TH ANNUAL REPORT

49 FORTHE YEAR ENDED MAY 31,1946

THE DOW CHEMICAL COMPANY

MIDLAND MICHIGAN
 The next annual meeting of stockholders will be held on Wednesday, August
28, 1946, at two o’clock in the afternoon (Eastern Standard Time) at the Company’s
office in Midland, Michigan.
A formal notice of the meeting, together with a proxy statement and form of
proxy, will be mailed to each holder of common stock separately from but concur-
rently herewith, at which time proxies will be solicited by the management.
TO THE STOCKHOLDERS OF
THE DOW CHEMICAL COMPANY:

We present herewith the 49th annual report of the Company operations. An

annual report OS the summotion of the financial condition of the Company is of vital
interest to every stockholder; conversely, it is the duty of the management to present
as nearly OS possible the complete picture of the Company operations. However, with
our extremely diversified activities and the almost innumerable products we make or
con make, if we attempted to write in great detail it would be necessary to publish Q
volume too big for anyone to read. Throughout the year, however, we publish o large
amount of literature concerning Company products and Company operations with the
intention of keeping the stockholders currently informed.

EARN I NGS-
The first item of interest is the statement of earnings. The consolidated net
income was equivalent to $3.95 per shore on the 1,248,706 shares of common stock,
after deducting $I,21 5,476 paid during the year on the preferred stock. The compa-
rable earnings for the fiscal year ending May 3 1, 1945 were $6.02 per shore. Another
item of interest is the dollar volume of sales, which amounted to $101,813,839. This
is less by 18% than the peak of $124,570,200 attained last year, but we consider it
excellent in view of the cancellation of many contracts at the cessation of the war. In
addition to the decrease in sales, the decrease in earnings for the current year was
occasioned by increased labor rates, by write-offs and unusual charges as a result of
the cessation of the war. The largest item other than amortization WQS approxi-
mately $1,700,000 for obsolescence.

AMORTIZATION-

During the war period the Company and its subsidiaries expended approxi-
mately $44,000,000 for emergency war facilities. These were purchased under cer-
tificates of necessity permitting the amortization of the cost of such facilities over Q
period of five years, or a shortened period ending with the end of the emergency period.
During yeors prior to the current year amortization was token on the five-year basis.

With the end of the war and by Presidential proclamation, the Company was
permitted for income tax purposes to shorten the amortization period to end OS of
September 30, 1945. Adjustments were mode on the books with the effect that, based
on the shortened period, amortization for years prior to the current year was increased
approximately $13,100,000 and the amortization for the four months ended Septem-
ber 30, 1945 amounted to approximotely $6,300,000. As Q result of the increased
amortization for prior years, refunds of income and excess profits taxes of approxi-
mately $11,300,000 were tentatively allowed and paid by the Bureau of Internal
Revenue.
 Because certain of the facilities which were fully amortized for income tax
purposes were deemed to be economically useful, such facilities were reinstated on the
books OS of May 3 1, 1946, in the amount of approximately $9,600,000. This amount
will be subject to regular depreciation in the future, which will not be deductible for
Federal income tax purposes.

For the effect of the foregoing transactions reference is mode to the state-
men ts of consolidated income and surplus included in this report.

RENEGOTIATION-

One other item of importance to stockholders is renegotiation. Under the

provisions of the lows covering the war activities, it was specifically determined that
there should not be any excessive profits before taxes. Even though taxes ran as high
OS 85.5 per cent, there WQS a sound reason for renegotiation. The price of very few
individual products mode during wartime represented the final cost to the government,
and to prevent the pyramiding of costs is therefore the justification of renegotiation.
At times it was Q rather bitter pill to swallow when we stopped to think that by
applying all the skill available, we might be subject to penalty for building the
most efficient plant we were capable of building. Be that as it may - the war is
over and experience gained during the war should make for more lasting peace and
greater prosperity in peacetime. It has always been the practice of the Company to
pass on the benefits of improved operation by lower costs to our customers, and to
gain for the Company in larger volume operation and still lower costs. This practice
was apparently the reason our Company did not have to pay any renegotiation
charges during the war period, with the exception that Midland Ammonia Company
over Q two-year period paid a total charge of $12,675.

