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. .'' -.A 1 . kVvC1 'VrVv'-y'..'-, V < '..r.1***< {-' ->5Av- * |- -* ". ' t, , mK *; " yiffc . ^' 1 J~ r if STC004284 The President's Letter.......................................... 6 Report to the Stockholders.................................. 7-21 Consolidated Balance Sheet.................................. 22-23 Statement of Earnings........................................... 24 Statements of Surplus........................................... 25 Notes to Financial Statements.............................. 26-27 Independent Auditor's Letter............................... 27 Condensed Comparative Statements Financial Condition....................................... 28 Earnings ......................................................... 29 The annual meeting of stockholders will be held on Wednesday, May 8, 1963, at two o'clock in the after noon, EST, in the auditorium of the Central Intermedi ate School, Rodd and Reardon Streets, Midland, Michi gan. A formal notice of the meeting, with a proxy state ment and form of proxy, will be mailed to each holder of Common Stock separately from this report. Carl A. Gerstacker, Chairman Donald K. Ballman Herbert D. Doan Earl W. Bennett Leland 1. Doan Robert B. Bennett Alden B, Dow A, P. Beutel R. H. Boundy Herbert H. Dow N. D. Griswold C. B. Branch C. J. Strosacker Calvin A. Campbell Macauley Whiting Leland 1. Doan, Chairman Donald K. Ballman R. H. Boundy C. B. Branch Calvin A. Campbell Herbert D. Doan Carl A. Gerstacker Carl A. Gerstacker, Chairman Earl W, Bennett Calvin A, Campbell Robert B. Bennett Leland 1. Doan Fred H. Brown Herbert D. Doan, President Carl A. Gerstacker,Chairman of the Board Leland I. Doan, Chairman of the Excrutwe Committee C. B. Branch, Executive Vice President Donald K. Ballman, Vice President for Marketing, Purchasing and Distribution Earl W. Bennett, Vice President. Honorary Chairman of the Board A. P. Beutel, Vice President in Charge of Gulf Coast Operations R. H. Boundy, Vice President. Director of Research Calvin A. Campbell, Vice President. Secretary, General Counsel C. J. Strosacker, Vice President Robert B. Bennett, Treasurer H. H. Lyon, Controller, Assistant Secretary David C. Baird, Assistant Secretary, Assistant Treasurer. Director of Purchases Earle B. Barnes, Assistant Secretary. General Manager Texas Division Leland A. Doan, Assistant Secretary, General Manager U'csferrt Division W A, Groening, Jr., Assistant Secretary. Assistant General Counsel A. P. Hanmer, Assistant Secretary, Assistant Controller John Van Stirum, Assistant Treasurer Lowell E. Tompkins, Assistant Treasurer C. F. Weaver, Auditor TRANSFER AGENTS The Cleveloxd Ttu.t Company Morgan Guaranty Trull Company of Nt Toth REGISTRARS The Notional City Bonk of Cla.eland Chvmlcol Bonk Nt York Trull Compony CERTIFIED PUBLIC ACCOUNTANTS Haskins & Sells \n -i SIXTY-SIXTH FINANCIAL REPORT (inMtllions) Net Sales Total Income Depreciation, Amortization, and Depletion United States and Foreign Taxes on Income Earnings for the Period Earnings per Share Earnings per Share after Special Items Cash Dividends Declared Common Stockholders' Interest Seven Month* Ended December 31 Colendor Year* (Unaudited) $ 542.7 556.1 57.0 39.8 47.9 1.65 1.52 23.3 698.8 $ 926.2 946.4 99.6 58.5 72.9 2.51 46.6 698.8 $ 841.7 860.8 99.4 41.1 60.2 2.07 43.5 674.3 Shares of Common Stock Outstanding Common Stockholders 29,060,983 100,300 29,094,252 98,300 oo --J CTJ CO cn These figures have been adjusted to give retroactive effect to special items described in Note D on page 26. 3 D" Herbert D Doan, elected President in September of 1962, started his career utth Dow in 1949- He most recently screed ov Exccutn c Vico President and. prior to that, as .\fonager of the Chemicals Department Carl A. Gerstacker, Choirman of the Board >mce I960 joined Dou.' in 1998. Chairman of (he Finance Committee, he is (he Company's chief financial officer. Prior to 1959 he uas Treasurer. C. B Branch aas elected Executive Vice President in Seph-mh/'r oj 1962. Before that he had been Director of Overseas Opemtions. His service u-ith Dow dates from 193/ ROBERT B BENNETT OONAID K BAUMAN UlANO t. DOAN 4 R. H. SOUNDY CO ~t CO CO r*x> CO Hob*rt B circled Tt vasurcr m 1959. had prcmnis- l\ served r/s the Com pan i Credit Manager. Hv tens em ployed in 19-12. Donald K ballmaa a-s Diiclor iif Sale* until 1959. it hen <u was elected Vice President for Marketing. Purchasing and Dis tnhutu/n. He haserved Do since 193?. Lt-fand I. Doan uns electee Chairman of the E\ei utite Com mittee in 1992 after more thru: thirteen years as Don's Pro'- deni. Hv joined Dow in 1917. H H Bournly has hfcv Dir*-, tor of Reseauii since 10V2 He mis elected a Cite President :r. 1953. His ahtto'd thirty seven ycu>s of sert ice date fiom 1926. I I 1 Directors AJrlen B Dow, son of ihe Company founder, is an architect m p/irate practice. He has served as a Director since 1941. C J. Stro5acker, Vice President, has fifty-five years of continuous sen-ire. haring joined Dote m 1908. Calvin A. Campbell. Vice President, is the Company's General Coun sel and Sccretai y. His serene with Dow dotes front 1935. Macauley Whiting, appointed to Manager of Overseas Operations in 1962, formerly managed the Midland Division. He joined Dow in 1948. 88Z U 001S i ALDEN B DOW C. J. STftOSACKER CALVIN A. CAMPBELL MACAULEY WHITING X D Ori-uoM. Engineering Consultant. /rreeioasl v headed the Engineer ing and Construe* lion Srnt<e\ Duision. He joined Don in 1927. Earl W Bennett screes as Hnnt>><itv Chan man of the Bom (I ajtr; hating held the Chair manship pom 1949 to 1960. Hts simy-thrcc years of continu ous employment began in 1900. Herbert H. Dow. Manager of f- ahn< ated Products in the Ptas* tus Department, joined the Campon v in 19Y2. A P Boutel. Vice President in Charge oj Guff Const Operations, teas Genet al Manager of the Texas Dietsion from 1940 to Iflfif He has been a Dme em ploy ee for t \ -set en y ears 5 To the Stockholders: his report marks Dow's transition to a Tfiscal year corresponding to the calendar year. Why did we change? Because it makes internal communications and reporting easier, more effective and less costly. This revised procedure is relatively a small thing, but it is symbolic of the hundreds of changes Dow is undergoing to keep our Company growing prof itably under significantly changing conditions. These are exciting, though sometimes ex asperating, days for all of us in Dow. The chemical industry, historically competitive, has become a most strenuous testing ground. New competitors--diversifying from other fields, or starting from scratch with package plants, or coming from overseas--almost outnumber our long-time competitors. Whenever we look up, it seems one more brand-new competitor comes charging at us. In this testing we have seen markets shifted, prices Ireaten down, profit margins pressured. And it still goes on. Dow has an effective answer. As a beginning, we know we design, build and operate plants equal to the best--and that we are running those plants more efficiently each year. To sup port our production we have an excellent posi tion in research, skill in its application, plus marketing talents and administrative grasp. All these abilities we can apply broadly, in each of the many and diverse businesses--from chemicals to containers and from pharmaceu ticals to fibers--that make up The Dow Chem ical Company. In short: we have a depth of knowledge, pa tiently home-grown, that reaches from research to market for each of our businesses. Drawing on this knowledge and developing it further, we will find continuing profitable growth and fresh opportunities. New competitors, on the other hand, will discover that such knowledge in depth cannot be bought or quickly acquired. My confidence for profitable growth rests in our employees, the many individuals whose personal capabilities add up to our strength. This is a great wealth of talent in which we repeatedly find the right men for the right jobs. Beyond this, we are shaping our organization to assure that we provide our key people with both the information and the opportunity to act for Dow with optimum effectiveness. This is the first report published by Dowsince the recent changes in management. I have implied the willingness and ability of our people to change with the changing times, and to do so profitably. These changes do not re sult from abrupt decisions recently made. Nor have our basic objectives changed. The course we will follow this year, and in the next few years, arises naturally from plans laid and preparations made in the past. Effec tive change takes time; the gains reflected in this report indicate that our success in meeting today's conditions stems from sound manage rial direction initiated some time ago. Still, you can expect further changes. Dow's history is one of constant adaptation, and this must continue. So we look forward to a con stantly evolving organization geared to releas ing the best capabilities of ail Dow employees --and this leads us to look forward with confi dence and enthusiasm. You will recognize that the company I de scribe owes much of its development, stature, potential and--most of all--guiding philoso phy to the personality and leadership of Dr. Leiand I. Doan. In April of 1949 Dr. Doan be came President of a firm with 14.000 em ployees, 19,000 stockholders and annual sales of $200 million. A reading of this report for 1962 will provide some measure of his influence in the years between. \Ye are fortunate that, while