Document DMGndw0wV4pdQYb4qpK38KdJ5

Nineteen Seventy-One Annual Report PLAINTIFF'S EXHIBIT 8i S 'J 0 0 0 1 S ;i DIRECTORS AND OFFICERS BOARD OF DIRECTORS CARl A GERSTACKER........................................................ Chairman of the Board DONALD K. BAUMAN................................................ Former Senior Vice President EARLE B BARNES .................................................. . Vice President ROBERT B BENNETT ...................................................................................... Treasurer C. B BRANCH....................... President MELVIN CALVIN .............................................. University Professor. University of California WILLIAM R DIXON . .. ............ . . .. Assistant to the Director. Corporate Administration HERBERT D OOAN ................................................... President, Doan Associates Former President of the Company HERBERT H DOW ..................................................................................... Secretary JULIUS E JOHNSON . Vice President J. M. LEATHERS................................................................................. Vice President H H. LYON .. .................... ...................................... Vice President ZOlTAN MERSZEl.................................................................................... Vice President PAUL F OREFFICE ...................................................... Financial Vice President LEROY D SMfTHERS .............. Chairman. Dow Chemical of Canada. Limited MACAULEy WHITING ................. General Manager. Hydrocarbons Department. Dow Chemical USA G JAMES WILLIAMS . Vice President EXECUTIVE COMMITTEE C. B Branch. Chairman. Earte B Barnes. Carl A Gerstacker. Julius E Johnson. H H Lyon. Zolxan Merszei. Herbert H Dow. Secretary & Alternate Member. FINANCE COMMITTEE Carl A Gerstacker. Chairman. Robert B. Bennett. Herbert H Dow. William A Groemng. Jr.. A Philip Hanmer. Frank Harlow. Paul F Oreffice AUDIT COMMITTEE Herbert D. Doan. Chairman: Melvin Calvin. Herbert H Dow PUBLIC INTEREST COMMITTEE Herbert H Dow. Chairman; Earle B Barnes. Melvin Calvin. Herbert D Doan. Carl A Gerstacker. Julius E. Johnson. James H Pearce. Executive Secretary. OFFICERS & ASSISTANT OFFICERS C. 8 BRANCH ................................................ President. Chief Executive Officer CARL A GERSTACKER ..................................................... Chairman of the Board EARLE B BARNES .......................... ... Vice President President. Dow Chemical USA WILLIAM A GROENING. JR . . ................ Vice President. General Counsel JULIUS E JOHNSON ... .......................................... Vice President General Manager. Life Sciences Department Director Corporate Research & Development J M LEATHERS .............................................................. Vice President Executive Vice President. Dow Chemical USA H H. LYON . Vice President. Director of Corporate Administration ZOLTAN MERSZEi ........... ........................................ Vice President President. Dow Chemical Europe. S A PAUL F OREFFICE .............................. Financial Vice President G JAMES WILLIAMS ................... Vice President Executive Vice President. Dow Chemical USA ROBERT B BENNETT ...................................................................... Treasurer HERBERT H DOW ......................................................................................... Secretary A P HANMER . .............................. Controller. Assistant Secretary FJRMIN A PAULUS................ ..........................................Assistant Controller DAVID C BAIRD. . Assistant Secretary R W BARKER ... Assistant Secretary LOIS J HOERLEIN..................................................................... Assistant Secretary GERTRUDE WELKER................................................................. Assistant Secretary WILSON A. GAY ... . Assistant Treasurer OAVID N LEVERT Assistant Treasurer JOHN VAN ST7RUM Assistant Treasurer DALE A BYWATER Auditor TRANSFER AGENTS THE Cleveland trust company MORGAN GUARANTY TRUST COMPANY OF NEW YORK REGISTRARS THE NATIONAL CITY BANK OF CLEVELAND CHEMICAL BANK (New York) CERTIFIED PUBLIC ACCOUNTANTS HASKINS A SELLS ANNUAL MEETING The 1972 annual meet/ng of stockholders will be held at 2 pm |EST) Wednesday. May 3 m the Midland Center for the Arts. St Andrews and Eastman Roads Midland. Michigan A formal notice ct the meeting with a proxy statement and form of proxy wilt be mailed to each stockholder separately from tins report THE DOW CHEMICAL COMPANY Annual Report for 1971 HIGHLIGHTS Operations Summary (in millions) 1971 Net sales....................................................................................................... Depreciation................................................................................................. ....... United States and foreign income taxes................................................ ....... Income before extraordinary items.......................................................... ....... Net income after extraordinary items......................................................... ....... Earnings per share before extraordinary items (in dollars) .................... ....... Earnings per share after extraordinary items (in dollars)....................... Cash dividends declared............................................................................. ....... Common stockholders' equity.................................................................. Book value per share of common stock at December 31 (in dollars) . $2,052.7 2188 91.0 154.4 154.7 3 40 3.41 810 1.197.0 26 38 1970* Change $1,911.1 207.7 88 1 130 0 102 1 2 87 2.26 78 5 1.127 5 24.89 4- 7 4 4* 5 3 + 33 - 18 8 - 51 5 4 t8 5 + 50 9 + 32 4- 6 2 5 6 0 DO -H CTJ C3 cr> cn Co CO Average common shares outstanding Common stockholders......................... Employees............................................. 45.428.561 84.633 47.800 45.287.472 90.975 47.400 - 03 - 70 - 08 Quarterly Results (in millions) Quarter Ended 3/31 6/30 9/30 12/31 TOTAL Sales 1971 S 486.7 526 3 522.7 517.0 $2,052.7 1970 $ 456.6 493.4 480.4 480 7 $1,911.1 Restated--see Note A. page 34 Earnings per Share 8etore Extraordinary Items (in dollars) 1971 S .73 93 95 79 $3 40 1970" $ 70 .83 .75 .59 $2 87 Products and Services Operating Income 1971 S 64.1 84 9 81 6 542 $2848 1970 $ 59 4 76 1 68 3 55 8 $259 6 PRESIDENTS LETTER GO CD CD CD c_n CO CD It Was A Very Good Year In many respects, 1971 was a milestone year for Dow beyond the simple chronological fact of reaching our 75th. or diamond anniversary, year: -- The Company exceeded 12 billion in annual sales for the first time: sales were $2,053 billion, up 7%from 1970. -- We invested more for new plant abroad than m the United States for the first time in our history. -The Company set a new record in earnings at 53.40 per share, up 18%. One significant event of 1971 for Dow was President Nixon's new economic program. This program has had a favorable impact on Dow. as it has on countless individuals and other companies. We have been and are a firm supporter of the President's effort to stem inflation and restore order to the world's currencies and markets. Partly as a result of the President's program, we will again spend more than half our expansion dollars in the U.S. in 1972. To us. this is both significant and desirable. There were several major reasons behind the very good year the Company experienced in 1971. These included our extraordinary diversity, a good product and geographic mix. higher prices, an interest cost substantially below that we budgeted, and excellent cost controls soundly administered. The Latin American area had the largest percentage volume and earnings increases of all Dow s areas The Canadian area rebounded strongly and had the second best rmorc cement Beginning with 1971. we are consolidating Dow's equity in the earnings of 20 : 50% owned companies. The emergence of the Dow Badische Company as a strong generate - m earnings in 1971 gives this change in reporting special significance: until this year, that company had operated at a net loss. The turnaround from a net minus to a good plus reinforces cur confidence m the future of this enterprise, a joint venture with Badische Amlin& Soda-Fabnk A.G. Financial Outlook Good Capital expenditures in the year amounted to $365 million, compared to $348 million a year ago. and are forecast to continue at about the 1971 level m the current year. Our genera! financial situation continues to be sound. Our liquidity is very good. One of the most encouraging aspects of our business during the year was the continued firm.ng of chemical prices. These began turning around in 1970 after 13 years of decline, and cur price index went up almost 2% during 1971. Late m the year, the new Price Board granted authority to Dow to raise prices ov a I6SU'Q0JLS 2% average across the board on its products. We were the first chemical company to gam this authority, and the pattern has now been extended to the chemical industry generally. We feel we can live satisfactorily with the 2% limit. However, we are seriously concerned about the fact that controls on wages and pay have been appreciably more lax than the stringent controls imposed on prices. This imbalance can be damaging, if not fatal, to President Nixon's economic program --and thus to the welfare of all of us. individuals and companies alike. We were encouraged in 1971 by the passage of legislation enabling the establishment of Domestic International Sales Corporations (DISCs). through which tax deferrals on exports are possible. This will help Dow U.S. exports, and we moved immediately to take advantage of this legislation. Average Age of Directors is 52 Years The average age of the current board of directors is just over 52 years --a remarkably young average, we believe, for a major corporation At the January 1972 board meeting. Dr. Leland I. Doan and Max Key retired from the board of directors. H. H. Lyon, a vice president, was elected to the board, which was reduced to 17 members. Dr. Doan was in his 55th year of service with the Company. As most will recall, he was the fourth president of Dow. from 1949 to 1962. He served as chairman of the executive committee until 1968. Mr. Key was in his 44th year of Dow service, most recently as director of Corporate Administration, in which capacity he was succeeded by Mr. Lyon. Dr. Doan and Mr. Key have made magnificent contributions to the company during their distinguished careers. Thev gave devotedly of their talents for 99 years between them, and the benefits to us all are immeasurable. During the year, the board adopted a rule requiring its members to relinquish line responsibilities at age 60. This will help us to maintain vigor in the upper reaches of the Company. In fact, Donald K. Ballman, senior vice president and an employee since 1-935. set an example for other members of top management by requesting at the end of the year to be relieved of line responsibilities. He continues as a consultant and a member of the board Expanding Job Opportunities Along with others throughout the business world, we have reached the conclusion that there is a massive under-utilization of the talents and capabilities of women employees. During the year, we engaged in a continuing study of this problem. We have conclude: MOL fContnuedl _______________________________________ that more intelligent use of our career women will do more than increase their job satisfaction; they represent one of our greatest potentials for productivity improvement. As a result, we have embarked upon a campaign to seek out. develop and promote female employees. We are continuing our efforts to expand our minority employment and advancement at each and every Dow location in the United States. We are also emphasizing the development of foreign nationals in all areas of the Company. The growth of employees of highly disparate backgrounds is a matter of considerable pride and satisfaction to us. and certainly to me personally. Environmental Battle Continues Dow is determined to provide excellence and leadership in the battle to improve our environment. During the year, we developed global environmental performance standards for Dow plants. We believe we are the first major company to adopt such worldwide standards. We hold that a cleaner environment is necessary not just for the sake of good citizen ship. but also because it is good business. We have continued to search out areas of waste of raw material and end product alike, and have worked to decrease these wastes in every way that is technically feasible. In so doing, we increase the auantity of our salable product, reduce the dimensions of our waste problem, and help prevent pollution. Our long-range goal, in fact, is zero pollution. We are convinced that this approach is the soundest possible to the problem and the most sensible policy for a business enterprise that strives to be both profitable and socially responsible. Research. Manpower, and Productivity We are a research company; we are a science company. During 1971, our research and development expenditures again approxi mated 5% of net sales. A remarkable collection of new products is coming out of our laboratories, and some are described in this report. I am more enthusiastic about the new products we now have in the pipeline to commercial development than I have been for many years--and I have spent most of my life in the development end of the business. Products introduced within the past five years accounted for about 9% of our 1971 net sales in the United States and for comparable percentages in our other areas I also derive great satisfaction from the fact that we have been able to maintain our employee population at approximately the same level for the past four years in spite of unsettled monetary conditions and a slow economy in much of the world. We have been an exception in the U.S. chemical industry in that we have not had massive forced layoffs at any time or location-and none are needed. Our manpower costs have remained at about the same level, in percentage of sales dollar. At the same time, employee productivity has continued to climb. The net result has been that in spite of a sluggish economy, we have continued to see rising sales and increased profit per employee. Confidence in Future It is natural for company presidents, when writing in their annual reports, to be overly optimistic. I recognize that. I also recognize that a company of this breadth and magnitude cannot be without problems. For instance, we want to do a better job in the area of minority race employees We are working hard on improving our employment balance, and we have already made substantial progress. In total. I think it is fair to say that we in Dow are proud of our accomplishments and confident of our future. I continue to be optimistic about your future satisfaction with this company both as a performer and as an investment. 