NEW CONSTRUCTION-

When materials become more available, more plants will be built. As Q mat-
ter of fact, all during the war one new plant after another come up for considera-
tion, but only the most necessary were built. As a result, the accumulation of
authorized construction additions and new product developments now stands on the
books at a total of something over $40,000,000. This is a program which may take
the next three or four years to complete and con very probably be substantially fi-
nanced from earnings and depreciation, although it may require additional capitol,
which con be readily obtained.

With reference to capital, it should be brought to your attention that in our

financial report of o year ago, there appeared $12,000,000 in debentu.res. These
were called and entirely retired on September 1, 1945. Since these funds were not
needed at the time, it was thought wise to call the notes with the thought of
financing again when the cash was more urgently needed, in the meantime saving
the interest charges.

EMPLOYMENT-

As of May 31, 1946 we ore not for from the peak of our wartime employ-
ment. On that dote our total employment WQS 12,362. In addition, we ore still
responsible for 1,275 employees operating the government-owned plants in Velasco,
Texas and Los Angeles, California. Including these plants, of the 5,144 employees
who left our employ to join the ormed forces, 2,13 1 hove returned to us OS of the
above dote, and in addition, 2,266 ex-service men not formerly employed by us hove
joined our organization.

GOVERNMENT PLANTS-

We ore still operating the government-owned styrene plant and a portion of

the magnesium plant in Velasco, Texas as well as the styrene plant in Los Angeles,
California. We hove leased and are operating Q portion of the Ludington, Michigan
plant, but are no longer responsible for the Marysville, Michigan plant. As of April
of this year we bought the Chemical Warfare Service plant located within our plant
in Midland, Michigan. We ore bidding for the purchase of some of the government
facilities which we installed and operated for the government during the war.

COMPANY OPERATIONS-

To discuss general Company operations, they con be best summarized by

subdividing the fields of our activities, but always bearing in mind that the inter-
relation of chemical production must necessarily show many overlapping uses as
well as intraplant use of our own products. As a characteristic example, the very
foundation of our production is the electrolysis of sodium chloride to produce caustic
soda and chlorine. The caustic soda is finished and sold to the market, and The
Dow Chemical Company is one of the largest customers. Only a small percentage
of the chlorine produced is liquefied and sold as such, and that is from our Pittsburg,
California plant. The balance of our chlorine is used to produce on indefinite number
of other products, in which the chlorine may or may not appear in the final salable
product. We are probably the largest producer of chlorine in the world, producing
approximately 30 per cent of the total United States production. Let us subdivide
our operations as follows:

INDUSTRIAL AND HEAVY CHEMICALS-

Under this heading ore classed such industrial chemicals OS caustic soda, cal-
cium chloride, magnesium chloride, industrial solvents, phenol and phenolic com-
pounds not used for pharmaceutical purposes, Dowicides and fumigants, dyes and
dye intermediates, and many others. As a group, these products represent better than
one-half of our soles volume. Since they are the stondby group of fundamental prod-
ucts so necessary to all industrial requirements, they seldom hove the glamour in
the public eye they so well deserve.

PHARMACEUTICALS-

This is the group of products which is used either OS such for pharmaceutical
purposes or as on intermediate to the final production of those materiols. These
chemicals represent approximately 10 per cent of our dollar volume of sales.

PLASTICS AND RELATED COMPOUNDS-

Possibly these are more publicized now than any other group of chemicals,
for although the American public has hod plastic materials for nearly fifty years,
the fact remains we hove not become truly plastics conscious until recently. The
Company produces four mojor plastics groups - Styrene and polymerized Styrene
known OS Styron and the sister compound known as Alpha Methyl Styrene, Saran or
the vinyl-vinylidene group sold under various trade names by licensees of our Com-
pony, Styraloy which is a modified Styrene and Butadiene polymer, and Cellulose
Ethers such as Ethyl, Methyl and Carboxy Methyl Cellulose. Each group of these
plastics is unique in its applications. The war requirements clearly demonstrated
the necessity of each type, ond market demands in peacetime hove confirmed the
discriminatory judgment of the war period. Plastics as new moterials will undoubt-
edly create vast new markets, but it is questionable whether they will displace old
markets except OS they provide a better method of accomplishing a given result.
Plastics as Q group represent at present about 20 per cent of our dollar volume of soles.

