Document 5bmgyL7v8rxzZ6a6pO4rDJ4w0

ST0929143 Dow manufactures and supplies more than 2,000 products and services, including chemicals and performance products, plastics, hydrocarbons and energy, and consumer specialties--which include agricultural products, pharmaceuticals and consumer products. The company operates 181 manufacturing sites in 32 countries, and employs 62,000 people around the world. These people, from 11 differ ent countries, are employed at Dow's Los Angdes Opera tions. They are (left to right): Back Rov: Augustin Perez (Mexico), Pedro Azamar (Mexico), Tim Watson (Great Britain), Yin Ko (People's Republic of China), Sione Tautuaa (Samoa). Middle Rene: John Matamoros (Ecuador), Shannon Bass (United States), Augusto Ipinza (ChiJe), Charlie Liu (Taiwan). Front Row: Mine Lampa (Philippines), Lucille Rector (United States), Manny Santos (Philippines), Mien NguyenAhms (South Vietnam), Mario Fuentes (Costa Rica). 1 2 5 20 22 23 34 35 36 38 39 40 41 56 58 59 60 Inside Back Cover Financial Highlights Letter to Stockholders Diverse People. Common Goals. Significant Events Corporate Profile Management's Discussion and Analysis Responsibility for Financial Statements and Report of Independent Public Accountants Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Stockholders' Equity Consolidated Statement ofCash Flows Summary of Significant Accounting Policies Notes to Financial Statements Eleven-Year Summary of Selected Financial Data Product Segment Sales Analysis and Review of Market Price Per Share of Common Stock Board of Directors Corporate Organization Stockholder Reference Information This report is printed on recycled paper that meets federal Environmental Protection Agency guidelines for waste fiber content. The non-coaied paper contains a minimum of10 percent post-consumer waste paper, a significant portion ofwhich was obtained through Dows Paper Recovery OperacioQ (PRO) recycling program. The glossy portion is coated with Dow latex. ^ HIGHLIGHTS OF 1990 In millions, except as noteo Net sales Operating income Net income available for common stockholders Research and development Capital expenditures Depreciation Total taxes Wages, salaries and benefits Employees (in thousands) Stockholders' equity (atyear-end) Return on average stockholders' equity Average common shares outstanding Net income per share (in dollars) Dividends paid per share (in dollars) The Dow Chemical Company and Subsidiaries J19.773 2,818 1,378 1,136 2,119 1,170 1,570 3,794 62.1 8,728 16.5% 270 5.10 2.60 SI 7,600 4,010 2,486 873 1,756 990 1,907 3,036 62.1 7,957 32.7% 270 9.20 2.18 + 12 -30 -45 +30 +21 + 18 -18 +25 + 10 -16 points -45 + 19 ST0929144 Sal Dollar >n b'll.oru Operating Inctm* Earning* por Star* It 0 Dollan it billions 4 110 3 t Return on Averse* Stockholder*' Equity i Percent O0 ! Dividend* Paid Dollars 300 3 00 l 21 12.0 7.4 to It 17 U <1 *0 0 r 1.2 0 It 17 IS 19 90 20 0 1 so 100 0 it : i 9 90 1 0 71 L 0 It 17 II 19 90 1 TO OUR STOCKHOLDERS: ST0929145 here's little comfort in the fact that 1990 set a Trecord in sales and was Dow's third most profit able year. While we forecast a profit decline from the all-time records of 1988 and 1989, the magnitude of Volume increased 11 percent from 1989, in pan due to the foil consolidation of Marion Laboratories and Elanco in the Consumer Specialties segment. Excluding this seg ment, Dow volume increased 5 percent. Our operating the downturn was greater than anticipated. The decline rate was a healthy 90 percent, slipping just 2 percent was attributable to industry overcapacity, soft demand, from 1989. pnee pressures in the first half and the dramatic escalation Sales for the year increased 12 percent to $19.8 billion. of feedstock and energy costs resulting from the Mideast Operating income was S2.8 billion, down 30 percent, and crisis in the second half. net income was $1.4 billion, down 45 percent from the On the positive side, a number of structural and opera record set last year. Earnings per share were $5.10. tional programs were initiated that should serve us well in the climate of an equally challenging 1991. Particularly Dow's debt to total capitalization level finished the year at 41.3 percent, below the level of 41.8 percent in 1989. Net significant are the consolidations of Marion Laboratories interest expense increased almost S200 million in 1990, and Elanco and programs to control costs, expenses, staff primarily as a result of higher debt levels related to acquisi ing levels, working capital and capital spending. Leadership tions in late 1989. in environmental, health and safety programs, innovation and quality performance was again very much in evidence at Dow. Outlook for 1991 All told, while lower than the two previous record years, The final results of your company for the year were Dow posted its third best year in a difficult business en lowered by a weakening global economy, compounded vironment. Many of the same challenges face us in 1991. by a GNP decline in the Lf.S. for the fourth quarter. The Further slowing in the global economy, uncertainty in weighted average GNP of the countries in which Dow feedstock costs and increasing industry capacity in many does business fell from 2.5 percent growth in 1989 to less than 2 percent in 1990. Expectations are for another drop of Dow's basic products will remain a challenge. Earnings from our basic products are likely to erode in 1991 due to to 1.5 percent in 1991. weakening industry fundamentals. Our specialized prod The combination of supply/demand-driven pricing ucts will partially offset this decline, however, through declines in the first half with subsequent price increases continued growth in industnal specialty products and to combat cost escalation netted an average price increase fewer consolidation expenses in our expanding pharma of 1 percent for the year. Manufacturing costs adjusted ceuticals, agricultural and consumer products. for volume increased 5 percent, which included 13 per Just as we established and met our goal in the 1980s to cent higher hydrocarbon feedstock and energy costs during 1990. diversify our business mix to an equal split between basics and specialties, we will continue to seek growth opportu An expense control program initiated at the beginning of 1990 will help Dow manage its 1991 expenses at 1990 nities specific to our goals for the 1990s. Our vision for Dow's product mix is a continued evolu levels. We will have to compensate for inflation through tion to one of equal parts of basic chemicals and plastics, increased productivity. That's a challenge for a company value-added industrial specialties, and consumer specialties, which already leads our industry in most productivity measures. Meeting such challenges is a Dow trait. 2 ST0929146 Don's Operating Committee (left to right): Andrew Butler, Frank Popoffjoe Downey, Enrique Sosa, BillStavropoulos, Enrique Falla and Keith McKennon. ) ST0929147 including pharmaceuticals, agricultural and consumer products. We expect to double sales in our specialties businesses in the 1990s while maintaining our traditional leadership position in basic chemicals and plastics. Growth through diversification We are taking the steps to provide solid growth. We have fully consolidated and at year-end owned 68.8 per cent of Marion Merrcll Dow, a pharmaceutical company. We also have a 60 percent stake in DowElanco, an agncuitural products joint venture with Eli Lilly and Com pany. These new ventures bolstered 1990 results in the Consumer Specialties segment and are well positioned for growth during the 1990s. Our less cyclical, value-added specialties should double in sales in the 1990s. Destec Energy, Inc., our energy subsid iary, is the largest independent producer of cogenerated power in the U.S. and posted sales of more than $400 mil lion in 1990. As well as product diversification, Dow's geographic diversity should continue to serve us well in an environ ment of stronger overseas demand and a weak dollar. Last year, Dow's exports of $1.34 billion, offset by imports of S520 million, netted a favorable trade balance of S820 mil lion for the company. This speaks well for our products and the men and women who support them in a climate of escalating global competitiveness. Just as important, we continue to divest nonstrategic businesses and close redundant facilities. In 1990, for example, Dow sold CD Medical, a medical equipment manufacturer, and has indicated its intent to divest its oil and gas holdings in Canada. Additionally, we announced the closing of the chlorine facility in Canada during 1991 and the phase-out of our chlorine and derivatives facilities in California. Last year we devoted our annual report to the environ ment--an issue important to all of us. Our commitment to continually improve our environmental, health and safety performance, improve communications and to be an industry leader continues. A key initiative is Responsible Care, a unique chemical industry plan that sets industry wide codes of practice to improve our performance individually and collectively. Global success Dow is well prepared to succeed in our evolving and increasingly borderless global marketplace. We have excel lent operations in place around the world that provide combined strengths in research and development, pro duction, marketing, sales, distnbution and a host of other capabilities. The most important links, however, are those that unite us as people. We share a sense of individual responsibility and a recognition of the value of teamwork. Innovation is a constant goal, and quality, a way of life. Our concern for the environment matches our commitment to the communities in which we operate. These traits define and distinguish us--bring us together and set us apart. And because they are critical to our suc cess, they are featured in this report. Taken together, they help explain how we will meet the tests of the challenging times ahead and continue our long tradition of quality, growth and profitability. February 13, 1991 4 ST0929148 Diverse People. Common Goals. Like most companies, Dow has a unique set of attributes and people that define its character and distinguish it from other organizations. One quality is our historical broad base of more than 2,000 products that are produced around the globe. Our customers range from some of the world's largest and best-known corporations to individual consumers. Today, Dow's diversity is mirrored in the nationalities, races, ages, cultures, experience and skills of the men and women who work here. Yet for all their differences, the people of Dow have much in common. They share a high degree of in dividual initiative, as well as a strong sense of teamwork. They emphasize quality and the environment. New ideas are welcomed through out the organization. These people and qualities are important to us, and to our customers and neighbors around the world. They are part of our culture and the foundation for our future. Together, they define who we are and what we will be. 5 A Global Perspective ST0929149 Close to customer. Dow business development manager Herbert Knothe (right) visits Dr. Essbacb at a local hospital in Chemnitz, Germany, where Roofmate insu lation was installed. A life-long resident of what was East Germany, Knothejoined Dow in 1976, the sameyear Dow became thefirst US. company to open an office in Berlin. 6 ow's trademark is a diamond, but it could just as easily Dbe a globe. We're not simply a U.S. company that sells its products worldwide, but an international company headquartered in the U.S. It's a subtle, yet critical distinction and one that offers enormous benefits as the world continues to evolve toward a borderless marker. In fact, we've been a global company longer than many firms have been in business. Manufacturing operations outside of the U.S. began in Canada in the 1940s, and we established our first European manufacturing facilities in the early 1950s. While many companies are only now exploring "new" opportunities in Eastern Europe and the Pacific Rim, Dow has been active in both mar kets for more than 25 years. Today, about half of Dow's sales, assets and people are located outside of the U.S. Our 315 sales offices and nearly 200 manufacturing sites are spread across 32 countries. Even more important, we're at home in every one of them. Nationals manage most local operations--in Latin America, for example, 99 percent of all management posi tions are filled by Latin Americans. Strong local manage ment means faster responses to continuously changing markets. And by combining that strength with the ability to implement uniform worldwide standards, we support global economic development and assure environmental protection. With an international infrastructure, we also have the resources to pursue new opportunities, wherever they might arise--or lead. Polyurethane products, for exampleone of our 48 major plastic product lines--are manufactured at 20 plants in 13 countnes and distributed through 29 terminals worldwide, putting us in reach of every major and emerging market. Our global search for knowledge, skill and inspiration also extends to joint ventures with well-respected partners. Dow has a long history of such strategic alliances dating to the early 1940s when Dow Corning Corporation was established to make silicone prod ucts. Five of the six joint ventures established in 1990 were in the Pacific Rim. These orga nizations offer benefits ranging from faster entry into new geographic markets to achiev ing the critical mass necessary to compete successfully in a particular business. In all, the company has 53 joint ventures in more than two dozen countries. The benefits of globalization range from reduced reliance on any one nation's eco nomic performance to access to gifted researchers throughout the world. With global markets, we can afford large-scale investments for cost effective production and lower costs to customers. ST0929150 Globalpartners. Apiporn Pasawat (right), managing director of Thai Polyethylene Company, and Andrea Liverit. general manager ofDoa Chemical Thailand, aork together through Pacific Plastics (Thailand) Limited, a wellcstabhthedjoint venture, and two Hewjoint venturesformed in 1990'called Siam Styrene Monomer Company and Siam Synthetic Latex Company. 7 Quality Performance ST0929151 Continuous improvement. Using tools learned in a Quality Perfor mance workshop, Fran Comeaux (left) and Rent Guerin, members ofDow's Louisiana Technical Services office professionals* team, helped improve communications. Their work included a new employee orientation packet, a more efficient routing method, and the use ofan electronic mail system. ike many companies today--including a number of our customers--we've learned Lthe importance ofquality. It begins with a commitment to continuous improvement. This commitment is delivering real results. Since 1986, for example, the facility producing Verdict herbicide in Midland, Michigan, has trained 70 people--93 percent of its work force--in our Quality Performance process. In the same period, yields were increased 30 percent, waste was reduced 50 percent and unit costs were cut by more than half. What's more, the improvements are continuing. We recognize that to succeed, the commitment to quality must involve everyone, at every level of the company. Last fall, senior executives in the U.S. went on the road to explain their goals and report on the company's performance to more than 5,000 people. After the executives spoke, they listened--to more than 80 quality success stones pre sented by teams of office professionals, information systems personnel, manufacturing employees and others. The key message in all of these communications efforts is the importance of personal involvement. The success of our suggestion programs demonstrates the message is being heard. Our Louisiana Division, for example, received 370 suggestions in 1990 under a program named "Operation Upswing." More than 150 of the ideas have already been adopted for a combined savings of some S3.2 million. Quality is no longer an inspector's job; it is everyone's responsibility, every day. It is practiced throughout the organization, and in thousands of ways. For example, when Jimmy Goble, a senior technician in Dalton, Georgia, noted that no order had been received from a customer who normally ordered latex daily, he loaded a truck just in case. When the customer was contacted and did need the shipment, Dow--thanks to Goble--was able to deliver it on time. A multi-function team at Dow Australia's latex/epoxy plant invested countless hours designing, implementing, monitoring and, when necessary, improving quality manage ment systems to meet the requirements of ISO 9002, a well-established international quality standard. Their efforts were rewarded when they received accreditation as a `Quality Endorsed Company." Quality Performance is delivering another result: reduced costs. At our Rheinmiinster, Germany site, the steps required to produce Derakane resin have been cut from five to two, reducing production time by 28 percent and substantially improving operating margins. The ultimate objective of Quality Performance, however, is greater success for our customers. That's why the quality awards we receive from them are of such great importance. In 1990, our global operations earned more than 110 customer quality awards. Continuous improvement brings continued improvement in our relationships with customers. ST0929152 Afine pickle. Late one afternoon, Diane Papa (left), a Don account representative, learned that Vlasic Foods, Inc. bad run out ofDoctfiakeprocess grade calcium chloride, an essential ingredient in itspicklingprocess. She bad 10 bags shipped overnight so Vlasic could continue productiohdfercjim . '? i'r* Griffith, plant manager at Vlasic's Greenville, Mississippi, plant, shorts Papa the inspection area. 9 ST0929153 Environmental Commitment Recycling in Tbt Great Smoky Mountains. John Larch (left) and Jack Davis, Cherokee Boys Club, Inc. employees, contribute to the effort. Since Dow, Huntsman Chemical and the U S. Depart ment ofthe Interior announced a partnership in April 1990, more than SO tons ofplastic, glass and aluminum have been recycled fromfour ofthe country's national parks. 