Document KjJzM1OvBQKZ7O3za3GxYbdK

*t DOW PLAINTIFF'S EXHIBIT he DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HE . DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 O- HE DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 :HE; DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 'HE>DOW' CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 fHE^DoW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 HEjQOW .CHEMICAL COMPANY ANNUAL REPORT FOR I HE. YEAR 1963 h^d.qw,: CHEMICAL COMPANY ANNUAL. REPORT FOR THE YEAR 1963 i Cj DOW CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 E^DdW ` CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1963 '* t'?y i|0OW CHEMICAL COMPANY ANNUAL REPORT FOR THE. YEAR 1963 CHEMICAL COMPANY ANNUAL REPORT FOR THE YEAR 1S(63 CHEMICALCOMPA^Y ANNUAL REPORT FOR THE .YEAR 1963CHEM I CAlii' COMPANY ANNUAL, REPOR T' FOR THE; YE/\fe963 tm * -V-i TH ^ Y E^R^^^M w : ST GO 2 1 3 1 3 Annual Report, The Dow Chemical Company, for the year 1963 In (he siory of a year's activity within a major company, certain occurrences carry special significance. Some are important as markers of new directions being taken. Others reveal achievement brilliantly won. or superiorly patiently built. And while all necessarily reflect the philosophy guiding the company's actions, some will be particularly illuminating in this regard This Annual Report summarizes Dow's activity of 1963. A few developments are discussed in more detail than usual, as significant and indicative of Dow's continuing record of progress. SIXTY-SEVENTH FINANCIAL REPORT i Operations Highlights (IN MILLIONS) Net Sales Total Income Depreciation, Amortization, and Depletion United States and Foreign Taxes on Income Earnings for the Period Earnings per Share Cash Dividends Declared Common Stockholders' Interest 1963 $967.7 989.4 99.2 64.6 80.7 2.73 47.1 724.9 1962 (UNAUDITED) $926.2 946.4 99.6 58.5 72.9 2.51 46.6 698.8 Shares of Common Stock Outstanding 29,523,118 Common Stockholders 98,700 29,060,983 100,300 The Company changed from a fiscal year ended May 31 to a calendar year effective December 31. 1962 Income and surplus statements shown in this report for the year ended December 31. 1962 are for comparison only and have been prepared from the records without audit. 4 Mnnnti! Report 1963 The President's Letter To tme Stockholders: When you look at the 1963 earnings shown in this report, keep these facts in mind: Dow's over-all price (index dropped four per cent during the year; this was the third straight year of price declines at this rate; each one per cent drop in the index takes away about S5 million of potential Dow net earnings. That's what makes our ten per cent gain in earnings a satisfactory accomplishment for 1963. This gain was brought about by increased effective| ness in Dow's operations. Our past efforts--for the better, faster, easier, more productive, less expensive way to do the job in office, laboratory and plant--have built up real momentum, becoming a habit at all levels of responsibility. The 1963 results, in terms of improved effectiveness, were superb. We can be proud of the j 3 1.500 Dow employees whose individual performance I contributed to this. I want particularly to mention one group of Dow emplovees. They number about fifty, and they are usually identified as "top management." Each of these men works in a key assignment within Dow, a major assignment such as management of a product depart ment. a production division, a sizable research labora tory. a corporate staff or marketing group. ! Notice that I say these men work. Indeed, that is the prime characteristic moving them upward in Dow. j All have shown wide capabilities and acquired broad experience within the company--for while their average age is perhaps forty-five, their average Dow service runs close to twenty years. This top management gioup is a Dow resource in depth. Today, these are the men--talented, experienced, enterprising individuals--who run the company's dayto-day operations. They have a large role in our longrange planning. And as they assume greater and greater responsibilities with each step of Dow progress, in a sense they constitute a new and changing management. This management team we arc evolving ranks with the best in the industry. For this, credit must go to those Dow veterans who managed the company to its present position. They took the time, while building Dow. to find and test and train their successors. One of the greatest of these veteran bunders was lost to Dow in the death, on March 27. 1963. ol Dr. C. J. Strosacker. A genius in chemical production, a pioneer in research, a manager in the finest sense. Dr. Strosacker was a long-time officer, director and mem ber of the Executive Committee. He was a Dow em ployee more than fifty-four years and had a major part in developing such important areas of our activities as phenol, petrochemicals and plastics. The spirit and character which Dr. Strosacker and his associates implanted in Dow is still with us It shows in continuous and increasing effectiveness throughout the organization, especially in our top management ranks. It is a major factor in the strengths upon which we base our optimism for the years ahead. Sincerely, March 12. 1964 President GO CO go ! r-o no a DOW WAGES AND SELLING PRICES to I-------------------------------------------- ------------------------------ lost 19S9 1960 1961 1962 1963 CALENDAR YEARS QUARTERLY SUMMARY 1963 1962 V. QUARTER ENDED SALES IN MILLIONS EARNINGS PER SHARE* 5ALES IN MILLIONS WARNINGS PER SHARE* 3/31 6/30 9/30 12/31 224.1 246.0 249.3 248.3 .63 221.9 .80 239.8 .64 231.9 .66 232.6 TOTAL 967.7 2.73 926.2 * Based an thorn outstanding at December 31. .42 .83 .68 .58 2.51 Finance and Earnings Earnings after taxes for the twelve months ended on December 31, 1963, amounted to S80.7 million, a ten per cent increase over our earnings in calendar 1962. The earnings per share, on stock outstanding at year's end. were 52.73, tin increase of 8.7 per cent. Since dollar sales were only 4.5 per cent above the 1962 level, this increase in earnings is particularly note worthy. It is due primarily to continued reductions in product costs. The investment tax credit in 1963 amounted to 52.2 million, of which forty-eight per cent--equal to about four cents per share after taxes--was credited to current earnings. You will note from the chart showing the index of selling prices that events of 1963 bore out our prediction of a continued severe decline in prices. We feel, how ever, that the four per cent rate of decline of the last three years will abate in 1964. In October of 1963, we sold $100 million of 4.35 per cent debentures to the public and used the funds received to repay a like amount of long- and short-term debt. Subsequent events have proven the timeliness ol this financing. A statement showing source and application of funds appears as part of this section of the report. The in creased working capiial shown in the statement repre sents principally a decrease in short-term debt and an increase in accounts receivable. In May of 1963, Dow paid a two per cent stock divi dend to shareholders. This was the sixth such dividend in the past ten years. An increase in the cash dividend lias been declared6 by the Board of Directors, to begin with (he payment to | be made on April 30, 1964. This establishes the annual cash dividend rate at 51.80 per share; a rate of S 1.60 has been in effect since August, 1961. Capital expenditures for the year were S.S2 million. ' j This compares to the 569 million invested in new and C/ expanded facilities in 1962. It is expected that these z\ expenditures will rise again in 1964, to appioxim.uely CD SI00 million. Sales Sales of Dow products and services were S96S million in 1963. a 4.5 per cent increase over our record sales in the 1962 calendar year. Sales to U.S. markets were up moderately and, in a reversal of 1962 experience, overseas markets showed major increases. Our major product categories brought in these approx imate shares of the total sales income: Chemicals.........48^2 Bioproducts .... 9 ' Plastics............. 36% Metals...................7% The gains in world markets trace to groundwoik uene in past years and our ability, as European and other overseas economics open new opportunities lor u- to move rapidly on such opportunities. Through much ot the year our foreign sales showed a growth rate over thirty per cent. At year's end. this growth had sealed to a lower but still substantial rate. Our position ,:nJ outlook for the coming year show promise of continuing satisfactory progress in overseas activity. In the U.S. marketplace we sec no slackening ol earn- 6 .-I mttnol Hcpon 1963 SOURCE AND APPLICATION OF FUNDS (IN MILLIONS) j0urca funds. Earning* for the year Depreciation ............................... Total cojh flow............................................. Increase in long-term debt........................ Sole of fixed assets and other receipts TOTAL ................................................... $ 80.7 99,2 $179.9 40.9 ___ 4J1 $225.6 Application of funds: Cash dividends........................... Capital expenditures............ Purchose of treasury stock . Increase in working copifol Other ................................................ TOTAL........................................................ $ 47.1 62.1 8.4 84.2 3.8 S225 6 l^bow^Builds'^rTTStrenqtHsiandlDept K>- .a<., *:.-,* <*, at, ijFor.Bigger^Roletm GrowthTAreas Dow, in setting'up three new'corporate^'departnients'in . 1963, emphasized the growing dimensions of inactivitiesA --and, mbresig'nificantly, its estimates'and intentions-1*-'1* , j'n certain areas of opportunity.';f. i The^three -are'.'the .Government'Affairs tE>epartment^fa '''the'Consufner Products' DeparSneht^nd tbe'Packaging ! ! Depajtment.J.;.EachJmarks'?ah.|66rganizational'step,,for. , ,. broadened application of Dow strengthsand 'capabilities ^ ; f in service and supply. tojaYge^ndlitiJi^xpandirig mar,' kets\'*Eacmpn>ceed$jfr6nj;a base'ofVrior Dow experii.- ence'^ndj^ffwealth'iof idos'ely'^relatedXtechnical.'and. fl+^*_o____p__.et ralt*i11n1gMe^l"lxs1 ^pr i-1^tIm n Iff r ir^TP rrTlr mtr ~ - % tin recent' years, for^inst-ands; Dow.hasjbeenSupplier !v and contractbFfor-th'e. UnitedjStatS"Government to a i^relatively''modest'extent/?We'sold_variouY'chemicals to gu n o o petition. The pressures arc real and constant. But the improving elfectivcness developed throughout Dow in recent years, particularly improvements made during 1963. have strengthened our position in several areas. As indicated in the President's Letter, our over-all price index declined last year. It is worth noting, howex er, that prices on some major products have moved up from past lows. Where price improvement has not been possible, production efficiencies and reduced manul.icturing costs have allowed us to maintain profitability. Our emphasis in marketing remains on sharpening and extending our ability to anticipate, identify and move rapidly to meet market changes. The pattern of oiu marketing organization focuses our strengths on the twenty-plus businesses identified as those Dow can most profitably serve. Besides meeting current product and service needs of customers, the pattern enables us to handle new needs as they emerge. Where appropriate, tnc organization changes--as in 1963 with establish ment ot the Government Affairs Department, the Con sumer Products Department and the Packaging Depart ment--in keeping with present and projected growth of the businesses in which we see opportunity for Dow. Further opportunity lies ahead as the American economy, moving to higher levels, presents new demands on those who would serve it. Dow's capabilities in mar keting, backed by strengths in research and production, ,tre aimed at maximizing on those opportunities. Chemicals sales reached a new high in 1963. In all lines, competition was a continuing factor, competition :president,.las director,'the Government AffairsDeparii^ment is roarging`these rples^Gur'Capabililie^ijdceit^; logical. to'seek mai6f?cohtiacts:in'the.,'hStion'sw'defense ' and acrosjjace*programsT'an3 'imsucH 'fields^Sf $2sinarch ~ . yas desalination of.waterykir and water pollution, ocean ography, space'sciences.lsblidahdTiquiddi^^^^^ y.nuclear sciences'and others.a A The. Consumer Products^Department signals,growth, '"in number and in sales volume,'.of Dow-produced items for the ^general`consumer.'^This began1 in'-1952 with Saran Wrap* film. Handi-Wrap food wrap was added in I960. - During 1964 Dow will market nationally a new and improved type of Saran Wrap film, Handi- Wrap food wrap in rolls and the new Handi-Wrap Sandwich Bags,' Dow Oven Cleaner, and Ben-Mont gift wraps and accessory products. Saran Wrap Squares and Handi-Wrap Refrigerator Bags will also be mar keted in some regions. " Market study, product development and market test ing continue on still other consumer items. Having built an effective knowledge in depth for this most competitive field, Dow is expanding its activity on that knowledge. In the Packaging Department all of Dow's activities associated with packaging are being grouped together. - Implicit is the potential seen for the broad field of pack aging, where the depth of Dow know-how--in plastic coatings, films, sheets, foams, and their converting and combinations with foils and papers, as well as their extrusion, molding, forming and printing--finds con stantly widening application. This department will act to extend Dow's role as a supplier of both packaging materials and of finished products. Registered Dow Trademark Dow Trademark GO --1 Supporting Dow's ability to compete in distant mar kets is an extensive, effective distribution system. by imported materials increased for our chlorinated solvents and certain inorganic chemicals. Sales were particularly strong for alkylene oxides, glycols and glycerine, bromine and bromide products, and phenolic derivatives and their related products. For magnesium hydroxide, growing market opportunities in the pulp and paper field are leading to production expansion. Our approach to profitable growth by development of new products and new applications to fill special needs in specific markets reflects in the 1963 record. The metal-working industry's acceptance of Mapp4 gas as a more effective, safer and easily handled fuel for cut ting and flame hardening has led to plans for national marketing this year, fn the field of water and waste treatment. PuKtrLOc'-' 601 flocculam conditions waste sludges more effectively, less expensively; the product has achieved robust sales in its first year in the market. Dow announcements on ethylenimine and diphenyl oxide derivatives are discussed on page 10 of this report. Other new products introduced during 1963 included an industrial preservative, a new solvent, a strength additive for paper, and two new ingredients for paints Developmental work on a line of metallized explosives lor the mining industry has advanced to the planning of a commercial plant to manufacture the line. Another promising development, a new process for manufacture of phosphoric acid, is moving into the pilot plant stage. Dow produced and sold plastics in record volumes in |y63. Profits held firm; volume sales and improved K<>vrtvi Di; TriJf/rijrk 5roducts Moved Fast and To Order ln; Distribution "Phase*of Marketing ffirt-..' .This report makes frequent mention of marketing, qr, marketing organization, marketing plans, marketing ef3 ' forts. -To grasp the extent and complexity of this corp&| . >rate activity, and its importance to profitability, a fejt" j^detailson one aspect may Joe helpful. '.'.wfflL .^Marketing; by definition; is "an aggregate of function? i.'"involved in transferring title and in moving goods from? ^producer to consumer including among others buying? '^selling* storing, transporting, standardizing, financing,! ,1risk bearing, and supplying market information.'' DoWj ;^does~all of these things'and has developed capabilities^ glar'd knowledge'1 in' depth. for' marketing similar to its* lengths in other areas. .......'. . ,,, ... v "Take transporting and storing of goods'as an example; A "good producacquires'its full value^only when it's. atoJ where> Customer can use iti,-To'move goods, tiJ [customers ;in"^I5635DowJ.regulaHy utilized three 'seal 'going ships, twenty barges and 3,500 railroad tank cars? ,:In every average day 240 railroad cars--tank, box, hop? per, flat--left Dow shipping locations. And every hour,^ sixty-five trucks also left.Dow shipping points."* - Some goods, packaged at Dow producing points, must be moved to temporary storage close to customers, to await their orders. .Over 800,000 square feet of ware house space, in sixty-five market areas, met this need for Dow last year. General chemicals and bioproducts, plastics and metals, as well hs consumer products, were ; involved in this phase of warehousing. To serve other customers Dow moves materials in bulk from plants to terminals, and then transships in bulk or packages the goods in smaller containers. Over the past year this part of marketing involved twenty-five terminals with storage capacity for over 22.5 million gallons of seventy-five different bulk chemicals. From bulk storage at these terminals, Dow packaged for de livery to customers more than 250,000 55-gallon drums of material plus more than six million smaller containers during 1963. This distribution network, more than a decade in development, keeps pace with Dow's increasing volume and variety of output and business activity. Effectiveness also keeps pace by the working out of new techniques and adoption of such innovations as electronic data processing for order, inventory, shipment and other information. The 1963 result; record volumes of goods were handled more rapidly, at lower costs and by fewer people. For customers, the Dow distribution network means convenient and economical access to Dow's productive capacity. For Dow, the distribution network serves to take the competitive advantages of our other capabilities to distant areas--and profitably. 