DOW CHEMICAL CO /DE/, 10-Q, 2000-08-11

DOW CHEMICAL CO /DE/
10-Q, 2000-08-11
CHEMICALS & ALLIED PRODUCTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

FOR THE QUARTER ENDED June 30, 2000

Commission file number 1-3433

THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)

Delaware		38-1285128
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2030 DOW CENTER, MIDLAND, MICHIGAN		48674
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: 517-636-1000

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

Class		Outstanding at June 30, 2000
Common Stock, $2.50 par value		678,216,512 shares

THE DOW CHEMICAL COMPANY

TABLE OF CONTENTS

			Page
PART I—FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Consolidated Statements of Income	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	6
		Consolidated Statements of Comprehensive Income	7
		Operating Segments and Geographic Areas	8
		Commitments and Contingent Liabilities	10
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		13
		Disclosure Regarding Forward-Looking Information	13
		Second Quarter Earnings Announcement	13
		Acquisitions and Divestitures	15
		Changes in Financial Condition	16
		Results of Operations	18
		Subsequent Event	23
		Accounting Policies	24
		Euro Conversion	24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		24
PART II—OTHER INFORMATION
	Item 1. Legal Proceedings		26
	Item 4. Submission of Matters to a Vote of Security Holders		30
	Item 6. Exhibits and Reports on Form 8-K		31
SIGNATURE			32
Exhibit 27			33

PART I.—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Notes A and C)

The Dow Chemical Company and Subsidiaries

Consolidated Statements of Income

		Three Months Ended				Six Months Ended
*In millions, except for per share amounts (Unaudited)*		June 30, 2000		June 30, 1999		June 30, 2000		June 30, 1999
Net Sales		$	5,630	$	4,619	$	11,011	$	9,036

	Cost of Sales		4,250		3,395		8,419		6,671
	Research and development expenses		219		223		431		415
	Selling, general and administrative expenses		372		374		782		764
	Amortization of intangibles		29		27		66		54
	Insurance and finance company operations, pretax income		10		31		38		61
	Equity in earnings of nonconsolidated affiliates		78		22		166		47
	Sundry income—net		78		89		172		157

Earnings before Interest, Income Taxes and Minority Interests			926		742		1,689		1,397

	Interest income		26		27		55		52
	Interest expense and amortization of debt discount		124		121		242		241

Income before Income Taxes and Minority Interests			828		648		1,502		1,208

	Provision for income taxes		282		228		524		431
	Minority interests' share in income		19		8		35		35
	Preferred stock dividends		—		2		1		3

Net Income Available for Common Stockholders		$	527	$	410	$	942	$	739

Share Data (Note B)
	Earnings per common share—basic	$	0.78	$	0.62	$	1.40	$	1.12
	Earnings per common share—diluted	$	0.77	$	0.61	$	1.38	$	1.10
	Common stock dividends declared per share	$	0.29	$	0.29	$	0.58	$	0.58
	Weighted-average common shares outstanding—basic		677.4		661.8		675.2		661.2
	Weighted-average common shares outstanding—diluted		683.9		675.3		683.1		673.2

Depreciation		$	290	$	281	$	560	$	557

Capital Expenditures		$	344	$	347	$	588	$	597

Notes to Financial Statements:

Note: A: The unaudited interim financial statements reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods covered. Certain reclassifications of prior year amounts have been made to conform to current year presentation. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1999. (Except as otherwise indicated by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.)
Note: B: On May 11, 2000, the Company's Board of Directors approved a three-for-one split of the Company's common stock, payable on June 16, 2000 to shareholders of record on May 23, 2000. All share data for prior periods has been restated to reflect the split.
Note: C: The Consolidated Financial Statements reflect the consolidation of BSL effective June 1, 2000. See Acquisitions and Divestitures on page 15 for further detail.

The Dow Chemical Company and Subsidiaries

Consolidated Balance Sheets

*In millions (Unaudited)*			June 30, 2000		Dec. 31, 1999
Assets
Current Assets
	Cash and cash equivalents		$	190	$	506
	Marketable securities and interest-bearing deposits			221		706
	Accounts and notes receivable:
		Trade (net of allowance for doubtful receivables—2000: $96; 1999: $107)		2,596		2,631
		Other		2,102		1,983
	Inventories:
		Finished and work in process		2,516		2,264
		Materials and supplies		614		522
	Deferred income tax assets—current			177		235

	Total current assets			8,416		8,847

Investments
	Investment in nonconsolidated affiliates			1,127		1,359
	Other investments			2,902		2,872
	Noncurrent receivables			405		390

	Total investments			4,434		4,621

Property
	Property			25,095		24,276
	Less accumulated depreciation			16,109		15,786

	Net property			8,986		8,490

Other Assets
	Goodwill (net of accumulated amortization—2000: $358; 1999: $351)			1,883		1,834
	Deferred income tax assets—noncurrent			1,787		597
	Deferred charges and other assets			1,256		1,110

	Total other assets			4,926		3,541

Total Assets			$	26,762	$	25,499

See Notes to Financial Statements.

The Dow Chemical Company and Subsidiaries

Consolidated Balance Sheets

*In millions (Unaudited)*			June 30, 2000			Dec. 31, 1999
Liabilities and Stockholders' Equity
Current Liabilities
	Notes payable		$	1,378		$	692
	Long-term debt due within one year			432			343
	Accounts payable:
		Trade		1,852			1,782
		Other		1,113			1,087
	Income taxes payable			221			178
	Deferred income tax liabilities—current			57			38
	Dividends payable			220			213
	Accrued and other current liabilities			2,077			1,962

	Total current liabilities			7,350			6,295

Long-Term Debt				4,522			5,022

Other Noncurrent Liabilities
	Deferred income tax liabilities—noncurrent			838			839
	Pension and other postretirement benefits—noncurrent			1,825			1,843
	Other noncurrent obligations			2,262			2,219

	Total other noncurrent liabilities			4,925			4,901

Minority Interest in Subsidiaries				404			408

Preferred Securities of Subsidiary				500			500

Temporary Equity
	Preferred stock at redemption value			—			114
	Guaranteed ESOP obligation			—			(64	)

	Total temporary equity			—			50

Stockholders' Equity
	Common stock			2,453			818
	Additional paid-in capital			2			1,321
	Guaranteed ESOP obligation			(64	)		—
	Retained earnings			13,893			13,445
	Accumulated other comprehensive income			(253	)		(251	)
	Treasury stock at cost			(6,970	)		(7,010	)

	Net stockholders' equity			9,061			8,323

Total Liabilities and Stockholders' Equity			$	26,762		$	25,499

See Notes to Financial Statements.

