SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMCNet:  PART II, Item 7. Management's Discussion and (Unaudited) Analysis of Financial Condition and Results of Operations.

[February 14, 2014]

PART II, Item 7. Management's Discussion and (Unaudited) Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 2013 Overview 30 Results of Operations 32 Segment Results 39 Electronic and Functional Materials 39 Coatings and Infrastructure Solutions 41 Agricultural Sciences 42 Performance Materials 43 Performance Plastics 45 Feedstocks and Energy 47 Sales Price and Volume Charts 50 Liquidity and Capital Resources 51 Other Matters 57 Critical Accounting Policies 57 Environmental Matters 62 Asbestos-Related Matters of Union Carbide Corporation 66 K-Dow Arbitration 66 ABOUT DOW Dow combines the power of science and technology to passionately innovate what is essential to human progress. The Company is driving innovations that extract value from the intersection of chemical, physical and biological sciences to help address many of the world's most challenging problems such as the need for clean water, clean energy generation and conservation, and increasing agricultural productivity. Dow's integrated, market-driven, industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 180 countries and in high growth sectors such as packaging, electronics, water, coatings and agriculture. In 2013, Dow had annual sales of more than $57 billion and employed approximately 53,000 people worldwide. The Company's more than 6,000 products are manufactured at 201 sites in 36 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in six operating segments: Electronic and Functional Materials, Coatings and Infrastructure Solutions, Agricultural Sciences, Performance Materials, Performance Plastics and Feedstocks and Energy.


In 2013, 36 percent of the Company's sales were to customers in North America; 32 percent were in Europe, Middle East and Africa ("EMEA"); while the remaining 32 percent were to customers in Asia Pacific and Latin America.

2013 OVERVIEW During 2013, Dow continued to face a challenging business environment with ongoing, persistent headwinds in Western Europe and hesitant growth in other geographic areas. In this uncertain economic environment, the Company remained committed to its strategy - implementing cost and cash flow actions, which gained momentum as the year progressed; liberating and deploying cash to enhance the Company's capital structure and reward shareholders; and investing in strategic projects focused on long-term sustainable growth. The Company also paid down debt, continued to maintain a strong liquidity position and rewarded shareholders through dividends and share repurchases.

Net sales for 2013 were $57.1 billion, up 1 percent from $56.8 billion in 2012.

Sales increased in all operating segments except Performance Materials (down 2 percent) and Feedstocks and Energy (down 8 percent). Excluding the impact of a divestiture(1), sales increased in all geographic areas except Europe, Middle East and Africa ("EMEA") (down 5 percent).

(1) Excludes sales related to Nippon Unicar Company Limited, which was divested on July 1, 2013.

30-------------------------------------------------------------------------------- Table of Contents Price increased 1 percent in 2013 compared with 2012, driven by increases in Performance Plastics (up 4 percent) and Agricultural Sciences (up 1 percent).

Volume remained flat in 2013 compared with 2012, with mixed results by operating segment. Excluding the impact of a divestiture, volume increased in all geographic areas except EMEA (down 5 percent).

On May 6, 2013, the Company and Petrochemical Industries Company (K.S.C.) ("PIC") entered into a Deed providing for payment of the Company's claims against PIC under the K-Dow arbitration. On May 7, 2013, the Company confirmed the receipt of a $2.195 billion cash payment from PIC. The cash was utilized for debt reduction measures.

The Company delivered $7.8 billion of cash from operating activities in 2013, which includes the impact of the K-Dow arbitration award, and ended the year with $5.9 billion of cash and cash equivalents. Interest expense and amortization of debt discount declined $168 million compared with 2012 as the Company reported a $3 billion reduction in total debt in 2013.

On February 13, 2013, the Board of Directors approved a share buy-back program, authorizing up to $1.5 billion to be spent on the repurchase of the Company's common stock over a period of time. As a result, the Company repurchased $307 million of common stock during 2013.

Other notable highlights from 2013 include: • On March 14, 2013, the Company announced the Dow Polypropylene Licensing and Catalysts business was being marketed for divestment, as part of the Company's ongoing commitment to portfolio management. The business was sold to W.R. Grace and Co. on December 2, 2013 for $490 million, net of working capital adjustments and costs to sell.

• On March 18, 2013, the Company announced its intention to build several new Performance Plastics production units on the U.S. Gulf Coast, further connecting the Company's U.S. manufacturing operations with cost-advantaged feedstocks resulting from increasing supplies of shale gas in North America.

These production units will support expected profitable growth of the Company's high value Performance Plastics franchise. On August 27, 2013, the Company announced the location of these four new production units: • Dow Packaging and Specialty Plastics: An ELITE™ polymer production unit will be built in Freeport, Texas; and a Low Density Polyethylene (LDPE) production unit will be built in Plaquemine, Louisiana.

• Dow Elastomers: A NORDEL™ metallocene ethylene propylene diene monomer ("EPDM") production unit will be built in Plaquemine, Louisiana; and a High Melt Index (HMI) AFFINITY™ polymer production unit will be built in Freeport, Texas.

• On June 17, 2013, the Company announced the signing of the main financing for Sadara Chemical Company ("Sadara") whereby Sadara entered into definitive agreements with certain export agencies, commercial banks and the Public Investment Fund of the Kingdom of Saudi Arabia for approximately $10.5 billion of additional project financing ("Additional Project Financing"). The Additional Project Financing closed on June 28, 2013, bringing the total project financing for Sadara to approximately $12.5 billion.

• On December 2, 2013, the Company announced the planned carve-out of a portion of its chlorine chain, including the Company's U.S. Gulf Coast Chlor-Alkali/Chlor-Vinyl business, the global Chlorinated Organics business and the Epoxy business, in preparation for transactions involving select chlorine and derivative businesses over the next 12-24 months.

• Dow was named to the Dow Jones Sustainability World Index - the 13th time the Company has received this recognition since the index was launched.

• Dow earned an A+ Rating by UN Global Compact Communication on Progress for its 2012 Global Reporting Initiative (GRI) Sustainability Report - the 6th year in a row Dow has received this designation.

• Dow was named to the Thomson Reuters 2013 Top 100 Global Innovators - the Company has received this recognition in each of the three years since the program was launched.

• Dow was named by Chief Executive Magazine as one of the 40 best companies for leaders for the second consecutive year.

• Dow was awarded the 2013 U.S. Presidential Green Chemistry Challenge Award for its EVOQUE™ Pre-Composite Polymer Technology which helps coatings formulators improve paint performance while using less titanium dioxide.

31 -------------------------------------------------------------------------------- Table of Contents • Dow AgroSciences received registration in the United States for sulfoxaflor, a new insecticidal active ingredient that offers extremely effective control of many important sap-feeding insect pests.

• Dow and its joint venture partner Tasnee Sahara Olefins Company announced the mechanical completion of the first acrylic monomer production facility in the Middle East. The plant will help provide a reliable, cost-advantaged supply of acrylic emulsion polymers for coatings and adhesives applications to support growth in emerging geographies.

• Dow AgroSciences and Monsanto Company reached new cross-licensing agreements to enable the creation of next-generation SmartStax® corn, including additional insect protection and access to Dow AgroSciences' new ENLIST™ Weed Control System herbicide-tolerant trait, pending regulatory approval.

• Dow inaugurated its new Northeast Technology Center, a state-of-the-art innovation hub for Dow's Advanced Materials businesses. Located in Collegeville, Pennsylvania, the technology center is one of Dow's largest global research and development hubs and serves key end-markets including electronics, consumer non-durables, infrastructure, transportation and energy.

• Dow Packaging and Specialty Plastics launched Pack Studios Freeport, the first of four Pack Studio centers around the globe, to help customers turn packaging ideas into innovative solutions. Once fully launched, studios will be located in Freeport, Texas; São Paulo, Brazil; Horgen, Switzerland; and Shanghai, China.

• Dow's SILVADUR™ antimicrobial technology for fabrics and EVOQUE™ Pre-Composite Polymer Technology for paints won R&D 100 Awards.

• The Polyurethanes business launched two expansion projects to meet customer needs in Asia Pacific and the United States. The business will construct a polyether polyols facility at the Company's Map Ta Phut, Thailand site. In addition, the Company will increase its polyol and copolymer capacity as a result of debottlenecking at its Freeport, Texas facility.

• Dow Water and Process Solutions announced the global launch of TEQUATIC™ PLUS fine particle filter. The cost-effective, high-performance filter will be supported by a new manufacturing center in Menlo Park, California.

• On July 30, 2013, the Company announced that Bill Banholzer, Chief Technology Officer and Executive Vice President, had elected to retire. A. N. Sreeram was named Corporate Vice President of Research and Development, effective August 1, 2013.

• On December 31, 2013, Carol Williams, Executive Vice President, Manufacturing and Engineering, Supply Chain and Environmental, Health and Safety ("EH&S") relinquished her line responsibilities and will retire from Dow later in 2014.

Dow's results of operations and financial condition for the year ended December 31, 2013 are described in further detail in the following discussion and analysis.

RESULTS OF OPERATIONS Net Sales Net sales for 2013 were $57.1 billion, up 1 percent from $56.8 billion in 2012, with price up 1 percent and volume flat. Price increases in Performance Plastics (up 4 percent) and Agricultural Sciences (up 1 percent) more than offset price declines in Feedstocks and Energy (down 3 percent), Electronic and Functional Materials (down 2 percent) and Coatings and Infrastructure Solutions (down 1 percent). Performance Materials prices remained flat. Price increased in North America and Latin America (both up 2 percent), which more than offset a decline in Asia Pacific (down 2 percent). Prices in EMEA remained flat. Volume was mixed by operating segment, with increases in Agricultural Sciences (up 11 percent), Electronic and Functional Materials and Coatings and Infrastructure Solutions (both up 4 percent) offset by volume declines in Feedstocks and Energy (down 5 percent), Performance Plastics (down 3 percent) and Performance Materials (down 2 percent). Excluding the impact of a recent divestiture, Performance Plastics volume was down 1 percent. Volume increased in Latin America (up 8 percent), Asia Pacific (up 4 percent) and North America (up 1 percent), which was offset by a decline in EMEA (down 5 percent).

Net sales for 2012 were $56.8 billion, down 5 percent from $60.0 billion in 2011, with price down 3 percent and volume down 2 percent. Price was unfavorably impacted by currency, which contributed to more than 60 percent of the price decrease. Price declined in all geographic areas, with the largest decrease in Asia Pacific (down 5 percent), and all operating segments except Agricultural Sciences (up 3 percent) with the most pronounced decreases in Coatings and Infrastructure Solutions and Performance Materials (both down 6 percent). The decline in volume reflected the impact of recent divestitures including: the 32-------------------------------------------------------------------------------- Table of Contents Polypropylene business, divested on September 30, 2011, and Dow Haltermann, divested during 2011. Excluding these divestitures, volume increased 1 percent.

Volume improved or remained flat in all operating segments except Feedstocks and Energy (down 3 percent) and Electronic and Functional Materials (down 1 percent), with the most pronounced increase in Agricultural Sciences (up 10 percent). Volume increased in Asia Pacific (up 3 percent) and EMEA (up 1 percent), remained unchanged in North America, and declined in Latin America (down 1 percent). See Note 5 to the Consolidated Financial Statements for additional information concerning the Company's divestitures.

Sales in the United States accounted for 33 percent of total sales in 2013 and 32 percent of total sales in 2012 and 2011. See the Sales Price and Volume tables at the end of the section titled "Segment Results" for details regarding the change in sales by operating segment and geographic area. In addition, sales and other information by operating segment and geographic area are provided in Note 24 to the Consolidated Financial Statements.

Gross Margin Gross margin was $9.5 billion in 2013, and $9.0 billion in 2012 and 2011. Gross margin in 2013 was positively impacted by higher selling prices, lower turnaround costs, and lower expenses resulting from the 2012 restructuring activities which more than offset a $319 million increase in purchased feedstock and energy costs and increased performance-based compensation costs. Gross margin in 2013 was reduced by $181 million for asset impairments and related costs, including the shutdown of manufacturing facilities, in the Chlor-Alkali/Chlor-Vinyl business, Dow Building and Construction business, Dow Formulated Systems business, Dow Plastics Additives business, Epoxy business and Corporate. The asset impairments and related costs were reflected in the following segments: Coatings and Infrastructure Solutions ($61 million), Performance Materials ($38 million), Feedstocks and Energy ($66 million) and Corporate ($16 million). Gross margin in 2013 was also reduced by $40 million in implementation costs related to the Company's restructuring programs (reflected in Corporate). See Note 11 to the Consolidated Financial Statements for additional information regarding the asset impairments.

Gross margin was $9.0 billion in 2012 and 2011. Gross margin in 2012 was flat compared with the prior year as a decline in selling prices and decreased volume was offset by a $2.5 billion decrease in purchased feedstock and energy costs and the favorable impact of currency on costs. Gross margin was also favorably impacted by the recovery of previously expensed product liability claims, pursuant to an Insurance Allocation Agreement with Dow Corning.

Gross margin in 2011 was positively impacted by higher selling prices, which more than offset a $4.3 billion increase in purchased feedstock and energy costs, lower operating rates, increases in other raw material costs and the unfavorable impact of currency on costs. In 2011, gross margin was reduced by $77 million in asset impairments and related costs, including environmental costs, in the Polyurethanes business (reflected in Performance Materials) and a $60 million warranty accrual adjustment related to an exited business (reflected in Coatings and Infrastructure Solutions). See Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Note 11 to the Consolidated Financial Statements for additional information concerning these matters.

Operating Rate Dow's global plant operating rate was 81 percent of capacity in 2013 and 2012 and 80 percent in 2011. Operating rates remained flat in 2013 compared with the prior year. In 2012, operating rates increased from 2011 due to actions taken by management to rationalize capacity through shutdowns contributing to the improvement.

Personnel Count Personnel count was 52,731 at December 31, 2013, down from 54,353 at December 31, 2012. Headcount decreased from year end 2012 due primarily to the Company's 2012 restructuring programs. Personnel count at December 31, 2012 increased from 51,705 at December 31, 201l due to growth initiatives and the inclusion of 1,946 seasonal employees in the Agricultural Sciences operating segment as part of the Company's personnel count. This increase was partially offset by decreases related to the 2012 restructuring programs.

Research and Development Expenses Research and development ("R&D") expenses were $1,747 million in 2013, compared with $1,708 million in 2012 and $1,646 million in 2011. In 2013 and 2012, R&D expense increased largely due to higher spending on strategic growth initiatives in Agricultural Sciences. In 2013, R&D expenses were also impacted by increased performance-based compensation costs and $2 million of implementation costs related to the Company's restructuring programs (reflected in Corporate).

Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses were $3,024 million in 2013, compared with $2,861 million in 2012 and $2,788 million in 2011. In 2013, SG&A expenses increased 6 percent from 2012, primarily due to increased performance-based compensation costs and increased spending on growth initiatives in Agricultural Sciences. In 2012, SG&A expenses 33-------------------------------------------------------------------------------- Table of Contents increased 3 percent from 2011, primarily due to increases in Agricultural Sciences due to growth initiatives. In addition, SG&A expenses were impacted by $2 million of implementation costs related to the Company's restructuring programs in 2013 and $21 million of restructuring program implementation costs in 2012 (reflected in Corporate).

Production Costs and Operating Expenses The following table illustrates the relative size of the primary components of total production costs and operating expenses of Dow. More information about each of these components can be found in other sections of Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes to the Consolidated Financial Statements.

Production Costs and Operating Expenses Cost components as a percent of total 2013 2012 2011 Hydrocarbon feedstocks and energy 38 % 37 % 42 % Salaries, wages and employee benefits 15 13 13 Maintenance 4 4 4 Depreciation 4 4 4 Restructuring charges - 3 - Supplies, services and other raw materials 39 39 37 Total 100 % 100 % 100 % Amortization of Intangibles Amortization of intangibles was $461 million in 2013, $478 million in 2012 and $496 million in 2011. In 2013, amortization of intangibles was impacted by a $3 million asset impairment charge (impacting Corporate). See Notes 9 and 11 to the Consolidated Financial Statements for additional information regarding this matter.

Goodwill Impairment/Testing The Company performs annual goodwill impairment tests during the fourth quarter of the year. In 2013, the Company performed qualitative testing for 14 of its 19 reporting units carrying goodwill and quantitative testing for 5 of its reporting units. As a result of this testing, no goodwill impairments were identified.

