries for the year ended December 31. 1956 and The Dow Chemical Company and its subsidiaries for its fiscal year ended May 31, 1957. (See Note A to financial statements on page 20.) 2 THE PRESIDENTS LETTER To the Stockholders: The past year has been a difficult one for us, as it has for many businesses throughout the country. While there is a fortunate inherent strength in our diversification, I have often made the point, in speaking of our future, that the general level of economic activity would be the most influential factor in determining our own performance. This was borne out clearly in the past year as the national business recession depressed our sales to a considerable degree. Operating levels in our major divisions varied from 60 to 75 per cent of capacity and it was necessary to reduce our work force in view of the lower level of production. Earnings were very disappointing, due to a combination of reduced levels of operation and the continued pressure on profits inherent in the cost-price squeeze. At the time of this writing there are indications that sales have hit bottom, but there is no visible reason to expect a rapid recovery. As you will discover in this report there are developments which permit long-range optimism. During the year we welcomed The Dobeckmun Company into the Dow organ ization. 1 am happy to report our enthusiasm for the contributions which Dobeckmun people have already made and which we expect they will make in the future. During the fiscal year ended May 31,19S8, we hit the peak of one of our cycles of expansion, capital additions amounting to SI85 million. In general, we now have ample capacity in basic materials, and in the current year capital additions will be largely in those lines where markets are active. Sincerely, August 5, 1958 President 3 EO IK001S . DOW CHEMICAL COMPANY < Finuncp antl Famines Earnings, after taxes, of S46 million represented a decline of about 157f from fiscal 1957. As the first six months' earnings were ahead of the previous year, it can be seen that the full effect of the present recession was felt in the second half of our year ending May 31, 1958. Adding to the effect of the recession on our profits were increased start-up expenses in connection with the new plants at Williamsburg, Virginia, and Plaquemine. Louisiana. As anticipated in this section of last year's report, wages and salaries during the year just ended continued to increase while our prices again did not keep pace. V- ,`e we were obligated to grant wage increases in line with contract provisions, ir te face of a declining sales volume the Company reduced its number of employees in almost all divisions. Our Bank Credit Agreement was extended through October 1, 1959, and was increased from $100 to $150 million. In addition the Company borrowed S50 million from banks on a term loan. At the end of the year $135 million had been borrowed under both the credit agreement and the term loan. Due to the terms of the bank loans, they have been placed under long-term debt on the balance sheet rather than under current liabilities. This chart illustrates that while the level of prices received for Dow products remained constant over the year, wages and salaries continued to increase sharply. ST0 0 0k I oh r i 1958 ANNUAL REPORT Long-term debt was not otherwise materially changed although S4- million of 4'7 Convertible Debentures of The Dobeckmun Company were assumed. At sear end, we had $10.4 million of long-term debt to the Government for the balance of the purchase price of the Velasco magnesium plant acquired dur ing the year. Income from sources other than sales totaled S9.0 million and included S2.5 million in dividends received from associated companies. A two per cent stock dividend was paid to stockholders in November of 1957 in addition to the cash dividend of SI.20 paid during the year. With the economic outlook for the remainder of calendar 1958 not materially brighter than in recent months, it is expected that lower profits will continue. Sales At S636 million our total sales for the 1958 fiscal year were slightly above those of 1957. It must be remembered, however, that this year's figure includes a full twelve month's sales of The Dobeckmun Company with which we merged August 31, 1957; thus we actually experienced a decline in volume. As always, there were some ups and downs in various individual prices, but the index of our net average prices remained essentially constant. Magnesium and heavy chemicals suffered the greatest decline in volume. All things considered, while the volume of sales was not as we would like to have seen it, we can by no means consider the year disappointing saleswise when general business conditions are taken into account. Without counting the additional revenue resulting from Dobeckmun, 1958 was our second-best year by a consid erable margin. The recession, naturally, was the factor most responsible for the reduction in sales, but the increasing severity of competition in the chemical business must also be regarded as a potent influence. It might be worth pointing out here that the nature of competition has been changing. It is no longer limited to our traditional rivals in the chemical industry. In recent years a great many other manufacturers have been branching out into various areas of chemical production--often with well-known processes and thus with no research and engineering costs to be recovered. This means many more people competing for the same business and in particular it exerts a downward pressure on prices, accentuating the profit squeeze with which the industry has been struggling for the past two or three years. During the year we again expanded our network of terminals and opened a new sales office in Dallas, Texas. Our major product lines contributed to the total sales dollar in approximately the following proportions: Chemicals Plastics 52% 35% Magnesium 1% Agricultural Chemicals 6% These figures are at some variance with those of recent