3-2 5 H Itui/u:} HrptJil Hon utility right s-of-nay we cleared of brush by Tordon herbicide spraying is shown in these before and after photos. plant operations offset price declines for several major products such as polystyrene and polyethylene. Notable gains were made in our coatings business, involving monomers, latexes and resins for use by the paper, paint, textile, packaging and reinforced plastics industries. With many promising new or intprosed prod ucts at hand, continued growth is indicated here. An example is our new Latex 35S for maintenance paint, illicit has proved an outstanding performer. Growth in the construction materials business has been led by our line of foamed plastics. Poultry raisers find SmtoroAM' expanded polystyrene an elfcctivc in sulation and sheathing material for poultry houses. In general construction, the use of Styrofoam insulation boards in roofing showed excellent progress Among the many materials we produce for the pack aging business. Ethxtoaxi* expanded polyethylene, a flexible foam, gained strongly in usage. Late in the year, a Packaging Department was established to direct Dow's increasing activity in the field of packaging. During 1963, U.S. producers turned out more than nine billion pounds of plastics--and more than one bil lion pounds came from Dow. With more than a dozen of our plastics materials produced at capacity last year, we plan expansions in several lines for 1964. Bioproducts sales in 1963 showed increases in most major categories. Herbicides, feed industry products, soil fumigants and fertilizers led the over-all growth in agricultural and industrial bioproducts. For several of our older prod ucts. market demands required capacity production. We arc building on this established marketing base with a number of new materials. Tordon* herbicide, especially effective in controlling brush and perennial xvccds, found ready acceptance for maintaining right-of-way when introduced in the utility markets in 1963. It is now being marketed to industrial users for plant site maintenance. A new plant to produce Tordon was completed ahead of schedule. N-Scrve7 nitrogen stabilizer is expected to go into limited marketing this year. N-Serve prolongs the action ot ammonium fertilizer, reducing the need for repeat applications during the growing season. Other new products include Sirlene5' feed ndditixe. a feed and water supplement for farm stock and pets. Gelgard- F fire control polymer, a thickening agent for water in fire-fighting use; t.nd--in development--a medicated mineral tor cattle to control hornflies and grubs. The Pitman-Moore Division increased its sales of human pharmaceuticals in 1963 but, due to production difficulties and market competition, experienced a decrease in sales of biologicals. The live virus measles vaccine which we had expected to reach market in 1963 has been delayed by developmental problems, however, continuing tests confirm the Dow vaccine's excellent properties. We are confident that this product will he a valuable addition to our human health line. Increased profitability and improvement in our com petitive position marked 1963 activity in magnesium Process improvements boosted magnesium production * Rs'diMx rrJ Dou Tradcrra ' 0 ST00J4323 \ j ] 1 | ] capacity without expansion of our facilities, and also reduced production costs. Additional capacity gains and cost reductions arc expected in 1964 and 1965. Magnesium shipments gained only slightly last year over the 1962 level, but showed the best profit of any peacetime year. Sales to the aluminum industry, for use in alloying, gained substantially. Uses in die casting also increased, particularly in lightweight applications such as power lawn mowers and portable tools. With continuing process improvement plus ample reserve capacity, Dow has a strong capability for sup plying world as well as domestic market needs in magnesium. We are working to expand world con sumption of this metal by such means as a program of international licensing of Dow's know-how and tech nology in magnesium die-casting. Our metals technology opens opportunities for Dow in the nuclear fuels field, and plans have been announced for a nuclear fuels laboratory. In Europe, joining with the German company Nukem, we have formed a new' firm called Alkem to process and fabricate nuclear tuel elements. Our precolored acrylic fiber, ZefkromeU moved into textile markets on a commercial scale in 1963 w'ith good sales results. At year's end both Zefkrome and our first textile material. Zefran- acrylic fiber, were being produced at capacity. Development of a basic-dyeable acrylic fiber prostressed to the building of a seniicommercial production plant in I 963. Operation ol this unit began in December. Ri-cioc'fd D-* Tr.ic.rmjt*. 10 Antui-ii Rci'-nt l')6J Research Successes Unlock Potential For Volume Uses of Ethylenimine, DPO Two developments publicized by Dow during 1963 shed light on the type of challenges met in today's search for "new" chemistry. The developments concern ethylenimine and diphenyl oxide derivatives. Neither is new to science: --Ethylenimine, a highly-reactive material, has been known for seventy-five years. Researchers marked it as interesting and promising, but industry used it most sparingly. Ethylenimine simply cost too much for com mercial use in volume. --Diphenyl oxide derivatives carried a different handi cap. Readily available because diphenyl oxide is a by-product of Dow's phenol process, the derivatives just weren't reactive enough. They couldn't be worked into advantageous combinations with other materials. Why devote time to such problem products? Dow worked on ethylenimine for its extremely broad potential. Research literature shows some 1,600 refer ences to ethylenimine and its derivatives, and their proven or potential uses in medicine, in petroleum refining, in paper making, in textile treatment, in dozens of other ways. Besides, the chemical structure of ethylenimine is such that Dow researchers believed they could find a way to make it by a simpler process and at lower cost. As for diphenyl oxide derivatives, several of them have desirable properties--resistance to other chemicals, stability at high temperatures, stability on long exposure to air. There arc numbers of industrial anJ commercial products for which such properties are valuable advan tages. Dow set out to produce diphenyl oxide derivatives reactive enough to transfer their good characteristics to other materials with which they might be combined. And, in 1963, Dow announced the results. Ethylenimine, at lower-than-ever prices, is currently available from Dow. It's produced in a semicommercial plant in the Texas Division; a full-scale plant should be in operation by early 1965. Now industry is invited to test the potential of low-cost ethylenimine Diphenyl oxide derivatives that do react, that will-- among other things--improve insulating resins and plas tics, are also available from Dow. One such derivative already has volume application. During the year more than 800 firms requested developmental samples to test in their particular processes and products. Whether these materials will achieve volume use.* and good profitability for Dow, remains uncertain What is certain is that, until Dow evolved new chem istry to solve old problems, the market opportunity and potential represented by ethylenimine and diphenyl oxide derivatives were beyond reach. Knowledge and capability in depth have changed that, to Dow's credit and industry's advantage. *' Re. Ha G An tw. T* r i e<j ' 0| j l\| : -n ; is >M n- Ji- D :st fo Recent additions to Don 's line of consumer goods are Handi-Wrap Sandwich Bags and Dow Oven Cleaner. Typical oj the advanced equipment utilized in Dow's research is this nuclear magnetic resonance spectrometer. id T- en General Operations in er ne 3 -I. An ovcr-iilJ view of Dow's operations in 1963 offers two especially noleworlby points: --To meet increased market needs, our plants ran at m generally higher production levels than in the past two .