10 n our 1989 annual report, we said the environment was the single most important Iissue facing the company, and we pledged continued progress. In 1990, we kept that promise. We pledged to further reduce emissions, and we did. Already cut in half since 1985, air emissions in the U.S. were reduced an estimated 10 percent in 1990, and we set a goal to reduce another 50 percent by 1995 (from a 1988 baseline). We also invested more than $185 million in equipment and facilities to improve the environment. We committed to establishing a major conservation program, and formed "Conser vation 2000," a global rededication to environmental protection. As part of this program, we eliminated fully halogenated chlorofluorocarbons (CFCs) from all Pelaspan-Pac poly styrene and Ethafoam polyethylene foam products, and from approximately 75 percent of all Styrofoam brand insulation, resulting in a 95 percent reduction in ozone depletion potential. Fully halogenated CFCs will be eliminated from the remaining 25 percent of Styrofoam brand products by 1993. After already working to restore more than 60,000 acres of endangered wetlands, we continued the progress in 1990 by forming a four-year "Partnership for Wetlands Conservation" with Ducks Unlimited Inc., The Nature Conservancy, and the National Fish and Wildlife Foundation. Dow will con tribute S3 million to benefit the North American Waterfowl Management Plan. We made a commitment to initiate new programs for plastics recycling and established a research and develop ment group dedicated to finding new uses for recycled plastics. We launched Recycle This!, an environmental education program which has informed more than 85,000 students in 57 cities about recycling. The National Poly styrene Recycling Company, which Dow helped form, opened a new recycling plant in 1990 and will build three others by May 1991, for a total of seven plants with a com bined capacity to produce 55 million pounds of recycled polystyrene resin annually. We committed to greater external involvement in Dow's environmental activities and formed community advisory panels throughout North Amenca to discuss issues ranging from emergency preparedness to emissions reduction. And we're working even more closely with customers to ensure the safe handling, use and disposal of chemicals. We're just as active within our operations. At our European headquarters in Horgen, Switzerland, containers for recycling plastics, paper and batteries have been installed on every floor. In Australia, more than 46,000 native trees planted by Dow are being irrigated with treated water from our manufacturing plant, reducing the plant's waste water discharge to zero while improving the environment. This work is important, but we recognize that even more needs to be done. The promise is renewed: our commitment will continue. ST0929154 Cleaning up. Members ofthe Everest Environmental Expedition loadyaks with trash removed from Mount Everest. A grantfrom Dow helpedfund the expedition's July 1990 clean-up ofmore than a ton oftrashfrom the world's highest mountain. U ST0929155 A Continuing Questfor Innovation "I f you can't do it better, why do it?" said Herbert Dow, shortly after founding the company that bears his name. That drive to make things better--to improve our prod ucts, applications and processes-remains an operating philosophy today. Research and Development at Dow is extensive, global and close to customers. Roughly one out of seven Dow employees--8,600 people in all--are members of Dow's worldwide R&D community. Our 30 research centers are located near manufacturing sites and cus tomers so ideas circulate freely among labs, plants and markets. During 1990, Dow invested 51.1 billion in R&D, roughly 5.8 percent of its total saleswell above the industry average. But the returns from this investment in our future will be even greater. Our 1990 returns included more than 400 U.S. and 1,500 international patents. Advanced composite materials are an area of particular focus and one recent invention is a plastic called polymeric reflective material (PRM). PRM is a reflective plastic sheet containing no metal, which can be made into parts that look like chrome. PRM will not corrode and, compared to metal, offers customers lower capital costs, less tooling and secondary processing, and fewer process disposal problems. Potential applications include lighting, consumer products and automotive trim. Achiever. Sally Ginter, a labora tory director in Chemicals and Performance Prodvets, is Dote 's top woman patent-holder, with 23 patentsforproducts and appli cations rangingfrom polymers to flame retardant chemicals. Based on a study conducted by the US. Patent and Trademark Office, Dow has the mostfemale patentees ofarty US. corporation. Energy Technologies Inside our operations, we've concentrated on conserving energy. During the past 20 yean, we've reduced the energy required to produce major petro chemicals and plastics by 55 percent. Plants under construction will offer further reductions of 30 to 40 percent, and we continually upgrade our exist ing operations. At our site in Stade, Germany, we've introduced 13 new technologies, including efficient gas turbines that produce 40 percent more power while using 13 percent less natural gas. Energy savings total nearly $12 million annually. A 15-year research project--the largest in Dow's history--has culminated in a propri etary coal gasification technology. Our subsidiary, Destec Energy, Inc., the largest inde pendent power company in the U.S., is operating a commercial-scale plant that uses the technology in Louisiana. The facility takes 2,400 tons of coal per day, converts it into synthetic gas, removes the sulfur and bums the gas to produce power. Destec and Dow have received a number of awards for the environmental benefits and energy efficiency of the process. With a steady stream of new products and processes, and the continual refinement of current operations, we're still following Dr. Dow's principle today. In doing so, we're improving our ability to meet customers' requirements faster and more efficiently. In our quest for innovation, it's customers who succeed. 12 ST0929156 Pain relief. Uring a robotics arm. Dote biologist Connie Shacklcy transfers a vial in a lead-shielded isolator. Dote researchers are developing radiopharmaceuticals for the reliefofpain associatedwith metastatic bone cancer. Application to the U S. Food and Drug Administration is expected in 1992. 13 ST0929157 Counting on the Individual hen we say our most important assets Ware our 62,080 employees, it has special meaning: They are widely "Employees are the source of Dow's success. We treat them regarded as being among the world's mostwpritoh respect, promote teamwork, ductive workers. and encouragepersonalfreedom Such performance is no coincidence. It begins andgrowth. Excellence in with the selection process. Recruiting is a high performance is sought pnority, with strong emphasis placed not only and rewarded!' on technical skills, but also the individual's initiative and sense of teamwork. What's more, Sutemem Irom Dow's Core Values Dow attracts an excellent pool of candidates. Graduate Engineer and Working Mother magazines, as well as the National Society of Black Engineers, have consistently ranked Dow as among the best places to work. The skills and education that people bring to Dow are augmented by training and development that continues throughout their careers. This ongoing process, called Invest ing in People, is especially important today, as advances in technology and the work environment call for new ways of thinking and working. Training curricula designed to help people meet the future have been developed for nearly every job function. Every geographic area has increased its attention to employee development. On average, our employees will spend more than a week each year in formal training. These efForts are complemented by company-paid courses at colleges and universities. In touch. Don Brooke, Dow senior account sales manager, calls on Syncrude Canada Limited, a large Dow customer located more than 500 miles north of Calgary in Alberta, Canada. Syncrude is the world's largest producer of synthetic crude oil andproduces 10 percent ofCanada i crude 011 needs. Freedom to Act Effective, timely training is especially important when you have the power to act. Dow people do. While strategies are set on a global basis, local operations decide how to implement them. We encourage making decisions at the lowest possible level to assure faster, more credible responses to ever-changing conditions. Customers can get an answer quickly. Dow representatives commit Dow's resources and reputation on their own authority. This freedom to act is reflected in our compensation and promotion policies as well. Dow's policy is to hire at the entry level and promote those who excel from within the organization. We've learned that the best training is to give employees a challenging assignment and the authority to get the job done. We encourage the development of new skills and careers. In 1975, Maria Lee started at Dow as a secretary in our Hong Kong office. Today, she is our leading salesperson in the People's Republic ofChina, handling accounts that total S28 million. As our people develop, so does the company itself--and our ability to better serve customers. 14 ST0929158 Highfinance. From offices over looking Lake Zurich in Horgen, Switzerland, Dowforeign ex change manager Anne Wyss manages millions ofdollars in daily transactions that span the globe--and the clock. 15 ST0929159 Winning Through Teamwork Global teamwork. To meet custom ers `global needs, Dene i electronics business team includes employees from Japan, Europe and the US. Team member Tatsuo Ntshimura (secondfrom right), electronics market development manager, and Yulaka Maehara (center), a thermoplastics development chemist, discuss a test requested by an electronics manufacturer with several colleagues at Dow's Gotemba Laboratory in Japan. ur people speak dozens of languages and work in 61 countries, but for all their Odifferences, Dow people everywhere share some common values. A commit ment to safety, the environment and quality performance are woven into the fabric of the organization. Effective teamwork unites individual efforts and gives them greater impact. There are solid grounds for this common philosophy. Worldwide, our facilities are typically located in smaller towns and cities, so employees are close to their communi ties and well aware of their responsibilities to their neighbors and friends. And because many employees are shareholders, they have a personal incentive to improve company performance. These values strengthen over long careers. Dow employees work with the company an average of 14 years, the average tenure of the corporate management committee is 27 years. Many employees at every level--and throughout the world-devote their entire careers to Dow. This shared experience fosters teamwork--and teamwork is the foundation of many of Dow's most successful efforts, including its technology centers, which are located throughout the world. Technology centers were established in 1965 to ensure that all of our technology, resources and expertise would be applied optimally among all manufacturing sites around the world. Today, there are 42 centers with a com bined annual budget of S25 million. The technology implementation teams marshal all available resources, eliminating wasted effort while also developing uniform worldwide standards. A similar approach is used in ourT.I.M.E. database, a worldwide computerized information system that con tains listings for nearly 4,000 materials, reviewing each one from Toxicology, /ndustrial hygiene, Medical and Environmental perspectives. Employees around the world contrib ute to the data and draw upon it as well, pooling their knowledge and expertise. Teams are at work in every area. Last April, an international marine distribution team negotiated a contract with a major marine carrier. Dow representatives from the U.S., New Zealand and Australia worked together. The result? Negotiation time was slashed from several weeks to two days, consistent contracts were developed, and because total shipping volumes were considered, proposed rate increases were cut more than 50 percent. This team approach also extends to our customers, our communities and the public at-large. Identifying and pursuing common goals has proven successful in initiatives ranging from education to the environment. For if one thing is clear, it is that success is a team effort. And the best team always wins. 16 ST0929160 In training. Dow and the commu nityfire brigade in Rheinminster, Germany, meet together regularly to discuss saftty measures andprac tice emergency drills. Reviewing protective clothing requirements are Dow sqfcty/security manager Hans-Dieter Wojlkowiak (wear- ' -j - 5 1 ing orejpge'jhard hat); and Franz Merit;commander ofthe Dow fire brigade (white bard hat). Community officials also partici pate; Rheinminster mayor Klaus Droll it secondfrom right. 17 Community Involvement ST0929161 Good neighbors. Neide Bandeira Fernandes (left), a Dow nurse, teaches villagers about personal hygiene and other good health habits. Employees at Dow's Aratu, Brazil site, helped residents of Caboto, a nearbyfishing village, install septic tanks and a sewage water transport system. ommunity involvement is more than an expression of corporate ideals; it is a Csound business practice. To contribute to education, health care and social services is to invest in a more productive work force, stronger markets and greater long-term growth. Because much of our work relies on science and technology--and well-trained scien tists and engineers--Dow has a special interest in education. During 1990, education programs received more than half ofall corporate contributions--$10 million of almost $18 million. Many Dow sites around the world are active in this process. Dow Europe is sponsoring students in a master's degree program in environmental economics at the University College of London. In Dow Canada, all locations and functions are involved in educating youth by donating equipment and services, hosting plant tours or awarding scholarships for outstanding science students. In Dow U.S.A., the Louisiana Division makes a yearly grant to a local high school for use in developing new approaches to education. This year's recipient is using the contribution for mathematics and science classes via an interactive satellite network. Texas Operations, with the help of 300 Dow personnel, formed a partnership with local schools to create interest in educational skills and provide information on career opportunities, reaching more than 6,000 students. Community involvement also means identifying needs and filling them. One example is our support of the Cor porate Angel Network, which transports cancer patients to distant treatment centers. Since 1983, our aircraft have completed more than 200 such flights. And in Stockley Park, England, Dow joined with a local charity to make life easier for the disabled by providing a specially designed canal boat with an access ramp, an electric lift and widened passageways. Many Dow people and locations worldwide volunteer time and talent to make their communities better places in which to live. In 1985, we created an award program to recognize some of these efforts in the U.S. Since then, more than 1,000 Dow employees, retirees and locations have been recognized for outstanding acts of community service. We also contribute to the quality of life with our products and services. By developing a new surface for plastic medical products, we help reduce the risk of blood clots so patients can recover faster. Our Chemicals and Performance Products Department's ChemAware service has helped more than 450 chlor-alkali and specialty solvents cus tomers reduce emissions and waste, and learn to handle chemicals more safely. We're proud of contributions like these and especially of the Dow people who commit personal time to such efforts. We think we're making the world a better place. And Dow a better investment. 18 ST0929162 New Utue on life. Since Dow began its Take Initiative Program on Transplantation in 1986, the member ofblack organ donors in the U.S. has doubled. Kidney recipient Ronald Norris (with his wife, Davina and son, Donnell) appreciates the needfor education; blacks have a higher incidence of kidneyfailure than other radal groups. A Personal Commitment Dow people hive a long history of giving time, talent and treasure to local communities, dating back to our founder, Herbert Dow. That philosophy is shared today by the many foundations established by the Dow family, Dow employees and retirees, and Dow-affiliated companies. For example, the Ewing Marion Kauffinan Foundation, with the support of Marion Merrelt Dow Inc., is providing a brighter future for underprivileged students through Project Choice, an education and scholarship program. High school students, along with their parents, sign contracts to attend classes, grad uate and take part in special assistance programs, as well as avoid early parenthood, alcohol and drug abuse. Those who are successful receive a free college or technical education. A total of 550 students have enrolled since April 1988. 