Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20152016
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission file number:   1-3433
THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 38-1285128
State or other jurisdiction of
incorporation or organization
 (I.R.S. Employer Identification No.)
2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 989-636-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $2.50 per share New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ  Yes    ¨  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨  Yes    þ  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                 þ  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                    þ  Yes    ¨  No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes      þ No
The aggregate market value of voting common stock held by non-affiliates as of June 30, 20152016 (based upon the closing price of $51.17$49.71 per common share as quoted on the New York Stock Exchange), was approximately $59.1$55.8 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors and Officers would be deemed to be stock held by affiliates. Non-affiliated common stock outstanding at June 30, 20152016, was 1,154,841,3651,123,496,434 shares.
Total common stock outstanding at January 31, 20162017, was 1,117,112,4481,213,311,580 shares.
DOCUMENTS INCORPORATED BY REFERENCE

Part III: Proxy Statement for the 2017 Annual Meeting of Stockholders to be held on May 12, 2016.Stockholders.



The Dow Chemical Company
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 20152016
TABLE OF CONTENTS
  PAGE
   
 
   
Business.
   
Risk Factors.
   
Unresolved Staff Comments.
   
Properties.
   
Legal Proceedings.
   
Mine Safety Disclosures.
   
 
   
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
   
Selected Financial Data.
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
   
Quantitative and Qualitative Disclosures About Market Risk.
   
Financial Statements and Supplementary Data.
   
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
   
Controls and Procedures.
   
Other Information.
   
 
   
Directors, Executive Officers and Corporate Governance.
   
Executive Compensation.
   
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
   
Certain Relationships and Related Transactions, and Director Independence.
   
Principal Accounting Fees and Services.
   
 
   
Exhibits, Financial Statement Schedules.
   

2


 The Dow Chemical Company and Subsidiaries 

Throughout this Annual Report on Form 10-K, except as otherwise noted by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report including, without limitation, the following sections: “Item 1. Business,” “Management's Discussion and Analysis,” and “Risk Factors.” These forward-looking statements are generally identified by the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “should,” “strategy,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.

This document also contains statements about Dow's agreement to effect an all-stock, merger of equals strategic combination with E. I. du Pont de Nemours and Company ("DuPont") resulting in a new combined company ("Diamond-Orion HoldCo"DowDuPont") and then, subsequent to the merger, Dow and DuPont intend to pursue the separation of Diamond-Orion HoldCo's agricultureDowDuPont's agricultural business, specialty products business and material science business through one or more tax-efficient transactions (collectively, the "Transaction"). Many factors could cause actual results to differ materially from these forward-looking statements with respect to the Transaction, including (i) the completion of the proposed Transaction on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the ability of Dow and DuPont to integrate the business successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separation, including anticipated timing, anticipated,and any changes to the configuration of businesses included in the potential separation if implemented, (iii) potential litigation relating to the proposed Transaction that could be instituted against Dow, DuPont or their respective directors, (iv) the risk that disruptions from the proposed Transaction will harm Dow’s or DuPont’s business, including current plans and operations, (v) the ability of Dow or DuPont to retain and hire key personnel, (vi) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, (vii) uncertainty as to the long-term value of Diamond-Orion HoldCoDowDuPont common stock, (viii) continued availability of capital and financing and rating agency actions, (ix) legislative, regulatory and economic developments, (x) potential business uncertainty during the pendency of the merger that could affect Dow’s and/or DuPont’s economic performance, (xi) certain contractual restrictions that could be imposed on Dow and/or DuPont during the pendency of the merger that might impact Dow’s or DuPont’s ability to pursue certain business opportunities or strategic transactions and (xii) unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed merger, will beare more fully discussed in the joint proxy statement/prospectus that will beis included in the registration statement on Form S-4 (File No. 333-209869) that will bewas filed with the U.S. Securities and Exchange Commission in connection with the proposed merger. While the list of factors presented here is, and the list of factors to be presented in the registration statement on Form S-4 are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Dow nor DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.

A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A of this Form 10-K). The Dow Chemical Company undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.

3


 The Dow Chemical Company and Subsidiaries 
 PART I, Item 1. Business. 

THE COMPANY

The Dow Chemical Company was incorporated in 1947 under Delaware law and is the successor to a Michigan corporation, of the same name, organized in 1897. The Company's principal executive offices are located at 2030 Dow Center, Midland, Michigan 48674. Throughout this Annual Report on Form 10-K, except as otherwise indicated by the context, the terms “Company” or “Dow” as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

Available Information
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through the Investor Relations section of the Company's website (www.dow.com/investors)investor-relations), as soon as reasonably practicable after the reports are electronically filed or furnished with the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains these reports as well as proxy statements and other information regarding issuers that file electronically. The SEC's website is at www.sec.gov. The Company's website and its content are not deemed incorporated by reference into this report.

General
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 materials, polymers, chemicalsmaterial, polymer, chemical and biological sciencesscience to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, clean energy generation and conservation,efficiency, more durable infrastructure, 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 180175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics water, coatings and agriculture. In 2015,2016, Dow had annual sales of nearly $49$48 billion and employed approximately 49,50056,000 people worldwide. The Company's more than 6,0007,000 product families are manufactured at 179189 sites in 3534 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

Strategy
Dow’s strategy is to invest in a market-driven portfolio of advantaged and technology-enabled businesses that create value for our shareholders and customers.

Dow DuPont Planned Merger of Equals
On December 11, 2015, the Company and E. I. du Pont de Nemours and Company ("DuPont") announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This

Dow and DuPont remain focused on closing the transaction and continue to work constructively with regulatory agencies in all relevant jurisdictions, including the United States, European Union, China, Brazil and Canada. Given current regulatory agency status, closing is expected to closeoccur in the secondfirst half of 2016,2017, subject to satisfaction of customary closing conditions, including receipt of all regulatory approvals. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-efficient transactions, including a leading global pure-play agriculture company, a leading global pure-play material science company and a leading technology and innovation-driven specialty products company. See the Note About Forward-Looking Statements; Part I, Item 1A. Risk FactorsFactors; and Note 27 to the Consolidated Financial Statements for further details on this transaction.



4


BUSINESS SEGMENTS AND PRODUCTS
Dow’s worldwide operations are managed through global businesses which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics. This operating structure maximizes Dow’s integration benefits and the value from materials, polymers, chemicalsmaterial, polymer, chemical and biological sciences to help address many of the world's most challenging problems - either through molecular and value chain alignment, or through the benefits derived from Dow's enhanced, innovation-driven market focus. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 26 to the Consolidated Financial Statements for additional information concerning the Company’s operating segments.


AGRICULTURAL SCIENCES
The Agricultural Sciences segment is a global leader in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agricultural, industrial and commercial pest management, and food service.management. The segment has broad global reach with sales in nearly 130 countries and research and development ("R&D") and manufacturing facilities located in all geographic areas. Growth is achieved through the development of innovative new products and technologies, successful segmentation of market offerings with leading brands, diverse channels to market, competitive cost positions, strategic bolt-on acquisitions, and commercial and R&D collaborations. The Company is committed to the development of innovative new crop protection and biological products and technologies.seed products.

Details on Agricultural Sciences' 20152016 sales, by business and geographic area, are as follows:
(1)Europe, Middle East, Africa and India

Products
Key product lines, including crop application, are listed below:

 Crop Application
Key Product LinesCanolaCerealsCornCottonRange and PastureRiceSoybeansSunflowerTrees, Fruits and VegetablesOthers
Insecticidesxxxx xxxxx
Fungicides xx  xx xx
Herbicidesxxxxxxxxxx
Seedsxxxxx xx x
Otherx xx      

The Company's ability to produce seeds can be materially impacted by weather conditions, local political conditions and the availability of reliable contract growers.


5


Agricultural Sciences is focused on delivering results through technology leadership. Major brands and technologies, by key product line, are listed below:

Key Product LinesBrands and Technologies
InsecticidesISOCLAST™; LORSBAN™; RADIANT™; SENTRICON™; TRACER™
FungicidesDITHANE™; INATREQ™
HerbicidesARYLEX™; BROADWAY™; CLINCHER™; DURANGO™; FENCER™; GARLON™; LONTREL™; MILESTONE™; PANZER™; PRIMUS™; RESICORE™; RINSKOR™; SPIDER™; STARANE™; SURESTART™; TORDON™
SeedsSeed Brands
AGROMEN™(1); BRODBECK™ Seeds; DAIRYLAND SEED™; DOW™ Seeds; MYCOGEN™ Seeds; NEXERA™; Omega-9 Healthier Oils; PFISTER™ Seeds; PHYTOGEN™; PRAIRIE BRAND™ Seeds; PROPOUND™
Seed Traits and Technologies
ENLIST™; ENLIST DUO™; EXZACT™ Precision Technology; POWERCORE™ Insect Trait Technology(2); PRAIRIE BRAND™ Seeds; REFUGE ADVANCED™ powered by SmartStax®(2); SmartStax® Insect Trait Technology(2)
OtherINSTINCT®; N-SERVE™ Nitrogen Stabilizer; TELONE™
(1)AGROMEN trademark used under license from Agromen Sementes Agricolas Ltda.
(2)Smartstax® and POWERCORE™ multi-event technology developed by Dow AgroSciences LLC and Monsanto. Smartstax®, the Smartstax® logo, POWERCORE™ and the POWERCORE™ logo are trademarks of Monsanto Technology, LLC.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's ("EPA") registration of ENLIST DUO™ for use with ENLIST™ Corn, Soybeans and SoybeansCotton in 15 key34 states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST E3™ Soybeans, ENLIST™ Soybean Seeds and ENLIST™ Corn Seeds in Brazil.Brazil and Canada. ENLIST DUO™ is also approved for use with ENLIST™ crops in Canada. Regulatory approvals for ENLIST™ products in certain other countries are still pending. After the EPA’s registration of ENLIST DUO™ for use with ENLIST™ Corn and Soybeans, the National Resources Defense Council, Center for Food Safety and other organizations filed suit against the EPA to set aside the registration in the United States Court of Appeals for the Ninth Circuit (the "Court"), and Dow AgroSciences intervened in the cases. In late November 2015, the EPA filed a motion to vacate and remand the registration to the EPA. Dow AgroSciences opposed the motion to vacate the registration. On January 25, 2016, the Court denied the EPA’s motion to vacate the registration, so the ENLIST DUO™ registration for use with ENLIST™ Corn and Soybeans remains fully intact.

Patents, Trademarks and Licenses
Agricultural Sciences has significant technology-driven growth, leddriven by crop protection and seed/plant biotechnology traitsproducts and crop protection products that utilize proprietary formulations.technologies, urban pest management solutions and healthy oils. As a result, the Company uses patents, trademarks, licenses and registrations to protect its investment in germplasm, traits and proprietary chemistries and formulations. The Company also licenses plant biotechnology traits from third parties and engages in research collaborations with global industry, academia and governments. The Company does not regard the Agricultural Sciences segment as being materially dependent on any single or group of related patents, trademarks, licenses or registrations.collaborations.

Competition
Agricultural Sciences competes with producers of crop protection chemicals and agriculturalseed/plant biotechnology in the United States and abroad.products on a global basis. The Company competes on the basis of technology and trait leadership, price, quality and cost competitiveness. Key competitors include BASF, Bayer, DuPont, Monsanto and Syngenta, as well as generic crop protection companies and regional seed companies.

Distribution
Agricultural Sciences has a diverse worldwide network which markets and distributes the Company's brands to customers globally. This network consists of the Company's sales and marketing organization partnering with distributors, independent retailers and growers, cooperatives and agents throughout the world.

Seasonality
Agricultural Sciences sales and EBITDA are strongest in the first half of the year, aligning with the planting and growing season in the northern hemisphere, where approximately 60more than 50 percent of the segment's annual sales are generated. InventoryAccounts receivable tends to be at peak levels inhigher during the first half of the year, in advance of the northern hemisphere planting and growing season. Accounts receivable tends to be highest during the second quarter, consistent with the peak sales period in the northern hemisphere.


6


Divestiture
On July 31, 2015, the Company sold its AgroFresh business to AgroFresh Solutions, IncInc. ("AFSI"). The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is also reported in the Agricultural Sciences segment. See Note 5 to the Consolidated Financial Statements for additional information on this transaction.



CONSUMER SOLUTIONS
The Consumer Solutions segment consists of threefour global businesses: Consumer Care, Dow Automotive Systems, and Dow Electronic Materials.Materials and Consumer Solutions - Silicones. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications - including semiconductors and organic light-emitting diodes ("OLEDs"), adhesives and foams used by the transportation industry, and cellulosics and other polymers for innovative pharmaceutical formulations and food solutions.solutions, and silicone solutions used in consumer goods and automotive applications. These businesses serve the needs of market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The segment's commitment to continuous innovation and rapid new product development enables it to maximize opportunities in emerging geographies and high-growth consumer market segments.segments in nearly 110 countries.

Details on Consumer Solutions' 20152016 sales, by business and geographic area, are as follows:


Consumer Care
Consumer Care provides global and regional brand owners in food, pharmaceutical, personal care and home care markets with innovative formulations and ingredients designed to add value to their products and help consumers live healthier and more convenient lives.

Consumer Care's principal businesses each serve one or more key market segments, as noted below:

BusinessMarket SegmentsTechnologies
Dow Home, Institutional & Personal Care SolutionsPersonal care, home care and specialty applications with key focus on hair care, skin care, sun care, cleansing, as well as fabric, dish, floor, hard surface and air care applicationsFrom polymers and emollients to chelants and dispersants, Dow offers unique innovations that empower consumer brands around the world to deliver exceptional product performance and process enhancements that create value. Other notable technologies include opacifiers, rheology modifiers, surfactants and solvents.
Dow Pharma and Food SolutionsPharmaceutical, food and nutritionCellulosic and other technologies help bring new classes of medicines to market and enable foods that are healthier (gluten-free, reduced oil/fat content). Notable technologies include excipients and active pharmaceutical ingredients, solubility enhancers, reagents, granulation and binders, as well as coatings and controlled release.
SAFECHEM™(1)
A service business responsible for the sustainable and innovative use of solventsOffers cleaning solutions, equipment and services for metal and dry cleaning applications. Provides closed-loop SAFE-TAINER™ System delivery systems to ensure emission free use of cleaning agents.
(1)On December 31, 2016, the Company sold its SAFECHEM™ business. SAFECHEM™ was reported as part of the Consumer Solutions segment through the date of divestiture.


7


Dow Automotive Systems
Dow Automotive Systems is a leading global provider of collaborative solutions and advanced materials for original equipment manufacturers, tier suppliers, aftermarket customers and commercial transportation manufacturers. Dow Automotive Systems’ leading technologies, materials engineering, testing and service support are complemented by a robust line of structural, elastic and rubber-to-substrate adhesives; composite materials technologies; polyurethane foams and acoustical management systems; and films and fluids.

Dow Automotive Systems’ principal businesses offer the following technologies and serve the following market segments:

BusinessMarket SegmentsTechnologies
AdhesivesElastic, structural and specialty adhesivesInnovative and differentiated adhesive technologies to meet customer specifications for durability and crash performance
Performance SolutionsPerformance plastics, fluids and polyurethane foam solutionsTechnologies that differentiate customers’ products with improved performance characteristics

Dow Electronic Materials
Dow Electronic Materials is a leading global supplier of enabling materials for a broad range of consumer electronics including smartphones, tablets, television monitors and personal computers, as well as electronic devices and systems used in a variety of industries. The business produces materials for chemical mechanical planarization ("CMP"); materials used in the production of electronic displays, including films, filters and organic light-emitting diodes ("OLEDs");OLEDs; metalorganic precursors for light-emitting diodes ("LEDs");diodes; products and technologies that drive leading-edge semiconductor design; materials used in the fabrication of printed circuit boards; and integrated metallization processes for metal finishing and decorative applications.

Dow Electronic Materials is comprised of four principal businesses, each serving one or more key market segments, as noted below:

BusinessMarket SegmentsTechnologies
Semiconductor TechnologiesIntegrated circuit fabrication for memory and logicCMP consumables, photolithography materials
Interconnect TechnologiesPrinted circuit board, electronic and industrial finishingInterconnect metallization and imaging process chemistries
Display TechnologiesDisplay materialsDisplay films and filters, OLED materials
Growth TechnologiesNew and emerging technologiesAdvanced chip packaging materials, metalorganic precursors, optical and ceramic materials

Consumer Solutions - Silicones
Consumer Solutions - Silicones provides innovative silicone solutions and ingredients to customers in beauty and personal care, household care, healthcare, consumer goods and automotive market segments around the world. Backed by extensive application expertise and industry knowledge, Consumer Solutions - Silicones features a broad, diverse portfolio of elastomers, emulsifiers, film formers, fluids, antifoams, additives, tubing and molded assemblies and adhesives.


Consumer Solutions - Silicones principal businesses offer the following technologies and serve the following market segments:

BusinessApplications/Market SegmentsTechnologies
Beauty and Personal CareHair care, skin care, sun care and color cosmeticsInnovative beauty care ingredients that help improve product performance and meet the needs of consumers. Notable silicone technologies include elastomers, emulsifiers, rheology modifiers, film formers-resins, gums and acrylates, powders and fluids.
Household CareLaundry and fabric care, hard surface careProven solutions to deliver benefits to both consumers and manufacturers alike. Notable silicone technologies include antifoams, processing aids, polishing gloss aids and softening agents.
HealthcareDrug delivery, medical device, wound care and topical ingredient applicationsInnovative silicone solutions backed by industry application and regulatory expertise. Notable silicone technologies include elastomers, emulsifiers, excipients, tubing and molded assemblies, adhesives, antifoams and fluids.
Consumer GoodsElectronics, packaging, sporting goods, household goods, infant care
Elastomer and thermal plastic technologies with proven performance delivering benefits to consumers around the world in multiple applications. Notable technology includes liquid silicone rubbers, high consistency rubbers, TPSiV, thermoplastic additives and food-grade materials.
AutomotiveSafety, lighting, sealing, electronics, NVH (noise, vibration, harshness), exterior trimNotable technology includes: elastomers, liquid silicone rubbers, high consistency rubbers, thermoplastics, additives, coatings, thermal management materials, sealants and lubricants.

Competition
The Consumer Solutions segment experiences competition in each business within the segment. The competitors include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high-level of customer service and technical expertise from the Company's sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Ashland, BASF, Bayer, Bluestar, JSR Micro, Momentive, Shin-Etsu Chemical and Shin-Etsu Chemical.Wacker.

Joint Ventures
The Consumer Solutions segment includes a portion of the Company's share of the results of Dow Corning Corporationthe Hemlock Semiconductor Group ("Dow Corning"HSC Group"), a joint ventureU.S.-based group of companies that manufactures silicone and siliconemanufacture polycrystalline silicon products, which is owned 50 percent by the Company.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownershipAs of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner ofJune 1, 2016, Dow Corning currentlyCorporation ("Dow Corning"), previously a 50:50 joint venture between Dow andwith Corning Incorporated ("Corning"), became a wholly owned subsidiary of Dow as a result of an ownership restructure ("DCC Transaction"). Dow and Corning willcontinue to maintain their currenthistorical proportional equity stakeinterest in the Hemlock SemiconductorHSC Group. The transaction is expectedSee Note 4 to close in the first half of 2016.Consolidated Financial Statements for additional information on this transaction.



8


INFRASTRUCTURE SOLUTIONS
The Infrastructure Solutions segment is comprised of an industry-leading portfolio of businesses utilizing advanced technology to deliver products such as architectural and industrial coatings, construction material ingredients, building insulation and materials, adhesives, microbial protection for the oil and gas industry, telecommunications, light and water technologies. With unmatched R&D capabilities, a broad range of chemistries, extensive geographic reach and strong channels to market, this segment is well positioned to capitalize on market trends. The segment has broad geographic reach with sales in nearly 150 countries and R&D and manufacturing facilities located in key geographic areas.

Details on Infrastructure Solutions' 20152016 sales, by business and geographic area, are as follows:
   

Dow Building & Construction
Dow Building & Construction is comprised of two businesses - Dow Building Solutions and Dow Construction Chemicals. Leveraging more than 6070 years of building science experience and deep application expertise asthat go well asbeyond the business's 75 years of STYROFOAM™ brand insulation products, Dow creates high-performance solutions designed to help make residential and commercial buildings more comfortable, last longer, save energy and reduce emissions. The business group offers extensive lines of industry-leading durable insulation and building material solutions, andas well as functional ingredients that provide improved thermal performance, air sealing, weatherization, waterproofing and fire retardancy for construction products.
 
Dow Coating Materials
The Dow Coating Materials business manufactures and delivers solutions that leverage high quality, technologically advanced product offerings for architectural paint and coatings, as well as industrial coatings applications, including paper, leather, concrete, wood, automotive, maintenance and protective industries. Dow Coating Materials introduced the industry's first waterborne technology in 1953 and has since led the industry's conversion away from solvent borne technology to allow for lower volatile organic compounds and an improved sustainability profile while pushing performance boundaries.

Energy & Water Solutions
Energy & Water Solutions is comprised of fourincludes the following businesses - Dow Microbial Control; Dow Oil, Gas & Mining; Dow Solar; and Dow Water and Process Solutions. Dow Microbial Control provides technology used to predict, diagnose and sustainably solve the planet’s most difficult microbial challenges while Dow Oil, Gas & Mining is helping to provide energy to the world by supplying smart, innovative and customized solutions to enable the tapping of both conventional and unconventional sources. Providing building-integrated photovoltaics, Dow Solar enables energy solutions in the infrastructure market sector. Also alignedAligned to the infrastructure market sector is Dow Water and Process Solutions, a leading provider of purification and separation technologies including reverse osmosis membranes and ion exchange resins to help customers with a broad array of separation and purification needs such as reusing waste water streams, making fresh drinking water from sea water, creating a closed loop water system for oil field operations, and removing impurities in dairy processing.

Performance Monomers
The Performance Monomers business produces monomer products that are sold externally as well as consumed internally as building blocks used in downstream polymer businesses. The business' products are used in several applications, including dispersions and emulsions for adhesives, coatings, inks, woven and non-woven textiles, plastics and polymers and superabsorbent products. Included in this portfolio is Plastics Additives, a worldwide supplier of additives used in a large variety of applications ranging from construction materials and packaging containers to consumer appliances and electronics, business machines and automotive parts.

Infrastructure Solutions - Silicones
9Infrastructure Solutions - Silicones is a global leader in providing solutions to pressing challenges customers face in the infrastructure segment delivered via proven and innovative silicon-based technology. The diverse portfolio provides solutions


to the building and construction, telecommunications, lighting and energy sectors. In construction particularly, silicone materials enable buildings that promote occupant comfort, safety and security, improved productivity and design freedom.

Products
Infrastructure Solutions' businesses each serve one or more key market segments, as noted below:

BusinessApplications/Market SegmentsMajor Products
Dow Building & ConstructionRigid and spray foam insulation; weatherization, waterproofing and air sealing; caulks and sealants; elastomeric roof coatings; exterior insulation finishing systems; roof tiles and siding; industrial non-wovens; cement-based tile adhesives; plasters and renders; tape joint compounds; and concrete additivesAQUASET™ acrylic thermosetting resins, DOW™ latex powder, FROTH-PAK™ foam insulation and sealants, GREAT STUFF™ insulating foam sealants and adhesives, RHOPLEX™ and PRIMAL™ acrylic emulsion polymers, STYROFOAM™ brand insulation products, THERMAX™ exterior insulation, WALOCEL™ cellulose ethers, WEATHERMATE™ house wrap, XENERGY™ high performance insulation, LIQUID ARMOR™LIQUIDARMOR™ flashing and sealant
Dow Coating MaterialsAcrylic binders for architectural paint and coatings, industrial coatings, and paper; dispersants; rheology modifiers; opacifiers and surfactants for both architectural and industrial applications; protective and functional coatingsACRYSOL™ Rheology Modifiers, AVANSE™ acrylic binders, EVOQUE™ Pre-Composite Polymer, FORMASHIELD™ acrylic binder, RHOPLEX™ acrylic resin, TAMOL™ Dispersants, MAINCOTE™ acrylic epoxy hybrid, PARALOID™ Edge ISO-free technology and ACOUSTICRYL™ liquid-applied sound damping technology
Energy & Water SolutionsHelping customers in exploration, production, transmission, refining and gas processing to optimize supply, improve efficiencies and manage emissions. Providing expertise and localized solutions for microbial control for well souring, industrial cooling water, fabric odor elimination, in-can preservation and dry film protection. Providing advanced, cost effective separation and purification technology for water treatment and filtration, pharmaceutical, food and beverage, and chemical processingDemulsifiers, drilling and completion fluids, heat transfer fluids, rheology modifiers, scale inhibitors, shale inhibitors, specialty amine solvents, surfactants, water clarifiers, DOW ADSORBSIA™ selective media, DOW EDI™ modules, DOWEX™ and AMBERJET™ ion exchange resins, DOWEX™ OPTIPORE™ polymeric adsorbent resins, DOW FILMTEC™ reverse osmosis and nanofiltration elements, TEQUATIC™ PLUS fine particle filter, AMBERLYST™ polymeric catalysts, AQUCAR™, BIOBAN™, SILVADUR™ antimicrobial DOW POWERHOUSE™ Solar Shingles
Performance Monomers
Super absorbents, water treatment, flocculants and detergents, acrylic sheets, coatings, inks and paints, molding compounds, impact modifiers, processing aids, electronic displays, adhesives, textiles, automotive and architectural safety glass, and plastics additives
Acrylates, methacrylates, vinyl acetate monomers, high-quality impact modifiers, processing aids, foam cell promoters and weatherable acrylic capstock compounds for thermoplastic and thermosetting materials
Infrastructure Solutions - SiliconesCommercial glazing, building envelope, construction chemicals, window and door infrastructure, wire and cable, electrical and high voltage insulation, power transmission, sleeving, optical devices, light-emitting diodes, lamp and luminaire, oil and gas, solarElastomers, fluids, pottants, potting agents, thermal interface materials, adhesives and sealants, encapsulants, gels, resins, antifoams, demulsifiers, lubricants

Competition
Competitors of the Infrastructure Solutions segment include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high level of customer service and expertise from ourits sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Arkema, Ashland, BASF, Bluestar, Elementis, Hydranautics, Lanxess, Lonza, Momentive, Owens-Corning, Shin-Etsu Chemical and Shin-Etsu Chemical.Wacker.

Joint Ventures
The Infrastructure Solutions segment includes a portion of the Company's share of the results of Dow Corning,the HSC Group, a joint ventureU.S.-based group of companies that manufactures silicone and siliconemanufacture polycrystalline silicon products, which is owned 50 percent by the Company.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownershipAs of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner ofJune 1, 2016, Dow Corning, currentlypreviously a 50:50 joint venture betweenwith Corning, became a wholly owned subsidiary of Dow and Corning.as a result of the DCC Transaction. Dow and Corning willcontinue to maintain their currenthistorical proportional equity stakeinterest in the Hemlock SemiconductorHSC Group. The transaction is expectedSee Note 4 to close in the first half of 2016.Consolidated Financial Statements for additional information on this transaction.



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PERFORMANCE MATERIALS & CHEMICALS
The Performance Materials & Chemicals segment is comprised of three technology-driven, customer-centric global businesses that are advantaged through integration and driven by innovative technology and solutions: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. Products produced by this segment are back-integrated into feedstocks, supporting a low-cost manufacturing base and consistent, reliable supply. The Performance Materials & Chemicals segment is positioned for growth through diverse markets and product offerings. The segment has broad geographic reach with sales in nearly 140 countries and manufacturing facilities located in all geographic areas. Performance Materials & Chemicals has a diverse product line that serves customers in a large number of industries including appliance, construction and industrial.

Details on Performance Materials & Chemicals' 20152016 sales, by business and geographic area, are as follows:
   

Chlor-Alkali and Vinyl
The Chlor-Alkali and Vinyl business provides cost-advantaged chlorine and caustic soda supply and integration for the Polyurethanes business. Chlor-Alkali and Vinyl also includes the marketing of caustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer, essential for the production of polyvinyl chloride.

Industrial Solutions
The Industrial Solutions business enables manufacturing of the world’s goods and services with additive solutions that minimize friction and heat in mechanical processes, manage the oil and water interface, deliver active ingredients for maximum effectiveness, facilitate dissolvability and provide the foundational building blocks for the development of chemical technologies. The business supports industrial manufacturers associated with virtually all end-markets, notably electronics, agricultural chemicals, engine/heavy equipment, coatings, adhesives and inks, and detergents and cleaners. Industrial Solutions is also the world’s largest producer of purified ethylene oxide. Approximately 80 percent of the ethylene oxide produced by Dow is consumed within the Performance Materials & Chemicals segment.

Polyurethanes
Polyurethanes is comprised of four businesses: Isocyanates, Polyols, Polyurethane Systems and Propylene Oxide/Propylene Glycol ("PO/PG"). The Polyurethanes business is the world’s largest producer of propylene oxide and propylene glycol as well as a leading producer of polyether polyols and aromatic isocyanates that serve energy efficiency, consumer comfort and industrial market sectors. Propylene oxide is produced using the chlorohydrins process as well as by hydrogen peroxide to propylene oxide manufacturing technology(1). Performance Materials & Chemicals businesses consume approximatelymore than 90 percent of the propylene oxide produced or procured by Dow.

Competition
Competition for the Performance Materials & Chemicals segment varies based on the business. Key competitors include large, international chemical companies as well as chemical divisions of major national and international oil companies. Performance Materials & Chemicals back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a full-service supplier with a global technical service network located close to the customer, which allows the Company to fuel growth in specialty applications and collaborate with customers to invent unique chemistries and tailored solutions. In addition to its competitive cost position, reliable supply and superior customer service, the Company also competes worldwide on the basis of quality, technology and price. Key competitors include BASF, Bayer, HexionCovestro, Eastman, INEOS, Huntsman, LyondellBasell, Olin and Huntsman.Oxea.

(1)Hydrogen peroxide to propylene oxide manufacturing technology is utilized by MTP HPPO Manufacturing Company Limited, a Thailand-based consolidated variable interest entity ultimately owned 50 percent by the Company and 50 percent by SCG Chemicals Co. Ltd.; and BASF DOW HPPO Production B.V.B.A., a Belgium-based joint venture ultimately owned 100 percent by HPPO Holding & Finance C.V., which is owned 50 percent by the Company and 50 percent by BASF.

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Distribution
The Performance Materials & Chemicals segment markets its products primarily through the Company's sales force and also utilizes distributors worldwide.

Joint Ventures
The Performance Materials & Chemicals segment includes a portion of the Company's share of the results of the following joint ventures:

EQUATE Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a development-stage Saudi Arabian company that will manufacturecurrently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics;plastics when fully operational; owned 35 percent by the Company.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturer and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal.

Divestitures
On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture. See Notes 5 and 6 to the Consolidated Financial Statements for additional information on these transactions.


PERFORMANCE PLASTICS
The Performance Plastics segment is the world’s leading plastics franchise, and is a market-oriented portfolio composed of five global businesses: Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach, with sales in 115approximately 110 countries and manufacturing facilities located in all geographic areas. It also benefits from Dow’s R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in key strategic markets.

Details on Performance Plastics' 20152016 sales, by business and geographic area, are as follows:
   


Dow Elastomers, Dow Electrical and Telecommunications, and Dow Packaging and Specialty Plastics serve high-growth, high-value sectors where Dow's world-class technology and rich innovation pipeline creates competitive advantages for customers

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and the entire value chain. Together, these three global businesses have complimentary market reach, asset capabilities and technology platforms that provide the Company with immediate and long-term growth synergies. Market growth is expected to be driven by major shifts in population demographics, improving socioeconomic status in emerging geographies, consumer and brand owner demand for increased consumer convenience, efforts to reduce food waste, growth in telecommunications networks, specifically broadband and LTE networks, and global development of electrical transmission and distribution infrastructure and renewable energy applications. Market segments served by these businesses include adhesives, construction, food and specialty packaging, footwear, industrial and consumer packaging, hygiene and medical, infrastructure, pipe, telecommunications and transportation.

The Energy business is one of the world’s largest industrial energy producers. This business produces or procures the energy used by Dow, sells energy to customers located on Dow manufacturing sites and also engages in opportunistic merchant sales driven by market conditions. Because of its unparalleled scale, purchasing power and global reach, the Energy business offers Dow tremendous knowledge of world energy markets and the agility to respond to sudden changes in conditions.

The Hydrocarbons business is one of the largest global producers of ethylene, an internal feedstock that is consumed primarily within Performance Plastics. The Hydrocarbons business is also a large purchaserproducer and producerpurchaser of propylene. The Company strategically locates its polyethylene production facilities near its ethylene production facilities to optimize integration benefits and drive low costs. Dow's global scale, operational discipline and feedstock flexibility create a cost-advantaged foundation for the Company's downstream, market-driven businesses. In North America, shale gas opportunities - and the resulting increased supplies of natural gas and natural gas liquids (“NGLs”) - remain a key, cost-competitive position for the Company's ethane- and propane-based production. The Company's U.S. and European ethylene production facilities allow Dow to use different feedstocks in response to price conditions. Meanwhile, the Company's U.S. Gulf Coast investments will strengthen ethylene and propylene integration and establish a platform for growth of Dow's downstream businesses.

Products
Major applications/market segments and products are listed below by business:

BusinessApplications/Market SegmentsMajor Products
Dow ElastomersAdhesives, footwear, housewares, infrastructure, sports recreation, toys and infant products, transportationElastomers, polyolefin plastomers, ethylene propylene diene monomer elastomers ("EPDMs")
Dow Electrical and TelecommunicationsBuilding and construction, electrical transmission and distribution infrastructure, telecommunications infrastructureWire and cable insulation, semiconductive and jacketing compound solutions, bio-based plasticizers
Dow Packaging and Specialty PlasticsAdhesives, food and specialty packaging, hygiene and medical, industrial and consumer packaging, photovoltaictransmission pipe and photovoltaicsAcrylics, polyethylene, low-density polyethylene, linear low-density polyethylene, high-density polyethylene, polyolefin emulsions, polyolefin plastomers
EnergyPrincipally for use in Dow’s global operationsPower, steam and other utilities
HydrocarbonsPurchaser of feedstocks; production of cost competitive monomers utilized by Dow’s derivative businesses
Ethylene, propylene, benzene, butadiene, octene, aromatics co-products, crude C4

Advantaged feedstock positions in the United States, Canada, Argentina and the Middle East

Competition
Competition for the Performance Plastics segment includes chemical divisions of major national and international oil companies, which provide competition in the United States and abroad. Dow competes worldwide on the basis of product quality, product supply, technology, price and customer service. Performance Plastics will continue to benefit from an advantaged feedstock position, including favorable shale gas dynamics in the United States, which will further strengthen the Company's low-cost position and enhance global cost competitiveness. Key competitors include BASF, Borealis, Braskem, CP Chem, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC.


Joint Ventures
Joint ventures play an integral role within the Performance Plastics segment by dampening earnings cyclicality and improving earnings growth. Principal joint ventures impacting Performance Plastics are noted in the following section.listed below:


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Aligned 100 percent with Performance Plastics:
The Kuwait Styrene Company K.S.C. - a Kuwait-based company that manufactures styrene monomer; owned 42.5 percent by the Company.
The SCG-Dow Group consists of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; and Siam Synthetic Latex Company Limited. These Thailand-based companies manufacture polyethylene, polystyrene, styrene and latex; owned 50 percent by the Company.

Performance Plastics includes a portion of the results of:
EQUATE Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a development-stage Saudi Arabian company that will manufacturecurrently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics;plastics when fully operational; owned 35 percent by the Company.

On May 5, 2015, Univation Technologies, LLC, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company, became a wholly owned subsidiary of Dow. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturerCurrent and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with the Performance Materials & Chemicals segment through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE.

Divestitures
On December 2, 2013, the Company sold its Polypropylene Licensing and Catalysts business to W. R. Grace & Co. This business was reported in the Performance Plastics segment through the date of divestiture.

Future Investments
The Company announcedhas a number of investments in the U.S. Gulf Coast to take advantage of increasing supplies of low-cost natural gas and NGLsnatural gas liquids derived from shale gas.gas including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 kilotonnes per annum ("KTA") and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. As a result of these investments, the Company’sCompany's exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane based feedstocks. The Company announced investments in a new on-purpose propylene production facility, which commenced operations in December 2015, and a new, world-scale ethylene production facility, which is expected to start-up in the first half of 2017, both located in Freeport, Texas. As a result of these U.S. Gulf Coast investments, Dow’s ethylene production capabilities are expected to increase by as much as 20 percent.

In 2016, the Company completed an expansion of a gas-phase polyethylene production facility in Seadrift, Texas. Expansion projects are also currently underway at two of the Company's gas-phase polyethylene units in St. Charles, Louisiana, with expected start-up in mid-2018. The Company announced the location ofis also building four new Performance Plastics production facilities to be built on the U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value Performance Plastics franchise which includeincludes an ELITE™ Polymer production facility, in Freeport, Texas; a Low Density Polyethylene (LDPE) production facility in Plaquemine, Louisiana;and a NORDEL™ Metallocene EPDM production facility, which are all expected to start up in Plaquemine, Louisiana;2017, and a High Melt Index (HMI) AFFINITY™ Polymer production facility, which is expected to start up in Freeport, Texas. Leveraging a low cost ethylene supply from advantaged feedstock positions from U.S. shale gas, these production facilities will support expected profitable growththe second half of the Company's high value Performance Plastics franchise.2018.


CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, Company branding initiatives, etc.); the results of Ventures (including business incubation platforms and non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense and processing costs and reserve adjustments); and, foreign exchange results.



14


INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS
See Note 26 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area.


SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of any operating segment's sales is dependent upon a single customer. No single product accounted for more than five percent of the Company’s consolidated net sales in 2015.


RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The two major raw material streamsstream that feedfeeds the production of the Company’s finished goods areis hydrocarbon-based and chlorine-based raw materials. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

Expenditures for hydrocarbon feedstocks and energy accounted for 2724 percent of the Company’s production costs and operating expenses for the year ended December 31, 20152016. The Company purchases these raw materials on both short- and long-term contracts.

The Company had adequate supplies of raw materials during 2015,2016, and expects to continue to have adequate supplies of raw materials in 2016.2017. Significant raw materials, by operating segment, are listed below:

Significant Raw MaterialsPerformance Materials & Chemicals 
Raw MaterialAgricultural SciencesConsumer SolutionsInfrastructure SolutionsPerformance Plastics
Acetone  xx 
Ammonia  xxx
Aniline (1)
   x 
Benzene   xx
ButadieneButane  xx
Butanol (1)
x
Butene   xx
Butyl Acrylate (1)
xxx
Carbon Black x xx
Carbon Monoxide   xx
Caustic Soda (1)
xxxx
Chlorine(1)
xxxx 
Condensate    x
Electric Power   xx
Ethane    x
Ethanolxxxxx
Ethylene (1)
  xxx
Formaldehyde xxx 
Hexene    x
Hydrogen Peroxide (2)
   x 
Liquified Petroleum GasesIsopropanol xx
Methanolxxxxx
Naphtha    x
Natural Gas    x
Nitrogenxx
Octene(1)
    x
Polystyrene  x x
Propane xx x
Propylene (1)
 xxxx
Pygas    x
Silicaxx
Silicon Metal (1)
xx
Styrene  xx 
Wood Pulp xx  
(1)    Produced by the Company and procured from external sources for internal consumption.
(2)    Primarily produced and procured by a consolidated variable interest entity.


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INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS

See Note 26 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area.


SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of any operating segment's sales is dependent upon a single customer. No single product accounted for more than five percent of the Company’s consolidated net sales in 2016.



RESEARCH AND DEVELOPMENT
The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products. Research and development expenses were $1,584 million in 2016, $1,598 million in 2015 and $1,647 million in 2014 and $1,747 million in 2013.2014. At December 31, 2015,2016, the Company employed approximately 6,8007,200 people in various research and development activities.


PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2015,2016, the Company owned 4,6515,651 active U.S. patents and 19,54125,449 active foreign patents as follows:
 
Patents Owned at December 31, 2015

 United States
 Foreign
Patents Owned at December 31, 2016

 United States
 Foreign
Agricultural Sciences 940
 3,886
 1,041
 4,603
Consumer Solutions 1,187
 3,686
 1,645
 6,189
Infrastructure Solutions 950
 5,185
 1,338
 6,827
Performance Materials & Chemicals 363
 1,994
 375
 2,332
Performance Plastics 1,102
 4,559
 1,150
 5,283
Corporate 109
 231
 102
 215
Total 4,651
 19,541
 5,651
 25,449

 
Remaining Life of Patents Owned at December 31, 2015
Remaining Life of Patents Owned at December 31, 2016Remaining Life of Patents Owned at December 31, 2016
 United States
 Foreign
 United States
 Foreign
Within 5 years 969
 3,053
 1,384
 5,170
6 to 10 years 1,023
 5,540
 1,187
 8,000
11 to 15 years 1,479
 8,209
 2,312
 10,843
16 to 20 years 1,180
 2,739
 768
 1,436
Total 4,651
 19,541
 5,651
 25,449
 
Dow’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $394 million in 2016, $357 million in 2015 and $388 million in 2014 and $327 million in 2013.2014. The Company incurred royalties to others of $191 million in 2016, $198 million in 2015 and $170 million in 2014 and $198 million in 2013.2014. Dow also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.



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PRINCIPAL PARTLY OWNED COMPANIES
Dow’s principal nonconsolidated affiliates at December 31, 20152016, including direct or indirect ownership interest for each, are listed below:

Principal Nonconsolidated Affiliate Ownership Interest
 Business Description
Dow Corning Corporation (1)
 50.00N/A%
 A U.S. company that manufactures silicone and silicone products
EQUATE Petrochemical Company K.S.C.(2)
 42.50% A Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins
The HSC Group: (1)
DC HSC Holdings LLC (2)
50.00%A U.S.-based group of companies that manufactures polycrystalline silicon products
Hemlock Semiconductor L.L.C.50.10%A U.S. company that sells polycrystalline silicon products
The Kuwait Olefins Company K.S.C. 42.50% A Kuwait-based company that manufactures ethylene and ethylene glycol
The Kuwait Styrene Company K.S.C. 42.50% A Kuwait-based company that manufactures styrene monomer
Map Ta Phut Olefins Company Limited (3)
 32.77% A Thailand-based company that manufactures propylene and ethylene
Sadara Chemical Company(4)
 35.00% A development-stage Saudi Arabian company that will manufacturecurrently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational
The SCG-Dow Group:    
Siam Polyethylene Company Limited 50.00% A Thailand-based company that manufactures polyethylene
Siam Polystyrene Company Limited 50.00% A Thailand-based company that manufactures polystyrene
Siam Styrene Monomer Co., Ltd. 50.00% A Thailand-based company that manufactures styrene
Siam Synthetic Latex Company Limited 50.00% A Thailand-based company that manufactures latex
(1)On December 10, 2015, the Company entered into a definitive agreement to restructure the ownershipAs of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner ofJune 1, 2016, Dow Corning, currentlypreviously a 50:50 joint venture betweenwith Corning, became a wholly owned subsidiary of Dow and Corning.as a result of the DCC Transaction. Dow and Corning willcontinue to maintain their currenthistorical proportional equity stakeinterest in the Hemlock SemiconductorHSC Group. Dow Corning was treated as a principal nonconsolidated affiliate through May 31, 2016. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income. The transaction is expectedresults of the HSC Group will continue to closebe reported as "Equity in earnings of nonconsolidated affiliates" in the first halfCompany's consolidated statements of 2016.income. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.
(2)On December 23, 2015, the Company sold its 50DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in MEGlobal to EQUATE. Dow indirectly owns 42.5 percent of MEGlobal through its equity interest in EQUATE. MEGlobal was treated as a separate principal nonconsolidated affiliate through the date of divestiture.Hemlock Semiconductor Operations.
(3)The Company's effective ownership of Map Ta Phut Olefins Company Limited is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited.
(4)Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee.

See Note 9 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.


FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
In 2015,2016, the Company derived 65 percent of its sales and had 3837 percent of its property investment outside the United States. While the Company’s international operations may be subject to a number of additional risks, such as changes in currency exchange rates and geopolitical risks in emerging geographies, the Company does not regard its foreign operations, on the whole, as carrying any greater risk than its operations in the United States. Information on sales and long-lived assets by geographic area for each of the last three years appears in Note 26 to the Consolidated Financial Statements, and discussions of the Company’s risk management program for foreign exchange and interest rate risk management appear in Part I, Item 1A. Risk Factors; Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk; and Note 11 to the Consolidated Financial Statements.



PROTECTION OF THE ENVIRONMENT
Matters pertaining to the environment are discussed in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 15 to the Consolidated Financial Statements. In addition, 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.



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EMPLOYEES
As of December 31, 2015,2016, the Company permanently employed approximately 49,50056,000 people on a full-time basis, with approximately 5045 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and 25
30 percent located in other locations.


OTHER ACTIVITIES
Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited subsidiaries.


EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company’s executive officers as of February 12, 2016.9, 2017.

Name - AgePresent Position with RegistrantYear Elected to be an OfficerOther Business Experience since January 1, 20112012
Ronald C. Edmonds, 5859Controller and Vice President of Controllers and ControllerTax2009Vice President and Controller 2009 to date. Present position held since January 2016.
James R. Fitterling, 5455President and Chief Operating Officer2010Dow Executive Vice President and President, Plastics and Hydrocarbons August 2010 to September 2011. Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to September 2012. Executive Vice President, Feedstocks, Performance Plastics, Asia and Latin America September 2012 to December 2013. Executive Vice President, Feedstocks, Performance Plastics and Supply Chain December 2013 to October 2014. Vice Chairman, Business Operations October 2014 to October 2015. Vice Chairman and Chief Operating Officer October 2015 to February 2016. Present position held since February 2016.
Heinz Haller, 6061Executive Vice President and President of Dow Europe, Middle East, Africa and India2006Executive Vice President and Chief Commercial Officer August 2010 to September 2012. Present position held since September 2012.
Joe E. Harlan, 5657Vice Chairman and Chief Commercial Officer2011Executive Vice President of Consumer & Office Business, 3M Company 2009 to August 2011. Executive Vice President, Performance Materials September 2011 to September 2012. Executive Vice President, Chemicals, Energy and Performance Materials September 2012 to October 2014. Chief Commercial Officer and Vice Chairman, Market Businesses October 2014 to October 2015. Present position held since October 2015.
Peter Holicki, 5556Senior Vice President, Operations, Manufacturing & Engineering, Environment, Health & Safety Operations, and Emergency Services & Security2014Global Manufacturing Vice President, Hydrocarbons May 2009 to October 2012. Vice President for Manufacturing and Engineering Europe, Middle East and Africa May 2009 to October 2012. Vice President of Operations for Europe, Middle East and Africa and the Ethylene Envelope October 2012 to December 2013. Emergency Services and Security Expertise Center September 2014 to present. Corporate Vice President October 2014 to October 2015. Present position held since 2015.
Charles J. Kalil, 6465General Counsel and Executive Vice President and General Counsel2004General Counsel 2004 to date. Executive Vice President 2008 to date. Corporate Secretary 2005 to February 2015.
Andrew N. Liveris, 6162Chief Executive Officer and Chairman of the Board2003President 2004 to February 2016. Chief Executive Officer 2004 to date. Chairman 2006 to date.
Fernando Ruiz, 60Corporate Vice President and Treasurer2001Vice President 2001 to 2005. Treasurer 2001 to date. Corporate Vice President 2005 to date.
Johanna Söderström, 4445Corporate Vice President, Human Resources and Aviation, and Chief Human Resource Officer2015Global Human Resources Director, Performance Materials Division January 2011 to October 2012. Vice President, Human Resource Center of Expertise October 2012 to January 2015. Present position held since January 2015.
A. N. Sreeram, 4849Senior Vice President, Research & Development and Chief Technology Officer2013Vice President, Research & Development, Dow Advanced Materials 2009 to October 2013. Corporate Vice President, Research & Development October 2013 to October 2015. Present position held since October 2015.
Howard I. Ungerleider, 4748Vice Chairman and Chief Financial Officer2011Vice President, Investor Relations 2008 to March 2011. Senior Vice President and President, Performance Plastics March 2011 to September 2012. Executive Vice President, Advanced Materials September 2012 to October 2014. Chief Financial Officer and Executive Vice President October 2014 to October 2015. Present position held since October 2015.


18



The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS

The factors described below represent the Company's principal risks.

Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations, trade agreements, import and export controls, and duties and tariffs. The imposition by foreign governments of additional regulations, controls and duties and tariffs or the enactment ofchanges to bilateral and regional trade agreements could result in lower sales volume which could negatively impact the Company's results of operations.

Economic conditions around the world, and in certain industries in which the Company does business, also impact sales prices and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which Dow sells its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on Dow's results of operations.

In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on Dow's results of operations. The Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, Dow enters into hedging transactions pursuant to established guidelines and policies. If Dow fails to effectively manage such risks, it could have a negative impact on the Company's results of operations.

Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions could reduce the Company's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Raw Materials: Availability of purchased feedstocks and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.

Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.

The Company has 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 ("NGLs")derived from shale gas includingincluding: construction of a new on-purpose propylene production facility, in Freeport, Texas, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, with start-upwhich is expected to start up in the first half of 2017.mid-2017. As a result of these and other investments, the Company’s

Company's exposure to purchased ethylene and propylene is expected to decline, offset by increased exposure to ethane and propane feedstocks.


19


While the Company expects abundant and cost-advantaged supplies of NGLs in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations.

Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Company's results of operations.

Litigation: The Company is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters including product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions.
Certain of the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) and certain urethaneChapter 11 related matters of Dow Corning as described below, it is the opinion of the Company's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company's consolidated financial statements.

Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2015,2016, Union Carbide's total asbestos-related liability, for pendingincluding defense and future claimsprocessing costs, was $437$1,490 million ($513437 million at December 31, 2014)2015, which excluded defense and its receivableprocessing costs).

In 1995, Dow Corning, a former 50:50 joint venture, voluntarily filed for insurance recoveriesprotection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve breast implant liabilities and related tomatters ("Chapter 11 Proceeding"). Dow Corning emerged from the asbestosChapter 11 Proceeding on June 1, 2004, and is implementing the Joint Plan of Reorganization (the "Plan"). The Plan provides funding for the resolution of breast implant and other product liability was $10 million ($10 million at December 31, 2014).litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. At December 31, 2015, Union Carbide also had receivables of $512016, Dow Corning's liability for breast implant and other product liability claims was $263 million ($69 million at December 31, 2014) for insurance recoveries for defense and resolution costs. It is the opinion of the Company's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-relatedliability related to commercial creditor 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.was $108 million.

The Company, among others, was named as a defendant in multiple civil class action lawsuits alleging a conspiracy to fix the price of various urethane chemical products, namely polyurethane chemicals, including methylene diphenyl diisocyanate, toluene diisocyanate, polyether polyols and system house products. These lawsuits were consolidated in the U.S. District Court for the District of Kansas (the "District Court") or have been tolled. On July 29, 2008, the District Court certified a class of purchasers of the products for the six-year period from 1999 through 2004. In January 2013, the class action lawsuit went to trial in the District Court with the Company as the sole remaining defendant, the other defendants having previously settled. On February 20, 2013, the jury returned a damages verdict of approximately $400 million against the Company, which ultimately was trebled by the District Court under applicable antitrust laws, less offsets from other settling defendants, resulting in a judgment entered in July 2013 in the amount of $1.06 billion. The Company appealed this judgmentSee Note 15 to the U.S. Tenth Circuit Court of Appeals ("Tenth Circuit" or "Court of Appeals"), andConsolidated Financial Statements for additional information on September 29, 2014, the Court of Appeals issued an opinion affirming the District Court judgment. On October 14, 2014, the Company filed a petition for Rehearing or Rehearing En Banc (collectively the "Rehearing Petition") with the Court of Appeals, which was denied on November 7, 2014.

On March 9, 2015, the Company filed a petition for writ of certiorari ("Writ Petition") with the U.S. Supreme Court, seeking judicial review by the Supreme Court and requesting that it correct fundamental errors in the Circuit Court opinion. While it is unknowable whether or not the Supreme Court will accept the Writ Petition for review, there are several compelling reasons why the Supreme Court should grant the Writ Petition and, if it is accepted, the Company believes it is likely that the District Court judgment will be vacated. Specifically, it is the Company's position that the Tenth Circuit decision violates the law as expressed by the Supreme Court as set out in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Tenth Circuit also did not follow accepted law from other federal circuits on dispositive case issues, including legal precedent from the U.S. First, Second, Third, Fifth, Ninth and D.C. Circuit Courts. Finally, the Company argues that the erroneous law applied by the Tenth Circuit is not supported by any other federal circuit court. In April 2015, six amici filed amicus briefs in support of the Company's Writ Petition. The parties briefing is now complete. Dow filed its reply brief on May 22, 2015. On June 8, 2015, the Supreme Court granted a petition for a writ of certiorari in another case, Tyson Foods, Inc. v. Bouaphakeo, PEG, et al., ("Tyson Foods") (Supreme Court No. 14-1146), which presented an issue core to the questions presented in the Company's Writ Petition: whether class-wide damages can be determined by simply applying the average injury observed in a sample. The Company's case was considered by the Supreme Court in conference on June 11, 2015. On June 15, 2015, the Supreme Court issued its decisions from its conference and did not rule on the Company's Writ Petition. Subsequently, the Writ Petition has not been listed for further consideration by the Supreme Court at its weekly

20


conferences. The Company has been advised that this means that the Supreme Court is withholding further consideration of the Company's Writ Petition while it considers the Tyson Foods case on the merits. As a result, the Company does not expect any further action on its Writ Petition until sometime in 2016. The Company believes that the Supreme Court has accepted Tyson Foods for the compelling reasons also advanced by the Company in its Writ Petition and that the Supreme Court will issue an opinion in Tyson Foods that is favorable to the Company's case. Accordingly, on August 14, 2015, the Company filed an amicus brief in Tyson Foods supporting Tyson Foods’ position. The Tyson Foods oral argument occurred before the Supreme Court on November 10, 2015. The Company expects a decision from the Supreme Court on Tyson Foods in the first half of 2016, after which, depending on the result, the Supreme Court likely will consider the Company's Writ Petition. The Company has concluded it is not probable that a loss has been incurred and, therefore, a liability has not been recorded with respect to this matter. While the Company believes it is not probable a loss will occur, the existence of the jury verdict, the Court of Appeals' opinion, and subsequent denial of the Company's Rehearing Petition indicate that it is reasonably possible that a loss could occur.

Shortly after the July 2008 class certification ruling, a series of "opt-out" cases were filed by a number of large volume purchasers who elected not to be class members. These opt-out cases are substantively identical to the class action lawsuit, but expanded the period of time to include 1994 through 1998. On September 30, 2014, the opt-out cases, which had been consolidated with the class action lawsuit for purposes of pre-trial proceedings were remanded from the District Court to the U.S. District Court for the District of New Jersey. A consolidated trial of the opt-out cases is set to begin on March 7, 2016. As with the class case, the Company denies plaintiffs' allegations of price fixing and maintains that the opt-out plaintiffs cannot prove a compensable injury. As a result, the Company has concluded it is not probable a loss has been incurred and, therefore, a liability is not recorded with respect to these cases.

In addition to the matters described above, there are two separate but inter-related matters in Ontario and Quebec, Canada. In March 2014, the Superior Court of Justice in London, Ontario, ruled in favor of the plaintiffs’ motion for class certification.  The Company filed its Notice of Motion for Leave to Appeal in March 2014, which was subsequently denied. This matter is currently in the pretrial stage, but no trial date has been set. The Quebec case has been stayed pending the outcome of the Ontario case. For the same reasons stated above, a liability has not been recorded with respect to either Canadian matter.matters.

Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2015,2016, the Company had accrued obligations of $670$909 million ($706670 million at December 31, 2014)2015) for probable environmental remediation and restoration costs, including $74$151 million ($7874 million at December 31, 2014)2015) 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. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.

Chemical
Health and Safety: Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment as well as perceived impacts of plant biotechnology on health and the environment have resulted in more restrictive regulations from local, state and federal governments and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment and the perceived impacts of plant biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.

Local, state, federal and federalforeign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.

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Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations, the transportation of products, cyber attacks, or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.

Major hurricanes have caused significant disruption in Dow's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affectimpact Dow's results of operations.

Cyber Vulnerability: The risk of loss of the Company’s intellectual property, trade secrets or other sensitive business information or disruption of operations could negatively impact the Company’s financial results.
Cyber attacks or security breaches could compromise confidential, business critical information, cause a disruption in the Company’s operations or harm the Company's reputation. The Company has attractive information assets, including intellectual property, trade secrets and other sensitive, business critical information. While the Company has a comprehensive cyber security program that is continuously reviewed, maintained and upgraded, a significant cyber attack could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on the Company’s financial results.

Company Strategy: Implementing certain elements of the Company's strategy could negatively impact the Company's financial results.
The Company currently has manufacturing operations, sales and marketing activities, joint ventures, as well as proposed and existing projects of varying size in emerging geographies. Activities in these geographiesgeographic areas are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement. If the manufacturing operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.

The Company has also announced a number of portfolio management actions as part of Dow's ongoing transformation, including a proposed all-stock merger of equals transaction with E.I. du Pont de Nemours and Company, as well as transactions to restructure the Company's ownership interest in certain joint ventures. If the execution or implementation of these transactions is not successful, it could adversely impact the Company's financial condition, cash flows and results of operations.

Goodwill: An impairment of goodwill could negatively impact the Company's financial results.
At least annually, the Company assesses goodwill for impairment. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings. Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any

determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.

Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively affectimpact Dow's financial condition and results of operations.
The Company has defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries. The assets of the Company's funded plans are primarily invested in fixed income and equity securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.



22



The Dow Chemical Company and Subsidiaries
PART I, Item 1B. Unresolved Staff Comments.
UNRESOLVED STAFF COMMENTS
None.



23



The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.
PROPERTIES
The Company operates 179189 manufacturing sites in 3534 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow’s products. During 2015,2016, the Company’s production facilities and plants operated at 85 percent of capacity. The Company’s major production sites, including consolidated variable interest entities, are as follows:

Location
Agricultural
Sciences
Consumer SolutionsInfrastructure Solutions
Performance
Materials & Chemicals
Performance Plastics
Bahia Blanca, Argentina    x
Candeias, Brazil   x 
Canada:     
Fort Saskatchewan, Alberta    x
Joffre, Alberta    x
Germany:     
Boehlen  xxx
Bomlitzxx
Leuna    x
Schkopau xxxx
Stadexxxxx
Terneuzen, The Netherlands xxxx
Tarragona, Spain  xxx
Map Ta Phut, Thailand  xxx
United States:   
Carrollton, Kentuckyxx  
Louisville, Kentucky  x  
Hahnville (St. Charles), Louisiana  xxx
Plaquemine, Louisiana xxxx
Midland, Michiganxxxxx
Deer Park, Texas  xx 
Freeport, Texasx xxx
Seadrift, Texas xxxx
Texas City, Texas  xx 
Wales, United Kingdomxx
Zhangjiagang, Chinaxxx
Including the major production sites, the Company has plants and holdings in the following geographic areas:

Asia Pacific:  3940 manufacturing locations in 11 countries.
Canada:    6 manufacturing locations in 3 provinces.
Europe, Middle East, Africa and India:  5150 manufacturing locations in 1817 countries.
Latin America:  2833 manufacturing locations in 4 countries.
United States:  5560 manufacturing locations in 22 states.25 states and 1 U.S. territory.

All of Dow’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value.

A summary of properties, classified by type, is provided in Note 8 to the Consolidated Financial Statements. Additional information regarding leased properties can be found in Note 19 to the Consolidated Financial Statements.




24



The Dow Chemical Company and Subsidiaries
PART I, Item 3. Legal Proceedings.
LEGAL PROCEEDINGS

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 four 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.

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 II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and NoteNotes 1 and 15 to the Consolidated Financial Statements.

Environmental Matters
In a meeting on July 22, 2015, Rohm and Haas Company and Rohm and Haas Chemicals LLC (collectively, “ROH”), wholly owned subsidiaries of the Company, were informed by representatives of the U.S. Environmental Protection Agency (“EPA”) of the EPA’s intent to seek injunctive relief and assess a civil penalty in excess of $100,000 for alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky, site. Discussions betweenmanufacturing facility. In a letter dated November 13, 2016, ROH andwas informed that after consideration of the information provided by the Company, the EPA are ongoing.has determined that it will not, at this time, pursue civil enforcement related to the alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky manufacturing facility.

Dow Benelux B.V.Corning Corporation ("Dow Benelux"Corning"), a Netherlands-based wholly owned subsidiary of the Company, has received a summons dated July 20, 2012the following notifications from the Public ProsecutorEPA, Region Five related to Dow Corning’s Midland manufacturing facility (the “Facility”): 1) a Notice of Violation and Finding of Violation (received in The NetherlandsApril 2012) which alleges a number of violations in connection with the detection, monitoring and control of certain organic hazardous air pollutants at the Facility and various recordkeeping and reporting violations under the Clean Air Act and 2) a Notice of Violation (received in May 2015) alleging a number of violations relating to appear before the criminal sectionmanagement of hazardous wastes at the Facility pursuant to the Resource Conservation and Recovery Act. While Dow Corning contests these allegations, resolution may result in a penalty in excess of $100,000. Discussions between the EPA and Dow Corning are ongoing.

On August 17, 2016, Dow Corning received notification from the Kentucky Department for Environmental Protection ("KDEP") of their intent to assess a civil penalty in excess of $100,000 for alleged air violations at Dow Corning's Carrollton, Kentucky, manufacturing facility. Discussions between Dow Corning and the KDEP are ongoing.

Rohm and Haas Texas Incorporated ("ROH Texas"), a wholly owned subsidiary of the District Court in Breda, The Netherlands (which venueCompany, was subsequently changedinformed by the EPA, Region 6 of concerns related to the District Courtoperation and condition of Middelburg) (the "Court"). The allegations contained in the summons relate to seven process safety incidents and environmental spills that occurred between 2005 and 2008certain flares installed at Dow Benelux's TerneuzenROH Texas' Deer Park, Texas, manufacturing facility. The Public Prosecutor alleges that each of the incidents constitutes a violation of certain Netherlands safety procedures and environmental regulations, notably Section 5 of the Major Accidents Decree 1999 and/or Section 18.18 of the Environmental Act. In addition, five of the incidents allegedly also constitute a violation of Section 173a of the Dutch Criminal Code. The trial in the first instance on thisThis matter was held from January 14, 2014 through February 7, 2014. On March 24, 2014, the Court issued a guilty verdict and imposed a Euro 1.8 million fine against Dow Benelux. The Court's judgment is subject to an appeal with the Court of Appeal in Den Bosch ("Court of Appeal"), and Dow Benelux has filed a notice of appeal. A new and independent trial will be held by the Court of Appeal. As a first procedural step in the appeal, a pre-trial hearing was heldresolved on January 18, 2016,12, 2017, through the issuance of an Administrative Complaint as well as a Consent Agreement and Final Order, under which ROH Texas does not admit the alleged violations but agrees to discuss schedulingpay the U.S. Treasury $400,000 and commits to a mitigation plan involving additional monitoring and completion of the proceedings on the merits, which Dow Benelux expectstwo Supplemental Environmental Projects ("SEPs") to occur during the second half of 2016.provide a local college with an air monitoring bench and improved energy efficient lighting. The SEPs are estimated to cost ROH Texas approximately $1.5 million.

Derivative Litigation
On March 6, 2013, Jeffrey KaufmanIn April 2016, Stephen Levine ("Kaufman"Levine"), purportedly in the name of and on behalf of the Company, commenced an actionserved the Company with a complaint filed in the United States District Court for the Eastern District of DelawareMichigan (the "Court"“Court”) against the Company and certain officers and directors of the Company (the "Defendants"“Defendants”) alleging, among other things, that between 2007-2012, Defendants violated federal securities and state law surrounding equity awards and disclosures involving the 1988 Award and Option Plan and the 2012 Stock Incentive Plan ("2012 Plan") (collectively, the "Plans")breached certain fiduciary obligations with respect to the tax-deductible natureurethanes antitrust class action litigation and the underlying conduct alleged therein, and the use of certain awards undercorporate assets. Defendants and the Plans. The relief sought in this litigation includes the recovery of certain equity awards and injunctive relief, as well as attorneys' fees. The Company first moved to dismiss the complaint on May 14, 2013July 13, 2016, arguing that Levine had not alleged sufficient facts to establish his ability to assert claims on the Company's behalf and in responsethat the allegations were not sufficient to the subsequent filing by Kaufman of an amended complaint, the Company filed an amended motion to dismiss on August 30, 2013.state a legal claim. On September 30, 2014,October 19, 2016, the Court entered an order in favorgranting Defendants' motion to dismiss and entering judgment for the Defendants. In November 2016, the shareholder appealed the Court’s judgment to the United States Court of Appeals for the Defendants dismissing the complaint in its entirety. On November 18, 2014, the Court granted Plaintiff’s motion for reargument on one count, alleging that the 2012 proxy failed to include the approximate number of persons eligible to receive awards under the 2012 Plan. The Company believes the lawsuit to be without merit, has filed an answer on the remaining count, and will continue to vigorously defend the lawsuit.Sixth Circuit.


25



The Dow Chemical Company and Subsidiaries
PART I, Item 4. Mine Safety Disclosures.
MINE SAFETY DISCLOSURES

Not applicable.


26



The Dow Chemical Company and Subsidiaries
PART II, Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company’s common stock is the New York Stock Exchange, traded under the symbol “DOW.”

Quarterly market and dividend information can be found in Quarterly Statistics at the end of Part II, Item 8. Financial Statements and Supplementary Data.

At December 31, 2015,2016, there were 61,00157,838 registered common stockholders. The Company estimates that there were an additional 682,435855,171 stockholders whose shares were held in nominee names at December 31, 2015.2016. At January 31, 2016,2017, there were 60,39057,651 registered common stockholders.

On October 21, 2015,December 15, 2016, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 29, 2016,30, 2017, to stockholders of record on December 31, 2015.28, 2016. On February 11, 2016,9, 2017, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 29, 2016,28, 2017, to stockholders of record on March 31, 2016.2017. 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 104-year105-year period, Dow has increased the amount of the quarterly dividend 52 times (approximately 13 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 87 percent of the time.

See Part III, Item 11. Executive Compensation for information relating to the Company’s equity compensation plans.

Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended December 31, 2015:2016:

Issuer Purchases of Equity Securities Average price paid per share
 
Total number of shares purchased as part of the Company's publicly announced share repurchase
program (1)

 
Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1)
(In millions)

Period Total number of shares purchased
October 2015 (2)
 35,098,198
 $44.81
 35,098,198
 $2,927
November 2015 9,630,236
 $51.93
 9,630,236
 $2,427
December 2015 2,195,537
 $52.63
 2,195,537
 $2,312
Fourth quarter 2015 46,923,971
 $46.63
 46,923,971
 $2,312
Issuer Purchases of Equity Securities Average price paid per share
 
Total number of shares purchased as part of the Company's publicly announced share repurchase
program (1)

 
Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1)
(In millions)

Period Total number of shares purchased
October 2016 
 $
 
 $1,896
November 2016 8,822,551
 $53.64
 8,822,551
 $1,423
December 2016 493,480
 $54.25
 493,480
 $1,396
Fourth quarter 2016 9,316,031
 $53.67
 9,316,031
 $1,396
(1)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. 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. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion.
(2)On October 5, 2015, (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses ("chlorine value chain") into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a wholly owned subsidiary of Olin Corporation in a tax-efficient Reverse Morris Trust transaction (collectively, the "Transaction"). Dow shareholders who participated in the public exchange offer tendered 34.1 million shares of Dow common stock in exchange for 100 million shares of Splitco. As a result of this non-cash share exchange offer, the Company included the 34.1 million tendered shares as part of the share repurchase program and recorded an increase of $1,523 million in “Treasury stock at cost” in the consolidated balance sheets, which was valued based on Dow’s opening stock price on October 5, 2015. See Note 6 to the Consolidated Financial Statements for additional information on this Transaction.


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On December 11, 2015, the Company and E. I. du Pont de Nemours and Company announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. As a result of this pending transaction, the Company will not repurchase shares under the share repurchase program until after the shareholder vote on the DowDuPont merger. The Company expects to complete approximately $2 billion of share repurchases in 2016.


28



The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

In millions, except as noted (Unaudited)
2015
2014
2013
2012
2011
2016
2015
2014
2013
2012
Summary of Operations  
Net sales$48,778
$58,167
$57,080
$56,786
$59,985
$48,158
$48,778
$58,167
$57,080
$56,786
Net income(1)$7,783
$3,839
$4,816
$1,100
$2,784
$4,404
$7,783
$3,839
$4,816
$1,100
Per share of common stock (in dollars):  
Net income per common share - basic(1)$6.45
$2.91
$3.72
$0.71
$2.06
$3.57
$6.45
$2.91
$3.72
$0.71
Net income per common share - diluted(1)$6.15
$2.87
$3.68
$0.70
$2.05
$3.52
$6.15
$2.87
$3.68
$0.70
Cash dividends declared per share of common stock$1.72
$1.53
$1.28
$1.21
$0.90
$1.84
$1.72
$1.53
$1.28
$1.21
Book value per share of common stock$23.06
$19.71
$22.59
$17.73
$19.28
$21.70
$23.06
$19.71
$22.59
$17.73
Year-end Financial Position  
Total assets (1)$68,026
$68,687
$69,402
$69,492
$69,119
Total assets (2) (3)
$79,511
$67,938
$68,639
$69,380
$69,462
Long-term debt (1)(2)$16,215
$18,741
$16,732
$19,819
$18,219
$20,456
$16,215
$18,741
$16,732
$19,819
Financial Ratios  
Research and development expenses as percent of net sales3.3%2.8%3.1%3.0%2.7%3.3%3.3%2.8%3.1%3.0%
Income before income taxes as percent of net sales(1)20.4%9.1%11.9%2.9%6.0%9.2%20.4%9.1%11.9%2.9%
Return on stockholders’ equity(1)34.4%18.6%19.4%5.0%13.1%15.3%34.4%18.6%19.4%5.0%
Debt as a percent of total capitalization (1)39.7%45.5%38.9%48.7%47.8%44.0%39.7%45.5%38.9%48.7%
(1)The 2016 values include the impact of a change in accounting policy for asbestos-related defense and processing costs. See Notes 1 and 15 to the Consolidated Financial Statements for additional information.    
(2)Adjusted for the reclassification of debt issuance costs related to the adoption of ASU 2015-03.2015-03 in 2015. See Note 2 to the Consolidated Financial Statements for furtheradditional information.
(3)Adjusted for the adoption of ASU 2015-17 in 2016. See Notes 1 and 2 to the Consolidated Financial Statements for additional information.

                    


29


 The Dow Chemical Company and Subsidiaries 
 PART II, Item 7. Management’s Discussion and 
(Unaudited)Analysis of Financial Condition and Results of Operations. 



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 materials, polymers, chemicalsmaterial, polymer, chemical and biological sciencesscience to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, clean energy generation and conservation,efficiency, more durable infrastructure, 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 180175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics water, coatings and agriculture. In 2015,2016, Dow had annual sales of nearly $49$48 billion and employed approximately 49,50056,000 people worldwide. The Company's more than 6,0007,000 product families are manufactured at 179189 sites in 3534 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

In 2015,2016, 38 percent of the Company’s sales were to customers in North America; 3130 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 3132 percent were to customers in Asia Pacific and Latin America.

In 2015,2016, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Cuba (until September 2015), Iran, Sudan and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.









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20152016 OVERVIEW
In 2015, Dow had another strong year in 2016, delivering on a number of earningsstrategic priorities including progress on growth investments and portfolio actions. A summary of financial highlights and other notable events are as follows:

Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in a challenging2015, with volume up 5 percent and volatile macroeconomic environment that included significant declinesprice down 6 percent. Sales declined in crude oil and feedstock prices and currency headwinds from a strengthening U.S. dollar. In this economic environment, the Company demonstrated financial discipline and executed against its priorities - divesting of non-strategic businesses, completingPerformance Materials & Chemicals (down 23 percent, primarily due to the split-off of the chlorine value chainchain) and initiating the restructureAgricultural Sciences (down 3 percent) which more than offset sales increases in Consumer Solutions (up 25 percent) and Infrastructure Solutions (up 17 percent), both of the Company's joint ventures.

Netwhich include Dow Corning Corporation's ("Dow Corning") silicones business. Performance Plastics sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent.flat. Sales decreaseddeclined in all operating segments and geographic areas.areas, except Asia Pacific (up 10 percent).

Volume increased 15 percent in 20152016 compared with 2014,2015, as increases in Performance PlasticsConsumer Solutions (up 529 percent), Infrastructure Solutions (up 223 percent), and Consumer SolutionsPerformance Plastics (up 18 percent) more than offset volume declines in Performance Materials & Chemicals (down 614 percent) and Agricultural Sciences (down 43 percent). Volume increased in all geographic areas, except Latin America (down 1 percent), including a double-digit increase in Asia Pacific (up 316 percent) and remained flat in EMEAI, North America and Latin America.. Excluding the impact of recent acquisitions and divestitures(1),Performance Materials & Chemicals volume was up 14 percent with increases in all operating segments, except Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume was down 3 percent. Volume increased in all geographic areas, led by Asia Pacific (up 4 percent).except Latin America which was flat.

Price was down 176 percent in 20152016 compared with 2014,2015, driven primarily by a decline in crude oillower feedstock and raw material prices and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit pricecompetitive pricing pressures. Price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent)which was flat, and Consumer Solutions (down 7 percent).all geographic areas.

Dow's Board of Directors approved a restructuring plan in the second quarter of 2016 that incorporates actions related to further streamline the organization and optimize the Company’s footprint as a resultownership restructure of the split-off of the chlorine value chain.Dow Corning. These actions, which will further acceleratealigned with Dow’s value growth and productivitysynergy targets, will result in a global workforce reduction of approximately 2,2502,500 positions, across a numberwith most of businesses and functions and adjustmentsthese positions resulting from synergies related to the Company's asset footprint to enhance competitiveness.Dow Corning transaction. As a result, of these actions, the Company recorded pretax restructuring charges of $415$449 million in 2015. These actions are2016 related to this plan.

In the fourth quarter of 2016, the Company changed its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability through the expected to be completed primarily by March 31, 2017.terminal date of 2049, resulting in a charge of $1,009 million. The Company also increased its asbestos-related liability for pending and future claims through the expected terminal date of 2049, resulting in an additional charge of $104 million.

Dow's earnings from nonconsolidated affiliates totaled $442 million in 2016, down from $674 million in 2015, down from $835 million in 2014.2015. In 2015,2016, equity earnings decreased as higher earnings atfrom The SCG-Dow Group, and Map Ta Phut Olefins Company Limited and the HSC Group were more than offset by increasedhigher equity losses from Sadara Chemical Company ("Sadara"), related to start-up expenses, and lower equity earnings from Univation Technologies, LLC ("Univation") resulting from the May 5, 2015, step acquisitionKuwait joint ventures as a result of lower monoethylene glycol prices and lower earnings froma reduction in the ownership of MEGlobal (now part of EQUATE Petrochemicals Company K.S.C. ("EQUATE"), The Kuwait Olefins Company K.S.C.). Equity earnings also declined as a result of the ownership restructure of Dow Corning ("TKOC"DCC Transaction") and MEGlobal..

Sundry income (expense) - net was net sundry income of $4,592$1,202 million in 2016, reflecting a gain related to the DCC Transaction partially offset by a loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation.

The provision for income taxes was $9 million in 2016, which resulted in an effective tax rate of 0.2 percent, down from $2,147 million in 2015, up from net sundry expenseor an effective tax rate of $27 million in 2014,21.6 percent. The provision for income taxes decreased primarily due to athe non-taxable gain on the split-off of the chlorine value chain,DCC Transaction, a gaintax benefit on the salereassessment of a deferred tax liability related to the Company's interestbasis difference in MEGlobal, a gain on the Univation step acquisitionCompany’s investment in Dow Corning and gainsthe deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge resulting from the divestitures of AgroFresh and ANGUS Chemical Company.change in accounting policy.

The Company delivered $7.5 billion of cash flows from operating activities in 2015 and ended the year with $8.6 billion of cash and cash equivalents.

The Company reduced gross debt in 2015 by $2.5 billion, primarily due to the split-off of the chlorine value chain which resulted in a $1.7 billion reduction in debt, and the early redemption of $724 million in InterNotes with various interest rates and maturities between 2016 and 2024.
On October 22, 2015, the Company announced the Board of Directors declared a 10 percent increaseresumed its share repurchase program in the Company's quarterly dividend, from $0.42 per share to $0.46 per share.

third quarter of 2016 after the shareholder vote on the DowDuPont merger on July 20, 2016. During 2015,2016, the Company executed $2.7 billion$916 million in share repurchases which included $1.5 billion of shares redeemed as part of the Company's split-off of the chlorine value chain.repurchases. At December 31, 2015, the Company had $2.32016, $1.4 billion of common stockthe share buy-back authorization remained available for repurchases.


(1)
Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics),; the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences),; ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals),; and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of recent acquisitions includingDow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics) and Cooperativa Central de Pesquisa Agrícola, acquired on February 1, 2015 (Agricultural Sciences).

31


available to repurchase under the share buy-back program. Due to the pending transaction with DuPont,On December 30, 2016, the Company converted 4 million shares of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into 96.8 million shares of the Company's common stock. As a result of this conversion, the annual Preferred Stock dividend of $340 million will not repurchase shares under the share repurchase program until after the shareholder vote on the DowDuPont merger. The Company expects to complete approximately $2 billion of share repurchases in 2016.be eliminated.

Other notable events and highlights from 20152016 include:

On January 30, 2015, the Company completed the divestiture of its global Sodium Borohydride business, part of the Performance Materials & Chemicals segment, to Vertellus Performance Chemicals LLC.

On January 30, 2015, Dow AgroSciences LLC completed the acquisition of Cooperativa Central de Pesquisa Agricola's ("Coodetec") seed business. The acquisition of Coodetec's seed business is expected to advance the development of Dow AgroSciences' soybean program and strengthen the Company's position in the corn market segment.

On February 2, 2015, the Company completed the divestiture of ANGUS Chemical Company, part of the Performance Materials & Chemicals segment, to Golden Gate Capital.

On April 15, 2015,March 7, 2016, the Company announced its 2025 Sustainability Goals,new, on-purpose propylene production facility in Freeport, Texas, successfully completed the third setperformance test, certifying that the 750 kilotonnes per annum ("KTA") unit is capable of sustainability-related goals since 1995. The 2025 Sustainability Goals include aggressive sustainability targets designed to develop breakthrough product innovations, positively impact the lives of one billion people and deliver $1 billion in cost savings or new cash flow for the Company by valuing nature in business decisions.operating at full operating capacity.

On April 28, 2015, Dow's Polyurethanes businessJune 1, 2016, the Company announced the successful start-upclosing of the transaction to restructure the ownership of Dow Corning, a new state-of-the-art polyether polyols plant in Asia Industrial Estate, Rayong, Thailand.former 50:50 joint venture. As a result, Dow is now the 100 percent owner of Dow Corning's silicones business.

On May 5, 2015,June 9, 2016, DowDuPont's registration statement filed with the U.S. Securities and Exchange Commission on Form S-4 (File No. 333-209869), as amended, was declared effective. The registration statement was filed in connection with the proposed merger with E. I. du Pont de Nemours & Company ("DuPont") and includes a joint proxy statement of Dow and DuPont and a prospectus of DowDuPont.

In connection with the planned merger of equals transaction with DuPont, Dow held a special meeting of stockholders on July 20, 2016. Stockholders of the Company completedvoted to approve all stockholder proposals necessary to complete the step acquisitionmerger of Univation, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company ("ExxonMobil").equals transaction.

On July 31, 2015, the Company completed the divestiture of its AgroFresh business, part of the Agricultural Sciences segment, to Boulevard Acquisition Corp., subsequently renamed AgroFresh Solutions, Inc. ("AFSI").

On October 5, 2015, the Company completed the split-off of its chlorine value chain including the U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation ("Olin").

On December 8, 2015,August 29, 2016, the Company announced that its joint venture in the Middle East - Sadara – had- achieved its first polyethylene production. Sadara’s 26 manufacturing assets remain on schedule for a sequenced start-up process, beginningsignificant milestone with the polyolefins envelopesuccessful start-up of its mixed feed cracker and a third polyethylene train, which added to maximize timingthe two polyethylene trains already in the ethylene cycle, followed by ethylene oxide/propylene oxide and their derivatives.operation.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning Corporation ("Dow Corning"). Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning Incorporated ("Corning"). Dow and Corning will maintain their current equity stake in Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.

On December 11, 2015, the Company and DuPont announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of9, 2016, subject to customary closing conditions, including regulatory approvals. The parties intend to subsequently pursue a separation of DowDuPont into three independent, publicly traded companies through tax-efficient transactions, including a leading global pure-play agriculture company, a leading global pure-play material science company and a leading technology and innovation-driven specialty products company.

On December 18, 2015, the Company announced its new, on-purpose propylene production facility, located at the Oyster Creek site in Freeport, Texas, commenced operations.

On December 23, 2015, the Company announced that it sold its ownership interestwill invest in MEGlobala new, state-of-the-art innovation center in Midland, Michigan, which will support approximately 200 research and development jobs in Michigan, including 100 newly created jobs while repatriating 100 jobs from other Dow facilities throughout the globe to EQUATE for $1.5 billion in pretax proceeds.

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James R. Fitterling was appointed Vice Chairman and Chief Operating Officer. In this capacity, he will have accountability for all of Dow’s businesses, except Dow AgroSciences; Operations, including Environment, Health & Safety and Sustainability, Manufacturing and Engineering, and Supply Chain; as well as, Research & Development.

Howard I. Ungerleider added the position of Vice Chairman to his existing role as Chief Financial Officer. He will also assume responsibility for leading Dow AgroSciences. Dow’s Corporate Strategy Development, Corporate Planning, Finance, and Information Technology & Business Services functions will also now report to Ungerleider.Midland.

Dow was recognized as a leaderlaunched two additional Pack Studios in climate change reporting2016 - the opening of Pack Studios Singapore, the second Pack Studios center for Asia Pacific, and disclosure by Climate Disclosure Project. Dow earned the highest possible disclosure score of 100 percent. Dow was also selected to the S&P 500 Climate Disclosure Leadership Index (CDLI)Pack Studios Ringwood, located in 2015, which recognizes only the top 10 percent of companies reporting for disclosure of high-quality carbon emissionsNorth America and energy data.

Dow's ACRYSOL™ RM-725 Rheology Modifier, BETAMATE™ Structural Adhesives, DOW ENDURANCE™ HFDC-4202 EC Insulation Compound, PacXpert™ Packaging Technology, Polyethylene (PE) Stand-up Pouch and SOLDERON™ BP TS6000 Tin-Silver were honored by R&D Magazine as part of its R&D 100 Awards.
focused on laminating adhesives.

Dow announced it signed an agreement with King Abdullah Universitycompleted expansions of Scienceits Louisiana ethylene and Technology (KAUST)Seadrift, Texas, gas-phase polyethylene production facilities, delivering further integration strength to expand its facilities atcomplement the KAUST Research & Technology Park with the construction of a new Dow Middle East Research and Development Center.

Working Mother magazine named Dow to the 2015 Working Mother 100 Best Companies list.
Company's market-focused downstream investments.

Dow was named to the Dow Jones Sustainability World Index - marking the 15th16th time the Company has been named to this global benchmark.

Dow received seven R&D 100 Awards from R&D Magazine for revolutionary technologies including: BETAFORCE™ 2817 Structural Adhesive, two awards for CANVERA™ Polyolefin Dispersions, Dow Corning® TC-3040 Thermal Gel, Flexible Acrylic Resin, PARADIGM™ WG Herbicide with ARYLEX™ Active and DOW AGILITY™ Performance LDPE.

Dow received two 2016 Sustainability Awards from the Business Intelligence Group including the Sustainability Initiative of the Year Award for RETAIN™ Polymer Modifiers and the Sustainability Product of the Year Award for CANVERA™ Polyolefin Dispersions.

Dow AgroSciences LLC was the recipient of a Presidential Green Chemistry Challenge Award from the U.S. Environmental Protection Agency for INSTINCT® Nitrogen Stabilizer.

Dow was recognized in the Top 10 Best Companies for Leaders by Chief Executive magazine.

Dow was named to the 2016 Working Mother 100 Best Companies list, marking the 12th time Dow has received this recognition sinceprestigious recognition.

Dow was named to Forbes Just 100: America's Best Corporation Citizens in 2016 list - recognizing the indexCompany's strategic vision and actions to deliver long-term value to society as a whole while earning the right to operate.


Dow was launched. This year's announcement ties Downamed the ICIS Company of the Year, based on financial metrics, by weekly global publication ICIS Chemical Business. The selection takes into account year-on-year growth in profits at the operating and net levels, as the longest-standing representative in the chemical category since the list's inception in 1999.well as margins.

Dow was honored for the 11th12th consecutive year by the Human Rights Campaign (HRC) for achieving a 100 percent rating on its corporate equality index (CEI) - a global benchmarking tool on corporate policies and practices related to lesbian, gay, bisexual and transgender (LGBT) employees.

Dow was named Manufacturer of the Year, large enterprise, at the 11th Annual Manufacturing Leadership Summit.

Announcements made in 2016 include:

On February 2, 2016, James R. Fitterling was appointed President and Chief Operating Officer. He succeeds Andrew N. Liveris as President with Mr. Liveris continuing as the Company’s Chairman and Chief Executive Officer.

On February 2, 2016, Dow announced the planned transition out of the Company of Chairman and Chief Executive Officer Andrew N. Liveris. The transition will occur on the earlier of the material completion of the anticipated spins following the closing of the announced DowDuPont merger transaction or June 30, 2017.

On February 2, 2016, James R. Fitterling was appointed President and Chief Operating Officer. He succeeds Andrew N. Liveris as President with Mr. Liveris continuing as the Company's Chairman and Chief Executive Officer.

On April 15, 2016, Gary McGuire was elected Vice President and Treasurer, succeeding Fernando Ruiz, Corporate Vice President and Treasurer, who announced his intention to retire from the Company.

Dow’s results of operations and financial condition for the year ended December 31, 20152016, are described in further detail in the following discussion and analysis.



33


RESULTS OF OPERATIONS
Net Sales
Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Price decreased in all operating segments, except Agricultural Sciences which was flat, and all geographic areas, due to lower feedstock and raw material prices and competitive pricing pressures. Volume increases in Consumer Solutions (up 29 percent) and Infrastructure Solutions (up 23 percent), both of which include Dow Corning's silicones business, and Performance Plastics (up 8 percent) more than offset lower volume in Performance Materials & Chemicals (down 14 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent). Volume increased in Asia Pacific (up 16 percent), North America (up 5 percent), EMEAI (up 3 percent) and declined in Latin America (down 1 percent). Excluding recent acquisitions and divestitures(1), volume was up 4 percent as increases in Performance Plastics (up 9 percent), Consumer Solutions (up 4 percent) and Performance Materials & Chemicals (up 2 percent) more than offset declines in Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which remained flat.

Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Price decreased in all operating segments and geographic areas, driven primarily by a decline in average crude oil prices of approximately 45 percent and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent) and Consumer Solutions (down 7 percent). Volume increases in Performance Plastics (up 5 percent), Infrastructure Solutions (up 2 percent) and Consumer Solutions (up 1 percent) more than offset lower volume in Performance Materials & Chemicals (down 6 percent) and Agricultural Sciences (down 4 percent). Volume increased in Asia Pacific (up 3 percent) and remained flat in North America, EMEAI and Latin America. Excluding the impact of recent acquisitions and divestitures(1), Performance Materials & Chemicals volume was up 1 percent and Agricultural Sciences volume was down 3 percent. Volume increased in all geographic areas, led by Asia Pacific (up 4 percent).
Net sales for 2014 were $58.2 billion, up 2 percent from $57.1 billion in 2013, with volume up 2 percent and price flat. Volume increased in all operating segments, except Performance Plastics which remained flat, with notable increases in Agricultural Sciences and Consumer Solutions (both up 3 percent). Excluding the impact of recent divestitures, Performance Plastics volume was up 1 percent. Volume increased in all geographic areas, led by EMEAI (up 4 percent). Price was flat as increased selling prices were offset by the unfavorable impact of currency. Price increases in Performance Plastics (up 2 percent) were offset by price declines in Agricultural Sciences and Consumer Solutions (both down 1 percent). Infrastructure Solutions and Performance Materials & Chemicals price remained flat. Price increased in North America (up 2 percent) and Latin America (up 1 percent), which was offset by a decline in EMEAI (down 1 percent). Price in Asia Pacific remained flat.

Sales in the United States accounted for 35 percent of total sales in 2015, 332016 (35 percent of total sales in 20142015 and 33 percent of total sales in 2013.2014). See the Sales Volume and Price tables at the beginning 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 26 to the Consolidated Financial Statements.


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics); the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences); ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation, acquired on May 5, 2015 (Performance Plastics).

Gross Margin
Gross margin was $10.5 billion in 2016, $10.9 billion in 2015 and $10.7 billion in 20142014. Gross margin in 2016 was impacted by a $317 million loss associated with the fair value step-up in inventories acquired in the DCC Transaction, reflected in Consumer Solutions ($147 million) and $9.5 billionInfrastructure Solutions ($170 million); a $295 million charge for environmental matters, reflected in 2013Agricultural Sciences ($2 million), Performance Materials & Chemicals ($1 million), Performance Plastics ($2 million) and Corporate ($290 million); $124 million of costs associated with transactions and productivity actions (reflected in Corporate); and a $117 million charge for the termination of a terminal use agreement (reflected in Performance Plastics). Excluding these items, gross margin increased compared with 2015 as lower feedstock, energy and other raw material costs, cost cutting and productivity initiatives, higher sales volume and the favorable impact from the addition of Dow Corning's silicones business more than offset lower selling prices. See Notes 4 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin increased in 2015 driven by an $8,542 million decrease in purchased feedstock and energy costs and the favorable impact of currency on costs which was partially offset by lower selling prices, including the unfavorable impact of currency. In 2015, gross margin was reduced by $91 million of pretax charges for asset impairments and related costs, including the shutdown of manufacturing assets and facilities in the Dow Building & Construction, Energy & Water Solutions and Dow Packaging and Specialty Plastics businesses and the abandonment of certain capital projects in the Dow Building & Construction and Dow Coating Materials businesses which wasand reflected in the following segments: Infrastructure Solutions ($34 million) and Performance Plastics ($57 million). Gross margin was also reduced by $24 million of pretax charges for nonrecurring transaction costs associated with portfoliotransactions and productivity actions (reflected in Corporate) and a $12 million pretax loss related to Univation Technologies, LLC ("Univation") for the fair value step-up of inventories assumed in the step acquisition (reflected in Performance Plastics). See Notes 4 and 12 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2014 was positively impacted by increased sales volume, a $392 million decrease in purchased feedstock and energy costs, lower other raw material costs and increased operating rates. Gross margin in 2014 was reduced by a $100 million warranty accrual adjustment related to an exited business (reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic Materials business (reflected in Consumer Solutions). See Notes 12 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2013 was positively impacted by higher selling prices, lower maintenance 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 and Vinyl business, Energy & Water Solutions business, Polyurethanes business, Performance Monomers business, Epoxy business


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics), the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences), ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals), the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals), the Polypropylene Licensing and Catalysts business, divested on December 2, 2013 (Performance Plastics) and sales related to Nippon Unicar Company Limited, divested on July 1, 2013. Also excludes current period sales of recent acquisitions including Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics) and Coodetec, acquired on February 1, 2015 (Agricultural Sciences).