`s, or three years. Capacity output was reached and main re tained for an encouraging number of products. ;i! --Throughout our operations, gains in effectiveness n- continued. These gains result from the etfort begun .s some years ago to strengthen Dow s competin'.e position o by meeting the challenge of rising costs. At all loca tions Dow employees have entered into this etfort with imagination and persistence that have led to widespread improvement in all phases of our activities. Such im- pioveinents are most easily seen in production units where process changes yield greater output, higher qual ity . lower costs, increased safety. Just as significant arc administrative improvements--organizational changes that end duplication of effort, new procedures that automate office routine to leave people free tor more productive assignments. In total, operational improvement achieved within | Dow last year significantly improved our sales and earning. Saks volume support came from the many I plants that produced well above rated capacity by better J methods rather than by sizable expansion. Profit sup. port came Irom the numerous cost reductions as well as I improved capability for providig superior service in j all markets. Capital investment in new or expanded plants and facilities was $S2 million during 1963. For compari son. similar investment was S69 million in calendar 1962 and 6115 million in calendar 1961. Our plans tor the i f i J __________ GO current year involve investment of about St00 million for expanding facilities. Here arc some highlights on the year's developments in Dow's major divisions and planis A realignment involving the Midland Division and our planis at Bay City. Ludington. Allyn's Point, Hang ing Rock and Rivet side moved to an advanced stage in 1963. Production operations ot ihese plants are exten sively tied to Midland Division operations, opening the way for greater elhcicncy through closer coordination and the centralized handling of some administrative functions. Beginning this year, these units will be oper ating in the pattern of a consolidated Midland Division. During 1963 the Midland Division brought on stream a new plant to produce ethyl bromide. Dow has long made this material, an intermediate used in organic synthesis. But the new plant is unique; it's the first in the U. S. to utilize energy from radioactivity as a proc ess medium, to initiate and sustain a chemical change. Dow success in research, design, building and opera tion ol the plant earned an award as one of 1963's top achievements in chemical engineering. The Atomic Energy Commission ranks the process as a major break through in peaceful application ot nuclear technology. Earlv in 1964, one of Dow's historic landmarks was removed from the Midland scene with the dismantling ot the last blowmg-out tower ever used in bromine pro duction The blowing-out process for obtaining bromine from brines was Herbert H. Dow's invention and prov ided the base upon which The Dow Chemical Company came in'.o being. A new process, yielding biomine ol exceptionally high purity, has teplaccd the older method. 12 Ici.uii/ l*)6: With crowing paper industry use ol magnesium hydroxide, the Ludington plant sltiirply increased output of this product in 1963. A capacity expansion lor macnesiuni hydroxide is presently underway at Ludinglcn. At Allyn's Point, SrvRON" polystyrene resin production facilities are being adapted to produce high-impact as well as standard formulations of this plastic The ra.nge of latexes made at this location is also being btoadened. Both moves improve Dow's ability lo supply customers these basic materials from alternate sources Riverside increased output of Stvroiovm pniduc:> comlortably above 1962 levels. Production ol Doitvos polystyrene headboard began during the year, with s.iiereaching substantial levels at year's end. New Ethatoam uses in the automotive and tov markets led to increased output at the Hanging Rock pi. n; We expect further sizable mark el grow ih lor k m v n) v'l The Western Division completed a plant for Tordos herbicide at Pittsburg early in 1964, and is adding new facilities for bioproducts research at the Walnut Creek laboratories. The division experienced its first strike last year, at the Torrance plastics plant Opera tions were handled by supervisory employees and output of all products, including polypropylene at abovecapacity rates, continued through the 46-day strike penod. At Kalama. 1963 results pioved out the tech nical advances of the new Dow process by which v, e produce phenol in this plan!. The Texas Division, in the closing months of 1963. producci! chemicals at the highly satisfactory rate u: ntnctv per cent ol capacity, and li.al seveial m.ip'i It: ,:C D.........I. ( ' uni', ere;: c/9wi _4jou ! C3 ^ I i-->nci sr.s to 1 Nv e tOsak sci on ;h. units at full capacity. During the year, capacity in creases were made in eighteen plants of the division; over-all output was more than fifty per cent above 1962 poundage produced. A significant factor in Texas capacity and production increases is the major role assigned the division in Dow's overseas marketing programs. Export sales absorbed one fifth of our Texas production during 1963. Technological improvement in the magnesium process is continuing to provide higher output so that growing sales are met without putting additional facilities into service. A semicommercial unit is supplying our ethylenimine needs at present; in view of the potential for this Dow product, construction of a full-sized plant has been authorized for the Texas Division. The Louisiana Division, by a number of process im provements. substantially boosted capacity of several plants during the year. The division also expanded its research facilities and completed construction of a chloralknli unit. The latter, producing chlorine and caustic soda by the mercury cell process, made its first product shipments in November. Explosion and fire severely damaged the Louisiana light hydrocarbon plant in early April of 1963. One employee was injured, not critically, in the fire. The property loss was covered by insurance. During rebuild ing of the unit, temporary arrangements supplied feed stocks to keep other plants in operation. Completely rebuilt, with design and equipment chances for maximum safety, the light hydrocarbon plant resumed operation before the year's end. And early this year a sizable addition was completed and put into service. Employee performance in the speedy rebuilding of this major plant can be rated as outstanding. Dow's manufacturing operations in the packaging business were designated as the Packaging Division dur ing 1963. The Packaging Division operates the facilities previously known as the Dobcckmun Division--for converting plastic films, foil and paper, and for produc ing plastic films and formed plastic containers--plus three plants for making blow-molded plastic containers. The latter are at Baltimore, at Chicago and at Tantpa. Florida. They were operated for Dow under contract arraneement before Dow assumed direct operation in March. 1963. Expansion of the Fresno, California, plant was com pleted in September. This permitted relocation there, for improved efficiency, of work previously handled at Berkeley; the Berkeley plant has been closed. The Rocky Flats Division moved into exploration of new opportunities during 1963. The division, which operates the Atomic Energy Commission plant near Denver, began research and manufacturing not directly related to the nuclear weapons field. While small in scope, this procram points to broader utilization of Dow skills in working with exotic and difficult metals under conditions of extremely close tolerances. Rocky Flats employees extended their job safety record to more than twenty-four million manhours before a minor injury closed out their six-year achievement The rccorJ stands as one of the best in American industry. o e m o o is . J 1 ............... .............................. pg S| PZero-Zer6I<36alKet|inTCampaigns^ : For^Work' Safet^foss Prevention perfcc; tion in on?_the-job safety throughout.Dow^i'/' ' ! ,~'v.The'~feoardof Directors last June instituted a company-. = ;Cwide*^grain^um^af^ubsiantial^inprovemeiit in thesafety andlos's^preyention performance*bf^the'c'ompany.-i i'^Andjdie^qard noted the need for jachve^articipation inj \ thevprqgrara,by' employees at`all levels and locations. M 1 Why this'emphasis'on safety, on loss.prevention? ^ ^'?i-^3he `American chemical industry has a better safety i^record IhaXthe^hation^sMhdustrytas^at^vholei^In each^ j^millidi^nannours^of^fork^time, the'numberpfchemical' ^^orlc^rs^ncujrihg'^rMbling injuiy;is'^?eU.~below^.the' ,a^:`tipn^awwgeJE^all industrial worltire?^--|fii?'