19 Significant Events ST0929163 January Business Week magazine named Dow one of 10 companies that made the best acquisitions during the 1980s. The primary criterion was whether the surviving company gained a strategic benefit from the deal and has im proved performance. DowElanco unveiled a unique corporate logo, name and theme to create an identity and an awareness of company goals in the marketplace. Dow was ranked the 14th most-admired cor poration in the U.S. by Fortune magazine's 1990 study of "America's Most Admired Companies' The rating was based on a sur vey of 8,000 senior executives, outside direc tors and financial analysts. Dow and its wholly owned subsidiary, Destec Energy, Inc., received recognition from sev eral major energy industry groups, including the Electric Power Research Institute and the Council on Alternative Fuels, for the development and implementation of an ad vanced coal gasification technology. In addi tion, Poster magazine named the process Jinong its 1989 Industrial Energy Conserva tion and Environmental Protection Award winners. William Nunn Lipscomb, Jr., a member of Dow's Board of Directors since 1982, retired from his position upon reaching the Board's mandatory retirement age of 70 for outside directors. Joseph L. Dowmey, Dow vice president, was elected to the Finance and Public Interest committees of Dow's Board of Directors. Downey is chairman of DowBrands Inc. and of DowElanco. He also has responsibility for the global Agricultural and Consumer Prod ucts businesses, Dow Pacific and Information Systems. February The Dow Board of Directors announced a quarterly dividend of $.65 per share. Dow signed an agreement with Lucky Limited to form a 50/50 joint venture to manufac ture, sell and provide technical service for epoxy resins in Korea. Fred P. Corson was named Dow's director of Research and Development. Irving G. Snyder was named director of Research and Development for Dow U.S.A., and Robert M. Nowak was named ChiefScientist for the company. Robert McFedries was named chairman and chief executive officer ol Destec Energv, Inc. Charles F. Goff was named president and chief operating officer. David B. Sharrock, executive vice president of Marion Merrell Dow Inc., was named chief operating officer of that company April Dow announced it would purchase an addi tional 4 million shares of Marion Merrell Dow Inc. stock over a period of time on ihe open market or in private transactions. At the time, Dow owned 186.3 million shjres ot that stock. Dow, the U.S. Department of the Interior and Huntsman Chemical Corporation an nounced a "Partnership lor the National Parks" program which will enable more than 15 million park visitors ro recycle their plasric, glass and aluminum. The National Environmental Development Association (NEDA) named Dow to its Earth Day Honor Roll in recognition of Dow 's Waste Reduction Always Pays (WRAP) program. Dow was one ot 10 corporations honored by NEDA, an association of busi nesses, labor unions and other private-sector members which addresses vanous environ mental, economic and energy concerns. May The Dow Board of Directors announced a quarterly dividend of S.65 per share. David T. Buzzelli, president of Dow Canada, was appointed to the newly created position of vice president and corporate director of Environment, Health and Safety. Organiza tions reporting to Buzzelli include Health and Environmental Sciences, Corporate Medical and Corporate Safety, Environmen tal Affairs, and Security and Loss Prevention. Denis Wilcock, executive vice president of Dow Europe, was named president and chief executive officer of Dow Canada. In addi tion, he joined the Dow Management Com mittee. A Dow employee since 1965, Wilcock was named director of Dow Europe Research and Development in 1980, and vice presi dent of Do<v Europe in 1985. Yves Bobillier, president of Dow Latin America, svas named executive vice president of Dow Europe with responsibility for the Plastics Group. He continues as a member of the Dow Management Committee. Bobillier, who loined Dow in 1969, was named presi dent of Dow Latin America in 1985. His responsibilities were broadened to include Dow Brazil in 1987. Ernesto Ramon, president of Dow Brazil, was appointed president of Dow Latin America. He continues as a member of the Dow Management Committee. Ramon, who joined Dow in 1963, was named vice president and general manager of the Industrial Products Division of Dow Brazil in 1984. and presi dent ot Dow Brazil in 1987. Oscar Noso, commercial vice president for Plastics. Hydrocarbons, and Chemicals and Performance Products for Dow Latin Amenca, was appointed president of Dow Brazil. He also joined the Dow Management Com mittee. A Dow employee since 1961, Novo was named Latin America Area director of sales in 1982, and later that year was named a vice president. He became commercial vice president in 1987. Six members of Dow's Board of Directors were elected at the 93rd annual stockholders' meeting in Midland, Michigan. Elected to serve three-year terms were Herbert H. Dow, Joseph L. Downey, William J. Neely,Paul F. Oreffice, Donald A. Rikard and Harold T. Shapiro. Continuing as directors are Bernard B. Butcher, Andrew J. Butler, Willie D. Davis, Michael L. Dow, Enrique C. Falla, Barbara H. Franklin, Hunter W. Henry, Robert M. Keil, Keith R. McKennon, Frank P. Popoff and Joseph G. Temple, Jr. David P. Sheetz, a member of Dow's Board of Directors and former Chief Scientist, retired from the Board. A Dow employee since 1952, Sheetz was a senior vice president. 20 ST0929164 Dow announced a new four-year "Partnership for Wetlands Conservation' with Ducks Unlimited Inc., The Nature Conservancy and the National Fish and Wildlife Founda tion. Dow later presented the partners with the first installment ofa S3 million contribu tion for wetlands protection and restoration. Dow and CommTech International signed an agreement giving Dow exclusive world wide rights to manufacture and sell polybenzoxazole (PBZ) polymers. June Dow and BASF announced a tolling agree ment in principle for Dow to receive 400 million pounds ofethylene annually from a BASF plant 10 be built in Belgium by 1993. Dow Europe confirmed its intention to build a new 200 million pound polystyrene pro duction line at its site in Belgium by 1992. A U S. Patent and Trademark Office study showed Dow, with 354 patents granted to women scientists and inventors between 1977 and 1988, has the highest number of female patentees of any corporation receiv ing U S. patents. Frank Popoff was elected vice chairman of the board of the Chemical Manufacturer's Association. July Throughout its U.S. manufactunng facilities, Dow achieved a 13 percent overall reduction in Superfund Amendments & Reauthoriza tion Act (SARA) emissions in 1989. This included an 11 percent reduction in air emis sions, a 22 percent reduction in losses to water, and a 35 percent reduction in losses to land. Since 1987, the first year companies were required to report SARA data, Dow has reduced emissions by a total of 21 percent, and has committed to reduce an additional 50 percent by 1995. Enrique J. Sosa and William S. Stavropoulos were elected to Dow's Board of Directors. Sosa joined Dow in 1964, became commer cial vice president for Specialty Chemicals in 1985, and was named group vice president in 1987. Stavropoulos joined the company in 1967 and became commercial vice president for the U.S. Area's Basics business in 1985. He was named group vice president in 1987 and acquired additional duties as chairman and chief executive officer of Essex Chemical Corporation, a Dow subsidiary, in 1988. Aufuct August 15 was declared "Honoring Herbert H. Dow Day," marking the 100th anniversary of the founder's arrival in Midland, Michigan. September The Dow Board of Directors announced a quarterly dividend of S.65 per share. Keith R McKennon, president of Dow U S A. and an executive vice president, was named executive vice president, Technology, for Dow. McKennon was given responsibility for en suring that Dow's product, process and man ufacturing technologies keep the company at the forefront of chemical technological excellence. He remains on the Executive, Finance and Public Interest committees of the Board of Directors, and on the Operat ing and Management committees of Dow. William S. Stavropoulos, group vice presi dent for Plastics and Hydrocarbons, Dow U.S.A., was named president of Dow U.S.A. He also was elected a vice president of Dow by the Board of Directors and will serve on the Finance and Public Interest committees of the Board. In addition, Stavropoulos will become a member of the Dow Operating Committee and continue as a member of the Management Committee. Enrique J. Sosa, group vice president for Chemicals and Performance Products, Dow U.S.A., was named director of the Corporate Product Department. In addition, he will chair the Chemicals and Performance Prod ucts and the Plastics Global Strategy Boards. Sosa also was ejected a vice president of Dow by the Board of Directors and will serve on the Investment Policy and the Environment, Health and Safety committees of the Board. He will become a member of the Dow Operating Committee and continue as a member of the Management Committee. Bernard B. Butcher, vice president of Dow, announced he would relinquish management responsibilities in accordance with the decel eration policy applicable to employee direc tors. He will serve as a senior consultant to Dow and continue as a member of the Board of Directors. Charles T. Marck, vice president and director of Government Relations, Dow U.S.A., was elected a corporate vice president by Dow's Board of Directors. Dow and eight other companies reached an agreement with the Environmental Protection Agency to make significant voluntary reduc tions in toxic air emissions by 1994. Under the agreement, Dow pledged to cut toxic air emissions at six of its U.S. plants by 71 per cent. The agreement is part of Dow U.SA.'s commitment to reduce overall emissions by 50 percent (based on 1988 data) by 1995. Dow acquired 100 percent of the operating shares ofAW'D Technologies, Inc., an en vironmental service company. Previously, AWD was a tri-venture between Dow, Woodward-CIvde Consultants and the Guy F. Atkinson Company. October J. Pedro Reinhatd, Dow treasurer, was named a corporate vice president by the Board of Directors. He became treasurer in 1988, and was appointed to the Corporate Management Committee in 1989. Reinhard also serves as an ex-officio member of both the Finance and Investment Policy committees of the Board Althin Medical AB of Sweden signed an agreement with Dow to acquire 100 percent of the shares of CD Medical, Inc., a wholly owned subsidiary of Dow. Dow Europe signed a letter of intent with the Otto Group in Germany to recycle plastics from the consumer and commercial waste stream. Under the agreement, Dow will be responsible for the technology involved in upgrading the recycled material and for find ing commercial outlets. DowBrands Inc., a Dow subsidiary, added Summerfieid's brand premium vine-ripened tomatoes to its consumer products line. Currently being test marketed, Summerfieid's is scheduled for national distribution in 1994. November The Dow Board of Directors announced a quarterly dtvidend of S.65 per share. December Dow announced the sale of its business in Lightguard brand insulation to FinPan, Inc., a concrete panel manufacturer based in Ohio. 21 ST0929165 Corporate Profile Description Chemicals and Performance Products Kay Product* and Service* Induda: Dow manufactures and supplies more than 2,000products including chemicals andperformance products, plastics, hydrocarbons and A wide range of products used primarily as raw materials in the manufac ture of customer products, or which aid in the pro cessing of customer prod ucts and services. Markets served include the chemi cal processing, pulp and paper, personal care, pharmaceutical, process foods and utilities industries. Chamlcala and Melaii Chlorinated solvents, chlorine, ethyleneamines, magnesium metal, calcium chloride, propylene and ethylene glycols, vinyl chloride, caustic soda, propylene oxide. Parformanca Products Dow latex coatings and binders, Dowex ion exchange resins, Drytech superabsorbents, Filmtec membranes, Gas/Spec separation technologies, Methoce! and Ethocel cellulosic products. energy, and con Plastic Products sumer specialties. Dow ranks among the world leaders in the pro duction of plastics, offer ing the broadest range of thermoplastic and ther moset materials of any manufacturer. Dow plas tics and plastic fabricated products are used in a wide variety of applica tions in markets including packaging, automotive, electronics, appliances, building and construction, housewares, recreation, furniture, flooring and health care. Thermoplastics Styron polystyrene resins; Dowlex polyerhylenes; HDPE; LDPE; Calibre polycarbonate, Magnum ABS and Pulse engineer ing resins; Primacor adhe sive polymers; Tyrin CPE elastomers. Tharmosets Propylene oxide; Spectnm reaction moldablc poly urethane; MDI.TDI and polyols; Tactix and Quatrex high performance epoxies; Dow epoxy res ins, epoxy novolacs and curing agents; Derakane vinyl ester resins. Fabricated Product* Styrofoam brand plastic products; Trymer rigid foam billets; packaging foams; Opticite label films; adhesive and plas tic films. 14 17 II 19 90 Chcmicalj ind Performance Product! 0 fluDc Product! Hydrocirbom and Energy 0 Coniumrr Spcoaluo Operating Incoma by Sagmant Dothn m btllioni i 41 -- 1 )4 14 IJ 1 0 M P II |9 fo 'Opcraonf tncomr lor Hydraewboeu tod Energy m 1PM tit inii|nificjnr Consumer Specialties This segment is composed of three businessesagricultural products, pharmaceuticals and con sumer products. Agricul tural products are used in crop protection and pro duction, and for industrial pest control. Pharmaceu ticals include prescription drugs and over-the-counter health care products. Consumer products appli cations include household products and personal care. Agricultural Products Starane, Treflan and phenoxy herbicides; Telonc soil fumigant; Dursban and Lorsban insecticides. Pharmaceuticals Prescription Products: Cardizem cardiovascular producis, Seldane anti histamine, Carafate antiulcer, Nicorette smoking cessation aid. Hydrocarbons and Energy Dow is the world leader in the production of olefins, styrene and aromatics. This segment encom passes procurement of fuels and petroleum-based raw materials--and pro- ducrion ofolefins, aro matics, styrene and cogencrated power and steamfor use in manufacturing Dow's plastics, chemicals and metals. Hydrocarbon* Ethylene, propylene, butadiene, benzene and styrene. Unallocated This segment encom passes Dow's businesses that are not reported else where, including the con solidated insurance and credit companies, as well as overhead cost variances not allocated to other segments. This segment includes non-product related activities. Over-The-Counter Prod ucts: Cfpacol oral hygiene products, Gaviscon ant acid, Os-Cal calcium supplements. Consumer Product* Ziploc plastic bags; Saran Wrap and Handi-Wrap plastic films; Spray 'n Wash stain remover; Fantastik all-purpose and Dow bathroom cleaners; Pcrma Soft and Style hair care products. Energy Power, steam, coal gasifi cation technology and independent power project development. 22 H ST0929166 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Dow Chemical Company and Subsidiaries Results of Operations rates of global economic growth and additional Sales were S19.8, $17.6 and $16.7 billion for 1990,1989 and 1988, respectively. capacity. Operating rates may slip from about 95 percent in 1990 to slightly less than 90 per Operating income for the same periods was cent in 1991. $2.8, $4.0 and $4.0 billion. Net income avail able for common stockholders and earnings Chtorinc/caustic soda: Chlorine demand con per share were $1,378 million or $5.10 in 1990; tinues to decline due to environmental con $2,486 million or $9.20 per share in 1989; cerns in the pulp and paper industry, reductions and $2,398 million or $8.51 per share in 1988. in the production of chlorinated solvents as a result of the UNEPTreaty (Montreal Protocol), Chemicals and Performance Products and lower housing starts that impact demand for vinyl chloride monomer and polyvinyl Sales and operating income declined in Chemicals and Performance Products during 1990 as a result of 7 percent lower prices, higher hydrocarbon and energy costs and flat volume. Sales were S5.09 billion, versus $5.41 billion chloride. Sales and profits of chlonnated solvents declined significantly in 1990 compared to near-record levels in 1989, largely due to the effect of the Montreal Protocol and U.S. Clean and $5.19 billion in 1989 and 1988 respectively. Air Act regulations that limit the production Operating income was $779 million, down and use of these products. As the new gener from the historically high levels of S1.72 bil ation of environmentally preferred fluoro lion in 1989 and $1.53 billion in 1988. carbons is developed, chlorinated solvents will Operating income increased 12 percent in serve as feedstocks. The Montreal Protocol and 1989 from 1988, reflecting higher prices and the Clean Air Act acknowledge the role ol moderate cost increases. Operating rates were these chlorinated solvents by exempting their near capacity in 1989, while prices increased use as feedstocks in the regulation. Dow is 4 percent and volume rose 0.2 percent. well-positioned to serve this important and dynamic market with preferred solvents. Chemicals and Metals Dow consumes more than 90 percent of The business began to slow in early 1990 al the chlorine it produces for vanous derivatives though it still posted its third-best year ever. and is the largest global merchant marketer Sales and profits declined from 1989, due largely of caustic soda. These positions will help to to an 11 percent decline in prices driven by slowing market demand and increasing indus insulate the Company from market shifts occumng in this product family. Record global try supply. Sales were $3.4 billion, down from demand and firm prices generated strong earn $3.8 billion in 1989 and $3.7 billion in 1988. ings from this large volume product. Uncertainties created by the Middle East -risis were a catalyst for the market, which Ethyltncamincs: This business posted strong improved business in the second half of 1990. results again in 1990 as demand continued This slowed the recessionary trends that were to increase, primarily due to its use in non- beginning to impact sales and volume. Trade cyclical applications such as gasoline additives, sales increased early in the second half, then 'ubricant oil additives, surfactants and personal began drifting downward at the end of the year care/household products. A new manufactur >'. prices and volume began to decline. ing plant is under construction in Texas. Weaker fundamentals experienced in late 1990 are likely to continue in 1991. Prices and Ethylini Glycol: After unusually strong results profit margins may be impacted by softer de in 1989, lower prices and higher feedstock mand exacerbated by the U.S. recession, lower costs drove profitability down significantly in Chomkoloond Pwfofwmci Product* Solo* Delian oi41tom *000 j 0 )000 1500 e I* 17 II 19 *0 23 ST0929167 the ethylene glycol business. Global demand is increasing 3 to 4 percent annually, but new capacity may increase faster through the early 1990s. Thus, the EG/Coolant business is likely to remain depressed in 1991. technology also was supplemented during the year through an in-licensing program. Dow added more than 100 million pounds of styrene butadiene latex capacity in the U.S., Canada, Europe and the Pacific in 1990. Annual capacity now exceeds 1 billion pounds. Propylene Oxide: The propylene derivatives chain, more resistant to economic cycles than ethylene derivatives, posted strong results again in 1990. Operational problems in the industry kept supply relatively tight, contrib uting to stable prices and operating margins. Because of new applications and existing mar kets, demand should increase nearly S percent annually. Propylene Glycol: Used in such applications as unsaturated polyester resins, detergents, food, pharmaceuticals and cosmetics, this product Two additional facilities are under construc tion; a plant in Venezuela will begin operation in 1991 and the Thailand joint venture plant will be completed in 1992. Separation Systems: With sales up 24 percent in 1990, Separation Systems is a high growth business and the Company continues to re invest profits through a S30 million per year research effort. It is expected to become a profit contributor in the mid-1990s. Filmtec reverse osmosis membranes posted strong sales during the year, as did Dow showed continued growth, with strong oper ating income and healthy return on sales. Denmark Separation Systems, which was pur chased in late 1989 to add ultra- and micro- Performance Products Sales in Performance Products increased 9 per filtration technologs'. CD Medical, a wholly owned subsidiary of Dow with annual sales of about $50 million, cent to $1.7 billion in 1990, on target with long-term goals set for the sub-segment. Sales were SI.56 billion in 1989 and SI.47 billion in was sold to Althin Medical AB of Sweden in 1990 because it no longer fit the long-term strategy of Separation Systems. 