During the fourth quarter of 2012, the Company performed qualitative testing for 11 of the 20 reporting units carrying goodwill. The qualitative assessment indicated that it was more likely than not that the fair value exceeded carrying value for those reporting units. The Company performed the first step of the quantitative testing for the remaining 9 reporting units. The Company utilized a discounted cash flow methodology to calculate the fair value of the reporting units. Based on the fair value analysis, management concluded that fair value exceeded carrying value for all reporting units except the Dow Formulated Systems reporting unit. Management completed the second step of the quantitative test for Dow Formulated Systems which compared the implied fair value of the reporting unit's goodwill to the carrying value. As a result of this test, the Company recorded an impairment loss of $220 million in the fourth quarter of 2012, which is included in "Goodwill impairment loss" in the consolidated statements of income and reflected in Performance Materials. The goodwill impairment loss represents the total amount of goodwill carried by the Dow Formulated Systems reporting unit.

During the fourth quarter of 2011, the Company performed qualitative testing for all reporting units carrying goodwill. As a result of this testing, no goodwill impairments were identified. See Critical Accounting Policies in Other Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted in each year.

Restructuring Charges (Credits) On March 27, 2012, the Company's Board of Directors approved a restructuring plan ("1Q12 Restructuring") as part of a series of actions to optimize its portfolio, respond to changing and volatile economic conditions, particularly in Western Europe, and to advance the Company's Efficiency for Growth program, which was initiated by the Company in the second quarter of 2011. The 1Q12 Restructuring plan included the shutdown of a number of facilities and a global workforce reduction. These actions were substantially complete at December 31, 2013. As a result of the 1Q12 Restructuring activities, the Company recorded pretax restructuring charges of $357 million in the first quarter of 2012 consisting of costs associated with exit and disposal activities of $150 million, severance costs of $113 million and asset write-downs and write-offs of $94 million. The impact of these charges is shown as "Restructuring charges (credits)" in the consolidated statements of income and reflected in the Company's segment results as follows: $17 million in Electronic and Functional Materials, $41 million in Coatings and Infrastructure Solutions, $186 million in Performance Materials and $113 million in Corporate. During the fourth quarter of 2012, the Company recorded a favorable adjustment to the 1Q12 Restructuring charge related to the impairment of long-lived assets and other assets of $4 million, impacting the Coatings and Infrastructure Solutions segment.

34-------------------------------------------------------------------------------- Table of Contents On October 23, 2012, the Company's Board of Directors approved a restructuring plan ("4Q12 Restructuring") to advance the next stage of the Company's transformation and to address macroeconomic uncertainties. The restructuring plan included the shutdown of a number of facilities, an impairment charge related to the write-down of Dow Kokam LLC's ("Dow Kokam") long-lived assets and a global workforce reduction. These actions are expected to be completed primarily by March 31, 2015. As a result of the 4Q12 Restructuring activities, the Company recorded pretax restructuring charges of $990 million in the fourth quarter of 2012 consisting of costs associated with exit or disposal activities of $39 million, severance costs of $375 million and asset write-downs and write-offs of $576 million. The impact of these charges is shown as "Restructuring charges (credits)" in the consolidated statements of income and reflected in the Company's segments results as follows: $48 million in Electronic and Functional Materials, $16 million in Coatings and Infrastructure Solutions, $192 million in Performance Materials, $26 million in Performance Plastics, $7 million in Feedstocks and Energy and $701 million in Corporate.

During the fourth quarter of 2013, the Company recognized a pretax gain of $16 million for adjustments to asbestos abatement costs and contract cancellation fees related to the 1Q12 Restructuring plan and a $6 million pretax gain for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. These gains were included in "Restructuring charges (credits)" in the consolidated statements of income and reflected in Performance Materials ($15 million), Performance Plastics ($6 million) and Coatings and Infrastructure Solutions ($1 million). See Note 3 to the Consolidated Financial Statements for details on the restructuring charges.

Acquisition-related Integration Expenses Charges totaling $31 million in 2011 were recorded for integration costs, legal expenses and other transaction costs related to the acquisition of Rohm and Haas. These charges were shown as "Acquisition-related integration expenses" in the consolidated statements of income and reflected in Corporate.

Equity in Earnings of Nonconsolidated Affiliates Dow's share of the earnings of nonconsolidated affiliates in 2013 was $1,034 million, compared with $536 million in 2012 and $1,223 million in 2011.

In 2013, equity earnings increased primarily due to increased earnings at Dow Corning Corporation ("Dow Corning"), EQUATE Petrochemical Company K.S.C., The Kuwait Sytrene Company K.S.C. and MEGlobal as well as improved results from The SCG-Dow Group, Sadara and Map Ta Phut Olefins Company Limited. Equity earnings for 2013 also include a $10 million loss related to asset impairment charges at a formulated electrolytes manufacturing joint venture (reflected in Corporate).

In 2012, equity earnings decreased primarily due to lower earnings at Dow Corning, MEGlobal and The SCG-Dow Group as well as equity losses from Sadara equal to the Company's share of development expenses. Equity earnings for 2012 also include a $73 million loss related to project development and other costs associated with the contribution of development costs to Sadara (reflected in Corporate).

The Company's share of equity earnings from Dow Corning decreased substantially in 2012 compared with 2011, primarily due to weakness in the silicon value chain. During 2012, Dow Corning's sales of solar-grade polycrystalline silicon products declined, driven by depressed prices and declining sales volumes that resulted from the July 2012 Chinese Ministry of Commerce ("MOFCOM") antidumping and countervailing duty investigations of U.S. and Korean-based solar-grade polycrystalline silicon products. In response to these market conditions, Dow Corning recorded an impairment charge in the fourth quarter of 2012 related to the abandonment of a partially constructed polycrystalline silicon plant expansion. The Company's share of this charge was $59 million. Dow Corning also delayed the start-up of another polycrystalline plant expansion, pending market condition improvements. Furthermore, Dow Corning initiated restructuring actions in the fourth quarter of 2012, including workforce reductions and asset impairments of which Dow's share of the charge was approximately $30 million.

During the fourth quarter of 2012, Dow Corning conducted impairment testing of its polycrystalline silicon business. The estimate of undiscounted cash flows indicated the polycrystalline silicon asset group was expected to be recovered.

During 2013, Dow Corning evaluated its polycrystalline silicon asset group for impairment, in response to a preliminary determination and imposed provisional antidumping and countervailing duties by MOFCOM. Dow Corning's estimate of future undiscounted cash flows continued to indicate the polycrystalline silicon asset group is recoverable. However, due to continued pricing deterioration, ongoing oversupply in the market and other adverse conditions that result in non-performance by customers under long-term contracts, it is reasonably possible that the estimate of undiscounted cash flows could change in the near term, resulting in the write-down of assets to fair value. If an asset impairment is recorded at Dow Corning related to the polycrystalline silicon asset group, the maximum potential after-tax impact to Dow is estimated to be approximately $930 million.

Equity earnings for 2011 included an $86 million gain related to cash collected on a previously impaired note receivable related to Equipolymers (reflected in Performance Plastics). See Note 8 to the Consolidated Financial Statements for additional information on nonconsolidated affiliates.

35-------------------------------------------------------------------------------- Table of Contents Sundry Income (Expense) - Net Sundry income (expense) - net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income (expense) - net for 2013 was net income of $2.554 billion, compared with net expense of $27 million in 2012 and net expense of $316 million in 2011. In 2013, sundry income (expense) - net included a gain of $2.161 billion related to damages awarded to the Company in the K-Dow arbitration proceeding (reflected in Corporate), a $451 million gain on the sale of the Dow Polypropylene Licensing and Catalysts business (reflected in Performance Plastics), an $87 million gain on the sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. (reflected in Feedstocks and Energy), a $26 million gain on the sale of the Company's ownership interest in Dow Kokam (reflected in Corporate), gains on asset sales and equity method investments and a $326 million loss on the early extinguishment of debt (reflected in Corporate).

In 2012, sundry income (expense) - net included $123 million of losses on the early extinguishment of debt (reflected in Corporate), foreign currency exchange losses and non-income tax related expenses which were partially offset by gains related to small divestitures and asset sales and a gain related to post-closing adjustments on the sale of a contract manufacturing business (reflected in Performance Materials).

In 2011, sundry income (expense) - net included a $482 million loss on the early extinguishment of debt (reflected in Corporate), a $42 million loss on the sale of a contract manufacturing business (reflected in Performance Materials) and losses on foreign currency exchange, partially offset by a small gain on the divestiture of the Polypropylene business (reflected in Performance Plastics) and gains on other small divestitures and asset sales, $25 million of dividend income received from the Company's ownership interest in Styron (reflected in Corporate), gains from the mark-to-market of trading securities, favorable working capital adjustments from prior divestitures, and a gain from the consolidation of a joint venture. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Note 5 to the Consolidated Financial Statements for additional information concerning the Company's divestitures, Note 14 to the Consolidated Financial Statements for additional information related to the K-Dow arbitration proceeding and Note 16 for additional information related to the early extinguishment of debt.

Net Interest Expense Net interest expense (interest expense less capitalized interest and interest income) was $1,060 million in 2013, down from $1,228 million in 2012 and $1,301 million in 2011, reflecting the impact of redemption of debt and lower debt financing costs. Interest income was $41 million in 2013 and 2012 and $40 million in 2011. Interest expense (net of capitalized interest) and amortization of debt discount totaled $1,101 million in 2013, $1,269 million in 2012 and $1,341 million in 2011. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding debt financing activity.

Provision for Income Taxes The provision for income taxes was $1,988 million in 2013, compared with $565 million in 2012 and $817 million in 2011. The Company's effective tax rate fluctuates based on, among other factors, where income is earned, reinvestment assertions regarding earned income and the level of income relative to tax credits available. For example, as the percentage of foreign sourced income increases, the Company's effective tax rate declines. The Company's tax rate is also influenced by the level of equity earnings, since most of the earnings from the Company's equity company investments are taxed at the joint venture level.

The tax rate for 2013 was favorably impacted by increased equity earnings; the K-Dow arbitration award, due to favorable tax treatment of certain components of the award; and, changes in valuation allowances in the United States on state income tax attributes and capital loss carryforwards. The tax rate was unfavorably impacted by adjustments to uncertain tax positions related to court rulings on two separate tax matters and the establishment of valuation allowances outside the United States. Additionally, the tax rate was unfavorably impacted by an increase in statutory taxable income in Latin America, primarily due to local currency devaluation. These factors resulted in an effective tax rate of 29.2 percent for 2013.

The tax rate for 2012 was negatively impacted by a change in the geographic mix of earnings, notably a decrease in earnings in Europe and an increase in earnings in the United States, as well as reductions in equity earnings. Equity earnings were further impacted by asset impairment and restructuring charges at Dow Corning. Additionally, the Company's impairment of Dow Formulated Systems goodwill and the impairment of the long-lived assets of Dow Kokam received minimal tax relief. The tax rate was favorably impacted by a change in the permanent reinvestment assertions of certain affiliates in Europe and Asia Pacific; however, this was primarily offset by unfavorable adjustments to uncertain tax positions and valuation allowances. These factors resulted in an effective tax rate of 33.9 percent for 2012.

36-------------------------------------------------------------------------------- Table of Contents The tax rate for 2011 was positively impacted by a high level of equity earnings as a percentage of total earnings, earnings in foreign locations taxed at rates less than the U.S. statutory rate, the sale of a contract manufacturing business and the reorganization of a joint venture. The tax rate for 2011 was negatively impacted by a $264 million valuation allowance recorded in the fourth quarter of 2011. The valuation allowance was recorded against the deferred tax assets of two Dow entities in Brazil. As a result of the global recession in 2008-2009, coupled with rapidly deteriorating isocyanate industry conditions and increasing local costs, these two entities were in a three-year cumulative pretax operating loss position at December 31, 2011. While the Company expects to realize the tax loss carryforwards generated by these operating losses based on several factors - including forecasted margin expansion resulting from improving economic conditions, higher industry growth rates in Brazil, improving Dow operating rates, and a restructuring of legal entities to maximize the use of existing tax loss carryforwards - Dow was unable to overcome the negative evidence of recent cumulative operating losses; and at December 31, 2011, the Company could not assert it was more likely than not that it will realize its deferred tax assets in the two Brazilian entities. Accordingly, the Company established the valuation allowance against the deferred tax assets of these companies in the fourth quarter of 2011. If in the future, as a result of the Company's plans and expectations, one or both of these entities generates sufficient profitability such that the evaluation of the recoverability of the deferred tax assets changes, the valuation allowance could be reversed in whole or in part in a future period. These factors resulted in an effective tax rate of 22.7 percent for 2011.

Net Income (Loss) Attributable to Noncontrolling Interests Net income (loss) attributable to noncontrolling interests was net income of $29 million in 2013, net loss of $82 million in 2012 and net income of $42 million in 2011. Net income (loss) attributable to noncontrolling interests increased in 2013, primarily due to reduced losses at Dow Kokam, which was impacted by a significant restructuring charge related to the write-down of long-lived assets in the fourth quarter of 2012. Net income (loss) attributable to noncontrolling interests decreased in 2012 compared with 2011 due to Dow Kokam's impairment charge and operating losses which more than offset improved results in the Performance Materials affiliates. On November 22, 2013, the Company sold its ownership interest in Dow Kokam. See Notes 3 and 5 to the Consolidated Financial Statements for details on the Dow Kokam impairment charge and divestiture. See Note 19 to the Consolidated Financial Statements for additional information concerning noncontrolling interests.

Preferred Stock Dividends Preferred stock dividends of $340 million were recognized in 2013, 2012 and 2011. These dividends related to the Company's Cumulative Convertible Perpetual Preferred Stock, Series A. See Note 21 to the Consolidated Financial Statements for additional information.

Net Income Available for Common Stockholders Net income available for common stockholders was $4,447 million ($3.68 per share) in 2013, compared with $842 million ($0.70 per share) in 2012 and $2,402 million ($2.05 per share) in 2011.

Certain Items Impacting Results The Company's management believes that measures of income adjusted to exclude certain items ("non-GAAP" financial measures) provide relevant and meaningful information to investors about the ongoing operating results of the Company.

Such financial measures are not recognized in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should not be viewed as an alternative to U.S. GAAP financial measures of performance.

37-------------------------------------------------------------------------------- Table of Contents The following table summarizes the impact of certain items recorded in 2013, 2012 and 2011: Certain Items Impacting Pretax Impact on Impact on Results Impact (1) Net Income (2) EPS (3) (4) In millions, except per share amounts 2013 2012 2011 2013 2012 2011 2013 2012 2011 Adjusted to exclude certain items (non-GAAP measures) $ 2,981 $ 2,249 $ 2,959 $ 2.48 $ 1.90 $ 2.54 Certain items: Cost of sales: Asset impairments and related costs $ (181 ) $ - $ (77 ) (124 ) - (51 ) (0.10 ) - (0.05 ) Warranty accrual adjustment of exited business - - (60 ) - - (38 ) - - (0.03 ) Restructuring implementation costs (40 ) (1 ) - (29 ) (1 ) - (0.03 ) - -Research and development expenses: Restructuring implementation costs (2 ) - - (1 ) - - - - - Selling, general and administrative expenses: Restructuring implementation costs (2 ) (21 ) - (2 ) (13 ) - - (0.01 ) - Amortization of intangibles: Asset impairments and related costs (3 ) - - (2 ) - - - - - Goodwill impairment loss - (220 ) - - (220 ) - - (0.19 ) - Restructuring charges (credits) (5) 22 (1,343 ) - 21 (951 ) - 0.02 (0.82 ) - Acquisition-related integration expenses - - (31 ) - - (20 ) - - (0.02 ) Equity in earnings of nonconsolidated affiliates: Gain on collection of impaired note receivable - - 86 - - 86 - - 0.07 Dow Corning restructuring and asset abandonment - (89 ) - - (82 ) - - (0.07 ) - Sadara development and other costs - (73 ) - - (70 ) - - (0.06 ) - Asset impairments at a formulated electrolytes joint venture (10 ) - - (6 ) - - (0.01 ) - - Sundry income (expense) - net: Gain from K-Dow settlement 2,161 - - 1,647 - - 1.37 - - Gain (Loss) on sale of contract manufacturing business - 8 (42 ) - 8 44 - 0.01 0.04 Gain on sale of Polypropylene Licensing and Catalysts business 451 - - 356 - - 0.29 - - Gain on sale of a 7.5 percent interest in Freeport LNG Development, L.P. 87 - - 69 - - 0.06 - - Gain on sale of ownership interest in Dow Kokam 26 - - 18 - - 0.01 - - Loss on early extinguishment of debt (326 ) (123 ) (482 ) (205 ) (78 ) (314 ) (0.17 ) (0.06 ) (0.27 ) Provision for income taxes: Uncertain tax position adjustments - - - (276 ) - - (0.23 ) - - Tax valuation allowance - - - - - (264 ) - - (0.23 ) Total certain items $ 2,183 $ (1,862 ) $ (606 ) $ 1,466 $ (1,407 ) $ (557 ) $ 1.21 $ (1.20 ) $ (0.49 ) Dilutive effect of assumed preferred stock conversion into shares of common stock $ (0.01 ) $ - $ -Reported U.S. GAAP Amounts (6) (7) $ 4,447 $ 842 $ 2,402 $ 3.68 $ 0.70 $ 2.05 (1) Impact on "Income Before Income Taxes." (2) Impact on "Net Income Available for The Dow Chemical Company Common Stockholders." (3) Impact on "Earnings per common share - diluted." (4) For the year ended December 31, 2013, conversion of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A into shares of the Company's common stock was excluded from the calculation of "Diluted earnings per share adjusted to exclude certain items" as well as the earnings per share impact of certain items because the effect of including them would have been antidilutive.