^ .. ^I)o'w`?.;r&brd|j^~vtlose Ao ^tbe^chemical industry M>ULU3 VL IVliK.'UUiaUVUi^lUVlOrUVU l UU.OJ nblliTiUUU. uti Fyaverage^l^C)owfen^Ioyee is"far*more litcelytd be injured >^^But^his^^(.he^o'hvictio^6f''t)ow's'%management^ ,*,falls^shortrtbejng good enough^,`Gqod enough"jneans:... :i^rEacnJemployee^libmpleting"each 'workday, and every 'workdayj|without injury .orjucky narrow escape from jnjjurby any'job-connected accident.'i^^'-.., ''''y--Operation of 'all Dow facilities without "property loss or damage caused by fire or accidental casualty. Thus th long-range objective of the new program is for Dow to operate with a zero rate of job injuries to employees and a zero record of property loss. Immediate goal is a consistent year-to-year improvement in these records. There's recognition here that, from the stand point of accident prevention, personal injury and damage to properly are synonymous; any chain of circumstances leading to one is equally likely to cause the other. The program aimed at these objectives is planned and directed by a new Safety and Loss Prevention Depart ment. N. D. Griswold, a member of the Board of Directors and one of Dow's top engineers, is the depart ment director. Attention goes to all aspects of Dow operations. "'/ ' Among steps taken and practices established: Safety belts must be used in all Dow vehicles. Guiding principles for fire protection and fire prevention apply to design of facilities and their operating procedures. All work groups regularly review performance in safety. Training programs emphasize the safety responsibility of managers and supervisors. Detailed plant inspections search out potential hazards. Early results are encouraging. Dow's 1963 frequency of disabling injuries was twenty-one per cent below 1962's. This is a good first step, but only the first, toward the long-range objective: perfection in safety. Divisional Operations Seeking new gas and oil reserves for Dow, Brazos Oil and Gas continued its exploration programs in Texas, Louisiana, California and Michigan last year. Bra2os drilled thirty-nine wells of which ten produced gas. thir teen produced oil and sixteen were dry. Three of the gas wells--one each in Texas, Louisiana and California --were discovery wells; an oil well near Rose City. Michigan, was a new producer and moie drilling is in process in this area. The Brentwood gas field in Northern California, in whose 1962 discovery Brazos was n partner, now sup plies fuel gas to the Western Division's plants at Pitts burg. Brazos participated in a joint project for installing a gathering system at the field plus nine miles of pipeline to transport gas to the Dow' plants and other users The Dowell Division, providing cementing and stimula tion services to the petroleum industry, had a modest sales gain in 1963. Well-drilling by the oil industrx sets the pace in Dowell's business field; when drilling declined last year, competition increased and prices deteriorated in the service business. As stimulation sales decimal. Dowell--having built a strong position in cementing services--increased cementing sales more than one thud to accomplish its net sales gain. Facilities expansions during the year included, the equipping of twenty more stations for cementing work, and the installation of eight new stations, a held labora tory and a marine base. The latter, at Venice. Louisiana, is tlie second marine base Dowell has built to provide l-e + P O T irS - i ] 4 Annnvl Report 1963 Growing demand jar chemical cleaning of industrial equipment provides an expanded market for D.l.S. Where canals replace roads in south Louisiana, this Dowell cementing rig floats to the well to be worked E f 0 0 1 Sl n complete service to oi! industry operations along the inland waterways of southern Louisiana. While industry forecasts predict 1964 well-drilling at about the same rate as 1963, the service business pricing structure seems to be on a sounder basis and profit im provement is expected. Dowell's plans call for emphasis to expand cementing service sales, plus sales of stimula tion services in retreatment of old wells to maintain their production. Sales and profits at about the same levels as 1962 were experienced by Dow Industrial Service last year Most rapidly growing among D.l S. activities is its work in industrial cleaning. Outlook lor this market is bright as D l.S introduces new materials, new services and new techniques for meeting customer needs. An example is the "clean boiler program" olfcred to industry to maintain steam-generating equipment The piog.-am. based on extensive Dow research and long held trials, utilizes Vertan- 600 compounded clielants. and lias leJ to encouraging sales of this material. The general office and the laboratory ot D.l.S. were shifted to Midland Irom Cleveland and Tulsa, respectivelv. In addition, sales and technical service stalls were realigned lor a strengthened approach to major potential markets. The division's volume of missile cleaning business declined during the year. However, the market remains sizable and D.l.S. capabilities provide an excellent base for expecting new growth in this activity. D.l.S is in close liaison with the Government AITairs Department on plans to optimize Dow's position in this market. *:i3 bCVV METAL "TDOUCT: CC ''" .'I An 82-day strike at its major fabrication plant, at Madi son, hampered the 1963 performance of The Dow Metal Products Company Division Despite the strike, pius strong competition and pricing pressures, DM PC brought production rates of aluminum and magnesium finished products to new highs and had sales above its forecasts. To meet requirements of military contracts and critical needs of customers, supervisory and other salaried em ployees handled production work at Madison throng)' most ol the strike period. This enabled us to avoid crippling losses and maintained DMPC's position as a dependable source of supply. Aluminum products again accounted tor the m.ncr share of the year's sales increases. Output of lieuw extrusions was at capacity; new capabilities were devel oped for production of high-strength weldable alloy sheet and plate. Magnesium photoengraving sheet stiles increased sharply with introduction of new Dowmcn"' products which give the photoengraving industry a fast, one-bite process tor engraving magnesium. Other piomising mar kets for magnesium sheet are in memory discs for elec tronic data processing, and in paint-shipping containers Our metals research has been broadened in support oi expanding interests in aluminum. Other metals, includ ing beryllium-aluminum alloys, are also undei study. D I . ..I , Principal manufacturing location of Dow Chemical of Canada, Limited, is the growing complex at Sarnia, Ontario. s u n n 4333' Subsidiaries Improved manpower utilization brought significant productivity gains for CLIFFS DOW CHEMICAL COMPANY in 1963. Output of hardwood charcoal briquets ran at top level throughout the year and equipment changes have been made to meet higher market demands expected in 1964. DOW CHEMICAL OF CANADA. LIMITED, in creased domestic sales twelve per cent above 1962 levels during 1963. The company continued its growth program to meet expanding needs of the Canadian economy. Canada's growing pulp and paper industry created in creasing markets for caustic soda and chlorine. Demand for Canada's oil provided a firm need for Dowell's services in western Canada. Building programs fur nished outlets for Dow construction materials such as Styrofoam products, and growing acceptance of plastic packages and containers improved sales of other Dow plastics. New plants brought into service during the year included units for power, propylene oxide, propylene glycols and Voranol* polyols at Sarnia; a 2,4-D esters plant at Fort Saskatchewan; and facilities for rigid and flexible plastics containers at Toronto. Benzoic acid capacity at Ladner was expanded. High demand tor Voranol products, used in making polyurethane foams, is reflected in an expansion of the Sarnia unit. By acquiring Richmond Plastics Ltd.. Dow Canada has an added outlet for its plastics resins and a new source of technology valuable in serving the textile industry. This operation, located in Richmond. Quebec, produces monofilaments of polyethylene, polypropylene and Sar4N*. _ _. RfC'Hcrcd Dow T:ao*rr:rx ' Do* Tradenurk Abroad 16 Ai'nittil Report I96J Associated Companies DOW CORNING CORPORATION, owned jointly with Corning Glass Works, continued the growth and prog ress that make this firm the world's leading producer of organosilicon chemicals and silicone products Dur ing the year, a reorganization begun in 1962 was com pleted. The changes orient marketing cllorts lor more efficient service to major markets, concentrate develop ment cIToit on products and processes showing longrange growth potential, and place responsibility tor output and short-term product improvement on the plants of Dow Coming's five operating divisions. Silicone fluids, resins and rubbers show remarkable resistance to such environmental factors as heat, cold and moisture. These properties put silicones in exotic roles, as in the heat shield ol the Gemini spacecraft. But the same properties also make silicones standard engineering materials in a host of industrial applications. By research. Dow Corning continues to bring forward new materials whose successful performance further brojdens the use for silicones--as well as rc-empha-.zing the firm's leading position in the field it pioneered New facilities brought on stream during 196? in creased capacity for Silastic1' silicone rubber at Midland, and for silicone sealants at Elizabethtown. Kentucky. Use of these and other rubbery silicone products continues to grow in aerospace, automotive and building fields. Products marketed for the first time in 1963 included two improved additives for use in manufacturing poly urethane foam, a silicone insulating varnish, and a heatshrinkable rubber with unusual aerospace applications. A bathtub caulk made of room-temperature vulcanizing Silastic silicone rubber has gone into mu's-marke: dis- r>,.