The Dow Chemical Company and Subsidaries

Consolidated Statements of Cash Flows

			Six Months Ended
*In millions (Unaudited)*			June 30, 2000			June 30, 1999
Operating Activities
	Net income available for common stockholders		$	942		$	739
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		645			626
		Provision (credit) for deferred income tax		(125	)		68
		Undistributed earnings of nonconsolidated affiliates		(157	)		(36	)
		Minority interests' share in income		35			35
		Net gain on sales of property		(7	)		(50	)
		Other net gain		(28	)		(76	)
	Changes in assets and liabilities that provided (used) cash:
		Accounts receivable		(327	)		436
		Inventories		(212	)		218
		Accounts payable		179			(226	)
		Other assets and liabilities		(75	)		159

	Cash provided by operating activities			870			1,893

Investing Activities
	Capital expenditures			(588	)		(597	)
	Proceeds from sales of property			14			95
	Purchases of consolidated companies			(416	)		(99	)
	Investments in nonconsolidated affiliates			(62	)		(79	)
	Purchases of investments			(1,558	)		(1,458	)
	Proceeds from sales of investments			2,355			1,471

	Cash used in investing activities			(255	)		(667	)

Financing Activities
	Changes in short-term notes payable			(217	)		(547	)
	Payments on long-term debt			(396	)		(150	)
	Proceeds from issuance of long-term debt			8			257
	Purchases of treasury stock			(3	)		(319	)
	Proceeds from sales of common stock			108			144
	Purchase of subsidiary preferred stock			—			(102	)
	Distributions to minority interests			(35	)		(24	)
	Dividends paid to stockholders			(389	)		(386	)

	Cash used in financing activities			(924	)		(1,127	)

Effect of Exchange Rate Changes on Cash				(7	)		(4	)

Summary
	Increase (decrease) in cash and cash equivalents			(316	)		95
	Cash and cash equivalents at beginning of year			506			123

	Cash and cash equivalents at end of period		$	190		$	218

See Notes to Financial Statements.

The Dow Chemical Company and Subsidaries

Consolidated Statements of Comprehensive Income

		Three Months Ended						Six Months Ended
*In millions (Unaudited)*		June 30, 2000			June 30, 1999			June 30, 2000			June 30, 1999
Net Income Available for Common Stockholders		$	527		$	410		$	942		$	739

Other Comprehensive Income, Net of Tax
	Unrealized gains (losses) on investments		(23	)		19			66			100
	Cumulative translation adjustments		(44	)		(25	)		(69	)		(53	)
	Minimum pension liability		—			—			1			—

	Total other comprehensive income		(67	)		(6	)		(2	)		47

Comprehensive Income		$	460		$	404		$	940		$	786

See Notes to Financial Statements.

The Dow Chemical Company and Subsidiaries

Operating Segments and Geographic Areas

		Three Months Ended						Six Months Ended
*In millions (Unaudited)*		June 30, 2000			June 30, 1999			June 30, 2000			June 30, 1999
Operating segment sales
	Performance Plastics	$	1,471		$	1,297		$	2,850		$	2,560
	Performance Chemicals		766			656			1,506			1,297
	Agricultural Products		677			664			1,292			1,333
	Plastics		1,349			1,022			2,728			1,940
	Chemicals		693			541			1,368			1,053
	Hydrocarbons and Energy		587			363			1,109			672
	Unallocated and Other		87			76			158			181

	Total	$	5,630		$	4,619		$	11,011		$	9,036

Operating segment EBIT
	Performance Plastics	$	189		$	294		$	397		$	567
	Performance Chemicals		98			149			201			273
	Agricultural Products		158			159			248			240
	Plastics		300			89			556			230
	Chemicals		175			89			339			189
	Hydrocarbons and Energy		5			23			15			10
	Unallocated and Other		1			(61	)		(67	)		(112	)

	Total	$	926		$	742		$	1,689		$	1,397

Operating segment intersegment revenues
	Performance Plastics	$	3		$	2		$	6		$	6
	Performance Chemicals		7			4			15			7
	Plastics		—			—			—			2
	Chemicals		9			7			16			14
	Unallocated and Other		(19	)		(13	)		(37	)		(29	)

	Total		—			—			—			—

Geographic area sales
	United States	$	2,284		$	1,922		$	4,353		$	3,756
	Europe		1,888			1,517			3,820			3,091
	Rest of World		1,458			1,180			2,838			2,189

	Total	$	5,630		$	4,619		$	11,011		$	9,036

The reconciliation between "Earnings before Interest, Income Taxes and Minority Interests (EBIT)" and "Income before Income Taxes and Minority Interests" consists of "Interest income" and "Interest expense and amortization of debt discount," and can be found in the Consolidated Statements of Income on page 3.

The Dow Chemical Company and Subsidiaries

Sales Volume and Price by Operating Segment and Geographic Area

		Three Months Ended June 30, 2000						Six Months Ended June 30, 2000
*Percentage change from prior year*		Volume		Price		Total		Volume		Price		Total
Operating segments
	Performance Plastics	14	%	(1	)%	13	%	13	%	(2	)%	11	%
	Performance Chemicals	20	%	(3	)%	17	%	20	%	(4	)%	16	%
	Agricultural Products	5	%	(3	)%	2	%	1	%	(4	)%	(3	)%
	Plastics	2	%	30	%	32	%	8	%	33	%	41	%
	Chemicals	3	%	25	%	28	%	3	%	27	%	30	%
	Hydrocarbons and Energy	6	%	56	%	62	%	9	%	56	%	65	%

	Total	9	%	13	%	22	%	9	%	13	%	22	%

Geographic areas
	United States	9	%	10	%	19	%	6	%	10	%	16	%
	Europe	11	%	13	%	24	%	12	%	12	%	24	%
	Rest of World	7	%	17	%	24	%	11	%	19	%	30	%

	Total	9	%	13	%	22	%	9	%	13	%	22	%

COMMITMENTS AND CONTINGENT LIABILITIES

In January 1994, Dow Corning Corporation (Dow Corning), in which the Company is a 50 percent shareholder, announced a pretax charge of $640 million ($415 million after tax) for the fourth quarter of 1993. In January 1995, Dow Corning announced a pretax charge of $241 million ($152 million after tax) for the fourth quarter of 1994. These charges included Dow Corning's best estimate of its potential liability for breast implant litigation based on a global Breast Implant Litigation Settlement Agreement (the Settlement Agreement); litigation and claims outside of the Settlement Agreement; and provisions for legal, administrative and research costs related to breast implants. The charges for 1993 and 1994 included pretax amounts of $1,240 million and $441 million less expected insurance recoveries of $600 million and $200 million, respectively. The 1993 amounts reported by Dow Corning were determined on a present value basis. On an undiscounted basis, the estimated liability noted above for 1993 was $2,300 million less expected insurance recoveries of $1,200 million.

As a result of the Dow Corning actions, the Company recorded its 50 percent share of the charges, net of tax benefits available to Dow. The impact on net income was a charge of $192 million for 1993 and $70 million for 1994.

Dow Corning reported an after tax net loss of $167 million for the second quarter of 1995 as a result of a $221 million after tax charge taken to reflect a change in accounting method from the present value basis noted above to an undiscounted basis resulting from the uncertainties associated with its voluntary filing for protection under Chapter 11 of the U.S. Bankruptcy Code on May 15, 1995. As a result of such loss and Chapter 11 filing, the Company recognized a pretax charge against income of $330 million for the second quarter of 1995, fully reserved its investment in Dow Corning and is reserving its share of equity earnings while Dow Corning remains in Chapter 11.

On September 1, 1994, Judge Sam C. Pointer, Jr. of the U.S. District Court for the Northern District of Alabama approved the Settlement Agreement, pursuant to which plaintiffs choosing to participate in the Settlement Agreement released the Company from liability. The Company was not a participant in the Settlement Agreement nor was it required to contribute to the settlement. On October 7, 1995, Judge Pointer issued an order which concluded that the Settlement Agreement was not workable in its then-current form because the funds committed to it by industry participants were inadequate. The order provided that plaintiffs who had previously agreed to participate in the Settlement Agreement could opt out after November 30, 1995.

