Document e7a6oZ2dk5yELj8n7Yne4MXjg

1980 Annual Report I* PLAINTIFF'S EXHIBIT DOW-1478 To Our Stockholders While doing research for this let ter, I came across Dow's "first-ever" annual report, released in 1932. It contained only two pages, and be cause it is a fascinating glimpse into Dow's history, we have reproduced it as an insert in this year's report. 1932 was a memorable year for America. It marked the beginning of >>' "Mew Deal" and the start of fed- phasis on end-use products and serv ices continued to bear fruit. Dow's profits from such businesses -- the Dowell Division, health and con sumer products, and our Styrofoam plastic foam are examples -- have grown from 20 percent of operating income in 1976 to 30 percent in 1980. I hope every shareholder will take time to read the "Year In Review" section of this report, which more .. ner- Growth in Sales 1980 $10 Billion 3 1964 $1 Billion 1943 $100 Million ^ THE DOW CHEMICAL COMPANY DJ^CTOS<S~JVXE22. 19V E. O. Ba RSTO W r- W. BE.YNETT J S CRIDER y- COtUSCK T " H- DOW -3- E. ro.YVEB.S r- , T P-3RDEE W. n. vrJnv!,TWSACKE* OFKICEKS-JUM, >2. m, L of tPo p , p<i-M.I.nc anil Eon,.,VlV'"*' F" C0NTER$ P'ri'tvnt anM's;,;:;;,'-0- -E- COLLLVCS '.'ll- Pi,-i,.Vnt......... "';-JT PARDEE T i t'a'utv:- "T- W . BEN'SETT ........''CRI0ER ........... be.y.yett the DOW CHEMICAL COMPANY CONDENSED balance SHEET -'JAY 31, J932 the cLrvrJ,;A. *S0 nn'fer trTMt compAXv 'IPveiami. Ohio Ill I I Itmfc'iMI Highlights of the Year ales Dollars in Billionsl Net sales ............................ Net income........................ U.S. and foreign inrnmp ta yoC 1980 1979 % change (in millions unless otherwise stated) $10,626$9,255 +14.8% 805 784 + 2.7% 10-year compound annual % change +18.7% +20.0% 49d 818 -17 7% ->-17 0% THE DOW CHEM ICAL COMPANY aiming livider Earnu Divid Share (Ool la p GENERAL BALANCE SHEET. MAY 31. 1932 ASSETS Current Assets: Cash $ 500.7S7.17 Notes and Ac counts Receiv able Less Re serve _________ 1.380.812.30 Merchandise. Ma terials and Sup plies ........... ........ 4,259,381.93 Total Current Assets......... S 6,111,311.10 Land ContractsReceivable_______ Investment in Affiliated and Other Companies................ Real Estate. Plant, Equipment, Patents. Etc.. Less Reserves for Depreciation Deferred Charges _______________ 19.636.07 577.196.62 16,363,222.20 111,059.65 TOTAL S23.217,923.91 LIABILITIES Current Liabilities: Notes Payable___ $700,000.00 Accounts Payable 716,991.81 Accrued Taxes____ 416.131.40 Accrued Interest on Gold Notes_____ 63.910.00 Total Current Liabilities __ 8 1.927.066.21 Reserve for Fire and Accident Insurance_______ Ten Year 6'! Sinking Fund Gold Notes, due February 1, 1940 ___ Preferred Capita) Stock--7'7 Cumulative Common Capital Stock (630,000 shares Non-Par) ______________ Surplus_______ 238.481.41 3,197,000.00 3.000.000.00 8,275,000.00 6,610.378.32 TOTAL 523,217.925.94 . 'Net liavriK- on Common StovV >7 cci -h.uc ioiler JeJi.simc Jvpnvi.iuon. i isl s .mj dividends on Hitflciied svA l program, see the story Deginmng on page tmrieen. cn --l CO co :J CO CD Highlights of the Year Sales (Dollars in Billions,' Net sales ......................... .. Net income..................... U.5. and foreign income taxes................... Net income per share (in dollars)........... Dividends paid per share (in dollars)........... 1980 1979 % change (m millions unless otherwise stated) 10-year compound annual % change $10,626 S9.255 + 14.8% + 18.7% 805 784 + 2.7% -20.0% 424 515 -17.7% + 17.0% 4.42 4.33 - 2.1% 19.9% 1.60 1.45 + 10.3% + 14.0% Eamings Per Share vs. Dividends Per Share Earnings Per Share Dividends Paid Per Share Average shares outstanding..................... Stockholders (in thousands, year-end) . .. Employees (in thousands, vear-end) . .. Wages, salaries and benefits ................... . . 182.2 137.0 56.8 S 1,807 181.1 + 0.6 '?'b 141.5 - 3.2% - 4.2% 55.9 + 1.6% * 1.8% SI.598 + 13.1% -13.8% About the Cover All of the employees shown on the cover are the "stars" of an advertising program designed to create greater public understanding of issues which affect Dow and the chemical industry. From the top, left to right, they are Ernie Singleton, waste treatment superintendent, Louisiana Division; Margaret Baker, environmental manager. Oyster Creek Division; "Beans" Little, emergency response coordinator, Texas Division; Pam Smith, petro leum engineer, Dowell Division; Bill Franklin, fire protection superinten dent, Louisiana Division; Ron Malecki, environmental engineer, Michigan Division; Phil Watanabe, molecular biologist, Dow U.S.A.; Edith Whatley, industrial hygienist, Texas Division; Agnes Brief, nurse coordinator, Michi gan Division; Bob Cole, waste control technician. Oyster Creek Division; Lowell Jones, driving training manager, Dowell Division; Ardell Lawson, distribution specialist. Western Division, and Gary Grice, industrial rigger, Michigan Division. For more about the company's expanded communication program, see the story beginning on page thirteen. c -3 j to cn co To Our Stockholders While doing research for this let ter, I came across Dow's "first-ever" annual report, released in 1932. It contained only two pages, and be cause it is a fascinating glimpse into Dow's history, we have reproduced it as an insert in this year's report. 1932 was a memorable year for America. It marked the beginning of the "New Deal" and the start of fed eral programs and bureaucracies which have grown so pervasive they threatened our very existence in 1980. It was also a memorable year for Dow. Results in that first report show the company was successfully weathering the economic storms of those days. I believe history will record 1980 as another pivotal year in United States history. The American people have chosen a new course . . . one essen tial to the future well being of all Americans, and one which deserves a full measure of support from each of us. Fiscal responsibility, world re spect, energy independence, and peace through strength are national objectives every thinking American can and must support. 1980 was aiso a remarkable year for Dow. Your company had record sales and earnings, and became the world's most profitable chemical company despite global economic conditions that included a major recession in the United States and many other countries in which we operate. Dow earned S805 million in 1980, and sales exceeded S10.6 billion. Moreover, whiie we maintained our leadership in the basic chemicals and plastics that have long been the backbone of the company, our em phasis on end-use products and serv ices continued to bear fruit. Dow's profits from such businesses -- the Dowell Division, health and con sumer products, and our Styrofoam plastic foam are examples -- have grown from 20 percent of operating income in 1976 to 30 percent in 1980. I hope every shareholder will take time to read the "Year In Review" section of this report, which more fully describes the remarkable per formance turned in during 1980 by Dow employees around the world. Dow sales exceeded $10 billion for the first time in 1980, and that made me curious about the timing of ear lier milestones in our growth. The chart at right shows what I discov ered. Sales of The Dow Chemical Company have consistently in creased tenfold in periods of only 15-20 years. I'll leave it to the reader to make a projection for the year 2000. Proud as I am of our financial achievements, I take even greater pride in another facet of our 1980 per formance. Dow employees set an all time safety record, demonstrating once again that our commitment to human health and safety pays big dividends on its own. Growth in Sales 1980 $10 Billion 9 1964 $1 Billion 1943 $100 Million 1927 $10 Million That's especially important, be cause it has become fashionable in recent years to criticize the chemical industry as unsafe, hazardous, and willing to compromise the health of its employees. The facts demonstrate just the opposite. National Safety Council data for 1979 show the U.S. ^ chemical industry second of 43 indus- "1 tries in safety performance, and more <_3 than ten times safer than non- ^ military government service. Dow s --1 record is better still. Moreover, detailed epidemvologi- co cal studies on long time Dow em- ^ ployees, many of whom are now 'B~ retired, show they are healthier than a comparable sample of the popula tion at large. It all adds up to the fact that Dow has one of the safest, healthiest, most productive work environments in the world. We intend to keep it that way. f------ft Paul F. Oreffice President 1 The Year in Review -- Company Increases Profit Level Despite Roller Coaster U.S. Economy It was a year to test the mettle of any company. Sharp swings in the U.S. economy, and elsewhere, chal lenged our ability to react quickly and effectively to sudden changes in demand for our products. In the United States, business boomed through the first quarter, dropped off sharply in mid-April, then picked up again in the fall al most to the earlier pace. Demand in some areas outside the United States was also hampered by the U.S. recession -- principally in the Pacific. Overall, however, the fact that more than half of Dow's sales are outside the United States helped the company weather the U.S. recession better than did the chemical industry as a whole. Despite the roller-coaster U.S. economy, Dow achieved a substan tial increase in sales, owing to higher prices, and a modest increase in prof its above those in 1979. Sales for the year totaled $10.6 bil lion, an increase of 14.8 percent over 1979's S9.3 billion. Earnings were $4.42 a share, or $805 million, com pared with $4.33 a share, or S784 mil lion in 1979. Earnings improved even though the economic downturn brought lower operating rates and greater re sistance to price increases. Operating rates dropped from more than 80 percent of capacity to less than 65 percent; at year's end they had rebounded to about 75 percent of capacity. The rate of price increases slowed considerably during the summer, as supply outstripped the dwindling demand. Such was not the case, however, with costs. Dow's expenses for hydrocarbons and energy, its principal purchases, rose some 34 percent during the year. The recession took its toll in earn ings in the second and third quarter; profit slipped 20 percent behind the same periods in 1979. But the recov ery was almost as dramatic. Demand picked up smartly starting in Sep tember, especially in the United States. Continued demand during the final months of the year was an encouraging sign for business dur ing the early part of 1981. One reason the company was able to maintain its earnings was strict control over capital spending. Capi tal spending for the year totaled $1.18 billion, down somewhat from the $1.27 billion in 1979. Nevertheless, Dow remained by far the largest 'investor' in its own Paul F Oreffice (center), president and chief executive officer, confers with Earle 8 Bames (left), chairman of the board, and Robert W. Lundeen, executive vice president. business among companies in the chemical industry. One result of this was a 'penalty' in 1980 of more than $100 million in added depreciation and interest costs, in addition to start-up expenses. Another result on the 'plus' side, is that the corporation continues to have the newest, most efficient plant facilities among the major chemical companies; nearly O'? --1 CC3 CIO l-.J CO CO t_n 2 half of all Dow plant and equipment has been built in the last five years. Another factor that helped Dow during 1980 was its broadening product mix. The recession drove down demand for some of Dow's traditional high-volume industrial chemicals and plastic resins, but this was not the case with most of Dow's growing family of end-use products and services. The outstanding exam ple of this was the Dowell Division and Dow's overseas joint venture, Dowell-Schlumberger. As more U S. oil was decontrolled, drilling activity soared -- and so did Dowell's busi ness. Sales surged ahead by some 45 percent over 1979, to more than S750 million. Dow's profits from Dowell and Dowell-Schlumberger together accounted for almost 20 percent of Dow's earnings in 1980. Although Dow remains dedicated to maintaining its leadership posi tion in the basic chemicals which provide the lion's share of sales and profit dollars, the company con tinued its move into products and services closer to the consumer. Dow research spending for 1980 totaled some $314 million, up 17%, and about half that effort was devoted to end use products and services. Dur ing the last four years, profit from end products and services has grown from 20 percent of the total to 30 percent One move further in this direction came when Dowell, which sells products and services for fracturing, cementing and acidizing wells, en tered the drilling fluids business. The company purchased Anadarko Mud Service, Inc., and an interest in Anadarko's parent, Top Drilling, Inc. Dowell also agreed to acquire sub stantially all of the operating assets of the G-H Fluid Services Division of Galveston-Houston Company forS46 million. In November, Dow took a large and significant step in further diver sifying its product lines when it agreed to acquire RichardsonMerrell's ethical pharmaceutical business. The purchase, subject to approval by Richardson-Merrell stockholders, will be by an exchange of Dow stock valued at $260 million for shares of Richardson-Merrell. The combination of Dow s U S. pharma ceutical interests, the worldwide pharmaceutical interests of Lepetit (Dow's Italian subsidiary) and Merrell's national and international business will generate sales of about $800 million annually, making Dow a significant factor in the world health products business. Also in the pharmaceutical field, Lepetit acquired Archifar S.p.A., lo cated in Italy, which produces bulk antibiotics and has annual sales of $30 million. In Brazil, Dow reached agreement with Astra of Sweden to make and market Astra's full line of products in the anesthetic, respira tory and cardiovascular field. While the company's continuing operations contributed by far the greatest portion of net income, prof its were also helped by a lower tax rate due to some capital gains and foreign tax benefits. Interest expense increased $97 million but was offset in part by the capitalization of