AGRICULTURAL CHEMICALS-

To this group of chemicals con be attributed one of the most quickly noticeable
benefits to humanity. Inasmuch as agriculture is our largest industry, and prosperous
agriculture necessarily means Q prosperous American people, it clearly behooves such
a basic industry as o chemical company to opply every effort to aid and assist in
greater and improved agricultural production. Agricultural chemicals include such
compounds as ore required for the improvement of the health of livestock and poul-
try, the improved germination of seeds, spray materials, soil fumigants, weed killers
and growth hormones, fertilizers and preservatives for foodstuffs. The opportunities
hove by no means been exhausted, and a chemical truly beneficial to agriculture is in
every sense on economic necessity. This group of chemicals represents approximately
10 per cent of our dollar volume of soles.

MAGNESIUM-

During the war magnesium production and fabrication WQS OS high OS 30 per
cent of our sales volume, although the profits were less than 10 per cent of the total
profits. With the cessation of hostilities, we hod large production facilities, but no
business. An intensive development and advertising program WQS required to develop
and bring old uses bock into production, but with the close of the fiscal year we ore
pleosed to report that our production facilities ore steadily gaining in volume and new
uses ore constantly developing. We hove again started the production of mag-
nesium in our Freeport, Texas plant. The aviation industry is still the largest consumer
of magnesium, although there ore mony other applications which ore growing rapidly
to close seconds. The buying public is becoming justifiably conscious of magnesium
lightness ond strength.

SUBSIDIARIES AND ASSOCIATED COMPANIES-

A report such OS this would not be complete unless some reference were mode
to the activities of the various subsidiory and associated companies.

CLIFFS DOW CHEMICAL COMPANY is a subsidiary, whose activities remain at o

high level and whose production during the war was of no small importance to the
war effort. The importont point is that Cliffs Dow has paid dividends since making
up their starting losses, and with the close of the war they ore now proceeding with
construction improvements which should further improve their position.

DOW MAGNESIUM CORPORATION, a wholly owned subsidiary, was organized for

the express purpose of being on operating company for the government-owned
magnesium plonts. Its job is nearly done and possibly within the year the com-
pony will be dissolved.

DOW CHEMICAL OF CANADA, LIMITED, Q wholly owned subsidiary, WQS originally

organized for the purpose of being on operating company for the Canadian govern-
ment styrene plant designed by Dow and operated by Dow of Canada for the
Canadian government. With the cessation of hostilities we hod the opportunity
to build Q Canadian plant, and within a few months it will be producing Styron for
the Canadian market. Additional plants ore under way to produce glycol and allied
products, and other expansion is contemplated for the near future. Dow Chemical
of Canado, Limited will be The Dow Chemical Compony representotive for all opera-
tions and soles in Canada.

DOWELL INCORPORATED, o wholly owned subsidiary, has originated many new

applications of chemicals for the production of more oil for the petroleum industry.
Originally founded for the purpose of acidizing oil producing formations, its functions
hove steadily enlarged. Dowell was the originator of plastic plugging and of the
application of acidizing treatment to industrial boilers for scale removal. It is truly
-a service compony, in that it has rendered substantial service but has not been able to
pay dividends to the parent company because of the need to reinvest earnings in new
and expanding equipment. The parent company has gained very substantially in the
large volume of chemical soles and in royalties received. Dowell Incorporated is on
unsung, modest hero of World War I I in its contribution to greater production of oil
at Q time when every barrel was in demand.

DOW CORNING CORPORATION, on associated company, is one of the youngest of

the group. It mode Q substantial contribution to the war effort and is an organiza-
tion of great potentialities. It is in the growing stage and making steady progress.
The silicone products represent a combination of values not found in other plastic
groups. They range from free flowing fluids of constant viscosity, oils and lubricants,
to Silastic, Q rubber-like material, and thermosetting plastics. All of the products
are capable of withstanding temperatures OS high as 500°F. Through Corning Gloss
Works, Dow Corning Corporation was the originator and first commercial producer
of silicone compounds in this country.

ETHYL-DOW CHEMICAL COMPANY is on associated company. The war demands

necessitated the enlargement of facilities for the production of bromine from sea
water, so that at the present time the plants hove much greater capacity than
peacetime requirements justify. A write-off of war investments brought about a
reduction of earnings. Since May 31, 1946 Q substantial reduction of debt incurred
for construction has been mode with the parent companies.

Ml DLAND AMMONIA COMPANY, a subsidiary located within the plant at Midland,

is a steady operator, paying steody dividends, and is one of the most efficient am-
monia plants in the country.