The Company's maximum exposure for breast implant product liability claims against Dow Corning is limited to its investment in Dow Corning which, after the second quarter of 1995 charge noted above, is zero. As a result, any future charges by Dow Corning related to such claims or as a result of the Chapter 11 proceeding would not have an adverse impact on the Company's consolidated financial statements.

The Company is separately named as a defendant in more than 14,000 breast implant product liability cases, of which approximately 4,000 state cases are the subject of summary judgments in favor of the Company. In these situations, plaintiffs have alleged that the Company should be liable for Dow Corning's alleged torts based on the Company's 50 percent stock ownership in Dow Corning and that the Company should be liable by virtue of alleged "direct participation" by the Company or its agents in Dow Corning's breast implant business. These latter, direct participation claims include counts sounding in strict liability, fraud, aiding and abetting, conspiracy, concert of action and negligence.

Judge Pointer was appointed by the Federal Judicial Panel on Multidistrict Litigation to oversee all of the product liability cases involving silicone breast implants filed in the U.S. federal courts. Initially, in a ruling issued on December 1, 1993, Judge Pointer granted the Company's motion for summary judgment, finding that there was no basis on which a jury could conclude that the Company was liable for any claimed defects in the breast implants manufactured by Dow Corning. In an interlocutory

opinion issued on April 25, 1995, Judge Pointer affirmed his earlier ruling as to plaintiffs' corporate control claims but vacated that ruling as to plaintiffs' direct participation claims.

On July 7, 1998, Dow Corning, the Company and Corning Incorporated (Corning), on the one hand, and the Tort Claimants' Committee in Dow Corning's bankruptcy on the other, agreed on a binding Term Sheet to resolve all tort claims involving Dow Corning's silicone medical products, including the claims against Corning and the Company (collectively, the Shareholders). The agreement set forth in the Term Sheet was memorialized in a Joint Plan of Reorganization (the Joint Plan) filed by Dow Corning and the Tort Claimants' Committee (collectively, the Proponents) on November 9, 1998. On February 4, 1999, the Bankruptcy Court approved the disclosure statement describing the Joint Plan. Before the Joint Plan could become effective, however, it was subject to a vote by the claimants, a confirmation hearing and all relevant provisions of the Bankruptcy Code. Voting was completed on May 14, 1999 and the confirmation hearing concluded on July 30, 1999.

On November 30, 1999, the Bankruptcy Court issued an Order confirming the Joint Plan, but then issued an Opinion on December 21, 1999 that, in the view of the Proponents and the Shareholders, improperly interpreted or attempted to modify certain provisions of the Joint Plan affecting the resolution of tort claims involving Dow Corning's silicone medical products against various entities, including the Shareholders. Many of the parties in interest, including the Shareholders, filed various motions and appeals seeking, among other things, a clarification of the December 21, 1999 Opinion. The effectiveness of the Joint Plan remains subject to the resolution of these motions and appeals, which were heard by U. S. District Court Judge Denise Page Hood on April 12 and 13, 2000, but upon which she has not yet ruled. Accordingly, there can be no assurance at this time that the Joint Plan will become effective.

It is the opinion of the Company's management that the possibility is remote that plaintiffs will prevail on the theory that the Company should be liable in the breast implant litigation because of its shareholder relationship with Dow Corning. The Company's management believes that there is no merit to plaintiffs' claims that the Company is liable for alleged defects in Dow Corning's silicone products because of the Company's alleged direct participation in the development of those products, and the Company intends to contest those claims vigorously. Management believes that the possibility is remote that a resolution of plaintiffs' direct participation claims, including the vigorous defense against those claims, would have a material adverse impact on the Company's financial position or cash flows. Nevertheless, in light of Judge Pointer's April 25, 1995 ruling, it is possible that a resolution of plaintiffs' direct participation claims, including the vigorous defense against those claims, could have a material adverse impact on the Company's net income for a particular period, although it is impossible at this time to estimate the range or amount of any such impact.

Numerous lawsuits have been brought against the Company and other chemical companies alleging that the manufacture, distribution or use of pesticides containing dibromochloropropane (DBCP) has caused, among other things, property damage, including contamination of groundwater. To date, there have been no verdicts or judgments against the Company in connection with these allegations. It is the opinion of the Company's management that the possibility is remote that the resolution of such lawsuits will have a material adverse impact on the Company's consolidated financial statements.

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. The Company had accrued $339 million at June 30, 2000 for environmental matters, including $11 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Company has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for

handling site remediation and restoration. It is the opinion of the Company's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Company's consolidated financial statements.

In addition to the breast implant, DBCP and environmental remediation matters, the Company is party to a number of other claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation 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.

Dow has an active risk management program consisting of numerous insurance policies secured from many carriers at various times. These policies provide coverage that will be utilized to minimize the impact, if any, of the contingencies described above.

Except for the possible effect on the Company's net income for breast implant litigation described above, it is the opinion of the Company's management that the possibility is remote that the aggregate of all claims and lawsuits will have a material adverse impact on the Company's consolidated financial statements.

A Canadian subsidiary entered into two 20-year agreements, one that expired in 1998 and one that expires in 2004, to purchase ethylene. The purchase price is determined on a cost-of-service basis which, in addition to covering all operating expenses and debt service costs, provides the owner of the manufacturing plants with a specified return on capital. Total purchases under the agreements were $92 million in 1999, $221 million in 1998 and $199 million in 1997.

At December 31, 1999, the Company had various outstanding commitments for take or pay and throughput agreements, including the Canadian subsidiary's ethylene contract, for terms extending from one to 20 years. In general, such commitments were at prices not in excess of current market prices.

Fixed and Determinable Portion of Take or Pay and Throughput Obligations at December 31, 1999 *(in millions)*
2000	$	309
2001		296
2002		300
2003		281
2004		256
2005 through expiration of contracts		1,890

Total	$	3,332

In addition to the take or pay obligations at December 31, 1999, the Company had outstanding purchase commitments which range from one to 18 years for steam, electrical power, materials, property and other items used in the normal course of business of approximately $98 million. In general, such commitments were at prices not in excess of current market prices. The Company also had outstanding direct and indirect commitments for construction performance and lease payment guarantees and other obligations of $253 million. The Company is also committed to lease manufacturing facilities under construction in Argentina and the Netherlands.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of The Dow Chemical Company and its subsidiaries (the Company). This section covers the current performance and outlook of the Company and each of its operating segments. The forward-looking statements contained in this section and in other parts of this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as more fully discussed elsewhere and in filings with the U.S. Securities and Exchange Commission (SEC). 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.

SECOND QUARTER EARNINGS ANNOUNCEMENT (JULY 27, 2000)

DOW REPORTS 26 PERCENT INCREASE IN EARNINGS PER SHARE FOR SECOND QUARTER

Second Quarter of 2000 Highlights

•: Earnings per share of $0.77 were up 26 percent from the same quarter a year ago.
•: Sales grew 22 percent to a record $5.6 billion with all businesses and geographies achieving higher sales.
•: EBIT rose 25 percent to $926 million, compared with second quarter 1999, despite higher feedstock and energy costs.
•: The Company continued to benefit from its balanced business portfolio as the performance segments recorded a double-digit gain in volume and the basics segments achieved substantial improvements in price.

Note: Earnings per share amounts for prior periods have been restated to reflect Dow's
three-for-one stock split, which was effective June 16, 2000.