16spoons i \ February 4. 1972 4 GEOGRAPHIC & PRODUCT RESULTS Geographic (dollars in millions) Sales 1971 1970 % Change 1971-% of Total Company United States.................. . SI.194.5 Europe/Africa ................. 485 3 Latin America.................... 1532 Canada................................ 138.7 Pacific ................................ 81.0 total ................................ . $2,052.7 $1.1398 430 8 132.8 126.2 81 5 $1,911 1 + 48 + 12.7 + 154 + 99 - 06 + 7.4 58.2 23.6 75 68 39 100.0 Products and Services Operating Income 1971 1970 % Change 1971-% of Total Company $149 1 83 4 259 14 1 12 3 S284 8 $144 1 79 0 14 7 10.6 11 2 $259 6 + 3.5 + 56 + 76 2 + 33.0 + 98 + 97 52 3 29 3 91 50 43 1000 C G s ic o o is ; Gross Plant Properties Capital Expenditures 1971 1970 1971 --% of Total Company United States ................ $1,807.6 Europe/Africa . . 611 7 Latin America................. 76.7 Canada . .............. 210.8 Pacific ......................... 16.1 $1,777.1 469 3 67 5 190 7 19 7 66 4 22 5 28 77 06 1971 SI 65 1 158 3 134 24 0 38 1970 1971-% of Total Company SI 92 8 109 9 188 24.3 23 45 3 43 4 37 66 10 TOTAL ............................ S2.722 9 S2.524 3 100 0 $364 6 $348 1 1000 Employees (thousends) 1971 28 0 11 2 50 2.5 11 1970 28 9 108 42 24 11 1971 -% of Total Company 58 6 23 4 105 52 23 47 8 47 4 1000 Product (dollars in millions) Sales Products and Services Operating Income Capital Expenditures 1971 1970 1971-% of Total Company 1971 1970 1971-% of Total Company 1971 1970 1971-% of Total Company Chemicals/Metals Plastics/Packaging Bioproducts/ Consumer Products . SI.008.6 $ 9175 647 1 638 2 3990 355.4 49 0 31 5 195 $123 9 109 1 $1087 101 0 51.8 49 9 43 5 38 3 18 2 $291 2 43 5 29 9 $257 5 59 6 31 0 79 9 11.9 82 TOTAL S2.052 7 SI.911 1 100 0 $284 8 S259 6 1000 $364 6 S348.1 1000 WORLD OPERATIONS UNITED STATES Nineteen seventy-one was a year of marked improvement for Dows business in the United States A trend for the better started in the spring, and the year ended with a 5% sales gam and a 4% rise in operating income. Exports were up by 15%. Dow's weighted index of U.S. selling prices, which had firmed in 1970 after a 13-year decline, recorded a 1.8% gain in 1971. Inorganic chemicals, designed products, plastic molding and extrusion materials, and Dowell Division achieved the best earnings advances. Dow's U.S. capital expenditures declined more than 10% from 1970. U. S. manufacturing facilities operated at 81% of capacity. Capital and operating expenditures for waste control aggregated $25 million, not including the cost of process improvements that reduce or eliminate wastes. We continue to be optimistic that the over-all |ob of environmental protection can be done at no net cost insofar as Dow is concerned. This is based on our experience with increasing yields through improved manufacturing processes, recycling wastes, and marketing pollution-control products and technology to others Increased sales and operating income were reported by Bio Science Laboratories, a member of the Dow Life Sciences Department. This wholly owned subsidiary reorganized to promote an orderly expansion in the clinical laboratory and related fields The uncertainties surrounding Phase II ol President Nixon s new economic program have subsided, and the resultant buovmg of confidence indicates hinher business tpvpls in 1972 That combined with a better supply-demand balance in tine chemical industry, leads us to anticipate another year of sales and earnings growth for Dow in the United States. EUROPE/AFRICA Dow sales in Eurooe/Afnca registered a 13% gain compared to 1970 despite generally lackluster business conditions durino the closing months of 1971 The cam in ODeratinq income was limited lo 6%. one factor being a sharp rise m depreciation charges stemming from heavy capital expenditures. Largest percentage sales increases were achieved in the Benelux countries. Italy. France the Iberian Peninsula and Eastern Europe. Among products, hydrocarbons, functional products and plastic molding and extrusion materials were the biggest gamers The current year is expected to be another difficult one for a large part of the European economy Capital expenditures by Dow in Eu.'ooe were at an a.I time high Ttie new complex at Stade. Germany, accounted for the largest portion, closely followed by the complex at Temeuzen The Netherlands Capital expenditures at the Dow-Unoumesa plant m Tarragona. Spam also were sizable Dow s European manufacturing facilities were the source of 78% of area sales and operated at 82% of capacity The availability of product from the first operating units at Stade will be a definite stimulus to our business m 1972. Results from the European operations of Gruppo Lepetit S p A. the international drug firm based m Milan. Italy, were well ahead of 1970 Tlie European pharmaceutical market demonstrated some weakness during tlie year but picked up considerably m November and i>i December. Other lectors were the success ol eflods to hold the line on costs increased product availability from new facilities, and no i increase in manufacturing elhciencv lor Rifadin ant'bmtic T SGS trOOOlS '; LATIN AMERICA Latin America delivered the largest percentage gam of any area, with sales and operating income increases of 15% and 76%. respectively Improvement of operating margins on chemicals and plastics was a noteworthy contribution to the gams Substantial sales increases over 1970 levels were recorded in Argentina. Brazil. Chile. Peru. Puerto Rico and Venezuela The Brazilian economy was especially strong throughout the year, and a-1 signs point to a good year in 1 972. Wholly or maiority owned local manufacturing facilities produced almost half of the Dow goods sold in the area. Petroqu'mica-Dow. a 70% Dow-owned company in Chile, operated satisfactorily throughout 1971 A strong network of Dow terminals is being established in Lat.n America, enabling us to serve the needs of customers from many locations. Terminals are now in operation at Tuxpan Mexico. Cartagena. Colombia; San Antonio. Chile. La Plata, Argentina, and Guaruja'. Brazil. A site has been purchased at Puerto Cabello Venezuela, for future plant and terminal development Life Sciences activities accounted lor about 30% of area sales. The bulk of these sales are made through affiliates of Gruppo Lepetit and through Laboratories Industries Farmaceuticos Ecuatonanos CANADA Despite revaluation of the Canadian dollar early m the year, which increased the competition Irom imoorts. Dows Canadian operations increased sales 10% and operating income 33% in 1 971 Agricultural products were the biggest gainer. Chemicals and packaging rrutenals also recorded sizable advances Although construction materials performed very well, the over all results from plastic products were disappointing. Saies ol Life Sciences products were off. mainly because of increased competition in measles vaccines an a other biologicals. Business conditions in Canada were sluggish for the first seven months, continuing tlae slow pace ol 1970 but the trend was up I; - the rest ol the year. The supply-demand balance tor products made bv Dow Canada was generally good, and the company's manufacturer facilities (which supply 7 7%ol the Dow product sold m Canada; operated at 86% of capacity The 1972 outlook is for continued improvement in economic conditions in all regions of the country, PACIFIC Dow sales in the Pacific were about level with 1 970 However, operating income for the area was up 10%. primarily because of improved selling prices and the exceptionally strong growth or agricultural products Australra/New Zealand took over from Japan as our No 1 saie: region with a 24% gam from the previous year Demand for oji products was firm across the board In Jaoan. sales declined 25% as a result of generally depressed business conditions, particularly m some segments of the oetrociier b.-J industry. No significant improvement in this industry is foreseen lor first half 1972; however prospects for Dow agricultural products a a exceptionally bright A new commercial subsidiary ol G'uddo Lepe:: began operations m Japan m 1971 Dow's business in South and East Asia prosoe'ed desoue var ec political and economic conditions. Well balanced product and geographical mix protects us from the effects of unfavorable oevelopments in any individual country Dow s largest manu'acuinno unit in the Pacific Area at A'tona Australia, operated at 7a" capacity .mu produced about I - o! to'u Pacific Area Sales rT ; ST0034596 7GS1)0001S : WHAT HAPPEN ED WHERE IN 1971 A capsule view of major events at Dow locations Freeport, Texas--World's largest phenol plant 1400 million pounds per year capacity) comes on stream in Oyster Creek Division . . . Ethylene modernization program m Texas Division resumes, older units replaced as result will be kept on standby pending future access to foreign feedstocks for ethylene . . . Million-dollar laboratory for urethane chemicals development opens. Stade. Germany --Building pace quickens at Dow's newchlor/alkali complex with $110 million worth of facilities under construction and first units scheduled on stream in 1972 Midland. Michigan--Ten thousand citizens publicly rally behind Consumers Power Company's proposed nuclear plant, for which an Atomic Energy Commission construction permit has been pending. The facility would provide an economical and clean source of electric power and steam for Dow's Midland Plant and the surrounding community. Tarragona. Spain --Large-scale construction program in progress at Dow-Unquinesa (85% Dow owned). High-density polyethylene plant completed, existing low-density polyethylene plant expanded, and ethylene storage facilities built. Plant for Voranol polyols under construction. Terneuzen, The Netherlands --Second naphtha cracker with capacity of 400.000 metric tons per year constructed. Sarnia. Ontario --Use of mercury in chlorine production by Dow Chemical of Canada. Ltd., to be phased out. completely eliminating mercury losses to the St. Clair-River now averaging less than a tablespoon per day. . New Dow Canada ' total energy" plant due for start up in 1972 will provide bulk of the electric power and all of the steam reautred by Sarnia Division, ending reliance on price-escalating purchased power. Plant will be fueled with Alberta natural gas. contributing still further to pollution -abatement program that began three years ago when fuel oil and natural gas were substituted for coal to generate steam. Grand Rapids. Michigan -- Dow phosphate process, operated for tne first time with fully automated equipment, meets state standard of 80% phosphates removal Forty live other municipal wastewater treatment plants where the process has been demonstrated a sc meet this standard. U.S. Surgeon General's opinion that nonphospnate detergents are unsafe puts new emphasis on removal of phosphorus at wastewater -treatment plants as the only real solution, since enough phosphorus from other sources than detergents wou.d stimulate algae growth. Bay City, Michigan -- Record year for Dow exports through the Port of Bay Oty with 92.000 short tons shipped compared to previous record of 51.000 tons Dow is urging extension of Great Lakes navigation season from the present eight months to 1 1 or 1 2 months. Ulsan. Korea --Construction of low-density polyethylene and vinyl chloride monomer plants started by Korea Pacific Chemical Corporation (50% Dow owned). Concepcion, Chile-Dow s biggest plant start UD tn Latin America completed as low-density polyethylene, ethylene dichlonde. vinyl chloride and polyvinyl chloride plants of PetroQ' .nuca-Dow S.A (70%owned) come on stream Altona. Australia -- Further diversification at Dow Chemical I Australia) comolex with start of construction of propylene oxide derivatives plant. Bahia Blanca, Argentina-Dow particioation m petrochemical complex restructured. Argentine government takes responsibility for building an ethylene plant Dew plans to build "downstream" plants when practicable 9 THE GLOBAL MONEY CRISIS OF 1971 The year's biggest economic event and how it affected Dow Chemical From a business viewpoint, the year 1971 probably will be remembered vividly as the year ot the money crisis. It became clear early in the year that the dollar was in trouble as the U. S. laced a huge deficit in its balance of payments with other countries. The real beginning ot these problems is rooted m the years following World War II. The U. S. came out of that war strong and prosperous and began helping the rest of the world back on its feet That was fine--and necessary -- but it was a case of too much for too long. Starting from a strongly positive balance of payments position, it was easy for the U. S. to give vast sums ir, foreign aid and to set up troops overseas to help keep the peace. But over a long period the situation changed The balance of payments gradually deteriorated until several years ago there were more dollars leaving than coming into the country--even though exports exceeded imports Then ir 1971. even that changed --the U. S imported more than it exported for the first time in the 20th century. In plain words me U S. had been decapitalizing-much like a family living beyond ifs income, or a company paying higher dividends than its earnings By the spring of 1971. things had begun to reach the crisis stage. Confidence in the dollar reached an all-t me low Huge amounts ol dollars were used abroad 10 purchase other currencies, deluging the central banks of Europe and a sewhere Extensive revaluation of currencies fby allowing exchange rates to 'float'' upward) followed in foreign count-as. On August 1 5. the U S faced the basic issues squarely by imposing a temporary 10 per cent surcharge on moods and stopping the exchange of dollars for gold At the same time domestic inflation was attacked by putting a freeze on wages and prices. Economic turmoil among America's trading partners increased in August, but by mid-December, with the promise of dollar devaluation and revaluation of other maior currencies, the world monetary crisis was over. What does this mean in the United States'1 (Devaluation is nothing to be ashamed of. It is simply a 'ong overdue recognition of die way things are a nan' ' consequence ol tlie U S. trying to do too much to help the rest of the world. (Evaluation wnl make the exports of U S companies cheaper in other countries and therefore more compete - .vine imports to Hie U. S. wdi cost more The combination ot these factors should improve the U. S balance of trade In negotiation with other countries the Administration has recognized that an improvement m our trade baianc- s not going to be enough in the long term So the U S is trying to persuade the other developed net ons to pay lor a .ara- -.nan? of defense expenditures Maior efforts are also being made to remove some of the artificial restrictions that have ion; hampered U S exports. As far as Dow is concerned devaluation of the dollar and revaluation of other currencies will have a positive ? - :r on earnings For one thing devaluation will make Dows American made products even more competitive m overseas mark- ; So we will increase our exports from the U S In fact, we already have exported products to countries where we nr.