Document VjVp8JqVwm30OD6DR7wEYqyMN

OOU) CtiOHlC'-U. ciZX 1982 Annual Report Ci'S- i? Diversification: By the late 1980s, 50% of Dow Chemical's earnings generated during a stable economy should be derivedfrom downstream. value-added products and services. i *osooo s ii Contents The Business of Dow Chemical 2 President's Letter 4 The Year in Review 8 Management Discussion and Analysis 17 Financial Statements 22 Notes to Financial Statements Inside Back Cover: Stockholder Information Cover Story Dow Chemical has instituted bold, swift actions to expand the Company's specialty product mix without forsaking the petrochemi* cal roots of Its heritage. Novel products and services, creative combinations and composites of established applications, have been conceived in Dow research and development laboratories Nearly 70% of the Company s research and development budget Is earmarked for speciaiiv proj ects About 40% of Dow* s capital dollars voH be allotted to such wntures in 1063 A global product management organisation and exun*r.e personnel deployment demonstrate that Dow is commit ted to developing a balanced stable of premium specialty products. The arra*. of products displayed on t he cover of this annual report illustrates the high-technology ca pabilities and innovative spirit of Dew Chemical. Captions on the back t over offer further driails uring 1981. The Dow DChemical Company was the sixth largest chemical company in the world in terms of sales and third in profits. Dow ranked 24th in sales and 31st in net income among the Fortune Maga zine 500 leading industrial companies in the United States." Dow manufactures, packages and distributes some 1.600 products. Historically. Dow has been known for the manufacture of industrial raw materials: chlorinated hydro carbons. brine chemicals, plastic resins and other so-called commod ities. But a fast-growing part of the business is end-use products and services, including specialty chemi cals and plastics, agricultural chemicals. Dowell oil well services, health care and consumer products. Headquartered in Midland. Michi gan. where it was founded in 1897. Dow and Its principal subsidiaries operate 112 manufacturing loca tions in 29 countries. Additionally, the Company main tains 153 sales offices around the world. More than 50% of the Com- 'O^ta for 1982 were not avalUblr ai pre** lime. pany's sales are outside the United States. Dow is considered one of the top research companies in the United States, supporting a research staff of about 7,000 persons and expend itures in 1982 of *460 million. mployees at Dow are Eamong the safest workers on the job. The latest avail able statistics compiled by the National Safety Council show that Dow's 1981 U.S. safety record was 10 times better than the chemical industry average and 29 times better than the average for all U.S. industry. Management is stable since the ^ officers have been with Dow for an * average of 32 years and most are c"> major stockholders. All of the chief <=> executives have been selected from ^ within the Company. Dow-'s principal objective is "to t__> seek maximum long-term profit growth as the primary means to ensure the prosperity and well being of our employees, stock holders and our customers by making products that the people of the world need, and to do so better than anyone else." Highlights of the Year Net Sales..................................................................................... .......... Operating Income .................................................................. .......... Net Income................................................................................. .......... Net Income Per Share (in dollars) ................................... .......... Dividends Paid Per Share (in dollars) ........................... .......... Average Shares Outstanding.............................................. .......... Stockholders' Equity (at year-end) ................................. .......... Capital Expenditures ............................................................ .......... Depreciation ............................................................................ .......... Research and Development Expenditures................... .......... Wages. Salaries and Benefits ........................................... .......... Employees (in thousands at year-end) ......................... .......... * Includes extraordinary income Distribution of the Income Dollar Sales is Billion) Hydrocarbon* and Energy 30e Cash Dividends Declared 3? Earnings invested ic Depreciation 8^ Wages Salaries and Benefits 18 Supplies. Sen tee and Other Ra* Materials 39c 1982 1981 (In millions unless otherwise stated I *10,618 356 399 * 2.07* 1.80 193 5,040 829 870 460 2.058 56.6 *11.873 916 564 3.00 1.80 188 4,891 1,176 806 404 2.036 63.8 % Change - 11% -61% -29% -31% 0% + 3% + 3% -30% + 8% + 14% + 1% ( - 11% Earnings Per Share Dividends Per Share I Dollars I cn o CO Area Sales United States 47 8% Pacific 6 4% Brazil 3.2% Canada 7 1% Latin Amrruj 3.9% Europr Jl 6% Capital Expenditures IS Billionl Research and Development Expenditures 1$ Million) 7S ?>.( SO -SI 1 President's Letter To Our Stockholders m so o o jL s: 1982 was a year of transition, streamlining, realignment. While sales were dis appointing and earnings declined to unacceptable levels, we contin ued to take decisive actions to contend with the economy and position The Dow Chemical Com pany for future opportunities. One year ago when I reflected on our 1981 performance with this annual report message. I outlined an agenda which would guide Dow's efforts to cope with the worst global recession since the 1930s. I would now like to review what we achieved against that program. 1. Capital spending was reduced to *829 million In 1982. well below our target, and the lowest since 1973. But we didn't stop building. Instead, we shelved plans to add basic chemical and plastics capac ity in favor of new specialty facilities and process Improvement programs. Recent authorizations for new plants to produce calcium bromide, aspirin and polycarbo nates demonstrate this down stream direction. 2. We reduced our debt to *3.8 billion -- down some 700 million from a year ago and *1.4 billion below the peak reached just 15 months earlier. Our 1982 year-end debt-equity ratio was below 43% versus 48% at the close of 1981. Despite lower profits, this leverage reduction program was achieved by a series of measures which Included the programmed disposal of some Company assets around the world. During 1982. Dow's share of the Asahi-Dow Japanese partnership was sold to Asahi Chemical for *231 million. In addition, we as sumed 100% control of three plants to manufacture Styrofoam brand Insulation because that product is a critical part of our specialty business in Japan. Our U.S. oil and gas properties were purchased by Apache Petroleum Company for proceeds worth *402 million. Terms of the deal also offer Dow first rights to feedstock supply. We sold our Bio-Science clinical laboratory business for *120 mil lion to American Hospital Supply Corporation as part of a drive to concentrate our human health efforts on the pharmaceutical business. Collectively, more than *600 million of asset-sale cash was applied to reduce debt In 1982. 3. Our Inventories were lowered by *367 million as part of the tight control we promised on working capital. Inventory reduction was partly responsible for our 65% operating rate, since we chose to sacrifice some current profit for the future health of the business. 4. The Company's personnel count declined by about 7.200 people in 1982. largely due to attrition, divestitures, and an Incentive program under which nearly 2.000 employees chose to retire. The sweeping layoffs which characterized much of indus try in 1982 were avoided by Dow. and we continue to consider that the most unacceptable form of personnel reduction. Even though we were reducing our work force, we did not disband our hiring program. In 1982 and again in 1983. we will continue to recruit and hire the best technical and professional candidates to assure our anticipated growth. 5. Our expense control program resulted in savings of about *300 million In 1982. These savings, along with all the other steps we have taken to streamline the Com pany. contributed to a sharp reduction in the break-even point. .... ....................... wlitt li will (Ilf III!tlir. us well In =nonR&Dlnl982- up iq. n I'l/hf, I low withdrew Ilimn ma|*>r petrochemical Changing ofthe Guard -- Robert joint vi-iiIiiios In Saudi W. Lundeen was elected chairman Arabia ami VogoNlavla. The cur- of the board to succeed Earle B. mu iivi-isi11>|'fv situation Barnes who retired from Dow after ronlmiil log <I' Industry rendered 42 years of service. David L. Rrnike Utt ar |)io|i i > less attractive. We and Robert M. Kelt were named also sold mo loinh Korean plants executive vice presidents. Elected In a Hmemi lodiisirlal group, to the board of directors in while mulobifttfttg our long-stand 1982 were; William N. Lipscomb. ing sail's i oiiipauy In that country. Jr., a Nobel Prize-winning chemist Despite tlir*>r International depar from Harvard University; Frank 1'. tures. he iiMiitiietl Dow Is not Popoff. president of Dow Chemical irtrr.iiiiii', i" Ioj tress America or Europe; and Donald A. Rlkard. vl< ___ vm.jiitiires. While som I hese transactions generated of profit, others such as the Saudi Arabia and Yugoslavia with drawals required write-offs which were taken in 1982. We tried to continue our policy of keeping tlie balance sheet as strong as possible. All In all. as I survey 1982, 1 must tell you that it was the worst ofyears, yet the best ofyears. While It was a bad year for profits. shying away ti'ini |o!nt ventures. Mon* ili.m box ui the Company's sales an- gi-iiriaUsI (n markets iside the Hutieil States, and this balmier will < otidiilliittuuce. Dow Corning and Howell Schlumberger are fxniuiih n l large, healthy. prolUahfe fniiii vmtures which president and director of manuf.i'' turlng and engineering. Clyde 11. Boyd and Dave W. Schomstetn It was an excellent year for setting a better foundation for the future. retired from the board. ow's further shift to spe 1 low people rose to new heights of performance. We Implemented a Dcialty products and iix-month salary freeze and ocher hclt-ttghtenlng measures, and yet go saetervdicaedsivIner1s9if8ic2aatciocnelestrrategymhatrrdeemr,pslomyaeertserr,eaacntdedmboyrewfoarikthin- g --( cn> doruoieni I low's role as a reliable hi islni s'i | I nor. A tit.ijm (uotili iii of 1982 was iliat the t illnworld experienced a h i i s'.iini I Ids factor and the actually Initiated In 1978. Forlolly than ever before. czj example, major progress was made In 1982 to further the Integration, As we look ahead to the future. ( 11 uly believe we are seeing the light os consolidatton, and reorganization of Dow's global pharmaceutical at the end of the tunnel in our co simni', ilnll.it * mnhlncd to reduce mir tl.'i fs|..r#-i hv some 13% business. These downstream, business. The world's economy, ted -*=r~ value-added products and servin'*' by the United States, should start <-* (nan I'M U was a very difficult year III III' nin ii' V markets, but are not as cyclical nor as capital intensive as our basic business improving in 1983. The chemical industry has endured a gut-wrench- if i II. ui mom y management en- and should serve to balance the il/l' ij ii . lo omjili-ie the year with Company's growth. lug realignment which has meant 11 ie shutdown of many chemical a iniilu mi loii ign i-xehange. I ilants by Dow and others and the inIn / imj.sa.mi milestones dur .mcellatlon of many projects which ing 1'IH'/. would have Increased capacity. With the economy improving, Sal, it) ti. ` mpluyccs' dedica- nor basic chemicals and plastics Il'//J Itt ,,i). i/i.it'. p ract--i-c---e--s- Jyi'elludted business is poised for a recovery ..1i r*-f ant fi, t hit iii-nivc. It was the and is ready to join our specialty >.ifi'.l y. .ii Jo ili*' history of our pioducts and services In leading r .oinji.my .m'l wi- are proud to ilit Company into better times. b*- among lie '.ali'sl companies Si in my In'hi .'I / anywhere in ll.f 7,'ll I'l In- .i nn h ami DiT.'lopiimnt--The l;i;i- 11 'll al i blgli technology ' 'impair/ . * * amnlt mem lo the fuI O,''' IS (* i ',', liliJi/igii'-ss -in---m---a>in%tia*iniii l'ivh .o-p. o'ln on s during difficult 'f Paul F. Oreffice l'irsldem and Chief Executive Officer Midland. Michigan (eftruary 14. 1983 3 ' STC0C504G Industrial Chemicals and Plastics The Year in Review asic petrochemicals tradi- consumer demand. The accom Btionily have been the panying requirement for Dow's bedrock of Dow's global building-block chemicals and plas business. In 1982. an economictics retreated accordingly. recession restricted worldwide in Dow's manufacturing facilities dustrial demand. Despite Dow's operated at about a 65% rae of multinational hedge, industrial capacity due to weak demand, chemicals and plastics sales de oversupply and prudent inventory clined. The Company's major stake management. Because of reduced in basic chemicals and the at capacity utilization, unabsorbed tendant cyclical markets combined fixed expenses infringed on to undermine Dow's profit margins. performance. The rationalization of surplus Primary industries such as auto manufacturing capacities mobiles. housing, durable goods throughout the basic chemicals and related metal-forming applica Industry continued during 1982. tions were stymied by reluctant Inefficient and obsolete plants of commodity producers were retired as the industry' continued to seek healthier capacity/demand balances. 1 Constructed of Derakane vinyl ester resinJrom Dour because of strength, lightness and corrosion reststnnce. the Epiglass teas selected to represent New Zealand in the 1981 Admiral's Cup Series. 2 This packaging customer's plant located m southern Germany utilizes Datclex linear low densuu polyethylene from Dow's world-scale lacihcy at Terneuzen. Netherlands. 3 Beverage bottle crates are molded .Iron] Dow polyethylene by a customer <n 5a.nnago. Chile. 4. Don's coustic soda is enjoying increased market attention for enhanced oil recovery applications in the United States. 5. Industrial chemical storage tanks at Dow's western Canada distri bution center are surrounded by protective dikes to contain total contents in the event of a chemical leak or spill. The Company optimized produc tion by implementing a global lowest-cost supply strategy which idled some facilities and more fully utilized other plants. Dow's organ izational structure encouraged this sourcing flexibility to exploit the Company's most energy- and process-efficient production facili ties. While this effective supplymanagement provided some profit Improvement. Dow's basic chemi cal prices declined 4% reflecting a general buyer's market. 