(5) "Restructuring charges (credits)" in 2012 include $304 million of asset impairments and severance costs related to Dow Kokam LLC ("Dow Kokam") which, at the time of the charge, was owned 63.6 percent by Dow. The Dow Kokam restructuring impact on "Net Income Available for The Dow Chemical Company Common Stockholders" was reduced by $7 million of tax credits and $108 million of net loss attributable to noncontrolling interests. The Company's share of the Dow Kokam charge, after tax and noncontrolling interests, was $189 million.

(6) For the year ended December 31, 2013, an assumed conversion of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A into shares of the Company's common stock was included in the calculation of diluted earnings per share (reported U.S. GAAP amount).

(7) The Company used "Net Income Attributable to The Dow Chemical Company" when calculating diluted earnings per share (reported U.S. GAAP amount) for the twelve-month period ended December 31, 2013, as it excludes preferred dividends of $340 million.

38-------------------------------------------------------------------------------- Table of Contents SEGMENT RESULTS The Company uses EBITDA (which Dow defines as earnings (i.e., "Net Income") before interest, income taxes, depreciation and amortization) as its measure of profit/loss for segment reporting purposes. EBITDA by operating segment includes all operating items relating to the businesses; items that principally apply to the Company as a whole are assigned to Corporate. Additional information regarding the Company's operating segments and a reconciliation of EBITDA to "Income Before Income Taxes" can be found in Note 24 to the Consolidated Financial Statements.

Due to the completion of several divestitures (see Note 5 to the Consolidated Financial Statements), the change in sales volume from 2012 to 2013 and 2011 to 2012 excluding divestitures is also provided by operating segment, where applicable. Sales excluding divestitures exclude sales related to Nippon Unicar Company Limited, divested on July 1, 2013; sales of the Polypropylene business, divested on September 30, 2011; and sales of Dow Haltermann, divested during 2011.

ELECTRONIC AND FUNCTIONAL MATERIALS The Electronic and Functional Materials segment consists of two businesses - Dow Electronic Materials and Functional Materials - and includes a portion of the Company's share of the results of Dow Corning Corporation, a joint venture of the Company. Dow Electronic Materials includes Display Technologies, Growth Technologies, Interconnect Technologies and Semiconductor Technologies.

Functional Materials includes Dow Consumer and Industrial Solutions, Dow Microbial Control and Dow Pharma and Food Solutions.

Electronic and Functional Materials In millions 2013 2012 2011 Sales $ 4,591 $ 4,481 $ 4,599 Price change from comparative period (2 )% (2 )% 6 % Volume change from comparative period 4 % (1 )% 3 % Equity earnings $ 112 $ 94 $ 104 EBITDA $ 1,040 $ 958 $ 1,084 Certain items impacting EBITDA $ - $ (73 ) $ - 2013 Versus 2012 Electronic and Functional Materials sales were $4,591 million for 2013, up from $4,481 million in 2012. Sales increased 2 percent from 2012, with volume up 4 percent and price down 2 percent (with nearly one-third of the price decline due to currency). Volume increased in all geographic areas, except EMEA, driven by higher demand for consumer electronics, specialty polymers used in home and personal care applications and specialty materials used in energy and industrial water applications. Price increases in North America and EMEA were more than offset by decreases in Latin America and most notably in Asia Pacific. Price decreased in most business units. EBITDA for 2013 was $1,040 million, up from $958 million in 2012. EBITDA improved from last year as increased sales volume, higher equity earnings from Dow Corning and lower R&D and SG&A expenses more than offset lower selling prices. EBITDA for 2012 was negatively impacted by $65 million of restructuring charges. The 1Q12 Restructuring program included a $17 million charge related to the write-off of a capital project. The 4Q12 Restructuring program included a $48 million charge related to asset write-downs and write-offs and contract cancellation fees. In addition, EBITDA for 2012 included an $8 million charge related to Dow Corning's restructuring and asset abandonment. See Notes 3 and 8 to the Consolidated Financial Statements for additional information on these charges.

Dow Electronic Materials sales in 2013 were flat compared with 2012, with volume up 3 percent and price down 3 percent. Volume was higher in Display Technologies due to increased demand for organic light emitting diode materials used in mobile applications and televisions. Volume increased in Interconnect Technologies due to higher demand for printed circuit boards and for advanced metallization used in electronic finishing. Volume decreased in Semiconductor Technologies as customers reduced inventory levels for chemical mechanical planarization pads and slurries despite semiconductor foundry utilization rates holding steady across the industry in 2013. The decrease in price was driven by continued competitive pressure and the unfavorable impact of currency, which represented nearly 40 percent of the decrease and was primarily due to the weakening Japanese yen.

Functional Materials sales in 2013 increased 5 percent from 2012, with volume up 5 percent and price flat. Volume increased in all geographic areas, except EMEA, driven by higher demand for home and personal care products, specialty biocides used in energy applications and acrolein derivatives. Price remained flat as price increases in acrolein derivatives were offset by decreases in Dow Pharma and Food Solutions due to price/volume optimization efforts, notably cellulosics.

39-------------------------------------------------------------------------------- Table of Contents In July 2012, the Chinese Ministry of Commerce ("MOFCOM") initiated antidumping and countervailing duty investigations of imports of solar-grade polycrystalline silicon products from the United States and Korea based on a petition filed by Chinese solar-grade polycrystalline silicon producers. The petition alleged that producers within these countries, including Dow Corning, exported solar-grade polycrystalline silicon to China at less than fair value, and that production of solar-grade polycrystalline silicon in the United States has been subsidized by the U.S. government. On January 20, 2014, MOFCOM issued a final determination that resulted in antidumping duties on producers in the United States and Korea ranging from 2.4 percent to 57 percent, including duties of 53.3 percent on future imports from Dow Corning. In addition, countervailing duties of 2.1 percent were imposed. The requirement for customers to pay provisional duties on imports from solar-grade polycrystalline silicon producers became effective July 24, 2013 for the antidumping duties and September 20, 2013 for the countervailing duties. Dow Corning will not be subject to duties for previous sales. Dow Corning is evaluating possible actions in response to the final determination. Dow Corning's polycrystalline silicon products accounted for a significant portion of its operating results.

2012 Versus 2011 Electronic and Functional Materials sales were $4,481 million for 2012, down from $4,599 million in 2011. Sales decreased 3 percent from 2011, with price down 2 percent (with more than one-half of the price decline due to currency) and volume down 1 percent. Price decreased in most geographic areas and across most major business units in response to decreasing raw material costs. Volume declined as increased demand for chemical mechanical planarization pads and slurries in Asia Pacific was more than offset by weaker demand for specialty polymers used in home and personal care applications and specialty cellulosics used in food and pharmaceutical applications, notably in North America. EBITDA for 2012 was $958 million, down from $1,084 million in 2011. EBITDA decreased from 2011 as lower selling prices and higher operating costs associated with planned maintenance turnarounds more than offset lower raw material costs and lower SG&A expenses. EBITDA for 2012 was negatively impacted by $65 million of certain items, as previously discussed.

Dow Electronic Materials sales in 2012 were down 3 percent from 2011, with price down 2 percent and volume down 1 percent. Price decreased in all geographic areas driven by continued competitive pricing pressure, especially in Asia Pacific. Volume declines in North America and Asia Pacific more than offset improvements in EMEA and Latin America. Volume declined in Display Technologies primarily due to lower demand for optical filters used in televisions and other displays. Volume decreased in Interconnect Technologies due to lower demand for printed circuit boards used in personal computers. Semiconductor foundry utilization rates held steady across the industry in 2012 and higher demand for chemical mechanical planarization pads and slurries drove volume growth in the Semiconductor Technologies business unit.

Functional Materials sales in 2012 were down 2 percent from 2011, entirely related to the unfavorable impact of currency on price. Price decreased in most geographic areas, especially in EMEA. Volume was flat as higher industrial demand for specialty amines and polymers was offset by lower demand for home and personal care products and lower demand for cellulosics used in food and pharmaceutical applications.

Electronic and Functional Materials Outlook for 2014 Electronic and Functional Materials sales are expected to increase due to continued global economic recovery and demand growth in the electronics, energy, pharmaceutical, food, personal care and home care industries. The Company expects continued strong demand in OLED used in mobile applications and televisions.

Dow Electronic Materials sales volume is expected to increase due to new product launches including advanced photoresists and advanced chip packaging used in personal computer memory applications and circuit boards, while continued but modest growth is expected for media tablet and mobile phone devices.

Functional Materials sales are expected to increase, especially in emerging geographies, due to higher demand for home and personal care products, higher demand for specialty biocides and for cellulosics used in food and pharmaceutical applications.

40-------------------------------------------------------------------------------- Table of Contents COATINGS AND INFRASTRUCTURE SOLUTIONS The Coatings and Infrastructure Solutions segment consists of the following businesses: Dow Building and Construction, Dow Coating Materials, Dow Water and Process Solutions, and Performance Monomers; and includes a portion of the Company's share of the results of Dow Corning Corporation, a joint venture of the Company.

Coatings and Infrastructure Solutions In millions 2013 2012 2011 Sales $ 7,132 $ 6,898 $ 7,200 Price change from comparative period (1 )% (6 )% 13 % Volume change from comparative period 4 % 2 % (4 )% Volume change, excluding divestitures 4 % 2 % (1 )% Equity earnings $ 121 $ 50 $ 321 EBITDA $ 832 $ 823 $ 1,167 Certain items impacting EBITDA $ (60 ) $ (134 ) $ (60 ) 2013 Versus 2012 Coatings and Infrastructure Solutions sales were $7,132 million in 2013, up from $6,898 million in 2012. Sales increased 3 percent with volume improving 4 percent and price declining 1 percent, due to currency. Volume was higher in all businesses and all geographic areas. Price increases in North America, driven by higher feedstock and energy costs, were offset by price declines in EMEA and Latin America as well as Asia Pacific, which declined due to the unfavorable impact of currency, most notably in Japan. Dow Coating Materials volume increased due to higher demand for architectural coatings in all geographic areas, except Latin America, driven by improved end-use market conditions. In addition, demand for industrial coatings was higher in North America. Dow Building and Construction volume increased due to higher demand for insulation products in all geographic areas, except North America. In North America volume was lower due to price/volume optimization and lower non-residential construction activity. Performance Monomers volume increased in all geographic areas driven by higher demand for acrylic acid used in coating and adhesive applications. Dow Water and Process Solutions volume increased as higher demand for reverse osmosis membranes used in residential and industrial water desalination projects more than offset weaker demand for ion exchange resins used in large industrial water projects.

EBITDA for 2013 was $832 million, compared with $823 million in 2012. EBITDA in 2013 included $61 million of asset impairment and related costs in Dow Building and Construction and a $1 million gain for an adjustment to asbestos abatement costs related to the 1Q12 restructuring program. EBITDA for 2012 was negatively impacted by restructuring charges of $53 million. The 1Q12 Restructuring plan included $37 million of restructuring charges, consisting of asset write-downs and write-offs of $33 million and costs associated with exit or disposal activities of $4 million. The 4Q12 Restructuring plan included $16 million for asset write-downs and write-offs. In addition, EBITDA for 2012 included an $81 million charge related to Dow Corning's restructuring and asset abandonment. See Notes 3 and 8 to the Consolidated Financial Statements for additional information on these charges. Excluding these certain items, EBITDA decreased in 2013 as lower selling prices and higher feedstock and energy and other raw material costs more than offset higher sales volumes and the favorable impact of currency on costs.

In July 2012, the Chinese Ministry of Commerce ("MOFCOM") initiated antidumping and countervailing duty investigations of imports of solar-grade polycrystalline silicon products from the United States and Korea based on a petition filed by Chinese solar-grade polycrystalline silicon producers. The petition alleged that producers within these countries, including Dow Corning, exported solar-grade polycrystalline silicon to China at less than fair value, and that production of solar-grade polycrystalline silicon in the United States has been subsidized by the U.S. government. On January 20, 2014, MOFCOM issued a final determination that resulted in antidumping duties on producers in the United States and Korea ranging from 2.4 percent to 57 percent, including duties of 53.3 percent on future imports from Dow Corning. In addition, countervailing duties of 2.1 percent were imposed. The requirement for customers to pay provisional duties on imports from solar-grade polycrystalline silicon producers became effective July 24, 2013 for the antidumping duties and September 20, 2013 for the countervailing duties. Dow Corning will not be subject to duties for previous sales. Dow Corning is evaluating possible actions in response to the final determination. Dow Corning's polycrystalline silicon products accounted for a significant portion of its operating results.

2012 Versus 2011 Coatings and Infrastructure Solutions sales were $6,898 million in 2012, down from $7,200 million in 2011. Sales decreased 4 percent with price declining 6 percent (with approximately one-third of the price decrease due to currency) and volume improving 2 percent. The decrease in price was across all geographic areas and across most businesses, driven in response to lower feedstock and energy and other raw material costs. Dow Coating Materials volume increased due to higher demand for 41-------------------------------------------------------------------------------- Table of Contents industrial coatings. Despite market share gains achieved through technology innovations in paper coatings and in traffic paint, notably EVOQUE™, volume for architectural coatings declined slightly, driven by continued weak end-use market conditions, especially for residential construction in EMEA. Dow Water and Process Solutions volume was flat as higher demand for reverse osmosis membranes used in water desalination projects and for ion exchange resins used in ultrapure water applications was offset by weaker demand for ion exchange resins used in large industrial water projects. Dow Building and Construction volume declined due to price/volume optimization in North America and slower construction activity in EMEA, which more than offset volume gains in Asia Pacific. Performance Monomers volume increased in all geographic areas, especially in Asia Pacific, driven by favorable supply/demand conditions in Japan due to a competitor plant outage.

EBITDA for 2012 was $823 million, down from $1,167 million in 2011. Compared with 2011, lower selling prices and lower equity earnings from Dow Corning more than offset higher sales volumes, lower feedstock and energy costs and the favorable impact of currency on costs. EBITDA for 2012 was negatively impacted by $134 million of certain items, as previously discussed. EBITDA was negatively impacted in 2011 by a $60 million charge for a warranty accrual adjustment related to an exited business.

Coatings and Infrastructure Solutions Outlook for 2014 Coatings and Infrastructure Solutions sales are expected to grow modestly in 2014. Dow Coating Materials sales are expected to increase driven by higher demand for architectural coatings due to continued recovery in the housing industry, especially in developed geographies. Increased demand is also expected for industrial coatings, driven by global economic conditions. Dow Building and Construction sales are also expected to increase, primarily driven by higher demand for insulation products in North America due to continued recovery of residential construction and continued improvement in non-residential construction activity. Dow Water and Process Solutions sales are expected to increase slightly due to higher demand for reverse osmosis membranes used in water desalination projects and ion exchange resins used in ultrapure water applications. Performance Monomers sales are expected to increase due to improved end-market conditions and increased demand from emerging geographies.

AGRICULTURAL SCIENCES The Agricultural Sciences segment is a global leader in providing crop protection and plant biotechnology products, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agriculture, industrial and commercial pest management, and food service. Agricultural Sciences consists of two businesses - Crop Protection and Seeds, Traits and Oils.