	3 Months Ended June 30				6 Months Ended June 30
*(In millions, except for per share amounts)*	2000		1999		2000		1999
Net Sales	$	5,630	$	4,619	$	11,011	$	9,036
Earnings Before Interest, Income Taxes and Minority Interests (EBIT)		926		742		1,689		1,397
Net Income Available for Common Stockholders		527		410		942		739
Earnings Per Common Share	$	0.77	$	0.61	$	1.38	$	1.10

Review of Second Quarter Results

The Dow Chemical Company today announced earnings per share of $0.77, a 26 percent increase from the same quarter a year ago. Sales grew to a record $5.6 billion, up 22 percent.

Earnings before interest, income taxes and minority interests (EBIT) rose by 25 percent compared with second quarter 1999, reaching $926 million—despite higher hydrocarbon feedstock and energy costs—due to strong volume and improved pricing.

"Dow's diverse business mix and broad geographic presence played key roles as we once again achieved favorable year-over-year comparisons in earnings," said J. Pedro Reinhard, executive vice

president and chief financial officer. "We are trending above our long-term goal of growing earnings per share by 10 percent per year," he added.

Sales for the quarter rose 22 percent versus the same period a year ago, on a 13 percent improvement in price and a 9 percent increase in volume, with all businesses and geographies recording higher sales.

The Company capitalized on its balanced portfolio. Volume was up in all segments compared with second quarter 1999, led by double-digit increases in Performance Chemicals and Performance Plastics. Substantial price increases in the basics segments more than offset the steep rise in raw material and energy costs in those segments.

The Company benefited from its global presence as well as solid economic growth around the world, achieving volume and price increases in all geographies. Volume growth was led by Europe and Asia Pacific, which each posted gains of more than 10 percent.

The Performance Chemicals and Performance Plastics segments continued on a solid growth track. Both segments recorded substantial gains in volume from second quarter 1999—up 20 percent in Performance Chemicals and 14 percent in Performance Plastics. However, sharp increases in raw material costs resulted in a decline in EBIT compared with the same period last year. Price was down slightly from a year ago, but stabilized versus first quarter 2000.

In the Agricultural Products segment, EBIT was $158 million, essentially flat compared with second quarter 1999. Growth in new products and continued productivity improvements mitigated the impact of adverse conditions worldwide in the agricultural industry while supporting continued investment in biotechnology.

In the Chemicals and Plastics segments, EBIT rose sharply from a year ago, due to solid volume and substantial improvements in price, which outpaced the rise in raw material and energy costs.

Commenting on the outlook for the remainder of the year, Reinhard said, "Based on our expectations of favorable economic growth around the world and stabilizing feedstock and energy costs, we are optimistic that we will achieve positive year-over-year results in the second half despite some short-term weakening in certain industry fundamentals." He added, "We remain confident in our strategy, which is focused on long-term value growth for our shareholders."

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 $19 billion, Dow serves customers in 162 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 39,000 employees seek to balance economic, environmental and social responsibilities.

ACQUISITIONS AND DIVESTITURES

In April 1995, the Company signed an agreement with Bundesanstalt für vereinigungsbedingte Sonderaufgaben (BvS) for the privatization of three state-owned chemical companies in eastern Germany, Buna Sow Leuna Olefinverbund (BSL). Economic transfer of business operations to the Company, through the privatization agreement and various service agreements, occurred in June 1995, and the Company began a reconstruction program of the sites. In September 1997, the Company acquired 80 percent ownership in BSL for an investment of $174 million; BvS maintained 20 percent ownership. The Company had a call option and BvS a put option for the remaining 20 percent of BSL after the reconstruction period. In May 2000, the Company announced the completion of the reconstruction program and, for an additional investment of $155 million, acquired the remaining 20 percent of BSL. On June 1, 2000, BSL became a wholly owned subsidiary of the Company and, beginning on that date, the financial results of BSL are fully consolidated. Allocation of the purchase price to the assets acquired and liabilities assumed has not been completed for the acquisition of the remaining 20 percent. Final determination of the fair values to be assigned may result in adjustments to the preliminary values assigned at the date of acquisition.

BvS provided certain incentives during the reconstruction period to cover portions of the reconstruction program and has retained environmental cleanup obligations for existing facilities. Incentives related to property construction reduced the basis of such property. Incentives related to expenses during the reconstruction period were recognized as such expenses were incurred. During the reconstruction period, the Company included the financial results of BSL as a nonconsolidated affiliate.

In January 1998, the Company completed the sale of the DowBrands consumer products business to S.C. Johnson & Son, Inc. for $1.2 billion. This transaction resulted in a pretax gain of $816 million.

In February 1998, the Company entered into an agreement with Pronor Petroquimica S.A. (Pronor) to purchase a portion of its business. The new company, named Isopol, was acquired for the production and commercialization of toluene diisocyanate (TDI), used to manufacture durable goods such as cushioned furniture and mattresses, to supply the markets of the Mercosur countries of Latin America. The Company's total investment was $137 million.

In January 1996, the Company and The Hartford Steam Boiler Inspection and Insurance Company (HSB) formed, through the transfer of net assets and existing businesses, a 60:40 joint venture named Radian International LLC to provide environmental services. In January 1998, HSB exercised a put option requiring the Company to purchase HSB's interest for $136 million. In July 1998, as part of the Company's ongoing efforts to restructure its business portfolio, Radian was sold to Dames & Moore Group for $117 million.

In January 1996, DowElanco entered into agreements with Mycogen Corporation and the Lubrizol Corporation for transactions through which DowElanco, for a cash investment of $158 million, acquired a 47 percent equity stake in Mycogen and Mycogen acquired DowElanco's United Agriseeds subsidiary. In December 1996, DowElanco increased its equity stake in Mycogen to more than 50 percent. During the first quarter of 1998, Dow AgroSciences (formerly named DowElanco) invested an additional $121 million in Mycogen, increasing its ownership to 69 percent. In November 1998, following the expiration of a tender offer, the Company completed the acquisition of all remaining shares for $418 million. Mycogen is a diversified agribusiness and biotechnology company that develops and markets seeds and value-added traits for genetically enhanced crops.

In December 1998, the Company and United Technologies Corporation sold the business and certain assets of their 50:50 joint venture, Dow-United Technologies Composite Products, Inc., to GKN Westland Aerospace, Inc., a unit of GKN plc, of the United Kingdom.

On August 4, 1999, the Company and Union Carbide Corporation announced a definitive merger agreement for a tax-free, stock-for-stock transaction. Under the agreement, Union Carbide stockholders

will receive 1.611 shares of Dow stock (on a post-split basis) for each share of Union Carbide stock they own. Based upon Dow's closing price of $124¹¹/16 (pre-split) on August 3, 1999, the transaction was valued at $66.96 per Union Carbide share, or $11.6 billion in aggregate including the assumption of $2.3 billion of net debt. According to the agreement, the merger is subject to certain conditions including approval by Union Carbide stockholders and review by antitrust regulatory authorities in the United States, Europe and Canada. Union Carbide stockholders approved the merger on December 1, 1999. On May 3, 2000, the European Commission approved the merger subject to certain conditions. Antitrust reviews in the United States and Canada are in progress, with a third quarter 2000 closing anticipated. The transaction is expected to be accounted for as a pooling-of-interests.