inter est in the amount of S71 million, which was required accounting treatment for the first time in 1980. Global Research (Dollars in Millions) R&D spending has increased for 21 consecu tive years. '60 '65 70 75 '80 Real Growth (Index: 1970 = 100) Physical output of the company has nearly doubled in the past decade OO --I CTO CO c: cr> 3 The Year in Review -- Continued Market Value of Exports from the U.S. (Dollars in Millions) Dow (as well as the en tire chemical industry) has been a consistent supporter of the L.S. balance of trade -- and 1.237 a strong dollar. t.tes 76 77 78 79 '80 Energy Conservation (1972 = 100. Dow U.S.A.) Dow's continuing efforts to conserve energy are shown in the declining amount of conversion en ergy (such as purchased power, fuel oil. gas and coal) which is required for each unit of production. United States David L. Rooke President Doxv Chemical U.S. A. Sales of $5.1 billion were reported in the United States during 1980, repre senting nearly half of Dow's total revenue. Sales were up 12 percent over 1979. Despite a soft economy and a major increase in feedstock and energy costs, record profits before tax of $809 million were recorded, due in part to successful price man agement, cost reduction programs and optimal utilization of manpower resources. This compares with pre tax profits of $689 million in 1979. Exports of products from the United States exceeded expectations during the first half of the year and then slackened during the second half, resulting in exports with a market value of SI.2 billion for the year. At the operating level, innovative cost saving programs ivere instituted which contributed about S100 mil lion directly to Dow U.S.A. profit in 1980. Moreover, many of these pro grams will continue to pay important dividends in future years. At mid-year, the Chemical Manu facturers Association selected Dow U.S.A. as winner of the Lammot du Pont Safety Award for the greatest reduction in recordable injury cases over a five year period. The award was based on the company's 58 per cent improvement during 1978 and 1979 over the previous three year period. Moreover, our 1980 safety performance was even better, with our lowest-ever frequency rate of 0.25 per million work hours. As expected, Dowlex polyethylene resins excelled in both sales and prof its Dowlex is a linear low density polyethylene which has exceptional toughness, puncture resistance and tear strength. Principal markets in clude wire and cable jacketing, films for agricultural use, packaging, con struction, piping and household products. Dowlex has great potential and the company has plans to in crease production capacity from 150 million pounds a year to 850 million pounds, worldwide, by 1983. A major contributor to U.S. profits was the Dowell Division, the oil and gas well servicing unit mentioned earlier. Dowell is expanding aggres sively to meet the needs of the na tion's energy exploration activities. Also showing strong gains were Ziploc plastic bags, which recorded sales 38 percent higher than in 1979. Ziploc bags are the leading food stor age bags in the United States. Other major products with out standing sales performance included methylene chloride, propylene glycol and glycerine. Products representing future high sales potential include high-gloss, high-impact ABS resins for a variety of plastics applications, S/B latexes for fillers to replace fiber in paper making; titanium for use in aircraft and aerospace industries; acrylic and vinylidene chloride latex for the paint and other industries, and fumed silica for silicone applications. A number of other products are exhibiting exceptional potential. They include Garlon herbicide, used principally for brush control along rights-of-way for utility lines and forestry control; polycarbonate plas tics for automotive applications, window glazing, appliance housings and panels; weight-saving metalplastic laminates for automobiles and household appliances and duct work; and hollow fiber membranes for artificial kidneys, gas separation and water purification. Dursban in secticide also shows promise as an effective product for termite control. Start-up of the Oyster Creek Divi sion's crude oil processing plant in Texas was completed in the spring. This plant is capable of processing T0 01 it 0 G1 CO 4 200,000 barrels of crude oil a day, Dow also completed construction of a new, large naphtha cracker at its Louisiana Division, taking its naphtha feedstock from the Oyster Creek facility. In other hydrocarbon technology developments, progress continued in the fields of conversion of coal to pe troleum and the gasification of coal and lignite. Energy conservation programs, coupled with new technology, were instrumental in helping reduce total raw material and energy costs. Four teen new gas turbine generators were authorized for the Gulf Coast which, when completed, will in crease fuel efficiency by one third. The State of Alaska chose Dow to head a petrochemical project under the name of the Dow-Shell group to conduct a year-long study which could lead to the construction of more than $3 billion in petrochemical plants, pipelines and support facili ties in Alaska during the next five years. Two small subsidiaries were sold during the year. The Tennessee op erations of Hydroscicnce, Inc., an environmental engineering firm ac quired by Dow in 1972, were sold to IT Corporation. Wanda Petroleum Company, a subsidiary involved in the storage, transportation and mar keting of natural gas liquids and refinery products, was sold to Enterprise Products Company. Two new Dow distribution termi nals were authorized at Joliet, Illinois, and Bayonne, New Jersey, and an expansion was authorized for the Long Beach, California, terminal. When completed, these will further improve Dow's ability to effectively and efficiently move products to Dow customers. Dow U.S.A. has 140 terminals and warehouses to serve its customers, and has added 700 cars to its modern rail fleet, which now totals 8,500 cars. 5 8 9 6 0 0 1 S jU The Year in Review -- Continued Area Sales Brazil Latin America Pacific Canada Europe United States Europe Frank P. Popoff President Doir Chemical Europe S.A. While strong de mand in the early months of 1980 enabled sales for the year in Europe to advance 21 percent to 53.2 billion, rapidly deteriorating business conditions held pre-tax profits to $312 million, compared with $348 million the previous year. The past year was characterized by a marked slowdown in the economies of the major European countries. Growth in output was substantially reduced compared with 1979 and both inflation and unem ployment persisted at high levels. Strong demand for basic chemicals lasted into the second quarter of 1980, but the effects of rapidly declin ing economic activity and escalating feedstock and operating costs were increasingly felt throughout the re mainder of the year. Prices for pet rochemicals and plastics fell during the third quarter and recovered only slightly during the final quarter of the year. In the chemicals business, sales of caustic soda showed strong growth, due to price increases, while in plas tics, demand for coatings products continued at the high levels of 1979. Exceptionally good results were re corded by Derakane vinyl ester res ins. Specialty chemicals also enjoyed an excellent year, with fabricated products and agricultural chemicals showing outstanding growth. Expansions in propylene oxide, chlorine and chloromethanes at Stade came on stream in 1980, while at Terneuzen ethylene oxide and ethylene amines expansions are due for completion in 198] and 1982, respectively. Work on DINA, a major pet rochemical complex in Yugoslavia, continues satisfactorily with starr-up of the first phase planned for 19S182. DOK1, a smaller polystyrene joint venture in Yugoslavia, completed its second full year of operations. In Spain, expansion of the Tar ragona site to world scale dimen sions has begun. Negotiations continue for major petrochemical developments in Saudi Arabia and Scotland. Steps were taken during the year to strengthen Dow's European en ergy feedstock position, fn conjunc tion with Sovereign Oil and Gas. oil exploration activity in the United Kingdom sector of the North Sea was initiated. In another development, agreement was reached with La Compagnie Francaise des Petroles (CFP) to purchase a twenty percent participation in the Total refinery at Flushing in The Netherlands. In a move to broaden coverage ot the agricultural chemicals business in France, a new company called Prochimagro was formed through the acquisition of Prochim, a com pany formulating and selling agricul tural chemicals in France since P46. In Zurich, the Dow Banking Cor poration, a wholly owned sub sidiary, sold 24 percent of its shares on the Swiss open market. Dow re tains 76 percent of the shares. Founded 15 years ago, the interna tional merchant bank has grown consistently. Broadening the share holder base opens up new sources ot equity financing to support further expansion. CT> --i CD CD '. 'J CD CD CCD 6 U0Q1S j Company Interest Rates Dow has long used debt to fuel its growth -- and made money on the bor rowed dollars. The com pany consistently earns a higher rate of return than the interest it pays. (Percentage interest rate on average total debt ) r-^ 10.9 8.5 8.6 8.5 < o'. i '76 '77 78 79 80 Top Arcltifar S p.A.. an Italian firm that products bulk antibiotics, including Erythromycin and Ampiciltin, has been acquired by Cruppo Lepctit, a Dow sub sidiary in Italy that has ex tensive interests in Brazil and the rest of Latin America. Archifar has an nua/ sales of S30 million. Lower One of Dow's newest plants to make Styrofoam plastic foam is located at Sharjah in the United Arab Emirates Dow now has a global network of lb plants producing Styrofoam insulation. U6H0D1S 1 The Year in Review -- Continued Distribution of the 1980 Income Dollar (Corporate) Cash Dividends Declared Earnings Invested Taxes Depreciation 6.6C Wages, Salaries, and Benefits 16.4c Raw Materials Supplies, and Services 64.7C Canada james M. Hay President Dow Chemical of Canada. Limited Although 1980 was a recession year, sales rose to $731 million, up 16 per cent from $630 million in 1979. Sales volume grew more than four times as fast as the "real" Canadian gross na tional product. Pre-tax profit reached $59 million, the same amount (ex cluding a one time sale of oil and gas assets) as in 1979. Decreased demand for some major products caused a decline in selling prices during the second half of the year while costs of raw materials and energy continued to increase. This, however, was partially offset with continued strength in other product areas. The Alberta project was com pleted in 1980 with the final unit, ethylene oxide/ethylene glycol, com ing on stream in July, but start-up costs and a weak worldwide vinyl chloride market resulted in the proj ect not contributing to profit in 1980. It is expected to be profitable in 1981. Export sales, which doubled from 1979 levels, contributed to improved profits. Exports accounted for 23 per cent of Dow Canada's chemical and plastic production in 1980 and this figure is expected to grow to about 29 percent in 1981. Over the past twelve months, Canadian plants produced at an average of 85 percent of capacity. Dow Canada has received ap proval from the Energy Resources Conservation Board of Alberta for a new 400 million pound per year Dowlex polyethylene resins plant at Fort Saskatchewan. To provide as sured long term feedstock supplies for Canadian operations, construc tion of a second 1.5 billion pound per year ethylene-from-ethane plant has begun by Alberta Gas Ethylene Company Ltd. Completion of both plants is expected in 1984. There is some political confronta tion in Canada as Alberta and the Federal Government disagree on the national energy program. A political compromise is expected and man agement believes Dow Canada will continue to contribute to the coun try's economic strength. Pacific Andrew /. Butler President Dow Chemical Pacific Limited The global reces sion reached the Pacific approximately six months after the United States, as several Asian countries' exports to industri alized nations fell off badly in the second half. Commodities such as vinyl chloride, ethylene dichloride and caustic soda were affected most. Agricultural products, pharmaceuti cals and designed products showed good growth in volume and profits. Area sales increased a modest eight percent to $680 million, with the regions of New Zealand and Japan doing especially well. Area profits declined to $75 million, re flecting generally lower volume, the first full year of operations for the Korean facilities and the worldwide trend of greatly increased raw mate rial and energy costs. The profit be fore tax in 1979 was $124 million. Korea's export-oriented economy, reacting to the second oil shock and internal political tensions, took a backward step with a contraction in the gross national product of six per cent, its first in twenty years. How ever, new plants for chlorine, caustic soda, vinyl chloride and low density polyethylene were started success- 8 fully and there should be a substan tial improvement in 1981. At the close of the year, Dow revealed long-range plans for sub stantial expansion of its chemical business in Japan. Since on-shore production of chloralkali products is severely impacted by high power and salt costs, the original plans to produce chlorine in Japan have been deferred. Major marine terminal fa cilities will be developed to handle much larger volumes of ethylene dichloride, vinyl chloride and caustic soda. A joint venture vinyl chloride product plant is also in the planning stage. Top The longest artery ever built to move batched gas products - the 1,900 mile Cochin Pipeline - runs from Dow's complex at Fort Saskatchewan through the northern tier of the United States to the termination (above) at the Sarnia Division in Ontario. Dow is a one-third partner m the twelveinch line. Lower left- One of Dow's fastest growing products is Dowlex linear iow density poly ethylene Its superior,futilities contribute to the development of products such as this Roughneck trash can made by the Rubber maid Company. Lower right. A "PizzaTHERM" carton, made with Stvron 6S5D polystyrene