CONCLUSION-

The wor is over. At least, it is a thing of the post OS for OS the operations of
The Dow Chemical Company ore concerned. We ore justifiably proud of the war
record of the Company. To soy that our contributions in the production of magnesium
and its alloys, in the production of styrene and in our knowledge of the production
of butadiene were of the highest order of scientific and practical value is a gross
understatement. Al I the efforts in all the operations of the Company were of such
inestimable value to the country that they cannot be measured in dollars alone.
Generally speaking, it is not considered good taste to attempt to tell of one’s own
wonderful contributions to any cause. But in a report to Stockholders, it would
hardly be fair to pass over Q world cataclysm such as World War II with so simple
Q statement OS “We helped.” Because the record has been mode, it is not our
desire to get world acclaim, except to hove our Stockholders know they ore port
owners in a Company where they hove every right and justification to feel their
investment was used to our greatest ability in protecting and furthering the best
interests of the United States of America. We did our bit, as big or as little as it
may have been. We did not make large war profits, as so many people like to
believe companies do in wartime, and this fact was simply explained under the head-
ing of renegotiation.

We are bock operating on a peacetime basis and running a Company which

stillbelieves the maintenance of the highest efficiency of operation and the lowest
costs will return the greatest benefits to both the consumer and the producer. The
chemical industry as a whole has been noted for steadily declining costs to consumers,
and with the present hysteria about higher prices, there is little reason to change the
record. Our basic raw material, salt, we mine mechanically in our two largest plants.
Labor rates and other benefits in our Company are of the highest paid in the
industry. We hove been generous, but it is a notorious fact that manpower on the
average is at about the lowest efficiency it has ever been. As long OS we continue to
talk and think in terms of raising wages in order to meet higher costs of living,
nothing can stop the continually ascending spiral of inflation. Inflation OS such is
the measure of human desire not to work and produce. Improved manpower effi-
ciency gives quickly reduced costs and more production. Conversely, low production
gives higher costs and creates scarcity, with the consequent spiral of inflation, bread
lines and general hardship for everyone. The wi II to work is the blessing we wi II
sooner or later recognize as the only solution to all our man-made problems. Pro-
duce more. Hove more. No frontier was ever developed by wishing it so, and the
chemical industry is no exception. Hard work has gotten us what we hove today.
Work and more work and hard work will develop future frontiers. The chemical
industry must pioneer for industry of tomorrow.
With the further development of all the projects which were necessarily tabled
during the war, our growth is practically unlimited in our field. The chemical industry
and growth ore synonymous terms - one does not progress without the other.
This follows into other industries as well, because with the development of products
of chemical origin, new industry is created in other fields. Plastics, new pharmaceu-
ticals and agricultural chemicals as well as many others are clearly symbolic of this.
There will never be an end to new developments. When we say this statement is
wrong, one of two things has happened. Either we have become so wise we con com-
prehend the entire universe, or else it is an indication we have gone to seed on our job.
And so, with the close of our 49th year we find we have more to accomplish
than ever before. We see more employment with more securitv for the industry and
everyone in it. We see the blessing of work with the pleasure ot accomplishing great-
er goals and the complete satisfaction of having a job to do and having it well done.

WILLARD H. DOW
President
Midland, Michigan
August 5, 1946
 HASKINS & SELLS
THE NATIONAL BANK BUILDING
CERTIFIED PUBLIC ACCOUNTANTS
DETROIT

ACCOUNTANTS’ CERTIFICATE

The Dow Chemical Company:

We have examined the consolidated balance sheet of The Dow Chem-

ical Company and its subsidiary companies as of May 31, 1946 and the
related statements of consolidated income and surplus for the year ended
that date, have reviewed the accounting procedures of the companies, and
have examined their accounting records and other evidence in support of
such financial statements. Our examination was made in accordance with
generally accepted auditing standards applicable in the circumstances and
included all auditing procedures we considered necessary, which procedures
were applied by tests to the extent we deemed appropriate in view of the
systems of internal control; it was not practicable to confirm receivables
from United States Government departments and agencies but we hove
sotisfied ourselves with respect to such receivables by means of other audit-
ing procedures.

In our opinion, the accompanying consolidated balance sheet and state-

ments of consolidated income and surplus fairly present the financial con-
dition of the companies at May 31, 1946 and the results of their operations
for the year ended that dote, in conformity with generally accepted account-
ing principles and practices applied on a basis consistent with that of the
preceding year.