In October 1999, the Company acquired CanStates Holdings, Inc. and its subsidiary, ANGUS Chemical, from TransCanada PipeLines Limited for approximately $350 million. ANGUS Chemical is a global leader in the manufacture and marketing of specialty nitroparaffins and their derivatives which are sold into over 40 industries. Allocation of the purchase price to the assets acquired and liabilities assumed has not been completed for this acquisition. Final determination of the fair values to be assigned may result in adjustments to the preliminary values assigned at the date of acquisition.

In February 2000, the Company acquired Flexible Products Company of Marietta, Georgia, for approximately $160 million. Flexible Products Company is one of the largest polyurethane systems suppliers in North America and a leader in custom polyurethane foam formulations and dispensing technology. This acquisition is consistent with Dow's growth goals in polyurethanes and its commitment to the global formulated products and systems business. Allocation of the purchase price to the assets acquired and liabilities assumed has not been completed for this acquisition. Final determination of the fair values to be assigned may result in adjustments to the preliminary values assigned at the date of acquisition.

CHANGES IN FINANCIAL CONDITION

The following tables represent total debt and working capital at June 30, 2000 versus December 31, 1999:

*In millions*		June 30, 2000		Dec. 31, 1999		Increase (Decrease)
Notes payable		$	1,378	$	692	$	686
Long-term debt due within one year			432		343		89
Long-term debt			4,522		5,022		(500	)

	Total debt	$	6,332	$	6,057	$	275

At June 30, 2000, the Company had unused and available credit facilities with various U.S. and foreign banks totaling $3.1 billion in support of its working capital requirements and commercial paper

borrowings. Additional unused credit facilities totaling approximately $1 billion are available for use by foreign subsidiaries.

*In millions*			June 30, 2000		Dec. 31, 1999		Increase (Decrease)
Cash and cash equivalents			$	190	$	506	$	(316	)
Marketable securities and interest-bearing deposits				221		706		(485	)
Accounts and notes receivable—net				4,698		4,614		84
Inventories:
	Finished and work in process			2,516		2,264		252
	Materials and supplies			614		522		92
Deferred income tax assets—current				177		235		(58	)

		Total current assets		8,416		8,847		(431	)

		Total current liabilities		7,350		6,295		1,055

		Working capital	$	1,066	$	2,552	$	(1,486	)

Operating activities provided cash of $870 million for the six months ended June 30, 2000. Additional cash of $797 million was generated by sales of available-for-sale securities in excess of purchases of similar securities. Cash was used primarily for acquisitions (Flexible Products Company, General Latex and BSL), to reduce long-term debt, to pay dividends and for capital expenditures. See the Consolidated Statements of Cash Flows and the Acquisitions and Divestitures section (above) for more detail.

Balance Sheet Ratios	June 30, 2000		Dec. 31, 1999
Current assets over current liabilities	1.1:1		1.4:1
Days-sales-outstanding-in-receivables	45		45
Days-sales-in-inventory	72		66
Debt as a percentage of total capitalization	38.9	%	39.5	%

At December 31, 1999, the balance of preferred stock issued to the employee stock ownership plan (ESOP) by the Company was 1.3 million shares. The preferred stock was redeemable in whole or in part at the Company's option any time after January 1, 2000 at $86.125 per share plus an amount equal to all accrued and unpaid dividends. On February 9, 2000, the Company exercised its option to redeem the preferred stock. On that same date, the trustee of the ESOP elected to convert the preferred stock into common stock at a ratio of 1:1.

During the past three years, the Company repurchased 31.4 million shares of its common stock as part of its overall stock repurchase program, and at year-end 1999, net shares outstanding had been reduced by 19 percent since the beginning of 1995. Due to the pending merger with Union Carbide Corporation, the Company's 1997 authorization to repurchase Dow stock was terminated by the Board of Directors on August 3, 1999. In December 1999, the Company sold 3.5 million shares of common stock held in treasury in the open market for $431 million to facilitate the accounting treatment of the merger with Union Carbide as a pooling-of-interests, which is a condition to the completion of the merger.

On May 11, 2000, stockholders approved a measure to increase the number of authorized common shares from 500 million to 1.5 billion at the Company's 103rd Annual Meeting, and Dow's Board of Directors approved a three-for-one split of the Company's common stock. On June 16, 2000, Dow stockholders received two additional shares of stock for each share they owned on the record date of May 23, 2000. On a post-split basis, average shares outstanding for the first six months of 2000 were

675 million, an increase of 2 percent compared with the average shares outstanding for the first six months of 1999. The par value of $2.50 per common share remains unchanged.

On July 28, 2000, the Company paid a quarterly dividend of 29 cents per share (equivalent to 87 cents per share on a pre-split basis) to shareholders of record on June 30, 2000. This was the 354th consecutive quarterly dividend since 1912 and in each instance Dow has maintained or increased the dividend.

RESULTS OF OPERATIONS

Following are selected data for the three months and six months ended June 30, 2000 and 1999:

	Three Months Ended						Six Months Ended
*Dollars in millions, except for share amounts*	June 30, 2000			June 30, 1999			June 30, 2000			June 30, 1999
Sales	$	5,630		$	4,619		$	11,011		$	9,036
Cost of sales		4,250			3,395			8,419			6,671
% of sales		75	%		74	%		76	%		74	%
Research and development, selling, general and administrative expenses		591			597			1,213			1,179
Earnings before interest, income taxes and minority interests (EBIT)		926			742			1,689			1,397
% of sales		16	%		16	%		15	%		15	%
Effective tax rate		34.1	%		35.2	%		34.9	%		35.7	%
Net income available for common stockholders	$	527		$	410		$	942		$	739
Earnings per common share—basic	$	0.78		$	0.62		$	1.40		$	1.12
Earnings per common share—diluted	$	0.77		$	0.61		$	1.38		$	1.10
Operating rate percentage		91	%		86	%		88	%		86	%

Net sales for the second quarter of 2000 were $5.6 billion, a new quarterly record for sales. Compared with $4.6 billion in the second quarter of 1999, net sales were up $1.0 billion, or 22 percent, with volume growth of 9 percent and increased prices of 13 percent. Volume was particularly strong in Performance Plastics and Performance Chemicals, with double-digit volume growth reported by most of the businesses within these segments. While volume increases were recorded in all geographic areas, the most notable growth occurred in Asia Pacific, up 12 percent, and Europe, up 11 percent. Sales prices were up approximately $590 million in total for the Company, with double-digit increases recorded in all geographic areas. Prices improved 25 percent or more in each of the basics segments, reflecting a steep rise in feedstock and energy costs as well as balanced supply/demand conditions. Prices in the performance segments, however, declined slightly. Year to date, net sales of $11.0 billion were up 22 percent from $9.0 billion last year due to price increases of 13 percent and volume growth of 9 percent.

Operating expenses; which include research and development, selling, general and administrative expenses; were $591 million for the second quarter, down slightly from $597 million for the same quarter last year. Compared with last year, operating expenses for the first half of the year were up $34 million, reflecting the Company's planned support of new business growth initiatives and recent acquisitions.

Net income for the second quarter of 2000 was $527 million or $0.77 per share (diluted), up 29 percent from $410 million or $0.61 per share (diluted) for the second quarter of 1999. Despite an increase of almost 60 percent in energy and feedstock costs that were not entirely offset by the increase

in selling prices, net income improved due to strong volume gains, the Company's diverse business portfolio and geographic presence, and improved contributions from joint ventures around the world. Net income for the first half of 2000 was $942 million, up 27 percent from $739 million for the same period last year.