years. The principal reason for this is that Dobeckmun sales have been incorporated in the Plastics figure, since Dobeckmun products are most closely related to that area of our business. ^ --j cd CD 5 Prodlids CHEMICALS Taken as a group chemical sales were down although there were notable advances in particular products. Sales of Separan, for example, continued to climb as more and more industries found application for this outstanding flocculating agent. This is a highly successful product of our own research and appears to have an excellent potential. A major price reduction in Versene chelating agents, made possible by a new and more efficient production plant, contributed to an increased sale of these products and is expected to open further new markets. Methocel, a product introduced commercially about ten years ago, is another product with a successful past and equally bright future. This is a water-soluble gum--odorless, tasteless, nontoxic and inert--with a seemingly endless number of uses as a thickener, binder, emulsifier, film former and suspending agent. Latex paints, where Methocel serves to suspend the pigments and control viscosity, and paint removers, where it is used as a thickener, were major consumers. Additionally it is used in a wide variety of cosmetics and food, paper and tobacco products. Recent development of Methocel in film form offers interesting possi bilities as a soluble and edible packaging material. Sales of aspirin and acetophenetidin were up largely as a result of the high incidence of influenza during the past winter. It appears, however, that the "redis covery" of the utility of these old-line pharmaceuticals may hold sales at higher levels for some time to come. Another product supporting the chemicals line is magnesium hydroxide, which went into production during the year at our Ludington Division. In slurry form it is pumped to a nearby plant of a producer of refractory brick. Magnesium TEN YEAR NET SALES 6 If49 1950 I9S1 1991 199* 1954 1995 1*5* 1957 19* I 0ST 00 34 G hydroxide is also used by paper mills in the relatively new magnesium bisulphite paper process. The process requires rather extensive mill changes but is growing in favor among paper producers because it greatly reduces pollution problems and is more efficient in pulp recovery. Chlorothene, introduced in 1954, continued to grow in volume and from all appearances will continue to do so. Nonflammable and the least toxic of industrial solvents, its safety, versatility and effectiveness make it an outstanding product in its field. Recently it has also found use as a propellant in aerosol sprays. Polyglycols are important raw materials and are absorbing an increasing proportion of the market for the production of synthetic foams. Dow research has developed resin grade polyglycols that are particularly adapted to this use. The quality of these products has resulted in their acceptance and rapidly increas ing sales. PLASTICS The physical volume of plastics and related products sold during 19S8 was up but lower prices resulted in a slightly reduced dollar volume from the preceding year. Polystyrene is a highly competitive business, with considerable pressure on prices of the general-purpose types. Fortunately Dow has developed a number of polystyrenes with improved performance characteristics which have replaced gen eral-purpose materials in many areas. Styrofoam sales were higher than ever and still increasing. A new form designed specifically for building insulation was introduced during the year under the trademark Scorbord and has been well received. This has since been joined by a special roof insulation called Roofmate. Saraloy, a flashing material of a form of saran rubber, was also introduced. Thus we have an ever-growing stake in the construction industry. Pelaspan, polystyrene in the form of heat-expandable beads, is another new product showing great promise and there is also considerable interest in combina tions of Pelaspan with epoxy resins. These beadlike materials can be formed with the application of heat either to form a part in a mold or to fill a prefabricated cavity with rigid insulation. Saran and Ethocel production was good and polyethylene at top level. Sales of Saran Wrap for packaging and industrial uses were up sharply while the house hold roll gained steadily during the latter months of the fiscal year, reaching an all-time high in June. Dow-deve!oped styrene-butadiene latexes have continued their excellent growth and during the past fiscal year were particularly strong in paints and coated papers. The development of successful latex metal priming paints has opened up an entirely new field. This type of paint has been adopted by one automobile manu facturer for priming frames. 7 sT o o n 10? DOBECKMUN PRODUCTS Sales of Dobeckmun products fell somewhat below the previous year as a result of several depressed markets and increasing competition in flexible packag ing materials and metallic yarns. As with other lines, however, there were some areas of gain. Increased sales of laminated and extruded packaging materials reflected the growth of high-speed, protective packaging of prepared and concentrated food and drug products. Polyester film coated with Saran and polyethylene made important gains in the packaging of meat and cheese where protection and the sales appeal of transparency are important. Dobeckmun is licensed to manufacture polyethylene-coated papers for Tetra Pak, a European development for packaging fluid milk, soft beverages, ice cream and similar items. The unique, pyramid-shaped package has recently been intro duced in this country and this line is expected to show benefits in the coming year. The popularity of polyethylene for packaging fresh fruits and vegetables, poultry, textiles, toys, hardware and novelty items shows continued growth. The Berkeley, California, plant doubled its capacity for the manufacture and printing of such bags for the rapidly growing West Coast