- -/e' sold before In other parts of the world, our contracts are m local cunency and if any foreign currency revalues our sa>es cm that country a'so revalue In effect, we sell at higher dollar prices Theie are some negatives also We have borrowed money in foreign currencies, and the net effect ol changing : values will be a slight loss. Additionally, we have some exchange losses in developing countries but tliese have noth,.- t do with the dollar devaluation. These losses occur every year and are aLmost a cost of doing business m such co-mtu-.- On the other hand. Dow has some S500 million in net fixed assets m countries that revalued thcr currencies and :i - -- really arc worth more dollars now. But we have not taken a credit tor this on our books During various stages of tlx: monetary crisis Dow s business overseas and m the United States continued to I r - i Tms was largely tlie result of Dows financial and banking network around tlie world which permitted us to continue transactions evpn thougn currency exchange markets were ohen closed Dow -.vas fully competitive in the world market as we entered 1971 Tlie realignment of wedd currency's f-'s > ' vJd the U S competitive position by W% to 20%. Dows competitive oosmon has likewise unproved 8 6 5 irio o is ; < 10 PARTLY OWNED COMPANIES Dow's share of the sales of 20%-50% owned companies aggregated approximately S350 million, up 22% from 1 9 70. In 1971. for the first time. Dow's eauity in the net income of these companies is consolidated in our financial statements-SI 8.9 million in 1971. compared to S6 8 million in 1970. both before extraordinary items. Previously, only the dividends from these companies were consolidated. Among these companies, the major development in 1971 was DowBadische Company's dramatic change from an operating loss to a substantial profit. This was due to improved product quality, increased capacity, and operating efficiencies. The company's sales have continued to rise at a faster rate than those of the industries it serves. Expansions were completed in nylon 6 carpet and fine-demer yarns and acrylic fibers. Universal Textured Yarns. Inc . acquired by Dow Badische in 1971. was reorganized and enjoyed a very profitable year. Bentex Mills. Inc. 9G'; Dow Badische-owned, also contributed to the profit turnaround Bentex is a uniaue. fully integrated double-knit facility performing commission knitting, dyeing, texturizing, and finishing and is currently tripling its capacity DowellSchlumberger. which performs the same oil -field services in the rest of the free world as our Dowell Qvision in North America, rebounded from a slow 1970 with strong gams in revenues and net income. The company has been experiencing a salutary diversification of revenue sources and is no longer dependent on drilling activityln a li"-.ned number of countries for its growth. Sales and operating income of Dow Corning Corporation increased moderately in a generally difficult year for many of the maior mdustr es a serves. The company increased from 40% to 100% its ownership m Midland Silicones Ltd., a major silicones producer in the U.K. Interna .the company took much constructive action to stimulate improved pricing, productivity and profit levels. In the face of a sharp downturn in the Japanese economic grov, rate. AsahiDowLtd. set new sales records The company posted or- of the best earnings records of any Japanese company in the petroche'" cal field. During a year of international financial turmoil. Bank Mendes Cans. Amsterdam, improved Dow s flexibility in the European currency makers through its currency clearing and collection systems. Banco Cidade de Sao Paulo continued its growth and is now operating four branches key Brazilian ernes. Austral-Pacific Fertilizers, m which Dow heio a substantial mmo' interest, and other Australian fertilizer companies of the ICI of Austra a group have been combined in a new company. Consolidated Fertilizers ltd. This reorganization should produce improvement in what has ha-' a poor earnings performance Dow owns slightly less than 2 0% of the new company In Korea, scheduled progress was made on construction of the low -density polyethylene and vinyl chloride plants of Korea Pacific Chemical Corporation. Operations of this $45 million complex are scheduled to commence in third quarter 1972 During 1971, Dow realized S3 7 million (before income taxes) hem the sale of its 50% interest in Phrix-WerkeA G . the German fiber producer Our entire $43 3 million investment m the company had b--'i written off m 1970 after the firm experienced serous financial difliculties. ti GGStOOOlS . iialtiMMMliil 1971: ANOTHER GREAT YEAR FOR NEW DOW PRODUCTS AND APPLICATIONS Starting at the top left and winding down the rock face are a composite foam (thermoplastic plus urethane) for improved automotive seating and crash padding a Dow Pressure Relief Joint Filler I made from Ethatoam polyethylene foam] for highways a Zectran insecticide (see page 24) a Dow Window Cleaner and Defogger thm-wall beverage bottle made from Dow polyethylene a plastic pitcher combining wood-gram and smooth surfaces a Oow cartridge filter for drycfeamng machines a Dow Windshield De-icer a Dow Radiator Coolant Additive a Dow Radiator Flush Dow Radiator Sealer "Thermo-Serv" vacuum beverage bottle with tough outer shell of Dow A6S plastic Oow Oven Cleaner with new lemon scent a foam jacket for thin-waM soft drink bottle laboratory device based on hollow fibers (an extension of our artificial kidney technology) a sandwich panel for recreational uai)er with core of Styrofoam brand plastic foam Touch of Sweden hand lotion in a new. extra-rich formulation a Dow Auto Freshener a Rifadin antibiotic, newly registered in the United States (see page 22). 12 I TTie young lady with the outstretched arm is swathed in polyester double knit fabric that underwent the necessary scouring 1 yia new. continuous process based on Dow solvents and technology, preventing stretch and distortion The young man holds a flask filled withOowrx ion exchange resins --Dow now produces a complete line of resins for water softening and other I conditioning chores To his left and across the way are T-valves representing a new line of Dow plastic-lined piping products with liners of Teflon fluorocarbon To his right is a Parsons table molded all in one piece from Dow ABS plastic resins. On the table area pair of cups and a sheet of the co-extruded. multilayered thermoplastic film from which they were formed The young lady at left is holding a "Humidrawer" refrigerator storage compartment, of Tyril styrene-acrylonitrile plastic Opposite is a snowmobile seat made of urethane foam with an insert of Ethatoam polyethylene foam for shock absorption To her left is a vanity top with an acrylic-sheet surface; Saran microspheres in the backing help prevent shrinking and warping m Behind is a piece of "Fashionaire" luggage with framework of Dow magnesium extrusions. 13 mm* HOW DOWS MAJOR PRODUCTS FARED IN 1971 CHEMICALS Sales of inorganic and organic chemicals and derivatives increased moder ately and operating income was up substantially. Major factors were the continuation of the tight worldwide supply-demand balance for caustic soda and sustained healthy growth for propylene oxide and its derivatives. Methoce/ cellulose ethers for paint thickening and other uses were very strong Sales of magnesium oxide and hydroxide were adversely affected by the recession in the U S steel industry; ethylene dichloride and vinyl chloride monomer, by a slowing in the world wide growth rate for polyvinyl chloride. Ethylene oxide and its derivatives were in excess supply As expected, sales of ethylene dibromide for use in antiknock fluids in leaded gasoline began to slip, but we see other uses such as brominated fire retardants taking up the slack. Price attrition hindered the performance of Voranol polyols in the early months of 1971. but both pricing and demand strengthened in the second half. As the major supplier of these ure thane chemicals we are forecasting an average 14% growth rate for flexible urethane foams over the next five years. Global demand for chlorinated solvents was substantially unchanged but is expected to im prove in 1972 with better economic conditions. The increasing worldwide emphasis on ecology and toxicology will enhance the market for Chlorothene solvents, which are low in toxicity and can be recycled. METALS Primary magnesium had a good year Sales, including those to the aluminum industry for alloying, were slightly higher and operating income rose substantially Construction of our new primary plant at Dallesport. Washington, has been delayed pending clarification of power availability and market demand Primary magne sium sales are expected to be adversely affected in 1972 by the increasing competition of U S and Japanese small cars with the German Volks wagen. which uses about 40 pounds of magne sium castings per car. and by the advent of maior new U. S. competition in the primary magne sium industry PLASTICS Again, as in 1970. global sales of our plastic molding and extrusion resins rose moderately and operating income gained sub stantially. The profit increase was aided greatly by low-density polyethylene; prices were slightly higher and volume was up. primarily in Europe. Operating income from high-density polyethyl ene was off because of industry over-capacity and price softness. For Styron polystyrene, our maior plastic material, operating income gained. Sales of Dow ABS (acrylomtriie-butadienestyrene) resins improved considerably. In 1972. the product line will be broadened with the in troduction of high-impact formulations, and some new capacity will be available Operating income from coatings was up sub stantially. The recreational-vehicle and low-temperature space-insulation markets contributed to in creased sales of Styrofoam brand plastic foam, offsetting weakness in the construction market Profits from Styrofoam were up fractionally The use of Ethafoam plastic foam in safer seats for snowmobiles promises to help this product continue its modest sales growth and strong contribution to profits Significant profit gains for plastics are ex pected again in 1972. PACKAGING Despite level sales, operating in come was up markedly, with commercial films as the maior contributors. In the face of in creased competition, Saran Wrap plastic film (industrial) maintained its performance on the strength of manufacturing economies and higher prices Polyfilm polyethylene film continued to benefit from earlier manufacturing improve ments and judicious selection of markets. A new. highly efficient plant and continued market acceptance, particularly in window en velopes. put Trycite polystyrene film on a profit able basis. Sales of Saranex co-extruded multi layered films began what appears to be a sustained rise as new uses developed in pouchpackaged beverages LIFE SCIENCES Over-all sales and operating Income gained substantially. Ftifadm antibiotic for use in treating pulmonary tuberculosis continued its worldwide sales growth, and registrations were granted in the United States and Japan. Gamulin Rh, Rh. |D) Immune Globulin (Human), a means of prevent ing hemolytic disease in the offspring of Rhnegative mothers, was licensed in the U S Equihd sulpiride, a new prescription tranquil lizer. was launched in Brazil. AGRICULTURAL PRODUCTS Sales improved substantially. Operating income declined be cause of higher depreciation charges and maior new plant startup costs Herbicides made the largest sales gam as the price-strengthening trend which began in 1970 continued. Particularly outstanding were the performances of Tordon herbicide for rangeland brush control, phenoxy herbicides (2.4-D and 2.4.5-T). and phenolic herbicides, of which Premerge dinitro weed killer is an example Our coccidiostats for the control of poultry disease and fumigants for controlling termites and a variety of soil and storage pests were additional major contributors to operating in come. Zectran and Dursban insecticides. Phctran miticide and Kedlor biuret, a nonprotein nitrogen source for cattle, continued to show promise for the future. CONSUMER PRODUCTS Increased competi tion for Saran Wrap brand plastic film (house hold) and high launching costs for new products depressed operating income, although over-all sales were slightly higher. Handi-Wrap brand plastic film again outsold all other polyethylene household wraps combined. A new embossed, high-cling formulation of Handi-Wrap (with "Touch Control") was introduced early in 1972. Aztec suntan products and Handi-Wrap bags were withdrawn after failing to meet regional marketing goals. Three other products in re gional marketing--Ziploc brand plastic food stor age bags. Dow Bathroom Disinfectant Spray and Touch of Sweden hand lotion-continued to per form satisfactorily. DOWELL DfVISION Price strengthening for oiland gas-well services restored Dowell's operat ing income to 1969 levels. Gas Erac. a new process for stimulating gas wells, was intro duced and achieved production increases sub stantially greater than conventional processes in the first 18 wells treated 14 iey have been" called "The^ab^J i|gps Years'^--those^lagt'year*''gf|L SneitNei.dn_e._Steteanvt*teh!'