he has chosen to retire as President, Dr. Doan continues to serve Dow as Chairman of the Executive Committee. Sincerely, March 14,1963 President 6 6EZ C0 st m n j C; f. plicable share of the added depreciation in each year. The added depreciation affected calendar 1961 and 1962 reported earnings adversely by about nine cents and twelve cents per share, re spectively. Under provisions of the Revenue Act of 1962 we have claimed a credit related to investment Finance and Earnings in new facilities amounting to $1.5 million for the five months ended May 31, 1962 and an his is our first financial report issued on a Tcalendar year basis. However, the report covers an audited period of only seven months, from the end of the last fiscal year, May 31, 1962 through December 31, 1962. To permit full-year comparisons, which have more signifi cance than those for lesser periods, we have in cluded unaudited figures for past calendar years. Earnings after taxes for the seven-month period increased 33 per cent over the compar able period of calendar 1961. Earnings after taxes for the calendar year 1962 amounted to S72.9 million, up 21 per cent from calendar 1961, after including the effect of applicable extra depreciation and investment credit. Earnings per share on the same basis amounted to .52.51 versus .52.07 in calendar 1961. The increased 1962 earnings were due par tially to the lack of expense of Hurricane Carla experienced in late 1961; to the sale of assets of additional $1.35 million in the current sevenmonth period. The effect of both amounts has been recorded in the current fiscal period with the amount relating to the year ended last May being reflected as a "Special Item" in the Statement of Earnings on page 24. We have elected to follow an accounting method wherein 48 per cent of the total invest ment credit is reflected currently as a reduction in Federal income taxes. The effect of this ac tion has been to improve the earnings of the current seven-month period by two cents per share. Capital expenditures dropped to $69 million in calendar 1962 from $115 million in 1961 and during the seven months debt was reduced $58 million. In February a stock dividend of two per cent was declared payable on May 8, 1963 to hold ers of Common Stock of record as of March 20th. a subsidiary company; and to increased plant efficiencies and cost reductions. We have con centrated over the past several years on im TREND proving plant efficiencies and are continuing this effort. Dow Wages and As you will note from the accompanying chart, the index of prices has dropped more severely in the last two years than previously. Our best indications are that prices will con Selling Prices 130 I I CALENDAR YEARS tinue their decline in 1963. I Following the publication of liberalized de preciation rules in July, 1962 we reviewed our 120 depreciation practices. As a result of this study, we have provided additional deprecia 1 tion during the seven-month period ended December 31, 1962 totaling 12.8 million. Of 110 this total, 33.6 million applies to the current seven-month period whereas S9.2 million ac INDEX OF WAGES AND SALARIES PER EMPLOYEE (Includes All Benefits) tually applies to the twelve months ended May 100 31, 1962 and is set forth as a "Special Item" in the Statement of Earnings on page 24. Cal endar 1961 and 1962 figures presented in this report have been adjusted to include their ap 90 INDEX OF DOW SELLING PRICES 80 1957 1958 1959 1960 1961 1962 I I I I QUARTER ENDED Solei in Millions Earnings Per Shof* Sales in Millions Earnings Per Share' Avgust 31 331.4 .S3 210.1 .57 November 30 341.1 .74 22*. 5 .45 March 31 221.9 .42 191.7 June 30 339.8 .83 214.4 September 30 231.9 .68 214.6 December 31 232.6 .58 221 0 All figures hove been adjusted to give retroactive effect to special items described in Nate 0 an poge 26. * Based an shares outstanding at December 3). .46 .68 .47 .46 Sales IN the 1962 calendar year Dow had a record S926.2 million in sales of goods and services, ten per cent above our sales total for calendar 1961. Sales in home markets were more than this ten per cent higher. These gains started early in the year and increased steadily. Overseas sales were a somewhat different story. After several years of fast growth, inter national markets matured into the familiar domestic situation of overcapacity and falling prices. But by the end of the year these trends had leveled out and some upward signs were showing. Each of Dow's major product categories showed higher sales in 1962. Later sections of this report cover trends and outlook for these categories; here we want only to note the share of total sales income each major product group accounted for, as follows: Chemicals . 48% Plastics . .. 36% Bioproducts 9% Metals .... 7% Perhaps the sizable across-the-board sales gains make it seem that Dow management has been crying "wolf" too often about competition and prices. Far from it! Rather, these sales in creases began with our accepting competition as a factor to be lived with. Then came the planning and organizing of a marketing ap- proach--of course with complete supporting effort all the way from research through pro duction and every other aspect of Dow opera tions. The 1962 results are part of the pay-off on several years of planned effort. For instance, a good share of Dow's estab lished plant and long-time sales base is in materials we term commodities--products we make and sell in large tonnages. These are pre cisely where prices dropped the most. Still, we sold more of these commodities and--because we could run our plants at higher capacities-- with more total profit in 1962. The sales gains resulted from close and constant marketing at tention to the needs of our customers, plus sharper service to fill those needs, plus a con tinuing drive to make and market every prod uct more efficiently every year. The best comment we've heard on this part of our approach to today's competition came from one of our marketing managers. He told his staff: "If Dow is going to make a billion dollars in sales, the first step is satisfactorily serving the nine-hundred-million-dollar market Dow already has." Where we see major markets developing in the U. S. economy--markets where Dow has strength--separate sales groups are set up to lead our effort. The packaging market makes a good example. One packaging sales group sells household wraps in the consumer market. They put Saran Wrap and Handi-Wrap on your grocery shelves --and soon will be placing others. Another group, Rigid Packaging, was set up in 1961 to sell rigid plastics containers to food processors, the household products industry, and others. The housewife sees the results in such things as cottage cheese containers, plastic trays for precut meats, and non-breaking plastic bottles for bleaches and detergents. Again, more are coming. The third of these groups, Flexible Packag ing, was organized in 1962 with the sales de partment of Dobeckmun as its nucleus. The group markets all established Dobeckmun products, plus other Dow materials suitable for flexible wrapping needs. Major outlets are 8 i i j_ Z io .o a is ; i in the food processing and distribution indus tries--for items now seen in hardware stores, dry goods stores, and so on. While each group specializes, the organiza tion adapts to market situations. For instance, Dow sells to the industrial packaging market-- where goods must be packaged for movement from one industry to another before reaching the ultimate consumer. This market is served by both the Rigid Packaging and the Flexible Packaging groups. Sales development of new' products and mar kets where Dow holds a unique and profitable position is our favorite method for increasing our share of markets. Given a unique answer to a definite need, the market challenge is that of successfully launching the product. Our 1962 experience in Bioproducts gives good examples. In recent years Dow's Research and Development groups evolved numerous new products that could improve the livestock grower's profit picture. Two of these--Korlan and Ruelene--are insecticides; they destroy cattle parasites that cost the beef cattle indus try millions in losses each year. Korlan and Ruelene, successfully moving into this market in 1962, are already showing significant bene fits to the cattle raisers, and--for Dow--good acceptance as the effective answer to an old problem. Supporting all our field efforts is a broad program aimed at improving the general, fun damental effectiveness of Dow's marketing and distribution. This program runs all the way from testing and trying new developments in management science, to putting computers to use on order and inventory data, to fitting ad vances like "piggyback" trailer-on-train trans port into our distribution net, and much more. The goal is increased sales productivity; the 1962 result was a new high in the dollar value of goods moved to market for each salesman in the Dow marketing organization. In summary, 1962 was the best sales year Dow has ever had--so far. In 1963 w-e expect to hold the gains and build on them. sure, sales were increased for both industrial and special chemicals. In our domestic mar kets, 1962 chemicals sales were more than twelve per cent better than 1961. Late in the year, some long study of this new era of competition led to organizational changes that bolster the marketing power of the Chemi cals Department. In effect, we're setting up specialized, market-oriented sales teams for Dow products for which the key to sales lies in knowledge of end uses and application tech niques--again, so we can be best in meeting a customer's needs. New products Dow introduced during the year included MAPP, an industrial gas to com pete with acetylene and propane; jet fuel addi tives that involve our glycerine and glycol ethers; a brand-new group of chemicals de rived from diphenyl oxide, one of which is al ready established as the raw material for a Chemicals n our chemicals area, Dow's basic indus I trial chemicals caught the brunt of 1962's price drops brought on by domestic and im ported competition. But in spite of price pres Introduced to market during 1962, MAPP industrial gas offers its users advantages over acetylene and propane. 