industry. The introduction and acceptance of new Lurex colors point to increased interest in metallic yarns--automotive interiors, furniture, drapery and sportswear fabrics being important areas for growth. During the 1957 Christmas season a new icicle of metalized saran film was successfully tested and is in full production for the coming holiday by Ben-Mont Papers, a subsidiary. Added strength, luster and ease of hanging are believed to make this product an important innovation in the field of Christmas decorations. Also successfully tested were Lurex gift tie ribbons. Trycite, the polystyrene film long under development by Dow, will be manu factured and sold by Dobeckmun, and a plant for its manufacture is now under construction in Cleveland. Advances are also being made in the packaging tech niques of Saran Wrap for meats, cheese, baked goods, nuts and other items requir ing the superior moisture protection afforded by this film. MAGNESIUM Our magnesium business was hard hit, being off one third. Apart from the general recession a combination of factors contributed directly to the decline from the previous year's level. There were cutbacks in military procurement early in the year. In 1957 there were sizable sales to the titanium industry and for Government stockpiling. In 1958 titanium production was negligible and there was no Government stockpiling. Our foundry and fabrication plant at Bay City held up well but business for our Madison Division was considerably depressed. Our new high-temperature thorium alloys are finding many applications in missiles and rockets. We have also developed a new die casting alloy with special properties which we think will be of distinct interest to the electronics industry. An advance in technology which came into commercial use was extrusion 8 CO Mit 00.IS from pelletized magnesium. Extrusions from the pelletized metal have greater strength than conventional extrusions, thus permitting a considerable weight saving for a given degree of design strength. These extrusions are particularly adaptable to aircraft and airborne equipment. As an example, the Army's new Mechanical Mule, which makes extensive use of magnesium including pelletized magnesium extrusions, weighs only 900 pounds, and can carry an unusually high load in proportion to its weight. AGRICULTURAL. CHEMICALS The agricultural chemical group held up extremely well and, in fact, was the one broad area of sales that showed a slight gain over 1957. Weed, brush and grass killers accounted for better than half of the total and within this group Dowpon was outstanding. This product of Dow research is a selective grass killer and the only product of its kind on the market. Since grass is a troublesome "weed" in field crops, Dowpon's use in agriculture is growing rapidly. A similar product. Radapon, is used industrially to control grass in parking lots and other cleared areas. Research is also leading us into animal health products. Trotene, for example, is the first systemic insecticide to be developed in this country. Administered to cattle internally it has proven to control the heel fly which causes an estimated SI00 million loss in the cattle industry annually. Likewise, Zoalene is a new and superior preventive for coccidiosis, a disease which causes severe losses in poultry unless a preventive agent is added to the feed or drinking water. Zoalene has been cleared for sale in Canada and the matter is being progressed in the United States. We have also introduced a new insecticide--Korlan, a chemical cousin of Trolene but used in the form of a spray. It is effective against a wide variety of insect pests and may well grow into an important product. TEXTILE FIBERS Our plant near Williamsburg, Virginia, for the production of Zefran, was nearly complete at year end and production has since been started. Zefran is an acrylic alloy fiber developed by a research team in our Western Division. It resembles some other synthetics in such characteristics as wrinkle resistance and crease retention but can be more readily dyed, has an exceptionally good "hand" and resistance to pilling. It blends well with both natural and syn thetic fibers and has excellent wearing qualities. Zefran will be introduced at the retail level this fall in limited quantities in several lines of top quality apparel. Already in production are men's and women's coatings and suitings, dress goods, men's shirting, sweaters and other knitwear. Shortly after the close of the fiscal year it was decided to combine the textile fibers sales group and the Lurex sales operation of Dobeckmun. This gives us a good network of sales points and should enhance the efficiency of our selling effort in this area. 9 GO M/f OOiS ; For<'ii*n liusimJ.s.s Export sales were slightly greater than in 1957 and represented approximately 9 per cent of Dow's consolidated sales. New sales offices were opened in Hong Kong and Buenos Aires and the office in Montevideo dosed. Our export subsidiaries have been building quite a broad network of foreign sales offices and in addition to the above now have them in Switzerland, Holland, Sweden, Japan. Australia, Mexico, Puerto Rico, and Brazil. Either directly or in association with others we now have operations in nine foreign countries. The wholly owned subsidiary Nederlandsche Dow Maatschappij N. V. had docking and warehouse facilities in operation by year end. Our associated company in Japan, Asahi-Dow Limited, completed an expan sion of its polystyrene plant and was taking increased quantities of Dow styrene. Also Polychem Limited, m which we own stock, began production of Styron in Bombay, India. Subsidiaries Our wholly owned subsidiary Dow Chemical of Canada. Limited enjoyed a good year, its sales being up more than seven per cent from the previous year's high. New facilities added at Sarnia included a Styrofoam plant and additional capacity for chlorine, ethylene and glycol. During the year a new company, Rio Tinto Dow Limited, was formed for