HASKINS 0 SELLS

July 26, 1946.

 THE DOW CHEhc
AND SUBSIDFA
CONSOLIDATED BALANCE SHEET,

ASSETS

May 31
CURRENT ASSETS: 1946 -1945
Cash _---__-_-------------------------------------- $ 10,4m 1.52 $ 17,505,643.48
United States Government securities __-_______--___-______ $ 10,760,000.00 $ 22,885,OOO.OO
Notes and accounts receivable:
Customers --_----c-------------------------------- $ 10,587,967.06 $1 1,537,408.91
Associated companies --------------------_________^_ 226,709.20 193.527.9 1
Employees --_------------------------------------- 85,059.68 4 1;344.80
Sundry ------------------------------------------ 730,165.03 350,707.80
Total ----------------- $ 11,629,900.97 $1 2,122,989.42
Less reserves for doubtful receivables _ 330,929.50 305.244.70
Net receivables _____________________ - $ 11,298;97 1.47 $ 11,817;744.7;
Billed and unbilled receivables from United States Government
and its agencies (other than for sale of product) ---------- $ 298,399.82 $ 272,105.12
Claims for refund of prior years’ Federal income and excess profits
taxes resulting from carry-back of unused excess profits credits $ 1,175,106.93
Inventories:
Finished goods and work in process (at lower of cost or market) $ 11,241,092.35 $ 9,4 15,374.86
Materials and supplies (at cost-approximately market) ____ 8,039,656.84 6,8 14,096.49
Total ______________________________ $ 19,280,749.19 $ 16,229,47 1.3 5
Total current assets _____L_____ -_ $ 53,23 1,348.93 $ 68,709,964.67
INVESTMENTS AND NON-CURRENT RECEIVABLES:
Notes receivable and capital stock (at cost) of associated com-
panies (at May 31, 1946, approximately $3 1,000 in excess
of the equity in net assets as shown by unaudited balance
sheets of companies) -------------------------------- $ 5,988,OOO.OO $ 5,688,OOO.OO
Postwar refund of excess profits taxes _______ -__- __________ 18,936.49 2,597,03 1.2 1
Non-current notes and accounts receivable (including employees’
receivables, 1946, $47,907.49; 1945, $16,558.68) _- ______ 482,7 13.56 304,292.44
Sundry securities (1945, less reserve, $63,4 13.93 1 _ _ __ ___ _ ___ 659,189.l 1 658,664.1 1
Total investments and non-current
receivables _ _ _ __ __ _ __ _ - __ __ _ _ $ 7,148,839.16 $ 9,247,987.76
PROPERTY:
Plont properties and equipment (exclusive of facilities acquired
under certificates of necessity)---at cost (less reserves for de-
preciation, 1946, $34,668,856.85; 1945, $33,722,644.65) __ $ 56,936,5 10.26 $ 46,278,977.09
Facilities acquired under certificates of necessity-net book value
(See Note A) _____________________________________ 9,590,242.9 1 20,098,29 1.30
Housing properties (exclusive of facilities acquired under certifi-
cates of necessity)--at cost (less reserves for depreciation,
1946, $225,348.11; 1945, $178,489.23) -___-__________ 1,2 10,332.42 1,262,702.59
Total property ----------------- $ 67,737,085.59 $ 67,639,970.98
PATENTS-at cost or nominal value (less reserves for amortization,
1946, $87,53 1.8 1; 1945, $7 1,862.94) --------------_---_ $ 309,742.59 $ 64,9 1 1.46
DEFERRED CHARGES-Unexpired insurance premiums and sundry
and, at May 31, 1945, unamortized debenture discount and
expense _________-______---_------------------------ $ 329,27 1.7 1 $ 484,064.20
TOTAL _ - __ _ _ _ _ __ _ _ _ __ _ _ _ $128,756,287.98 $146,146,899.07

NOTES: A-As of September 30, 1945 the Company and its subsidiaries had emergency
Following the Presidential proclamation of September 29, 1945 ending the
off. The portion of the amount written off applicable to the year ended h
remainder, applicable to prior years, was charged to earned surplus. As (
were deemed to be economically useful, were reinstated in the books at a I
equivalent to the estimated Federal income tax which will result from the

