Final Results

Dow Reports 2002 Results Fourth Quarter of 2002 Highlights · Sales for the quarter were $6.9 billion, up 9 percent from a year ago, reflecting 6 percent higher price and 3 percent higher volume. · The quarter was negatively impacted by a 35 percent increase in feedstock and energy costs compared to same quarter last year. · Results for the quarter were impacted by a pretax charge of $828 million related to Union Carbide Corporation's potential asbestos- related liability and a pretax charge of $225 million for merger-related expenses and restructuring. · The Company reported a loss in net income of $809 million and a loss in earnings per share of $0.89. Excluding unusual items, net income was a loss of $172 million and earnings per share were a loss of $0.18. 2002 Highlights · Sales were $27.4 billion, with a 6 percent decrease in price and a 5 percent increase in volume, compared with 2001 sales of $27.8 billion. · Prices fell more than feedstock and energy costs, with a negative impact of approximately $850 million on margins. · The Company reported a loss in net income of $338 million and a loss in earnings per share of $0.37. Excluding unusual items, net income was $290 million and earnings per share were $0.34. 3 Months Ended 12 Months Ended (In millions, except December 31 December 31 for per share amounts) 2002 2001 2002 2001 Net Sales $ 6,914 $ 6,346 $ $ 27,434 27,805 Earnings (Loss) Before Interest, Income Taxes (1,097) 106 86 35 And Minority Interests (EBIT) Earnings (Loss) Per (0.89) (0.04) (0.37) (0.43) Common Share Excluding Unusual Items: (99) EBIT 144 1,165 1,347 Earnings (Loss) Per $ $ $ 0.34 $ 0.52 Common Share (0.18) (0.01) Review of Fourth Quarter Results The Dow Chemical Company today announced fourth quarter sales of $6.9 billion, compared with $6.3 billion a year ago. The Company recorded a loss in quarterly earnings before interest, income taxes and minority interests (EBIT) of $1.1 billion, a loss in net income of $809 million and a loss in earnings per share of $0.89. Two significant items impacted results for the quarter: $828 million pretax charge by Union Carbide Corporation (Union Carbide) for asbestos-related expenses, and pretax merger-related expenses and restructuring of $225 million. (See "Supplemental Information" at the end of this release for additional information regarding unusual items in 2002 and 2001.) Excluding unusual items, Dow reported a loss in EBIT of $99 million, a loss in net income of $172 million and a loss in earnings per share of $0.18 for the fourth quarter of 2002. The substantial decline in EBIT compared with a year ago was principally the result of a margin squeeze in Dow's chemicals and plastics businesses. A 6 percent increase in prices in the quarter was not enough to offset a 35 percent increase in feedstock and energy costs compared to the same quarter last year, resulting in a margin squeeze of approximately $200 million. "This has been a very disappointing quarter. It highlights the urgent need for a more disciplined and focused approach to cost control and the continued requirement to increase prices to offset higher feedstock and energy costs," said William S. Stavropoulos, Dow's CEO. Sales for the quarter increased 9 percent from a year ago, reflecting 6 percent higher price and 3 percent higher volume. Volume was up in all segments, except for Agricultural Sciences. On a geographic basis, volume growth was strongest in Latin America and Asia Pacific and weakest in the United States. Double-digit price increases were recorded for the combined basic segments, compared to relatively flat prices for the performance segments. Performance Plastics EBIT improved compared with a year ago, despite the sharp rise in feedstock costs. Modest price improvements in Polyurethanes and Epoxies, and better results in Licensing, combined to offset the higher costs. Performance Chemicals EBIT declined compared with last year because of higher feedstock costs, which primarily impacted Emulsion Polymers and Oxide Derivatives. Volume improved in most businesses in the segment. Results also benefited from the continued realization of cost synergies from the Union Carbide merger and other acquisitions. Agricultural Sciences sales and EBIT declined compared with a year ago, primarily due to lower volumes. Volume was down sharply in Asia Pacific, reflecting adverse climate impacts from a drought in Australia and monsoons in India. Volume also declined in North America and Europe due to last year's high levels of pre-buying for the spring season which were not repeated in 2002. Prices were down in Latin America, but were relatively stable in all other regions. EBIT, excluding unusual items, in the Plastics segment was about flat with last year, as higher price and volume helped mitigate the sharp rise in feedstock costs. Volume gains were