the extraction of thorium metal from uranium mining operations at Blind River, Ontario. Rio Tinto Dow is owned 50 per cent by Dow Canada and 50 per cent by the Rio Tinto Mining Company of Canada Limited. Dowell offers a variety of services to the petroleum industry, as well as a chemical cleaning service for industrial equipment. A subsidiary, Dowell of Canada Ltd., operates in the Canadian oil fields. Similar services are offered the Vene zuelan petroleum industry through another subsidiary. United Oilwell Service, S.A. Despite some lag in the petroleum industry Dowell had a very good year. For the past year Dowell has been doing considerable chemical cleaning work at missile launching pads which involve numerous fuel, hydraulic and propellant systems requiring meticulous cleaning. Bay Refining, at Bay City, Michigan, produces gasoline and related products and will supply feed stocks for the production of ethylene and butadiene at Dow's new plant being constructed on an adjacent site. During the year Bay Pipeline Corporation, Bay Refining Corporation and Dowell Incorporated became divisions of the parent company. Cliffs Dow Chemical Company, in which we own a two-thirds interest, is a large manufacturer of charcoal for both industrial and household use as well as a number of other wood distillation products. Sales of industrial charcoal were depressed but the briquet business remained good. 10 01 I ||( 0 0 J.S 1 Associated Companies Dow has for a number of years owned a 50 per cent interest in three domestic associated companies, Dow Coming Corporation, Midland, Michigan; Ethyl-Dow Chemical Company, Freeport, Texas; and The Saran Yams Company, Odenton, Maryland. Dow Coming lost volume in some industrial areas which have been depressed but observed encouraging growth in some of its newer products. Three new types of Silastic, or silicone rubber, mentioned in last year's report, are developing into substantial volume products, and a new release agent called Syl-off is finding widespread use as a paper coating for packaging sticky materials. Years of Dow Coming research have now yielded a durable water-repellent cotton finish that will withstand repeated washings. This is expected to enhance wash and wear cottons and weather-resistant cotton garments. Ethyl-Dow manufactures ethylene dibromide for use in anti-knock gasoline fluids and operated at somewhat reduced levels. The lag is attributable partially to the recession and partially to improvements in petroleum refining technology. Saran Yams produces fine fibers of saran for draperies and specialty uses. Since the end of the year Dow has announced the formation of a new associated company, Dow Badische Chemical Company, which plans to build a plant at Freeport, Texas, for the production of chemicals derived from acetylene. Expansion Capital additions rose to a new high of S185 million during 1958. A large portion of this amount went into two new locations. One of these is our new synthetic fiber plant near Williamsburg and the operation will be known as the James River Division. The fiber, Zefran, went into production this July. The other is our new Louisiana Division on the Mississippi River near Plaquemine. This is a new major division for Dow which will produce a broad line of basic chemicals. Work on most of the units is nearing completion and limited operation will be initiated this fall. In Texas new plants were completed for the production of acetylene, ethanolamines and chelating agents and significant expansions made for a number of facilities, including those for ethylene, propylene, chlorine, Chlorothene, vinyl and vinylidene chloride, ethylene diamine, methyl and methylene chloride and chloroform. At Midland we expanded capacity for styrene, saran, salicylic acid, aspirin, caustic soda, ethanolamines, Separan, Dowanol products and ion exchange resins. Styron capacity was increased at AUyn's Point, Connecticut, and facilities for producing Styrofoam feed stock were added at both the Ohio and Missouri Styrofoam plants. Our Western Division expanded Styrofoam capacity, installed a new and improved iodine recovery process utilizing ion exchange and increased potassium iodide capacity. 11 I I I VOOO.IS : 1 A technical service laboratory was installed at Allyn's Point and a research and development laboratory completed at Ludington. A new plant for the production of our butadiene catalyst was also completed at the latter location. We have installed marine terminal facilities at Bay City to permit our Midland and Bay City Divisions to take advantage of the St. Lawrence Seaway. The remaining government magnesium facilities at Velasco which we had been operating under lease were purchased during the year for S20.7 million with one third down and the balance payable over a period of six years. This plant is currently not operating because of the reduced market for magnesium. In April we purchased Extruders, Inc., of Hawthorne, California. This company, which employs approximately 100 people, specializes in the production of polyethylene film. In view of depressed business conditions we have stretched out some projects where feasible but there has been no major alteration in our long-range plans. In the current fiscal year we anticipate capital additions in the neighborhood of $75 million. Industrial Relations We enjoyed harmonious labor relations throughout the year with no work stoppages and with negotiations successfully completed at several locations. Personnel of the company and its subsidiaries at year end totaled 26,600 compared with 27,200 at the end of the preceding year. Since we added 2,000 The provision for United States and foreign taxes on income for the current year amounted to f42,421.000. Such taxes average 48 per cent of the consolidated income before taxes and are equivalent to $1.64 per share of Common Stock. r-o I I UOOJLS 31.24 Wag**, Safari** DISTRIBUTION OP DOW'S INCOME DOLLAR Dobeckmun employees it will be seen that there has been a rather marked cutback in personnel. This was in line with reduced operations. Our accident frequency was 1.76 lost-time injuries per million man hours of work. This was a considerable increase from the all-time record of .94 set in 1957 and was almost identical with our experience in 1956. Despite this increase Dow employees had only half as many disabling injuries as the average of the chemical industry. Our Ludington Division has completed five years, and our Allyn's Point Division seven-and-a-half years, without a lost-time accident. We again made an offering of Dow Common Stock to employees under a payroll deduction plan similar to those of previous years. 