9 CO cd CD r--j GO r-o The wide variety of needs presented by new developments in pachaging lends to wide use for Dow's broad range of plastics. commercial resin; and tetrabromo Bisphenol A, which produces a resin with excellent fireretardant properties. Dow held its rank as a leader in the field of solvents and cleaning agents, adding to its line. Two of these additions were Dowclene 10, an industrial bottle-washing compound, and Dowclene EC, a cleaning solvent tailored to needs of the electrical equipment industry. Dowcarb 65, a very pure calcium carbonate material, was introduced to the paper industry. It is used in obtaining quality finishes on papers. Testing and market evaluation continued on a metallized explosives system developed by Dow. The potential for the mining and quarry ing industry looks good, but more evaluation is indicated. 10 Plastics new hxch in sales, intense price and qual Aity competition in heavv-volume lines, and gains in markets where Dow moves from strength were experienced by the Plastics De partment through 1962. The growth leaders were tailored Dow products for rigid packag ing, film and sheeting, and polymers for coat ings. Individual products reaching record sales volumes included latexes, polyethylene and polyethylene film, epoxies, Roofmate PR, blowmolded wares, and Handi-Wrap. Most of these sales records can be traced to a fundamental Dow strength. Dow's unexcelled know-how on coatings, for example, led to sales of new latexes for maintenance finishes and other new latexes for paper coatings. And still other promising developments are ready for early introduction. We also capitalized on strong research and marketing positions in epoxies. Successful newcomers here included flame-retardant, flexible epoxy formulations and high-temperature novolac epoxies. Our marketing set-up for the packaging field has already been discussed. Practically every form of Dow plastics--resins, films, sheets, foams, coatings materials--has applica tions in this market. Of special interest is the exceptional growth of sales for our Dowpac line of blow-molded rigid containers. Early in 1963 we acquired three plants--at Baltimore, Chi cago, and Tampa--formerly operated by Hoover Containers, Incorporated, as a custom converter for Dow, Dow foam and polymer technology reflects in our advances in construction materials mar kets. Roofmate FR, a tough-skinned polysty rene foam insulation board, contends strongly in the growing market for foam roof insulation. Styrocel large-cell foam interests architects for window and panel use since it transmits light while it also insulates. And in advanced field test is a new' mortar based on Sara bond liquid, promising stronger brick walls--either half as thick or twice as high as conventional mortar permits. The year's heaviest competition for the Plas tics Department was in major molding ma terials, such as polystyrene and polyethylene. Our response was with specialized materials-- including high-heat and improved impact Sty- MILLIONS OF DOLLARS 1000 ------------------- CALENDAR YEARS ron formulations for appliance use. Other spe cialized formulations, as well as completely new polymers, are under development. For polypropylene markets, new grades were introduced during 1962. In an application of its own, Dow entered commercial production of pipe and fittings lined with polypropylene. This complements our established output of corrosion-resistant piping products, Saranlined and Penton-lined. Bioproducts IN establishing the Bioproducts Depart ment, early in 1962, Dow combined as one integrated unit its major programs involving biologically active materials. The goat is to use more efficiently, and more profitably, the tal ents and abilities previously divided among several departments anti divisions. The Bioproducts Department is set up with two broad sales groups: Agricultural and In dustrial Bioproducts Sales, and the PitmanMoore Sales. The former points up something often overlooked--that many of our products important to the farmer fas weed-killers, for instance) enjoy good, and growing, sales to such industrial consumers as railroads, utili ties and highway agencies. O'er the year, sales by Agricultural and In dustrial Bioproducts showed a healthy over all growth. The rate of increase, however, slowed down from the 1960 and 1961 rate. Good profit potential is seen and development work is in progress on new uses, new formula tions and new products. Such development work takes many direc tions. For commercial corn producers, we are combining Dowpon grass killer with our 2.4-D formulations--looking to better economical grn-.s anrl weed control. For the livestock in dustry. simpler application techniques were worked out for our Korlan insecticide. For the homeowner, a Dowpon Grass Killer Bar and Novege all-purpose weed killer were added to our line of lawn and garden products. In still another direction, Dow now operates a poultry research facility at Fayetteville, Ar kansas. This is a commercial-size operation--a valuable tool for continuing experience and practical technical support for our growing* 900 ------------------------------------------------------------------------------ --------------------- 800 ------------------------------------------------------------------------------ ---- I -j 700 ------------------------------------------------------------------- ------ -j 600 ---------------------------------------------- ______ 500 ------------------------- ________ 400 300 -- 200 -- -- ---- -- ---- -- ---- 100- -- -- -- _ ---- -- ---- -- ---- -- -- -- -- --- -- ---- ---- ---- -- -- I -i j 1 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 Income Dollar Distribution FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1962 r ST0304294 * Exclusive of prior year depreciation (Note D) 1 Z - 4 + d r fl 5 - J market in products used by the animal and is now being evaluated clinically by veterinar poultry feed industry. ians. New products introduced in 1962 included Probably the most exciting of the human Ruelene and N-Serve. Ruelene use for cattle health products in Dow's picture is a measles grub control in the U. S. has been discussed vaccine. Many pharmaceutical firms are in this previously. Overseas, in Australia, Ruelene has race. As far as we know, the Pitman-Moore found wide use for control of parasites in sheep. vaccine offers advantages over all others. Clini N-Serve embodies a fresh concept for control cal investigations are progressing and final of soil fertility. It acts to hold nitrogen from clearance of the vaccine with Federal agencies commercial fertilizers in the soil, so that the is expected sometime in 1963. farmer gets benefit from his fertilizer applica j tion over a longer period of time. Dow Crab Grass Killer sales moved up sig nificantly as we expanded our marketing area. Metals In 1962, the Dow product came to be recog nized as the leader in performance among all such products available. Pitman-Moore operations improved substan he 1962 year was one of balance for Dow's Tproduction and sales of magnesium. With half of our primary magnesium plant at Plant tially in sales and profitability during 1962. As B of the Texas Division returned to service expected, we are benefiting as we learn to link early in the year, our total output almost ex the complementing capabilities of Pitman- actly equaled demands. We closed the year Moore groups--such as research and develop with inventory at a comfortable, low level. ment--with similar functions in other Dow Shipments to the aluminum industry, which technical groups. uses magnesium in many alloys, gained sub One example was in the introductory sales stantially in 1962. Magnesium die casting also of Ectoral, a tablet given orally to rid cats and increased but didn't make the volume gains we I dogs of ticks and fleas. Dow research on insec had hoped for in automobile industry use;. ticides originated this compound; Pitman- Aluminum at depressed prices undersells mag Moore research adapted it to small animal uses nesium in this market. for sale to the specialized veterinary market. Cesium, a material for which we have a Similarly, Pitman-Moore is investigating an unique production process, is a space-age metal other product of Dow research--methoxyfiurane. Dow developed it as a superior anesthetic; with potential in fields just now being explored --thermionic power generation and ionic pro Pitman-Moore is adapting it to animal use. It pulsion for space vehicles. If cesium become; 12 1 commercial, we are assured a strong supplier position. sion resulted from a supply contract with a distributing company. The Metals Department program includes study on profit possibilities through applying Dow technology to other metals. Nuclear fuels Dowell are of particular interest. Fibers he dowell division, providing