^.*Cweantsu'reym\wu 'heerngJi[nngeM,?the^O^pTntttfasW^^^J.fas^^afe^fi^es^pf, JpsryTbriwiing newTgiant"of tlje'wbrldrsi ..`.the i.osaic. ; industrial powefs^And fa*bu1duS;the^.^depictingMhTjnweniei^pf^^'erica toward; yvere. --'v theTwenfieth.'CenturyJ'^'.".^: ` It was in those years that The Dow What was Happening in the outside Chemical Company was bom in the little world while Herbert Dow was stfuggling to backwoods town of Midland. Michigan, an get his little chemical company underway in event scarcely worthy of notice in the larger 1897?.Let's take a look back to that year -- world And yet as a.child of this remarkable, .. ...'-Sod-busting farmers. rniners.- era --and seeming to draw strength from the tradesrhen;.'land ^speculators and.' adven raw energies of the times--it would grow in' turers were pouting westward to seek their 75 years into a globe-girdling enterprise, fortunes in Oklahoma Territory, the Dakotas, with assets of about S3 billion. And this Nevada. Utah.' Kansas and other vast sum was roughly six times the average stretches of the last frontier. A annual expenditure of the U. S. Government great many succeeded and some from 1896 to 1900. failed, but all could sympathize The Dow Chemical Company was with the Texas settler who had incorporated May .18. 1897. On that date a abandoned his cabin and left a small group of Ohio and Michigan business sign tacked to the door: "250 men declared themselves willing to risk miles to the nearest post office; $200,000 on this proposition: that 31-year- 100 miles to wood; 20 miles old Herbert Dow could profitably extract to water; 6 inches to hell. God chemicals from Michigan's subterranean...... bless our home! Gone^to live with'S*. KbtriinAea Kbwy iusing'-*a4" nnAetwAi prroAcre*ses of his Aouw/An w..if!e**'s* IfoalIkLsa.'' I devising. They took the risk even though One out of every 19 Dow was less than 10 years out of Cleve Americans owned a bicycle and lands Case School of Applied Science, his they were spending $12 million a process had proved faulty in the past, and year on spare parts and acces he had twice failed to produce results that sories. Bicycle racing was among could match his promises. But these were scarcely believable times when men and women engaged in scarcely believable pursuits with an un shakable faith in themselves and the future of their country. Canny Senator Mark Hanna voiced the sentiments of many when, after master minding the election of William McKinley to the Presidency in 1896, he sent a jubilant telegram to the victorious candidate saying. ' God s in his heaven, all's right with the world " Of course, all wasn't right with the world The chasm was infinitely wider be tween the rich and the poor, the white and the black, and the worker and his employer than it would be 75 years later Anarchists even then were crying for the overthrow of the Establishment and creating terror with bombs. Disputes between labor and man agement often exploded into bloody riots. The issues of sound money (the gold stand ard) versus free silver, and protective tariffs versus free trade, were bitterly fought. More and more women were voicing their outrage over the denial of the vote. And the Federal Government did little to control the excesses of money barons and powerful business monopolies. The famous newspaper publisher, Joseph Pulitzer, found a new word to de scribe the Americans of those years The the most popular sports and drew as many as 25.000 spectators, mostly on Sundays. This Sabbath racing moved one national magazine to declare: "It should be prohibited The spectators of Sun day bicycle racing are not the class which stands for law and order." f. E. Stanley founded his Stanley Steamer Company. Two years later one of his automobiles steamed to the top of Mt Washington in New Hampshire, to the hur rahs of the few who were interested in such self-propelled contrivances. The au tomobile hardly seemed a challenge to the horse although the challenge was just around the bend. Railroads were binding the nation together with bands of steel criss-crossing the land--and 90% of the country's steel production was going into rails. The United States had half of the world's railroad mile age. and a statement by James A. Garfield 24 years earlier still was valid: "The railroad is the greatest centralizing force of modern times." The cry of ''Gold!" echoed from the Klondike in Canada's Yukon Territory, luring tens of thousands of men and women to the frozen north in the century's last great frenzied rush for the yellow metal. The United States was producing and consuming more goods than any other rr * r'*-igi- -.U nation, and merchant princes were revolu- adorned with heavy watch chains, and shirts tionizing selling techniques. Marshal Field's . 'with high stiff cdliars. Women rustled when department store in Chicago--the first of they walked in /their floor-length dresses its kind--was the merchandising showpiece . and petticoats of silk. They were corseted to of the Middle West. The mail-order houses achieve hour-glass figures, flounced, bus- of Montgomery Ward and Sears, Roebuck- -tied, and hobbled--with long hair piled high and Company were tapping the huge rural'.' and covered with huge hats held in place by . market with their catalogs offering every long hatpins. ' thing from the latest women's styles to farm In the glitter of Broadway, none gear. And Frank W. Woolworth's five-and- glittered brighter than the beauteous Lillian dime stores were spreading across the Russel! (when Diamond Jim Brady stuffed country. her hand with negotiable bonds and offered That summer in London. Queen matrimony she refused him on the grounds Victoria celebrated her 60th year on the . that she liked him too much to marry him -- throne of England with pomp and pageantry presumably keeping the bonds). And another the likes of which the world had seldom star was wasp-waisted Anna Held, whose seen. Britain was at the zenith of her power fame rested largely on the rumor that she and the Empire seemed destined to last bathed daily in a tub full of milk. But while forever. As to the relative power of the champagne corks popped and men snapped United States and England, most English men would have agreed with a Tory jour nalist who had written to the Times: "The women's garters with frivolous frequency, the era hardly supported the title of "The Gay Nineties" beyond the lights of Broad English and not the inhabitants of the United way. Life was still too real and earnest in States are the greatest power the mills and factories and on the farms of in the two Americas; and no dog of a Republic can open its mouth >| to bark without our good leave " America. People in towns and cities were -flocking to see "the most wonderful of all But such posturing was not un modern inventions"--the Edison Moving Pic common on both sides of the ture Machine. The posters promised "views Atlantic. of railroad trains going full speed" and The United States was moving figures "so lifelike, so true to nature. moving toward war with Spain. so perfect in detail....... that the audience ' Public sentiment favoring the can scarcely realize that what they see is Cuban rebels' fight for indepen only a picture and not reality." dence was mounting, fueled in Among the footnotes to the year: part by phony atrocity stories Bob Fitzsimmons whipped Gentleman Jim trumped up by reporters for Corbett for the heavyweight boxing champ William Randolph Hearst's New ionship of the world. 14 rounds at Carson York Journal and to a lesser degree by Pul City. Nevada: Francis Pharcellus .Church itzer's New York World. When the governor wrote an editorial in the New York Sun as of New York appealed to Speaker of the suring eight-year-old Virginia O'Hanlon that House Tom Reed to dissuade the represen "Yes. Virginia, there is a Santa Claus": tatives from voting to intervene in Cuba. Typhoon II won the Kentucky Derby and a Reed replied: "Dissuade them! The governor purse of S4.850; no one paid a federal in might as well ask me to step out in the come tax and the public debt was a mere middle of a Kansas waste and dissuade a $1.25 billion as compared to the 1970 public cyclone." And war with Spain came the debt of $370 9 billion; and music lovers following year. heard for the first time "The Stars and Books on etiquette were popular, Stripes Forever" by John Philip Sousa. "On instructing the uncertain how to acquire The Banks of The Wabash." and something social and business graces But none was else called "You're Going Far Away; or. I'm more popular than "Professor" Thomas E. Still Your Mother Dear." Hill's Manual of Social and Business Forms. By any measure, the year 1897 a perennial best-seller which, among other which saw the beginning of The Dow Chem things, advised the reader to "never give a ical Company was a fabulous time in a lady a restive horse." Furthermore, it was fabulous era. "the gentleman's province to assist the lady in mounting", a procedure for which Pro fessor Hill provided explicit instructions. Beards and mustaches were pop ular with the men (even Herbert Dow had a mustache for a time to make himself look older) and they sported derbies, cutaway coats with tight-fitting trousers, vests Twice the winner of a Pulitzer Prize tor jour nalism. Don Whitehead since 1956 has turned to book-length reporting, starting with The 4F.8.I. Story. His most recent title. Attack on Terror, published >n 1970. describes the civil-rights struggle in Mississippi Mr Whitehead is the author of The Dow Story (1968) He makes his home in Concord Tennessee ST0 0 0UG5 17 MAKING IT AT DOW ST000460B Some minority persons are well up the career ladder Pictured on this page are representative minority group persons* who have carved out successful professional or supervisory Dow careers on their individual merits. This group of Dow employees are members of an increasingly important and growing part of fhe Company. Dow believes that the principal contribution it can make in equalizing employment opportunities is to provide an atmosphere in which good performers -- regardless of color or national background--have the opportunity to advance and the freedom to contribute to Dow's and their success. Dow believes that equal opportunity goes much further than numbers Programs have been and are in progress for all Dow employees so that meaningful careers, recognition of achievement and opportunities for advancement are equally available for every employee Dr. Earle B Barnes, president of Dow Chemical U. S.A has put it succinctly: "We are interested in making the best use of everyone's talents " Although the number of Dow employees in the United States declined during 1971, employees from minority groups increased by 199 for a new total of 1.926 or 6 1 % of the Company's total U S employment. Unless oil'e/wtsonorert ih*y,ve locGled m Mic/fnnd. MAINTENANCE FOREMAN Hurlon J. Clark Joined Dow in f964. Supervises 20 people in electrical maintenance service. Texas Division. PHARMACEUTICAL CHEMIST Linneaus C. Dorman PhD in Organic Chemistry. Indiana Joined Dow in 1960 Specializes in synthesis o! peptide compounds for use in pharmaceutical research Research rank Senior Research Chemist SENIOR ENGINEER 1 Arthur J. Gray MS in Structural Engineering. Illinois Joined Dow in 1969 Supervises structural design of chemical plants in Dow Engineering & Construction Services. Houston COMPUTER PROGRAMMER William M. Greene BS in Electrical Engineering. Tuskegee Joined Dow in 1965 Designs and supervises execution of computer programs for various Dow departments. m QUARANTINE SUPERVISOR Edward L. Mathews Sam's Technical School Joined Dow in 1952 Unit heap of Quarantine Department. Indianapolis Division Responsible tor pharmaceutical alter manufacture but prior tc release by Dow Quality Control Or Food & Drug Administration PLACEMENT MANAGER Ronald S. Haughton MS in Chemistry, towa State Joined Dow in 1964. Responsible for selection, placement, transfer and personnel records of professional and technical employees for the Midland Division. RAILROAD FOREMAN * J. D. Spears Joined Dow in 1968 Supervise* employees in cleaning repair.n switching and inspecting tank vessels tor the transport of Texas Division chemicals PATENT AGENT S. Preston Jones BS m Chemistry. Hampton With Dow since 1968 Specializes m patent procurement and counseling for ammal-health products, herbicides and insecticides. Women progress in professional, managerial careers at Dow More emphasis has been placed on opportunities for women, including better utilization of women in present functicns. job enrichment to provide greater work satisfaction and advancement to |Obs o` greater responsibility In February 1972 two outstanding career women were elected assistant officers of the Company In 1971. women employees numbered 3.366 or 11 'i of Dow s total U S employment The following page pictures a representative group of professional and supervisor' women ' who have found good career opr-cumines at Dow t' 5 e*j COLLOID CHEMIST Bettye W. Greene PhD in Physical Chemistry. Wayne State With Dow since 1965. Conducts fundamental research