34


and Corporate. The asset impairments and related costs were reflected in the following segments: Infrastructure Solutions
($95 million), Performance Materials & Chemicals ($70 million) and Corporate ($16 million). Gross margin in 2013 was also reduced by $40 million in implementation costs related to the Company's 2012 Restructuring programs (reflected in Corporate). See Note 12 to the Consolidated Financial Statements for additional information regarding these asset impairments.

Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2015,2016, flat compared with 85 percent in 20142015 and 81 percent in 2013. Operating rates improved in 2014 primarily due to increased demand and actions taken by management to increase asset utilization.2014.

Personnel Count
The Company permanently employed approximately 56,000 people at December 31, 2016, up from approximately 46,500 at December 31, 2015. Headcount increased in 2016 primarily due to the DCC Transaction, which was partially offset by a decline related to the Company's restructuring programs. Personnel count was 49,495 at December 31, 2015, downdecreased from 53,216approximately 50,000 at December 31, 2014. Headcount decreased in 20152014, primarily due to the separation of employees as a result of divestitures and the Company's 2015 restructuring program. Personnel count at December 31, 2014, increased from 52,731 at December 31, 2013, as hiring to support the Company's growth initiatives more than offset declines due to the Company's 2012 Restructuring programs.

Research and Development Expenses
Research and development (“R&D”) expenses were $1,584 million in 2016, compared with $1,598 million in 2015 compared with $1,647and $1,647 million in 2014 and $1,747 million in 2013.2014. In 2016, R&D expenses decreased 3 percent inslightly compared with 2015, as increased costs from Dow Corning's silicones business were more than offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, R&D expenses decreased primarily due to cost reduction initiatives, notably in Agricultural Sciences, which were partially offset by increased performance-based compensation costs. In 2014, R&D expenses decreased primarily due to cost reduction initiatives, notably in Performance Materials & Chemicals. In 2013, R&D expenses were 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 $3,304 million in 2016, compared with $2,971 million in 2015 compared withand $3,106 million in 20142014. In 2016, SG&A was negatively impacted by $379 million of costs associated with transactions and $3,024productivity actions, reflected in Corporate ($51 million in 2013.2015). Excluding these items, SG&A expenses were essentially flat in 2016 compared with 2015, as increased costs from Dow Corning's silicones business were nearly offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, SG&A expenses decreased 4 percent from 2014, as lower expenses, notably in Agricultural Sciences, and from the impact of divestitures, more than offset increased performance-based compensation costs. In 2015, SG&A expenses were also impacted by $51 million in pretax charges for costs associated with portfolio and productivity actions (reflected in Corporate). In 2014, SG&A expenses increased 3 percent from 2013, due to increased spending on growth initiatives, primarily in Agricultural Sciences, and increased spending on Company branding initiatives. In 2013, SG&A expenses were impacted by $2 million of implementation costs related to the Company's Restructuring programs (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 2015
 2014
 2013
 2016
 2015
 2014
Hydrocarbon feedstocks and energy 27% 38% 38% 24% 27% 38%
Salaries, wages and employee benefits 18
 15
 15
 17
 18
 15
Maintenance 5
 4
 4
 4
 5
 4
Depreciation 4
 4
 4
 5
 4
 4
Restructuring charges 1
 
 
 1
 1
 
Supplies, services and other raw materials 45
 39
 39
 49
 45
 39
Total 100% 100% 100% 100% 100% 100%

Amortization of Intangibles
Amortization of intangibles was $544 million in 2016, $419 million in 2015, $436 and $436 million in 20142014. The increase in amortization in 2016 is primarily due to an increase in intangible assets as a result of the DCC Transaction. See Notes 4 and $461 million in 2013. In 2013, amortization of intangibles was impacted by a $3 million asset impairment charge (reflected in Corporate). See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.intangible assets.

Goodwill and Other Intangible Asset Impairment Losses
The Company performs annual goodwill impairment tests duringin the fourth quarter of the year. In 2015,2016, the Company performed qualitative testing for 911 of the 14 reporting units carrying goodwill (9 of 12 reporting units carrying goodwillin 2015 and 9 of 14 reporting units in 2014) and quantitative testing for the remaining three reporting units. As a result of this testing, nounits (three in 2015 and five in 2014). No goodwill impairments were identified.identified in 2016, 2015 and 2014. See Critical Accounting Policies in Other

35


Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted.
In 2014, the Company performed qualitative testing for 9 of the 14 reporting units carrying goodwill and quantitative testing for the remaining five reporting units. As a result of this testing, no goodwill impairments were identified.

In the fourth quarter of 2014, the Company recognized a pretax charge of $50 million related tofor the impairment of intangible assets in the Dow Electronic Materials business, which is included in "Goodwill and other intangible asset impairment losses"reflected in the consolidated statements of income and reflected in Consumer Solutions.Solutions segment. See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

In 2013,Restructuring Charges (Credits)
On June 27, 2016, the Board of Directors of the Company performed qualitative testing for 14approved a restructuring plan that incorporates actions related to the DCC Transaction. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the 19 reporting units carrying goodwill and quantitative testing for the remaining five reporting units.DCC Transaction. These actions are expected to be substantially completed by June 30, 2018. As a result, the Company recorded pretax restructuring charges of this testing, no goodwill impairments were identified.$449 million in the second quarter of 2016 consisting of severance costs of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million and reflected in the Company's segments results as follows: $28 million in Consumer Solutions, $97 million in Infrastructure Solutions, $10 million in Performance Plastics and $314 million in Corporate.

Restructuring Charges (Credits)
On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the split-off of the chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. These actions are expected to be completed primarily by March 31,June 30, 2017. As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of costs associated with exit or disposal activities of $10 million, severance costs of $196 million, and asset write-downs and write-offs of $169 million and costs associated with exit and disposal activities of $10 million. DuringIn the fourth quarter of 2015, the Company recorded a restructuring charge adjustment of $40 million, primarily related to severance costs for the separation of approximately 500 additional positions. The impact of these charges is shown as "Restructuring charges (credits)" in the consolidated statements of income andwas reflected in the Company's segment results as follows: $16 million in Agricultural Sciences, $67 million in Consumer Solutions, $26 million in Infrastructure Solutions, $12 million in Performance Plastics and $294 million in Corporate. See Note 3

In 2016, the Company recorded an unfavorable restructuring charge adjustment of $6 million for additional accruals for costs associated with exit and disposal activities and a favorable adjustment of $3 million for the impairment of long-lived assets related to the Consolidated Financial Statements for details on2015 Restructuring plan. The net charge was included in the Company's 2015 restructuring program.segment results as follows: $5 million charge in Agricultural Sciences, $1 million charge in Consumer Solutions and a $3 million gain in Infrastructure Solutions.

In 2014, the Company recognized a pretax gain of $3 million for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. The gain was included in "Restructuring charges (credits)" in the consolidated statements of income andplan, reflected in Performance Materials & Chemicals.

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

Asbestos-related Charge
In 2016, the Company and Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary, elected to change the method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. As a result of this accounting policy change, the Company recorded a pretax charge of $1,009 million for asbestos-related defense costs through the terminal year of 2049. The Company also recorded a pretax charge of $104 million to increase the asbestos-related liability for pending and future claims through the terminal year of 2049. These charges were reflected in Corporate.

In 2014, the Company recorded a pretax charge of $78 million (reflected in Corporate) for an increase in the asbestos-related liability for pending and future claims (excluding defense and processing costs). Union Carbide Corporation, a wholly owned subsidiary of the Company, determined that an adjustment to the asbestos accrual was required due to an increase in mesothelioma claim activity compared with what had been previously forecasted. See NoteNotes 1 and 15 to the Consolidated Financial Statements for detailsadditional information on the asbestos-related charge.matters.

Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 20152016 was $674$442 million, compared with $674 million in 2015 and $835 million in 20142014. In 2016, equity earnings declined due to higher equity losses at Sadara related to start-up expenses, lower equity earnings from the Kuwait joint ventures due to lower monoethylene glycol prices and $1,034a reduction in the ownership of MEGlobal (now part of EQUATE), and the DCC Transaction. Equity earnings for 2016 also declined due to a charge of $22 million for a loss on early redemption of debt incurred by Dow Corning and reflected in 2013.Consumer Solutions ($8 million) and Infrastructure Solutions ($14 million). These declines were partially offset by higher earnings at the HSC Group, The SCG-Dow Group and Map Ta Phut Olefins Company Limited. In 2015, equity earnings decreased as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara, lower equity earnings from Univation resulting from the May 5, 2015, step acquisition and lower earnings from EQUATE, TKOCThe Kuwait Olefins Company K.S.C. ("TKOC") and MEGlobal. Equity earnings in 2015 were also impacted by a $29 million losscharge (reflected in Agricultural Sciences) related to AgroFresh Solutions' fair value step-up of its inventories and start-up costs and a loss recognized by Sadara related to the write-off of design engineering work for an Epoxy Plant,epoxy plant, of which Dow's share was $27 million.million (reflected in Corporate). In 2014, equity earnings decreased primarily due to lower earnings at EQUATE, TKSCThe Kuwait Styrene Company K.S.C. ("TKSC") and MEGlobal and increased losses at Sadara which were partially offset by increased earnings at Dow Corning.In 2013, equity earnings included

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a $10 million loss related to asset impairment charges at a formulated electrolytes manufacturingformer 50:50 joint venture (reflectedbetween Dow and Corning. As a result, Dow Corning became a wholly owned subsidiary of Dow. Dow and Corning continue to maintain their historical proportional equity interest in Corporate).the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.


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In January 2014, the Chinese Ministry of Commerce issued a final determination that China's solar-grade polycrystalline silicon industry suffered material damage because of dumping, which resulted in antidumping duties of 53.3 percent and countervailing duties of 2.1 percent on future imports from Dow Corning's Hemlock Semiconductorthe HSC Group into China. During the fourth quarter of 2014, Dow Corning determined its polycrystalline silicon plant expansion in Clarksville, Tennessee, which was delayed in 2012, would not be economically viable and made the decision to permanently abandon the assets. This decision was made after review of sustained adverse market conditions and continued oversupply, the cost of operating the facility and the ongoing impact of tariffs on polycrystalline silicon imported into China. Dow's share of the charge related to this asset abandonment was $500 million (reflected in Infrastructure Solutions). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all remaining polycrystalline silicon assets might be impaired. Dow Corning's estimates of future undiscounted cash flows indicated the polycrystalline silicon asset group was recoverable.

In May 1995, Dow Corning filed for protection under Chapter 11 of the U.S Bankruptcy Code to address pending and claimed liabilities arising from breast implant product lawsuits. On June 1, 2004, Dow Corning's Joint Plan of Reorganization (the "Plan") became effective and Dow Corning emerged from bankruptcy. Under the Plan, Dow Corning established and agreed to fund a products liability settlement program (the "Settlement Facility"). The Plan contains a cap on the amount of payments required from Dow Corning to fund the Settlement Facility. During the fourth quarter of 2014, Dow Corning with the assistance of a third-party advisor, developed an estimate of the future Implant Liability based on evidence that the actual funding required for the Settlement Facility is expected to be lower than the full funding cap set forth in the Plan. As a result, Dow Corning reduced its Implant Liabilityimplant liability by approximately $1.3 billion. The revised Implant Liabilityimplant liability reflected Dow Corning’s best estimate of its remaining obligations under the Plan.obligations. Dow’s share of the Implant Liabilityimplant liability reduction was $407 million ($155 million reflected in Consumer Solutions and $252 million reflected in Infrastructure Solutions). In the fourth quarter of 2015, Dow Corning further reduced its Implant Liability.implant liability. Dow's share of the Implant Liabilityimplant liability reduction was $20 million ($8 million reflected in Consumer Solutions and $12 million reflected in Infrastructure Solutions). See Note 9 to the Consolidated Financial Statements for additional information on nonconsolidated affiliates.affiliates and Note 15 for additional information on Dow Corning's implant liability.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning. Dow and Corning will maintain their current equity stake in Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.

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.assets, and litigation. Sundry income (expense) - net for 20152016 was net income of $4,592$1,202 million, compared with net income of $4,592 million in 2015 and net expense of $27 million in 2014 and net income of $2,554 million in 2013.

In 2016, sundry income (expense) - net included a $2,445 million gain related to the DCC Transaction (reflected in Consumer Solutions ($1,301 million) and Infrastructure Solutions ($1,144 million)), a $6 million gain adjustment on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals), a $27 million favorable adjustment related to a decrease in Dow Corning's implant liability (reflected in Consumer Solutions) and gains on sales of assets and investments. These gains more than offset a $1,235 million loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation (reflected in Performance Materials & Chemicals), a $143 million impairment charge related to the Company's investment in AgroFresh Solutions, Inc., a $20 million charge for post-closing adjustments related to non-cash consideration for the AgroFresh divestiture (both reflected in Agricultural Sciences), $41 million of costs associated with transactions and productivity actions (reflected in Corporate) and foreign currency exchange losses. See Notes 4, 5, 6, 9, 12, 13 and 15 to the Consolidated Financial Statements for additional information.
In 2015, sundry income (expense) - net included a $2,233 million gain on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals (gain of $1,984 million), Performance Plastics (gain of $317 million), and Corporate (loss of $68 million)), a $723 million gain on the sale of MEGlobal (reflected in Performance Materials & Chemicals), a $682 million gain on the divestiture of ANGUS Chemical Company (reflected in Performance Materials & Chemicals), a $20 million gain on the divestiture of the global Sodium Borohydride business (reflected in Performance Materials & Chemicals), a $618 million gain related to the divestiture of the AgroFresh business (net of an $8 million loss for mark-to-market adjustments on the fair value of warrants receivable and reflected in Agricultural Sciences), a $361 million gain on the Univation step acquisition (reflected in Performance Plastics) and gains on sales of assets and investments. These gains more than offset foreign currency exchange losses, including a $98 million loss related to the impact of the Argentine peso devaluation (reflected in Corporate), a $53 million loss on asset impairments and related costs (reflected in Infrastructure Solutions), an $8 million loss related to the early extinguishment of debt (reflected in Corporate) and $119 million of costs associated with portfoliotransactions and productivity actions (reflected in Corporate). See Notes 4, 5, 6, 9, 12, 13 and 17 to the Consolidated Financial Statements for additional information.

In 2014, sundry income (expense) - net included a gain related to the termination of an off-take agreement and gains on asset sales which were more than offset by foreign currency exchange losses, venture capital investment losses and $49 million of costs associated with portfoliotransactions and productivity actions (reflected in Corporate).

In 2013, sundry income (expense) - net included a gain of $2,161 million 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 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 Performance Plastics), a $26 million gain on the sale of the Company's

37


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). See Notes 5, 13 and 17 to the Consolidated Financial Statements for additional information.
Net Interest ExpenseAGRICULTURAL SCIENCES
Net interest expense (interest expense less capitalized interestThe Agricultural Sciences segment is a global leader in providing crop protection and interest income) was $875 millionseed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in 2015, down from $932 millionagricultural, industrial and commercial pest management. The segment has broad global reach with sales in 2014nearly 130 countries and $1,060 millionresearch and development ("R&D") and manufacturing facilities located in 2013. In 2015, net interest expense decreased dueall geographic areas. Growth is achieved through the development of innovative new products and technologies, successful segmentation of market offerings with leading brands, diverse channels to market, competitive cost positions, strategic bolt-on acquisitions, and commercial and R&D collaborations. The Company is committed to the impactdevelopment of innovative new crop protection and seed products.

Details on Agricultural Sciences' 2016 sales, by business and geographic area, are as follows:
(1)Europe, Middle East, Africa and India

Products
Key product lines, including crop application, are listed below:

Crop Application
Key Product LinesCanolaCerealsCornCottonRange and PastureRiceSoybeansSunflowerTrees, Fruits and VegetablesOthers
Insecticidesxxxxxxxxx
Fungicidesxxxxxx
Herbicidesxxxxxxxxxx
Seedsxxxxxxxx
Otherxxx

The Company's ability to produce seeds can be materially impacted by weather conditions, local political conditions and the availability of reliable contract growers.


Agricultural Sciences is focused on delivering results through technology leadership. Major brands and technologies, by key product line, are listed below:

Key Product LinesBrands and Technologies
InsecticidesISOCLAST™; LORSBAN™; RADIANT™; SENTRICON™; TRACER™
FungicidesDITHANE™; INATREQ™
HerbicidesARYLEX™; BROADWAY™; CLINCHER™; DURANGO™; FENCER™; GARLON™; LONTREL™; MILESTONE™; PANZER™; PRIMUS™; RESICORE™; RINSKOR™; SPIDER™; STARANE™; SURESTART™; TORDON™
Seed Brands
AGROMEN™(1); BRODBECK™ Seeds; DAIRYLAND SEED™; DOW™ Seeds; MYCOGEN™ Seeds; NEXERA™; Omega-9 Healthier Oils; PFISTER™ Seeds; PHYTOGEN™; PRAIRIE BRAND™ Seeds; PROPOUND™
Seed Traits and Technologies
ENLIST™; ENLIST DUO™; EXZACT™ Precision Technology; POWERCORE™ Insect Trait Technology(2); REFUGE ADVANCED™ powered by SmartStax®(2); SmartStax® Insect Trait Technology(2)
OtherINSTINCT®; N-SERVE™ Nitrogen Stabilizer; TELONE™
(1)AGROMEN trademark used under license from Agromen Sementes Agricolas Ltda.
(2)Smartstax® and POWERCORE™ multi-event technology developed by Dow AgroSciences LLC and Monsanto. Smartstax®, the Smartstax® logo, POWERCORE™ and the POWERCORE™ logo are trademarks of Monsanto Technology, LLC.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's registration of ENLIST DUO™ for use with ENLIST™ Corn, Soybeans and Cotton in 34 states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST E3™ Soybeans, ENLIST™ Soybean Seeds and ENLIST™ Corn Seeds in Brazil and Canada. ENLIST DUO™ is also approved for use with ENLIST™ crops in Canada. Regulatory approvals for ENLIST™ products in certain other countries are still pending.

Patents, Trademarks and Licenses
Agricultural Sciences has significant technology-driven growth, driven by crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. As a result, the Company uses patents, trademarks, licenses and registrations to protect its investment in germplasm, traits and proprietary chemistries and formulations. The Company also licenses plant biotechnology traits from third parties and engages in research collaborations.

Competition
Agricultural Sciences competes with producers of crop protection and seed/plant biotechnology products on a global basis. The Company competes on the basis of technology and trait leadership, price, quality and cost competitiveness. Key competitors include BASF, Bayer, DuPont, Monsanto and Syngenta, as well as generic crop protection companies and regional seed companies.

Distribution
Agricultural Sciences has a diverse worldwide network which markets and distributes the Company's brands to customers globally. This network consists of the Company's sales and marketing organization partnering with distributors, independent retailers and growers, cooperatives and agents throughout the world.

Seasonality
Agricultural Sciences sales and EBITDA are strongest in the first half of the year, aligning with the planting and growing season in the northern hemisphere, where more than 50 percent of the segment's annual sales are generated. Accounts receivable tends to be higher capitalizedduring the first half of the year, consistent with the peak sales period in the northern hemisphere.

Divestiture
On July 31, 2015, the Company sold its AgroFresh business to AgroFresh Solutions, Inc. ("AFSI"). The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is also reported in the Agricultural Sciences segment. See Note 5 to the Consolidated Financial Statements for additional information on this transaction.



CONSUMER SOLUTIONS
The Consumer Solutions segment consists of four global businesses: Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions - Silicones. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications including semiconductors and organic light-emitting diodes ("OLEDs"), adhesives and foams used by the transportation industry, cellulosics and other polymers for innovative pharmaceutical formulations and food solutions, and silicone solutions used in consumer goods and automotive applications. These businesses serve the needs of market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The segment's commitment to continuous innovation and rapid new product development enables it to maximize opportunities in emerging geographies and high-growth consumer market segments in nearly 110 countries.

Details on Consumer Solutions' 2016 sales, by business and geographic area, are as follows:


Consumer Care
Consumer Care provides global and regional brand owners in food, pharmaceutical, personal care and home care markets with innovative formulations and ingredients designed to add value to their products and help consumers live healthier and more convenient lives.

Consumer Care's principal businesses each serve one or more key market segments, as noted below:

BusinessMarket SegmentsTechnologies
Dow Home, Institutional & Personal Care SolutionsPersonal care, home care and specialty applications with key focus on hair care, skin care, sun care, cleansing, as well as fabric, dish, floor, hard surface and air care applicationsFrom polymers and emollients to chelants and dispersants, Dow offers unique innovations that empower consumer brands around the world to deliver exceptional product performance and process enhancements that create value. Other notable technologies include opacifiers, rheology modifiers, surfactants and solvents.
Dow Pharma and Food SolutionsPharmaceutical, food and nutritionCellulosic and other technologies help bring new classes of medicines to market and enable foods that are healthier (gluten-free, reduced oil/fat content). Notable technologies include excipients and active pharmaceutical ingredients, solubility enhancers, reagents, granulation and binders, as well as coatings and controlled release.
SAFECHEM™(1)
A service business responsible for the sustainable and innovative use of solventsOffers cleaning solutions, equipment and services for metal and dry cleaning applications. Provides closed-loop SAFE-TAINER™ System delivery systems to ensure emission free use of cleaning agents.
(1)On December 31, 2016, the Company sold its SAFECHEM™ business. SAFECHEM™ was reported as part of the Consumer Solutions segment through the date of divestiture.


Dow Automotive Systems
Dow Automotive Systems is a leading global provider of collaborative solutions and advanced materials for original equipment manufacturers, tier suppliers, aftermarket customers and commercial transportation manufacturers. Dow Automotive Systems’ leading technologies, materials engineering, testing and service support are complemented by a robust line of structural, elastic and rubber-to-substrate adhesives; composite materials technologies; polyurethane foams and acoustical management systems; and films and fluids.

Dow Automotive Systems’ principal businesses offer the following technologies and serve the following market segments:

BusinessMarket SegmentsTechnologies
AdhesivesElastic, structural and specialty adhesivesInnovative and differentiated adhesive technologies to meet customer specifications for durability and crash performance
Performance SolutionsPerformance plastics, fluids and polyurethane foam solutionsTechnologies that differentiate customers’ products with improved performance characteristics

Dow Electronic Materials
Dow Electronic Materials is a leading global supplier of enabling materials for a broad range of consumer electronics including smartphones, tablets, television monitors and personal computers, as well as electronic devices and systems used in a variety of industries. The business produces materials for chemical mechanical planarization ("CMP"); materials used in the production of electronic displays, including films, filters and OLEDs; metalorganic precursors for light-emitting diodes; products and technologies that drive leading-edge semiconductor design; materials used in the fabrication of printed circuit boards; and integrated metallization processes for metal finishing and decorative applications.

Dow Electronic Materials is comprised of four principal businesses, each serving one or more key market segments, as noted below:

BusinessMarket SegmentsTechnologies
Semiconductor TechnologiesIntegrated circuit fabrication for memory and logicCMP consumables, photolithography materials
Interconnect TechnologiesPrinted circuit board, electronic and industrial finishingInterconnect metallization and imaging process chemistries
Display TechnologiesDisplay materialsDisplay films and filters, OLED materials
Growth TechnologiesNew and emerging technologiesAdvanced chip packaging materials, metalorganic precursors, optical and ceramic materials

Consumer Solutions - Silicones
Consumer Solutions - Silicones provides innovative silicone solutions and ingredients to customers in beauty and personal care, household care, healthcare, consumer goods and automotive market segments around the world. Backed by extensive application expertise and industry knowledge, Consumer Solutions - Silicones features a broad, diverse portfolio of elastomers, emulsifiers, film formers, fluids, antifoams, additives, tubing and molded assemblies and adhesives.


Consumer Solutions - Silicones principal businesses offer the following technologies and serve the following market segments:

BusinessApplications/Market SegmentsTechnologies
Beauty and Personal CareHair care, skin care, sun care and color cosmeticsInnovative beauty care ingredients that help improve product performance and meet the needs of consumers. Notable silicone technologies include elastomers, emulsifiers, rheology modifiers, film formers-resins, gums and acrylates, powders and fluids.
Household CareLaundry and fabric care, hard surface careProven solutions to deliver benefits to both consumers and manufacturers alike. Notable silicone technologies include antifoams, processing aids, polishing gloss aids and softening agents.
HealthcareDrug delivery, medical device, wound care and topical ingredient applicationsInnovative silicone solutions backed by industry application and regulatory expertise. Notable silicone technologies include elastomers, emulsifiers, excipients, tubing and molded assemblies, adhesives, antifoams and fluids.
Consumer GoodsElectronics, packaging, sporting goods, household goods, infant care
Elastomer and thermal plastic technologies with proven performance delivering benefits to consumers around the world in multiple applications. Notable technology includes liquid silicone rubbers, high consistency rubbers, TPSiV, thermoplastic additives and food-grade materials.
AutomotiveSafety, lighting, sealing, electronics, NVH (noise, vibration, harshness), exterior trimNotable technology includes: elastomers, liquid silicone rubbers, high consistency rubbers, thermoplastics, additives, coatings, thermal management materials, sealants and lubricants.

Competition
The Consumer Solutions segment experiences competition in each business within the segment. The competitors include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high-level of customer service and technical expertise from the Company's sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Ashland, BASF, Bayer, Bluestar, JSR Micro, Momentive, Shin-Etsu Chemical and Wacker.

Joint Ventures
The Consumer Solutions segment includes a portion of the Company's share of the results of the Hemlock Semiconductor Group ("HSC Group"), a U.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

As of June 1, 2016, Dow Corning Corporation ("Dow Corning"), previously a 50:50 joint venture with Corning Incorporated ("Corning"), became a wholly owned subsidiary of Dow as a result of increased capital spending,an ownership restructure ("DCC Transaction"). Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.



INFRASTRUCTURE SOLUTIONS
The Infrastructure Solutions segment is comprised of an industry-leading portfolio of businesses utilizing advanced technology to deliver products such as architectural and industrial coatings, construction material ingredients, building insulation and materials, adhesives, microbial protection for the oil and gas industry, telecommunications, light and water technologies. With unmatched R&D capabilities, a broad range of chemistries, extensive geographic reach and strong channels to market, this segment is well positioned to capitalize on market trends. The segment has broad geographic reach with sales in nearly 150 countries and R&D and manufacturing facilities located in key geographic areas.

Details on Infrastructure Solutions' 2016 sales, by business and geographic area, are as follows:

Dow Building & Construction
Dow Building & Construction is comprised of two businesses - Dow Building Solutions and Dow Construction Chemicals. Leveraging more than 70 years of building science experience and deep application expertise that go well beyond the business's 75 years of STYROFOAM™ brand insulation products, Dow creates high-performance solutions designed to help make residential and commercial buildings more comfortable, last longer, save energy and reduce emissions. The business group offers extensive lines of industry-leading durable insulation and building material solutions, as well as functional ingredients that provide improved thermal performance, air sealing, weatherization, waterproofing and fire retardancy for construction products.
Dow Coating Materials
The Dow Coating Materials business manufactures and delivers solutions that leverage high quality, technologically advanced product offerings for architectural paint and coatings, as well as industrial coatings applications, including paper, leather, concrete, wood, automotive, maintenance and protective industries. Dow Coating Materials introduced the industry's first waterborne technology in 1953 and has since led the industry's conversion away from solvent borne technology to allow for lower volatile organic compounds and an improved sustainability profile while pushing performance boundaries.

Energy & Water Solutions
Energy & Water Solutions includes the following businesses - Dow Microbial Control; Dow Oil, Gas & Mining; and Dow Water and Process Solutions. Dow Microbial Control provides technology used to predict, diagnose and sustainably solve the planet’s most difficult microbial challenges while Dow Oil, Gas & Mining is helping to provide energy to the world by supplying smart, innovative and customized solutions to enable the tapping of both conventional and unconventional sources. Aligned to the infrastructure market sector is Dow Water and Process Solutions, a leading provider of purification and separation technologies including reverse osmosis membranes and ion exchange resins to help customers with a broad array of separation and purification needs such as reusing waste water streams, making fresh drinking water from sea water, creating a closed loop water system for oil field operations, and removing impurities in dairy processing.

Performance Monomers
The Performance Monomers business produces monomer products that are sold externally as well as consumed internally as building blocks used in downstream polymer businesses. The business' products are used in several applications, including dispersions and emulsions for adhesives, coatings, inks, woven and non-woven textiles, plastics and polymers and superabsorbent products. Included in this portfolio is Plastics Additives, a worldwide supplier of additives used in a large variety of applications ranging from construction materials and packaging containers to consumer appliances and electronics, business machines and automotive parts.

Infrastructure Solutions - Silicones
Infrastructure Solutions - Silicones is a global leader in providing solutions to pressing challenges customers face in the infrastructure segment delivered via proven and innovative silicon-based technology. The diverse portfolio provides solutions

to the building and construction, telecommunications, lighting and energy sectors. In construction particularly, silicone materials enable buildings that promote occupant comfort, safety and security, improved productivity and design freedom.

Products
Infrastructure Solutions' businesses each serve one or more key market segments, as noted below:

BusinessApplications/Market SegmentsMajor Products
Dow Building & ConstructionRigid and spray foam insulation; weatherization, waterproofing and air sealing; caulks and sealants; elastomeric roof coatings; exterior insulation finishing systems; roof tiles and siding; industrial non-wovens; cement-based tile adhesives; plasters and renders; tape joint compounds; and concrete additivesAQUASET™ acrylic thermosetting resins, DOW™ latex powder, FROTH-PAK™ foam insulation and sealants, GREAT STUFF™ insulating foam sealants and adhesives, RHOPLEX™ and PRIMAL™ acrylic emulsion polymers, STYROFOAM™ brand insulation products, THERMAX™ exterior insulation, WALOCEL™ cellulose ethers, WEATHERMATE™ house wrap, XENERGY™ high performance insulation, LIQUIDARMOR™ flashing and sealant
Dow Coating MaterialsAcrylic binders for architectural paint and coatings, industrial coatings, and paper; dispersants; rheology modifiers; opacifiers and surfactants for both architectural and industrial applications; protective and functional coatingsACRYSOL™ Rheology Modifiers, AVANSE™ acrylic binders, EVOQUE™ Pre-Composite Polymer, FORMASHIELD™ acrylic binder, RHOPLEX™ acrylic resin, TAMOL™ Dispersants, MAINCOTE™ acrylic epoxy hybrid, PARALOID™ Edge ISO-free technology and ACOUSTICRYL™ liquid-applied sound damping technology
Energy & Water SolutionsHelping customers in exploration, production, transmission, refining and gas processing to optimize supply, improve efficiencies and manage emissions. Providing expertise and localized solutions for microbial control for well souring, industrial cooling water, fabric odor elimination, in-can preservation and dry film protection. Providing advanced, cost effective separation and purification technology for water treatment and filtration, pharmaceutical, food and beverage, and chemical processingDemulsifiers, drilling and completion fluids, heat transfer fluids, rheology modifiers, scale inhibitors, shale inhibitors, specialty amine solvents, surfactants, water clarifiers, DOW ADSORBSIA™ selective media, DOW EDI™ modules, DOWEX™ and AMBERJET™ ion exchange resins, DOWEX™ OPTIPORE™ polymeric adsorbent resins, DOW FILMTEC™ reverse osmosis and nanofiltration elements, TEQUATIC™ PLUS fine particle filter, AMBERLYST™ polymeric catalysts, AQUCAR™, BIOBAN™, SILVADUR™ antimicrobial
Performance Monomers
Super absorbents, water treatment, flocculants and detergents, acrylic sheets, coatings, inks and paints,molding compounds, impact modifiers, processing aids, electronic displays, adhesives, textiles, automotive and architectural safetyglass, and plastics additives
Acrylates, methacrylates, vinyl acetate monomers, high-quality impact modifiers, processing aids, foam cell promoters and weatherable acrylic capstock compounds forthermoplastic and thermosetting materials
Infrastructure Solutions - SiliconesCommercial glazing, building envelope, construction chemicals, window and door infrastructure, wire and cable, electrical and high voltage insulation, power transmission, sleeving, optical devices, light-emitting diodes, lamp and luminaire, oil and gas, solarElastomers, fluids, pottants, potting agents, thermal interface materials, adhesives and sealants, encapsulants, gels, resins, antifoams, demulsifiers, lubricants

Competition
Competitors of the Infrastructure Solutions segment include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high level of customer service and expertise from its sales force and scientists; therefore, Dow is well positioned to withstand competitive threats. Key competitors include Arkema, Ashland, BASF, Bluestar, Elementis, Hydranautics, Lanxess, Lonza, Momentive, Owens-Corning, Shin-Etsu Chemical and Wacker.

Joint Ventures
The Infrastructure Solutions segment includes a portion of the Company's share of the results of the HSC Group, a U.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

PERFORMANCE MATERIALS & CHEMICALS
The Performance Materials & Chemicals segment is comprised of three technology-driven, customer-centric global businesses that are advantaged through integration and driven by innovative technology and solutions: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. Products produced by this segment are back-integrated into feedstocks, supporting a low-cost manufacturing base and consistent, reliable supply. The Performance Materials & Chemicals segment is positioned for growth through diverse markets and product offerings. The segment has broad geographic reach with sales in nearly 140 countries and manufacturing facilities located in all geographic areas. Performance Materials & Chemicals has a diverse product line that serves customers in a large number of industries including appliance, construction and industrial.

Details on Performance Materials & Chemicals' 2016 sales, by business and geographic area, are as follows:

Chlor-Alkali and Vinyl
The Chlor-Alkali and Vinyl business provides cost-advantaged chlorine and caustic soda supply and integration for the Polyurethanes business. Chlor-Alkali and Vinyl also includes the marketing of caustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer, essential for the production of polyvinyl chloride.

Industrial Solutions
The Industrial Solutions business enables manufacturing of the world’s goods and services with additive solutions that minimize friction and heat in mechanical processes, manage the oil and water interface, deliver active ingredients for maximum effectiveness, facilitate dissolvability and provide the foundational building blocks for the development of chemical technologies. The business supports industrial manufacturers associated with virtually all end-markets, notably electronics, agricultural chemicals, engine/heavy equipment, coatings, adhesives and inks, and detergents and cleaners. Industrial Solutions is also the world’s largest producer of purified ethylene oxide. Approximately 80 percent of the ethylene oxide produced by Dow is consumed within the Performance Materials & Chemicals segment.

Polyurethanes
Polyurethanes is comprised of four businesses: Isocyanates, Polyols, Polyurethane Systems and Propylene Oxide/Propylene Glycol ("PO/PG"). The Polyurethanes business is the world’s largest producer of propylene oxide and propylene glycol as well as a leading producer of polyether polyols and aromatic isocyanates that serve energy efficiency, consumer comfort and industrial market sectors. Propylene oxide is produced using the chlorohydrins process as well as by hydrogen peroxide to propylene oxide manufacturing technology(1). Performance Materials & Chemicals businesses consume more than 90 percent of the propylene oxide produced or procured by Dow.

Competition
Competition for the Performance Materials & Chemicals segment varies based on the business. Key competitors include large, international chemical companies as well as chemical divisions of major national and international oil companies. Performance Materials & Chemicals back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a full-service supplier with a global technical service network located close to the customer, which allows the Company to fuel growth in specialty applications and collaborate with customers to invent unique chemistries and tailored solutions. In addition to its competitive cost position, reliable supply and superior customer service, the Company also competes worldwide on the basis of quality, technology and price. Key competitors include BASF, Covestro, Eastman, INEOS, Huntsman, LyondellBasell, Olin and Oxea.

(1)Hydrogen peroxide to propylene oxide manufacturing technology is utilized by MTP HPPO Manufacturing Company Limited, a Thailand-based consolidated variable interest entity ultimately owned 50 percent by the Company and 50 percent by SCG Chemicals Co. Ltd.; and BASF DOW HPPO Production B.V.B.A., a Belgium-based joint venture ultimately owned 100 percent by HPPO Holding & Finance C.V., which is owned 50 percent by the Company and 50 percent by BASF.

Distribution
The Performance Materials & Chemicals segment markets its products primarily relatedthrough the Company's sales force and also utilizes distributors worldwide.

Joint Ventures
The Performance Materials & Chemicals segment includes a portion of the Company's share of the results of the following joint ventures:

EQUATE Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; owned 35 percent by the Company.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturer and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal.

Divestitures
On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast projects, which more than offset higher interest expense relatedChlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture. See Notes 5 and 6 to the issuanceConsolidated Financial Statements for additional information on these transactions.


PERFORMANCE PLASTICS
The Performance Plastics segment is the world’s leading plastics franchise, and is a market-oriented portfolio composed of $2 billionfive global businesses: Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach, with sales in approximately 110 countries and manufacturing facilities located in all geographic areas. It also benefits from Dow’s R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in key strategic markets.

Details on Performance Plastics' 2016 sales, by business and geographic area, are as follows:


Dow Elastomers, Dow Electrical and Telecommunications, and Dow Packaging and Specialty Plastics serve high-growth, high-value sectors where Dow's world-class technology and rich innovation pipeline creates competitive advantages for customers and the entire value chain. Together, these three global businesses have complimentary market reach, asset capabilities and technology platforms that provide the Company with immediate and long-term growth synergies. Market growth is expected to be driven by major shifts in population demographics, improving socioeconomic status in emerging geographies, consumer and brand owner demand for increased consumer convenience, efforts to reduce food waste, growth in telecommunications networks, specifically broadband and LTE networks, and global development of debtelectrical transmission and distribution infrastructure and renewable energy applications. Market segments served by these businesses include adhesives, construction, food and specialty packaging, footwear, industrial and consumer packaging, hygiene and medical, infrastructure, pipe, telecommunications and transportation.

The Energy business is one of the world’s largest industrial energy producers. This business produces or procures the energy used by Dow, sells energy to customers located on Dow manufacturing sites and also engages in 2014.opportunistic merchant sales driven by market conditions. Because of its unparalleled scale, purchasing power and global reach, the Energy business offers Dow tremendous knowledge of world energy markets and the agility to respond to sudden changes in conditions.

The Hydrocarbons business is one of the largest global producers of ethylene, an internal feedstock that is consumed primarily within Performance Plastics. The Hydrocarbons business is also a large producer and purchaser of propylene. The Company strategically locates its polyethylene production facilities near its ethylene production facilities to optimize integration benefits and drive low costs. Dow's global scale, operational discipline and feedstock flexibility create a cost-advantaged foundation for the Company's downstream, market-driven businesses. In 2014, netNorth America, shale gas opportunities - and the resulting increased supplies of natural gas and natural gas liquids (“NGLs”) - remain a key, cost-competitive position for the Company's ethane- and propane-based production. The Company's U.S. and European ethylene production facilities allow Dow to use different feedstocks in response to price conditions. Meanwhile, the Company's U.S. Gulf Coast investments will strengthen ethylene and propylene integration and establish a platform for growth of Dow's downstream businesses.

Products
Major applications/market segments and products are listed below by business:

BusinessApplications/Market SegmentsMajor Products
Dow ElastomersAdhesives, footwear, housewares, infrastructure, sports recreation, toys and infant products, transportationElastomers, polyolefin plastomers, ethylene propylene diene monomer elastomers ("EPDMs")
Dow Electrical and TelecommunicationsBuilding and construction, electrical transmission and distribution infrastructure, telecommunications infrastructureWire and cable insulation, semiconductive and jacketing compound solutions, bio-based plasticizers
Dow Packaging and Specialty PlasticsAdhesives, food and specialty packaging, hygiene and medical, industrial and consumer packaging, transmission pipe and photovoltaicsAcrylics, polyethylene, low-density polyethylene, linear low-density polyethylene, high-density polyethylene, polyolefin plastomers
EnergyPrincipally for use in Dow’s global operationsPower, steam and other utilities
HydrocarbonsPurchaser of feedstocks; production of cost competitive monomers utilized by Dow’s derivative businesses
Ethylene, propylene, benzene, butadiene, octene, aromatics co-products, crude C4

Advantaged feedstock positions in the United States, Canada, Argentina and the Middle East

Competition
Competition for the Performance Plastics segment includes chemical divisions of major national and international oil companies, which provide competition in the United States and abroad. Dow competes worldwide on the basis of product quality, product supply, technology, price and customer service. Performance Plastics will continue to benefit from an advantaged feedstock position, including favorable shale gas dynamics in the United States, which will further strengthen the Company's low-cost position and enhance global cost competitiveness. Key competitors include BASF, Borealis, Braskem, CP Chem, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC.


Joint Ventures
Joint ventures play an integral role within the Performance Plastics segment by dampening earnings cyclicality and improving earnings growth. Principal joint ventures impacting Performance Plastics are listed below:

Aligned 100 percent with Performance Plastics:
The Kuwait Styrene Company K.S.C. - a Kuwait-based company that manufactures styrene monomer; owned 42.5 percent by the Company.
The SCG-Dow Group consists of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; and Siam Synthetic Latex Company Limited. These Thailand-based companies manufacture polyethylene, polystyrene, styrene and latex; owned 50 percent by the Company.

Performance Plastics includes a portion of the results of:
EQUATE - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest expense decreased reflectingin Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; owned 35 percent by the impactCompany.

On May 5, 2015, Univation Technologies, LLC, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company, became a wholly owned subsidiary of Dow. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

Current and Future Investments
The Company has 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 including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 kilotonnes per annum ("KTA") and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. 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. Dow’s ethylene production capabilities are expected to increase by as much as 20 percent.

In 2016, the Company completed an expansion of a gas-phase polyethylene production facility in Seadrift, Texas. Expansion projects are also currently underway at two of the Company's 2013 deleveraginggas-phase polyethylene units in St. Charles, Louisiana, with expected start-up in mid-2018. The Company is also building four new production facilities on the U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value Performance Plastics franchise which includes an ELITE™ Polymer production facility, a Low Density Polyethylene (LDPE) production facility and a NORDEL™ Metallocene EPDM production facility, which are all expected to start up in 2017, and a High Melt Index (HMI) AFFINITY™ Polymer production facility, which is expected to start up in the second half of 2018.


CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, etc.); the results of Ventures (including business incubation platforms and lower debt financing costs. Interest income was $71non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense and processing costs and reserve adjustments); and, foreign exchange results.



RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The major raw material stream that feeds the production of the Company’s finished goods is hydrocarbon-based raw materials. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

Expenditures for hydrocarbon feedstocks and energy accounted for 24 percent of the Company’s production costs and operating expenses for the year ended December 31, 2016. The Company purchases these raw materials on both short- and long-term contracts.

The Company had adequate supplies of raw materials during 2016, and expects to continue to have adequate supplies of raw materials in 2017. Significant raw materials, by operating segment, are listed below:

Significant Raw MaterialsPerformance Materials & Chemicals
Raw MaterialAgricultural SciencesConsumer SolutionsInfrastructure SolutionsPerformance Plastics
Acetonexx
Ammoniaxxx
Aniline (1)
x
Benzenexx
Butanex
Butenexx
Butyl Acrylate (1)
xxx
Carbon Blackxx
Carbon Monoxidex
Caustic Soda (1)
xxxx
Chlorine (1)
xxxx
Condensatex
Electric Powerxx
Ethanex
Ethanolxxxx
Ethylene (1)
xxx
Formaldehydexxx
Hexenex
Hydrogen Peroxide (2)
x
Isopropanolxx
Methanolxxxxx
Naphthax
Natural Gasx
Nitrogenxx
Octene (1)
x
Polystyrenexx
Propanexxx
Propylene (1)
xxxx
Pygasx
Silicaxx
Silicon Metal (1)
xx
Styrenexx
Wood Pulpxx
(1)    Produced by the Company and procured from external sources for internal consumption.
(2)    Primarily produced and procured by a consolidated variable interest entity.



INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS
See Note 26 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area.


SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of any operating segment's sales is dependent upon a single customer. No single product accounted for more than five percent of the Company’s consolidated net sales in 2016.


RESEARCH AND DEVELOPMENT
The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products. Research and development expenses were $1,584 million in 2016, $1,598 million in 2015 and $1,647 million in 2014. At December 31, 2016, the Company employed approximately 7,200 people in various research and development activities.


PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2016, the Company owned 5,651 active U.S. patents and 25,449 active foreign patents as follows:
Patents Owned at December 31, 2016

 United States
 Foreign
Agricultural Sciences 1,041
 4,603
Consumer Solutions 1,645
 6,189
Infrastructure Solutions 1,338
 6,827
Performance Materials & Chemicals 375
 2,332
Performance Plastics 1,150
 5,283
Corporate 102
 215
Total 5,651
 25,449

Remaining Life of Patents Owned at December 31, 2016
  
 United States
 Foreign
Within 5 years 1,384
 5,170
6 to 10 years 1,187
 8,000
11 to 15 years 2,312
 10,843
16 to 20 years 768
 1,436
Total 5,651
 25,449
Dow’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $394 million in 2016, $357 million in 2015 and $388 million in 2014. The Company incurred royalties to others of $191 million in 2016, $198 million in 2015 and $170 million in 2014. Dow also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.



PRINCIPAL PARTLY OWNED COMPANIES
Dow’s principal nonconsolidated affiliates at 2015December 31, 2016, $51 millionincluding direct or indirect ownership interest for each, are listed below:

Principal Nonconsolidated AffiliateOwnership Interest
Business Description
Dow Corning Corporation (1)
N/A
A U.S. company that manufactures silicone and silicone products
EQUATE Petrochemical Company K.S.C.42.50%A Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins
The HSC Group: (1)
DC HSC Holdings LLC (2)
50.00%A U.S.-based group of companies that manufactures polycrystalline silicon products
Hemlock Semiconductor L.L.C.50.10%A U.S. company that sells polycrystalline silicon products
The Kuwait Olefins Company K.S.C.42.50%A Kuwait-based company that manufactures ethylene and ethylene glycol
The Kuwait Styrene Company K.S.C.42.50%A Kuwait-based company that manufactures styrene monomer
Map Ta Phut Olefins Company Limited (3)
32.77%A Thailand-based company that manufactures propylene and ethylene
Sadara Chemical Company (4)
35.00%A Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational
The SCG-Dow Group:
Siam Polyethylene Company Limited50.00%A Thailand-based company that manufactures polyethylene
Siam Polystyrene Company Limited50.00%A Thailand-based company that manufactures polystyrene
Siam Styrene Monomer Co., Ltd.50.00%A Thailand-based company that manufactures styrene
Siam Synthetic Latex Company Limited50.00%A Thailand-based company that manufactures latex
(1)As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. Dow Corning was treated as a principal nonconsolidated affiliate through May 31, 2016. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the Company's consolidated statements of income. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.
(2)DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations.
(3)The Company's effective ownership of Map Ta Phut Olefins Company Limited is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited.
(4)Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee.

See Note 9 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.


FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
In 2016, the Company derived 65 percent of its sales and had 37 percent of its property investment outside the United States. While the Company’s international operations may be subject to a number of additional risks, such as changes in 2014currency exchange rates and $41 milliongeopolitical risks in emerging geographies, the Company does not regard its foreign operations, on the whole, as carrying any greater risk than its operations in the United States. Information on sales and long-lived assets by geographic area for each of the last three years appears in Note 2013. Interest expense (net of capitalized interest) and amortization of debt discount totaled $946 million in 2015, $983 million26 to the Consolidated Financial Statements, and discussions of the Company’s risk management program for foreign exchange and interest rate risk management appear in Part I, Item 1A. Risk Factors; Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk; and Note 201411 and to the Consolidated Financial Statements.



PROTECTION OF THE ENVIRONMENT
$1,101 millionMatters pertaining to the environment are discussed in 2013. See Liquidity and Capital Resources inPart I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations; and Note 17Notes 1 and 15 to the Consolidated Financial Statements for additionalStatements. In addition, detailed information related to debt financing activity.

Provision for Income Taxes
The provision for income taxes was $2,147 million inon Dow's performance regarding environmental matters and goals can be found online on Dow's Sustainability webpage at 2015, compared with $1,426 million in 2014 and $1,988 million in 2013www.dow.com. The Company's effective tax rate fluctuates basedwebsite and its content are not deemed incorporated by reference into this report.


EMPLOYEES
As of December 31, 2016, the Company permanently employed approximately 56,000 people on amonga full-time basis, with approximately 45 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and
30 percent located in other locations.


OTHER ACTIVITIES
Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited subsidiaries.


EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company’s executive officers as of February 9, 2017.

Name - AgePresent Position with RegistrantYear Elected to be an OfficerOther Business Experience since January 1, 2012
Ronald C. Edmonds, 59Controller and Vice President of Controllers and Tax2009Vice President and Controller 2009 to date. Present position held since January 2016.
James R. Fitterling, 55President and Chief Operating Officer2010Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to September 2012. Executive Vice President, Feedstocks, Performance Plastics, Asia and Latin America September 2012 to December 2013. Executive Vice President, Feedstocks, Performance Plastics and Supply Chain December 2013 to October 2014. Vice Chairman, Business Operations October 2014 to October 2015. Vice Chairman and Chief Operating Officer October 2015 to February 2016. Present position held since February 2016.
Heinz Haller, 61Executive Vice President and President of Dow Europe, Middle East, Africa and India2006Executive Vice President and Chief Commercial Officer August 2010 to September 2012. Present position held since September 2012.
Joe E. Harlan, 57Vice Chairman and Chief Commercial Officer2011Executive Vice President, Performance Materials September 2011 to September 2012. Executive Vice President, Chemicals, Energy and Performance Materials September 2012 to October 2014. Chief Commercial Officer and Vice Chairman, Market Businesses October 2014 to October 2015. Present position held since October 2015.
Peter Holicki, 56Senior Vice President, Operations, Manufacturing & Engineering, Environment, Health & Safety Operations, and Emergency Services & Security2014Global Manufacturing Vice President, Hydrocarbons May 2009 to October 2012. Vice President for Manufacturing and Engineering Europe, Middle East and Africa May 2009 to October 2012. Vice President of Operations for Europe, Middle East and Africa and the Ethylene Envelope October 2012 to December 2013. Emergency Services and Security Expertise Center September 2014 to present. Corporate Vice President October 2014 to October 2015. Present position held since 2015.
Charles J. Kalil, 65Executive Vice President and General Counsel2004General Counsel 2004 to date. Executive Vice President 2008 to date. Corporate Secretary 2005 to February 2015.
Andrew N. Liveris, 62Chief Executive Officer and Chairman of the Board2003President 2004 to February 2016. Chief Executive Officer 2004 to date. Chairman 2006 to date.
Johanna Söderström, 45Corporate Vice President, Human Resources and Aviation, and Chief Human Resource Officer2015Global Human Resources Director, Performance Materials Division January 2011 to October 2012. Vice President, Human Resource Center of Expertise October 2012 to January 2015. Present position held since January 2015.
A. N. Sreeram, 49Senior Vice President, Research & Development and Chief Technology Officer2013Vice President, Research & Development, Dow Advanced Materials 2009 to October 2013. Corporate Vice President, Research & Development October 2013 to October 2015. Present position held since October 2015.
Howard I. Ungerleider, 48Vice Chairman and Chief Financial Officer2011Senior Vice President and President, Performance Plastics March 2011 to September 2012. Executive Vice President, Advanced Materials September 2012 to October 2014. Chief Financial Officer and Executive Vice President October 2014 to October 2015. Present position held since October 2015.


The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS

The factors where income is earned, reinvestment assertions regarding earned incomedescribed below represent the Company's principal risks.

Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations, trade agreements, import and export controls, and duties and tariffs. The imposition of additional regulations, controls and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume which could negatively impact the Company's results of operations.

Economic conditions around the world, and in certain industries in which the Company does business, also impact sales prices and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which Dow sells its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on Dow's results of operations.

In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on Dow's results of operations. The Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, Dow enters into hedging transactions pursuant to established guidelines and policies. If Dow fails to effectively manage such risks, it could have a negative impact on the Company's results of operations.

Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions could reduce the Company's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Raw Materials: Availability of purchased feedstocks and energy, and the levelvolatility of income relativethese costs, impact Dow’s operating costs and add variability to tax credits available. For example,earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.

Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the percentage of foreign sourced incomeCompany uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company's effective tax rate declines. The Company's tax rateCompany is also influenced bynot always able to immediately raise selling prices. Ultimately, the levelability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of equity earnings, since most of the earnings from the Company's equity method investments are taxed at the joint venture level. The underlying factors affecting the Company's overall tax rate are summarized in Note 23 to the Consolidated Financial Statements.operations.

The tax rate for 2015 was positively impacted by portfolio actions, specificallyCompany has a number of investments in the tax-efficient split-offU.S. Gulf Coast to take advantage of the Company's chlorine value chain, the non-taxable gain from the Univation step acquisition,increasing supplies of low-cost natural gas and the sale of MEGlobal. The geographic mix of earnings favorably impacted the tax rate with the gain from the ANGUS Chemical Company divestiture and continued profitability improvement in Europe and Asia Pacific providing most of the benefit. The tax rate was unfavorably impacted by foreign subsidiaries repatriating cash to the United States which was primarilynatural gas liquids derived from divestiture proceeds. Reduced equity earningsshale gas including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and continued increasesmodifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in statutory incomeFreeport, Texas, which is expected to start up in Latin America and Canada due to local currency devaluations also unfavorably impactedmid-2017. As a result of these investments, the tax rate. These factors resulted in an effective tax rate of 21.6 percent for 2015.  

The tax rate for 2014 was positively impactedCompany's exposure to purchased ethylene and propylene is expected to decline, offset by the geographic mix of earnings, with the most notable components being improved profitability in Europeincreased exposure to ethane and Asia Pacific. Equity earnings remained strong, providing additional favorable impact on the tax rate. The tax rate was also favorably impacted by a reduction in the tax impact on remittances by foreign subsidiaries to the United States. The tax rate was negatively impacted by a continued increase in statutory income in Latin America due to local currency devaluations, and increases in valuation allowances, primarily in Asia Pacific. These factors resulted in an effective tax rate of 27.1 percent for 2014.propane feedstocks.

The tax rate for 2013 was favorably impacted by increased equity earnings;While the K-Dow arbitration award, due to favorable tax treatmentCompany expects abundant and cost-advantaged supplies of certain components of the award; and changes in valuation allowancesNGLs in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on state income tax attributesthe Company’s results of operations and capital loss carryforwards. future investments. Also, if the Company’s key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations.

Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The tax rate was unfavorablybalance of supply relative to demand within the industry may be significantly impacted by adjustmentsthe addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due 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 ratesupply, which could negatively impact the Company's results of 29.2 percent for 2013.operations.

Net Income AttributableLitigation: The Company is party to Noncontrolling Interestsa number of claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions.
Net income attributableCertain of the claims and lawsuits facing the Company purport to noncontrolling interests was $98 millionbe class actions and seek damages in 2015, $67 million in 2014very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) and $29 million in 2013. Net income attributable to noncontrolling interests increased in 2015 compared with 2014, primarily due to higher earnings at mostChapter 11 related matters of Dow Corning as described below, it is the opinion of the Company's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company's consolidated financial statements.

Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2016, Union Carbide's total asbestos-related liability, including defense and processing costs, was $1,490 million ($437 million at December 31, 2015, which excluded defense and processing costs).

In 1995, Dow Corning, a former 50:50 joint ventures whichventure, voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve breast implant liabilities and related matters ("Chapter 11 Proceeding"). Dow Corning emerged from the Chapter 11 Proceeding on June 1, 2004, and is implementing the Joint Plan of Reorganization (the "Plan"). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. At December 31, 2016, Dow Corning's liability for breast implant and other product liability claims was partially offset by an after-tax loss$263 million and the liability related to the exercise of an equity option by a noncontrolling interest in a variable interest entity. In addition to the items previously discussed, 2015commercial creditor claims was also impacted by noncontrolling interests' portion of the 2015 restructuring charge. Net income attributable to noncontrolling interests increased in 2014 compared with 2013, primarily due to increased earnings at certain Performance Materials & Chemicals joint ventures and the 2013 divestiture of Dow Kokam. $108 million.

See Notes 3, 5, 20 and 25Note 15 to the Consolidated Financial Statements for additional information on these matters.


38


Preferred Stock Dividendscomplying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
Preferred stock dividendsThe Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of $340the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2016, the Company had accrued obligations of $909 million were recognized($670 million at December 31, 2015) for probable environmental remediation and restoration costs, including $151 million ($74 million at December 31, 2015) 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 times that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in 2015, 2014environmental regulations could inhibit or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.


Health and 2013.Safety: Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment as well as perceived impacts of plant biotechnology on health and the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment and the perceived impacts of plant biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These dividendsconcerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.

Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.

Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations, the transportation of products, cyber attacks, or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.

Major hurricanes have caused significant disruption in Dow's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact Dow's results of operations.

Cyber Vulnerability: The risk of loss of the Company’s intellectual property, trade secrets or other sensitive business information or disruption of operations could negatively impact the Company’s financial results.
Cyber attacks or security breaches could compromise confidential, business critical information, cause a disruption in the Company’s operations or harm the Company's reputation. The Company has attractive information assets, including intellectual property, trade secrets and other sensitive, business critical information. While the Company has a comprehensive cyber security program that is continuously reviewed, maintained and upgraded, a significant cyber attack could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on the Company’s financial results.

Company Strategy: Implementing certain elements of the Company's strategy could negatively impact the Company's financial results.
The Company currently has manufacturing operations, sales and marketing activities, joint ventures, as well as proposed and existing projects of varying size in emerging geographies. Activities in these geographic areas are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement. If the manufacturing operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.

The Company has also announced a number of portfolio management actions as part of Dow's ongoing transformation, including a proposed all-stock merger of equals transaction with E.I. du Pont de Nemours and Company, as well as transactions to restructure the Company's ownership interest in certain joint ventures. If the execution or implementation of these transactions is not successful, it could adversely impact the Company's financial condition, cash flows and results of operations.

Goodwill: An impairment of goodwill could negatively impact the Company's financial results.
At least annually, the Company assesses goodwill for impairment. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings. Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any

determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.

Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's Cumulative Convertible Perpetual Preferred Stock, Series A. Seedefined benefit pension plans and other postretirement benefit plans could negatively impact Dow's financial condition and results of operations.
The Company has defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries. The assets of the Company's funded plans are primarily invested in fixed income and equity securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.




The Dow Chemical Company and Subsidiaries
PART I, Item 1B. Unresolved Staff Comments.
UNRESOLVED STAFF COMMENTS
None.




The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.
PROPERTIES
The Company operates 189 manufacturing sites in 34 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow’s products. During 2016, the Company’s production facilities and plants operated at 85 percent of capacity. The Company’s major production sites, including consolidated variable interest entities, are as follows:

Location
Agricultural
Sciences
Consumer SolutionsInfrastructure Solutions
Performance
Materials & Chemicals
Performance Plastics
Bahia Blanca, Argentinax
Candeias, Brazilx
Canada:
Fort Saskatchewan, Albertax
Joffre, Albertax
Germany:
Boehlenxxx
Bomlitzxx
Leunax
Schkopauxxxx
Stadexxxxx
Terneuzen, The Netherlandsxxxx
Tarragona, Spainxxx
Map Ta Phut, Thailandxxx
United States:
Carrollton, Kentuckyxx
Louisville, Kentuckyx
Hahnville (St. Charles), Louisianaxxx
Plaquemine, Louisianaxxxx
Midland, Michiganxxxxx
Deer Park, Texasxx
Freeport, Texasxxxx
Seadrift, Texasxxxx
Texas City, Texasxx
Wales, United Kingdomxx
Zhangjiagang, Chinaxxx
Including the major production sites, the Company has plants and holdings in the following geographic areas:

Asia Pacific:  40 manufacturing locations in 11 countries.
Canada:    6 manufacturing locations in 3 provinces.
Europe, Middle East, Africa and India:  50 manufacturing locations in 17 countries.
Latin America:  33 manufacturing locations in 4 countries.
United States:  60 manufacturing locations in 25 states and 1 U.S. territory.

All of Dow’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value.

A summary of properties, classified by type, is provided in Note 228 to the Consolidated Financial Statements for additional information.Statements. Additional information regarding leased properties can be found in Note 19 to the Consolidated Financial Statements.

Net Income Available

The Dow Chemical Company and Subsidiaries
PART I, Item 3. Legal Proceedings.
LEGAL PROCEEDINGS

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 four 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 Common Stockholdersasbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc.

Net income available for common stockholders was $7,345 million ($6.15 per share)For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in 2015, compared with $3,432 million ($2.87 per share) in 2014Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and $4,447 million15 ($3.68 per share) in 2013.to the Consolidated Financial Statements.

Certain Items Impacting ResultsEnvironmental Matters
The Company's management believes that measures of income adjusted to exclude certain items ("non-GAAP" financial measures) provide relevantIn a meeting on July 22, 2015, Rohm and meaningful information to investors about the ongoing operating resultsHaas Company and Rohm and Haas Chemicals LLC (collectively, “ROH”), wholly owned subsidiaries of the Company. Such financial measuresCompany, were informed by representatives of the U.S. Environmental Protection Agency (“EPA”) of the EPA’s intent to seek injunctive relief and assess a civil penalty in excess of $100,000 for alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky, manufacturing facility. In a letter dated November 13, 2016, ROH was informed that after consideration of the information provided by the Company, the EPA has determined that it will not, at this time, pursue civil enforcement related to the alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky manufacturing facility.

Dow Corning Corporation ("Dow Corning"), a wholly owned subsidiary of the Company, has received the following notifications from the EPA, Region Five related to Dow Corning’s Midland manufacturing facility (the “Facility”): 1) a Notice of Violation and Finding of Violation (received in April 2012) which alleges a number of violations in connection with the detection, monitoring and control of certain organic hazardous air pollutants at the Facility and various recordkeeping and reporting violations under the Clean Air Act and 2) a Notice of Violation (received in May 2015) alleging a number of violations relating to the management of hazardous wastes at the Facility pursuant to the Resource Conservation and Recovery Act. While Dow Corning contests these allegations, resolution may result in a penalty in excess of $100,000. Discussions between the EPA and Dow Corning are ongoing.

On August 17, 2016, Dow Corning received notification from the Kentucky Department for Environmental Protection ("KDEP") of their intent to assess a civil penalty in excess of $100,000 for alleged air violations at Dow Corning's Carrollton, Kentucky, manufacturing facility. Discussions between Dow Corning and the KDEP are ongoing.

Rohm and Haas Texas Incorporated ("ROH Texas"), a wholly owned subsidiary of the Company, was informed by the EPA, Region 6 of concerns related to the operation and condition of certain flares installed at ROH Texas' Deer Park, Texas, manufacturing facility. This matter was resolved on January 12, 2017, through the issuance of an Administrative Complaint as well as a Consent Agreement and Final Order, under which ROH Texas does not recognizedadmit the alleged violations but agrees to pay the U.S. Treasury $400,000 and commits to a mitigation plan involving additional monitoring and completion of two Supplemental Environmental Projects ("SEPs") to provide a local college with an air monitoring bench and improved energy efficient lighting. The SEPs are estimated to cost ROH Texas approximately $1.5 million.

Derivative Litigation
In April 2016, Stephen Levine ("Levine"), purportedly in accordancethe name of and on behalf of the Company, served the Company with accounting principles generally accepteda complaint filed in the United States District Court for the Eastern District of America ("U.S. GAAP"Michigan (the “Court”) against certain officers and shoulddirectors of the Company (the “Defendants”) alleging, among other things, that Defendants breached certain fiduciary obligations with respect to the urethanes antitrust class action litigation and the underlying conduct alleged therein, and the use of corporate assets. Defendants and the Company moved to dismiss the complaint on July 13, 2016, arguing that Levine had not be viewed asalleged sufficient facts to establish his ability to assert claims on the Company's behalf and that the allegations were not sufficient to state a legal claim. On October 19, 2016, the Court entered an alternativeorder granting Defendants' motion to U.S. GAAP financial measuresdismiss and entering judgment for the Defendants. In November 2016, the shareholder appealed the Court’s judgment to the United States Court of performance.

39


The following table summarizesAppeals for the impact of certain items recorded in 2015, 2014 and 2013:Sixth Circuit.

Certain Items Impacting Results
Pretax
Impact (1)
 
Impact on
Net Income (2)
 
Impact on
EPS (3) (4)
In millions, except per share amounts2015
 2014
 2013
 2015
 2014
 2013
 2015
 2014
 2013
Adjusted to exclude certain items (non-GAAP measures)      $4,054
 $3,709
 $2,981
 $3.47
 $3.11
 $2.48
Certain items:                 
Cost of sales:                 
Asset impairments and related costs$(91) $(23) $(181) (70) (14) (124) (0.06) (0.01) (0.10)
Warranty accrual adjustment of exited business
 (100) 
 
 (63) 
 
 (0.05) 
Univation step acquisition(12) 
 
 (8) 
 
 (0.01) 
 
Restructuring plan implementation costs
 
 (40) 
 
 (29) 
 
 (0.03)
Portfolio and productivity actions(24) 
 
 (16) 
 
 (0.01) 
 
R&D:                 
Restructuring plan implementation costs
 
 (2) 
 
 (1) 
 
 
SG&A:                 
Restructuring plan implementation costs
 
 (2) 
 
 (2) 
 
 
Portfolio and productivity actions(51) 
 
 (38) 
 
 (0.03) 
 
Amortization of intangibles:                 
Asset impairments and related costs
 
 (3) 
 
 (2) 
 
 
Goodwill and other intangible asset impairment losses
 (50) 
 
 (33) 
 
 (0.03) 
Restructuring (charges) credits(415) 
 22
 (274) 
 21
 (0.24) 
 0.02
Asbestos-related charge
 (78) 
 
 (49) 
 
 (0.04) 
Equity in earnings of nonconsolidated affiliates:                 
Joint venture actions(36) (93) 
 (26) (87) 
 (0.02) (0.08) 
Asset impairments at a formulated electrolytes joint venture
 
 (10) 
 
 (6) 
 
 (0.01)
Sundry income (expense) - net:                 
Gain on split-off of chlorine value chain2,233
 
 
 2,215
 
 
 1.96
 
 
Gain on sale of MEGlobal723
 
 
 589
 
 
 0.52
 
 
Gain on 2015 business divestitures1,320
 
 
 823
 
 
 0.71
 
 
Gain on Univation step acquisition361
 
 
 359
 
 
 0.31
 
 
Gain from K-Dow settlement
 
 2,161
 
 
 1,647
 
 
 1.37
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
Asset impairments and related costs(53) 
 
 (53) 
 
 (0.05) 
 
Impact of Argentine peso devaluation(98) 
 
 (106) 
 
 (0.09) 
 
Loss on early extinguishment of debt(8) 
 (326) (5) 
 (205) 
 
 (0.17)
Portfolio and productivity actions(119) (49) 
 (99) (31) 
 (0.09) (0.03) 
Provision for income taxes:                 
Uncertain tax position adjustments
 
 
 
 
 (276) 
 
 (0.23)
Total certain items$3,730
 $(393) $2,183
 $3,291
 $(277) $1,466
 $2.90
 $(0.24) $1.21
Dilutive effect of assumed preferred stock conversion into shares of common stock            $(0.22) $
 $(0.01)
Reported U.S. GAAP Amounts (5) (6)      $7,345
 $3,432
 $4,447
 $6.15
 $2.87
 $3.68

The Dow Chemical Company and Subsidiaries
PART I, Item 4. Mine Safety Disclosures.
MINE SAFETY DISCLOSURES

Not applicable.


The Dow Chemical Company and Subsidiaries
PART II, Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company’s common stock is the New York Stock Exchange, traded under the symbol “DOW.”

Quarterly market and dividend information can be found in Quarterly Statistics at the end of Part II, Item 8. Financial Statements and Supplementary Data.

At December 31, 2016, there were 57,838 registered common stockholders. The Company estimates there were an additional 855,171 stockholders whose shares were held in nominee names at December 31, 2016. At January 31, 2017, there were 57,651 registered common stockholders.

On December 15, 2016, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 30, 2017, to stockholders of record on December 28, 2016. On February 9, 2017, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 28, 2017, to stockholders of record on March 31, 2017. 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 105-year period, Dow has increased the amount of the quarterly dividend 52 times (approximately 13 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 87 percent of the time.

See Part III, Item 11. Executive Compensation for information relating to the Company’s equity compensation plans.

Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended December 31, 2016:

Issuer Purchases of Equity Securities Average price paid per share
 
Total number of shares purchased as part of the Company's publicly announced share repurchase
program (1)

 
Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1)
(In millions)

Period Total number of shares purchased
October 2016 
 $
 
 $1,896
November 2016 8,822,551
 $53.64
 8,822,551
 $1,423
December 2016 493,480
 $54.25
 493,480
 $1,396
Fourth quarter 2016 9,316,031
 $53.67
 9,316,031
 $1,396
(1)ImpactOn February 13, 2013, the Board of Directors approved a share buy-back program, authorizing up to $1.5 billion to be spent on "Income Before Income Taxes."the repurchase of the Company’s common stock. 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. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion.




The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

In millions, except as noted (Unaudited)
2016
2015
2014
2013
2012
Summary of Operations     
Net sales$48,158
$48,778
$58,167
$57,080
$56,786
Net income (1)
$4,404
$7,783
$3,839
$4,816
$1,100
Per share of common stock (in dollars):     
Net income per common share - basic (1)
$3.57
$6.45
$2.91
$3.72
$0.71
Net income per common share - diluted (1)
$3.52
$6.15
$2.87
$3.68
$0.70
Cash dividends declared per share of common stock$1.84
$1.72
$1.53
$1.28
$1.21
Book value per share of common stock$21.70
$23.06
$19.71
$22.59
$17.73
Year-end Financial Position     
Total assets (2) (3)
$79,511
$67,938
$68,639
$69,380
$69,462
Long-term debt (2)
$20,456
$16,215
$18,741
$16,732
$19,819
Financial Ratios     
Research and development expenses as percent of net sales3.3%3.3%2.8%3.1%3.0%
Income before income taxes as percent of net sales (1)
9.2%20.4%9.1%11.9%2.9%
Return on stockholders’ equity (1)
15.3%34.4%18.6%19.4%5.0%
Debt as a percent of total capitalization44.0%39.7%45.5%38.9%48.7%
(1)The 2016 values include the impact of a change in accounting policy for asbestos-related defense and processing costs. See Notes 1 and 15 to the Consolidated Financial Statements for additional information.    
(2)Impact on "Net Income AvailableAdjusted for The Dow Chemical Company Common Stockholders."the reclassification of debt issuance costs related to the adoption of ASU 2015-03 in 2015. See Note 2 to the Consolidated Financial Statements for additional information.
(3)Impact on "Earnings per common share - diluted."
(4)For the years ended December 31, 2015 and 2013, conversion of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") 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)For the years ended December 31, 2015 and 2013, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of diluted earnings per share (reported U.S. GAAP amount).
(6)The Company used "Net Income Attributable to The Dow Chemical Company" when calculating diluted earnings per share (reported U.S. GAAP amount)Adjusted for the years ended December 31, 2015adoption of ASU 2015-17 in 2016. See Notes 1 and 2013, as it excludes preferred dividends of $340 million.2 to the Consolidated Financial Statements for additional information.

40


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 26 to the Consolidated Financial Statements.

The Company's management believes that measures of income, including EBITDA, 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.

Due to the completion of several acquisitions and divestitures (see Notes 4 and 5 to the Consolidated Financial Statements), the change in sales volume from 2014 to 2015, 2013 to 2014 and 2012 to 2013 excluding acquisitions and divestitures is also provided by operating segment, where applicable.



41


SALES VOLUME AND PRICE BY OPERATING SEGMENT AND GEOGRAPHIC AREA

Sales Volume and Price by Operating Segment and Geographic Area
  2015 2014 2013
Percent change from prior year Volume
 Price
 Total
 Volume
 Price
 Total
 Volume
 Price
 Total
Operating Segments:                  
Agricultural Sciences (4)% (8)% (12)% 3 % (1)% 2 % 11 % 1 % 12 %
Consumer Solutions 1
 (7) (6) 3
 (1) 2
 3
 (2) 1
Infrastructure Solutions 2
 (14) (12) 1
 
 1
 4
 (1) 3
Performance Materials & Chemicals (6) (15) (21) 2
 
 2
 (2) 1
 (1)
Performance Plastics 5
 (23) (18) 
 2
 2
 (4) 1
 (3)
Total 1 % (17)% (16)% 2 %  % 2 %  % 1 % 1 %
Geographic Areas:                  
United States  % (14)% (14)% 2 % 2 % 4 %  % 2 % 2 %
Europe, Middle East, Africa and India 
 (22) (22) 3
 (1) 2
 (4) 
 (4)
Rest of World 1
 (13) (12) (1) 
 (1) 4
 
 4
Total 1 % (17)% (16)% 2 %  % 2 %  % 1 % 1 %
The Dow Chemical Company and Subsidiaries
PART II, Item 7. Management’s Discussion and
(Unaudited)Analysis of Financial Condition and Results of Operations.

Sales Volume and Price by Operating Segment and Geographic Area
Excluding Acquisitions and Divestitures
(1)
  2015 2014 2013
Percent change from prior year Volume
 Price
 Total
 Volume
 Price
 Total
 Volume
 Price
 Total
Operating Segments:                  
Agricultural Sciences (3)% (8)% (11)% 3% (1)% 2% 11 % 1 % 12 %
Consumer Solutions 1
 (7) (6) 3
 (1) 2
 3
 (2) 1
Infrastructure Solutions 2
 (14) (12) 1
 
 1
 4
 (1) 3
Performance Materials & Chemicals 1
 (16) (15) 2
 
 2
 (2) 1
 (1)
Performance Plastics 5
 (23) (18) 1
 2
 3
 (3) 1
 (2)
Total 2 % (17)% (15)% 2%  % 2%  % 1 % 1 %
Geographic Areas:                  
United States 2 % (14)% (12)% 2% 2 % 4%  % 2 % 2 %
Europe, Middle East, Africa and India 3
 (23) (20) 4
 (1) 3
 (4) 
 (4)
Rest of World 2
 (13) (11) 
 
 
 6
 
 6
Total 2 % (17)% (15)% 2%  % 2%  % 1 % 1 %
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Table of Contents


Page


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 material, polymer, chemical and biological science to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, energy efficiency, more durable infrastructure, and increasing agricultural productivity. Dow's integrated, market-driven portfolio delivers a broad range of technology-based products and solutions to customers in 175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics and agriculture. In 2016, Dow had annual sales of $48 billion and employed approximately 56,000 people worldwide. The Company's more than 7,000 product families are manufactured at 189 sites in 34 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

In 2016, 38 percent of the Company’s sales were to customers in North America; 30 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 32 percent were to customers in Asia Pacific and Latin America.

In 2016, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Iran, Sudan and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.









2016 OVERVIEW
Dow had another strong year in 2016, delivering on a number of strategic priorities including progress on growth investments and portfolio actions. A summary of financial highlights and other notable events are as follows:

Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Sales declined in Performance Materials & Chemicals (down 23 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent) which more than offset sales increases in Consumer Solutions (up 25 percent) and Infrastructure Solutions (up 17 percent), both of which include Dow Corning Corporation's ("Dow Corning") silicones business. Performance Plastics sales were flat. Sales declined in all geographic areas, except Asia Pacific (up 10 percent).

Volume increased 5 percent in 2016 compared with 2015, as increases in Consumer Solutions (up 29 percent), Infrastructure Solutions (up 23 percent), and Performance Plastics (up 8 percent) more than offset volume declines in Performance Materials & Chemicals (down 14 percent) and Agricultural Sciences (down 3 percent). Volume increased in all geographic areas, except Latin America (down 1 percent), including a double-digit increase in Asia Pacific (up 16 percent). Excluding the impact of recent acquisitions and divestitures(1), volume was up 4 percent with increases in all operating segments, except Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which was flat.

Price was down 6 percent in 2016 compared with 2015, driven by lower feedstock and raw material prices and competitive pricing pressures. Price declines were reported in all operating segments, except Agricultural Sciences which was flat, and all geographic areas.

Dow's Board of Directors approved a restructuring plan in the second quarter of 2016 that incorporates actions related to the ownership restructure of Dow Corning. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. As a result, the Company recorded pretax restructuring charges of $449 million in 2016 related to this plan.

In the fourth quarter of 2016, the Company changed its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability through the expected terminal date of 2049, resulting in a charge of $1,009 million. The Company also increased its asbestos-related liability for pending and future claims through the expected terminal date of 2049, resulting in an additional charge of $104 million.

Dow's earnings from nonconsolidated affiliates totaled $442 million in 2016, down from $674 million in 2015. In 2016, equity earnings decreased as higher earnings from The SCG-Dow Group, Map Ta Phut Olefins Company Limited and the HSC Group were more than offset by higher equity losses from Sadara Chemical Company ("Sadara") related to start-up expenses, and lower equity earnings from the Kuwait joint ventures as a result of lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE Petrochemicals Company K.S.C. ("EQUATE")). Equity earnings also declined as a result of the ownership restructure of Dow Corning ("DCC Transaction").

Sundry income (expense) - net was income of $1,202 million in 2016, reflecting a gain related to the DCC Transaction partially offset by a loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation.

The provision for income taxes was $9 million in 2016, which resulted in an effective tax rate of 0.2 percent, down from $2,147 million in 2015, or an effective tax rate of 21.6 percent. The provision for income taxes decreased primarily due to the non-taxable gain on the DCC Transaction, a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge resulting from the change in accounting policy.

The Company resumed its share repurchase program in the third quarter of 2016 after the shareholder vote on the DowDuPont merger on July 20, 2016. During 2016, the Company executed $916 million in share repurchases. At December 31, 2016, $1.4 billion of the share buy-back authorization remained available for repurchases.


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics),; the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences),; ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals),; and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals), the Polypropylene Licensing and Catalysts business, divested on December 2, 2013 (Performance Plastics) and sales related to Nippon Unicar Company Limited, divested on July 1, 2013 (Performance Plastics). Also excludes current period sales related to the ownership restructure of recent acquisitions includingDow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics) and Coodetec, acquired on February 1, 2015 (Agricultural Sciences).

On December 30, 2016, the Company converted 4 million shares of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into 96.8 million shares of the Company's common stock. As a result of this conversion, the annual Preferred Stock dividend of $340 million will be eliminated.

Other notable events and highlights from 2016 include:

On March 7, 2016, the Company announced its new, on-purpose propylene production facility in Freeport, Texas, successfully completed the performance test, certifying that the 750 kilotonnes per annum ("KTA") unit is capable of operating at full operating capacity.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture. As a result, Dow is now the 100 percent owner of Dow Corning's silicones business.

On June 9, 2016, DowDuPont's registration statement filed with the U.S. Securities and Exchange Commission on Form S-4 (File No. 333-209869), as amended, was declared effective. The registration statement was filed in connection with the proposed merger with E. I. du Pont de Nemours & Company ("DuPont") and includes a joint proxy statement of Dow and DuPont and a prospectus of DowDuPont.

In connection with the planned merger of equals transaction with DuPont, Dow held a special meeting of stockholders on July 20, 2016. Stockholders of the Company voted to approve all stockholder proposals necessary to complete the merger of equals transaction.

On August 29, 2016, the Company announced that its joint venture in the Middle East - Sadara - achieved a significant milestone with the successful start-up of its mixed feed cracker and a third polyethylene train, which added to the two polyethylene trains already in operation.

On December 9, 2016, the Company announced that it will invest in a new, state-of-the-art innovation center in Midland, Michigan, which will support approximately 200 research and development jobs in Michigan, including 100 newly created jobs while repatriating 100 jobs from other Dow facilities throughout the globe to Midland.

Dow launched two additional Pack Studios in 2016 - the opening of Pack Studios Singapore, the second Pack Studios center for Asia Pacific, and Pack Studios Ringwood, located in North America and focused on laminating adhesives.

Dow completed expansions of its Louisiana ethylene and Seadrift, Texas, gas-phase polyethylene production facilities, delivering further integration strength to complement the Company's market-focused downstream investments.

Dow was named to the Dow Jones Sustainability World Index - marking the 16th time the Company has been named to this global benchmark.

42Dow received seven R&D 100 Awards from R&D Magazine for revolutionary technologies including: BETAFORCE™ 2817 Structural Adhesive, two awards for CANVERA™ Polyolefin Dispersions, Dow Corning® TC-3040 Thermal Gel, Flexible Acrylic Resin, PARADIGM™ WG Herbicide with ARYLEX™ Active and DOW AGILITY™ Performance LDPE.


Dow received two 2016 Sustainability Awards from the Business Intelligence Group including the Sustainability Initiative of the Year Award for RETAIN™ Polymer Modifiers and the Sustainability Product of the Year Award for CANVERA™ Polyolefin Dispersions.

Dow AgroSciences LLC was the recipient of a Presidential Green Chemistry Challenge Award from the U.S. Environmental Protection Agency for INSTINCT® Nitrogen Stabilizer.

Dow was recognized in the Top 10 Best Companies for Leaders by Chief Executive magazine.

Dow was named to the 2016 Working Mother 100 Best Companies list, marking the 12th time Dow has received this prestigious recognition.

Dow was named to Forbes Just 100: America's Best Corporation Citizens in 2016 list - recognizing the Company's strategic vision and actions to deliver long-term value to society as a whole while earning the right to operate.


Dow was named the ICIS Company of the Year, based on financial metrics, by weekly global publication ICIS Chemical Business. The selection takes into account year-on-year growth in profits at the operating and net levels, as well as margins.

Dow was honored for the 12th consecutive year by the Human Rights Campaign for achieving a 100 percent rating on its corporate equality index - a global benchmarking tool on corporate policies and practices related to lesbian, gay, bisexual and transgender (LGBT) employees.

On February 2, 2016, Dow announced the planned transition of Chairman and Chief Executive Officer Andrew N. Liveris. The transition will occur on the earlier of the material completion of the anticipated spins following the closing of the announced DowDuPont merger transaction or June 30, 2017.

On February 2, 2016, James R. Fitterling was appointed President and Chief Operating Officer. He succeeds Andrew N. Liveris as President with Mr. Liveris continuing as the Company's Chairman and Chief Executive Officer.

On April 15, 2016, Gary McGuire was elected Vice President and Treasurer, succeeding Fernando Ruiz, Corporate Vice President and Treasurer, who announced his intention to retire from the Company.

Dow’s results of operations and financial condition for the year ended December 31, 2016, are described in further detail in the following discussion and analysis.


RESULTS OF OPERATIONS
Net Sales
Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Price decreased in all operating segments, except Agricultural Sciences which was flat, and all geographic areas, due to lower feedstock and raw material prices and competitive pricing pressures. Volume increases in Consumer Solutions (up 29 percent) and Infrastructure Solutions (up 23 percent), both of which include Dow Corning's silicones business, and Performance Plastics (up 8 percent) more than offset lower volume in Performance Materials & Chemicals (down 14 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent). Volume increased in Asia Pacific (up 16 percent), North America (up 5 percent), EMEAI (up 3 percent) and declined in Latin America (down 1 percent). Excluding recent acquisitions and divestitures(1), volume was up 4 percent as increases in Performance Plastics (up 9 percent), Consumer Solutions (up 4 percent) and Performance Materials & Chemicals (up 2 percent) more than offset declines in Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which remained flat.

Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Price decreased in all operating segments and geographic areas, driven primarily by a decline in average crude oil prices of approximately 45 percent and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent) and Consumer Solutions (down 7 percent). Volume increases in Performance Plastics (up 5 percent), Infrastructure Solutions (up 2 percent) and Consumer Solutions (up 1 percent) more than offset lower volume in Performance Materials & Chemicals (down 6 percent) and Agricultural Sciences (down 4 percent). Volume increased in Asia Pacific (up 3 percent) and remained flat in North America, EMEAI and Latin America. Excluding the impact of recent acquisitions and divestitures(1), Performance Materials & Chemicals volume was up 1 percent and Agricultural Sciences volume was down 3 percent. Volume increased in all geographic areas, led by Asia Pacific (up 4 percent).

Sales in the United States accounted for 35 percent of total sales in 2016 (35 percent in 2015 and 33 percent in 2014). See the Sales Volume and Price tables at the beginning 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 26 to the Consolidated Financial Statements.


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics); the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences); ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation, acquired on May 5, 2015 (Performance Plastics).

Gross Margin
Gross margin was $10.5 billion in 2016, $10.9 billion in 2015 and $10.7 billion in 2014. Gross margin in 2016 was impacted by a $317 million loss associated with the fair value step-up in inventories acquired in the DCC Transaction, reflected in Consumer Solutions ($147 million) and Infrastructure Solutions ($170 million); a $295 million charge for environmental matters, reflected in Agricultural Sciences ($2 million), Performance Materials & Chemicals ($1 million), Performance Plastics ($2 million) and Corporate ($290 million); $124 million of costs associated with transactions and productivity actions (reflected in Corporate); and a $117 million charge for the termination of a terminal use agreement (reflected in Performance Plastics). Excluding these items, gross margin increased compared with 2015 as lower feedstock, energy and other raw material costs, cost cutting and productivity initiatives, higher sales volume and the favorable impact from the addition of Dow Corning's silicones business more than offset lower selling prices. See Notes 4 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin increased in 2015 driven by an $8,542 million decrease in purchased feedstock and energy costs and the favorable impact of currency on costs which was partially offset by lower selling prices, including the unfavorable impact of currency. In 2015, gross margin was reduced by $91 million of charges for asset impairments and related costs, including the shutdown of manufacturing assets and facilities in the Dow Building & Construction, Energy & Water Solutions and Dow Packaging and Specialty Plastics businesses and the abandonment of certain capital projects in the Dow Building & Construction and Dow Coating Materials businesses and reflected in the following segments: Infrastructure Solutions ($34 million) and Performance Plastics ($57 million). Gross margin was also reduced by $24 million of costs associated with transactions and productivity actions (reflected in Corporate) and a $12 million loss related to Univation Technologies, LLC ("Univation") for the fair value step-up of inventories assumed in the step acquisition (reflected in Performance Plastics). See Notes 4 and 12 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2014 was positively impacted by increased sales volume, a $392 million decrease in purchased feedstock and energy costs, lower other raw material costs and increased operating rates. Gross margin in 2014 was reduced by a $100 million warranty accrual adjustment related to an exited business (reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic Materials business (reflected in Consumer Solutions). See Notes 12 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2016, flat compared with 2015 and 2014.

Personnel Count
The Company permanently employed approximately 56,000 people at December 31, 2016, up from approximately 46,500 at December 31, 2015. Headcount increased in 2016 primarily due to the DCC Transaction, which was partially offset by a decline related to the Company's restructuring programs. Personnel count at December 31, 2015, decreased from approximately 50,000 at December 31, 2014, primarily due to the separation of employees as a result of divestitures and the Company's restructuring programs.

Research and Development Expenses
Research and development (“R&D”) expenses were $1,584 million in 2016, compared with $1,598 million in 2015 and $1,647 million in 2014. In 2016, R&D expenses decreased slightly compared with 2015, as increased costs from Dow Corning's silicones business were more than offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, R&D expenses decreased primarily due to cost reduction initiatives, notably in Agricultural Sciences, which were partially offset by increased performance-based compensation costs.

Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $3,304 million in 2016, compared with $2,971 million in 2015 and $3,106 million in 2014. In 2016, SG&A was negatively impacted by $379 million of costs associated with transactions and productivity actions, reflected in Corporate ($51 million in 2015). Excluding these items, SG&A expenses were essentially flat in 2016 compared with 2015, as increased costs from Dow Corning's silicones business were nearly offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, SG&A expenses decreased as lower expenses, notably in Agricultural Sciences, and from the impact of divestitures, more than offset increased performance-based compensation costs.

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 2016
 2015
 2014
Hydrocarbon feedstocks and energy 24% 27% 38%
Salaries, wages and employee benefits 17
 18
 15
Maintenance 4
 5
 4
Depreciation 5
 4
 4
Restructuring charges 1
 1
 
Supplies, services and other raw materials 49
 45
 39
Total 100% 100% 100%

Amortization of ContentsIntangibles
Amortization of intangibles was $544 million in 2016, $419 million in 2015 and $436 million in 2014. The increase in amortization in 2016 is primarily due to an increase in intangible assets as a result of the DCC Transaction. See Notes 4 and 10 to the Consolidated Financial Statements for additional information on intangible assets.

Goodwill and Other Intangible Asset Impairment Losses
The Company performs annual goodwill impairment tests in the fourth quarter of the year. In 2016, the Company performed qualitative testing for 11 of the 14 reporting units carrying goodwill (9 of 12 reporting units in 2015 and 9 of 14 reporting units in 2014) and quantitative testing for the remaining three reporting units (three in 2015 and five in 2014). No goodwill impairments were identified in 2016, 2015 and 2014. See Critical Accounting Policies in Other Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted.

In the fourth quarter of 2014, the Company recognized a pretax charge of $50 million for the impairment of intangible assets in the Dow Electronic Materials business, reflected in the Consumer Solutions segment. See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

Restructuring Charges (Credits)
On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the DCC Transaction. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the DCC Transaction. These actions are expected to be substantially completed by June 30, 2018. As a result, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance costs of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million and reflected in the Company's segments results as follows: $28 million in Consumer Solutions, $97 million in Infrastructure Solutions, $10 million in Performance Plastics and $314 million in Corporate.

On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the split-off of the chlorine value chain. These actions, which further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. These actions are expected to be completed primarily by June 30, 2017. As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of severance costs of $196 million, asset write-downs and write-offs of $169 million and costs associated with exit and disposal activities of $10 million. In the fourth quarter of 2015, the Company recorded a restructuring charge adjustment of $40 million, primarily related to severance costs for the separation of approximately 500 additional positions. The impact of these charges was reflected in the Company's segment results as follows: $16 million in Agricultural Sciences, $67 million in Consumer Solutions, $26 million in Infrastructure Solutions, $12 million in Performance Plastics and $294 million in Corporate.