resin, won first place in the Packaging Division of a design competition sponsored by Plastics World magazine. The package provides ex ceptional heat insulation and resists leakthrough 9 The Year in Review -- Continued 10 Latin America Enrique C. Falla President Dow Chemical Latin America The environment in the major Latin American countries during 1980 was characterized by a climate of relative political stability, a moderate -- but steady -- economic growth, and a deceleration in the rates of inflation. Sales rose to 5557 million, up 17 per cent from $476 million in 1979. Gains were achieved in both physical vol ume and prices, but the increase in prices was insufficient to cover rising costs. Pre-tax profits totaled $93 mil lion, compared to a record level of 5102 million in 1979. Throughout the year, Dow main tained its leading position as suppliers of industrial chemicals, while specialties continued as the GO cud Top left: A biological oxidation facility icn ing Dow's manufacturing complex at Stadc Federal Republic of Germany, can treat waste water with salt content up to 25 per cent. The facility has a capacity equivalent to the needs of a etty of 600.000 pcopie Lower left: A farm worker in Ecuador puts Dow Polyethylene D film on an immature banana bunch. This insecticide film protects maturing bananas from attack bu Collapsis beetles, red thnp and other pests. Lower right At Dow Brazil's research and development center in Franco da Rocha, an employee studies a polymerization process for making polyester resins from propylene glycol The laboratory, which was dedicated in February 1981, is the first of its kind in Brazil for the analvsis of chemical residue's and environmental samples. CO "a CO fastest growing products for the area. Agricultural products maintained their record of consistent growth. Tordon products solidified their po sition as the leading herbicide, while Lorsban insecticide, in combination with other insecticides, effectively penetrated the cotton pesticides market with a cost performance ad vantage. The pharmaceutical busi ness, through the introduction of new products, an effective promo tional program, and better utilization and deployment of resources, has become a solid profit contributor to the area. Although locally manufactured products still constitute less than one-half of Dow sales in the area, construction is underway on two projects to expand the local manufac turing base. A new Voranol polyols plant will expand operations at the San Lorenzo, Argentina site, with a starting date in 1982. Insecticide formulation facilities will come on stream in mid-1983 in Cartagena, Colombia. Brazil Hunter VV. Henry. Jr. President Dow Quimica, 5.A. Sales in 1980 in creased to S300 million from the $276 million regis tered in 1979, with a healthy physical volume growth of seven percent. However, stringent application of price controls by the Brazilian gov ernment, particularly with respect to the chemical and pharmaceutical in dustries, resulted in an unsatisfac tory profit performance. The loss totaled $13 million, compared with a loss of S3 million in 1979. Energy, raw materials and labor escalated rapidly during the year and the con trol mechanisms did not allow a timely pass-through of these costs. The volume growth in the indus trial sector came from strong per formances by such products as caustic soda, chlorinated solvents, and glycols. Herbicides and insecti cides also grew significantly in phys ical and dollar volume in response to the government emphasis on agricul ture and a special program to in crease alcohol production as a means of reducing oil imports. The design and plastics group had good growth as increased capacity was realized from the 5/B latex plant. The new epoxy resins plant com pleted its first full year of operation with subsequent growth of over 40 percent in sales. Significant export shipments of Voranol polyols were registered. Two new Styron polysty rene resins, for injection and extru sion, were introduced. The pharmaceuticals business faced a very difficult year, especially due to government restrictions on ethical products and severe hikes on customs duties and taxes for imports. Dow's anti-cholesterol drug, probucol, was successfully introduced in Brazil under the trade name Lesterol, reaching a 30 percent market share within three months of launching. Energy savings put into operation during 1980 enabled Dow Brazil to reduce fuel oil consumption by 13 percent compared to 1979, despite a nine percent increase in physical output. A laboratory for the analysis of chemical residues in agricultural products and environmental samples was established in Dow Brazil's new research and development center. This laboratory is the first of its kind in Brazil. Dow maintained its position as the largest exporter of industrial and ag ricultural chemicals in Brazil with an increase of 50 percent in sales from its plants in Brazil. Global Sales By Product Group (Corporate) Chemicals'Metals Croup Inorganic Chemicals Organic Chemicals Metals !g I* 11.7% wk* 16.4% /f3.3% Functional Chemicals and Services /9.6% Hydrocarbons PUstics'Packaging Croup Molding Materials Plastic Products Coatings and Monomers Bioproducts/Consumer Product Croup Health Care Products and Services Agricultural Chemicals Consumer Products 13.3% /- 17.8% 4.0% 13.3% 4.5% 4.8% 1.3% // r/ C/7 cn co -a i Cr- | I 11 STOOD*S75 The Year in Review -- Continued Pruitt S heet; Williams Keil McKinnon Board and Management Changes During the year, the following changes took place on the board of directors and among corpo rate officers. Barbara Hackman Franklin was elected to the board of direc tors. She has served as a com missioner of the U.S. Consumer Products Safety Commission and was a presidential assistant on the White House staff. She is now a senior fellow in Public Management of the Wharton School of the Univer sity of Pennsylvania. Robert E. Naegele, Dave W. Schomstein and Joseph G. Temple, Jr., were named to the newly created post of group vice president. They were replaced as presidents of Dow Chemical Canada, Dow Chemical Pacific and Dow Chemical Latin America by James M. Hay, Andrew J. Butler and Enrique C. Falla, respectively. In accord with company policy for directors, Clyde H. Boyd, president of Dow Chemical Europe, and G. J. Williams, financial vice president, relinquished their line duties. Both remain vice presidents and directors. M. E. Pruitt, corporate director of re search and a vice president, retired from the company. Replacing Williams as financial vice president is Robert M. Keil, who had been executive vice president of Dow Chemical U.S.A. Replacing Boyd as president of Dow Europe was Frank P. Popoff. David P. Sheetz replaced Pruitt as vice president and corporate director of research. Sheetz had been vice president and director of R&D for Dow Chemical U.S.A. In April, Keith R. McKennon, di rector of Government and Public Af fairs, was elected a vice president of the company. 12 ; STOOL14976 Via Print, Podium, Airwaves -- Dow People Are Speaking Up To Improve Public Understanding Of Issues Facing The Industry All around the world today, Dow people are speaking up. People who care deeply about their company, what it stands for, and how it is viewed by others. People who are immensely proud of their company's performance, yet realistic enough to realize it is the public's perception of that performance that counts in the long run. Says Keith McKennon, corporate vice president for Government and Public Affairs, "People who know Dow firsthand have great respect for the company and what it represents. Our job is to give more people an opportunity to know us better." Setting the tone for this spirited ef fort is an expanding U.S. regional advertising program that focuses on, and defines, Dow's emerging edge for the eighties. We cal) it simply, "common sense/uncommon chemis try." But there's more to it than a phrase to capture people's attention. "It's Dow's formula for growth," says Dow U.S.A. president David Rooke, "and it's based on people as the catalyst ... If you look at our progress in the areas of health, safety and the environment, you'll begin to see how the uncommon chemistry we achieve depends on the common sense we share." In the advertising produced by Dow, employees speak forcefully and credibly about the work they do and its relevance to the people of our plant communities No Madison Av enue here. The spokespeople are what they appear to be: engineers, technicians, toxicologists, nurses, industrial hygienists, maintenance workers -- ail dedicated to bettering public understanding of the industry they work in and the company they work for. In addition to Dow's Michigan headquarters area, current media coverage includes Freeport and Oyster Creek, Texas, Pittsburg, TVs an outdoorsman.1 don't believe in playing games with pollution control. And neither does Dow" Keystone of the company's is sues advertising program is a series of commercials and ads "starring" employees who talk about their work and how it contributes to society. The ad vertisement above, featuring Ron Malecki. an environmental engineer with the Michigan Division, was produced on location by Dow personnel (center). The final product was published in regional editions of leading national magazines and a companion television commercial was shown on stations in selected markets 13 The People of Dow Speak Up -- Continued Above left: in the "hot box." o Puio en'c.ttive undergoes rigorous questioning ns r*:i guest star on a simulated television pane* news program called "Business World Above rtg/if: More than a hundred em ployees such as foe Quick volunteer a? speakers to school, civic, service and <*/.r groups, iru'iurfmg this class nt Xvlhnw : Institute. Quick is project leader tor apuc.v.c toxtcology m the Environmental Science Research Laboratory. Left: Free enterprise contests are airu'.r.j numerous campus activities devoted to busi ness understanding that are supported tu the company. U L 6 0 0 1 S ,l U California, Plaquemine, Louisiana, and Tulsa, Oklahoma. We're also running in the state capital cities of Lansing, Austin, Sacramento, Indianapolis, Baton Rouge -- and Washington, D.C. So why not a national program? "It may be coming," says Bud Carpenter, director of communica tions, "but credibility begins at home. Our first priority has always been for our employees and for those who live and work in our plant communities. That's why we have initiated a regional program before considering a national effort." Keeping the advertising credible is essential. People today sense that big companies are somehow awesomely distant and lacking in human scale. With this approach, we take people "into" our plants and into our confi dence. We want them to know what we're really like -- and that we have the same concerns they do. Th3t's important, because national surveys have shown a disturbing trend in public opinion. While people clearly appreciate the miracles of modem chemistry, they're not all that certain about the industry that produces them. So far, attitude research shows we're making some progress. Tele phone surveys indicate the campaign has enjoyed excellent audience recall and response. And people with no prior impression of Dow now have a positive view of the company. Will the program continue to stress chemical safety and the safeguarding of human health and the environ ment? Yes, because it demonstrates in a very visible way Dow's firmly- held belief in a common-sense approach to these critical activities. But "common sense" is only the first half of our equation for growth. Another aspect is equally important in its own right, and that's our con cept of "uncommon chemistry." For years, Dow has been honing the cutting edge of new chemical technology with great success. But until now, the company has chosen to speak somewhat modestly about many of its achievements. No more. Today, the company is involved in the development of whole new sciences including such promising pursuits as laser and en zyme chemistry, and the use of re combinant DNA in restructuring molecules. These are the emerging bio-technologies, and they will fun damentally alter the way chemical companies operate in the future. With Dow having an important role in bringing this about, telling our high-technology story is es sential if people's perceptions of Dow are to keep pace with their expectations. Right now, we're laying that groundwork by testing some exciting concepts in national advertising for next year. With the help of Dow's advertising agency, we're develop ing messages that will highlight Dow's unique ability to bring its "uncommon chemistry" to bear on the worldwide problems of energy, food production, transportation and human health. In a related move, Dow has taken the plunge into public television -- helping to underwrite thoughtful programs that enhance the notions of private enterprise and freedom of choice in people's lives. Last year, these included the series, "Ben Wattenberg's 1980," and the widely-acclaimed "Firing Line," with commentator, William Buckley. Television may be the obvious forum to address public issues, but it can also be a minefield for the unwary: Companies can find them selves debating in an electronic climate aflutter with bad science, unwarranted assumptions and wobbly conclusions -- which are often given credence by alarmingly shallow and peremptory reporting. Which is to say, "speaking up" can be downright risky. But it's a risk worth taking. For a dozen years or more, business has been in a one-sided debate -- with many companies sitting on the sidelines, losing by default. That's changing. Companies now realize that their adversaries are playing hard ball, and that to retain and en large its constituency, business must stand up, speak up, and enter the fray. If it doesn't, no one else will. And that's precisely the point of "The Point Is . . .," a twice-a-month summary of public issues that are important to Dow and the chemi cal industry. Published in a newsletter format, it addresses issues running the gamut from safety and cancer to Big Government and the media. Regular mailings are made to legislators, ed ucators, environmental groups, editors, opinion leaders, and a host of others who influence pub lic policy. Apparently, we've struck a re sponsive chord: of the 18,000 people who now receive "The Point Is . . most have asked to be put on our mailing list. These issue-oriented commen taries are part of a grassroots effort by many Dow people, including the enthusiastic employees who man the BiG^OOClS . 