services to Tthe petroleum production industry, faced strong competition--and severe price cutting in some areas--in 1962. In spite of this Dowell UR sales of textile eibers again increased Oduring 1962, with Zefran showing the great est gain. Zefkrome, introduced in 1961 as a fiber particularly suited to use in double knit sales were ten per cent above 1961 results, al though the petroleum industry as a whole gained only four per cent. Most of the sales gain came from Dowell's fabrics, was well received in the fall retail fast-growing cementing service--with 1962 in selling season. The prospects for Zefkrome come almost double that of 1961. Forecasts for sales are good, and we will be ready for in 1963 look to cementing revenues about fifty creased demands with expanded facilities due per cent higher than this year's. for completion early in 1963. Rovana in ready-made household draperies To serve the cementing market, Dowell put ten cementing stations in operation during the is being featured in the 1963 spring catalog year. Other facility additions included a field of Montgomery Ward. laboratory in Wyoming, a new district office in New Mexico, and a truck maintenance build Divisional Operations ing in Kansas. Two new sales offices were opened. A service first offered in 1962 was Dowell Nitrogen and Carbon Dioxide Service, wel comed by oil producers as offering a faster, Brazos Oil and Gas more complete cleanup of wells after treat- 9 Gl i>0 C0 1 S he northernmost oil find in California Twas made in 1962 when the Brentwood Field was discovered--with Brazos Oil and Gas as a one-third partner. More important for Dow, this new field lies close to the Western Division's plants at Pittsburg. The field, as this report is written, includes five successful gas wells and two oil wells. Brazos is making stud ies on how Dow may best benefit from this gas May 31, 1962 source, and is actively exploring for more gas December 3), 1962 in the area. SHARES OUTSTANDING 29,120,120 29,060,983 NUMBER OF STOCKHOLDERS 100,600 100,300 Brazos continued its active drilling and ex Decreate 59,137 ploration program in Louisiana, Texas and California. This involved thirty-seven wells-- Decrease in shares resulted from: fourteen by Brazos alone, twenty-three as joint Acquisition of treasury stock .... operations. Net results were four oil wells, less: I eighteen gas wells, and fifteen dry holes. In Texas, contracts with several gas pro Sales to employees ............... Conversion of 3% debentures ducers were completed and a new eleven-mile pipeline laid to link these sources with the fuel gas supply system of the Texas Division. A I major fuel gas cost saving for the Texas Divi 300 ..................... 84.50C 2,869 22,494 25,36: 59,13: 13 I I h i i1 i i I ment. In most cases, wells treated this way also showed decided increases in production. Dowell is rapidly adding to its equipment fleet han dling this service. The division also broadened its line of prod ucts and materials for marketing to petroleum producers. Some of these, like "Permeator Casing," a new well-completion tool, were de veloped by other firms and Dowell is an ex clusive sales agent. Another, ``Red Thread" plastic pipe, is produced by Dow's associated company--DowSmith Inc.--and Dowell acts as a distributor to the oil industry. Still others originated in Dow research and were adapted to Dowell markets by Dowell research, which has also brought out a good share of the divi sion's specialized products and equipment. Petroleum industry forecasts for 1963 are for business to remain at 1962 levels, and for reduced new investment in the U.S. Dowell will go after higher sales with new services and products--as well as competing in established operations. Dowell Schlumberger Corporation, the over seas partnership of Dowell and Schlumberger Limited, had a twenty-five per cent sales in crease in 1962. Operations were expanded in Europe, the Caribbean, Africa and South America--with entry in new areas of Africa and the Far East pending. Dowell is support ing this growth with service equipment and technical assistance. Dow Industrial Service ore and more American industries are dis M covering the time and money savings in chemical cleaning of process equipment. As a result, Dow Industrial Service had its biggest 1962 sales gains through this line of its serv ices. Total sales for the year were fourteen per cent above 1961. Even better, the division's profit improvement for the year increased at even a greater rate than sales. cn ~\ CP CP While industrial work increased, work on missile cleaning services fell off, particularly in the late months of 1962. This decline fol lowed some extensive changes in government requirements for missile base services. ro CO A stronger research and development pro gram was set up for the division this year, with emphasis on our work in water and waste treatment. From past research, a new line of flocculants was introduced to water and waste treatment markets. Potential in these markets is large, and Dow Industrial Service is moving our products and services to them through in tegrated marketing programs. Mut iny in jor a job 0/ chemical cleaning of pro cess equipment, a Dote Industrial Sendee truck arrtres in the Texas Dnision styrene plant. Dow Metal Products ales volume of The Dow Metal Products S Company Division climbed nearly twenty per cent during 1962--in highly competithe markets for both aluminum and magnesium, and in spite of continuing price pressures. At the same time, the division showed improved productivity by lowering production and sales costs. Aluminum sales scored the bulk of the gains. The plant at Madison--where we expanded aluminum facilities in 1961--produced extru sions at near-capacity rates, and moved into production of plate stock. Sheet stock output at Jackson continued at good capacity, about as anticipated. Military markets for aluminum, particularly in ballistic plate and extrusions, had good growth. At the same time, our commercial mar kets--for applications in lawn furniture, tele vision antennas, building products, railroad cars, and packaging--showed increases. Magnesium sales tended to level off during the year. The big factor here is the gradual phase out in some major military applications of magnesium. Commercial uses, however, are showing increases--particularly in luggage, in tooling plate for industrial use, and in tread plate for materials handling equipment. Magnesium use in the graphic arts is ex pected to expand through recent development of new Dowctch chemicals. These permit a one-step engraving process with magnesium photoengraving plate. For the future, The Dow Metal Products Company expects continued growth hut at a slightly lower rate. Aluminum sales, with such potentially large markets as household siding, should keep pace with further production in creases at Madison. Aluminum extrusions produced by The Dow Metal Products Company arc finding increased use in the transportation industry. Shipments of these products reached a rec Dobeckmun ord level in calendar 1962, with a slight rise from 1961. Several promising new uses for Dobeckmun-produced materials appeared: ith the setting up of Dow's Flexible Trycite film for field-wrapping of fresh produce WPackaging Sales group, the Dobeckmun gained rapidly; major coffee packers are in Division becomes almost exclusively a manuterested in a packaging system that uses Dura- facturing division. Its only sales activity, highly film; ``chub" food packages--ranging from one specialized, is in Ben-Mont's gift wrap field. that uses double-wound Saran to pack ground The division operates at ten locations, in beef to a Polyfilm formulation for packaging cluding three plants added early in 1963. ice cream--provide a growing market. Through Dobeckmun. Dow manufactures Expansion in 1962 included added capacity plastic films: it converts paper, foil and plastic for making Trycite polystyrene film at the films into flexible packaging materials; it pro Brookside plant in Cleveland. Work began duces rigid packages--lm `down bottles and early in 1963 on a general expansion oi the formed containers. Fresno, California, plant. 