4 Another important option Dow exercised during 1982 involved feedstock flexibility. Many of the Company's hydrocarbon crackers are capable of accommodating naphtha or liquefied petroleum gases (LPGs). These feedstocks were alternated depending on price/supply advantages. n excess of spot market Afeedstock and energy sup plies generally helped to keep global raw material costs in check. Furthermore, energy con servation programs were again emphasized at all Dow manufac turing locations. Dow's Crude Oil Processing Plant (COPP). a Gulf Coast feedstock refinery mothballed in December 1981, resulted in lower cost penalties. Industrial Chemicals he Dow chlorine- and eth Tylene-based product groups were all victims of the economic circumstances which characterized the chemical industry in 1982. Caustic soda offered a signifi cant profit contribution despite some late-year price deterioration. Demand decline in the aluminum and paper industries, for example, was reflected in Dow's sales vol ume. The Company's chlorine production was down due to weak ethylene dichloride and vinyl chlo ride monomer markets associated with the depressed construction industry. The stronger U.S. dollar also hampered attempts to in crease vinyl chloride volume in international markets. Ethylene amines withstood price reductions and contributed to Dow's 1982 profit. Ethylene oxide and derivatives slumped substan tially. due in part to a downturn in the polyester fibers market. Plastics Low density polyethylene (LDPE) maintained excellent sales volume in an environment of excess in dustry capacity. However, prices dipped substantially so dollar growth in the business declined. Since 1979. Dow has shelved vari ous capital plans which cancelled about one billion pounds of poly ethylene capacity because of the Company's concern about the in dustry oversupply situation. Premium Dowlex linear low den sity polyethylene products continued to make substantia] market inroads worldwide for a variety of film and injection mold ing applications. u~i Operating income from Styron --l brand polystyrene resins increasedo modestly while sales remained at O depressed levels. --3 Dow plans to maintain and on expand the Company's industrial o chemicals and plastics operation. Long the lifeblood of Dow. these basic businesses will provide oper ating resources to further advance the Company's diversification into specialty products and services. Area Sales History of Industrial Chemicals and Plastics United States (S Billion} Europe (S Billion! Canada IS Million! Pacific IS Million) Latin America IS Million) Brazil IS Million! : S T O C K S Qhd Specialty Products and Services The Year In Review ow's specialties and ser Dvices business accounted for 36% of the Company's sales but virtually all of the operating Income In 1982 due to marginal performance In the basic chemicals business. Pharmaceuticals Dow's human health business In 1982 realized a 4% increase In sales to *752 million compared to 1981. During the past year, an impor tant strategy shift was initiated to emphasize the rapidly-growing re spiratory drug market. Yutopar*. a product for obstetrics, a therapeu tic field being de-emphasized by Merreil Dow. was exchanged for the bronchodllator Bricanyl. from Astra Pharmaceutical Products. A Bricanyl aerosol form is awaiting approval from the Food and Drug Administration (FDA). Other line extensions are expected to make Bricanyl one of Merreil Dow s lead ing products in the United States over the next two years. The new drug application for Nlcorette. a nicotine-containing chewing gum. is under review at the FDA. Nicorette will be the first prescription product fully approved for use as an aid to smoking cessa tion program's. Based on Impressive new clinical data, strong medical support, and marketing success in insecticides established new Canada since 1979. U.S. sales pro records. Lorsban 15G insecticide jections could exceed *20 million. registered a significant market One of the first important prod share increase in the declining ucts to emerge from the Merreil U.S. corn market while experienc Dow research and development ing a successful launch in the program Is the antihistamine ter- Canadian farm community. Sub fenadine. This hay fever drug was stantial gains were also recorded in launched in France. Germany and the Middle East cotton markets the United Kingdom in 1982. achiev and several Asian rice markets. ing strong market penetration and Intense worldwide market share sales of over *6 million which im competition adversely affected sales pressively outpaced initial projec and profits for 2.4-D herbicides tions. This drug will be launched compared to 1981 results. Global throughout Dow's global marketing supply/demand balance is expected network within the next two years. to improve in 1983 which should in addition to terfenadtne. a result In better profits. unique antl-convulsant drug and a The depressed U.S. farm econ product for congestive heart failure omy resulted in disappointing sales are advancing through the re of N-Serve nitrogen stabilizer. On a search process. Each of these products is expected to exceed *100 million in sales at maturity. Agricultural Products A severe economic climate con fronted growers in the United States and most agrarian sectors of the developing world. Dow's global agricultural product sales trailed last year and operating income declined 24% due to a major buildup in resources to prepare for the launch of several new products. Worldwide sales and operating Income for Dursban and Lorsban Area Sales History of Specialty Products and Services United States li* Billion} Europe (S Million} Canada IS Million) H'2 HO HI 82 HU HI 2 6 2. ' STC005049 more positive note. Lontrel her bicide sales growth in Europe was outstanding. Pending registrations will open significant new markets for this cereal herbicide in other areas of the world. Product launches for Carlon industrial her bicide in Europe and the Pacific, combined with excellent sales mo mentum in the United States, should make this new product a profit contributor in 1983. Several new herbicide candidates moved closer to commercialization. Tandem herbicide, for post-emer gence corn applications, moved into the final stages of field trials tn preparation for product launch. Dowco 453. a very promising grass herbicide for broadleaf crops, con tinues to show outstanding performance characteristics. Consumer Products Operating profits for consumer products in 1982 climbed 35% com pared to 1981. Ziploc food storage bags recorded a banner year with a 21% sales gain. Promising test markets for two types of Ziploc bags are being conducted to evaluate further op portunities for this product line. Plant capacity expansions were Dow Water Absorbent Laminate, implemented In 1982 to accommo capable of absorbing 40-50 times date the outstanding growth of the its own weight in fluid, offered Ziploc bag market. major volume potential in personal Dow Bathroom Cleaner and Dow hygiene products. Oven Cleaner continued to grow The precipitous 39% decline of while the overall competitive prod drilling rig activity during 1982 uct category remained flat. resulted In a drastic market Saran Wrap plastic film remains shrinkage for the Dowell petroleum the leader In the household plastics service business. Sales and profits wrap business despite the entry eroded significantly. of a new competitive food wrap. While Industrial chemicals strug Other Products and Services gled to tread water in 1982, the Sales of Styrofoam brand Insula value-added, downstream specialty tion to commercial roofers climbed products and markets offered a 25% In some geographic markets. reprieve from the cyclical whims of he exceptional Insulating the economy. The promising Tproperties of Styrofoam brand Insulation have growth opportunities provided by these unique specialty products earned the product growing accperopvtides an incentive for Dow to ance In Europe, the Middle East. expand Its diversification Africa and the Pacific areas. New commitment. manufacturing capacity for Styro foam brand insulation is slated for operation in Australia in 1984. Latex profits advanced in 1982 due to Dow's introduction of techni cal improvements and innovations. J. Cepastat lozenges are a familiar over-lhe-counler sore throat remedy pr duced by Mcrrell Dow. 2 Dow Brazil recently introduced Tufordon herbicide, a locally devel opedJlowable mixturefor effective weed control in sugarcane and coffee. 3. Dow-patented composite paper technology, using Dow (ate.v as binder, is gaining excellent accept ance in many construction materials and paper-related applications. 4. Styrofoam brand insulation is in stated on the roof of a government housing project in Hong Kong to enhance the budding's energy efficiency. 5. Ziploc storage bags available in a variety of volume sizes offer a zipper closure unique in the piastic bag industry. 4. 5. 7 Management Discussion and Analysis Financial Condition and Results of Operations Results of Operations Operating results for 1982 were disappointing as earnings were severely depressed by the weak economy, a strong U.S. dollar and reduced demand for industrial chemicals and high-volume plas tics. The business environment continued to deteriorate through out the year, contributing to soft prices and low operating rates. Substantial overcapacity for many industrial chemicals prompted a worldwide industiy rationalization that shut down many chemical plants and cancelled other projects that would have increased capacity. On the positive side, an effective cost reduction program, close con trol of personnel levels, tight management of inventories and receivables, and debt reduction improved 1982 operations and significantly strengthened the Company's balance sheet. Consid erable progress was achieved toward goals of reducing debt, curtailing capital spending and disposing of selected assets. Fur thermore. the Company continues to pursue the development of specialty products and services which provide more promising long-term growth opportunities, higher returns, and a less cyclical earnings pattern. all price erosion of 3% in 1982. nullifying the gain of 3% realized in 1981. Some price improvement was noted in the United States. Canada and Brazil in the early months of 1982. but as economic conditions worsened, those gains evaporated and prices retreated to earlier levels. Europe successfully increased prices in local curren cies. Those increases, however, were more than offset by contin ued strengthening of the dollar which also depressed exports from the United States. Physical volume dropped 8% In 1982 after increasing similarly In 1981. Volume in the United States fell 18% as housing, automotive, agriculture, general construction and other durable goods markets remained stagnant throughout the year. In addition, the Dowell oil well servicing division, a star performer in 1981. suffered under the adverse impact of a 39% decline in 1982 drilling rig opera tions in the United States. Canada and Latin America also lost volume Sales Net sales in 1982 declined to s10.6 billion, essentially the same level as 1980. following a gain to *11.9 billion in 1981. An oversup ply of basic industrial chemicals and weak demand resulted in over in 1982, while the European Area experienced a 10% increase. Phar maceuticals. agricultural products and Styrofoam brand insulation for industrial applications were primary contributors to the vol ume gain In Europe. The percentage changes in sales by industry segment and geo graphical area were: Percent Change from Prior Year 1982 1981 Industry Segments: Industrial Chemicals................ .1131 Plastics and Metals .. .(14) Specialty Products . .. . (8) Dowell ........................ .(16) Bioproducts and Consumer Products . . 3 15 151 2 35 26 Geographic Areas; United States............. .118) Europe........................ . 2 Canada ...................... Pacific ....................... . 14) Latin America ........... . (24J Brazil ......................... . 11 20 2 15 5 (21 2 <y> --f CO CD t. cn CTD cn Ibett to right,': Robert M. Keti. execut.i c Wee president. Robert U\ Lundeen. chairman oi the board. Paul F. Ore(fice. president and cbiej executive ol'icer. and David L. Rooke. executive rice presided. 8 r M anagem ent Discussion Operating Income The combination of declining prices and heavy fixed cost penal ties from reduced plant operating rates severely restricted earnings from operations in 1982. The ratio of operating Income to sales dropped to 3% in 1982 from nearly 8% in 1981 and 11% in 1980. A tight inventory control program led to a *367 million reduction in inventories in 1982. but manufac turing plants, excluding the Crude Oil Processing Plant ICOPP), oper ated at 65% of capacity versus 72% and 75% in 1981 and 1980. respectively. The liquidation in 1982 of some quantities of lower cost last-in. first-out (LIFO) inven tories produced in prior years had the effect of benefiting operating earnings by approximately *145 million when those lower costs were compared to the current costs of production. This partially offset the fixed-cost penalties of operating at lower rates, which exceeded 1981 by approximately *290 million. The COPP unit at Oyster Creek. Texas, which was shut down in December 1981. remained idle throughout the year and will continue in that mode until market conditions improve. Sales by Product Group 1* Billion! BlndusiriaJ ChemlcalvPlastlcs Specifies Services Manufacturing costs benefited from a decline in hydrocarbon and energy costs for the first time since 1971. In addition, the Com pany's personnel count was reduced by about 7,200 people In 1982. largely due to attrition, divestitures and a retirement In centive program accepted by nearly 2.000 employees tn the United States. An effective cost control program initiated at the beginning of the year resulted In some *300 million in expense reduction compared to the 1981 spending level. However, R&D ex penditures increased *56 million as the Company continued its aggressive research program. The change In some major costs were: Percent Change from Prior Year 1982 1981 Feedstocks and energy, unit price . (3) Depreciation ............... . 8 Maintenance and repair.................. .(12) Research and development ... . . 14 Salaries, wages and benefits............... 