15 The People of Dow Speak Up -- Continued r j'f . L v 'i 626 VG001S . Top- Toncologists and industrial hygienists, such as Dr. Jessie Norris (right), periodically take time to participate tn media tours to expiam their work. Center: Direct communication with legisla tive and regulatory officials is a routine part of the work-week for many Dow managers, including Fred Hocrger. director of regula tory and legislative issues for the Health and Environmental Research department. Lower: Public issues important to Dow and the chemical industry are discussed in "The Point Is. . .." a newsletter that is circulated to people in government, education and the media. company's volunteer speakers' bureau. Over the past two years, these em ployees have given over 650 talks be fore an aggregate audience estimated at over 50,000 people. This includes civic organizations, service clubs -- even activist groups. The talks aren't "canned prop aganda," but genuine efforts to get at the issues and dispel the doubts and misconceptions that accompany them. That's also the purpose behind Dow's "Visible Scientist" program: To facilitate a more rational dialogue on issues, Dow has assembled a cadre of knowledgeable "expert witnesses" from among its own scientific ranks. Articulate and personable, these Dow people ap proach controversy armed with rea son instead of rhetoric, facts instead of supposition, science instead of chicanery. The electronic media provide most of the exposure, but surviving the give-and-take of television takes more than preparation. It takes tele vision 'presence.' That's what we hope to build with an innovative, closed-circuit, on-camera training program called "Business World." In it, we use a half-hour question and answer format similar to actual public affairs programming on tele vision. Dow people, posing as a "panel of experts" from the working press, fire questions at the person in the "hot box." It's a no-holds-barred exercise to acquaint selected Dow people with the "realities" of televi sion journalism. Dow's "Speak Up" effort has its political side, too. In the last election, for example, many a Dow employee put his "money where his mouth is" by contributing to one of eight em ployee Political Action Committees (PACS) around the country. There is no "button holing" by management. No pressure of any kind. The only common thread is the individual's Need a Speaker? Call Dow If you'd like to obtain a Dow speaker for your organization, please contact the Speak Up Coordinator, Dow Chemical U.S.A., 2020 Dow Center, Midland, Michigan 48640. We would like to have an audience of at least 30 persons. While not every request can be met because of prior commit ments, speaker availability or remote locations, a sincere effort will be made to honor your request. desire to support Congressional can didates with a strong belief in free enterprise. However, Dow employees do not restrict their support of free enter prise to the ballot box. For years, they have participated in business awareness programs to reach stu dents and teachers in secondary schools and higher education. As part of these programs, Dow pro vides films, booklets, and other in structional aids on request. So there you have it: The people of Dow are being heard. Today, their voices are joining with others in in dustry who are determined to stand up and speak up for what they be lieve. About their country. About their business. About the quality of all our lives. About time, isn't it? 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 1980 was a year of anomalies. Sales established a new record each month in the first quarter. Demand was strong, prices showed firmness, plant utilization was at a high level and inventories were under control. All areas of our global business shared in this prosperity. Commenc ing in April, our two principal mar kets, the United States and Europe, experienced significant reductions in sales and resistance to needed price increases surfaced. Then, as the year drew to a close, the U.S. market began to show signs of revitaliza tion but Europe failed to show the same vigor. The quarterly financial statistics shown below reflect these condi tions. Net income for the fourth quarter of 1980 and 1979 each in cludes profit from the sale of hydro carbon properties equal to $.28 per share. The disposals will not have a material effect on the continuing profitability of the Company. Unaudited quarterly financial data for 1980 and 1979 follow (in millions, except per share data): 1980 1st Quarter Net sales......................................... .. Operating income....................... Net income.................................... Earnings per common share . . Cash dividends paid per common share.......................... Market price range of common stock: High....................................... Low ............................................. $2,810 399 231 1.27 .40 39.25 28.25 2nd Quarter $2,523 305 171 .94 .40 35.63 29.00 3rd Quarter $2,521 273 161 .88 .40 38.25 31.75 4th Quarter S2,772 235 242 1.33 .40 36.75 30.25 Total $10,626 1,212 805 4.42 1.60 39.25 28.25 1979 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 Quarter $2,075 337 176 .97 2nd Quarter S2.307 395 215 1.19 3rd Quarter $2,426 366 199 1.09 4th Quarter $2,447 236 194 1.08 Total $9,255 1.334 784 4.33 35 .35 .35 .40 1.45 29.63 24.38 29.00 24.75 34.88 25.00 33.75 27.13 34.88 24.38 Capital Spending (Dollars in Billions) 1.271 1.20 1.16 1- 1.18 1.08 * 76 77 78 79 Cash Flow (Dollars in Billions) Sales in 1980 totaled 510.6 billion, an increase of 14.8 percent over 1979 sales of $9.3 billion. The significant increase in basic cost components forced the Company to raise the sell ing prices of its products and serv ices. Dow's selling price increases for 1980 and 1979 were: Selling Prices United States .... Non-U.S............. Global............... Percent increase from prior year 1980 1979 16.8 12.9 11.9 327 14.2 22.1 o CO <jO --I '.3 CO CO CO 17 Management Discussion and Analysis Continued I 3 5 'io COIS . The percentage increases in sales for industry segments and geograph ic areas were: Sales Percent increase from prior year 1980 1979 Industry segments Chemicals/Metals .. Plastics:Packaging .. Bioproducts/Con sumer Products ... Geographic areas United States............. Europe ........................ Canada ....................... Pacific ....................... Latin America........... Brazil............................ 21 8 12 12 21 16 8 17 9 35 39 16 26 47 44 55 41 11 The escalation of the cost of feedstocks and energy, as well as labor and employee benefits, con tinued the pattern set in recent years. Costs Percent increase from prior year 1980 1979 Feedstocks and energy, per unit .... Labor and benefits. per employee............. 34 9 39 13 Energy Cost vs. Selling Prices The cost of energy and hydrocarbons -- by far the company's largest single cost Hem -- once again far outstripped the in crease in the selling prices of Dow The ratio of operating income to sales in 1980 was 11.4 percent, down from 14.4 percent in 1979, and due almost exclusively to the inability to obtain adequate price adjustments. Operating income by segments and geographic areas reflected the following changes: Operating Income Percent increase (decrease! from prior years 1980 1979 Industry segments Chemicals.'Metals . Plastics/Packaging . . 8ioproducts/Con- sumer Products . . 7 (25) 16 6 67 (33) Geographic areas United States ........... Europe........................ . Canada ...................... Pacific ........................ Latin Amenca ......... . Brazil..................... . 2 (11) 22 (37) (17) (100) 5 62 37 . 97 86 15 Plastics/Packaging operating income showed a decline of 25 percent follow ing an outstanding year in 1979. De mand dropped sharply and prices for polyolefins and styrene polymers sof tened while costs continued to soar. Prices began to firm near year-end. Operating statistics by industry segments and geographic areas are shown in greater detail in Mote S to the financial statements. Interest cost rose sharply during 1980 by $98 million to $456 million due to increased borrowing and higher rates. However, the impact on income was moderated by the capi talization of $71 million of interest during construction of capital ad ditions which was required by ac counting rules for the first time in 1980. The reduction in the effective in come tax rate from 39.2 percent in 1979 to 34.3 percent in 1980 added 561 million, or 5.33 per share to net income. The conditions which gave rise to the rate change are shown in Note E to the financial statements. Capital spending at $1.2 billion in 1980 continued expansion and im provement programs which have been above $1 billion annually since 1976. The probabilities are that con struction expenditures will continue at or above this level for several years. The financing of capital programs is expected to come both from internally generated cash flow and from external borrowings. Quarterly cash dividends of $.40 per share were paid during 1980. However, in December, the board of directors raised the rate to $.45, effec tive for the dividend paid Januarv 30, 1981. 1979 vs. 1978 An analysis of 1979 operations ver sus 1978 shows that sales rose from $6.9 billion to $9.3 billion, or 34 per cent. Approximately 22 percent was due to increased prices which were necessary because of huge jumps in costs. All areas registered significant sales improvement. In terms of in dustry segments, Byproducts/ Consumer Products sales realized the smallest percentage increase in 1979. which was due in large measure to government controls on the price of pharmaceuticals. Operating income showed a 27 percent increase overall, but industry segments experienced an erratic pat tern. Chemicals/Metals increased only 6 percent mainly due to unre covered cost increases. Strong selling prices in Plastics/Packaging resulted in a 67 percent increase, while Bioproducts/Consumer Products operating profits declined 33 percent for the reason mentioned above. Income benefited by $.28 a share in the fourth quarter of 1979 from the sale of an interest in certain oil and gas properties in Canada. 18 SUPPLEMENTARY INFORMATION ON EFFECTS OF CHANGING PRICES The table below shows certain income data presented in the historical cost income statement on page 23, adjusted to constant dollars and current costs expressed in dollar values generally at the average 1980 price level. The changes to costs and income are presumed to reflect some of the deleterious effects of inflation on reported income under the two different methods of measuring inflation. Those changes are moderated because the primary financial statements already give substan tial recognition to the effects of inflation by worldwide use of declining balance depreciation and the last-in, first-out method for valuing inventories. Consolidated Statement of Income Adjusted for Changing Prices Year Ended December 31, 1980 (In millions) As Reported in the Financial Statements Adjusted for General Inflation (Constant Dollars) Adjusted for Changes in Specific Prices (Current Costs) Net sales ............................................................... Cost of sales, excluding depreciation............... Depreciation expense.......................................... Interest expense -- net........................................ Gain on sale of hydrocarbon properties ......... Other operating expense.................................... Provision for taxes on income .......................... Income from continuing operations................. Purchasing power gain on net monetary liabilities held during the year....................... $10,626 7,921 728 298 (74) 524 424 9,821 $ 805 $10,626 8,000 829 29 S (74) 524 424 10,001 $ 625 5 470 $10,626 8,000 806 298 (74) 524 424 9,978 $ 648 $ 470 Historical Cost Adjusted for General Inflation The supplemental data in constant dollars reflect historical costs adjusted for changes in 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 under the straight line method. At December 31, 1980, 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 S470 million. Current Costs Cost of sales was calculated by applying the last-in, first-out method to all inventories. The carrying value of $2,745 million for inventories at December 31, 1980 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 which totaled $8,776 million at December 31, 1980 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. <J~> --1 C.T0 i CO co CO ro 19 Management Discussion and Analysis -- Continued 8G'/ 0 0 0XS Increases in current costs of inventories and plant properties held during the year, less the effect of general inflation, are not included in income from continuing operations but are shown below: Plant ______Inventories_______ Properties Total Increase in current cost .................................................................. Less -- General inflation................................................... $151 271 $(120) $-02 985 $(583) $ 553 1,256 S (703) The following table is a five-year comparison of selected supplementary financial data adjusted for effects of changing prices. Certain information pertaining to years ended on or before December 31,1978 is omitted because it is impracticable to obtain such information. Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (Average 1980 Dollars) 1980 Years Ended December 31 1979 1978 1977 1976 (In millions. except per share data) Historical cost information adjusted for general inflation (constant dollars): Net sales .............................................................................. S10.626 Income from continuing operations.................................. 625 Income from continuing operations per share................. 3.43 Purchasing power gain on net monetary liabilities held during the year....................................................... 470 Net assets held at vear-end ................................................ 