In 2016, the Company recorded an unfavorable restructuring charge adjustment of $6 million for additional accruals for costs associated with exit and disposal activities and a favorable adjustment of $3 million for the impairment of long-lived assets related to the 2015 Restructuring plan. The net charge was included in the Company's segment results as follows: $5 million charge in Agricultural Sciences, $1 million charge in Consumer Solutions and a $3 million gain in Infrastructure Solutions.

In 2014, the Company recognized a pretax gain of $3 million for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan, reflected in Performance Materials & Chemicals. See Note 3 to the Consolidated Financial Statements for details on the Company's restructuring activities.

Asbestos-related Charge
In 2016, the Company and Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary, elected to change the method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. As a result of this accounting policy change, the Company recorded a pretax charge of $1,009 million for asbestos-related defense costs through the terminal year of 2049. The Company also recorded a pretax charge of $104 million to increase the asbestos-related liability for pending and future claims through the terminal year of 2049. These charges were reflected in Corporate.

In 2014, the Company recorded a pretax charge of $78 million (reflected in Corporate) for an increase in the asbestos-related liability for pending and future claims (excluding defense and processing costs). Union Carbide determined that an adjustment to the asbestos accrual was required due to an increase in mesothelioma claim activity compared with what had been previously forecasted. See Notes 1 and 15 to the Consolidated Financial Statements for additional information on asbestos-related matters.

Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 2016 was $442 million, compared with $674 million in 2015 and $835 million in 2014. In 2016, equity earnings declined due to higher equity losses at Sadara related to start-up expenses, lower equity earnings from the Kuwait joint ventures due to lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE), and the DCC Transaction. Equity earnings for 2016 also declined due to a charge of $22 million for a loss on early redemption of debt incurred by Dow Corning and reflected in Consumer Solutions ($8 million) and Infrastructure Solutions ($14 million). These declines were partially offset by higher earnings at the HSC Group, The SCG-Dow Group and Map Ta Phut Olefins Company Limited. In 2015, equity earnings decreased as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara, lower equity earnings from Univation resulting from the May 5, 2015, step acquisition and lower earnings from EQUATE, The Kuwait Olefins Company K.S.C. ("TKOC") and MEGlobal. Equity earnings in 2015 were also impacted by a $29 million charge (reflected in Agricultural Sciences) related to AgroFresh Solutions' fair value step-up of its inventories and start-up costs and a loss recognized by Sadara related to the write-off of design engineering work for an epoxy plant, of which Dow's share was $27 million (reflected in Corporate). In 2014, equity earnings decreased primarily due to lower earnings at EQUATE, The Kuwait Styrene Company K.S.C. ("TKSC") and MEGlobal and increased losses at Sadara which were partially offset by increased earnings at Dow Corning.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture between Dow and Corning. As a result, Dow Corning became a wholly owned subsidiary of Dow. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

In January 2014, the Chinese Ministry of Commerce issued a final determination that China's solar-grade polycrystalline silicon industry suffered material damage because of dumping, which resulted in antidumping duties of 53.3 percent and countervailing duties of 2.1 percent on future imports from the HSC Group into China. During the fourth quarter of 2014, Dow Corning determined its polycrystalline silicon plant expansion in Clarksville, Tennessee, would not be economically viable and made the decision to permanently abandon the assets. Dow's share of the charge related to this asset abandonment was $500 million (reflected in Infrastructure Solutions). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all remaining polycrystalline silicon assets might be impaired. Dow Corning's estimates of future undiscounted cash flows indicated the polycrystalline silicon asset group was recoverable.

During the fourth quarter of 2014, Dow Corning reduced its implant liability by approximately $1.3 billion. The revised implant liability reflected Dow Corning’s best estimate of its remaining obligations. Dow’s share of the implant liability reduction was $407 million ($155 million reflected in Consumer Solutions and $252 million reflected in Infrastructure Solutions). In the fourth quarter of 2015, Dow Corning further reduced its implant liability. Dow's share of the implant liability reduction was $20 million ($8 million reflected in Consumer Solutions and $12 million reflected in Infrastructure Solutions). See Note 9 to the Consolidated Financial Statements for additional information on nonconsolidated affiliates and Note 15 for additional information on Dow Corning's implant liability.


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, and litigation. Sundry income (expense) - net for 2016 was net income of $1,202 million, compared with net income of $4,592 million in 2015 and net expense of $27 million in 2014.

In 2016, sundry income (expense) - net included a $2,445 million gain related to the DCC Transaction (reflected in Consumer Solutions ($1,301 million) and Infrastructure Solutions ($1,144 million)), a $6 million gain adjustment on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals), a $27 million favorable adjustment related to a decrease in Dow Corning's implant liability (reflected in Consumer Solutions) and gains on sales of assets and investments. These gains more than offset a $1,235 million loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation (reflected in Performance Materials & Chemicals), a $143 million impairment charge related to the Company's investment in AgroFresh Solutions, Inc., a $20 million charge for post-closing adjustments related to non-cash consideration for the AgroFresh divestiture (both reflected in Agricultural Sciences), $41 million of costs associated with transactions and productivity actions (reflected in Corporate) and foreign currency exchange losses. See Notes 4, 5, 6, 9, 12, 13 and 15 to the Consolidated Financial Statements for additional information.
In 2015, sundry income (expense) - net included a $2,233 million gain on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals (gain of $1,984 million), Performance Plastics (gain of $317 million), and Corporate (loss of $68 million)), a $723 million gain on the sale of MEGlobal (reflected in Performance Materials & Chemicals), a $682 million gain on the divestiture of ANGUS Chemical Company (reflected in Performance Materials & Chemicals), a $20 million gain on the divestiture of the global Sodium Borohydride business (reflected in Performance Materials & Chemicals), a $618 million gain related to the divestiture of the AgroFresh business (net of an $8 million loss for mark-to-market adjustments on the fair value of warrants receivable and reflected in Agricultural Sciences), a $361 million gain on the Univation step acquisition (reflected in Performance Plastics) and gains on sales of assets and investments. These gains more than offset foreign currency exchange losses, including a $98 million loss related to the impact of the Argentine peso devaluation (reflected in Corporate), a $53 million loss on asset impairments and related costs (reflected in Infrastructure Solutions), an $8 million loss related to the early extinguishment of debt (reflected in Corporate) and $119 million of costs associated with transactions and productivity actions (reflected in Corporate). See Notes 4, 5, 6, 9, 12, 13 and 17 to the Consolidated Financial Statements for additional information.

In 2014, sundry income (expense) - net included a gain related to the termination of an off-take agreement and gains on asset sales which were more than offset by foreign currency exchange losses, venture capital investment losses and $49 million of costs associated with transactions and productivity actions (reflected in Corporate).

AGRICULTURAL SCIENCES
The Agricultural Sciences segment is a global leader in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The business invents, develops, manufactures and markets products for use in agricultural, industrial and commercial pest management,management. The segment has broad global reach with sales in nearly 130 countries and food service. Agricultural Sciences consistsresearch and development ("R&D") and manufacturing facilities located in all geographic areas. Growth is achieved through the development of two businesses - Crop Protectioninnovative new products and Seeds.technologies, successful segmentation of market offerings with leading brands, diverse channels to market, competitive cost positions, strategic bolt-on acquisitions, and commercial and R&D collaborations. The Company is committed to the development of innovative new crop protection and seed products.

On January 30, 2015, DAS acquired Coodetec'sDetails on Agricultural Sciences' 2016 sales, by business and geographic area, are as follows:
(1)Europe, Middle East, Africa and India

Products
Key product lines, including crop application, are listed below:

Crop Application
Key Product LinesCanolaCerealsCornCottonRange and PastureRiceSoybeansSunflowerTrees, Fruits and VegetablesOthers
Insecticidesxxxxxxxxx
Fungicidesxxxxxx
Herbicidesxxxxxxxxxx
Seedsxxxxxxxx
Otherxxx

The Company's ability to produce seeds can be materially impacted by weather conditions, local political conditions and the availability of reliable contract growers.


Agricultural Sciences is focused on delivering results through technology leadership. Major brands and technologies, by key product line, are listed below:

Key Product LinesBrands and Technologies
InsecticidesISOCLAST™; LORSBAN™; RADIANT™; SENTRICON™; TRACER™
FungicidesDITHANE™; INATREQ™
HerbicidesARYLEX™; BROADWAY™; CLINCHER™; DURANGO™; FENCER™; GARLON™; LONTREL™; MILESTONE™; PANZER™; PRIMUS™; RESICORE™; RINSKOR™; SPIDER™; STARANE™; SURESTART™; TORDON™
Seed Brands
AGROMEN™(1); BRODBECK™ Seeds; DAIRYLAND SEED™; DOW™ Seeds; MYCOGEN™ Seeds; NEXERA™; Omega-9 Healthier Oils; PFISTER™ Seeds; PHYTOGEN™; PRAIRIE BRAND™ Seeds; PROPOUND™
Seed Traits and Technologies
ENLIST™; ENLIST DUO™; EXZACT™ Precision Technology; POWERCORE™ Insect Trait Technology(2); REFUGE ADVANCED™ powered by SmartStax®(2); SmartStax® Insect Trait Technology(2)
OtherINSTINCT®; N-SERVE™ Nitrogen Stabilizer; TELONE™
(1)AGROMEN trademark used under license from Agromen Sementes Agricolas Ltda.
(2)Smartstax® and POWERCORE™ multi-event technology developed by Dow AgroSciences LLC and Monsanto. Smartstax®, the Smartstax® logo, POWERCORE™ and the POWERCORE™ logo are trademarks of Monsanto Technology, LLC.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's registration of ENLIST DUO™ for use with ENLIST™ Corn, Soybeans and Cotton in 34 states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST E3™ Soybeans, ENLIST™ Soybean Seeds and ENLIST™ Corn Seeds in Brazil and Canada. ENLIST DUO™ is also approved for use with ENLIST™ crops in Canada. Regulatory approvals for ENLIST™ products in certain other countries are still pending.

Patents, Trademarks and Licenses
Agricultural Sciences has significant technology-driven growth, driven by crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. As a result, the Company uses patents, trademarks, licenses and registrations to protect its investment in germplasm, traits and proprietary chemistries and formulations. The Company also licenses plant biotechnology traits from third parties and engages in research collaborations.

Competition
Agricultural Sciences competes with producers of crop protection and seed/plant biotechnology products on a global basis. The Company competes on the basis of technology and trait leadership, price, quality and cost competitiveness. Key competitors include BASF, Bayer, DuPont, Monsanto and Syngenta, as well as generic crop protection companies and regional seed business. See Note 4companies.

Distribution
Agricultural Sciences has a diverse worldwide network which markets and distributes the Company's brands to customers globally. This network consists of the Consolidated Financial Statements for additional information on this acquisition.Company's sales and marketing organization partnering with distributors, independent retailers and growers, cooperatives and agents throughout the world.

Seasonality
Agricultural Sciences sales and EBITDA are strongest in the first half of the year, aligning with the planting and growing season in the northern hemisphere, where more than 50 percent of the segment's annual sales are generated. Accounts receivable tends to be higher during the first half of the year, consistent with the peak sales period in the northern hemisphere.

Divestiture
On July 31, 2015, the Company sold its AgroFresh business to AFSI.AgroFresh Solutions, Inc. ("AFSI"). The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is also reported in the Agricultural Sciences segment. See Note 5 to the Consolidated Financial Statements for additional information on this divestiture.transaction.

Agricultural Sciences
In millions
 2015
 2014
 2013
Sales $6,381
 $7,290
 $7,137
Price change from comparative period (8)% (1)% 1%
Volume change from comparative period (4)% 3 % 11%
Volume change, excluding acquisitions and divestitures (3)% 3 % 11%
Equity earnings (losses) $(15) $4
 $5
EBITDA $1,432
 $962
 $894
Certain items impacting EBITDA $573
 $
 $
EBITDA excluding certain items $859
 $962
 $894


2015 Versus 2014
Agricultural Sciences sales were $6,381 million in 2015, down 12 percent from $7,290 million in 2014. Compared with the same period last year, volume decreased 4 percent and price decreased 8 percent, including the unfavorable impact of currency which represented approximately 40 percent of the price decline. Sales declined in all geographic areas and both businesses, impacted by lower crop commodity prices, which drove a flat agricultural market, coupled with currency headwinds. Despite a 6 percent increase in new product sales, Crop Protection sales decreased 13 percent compared with 2014, partly driven by declines in glyphosate and the divestiture of AgroFresh. Seeds reported an 11 percent decline in sales compared with 2014 as soybean seeds and canola seeds growth was more than offset by lower sales of corn, primarily due to lower sales in the Americas as a result of shifting acreage from corn to soybeans. Excluding acquisitions and divestitures, volume for the segment was down 3 percent.

EBITDA for 2015 was $1,432 million, up $470 million from $962 million in 2014. Compared with the same period last year, EBITDA for 2015 was positively impacted by a pretax gain of $618 million related to the divestiture of AgroFresh and negatively impacted by $16million of restructuring charges and $29 million of charges related to AFSI's fair value step-up of its inventories and start-up costs. See Notes 3 and 5 to the Consolidated Financial Statements for additional information on these items. Excluding these certain items, EBITDA declined from 2014 as lower selling prices, softer demand due to lower crop commodity prices and the absence of earnings from the divestiture of the AgroFresh business more than offset the favorable impact of currency on costs, lower R&D and SG&A spending driven by productivity measures and gains from the sales of product lines and a subsidiary.

2014 Versus 2013
Agricultural Sciences sales were $7,290 million in 2014, up 2 percent from $7,137 million in 2013, a record for the segment and both businesses. Compared with 2013, volume was up 3 percent and price was down 1 percent due to the unfavorable impact of currency. Sales gains were reported in both businesses, driven by the introduction and ramp up of new products and technologies, and in all geographic areas, except North America. Crop Protection sales were up 3 percent due to increased demand for new products, which increased 20 percent, and continued strong demand for rice and cereal herbicides. Seeds sales increased 1 percent as volume gains in soybean seeds and cotton seeds and the favorable impact of a one-time gain related to the end of a licensing agreement were partially offset by volume declines in corn, canola and sunflower seeds.

EBITDA for 2014 was $962 million, a record for the segment and the Crop Protection business, compared with $894 million in 2013. EBITDA increased as volume growth in Crop Protection and Seeds more than offset a decline in selling prices (driven

43


almost entirely by the unfavorable impact of currency) and increased investment in SG&A to support continuing growth initiatives.

Agricultural Sciences Outlook for 2016
Agricultural Sciences sales for 2016 are expected to be flat with the levels achieved in 2015, despite a projected decline in the global agriculture industry. A continuation of the market dynamics experienced in 2015 are expected in 2016 and will sustain low crop commodity prices and declining industry growth rates in the short-term. Currency headwinds are also expected to continue in the short-term due to the strengthening U.S. dollar. The Crop Protection business expects continued sales growth from new insecticides, N-SERVETM Nitrogen Stabilizer and cereal, corn and soybean herbicides. The Seeds business expects modest growth in corn and soybean seeds and lower sales of cotton seeds.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's ("EPA") registration of ENLIST DUO™ for use with ENLIST™ Corn and Soybeans in 15 key states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST™ Soybean Seeds and Corn Seeds in Brazil. Regulatory approvals for ENLIST™ products in certain other countries are still pending. After the EPA’s registration of ENLIST DUO™ for use with ENLIST™ Corn and Soybeans, the National Resources Defense Council, Center for Food Safety and other organizations filed suit against the EPA to set aside the registration in the United States Court of Appeals for the Ninth Circuit (the "Court"), and Dow AgroSciences intervened in the cases. In late November 2015, the EPA filed a motion to vacate and remand the registration to the EPA. Dow AgroSciences opposed the motion to vacate the registration. On January 25, 2016, the Court denied the EPA’s motion to vacate the registration, so the ENLIST DUO™ registration for use with ENLIST™ Corn and Soybeans remains fully intact.

CONSUMER SOLUTIONS
The Consumer Solutions segment consists of threefour global businesses –businesses: Consumer Care, Dow Automotive Systems, and Dow Electronic Materials and includes a portionConsumer Solutions - Silicones. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications including semiconductors and organic light-emitting diodes ("OLEDs"), adhesives and foams used by the transportation industry, cellulosics and other polymers for innovative pharmaceutical formulations and food solutions, and silicone solutions used in consumer goods and automotive applications. These businesses serve the needs of the Company’s share of the results of Dow Corning, a joint venture of the Company. market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The segment's commitment to continuous innovation and rapid new product development enables it to maximize opportunities in emerging geographies and high-growth consumer market segments in nearly 110 countries.

Details on Consumer Solutions' 2016 sales, by business and geographic area, are as follows:


Consumer Care
Consumer Care includes Dow Home, Institutional & Personal Care Solutions; Dow Pharmaprovides global and Food Solutions;regional brand owners in food, pharmaceutical, personal care and SAFECHEM. Dow Automotive Systems includes Adhesiveshome care markets with innovative formulations and Performance Solutions. Dow Electronic Materials includes Semiconductor Technologies, Interconnect Technologies, Display Technologiesingredients designed to add value to their products and Growth Technologies.help consumers live healthier and more convenient lives.

Consumer Care's principal businesses each serve one or more key market segments, as noted below:

Consumer Solutions
In millions
 2015
 2014
 2013
Sales $4,379
 $4,639
 $4,562
Price change from comparative period (7)% (1)% (2)%
Volume change from comparative period 1 % 3 % 3 %
Equity earnings $91
 $281
 $107
EBITDA $1,048
 $1,130
 $933
Certain items impacting EBITDA $(59) $82
 $
EBITDA excluding certain items $1,107
 $1,048
 $933
BusinessMarket SegmentsTechnologies
Dow Home, Institutional & Personal Care SolutionsPersonal care, home care and specialty applications with key focus on hair care, skin care, sun care, cleansing, as well as fabric, dish, floor, hard surface and air care applicationsFrom polymers and emollients to chelants and dispersants, Dow offers unique innovations that empower consumer brands around the world to deliver exceptional product performance and process enhancements that create value. Other notable technologies include opacifiers, rheology modifiers, surfactants and solvents.
Dow Pharma and Food SolutionsPharmaceutical, food and nutritionCellulosic and other technologies help bring new classes of medicines to market and enable foods that are healthier (gluten-free, reduced oil/fat content). Notable technologies include excipients and active pharmaceutical ingredients, solubility enhancers, reagents, granulation and binders, as well as coatings and controlled release.
SAFECHEM™(1)
A service business responsible for the sustainable and innovative use of solventsOffers cleaning solutions, equipment and services for metal and dry cleaning applications. Provides closed-loop SAFE-TAINER™ System delivery systems to ensure emission free use of cleaning agents.
(1)On December 31, 2016, the Company sold its SAFECHEM™ business. SAFECHEM™ was reported as part of the Consumer Solutions segment through the date of divestiture.


2015 Versus 2014Dow Automotive Systems
Consumer Solutions sales were $4,379 millionDow Automotive Systems is a leading global provider of collaborative solutions and advanced materials for original equipment manufacturers, tier suppliers, aftermarket customers and commercial transportation manufacturers. Dow Automotive Systems’ leading technologies, materials engineering, testing and service support are complemented by a robust line of structural, elastic and rubber-to-substrate adhesives; composite materials technologies; polyurethane foams and acoustical management systems; and films and fluids.

Dow Automotive Systems’ principal businesses offer the following technologies and serve the following market segments:

BusinessMarket SegmentsTechnologies
AdhesivesElastic, structural and specialty adhesivesInnovative and differentiated adhesive technologies to meet customer specifications for durability and crash performance
Performance SolutionsPerformance plastics, fluids and polyurethane foam solutionsTechnologies that differentiate customers’ products with improved performance characteristics

Dow Electronic Materials
Dow Electronic Materials is a leading global supplier of enabling materials for a broad range of consumer electronics including smartphones, tablets, television monitors and personal computers, as well as electronic devices and systems used in 2015, down from $4,639 million in 2014. Sales decreased 6 percent from 2014, with volume up 1 percent and price down 7 percent (with more than 60 percenta variety of the price decline due to the unfavorable impact of currency). Volume increases in North America and EMEAI were partially offset by decreases in Asia Pacific and Latin America. Consumer Care volume increased as higher demand in the personal care market sector andindustries. The business produces materials for cellulosicschemical mechanical planarization ("CMP"); materials used in the pharmaceutical applications more than offset lower demandproduction of electronic displays, including films, filters and OLEDs; metalorganic precursors for light-emitting diodes; products and technologies that drive leading-edge semiconductor design; materials used in the home care market sectorfabrication of printed circuit boards; and integrated metallization processes for cellulosics used in industrial applications, which declined ahead of a plant closure in Institute, West Virginia. Dow Automotive Systems reported volume growth in both businessesmetal finishing and in all geographic areas, except Latin America, as customer demand for light-weighting technologies and lower oil prices drove automotive industry growth, most notably in North America and Europe. decorative applications.

Dow Electronic Materials volume decreased slightly due to weakened demand for Interconnect Technologies and Display Technologies whichis comprised of four principal businesses, each serving one or more than offset healthy demand in Semiconductor Technologies resulting from strong silicon wafer growth in mobile device applications, notably in Asia Pacific, and Growth Technologies. Price declined in all businesses and all geographic areas. Price declined in Consumer Care and Dow Automotive Systems due to continued competitive pricing and the unfavorable impact of currency in EMEAI. Price declined in Dow Electronic Materials due to the continued competitive pricing and the unfavorable impact of currency, primarily the Japanese yen.


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EBITDA for 2015 was $1,048 million, down from $1,130 million in 2014. EBITDA in 2015 was impacted by $67 million of restructuring charges and an $8 million gain related to Dow Corning’s adjustment of its implant liability. EBITDA in 2014 was impacted by a $155 million gain related to Dow Corning's adjustment of its implant liability and a $73 million charge related to asset impairments in Dow Electronic Materials. See Notes 3, 9, 10, and 12 to the Consolidated Financial Statements for additional information on these items. Excluding these certain items, EBITDA increased in 2015key market segments, as lower feedstock, energy and other raw material costs, the favorable impact of currency on costs, lower operating expenses and higher sales volume more than offset lower selling prices and decreased equity earnings from Dow Corning.noted below:

2014 Versus 2013
Consumer Solutions sales were $4,639 million in 2014, up from $4,562 million in 2013. Sales increased 2 percent from 2013, with volume up 3 percent and price down 1 percent (with more than one-third of the price decline due to currency). Volume increased in all businesses and all geographic areas, except Latin America. Volume gains in Dow Automotive Systems were driven by continued recovery in the North America transportation sector and modest recovery in Europe. Dow Electronic Materials volume increased primarily due to higher demand for photolithography materials and chemical mechanical planarization pads, which more than offset lower demand for films and filters and organic light-emitting diode ("OLED") materials. Volume increased in Consumer Care due to strong demand for cellulosics used in food and pharmaceutical applications. Price declines were driven by Dow Electronic Materials, primarily in Asia Pacific due to continued competitive pricing pressure and the weakening Japanese yen. Price remained flat in Consumer Care and Dow Automotive Systems. Price gains in North America were more than offset by declines in EMEAI and Asia Pacific.

EBITDA for 2014 was $1,130 million, up from $933 million in 2013. Compared with 2013, EBITDA increased as higher sales volume, increased equity earnings from Dow Corning and lower R&D expenses more than offset lower selling prices. EBITDA in 2014 was positively impacted by $82 million of certain items, as previously discussed.
BusinessMarket SegmentsTechnologies
Semiconductor TechnologiesIntegrated circuit fabrication for memory and logicCMP consumables, photolithography materials
Interconnect TechnologiesPrinted circuit board, electronic and industrial finishingInterconnect metallization and imaging process chemistries
Display TechnologiesDisplay materialsDisplay films and filters, OLED materials
Growth TechnologiesNew and emerging technologiesAdvanced chip packaging materials, metalorganic precursors, optical and ceramic materials

Consumer Solutions Outlook for 2016- Silicones
Consumer Solutions sales are expected- Silicones provides innovative silicone solutions and ingredients to growcustomers in 2016, driven by volume growth. Consumer Care expects modest volume gains from increased demand for home carebeauty and personal care, products while saleshousehold care, healthcare, consumer goods and automotive market segments around the world. Backed by extensive application expertise and industry knowledge, Consumer Solutions - Silicones features a broad, diverse portfolio of cellulosics usedelastomers, emulsifiers, film formers, fluids, antifoams, additives, tubing and molded assemblies and adhesives.


Consumer Solutions - Silicones principal businesses offer the following technologies and serve the following market segments:

BusinessApplications/Market SegmentsTechnologies
Beauty and Personal CareHair care, skin care, sun care and color cosmeticsInnovative beauty care ingredients that help improve product performance and meet the needs of consumers. Notable silicone technologies include elastomers, emulsifiers, rheology modifiers, film formers-resins, gums and acrylates, powders and fluids.
Household CareLaundry and fabric care, hard surface careProven solutions to deliver benefits to both consumers and manufacturers alike. Notable silicone technologies include antifoams, processing aids, polishing gloss aids and softening agents.
HealthcareDrug delivery, medical device, wound care and topical ingredient applicationsInnovative silicone solutions backed by industry application and regulatory expertise. Notable silicone technologies include elastomers, emulsifiers, excipients, tubing and molded assemblies, adhesives, antifoams and fluids.
Consumer GoodsElectronics, packaging, sporting goods, household goods, infant care
Elastomer and thermal plastic technologies with proven performance delivering benefits to consumers around the world in multiple applications. Notable technology includes liquid silicone rubbers, high consistency rubbers, TPSiV, thermoplastic additives and food-grade materials.
AutomotiveSafety, lighting, sealing, electronics, NVH (noise, vibration, harshness), exterior trimNotable technology includes: elastomers, liquid silicone rubbers, high consistency rubbers, thermoplastics, additives, coatings, thermal management materials, sealants and lubricants.

Competition
The Consumer Solutions segment experiences competition in food and pharma applications are expected to remain stable. Sales growth is expected in Dow Automotive Systems, as continued low oil prices are expected to drive increased demand, primarily for larger vehicles. Dow Electronic Materials expects modest volume growth in all businesses with steady growth in smart phones, wearable and home deviceseach business within the segment. The competitors include many large multinational chemical firms as well as automotive electronics more than offsetting expected declines in television monitors, personal computersa number of regional and tablets.local competitors. The change in consumer preference towards hybrid/clamshell devicessegment's products have unique performance characteristics that are required by customers who demand a high-level of customer service and technical expertise from the Company's sales force and scientists; therefore, Dow is also expectedwell positioned to deliver demand growth in 2016.withstand competitive threats. Key competitors include Ashland, BASF, Bayer, Bluestar, JSR Micro, Momentive, Shin-Etsu Chemical and Wacker.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning. Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.


INFRASTRUCTURE SOLUTIONSJoint Ventures
The InfrastructureConsumer Solutions segment consists of the following businesses: Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, and Performance Monomers; and includes a portion of the Company's share of the results of Dow Corning,the Hemlock Semiconductor Group ("HSC Group"), a joint ventureU.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

Infrastructure Solutions
In millions
 2015
 2014
 2013
Sales $7,394
 $8,429
 $8,339
Price change from comparative period (14)% % (1)%
Volume change from comparative period 2 % 1% 4 %
Equity earnings (losses) $203
 $(6) $126
EBITDA $1,021
 $817
 $941
Certain items impacting EBITDA $(101) $(348) $(94)
EBITDA excluding certain items $1,122
 $1,165
 $1,035

2015 Versus 2014
Infrastructure Solutions sales were $7,394 million in 2015, down 12 percent from $8,429 million in 2014. Price decreased 14 percent, including the unfavorable impactAs of currency which represented one-third of the price decline, and volume increased 2 percent. Price declined in all businesses, most notably in Performance Monomers, and all geographic areas in

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response to lower raw material costs. Volume increased in all geographic areas, except North America, and all businesses, except Energy & Water Solutions. Dow Building & Construction reported volume growth in EMEAI and North America, as demand continued to be strong for innovative product offerings, primarily in construction chemicals. Dow Coating Materials volume increased due to higher demand for architectural coatings in EMEAI and higher demand for industrial coatings in North America. Volume increased in Performance Monomers due to higher demand and improved asset utilization for vinyl acetate monomers and acrylic monomers. In Energy & Water Solutions, volume declines in North American energy exploration and fracturing market sectors and slow global demand for ion exchange resins used in industrial water applications more than offset strong demand for reverse osmosis technologies.

EBITDA for 2015 was $1,021 million, compared with $817 million in 2014. EBITDA in 2015 included a $12 million gain related to Dow Corning’s adjustment of its implant liability, $87 million of asset impairments and related costs in all businesses and $26 million of restructuring charges. EBITDA in 2014 included a $500 million loss related to Dow Corning’s abandonment of a polycrystalline silicon plant expansion in Clarksville, Tennessee, and a $252 million gain related to Dow Corning’s adjustment of its implant liability. EBITDA in 2014 was also impacted by a $100 million charge for a warranty accrual adjustment related to an exited business. See Notes 3, 9, 12 and 15 to Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA decreased in 2015 as lower selling prices and lower equity earnings fromJune 1, 2016, Dow Corning more than offset lower propyleneCorporation ("Dow Corning"), previously a 50:50 joint venture with Corning Incorporated ("Corning"), became a wholly owned subsidiary of Dow as a result of an ownership restructure ("DCC Transaction"). Dow and other raw material costs, the favorable impact of currency on costs, lower operating costs and higher sales volume.

2014 Versus 2013
Infrastructure Solutions sales were $8,429 million in 2014, up from $8,339 million in 2013. Sales increased 1 percent, entirely dueCorning continue to volume. Volume was higher in all geographic areas, except EMEAI which was impacted by weakened demand. Dow Building & Construction volume increased due to higher demand for insulation products in North America. Dow Coating Materials volume increased in all geographic areas due to higher demand for architectural and industrial coatings. Energy & Water Solutions volume increased across most geographic areas due to strong demand fundamentalsmaintain their historical proportional equity interest in the oil and gas industry as well as higher demand for specialty materials used in energy and industrial water applications. Performance Monomers volume decreased due to long acrylate market conditions, extended planned and unplanned maintenance turnarounds in vinyl acetate monomers, and a plastic additives plant closure which reduced market participation. Price was flat as selling price gains were offset by the unfavorable impact of currency. Price was mixed by geographic area as gains in Latin America and North America were offset by declines in EMEAI and Asia Pacific. Price was down in all businesses, except Performance Monomers.

EBITDA for 2014 was $817 million, compared with $941 million in 2013. EBITDA in 2014 was negatively impacted by $348 million of certain items, as previously discussed. EBITDA in 2013 included $95 million of asset impairments and related costs in the Energy & Water Solutions and Performance Monomers businesses and a $1 million gain in Dow Building & Construction for an adjustment to asbestos abatement costs related to the 1Q12 Restructuring program.HSC Group. See Notes 3 and 12Note 4 to the Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA increasedthis transaction.



INFRASTRUCTURE SOLUTIONS
The Infrastructure Solutions segment is comprised of an industry-leading portfolio of businesses utilizing advanced technology to deliver products such as architectural and industrial coatings, construction material ingredients, building insulation and materials, adhesives, microbial protection for the oil and gas industry, telecommunications, light and water technologies. With unmatched R&D capabilities, a broad range of chemistries, extensive geographic reach and strong channels to market, this segment is well positioned to capitalize on market trends. The segment has broad geographic reach with sales in 2014nearly 150 countries and R&D and manufacturing facilities located in key geographic areas.

Details on Infrastructure Solutions' 2016 sales, by business and geographic area, are as higher equity earnings from Dow Corning and higher sales volume more than offset increased propylene costs and higher freight expenses.follows:

InfrastructureDow Building & Construction
Dow Building & Construction is comprised of two businesses - Dow Building Solutions Outlookand Dow Construction Chemicals. Leveraging more than 70 years of building science experience and deep application expertise that go well beyond the business's 75 years of STYROFOAM™ brand insulation products, Dow creates high-performance solutions designed to help make residential and commercial buildings more comfortable, last longer, save energy and reduce emissions. The business group offers extensive lines of industry-leading durable insulation and building material solutions, as well as functional ingredients that provide improved thermal performance, air sealing, weatherization, waterproofing and fire retardancy for 2016construction products.
Dow Coating Materials
The Dow Coating Materials business manufactures and delivers solutions that leverage high quality, technologically advanced product offerings for architectural paint and coatings, as well as industrial coatings applications, including paper, leather, concrete, wood, automotive, maintenance and protective industries. Dow Coating Materials introduced the industry's first waterborne technology in 1953 and has since led the industry's conversion away from solvent borne technology to allow for lower volatile organic compounds and an improved sustainability profile while pushing performance boundaries.

Energy & Water Solutions
Energy & Water Solutions includes the following businesses - Dow Microbial Control; Dow Oil, Gas & Mining; and Dow Water and Process Solutions. Dow Microbial Control provides technology used to predict, diagnose and sustainably solve the planet’s most difficult microbial challenges while Dow Oil, Gas & Mining is helping to provide energy to the world by supplying smart, innovative and customized solutions to enable the tapping of both conventional and unconventional sources. Aligned to the infrastructure market sector is Dow Water and Process Solutions, a leading provider of purification and separation technologies including reverse osmosis membranes and ion exchange resins to help customers with a broad array of separation and purification needs such as reusing waste water streams, making fresh drinking water from sea water, creating a closed loop water system for oil field operations, and removing impurities in dairy processing.

Performance Monomers
The Performance Monomers business produces monomer products that are sold externally as well as consumed internally as building blocks used in downstream polymer businesses. The business' products are used in several applications, including dispersions and emulsions for adhesives, coatings, inks, woven and non-woven textiles, plastics and polymers and superabsorbent products. Included in this portfolio is Plastics Additives, a worldwide supplier of additives used in a large variety of applications ranging from construction materials and packaging containers to consumer appliances and electronics, business machines and automotive parts.

Infrastructure Solutions - Silicones
Infrastructure Solutions - Silicones is a global leader in providing solutions to pressing challenges customers face in the infrastructure segment delivered via proven and innovative silicon-based technology. The diverse portfolio provides solutions

to the building and construction, telecommunications, lighting and energy sectors. In construction particularly, silicone materials enable buildings that promote occupant comfort, safety and security, improved productivity and design freedom.

Products
Infrastructure Solutions' businesses each serve one or more key market segments, as noted below:

BusinessApplications/Market SegmentsMajor Products
Dow Building & ConstructionRigid and spray foam insulation; weatherization, waterproofing and air sealing; caulks and sealants; elastomeric roof coatings; exterior insulation finishing systems; roof tiles and siding; industrial non-wovens; cement-based tile adhesives; plasters and renders; tape joint compounds; and concrete additivesAQUASET™ acrylic thermosetting resins, DOW™ latex powder, FROTH-PAK™ foam insulation and sealants, GREAT STUFF™ insulating foam sealants and adhesives, RHOPLEX™ and PRIMAL™ acrylic emulsion polymers, STYROFOAM™ brand insulation products, THERMAX™ exterior insulation, WALOCEL™ cellulose ethers, WEATHERMATE™ house wrap, XENERGY™ high performance insulation, LIQUIDARMOR™ flashing and sealant
Dow Coating MaterialsAcrylic binders for architectural paint and coatings, industrial coatings, and paper; dispersants; rheology modifiers; opacifiers and surfactants for both architectural and industrial applications; protective and functional coatingsACRYSOL™ Rheology Modifiers, AVANSE™ acrylic binders, EVOQUE™ Pre-Composite Polymer, FORMASHIELD™ acrylic binder, RHOPLEX™ acrylic resin, TAMOL™ Dispersants, MAINCOTE™ acrylic epoxy hybrid, PARALOID™ Edge ISO-free technology and ACOUSTICRYL™ liquid-applied sound damping technology
Energy & Water SolutionsHelping customers in exploration, production, transmission, refining and gas processing to optimize supply, improve efficiencies and manage emissions. Providing expertise and localized solutions for microbial control for well souring, industrial cooling water, fabric odor elimination, in-can preservation and dry film protection. Providing advanced, cost effective separation and purification technology for water treatment and filtration, pharmaceutical, food and beverage, and chemical processingDemulsifiers, drilling and completion fluids, heat transfer fluids, rheology modifiers, scale inhibitors, shale inhibitors, specialty amine solvents, surfactants, water clarifiers, DOW ADSORBSIA™ selective media, DOW EDI™ modules, DOWEX™ and AMBERJET™ ion exchange resins, DOWEX™ OPTIPORE™ polymeric adsorbent resins, DOW FILMTEC™ reverse osmosis and nanofiltration elements, TEQUATIC™ PLUS fine particle filter, AMBERLYST™ polymeric catalysts, AQUCAR™, BIOBAN™, SILVADUR™ antimicrobial
Performance Monomers
Super absorbents, water treatment, flocculants and detergents, acrylic sheets, coatings, inks and paints,molding compounds, impact modifiers, processing aids, electronic displays, adhesives, textiles, automotive and architectural safetyglass, and plastics additives
Acrylates, methacrylates, vinyl acetate monomers, high-quality impact modifiers, processing aids, foam cell promoters and weatherable acrylic capstock compounds forthermoplastic and thermosetting materials
Infrastructure Solutions - SiliconesCommercial glazing, building envelope, construction chemicals, window and door infrastructure, wire and cable, electrical and high voltage insulation, power transmission, sleeving, optical devices, light-emitting diodes, lamp and luminaire, oil and gas, solarElastomers, fluids, pottants, potting agents, thermal interface materials, adhesives and sealants, encapsulants, gels, resins, antifoams, demulsifiers, lubricants

Competition
Competitors of the Infrastructure Solutions segment include many large multinational chemical firms as well as a number of regional and local competitors. The segment's products have unique performance characteristics that are required by customers who demand a high level of customer service and expertise from its sales are expectedforce and scientists; therefore, Dow is well positioned to grow modestly inwithstand competitive threats. Key competitors include Arkema, Ashland, BASF, Bluestar, Elementis, Hydranautics, Lanxess, Lonza, Momentive, Owens-Corning, Shin-Etsu Chemical and Wacker.

Joint Ventures
The Infrastructure Solutions segment includes a portion of the Company's share of the results of the HSC Group, a U.S.-based group of companies that manufacture polycrystalline silicon products, which is owned 50 percent by the Company.

As of June 1, 2016, due to higher demand partially offset by pressure on selling pricesDow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of unfavorable currency impacts due to the strengthening U.S. dollar. Dow Building & Construction sales are expected to increase due to higher demand in the acrylics envelope, cellulosics chain and growth in construction end markets. Dow Coating Materials expects strong sales growth driven by volume gains from innovative products and stable raw material prices. Energy & Water Solutions expects sales consistent with 2015 levels with strong demand for water solutions, primarily reverse osmosis technologies, while demand for products used in energy exploration and fracturing market sectors will follow oil prices. Performance Monomers sales are expected to decline driven by lower sales of vinyl acetate monomers, primarily due to increased internal consumption by downstream businesses, and lower sales of acrylates resulting from the shutdown of 20 percent of the acrylate capacity at the Company's Deer Park, Texas, manufacturing facility.

On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership of Dow Corning. Under the terms of the agreement, Dow will become the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning.DCC Transaction. Dow and Corning willcontinue to maintain their currenthistorical proportional equity stakeinterest in the Hemlock SemiconductorHSC Group. The transaction is expectedSee Note 4 to close in the first half of 2016.Consolidated Financial Statements for additional information on this transaction.


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PERFORMANCE MATERIALS & CHEMICALS
The Performance Materials & Chemicals segment consistsis comprised of the following businesses:three technology-driven, customer-centric global businesses that are advantaged through integration and driven by innovative technology and solutions: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. Products produced by this segment are back-integrated into feedstocks, supporting a low-cost manufacturing base and consistent, reliable supply. The Performance Materials & Chemicals segment is positioned for growth through diverse markets and product offerings. The segment has broad geographic reach with sales in nearly 140 countries and manufacturing facilities located in all geographic areas. Performance Materials & Chemicals has a diverse product line that serves customers in a large number of industries including appliance, construction and industrial.

Details on Performance Materials & Chemicals' 2016 sales, by business and geographic area, are as follows:

Chlor-Alkali and Vinyl
The Chlor-Alkali and Vinyl business provides cost-advantaged chlorine and caustic soda supply and integration for the Polyurethanes business. Chlor-Alkali and Vinyl also includes the resultsmarketing of MEGlobalcaustic soda, a valuable co-product of the chlor-alkali manufacturing process, and ethylene dichloride and vinyl chloride monomer, essential for the production of polyvinyl chloride.

Industrial Solutions
The Industrial Solutions business enables manufacturing of the world’s goods and services with additive solutions that minimize friction and heat in mechanical processes, manage the oil and water interface, deliver active ingredients for maximum effectiveness, facilitate dissolvability and provide the foundational building blocks for the development of chemical technologies. The business supports industrial manufacturers associated with virtually all end-markets, notably electronics, agricultural chemicals, engine/heavy equipment, coatings, adhesives and inks, and detergents and cleaners. Industrial Solutions is also the world’s largest producer of purified ethylene oxide. Approximately 80 percent of the ethylene oxide produced by Dow is consumed within the Performance Materials & Chemicals segment.

Polyurethanes
Polyurethanes is comprised of four businesses: Isocyanates, Polyols, Polyurethane Systems and Propylene Oxide/Propylene Glycol ("PO/PG"). The Polyurethanes business is the world’s largest producer of propylene oxide and propylene glycol as well as a leading producer of polyether polyols and aromatic isocyanates that serve energy efficiency, consumer comfort and industrial market sectors. Propylene oxide is produced using the chlorohydrins process as well as by hydrogen peroxide to propylene oxide manufacturing technology(1). Performance Materials & Chemicals businesses consume more than 90 percent of the propylene oxide produced or procured by Dow.

Competition
Competition for the Performance Materials & Chemicals segment varies based on the business. Key competitors include large, international chemical companies as well as chemical divisions of major national and international oil companies. Performance Materials & Chemicals back-integration into feedstocks supports a low-cost manufacturing base and consistent, reliable product supply. Dow is a full-service supplier with a global technical service network located close to the customer, which allows the Company to fuel growth in specialty applications and collaborate with customers to invent unique chemistries and tailored solutions. In addition to its competitive cost position, reliable supply and superior customer service, the Company also competes worldwide on the basis of quality, technology and price. Key competitors include BASF, Covestro, Eastman, INEOS, Huntsman, LyondellBasell, Olin and Oxea.

(1)Hydrogen peroxide to propylene oxide manufacturing technology is utilized by MTP HPPO Manufacturing Company Limited, a Thailand-based consolidated variable interest entity ultimately owned 50 percent by the Company and 50 percent by SCG Chemicals Co. Ltd.; and BASF DOW HPPO Production B.V.B.A., a Belgium-based joint venture ultimately owned 100 percent by HPPO Holding & Finance C.V., which is owned 50 percent by the Company and 50 percent by BASF.

Distribution
The Performance Materials & Chemicals segment markets its products primarily through the Company's sales force and also utilizes distributors worldwide.

Joint Ventures
The Performance Materials & Chemicals segment includes a portion of the Company's share of the results of the following joint ventures:

EQUATE TKOC, Petrochemicals Company K.S.C. ("EQUATE") - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara all joint ventures ofChemical Company - a Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; owned 35 percent by the Company.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal, a manufacturer and marketer of monoethylene glycol, diethylene glycol and polyethylene terephthalate resins headquartered in Dubai, United Arab Emirates, to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal.

Divestitures
On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture. See Notes 5 and 6 to the Consolidated Financial Statements for additional information.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained a 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal. See Notes 5 and 9 to the Consolidated Financial Statements for additional information.

Performance Materials & Chemicals
In millions
 2015
 2014
 2013
Sales $11,973
 $15,114
 $14,824
Price change from comparative period (15)% % 1 %
Volume change from comparative period (6)% 2% (2)%
Volume change, excluding divestitures 1 % 2% (2)%
Equity earnings $225
 $322
 $480
EBITDA $5,479
 $2,193
 $1,913
Certain items impacting EBITDA $3,409
 $
 $(55)
EBITDA excluding certain items $2,070
 $2,193
 $1,968

2015 Versus 2014
Performance Materials & Chemicals sales were $11,973 million in 2015, down 21 percent from $15,114 million in 2014, with price down 15 percent, including the unfavorable impact of currency which represented more than one-third of the price decline, and volume down 6 percent. Price declined in all geographic areas and all businesses. Lower raw material costs and the unfavorable impact of currency drove price declines in Epoxy, Polyurethanes and Industrial Solutions. Chlor-Alkali and Vinyl reported lower prices as a result of the decline in ethylene prices and increased availability of caustic soda. Volume was impacted by recent divestitures, including the divestitures of ANGUS Chemical Company and the global Sodium Borohydride business and the split-off of the chlorine value chain. Excluding these divestitures, volume increased 1 percent. Volume increased in Polyurethanes driven by increased demand, lower raw material costs and growth in energy efficiency, consumer and industrial market sectors in North America and EMEAI, and in Asia Pacific due to the start up of a polyols plant in Thailand. Industrial Solutions reported volume declines across all geographic areas, except Asia Pacific, due to weakness in the agriculture and energy market sectors and a change in a long-term supply arrangement. Epoxy volume was up in all areas, except Asia Pacific, driven by increased demand for phenolics. Chlor-Alkali and Vinyl reported decreased volume in EMEAI and Latin America, partially offset by increases in Asia Pacific and North America, due to unfavorable supply and demand fundamentals and the expiration of a long-term supply agreement in EMEAI.

EBITDA for 2015 was $5,479 million, compared with $2,193 million in 2014. EBITDA was favorably impacted by a pretax gain of $682 million on the divestiture of ANGUS Chemical Company, a pretax gain of $20 million on the divestiture of the global Sodium Borohydride business, a pretax gain of $1,984 million on the split-off of the chlorine value chain and a pretax gain of $723 million on the sale of the Company's interest in MEGlobal. See Notes 5 and 6 to the Consolidated Financial Statements for additional information on these transactions. Excluding these certain items, EBITDA decreased due to the impact of lower sales volume, lower selling prices including the impact of currency, the absence of earnings from divested businesses, lower equity earnings from TKOC, EQUATE and MEGlobal and higher equity losses from Sadara which more than offset lower feedstock, energy and other raw material costs, lower SG&A and R&D spending, the favorable impact of currency on costs and higher equity earnings from Map Ta Phut Olefins Company Limited.

2014 Versus 2013
Performance Materials & Chemicals sales were $15,114 million in 2014, up 2 percent from $14,824 million in 2013, with volume up 2 percent and price flat. Compared with 2013, volume was higher primarily due to increases in EMEAI and Latin

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America, which were partially offset by a decrease in Asia Pacific. Improved economic conditions and favorable supply and demand fundamentals for polyols and propylene oxide/propylene glycol ("PO/PG") drove volume increases in Polyurethanes across all geographic areas. Industrial Solutions reported lower volume, primarily due to the expiration of a low margin marketing agreement in Asia Pacific in 2013. Chlor-Alkali and Vinyl volume increased in all geographic areas, except North America, driven by higher downstream demand in the chlorine chain. Epoxy reported volume increases across all geographic areas, except Latin America. Chlorinated Organics reported lower volume primarily driven by the shutdown of a chloromethanes plant in North America at the end of 2013. Price was flat as increases in North America and Asia Pacific were offset by decreases in EMEAI and Latin America. Polyurethanes reported higher prices in Asia Pacific, North America and EMEAI due to tight supply as a result of planned and unplanned events across the industry. Favorable supply and demand balances drove price gains in Industrial Solutions in North America and Latin America. Price decreases were reported by Chlor-Alkali and Vinyl due to lower caustic soda prices. Excess industry capacity and lower raw material costs drove price down in Epoxy across all geographic areas.

EBITDA for 2014 was $2,193 million, compared with $1,913 million in 2013. EBITDA increased in 2014 driven by higher sales volume, lower other raw material costs and improved operating rates which more than offset reduced equity earnings from MEGlobal and EQUATE and higher equity losses from Sadara. EBITDA in 2013 included $70 million of asset impairment charges and costs related primarily to the shutdown of certain assets in the Chlor-Alkali and Vinyl, Epoxy and Polyurethanes businesses, and a $15 million gain for the adjustment of contract cancellation fees related to the 1Q12 Restructuring program. See Notes 3 and 12 to the Consolidated Financial Statements for additional information on these charges.

Performance Materials & Chemicals Outlook for 2016
Performance Materials & Chemicals sales are expected to be slightly lower in 2016, reflecting the impact of the October 5, 2015, split-off of the chlorine value chain which includes the Global Chlorinated Organics and Epoxy businesses and the U.S. Gulf Coast Chlor-Alkali and Vinyl business. Price is expected to remain flat across most businesses as feedstock and energy costs are expected to be consistent with 2015 levels. The Chlor-Alkali and Vinyl business expects sales to be slightly lower due to sales volume divested in the U.S. which will be partially offset by increased volume in Europe resulting from new supply agreements with Olin and increased demand for caustic soda. The Industrial Solutions business expects volume growth to follow GDP. Polyurethanes volume is expected to grow at slightly above GDP driven by increased demand for polyols and polyurethane systems products used in specialty applications. Equity earnings are expected to decline in 2016, primarily due to lower earnings from EQUATE as a result of a reduced indirect equity interest in MEGlobal and the impact of the fair value step-up of MEGlobal's assets and increased financing costs.


PERFORMANCE PLASTICS
The Performance Plastics segment is the world’s leading plastics franchise, and is a market-oriented portfolio composed of five global businesses: Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach, with sales in approximately 110 countries and manufacturing facilities located in all geographic areas. It also benefits from Dow’s R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in key strategic markets.

Details on Performance Plastics' 2016 sales, by business and geographic area, are as follows:


Dow Elastomers, Dow Electrical and Telecommunications, and Dow Packaging and Specialty Plastics serve high-growth, high-value sectors where Dow's world-class technology and rich innovation pipeline creates competitive advantages for customers and the entire value chain. Together, these three global businesses have complimentary market reach, asset capabilities and technology platforms that provide the Company with immediate and long-term growth synergies. Market growth is expected to be driven by major shifts in population demographics, improving socioeconomic status in emerging geographies, consumer and brand owner demand for increased consumer convenience, efforts to reduce food waste, growth in telecommunications networks, specifically broadband and LTE networks, and global development of electrical transmission and distribution infrastructure and renewable energy applications. Market segments served by these businesses include adhesives, construction, food and specialty packaging, footwear, industrial and consumer packaging, hygiene and medical, infrastructure, pipe, telecommunications and transportation.

The Energy business is one of the world’s largest industrial energy producers. This business produces or procures the energy used by Dow, sells energy to customers located on Dow manufacturing sites and also engages in opportunistic merchant sales driven by market conditions. Because of its unparalleled scale, purchasing power and global reach, the Energy business offers Dow tremendous knowledge of world energy markets and the agility to respond to sudden changes in conditions.

The Hydrocarbons business is one of the largest global producers of ethylene, an internal feedstock that is consumed primarily within Performance Plastics. The Hydrocarbons business is also a large producer and purchaser of propylene. The Company strategically locates its polyethylene production facilities near its ethylene production facilities to optimize integration benefits and drive low costs. Dow's global scale, operational discipline and feedstock flexibility create a cost-advantaged foundation for the Company's downstream, market-driven businesses. In North America, shale gas opportunities - and the resulting increased supplies of natural gas and natural gas liquids (“NGLs”) - remain a key, cost-competitive position for the Company's ethane- and propane-based production. The Company's U.S. and European ethylene production facilities allow Dow to use different feedstocks in response to price conditions. Meanwhile, the Company's U.S. Gulf Coast investments will strengthen ethylene and propylene integration and establish a platform for growth of Dow's downstream businesses.

Products
Major applications/market segments and products are listed below by business:

BusinessApplications/Market SegmentsMajor Products
Dow ElastomersAdhesives, footwear, housewares, infrastructure, sports recreation, toys and infant products, transportationElastomers, polyolefin plastomers, ethylene propylene diene monomer elastomers ("EPDMs")
Dow Electrical and TelecommunicationsBuilding and construction, electrical transmission and distribution infrastructure, telecommunications infrastructureWire and cable insulation, semiconductive and jacketing compound solutions, bio-based plasticizers
Dow Packaging and Specialty PlasticsAdhesives, food and specialty packaging, hygiene and medical, industrial and consumer packaging, transmission pipe and photovoltaicsAcrylics, polyethylene, low-density polyethylene, linear low-density polyethylene, high-density polyethylene, polyolefin plastomers
EnergyPrincipally for use in Dow’s global operationsPower, steam and other utilities
HydrocarbonsPurchaser of feedstocks; production of cost competitive monomers utilized by Dow’s derivative businesses
Ethylene, propylene, benzene, butadiene, octene, aromatics co-products, crude C4

Advantaged feedstock positions in the United States, Canada, Argentina and the Middle East

Competition
Competition for the Performance Plastics segment includes chemical divisions of major national and international oil companies, which provide competition in the United States and abroad. Dow competes worldwide on the basis of product quality, product supply, technology, price and customer service. Performance Plastics will continue to benefit from an advantaged feedstock position, including favorable shale gas dynamics in the United States, which will further strengthen the Company's low-cost position and enhance global cost competitiveness. Key competitors include BASF, Borealis, Braskem, CP Chem, ExxonMobil, INEOS, LyondellBasell, Mitsui and SABIC.


Joint Ventures
Joint ventures play an integral role within the Performance Plastics segment by dampening earnings cyclicality and improving earnings growth. Principal joint ventures impacting Performance Plastics are listed below:

Aligned 100 percent with Performance Plastics:
The Kuwait Styrene Company K.S.C. - a Kuwait-based company that manufactures styrene monomer; owned 42.5 percent by the Company.
The SCG-Dow Group consists of Siam Polyethylene Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; and Siam Synthetic Latex Company Limited. These Thailand-based companies manufacture polyethylene, polystyrene, styrene and latex; owned 50 percent by the Company.

Performance Plastics includes a portion of the results of:
EQUATE - a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol; and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins; owned 42.5 percent by the Company.
The Kuwait Olefins Company K.S.C. - a Kuwait-based company that manufactures ethylene and ethylene glycol; owned 42.5 percent by the Company.
Map Ta Phut Olefins Company Limited - effective ownership is 32.77 percent of which the Company directly owns 20.27 percent (aligned with Performance Materials & Chemicals) and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited (both part of The SCG-Dow Group and aligned with Performance Plastics). This Thailand-based company manufactures propylene and ethylene.
Sadara Chemical Company - a Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational; owned 35 percent by the Company.

On May 5, 2015, Univation Technologies, LLC, previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company, became a wholly owned subsidiary of Dow. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

Current and Future Investments
The Company has 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 including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 kilotonnes per annum ("KTA") and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. 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. Dow’s ethylene production capabilities are expected to increase by as much as 20 percent.

In 2016, the Company completed an expansion of a gas-phase polyethylene production facility in Seadrift, Texas. Expansion projects are also currently underway at two of the Company's gas-phase polyethylene units in St. Charles, Louisiana, with expected start-up in mid-2018. The Company is also building four new production facilities on the U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value Performance Plastics franchise which includes an ELITE™ Polymer production facility, a Low Density Polyethylene (LDPE) production facility and a NORDEL™ Metallocene EPDM production facility, which are all expected to start up in 2017, and a High Melt Index (HMI) AFFINITY™ Polymer production facility, which is expected to start up in the second half of 2018.


CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, etc.); the results of Ventures (including business incubation platforms and non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense and processing costs and reserve adjustments); and, foreign exchange results.



RAW MATERIALS
The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes. The major raw material stream that feeds the production of the Company’s finished goods is hydrocarbon-based raw materials. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. These raw materials are used in the production of both saleable products and energy. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation. The Company also produces a portion of its electricity needs in Louisiana and Texas; Alberta, Canada; and Germany.

Expenditures for hydrocarbon feedstocks and energy accounted for 24 percent of the Company’s production costs and operating expenses for the year ended December 31, 2016. The Company purchases these raw materials on both short- and long-term contracts.

The Company had adequate supplies of raw materials during 2016, and expects to continue to have adequate supplies of raw materials in 2017. Significant raw materials, by operating segment, are listed below:

Significant Raw MaterialsPerformance Materials & Chemicals
Raw MaterialAgricultural SciencesConsumer SolutionsInfrastructure SolutionsPerformance Plastics
Acetonexx
Ammoniaxxx
Aniline (1)
x
Benzenexx
Butanex
Butenexx
Butyl Acrylate (1)
xxx
Carbon Blackxx
Carbon Monoxidex
Caustic Soda (1)
xxxx
Chlorine (1)
xxxx
Condensatex
Electric Powerxx
Ethanex
Ethanolxxxx
Ethylene (1)
xxx
Formaldehydexxx
Hexenex
Hydrogen Peroxide (2)
x
Isopropanolxx
Methanolxxxxx
Naphthax
Natural Gasx
Nitrogenxx
Octene (1)
x
Polystyrenexx
Propanexxx
Propylene (1)
xxxx
Pygasx
Silicaxx
Silicon Metal (1)
xx
Styrenexx
Wood Pulpxx
(1)    Produced by the Company and procured from external sources for internal consumption.
(2)    Primarily produced and procured by a consolidated variable interest entity.



INDUSTRY SEGMENTS AND GEOGRAPHIC AREA RESULTS
See Note 26 to the Consolidated Financial Statements for information regarding sales, EBITDA and total assets by segment as well as sales and total assets by geographic area.


SIGNIFICANT CUSTOMERS AND PRODUCTS
All products and services are marketed primarily through the Company’s sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of any operating segment's sales is dependent upon a single customer. No single product accounted for more than five percent of the Company’s consolidated net sales in 2016.


RESEARCH AND DEVELOPMENT
The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes, and to develop new applications for existing products. Research and development expenses were $1,584 million in 2016, $1,598 million in 2015 and $1,647 million in 2014. At December 31, 2016, the Company employed approximately 7,200 people in various research and development activities.


PATENTS, LICENSES AND TRADEMARKS
The Company continually applies for and obtains U.S. and foreign patents and has a substantial number of pending patent applications throughout the world. At December 31, 2016, the Company owned 5,651 active U.S. patents and 25,449 active foreign patents as follows:
Patents Owned at December 31, 2016

 United States
 Foreign
Agricultural Sciences 1,041
 4,603
Consumer Solutions 1,645
 6,189
Infrastructure Solutions 1,338
 6,827
Performance Materials & Chemicals 375
 2,332
Performance Plastics 1,150
 5,283
Corporate 102
 215
Total 5,651
 25,449

Remaining Life of Patents Owned at December 31, 2016
  
 United States
 Foreign
Within 5 years 1,384
 5,170
6 to 10 years 1,187
 8,000
11 to 15 years 2,312
 10,843
16 to 20 years 768
 1,436
Total 5,651
 25,449
Dow’s primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $394 million in 2016, $357 million in 2015 and $388 million in 2014. The Company incurred royalties to others of $191 million in 2016, $198 million in 2015 and $170 million in 2014. Dow also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the “Dow in Diamond” trademark. Although the Company considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent on any single or group of related patents, licenses or trademarks.



PRINCIPAL PARTLY OWNED COMPANIES
Dow’s principal nonconsolidated affiliates at December 31, 2016, including direct or indirect ownership interest for each, are listed below:

Principal Nonconsolidated AffiliateOwnership Interest
Business Description
Dow Corning Corporation (1)
N/A
A U.S. company that manufactures silicone and silicone products
EQUATE Petrochemical Company K.S.C.42.50%A Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol, and manufactures and markets monoethylene glycol, diethylene glycol and polyethylene terephthalate resins
The HSC Group: (1)
DC HSC Holdings LLC (2)
50.00%A U.S.-based group of companies that manufactures polycrystalline silicon products
Hemlock Semiconductor L.L.C.50.10%A U.S. company that sells polycrystalline silicon products
The Kuwait Olefins Company K.S.C.42.50%A Kuwait-based company that manufactures ethylene and ethylene glycol
The Kuwait Styrene Company K.S.C.42.50%A Kuwait-based company that manufactures styrene monomer
Map Ta Phut Olefins Company Limited (3)
32.77%A Thailand-based company that manufactures propylene and ethylene
Sadara Chemical Company (4)
35.00%A Saudi Arabian company that currently manufactures chlorine, ethylene and propylene for internal consumption and manufactures and sells polyethylene; will produce and sell high-value added chemical products and other performance plastics when fully operational
The SCG-Dow Group:
Siam Polyethylene Company Limited50.00%A Thailand-based company that manufactures polyethylene
Siam Polystyrene Company Limited50.00%A Thailand-based company that manufactures polystyrene
Siam Styrene Monomer Co., Ltd.50.00%A Thailand-based company that manufactures styrene
Siam Synthetic Latex Company Limited50.00%A Thailand-based company that manufactures latex
(1)As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. Dow Corning was treated as a principal nonconsolidated affiliate through May 31, 2016. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the Company's consolidated statements of income. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.
(2)DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations.
(3)The Company's effective ownership of Map Ta Phut Olefins Company Limited is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited.
(4)Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. Under this arrangement, the Company purchases and sells Sadara products for a marketing fee.

See Note 9 to the Consolidated Financial Statements for additional information regarding nonconsolidated affiliates.


FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
In 2016, the Company derived 65 percent of its sales and had 37 percent of its property investment outside the United States. While the Company’s international operations may be subject to a number of additional risks, such as changes in currency exchange rates and geopolitical risks in emerging geographies, the Company does not regard its foreign operations, on the whole, as carrying any greater risk than its operations in the United States. Information on sales and long-lived assets by geographic area for each of the last three years appears in Note 26 to the Consolidated Financial Statements, and discussions of the Company’s risk management program for foreign exchange and interest rate risk management appear in Part I, Item 1A. Risk Factors; Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk; and Note 11 to the Consolidated Financial Statements.



PROTECTION OF THE ENVIRONMENT
Matters pertaining to the environment are discussed in Part I, Item 1A. Risk Factors; Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 15 to the Consolidated Financial Statements. In addition, 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.


EMPLOYEES
As of December 31, 2016, the Company permanently employed approximately 56,000 people on a full-time basis, with approximately 45 percent located in North America, 25 percent located in Europe, Middle East, Africa and India, and
30 percent located in other locations.


OTHER ACTIVITIES
Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited subsidiaries.


EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information related to the Company’s executive officers as of February 9, 2017.

Name - AgePresent Position with RegistrantYear Elected to be an OfficerOther Business Experience since January 1, 2012
Ronald C. Edmonds, 59Controller and Vice President of Controllers and Tax2009Vice President and Controller 2009 to date. Present position held since January 2016.
James R. Fitterling, 55President and Chief Operating Officer2010Executive Vice President and President, Feedstocks & Energy and Corporate Development September 2011 to September 2012. Executive Vice President, Feedstocks, Performance Plastics, Asia and Latin America September 2012 to December 2013. Executive Vice President, Feedstocks, Performance Plastics and Supply Chain December 2013 to October 2014. Vice Chairman, Business Operations October 2014 to October 2015. Vice Chairman and Chief Operating Officer October 2015 to February 2016. Present position held since February 2016.
Heinz Haller, 61Executive Vice President and President of Dow Europe, Middle East, Africa and India2006Executive Vice President and Chief Commercial Officer August 2010 to September 2012. Present position held since September 2012.
Joe E. Harlan, 57Vice Chairman and Chief Commercial Officer2011Executive Vice President, Performance Materials September 2011 to September 2012. Executive Vice President, Chemicals, Energy and Performance Materials September 2012 to October 2014. Chief Commercial Officer and Vice Chairman, Market Businesses October 2014 to October 2015. Present position held since October 2015.
Peter Holicki, 56Senior Vice President, Operations, Manufacturing & Engineering, Environment, Health & Safety Operations, and Emergency Services & Security2014Global Manufacturing Vice President, Hydrocarbons May 2009 to October 2012. Vice President for Manufacturing and Engineering Europe, Middle East and Africa May 2009 to October 2012. Vice President of Operations for Europe, Middle East and Africa and the Ethylene Envelope October 2012 to December 2013. Emergency Services and Security Expertise Center September 2014 to present. Corporate Vice President October 2014 to October 2015. Present position held since 2015.
Charles J. Kalil, 65Executive Vice President and General Counsel2004General Counsel 2004 to date. Executive Vice President 2008 to date. Corporate Secretary 2005 to February 2015.
Andrew N. Liveris, 62Chief Executive Officer and Chairman of the Board2003President 2004 to February 2016. Chief Executive Officer 2004 to date. Chairman 2006 to date.
Johanna Söderström, 45Corporate Vice President, Human Resources and Aviation, and Chief Human Resource Officer2015Global Human Resources Director, Performance Materials Division January 2011 to October 2012. Vice President, Human Resource Center of Expertise October 2012 to January 2015. Present position held since January 2015.
A. N. Sreeram, 49Senior Vice President, Research & Development and Chief Technology Officer2013Vice President, Research & Development, Dow Advanced Materials 2009 to October 2013. Corporate Vice President, Research & Development October 2013 to October 2015. Present position held since October 2015.
Howard I. Ungerleider, 48Vice Chairman and Chief Financial Officer2011Senior Vice President and President, Performance Plastics March 2011 to September 2012. Executive Vice President, Advanced Materials September 2012 to October 2014. Chief Financial Officer and Executive Vice President October 2014 to October 2015. Present position held since October 2015.


The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS

The factors described below represent the Company's principal risks.

Global Economic Considerations: The Company operates in a global, competitive environment which gives rise to operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations. Sales of the Company's products are also subject to extensive federal, state, local and foreign laws and regulations, trade agreements, import and export controls, and duties and tariffs. The imposition of additional regulations, controls and duties and tariffs or changes to bilateral and regional trade agreements could result in lower sales volume which could negatively impact the Company's results of operations.

Economic conditions around the world, and in certain industries in which the Company does business, also impact sales prices and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which Dow sells its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on Dow's results of operations.

In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on Dow's results of operations. The Company's global business operations also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks, Dow enters into hedging transactions pursuant to established guidelines and policies. If Dow fails to effectively manage such risks, it could have a negative impact on the Company's results of operations.

Financial Commitments and Credit Markets: Market conditions could reduce the Company's flexibility to respond to changing business conditions or fund capital needs.
Adverse economic conditions could reduce the Company's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. The economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Raw Materials: Availability of purchased feedstocks and energy, and the volatility of these costs, impact Dow’s operating costs and add variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Company’s total production costs and operating expenses. The Company purchases hydrocarbon raw materials including ethane, propane, butane, naphtha and condensate as feedstocks. The Company also purchases certain monomers, primarily ethylene and propylene, to supplement internal production, as well as other raw materials. The Company purchases natural gas, primarily to generate electricity, and purchases electric power to supplement internal generation.

Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. While the Company uses its feedstock flexibility and financial and physical hedging programs to help mitigate feedstock cost increases, the Company is not always able to immediately raise selling prices. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact the Company’s results of operations.

The Company has 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 including: construction of a new on-purpose propylene production facility, which commenced operations in December 2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility in Freeport, Texas, which is expected to start up in mid-2017. 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.

While the Company expects abundant and cost-advantaged supplies of NGLs in the United States to persist for the foreseeable future, if NGLs were to become significantly less advantaged than crude oil-based feedstocks, it could have a negative impact on the Company’s results of operations and future investments. Also, if the Company’s key suppliers of feedstocks and energy are unable to provide the raw materials required for production, it could have a negative impact on the Company's results of operations.

Supply/Demand Balance: Earnings generated by the Company's products vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Company's results of operations.

Litigation: The Company is party to a number of claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions.
Certain of the claims and lawsuits facing the Company purport to be class actions and seek damages in very large amounts. All such claims are contested. With the exception of the possible effect of the asbestos-related liability of Union Carbide Corporation (“Union Carbide”) and Chapter 11 related matters of Dow Corning as described below, it is the opinion of the Company's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Company's consolidated financial statements.

Union Carbide is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past four decades. At December 31, 2016, Union Carbide's total asbestos-related liability, including defense and processing costs, was $1,490 million ($437 million at December 31, 2015, which excluded defense and processing costs).

In 1995, Dow Corning, a former 50:50 joint venture, voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve breast implant liabilities and related matters ("Chapter 11 Proceeding"). Dow Corning emerged from the Chapter 11 Proceeding on June 1, 2004, and is implementing the Joint Plan of Reorganization (the "Plan"). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. At December 31, 2016, Dow Corning's liability for breast implant and other product liability claims was $263 million and the liability related to commercial creditor claims was $108 million.

See Note 15 to the Consolidated Financial Statements for additional information on these matters.

Environmental Compliance: The costs of complying with evolving regulatory requirements could negatively impact the Company's financial results. Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Company is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2016, the Company had accrued obligations of $909 million ($670 million at December 31, 2015) for probable environmental remediation and restoration costs, including $151 million ($74 million at December 31, 2015) 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 times that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Company's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.


Health and Safety: Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment as well as perceived impacts of plant biotechnology on health and the environment have resulted in more restrictive regulations and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment and the perceived impacts of plant biotechnology on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing, delays or failures in obtaining or retaining regulatory approvals, delayed product launches, lack of market acceptance, continued pressure for more stringent regulatory intervention and litigation. These concerns could also influence public perceptions, the viability or continued sales of certain of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.

Local, state, federal and foreign governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.

Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations, the transportation of products, cyber attacks, or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Company's results of operations.

Major hurricanes have caused significant disruption in Dow's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of Dow's products. Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively impact Dow's results of operations.

Cyber Vulnerability: The risk of loss of the Company’s intellectual property, trade secrets or other sensitive business information or disruption of operations could negatively impact the Company’s financial results.
Cyber attacks or security breaches could compromise confidential, business critical information, cause a disruption in the Company’s operations or harm the Company's reputation. The Company has attractive information assets, including intellectual property, trade secrets and other sensitive, business critical information. While the Company has a comprehensive cyber security program that is continuously reviewed, maintained and upgraded, a significant cyber attack could result in the loss of critical business information and/or could negatively impact operations, which could have a negative impact on the Company’s financial results.

Company Strategy: Implementing certain elements of the Company's strategy could negatively impact the Company's financial results.
The Company currently has manufacturing operations, sales and marketing activities, joint ventures, as well as proposed and existing projects of varying size in emerging geographies. Activities in these geographic areas are accompanied by uncertainty and risks including: navigating different government regulatory environments; relationships with new, local partners; project funding commitments and guarantees; expropriation, military actions, war, terrorism and political instability; sabotage; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project timelines; and determining raw material supply and other details regarding product movement. If the manufacturing operations, sales and marketing activities, and/or implementation of these projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.

The Company has also announced a number of portfolio management actions as part of Dow's ongoing transformation, including a proposed all-stock merger of equals transaction with E.I. du Pont de Nemours and Company, as well as transactions to restructure the Company's ownership interest in certain joint ventures. If the execution or implementation of these transactions is not successful, it could adversely impact the Company's financial condition, cash flows and results of operations.

Goodwill: An impairment of goodwill could negatively impact the Company's financial results.
At least annually, the Company assesses goodwill for impairment. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings. Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued weak demand for a specific product line or business could result in an impairment. Accordingly, any

determination requiring the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.

Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined benefit pension plans and other postretirement benefit plans could negatively impact Dow's financial condition and results of operations.
The Company has defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a number of other countries. The assets of the Company's funded plans are primarily invested in fixed income and equity securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A significant increase in the Company's obligations or future funding requirements could have a negative impact on the Company's results of operations and cash flows for a particular period and on the Company's financial condition.




The Dow Chemical Company and Subsidiaries
PART I, Item 1B. Unresolved Staff Comments.
UNRESOLVED STAFF COMMENTS
None.




The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.
PROPERTIES
The Company operates 189 manufacturing sites in 34 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow’s products. During 2016, the Company’s production facilities and plants operated at 85 percent of capacity. The Company’s major production sites, including consolidated variable interest entities, are as follows:

Location
Agricultural
Sciences
Consumer SolutionsInfrastructure Solutions
Performance
Materials & Chemicals
Performance Plastics
Bahia Blanca, Argentinax
Candeias, Brazilx
Canada:
Fort Saskatchewan, Albertax
Joffre, Albertax
Germany:
Boehlenxxx
Bomlitzxx
Leunax
Schkopauxxxx
Stadexxxxx
Terneuzen, The Netherlandsxxxx
Tarragona, Spainxxx
Map Ta Phut, Thailandxxx
United States:
Carrollton, Kentuckyxx
Louisville, Kentuckyx
Hahnville (St. Charles), Louisianaxxx
Plaquemine, Louisianaxxxx
Midland, Michiganxxxxx
Deer Park, Texasxx
Freeport, Texasxxxx
Seadrift, Texasxxxx
Texas City, Texasxx
Wales, United Kingdomxx
Zhangjiagang, Chinaxxx
Including the major production sites, the Company has plants and holdings in the following geographic areas:

Asia Pacific:  40 manufacturing locations in 11 countries.
Canada:    6 manufacturing locations in 3 provinces.
Europe, Middle East, Africa and India:  50 manufacturing locations in 17 countries.
Latin America:  33 manufacturing locations in 4 countries.
United States:  60 manufacturing locations in 25 states and 1 U.S. territory.

All of Dow’s plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value.

A summary of properties, classified by type, is provided in Note 8 to the Consolidated Financial Statements. Additional information regarding leased properties can be found in Note 19 to the Consolidated Financial Statements.



The Dow Chemical Company and Subsidiaries
PART I, Item 3. Legal Proceedings.
LEGAL PROCEEDINGS

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 four 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.

For additional information, see Part II, Item 7. Other Matters, Asbestos-Related Matters of Union Carbide Corporation in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 1 and 15 to the Consolidated Financial Statements.

Environmental Matters
In a meeting on July 22, 2015, Rohm and Haas Company and Rohm and Haas Chemicals LLC (collectively, “ROH”), wholly owned subsidiaries of the Company, were informed by representatives of the U.S. Environmental Protection Agency (“EPA”) of the EPA’s intent to seek injunctive relief and assess a civil penalty in excess of $100,000 for alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky, manufacturing facility. In a letter dated November 13, 2016, ROH was informed that after consideration of the information provided by the Company, the EPA has determined that it will not, at this time, pursue civil enforcement related to the alleged violations of the General Duty Clause of the Clean Air Act at ROH’s Louisville, Kentucky manufacturing facility.

Dow Corning Corporation ("Dow Corning"), a wholly owned subsidiary of the Company, has received the following notifications from the EPA, Region Five related to Dow Corning’s Midland manufacturing facility (the “Facility”): 1) a Notice of Violation and Finding of Violation (received in April 2012) which alleges a number of violations in connection with the detection, monitoring and control of certain organic hazardous air pollutants at the Facility and various recordkeeping and reporting violations under the Clean Air Act and 2) a Notice of Violation (received in May 2015) alleging a number of violations relating to the management of hazardous wastes at the Facility pursuant to the Resource Conservation and Recovery Act. While Dow Corning contests these allegations, resolution may result in a penalty in excess of $100,000. Discussions between the EPA and Dow Corning are ongoing.

On August 17, 2016, Dow Corning received notification from the Kentucky Department for Environmental Protection ("KDEP") of their intent to assess a civil penalty in excess of $100,000 for alleged air violations at Dow Corning's Carrollton, Kentucky, manufacturing facility. Discussions between Dow Corning and the KDEP are ongoing.

Rohm and Haas Texas Incorporated ("ROH Texas"), a wholly owned subsidiary of the Company, was informed by the EPA, Region 6 of concerns related to the operation and condition of certain flares installed at ROH Texas' Deer Park, Texas, manufacturing facility. This matter was resolved on January 12, 2017, through the issuance of an Administrative Complaint as well as a Consent Agreement and Final Order, under which ROH Texas does not admit the alleged violations but agrees to pay the U.S. Treasury $400,000 and commits to a mitigation plan involving additional monitoring and completion of two Supplemental Environmental Projects ("SEPs") to provide a local college with an air monitoring bench and improved energy efficient lighting. The SEPs are estimated to cost ROH Texas approximately $1.5 million.

Derivative Litigation
In April 2016, Stephen Levine ("Levine"), purportedly in the name of and on behalf of the Company, served the Company with a complaint filed in the United States District Court for the Eastern District of Michigan (the “Court”) against certain officers and directors of the Company (the “Defendants”) alleging, among other things, that Defendants breached certain fiduciary obligations with respect to the urethanes antitrust class action litigation and the underlying conduct alleged therein, and the use of corporate assets. Defendants and the Company moved to dismiss the complaint on July 13, 2016, arguing that Levine had not alleged sufficient facts to establish his ability to assert claims on the Company's behalf and that the allegations were not sufficient to state a legal claim. On October 19, 2016, the Court entered an order granting Defendants' motion to dismiss and entering judgment for the Defendants. In November 2016, the shareholder appealed the Court’s judgment to the United States Court of Appeals for the Sixth Circuit.


The Dow Chemical Company and Subsidiaries
PART I, Item 4. Mine Safety Disclosures.
MINE SAFETY DISCLOSURES

Not applicable.


The Dow Chemical Company and Subsidiaries
PART II, Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company’s common stock is the New York Stock Exchange, traded under the symbol “DOW.”

Quarterly market and dividend information can be found in Quarterly Statistics at the end of Part II, Item 8. Financial Statements and Supplementary Data.

At December 31, 2016, there were 57,838 registered common stockholders. The Company estimates there were an additional 855,171 stockholders whose shares were held in nominee names at December 31, 2016. At January 31, 2017, there were 57,651 registered common stockholders.

On December 15, 2016, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 30, 2017, to stockholders of record on December 28, 2016. On February 9, 2017, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 28, 2017, to stockholders of record on March 31, 2017. 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 105-year period, Dow has increased the amount of the quarterly dividend 52 times (approximately 13 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 87 percent of the time.

See Part III, Item 11. Executive Compensation for information relating to the Company’s equity compensation plans.

Issuer Purchases of Equity Securities
The following table provides information regarding purchases of the Company’s common stock by the Company during the three months ended December 31, 2016:

Issuer Purchases of Equity Securities Average price paid per share
 
Total number of shares purchased as part of the Company's publicly announced share repurchase
program (1)

 
Approximate dollar value of shares that may yet be purchased under the Company's publicly announced share repurchase program (1)
(In millions)

Period Total number of shares purchased
October 2016 
 $
 
 $1,896
November 2016 8,822,551
 $53.64
 8,822,551
 $1,423
December 2016 493,480
 $54.25
 493,480
 $1,396
Fourth quarter 2016 9,316,031
 $53.67
 9,316,031
 $1,396
(1)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. 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. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion.




The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA

In millions, except as noted (Unaudited)
2016
2015
2014
2013
2012
Summary of Operations     
Net sales$48,158
$48,778
$58,167
$57,080
$56,786
Net income (1)
$4,404
$7,783
$3,839
$4,816
$1,100
Per share of common stock (in dollars):     
Net income per common share - basic (1)
$3.57
$6.45
$2.91
$3.72
$0.71
Net income per common share - diluted (1)
$3.52
$6.15
$2.87
$3.68
$0.70
Cash dividends declared per share of common stock$1.84
$1.72
$1.53
$1.28
$1.21
Book value per share of common stock$21.70
$23.06
$19.71
$22.59
$17.73
Year-end Financial Position     
Total assets (2) (3)
$79,511
$67,938
$68,639
$69,380
$69,462
Long-term debt (2)
$20,456
$16,215
$18,741
$16,732
$19,819
Financial Ratios     
Research and development expenses as percent of net sales3.3%3.3%2.8%3.1%3.0%
Income before income taxes as percent of net sales (1)
9.2%20.4%9.1%11.9%2.9%
Return on stockholders’ equity (1)
15.3%34.4%18.6%19.4%5.0%
Debt as a percent of total capitalization44.0%39.7%45.5%38.9%48.7%
(1)The 2016 values include the impact of a change in accounting policy for asbestos-related defense and processing costs. See Notes 1 and 15 to the Consolidated Financial Statements for additional information.    
(2)Adjusted for the reclassification of debt issuance costs related to the adoption of ASU 2015-03 in 2015. See Note 2 to the Consolidated Financial Statements for additional information.
(3)Adjusted for the adoption of ASU 2015-17 in 2016. See Notes 1 and 2 to the Consolidated Financial Statements for additional information.



The Dow Chemical Company and Subsidiaries
PART II, Item 7. Management’s Discussion and
(Unaudited)Analysis of Financial Condition and Results of Operations.



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 material, polymer, chemical and biological science to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, energy efficiency, more durable infrastructure, and increasing agricultural productivity. Dow's integrated, market-driven portfolio delivers a broad range of technology-based products and solutions to customers in 175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics and agriculture. In 2016, Dow had annual sales of $48 billion and employed approximately 56,000 people worldwide. The Company's more than 7,000 product families are manufactured at 189 sites in 34 countries across the globe. The Company conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

In 2016, 38 percent of the Company’s sales were to customers in North America; 30 percent were in Europe, Middle East, Africa and India ("EMEAI"); while the remaining 32 percent were to customers in Asia Pacific and Latin America.

In 2016, the Company and its consolidated subsidiaries did not operate in countries subject to U.S. economic sanctions and export controls as imposed by the U.S. State Department or in countries designated by the U.S. State Department as state sponsors of terrorism, including Iran, Sudan and Syria. The Company has policies and procedures in place designed to ensure that it and its consolidated subsidiaries remain in compliance with applicable U.S. laws and regulations.









2016 OVERVIEW
Dow had another strong year in 2016, delivering on a number of strategic priorities including progress on growth investments and portfolio actions. A summary of financial highlights and other notable events are as follows:

Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Sales declined in Performance Materials & Chemicals (down 23 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent) which more than offset sales increases in Consumer Solutions (up 25 percent) and Infrastructure Solutions (up 17 percent), both of which include Dow Corning Corporation's ("Dow Corning") silicones business. Performance Plastics sales were flat. Sales declined in all geographic areas, except Asia Pacific (up 10 percent).

Volume increased 5 percent in 2016 compared with 2015, as increases in Consumer Solutions (up 29 percent), Infrastructure Solutions (up 23 percent), and Performance Plastics (up 8 percent) more than offset volume declines in Performance Materials & Chemicals (down 14 percent) and Agricultural Sciences (down 3 percent). Volume increased in all geographic areas, except Latin America (down 1 percent), including a double-digit increase in Asia Pacific (up 16 percent). Excluding the impact of recent acquisitions and divestitures(1), volume was up 4 percent with increases in all operating segments, except Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which was flat.

Price was down 6 percent in 2016 compared with 2015, driven by lower feedstock and raw material prices and competitive pricing pressures. Price declines were reported in all operating segments, except Agricultural Sciences which was flat, and all geographic areas.

Dow's Board of Directors approved a restructuring plan in the second quarter of 2016 that incorporates actions related to the ownership restructure of Dow Corning. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. As a result, the Company recorded pretax restructuring charges of $449 million in 2016 related to this plan.

In the fourth quarter of 2016, the Company changed its method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability through the expected terminal date of 2049, resulting in a charge of $1,009 million. The Company also increased its asbestos-related liability for pending and future claims through the expected terminal date of 2049, resulting in an additional charge of $104 million.

Dow's earnings from nonconsolidated affiliates totaled $442 million in 2016, down from $674 million in 2015. In 2016, equity earnings decreased as higher earnings from The SCG-Dow Group, Map Ta Phut Olefins Company Limited and the HSC Group were more than offset by higher equity losses from Sadara Chemical Company ("Sadara") related to start-up expenses, and lower equity earnings from the Kuwait joint ventures as a result of lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE Petrochemicals Company K.S.C. ("EQUATE")). Equity earnings also declined as a result of the ownership restructure of Dow Corning ("DCC Transaction").

Sundry income (expense) - net was income of $1,202 million in 2016, reflecting a gain related to the DCC Transaction partially offset by a loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation.

The provision for income taxes was $9 million in 2016, which resulted in an effective tax rate of 0.2 percent, down from $2,147 million in 2015, or an effective tax rate of 21.6 percent. The provision for income taxes decreased primarily due to the non-taxable gain on the DCC Transaction, a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge resulting from the change in accounting policy.

The Company resumed its share repurchase program in the third quarter of 2016 after the shareholder vote on the DowDuPont merger on July 20, 2016. During 2016, the Company executed $916 million in share repurchases. At December 31, 2016, $1.4 billion of the share buy-back authorization remained available for repurchases.


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics); the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences); ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation Technologies, LLC, acquired on May 5, 2015 (Performance Plastics).

On December 30, 2016, the Company converted 4 million shares of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into 96.8 million shares of the Company's common stock. As a result of this conversion, the annual Preferred Stock dividend of $340 million will be eliminated.

Other notable events and highlights from 2016 include:

On March 7, 2016, the Company announced its new, on-purpose propylene production facility in Freeport, Texas, successfully completed the performance test, certifying that the 750 kilotonnes per annum ("KTA") unit is capable of operating at full operating capacity.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture. As a result, Dow is now the 100 percent owner of Dow Corning's silicones business.

On June 9, 2016, DowDuPont's registration statement filed with the U.S. Securities and Exchange Commission on Form S-4 (File No. 333-209869), as amended, was declared effective. The registration statement was filed in connection with the proposed merger with E. I. du Pont de Nemours & Company ("DuPont") and includes a joint proxy statement of Dow and DuPont and a prospectus of DowDuPont.

In connection with the planned merger of equals transaction with DuPont, Dow held a special meeting of stockholders on July 20, 2016. Stockholders of the Company voted to approve all stockholder proposals necessary to complete the merger of equals transaction.

On August 29, 2016, the Company announced that its joint venture in the Middle East - Sadara - achieved a significant milestone with the successful start-up of its mixed feed cracker and a third polyethylene train, which added to the two polyethylene trains already in operation.

On December 9, 2016, the Company announced that it will invest in a new, state-of-the-art innovation center in Midland, Michigan, which will support approximately 200 research and development jobs in Michigan, including 100 newly created jobs while repatriating 100 jobs from other Dow facilities throughout the globe to Midland.

Dow launched two additional Pack Studios in 2016 - the opening of Pack Studios Singapore, the second Pack Studios center for Asia Pacific, and Pack Studios Ringwood, located in North America and focused on laminating adhesives.

Dow completed expansions of its Louisiana ethylene and Seadrift, Texas, gas-phase polyethylene production facilities, delivering further integration strength to complement the Company's market-focused downstream investments.

Dow was named to the Dow Jones Sustainability World Index - marking the 16th time the Company has been named to this global benchmark.

Dow received seven R&D 100 Awards from R&D Magazine for revolutionary technologies including: BETAFORCE™ 2817 Structural Adhesive, two awards for CANVERA™ Polyolefin Dispersions, Dow Corning® TC-3040 Thermal Gel, Flexible Acrylic Resin, PARADIGM™ WG Herbicide with ARYLEX™ Active and DOW AGILITY™ Performance LDPE.

Dow received two 2016 Sustainability Awards from the Business Intelligence Group including the Sustainability Initiative of the Year Award for RETAIN™ Polymer Modifiers and the Sustainability Product of the Year Award for CANVERA™ Polyolefin Dispersions.

Dow AgroSciences LLC was the recipient of a Presidential Green Chemistry Challenge Award from the U.S. Environmental Protection Agency for INSTINCT® Nitrogen Stabilizer.

Dow was recognized in the Top 10 Best Companies for Leaders by Chief Executive magazine.

Dow was named to the 2016 Working Mother 100 Best Companies list, marking the 12th time Dow has received this prestigious recognition.

Dow was named to Forbes Just 100: America's Best Corporation Citizens in 2016 list - recognizing the Company's strategic vision and actions to deliver long-term value to society as a whole while earning the right to operate.


Dow was named the ICIS Company of the Year, based on financial metrics, by weekly global publication ICIS Chemical Business. The selection takes into account year-on-year growth in profits at the operating and net levels, as well as margins.

Dow was honored for the 12th consecutive year by the Human Rights Campaign for achieving a 100 percent rating on its corporate equality index - a global benchmarking tool on corporate policies and practices related to lesbian, gay, bisexual and transgender (LGBT) employees.

On February 2, 2016, Dow announced the planned transition of Chairman and Chief Executive Officer Andrew N. Liveris. The transition will occur on the earlier of the material completion of the anticipated spins following the closing of the announced DowDuPont merger transaction or June 30, 2017.

On February 2, 2016, James R. Fitterling was appointed President and Chief Operating Officer. He succeeds Andrew N. Liveris as President with Mr. Liveris continuing as the Company's Chairman and Chief Executive Officer.

On April 15, 2016, Gary McGuire was elected Vice President and Treasurer, succeeding Fernando Ruiz, Corporate Vice President and Treasurer, who announced his intention to retire from the Company.

Dow’s results of operations and financial condition for the year ended December 31, 2016, are described in further detail in the following discussion and analysis.


RESULTS OF OPERATIONS
Net Sales
Net sales for 2016 were $48.2 billion, down 1 percent from $48.8 billion in 2015, with volume up 5 percent and price down 6 percent. Price decreased in all operating segments, except Agricultural Sciences which was flat, and all geographic areas, due to lower feedstock and raw material prices and competitive pricing pressures. Volume increases in Consumer Solutions (up 29 percent) and Infrastructure Solutions (up 23 percent), both of which include Dow Corning's silicones business, and Performance Plastics (up 8 percent) more than offset lower volume in Performance Materials & Chemicals (down 14 percent, primarily due to the split-off of the chlorine value chain) and Agricultural Sciences (down 3 percent). Volume increased in Asia Pacific (up 16 percent), North America (up 5 percent), EMEAI (up 3 percent) and declined in Latin America (down 1 percent). Excluding recent acquisitions and divestitures(1), volume was up 4 percent as increases in Performance Plastics (up 9 percent), Consumer Solutions (up 4 percent) and Performance Materials & Chemicals (up 2 percent) more than offset declines in Infrastructure Solutions (down 3 percent) and Agricultural Sciences (down 2 percent). On the same basis, volume increased in all geographic areas, except Latin America which remained flat.

Net sales for 2015 were $48.8 billion, down 16 percent from $58.2 billion in 2014, with volume up 1 percent and price down 17 percent. Price decreased in all operating segments and geographic areas, driven primarily by a decline in average crude oil prices of approximately 45 percent and the unfavorable impact of currency, which represented nearly 30 percent of the price decline. Double-digit price declines were reported in all geographic areas and all operating segments, except Agricultural Sciences (down 8 percent) and Consumer Solutions (down 7 percent). Volume increases in Performance Plastics (up 5 percent), Infrastructure Solutions (up 2 percent) and Consumer Solutions (up 1 percent) more than offset lower volume in Performance Materials & Chemicals (down 6 percent) and Agricultural Sciences (down 4 percent). Volume increased in Asia Pacific (up 3 percent) and remained flat in North America, EMEAI and Latin America. Excluding the impact of recent acquisitions and divestitures(1), Performance Materials & Chemicals volume was up 1 percent and Agricultural Sciences volume was down 3 percent. Volume increased in all geographic areas, led by Asia Pacific (up 4 percent).