1988. Profitability remained stable throughout the year in most products, although year-end results were impacted by higher raw material costs and year-end adjustments. Prices in creased slightly during the year and operating rates were near capacity. Coatings and Binders: Higher raw material costs as a result of the Middle East crisis lowered the margins for latex during the second half of the year. Dow's market strength histoncally has been in styrene butadiene emulsion polymers for the paper and carpet markets, which represent only one-third of the global emulsion poly mers market. To tap more of this market, Dow is expanding into a broader product range, pri marily through new acrylate-based technology. A latex plant in England was converted to acrylate-based products in 1990 and Dow's Formulation Products: This business posted the strongest growth during 1990 in the Perfor mance Products sub-segment. Margins were maintained, even though costs increased. The business will continue to expand, with three markets--food, pharmaceuticals and personal care-targeted for high growth potential. Capacity additions are slated for cellulosics, chelating agents, surfactants and superabsor bents during 1991 and 1992. Oxygenated Solvents: Using Dow's leadership position in propylene oxide, the Company has expanded this business by emphasizing propy lene oxide-based glycol ethers. Environmental concerns about chlorinated, hydrocarbon and some ethylene oxide-based solvents have created growth opportunities for Dow's propy lene oxide-based solvent chemistry. Thus, 24 ST0929168 Dow's oxygenated solvents have maintained light of a slowing economy, Dow operated growth even though the total market for at 100 percent of capacity dunng 1990 and solvents has declined. operating rates are expected to remain above 90 percent throughout 1991. An expansion of Outlook for Chemical* and Dowlex linear low density polyethylene is Performance Products planned for Spam later in the year. The quality of the Chemicals and Metals busi ness is strong, although down from peak levels Polystyrene: Volume rose 11 percent from 1989 set in 1988 and 1989. Dow has maintained its with plants operating near capacity. Prices fell strategic position as a low-cost producer while gradually during the first half of 1990, recover maintaining high environmental standards. ing somewhat in the second half in response Closely tied to economic conditions, this to rising hydrocarbon and energy costs. business will steadily improve as the economy Dow signed an agreement to form a joint recovers in late 1991 or 1992. venture to manufacture polystyrene in Indo Performance Products is expected to strength nesia, Dow's first facility in that country. In en further in 1991, posting increased profits late 1989, a 200 million pound facility in Hong as a result of high operating rates and prices Kong started production. The next increment that remain at the higher 1990 levels. of capacity is slated for Belgium in 1993. Industry additions to styrene monomer Plastic Products capacity in 1990 and 1991, which when com bined with slower economic conditions in the Dow Plastics set another sales record in 1990, U.S. and Europe, may put additional pressure although operating income declined from on polystyrene prices in 1991. 1989. Sales were $7.39 billion in 1990, com pared to $6.99 billion and $6.94 billion in Engineering Thermoplastics: Sales and volume 1989 and 1988 respectively. again rose during 1990 as a result of increas Operating income was impacted by lower ing applications in the electronics and small margins due to higher hydrocarbon and energy appliance markets. This increase came even as costs, up 13 percent dunng 1990, and lower pnees, down 1.5 percent. Operating income was $990 million, versus $1.59 billion in 1989 and $1.89 billion in 1988. Operating income, down 16 percent in 1989 other durable markets weakened in the U.S. Margins were reduced, however, by higherrhan-expected manufacturing costs. A compounding facility in Germany started operations mid-year and a polycarbonate from 1988, was negatively affected by an expansion was completed in Texas during industry-wide inventory correction in poly ethylene during the first half of 1989, although the later part of 1990. A new resin plant at the Stade, Germany site will begin operation Jemand for ail key products w-as generally during the first half of 1991. strong throughout 1989. Thermosets Thermoplastics Polyethylene: Demand for polyethylene Sales and volume for the Thermoset sub-segment increased in 1990. Demand, steady remained strong in 1990, with Dow's volume through most of 1990, began to fall in Novem ;p 15 percent. Prices started a slow recovery m 1990 after more than a 25 percent drop in 1989. Late in 1990, prices rose significantly in response to soaring feedstock costs. ber as a result of recessionary influences in key markets, although this business area is buffered by both application and geographical diversity. Operating margins were lower in the first Industry supply continues to increase at a half of1990 due to increasing industry capacity rate faster than global demand, especially in 17 II *0 Ptutk Products Operating Income <f *7 Hit 19 0 ST0929I69 in products such as isocyanates and epichloro- wide rights to manufacture and sell polybenz- hydrin and the inability to offset higher costs oxazole (PBZ) polymers, a family of liquid with pnce increases. Costs rose faster after the crystalline, ngid rod polymers that combine Iraqi invasion; pnces also increased, but not high tensile strength and stiffness with resis enough to offset the higher costs. tance to high temperatures, moisture and ultra An epoxy unit in Germany and a polyol violet radiation. The first material being devel plant in Taiwan started production in early oped by Dow using these polymers is poly- 1990, while a para-bisphenol plant in Texas and benzbisoxazole (PBO). Light weight and high polyol plants in the Netherlands and Colombia strength-to-weight ratios make PBO fibers a started up later in the year. Capital-efficient natural for both commercial and military aero incremental expansions for propylene oxide space vehicles. This technology will signifi were completed in Canada, Brazil and Texas. cantly strengthen Dow's advanced materials Dow will produce glycidyl methacrylate position. (GMA), a reactive monomer used in weather- able automotive and industrial coating appli Fabricated Products cations, at a new plant in Texas that will start Sales increased during 1990, but margins were operating in 1991. Dow's global epichloro- significantly impacted by increased raw mate hydrin production capacity, which exceeds rial and energy costs and softening demand, 600 million pounds, will increase with an particularly in the construction industry. announced 80-million pound expansion in The business in Styrofoam brand insulation Texas in 1993. Polyol expansions were an increased in 1990 due to an increased product nounced for 1992 start-up in Brazil and Spam, mix and an intense specification selling effort. and in Thailand through a joint venture with Continued global growth is expected because Pacific Plastics (Thailand) Limited. Also begin of increased emphasis on energy conservation. ning operation in 1992 is a 140-million pound Debottlenecking projects were completed methylene diphenyl diisocyanate (MDI) plant around the world and a new Brazilian facility in Germany. to produce Styrofoam and Ethafoam brand Great strides have been made in CFC- foams started operation during the year. An replacement polyurethane formulations, greater nounced m 1989, a joint venture in Hungary polyurethane use in automobile parts, and is building a facility that will be completed in recycle and recovery programs. In 1990, the 1991. Dow now produces Styrofoam brand Company signed an agreement with PolyCon foam at 23 sites in 13 countries. Corporation to develop high-density multi To date, Dow has converted its foam plants chip module capabilities using benzocyclo- in the U.S., Canada and Japan from fully butene (BCB) polymers from Dow. halogenated chlorotluorocarbons (CFCs) to Dow-United Technologies Composite alternatives with 95 percent less ozone- Products, Inc., a joint venture formed in late depletion impact, and is on schedule to com 1989, combines Dow's resin and molding plete this global commitment in 1992. technology with the composite fabrication After a peak year in 1989, demand and sales business of the Sikorsky division of United for Ethafoam slowed with slowing sales of Technologies. The consolidation was com large electronics that use Ethafoam for pack pleted in 1990 and business results met or aging. New product introductions, including exceeded first year expectations. Advanced Sun-Pac photodegradable plastic loose-fill and composites offer low weight with high strength Strandfoam plastic foam, had good first-year and durability. sales based on strong customer interest. Dow and CommTech International signed The Commercial Films business had solid an agreement assigning Dow exclusive world growth, with Europe posting record sales and i i 26 ST0929170 profits. Polystyrene film products and Zetabon Dow's increased inventory, combined with plastic clad metals continue to grow due to its feedstock flexibility and distnbution infra strong franchises in well-established markets. structure on the U.S. Gulf Coast, allowed Dow to use its inventory position to delay the cost Outlook for Plastic Products increase impact from the third to the fourth Increased capacity in certain plastic products quarter. will put pressure on operating margins, but Apart from the crisis, industry fundamentals industry operating rates are expected to stay indicate supply is long and shortages of feed above the mid-80 percent mark, higher than in stocks are unlikely. previous downturns. In addition, energy prices should decline from recent peaks, helping to Ethylene: Dosv made incremental increases in restore margins in the downstream products. capacity dunng 1990 in both Spain and the Key markets, such as construction, auto Netherlands. Additional industry capacity will motive and consumer durables, could be be added in 1991, and is forecast to reduce impacted by slower economic growth, but an operating rates from 90 percent to the mid-80s improving economy in the second half of in 1991. Global operating rates may slip further 1991 would result in increased demand. in 1992, but then are forecast to improve. Dow's strategy is to build ethylene capacity Hydrocarbons and Energy behind internal demand, and has begun con struction on rwo world-scale tacilities. The 1.2 Feedstock price increases related to the Middle billion pound Canadian plant and the 1 5 bil East crisis resulted in rapid cost hikes in the lion pound Texas plant are slated to be hmshed second half of 1990. Sales for the segment were in the mid-1990s to meet projected demand $2.2 billion, up from $1.8 billion and $1.5 bil increases. These will be the first tacilities Dow lion in 1989 and 1988 respectively. Operating has constructed in more than 15 years. income was $156 million, down 35 percent from 1989. Operating income was $239 mil lion in 1989 and $220 million in 1988. Although average crude oil prices increased Styrene: Prices were unexpectedly strong in 1990 because of a series of unplanned plant outages in the industry, which kept supply/ 20 percent in 1989 versus 1988, the Company's hydrocarbon feedstock costs rose less than 10 percent due to Dow's diversity and flexibil demand balanced to short. Styrene prices tell sharply at year-end, however, in anticipation of the start-up of new industry capacity. ity in using optimum feedstocks. Dow will begin operating a new one-billion Prior to the Iraqi invasion of Kuwait on pound styrene plant in the Netherlands in the August 2, hydrocarbon and energy feedstock second quarter of 1991; an existing 540 million pneing was similar to 1989. Operational prob pound plant will be phased out at that site. lems such as the Gulf Coast freeze tightened supply, stabilizing ethylene and styrene pnees. Energy: In 1990, Dow began receiving steam 011 pnees started to rise, however, and Dow increased inventories of hydrocarbon feed stocks in anticipation of further increases. and power for its Michigan Division under an agreement with the Midland Cogeneration Venture. With the invasion, prices for some of Dow's hydrocarbon feedstocks rose 50 to 100 per cent. Hydrocarbon and energy costs, up just 1.5 percent in the first half of 1990, jumped 9 percent in the third and 37 percent in the Deitec Energy: Dow announced an initial pub lic offering of stock in Destec Energy, Inc., a wholly owned energy subsidiary, in July, but withdrew the offering in October. The Com fourth quarters, for a year-end increase of pany cited poor market conditions (the Dow 13.3 percent over 1989. Jones Industnal Average, impacted by the Iraqi HydrocarbMi and Enorgy Salt! Do'Un m willtont 7*00 t* *7 II Hydrocarbon* and Energy Operating Income i I i Dollaom A.ril.unt lUU' M 97 9 99 vo ST0929171 invasion of Kuwait, dropped J5 percent during that period), but said interest was strong and the offering would be implemented once mar ket conditions improved. Destec, the largest independent power company in the U.S., posted sales of more than $400 million and exceeded profit expectations for 1990. Outlook for Hydrocarbons and Energy Dow expects the cost ofoil to average less than S30 per barrel in 1991, although it may fluctu ate until the Middle East crisis is resolved. Ethylene and styrene prices will be under downward pressure as crude oil prices fall. good profitability. They are well positioned as cost-effective products in a slow agricultural economy. Treflan and Sonalan herbicides are also well-suited. While volume fell in 1990, primarily due to a cold, 'vet spring in the Mid west, good progress was made in reintroducing Treflan in Latin Amenca. Starane herbicide, first launched in Europe in 1985, rapidly gained market share in 1990 and contnbuted to the product's sales record in Europe. A new intermediates production site is under construction in California to increase capacity and replace existing facilities when it is fintshed in 1992. Consumer Specialties Pharmaceuticals Pharmaceutical sales were $2.6 billion in 1990, The Consumer Specialties segment posted record sales and operating income due to con solidations in late 1989 and continued sales versus $1.4 billion and SI.3 billion in 1989 and 1988 respectively. Sales increased 85 percent from 1989 due to the consolidation of Marion growth o1 existing products. Laboratories, Inc. with Mcrrell Dow Pharma Sales for the year were $5.1 billion, up ceuticals Inc. in December 1989, which created 48 percent from 1989. Sales were S3.4 billion and $3.0 billion in 1989 and 1988, respectively. Operating income was S832 million, up a new publicly traded pharmaceutical com pany known as Marion Merrell Dow Inc. At year-end 1990, Dow owned 68.8 percent of 80 percent from $462 million a year ago. Operating income in 1988 was $540 million. the new company, winch increased both sales and operating income. In 1989, expenses related to new product launches and the cost of integrating acquired businesses lowered operating income from the Marion Merrell Dow has conducted an analysis of its research and development pipe line to determine the global market potential record set in 1988. tor each compound. Sixty-one new compounds and 33 line extensions of existing products Agricultural Products Sales for the sub-segment were $1.5 billion in were identified for in-depth internal review; 26 were also analyzed by a consulting firm with 1990, up 46 percent from 1989. Sales were $1.0 billion in 1989 and $959 million in 1988. extensive experience in pharmaceutical port folio analysis. Resources will be dedicated to The increase in sales was due largely to the the most promising compounds, and products consolidation of Elanco during the fourth quarter of 1989. Dow and Eli Lilly and Company agreed to form a joint venture called DowElanco in not developed will be available for outlicense, sale or trade. International sales, approximately 28 per cent of Marion Merrell Dow, increased 22 per April 1989; Dow owns 60 percent. During 1990, DowElanco essentially completed its cent as a result of additional unit sales from new products and further market penetration consolidation while maintaining a competi in key markets. tive business. Lorsban and Dursban insecticides posted their highest sales ever while maintaining Cardizem: Competitive pressure continued on both Cardizem tablets for the treatment of 28 ST0929172 angina and on Cardizem SR capsules for which provided both marketing and distnbu- hypertension. As a result of co-promotion tion services. Ziploc was launched in France in activity, as well as increased advertising and late 1990 and attained the number one market promotional support, sales of Cardizem SR share in Canada. increased 149 percent, while sales of Cirdi2em Outside the U.S., DowBrands sales rose tablets decreased modesdy. 