7,463 $10,507 820 4.53 494 7,170 S8.699 $8,477 $8,182 Current cost information: Income from continuing operations.................................. Income from continuing operations per share ................. Increase in the general price level over increase in specific prices ................................................................................ Net assets heid at vear-end ................................................ 648 3.56 703 7,980 790 4.36 403 8,027 Cash dividends declared per share........................................ Market price per share at year-end........................................ Average Consumer Price Index (1967 = 100).......................................................................... 1.63 30.68 246.8 1.68 34.49 217.4 1.63 30.26 195.4 Income tax expense as shown by the primary financial statements has not been changed. 1.55 35.48 181.5 1.37 61.42 170.5 Selected Financial Data 1980 Net sales ...................................... ........................................... Net income . .................................. Net income per common share.............................................. Total assets.............................................................................. Long-term debt......................................................................... Cash dividends declared per common share....................... $10,626 805 4.42 11,538 3,438 1.65 Years Ended December 31 1979 1978 1977 (In millions, except per share) $ 9.255 784 4.33 10,252 3,055 1.50 56,388 575 3.16 8.789 2,937 1.30 $6,234 534 3.00 7.752 2.473 1.15 1976 $5,652 612 3.30 6.944 1,998 .95 20 co STATISTICAL STATEMENTS CONSOLIDATED STATEMENTS Management's Statement of Responsibility for Financial Statements The following consolidated financial statements and related notes of The Dow Chemical Company and its subsidiary companies were prepared by the management in accordance with generally accepted accounting principles. The Board of Directors, through its threemember Audit Committee, is responsible tor assuring that management fulfills its respon sibilities in the preparation of the 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 our evaluation of the risks involved. Such controls are monitored by an internal audit staff, providing reasonable assurances that transactions are executed in accordance with management's authorization and that adequate accounta bility for the Company's assets is maintained. Deloitte 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. Opinion of Independent Public Accountants TO THE STOCKHOLDERS AND DIRECTORS OF THE DOW CHEMICAL COMPANY We have examined the consolidated balance sheets of The Dow Chemical Company and its subsidiary companies as of December 31. 1980 and 1979, and the related consolidated statements of income, additional paid-in capital, retained earnings, and changes in finan cial position tor each of the three years in the period ended December 31, 1980. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing proce dures 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 subsidiary companies at December 31, 1980 and 1979, and the results of their operations and the changes in their financial position for each of the three vears in the period ended December 31. 1980, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur, in the accounting for interest cost as described in Note B to the finan cial statements. Detroit, Michigan February 13, 1981 CD --I CD CO co 21 Accounting Principles NO POSTAGE Necessary CONSOLIDATION The accompanying consoli dated financial statements include the assets, liabilities, revenues and expenses of all significant subsidiaries except for banks and insurance com panies. Because of the nature of their operations, the accounts of these companies are not consoli dated. 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 liabilities 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 appro priate current rates for each month, except that depreciation is recorded at historical rates. For eign 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-in, first-out basis, except for operat ing supplies, which are carried on the first-in, first-out basis. PLANT PROPERTIES AND DEPRECIATION Land, buildings and equipment, including prop erty under capital lease agreements, are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreci able 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 ac quired 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 cov ers substantially all full-time United States em ployees 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 in come taxes currently payable based upon their determination of taxable income which may be different from pretax accounting income. These dif ferences may arise from recording in pretax ac counting income transactions w'hich enter into the determination of taxable income m another period. The tax effect of these timing differences is recog nized by adjustment currently to the provision for taxes. Provision is made for taxes on that income of sub sidiaries which is taxable in the United States as earned, and on unremitted earnings of subsidiary and 50% owned companies to the extent that such earnings are deemed to be not permanently in vested. Income taxes are provided on the undis tributed income of 20%-49% owned companies at the time the Company records its equity in such earnings. A portion of the taxes due on foreign operations conducted through a domestic international sales corporation (DISC) is deferrable under U.S. tax rules. However, it is the practice of the Company to fully accrue such taxes currently. Laws governing the determination of United States and certain foreign income taxes provide for in vestment credits for acquisition of qualified facili ties. 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 countries provide incentives which are granted to encourage new investment. Generally, such grants are cred ited to income as earned. GO co co CO 0*1 EXPLORATION AND DEVELOPMENT COSTS EARNINGS PER COMMON SHARE The calcula The successful efforts method is used in accounting for costs incurred in the acquisition, exploration, tion of earnings per share is based on the weighted average number of shares of common stock out development and production of oil and gas re standing during each year. N serves. Capitalized costs are amortized using the N unit-of-production method on the basis of total N estimated units of proved reserves and non Ti productive efforts are charged to expense. L< C. 2C 22 STATISTICAL STATEMENTS CONSOLIDATED STATEMENTS Consolidated Statement of Income Net Sales ...................................................... ........... Operating Costs and Expenses Cost of sales.................................................. ........... Selling and administrative......................... ........... Operating income........................................ ........... Year Ended December 31 1980 _______ 1979________ 1978 (In millions) S10.626 $9,255 $6,888 8,649 765 9,414 1,212 7,231 690 7,921 1,334 5,284 552 5,836 1,052 Other Income (Expense) Equity in earnings: Non-consolidated subsidiaries................... 20%-50% owned companies....................... Interest income.................................................. Interest and debt discount and expense.................................................... Sundry income -- net...................................... 10 127 87 (385) 187 20 103 86 (358) 128 37 76 50 (287) 40 Income Before Provision for Taxes on Income ............................................. ............... Provision for Taxes on Income.............................. Income Before Minority Interest ................... Minority Interests' Share in Income............. Net Income ....................................................... 1.238 1.313 424515384 814 798 9 14 S 805 S 784 Earnings per Common Share ......................... S 4.42 $ 4.33 968 584 9 S 575 $ 3.16 CO O <z> CO CO o-> See .-GYjinfNi^' PrmiipVs oml Xjtcs fo Frnflnt'm/ 23 Consolidated Balance Sheet I H r e O01S ASSETS Current Assets Marketable securities and interest-bearing deposits (at cost, approximately market)...................................... Accounts and notes receivable: Trade, (less allowance for doubtful receivables -- 1980, S56; 1979, S53)....................................................... Other................................................................................... Deferred income tax benefits............................................... Inventories: Finished and work in process.......................................... Materials and supplies....................................................... Total Current Assets................................................... December 31 1980 1979 (In millions) S 25 143 S 42 210 1,660 499 129 1,573 480 135 1,415 519 857 456 _4,390_________ 3,753 Investments Capital stock of related companies -- at cost plus equity in accumulated earnings: Banking and insurance subsidiaries .............................. Associated companies (508b owned).............................. 2090-499b owned companies........................................... Other investments -- (at cost)......................................................... Noncurrent receivables......................................................... Total Investments ....................................................... 166 690 110 17596 86 186 599 72 70 1,2271,023 Plant Properties...................................................................... Less -- Accumulated depreciation...................................... Net Plant Properties................................................... 9,873 8,909 __4,201._____ 3,673 5,6725,236 Goodwill.................................................................................. Deferred Charges and Other Assets .................................. TOTAL.......................................................................... _ 309107 130_____ 133 511,538 510,252 Sec .Ak\Muiifin /Vni,*rp/c> .imf \rote> to Financial Statements 24 LIABILITIES 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 ....... Total Current Liabilities....................... Long-Term Debt Other Liabilities Minority interests in subsidiary companies Deferred employee benefits ......................... Deferred income taxes .................................. Total Other Liabilities ........................... Stockholders' Equity Common stock (authorized 500,000,000 shares of S2.50 par value each; issued 1980, 202,076,376; 1979, 200,554,994) ................................................ Additional paid-in capital.......................................... Retained earnings ....................................................... Total ....................................................................... Less -- Treasury stock, at cost (1980, 19,374,411; 1979, 19,373,819 shares).................................... Net Stockholders' Equity............................... TOTAL............................................................. SiC /UYoiDi.'tHsj inNjsplci .7`frf tj Ftrtiinctd! StcMcvienb December 31 1980 1979 (In millions) $ 617 119 974 209 215 669 2,803 $ 528 73 1,011 163 267 573 2,615 3,438 3,055 44 39 68 64 745 582 857 685 505 516 3,868 4,889 501 480 3,365 4,346 449 4,440 511,538 449 3,897 510,252 CD CD c_o 03 CO 25 STATISTICAL S lA lL M L N iS Consolidated Statement of Additional Paid-In Capital Balance at Beginning of the Year......................... Add: Excess of selling or market price over par value of common stock issued to employees....... Income fax benefit realized from sale of common stock to employees.......................................... Balance at End of the Year.................................... Year Ended December 31 1980 1979 1978 (In millions) $480 $447 $436 32 4 S516 30 3 $480 11 $447 8GK0 01S Consolidated Statement of Retained Earnings Balance at Beginning of the Year....................... Add (Deduct): Net income............................ Adjustments related to subsidiary companies..................... Cash dividends declared (per share -- 1980, 51.65. 1979. SI.50; 1978, 51.30) ......... Balance at End of the Year.................................. Year Ended December 31 1980 1979 1978 (In millions* S3,365 $2,559 52,521 805 784 57d (302) S3,868 (272) S3,365 (237) S2.S59 5<v Atco:<ntn:$ Pnmif'tcf 01:0 Sotcs to Finane;al Statements 26 co b I'A T lb C11 / \ l s i r t l uiviuivi i o Consolidated Statement of Changes in Financial Position Source of Working Capital Net income........................................................ Charges (credits) to income not involving working capital: Depreciation.................................................. Equity in net income of non-consolidated companies, less dividends received Deferred income taxes................................. Provided from operations....................... New long-term debt........................................ Disposition of property and noncurrent investments .................................................. Sale of common stock to employees............. Total working capital provided............. Use of Working Capital New plant properties............................. Cash dividends declared....................... Purchase of treasury stock ................... Reduction of long-term debt ................ Increase in noncurrent receivables and sundry assets .......... Investment in related companies ......... Total working capital used........... Increase (Decrease) in Working Capital Increase (Decrease) in Working Capital by Element Cash and marketable securities.............. Receivables................................................ Deferred taxes .......................................... Inventories ................................................ Notes payable and current portion of long-term debt...................................... Accounts payable .................................... Income taxes and accruals....................... Increase (Decrease) in Working Capital Year Ended December 31 1980 1979 1978 (In millions) $ 805 $ 784 $ 575 728 (99) 163 1,597 650 103 40 2,390 634 (92) 171 1,497 317 166 37 2,017 562 (90) 69 1,116 509 96 13 1,734 1,184 302 267 127 61 1,941 S 449 1,268 272 40 199 58 207 2,044 $ (27) 1,075 237 54 45 9 23 1,443 S 291 S (84) 106 (6) 621 (135) (9) (44) S 449 $ (147) 405 65 314 (141) (337) (186) S (27) S 263 291 (3) (68) 122 (192) (122) S 291 CO cd .