* c , ,, i I -J-. r. ? tribution ns [he first of a line of household products. A new plant at Hemlock, Michigan, is the world's first designed for the exclusive manufacture of medical-grade silicones. It will produce silicone materials and devices for use in medical research and treatment. ETHYL-DOW CHEMICAL COMPANY, whose ownership wc share with the Ethyl Corporation, pro duces ethylene dibromide for use in gasoline anti-knock fluid. Ethyl-Dow\ operations and sales through 1963 were at approximately the same levels as those experi enced in the prior year. DOW BADISCHE CHEMICAL COMPANY, jointly owned with BASF Overzce N.V.. produces acrylates, butanols and caprolactam. Production levels on these materials increased during 1963 and, at year's end. an expansion of the caprolactam facilities was put into set\ice. DOWSMITH INC. is owned jointly by Dow and the A. O. Smith Corporation of Milwaukee. After two years of operations in temporary facilities in Milwaukee, Dow Smith has built and occupied a new plant in Little Rock. Arkansas. This plant produces piping, electrical and other products made of glass-reinforced plastic materials and is located for maximum service to major markets in the petroleum and chemical industries. In March of 1964 DowSmith acquired a plant at Ionia. Michigan, for production of automobile bodies of glass fiber reinforced plastics and thus widened the field for profitable application of its expanding technology in end-product uses of reinforced plastics. Market Results of Knowledge in Depth Still Coming, a Quarter-Century Later In the chemical industry, competition spurs constant search for better products, processes, procedures. These are keys to marketing advantages of lead time, or quality or price. Such advantages mean profitability. Dow, in this competition, relies on knowledge in depth. This means awareness of present needs and alert ness for future needs of customers; plus know-how, technology and imagination with which to evolve answers to the needs. Acquiring an effective dimension of knowledge in depth takes time. But once acquired in sufficient meas ure, knowledge in depth tends to accelerate its own growth. One level of success seems to yield by-product knowledge that speeds and eases solution of problems on the next. The story of polystyrene furnishes a prime example. In December, 1938, Dow registered the Styron trademark for polystyrene and polystyrene resin. By eight years of research, Dow had transformed polysty rene from a laboratory curiosity to a commercial reality. True, the reality had severe limits. Dow made only 190,000 pounds of Styron in 1938. It was of a single formulation. The few customers making up the theninfant plastics molding industry had headaches trying to work the material smoothly in their machines. And their finished goods performed dubiously. To capitalize on its production knowledge for polystyrene, Dow needed more knowledge. Polymer chemistry knowledge, to invent plastics with properties fitting specific needs. Molding technique knowledge, to match resins to machine capabilities. Product design know!edge, to assure user satisfaction with articles made of polystyrene. Marketing knowledge, to meet customer needs in delivery, technical help and other services. Dow succeeded. Polystyrene blossomed as a founda- tion material in a booming plastics industry. In this, Dow's knowledge in depth contributed extensively. Today's record indicates how extensively: In 1963, the U. S. consumed some 1.25 billion pounds of polystyrene; Dow was by far the largest supplier. Our 1963 line had twenty-eight formulations, more than any competitor offered. And a plant put on stream in Italy last year was the eighth built overseas by Dow or Dow associates to supply foreign customers. Has Dow exhausted the potential advantages of this particular body of knowledge in depth? Late in 1963, Dow announced plans for a polystyrene plant in Colombia--our first Styron unit in Latin Amer ica. And early this year, Dow introduced four new Styron formulations. One forecast for polystyrene predicts the U. S. alone will use four billion pounds in 1980, ten billion in 2000. On the demonstrated strength of a knowledge in depth, Dow should be in that market actively--and profitably. Registered Dow Tndfmjrk ^ <--3 ^ .s^ to -c- International Operations International operations, those beyond the U.S. and Canada, were characterized by strong increases in mar ket demands for Dow chemicals, plastics and bioprod ucts in 1963. Sales in each major product group ran considerably above 1962 levels, with bioproducts sales growing at the fastest rate. Our international activities accounted for about fourteen per cent of Dow's total stiles income, and profit yields continued to be favorable. Much of our success in building international busi ness resells from know-how and capabilities developed in home markets. In particular, marketing experi ence gained in the U.S. shortens the time required to win acceptance ot Dow products by overseas customers. For some materials, foreign economic and industrial trends largely parallel U.S. conditions. Thus many of our plastics fill overseas needs identical to those they salisly at home--as foams for construction materials, as films and sheet (or packaging, as resins for molding, and as latexes for coatings. Our practice is to enter international markets with export materials and then, when local production will result in substantial sales increases ai acceptable profit levels, to establish plants in or near major consumption areas. Markets quite different from the U.S. also provide opportunities lor Dow. Those world areas where paper stock is a high-cost item, tor example, present openings for lubricated plastics materials. Dow is taking advantage of such opportunities with both products and technology. In overseas selling ot chemicals, more than is true for other products, ready availability lor prompt shipment to customers is a ciitieal competitive factor. For the Euro pean market area--which with the United Kingdom account' lor about halt o! oui international business-- R the production complex under construction at Terncuzen in The Netherlands will strengthen Dow's position in this respect. Bulk terminals established in Germany, in Africa and in Australia also have improved product availability--with such 1963 results as a doubling of glycol sales. Specialty chemicals sales reflect knowledge in depth of foreign industries, their business techniques and their prime needs. Notable among our several specialties finding growing markets are the Voranol polyols used in producing urethane foams, international sales of these products now exceed those in our U.S. markets. Bioproducts sales overseas are increasing at a faster rate than cither plastics or chemicals sales. Two rrujor factors can be seen. First, the plant, animal and human health products developed by Dow for U.S. uses are proving effective in overseas climates and terrains. Second, we have established an overseas staff of bio products sales, development and service specialists who are expanding our business and also provide a trained nucleus for expansion into other market areas. During 1963, our international operations handed the sale ot more than 300 different Dow products, on every continent and in more than a hundred different countries. We market our goods directly or through local associates as conditions in each country nuke desirable, working always for a dose Dow-custor.ier relationship and supplementing that with the maximum feasible technical assistance. Results achieved by this approach, plus indications ot continuing growth in over seas needs for Dow-produced goods, suppoit a favorable outlook tor lurther profitable expansion of Dow \ total business in international markets. i/> \Y. H cm r-' ZD T!' o! c CO wr 4o h D Liur ` Meljin^falvih/professor n"sity of'California and 196iJ'lot)eL j / was.el^ezf^director . by action'Sf the Board of Directors'orrT ,^1964% teenN ,.3-wide'* i ^eputaulnfMor" contribution??to? : photosynthesis,-for studies in physica yrganicrh.Ve*m** i.s'trv/yV,^x | ./and orgamcchelate compounds and his'work '.o?fthe^pro^lemio(jth^ jonSoithecS Dr. Melvin Calvin Research Within the Dow research organization, increased emphasis was given during 1963 to ticing research resources more closely to other company functions. These moves are resulting in a more complete utilization ot existing knowledge, services and facilities. They also contribute to our ability to take advantage of new business opportunity. The research program continued to produce its desired harvest of new products, twenty-three of which attained a sales volume of S50.000 or more during the year. During 1963, products which entered the market during the past five years accounted for about ten per cent cl Dow's sales Among new products showing especially good potenl:..l tor the future arc. Zectrav insecticide, sold as Snail. Slug 'n Bug Killer"; Dow MS-SO blasting agent, a h.ipcd explosive; Tyrilfoam* expanded resin, an addi tion to the Dow line of plastic foams; polyethylenimine. a reactive intermediate chemical; and Handi-Wrap Sandwich Bags The importance of basic research in Dow's over-all program was more formally recognized by reorganization Oi The independent laboratories under a director report ing to the Director of Research. This move emphasizes the role of those research groups whose work is likely to apply to many divisions and departments of Dow. Continuing improvements were made in research lacilitics and equipment to keep pace > ith changing needs. No major facilities were added during the year but planning is in progress for a new Physical Reseaicli Laboratory at Midland and for relocation of the Eastern Research Laboratory on a new site at Wavland. Massachusetts. vi Registered Dow TfJOtmaiL ,~and.was*graduated from Central High School*in Detroit ` , ~jn T927. vHe received WB.S. degree.from^e Michigan ? ''`Technological University in 1931; anda*PhP-in chem- ..listry.from the University of Minnesota'in'?].93 So: His .'