28 percent in 1990, largely due to the 1989 acquisition of First Brands' consumer prod Stldanr Manon Merrell Dow sales of this non ucts business in Europe. The non-U.S. busi sedating antihistamine increased 40 percent as ness now represents about 23 percent of a result of market introduction injapan, strong DowBrands' total sales. European sales and joint sales force promotion Spiffits premoistened cleaning towels, in the U.S. that reversed a market share decline launched in 1989, established a new $100 mil that began in 1989. Seldane D, a dosage form lion industry category and holds the largest combining terfenadine (the active ingredient market share. The category has already become in Seldane) with a decongestant, was submit very competitive and will be monitored closely ted to the Food and Drug Administration in in 1991. SpifFits was named one of the ten best 1986 and is now progressing toward approval. new products of 1989 by the American Mar An over-the-counter version, submitted in keting Association. Fantastik S'wipe's two- 1988, is being updated and expanded in sided cleaning towels were launched in 1990. response to new and evolving FDA guidelines In late 1990, DowBrands introduced con for prescription to over-the-counter switches. trolled atmosphere packaging technology in Denver, Colorado. Summertield's tomatoes use Carafate: Sales of this antiulcer product proprietary technology to assure vine-ripened declined modestly due to competition. In freshness year-round and will tap the $2 billion 1990, the Food and Drug Administration ap tomato market. proved a maintenance claim to prevent ulcer Perma Soft, the Personal Care Division's top recurrence. Liquid and rwtce daily dosage line of shampoos, conditioners, styling aids forms continue under review and hair sprays, posted a slight sales gain. In late 1990, it was restaged with contemporary Consumer Products packaging and new formulas. Style Plus sham Sales for DowBrands, Dow's consumer prod poo and conditioner in one was developed ucts business, were $934 million, down slightly and will be introduced in earlv 1991. from S966 million in 1989. Sales in 1988 were S797 million. Increased competition in mature Outlook for Consumer Specialties food protection markets in the U.S., com With the consolidations of both Manon and bined with the downsizing of the personal care Elanco virtually complete, sales and earnings salon business, reduced sales from 1989 levels. are expected to increase in this segment in 1991 Ziploc bags, the flagship of the Household DowElanco is forecast to exceed growth rates Products Division, did not meet expectations of the agricultural chemicals industry. Like in the U.S. and, although it remains the num wise, Marion Merrell Dow expects sales to ber one brand in the category, lost market increase 8 to 10 percent, and earnings approxi share during the year. An active program to mately 20 percent in 1991. DowBrands mar regain market share is underway. Global gins, although disappointing in 1990, should expansion of zippered bags continued in the increase in 1991 as a result of its restructuring Pacific, Europe and Canada dunng 1990. and consolidations. Strong competition will The Company purchased the marketing rights continue in the food protection product lines. for Ziploc in Japan from Lion Corporation, I DUM^T jjZl fHJ 6MPKR ZWtt TO ST0929173 Hydrocarbon* and Eiwrgy Purchii* Prlc* tndox i*0 M I ' II *0 It I? II t* Wt Silin|Pncr Endn Volume Mi* Index *0 RtMirch and OmloptnMTt Cxpnii Dollar* m miliums' fnerna of sales \y 1200 *00 *00 $00 II IT 30 | |l IQ 0 Unallocated Included in this segment are operating results of the consolidated insurance, banking and credit finance subsidianes, and overhead cost vanances not allocated to other business segments. This segment had operating income of $61 million in 1990, S5 million in 1989 and an operating loss of $126 million in 1988. A significant reduction in overhead cost vanance was the main reason for the S56 mil lion improvement over 1989. In 1988, this segment included a $22 million pretax charge for indemnities related to prior year asset sales. Sales Net sales increased 12 percent to $19.8 billion in 1990 from $17.6 billion in 1989 and S16.7 billion in 1988. The 1990 Increase includes the fully consolidated sales of Marion Merrcll Dow and DowElanco, which account for most of the 36 percent volume increase in the con sumer specialties business. The total Company sales volume increased 11 percent in 1990, 6 percent in 1989 and 9 percent in 1988. Global selling prices increased by 1 percent in 1990. They were flat in 1989 and up 16 per cent in 1988. Industry and geographic segment sales are presented in Note R to Financial Statements and in the Product Segment Sales Analysis on page 58. Components of the changes in sales by geographic and industry segments are shown below: Operating Income Operating income was $2.8 billion in 1990, down 30 percent from 1989. The rario of operating income to sales was 14 percent in 1990, 23 percent in 1989 and 24 percent in 1988. The United States had an operating income of SI.6 billion, which was 58 percent of the Company's total. The figures for 1989 and 1988 were $1.9 billion or 47 percent and SI.7 billion or 41 percent, respectively. Europe's operating income of $.7 billion in 1990 was 25 percent of the Company's total versus SI.2 billion in 1989 or 29 percent and $1.3 bil lion in 1988 or 32 percent. Operating income data by geographic and industry segment can be found in Note R. Operating Cost Cost components as a 'o oi total: H\drocarbons and energy Supplies, services and other rjw materials Maintenance Depreciation Salaries, wages and benefits Total 1990 1989 1^8 26% 26c-o 2b,k 38 7 7 22 100% 37 & 7 22 100% 37 8 7 22 100% Sales Price and Volume Percentage changes from prior year Geographic Areas: United States Europe Resf of World Industry Segments: Chemicals and Performance Products Plastic Products Hydrocarbons and Energy Consumer Specialties 1990 Price Volume Total (iy% 8 (6) 18<*> 5 6 17** 13 (7)% (2) 14 9 7 10 36 (7)% 5 24 45 1989 Pnce Volume Total 3*u 5*1 8"o (2) 9 7 (4) 3 11 (6) 7 4 14 39 4*u 1 18 12 ST0929174 Manufacturing plants operated at 90 percent cent and 9.7 percent for 1990,1989 and 1988, of capacity versus 92 percent in 1989 and 96 respectively. percent in 1988. Additional capacity was the The personnel count at December 31,1990 main reason for a lower operating rate in 1990. was 62,080, flat with 1989 at 62,111. While the Manufactunng costs, adjusted for volume, December 31, 1989 personnel count includes were 5 percent higher after a 5 percent increase all Marion Merrell Dow and DowElanco in 1989 and decreased 2 percent in 1988. The employees, the salaries, wages and benefits increase in 1990 compared to 1989 was mainly amounts in 1989 include only a small portion due to higher hydrocarbons and energy prices, of the year since the consolidation of these which were up 13 percent following an increase companies took place in the last-quarter of that of 4 percent in 1989 and were unchanged year. Consequently, salaries, wages and bene from 1988. fits increased 25 percent in 1990 following Research and development costs were increases of 7 percent m 1989 and 12 percent SI,136 million in 1990, a 30 percent increase in 1988. over 1989. The majonty of this increase came from the consumer specialties business, which Net Income had a 67 percent increase in 1990 and includes Equity in earnings of 20%-50% owned compa the fully consolidated costs of Manon Merrell nies were S143 million in 1990, $138 million Dow and DowElanco. Research and develop in 1989 and $89 million in 1988. Excluding ment spending in all other business segments Manon Laboratories, which was included in were up 6 percent for the year. Costs were up the third quarter before gaining control in the 13 percent in 1989 and 15 percent in 1988 and fourth quarter of 1989, equity earnings in 1990 reflect the Company's strategy of growth increased by 25 percent over 1989. Again in through new Dow-developed technology. 1990, Dowell Schlumberger companies pro Promotion and advertising expenses are duced most of the improvement over 1989. discretionary expenses directly related to sales Dow Coming increased its earnings by 6 per levels in the specialties businesses. Promotion cent in 1990, a new record level following a and advertising expenses were S639 million in record 1989. 1990, a 29 percent increase almost entirely Gross interest expense of 5740 million was related to the consumer specialties business, up S227 million in 1990, compared to S5I3 which increased SHI million and supports the million in 1989 and $400 million in 1988. The Company's commitment to the specialties interest expense increase in 1990 was due business. Costs were S494 million in 1989 and primarily to the financing related to acquisi S415 million in 1988, up 19 and 26 percent, tions made in 1989. respectively. Foreign currency transaction gains of con Cost control programs are in effect in the solidated subsidianes were S56 million in 1990 selling and administration area. Costs are up compared to $58 million in 1989 and 55 mil S326 million in 1990, or 19 percent, and are lion in 1988. Favorable gains compared to mainly in the consumer specialties business with a 44 percent increase over 1989 as a result 1990 are expected to continue. The provision for taxes on income was S978 million in 1990. of acquisitions made late in the year. They This compares to $1,436 million in 1989 and reflect the shift of the product mix to specialty $1,450 million in 1988. The factors that influ products which require more intensive cus tomer contact and support. Spending for all enced the Company's overall effective tax rate for the past three years are described in Note F other business segments was up 3 percent for to Financial Statements on pages 44 and 45. the year. Selling and administrative expenses, as a percent of sales, were 10.5 percent, 10.0 per I Promotion and ! Advertising Expenses | DolU'* milltofft/ * 0 ' rnctat of ulei 100 h* 17 88 <* Soiling and [Administrative Expenses Ou liM . 'I I Pe-ers1 of *Jt 2400 i Net Income Oollant hi m.litont J2UU 1 1 1 200 1600 II | <00 E 7 ia as *o 3J ST0929175 ' Working Capital '.'in-' in' Debt at a P*rcntat ol Total Capitalization* 1 i frrttm (f! H 24 12 >2 II It to 'Eidudmg xmpo'try equity 32 Dividends The Company paid dividends of S2.60 per common share in 1990, $2.18 per common share in 1989 and $1.63 per common share in 1988. Capital Expenditures Capital spending increased by 20 percent for the year to meet demand and maintain our commitment to state-of-the-art technology. Additions to plant properties were S2,119 mil lion for 1990 compared to $1,756 million in 1989 and $1,264 million in 1988. See Note P. Liquidity and Capital Resources Days-sales-in-inventory were 95 days, down from 105 days in 1989 and 98 days in 1988. Days-sales-outstanding-in-receivables were 53 days compared to 56 days in 1989 and 55 days in 1988. Working capital was S2.265 million at year end versus $909 million at the end of 1989. The increase in working capital resulted mainly from a decrease of SI,012 million in notes payable with short-term debt refinanced into longer term maturities. The debt to total capitalization (excluding temporary equity) ratio at year end 1990 was 41.3 percent, down slightly from 41.8 percent in 1989. Total debt was $6.6 billion at Decem ber 31, 1990, up from $6.1 billion in 1989. Short-term borrowing at December 31, 1990 and 1989 was $1,194 and S2.206 million, respectively. In 1990, new long-term debt of $1,481 million was incurred and existing long term debt was reduced by payments of $154 million. The Company currently has unused and available credit facilities with various U S. and foreign banks totaling $3.3 billion, supporting its working capital requirements and backing up its commercial paper borrowings in the U.S. These committed credit facilities are complemented by a variety of credit facilities available to the Company's foreign subsid iaries, currently over S1.4 billion. The Company has two SEC shelf registra tions, approved in September 1989 and Janu ary 1990, respectively, for a total of $1 billion of debt secunties, of which $468 million have been issued to date. Additionally, the wholly owned subsidiary Dow Capital B.V. obtained approval of three SEC shelf registrations in April 1990, August 1990 and September 1990, for a total of $1.5 billion of debt securities, of which $746 mil lion have been issued to date. While Dow has increased its level of bor rowings and has a contingent liability for rhe Contingent Value Rights (CVRs) resulting from the Marion Laboratories acquisition, Dow continues to have substantial sources of liquidity, including cash from operations, short-term investments and existing credit facilities. In April 1989, Dow announced an 18 mil lion share repurchase program of its common stock. Similar programs were initiated in 1988 for 18 million shares. In 1990 the Companybought nearly I million shares at $49 million, while 8 million shares at $525 million and 12 million shares at $652 million were repur chased on the open market in 1989 and 1988, respectively. The Company expects its current repurchase program to be completed in 3-4 years. ST0929176 Quarterly Statistics In millions, except for share amounts (Unaudited) 1990 1st Net sales Operating income Pretax income Net income available for common stockholders Earnings per common share Cash dividends paid per common share Market price range of common stock: High Low $4,900 897 853 460 1.71 .65 75.75 62.25 2nd $4,807 714 661 363 1.34 .65 66.75 56.50 3rd $4,919 664 575 282 1.04 .65 60.13 37.00 4th S5.147 543 474 Year $19,773 2,818 2,563 273 1,378 1.01 5.10 .65 2.60 48.50 38.63 75.75 37.00 1989 1st Net sales Operating income Pretax income Net income available for common stockholders Earnings per common share Cash dividends paid per common share Market pnee range of common stock: High Low S4.485 1,205 1,181 743 2.72 .47 67.00 57.33 2nd S4,601 1,183 1,158 728 2.70 .53 64.83 55.50 3rd $4,250 939 936 589 2.19 .53 70.00 56.00 4th $4,264 683 660 Year SI 7,600 4,010 3,935 426 2,486 1.59 9.20 .65 2.18 72.25 60.58 72.25 53 50 1990 lneont Mitrlbutlon tan pr do)li I mttcrul*. lupplict arvd *rvit< **ninfi ftnfiwd in butinm W|ft, and employee benefits Teul (*ar Deprecation Osh dividends fcO 7 J* '9 2 72 *9 J6 Operating Rate F.C.A.* r<x*m i00' Fikrd com absorption 33 R E S PO NS I B I L ( T Y FOR FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Ti.e Do. Ci.rm.cji Company and Subi.dum, Management Statement of Responsibility The management of The Dow Chemical Company and its subsidiaries prepared the accompanying consolidated financial statements, and has responsibility for their integrity, objectivity and freedom from material misstatement or error. The state ments were prepared in accordance with generally accepted ac counting principles. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report and is responsible for its accuracy and consistency with the financial statements. The Board of Directors, through its Audit Committee, assumes an oversight role with respect to the preparation of the financial statements. Management recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are con ducted according to the highest standards of personal and cor porate conduct. Management has established and maintains a system of internal control that provides reasonable assurance as to the integnty and reliability of the financial statements, the protection of assets from unauthonzed use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with signifi cant roles in the financial reporting process and updated as necessary. Management continually monitors the system of internal control for compliance. The Company maintains a strong internal auditing program that independently assesses the effectiveness of the internal controls and recommends possible improvements. Deloitte k Touche, independent public accountants, with direct access to the Board of Directors through its Audit Com mittee, have audited the consolidated financial statements prepared by the Company, and their report follows. Management has considered recommendations from the interna) auditors and Deloitte k Touche concerning the sysrenof internal control and has taken actions that are cost-effecti' in the circumstances to respond appropriately to these recom mendations. Management further believes the controls are adequate to accomplish the obiectives discussed herein. Report of Independent Public Accountants To the Stockholders and Board ofDirectors of The Dow Chemical Company We have audited the accompanying consolidated balance sheets of The Dow Chemical Company and its subsidianes as of December 31,1990 and 1989, and the related consolidated state ments of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31,1990. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis statement. An audit includes examining, on a test basis, evi dence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by manage ment, 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 pr; sent fairly, in all material respects, the financial position of The Dow Chemical Company and its subsidiaries at December 31,1990 and 1989, and the results of their operations and their cash flows for each of the three years in the period ended December 31. 1990 in conformity with generally accepted accounting principles. Midland, Michigan February 13,1991 ST0929177 I 34 CONSOLIDATED STATEMENT OF INCOME The Dow Chemical Company and Subsidiaries In millions, except For share amounts Net sales Operating costs and expenses Cost of sales Insurance and finance company operations, net (income) Research and development expenses Promotion and advertising expenses Selling and administrative expenses Amortization of intangibles Total operating costs and expenses Operating income Other income (expense) Equity in earnings of20%-50'o owned companies Interest income Capitalized interest Interest expense and amortization of debt discount Gains on foreign currency transactions Sundry income (expense)--net Income before provision for taxes on income and minority interest Provision for taxes on income Minonry interests' share in income Net income Preferred stock dividends Net income available for commoni stockholders Earnings per common share See Accounting Policies and Notes to Financial Statements 1990 S 19,773 13,033 1989 SI 7,600 10,478 1988 S 16,682 9,806 (65) 1,136 639 2,084 126 (59) 873 494 1,758 46 (28) 772 415 1,625 43 16,955 13,590 12,633 2,818 4,010 4,049 143 123 84 (740) 56 79 2,563 138 130 49 (513) 58 63 3,935 89 86 30 (400) 5 (4) 3,855 978 1,436 1,450 201 12 7 1,384 2,487 2,398 61 $ 1,378 S 5.10 S 2,486 S 9.20 S 2,398 s 8.51 ST0929178 i 35 CONSOLIDATED BALANCE SHEET The Dow Chemical Company and Subsidiaries i j In millions Current assets Investments Plant properties Other December 31 Assets Cash and cash equivalents Marketable securities and interest-beanng deposits (at cost, which approximates market) Accounts and notes receivable: Trade (less allowance for doubtful receivables1990, S83; 1989, $60) Other Inventories: Finished and work in process Materials and supplies Total current assets Capital stock at cost plus equity in accumulated earnings of 20%-50'o owned companies Other investments Noncurrent receivables Total investments Plant properties Less--accumulated depreciation Net plant properties Goodwill (net of accumulated amortization-- 1990, S211; 1989,597) Deferred charges and other assets Total See Accounting Policies and Notes to Financial Statement' 1990 $ 204 95 2,923 1,615 2,554 628 8,019 1,156 1,111 644 2,911 19,149 10,900 8,249 4,189 585 S23,953 1989 $ 117 172 2,739 1,523 2,208 624 7,383 958 1,099 838 2,895 16,700 9.620 7,080 4,150 500 S22.008 ST0929179 36 ST0929180 !n millions, except tor vture amounts December 31 Liabilities and Stockholders' Equity Current liabilities Notes payable Long-term debt due within one year Accounts payable: Trade Other Taxes on income Dividends payable Accrued and other current liabilities Total current liabilities Long-term debt Deferred taxes and other liabilities Deferred income taxes Other noncurrent obligations Total deferred taxes and other liabilities Minority interest in subsidiary companies Temporary equity Contingent value nghts (CVRs) Preferred stock (juthonzed 250.000,000 shares ot SI.00 par value each; issued Senes A--1990. 