__> .f CJD CO CD Set Accounting Prtnci^cs \'otc> to Fifttincifll Statements 27 Notes to Financial Statements A. SIGNIFICANT EVENT SUBSEQUENT TO DECEMBER 31, 1980 Under the terms of an Agree ment and Plan of Reorganization dated November 1, 1980 with Richardson-Merrell Inc. (RMI), the Com pany will acquire the ethical pharmaceutical busi ness of RMI for a price of $260 million to be paid in Dow common stock. The number of shares to be is sued will be based upon the average market price of Dow common stock for the twenty trading days im mediately preceding the closing date. The determina tion of the closing date in 1981 is contingent upon the satisfactory performance of all requirements of the agreement by both parties. The ethical pharmaceuti cal sales and net income reported by RMI for the fiscal year ended June 30, 1980 were $282 million and $10 million, respectively. B. INTEREST COST Effective January 1, 1980, the poliev of capitalizing interest cost as a part of the cost of constructing capital assets was adopted in accord ance with Statement of Financial Accounting Stand ards No. 34 Gross interest incurred in 1980 w'as $456 million, of which $71 million was capitalized. No interest cost was capitalized in 1979 or 1978. The ef fect of the change was to increase 1980 earnings per share by approximately $.20. C. SUNDRY INCOME --NET The components of sundry income -- net include: Rovaltv income............................. Cain on sale or hydrocarbon properties ............................... Front on securities....................... Protit on redemption of long-term debt......................... Foreign exchange and translation gains (losses) -- other than Dow Banking Corporation . Other -- net . . Total Year Ended December 31 1980 1979 1978 (In millions! S 24 S 21 S21 74 85 13 6 10 14 3 31 26 S187 (Si 21 SI 23 (13) 22 S40 Wanda Petroleum Company, a wholly-owned sub sidiary, was sold to Enterprise Products Company in October 1980 for a pre-tax gain of S74 million. After applicable income taxes, net income in 1980 bene fited by 552 million, or $.28 per share. In December 1979, sale of an interest in certain Cana dian oi! and gas properties resulted in a pre-tax gain of S85 million and net income of 550 million, or $.28 per share. D. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance and repairs Depreciation and depletion of plant properties ....................... Research and development .... Taxes, other than United States and foreign taxes on income: Propertv, franchise and miscellaneous taxes............. Payroll taxes ............................. Provision for doubtful receivables................................. Foreign exchange and translation gains (losses): Other than Dow Banking Corporation........................... Dow Banking Corporation .,. Year Ended December 31 1980 1979 1978 (In millionsi $597 S537 S420 728 634 562 314 269 231 126 113 129 120 15 18 92 96 12 31 (8) (13i (H) 2 23 E. TAXES ON INCOME Domestic and foreign components of pre-tax income, classified primarily by the domicile of the individual subsidiaries, were: Domestic....................................... Foreign........................................... Income before tax......................... Year Ended December 31 1980 (In millions) S 849 S 851 5714 3S9 462234 S1.23S SI.313 5968 This classification of profit before tax will differ from Note S. page 33 which presents revenue and protits allocated by geographic area in accordance with the area management organization. The provision for taxes on income consisted of: (In millionsiFederal State and Local Foreign Total 1980 Current .... Deferred.......... 5125 S13 S117 153___________________16_ 523? lnJ Total . . . S27S _____ 513_____ S_13J3______ S424__ 1979 Current............... Deferred............ Total .............. S250 S15 34__________ S2S4 515 Sl-14 72 5216 54139 1C6 S315 1978 Current ... Deferred............ Total .............. S192 SIS 5517 _ S247 SIS 5102 SI 19 5312 _T2 5384 The current tax provision was reduced by investment tax credits of S94 million in 1980, S98 million in 1979 and 579 million in 1978. I 66VG001S III III 28 Deferred fax provisions related to the following: _________ 1980 1979 1978 (In millions) Excess of depreciation and depletion claimed for tax purposes over book amounts...................................... $125 $113 $49 Doubtful accounts and other losses in excess of those deductible currently for tax purposes...................................... (2) (5) (4) Undistributed earnings of foreign subsidiaries deemed not to be permanently invested ...................................... 13 11 7 Tncome of export and shipping companies operating outside the United States ..................... 29 2 11 Intercompany profit eliminated in consolidation....................... (5) (7) 2 Use of UFO method in countries where it is not allowed for tax purposes ...................................... (2) (39) 3 Other -- net .................................. 11 31 4 Total ........................................ $169 S106 $72 Major differences between the effective rate and the United States statutory rate were: Percent 1980 1979 1978 Statutory rate.................................. U S. investment credits ............. Taxes on income of foreign operations at tax rates different from U S. statutory rate .............................. Untaxed equity in income of companies whose accounts arc not consolidated ............... State and local income taxes (net of federal tax)................... Other ............................................. 46.0 (6.1) 46 0 (6.3) 48.0 (7.0) (2.4) 0.7 1.5 (2.9) 0.5 (0.8) (3.5) 0.6 1.7 (4.6) 1.0 0.8 Effective rate.................................. 34.3 39.2 39.7 Unremitted earnings of subsidiary and 50%-ownecl companies which are deemed to be permanently in vested amounted to approximately $1.3 billion, $1.2 billion and SI 0 billion at December 31, I960, 1979 and 1978, respectively. Income tax returns filed in the United States through 1975 have been settled. F. INVENTORIES The amount of reserve re quired to reduce inventories from the first-in, firstout basis to the last-in, first-out basis at December 31,1980 and 1979 was $799 million and $795 million, respectively. G. RELATED COMPANY TRANSACTIONS In vestments in nonconsohdated subsidiaries and com panies which are 20,o-50% owned at December 31, 1980 and 1979 were S379 million and $341 million, respectively. The Company's equity in the net assets of related companies accounted for by the equity method approximated the carrying amount of such investments. Investments in 1980 included S27 mil lion for the purchase of 20 percent participation in the Total refinery at Flushing, The Netherlands, from La Compagnie Francaise de Petroles, plus additional capital contributions to D-H Titanium Company, Dow Industrija Nafte (DINA) and MT Partnership. Investments in 1979 included $186 mil lion arising from the contribution of oil and gas properties to MT Partnership, a joint venture with TCPL Resources, Ltd., to pursue acquisition, explo ration and development programs for hydrocarbon reserves, plus a capital contribution to Dow Finance Company. Noncurrent receivables at December 31, 1980 and 1979 included $14 million and $8 million, respec tively, from 20%-50% owned companies. Dividends received from related companies were $38 million in 1980, $31 million in 1979 and $23 million in 1978. All other transactions with, and balances due to or from, related companies were not material in amount. H. OTHER INVESTMENTS Noncurrent market able equity securities included in other investments at cost on December 31, 1980 and 1979 were $21 mil lion and $9 million, respectively. The market value of these securities exceeded cost by $23 million at De cember 31, 1980 and $1 million at December 31, 1979, after deducting $1 million of unrealized losses for both periods. I. PLANT PROPERTIES Plant properties con sisted of the following: December 31 19801979 (In millions) Land....................................................... Land and waterway improvements Buildings........................... 751 Machinery and equipment................ Wells and brine systems . 269 Office furniture and equipment . . Oil and gas land and leaseholds . . Other ..................................................... Construction in progress............... S 163 S 155 285 250 681 7,243 5,975 214 153 132 132 112 74 62 8031.32S Total.............................................. $9,873 SS.909 J. LEASED PROPERTIES Capital leases included with owned property in the balance sheet were: December 31 1980_______ 1979 (In millions) Land....................................................... Buildings............................................... Machinery and equipment............. Office furniture and equipment . 51 155 __T8 ' ] 16o Total............................................... 165 175 Less -- Accumulated depreciation............................... 10j Net................................................. s 61 s 72 29 OO CD CD C.D CO CO no " r MTM/UTi t v i c W M T C ;| T I c;V EOG'iCOOiS , Notes to Financial Statements -- Continued Minimum lease commitments at December 31, 1980, were as follows: 1983 ................... ................... 1 ......................... 1985 ............... .......... 1986 and thereafter ......................... Total minimum lease payments . . - Capital Operating Leases Leases (In millions) $ 20 16 13 12 11 91 $ 57 50 55 52 39 264 163 $516 Less -- Estimated executory costs . __ 1 Net minimum lease payments .... Less -- Amounts estimated to represent interest........................... 162 63 Present value of net minimum lease obligations............................ Less -- Current accounts payable . 99 14 Long-term capital lease obligations S 85 Minimum operating lease commitments have not been reduced by minimum sublease rentals of S3 mil lion due in the future under noncancelable subleases. Rental payments under operating leases charged to expense were (in millions): Year Ended December 31 1980 1979 1978 Minimum rentals......................... S108 592 $87 Contingent rentals ..................... 10 8 1 Less -- Sublease rentals............. (1) (3) (1) Net............................................ SI 17 S97 _SS7 K. SUPPLEMENTARY STATISTICS FOR MINERAL RESERVES (Unaudited) The estimated quan- tities of proven and probable mineral reserves at December 31, 1980 were: (Thousands of tons) Lignite Dolomite Reserves -- December 31, 1979 . . 1.079,000 Reserves purchased....................... 71.000 Reserv es mined............................. Reserves -- December 31, 1980 . .. 1.150,000 Average market price per ton . . . 516.00 158.446 446 158.000 S4.25 In several geographic areas throughout the world, the Company owns natural brine deposits which are rich in bromides, chlorides and in magnesium and calcium salts, rock salt deposits and limestone de posits. Approximately 28 million tons of salt and brine were produced in 1980, and the Company es timates these raw material deposits will last in excess of 100 years. L. OIL AND GAS PRODUCING ACTIVITIES The Company is engaged in limited oil and gas pro ducing activities, primarily in the United States and Canada. A summary of information on oil and gas activities follows- Aggregate amount of capitalized costs at December 31: 1980 ................................................. 1979 ................................................. Accumulated depreciation and depletion at December 31: 1980................................................. 1979................................................. Expenditures for property acquisition and development during: 1980................................................. 1979 ................................................. Exploration and production (lifting) costs during: 1980................................................ 1979 .............................................. 1978 ................................................ Present value of estimated future net revenues (unaudited) at December 31: 1980................................................. 1979 ................................................ Estimated quantities of proved oil and gas reserves (unaudited) at December 31 were: Crude oil. condensate and natural gas liquids (millions of barrels): 1980 ........................................ 1979........................................ Natural gas (billions of cubic feet) 1980 1979 ........................................ Dow Shaxe 100% 50% Owned Owned (In millions) $258 22S 1OS 91 $346 186 6 1 34 160 102 1 71 10 51 37 385 150 363 124 7.1 7.3 244 2 277.2 25.3 4.9 411 8 21e 2 M. RETIREMENT PLANS The Company and its subsidiaries have several pension plans covering substantially all of their employees, including certain employees in foreign countries. The cost of all re tirement plans was S127 million in 1980, $115 million in 1979 and 5101 million in 1978. The Company makes annual contributions to the plans equal to the amounts accrued for pension expense. A comparison of accumulated plan benefits and plan assets for the Company's domestic defined benefit plan is pre sented below: Actuarial present value of accumulated plan benefits: Vested .......................................... Nonvested................................. January 1 1981 (In millions) S S94 1S4 51.07S 5-39 5930 Net assets available tor benefits .. S_1.044______ The weighted average rate of return used in deter mining the actuarial present value of accumulated plan benefits was 6.5 percent for both 1981 and I960 30 The Company's foreign pension plans are not re quired to report to certain governmental agencies pursuant to ERISA, and have not determined for 1981 the actuarial value of accumulated benefits or net assets available for benefits as calculated and dis closed above. However, as of the beginning of 1980, available assets in other plans exceeded vested bene fits by approximately $50 million. N. INVESTMENT BENEFIT PLAN Under the Tax Reform Act of 1976, the Company is entitled to a further one percent investment tax credit if a like amount is used to acquire its stock for distribution to employees. In addition, the Company can increase the tax credit as much as one-half percent provided employees contribute an equal amount, all of which is to be used for the purchase of the Company's common stock for the benefit of the participating employees. To carry out these provisions, the Com pany established the Dow Investment Benefit Plan for all U.S. employees, excluding directors. Costs of $14 million in 1980 and $7 million in 1979 and 1978 were offset in income tax expense by an equivalent amount of investment tax credit. O. LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES Details of debt due after one year were as follows: December 31 1980 1979 tin millions) Promissory notes: 12.85,o, final maturity 1985 ............... 