1 11 11 6 29 13 Industrial Chemicals suffered the brunt of the economic down turn in both 1982 and 1981. incurring an operating loss of *13 million in 1982 following profits of #307 million in 1981 and *429 million in 1980. Margins on eth ylene and chlorine derivatives dropped sharply under the com bined pressure of lower prices, declining physical volume, and reduced production levels. Operat ing income for the Plastics and Metals group also declined rapidly from *286 million in 1980. to *67 million in 1981. and to *22 million in 1982. and was affected by the same negative factors as Industrial Chemicals. Although Specialty Chemicals performed well In a tough economic environment, op erating Income from Dowell oil well services declined *169 million in 1982. Bioproducts and Consumer Products demonstrated substan tial resistance to the economic slump by maintaining approxi mately the same margins as in 1981. a year which recorded a 34% increase over 1980. Operating data by industry seg ment and geographic areas are shown in greater detail In Note Q, page 28. and In the section The Year tn Review' on pages 4 through 7. Property Disposals and Project Cancellations ^ Gains from the sale of Investments contributed *214 million to non-operating income in 1982. Asset sales included the dissolutlon of Asahi-Dow Limited, a Japanese jotnt venture: the Company's Korean subsidiary and a related joint venture: Bio-Science Enterprises, a clinical laboratorybusiness: and part of the Apache Petroleum Company (''Apache") de positary units received from the transfer of the Company's oil and gas properties. No income was recognized when the oil and gas properties were conveyed to Apache. The Com pany's obligation to guarantee production quantities from certain producing properties, an agree ment to purchase specified quantities of hydrocarbon produc tion. and a commitment to con tribute *7 million quarterly in drilling funds for 12-1/2 years, are --i eo ej .j ui CD c_n -- 78 79 80 81 `82 9 Management Discussion and Analysis STCO -5G52 more fully described in Note C. page 22. The transaction with Apache reduces the Company's financial commitment for oil and gas exploration and development in the United States from approxi mately *100 million annually to *28 million annually while provid ing preferred access to additional available or uncommitted gas and oil produced by Apache. Further more. future benefits will be derived from revenue sharing and ownership of Apache depositary units. Additional details on other asset disposals are also described in Note C. Investment sales in 1981 included a *31 million pretax gain from the sale of stock in Magma Power, and 1980 included *74 million from the sale of Wanda Petroleum. The Company Intends to continue an evaluation of its assets and expects to make addi tional asset sales when favorable opportunities are presented. A provision of *102 million was made for costs associated with cancelled projects as described in Note D. page 22. Cash Flow* l MlUtonl '(Includes cash. debt and stockholders'capital changes) Net Income Interest cost declined *26 mil lion in 1982 following an increase of *149 million In 1981 and *98 million In 1980. Lower commercial paper rates, a reduction in average short-term debt outstanding, and a drop of *466 million in long term debt by year-end contributed to this favorable development. The gain on exchange and trans lation of subsidiaries that are con solidated was *47 million in 1982. an increase of *40 million over 1981. Devaluation of the Brazilian cruzeiro. Argentine peso and Spanish peseta reduced the United States dollar equivalent of debt denominated in those foreign cur rencies and contributed most of the Increase. On January 1. 1983. the Company adopted Financial Accounting Standard No. 52. which revises standards of finan cial accounting and reporting for foreign currency transactions. The impact on stockholders' equity at January 1. 1983. is described in Note A. page 22. The 1982 income tax credit of *29 million reflects the benefit of *114 million for the carryback of United States investment tax cred its and net operating loss which will enable the Company to claim a refund of taxes paid for prior years. A similar tax credit carry back benefited 1981 income by *119 million. At December 31. 1982. the Company recognized *89 million of tax credit and operating loss carryforwards as a reduction of previously recorded deferred income taxes. The de ferred tax credits that were eliminated will be reinstated when the tax benefits of the carry forwards are realized for tax purposes. A comparative tax analy sis follows (in millions): 1982 1981 1980 Current tax provision....... *139 Current year state taxes .... 3 Deferred taxes . 32 * 78 *242 111 13 218 169 Current year taxes before adjustments .. Tax credit carryback to prior year .. Tax credit carryforward deducted from deferred taxes. 174 (1141 (891 295 (119) 424 Net tax provision....... *(291 *176 *424 Effective tax rate of current year taxes before adjustments .. 46.9% 39 7% 34 2% The higher current year tax rate for 1982 (before carryback-carry forward adjustments) is primarily due to losses incurred in foreign subsidiaries where no applicable tax refund credits were currently available. The factors that influ enced the Company's overall effec tive tax rate for the past three years are shown in Note F. page 23. Liquidity and Capital Resources Although the current economic environment severely reduced op erating earnings and cash flow from operations, a combination of asset sales, cost controls, and asset management programs im plemented in 1982 enabled the 78 '70 SO S\ 82 10 M anagem ent D iscussion Company to significantly improve its liquidity. The ratio of debt to debt-plus-equity was 42.7% by the end of 1982. compared to 47.5% at the beginning of the year and 51.3% as recently as the third quarter of 1981. Total debt was *3.8 billion at December 31. 1982. almost *700 million below a year ago. and the first year-to-year decline since 1962. A combination of asset sales and reduced capital spending greatly increased cash flow in 1982. Asset sales contributed *485 million in cash and *150 million of debt assumption while capital spending was held to *829 million, almost *350 million below the level of 1981 and I960. Depreciation of *870 million increased 8%. or *64 million in 1982. and continues to be a significant factor in the Company's liquidity. Firm control over inventories and receivables contributed to a reduction of *101 million in funds required to finance working capi tal. Inventories, valued on the lastin. first-out (LIFO) method were reduced by 17% in 1982. Invento ries valued on the first-ln. first-out (FIFO) method exceed the LIFO val uation by *419 million. Thus, the Company's current assets are con siderably more valuable than re flected on the balance sheet. De spite difficult business conditions, days of sales outstanding in ac counts receivable were held to 58 days at December 31. 1982. versus 56 days in 1981 and 57 days in 1980. A reduction in short-term notes payable required to finance working capital resulted in an improvement in the ratio of cur rent assets over current liabilities to 1.8 at the end of 1982. com pared to 1.7 and 1.6 in 1981 and 1980. respectively. Short-term bor rowing at December 31. 1982. was *213 million, substantially below the *448 million outstanding in 1981 and *617 million in 1980. During the course of the year, the Company used commercial paper and revolving bank credit to cover peak working capital re quirements: however, no com mercial paper was outstanding at year-end. Two new long-term debt issues totaling approximately *140 million were completed in the first quarter and an additional *51 million in industrial revenue bond financing was obtained during the year. The Company plans to con tinue to utilize favorable pollution control and industrial revenue financing when appropriate oppor tunities are identified. Early in 1982. the Company issued four million shares of its common stock in a tax-free ex change for *137 million principal amount of long-term debt. The Company has unused and available credit facilities with vari ous United States and foreign banks totaling *1.8 billion in Capitalization l Billion) support of commercial paper bor rowing or long-term financing arrangements. These arrange ments are supplemented by a vari ety of other credit facilities avail able for use by foreign subsidi aries. Based on projected internal cash generation, current levels of liquid assets, and the credit capac ity to support additional finan cing. the Company expects to continue to be able to compet itively finance operating cash re quirements. planned capital ex pansion and dividend requirements. Dividends The Company paid dividends of *1.80 a share in 1982, the same amount paid in 1981. In view of depressed earnings, the Company elected not to raise the annual dividend rate in 1982. interrupt oo ing a 22-year record of dividend increases. The Company has paid a cash dividend for 283 consecu CD CD tive quarters, dating back to 1912. CJ1 Capital Expenditures Expenditures for plant facilities in 1982 totaled *829 million and CD cn CO included approximately *147 mil lion for the purchase of an olefin steam cracker in Spain. In addi tion. operating leases with an asset value of *343 million were contracted in 1982 compared to *320 million in 1981. Some capital projects, destined to add capacity for basic industrial chemicals and volume plastics, were cancelled during 1982 and spending was directed more toward specialty facilities. The Company expects to limit capital spending for an inter mediate term to approximately the level of annual depreciation. 11 ' ST0 0 05C54 Management Discussion and Analysis QUARTERLY STATISTICS Unaudited results were as follows (in millions, except per share): 1982 Net sales .............................................................. Operating Income ............................................ Income before extraordinary item .............. Net income...................... '................................. Earnings per common share Income before extraordinary item .......... Net income....................................................... Cash dividends paid pier common share .................................... Market price range of common stock: High.................................................................. Low .................................................................. 1981 Net sales ................................................................ Operating income .............................................. Net income............................................................ Earnings per common share .......................... Cash dividends paid per common share ........................................ Market price range of common stock: High........ '........................................................... Low .................................................................... 1st 9uarter *2.781 184 97 154 .50 .80 .45 26.38 20.00 1st Quarter *2.897 331 180 .98 .45 39.00 32.13 2nd Quarter *2.728 148 197 197 1.02 1.02 .45 24.63 19.88 2nd Quarter *3.067 282 189 1.00 .45 38.50 31.63 3rd Quarter *2.548 57 35 35 .18 .18 .45 25.75 19.63 3rd Quarter *2.924 224 128 .67 .45 33.00 23.63 4th Quarter *2.561 (33) 13 13 .07 .07 .45 28.88 22 38 4th Quarter *2.985 79 67 .35 .45 27.75 23.38 Year *10.618 356 342 399 1.77 2.07 1.80 28.88 19.63 Year *1 1.873 916 564 3.00 1.80 39.00 23.33 The first quarter of 1982 includes *57 million, or 30 cents per share, of extraordinary gain on the exchange of long-term debt for equity. Net Income for the second quarter of 1982 includes a pretax gain of *135 million, or 62 cents per share, from the dissolution of Asahi-Dow Limited, a Japanese joint venture. Fourth quarter 1982 earnings include a *66 million pretax gain on the disposition of assets and a pretax charge of *102 million for write-offs associated with Saudi Arabia. Yugoslavia and other sundry project cancellations. The second quarter of 1981 included *31 million pretax gain from the sale of stock in Magma Power Companv. The first three quarters of 1981 were restated to reflect the change in LIFO accounting and the change in DISC deferred tax accounting which was made in the fourth quarter, but effective for all of 1981. SUPPLEMENTARY INFORMATION ON EFFECTS OF CHANGING PRICES Supplementary financial information, prepared in accordance with Financial Accounting Standards Board Statement No 33. Financial Reporting and Changing Prices, shows certain income data presented in the historical cost income statement on page 17 adjusted to constant dollars and current costs expressed in dollar values generally at the average 1982 price level. 12 Historical Cost Adjusted for General Inflation The supplemental data in constant dollars reflect historical costs adjusted for changes in the purchasing power of the dollar as measured by the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics. These amounts do not purport to represent appraised value or any other measure of current value. Depreciation was computed using the straight line method. At December 31. 1982. there was an excess of monetary' liabilities over monetary assets. As inflation erodes the purchasing power of the dollar, net debts are repayable with dollars of lesser value resulting in a gain in purchasing power of *175 million. ; j ; ; ; Current Costs Cost of sales was calculated by applying the last-in. first-out method to all inventories. The carrying value of *2.174 million for Inventories at December 31. 1982, was determined by using the year-end purchase prices of raw materials and supplies and the standard cost of manufacturing for finished goods and work-in-process Inventories which approximates current cost. Net plant properties were determined primarily through the use of indices related specifically to the construction cost of chemical plants. These values w'hlch totaled *9,212 million at December 31. 1982, represent the estimated current costs of existing assets and do not consider technological improvements and efficiencies associated with normal replacement of productive capacities. Depreciation was computed using the straight line method. Cost for assets outside the United States was determined In local currency and translated into U.S. dollars at exchange rates in effect at year-end. Consolidated Statement of Income Adjusted for Changing Prices Year Ended December 31, 1982 As Reported in the Financial Statements Net Sales...................................................................... Cost of sales, excluding depreciation...................... Depreciation expense................................................ Interest expense -- net.............................................. Other operating expense........................................... Provision for taxes on income (credit).................... Income before extraordinart' item............................ Purchasing power gain on net monetary liabilities held during the vear.............................. Income including gain attributable to holding net monetary liabilities...................... Increase in the general price level of Inventories and net plant properties over the change in specific prices .................................................... * 10.6 18 8.440 870 406 589 129) 10.276 * 342 * 342 Adjusted for General Inflation (Constant Dollars) lln millions) *10.618 8.612 982 406 589 1291 10.560 58 Adjusted for Changes in Specific Prices (Current Costs) *10.618 8.612 916 406 589 [291 10.494 * 124 cn CD CD) 'D UT CD CO cn 175 * 175 * 233 * 299 s 530 Comments on Inflation Accounting Results Under both constant dollar and current cost methods, income from continuing operations is lower than that determined under the historical cost method. The principal reasons for the lower income are. ^ worldwide use of double declining balance method of depreciation fell short in provi ing su lcien u replace capital assets using either constant dollar or current cost: and (2) the current cost o inven one liquidated in 1982 exceeded the historical cost amounts charged to cost of sales. 13 Management Discussion and Analysis The following table is a 5-year comparison of selected supplementary financial data adjusted for effects of changing prices. Certain information pertaining to the year ended December 31. 1978, Is omitted because it is Impracticable to obtain. Comparison of Selected Financial Data in Historical Dollars, Constant Dollars and Current Cost (Dollars In millions, except per share data, all constanl dollar and current cost data In average 1982 dollarsl Sales Historical dollars....................................................... Constant dollars ....................................................... Income Before Extraordinary Item Historical dollars........................................................ Constant dollars ....................................................... Current costs............................................................. Earnings Per Share Before Extraordinary Item Historical dollars....................................................... Constant dollars ....................................................... Current costs............................................................. Unrealized Gain Attributable to Holding Net Monetary Liabilities .......................................... Earnings Per Share Including Gain Attributable to Holding Net Monetary Liabilities Historical dollars....................................................... Constant dollars ....................................................... Current costs............................................................. Increase in the General Price Level of Inventories and Net Plant Properties Over the Change in Specific Prices ........................ Total Assets Historical dollars....................................................... Constant dollars ....................................................... Long-Term Debt Historical dollars....................................................... Constant dollars................................................... Stockholders Equity at Year-End Historical dollars.......................... Constant dollars ............... Current costs....................................... Debt Ratio 1%) at Year-End Historical dollars............. Constant dollars .................. Current costs.................... Dividends Declared Per Common Share Historical dollars............................... Constant dollars ........................ Market Price Per Common Share at Year-End Historical dollars............................... Constant dollars.................. Average Consumer Price Index (CP1-U) [1967 =1001............................ 1982 *10.618 10.618 342 58 124 1.77 .30 .64 175 * 1.77 1.21 1.55 * 530 *11.807 11.674 * 3.502 3.462 * 5.040 8.620 8.621 42.7% 30 1 30.1 1.80 1.80 * 25.88 25.59 289 1 1981 *11.873 12.601 * 564 135 204 * 3.00 .72 1.09 417 * 3.00 2.94 3.30 * 111 *12.496 12.833 * 3.968 4.075 * 4.891 8.955 9.477 47.5% 33 8 32.5 1.80 1.90 * 26.25 26 96 272.4 1980 *10.626 12.447 * 805 732 758 4.42 4.02 4.16 551 * 4.42 7.04 7.19 * 823 *1 1.538 12.909 3.438 3.846 s 4.440 8.742 9.408 48.2% 34.7 33.1 * 1.65 1.91 * 32.13 35.94 246.8 1979 9.255 12.308 * 784 960 925 * 4.33 5.30 5.1 1 * 578 * 4.33 8.49 8.30 * 472 *10.252 12.892 * 3.055 3.842 * 3.897 8.399 9.403 48.2% 35 2 32.7 * 1.50 1 97 * 32.13 40.40 217.4 1978 $ 6.888 10.190 $ 575 s 3.16 s 3 16 $ 8 789 1 2.523 s 2 937 4 185 s 3 395 49.7! * 1.30 1 91 s 24 88 35 45 195 4 U c_ c 14 Statem ent o f R esponsibility/O pinion o f Independent Public Accountants Responsibility for Financial Statements The following consolidated financial statements and related notes of The Dow Chemical Company and its subsidiaries were prepared by management In accordance with generally accepted accounting principles. The Board of Directors, through Its Audit Committee, assumes an oversight role with respect to the preparation of financial statements. The Company is responsible for the Integrity and objectivity of the consolidated financial statements, which are presented in a consistent manner on the accrual basis of accounting. Established accounting procedures are designed to provide accurate books, records and accounts which fairly reflect the transactions of the Company. The training of qualified personnel and the assignment of duties are Intended to provide Internal controls at a cost appropriate to manage ment's evaluation of the risks involved. Such controls are monitored by an internal audit staff, providing reasonable assurances that transactions are executed tn accordance with management's authorization and that adequate accountability for the Company's assets Is maintained. Deloltte Haskins & Sells. Independent public accountants, with direct access to the Board of Directors through Its Audit Committee, have examined the consolidated financial statements prepared by the Company, and their report follows. CO --I CD CD CD CJ1 CD <_n Opinion of Independent Public Accountants TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF THE DOW CHEMICAL COMPANY We have examined the consolidated balance sheets of The Dow Chemical Company and Its subsidiaries as of December 31, 1982 and 1981. and the related consolidated statements of Income, additional paid-in capital, retained earnings, and changes in financial position for each of the three years in the period ended December 31. 1982. Our examinations were made in accordance with gener ally accepted auditing standards and. accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, such financial statements present fairly the financial position of The Dow Chemical Company and Its subsidiaries at December 31. 1982 and 1981. and the results of their operations and the changes In their financial position for each of the three years In the period ended December 31, 1982. in conformity with generally accepted ac counting principles consistently applied during the period except for the change, with which we concur, in the method of stating inventories as described in Note G to the financial statements. Midland, Michigan February 14. 1983 15 Summary of Significant Accounting Policies CONSOLIDATION The accompanying consoli dated financial statements include the assets, liabil ities. revenues and expenses of all significant sub sidiaries except for banks and Insurance compa nies. Because of the nature of their operations, the accounts of these companies are not consolidated. However, their earnings are Included in consolidated net income under the equity method of accounting. NON-CONSOLIDATED EQUITY INVESTMENTS Investments in companies which are 20%-50% owned are carried on the equity basis. Marketable equity securities are carried at the lower of cost or market. Other investments are carried at cost less reserves. TRANSLATION OF FOREIGN CURRENCIES Cash, marketable securities, receivables and lia bilities are translated at current rates. Property, inventories and Investments In capital stock are translated at rates prevailing when the transactions occurred. Deferred income taxes are translated in the same manner as the assets or liabilities to which they relate. Revenues and expenses are translated at appropriate current rates for each month, except that depreciation is recorded at historical rates. Foreign currency gains and losses are reflected in income currently. INVENTORIES Inventories are stated at cost, which is less than market value. Cost is determined on the last-ln. first-out basis for product invento ries and on the first-ln. first-out basis for operat ing supplies. PLANT PROPERTIES AND DEPRECIATION Land, buildings and equipment, including property under capital lease agreements, are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is provided using the declining balance method. Fully depreciated assets are retained in the property and depreciation accounts until they are removed from service. In the case of disposals, the assets and related depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to income. GOODWILL The excess of the cost of investments in subsidiaries over carrying value of assets acquired is shown as goodwill. Goodwill arising since October 1970 is amortized over 40 years. In the opinion of management, goodwill prior to that date requires no amortization. RETIREMENT PLANS The Company and certain subsidiaries have plans which provide retirement benefits for eligible employees. The major plan covers substantially all full-time United States employees. The policy is to accrue and fund pension cost as computed by an actuary. TAXES ON INCOME AND INVESTMENT CREDITS The companies compute and record income taxes currently payable based upon their determination of taxable income which may be different from pretax accounting income. These differences may arise from recording in pretax accounting income transactions which enter into the determination of taxable income in another period. The tax effect of these timing differences is recognized by adjustment currently to the provisioi for taxes. Provision is made for taxes on that Income of subsidiaries which Is taxable in the United States as earned, and on unremitted earnings of subsid iary and associated companies to the extent that such earnings are deemed to be not permanently invested. Laws governing the determination of United States and certain foreign income taxes provide for investment credits for acquisition of qualified facilities. Such credits are reflected as a reduction of income tax expense on the flow-through basis in the year in which they are earned. In addition to tax credits, certain foreign coun tries provide incentives which are granted to encourage new investment. Generally, such grants are credited to income as earned. EARNINGS PER COMMON SHARE The caicula tlon of earnings per share is based on the weighted average number of shares of common stock outstanding during each year. STOO05058 16 Incom e Statem ent Consolidated Statement of Income Operating Costs and Expenses Cost of sales.......................................................................................................... Selling and administrative............................................................................. Operating Income ............................................................................................. Other Income (Expense) Equity in earnings: Nonconsolidated subsidiaries (excluding translation)...................... Losses on translation -- nonconsolidated subsidiaries.................... 20%-50% owned companies....................................................................... Interest income.................................................................................................... Interest and amortization of debt discount and expense..................... Gains on exchange and translation -- consolidated subsidiaries ... Gains on sale of investments......................................................................... . Provision for plant closings and cancelled projects.................................. Sundry income -- net......................................................................................... Income Before Provision for Taxes on Income.................................... Provision for Taxes on Income................................................................... Minority Interests' Share in Income......................................................... Income Before Extraordinary Item........................................................... Extraordinary Item -- Gain on Exchange of Long-Term Debt for Equity................................................................... Net Income............................................................................................................ Earnings Per Common Share Income before extraordinary item................................................................... Extraordinary item............................................................................................. Net Income.............................................................................................................. Year Ended December 31 1982 1981 1980 (In millionsl *10.618 *11.873 *10 626 9.310 952 10.262 356 10.019 938 10,957 916 8.649 765 9.414 1.212 14 (10) 140 108 (514) 47 214 (102) 61 314 (29) 1 342 57 * 399 13 (2) 132 102 (532) 7 108 744 176 4 564 S 564 24 (141 127 87 (385) 31 74 82 1.238 424 9 805 GO CD C_3 U1 CD c_n CO s 805 * 1.77 .30 * 2.07 * 3.00 * 3.00 s 4.42 $ 4.42 See Accounung Policies and Notes to Financial Statements 17 Consolidated Balance Sheet ASSETS December 31 19821981 [In millions) Current Assets Cash........................................................................................... * 22 26 Marketable securities and Interest-bearing deposits (at cost, approximately market).................. 161 67 Accounts and notes receivable: Trade (less allowance for doubtful receivables--1982, *56: 1981. *53)..................... 1.507 1.671 Other..................................................................................... 527 634 Inventories: Finished and work In process....................................... 1.153 1.438 Materials and supplies..................................................... 593675 Total Current Assets................................................. 3.963 ___ 4.511 Investments Capital stock of related companies -- at cost plus equity in accumulated earnings: Banking and Insurance subsidiaries...................... Associated companies (50% owned)........................ 20%-49% owned companies.. ................................ Other investments (at cost) ............................................... Noncurrent receivables ....................................................... Total Investments ..................................................... 198 724 238 172 <Si __j co ^ 182<_n 783cd 130^ 156 194176 1.526 1.427 Plant Properties........................... ....................................... Less -- Accumulated depreciation.................................. Net Plant Properties ................................................. 11,199 10.984 5.2384,810 5.9616.174 Goodwill ................................................................................. Deferred Charges and Other Assets ............................ 195 228 162156 TOTAL........................................................................... *11.807 *12.496 Sec Accounting Policies and Notes to Financial Statements LIABILITIES December 31 1982 1981 (In millions) Current Liabilities Notes payable......................................................................... Long-term debt due within one year............................... Accounts payable. Trade ................ Other ................................................................................... United States and foreign taxes on income................ Accrued and other current liabilities............................. * 213 63 * 448 48 804 983 251 345 119 69 791795 Total Current Liabilities......................................... 2.241 2.688 Long-Term Debt ................................................................. 3.5023.968 Deferred Taxes and Other Liabilities Deferred Income taxes......................................................... Deferred employee benefits............................................... Other noncurrent obligations........................................... Total Deferred Taxes and Other Liabilities----- 733 64 189 986 840 65 905 Minority Interests in Subsidiary Companies.......... 3844 Stockholders' Equity Common stock (authorized 500.000.000 shares of *2.50 par value each: Issued 1982.204.117.415:1981.203.340.584)................ Additional paid-in capital ................................................. Retained earnings ............................................................... 