Agricultural Sciences In millions 2013 2012 2011 Sales $ 7,137 $ 6,382 $ 5,655 Price change from comparative period 1 % 3 % 5 % Volume change from comparative period 11 % 10 % 11 % Equity earnings $ 6 $ 1 $ 4 EBITDA $ 969 $ 977 $ 913 2013 Versus 2012 Agricultural Sciences sales were $7,137 million in 2013, up 12 percent from $6,382 million in 2012, a record for the segment and both businesses. Sales gains were driven by the introduction and ramp up of new products and technologies. Compared with last year, volume increased 11 percent and price increased 1 percent. Latin America reported 21 percent sales growth and North America sales increased 13 percent. Crop Protection sales were up 10 percent compared with 2012, driven by new product sales which increased 14 percent, while strong sales growth was also reported for the spinosyns and the corn and cereal herbicide portfolios. Seeds, Traits and Oils sales increased 19 percent compared with 2012 with strong growth across most major crop portfolios.

SmartStax® corn hybrids posted record sales growth driven by the ramp up of POWERCORE™ Insect Trait Technology in Latin America and REFUGE ADVANCED® in North America.

EBITDA for 2013 was $969 million, compared with $977 in 2012. EBITDA declined slightly primarily due to higher operating expenses and increased spending on growth investments which offset strong sales growth in the Americas led by favorable global agricultural and food industry conditions, new product sales and new seed technologies.

42-------------------------------------------------------------------------------- Table of Contents 2012 Versus 2011 Agricultural Sciences sales were $6,382 million in 2012, up 13 percent from $5,655 million in 2011. Compared with 2011, volume increased 10 percent and price was up 3 percent. Regionally, North America reported 27 percent sales growth while Latin America and Asia Pacific also reported strong increases.

Sales growth was reported in the Seeds, Traits and Oils and Crop Protection businesses due to new product launches and the continued ramp up of new technologies. Sales of Seeds, Traits and Oils increased 27 percent compared with 2011 driven by strong growth in the corn, soybean and healthy oils portfolios.

SmartStax® technology sales more than doubled from 2011 performance, driven by the 2012 introduction of POWERCORE™ Insect Trait Technology in Latin America and REFUGE ADVANCED® in North America. Crop Protection sales increased 10 percent, with volume up 8 percent and price up 2 percent. New Crop Protection product sales were up 19 percent compared with the year ago period with spinetoram insecticide up 50 percent and double-digit growth in aminopyralid herbicide and pyroxsulam herbicide.

EBITDA for 2012 was a record $977 million, compared with $913 million in 2011.

EBITDA increased as sales volume growth in Seeds, Traits and Oils and Crop Protection combined with selling price increases more than offset increased investment in R&D and SG&A to support continuing growth initiatives.

Agricultural Sciences Outlook for 2014 Agricultural Sciences sales for 2014 are expected to grow above the levels achieved in 2013 with growth in all geographic areas. A continuation of 2013 industry momentum is anticipated to be tempered by a greater level of uncertainty around crop commodity prices. The Seeds, Traits and Oils business expects gains in corn from the continued ramp up of SmartStax® technology, as well as growth in the soybean portfolio. The Crop Protection business is expected to experience continued growth from IsoclastTM insecticide, pyroxsulam herbicide, spinetoram insecticide, penoxsulam herbicide and aminopyralid herbicide. Investments in technology, capacity and geographic reach in the Seeds, Traits and Oils business remain a priority.

PERFORMANCE MATERIALS The Performance Materials segment consists of the following businesses: Amines; Chlorinated Organics; Dow Automotive Systems; Dow Formulated Systems; Dow Oil, Gas & Mining; Dow Plastics Additives; Epoxy; Oxygenated Solvents; Polyglycols, Surfactants & Fluids; Polyurethanes; and Propylene Oxide/Propylene Glycol ("PO/PG"). The segment also includes the results of Map Ta Phut Olefins Company Limited and a portion of the results of Sadara Chemical Company, both joint ventures of the Company.

The segment included Dow Haltermann until it was fully divested at December 31, 2011.

Performance Materials In millions 2013 2012 2011 Sales $ 13,415 $ 13,608 $ 14,647 Price change from comparative period - % (6 )% 12 % Volume change from comparative period (2 )% (1 )% (7 )% Volume change, excluding divestitures (2 )% - % 1 % Equity losses $ (64 ) $ (92 ) $ (31 ) EBITDA $ 1,436 $ 1,036 $ 1,748Certain items impacting EBITDA $ (23 ) $ (590 ) $ (119 ) 2013 Versus 2012 Performance Materials sales were $13,415 million in 2013, down 2 percent from $13,608 million in 2012. Compared with 2012, price was flat as increases across most businesses in North America and Europe were offset by decreases in Latin America and Asia Pacific. Improved economic conditions drove price gains in Oxygenated Solvents in all geographic areas except Asia Pacific, where price declined due to the unfavorable impact of currency. Price increases were also reported by Dow Automotive Systems, Dow Formulated Systems and Polyglycols, Surfactants & Fluids due to higher propylene and energy costs. These increases were offset by price declines in Amines, Dow Plastics Additives and most notably in Chlorinated Organics, where aggressive competitors, coupled with global industry oversupply, lowered prices. Volume for 2013 was down 2 percent compared with 2012 as modest growth in Latin America was more than offset by declines in all other geographic areas. Epoxy reported lower volume across all geographic areas, except Latin America, due to poor supply and demand fundamentals. Volume declined in Amines and Oxygenated Solvents due to the expiration of a low margin marketing agreement. Lower volume was reported by Chlorinated Organics and Dow Plastics Additives which were impacted by soft demand conditions. Dow Automotive Systems reported volume gains due to stronger demand in the North American transportation sector. Stronger consumer and industrial demand, as well as increased demand in the wind energy sector, drove volume growth in Dow Formulated Systems. Volume gains were reported in PO/PG, especially in Asia Pacific where additional 43-------------------------------------------------------------------------------- Table of Contents propylene glycol capacity in Thailand was brought online in late 2012. Dow Oil, Gas & Mining volume was higher in all geographic areas due to strong demand fundamentals in the exploration and production and refining and processing industries. Volume increased modestly in Polyurethanes in all geographic areas except EMEA, driven primarily by increased demand for energy efficient applications.

EBITDA for 2013 was $1,436 million, compared with $1,036 million in 2012. EBITDA in 2013 included $38 million of asset impairment charges and costs related primarily to the shutdown of certain assets in the Dow Plastics Additives and Epoxy businesses and a $15 million gain for the adjustment of contract cancellation fees related to the 1Q12 restructuring program. EBITDA in 2012 was negatively impacted by a goodwill impairment loss of $220 million in Dow Formulated Systems; $186 million of 1Q12 Restructuring charges related to the cancellation of a project and the shutdown/consolidation of assets in the Polyurethanes and Epoxy businesses in Brazil, Texas and Germany; and $192 million of 4Q12 Restructuring charges related primarily to the shutdown/consolidation of certain assets in the Dow Automotive Systems and Oxygenated Solvents businesses in Michigan and Texas. EBITDA in 2012 was also impacted by an $8 million gain related to post-closing adjustments on the sale of a contract manufacturing business. See Notes 3, 5, 9 and 11 to the Consolidated Financial Statements for additional information on these charges.

Excluding these certain items, EBITDA decreased in 2013 as higher propylene and energy costs, decreased sales volume and increased SG&A costs more than offset lower equity losses from Map Ta Phut Olefins Company Limited, decreased spending on planned maintenance turnarounds and improved operating rates.

On March 14, 2013, the Company announced the Dow Plastics Additives business was being marketed for divestment, as part of the Company's ongoing commitment to portfolio management. During the third quarter of 2013, the Company determined this valuable business was being undervalued by potential buyers in the market.

As a result, the Dow Plastics Additives business is no longer being marketed for divestment and will continue to be operated by the Company to obtain maximum value.

2012 Versus 2011 Performance Materials sales were $13,608 million in 2012, down 7 percent from $14,647 million in 2011. Compared with 2011, price declined 6 percent with approximately 40 percent of the decline due to the unfavorable impact of currency. Lower feedstock and energy and other raw material costs drove price decreases across all geographic areas and most businesses. Amines, Epoxy and PO/PG experienced double-digit price decreases due to lower feedstock and energy and other raw material costs as well as excess industry inventories.

Polyglycols, Surfactants & Fluids reported slight price increases led by favorable pricing in North America. Volume for 2012 was down 1 percent compared with 2011, reflecting the sale of Dow Haltermann in 2011. Excluding the impact of this divestiture, volume was flat as a decline in Latin America, due to the shutdown of the toluene diisocyanate manufacturing facility in Brazil, offset modest volume increases in other geographic areas. Amines reported volume growth of 8 percent due to increased sales of herbicides in the agricultural industry, as well as increased industry demand in laundry detergents, fabric softeners and industrial applications for the oil and gas industry. Strong volume growth was reported by PO/PG, driven primarily by the addition of new propylene oxide capacity in Asia Pacific in 2011. Dow Oil, Gas & Mining volume was higher in all geographic areas, except Asia Pacific, due to strong demand fundamentals in the exploration and production and refining and processing industries. These volume gains were offset by volume declines in Dow Automotive Systems, where demand softened in Latin America and Europe, as well as Polyurethanes where volume was down across all geographic areas except North America. Epoxy also reported lower volume across all geographic areas, except Latin America, due to soft demand and extended planned maintenance turnarounds in 2012.

EBITDA for 2012 was $1,036 million, compared with $1,748 million in 2011. EBITDA decreased in 2012 as lower selling prices, increased spending for planned maintenance turnarounds, lower equity earnings from Map Ta Phut Olefins Company Limited and equity losses from Sadara more than offset lower feedstock and energy and other raw material costs, improved operating rates, the positive impact of currency on costs and lower R&D and SG&A costs. EBITDA in 2012 was negatively impacted by $590 million of certain items, as previously discussed.

EBITDA in 2011 included $77 million of asset impairment charges and related costs in the Polyurethanes business and a $42 million loss on the sale of a contract manufacturing business. See Notes 5 and 11 to the Consolidated Financial Statements for additional information on these charges.

Performance Materials Outlook for 2014 Performance Materials volume is expected to grow modestly, at or slightly above GDP for most businesses. Volume is expected to improve in Polyurethanes as the economic recovery continues in North America and is expected across all other geographic areas. Continued sales growth is expected for Dow Oil, Gas & Mining driven by market fundamentals in exploration and production as well as market penetration in emerging geographies. Increased demand is expected to drive modest volume increases in Epoxy. Dow Plastics Additives expects lower volume due to the announced closure of the Grangemouth, United Kingdom manufacturing facility. Chlorinated Organics expects slight volume declines due to a depressed global market. A modest sales increase is expected in Dow Automotive Systems, driven by a projected increase in global production in the transportation sector. Amines, Oxygentated Solvents and Polyglycols, Surfactants & Fluids all expect sales growth, despite the 44-------------------------------------------------------------------------------- Table of Contents expiration of a low margin marketing agreement in late 2013. Equity earnings are expected to be down due to increased start-up costs for the Sadara joint venture.

On December 2, 2013, the Company announced the planned carve-out of a portion of its chlorine chain, including the Company's global Chlorinated Organics and Epoxy businesses, in preparation for transactions involving select chlorine and derivative businesses over the next 12-24 months.

PERFORMANCE PLASTICS The Performance Plastics segment is a solutions-oriented portfolio comprised of Dow Elastomers; Dow Electrical and Telecommunications; and Dow Packaging and Specialty Plastics. The Performance Plastics segment also includes the results of Equipolymers (through the July 1, 2011 merger with MEGlobal; see Note 8 to the Consolidated Financial Statements) and Univation Technologies, LLC, as well as a portion of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C., The SCG-Dow Group and Sadara Chemical Company, all joint ventures of the Company.

On December 2, 2013, the Company sold its global Polypropylene Licensing and Catalysts business to W. R. Grace & Co. On September 30, 2011, the Company sold its global Polypropylene business to Braskem SA. These businesses were reported in the Performance Plastics segment through the date of divestiture. See Note 5 to the Consolidated Financial Statements for additional information on these divestitures.

Performance Plastics In millions 2013 2012 2011 Sales $ 14,645 $ 14,479 $ 16,257 Price change from comparative period 4 % (4 )% 12 % Volume change from comparative period (3 )% (7 )% (5 )% Volume change, excluding divestitures (1 )% 1 % 4 % Equity earnings $ 359 $ 134 $ 303 EBITDA $ 4,549 $ 3,018 $ 3,440Certain items impacting EBITDA $ 457 $ (26 ) $ 86 2013 Versus 2012 Performance Plastics sales for 2013 were $14,645 million, up 1 percent from $14,479 million in 2012 with price up 4 percent and volume down 3 percent. Dow Packaging and Specialty Plastics prices were significantly higher in all geographic areas due to low industry inventories and the Company's focus on higher margin products and customers. Dow Elastomers prices were lower in all geographic areas due to increased competitive pressure from additional industry capacity. Dow Electrical and Telecommunications price increases in North America were more than offset by price declines in all other geographic areas, most notably Asia Pacific which included the unfavorable impact of currency. Volume declined by 3 percent, primarily due to the divestiture of the Company's 50 percent interest in Nippon Unicar Company Limited. Excluding the impact of this divestiture, volume was down 1 percent. Increased demand drove Dow Packaging and Specialty Plastics volume growth in all geographic areas, except EMEA, which was impacted by the Company's shutdown of a high-density polyethylene production facility at Tessenderlo, Belgium. Dow Elastomers volume was higher in all geographic areas, except Latin America, due to increased demand in the transportation, adhesive and infrastructure industries. Dow Electrical and Telecommunications volume declined in all geographic areas except Latin America, reflecting weaker demand in the telecommunications and power industries. Volume was also significantly lower in Asia Pacific, reflecting reduced supply related to the Company's divestiture of its ownership interest in Nippon Unicar Company Limited.

EBITDA for 2013 was $4,549 million, up significantly from $3,018 million in 2012. EBITDA improved as the impact of higher selling prices, lower feedstock costs, lower other raw material cost and improved equity earnings more than offset the decline in sales volume. Equity earnings were $359 million in 2013, up from $134 million in 2012, as a result of significantly improved earnings from EQUATE, The Kuwait Styrene Company K.S.C. and Univation Technologies, LLC and lower equity losses from The SCG-Dow Group. EBITDA in 2013 was also positively impacted by a pretax gain of $451 million on the sale of the global Polypropylene Licensing and Catalysts business and a $6 million gain for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. EBITDA in 2012 was negatively impacted by $26 million of restructuring charges consisting of asset write-offs of $10 million and costs associated with exit or disposal activities of $7 million related to the shutdown of the Company's polyethylene manufacturing facility in Tessenderlo, Belgium, and a $9 million charge related to the impairment of the Company's investment in Nippon Unicar Company Limited. See Notes 3 and 5 to the Consolidated Financial Statements for additional information on these charges.

45-------------------------------------------------------------------------------- Table of Contents 2012 Versus 2011 Performance Plastics sales for 2012 were $14,479 million, down 11 percent from $16,257 million in 2011 with price down 4 percent (with more than half of the decrease due to currency) and volume down 7 percent. Feedstock and energy costs fell during 2012 resulting in lower selling prices across all geographic areas and businesses. Prices declined in EMEA where modest local price increases were more than offset by the unfavorable impact of currency. The decline in volume reflects the divestiture of the Polypropylene business; excluding the impact of this divestiture, volume was up 1 percent. Volume was higher in all geographic areas except EMEA, where recessionary conditions continued to negatively impact demand. Dow Elastomers reported double-digit volume growth in all geographic areas, except EMEA, due to strong demand in the transportation and adhesive industries. Volume in EMEA was lower as weak economic conditions negatively impacted the transportation and infrastructure industries. Dow Electrical and Telecommunications reported strong volume growth in Asia Pacific, notably in China, due to continued strong demand for fiber optic cable. This was partially offset by volume declines in North America, Latin America and EMEA due to lower demand in the power industry. Dow Packaging and Specialty Plastics reported volume growth due to higher demand in all geographic areas, except EMEA. Volume was higher in North America despite limited ethylene availability during the first half of the year due to a planned maintenance turnaround at the Company's St. Charles, Louisiana ethylene facility and limited ethylene supply at the Prentiss, Alberta, Canada manufacturing facility.

EBITDA for 2012 was $3,018 million, down from $3,440 million in 2011. EBITDA declined as lower selling prices, the absence of earnings from divested businesses, reduced equity earnings from The SCG-Dow Group and equity losses from Sadara, and the unfavorable impact of the 2012 certain items stated above more than offset the favorable impact of lower feedstock and energy costs and lower spending on planned maintenance turnarounds. In North America, favorable shale gas related feedstock dynamics allowed the Company to leverage its competitive position and expand margins. EBITDA in 2011 included an $86 million gain related to cash collected on a previously impaired note receivable related to Equipolymers.