in colloid and latex chemistry. Research rank: Senior Research Chemist, -i ANALYTICAL CHEMIST Lou Alice Howard BA in Chemistry. Rice Joined Dow in 1961 Conducts special projects in infrared spectroscopy in the Texas Division. Research rank: Senior Analytical Chemist. ANALYTICAL MANAGER June W. Turley PhD in Chemistry. Pennsylvania State. With Dow since 1957. Responsible tor Midland Division Inorganic and Elemental Analysis group -> rt'cais lo 'trol COST ACCOUNTANT Carol Ashlay BA in Accounting. Michigan State Joined Dowm 1967. Responsible for accounting supervision of hmns packaging consumer poducts for Dow. SALARY ADMINISTRATOR Lorraine Phillips Northeastern School of Commerce. With Dow since 1959 Sets salary standards lor Dow Chemical U S. A personnel covered by overtime provisions of wage-hour laws. ises rmg I I ial I I ! CONTROL SUPERVISOR Martha Dean -* Bacteriology. Purdue Extension Joined Dow in 1940 Supervisor m Bio Control Department. Indianapolis Division Supervises iaboratory technicians in quality control of biological producis. TECHNICAL LIBRARY MANAGER Dolores A. Hartman MS in Library Science. Michigan Joined Dow in 1959 Manages Dow's central technical library {staff of 121 and maintains liaison with technical libraries at other Dow locations. -- Jeraldine B. Smith JD. Houston |Law) Joined Dow in 1957 Responsible for litigation administration real estate and equipment leases, legal counselor to Credit and Traffic Departments GENERAL MANAGER'S STAFF Shirley T. Van Meter Joined Dow in 1948 Staff assistant to the Texas Division general manager Handles special assignments, supervises division's guest facilities coordinates job-opporiunines- lor-women program ^ ASSISTANT OFFICER Lois J. Hoerlein Joined Dow in 1955. Administrative assistant to the corporate secretary. Elected an assistant secretary of the Company in February 1972. I ASSISTANT OFFICER Gertrud* Welker Joined Dowm 1952. Secretary to the President Elected an assistant secretary of the Company in February 1972 ^09U'001S c biL. __ ' ORGANIC SYNTHESIST JoAnn Gilpin PhD in Organic Chemistry. Northwestern Joined Dow in 1 '962 Specializes in synthesis of compounds suitable for use as multifunctional automotive fluids Research rank Senior Research Chemist RADIOISOTOPE SPECIALIST Irene Takahashi PhD in Chemistry. Washington iSeattle) With Dow since 1958 Applies radiotracers to a variety ot problems Research rank Senior Research Chemist 19 HAVING YOUR CAKE AND EATING IT Volume chemical production can exist side by side with a clean environment Some of the comments made during and since Earth Day 1970 have suggested that technology needs to be stopped in its tracks --or even rolled back to the level prevailing in some supposedly more halcyon era--if environmental problems are to be solved. That the problems exist is manifest. That they can be resolved without suffering the massive dislocations of turning back the clock is becoming more and more apparent. Dow. which built its first waste-treatment facility (a holding pond) in the Twenties, is successfully abating pollution problems in its operations. By its own evaluation, it is fairly clean now and expects to be a lot cleaner in another two years. Photographs on these pages illustrate the two broad lines of activity--waste treatment (for environmentally safe disposal) and waste prevention (by purifying raw materials and recycling byproducts). The latter method is obviously the more rewarding, as it converts potential wastes into salable products and turns costs into break-even or profit opportunities. Over-all. Dow expects to control pollution at no net cost. In a project due to be completed in late 1973 in Dow's Texas Division, crude ethylene and propylene will be purified at their manufacturing source, thus eliminating waste problems in "downstream" production. The project also will increase production yields, providing a reasonable return on the Si 3.8 million investment. However, Dow doesn't expect every environmental-improvement project to produce a similar result. In some instances, capital costs are going to be increased substantially without an offsetting gain in return; then, the utility of the product will have to justify the resulting higher selling prices or the plant cannot be built at all. Sometimes not even the most rigorous efforts can bring an older plant up to the desired standard. Such is the case with the mercury cell chlorme/causticfacility of Dow Chemical of Canada, Limited, at Sarnia. Ontario Although mercury losses to the St. Clair River have been cut to less than a tablespoon per day. well within government requirements. Dow s goal of total elimination appears impossible with the mercury-cell process It therefore will be replaced with a facility based on the diaphragm type of cell, which uses no mercury. Control of air pollution, particularly from power-house stacks, offers mixed opportunities. More and more coal-fired boilers are being converted to low-sulfur oils or natural gas at Dow's plants in Midland and Ludington. Michigan. But even cleaner, as well as more economical, is nuclear power, which is why Dow's Midland complex has contracted to purchase all of its requirements for electric power and steam from the projected Consumers Power Company Midland nuclear plant. Challenge and exhortation up and down the line can work wonders. An example is a contest among 14 Dow synthetic latex plants around the world to determine which one could increase its average yield the most over a five-year period. The results: yields were increased from an original high of 94% to a remarkable 98% while simultaneously wastes were reduced by 70% Recent events have wrought many changes in Dow's methods of operating plants and doing business. Supervisors now are rated for environmental performance, along with traditional factors. And suffusing the entire effort is the basic philosophy that the "environmental imperative" is a positive opportunity, not a negative burden. Many solutions devised by Dow to solve its own pollution problems not only reduce internal costs but can be marketed to others. Dow Environmental Control Systems is a substantial business contributing to operating income With the irreversible push for a cleaner world, it can only be a growth business WASTE TREATMENT IS EFFECTIVE ... Cooling towers in Dow's Midland. Michigan, i __ reuse water for cooling purposes over and overT reducing plant's fresh-water requirements and i,. of heated water returned to Tittabawassee River.' Current $7 2 million project will add 28 towers, for a new total of 39 Aeration basins further treat phenolic wastes |to0S | down the remaining 5%) as well as other organicsdb I Trickling filter tower containing Surfpac piastre biological oxidation media lin Dow's Bay City. j Michigan, petrochemical plant) performs same fund- as rock trickling filter but requires less land area- 20 r cOfM| 'er, d a. ver. Riding ponds are additional safeguards against pollution 'Jecidents. This one (capacity: one million gallons) in Midland eomple* keeps effluent streams from emptying into river when contaminants in outflow trip a monitor, shutting a control gate BUT THE REAL SOLUTION IS WASTE PREVENTION Dow synthetic late* plant near Dalton. Georgia, uses more than a million gallons of water per day and recycles practically all of it Coagulated latex particles settle out in one of four primary ponds (foreground) Clarified water then flows to a large reservoir" (background), from which it is pumped back into the plant Scrubbers and filters control air pollution These vent stacks atop a manufacturing plant are among 4.522 in Midland complex, all of which have been checked for air-pollution potentials and equipped with control devices as needed. When this new chlorine facility in the Texas Division begins full production, several new systems, including a recycling process, will prevent water and air pollution rm i/9 J f Ecology vans, manned around the clock, seven days a week, by four environmental quality control specialists, prowl the Midland complex looking for trouble spots Job includes taking periodic samples of river water. " ST0004609 I 1----------------------------------------------------------------------------------------------- ------------------------------ From Sig. Pagani's vacation 'souvenir' came THE LITTLE BUGS OF DR. SENSI In 1971 Hermes Pagam reenacis the collection of the now famous St. Raphael soil sample of 1957 m a prne forest on the French Riviera Sample contained the microorganisms from which Rifadin antibiotic was derived In the Leoetit Research Laboratories m JvHano the St. Raphael samoe is D'epai% for screening alC'g with other? from around the .vorld Totalcj 2.000 were processed. | LtoeM r-;s--rch director Or. Piero Sensi has aireae I the over-all n I ampin program now in its 20th vear. part'cuianv rhe large program cl chemica moda ration and rte'ivativ-s tleve coment i When incubated in a growth i medium, microc'ganisms m soils prorluce me a colonies 1 which are examined for 1 metabolites (was* - product' J that ore toxic to ei orMJiS'rs such as tiij tui. ' . CSiSftPfcuJ CD CD CD .e- CD -- Agar diSh-S CO n- .tihCSJt.n r substances extra: -a ,`rcm n~: J are checked tinc- r. light SOurCi to detemvne exte -j ant.L' c; :i activity. t Metobo:if*s with: J ac.ivity are reit'c . -T'- 1 guanniKiS lor om: : pc ;,r-d I inrther tiu'fv Tirr rrc1' - 1 vct.'ificilion on*'" ypnry-.r'i 1 in rl-.e St Rccn.i-Ci `T< 1 everiunliy reSuito.- ' r f.-n'C'C' v I'famictni sitow-v- - in i :rutlo L^rip 22 It was a happy holiday, there in St. Raphael, midway between St Tropez (the town Brigitte Bardot made famous) and elegant Cannes. Still, relaxed in the Riviera splendor of 1957. Hermes Pagani was ever the team man. Before turning homeward to Milano, he thoughtfully, on his own initiative, dug up a few square inches of French soil and put them in a pill bottle. The bottle proved to be loaded with a kind of gold. Signor Pagani is a microbiologist with Lepetit Research Laboratories'* under Professor Piero Sensi. Back in his laboratory, where he is in charge of fermenting antibiotic cultures, he was soon to see his soil sample again. Now inserted into Lepetit's soil-screening program, it joined some 2.000 other samples submitted by Lepetit affiliates around the world and examined during a five-year period starting in 1952 Ever since the early days of penicillin, pharmaceutical companies have been sorting out some of the millions of microorganisms contained in soils, looking for new anti-bacterial agents. In general, their search has been addressed to such types as the Streptomycetes. which have proved capable of producing antibiotics. Of the 18.000 Streptomycetes strains isolated by the Lepetit researchers, only 400 were adjudged worthy of further investigation The most promising. Streptomycetes mediterranei. was found in the soil from Sig Pagani's pill bottle. A happy holiday indeed! During normal growth, the strain produces a mixture of five antibiotics Realizing it had in hand a whole new antibiotic group. Lepetit researchers assigned them the generic name of rifamycin. During the next five years, it was established that only one, rifamycin B. could be purified. As it turned out. rifamycin 8 itself is inactive against bacteria, but as it degrades spontaneously in watery solutions it produces a very active product, which was given the name rifamycin SV. In clinical research. SV was active against bacterial infections, especially those leading to pulmonary tuberculosis. The trouble was that it could be administered only by injection, and it had a restricted distribution within the body. At this point. Professor Sensi and his staff embarked on a large program of chemical modification, lasting three years, tofind a derivative that could be taken orally and achieve a better distribution Of more than 50C derivatives synthesized and tested, one was found that met these goals Given the names rifampicin and rifampin, it also exceeded the parent substance in activity In extensive clinical trials in many countries, rifampin demonstrated excellent results in treating pulmonary tuberculosis, in combination with other anti-tuberculous drugs. Medication programs with rifampin are actually lifesaving, particularly in cases where the disease has become resistant to other treatment. Another potential advantage is a saving in patient hospital costs. Under the trademark Rifadin, rifampin first became generally available to physicians in parts of Europe and Latin America in 1968 Since then, its use has spread to all parts of the world. During 1971. it was registered in the United States. Indications are that the trail leading from St. Raphael is far from ended. Medical researchers are studying rifampin derivatives for their effect on viral diseases, leukemia, sarcoma, trachoma and leprosy Chemists at Lepetit under Dr. Sensi's direction are hard at work synthesizing new derivatives It could be that the rifampin story is only beginning Sig Pagani's happy holiday may turn out to have been happier still Tf.- K .1 1>1 of li.'l* 'll S LI A Of It.*. > U'rfrsi CUvirjcCuln. " - i ! i 'nr. ' , Nf l nt'lli'-l Of ^ l'l.