510 509 516 538 4,1414.090 Total............................................................................. Less -- Treasury stock, at cost (1982. 9,947.509: 1981. 13.947.509 shares)....................................... 5.167 127 5.137 246 Net Stockholders' Equity...................................... 5,0404.891 TOTAL......................................................................... *11,807 *12,496 See Accounting Policies and Noies lo Financial Statements CO CD CD CD 03 CD 19 Balance Sheet Consolidated Statement of Additional Paid-In Capital Balance at Beginning of the Year .............................................. Add (Deduct): Excess of selling or market price over par value of common stock issued to employees ................................ Income tax benefit realized from sale of common stock to employees .............................................. Excess of cost over market value of treasury shares Issued: In acquisition of Richardson-Merrell Inc.............................. In exchange for long-term debt.............................................. Balance at End of the Year Year Ended December 31 1982 1981________ 1980 *538 [In millions) *516 *480 16 31 1 (10) (38)________ *516 *538 32 4 *516 Consolidated Statement of Retained Earnings CO --I CD CJ Ln S Balance at Beginning of the Year............................................ ................. Add (Deduct): Net Income .......... Cash dividends declared (per share -- 1982. *1.80: 1981. *1.80: 1980. *1.65) ........................ .................. Balance at End of the Year............................................................................ Year Ended December 31 1982 1981 1980 *4.090 lin mtllionsi *3.868 *3.365 564 805 (348) 1342) 1302) *4.141 *4.090 *3.868 See Accouni jng Policies and Notes to Financial Statements 20 Consolidated Statement of Changes in Financial Position Consolidated Statem ents Funds Provided By Income before extraordinary item.................................................. Charges (credits) to Income not requiring outlay of funds: Depreciation................................................................................... Equity in net income of nonconsolidated companies. less dividends received.............................................................. Deferred income taxes.................................................................. Funds from operations.......................................................... Extraordinary gain on exchange of long-term debt for equity New long-term debt............................................................................ Increase (decrease) in short-term debt and current portion oflong-term debt .................................... Increase (decrease) in current payables and accruals.............. Sale of common stock to employees.............................................. Book value of asset disposals.......................................................... Common stock issued: In acquisition of Richardson-Merrell Inc.................................. In exchange for long-term debt.................................................. Increase In other noncurrent liabilities ...................................... Total Funds Provided...................................................................... Funds Used For New plant properties................................................................................. Cash dividends declared......................................................................... Purchase of treasury stock..................................................................... Reduction in long-term debt: Exchange of debentures for common stock.................................... Other ......................................................................................................... Increase (decrease) in current accounts and notes receivable .... Increase (decrease) in inventories......................................................... Increase in noncurrent receivables and sundry assets .................. Investment in related companies.......................................................... Acquisition of businesses (less cash and securities -- 1981. *32): Plant properties..................................................................................... Goodwill ................................................................................................... Other assets --net................................................................................. Total Funds Used..................................................................................... Net Increase (Decrease) in Funds.......................... Cash and marketable securities, beginning of year Cash and marketable securities, end of year.......... See Accounting Policies and Notes to Financial Statements Year Ended December 3! 1982 1981 1980 (In millions) * 342 * 564 * 805 870 806 728 (88) (57) 1.067 57 267 (104) 218 1.484 628 (99) 169 1.603 650 (220) (251) 18 560 (272) 49 35 49 135 53 40 103 260 80 182 1.760 2.233 2.584 829 348 137 596 (245) (367) 225 147 1.670 1.176 342 67 158 44 110 113 16 128 128 26 2.308 1.184 302 267 106 621 127 61 2.668 CO CD CD CD Ol CD CD CD 90 93 s 183 (75) 168 * 93 (84) 252 * 168 21 Notes to Financial Statements A. FOREIGN CURRENCY TRANSLATION On Januarv 1. 1983. the Company adopted State ment of Financial Accounting Standards No. 52 as Its method of translating foreign currencies. The United States dollar is used as the functional currency throughout the world except for operations in Germany. Japan and Dow Banking Corporation. The effect of this change was to increase stock holders' equity at January 1. 1983, by approximately *20 million. B. EXTRAORDINARY ITEM In 1982. the Com pany exchanged 4.000.000 shares of Its common stock in a tax-free exchange for Dow bonds having a face value of *137 million. This exchange of long term debt for equity resulted in an extraordinary gain of *57 million, or *.30 per common share. C. ACQUISITIONS AND DIVESTITURES In March 1982. the Company and Asaht Chemical Industry Company. Ltd. reached agreement for the dissolution of their Interests in Asahl-Dow Limited, a Japanese joint venture. The Asahi-Dow Styrofoam brand plastic foam business, Including three manufacturing plants, was transferred to a new Dow subsidiary in Japan. The Company received approximately *162 million in cash and short-term securities and *69 million in other assets, resuiting in a pretax gain of *135 million. On September 30. 1982. the Company completed the sale and exchange of its United States oil and gas properties to Apache Petroleum Company ("APC"). The transaction provided for the con veyance by Dow to APC of an undivided 90% Interest in the producing oil and gas properties of Dow's oil and gas division, all nonproducing oil and gas properties of the division; and certain assets and rights used by the division in evaluating, exploring, developing, and administering its oil and gas properties. Including computer software. In ex change for these assets. APC issued to Dow 9 million APC Depositary Units, assumed *150 million of Dow liabilities, and paid Dow *90 million in cash, a total combined value of approximately *402 million. APC contributed the Dow assets to APD Company ("APD"|. a partnership formed between APC and a Dow subsidiary. Dow contributed to APD its 10% retained interest in the producing proper ties and will contribute to APD *350 million in quarterly cash contributions of *7 million over the next 12-1/2 years for use as drilling funds. In addition, the Company has guaranteed certain quantities of production from three fields included In the producing properties and has agreed to purchase approximately 75% of the gas produced from the conveyed producing properties. The purchase price of the production is determined in accordance with the National Gas Policy Act of 1978. Depending upon the success of the future explora tion program, some portion of the drilling funds will be charged as expense to the extent that proved reserves are not discovered. That amount Is not determinable at this time and such charges will be recognized in future years. No income was recog nized when the properties were conveyed to APC. however, fourth quarter earnings included *15 million of pretax income realized from the sale of 1.6 million of the APC Depositary Units. The Company agreed in October 1982 to sell its total shareholdings In Dow Chemical Korea Limited and the joint venture Korea Pacific Chemical Corporation to the Korea Explosives Group for *60 million. Dow agreed to provide ongoing technical support to the two companies and the Korea Explosives Group assumed certain financial obliga tions of Dow with respect to the two companies. The Company realized *7 millionpretax income from ^ the transaction. j On November 1. 1982. the Company completed the sale of Its Blo-Sclence Enterprises subsidiary, a Q clinical laboratory business, to AmericanHospital (-0 Supply Corporation for approximately *120 million in cash. The divestiture resulted in a pretax gain of q *44 million. q-, As previously reported, the Company acquired the .c- ethical pharmaceutical business of Richardson- Merrell Inc. In 1981 in exchange for approximately 7.3 million shares of Dow common stock having a value of *260 million. The acquisition was ac counted for as a purchase, and revenues and results of operations since March 10. 1981. are included in the Consolidated Statement of Income. D. PROJECT CANCELLATIONS AND PLANT CLOSINGS In the fourth quarter of 1982 the Company withdrew from joint ventures for the construction of petrochemical projects in Yugoslavia and Saudi Arabia. In addition, other sundry projects were cancelled, related primarily to indus trial chemical production. A pretax charge of *102 million was recorded in the fourth quarter for estimated project cancellation costs. 22 Notes E. INTEREST COST The following is an analysis of interest and amortization of debt discount and expense: Interest Incurred on debt . .. Less: Interest capitalized ... Year Ended December 31 1982 1981 1980 *579 65 *514 (In millionsl *605 73 *532 *456 71 *385 F. TAXES ON INCOME Domestic and foreign components of pretax accounting Income, classified primarily by the domicile of each company, were: Domestic ............................... Foreign................................... Income before tax ................ Year Ended December 31 1982 tin millions) *211 *526 849 160218389 *371*744 *1.238 This classification of profit before tax will differ from Note 9. page 28. which presents revenue and profits allocated by geographic area in accordance with area management organization. The provision for taxes on income consisted of: State and Federal Local Foreign Total 1982 Current ................ Deferred................ Total .................. I In millionsl *11041 * 3 *129 (38)(19) *t 142) *3 *110 * 28 157) (29) 1981 Current ................ *1103] * ( 1) Deferred................ 200182 i 8 Total .................. * 97 * (1) 1980 Current ................ * 125 *13 Deferred................ 15316169 Total .................. * 278 *13 * 62 *1421 * 80 *176 *117 *133 *255 *424 The current tax provision was reduced by investment and other tax credits of * 121 million in 1982. *115 million in 1981 and *94 million in 1980. The Company had available for federal income tax purposes at December 31. 1982. United States investment and foreign tax credit carryforwards totaling *73 million which expire beginning In 1987. In addition, certain foreign subsidiaries had net operating loss carryforwards totaling approxi mately *222 million (at December 31. 1982 exchange rates) which expire in 1983 through 1991. For financial reporting purposes, previously re corded deferred tax credits have been reduced by 89 million for the tax benefits of carryforwards. The deferred tax credits eliminated will be rein stated as the tax benefits of the carryforwards are realized for tax purposes. Deferred tax provisions related to the following: Tax benefits of tax credit and loss carryforwards................ Tax effects1o9f8f1oreign 1980 exchange transactions................ Excess of depreciation and depletion claimed for tax purposes over book amounts .... Taxable gain on sale of oil and gas properties........................ Undistributed earnings of foreign subsidiaries deemed not to be permanently invested.................. Income of export and shipping companies operating outside the United States......................... Difference between LIFO method claimed for tax purposes and book amounts....................... Other -- net ...................................... Total........................................... 1982 1981 1980 (In millions) * (89) (2) * (44) * (9) 52 137 125 (40) (331 4 8 24 108 31 5 * (57) *218 CO -4 13 CD CD f-O 29 U1 CD CD (2) CD 13 s 169 Current deferred taxes payable included in the Consolidated Balance Sheet caption "United States and foreign taxes on income" were *24 million at December 31. 1982. Current deferred tax benefits totaling *26 million are included in "Accounts and notes receivable: Other" at December 31. 1981. Prior to 1981, the Company provided taxes on the full earnings of its domestic international sales corporation (DISC). The Company has determined that commencing with the year ended December 31. 1981, the tax deferred earnings of the DISC will be permanently invested and that under present statutes no tax on those earnings will be payable. The effect of this change in estimate was to increase net income for the year ended December 31. 1981. by *17 million and Increase earnings per common share by *.09. 23 Notes to Financial Statements Major differences between the effective rate and the United States statutory rate were: Percent 1982 1981 1980 Statutory rate................................... U.S. investment and other tax credits.................... Nontaxable gain on exchange of long-term debt for equity....... Taxes on income of foreign operations at tax rates different from U.S. statutory rate (including DISC) .......................... Untaxed equity in income of companies whose accounts are not consolidated.................... State and local Income taxes (net of federal taxi ........................ Gain on sale of subsidiaries........... Other .................................................. Effective rate..................................... 46 0 46.0 46.0 (31.0) ill.8) 16.1) (7.0) (2.9) (7.6) 12.4) 15.3) (5.9) (2.9) 0.4 (8.7) 0.7 (7.8) 0.3 2.7 23.7 0.5 (0.8) 34.3 Unremitted earnings of subsidiary and related companies accounted for by the equity method, which are deemed to be permanently invested, amounted to approximately *1.6 billion, *1.5 billion and *1.3 billion at December 31. 1982. 1981 and 1980. respectively. G. INVENTORIES Beginning in 1974. invento ries have been valued, for both tax and financial reporting purposes, under the last-in. first-out method (UFO) using inventory pools corresponding to business segments. In 1981. the Internal Revenue Service changed its requirement that inventories be the same for both tax and financial reporting. As a result of that modification, the Company realigned its LIFO inventory pools for financial reporting purposes to correspond to product groups rather than business segments, thereby achieving. In the opinion of management, a better matching of cost and revenue. The change was made effective January 1. 