.postdoctoralstudi^were^it^the^mver^^f Man- jH'chester/ in''JEn^ana,,TromJ'1935^oxr93^?jj^J^^^ ''' His career at the University of California'began in'1'"' 1937, as an instructor in chemistry. He became an assistant professor in 1945 and a full professor in 1947, Since 1946, Dr. Calvin has been director of the Bio- ' organic Division of the Lawrence Radiation Laboratory at the University of California, his work in this capacity leading to the award of the Nobel Prize. His work in photosynthesis has been in progress'more than fifteen years; it has evolved knowledge in and the application of other scientific disciplines--chemistry, physics and mathematics--as well as biology. In addition to the Nobel Prize, Dr. Calvin has re ceived numerous honors, awards and honorary degrees. He has served on both national and international scientific committees/and was a delegate to the Inter national Conference for Peaceful Uses of Atomic Energy in Geneva in 1956. .r. . Herbert D. Doan, Dow president, has commented that Dr. Calvin's election as a director brings to the Dow board one of the most inquiring minds in the scientific community. "Dow has long been a research- ( oriented company," Mr. Doan said. "The addition of Dr. Calvin's fresh insight and advanced scientific outlook should help us to continue to build upon this tradition." 19 International Operations International operations, those beyond the U.S. and Canada, were characterized by strong increases in mar ket demands for Dow chemicals, plastics and bioprod ucts in 1963. Sales in each major product group ran considerably above 1962 levels, with bioproducts sales growing at the fastest rale. Our international activities accounted for about fourteen per cent of Dow's total sales income, and profit yields continued to be favorable. Much of our success in building international busi ness results from know-how and capabilities developed in home markets. In particular, marketing experi ence gained in the U.S. shortens the time required to win acceptance of Dow products by overseas customers. For some materials, foreign economic and industrial trends largely parallel U.S. conditions. Thus many of our plastics fill overseas needs identical to those they satisfy at home--as foams for construction materials, as hints and sheet for packaging, as resins for molding, and as latexes tor coatings. Our practice is to enter international markets with export materials and then, when local production will result in substantial sales increases at acceptable profit levels, to establish plants in or near major consumption areas. Markets quite different from the U.S. also provide opportunities for Dow. Those world areas where paper stock is a high-cost item, for example, present openings lor labricated plastics materials. Dow- is taking advantage of such opportunities with both products and technology. In overseas selling of chemicals, more than is true for oilier products, ready availability for prompt shipment to customers is a critical competitive factor. For the Euro pean market area--which with the United Kingdom accounts for about half ot our international business--- I the production complex under construction at Tcrneuzcn in The Netherlands will strengthen Dow's position in this respect. Bulk terminals established in Germany, in Africa and in Australia also have improved product availability--with such 1963 results as a doubling of glycol sales. Specialty chemicals sales reflect knowledge in depth of foreign industries, their business techniques and their prime needs. Notable among our several specialties finding growing markets are the Voranol polyols used in producing urethane foams; international sales of these products now exceed those in our U.S. markets. Bioproducts sales overseas are increasing at a faster rate than either plastics or chemicals sales. Two major factors can be seen. First, the plant, animal and human health products developed by Dow for U.S. uses are proving effective in overseas climates and terrains. Second, we have established an overseas stall of bio products sales, development and service specialists who are expanding our business and also provide a trained nucleus for expansion into other market areas. During 1963, our international operations handled the sale of more than 300 different Dow products, on every continent and in more than a hundred different countries. We market our goods directly or through local associates as conditions in each country make desirable, working always for a close Dow-customer relationship and supplementing that with the maximum feasible technical assistance. Results achieved by this approach, plus indications of continuing growth in c\ crseas needs lor Dow-produced goods, support a favorable outlook for further profitable expansion of Dow's total business in intern.iiionai markets. o> -i c> ca oo ci> w en re T! 01 Ci b; D tl i S P 1! IS R<p,n! l')63 ir iii imA INCOME DOLUR DISTRIBUTION For tho Yoer Ended December 31, 1963 iA4UM SHARES AND SHAREHOLDERS DECEMBER 31, 1963 DECEMBER 31, 1962 INCREASE (DECREASE) SHARES OUTSTANDING 29,523,118 29,060,983 462,135 NUMBER OF stockholders 98,700 100,300 11,600) liurioia in shorts ritulltd from: 2% stock dividend Solos to omployoos Conversion of 3% dobsnturos TOTAL Loti -- Troosury stock incrooso Not incrooso 582,917 14,382 4,256 601,555 139,420 462,135 Industrial Relations A significant phase of Industrial Relations activity during 1963 has been an expansion of internal transfer oppor tunities for technical and professional employees. This has dual aims: for the employee, there is challenge and encouragement for personal growth and development in a new- assignment; for Dow, the opportunity to bring to a challenging assignment an individual of demon strated ability and potential for still more important future roles. This program is moving well and will continue in coming years. Since 1962, Dow has participated in the Plan for Progress headed by the national President's Committee on Equal Employment Opportunity. Our entry in this program formalizes the Dow policy, at all locations, of employing and promoting individuals solely on the basis of merit and ability. Significant progress has been made in implementing this policy with action throughout Dow. Dow employed at the close of 1963 approximately 31.500 persons in the company and its subsidiaries. Employment in our domestic and foreign associated companies increases the total to approximately 39,900 persons. As part of the year's employee relations activity, fourteen new contracts were negotiated with labor organ izations. Noteworthy among these is the agreement with ten unions operating within the Texas Division and Ethyl-Dow plants, it is a five-year contract whose tenure has already reflected favorably in the area's economy. Elsewhere, three work stoppages occurred during negoti ations. We had no strikes involving existing contracts. There were 325 employees who retiied during the vear. Of this total, nearly 200 were individuals decline to take advantage of an expanded early retirement pro gram which provides modified benefits to employees retiring before age sixty-five and after ten or more years service. Membership in the Dow Pension and ProfitSharing Plans increased to 16,412. Assets ot the Plans now exceed $135 million. The program for increased emphasis on safety and loss prevention is discussed elsewhere in this report. It is notable, however, that ten divisions, plants or major employee groups worked the full year with no disabling injuries. Of these, the Allyn's Point plant extended its record of accident-free operation to nearly fourteen years. The Rocky Flats Division established Dow and AEC safety records by achieving more than twenty-four million manhours of work without a disabling injury before a relatively minor mishap ended the record last July. Winners of the Dow President's Safety AwarJ during 1963 were the Eastern Research Laboratorv. the Rocky Flats Division and the James River Division Our program of aid to education continued through. 