B-Operations of the Company and its subsidiaries through December 3 1, 1945 it

the Government the right under certain conditions to renegotiate war contn
been completed through May 31, 1945, although the tentative agreement
not yet been executed. No refunds were required for any year except that,
years ended May 3 1, 1942 and 1943. It is the opinion of officials of the (
the seven months ended December 31, 1945.
CAL COMPANY
Y COMPANIES
MAY 31, 1946 AND MAY 31, 1945

LIABILITIES

May 31
CURRENT LIABILITIES: 1946 1945
Accounts payable-Trade and sundry __-_____--___________ $ 6,382,397.32 $ 6,2=93.3 1
Federal income and excess profits taxes ____________________ 3,527,26 1.45 17,304,690.07
Serial debentures maturing within one year _________________ 750,000.00
Dividends payable _____________________ - ______________ 1,240,398.50 1,240,398.50
Accrued liabilities:
Payrolls ------------------------------------------ 664,94 1.12 926,805.20
Taxes-Social security, property, Federal capital stock, state
income and franchise, and sundry -------------------- 978,456.95 1,280,932.89
Interest __________________-_____________________-- 63,039.69
Rents ------------------------------------------- 43,456.76 144,06 1.70
Sundry ------------------------------------------ 159,902.34 107,600.l 1
Total current liabilities ___-______ $ 12,996,8 14.44 $ 28,l 12,121.47

FUNDED DEBT--Debentures (Redeemed as of September 1, 1945)

(Serial debentures maturing within one year included in current
liabilities) ________________________________________-- $ 11,250,000.00

RESERVES FOR FIRE AND ACCIDENT LOSSES, DAMAGE CLAIMS,

ELECTROLYTIC CELL REPLACEMENTS, AND SUNDRY _______ $ 1.465.068.98 $ 1,455,163.22

MINORITY INTERESTS IN SUBSIDIARY COMPANIES __________ $ 944,365.36 $ 1,3 12,455.09

CAPITAL STOCK:
Cumulative preferred stock, Series A (authorized, 600,000 shares
without par value; outstanding, 303,869 shares) --annual divi-
dend $4.00 per share ___-_____-_________ -_-__- _____ - $ 30,386,900.00 $ 30,386,900.00
Common capital stock (authorized, 2,000,OOO shares without par
value; outstanding, 1,248,706 shares) ------------------ 37,293,908.83 37,293,908.83
Total capital stock _____________ I 67.680.808.83 $ 67,680,808.83

SURPLUS:
Capital surplus --------------_----------------------- $ 1,030,190.83 $ 638,841.93
Earned surplus _____-_____--__________________________ 44,639,039.54 35,697,508.53
Total surplus __________________ $ 45,669,230.37 $ 36,336,350.46

TOTAL __ _ _ _ __ _ -_ _ __ _ __ c _ $128,756,287.98 $146,146,899.07

lities acquired under certificates of necessity with an aggregate cost of $44,369,812.42.

rgency period with respect to such facilities, the unamortized portion thereof was written
3 1, 1946, based upon the shortened amortization period, was charged to income and the
4ay 31, 1946 certain of the facilities with an original cost of $19,673,908.82, which
look value of $9,590,242.91, representing cost less normal depreciation and an amount
re nondeductibility of depreciation thereon.
le transactions which are subject to the provisions of war profits control legislation giving
and subcontracts for the purpose of limiting profits. Renegotiation proceedings have
viding for no refund) with respect to the Company for the year ended May 31, 1945 has
76 case of one subsidiary, refunds not relatively material in amount were required for the
Iany that excessive profits within the meaning of the legislation have not been realized for
 THE DOW CHEMICAL COMPANY
AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED INCOME
FOR THE YEARS ENDED MAY 31, 1946 AND 1945

Year Ended May 31

1946 1945
SAbLESsAND OTHER REVENUE:
--_--_---------_----------------- $101,813,839.08 $124,570,200.83
Dividends received from an associated company 500,000.00
interest from associated companies ------__- 3 17,792.17 294,955.42
Other interest income _----_-_-_--_-_---_- 549,335.69 232,190.77
Fees received in connection with construction
and operation of government owned plants -_ 1,449,270.22 2,085,080.04
Other income ---_--__---_.-.-___---------- 635,872.53 305,109.60
Total ---_---__---__---_--___ $5104,766,109.59 $127,987,536.66

COSTS AND OTHER CHARGES:

Cost of sales (excluding provision for deprecia-
tion and amortization) --m--------s----- $ 73,621,770.59 $ 82,03 1 ,153.29
Provision for depreciation ---_--------___-- 6,l 18,317.12 5,332,O 14.66
Provision for amortization of emergency facili-
ties (See Note A to balance sheet) ------ 6,308,4 19.22 8,353,549.70
Selling and administrative expenses _---__-_- 7,929,767.12 6,840,949.68
Interest and amortization of discount and ex-
pense on debentures ---_----------_---- 107,7 18.62 265,618.84
Premium paid on redemption of serial debentures 1 12,500.OO
Losses on abandonment of equipment rendered
obsolete by cessation of the war __-_-_---- 1,689,878.62
Other income charges ---_-_---_--_---_--- 488,080.07 90,480.38
Minority interests in income of subsidiary com-
panies ------------------------------ 96,502.65 67,028.97
Total _----_----_---___---___ 9; 96.472.954.01 $102,980,795.52

INCOME BEFORE PROVISION FOR FEDERAL

INCOME AND EXCESS PROFITS TAXES ----- $ 8,293,155.68 $ 25,006,741.14

PROVISION FOR FEDERAL INCOME AND EX-

CESS PROFITS TAXES:
Normal tax and surtax ---_---_-----__---- $ 3,107,244.96 $ 4,307,365.49
Excess profits tax _- ___---_---___--_ - ____ 212,041.69 11,960,614.12
Total ------_----------m--m-- $ 3,3 19,286.65 $ 16,267,979.6 1

Less reduction of Federal income and excess

profits taxes for prior years resulting from
carry-back of unused excess profits credits 1,175,106.93
Net provision ---------------- $ 2,144,179.72 $ 16,267,979.6 1
-

INCOME FOR THE YEAR ---------- _________ $ 6,148,975.96 $ 8,738,761.53

--
~- -_- -. I___-_-
 THE DOW CHEMICAL COMPANY
AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED SURPLUS
FOR THE YEARS ENDED MAY 31, 1946 AND 1945

Year Ended Mav 31

CAPITAL SURPLUS 1946 ’ 1945
BALANCE AT BEGINNING OF THE YEAR ---_-- $ 638,841.93 $ 638,841.93
CREDIT-Increase in equity in the capital stock
and surplus of a partially-owned subsidiary
company resulting from a restatement and re-
allocation of the subsidiary’s capital stock ---- 39 1,348.90
BALANCE AT END OF THE YEAR ,,----:, __--- $ 1,030,190.83 $ 638,841.93
-

EARNED SURPLUS
BALANCE AT BEGINNING OF THE YEAR ------ $35,697,508.53 $33,160,739.50
CREDITS:
Net income for the year _----_-_------_-_- 6,148,975.96 8,738,761.53
Adjustments relating to facilities acquired under
certificates of necessity-net (See Note A) 7,754,149.05
Total --_------___-__-_---___ $49,600,63 3.54 $41,899,501.03
CHARGE-Cash dividends (See Note B) :
Common capital stock __---_-__-__- _______ $ 3,746,1 18.00 $ 4,682,647.50
Cumulative preferred capital stock, Series A ___ 1,2 15,476.OO 1.5 19.345.00

Total __-------- ____ -___- ____ $ 4.961.594.00 $ 6,20 1,992.50

BALANCE AT END OF THE YEAR ____________ $44,639,039.54 $35,697,508.53

NOTES: A-The net credit to earned surplus for adjustments relating

to facilities acquired under certificates of necessity
consisted of the following:
Additional amortization applicable to prior years re-
sulting from shortening the amortization period by
Presidential proclamation on September 29, 1945 $13,138,137.91
less reinstatement as of May 31, 1946 of facilities
deemed to be economically useful (at cost, less
normal depreciation to May 31, 1946 and an esti-
mated amount equivalent to Federal income taxes
that will result from the future nondeductibility of
depreciation on such assets) -------w---v----- 9,590,242.9 1
Net amortization adjustment (debit) __ $ 3,547,895.00
Reduction in Federal income and excess profit taxes
of prior years resulting from the deduction of the
additional amortization (credit) - ________--_- 1 1,293,799.97
Net credit to earned surplus before adjustment for
minority interest ---_--___-__-------------- $ 7,745,904.97
Adjustment for minority interest in a subsidiary com-
pany __-__------------___--------------- 8,244.08
Net credit to earned surplus _____---_--.-.-___--- $ 7,754,149.05