Sales in the United States accounted for 35 percent of total sales in 2016 (35 percent in 2015 and 33 percent in 2014). See the Sales Volume and Price tables at the beginning 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 26 to the Consolidated Financial Statements.


(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics); the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences); ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals); and the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions) and sales from January 1, 2016 through April 30, 2016 for the step acquisition of Univation, acquired on May 5, 2015 (Performance Plastics).

Gross Margin
Gross margin was $10.5 billion in 2016, $10.9 billion in 2015 and $10.7 billion in 2014. Gross margin in 2016 was impacted by a $317 million loss associated with the fair value step-up in inventories acquired in the DCC Transaction, reflected in Consumer Solutions ($147 million) and Infrastructure Solutions ($170 million); a $295 million charge for environmental matters, reflected in Agricultural Sciences ($2 million), Performance Materials & Chemicals ($1 million), Performance Plastics ($2 million) and Corporate ($290 million); $124 million of costs associated with transactions and productivity actions (reflected in Corporate); and a $117 million charge for the termination of a terminal use agreement (reflected in Performance Plastics). Excluding these items, gross margin increased compared with 2015 as lower feedstock, energy and other raw material costs, cost cutting and productivity initiatives, higher sales volume and the favorable impact from the addition of Dow Corning's silicones business more than offset lower selling prices. See Notes 4 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin increased in 2015 driven by an $8,542 million decrease in purchased feedstock and energy costs and the favorable impact of currency on costs which was partially offset by lower selling prices, including the unfavorable impact of currency. In 2015, gross margin was reduced by $91 million of charges for asset impairments and related costs, including the shutdown of manufacturing assets and facilities in the Dow Building & Construction, Energy & Water Solutions and Dow Packaging and Specialty Plastics businesses and the abandonment of certain capital projects in the Dow Building & Construction and Dow Coating Materials businesses and reflected in the following segments: Infrastructure Solutions ($34 million) and Performance Plastics ($57 million). Gross margin was also reduced by $24 million of costs associated with transactions and productivity actions (reflected in Corporate) and a $12 million loss related to Univation Technologies, LLC ("Univation") for the fair value step-up of inventories assumed in the step acquisition (reflected in Performance Plastics). See Notes 4 and 12 to the Consolidated Financial Statements for additional information regarding these items.

Gross margin in 2014 was positively impacted by increased sales volume, a $392 million decrease in purchased feedstock and energy costs, lower other raw material costs and increased operating rates. Gross margin in 2014 was reduced by a $100 million warranty accrual adjustment related to an exited business (reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic Materials business (reflected in Consumer Solutions). See Notes 12 and 15 to the Consolidated Financial Statements for additional information regarding these items.

Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2016, flat compared with 2015 and 2014.

Personnel Count
The Company permanently employed approximately 56,000 people at December 31, 2016, up from approximately 46,500 at December 31, 2015. Headcount increased in 2016 primarily due to the DCC Transaction, which was partially offset by a decline related to the Company's restructuring programs. Personnel count at December 31, 2015, decreased from approximately 50,000 at December 31, 2014, primarily due to the separation of employees as a result of divestitures and the Company's restructuring programs.

Research and Development Expenses
Research and development (“R&D”) expenses were $1,584 million in 2016, compared with $1,598 million in 2015 and $1,647 million in 2014. In 2016, R&D expenses decreased slightly compared with 2015, as increased costs from Dow Corning's silicones business were more than offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, R&D expenses decreased primarily due to cost reduction initiatives, notably in Agricultural Sciences, which were partially offset by increased performance-based compensation costs.

Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $3,304 million in 2016, compared with $2,971 million in 2015 and $3,106 million in 2014. In 2016, SG&A was negatively impacted by $379 million of costs associated with transactions and productivity actions, reflected in Corporate ($51 million in 2015). Excluding these items, SG&A expenses were essentially flat in 2016 compared with 2015, as increased costs from Dow Corning's silicones business were nearly offset by decreased spending due to divestitures and cost reduction initiatives as well as lower performance-based compensation costs. In 2015, SG&A expenses decreased as lower expenses, notably in Agricultural Sciences, and from the impact of divestitures, more than offset increased performance-based compensation costs.

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 2016
 2015
 2014
Hydrocarbon feedstocks and energy 24% 27% 38%
Salaries, wages and employee benefits 17
 18
 15
Maintenance 4
 5
 4
Depreciation 5
 4
 4
Restructuring charges 1
 1
 
Supplies, services and other raw materials 49
 45
 39
Total 100% 100% 100%

Amortization of Intangibles
Amortization of intangibles was $544 million in 2016, $419 million in 2015 and $436 million in 2014. The increase in amortization in 2016 is primarily due to an increase in intangible assets as a result of the DCC Transaction. See Notes 4 and 10 to the Consolidated Financial Statements for additional information on intangible assets.

Goodwill and Other Intangible Asset Impairment Losses
The Company performs annual goodwill impairment tests in the fourth quarter of the year. In 2016, the Company performed qualitative testing for 11 of the 14 reporting units carrying goodwill (9 of 12 reporting units in 2015 and 9 of 14 reporting units in 2014) and quantitative testing for the remaining three reporting units (three in 2015 and five in 2014). No goodwill impairments were identified in 2016, 2015 and 2014. See Critical Accounting Policies in Other Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements for additional information regarding goodwill and the impairment tests conducted.

In the fourth quarter of 2014, the Company recognized a pretax charge of $50 million for the impairment of intangible assets in the Dow Electronic Materials business, reflected in the Consumer Solutions segment. See Notes 10 and 12 to the Consolidated Financial Statements for additional information on this impairment.

Restructuring Charges (Credits)
On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the DCC Transaction. These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the DCC Transaction. These actions are expected to be substantially completed by June 30, 2018. As a result, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance costs of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million and reflected in the Company's segments results as follows: $28 million in Consumer Solutions, $97 million in Infrastructure Solutions, $10 million in Performance Plastics and $314 million in Corporate.

On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the split-off of the chlorine value chain. These actions, which further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. These actions are expected to be completed primarily by June 30, 2017. As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of severance costs of $196 million, asset write-downs and write-offs of $169 million and costs associated with exit and disposal activities of $10 million. In the fourth quarter of 2015, the Company recorded a restructuring charge adjustment of $40 million, primarily related to severance costs for the separation of approximately 500 additional positions. The impact of these charges was reflected in the Company's segment results as follows: $16 million in Agricultural Sciences, $67 million in Consumer Solutions, $26 million in Infrastructure Solutions, $12 million in Performance Plastics and $294 million in Corporate.

In 2016, the Company recorded an unfavorable restructuring charge adjustment of $6 million for additional accruals for costs associated with exit and disposal activities and a favorable adjustment of $3 million for the impairment of long-lived assets related to the 2015 Restructuring plan. The net charge was included in the Company's segment results as follows: $5 million charge in Agricultural Sciences, $1 million charge in Consumer Solutions and a $3 million gain in Infrastructure Solutions.

In 2014, the Company recognized a pretax gain of $3 million for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan, reflected in Performance Materials & Chemicals. See Note 3 to the Consolidated Financial Statements for details on the Company's restructuring activities.

Asbestos-related Charge
In 2016, the Company and Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary, elected to change the method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. As a result of this accounting policy change, the Company recorded a pretax charge of $1,009 million for asbestos-related defense costs through the terminal year of 2049. The Company also recorded a pretax charge of $104 million to increase the asbestos-related liability for pending and future claims through the terminal year of 2049. These charges were reflected in Corporate.

In 2014, the Company recorded a pretax charge of $78 million (reflected in Corporate) for an increase in the asbestos-related liability for pending and future claims (excluding defense and processing costs). Union Carbide determined that an adjustment to the asbestos accrual was required due to an increase in mesothelioma claim activity compared with what had been previously forecasted. See Notes 1 and 15 to the Consolidated Financial Statements for additional information on asbestos-related matters.

Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 2016 was $442 million, compared with $674 million in 2015 and $835 million in 2014. In 2016, equity earnings declined due to higher equity losses at Sadara related to start-up expenses, lower equity earnings from the Kuwait joint ventures due to lower monoethylene glycol prices and a reduction in the ownership of MEGlobal (now part of EQUATE), and the DCC Transaction. Equity earnings for 2016 also declined due to a charge of $22 million for a loss on early redemption of debt incurred by Dow Corning and reflected in Consumer Solutions ($8 million) and Infrastructure Solutions ($14 million). These declines were partially offset by higher earnings at the HSC Group, The SCG-Dow Group and Map Ta Phut Olefins Company Limited. In 2015, equity earnings decreased as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara, lower equity earnings from Univation resulting from the May 5, 2015, step acquisition and lower earnings from EQUATE, The Kuwait Olefins Company K.S.C. ("TKOC") and MEGlobal. Equity earnings in 2015 were also impacted by a $29 million charge (reflected in Agricultural Sciences) related to AgroFresh Solutions' fair value step-up of its inventories and start-up costs and a loss recognized by Sadara related to the write-off of design engineering work for an epoxy plant, of which Dow's share was $27 million (reflected in Corporate). In 2014, equity earnings decreased primarily due to lower earnings at EQUATE, The Kuwait Styrene Company K.S.C. ("TKSC") and MEGlobal and increased losses at Sadara which were partially offset by increased earnings at Dow Corning.

On June 1, 2016, the Company announced the closing of the transaction to restructure the ownership of Dow Corning, a former 50:50 joint venture between Dow and Corning. As a result, Dow Corning became a wholly owned subsidiary of Dow. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

In January 2014, the Chinese Ministry of Commerce issued a final determination that China's solar-grade polycrystalline silicon industry suffered material damage because of dumping, which resulted in antidumping duties of 53.3 percent and countervailing duties of 2.1 percent on future imports from the HSC Group into China. During the fourth quarter of 2014, Dow Corning determined its polycrystalline silicon plant expansion in Clarksville, Tennessee, would not be economically viable and made the decision to permanently abandon the assets. Dow's share of the charge related to this asset abandonment was $500 million (reflected in Infrastructure Solutions). As a result of the significant change in the use of this asset, Dow Corning assessed whether the carrying value of all remaining polycrystalline silicon assets might be impaired. Dow Corning's estimates of future undiscounted cash flows indicated the polycrystalline silicon asset group was recoverable.

During the fourth quarter of 2014, Dow Corning reduced its implant liability by approximately $1.3 billion. The revised implant liability reflected Dow Corning’s best estimate of its remaining obligations. Dow’s share of the implant liability reduction was $407 million ($155 million reflected in Consumer Solutions and $252 million reflected in Infrastructure Solutions). In the fourth quarter of 2015, Dow Corning further reduced its implant liability. Dow's share of the implant liability reduction was $20 million ($8 million reflected in Consumer Solutions and $12 million reflected in Infrastructure Solutions). See Note 9 to the Consolidated Financial Statements for additional information on nonconsolidated affiliates and Note 15 for additional information on Dow Corning's implant liability.


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, and litigation. Sundry income (expense) - net for 2016 was net income of $1,202 million, compared with net income of $4,592 million in 2015 and net expense of $27 million in 2014.

In 2016, sundry income (expense) - net included a $2,445 million gain related to the DCC Transaction (reflected in Consumer Solutions ($1,301 million) and Infrastructure Solutions ($1,144 million)), a $6 million gain adjustment on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals), a $27 million favorable adjustment related to a decrease in Dow Corning's implant liability (reflected in Consumer Solutions) and gains on sales of assets and investments. These gains more than offset a $1,235 million loss related to the Company's settlement of the urethane matters class action lawsuit and the opt-out cases litigation (reflected in Performance Materials & Chemicals), a $143 million impairment charge related to the Company's investment in AgroFresh Solutions, Inc., a $20 million charge for post-closing adjustments related to non-cash consideration for the AgroFresh divestiture (both reflected in Agricultural Sciences), $41 million of costs associated with transactions and productivity actions (reflected in Corporate) and foreign currency exchange losses. See Notes 4, 5, 6, 9, 12, 13 and 15 to the Consolidated Financial Statements for additional information.
In 2015, sundry income (expense) - net included a $2,233 million gain on the split-off of the Company's chlorine value chain (reflected in Performance Materials & Chemicals (gain of $1,984 million), Performance Plastics (gain of $317 million), and Corporate (loss of $68 million)), a $723 million gain on the sale of MEGlobal (reflected in Performance Materials & Chemicals), a $682 million gain on the divestiture of ANGUS Chemical Company (reflected in Performance Materials & Chemicals), a $20 million gain on the divestiture of the global Sodium Borohydride business (reflected in Performance Materials & Chemicals), a $618 million gain related to the divestiture of the AgroFresh business (net of an $8 million loss for mark-to-market adjustments on the fair value of warrants receivable and reflected in Agricultural Sciences), a $361 million gain on the Univation step acquisition (reflected in Performance Plastics) and gains on sales of assets and investments. These gains more than offset foreign currency exchange losses, including a $98 million loss related to the impact of the Argentine peso devaluation (reflected in Corporate), a $53 million loss on asset impairments and related costs (reflected in Infrastructure Solutions), an $8 million loss related to the early extinguishment of debt (reflected in Corporate) and $119 million of costs associated with transactions and productivity actions (reflected in Corporate). See Notes 4, 5, 6, 9, 12, 13 and 17 to the Consolidated Financial Statements for additional information.

In 2014, sundry income (expense) - net included a gain related to the termination of an off-take agreement and gains on asset sales which were more than offset by foreign currency exchange losses, venture capital investment losses and $49 million of costs associated with transactions and productivity actions (reflected in Corporate).

Net Interest Expense
Net interest expense (interest expense less capitalized interest and interest income) was $751 million in 2016, down from $875 million in 2015 and $932 million in 2014. In 2016, net interest expense decreased primarily due to the impact of approximately $2.5 billion of debt retired in 2015. In 2015, net interest expense decreased due to the impact of higher capitalized interest as a result of increased capital spending, primarily related to U.S. Gulf Coast projects, which more than offset higher interest expense related to the issuance of $2 billion of debt in 2014. Interest income was $107 million in 2016, $71 million in 2015 and $51 million in 2014. Interest expense (net of capitalized interest) and amortization of debt discount totaled $858 million in 2016, $946 million in 2015 and $983 million in 2014. See Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the Consolidated Financial Statements for additional information related to debt financing activity.

Provision for Income Taxes
The Company's effective tax rate fluctuates based on, among other factors, where income is earned, reinvestment assertions regarding foreign 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 method investments are taxed at the joint venture level. The underlying factors affecting the Company's overall tax rate are summarized in Note 23 to the Consolidated Financial Statements.

The provision for income taxes was $9 million in 2016, down from $2,147 million in 2015 and $1,426 million in 2014. The tax rate for 2016 was favorably impacted by the non-taxable gain on the DCC Transaction and a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning. The tax rate was also favorably impacted by the geographic mix of earnings, the availability of foreign tax credits and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge. A reduction in equity

earnings and non-deductible costs associated with transactions and productivity actions unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 0.2 percent for 2016.

The tax rate for 2015 was favorably impacted by portfolio actions, specifically the tax-efficient split-off of the Company's chlorine value chain, the non-taxable gain from the Univation step acquisition, and the sale of MEGlobal. The geographic mix of earnings favorably impacted the tax rate with the gain from the ANGUS Chemical Company divestiture and continued profitability improvement in Europe and Asia Pacific providing most of the benefit. The tax rate was unfavorably impacted by foreign subsidiaries repatriating cash to the United States which was primarily derived from divestiture proceeds. Reduced equity earnings and continued increases in statutory income in Latin America and Canada due to local currency devaluations also unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 21.6 percent for 2015.  

The tax rate for 2014 was favorably impacted by the geographic mix of earnings, with the most notable components being improved profitability in Europe and Asia Pacific. Equity earnings were strong, providing additional favorable impact on the tax rate. The tax rate was also favorably impacted by a reduction in the tax impact on remittances by foreign subsidiaries to the United States. The tax rate was unfavorably impacted by a continued increase in statutory income in Latin America due to local currency devaluations, and increases in valuation allowances, primarily in Asia Pacific. These factors resulted in an effective tax rate of 27.1 percent for 2014.

Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $86 million in 2016, $98 million in 2015 and $67 million in 2014. Net income attributable to noncontrolling interests decreased in 2016 compared with 2015, primarily due to losses incurred by a cogeneration facility in Brazil, which more than offset earnings from Dow Corning's consolidated joint ventures. Net income attributable to noncontrolling interests increased in 2015 compared with 2014, primarily due to higher earnings at most of the Company's consolidated joint ventures which was partially offset by an after-tax loss related to the exercise of an equity option by a noncontrolling interest in a variable interest entity. In addition to the items previously discussed, 2015 was also impacted by noncontrolling interests' portion of the 2015 restructuring charge. See Notes 3, 20 and 25 to the Consolidated Financial Statements for additional information on these matters.

Preferred Stock Dividends
Preferred Stock dividends of $340 million were recognized in 2016, 2015 and 2014. The final Preferred Stock dividend was paid on December 30, 2016. See Note 22 to the Consolidated Financial Statements for additional information.

Net Income Available for Common Stockholders
Net income available for common stockholders was $3,978 million ($3.52 per share) in 2016, compared with $7,345 million ($6.15 per share) in 2015 and $3,432 million ($2.87 per share) in 2014.

Certain Items Impacting Results
The Company provides certain financial measures - Income before income taxes, Net income and Earnings per share - excluding the impact of certain items ("non-GAAP" financial measures). Due to the nature of these certain items, they do not reflect the ongoing operating performance of the Company. Accordingly, Dow's management believes presenting financial measures excluding certain items is useful for investors as it provides financial information on a more comparative basis for the periods presented. Non-GAAP financial measures are not recognized in accordance with principles generally accepted in the United State of America ("U.S. GAAP") and should not be viewed as an alternative to U.S. GAAP financial measures of performance. In addition, these measures are not intended to replace U.S. GAAP measures.


The following table summarizes the impact of certain items recorded in 2016, 2015 and 2014:
Certain Items Impacting Results
Pretax
Impact (1)
 
Impact on
Net Income (2)
 
Impact on
EPS (3) (4) (5)
In millions, except per share amounts2016
 2015
 2014
 2016
 2015
 2014
 2016
 2015
 2014
Reported U.S. GAAP Amounts (6)      $3,978
 $7,345
 $3,432
 $3.52
 $6.15
 $2.87
- Certain items:                 
Cost of sales:                 
Environmental charges$(295) $
 $
 (205) 
 
 (0.17) 
 
Charge for termination of a terminal use agreement(117) 
 
 (74) 
 
 (0.06) 
 
Impact of Dow Corning ownership restructure(317) 
 
 (216) 
 
 (0.19) 
 
Asset impairments and related costs
 (91) (23) 
 (70) (14) 
 (0.06) (0.01)
Warranty accrual adjustment of exited business
 
 (100) 
 
 (63) 
 
 (0.05)
Univation step acquisition
 (12) 
 
 (8) 
 
 (0.01) 
Transactions and productivity costs(124) (24) 
 (79) (16) 
 (0.06) (0.01) 
Selling, general and administrative expenses:                 
Transactions and productivity costs(379) (51) 
 (307) (38) 
 (0.27) (0.03) 
Goodwill and other intangible asset impairment losses
 
 (50) 
 
 (33) 
 
 (0.03)
Restructuring charges(454) (415) 
 (308) (274) 
 (0.27) (0.24) 
Asbestos-related charge(1,113) 
 (78) (701) 
 (49) (0.58) 
 (0.04)
Equity in earnings of nonconsolidated affiliates:                 
Impact of Dow Corning ownership restructure(22) 
 
 (20) 
 
 (0.02) 
 
Joint venture actions
 (36) (93) 
 (26) (87) 
 (0.02) (0.08)
Sundry income (expense) - net:                 
Implant liability adjustment27
 
 
 17
 
 
 0.01
 
 
Charges related to AgroFresh(163) 
 
 (103) 
 
 (0.08) 
 
Impact of Dow Corning ownership restructure2,445
 
 
 2,586
 
 
 2.28
 
 
Urethane matters legal settlements(1,235) 
 
 (778) 
 
 (0.70) 
 
Gain on split-off of chlorine value chain6
 2,233
 
 6
 2,215
 
 0.01
 1.96
 
Gain on sale of MEGlobal
 723
 
 
 589
 
 
 0.52
 
Gain on 2015 business divestitures
 1,320
 
 
 823
 
 
 0.71
 
Gain on Univation step acquisition
 361
 
 
 359
 
 
 0.31
 
Asset impairments and related costs
 (53) 
 
 (53) 
 
 (0.05) 
Impact of Argentine peso devaluation
 (98) 
 
 (106) 
 
 (0.09) 
Loss on early extinguishment of debt
 (8) 
 
 (5) 
 
 
 
Transactions and productivity costs(41) (119) (49) (48) (99) (31) (0.05) (0.09) (0.03)
Provision for income taxes:                 
Uncertain tax position
 
 
 (13) 
 
 (0.01) 
 
Total certain items$(1,782) $3,730
 $(393) $(243) $3,291
 $(277) $(0.16) $2.90
 $(0.24)
+ Dilutive effect of assumed preferred stock conversion into shares of common stock            $0.04
 $0.22
 N/A
= Operating Results (Non-GAAP) (7)      $4,221
 $4,054
 $3,709
 $3.72
 $3.47
 $3.11
(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)The assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was excluded from the calculation of "Earnings per common share - diluted" for the twelve-month periods ended December 31, 2016 and December 31, 2014. The assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was excluded from the calculation of "Operating earnings per common share - diluted" (Non-GAAP) as well as the certain items earnings per share impact for the twelve-month periods ended December 31, 2015 and December 31, 2014 because the effect of including them would have been antidilutive.
(5)For the twelve-month period ended December 31, 2016, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of "Operating earnings per common share - diluted" (Non-GAAP). For the twelve-month period ended December 31, 2015, an assumed conversion of the Company's Preferred Stock into shares of the Company's common stock was included in the calculation of "Earnings per common share - diluted" (GAAP).
(6)The Company used "Net Income Attributable to The Dow Chemical Company" when calculating "Earnings per common share - diluted" (GAAP) for the twelve-month period ended December 31, 2015, as it excludes preferred dividends of $340 million.
(7)"Operating earnings per common share - diluted" (Non-GAAP) for the twelve-month period ended December 31, 2016, excludes preferred dividends of $340 million.

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. In the segment discussions that follow, the Company provides EBITDA excluding certain items. Due to the nature of these certain items, they do not reflect the ongoing operating performance of the Company. Accordingly, Dow's management believes presenting EBITDA excluding certain items is useful for investors as it provides financial information on a more comparative basis for the periods presented. EBITDA excluding certain items is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP financial measures of performance. Additional information regarding the Company's operating segments and a reconciliation of “Income Before Income Taxes” to EBITDA can be found in Note 26 to the Consolidated Financial Statements.

Due to the completion of several acquisitions and divestitures (see Notes 4, 5 and 6 to the Consolidated Financial Statements), the change in sales volume from 2015 to 2016, 2014 to 2015 and 2013 to 2014 excluding acquisitions and divestitures is also provided by operating segment, where applicable.



SALES VOLUME AND PRICE BY OPERATING SEGMENT AND GEOGRAPHIC AREA
Sales Volume and Price by Operating Segment and Geographic Area
 2016 2015 2014
Percent change from prior yearVolume
 Price
 Total
 Volume
 Price
 Total
 Volume
 Price
 Total
Operating Segments:                 
Agricultural Sciences(3)%  % (3)% (4)% (8)% (12)% 3 % (1)% 2 %
Consumer Solutions29
 (4) 25
 1
 (7) (6) 3
 (1) 2
Infrastructure Solutions23
 (6) 17
 2
 (14) (12) 1
 
 1
Performance Materials & Chemicals(14) (9) (23) (6) (15) (21) 2
 
 2
Performance Plastics8
 (8) 
 5
 (23) (18) 
 2
 2
Total5 % (6)% (1)% 1 % (17)% (16)% 2 %  % 2 %
Geographic Areas:                 
United States5 % (6)% (1)%  % (14)% (14)% 2 % 2 % 4 %
Europe, Middle East, Africa & India3
 (7) (4) 
 (22) (22) 3
 (1) 2
Rest of World7
 (6) 1
 1
 (13) (12) (1) 
 (1)
Total5 % (6)% (1)% 1 % (17)% (16)% 2 %  % 2 %


Sales Volume and Price by Operating Segment and Geographic Area, Excluding Acquisitions and Divestitures (1)
 2016 2015 2014
Percent change from prior yearVolume
 Price
 Total
 Volume
 Price
 Total
 Volume
 Price
 Total
Operating Segments:                 
Agricultural Sciences(2)%  % (2)% (3)% (8)% (11)% 3% (1)% 2%
Consumer Solutions4
 (4) 
 1
 (7) (6) 3
 (1) 2
Infrastructure Solutions(3) (6) (9) 2
 (14) (12) 1
 
 1
Performance Materials & Chemicals2
 (11) (9) 1
 (16) (15) 2
 
 2
Performance Plastics9
 (8) 1
 5
 (23) (18) 1
 2
 3
Total4 % (7)% (3)% 2 % (17)% (15)% 2%  % 2%
Geographic Areas:                 
United States4 % (7)% (3)% 2 % (14)% (12)% 2% 2 % 4%
Europe, Middle East, Africa & India4
 (8) (4) 3
 (23) (20) 4
 (1) 3
Rest of World3
 (6) (3) 2
 (13) (11) 
 
 
Total4 % (7)% (3)% 2 % (17)% (15)% 2%  % 2%
(1)Excludes prior period sales of recent divestitures including the chlorine value chain, divested on October 5, 2015 (primarily Performance Materials & Chemicals and Performance Plastics); the AgroFresh business, divested on July 31, 2015 (Agricultural Sciences); ANGUS Chemical Company, divested on February 2, 2015 (Performance Materials & Chemicals); the global Sodium Borohydride business, divested on January 30, 2015 (Performance Materials & Chemicals); the Polypropylene Licensing and Catalysts business, divested on December 2, 2013 (Performance Plastics); and sales related to Nippon Unicar Company Limited, divested on July 1, 2013 (Performance Plastics). Also excludes current period sales related to the ownership restructure of Dow Corning announced on June 1, 2016 (Consumer Solutions and Infrastructure Solutions), the step acquisition of Univation, acquired on May 5, 2015 (Performance Plastics) and sales from Cooperativa Central de Pesquisa Agrícola's ("Coodetec"), acquired on February 1, 2015 (Agricultural Sciences).

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

On January 30, 2015, DAS acquired Coodetec's seed business. See Note 4 to the Consolidated Financial Statements for additional information on this acquisition.

On July 31, 2015, the Company sold its AgroFresh business to AgroFresh Solutions, Inc. (“AFSI”). The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is also reported in the Agricultural Sciences segment. See Note 5 to the Consolidated Financial Statements for additional information on this divestiture.

Agricultural Sciences
In millions
 2016
 2015
 2014
Sales $6,174
 $6,381
 $7,290
Price change from comparative period  % (8)% (1)%
Volume change from comparative period (3)% (4)% 3 %
Volume change, excluding acquisitions and divestitures (2)% (3)% 3 %
Equity earnings (losses) $3
 $(15) $4
EBITDA $806
 $1,432
 $962
Certain items impacting EBITDA $(170) $573
 $
EBITDA excluding certain items $976
 $859
 $962

2016 Versus 2015
Agricultural Sciences sales were $6,174 million in 2016, down 3 percent from $6,381 million in 2015. Compared with the same period last year, volume decreased 3 percent and price was flat. Sales declined in all geographic areas, except Latin America, as low crop commodity prices continued to drive a slow-growth agricultural market. Crop Protection sales decreased 6 percent compared with 2015, driven primarily by the AgroFresh divestiture, currency headwinds and reduced demand for insecticides and herbicides, primarily glyphosate. Seeds sales increased 7 percent compared with 2015, as strong demand and price increases for corn seeds in Latin America more than offset the impact of product lines divested in 2015 and lower demand for sunflower and cotton seeds. Excluding acquisitions and divestitures, volume for the segment declined 2 percent.

EBITDA for 2016 was $806 million, down $626 million from $1,432 million in 2015. EBITDA for 2016 was impacted by a $143 million impairment charge related to the Company's equity interest in AFSI, a $20 million charge related to post-closing adjustments on the sale of AgroFresh, a $5 million unfavorable adjustment to the 2015 restructuring charge, and a $2 million charge for environmental matters. EBITDA for 2015 was impacted by a gain of $618 million related to the divestiture of AgroFresh, $16million of restructuring charges and a $29 million charge related to AFSI's fair value step-up of its inventories and start-up costs. See Notes 3, 5, 9, 12, 13, 15 and 20 to the Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA increased compared with the same period last year as benefits from lower operating costs driven by productivity initiatives and increased corn seeds sales more than offset lower sales of herbicides and insecticides and the absence of earnings from AgroFresh and other product lines divested in 2015.

2015 Versus 2014
Agricultural Sciences sales were $6,381 million in 2015, down 12 percent from $7,290 million in 2014. Compared with 2014, volume decreased 4 percent and price decreased 8 percent, including the unfavorable impact of currency which represented approximately 40 percent of the price decline. Sales declined in all geographic areas and both businesses, impacted by lower crop commodity prices, which drove a flat agricultural market, coupled with currency headwinds. Despite a 6 percent increase in new product sales, Crop Protection sales decreased 13 percent compared with 2014, partly driven by declines in glyphosate and the divestiture of AgroFresh in the third quarter of 2015. Seeds reported an 11 percent decline in sales compared with 2014 as soybean seeds and canola seeds growth was more than offset by lower sales of corn seeds, primarily due to lower sales in the Americas as a result of shifting acreage from corn to soybeans. Excluding acquisitions and divestitures, volume for the segment was down 3 percent.

EBITDA for 2015 was $1,432 million, up $470 million from $962 million in 2014. EBITDA for 2015 was favorably impacted by $573 million of certain items, as previously discussed. Excluding these certain items, EBITDA declined from 2014 as lower selling prices, softer demand due to lower crop commodity prices and the absence of earnings from the divestiture of the

AgroFresh business more than offset the favorable impact of currency on costs, lower R&D and SG&A spending driven by productivity measures and gains from the sales of product lines and a subsidiary.

Agricultural Sciences Outlook for 2017
Agricultural Sciences sales for 2017 are expected to show modest growth despite a projection of flat to declining sales in the global agriculture industry. Market dynamics experienced in 2016 are expected in 2017, with continued low crop commodity prices and declining industry growth rates. Currency headwinds are also expected due to the strengthening U.S. dollar. The Crop Protection business expects sales growth in 2017, driven by the continued adoption of N-SERVE™ Nitrogen Stabilizer, ISOCLAST™ insecticide and ARYLEX™ herbicide, as well as increased demand for cereal, corn and soybean herbicides. The Seeds business expects volume growth in corn, cotton and sunflower seeds and lower sales of soybean seeds.

U.S. federal regulatory approvals have been obtained for the commercialization of ENLIST™ Corn, Soybeans and Cotton, including the U.S. Environmental Protection Agency's registration of ENLIST DUO™ for use with ENLIST™ Corn, Soybeans and Cotton in 34 states. The Company has also secured approval of the registration of ENLIST E3™ Soybeans in Argentina and approval of the registration of ENLIST E3™ Soybeans, ENLIST™ Soybean Seeds and ENLIST™ Corn Seeds in Brazil and Canada. ENLIST DUO™ is also approved for use with ENLIST™ crops in Canada. Regulatory approvals for ENLIST™ products in certain other countries are still pending.

CONSUMER SOLUTIONS
The Consumer Solutions segment consists of four global businesses – Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions - Silicones. This segment also includes a portion of the Company’s share of the results of Dow Corning, a joint venture of the Company through May 31, 2016, and the results of the HSC Group. Consumer Care includes Dow Home, Institutional & Personal Care Solutions, Dow Pharma and Food Solutions and SAFECHEM™. Dow Automotive Systems includes Adhesives and Performance Solutions. Dow Electronic Materials includes Semiconductor Technologies, Interconnect Technologies, Display Technologies and Growth Technologies. Consumer Solutions - Silicones includes Beauty and Personal Care, Household Care, Healthcare, Consumer Goods and Automotive.

As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions segments. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the Company's consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions segments. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

On December 31, 2016, the Company sold its SAFECHEM™ business. SAFECHEM™ was reported as part of the Consumer Solutions segment through the date of divestiture.

Consumer Solutions
In millions
 2016
 2015
 2014
Sales $5,455
 $4,379
 $4,639
Price change from comparative period (4)% (7)% (1)%
Volume change from comparative period 29 % 1 % 3 %
Volume change, excluding acquisitions 4 % 1 % 3 %
Equity earnings $132
 $91
 $281
EBITDA $2,828
 $1,048
 $1,130
Certain items impacting EBITDA $1,144
 $(59) $82
EBITDA excluding certain items $1,684
 $1,107
 $1,048

2016 Versus 2015
Consumer Solutions sales were $5,455 million in 2016, up from $4,379 million in 2015. Sales increased 25 percent from 2015, with volume up 29 percent and price down 4 percent. Volume increased in all geographic areas, primarily reflecting the impact of Consumer Solutions - Silicones, and in all businesses. Excluding the impact of Consumer Solutions - Silicones, volume increased 4 percent. Consumer Care volume increased due to market share and innovation gains in the home and personal care market sectors in North America and EMEAI. This increase more than offset customer de-stocking of cellulosics used in pharmaceutical applications, primarily in North America, and from the shutdown of a cellulosics facility in Institute, West Virginia, in the fourth quarter of 2015. Dow Automotive Systems reported strong volume growth primarily driven by demand

for Dow's light-weighting technologies used at original equipment manufacturers as well as solid demand for sound-dampening solutions. Dow Electronic Materials reported increased volume in Asia Pacific, driven by chemical mechanical planarization pads used in semiconductor manufacturing along with new demand for organic light-emitting diodes used in mobile phone displays. Price declined in all businesses and all geographic areas. Competitive pricing pressures for home care products drove price declines in Consumer Care. Price declined in Dow Automotive Systems in response to lower raw material costs. Price declined in Dow Electronic Materials, primarily in Display Technologies, due to continued competitive pricing pressures.

EBITDA for 2016 was $2,828 million, up from $1,048 million in 2015. EBITDA for 2016 was impacted by a gain of $1,301 million on the DCC Transaction, a $27 million benefit related to a decrease in Dow Corning's implant liability, $28 million of 2016 restructuring charges, a loss of $147 million associated with the fair value step-up in inventories assumed in the DCC Transaction, a loss of $8 million related to the early redemption of debt incurred by Dow Corning, and a $1 million unfavorable adjustment related to the Company’s 2015 restructuring program. EBITDA for 2015 was impacted by $67 million of restructuring charges and an $8 million gain related to Dow Corning’s adjustment of its implant liability. See Notes 3, 4, 9 and 15 to the Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA increased in 2016 as earnings from Consumer Solutions - Silicones, higher sales volume, lower feedstock, energy and other raw material costs and higher equity earnings from the HSC Group more than offset the impact of lower selling prices.

2015 Versus 2014
Consumer Solutions sales were $4,379 million in 2015, down from $4,639 million in 2014. Sales decreased 6 percent from 2014, with volume up 1 percent and price down 7 percent (with more than 60 percent of the price decline due to the unfavorable impact of currency). Volume increases in North America and EMEAI were partially offset by decreases in Asia Pacific and Latin America. Consumer Care volume increased as higher demand in the personal care market sector and for cellulosics used in pharmaceutical applications more than offset lower demand in the home care market sector and for cellulosics used in industrial applications, which declined ahead of a plant closure in Institute, West Virginia. Dow Automotive Systems reported volume growth in both businesses and in all geographic areas, except Latin America, as customer demand for light-weighting technologies and lower oil prices drove automotive industry growth, most notably in North America and Europe. Dow Electronic Materials volume decreased slightly due to weakened demand for Interconnect Technologies and Display Technologies which more than offset healthy demand in Semiconductor Technologies resulting from strong silicon wafer growth in mobile device applications, notably in Asia Pacific, and Growth Technologies. Price declined in all businesses and all geographic areas. Price declined in Consumer Care and Dow Automotive Systems due to continued competitive pricing and the unfavorable impact of currency in EMEAI. Price declined in Dow Electronic Materials due to continued competitive pricing and the unfavorable impact of currency, primarily the Japanese yen.

EBITDA for 2015 was $1,048 million, down from $1,130 million in 2014. EBITDA for 2015 was negatively impacted by
$59 million of certain items, as previously discussed. EBITDA for 2014 was impacted by a $155 million gain related to Dow Corning's adjustment of its implant liability and a $73 million charge related to asset impairments in Dow Electronic Materials. See Notes 3, 9, 10 and 12 to the Consolidated Financial Statements for additional information on these items. Excluding these certain items, EBITDA increased in 2015 as lower feedstock, energy and other raw material costs, the favorable impact of currency on costs, lower operating expenses and higher sales volume more than offset lower selling prices and decreased equity earnings from Dow Corning.

Consumer Solutions Outlook for 2017
Consumer Solutions expects continued sales growth in 2017. The segment will benefit from a full year of sales from Consumer Solutions - Silicones, which expects sales growth in the automotive, beauty care and health care end markets. Sales are expected to increase in Consumer Care due to volume growth from share gains in home and personal care end markets and strong demand for cellulosics used in food and pharmaceutical applications while price is expected to be flat to slightly improved from 2016 levels. Dow Automotive Systems expects continued strong demand for light-weighting technologies and volume growth from the commercialization of new technologies, including VORAFORCETM and VORAFUSETM composite systems, while price is expected to follow raw material prices. Dow Electronic Materials expects sales growth from new product introductions and continued strong demand for Dow technologies used in smartphones, printed circuit boards and mobile phone displays while price is expected to remain flat to slightly lower than 2016. 




INFRASTRUCTURE SOLUTIONS
The Infrastructure Solutions segment consists of the following businesses: Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers and Infrastructure Solutions - Silicones. This segment also includes a portion of the Company's share of the results of Dow Corning, a joint venture of the Company, through May 31, 2016, and the results of the HSC Group.

As of June 1, 2016, Dow Corning, previously a 50:50 joint venture with Corning, became a wholly owned subsidiary of Dow as a result of the DCC Transaction. Dow and Corning continue to maintain their historical proportional equity interest in the HSC Group. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions segments. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the Company's consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions segments. See Note 4 to the Consolidated Financial Statements for additional information on this transaction.

Infrastructure Solutions
In millions
 2016
 2015
 2014
Sales $8,621
 $7,394
 $8,429
Price change from comparative period (6)% (14)% %
Volume change from comparative period 23 % 2 % 1%
Volume change, excluding acquisitions (3)% 2 % 1%
Equity earnings (losses) $215
 $203
 $(6)
EBITDA $2,318
 $1,021
 $817
Certain items impacting EBITDA $864
 $(101) $(348)
EBITDA excluding certain items $1,454
 $1,122
 $1,165

2016 Versus 2015
Infrastructure Solutions sales were $8,621 million in 2016, up 17 percent from $7,394 million in 2015. Volume increased 23 percent and price decreased 6 percent. Volume increased in all geographic areas, primarily reflecting the impact of Infrastructure Solutions - Silicones, and in all businesses, except Energy & Water Solutions and Performance Monomers.
Excluding the impact of Infrastructure Solutions - Silicones, volume decreased 3 percent. Performance Monomers volume decreased primarily due to the business' ongoing strategy to reduce its merchant sales of acrylic monomers as well as increased internal consumption of acrylates. Volume decreased in Energy & Water Solutions across all geographic areas due to soft demand for reverse osmosis membranes used in industrial application and weakness in the energy sector throughout the year. Dow Coating Materials experienced volume growth in all geographic areas, except Latin America, with growth in architectural and industrial coatings due to a strong innovation pipeline and expansion into new end markets. Dow Building & Construction volume increased in all geographic areas, most notably in EMEAI, on strong growth in construction chemicals, primarily cellulosics- and acrylics-based products. Price declined in all businesses and all geographic areas in response to lower raw material prices and competitive pricing pressures.

EBITDA for 2016 was $2,318 million, up from $1,021 million in 2015. EBITDA for 2016 was impacted by a gain of $1,144 million on the DCC Transaction, a loss of $170 million related to the fair value step-up in inventories acquired in the DCC Transaction, $96 million of restructuring charges, and a loss of $14 million related to early redemption of debt incurred by Dow Corning. EBITDA for 2015 was impacted by $87 million of asset impairments and related costs in all businesses, $26 million of restructuring charges and a gain of $12 million related to Dow Corning's adjustment of its implant liability. See Notes 3, 4, 9 and 12 to the Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA increased $332 million compared with the prior year as earnings from Infrastructure Solutions - Silicones, lower propylene and other raw material costs and increased equity earnings more than offset the impact of lower selling prices.

2015 Versus 2014
Infrastructure Solutions sales were $7,394 million in 2015, down 12 percent from $8,429 million in 2014. Price decreased 14 percent, including the unfavorable impact of currency which represented one-third of the price decline, and volume increased 2 percent. Price declined in all businesses, most notably in Performance Monomers, and all geographic areas in response to lower raw material costs. Volume increased in all geographic areas, except North America, and all businesses, except Energy & Water Solutions. Dow Building & Construction reported volume growth in EMEAI and North America, as demand continued to be strong for innovative product offerings, primarily in construction chemicals. Dow Coating Materials volume increased due to higher demand for architectural coatings in EMEAI and higher demand for industrial coatings in North America. Volume increased in Performance Monomers due to higher demand and improved asset utilization for vinyl

acetate monomers and acrylic monomers. In Energy & Water Solutions, volume declines in North American energy exploration and fracturing market sectors and slow global demand for ion exchange resins used in industrial water applications more than offset strong demand for reverse osmosis technologies.

EBITDA for 2015 was $1,021 million, compared with $817 million in 2014. EBITDA for 2015 was negatively impacted by $101 million of certain items, as previously discussed. EBITDA for 2014 included a $500 million loss related to Dow Corning’s abandonment of a polycrystalline silicon plant expansion in Clarksville, Tennessee, and a $252 million gain related to Dow Corning’s adjustment of its implant liability. EBITDA for 2014 was also impacted by a $100 million charge for a warranty accrual adjustment related to an exited business. See Notes 9, 12 and 15 to Consolidated Financial Statements for additional information on these certain items. Excluding these certain items, EBITDA decreased in 2015 as lower selling prices and lower equity earnings from Dow Corning more than offset lower propylene and other raw material costs, the favorable impact of currency on costs, lower operating costs and higher sales volume.

Infrastructure Solutions Outlook for 2017
Infrastructure Solutions sales are expected to grow in 2017, primarily due to volume growth from a full year of sales from Infrastructure Solutions - Silicones. Dow Building & Construction sales are expected to increase primarily due to higher demand in North America across residential and non-residential construction end markets, driven by cellulosics- and acrylics-based products. Dow Coating Materials expects strong sales and volume growth driven by commercialization of new technologies in both architectural and industrial coatings with growth in economy paints and new market segments. Energy & Water Solutions expects demand to increase in both energy and water market sectors as oil prices stabilize. Growth is also expected for reverse osmosis membrane technology due to increased capacity and increasing demand in emerging economies and the energy and industrial sectors. Performance Monomers sales are expected to be higher due to price increases driven by higher raw material costs partially offset by a decline in sales volume due to increased internal consumption. Infrastructure Solutions - Silicones expects selling prices to increase across all geographic areas for commodity silicone products in response to higher raw material costs.


PERFORMANCE MATERIALS & CHEMICALS
The Performance Materials & Chemicals segment consists of the following businesses: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. The segment also includes a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.

On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin Corporation in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture. See Notes 5 and 6 to the Consolidated Financial Statements for additional information.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. MEGlobal was aligned 100 percent with Performance Materials & Chemicals through the date of divestiture. Dow has retained a 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. The Performance Materials & Chemicals segment will continue to include a portion of the equity earnings from EQUATE, which will include the results of MEGlobal. See Notes 5 and 9 to the Consolidated Financial Statements for additional information.

Performance Materials & Chemicals
In millions
 2016
 2015
 2014
Sales $9,225
 $11,973
 $15,114
Price change from comparative period (9)% (15)% %
Volume change from comparative period (14)% (6)% 2%
Volume change, excluding divestitures 2 % 1 % 2%
Equity earnings (losses) $(18) $225
 $322
EBITDA $134
 $5,479
 $2,193
Certain items impacting EBITDA $(1,230) $3,409
 $
EBITDA excluding certain items $1,364
 $2,070
 $2,193


2016 Versus 2015
Performance Materials & Chemicals sales were $9,225 million in 2016, down 23 percent from $11,973 million in 2015, with volume down 14 percent and price down 9 percent. Price decreased across all geographic areas and all businesses, primarily in response to lower raw material costs. Volume was impacted by recent divestitures, including ANGUS Chemical Company and the global Sodium Borohydride business and the split-off of the chlorine value chain. Excluding these divestitures, volume increased 2 percent. Volume increased in Polyurethanes due to strong demand for higher-margin system house applications used in energy, industrial and consumer markets, particularly in EMEAI and Asia Pacific, along with increased demand for specialty polyols in Asia Pacific due to an expanding customer base. These increases were partially offset by decreased volume in isocyanates and propylene oxide/propylene glycol in all geographic areas, primarily reflecting planned and unplanned maintenance turnaround activity as well as increased internal consumption of propylene oxide. Industrial Solutions volume was flat as strong demand in crop defense, electronics and textile market sectors was offset by reduced demand for deicer fluids as a result of warmer winter temperatures, weak demand for industrial lubricants and long market conditions for ethylene oxide/ethylene glycol. Chlor-Alkali and Vinyl reported increased volume in EMEAI due to favorable supply and demand fundamentals, which was partially offset by volume declines in North America and Latin America.

EBITDA for 2016 was $134 million, compared with $5,479 million in 2015. EBITDA for 2016 was impacted by a $1,235 million loss related to the settlement of the urethane matters class action lawsuit and opt-out cases litigation, a gain of $6 million related to post-closing adjustments on the split-off of the chlorine value chain and a $1 million charge related to environmental remediation activities. EBITDA for 2015 was impacted by a gain of $682 million on the divestiture of ANGUS Chemical Company, a gain of $20 million on the divestiture of the global Sodium Borohydride business, a gain of $1,984 million on the split-off of the chlorine value chain and a gain of $723 million on the sale of the Company's interest in MEGlobal. See Notes 5, 6, 9 and 15 to the Consolidated Financial Statements for additional information on these transactions. Excluding these certain items, EBITDA decreased due to the impact of lower sales volume, lower selling prices, the absence of earnings from divested businesses, lower equity earnings from the Kuwait joint ventures and higher equity losses from Sadara related to start-up expenses. These declines were partially offset by lower feedstock, energy and other raw material costs, lower SG&A and R&D spending and higher equity earnings from Map Ta Phut Olefins Company Limited.

2015 Versus 2014
Performance Materials & Chemicals sales were $11,973 million in 2015, down 21 percent from $15,114 million in 2014, with price down 15 percent, including the unfavorable impact of currency which represented more than one-third of the price decline, and volume down 6 percent. Price declined in all geographic areas and all businesses. Lower raw material costs and the unfavorable impact of currency drove price declines in Epoxy, Polyurethanes and Industrial Solutions. Chlor-Alkali and Vinyl reported lower prices as a result of the decline in ethylene prices and increased availability of caustic soda. Volume was impacted by recent divestitures, including the divestitures of ANGUS Chemical Company and the global Sodium Borohydride business and the split-off of the chlorine value chain. Excluding these divestitures, volume increased 1 percent. Volume increased in Polyurethanes driven by increased demand, lower raw material costs and growth in energy efficiency, consumer and industrial market sectors in North America and EMEAI, and in Asia Pacific due to the start up of a polyols plant in Thailand. Industrial Solutions reported volume declines across all geographic areas, except Asia Pacific, due to weakness in the agriculture and energy market sectors and a change in a long-term supply arrangement. Epoxy volume was up in all areas, except Asia Pacific, driven by increased demand for phenolics. Chlor-Alkali and Vinyl reported decreased volume in EMEAI and Latin America, partially offset by increases in Asia Pacific and North America, due to unfavorable supply and demand fundamentals and the expiration of a long-term supply agreement in EMEAI.

EBITDA for 2015 was $5,479 million, compared with $2,193 million in 2014. EBITDA for 2015 was favorably impacted by $3,409 million of certain items, as previously discussed. Excluding these certain items, EBITDA decreased due to the impact of lower sales volume, lower selling prices including the impact of currency, the absence of earnings from divested businesses, lower equity earnings from TKOC, EQUATE and MEGlobal and higher equity losses from Sadara. These declines were partially offset by lower feedstock, energy and other raw material costs, lower SG&A and R&D spending, the favorable impact of currency on costs and higher equity earnings from Map Ta Phut Olefins Company Limited.

Performance Materials & Chemicals Outlook for 2017
Performance Materials & Chemicals sales are expected to grow in 2017. Prices will primarily follow feedstock and energy prices, which are expected to increase in 2017, but will also be influenced by additional industry capacity, particularly in Polyurethanes and Industrial Solutions. Polyurethanes volume is expected to grow in excess of GDP, driven by strong demand for products used in energy efficiency applications as well as consumer-driven demand in emerging geographies. Polyurethanes volume will also be favorably impacted as Sadara capacity comes on-line in the second half of 2017. Industrial Solutions volume is expected to increase as a result of Sadara capacity coming on-line in 2017, with modest growth also expected for amines, surfactants and fluids used in specialty applications. The Chlor-Alkali and Vinyl business expects volume growth due to increased operating rates and higher demand for vinyl chloride monomer in construction end-markets.

In 2017, Sadara is expected to start up a number of manufacturing facilities, including units that will produce glycol ethers, ethanolamines, ethyleneamines, polyols and propylene glycol. Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee.


PERFORMANCE PLASTICS
The Performance Plastics segment is a market-oriented portfolio comprised of Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment also includes the results of TKSC, and The SCG-Dow Group as well as a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. MEGlobal was aligned 100 percent with the Performance Materials & Chemicals segment through the date of divestiture. Dow has retained a 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. See Note 5 to the Consolidated Financial Statements for additional information.

On May 5, 2015, Univation, previously a 50:50 joint venture between Dow and ExxonMobil, became a wholly owned subsidiary of Dow. Prior to this transaction, the Company's share of Univation's results of operations was reported as "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income. Beginning in May 2015, Univation's results of operations are fully consolidated in the Company's consolidated statements of income. See Note 4 to the Consolidated Financial Statements for additional information on this step acquisition.

On December 2, 2013, the Company sold its global Polypropylene Licensing and Catalysts business to W. R. Grace & Co. This business was 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.

Sales for the Energy business are primarily opportunistic merchant sales driven by market conditions and sales to customers located on Dow manufacturing sites. Sales for the Hydrocarbons business are comprised primarily of monomers and ethylene by-products that are not required for internal use. Hydrocarbons sales can fluctuate significantly based on ethylene production facility feedslates and operating rates, derivative demand and market prices for monomers and by-products. The Hydrocarbons

48


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.

Performance Plastics
In millions
 2015
 2014
 2013
 2016
 2015
 2014
Sales $18,357
 $22,386
 $21,910
 $18,404
 $18,357
 $22,386
Price change from comparative period (23)% 2% 1 % (8)% (23)% 2%
Volume change from comparative period 5 % % (4)% 8 % 5 % %
Volume change, excluding acquisitions and divestitures 5 % 1% (3)% 9 % 5 % 1%
Equity earnings $220
 $257
 $355
 $137
 $220
 $257
EBITDA $5,399
 $4,422
 $4,503
 $4,503
 $5,399
 $4,422
Certain items impacting EBITDA $597
 $
 $544
 $(129) $597
 $
EBITDA excluding certain items $4,802
 $4,422
 $3,959
 $4,632
 $4,802
 $4,422

2016 Versus 2015
Performance Plastics, Excluding Hydrocarbons and Energy
In millions
 2015
 2014
 2013
Price change from comparative period (16)% 4 % 4 %
Volume change from comparative period 7 % (1)% (3)%
Volume change, excluding acquisitions and divestitures 6 % 1 % (1)%
Performance Plastics sales for 2016 were $18,404 million, essentially flat from $18,357 million in 2015, with volume up 8 percent and price down 8 percent. Price decreased across all geographic areas and all businesses in response to lower feedstock, energy and other raw material prices and competitive pricing pressures. Double-digit price declines were reported in Hydrocarbons as a result of lower Brent crude oil prices, which declined approximately 16 percent compared with 2015. Volume increased across all geographic areas and all businesses. Excluding acquisitions and divestitures, volume increased 9 percent. Volume increased in the Hydrocarbons and Energy businesses due to third party supply agreements. Dow Packaging and Specialty Plastics volume increased due to demand growth in all market segments, most notably in industrial and consumer packaging and health and hygiene, and in Asia Pacific due to new production from Sadara. Dow Elastomers volume improved across all geographic areas, except Latin America, primarily due to higher demand in the transportation, consumer goods and footwear market sectors. Dow Electrical and Telecommunications volume increased across all geographic areas due to continued demand for power cable installations and fiber optics.

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 decreased $1,449 million in 2016, a 12 percent decrease from 2015, primarily due to decreased naptha and condensate costs in Europe and decreased purchased monomers costs across all geographic areas.

EBITDA for 2016 was $4,503 million, down from $5,399 million in 2015. EBITDA for 2016 was impacted by $10 million of restructuring charges, a $2 million environmental charge and a $117 million charge related to the termination of a terminal use agreement. EBITDA for 2015 was impacted by a gain of $349 million related to the step acquisition of Univation, a $317 million gain related to the split-off of the chlorine value chain, and $57 million of asset impairments and related costs and $12 million of restructuring charges, consisting of asset write-downs and write-offs. See Notes 3, 4, 6, 12 and 15 to the

Consolidated Financial Statements for additional information on these items. Excluding these certain items, EBITDA decreased compared with 2015 as the impact of higher sales volume, lower feedstock, energy and other raw material costs and higher equity earnings from The SCG-Dow Group were more than offset by lower selling prices, lower equity earnings from EQUATE and increased equity losses from Sadara related to start-up expenses.

2015 Versus 2014
Performance Plastics sales for 2015 were $18,357 million, down 18 percent from $22,386 million in 2014, with price down 23 percent and volume up 5 percent. Price decreased across all geographic areas and all businesses in response to significantly lower raw material costs coupled with the unfavorable impact of currency, which represented approximately 20 percent of the price decline. Double-digit price declines were reported in Hydrocarbons as prices for monomers and ethylene by-products are generally correlated to Brent crude oil prices, which declined approximately 45 percent compared with 2014. Volume increased across all geographic areas and all businesses, except Energy. Volume in Hydrocarbons increased due to new supply agreements with Olin as a result of the split-off of the chlorine value chain. Dow Packaging and Specialty Plastics volume improved across all geographic areas due to improved operating rates and increased demand in the food and specialty packaging, industrial and consumer packaging, and hygiene and medical market sectors. Dow Elastomers volume improved across all geographic areas due to improved raw material supply and higher demand in the transportation, infrastructure and consumer goods market sectors. Volume in Dow Electrical and Telecommunications was flat compared with 2014 as growth in North America was offset by volume declines in EMEAI and Latin America. Volume declined in the Energy business due to reduced sales in North America which more than offset increased volume from new supply agreements with Olin as a result of the split-off of the chlorine value chain. Excluding the impact of acquisitions and divestitures, Hydrocarbons and Energy sales decreased 10 percent with price down 16 percent and volume up 6 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 decreased $8,542 million in 2015, a 42 percent decrease from 2014, primarily due to decreased naphtha, condensate, propane, natural gas and purchased monomers costs in Europe and North America.

EBITDA for 2015 was $5,399 million, up from $4,422 million in 2014. EBITDA infor 2015 was positivelyfavorably impacted by a pretax gain of $349 million related to the step acquisition of Univation, a $317 million pretax gain related to the split-off of the chlorine value chain and negatively impacted by $57$597 million of asset impairments and related costs and $12 million of restructuring charges, consisting of asset write-downs and write-offs. See Notes 3, 4, and 6 to the Consolidated Financial Statements for additional information on these items.certain items, as previously discussed. Excluding these certain items, EBITDA improved compared with 2014 as the impact of lower feedstock and energy costs, higher sales volume and increased equity earnings from The SCG-Dow Group more than offset the impact of lower selling prices, higher maintenance turnaround spending and lower equity earnings from EQUATE, TKSC and Univation and increased equity losses from Sadara.

2014 Versus 2013
Performance Plastics sales for 2014 were $22,386 million, up 2 percent from $21,910 million in 2013 with price up 2 percent and volume unchanged. Price increased in all geographic areas, except EMEAI, and in all businesses, except Hydrocarbons. Price declined in Hydrocarbons primarily due to a significant drop in crude oil prices which drove monomers and other by-products' prices down, primarily in Europe. Dow Packaging and Specialty Plastics prices were higher in most geographic areas,

49


notably North America, due to continued strong demand and tight supply conditions. Volume was mixed by geographic area as increases in North America and EMEAI were offset by decreases in Asia Pacific and Latin America. Volume increased in Hydrocarbons due to opportunistic sales of ethylene in North America and Asia Pacific and increased monomer sales in Europe due to higher operating rates and the use of heavier feedslates. Volume declined in the Energy business due to reduced sales in North America. Volume in Dow Packaging and Specialty Plastics and in Dow Electrical and Telecommunications was impacted by the divestiture of the Polypropylene Licensing and Catalysts business and the Company’s 50 percent ownership interest in Nippon Unicar Company Limited ("NUC"). Excluding the impact of these divestitures and Hydrocarbons and Energy sales, price increased 4 percent and volume increased 1 percent. Despite production outages in North America in the second and third quarters of 2014, Dow Packaging and Specialty Plastics volume improved due to price/volume management, most notably in Europe where declining feedstock costs helped increase export sales. Dow Electrical and Telecommunications volume declined slightly due to tight supply resulting from production outages in the first half of 2014 and weaker demand in the telecommunications industry, which was partially offset by increased demand in the power industry.

The Company's cost of purchased feedstock and energy decreased $392 million in 2014, a 2 percent decrease from 2013, primarily due to decreased naphtha, condensate and propane costs in Europe.

EBITDA for 2014 was $4,422 million, down from $4,503 million in 2013. EBITDA in 2013 was favorably impacted by a pretax gain of $451 million on the sale of the Polypropylene Licensing and Catalysts business, an $87 million pretax gain on the sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. and a $6 million gain for adjustments to contract cancellation fees related to the 4Q12 Restructuring plan. See Notes 3, 5 and 13 to the Consolidated Financial Statements for additional information on these items. Excluding these certain items, EBITDA improved as the impact of higher selling prices and lower feedstock costs more than offset lower equity earnings. Equity earnings were $257 million in 2014, down from $355 million in 2013, as a result of significantly lower earnings from EQUATE, TKSC and higher equity losses from Sadara.

Performance Plastics Outlook for 20162017
In 2016,2017, the Company expects crude oil and natural gas prices, on average, to remain flat with year-end 2015 levels during the first half of the year, with prices slowly rising in the second half of the year.be higher than 2016. As a result, feedstock and energy costs are expected to be flat to slightly lowerhigher than 20152016 levels. Global ethylene margins are expected to remain at similar levelsincrease with continued strong demand and stable operating rates.delays in new North American industry ethylene production capacity. Ethylene margins could vary materially from these expectations depending on changes in input costs, global GDP growth and global operating rates. Volume in the Hydrocarbons and Energy businesses is expected to increase duedecrease as higher crude oil and naphtha prices are expected to new supply agreements with Olin ascause a resultshift to lighter cracker feedslates and lower production of the split-off of the chlorine value chain.ethylene by-products. Volume is expected to increase in Dow Packaging and Specialty Plastics due to continued strong demand fundamentals, increased production from the Sadara polyethylene facilities and the expected start-up of the first Sadara polyethylene facility in December 2015 and the remaining Sadara polyethylene and olefins production facilities in 2016.certain U.S. Gulf Coast projects. Dow Elastomers is expected to experience volume growth in most market segments, primarily in transportation, infrastructure and footwear, despite new global industry capacity coming on-line in 2016.on-line. Dow Electrical and Telecommunications volume is expected to grow at or slightly above GDP in all geographic areas, except for Latin America, driven by demand growth in power transmission and increased use of fiber optic applications used in telecommunications, and increased demand in power transmission, partially offset by the impact of new industry capacitycapacity. Price across all businesses is expected to be influenced by changes in EMEAIfeedstock costs and Asia Pacific.competitive pricing pressures.

Sadara is expected to increase production in 2017 with the start-up of a fourth polyethylene train (three were in operation during 2016) plus the start-up of additional facilities producing other high-value added ethylene, propylene and aromatics derivatives. Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company's established sales channels. As part of this arrangement, the Company purchases and sells Sadara products for a marketing fee.

On February 2, 2017, the Company announced it reached an agreement to sell its global ethylene acrylic acid ("EAA") copolymers and ionomers business to SK Global Chemical Co., Ltd. as part of the ongoing regulatory approval process for the proposed merger with DuPont. The divestiture will be conditioned on Dow and DuPont closing the merger transaction, in addition to other closing conditions, including regulatory filings, local employment law and governance obligations. The EAA business is part of the Dow Packaging and Specialty Plastics global business and marketed under the PRIMACOR™ brand. The divestiture agreement includes production assets in Freeport, Texas, and Tarragona, Spain, along with associated intellectual property and trademarks.

Current and Future Investments
The Company has 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 includingincluding: construction of a new on-purpose propylene production facility, which commenced operations in December 2015,2015; completion of a major maintenance turnaround in December 2016 at an ethylene production facility in Plaquemine, Louisiana, which included expanding the facility's ethylene production capacity by up to 250 KTA and modifications to enable full ethane cracking flexibility; and construction of a new world-scale ethylene production facility (expected start-up in the first half of 2017), both located in Freeport, Texas.Texas, which is expected to start up in mid-2017. 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. Dow'sDow’s ethylene production capabilities are expected to increase by as much as 20 percent.

In addition,2016, the Company completed an expansion of a gas-phase polyethylene production facility in Seadrift, Texas. Expansion projects are also currently underway at two of the Company's gas-phase polyethylene units in St. Charles, Louisiana, with expected start-up in mid-2018. The Company is also building four new production facilities on the U.S. Gulf Coast to leverage an advantaged feedstock position to support profitable growth of the Company's high value Performance Plastics franchise which include an ELITE™ Polymer production facility, a Low Density Polyethylene (LDPE) production facility and a NORDEL™ Metallocene EPDM production facility, which are all expected to start up in 2017, and a High Melt Index (HMI) AFFINITY™ Polymer production facility.

The new biopolymers manufacturing facility, in Santa Vitória, Minas Gerais, Brazil commenced production in second quarter of 2015. This project, which is a consolidated joint venture with Mitsui & Co. Ltd., was announced duringexpected to start up in the fourth quartersecond half of 2011. In August 2015, the partner exercised its equity option which requires Dow to purchase their equity investment before July 12, 2016. 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 20 to the Consolidated Financial Statements for additional information.2018.



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CORPORATE
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, Company branding initiatives, etc.); the results of Ventures (including business incubation platforms and non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense and processing costs and reserve adjustments); and foreign exchange results.

Corporate
In millions
 2015
 2014
 2013
 2016
 2015
 2014
Sales $294
 $309
 $308
 $279
 $294
 $309
Equity losses $(50) $(23) $(39) $(27) $(50) $(23)
EBITDA $(1,053) $(580) $1,361
 $(2,563) $(1,053) $(580)
Certain items impacting EBITDA $(689) $(127) $1,788
 $(2,261) $(689) $(127)
EBITDA excluding certain items $(364) $(453) $(427) $(302) $(364) $(453)

20152016 Versus 20142015
Sales for Corporate, which primarily relate to insurance operations, were $279 million in 2016, down from $294 million in 2015, down slightly from $309 million in 2014.2015.

EBITDA for 20152016 was a loss of $1,053$2,563 million, compared with a loss of $580$1,053 million in 2014.2015. EBITDA for 2016 was impacted by a $1,009 million charge due to a change in accounting policy for asbestos-related defense and processing costs, and a $104 million charge to increase the asbestos-related liability for pending and future claims, which both reflect estimates through the terminal year of 2049. EBITDA was also impacted by $544 million of costs associated with transactions and productivity actions, $314 million of restructuring charges and $290 million of charges for environmental matters. EBITDA for 2015 was negatively impacted by $294 million of restructuring charges, $194 million of costs associated with portfoliotransactions and productivity actions, a$98a $98 million loss related to the impact of the Argentine peso devaluation, a $68 million loss on the early extinguishment of debt related to the split-off of the Company's chlorine value chain, a loss recognized by Sadara related to the write-off of design engineering work for an Epoxy plant of which Dow's share was $27 million, and an $8 million loss related to the early extinguishment of debt. Excluding these certain items, EBITDA improved in 2016 as increased gains related to Ventures, lower asbestos-related defense costs resulting from the change in accounting policy and lower performance-based compensation costs more than offset higher foreign exchange losses. See Notes 1, 3, 6, 13, 15 and 17 to the Consolidated Financial Statements for additional information on these matters.

In the fourth quarter of 2016, the Company elected to change its method of accounting for Union Carbide's asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. The Company’s total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016. Future defense and resolution costs will be applied against this liability.


2015 Versus 2014
Sales for Corporate were $294 million in 2015, down slightly from $309 million in 2014.

EBITDA for 2015 was a loss of $1,053 million, compared with a loss of $580 million in 2014. EBITDA for 2015 was negatively impacted by $689 million of certain items, as previously discussed. EBITDA for 2014 was negatively impacted by $49 million of costs associated with portfoliotransactions and productivity actions and a $78 million charge related to an increase in the asbestos-related liability. Excluding these certain items, EBITDA improved in 2015 as gains related to Ventures and asset sales more than offset an increase in performance-based compensation costs. See Notes 3, 6, 13,Note 15 and 17 to the Consolidated Financial Statements for additional information on these matters.

2014 Versus 2013
Sales for Corporate were $309 million in 2014, essentially flat from $308 million in 2013.

EBITDA for 2014 was a loss of $580 million, compared with a gain of $1,361 million in 2013. Compared with 2013, EBITDA was negatively impacted by higher severance costs, losses related to Ventures and higher foreign exchange losses which more than offset lower performance-based compensation costs. EBITDA for 2014 was negatively impacted by $127 million of certain items, as previously discussed. 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 a $326 million loss 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. See Notes 5, 12, 15 and 17 to the Consolidated Financial Statements for additional information on these matters.information.












51


LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $6,607 million at December 31, 2016 and $8,577 million at December 31, 2015, and $5,654of which $4,890 million at December 31, 2014, of which2016 and $6,494 million at December 31, 2015 and $3,633 million at December 31, 2014 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, 2015,2016, 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. It is not practicable to calculate the unrecognized deferred tax liability on undistributed foreign earnings.

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
 2015
 2014
 2013
 2016
 2015
 2014
Cash provided by (used in):            
Operating activities $7,516
 $6,502
 $7,823
 $5,478
 $7,516
 $6,502
Investing activities (1,350) (3,105) (1,469) (3,479) (1,350) (3,105)
Financing activities (3,041) (3,583) (4,731) (3,892) (3,041) (3,583)
Effect of exchange rate changes on cash (202) (100) (1) (77) (202) (100)
Summary            
Increase (decrease) in cash and cash equivalents $2,923
 $(286) $1,622
 $(1,970) $2,923
 $(286)
Cash and cash equivalents at beginning of year 5,654
 5,940
 4,318
 8,577
 5,654
 5,940
Cash and cash equivalents at end of year $8,577
 $5,654
 $5,940
 $6,607
 $8,577
 $5,654

Cash Flows from Operating Activities
Cash provided by operating activities decreased in 2016 compared with 2015, primarily due to cash payments related to the settlement of the urethane matters class action lawsuit and opt-out cases, increased costs associated with transactions and productivity actions, a cash payment related to the settlement of an uncertain tax position and a one-time payment related to the termination of a terminal use agreement. Cash provided by operating activities increased in 2015 compared with 2014, primarily due to improvements in working capital and increased earnings. Cash provided by operating activities decreased in 2014 compared with 2013, which reflected the absence of the K-Dow arbitration award.


Net Working Capital at December 31
In millions
 2015
 2014
 2016
 2015
Current assets (1)
 $24,475
 $24,255
 $23,659
 $23,941
Current liabilities (1)
 11,215
 11,581
 12,604
 11,115
Net working capital $13,260
 $12,674
 $11,055
 $12,826
Current ratio 2.18:1 2.09:1 1.88:1 2.15:1
Days-sales-outstanding-in-receivables 47
 46
 47
 47
Days-sales-in-inventory 72
 69
 67
 72
(1)Presented in accordance with newly implemented ASU 2015-03.2015-17. See NoteNotes 1 and 2 to the Consolidated Financial Statements for further information.

Net working capital increaseddecreased from December 31, 20142015 to December 31, 2015,2016, principally due to a decrease in "Cash and cash equivalents," primarily related to the settlement of the urethane matters class action lawsuit and opt-out cases litigation, and an increase in cash and cash equivalents and a reduction in accounts payable"Accounts payable" which waswere partially offset by a reductionincreases in inventories"Accounts and accounts receivable.notes receivable" and "Inventories," reflecting the addition of Dow Corning's silicones business. At December 31, 2015,2016, trade receivables were $4.1$4.7 billion, downup from $4.7$4.1 billion at December 31, 20142015. Days-sales-outstanding-in-receivables (excluding the impact of sales of receivables) was 47 days at December 31, 20152016, up slightlyflat compared with December 31, 2014.2015. At December 31, 2015,2016, total inventories were $6.9$7.4 billion, downup from $8.1$6.9 billion at December 31, 2014, due to a reduction in volume from divestitures and declining feedstock and raw material costs.2015. Days-sales-in-inventory at December 31, 20152016, was 7267 days compared with 6972 days at December 31, 2014, reflecting the impact of the split-off of the chlorine value chain2015, primarily driven by higher sales volume and flat operating rates, as these businesses traditionally had lower than average days-sales-in-inventory.well as strong inventory management across all operating segments.

Cash Flows from Investing Activities
Cash used in investing activities in 2016 was primarily for capital expenditures as well as investments in and loans to nonconsolidated affiliates, primarily with Sadara, which were partially offset by net cash acquired in the DCC Transaction. Cash used in investing activities in 2015 was primarily for capital expenditures; purchases of investments, including the repayment of outstanding loans issued under company-owned life insurance policies; and investments in and loans made to nonconsolidated affiliates, primarily with Sadara. This was partially offset by proceeds received from divestitures, including the

52


divestitures of ANGUS Chemical Company and the AgroFresh business, proceeds from the sale of the Company's interest in MEGlobal and proceeds from sales and maturities of investments. Cash used in investing activities in 2014 was primarily for capital expenditures which was partially offset by proceeds received on the sale-leaseback of assets, including a significant portion of the Company's North American railcar fleet. Cash used in investing activities in 2013 was primarily for capital expenditures 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. Capital spending in 2015, 2014 and 2013 included spending related to certain U.S. Gulf Coast investment projects including an on-purpose propylene production facility, a world-scale ethylene production facility, an ELITE™ Polymer production facility, a NORDEL™ Metallocene EPDM production facility, and a Low Density Polyethylene (LDPE) production facility, all aligned with the Company's Performance Plastics segment.

In the first quarter of 2015, a $193 million note receivable from Sadara was converted to equity. DuringIn 2015, the Company loaned an additional $753 million to Sadara, of which $280 million was converted to equity. Approximately $460The Company loaned an additional $1,015 million ofto Sadara in 2016, and $1,230 million was converted to equity. At December 31, 2016, the outstandingCompany had a $258 million note receivable with Sadara, of which $193 million is expected to be converted to equity in the first quarter of 2016.2017. The Company expects to loan an additional $1.2 billionapproximately $700 million to Sadara during 2016.2017. All or a portion of the outstanding loans to Sadara could potentially be converted into equity in future periods. See Note 9 to the Consolidated Financial Statements for additional information.

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 20162017 to be approximately $3.7$3.2 billion to $3.4 billion.

Capital Expenditures Summary            
In millions 2015
 2014
 2013
 2016
 2015
 2014
Capital expenditures $3,703
 $3,572
 $2,302
 $3,804
 $3,703
 $3,572
Spending by project type:            
Projects related to additional capacity for new and existing products 68% 68% 55% 67% 68% 68%
Projects related to environmental protection, safety, loss prevention and industrial hygiene 9% 10% 14% 9% 9% 10%
Other (primarily shared infrastructure and plant maintenance/health) 23% 22% 31% 24% 23% 22%

Capital spending in 2016, 2015 and 2014 included spending related to certain U.S. Gulf Coast investment projects including: an on-purpose propylene production facility, which commenced operations in December 2015; a world-scale ethylene production facility; an ELITE™ Polymer production facility; a NORDEL™ Metallocene EPDM production facility; and a Low Density

Polyethylene (LDPE) production facility, all aligned with the Company's Performance Plastics segment. See Note 26 to the Consolidated Financial Statements for capital expenditures by operating segment.

Cash Flows from Financing Activities
Cash used in financing activities in 2016 included dividends paid to stockholders (including the accelerated payment of the fourth quarter preferred dividend), $916 million in purchases of treasury stock, and payments on long-term debt. Cash used in financing activities in 2015 included dividends paid to stockholders, $1.2 billion in purchases of treasury stock, and payments on long-term debt, including the early redemption of $724 million of InterNotes which was partially offset by proceeds from the issuance of long-term debt, including $875 million related to the split-off of the chlorine value chain. Cash used in financing activities in 2014 included purchases of treasury stock, which totaled $4.2 billion and resulted in the completion of the Company's initial $4.5 billion share repurchase program, and increased dividends paid to stockholders which was partially offset by proceeds received from the issuance of new debt, including $2 billion issued in the third quarter of 2014. 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. See Notes 17 and 22 to the Consolidated Financial Statements for additional information related to the issuance or retirement of debt and the Company's share repurchase program and Note 6 for information on the split-off of the chlorine value chain.

Free Cash Flow
The Company's management believes that free cash flow, a non-GAAP financial measure, provides relevant and meaningful information to investors about the Company's ability to generate cash after investing in its asset base. Free cash flow represents the cash that remains available to fund its obligations using itsthe Company's primary source of incremental liquidity - cash provided by operating activities. This financial measure is not recognized in accordance with U.S. GAAP and should not be viewed as an alternative to U.S. GAAP financial measures of performance.

Reconciliation of Free Cash Flow to "Cash Provided by Operating Activities"
In millions
     
2015
 2014
 2013
Cash provided by operating activities$7,516
 $6,502
 $7,823
 - Capital expenditures(3,703) (3,572) (2,302)
Free Cash Flow$3,813
 $2,930
 $5,521
Reconciliation of Free Cash Flow to "Cash Provided by Operating Activities"
In millions2016
 2015
 2014
Cash provided by operating activities$5,478
 $7,516
 $6,502
Capital expenditures(3,804) (3,703) (3,572)
Free Cash Flow$1,674
 $3,813
 $2,930

53


Liquidity & Financial Flexibility
The Company’s primary source of incremental liquidity is cash provided by operating activities. The generation of cash from operations and the Company's ability to access capitaldebt markets is expected to meet the Company’s cash requirements for working capital, capital expenditures, debt maturities, dividend payments, share repurchases, contributions to pension plans and other needs. In addition to cash provided by operating activities, the Company’s current 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-termother 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, 2015,2016, 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, 2015
In millions Effective Date Committed Credit
 Credit Available
 Maturity Date Interest
Five Year Competitive Advance and Revolving Credit Facility (1)
 March 2015 $5,000
 $5,000
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 March 2015 100
 100
 March 2016 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 280
 280
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 200
 200
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 August 2016 Floating rate
Total Committed and Available Credit Facilities 
 $5,980
 $5,980
    
(1)The prior credit facility was terminated and replaced with a new credit facility, with substantially similar terms and conditions, on March 24, 2015.
(2)The prior credit facility was amended or replaced in 2015 to extend its maturity date and incorporate substantially similar terms and conditions to the new Five Year Competitive Advance and Revolving Credit Facility.

Shelf Registration - U.S.
TheOn October 28, 2016, the Company renewed an automatica shelf registration with the U.S. Securities and Exchange Commission ("SEC") 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 and warrants stockto purchase contracts and stock purchase unitsdebt securities, with pricing and availability dependent on market conditions. The shelf registration expires on February 19, 2016. The Company expects to renew this shelf registration on or about February 16, 2016. A new prospectus supplement to registerthat registered an unlimited amount of securities for issuance under the Company’s InterNotes program under this shelf registration is expectedexpired on February 19, 2016. Due to be filed on or about February 16, 2016.the pending transaction with DuPont in which the Company and DuPont will combine in an all-stock merger of equals strategic combination, the Company did not file a new prospectus supplement for the InterNotes program. However, the Company remains prepared to file a new prospectus supplement for the InterNotes program with the SEC.

Shelf Registration - Japan
At December 31, 2015, the Company had Japanese yen 50 billion (approximately $415 million) of securities available for issuance under aThe Company's shelf registration renewed with the Kanto Local Finance Bureau of the Ministry of Finance of Japan effective December 13, 2014, which will expireexpired on December 12, 2016. The



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, 2016
In millions Effective Date Committed Credit
 Credit Available
 Maturity Date Interest
Five Year Competitive Advance and Revolving Credit Facility March 2015 $5,000
 $5,000
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 March 2017 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 280
 280
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 200
 200
 March 2020 Floating rate
Bilateral Revolving Credit Facility May 2016 200
 200
 May 2018 Floating rate
Bilateral Revolving Credit Facility July 2016 200
 200
 July 2018 Floating rate
Bilateral Revolving Credit Facility August 2016 100
 100
 August 2018 Floating rate
DCC Term Loan Facility (1)
 February 2016 4,500
 
 May 2018 Floating rate
Total Committed and Available Credit Facilities   $10,880
 $6,380
    
(1)Drawn on May 31, 2016, by Dow Corning, a wholly owned subsidiary of the Company as of June 1, 2016.

In connection with the DCC Transaction, on May 31, 2016, Dow Corning incurred $4.5 billion of indebtedness under a certain third party credit agreement ("DCC Term Loan Facility") in order to fund the contribution of cash to Splitco. Subsequent to the DCC Transaction, the Company expectsguaranteed the obligations of Dow Corning under the DCC Term Loan Facility and, as a result, the covenants and events of default applicable to renew this shelf registrationthe DCC Term Loan Facility are substantially similar to the covenants and events of default set forth in the fourth quarterCompany's Five Year Competitive Advance and Revolving Credit Facility. Amounts borrowed under the DCC Term Loan Facility are repayable on May 30, 2017, subject to a 364-day extension option, at Dow Corning's election, upon the satisfaction of 2016.certain customary conditions precedent. Dow Corning intends to exercise the 364-day extension option on the DCC Term Loan Facility. See Note 4 for additional information on the DCC Transaction.

Accounts Receivable Securitization Facilities
The Company has access to committed accounts receivable securitization facilities in the United States, Europe and Asia Pacific,Japan, from which amounts available for funding are based upon available and eligible accounts receivable within each of the facilities. The Asia PacificJapan facilities are renewed annually. The Europe facility was renewed in July 2015 for a term that extends to July 2018. The Company renewed the United States facility in June 2015 for a term that extends to June 2018. See Note 16 to the Consolidated Financial Statements for further information.


54Debt


As Dow continues to maintain its strong balance sheet and financial flexibility, management is focused on net debt (a non-GAAP financial measure), as Dow believes this is the best representation of the Company’s financial leverage at this point in time. As shown in the following table, net debt is equal to total gross debt minus "Cash and cash equivalents." At December 31, 2015,2016, net debt as a percent of total capitalization decreasedincreased to 24.835.1 percent. This decreaseincrease was primarily due to a $2.5 billion reductiondebt assumed in gross debtthe DCC Transaction and a $2.9nearly $2 billion increasedecrease in cash and cash equivalents; and a significant increase in earnings, which includes the after-tax gain on the split-off of the Company's chlorine value chain, the sale of the Company's interest in MEGlobal and other business divestitures.equivalents. See Notes 5 and 6Note 4 to the Consolidated Financial Statements for further information on the split-off of the Company's chlorine value chain and other divestitures.DCC Transaction.

Total Debt at December 31
In millions
 2015
 2014
 2016
 2015
Notes payable $454
 $551
 $272
 $454
Long-term debt due within one year (1)
 541
 382
 635
 541
Long-term debt (1)
 16,215
 18,741
 20,456
 16,215
Gross debt $17,210
 $19,674
 $21,363
 $17,210
Cash and cash equivalents $8,577
 $5,654
 $6,607
 $8,577
Net debt $8,633
 $14,020
 $14,756
 $8,633
Gross debt as a percent of total capitalization 39.7% 45.5% 44.0% 39.7%
Net debt as a percent of total capitalization 24.8% 37.3% 35.1% 24.8%
(1)Presented in accordance with newly implemented ASU 2015-03.net of unamortized debt issuance costs. See Note 217 to the Consolidated Financial Statements for furtheradditional information.


See Note 17 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, 2015.activity.

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 Five Year Competitive Advance and Revolving Credit Facility Agreement ("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 0.380.42 to 1.00 at December 31, 2015. At December 31, 2015, management2016. Management believes the Company was in compliance with all of its covenants and default provisions.provisions at December 31, 2016. For information on Dow’s covenants and default provisions, see Note 17 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.
Credit Ratings
As of February 12, 2016,9, 2017, the Company's credit ratings were as follows:

Credit RatingsLong-TermShort-Term 
Rating AgencyRatingRatingOutlook
Standard & Poor’sBBBA-2Watch Developing
Moody’s Investors ServiceBaa2P-2Stable
Fitch RatingsBBBF2Watch Positive

Downgrades in the Company’s credit ratings willwould increase borrowing costs on certain indentures and could have ana negative
impact on the Company’s ability to access credit markets.


55


Dividends
For the years ended December 31, 2016, 2015,, 2014, and 2013,2014, the Company paid dividends to common and preferred shareholders as noted below:

Dividends Paid at December 31
In millions, except per share amounts
2015
 2014
 2013
2016
 2015
 2014
Dividends paid, per common share$1.68
 $1.43
 $0.96
$1.84
 $1.68
 $1.43
Dividends paid to common shareholders$1,913
 $1,680
 $1,139
$2,037
 $1,913
 $1,680
Dividends paid to preferred shareholders(1)$340
 $340
 $340
$425
 $340
 $340
(1)Dividends paid to preferred shareholders in 2016 includes payment of the fourth quarter 2016 declared dividend.

On October 21, 2015,December 15, 2016, the Board of Directors declared a quarterly dividend of $0.46 per share, payable January 29, 2016,30, 2017, to stockholders of record on December 31, 2015.28, 2016. On February 11, 2016,9, 2017, the Board of Directors announced the declaration of a quarterly dividend of $0.46 per share, payable April 29, 2016,28, 2017, to stockholders of record on March 31, 2016.2017. 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 104-year105-year period, Dow has increased the amount of the quarterly dividend 52 times (approximately 13 percent of the time), reduced the dividend once and maintained the amount of the quarterly dividend approximately 87 percent of the time.

On December 10, 2015,15, 2016, the Board of Directors declared a quarterly dividend of $85 million to Cumulative Convertible Perpetualthe Preferred Stock Series A shareholders of record on December 15, 2015,2016, which was paid on January 4,December 30, 2016. On February 11,December 15, 2016, the Boardtrading price of Directors declared a quarterly dividendDow's common stock closed at $58.35, marking the 20th trading day in the previous 30 trading days that the common stock closed above $53.72, triggering the right of $85the Company to exercise its conversion right. On December 30, 2016, the Company converted 4 million payable on April 1, 2016,outstanding Preferred Stock shares into 96.8 million shares of the Company's common stock. After the conversion, no shares of Preferred Stock are issued or outstanding and all rights of the holders of the Preferred Stock have terminated. See Note 22 to the Cumulative Convertible Perpetual Preferred Stock, Series A shareholders of record on March 15, 2016. 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.Consolidated Financial Statements for additional information.


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. 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. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program, with the repurchase of the Company's common stock timed to proceeds received from portfolio management actions and increases in operating cash flows.program. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion. As of December 31, 2015,2016, the Company has spent $7.2$8.1 billion on repurchases of common stock under the share buy-back program. The Company intends to repurchase shares in 2017.

On October 5, 2015, (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses ("chlorine value chain") into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a wholly owned subsidiary of Olin Corporation in a tax-efficient Reverse Morris Trust transaction (collectively, the "Transaction"). Dow shareholders who participated in the public exchange offer tendered 34.1 million shares of Dow common stock in exchange for 100 million shares of Splitco. As a result of this non-cash share exchange offer, the Company included the 34.1 million tendered shares as part of the share repurchase program and recorded an increase of $1,523 million in “Treasury stock at cost” in the consolidated balance sheets, which was valued based on Dow’s opening stock price on October 5, 2015. See Note 6 to the Consolidated Financial Statements for additional information on this Transaction.

On December 11, 2015, the Company and DuPont announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. As a result of this pending transaction, the Company will not repurchase shares under the share repurchase program until after the shareholder vote on the DowDuPont merger. The Company expects to complete approximately $2 billion of share repurchases in 2016.

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 22 to the Consolidated Financial Statements.


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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 2016, 2015 2014 and 2013,2014, the Company contributed $629 million, $844 million $815 million and $865$815 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. Dow expects to contribute approximately $620$500 million to its pension plans in 2016.2017. See Note 18 to the Consolidated Financial Statements for additional information concerning the Company’s pension plans.

Restructuring
The activities related to the 2015 and 2016 restructuring programprograms are expected to result in additional cash expenditures of $153$281 million, primarily through March 31, 2017,June 30, 2018, related to severance costs and costs associated with exit and disposal activities, including environmental remediation (see Note 3 to the Consolidated Financial Statements). 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 costs 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, 2015.2016. Additional information related to these obligations can be found in Notes 15, 17, 18, 19 and 23 to the Consolidated Financial Statements.

Contractual Obligations at December 31, 2015Payments Due by Year 
  
Contractual Obligations at December 31, 2016Payments Due by Year 
  
In millions2016
 2017
 2018
 2019
 2020
 2021 and beyond
 Total
2017
 2018
 2019
 2020
 2021
 2022 and beyond
 Total
Long-term debt – current and noncurrent (1)$550
 $644
 $730
 $2,389
 $1,769
 $11,079
 $17,161
$659
 $5,237
 $2,391
 $1,825
 $1,567
 $9,785
 $21,464
Deferred income tax liabilities – noncurrent (2)
 
 
 
 
 575
 575
Deferred income tax liabilities (2)

 
 
 
 
 923
 923
Pension and other postretirement benefits766
 366
 365
 370
 874
 6,230
 8,971
658
 450
 450
 883
 933
 7,825
 11,199
Other noncurrent obligations (3)
16
 580
 379
 366
 222
 2,778
 4,341

 756
 691
 548
 372
 4,326
 6,693
Uncertain tax positions, including interest and penalties (4)

 
 
 
 
 378
 378
26
 
 
 
 
 231
 257
Other contractual obligations:                          
Minimum lease commitments302
 277
 249
 230
 215
 1,500
 2,773
351
 300
 272
 246
 221
 1,064
 2,454
Purchase commitments – take-or-pay and throughput obligations2,935
 2,415
 2,262
 1,927
 1,799
 7,827
 19,165
2,600
 2,498
 2,172
 2,083
 1,725
 7,304
 18,382
Purchase commitments – other (5)
155
 69
 49
 38
 24
 19
 354
203
 145
 148
 85
 63
 88
 732
Expected cash requirements for interest (6)
929
 917
 875
 766
 668
 7,145
 11,300
997
 921
 789
 690
 609
 6,710
 10,716
Total$5,653
 $5,268
 $4,909
 $6,086
 $5,571
 $37,531
 $65,018
$5,494
 $10,307
 $6,913
 $6,360
 $5,490
 $38,256
 $72,820
(1)Excludes unamortized debt discount and issuance costs of $405$373 million. Includes $76$295 million of capital lease obligations. Assumes the option to extend the DCC Term Loan facility will be exercised.
(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 “2021“2022 and beyond.”
(3)Includes "Asbestos-related liabilities - noncurrent." Annual payments to resolve asbestos litigationasbestos-related matters 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 $387 million has been reflected in “2021 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 “2021“2022 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 on long-term debt was calculated using current interest rates at December 31, 2015,2016, and includes approximately $733$4,968 million 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 variable interests in joint ventures accounted for under the equity method of accounting. The Company is not the primary beneficiary of these joint ventures and therefore is not required

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to consolidate the entities (see Note 20 to the Consolidated Financial Statements). In addition, see Note 16 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, 20152016 of $5,822$6,043 million, compared with $5,993$5,822 million at December 31, 2014.2015. Additional information related to these guarantees can be found in the “Guarantees” section of Note 15 to the Consolidated Financial Statements.

Fair Value Measurements
See Note 11 to the Consolidated Financial Statements for information related to other-than-temporary impairments; see Note 12 for additional information concerning fair value measurements, including the Company’s interests held in trade receivable conduits; and, see Note 18 for information related to fair value measurements of pension and other postretirement benefit plan assets.



OUTLOOK
Looking ahead, 2016 is primed to be another significant year for Dow. The Company is very focused on continuing to deliver against its operational commitments and portfolio priorities.

Dow's teams are moving swiftly to deliverseeing early signs of positive economic momentum, with the DowDuPont merger benefits to shareholders. The same teams that deliveredUnited States in expansionary mode, driven by the split-offongoing strength of the chlorine value chain aheadconsumer and the tailwind of plan, as well as alla new incoming administration promising structural reforms. Europe continues its gradual recovery, despite increasing political uncertainty and geopolitical tensions. China’s transition is progressing on a robust path, and sustained growth of Asia’s middle class continues to drive demand throughout the other portfolio moves implemented over the last five years, have mobilizedregion. And finally, Dow sees improvement in Latin America from its low base, with three clear priorities: close the DowDuPont mergerslow but stable gains continuing in the second half of 2016; rapidly deliver the synergies after closing; and accelerate the release of value through the intended market-focused spin-offs.Brazil.

The Company will also realizeexpects demand for Dow’s portfolio to remain healthy, particularly in the businesses that serve packaging, infrastructure, consumer care, electronics, automotive and agriculture. Building on Dow's strong synergiesachievements these past several years, the Company remains well-positioned to capture growth where growth exists around the world. And Dow's strategic investments - Sadara, Dow Corning and benefits from Dow Corning's silicones business, and continue to ramp up many strategic initiatives, with differentiated technology and cost-advantaged expansions such as those on the U.S. Gulf Coast projects - will deliver the next layers of integration strength, earnings growth and in Saudi Arabia coming on-line to serve targeted consumer markets across the globe.cash flow generation.