15 i STC0C4298 A General Operations Dow's sales and profit gains in 1962 have a direct relation to our production capabil ities. We were able to fill larger orders by run ning our plants at higher output rates. And with higher output, our unit costs of produc tion tend to become lower--which helps in meeting price competition. An important part of these capacity in creases resulted from improved operating tech niques devised in one or another of Dow's man ufacturing divisions. In short, our people con tinued to find ways to get more pounds of product from present equipment. No specifics are given here on these improve ments; they represent valuable competitive know-how. But we cite them as typical results of our Company-wide effort for better produc tivity. Employees at all locations have been, and are, contributing to this goal with ideas that reduce costs, suggestions that eliminate Adding to Don's broad capabilities in piuctio Division. Placed in service in 1962, it lor i polyethylene s of c waste, proposals that smooth out procedures, and plain old-fashioned hard work in their indi vidual assignments. The total impact on Dow's over-all cost trends has been a very real factor in improving our ability to compete. Dow's expansions and additions to plant and other facilities represented investment of S69 million in calendar 1962. For the 1961 year, such investment w-as $115 million. During 1963. we expect to put about $60 million into newr facilities--mostly to begin production of new or unique products. The following paragraphs present some 1962 highlights in the operations of various Dow divisions. The Midland Division's sales increase for the year was accompanied by continuing produc tivity gains. Commercial shipments of a new high-purity bromine, had good customer ac unit processes a purchased raw material mix ture to produce benzene for Midland Division production uses. A first during the year was the loading of a ship with 5.100 tons of bulk cal cium chloride--a full cargo that moved from Bay City to Labrador. Similar loadings are ex pected for troth Bay City and Ludington in the future. The Ludington plant reached a record high level of output late in 1962. This plant is Dow's source for another new product introduced this year, Dowcarb. The product is a high-purity calcium carbonate used in coating papers. At the Hanging Rock plant, facilities for output of Ethafoam polyethylene foam were completed and put into service. Market de mand for Ethafoam is growing rapidly and this unit gives us ample capacity to handle the GO co o> ITCJ r-o CO CO ceptance; this latest development in the Com pany's first product has also meant cost and efficiency gains in our own process uses. growth. In the Texas Division, capacity increases were completed for chlorine, epoxy resins and A new plant at Midland is producing iodine ethylene diamine. New facilities placed on from Michigan brines by a process which is a Stream during 1962 added anhydrous liquid major technical achievement. One of Dow's hydrogen chloride and powdered polyethylene new products coming from the division is car to the division's product list. bon tetrabromide. introduced to industrial Major renovations included those made in markets this year as a chemical intermediate. resuming output in four of eight magnesium The Bay City plant began operation of a new hydrodealkylation unit in early 1962. This cell buildings, last previously opera ted in 195$. Anti, for greater production efficiency, evapo- 16 I '` `ies in pjich'orc is this new plant in the Louisiana 1962, it`or versatility--to produce high-density ethylenn of ethylene. rators in one of the caustic soda plants were n replaced. e In development activity, the Texas Division 1- completed a new pilot plant for studies on a n unique method of making "sandwich" foam panels. e The Western Division began operating a new phenol plant at Kalama, Washington, late in h the year. This plant utilizes a new Dow-de veloped process. At Torrance, capacity for high-impact Stvron was increased to allow the division to completely serve West Coast mar kets. N-Serve, an outgrowth of Western Divi sion research, is being produced in develop mental volume at Pittsburg. The Louisiana Division reached a record high in product shipments during 1962. Pro ductivity gains--through operational efficien cies and. most particularly, improved man power utilization--also continued. i Two new units, an ammonia plant and a high-density polyethylene plant, were com pleted and began operation. Work is in pro gress on other production facilities: a mercury cell plant for chlorine and caustic soda, sched uled for completion in late 1963: and just be ginning, a major expansion of capacity for ethylene output. The Rocky Flats Division, through which Dow operates a production facility as a con tractor for the Atomic Energy Commission, expanded its facilities and the scope of its work during 1962. In various phases of plan ning or construction are shop, processing and laboratory facilities--the latter to increase capability for longer-range research projects in metallurgy, physics, chemistry and analytical support of AEC work. By a new contract signed in August, 1962 Dow's management of the Rocky Flats installation has been con tinued into 1967. The 1962 work load of the Engineering and Construction Services Division came from six teen different Dow divisions and affiliated oper ations. Two projects engineered for associated companies were a caprolactam plant expansion for Dow Badische Chemical Company at Free port, and a manufacturing facility which DowSmith Inc. plans to locate at Little Rock, Ar kansas. The future goal for the Engineering and Construction Services Division, set this year, calls for its development as the principal engineering arm of Dow--handling most major projects for capital additions, and supporting divisional and plant engineering staffs. Subsidiaries liffs dow chemical company had steady C operations through 1962. Output of hard wood charcoal briquets was at capacity, and a marketing agreement was completed whereby Dow's Consumer Product Sales will handle this output nationally. Markets for Maltol, a flavoring compound from wood distillation chemicals, increased to require added recovery equipment. Cliffs Dow has also become the key supplier of natural denaturing compounds for ethyl alcohol producers. ow chemical of CANADA, limited, had an D active year in 1962--highlighted by bring ing into full production two major new chemi cal plants. These are at Ladner in British Co lumbia and Fort Saskatchewan in Alberta, extending the Company's chemical production from Sarnia into Western Canada. The Ladner plant produces benzoic acid and phenol. The Fort Saskatchewan plant pro duces glycols, amines, Dowicide products and herbicides--and has a sodium pentaehlorophenol plant under construction. These 17 0Ce 10 91 ,H s units have idea) locations for service to cus tomers in the growing economic area of West ern Canada. Early in 1962 all Dow activities in Canada became part of Dow Chemical of Canada. The Company now operates through five depart ments: Chemicals, Plastics, Dowell (including Dow Industrial Service), Bioproducts (includ ing agricultural chemicals and the PitmanMoore pharmaceuticals and veterinary pro ducts), and Converted Products (including Bradshaw's). This pattern points to major operational economies, should foster diversified growth in Canada, and permits maximum ben efit from the supporting research, technical and staff services we have developed at Sarnia. - Sales for all groups were well above 1961 levels last year. Partly, this resulted from Canada's general economic growth; but an intensified sales effort was also reflected sig nificantly in the over-all twelve per cent gain achieved. In August of 1962 Dow Canada acquired Davenport Containers Limited, a manufac turer of rigid plastic containers for the food in dustry. This operation is now part of the Converted Products department--providing an outlet for Dow resins and a source of technical data valuable in serving the entire rigid con tainer industry. New facilities in construction include plants for Styrofoam and Roofmate FR at Toronto and a propylene products plant at Sarnia. These, and the new unit at Fort Saskatchewan, are scheduled for completion by mid-1963. Serving the growing economy of Western Canada, this Dowicide unit is part of the Fort Saskatchewan plant w'hich Dow Chemical of Canada, Limited put into production during 1962. Associated Companies Dow corning corporation, owned jointly with Corning Glass Works, has completed twenty years as the world's first and largest producer of organosilicon chemicals and sili cone products. In September of 1962 Dr. Shailer L. Bass was elected President, succeed ing Dr. W. R. Ceilings who became Honorary Chairman. John L. Hanigan, formerly a Vice President of Corning Glass Works, was named a Dow Corning director and was elected Ex ecutive Vice President. A divisional pattern of activity was adopted by Dow Corning during the year. This aims at better service to customers in the fields of engineering materials, chemical specialties, consumer products, medical specialties and electronic materials. The firm's Hemlock, Mich igan, plant for hyper-pure silicon made signifi cant advances in quality and size of polycrystal and single crystal silicon--the work-horse ma- j terial for making semiconductor devices. Dow Corning is firmly established as a competitive supplier of silicon of superior quality and per formance. Growth at Dow Corning has come from in- I tensive research and development in the chem- l istry of silicon, and the foundation for this is 1 being enlarged. Increased emphasis is shorten- j ing the time between laboratory and market . place, to complement the firm's program of | identifying, developing and marketing new I products with high potentials for growth and ' profitability. --1 CD CO CO CjO I 18 thyl-dow chemical company, owned E jointly with the Ethyl Corporation, oper ated at rates significantly below capacity in 1962. Repair of plant damage from 1961's Hur ricane Carla was completed early in 1962, with small effect on profits. The major factor in Ethyi-Dow's market outlook continues to be decreased demand for the gasoline anti-knock fluid for which the firm produces an additive. International eferences to international operations in R this report cover all of Dow's activities out side the United States and Canada. In twentynine overseas nations and territories Dow, either directly or in association with local part ners, conducts manufacturing, sales and service operations. Dow's 1962 sales in overseas markets were held to 1961 levels after several years of rapid growth. This resulted from factors we have DOW BADISCHE CHEMICAL COMPANY is jointly owned with BASF Overzee N. V. The firm began operating new caprolactam facilities at Freeport in