* 5 (Ws rV*tV rjn-j w m ZD =~ 30 23 - 1 F iira--fmm BilimlilTTlIlirMgnMTBWr^M^MrTinTT *4  --`SluiUUUl 4 INSECTICIDES WITH A DEFTER TOUCH Two Dow products move in where DDT no longer treads By the dawn's early light, when the air is still, a U. S Forest Service plane sprays Zectran insecticide on budwprm infested spruce in Idaho s Net Perce Forest. Only a sixth of a pound per acre of Zectran was required to check the budworm epidemic, avoiding undue damage to the insect s natural enemies. Vapor plumes are largely deodorized kerosene, used as a carrier for the insecticide. From the moment of its hopeful introduction in 1943. DDT seemed to have everything go ng (or it. It was not only effective against a multitude of troublesome insect species but cheap, too. so that even poorer nations could afford it. Among the factors that made it cheap was its persistence: one or two applications might be effective against the Anopheles mosauito, the gypsy moth, or some other disease carrying or crop destroying insect for an entire year. Farmers and public health officers turned to DDT' to solve a myriad of problems, and production soared, bringing the economies of large-scale manufacture. But. as every reader of periodicals knows, some of the very qualities that made DDT a success during World War II and the 20 year aftermath have led to its decline in this age of environmentalism. In 1 971. the World Health Organization reported that during (lie previous seven years DDT use had dropped 50% (to 2 50.000 tons annually) because of environmental fears. Dow has introduced two products that replace DDT m certain uses-Zecfran insect ode for control of the spruce budworm (one of the most devastating of forest pests) and DursPan insecticide for the control of mosquito larvae and such househo'd nuisances as cockroaches. Zectran, originally introduced as a lawn and garden product, was off the market for several years because of manufacturing problems, winch have now been solved In 1971. following seven years of tests by the United States Forest Service, the product was cleared for spruce budworm control by the Environmental Protection Agency. The Forest Service characterized the event as "a giant step toward finding a highly selective 24 z m o o o is ; Budwonris defoliated this soruce m Aroostook Countv. Maine, another area vheieZeCtran is teaming with Nature to preserve forest values. Estimated 5 7 nii tioo acres of U S. forests have been noticeably damaged by these voracious .nsecis Prior to spraying. Forest Service personnel clip midcrown samples from outer 1 5 inches ol trees. Samples were identified, bagged and sent to field laboratory for spruce-budworm counts r 1 9 ic o o is j chemical that is a safe substitute for DDT in controlling one of the maior forest marauders without damage to the environment." During the summer of 1971. the Forest Service used Zectran against the spruce budworm m the Pacific Northwest and m Maine in what entomologists call "integrated contrc programs." These require maximum use of a harmful insect's natural predators and parasitic enemies In the areas selected for treatment, the budworm had been epidemic for five years Before the spraying, entomologists made actual counts of budworm populations from tips of branches cut from selected trees. The obiective was to determine as closely as possible the time for optimum control of the msecis. Information from the sampling 'ms coordinated with special weather forecasts. Zectran, which is 20 to 25 times more Powerful against the budworm than DDT. was sprayed aerially at the rate of 15 one hundredths of a pound per acre. At this exceedingly low rate, the insecticide was highly selective, killing many budworms (complete kill was not the obiechvel but preserving desirable insect life to a high degree. Prior to the 1971 sprayings, studies had demonstrated that Zectran does not accun\: ate m the outdoor environment, in water or in animal tissues and is nonhazardous to :. rds. fish and mammals. Dursban insecticide has a similar propensity for rapid decomposition-an environmental advantage in mosquito control work Because of their shorter active lives, both insecticides need to be applied somewhat more often than DDT to keep a pest under control. This "environmental cost" appears to be one that the United States and many other counti irs am willing to pay. TARGET FOR TONIGHT After years of planning and building a chemical plant comes the time for pay-off ``I can't think of any reason not to ordinary event, and the 52-man crew that do it now." It was December 16, started up Unit III was no ordinary 1971, and Robert L. Walzel, Unit crew. Aside from 12 production veterans III manager of Dow's Oyster Creek transferred from Dow's Texas Division (a Division, had just made one of the mostfew miles away) and Units I and )), they important decisions of his Dow career. For were comparable to Navy "boots" fresh "doing it now" meant triggering a chain of out of boot camp. Former teachers, events that would: students, returning Vietnam veterans, Bring the world's largest phenol plant factory workers and ranch hands, they (400 million pounds per year capacity) on had not seen the inside of a chemical stream. plant prior to the previous summer. But Make Dow the world's largest phenol after six months of classroom and producer. on-the-job training, they were confident Put Dow in the acetone business in a and enthusiastic, a tribute to the Oyster big way since 240 million pounds per year Creek Division's "people philosophy." of this popular solvent would be The division feels that people have to generated as a co-product of the get satisfaction out of their work and that phenol-making process. one way to do this is to give them as Phenol is a major industrial chemical much responsibility as they can handle. consumed In enormous quantities in For men craving responsibility, starting making such products as up Unit III was a kingsized opportunity. phenol-formaldehyde plastic resins, weed The situation truly called for individuals killers, adhesives and aspirin. Dow who could think for themselves and solve pioneered a phenol process based on problems never before encountered. chlorbenzol, hydrochloric acid and Despite months of preparation, none of a caustic soda in 1922. The new plant, new chemical plant's equipment or however, was designed for a process controls has been tested in Dow had never used before--the oxidation production-scale operation. The crew is of cumene, a basic building-block uncertain how the various instruments chemical. will react to harness the high Unit III, built at a cost of more than $20 temperatures and pressures and huge million, sprawls over an area equivalent volumes associated with the process. It's to six square city blocks on the Gulf near something like piloting a newly developed Freeport, Texas, ft is a huge collection of aircraft to get the feel of how it controls, columns, towers, tanks and piping--a giant amid giants (Oyster Creek Unit I is one of the world's largest vinyl chloride plants and Unit II is one of the world's largest chlorine-caustic facilities). More than three years of planning, designing, accelerates and maneuvers under different conditions. When the unit started up, each step in the reaction progressed "as planned." The critical event was actually anti-climactic. The long months of construction, testing and adjusting had designing, computing, experimenting and been required to bring Unit 111 to its training had paid off. It was now present state. December 13. approximately 48 hours Although a modern chemical plant is from startup. designed for continuous operation, After the plant had run continuously for startup involves more than pushing a more than a day, Walzel was satisfied that button at one end and immediately it was operable. He then ordered drawing off finished product from the operations shut down for a routine other. The miles of piping must be filled, debugging of units that are best raw materials brought up to the proper serviced with the plant "off stream." With temperature and pressure and then the debugging completed, the plant was reacted, semi-finished product purified. again brought on stream. The veterans The cumene oxidation process for phenol, and the boots (not really boots any while requiring only two chemical longer) settled down to the job of reactions, actually encompasses five continuously operating, maintaining and different steps. improving the world's largest phenol Starling up a chemical plant is no plant. 26 S I9 t 0001S i 1. Just prior to startup. Oyster Creek Division general manager Louis Shelton and Unit III manager Robert Walzel inspect the vast ophenol facility. 2. Intense concentration and activity build up in the control room as the plant comes on stream. The room is the facility's nerve center from which all steps of the production process are controlled. 3. Highly reactive cumene hydroperoxide is concentrated in this tank just prior to being "split" into phenol oand acetone. 4. Technical supervisor Ken Huff makes a finetune adjustment to one of the controls as a massive chemical reaction takes place in equipment far removed. 5. Training supervisor Linton Lipscomb makes a routine check of emergency breathing equipment. Personal safety practices and protective equipment .have a high priority in Unit Ill's operations. 27 I CONSOLIDATED BALANCE SHEET The Dow Chemical Company and Subsidiary Companies ASSETS Current Assets Cash........................................................................ Marketable securities and interest-bearing deposits (at cost--approximately market).......................... Accounts and notes receivable: Trade, less allowance for doubtful accounts (1971. $10,749,008; 1970. $11.470.611).......... Miscellaneous....................................................... Deferred income taxes............................................ Inventories--at lower of cost or market: Finished and in process........................................ Materials and supplies......................................... Investments Capital stock--at cost plus equity in accumulated earnings (lessreserves-1971. $1,508,662; 1970. S2.842.100)(Note B| Wholly owned Swiss bank.................................................... Associated companies (50% owned)..................................... Other.................................................................................... Sundry--at cost (less reserves -- 1971. $1,947,736: 1970. $2.742.904)..................................... Noncurrent receivables (less reserves 1971. S2.313.328: 1970. $2.300.000)..................................... Plant Properties (Note D) Cost..................................................... I Less--Accumulated depreciation....... Goodwill (Note E)................................ Deferred Charges and Other Assets. TOTAL....................................... See Accounting Principles andNotes to Financial Statements 28 CO CD CD on December 31 DO-- 1971 1970 fWeruted-Not* A) $ 40.501.724 S 30.280.740 65.612.213 48.362.673 368.435.898 125.829.174 10.091.608 279.732.535 115.727.122 1.005 930.274 349.640.162 88.968.486 6.361.063 256.734.955 111.504.818 891 852.897 38.655.829 177.489.543 30.984.228 50.917.952 88.302.329 386.349.881 31.819.987 149.220.495 31.919,217 49.830.019 104.098.219 365.887.937 2.722.899.183 1.158.792.049 1.564.107.134 77.323.480 2.524 312 72C 1.086 124.485 1.438 188735 72.195.64? 45.096.622 35 653 4?? S3.078.807.391 $2,804 778.2 o 8S S jj 63 64 65 66 7 M 69 70 71 . Stitrt ntncntnary turns I PER SHARE: s tS> 0 s 8 67 63 65 66 67 SB 69 70 71 liabilities Current Liabilities Notes payable............................................. Long-term debt due within one year........... Accounts payable........................................ United States and foreign taxes on income. Accrued and other current liabilities.......... Long-Term Debt (Note F) Other Liabilities and Reserves Minority interests in subsidiary companies Deferred employee benefits........................ Deferred investment grants........................ Deferred income taxes................................ Loss on foreign investments....................... PAID PER SHARE 85 67 63 64 65 66 67 68 69 70 71 December 31 1971 1970 |RtUd-Nei* A) S 368.264.346 35.180.686 180.513.967 56.431.754 15t.118.123 791.508.876 S 229.255.553 61.980.998 150.566.715 56.770.254 138.082.808 636.656.328 1.010.136.133 969.844.553 34.665.997 26.262.248 8.248.031 5.950.490 5.000 000 80.126.766 39.932.009 19.168 418 1.885 000 4.764 558 5.000 000 70.749.985 I910001Sl Stockholders' Equity (Note G) Common stock (1971 --issued. 47.819.034 shares). Capital surplus.......................................................... Retained earnings.................................................... I Less--Treasury stock at cost (1971 --2,443.210 shares). TOTAL See Accounting Principles and Notes to Financial Statements l 239.095.170 520.935.018 553.448.631 1.313.478.819 158.089 120 585.046.077 479.779.007 1.222.914.204 116.443.203 95.385.853 1.197.035.616 1.127.527.351 $3,078,807,391 S2.804.778.21 7 2D CONSOLIDATED STATEMENT OF INCOME The Dow Chemical Company and Subsidiary Companies Products and Services Net sales ................................... Operating costs and expenses: Cost of sales.......................... Selling and administrative.... Products and services operating income Non-Products arid Services Investment and financial Profit on investment turnover........................... Income from sundry investments ................... Equity m earnings of Swiss banking subsidiary Administrative expenses.................................. Equity m earnings of associated companies and minority investments exceeding 20% (Note B). Interest expense --net............................................. Sundry income -- net..................................... Non-products and services income (loss) Income Before Provision for Taxes on Income Provision for Taxes on Income (Note J) .. . Income Before Minority Interests.................... Minority Interests' Share in Income................ Income Before Extraordinary Items.................. Extraordinary Items -- Net of Tax | Note C)..... Net Income Earnings per Share Income before extraordinary items . Extraordinary items--net of tax...... Net income .... Account ntj Pnncip^'i Andt\oib to finxtna^lStatements 10 Year Ended December 31 1971 1970 (RsUtad~Noi* At $2.052.711.344 SI.911.105.081 1.517.253.844 250.706.483 1,767.960.327 284.751.017 1.417.767.015 233.714,252 1.651.481.267 259.623.814 6 [ [ 4.442.979 3.052.359 2.777.853 II,767.840) 8.505.351 18.923.896 (78.516.402) 16.456.403 (34,630,752) 10.658.493 3.236.274 2.331.584 11.974,248) 14.252.103 6.847.019 (73.521.590) 14,850 983 (37.571 435) c 8J3JLD aO JLS -^ 250.120.265 91 000.000 222.052 329 88.10C 000 159.120.265 4,726 824 154.393.441 335 688 133.952 329 3,577 670 129 974 659 I i 127.831 6571 S 154.729.129 S 102.143 102 S3 40 01 S2 87 161' . S3 41 S2 26 CONSOLIDATED STATEMENT OF CAPITAL SURPLUS The Dow Chemical Company and Subsidiary Companies Balance at Beginning of the Year ................................................... Add: Excess of selling or market 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.................................... Deduct: Retirement of treasury shares and transactions related to acquisition of subsidiaries..................................... Transfer to common stock relative to three-for-two stock split Balance at End of the Year............................................................... Year Ended December 31 1971 1970 $585,046,077 $574,699,429 15.189.085 313.951 600.549.113 79.614.095 $520,935,018 10.671.487 86.145 585.457.061 410.984 S585.046 077 CONSOLIDATED STATEMENT OF RETAINED EARNINGS The Dow Chemical Company and Subsidiary Companies Balance at Beginning of the Year (as previously reported) .......... Add -- Equity in undistributed earnings since dates of acquisition of associated companies and minority investments exceeding 20% Balance at Beginning of the Year (as adjusted) .. . . Add (Deduct): Net income for the year ..................................................................... Adjustments related to consolidation of subsidiaries ..... Deduct: Cash dividends.................................................................................... Retirement of treasury shares........................................................... Balance at End of the Year................................................................... Srf Accounting Principles and Notes to Financial Statements Year Ended December 31 1971 1970 $454,802,305 24,976.702 479.779.007 5430.696.301""* C=> 26.220.76^ ---------------------- CD 456.91 7.068F~ at 154.729.129 (31.943) 102.143.102^ 183.308 634.476.193 81.027.562 559.248.478 78 499.230 970.241 S553.448.631 $479,779,007 OPINION OF INDEPENDENT PUBLIC ACCOUNTANTS THE DOW CHEMICAL COMPANY We have examined the consolidated balance sheet ol The Dow Chemical Company and its subsidiary companies as ol December 31 1971 fl,xl the related consolidaled statements of income, retained ear nmgs. capital surplus, and changes in financial position . i the year then ended Our examination was made m accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in ihe circumstances In our opinion, such financial statements present lardy die financial position of the companies at Decembei j 1 1 971 , d 'he results ol iheir operations and Ihe changes in their financial position lor the year then ended m conformity with generally accepted accounting principles applied on a basis consistent .vith ih.n ol the preceding yeai as res'.aied as exp amed m Non-' and B 10 Ihe financial statements Detroit Midiui.in Febr.i.nv23 1972 ' (Millions of Dollars) 62 63 64 65 66 67 68 69 70 71 I Mint.., luh I a/1 INCOME DOLLAR A* a*ptn fc scnntn 50 I * WI M#fclrici^i mn J$ fl< 10 2 c )Sc Liifc Sic Urnftyi ler At ytar f*tn4 if* Ituftiu 3 4 c DOW WMut/SELLING PRICE INDEX <U S ) < S *" n6*' X? S' Net Selling pflctJ 8 CO 83 63 M 65 66 6? 68 69 70 CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION The Dow Chemical Company and Subsidiary Companies Year Ended December 31 ______ On thousands) 1971 1970 ____________ (itoWd-NauAi Source of Working Capital Net income before extraordinary items............................................................................................. 5 154.393 Charges (credits) to income not involving working capital. Depreciation...................................................................................................................................... 218.755 Equity in income --non-consolidated companies, less dividends received............................. (14.611) Minority interest in income.............................................................................................................. 4.727 Other--net.......................................................................................................................................... 11.954 Proceeds from sale of investments, less gains reflected in net income........................................ 10.406 Provided from operations........ Extraordinary items................................. Issuance of debentures........................... Sale of common stock to employees . Increase in other liabilities and reserves Disposal of plant property and sundry 385.624 9.317 26.000 16.538 8.263 5.312 451.054 S 129.975 207.744 (1.051| 3.978 11.216 13.094 364.956 17.131 274.000--* 10.25800 4.75Q_i 4.898c-, 675 9930 Use of Working Capital New plant and equipment ............................................................... Cash dividends............................................................................... Purchase of treasury stock ........................................................... Decrease (increase) in revolving credit and other long-term debt Noncurrent investments.................................................................. Increase in deferred charges and other outlays............................ Acquisitions of subsidiaries and purchase of minority interests: Working capital .............................................................................. Goodwill........................................................................................... Minority interests.......................................................................... Other --net...................................................................................... Increase (Decrease) in Working Capital Increase (Decrease) in Current Assets Cash and marketable securities............. Receivables.............................................. Deferred taxes.............................. Inventories.............................................. Decrease (Increase) in Current Liabilities Notes payable and current portion of long-term debt. Accounts payable............................................................ Income taxes and accruals............................................. Increase (Decrease) in Working Capital See Accounting Pnnc/pfcs and Notes to Ftnoncul Statements 364.600 81.028 21.056 (11.482) 10.736 10.955 155 5.127 9.988 (334) 491.829 $ (40.775) 348.09%^, 78.492-- t 1 5.969-- 108.074 i 22.157 ; 4.660 | 2.178 9.456 [ i 3.699 f 592.791 S 83.202 j . S 27.471 55.656 3.730 27.220 (112.208) (29.948) (12.696) S (40.775) S (54.769) 12.531 2.442 79.171 | : \ I 63.130 (10.0211 .9.282) , ; s_ J3_202 32 an  ACCOUNTING principles 'Ces ?l Consolidation The assets, liabilities, revenues and expenses of jll significant subsidiaries, except for a wholly owned Swiss bank, ire included in the accompanying consolidated financial statements. Because of the nature of its operations, the accounts of the Bank are not consolidated. However, its earnings are included in con solidated net income currently under fne equity mefhod ot accounting. 75 Commencing in 1971. the Company adopted the practice ot 14 carrying on the equity basis its investments in companies which 31| are 20-505t owned. This means that the investments are 78 adjusted to reflect Dow's share of the companies' earnings or 16 K losses which are included in consolidated net income. Dividends received are treated as a reduction of the investment. The cumula )6 11 tive equity in net income of such companies to January 1. 1971 ;o was recorded as a credit to retained earnings The effect of the 8 f change is shown in Note B 0 Other investments are stated at cost less applicable reserves. 8 i 3 Translation of Foreign Currencies Property in foreign coun tries is translated into United States dollars at the exchange rates which prevailed at the dates the assets were acquired. All other 3 assets and liabilities are translated generally at current rates ol 3 l exchange. Revenues and expenses are translated at the average 3 I exchange rates lor the year, except that depreciation expense is I adjusted to relied the historical rate. Wherever available, the parities established by (he International Monetary Fund are used as the current rate All translation gains or losses attributable to currencies of developing countries (principally Latin America) are credited or charged to income currency. In developed countries. 1 gams or losses relating to the translation ol long-term debt are , deferred over the life ol the debt: the amount deferred is adjusted lor net losses or gams arising Irom the translation ol assets and other liabilities. ^ Inventories Finished materials and work in process are stated I at standard costs, which approximate the current production costs, t or market if that is lower. Raw materials and supplies are stated at cost. I Plant Properties and Depreciation Depreciation is computed I over the estimated service lives ol depreciable assets using the f declining balance method in the United States and Canada. In other countries, the straight line method is generally used, j Expenditures for renewals and betterments are capitalized, and j maintenance and repairs have been charged to income Generally, assets that are fully depreciated are eliminated i from property and the reserve lor depreciation at the end ol each year, although the property may be still in use. In the case ol dis posals. the assets and related reserves are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. Tioobwifi The excess ot the cost ol investments in consolidated subsidiaries over equity in their net assets at dates u( acquisition is carried as goodwill. Any goodwill arising after October 31. 1970 is amortized over 40 years. Goodwill arising prior lo that date is related to investments which, in the opinion of manage ment. have appreciated in value, and no amortization is being provided. t/5 H Retirement Plans The Company and certain subsidiaries havP3 plans to provide retirement benefits lor eligible employees. ThF3 policy is to accrue and lund pension cost as computed by afr^ actuary. m Investment Turnover The profit or loss resulting from the disr' posal of assets held for investment and resale is segregated in the statement of income as investment turnover. Taxes on Income and Investment Credits The companies com pute and record income taxes currently payable based upon their determination of taxable income which may be diflerent Irom pre tax accounting income These differences may arise from record ing m pretax accounting income transactions which enter into the determination of taxable income m another penod. The tax effect of these timing differences is recognized by adiustment currently to the provision for taxes. No provision has been made for income taxes on the unremitied earnings of subsidiary companies, except as required under United States income tax laws. Either these earnings are considered to be permanently invested or the applicable tax would not be material. Laws governing the determination ot United States and certain foreign income taxes provide for investment credits or allowances which are deductible generally upon completion ot qualihed laciltties. Such credits are reflected as a reduction ol income tax ex pense on the llow through basis m the year in which they are deductible. In addition to tax credits, certain foreign countries provide investment incentives in the form of tax-tree grams which offset development and startup expenses of new facilities to which they relate Excess, if any. of grants earned over expenses incurred will be amortized over the life of the facilities. Research and Development All research and development costs are charged to income as incurred OTES TO FINANCIAL STATEMENTS A. [Restatement of Prior Years The financial statements as published for 1970 have been restated to give effect to the change in 1971 to the equity method of accounting for investments. Earnings per share have been restated also to recognize the three-for-two stock split as of July 1. 1971. Certain other items for 1970 have been reclassified for com parative purposes to conform to 1971 presentation. B. Equity in Earnings of Associated and Other Companies The effect on income of the change to the equity method of account ing for investments, as described in Accounting Principles, for 1971 and 1970 is shown below: (In million*) 1971 1970 Equity in income {loss): Associated companies (5014 owned)....... ... Ownership exceeding 20S but less than 5014.................................... Less: Dividends received.................................. Intercompany profit................................ Net increase (decrease) in income before extraordinary items...................... .... S18.8 J 18.9 7.7 S11.2 S8 5 (1 7) 6B 81 10 SJ2J) Per share .................................................. . S 25 $(05) As a result of the change to the equity method of accounting, retained earnings was credited with S24.976.702 which at December 31. 1970 represented equity in the undistributed net income since dates of acquisition of 20K-50?i owned companies The carrying value of the investments in such companies approxi mates the Company's equity in their net assets. C. Extraordinary Items A summary of significant extraordinary items of income and expense, net of the related income tax is shown below: ______________ fin millions! 1971 1970 Gam on disposition of subsidiary and associated companies.................................. S 5 7 Gain (loss) on Phrix-Werhe A.G. investment................................................. 2.5 Plants and projects abandoned............................... (9.7) Equity m extraordinary items of 2014-5014 owned companies--net............... 34 Other................................................................ JU5) S 22 (31.1) 1.1 _____ Net income (expense), alter tax...................... S_J S|27 8) The Company sold its investment in the capital stock of a small subsidiary in December 197! at a profit of $7,815,196 before income tax reduction ol $2,113,482. In 1970. the investment in Phrix was considered worthless and income was charged with $31.073.000 representing the full cost, less estimated income tax reduction of $12,294,000. The Com pany sold all shares of this stock in 1971 lor $3,665,521 which resulted in a profit of $2,529,210 after income tax provision During 1971, the Company announced a program fcr phasing out its present chlor-alkali facility in Sarnia. Ontario and replac ing it with a process which does not use mercury. Accordingly, income for 1971 was charged with $9,008,600 representing the cost of the plant, less related income tax reduction of $4,870,238. Several incomplete capital projects which were abandoned during the year account lor the remainder of the 1971 loss. D. Plant Properties Properties and accumulated depreciation at December 31. 