The global economy continuesFor the year ahead, Dow remains squarely focused on three priorities: achieving the financial and operating plan; closing the DowDuPont transaction and driving quickly toward the intended spins; and capitalizing on the Company's strategic growth projects. Dow will continue to be volatile with consistent demand being driven by the consumer, especially in the U.S.deliver strong financial performance for its customers and increasingly from China. The Company believes low energy prices are a net benefit and will help overcome negative investment sentiment in other sectors. Dow has the portfolio that serves these consumer-driven markets, and the Company remains committed to flawless operational and commercial execution.shareholders.


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”)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 including product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation, and other actions. The Company routinely assesses the legal and factual circumstances of each matter, 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 covering various timeframes. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note 15 to the Consolidated Financial Statements.


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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 four 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, Ankura Consulting Group, LLC ("Ankura") (formerly known as Analysis, Research and Planning Corporation ("ARPC")prior to the March 2016 merger with Ankura) performs a review for Union Carbide based upon historical asbestos claims, resolution and resolution activity.historical defense spending. Union Carbide compares current asbestos claim, resolution and resolutiondefense spending activity to the results of the most recent ARPCAnkura study at each balance sheet date to determine whether the asbestos-related liability continues to be appropriate.

It isIn 2016, the opinionCompany elected to change its method of Dow’s management that it is reasonably possible that the costaccounting for Union Carbide's asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. In addition to performing their annual review of pending and future asbestos claim resolution activity, Ankura also performed a review of Union Carbide disposingCarbide's asbestos-related defense and processing costs to determine a reasonable estimate of its asbestos-related claims, including future defense and processing costs could have a material impact onto be included in the Company’s resultsasbestos-related liability, through the terminal year of operations and cash flows for a particular period and on the consolidated financial position of the Company.2049.


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 NoteNotes 1 and 15 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, 2015,2016, the Company had accrued obligations of $670$909 million for probable environmental remediation and restoration costs, including $74$151 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 15 to the Consolidated Financial Statements.

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, 2015,2016, the Company has defined five operating segments and 1618 reporting units; goodwill is carried by 1214 of these reporting units.
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

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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 with 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 20152016 testing): projected revenue growth rates, or compounded annual growth rates, over a ten-year cash flow forecast period, which ranged from 4.84.9 percent to 7.76.4 percent and varied by reporting unit based on underlying business fundamentals and future expectations; discount rates, which ranged from 9.58.9 percent to 11.29.5 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 3.5 percent; currency exchange rates for 79 currencies;rates; 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 hydrocarbon 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, 20152016 and 2014,2015, Dow’s market capitalization exceeded book value.

20152016 Goodwill Impairment Test
During 2015,In 2016, there were no events or changes in circumstances identified that warranted interim goodwill impairment testing. DuringIn the fourth quarter of 2015,2016, qualitative testing was performed for all but three 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 three reporting units 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, Performance Monomers and Dow Electronic Materials.

Changes in key assumptions can affect the results of goodwill impairment test.testing. The changes made to key assumptions in 20152016 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 20152016 impairment testing, management completed sensitivity analysis on both of these key assumptions using a 100 basis point increase in the discount rate and a 100 basis point decrease in the terminal value NOPAT growth rate for reporting units where a quantitative fair value analysis was completed. In both cases the resulting fair values, based on discounted cash flows, exceeded the carrying values 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 a fair value, based on discounted cash flows, that exceeded the carrying value for Dow Electronic Materials. TheMaterials and Performance Monomers. This analysis also resulted in a fair value for Dow Coating Materials, which carried approximately $2,243$2,233 million of goodwill at December 31, 2015,2016, that was $98$122 million below carrying value. The fair value for Performance Monomers, which carried approximately $237 million of goodwill at December 31, 2015, was approximately $20 million below carrying value.

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In completing the fair value analysis for the 20152016 impairment test, management evaluated the reasonableness of differences noted between fair value and carrying value of each reporting unit. All differences were determined to be reasonable.

Based on the fair value analysis completed by the Company in the fourth quarter of 2015,2016, 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.

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, 20152016, 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 18 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 72 percent of the Company’s pension plan assets and 71 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 20152016 was 7.857.77 percent. ThisThe assumption increased to 7.87 percentused for determining 20162017 net periodic pension expense.expense is 7.91 percent. 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 corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for Dow’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date. The weighted average discount rate increaseddecreased to 4.11 percent at December 31, 2016, from 4.40 percent at December 31, 2015, from 4.04 percent at December 31, 2014.2015.

At December 31, 2015,2016, the U.S. qualified plans were underfunded on a projected benefit obligation basis by $3.8$5.1 billion. The underfunded amount decreased byincreased approximately $860 million$1.3 billion compared with December 31, 2014.2015. The decreaseincrease in 2015the underfunded amount in 2016 was primarily due to contributions made, the transfer of defined benefitpension plan assets and obligations to Olinassumed from Dow Corning and the change in the discount rate. The Company contributed $600$350 million to the U.S. qualified plans in 2015.2016.

The assumption for the long-term rate of increase in compensation levels for the principal U.S. qualified plans was 4.54.25 percent. Since 2002, theThe Company has useduses a generational mortality table to determine the duration of its pension and other postretirement obligations. In 2014, the Company adopted updated generational mortality tables, which reflect increased life expectancy, for purposes of measuring U.S. 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 plans, both gains and losses have been recognized and amortized. At December 31, 2015,2016, net losses of $295$520 million remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets.

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The decrease in the market-related value of assets due to the recognition of prior gains (losses)losses is presented in the following table:

Increase (Decrease) in Market-Related Asset Value Due to Recognition of Prior Gains (Losses)
In millions
2016$74
Decrease in Market-Related Asset Value Due to Recognition of Prior Losses
In millions
Decrease in Market-Related Asset Value Due to Recognition of Prior Losses
In millions
2017(55)$94
2018(109)148
2019(205)241
202037
Total$(295)$520

TheOn January 1, 2016, the Company has elected to adopt aadopted the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs for the U.S. and other selected countries, effective January 1, 2016.countries. Under the spot rate approach, the Company will calculatecalculates service costs and interest costs by applying individual spot rates from the Willis Towers Watson RATE:Link yield curve (based on high-quality corporate

bond yields) for each selected country to the separate expected cash flow components of service cost and interest cost; service cost and interest cost for all other plans will continue(including all plans prior to beadoption) are determined on the basis of the single equivalent discount rates derived in determining those plan obligations. The Company changed to the newthis method to provide a more precise measure of interest and service costs for certain countries by improving the correlation between projected benefit cash flows and the discrete spot yield curves. The Company has accounted for this change as a change in accounting estimate and it will bewas applied prospectively starting in 2016. The adoption of the spot rate approach is expected to decrease the service cost and interest cost components of net periodic benefit costs by approximately $210 million in 2016.

The Company expects pension expense to decreaseincrease in 20162017 by more than $200approximately $50 million. The decreaseincrease in pension expense is primarily due to pension plans assumed from Dow Corning and the impact of higherlower discount rates and the change to the spot rate approach for measuring service cost and interest cost.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 20162017 by $47$53 million. A 25 basis point increase in the discount rate assumption would lower the Company's total pension expense for 20162017 by $50$58 million. A 25 basis point decrease in the discount rate assumption would increase the Company's total pension expense for 20162017 by $59$61 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 2016.2017.

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, 2015,2016, the Company had a net deferred tax asset balance of $1,846$2,156 million, after valuation allowances of $1,000$1,061 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, 20152016, the Company had deferred tax assets for tax loss and tax credit carryforwards of $1,647$2,450 million, $197$205 million of which is subject to expiration in the years 2016-2020.2017-2021. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Company needs taxable income of approximately $17,786$22,058 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 2016-20202017-2021 is approximately $2,788$3,222 million.


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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, 20152016, the Company had uncertain tax positions for both domestic and foreign issues of $280$231 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, 2015,2016, the Company had a non-income tax contingency reserve for both domestic and foreign issues of $64$108 million.

For additional information, see Notes 1 and 23 to the Consolidated Financial Statements.



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 2025 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. 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 excellentimprovements in many aspects of EH&S performance in 2015.2016. Dow’s injury/illness rates and process safety performance werewas excellent in 2015.2016 and improvements were made in injury/illness rates. In light of the fatalities that we tragically experienced in 2016, safety focus remains a priority for the entire Company. 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 20162017 as Dow beginscontinues to implement the Company's 2025 Sustainability Goals.

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, natural disasters and cyber incidents have increased concern about the security and safety of chemical production and distribution. 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 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 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.

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Transportation Security Administration. 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 interruptions of normal business operations that could materially and adversely affect the Company’s results of operations, liquidity and financial condition.

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 U.S. chemical facility regulations and other regulatory security frameworks. Dow is currently participating with the American Chemistry Council to review and update the Responsible Care® Security Code.

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's initiatives relative to chemical security, emergency preparedness and response, Community Awareness and Emergency Responses and crisis management are implemented consistently at all Dow sites on a global basis. Dow participates with chemical associations globally and participates as an active member of the U.S. delegation to the G7 Global Partnership Sub-Working Group on Chemical Security.

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.


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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 2025 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 regulatory requirements. The nature of such remediation can include management of soil and groundwater contamination and 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.contamination. 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 the ability to apply 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 $596$758 million at December 31, 2015,2016, related to the remediation of current or former Dow-owned sites. At December 31, 20142015, the liability related to remediation was $628596 million.

In addition to current and former Dow-owned sites, under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") 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 $74$151 million at December 31, 20152016 ($7874 million at December 31, 2014)2015). 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)
 
Dow-owned Sites (1)
 
Superfund Sites (2)
 2015
 2014
 2015
 2014
 2016
 2015
 2016
 2015
Number of sites at January 1 184
 200
 124
 121
 180
 184
 124
 124
Sites added during year 7
 6
 7
 5
 16
 7
 10
 7
Sites closed during year (11) (22) (7) (2) (7) (11) (3) (7)
Number of sites at December 31 180
 184
 124
 124
 189
 180
 131
 124
(1)Dow-owned sites are sites currently or formerly owned by Dow. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law. At December 31, 2015, 412016, 38 of these sites (46(41 sites at December 31, 2014)2015) 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.

Additional information is provided below for the Company’s Midland, Michigan, manufacturing site and Midland off-site locations (collectively, the "Midland sites"), as well as a Superfund site in Wood-Ridge, New Jersey, the locations for which the Company has the largest potential environmental liabilities.

In the early days of operations at the Midland manufacturing site, 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 Resource Conservation and

65


Recovery Act permits and regulatory agreements. The Hazardous Waste Operating License for the Midland manufacturing site, issued in 2003, and renewed and replaced in September 2015, also included provisions for the Company to conduct an investigation to determine the nature and extent of off-site contamination from historic Midland manufacturing site operations. 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 pay the oversight costs of the EPA and the State under the authority of CERCLA. See Note 15 to the Consolidated Financial Statements for additional information. At December 31, 2015,2016, the Company had an accrual of $92$137 million ($9392 million at December 31, 2014)2015) for environmental remediation and investigation associated with the Midland sites. In 2015,2016, the Company spent $28$36 million ($2228 million in 2014)2015) for environmental remediation at the Midland sites.


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") (collectively, the "Wood-Ridge sites"). 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. Currently, theThe Berry’s Creek Study Area PRP group is undertakingcompleted a multi-stage Remedial Investigation/Feasibility StudyInvestigation ("RI/FS"RI") pursuant to an Administrative Order on Consent ("AOC") with U.S. EPA Region 2 to identify contamination in surface water, sediment and biota related to numerous contaminated sites in the Berry's Creek watershed.watershed, and submitted the report to the EPA in June 2016. That same month, the EPA concluded that an "iterative or adaptive approach" is appropriate for cleaning up the BCSA. Thus, each phase of remediation will be followed by a period of monitoring to assess its effectiveness and determine if there is a need for more work. The RIFeasibility Study ("FS") for the first phase of work will be submitted toin the EPA by June 30, 2016. The FS will be submitted, perhaps in phases as partsecond half of an adaptive remedy, on a schedule set by the EPA.2018. The EPA will then review the remedial options presented in the FS, select the remedy and issue aan interim Record of Decision.Decision ("ROD"). The PRP group will then attempt to negotiate agreements withamong the PRP's to fund the selected remedy and with the EPA to perform the remediation. ThereAlthough there is currently much uncertainty as to what will ultimately be required to remediate the BCSA and Rohm and Haas's share of these costs has yet to be determined.determined, the range of activities that will be required in the interim ROD is known in general terms. Based on the first phase of the RI and agreement with the EPA, the overall remediation accrual for the Wood-Ridge sites was increased by $80 million in the fourth quarter of 2016. At December 31, 2015,2016, the Company had an accrual of $15$91 million ($1815 million at December 31, 2014)2015) for environmental remediation at the Wood-Ridge sites. In 2015,2016, the Company spent $6 million ($6 million in 2014)2015) on environmental remediation at the Wood-Ridge sites.

In the fourth quarter of 2016, the Company recorded a pretax charge of $295 million for environmental remediation at a number of historical locations, including the Midland manufacturing site/off-site matters and the Wood-Ridge sites, primarily resulting from the culmination of negotiations with regulators and/or final agency approval. This charge was included in "Cost of sales" in the consolidated statements of income. In total, the Company’s accrued liability for probable environmental remediation and restoration costs was $670$909 million at December 31, 20152016, compared with $706670 million at the end of 20142015. 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.

The amounts charged to income on a pretax basis related to environmental remediation totaled $504 million in 2016, $218 million in 2015 and $227 million in 2014 and $203 million in 2013.2014. The amounts charged to income on a pretax basis related to operating the Company’s current pollution abatement facilities, excluding internal recharges, totaled $770$623 million in 2016, $613 million in 2015 $762and $637 million in 2014 and $720 million in 2013.2014. Capital expenditures for environmental protection were $66 million in 2016, $49 million in 2015 and $78 million in 2014 and $102 million in 2013.2014.



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 four 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”).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.


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The table below provides information regarding asbestos-related claims pending against Union Carbide and Amchem based on criteria developed by Union Carbide and its external consultants. Union Carbide had a significant increase in the number of claims settled, dismissed or otherwise resolved in 2015 resulting from a detailed review of the status of individual claims and an update to criteria used to classify claims.

 2015
 2014
 2013
Asbestos-Related Claim Activity 2016
 2015
 2014
Claims unresolved at January 1 26,116
 29,005
 33,449
 18,778
 26,116
 29,005
Claims filed 7,544
 8,857
 12,069
 7,813
 7,544
 8,857
Claims settled, dismissed or otherwise resolved (14,882) (11,746) (16,513) (10,450) (14,882) (11,746)
Claims unresolved at December 31 18,778
 26,116
 29,005
 16,141
 18,778
 26,116
Claimants with claims against both UCC and Amchem (6,804) (8,209) (8,331) (5,741) (6,804) (8,209)
Individual claimants at December 31 11,974
 17,907
 20,674
 10,400
 11,974
 17,907

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 asbestos 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 Noteand Notes 1 and 15 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 received 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.



67


The Dow Chemical Company and Subsidiaries
PART II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
Dow’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies, that enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as hedges per the accounting guidance related to derivatives and hedging activities, where appropriate. A secondary objective is to add value by creating additional non-specific exposure within established limits and policies; derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional exposures is not material to the Company’s results.
  
The global nature of Dow’s business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. To achieve this objective, the Company hedges on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps, and nonderivative instruments in foreign currencies. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities. The largest exposures are denominated in European currencies, the Japanese yen and the Canadian dollar,Chinese yuan, although exposures also exist in other currencies of Asia Pacific, Latin America, Middle East, Africa and India.
  
The main objective of interest rate risk management is to reduce the total funding cost to the Company and to alter the interest rate exposure to the desired risk profile. Dow uses interest rate swaps, “swaptions,” and exchange-traded instruments to accomplish this objective. The Company’s primary exposure is to the U.S. dollar yield curve.

Dow has a portfolio of equity securities derived primarily from the investment activities of its insurance subsidiaries. This exposure is managed in a manner consistent with the Company’s market risk policies and procedures.
  
Inherent in Dow’s business is exposure to price changes for several commodities. Some exposures can be hedged effectively through liquid tradable financial instruments. Feedstocks for ethylene production and natural gas constitute the main commodity exposures. Over-the-counter and exchange traded instruments are used to hedge these risks, when feasible.
  
Dow uses value at riskvalue-at-risk (“VAR”), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by the Company is a variance/covariance model. This model uses a 97.5 percent confidence level and includes at least one year of historical data. The 20152016 and 20142015 year-end and average daily VAR for the aggregate of all positions are shown below. These amounts are immaterial relative to the total equity of the Company.
  
Total Daily VAR by Exposure Type at December 312015 20142016 2015
In millionsYear-end
 Average
 Year-end
 Average  
Year-end
 Average
 Year-end
 Average  
Commodities$21
 $20
 $13
 $9
$24
 $23
 $21
 $20
Equities$15
 $16
 $10
 $10
$17
 $16
 $15
 $16
Foreign exchange$1
 $2
 $4
 $5
$28
 $9
 $1
 $2
Interest rate$96
 $103
 $119
 $114
$82
 $90
 $96
 $103
Composite$133
 $141
 $145
 $138
$151
 $138
 $133
 $141

The Company’s daily VAR for the aggregate of all positions decreasedincreased from a composite VAR of $145 million at December 31, 2014 to a composite VAR of $133 million at December 31, 2015.2015 to a composite VAR of $151 million at December 31, 2016. The primary driver of the lowerhigher composite VAR was an increase in the foreign exchange VAR due to increased managed long-term exposures and higher portfolio currency volatilities. The commodities and equities VARs increased due to a decreaserise in the market value of fixed income holdings. Other contributors were changes in the managed exposures of commodities and foreign exchange as well as increased volatilities in equity markets.The interest rate VAR declined due to lower volatility. See Note 11 to the Consolidated Financial Statements for further disclosure regarding market risk.

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The Dow Chemical Company and Subsidiaries
PART II, Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
The Dow Chemical Company:

We have audited the accompanying consolidated balance sheets of The Dow Chemical Company and subsidiaries (the “Company”) as of December 31, 20152016 and 20142015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 20152016. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Dow Chemical Company and subsidiaries as of December 31, 20152016 and 20142015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20152016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in the fourth quarter of 2016, the Company changed its accounting policy from expensing asbestos-related defense and processing costs as incurred to the accrual of asbestos-related defense and processing costs when probable of occurring and estimable.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 20152016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 20169, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Midland, Michigan
February 12, 20169, 2017


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The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income
(In millions, except per share amounts) For the years ended December 312015
 2014
 2013
2016
 2015
 2014
Net Sales$48,778
 $58,167
 $57,080
$48,158
 $48,778
 $58,167
Cost of sales37,836
 47,464
 47,594
37,641
 37,836
 47,464
Research and development expenses1,598
 1,647
 1,747
1,584
 1,598
 1,647
Selling, general and administrative expenses2,971
 3,106
 3,024
3,304
 2,971
 3,106
Amortization of intangibles419
 436
 461
544
 419
 436
Goodwill and other intangible asset impairment losses
 50
 

 
 50
Restructuring charges (credits)415
 (3) (22)452
 415
 (3)
Asbestos-related charge
 78
 
1,113
 
 78
Equity in earnings of nonconsolidated affiliates674
 835
 1,034
442
 674
 835
Sundry income (expense) - net4,592
 (27) 2,554
1,202
 4,592
 (27)
Interest income71
 51
 41
107
 71
 51
Interest expense and amortization of debt discount946
 983
 1,101
858
 946
 983
Income Before Income Taxes9,930
 5,265
 6,804
4,413
 9,930
 5,265
Provision for income taxes2,147
 1,426
 1,988
9
 2,147
 1,426
Net Income7,783
 3,839
 4,816
4,404
 7,783
 3,839
Net income attributable to noncontrolling interests98
 67
 29
86
 98
 67
Net Income Attributable to The Dow Chemical Company7,685
 3,772
 4,787
4,318
 7,685
 3,772
Preferred stock dividends340
 340
 340
340
 340
 340
Net Income Available for The Dow Chemical Company Common Stockholders$7,345
 $3,432
 $4,447
$3,978
 $7,345
 $3,432
          
Per Common Share Data:          
Earnings per common share - basic$6.45
 $2.91
 $3.72
$3.57
 $6.45
 $2.91
Earnings per common share - diluted$6.15
 $2.87
 $3.68
$3.52
 $6.15
 $2.87
          
Dividends declared per share of common stock$1.72
 $1.53
 $1.28
$1.84
 $1.72
 $1.53
Weighted-average common shares outstanding - basic1,130.1
 1,170.9
 1,186.2
1,108.1
 1,130.1
 1,170.9
Weighted-average common shares outstanding - diluted1,241.4
 1,187.0
 1,290.4
1,123.2
 1,241.4
 1,187.0
See Notes to the Consolidated Financial Statements.


70


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(In millions) For the years ended December 312015
 2014
 2013
2016
 2015
 2014
Net Income$7,783
 $3,839
 $4,816
$4,404
 $7,783
 $3,839
Other Comprehensive Income (Loss), Net of Tax          
Net change in unrealized gains on investments(94) (19) 13
Translation adjustments(986) (1,227) 148
Adjustments to pension and other postretirement benefit plans552
 (1,861) 2,535
Net losses on cash flow hedging derivative instruments(122) (83) (7)
Total other comprehensive income (loss)(650) (3,190) 2,689
Unrealized losses on investments(4) (94) (19)
Cumulative translation adjustments(644) (986) (1,227)
Pension and other postretirement benefit plans(620) 552
 (1,861)
Derivative instruments113
 (122) (83)
Total other comprehensive loss(1,155) (650) (3,190)
Comprehensive Income7,133
 649
 7,505
3,249
 7,133
 649
Comprehensive income attributable to noncontrolling interests, net of tax65
 35
 29
83
 65
 35
Comprehensive Income Attributable to The Dow Chemical Company$7,068
 $614
 $7,476
$3,166
 $7,068
 $614
See Notes to the Consolidated Financial Statements.


71


The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
(In millions, except share amounts) At December 312015
 2014
2016
 2015
Assets
Current Assets      
Cash and cash equivalents (variable interest entities restricted - 2015: $158; 2014: $190)$8,577
 $5,654
Cash and cash equivalents (variable interest entities restricted - 2016: $75; 2015: $158)$6,607
 $8,577
Accounts and notes receivable:      
Trade (net of allowance for doubtful receivables - 2015: $94; 2014: $110)4,078
 4,685
Trade (net of allowance for doubtful receivables - 2016: $110; 2015: $94)4,666
 4,078
Other3,768
 4,687
4,358
 3,768
Inventories6,871
 8,101
7,363
 6,871
Deferred income tax assets - current827
 812
Other current assets354
 316
665
 647
Total current assets24,475
 24,255
23,659
 23,941
Investments      
Investment in nonconsolidated affiliates3,958
 4,201
3,747
 3,958
Other investments (investments carried at fair value - 2015: $1,866; 2014: $2,009)2,923
 2,439
Other investments (investments carried at fair value - 2016: $1,959; 2015: $1,866)2,969
 2,923
Noncurrent receivables765
 620
708
 816
Total investments7,646
 7,260
7,424
 7,697
Property      
Property50,802
 55,230
57,438
 50,802
Less accumulated depreciation32,948
 37,179
33,952
 32,948
Net property (variable interest entities restricted - 2015: $1,717; 2014: $2,726)17,854
 18,051
Net property (variable interest entities restricted - 2016: $961; 2015: $1,717)23,486
 17,854
Other Assets      
Goodwill12,154
 12,632
15,272
 12,154
Other intangible assets (net of accumulated amortization - 2015: $3,770; 2014: $3,737)3,617
 3,768
Deferred income tax assets - noncurrent1,694
 2,135
Asbestos-related insurance receivables - noncurrent51
 62
Other intangible assets (net of accumulated amortization - 2016: $4,295; 2015: $3,770)6,026
 3,617
Deferred income tax assets3,079
 2,140
Deferred charges and other assets535
 524
565
 535
Total other assets18,051
 19,121
24,942
 18,446
Total Assets$68,026
 $68,687
$79,511
 $67,938
Liabilities and Equity
Current Liabilities      
Notes payable$454
 $551
$272
 $454
Long-term debt due within one year541
 382
635
 541
Accounts payable:      
Trade3,577
 4,481
4,519
 3,577
Other2,287
 2,299
2,401
 2,287
Income taxes payable452
 361
600
 452
Deferred income tax liabilities - current100
 105
Dividends payable592
 563
508
 592
Accrued and other current liabilities3,212
 2,839
3,669
 3,212
Total current liabilities11,215
 11,581
12,604
 11,115
Long-Term Debt (variable interest entities nonrecourse - 2015: $487; 2014: $1,216)16,215
 18,741
Long-Term Debt (variable interest entities nonrecourse - 2016: $330; 2015: $487)20,456
 16,215
Other Noncurrent Liabilities      
Deferred income tax liabilities - noncurrent575
 622
Deferred income tax liabilities923
 587
Pension and other postretirement benefits - noncurrent9,119
 10,459
11,375
 9,119
Asbestos-related liabilities - noncurrent387
 438
1,364
 387
Other noncurrent obligations4,332
 3,290
5,560
 4,332
Total other noncurrent liabilities14,413
 14,809
19,222
 14,425
Redeemable Noncontrolling Interest
 202
Stockholders’ Equity      
Preferred stock, series A ($1.00 par, $1,000 liquidation preference, 4,000,000 shares)4,000
 4,000
Common stock (authorized 1,500,000,000 shares of $2.50 par value each;
issued 2015: 1,242,794,836 shares; 2014: 1,242,763,276 shares)
3,107
 3,107
Preferred stock, series A (issued $1.00 par, $1,000 liquidation preference;
outstanding 2016: zero; 2015: 4,000,000 shares)

 4,000
Common stock (authorized 1,500,000,000 shares of $2.50 par value each;
issued 2016: 1,242,794,836 shares; 2015: 1,242,794,836 shares)
3,107
 3,107
Additional paid-in capital4,936
 4,846
4,262
 4,936
Retained earnings28,425
 23,045
30,338
 28,425
Accumulated other comprehensive loss(8,667) (8,017)(9,822) (8,667)
Unearned ESOP shares(272) (325)(239) (272)
Treasury stock at cost (2015: 125,853,161 shares; 2014: 85,168,571 shares)(6,155) (4,233)
Treasury stock at cost (2016: 31,661,501 shares; 2015: 125,853,161 shares)(1,659) (6,155)
The Dow Chemical Company’s stockholders’ equity25,374
 22,423
25,987
 25,374
Non-redeemable noncontrolling interests809
 931
Noncontrolling interests1,242
 809
Total equity26,183
 23,354
27,229
 26,183
Total Liabilities and Equity$68,026
 $68,687
$79,511
 $67,938
See Notes to the Consolidated Financial Statements.

72


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows
(In millions) For the years ended December 312015
 2014
 2013
2016
 2015
 2014
Operating Activities          
Net income$7,783
 $3,839
 $4,816
$4,404
 $7,783
 $3,839
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization2,521
 2,747
 2,681
2,862
 2,521
 2,747
Provision for deferred income tax305
 466
 113
Earnings of nonconsolidated affiliates less than (in excess of) dividends received142
 121
 (129)
Provision (Credit) for deferred income tax(1,259) 305
 466
Earnings of nonconsolidated affiliates less than dividends received243
 142
 121
Pension contributions(844) (815) (865)(629) (844) (815)
Net gain on sales of investments(95) (76) (135)(116) (95) (76)
Net gain on sales of property, businesses and consolidated companies(3,811) (45) (582)(88) (3,811) (45)
Net (gain) loss on sales of ownership interests in nonconsolidated affiliates(749) 1
 (30)(10) (749) 1
Net gain on step acquisition of a nonconsolidated affiliate(361) 
 
Net gain on step acquisition of nonconsolidated affiliates(2,445) (361) 
Goodwill and other intangible asset impairment losses
 50
 

 
 50
Asset impairments and related costs144
 23
 184
143
 144
 23
Restructuring charges (credits)415
 (3) (22)452
 415
 (3)
Loss on early extinguishment of debt8
 
 329

 8
 
Asbestos-related charge
 78
 
1,113
 
 78
Excess tax benefits from share-based payment arrangements(41) (42) (23)(57) (41) (42)
Other net loss172
 70
 37
113
 172
 70
Changes in assets and liabilities, net of effects of acquired and divested companies:          
Accounts and notes receivable(84) (884) (915)(1,539) (84) (884)
Proceeds from interests in trade accounts receivable conduits1,034
 1,079
 1,028
1,257
 1,034
 1,079
Inventories780
 224
 130
610
 780
 224
Accounts payable(681) (79) (408)458
 (681) (79)
Other assets and liabilities878
 (252) 1,614
(34) 878
 (252)
Cash provided by operating activities7,516
 6,502
 7,823
5,478
 7,516
 6,502
Investing Activities          
Capital expenditures(3,703) (3,572) (2,302)(3,804) (3,703) (3,572)
Construction of assets pending sale-leaseback
 (48) 
Proceeds from sale-leaseback of assets3
 470
 42
Investment in gas field developments(113) 
 
Construction of assets pending sale / leaseback(63) 
 (48)
Proceeds from sale / leaseback of assets87
 3
 470
Payment into escrow account(835) 
 
Distribution from escrow account835
 
 
Proceeds from sales of property, businesses and consolidated companies, net of cash divested2,383
 119
 660
284
 2,383
 119
Acquisitions of property, businesses and consolidated companies, net of cash acquired(123) 
 
(187) (123) 
Purchases of previously leased assets(46) 
 

 (46) 
Cash acquired in step acquisition of nonconsolidated affiliate1,050
 
 
Investments in consolidated companies, net of cash acquired
 (5) (21)
 
 (5)
Investments in and loans to nonconsolidated affiliates(803) (270) (137)(1,020) (803) (270)
Distributions and loan repayments from nonconsolidated affiliates17
 69
 46
109
 17
 69
Proceeds from sales of ownership interests in nonconsolidated affiliates1,528
 8
 66
22
 1,528
 8
Purchases of investments(1,246) (643) (462)(577) (1,246) (643)
Proceeds from sales and maturities of investments640
 767
 639
733
 640
 767
Cash used in investing activities(1,350) (3,105) (1,469)(3,479) (1,350) (3,105)
Financing Activities          
Changes in short-term notes payable(82) 74
 (37)(33) (82) 74
Proceeds from issuance of long-term debt1,383
 2,448
 959
32
 1,383
 2,448
Payments on long-term debt(1,114) (747) (4,272)(588) (1,114) (747)
Purchases of treasury stock(1,166) (4,193) (307)(916) (1,166) (4,193)
Proceeds from issuance of common stock
 679
 386

 
 679
Proceeds from sales of common stock508
 269
 
398
 508
 269
Transaction financing, debt issuance and other costs(88) (20) (7)(2) (88) (20)
Excess tax benefits from share-based payment arrangements41
 42
 23
57
 41
 42
Distributions to noncontrolling interests(112) (91) (55)(176) (112) (91)
Contributions from noncontrolling interests17
 36
 58

 17
 36
Purchases of noncontrolling interests(175) (60) 
(202) (175) (60)
Dividends paid to stockholders(2,253) (2,020) (1,479)(2,462) (2,253) (2,020)
Cash used in financing activities(3,041) (3,583) (4,731)(3,892) (3,041) (3,583)
Effect of Exchange Rate Changes on Cash(202) (100) (1)(77) (202) (100)
Summary          
Increase (decrease) in cash and cash equivalents2,923
 (286) 1,622
(1,970) 2,923
 (286)
Cash and cash equivalents at beginning of year5,654
 5,940
 4,318
8,577
 5,654
 5,940
Cash and cash equivalents at end of year$8,577
 $5,654
 $5,940
$6,607
 $8,577
 $5,654
See Notes to the Consolidated Financial Statements.

73


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Equity
(In millions, except per share amounts) For the years ended December 312015
 2014
 2013
2016
 2015
 2014
Preferred Stock          
Balance at beginning of year and end of year$4,000
 $4,000
 $4,000
Balance at beginning of year$4,000
 $4,000
 $4,000
Preferred stock converted to common stock(4,000) 
 
Balance at end of year
 4,000
 4,000
Common Stock          
Balance at beginning of year3,107
 3,054
 3,008
3,107
 3,107
 3,054
Common stock issued
 53
 46

 
 53
Balance at end of year3,107
 3,107
 3,054
3,107
 3,107
 3,107
Additional Paid-in Capital          
Balance at beginning of year4,846
 3,928
 3,281
4,936
 4,846
 3,928
Common stock issued / sold508
 895
 340
398
 508
 895
Stock-based compensation and allocation of ESOP shares(429) 30
 307
(376) (429) 30
Preferred stock converted to common stock(695) 
 
Other11
 (7) 
(1) 11
 (7)
Balance at end of year4,936
 4,846
 3,928
4,262
 4,936
 4,846
Retained Earnings          
Balance at beginning of year23,045
 21,407
 18,495
28,425
 23,045
 21,407
Net income available for The Dow Chemical Company common stockholders7,345
 3,432
 4,447
3,978
 7,345
 3,432
Dividends declared on common stock (per share - 2015: $1.72; 2014: $1.53; 2013: $1.28)(1,942) (1,777) (1,520)
Dividends declared on common stock (per share - 2016: $1.84; 2015: $1.72; 2014: $1.53)(2,037) (1,942) (1,777)
Dividend equivalents on participating securities(23) (17) (15)(28) (23) (17)
Balance at end of year28,425
 23,045
 21,407
30,338
 28,425
 23,045
Accumulated Other Comprehensive Loss          
Balance at beginning of year(8,017) (4,827) (7,516)(8,667) (8,017) (4,827)
Other comprehensive income (loss)(650) (3,190) 2,689
Other comprehensive loss(1,155) (650) (3,190)
Balance at end of year(8,667) (8,017) (4,827)(9,822) (8,667) (8,017)
Unearned ESOP Shares          
Balance at beginning of year(325) (357) (391)(272) (325) (357)
Shares acquired
 (11) (11)(18) 
 (11)
Shares allocated to ESOP participants53
 43
 45
51
 53
 43
Balance at end of year(272) (325) (357)(239) (272) (325)
Treasury Stock          
Balance at beginning of year(4,233) (307) 
(6,155) (4,233) (307)
Purchases(2,688) (4,193) (307)(916) (2,688) (4,193)
Issuances - compensation plans766
 267
 
717
 766
 267
Issuances - Preferred stock converted to common stock4,695
 
 
Balance at end of year(6,155) (4,233) (307)(1,659) (6,155) (4,233)
The Dow Chemical Company’s Stockholders’ Equity25,374
 22,423
 26,898
25,987
 25,374
 22,423
Non-redeemable Noncontrolling Interests809
 931
 1,026
Noncontrolling Interests1,242
 809
 931
Total Equity$26,183
 $23,354
 $27,924
$27,229
 $26,183
 $23,354
See Notes to the Consolidated Financial Statements.

74


The Dow Chemical Company and Subsidiaries
Notes to the Consolidated Financial Statements
Table of Contents

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements of The Dow Chemical Company and its subsidiaries (“Dow” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies, joint ventures and partnerships) are accounted for using the equity method.

As a result of the early adoptionAdoption of Accounting Standards Update 2015-03 "Interest("ASU") 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" and Other Prior Year Balance Sheet and Footnote Changes
In the first quarter of 2016, the Company early adopted ASU 2015-17. The Company elected to apply the new guidance on a retrospective basis and, as a result, changes have been made to the presentation of deferred income tax assets and liabilities in the consolidated balance sheets at December 31, 2015. See Note 2 for additional information. A change was also made to the prior year consolidated balance sheets to reclassify prepaid tax assets of $293 million to "Other current assets." In addition, a change was made to the prior year consolidated balance sheets to reclassify $51 million from "Asbestos-related insurance receivables - Imputationnoncurrent" to "Noncurrent receivables." The change was made to conform with current year presentation. A summary of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," certainchanges made to the consolidated balance sheets at December 31, 2015, is included in the table that follows.

Summary of Changes to the Consolidated Balance Sheets at December 31, 2015
In millionsAs Filed
 Updated
Deferred income tax assets - current$827
 $
Other current assets$354
 $647
Total current assets$24,475
 $23,941
Noncurrent receivables$765
 $816
Total investments$7,646
 $7,697
Deferred income tax assets - noncurrent$1,694
 $2,140
Asbestos-related insurance receivables - noncurrent$51
 $
Total other assets$18,051
 $18,446
Total Assets$68,026
 $67,938
Deferred income tax liabilities - current$100
 $
Total current liabilities$11,215
 $11,115
Deferred income tax liabilities - noncurrent$575
 $587
Total other noncurrent liabilities$14,413
 $14,425
Total Liabilities and Equity$68,026
 $67,938

Certain reclassifications of prior years' footnote disclosure amounts have been made to conform to the 20152016 presentation.

Change in Method of Accounting for Asbestos-Related Matters - Legal Costs
In September 2014, Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of the Company, began to implement a strategy designed to reduce and to ultimately stabilize and forecast defense and processing costs associated with asbestos-related matters. The strategy included a number of important changes including: invoicing protocols including capturing costs by plaintiff and review of existing counsel roles, work processes and workflow. Union Carbide also began utilizing enterprise legal management software, which enabled claim-specific tracking of asbestos-related defense costs. Union Carbide reviewed the information generated from this new strategy and determined that it now had the ability to reasonably estimate asbestos-related defense and processing costs for the same periods that it estimates asbestos-related resolution costs for pending and future claims. Union Carbide believes that including estimates of the liability for asbestos-related defense and processing costs provides a more complete assessment and measure of the liability associated with resolving asbestos-related matters, which Union Carbide and the Company believe is preferable in these circumstances.

In the fourth quarter of 2016, the Company elected to change its method of accounting for Union Carbide's asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. The Company believes this change is preferable as asbestos-related defense and processing costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities. The change is also reflective of the manner in which Union Carbide manages the asbestos-related exposure, including careful monitoring of the correlation between defense spending and resolution costs. Together, these two sources of cost more accurately represent the “total cost” of resolving asbestos-related claims now and in the future.

In the fourth quarter of 2016, the Company added a new accounting policy for asbestos-related matters and updated its existing accounting policy for legal costs, as follows:

Asbestos-Related Matters
Accruals for asbestos-related matters, including defense and processing costs, are recorded based on an analysis of claim and resolution activity, defense spending, and pending and future claims. These accruals are assessed at each balance sheet date to determine if the asbestos-related liability remains appropriate. Accruals for asbestos-related matters are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent.”

Legal Costs
The Company expenses legal costs as incurred, with the exception of defense and processing costs associated with asbestos-related matters.

This accounting policy change has been reflected as a change in accounting estimate effected by a change in accounting principle. As a result of this accounting policy change, the Company recorded a pretax charge for asbestos-related defense and processing costs of $1,009 million in the fourth quarter of 2016, included in “Asbestos-related charge” in the consolidated statements of income (after-tax loss of $636 million or $0.57 per share). The Company’s total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016, and is included in “Accrued and other

current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets. See Note 15 for additional information.

Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

75


Foreign Currency Translation
The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in “Accumulated other comprehensive loss” (“AOCL”). Where the U.S. dollar is used as the functional currency or when the foreign subsidiary operates in a hyper-inflationary environment, foreign currency translation gains and losses are reflected in income.

Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Other noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets as “Accounts and notes receivable - Other.”

Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset.Legal Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.

Cash and Cash Equivalents
Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of purchase.

Financial Instruments
The Company calculatesexpenses legal costs as incurred, with the fair valueexception of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various typesdefense and processing costs associated with asbestos-related matters.

This accounting policy change has been reflected as a change in accounting estimate effected by a change in accounting principle. As a result of financial instruments (such as forwards, options and swaps),this accounting policy change, the Company uses standard pricing models with market-based inputs that take into account the present valuerecorded a pretax charge for asbestos-related defense and processing costs of estimated future cash flows.

The Company utilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes$1,009 million in the fair valuefourth quarter of these instruments are reported in income or AOCL, depending on the use of the derivative and whether it qualifies for hedge accounting treatment.

Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCL, to the extent the hedges are effective, until the underlying transactions are recognized in income. To the extent effective, gains and losses on derivative and nonderivative instruments used as hedges of the Company’s net investment in foreign operations are recorded in AOCL as part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and hedges of net investment in foreign operations, if any, are recognized in income immediately.

Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results2016, included in income.

Inventories
Inventories are stated at the lower of cost or market. The method of determining cost for each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year.

The Company routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time, freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.

Property
Land, buildings and equipment, including property under capital lease agreements, are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method, unless the asset was capitalized before 1997 when the declining balance method was used. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets

76


and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.

Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized over the remaining useful life of the assets.

Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value. The Company primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units. See Note 10 for further information on goodwill.

Finite-lived intangible assets such as purchased customer lists, licenses, intellectual property, patents, trademarks and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from three to twenty years. Intangible assets are reviewed for impairment or obsolescence annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows.

Asset Retirement Obligations
The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less.

Investments
Investments in debt and marketable equity securities (including warrants), primarily held by the Company’s insurance operations, are classified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair value with unrealized gains and losses related to mark-to-market adjustments included in income. Those classified as available-for-sale are reported at fair value with unrealized gains and losses recorded in AOCL. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is determined by FIFO or specific identification. The Company routinely reviews available-for-sale and held-to-maturity securities for other-than-temporary declines in fair value below the cost basis. When events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the security is written down to fair value, establishing a new cost basis.

Revenue
Sales are recognized when the revenue is realized or realizable, and the earnings process is complete. Approximately 99 percent of the Company’s sales in 2015 related to sales of product (99 percent in 2014 and 99 percent in 2013). The remaining 1 percent in 2015 primarily related to the Company’s service offerings, insurance operations, and licensing of patents and technology (1 percent in 2014 and 1 percent in 2013). Revenue for product sales is recognized as risk and title to the product transfer to the customer, which usually occurs at the time shipment is made. As such, title to the product passes when the product is delivered to the freight carrier. Dow’s standard terms of delivery are included in its contracts of sale, order confirmation documents and invoices. Freight costs and any directly related costs of transporting finished product to customers are recorded as “Cost of sales”“Asbestos-related charge” in the consolidated statements of income.income (after-tax loss of $636 million or $0.57 per share). The Company’s total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016, and is included in “Accrued and other


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Revenue related tocurrent liabilities” and “Asbestos-related liabilities - noncurrent” in the Company’s insurance operations includes third-party insurance premiums, which are earned over the terms of the related insurance policies and reinsurance contracts. Revenue related to the initial licensing of patents and technology is recognized when earned; revenue related to running royalties is recognized according to licensee production levels.consolidated balance sheets. See Note 15 for additional information.

Legal Costs
The Company expenses legal costs as incurred. incurred, with the exception of defense and processing costs associated with asbestos-related matters.

This accounting policy change has been reflected as a change in accounting estimate effected by a change in accounting principle. As a result of this accounting policy change, the Company recorded a pretax charge for asbestos-related defense and processing costs of $1,009 million in the fourth quarter of 2016, included in “Asbestos-related charge” in the consolidated statements of income (after-tax loss of $636 million or $0.57 per share). The Company’s total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016, and is included in “Accrued and other

current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets. See Note 15 for additional information.

Use of Estimates in Financial Statement Preparation
The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

Foreign Currency Translation
The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in "Accumulated other comprehensive loss" ("AOCL"). For certain subsidiaries, the U.S. dollar is used as the functional currency. This occurs when the subsidiary operates in an economic environment where the products produced and sold are tied to U.S. dollar-denominated markets, or when the foreign subsidiary operates in a hyper-inflationary environment. Where the U.S. dollar is used as the functional currency, foreign currency translation gains and losses are reflected in income.

Environmental Matters
Accruals for legalenvironmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.estimated based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in “Accrued and other current liabilities” and “Other noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets as “Accounts and notes receivable - Other.”

SeveranceEnvironmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and reasonably estimable.

Cash and Cash Equivalents
Cash and cash equivalents include time deposits and investments with maturities of three months or less at the time of purchase.

Financial Instruments
The Company routinely reviews its operations aroundcalculates the world in an effort to ensure competitiveness across its businessesfair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and geographic areas. Whenswaps), the reviews result in a workforce reduction related toCompany uses standard pricing models with market-based inputs that take into account the shutdownpresent value of facilities or other optimization activities, severance benefits are provided to employees primarily under Dow’s ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination including the number of employees to be terminated, their job classifications or functions, their locations and the expected termination date.

Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for theestimated future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued.cash flows.

The Company recognizesutilizes derivatives to manage exposures to foreign currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the financial statement effectsbalance sheet date. Changes in the fair value of these instruments are reported in income or AOCL, depending on the use of the derivative and whether it qualifies for hedge accounting treatment.

Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCL, to the extent the hedges are effective, until the underlying transactions are recognized in income. To the extent effective, gains and losses on derivative and nonderivative instruments used as hedges of the Company’s net investment in foreign operations are recorded in AOCL as part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and hedges of net investment in foreign operations, if any, are recognized in income immediately.

Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income.


Inventories
Inventories are stated at the lower of cost or market. The method of determining cost for each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out (“FIFO”); and average cost, and is used consistently from year to year.

The Company routinely exchanges and swaps raw materials and finished goods with other companies to reduce delivery time, freight and other transportation costs. These transactions are treated as non-monetary exchanges and are valued at cost.

Property
Land, buildings and equipment, including property under capital lease agreements, are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method, unless the asset was capitalized before 1997 when the declining balance method was used. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

Impairment and Disposal of Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an uncertain income tax positionasset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value based on bids received from third parties or a discounted cash flow analysis based on market participant assumptions.

Long-lived assets to be disposed of by sale, if material, are classified as held for sale and reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of and reported at the lower of carrying amount or fair value, and depreciation is recognized over the remaining useful life of the assets.

Goodwill and Other Intangible Assets
The Company records goodwill when the purchase price of a business combination exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not based on the technical merits, that the position will be sustained upon examination. The Company accrues for other 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. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the Company’s common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all dilutive potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.


NOTE 2 – RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
During the fourth quarter of 2014, the Company adopted Accounting Standards Update ("ASU") 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This ASU was effective for fiscal years beginning on or after December 15, 2014, and interim periods within those years. Early adoption was permitted, but only for disposals (or classifications as held for sale) that had not been reported in the financial statements previously issued or available for issuance. See Notes 5 and 6 for disclosures related to this adoption.
During the fourth quarter of 2015, the Company adopted ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and amortization of those costs should be reported as interest expense. This ASUa reporting unit exceeds its estimated fair value, additional quantitative testing is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted for financial statements that have not been previously issued. The new guidance should be applied on a retrospective basis for each period presented in the balance sheet. This change is reflected in "Other current assets," "Deferred charges and other assets," Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets on a retrospective basis and did not have a material impact on the consolidated financial statements.

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Accounting Guidance Issued But Not Adopted as of December 31, 2015
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09.performed. The Company is currently evaluatingmay also elect to skip the impact of adopting this guidance.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendmentsqualitative testing and proceed directly to the Consolidation Analysis," which makes changesquantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to both the variable interest model and voting interest model and eliminates the indefinite deferral of FASB Statement No. 167, included in ASU 2010-10, for certain investment funds. All reporting entities that hold a variable interest in other legal entities will need to re-evaluate their consolidation conclusions as well as disclosure requirements. This ASU is effective for annual periods beginning after December 15, 2015, and early adoption is permitted, including any interim period.fair value. The Company does not expect the adoption of this guidanceprimarily utilizes a discounted cash flow methodology to have an impact on the consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement," which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

In May 2015, the FASB issued ASU 2015-07, "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)," which removes the requirement to categorize withincalculate the fair value hierarchy all investmentsof its reporting units. See Note 10 for further information on goodwill.

Finite-lived intangible assets such as purchased customer lists, licenses, intellectual property, patents, trademarks and software, are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from three to twenty years. Intangible assets are reviewed for impairment or obsolescence annually, or more frequently when events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows.

Asset Retirement Obligations
The Company records asset retirement obligations as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The fair value is measured usingvalues of obligations are recorded as liabilities on a discounted basis and are accreted over time for the netchange in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, value per share practical expedient. Further,generally for periods of 10 years or less.

Investments
Investments in debt and marketable equity securities (including warrants), primarily held by the amendments remove the requirement to make certain disclosures for all investments thatCompany’s insurance operations, are eligible to be measuredclassified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair value using the net assetwith unrealized gains and losses related to mark-to-market adjustments included in income. Those classified as available-for-sale are reported at fair value per share practical expedient. This ASUwith unrealized gains and losses recorded in AOCL. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and early adoption is permitted. The new guidance should be applied on a retrospective basis to all periods presented.determined by FIFO or specific identification. The Company is currently evaluatingroutinely reviews available-for-sale and held-to-maturity securities for other-than-temporary declines in fair value below the impact of adopting this guidance.

In July 2015,cost basis. When events or changes in circumstances indicate the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which applies to inventory that is measured using first-in, first-out ("FIFO") or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizablecarrying value which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out ("LIFO"). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Companyasset may not be recoverable, the security is currently evaluating the impact of adopting this guidance.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent inwritten down to fair value, establishing a classified statement of financial position. This ASU is effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The Company will early adopt the new guidance in the first quarter of 2016 and apply the new guidance on a retrospectivecost basis.

In January 2016,Revenue
Sales are recognized when the FASB issued ASU 2016-01, "Financial Instruments--Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option,revenue is realized or realizable, and the presentationearnings process is complete. Approximately 99 percent of the Company��s sales in 2016 related to sales of product (99 percent in 2015 and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance99 percent in 2014). The remaining 1 percent in 2016 primarily related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standardCompany’s insurance operations and licensing of patents and technology (1 percent in 2015 and 1 percent in 2014). Revenue for product sales is effective for fiscal yearsrecognized as risk and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustmenttitle to the balance sheetproduct transfer to the customer, which usually occurs at the beginning of the first reporting period in which the guidancetime shipment is

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effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.


NOTE 3 – RESTRUCTURING

On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the separation of a significant portion of Dow’s chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments made. As such, title to the Company's asset footprintproduct passes when the product is delivered to enhance competitiveness. These actionsthe freight carrier. Dow’s standard terms of delivery are expected to be completed primarily by March 31, 2017.

As a resultincluded in its contracts of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting ofsale, order confirmation documents and invoices. Freight costs associated with exit or disposal activities of $10 million, severanceand any directly related costs of $196 million and asset write-downs and write-offstransporting finished product to customers are recorded as “Cost of $169 million. In the fourth quarter of 2015, the Company recorded restructuring charge adjustments of $40 million, including severance costs of $39 million for the separation of approximately 500 additional positions as part of the Company's efforts to further streamline the organization, and $1 million of costs associated with exit and disposal activities. The impact of these charges is shown as "Restructuring charges (credits)"sales” in the consolidated statements of income and reflected inincome.

Revenue related to the Company's segment results as shown inCompany’s insurance operations includes third-party insurance premiums, which are earned over the following table. The Company also recorded $14 million of "Net loss attributable to noncontrolling interests" for noncontrolling interests' portionterms of the restructuring charges.related insurance policies and reinsurance contracts. Revenue related to the initial licensing of patents and technology is recognized when earned; revenue related to running royalties is recognized according to licensee production levels.

2015 Restructuring Charges by Operating Segment



In millions
 Costs Associated with Exit or Disposal Activities
 Severance Costs
 Impairment of Long-Lived Assets, Investments and Other Assets
 Total
Agricultural Sciences $6
 $
 $8
 $14
Consumer Solutions 2
 
 65
 67
Infrastructure Solutions 2
 
 25
 27
Performance Plastics 
 
 12
 12
Corporate 
 196
 59
 255
2015 Restructuring Charges $10
 $196
 $169
 $375
Adjustments to 2015 Restructuring Charges:        
Agricultural Sciences 1
 
 1
 2
Infrastructure Solutions 
 
 (1) (1)
Corporate 
 39
 
 39
Total 2015 Restructuring Charges $11
 $235
 $169
 $415

Details regarding the components of the 2015 restructuring charges are discussed below:

Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities, primarily environmental remediation and contract penalties, totaled $10 million in the second quarter of 2015, impacting Agricultural Sciences ($6 million), Consumer Solutions ($2 million) and Infrastructure Solutions ($2 million). In the fourth quarter of 2015, the Company increased the restructuring reserve for costs associated with exit and disposal activities by $1 million, impacting Agricultural Sciences.

Severance Costs
The Company routinely reviews its operations around the world in an effort to ensure competitiveness across its businesses and geographic areas. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization activities, severance benefits are provided to employees primarily under Dow’s ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination including the number of employees to be terminated, their job classifications or functions, their locations and the expected termination date.

Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates. The effect of a change in tax rates on deferred tax assets or liabilities is recognized in income in the period that includes the enactment date.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued.

The Company recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company accrues for other 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. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

Earnings per Common Share
The calculation of earnings per common share is based on the weighted-average number of the Company’s common shares outstanding for the applicable period. The calculation of diluted earnings per common share reflects the effect of all dilutive potential common shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive.



NOTE 2 – RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
In the fourth quarter of 2015, the Company adopted ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and amortization of those costs should be reported as interest expense. This ASU was effective for annual and interim periods beginning after December 15, 2015, and early adoption was permitted for financial statements that had not been previously issued. The new guidance required retrospective application for each period presented in the balance sheet. This change is reflected in "Other current assets," "Deferred charges and other assets," "Long-term debt due within one year" and "Long-Term Debt" in the consolidated balance sheets on a retrospective basis and did not have a material impact on the consolidated financial statements.

In the first quarter of 2016, the Company early adopted ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU was effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and may be applied prospectively or retrospectively, and early adoption was permitted. The change is reflected in "Deferred income tax assets" and "Deferred income tax liabilities" in the consolidated balance sheets on a retrospective basis and did not have a material impact on the consolidated financial statements. See Note 1 for additional information.

Accounting Guidance Issued But Not Adopted as of December 31, 2016
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09.
In May 2014, the FASB and International Accounting Standards Board formed The Joint Transition Resource Group for Revenue Recognition ("TRG"), consisting of financial statement preparers, auditors and users, to seek feedback on potential issues related to the implementation of the new revenue standard. As a result of feedback from the TRG, the FASB has issued additional guidance to provide clarification, implementation guidance and practical expedients to address some of the challenges of implementation. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which is an amendment on assessing whether an entity is a principal or an agent in a revenue transaction. This amendment addresses issues to clarify the principal versus agent assessment and lead to more consistent application. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which contains amendments to the new revenue recognition standard on identifying performance obligations and accounting for licenses of intellectual property. The amendments related to identifying performance obligations clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract. The licensing implementation amendments clarify how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarity and implementation guidance on assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The new standards have the same effective date and transition requirements as ASU 2014-09.

The Company has a team in place to analyze the impact of ASU 2014-09, and the related ASU's, across all revenue streams to evaluate the impact of the new standard on revenue contracts. This includes reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements under the new standard. In 2016, the Company made significant progress on contract reviews and expects to complete the contract evaluations and validate results by the end of the first quarter of 2017. The Company has also started drafting its accounting policies and evaluating the new disclosure requirements and expects to complete its evaluations of the impacts of the accounting and disclosure requirements on its business processes, controls and systems by the end of the second quarter of 2017. Full implementation will be completed by the end of 2017. Based on analysis completed to date, the Company expects the potential impact on accounting for product sales and licensing arrangements to remain substantially unchanged. The Company expects to adopt the new

standard using the modified retrospective approach, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2018.

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which applies to inventory that is measured using FIFO or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using LIFO. This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company will adopt the new guidance in the first quarter of 2017, and the adoption of this guidance will not have a material impact on the consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases with lease terms of more than twelve months and recognition, presentation and measurement in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. Lessor accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, using a modified retrospective approach, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for share-based payment awards to employees, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted in any annual or interim period for which financial statements have not yet been issued, and all amendments in the ASU that apply must be adopted in the same period. The Company will adopt the new guidance in the first quarter of 2017. Under the new guidance, excess tax benefits related to equity compensation will be recognized in the "Provision for income taxes" in the consolidated statements of income rather than in "Additional paid-in capital" in the consolidated balance sheets and will be applied on a prospective basis. Changes to the statements of cash flows related to the classification of excess tax benefits and employee taxes paid for share-based payment arrangements will be implemented on a retrospective basis. The Company does not expect further impacts from the guidance.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which addresses the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows with respect to eight specific cash flow issues. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments should be applied using a retrospective transition method to each period presented, if practicable. Early adoption is permitted, including adoption in an interim period, and any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. All amendments must be adopted in the same period. The Company is currently evaluating the impact of adopting this guidance.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years,

beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning period of adoption. Early adoption is permitted in the first interim period of an annual reporting period for which financial statements have not been issued. The Company is currently evaluating the impact of adopting this guidance.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)", which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows, and, as a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted and the new guidance must be applied retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which provides guidance to entities to assist with evaluating when a set of transferred assets and activities (collectively, the "set") is a business and provides a screen to determine when a set is not a business. Under the new guidance, when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset, or group of similar assets, the assets acquired would not represent a business. Also, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to produce outputs. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a prospective basis to any transactions occurring within the period of adoption. Early adoption is permitted for interim or annual periods in which the financial statements have not been issued. The Company is currently evaluating the impact of adopting this guidance.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.


NOTE 3 – RESTRUCTURING

2016 Restructuring
On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the recent ownership restructure of Dow Corning Corporation ("Dow Corning"). These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. These actions are expected to be substantially completed by June 30, 2018.

As a result of these actions, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance charges of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 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 in the table that follows. The table also summarizes the activities related to the Company's 2016 restructuring reserve, which is included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.


2016 Restructuring Charges Severance Costs
 Impairment of Long-Lived Assets and Other Assets
 Costs Associated with Exit and Disposal Activities
 Total
In millions 
Consumer Solutions $
 $23
 $5
 $28
Infrastructure Solutions 
 74
 23
 97
Performance Plastics 
 10
 
 10
Corporate 268
 46
 
 314
2016 restructuring charges $268
 $153
 $28
 $449
Charges against the reserve 
 (153) 
 (153)
Cash payments (67) 
 (1) (68)
Reserve balance at December 31, 2016 $201
 $
 $27
 $228

Details regarding the components of the 2016 restructuring charge are discussed below:

Severance Costs
The restructuring charge included severance of $268 million for the separation of approximately 2,500 employees under the terms of the Company's ongoing benefit arrangements, primarily by June 30, 2018. These costs were charged against Corporate. At December 31, 2016, severance of $67 million was paid, leaving a liability of $201 million for approximately 1,700 employees.

Impairment of Long-Lived Assets and Other Assets
The restructuring charges related to the write-down and write-off of assets in the second quarter of 2016 totaled $153 million. Details regarding the write-downs and write-offs are as follows:

The Company recorded a charge of $70 million for asset write-downs and write-offs including the shutdown of an Energy & Water Solutions solar manufacturing facility in Midland, Michigan; the write-down of a solar facility in Milpitas, California; and, the write-off of capital projects and in-process research and development. The charge was reflected in the Infrastructure Solutions operating segment. The Midland facility was shut down in the third quarter of 2016.

To enhance competitiveness and streamline costs associated with the ownership restructure of Dow Corning, silicones manufacturing facilities in Yamakita, Japan, and Greensboro, North Carolina, will be shut down by the end of 2018. In addition, an idled facility was shut down in the second quarter of 2016. As a result, the Company recorded a charge of $25 million, reflected in Consumer Solutions ($21 million) and Infrastructure Solutions ($4 million).

The Company will close and/or consolidate certain corporate facilities and data centers. Write-downs of $25 million were charged against Corporate. These facilities will be shut down no later than the end of the second quarter of 2018.

A decision was made to shut down a small manufacturing facility and to write-down other non-manufacturing assets, including a cost method investment and certain aircraft. Write-downs of $33 million were recorded, impacting Consumer Solutions ($2 million), Performance Plastics ($10 million) and Corporate ($21 million). The manufacturing facility was shut down in the second quarter of 2016.

Costs Associated with Exit and Disposal Activities
The restructuring charges for cost associated with exit and disposal activities, including contract cancellation penalties, environmental remediation and warranty liabilities, totaled $28 million in the second quarter of 2016, impacting Consumer Solutions ($5 million) and Infrastructure Solutions ($23 million).

2015 Restructuring
On April 29, 2015, Dow's Board of Directors approved actions to further streamline the organization and optimize the Company’s footprint as a result of the separation of a significant portion of Dow’s chlorine value chain. These actions, which will further accelerate Dow’s value growth and productivity targets, will result in a reduction of approximately 1,750 positions across a number of businesses and functions and adjustments to the Company's asset footprint to enhance competitiveness. These actions are expected to be completed primarily by June 30, 2017.

As a result of these actions, the Company recorded pretax restructuring charges of $375 million in the second quarter of 2015 consisting of severance costs of $196 million, asset write-downs and write-offs of $169 million and costs associated with exit

and disposal activities of $10 million. In the fourth quarter of 2015, the Company recorded restructuring charge adjustments of $40 million, including severance costs of $39 million for the separation of approximately 500 additional positions as part of the Company's efforts to further streamline the organization, and $1 million of costs associated with exit and disposal activities. 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 in the table that follows. The table also summarizes the activities related to the Company's 2015 restructuring reserve, which is included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets.

2015 Restructuring Charges   Impairment of Long-Lived Assets, Investments and Other Assets
 Costs Associated with Exit and Disposal Activities
  
In millions Severance Costs
   Total
Agricultural Sciences $
 $8
 $6
 $14
Consumer Solutions 
 65
 2
 67
Infrastructure Solutions 
 25
 2
 27
Performance Plastics 
 12
 
 12
Corporate 196
 59
 
 255
2015 restructuring charges $196
 $169
 $10
 $375
Charges against the reserve 
 (169) 
 (169)
Adjustments to the reserve 39
 
 1
 40
Impact of currency 
 
 (1) (1)
Cash payments (92) 
 
 (92)
Reserve balance at December 31, 2015 $143
 $
 $10
 $153
Charges against the reserve 
 3
 
 3
Adjustments to the reserve 
 (3) 6
 3
Cash payments (98) 
 (8) (106)
Reserve balance at December 31, 2016 $45
 $
 $8
 $53

The Company also recorded $14 million of restructuring charges to "Net income attributable to noncontrolling interests" in the consolidated statements of income for the noncontrolling interests' portion of the charge.

Details regarding the components of the 2015 restructuring charges are discussed below:

Severance Costs
The restructuring charges recorded in the second quarter of 2015 included severance of $196 million for the separation of approximately 1,750 employees under the terms of the Company's ongoing benefit arrangements. In the fourth quarter of 2015, the Company recorded an additional charge of $39 million related to the separation of approximately 500 additional employees, primarily by March 31,June 30, 2017. These costs were charged against Corporate. At December 31, 2015, severance of $92 million was paid, leaving a liability of $143 million for approximately 1,250 employees. At December 31, 2016, severance of $190 million has been paid, leaving a liability of $45 million for approximately 290 employees.


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Impairment of Long-Lived Assets, Investments and Other Assets
The restructuring charges related to the write-down and write-off of assets in the second quarter of 2015 totaled $169 million. Details regarding the write-downs and write-offs are as follows:

As a result of changing market dynamics in certain end-use markets, select manufacturing facilities and non-core assets aligned with the Dow Electronic Materials business will bewere shut down.down in 2016. The assets impacted includeincluded certain display films and metalorganic precursors, including a metalorganic materials manufacturing site in North Andover, Massachusetts, and related operations in Taoyuan, Taiwan, as well as certain display films’ manufacturing assets aligned with SKC Haas Display Films Co., Ltd., a majority-owned joint venture located in Cheonan, South Korea. In the second quarter of 2015, theThe Company recorded a $51 million charge for asset write-downs and write-offs in the Dow Electronic Materials business, which is reflected in the Consumer Solutions segment. The facilities and assets associated with these charges are expected to be shut down primarily by the end of 2016.

The Company will shut down and/or consolidateconsolidated manufacturing capacity in the Dow Building & Construction business.business during 2016. As a result, the Company recorded a charge of $15 million in the second quarter of 2015 for asset write-offs which is reflected in the Infrastructure Solutions segment. The impacted facilities are expected to be shut down by the end of the third quarter of 2016.

A Consumer Care manufacturing facility in Institute, West Virginia, was shut down in the fourth quarter of 2015. As a result, an asset write-down of $14 million was recorded against the Consumer Solutions segment.

A Dow Packaging and Specialty Plastics plant in Schkopau, Germany, was permanently shut down in the second quarter of 2015, resulting in an asset write-off of $12 million against the Performance Plastics segment.

Select operations in Agricultural Sciences were shut down, closed or idled in the second half of 2015, resulting in a pretax charge of $8 million for the write-down of assets. In the fourth quarter of 2015, the Company recorded an additional charge of $1 million related to the impairment of long-lived assets and other assets.

A decision was made to shut down a number oftwo small manufacturing facilities and an administrative facilitiesfacility to optimize the Company's asset footprint. Write-downs of $14 million were recorded in the second quarter of 2015, impacting Infrastructure Solutions ($10 million) and Corporate ($4 million). TheseThe manufacturing facilities were shut down in 2015 and the administrative facility will be shut down no later than the second quarter of 2016. During2017. In the fourth quarter of 2015, the Company recorded a favorable adjustment to the restructuring charge related to the impairment of long-lived assets of $1 million, impacting Infrastructure Solutions.

Due to a change in the Company's strategy to monetize and exit certain Venture Capital portfolio investments, a write-down of $55 million was recorded, reflected in Corporate.

Costs Associated with Exit and Disposal Activities
The restructuring charges for costs associated with exit and disposal activities, primarily environmental remediation and contract penalties, totaled $10 million in the second quarter of 2015, reflected in Corporate.impacting Agricultural Sciences ($6 million), Consumer Solutions ($2 million) and Infrastructure Solutions ($2 million). In the fourth quarter of 2015, the Company increased the restructuring reserve for costs associated with exit and disposal activities by $1 million, impacting Agricultural Sciences.

The following table summarizes the activities related2016 Adjustments to the Company's2015 Restructuring
In 2016, the Company increased the 2015 restructuring reserve which isrelated to additional accruals for costs associated with exit and disposal activities by $6 million. In addition, a favorable adjustment was recorded for the impairment of long-lived assets of $3 million. The net change was included in "Accrued and other current liabilities" and "Other noncurrent obligations""Restructuring charges (credits)" in the consolidated balance sheetsstatements of income and reflected in Agricultural Sciences ($5 million charge), Consumer Solutions ($1 million charge) and Infrastructure Solutions ($3 million gain).

2014 Adjustments to the 4Q12 Restructuring Plan
In 2014, the Company reduced the 4Q12 Restructuring reserve related to contract cancellation fees by $3 million. The impact of this adjustment is shown as shown"Restructuring charges (credits)" in the following table.

2015 Restructuring Activities




In millions
 Costs Associated with Exit and Disposal Activities
 Severance Costs
 Impairment of Long-Lived Assets, Investments and Other Assets
 Total
Restructuring Charges recognized in the second quarter of 2015 $10
 $196
 $169
 $375
Charges against the reserve 
 
 (169) (169)
Adjustments to the reserve 1
 39
 
 40
Impact of currency (1) 
 
 (1)
Cash payments 
 (92) 
 (92)
Reserve balance at Dec 31, 2015 $10
 $143
 $
 $153
consolidated statements of income and reflected in Performance Materials & Chemicals.

Dow 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 costs will be recognized as incurred. The Company also expects to incur additional employee-

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relatedemployee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.

2014 Adjustments
NOTE 4 – ACQUISITIONS

Ownership Restructure of Dow Corning Corporation
On June 1, 2016, the Company announced the closing of the transaction with Corning Incorporated ("Corning"), Dow Corning and HS Upstate Inc., (“Splitco”), pursuant to which Corning exchanged with Dow Corning its 50 percent equity interest in Dow Corning for 100 percent of the stock of Splitco which held Corning's historical proportional interest in the Hemlock Semiconductor Group ("HSC Group") and approximately $4.8 billion in cash (the “DCC Transaction”). As a result of the DCC Transaction, Dow Corning, previously a 50:50 joint venture between Dow and Corning, became a wholly owned subsidiary of Dow. In connection with the DCC Transaction, on May 31, 2016, Dow Corning incurred $4.5 billion of indebtedness in order to fund the contribution of cash to Splitco. See Notes 9, 10, 17 and 20 for additional information.

At June 1, 2016, the Company's equity interest in Dow Corning, excluding the HSC Group, was $1,968 million and previously classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. This equity interest was remeasured

to fair value. As a result, the Company recognized a non-taxable gain of $2,445 million in the second quarter of 2016, net of closing costs and other comprehensive loss related to the 4Q12 Restructuring Plan
In 2014, the Company reduced the 4Q12 Restructuring reserve related to contract cancellation fees by $3 million.Company's interest in Dow Corning. The impact of this adjustment is shown as "Restructuring charges (credits)"gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Performance Materials & Chemicals.

2013 Adjustmentsthe Consumer Solutions ($1,301 million) and Infrastructure Solutions ($1,144 million) segments. The Company recognized a tax benefit of $141 million on the DCC Transaction in the second quarter of 2016, primarily due to the 1Q12 and 4Q12 Restructuring Plans
In 2013, the Company reduced the 4Q12 Restructuring reserve related to contract cancellation fees by $6 million, impacting Performance Plastics. The Company also reduced the 1Q12 Restructuring reservereassessment of a previously recognized deferred tax liability related to the adjustmentbasis difference in the Company’s investment in Dow Corning.

The Company utilized an income approach with a discounted cash flow model to determine the enterprise fair value of contract cancellation feesDow Corning. The valuation process resulted in an enterprise fair value of $9,636 million. The following table summarizes the fair values of Dow Corning's assets and asbestos abatement costsliabilities, excluding the HSC Group, which are now fully consolidated by $16Dow. The valuation process was complete at December 31, 2016.

Assets Acquired and Liabilities Assumed on June 1, 2016
In millions 
Fair Value of Previously Held Equity Investment, excluding the HSC Group$4,818
Fair Value of Assets Acquired 
Cash and cash equivalents$1,050
Accounts and notes receivable - Trade647
Accounts and notes receivable - Other223
Inventories1,147
Other current assets51
Investment in nonconsolidated affiliates110
Noncurrent receivables112
Net property3,996
Other intangible assets (1)
2,987
Deferred income tax assets999
Other assets98
Total Assets Acquired$11,420
Fair Value of Liabilities Assumed 
Accounts payable - Trade$374
Income taxes payable260
Accrued and other current liabilities404
Other current liabilities112
Long-Term Debt4,672
Deferred income tax liabilities1,858
Pension and other postretirement benefits - noncurrent (2)
1,241
Other noncurrent obligations437
Total Liabilities Assumed$9,358
Noncontrolling interests$473
Goodwill$3,229
(1)Includes $30 million of trademarks, $1,200 million of licenses and intellectual property, $2 million of software and $1,755 million of customer-related intangibles. See Note 10 for additional information.
(2)Includes pension and other postretirement benefits as well as long-term disability obligations.

The DCC Transaction resulted in the recognition of $3,229 million impactingof goodwill which is not deductible for tax purposes. Goodwill largely consists of expected synergies resulting from the DCC Transaction. Cost synergies will be achieved through a combination of workforce consolidation and savings from actions such as harmonizing energy contracts at large sites, optimizing warehouse and logistics footprints, implementing materials and maintenance best practices, combining information technology service structures and leveraging existing research and development knowledge management systems. See Note 10 for additional information on goodwill, including the allocation by segment.

The fair value of "Accounts and notes receivables - Trade" acquired was $647 million, with gross contractual amounts receivable of $654 million. The fair value step-up in "Inventories" acquired was an increase of $317 million, which was expensed to "Cost of sales" over a three-month period beginning on June 1, 2016, and is reflected in the Consumer Solutions ($147 million) and Infrastructure Solutions ($170 million) segments. Liabilities assumed from Dow Corning on June 1, million)2016, included certain contingent liabilities relating to breast implant and Performance Materials & Chemicals ($other product liability claims which were valued at $290 million and included in "Other noncurrent obligations" and commercial creditor issues which were valued at $105 million

and included in “Accrued and other current liabilities” in the consolidated balance sheets. See Note 15 million). These adjustmentsfor additional information on these contingent liabilities. Gross operating loss carryforwards of $568 million were assumed from Dow Corning on June 1, 2016. The operating loss carryforwards expire either in years beyond 2020 or have an indefinite carryforward period.

The following table summarizes the major classes of assets and liabilities underlying the deferred tax assets and liabilities resulting from the DCC Transaction:

Deferred Tax Balances at June 1, 2016Deferred TaxDeferred Tax
In millionsAssetsLiabilities
Property$161
$762
Tax loss and credit carryforwards227

Postretirement benefit obligations474

Other accruals and reserves70
47
Intangibles11
1,008
Inventory2
33
Long-term debt49

Investments23
8
Subtotal$1,017
$1,858
Valuation allowances(18)
Total Deferred Tax Balances$999
$1,858

The Company evaluated the disclosure requirements under Accounting Standards Codification ("ASC") 805 "Business Combinations" and determined the DCC Transaction was not a material business combination for purposes of disclosing the revenue and earnings of Dow Corning since the date of the ownership restructure as well as supplemental pro forma information.

Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are shown as "Restructuring charges (credits)"fully consolidated in the Company’s consolidated statements of income. Prior to June 2016, the Company’s 50 percent share of Dow Corning’s results of operations was reported in “Equity in earnings of nonconsolidated affiliates” in the consolidated statements of income.


NOTE 4 – ACQUISITIONS The results of the HSC Group continue to be treated as an equity method investment and reported as “Equity in earnings of nonconsolidated affiliates” in the consolidated statements of income.

Acquisition of Cooperativa Central de Pesquisa Agrícola's Seed Business
On January 30, 2015, Dow AgroSciences LLC ("DAS") acquired Cooperativa Central de Pesquisa Agrícola's ("Coodetec") seed business for $169 million, withof which $121 million settledwas paid in 2015, $24 million was paid in 2016 and the remaining portion towill be paid by the end of the first quarter of 2017. The acquisition of Coodetec's seed business is expected to advance the development of Dow AgroSciences' soybean program and strengthen the Company’s position in the corn market segment.

The following table summarizes the fair values of the assets acquired and liabilities assumed from Coodetec on January 30, 2015. The valuation process was complete at December 31, 2015.

Assets Acquired and Liabilities Assumed on January 30, 2015
In millions  
Purchase Price$169
$169
Fair Value of Assets Acquired  
Inventories$24
$24
Property35
Net property35
Other intangible assets (1)
81
81
Total Assets Acquired$140
$140
Fair Value of Liabilities Assumed  
Accrued and other current liabilities$2
$2
Goodwill$31
$31
(1)Includes $14 million of trademarks, $1 million of customer-related intangibles, $20 million of germplasm and $46 million of in-process research and development. See Note 10 for additional information.


Step Acquisition of Univation Technologies, LLC
On May 5, 2015, Univation Technologies, LLC ("Univation"), previously a 50:50 joint venture between Dow and ExxonMobil Chemical Company ("ExxonMobil"), became a wholly owned subsidiary of Dow as a result of ExxonMobil redeeming its entire equity interest in Univation in exchange for certain assets and liabilities of Univation. The Company's equity interest in Univation of $159 million, previously classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, was remeasured to fair value which resulted in a non-taxable gain of $361 million recognized in the second quarter of 2015, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Plastics segment.

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The following table summarizes the fair values of Univation's remaining assets and liabilities on May 5, 2015, which are fully consolidated by Dow:Dow. The valuation process was complete at December 31, 2015.

Assets Acquired and Liabilities Assumed on May 5, 2015
In millions  
Fair Value of Previously Held Equity Investment$520
$520
Fair Value of Assets Acquired  
Current assets$113
$113
Property56
Net property56
Other intangible assets (1)
433
433
Total Assets Acquired$602
$602
Fair Value of Liabilities Assumed  
Current liabilities$102
$102
Long-term debt9
Deferred income tax liabilities - noncurrent126
Long-Term Debt9
Deferred income tax liabilities126
Total Liabilities Assumed$237
$237
Goodwill (2)
$141
$141
(1)Includes $340 million of licenses and intellectual property, $5 million of software, $12 million of trademarks and $76 million of customer-related intangibles. See Note 10 for additional information.
(2)Net of a $14 million settlement of an affiliate's pre-existing obligations and not deductible for tax purposes.

Beginning in May 2015, Univation's results of operations were fully consolidated in the Company's consolidated statements of income. Prior to May 2015, the Company's 50 percent share of Univation's results of operations was reported as "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income.


NOTE 5 – DIVESTITURES

Divestiture of the Global Sodium Borohydride Business
On January 30, 2015, the Company sold its global Sodium Borohydride business ("SBH"), part of the Performance Materials & Chemicals segment, to Vertellus Performance Chemicals LLC. The divestiture included a manufacturing facility located in Elma, Washington, as well as the associated business, inventory, customer contracts and lists, process technology, business know-how and certain intellectual property. The sale was completed for $184 million, net of working capital adjustments and costs to sell, with proceeds subject to customary post-closing adjustments.

Post-closing adjustments were finalized in the fourth quarter of 2015. In 2015, the Company recognized a pretax gain of $20 million on the sale, including post-closing adjustments of $2 million. The gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment. The Company recognized an after-tax loss of $10 million on the sale, primarily due to non-deductible goodwill included with this transaction.


SBH Assets and Liabilities Divested on January 30, 2015  
In millions
Inventories$23
$23
Property21
Net property21
Goodwill45
45
Other intangible assets75
75
Total assets divested$164
$164
Components of accumulated other comprehensive loss divested$2
$2
Net carrying value divested$166
$166

The Company evaluated the divestiture of the global Sodium Borohydride business and determined it does not represent a strategic shift that has a major effect on the Company’s operations and financial results and does not qualify as an individually significant component of the Company. As a result, this divestiture was not reported as discontinued operations.


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Divestiture of ANGUS Chemical Company
On February 2, 2015, the Company sold ANGUS Chemical Company (“ANGUS”), part of the Performance Materials & Chemicals segment, to Golden Gate Capital. The divestiture included the business headquarters and research and development facility in Buffalo Grove, Illinois; manufacturing facilities located in Sterlington, Louisiana, and Ibbenbueren, Germany; a packaging facility in Niagara Falls, New York; as well as the associated business, inventory, customer contracts, process technology, business know-how and certain intellectual property. The sale was completed for $1.151 billion,$1,151 million, net of working capital adjustments, costs to sell and other transaction expenses, with proceeds subject to customary post-closing adjustments. The proceeds included a $10 million note receivable included in "Noncurrent receivables" in the consolidated balance sheets.

Post-closing adjustments were finalized in the fourth quarter of 2015. In 2015, the Company recognized a pretax gain of $682 million on the sale, including post-closing adjustments of $12 million. The gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment.

ANGUS Assets and Liabilities Divested on February 2, 2015 
In millions
Current assets$124
Property101
Goodwill292
Deferred charges and other assets8
Total assets divested$525
Current liabilities$17
Other noncurrent liabilities37
Total liabilities divested$54
Components of accumulated other comprehensive loss divested$10
Net carrying value divested$481

The Company evaluated the divestiture of the ANGUS Chemical Company and determined it does not represent a strategic shift that has a major effect on the Company’s operations and financial results and does not qualify as an individually significant component of the Company. As a result, this divestiture was not reported as discontinued operations.
ANGUS Assets and Liabilities Divested on February 2, 2015 
In millions
Current assets$124
Net property101
Goodwill292
Deferred charges and other assets8
Total assets divested$525
Current liabilities$17
Other noncurrent liabilities37
Total liabilities divested$54
Components of accumulated other comprehensive loss divested$10
Net carrying value divested$481

Divestiture of the AgroFresh Business
On July 31, 2015, the Company sold its AgroFresh business, part of the Agricultural Sciences segment, to Boulevard Acquisition Corp., which was subsequently renamed AgroFresh Solutions, Inc. (“AFSI”). The divestiture included trade receivables, inventory, property, customer lists, trademarks and certain intellectual property. The sale was completed for $859 million, net of working capital adjustments, costs to sell and other transaction expenses, with proceeds subject to customary post-closing adjustments. The proceeds included a $635 million cash payment; 17.5 million common shares of AFSI, which representsrepresented a 35 percent equity interest valued at $210 million based on the closing stock price on July 31, 2015 and included in “Investment in nonconsolidated affiliates” in the consolidated balance sheets; and, a receivable for six million warrants to purchase common shares of AFSI, which was valued at $14 million and classified as “Accounts and notes receivable - other” in the consolidated balance sheets. The warrants will be received by the Company within nine months from the closing date. The Company is also eligible to receive contingent consideration of $50 million, subject to certain performance conditions. In addition, the Company has aan ongoing tax receivable agreement with AFSI, where AFSI is obligated to share with Dow potential tax savings associated with the purchase of the AgroFresh business. The Company hasdid not recognized either of these potential future paymentsrecognize the contingent consideration or tax receivable agreement as proceeds. See Notes 9 and 20 for further information on the Company’s equity interest and variable interests in AFSI.

In 2015, the Company recognized a pretax gain of $626 million on the sale including(including post-closing adjustments of $2 million,million), of which $128 million relatesrelated to the Company's retained equity interest in AFSI. The pretax gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Agricultural Sciences segment.


84


AgroFresh Assets and Liabilities Divested on July 31, 2015  
In millions
Current assets$40
$40
Inventories18
18
Property5
Net property5
Goodwill101
101
Other intangible assets82
82
Deferred charges and other assets1
1
Total assets divested$247
$247
Current liabilities$8
$8
Other noncurrent obligations4
4
Total liabilities divested$12
$12
Net carrying value divested$235
$235

In the fourth quarter of 2016, as a result of a decline in the market value of AFSI, the Company recognized a $143 million pretax impairment charge related to its equity interest in AFSI. The Company also recognized a pretax loss of $20 million for post-closing adjustments related to non-cash consideration. The impairment charge and the post-closing adjustment are both included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Agricultural Sciences segment. At December 31, 2016, the Company has yet to receive the warrants. See Notes 9, 12 and 20 for further information on the Company’s equity interest and variable interests in AFSI.

The Company evaluated the divestituredivestitures of theSBH, ANGUS and AgroFresh business and determined it doesthey did not represent a strategic shift that hashad a major effect on the Company’s operations and financial results and doesdid not qualify as an individually significant componentcomponents of the Company. As a result, this divestiture wasthese divestitures were not reported as discontinued operations.

Divestiture of Investment in MEGlobal
On December 23, 2015, the Company completed the sale of its ownership interest in MEGlobal, a nonconsolidated affiliate, to EQUATE Petrochemical Company K.S.C. ("EQUATE"). The Company received pretax proceeds of $1,472 million, net of costs to sell and other transaction expenses. The Company eliminated 42.5 percent of the gain on the sale (equivalent to Dow's ownership interest in EQUATE), or $555 million. TheIn 2015, the Company recorded a pretax gain of $723 million on the sale, which is included in “Sundry income (expense) – net” in the consolidated statements of income and reflected in Performance Materials & Chemicals. The Company recognized an after-tax gain of $589 million on the sale. See Note 9 for further information on the Company’s equity interest in EQUATE.

Divestiture of Ownership Interest in Dow Kokam LLC
On November 22, 2013, the Company sold its 67.4 percent ownership interest in Dow Kokam LLC ("Dow Kokam") to MBP Investors, LLC. The Company recorded a pretax gain of $26 million on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

As a condition of the sale, Dow acquired the third party lenders’ interest in Dow Kokam’s $75 million note, which is included in "Payments on long-term debt" in the consolidated statements of cash flows, and received a $75 million note from Dow Kokam. At December 31, 2015, $15 million (zero at December 31, 2014) was classified as "Accounts and notes receivable - other" and $46 million ($61 million at December 31, 2014) was classified as "Noncurrent receivables" in the consolidated balance sheets. The note receivable is due to be paid in full by October 31, 2018. Payments received on the note receivable are included in "Proceeds from sales of property, businesses and consolidated companies, net of cash divested" in the consolidated statements of cash flows.

Divestiture of Polypropylene Licensing and Catalysts Business
On December 2, 2013, the Company sold its global Polypropylene Licensing and Catalysts business to W. R. Grace & Co. for $490 million, net of working capital adjustments and costs to sell, with proceeds subject to customary post-closing adjustments which were finalized in the fourth quarter of 2014. The carrying value of the net assets divested was $39 million. The Company recorded a $451 million pretax gain on the sale, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Performance Plastics. The Company recorded an after-tax gain of $356 million on the sale.

Post-closing adjustments were finalized in the fourth quarter of 2014 and the Company recorded a pretax gain of $5 million ($3 million after tax) for the post-closing adjustments. The gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Performance Plastics.



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NOTE 6 – REVERSE MORRIS TRUST TRANSACTION

On October 5, 2015, (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses ("chlorine value chain") into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a wholly owned subsidiary of Olin Corporation ("Olin") in a tax-efficient Reverse Morris Trust transaction (collectively, the “Transaction”). The Transaction was subject to Olin shareholder approval, customary regulatory approvals, tax authority rulings including a favorable private letter ruling from the U.S. Internal Revenue Service which confirms the Transaction to be substantially free of U.S. federal income tax, and expiration of the public exchange offer. Dow does not have an ownership interest in Olin as a result of the Transaction.

Under the terms of a debt exchange offer, Dow received $1,220 million principal amount of new debt instruments from Splitco, which were subsequently transferred to certain investment banks in a non-cash fair value exchange for $1,154 million principal amount of the Company’s outstanding debt instruments owned by such investment banks. As a result of this debt exchange offer and related transactions, the Company retired $1,161 million of certain notes and recognized a $68 million loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income as a

component of the pretax gain on the Transaction and reflected in Corporate. See Note 17 for additional information on the early extinguishment of debt.

Dow shareholders who elected to participate in the public exchange offer tendered 34.1 million shares of Dow common stock in exchange for 100 million shares of Splitco. Following the merger of Splitco with Olin, each share of Splitco common stock was automatically converted to the right to receive 0.87482759 shares of Olin common stock, or 87.5 million shares, which represented approximately 52.7 percent of Olin’s common stock outstanding. As a result of this non-cash share exchange offer, the Company recorded an increase of $1,523 million in “Treasury stock at cost” in the consolidated balance sheets, which is valued based on Dow’s opening stock price on October 5, 2015. The Company’s outstanding common shares were reduced by 3 percent as a result of the Transaction.

Under the terms of the Transaction, Dow received cash proceeds of $875 million in the form of a one-time special payment from Splitco from proceeds received from a term loan and included in "Proceeds from issuance of long-term debt" in the consolidated statements of cash flows. The Company also received a $434 million advance payment from Olin, included in "Other assets and liabilities" in the consolidated statements of cash flows, related to a long-term ethylene supply agreement, of which $16 million was classified as "Accrued and other current liabilities" and $418 million was classified as "Other noncurrent obligations" in the consolidated balance sheets at the time of receipt. The Transaction also resulted in numerous long-term supply, service and purchase agreements between Dow and Olin.

In connection with the Transaction, the Company purchased Mitsui & Co. Texas Chlor-Alkali Inc.’s (“Mitsui”) 50 percent equity interest in a membrane chlor-alkali joint venture (“JV Entity”), which resulted in Dow becoming the sole equity owner of the JV Entity. The Company purchased Mitsui's equity interest for $133 million, which resulted in a loss of $25 million included in "Sundry income (expense) - net" in the consolidated statements of income and included as a component of the pretax gain on the Transaction. The JV Entity was included in the transfer of the chlorine value chain to Splitco. See Note 20 for further information on the acquisition of Mitsui’s equity interest in the JV Entity.

The Company also transferred $439 million of net unfunded defined pension benefit and other postretirement benefit obligations in the United States and Germany to Olin. See Note 18 for further details.



86


The following table presents the major classes of assets and liabilities divested in the Transaction, by operating segment:

Dow Chlorine Value Chain Assets and Liabilities DivestedDow Chlorine Value Chain Assets and Liabilities Divested   Performance Materials & Chemicals
 Performance Plastics
 Corporate
 Total
In millions Performance Materials & Chemicals
 Performance Plastics
 Corporate
 Total
 
Accounts and notes receivable - trade $269
 $
 $(6) $263
Accounts and notes receivable - Trade $269
 $
 $(6) $263
Inventories 297
 34
 7
 338
 297
 34
 7
 338
Other current assets 5
 6
 100
 111
 5
 6
 100
 111
Net property 1,268
 205
 58
 1,531
 1,268
 205
 58
 1,531
Goodwill 71
 
 
 71
 71
 
 
 71
Other noncurrent assets 9
 1
 34
 44
 9
 1
 34
 44
Total assets divested $1,919
 $246
 $193
 $2,358
 $1,919
 $246
 $193
 $2,358
Long-term debt due within one year (1)
 $
 $
 $51
 $51
 $
 $
 $51
 $51
Other current liabilities 99
 17
 
 116
 99
 17
 
 116
Long-Term Debt (1)
 
 
 518
 518
 
 
 518
 518
Deferred income tax liabilities - noncurrent 
 
 265
 265
Deferred income tax liabilities 
 
 265
 265
Pension and other postretirement benefits - noncurrent 
 
 439
 439
 
 
 439
 439
Total liabilities divested $99
 $17
 $1,273
 $1,389
 $99
 $17
 $1,273
 $1,389
Components of accumulated other comprehensive loss divested $
 $
 $(215) $(215) $
 $
 $(215) $(215)
Net carrying value divested $1,820
 $229
 $(865) $1,184
 $1,820
 $229
 $(865) $1,184
(1)Excludes $1,161 million included as part of the debt exchange offer and $875 million from a term loan entered into under the terms of the Transaction. See Note 17 for additional information.

In the fourth quarter of 2015, the Company completed the split-off of the chlorine value chain for $3,510 million, net of working capital adjustments and costs to sell, with proceeds subject to post-closing adjustments. The proceeds included cash received from Splitco in the form of a one-time special payment from proceeds received from a term loan, the principal amount of the Splitco debt included in the debt exchange offer and the market value of the Dow common shares tendered in the public exchange offer. The Company recognized a pretax gain of $2,233 million on the Transaction, which is the excess of the sum of

the net proceeds received over the chlorine value chain's net book value, a loss on the early extinguishment of debt and a loss on the acquisition of Mitsui's noncontrolling interest. The pretax gain iswas included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the following operating segments: Performance Materials & Chemicals (gain of $1,984 million), Performance Plastics (gain of $317 million), and Corporate (loss of $68 million). The Company recognized an after-tax gain of $2,215 million, primarily due to the tax-efficient nature of the Transaction.