1,602,322; 1989; 1,602,322) at redemption value $138. less guaranteed ESOP obligation S1.38 Total temporary equity Stockholders' equity Common stock (authorized 500,000,000 shares of S2.50 par value each; issued-1990: 327,125,944; 1989: 327,125,944) Additional paid-in capital CVR valuation adjustment Retained earnings Unrealized gains (losses) on investments Cumulative translation adjustments Treasury stock, at cost (1990: 57,135,509; 1989: 57.824,701) Net stockholders' equity Total 1990 S 1,194 239 1,874 594 275 193 1,385 5,754 5,209 698 1,324 2,022 726 1,514 1,514 818 600 (753) 9,675 (2) 274 (1,884) 8,728 S23.953 See Accounting Policies and Notes to Financial Statements. 19S9 S 2,206 80 1,765 506 256 192 1,469 6,474 3,855 506 1,107 1,613 595 1,514 1,514 818 62! (753) 8.999 205 (1.933) 7,957 $22,008 37 ST0929181 I OO 1 OO i 1 consolidated statement of STOCKHOLDERS' EQUITY Thf Dow Chemical Company and Subsidiaries In millions, except for share amounts Common stock Balance at beginning of year 3 for 2 stock split Sold to employees1 Balance at end of year Additional paid-in capital Balance at beginning of year Sale of common stock to employees in excess of par Sale of common stock to employees at less than cost1 3 for 2 stock split Balance at end of year CVR valuation adjustment Balance at beginning of year Valuation adjustment Balance at end of year Retained earnings Balance at beginning of year Net income Unfunded pension obligations Preferred stock dividends declared' Common stock dividends declared (S2.60 per share tor 1990; S2.37 per share for 1989; and Si.73 per share lor 1988) Balance at end of year Unrealized gains (losses) on investments Balance at beginning of year Current year gain (loss) Balance at end of year Cumulative translation adjustments Balance at beginning of year Current year translation adjustment Balance at end of year Treasury stock Balance at beginning of year Purchase of stock Sale of stock to employees' Balance at end of year 1990 S 818 818 621 (21) 600 (753) (753) 8,999 1,384 (6) 1989 S 545 273 923 (29) (273) 62! (753) (753) 7,167 2,487 (14) (1) 1988 S 541 4 545 817 106 923 5,255 2.398 (702) 9,675 (2) (2) 205 69 274 (1.933) (49) 98 S( 1,884) (640) 8,999 -- - 182 23 205 (1.562) (525) 154 5(1,933) (486) 7,167 (29) 29 95 87 182 (910) (652) S( 1,562) See Accounting Policies and Noies to financial Statements. 'Effective January 15,1989, all stock issues are from treasury stock :See Note B 38 ft CONSOLIDATED STATEMENT OF CASH FLOWS The Dow Chemical Company and Subsidiaries In millions Operating Activities Investing Activities Financing Activities 1990 Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision (credit) for losses on accounts receivable Provision (credit) for deferred income tax Undistributed earnings of related companies Minority interest m income Gains on the sales of equipment Other Gains on foreign currency transactions Changes in assets and liabilities that provided (used) cash: Trade receivables Inventories Other receivables and deferred charges Accounts payable and accruals S 1,384 1,322 36 143 (90) 201 (9) 31 (56) (114) (220) 179 283 1989 S 2,487 1,061 (18) (32) (56) 12 (11) 25 (58) (77) (267) (147) 464 1983 S 2.398 981 34 34 (27) 7 (5) 22 (5) (663) (269) (270) 698 Cash provided by operating activities 3,090 3,383 2,935 Purchases of property, plant and equipment Investments in unconsolidated affiliates Purchases of consolidated companies (net ofcjsli acquired) Proceeds from sales of equipment Investment in marketable secunties and other investments (2.123) (70) (161): 88 (135) (1,771) (34) (2,559)' 134 (193) (1,032) (53) (347) 17 (479) Cash used for investing activities (2,401) (4,423) (1,894) Proceeds (payments) of notes payable Proceeds from issuance oflong-rerm debt Payments on long term debt Purchase of treasury stock Dividends paid to stockholders Proceeds from sales of treasury stock Proceeds from sales of preferred stock (1.239) 1,481 (154) (49) (711) 64 1,503 479 (175) (525) (578) 75 138 107 (362) (652) (461) 80 Cash provided (used) for financing activities (608) 917 (1,288) Effect of exchange rate changes on cash 6 15 54 Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 87 (108) (193) 117 225 418 Cash and cash equivalents at end of year $ 204 S 117 $ 225 Se Accounting Policies and Notes to Financial Statements See Note B (issuance of redeemable preferred stock) and Note D (issuance of CVRj) for supplemental disclosures of noncash investing and Financing activities. 1 Includes the purchase of shares of common stock of Marion Laboratories ST0929182 39 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES TiK Dow Chcm icjI Company and Subsidiaries Principles of Consolidation Goodwill The accompanying consolidated financial statements include The excess of the cost of investments in subsidiaries over the car the assets, liabilities, revenues and expenses ofall majority- rying value ofassets acquired is shown as goodwill, which is then owned subsidiaries. Investments in companies 20%-50% amortized on a straight-line basis over a maximum of 40 years. owned are carried on the equity basis. Interest Rate Derivative Instruments Foreign Currency Translation Interest differentials on swaps and forward rate agreements Primarily, the local currency has been used as the functional are accrued as interest rates change over the contract period. currency throughout the world. Where the U S. dollar is used Swaption premiums are amortized over the option penod for as the functional currency, foreign currency gains and losses are each purchased and sold swaption. reflected in income currently. Translation gains and losses of those operations that use local currencies as the functional Taxes on Income currency, and the effects of exchange rate changes on trans The Company and its subsidiaries compute and record income actions designated as hedges of net foreign investments, are taxes currently payable based upon determination of taxable included as a separate component of stockholders' equity. income which may differ from pretax accounting income. These differences may arise from recording in pretax accounting Cash and Cash Equivalents income transactions which enter into determination of taxable Cash and cash equivalents include time deposits and readily income in another period. The tax effect of these timing differ marketable secunties with original maturities of three months ences is recognized by adiustment of the provision for taxes. or less. Provision is made for taxes on unremitted earnings of related companies and foreign subsidiaries to the extent that such Inventones earnings are not deemed to be permanently invested. Inventones are stated at the lower of cost or market. The Certain foreign countries provide incentive payments which method of determining cost is used consistently from year to are granted to encourage new investment. Generally, such grams year at each subsidiary and varies between the last-in, first-out are credited to income as earned. (UFO) method; the frrst-in, first-out (FIFO) method; and the The Financial Accounting Standards Board Statement No. 96, average cost method. "Accounting for Income Taxes" and subsequent amendments mandated a change in the method of accounting tor income Plant Properties and Depreciation Land, buildings and equipment, including property under capi taxes to be effective for fiseal years beginning after Decem ber 15, 1991. The impact of this new standard has not been tal lease agreements, are carried at cost less accumulated depre completely determined, but preliminary estimates indicate that ciation. Depreciation is based on the estimated service lives of the change will have no material effect assuming no increase depreciable assets and is generally provided using the declining in tax rates from current levels. The Company plans to adopt balance method. the new method in 1992. Fully depreciated assets are retained in property and depre ciation accounts unul they are removed from service. In the Earnings per Common Share case of disposals, assets and related depreciation are removed The calculation of earnings per share is based on the weighted from the accounts and the net amount, less proceeds from average number of common shares outstanding during the disposal, is charged or credited to income. applicable period. ST0929183 i40 NOTES TO FINANCIAL STATEMENTS The Do' Chemical Company and Subsidiaries in millions, except for share amounts A Reclassifications The Company has decided to dispose of its oil and gas operations. Accordingly, included in other investments at December 31,1990 and 1989 are the net assets held for sale of these operations. The Company does not expect to realize any loss on disposal. The results of operations for the oil and gas properties were not material for any of the three years in the period ended December 31,1990. Total assets of these properties were $518 and total liabili ties were $451 at December 31,1990. Total liabilities include S300 oflong-term debt with third parties that has been guaranteed by the Company. The December 31,1989 balance sheet has been reclassified to conform with the current presentation of the Company's goodwill in 20'o-50% owned companies. "Goodwill (net of accumulated amortization)' has been in creased and "capital stock at cost plus equity in accumulated earnings of20%-50% owned companies' has been decreased by $153. B Redeemable Preferred Stock On October 13,1989, the Company created an employee stock ownership plan (ESOP), which is an integral part of the Salaried Employees' Savings Plan. The ESOP borrowed $138 at a 9.42 percent interest rate with a final maturity of Decem ber 31, 2004. This loan is guaranteed by the Company. The ESOP used the proceeds of the loan to purchase a new issue of convertible preferred stock from the Company. The pre ferred stock is convertible into approximately 1.6 million shares of the Company's common stock at $86,125 per common share. The divi dend yield on the preferred stock is 7.75 per cent of the $86,125 per share redemption value. Each year preferred stock held by the ESOP is allocated to the members' accounts based on payment of the loan balance. In the event the Company consummates certain merger or consolidation transactions involving the Company's common stock, the preferred stock must be redeemed by the Company for cash at a redemption price equal to 105 percent of the $86,125 per share redemp tion value, plus accrued and unpaid dividends. The Company has reflected the guaranteed ESOP borrowing as long-term debt on its balance sheet. The convertible preferred stock issued to the ESOP for cash was recorded in temporary equity section. A like amount of "Guaranteed ESOP Obligation" was recorded as a reduction ot temporary equity. As the Company makes annual contributions to the ESOP, these contributions, plus the dividends paid on the Company's preferred stock held by the ESOP, will be used to repay the loan. As the principal amount of the loan is repaid, the "Guaranteed ESOP Obligation" is reduced accordingly. ST0929184 41 NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries In millions, except for share amounts C Supplementary Information Accrued and Other Current Liabilities 1990 1989 Accrued vacations Employees' retirement plans Interest payable Sundry Total S 186 102 131 966 S 178 99 101 1,091 SUSS SI.469 Sundry Income (Expense)-Net 1990 1989 1988 Royalty income Profit (loss) on securities Profit (loss) on sale of assets Dividend income Other--net I 31 (9) (3) 13 47 J 25 7 11 4 16 J 21 2 5 5 (37) Total $ 79 S 63 S (4) Supplementary Income Statement Information 1990 1989 1988 Maintenance and repairs Depreciation and depletion Taxes other than income Property and other taxes Payroll taxes Provision for doubt/ul receivables 51,199 51.108 51.001 1,170 990 933 241 223 189 351 248 223 51 (18) 34 D Acquisitions and Divestitures During 1990 the Company acquired an addi tional 3.92 million shares of Marion Merrell Dow Inc. common stock for $112. The pur chase of additional shares and a reduction in Marion Merrell Dow's outstanding shares increased the Company's ownership interest to 68.8 percent. This acquisition was accounted for as a purchase and increased goodwill by $84. Also in 1990, the Company continued its joint venture activities, investing $87. Joint ventures in the United States received the inajonty of the new investment, but five of the six new joint ventures are located in the Pacific Rim. On August 25,1989, the Company com pleted a Tender Offer for 58.5 million shares of common stock of Marion Laboratories, Inc. ("Manon"), at $38.00 per share. The shares acquired in the Tender Offer for $2,223 cash represented at that time 38.9 percent of Marion common stock. In addition, the pur chase agreement provided for Marion and Merrell Dow Pharmaceuticals, Inc. ("Merrell Dow"), the Company's pharmaceutical sub sidiary, to be combined in a second step trans action to form Marion Merrell Dow Inc. On December 2,1989, the second step was com pleted. This step included the issuance of 127.8 million new shares of Marion stock, to be transferred to the Company in return for all outstanding shares of Merrell Dow with a carrying value of 5547 and the issuance by the Company of 92 million Contingent Value Rights (CVRy), one CVR issued for each common share of Manon stock (except those owned by Dow). The CVRs provide that holders receive from Dow, at maturity on September 30, 1991, the amount (not to ex ceed $15.77), if any, by which S45.77 exceeds the average trading value of Manon Merrell Dow [nc. stock for the 90-day period pnor to September 30, 1991 (unless, at the option of the Company, the matunry date is extended lor one year, in which case the holders wall receive the amount, not to exceed $20.23, by which S50.23 exceeds the average trading value of Marion Merrell Dosv [nc. stock prior to September 30,1992). The maximum value of the CVRs ($1,514) is recorded as temporary equity with an adjustment in equity represent ing the difference ($753) between the maxi mum value and the actual average value in the first 10 days of trading. The acquisition was accounted for as a purchase and resulted in goodwill of $2,943. ST0929185 In millions, exrrpf for share amounts Acquisitions and Divestitures (continued) The following unaudited pro forma sum mary combines the consolidated results of operations of the Company and Mahon as if the acquisition had occurred at the beginning of 1988, after giving effect to certain adjust ments, including amortization of goodwill, increased interest expense on the acquisition debt and related income taxeffects, as well as minority interests' share inincome. Fiscal Year (unaudited) Net tales Net earnings Net earnings per common share 198 $18,503 2,J9J 8 86 1988 $17,502 2,273 8.06 On November 1,1989, the Company and Eh Lilly and Company ("Lilly") completed the formation of DowElanco, a joint venture that includes the plant science businesses of both parent companies, as well as the Company's pest control business. The Company holds a 60 percent interest in the combined operations and Lily holds a 40 percent interest. The joint venture was formed by both partners transfernng net assets. The value of the assets transferred by Dow was S459 with goodwill recorded of $93. The degree of inte gration of these businesses within Dow and Lilly prior to combination makes it impractical to determine results of operations on a pro torma basis. During 1989, the Company acquired several other businesses for cash of S358, accounting for them as purchases. The excess of the cost over the fair value of the identifiable net assets acquired of S233 was treated as goodwill. The operating results of all the above acqui sitions are included in the consolidated finan cial statements from the dates acquired. Except for the acquisition of Marion, there would have been no matena! impact on revenue, net income and corresponding per share amounts i-.ad these acquisitions been effected January 1, iS8 Goodwill ansmg from these acquisitions is being amortized on a straight-line basis over not more than 40 years. ST0929186 43 NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries In millions, except for share amounts E Interest and Tax Payments Cash payments for interest, and domestic and foreign income taxes are as follows: Interest 1990 S 705 1989 $ 499 1988 $ 455 Domestic and Foreign Income Taxes 1990 1989 S 685 $1,744 1988 $U94 F Taxes on Income The effective tax rate for 1990 was 38.2 percent. Certain subsidianes had net operating loss carryforwards totaling approximately S341 (at December 31, 1990 exchange rates), which will begin to expire in 1991. The Consolidated Balance Sheet caption 'Accounts and Notes Receivable: Other" includes current deferred taxes receivable of S306 at December 31,1990 and Si83 at Decem ber 31. 1989. Unremitted earnings of subsidiaries and related companies accounted for by the equity method, which are deemed to be permanently invested, amounted to S2.008 and S2.169 at December 31,1990 and 1989, respectively. Domestic and Foreign Components ofFrcta x Income 1990 1939 Domestic foreign SI.621 942 $2,111 1,824 Income before tax S2.563 SJ.933 1988 $1,786 2.069 $3,855 Provision for Taxes on income Federal State and local Foreign Total Current J442 29 364 $835 Deferred S108 35 $143 1990 Total $550 29 399 S978 Current $ 701 83 684 $1,468 Deferred S14 51 13 >132) 1989 Total S 656 83 697 SI.436 Current S 519 42 855 SI,416 Deferred S9 25 S34 1988 Tot.it S 528 42 880 S 1.4 30 ST0929187 l44 In millions, except for shire amounts Taxes on Income (continued) Deferred Tax Provisions Tax benefits of tax credit and loss carryforwards Tax effects of foreign exchange transactions Difference in depreciation, depletion and provisions claimed tor fax purposes and book amounts Undistributed earnings of foreign subsidiaries deemed not to be permanently invested Tax effects of deferred compensation plans Tax effects of installment sales and other deferrals Difference between LIFO method claimed for tax purposes jnd book amounts Other-net Total 1990 s- 69 64 (5) 7 27 12 (31) S14 3 1989 55 (11) 46 (1) (53) S (U) (3) 5(32) i98a 51 6 (71) 5 36 57 (3) 3 5 34 Major Differences in Taxes on income Taxes at U.S. statutory rate Amortization of intangibles Taxes on foreign operations at rates different from U.S wjtuon r.ue (including F5C) Other Total tax provision 1990 S87I 35 52 20 5978 1989 51.338 9 68 21 51.436 1988 S1.JU 5 97 37 51.450 G Inventories H Related Company Transactions I Plant Properties A reduction of certain inventories in 1990 resulted in the liquidation of some quantities of LIFO inventory. The effect of these liqui dations was to increase pretax income by S44 The LIFO inventory liquidations in 1988 and 1989 were immaterial. The amount of reserve required to reduce inventories trom the first-in, first-out basis to the last-in, first-out basis at December 31,1990 and 1989, was S313 and S115, respectively. The nventones that were valued on a LIFO basis represented 38 percent and 37 percent of the total inventories on December 31,1990 and 1'5S9, respectively. The Company's investments in companies accounted for by the equity method at December 31,1990 and 1989 were Si,156 and $958, respectively. The amounts approximate the Company's equity in the net assets of the companies 20%-50% owned. Dividends received from related companies were S53 m 1990, S82 in 1989, and S62 in 1988. All other transactions with related companies, and balances due to or from related companies, were not material in amount. Plant Properties 1jnd Land and waterway improvements Buildings Transportation and construction equipment Machinery and equipment Utility and supply lines 1990 5 310 551 1,892 163 12,238 1.220 1984 S 281 49_> 1,623 I5g 11,003 Writs Otke furniture and equipment Mineral reserves Other Construction in progress Toni 1990 144 624 35 232 1,740 519,149 1989 137 468 31 185 1.256 516,700 ST0929188 o 1 !