5 8 00%. final maturity 1986 ............. 4.508b. final maturity 1990 .................... 5 006. final maturity 1991 .................... 150 120 65 56 S 120 70 60 Debentures: 7 96%. final maturity 1987. Canadian dollar .............................. 4.35%, final maturity 1988 6.70%. final maturity 1998 .................... 7 75%, final maturity 1999 .................... S.S75o, final maturity 2000 ................. 5 90%. final maturity 2000 .................. 7 40%. final maturity 2002 .................... 7 625%. tinal maturity 2003 .................. S.50%. final maturity 2005 ............. S 50%. final maturity' 2006 ............. 7.875"o. tinal maturity- 2007 ............. S.625%. final maturity 2008 ........... 11.25%, final maturity 2010 ............. 212 40 60 64 104 103 74 76 225 200 300 300 400 214 42 69 73 108 111 86 90 225 200 300 300 Bonds: S.50no, final maturity 1989. Swiss franc....................................................... 9 625'V final maturity 1994 ................. 34 198 38 200 Other -- Various rates and maturities. Foreign currency loans............. 93 106 Brazilian U.S. dollar loans....................... 215 241 Other U S. dollar loans............................ 100 157 Pollution control bond obligations . 175 157 Capital lease obligations................... .. ...... 8596 3.449 3,063 Less -- Unamort-.zed debt discount . II ________ 8 Total ................................................... S3.43S____ S3.055 The amounts shown are stated net of debentures purchased to satisfy future sinking fund requirements. The average interest rate on long-term debt was 9.1 % in 1980 compared to 8.4% in 1979. Annua] installments on long-term debt and capital lease obligations for the next five years are as follows (in millions): 1981, $119; 1982, $114; 1983, $165; 1984, $164; 1985, $347. Unused and available credit facilities from various United States banks totaling $455 million at Decem ber 31, 1980 required the retention of average cash balances aggregating approximately $35 million. These requirements were generally satisfied by bal ances maintained for normal business operations. Additional unused and available credit facilities with various United States and foreign banks totaling $596 million at December 31, 1980 required the payment of commitment fees. Both of these groups of facilities, totaling $1,051 mil lion, are available in support of commercial paper borrowing or long-term financing arrangements. Additional unused credit facilities totaling $745 mil lion at December 31, 1980 are available for use by foreign subsidiaries. P. NOTES PAYABLE Notes payable at December 31, 1980 and 1979 included commercial paper in the amounts of S320 million and $296 million, respec tively. Substantially all of the remainder were obli gations due banks with a variety of interest rates and maturities. Q. STOCKHOLDERS' EQUITY The authorized capital stock consists of 25 million preferred shares with a par value of SI.00 per share, none of which has been issued, and 500 million shares of common stock with a par value of S2.50 per share. The changes in the number of issued shares (in thousands) in the last three years were: 1980 Beginning of the year................. 200.555 199,082 198,551 Sold to emplovees....................... 1.519 1,463 530 Conversion of debentures........ ............ 2101 End of the year.............................. 202,026 200,555 199.QS2 At December 31, 1980, 1979 and 1978, shares of com mon stock (in thousands) outstanding were 182,702, 181,181 and 181,174, after deducting 19,374; 19,374 and 17,908 shares of treasury stock, respectively. Shares of common stock (in thousands) were resen'ed for the following purposes at December 31: Stock option and award plans . Employees' stock purchase plan Conversion of debentures........ Total shares reserved.......... 1980 9.354 1.135 12 10,501 Shares 1979 9,969 1,194 14 11.177 1978 6,139 1.272 24 7,435 31 UO CD CD o CO co STATISTICAL STATEMENTS Notes to Financial Statements -- Continued Retained eamings of the Parent company were ap proximately $1,749 million at December 31, 1980, and there were no significant restrictions limiting the availability for dividend purposes. Retained eamings includes approximately $1,684 million of undistributed eamings of consolidated subsidiaries, of which $130 million are restricted from payment of dividends. Restrictions include legal reserve requirements, currency controls and other governmental restrictions. Undistributed eamings of unconsolidated sub sidiaries and 20%-50% owned companies included in the retained eamings were $587 million and $516 million at December 31, 1980 and 1979, respectively. In computing eamings per share, no adjustment was made for common shares issuable under award, op tion and stock purchase plans because there would be no material dilutive effect. R. STOCK OPTION AND AWARD PLANS The Dow Chemical Company 1979 Award and Option Plan provides a maximum of 6.1 million shares of its common stock to officers and other managerial, ad ministrative or professional employees of the Com pany who may be granted awards of deferred stock or options pursuant to the Plan, in lieu of cash for services. During the five-year period from the date of adoption of the Plan, the Company may grant op tions, incentive rights or a combination thereof cov ering an aggregate of four million shares of common stock which may be purchased upon exercise of op tions or may be transferred in respect of incentive rights. The Company may also grant awards during the ten-year period ending May 1989 of 2.1 million shares of deferred stock plus dividend units not to exceed 1.5 million outstanding at any one time. Div idend units represent the right to receive for a specified period cash payments equivalent in value to cash dividends paid during such period on one share of common stock. The Plan provides that op tions are not exercisable more than ten years after the date of grant. In 1972 and 1976, stockholders authorized option plans permitting the granting during the ensuing five years to officers and key employees of options to purchase shares of common stock at the stock's fair market value at the time of the grant. The plans pro vide that qualified options, as defined by the Internal Revenue Code, are not exercisable more than five years after the date of grant, and non-qualified op tions are not exercisable more than ten years after the date of grant. The Tax Reform Act of 1976 established that qualified options exercised after May 20, 1981 will be treated for tax purposes as non-qualified options. The number of shares authorized under the 1972 and 1976 option plans were three million shares each. In addition, management incentive awards which are related to consolidated net income may be granted to key employees, including directors and officers. Awards may be made in dividend units or deferred stock authorized by the Award Plan, or in cash, or a combination thereof. Shares of deferred stock and dividend units under the various plans were: Deferred Dividend Stock Units (In thousands) Deferred stock and dividend units granted during: 1980................................................. 1979................................................. 1978................................................. 14 328 103 6 8 8 Deferred stock and dividend units outstanding at December 31: 1980 ................................................. 1979................................................. 1978................................................. 475 470 147 369 363 355 Deferred stock and dividend units available for grant at December 31 1930................................................. 1979 ................................................. 1978 ................................................. 1,762 1,774 1,695 1,488 1,494 1,145 Shares of common stock under option under the var ious plans were: Options outstanding at December 31 1980 ................... 1979 ................... 197S Options granted during 1980 .. 1979 ................. 1978 ................... Options exercised during: 1980 ................... 1979 ................... 1978 Options expired or terminated during. 1980 ................... 1979 ................... 1978 ................. Options exercisable at December 31. 1980 ................... 1979 ................... 1978 ................... Options available for grant at December 31 1980 ................... 1979 ................. 1978 ................... Number of Option Price Shares___________ Range (In thousands) 3,990 3,902 3,973 S22.14-S53.C9 S22.14-S53.94 S22.14-553.94 835 S32.25 607 S26.00-S2S 75 640 S24.50 215 S22.14-S37.C0 113 S22.14-S2S.66 8 S22.14-S2S.6o 532 560 662 3.166 3.295 3,334 3,075 3,823 324 S66/GG0JLS 32 STATISTICAL STATEMENTS Aggregate amounts charged to expense for all plans were S10 million in 1980, $12 million in 1979 and $5 million in 1978. The Company made offerings of common stock to its employees, excluding directors, in 1980 at $27.60 per share, in 1979 at $22.60 per share, and in 1978 at $22.75 per share, payable generally through payroll deductions. Unfilled subscriptions (in thousands), cancellable at the option of the employee, were 1,135 and 1,194, respectively, at December 31, 1980 and 1979. Partial payments on these subscriptions ag gregating $20 million and $17 million at December 31, 1980 and 1979, respectively, are included in cur rent liabilities. No charge is made against income for the excess, if any, of quoted market value on date of delivery of stock sold over the selling price, nor for employees' gains upon disqualifying disposition of stock ac quired under stock option plans. Such amounts constitute taxable income to the employee and are deductible in the computation of United States in come taxes. It is the practice of the Company to credit the reduction in income taxes to additional paidin capital. S. 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 practice of allocating corporate expense related to the overall management of the Company was discontinued in 1980 to better present geographic operating income, profit before income taxes, and identifiable assets. Amounts for 1979 and 1978 were restated to provide consistency between periods. The results by geographic area for the three years were (in millions): United Latin Stales Europe Canada Pacific America Brazil Elim. and Corp. Items Consolidated Year ended December 31, 1980: Sales to unaffiliated customers . . ... 55.133 Transfers between areas................. 909 Operating income............................. 741 Profit (loss) before tax....................... 809 Identifiable assets............................. . . 6,088 Cross plant properties....................... 6,057 Capital expenditures ......................... 754 Emolovees (thousands)..................... 34.8 S3.225 186 341 312 2.393 1.855 235 11.3 S 731 113 95 59 1,392 1,158 113 40 S680 1 74 75 636 273 33 2.0 $557 6 90 93 394 97 15 25 S300 30 (13) 543 433 34 2.2 5(1.245) (129) (97) 92 $10,626 1,212 1.238 11,538 9,873 1,184 56.8 Year ended December 31, 1979: Sales to unaffiliated customers .. . . .. S4.583 Transfers between areas................... 816 Operating income............................... 725 Profit (lessi betore tax ... 689 Identifiable assets 4,940 Cross plant properties..................... . . 5,488 Capital expenditures......................... 748 Empiovees (thousandsi..................... 34 1 S2.663 1S8 3S2 34S 2.346 1.631 126 11 4 5 630 44 78 144 1,312 1.059 292 3.3 5627 118 124 634 243 58 19 5476 4 10S 102 363 82 8 2 =, S276 IS 23 (3) 612 406 36 2.2 5(1,070} (100) (91) 45 S 9,255 1,334 1.313 10.252 8,909 1.268 55.9 Year ended December 31, 1978: Sales to unafnliated customers . . . . S3,646 Transfers between areas................... 606 51,813 123 S 439 25 S404 1 S337 2 5249 9 S (766) S 6.888 Operating income............................... 693 236 57 60 58 20 (72) Protit (loss) before tax ................... ... 651 222 40 68 52 (4) (61) Identifiable assets ....................... .. 4,422 1.974 919 535 260 023 Cross plant properties ... . 4,951 1.522 927 184 79 375 Capital expenditures....................... 616 106 250 62 4 37 56 Employees (thousands) ............... 32.3 11.4 33 18 2.6 2.1 1.052 968 8,739 8,033 1,075 53.5 Transfers between areas are valued at cost plus a markup. There were no direct sales to foreign customers from domestic operations. OO --4 CD CD CO cn 33 Notes to Financial Statements -- Continued Aeereeation of products into industry segments is generally made on the basis of process technology and channels of distribution. The Chemicals/Metals segment embodies chemicals, hydrocarbon intermediates and the Company's magnesium business. The Plastics/Packaging segment includes large volume polyethylene and polystyrene products as well as a variety of plastic coatings, films and foams. The Bioproducts/Consumer Products segment encompasses human, animal and plant health care products, in addition to household films and cleaning chemicals. Industry segment results for the three years were (in millions): Chemicals/ Plastics/ Metals Packaging Year ended December 31, 1980: Sales to unaffiliated customers .... ........ Intersegment transfers ..................... ....... Operating income .............................. ........ Identifiable assets ............................. ........ Depreciation .................................. - ........ Additions to property................................. $5,771 1,402 619 6,898 509 864 $3,726 55 520 2,116 161 254 Bioproducts/ Consumer Products $1,129 7 73 1,023 58 66 Elim. and Corp. Items 5(1,464) 1.501 Consolidated $10,626 1,212 11,533 728 1,184 Year ended December 31, 1979: Sales to unaffiliated customers......... .... Intersegment transfers ....................... Operating income .............................. ___ Identifiable assets ............................... .... Depreciation ........................................ Additions to propertv......................... $4,786 1.170 578 5,668 428 992 $3,458 37 693 2,206 154 205 $1,011 39 63 1,033 52 71 $(1,246) 1.345 5 9,255 1,334 10,252 634 1,263 Year ended December 31, 1978: Sales to unaffiliated customers.......... .... Intersegment transfers ....................... Operating income .............................. Identifiable assets ............................. Depreciation ........................................ Additions to property......................... $3,535 862 544 4,868 376 841 $2,479 40 414 1,911 137 180 S 874 9 94 874 49 54 S (911) 1.136 S 6,SSS 1,C52 8.7S9 562 1,075 Transfers between industry segments are generally valued at standard cost. It is not practicable to estimate what the impact might be upon the revenue or profitability of geographic areas or industry segments if transfers-purchases had been made at the prevailing prices. T. CONTINGENT LIABILITIES 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 includ ing product liabilities, governmental regulation in cluding 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 thereunder are not determinable at Decem ber 31, 1980, but in the opinion of management, reso lution of these matters will not materially affect the consolidated financial position or results of opera tions of the Company and its subsidiaries. The Company has contracted to purchase electricity' and process steam from a nuclear power plant being constructed by Consumers Power Company at Mid /66'iGOOlS 34 STATISTICAL STATEMENTS land, Michigan. If due to regulatory problems, (1) Consumers is unable to complete this plant prior to December 31.1984, or (2) the Company terminates its purchase contract, the Company would be obligated to pay a termination fee, which as of December 31, 1980 is estimated at S218 million and $435 million, respectively. A Canadian subsidiary has entered into an agree ment to purchase substantially all of the output of an ethylene plant in the Province of Alberta. The owner of the plant, The Alberta Gas Ethylene Company, Ltd , has borrowed $257 million which has been guaranteed as to principal and interest by the Company In addition, the Company has guaranteed loans of related companies in the amount of $111 million. U. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DOW BANKING CORPORA TION During 1980, the Company reduced its hold ing in this Swiss subsidiary from 100 percent to 76 percent. Dow Banking Corporation Consolidated Balance Sheet December 31, 1980 and 1979 (In millions) 1980 1979 Cash and due from banks............... Marketable securities....................... Bills discounted................................ Loans and overdrafts ..................... Other assets ...................................... S 442 239 57 424 4131 $ 469 101 84 432 Total assets.................................. SI,253SI,117 Demand and time deposits. . Other liabilities.................................. Stockholders' equity....................... Total liabilities and stockholders' equity............. SI.061 S 945 37 33 155139 SI,253SI. 117 V. COMBINED FINANCIAL STATEMENTS OF 50% OWNED COMPANIES The summarized financial statements shown below represent the combined accounts of principal companies in which Dow owns a 50 percent interest. Combined Balance Sheet December 31, 1980 and 1979 (In millions) 1980 Current assets...................................... Plant property -- net....................... Other assets........................................ Total assets.................................. $1,079 1,800 56 $2,935 $ 864 1,359 48 $2,271 Current liabilities ............................. Long-term debt.................................. Other liabilities.................................. Stockholders' equity......................... Total liabilities and stockholders' equity............ $ 781 $ 584 420 279 84 60 1,6501,348 $2,93552,271 Statement of Combined Income and Retained Earnings Year Ended December 31 (In millions) 1980 1979 1978 Sales ................................................. Cost of sales ................................. Other expenses -- net ........... S2.447 1,796 322 $1,800 1,234 _270 $1,433 984 22S Income before provision for taxes on income....................... 329 296 221 Taxes on income........................... 128 109 97 Net income.................................... Retained earnings at beginning of year............ Dividends declared..................... 201 6S7 (53) 187 540 (40) 124 454 (38) Retained earnings at end of year S 835 S 687 S 540 Dow Banking Corporation Consolidated Statement of income Year Ended December 31 (In millions) 1980 1979 Operating income..................... Operating expenses ................... Loss (gain 1 on translation ........ 5122 m 15 5 88 76 (2) Profit (loss) before taxes on income ............................. (5) 14 22 Net income (loss)....................... $ (7) S 12 1978 $ 66 53 (24) 37 4 S 33 co --l CD CD CIO CD CD CD 35 Product Group Sales Analysis Chemicals/Metals Group Inorganic Chemicals Major Products Caustic soda............... Chlorinated solvents........... Chlorine................................. Ethylene dibromide ............ Organic Chemicals Major Products Acetone................................. Ethylene glycol..................... Glycerine............................... Isocyanates and VORANOL polyglycols .. Phenol ................................... Propylene glycols................. Metals Major Products Magnesium sheet, plate and extrusions......................... Magnesium ingot ............... Functional Chemicals and Services Major Products & Services Calcium chloride................. Dowell Division................... Hydrocarbons Maior Products Ethylene propylene............... Naphtha.................................. Other petroleum products . . . Total sales ......................... Plastics/Packaging Group Molding Materials Major Products Acrylonitrile-butadiene- Styrene (AB5) DOWLEX linear low density polyethylene..................... High density polyethylene Low density polyethylene STYRON polystyrene Uses Production of paper, alumina, rayon, petroleum products and industrial chemicals Metal cleaning, dry cleaning, paint removers Chemical intermediate, water treat ment, paper Leaded gasoline, soil and grain fumigant Solvent, production of methyl methacrylate Antifreeze, polyester fiber production, polyester bottles Alkyd resins, tobacco products Rigid, elastomeric and flexible urethane products and foams Plastic resins and adhesives Polyester resins, pet food humectant Approximate Sales (In millions) 1980 19791978 $1,247 $1,121 $ 916 1,739 1,584 1,189 350 321 291 Commercial and military products Aluminum alloys, steel processing Highway deicing and dust control Petroleum production services, industrial equipment cleaning Chemical intermediate Petrochemical raw material Fuels, feedstocks 1.018 765 6o3 1,417 995 476 $5,771 S4.786 S3,535 $1,888 51,749 51,156 Used in injection molding, blow molding and extTusion processes for fabrication of articles and in the automotive, appliance, packaging, wire and cable, housewares, toy and construction industries CGGH'OOIS . 36 J 1 A 1 C lv lL lN 1 a Plastics/Packaging Group (Cont.) Uses Coatings and Monomers Major Products Epoxy resins.................................... Styrene-butadiene latexes............. Styrene monomer ........................... Vinyl chloride monomer............... Coatings, adhesives, laminates Paper and carpeting Production of polystyrene plastic Production of polyvinylchloride plastic Plastic Products Major Products Polyethylene film............................. Polystyrene film ............................. STYROFOAM polystyrene foam .. SARAN film.................................... Industrial packaging, agricultural use Functional and decorative packaging Insulation, floral and craft uses Commercial packaging Total sales .................................. Bioproducts/Consumer Product Group Health Care Products and Services Major Products & Services Bio-Science Enterprises......... . . . . Diagnostic products and equipment............................. .... NOVAHISTINE products .... .... RIFADIN and RIFOCIN antibiotics............................. .. . . LORELCO hypocholesterolemic........... . .. . Diagnostic services Medical laboratory tests Cough and cold preparations Broad spectrum antibiotics used primarily for TB treatment Cholesterol lowering drug Agricultural Chemicals Major Products PLICTRAN miticide....................... DURSBAN insecticide ................... Phenoxy herbicides......................... TORDON herbicide ....................... Control of plant feeding mites Broad range insecticide Weed and brush control Weed and brush control Consumer Products Major Products DOW Bathroom Cleaner............... Household use HANDI-WRAP plastic film........... Household plastic film SARAN WRAP plastic film........... Household plastic film ZIPLOC bags................................... Food storage Total sales ............................................................................................................. Approximate Sales (In millions) 1980 1979 1978 1,410 1,301 970 u r r 428 408 353 $3,726 $3,458 $2,479 $ 481 505 $ 426 471 $ 380 *"1 GO --1 CD CD cz; <_n CD CD - 398 a 1-13 114 96 ----------------------------------- - $1,129 SI,Oil $ S74 37 Directors & Officers Board of Directors Earle B. Barnes Chairman of the Board Clyde H. Boyd Vice President Melvin Calvin University Professor, Chemistry, University of California Herbert D. Doan Partner, Doan Associates (a venture capital company! Herbert H. Dow Secretary Barbara H. Franklin Senior Fellow in Public Management of the Wharton School of the University' of Pennsylvania Carl A. Gerstacker Chairman. Finance Committee Hunter W. Henry President. Dow Quimica. S.A. R. M. Keil Financial Vice President J. M. Leathers Vice President. Manufacturing and Engineering Technology Robert W. Lundeen Executive Vice President H. H. Lyon Director Paul W. McCracken University Professor. 6usmess Administration. University of Michigan Robert E. Naegele Croup Vice President Paul F. Oreffice Prestdent and Chief Executive Officer David L. Rooke President. Dow Chemical USA Dave W Schornstein Group Vice President Paul G. Stroebel Director of Corporate Business Development Joseph G. Temple. Jr. Group Vice President G. James Williams Vice President Officers and Assistant Officers Paul F. Oreffice President and Chief Executive Officer Earle B. Bames Chairman of the Board Robert W. Lundeen Executive Vice President Etcyl H. Blair Wee President Clyde H. Boyd Vice President Herbert H Dow St-creury Wilson A Gay Treasurer A. P. Hartmer Vice President and Controller I. F. Harlow Vice President and General Counsel R. M. Keil Financial Vice President J M. Leathers Vice President Keith R. McKennort Vice President Robert E. Naegele Croup Vice President David L. Rooke Vice President Dave W. Schornstein Croup Vice President David P. Sheetz Vice President Joseph G. Temple, Jr Group Vice President G. James Williams Vice President R. W. Barker Assistant Secretary Dale A. Bywater Auditor Lois J. Hoerlein Assistant Secretary John S. Walshaw Assistant Treasurer Glenn W. White Assistant Secretary Executive Committee Paul F. Oreffice, Chairman Earle B. Bames Herbert D. Doan Herbert H. Dow Robert W. Lundeen David L. Rooke G. James Williams Clyde H. Boyd (Alternate) Finance Committee Carl A. Gerstacker, Chairman Clyde H. Boyd Wilson A Gay A. P. Hanmer I. F. Harlow Hunter W. Henrv R. M Keil Robert E. Naegele Paul F. Oreffice G. James Williams E. C. Vehle Audit Committee Melvin Calvin, Chairman H. H. Lyon Paul W. McCracken Compensation Committee Herbert D. Doan, Chairman Herbert H. Dow Carl A. Gerstacker H. H. Lyon Investment Policy Committee G. James Williams, Chairman Wilson A Gay R. M. Keil Robert W. Lundeen Paul F, Oreffice Dave W. Schornstein Joseph G. Temple, Jr E. C. Yehle Public Interest Committee Joseph G. Temple, Jr., Chairman Herbert H. Dow Barbara H. Franklin Robert W. Lundeen Paul W. McCracken Keith R. McKennon Dave W. Schornstein Paul G. Stroebel Nominating Committee Earle B. Barnes. Chairman Herbert D. Doan Carl A. Gerstacker Paul W. McCracken Paul F. Oreffice Safety Committee J. M. Leathers, Chairman Clyde H. Boyd Hunter W. Henry David L. Rooke Joseph G. Temple, jr. L. C. Friedrich ST000500I 40 Of Special Interest to Stockholders r ST0005002 Dow Dividends vs. Inflation Dividends paid per share (Dollars) .; U.S. Consumer Stockholders Equity (Dollars in Billions) 4.44 3.90 3.40 3.10 2.85 "b 77 7i> 7'>i hO Number of Stock holders and Partici pants in the Dividend Reinvestment Plan (Numbers in thousands) .4 dumber of Stockholders 71 Participants in Divi dend Reinvestment Plan Annual Meeting The 1981 Annual Meeting of stockholders will be held at 2 p.m. (EDT) Friday, May 8 in 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 Se curities and Exchange Commission on Form 10-K will be provided without charge to any stockhold er requesting it in writing. Please address: Corpo rate Secretary', The Dow Chemical Company, 2030 Dow Center, Midland, Michigan 48640 Exchange Listings NYSE Symbol: DOW New York, Midwest, Pacific, Amsterdam, Antwerp, Basel, Brussels. Dusseldorf, Frankfurt, Geneva, Hamburg, Hanover, London, Paris, Tokyo, Toronto, Zurich. Transfer Agents The AmeriTrust Company P.O. Box 6477 Cleveland, Ohio 44101 The Royal Trust Company P.O. Box 7500, Station A Toronto 116, Ontario, Canada Registrars The AmeriTrust Company P.O. Box 6477 Cleveland, Ohio 44101 Montreal Trust Company 15 King Street West Toronto, Ontario, Canada M5H 1B4 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 Cassette tapes for the blind of this report and quarterly reports can be obtained 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 Tel: 517-636-1000 The Dow Chemical Company Midland, Michigan 48640 Bulk Rate U S. Postage PAID Permit No 3 Midland. Ml 1/ r o o / o o o i S common/uncommon sense/chemistry