PERFORMANCE PLASTICS

Performance Plastics sales of $1,471 million for the second quarter were up 13 percent from $1,297 million in the second quarter of 1999. While volume improved 14 percent, prices declined 1 percent, including a 3 percent negative currency impact. Excluding acquisitions, volume was up 11 percent. EBIT for the segment was $189 million, down from $294 million last year, due to lower selling prices and increased raw material costs.

Dow Automotive, the Company's first industry-focused global business unit, reported good results for the second quarter of 2000, with sales up 17 percent from a year ago. The increase in sales was driven by volume growth, up significantly on the strength of the global automotive industry. Prices overall declined slightly from last year. Second quarter EBIT for the business was down from last year due to lower selling prices and increased raw material costs that more than offset the increase in volume.

Engineering Plastics sales for the quarter were up 31 percent from the same quarter last year, with volume growth of 27 percent and price improvement of 4 percent. Volume, up significantly in all geographic areas, was particularly strong for nylon in North America and polycarbonate in Europe and North America. EBIT for the quarter improved significantly from the second quarter of 1999 as increases in sales volume and price exceeded higher raw material costs.

Sales of Epoxy Products and Intermediates were up 13 percent from last year, with volume growth of 12 percent and a 1 percent rise in prices. Volume was strong in all geographic areas, led by demand for allylics, phenolics and liquid epoxy resins in North America. The slight improvement in prices during the quarter was not enough to offset increases in hydrocarbon raw material costs. Consequently, EBIT for the quarter was down compared with the same quarter last year.

Fabricated Products sales for the second quarter of 2000 were up marginally compared with the same quarter last year. A slight increase in volume was largely offset by the negative impact of currency on sales. Volume for engineered films and laminates was up 12 percent with strong demand in all geographic areas. Volume for Styrofoam brand insulation was down compared with last year, due to lower residential demand in North America and Europe. EBIT for the second quarter was down versus the same quarter last year, impacted by higher raw material costs and the cost of converting blowing agent equipment.

Polyurethanes sales for the second quarter were up 13 percent compared with the second quarter of 1999, driven by volume growth of 15 percent. Excluding acquisitions (Flexible Products Company and General Latex), volume was up 7 percent. Overall, volume was particularly strong in North America and Asia Pacific. Product demand was led by toluene diisocyanate, up more than 50 percent. Prices were down slightly versus last year. Raw material costs for the business increased significantly year over year, with propylene more than double last year's cost and benzene up more than 50 percent. Lower prices, coupled with increased raw material costs, resulted in a decrease in EBIT for the business versus last year.

For the first six months of the year, Performance Plastics sales were $2,850 million, up 11 percent from $2,560 million for the same period last year. Volume growth of 13 percent was partially offset by a 2 percent decline in prices. Excluding acquisitions, volume was up 11 percent. Year to date, EBIT was $397 million compared with $567 million last year, reflecting the impact of increased raw material costs and lower selling prices.

PERFORMANCE CHEMICALS

Performance Chemicals sales of $766 million for the second quarter were up significantly from $656 million for the second quarter of 1999, as volume gains of 20 percent more than offset price declines of 3 percent. Approximately half of the volume increase came from acquisitions. Second quarter EBIT for the segment was down from $149 million last year to $98 million this year, as the combination of lower selling prices and higher raw material costs more than offset volume growth.

Specialty Chemicals sales for the quarter were up 18 percent, with a 21 percent increase in volume and a 3 percent decline in prices versus the same quarter last year. Net of acquisitions (ANGUS Chemical and Shell's synthetic rubber business), volume was up 8 percent. Demand for Methocel cellulose ethers continued to be high, setting a new all-time record for quarterly sales. Demand was also up for acrylic acid, alkanolamines, antimicrobials and oxygenated solvents. EBIT for the second quarter declined compared with last year as higher raw material costs, increased operating expenses due to acquisitions and lower selling prices more than offset volume growth.

Emulsion Polymers sales increased 13 percent versus the second quarter of 1999 as volume improved 14 percent and prices declined 1 percent. Volume was particularly strong in the paper industry due to strong economies around the world and increased advertising. EBIT for the quarter was down from the same quarter last year due to significantly higher styrene monomer and butadiene costs.

Performance Chemicals sales for the first half of 2000 were $1,506 million, up 16 percent from $1,297 million, on a 20 percent increase in volume partially offset by a 4 percent decline in prices. Year to date, EBIT for the segment was $201 million, down from $273 million last year due to lower selling prices, higher raw material costs and increased operating costs from acquisitions.

AGRICULTURAL PRODUCTS

Sales of Agricultural Products for second quarter 2000 were $677 million, up 2 percent from $664 million last year. Volume for the segment grew 5 percent, despite continued adverse conditions in the global farm economy. Demand for traditional agricultural chemicals and new products was strong, offsetting a decline in seed sales. Prices were down 3 percent versus last year due to competitive pressure and the negative impact of currency on sales in Europe. EBIT of $158 million for the quarter was essentially flat compared with the second quarter of 1999. Growth in new products and continued improvement from Dow AgroSciences' cost reduction and business restructuring program announced last November mitigated the impact of adverse conditions worldwide and supported continued research investment in biotechnology. See the section entitled "1999 Special Charge" on page 23 for further details on Dow AgroSciences' restructuring program.

In June 2000, Dow AgroSciences reached agreement with the U.S. Environmental Protection Agency on changes in the use of insecticides containing chlorpyrifos. These changes are not expected to have a material impact on the Company's results.

Sales for the segment were $1,292 million for the first six months of this year, down 3 percent from $1,333 million in 1999. While volume improved 1 percent, prices declined 4 percent. Year to date, EBIT was $248 million, up 3 percent compared with EBIT of $240 million for the first half of 1999.

PLASTICS

Plastics sales in the second quarter of 2000 were $1,349 million, up 32 percent from $1,022 million a year ago. Volume growth of 2 percent moderated after several quarters of above-trend increases, while prices rose 30 percent. EBIT for the quarter was $300 million, up sharply from $89 million in the second quarter of 1999, due to substantial increases in selling prices that outpaced a significant rise in hydrocarbon and energy costs.

Polyethylene sales were up 31 percent versus the same quarter last year, with volume up 6 percent and prices up 25 percent. Volume was up significantly in Europe and flat to slightly down in the other geographic areas. Demand was particularly strong for Affinity polyolefin plastomers in North America and polyethylene terephthalate (PET) in Europe. Sales were also up due to the increased availability of product from BSL. Prices continued to increase, driven by a rise in feedstock prices. EBIT for the business was more than double last year's contribution as price increases more than offset the hike in feedstock costs.

Polystyrene sales increased 43 percent in the second quarter versus the same quarter of 1999, entirely on increased prices. Volume during the quarter was flat as sales were restricted by styrene monomer supply. Sales in Europe, however, were improved by the availability of polystyrene from BSL. Selling prices increased sharply during the quarter, driven by styrene monomer pricing. EBIT for the business was up significantly compared with the second quarter of 1999, as price increases outpaced feedstock costs.

Polypropylene sales for the second quarter of 2000 continued a strong upward trend due to improved pricing versus the same quarter last year. Volume, however, was down as supply was limited. EBIT improved versus last year due to higher selling prices, improved customer mix and an increase in equity earnings.