12.436 employees, or 40 per cent of those eligible, subscribed for 174,517 shares. Directors of the parent company are not eligible to participate in these plans. At year end our noncontributory retirement plans covered 11,518 employees. Among assets of the plans were 41.482 shares of Dow Common Stock of which 4.617 were purchased during the year. 810 shares resulted from stock dividends and 486 shares were paid out in benefits under the plan. Dow's program of aid to education is broad in scope and designed to use the resources of the Company for maximum value to education. Included in the pro gram during the past year were 120 scholarships at 31 institutions, 65 fellowships at 47 institutions and restricted and unrestricted gifts to certain institutions and educational foundations. We have also instituted a program wherein the Company will match the educational erant of a Dow employee up to SI00. This plan has been well received. In the first eleven months of operation Dow employees made 629 con tributions to 191 institutions in 39 states. GO ---! ^ <--> __ co 13 Research Research probably never has been more important to our immediate and future welfare than in this present era of extreme competition and accelerated technical development. At the present time we have some 2,200 persons engaged in this activity, staffing over 30 research laboratories in eight different locations in the United Slates and Canada. Over 40 separate branches of science and engineering are represented in our laboratories. The major share of the research budget is devoted to the improvement of existing products and processes, the work which is a vital necessity if the company is to maintain its competitive position in the industry in terms of efficiency, product quality and ability to tap new markets. Our sales position in saran, Styron, Tyril, polyethylene, magnesium sheet and plate, magnesium castings, weed killers, ion exchange resins, poiyglycols, solvents and other products is dependent on a continuous flow of new ideas applied to process and product improvement. An equally important part of our work is aimed at giving Dow a broader product line. This exploratory or new product research is most directly related to the continuing long-term profitability of the business. A new product, with unique utility, and properly protected by patents can be expected to yield a far more attractive rate of return than an older product which may be broadly established in the industry on a competitive basis. About four years ago we embarked on a deliberate program to increase effort in this area. The results of this program are now beginning to show up. During fiscal 1958 Dow was awarded 262 U. S. patents, double the average for the previous four years. It is expected that the number of patents will continue to increase for the next several years. The most important evidence of results from this new product research effort is the recent introduction of such products as Separan, Trolene, Korlan, Zoalene, high-temperature magnesium alloys, pelletized magnesium extrusions, Trycite. Zefran, metal-priming latex and low-odor latexes, most of which are discussed in the Products section of this report. The years immediately ahead should see the emergence of numerous other profitable developments. It is our belief that the results of this realignment of emphasis will in part offset the profit squeeze which is growing ever more acute in the chemical industry. Shareholders The chart showing the classification of ownership of Common Stock as of the record date, July 23, 1958, will appear in the postmeeting report which will be mailed to stockholders. The number of shareholders at the end of the fiscal year increased to 80,800 from 72,300 last year. U 1| I I ' l O O O i S . The number of shares outstanding at May 31st increased over one million to 25,877,131. This increase resulted from: Sales to Employees..................................................................... 82,478 Conversion of 3^c Debentures ............................................... 129,984 2^0 Stock Dividend ...................................................................... 505,514 Exchange for net assets and business of The Dobeckmun Company.................................................. 386,920 hiromp and Investment The provision for depreciation and amortization of property amounted to 82.4 million for the year ending May 31, 1958. The Company uses the declining balance method of computing depreciation wherever applicable. Our expenditures for plant and property additions for the past ten years are as follows: 1949 ............. ......... S 43,000,000 1950 ............. ......... 29,000,000 1951 ............. ......... 91,000,000 1952 ............. ......... 145,000,000 1953 ............. ......... 94.000,000 1954 ............. ......... S 59,000,000 1955 ............. ........... 49,000,000 1956 ............. ......... 59,000,000 1957 ............. ......... 162,000,000 1958 ............. ......... 185,000,000 In the accompanying chart, "investment" is essentially net property plus working capital as more fully set forth on page 22. 