In 2016, the Company recognized a pretax gain of $6 million for post-closing adjustments, including a $5 million reduction to the net unfunded defined pension and other postretirement benefit obligation. The gain was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment. See Note 18 for additional information.

The Company willdid not report the historical results of the chlorine value chain as discontinued operations in Dow's financial statements as the divestiture of these businesses doesdid not represent a strategic shift that will havehad a major effect on the Company's operations and financial results. However, the chlorine value chain iswas considered an individually significant component and select income statement information is presented below:

Dow Chlorine Value Chain Income Statement Information
In millions
2015 (1)

 2014
 2013
2015 (1)

 2014
Income Before Income Taxes (2)
$139
 $281
 $212
$139
 $281
Loss before income taxes attributable to noncontrolling interests
11
 5
 4
11
 5
Income Before Income Taxes attributable to The Dow Chemical Company (2)
$150
 $286
 $216
$150
 $286
(1)    Income statement information for 2015 includes results through September 30, 2015.
(2)    Excludes transaction costs associated with the separation of the chlorine value chain, which are reported below.

In 2015, the Company incurred pretax charges of $119 million ($49 million in 2014) for nonrecurring transaction costs associated with the separation of the chlorine value chain, consisting primarily of financial and professional advisory fees, legal fees and information systems infrastructure costs. These charges, which are part of costs associated with portfoliotransactions and productivity actions, were included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.



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NOTE 7 – INVENTORIES

The following table provides a breakdown of inventories:
 
Inventories at December 31
In millions
2015
 2014
2016
 2015
Finished goods$3,850
 $4,547
$4,230
 $3,879
Work in process1,506
 1,905
1,510
 1,502
Raw materials747
 797
853
 730
Supplies768
 852
823
 768
Total FIFO inventories$7,416
 $6,879
Adjustment of inventories to a LIFO basis(53) (8)
Total inventories$6,871
 $8,101
$7,363
 $6,871

The reserves reducing inventories from a FIFO basis to a LIFO basis amounted to $8 million at December 31, 2015 and $569 million at December 31, 2014. Inventories valued on a LIFO basis, principally hydrocarbon and U.S. chemicals and plastics product inventories, represented 3027 percent of the total inventories at December 31, 20152016 and 2930 percent of total inventories at December 31, 2014.2015.

A reduction of certain inventories resulted in the liquidation of some of the Company’s LIFO inventory layers, decreasing pretax income $10 million in 2016, increasing pretax income $3 million in 2015 and decreasing pretax income $23 million in 2014 and increasing pretax income $55 million in 2013.2014.



NOTE 8 – PROPERTY
 
Property at December 31
In millions
 
Estimated Useful 
Lives (Years)

 2015
 2014
 
Estimated Useful 
Lives (Years)

 2016
 2015
Land 
 $855
 $874
 
 $1,157
 $855
Land and waterway improvements 15-25
 1,282
 1,374
 15-25
 1,367
 1,282
Buildings 5-55
 4,793
 4,910
 5-55
 5,935
 4,793
Machinery and equipment 3-20
 35,454
 39,278
 3-20
 38,499
 35,454
Utility and supply lines 5-20
 2,053
 2,448
 5-20
 2,117
 2,053
Other property 3-50
 2,010
 1,940
 3-50
 2,263
 2,010
Construction in progress 
 4,355
 4,406
 
 6,100
 4,355
Total property   $50,802
 $55,230
   $57,438
 $50,802

 
In millions 2015
 2014
 2013
 2016
 2015
 2014
Depreciation expense $1,908
 $2,136
 $2,051
 $2,130
 $1,908
 $2,136
Manufacturing maintenance and repair costs $1,991
 $2,117
 $2,325
 $1,972
 $1,991
 $2,117
Capitalized interest $218
 $125
 $78
 $243
 $218
 $125

Total property declined $4.4 billionincreased from 20142015, primarily due to divestitures, including$4 billion of property assumed in the split-off of the chlorine value chain and divestiture of ANGUS Chemical Company.DCC Transaction. See Notes 5 and 6Note 4 for further information on these transactions.this transaction.



88


NOTE 9 – NONCONSOLIDATED AFFILIATES AND RELATED COMPANY TRANSACTIONS

The Company’s investments in companies accounted for using the equity method (“nonconsolidated affiliates”) were $3,810 million at December 31, 2015,, by classification in the consolidated balance sheets, and dividends received from nonconsolidated affiliates are shown in the following tables:

Investments in Nonconsolidated Affiliates at December 31   
In millions
2016 (1)

 
2015 (2)

Investment in nonconsolidated affiliates$3,747
 $3,958
Other noncurrent obligations(1,030) (148)
Net investment in nonconsolidated affiliates$2,717
 $3,810
(1)The carrying amount of the Company’s investments in nonconsolidated affiliates was $62 million more than its share of the investees’ net assets, exclusive of additional differences for EQUATE and AFSI, which are discussed separately below.
(2)The carrying amount of the Company’s investments in nonconsolidated affiliates was $97 million more than its share of the investees’ net assets, exclusive of additional differences for Dow Corning and EQUATE, which are discussed separately below.

Dividends Received from Nonconsolidated Affiliates     
In millions2016
 2015
 
2014 (1)

Dividends from nonconsolidated affiliates$685
 $816
 $961
(1)Includes accrued dividends of $5 million.

The nonconsolidated affiliates in which the Company has investments, excluding AFSI, are privately held companies; therefore, quoted market prices are not available.

Dow Corning and the HSC Group
As a result of the DCC Transaction, Dow Corning, previously a 50:50 joint venture between Dow and Corning, became a wholly owned subsidiary of Dow as of June 1, 2016. The Company's equity interest in Dow Corning, which $3,958 million iswas previously classified as "Investment in nonconsolidated affiliates" and $148 million is classified as "Other noncurrent obligations" in the consolidated balance sheets, was remeasured to fair value. See Note 4 for additional information on the DCC Transaction, including details on the fair value of assets acquired and $4,201 million at December 31, 2014,liabilities assumed.


Dow Corning continues to maintain an equity interest in the HSC Group. The HSC Group was included as part of the Dow Corning equity method investment and was classified as "Investment in nonconsolidated affiliates." affiliates" in the consolidated balance sheets. The following table includes the carrying value of the nonconsolidated affiliates included in the HSC Group at June 1, 2016, including the balance sheet classification of each investment:

HSC Group at June 1, 2016Ownership Interest
 Investment
 Balance Sheet Classification
In millions
Hemlock Semiconductor L.L.C. (1)
50.1% $(958) Other noncurrent obligations
DC HSC Holdings LLC (2)
50.0% $571
 Investment in nonconsolidated affiliates
(1)Hemlock Semiconductor L.L.C. is a nonconsolidated variable interest entity. See Note 20 for additional information.
(2)DC HSC Holdings LLC holds an 80.5 percent indirect ownership interest in Hemlock Semiconductor Operations.

At December 31, 2015,2016, the carrying amount of the Company’s investmentsnegative investment balance in nonconsolidated affiliatesHemlock Semiconductor L.L.C. was $97 million more than its share of the investees’ net assets, exclusive of additional differences for Dow Corning Corporation (“Dow Corning”) and EQUATE Petrochemical Company K.S.C. ("EQUATE"), which are discussed separately below. At December 31, 2014, the carrying amount of the Company’s investments in nonconsolidated affiliates was $56 million more than its share of the investees’ net assets, exclusive of additional differences for Dow Corning and MEGlobal. Dividends received from the Company’s nonconsolidated affiliates were $816 million in 2015, $961 million in 2014 (including accrued dividends of $5 million) and $905 million in 2013.$902 million.

At December 31, 2015, the Company’s investment in Dow Corning was $149 million less than the Company’s proportionate share of Dow Corning’s underlying net assets ($149 million less at December 31, 2014).assets. This amount iswas considered a permanent difference related to the other-than-temporary decline in the Company's investment in Dow Corning, triggered by Dow Corning's May 15, 1995, bankruptcy filing, and Dow Corning's purchase of additional ownership interests in its Hemlock SemiconductorHSC Group entities in 2013. Dow Corning emerged from bankruptcy in 2004.

MEGlobal and EQUATE
On December 23, 2015, the Company sold its interest in MEGlobal to EQUATE. The Company eliminated 42.5 percent of the gain on the sale (equivalent to Dow's ownership interest in EQUATE), or $555 million, against the Company's investment in EQUATE, resulting in a negative investment of $148 million at December 31, 2015, which is classified as "Other noncurrent obligations" in the consolidated balance sheets. The Company's investment in EQUATE was $555 million less than the Company's proportionate share of EQUATE's underlying net assets, which represents the difference between the preliminary fair values of certain MEGlobal assets acquired and the Company's related valuation on a U.S. GAAP basis, of which approximately $250 million iswas being amortized over the remaining useful lives of the assets and approximately $305 million iswas considered a permanent difference. Final determination ofAt December 31, 2016, the fair value of MEGlobal assets acquired by EQUATE may result in adjustments to the preliminary values assigned at the date of acquisition,negative investment balance was $128 million and could impact the difference between the Company's investment in EQUATE and itswas $536 million less than the Company's proportionate share of EQUATE's underlying net assets, and the amountof which $216 million of the difference assigned to goodwill and assets to be amortized.
At December 31, 2014, the Company’s investment in MEGlobal was $177 million less than the Company’s proportionate share of MEGlobal’s underlying net assets. This amount represented the difference between the value of certain assets of the joint venture and the Company’s related valuation on a U.S. GAAP basis, of which $41 million wasis being amortized over the remaining useful lives of the assets and $136 million wasthe remainder is considered to be a permanent difference. In the fourth quarter of 2014, MEGlobal purchased the noncontrolling interest of a subsidiary, which resulted in a $3 million reduction in the permanent difference.

AFSI
On July 31, 2015, the Company sold its AgroFresh business to AFSI. Proceeds received on the divestiture of AgroFresh included 17.5 million common shares of AFSI, which were valued at $210 million and representrepresented an approximate 35 percent ownership interest in AFSI. The Company has accounted for its ownership interest in AFSI using the equity method of accounting with the Company's investment in AFSI classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets and the Company's share of AFSI's results of operations included in "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income, aligned with the Agricultural Sciences segment. If the Company valued its investment in AFSI basedBased on the December 31, 2015,2016 closing stock price of AFSI, the value of this investment would have been lower than the carrying value by $80 million.$143 million ($80 million based on the closing stock price at December 31, 2015). In the fourth quarter of 2016, the Company determined the decline in market value of AFSI was other-than-temporary and recognized a $143 million pretax impairment charge related to its equity interest in AFSI. The impairment charge was included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Agricultural Sciences segment. At December 31, 2016, the Company's investment in AFSI was $96 million less than the Company's proportionate share of AFSI's underlying net assets. This amount primarily relates to the other-than-temporary decline in the Company's investment in AFSI. See NoteNotes 5, 12 and 20 for further information on this transaction.investment.

Sadara
The Company and Saudi Arabian Oil Company formed Sadara Chemical Company ("Sadara") to build and operate a world-scale, fully integrated chemicals complex in Jubail Industrial City, Kingdom of Saudi Arabia. Sadara achieved its first polyethylene production in December 2015 and announced the start-up of its mixed feed cracker and a third polyethylene train (which added to the two polyethylene trains already in operation) in August 2016. Sadara will follow a phased approach to start up the remaining manufacturing facilities. At December 31, 2014,2016, the Company had a $193$258 million note receivable with Sadara, included in "Noncurrent receivables" in the consolidated balance sheets, that was converted to equity in the first quarter of 2015 and reclassified to "Investment in nonconsolidated affiliates" in the consolidated balance sheets. During 2015, the Company loaned an additional $753 million to Sadara, of which $280$193 million has been converted to equity. Approximately $460 million of the outstanding note receivable is expected to be converted to equity in the first quarter of 2016.2017 ($473 million at December 31, 2015, of which $460 million was converted to equity in the first quarter of 2016). During 2016, the Company loaned $1,015 million to Sadara and $1,230 million was converted to equity.


Transactions with Nonconsolidated Affiliates
The Company has service agreements with certain nonconsolidated affiliates, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase, lease and sublease agreements.

The Company sells excess ethylene glycol produced at Dow's manufacturing facilities in whichthe United States and Europe to MEGlobal, an EQUATE subsidiary since December 23, 2015. The Company also sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in Canada. Sales of these products to MEGlobal represented 1 percent of total net sales in 2016 (1 percent of total net sales in 2015 and 1 percent of total net sales in 2014). Sales of ethylene glycol to MEGlobal are reflected in the Performance Materials & Chemicals segment and represented 2 percent of the segment's sales in 2016 (2 percent in 2015 and 2 percent in 2014). Sales of ethylene to MEGlobal are reflected in the Performance Plastics segment and represented 1 percent of the segment's sales in 2016 (1 percent in 2015 and 1 percent in 2014).

Dow Corning supplies trichlorosilane, a raw material used in the production of polycrystalline silicon, to the HSC Group. Sales of this material to the HSC Group for the period from June 1, 2016 through December 31, 2016, represented less than 1 percent of total net sales in 2016 (2 percent of Infrastructure Solutions sales).

Dow is responsible for marketing the majority of Sadara products outside of the Middle East zone through the Company’s established sales channels. Under this arrangement, the Company has investments, excluding AFSI, are privately held companies; therefore, quoted market prices arepurchases and sells Sadara products for a marketing fee. Purchases and sales of Sadara products were not available.material in 2016.

89


Sales to and purchases from other nonconsolidated affiliates were not material to the consolidated financial statements.

Balances due to or due from nonconsolidated affiliates at December 31, 20152016 and 20142015 are as follows:

Balances Due To or Due From Nonconsolidated Affiliates at December 31
In millions 2015
 2014
 2016
 2015
Accounts and notes receivable - other $389
 $511
Accounts and notes receivable - Other $388
 $389
Noncurrent receivables (1)
 473
 212
 267
 473
Total assets $862
 $723
 $655
 $862
Notes payable $171
 $189
 $44
 $171
Accounts payable - other 230
 274
Accounts payable - Other 400
 230
Total current liabilities $401
 $463
 $444
 $401
(1)Included in "Noncurrent receivables" is a $473 million note receivable with Sadara at December 31, 2015, of which $460 million is expected to be converted to equity in the first quarter of 2016 ($193 million at December 31, 2014, which was converted to equity in the first quarter of 2015).

Principal Nonconsolidated Affiliates
Dow had an ownership interest in 5559 nonconsolidated affiliates at December 31, 2015 (592016 (55 at December 31, 2014)2015). The Company's principal nonconsolidated affiliates and its ownership interest (direct and indirect) for each at December 31, 20152016, 20142015 and 20132014 are as follows:

Principal Nonconsolidated Affiliates at December 31 Ownership Interest Ownership Interest
 2015
 2014
 2013
 2016
 2015
 2014
Dow Corning Corporation (1)
 50% 50% 50% N/A
 50% 50%
EQUATE Petrochemical Company K.S.C. 42.5% 42.5% 42.5% 42.5% 42.5% 42.5%
The Kuwait Olefins Company K.S.C. 42.5% 42.5% 42.5%
The Kuwait Styrene Company K.S.C. (2)
 42.5% 42.5% N/A
The HSC Group: (2)
      
DC HSC Holdings LLC 50% N/A
 N/A
Hemlock Semiconductor L.L.C. 50.1% N/A
 N/A
The Kuwait Olefins Company K.S.C. ("TKOC") 42.5% 42.5% 42.5%
The Kuwait Styrene Company K.S.C. ("TKSC") 42.5% 42.5% 42.5%
Map Ta Phut Olefins Company Limited (3)
 32.77% 32.77% 32.77% 32.77% 32.77% 32.77%
MEGlobal (4)
 N/A
 50% 50% N/A
 N/A
 50%
Sadara Chemical Company 35% 35% 35% 35% 35% 35%
The SCG-Dow Group:            
Siam Polyethylene Company Limited 50% 50% 50% 50% 50% 50%
Siam Polystyrene Company Limited 50% 50% 50% 50% 50% 50%
Siam Styrene Monomer Co., Ltd. 50% 50% 50% 50% 50% 50%
Siam Synthetic Latex Company Limited 50% 50% 50% 50% 50% 50%
Univation Technologies, LLC (5)
 N/A
 50% 50% N/A
 N/A
 50%
(1)On December 10, 2015, the Company entered into a definitive agreement to restructure the ownership ofJune 1, 2016, Dow Corning. Under the terms of the agreements, Dow will becomebecame the 100 percent owner of Dow Corning, currently a 50:50 joint venture between Dow and Corning Incorporated ("Corning"). Dow and Corning will maintain their current equity stake in the Hemlock Semiconductor Group. The transaction is expected to close in the first half of 2016.Corning. See Note 4 for additional information.
(2)The Kuwait Styrene Company K.S.C.HSC Group was previously part of the Dow Corning equity method investment and was added as a principal nonconsolidated affiliateaffiliates in the fourth quarter of 2014.2016.
(3)The Company's effective ownership of Map Ta Phut Olefins Company Limited is 32.77 percent, of which the Company directly owns 20.27 percent and indirectly owns 12.5 percent through its equity interest in Siam Polyethylene Company Limited and Siam Synthetic Latex Company Limited.
(4)On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. MEGlobal is treated as a separate principal nonconsolidated affiliate through the date of divestiture. See Note 5 for additional information.
(5)On May 5, 2015, Univation, previously a 50:50 joint venture between Dow and ExxonMobil, became a wholly owned subsidiary of Dow. See Note 4 for additional information on this transaction.information.

The Company’s investment in and equity earnings from its principal nonconsolidated affiliates was $2,972 million at December 31, 2015 and $3,487 million at December 31, 2014. Equity earnings from these companies were $704 millionare shown in 2015, $845 million in 2014 and $951 million in 2013. Equity earnings from principal nonconsolidated affiliates equity earnings decreased in 2015 as higher earnings at The SCG-Dow Group and Map Ta Phut Olefins Company Limited were more than offset by increased equity losses from Sadara, lower earnings from Univation resulting from the May 5, 2015, step acquisition, and lower earnings from EQUATE, TKOC and MEGlobal.tables below:


90

Investment in Principal Nonconsolidated Affiliates at December 31   
In millions2016
 
2015 (1)

Investment in nonconsolidated affiliates$3,029
 $3,120
Other noncurrent obligations(1,030) (148)
Net investment in principal nonconsolidated affiliates$1,999
 $2,972
(1)Adjusted to conform to the current year presentation.


Equity Earnings from Principal Nonconsolidated Affiliates     
In millions2016
 2015
 2014
Equity in earnings of nonconsolidated affiliates$449
 $704
 $845


The summarized financial information that follows represents the combined accounts (at 100 percent)percent) of the principal nonconsolidated affiliates.

Summarized Balance Sheet Information at December 31
In millions 
2015 (1)

 2014
 
2016 (1)

 
2015 (2)

Current assets $8,794
 $9,611
 $6,092
 $8,794
Noncurrent assets 31,723
 27,025
 28,588
 31,723
Total assets $40,517
 $36,636
 $34,680
 $40,517
Current liabilities $9,850
 $6,321
 $3,953
 $9,850
Noncurrent liabilities 21,461
 21,047
 23,223
 21,461
Total liabilities $31,311
 $27,368
 $27,176
 $31,311
Noncontrolling interests $663
 $666
 $300
 $663
(1)The summarized balance sheet information for 2016 does not include Dow Corning.
(2)The summarized balance sheet information for 2015 does not include Univation; MEGlobal is included as part of EQUATE.

Summarized Income Statement Information
In millions 
2015 (1)

 2014
 
2013 (2)

 
2016 (1)

 
2015 (2)

 2014
Sales $15,468
 $19,333
 $18,257
 $12,003
 $15,468
 $19,333
Gross profit $3,206
 $3,526
 $3,403
 $2,518
 $3,206
 $3,526
Net income $1,343
 $1,673
 $1,906
 $831
 $1,343
 $1,673
(1)The summarized income statement information for 2016 includes the results of Dow Corning through May 31, 2016.
(2)The summarized income statement information for 2015 includes the results of Univation through April 30, 2015 and MEGlobal through November 30, 2015.
(2)The summarized income statement information for 2013 does not include the results of The Kuwait Styrene Company K.S.C. as this entity became a principal nonconsolidated affiliate in 2014.

The Company has service agreements with some of these entities, including contracts to manage the operations of manufacturing sites and the construction of new facilities; licensing and technology agreements; and marketing, sales, purchase, lease and sublease agreements.

The Company sells excess ethylene glycol produced at Dow's manufacturing facilities in the United States and Europe to MEGlobal, an EQUATE subsidiary as of December 23, 2015. The Company also sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in Canada. Sales of these products to MEGlobal represented 1 percent of total net sales in 2015 (1 percent of total net sales in 2014 and 1 percent of total net sales in 2013). Sales of ethylene glycol to MEGlobal are reflected in the Performance Materials & Chemicals segment and represented 2 percent of the segment's sales in 2015 (2 percent in 2014 and 2 percent in 2013). Sales of ethylene to MEGlobal are reflected in the Performance Plastics segment and represented 1 percent of the segment's sales in 2015 (1 percent in 2014 and 2 percent in 2013).



91


NOTE 10 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following tables showtable shows changes in the carrying amount of goodwill for the years ended December 31, 20152016 and 20142015, by operating segment:

2015 Goodwill
Agricultural
Sciences

 Consumer Solutions
 Infrastructure Solutions
 
Performance
Materials & Chemicals

 Performance Plastics
 Total  
In millions     
Gross goodwill at Jan 1, 2015$1,558
 $4,598
 $4,451
 $1,029
 $1,425
 $13,061
Accumulated impairments at Jan 1, 2015
 (209) 
 (220) 
 (429)
Net goodwill at Jan 1, 2015$1,558
 $4,389
 $4,451
 $809
 $1,425
 $12,632
Divestiture of ANGUS Chemical Company
 
 
 (292) 
 (292)
Divestiture of the Sodium Borohydride business
 
 
 (45) 
 (45)
Sale of Agricultural Sciences product lines(16) 
 
 
 
 (16)
Divestiture of AgroFresh(101) 
 
 
 
 (101)
Split-off of the chlorine value chain
 
 
 (71) 
 (71)
Goodwill related to the Coodetec acquisition31
 
 
 
 
 31
Goodwill related to the Univation step acquisition
 
 
 
 141
 141
Foreign currency impact
 (15) (69) (10) (31) (125)
Net goodwill at Dec 31, 2015$1,472
 $4,374
 $4,382
 $391
 $1,535
 $12,154
Accumulated impairments at Dec 31, 2015
 209
 
 220
 
 429
Gross goodwill at Dec 31, 2015$1,472
 $4,583
 $4,382
 $611
 $1,535
 $12,583


2014 Goodwill
Agricultural
Sciences

 Consumer Solutions
 Infrastructure Solutions
 
Performance
Materials & Chemicals

 Performance Plastics
 Total  
In millions     
Gross goodwill at Jan 1, 2014$1,563
 $4,618
 $4,540
 $1,041
 $1,465
 $13,227
Accumulated impairments at Jan 1, 2014
 (209) 
 (220) 
 (429)
Net goodwill at Jan 1, 2014$1,563
 $4,409
 $4,540
 $821
 $1,465
 $12,798
Purchase price adjustment of a seed company(5) 
 
 
 
 (5)
Foreign currency impact
 (20) (89) (12) (40) (161)
Net goodwill at Dec 31, 2014$1,558
 $4,389
 $4,451
 $809
 $1,425
 $12,632
Accumulated impairments at Dec 31, 2014
 209
 
 220
 
 429
Gross goodwill at Dec 31, 2014$1,558
 $4,598
 $4,451
 $1,029
 $1,425
 $13,061
GoodwillAgricultural
Sciences

 Consumer Solutions
 Infrastructure Solutions
 Performance
Materials & Chemicals

 Performance Plastics
 Total  
In millions
Balance at January 1, 2015$1,558

$4,389

$4,451

$809

$1,425

$12,632
Divestiture of ANGUS Chemical Company
 
 
 (292) 
 (292)
Divestiture of the Sodium Borohydride business
 
 
 (45) 
 (45)
Sale of Agricultural Sciences product lines(16) 
 
 
 
 (16)
Divestiture of AgroFresh(101) 
 
 
 
 (101)
Split-off of the chlorine value chain
 
 
 (71) 
 (71)
Goodwill related to the Coodetec acquisition31
 
 
 
 
 31
Goodwill related to the Univation step acquisition
 
 
 
 141
 141
Foreign currency impact
 (15) (69) (10) (31) (125)
Balance at December 31, 2015$1,472
 $4,374
 $4,382
 $391
 $1,535
 $12,154
Acquisition of an aniline plant
 
 
 37
 
 37
Sale of product lines
 (10) 
 
 (5) (15)
Goodwill related to the DCC Transaction
 1,705
 1,524
 
 
 3,229
Foreign currency impact
 (52) (66) (3) (12) (133)
Balance at December 31, 2016$1,472

$6,017

$5,840

$425

$1,518

$15,272

Goodwill Impairments
The carrying amount of goodwill for all periods presented was net of accumulated impairments of $209 million in Consumer Solutions and $220 million in Performance Materials & Chemicals.

Goodwill Impairment Testing
The Company performs an impairment test for goodwill annually during the fourth quarter. Qualitative factors may be assessed by the Company 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 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.


92


2015 Goodwill Impairment Testing
In 2015,2016, the Company assessed qualitative factors for 911 of the 14 reporting units carrying goodwill (9 of 12 reporting units carrying goodwill.in 2015 and 9 of 14 reporting units in 2014). The qualitative assessment indicated that it was more likely than not that the fair value exceeded carrying value for those reporting units included in the qualitative test. The Company performed the first step of the quantitative testing for the remaining three reporting units.units (three in 2015 and five in 2014). 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.units in 2016, 2015 and 2014. As a result, no additional quantitative testing was required for the reporting units.

2014 Goodwill Impairment Testing
In 2014, the Company assessed qualitative factors for 9 of the 14 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 included in the qualitative test. The Company performed the first step of the quantitative testing for the remaining five 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. As a result, no additional quantitative testing was required for the reporting units.

2013 Goodwill Impairment Testing
In 2013, the Company assessed qualitative factors for 14 of the 19 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 included in the qualitative test. The Company performed the first step of the quantitative testing for the remaining five 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. As a result, no additional quantitative testing was required for the reporting units.

Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:

Other Intangible Assets at December 312015 20142016 2015
In millions
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net
 
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net  
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net
 
Gross
Carrying
Amount

 
Accumulated
Amortization

 Net  
Intangible assets with finite lives:                      
Licenses and intellectual property$1,943
 $(1,087) $856
 $1,777
 $(1,060) $717
$3,148
 $(1,286) $1,862
 $1,943
 $(1,087) $856
Patents119
 (108) 11
 122
 (108) 14
106
 (97) 9
 119
 (108) 11
Software1,253
 (628) 625
 1,287
 (648) 639
1,336
 (696) 640
 1,253
 (628) 625
Trademarks666
 (441) 225
 685
 (409) 276
696
 (503) 193
 666
 (441) 225
Customer-related3,164
 (1,366) 1,798
 3,443
 (1,366) 2,077
4,806
 (1,567) 3,239
 3,164
 (1,366) 1,798
Other165
 (140) 25
 158
 (146) 12
168
 (146) 22
 165
 (140) 25
Total other intangible assets, finite lives$7,310
 $(3,770) $3,540
 $7,472
 $(3,737) $3,735
$10,260
 $(4,295) $5,965
 $7,310
 $(3,770) $3,540
IPR&D (1), indefinite lives
77
 
 77
 33
 
 33
61
 
 61
 77
 
 77
Total other intangible assets$7,387
 $(3,770) $3,617
 $7,505
 $(3,737) $3,768
$10,321
 $(4,295) $6,026
 $7,387
 $(3,770) $3,617
(1)    In-process research and development ("IPR&D") purchased in a business combination.

Intangible assets assumed in the DCC Transaction are presented in the table below. See Note 4 for additional information on this transaction.

Dow Corning Intangible Assets
at June 1, 2016
Gross
Carrying
Amount

 Weighted-average Amortization Period
In millions
Intangible assets with finite lives:   
  Licenses and intellectual property$1,200
 9 years
  Software2
 5 years
  Trademarks30
 3 years
  Customer-related1,755
 19 years
Total$2,987
 15 years


Intangible assets acquired as part of the Univation step acquisition are presented in the table below. See Note 4 for additional information on this acquisition.

Univation Intangible Assets at May 5, 2015
Gross
Carrying
Amount

 Weighted-average Amortization Period
In millions
Intangible assets with finite lives:   
  Licenses and intellectual property$340
 10 years
  Software5
 5 years
  Trademarks12
 18 years
  Customer-related76
 10 years
Total$433
 10 years

On January 30, 2015, DAS acquired Coodetec's seed business resulting in an increase to intangible assets of $81 million, which included $14 million of trademarks, $1 million of customer-related intangibles, $20 million of germplasm (included in "Other" in the table above)) and $46 million of IPR&D. See Note 4 for additional information on this acquisition.


93


Intangible assets acquired as part of the Univation step acquisition are presented in the table below. See Note 4 for additional information on this acquisition.

Univation Intangible Assets
Gross
Carrying
Amount

Weighted-average Amortization Period
In millions
Intangible assets with finite lives:  
  Licenses and intellectual property$340
10 years
  Software5
5 years
  Trademarks12
18 years
  Customer-related76
10 years
Total$433
10 years

The following table provides information regarding amortization expense related to intangible assets:

Amortization Expense
In millions
 2015
 2014
 2013
Other intangible assets, excluding software (1)
 $419
 $436
 $461
Software, included in “Cost of sales” $72
 $70
 $67
(1)    Includes a $3 million asset impairment charge related to intangible assets in 2013.
Amortization Expense
In millions
 2016
 2015
 2014
Other intangible assets, excluding software $544
 $419
 $436
Software, included in “Cost of sales” $73
 $72
 $70

DuringIn the second quarter of 2016, the Company wrote-off $11 million of IPR&D as part of the 2016 restructuring charge. See Note 3 for additional information.

In 2014, the Company recognized a $50 million asset impairment charge related tofor customer-related, trademarks and intellectual property intangible assets in the Dow Electronic Materials business, which is recorded in "Goodwill and other intangible asset impairment losses" in the consolidated statements of income and reflected in Consumer Solutions. During 2013, the Company recognized a $3 million asset impairment charge related to software, which is recorded in "Cost of sales" in the consolidated statements of income and reflected in Corporate.

Total estimated amortization expense for the next five fiscal years is as follows:

Estimated Amortization Expense
for Next Five Years
In millions
Estimated Amortization Expense
for Next Five Years
In millions
Estimated Amortization Expense
for Next Five Years
In millions
2016$486
2017$467
$716
2018$453
$722
2019$387
$646
2020$357
$609
2021$576



94


NOTE 11 – FINANCIAL INSTRUMENTS

The following table summarizes the fair value of financial instruments at December 31, 20152016 and 20142015:

Fair Value of Financial Instruments at December 31
2015 20142016 2015
In millionsCost
 Gain
 Loss
 
Fair
Value

 Cost
 Gain
 Loss
 
Fair
Value

Cost
 Gain
 Loss
 
Fair
Value

 Cost
 Gain
 Loss
 
Fair
Value

Marketable securities: (1)
                              
Debt securities:                              
Government debt (2)
$597
 $22
 $(7) $612
 $559
 $26
 $(1) $584
$607
 $13
 $(12) $608
 $597
 $22
 $(7) $612
Corporate bonds633
 26
 (8) 651
 654
 45
 (2) 697
623
 27
 (5) 645
 633
 26
 (8) 651
Total debt securities$1,230
 $48
 $(15) $1,263
 $1,213
 $71
 $(3) $1,281
$1,230
 $40
 $(17) $1,253
 $1,230
 $48
 $(15) $1,263
Equity securities555
 108
 (60) 603
 566
 177
 (15) 728
658
 98
 (50) 706
 555
 108
 (60) 603
Total marketable securities$1,785
 $156
 $(75) $1,866
 $1,779
 $248
 $(18) $2,009
$1,888
 $138
 $(67) $1,959
 $1,785
 $156
 $(75) $1,866
Long-term debt including debt due within one year (3) (4)
$(16,756) $424
 $(1,668) $(18,000) $(19,123) $69
 $(2,396) $(21,450)
Long-term debt including debt due within one year (3)
$(21,091) $129
 $(1,845) $(22,807) $(16,756) $424
 $(1,668) $(18,000)
Derivatives relating to:                              
Interest rates$
 $
 $(4) $(4) $
 $
 $(12) $(12)$
 $
 $(5) $(5) $
 $
 $(4) $(4)
Commodities (5)(4)
$
 $6
 $(248) $(242) $
 $3
 $(81) $(78)$
 $56
 $(213) $(157) $
 $6
 $(248) $(242)
Foreign currency$
 $109
 $(32) $77
 $
 $26
 $(71) $(45)$
 $84
 $(30) $54
 $
 $109
 $(32) $77
(1)Included in “Other investments” in the consolidated balance sheets.
(2)U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
(3)
Cost includes fair value adjustments of $18 million at December 31, 20152016 and $2118 million at December 31, 20142015.
(4)Presented in accordance with newly implemented ASU 2015-03. See Note 2 for further information.
(5)
Presented net of cash collateral, as disclosed in Note 12.

Cost approximates fair value for all other financial instruments.

Investments
The Company’s investments in marketable securities are primarily classified as available-for-sale securities. The following table provides the investing results from available-for-sale securities for the years ended December 31, 2016, 2015 2014 and 2013.2014.

Investing Results          
In millions2015
 2014
 2013
2016
 2015
 2014
Proceeds from sales of available-for-sale securities$565
 $675
 $486
$535
 $565
 $675
Gross realized gains$96
 $99
 $66
$58
 $96
 $99
Gross realized losses$(14) $(6) $(4)$(2) $(14) $(6)

The following table summarizes the contractual maturities of the Company’s investments in debt securities:

Contractual Maturities of Debt Securities
at December 31, 2015
Contractual Maturities of Debt Securities at December 31, 2016Contractual Maturities of Debt Securities at December 31, 2016
In millionsAmortized Cost
 Fair Value
Amortized Cost
 Fair Value
Within one year$18
 $18
$33
 $32
One to five years442
 453
331
 341
Six to ten years567
 578
665
 664
After ten years203
 214
201
 216
Total$1,230
 $1,263
$1,230
 $1,253

At December 31, 20152016, the Company had $3,354$261 million ($1,0503,354 million at December 31, 2014)2015) of held-to-maturity securities (primarily Treasury Bills) classified as cash equivalents, as these securities had maturities of three months or less at the time of purchase. The Company’s investments in held-to-maturity securities are held at amortized cost, which approximates fair value. At December 31, 2015,2016, the Company had investments in money market funds of $1,689$239 million classified as cash equivalents ($1,6551,689 million at December 31, 20142015).


95


The net unrealized gain/loss from mark-to-market adjustments recognized in earnings on trading securities held at the end of the year was a $2$6 million loss in 2016, a $2 million loss in 2015, and a $3 million gain in 2014 and a $13 million loss in 2013.

The following table providestables provide the fair value and gross unrealized losses of the Company’s investments that were deemed to be temporarily impaired at December 31, 20152016 and 20142015, aggregated by investment category:

Temporarily Impaired Securities at December 31, 2015
Temporarily Impaired Securities at December 31, 2016Temporarily Impaired Securities at December 31, 2016
Less than 12 months 12 months or more TotalLess than 12 months 12 months or more Total
In millions
Fair
Value

 
Unrealized
Losses

 Fair
Value

 Unrealized
Losses

 Fair Value
 Unrealized Losses
Fair
Value

 
Unrealized
Losses

 Fair
Value

 Unrealized
Losses

 Fair Value
 Unrealized Losses
Government debt (1)
$251
 $(7) $1
 $
 $252
 $(7)$351
 $(12) $
 $
 $351
 $(12)
Corporate bonds175
 (8) 1
 
 176
 (8)193
 (4) 16
 (1) 209
 (5)
Equity securities197
 (54) 10
 (6) 207
 (60)48
 (6) 163
 (44) 211
 (50)
Total temporarily impaired securities$623
 $(69) $12
 $(6) $635
 $(75)$592
 $(22) $179
 $(45) $771
 $(67)
(1)U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations.

Temporarily Impaired Securities at December 31, 2014
Temporarily Impaired Securities at December 31, 2015Temporarily Impaired Securities at December 31, 2015
Less than 12 months 12 months or more TotalLess than 12 months 12 months or more Total
In millions
Fair
Value

 
Unrealized
Losses

 Fair
Value

 Unrealized
Losses

 Fair Value
 Unrealized Losses
Fair
Value

 
Unrealized
Losses

 Fair
Value

 Unrealized
Losses

 Fair Value
 Unrealized Losses
Government debt (1)
$74
 $(1) $31
 $(1) $105
 $(2)$251
 $(7) $1
 $
 $252
 $(7)
Corporate bonds102
 (1) 4
 
 106
 (1)175
 (8) 1
 
 176
 (8)
Equity securities175
 (15) 
 
 175
 (15)197
 (54) 10
 (6) 207
 (60)
Total temporarily impaired securities$351
 $(17) $35
 $(1) $386
 $(18)$623
 $(69) $12
 $(6) $635
 $(75)
(1)U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities' obligations.

Portfolio managers regularly review the Company’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred.

For debt securities, the credit rating of the issuer, current credit rating trends, the trends of the issuer’s overall sector, the ability of the issuer to pay expected cash flows and the length of time the security has been in a loss position are considered in determining whether unrealized losses represent an other-than-temporary impairment. The Company did not have any credit-related losses during 2016, 2015 2014or 2013.2014.

For equity securities, the Company’s investments are primarily in Standard & Poor’s (“S&P”) 500 companies; however, the Company’s policies allow investments in companies outside of the S&P 500. The largest holdings are Exchange Traded Funds that represent the S&P 500 index or an S&P 500 sector or subset; the Company also has holdings in Exchange Traded Funds that represent emerging markets. The Company considers the evidence to support the recovery of the cost basis of a security including volatility of the stock, the length of time the security has been in a loss position, value and growth expectations, and overall market and sector fundamentals, as well as technical analysis, in determining whether unrealized losses represent an other-than-temporary impairment. In 2015,2016, there were no other-than-temporary impairment write-downs on investments still held by the Company were $2 million ($62 million in 2014)2015).

The aggregate cost of the Company's cost method investments totaled $157$120 million at December 31, 20152016 ($181157 million at December 31, 2014)2015). Due to the nature of these investments, either the cost basis approximates fair market value or fair value is not readily determinable. These investments are reviewed quarterly for impairment indicators. DuringIn 2016, a write-down of $4 million was recorded as part of the second quarter of2016 restructuring charge. In 2015, a write-down of $55 million was recorded as part of the 2015 restructuring charge due to a change in the Company's strategy to monetize and exit certain Venture Capital portfolio investments.charge. See Note 3 for more information on the Company's restructuring activities. The Company's impairment analysis resulted in no additional reductions in the cost basis of these investments for the year ended December 31, 2016; the analysis in 2015 resulted in additional reductions of less than $1 million for the year ended December 31, 2015; the analysis in 2014 resulted in an $18 million reduction for the year ended December 31, 2014.2015.


96


Risk Management
Dow’s business operations give rise to market risk exposure due to changes in interest rates, foreign currency exchange rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies, which enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as cash flow, fair value or net foreign investment hedges where appropriate. Accounting guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value. A secondary objective is to add value by creating additional nonspecific exposures within established limits and policies;

derivatives used for this purpose are not designated as hedges. The potential impact of creating such additional exposures is not material to the Company’s results.

The Company’s risk management program for interest rate, foreign currency and commodity risks is based on fundamental, mathematical and technical models that take into account the implicit cost of hedging. Risks created by derivative instruments and the mark-to-market valuations of positions are strictly monitored at all times, using value at riskvalue-at-risk and stress tests. Counterparty credit risk arising from these contracts is not significant because the Company minimizes counterparty concentration, deals primarily with major financial institutions of solid credit quality, and the majority of its hedging transactions mature in less than three months. In addition, the Company minimizes concentrations of credit risk through its global orientation by transacting with large, internationally diversified financial counterparties. It is the Company’s policy to not have credit-risk-related contingent features in its derivative instruments. No significant concentration of counterparty credit risk existed at December 31, 2015.2016. The Company does not anticipate losses from credit risk, and the net cash requirements arising from counterparty risk associated with risk management activities are not expected to be material in 2016.2017.

The Company revises its strategies as market conditions dictate and management reviews its overall financial strategies and the impacts from using derivatives in its risk management program with the Company’s Board of Directors.

Interest Rate Risk Management
The Company enters into various interest rate contracts with the objective of lowering funding costs or altering interest rate exposures related to fixed and variable rate obligations. In these contracts, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount. At December 31, 2015,2016, the Company had open interest rate swaps with maturity dates that extend to 2021.

Foreign Currency Risk Management
The Company’s global operations require active participation in foreign exchange markets. The Company enters into foreign exchange forward contracts and options, and cross-currency swaps to hedge various currency exposures or create desired exposures. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities. The primary business objective of the activity is to optimize the U.S. dollar value of the Company’s assets, liabilities and future cash flows with respect to exchange rate fluctuations. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. At December 31, 2015,2016, the Company had forward contracts, options and cross-currency swaps to buy, sell or exchange foreign currencies. These contracts had various expiration dates, primarily inthrough the first quarter of 2016.2018.

Commodity Risk Management
The Company has exposure to the prices of commodities in its procurement of certain raw materials. The primary purpose of commodity hedging activities is to manage the price volatility associated with these forecasted inventory purchases. At December 31, 2015,2016, the Company had futures contracts, options and swaps to buy, sell or exchange commodities. These agreements had various expiration dates through the fourth quarter of 2020.

Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
For derivatives that are designated and qualify as cash flow hedging instruments, the effective portion of the gain or loss on the derivative is recorded in “Accumulated other comprehensive loss” (“AOCL”); it is reclassified to “Cost of sales” in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCL fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCL and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period income.


97


The Company had open interest rate derivatives designated as cash flow hedges at December 31, 20152016, with a net loss of $4 million after tax and a notional U.S. dollar equivalent of $245 million (net loss of $3 million after tax and a notional U.S. dollar equivalent of $338 million (net loss of $8 million after tax and a notional U.S. dollar equivalent of $434 millionat December 31, 2014)2015).

Current open foreign currency forward contracts hedge the currency risk of forecasted feedstock purchase transactions until July 2016.September 2017. The effective portion of the mark-to-market effects of the foreign currency forward contracts is recorded in AOCL; it is reclassified to income in the same period or periods that the underlying feedstock purchase affects income. The net gain from the foreign currency hedges included in AOCL at December 31, 20152016 was $4$22 million after tax (net gain of $31$4 million after tax at December 31, 2014)2015). DuringIn 2016, 2015 2014 and 2013,2014, there was no material impact on the consolidated financial statements due to

foreign currency hedge ineffectiveness. At December 31, 2015,2016, the Company had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a notional U.S. dollar equivalent of $398$1,411 million ($374398 million at December 31, 2014)2015).

Commodity swaps, futures and option contracts with maturities of not more than 48 months are utilized and designated as cash flow hedges of forecasted commodity purchases. Current open contracts hedge forecasted transactions until December 2020. The effective portion of the mark-to-market effect of the cash flow hedge instrument is recorded in AOCL; it is reclassified to income in the same period or periods that the underlying commodity purchase affects income. The net loss from commodity hedges included in AOCL at December 31, 20152016 was $180$99 million after tax ($96180 million after tax loss at December 31, 2014)2015). DuringIn 2016, 2015 2014 and 2013,2014, there was no material impact on the consolidated financial statements due to commodity hedge ineffectiveness. At December 31, 20152016 and 2014,2015, the Company had the following gross aggregate notionals of outstanding commodity forward, options and futures contracts to hedge forecasted purchases:
CommodityDec 31, 2015
 Dec 31,
2014

 Notional Volume UnitDec 31, 2016
 Dec 31,
2015

 Notional Volume Unit
Corn1.0
 1.3
 million bushels0.4
 1.0
 million bushels
Crude Oil0.4
 0.5
 million barrels0.6
 0.4
 million barrels
Ethane
 0.9
 million barrels3.6
 
 million barrels
Natural Gas257.4
 192.5
 million million British thermal units78.6
 257.4
 million British thermal units
Propane1.5
 
 million barrels
Soybeans1.4
 1.2
 million bushels
 1.4
 million bushels

The net after-tax amounts to be reclassified from AOCL to income within the next 12 months are a $27$14 million lossgain for commodity contracts, a $4$22 million gain for foreign currency contracts and a $2 million loss for interest rate contracts.

Fair Value Hedges
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current period income and reflected as “Interest expense and amortization of debt discount” in the consolidated statements of income. The short-cut method is used when the criteria are met. During 2015, the Company entered into and subsequently terminated an interest rate swap designated as a fair value hedge of an underlying fixed rate debt obligation with a maturity date of May 2019. The fair value adjustmentsadjustment resulting from this swap werewas a gain on the derivative of less than $1 million. At December 31, 20152016 and 2014,2015, the Company had no open interest rate swaps designated as fair value hedges of underlying fixed rate debt obligations.

Net Foreign Investment Hedges
For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or loss on the derivative is included in “Cumulative Translation Adjustments” in AOCL. At December 31, 2015 and 2014, theThe Company had no open forwardforeign currency contracts or outstanding options to buy, sell or exchange foreign currencies designated as net foreign investment hedges. Athedges with a gross notional U.S. dollar equivalent of $2,641 million at December 31, 2015,2016 (zero at December 31, 2015). In addition, at December 31, 2016, the Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $166$172 million ($167166 million at December 31, 2014)2015). The results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCL was a net gain of $1 million after tax for the period ended December 31, 20152016 (net gain of $15$1 million after tax for the period ended December 31, 2014)2015). DuringIn 2016, 2015 2014 and 20132014 there was no material impact on the consolidated financial statements due to hedge ineffectiveness. See Note 24 for further detail on changes in AOCL.


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Other Derivative Instruments
The Company utilizes futures, options and swap instruments that are effective as economic hedges of commodity price exposures, but do not meet hedge accounting criteria for derivatives and hedging. At December 31, 20152016 and 2014,2015, the Company had the following gross aggregate notionals of outstanding commodity contracts:

CommodityDec 31,
2015

Dec 31,
2014

 Notional Volume UnitDec 31,
2016

Dec 31,
2015

 Notional Volume Unit
Ethane
0.2
 million barrels2.6

 million barrels
Gasoline
15.0
 kilotons30.0

 kilotons
Naphtha Price Spread15.0
91.0
 kilotons50.0
15.0
 kilotons
Natural Gas
0.5
 million million British thermal units
Propane0.5

 million barrels2.7
0.5
 million barrels


The Company also uses foreign exchange forward contracts, options and cross-currency swaps that are not designated as hedging instruments primarily to manage foreign currency exposure. The Company had open foreign exchange contracts and cross-currency swaps with various expiration dates to buy, sell or exchange foreign currencies with a gross notional U.S. dollar equivalent of $14,515$12,388 million at December 31, 20152016 ($20,15614,515 million at December 31, 2014)2015) and had no open interest rate swaps at December 31, 20152016 and December 31, 2014.2015.

The following table provides the fair value and gross balance sheet classification of derivative instruments at December 31, 20152016 and 20142015:

Fair Value of Derivative Instruments
In millions
Balance Sheet Classification 2015
 2014
Balance Sheet Classification 2016
 2015
Asset Derivatives        
Derivatives designated as hedges:        
CommoditiesOther current assets $3
 $4
Other current assets $42
 $3
CommoditiesDeferred charges and other assets 10
 
Foreign currencyAccounts and notes receivable – Other 5
 25
Accounts and notes receivable – Other 90
 5
Total derivatives designated as hedges  $8
 $29
  $142
 $8
Derivatives not designated as hedges:        
CommoditiesOther current assets $13
 $4
CommoditiesOther current assets $4
 $2
Deferred charges and other assets 12
 
Foreign currencyAccounts and notes receivable – Other 156
 91
Accounts and notes receivable – Other 103
 156
Total derivatives not designated as hedges  $160
 $93
  $128
 $160
Total asset derivatives  $168
 $122
  $270
 $168
Liability Derivatives        
Derivatives designated as hedges:        
Interest ratesAccounts payable – Other $4
 $12
Accrued and other current liabilities $3
 $3
Interest ratesOther noncurrent obligations 2
 1
CommoditiesAccounts payable – Other 28
 58
Accrued and other current liabilities 32
 28
CommoditiesOther noncurrent obligations 234
 48
Other noncurrent obligations 196
 234
Foreign currencyAccounts payable – Other 1
 
Accrued and other current liabilities 55
 1
Total derivatives designated as hedges  $267
 $118
  $288
 $267
Derivatives not designated as hedges:        
CommoditiesAccounts payable – Other $
 $2
Accrued and other current liabilities $4
 $
CommoditiesOther noncurrent obligations 2
 
Foreign currencyAccounts payable – Other 83
 161
Accounts payable – Other 84
 83
Total derivatives not designated as hedges  $83
 $163
  $90
 $83
Total liability derivatives  $350
 $281
  $378
 $350

Foreign currency derivatives not designated as hedges are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. The amount charged on a pretax basis related to foreign currency derivatives not designated as a hedge, which is included in "Sundry income (expense) - net" in the consolidated statements of income, was a loss of $318$180 million for 2016, loss of $318 million for 2015 and loss of $333 million for 2014 and gain of $89 million for 2013.2014. See Note 13 for the net impact of foreign exchange transactions.



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NOTE 12 – FAIR VALUE MEASUREMENTS
  
Fair Value Measurements on a Recurring Basis
The following tables summarize the bases used to measure certain assets and liabilities at fair value on a recurring basis:

Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2015
In millions
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

 
Counterparty
and Cash
Collateral
Netting (1)

 Total  
Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2016
In millions
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

 
Counterparty
and Cash
Collateral
Netting (1)

 Total  
Assets at fair value:                  
Cash equivalents (2)
$
 $5,043
 $
 $
 $5,043
$
 $500
 $
 $
 $500
Interests in trade accounts receivable conduits (3)

 
 943
 
 943

 
 1,237
 
 1,237
Equity securities (4)
564
 39
 
 
 603
619
 87
 
 
 706
Debt securities: (4)
                  
Government debt (5)

 612
 
 
 612

 608
 
 
 608
Corporate bonds
 651
 
 
 651

 645
 
 
 645
Derivatives relating to: (6)
                  
Commodities5
 2
 
 (1) 6
48
 29
 
 (21) 56
Foreign currency
 161
 
 (52) 109

 193
 
 (109) 84
Total assets at fair value$569

$6,508
 $943
 $(53) $7,967
$667

$2,062
 $1,237
 $(130) $3,836
Liabilities at fair value:                  
Long-term debt (7)
$
 $18,000
 $
 $
 $18,000
$
 $22,807
 $
 $
 $22,807
Derivatives relating to: (6)
                  
Interest rates
 4
 
 
 4

 5
 
 
 5
Commodities6
 256
 
 (14) 248
20
 214
 
 (21) 213
Foreign currency
 84
 
 (52) 32

 139
 
 (109) 30
Total liabilities at fair value$6

$18,344
 $

$(66)
$18,284
$20

$23,165
 $

$(130)
$23,055
(1)CashCounterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
(2)Treasury Bills and money market funds included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized cost, which approximates fair value.
(3)
Included in "Accounts and notes receivable – Other" in the consolidated balance sheets. See Note 16 for additional information on transfers of financial assets.
(4)The Company’s investments in equity and debt securities are primarily classified as available-for-sale and are included in “Other investments” in the consolidated balance sheets.
(5)U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
(6)
See Note 11 for the classification of derivatives in the consolidated balance sheets.
(7)
See Note 11 for information on fair value measurements of long-term debt.


100


Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2014
In millions
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

 
Counterparty
and Cash
Collateral
Netting (1)

 Total  
Basis of Fair Value Measurements
on a Recurring Basis
at December 31, 2015
In millions
Quoted Prices
in Active
Markets for
Identical Items
(Level 1)

 
Significant
Other
Observable
Inputs
(Level 2)

 
Significant
Unobservable
Inputs
(Level 3)

 
Counterparty
and Cash
Collateral
Netting (1)

 Total  
Assets at fair value:                  
Cash equivalents (2)
$
 $2,705
 $
 $
 $2,705
$
 $5,043
 $
 $
 $5,043
Interests in trade accounts receivable conduits (3)

 
 1,328
 
 1,328

 
 943
 
 943
Equity securities (4)
692
 36
 
 
 728
564
 39
 
 
 603
Debt securities: (4)
                  
Government debt (5)

 584
 
 
 584

 612
 
 
 612
Corporate bonds
 697
 
 
 697

 651
 
 
 651
Derivatives relating to: (6)
                  
Commodities
 6
 
 (3) 3
5
 2
 
 (1) 6
Foreign currency
 116
 
 (90) 26

 161
 
 (52) 109
Total assets at fair value$692
 $4,144
 $1,328
 $(93) $6,071
$569
 $6,508
 $943
 $(53) $7,967
Liabilities at fair value:                  
Long-term debt (7)
$
 $21,450
 $
 $
 $21,450
$
 $18,000
 $
 $
 $18,000
Derivatives relating to: (6)
                  
Interest Rates
 12
 
 
 12

 4
 
 
 4
Commodities9
 99
 
 (27) 81
6
 256
 
 (14) 248
Foreign currency

 161
 
 (90) 71

 84
 
 (52) 32
Total liabilities at fair value$9
 $21,722
 $
 $(117) $21,614
$6
 $18,344
 $
 $(66) $18,284
(1)CashCounterparty and cash collateral amounts represent the estimated net settlement amount when applying netting and set-off rights included in master netting arrangements between the Company and its counterparties and the payable or receivable for cash collateral held or placed with the same counterparty.
(2)Treasury Bills and money market funds included in "Cash and cash equivalents" in the consolidated balance sheets and held at amortized cost, which approximates fair value.
(3)
Included in "Accounts and notes receivable – Other" in the consolidated balance sheets. See Note 16 for additional information on transfers of financial assets.
(4)The Company’s investments in equity and debt securities are primarily classified as available-for-sale and are included in “Other investments” in the consolidated balance sheets.
(5)U.S. Treasury obligations, U.S. agency obligations, agency mortgage-backed securities and other municipalities’ obligations.
(6)
See Note 11 for the classification of derivatives in the consolidated balance sheets.
(7)
See Note 11 for information on fair value measurements of long-term debt.

Assets and liabilities related to forward contracts, interest rate swaps, currency swaps, options and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement are netted. Collateral accounts are netted with corresponding liabilities. The Company posted cash collateral of $26less than $1 million at December 31, 20152016 ($2926 million of cash collateral at December 31, 2014)2015).
For assets and liabilities classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks.
For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
For all other assets and liabilities for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models. See Note 11 for further information on the types of instruments used by the Company for risk management.

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There were no transfers between Levels 1 and 2 during the years ended December 31, 20152016 and December 31, 2014.2015.
For assets classified as Level 3 measurements, the fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity. The fair value of the Company’s interests held in trade receivable conduits is determined by calculating the expected amount of cash to be received using the key input of anticipated credit losses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the underlying receivables, discount rate and prepayments are not factors in determining the fair value of the interests. See Note 16 for further information on assets classified as Level 3 measurements.
The following table summarizes the changes in fair value measurements using Level 3 inputs for the years ended December 31, 20152016 and 20142015:

Fair Value Measurements Using Level 3 Inputs for Interests Held in Trade Receivable Conduits (1)
2015
 2014
2016
 2015
In millions
Balance at January 1$1,328
 $1,227
$943
 $1,328
Gain included in earnings (2)
2
 9
Gain (Loss) included in earnings (2)
(1) 2
Purchases647
 1,171
1,552
 647
Settlements(1,034) (1,079)(1,257) (1,034)
Balance at December 31$943
 $1,328
$1,237
 $943
(1)Included in "Accounts and notes receivable – Other" in the consolidated balance sheets.
(2)Included in "Selling, general and administrative expenses" in the consolidated statements of income.

Fair Value Measurements on a Nonrecurring Basis
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a nonrecurring basis in the consolidated balance sheets in 2016, 2015 2014 and 2013:2014:

Basis of Fair Value Measurements
on a Nonrecurring Basis
 Significant
Other
Unobservable
Inputs

 



Total

Basis of Fair Value Measurements on a Nonrecurring Basis
at December 31
 Quoted Prices in Active Markets for Identical Items
Significant
Other
Unobservable
Inputs

 
In millions (Level 3)
 Losses
 (Level 1)
(Level 3)
Total Losses
2016  
Assets at fair value:  
Long-lived assets, other assets and equity method investments $46
$
$(296)
2015      
Assets at fair value:      
Long-lived assets, equity method investments, investments and other assets $24
 $(313) $
$24
$(313)
2014      
Assets at fair value:      
Long-lived assets and other assets $4
 $(73) $
$4
$(73)
2013    
Assets at fair value:    
Long-lived assets, other assets and equity method investments $127
 $(178)

2016 Fair Value Measurements on a Nonrecurring Basis
As part of the 2016 restructuring plan, the Company has or will shut down a number of manufacturing and corporate facilities. The manufacturing facilities and related assets, corporate facilities and data centers associated with this plan were written down to zero in the second quarter of 2016. The Company also rationalized its aircraft fleet in the second quarter of 2016. Certain aircraft, classified as a Level 3 measurement, were considered held for sale and written down to fair value, using unobservable inputs, including assumptions a market participant would use to measure the fair value of the aircraft. The aircraft were subsequently sold during the second half of 2016. The impairment charges related to the 2016 restructuring plan, totaling$153 million, were included in "Restructuring charges (credits)" in the consolidated statements of income. See Note 3 for additional information on the Company's restructuring activities.

The Company recognized an impairment charge of $143 million in the fourth quarter of 2016, related to its equity interest in AFSI. This investment, classified as a Level 1 measurement, was written down to $46 million using quoted prices in an active market. The impairment charge was included in “Sundry income (expense) - net" in the consolidated statements of income and reflected in Agricultural Sciences. See Notes 5, 9 and 13 for additional information.

2015 Fair Value Measurements on a Nonrecurring Basis
As part of the 2015 restructuring plan that was approved on April 29, 2015, the Company has or will shut down a number of manufacturing facilities. The manufacturing assets and facilities associated with this plan, classified as Level 3 measurements, were written down to $7 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets. In addition, a change in the Company's strategy to monetize and exit certain Venture Capital portfolio investments resulted in the write-down of certain investments. These investments, also classified as Level 3 measurements, were valued at $17 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the investment. These impairment charges, totaling $169 million, are included in "Restructuring charges (credits)" in the consolidated statements of income. See Note 3 for additional information on the Company's 2015 restructuring program.

As a result of the Company’s continued actions to optimize its footprint, the Company recognized an impairment charge of $144 million in the fourth quarter of 2015, related to manufacturing assets and facilities and an equity method investment. These assets, classified as Level 3 measurements, were written down to zero. The impairment charges were included in "Cost of

102


sales" ($91 million) and "Sundry income (expense) - net" ($53 million) in the consolidated statements of income and reflected in Infrastructure Solutions ($87 million) and Performance Plastics ($57 million).

2014 Fair Value Measurements on a Nonrecurring Basis
As a result of weakening demand for certain optical and ceramic technologies, the Company recognized a $73 million asset impairment charge in the fourth quarter of 2014 in the Dow Electronic Materials business. The charge was included in "Cost of sales" ($23 million) and "Goodwill and other intangible asset impairment losses" ($50 million) in the consolidated statements of income and reflected in Consumer Solutions. The assets, classified as Level 3 measurements, were written down to $4 million based on a valuation using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets, which included projected cash flows.

2013 Fair Value Measurements on a Nonrecurring Basis
As a result of Dow's announcement of its new market-driven growth strategy, the Company recognized a $178 million asset impairment charge in the fourth quarter of 2013, including charges for manufacturing plant shutdowns. The charge was included in "Cost of sales" ($175 million) and "Amortization of intangibles" ($3 million) in the consolidated statements of income and impacted the following businesses/operating segments: Energy & Water Solutions and Performance Monomers businesses, part of the Infrastructure Solutions segment ($93 million); Chlor-Alkali and Vinyl, Epoxy and Polyurethanes businesses, part of the Performance Materials & Chemicals segment ($70 million); and Corporate ($15 million). The assets, classified as Level 3 measurements, were valued at $127 million using unobservable inputs, including assumptions a market participant would use to measure the fair value of the group of assets, which included projected cash flows. The carrying value by segment was as follows: Infrastructure Solutions assets were valued at $100 million; Performance Materials & Chemicals assets were valued at $9 million; and Corporate assets were valued at $18 million.


NOTE 13 – SUPPLEMENTARY INFORMATION

Sundry Income (Expense) – Net 
  
 
  
 
  
In millions 2015
 2014
 2013
Gain on sales of other assets and investments (1)
 $237
 $40
 $98
Foreign exchange loss (191) (61) (31)
Gain on split-off of chlorine value chain (2)
 2,233
 
 
Gain on sale of MEGlobal (3)
 723
 
 
Gain on divestiture of ANGUS Chemical Company (3)
 682
 
 
Gain on divestiture of AgroFresh business (3) (9)
 618
 
 
Gain on Univation step acquisition (4)
 361
 
 
Costs associated with portfolio and productivity actions (5)
 (119) (49) 
Gain on sale of Agricultural Sciences subsidiary (6)
 44
 
 
Gain on divestiture of Sodium Borohydride business (3)
 20
 
 
Loss on early extinguishment of debt (7)
 (8) 
 (329)
Gain on termination of ethylene off-take agreement 
 53
 
K-Dow settlement (8)
 
 
 2,161
Gain on sale of Polypropylene Licensing and Catalysts business (3)
 
 5
 451
Gain on sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P. 
 
 87
Gain on sale of ownership interest in Dow Kokam LLC (3)
 
 
 26
Reclassification of cumulative translation adjustments 
 (4) (12) 21
Other - net (4) (3) 70
Total sundry income (expense) – net $4,592
 $(27) $2,554
Sundry Income (Expense) – Net 
  
 
  
 
  
In millions 2016
 2015
 2014
Gain on sales of other assets and investments $170
 $237
 $40
Foreign exchange losses (126) (191) (61)
Gain on ownership restructure of Dow Corning (1)
 2,445
 
 
Settlement of the urethane matters class action lawsuit and opt-out cases (2)
 (1,235) 
 
Loss on partial impairment of equity interest in AgroFresh (3)
 (143) 
 
Costs associated with transactions and productivity actions (4)
 (41) (119) (49)
Implant liability adjustment 27
 
 
Gain (Loss) on divestiture of AgroFresh business (3) (5)
 (25) 618
 
Impact of split-off of chlorine value chain (6)
 6
 2,233
 
Gain (Loss) on sale of MEGlobal (3)
 (1) 723
 
Gain on sale of Agricultural Sciences subsidiary (7)
 
 44
 
Gain on divestiture of ANGUS Chemical Company (3)
 
 682
 
Gain on Univation step acquisition (1)
 
 361
 
Gain on divestiture of Sodium Borohydride business (3)
 
 20
 
Loss on early extinguishment of debt (8)
 
 (8) 
Gain on termination of ethylene off-take agreement 
 
 53
Gain on sale of Polypropylene Licensing and Catalysts business (3)
 
 
 5
Reclassification of cumulative translation adjustments 
 
 (4) (12)
Other - net 125
 (4) (3)
Total sundry income (expense) – net $1,202
 $4,592
 $(27)
(1)The 2013 gain on sales of other assets and investments also included a $21 million gain reported as "Reclassification of cumulative translation adjustments."See Note 4 for additional information.
(2)See Note 615 for additional information.
(3)See Note 5 for additional information.
(4)Transaction costs associated with the separation of the chlorine value chain.
(5)Includes a $5 million loss in 2016 ($8 million loss in 2015) on mark-to-market adjustments related to warrants.
(6)See Note 46 for additional information.
(5)Nonrecurring transaction costs associated with the separation of the chlorine value chain, the planned all-stock merger of equals with DuPont, the planned ownership restructure of Dow Corning, implementation of the restructuring program and productivity actions.
(6)(7)See Note 20 for additional information.
(7)(8)Excludes a $68 million loss on the early redemption on debt related to the split-off of the chlorine value chain. See Notes 6 and 17 for additional information.
(8)See Note 15 for additional information.
(9)Includes an $8 million loss on mark-to-market adjustments related to warrants.

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Other Income Statement Information 
  
 
  
 
  
 
  
 
  
 
  
In millions 
2015 (1)

 2014
 2013
 2016
 
2015 (1)

 2014
Provision for doubtful receivables (2)
 $1
 $52
 $59
 $22
 $1
 $52
(1)Dow's provision for doubtful accounts was lower in 2015 due to the adjustment of certain reserve rates based on historical write-off experience, the impact of lower selling prices and the impact of divestitures.
(2)Included in “Selling, general and administrative expenses” in the consolidated statements of income.


Supplemental Disclosure of Cash Flow Information 
  
 
  
 
  
 
  
 
  
 
  
In millions 2015
 2014
 2013
 2016
 2015
 2014
Cash payments for interest $1,137
 $1,038
 $1,191
 $1,192
 $1,137
 $1,038
Cash payments for income taxes $1,405
 $1,109
 $1,708
 $1,592
 $1,405
 $1,109

Accrued and Other Current Liabilities
“Accrued and other current liabilities” were $3,669 million at December 31, 2016 and $3,212 million at December 31, 2015 and $2,839 million at December 31, 2014.2015. Accrued payroll, which is a component of “Accrued and other current liabilities,” was $1,105 million at December 31, 2016 and $1,120 million at December 31, 2015 and $855 million at December 31, 2014.2015. No other component of accrued liabilities was more than 5 percent of total current liabilities.


Other Investments
The Company has investments in company-owned life insurance ("COLI") policies, which are recorded at their cash surrender value as of each balance sheet date, as provided below:
Investments in Company-owned Life Insurance at December 31
In millions2015
 2014
2016
 2015
Gross cash value$850
 $869
$834
 $850
Less: Outstanding borrowings58
 767
59
 58
Investment in Company-owned life insurance (1)
$792
 $102
$775
 $792
(1)    Classified as "Other investments" in the consolidated balance sheets.

During the fourth quarter ofIn 2015, the Company repaid $697 million of principal outstanding loan amounts plus accrued interest, which is reflected in "Purchases of investments" in the consolidated statements of cash flows.



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NOTE 14 – EARNINGS PER SHARE CALCULATIONS

The following tables provide the earnings per share calculations for the years ended December 31, 20152016, 20142015 and 2013:2014:

Net Income for Earnings Per Share Calculations - Basic
In millions
 2015
 2014
 2013
 2016
 2015
 2014
Net income attributable to The Dow Chemical Company $7,685
 $3,772
 $4,787
 $4,318
 $7,685
 $3,772
Preferred stock dividends (340) (340) (340) (340) (340) (340)
Net income attributable to participating securities (1)
 (51) (27) (38) (22) (51) (27)
Net income attributable to common stockholders $7,294
 $3,405
 $4,409
 $3,956
 $7,294
 $3,405

Earnings Per Share Calculations - Basic
Dollars per share
 2015
 2014
 2013
 2016
 2015
 2014
Net income attributable to The Dow Chemical Company $6.80
 $3.22
 $4.04
 $3.90
 $6.80
 $3.22
Preferred stock dividends (0.30) (0.29) (0.29) (0.31) (0.30) (0.29)
Net income attributable to participating securities (1)
 (0.05) (0.02) (0.03) (0.02) (0.05) (0.02)
Net income attributable to common stockholders $6.45
 $2.91
 $3.72
 $3.57
 $6.45
 $2.91

Net Income for Earnings Per Share Calculations - Diluted
In millions
 2015
 2014
 2013
 2016
 2015
 2014
Net income attributable to The Dow Chemical Company $7,685
 $3,772
 $4,787
 $4,318
 $7,685
 $3,772
Preferred stock dividends (2)
 
 (340) 
 (340) 
 (340)
Net income attributable to participating securities (1)
 (51) (27) (38) (22) (51) (27)
Net income attributable to common stockholders $7,634
 $3,405
 $4,749
 $3,956
 $7,634
 $3,405

Earnings Per Share Calculations - Diluted
Dollars per share
 2015
 2014
 2013
 2016
 2015
 2014
Net income attributable to The Dow Chemical Company $6.19
 $3.18
 $3.71
 $3.84
 $6.19
 $3.18
Preferred stock dividends (2)
 
 (0.29) 
 (0.30) 
 (0.29)
Net income attributable to participating securities (1)
 (0.04) (0.02) (0.03) (0.02) (0.04) (0.02)
Net income attributable to common stockholders $6.15
 $2.87
 $3.68
 $3.52
 $6.15
 $2.87

Share Count Information
Shares in millions
 2015
 2014
 2013
 2016
 2015
 2014
Weighted-average common shares - basic(3) 1,130.1
 1,170.9
 1,186.2
 1,108.1
 1,130.1
 1,170.9
Plus dilutive effect of stock options and awards 14.5
 16.1
 7.4
 15.1
 14.5
 16.1
Plus dilutive effect of assumed conversion of preferred stock (3)
 96.8
 
 96.8
Plus dilutive effect of preferred stock (4)
 
 96.8
 
Weighted-average common shares - diluted 1,241.4
 1,187.0
 1,290.4
 1,123.2
 1,241.4
 1,187.0
Stock options and deferred stock awards excluded from EPS calculations (4)(5)
 4.6
 5.8
 47.4
 1.9
 4.6
 5.8
(1)Deferred stock awards are considered participating securities due to Dow's practice of paying dividend equivalents on unvested shares.
(2)Preferred stock dividends were not added back in the calculation of diluted earnings per share for the periodperiods ended December 31, 2016 and December 31, 2014, because the effect of adding them backan assumed conversion of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") would have been antidilutive.
(3)ConversionOn December 30, 2016, the Company converted 4 million shares of Preferred Stock into 96.8 million shares of the Company's Cumulative Convertible Perpetual Preferred Stock, Series A intocommon stock. As a result of this conversion, 0.5 million shares of the Company’s common stock was excluded fromare included in "Weighted-average common shares - basic" for the period ended December 31, 2016.
(4)The calculation of diluted earnings per share for the period endedending December 31, 2014,2016, excludes 96.3 million shares of common stock because the effect of including theman assumed conversion of Preferred Stock for the full period would have been antidilutive.antidilutive (excludes 96.8 million shares for the period ended December 31, 2014).
(4)(5)These deferred stock awards and outstanding options to purchase shares of common stock and deferred stock awards were excluded from the calculation of diluted earnings per share because the effect of including them would have been antidilutive.



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NOTE 15 – COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters
Introduction
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. At December 31, 20152016, the Company had accrued obligations of $670$909 million for probable environmental remediation and restoration costs, including $74$151 million for the remediation of Superfund sites. These obligations are included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets. 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. 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 or cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 20142015, the Company had accrued obligations of $706670 million for probable environmental remediation and restoration costs, including $7874 million for the remediation of Superfund sites.

In the fourth quarter of 2016, the Company recorded a pretax charge of $295 million for environmental remediation at a number of historical locations, including the Midland manufacturing site/off-site matters and the Wood-Ridge sites, primarily resulting from the culmination of negotiations with regulators and/or final agency approval. These charges are included in "Cost of sales" in the consolidated statements of income and are included in the total accrued obligation of $909 million.

The following table summarizes the activity in the Company's accrued obligations for environmental matters for the years ended December 31, 20152016 and 20142015:

Accrued Obligations for Environmental Matters
In millions2015
 2014
2016
 2015
Balance at January 1$706
 $722
$670
 $706
Additional accruals230
 228
Charges against reserve(233) (219)
Accrual adjustment479
 230
Payments against reserve(246) (233)
Foreign currency impact(33) (25)6
 (33)
Balance at December 31$670
 $706
$909
 $670

The amounts charged to income on a pretax basis related to environmental remediation totaled $504 million in 2016, $218 million in 2015 and $227 million in 2014 and $203 million in 2013.2014. Capital expenditures for environmental protection were $66 million in 2016, $49 million in 2015 $78and $78 million in 2014 and $102 million in 2013.2014.

Midland Off-Site Environmental Matters
On June 12, 2003, the Michigan Department of Environmental Quality ("MDEQ") issued a Hazardous Waste Operating License (the "License") to the Company’s Midland, Michigan manufacturing site (the “Midland site”), which was renewed and replaced by the MDEQ on September 25, 2015, and included provisions requiring the Company to conduct an investigation to determine the nature and extent of off-site contamination in the City of Midland soils, the Tittabawassee River and Saginaw River sediment and floodplain soils, and the Saginaw Bay, and, if necessary, undertake remedial action.

City of Midland
On March 6, 2012, the Company submitted an Interim Response Activity Plan Designed to Meet Criteria ("Work Plan") to the MDEQ that involved the sampling of soil at residential properties near the Midland site for the presence of dioxins to determine where clean-up may be required and then conducting remediation for properties that samplesampled above the remediation criteria. The MDEQ approved the Work Plan on June 1, 2012 and implementation of the Work Plan began on June 4, 2012. The Company also submitted and had approved by the MDEQ, amendments to the Work Plan. As of December 31, 2014, remediation was completed on all 132 properties that tested above the remediation criteria, and this completion is noted in the License. On July 21, 2016, the MDEQ approved a Corrective Action report, including a Remedial Action Plan ("RAP"), for the City of Midland. This is the final regulatory approval required for the City of Midland. Dow is implementing the monitoring and maintenance requirements of the RAP.


Tittabawassee and Saginaw Rivers, Saginaw Bay
The Company, the U.S. Environmental Protection Agency (“EPA”) and the State of Michigan ("State") entered into an administrative order on consent (“AOC”), effective January 21, 2010, 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 pay the oversight costs of the EPA and the State under the authority of the Comprehensive Environmental Response, Compensation, and Liability Act. These actions, to be conducted under the lead oversight of the EPA, will build

106


upon the investigative work completed under the State Resource Conservation Recovery Act program from 2005 through 2009.

The Tittabawassee River, beginning at the Midland Site and extending down to the first six miles of the Saginaw River, are designated as the first Operable Unit for purposes of conducting the remedial investigation, feasibility study and remedial design work. This work will be performed in a largely upriver to downriver sequence for eight geographic segments of the Tittabawassee and upper Saginaw Rivers. In the first quarter of 2012, the EPA requested the Company address the Tittabawassee River floodplain ("Floodplain") as an additional segment. In August 2014, the EPA proposed for public comment the techniques that can be used to remedy the Floodplain, including proposed site specific clean-up criteria. In January 2015, the Company and the EPA entered into an order to address remediation of the Floodplain. The remedial work is expected to take place over the next sixfive years. The remainder of the Saginaw River and the Saginaw Bay are designated as a second Operable Unit and the work associated with that unit may also be geographically segmented. The AOC does not obligate the Company to perform removal or remedial action; that action can only be required by a separate order. The Company and the EPA will be negotiating orders separate from the AOC that will obligate the Company to perform remedial actions under the scope of work of the AOC. The Company and the EPA have entered into three separate orders to perform limited remedial actions to implement early actions - twothree separate orders to address remedial actions in twothree of the nine geographic segments in the first Operable Unit - and the order to address the Floodplain.

Alternative Dispute Resolution Process
The Company, the EPA, the U.S. Department of Justice, and the natural resource damage trustees (which include the Michigan Office of the Attorney General, the MDEQ, the U.S. Fish and Wildlife Service, the U.S. Bureau of Indian Affairs and the Saginaw-Chippewa tribe) have been engaged in negotiations to seek to resolve potential governmental claims against the Company related to historical off-site contamination associated with the City of Midland, the Tittabawassee and Saginaw Rivers and the Saginaw Bay. The Company and the governmental parties started meeting in the fall of 2005 and entered into a Confidentiality Agreement in December 2005. The Company continues to conduct negotiations under the Federal Alternative Dispute Resolution Act with all of the governmental parties, except the EPA which withdrew from the alternative dispute resolution process on September 12, 2007.

On September 28, 2007, the Company and the natural resource damage trustees entered into a Funding and Participation Agreement that addressed the Company’s payment of past costs incurred by the natural resource damage trustees, payment of the costs of a trustee coordinator and a process to review additional cooperative studies that the Company might agree to fund or conduct with the natural resource damage trustees. On March 18, 2008, the Company and the natural resource damage trustees entered into a Memorandum of Understanding ("MOU") to provide a mechanism for the Company to fund cooperative studies related to the assessment of natural resource damages. This MOU was amended and funding of cooperative studies was extended until March 2014. All cooperative studies have been completed. On April 7, 2008, the natural resource damage trustees released their “Natural Resource Damage Assessment Plan for the Tittabawassee River System Assessment Area.”

At December 31, 2015,2016, the accrual for these off-site matters was $62$93 million (included in the total accrued obligation of $670$909 million). At December 31, 2014,2015, the Company had an accrual for these off-site matters of $62 million (included in the total accrued obligation of $706$670 million).

Environmental Matters Summary
It is the opinion of the Company’s management that the possibility is remote that costs in excess of those disclosed will have a material impact on the Company’s results of operations, financial condition or cash flows.


Litigation
Asbestos-Related Matters of Union Carbide Corporation
Introduction
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 four 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”).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.


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Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Estimating the Liability for Asbestos-Related Pending and Future Claims
Based on a study completed in January 2003 by Analysis, Research & Planning Corporation (“ARPC”(now known as Ankura Consulting Group, LLC ("Ankura") in January 2003,as a result of the March 2016 merger of Analysis, Research & Planning Corporation and Ankura), Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for thea 15-year period ending in 2017 to $2.2$2.2 billion,, excluding future defense and processing costs. Since then, Union Carbide has compared current asbestos claim and resolution activity to the results of the most recent ARPCAnkura study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, Union Carbide has requested ARPCAnkura to review Union Carbide’s historical asbestos claim and resolution activity each year since 2004 to determine the appropriateness of updating the most recent ARPCAnkura study.

In October 2013,2014, Union Carbide requested ARPCAnkura to review its historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2012 study. In response to that request, ARPC reviewed and analyzed data through September 30, 2013. In December 2013, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its December 2012 study and, therefore, the estimate in that study remained applicable. Based on Union Carbide’s own review of the asbestos claim and resolution activity and ARPC’s response, Union Carbide determined that no change to the accrual was required.

In October 2014, Union Carbide requested ARPC to review its historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2012 study. In response to that request, ARPCAnkura reviewed and analyzed data through September 30, 2014. The resulting study, completed by ARPCAnkura in December 2014, estimates thatestimated the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem, excluding future defense and processing costs, to bewas between $540 million and $640 million through 2029 based on the data as of September 30, 2014. As in earlier studies, ARPC provided longer periods of time in its December 2014 study, but also reaffirmed that forecasts for shorter periods of time are more accurate than those for longer periods of time.

In December 2014, based on ARPC'sAnkura's December 2014 study and Union Carbides'sCarbide's own review of the asbestos claim and resolution activity, Union Carbide determined that an adjustment to the accrual was required due to the increase in mesothelioma claim activity compared with what had been forecasted in the December 2012 study. Accordingly, Union Carbide increased its asbestos-related liability for pending and future claims by $78 million, which was included in "Asbestos-related charge" in the consolidated statements of income. At December 31, 2014, the asbestos-related liability for pending and future claims was $513 million, withand approximately 22 percent of the recorded liability related to pending claims and approximately 78 percent related to future claims.

In October 2015, Union Carbide requested ARPCAnkura to review its historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2014 study. In response to that request, ARPCAnkura reviewed and analyzed data through September 30, 2015. In December 2015, ARPCAnkura stated that an update of its December 2014 study would not provide a more likely estimate of future events than the estimate reflected in the December 2014 study and, therefore, the estimate in that study remained applicable. Based on Union Carbide's own review of the asbestos claim and resolution activity and ARPC'sAnkura's response, Union Carbide determined that no change to the accrual would bewas required. At December 31, 2015, the asbestos-related liability for pending and future claims was $437 million. At December 31, 2015,million, and approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

In October 2016, Union Carbide requested Ankura to review its historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2014 study. In response to the request, Ankura reviewed and analyzed asbestos-related claim and resolution data through September 30, 2016. The resulting study, completed by Ankura in December 2016, provided estimates for the undiscounted cost of disposing of pending and future claims against Union Carbide and Amchem, excluding future defense and processing costs, for both a 15-year period and through the terminal year of 2049.

Based on the study completed in December 2016 by Ankura, and Union Carbide's own review of the asbestos claim and resolution activity, it was determined that an adjustment to the accrual was necessary. Union Carbide determined that using the estimate through the terminal year of 2049 was more appropriate due to increasing knowledge and data about the costs to resolve claims and diminished volatility in filing rates. Using the range in the Ankura December 2016 study, which was estimated to be between $502 million and $565 million for the undiscounted cost of disposing of pending and future claims, Union Carbide increased its asbestos-related liability for pending and future claims through the terminal year of 2049 by

$104 million, included in "Asbestos-related charge" in the consolidated statements of income. At December 31, 2016, Union Carbide's asbestos-related liability for pending and future claims was $486 million, and approximately 14 percent of the recorded liability related to pending claims and approximately 86 percent related to future claims.

Estimating the Asbestos-Related Liability for Defense and Processing Costs
In September 2014, Union Carbide began to implement a strategy designed to reduce and to ultimately stabilize and forecast defense costs associated with asbestos-related matters. The strategy included a number of important changes including: invoicing protocols including capturing costs by plaintiff; review of existing counsel roles, work processes and workflow; and the utilization of enterprise legal management software, which enabled claim-specific tracking of asbestos-related defense and processing costs. Union Carbide reviewed the information generated from this new strategy and determined that it now had the ability to reasonably estimate asbestos-related defense and processing costs for the same periods that it estimates its asbestos-related liability for pending and future claims. Union Carbide believes that including estimates of the liability for asbestos-related defense and processing costs provides a more complete assessment and measure of the liability associated with resolving asbestos-related matters, which Union Carbide and the Company believe is preferable in these circumstances.

In October 2016, in addition to the study for asbestos claim and resolution activity, Union Carbide requested Ankura to review asbestos-related defense and processing costs and provide an estimate of defense and processing costs associated with resolving pending and future asbestos-related claims facing Union Carbide and Amchem for the same periods of time that Union Carbide uses for estimating resolution costs. In December 2016, Ankura conducted the study and provided Union Carbide with an estimate of future defense and processing costs for both a 15-year period and through the terminal year of 2049. The resulting study estimated asbestos-related defense and processing costs for pending and future asbestos claims to be between $1,009 million and $1,081 million through the terminal year of 2049.

In the fourth quarter of 2016, Union Carbide and the Company elected to change their method of accounting for asbestos-related defense and processing costs from expensing as incurred to estimating and accruing a liability. This change is believed to be preferable as asbestos-related defense and processing costs represent expenditures related to legacy activities that do not contribute to current or future revenue generating activities of the Company. The change is also reflective of the manner in which Union Carbide manages its asbestos-related exposure, including careful monitoring of the correlation between defense spending and resolution costs. Together, these two sources of cost more accurately represent the “total cost” of resolving asbestos-related claims now and in the future.

This accounting policy change has been reflected as a change in accounting estimate effected by a change in accounting principle. As a result of this accounting policy change and based on the December 2016 Ankura study of asbestos-related defense and processing costs and Union Carbide's own review of the data, Union Carbide recorded a pretax charge for asbestos-related defense and processing costs of $1,009 million in the fourth quarter of 2016, included in “Asbestos-related charge” in the consolidated statements of income. Union Carbide’s total asbestos-related liability, including defense and processing costs, was $1,490 million at December 31, 2016, and was included in “Accrued and other current liabilities” and “Asbestos-related liabilities - noncurrent” in the consolidated balance sheets.

Insurance Receivables
At December 31, 2002, Union Carbide increased the receivablehas receivables for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined by Union Carbide after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which Union Carbide and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of Union Carbide’s insurance policies and to resolve issues that the insurance carriers may raise.

In September 2003, Union Carbide filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with Union Carbide regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, Union Carbide

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has reached settlements with most of the carriers involved in the Insurance Litigation and continues to pursue a settlement with the remaining carrier. Union Carbide’s receivable for insurance recoveries related to its asbestos liability was $10 million at December 31, 2015 and $10 million at December 31, 2014.

In addition to the receivable for insurance recoveries related to its asbestos liability, Union Carbide had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage. The following table summarizes Union Carbide’s receivables related to its asbestos-related liability:

Receivables for Asbestos-Related Costs at December 31
In millions
2015
 2014
Receivables for defense and resolution costs – carriers with settlement agreements$51
 $69
Receivables for insurance recoveries – carriers without settlement agreements10
 10
Total$61
 $79

After a review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, Union Carbide continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

At December 31, 2016, Union Carbide expenses defense costs as incurred. The pretax impactCarbide’s receivable for insurance recoveries related to its asbestos liability and defense and resolution costs net of insurance, was $83$41 million in 2015, $108($61 million in 2014 and $107 million in 2013, and was reflected in “Cost of sales” in the consolidated statements of income. at December 31, 2015).

Summary
The Company’s management believes the amounts recorded by Union Carbide for the asbestos-related liability (including defense and related insurance receivable described above wereprocessing costs) reflect reasonable and probable estimates of the liability based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year and the average cost of defending and disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for Union Carbide to be higher or lower than those projected or those recorded.

Because of Any such events could result in an increase or decrease in the uncertainties described above, Union Carbide’s management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. Union Carbide’s management believes that it is reasonably possible that the cost of disposing of Union Carbide’s asbestos-related claims, including future defense costs, could have a material impact on Union Carbide’s results of operations and cash flows for a particular period and on the consolidated financial position of Union Carbide.

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.recorded liability.

Urethane Matters
Class Action Lawsuit
On February 16, 2006, the Company, among others, received a subpoena from the U.S. Department of Justice ("DOJ") as part of a previously announced antitrust investigation of manufacturers of polyurethane chemicals, including methylene diphenyl diisocyanate, toluene diisocyanate, polyether polyols and system house products. The Company cooperated with the DOJ and, following an extensive investigation, on December 10, 2007, the Company received notice from the DOJ that it had closed its investigation of potential antitrust violations involving these products without indictments or pleas.

In 2005, the Company, among others, was named as a defendant in multiple civil class action lawsuits alleging a conspiracy to fix the price of various urethane chemical products, namely the products that were the subject of the above described DOJ antitrust investigation. These lawsuits were consolidated in the U.S. District Court for the District of Kansas (the "District Court") or have been tolled. On July 29, 2008, the District Courta Kansas City federal district court (the "district court") certified a class of purchasers of the products for the six-year period from 1999 through 2004.2004 ("plaintiff class"). In January 2013, the class action lawsuit went to trial in the District Court with the Company as the sole remaining defendant, the other defendants having previously settled. On February 20, 2013, the federal jury returned a damages verdict of approximately $400 million against the Company, which ultimately was trebled by the District Court under applicable antitrust laws, less offsets from other settling defendants, resulting in a judgment entered in July 2013 in the amount of $1.06 billion. The Company appealed this judgment to the U.S. Tenth Circuit Court of Appeals ("Tenth Circuit" or "Court of Appeals"), and on September 29, 2014, the Court of Appeals issued an opinion affirming the District Courtdistrict court judgment. On

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October 14, 2014, the Company filed a petition for Rehearing or Rehearing En Banc (collectively the "Rehearing Petition") with the Court of Appeals, which was denied on November 7, 2014.

On March 9, 2015, the Company filed a petition for writ of certiorari ("Writ Petition") with the U.S. Supreme Court, seeking judicial review by the Supreme Court and requesting that it correct fundamental errors in the Circuit Court opinion. While it is unknowable whether or not the Supreme Court will accept the Writ Petition for review, there are several compelling reasons why the Supreme Court should grant the Writ Petition and, if it is accepted, the Company believes it is likely that the District Court judgment will be vacated. Specifically, it is the Company's position that the Tenth Circuit decision violates the law as expressed by the Supreme Court as set out in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Tenth Circuit also did not follow accepted law from other federal circuits on dispositive case issues, including legal precedent from the U.S. First, Second, Third, Fifth, Ninth and D.C. Circuit Courts. Finally, the Company argues that the erroneous law applied by the Tenth Circuit is not supported by any other federal circuit court. In April 2015, six amici filed amicus briefs in support of the Company's Writ Petition. The parties briefing is now complete. Dow filed its reply brief on May 22, 2015. On June 8, 2015, the Supreme Court granted a petition for a writ of certiorari in another case, Tyson Foods, Inc. v. Bouaphakeo, PEG, et al., ("Tyson Foods") (Supreme Court No. 14-1146), which presented an issue core to the questions presented in the Company's Writ Petition: whether class-wide damages can be determined by simply applying the average injury observed in a sample. The Company's caseCompany was considered byadvised that its Writ Petition was being held pending the Supreme Court's consideration of the merits in Tyson Foods.

In the first quarter of 2016, the Company changed its risk assessment on this matter as a result of growing political uncertainties due to events within the Supreme Court, including Justice Scalia's death, and the increased likelihood for unfavorable outcomes for businesses involved in conference on June 11, 2015.class action lawsuits. On June 15, 2015,February 26, 2016, the Supreme Court issued its decisions from its conferenceCompany announced a proposed settlement under which the Company would pay the plaintiff class $835 million, which included damages, class attorney fees and did not rule on the Company's Writ Petition. Subsequently, the Writ Petition has not been listed for further consideration by the Supreme Court at its weekly conferences.post-judgment interest. The Company has been advised that this means that the Supreme Court is withholding further considerationdistrict court granted final approval of the Company's Writ Petition while it considerssettlement on July 29, 2016, and the Tyson Foods case on the merits. As a result, the Company does not expect any further action on its Writ Petition until sometime in 2016. The Company believes that the Supreme Court has accepted Tyson Foods for the compelling reasons also advancedsettlement amount, having previously been funded by the Company in its Writ Petition and that the Supreme Court will issueinto an opinion in Tyson Foods that is favorableescrow account, was released to a court administrator for distribution to the Company's case. Accordingly, on August 14, 2015, the Company filed an amicus brief in Tyson Foods supporting Tyson Foods’ position.various class members. The Tyson Foods oral argument occurred before the Supreme Court on November 10, 2015. The Company expects a decision from the Supreme Court on Tyson Foods in the first half of 2016, after which, depending on the result, the Supreme Court likely will consider the Company's Writ Petition.