Plastics sales for the first half of 2000 were $2,728 million compared with $1,940 million last year, an increase of 41 percent. During the first six months of the year, volume grew 8 percent and prices increased 33 percent. EBIT for the period was $556 million, up significantly from $230 million for the first half of 1999, as volume growth and increased prices outpaced a sharp rise in hydrocarbon and energy costs.

CHEMICALS

Second quarter sales for the Chemicals segment were $693 million, up 28 percent compared with $541 million in the second quarter of 1999. Prices rose 25 percent during the quarter, with increases reported in all geographic areas. Volume, up 3 percent overall, was strong in Europe, up slightly in Asia Pacific, and relatively flat in North America (due to lower calcium chloride sales) and Latin America. Vinyl chloride monomer (VCM) sales were up significantly year over year on strong demand and price increases. Caustic sales were up versus last year as strong demand continued. Ethylene glycol (EG) sales were up for the quarter, as price increases offset a drop in volume due to delayed antifreeze demand. Volume for propylene glycol (PG) was strong during the quarter, but prices remained under pressure, especially in North America. EBIT for the segment was $175 million, up from $89 million in the second quarter of 1999. EBIT improved due to higher prices and strong demand for VCM, PG and caustic that offset higher feedstock and energy costs.

For the first half of 2000, sales for the Chemicals segment were $1,368 million, up from $1,053 million last year due principally to a 27 percent improvement in selling prices. EBIT for the period was $339 million compared with $189 million for 1999. While this segment was significantly impacted by higher feedstock and energy costs, EBIT improved due to increased selling prices and higher volume.

HYDROCARBONS AND ENERGY

Hydrocarbons and Energy sales were up $224 million from $363 million in the second quarter of 1999 to $587 million, an increase of 62 percent driven by higher prices. Refinery sales prices were up in the quarter due to significantly higher crude oil costs and tight supply conditions. EBIT for the quarter was $5 million compared with $23 million in the second quarter of 1999.

Sales for the first half of 2000 were $1,109 million, up sharply from $672 million last year, largely due to a 56 percent rise in selling prices. Volume was up 9 percent. EBIT for the first six months was $15 million compared with $10 million for the same period last year.

UNALLOCATED AND OTHER

Unallocated and Other includes research and development expenses in New Businesses, overhead cost variances that are not allocated to the operating segments, results of Dow's insurance and finance company operations, gains and losses on sales of financial investments, and foreign exchange hedging results.

EBIT for the quarter was $1 million compared with a loss of $61 million for the second quarter of 1999. The improvement was due in part to lower stock-based compensation expense, positive variances from budget for overhead expenses and gains on sales of financial instruments. Year to date, EBIT was a loss of $67 million compared with a loss of $112 million for the first half of 1999.

COMPANY SUMMARY

Operating Rate

The Company's global plant operating rate for its chemicals and plastics businesses was 91 percent, up from 86 percent in the second quarter of 1999.

Equity in Earnings of Nonconsolidated Affiliates

Equity in earnings of nonconsolidated affiliates was $78 million in the second quarter of 2000, up from $22 million in the second quarter of 1999 due to improved results by several of the Company's joint ventures around the world. These improvements were due in part to economic recovery in Asia Pacific and Latin America, and improved margins in basic plastics. BSL, several joint ventures in Thailand, and Triunfo were among the joint ventures that reported improved earnings. Year to date, equity earnings were $166 million compared with $47 million in 1999.

During the reconstruction period, the Company included the financial results of BSL as a nonconsolidated affiliate. On June 1, 2000, BSL became a wholly owned subsidiary of the Company and, beginning on that date, the financial results of BSL are fully consolidated.

Sundry Income—Net

Sundry income includes a variety of income and expense items such as royalty income, the gain or loss on foreign currency exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income for the second quarter of 2000 was $78 million compared with $89 million in the second quarter of 1999. Sundry income for the quarter included positive economic hedging results, which helped offset some of the negative impact of currency on reported net sales, and gains on sales of available-for-sale securities. Year to date, sundry income was $172 million compared with $157 million last year.

Interest Income and Expense

The net total of interest expense (net of capitalized interest) and interest income was $98 million for the second quarter compared with $94 million for the second quarter of 1999.

Provision for Taxes on Income

The effective tax rate for the second quarter was 34.1 percent compared with 35.2 percent for the same quarter of 1999. Year to date, the effective tax rate was 34.9 percent compared with 35.7 percent last year.

1999 Special Charge

In the fourth quarter of 1999, a special charge of $94 million was recorded for a cost reduction and business restructuring program in the Agricultural Products segment. The program, which was announced in November 1999, impacts operations in the United States, Europe, Middle East/Africa and Latin America, and is expected to be completed in 2000. The fourth quarter charge included severance of $51 million for approximately 700 employees, inventory write-offs of $17 million, and asset write-offs of $26 million. During the first half of 2000, $35 million of the severance reserve was used to reduce headcount by 475 individuals, leaving a balance of $16 million for an estimated additional headcount reduction of approximately 250. Seeds inventory was written off during the first quarter, fully utilizing the inventory reserve. The quarter-end balance for additional asset write-offs related to the plan was $21 million.

Outlook

The strength of the global economy should continue to benefit the chemical industry, although some short-term weakening in certain industry fundamentals is anticipated. Economic growth is expected to drive strong demand for derivative products, which should mitigate the effect of new ethylene capacity coming on in the second half of 2000. Styrene monomer supply/demand should remain relatively balanced in the next two quarters. With high power costs, some chlor-alkali producers may reduce output in favor of power sales, which may tighten chlor-alkali supply. Oil prices rebounded unexpectedly in the second quarter, and third quarter prices are expected to average about the same as second quarter at $26-$28 per barrel. Natural gas prices jumped sharply in the second quarter and further substantial increases in average prices are expected for the third quarter.

Demand for Dow products was excellent in the first half of the year, with very favorable price momentum in the basics and price stabilization in the performance businesses. However, while margins in the basics businesses generally expanded, high hydrocarbon feedstock prices squeezed margins of many performance businesses since their end-product prices are not tied to feedstock increases. Dow's outlook for the second half is cautiously optimistic, based on continued strong demand for products in both basics and performance businesses, although seasonally slower for some products. While feedstock and energy costs are expected to increase further in the third quarter, the pace of year-over-year increases should slow, resulting in less pressure on margins for Performance Chemicals and Performance Plastics. Higher energy costs may lead to margin contraction in the chlor-alkali chain.

The overall outlook for most Performance Chemicals and Performance Plastics businesses calls for slightly increased pricing and continued demand growth in all geographies. Dow AgroSciences expects significantly lower sales in the third quarter due to the seasonal nature of their products.

In polyethylene, margins may decline modestly as the industry anticipates capacity additions that will come on stream over the next several quarters. Overall demand is expected to remain strong. VCM pricing should remain fairly steady during the next quarter. The outlook for caustic pricing is uncertain due to sharp swings in spot pricing in recent weeks. Caustic contract pricing is expected to be lower in the third quarter.

With expectations for continued economic strength globally and some stability in feedstock and energy costs, Dow is optimistic it will achieve positive year-over-year results in the second half of the year.

SUBSEQUENT EVENT

On August 2, 2000, the Company announced it had signed an agreement to sell its 32.5 percent ownership interest in the Cochin pipeline system to a unit of Williams' energy services business. The

sale is subject to regulatory approvals and to rights of first refusal by other Cochin owners. Pending approvals, the sale is anticipated to close in the third quarter of 2000.