Performance Plastics Outlook for 2014 In 2014, Performance Plastics growth is expected to continue at a modest pace.

In North America, the availability of low-cost U.S. shale gas is expected to continue to provide a competitive advantage for the Performance Plastics businesses. These favorable dynamics will allow Dow Packaging and Specialty Plastics to improve margins and increase volume through increased exports into Asia Pacific and Latin America. Margins in EMEA are expected to remain compressed due to the high cost of naphtha-based feedstocks; however, announced industry production capacity reductions may provide some upside potential. Dow Packaging and Specialty Plastics will also begin the pre-marketing of products for the Sadara. This activity will increase as the year progresses, in anticipation of the start-up of the Sadara production facilities in the second half of 2015. In addition, Dow Packaging and Specialty Plastics will continue to benefit from the restart of an ethylene facility in Louisiana. Dow Elastomers is expected to see growth as demand increases due to continued improvement in the transportation, construction and infrastructure industries. Dow Electrical and Telecommunications expects to see improvement in 2014 due to continued growth in the U.S. housing and construction industries and government spending initiatives in Asia Pacific. Growth in EMEA will be slower due to weaker economic conditions and the startup of new industry capacity.

Construction continues on phase one of the new biopolymers manufacturing facility in Santa Vitória, Minas Gerais, Brazil. This project, which is a consolidated joint venture with Mitsui & Co. Ltd., was announced during the fourth quarter of 2011. The joint venture's ethanol mill is expected to process its first full harvest of sugarcane in 2014. The joint venture's original plans for expansion into downstream derivative products have been postponed. The joint venture is a variable interest entity and included in Dow's consolidated financial statements. See Note 19 to the Consolidated Financial Statements for additional information.

On August 27, 2013, the Company announced the location of four new Performance Plastics production units to be built on the U.S. Gulf Coast. Leveraging an advantaged feedstock position from U.S. shale gas, these production units will support expected profitable growth of the Company's high value Performance Plastics franchise. The businesses, production units and locations impacted are as follows: • Dow Packaging and Specialty Plastics: An ELITE™ polymer production unit will be built in Freeport, Texas; and a Low Density Polyethylene (LDPE) production unit will be built in Plaquemine, Louisiana.

• Dow Elastomers: A NORDEL™ metallocene EPDM production unit will be built in Plaquemine, Louisiana; and a High Melt Index (HMI) AFFINITY™ polymer production unit will be built in Freeport, Texas.

46-------------------------------------------------------------------------------- Table of Contents FEEDSTOCKS AND ENERGY The Feedstocks and Energy segment includes the following businesses: Chlor-Alkali/Chlor-Vinyl; Energy; Ethylene Oxide/Ethylene Glycol ("EO/EG"); and Hydrocarbons. Also included in the Feedstocks and Energy segment are the results of MEGlobal and a portion of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C., and The SCG-Dow Group, all joint ventures of the Company.

Feedstocks and Energy In millions 2013 2012 2011 Sales $ 9,854 $ 10,695 $ 11,302 Price change from comparative period (3 )% (2 )% 27 % Volume change from comparative period (5 )% (3 )% 7 % Equity earnings $ 539 $ 452 $ 561 EBITDA $ 858 $ 718 $ 940 Certain items impacting EBITDA $ 21 $ (7 ) $ - 2013 Versus 2012 Feedstocks and Energy sales were $9,854 million in 2013, down 8 percent from $10,695 million in 2012, driven by a 5 percent decrease in volume and a 3 percent decrease in price.

Sales for the Hydrocarbons business were down 12 percent compared with 2012, due to a 7 percent decrease in volume and 5 percent decrease in price. Volume declined primarily from the expiration of propylene supply contracts related to the divestiture of Dow's Polypropylene business as well as lower co-product sales resulting from lower production and the use of lighter feedslates in Europe. Price declined primarily due to lower butadiene prices in the United States and Europe as well as lower prices for other co-products in Europe.

Sales for the Energy business are primarily opportunistic merchant sales driven by market conditions and sales to customers located on Dow manufacturing sites.

In 2013, Energy business sales increased 28 percent compared with 2012. Price increased 20 percent due to higher natural gas prices in North America while volume increased 8 percent.

The Company uses derivatives of crude oil and natural gas as feedstock in its ethylene facilities. In addition, the Company purchases electric power, ethylene and propylene to supplement internal production, as well as other raw materials.

The Company's cost of purchased feedstock and energy increased $319 million in 2013, a 2 percent increase from 2012, primarily due to increased propylene and natural gas costs.

Chlor-Alkali/Chlor-Vinyl sales decreased 3 percent compared with 2012, as volume declined 4 percent and price increased 1 percent. Volume decreased primarily due to lower sales of vinyl chloride monomer ("VCM"). In addition, caustic soda volume decreased due to a planned maintenance turnaround and lower demand in the chlorine chain. Price increases were driven by ethylene dichloride ("EDC") in Asia Pacific, which was partially offset by lower caustic soda prices in North America and Latin America due to improved chlorine demand and new capacity nearing startup.

EO/EG sales increased 13 percent compared with 2012, as volume increased 10 percent while price increased 3 percent. Volume was higher due to increased catalysts sales. Ethylene oxide volumes were higher due to increased demand in North America and EMEA. Price increases were driven by monoethylene glycol ("MEG"), which increased year-over-year due to continued demand growth and limited industry capacity additions.

The Hydrocarbons business transfers materials to Dow's derivative businesses and the Energy business supplies utilities to Dow's businesses at net cost, resulting in EBITDA that is at or near break-even for both businesses. For the segment, EBITDA for 2013 was $858 million, up from $718 million in 2012. EBITDA for 2013 benefited from higher equity earnings from EQUATE and MEGlobal and an $87 million gain on the sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. EBITDA for 2013 was negatively impacted by $66 million of asset impairments, including the shutdown of manufacturing facilities in the Chlor-Alkali/Chlor-Vinyl business. EBITDA in 2012 was negatively impacted by a $7 million restructuring charge for the write-off of certain capital projects as part of the 4Q12 Restructuring plan. See Notes 3 and 11 to the Consolidated Financial Statements for additional information on these charges.

2012 Versus 2011 Feedstocks and Energy sales were $10,695 million in 2012, down 5 percent from $11,302 million in 2011, driven by a 3 percent decrease in volume and a 2 percent decrease in price.

47-------------------------------------------------------------------------------- Table of Contents Sales for the Hydrocarbons business were down 2 percent compared with 2011, due to a 1 percent decrease in both price and volume. Price and volume were down in all geographic areas, except EMEA. Despite the unfavorable impact of currency, overall price increased in EMEA due to higher benzene prices and volume increased in EMEA due to increased sales of propylene.

In 2012, Energy business sales declined 23 percent compared with 2011. Volume was down 20 percent with declines in all geographic areas, primarily due to decreased sales of industrial gas. Price was down 3 percent driven by lower natural gas prices resulting from high inventory levels in the U.S. and one of the mildest winters on record in North America.

The Company's cost of purchased feedstock and energy decreased $2.5 billion in 2012, an 11 percent decrease from 2011. The cost of purchased feedstocks decreased primarily due to lower feedstock and energy prices in the United States resulting from increased supply of shale gas and natural gas liquids.

Chlor-Alkali/Chlor-Vinyl sales declined 13 percent compared with 2011, as volume declined 9 percent and price declined 4 percent. Volume decreased primarily due to the shutdown of VCM capacity in North America in the first half of 2011.

Pricing trends were mixed as price increases in caustic soda were more than offset by lower prices for EDC and VCM due to weak global construction-related demand.

EO/EG sales decreased 5 percent compared with 2011, as a 3 percent increase in volume was more than offset by an 8 percent decline in price. Volume gains were driven by increased merchant sales of purified ethylene oxide and ethylene glycol, as the business took advantage of favorable conditions to move material not needed for internal consumption by Dow's downstream derivative businesses.

Price decreases were driven by ethylene glycol, as the combination of modest demand growth, stable inventory supply, high inventories in Asia Pacific and uncertainty in the global economy put downward pressure on prices.

EBITDA for the segment in 2012 was $718 million, down from $940 million in 2011 as lower feedstock and energy costs were more than offset by a decrease in selling prices and lower equity earnings from MEGlobal, Compañia Mega S.A and EQUATE. EBITDA in 2012 was negatively impacted by $7 million of certain items, as previously discussed.

Feedstocks and Energy Outlook for 2014 The Feedstocks and Energy segment expects market conditions to show slight improvement. MEG prices are expected to remain volatile but generally move upward due to improved economic conditions, rising downstream demand and limited industry capacity additions. The path and pace of economic growth will continue to be an important determinant of MEG prices and profitability. Caustic soda prices and margins are expected to weaken as new industry capacity in the U.S.

Gulf Coast outweighs demand growth and global chlorine operating rates gradually improve. EDC/VCM prices and margins are expected to improve with the continued recovery of the global construction market and North America housing activity.

Crude oil and feedstock prices are expected to remain volatile and sensitive to external factors, such as economic activity and geopolitical tensions. The Company expects crude oil prices, on average, to be slightly above 2013.

Ethylene margins are expected to increase from 2013, however ethylene margins could vary materially from these expectations depending on global GDP growth rates and global operating rates.

The Company announced a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and natural gas liquids derived from shale gas. As a result of these investments, the Company's exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks. The Company also announced investments in a new on-purpose propylene production unit (expected start-up in 2015) and a new ethylene production unit (expected start-up in 2017), both located in Freeport, Texas. As a result of these investments, Dow's ethylene production capabilities are expected to increase by as much as 20 percent.

In the fourth quarter of 2010, Dow and Mitsui & Co., Ltd. formed Dow-Mitsui Chlor-Alkali LLC, a 50:50 manufacturing joint venture to construct, own and operate a new membrane chlor-alkali facility located at Dow's Freeport, Texas, integrated manufacturing complex. Construction began in 2011 and operations are expected to begin in the first quarter of 2014. The new facility will have an annual capacity of approximately 800 kilotons. Under contract to the joint venture, Dow will operate and maintain the facility. The joint venture is a variable interest entity and is included in Dow's consolidated financial statements. See Note 19 to the Consolidated Financial Statements for additional information.

On December 2, 2013, the Company announced the planned carve-out of a portion of its chlorine chain, including the Company's U.S. Gulf Coast Chlor-Alkali/Chlor-Vinyl business, in preparation for transactions involving select chlorine and derivative businesses over the next 12-24 months. Assets included in this planned carve-out are the Chlor-Alkali and Chlor-Vinyl facilities in Plaquemine, Louisiana and Freeport, Texas, including the Company's interest in the Dow-Mitsui Chlor-Alkali LLC manufacturing joint venture.

48-------------------------------------------------------------------------------- Table of Contents On December 18, 2013, the European Union ("EU") initiated a state aid proceeding against the German government in relation to Germany's current version of the Renewable Energy Act ("EEG"). Under review is the legality of the German EEG law. The outcome of the proceeding is uncertain. However, if it is determined the German EEG violated EU state aid rules, it could result in the retroactive adjustment of German EEG exemptions granted to companies since 2012. The Company operates several manufacturing sites in Germany.

CORPORATE Included in the results for Corporate are: • results of insurance company operations; • results of Ventures (which includes new business incubation platforms focused on identifying and pursuing new commercial opportunities); • Venture Capital; • gains and losses on sales of financial assets; • stock-based compensation expense and severance costs; • asbestos-related defense and resolution costs; • foreign exchange results; • non-business aligned technology licensing and catalyst activities; • environmental operations; • enterprise level mega project activities; and • certain corporate overhead costs and cost recovery variances not allocated to the operating segments.

Corporate In millions 2013 2012 2011 Sales $ 306 $ 243 $ 325 Equity losses $ (39 ) $ (103 ) $ (39 ) EBITDA $ 861 $ (1,939 ) $ (1,507 )Certain items impacting EBITDA $ 1,788 $ (1,032 ) $ (513 ) 2013 Versus 2012 Sales for Corporate, which primarily relate to the Company's insurance operations, were $306 million in 2013 up from $243 million in 2012.

EBITDA for 2013 was a gain of $861 million, compared with a loss of $1,939 million in 2012. Compared with the same period last year, EBITDA for 2013 was favorably impacted by a $2.161 billion gain from the K-Dow arbitration and a gain of $26 million on the sale of the Company's ownership interest in Dow Kokam LLC. EBITDA for 2013 was negatively impacted by $326 million of losses related to the early extinguishment of debt; $44 million of implementation costs related to the Company's restructuring programs; and $29 million of asset impairments and related costs, including a $10 million loss related to asset impairment charges at a formulated electrolytes manufacturing joint venture. EBITDA in 2013 was also negatively impacted by an increase in performance-based compensation costs. See Notes 5, 11, 14 and 16 to the Consolidated Financial Statements for additional information on these matters.

EBITDA for 2012 was negatively impacted by $113 million of severance costs related to the workforce reduction component of the Company's 1Q12 Restructuring plan and $701 million in restructuring charges as part of the 4Q12 Restructuring plan, including impairments of long-lived and other assets of $313 million, severance costs of $375 million and costs associated with exit or disposal activities of $13 million. EBITDA was also impacted by $22 million of implementation costs related to the Company's restructuring programs, $123 million of losses related to the early extinguishment of debt and a $73 million loss included in equity earnings related to project development and other costs associated with Sadara. See Notes 3, 8, 11 and 16 to the Consolidated Financial Statements for additional information on these charges.

2012 Versus 2011 Sales were $243 million in 2012 down from $325 million in 2011.

EBITDA for 2012 was a loss of $1,939 million, compared with a loss of $1,507 million in 2011. Compared with 2011, EBITDA for 2012 was favorably impacted by a decrease in performance-based compensation costs (including stock-based compensation and decreased participation in the Employee Stock Purchase Plan), lower foreign currency losses and lower Corporate expenses. EBITDA in 2012 was negatively impacted by $1,032 million of certain items, as previously discussed.

49-------------------------------------------------------------------------------- Table of Contents EBITDA for 2011 was negatively impacted by a $482 million loss related to the early extinguishment of debt, $31 million of integration costs related to the April 1, 2009 acquisition of Rohm and Haas and foreign currency losses. See Notes 4 and 16 to the Consolidated Financial Statement for additional information on these matters.

SALES VOLUME AND PRICE BY OPERATING SEGMENT AND GEOGRAPHIC AREA Sales Volume and Price by Operating Segment and Geographic Area 2013 2012 2011 Percent change from prior year Volume Price Total Volume Price Total Volume Price Total Operating Segments: Electronic and Functional Materials 4 % (2 )% 2 % (1 )% (2 )% (3 )% 3 % 6 % 9 % Coatings and Infrastructure Solutions 4 (1 ) 3 2 (6 ) (4 ) (4 ) 13 9 Agricultural Sciences 11 1 12 10 3 13 11 5 16 Performance Materials (2 ) - (2 ) (1 ) (6 ) (7 ) (7 ) 12 5 Performance Plastics (3 ) 4 1 (7 ) (4 ) (11 ) (5 ) 12 7 Feedstocks and Energy (5 ) (3 ) (8 ) (3 ) (2 ) (5 ) 7 27 34 Total - % 1 % 1 % (2 )% (3 )% (5 )% (1 )% 13 % 12 % Geographic Areas: United States - % 2 % 2 % (2 )% (3 )% (5 )% (2 )% 13 % 11 % Europe, Middle East and Africa (5 ) - (5 ) (4 ) (4 ) (8 ) (4 ) 17 13 Rest of World 5 - 5 - (3 ) (3 ) 2 10 12 Total - % 1 % 1 % (2 )% (3 )% (5 )% (1 )% 13 % 12 % Sales Volume and Price by Operating Segment and Geographic Area Excluding Divestitures (1) 2013 2012 2011 Percent change from prior year Volume Price Total Volume Price Total Volume Price Total Operating Segments: Electronic and Functional Materials 4 % (2 )% 2 % (1 )% (2 )% (3 )% 3 % 6 % 9 % Coatings and Infrastructure Solutions 4 (1 ) 3 2 (6 ) (4 ) (1 ) 13 12 Agricultural Sciences 11 1 12 10 3 13 11 5 16 Performance Materials (2 ) - (2 ) - (6 ) (6 ) 1 13 14 Performance Plastics (1 ) 4 3 1 (4 ) (3 ) 4 13 17 Feedstocks and Energy (5 ) (3 ) (8 ) (3 ) (2 ) (5 ) 7 27 34 Total - % 1 % 1 % 1 % (4 )% (3 )% 4 % 14 % 18 % Geographic Areas: United States - % 2 % 2 % - % (2 )% (2 )% 1 % 13 % 14 % Europe, Middle East and Africa (5 ) - (5 ) 1 (5 ) (4 ) 4 18 22 Rest of World 6 - 6 1 (3 ) (2 ) 6 10 16 Total - % 1 % 1 % 1 % (4 )% (3 )% 4 % 14 % 18 % (1) Excludes sales related to Nippon Unicar Company Limited, divested on July 1, 2013; sales of the Polypropylene business, divested on September 30, 2011; and sales of Dow Haltermann, divested during 2011.