B--Dividends, on the basis of the dates on which they were declared, include
five regular quarterly dividends for the year ended May 31, 1945 and
four regular quarterly dividends for the year ended May 3 1, 1946.
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 THE DOW CHEMICAL COMPANY

Directors

E. 0. BARSTOW L. I. DOAN M. E. PUTNAM

E. W. BENNETT A. B. DOW C. J. STROSACKER
J. S. CRIDER W. H. DOW W. R. VEAZEY

Officers

Chairman of the Board, President and

General Manager - - - - W. H. DOW

Vice President and Treasurer - - E. W. BENNEll-

Vice President and Secretary - - - L. I. DOAN

Vice President - - - - - E. 0. BARSTOW

Vice President - - - - - C. J. STROSACKER

Vice President - - - - - M. E. PUTNAM

Assistant Treasurer - - - - - J. S. CRIDER

Assistant Treasurer and Assistant Secretary F. H. BROWN

Assistant Secretary - - - - A. P. BEUTEL

Assistant Secretary - - - - L. A. CHICHESTER

Assistant Secretary - - - - - R. L. CURTIS

Assistant Secretary - - - D. J. LANDSBOROUGH

Auditor - - - - - - C. PENHALIGEN

Transfer Agents Stock Registrars

Guaranty Trust Company of New York Common The New York Trust Company
The Nationai City Bank of New York Preferred Guaranty Trust Company of New York
The Cleveland Trust Company Common and Preferred The National City Bank of Cleveland
 THE DOW CHEMICAL COMPANY

Executive Office: Midland, Michigan

General Sales Office: Midland, Michigan

Sales Office8

Boston 16, Massachusetts New York 20, New York

20 Providence Street 30 Rockefeller Plaza

Philadelphia 2, Pennsylvania
Chicago 3, Illinois
1400 S. Penn Square
135 So. LaSalle Street

San Francisco 4, California

Cleveland 13, Ohio
3 10 Sansome Street
Terminal Tower
St. Louis 8, Missouri
Detroit 2, Michigan Continental Building
Fisher Building 3615 Olive Street

Houston 2, Texas Seattle 1, Washington

2205 Commerce Building 1702 Textile Tower

Los Angeles 14, California Washington 5, D. C.

634 South Spring Street 915 Shoreham Building

Factories Located
at

Midland, Michigan Pittsburg, California

Bay City, Michigan Seal Beach, California

Freeport, Texas
 THE DOW CHEMICAL COMPANY

Subsidiary Companies

Cliffs Dow Chemical Company Marquette, Michigan

Dow Chemical of Canada, Limited: General Office Toron to, Ontario

Works Sarnia, Ontario

Dow Magnesium Corporation Midland, Michigan

Midland Ammonia Company Midland, Michigan

Dowel I I ncorpora ted Tulsa, Oklahoma

Dowell Incorporated Soles Offices

Chicago 3 Illinois 308 Reaper Building

Salem Illinois P. 0. Box 292
Wichita 2 Kansas 519 Union National Bank Bldg.
Baton Rouge Louisiana P. 0. Box 1266
Shreveport 23 Louisiana 326 First National Bank Bldg.
Baltimore 18 Maryland 1901 St. Paul Street
Mt. Pleasant Michigan P. 0. Box 152
Detroit 2 Michigan 932 Fisher Bldg.
Kansas City 8 Missouri 220 B. M. A. Bldg.
St. Louis 8 Missouri 3615 Olive Street
New York 20 New York 30 Rockefeller Plaza
Cincinnati 2 Ohio 521 Keith Bldg.
Cleveland 13 Ohio 1810 Terminal Tower Bldg.
Oklahoma City 2 Oklahoma 1350 First National Bldg.
Tulsa 3 Oklahoma 524 Kennedy Bldg.
Philadelphia 2 Pennsylvania 1400 South Penn Square
Eorger Texas P. 0. Box 1029
Fort Worth 2 Texas 635 Fort Worth Club Bldg.
Houston 2 Texas 21 15 Commerce Bldg.
Midland Texos 503 Petroleum Bldg.
Wichita Falls Texas 1 106 City National Bank Bldg.
Calgary Alberta, Canada 907 Lancaster Bldg.

Associated Companies

Dow Corning Corporation Midland, Michigan

Ethyl-Dow Chemical Company Freeport, Texas