particularly strong in Asia Pacific and Latin America, with over 15 percent growth in both regions. EBIT in the Chemicals segment declined principally due to the rise in natural gas prices, which pushed U.S. energy costs up nearly 60 percent compared with a year ago. Price increases of 6 percent were not sufficient to offset these higher costs. During the fourth quarter of 2002, a pretax charge of $828 million was recorded by Union Carbide for the estimated cost of resolving pending and future asbestos claims. Analysis, Research & Planning Corporation (ARPC), a consulting firm with broad experience in estimating liabilities associated with mass tort litigation including asbestos, provided Union Carbide with an analysis of its potential asbestos liability. Union Carbide had asked ARPC to explore whether it would be possible to estimate the cost of resolving pending and future asbestos- related personal injury claims that have been, and could reasonably be expected to be, filed against Union Carbide and Amchem Products, Inc., a former subsidiary of Union Carbide. Based on the results of ARPC's analysis, Union Carbide increased the reserve for its asbestos-related liabilities for pending and future claims at December 31, 2002 to $2.2 billion. Union Carbide also increased the receivable for insurance recoveries related to asbestos liability to $1.35 billion at December 31, 2002. This resulted in a net income statement impact to Union Carbide of $828 million on a pretax basis, or $522 million on an after- tax basis, in the fourth quarter of 2002. "We recognize that the asbestos issue has created uncertainty for investors. We believe that quantifying the cost of resolving Carbide's asbestos claims will alleviate that uncertainty and enable our company to realize its full value," said Stavropoulos. "This does not signal any change in Union Carbide's legal strategy." Additionally, the Company recorded a pretax charge of $225 million for merger-related expenses and restructuring, which included severance payments and merger integration costs, as well as write-offs of assets in Canada, South Africa and the United States. Also in the fourth quarter, Dow recorded a reduction to stockholders' equity of $1.3 billion due to the decline in market value of Dow's pension fund portfolio and lower discount rate assumptions. This charge had no impact on earnings or cash flow. Review of Year-End Results Dow reported annual sales of $27.4 billion, a decline of 1 percent from a year ago. The company reported positive EBIT for the year of $86 million, net income was a loss of $338 million, and earnings per share were a loss of $0.37. Excluding unusual items, EBIT was $1.2 billion, net income was $290 million and earnings per share were $0.34. (See "Supplemental Information" at the end of this release.) Overall volume increased 5 percent from a year ago. Excluding the impact of acquisitions and divestitures, volume increased 3 percent. Prices declined 6 percent, or $1.7 billion, exceeding an $850 million reduction in feedstock and energy costs. This resulted in a margin squeeze of approximately $850 million for the year. Excluding unusual items, the combined performance segments posted slightly higher EBIT for the year as cost synergies from recent acquisitions, plus the impact of Six Sigma efforts, overcame the impact of lower prices. These segments provided the vast majority of earnings for the Company. In the basics segments, EBIT declined from a year ago, reflecting the continued trough conditions in the Chemicals segment, as margins were compressed due to price declines. Dow fully completed the integration of Union Carbide in 2002, achieving cost synergies of $1.2 billion, ahead of schedule and above expectations. Associated with the Union Carbide acquisition was a workforce reduction of 5,500. Commenting on the Company's results, Stavropoulos said that, "Despite extended trough conditions in the chemical industry, we are taking concerted action to make 2003 a better year than 2002. Although we expect the first quarter of the year to be particularly challenging due to rising feedstock and energy costs, it is not our intention to simply wait for conditions to get better. We are taking specific steps to reach our key objectives in 2003: to improve our earnings and restore our financial strength." The Company will host a live audio Webcast of its earnings conference call with investors to discuss Dow's business results and outlook at 10 a.m. EST today on www.dow.com. A replay of the Webcast will be available on Dow's Web site until mid-February. Dow is a leading science and technology company that provides innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $27 billion, Dow serves customers in more than 170 countries and a wide range of markets that are vital to human progress, including food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its