The Company has consistently denied plaintiffs’ allegations of price fixing and, as outlined above, the Company will continue to vigorously defend this litigation. As with any litigation and based on various factors, the Company has had and may from time to time pursue confidential settlement negotiations to resolve the matter. As part of the Company’s review of the jury verdict, the resulting judgment and the Court of Appeals’ opinion, the Company assessed the legal and factual circumstances of the case, the trial record, the appellate record, the briefing before the Supreme Court in Tyson Foods and the applicable law including clear precedent from the Supreme Court. Based on this review and the reasons stated above, the Company believes that the District Court judgment and decision from the Court of Appeals are not appropriate. As a result, the Company has concluded it is not probable that a loss has been incurred and, therefore, a liability has not been recorded with respect to this matter. While the Company believes it is not probable a loss will occur, the existence of the jury verdict, the Court of Appeals' opinion, and subsequent denial of the Company's Rehearing Petition indicate that it is reasonably possible that a loss could occur. The estimate of the possible range of loss to the Company is zero toresolves the $1.06 billion judgment (excludingand any subsequent claim for attorneys' fees, costs and post-judgment interest against the Company. As a result, in the first quarter of 2016, the Company recorded a loss of $835 million, included in "Sundry income (expense) - net" in the consolidated statements of income and possible awardreflected in the Performance Materials & Chemicals segment. The Company continues to believe that it was not part of any conspiracy and the judgment was fundamentally flawed as a matter of class attorney fees).action law.

Opt-Out Cases
Shortly after the July 2008 class certification ruling, a series of "opt-out" cases were filed by a number of large volume purchasers who elected not to be class members.members in the district court case. These opt-out cases arewere substantively identical to the class action lawsuit, but expanded the period of time to include 1994 through 1998. On September 30, 2014, the opt-out cases, which had beenA consolidated with the class action lawsuit for purposes of pre-trial proceedings were remanded from the District Court to the U.S. District Court for the District of New Jersey. A consolidatedjury trial of the opt-out cases is set to beginbegan on March 7,8, 2016. Prior to a jury verdict, on April 5, 2016, the Company entered into a binding settlement for the opt-out cases under which the Company would pay the named plaintiffs $400 million, inclusive of damages and attorney fees. Payment of this settlement occurred on May 4, 2016. The Company changed its risk assessment on this matter as a result of the class settlement and the uncertainty of a jury trial outcome along with the automatic trebling of an adverse verdict. As a result, the Company recorded a loss of $400 million in the first quarter of 2016, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Performance Materials & Chemicals segment. As with the class action case, the Company denies plaintiffs'continues to deny allegations of price fixing and maintains that the opt-out plaintiffs cannot prove a compensable injury. As a result, the Company has concluded it iswas not probable a loss has been incurred and, therefore, a liability is not recorded with respect to these cases.

In addition to the matters described above, there are two separate but inter-related matters in Ontario and Quebec, Canada. In March 2014, the Superior Courtpart of Justice in London, Ontario, ruled in favor of the plaintiffs’ motion for class certification.  The Company filed its Notice of Motion for Leave to Appeal in March 2014, which was subsequently denied. This matter is currently in the pretrial stage, but no trial date has been set. The Quebec case has been stayed pending the outcome of the Ontario case. For the same reasons stated above, a liability has not been recorded with respect to either Canadian matter.any conspiracy.

Bayer CropScience v. Dow AgroSciences ICC Arbitration
On August 13, 2012, Bayer CropScience AG and Bayer CropScience NV (together, “Bayer”) filed a request for arbitration with the International Chamber of Commerce ("ICC") International Court of Arbitration against Dow AgroSciences LLC, a wholly

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owned subsidiary of the Company, and other subsidiaries of the Company (collectively, “DAS”) under a 1992 license agreement executed by predecessors of the parties (the “License Agreement”). In its request for arbitration, Bayer alleged that (i) DAS breached the License Agreement, (ii) the License Agreement was properly terminated with no ongoing rights to DAS, (iii) DAS has infringed and continues to infringe its patent rights related to the use of the pat gene in certain soybean and cotton seed products, and (iv) Bayer is entitled to monetary damages and injunctive relief. DAS denied that it breached the License Agreement and asserted that the License Agreement remained in effect because it was not properly terminated. DAS also

asserted that all of Bayer’s patents at issue are invalid and/or not infringed, and, therefore, for these reasons (and others), a license was not required. During the pendency of the arbitration proceeding, DAS filed six re-examination petitions with the United States Patent & Trademark Office (“USPTO”) against the Bayer patents, asserting that each patent is invalid based on the doctrine against double-patenting and/or prior art. The USPTO granted all six petitions, and, on February 26, 2015, the USPTO issued an office action rejecting the patentability of the sole Bayer patent claim in the only asserted Bayer patent that has not expired (the "'962 patent") and that forms the basis for the vast majority of the damages in the arbitral award discussed below.

A three-member arbitration tribunal presided over the arbitration proceeding (the “tribunal”). In a decision dated October 9, 2015, the tribunal determined that (i) DAS breached the License Agreement, (ii) Bayer properly terminated the License Agreement, (iii) all of the patents remaining in the proceeding are valid and infringed, and (iv) that Bayer is entitled to monetary damages in the amount of $455 million inclusive of pre-judgment interest and costs (the “arbitral award”). One of the arbitrators, however, issued a partial dissent finding that all of the patents are invalid based on the double-patenting doctrine. The tribunal also denied Bayer’s request for injunctive relief. The arbitration award is not self-executing, and must be confirmed by a court for it to be enforceable and to have the legal effect of a judgment. On October 16, 2015, Bayer filed a motion in U.S. District Court for the Eastern District of Virginia ("federal district court") seeking to confirm the arbitral award (the “federal court proceeding”).award. DAS opposed the motion and filed separate motions to vacate the award, or in the alternative, to stay enforcement of the award until the USPTO issues final office actions with respect to the re-examination proceedings. On January 15, 2016, the federal district court denied DAS' motions and confirmed the award. The USPTO has now issued office actions rejecting the patentability of all four patents that Bayer asserted in the case. The USPTO re-examination proceedings remain ongoing. DAS has appealed the federal district court's decision, and DAS has posted a bond to stay enforcement of the award during the appeal. Briefing for the appeal is complete and oral argument at the U.S. Court of Appeals for the Federal Circuit has been scheduled for February 9, 2017.

The Company believes the arbitral award is fundamentally flawed in numerous respects and is confident that it will be vacated on appeal oncebecause it (i) violates U.S. public policy prohibiting enforcement of invalid patents, (ii) manifestly disregards applicable law, and (iii) disregards unambiguous contract provisions and ignores the essence of the applicable law is properly applied.contracts. The Company continues to believe that Bayer’s patents are invalid for multiple reasons and that the damages awarded cannot be supported under prevailing patent law, including U.S. Supreme Court precedent. The USPTO has issued office actions rejecting the patentability of all four patents that Bayer asserted in the case. In addition,January 2017, the USPTO issued final office actions for two of the patents asserted in the case, including the ‘962 patent, in which it rejected all relevant claims based on the doctrine against double-patenting. The re-examination proceedings with respect to the other two patents remain pending, although the Company anticipates that the USPTO will conclude with alikewise invalidate those patents under the double-patenting doctrine. Although Bayer may appeal these decisions to the U.S. Patent Trial and Appeal Board, the Company believes the USPTO final office action declaring each of the patents invalid in the pending re-examination proceedings whichactions will provide a strong basis to vacate the arbitral award. If the federal appellate court denies the Company's appeal, the Company can seek judicial review by the U.S. Supreme Court.

As part of the Company’s review of the arbitral award, the Company assessed the legal and factual circumstances of the case, the record of the arbitration and USPTO re-examination status, and the applicable law to vacate the arbitral award. Based on this review and the reasons stated above, the Company has concluded it is not probable that a loss has been incurred and, therefore, a liability has not been recorded with respect to this matter. While the Company believes it is not probable that a loss has been incurred, the existence of the arbitral award and the federal district court confirmation of the award indicates that it is reasonably possible that a loss could occur. The estimate of the possible range of loss to the Company is zero to the $455 million amount set forth in the arbitral award (excluding post-judgment interest).

The arbitral award will not impact DAS’s commercialization of its soybean and cotton seed products, including those containing the ENLIST™ technologies.

Rocky Flats Matter
The Company and Rockwell International Corporation ("Rockwell") (collectively, the "defendants") were defendants in a class action lawsuit filed in 1990 on behalf of property owners ("plaintiffs") in Rocky Flats, Colorado, who asserted claims for nuisance and trespass based on alleged property damage caused by plutonium releases from a nuclear weapons facility owned by the U.S. Department of Energy ("DOE") (the "facility"). Dow and Rockwell were both DOE contractors that operated the facility - Dow from 1952 to 1975 and Rockwell from 1975 to 1989. The facility was permanently shut down in 1989.

In 1993, the United States District Court for the District of Colorado ("District Court") certified the class of property owners. The plaintiffs tried their case as a public liability action under the Price Anderson Act ("PAA"). In 2005, the jury returned a damages verdict of $926 million. Dow and Rockwell appealed the jury award to the U.S. Tenth Circuit Court of Appeals ("Court of Appeals") which concluded the PAA had its own injury requirements, on which the jury had not been instructed, and also vacated the District Court's class certification ruling, reversed and remanded the case, and vacated the District Court's judgment (Cook v. Rockwell Int'l Corp., 618 F.3d 1127, 1133 (10th Cir. 2010)). The plaintiffs argued on remand to the District

Court that they were entitled to reinstate the judgment as a state law nuisance claim, independent of the PAA. The District Court rejected that argument and entered judgment in favor of the defendants (Cook v. Rockwell Int'l Corp, 13 F. Supp. 3d 1153 (D. Colo. 2014)). The plaintiffs appealed to the Court of Appeals, which reversed the District Court's ruling, holding that the PAA did not preempt the plaintiffs' nuisance claim under Colorado law and that the plaintiffs could seek reinstatement of the prior nuisance verdict under Colorado law, and remanded for additional proceedings, including consideration of whether the District Court could recertify the class (Cook v. Rockwell Int'l Corp., 790 F.3d 1088 (10th Cir. 2015)).

Dow and Rockwell continued to litigate this matter in the District Court and in the United States Supreme Court. On May 18, 2016, Dow, Rockwell and the plaintiffs entered into a settlement agreement for $375 million, of which $131 million was to be paid by Dow and $244 million was to be paid by Rockwell (collectively, the "Settlement Agreement"). The DOE authorized the settlement pursuant to the PAA and the nuclear hazards indemnity provisions contained in Dow and Rockwell's contracts. The District Court granted preliminary approval to the class settlement on August 5, 2016. On December 13, 2016, the United States Civil Board of Contract Appeals unanimously ordered the United States government to pay the amounts stipulated in the Settlement Agreement. At December 31, 2016, the Company had a liability of $130 million related to this matter (having already paid $1 million towards class notice costs), included in "Accrued and other current liabilities" in the consolidated balance sheets and a receivable of $131 million, included in "Accounts and notes receivable - Other" in the consolidated balance sheets. On January 17, 2017, the Company received a full indemnity payment ($131 million) from the United States government for Dow's share of the class settlement. The Company subsequently funded an escrow account for the settlement payment owed to the plaintiffs, which will remain in escrow until the settlement is approved by the District Court and finalized. A fairness hearing on the class settlement is scheduled for April 28, 2017.

Dow Corning Chapter 11 Related Matters
Introduction
In 1995, Dow Corning, then a 50:50 joint venture between Dow and Corning Incorporated, voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to resolve Dow Corning’s breast implant liabilities and related matters (the “Chapter 11 Proceeding”). Dow Corning emerged from the Chapter 11 Proceeding on June 1, 2004 (the “Effective Date”) and is implementing the Joint Plan of Reorganization (the “Plan”). The Plan provides funding for the resolution of breast implant and other product liability litigation covered by the Chapter 11 Proceeding and provides a process for the satisfaction of commercial creditor claims in the Chapter 11 Proceeding. As of June 1, 2016, Dow Corning is a wholly owned subsidiary of Dow.

Breast Implant and Other Product Liability Claims
The centerpiece of the Plan is a product liability settlement program administered by an independent claims office (the “Settlement Facility”). Product liability claimants rejecting the settlement program in favor of pursuing litigation must bring suit against a litigation facility (the “Litigation Facility”). Under the Plan, total payments committed by Dow Corning to resolving product liability claims are capped at a maximum $2,350 million net present value (“NPV”) determined as of the Effective Date using a discount rate of seven percent (approximately $3,600 million undiscounted at December 31, 2016). Of this amount, no more than $400 million NPV determined as of the Effective Date can be used to fund the Litigation Facility.

Dow Corning has an obligation to fund the Settlement Facility and the Litigation Facility over a 16-year period, commencing at the Effective Date. Under the Plan, Dow Corning is not required to remit additional funds to the Settlement Facility unless and until necessary to preserve liquidity. As of
December 31, 2016, Dow Corning and its insurers have made life-to-date payments of $1,762 million to the Settlement Facility and the Settlement Facility reported an unexpended balance of $148 million.

On June 1, 2016, as part of the ownership restructure of Dow Corning and in accordance with ASC 450 "Accounting for Contingencies," the Company recorded a liability of
$290 million for breast implant and other product liability claims (“Implant Liability”), which reflected the estimated impact of the settlement of future claims primarily based on reported claim filing levels in the Revised Settlement Program (the “RSP”) and on the resolution of almost all cases pending against the Litigation Facility. The RSP was a program sponsored by certain other breast implant manufacturers in the context of multi-district, coordinated federal breast implant cases and was open from 1995 through 2010. The RSP was also a revised successor to an earlier settlement plan involving Dow Corning (prior to its bankruptcy filing). While Dow Corning withdrew from the RSP, many of the benefit categories and payment levels in Dow Corning’s settlement program were drawn from the RSP. Based on the comparability in design and actual claim experience of both plans, management concluded that claim information from the RSP provides a reasonable basis to estimate future claim filing levels for the Settlement Facility.

In 2014, with the assistance of a third party consultant ("consultant"), Dow Corning developed an estimate of its Implant Liability ("2014 Estimate"), primarily based on the assumption that future claim filings in the remaining periods of the Settlement Facility will be similar to claim filing trends observed in the RSP. In the fourth quarter of 2016, Dow Corning requested the consultant review the available data and determine the appropriateness of updating the 2014 Estimate. In response

to that request, the consultant reviewed and analyzed data through June 30, 2016, and updated its estimate of the Implant Liability to $263 million, primarily reflecting a decrease in Class 7 costs (claimants who have breast implants made by certain other manufacturers using primarily Dow Corning silicone gel), a decrease resulting from the passage of time (claims forecast as future claims in 2014 had, by 2016, been filed and resolved), decreased claim filing activity and administrative costs compared with the 2014 Estimate, and an increase in investment income resulting from insurance proceeds. In December 2016, based on the consultant's updated estimate and Dow Corning's own review of claim filing activity, Dow Corning determined that an adjustment to the Implant Liability was required. Accordingly, Dow Corning decreased its Implant Liability by $27 million, which is included in "Sundry income (expense) - net" in the consolidated statements of income. At December 31, 2016, the Implant Liability was $263 million, which is included in "Other noncurrent obligations" in the consolidated balance sheets.

Dow Corning is not aware of circumstances that would change the factors used in estimating the Implant Liability and believes the recorded Implant Liability reflects the best estimate of the remaining funding obligations under the Plan; however, the estimate relies upon a number of significant assumptions, including:

Future claim filing levels in the Settlement Facility will be similar to the RSP;
Future acceptance rates, disease mix, and payment values will be materially consistent with historical experience;
No material negative outcomes in future controversies or disputes over Plan interpretation will occur; and
The Plan will not be modified.

If actual outcomes related to any of these assumptions prove to be materially different, the future liability to fund the Plan may be materially different than the amount estimated. If Dow Corning was ultimately required to fund the full liability up to the maximum capped value, the liability would be
$1,867 million at December 31, 2016.

Commercial Creditor Issues
The Plan provides that each of Dow Corning’s commercial creditors (the “Commercial Creditors”) would receive in cash the sum of (a) an amount equal to the principal amount of their claims and (b) interest on such claims. The actual amount of interest that will ultimately be paid to these Commercial Creditors is uncertain due to pending litigation between Dow Corning and the Commercial Creditors regarding the appropriate interest rates to be applied to outstanding obligations from the 1995 bankruptcy filing date through the Effective Date, as well as the presence of any recoverable fees, costs, and expenses.

In 2006, the U.S. Court of Appeals for the Sixth Circuit concluded that there is a general presumption that contractually specified default interest should be paid by a solvent debtor to unsecured creditors (the “Interest Rate Presumption”) and permitting Dow Corning’s Commercial Creditors to recover fees, costs, and expenses where allowed by relevant loan agreements and state law. The matter was remanded to the U.S. District Court for the Eastern District of Michigan ("District Court") for further proceedings, including rulings on the facts surrounding specific claims and consideration of any equitable factors that would preclude the application of the Interest Rate Presumption.

Upon the Plan becoming effective, Dow Corning paid approximately
$1,500 million to the Commercial Creditors, representing principal and an amount of interest that Dow Corning considers undisputed. At December 31, 2016, Dow Corning has estimated its remaining liability to the Commercial Creditors to be within a range of $108 million to $356 million. However, no single amount within the range appears to be a better estimate than any other amount within the range. Therefore, Dow Corning recorded the minimum liability within the range. At December 31, 2016, the liability related to Dow Corning’s potential obligation to pay additional interest to its Commercial Creditors in the Chapter 11 Proceeding was $108 million and included in "Accrued and other current liabilities" in the consolidated balance sheets. The actual amount of interest that will be paid to these creditors is uncertain and will ultimately be resolved through continued proceedings in the District Court.

Indemnifications
In connection with the DCC Transaction discussed in Note 4, the Company is indemnified for 50 percent of future losses associated with certain pre-closing liabilities, including the Implant Liability and Commercial Creditors matters described above, subject to certain conditions and limits. The maximum amount of indemnified losses which may be recovered are subject to a cap that declines over time. Indemnified losses are capped at (1) $1.5 billion until May 31, 2018, (2) $1 billion between May 31, 2018 and May 31, 2023, and (3) no recoveries are permitted after May 31, 2023. No indemnification assets were recorded at December 31, 2016.

Summary
The amounts recorded by Dow Corning for the Chapter 11 related matters described above were based upon current, known facts, which management believes reflect reasonable and probable estimates of the liability. However, future events could cause

the actual costs for Dow Corning to be higher or lower than those projected or those recorded. Any such events could result in an increase or decrease in the recorded liability.

Other Litigation Matters
In addition to the specific matters described above, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to product liability, patent infringement, employment matters, governmental tax and regulation disputes, contract and commercial litigation and other actions. Certain of these actions purport to be class actions and seek damages in very large amounts. All such claims are being contested. Dow has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies may provide coverage that could be utilized to minimize the financial impact, if any, of certain contingencies described above. It is the opinion of the Company’s management that the possibility is remote that the aggregate of all such other claims and lawsuits will have a material adverse impact on the results of operations, financial condition and cash flows of the Company.


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Purchase Commitments
The Company has various commitments for take-or-pay and throughput agreements. These commitments are at prices not in excess of current market prices. The remaining terms for all but one of these agreements extend from 1 to 2928 years. One agreement has a remaining term of 6260 years. The 10-year future commitments for this agreement as well as the fixed and determinable portion of all other obligations under the Company's purchase commitments have been updated as of December 31, 20152016, and are included in the following table:

Fixed and Determinable Portion of Take-or-Pay and
Throughput Obligations at December 31, 2015
In millions
2016$2,935
Fixed and Determinable Portion of Take-or-Pay and
Throughput Obligations at December 31, 2016
In millions
Fixed and Determinable Portion of Take-or-Pay and
Throughput Obligations at December 31, 2016
In millions
20172,415
$2,600
20182,262
2,498
20191,927
2,172
20201,799
2,083
2021 and beyond7,827
20211,725
2022 and beyond7,304
Total$19,165
$18,382

In addition to the take-or-pay obligations at December 31, 2015,2016, the Company had outstanding commitments which ranged from 1 to 1525 years for materials, services and other items used in the normal course of business of approximately $354$732 million. Such commitments were at prices not in excess of current market prices.

Guarantees
The following tables provide a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for each type of guarantee:

Guarantees at December 31, 2015
In millions
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

Guarantees at December 31, 2016
In millions
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

Guarantees2021 $4,910
 $102
2021 $5,096
 $86
Residual value guarantees2025 912
 117
2027 947
 134
Total guarantees  $5,822
 $219
  $6,043
 $220


Guarantees at December 31, 2014
In millions
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

Guarantees at December 31, 2015
In millions
Final
Expiration
 
Maximum Future
Payments

 
Recorded  
Liability  

Guarantees2021 $5,042
 $160
2021 $4,910
 $102
Residual value guarantees
2024 951
 123
2025 912
 117
Total guarantees  $5,993

$283
  $5,822

$219

Guarantees
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 (via delivery of cash or other assets) if specified triggering events occur. With guarantees, such as commercial or financial contracts, non-performance by the guaranteed party triggers the obligation of the Company to make payments to the beneficiary of the guarantee. The majority of the Company’s

guarantees relatesrelate to debt of nonconsolidated affiliates, which have expiration dates ranging from less than one year to sixfive years, and trade financing transactions in Latin America, which typically expire within one year of inception. The Company’s current expectation is that future payment or performance related to the non-performance of others is considered unlikely.

The Company has entered into guarantee agreements (“Guarantees”) related to project financing for Sadara, a nonconsolidated affiliate. The total of an Islamic bond and Additional Project Financingadditional project financing (collectively “Total Project Financing”) obtained by Sadara is approximately $12.5 billion. Sadara had $11.9$12.4 billion of Total Project Financing outstanding at December 31, 20152016 ($10.511.9 billion at December 31, 2014)2015). The Company's guarantee of the Total Project Financing is in proportion to the Company's 35 percent ownership interest in Sadara, or up to approximately $4.4$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 by the end of 2017.the first quarter of 2018 and must occur no later than December 2020.


112


Residual Value Guarantees
The Company provides guarantees related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties.

In 2014, the Company entered into a residual value guarantee as part of a sale-leaseback transaction for a significant portion of its North American railcar fleet. The sale transaction resulted in a deferred gain of $102 million, which was recorded as a liability due to the guarantee and will be deferred until expiration of the ten-year lease unless otherwise terminated. The maximum value of the guarantee was $236$234 million at December 31, 20152016 ($229236 million at December 31, 2014)2015).

Warranties
The Company provides warranty policies on certain products and accrues liabilities under warranty policies using historical warranty claim experience. Adjustments are made to accruals as claim data and historical experience change. The following table summarizes changes in the Company's warranty liability for the years ended December 31, 20152016 and 2014:2015:

Warranty Accrual
In millions2015
 2014
2016
 2015
Balance at January 1$107
 $24
$93
 $107
Accruals related to existing warranties (1)
5
 104
11
 5
Settlements made during the year(19) (21)(20) (19)
Balance at December 31$93
 $107
$84
 $93
(1)In the fourthsecond quarter of 2014,2016, the Company recorded a pretax charge of $100$10 million for a warranty accrual adjustment related to an exited business.as part of the 2016 restructuring charge. The charge was included in "Cost of sales""Restructuring charges (credits)" in the consolidated statements of income and reflected in Infrastructure Solutions. See Note 3 for additional information.

Asset Retirement Obligations
Dow has 179189 manufacturing sites in 3534 countries. Most of these sites contain numerous individual manufacturing operations, particularly at the Company’s larger sites. Asset retirement obligations are recorded as incurred and reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The retirement of assets may involve such efforts as remediation and treatment of asbestos, contractually required demolition, and other related activities, depending on the nature and location of the assets; and retirement obligations are typically realized only upon demolition of those facilities. In identifying asset retirement obligations, the Company considers identification of legally enforceable obligations, changes in existing law, estimates of potential settlement dates and the calculation of an appropriate discount rate to be used in calculating the fair value of the obligations. Dow has a well-established global process to identify, approve and track the demolition of retired or to-be-retired facilities; and no assets are retired from service until this process has been followed. Dow typically forecasts demolition projects based on the usefulness of the assets; environmental, health and safety concerns; and other similar considerations. Under this process, as demolition projects are identified and approved, reasonable estimates are determined for the time frames during which any related asset retirement obligations are expected to be settled. For those assets where a range of potential settlement dates may be reasonably estimated, obligations are recorded. Dow routinely reviews all changes to items under consideration for demolition to determine if an adjustment to the value of the asset retirement obligation is required.

The Company has recognized asset retirement obligations for the following activities: demolition and remediation activities at manufacturing sites primarily in the United States, Canada, Brazil, Argentina and Europe; and capping activities at landfill sites in the United States, Canada, Brazil and Italy. The Company has also recognized conditional asset retirement obligations related

to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites primarily in the United States, Canada, Argentina and Europe. The aggregate carrying amount of conditional asset retirement obligations recognized by the Company (included in the asset retirement obligations balance shown below) was $33$31 million at December 31, 2015 ($282016 ($33 million at December 31, 2014)2015).


113


The following table shows changes in the aggregate carrying amount of the Company’s asset retirement obligations for the years ended December 31, 20152016 and 20142015:

Asset Retirement Obligations
In millions 2015
 2014
 2016
 2015
Balance at January 1 $84
 $89
 $96
 $84
Additional accruals(1) 8
 3
 17
 8
Liabilities settled (8) (8) (9) (8)
Accretion expense 1
 1
 2
 1
Revisions in estimated cash flows 17
 3
 5
 17
Other (6) (4) (1) (6)
Balance at December 31 $96
 $84
 $110
 $96
(1)Includes $14 million of asset retirement obligations from the DCC Transaction.

The discount rate used to calculate the Company’s asset retirement obligations at December 31, 20152016, was 1.481.87 percent (1.48 percent at December 31, 20142015). These obligations are included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."

The Company has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. Assets that have not been submitted/reviewed for potential demolition activities are considered to have continued usefulness and are generally still operating normally. Therefore, without a plan to demolish the assets or the expectation of a plan, such as shortening the useful life of assets for depreciation purposes in accordance with the accounting guidance related to property, plant and equipment, the Company is unable to reasonably forecast a time frame to use for present value calculations. As such, the Company has not recognized obligations for individual plants/buildings at its manufacturing sites where estimates of potential settlement dates cannot be reasonably made. In addition, the Company has not recognized conditional asset retirement obligations for the capping of its approximately 42 underground storage wells and 141 underground brine mining and other wells at Dow-owned sites when there are no plans or expectations of plans to exit the sites. It is the opinion of the Company’s management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material impact on the Company’s consolidated financial statements based on current costs.

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. On May 6, 2013, the Company and PIC entered into a Deed providing for payment and resolution of the Company's claims against PIC under the K-Dow arbitration. On May 7, 2013, the Company received a $2.195 billion cash payment from PIC, which included damages awarded of $2.161 billion as well as recovery of Dow's costs incurred in the arbitration, including legal fees. In the second quarter of 2013, the Company recorded a pretax gain of $2.195 billion, of which $2.161 billion is included in "Sundry income (expense) - net" and $34 million is included in "Cost of sales" in the consolidated statements of income and reflected in Corporate. The K-Dow arbitration is considered final and settled in full.



114


NOTE 16 – TRANSFERS OF FINANCIAL ASSETS

The Company sells trade accounts receivable of select North AmericaAmerican entities and qualifying trade accounts receivable of select European entities on a revolving basis to certain multi-seller commercial paper conduit entities ("conduits"). The proceeds received are comprised of cash and interests in specified assets of the conduits (the receivables sold by the Company) that entitle the Company to the residual cash flows of such specified assets in the conduits after the commercial paper has been repaid. Neither the conduits nor the investors in those entities have recourse to other assets of the Company in the event of nonpayment by the debtors.

During the year ended December 31, 2015,2016, the Company recognized a loss of $15$20 million on the sale of these receivables ($1615 million loss for the year ended December 31, 20142015 and $17$16 million loss for the year ended December 31, 2013)2014), which is included in “Interest expense and amortization of debt discount” in the consolidated statements of income.

The Company's interests in the conduits are carried at fair value and included in “Accounts and notes receivable – Other” in the consolidated balance sheets. Fair value of the interests is determined by calculating the expected amount of cash to be received and is based on unobservable inputs (a Level 3 measurement). The key input in the valuation is the percentage of anticipated credit losses in the portfolio of receivables sold that have not yet been collected. Given the short-term nature of the underlying receivables, discount rates and prepayments are not factors in determining the fair value of the interests.


The following table summarizes the carrying value of interests held, which represents the Company's maximum exposure to loss related to the receivables sold, and the percentage of anticipated credit losses related to the trade accounts receivable sold. Also provided is the sensitivity of the fair value of the interests held to hypothetical adverse changes in the anticipated credit losses; amounts shown below are the corresponding hypothetical decreases in the carrying value of interests.

Interests Held at December 31      
In millions2015
 2014
2016
 2015
Carrying value of interests held$943
 $1,328
$1,237
 $943
Percentage of anticipated credit losses0.34% 0.35%0.36% 0.34%
Impact to carrying value - 10% adverse change$1
 $1
$1
 $1
Impact to carrying value - 20% adverse change$1
 $2
$1
 $1

Credit losses, net of any recoveries, were $1insignificant for the year ended December 31, 2016 ($1 million for the year ended December 31, 2015 (, and $7 million for the year ended December 31, 2014, and $1 million for the year ended December 31, 2013).

Following is an analysis of certain cash flows between the Company and the conduits:

Cash Proceeds          
In millions2015
 2014
 2013
2016
 2015
 2014
Sale of receivables$18
 $98
 $34
$1
 $18
 $98
Collections reinvested in revolving receivables$22,951
 $26,479
 $25,864
$21,652
 $22,951
 $26,479
Interests in conduits (1)
$1,034
 $1,079
 $1,028
$1,257
 $1,034
 $1,079
(1)    Presented in "Operating Activities" in the consolidated statements of cash flows.

Following is additional information related to the sale of receivables under these facilities:

Trade Accounts Receivable Sold at December 31      
In millions2015
 2014
2016
 2015
Delinquencies on sold receivables still outstanding$97
 $133
$86
 $97
Trade accounts receivable outstanding and derecognized$2,152
 $2,607
$2,257
 $2,152

In 2015,2016, the Company repurchased $11$4 million of previously sold receivables related to a divestiture.($11 million in 2015).



115


NOTE 17 – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES

Notes Payable at December 31
In millions
2015
 2014
2016
 2015
Notes payable to banks and other lenders$277
 $353
$225
 $277
Notes payable to related companies171
 189
44
 171
Notes payable trade6
 9
3
 6
Total notes payable$454
 $551
$272
 $454
Year-end average interest rates4.00% 4.08%4.60% 4.00%


Long-Term Debt at December 31

In millions
2015
Average
Rate

 2015
 
2014
Average
Rate

 2014
2016
Average
Rate

 2016
 
2015
Average
Rate

 2015
Promissory notes and debentures:              
Final maturity 2015% $
 2.74% $60
Final maturity 20162.64% 356
 2.52% 805
% $
 2.64% $356
Final maturity 20176.06% 442
 5.66% 489
6.06% 442
 6.06% 442
Final maturity 20185.78% 339
 5.44% 567
5.78% 339
 5.78% 339
Final maturity 20198.55% 2,123
 8.41% 2,168
8.55% 2,122
 8.55% 2,123
Final maturity 20204.46% 1,547
 4.37% 1,877
4.46% 1,547
 4.46% 1,547
Final maturity 2021 and thereafter5.42% 9,872
 5.31% 10,186
Final maturity 20214.72% 1,424
 4.72% 1,424
Final maturity 2022 and thereafter5.54% 8,449
 5.54% 8,448
Other facilities:              
U.S. dollar loans, various rates and maturities2.32% 125
 1.38% 461
1.60% 4,595
 2.32% 125
Foreign currency loans, various rates and maturities2.74% 856
 3.01% 1,013
3.42% 882
 2.74% 856
Medium-term notes, varying maturities through 20253.79% 1,082
 3.55% 1,528
3.82% 1,026
 3.79% 1,082
Tax-exempt bonds, varying maturities through 20385.66% 343
 5.66% 343
5.66% 343
 5.66% 343
Capital lease obligations
 76
 
 85

 295
 
 76
Unamortized debt discount and issuance costs (1)

 (405) 
 (459)
 (373) 
 (405)
Long-term debt due within one year (1) (2)

 (541) 
 (382)
Long-term debt due within one year (1)

 (635) 
 (541)
Long-term debt (1)

 $16,215
 
 $18,741

 $20,456
 
 $16,215
(1)Presented in accordance with newly implemented ASU 2015-03. See Note 2 for further information.
(2)Presented net of current portion of unamortized debt issuance costs of $9$24 million at December 31, 2015 and$122016 and $9 million at December 31, 2014.
December 31, 2015.


Annual Installments on Long-Term Debt
for Next Five Years
In millions
2016$550
Annual Installments on Long-Term Debt
for Next Five Years (1)
In millions
Annual Installments on Long-Term Debt
for Next Five Years (1)
In millions
2017$644
$659
2018$730
$5,237
2019$2,389
$2,391
2020$1,769
$1,825
2021$1,567
(1)Assumes the option to extend a term loan facility
related to the DCC Transaction will be exercised.

2016 Activity
In 2016, the Company redeemed $349 million of 2.5 percent notes that matured on February 15, 2016, and $52 million principal amount of InterNotes at maturity. In addition, approximately $128 million of long-term debt (net of $28 million of additional borrowings) was repaid by consolidated variable interest entities.

As part of the DCC Transaction, the fair value of debt assumed by Dow was $4,672 million and is reflected in the long-term debt table above. See Note 4 for additional information.

2015 Activity
DuringIn the fourth quarter of 2015, the Company redeemed $724 million aggregate principal amount of InterNotes of various interest rates and maturities between 2016 and 2024. As a result of this redemption, the Company realized an $8 million pretax loss

related to the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

On October 5, 2015, (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a wholly owned subsidiary of Olin in a tax-efficient Reverse Morris Trust transaction (collectively, the “Transaction”). Under the terms of a debt exchange offer, the Company received $1,220 million principal amount of new debt instruments from Splitco, which were subsequently transferred to certain investment banks in a non-cash fair value exchange for $1,154 million principal amount of the Company’s outstanding debt instruments owned by such investment banks. As a result of this debt exchange offer and related transactions, the Company retired $1,161 million of certain notes, including $401 million of 2.50 percent notes due

116


2016, $182 million of 5.70 percent notes due 2018, $278 million of 4.25 percent notes due 2020 and a $300 million Term Loan Facility with a maturity date of 2016. The Company recognized a loss on the early extinguishment of debt of $68 million, included in "Sundry income (expense) - net" in the consolidated statements of income as a component of the pretax gain on the Transaction and reflected in Corporate. In connection with the Transaction, a membrane chlor-alkali joint venture was included as part of the assets and liabilities divested. This resulted in an additional reduction of $569 million principal amount of debt. See Notes 6 and 20 for further information.

DuringIn 2015, the Company issued $346 million aggregate principal amount of InterNotes and approximately $163 million of long-term debt (net of $8 million of additional borrowings) was repaid by consolidated variable interest entities.

2014 Activity
On September 16, 2014, the Company issued $2 billion of senior unsecured notes in a public offering. The offering included $900 million aggregate principal amount of 3.5 percent notes due 2024; $600 million aggregate principal amount of 4.25 percent notes due 2034; and $500 million aggregate principal amount of 4.625 percent notes due 2044.

DuringIn 2014, the Company issued $390 million aggregate principal amount of InterNotes with varying maturities in 2019, 2021 and 2024, at various interest rates averaging 2.94 percent. The Company also repaid $346 million of long-term debt related to the purchase of an ethylene production facility (see Note 20 for additional information), redeemed $124 million of tax-exempt bonds at maturity and repurchased $51 million of tax-exempt bonds. In addition, approximately $97 million of long-term debt (net of $69 million of additional borrowings) was repaid by consolidated variable interest entities.

2013 Activity
On November 18, 2013, the Company concluded cash tender offers for $700 million aggregate principal amount of certain notes issued by the Company. As a result of the tender offers, the Company redeemed $414 million of 6.0 percent notes due 2017 and $286 million of 5.7 percent notes due 2018 and recognized a $156 million loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

During the third quarter of 2013, the Company redeemed $209 million aggregate principal amount of InterNotes of various interest rates and maturities in 2017, 2018, 2020, 2021 and 2022. As a result of this redemption, the Company realized a $3 million pretax loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

On June 24, 2013, the Company redeemed $1.25 billion aggregate principal amount of 5.9 percent notes due February 15, 2015, at a price of 108.4 percent of the principal amount of the notes, plus accrued and unpaid interest. As a result of this redemption, the Company realized a $108 million pretax loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

On June 15, 2013, the Company redeemed $142 million aggregate principal amount of InterNotes of various interest rates and varying maturities in 2017, 2018, 2020, 2021 and 2022. As a result of this redemption, the Company realized a $2 million pretax loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

On March 25, 2013, the Company redeemed $750 million aggregate principal amount of 7.6 percent notes due May 15, 2014, at a price of 107.8 percent of the principal amount of the notes, plus accrued and unpaid interest. As a result of this redemption, the Company realized a $60 million pretax loss on the early extinguishment of debt, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in Corporate.

During 2013, the Company issued $447 million aggregate principal amount of InterNotes with varying maturities in 2018, 2020 and 2023, at various interest rates averaging 3.24 percent; and approximately $80 million of long-term debt (net of $119 million of repayments) was entered into by consolidated variable interest entities. The Company also drew $300 million on a Committed Term Loan Facility on April 5, 2013.

During 2013, the Company redeemed $250 million of 5.6 percent notes that matured on March 15, 2013, redeemed $138 million of 6.85 percent notes that matured on August 15, 2013, and redeemed $82 million principal amount of InterNotes at maturity. In the second quarter of 2013, the Company repurchased $200 million of tax-exempt bonds. The Company also acquired third party lenders’ interest in Dow Kokam LLC’s $75 million note, which was previously classified as “Long-Term Debt” in the consolidated balance sheets. See Note 5 for additional information on this transaction.


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Available Credit Facilities
The following table summarizes the Company's credit facilities:

Committed and Available Credit Facilities at December 31, 2015
In millions Effective Date Committed Credit
 Credit Available
 Maturity Date Interest
Five Year Competitive Advance and Revolving Credit Facility (1)
 March 2015 $5,000
 $5,000
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 March 2015 100
 100
 March 2016 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 280
 280
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility (2)
 August 2015 100
 100
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 200
 200
 March 2020 Floating rate
Bilateral Revolving Credit Facility August 2015 100
 100
 August 2016 Floating rate
Total Committed and Available Credit Facilities   $5,980
 $5,980
    
Committed and Available Credit Facilities at December 31, 2016
In millions Effective Date Committed Credit
 Credit Available
 Maturity Date Interest
Five Year Competitive Advance and Revolving Credit Facility
March 2015
$5,000

$5,000

March 2020
Floating rate
Bilateral Revolving Credit Facility
August 2015
100

100

March 2017
Floating rate
Bilateral Revolving Credit Facility
August 2015
100

100

March 2020
Floating rate
Bilateral Revolving Credit Facility
August 2015
280

280

March 2020
Floating rate
Bilateral Revolving Credit Facility
August 2015
100

100

March 2020
Floating rate
Bilateral Revolving Credit Facility
August 2015
100

100

March 2020
Floating rate
Bilateral Revolving Credit Facility
August 2015
200

200

March 2020
Floating rate
Bilateral Revolving Credit Facility
May 2016
200

200

May 2018
Floating rate
Bilateral Revolving Credit Facility
July 2016
200

200

July 2018
Floating rate
Bilateral Revolving Credit Facility
August 2016
100

100

August 2018
Floating rate
DCC Term Loan Facility (1)

February 2016
4,500



May 2018
Floating rate
Total Committed and Available Credit Facilities


$10,880

$6,380




(1)The prior credit facility was terminated and replaced withDrawn on May 31, 2016, by Dow Corning, a new credit facility, with substantially similar terms and conditions, on March 24, 2015.wholly owned subsidiary of the Company as of June 1, 2016.
(2)The prior credit facility was amended or replaced in 2015 to extend its maturity date and incorporate substantially similar terms and conditions to the new Five Year Competitive Advance and Revolving Credit Facility.

In connection with the DCC Transaction, on May 31, 2016, Dow Corning incurred $4.5 billion of indebtedness under a certain third party credit agreement ("DCC Term Loan Facility") in order to fund the contribution of cash to Splitco. Subsequent to the DCC Transaction, the Company guaranteed the obligations of Dow Corning under the DCC Term Loan Facility and, as a result, the covenants and events of default applicable to the DCC Term Loan Facility are substantially similar to the covenants and events of default set forth in the Company's Five Year Competitive Advance and Revolving Credit Facility. Amounts borrowed

under the DCC Term Loan Facility are repayable on May 30, 2017, subject to a 364-day extension option, at Dow Corning's election, upon the satisfaction of certain customary conditions precedent. Dow Corning intends to exercise the 364-day extension option on the DCC Term Loan Facility. See Note 4 for additional information on the DCC Transaction.

Debt Covenants and Default Provisions
The Company’s outstanding long-term debt has been issued under indentures which contain, among other provisions, certain customary restrictive covenants with which the Company must comply while the underlying notes are outstanding. Such covenants include obligations to not allow liens on principal U.S. manufacturing facilities, enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, merge or consolidate with any other corporation, or sell or convey all or substantially all of the Company’s assets. The outstanding debt also contains customary default provisions. Failure of the Company to comply with any of these covenants could result in a default under the applicable indenture, which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the underlying notes. The Company expects to remain in compliance with these covenants after completion of the all-stock, merger of equals strategic combination with DuPont.

The Company’s primary, private credit agreements also contain certain customary restrictive covenant and default provisions in addition to the covenants set forth above with respect to the Company’s debt. Significant other restrictive covenants and default provisions related to these agreements include:

(a)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 Five Year Competitive Advance and Revolving Credit Facility Agreement dated March 24, 2015, equals or exceeds $500 million,

(b)a default if the Company or an applicable subsidiary fails to make any payment, including principal, premium or interest, under the applicable agreement on other indebtedness of, or guaranteed by, the Company or such applicable subsidiary in an aggregate amount of $100 million or more when due, or any other default or other event under the applicable agreement with respect to such indebtedness occurs which permits or results in the acceleration of $400 million or more in the aggregate of principal, and

(c)a default if the Company or any applicable subsidiary fails to discharge or stay within 60 days after the entry of a final judgment against the Company or such applicable subsidiary of more than $400 million.

Failure of the Company to comply with any of the covenants or default provisions could result in a default under the applicable credit agreement which would allow the lenders to not fund future loan requests and to accelerate the due date of the outstanding principal and accrued interest on any outstanding indebtedness.



118


NOTE 18 – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Ownership Restructure of Dow Corning
As part of the June 1, 2016 ownership restructure of Dow Corning, the Company assumed sponsorship of qualified and non-qualified pension and other postretirement benefit plans that provide defined benefits to U.S. and non-U.S. employees. Plan assets and obligations for all significant plans assumed from Dow Corning are as follows:

Plan Assets and Obligations for all Significant Plans Assumed from Dow Corning at June 1, 2016Defined Benefit Pension Plans
 Other Postretirement Benefits
In millions 
Fair value of plan assets$2,327
 $
Projected benefit obligations3,252
 313
Net liability assumed$925
 $313

Pension Plans
The Company has defined benefit pension plans that cover employees in the United States and a number of other countries. The U.S. qualified plan covering the parent company is the largest plan. Benefits for employees hired before January 1, 2008, are based on length of service and the employee’s three highest consecutive years of compensation. Employees hired after January 1, 2008, earn benefits that are based on a set percentage of annual pay, plus interest.


The Company’s funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. In 2015,2016, Dow contributed $844$629 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plans. Dow expects to contribute approximately $620$500 million to its pension plans in 2016.2017.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for the plans are provided in the two tables below:

Weighted-Average Assumptions
for All Pension Plans
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 2015
 2014
 2013
 2015
 2014
 2013
 2016
 2015
 2014
 2016
 2015
 2014
Discount rate 3.88% 3.60% 4.54% 3.60% 4.54% 3.88% 3.52% 3.88% 3.60% 3.85% 3.60% 4.54%
Rate of increase in future compensation levels 4.13% 4.13% 4.15% 4.13% 4.15% 3.96% 3.90% 4.13% 4.13% 4.04% 4.13% 4.15%
Expected long-term rate of return on plan assets 
 
 
 7.35% 7.40% 7.47% 
 
 
 7.22% 7.35% 7.40%


Weighted-Average Assumptions
for U.S. Pension Plans
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 2015
 2014
 2013
 2015
 2014
 2013
 2016
 2015
 2014
 2016
 2015
 2014
Discount rate 4.40% 4.04% 4.92% 4.04% 4.92% 4.02% 4.11% 4.40% 4.04% 4.40% 4.04% 4.92%
Rate of increase in future compensation levels 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.25% 4.50% 4.50% 4.50% 4.50% 4.50%
Expected long-term rate of return on plan assets 
 
 
 7.85% 7.82% 7.85% 
 
 
 7.77% 7.85% 7.82%

The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Company’s historical experience with the pension fund asset performance is also considered.

Effective January 1, 2016, the Company elected to adopt aadopted the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs for the U.S. and other selected countries. Under the spot rate approach, the Company will calculatecalculates service costscost and interest costscost by applying individual spot rates from the Willis Towers Watson RATE:Link yield curve (based on high-quality corporate bond yields) for each selected country to the separate expected cash flowsflow components of service cost and interest cost; service cost and interest cost for all other plans will continue(including all plans prior to beadoption) are determined on the basis of the single equivalent discount rates derived in determining those plan obligations. The Company changed to the new method to provide a more precise measure of interest and service costs for certain countries by improving the correlation between projected benefit cash flows and the discrete spot yield curves. The Company has accounted for this change as a change in accounting estimate and it will bewas applied prospectively starting in 2016. The adoption of the spot rate approach is expected to decrease the service cost and interest cost components of net periodic benefit costs by approximately $210 million in 2016.

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 corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for Dow’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.

On October 27,In 2014, the Society of Actuaries ("SOA") published updated mortality tables and mortality improvement scales (generational mortality tables), which reflect increased life expectancy. Based on an evaluation of the mortality experience of

119


the Company's U.S. pension plans and the SOA's tables, effective for 2014 and forward, the Company adopted updated generational mortality tables for purposes of measuring U.S. pension and other postretirement obligations. The mortality assumption change increased pension and other postretirement benefit obligations by $479 million at December 31, 2014.


The accumulated benefit obligation for all defined benefit pension plans was $24.5$28.8 billion at December 31, 20152016 and $26.524.5 billion at December 31, 20142015.

Pension Plans with Accumulated Benefit Obligations in Excess
of Plan Assets at December 31
Pension Plans with Accumulated Benefit Obligations in Excess
of Plan Assets at December 31
Pension Plans with Accumulated Benefit Obligations in Excess
of Plan Assets at December 31
In millions 2015
 2014
 2016
 2015
Projected benefit obligations $23,421
 $25,539
 $27,877
 $23,421
Accumulated benefit obligations $22,409
 $24,281
 $26,590
 $22,409
Fair value of plan assets $16,066
 $16,932
 $18,523
 $16,066

In addition to the U.S. qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia, Brazil, Canada, Italy, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $283 million in 2016, $235 million in 2015 and $243 million in 2014 and $231 million in 2013.2014.

Other Postretirement Benefits
The Company provides certain health care and life insurance benefits to retired employees. The Company’s plans outside of the United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under the plans.

On January 1, 2014, the Company implemented an Employer Group Waiver Plan (“EGWP”) for its Medicare-eligible, retiree medical plan participants. The Medicare Part D Retiree Drug Subsidy program (“RDS”) was eliminated on January 1, 2014. The EGWP does not significantly alter the benefits provided to retiree medical plan participants. Federal subsidies to be earned under the EGWP are expected to exceed those earned under the RDS and will be partially offset by increased costs related to the administration of the EGWP. The net periodic benefit cost decreased by $25 million in 2014 due to the EGWP.

The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2015,2016, Dow did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2015.2016. Dow does not expect to contribute assets to its other postretirement benefitsbenefit plan trusts in 2016.2017.

The weighted-average assumptions used to determine other postretirement benefit obligations and net periodic benefit costs for the U.S. plans are provided below:

U.S. Plan Assumptions for Other
Postretirement Benefits
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 
Benefit Obligations
at December 31
 
Net Periodic Costs
for the Year
 2015
 2014
 2013
 2015
 2014
 2013
 2016
 2015
 2014
 2016
 2015
 2014
Discount rate 3.97% 3.68% 4.37% 3.68% 4.37% 3.67% 3.83% 3.97% 3.68% 3.96% 3.68% 4.37%
Initial health care cost trend rate 7.25% 7.06% 7.45% 7.06% 7.45% 7.84% 7.00% 7.25% 7.06% 7.25% 7.06% 7.45%
Ultimate health care cost trend rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Year ultimate trend rate to be reached 2025
 2020
 2020
 2025
 2020
 2020
 2025
 2025
 2020
 2025
 2020
 2020








120


Increasing the assumed medical cost trend rate for all plans by one percentage point in each year would decrease the accumulated postretirement benefit obligation at December 31, 20152016, by $16$7 million and decrease the net periodic postretirement benefit cost for the year by $1 million. Decreasing the assumed medical cost trend rate for all plans by one percentage point in each year would increase the accumulated postretirement benefit obligation at December 31, 20152016, by $22$11 million and the net periodic postretirement benefit cost for the year by $1 million.

Net Periodic Benefit Cost for All Significant Plans
 Defined Benefit Pension Plans Other Postretirement Benefits Defined Benefit Pension Plans Other Postretirement Benefits
In millions 2015
 2014
 2013
 2015
 2014
 2013
 
2016 (1)

 2015
 2014
 
2016 (1)

 2015
 2014
Service cost $484
 $411
 $471
 $14
 $14
 $19
 $463
 $484
 $411
 $13
 $14
 $14
Interest cost 975
 1,096
 1,012
 59
 72
 78
 846
 975
 1,096
 52
 59
 72
Expected return on plan assets (1,382) (1,322) (1,248) 
 
 
 (1,447) (1,382) (1,322) 
 
 
Amortization of prior service cost (credit) (28) 22
 25
 (2) (2) (4) (24) (28) 22
 (3) (2) (2)
Amortization of unrecognized (gain) loss 706
 500
 788
 (11) (14) 4
 587
 706
 500
 (7) (11) (14)
Curtailment/settlement/other (1) (2)
 
 (2) 5
 
 
 
Curtailment/settlement/other (2)
 (36) 
 (2) 
 
 
Net periodic benefit cost $755
 $705
 $1,053
 $60
 $70
 $97
 $389
 $755
 $705
 $55
 $60
 $70
(1)The 2013 impact primarily relates to settlements associated with the wind-upIncludes net periodic benefit costs of a Canadian$26 million for defined benefit pension plan.plans and $8 million of other postretirement benefits for plans assumed from Dow Corning.
(2)The 2016 impact relates to the curtailment of benefits for certain participants of a Dow Corning plan in the U.S. The 2014 impact relates to settlements associated with the wind-up of a pension plan in The Netherlands and a pension plan in Canada.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss
for All Significant Plans
  Defined Benefit Pension Plans Other Postretirement Benefits
In millions 2015
 2014
 2013
 2015
 2014
 2013
Net (gain) loss $(127) $3,528
 $(2,343) $11
 $63
 $(404)
Prior service cost (credit) arising during period 63
 (500) 
 
 
 
Amortization of prior service (cost) credit 28
 (22) (25) 2
 2
 4
Amortization of unrecognized gain (loss) (706) (498) (793) 11
 14
 (4)
Total recognized in other comprehensive (income) loss $(742) $2,508
 $(3,161) $24
 $79
 $(404)
Total recognized in net periodic benefit cost and other comprehensive (income) loss $13
 $3,213
 $(2,108) $84
 $149
 $(307)


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Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans
In millions 
Defined
Benefit Pension Plans
 Other Postretirement Benefits
Change in projected benefit obligations: 2015
 2014
 2015
 2014
Benefit obligations at beginning of year $27,979
 $25,027
 $1,707
 $1,742
Service cost 484
 411
 14
 14
Interest cost 975
 1,096
 59
 72
Plan participants’ contributions 19
 21
 
 
Plan amendments (1)
 30
 (500) 
 
Actuarial changes in assumptions and experience (929) 4,096
 11
 63
Acquisition/divestiture/other activity (2)
 (894) (1) 
 
Benefits paid (1,289) (1,316) (172) (169)
Currency impact (723) (779) (22) (15)
Termination benefits/curtailment cost/settlements (3)
 
 (76) 
 
Benefit obligations at end of year $25,652
 $27,979
 $1,597
 $1,707
         
Change in plan assets:        
Fair value of plan assets at beginning of year $19,629
 $18,827
 $
 $
Actual return on plan assets 314
 1,961
 
 
Currency impact (488) (593) 
 
Employer contributions 844
 815
 
 
Plan participants’ contributions 19
 21
 
 
Acquisition/divestiture/other activity (4)
 (255) (86) 
 
Benefits paid (1,289) (1,316) 
 
Fair value of plan assets at end of year $18,774
 $19,629
 $
 $
         
Less: Fair value of assets due to Olin $(179) $
 $
 $
         
Net fair value of plan assets at end of year $18,595
 $19,629
 $
 $
         
Funded status at end of year $(7,057) $(8,350) $(1,597) $(1,707)
         
Net amounts recognized in the consolidated balance sheets at December 31:
Noncurrent assets $317
 $263
 $
 $
Current liabilities (64) (68) (146) (147)
Noncurrent liabilities (7,310) (8,545) (1,451) (1,560)
Net amounts recognized in the consolidated balance sheets $(7,057) $(8,350) $(1,597) $(1,707)
         
Pretax amounts recognized in AOCL at December 31:        
Net loss (gain) (5)
 $10,012
 $10,845
 $(154) $(176)
Prior service credit (5)
 (328) (419) (3) (5)
Pretax balance in AOCL at end of year $9,684
 $10,426
 $(157) $(181)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss
for All Significant Plans
  Defined Benefit Pension Plans Other Postretirement Benefits
In millions 2016
 2015
 2014
 2016
 2015
 2014
Net (gain) loss $1,954
 $(127) $3,528
 $14
 $11
 $63
Prior service cost (credit) arising during period 
 63
 (500) 
 
 
Amortization of prior service (cost) credit 24
 28
 (22) 3
 2
 2
Amortization of unrecognized gain (loss) (587) (706) (498) 7
 11
 14
Total recognized in other comprehensive (income) loss $1,391
 $(742) $2,508
 $24
 $24
 $79
Total recognized in net periodic benefit cost and other comprehensive loss $1,780
 $13
 $3,213
 $79
 $84
 $149


Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans
In millions 
Defined
Benefit Pension Plans
 Other Postretirement Benefits
Change in projected benefit obligations: 2016
 2015
 2016
 2015
Benefit obligations at beginning of year $25,652
 $27,979
 $1,597
 $1,707
Service cost 463
 484
 13
 14
Interest cost 846
 975
 52
 59
Plan participants’ contributions 19
 19
 
 
Plan amendments 
 
 30
 
 
Actuarial changes in assumptions and experience 1,967
 (929) 13
 11
Acquisition/divestiture/other activity (1)
 3,201
 (894) 313
 
Benefits paid (1,324) (1,289) (154) (172)
Currency impact (506) (723) 1
 (22)
Termination benefits/curtailment cost/settlements (2)
 (38) 
 
 
Benefit obligations at end of year $30,280
 $25,652
 $1,835
 $1,597
         
Change in plan assets:        
Fair value of plan assets at beginning of year $18,774
 $19,629
 $
 $
Actual return on plan assets 1,437
 314
 
 
Currency impact (404) (488) 
 
Employer contributions 629
 844
 
 
Plan participants’ contributions 19
 19
 
 
Acquisition/divestiture/other activity (3)
 2,077
 (255) 
 
Benefits paid (1,324) (1,289) 
 
Fair value of plan assets at end of year $21,208
 $18,774
 $
 $
         
Less: Fair value of assets due to Olin $
 $(179) $
 $
         
Net fair value of plan assets at end of year $21,208
 $18,595
 $
 $
         
Funded status at end of year $(9,072) $(7,057) $(1,835) $(1,597)
         
Net amounts recognized in the consolidated balance sheets at December 31:
Noncurrent assets $292
 $317
 $
 $
Current liabilities (74) (64) (158) (146)
Noncurrent liabilities (9,290) (7,310) (1,677) (1,451)
Net amounts recognized in the consolidated balance sheets $(9,072) $(7,057) $(1,835) $(1,597)
         
Pretax amounts recognized in AOCL at December 31:        
Net loss (gain) $11,379
 $10,012
 $(133) $(154)
Prior service credit (304) (328) 
 (3)
Pretax balance in AOCL at end of year $11,075
 $9,684
 $(133) $(157)
(1)The 2014 plan amendments include a change in post-termination interest rates2016 impact includes pension benefit obligations of $3,252 million and other postretirement benefit obligations of $313 million assumed with the ownership restructure of Dow Corning. The 2016 impact also includes the transfer of benefit obligations of $53 million in the U.S. and new legislation in The Netherlands.
(2)through the purchase of annuity contracts from an insurance company. The 2015 impact includes the transfer of benefit obligations associated with the Reverse Morris Trust transaction with Olin of $618 million and the transfer of benefit obligations associated with the divestiture of ANGUS to Golden Gate Capital of $34 million. See Notes 5 and 6 as well as the following paragraph for further information. The 2015 impact also includes the transfer of benefit obligations of $248 million in the U.S. through the purchase of annuity contracts from an insurance company. See Notes 4, 5 and 6 for additional information.
(2)The 2016 impact primarily relates to the curtailment of benefits for certain participants of a U.S. Dow Corning plan of $36 million.
(3)The 20142016 impact relates to settlementsincludes plan assets assumed with the ownership restructure of Dow Corning of $2,327 million. The 2016 impact also includes the purchase of annuity contracts of $55 million in the U.S. associated with the wind-uptransfer of a pensionbenefit obligations to an insurance company and the transfer of plan in The Netherlands and a pension plan in Canada.
(4)assets associated with the Reverse Morris Trust transaction with Olin of $184 million. The 2015 impact includes the transfer of plan assets associated with the divestiture of ANGUS to Golden Gate Capital of $9 million. The 2015 impact also includes the purchase of annuity contracts of $247 million in the U.S. associated with the transfer of benefit obligations to an insurance company.
(5)The 2014 amounts were adjusted for the Defined Benefit Pension Plans to reclassify $500 million between the "Net loss (gain)" and "Prior service credit" lines.

On October 5, 2015 ("Closing Date"), (i) the Company completed the transfer of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses into a new company ("Splitco"), (ii) participating Dow shareholders tendered, and the Company accepted, Dow shares for Splitco shares in a public exchange offer, and (iii) Splitco merged with a

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wholly owned subsidiary of Olin in a tax-efficient Reverse Morris Trust transaction (collectively, the “Transaction”). In connection with the Transaction, the Company transferred certain defined benefit obligations of $618 million. No other postretirement benefit obligations were transferred in connection with the Transaction. The Company expects to transfer approximately $179 million of pension plan assets to Olin in 2016. The expected pension plan assets transferred to Olin will be adjusted for the actual return on plan assets and benefits paid to participants from the Closing Date to the date of transfer.

In 2016,2017, an estimated net loss of $585$626 million and prior service credit of $24 million for the defined benefit pension plans will be amortized from AOCL to net periodic benefit cost. In 2016,2017, an estimated net gain of $7 million and prior service credit of $3$6 million for other postretirement benefit plans will be amortized from AOCL to net periodic benefit cost.

Estimated Future Benefit Payments
The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:

Estimated Future Benefit Payments at December 31, 2015
Estimated Future Benefit Payments at December 31, 2016Estimated Future Benefit Payments at December 31, 2016
In millions Defined Benefit Pension Plans
 Other Postretirement Benefits
 Defined Benefit Pension Plans
 Other Postretirement Benefits
2016 $1,277
 $149
2017 1,281
 144
 $1,433
 $161
2018 1,311
 139
 1,460
 155
2019 1,351
 135
 1,501
 151
2020 1,385
 130
 1,536
 146
2021 through 2025 7,361
 560
2021 1,571
 142
2022 through 2026 8,374
 627
Total $13,966
 $1,257
 $15,875
 $1,382

Plan Assets
Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments such as real estate, private equity and absolute return strategies. At December 31, 2015,2016, plan assets totaled $18.8$21.2 billion and included no Company common stock. At December 31, 2014,2015, plan assets totaled $19.6$18.8 billion and included no Company common stock.

Investment Strategy and Risk Management for Plan Assets
The Company’s investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plans.

The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposure and rebalancing the asset allocation. The plans use value at risk,value-at-risk, stress testing, scenario analysis and Monte Carlo simulations to monitor and manage both the risk within the portfolios and the surplus risk of the plans.

Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities include investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Alternative investments primarily include investments in real estate, private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance contracts;contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges. 

Strategic Weighted-Average Target Allocation of Plan
Assets for All Significant Plans
Asset CategoryTarget Allocation
Equity securities35%
Fixed income securities34%
Alternative investments30%
Other investments1%
Total100%


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Concentration of Risk
The Company mitigates the credit risk of investments by establishing guidelines with investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Company and external managers. Credit risk related to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements and centralized clearing, where appropriate.

The Northern Trust Collective Government Short Term Investment money market fund is utilized as the sweep vehicle for the U.S. plans, which from time to time can represent a significant investment. For one U.S. plan, approximately half40 percent of the liability is covered by a participating group annuity issued by Prudential Insurance Company.


The following tables summarize the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 20152016 and 20142015:

Basis of Fair Value Measurements of
Pension Plan Assets at December 31, 2015
 
Quoted Prices
in Active
Markets for
Identical Items

 
Significant
Other
Observable
Inputs

 
Significant
Unobservable
Inputs

 
  
Basis of Fair Value Measurements of
Pension Plan Assets at December 31, 2016
 
Quoted Prices
in Active
Markets for
Identical Items

 
Significant
Other
Observable
Inputs

 
Significant
Unobservable
Inputs

 
  
In millions (Level 1)
 (Level 2)
 (Level 3)
 Total
 (Level 1)
 (Level 2)
 (Level 3)
 Total
Cash and cash equivalents $84
 $733
 $
 $817
 $73
 $806
 $
 $879
Equity securities:                
U.S. equity (1)
 $2,525
 $558
 $1
 $3,084
 $2,642
 $983
 $1
 $3,626
Non-U.S. equity – developed countries 1,877
 1,167
 
 3,044
 1,955
 1,232
 1
 3,188
Emerging markets 462
 542
 27
 1,031
 508
 557
 31
 1,096
Convertible bonds 26
 177
 
 203
 21
 199
 1
 221
Equity derivatives 
 8
 
 8
Total equity securities $4,890
 $2,452
 $28
 $7,370
 $5,126
 $2,971
 $34
 $8,131
Fixed income securities:                
U.S. government and municipalities $
 $1,320
 $
 $1,320
 $
 $2,091
 $
 $2,091
U.S. agency and agency mortgage-backed securities 
 279
 
 279
 
 309
 
 309
Corporate bonds – investment grade 
 1,527
 
 1,527
 
 1,562
 
 1,562
Non-U.S. governments – developed countries 
 1,161
 
 1,161
 
 1,135
 
 1,135
Non-U.S. corporate bonds – developed countries 
 917
 
 917
 
 1,176
 
 1,176
Emerging market debt 
 109
 
 109
 
 131
 
 131
Other asset-backed securities 
 88
 1
 89
 
 95
 2
 97
High yield bonds 47
 166
 16
 229
 
 190
 13
 203
Other fixed income funds 
 295
 276
 571
 
 351
 483
 834
Fixed income derivatives 
 33
 
 33
 
 (17) 
 (17)
Total fixed income securities $47
 $5,895
 $293
 $6,235
 $
 $7,023
 $498
 $7,521
Alternative investments:                
Real estate $22
 $38
 $1,772
 $1,832
 $21
 $24
 $2,042
 $2,087
Private equity 
 
 1,054
 1,054
 
 
 1,128
 1,128
Absolute return 
 483
 695
 1,178
 
 723
 465
 1,188
Total alternative investments $22
 $521
 $3,521
 $4,064
 $21
 $747
 $3,635
 $4,403
Other investments $
 $250
 $38
 $288
 $
 $179
 $95
 $274
Total pension plan assets at fair value $5,043
 $9,851
 $3,880
 $18,774
 $5,220
 $11,726
 $4,262
 $21,208
Less: Fair value of pension plan assets due to Olin (2)
 (179) 
 
 (179)
Net pension plan assets at fair value $4,864
 $9,851
 $3,880
 $18,595
(1)Includes no Company common stock.




Basis of Fair Value Measurements of
Pension Plan Assets at December 31, 2015
 
Quoted Prices
in Active
Markets for
Identical Items

 
Significant
Other
Observable
Inputs

 
Significant
Unobservable
Inputs

 
  
In millions (Level 1)
 (Level 2)
 (Level 3)
 Total
Cash and cash equivalents $84
 $733
 $
 $817
Equity securities:        
U.S. equity (1)
 $2,525
 $558
 $1
 $3,084
Non-U.S. equity – developed countries 1,877
 1,167
 
 3,044
Emerging markets 462
 542
 27
 1,031
Convertible bonds 26
 177
 
 203
Equity derivatives 
 8
 
 8
Total equity securities $4,890
 $2,452
 $28
 $7,370
Fixed income securities:        
U.S. government and municipalities $
 $1,320
 $
 $1,320
U.S. agency and agency mortgage-backed securities 
 279
 
 279
Corporate bonds – investment grade 
 1,527
 
 1,527
Non-U.S. governments – developed countries 
 1,161
 
 1,161
Non-U.S. corporate bonds – developed countries 
 917
 
 917
Emerging market debt 
 109
 
 109
Other asset-backed securities 
 88
 1
 89
High yield bonds 47
 166
 16
 229
Other fixed income funds 
 295
 276
 571
Fixed income derivatives 
 33
 
 33
Total fixed income securities $47
 $5,895
 $293
 $6,235
Alternative investments:        
Real estate $22
 $38
 $1,772
 $1,832
Private equity 
 
 1,054
 1,054
Absolute return 
 483
 695
 1,178
Total alternative investments $22
 $521
 $3,521
 $4,064
Other investments $
 $250
 $38
 $288
Total pension plan assets at fair value $5,043
 $9,851
 $3,880
 $18,774
Less: Fair value of pension plan assets due to Olin (2)
 (179) 
 
 (179)
Net pension plan assets at fair value $4,864
 $9,851
 $3,880
 $18,595
(1)Includes no Company common stock.
(2)Pension plan assets duewere transferred to Olin and expected to be transferred in 2016. The final plan assets transferred totaled $184 million, which reflected return on plan assets and benefits paid to participants from the closing date of the Transaction with Olin to the date of transfer. See Note 6 for additional information.



124


Basis of Fair Value Measurements of
Pension Plan Assets at December 31, 2014
 
Quoted Prices
in Active
Markets for
Identical Items

 
Significant
Other
Observable
Inputs

 
Significant
Unobservable
Inputs

 
  
In millions (Level 1)
 (Level 2)
 (Level 3)
 Total
Cash and cash equivalents $61
 $953
 $
 $1,014
Equity securities:        
U.S. equity (1)
 $3,011
 $428
 $9
 $3,448
Non-U.S. equity – developed countries 1,814
 1,410
 
 3,224
Emerging markets 472
 538
 23
 1,033
Convertible bonds 15
 195
 
 210
Equity derivatives 
 7
 
 7
Total equity securities $5,312
 $2,578
 $32
 $7,922
Fixed income securities:        
U.S. government and municipalities $
 $1,406
 $
 $1,406
U.S. agency and agency mortgage-backed securities 
 310
 
 310
Corporate bonds – investment grade 
 1,605
 
 1,605
Non-U.S. governments – developed countries 
 1,212
 
 1,212
Non-U.S. corporate bonds – developed countries 
 961
 
 961
Emerging market debt 
 93
 
 93
Other asset-backed securities 
 105
 1
 106
High yield bonds 
 168
 16
 184
Other fixed income funds 
 299
 294
 593
Fixed income derivatives 
 31
 
 31
Total fixed income securities $
 $6,190
 $311
 $6,501
Alternative investments:        
Real estate $31
 $36
 $1,627
 $1,694
Private equity 
 
 1,059
 1,059
Absolute return 
 586
 656
 1,242
Total alternative investments $31
 $622
 $3,342
 $3,995
Other investments $
 $157
 $40
 $197
Total pension plan assets at fair value $5,404
 $10,500
 $3,725
 $19,629
(1)    Includes no Company common stock.

For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For pension or other postretirement benefit plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources.

Some pension plan assets are held in funds where a net asset value is calculated based on the fair value of the underlying assets and the number of shares owned. The classification of the fund (Level 2 or 3 measurements) is determined based on the lowest level classification of significant holdings within the fund. For all other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.


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For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers provide valuations of the investment on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment

valuation. Some pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements, and adjusted for estimated earnings and investment activity. These funds are classified as Level 3 due to the significant unobservable inputs inherent in the fair value measurement.

The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 20142015 and 20152016:

Fair Value Measurement of Level 3
Pension Plan Assets
 Equity Securities
 Fixed Income Securities
 Alternative Investments
 Other Investments
 Total
 Equity Securities
 Fixed Income Securities
 Alternative Investments
 Other Investments
 Total
In millions
Balance at January 1, 2014 $12
 $237
 $2,761
 $40
 $3,050
Actual return on plan assets:          
Relating to assets sold during 2014 
 22
 139
 
 161
Relating to assets held at Dec 31, 2014 (12) (7) 191
 1
 173
Purchases, sales and settlements 32
 63
 300
 (1) 394
Transfers out of Level 3, net 
 (3) 
 
 (3)
Foreign currency impact 
 (1) (49) 
 (50)
Balance at December 31, 2014 $32
 $311
 $3,342
 $40
 $3,725
Balance at January 1, 2015 $32
 $311
 $3,342
 $40
 $3,725
Actual return on plan assets:                    
Relating to assets sold during 2015 
 18
 233
 
 251
 
 18
 233
 
 251
Relating to assets held at Dec 31, 2015 
 (9) 58
 (2) 47
 
 (9) 58
 (2) 47
Purchases, sales and settlements(1) 2
 (27) (90) 
 (115)
Transfers out of Level 3, net (6) (1) 5
 
 (2)
Purchases, sales and settlements 2
 (27) (90) 
 (115)
Transfers in (out) of Level 3, net (6) (1) 5
 
 (2)
Foreign currency impact 
 1
 (27) 
 (26) 
 1
 (27) 
 (26)
Balance at December 31, 2015 $28
 $293
 $3,521
 $38
 $3,880
 $28
 $293
 $3,521
 $38
 $3,880
Actual return on plan assets:          
Relating to assets sold during 2016 
 2
 163
 (7) 158
Relating to assets held at Dec 31, 2016 9
 (4) 10
 11
 26
Purchases, sales and settlements(1) 1
 202
 (35) 53
 221
Transfers in (out) of Level 3, net (2) 3
 
 
 1
Foreign currency impact (2) 2
 (24) 
 (24)
Balance at December 31, 2016 $34
 $498
 $3,635
 $95
 $4,262
(1)Includes $35 million of alternative investments associated with the ownership restructure of Dow Corning.


NOTE 19 – LEASED PROPERTY

Leased Property
The Company routinely leases premises for use as sales and administrative offices, warehouses and tanks for product storage, motor vehicles, railcars, computers, office machines and equipment under leases.equipment. In addition, the Company leases aircraft in the United States. At the termination of the leases, the Company has the option to purchase certain leased equipment and buildings based on a fair market value determination.

Rental expenses under leases, net of sublease rental income, were $600$661 million in 2016, $600 million in 2015, and $539 million in 2014 and $490 million in 2013. Future minimum rental payments under leases with remaining noncancelable terms in excess of one year are as follows:

Minimum Lease Commitments at December 31, 2015
In millions
2016$302
Minimum Lease Commitments at December 31, 2016
In millions
Minimum Lease Commitments at December 31, 2016
In millions
2017277
$351
2018249
300
2019230
272
2020215
246
2021 and thereafter1,500
2021221
2022 and thereafter1,064
Total$2,773
$2,454



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NOTE 20 – VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities
TheAt December 31, 2016, the Company holds a variable interest in sixseven joint ventures or entities for which the Company is the primary beneficiary.

Three joint ventures own and operate manufacturing and logistics facilities, which produce chemicals and provide services in Asia Pacific. The Company’s variable interest in these joint ventures relates to arrangements between the joint ventures and the Company, involving the majority of the output on take-or-pay terms with pricing ensuring a guaranteed return to the joint ventures.
The fourth joint venture manufactures products in Japan for the semiconductor industry. Each joint venture partner holds several equivalent variable interests, with the exception of a royalty agreement held exclusively between the joint venture and the Company. In addition, the entire output of the joint venture is sold to the Company for resale to third-party customers.

The fifth joint venture provides ethylene storage in Alberta, Canada. The Company's variable interests relate to arrangements involving a majority of the joint venture's storage capacity on take-or-pay terms with pricing ensuring a guaranteed return to the joint venture; and favorably priced leases provided to the joint venture. The Company provides the joint venture with operation and maintenance services and utilities.

The sixthCompany was a partner in a joint venture is located in Brazil andthat produces ethanol from sugarcane. The Company's variable interests in this joint venture relaterelated to an equity option between the partners, a parental loan and guarantee related to debt financing, and contractual arrangements limiting the partner's initial participation in the economics of certain assets and liabilities. SinceAfter formation of the joint venture, the partners have amended the governing documents, including terms of the equity option. These amendments did not result in a change to the Company's accounting treatment of the joint venture. Terms of the equity option requirerequired the Company to purchase the partner's equity investment at a price based on a specified formula if the partner electselected to exit the joint venture. In August 2015, the partner exercised its equity option which requiresrequired Dow to purchase their equity investment for approximately $200 million before July 12, 2016.investment. As a result, in the third quarter of 2015, the Company reclassified the partner's equity investment from "Redeemable Noncontrolling Interest" to "Accrued and other current liabilities" in the consolidated balance sheets. The joint venture's ethanol mill commenced productionsheets at December 31, 2015. On March 31, 2016, the partner's equity investment transferred to the Company. On July 11, 2016, the Company paid $202 million to the former partner, which is classified as "Purchases of noncontrolling interests" in the second quarterconsolidated statements of 2015. Original plans for the joint venture's expansion into downstream derivative products have been postponed.cash flows. This former joint venture also holdsis now 100 percent owned by the Company, therefore its asset and liability balances are not included in the December 31, 2016, balances in the "Assets and Liabilities of Consolidated VIEs at December 31" table that follows. The Company continues to hold variable interests in ana related entity that owns a cogeneration facility.facility, which represents the sixth entity for which the Company is the primary beneficiary. The joint venture'sCompany's variable interests are the result of a tolling arrangement where it provides fuel to the entity and purchases a majority of the cogeneration facility’s output on terms that ensure a return to the entity’s equity holders. The assets and liabilities of the cogeneration facility continue to be included in the table that follows.

The Company previously held an equity interest in a joint venture that owns and operates a membrane chlor-alkali manufacturing facility. The Company’s variable interests in this joint venture related to equity options between the partners and a cost-plus off-take arrangement between the joint venture and the Company, involving proportional purchase commitments on take-or-pay terms and ensuring a guaranteed return to the joint venture. DuringIn the second quarter of 2015, Mitsui & Co. Texas Chlor-Alkali Inc. ("Mitsui"), a 50 percent equity owner in this joint venture, provided notice of its intention to transfer its equity interest to Dow as part of the Reverse Morris Trust transaction ("Transaction")Transaction with Olin. On October 5, 2015, the Company purchased Mitsui's equity interest in the membrane chlor-alkali joint venture for $133 million, which resulted in a loss of $25 million included in "Sundry income (expense) - net" in the consolidated statements of income and included as a component of the pretax gain on the Transaction. The loss is reflected in the Performance Materials & Chemicals segment. See Note 6 for additional information on this Transaction.

The Company previously held a 49 percent equity interest in a joint venture that managed the growth, harvest and conditioning of soybean seed and grain, corn and wheat in the United States. The Company's variable interest in this joint venture related to an equity option between the partners. Terms of the equity option required the Company to purchase the partner's equity investment at a price based on a specified formula, after a specified period of time, and satisfaction of certain conditions, if the partner elected to sell its equity investment. On August 10, 2015, the equity option was determined to be exercisable and the partner provided notice to the Company of its intent to exercise the equity option, which resulted in an after-tax loss of $22 million, included in "Net income attributable to noncontrolling interests" in the consolidated statements of income. The Company purchased the partner's equity investment on September 18, 2015, which resulted in the joint venture becoming a wholly owned subsidiary of Dow. Subsequent to the purchase of the partner's equity investment, the Company sold its entire ownership interest in the subsidiary to a third party and recognized a pretax gain of $44 million on the sale in the third quarter

of 2015, included in "Sundry income (expense) - net" in the consolidated statements of income and reflected in the Agricultural Sciences segment.
The Company previously held a variable interest in an owner trust, for which the Company was the primary beneficiary. The owner trust leased an ethylene production facility in The Netherlands to the Company, whereby substantially all of the rights

127


and obligations of ownership were transferred to the Company. The Company’s variable interest in the owner trust related to a fixed purchase price option. On January 2, 2014, the Company purchased the ethylene production facility for $406 million. The Company classified $346 million as "Payments on long-term debt" and $60 million as "Purchases of noncontrolling interests" in the consolidated statements of cash flows.
The Company's consolidated financial statements include the assets, liabilities and results of operations of variable interest entities ("VIEs") for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in "Net income attributable to noncontrolling interests" in the consolidated statements of income and "Redeemable Noncontrolling Interest," "Non-redeemable noncontrolling"Noncontrolling interests" and "Accrued and other current liabilities" in the consolidated balance sheets. The following table summarizes the carrying amounts of these entities’ assets and liabilities included in the Company’s consolidated balance sheets at December 31, 20152016 and 20142015:

Assets and Liabilities of Consolidated VIEs at December 31
In millions
 2015
 2014
 2016
 2015
Cash and cash equivalents (1)
 $158
 $190
 $75
 $158
Other current assets (2)
 112
 174
 95
 112
Property 1,717
 2,726
Net property 961
 1,717
Other noncurrent assets (2)
 65
 72
 55
 65
Total assets (2) (3)
 $2,052
 $3,162
Current liabilities (nonrecourse 2015: $256; 2014: $389) (2)
 $258
 $392
Long-term debt (nonrecourse 2015: $487; 2014: $1,216) (2)
 504
 1,247
Other noncurrent obligations (nonrecourse 2015: $51; 2014: $62) 51
 62
Total assets (1)
 $1,186
 $2,052
Current liabilities (nonrecourse 2016: $286; 2015: $256) $286
 $258
Long-term debt (nonrecourse 2016: $330; 2015: $487) 330
 504
Other noncurrent obligations (nonrecourse 2016: $47; 2015: $51) 47
 51
Total liabilities (2)
 $813
 $1,701
 $663
 $813
(1)Included $20 million at December 31, 2014 specifically restricted for the debt servicing and operational expenses of a manufacturing facility.
(2)Presented in accordance with newly implemented ASU 2015-03. See Note 2 for additional information.
(3)All assets were restricted at December 31, 20152016 and December 31, 2014.2015.

In addition, the Company holds a variable interest in an entity created to monetize accounts receivable of select European entities. TheThis is the seventh entity for which the Company is the primary beneficiary of this entity as a result ofand it results from the Company holding subordinated notes while maintaining servicing responsibilities for the accounts receivable. The carrying amounts of assets and liabilities included in the Company’s consolidated balance sheets pertaining to this entity were current assets of $103$477 million (zero restricted) at December 31, 20152016 ($99103 million, zero restricted, at December 31, 2014)2015) and current liabilities wereof less than $1 million (zero nonrecourse) at December 31, 20152016 (less than $1 million, zero nonrecourse, at December 31, 2014)2015).

Amounts presented in the consolidated balance sheets and the table above as restricted assets or nonrecourse obligations relating to consolidated VIEs at December 31, 20152016 and 20142015 are adjusted for intercompany eliminations and parental guarantees.

Nonconsolidated Variable Interest Entities
As a result of the DCC Transaction, the Company holds variable interests in Hemlock Semiconductor L.L.C. The variable interests relate to an equity interest held by the Company and arrangements between the Company and the joint venture to provide services. The Company is not the primary beneficiary, as it does not direct the activities that most significantly impact the economic performance of this entity; therefore, the entity is accounted for under the equity method of accounting. At December 31, 2016, the Company had a negative investment basis of $902 million in this joint venture, which is classified as "Other noncurrent obligations" in the consolidated balance sheets. The Company's maximum exposure to loss was zero at December 31, 2016. See Note 9 for additional information on this variable interest entity.

Also as a result of the DCC Transaction, the Company holds minority voting interests in certain joint ventures that produce silicon inputs for the Company. These joint ventures operate under supply agreements that sell inventory to the equity owners using pricing mechanisms that guarantee a return, therefore shielding the joint ventures from the obligation to absorb expected losses. As a result of the pricing mechanisms of these agreements, these entities are determined to be variable interest entities. The Company is not the primary beneficiary, as it does not hold the power to direct the activities that most significantly impact the economic performance of these entities; therefore, the entities are accounted for under the equity method of accounting. The Company's maximum exposure to loss as a result of its involvement with these variable interest entities is determined to be the carrying value of the investment in these entities. At December 31, 2016, the Company's investment in these joint ventures was $96 million and is classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets, representing the Company's maximum exposure to loss.

The Company holds a variable interest in a joint venture that manufactures crude acrylic acid in the United States and Germany on behalf of the Company and the other joint venture partner. The variable interest relates to a cost-plus arrangement between the joint venture and each joint venture partner. The Company is not the primary beneficiary, as a majority of the joint venture’s output is committed to the other joint venture partner; therefore, the entity is accounted for under the equity method of accounting. At December 31, 2015,2016, the Company’s investment in the joint venture was $160$171 million ($162160 million at December 31, 2014)2015), classified as “Investment in nonconsolidated affiliates” in the consolidated balance sheets, representing the Company’s maximum exposure to loss.

The Company holds variable interests in AFSI, a company that produces and sells proprietary technologies for the horticultural and agronomic markets.market. The variable interests in AFSI relate to a sublease agreement between Dow and AFSI; a tax receivable agreement that entitles Dow to additional consideration in the form of tax savings, which is contingent on the operations and earnings of AFSI; and contingent consideration, which is subject to certain performance conditions. The Company is not the primary beneficiary, as Dow is a minority shareholder in AFSI and AFSI is governed by a board of directors, the composition of which is mandated by AFSI's corporate governance requirements that a majority of the directors be independent. At December 31, 2015,2016, the Company's investment in AFSI was $191$46 million (zero($191 million at December 31, 2014)2015), and is classified as "Investment in nonconsolidated affiliates" in the consolidated balance sheets. In the fourth quarter of 2016, as a result of a decline in the market value of AFSI, the Company recognized a $143 million pretax impairment charge related to its equity interest in AFSI (see Notes 9 and 12 for further information). In addition, the Company has a receivable with AFSI related to the tax receivable agreement of $12 million at December 31, 2016 (zero at December 31, 2015) and a receivable for six million warrants, which is currently valued at $6$1 million andat December 31, 2016 ($6 million at December 31, 2015), which are classified as "Accounts and notes receivable - other"Other" in the consolidated balance sheets. The Company's maximum exposure to loss was $197$59 million at December 31, 2015.2016 ($197 million at December 31, 2015).


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NOTE 21 – STOCK-BASED COMPENSATION

The Company provides stock-based compensation in the form of the Employee Stock Purchase Plan (“ESPP”), which grants eligible employees the right to purchase shares of the Company's common stock at a discounted price. The Company also grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, deferred stock, performance deferred stock and restricted stock. Information regarding these plans is provided below.

Accounting for Stock-Based Compensation
The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments issued to employees (specifically, performance deferred stock awards, which are granted to executive employees subject to stock ownership requirements, that provide the recipient the option to elect to receive a cash payment equal to the value of the stock award on the date of delivery) is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required.

The Company uses a lattice-based option valuation model to estimate the fair value of stock options, the Black-Scholes option valuation model for subscriptions to purchase shares under the ESPP and Monte Carlo simulation for the market portion of performance deferred stock awards. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:

Weighted-Average Assumptions 2015
 2014
 2013
 2016
 2015
 2014
Dividend yield 3.54% 3.08% 3.89% 4.13% 3.54% 3.08%
Expected volatility 27.84% 28.11% 29.93% 31.60% 27.84% 28.11%
Risk-free interest rate 1.02% 1.11% 1.08% 1.12% 1.02% 1.11%
Expected life of stock options granted during period (years) 7.7
 7.7
 7.8
 7.8
 7.7
 7.7
Life of Employee Stock Purchase Plan (months) 6
 6
 5
 4
 6
 6

The dividend yield assumption for 2016 and 2015 was equal to the dividend yield on the grant date, which reflected the most recent quarterly dividend payment of $0.42$0.46 per share.share in 2016 ($0.42 per share in 2015). The dividend yield assumption for 2014 was equal to the dividend yield on the grant date, which for stock options was the most recent quarterly dividend declared on the grant date of $0.37 per share and for the ESPP was the first quarter dividend payment of $0.32 per share. The dividend yield assumption for 2013 was equal to the dividend yield on the grant date, which reflected the most recent quarterly dividend payment of $0.32 per share. The expected volatility assumptions for stock options and ESPP were based on an equal weighting of the historical daily volatility for the

term of the awards and current implied volatility from exchange-traded options. The expected volatility assumption for the market portion of the performance deferred stock awards was based on historical daily volatility for the term of the award. The risk-free interest rate was based on the weighted-average of U.S. Treasury strip rates over the contractual term of the options. The expected life of stock options granted was based on an analysis of historical exercise patterns.

Employee Stock Purchase Plan
On February 9, 2012, the Board of Directors authorized The Dow Chemical Company 2012 Employee Stock Purchase Plan which was approved by stockholders at the Company’s annual meeting on May 10, 2012. Under the 20152016 annual offering, most employees were eligible to purchase shares of common stock of the Company valued at up to 10 percent of their annual base salary. The value is determined using the plan price multiplied by the number of shares subscribed to by the employee. The plan price of the stock is set at an amount equal to at least 85 percent of the fair market value (closing price) of the common stock on a date during the fourth quarter of the year prior to the offering, or the average fair market value (closing price) of the common stock over a period during the fourth quarter of the year prior to the offering, in each case, specified by the plan administrator.Vice President of Human Resources.

129


Employee Stock Purchase Plan 2015 2016
Shares in thousands Shares
 
Exercise
Price (1)

 Shares
 
Exercise
Price (1)

Outstanding and exercisable at January 1, 2015 16
 $38.13
Outstanding and exercisable at January 1, 2016 7
 $41.49
Granted 3,183
 $41.49
 2,122
 $40.44
Exercised (3,148) $41.48
 (2,124) $40.44
Forfeited/Expired (44) $40.69
 (5) $40.56
Outstanding and exercisable at December 31, 2015 7
 $41.49
Outstanding and exercisable at December 31, 2016 
 $
(1)Weighted average price per share

Additional Information about Employee Stock Purchase Plan
In millions, except per share amounts
 2015
 2014
 2013
 2016
 2015
 2014
Weighted-average fair value per share of purchase rights granted $4.62
 $5.45
 $7.20
 $3.40
 $4.62
 $5.45
Total compensation expense for ESPP $15
 $20
 $60
 $7
 $15
 $20
Related tax benefit $5
 $7
 $22
 $3
 $5
 $7
Total amount of cash received from the exercise of purchase rights $131
 $138
 $198
 $86
 $131
 $138
Total intrinsic value of purchase rights exercised (1)
 $25
 $42
 $68
 $23
 $25
 $42
Related tax benefit $9
 $15
 $25
 $9
 $9
 $15
(1)Difference between the market price at exercise and the price paid by the employee to exercise the purchase rights.

Stock Incentive Plan
The Company has historically granted equity awards under various plans (the "Prior Plans"). On February 9, 2012, the Board of Directors authorized The Dow Chemical Company 2012 Stock Incentive Plan (the "2012 Plan"), which was approved by stockholders at the Company's annual meeting on May 10, 2012 ("Original Effective Date") and became effective on that date. On February 13, 2014, the Board of Directors adopted The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan (the "2012 Restated Plan"). The 2012 Restated Plan was approved by stockholders at the Company's annual meeting on May 15, 2014 and became effective on that date. The Prior Plans were superseded by the 2012 Plan and the 2012 Restated Plan (collectively, the "2012 Plan"). Under the 2012 Plan, the Company may grant options, deferred stock, performance deferred stock, restricted stock, stock appreciation rights and stock units to employees and non-employee directors until the tenth anniversary of the Original Effective Date, subject to an aggregate limit and annual individual limits. The terms of the grants are fixed at the grant date. At December 31, 2015,2016, there were 56,905,984approximately 45 million shares available for grant under the 2012 Plan.

Stock Options
The Company grants stock options to certain employees, subject to certain annual and individual limits, with terms of the grants fixed at the grant date. The exercise price of each stock option equals the market price of the Company’s stock on the grant date. Options vest from one to three years, and have a maximum term of 10 years.


The following table summarizes stock option activity for 20152016:

Stock Options 2015 2016
Shares in thousands Shares
 
Exercise
Price (1)

 Shares
 
Exercise
Price (1)

Outstanding at January 1, 2015 53,647
 $36.05
Outstanding at January 1, 2016 41,461
 $35.50
Granted 3,024
 $49.44
 2,988
 $46.01
Exercised (11,226) $36.06
 (9,061) $35.89
Forfeited/Expired (3,984) $51.94
 (618) $41.56
Outstanding at December 31, 2015 41,461
 $35.50
Outstanding at December 31, 2016 34,770
 $36.20
Remaining contractual life in years 
 5.50
 
 5.24
Aggregate intrinsic value in millions $662
 

 $731
 

Exercisable at December 31, 2015 30,992
 $34.02
Exercisable at December 31, 2016 28,932
 $33.96
Remaining contractual life in years 
 4.75
 
 4.60
Aggregate intrinsic value in millions $541
 

 $673
 

(1)Weighted-average per share.


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Additional Information about Stock Options
In millions, except per share amounts
 2015
 2014
 2013
 2016
 2015
 2014
Weighted-average fair value per share of options granted $11.61
 $11.49
 $6.99
 $10.95
 $11.61
 $11.49
Total compensation expense for stock option plans $55
 $65
 $101
 $32
 $55
 $65
Related tax benefit $20
 $24
 $37
 $12
 $20
 $24
Total amount of cash received from the exercise of options $377
 $810
 $188
 $312
 $377
 $810
Total intrinsic value of options exercised (1)
 $175
 $300
 $102
 $153
 $175
 $300
Related tax benefit $65
 $111
 $38
 $57
 $65
 $111
(1)Difference between the market price at exercise and the price paid by the employee to exercise the options.