1971 were: Classification! (In Ihousindi) Accumulate Cost Dtpiacianon Land................................................. . .. Land & waterway improvements......... Buildings........................................... Machinery & other equipment............. Wells A brine systems....................... Furniture A fixtures.......................... Other................................................ Construction in progress.................... S 52.846 58.907 297.982 1.884.504 37,829 27.977 20.271 342,581 S 24.672 128.634 956.880 22.538 15.270 10.798 Total.......................................... . . S2.722.899 SI.158 792 E. Goodwill The amortization ol goodwill acquired after Octo- ber 31, 1970, as required by recently promulgated accounnng rules, was not materia) in 1971. There was no amortization pro-^ vided in 1970. _j F. Long-Term Debt and Available Credit Facilities Details ol long-term debt were (In thovsjrdj) December 31 1971 1970 .rc*ro> Promissory notes 4.5S. final maturity 1990 ................. . 5.ON. final maturity 1991 ..................... Debentures 4.35S. final maturity 1988................. 6.70S. final maturity 1998.................... 7.75Y final maturity 1999.................. 8 87514. final maturity 2000 ................. 8 90%. final maturity 2000.................... Debentures, subordinate convertible. 314 due 1982 (1971 -22.324 common shares reserved!.................................... Note payable under revolving credit agreement, due 1975 (total avail able facilities SI 10.000.000)'............... Other (various rates and maturities) Foreign currency loans............................ Dollar loans........................................... S 110.000 92.000 75.928 100.000 100.000 150 000 150 000 728 30.000 149.816 51.664 1 SI 15.000 96.000 79 010 ICO 000 ICO 000 142.COO 1 32.000 1 085 4G 000 r 7,709 46 iitjl Total.............................................. . SI.010.136 S369 84$ In addition to the $90 million o/ unused credit under this tgreemeni. ihe*?,s ^ additional $225 million ol credit available under a revolving credit agreement United Slates banks The Company also had a 1.0 bitoon Deutsche mark with a group cl motor German trunks which is eurosafcle Hvcu<;h 1974 ' The promissory notes and debentures are payable generally Ip annual installments. Installments (stated in millions) due on long-term debt in the ,ive years alter 1971 are 1972. $35.2; 1973, $38.7; 1974, 545.0; 1975. $76.5; 1976. $41.1. G. Stockholders' Equity At December 31. 1971. authorized capital stock consisted ot 100.000.000 common shares and 25.000.000 preferred shares of $5 par and $1 par per share, respectively. The changes in the number and amount of issued shares ol common stock during 1971 were. At December 31. 1971, there were 468.230 shares available for grant. The Plan also extended to May 1979 the previous authority for granting dividend units. In May 1971, the Company made an offering of common stock to its employees at $57.00 a share, payable generally through payroll deductions. At December 31. 1971. there were unfilled subscriptions for 194.015 shares which may be cancelled at the option of the employee. Partial payments on these subscriptions aggregating $7,030,000 are included in current liabilities In computing earnings per share, no adjustment was made for common shares issuable under stock purchase and option plans or upon conversion of 3% debentures because there would be no material dilutive effect. Shim__________________________________________________Amount Issued January 1 ................................ Adiuslments to rellecl three-lor-two stock split ................. Sold to employees................................. Conversion of debentures...................... Issued December 31.............................. 31.617.824 15.808.913 381.349 10.948 47.819.034 $158,089,120 79.044.565 1,906.745 54,740 $239,095,170 H. Foreign Exchange In 1971. pre-tax income was charged $5,376,706 representing loss on currencies of developing coun tries. Net translation loss of $3,155,811 on long-term debt in currencies of developed countries was deferred; no amortization was provided in 1971. Net loss on currencies in 1970 was $1,075,487. all ol which was charged to income. 29t0001S At December 31, 1971. there were 45.375,824 shares ol common stock outstanding, after deducting 2.443.210 shares ol treasury stock. No preferred shares have been issued. The stockholders previously authorized plans lor granting options to purchase common stock at the fair market value at the date of grant to officers and key employees. The options must be exercised within five years from the date of issuance. Changes during 1971 in the number of shares under option were 19(7 Option Plan 1984 Incentivo Plan Dividend Unit*-" Options (adjusted lor three for two stock split July 1. 1971 j. Outstanding January ? . Granted .................................. Exercised.............................. expired or terminated............ Outstanding December 31 . .. Not optioned December 31........ Price range on outstanding options at December 31 ...... 493.121 86.827 64.191 867 514.890 20.919 $40 96 to 67.29 100.125 . 69.930 22.695 7.500 92.130 4.500 3.750 92.880 282.120 $40.00 lo 50.83 "A dividend unit is ihe right to receive lor a specified period cash payments equiva lent in value lo cash dividends paid during suchpinod on one shara oi common stock. The Company's Award Plan permits the granting, during the ten-year period ending May 1979. of 525.000 shares of Re stricted or Deferred Stock, or a combination thereof, to selected employees in lieu of cash for services. During 1971. 735 shares of Deferred Stock were awarded, no Restricted Stock was issued. I. Retirement Plans The total cost of pension plans for all companies in the consolidated group in 1971 and 1970 was $20,580,388 and $17,177,000. respectively. Pension fund assets exceed the actuarially computed value of vested benefits. J. Taxes on Income The provision for income taxes consists ot: _1971 (In millions) 1970_ Taxes currently payable I net ol investment lax credits. 1971. $50 1970. $9 I) .... Add (deduct)--deferred income taxes . $85 3 _5_7 538.2 .11 Provision for income taxes ... $91 0 588 I K. Investment Grants Investment grants credited to "came in 1971 and 1970 amounted to $894,405 and $200,000. r;spectively. At December 31, 1971. there were deferred investmeni grants of $8,248,031 to be used to offset future plant development costs. L. Contingent Liabilities and Commitments Suits have been started against the Company and certain subsidiaries because of alleged product damage and other claims. All suits are being contested and the amount of uninsured liability thereunder, if any. is considered to be immaterial Lease rental payments (stated in millions) due in each jl the five years after 1971 are: 1972. $42 4: 1973. $37.5 1974. $33.1: 1975. $29 4: 1976. $27 5 CONDENSED COMPARATIVE STATEMENTS The Dow Chemical Company and Subsidiary Companies rST000^62 1971 1970 1969 1968 1967 1961 1951 Financial Condition (in millions) Current Assets: Cash and marketable securities Receivables {less reserves!............................. Inventories........................................................... Total current assets .. . Current Liabilities Notes payable......................... .................. Accounts payable and accruals...................... Taxes on income....................... Total current liabilities................................ Working Capital. .. (A) Property (at cost) . Depreciation.................. Net property .. .................. IB) Other Assets........................ Investment |A| plus |B| plus (C) Long-term Indebtedness Other Liabilities and Reserves Total.................. (C) <D, |E> Common Stockholders' Equity (D) minus (E) S 106 1 504 3 395.5 1.005 9 S 78.6 445.1 368 2 891.9 S 133 4 430 0 289 1 852.5 S 1417 357 9 276 3 775 9 S 104 5 307 0 216 6 628 1 S 48 5 1356 164 6 348 7 368 3 366 8 56 4 791 5 214 4 2.722.3 1.1588 1.564 1 508 7 2.287 2 1.010 1 80 1 1.090 2 SI.197.0 229 3 350 6 56 8 636.7 255 2 2.524 3 1.086 1 1.438 2 474 7 2.168 1 969 8 70.8 1.040.6 St.1275 337 8 291 1 51 6 680.5 172 0 2.305 1 1.010 1 1.295.0 498 5 1.965 5 798 0 61 0 859 0 SI.1065 246 5 272.4 52 5 571 4 204 5 2.060 4 933 4 1.1270 441 6 1.773 1 684 6 46 6 731 2 SI.041 9 175 5 199 0 45 7 420 2 207 9 1.756 0 859 9 896 1 426 6 1.530 6 551 6 58 557 4 S 973 2 101 2 86 2 25 8 213 2 135 5 1.307 8 696 0 611 8 96 3 843 6 152 7 13 154 0 S 689 6 5 47 6 42 7 488 139: 2 416 67 1 1039 30 2 394 5 104 2 280 3 95 320 0 62 4 364 98 8 5221 2 Income (in millions) Net sales of products and services Cost of sales. Selling and administrative expenses Products and services operating income Investment and sundry income --net Interest income (expense).................... .. ... Non-products and services income floss) Taxes on income................... Minority interests' share in income ..................... Net income before extraordinary items . . Net income after extraordinary items ........... S2.052 7 1.5173 250 7 284 7 43 9 (7851 (34 6| 91 0 47 $ 154 4 S 154 7 SI.911 ? 1.4178 233 7 259 6 36.0 (73 51 (37 51 88.1 4.0 S 130 0 S 102 1 SI .797 1 1 348 7 208 7 239 7 43 9 (54 31 (104| 81.5 52 S 142 6 S 142 6 SI 652 5 1.225 2 1988 228 5 32 0 (33 9) (1.91 92.0 40 S 130 6 S 130 6 SI 382 7 1.032 8 1350 214 9 28 1 <21 0) 71 87 7 S 134 3 S 134 3 S 841 7 649 2 96 5 96 0 150 (7 9. 71 42 3 1 1' S 60? S 60 9 S339 6 211 J 20 7 107 5 36 .4 32 69 C 2 S 4' 5 S 4! 5 Other Statistics (in miltions) Additions to property.................... Depreciation........................ Research and development expenses ................ Taxes(maiof). . . . . . . . . . . Wages and salaries paid Cost of employee benefits Number of employees at year-end (thousands) Cash dividends declared on Common Stock Per share ol Common Slock (indollars)! | Earnings before extraordinary items Earnings after extraordinary items Cash dividends paid Market closing price on December 31 | ) Adjusted fo stock spirts and stock oividends S 364 6 2188 95 3 161 8 464 7 72.2 47 8 81 0 3 40 341 1 77 78 83 S 348 1 207 7 91 5 136 5 433 2 64 4 47 4 78 5 2 87 2 26 1 73 49 08 S 370 6 177 9 87 3 140 7 4106 56 3 47 4 77 3 3 14 3 14 1 67 45 75 S 306 3 157 2 83 8 144 5 385 1 47 9 47 4 72 5 2 89 2 89 1 57 52 00 S 192 3 136 0 76 8 125 9 325 6 33 6 36 4 66 1 2 98 2 98 1 43 58 08 S 1150 994 51 0 70 4 224 3 21 2 30 6 43 5 1 35 1 35 91 46 86 S 91 C 22 4 170 75 0 73 ? 7l7S 15 - V. 951 *Sj3 ii] 2 16 1 7J as 32 15 IJ J3 15 0 4 4 8f ^I i f o i 7 ) \ I LOCATIONS & HOLDINGS The Dow Chemical Company Corporate Headquarters 2030 Dow Center Midland. Michigan 48640 UNITED STATES 45 Manufacturing Locations tn 25 States and 1 Territory* Arizona-- Tucson Arkansas --Magnolia Russellville California ~ Costa Mesa. Fresno. Pico Rivera. Pittsburg Torrance. Van Nuys Colorado --Denver Golden Connecticut --Gales Ferry Trumbull Florida-Miami Georga - Da.ton. Lawrenceville Hawan - Honolulu Indiana - Decatur. Indianapolis Zonsvilie k>wa- Davenport Kentucky-Carrollton Elizabethtown Louisiana -- Piaauemine Michigan - Bay Dty. Ludingicn Midiand Minnesota -- Brwabik Missouri -- Cape Girardeau. Pevely New Jersey - Carterc I New York - New York North Carolina- Greensboro Ohio --Cleveland Findley, fronton Newark Ck lahoma -- Tu Isa Pennsylvania- Roverslord South Carolina - Anderson Texas -- Freecor: Oyster Creek Virgin Islands --St Crcxx Virginia - Williamsburg Washington -- Wenatchee Pnnc.cai Pam / Owned Companies Cordis Dow Coro Miami FionOd (50>i Doico Packag.ng Corp Los Angeles California (50%) Dow Badische Company Wiibamsburg Vugmia (50%i Dow Coming Co'DOialion Midland Michigan ;50'? The Kartndg Pak Co Davenport. iowai50S) Oasis Pee Lne Company Houston Texas-30%) EUROPE 2 J Manufacturing Locations in 9 Counrnos Beigium-Seneffe France - Drusenherm Germany - Greffern. Stade Greece - Lavrion Italy-Bnndsi Cuneo. Uvomo. Milan. Naples Venice The Netherlands - Rotterdam. Temeuzen Portugal - Lisbon Soarn --Sarceona Bi-'bao Madrid Santander. Tarragona Untcd Kingdom - King $ Lynn. England. Barry Wales Principal P^ily Owned Companies Bank Mendes Cans Amsterdam The N-'tlvrUrwIS (4(V'i Compagme des Services Dowell Schiumberger Pans France (50%) Dowell Schtumberger Corporation. London England (50%) Dow-Unaumesa S A. Sitoao Spam{85%) Gruopo Lepetit S p A Milan. Italy <7 8%) LATIN AMERICA 1 1 Manufacturing Locations m 6 Countries Argentina - Buenos Ares Cordoba. San Lorenzo Brazil-Guaruja. Sao Pauk? Chile-Concepcion Santiago Colombia-Barrancabermeia Cartagena Ecuador-Gjito Mexico - Mexico City Pnnoodi Parity Owned Companies Atanor S AM , Buenos Ares. Agentma(24%) Banco Gdade de Sao Paulo S A Sao Paulo Brazil|45%) Laboratories Industries Farrnoceuticos Ecuatonanos. Gj'to Ecuador <63%) Petroduimica Dow S A Concepoon. Chile 170Piromides Brnsiita S A Industna e Comeioo Sao Paulo Brazil (23 v CANADA 1 0 Manufacturing Locations in 4 Provinces Atbe^ta - Edmonton For: Saskatchewan BntiSh Cokjmhi.i-- Ladr-.' Ontario - Don Mi'Is S .i T':unc).;r B y Toronto Weston Quebec - Montreal V---n-e> PACIFIC 1 3 Manufacturing Locj'ons .n 6 Cconiri^ * Australia --A)ton<a Brs-c"* Rhodes S-rjihi'em India - Bombay Japan - Kjwasaki Y'.'/v ma \rj trC* i Sacporo. Suzuka Korea- Usan tunoe' c'r'-struc!>oni Ma avsui -- KuoU Lum; New Zealand-New P -.moult' Principal Partly Q*neo Lor-pan.es Asahi Dow Limited Tcn-.o Jaoan<50'j Consolidated Fertilizer Ltd Brisbane Austrafia<20%) IvonWotkms Dow Ur*iten \f>w Plyiv.^iili New Zealand (50 Korea Pjof'C Chemica Co'C&r-ihon Usan Koreai50*^i Pacific Chemicals Be^v:. K,,ata Lumper Mahys>a 150%) Poiycheni Limited oc- .'v inn.a<25 ... .-- a.str'oiv . ' .'.i . y v > * f.. ' > ' ~> Photo C'tMilS F.tKm 6 lehr ten imo -. Ti v BuMhi Hln A'Clive I'K. ** ' Yo t to I o I ' *H.W 'tjffWWWPW WJj A-> mmrnx 3 l ST001U625