May, 1962 and is already expand ing to meet market needs for this major raw material for Nylon 6. The plant addition is scheduled for completion in early 1964. Other Dow Badische units at Freeport pro duce synthetic butanols and acrylates. Raw materials for these are delivered by pipeline from the Texas Division. known for some time in our home markets: in tensified competition based on overcapacity and leading, for several major products, to severe price drops. Our marketing of plastics in Europe ran into another complication when a forty per cent duty was placed on polystyrene and poly ethylene made in the U. S. This was the an swer of the European Economic Community-- the EEC or Common Market nations--to an increased U. S. tariff on glass and carpets from Europe. In 1963 we expect to see our sales growth resumed in overseas markets. Continental Europe and the United King dom make up the most important single area owsmith inc., owned jointly with the A. 0. D Smith Corporation of Milwaukee, made significant progress over the year. DowSmith now stands as an established producer and mar keter of glass-reinforced epoxy pipe and fittings for the petroleum and gas industries, and cus tom components for the electrical and machine tool industries. Development, field-testing and marketing of new products is moving well. in our international business. Over the past year we completed steps to consolidate our activities in these markets as a single organiza tion to operate as a full-line business. The or ganization thus handles manufacturing, distri bution. technical service and accounting func tions as well as marketing--with all its work and staff oriented to European and United Kingdom requirements and opportunities. Major product of DowSmith at present is The growth of Dow's production activity Red Thread pipe. This trademarked product is a unique composition of continuously wound in Europe obviously has been largely due to the rise of the Common Market. Our develop glass filaments in a thermoset epoxy resin. The ments here were planned long before Britain pipe is an optimum blend of strength, light weight, corrosion resistance and general service effectiveness under extreme operating condi tions--especially in the petroleum production, gas distribution, and chemical industries. moved to seek membership in the EEC, so our plants are located on the basis of the six origin al members--Belgium, France, Italy, Luxem bourg, The Netherlands and West Germany. For some time we have been organized to do DowSmith, after long study of raw material source locations and major potential markets for its output, selected Little Rock. Arkansas, as the site of new production facilities. Plans call for construction to begin in early 1963 and occupancy in 1964. business separately in Britain through a wholly owned subsidiary in the United King dom. Thus the recent failure of Britain's bid for Common Market membership does not affect our short-range investment plans. Should Bri- STC0G4302 19 Facilities in the new Chemical Physics Research Laboratory at Midland include this battery of Dow-designed instruments for infrared spectroscopic anal ysis work. ii tain continue outside the Common Market our long-range plans would be adjusted by the Among promising growth areas for inter national business, bioproducts sales deserve EEC's smaller ultimate size and the need to special mention. Dow bioproducts, now sold in make separate arrangements for Britain. eighty-eight countries outside the U. S., have Good progress was made fluring 1962 to had a doubling in sales volume in four years. ward expanding overseas manufacturing facili This growth has been supported by a doubling ties: of our distributor network and the staffing of --At Ternctizen in The Netherlands work key overseas sales and development positions on a petrochemical complex is moving on sched through Dow employment of highly qualified ule. Plans have been broadened to include nationals of the countries involved. plants for Styrofoam and Roofmate produc Although developed for temperate climates, tion, plus a polystyrene facility to feed those Dow bioproducts are also well suited to needs plants as well as to supply customers in Bel in tropical and semitropical agriculture. Dow- gium. Luxembourg and The Netherlands. pon finds extensive use for weed control in rub- (jy -- In Spain our jointly owned company, her, banana anti sugar cane plantations; Rue- __j Dow-Unquinesa. is expanding facilities for ti lene controls tropical cattle grubs; Dow `oil cm tanium pigments and will bring a polystyrene fumigants improve pineapple, tobacco and cm plant on stream in 1963. Through a new joint vegetable crops in many parts of the world. o venture. Envases v Recubrimientos S. A., we will utilize Dow know-how in the manufacture and marketing of flexible packaging materials. --At Livorno in Italy polystyrene output Research -i=~ co <= to is expected to begin in April, 1963. This plant's aggressive creative activity in research rapacity was expanded during construction, serves as Dow's wellspring. After flowing causing some delay in original plans. At Lav- progressive, productive and profitable ideas for rion, Greece, a new polystyrene plant began more than sixty-five years, our research stream protluction in 1962. grows and broadens in output. --In Japan our oldest overseas joint ven During 1962 a total of -101 patents was ture. Asaht-Dow- Limited, expanded its poly granted to Dow inventors, and 757 new- patent styrene plant and began operating a plant for applications were filed. At the end of the year Styrofoam. During 1963 Asahi-Dow expects Dow held 2,996 U. S. patents and 4.303 patents I to complete anrl bring on stream expanded granted by other countries. plants for styrene and Saran Wrap industrial Market results of past research had several film, plus new units for polyethylene and forms. These included new products which at stvrene-butadiene latex. tained sales volume of 350,000 or more this i * year--among them a hog cholera vaccine in the animal health field; an industrial solvent, car bon tetrabromide; and a heavy-gauge plastic film for use in packaging. Significant contribu tions in product improvement ranged from new high-impact plastics and better flocculants to plastic foam developments for packaging. Still another area was research to tailor the proper ties of products for specific end uses of cus tomers. New laboratories completed and put into service during the year included the Chemical Physics and Radiochemistry Laboratories at Midland. In the Western Division, scientists moved into new quarters at Walnut Creek. New laboratories also were completed in the Texas Division. A major computer installation has been scheduled for Midland. During calendar 1962 the research organiza tion moved to further strengthen Dow's over all research efforts and to improve productiv ity. A research advisory board was established to assist in evaluation of research activities. In Dow's research effort, improvements in facilities, equipment and organization serve as tools for the creative process. The goal is that each new idea find the opportunity to develop, to nurture on the stream of Dow experience, and to contribute to the future. Industrial Relations he principal effort in Dow's 1962 Indus Ttrial Relations activity turned on long-range personnel planning. This seeks a double goal: for Dow as a whole, to bring to bear in our operations the full potential of our key re source of skilled and talented employees; for the individual employee, to structure each job assignment and the total organization so that he may develop and apply his capabilities, and advance by his performance. One part of this effort emerges as a broadened program of intraCompanv personnel transfer. As we move into new and diverse competitive fields, our techni cal and managerial needs expand--and we meet those needs almost exclusively by transfer of employees who have gained background and experience elsewhere in Dow. At year's end. Dow employed approximately 30.600 persons. When employees of domestic and foreign associated companies are included, this employment total is about 38,750. These figures reflect our sale of Campana Corporation to Purex Corporation, Limited, sale of our Bay City fabrication plant to Magnesium Aero space Products, Inc. and Dow Chemical of Canada's purchase of Davenport Containers Limited. Employee relations activity during the year included negotiation of sixteen new contracts with labor organizations. These contracts have an average duration of two 3'ears. There were two work stoppages--at Rocky Flats and at Ben-Mont Papers--in connection with nego tiations. No stoppages involving existing con tracts were experienced. Membership in the Dow Pension and ProfitSharing Plans increased to 15,473, a new rec ord. During 1962, there were 136 retirements under terms of the Plans. Assets of the Plans now exceed $125 million. Dow sets its Company-wide safety require ment in these words: "The objective of safe efficient operation is the only acceptable stand ard.'' Our on-the-job safety record is good-- but constant attention goes into programs to try for perfection. In 1962, four Dow locations extended their records for operating without any disabling injuries to employees: Allyn's Point to twelve years; Rocky Flats, seven; East ern Research Laboratory, six; and Hanging Rock, five years. Texas Division employees further improved their safety performance. In 1962 they held disabling injuries to a record low of 1.96 per million hours worked. Noteworthy improve ments were made by Dowell and Dow Indus trial Service employees. At the Midland loca tion, a 1961 uptrend in injuries was reversed in 1962. The best relative improvement in safe ty was made in the Dobeckmun Division, which earned the Dow President's Safety Award for the year. Dow marie grants of funds and materials totaling more than one million dollars as aid to education during 1962. This included sup porting scholarships, fellowships and grants for more than 200 students attending 65 colleges and universities. Funds given through our Matching Grant Program were at a record level. In this program Dow matched the gifts of 1,454 employees who gave $54,449.61 for higher education. 