Total unrecognized compensation cost related to unvested stock option awards of $20$16 million at December 31, 20152016, is expected to be recognized over a weighted-average period of 0.740.84 years.

Deferred Stock
The Company grants deferred stock to certain employees. The grants vest after a designated period of time, generally one to three years. The following table shows changes in nonvested deferred stock:

Deferred Stock 2015 2016
Shares in thousands Shares
 
Grant Date
Fair Value (1)

 Shares
 
Grant Date
Fair Value (1)

Nonvested at January 1, 2015 9,352
 $36.45
Nonvested at January 1, 2016 7,979
 $40.96
Granted 2,168
 $49.42
 2,134
 $46.25
Vested (3,339) $33.95
 (3,525) $32.16
Canceled (202) $39.07
 (206) $43.70
Nonvested at December 31, 2015 7,979
 $40.96
Nonvested at December 31, 2016 6,382
 $47.49
(1)Weighted-average per share.

Additional Information about Deferred Stock
In millions, except per share amounts
 2015
 2014
 2013
 2016
 2015
 2014
Weighted-average fair value per share of deferred stock granted $49.42
 $46.88
 $32.13
 $46.25
 $49.42
 $46.88
Total fair value of deferred stock vested and delivered (1)
 $162
 $156
 $137
 $166
 $162
 $156
Related tax benefit $60
 $58
 $51
 $61
 $60
 $58
Total compensation expense for deferred stock awards $110
 $99
 $104
 $97
 $110
 $99
Related tax benefit $41
 $37
 $39
 $36
 $41
 $37
(1)Includes the fair value of shares vested in prior years and delivered in the reporting year.

Total unrecognized compensation cost related to deferred stock awards of $81$75 million at December 31, 20152016, is expected to be recognized over a weighted-average period of 0.850.86 years. At December 31, 2015,2016, approximately 30,79426,000 deferred shares with a

grant date weighted-average fair value per share of $37.62$37.19 had previously vested, but were not issued. These shares are scheduled to be issued to employees within one to three years or upon retirement.

Performance Deferred Stock
The Company grants performance deferred stock to certain employees. The grants vest when the Company attains specified performance targets, such as return on capital and relative total shareholder return, over a predetermined period, generally one to three years. Compensation expense related to performance deferred stock awards is recognized over the lesser of the service or performance period. Changes in the fair value of liability instruments are recognized as compensation expense each quarter.


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The following table shows the performance deferred stock awards granted:

Performance Deferred Stock AwardsPerformance Deferred Stock Awards 
Target
Shares
Granted (1)

 
Grant Date
Fair Value (2) (3)

Performance Deferred Stock Awards 
Target
Shares
Granted (1)

 
Grant Date
Fair Value (2)

Shares in thousandsShares in thousands Shares in thousands 
Year Performance Period  Performance Period 
2016 January 1, 2016 – December 31, 2018 2,283
 $52.68
2015 January 1, 2015 – December 31, 2017 2,258
 $59.08
 January 1, 2015 – December 31, 2017 2,258
 $59.08
2014 January 1, 2014 – December 31, 2016 2,425
 $54.42
 January 1, 2014 – December 31, 2016 2,425
 $54.42
2013 January 1, 2013 – December 31, 2015 1,321
 $34.41
(1)At the end of the performance period, the actual number of shares issued can range from zero to 250 percent of the target shares granted in the 2013 grant year and zero to 200 percent of target shares granted in the 2014 and 2015 grant years.granted.
(2)Weighted-average per share.
(3)The 2013 and 2014 grant date fair values have been updated to incorporate the probability distribution of projected payout outcomes.

The following table shows changes in nonvested performance deferred stock:

Performance Deferred Stock 2015 2016
Shares in thousands 
Target
Shares
Granted 
(1)

 
Grant Date 
Fair Value (2) 

 
Target
Shares
Granted 
(1)

 
Grant Date 
Fair Value (2) 

Nonvested at January 1, 2015 3,720
 $47.40
Nonvested at January 1, 2016 4,621
 $56.68
Granted 2,258
 $59.08
 2,283
 $52.68
Vested (3)
 (1,295) $34.41
 (2,342) $54.42
Canceled (62) $52.51
 (108) $55.46
Nonvested at December 31, 2015 4,621
 $56.68
Nonvested at December 31, 2016 4,454
 $55.85
(1)At the end of the performance period, the actual number of shares issued can range from zero to 250 percent of the target shares granted in the 2013 grant year, and zero to 200 percent of target shares granted in the 2014 and 2015 grant years.granted.
(2)Weighted-average per share.
(3)Vested shares for the 20132014 - 20152016 performance period that were earned (i.e., performance conditions were satisfied and the target shares granted for the performance period vested) during the applicable fiscal year. Shares earned will be delivered in February 20162017 at the applicable pay-out percentage. Certain executive employees may opt to receive a cash payment equal to the value of the stock award on the date of delivery.

Additional Information about Performance Deferred Stock   
  
   
  
In millions 2015
 2014
 2013
 2016
 2015
 2014
Total fair value of performance deferred stock vested and delivered (1)
 $37
 $12
 $14
 $103
 $37
 $12
Related tax benefit $14
 $5
 $5
 $38
 $14
 $5
Total compensation expense for performance deferred stock awards $172
 $67
 $62
 $125
 $172
 $67
Related tax benefit $63
 $25
 $23
 $46
 $63
 $25
Shares of performance deferred stock settled in cash (2)
 0.3
 0.1
 0.2
 0.9
 0.3
 0.1
Total cash paid to settle performance deferred stock awards (3)
 $16
 $6
 $6
 $40
 $16
 $6
(1)Includes the fair value of shares vested in prior years and delivered in the reporting year.
(2)Performance deferred stock awards vested in prior years and delivered in the reporting year.
(3)Cash paid to certain executive employees for performance deferred stock awards vested in prior periods and delivered in the reporting year, equal to the value of the stock award on the date of delivery.

Total unrecognized compensation cost related to performance deferred stock awards of $83$74 million at December 31, 20152016, is expected to be recognized over a weighted-average period of 0.81 years. At December 31, 2015,2016, approximately 2.43.4 million performance deferred shares with a grant date weighted-average fair value of $34.41$54.42 per share were vested, but not issued. These shares are scheduled to be issued in February 2016.2017.

Restricted Stock
Under the 2012 Plan, the Company may grant shares (including options, stock appreciation rights, stock units and restricted stock) to non-employee directors over the 10-year duration of the program, subject to the plan's aggregate limit as well as annual individual limits. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferred

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by the non-employee director, until the director is no longer a member of the Board. The following table shows the restricted stock issued under this plan:
 
Restricted Stock Shares Issued
 Weighted-Average Fair Value
 Shares Issued
 Weighted-Average Fair Value
  
Year  
2016 32,160
 $50.55
2015 31,560
 $51.51
 31,560
 $51.51
2014 24,840
 $48.98
 24,840
 $48.98
2013 35,280
 $34.46


NOTE 22 – STOCKHOLDERS’ EQUITY

Cumulative Convertible Perpetual Preferred Stock, Series A
Equity securities in the form of Cumulative Convertible Perpetual Preferred Stock, Series A (“preferred series A”) were issued on April 1, 2009 to Berkshire Hathaway Inc. in the amount of $3 billion (3 million shares) and the Kuwait Investment Authority in the amount of $1 billion (1 million shares). The Company will pay cumulative dividends on preferred series A at a rate of 8.5 percent per annum in either cash, shares of common stock, or any combination thereof, at the option of the Company. Dividends may be deferred indefinitely, at the Company’s option. If deferred, common stock dividends must also be deferred. Any past due and unpaid dividends will accrue additional dividends at a rate of 10 percent per annum, compounded quarterly. If dividends are deferred for any six quarters, the preferred series A shareholders may elect two directors to the Company’s Board of Directors until all past due dividends are paid. Ongoing dividends related to preferred series A are $85 million per quarter; no dividends had been deferred at December 31, 2015.

Shareholders of preferred series A maycould convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rateratio of 24.2010 shares of common stock for each share of preferred series A. Under certain circumstances, the Company will be required to adjust the conversion rate. On or after the fifth anniversary of the issuance date, if the common stock price exceedsexceeded $53.72 per share for any 20 trading days in a consecutive 30-day window, the Company may, at itshad the option, at any time, in whole or in part, to convert preferred series A into common stock at the then applicable conversion rate. Upon conversion, accrued and unpaid dividends will be payable,

On December 15, 2016, the trading price of Dow's common stock closed at $58.35, marking the option20th trading day in the previous 30 trading days that the common stock closed above $53.72, triggering the right of the Company in either cash,to exercise its conversion right. On December 16, 2016, the Company sent a Notice of Conversion at the Option of the Company (the "Notice") to all holders of its preferred series A. Pursuant to the Notice, on December 30, 2016 (the "Conversion Date") all 4 million outstanding shares of preferred series A were converted into shares of common stock at a conversion ratio of 24.2010 shares of common stock for each share of preferred series A, resulting in the issuance of 96.8 million shares of common stock from treasury stock. From and after the Conversion Date, no shares of the preferred series A are issued or any combination thereof.outstanding and all rights of the holders of the preferred series A have terminated. On January 6, 2017, the Company filed an amendment to the Company’s Restated Certificate of Incorporation by way of a certificate of elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware which had the effect of: (a) eliminating the previously designated 4 million shares of the preferred series A, none of which were outstanding at the time of the filing; (b) upon such elimination, causing such preferred series A to resume the status of authorized and unissued shares of preferred stock, par value $1.00 per share, of the Company, without designation as to series; and (c) eliminating from the Company’s Restated Certificate of Incorporation all references to, and all matters set forth in, the certificates of designations for the preferred series A.
The Company paid cumulative dividends on preferred series A at a rate of 8.5 percent per annum, or $85 million per quarter. The final dividend for the preferred series A was declared on December 15, 2016 and payable on the earlier of the Conversion Date (if applicable) or January 3, 2017, to shareholders of record at December 15, 2016. The accrued dividend was paid in full on the Conversion Date.

Common Stock
The Company may issue common stock shares out of treasury stock or as new common stock shares for purchases under the Employee Stock Purchase Plan, for options exercised and for the release of deferred, performance deferred and restricted stock. In 2015, no new common stock shares were issued to employees and 31,560 new common stock shares were issued to non-employee directors under the Company's stock-based compensation program. The number of newNew common stock shares issued to employees and non-employee directors was 21.2 millionby the Company are summarized in 2014 and 18.3 million in 2013.the table below:

New Common Stock Shares Issued
Shares in thousands2016
2015
2014
To employees

21,181
To non-employee directors
32
25


Retained Earnings
There are no significant restrictions limiting the Company’s ability to pay dividends.

Undistributed earnings of nonconsolidated affiliates included in retained earnings were $1,196 million at December 31, 2016 and $2,708 million at December 31, 2015 and $2,703 million at December 31, 2014.2015.

Employee Stock Ownership Plan
The Company has the Dow Employee Stock Ownership Plan (the “ESOP”), which is an integral part of The Dow Chemical Company Employees’ Savings Plan (the “Plan”). A significant majority of full-time employees in the United States are eligible to participate in the Plan. The Company uses the ESOP to provide the Company’s matching contribution in the form of the Company’s stock to Plan participants.

In connection with the acquisition of Rohm and Haas on April 1, 2009, the Rohm and Haas Employee Stock Ownership Plan (the "Rohm and Haas ESOP") was merged into the Plan, and the Company assumed the $78 million balance of debt at 9.8 percent interest with final maturity in 2020 that was used to finance share purchases by the Rohm and Haas ESOP in 1990. The outstanding balance of the debt was $24 million at December 31, 2016 and $30 million at December 31, 2015 and $37 million at December 31, 2014.2015.


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Dividends on unallocated shares held by the ESOP are used by the ESOP to make debt service payments and to purchase additional shares if dividends exceed the debt service payments. Dividends on allocated shares are used by the ESOP to make debt service payments to the extent needed; otherwise, they are paid to the Plan participants. Shares are released for allocation to participants based on the ratio of the current year’s debt service to the sum of the principal and interest payments over the life of the loan. The shares are allocated to Plan participants in accordance with the terms of the Plan.

Compensation expense for allocated shares is recorded at the fair value of the shares on the date of allocation. ESOP shares that have not been released or committed to be released are not considered outstanding for purposes of computing basic and diluted earnings per share.

Compensation expense for ESOP shares was $192 million in 2016, $174 million in 2015 and $163 million in 2014 and $132 million in 2013.2014. At December 31, 2015, 15.22016, 15.8 million shares out of a total 31.829.3 million shares held by the ESOP had been allocated to participants’ accountsaccounts; 1.9 million shares were released but unallocated; and 16.611.6 million shares, at a fair value of $852$661 million, were considered unearned.

Treasury Stock
On February 13, 2013, the Board of Directors approved a share buy-back program, authorizing up to $1.5$1.5 billion to be spent on the repurchase of the Company's common stock over a period of time. 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. On November 12, 2014, the Board of Directors announced a new $5 billion tranche to its share buy-back program, with the repurchase of the Company's common stock timed to proceeds received from portfolio management actions and increases in operating cash flows. As a result of these actions, the total authorized amount of the share repurchase program is $9.5 billion. At December 31, 2015, $2.32016, $1.4 billion of the share buy-back authorization remained available for repurchases. The following table shows the total number of treasury shares purchased by the Company was 23.1 million in 2015, 84.1 million in 2014 and 8.2 million in 2013. under the share repurchase program for each period presented:

Treasury Shares Repurchased with Cash
Shares in millions 
201617.1
201523.1
201484.1

In 2015, the Company also recorded 34.1 million treasury shares as part of the Reverse Morris Trust transactionTransaction with Olin, which were tendered as part of a non-cash, public exchange offer. See Note 6 for additional information.

On December 11, 2015, the Company and DuPont announced that their boards of directors unanimously approved a definitive agreement under which the companies will combine in an all-stock merger of equals strategic combination. The combined company will be named DowDuPont. This transaction is expected to close in the second half of 2016, subject to customary closing conditions, including regulatory approvals. As a result of this pending transaction,the planned merger of equals with DuPont, the Company willdetermined that it would not repurchase shares under the share repurchase program until after the July 20, 2016, shareholder vote on the DowDuPont merger. The Company resumed share repurchases in the third quarter of 2016.

The Company may issue shares for purchases under the Employee Stock Purchase Plan, for options exercised as well as for the release of deferred, performance deferred and restricted stock out of treasury stock or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under the Company’s stock-based compensation programs are summarized in the table below:

Treasury Shares Issued to Employees and Non-Employee Directors
Shares in millions 
201614.5
201516.5
20147.1

On December 30, 2016, preferred series A shares with a carrying value of $4,000 million were converted to shares of common stock, resulting in the issuance of 96.8 million shares of common stock from treasury stock. The treasury stock issued was 16.5carried at an aggregate historical cost of $4,695 million, resulting in 2015, 7.1 milliona reduction to "Additional paid-in capital" in 2014 and zero in 2013.the consolidated balance sheets of $695 million.



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Table of Contents

NOTE 23 – INCOME TAXES

Domestic and Foreign Components of Income Before Income Taxes
In millions 
2015 (1)

 2014
 
2013 (2)

 2016
 2015
 2014
Domestic $5,313
 $1,652
 $3,979
Domestic (1) (2)
 $485
 $5,313
 $1,652
Foreign(1) 4,617
 3,613
 2,825
 3,928
 4,617
 3,613
Total $9,930
 $5,265
 $6,804
 $4,413
 $9,930
 $5,265
(1)In 2015,2016, the domestic and foreign componentscomponent of "Income Before Income Taxes" included approximately $3.5$2.1 billion ($3.5 billion in 2015) and $1.1the foreign component contained zero ($1.1 billion in 2015) of income from portfolio actions, respectively. This includesactions. Amounts include gains from transactions noted below in the Reconciliation to U.S. Statutory Rate table.
(2)In 2013,2016, the domestic component of "Income“Income Before Income Taxes"Taxes” included a gainapproximately $2.6 billion of $2.195 billionexpenses related to the K-Dow arbitrationurethane matters class action lawsuit and a $451 million gain related to the sale of Dow's Polypropylene Licensingopt-out cases settlements, asbestos-related charge and Catalysts business.charges for environmental matters.


Provision for Income Taxes
 2015 2014 2013 2016 2015 2014
In millions Current Deferred Total Current Deferred Total Current Deferred Total   Current Deferred Total Current Deferred Total Current Deferred Total  
Federal (1)
 $583
 $358
 $941
 $(161) $442
 $281
 $805
 $278
 $1,083
 $91
 $(1,255) $(1,164) $583
 $358
 $941
 $(161) $442
 $281
State and local 38
 (8) 30
 (4) 43
 39
 42
 (73) (31) 21
 (10) 11
 38
 (8) 30
 (4) 43
 39
Foreign 1,221
 (45) 1,176
 1,125
 (19) 1,106
 1,028
 (92) 936
 1,156
 6
 1,162
 1,221
 (45) 1,176
 1,125
 (19) 1,106
Total $1,842
 $305
 $2,147
 $960
 $466
 $1,426
 $1,875
 $113
 $1,988
 $1,268
 $(1,259) $9
 $1,842
 $305
 $2,147
 $960
 $466
 $1,426
(1)ReflectsThe 2016 amount reflects the tax impact of accrued one-time items and reduced domestic income which limited the utilization of tax credits. The 2014 amount reflects the impact of accelerated deductions.


Reconciliation to U.S. Statutory Rate 
  
 
  
 
  
 
  
In millions 2015
 2014
 2013
 2016
 2015
 2014
Taxes at U.S. statutory rate $3,476
 $1,843
 $2,381
 $1,545
 $3,476
 $1,843
Equity earnings effect (197) (307) (276) (52) (197) (307)
Foreign income taxed at rates other than 35% (1)
 (398) (195) (76) (309) (398) (195)
U.S. tax effect of foreign earnings and dividends 130
 54
 102
 (204) 130
 54
Goodwill impact from divestitures 57
 
 
 5
 57
 
Discrete equity earnings (2)
 21
 26
 
 
 21
 26
Change in valuation allowances (32) 33
 (197) 8
 (32) 33
Unrecognized tax benefits 81
 (30) 243
 (34) 81
 (30)
Federal tax accrual adjustments 13
 (3) 29
 (6) 13
 (3)
Gain from K-Dow arbitration (3)
 
 
 (212)
Gain on split-off of chlorine value chain (4)
 (763) 
 
Gain on Univation step acquisition (5)
 (124) 
 
Gain on sale of MEGlobal (6)
 (120) 
 
Gain on ownership restructure of Dow Corning (3)
 (993) 
 
Non-deductible costs associated with transactions and productivity actions 33
 
 
Impact from split-off of chlorine value chain (4)
 21
 (763) 
Gain on Univation step acquisition (3)
 
 (124) 
Gain on sale of MEGlobal (5)
 
 (120) 
Other – net 3
 5
 (6) (5) 3
 5
Total tax provision $2,147
 $1,426
 $1,988
 $9
 $2,147
 $1,426
Effective tax rate 21.6% 27.1% 29.2% 0.2% 21.6% 27.1%
(1)Includes the tax provision for statutory taxable income in foreign jurisdictions for which there is no corresponding amount in “Income Before Income Taxes.”
(2)Includes nonrecurring charges related to equity in earnings of nonconsolidated affiliates.affiliates in 2015 and 2014.
(3)In 2013, the K-Dow arbitration award generated a tax rate benefit of $212 million due to the tax treatment of certain components of the award. See Note 154 for further information.
(4)See Note 6 for further information.
(5)See Note 4 for further information.
(6)See Note 5 for further information.

The tax rate for 2016 was favorably impacted by the non-taxable gain on the DCC Transaction and a tax benefit on the reassessment of a deferred tax liability related to the basis difference in the Company’s investment in Dow Corning. The tax rate was also favorably impacted by the geographic mix of earnings, the availability of foreign tax credits and the deductibility of both the urethane matters class action lawsuit and opt-out cases settlements and the asbestos-related charge. A reduction in equity earnings and non-deductible costs associated with transactions and productivity actions unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 0.2 percent for 2016.  

The tax rate for 2015 was positivelyfavorably impacted by portfolio actions, specifically the tax-efficient split-off of the chlorine value chain, the non-taxable gain from the Univation step acquisition and the sale of MEGlobal. The geographic mix of earnings favorably impacted the tax rate with the gain from the ANGUS Chemical Company divestiture and continued profitability improvement in Europe and Asia Pacific providing most of the benefit. The tax rate was unfavorably impacted by foreign subsidiaries repatriating cash to the United States, which was primarily derived from divestiture proceeds. Reduced equity earnings and continued increases in statutory income in Latin America and Canada due to local currency devaluations also unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 21.6 percent for 2015.

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The tax rate for 2014 was favorably impacted by the geographic mix of earnings, with the most notable components being improved profitability in Europe and Asia Pacific as well as equity earnings providing additional favorable impact on the tax rate. The tax rate was also favorably impacted by a reduction in the tax on remittances by foreign subsidiaries to the United States. The tax rate was unfavorably impacted by a continued increase in statutory income in Latin America due to local currency devaluations, and increasesincrease in valuation allowances, primarily in Asia Pacific. These factors resulted in an effective tax rate of 27.1 percent for 2014.

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 as well as 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.

Deferred Tax Balances at December 31 2015 2014 2016 2015
In millions 
Deferred Tax
Assets (1)

 
Deferred Tax
Liabilities

 
Deferred Tax
Assets (1)

 
Deferred Tax 
Liabilities

 
Deferred Tax
Assets (1)

 
Deferred Tax
Liabilities (1)

 
Deferred Tax
Assets  

 
Deferred Tax 
Liabilities

Property(2) $48
 $2,015
 $63
 $2,005
 $307
 $2,860
 $130
 $2,097
Tax loss and credit carryforwards 1,647
 
 1,843
 
 2,450
 
 1,647
 
Postretirement benefit obligations(2) 4,199
 1,344
 4,526
 1,220
 3,715
 75
 2,939
 84
Other accruals and reserves(2) 1,191
 684
 1,213
 411
 1,964
 883
 1,389
 882
Intangibles 208
 692
 217
 691
 128
 1,536
 208
 692
Inventory(3) 306
 218
 412
 177
 50
 197
 13
 218
Long-term debt 
 440
 
 673
Investments (2)
 204
 242
 130
 346
Investments 179
 119
 204
 242
Other – net (2)
 1,114
 436
 972
 527
 737
 643
 780
 542
Subtotal $8,917
 $6,071
 $9,376
 $6,050
 $9,530
 $6,313
 $7,310
 $4,757
Valuation allowances (1,000) 
 (1,106) 
 (1,061) 
 (1,000) 
Total $7,917
 $6,071
 $8,270
 $6,050
 $8,469
 $6,313
 $6,310
 $4,757
(1)Included in currentThe Company assumed $999 million of deferred tax assets are prepaidand $1,858 million of deferred tax assets totaling $293 million in 2015 and $358 million in 2014.liabilities as part of the DCC Transaction. See Note 4 for additional information.
(2)Prior year was adjusted to conform to the current year presentation.
(3)Prior year was adjusted to conform to the current year presentation for the reclassification of $293 million of prepaid tax assets to "Other current assets." See Note 1 for additional information.

Gross operating loss carryforwards amounted to $10,580 million at December 31, 2016 and $10,364 million at December 31, 2015 and $11,080 million at December 31, 2014.2015. At December 31, 2015, $1,6552016, $1,922 million of the operating loss carryforwards were subject to expiration in 20162017 through 2020.2021. The remaining operating loss carryforwards expire in years beyond 20202021 or have an indefinite carryforward period. Tax credit carryforwards at December 31, 20152016 amounted to $128$928 million ($130128 million at December 31, 2014)2015), net of uncertain tax positions,positions. The increase in tax credit carryforwards in 2016 was primarily due to reduced domestic income which limited the utilization of which $29tax credits. Tax credit carryforwards of $28 million isare subject to expiration in 20162017 through 2020. The2021 and the remaining tax credit carryforwards expire in years beyond 20202021 or have an indefinite carryforward period.

The Company had valuation allowances that primarily related to the realization of recorded tax benefits on tax loss carryforwards from operations in the United States, Brazil and Asia Pacific of $1,061 million at December 31, 2016 and $1,000 million at December 31, 2015 and $1,106 million at December 31, 2014.2015.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $18,668 million at December 31, 2016, $18,773 million at December 31, 2015 $18,037and $18,037 million at December 31, 2014 and $16,139 million at December 31, 2013.2014. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.

In the fourth quarter of 2016, a settlement of $206 million was reached on a tax matter associated with a historical change in the legal ownership structure of a nonconsolidated affiliate. As a result of the settlement, the Company recorded a net decrease in uncertain tax positions of $67 million, included in “Other noncurrent obligations” in the consolidated balance sheets, and an unfavorable impact of $13 million to “Provision for income taxes” in the consolidated statements of income. The following table provides a reconciliation of the Company's unrecognized tax benefits:

Total Gross Unrecognized Tax Benefits 
  
 
  
 
  
 
  
In millions 2015
 2014
 2013
 2016
 2015
 2014
Balance at January 1 $240
 $266
 $409
 $280
 $240
 $266
Increases related to positions taken on items from prior years(1) 92
 42
 385
 153
 92
 42
Decreases related to positions taken on items from prior years (6) (57) (137) (12) (6) (57)
Increases related to positions taken in the current year(2) 10
 10
 10
 135
 10
 10
Settlement of uncertain tax positions with tax authorities(1) (56) (13) (393) (325) (56) (13)
Decreases due to expiration of statutes of limitations 
 (8) (8) 
 
 (8)
Balance at December 31 $280
 $240
 $266
 $231
 $280
 $240
(1)Includes the impact of a settlement agreement related to a historical change in the legal ownership structure of a nonconsolidated affiliate.
(2)Includes $126 million assumed in the DCC Transaction.


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Table of Contents

At December 31, 2015,2016, the total amount of unrecognized tax benefits was $280 million ($240 million at December 31, 2014), of which $206 million would impact the effective tax rate if recognized was $223 million ($233206 million at December 31, 2014)2015).


Interest and penalties are recognized as components of the “Provision for income taxes,” and totaled a benefit of $55 million in 2016, a charge of $80 million in 2015 and a charge of $15 million in 2014 and a benefit of $71 million in 2013.2014. The Company’s accrual for interest and penalties associated with uncertain tax positions was $59 million at December 31, 2016 and $159 million at December 31, 2015 and $109 million at December 31, 2014.2015.

During 2013, court rulings on two separate tax matters resulted in the adjustment of uncertain tax positions. In February 2013, the U.S. District Court for the Middle District of Louisiana issued a ruling that disallowed, for tax purposes, transactions and partnerships associated with Chemtech, a wholly owned subsidiary. In March 2013,On January 9, 2017, the U.S. Supreme Court denied certiorari in Union Carbide's researchthe Company’s tax credit case. Through denialtreatment of certiorari,partnerships and transactions associated with Chemtech, a wholly owned subsidiary. The Company has fully accrued the decision issued byposition and does not expect a future impact to “Provision for income taxes” in the U.S. Courtconsolidated statements of Appeals denying Union Carbide's tax credit claim for supplies used in process-related research and development at its manufacturing facilities became final. Asincome as a result of these rulings, the Company adjusted uncertain tax positions related to these matters, resulting in a tax charge of $276 million in 2013.ruling.       

Tax years that remain subject to examination for the Company’s major tax jurisdictions are shown below:

Tax Years Subject to Examination by Major Tax
Jurisdiction at December 31
Tax Years Subject to Examination by Major Tax
Jurisdiction at December 31
Tax Years Subject to Examination by Major Tax
Jurisdiction at December 31
 Earliest Open Year Earliest Open Year
Jurisdiction 2015 2014 2016 2015
Argentina 2008 2007 2009 2008
Brazil (1)
 2006 2008 2006 2006
Canada 2010 2010 2012 2010
Germany 2006 2006 2006 2006
Italy 2011 2009 2012 2011
The Netherlands 2013 2013 2015 2013
Switzerland 2012 2011 2012 2012
United States:  
Federal income tax 2004 2004 2004 2004
State and local income tax 2004 2004 2004 2004
(1)Amended returns filed in 2015 for years 2006 and 2009.

The Company is currently under examination in a number of tax jurisdictions. It is reasonably possible that some of these examinations may be resolved within twelve months. As a result, it is reasonably possible that the total gross unrecognized tax benefits of the Company at December 31, 20152016, may range from an increase of $60$10 million to a decrease of $140$61 million in the next twelve months as a result of these resolved examinations. The impact on the Company’s results of operations is not expected to be material.

The reserve for non-income tax contingencies related to issues in the United States and foreign locations was $108 million at December 31, 2016 and $64 million at December 31, 2015 and $93 million at December 31, 2014.2015. This is management’s best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions’ tax court systems. It is the opinion of the Company’s management that the possibility is remote that costs in excess of those accrued will have a material impact on the Company’s consolidated financial statements.



137


NOTE 24 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table provides an analysis of the changes in accumulated other comprehensive loss for the years ended December 31, 20152016, 20142015 and 20132014:

Accumulated Other Comprehensive Loss   
In millions2015
 2014
 2013
Unrealized Gains on Investments at beginning of year$141
 $160
 $147
Net change in unrealized gains (losses) (net of tax of $(22), $22, $25)(40) 41
 55
Reclassification to earnings - Net sales (net of tax of $(27), $(32), $(20)) (1)
(49) (59) (42)
Reclassification to earnings - Sundry income (expense) - net (net of tax of $(3), $(1), $-) (1)
(5) (1) 
Balance at end of period$47
 $141
 $160
Cumulative Translation Adjustments at beginning of year$(751) $476
 $328
Translation adjustments (net of tax of $(84), $(28), $6) 
(990) (1,239) 169
Reclassification to earnings - Sundry income (expense) - net (2)
4
 12
 (21)
Balance at end of period$(1,737) $(751) $476
Pension and Other Postretirement Benefit Plans at beginning of year$(7,321) $(5,460) $(7,995)
Net gain (loss) arising during period (net of tax of $70, $(1,228), $876) (3)
132
 (2,516) 1,984
Prior service credit (cost) arising during period (net of tax of $(36), $185, $1) (3)
(27) 315
 5
Amortization of prior service cost (credit) included in net periodic pension costs (net of tax of $(10), $6, $6) (3)
(20) 14
 15
Amortization of net loss included in net periodic pension costs (net of tax of $228, $158, $266) (3)
467
 326
 531
Balance at end of period$(6,769) $(7,321) $(5,460)
Accumulated Derivative Gain (Loss) at beginning of year$(86) $(3) $4
Net hedging results (net of tax of $(79), $(25), $5)(136) (91) 10
Reclassification to earnings - Cost of sales (net of tax of $9, $2, $(8)) (1)
14
 8
 (17)
Balance at end of period$(208) $(86) $(3)
Total accumulated other comprehensive loss$(8,667) $(8,017) $(4,827)
Accumulated Other Comprehensive Loss   
In millions2016
 2015
 2014
Unrealized Gains on Investments at beginning of year$47
 $141
 $160
Net change in unrealized gains (losses) (net of tax of $22, $(22), $22)32
 (40) 41
Reclassification to earnings - Net sales (net of tax of $(19), $(27), $(32)) (1)
(34) (49) (59)
Reclassification to earnings - Sundry income (expense) - net (net of tax of $(1), $(3), $(1)) (1)
(2) (5) (1)
Balance at end of period$43
 $47
 $141
Cumulative Translation Adjustments at beginning of year$(1,737) $(751) $476
Translation adjustments (net of tax of $171, $(84), $(28)) 
(644) (990) (1,239)
Reclassification to earnings - Sundry income (expense) - net (2)

 4
 12
Balance at end of period$(2,381) $(1,737) $(751)
Pension and Other Postretirement Benefit Plans at beginning of year$(6,769) $(7,321) $(5,460)
Net gain (loss) arising during period (net of tax of $(617), $70, $(1,228)) (3)
(1,354) 132
 (2,516)
Prior service credit (cost) arising during period (net of tax of $-, $(36), $185) (3)

 (27) 315
Amortization of prior service cost (credit) included in net periodic pension costs (net of tax of $(10), $(10), $6) (3)
(17) (20) 14
Amortization of net loss included in net periodic pension costs (net of tax of $189, $228, $158) (3)
391
 467
 326
Reclassification to earnings - Sundry income (expense) - net (4)
360
 
 
Balance at end of period$(7,389) $(6,769) $(7,321)
Derivative Instruments at beginning of year$(208) $(86) $(3)
Net hedging results (net of tax of $27, $(79), $(25))84
 (136) (91)
Reclassification to earnings - Cost of sales (net of tax of $5, $9, $2) (1)
28
 14
 8
Reclassification to earnings - Sundry income (expense) - net1
 
 
Balance at end of period$(95) $(208) $(86)
Total Accumulated Other Comprehensive Loss$(9,822) $(8,667) $(8,017)
(1)Tax amounts are included in "Provision for income taxes" in the consolidated statements of income.
(2)In 2015 and 2014, reclassification resulted from the liquidation and divestiture of subsidiaries. In 2013, reclassification resulted from the divestiture of a nonconsolidated affiliate.
(3)See Note 18 for additional information.
(4)Related to the DCC Transaction. See Note 4 for additional information.



138


NOTE 25 – NONCONTROLLING INTERESTS

Ownership interests in the Company's subsidiaries held by parties other than the Company are presented separately from the Company's equity in the consolidated balance sheets as "Accrued and other current liabilities," "Redeemable Noncontrolling Interest"liabilities" and "Non-redeemable noncontrolling"Noncontrolling interests." The amount of consolidated net income attributable to the Company and the noncontrolling interests are both presented on the face of the consolidated statements of income. See Note 20 for additional information related to the redeemable noncontrolling interest.

The following table summarizes the activity for equity attributable to non-redeemable noncontrolling interests for the years ended December 31, 2016, 2015 2014 and 2013:2014:

Non-redeemable Noncontrolling Interests
In millions
2015
 2014
 2013
Noncontrolling Interests
In millions
2016
 2015
 2014
Balance at January 1$931
 $1,026
 $990
$809
 $931
 $1,026
Net income attributable to noncontrolling interests98
 67
 29
86
 98
 67
Distributions to noncontrolling interests (1)
(76) (64) (55)(123) (76) (64)
Capital contributions (2)
38
 36
 58

 38
 36
Purchases of noncontrolling interests (3)
(42) (56) 

 (42) (56)
Transfers of redeemable noncontrolling interest (4)
(108) (46) (9)
 (108) (46)
Acquisition of noncontrolling interests (5)
473
 
 
Cumulative translation adjustments(34) (29) (43)(4) (34) (29)
Deconsolidation of noncontrolling interests
 
 52
Other2
 (3) 4
1
 2
 (3)
Balance at December 31$809
 $931
 $1,026
$1,242
 $809
 $931
(1)Distributions to noncontrolling interests is net of $36$53 million for the year ended 2016 ($36 million in 2015 ($27and $27 million in 2014) in dividends paid to a joint venture, which were reclassified to "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income.
(2)Includes non-cash capital contributions of $21 million in 2015.
(3)The 2016 value excludes a $202 million cash payment as the noncontrolling interest was classified as "Accrued and other current liabilities" in the consolidated balance sheets. The 2015 value excludes a $133 million cash payment for the purchase of a Redeemable Noncontrolling Interest. See Notes 6 and 20 for additional information.
(4)See Notes 6 and 20 for additional information.
(5)Assumed in the DCC Transaction. See Note 4 for additional information.


NOTE 26 – OPERATING SEGMENTS AND GEOGRAPHIC AREAS

Dow is a diversified, worldwide manufacturer and supplier of products used primarily as raw materials in the manufacture of customer products and services. The Company serves the following industries: appliance; automotive; agricultural; building and construction; chemical processing; electronics; furniture; housewares; oil and gas; packaging; paints, coatings and adhesives; personal care; pharmaceutical; processed foods; pulp and paper; textile and carpet; utilities; and water treatment.

Dow conducts its worldwide operations through global businesses, which are reported in five operating segments. Corporate contains the reconciliation between the totals for the reportable segments and the Company’s totals and includes research and other expenses related to new business development activities, and other corporate items not allocated to the reportable operating segments.

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. See table towardthe tables at the end of this footnote for depreciation and amortization by segment, as well as a reconciliation of EBITDA to “Income Before Income Taxes.”Taxes” to EBITDA.

Corporate Profile
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 materials, polymers, chemicalsmaterial, polymer, chemical and biological sciencesscience to help address many of the world's most challenging problems, such as the need for fresh food, safer and more sustainable transportation, clean water, clean energy generation and conservation,efficiency, more durable infrastructure, 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 180175 countries and in high-growth sectors such as packaging, infrastructure, transportation, consumer care, electronics water, coatings and agriculture. In 2015,2016, Dow had

annual sales of nearly $49$48 billion and employed approximately 49,50056,000 people worldwide. The Company's more than 6,0007,000 product families are manufactured at 179189 sites in 3534 countries across the globe. The Company

139


conducts its worldwide operations through global businesses, which are reported in five operating segments: Agricultural Sciences, Consumer Solutions, Infrastructure Solutions, Performance Materials & Chemicals and Performance Plastics.

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

Acquisition:
On January 30, 2015, Dow AgroSciences LLC ("DAS")DAS acquired Coodetec's seed business. See Note 4 for additional information on this acquisition.

Divestiture:
On July 31, 2015, the Company sold its AgroFresh business to AFSI. The AgroFresh business was reported in the Agricultural Sciences segment through the date of divestiture. The Company has retained a minority interest in AFSI which is reported in the Agricultural Sciences segment and accounted for as an equity method investment. See Note 5 for additional information on this divestiture.

Consumer Solutions
The Consumer Solutions segment consists of threefour global businesses: Consumer Care, Dow Automotive Systems, and Dow Electronic Materials.Materials and Consumer Solutions - Silicones. These global businesses develop and market customized materials using advanced technology and unique chemistries for specialty applications - including semiconductors and organic light-emitting diodes, adhesives and foams used by the transportation industry, and cellulosics and other polymers for innovative pharmaceutical formulations and food solutions.solutions, and silicone solutions used in consumer goods and automotive applications. These businesses serve the needs of market segments as diverse as: automotive; electronics and entertainment; food and pharmaceuticals; and, personal and home care products. The Consumer Solutions segment also includes a portion of the Company's share of the results of Dow Corning, a joint venture that manufactures siliconeof the Company, through May 31, 2016, and silicone products, which isthe results of the HSC Group.

Dow Corning Ownership Restructure:
As of June 1, 2016, Dow Corning, previously a 50:50 joint venture between Dow and Corning, became a wholly owned 50 percent bysubsidiary of Dow as a result of an ownership restructure. Dow and Corning continue to maintain their historical proportional equity interest in the Company.HSC Group. Beginning in June 2016, the results of Dow Corning, excluding the HSC Group, are fully consolidated into the Company's consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions operating segments. The results of the HSC Group will continue to be reported as "Equity in earnings of nonconsolidated affiliates" in the consolidated statements of income and aligned with the Consumer Solutions and Infrastructure Solutions operating segments. See Note 4 for additional information on this transaction.

Infrastructure Solutions
The Infrastructure Solutions segment is comprised of an industry-leading portfolio of businesses utilizing advanced technology to deliver products such as architectural and industrial coatings, construction material ingredients, building insulation and materials, adhesives, microbial protection for the oil and gas industry, telecommunications, light and water technologies. Infrastructure Solutions consists of fourfive global businesses: Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers and Performance Monomers.Infrastructure Solutions - Silicones. The Infrastructure Solutions segment also includes a portion of the Company's share of the results of Dow Corning, a joint venture that manufactures siliconeof the Company, through May 31, 2016, and silicone products, which is owned 50 percent by the Company.results of the HSC Group.

Dow Corning Ownership Restructure:
See discussion above under Consumer Solutions for additional information.

Performance Materials & Chemicals
The Performance Materials & Chemicals segment is comprised of three technology-driven, customer-centric global businesses that are advantaged through integration and driven by innovative technology and solutions: Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes. Products produced by this segment are back-integrated into feedstocks, supporting a low-cost manufacturing base and consistent, reliable supply. The Performance Materials & Chemicals segment is positioned for growth through diverse markets and product offerings. The Performance Materials & Chemicals

segment also includes the results of MEGlobal and a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Company Limited and Sadara, all joint ventures of the Company.

Divestitures:
On January 30, 2015, the Company sold its global Sodium Borohydride business to Vertellus Specialty Materials LLC. On February 2, 2015, the Company sold ANGUS Chemical Company to Golden Gate Capital. On October 5, 2015, the Company completed the split-off of its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses to Olin in a tax-efficient Reverse Morris Trust transaction. These businesses were reported in the Performance Materials & Chemicals segment through the date of divestiture.

On December 23, 2015, the Company sold its 50 percent ownership interest in MEGlobal to EQUATE. MEGlobal was aligned 100 percent withto Performance Materials & Chemicals through the date of divestiture. Dow has retained a 42.5 percent ownership stake in MEGlobal through its ownership in EQUATE. See Notes 5, 6 and 9 for additional information on these divestitures.transactions.


140


Performance Plastics
The Performance Plastics segment is the world’s leading plastics franchise, and is a market-oriented portfolio composed of five global businesses: Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons. The segment is advantaged through its low cost position into key feedstocks and broad geographic reach and benefits from Dow’s R&D expertise to deliver leading-edge technology that provides a competitive benefit to customers in key strategic markets. The Performance Plastics segment also includes the results of TKSC and The SCG-Dow Group as well as a portion of the results of EQUATE, TKOC, Map Ta Phut Olefins Limited and Sadara, all joint ventures of the Company.

Acquisition:
On May 5, 2015, Univation Technologies, LLC, previously a 50:50 joint venture between Dow and ExxonMobil, became a wholly owned subsidiary of Dow. See Note 4 for additional information on this step acquisition.

Divestiture:
On December 2, 2013, the Company sold its Polypropylene Licensing and Catalysts business to W. R. Grace & Co. This business was reported in the Performance Plastics segment through the date of divestiture. See Note 5 for additional information on this divestiture.

Corporate
Corporate includes certain enterprise and governance activities (including insurance operations, geographic management, risk management such as foreign currency hedging activities, audit fees, donations, Company branding initiatives, etc.); the results of Ventures (including business incubation platforms and non-business aligned joint ventures); environmental operations; gains and losses on the sales of financial assets; severance costs; non-business aligned litigation expenses (including asbestos-related defense costs and reserve adjustments); and, foreign exchange results.

Product transfers to Agricultural Sciences from other operating segments are generally valued at market-based prices. Other transfers of products between operating segments are generally valued at cost.

The Company operates 179189 manufacturing sites in 3534 countries. The United States is home to 5559 of these sites, representing 6263 percent of the Company’s long-lived assets. Sales are attributed to geographic areas based on customer location; long-lived assets are attributed to geographic areas based on asset location.

Geographic Area Information United States
 
Europe,
Middle East, Africa and India 

 Rest of World
 Total
 United States
 
Europe,
Middle East, Africa and India 

 Rest of World
 Total
In millions
2016        
Sales to external customers $16,637
 $14,667
 $16,854
 $48,158
Long-lived assets $14,812
 $2,751
 $5,923
 $23,486
2015         
 
 
  
Sales to external customers $16,821
 $15,291
 $16,666
 $48,778
 $16,821
 $15,291
 $16,666
 $48,778
Long-lived assets $11,062
 $2,172
 $4,620
 $17,854
 $11,062
 $2,172
 $4,620
 $17,854
2014 
 
 
          
Sales to external customers $19,449
 $19,671
 $19,047
 $58,167
 $19,449
 $19,671
 $19,047
 $58,167
Long-lived assets
 $10,605
 $2,628
 $4,818
 $18,051
 $10,605
 $2,628
 $4,818
 $18,051
2013        
Sales to external customers $18,712
 $19,208
 $19,160
 $57,080
Long-lived assets $9,320
 $3,256
 $4,878
 $17,454




141


Operating Segment Information Agri-cultural Sciences
 Consumer Solutions
 Infra-structure Solutions
 Perf Materials & Chemicals
 Perf Plastics
 Corp
 Total
 Agri-cultural Sciences
 Consumer Solutions
 Infra-structure Solutions
 Perf Materials & Chemicals
 Perf Plastics
 Corp
 Total
In millions
2016              
Sales to external customers $6,174
 $5,455
 $8,621
 $9,225
 $18,404
 $279
 $48,158
Equity in earnings (losses) of nonconsolidated affiliates 3
 132
 215
 (18) 137
 (27) 442
Restructuring charges (1)
 5
 29
 94
 
 10
 314
 452
Asbestos-related charge (2)
 
 
 
 
 
 1,113
 1,113
EBITDA (3)
 806
 2,828
 2,318
 134
 4,503
 (2,563) 8,026
Total assets (4) (5)
 7,015
 13,946
 17,644
 9,747
 17,832
 13,327
 79,511
Investment in nonconsolidated affiliates (5)
 130
 329
 647
 1,588
 881
 172
 3,747
Depreciation and amortization 186
 479
 776
 530
 770
 121
 2,862
Capital expenditures 223
 157
 481
 212
 2,731
 
 3,804
2015               
 
 
 
 
 
  
Sales to external customers $6,381
 $4,379
 $7,394
 $11,973
 $18,357
 $294
 $48,778
 $6,381
 $4,379
 $7,394
 $11,973
 $18,357
 $294
 $48,778
Intersegment revenues (1)
 
 
 
 24
 
 (24) 
Equity in earnings (losses) of nonconsolidated affiliates (15) 91
 203
 225
 220
 (50) 674
 (15) 91
 203
 225
 220
 (50) 674
Restructuring charges (3)
 16
 67
 26
 
 12
 294
 415
EBITDA (5)
 1,432
 1,048
 1,021
 5,479
 5,399
 (1,053) 13,326
Total assets (6)
 6,333
 9,234
 12,186
 7,694
 14,310
 18,269
 68,026
Restructuring charges (1)
 16
 67
 26
 
 12
 294
 415
EBITDA (3)
 1,432
 1,048
 1,021
 5,479
 5,399
 (1,053) 13,326
Total assets (4)
 6,333
 9,234
 12,186
 7,694
 14,310
 18,181
 67,938
Investment in nonconsolidated affiliates 275
 732
 986
 155
 304
 1,506
 3,958
 275
 732
 986
 155
 304
 1,506
 3,958
Depreciation and amortization 195
 354
 495
 637
 746
 94
 2,521
 195
 354
 495
 637
 746
 94
 2,521
Capital expenditures 308
 134
 355
 223
 2,683
 
 3,703
 308
 134
 355
 223
 2,683
 
 3,703
2014 
 
 
 
 
 
   
 
 
 
 
 
  
Sales to external customers $7,290
 $4,639
 $8,429
 $15,114
 $22,386
 $309
 $58,167
 $7,290
 $4,639
 $8,429
 $15,114
 $22,386
 $309
 $58,167
Intersegment revenues (1) 
 
 
 100
 
 (100) 
Equity in earnings (losses) of nonconsolidated affiliates 4
 281
 (6) 322
 257
 (23) 835
 4
 281
 (6) 322
 257
 (23) 835
Goodwill and other intangible assets impairment loss (2)
 
 50
 
 
 
 
 50
Restructuring credits (3)
 
 
 
 (3) 
 
 (3)
Asbestos-related charge (4)
 
 
 
 
 
 78
 78
EBITDA (5)
 962
 1,130
 817
 2,193
 4,422
 (580) 8,944
Total assets (6)
 7,292
 9,629
 12,245
 12,166
 13,459
 13,896
 68,687
Goodwill and other intangible asset impairment losses (6)
 
 50
 
 
 
 
 50
Restructuring credits (1)
 
 
 
 (3) 
 
 (3)
Asbestos-related charge (2)
 
 
 
 
 
 78
 78
EBITDA (3)
 962
 1,130
 817
 2,193
 4,422
 (580) 8,944
Total assets (4)
 7,292
 9,629
 12,245
 12,166
 13,459
 13,848
 68,639
Investment in nonconsolidated affiliates 83
 691
 922
 698
 705
 1,102
 4,201
 83
 691
 922
 698
 705
 1,102
 4,201
Depreciation and amortization 208
 396
 510
 780
 759
 94
 2,747
 208
 396
 510
 780
 759
 94
 2,747
Capital expenditures 383
 114
 269
 315
 2,490
 1
 3,572
 383
 114
 269
 315
 2,490
 1
 3,572
2013 
 
 
 
 
 
  
Sales to external customers $7,137
 $4,562
 $8,339
 $14,824
 $21,910
 $308
 $57,080
Intersegment revenues (1)
 
 
 
 137
 
 (137) 
Equity in earnings (losses) of nonconsolidated affiliates 5
 107
 126
 480
 355
 (39) 1,034
Restructuring credits (3)
 
 
 (1) (15) (6) 
 (22)
EBITDA (5)
 894
 933
 941
 1,913
 4,503
 1,361
 10,545
Total assets (6)
 7,059
 10,171
 12,844
 12,071
 13,788
 13,469
 69,402
Investment in nonconsolidated affiliates 88
 541
 1,178
 827
 772
 1,095
 4,501
Depreciation and amortization 189
 414
 528
 743
 707
 100
 2,681
Capital expenditures 319
 105
 198
 409
 1,271
 
 2,302
(1)Includes revenues generated by transfers of product to Agricultural Sciences from other segments, generally at market-based prices. Other transfers of products between operating segments are generally valued at cost.See Note 3 for information regarding the Company's restructuring programs.
(2)See Note 12 for information regarding intangible asset impairment losses.
(3)
See Note 3 for information regarding restructuring charges and credits.
(4)See Note 15 for information regarding the asbestos-related charge.
(5)(3)A reconciliation of EBITDA to “Income Before Income Taxes” to EBITDA is provided below.
(6)(4)Presented in accordance with newly implemented ASU 2015-17 and ASU 2015-03. See NoteNotes 1 and 2 for additional information.
(5)Equity contributions to Sadara, which prior to 2016 were reflected in the Corporate segment, were reallocated to Performance Materials & Chemicals and Performance Plastics in 2016.
(6)See Note 12 for information regarding intangible asset impairment losses.


Reconciliation of EBITDA to “Income Before Income Taxes”
In millions
 2015
 2014
 2013
EBITDA $13,326
 $8,944
 $10,545
- Depreciation and amortization 2,521
 2,747
 2,681
+ Interest income 71
 51
 41
- Interest expense and amortization of debt discount 946
 983
 1,101
Income Before Income Taxes $9,930
 $5,265
 $6,804
Reconciliation of “Income Before Income Taxes” to EBITDA
In millions
 2016
 2015
 2014
Income Before Income Taxes $4,413
 $9,930
 $5,265
+ Interest expense and amortization of debt discount 858
 946
 983
- Interest income 107
 71
 51
+ Depreciation and amortization 2,862
 2,521
 2,747
EBITDA $8,026
 $13,326
 $8,944


142


NOTE 27 – PLANNED MERGER WITH DUPONT

On December 11, 2015, theDow and E.I. du Pont de Nemours and Company and DuPont("DuPont") entered into an Agreement and Plan of Merger (the "Merger("Merger Agreement"), pursuant to which Dow and DuPont have agreed, subject to the terms and conditions of the Merger Agreement, to effect an all-stock, merger of equals strategic combination ("Merger Transaction") resulting in a newly formed corporation named DowDuPont Inc. ("DowDuPont"). Pursuant to the terms of their respective businesses by: (i) forming Diamond-Orion HoldCo, Inc., a Delaware corporation that is jointly owned bythe Merger Agreement, Dow and DuPont ("HoldCo"), (ii) Dow mergingwill each merge with a newly formed, wholly owned direct subsidiarysubsidiaries of HoldCo, with Dow surviving such mergerDowDuPont (the "Mergers") and, as a direct, wholly owned subsidiary of HoldCo (the "Dow Merger"), (iii) DuPont merging with a newly formed, wholly owned direct subsidiary of HoldCo, with DuPont surviving such merger as a direct, wholly owned subsidiary of HoldCo (the "DuPont Merger" and, together with the Dow Merger, the "Mergers"), and (iv) prior to or as of the effective timeresult of the Mergers, (the "Effective Time"), changing the namewill become subsidiaries of HoldCo to be DowDuPont. Following the consummation of the Mergers, Dow and DuPont intend to pursue, subject to the receipt of regulatory approvals and approval by the board of directors of HoldCo,DowDuPont, the separation of the combined company’s agriculture business, specialty products business and material science business through one or more tax-efficient transactions.
Additional information about the Merger Agreement is included in the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission ("SEC") on December 11, 2015.

Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Mergers ("Effective Time,Time"), each share of common stock, par value $2.50 per share, of Dow (the "Dow Common Stock") issued and outstanding immediately prior to the Effective Time (excluding any shares of Dow Common Stock that are held in treasury) will be converted into the right to receive one share of common stock, par value $0.01 per share, of HoldCoDowDuPont (the "HoldCo"DowDuPont Common Stock"),. On December 30, 2016, 4 million issued and each shareoutstanding shares of Dow's Cumulative Convertible Perpetual Preferred Stock, Series A ("Dow Preferred Stock"), par value $1.00 per share, were converted into 96.8 million shares of Dow (the "Dow Preferred") issued and outstanding immediately prior to the Effective Time will be automatically canceled and each holderCommon Stock. As a result of this conversion, no shares of Dow Preferred will be deemed to holdStock remain issued or outstanding and all rights of the same numberholders of shares of preferred, par value $0.01 per share, stock of HoldCo on equivalent terms.the Dow Preferred Stock have terminated. See Note 22 for additional information.

Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time, each share of common stock, par value $0.30 per share, of DuPont (the "DuPont Common Stock") issued and outstanding immediately prior to the Effective Time (excluding any shares of DuPont Common Stock that are held in treasury) will be converted into the right to receive 1.2820 shares of HoldCoDowDuPont Common Stock, and each share of DuPont Preferred Stock—$4.50 Series and DuPont Preferred Stock—$3.50 Series, in each case issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and be unaffected by the Mergers. The aforementioned 1.2820 exchange ratio set forth in the Merger Agreement will result in Dow common stockholders and DuPont common stockholders each owning approximately 5052 percent and 48 percent, respectively, of the outstanding shares of HoldCoDowDuPont Common Stock immediately following the Effective Time, excluding the shares of Dow Preferred.Time.

The Merger Agreement provides that, at the Effective Time, the Dow stock options and other equity awards and the DuPont stock options and other equity awards generally will automatically convert into stock options and equity awards with respect to HoldCoDowDuPont Common Stock, on the same terms and conditions under the applicable plans and award agreements immediately prior to the Effective Time and, in the case of DuPont stock options and equity awards, after giving effect to the exchange ratio and appropriate adjustments to reflect the consummation of the Mergers.

After the Effective Time, HoldCoDowDuPont Common Stock will be listed on the New York Stock Exchange ("NYSE").Exchange.

On June 9, 2016, DowDuPont's registration statement filed with the SEC on Form S-4 (File No. 333-209869), as amended, was declared effective. The Company expectsregistration statement was filed in connection with the proposed Mergers and includes a joint proxy statement of Dow and DuPont and a prospectus of DowDuPont. The companies also scheduled special meetings of their respective stockholders to close in the second half of 2016, subject to customary closing conditions. The completion of the Mergers is subject to the satisfaction or waiver of certain conditions, including (i) theseek adoption of the Merger Agreement by the affirmative voteand approval of related matters from such stockholders. Each company's common stockholders of record as of the holdersclose of a majority of all outstanding shares of Dow Common Stockbusiness on June 2, 2016, were entitled to vote thereon; (ii)at the respective meeting. Dow's special meeting of stockholders was held on July 20, 2016, which resulted in a vote for adoption of the Merger Agreement byand approval of related matters.

On February 2, 2017, the affirmative voteCompany announced it reached an agreement to sell its global ethylene acrylic acid ("EAA") copolymers and ionomers business to SK Global Chemical Co., Ltd. as part of the holders of a majority of all outstanding shares of DuPont Common Stock entitled to vote thereon; (iii)ongoing regulatory approval process for the receipt of certain domestic and foreign approvals under competition laws; (iv)Merger Transaction. The divestiture will be conditioned on Dow and DuPont reasonably determining thatclosing the Dow Merger Transaction, in addition to other closing conditions, including regulatory filings, local employment law and the DuPont Merger do not constitute an acquisition of 50 percent or greater interest ingovernance obligations. On February 7, 2017, Dow and DuPont respectively, undersubmitted a proposed remedy package to the principlesEuropean Commission (“EC”) which includes the proposed divestment of Section 355(e)Dow’s EAA business and a portion of DuPont’s crop protection business and associated research and development. As a result, the Internal Revenue Code; (v)EC’s deadline to review the absence of governmental restraints or prohibitions preventing the consummation of either of the Mergers; (vi) the effectiveness of the Form S-4 and absence of any stop order or proceedings by the U.S. Securities and Exchange Commission; and (vii) the approval of the shares of HoldCo Common Stockproposed remedy actions has been extended to be issued in the Merger for listing on the NYSE. The obligation of each of April 4, 2017.

Dow and DuPont remain focused on closing the transaction and continue to consummatework constructively with regulatory agencies in all relevant jurisdictions, including the Mergers is also conditioned on, among other things, the receipt of a tax opinion from tax counsel as to the tax-free nature of each of the Mergers,United States, European Union, China, Brazil and the truth and correctness of the representations and warranties made by the other party as of theCanada. Given current regulatory agency status, closing date, subject to certain "material" and "material adverse effect" qualifiers.



143


NOTE 28 – PLANNED RESTRUCTURE OF DOW CORNING

On December 10, 2015, the Company entered into a definitive agreement with Corning to restructure the ownership of Dow Corning, a 50:50 joint venture between Dow and Corning. Under the terms of the agreement, Corning will exchange with Dow Corning its 50 percent equity interest in Dow Corning for 100 percent of the stock of a newly formed entity owned 100 percent by Dow Corning ("SplitCo") (collectively, the "Transaction"). SplitCo will hold an approximately 40 percent equity interest in the Hemlock Semiconductor Group and approximately $4.8 billion of cash. As a result of this Transaction, Dow will obtain a 100 percent ownership interest in Dow Corning. Dow and Corning will maintain their current equity interest in the Hemlock Semiconductor Group. It is anticipated that Dow Corning will incur approximately $4.5 billion of indebtedness in order to fund the contribution of cash to SplitCo. The Transaction is subject to closing conditions, including, but not limited to, customary regulatory approvals, receipt by Corning of certain tax opinions and consummation by Dow Corning of financing required to fund the contribution of cash to SplitCo. The Transaction is expected to closeoccur in the first half of 2016.
2017, subject to satisfaction of customary closing conditions, including receipt of all regulatory approvals.



144



The Dow Chemical Company and Subsidiaries
Selected Quarterly Financial Data

In millions, except per share amounts (Unaudited)                    
2015 1st
 2nd
 3rd
 4th
 Year
2016 1st
 2nd
 3rd
 4th
 Year
Net sales $12,370
 $12,910
 $12,036
 $11,462
 $48,778
 $10,703
 $11,952
 $12,483
 $13,020
 $48,158
Cost of sales 9,535
 10,146
 9,349
 8,806
 37,836
 7,951
 9,275
 9,841
 10,574
 37,641
Gross margin 2,835
 2,764
 2,687
 2,656
 10,942
 2,752
 2,677
 2,642
 2,446
 10,517
Restructuring charges 
 375
 
 40
 415
Restructuring charges (credits) (2) 454
 
 
 452
Asbestos-related charge 
 
 
 1,113
 1,113
Net income 1,519
 1,197
 1,436
 3,631
 7,783
 275
 3,227
 818
 84
 4,404
Net income available for common stockholders 1,393
 1,135
 1,290
 3,527
 7,345
Earnings per common share - basic (1)
 1.22
 0.99
 1.12
 3.17
 6.45
Earnings per common share - diluted (1) (2)
 1.18
 0.97
 1.09
 2.94
 6.15
Net income (loss) available for common stockholders 169
 3,123
 719
 (33) 3,978
Earnings (Loss) per common share - basic (1) (2)
 0.15
 2.79
 0.64
 (0.03) 3.57
Earnings (Loss) per common share - diluted (1) (3) (4)
 0.15
 2.61
 0.63
 (0.03) 3.52
Dividends declared per share of common stock 0.42
 0.42
 0.42
 0.46
 1.72
 0.46
 0.46
 0.46
 0.46
 1.84
Market price range of common stock: (3)
          
Market price range of common stock: (5)
          
High 50.22
 53.77
 53.20
 57.10
 57.10
 52.23
 53.98
 54.59
 59.33
 59.33
Low 41.95
 47.21
 35.11
 42.15
 35.11
 40.26
 47.75
 47.51
 51.60
 40.26

In millions, except per share amounts (Unaudited)      ��             
2014 1st
 2nd
 3rd
 4th
 Year
2015 1st
 2nd
 3rd
 4th
 Year
Net sales $14,461
 $14,917
 $14,405
 $14,384
 $58,167
 $12,370
 $12,910
 $12,036
 $11,462
 $48,778
Cost of sales 11,733
 12,344
 11,776
 11,611
 47,464
 9,535
 10,146
 9,349
 8,806
 37,836
Gross margin 2,728
 2,573
 2,629
 2,773
 10,703
 2,835
 2,764
 2,687
 2,656
 10,942
Goodwill and other intangible assets impairment losses 
 
 
 50
 50
Restructuring credits 
 
 
 (3) (3)
Asbestos-related charge 
 
 
 78
 78
Restructuring charges 
 375
 
 40
 415
Net income 1,066
 970
 964
 839
 3,839
 1,519
 1,197
 1,436
 3,631
 7,783
Net income available for common stockholders 964
 882
 852
 734
 3,432
 1,393
 1,135
 1,290
 3,527
 7,345
Earnings per common share - basic (1)
 0.80
 0.74
 0.72
 0.64
 2.91
 1.22
 0.99
 1.12
 3.17
 6.45
Earnings per common share - diluted (1)
 0.79
 0.73
 0.71
 0.63
 2.87
Earnings per common share - diluted (1) (4)
 1.18
 0.97
 1.09
 2.94
 6.15
Dividends declared per share of common stock 0.37
 0.37
 0.37
 0.42
 1.53
 0.42
 0.42
 0.42
 0.46
 1.72
Market price range of common stock: (3)
          
Market price range of common stock: (5)
          
High 50.96
 53.35
 54.97
 53.80
 54.97
 50.22
 53.77
 53.20
 57.10
 57.10
Low 41.82
 46.56
 50.34
 41.45
 41.45
 41.95
 47.21
 35.11
 42.15
 35.11
See Notes to the Consolidated Financial Statements.

(1)Due to quarterly changes in the share count and the allocation of income to participating securities, the sum of the four quarters does not equal the earnings per share amount calculated for the year.
(2)On December 30, 2016, the Company converted 4 million shares of Cumulative Convertible Perpetual Preferred Stock, Series A ("Preferred Stock") into 96.8 million shares of the Company's common stock. As a result, the basic share count reflects a two-day averaging effect for the three- and twelve-month periods ended December 31, 2016.
(3)"Earnings (Loss) per common share - diluted" for the three-month period ended December 31, 2016, was calculated using "Weighted average common shares outstanding - basic" due to a net loss reported in the period.
(4)For the quarters ended June 30, 2016, March 31, 2015, June 30, 2015, September 30, 2015, and December 31, 2015, and the year ended December 31, 2015, 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 earnings per common share - diluted. The assumed conversion of the Preferred Stock was considered antidilutive for all other periods. See Note 14 for additional information.
(3)(5)Composite price as reported by the New York Stock Exchange.




145


The Dow Chemical Company and Subsidiaries
PART II, Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.



146


The Dow Chemical Company and Subsidiaries
PART II, Item 9A. Controls and Procedures.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exhange Act Rules 13a-15 and 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, any system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Management assessed the effectiveness of the Company’s internal control over financial reporting and concluded that, as of December 31, 20152016, such internal control is effective. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013).

The Company’s independent auditors, Deloitte & Touche LLP, with direct access to the Company’s Board of Directors through its Audit Committee, have audited the consolidated financial statements prepared by the Company. Their report on the consolidated financial statements is included in Part II, Item 8. Financial Statements and Supplementary Data. Deloitte & Touche LLP’s report on the Company’s internal control over financial reporting is referenced therein and included herein.

February 12, 20169, 2017


/s/ ANDREW N. LIVERIS   /s/ HOWARD I. UNGERLEIDER
Andrew N. Liveris   Howard I. Ungerleider
Chief Executive Officer and   Vice Chairman and
Chairman of the Board   Chief Financial Officer
     
/s/ RONALD C. EDMONDS    
Ronald C. Edmonds    
Controller and Vice President of Controllers and ControllerTax    

147


The Dow Chemical Company and Subsidiaries
PART II
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
The Dow Chemical Company:

We have audited the internal control over financial reporting of The Dow Chemical Company and subsidiaries (the "Company") as of December 31, 20152016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20152016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company and the financial statement schedule listed in the Index at Item 15(a)2 as of and for the year ended December 31, 20152016 and our report dated February 12, 20169, 2017 expressed an unqualified opinion on those financial statements and financial statement schedule.schedule (which also includes an explanatory paragraph regarding a change in accounting policy from expensing asbestos-related defense and processing costs as incurred to the accrual of asbestos-related defense and processing costs when probable of occurring and estimable).

/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Midland, Michigan
February 12, 20169, 2017



148


The Dow Chemical Company and Subsidiaries
PART II, Item 9B. Other Information.

OTHER INFORMATION
None.



149


The Dow Chemical Company and Subsidiaries
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to Directors, certain executive officers and certain corporate governance matters (including identification of Audit Committee members and financial expert(s)) is contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016, and is incorporated herein by reference. See also the information regarding executive officers of the registrant set forth in Part I, Item 1. Business under the caption “Executive Officers of the Registrant” in reliance on General Instruction G to Form 10-K.

On July 10, 2003, the Board of Directors of the Company adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer, and is incorporated herein by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.


ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation and the Company’s equity compensation plans is contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016, and is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to beneficial ownership of Dow common stock by each Director and all Directors and executive officers of the Company as a group is contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be on held May 12, 2016, and is incorporated herein by reference.

Information relating to any person who beneficially owns in excess of 5 percent of the total outstanding shares of Dow common stock is contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be on held May 12, 2016, and is incorporated herein by reference.

Information with respect to compensation plans under which equity securities are authorized for issuance is contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016, and is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Reportable relationships and related transactions, if any, as well as information relating to director independence are contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016, and are incorporated herein by reference.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to fees and services related to the Company’s independent auditors, Deloitte & Touche LLP, and the disclosure of the Audit Committee’s pre-approval policies and procedures are contained in the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016, and are incorporated herein by reference.



150


The Dow Chemical Company and Subsidiaries
PART IV, Item 15. Exhibits, Financial Statement Schedules.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)The following documents are filed as part of this report:

(1)
The Company’s 20152016 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8. Financial Statements and Supplementary Data.

(2)Financial Statement Schedules – The following Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm included in Part II, Item 8. Financial Statements and Supplementary Data:
Schedule II  Valuation and Qualifying Accounts
Schedules other than the one listed above are omitted due to the absence of conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.

(3)Exhibits – See the Exhibit Index for the exhibits filed with this Annual Report on Form 10-K or incorporated by reference. The following exhibits are filed with this Annual Report on Form 10-K:
Exhibit No.  Description of Exhibit
10(a)(iii)Amendment to The Dow Chemical Company Executives' Supplemental Retirement Plan.
10(dd)(iii)Amendment to The Dow Chemical Company Elective Deferral Plan (Post 2004).
12.1  Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements.
21  Subsidiaries of The Dow Chemical Company.
23(a)  Consent of Independent Registered Public Accounting Firm.
23(b)  Analysis, Research & Planning Corporation’sAnkura Consulting Group, LLC's Consent.
31(a)  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS  XBRL Instance Document.
101.SCH  XBRL Taxonomy Extension Schema Document.
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF  XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB  XBRL Taxonomy Extension Label Linkbase Document.
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document.

A copy of any exhibit can be obtained via the Internet through the Investor Relations section of the Company's website (www.dow.com/investors)investor-relations), or the Company will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Controller and Vice President of Controllers and ControllerTax of the Company at the address of the Company’s principal executive offices. The Company's website and its content are not deemed incorporated by reference into this report.

151


 The Dow Chemical Company and SubsidiariesSchedule II
 Valuation and Qualifying Accounts 
In millionsFor the Years Ended December 31 

COLUMN A COLUMN B COLUMN C - Additions COLUMN D   COLUMN E COLUMN B COLUMN C - Additions COLUMN D COLUMN E
Description 
Balance
at Beginning
of Year
 Charged to Costs and Expenses Charged to Other Accounts 
Deductions
from
Reserves
   
Balance
at End
of Year
 
Balance
at Beginning
of Year
 Charged to Costs and Expenses Charged to Other Accounts 
Deductions
from
Reserves
 
Balance
at End
of Year
2016          
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $94
 $31
 $
 $15
(1)$110
Other investments and noncurrent receivables $494
 $153
(2)$
 $289
(3)$358
Deferred tax assets $1,000
 $155
 $
 $94
 $1,061
          
2015                    
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $110
 $24
 $2
 (1) $42
 (2) $94
 $110
 $24
 $2
(4)$42
(1)$94
Other investments and noncurrent receivables $477
 $108
 $
 $91
    $494
 $477
 $108
 $
 $91
  $494
Deferred tax assets $1,106
 $67
 $
 $173
 $1,000
 $1,106
 $67
 $
 $173
 $1,000
                    
2014                    
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $148
 $53
 $8
 (1) $99
 (2) $110
 $148
 $53
 $8
(4)$99
(1)$110
Other investments and noncurrent receivables $454
 $62
 $
 $39
    $477
 $454
 $62
 $
 $39
  $477
Deferred tax assets $1,112
 $126
 $
 $132
 $1,106
 $1,112
 $126
 $
 $132
 $1,106
                    
2013          
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $121
 $65
 $
 $38
 (2) $148
Other investments and noncurrent receivables $467
 $39
 $
 $52
    $454
Deferred tax assets $1,399
 $214
 $
 $501
 $1,112
          
(1)
Deductions represent notes and accounts receivable written off, credits to profit and loss and other miscellaneous items.
(2)Additions to reserves for "Other investments and noncurrent receivables" charged to costs and expenses include $143 million related to the Company's investment in AgroFresh Solutions, Inc. See Note 5 to the Consolidated Financial Statements for further information.
(3)Deductions from reserves for "Other investments and noncurrent receivables" include $237 million related to the DCC Transaction. See Note 4 to the Consolidated Financial Statements for further information.
(4)Additions to reserves for doubtful receivables charged to other accounts were classified as "Accounts and notes receivable - Other" in the consolidated balance sheets. These reserves relate to the Company's sale of trade accounts receivable. Anticipated credit losses in the portfolio of receivables sold are used to fair value the Company's interests held in trade accounts receivable conduits. See Notes 12 and 16 to the Consolidated Financial Statements for further information.
(2)Deductions represent notes and accounts receivable written off, credits to profit and loss and other miscellaneous items.




152


  The Dow Chemical Company and Subsidiaries  
  Signatures  

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE DOW CHEMICAL COMPANY
  
By /s/ R. C. EDMONDS
  R. C. Edmonds, Controller and Vice President of Controllers and ControllerTax
Date February 11, 20169, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
     
By /s/ A. BANGA By /s/ R. J. MILCHOVICH
  A. Banga, Director   R. J. Milchovich, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
     
       
By /s/ J. K. BARTON By /s/ R. S. MILLER
  J. K. Barton, Director   R. S. Miller, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
     
       
By /s/ J. A. BELL By /s/ P. POLMAN
  J. A. Bell, Director   P. Polman, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
     
       
By /s/ R. K. DAVIS By /s/ D. H. REILLEY
  R. K. Davis, Director   D. H. Reilley, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
     
       
By /s/ R. C. EDMONDS By /s/ J. M. RINGLER
  R. C. Edmonds, Controller and Vice President of Controllers and ControllerTax   J. M. Ringler, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
     
       
By /s/ J. M. FETTIG By /s/ R. G. SHAW
  J. M. Fettig, Lead Director   R. G. Shaw, Director
Date February 11, 20169, 2017 Date February 11, 20169, 2017
       
       
By /s/ A. N. LIVERIS By /s/ H. I. UNGERLEIDER
  A. N. Liveris, Director, Chief Executive Officer and Chairman of the Board   H. I. Ungerleider, Vice Chairman and Chief Financial Officer
Date February 11, 20169, 2017 Date February 11, 20169, 2017
       
       
By /s/ M. LOUGHRIDGE    
  M. Loughridge, Director    
Date February 11, 20169, 2017    

153


The Dow Chemical Company and Subsidiaries
Trademark Listing

The following trademarks or service marks of The Dow Chemical Company and certain affiliated companies of Dow appear in this report: ACOUSTICRYL, ACRYSOL, ADSORBSIA, AFFINITY, AGILITY, AMBERJET, AMBERLYST, AQUASET, AQUCAR, AVANSE, BETAMATE,BETAFORCE, BIOBAN, CANVERA, DOW, DOW CORNING, DOWEX, EDI, ELITE, ENDURANCE, EVOQUE, FILMTEC, FORMASHIELD, FROTH-PAK, GREAT STUFF, LIQUID ARMOR,LIQUIDARMOR, MAINCOTE, NORDEL, OPTIPORE, PACXPERT, PARALOID, POWERHOUSE,PRIMACOR, PRIMAL, RETAIN, RHOPLEX, SAFECHEM, SAFE-TAINER, SILVADUR, SOLDERON, STYROFOAM, TAMOL, TEQUATIC, THERMAX, TPSiV, VORAFORCE, VORAFUSE, WALOCEL, WEATHERMATE, XENERGY

The following trademarks or service marks of Dow AgroSciences LLC and certain affiliated companies of Dow AgroSciences LLC appear in this report: ARYLEX, BROADWAY, BRODBECK, CLINCHER, DAIRYLAND SEED, DITHANE, DURANGO, ENLIST, ENLIST DUO, ENLIST E3, EXZACT, FENCER, GARLON, INATREQ, INSTINCT, ISOCLAST, LONTREL, LORSBAN, MILESTONE, MYCOGEN, N-SERVE, NEXERA, PANZER, PARADIGM, PFISTER, PHYTOGEN, PRAIRIE BRAND, PRIMUS, PROPOUND, RADIANT, REFUGE ADVANCED, RESICORE, RINSKOR, SENTRICON, SPIDER, STARANE, SURESTART, TELONE, TORDON, TRACER

ENLIST E3™ soybeans are developed by Dow AgroSciences and MS Technologies

The following trademark of Agromen Sementes Agricolas Ltda appears in this report: AGROMEN

The following registered service mark of American Chemistry Council appears in this report: Responsible Care

The following registered trademark of Monsanto Technology LLC appears in this report: SmartStax, POWERCORE. SmartStax and POWERCORE multi-event technology developed by Dow AgroSciences LLC and Monsanto































® ™Trademark of The Dow Chemical Company (“Dow”) or an affiliated company of Dow

154


  The Dow Chemical Company and Subsidiaries  
  Exhibit Index  
     
EXHIBIT NO. DESCRIPTION  

2(b)Agreement and Plan of Merger, dated as of July 10, 2008, among The Dow Chemical Company, Ramses Acquisition Corp. and Rohm and Haas Company, incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on July 10, 2008.

2(c)Joint Venture Formation Agreement, dated November 28, 2008, between The Dow Chemical Company and Petroleum Industries Company (K.S.C.), incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on February 19, 2009.

2(c)(i)Deed Regarding Arbitration Award Payment, dated as of May 6, 2013, between The Dow Chemical Company and Petroleum Industries Company (K.S.C.), incorporated by reference to Exhibit 2(c)(i) to The Dow Chemical Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

2(e)Shareholders' Agreement, dated as of October 8, 2011, between Dow Saudi Arabia Holding B.V. and Performance Chemicals Holding Company, incorporated by reference to Exhibit 99.1 to The Dow Chemical Company Current Report on Form 8-K/A filed on June 27, 2012.

2(e)(i)First Amendment, effective June 1, 2012, to the Shareholders' Agreement, dated as of October 8, 2011, between Performance Chemicals Holding Company, Dow Saudi Arabia Holding B.V., Saudi Arabian Oil Company, Dow Europe Holding B.V. and The Dow Chemical Company, incorporated by reference to Exhibit 99.1 to The Dow Chemical Company Current Report on Form 8-K filed on February 14, 2013.

2(f)Agreement and Plan of Merger, dated as of March 26, 2015, among The Dow Chemical Company, Blue Cube Spinco Inc., Olin Corporation and Blue Cube Acquisition Corp., incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on March 27, 2015.

2(f)(i)Separation Agreement, dated as of March 26, 2015, between The Dow Chemical Company and Blue Cube Spinco Inc., incorporated by reference to Exhibit 2.2 to The Dow Chemical Company Current Report on Form 8-K filed on March 27, 2015.

2(g)Transaction Agreement, dated as of December 10, 2015, among The Dow Chemical Company, Corning Incorporated, Dow Corning Corporation and HS Upstate Inc., incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on December 11, 2015.

2(g)(i)Tax Matters Agreement, dated as of December 10, 2015, among The Dow Chemical Company, Corning Incorporated, Dow Corning Corporation and HS Upstate Inc., incorporated by reference to Exhibit 2.2 to The Dow Chemical Company Current Report on Form 8-K filed on December 11, 2015.

2(h)Agreement and Plan of Merger, dated as of December 11, 2015, among The Dow Chemical Company, E. I. du Pont de Nemours and Company, Diamond Merger Sub, Inc., Orion Merger Sub, Inc. and Diamond-Orion HoldCo Inc., incorporated by reference to Exhibit 2.1 to The Dow Chemical Company Current Report on Form 8-K filed on December 11, 2015.

3(i)The Restated Certificate of Incorporation of The Dow Chemical Company as filed with the Secretary of State, State of Delaware on May 17, 2010, incorporated by reference to Exhibit 3(i) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

3(i)(a)Certificate of Designations for the Cumulative Convertible Perpetual Preferred Stock, Series A, as originally filed with the Secretary of State, State of Delaware on March 31, 2009, incorporated by reference to Exhibit 3.1 to The Dow Chemical Company Current Report on Form 8-K filed on April 1, 2009; and as re-filed with the Secretary of State, State of Delaware on May 17, 2010.

3(ii)The Bylaws of The Dow Chemical Company, as amended and re-adopted in full on December 15, 2016, effective December 15, 2016, incorporated by reference to Exhibit 3(ii) to The Dow Chemical Company Current Report on Form 8-K filed on December 16, 2016.


155


  The Dow Chemical Company and Subsidiaries  
  Exhibit Index  
     
EXHIBIT NO. DESCRIPTION  

3(ii)The Bylaws of The Dow Chemical Company, as amended and re-adopted in full on October 12, 2011, effective October 12, 2011, incorporated by reference to Exhibit 99.1 to The Dow Chemical Company Current Report on Form 8-K filed on October 13, 2011.

4Indenture, dated as of April 1, 1992, between The Dow Chemical Company and the First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.1 to The Dow Chemical Company's Registration Statement on Form S-3, File No. 333-88617 (the "S-3 Registration Statement")), as amended by the Supplemental Indenture, dated as of January 1, 1994, between The Dow Chemical Company and The First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.2 to the S-3 Registration Statement), as amended by the Second Supplemental Indenture, dated as of October 1, 1999, between The Dow Chemical Company and Bank One Trust Company, N.A. (formerly The First National Bank of Chicago), as trustee (incorporated by reference to Exhibit 4.3 to the S-3 Registration Statement), as amended by the Third Supplemental Indenture, dated as of May 15, 2001, between The Dow Chemical Company and Bank One Trust Company, N.A. (formerly The First National Bank of Chicago), as trustee (incorporated by reference to Exhibit 4.4 to The Dow Chemical Company's Registration Statement on Form S-4, File No. 333-67368); and all other such indentures that define the rights of holders of long-term debt of The Dow Chemical Company and its consolidated subsidiaries as shall be requested to be furnished to the Securities and Exchange Commission pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.

4(a)Indenture, dated May 1, 2008, between The Dow Chemical Company and The Bank of New York Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to The Dow Chemical Company's Registration Statement on Form S-3, File No. 333-140859.

10(a)The Dow Chemical Company Executives' Supplemental Retirement Plan, as amended, restated and effective as of April 14, 2010, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(a)(i)An Amendment to The Dow Chemical Company Executives' Supplemental Retirement Plan, effective as of April 14, 2010, incorporated by reference to Exhibit 10.4 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(a)(ii)An Amendment to The Dow Chemical Company Executives' Supplemental Retirement Plan, effective as of July 19, 2013, incorporated by reference to Exhibit 10(a)(ii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2013.

10(a)(iii)An Amendment to The Dow Chemical Company Executives' Supplemental Retirement Plan, effective as of January 19, 2017, incorporated by reference to Exhibit 10(a)(iii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2016.

10(b)Support Agreement, dated November 20, 2014, by and among The Dow Chemical Company and Third Point LLC, Third Point Partners Qualified L.P., Third Point Partners L.P., Third Point Offshore Master Fund L.P., Third Point Ultra Master Fund L.P. and Third Point Reinsurance Co., Ltd., incorporated by reference to Exhibit 10.1 to the Dow Chemical Company Current Report on Form 8-K filed on November 21, 2014.

10(c)The Dow Chemical Company Voluntary Deferred Compensation Plan for Outside Directors (for deferrals made through December 31, 2004), as amended effective as of July 1, 1994, incorporated by reference to Exhibit 10(f) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 1994, as amended in the manner described in the definitive Proxy Statement for the Annual Meeting of Stockholders of The Dow Chemical Company held on May 14, 1998, incorporated by reference.1998.

10(e)The Dow Chemical Company Dividend Unit Plan, incorporated by reference to Exhibit 10(e) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

The Dow Chemical Company and Subsidiaries
Exhibit Index
EXHIBIT NO.DESCRIPTION

10(f)The Dow Chemical Company 1988 Award and Option Plan, as amended and restated on December 10, 2008, effective as of January 1, 2009, incorporated by reference to Exhibit 10(f) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

156


The Dow Chemical Company and Subsidiaries
Exhibit Index
EXHIBIT NO.DESCRIPTION

10(g)Employment Offer Letter for Joe Harlan, President, Performance Materials and Executive Vice President of The Dow Chemical Company, incorporated by reference to Exhibit 10.3 to The Dow Chemical Company Current Report on Form 8-K filed on February 14, 2012.

10(h)The Dow Chemical Company 1994 Executive Performance Plan, as amended and restated on December 10, 2008, effective as of January 1, 2009, incorporated by reference to Exhibit 10(h) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(l)A written description of compensation for Directors of The Dow Chemical Company, incorporated by reference to the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016.Company.

10(m)A written description of the manner in which compensation is set for the Executive Officers of The Dow Chemical Company, incorporated by reference to the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016.Company.

10(o)The template used for The Dow Chemical Company Key Employee Insurance Program (“KEIP”), which provides benefits using insurance policies that replace benefits otherwise payable under The Dow Chemical Company Executives' Supplemental Retirement Plan and Company-Paid Life Insurance Plan, incorporated by reference to Exhibit 10(o) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2002. KEIP is a component of the annual pension benefits listed in and incorporated by reference to the definitive Proxy Statement for the 2017 Annual Meeting of Stockholders of The Dow Chemical Company to be held on May 12, 2016.Company.

10(p)The Dow Chemical Company Elective Deferral Plan (for deferrals made through December 31, 2004), as amended, restated and effective as of April 14, 2010, incorporated by reference to Exhibit 10.2 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(p)(i)An Amendment to The Dow Chemical Company Elective Deferral Plan (for deferrals made through December 31, 2004), effective as of April 14, 2010, incorporated by reference to Exhibit 10.5 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(s)The Summary Plan Description for The Dow Chemical Company Company-Paid Life Insurance Plan, Employee-Paid Life Insurance Plan, and Dependent Life Insurance Plan, amended and restated effective as of January 1, 2014, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on February 13, 2014.

10(t)The Summary Plan Description for The Dow Chemical Company Retiree Company-Paid Life Insurance Plan, Retiree Optional Life Insurance Plan, and Retiree Dependent Life Insurance Plan, amended and restated effective as of January 1, 2014, incorporated by reference to Exhibit 10.2 to The Dow Chemical Company Current Report on Form 8-K filed on February 13, 2014.

10(u)Amended and Restated 2003 Non-Employee Directors' Stock Incentive Plan, adopted by the Board of Directors of The Dow Chemical Company on December 10, 2007, incorporated by reference to Exhibit 10(u) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2007.

10(w)Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company 2003 Non-Employee Directors' Stock Incentive Plan, incorporated by reference to Exhibit 10(w) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.


157


  The Dow Chemical Company and Subsidiaries  
  Exhibit Index  
     
EXHIBIT NO. DESCRIPTION  

10(w)Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company 2003 Non-Employee Directors' Stock Incentive Plan, incorporated by reference to Exhibit 10(w) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

10(x)The Performance Shares Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2009, incorporated by reference to Exhibit 10(x) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(y)The Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2009, incorporated by reference to Exhibit 10(y) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(z)The Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2009, incorporated by reference to Exhibit 10(z) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(cc)The Dow Chemical Company Voluntary Deferred Compensation Plan for Non-Employee Directors, effective for deferrals after January 1, 2005, as amended and restated on December 10, 2008, effective as of January 1, 2009, incorporated by reference to Exhibit 10(cc) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(dd)The Dow Chemical Company Elective Deferral Plan, effective for deferrals after January 1, 2005, as amended, restated and effective as of April 14, 2010, incorporated by reference to Exhibit 10.3 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(dd)(i)An Amendment to The Dow Chemical Company Elective Deferral Plan, effective for deferrals after January 1, 2005, effective as of April 14, 2010, incorporated by reference to Exhibit 10.6 to The Dow Chemical Company Current Report on Form 8-K filed on May 3, 2010.

10(dd)(ii)An Amendment to The Dow Chemical Company Elective Deferral Plan, effective for deferrals after January 1, 2005,dated December 11, 2014, incorporated by reference to Exhibit 10(dd)(ii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2014.

10(dd)(iii)An Amendment to The Dow Chemical Company Elective Deferral Plan (Post 2004), effective as of January 19, 2017, incorporated by reference to Exhibit 10(dd)(iii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2016.

10(ii)Employment agreement dated February 14, 2006, between Heinz Haller and The Dow Chemical Company, incorporated by reference to Exhibit 10(ii) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2008.

10(jj)Change in Control Executive Severance Agreement - Tier 1, incorporated by reference to Exhibit 10(jj) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2007.

10(kk)Change in Control Executive Severance Agreement - Tier 2, incorporated by reference to Exhibit 10(kk) to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2007.

10(nn)Investment Agreement, dated as of October 27, 2008, between The Dow Chemical Company and Berkshire Hathaway Inc., incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on October 27, 2008.

The Dow Chemical Company and Subsidiaries
Exhibit Index
EXHIBIT NO.DESCRIPTION

10(oo)Investment Agreement, dated as of October 27, 2008, between The Dow Chemical Company and The Kuwait Investment Authority, incorporated by reference to Exhibit 10.2 to The Dow Chemical Company Current Report on Form 8-K filed on October 27, 2008.

10(ww)The Deferred Stock Units Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2010, incorporated by reference to Exhibit 10.7 to The Dow Chemical Company Current Report on Form 8-K filed on February 18, 2010.


158


The Dow Chemical Company and Subsidiaries
Exhibit Index
EXHIBIT NO.DESCRIPTION

10(xx)The Special Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2010, incorporated by reference to Exhibit 10.8 to The Dow Chemical Company Current Report on Form 8-K filed on February 18, 2010.

10(yy)The Performance Shares Deferred Stock Units Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2010, incorporated by reference to Exhibit 10.9 to The Dow Chemical Company Current Report on Form 8-K filed on February 18, 2010.

10(zz)The Special Performance Shares Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2010, incorporated by reference to Exhibit 10.10 to The Dow Chemical Company Current Report on Form 8-K filed on February 18, 2010.

10(aaa)The Stock Appreciation Rights Agreement Relating to a Stock Option Granted Under The Dow Chemical Company 1988 Award and Option Plan, as amended, restated and effective as of January 1, 2010, incorporated by reference to Exhibit 10.11 to The Dow Chemical Company Current Report on Form 8-K filed on February 18, 2010.

10(bbb)The Dow Chemical Company 2012 Stock Incentive Plan, effective as of May 10, 2012, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on May 14, 2012.

10(ccc)Performance Shares Deferred Stock Agreement Pursuant to The Dow Chemical Company 2012 Stock Incentive Plan, effective as of May 10, 2012, incorporated by reference to Exhibit 10(ccc) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

10(ddd)Deferred Stock Agreement Pursuant to The Dow Chemical Company 2012 Stock Incentive Plan, effective as of May 10, 2012, incorporated by reference to Exhibit 10(ddd) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

10(eee)Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company 2012 Stock Incentive Plan, effective as of May 10, 2012, incorporated by reference to Exhibit 10(eee) to The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.

10(fff)The Dow Chemical Company Amended and Restated 2012 Stock Incentive Plan, effective as of May 15, 2014, incorporated by reference to Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K filed on May 20, 2014.

12.1Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements.

14Code of Ethics for Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, incorporated by reference to Exhibit 14 to The Dow Chemical Company Annual Report on Form 10-K for the year ended December 31, 2003.

21Subsidiaries of The Dow Chemical Company.

23(a)Consent of Independent Registered Public Accounting Firm.

23(b)Analysis, Research & Planning Corporation's Consent.

31(a)Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


159


  The Dow Chemical Company and Subsidiaries  
  Exhibit Index  
     
EXHIBIT NO. DESCRIPTION  

21Subsidiaries of The Dow Chemical Company.

23(a)Consent of Independent Registered Public Accounting Firm.

23(b)Ankura Consulting Group, LLC's Consent.

31(a)Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(a)Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(b)Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.499.1Guarantee relating to the 6.00% Notes of Rohm and Haas Company, incorporated by reference to Exhibit 99.5 to The Dow Chemical Company Current Report on Form 8-K filed on April 1, 2009.

99.599.2Guarantee relating to the 9.80% Debentures of Rohm and Haas Company, incorporated by reference to Exhibit 99.6 to The Dow Chemical Company Current Report on Form 8-K filed on April 1, 2009.

101.INSXBRL Instance Document.

101.SCHXBRL Taxonomy Extension Schema Document.

101.CALXBRL Taxonomy Extension Calculation Linkbase Document.

101.DEFXBRL Taxonomy Extension Definition Linkbase Document.

101.LABXBRL Taxonomy Extension Label Linkbase Document.

101.PREXBRL Taxonomy Extension Presentation Linkbase Document.

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