% 43 NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries In millions, except for share amounts J Leased Properties Capital leases of $79 in 1990 and S103 in 1989 are included with owned property in the Con solidated Balance Sheet. Minimum Lease Commitments Operating Leases 1991 1992 199* 1994 1995 1996 and [hereafter $ 314 279 250 227 215 1.075 Total minimum lease payments 52.360 Capital Leases $9 8 12 5 4 19 5 57 Renin! Expenses Under Operating Leases Minimum rentals Contingent rentals Less--Sublease rentals Net 1990 S516 8 9 5515 1989 5360 7 8 5359 1988 S.144 5 10 5339 K. Notes Payable L Long-Term Debt and Available Credit Facilities Notes payable at December 31,1990 and 1989 consisted of obligations due banks with a vanety of interest rates and maturities. There was commercial paper included in notes payable at December 31, 1990 of $283 on which the weighted average interest rate was 8.5 percent. There was commercial paper in cluded in notes payable at December 31, 1989 of Sl,480, on which the weighted average interest rate was 8.7 percent. Dunng the year the Company refinanced most commercial paper obligations into long-term debt. The average interest rate on long-term debt was 8.25 percent in 1990 compared to 8.29 per cent in 1989. Annual installments on long-term debt and capital lease obligations for the next five years are as follows: 1991, $239; 1992, S331; 1993, $349; 1994, $489; 1995, $423. Unused and available credit facilities at December 31,1990, with various U.S. and foreign banks totaling $3,333 ($1,000 expinng m July 1991, $1,750 expinng in July 1994, and the remainder expinng at various dates), re quired the payment of commitment fees. These facilities are available in support of com mercial paper borrowings and working capital requirements. Additional unused credit facili ties totaling SI,421 at December 31, 1990 are available for use by foreign subsidianes. ST0929189 46 ST0929190 In millions, except for share amounts Long-Term Debt and Available Credit Facilities (continued) December 31 Promissory Notes 5.00%, final maturity 1991 10.15%, final maturity 1991 J 0.25%, final maturity 1992 8.75%, final maturity 1993 9.35%, final maturity 2002 9.42%, final maturity 2004 9.1 J%, final maturity 2005 8.55%, final maturity 2009 9.00%, final maturity 2010 9.20%, final maturity 2010 8.48%, final maturity 2015 Subtotal Bonds 7 00%, final maturity 1994, Japanese yen 6.75%, final maturity 1995, German mark 5 63%. final maturity 1996, German mark 10.9**%, final maturity 1997, British pound sterling 4.75%, final maturity 1999, Swiss franc 6.38%, final maturity 2001, Japanese yen Subtotal 1990 5- 100 150 200 132 105 150 150 200 150 Sl.337 1989 S 20 150 100 138 150 150 5708 December 31 Debenture? 6.70%. final maturity 1998 8.88%, final matunty 1998 8.90%, final marunry 1998 7.75%, final matunty 1999 8 85%, final matunty 1999 7 40%, final maturity 2002 7.63%, final maturity 2003 8.50%, final maturity 2005 8.50%, final matunty 2006 8.63%, final matunty 2006 7.88%, finjl matunry 2007 8.63%. final maturity 2008 Subtotal 1990 1989 27 38 42 28 29 43 41 162 152 200 228 262 Si,252 27 39 48 33 33 43 41 162 160 200 241 271 51.298 369 200 200 461 1 5b 155 51.571 348 17' 17" 384 12 174 51.389 Other F.icil-ties--Various Rates a:nd Matunties Foreign currency loans U S. dollar loans Medium term notes Pollution control'mduvinjl revenue bonds Unexpended :on?tnjcnon funds Capital leave obligations 290 32 511 475 (73) 37 bubiotal 51.272 Toul debt Less unnv.ortired debt discount 5,432 223 Total longterm debt 55,209 181 52 (87) 44 5 668 4,063 208 53.855 M Stockholders' Equity The authorized capital stock consists of 250 million preferred shares with a par value of Si.00 per share (1.6 million were issued in 1989), and 500 million shares of common stock with a par value of S2.50 per share. There were no significant restrictions limit ing the availability ofdividend payments. Undistributed earnings of 20/o-50% owned companies included in retained earnings weie $525 and S417 at December 31,1990 3nd 1989, respectively. In computing earnings per share, no adjust ment was made for common shares issuable under award, option ,,nd stock purchase plans, or conversion of preferred shares issued, be cause there would be no matenal dilutive effect. The number of treasury shares purchased were 1 million m 1990, 8 million in 1989, and 12 million in 1988, and the number of treasury shares sold to employees was 2 million in 1990, and 3 million in 1989. Number ojIssued Shares In thousands 1990 Beginning of the year Sold to employee* Stock split 3:2 327,126 - End of the >ear 327,126 1989 218.058 26 109,042 327.126 1988 216,337 1.721 218,058 Reserved Treasury Stock In thousands 1990 Stock options and award plans Employees' stock purchase plan 11.006 596 Total shares reserved 11,602 1989 9.051 1.150 10.201 1988 10,613 1.023 11.636 47 NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries !n millions, except for share imou: N Pension Plans and Other Postemployment Benefits The Company has defined benefit pension plans which cover employees in the U.S. and a number of foreign countries. The Company's funding policy is to contribute annually, at a rate that is intended to approximate a level percentage of compensation for the covered employees, to those plans where pension laws and economics either require or encourage funding. The U.S. funded plan is the largest plan. Its benefits are based on length of service and the employee's three highest consecutive years of compensation. The weighted-average discount rate and rate of increase in future compensa tion levels used m determining the actuarial present value of projected benefit obligation were 8.75 and 6 percent, respectively, for 1990 and 8.375 and 6 percent, respectively, tor 1989. The expected long-term rate of return on assets was 8 percent for both years. AJI other pension plans used assumptions in determining the actuanal present value of projected benefit obligations that are consistent with (but not identical to) those of the U.S. plan. The funded status of fully funded, signifi cant defined benefit plans for the Company is as follows: Fully Funded Plans a! December 31 1990 1980 Accumulated benefit obligation, including vested benefits of K2.307) in 1990 and 5(2,245) in 1989 $(2,478, SI2.398) Projected benefit obligation for services rendered to date Plan assets at market value, pri marily listed stocks and bonds Plan assets in excess of projected benefit obligation Unrecognized transition obligation Unrecognized (gain) from experience favorable to assumptions Prior service cost not yet recognized in pension cost (3.136) 3.43-1 298 46 (3.065) 3.495 4 JO 50 (276) 16 (440) 6 Prepaid pension cost $ 84 $ 46 The funded status of partially funded, signifi cant defined benefit plans for the Company is as follows: Partially Funded Plans at December 31 1990 Accumulated benefit obligation, including vested benefits of S(100) in 1990 and S(99) in 1989 Projected benefit obligation tor services rendered to djte Plan assets at market value Plan assets (less than) prodded benefit obligation Unrecognized transition obligation Unrecognized (gam) loss from experience lavorable to .i<.sumption$ Pror service cost not vet lecogn.zed in pension cost Additional minimum liabtliry Aunied pension cost S(l06) (179) 13 (166) 34 (36) 6 id 5(183) 1989 $(106) (181) 11 (170) 33 s 1 (14) $(145) The net periodic pension cost for all signiheant defined benefit plans are as follows: Set Periodic Pension Cost 1990 Scrwce cost -- benefits cj*ned during the period Interest cost on protected benefit obligation (Return) loss on assets Amortization ami Jelerred amounts Employee contributions to the plans Si 13 265 33 (272) (8) \et periodic pension expense S131 1989 S 96 248 (580) 369 (9) S 126 19S8 S 9) 218 (299) 102 (6) $106 ST0929191 [48 ST0929192 In miliiom. rxcrpt for share amount* Pension Plans and Other Postemployment Benefits (continued) In addition to the net periodic pension cost, in 1988 a pretax charge of S62 was made for the net present value of increased monthly pen sion benefits to certain current Dow retirees in the U.S. and Canada. Pension plans in the nature of defined contribution plans now cover employees in Australia, New Zealand, Spain, United King dom and some U.S. subsidiaries. In addition, employees in the U.S. are eligible to partici pate in defined contnbution plans (Employee Savings Plans) by contributing a portion of their compensation. The Company matches compensation, depending on Company profit levels. Contributions charged to income for defined contribution plans were $65 in 1990, S41 in 1989 and S33 in 1988. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to retired employees. The Company may modify these benefits at any time. The cost of retiree health care and life insurance benefits is currently recognized as an expense as benefits are paid. These costs totaled $47 in 1990, $43 in 1989 and $39 in 1988. The Financial Accounting Standards Board Statement No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" mandated a change to the accrual method of accounting for retiree health care and life insurance benefits to be effective for fiscal years beginning after December 15,1992. The Company plans to adopt the new method in 1993. The statement allows the transition obligation to be recognized in the period of initial adoption or delayed over a 20 year peri od beginning in the period of initial adoption. The Company has not yet determined which method will be used. The impact of this new standard on the operating results in the year of initial adoption is not known at this time. NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries In millions, except for share amounts O Stock Option and Award Plans Stock option plans and management incentive awards are described in the Company's Proxy Statement of March 1991. Options under all plans are granted at market pnee of the shares on the date of the grants. Stock options granted were 2,549 thousand in 1990, 2,428 thousand in 1989 and 2,548 thousand in 1988. Stock options exercised were 258 thousand at prices ranging from S18.46 to S60.88 in 1990, 993 thousand at prices ranging from S14.88 to $60.88 in 1989 and 777 thousand at prices ranging from S14.88 to $36.04 in 1988. Summarized information regarding the Company's award and option plans at Decem ber 31 is as follows: Stock Transactions in thousands Outstanding at year end: S:ch k options Deferred stock Stock options exercisable currentk Total shares reserved Shares available for future grant ]QO0 Number Shares Price Range c-iO 11 COe 1,3r 1 S18 46-S60 88 1989 Number Shares Price Range 6,7*16 685 4.332 9,051 1,620 S18 46-S60 88 P Commitments and Contingent Liabilities The expense accruals for the various incentive plans relate to the net earnings performance oi the Company against predetermined targets and/or the market value per share ot the Com pany's common stock at year-end. Aggregate amounts charged to expense for management incentive awards were $15 in 1990. S92 in 1989 and S55 in 1988. The Company made offenngs ot common stock to its employees, excluding directors, in 1990 and 1989 at S55.00 and S50.66 per share, respectively, payable generally through payroll deductions. Unfilled subscriptions, cancelable at the option of the employee, were 590 thou sand and 1,150 thousand shares at December 31, 1990 and 1989, respectively. Partial payments on these subscriptions aggregating $20 and S38 at December 31, 1990 and 1989, respec tively, are included in current liabilities. The Company and its subsidiaries are parties to a number of claims and lawsuits ansing out of the normal course of business with respect to commercial matters, including product liabili ties, governmental regulation including envi ronmental matters, 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. The amounts of ultimate liability thereunder are indeterminable at December 31, 1990. The Company is also a parry to several lawsuits ansing out of insurance policies issued to the Company and its subsid iaries. These lawsuits involve the recoverability under these insurance policies of certain losses and expenses incurred by the Company. In the opinion of management, resolution of these matters will not materially affect the consoli dated financial position or results of operations of the Company and its subsidiaries. S T 0 9 2 9 I93 50 1 ST0929194 In millions, except for share amounts Commitments and Contingent Liabilities (continued) The Company designs and builds most of its capital projects in-house and hence does not have major capital commitments, other than for the purchase of materials from fabneators. Similarly, the Company has various purchase commitments for materials and supplies used in production. In general, such commitments are at prices not in excess of current market. While certain of these commitments are for quantities in excess of the Company's present requirements, they are not expected to have any material adverse effect on the consolidated financial position or results of operations of the Company. The Company has an equity investment in a hydrocracker in the Netherlands through which it tolls hydrocarbon raw matenals. The Company also guarantees a portion of the debt of the venture, proportional to its ownership. The guarantee amounted to 5102 at December 31,1990. The Company has agreed to guarantees and commitments totaling $103 in order to support the Midland Cogeneration Venture sale and leaseback transaction. The Company is a limited partner in the Midland Cogeneration Venture Limited Partnership and received its share of the proceeds from the sale of the facility. A Canadian subsidiary has entered into two 20-year agreements to purchase 89 percent of the output of an ethylene plant (Plant No. 1) and 40 percent of the output of a second ethylene plant (Plant No. 2). The purchase pnee of the output is determined on a cost-of-service basis which, in addition to covering all oper ating expenses and debt service costs, provides the owner of the plants with a specified return on capital. Total purchases under the agree ments were S243, 5257 and 5248 in 1990,1989 and 1988, respectively. The following table shows the fixed and determinable portion of obligations under such purchase commitments (at December 31,1990 exchange rates) net of non-cancelable sales commitments and interest. Fixed and Determinable Obligations 1991 1992 1992 1994 1995 1996 through expiration of contracts Total S 74 89 89 90 83 330 S753 Additionally, the owner of these plants, the Alberta Gas Ethylene Company Ltd. (AGEC), has borrowings outstanding of 5115 which were used for the construction of Plant No. 1 and arc guaranteed as to principal and interest by the Company. The Company has severally guaranteed the performance of its subsidianes under agreements to purchase 40 percent of the output of Plint No. 2 and to fund its share of any cash deficiencies (as defined in the agreement) in the plant's operating and debt service costs. At December 31, 1990, the Company had other outstanding take or pay obligations of 51,199, for terms extending from one to twenty years. 5! NOTES TO FINANCIAL STATEMENTS The Dow Chemical Company and Subsidiaries In millions, except for share amounts Combined Financial Statements of Principal 50 Percent Owned Companies The summarized financial statements represent the combined accounts of principal companies in which Dow owns a 50 percent interest. Amounts presented include the assets, liabili ties, revenues and expenses of the following major international companies: Dow Corning Corporation, a manufacturer of silicone and silicone products; Dowell Schlumbergcr com panies, which perform services for oil and gas wells, and Gurit-Essex AG, a Swiss company acquired in October 1988, which supplies European automobile manufacturers with pro prietary specialty products. The Company's equity interest in these companies was S789 and $673 in 1990 and 1989, respectively, and its interest in earnings was $146, $119 and $89 in 1990,1989 and 1988, respectively. Combined Balance Sheet Current assets Plant property--net Other assets Total assets Current liabilities Long-term debt Other liabilities Stockholders' equity Total Labilities and stockholders' equiry 1990 SI.266 1 ,-194 106 S2.86o S 697 285 .107 1.577 S2.866 1989 SI,M3 1,261 84 S2.488 S 559 277 303 1,3-19 12.486 Statement ofCombined Income and Retained Earnings 1990 1989 Salts Cost of sales Other expenses--ret S2.750 1.936 435 S2.415 1,670 399 Income before provision for taxes Taxes on income 379 346 88 105 Net income Retained earnings at jan 1 Dividends declared 291 842 (84) 241 730 (129) Retained earnings end of year Si.049 S 842 cx-obfr 19SJ for Cum *m i AC 1988 S2.231 1,601 367 263 85 178 624 (72) S 730 ST0929195 52 In millions, except for share amounts R Industry Segments and Geographic Areas The Company conducts its worldwide opera tions through separate geographic area organi zations which represent major markets or combinations of related markets. Transfers between areas are valued at cost plus a markup. Aggregation of products is generally made on the basis of process technologs', end-use markets and channels of distribution. The Chemicals and Performance Products and Hydrocarbon and Energy segments are de scribed in the Corporate Profile section on page 22. The Piastre Products segment, also described in the same section, is comprised of thermoplastics, thermosets and fabricated prod ucts. Consumer Specialties include agricultural chemicals, pharmaceuticals, and food protec tion, cleaning and personal care products. The Unallocated segment includes activities of the insurance companies, the finance opera tions, and unallocated overhead cost vanances. Transfers between industry segments are generally valued at standard cost. Industry Segment Results Chemicals At Perform. 