21 i ST00G4304 THE DOW C H E M I c A jj 1962 Current Assets: Cash ....................................... Marketable securities--at cost Accounts and notes receivable: Trade, less allowance for doubtful accounts.......... Miscellaneous........................................................... Inventories--at lower of cost or market........................ S 25,538,560 17,739,035 128,263,257 19,470,819 165,417,014 $ 356,428,685 25,657,427 12,991,104 140,951,451 17,759,820 162,607,308 $ 359,967,110 Investments ami Non-Current Receivables: Capital stock of subsidiary companies not consolidated (at cost, less reserve) (Notes A and B )................ Notes receivable and capital stock (at cost) of associated companies (Note B).......................... Non-current notes and accounts receivable and sundry investments................................................. S $ 4,739,192 S 39,037,248 32,275,835 76,052,275 $ 5,729,602 36,573,496 23,7S3,232 66,086,330 GO Properly--At cost: Plants and other properties........................................... Less--Accumulated depreciation, amortization, and depletion ......................................................... S 1.254,951,690 677,041.320 $ 577,910,370 SI.239,299,793 624,320,000 $ 614,979,793 GO CD cn Patents--At cost or nominal value, less accumulated amortization.......................... Prepaid Expenses and Deferred Charges........ TOTAL 22 See notes to financial statements on page 26. $ 2,327,996 $ 2,355,592 $ 8,774,481 $ 11,948,048 $1,021,493,807 $1,055,336,873 ES 9 0 ;<0 0 0 1 S . $ 93,911,252 3,000,000 41,651,091 31.339.060 57.223.061 $ 227,124,464 $ 8,500,000 37.500.000 11.234.000 13,872,832 75,000,000 $ 146,106,832 $ 1,275,401 Common Capital Stock (December 31, 1962-- issued, 29,145,483 shares) . Z?.Z. . ................ Capital surplus ............................................................... Earned surplus ............................................................... Less--Treasury stock, at cost (84,500shares)............... $ 145,727,414 439,422,026 117,709,515 $ 702,858,955 4,071,548 $ 698,787,407 $ 145,600,601 438,428,248 96,801,327 S 680,830,176 $ 680,830,176 TOTAL.................. $1,021,493,807 $1,055,336,873 See notes to financial statements on page 26. 23 THE DOW CHEMICAL COMPANY AND SUBSIDIARY COMPANIES FOR THE SEVEN MONTHS ENDED Sales anti Other Revenue: Net sales........................................................................... Dividends received from associated companies.............. Interest income............................................................... Fees from operation ofGovernment-ownedplants .... Other income................................................................... $ 542,714,058 4,061,985 1,373,433 672,917 7,313,631 $ 556,136,024 Costs and Other Charges: Cost of sales*................................................................... Provision for depreciation, amortization, and depletion (Note D) ......................................... 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 (Note C) ............................................... $ 334,689,658 57,046,315 7,308,909 60,525,933 5,077,287 3,853,791 26,467 39,750,000 508,273,360 Earnings for the Period $ 47,857,664 Special Items (NoteD): Depreciation applicable to prior fiscal year, less income tax benefit therefrom, $4,762,950 .............. Reduced income tax provision for prior fiscal year arising from investment tax credit......................... Earnings for the Period less Special Items ............................... S 4,396,570 (716,271) 3,680,299 $ 44,177,365 ' Exclusive o( items shown separately. See notes to financial statements on page 26, 24 THE DOW CHEMICAL COMPANY AND SUBSIDIARY COMPANIES FOR THE SEVEN MONTHS ENDED Capital Surplus: Balance, June 1, 1962 Additions: Excess of selling price over par value of Common Stock issued to employees................................ Excess of face value of debentures over par value of Common Stock issued on conversion.......... Balance, December 31,1962 ............................................ S 438,428,248 $ 148,246 845,532 993,778 $ 439,422,026 Earned Surplus: Balance, June 1, 1962 .............................. Earnings for the period and special items Total Cash dividends.......................................... Balance, December 31, 1962 .................. $ 96,901,327 44,177,365 S 140,978,692 23,269,177 $ 117,709,515 See notes to financial statements on page 26. A Principle! of CaiKolidorion The consolidated financial statements for the seven months ended December 31. 1962 include the ac counts of the Company and all of its domestic and foreign subsidiaries except for those located in Mexico The accounts of foreign subsidiaries have been con verted generally at official or other appropriate ex change rates. g Subudiory Componitt Not Cooiotidoted ond Aitocioltd Componitf At December 31. 1962 the Company's investment at cost, less reserve, exceeded its equity in the com bined net assets of subsidiary companies not con solidated. as shown by their financial statements, hv approximately $300,000 The Company'.-, equity in thi* combined net loss of these companies was approximately $200,000 for the seven months ended December 31, 1962. The Company's equity in the combined net assets of associated companies 150% owned), as shown by their unaudited financial statements, exceeded rhr Company's investment at cost by approxi mately $10.200 000 at December 31. 1962. The t'mi|ianv\ equity in the combined not income of flic-e companies was approximately $3,600,000 for the seven months ended December 31. 1902. ^ Investment To* Credit The Revenue Act of 1962 provides for a credit against income faxes payable equal to varying per centages of the cost of qualified property leased or acquired and placed in service after January 1, 1962. with corresponding reductions in future tax deductions for rents and depreciation In account ing for the investment credit. 48% thereof, repre senting the estimated permanent reduction in in come taxes payable, has been credited to the current provision for income taxes, and 52% has l>een deferred to be amortized over the life of the assets. The investment credit for the seven months ende<i December 31, 1962 amounted to $1,350,282, of which $648,135 has been treated as a reduction of fav expense. D Special items Subsequent to closing the accounts for the Com. pany s fiscal year ended May 31, 1962. the United States Treasury Department liberalized its rules pertaining to allowable depreciation for Federal income tax purposes. As a result of this action, the estimated lives of depreciable assets were reviewed and where it was deemed reasonable to do so revi sions were made in the lives of cerrain assets for both tax and accounting purposes, effective as of June 1. 3961. Such revisions resulted m a net charge of $4,396,570, representing an increase in the provision for depreciation for the fiscal year ended May 31, 1962 of 59,159.520. less the com puted reduction in income tax arising therefrom of $4,762,950. The investment credit (described in Note C) for the period from January i to May 31, 1962. which was recorded during the seven months ended De cember 31. 1962. amounted In SI.492.230. of which 48%, or $716,271, was a reduction of Federal in come tax expense for the fiscal year ended May 31. 1962. Both of the foregoing adjustments for the preced ing fiscal year have been treated as "special items" in the Statement of learnings and have been oxduiled in determining the results of operations for the seven months ended December 31. 1962. The above-described revisions in the lives of depreciable assets resulted in an increase of approxi mately $3,600,000 in depreciation for the current sexen months ended December 31. 1962 E Long-Term Dbl The promissory notes, which are payable to insur ance companies, bear interest at 2.7% and 3.25% per annum, and are due January 1. 1972 and July 1, 1977. respectively, with prepayments due annu ally. The 3% convertible subordinate debentures are convertible into Common Stock and are due Julv l. 1982. The 4.25%, bonds which were issued in the amount of 60.000.000 Swiss francs by a Swiss subsidiary 26 are due November 30. 1971, but are redeemable at the option of the issuer prior thereto under certain conditions at specified rates of premium. The bonds are guaranteed as to principal and in terest by The Dow Chemical Company Notes payable to banks at December 31. 1962 con sisted of indebtedness under a credit agreement which provides for a maximum credit of $100,000,000 with interest governed by the prime rate for ninety-day maturities. Borrowings thereunder are evidenced by ninety-day notes which are renewable at the option of the borrower with final ma turity as of October 1. 