4T 00 0 1 I 5 OO CONSOLIDATED BALANCE SHEET I ASSETS May 31 1958 1957 CURRENT ASSETS: Cash................................................................................................ United States Government and other marketable securities-- at cost ................................................................................... Accounts and notes receivable: Trade, less reserve for doubtful accounts...................... Miscellaneous....................................................................... Inventories--at lower of cost or market............................... 33,274,267 $ 24.258.547 11,499,158 6.088.140 74,824,651 11,068,510 159,706,655 290,373,341 77,531,313 7,803,218 138.757,308 $254,438,526 INVESTMENTS AND NON-CURRENT RECEIVABLES: Notes and accounts receivable and capital stock (at cost) of associated companies (Note B) ...................................... Non-current notes and accounts receivable and sundry investments (less reserve for loss, 1958, $5,772,359; 1957, $5,775,962) ...................................... 6,131,437 $ 6,448,475 7,771.080 8.246.873 13,902,517 $ 14,695,348 PROPERTY-- At cost: Plants and other properties............................... Less--Accumulated depreciation, amortization, and depletion ............................................ 1,038,412,683 $879,409,974 474,450,205 422.412,969 563,962,478 $456,997,005 PATENTS -- At cost or nominal value, less accumulated amortization ......... PREPAID EXPENSES AND DEFERRED CHARGES- TOTAL 2,079,582 $ 2,012,389 4,694,612 $ 4,214,104 875,012,430 $732,357,372 See notes to financial statements on page 20. 16 GO --1 CD CD CO THE DOW CHEMICAL. COMPANY AND SUBSIDIARY COMPANIES LIABILITIES May 31 1958 1957 CURRENT LIABILITIES: Notes payable ............................................................................. Instalments on long-term debt due within one year (Note D) Accounts payable ...................................................................... United States and foreign taxes on income............................. Accrued and other current liabilities ..................................... $ 31,477,207 4.800,000 35.496.316 26,730,049 36.346.290 $134,849,862 S 57,050.866 1,000.000 39,769.100 41,574,928 31.275.096 $170,669,990 LONG-TERM DEBT (Note D): Promissory notes, 2.7" ....................................... Promissory notes, 3.25" ..................................... Debentures, 2.35?r ................................................ Debentures, subordinate 3" convertible . . . Debentures, subordinate 4% convertible ... Notes payable--banks........................................... Mortgage note, 5S7--Velasco Magnesium Plant Notes payable--other ........................................... $ 13.000.000 43,500.000 14.892,000 52.512,000 4.000,000 135.000,000 10,350,000 1,315.789 $274,569,789 $ 14.000,000 45,000.000 15,237.000 58,385,000 $132,622,000 MINORITY INTERESTS IN SUBSIDIARY COMPANIES............. STOCKHOLDERS' INTEREST: Common Capital Stock (outstanding, 25,877,131 shares) (Note E) ...................................................................... $ 2,206,851 $ 1,887,058 5129.385,653 $123,861,176 Surplus: Capital surplus .. Earned surplus . Total surplus TOTAL $276,247,612 57,752,663 S334.000.275 $463,385,928 S238.529.953 64,787,195 5303.317.148 $427,178,324 $875,013,430 $732,357,372 See notes to financial statements on page 20. 17 CO --t CD CD CD _ STATEMENT OF EARNINGS THE DOW CHEMICAL COMPANY AND SUBSIDIARY COMPANIES For tho Years Ended May 31 1958 1957 Combined * 1957 As Reported SALES AND OTHER REVENUE: Net sales ......................................... Dividends received from associated companies ................................. Interest income ............................... Fees from operation of Government-owned plants .. . Other income ................................... $636,201,143 $673,397,909 $627,819,059 2,530,921 425,736 1,350,000 581,687 1,350,000 576,344 668,227 5,334,973 560,927 4,495,908 560.927 4,379,218 $645,161,000 $680,366,431 $634,685,548 COSTS AND OTHER CHARGES: Cost of sales**................................................ Provision for depreciation, amortization, and depletion ....................................... Provision for pension and profit-sharing plans ............................... Selling and administrative expenses** Interest expense ............................................ Other income charges................................... Minority interests in income of subsidiary companies .......................... Provision for United States and foreign taxes on income........................ $386,838,304 $410,939,830 $376,249,141 82,383,709 81,575,028 80,839,987 8,850,296 66,658,812 10,916,678 696.561 7,713,605 65,141,883 5,828,899 1,054,514 7,524,305 58,626,402 5,415,750 913,040 336,459 420,896 420,896 42,421,000 53,194,000 51,550,000 $599,101,819 $625,868,655 $581,539,521 EARNINGS FOR THE YEAR $ 46,059,181 $ 54,517,776 $ 53,146,027 For comparative purposes, the results of operations of the former The Dobeckmun Company and its subsidi aries for the year ended December 31. 1956 have been combined with those of The Dow Chemical Com pany and its subsidiaries for its fiscal year ended May 31, 1957 (Note A). ** Exclusive of items shown separately. Sec notes to financial statements on page 20. 18 ST00 n I I8 STATEMENTS OF SURPLUS THE DOW CHEMICAL COMPANY AND SUBSIDIARY COMPANIES S T O O O 'i I i CAPITAL SURPLUS: Balance, June 1, 1957: The Dow Chemical Company and subsidiaries........... The Dobeckmun Company and subsidiaries ................ For tho Yoor Ended May 31, 1958 $238,529,953 4,968,167 $243,498,120 Additions: Excess of selling price over par value of Common Stock issued to employees................................................... Excess of approximate market value over par value of Common Stock issued as stock dividends................ Excess of face value of debentures over the par value of Common Stock issued on conversion.................. Excess of selling price or market value over par value of The Dobeckmun Company common stock issued to employees prior to merger................................. $ 3,998,332 24,770,186 5,223,082 176,599 34,168.199 Total $277,666,319 Deduct--Excess of par value of The Dow Chemical Company Common Stock issued for the net assets of The Dobeck mun Company over the par value of The Dobeckmun Company common stock................................................... 