1981. The effect of the change was to increase net income for the year ended December 31. 1981. by *101 million and increase earnings per common share by *.54. Pro forma amounts for retroactive application or the cumulative effect of this change are not determinable. A reduction of inventories in 1982 resulted in some quantities of LIFO inventory carried at lower costs prevailing in prior years being liquidated. The effect of these liquidations was to affect pretax income favorably by approximately *145 million for the year ended December 31. 1982. The amount ^f reserve required to reduce inventories from the first-in. first-out basis to the last-in. first-out basis at December 31. 1982 and 1981, was *419 million and *713 million, respectively. H. SUPPLEMENTARY INFORMATION Accrued and Other Current Liabilities December 31 1982 1981 Accrued vacations ................................... Employees'retirement plan.................... Interest payable......................................... Sundry....................................................... Total .................................................... (In millions) *134 *140 125 121 123 126 409408 *791 *795 Net Sundry Income Year Ended December 31 1982 1981 1980 T 00 05 0 Royalty Income .................... ......... Profit on securities............... ......... Profit on redemption of long-term debt ............. ......... Other -- net.......................... ......... Total............................... ......... (in millions) *28 * 28 * 24 1 33 18 8 24 * 61 14 33 *108 14 26 62' CT> Supplemeatary Income Statement Information Year Ended December 31 1982 1981 1980 Maintenance and repairs.............. Depreciation and depletion of plant properties ...................... Research and development........... Taxes, other than U.S. and foreign taxes on income: Property and other taxes ....... Payroll taxes............................. Provision for doubtful receivables . lln millions) *559 *633 S59? 870 806 728 460 404 314 135 145 126 154 144 129 28 12 15 I. NOTES PAYABLE Notes payable consisted primarily of obligations due banks with a variety of Interest rates and maturities. The balance at December 31. 1981. included commercial paper in the amount of *155 million. No commercial paper was outstanding at December 31. 1982. 24 N o te s J. LEASED PROPERTIES Capital leases in cluded with owned property In the balance sheet were: December 31 1982 1981 Land...................................................................... Buildings ........................................................... Machinery and equipment ...................... Office furniture and equipment............... (In millions) *1 *1 12 137 144 77 Total............. ........................................ 146 154 Less--Accumulated depreciation........... 104104 Net......................................................... 42 *50 Minimum lease commitments at December 31. 1982. were as follows: Capital Operating Leases Leases 1983 ....................................................... 1984 ....................................................... 1985 ....................................................... 1986 ....................................................... 1987 ....................................................... 1988 and thereafter............................. Total minimum lease payments......... (In mllllonsl *14 126 12 127 11 113 10 114 10 107 70803 127 *1.390 Less -- Estimated executory costs .... Net minimum lease payments............. Less --Amounts estimated to represent interest......................... Present value of net minimum lease obligations ............................... Less -- Current accounts payable................................................ Long term capital lease obligations ........................................ ____ 1. 126 48 78 ....... 8 * 70 Minimum operating lease commitments have not been reduced by minimum sublease rentals of *2 million due in the future under non-cancelable subleases Rental payments under operating leases charged to expense were: Year Ended December 31 1982 1981 1980 lln millions! Minimum rentals.................. .........*184 $147 $108 Contingent rentals ............... ......... 3 11 10 Less -- Sublease rentals....... . ... 151 14) (1) Net ................................. ......... * 182 *154 *1 17 K. LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES Details of debt due after one year were as follows: Promissory notes: 12.85%. final maturity 1985 .... 8.00%. final maturity 1986 .... 4.50%. final maturity 1990 .... 5.00%, final maturity 1991 .... Debentures: 8.78%. final maturity 1987. Canadian dollar........................ 4.35%. final maturity 1988 ....... 6.70%. final maturity 1998 ....... 7.75%. final maturity 1999 ....... 8.85%. final maturity 1999 ....... 8.875%. final maturity 2000 .... 8 90%. final maturity 2000 ....... 7.40%. final maturity 2002 ....... 7 625%. final maturity 2003 .... 8.50%. final maturity 2005 ....... 8.50%. final maturity 2006 ....... 7.875%. final maturity 2007 .... 8.625%. final maturity 2008 .... 1 1 25%. final maturity 2010....... Bonds: 8.50%. final maturity 1989, Swiss franc ................................. 8.50%. final maturity 1992. Japanese yen............................... 9.625%. final maturity 1994 .... Other--Various rates and maturities: Foreign currency loans ................ Brazilian U.S. dollar loans ........... Other L'.S. dollar loans.................. Pollution control/ Industrial revenue bonds ........................... Capital lease obligations.............. Less -- Unamortizcd debt discount...................................... Total............................................. December 31 1982 tin millions) * 150 120 55 48 * 150 120 60 52 213 20 35 35 60 43 59 56 60 71 89 86 94 56 71 59 71 212 225 188 200 GO 284 300 --i 300 300 OD 400 400 CD t.D cn 33 CD c,n 85 196 197 l 11 1 12 407 348 70 3.512 10 *3.502 109 163 535 303 79 3.973 10 *3.968 The amounts shown are stated net of debentures purchased to satisfy future sinking fund requirements. The average interest rate on long-term debt was 9.9% in 1982 compared to 9.2% in 1981. Annual Installments on long-term debt and capital lease obligations for the next 5 years are as follows (in millions): 1983. *63: 1984. s99: 1985. *266;1986. *164:1987. *454. 25 Notes to Financial Statements Unused and available credit facilities from various United States banks totaling *685 million at December 31. 1982. required the retention of average cash balances aggregating approximately *36 mil lion. These requirements were generally satisfied by balances maintained for normal business operations. Additional unused and available credit facilities with various United States and foreign banks totaling *1.1 billion at December 31, 1982. required the payment of commitment fees. Both of these groups of facilities, totaling *1.8 billion, are available In support of commercial paper borrowing or long-term financing arrangements. Additional unused credit facilities totaling *475 million at December 31, 1982. are available for use by foreign subsidiaries. L. PLANT PROPERTIES December 31 1982 1981 Land..................................................... . Land and waterway improvements . Buildings ............................................ Machinery and equipment ............... Wells and brine systems.................... Office furniture and equipment .... Oil and gas land and leaseholds .. . Other ................................................... Construction In progress ................ Total.............................................. . (In millions) 199 * 191 340 341 924 866 8,352 7.933 182 329 187 182 18 129 299 120 698 893 *11.199 *10.984 M. RELATED COMPANY TRANSACTIONS The Company's investments in nonconsolidated subsidi aries and companies which are 20%-50% owned at December 31, 1982 and 1981. were *1.160 million and *1.095 million, respectively. These amounts approximate the Company's equity in the net assets of these investments. Dividends received from related companies were *56 million in 1982. *39 million in 1981 and *38 million in 1980. All other transactions with and balances due to or from related companies, were not material In amount. N. RETIREMENT PLANS The Company and Its subsidiaries have several retirement plans covering substantially all of their employees, including certain employees in foreign countries. The cost of all retirement plans was *126 million in 1982. *121 million in 1981 and *127 million in 1980. The Company makes annual contributions to the plans equal to the amounts accrued for pension expense, as determined by the aggregate cost method of valuation. A comparison of accumulated plan benefits and plan assets for the Company's domestic defined benefit plan, representing more than 85 percent of accumulated pension plan benefits for the Company and its consolidated subsidiaries, was: Actuarial present value of accumulated plan benefits: Vested............................... ............. Nonvested ........................ ............. Net assets available for benefits ......................... ............. January I 1983 1982 (in millions] *1,044 175 *1.219 887 188 *1.075 *1.168 *1.026 Effective January 1981. the Company changed its investment return assumption for the domestic defined benefit plan from 6.5 percent to 8.0 percent and changed Its pay increase assumption from 3 percent to 6 percent. These changes were adopted to reflect assumptions which will more clearly match anticipated future experience and are reflected in the actuarial present value of accumulated plan benefits at January 1. 1982. The net effect of the changes on 1981 results of operations as compared with the year ended December 31. 1980. was to reduce pension expense by *16 million and increase net income by *9 million, or *.05 per common share. Actuarial assumptions Include an average retirement age of 62 and turnover based on experience. The plan was amended in 1982 to provide a retirement incentive for certain employees who elected to retire during the period March 1. 1982. to May 1. 1982. This change resulted in an increase of *18 million in the actuarial present value of vested accumulated plan benefits at January' 1. 1983. The Company's foreign pension plans are not required to report pursuant to ERISA and have not determined for 1982 the actuarial value of accumu lated benefits or net assets available for benefits as calculated and disclosed above. However, as of January 1. 1982 and 1981. available assets in other plans exceeded vested benefits by approximately *73 million and *65 million, respectively. ^ --i ^ 0 c-n 0 cr> 4:0 O. STOCK OPTION AND AWARD PLANS Stock option plans and management Incentive awards related to consolidated net income are described In the Company's Proxy Statement of March 1983. Options under all plans are granted at market price of the shares on the date of the grants. A summary 26 of transactions during the last two years for such plans is as follows: 1982 Deferred Stock Dividend Units Granted during year . Outstanding at December 31 .. .. Available for grant at December 31 . ... (In thousands) 15 188 516 525 1.682 1.295 1981 Granted during year . Outstanding at December 31___ Available for grant at December 31 .... Deferred Stock Dividend Units (In thousands) 70 5 556 349 1.694 1.483 Shares of common stock under option for all plans were: 1982 Number of Shares Option Price Range Outstanding at December 31....... Granted during year .. Exercised during year . (In thousands) 3.749 1.035 124 *20.125-*36.125 *20.125-*24.188 *22.14 *26.688 1981 Number of Shares Option Price Range lln thousands) Outstanding at December 31 ....... Granted during year .. Exercised during year . 4.238 884 168 *22.14-*41.875 *22.50 *36.125 *22. 14-*37.00 Options expired or terminated during vear................................... Options exercisable at December 31............................ Options available lor grant at December 31........................ 1982 1981 (In thousands) 1.400 468 2.732 3.372 1.058 2.056 Aggregate amounts charged to expense for all plans were *5 million in 1982. *1 million in 1981 and *10 million in 1980. The Company made offerings of common stock to its employees, excluding directors. In 1982 and 1981 at *19.10 per share and *30.40 per share, respectively, payable generally through payroll de ductions. Unfilled subscriptions (in thousands), cancelable at the option of the employee, were 1.604 and 698. respectively, at December 31. 1982 and 1981. Partial payments on these subscriptions aggregating *19 million and *14 million at Decem ber 31. 1982 and 1981. respectively, are Included in current liabilities. P. COMMITMENTS AND CONTINGENT LIA BILITIES The Company and Its subsidiaries are parties to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters including product liabilities, governmental regulation including environmental 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 there under are not determinable at December 31. 1982. but 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. As a general partner of several partnerships, the Company may be liable for any deficiencies which may arise in meeting the terms of loan obligations incurred by the partnerships. Assets of the partner ships which have been pledged as security for these loans are currently In excess of the loan obligations. The Company has various purchase commitments for materials, supplies and items of permanent investment related to the ordinary conduct of business. Such commitments are not at prices 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 opera tions of the Company. A Canadian subsidiary has entered into two 20year agreements to purchase substantially all the output of an ethylene plant (Plant No. 1). and 40% of the output of a second ethylene plant (Plant No. 2) upon its completion. The purchase price of the output is determined on a cost-of-service basis which, in addition to covering all operating ex penses. provides the owner of the plants with a specified return on capital. The owner of the plants. The Alberta Gas Ethylene Company. Ltd., has borrowed *228 million for the construction of Plant No. 1 which has been guaranteed as to principal and interest by the Company. 27 ST0005069 2 2- Notes to Financial Statements omcoms The Company has contracted to purchase process steam from a nuclear power plant being constructed by Consumers Power Company at Midland. Michi gan. If the Company terminates the contract due to circumstances specified In the contract. Consumers may claim that the Company is obligated to pay a termination fee. which as of December 31. 1982. was estimated to be either *373 million or *746 million depending upon the circumstances giving rise to the termination. A United Kingdom partnership has entered Into a 15-year operating lease agreement for a semlsubmerslble drilling rig to be used for oil and gas drilling operations. A subsidiary of the Company is a participant In the partnership and the Company has severally guaranteed 50% of the lease payments to be made by the partnership. The present value of that guarantee amounted to *44 million at December 31. 