1964. p Stockholder*' Interest As of December 31, 1962 the authorized Common Stock consisted of 50.000.000 shares of S5 par value each. There were 29.060.983 shares outstanding, after -deducting 84.500 shares of treasury stock. As of that date 219.807 shares were reserved for conversion of convertible debentures, and 117.487 shares were reserved for issuance under stock op tion plans. At the beginning of the current period 147,104 shares were covered hv outstanding options under the optmn plans. During the period 2,869 shares were purchased by employees and options on 26.748 shares expired. The shares covered by op tions at December 31. 1962 consisted of 99,206 shares under the Key Employees Stock Option Plan at prices ranging from S55.38 to S90 63 a share, which represented the highest prices of the stock on the New York Stock Exchange on the dates the options were granted, and 18.281 shares under the Substitute Stock Option Agreement for former Allied Laboratories. Inc. employees at prices ranging from 533.31 to $67.17 a share. On February 5. 1963 the Board of Directors de clared a dividend on the Common Stock of one share of Common Stock for each fifty shares held, payable on May 8. 1963 to stockholders of record as of the close of business March 20, 1963. Q Commitment* end Contingent liobililiet Contingent liabilities at December 31, 1962 in cluded guarantees of loans of approximately $12.600.000 for employees' housing, construction of fa cilities. and other purposes; agreements to make future loans in the amount of S3.900.000 and for retirement payments to certain officers in a maxi mum amount of SI.500.000; and guarantees of rental income from housing projects. ST 0 0 0 'i 3 I 0 HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS RESIDENT PARTNERS HAROLD W SCOTT. CPA E R08E9T BILLINGS. C P. A. CHAUNCET A NORTON, CPA ROLANO E PING. CPA. FIRST NATIONAL BUILDING DETROIT 26 THE DOW CHEMICAL COMPANY: We have examined the consolidated balance sheet of The Dow Chemical Company and it? subsidiary companies as of December 31, 1962 and the related statements of consolidated earn ings and surplus lor the seven months then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the account ing 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 December n 1, 1962 and the results of their operations for the seven months then ended, in conformity with gener ally accepted accounting principles applied on a hasis consistent with that of the preceding year. March 1, 1963 HASKINS & SELLS 27 c/j t3 *--* 2 < c- S o o >- a < O r--4 4-5 r"< O O o C/D CQ D CO Q 2 < > 2 < S 0 u < u 1 K OC u G rH Pn *S 4W-J c o> 5 a> -u co OD Q) _> '*2 03 5- co a E o CJ o Q xta ** 0) X c a? C o U 28 cCoD o--q CO c*0o* C! h Cl CO CD eo O -- CM O lO O cc fi cp m r** co cc c- to ob K CO Cuol olO CD to CcMm C6O co v CM ^ t- >< CD O UD 5 4/> < Cl -- CM Cl O CM 4 tfi CC oi ci v 4 01 U5 *- I-- uo io u: to w Xcumi <cCocD CC--Di CM D r- -- Cl CD a 0i n CJD: 0X1 P--5 Cro rnr ob ro cm -- CM D O faO -- co CD -- X~ X o Cl CD O 'r CM cO i-D ~ cd cm T CO Cl -- -- X CO uj CQ 5 Ui U ^Xr* 'ciOC? tcxs- r0tC-t -- -- co d Cl cc CM -- do ro O X CM -- c cr. -- -- -- co r- c oc -- Cl D IT. OO C--D tO p- z= r-c Ti S- o Vs fe Z .= H - * D V to X 2. z ,z <-- >3 v c r "**- w: e3 r Z i ?5 3 U -z u zo H. o <St 3 --< & 5 MIS> ZUI <2 *5 zI > O 5 s. j o E - co X z- ~H uo CD CD oz CD 5 2 o CO u t C/3 W 5 < p- 2 o o < cn a </) Q 2 < > < c- 2 O u J < o CCG bJD 2 w H 6 o cb Q WB 'o w -o C 0) E a; -o C3 -o CO o > 3 2 Cy a E 6 "a C M c qj o c 6 5 8 05 * -- s- oz PO " i- > SK ^ ^ U0 o r o* -- -- w oo * r- J S" r r- s: o o ^ pi O TM oi X -- rr a*, r- t 05 ts* co - pi oi C w NX *C CM N ^ n >f f n CO 6 f* N cc W r* X I- cm *- x t* t-* oo -G co tp to 00 CM tt T* --i ff) TT ffl o -- up in v s 25 m *** >u . -- O T ~- a* - n w cm W --01 rd o C x -- X CM up r- -- n x o OO >-- ccXoi or, lo c---i x-v txo X CM 3 Z Ui > Ui oc DC Ui X o- az < 2C _c O at n q q < M U JX X - rt W U EI X -- --c - -- X o o O .=C t:- c? 3* 2 = -- -- ore zQ ft re _ < < c .O v u . r= (CT ^- _C=t o GCcJil-CH u < Ui >Ui X uozi c oo co oo cm o 6co n cm oi in n x -- c cm x c- ~ r- o CM cm 09 111? g vT -- xx -- c X -- CM c?>i re <* X X CM CM re - 6* u >, S " Jc 2'7^ re-- *01 o r* v cj cm o X oi N 6 X cm ~ rp a n rt v y; 3 CM -1 l> X O ro n t: cwo --n ccii oE| = S2=^ C- ^ - X C .= >! D C 3 C* " uEc .. 3i KlSB.i !r w'C'r 2oB tc ^ri3e-E-1.*e^cT--re G>S'o 4, OS 0 h- x -- m T d TT c. M o o -- eo >r r o cm cn cm CM -- F- =5"e - l|.ic CQ C-- U 2 r|>< I t CM ~ rf o x -- e * r a e =. ! = = re * i X/ i- c I S cS ScS^I >v - ^ S l. c r~ = rT - c c. -* o * 0 <J ;tf} c "c 0 ^ -2. o2 JL i>> e c g JJ -2 -S. ~ a. .>r rCPJ >.re j>i ej --2 ^? c" c w ., > *3 J: - ^0 troe ^ - re" ^a 5- > CJ z < ai ? = .s&= ^ tre tE C> ure q re -- o J- r x.i_ HS0 alii 1111 OO --I cn CD cn co 1^0 29 mnpi Radiation Drives Dow Process Shielded within a transfer device, a charge of radioactive cobalt-60 is placed in the new ethyl bromide unit in Dow's Midland Division. Energy given off by the cobalt-60 initiates the chemical change in the process--the first such use of radiation energy in q commercia(-st2e plant in the United States. he atomic ace has entered a new commer Tcial phase as a result of successful research by Dow scientists. From that research has come the nation's first commercial-size plant using the energy provided by radioactivity as a pro cess medium in a production application. De velopment work was completed in 1962 and, early in 1963, the process was put on stream to produce ethyl bromide at Midland. Previous uses of radiation in chemical processes have been limited to such purposes as modifying the structure of plastics. The Dow application, termed by the Atomic Energy Commission a major and long-sought breakthrough, uses radiation from a cobalt-60 source to initiate and sustain chemical change. Raw materials given controlled exposure to the radiation go through a chemical change and, in this particular process, yield ethyl bro mide. The product is completely free of in duced radioactivity; no radiation is present in it. The cobalt-60 acts as does a catalyst--caus ing the chemical change to occur, rather than becoming any part of the product. Dow has made and sold ethyl bromide /or many years. The compound has numerous uses as an intermediate in organic synthesis. These markets will now be supplied entirely by the output of the new process. In sales, ethyl bromide ranks as an impor tant Dow product but not a major volume item. Thus the immediate commercial impact of this productive process use of radioactive energy is not large; but for the future of indus trial chemistry, the significance of this Dow research feat can hardly be measured. i r ST0 0 043 I 3 30 Offices and Operations DOMESTIC FOREIGN California, Berkeley, Fresno, Pittsburg, Seal Beach. Torrance Colorado, Rocky Flats Connecticut, Allyn's Point Florida, Tampa Hawaii, Honolulu Illinois, Chicago. Madison Indiana, Indianapolis, Zionsville Louisiana, Plaquemine Maryland, Baltimore Michigan, Bay City, Jackson. Ludington, Marquette, Midland Missouri, Riverside Ohio, Cleveland, Findlay, Hanging Rock Oklahoma, Tulsa South Dakota, Sioux Falls Texas, Freeport Vermont, Bennington, Wells River Virginia, Williamsburg Washington, Kalama Bay Refining, Bay City, Michigan Brazos Oil & Gos Company, Houston, Texas Dobeckmun, Cleveland, Ohio Dowell, Tulsa, Oklahoma Dow Industrial Service, Cleveland. Ohio The Dow Metal Products Company, Midland. Michigan Pitman-Moore Company, Indianapolis. Indiana Dow Bodische Chemical Company, Freeport. Texas Dow Corning Corporation, Midland. Michigan DowSmith Inc., Milwaukee, Wisconsin Ethyl-Dow Chemical Company, Freeport. Texas /< I 0VOOO1S Algeria Argentina Australia Bolivia Brazil Canada Colombia France Ga bon Germany Greece India Iran Italy Japan Kuwait Libya Mexico The Netherlands Spain Spanish Sahara Switzerland Trinidad Tunisia United Kingdom Venezuela Sales Offices EXECUTIVE AND GENERAL SALES OFFICES MIDLAND, MICHIGAN the DOW chemical COMPANY Atlanta 3, Georgia, 618 Fulton National Bank Building Boston 16, Massachusetts, 520 Boylston Street Buffalo 2, New York, 70 Niagara Street Camden 2, New Jersey, 400 Market Street Charlotte 2, North Carolina, 200 South Tryon Street Chicago 48, Illinois, 6000 West Touhy Avenue Cincinnati 6, Ohio, 2330 Victory Parkway Cleveland 13, Ohio, 55 Public Square Dallas 1, Texas, 1505 Elm Street Detroit 2, Michigan, 450 Fisher Building Houston 25, Texas, 6910 Fannin Street Los Angeles 54, California, 2600 Wilskire Boulevard Minneapolis 3, Minnesota, 1750 Hennepin Avenue New Orleans 1 2, Louisiana, 1100 Commerce Building New York 20, New York, 45 Rockefeller Plaza New York I, New York, 912 Empire State Building Pittsburgh 22, Pennsylvania, Four Gateway Center St. Louis 5, Missouri, 10 South Brentwood Boulevard San Francisco 6, California, 350 Sansome Street Seattle 1, Washington, 307 Broad Street DOW CHEMICAL OF CANADA. LIMITED Calgary, Alberta, 433 Fourth Avenue SW Montreal 3. Quebec, 2055 Peel Street Saint John, New Brunswick, 189 Prince William Street Toronto 2, Ontario, 600 University Avenue Vancouver 9, British Columbia, 1489 West Broadway Avenue Winnipeg 1, Manitoba, 232 Portage Avenue West 1 3 i i GO CD CD CD CjJ cn Bogota, Colombia Brussels, Belgium Buenos Aires, Argentina Frankfurt, Germany Hong Kong, British Crown Colony Johannesburg, Republic of South Africa London, England Mexico City, Mexico Milan, Italy Osaka, Japan Paris, France Rio de Janeiro, Brazil San Juan, Puerto Rico Sao Paulo, Brazil Stockholm, Sweden Sydney, Australia Tokyo, Japan Zurich, Switzerland