1,418,707 Balance, May 31, 1958 ............................................................ $276,247,612 EARNED SURPLUS: Balance, June 1, 1957: The Dow Chemical Company and subsidiaries........... The Dobeckmun Company and subsidiaries.................. $ 64,787,195 5,051,270 $ 69,838,465 Addition--Earnings for the year............................................... 46,059,181 Total.......................................................... $115,897,646 Deduction--Dividends : Cash....................................................................................... Common Slock (505,514 shares ai approximate market value of $54 per share) ............................. Balance, May 31. 1958 ............................................................ $ 30,847,227 27,297,756 58,144,983 $ 57,752,663 See notes to financial statements on page 20. 19 co NOTES TO FINANCIAL STATEMENTS A Tli* Oobockmun Company Morgor Under a Plan and Agreement of Reorganization. The Dobeckmun Company was merged into The Dow Chemical Company as of August 31. 1957. The merger was accounted for as a "pooling of interests" and in accordance therewith the capital and earned surpluses of the respective companies, after certain elimina tions. were combined. The accompanying statements of earnings and surplus for the year ended May 31. 1958 include the results of operations of the merged companies for the entire year then ended. For com parative purposes, in the statement of earnings there is shown a summary combining the results of opera tions of The Dow Chemical Company and its sub sidiaries for its preceding fiscal year ended May 31. 1957 with those of The Dobeckmun Company and its subsidiaries for its last complete fiscal year ended December 31. 1956. Q AuociaMd Cmponi* The Company's equity in the combined net assets of three domestic associated companies (50% owned), as shown by their unaudited financial statements, exceeded the Company's investment at cost by approx imately S 11.400.000 at May 31. 1958. The Company's equity in the combined net income of these com panies was approximately 52.900.000 and 53.300.000 for the years ended May 31, 1958 and 1957. respec tively. The Company also has a 50% interest in certain foreign companies. C kola of Common Stock to Employooc In October 1957. the Company made an offering of Common Stock to its employees and employees of its subsidiary and associated companies at a price of $42.25 a share, payable on an instalment basis gener ally through payroll deductions. At May 31. 1958 there were unfilled subscriptions under the offer for 178.186 shares. The subscriptions, which may be can celed at any time at the option of the employee but must he settled by August 1958. have not been recorded in the Company's books and are not reflected in these financial statements. However, partial pay ments on the subscriptions, aggregating 53.907.918. are included in current liabilities in the consolidated balance sheet at May 31, 1958. The excess of the quoted market value on dates of delivery of stock sold over the selling price is deduc tible by the domestic companies in the computation of Federal income taxes but it is the practice of the Company not to record such excesses as a charge against income. D long-Tarm Dobs The promissory notes, which are payable to insurance companies, bear interest at 2.7% and 3.25% per annum, and are due January 1, 1972 and July l, 1977, respectively, with prepayments due annually. The 2.35% debentures are due November I. 1961. The 3% and 4% convertible subordinate debentures are convertible imo Common Stock and are due July 1. 1982, and June 1, 1980, respectively. Notes payable to banks at May 31. 1958 consisted of indebtedness in the amount of 550.000.000 under a loan agreement which provides for repayment in five equal semi-annual instalments beginning July I. I960, with interest at 4!-% per annum. The remainder, in the amount of 585.0fi0.000, is due under a credit agreement dated October 8. 1952. as amended by supplemental agreement dated October I. 1957. which provides for a maximum credit of $150,000,000 with interest governed by the prime rate for ninety-slay maturities, as defined in the agreement. The latter borrowing is evidenced by ninety-day notes which are renewable at the option of the borrower with final maturity as of October I. 1960. With the execution of the supplemental agreement and in the light of intent with respect to repayment, the loans have been classified as long-term debt as of May 31. 1958. Loans of 555.000,000 made under the original agreement were classified as current liabilities at May 31. 1957. The 5% mortgage note is payable to the United States Government in equal quarterly instalments of 5575,000. E Capital Stock As of May 31, 1958 the authorized Common Stock consisted of 50.000.000 shares of 55 par value each. There were 25,877.131 shares outstanding, including scrip for fractional shares aggregating 27 shares. As of that date 138,186 shares were reserved for sale to employees under the offering of October 1957, 1.269.226 shares were reserved for conversion of con vertible debentures, and 220,870 shares were reserved for issuance under (he Key Employees Stock Option Plan, under which options were outstanding for 142.416 shares at prices ranging from 553 li to $75:K a share which represented the highest prices of the slock on the New York Stock Exchange on the dates the options were granted. Under the Key Employees Slock Option Plan 141.001 shares were covered by outstanding options at the beginning of the current year. During the current year options for 4.300 shares were granted, options covering 2.535 shares were exercised and options for 350 shares expired by virtue of termination of employment. There were 82.404 shares available for option but not yet allotted at the beginning of the current year and 78.454 shares available at the end of the current year. STC0-J4 120 20 F Rpnpgofrcfiori Ceruin comrucls and sub-comracis of the Companv arc suhieci 10 Government renegotiation for the pur pose of limning profits. Renegotiation proceedings have been concluded without refund through the year ended Mat 31. I95A and in the opinion of officials of the Company no refundable profits have been realised during the years ended May 31. 