approximately 50,000 employees seek to balance economic, environmental and social responsibilities. Union Carbide Corporation is a wholly owned subsidiary of The Dow Chemical Company. Supplemental Information The following tables show the impact of the unusual items recorded in the three-month and twelve-month periods ended December 31, 2002 and 2001 on earnings (loss) before interest, income taxes and minority interests ("EBIT"); net income (loss); and earnings (loss) per common share - diluted. Description of Unusual Items - Fourth Quarter of 2002 and 2001 Results in the fourth quarter of 2002 were impacted by additional merger- related expenses and restructuring costs of $225 million (which included one-time merger and integration costs of $12 million, additional merger- related severance of $45 million, as well as asset write-downs and impairments of $131 million and severance of $37 million related to restructuring activities); a charge of $828 million related to potential asbestos liabilities of Union Carbide Corporation; an $8 million restructuring charge (Dow's share) recorded by DuPont Dow Elastomers; and a gain of $63 million on the sale of Oasis Pipeline. In the fourth quarter of 2001, earnings were impacted by additional merger-related expenses and restructuring costs of $33 million; and a $5 million reinsurance company loss on the World Trade Center (WTC). EBIT Net Income Earnings Per Share Three Months Three Months Three Months Ended Ended Ended Dec. Dec. Dec. Dec. Dec. 31, Dec. 31, In millions, 31, 31, 31, 31, 2002 2001 except per 2002 2001 2002 2001 share amounts Unusual items: Merger-related expenses and $(225) $(33) $(147) $(22) $(0.17) $(0.03) restructuring Asbestos- (828) - (522) - (0.57) - related charge Reinsurance - (5) - (3) - (0.00) company loss on WTC DuPont Dow (8) - (8) - (0.01) - Elastomers restructuring Gain on sale 63 - 40 - 0.04 - of Oasis Pipeline Total unusual $(998) $(38) $(637) $(25) $(0.71) $(0.03) items As reported $(1,09 $106 $(809) $(37) $(0.89) $(0.04) 7) Excluding $(99) $144 $(172) $(12) $(0.18) $(0.01) unusual items Description of Unusual Items - Year-to-Date 2002 and 2001 In addition to the unusual items described above for the fourth quarter of 2002, earnings for the year were impacted by: additional merger- related expenses and restructuring costs of $55 million (which included $5 million of severance related to a workforce reduction program at Dow AgroSciences); a $10 million restructuring charge (Dow's share) recorded by UOP LLC; goodwill impairment losses of $16 million related to investments in nonconsolidated affiliates; and a net after-tax gain of $67 million related to the adoption of two new accounting standards (SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets"). In the four quarters of 2001, earnings were impacted by: a special charge of $1,487 million for costs related to the Union Carbide merger; a charge of $69 million for purchased in-process research and development costs associated with the acquisition of Rohm and Haas' agricultural chemicals business; an $11 million reinsurance company loss on the WTC; an $11 million restructuring charge (Dow's share) recorded by Dow Corning; a gain of $266 million on the sale of stock in Schlumberger Ltd; and an after-tax transition adjustment gain of $32 million related to the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." EBIT Net Income Earnings Per Share Twelve Months Twelve Months Twelve Months Ended Ended Ended Dec. Dec. 31, Dec. Dec. Dec. 31, Dec. In millions, 31, 2001 31, 31, 2002 31, except 2002 2002 2001 2001 per share amounts Unusual items: Merger-related expenses and $(280) $(1,487) $(182) $(992) $(0.21) $(1.10) restructuring Asbestos- (828) - (522) - (0.57) - related charge Purchased in- - (69) - (43) - (0.05) process R&D Reinsurance - (11) - (8) - (0.01) company loss on WTC Dow Corning - (11) - (11) - (0.01) restructuring UOP (10) - (7) - (0.01) - restructuring DuPont Dow (8) - (8) - (0.01) - Elastomers restructuring Goodwill - impairment (16) - (16) - (0.02) losses in non- consolidated affiliates Gain on sale of - 266 - 168 - 0.18 Schlumberger stock Gain on sale of 63 - 40 - 0.04 - Oasis Pipeline Cumulative effect - - 67 32 0.07 0.04 of changes in accounting principles Total unusual $(1,079) $(1,312) $(628) $(854) $(0.71) $(0.95) items As reported $86 $ 35 $(338) $(385) $(0.37) $(0.43) Excluding $1,165 $ 1,347 $ 290 $ 469 $ 0.34 $ 0.52 unusual items Note: The forward-looking statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. FOR MORE INFORMATION: Cindy Newman The Dow Chemical Company 2030 Dow Center Midland, MI 48674 989-636-2876 (Removed grafics) (Removed grafics) (Removed grafics) ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/01/30/20030130BIT01300/wkr0001.doc http://www.waymaker.net/bitonline/2003/01/30/20030130BIT01300/wkr0002.pdf