1990 Sales to unaf/lliated customers Intersegment transfers Operating income Identifiable assets Depreciation Capital expenditures 53.088 816 7?9 9,597 434 637 Plastic Prods 57.392 274 090 5,970 350 74c Consumer HiE Specialties Unallo Corporate cated and Elim Consoli dated 52.210 2,440 156 3,037 212 516 55,053 1 832 6.556 159 220 5 30 5 61 860 15 5(3.336) 2.9J3 519.77! - 2.818 23.953 1.170 2.1 19 1989 Sales to unaffihated customers Intersegment Transfers Operating income Identifiable assets Depreciation Capital expenditures 55.407 729 1.718 3,918 337 458 56,994 224 1.586 5,105 302 707 51.778 2,020 239 3,021 231 416 53,407 2 462 6.602 108 175 5 14 8 5 729 12 5(2,983) 2.633 517.600 - 4,010 22,008 990 1,756 1988 Sales to unaffiliated customers Intersegment transfers Operating income (loss) Identifiable assets Depreciation Capital expenditures 55.190 469 1.529 3.822 327 349 56,938 258 1,886 4,478 254 471 51,502 1.886 220 2,326 240 265 53,029 27 540 2.759 109 179 5 23 10 (126) 679 3 5(2.650) 2,009 516,682 - 4,049 16,073 933 1,264 ST0929196 53 NOTES TO FINANCIAL STATEMENTS In million!, except for share amounts Geographic Area Results 1990 Sales to unafftfiated customers Transfers between areas Operating income Identifiable assets Gross plant properties Capital expenditures 1989 Sales to unaffiliated customers Transfen between areas Operating income Identifiable assets Gross plant properties Capita] expenditures 1988 Sales to unaffiliated customers Transfen between areas Operating income Identifiable assets Gross plant properties Capital expenditures Tht Dow Chemical Company and Substdunr, United States Europe Rest of Corporate Worid Elimination Consoli dated S 9,494 l,J44 1,622 12,074 10.037 1.063 56.278 418 692 6,654 6,108 817 S4.001 36) 504 4.225 3,004 239 V2.I23) 519,773 2.818 23.953 19,149 2.1 19 58,084 1.157 1,876 12,223 9,162 955 55.523 331 1.160 5.467 4,733 562 53,993 194 974 4.318 2,805 239 5(1.682) 517,600 4.010 22,008 16.700 1.756 57.497 1.109 1,651 7,557 8,083 724 55.147 323 1.283 4,229 3,970 345 54,038 381 1,115 4.287 2,645 195 S(l,813) SI 6,682 - 4,049 16.073 14,698 1,264 S Sale of Receivables T Other Investments The Company sold certain trade receivables with limited recourse to financial institutions for cash. At December 31,1990 and 1989, the amount of trade receivables sold was $103 and $136, respectively. Bonds/notes Equities Other' Total Cost 5 599 484 28 51,111 1990 Market Value S 593 512 31 51.136 Cost 5 554 345 200 51,099 'OlHer i$ composed of irrmi which indi* tduill) irr not miTtnii attd muici s*luc ipptowmitr* cow Mukrubic debt ireunutt te earned at amortized cow Marketable equm secunnn are earned at the lower of con or market The <o of >fie*imenti told i determined bv r*e tpecific identification method 1989 Market Value S 556 412 200 51,168 ST0929197 54 ST0929198 In millions, except for share amounts U Financial Instruments The Company is active in the foreign ex change forward and options' market to hedge its various economic and transaction foreign cun-ency exposures. In addition to the U.S. dollar, the Company trades in most European currencies, as well as thejapanese yen, the Canadian dollar and the Latin American cur rencies. At December 31,1990, the Company had outstanding forward contracts that net to S8I. The Company is exposed to credit losses in the event of counterparty nonperformance, but the Company has spread this risk among many counterparties and does not anticipate such losses. The Company participates in the interest derivative markets to manage its exposure to interest rate fluctuations. The notional pnnci- pal on open swap and forward rate contracts at December 31.1990, totalled S1.7 billion with a weighted average remaining life of 3 years. The Company utilizes forward rate agreements primarily to convert some floating rate debt to fixed rate debt. Interest rate swaps convert some fixed rare debt to a floating basis as well as convert some floating rate debt to a fixed basis. Similar to foreign exchange contracts, credit loss from counterparty nonperformance is not anticipated. The Company's global onentation in diverse businesses with diverse customers and sup pliers minimizes concentrations of credit nsks. No concentration of credit nsk exists at December 31, 1990. 55 ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA The Dow Chemical Company and Subsidiaries In millions, except for share amounts Summary of operations (Unaudited) _______________________________________________________1990 Net sales Cost of sales Insurance and finance company operations-net expense (income) Research and development expenses Promotion and advertising expenses Selling and administrative expenses Amortization of intangible assets and restructuring charge Si 9,773 13,035 (65) 1,136 639 2,084 126 Operating income Investment and sundry income (expense) Interest expense--net 2,818 278 (533) Income before provision for taxes Taxes on income Minority interests' share in income Preferred stock dividend 2,563 978 201 6 Net income available for common stockholders S 1,378 Per share of common stock (dollars)': Income before cumulative effect of accounting change Cash dividends declared per common share Cash dividends paid per common share Average common shares outstanding (thousands)1 Convertible preferred shares outstanding (thousands)' S 5.10 S 2.60 S 2.60 269,899 1,602 Year-end financial position Total assets Working capital Property, plant and equipment--gross Property, plant and equipment--net Long-term obligations Total debt Stockholders' equity 523,953 2,265 19,149 8,249 6,533 6,642 8,728 Financial ratios Research and development expense as percent of sales Income before provision for taxes as percent of sales Return on average stockholders' equity Book value per common share' Debt as a percentage of total capitalization excluding temporary equity 5.7m 13.0% 16.5% S 32.33 41.3% General Capital expenditures Depreciation Total taxes2 Wages and salaries paid Cost of employee benefits2 Number of employees at year-end (thousands) Number of stockholders at year-end (thousands) $ 2,119 1,170 1,570 3,104 690 62.1 109.4 tFICA tax is included in total taxei and cost of employee benefits. tReclassified. See Note A 'Includes restmetunng charge of S592 in 1985; J157 m 1984; S58 in 1983. 56 r ST0929199 ST0929200 1989 $17,600 10,478 (59) 873 494 1,758 46 1988 $16,682 9,806 (28) 111 415 1,625 43 4,010 259 (334) 4,049 90 (284) 3,935 1,436 12 1 3,855 1,450 7 S 2,486 S 2,398 1987 $13,377 8,660 20 670 329 1,406 27 2,265 141 (279) 2,127 882 5 $ 1,240 1986 $11,113 7,727 (57) 605 309 1,190 27 1,312 179 (269) 1,222 489 1 $ 732 1985 $10,500 8,031 (55) 547 318 969 609* 81 263 (306) 38 (23) 3 1989 $10,679 8,282 (28) 507 195 860 162* 701 310 (343) 668 107 1 S 58 $ 560 1983 SI 0,442 8,460 (16) 492 164 826 62* 454 352 (318) 488 158 2 1982 S 9,895 8,209 (14) 460 953 4 283 412 (406) 289 (33) 1 S 328 S 321 198] $11,125 8,921 (18) 404 939 4 875 249 (430) 694 160 4 $ 530 I960 $10,272 7,980 (30) 314 766 1 1,241 302 (298) 1,245 431 9 $ 805 S 9.20 S 2.37 5 2.18 270,243 1,602 S 8.51 S 1.73 S 1.63 281,891 $ 4.31 S 1.43 S 1.40 287,504 $ 2.55 $ 1.27 $ 1.23 287,088 S .20 S 1.20 $ 1.20 285,579 S 1.93 S 1.20 S 1.20 290,693 S 1.12 S 1.20 S 1.20 292,499 S 1.11 $ 1.20 S 1.20 289,836 $ 1.88 $ 1.20 $ 1.20 281,942 $ 2.95 $ 1.10 $ 1.07 273,243 S22.008* 909' 16,700' 7,080' 4,962' 6,141 7,957 $16,073' 2,218' 14,698* 5,938* 4,182' 3,770 7,255 $14,230' 2,307* 13,502 5,551 4,568* 3,958 5,769 $12,553 1,749 12,715 5,347 3,795 3,683 5,178 S 14,405 1,281 11,875 5,127 3,706 3,661 4,806 $13,194 1,193 11,256 5,173 3,084 3,154 5,040 S 13,869 1,283 11,524 5,695 3,080 3,498 5,051 $13,521 1,180 11,199 5,961 3,755 3,685 5,051 $14,128 1,959 10,984 6,174 4,033 4,360 4,980 $12,817 1,730 9,873 5,672 3,506 4,174 4,563 5.0% 22.4% 32.7% $ 29.55 41.8% 4.6% 23.1% 36.8% $ 26.35 34.0% 5.0% 15.90/0 22.7i% $ 20.31 40.5% 5.4% 11.0% 14.7% $ 18.05 41.4% 5.2% .4% 1.2% $ 16.85 43.1% 4.7% 6.3% 11.1% $ 17.67 38.4% 4.7% 4.7% 6.5% S 17.19 40.6% 4.6% 2.9% 6.4% $ 17.34 41.8% 3.6% 6.2% 11.1% $ 17.53 46.3% 3.1% 12.1% 19.0% $ 16.65 47.3% $ 1,756' 990 1,907 2,482 554 62.1 105.4 S 1,264' 933 1,863 2,314 518 55.5 105.8 $ 995 814 1,237 2,045 474 53.1 99.0 $ 890 744 782 1,800 464 51.3 106.3 $ 806 977 275 1,663 387 53.2 122.6 $ 781 908 400 1,548 382 49.8 133.7 S 630 841 444 1,627 381 54.5 136.4 $ 829 870 271 1,668 390 56.6 144.9 $ 1,176 806 464 1,675 361 63.8 143.6 S 1,184 728 686 1,468 339 56.8 137.0 57 PRODUCT SEGMENT SALES ANALYSIS AND REVIEW OF MARKET PRICE PER SHARE OF COMMON STOCK The Dow Chemical Company and Subsidiaries In millions, except for share amounts (Unaudited) Sales of Principal Products and Services Chemicals and Performance Products Chemicals and Metals Performance Products Total Chemicals and Performance Products Plastic Products Thermoplastics Thermosets Fabricated Products Total Plastic Products Hydrocarbons and Energy Hydrocarbons and Energy Consumer Specialties Agricultural Products Pharmaceuticals Consumer Products Total Consumer Specialties Unallocated Miscellaneous Total 1990 1989 1988 S 3,378 1,710 $ 3,844 1,563 s 3,721 1,469 sS 5,088 $ 5,407 5,190 $ 3,995 2,512 885 S 3,781 2,370 843 s 4,060 2,059 819 sS 7,392 $ 6,994 6,938 S 2,210 $ 1,778 $ 1,502 $ 1,497 2,622 934 $ 1,023 1,418 966 $ 959 1,273 797 sS 5,053 $ 3,407 3,029 sS 30 S 14 23 $19,773 SI 7,600 S 16,682 ST0929201 Eleven-Year Review of Market Price Per Share of Common Stock' In dollars 1980 1981 1982 1983 l84 1985 1986 1987 1988 1989 1990 S100 90 80 70 60 50 -- 40 30 20 _ -- "" -- 10 0 ^ High Close on December 31 Low $26,17 21.42 18.83 $26.00 17.50 15.59 $19.25 17.25 13.09 $25.59 22.25 16.67 $23.00 18.33 17.17 $27.92 27.33 18.00 $41.17 39 00 26.59 $73.08 60.00 39.17 $62.67 58.50 51 17 $72.25 71 38 55 50 $75.75 47.50 37.00 Mdimitd for ttock jpJm 58 BOARD OF DIRECTORS Barnard B. Butcher, tl St-.nor Coi'Mili.mi i). i,, Mi i" ' Andrew J. Butter, *>7 \'n c JVi udrm iVmuIcnf D.i'*v k.nn;'v I), Wild* D. Davt*. So Prc kJi in .imi Civet F.u'cuiicv. OUkci. A11 Pro Rfo.uk.'virj. Inc Do/,Mr n,, ` Herbert H. Do*, M v Id Prc^'ilt It: /)<>,, :,u ; -1' Michael L Do*. ;5 Ol.llTTVt.UV Ccncul Av i Hum. Ir.v ().><>' <"> Joseph L. Downey, 4 V-,, rr.,n ..-I civnr n.m. D- ^ R r.j 1.1* ) k m.' Du*'.:.,mu Enrique C. Fall*. kimn.l ' uv i'u -i.lv'i hkI O.ul f mm, i,l ( 'll..if Barbara H. Franklin, 'I Hunter V*. Henry. Robert M. Keil. v . </, Keith R. McHrnnon. ' F \i.".i11v i. v,i I'u William J. Neely. V v l"rM,k n Co poutr O-r^co, M , M niuv: inj ,u /,...... Paut F. OreHice. <> ' C) ' I ,'HJil OI DU ko '.:J Frank P. Popoff. '' Cli-il I Mini'.i Ulluff Donald A. Rihard, >, > Si >iu,r Co,t'>,.l< J>" Harold T. Shapiro. Pff'rju H, PrIIU l I i ,., U,, IVMU Enrique J. Sosa, 11 V ,t k I'n-suH m , Don tin. Ci'i'p.Miic I'roJu.'f Dq'jrtir.cm n>f OU. /44f, Williams Staerepoulos. SI \'u>. PfC'iJvi'i. PrvsiJrnr. Daw U S A. Dm,/,.. I'nn Joseph C. Temple, it., t>l Cl'.nnn.iH mil Ckret F.xciudvc Officer. M- >o-oMjno'i Merrc !I Do* Inc D:''< l')?v ST0929202 Committees at tte Beard at Dir actor* Audit Committee B If |r inklm. t 11 'in i. M l Do* i I T Sh.ip'in Commit!** on Director* I*. I. Outlie Cl- \v 1) Djo' n K M Kul j r rr.*ji H T s11 'poo Compensation Committee R M Kl.c li.nim m H H Do* R U H.o Urn H V\ I I . n r\ P ( (.)fvH.U Environment, Health and Safety Committee W I \v k Oi.ini, B v H ji, K \ I ii.i- . > n \\^M 1 Do* D V K.k >>i L I Vm ! C Ivinpn U n i 'in/ziiii. v'' . 11, k I IV-I ! m . Executive Comm-liee I I I'o.'O I ( . - ^ I I>li i , I . n....... ( ! .1 1 , . k u \1. K> ,.. 11 p ; Oui i, 1 ! VM W ^ ^. o ,i I - Finance Committee t L l DC. C < ............... \ ) Ku k' M I Do* I I)..* u V M K, I \ B M. h, ,, I' : (l,.,',,u ir \\ N |>. , I--- r D li-mi. V % ...... K 1 k.v.c Vf V............. I r. I ,ll,Di v > - ' I P Kc, ih.ifJ > ,1 InveHment Policy Committee n S 'luii i. ' l I. 111' ' A I llci.if L C Ij'Ii M \V Ik no R \l .%,,l y t s,.m 1 C o nip > 11 \\ 1 Phi.-oi,Jo . o',., | P R. rill.H > f . o ... Public Interest Committee k U VUkv.......... C n \\ L- I)"'* M H L>i M. 1 Do* | i Ov'wiM H 'I Im-iU.m H ICnr' I ,\vcl. D A Ril.jfJ H I slupirit VC b Sij\rop<.ul,u C A I II mic. t i 'u 1 k Smifii c> o-'i, i CORPORATE ORGANIZATION ST0929203 i Officer* and AnlitaiH Officer* Chairman Paul F. Oreffice President and CEO Frank P. Popoflf Executive Vice President--Technology Keith R_ McKennon Financial Vice President Enrique C Falla Senior Vice President Robert M Keil Vice President Andrew J, Butler Vice PresidentEnvironment, HMlth A Safety David T. Buzzeih Vice President Herbert H. Dow Vice President Joseph L. Downey General Counsel Wayne M. Hancock Vice President--Human RtsaurcM Ctrald Hornsbv Vice President end Controllaf Roger L Kesseler Vice President Charles T. Marck Vice President William J. Neely Vice President and Traasurar j. Pedro Remhard Vic# Presldant Enrique J. Sosa Vic# Presldant William S. Stavropoulos Secretary Donna J. Roberts Assistant Controller William C. Schmidt Assistant Secretary R William Barker Assistant Secretary Paul D. Bnnk Assistant Secretary Lois J. Hocrlem AMlitant Tr,Mirr Howard W. Burdett Assistant Treasurer John S. Walshaw Auditor James F. Hicks Management Committee Robert M. Beughman Vice President, U.S Area; Human Resources Yves BobMIier Executive Vice President. Dow Europe, Plasncj Ralph W. Boeker Group Vice President. U.S Area; Chemicals and Performance Products Andrew J. Butler Vice President; President, Dow Europe David T. Buzzeill Vice President and Corporate Director of Environment, Health Sc Safety Anthony j. Carbono Group Vice President, U S. Area; Plastics/Hydrocarbons Fred P. Coraon Director, Research Ac Development josoph L. Oownay Vice President; Chairman of DowBrands Inc and DowElanco Enrique C, Falla Financial Vice President and Chief Financial OlFicer Richard J. Fleler Executive Vice President, Director of Operations, Dow Europe John L. Hagaman President and Chief Executive Officer, DowElanco Wayne M. Hancock Vice President and General Counsel Gerald Hornsby Vice President. Human Resources Roger L. Kesseler Vice President and Controller Keith R. McKennon Executive Vice President. Technology Wllllem J. Neely Vice President and Corporate Directorof Manufacturing and Engineering Oscar Novo Executive Vice President. Dow Latin America; President, Dow Brazil Jack G. Hetfenateln Executive Vice President, Dow Europe; Chemicals and Performance Products Paul M. Penkreti Vice President, Hvdrocarbom & Energy and Materials Management, Corporate Product Department Michaal D. Parker President. Do-' Pacific Donald S. Plrkle \'i:e President, Intornution Systems. E\r*umr Department Frank P, PopoH Pre`utent and Chief Executive Olhcer Ernesto Ramon President, Do Latin Amenca J. Pedro Relnhard Vice President and Treasurer Lee A. Shobe President and Chiei Executive OtTicer. Do Brands Inc. Thomas K. Smith Vice President, US Area, Director. Public Affairs Irving G. Snyder Vice President. U S. Area, Director, Applied Research Sc Development Enritjue J. Sosa Vice President and Director of the Corporate Product Dcpjnniem William S. Slavropoulot Vice President, President. Dow U.S.A Denis WUcock President and Chief Executive Officer, Dow Canada Larry F. Wright Vice President, U.S. Area, Director, U.S. Area Operations 60 ST0929204 Stockholder Inquiries Inquiries about stock, changes in name or address and other stock-related questions may be directed to: Inquiries about Dow's business performance may be directed to: Ameritrust Company National Association P.O. Box 6477 Cleveland, OH, U.S.A. 44101-1477 Telephone: 800-542-7792 (in the U.S.) or 216-737-5745 The Dow Chemical Company 2030 Dow Center Midland, Ml, U.S.A. 48674 Telephone: 800-258-9002 (in the U S.) or 517-636-1463 Annual Meeting The 1991 Annual Meeting of Stockholders will be conducted at 2 p.m. (EDT) Thursday, May 9, at the Midland Center for the Ans, Midland, Ml. A formal notice of the meeting, with a proxy statement and proxy form, will be mailed to each stockholder separately from this report. Form I0-K The Company's annual report to the Securities and Exchange Commission on Form 10-K will be pro vided without charge to any stockholder requesting it in writing or by telephone. Please contact: Dow Chemical U.S.A. Customer Information Center P.O. Box 1206 Midland, MI, U.S.A. 48641-1206 Telephone: 800-258-2436 (in the U.S.) or 517-636-8914 Annual Report The 1990 Annual Report of The Dow Chemical Company will be mailed without charge to those requesting it in writing or by telephone. Please contact: Dow Chemical U.S.A. Customer Information Center PO. Box 1206 Midland, MI, U.S.A. 48641-1206 Telephone: 800-258-2436 (in the U.S.) or 517-636-8914 Transfer Agents Ameritrust Company National Association P.O. Box 6477 Cleveland, OH, U.S.A. 44101-1477 Telephone: 800-542-7792 (in the U.S.) or 216-737-5745 The Royal Trust Company P.O. Box 7500, Station A Toronto, Ontario, Canada M5W ]P9 Telephone: 800-387-0825 (in Canada) ot 416-981-8997 Registrars Ameritrust Company National Association P.O. Box 6477 Cleveland, OH, U.S.A. 44101-1477 Montreal Trust Company 15 King Street West Toronto, Ontario, Canada M5H 1B4 Stock Exchange Listings and Trading Privileges NYSE Symbol: DOW New York, Midwest, Pacific, Amsterdam, Antwerp. Basel, Bern, Brussels, Dusseldorf, Frankfurt, Geneva, Hamburg, Lausanne, London, Pans, Tokyo, Toronto, Zurich. Dividend Reinvestment Plan An automatic dividend reinvestment plan is avail able to all Dow stockholders. Information can be obtained by writing to: Ameritrust Company National Association P.O. Box 6477 Cleveland, OH. U.S.A. 44101-1477 Cassette Tapes Available Audio cassette tapes of the 1990 Annual Report can be obtained for the blind by writing or telephoning: Manager, Financial Communications The Dow Chemical Company 2030 Dow Center Midland, MI, U.S.A. 48674 Telephone: 517-636-1463 Thefollowing trademarks or service marks of Tht Dow Chemical Comp**; appear i tbrs rtpors. Aspun, Aiunr, Cxl'bir, ChrmAware. Dtrakint, Down, Dowfax, DowfUk*. Dowlcx, Drytech, Efhjfcxim. Eihocci, Gas/Spcc, Magnum, Methocei, Optiotc, PtUipan-Pac, Primacor. Pulse, Quitrex, Roofmale. Safari Wrap, Spectnm. SlrandFoam. Styrofoam, Siyron. Sun-Pac, Tactix, Trymer, Tynn and Zctsbon. TitfoUowtn^ trademarks ofDowBrands appear to this report: Fxauitik 5`wipe's, Fanuuik, Handi-Wrap, Perma Soft, SpifTits, Spray 'n Wash, Style, Style Plus. SummerficW* and Ziploc. Thefollowing trademark ofFifmTtt Corporation appears in tbtt report: Filmtet. Tbtfollowing trademarks ofMarion Mtrrril Dow Imt. or its snbudiarits appear in tbu report: Caraface, Catduem, Cfpacoi, Gaviscon, hficorrne. Os-Cal and Seldane. Thtfollowing tradtmarks ofDowElaneo appear in ibis report: Balan, Curtail. Dunban, Carton, Lonban, N-Serve, Pathfinder. Rubipn, Sorulin, Starane, Snngei, Surflan, Telone, Tordon, Treflan, Turflon and Verdict. The Dow Chemical Company Midland, Michigan 48674 'Trademark of The Dow Chemical Company