1963. In this program. Dow made grants of funds ar.J materials totaling more than one million dollars; this included scholarships, fellowships and grants that assist more than 200 students at sixty-seven colleges and universities. The Matching Grant Program, in which Dow matches employee gifts to colleges and universities, again attracted a high level of employee participation. There were 1.32? gifts totaling S46.672.7 1 matched by Dow. And throug t tile Tuition Refund Plan, Dow refunded S26.469.94 el tuition costs incurred by 603 employees in job-re luted evening and conesponder.ee studies. j j J 20 Ani:nnl Report 1961 ; ST0004339 Report of Independent Public Accountants HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS i j i RESIDENT PARTNERS E. ROBERT BILLINGS. C.P. A. FIRST NATIONAL BUILDING i HAROLD W. SCOTT, C. P. A. CHAUNCEY A. NORTON, C. P. A. DETROIT 26 ROLAND E. KING, C.P. A. THE DOW CHEMICAL COMPANY: We have examined the consolidated balance sheet of The Dow Chemical Company and its subsidiary companies as of December 31, 1963 and the related statements of consolidated earnings and surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying consolidated balance sheet and statements of consolidated earnings and surplus present fairly the financial position of the companies at December 31, 1963 and the results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding period. March 2, 1964 HASKINS & SELLS 21 Notes to Financial Statements O K 'iO O O iS . A Cjr.n; :,:icn The consolidated financial statements for the year ended December 31, 1963 include the accounts of the Company and all of its domestic and foreign subsidi aries except for those located in Mexico. The accounts of foreign subsidiaries have been con verted generally at official or other appropriate exchange rates. -. . am .'.sea' UvS 'J . f C -* ts Cooc . s ei1 -.-u At December 31, 1963 the Company's investment at cost, less reserve, exceeded its equity in the combined net assets of subsidiary companies not consolidated, as shown by their unaudited financial statements, by ap proximately S300.000. The companies' operations for the year ended December 31, 1963 resulted in a small net loss. The Company's equity in the combined net assets of associated companies (507 owned), as shown by their unaudited financial statements, exceeded tiie Com pany's investment at cost by approximately J19,000,000 at December 31, 1963. The Company's equity in the combined net income of these companies was approximately $7,500,000 for the year ended December 31, 1963. In May 1963. the Company made an offering of Common Slock to its employees and employees of its subsidiary and associated companies at a price of $55.50 a share, payable on an instalment basis gener ally through payroll deductions. At December 31, 1963 there were unfilled subscriptions under the offer for 134,681 shares. The subscriptions, which may be canceled at any time at the option of the employee but must be settled by May 1964, have not been recorded in the Company's books and are not reflected in these financial statements. However, partial pay ments on these subscriptions, aggregating $4,217,483, are included in current liabilities in the consolidated balance sheet at December 31, 1963. The promissory notes, which are payable to insurance companies, bear interest at 2.7% and 3.25% per annum, and are due January 1, 1972 and July 1, 1977, respec tively, with prepayments due annually. The 37c convertible subordinate debentures are con vertible into Common Stock and are due July 1, 1982 The 4.357 debentures issued during 1963 are due September 15, 1988, but are redeemable at the option of the Company at specified premium rates. Sinking fund payments to provide for the annual retirement of $4,000,000 principal amount are required beginning September 15, 1968. The 4 25% bonds which were issued in the amount of 60.000,000 Swiss francs by a Swiss subsidiary are due November 30. 1971, but are redeemable at the option of the issuer prior thereto under certain con ditions at specified rates of premium. The bonds are guaranteed as to principal and interest by The Dow Chemical Company. Other long-term indebtedness consists of loans payable by various foreign subsidiaries with varying rates of interest and maturities. ' i O ' '< 'Oi.iiff >' As of December 31, 1963 the authorized Common Stock consisted of 50,000,000 shares of $5 par value each. There were 29,523,118 shares outstanding, after deducting 223,920 shares of treasury stock. As of that date 134.681 shares were reserved for sale to employees under the offering of May 1963, 215,55! shares were reserved for conversion of convertible debentures, and 85,385 shares were reserved for issu ance under stock option plans. At the beginning of the current year 117,487 shares were covered by outstanding options under the option plans During the year 352 additional shares became available under the Substitute Stock Option Agreement because of the Common Stock dividend. 7.422 shares were purchased by employees and options on 25.032 shares expired. The shares covered by options at December 31, 1963 consisted of 73,903 shares under the Key Employees Stock Option Plan at prices ranging from 555.38 to 590.63 a share, which represented the highest prices of the slock on the New York Stock Exchange on the dales the options were granted, and 1 1,482 shares under the Substitute Stock Option Agree mem for former Allied Laboratories, Inc. employees at prices ranging from $32.66 to $65.85 a share. Based on an examination of the Federal income tax returns of certain of the companies for the fiscal years 1956 through 1960, the Internal Revenue Service has asserted tax deficiencies, to which the companies do not agree, aggregating approximately S14.000.000. The companies are contesting such deficiencies and the amount of their ultimate liability thereunder, if any is not presently determinable; thus no provision there for has been made in the accounts of the companies or in the accompanying financial statements. Other contingent liabilities at December 31, 1963 included guarantees of loans of approximately $16,000,000 for construction of facilities, employees' housing, and other purposes; agreements to make future loans and investments in the amount of 52,700,000 and for retirement payments to certain officers in a maxi mum amount of $1,200,000; and guarantees of rental income from housing projects. 23 Statement o f Earnings Statements o f Surplus r'iNANCIAL CONDITION Amounft ore expressed in million! of doHors. Condensed Connparative Statemt?nts 1963 F GURES ARE AS C3F DECEMBER 31 1962 1961 I960 1 Cash and marketable securities........ S 54 3 $ 43.3 S 48.5 S 50.8 ` Receivables (less reserves) ................ 198.7 147.7 135.6 114.9 I Inventories .......................................... 167.7 16J.4 164.6 162 9 2 --j i Notes payable....................................... Accounts payable and accruals.......... Taxes on income................................ i ` l ' : $ 19.1 115.0 41.S $ 59.5 96.7 39.6 S 101.2 86.2 25.8 S 96.4 74.5 28.2 --- '. Cost ..................................................... Depreciation, amortization. and depletion .............................. SI ,244.6 687.2 SI.254.9 677.0 Si,307.8 696.0 1 SI,228.1 633.8 Notes and debentures........................ Minority interests .............................. S 166.8 9 S 125.6 1.2 S 152 7 13 $ 140.9 i.6 ZUMOOJLS EARNINGS Amounts ore expressed in millions of dollors. Net sales............................................... Other revenue ..................................... Cost of sales ....................................... Depreciation, amortization. and depletion............................... Selling and administrative expenses . . Pension and profit-sharing plans .... Interest expense................................... Other income charges........................ Taxes on income................................. 1963 fiscal years ended December 31, 1962 1961 1960 $967.7 21.7 $926 2 20 2 $841.7 19.1 $819.8 163 $612.1 99.2 110.5 11.0 7.8 3.5 64.6 $583.9 99.6 105.7 11.9 9.1 4.8 58.5 $533.3 99.4 103.7 10.5 9.5 3.1 41.1 S509 2 81.9 103.8 10.0 7.6 2.0 50.8 Earnings per share on Common Stock (in dollars) .... Cash dividends per share paid on Common Stock (in dollars) .... Cash dividends on Common Stock ... Stock dividend at approximate market value .............................. Taxes (major) .................................... Wages paid ......................................... Cost of employee benefits.................. Number of employees at year end (thousands) ................ Additions to property........................ S 2.73 1.60 47.1 33.8 91.6 239,2 25.5 31.5 82.0 $ 2.51 1.60 46.6 84.1 231.7 23.7 30.6 69.0 $ 2.07 1.45 43.5 70.4 224.3 23.0 30.6 115.0 $ 2.48 1.40 39.6 44.0 75.7 209 8 22.1 30.5 129 0 NOTES: The Company changed from a fiscal year ended May 31 to a calendar year effective December 31. 1 y62, The balance sheets as of December 31. 1960 and 1961 and the statements of earnings for the three years ended December 31. 1962 are shown for comparison only and have been prepared from the records without audit The earnings for the years ended May 31. 1961 and 1962 and all calendar years include those o: Allied 24 Laboratories and its subsidiaries, merged into The Dow Chemical Company as of December 3 1. I960