50-------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $5,940 million at December 31, 2013 and $4,318 million at December 31, 2012, of which $2,030 million at December 31, 2013 and $845 million at December 31, 2012 was held by subsidiaries in foreign countries, including United States territories. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and future foreign investments. A deferred tax liability has been accrued for the funds that are available to be repatriated to the United States. At December 31, 2013, management believed that sufficient liquidity was available in the United States. However, in the unusual event that additional foreign funds are needed in the United States, the Company has the ability to repatriate additional funds. The repatriation could result in an adjustment to the tax liability after considering available foreign tax credits and other tax attributes.

The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table: Cash Flow Summary In millions 2013 2012 2011 Cash provided by (used in): Operating activities $ 7,823 $ 4,075 $ 3,879 Investing activities (1,469 ) (2,687 ) (1,994 ) Financing activities (4,731 ) (2,530 ) (3,362 ) Effect of exchange rate changes on cash (1 ) 16 (121 ) Cash assumed in initial consolidation of variable interest entities - - 3 Summary Increase (Decrease) in cash and cash equivalents $ 1,622 $ (1,126 ) $ (1,595 ) Cash and cash equivalents at beginning of year 4,318 5,444 7,039 Cash and cash equivalents at end of year $ 5,940 $ 4,318 $ 5,444 Cash Flows from Operating Activities Cash provided by operating activities increased significantly in 2013 compared with 2012 primarily due to increased earnings, which were positively impacted by the K-Dow arbitration award, and a reduction in working capital. Cash provided by operating activities improved in 2012 compared with 2011 primarily due to a decrease in working capital and an increase in dividends received in excess of equity earnings from nonconsolidated affiliates which more than offset decreased earnings and higher pension contributions.

Net Working Capital at December 31 In millions 2013 2012 Current assets $ 24,977 $ 23,684 Current liabilities 11,971 11,493 Net working capital $ 13,006 $ 12,191 Current ratio 2.09 :1 2.06 :1 Days-sales-outstanding-in-receivables 46 46 Days-sales-in-inventory 70 71 Net working capital increased from December 31, 2012 to December 31, 2013 principally due to increases in cash and cash equivalents. At December 31, 2013, trade receivables were $4.9 billion, down from $5.1 billion at December 31, 2012. Days-sales-outstanding-in-receivables (excluding the impact of sales of receivables) was 46 days at December 31, 2013, flat compared with December 31, 2012. At December 31, 2013, total inventories were $8.3 billion, down from $8.5 billion at December 31, 2012. Days-sales-in-inventory at December 31, 2013 was 70 days compared with 71 days at December 31, 2012.

Cash Flows from Investing Activities Cash used in investing activities in 2013 was primarily for capital expenditures, including projects related to the Company's U.S. Gulf Coast investments, which was partially offset by proceeds received from the sale of businesses and assets, including the sale of the Polypropylene Licensing and Catalysts business in the fourth quarter of 2013. Cash used in investing activities in 2012 was primarily due to capital expenditures. Cash used in investing activities in 2011 included increased capital expenditures, which were partially offset by proceeds from the divestiture of the Polypropylene business.

51-------------------------------------------------------------------------------- Table of Contents The following table summarizes the Company's capital expenditures, which includes capital expenditures of consolidated variable interest entities, along with the approximate percentage of spending by project type. The Company expects capital spending in 2014 to be $3.3 billion to $3.5 billion.

Capital Expenditures Summary In millions 2013 2012 2011 Capital expenditures $ 2,302 $ 2,614 $ 2,687 Spending by project type: Projects related to additional capacity for new and existing products 55 % 43 % 36 % Projects related to environmental protection, safety, loss prevention and industrial hygiene 14 % 20 % 15 % Other (primarily shared infrastructure and plant maintenance/health) 31 % 37 % 49 % See Note 24 to the Consolidated Financial Statements for capital expenditures by operating segment.

Cash Flows from Financing Activities Cash used in financing activities in 2013 included dividends paid to stockholders; purchases of treasury stock; payments on short- and long-term debt, including the early redemption of more than $3 billion in notes and InterNotes; partially offset by proceeds received from the issuance of new debt.

Cash used in financing activities in 2012 included payments on short- and long-term debt, including $2.25 billion of early redemptions; higher dividends paid to stockholders, including the acceleration of the fourth quarter of 2012 dividend payment; partially offset by proceeds from the issuance of $2.5 billion of long-term debt in the fourth quarter of 2012. Cash used in financing activities in 2011 included payments on short- and long-term debt, including the retirement of $4.8 billion of debt and dividends paid to stockholders which was partially offset by proceeds from the issuance of long-term debt. See Note 16 to the Consolidated Financial Statements for additional information related to the issuance or retirement of debt.

Liquidity & Financial Flexibility The Company's primary source of incremental liquidity is cash provided by operating activities. The generation of cash from operations is expected to meet the Company's cash requirements for working capital, capital expenditures, debt maturities, dividend payments, share repurchases, contributions to pension plans, restructuring program payments and other needs. In addition to cash provided by operating activities, the Company's liquidity sources also include U.S. and Euromarket commercial paper, committed credit facilities, U.S. retail medium-term note program ("InterNotes"), accounts receivable securitization facilities and long-term debt and capital markets. Additional details on these sources of liquidity are as follows: Commercial Paper Dow issues promissory notes under its U.S. and Euromarket commercial paper programs. At December 31, 2013, the Company had no commercial paper outstanding.

The Company maintains access to the commercial paper market at competitive rates.

Committed Credit Facilities In the event Dow has short-term liquidity needs and is unable to issue commercial paper for any reason, Dow has the ability to access liquidity through its committed and available credit facilities, as summarized below: Committed and Available Credit Facilities at December 31, 2013 Committed Credit In millions Effective Date Credit Available Maturity Date Interest Five Year Competitive Advance and Revolving Credit Facility October 2011 $ 5,000 $ 5,000 October 2016 Floating rate Bilateral Revolving Credit Facility October 2012 170 170 October 2016 Floating rate Bilateral Revolving Credit Facility March 2013 100 100 March 2014 Floating rate Bilateral Revolving Credit Facility March 2013 300 300 October 2016 Floating rate Term Loan Facility March 2013 300 - March 2016 Floating rate Bilateral Revolving Credit Facility April 2013 200 200 April 2016 Floating rate Bilateral Revolving Credit Facility October 2013 200 200 October 2016 Floating rate Bilateral Revolving Credit Facility October 2013 100 100 October 2016 Floating rate Total Committed and Available Credit Facilities $ 6,370 $ 6,070 On January 21, 2014, the Company entered into an additional $100 million Bilateral Revolving Credit Facility Agreement, which has a maturity date in October 2016 and provides for interest at floating rates, as defined in the agreement.

52-------------------------------------------------------------------------------- Table of Contents Shelf Registration - U.S.

The Company renewed an automatic shelf registration for an unspecified amount of mixed securities with the SEC on February 19, 2013. Under this shelf registration, the Company may offer common stock, preferred stock, depositary shares, debt securities, warrants, stock purchase contracts and stock purchase units with pricing and availability dependent on market conditions. The Company also filed a new prospectus supplement to register an unlimited amount of securities for issuance under the Company's U.S. retail medium-term note program ("InterNotes") on February 19, 2013.

Shelf Registration - Japan At December 31, 2013, the Company had Japanese yen 50 billion (approximately $475 million) of securities available for issuance under a shelf registration renewed with the Kanto Local Finance Bureau of the Ministry of Finance of Japan effective September 8, 2012, which will expire on September 7, 2014. The Company intends to renew this shelf registration in the third quarter of 2014.

Accounts Receivable Securitization Facilities The Company has access to committed accounts receivable securitization facilities in the United States, Europe and Asia Pacific, from which amounts available for funding are based upon available and eligible accounts receivable within each of the facilities. The Asia Pacific facilities are renewed annually.

The Europe facility was renewed in July 2013 for a term that extends to July 2015. In February 2014, the Company renewed the United States facility for a term that extends to March 2015. See Note 15 to the Consolidated Financial Statements for further information.

As Dow continues to strengthen its balance sheet and increase financial flexibility, management is principally focused on net debt, as Dow believes this is the best measure of the Company's financial leverage. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents." At December 31, 2013, net debt as a percent of total capitalization decreased to 30 percent. This decrease was primarily due to a $3 billion reduction in gross debt; a $1.6 billion increase in cash and cash equivalents; a significant increase in earnings in 2013, which includes the favorable impact of the K-Dow arbitration award; and favorable adjustments to the Company's defined benefit pension plans as a result of higher discount rates.

Total Debt at December 31 In millions 2013 2012 Notes payable $ 443 $ 396 Long-term debt due within one year 697 672 Long-term debt 16,820 19,919 Gross debt $ 17,960 $ 20,987 Cash and cash equivalents $ 5,940 $ 4,318 Net debt $ 12,020 $ 16,669 Gross debt as a percent of total capitalization 39.0 % 48.8 % Net debt as a percent of total capitalization 30.0 % 43.1 % See Note 16 to the Consolidated Financial Statements for information related to the Company's notes payable and long-term debt activity, including debt retired and issued during the year ended December 31, 2013.

Dow's public debt instruments and primary, private credit agreements contain, among other provisions, certain customary restrictive covenant and default provisions. The Company's most significant debt covenant with regard to its financial position is the obligation to maintain the ratio of the Company's consolidated indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at any time the aggregate outstanding amount of loans under the Revolving Credit Facility equals or exceeds $500 million. The ratio of the Company's consolidated indebtedness to consolidated capitalization as defined in the Revolving Credit Facility was 0.38 to 1.00 at December 31, 2013. At December 31, 2013, management believes the Company was in compliance with all of its covenants and default provisions. For information on Dow's covenants and default provisions, see Note 16 to the Consolidated Financial Statements.

Management expects that the Company will continue to have sufficient liquidity and financial flexibility to meet all of its business obligations.

53-------------------------------------------------------------------------------- Table of Contents Credit Ratings As of February 14, 2014, the Company's credit ratings were as follows: Rating Agency Long-Term Rating Short-Term Rating Outlook Standard & Poor's BBB A-2 Stable Moody's Investors Service Baa2 P-2 Stable Fitch Ratings BBB F2 Stable Downgrades in the Company's credit ratings will increase borrowing costs on certain indentures and could have a negative impact on the Company's ability to access credit markets.

Dividends For the years ended December 31, 2013, 2012, and 2011, the Company paid dividends to common and preferred shareholders as noted below: Dividends Paid at December 31 In millions, except per share amounts 2013 2012 2011 Dividends paid, per common share $ 0.96 $ 1.46 $ 0.80 Dividends paid to common shareholders $ 1,139 $ 1,710 $ 918 Dividends paid to preferred shareholders $ 340 $ 340 $ 340 On December 12, 2013, the Board of Directors declared a quarterly dividend of $0.32 per share, payable January 30, 2014, to stockholders of record on December 31, 2013. On January 29, 2014, the Board of Directors announced the declaration of a quarterly dividend of $0.37 per share, payable April 30, 2014, to stockholders of record on March 31, 2014. The 15 percent increase in the dividend in the first quarter of 2014 demonstrates Dow's commitment to consistently and increasingly reward shareholders through ongoing earnings growth. Since 1912, the Company has maintained or increased the amount of the quarterly dividend, adjusted for stock splits, with the exception of February 12, 2009. During this 102-year period, Dow has increased the amount of the quarterly dividend 50 times (approximately 12 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 88 percent of the time.

On December 12, 2013, the Board of Directors declared a quarterly dividend of $85 million to Cumulative Convertible Perpetual Preferred Stock, Series A shareholders of record on December 15, 2013, which was paid on January 2, 2014.

On February 13, 2014, the Board of Directors declared a quarterly dividend of $85 million to these shareholders, payable on April 1, 2014. Ongoing dividends related to Cumulative Convertible Perpetual Preferred Stock, Series A will accrue at the rate of $85 million per quarter, and are payable quarterly subject to Board of Directors' approval.

Share Repurchase Program On February 13, 2013, the Board of Directors approved a share buy-back program, authorizing up to $1.5 billion to be spent on the repurchase of the Company's common stock over a period of time. Purchases under this program began in May 2013. During 2013, the Company repurchased 8,152,030 shares of common stock for $307 million as part of a share repurchase program. At December 31, 2013, approximately $1.2 billion of the share buy-back program authorization remained available for additional repurchases.

On January 29, 2014, the Board of Directors announced an expansion of the Company's share buy-back authorization, authorizing an additional amount not to exceed $3 billion to be spent on the repurchase of the Company's common stock over a period of time. As a result, the authorized amount of the current ongoing share repurchase program has increased to $4.5 billion. The Company expects the share repurchase program to be completed in 2014. For additional information related to the share repurchase program, see Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and Note 21 to the Consolidated Financial Statements.

Pension Plans The Company has defined benefit pension plans in the United States and a number of other countries. The Company's funding policy is to contribute to plans when pension laws and/or economics either require or encourage funding. During 2013, 2012 and 2011, the Company contributed $865 million, $903 million and $806 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. Dow expects to contribute approximately $800 million to its pension plans in 2014. See Note 17 to the Consolidated Financial Statements for additional information concerning the Company's pension plans.

54-------------------------------------------------------------------------------- Table of Contents Restructuring The Company announced two restructuring programs in 2012 in response to macroeconomic uncertainties and changing and volatile economic conditions, particularly in Western Europe. During 2013, cash payments of $276 million were made for employee severance and exit or disposal activities. The Company expects to make additional cash payments of $177 million, primarily by March 31, 2015, related to severance costs, contract cancellation fees and environmental remediation. See Note 3 to the Consolidated Financial Statements for additional information regarding the Company's restructuring plans.

The Company expects to incur additional costs in the future related to its restructuring activities, as the Company continually looks for ways to enhance the efficiency and cost effectiveness of its operations, and to ensure competitiveness across its businesses and geographic areas. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these will be recognized as incurred.

The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities.

These costs cannot be reasonably estimated at this time.

Contractual Obligations The following table summarizes the Company's contractual obligations, commercial commitments and expected cash requirements for interest at December 31, 2013.

Additional information related to these obligations can be found in Notes 14, 16, 17, 18 and 22 to the Consolidated Financial Statements.

Contractual Obligations at December 31, 2013 Payments Due by Year 2019 and In millions 2014 2015 2016 2017 2018 beyond Total Long-term debt - current and noncurrent (1) $ 697 $ 407 $ 1,366 $ 775 $ 930 $ 13,678 $ 17,853 Deferred income tax liabilities - noncurrent (2) - - - - - 718 718 Pension and other postretirement benefits 902 911 958 817 677 3,816 8,081 Other noncurrent obligations (3) 24 383 310 298 173 2,227 3,415 Uncertain tax positions, including interest and penalties (4) 8 - - - - 341 349 Other contractual obligations: Minimum lease commitments 249 244 218 181 151 1,580 2,623 Purchase commitments - take-or-pay and throughput obligations 2,858 2,580 2,175 1,924 1,818 6,883 18,238 Purchase commitments - other (5) 149 21 19 17 16 32 254 Expected cash requirements for interest (6) 935 910 888 866 816 7,404 11,819 Total $ 5,822 $ 5,456 $ 5,934 $ 4,878 $ 4,581 $ 36,679 $ 63,350 (1) Excludes unamortized debt discount of $336 million. Includes $41 million of capital lease obligations.

(2) Deferred income tax liabilities may vary according to changes in tax laws, tax rates and the operating results of the Company. As a result, it is impractical to determine whether there will be a cash impact to an individual year. All noncurrent deferred income tax liabilities have been reflected in "2019 and beyond." (3) Annual payments to resolve asbestos litigation will vary based on changes in defense strategies, changes in state and national law, and claims filing and resolution rates. As a result, it is impractical to determine the anticipated payments in any given year. Therefore, the majority of the noncurrent asbestos-related liability of $434 million has been reflected in "2019 and beyond." (4) Due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities, the Company is unable to determine the timing of payments related to its uncertain tax positions, including interest and penalties. Amounts beyond the current year are therefore reflected in "2019 and beyond." (5) Includes outstanding purchase orders and other commitments greater than $1 million, obtained through a survey conducted within the Company.