1982. In addition, the Company has guaranteed loans of related companies in the amount of *175 million. g. GEOGRAPHIC AND INDUSTRY SEGMENTS The Company conducts its worldwide operations through separate geographic area organizations which represent major markets or combinations of related markets. The results by geographic area for the three years were (In millions): United States Europe Canada Pacific Latin America Brazil Ellm. and Corp. Items Consoli dated 1982 Sales to unafftltated customers .,, Transfers between areas........... Operating income ...................... Profit (loss) before tax.................. Identifiable assets....................... *5.074 826 335 328 6.441 *3.358 105 51 1571 2.569 751 149 9 (22) 1.401 *683 1 36 155 436 *412 8 14 9 357 *340 41 33 8 497 *(1.1301 (1221 (107) 106 *10.618 356 314 11.807 1981 Sales to unaffiliated customers . . Transfers between areas ............ Operating Income ...................... Profit (loss) before tax................ identifiable assets..................... *6.182 924 680 636 6.793 *3.292 241 135 80 2.530 837 192 1 10 67 1.513 *711 1 42 29 626 *545 9 56 53 397 306 44 7 (221 533 *1 1.873 (1.411) (1141 916 (991 744 104 12.496 1980 Sales to unaffillated customers . . Transfers between areas........... Operating income ..................... Profit (loss) before tax................ Identifiable assets ................ *5.133 909 741 809 6.088 *3.225 186 341 312 2.393 731 113 95 59 1.392 *680 1 74 75 636 *557 6 90 93 394 *300 30 113) 543 *10.626 *(1.245) 1129) 1.212 197) 1.238 92 11.538 Transfers between areas are valued at cost plus a markup. There were no direct sales to foreign customers from domestic operations. Aggregation of products into industry segments is generally made on the basis of process technology, end- use markets and channels of distribution. Principal industry segments were expanded to five in 1981 in recognition of the growing importance of the specialty products business and the petroleum production services of Dowell. Segment results for 1980 were restated to provide consistency between periods. The Industrial Chemicals segment embodies commodity chemicals and hydrocarbon intermediates. The Plastics and Metals segment includes large volume polyethylene and polystyrene products and the Company's magnesium business. The Specialty Products segment is comprised of functional chemicals and a variety of plastic coatings, films and foams. Petroleum production services and industrial equipment cleaning are in the Dowell segment. The Bioproducts and Consumer Products segment encompasses human, animal and plant health care products, in addition to household films and cleaning chemicals. 28 Industry segment results for the three years were (in millions): Industrial Plastics Chemicals and Metals Specialty Products Dowell Bioproducts and Consumer Products 1982 Sales to unaffiliated customers . Intersegment transfers ............. Operating Income ...................... Identifiable assets...................... Depreciation ............................... Additions to property................. *4.958 1.661 (13) 5,519 519 496 *1.809 99 22 1.448 97 98 *1.485 279 217 1.157 66 61 864 36 701 122 114 *1.502 18 94 1.301 66 60 1981 Sales to unaffiliated customers . Intersegment transfers ............... Operating Income ........................ Identifiable assets ........................ Depreciation ............................... . Additions to property................... *5.673 1.994 307 5.900 496 676 *2.109 163 67 1.800 117 179 *1,605 414 238 936 69 112 1.031 205 720 57 127 *1.455 8 99 1.607 67 82 1980 Sales to unaffiliated customers .. Intersegment transfers ............... Operating Income ........................ identifiable assets........................ Depreciation................................. Additions to property.................. *4.921 1.666 429 5.746 443 745 *2.224 118 286 1.672 1 17 180 *1.567 272 256 903 66 95 * 762 167 587 45 95 *1.152 8 74 1.152 57 69 EUm. and Corp. Items Consolldated *(2.057) 1.681 *10.618 356 11,807 870 829 *12.579) 1.533 11.873 916 12,496 806 1.176 *(2.064) 1.478 10,626 1,212 11.538 728 1.184 Transfers between Industry segments are generally valued at standard cost. The effect of the LIFO accounting change discussed In Note G ts reflected In the segment operating income for 1981: however, the determination of the impact on individual segment results is not practicable. R. STOCKHOLDERS' EQUITY The authorized capital stock consists of 25 million preferred shares with a par value of *1.00 per share, none of which has been issued, and 500 million shares of common stock with a par value of *2.50 per share. The changes in the number of Issued shares (in thousands) In the last three years were: 1982 Beginning of the year .. .. 203.341 Sold to employees......... 776 Conversion of debentures........... End of the year ............. .. 204.1 17 1981 202,076 1.265 203.341 1980 200.555 1.519 2 202.076 , At December 31. 1982. 1981 and 1980. shares of common stock (in thousands) outstanding were 194,170; 189.393 and 182.702. after deducting 9.947; 13.948 and 19.374 shares of treasury stock, respectively. Shares of common stock (in thousands) were reserved for the following purposes at December 31: Shares 1982 1981 1980 Stock option and award plans......... Employees stock purchase plan ........... Conversion of debentures............... Total shares reserved . . . 7.003 1.604 8.607 8.544 698 12 9.254 9.354 1.135 12 10.501 Retained earnings of the parent company were approximately *1,644 million at December 31. 1982. 29 ST00050?I tr Notes to Financial Statements "ST0005072 and there were no significant restrictions limiting the availability for dividend purposes. Undistributed earnings of 20%-50% owned com panies included in retained earnings were #531 million and *560 million at December 31, 1982 and 1981. respectively. In computing earnings per share, no adjustment was made for common shares issuable under award, option and stock purchase plans because there would be no material dilutive effect. S. COMBINED FINANCIAL STATEMENTS OF PRINCIPAL 50% OWNED COMPANIES The summarized financial statements shown below represent the combined accounts of principal com panies In which Dow owns a 50 percent Interest. Combined Balance Sheet December 31 1982 1981 Current assets ....................... Plant property -- net.............. Other assets ........................... Total assets ..................... Current liabilities .................. Long-term debt ...................... Other liabilities ...................... Stockholders'equitv.............. Total liabilities and stockholders'equity . (In millions) * 823 *1.155 2.524 i .985 50 84 *3.397 *3.224 * 580 1.165 1 10 1.542 943 409 92 1.780 *3.397 *3.224 Statement of Combined Income and Retained Earnings Year Ended December 31 1982 1981 1980 Sales...................................... Cost of sales......................... Other expenses --net ........... Income before provision for taxes on income ........... Taxes on income.............. Net income ............. Retained earnings at beginning of year........... Dividends declared................ Retained earnings at end of year ...................... |In mililonsl *2.343 *2.536 *2.447 i .64 I i.821 1.796 421 373 322 281 69 212 1.000 (911 342 118 224 835 1591 329 128 201 687 (53) *1.121 *1.000 * 835 Amounts presented include the assets, liabilities, revenues and expenses of Asahi-Dow Limited and Korea Pacific Chemical Corporation until the dates of sale prior to December 31. 1982. 30 MT Partnership, a Canadian joint venture, ac quired an Interest in certain oil and gas properties of Hudson Bay Oil and Gas Company Limited for approximately *380 million In March 1982. Funds for the purchase were obtained through loans from a group of banks and collateralized by the properties acquired. The purchase agreement requires addi tional payments over a 5-year period related to revaluation of the properties to reflect changing energy prices, royalties and taxes. T. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DOW BANKING CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet December 31 1982 1981 Cash and due from banks ................ Marketable securities......................... Bills discounted.................................. Loans and overdrafts ......................... Other assets ....................................... Total assets .................................. Demand and time deposits .............. Other liabilities .................................. Stockholders'equity........................... Total liabilities and stockholders' equity............. (In millions) * 473 * 571 306 269 89 120 788 598 8696 *1,742 *1,654 *1.549 *1.447 59 54 134153 *1,742 *1,654 Consolidated Statement of Income Year Ended December 31 1982 1981 1980 Operating income .............. ......... Operating expenses ......... ......... Net operating income....... ........ Loss on translation........... ......... Profit (loss) before taxes on income ..................... ......... Taxes on Income .............. ......... Net income lloss) .............. ......... (In millions) *202 *178 *122 201 171 1 12 1 7 10 13 2 15 112) 1 * (13) 5 2 *3 15) 2 * (7| The Company's share of the equity in the consolidated net assets of the Dow Banking Corporation and subsidiaries at December 31. 1982 and 1981. was *102 million and *116 million, respectively: equity in net earnings for each of the three years ending December 31. 1982. 1981 and 1980 was *9.6 million loss. *2.6 million profit and *5.5 million loss, respectively. Geographic Results (Unaudited) Sales United States ... Europe ................. Canada ................. Pacific................... Latin America .. Brazil ................... TOTAL ................. 1982 * 5.074 3,358 751 683 412 340 10.618 1981 1980 (dollars In millions) 6.182 3.292 837 711 545 306 5.133 3.225 731 680 557 300 11.873 10.626 Operating Income United States ... Europe ................. Canada ................. Pacific................... Latin America .. Brazil ................... Unallocated......... TOTAL ................. 335 51 9 36 14 33 (122) 356 680 135 110 42 56 7 (114) 916 741 341 95 74 90 (129) 1.212 Profit (Loss) Before Tax United States ... Europe ................. Canada ................. Pacific................... Latin America .. Brazil ................... Unallocated........ TOTAL ................. 328 (57) (22) 155 9 8 (107) 314' 636 80 67 29 53 (22) (99) 744 809 312 59 75 93 (13) (97) 1.238 Gross Plant Properties United States ... Europe ................. Canada ................. Pacific.................. Latin America .. Brazil ................... TOTAL ................. 6,678 2,327 1.346 197 156 495 11,199 6.687 2.064 1.312 299 138 484 10.984 * 6.057 1.855 1.158 273 97 433 9.873 Capital Expenditures United States ... Europe ................. Canada ................. Pacific................... Latin America .. Brazil ................... TOTAL ................ * 427 274 63 22 24 19 829 711 212 149 30 38 36 * 1.176 754 235 113 33 15 34 1,184 Employees (thousands) United States ... Europe ................. Canada ................. Pacific................... Latin America .. Brazil .................. TOTAL ................ 32.8 12.5 4.2 2.9 2.2 2.0 56.6 38.6 13.0 4.4 2.1 2.5 3.2 63.8 34.8 11.3 4.0 2.0 2.5 2.2 56.8 ' Excludes extraordinary income GO CD CD c_n CD -VI CkJ 31 G eographic R esults Product Group Sales Analysis principal Products and Services WOSOOOIS : Uses Industrial Chemicals Group Inorganic Chemicals Caustic soda.................................... Calcium chloride............................ Chlorinated solvents...................... Chlorine............................................ Ethylene dibromide ...................... Vinyl chloride monomer.............. Production of paper, alumina, rayon. petroleum products and industrial chemicals Road deicing and dust control Metal cleaning, dry cleaning, paint removers, paints and electronics Chemical intermediate, water treatment, paper Soil fumigant and lead scavenger Production of polyvinylchloride Organic Chemicals Acetone.............................................. Ethylene glycol................................ Glycerine .......................................... VORANATE isocyanates and VORANOL polyols.............. Phenol................................................ Propylene glycols............................ Styrene monomer.......................... Solvent, production of methyl methacrylate Antifreeze, polyester fiber production Alkyd resins, tobacco products Flexible foam and rigid, elastomeric urethane products and foams Plastic resins and adhesives Polyester resins, pet food humectant Production of polystyrene plastic Hydrocarbons Ethylene/propylene........................ Chemical intermediate Naphtha............................................ Petrochemical raw material Other petroleum products .......... Fuels, feedstocks Total sales.............................................................................................................. 1982 1981 1980 Approximate Sales (In mUltons) *1.405 *1,637 *1.648 1.947 1.914 1.857 1,606 2.122 1.416 *4.958 *5.673 *4,921 Plastics and Metals Group Plastic Materials Acrylonitrile-butadienestyrene (ABS) DOWLEX linear low density polyethylene.................. High density polyethylene Low density polyethylene STYRON polystyrene Used in injection molding, blow molding and extrusion processes for fabrication of articles and in the automotive, appliance, dairy, food packaging, wire and cable, housewares. toy and construction industries Metals Magnesium sheet, plate and extrusions............................ Commercial and military products Magnesium ingot............................ Aluminum alloys, steel processing Total sales.................................................................................................................... *1.566 *1.761 *1.888 243 348 336 _______________________________ *1.809 *2.109 *2.224 Total Industrial Raw Materials 32 *6.767 *7.782 *7.145 Uses Specialty Products Group Functional Chemicals Ion exchange resins...................... METHOCEL cellulose ethers----- SEPARAN floccuiant...................... Plastic lined piping products Water purification Building materials, paint, pharmaceuticals Mining, pulp and paper industries, enhances oil recovery Handling corrosive fluids Coatings Epoxy resins..................................... Styrene butadiene latexes............ Coatings, adhesives, laminates Paper and carpeting Plastic Products Polyethylene film............................ TRYCITE polystyrene film............ STYROFOAM polystyrene foam .. SARAN film....................................... Industrial packaging, agricultural use Window envelopes, functional and decorative packaging Insulation, buoyancy, floral and craft uses Commercial packaging Total sales..................................... Dowell Group Dowell services Petroleum production services, equipment cleaning, mining products and services Bioproducts and Consumer Products Group Human Health CEPACOL products........................ NOVAHIST1NE products.............. RIFADIN and RIFOC1N antibiotics.................................... LORELCO hypochoiesterolemic . Oral hygiene Cough and cold preparations Broad spectrum antibiotics used primarily for TB treatment Cholesterol lowering drug Agricultural Chemicals DURSBAN insecticide .................. LORS8AN insecticide.................... N-SERVE nitrogen stabilizer Phenoxy herbicides......................... TORDON herbicide........................ Consumer Products DOW Bathroom Cleaner.............. DOWGARD antifreeze.................... HANDI-WRAP plastic film............ SARAN WRAP plastic film............ ZIPLOC bags Industrial uses Agricultural uses Fertilizer supplement Weed and brush control Weed and brush control Household cleaner Automotive use Household plastic film Household plastic film Food storage Total sales Total Specialties and Services 1982 1981 1980 Approximate Sales IJn millions) * 335 * 345 * 334 688 849 834 462 411 399 *1.485 * 864 *1.605 *1.031 *1.567^ CD CD * 762es C-n * 752 * 723 c-n * 481 530 533 506 220 199 165 *1.502 *3.851 *1.455 *4.091 *1.152 *3.481 33 P ro d u c t G roup A nalysis 11-Year Summary of Selected Financial Data (In millions, except per share) 920S000J.S : 1982 1981 1980 Summary of Operations Net sales ........................................................................................... .......................... Cost of sales..................................................................................... .......................... Selling and administrative ........................................................ ........................... Operating Income ............................................................ .......................... Investment and sundry Income --net ................................... .......................... Interest expense -- net ................................................................ .......................... Income before provision for taxes............................... .......................... Taxes on income............................................................................ .......................... Minority interests' share In income....................................... .......................... Income before extraordinary Items and cumulative effect of accounting change ................................................................................ ........ Per share of common stock (in dollars) (*): Income before extraordinary Items and cumulative effect of accounting change ............................................................................ ........ Cash dividends paid per share .............................................................. ........ Average common shares outstanding (thousands) (*) ....................... ........ Year-End Financial Position Total assets ....................................................................................................... ........ Working capital................................................................................................. ........ Property, plant and equipment --gross ................................................. ........ Property, plant and equipment -- net ....................................................... ........ Long-term debt................................................................................................. ........ Total debt ........................................................................................................... ........ Stockholders' equity ................................................................................................ *10.618 9.310 952 356 364 (406) 314 (29) 1 *11.873 10,019 938 916 258 (430) 744 176 4 342(a) * 564 1.77(a) * 3.00 1.80 1.80 193.224 187.961 *11.807 1.722 11.199 5.961 3.502 3.778 5.040 *12,496 1.823 10.984 6.174 3.968 4.464 4.891 10.626 8.649 765 1.212 324 (298) 1.238 424 9 805 * 4.42 1.60 182.162 *11.538 1.587 9.873 5.672 3.438 4.174 4.440 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 (*)......................................................... ............ Borrowings as a percentage of total capital invested .................... ............ 4.3% 3.0% 8.0% 25.96 42.7% 3.4% 6.3% 12.1% * 25.83 47.5% 3.0% 11.6% 19.3% 24.30 48.2% General Capita] expenditures.................................................................................. ............ Depreciation ................................................................................................ ............ Research and development expenses................................................... ............ Taxes (major)................................................................................................ ............ Wages and salaries paid............................................................................ ............ Cost of employee benefits ........................................................................ ............ Number of employees at year-end (thousands)................................. ............ Market price of common stock (*) High .......................................................................................... ............ ............ Close on December 31 .......................................................................... ............ Number of stockholders at year-end (thousands) ........................... ............ * 829 870 460 260 1.668 390 56.6 * 28.88 19.63 25.88 144.9 * 1.176 806 404 465 1.675 361 63.8 * 39.00 23.38 26.25 143.6 * 1.184 728 314 679 1.468 339 56.8 39.25 28.25 32.13 137.0 Adjusted for stock splits. lal Extraordinary items, net of tax. were an addition to net income of *57. or * 30 per share. In 1982. *12. or *.06 per share, in 1974. and *4. or *.02 per share. In 1973. 34 1979 *9.255 7,231 690 1.334 251 (272) 1.313 515 14 * 784 1978 *6.888 5,284 552 1,052 153 (237) 968 384 9 * 575 1977 *6.234 4.734 480 1.020 131 (220) 931 372 5 * 554 1976 *5.652 4,125 431 1.096 104 (161) 1.039 420 7 * 612 1975 *4.888 3.398 413 1,077 141 (108) 1.110 474 6 * 630 1974 1973 *4.939 3.395 406 1.138 41 (90) 1.089 523 6 *3.068 2.227 330 511 58 (93) 476 199 9 * 560(a)(b) * 268(a) 1972 *2.404 1.758 286 360 58 (93) 325 130 8 * 187(b) uosootns 4.33 * 1.45 181.149 * 3.16 * 1.25 182.091 * 3.00 * 1.10 184.354 * 3.30 * .90 185.412 * 3.40 * .73 185.205 * 3.03(a)(b) * 1.46(a) * .55 * .48 185.022 184,228 * 1.02(b) * .45 182.648 *10,252 1.138 8,909 5.236 3.055 3.656 3.897 *8.789 1.165 8.038 4.762 2.937 3.398 3.395 *7.752 874 7.158 4.277 2.473 3.056 3.097 *6.944 744 6.171 3,649 1.998 2.506 2.847 *5.942 766 5.104 2.885 1.684 2.042 2.432 *5.193 605 4.239 2.334 1.427 1.706 1.939 *3.993 549 3.439 1.875 1.340 1.599 1.523 *3.408 379 3.105 1.745 1.202 1.514 1.326 2.9% 14.2% 21.5% *21.51 48.2% 3.4% 14.1% 17.7% *18.74 49.7% 3.3% 14.9% 18.6% *16.95 49.3% 3.3% 18.4% 23.2% *15.35 46.4% 3.4% 22.7% 28.8% *13.12 45.2% 3.0% 22.0% 30.6% *10.49 46.3% 3.8% 15.5% 19.1% * 8.25 50.5% 4.4% 13.5% 14.3% * 7.23 52.6% *1.268 634 269 748 1.301 297 55.9 S34.88 24.38 32.13 141.5 *1.075 562 232 572 1.113 263 53.5 *30.88 22.00 24.88 136.7 *1.163 493 203 550 976 224 53.2 *43.50 25.25 26.75 125.4 *1.200 420 188 597 888 205 53.0 *57.25 38.38 43.38 112.3 * 935 364 167 636 791 171 53.1 *47.75 26.88 45.81 98.2 S 890 343 149 614 739 149 53.3 *34.75 24.94 27.50 94.1 * 415 275 118 314 612 102 49.8 *33.94 23.25 28.75 88.8 * 359 235 105 218 516 85 48.8 *26.69 19.50 25.38 84.8 tt>} Accounting changes were a reduction of net income of *42. or *.22 per share. In 1974. and *6, or *.03 per share, in 1972. If the accounting change is applied retroactively, pro forma net income per share before extraordinary items would be. 1974. *3.03: 1973. *1.40: 1972. *.98 Directors and Officers 3/I0SC00J.S ; Board of Directors Officers and Assistant Officers Robert W. Lundeen Chairman of the Board Paul F. Oreffice President Herbert D. Doan and Chief Executive Officer Chairman. Doan Resources Corp. IA venture capital companyl Etcyl H. Blair Herbert H. Dow Vice President Secretary Herbert H. Dow Barbara H. Franklin Secretary Senior Fellow Public Management Wilson A Gay Treasurer Wharton School Hunter W. Henry Hunter W. Henry Vice President President Dow Chemical U.S.A. Robert M. Kell Robert M. Kell Executive Vice President and Financial Vice President J. M. Leathers Vice President William N. Lipscomb. Jr. University Professor Chemistry Executive Vice President and Financial Vice President Roger L. Kesseler Controller J. M. Leathers Vice President Robert W. Lundeen Chairman of the Board Harvard University Keith R. McKennon Paul W. McCracken Vice President University Professor Business Administration University of Michigan Robert E. Naegele Croup Vice President Robert E. Naegele Croup Vice President Donald A. Rikard Vice President Paul F. Oreffice President and Chief Executive Officer Frank P. Popoff President Dow Chemical Europe Donald A. Rlkard Vice President David L. Rooke Executive Vice President David P. Sheetz Vice President Joseph G. Temple. Jr. Group Vice President T. J. Walker Vice President David L. Rooke Executive Vice President G. James Williams Vice President David P. Sheetz Vice President R. W. Barker Assistant Secretary Joseph G. Temple. Jr. Croup Vice President Dale A. Bywater Auditor G. James Williams Vice President Lois J. Hoerlein Assistant Secretary John S. Walshaw Assistant Treasurer Glenn W. White Asslsianl Secretary Audit Committee Paul W. McCracken Chairman Barbara H. Franklin G. James Williams H. H. Lyon ex-offlclo Committee on Directors Robert W. Lundeen Chairman Herbert D. Doan Paul W. McCracken Paul F. Oreffice Compensation Committee Herbert D. Doan Chairman Herbert H. Dow Paul W. McCracken H. H. Lyon e.x-ofhcto Contributions Committee Herbert H. Dow Chairman William N. Lipscomb. Jr. Robert E. Naegele David L. Rooke David P. Sheetz W. B. Burks cx-ofTlcIo Earl F. Engles. Jr. ex-ofilclo Employee Safety and Health Committee J. M. Leathers Chairman Hunter W. Henry Donald A. Rikard David L. Rooke Joseph G. Temple. Jr. Etcyl H. Blair ex-officio Robert A, Smith ex officio Executive Committee Paul F. Oreffice Chairman Herbert D. Doan Herbert H. Dow Hunter W. Henry Robert M. Kell Robert W. Lundeen David L. Rooke Finance Committee Robert M. Keil Chairman Herbert H. Dow Robert E. Naegele Paul F. Oreffice G. James Williams Wilson A Gay ex-offlclo Roger L. Kesseler ex-offlclo Glenn W. White ex-offlclo Eugene C. Yehle ex-offlclo Investment Policy Committee Robert W. Lundeen Chairman Hunter W. Henry Robert M. Keil Paul F. Oreffice G. James Williams Wilson A Gay ex-olflrlo Eugene C. Yehle exofriclo Public Interest Committee Joseph G. Temple. Jr. Chairman Barbara H. Franklin Robert W. Lundeen Paul W. McCracken David P. Sheetz Robert W. Dupree ex-offlclo Brian M. Klumpp ex-officio 36 Stockholder Reference Information 6m noois, Annual Meeting The 1983 Annual Meeting of Stockholders will be conducted at 2 p.m. (EDT) Friday. May 13. at the Midland Center for the Arts. Midland. Michigan. A formal notice of the meeting, with a proxy statement and proxy form, will be mailed to each stockholder separately from this report. Form 10-K A copy of the Company's annual report to the Securities and Exchange Commission on Form 10-K will be provided without charge to any stockholder requesting it In writing. Please contact: Corporate Secretary The Dow Chemical Company 2030 Dow Center Midland. Michigan 48640. Transfer Agents The AmeriTrust Company P.O. Box 6477 Cleveland. Ohio 44101 The Royal Trust Company P.O. Box 7500. Station A Toronto. Ontario. Canada M5W 1P9 Registrars The AmeriTrust Company P.O. Box 6477 Cleveland. Ohio 44101 Montreal Trust Company 15 King Street West Toronto. Ontario, Canada M5H 1B4 Stock Exchange Listings .YYSE Symbol: DOW New York. Midwest. Pacific. Amsterdam. Antwerp. Basel. Brussels. Dusseldorf. Frankfurt, Geneva, Hamburg. Hanover. London. Paris. Tokyo. Toronto. Zurich. Dividend Reinvestment Plan An automatic dividend reinvestment plan is available to all Dow' stockholders. Information can be obtained by writing to: AmeriTrust Company P.O. Box 6477 Cleveland. Ohio 44101 Cassette Tapes Available Audio cassette tapes of this report and quarterly reports can be obtained for the blind by writing: Financial Communications Manager The Dow Chemical Company 2030 Dow Center Midland, Michigan 48640 Corporate Headquarters The Dow Chemical Company 2030 Dow Center Midland. Michigan 48640 Telephone: 517-636-1000 Stockholder Relations The Dow Chemical Company 2030 Dow Center Midland. Michigan 48640 Telephone: 517-636-1463 Of Interest to Stockholders Did you know... 21.018 new stockholders joined the Dow Chemical family in 1982: Dow employees comprise 30% of our stockholders: 45% of our Stockholders own less than 100 shares of Dow stock. Individuals own 25% of Dow s 194 million outstanding shares: The five states with the largest holdings of Dow stock are: New York: 99 million shares (51 %): Michigan: 33 million shares (17%): Illinois: 10 million shares 15%); California; 9 million shares (4.5%). Texas: 7 million shares (3%): The number of stockholders who own Dow stock totals 144,910: The average daily volume for Dow stock traded In 1982 was 295,000 shares: The number of Dow shares held by foreign stockholder accounts totals 5 million: 84% of Dow's outstanding shares were voted last year at the Dow Chemical Annual Meeting; 21% of Dow stockholders and 3.3% of the total shares are enrolled with the Dividend Reinvestment Program. The Dow Chemical Company Midland, Michigan 48640 i Back cover captions: ~I Dowex 66 ion exchange resins help U maintain iou' pricesfor canned goods and a wide earietij of soft drinks by purifying corri sugar to produce high fructose corn syrup. 2 The unique properties of ethylene acrylic acid I EM) resins haue earned these specialty plastics widespread use in important adhesive coating and packaging applications 3 The announcement of a large commercial plant to produce polycarbonate resins demon strates Doie s commitment to these tough engineering thermoplastics with major ap pheano'isfor lighting fixtures and appliances. Specialty products and services emer ging in the 1980s will complement Dow s global geographic presence and balance the Company 's proven basic chemical technology. Front cover captions: I. Dow's radium selective 6 comptexer can improve the quality of drinking water by removing high levels of naturally occurring radium ionsfound in many groundwater supplies. 2. Research work in Dow's sophisti cated laser laboratory could lead to laser-induced chemical process reac lions and other novel uses of this promising tool. 3. Dow may be thefirst company to support production of an industrial productfrom recombinant DXA tech nology. Rennin. a milk-clotting enzyme used in cheese production, is expected to be commercially mar keted by the mid-1980s. 4. Pelamag metallurgical granules. IDow-developed magnesium gran ules coaled with salt), remove sulfur from molten iron to produce highstrength steelfor oil pipelines and lightweight automobiles. 5. On-the-job hayfever relieffor surgeons or those in other occupa tions which require constant alenness is available with terfenadine, the non sedating antihistamine developed by Merrell Dow. U.S regis tration approval is expected in 1984. 6. Broad-spectrum Tandem herbicide systems offer a reliable, economic concept for post-emergence ueed con trol in the billion dollar corn herbicide market. Dow expects Tandem to be fully registered for L'.S. corn applica tions by 1984. ST0005080