1957 and 195ft G Cammilmanlt ond Contingent iiobilitioo It is estimated by the Company that capital expendi tures for the fiscal year ending May 31. 1959 will approximate S75.000,000. The Company has agreed to purchase 2.000.000 shares of 1 par value capital stock of an associated companv (50ri owned) and to loan approximately 52.200.000 to other associated companies. In connection with housing programs for the benefit of employees, the Company has guaranteed the pay ment of loans in the aggregate amount of approxi mately 53.200.000 and has guaranteed rental income from certain housing projects. The Company also has guaranteed payment of loans to suppliers amounting to S 10.700.000 for the construction of a tanker and terminal facilities to be leased by the Company upon completion. In addition, the companies have made certain other guarantees approximating 52.000.000. The Company has agreements with certain officers and employees which proviJe for the payment of monthly compensation beginning with the dale of their retirement and continuing until specified termi nation dales. At May 31, I95g the maximum aggre gate liability under the contracts was approximately 52.500.000 Certain suits have been staried against the Company because of alleged product damage claims. The Com pany is contesting such suits and the amount of its ultimate liability thereunder, if any. is not determin able at this time. REPORT OF INDEPENDENT ACCOUNTANTS HASKINS & SELLS CERTIFIED PUSLIC ACCOUNTANTS 'AHOLD W SCOTT C A A CHAUNCBT A POPTOrt. CPA THE NATIONAL BANK 6UILOING DETROIT 26 1 1f 00 0AS2 THE DOW CHEMICAL COMPANY: Wc have examined the consolidated balance sheet of The Dow Chemical Company and its subsidiary companies as of May 31, 1958 and the related statements of consolidated earnings and surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying consolidated balance sheet and statements of consolidated earnings and surplus present fairly the financial position of the companies at May 31. 1958 and the results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding )ear. July 28, 1958 HASKINS 4 SELLS 21 W z> < i s o o J < 0 1 u Zz 00 s H0 50 Z III X 0 I- o J < o z z< E eo '/ w Zi a a it 22 1 _o C2 eo m S2 -- vr6ci *c VN N sO r* OwNo O' ri fc* s r* i r- ri >o - | Q O *T |-- ** | V* so r r vv > o n-- n^ r* r*i O * | 'C 30 . 80 *r ri o' b O V r r< *0 > rr">j N 9 h O' ri r-i go A <N 1*1 *t n v> ri ^ ^ 0 K * IA m lA co>i <a o <c * 6 < ri O-- ^ in A 2* O' IA ST C -- w os r4 ^ os r` ri ri ft ^ ft ft o <n r n -- v n V 0 M * 4* ******** -- O' -- ve -- -- 30 CJ f -- O -- ! 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These Dow diamonds identify SCORBORD, a new perimeter insulation for foundations and concrete slabs, recently introduced to the construction industry. Pre-scored for easy installation, its large size, light weight and superior performance are rapidly earning wide acceptance for this new member of the STYROFOAM family. 24 AND OPERATIONS Executive and General Sales Offices MIDLAND, MICHIGAN SALES OFFICES Atlanta 3, Oaargia, Fulton National Bank Building Boston 16, Massachusetts, 20 Providence Street Buffalo 2, Now York, TO Niagara Street Camdan 2, Now Joraoy, 400 Market Street Chicago 31, Illinois, 6000 West Touhy Avenue Cincinnati 6, Ohio, 2330 Victory Parkway Cleveland 13, Ohio, Terminal Tower Dallas t, Texas, 1505 Elm Street Detroit 2, Michigan, Fisher Building Houston 25, Texas, 6910 Fannin Street las Angeles 17, Californio, 900 Wilshire Boulevard Minneapolis 3, Minnesota, 1750 Hennepin A venue New Orleans 12, Louisiana, 1100 Commerce Building New York 20, New York, 45 Rockefeller Plaza Pittsburgh 22, Pennsylvania, One Gateway Center St. Louis 5, Missouri, 10 South Brentwood Boulevard San Francisco 4, California, 350 Sansome Street Seattle 1, Washington, 1809 Seventh A venue Calgary, Alborta, 433 - 4th Avenue SW Montreal, Ouebec, 2055 Peel Street Toronto 2, Ontario, 600 University A venue Winnipeg, Manitoba, 232 Portage Street MANUFACTURING OPERATIONS California, Pittsburg, Seal Beach. Torrance Colorado, Rocky Flats Connecticut, Allyn's Point Illinois, Madison Louisiana, Plaquemine Michigan, Bay City. Ludington. Midland Missouri, Riverside Ohio, Hanging Rock Texas, Freeport Virginia, Williamsburg c Z Mi 0 0 0 J. S ,i DIVISION OPERATIONS Bay RoBning Company, Bay City. Michigan Braxas Oil I Gas Company, Houston. Texas Dobeckntun Company, Cleveland, Ohio--Berkeley, California Dewoll, Tulsa, Oklahoma SUBSIDIARY COMPANIES Adams Paper Company, Wells River, Vermont Ben-Mont Papers, Inc., Bennington, Vermont Cliffs Dow Chemical Company, Marquette. Michigan Dabeckmun Britain limited, Windsor-Berks, England Dobeckmun luropa, N. V., Amsterdam, The Netherlands Daw Chemical of Canada, Limited, Sarnia, Ontario, Canada Dow Chemical Inter-American Limited, Midland, Michigan Dew Chemical International Limited, Midland. Michigan Dowell of Canada, Ltd., Calgary. Alberta. Canada Extruders, Inc., Hawthorne. California La Domlnda, S. A. de C. V., Mexico City, Mexico Nederlandsche Dew MaatKhappij N. V., Rotterdam, The Netherlands United Oilwell Service, S. A., Caracas, Venezuela DOMESTIC ASSOCIATED COMPANIES Daw Coming Corporation, Midland, Michigan Ethyl-Dow Chemical Company, Freeport. Texas The Saran Yams Company, Odenlon, Maryland THE DOW CHEMICAL COMPANY MIDLAND, MICHIGAN THOS. GRISMLD JR. 1212 HOL,YnOOD RD. iilDUiU), iltCU. eui< rat; b 5 POSTAGE PAID Pel'll'if No 3 Mid.ond Mrniy.j', \ : STOO'J'i 12G