(6) Cash requirements for interest was calculated using current interest rates at December 31, 2013, and includes approximately $2.24 billion of various floating rate notes.

Off-Balance Sheet Arrangements Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds a variable interest in a joint venture accounted for under the equity method of accounting. The Company is not the primary beneficiary of the joint venture and therefore is not required to consolidate the entity (see Note 19 to the Consolidated Financial Statements).

See Note 15 to the Consolidated Financial Statements for information regarding the transfer of financial assets.

Guarantees arise during the ordinary course of business from relationships with customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee the performance of others if specific triggering events occur. The Company had outstanding guarantees at December 31, 2013 of $5,782 million, up from $2,181 million at December 31, 2012. The 55-------------------------------------------------------------------------------- Table of Contents increase in the value of the outstanding guarantees during 2013 is primarily related to debt obligations of Sadara Chemical Company, a nonconsolidated affiliate, which are guaranteed by the Company, in proportion to the Company's ownership interest, or up to approximately $4.4 billion when the project financing is fully drawn. The Guarantees will be released upon completion of construction of the Sadara complex and satisfactory fulfillment of certain other conditions, including passage of an extensive operational testing program, which is currently anticipated for the end of 2017. Additional information related to these guarantees can be found in the "Guarantees" section of Note 14 to the Consolidated Financial Statements.

Fair Value Measurements See Note 10 to the Consolidated Financial Statements for information related to other-than-temporary impairments; see Note 11 for additional information concerning fair value measurements, including the Company's interests held in trade receivable conduits; and, see Note 17 for information related to fair value measurements of pension and other postretirement benefit plan assets.

OUTLOOK Dow enters 2014 accelerating its progress towards improving return on capital, growing profitability and generating cash. The Company continues to focus on attractive end-use markets as evidenced by divesting non-strategic assets and prioritizing high return projects to maximize value for our shareholders.

Throughout the year, Dow will continue to benefit from the restart of an ethylene facility in Louisiana, lower pension expenses and continued cost savings actions.

While there have been positive trends indicating an improvement in the global economy, the Company believes business uncertainty will continue as global growth remains tentative. The Company's 2014 business plan assumes a macroeconomic environment that is largely unchanged from 2013.

Dow will continue to allocate capital carefully, focusing on highly-accretive growth projects. The Company's strategic investments in the U.S. Gulf Coast and the Middle East are progressing on time and on budget, as Dow maintains an active focus on investments that position the Company for long-term financial growth. Dow's actions are expected to continue to create earnings momentum and increasingly reward our shareholders.

56-------------------------------------------------------------------------------- Table of Contents OTHER MATTERS Recent Accounting Guidance See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.

Critical Accounting Policies The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Following are the Company's critical accounting policies impacted by judgments, assumptions and estimates: Litigation The Company is subject to legal proceedings and claims arising out of the normal course of business. The Company routinely assesses the likelihood of any adverse outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known claim. Dow has an active risk management program consisting of numerous insurance policies secured from many carriers.

These policies often provide coverage that is utilized to minimize the financial impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 14 to the Consolidated Financial Statements.

Asbestos-Related Matters of Union Carbide Corporation Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. Each year, Analysis, Research and Planning Corporation ("ARPC") performs a review for Union Carbide based upon historical asbestos claims and resolution activity. Union Carbide compares current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.

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

For additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters of Union Carbide Corporation in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Note 14 to the Consolidated Financial Statements.

Environmental Matters The Company determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress, or as additional technical or legal information becomes available. In the case of landfills and other active waste management facilities, Dow recognizes the costs over the useful life of the facility. At December 31, 2013, the Company had accrued obligations of $722 million for probable environmental remediation and restoration costs, including $73 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount. For further discussion, see Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 14 to the Consolidated Financial Statements.

57-------------------------------------------------------------------------------- Table of Contents Goodwill The Company assesses goodwill recoverability through business financial performance reviews, enterprise valuation analysis and impairment tests. Annual goodwill impairment tests are completed by the Company during the fourth quarter of the year in accordance with the measurement provisions of the accounting guidance for goodwill. The tests are performed at the reporting unit level which is defined as one level below operating segment with the exception of Agricultural Sciences, which is both an operating segment and a reporting unit.

Reporting units are the level at which discrete financial information is available and reviewed by business management on a regular basis. At December 31, 2013, the Company has defined six operating segments and 26 reporting units; goodwill is carried by 19 of these reporting units at December 31, 2013 and December 31, 2012.

In addition to the annual goodwill impairment tests, the Company reviews the financial performance of its reporting units over the course of the year to assess whether circumstances have changed that would indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. In cases where an indication of impairment is determined to exist, the Company completes an interim goodwill impairment test specifically for that reporting unit.

As part of its annual goodwill impairment testing, the Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The qualitative assessment is also used as a basis for determining whether it is necessary to perform the quantitative test. Qualitative factors assessed at the Company level include, but are not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed at the reporting unit level include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw material prices, and financial performance of the reporting unit. If the Company chooses to not complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is required.

The first step of the quantitative test requires the fair value of the reporting unit to be compared to its carrying value. The Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. This valuation technique has been selected by management as the most meaningful valuation method due to the limited number of market comparables for the Company's reporting units. However, where market comparables are available, the Company includes EBIT/EBITDA multiples as part of the reporting unit valuation analysis. The discounted cash flow valuations are completed using the following key assumptions (including certain ranges used for the 2013 testing): projected revenue growth rates, or compounded annual growth rates, over a ten-year cash flow forecast period, which ranged from 0 percent to 8 percent and varied by reporting unit based on underlying business fundamentals and future expectations; discount rates, which ranged from 8.7 percent to 10.9 percent; tax rates; terminal values, differentiated based on the cash flow projection of each reporting unit and the projected net operating profit after tax ("NOPAT") growth rate, which ranged from 2 percent to 5 percent; currency exchange rates for 79 currencies; and, forecasted long-term hydrocarbon and energy prices, by geographic area and by year, which included the Company's key feedstocks as well as natural gas and crude oil (due to its correlation to naphtha). Currency exchange rates and long-term hydrocarbons and energy prices are established for the Company as a whole and applied consistently to all reporting units, while revenue growth rates, discount rates and tax rates are established by reporting unit to account for differences in business fundamentals and industry risk.

The second step of the quantitative test is required if the first step of the quantitative test indicates a potential impairment. The second step requires the Company to compare the implied fair value of a reporting unit's goodwill with the carrying amount of goodwill. If the carrying amount of goodwill is greater than its implied fair value, an impairment loss is recorded.

The Company also monitors and evaluates its market capitalization relative to book value. When the market capitalization of the Company falls below book value, management undertakes a process to evaluate whether a change in circumstances has occurred that would indicate it is more likely than not that the fair value of any of its reporting units has declined below carrying value.

This evaluation process includes the use of third-party market-based valuations and internal discounted cash flow analysis. As part of the annual goodwill impairment test, the Company also compares market capitalization with the most recent total estimated fair value of its reporting units to ensure that significant differences are understood. At December 31, 2013 and 2012, Dow's market capitalization exceeded book value.

58-------------------------------------------------------------------------------- Table of Contents 2013 Goodwill Impairment Test During 2013, there were no events or changes in circumstances identified that warranted interim goodwill impairment testing. During the fourth quarter of 2013, qualitative testing was performed for all but 5 of the Company's reporting units that carry goodwill. The results of the qualitative testing did not indicate any reporting units where it was more likely than not that the carrying value of the reporting unit was greater than its fair value. As a result, no additional quantitative testing was required for those reporting units.

The Company chose to proceed directly to the first step of the quantitative testing for 5 reporting units due to change in business structures as well as to re-evaluate the reasonableness of the differences between fair value and carrying value under current market conditions. Quantitative testing was conducted for the following reporting units, using key assumptions for the discounted cash flow analysis: Dow Coating Materials, Dow Plastics Additives, Epoxy, Performance Monomers and Polyurethanes.

Changes in key assumptions can affect the results of goodwill impairment tests.

The changes made to key assumptions in 2013 did not result in a significant change in the impairment analysis conclusion. The key assumptions with the most significant impact on reporting unit fair value calculations include the discount rate and terminal value NOPAT growth rate. For the 2013 impairment testing, management completed sensitivity analyses on both of these key assumptions for reporting units where a quantitative fair value analysis was completed. An increase of 100 basis points in the discount rate would have resulted in a fair value, based on discounted cash flows, which exceeded the carrying value for all reporting units tested. For the terminal value NOPAT growth rate, a decrease of 100 basis points would have resulted in a fair value, based on discounted cash flows, which exceeded the carrying value for all reporting units tested. Additional sensitivity analysis was completed on the combined impact of a 100 basis point increase in the discount rate and a 100 basis point decrease in the terminal value NOPAT growth rate. This analysis resulted in fair values based on discounted cash flows that exceeded carrying values for all reporting units tested except for Dow Coating Materials and Performance Monomers. For this exception, a 100 basis point increase in the discount rate, coupled with a 100 basis point decrease in the terminal value NOPAT growth rate resulted in a fair value that was approximately $250 million below the carrying value for Dow Coating Materials and $20 million below the carrying value for Performance Monomers.

In completing the fair value analysis for the 2013 impairment test, management evaluated the reasonableness of differences noted between the fair value and carrying value of each reporting unit. All differences were determined to be reasonable. For Performance Monomers, fair value did not exceed carrying value by a significant margin. The fair value for Performance Monomers, which carries approximately $150 million of goodwill, exceeded the carrying value by a margin of 11 percent.

Based on the fair value analysis completed by the Company in the fourth quarter of 2013, using the key assumptions defined for the Company as well as the key assumptions defined specifically for each reporting unit, management concluded that fair value exceeded carrying value for all reporting units.

2012 Goodwill Impairment Test During 2012, there were no events or changes in circumstances identified that warranted interim goodwill impairment testing. During the fourth quarter of 2012, qualitative testing was performed for all but 9 of the Company's reporting units that carry goodwill. The results of the qualitative testing did not indicate any reporting units where it was more likely than not that the carrying value of the reporting unit was greater than its fair value. As a result, no additional quantitative testing was required for those reporting units.

The Company chose to proceed directly to the first step of the quantitative testing for 9 reporting units due to change in business structures as well as to re-evaluate the reasonableness of the differences between fair value and carrying value under current market conditions. Quantitative testing was conducted for the following reporting units, using key assumptions for the discounted cash flow analysis: Dow Building and Construction, Dow Coating Materials, Dow Electronic Materials, Functional Materials, Dow Automotive Systems, Dow Formulated Systems, Polyurethanes, Propylene Oxide/Propylene Glycol and Dow Packaging and Specialty Plastics.

In completing the fair value analysis for the 2012 impairment test, management evaluated the reasonableness of differences noted between the fair value and carrying value of each reporting unit. All differences were determined to be reasonable. For Dow Coating Materials, fair value did not exceed carrying value by a significant margin. The fair value for Dow Coating Materials, which carries approximately $2,325 million of goodwill, exceeded the carrying value by a margin of 7 percent.

59-------------------------------------------------------------------------------- Table of Contents Based on the fair value analysis completed by the Company in the fourth quarter of 2012, using the key assumptions defined for the Company as well as the key assumptions defined specifically for each reporting unit, management concluded that fair value exceeded carrying value for all reporting units that carry goodwill except for the Dow Formulated Systems reporting unit. Management completed the second step of the quantitative test for Dow Formulated Systems to compare the implied fair value of the reporting unit's goodwill to the carrying value. As a result, the Company recorded a goodwill impairment loss of $220 million in the fourth quarter of 2012 which represented the total amount of goodwill carried by the Dow Formulated Systems reporting unit.

Pension and Other Postretirement Benefits The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled at December 31, 2013, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note 17 to the Consolidated Financial Statements.

In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods. The U.S. pension plans represent 71 percent of the Company's pension plan assets and 69 percent of the pension obligations.

The following information relates to the U.S. plans only; a similar approach is used for the Company's non-U.S. plans.

The Company determines the expected long-term rate of return on assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation approved by the Company's Investment Committee and the underlying return fundamentals of each asset class. The Company's historical experience with the pension fund asset performance is also considered. The expected return of each asset class is derived from a forecasted future return confirmed by historical experience. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 2013 was 7.85 percent. This assumption decreased to 7.82 percent for determining 2014 net periodic pension expense. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Company's pension plans.

The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans are based on the yield on high-quality fixed income instruments at the measurement date. Future expected actuarially determined cash flows of Dow's major U.S. plans are matched against the Towers Watson RATE:Link yield curve (based on 60th to 90th percentile bond yields) to arrive at a single discount rate by plan. The weighted average discount rate increased to 4.92 percent at December 31, 2013, from 4.02 percent at December 31, 2012.

At December 31, 2013, the U.S. qualified plans were underfunded on a projected benefit obligation basis by $3 billion. The underfunded amount decreased by approximately $2.5 billion compared with December 31, 2012. The decrease was primarily due to higher discount rates. The Company contributed $561 million to the U.S. qualified plans in 2013.

The assumption for the long-term rate of increase in compensation levels for the principal U.S. qualified plans was 4.5 percent. Since 2002, the Company has used a generational mortality table to determine the duration of its pension and other postretirement obligations.

The following discussion relates to the Company's significant pension plans.

The Company bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded.

Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2013, net gains of $555 million 60-------------------------------------------------------------------------------- Table of Contents remain to be recognized in the calculation of the market-related value of plan assets. These net gains will result in decreases in future pension expense as they are recognized in the market-related value of assets. The increase in the market-related value of assets due to the recognition of prior gains is presented in the following table: Increase in Market-Related Asset Value Due to Recognition of Prior Gains In millions 2014 $ 202 2015 107 2016 191 2017 55 Total $ 555 Based on the 2014 pension assumptions, the Company expects net periodic benefit costs to decrease by approximately $360 million for all pension and other postretirement benefits in 2014 compared with 2013. The decrease in net periodic benefit costs is primarily due to higher discount rates.

A 25 basis point increase or decrease in the long-term return on assets assumption would change the Company's total pension expense for 2014 by $45 million. A 25 basis point increase in the discount rate assumption would lower the Company's total pension expense for 2014 by $62 million. A 25 basis point decrease in the discount rate assumption would increase the Company's total pension expense for 2014 by $54 million. A 25 basis point change in the long-term return and discount rate assumptions would have an immaterial impact on the other postretirement benefit expense for 2014.

Income Taxes Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Company recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered to be more likely than not.

At December 31, 2013, the Company had a net deferred tax asset balance of $1,856 million, after valuation allowances of $1,112 million.

In evaluating the ability to realize the deferred tax assets, the Company relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.

At December 31, 2013, the Company had deferred tax assets for tax loss and tax credit carryforwards of $2,012 million, $182 million of which is subject to expiration in the years 2014-2018. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Company needs taxable income of approximately $19,408 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2014-2018 is approximately $3,358 million.

The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2013, the Company had uncertain tax positions for both domestic and foreign issues of $266 million.

The Company accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. At December 31, 2013, the Company had a non-income tax contingency reserve for both domestic and foreign issues of $105 million.

For additional information, see Notes 1 and 22 to the Consolidated Financial Statements.

61 -------------------------------------------------------------------------------- Table of Contents Environmental Matters Environmental Policies Dow is committed to world-class environmental, health and safety ("EH&S") performance, as demonstrated by industry-leading performance, a long-standing commitment to Responsible Care®, and a strong commitment to achieve the Company's 2015 Sustainability Goals - goals that set the standard for sustainability in the chemical industry by focusing on improvements in Dow's local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the Company's environmental impact.

To meet the Company's public commitments, as well as the stringent laws and government regulations related to environmental protection and remediation to which its global operations are subject, Dow has well-defined policies, requirements and management systems. Dow's EH&S Management System ("EMS") defines the "who, what, when and how" needed for the businesses to achieve the Company's policies, requirements, performance objectives, leadership expectations and public commitments. To ensure effective utilization, the EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources.

It is Dow's policy to adhere to a waste management hierarchy that minimizes the impact of wastes and emissions on the environment. First, Dow works to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Second, Dow finds ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. Dow has specific requirements for waste that is transferred to non-Dow facilities, including the periodic auditing of these facilities.

Dow believes third-party verification and transparent public reporting are cornerstones of world-class EH&S performance and building public trust. As such, numerous Dow sites in Europe, Latin America, Asia Pacific and North America have received third-party verification of Dow's compliance with Responsible Care® and with outside specifications such as ISO-14001. Dow continues to be a global champion of Responsible Care® and has worked to broaden the application and impact of Responsible Care® around the world through engagement with suppliers, customers and joint venture partners.

Dow's EH&S policies helped the Company achieve excellent EH&S performance in 2013. Dow's injury/illness rates and process safety performance were excellent in 2013, and the Company is favorably positioned to achieve its 2015 sustainability goals in these key areas. Further improvement in these areas, as well as environmental compliance, remains a top management priority, with initiatives underway to further improve performance and compliance in 2014.

Detailed information on Dow's performance regarding environmental matters and goals can be found online on Dow's Sustainability webpage at www.dow.com. The Company's website and its content are not deemed incorporated by reference into this report.

Chemical Security Public and political attention continues to be placed on the protection of critical infrastructure, including the chemical industry, from security threats.

Terrorist attacks and natural disasters have increased concern about the security and safety of chemical production and distribution. In addition, recent catastrophic incidents ranging from the earthquake, tsunami and nuclear events in Japan to the explosion and ensuing destruction and fatalities in West, Texas have focused attention on the safe operation, response capability and community engagement of our manufacturing facilities. Many, including Dow and the American Chemistry Council, have called for uniform risk-based and performance-based national standards for securing the U.S. chemical industry. The Maritime Transportation Security Act ("MTSA") of 2002 and its regulations further set forth risk-based and performance-based standards that must be met at U.S. Coast Guard-regulated facilities. U.S. Chemical Plant Security legislation was passed in 2006 and the Department of Homeland Security ("DHS") is now implementing the regulations known as the Chemical Facility Anti-Terrorism Standards. The Company is complying with the requirements of the Rail Transportation Security Rule issued by the U.S. Transportation Security Administration ("TSA"). Dow continues to support uniform risk-based national standards for securing the chemical industry.

The focus on security, emergency planning, preparedness and response is not new to Dow. A comprehensive, multi-level security plan for the Company has been maintained since 1988. This plan, which has been activated in response to significant world and national events since then, is reviewed on an annual basis. Dow continues to improve its security plans, placing emphasis on the safety of Dow communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. The security plan includes regular vulnerability assessments, security audits, mitigation efforts and physical security upgrades designed to reduce vulnerability. Dow's security plans also are developed to avert 62-------------------------------------------------------------------------------- Table of Contents interruptions of normal business work operations that could materially and adversely affect the Company's results of operations, liquidity and financial condition.

Dow implemented the Community Awareness and Emergency Responses ("CAER") initiative at its manufacturing sites around the world and the communities near those sites. The CAER initiative includes open communication, integrated planning and community drills between industry and surrounding communities. The CAER initiative continues to be a critical part of Dow's global implementation of Responsible Care®.

Dow played a key role in the development and implementation of the American Chemistry Council's Responsible Care® Security Code, which requires that all aspects of security - including facility, transportation and cyberspace - be assessed and gaps addressed. Through the Company's global implementation of the Security Code, Dow has permanently heightened the level of security - not just in the United States, but worldwide. Dow employs several hundred employees and contractors in its Emergency Services and Security department worldwide.

Through the implementation of the Security Code, including voluntary security enhancements and upgrades made since 2002, Dow is well-positioned to comply with the new U.S. chemical facility regulations and other regulatory security frameworks. In addition, Dow was the first chemical company to receive coverage under the Support Anti-terrorism by Fostering Effective Technologies Act ("SAFETY Act") from the DHS in 2007 for the Company's MTSA regulated sites, and the first to receive coverage under the SAFETY Act in 2008 for the Company's Rail Transportation Security Services. This unprecedented certification helps validate Dow's efforts and provides additional liability coverage in the event of a terrorist attack.

Dow continues to work collaboratively across the supply chain on Responsible Care®, Supply Chain Design, Emergency Preparedness, Shipment Visibility and transportation of hazardous materials. Dow is cooperating with public and private entities to lead the implementation of advanced tank car design, and track and trace technologies. Further, Dow's Distribution Risk Review process that has been in place for decades was expanded to address potential threats in all modes of transportation across the Company's supply chain. To reduce vulnerabilities, Dow maintains security measures that meet or exceed regulatory and industry security standards in all areas in which the Company operates.

Dow continually works to strengthen partnerships with local responders, law enforcement and security agencies, and to enhance confidence in the integrity of the Company's security and risk management program, as well as strengthen its preparedness and response capabilities. Dow also works closely with its supply chain partners and strives to educate lawmakers, regulators and communities about the Company's resolve and actions to date that mitigate security and crisis threats.

Climate Change Climate change matters for Dow are likely to be driven by changes in regulations, public policy and physical climate parameters.

Regulatory Matters Regulatory matters include cap and trade schemes; increased greenhouse gas ("GHG") limits; and taxes on GHG emissions, fuel and energy. The potential implications of each of these matters are all very similar, including increased cost of purchased energy, additional capital costs for installation or modification of GHG emitting equipment, and additional costs associated directly with GHG emissions (such as cap and trade systems or carbon taxes), which are primarily related to energy use. It is difficult to estimate the potential impact of these regulatory matters on energy prices.

Reducing Dow's overall energy usage and GHG emissions through new and unfolding projects will decrease the potential impact of these regulatory matters. Dow also has a dedicated commercial group to handle energy contracts and purchases, including managing emissions trading. The Company has not experienced any material impact related to regulated GHG emissions. The Company continues to evaluate and monitor this area for future developments.

Physical Climate Parameters Many scientific academies throughout the world have concluded that it is very likely that human activities are contributing to global warming. At this point, it is difficult to predict and assess the probability and opportunity of a global warming trend on Dow specifically. Preparedness plans are developed that detail actions needed in the event of severe weather. These measures have historically been in place and these activities and associated costs are driven by normal operational preparedness. Dow continues to study the long-term implications of changing climate parameters on water availability, plant siting issues, and impacts and opportunities for products.

63-------------------------------------------------------------------------------- Table of Contents Dow's Energy business and Public Affairs and Sustainability functions are tasked with developing and implementing a comprehensive strategy that addresses the potential challenges of energy security and GHG emissions on the Company. The Company continues to elevate its internal focus and external positions - to focus on the root causes of GHG emissions - including the unsustainable use of energy. Dow's Energy Plan provides the roadmap: • Conserve - aggressively pursue energy efficiency and conservation • Optimize - increase and diversify energy resources • Accelerate - develop cost-effective, clean, renewable and alternative energy sources • Transition - to a sustainable energy future Through corporate energy efficiency programs and focused GHG management efforts, the Company has and is continuing to reduce its GHG emissions footprint. The Company's manufacturing intensity, measured in Btu per pound of product, has improved by more than 40 percent since 1990. As part of the Company's 2015 Sustainability Goals, Dow will maintain GHG emissions below 2006 levels on an absolute basis for all GHGs.

Environmental Remediation Dow accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination and the closure of contaminated landfills and other waste management facilities. In the case of landfills and other active waste management facilities, Dow recognizes the costs over the useful life of the facility. The accounting policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note 1 to the Consolidated Financial Statements. To assess the impact on the financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Dow had an accrued liability of $649 million at December 31, 2013, related to the remediation of current or former Dow-owned sites. At December 31, 2012, the liability related to remediation was $685 million.

In addition to current and former Dow-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as "Superfund Law"), Dow is liable for remediation of other hazardous waste sites where Dow allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances.

Because Superfund Law imposes joint and several liability upon each party at a site, Dow has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties ("PRPs") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. The Company's remaining liability for the remediation of Superfund sites was $73 million at December 31, 2013 ($69 million at December 31, 2012). The Company has not recorded any third-party recovery related to these sites as a receivable.

Information regarding environmental sites is provided below: Environmental Sites Dow-owned Sites (1) Superfund Sites (2) 2013 2012 2013 2012 Number of sites at January 1 290 286 126 120 Sites added during year 3 8 2 11 Sites closed during year (3) (93 ) (4 ) (7 ) (5 ) Number of sites at December 31 200 290 121 126 (1) Dow-owned sites are sites currently or formerly owned by Dow, where remediation obligations are imposed in the United States by the Resource Conservation Recovery Act or analogous state law. At December 31, 2013, 64 of these sites (150 sites at December 31, 2012) were formerly owned by Dowell Schlumberger, Inc., a group of companies in which the Company previously owned a 50-percent interest. Dow sold its interest in Dowell Schlumberger in 1992.

(2) Superfund sites are sites, including sites not owned by Dow, where remediation obligations are imposed by Superfund Law.

(3) The increase in the number of Dow-owned sites closed during 2013 is primarily due to expiration of the term of an agreement with Schlumberger, which expiration terminated Dow's remediation obligations at a large number of sites formerly owned by Dowell Schlumberger.

Additional information is provided below for the Company's manufacturing sites in Freeport, Texas; Midland, Michigan; Philadelphia, Pennsylvania; and Camaçari, Brazil, the sites for which the Company has the largest environmental remediation accruals; as well as a Superfund site in Wood-Ridge, New Jersey.

64-------------------------------------------------------------------------------- Table of Contents From the start of operations at the Freeport site in the 1940s until the mid-1970s, manufacturing wastes were typically placed in on-site pits and landfills. The resulting soil and groundwater contamination is being assessed and remediated under the provisions of the Resource Conservation and Recovery Act ("RCRA"), in concert with the state of Texas. At December 31, 2013, the Company had an accrual of $35 million ($31 million at December 31, 2012) related to environmental remediation at the Freeport manufacturing site. In 2013, $5 million ($5 million in 2012) was spent on environmental remediation at the Freeport site.

Similar to the Freeport site, in the early days of operations at the Midland site, manufacturing wastes were usually disposed of on-site, resulting in soil and groundwater contamination, which has been contained and managed on-site under a series of RCRA permits and regulatory agreements. The most recent Hazardous Waste Operating License for the Midland site, issued in 2003, also included provisions for the Company to conduct an investigation to determine the nature and extent of off-site contamination from historic Midland site operations. The scope of the investigation includes the City of Midland area soils; the Tittabawassee and Saginaw River sediment and floodplain soils; and the Saginaw Bay, and requires the Company to conduct interim response actions.

In January 2010, the Company, the U.S. Environmental Protection Agency ("EPA") and the State of Michigan ("State") entered into an administrative order on consent that requires the Company to conduct a remedial investigation, a feasibility study and a remedial design for the Tittabawassee River, the Saginaw River and the Saginaw Bay, and will pay the oversight costs of the EPA and the State under the authority of the Comprehensive Environmental Response, Compensation, and Liability Act Administrative Order. See Note 14 to the Consolidated Financial Statements for additional information. At December 31, 2013, the Company had an accrual of $77 million ($85 million at December 31, 2012) for environmental remediation and investigation associated with the Midland site. In 2013, the Company spent $27 million ($24 million in 2012) on environmental remediation at the Midland site.

On April 1, 2009, the Company acquired Rohm and Haas' Philadelphia Plant, which has been an industrial site since the early 1700s, and since the 1920s used by Rohm and Haas for the manufacture of a wide range of chemical products. Chemical disposal practices in the early years resulted in soil and groundwater contamination at the site and in the sediments of the adjacent Frankford Inlet.

The site has undergone a number of investigations and interim cleanup measures under the RCRA Corrective Action Program and, in 2009, was transferred to the regulatory management of the Pennsylvania One Cleanup Program. At December 31, 2013, the Company had an accrual of $48 million ($57 million at December 31, 2012) for environmental remediation at the Philadelphia Plant. In 2013, the Company spent $3 million ($1 million in 2012) on environmental remediation at the Philadelphia Plant.

Rohm and Haas is a PRP at the Wood-Ridge, New Jersey Ventron/Velsicol Superfund Site, and the adjacent Berry's Creek Study Area ("BCSA"). Rohm and Haas is a successor in interest to a company that owned and operated a mercury processing facility, where wastewater and waste handling resulted in contamination of soils and adjacent creek sediments. Remediation of the upland portions of the Ventron/Velsicol site was completed in 2011. Currently, the Berry's Creek Study Area PRP group is undertaking a multi-stage Remedial Investigation/Feasibility Study ("RI/FS") to identify contamination in surface water, sediment and biota related to numerous contaminated sites in the Berry's Creek watershed. The RI/FS eventually will support a remedial action plan for the BCSA and is expected to require several more years to complete. At December 31, 2013, the Company had an accrual of $15 million ($15 million at December 31, 2012) for environmental remediation at the Wood-Ridge sites. In 2013, the Company spent $4 million ($4 million in 2012) on environmental remediation at the two Wood-Ridge sites.

Dow Brasil Indústria e Comércio de Produtos Quimicos Ltda. acquired a toluene diisocyanate ("TDI") manufacturing plant located within the Camaçari, Brazil petrochemical complex from Pronor in 1998. Since the acquisition, the TDI plant has undergone a number of environmental investigations that indicate that pre-acquisition materials/waste management practices resulted in extensive soil and groundwater contamination with mono and dichlorobenzenes, dinitrotoluene, and toluene, among other compounds. Additional investigation is needed to further delineate the vertical limits of soil and groundwater impacts. An initial accrual was recorded in December 2011 in the amount of $50 million to address environmental remediation of soils and long-term groundwater remediation at the site. At December 31, 2013, the Company had an accrual of $43 million ($44 million at December 31, 2012) for environmental remediation at the Camaçari TDI manufacturing site. In 2013, the Company spent $1 million (less than $1 million in 2012) on environmental remediation at the Camaçari TDI manufacturing site.

In total, the Company's accrued liability for probable environmental remediation and restoration costs was $722 million at December 31, 2013, compared with $754 million at the end of 2012. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Company's results of operations, financial condition and cash flows. It is the opinion of the Company's management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Company's results of operations, financial condition and cash flows.

65-------------------------------------------------------------------------------- Table of Contents The amounts charged to income on a pretax basis related to environmental remediation totaled $203 million in 2013, $197 million in 2012 and $261 million in 2011. The amounts charged to income on a pretax basis related to operating the Company's current pollution abatement facilities totaled $720 million in 2013, $717 million in 2012 and $744 million in 2011. Capital expenditures for environmental protection were $102 million in 2013, $145 million in 2012 and $170 million in 2011.

Asbestos-Related Matters of Union Carbide Corporation Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide's products.

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

The table below provides information regarding asbestos-related claims filed against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants.

2013 2012 2011 Claims unresolved at January 1 33,449 53,225 62,582 Claims filed 12,069 9,627 7,810 Claims settled, dismissed or otherwise resolved (16,513 ) (29,403 ) (17,167 ) Claims unresolved at December 31 29,005 33,449 53,225 Claimants with claims against both UCC and Amchem (8,331 ) (9,542 ) (16,304 ) Individual claimants at December 31 20,674 23,907 36,921 Plaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to Union Carbide, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury.

In fact, there are no personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide's litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.

For additional information see Part I, Item 3. Legal Proceedings and Asbestos-Related Matters in Note 14 to the Consolidated Financial Statements.

K-Dow Arbitration In February 2009, the Company initiated arbitration proceedings against Petrochemical Industries Company (K.S.C.) ("PIC") alleging that PIC breached the Joint Venture Formation Agreement related to the establishment of K-Dow, a proposed 50:50 global petrochemicals joint venture with PIC, by failing to close the transaction. In May 2012, the International Court of Arbitration of the International Chamber of Commerce ("ICC") awarded the Company $2.161 billion in damages ("Partial Award"), not including pre- and post-award interest and arbitration costs. On March 4, 2013, the ICC released the Final Award in the arbitration case covering the Company's claim for pre- and post-award interest and arbitration costs and awarded the Company $318 million, as of February 28, 2013. On May 6, 2013, the Company and PIC entered into a Deed providing for payment of the Company's claims against PIC under the K-Dow arbitration. On May 7, 2013, the Company confirmed the receipt of a $2.195 billion cash payment from PIC, which included the Partial Award of $2.161 billion as well as recovery of Dow's costs incurred in the arbitration, including legal fees. In addition, Kuwait Petroleum Corporation provided assurances that no retaliatory or punitive actions would be taken against the Company and its affiliates as a result of the Deed and payment. The K-Dow arbitration is considered final and settled in full.

66-------------------------------------------------------------------------------- Table of Contents The Dow Chemical Company and Subsidiaries

[ Back To Technology News's Homepage ]

OTHER NEWS PROVIDERS







Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved | Privacy Policy