ACCOUNTING POLICIES

In 1999, the Company adopted the following new accounting pronouncements:

•: The American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," requires capitalization of certain internal-use computer software costs. SOP 98-1 was adopted by the Company on January 1, 1999. The Company's previous accounting policy was to expense such costs as incurred; therefore, adoption of this statement resulted in a favorable, though immaterial, initial impact on earnings.
•: SOP 98-5, "Reporting on the Costs of Start-Up Activities," provides guidance on the financial reporting of start-up costs and organization costs, requiring those costs to be expensed as incurred. The Company's previous policy regarding the treatment of these costs was substantially consistent with SOP 98-5; therefore, adoption of this standard on January 1, 1999 resulted in an immaterial impact on the Company's consolidated financial statements.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition. Implementation of SAB 101 is required no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company has not completed its assessment of the impact of SAB 101 on its revenue recognition policies.

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," an amendment of SFAS No. 133. Based on the revised effective date, the Company will adopt SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001, and is currently assessing the impact of adoption on its consolidated financial statements.

EURO CONVERSION

On January 1, 1999, the Euro was adopted as the national currency of 11 European Union member nations. During a three-year transition period, the Euro will be used as a non-cash transactional currency. The Company began conducting business in the Euro on January 1, 1999, and will change its functional currencies during the three-year transition period. The conversion to the Euro is not expected to have a significant operational impact or a material impact on the results of operations, financial position, or liquidity of its European businesses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Dow's business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies, which enable it to mitigate the adverse effects of financial market risk. A secondary objective is to add value by creating additional exposure within established limits and policies. The potential impact of creating such additional exposures is not material to the Company's results.

The global nature of Dow's business requires active participation in the foreign exchange markets. As a result of investments, production facilities and other operations on a global basis, the Company has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Company's foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. To achieve this objective, the Company hedges on a net exposure basis using foreign currency forward contracts and over-the-counter option contracts. Main exposures are related to assets and liabilities denominated in the currencies of Europe, Asia Pacific and Canada; bonds denominated in foreign currencies—mainly the Euro, Deutsche mark, Swiss franc and Japanese yen; and economic exposure derived from the risk that currency fluctuations could affect the U.S. dollar value of future cash flows. The majority of the foreign exchange exposure is related to the Japanese yen and European currencies.

The main objective of interest rate risk management is to reduce the total funding cost to the Company and to alter the interest rate exposure to the desired risk profile. Dow uses interest rate swaps, "swaptions" and exchange traded instruments to accomplish this objective. The Company's primary exposure is to the U.S. dollar yield curve.

Inherent in Dow's business is exposure to price changes for several commodities. Some exposures can be hedged effectively through liquid tradable financial instruments. Cracker feedstocks and natural gas constitute the main commodity exposures. Over-the-counter and exchange traded instruments are used to hedge these risks when feasible. The risk of these hedging instruments is not material.

Dow has a portfolio of equity securities derived from its acquisition and divestiture activity. This exposure is managed in a manner consistent with the Company's market risk policies and procedures.

Dow uses value at risk (VAR), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the potential gain or loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels. On an ongoing basis, the Company estimates the maximum gain or loss that could arise in one day, given a two standard deviation move in the respective price levels. These amounts are relatively insignificant in comparison to the size of the equity and earnings of the Company. The VAR methodology used by Dow is based primarily on the variance/covariance statistical model. The following table is given as an example:

*In millions*	1999		1998
Average Daily VAR at December 31*

Foreign exchange	$	5	$	4
Interest rate		40		23
Equity exposures, net of hedges		13		6

*: Using a 95 percent confidence level

Management believes there have been no material changes in market risk or in risk management policies since December 31, 1999.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Breast Implant Matters

The Company and Corning Incorporated ("Corning") are each 50 percent stockholders in Dow Corning Corporation ("Dow Corning"). Dow Corning, the Company and/or Corning have been sued in a number of individual and class actions by plaintiffs seeking damages, punitive damages and injunctive relief in connection with injuries purportedly resulting from alleged defects in silicone breast implants. In addition, certain stockholders of the Company have filed separate consolidated class action complaints in the federal district court for the Southern District of New York alleging that the Company, Dow Corning or some of their respective Directors violated duties imposed by the federal securities laws regarding disclosure of alleged defects in silicone breast implants. All individual defendants in this case have been dismissed without prejudice. The Company and one of its former officers were also sued in two separate class action complaints (subsequently consolidated in the federal district court for the Eastern District of Michigan under the caption ZSA v. Dow Chemical) alleging that the defendants violated duties imposed by the federal securities laws regarding disclosure of information material to a reasonable investor's assessment of the magnitude of the Company's exposure to direct liability in silicone breast implant litigation. On February 1, 1999, the Court entered a Stipulated Order in ZSA v. Dow Chemical dismissing the claims of the named plaintiffs with prejudice and dismissing the claims of the class, which had never been certified, without prejudice.

On May 15, 1995, Dow Corning announced that it had voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code. Under Chapter 11, all claims against Dow Corning (although not against its co-defendants) are automatically stayed.

It is impossible to predict the outcome of each of the above-described legal actions. However, it is the opinion of the Company's management that the possibility that these actions will have a material adverse impact on the Company's consolidated financial statements is remote, except as described below.

In January 1994, Dow Corning announced a pretax charge of $640 million ($415 million after tax) for the fourth quarter of 1993. In January 1995, Dow Corning announced a pretax charge of $241 million ($152 million after tax) for the fourth quarter of 1994. These charges included Dow Corning's best estimate of its potential liability for breast implant litigation based on a global Breast Implant Litigation Settlement Agreement (the "Settlement Agreement"); litigation and claims outside the Settlement Agreement; and provisions for legal, administrative and research costs related to breast implants. The charges for 1993 and 1994 included pretax amounts of $1,240 million and $441 million, respectively, less expected insurance recoveries of $600 million and $200 million, respectively. The 1993 amounts reported by Dow Corning were determined on a present value basis. On an undiscounted basis, the estimated liability noted above for 1993 was $2,300 million less expected insurance recoveries of $1,200 million. As a result of the Dow Corning actions, the Company recorded its 50 percent share of the charges, net of tax benefits available to the Company. The impact on the Company's net income was a charge of $192 million for 1993 and a charge of $70 million for 1994.

Dow Corning reported an after-tax net loss of $167 million for the second quarter of 1995, of which the Company's share amounted to $83 million. Dow Corning's second quarter loss was a result of a $221 million after-tax charge taken to reflect a change in accounting method from the present value basis noted above to an undiscounted basis resulting from the uncertainties associated with its Chapter 11 filing. As a result of Dow Corning's 1995 second quarter loss and Chapter 11 filing, the Company recognized a pretax charge against income of $330 million for the second quarter of 1995, fully reserved its investment in Dow Corning and is reserving its 50 percent share of equity earnings while Dow Corning remains in Chapter 11.

On September 1, 1994, Judge Sam C. Pointer, Jr. of the United States District Court for the Northern District of Alabama approved the Settlement Agreement pursuant to which plaintiffs choosing to participate in the Settlement Agreement released the Company from liability. The Company was not a participant in the Settlement Agreement nor was it required to contribute to the settlement. On October 7, 1995, Judge Pointer issued an order which concluded that the Settlement Agreement was not workable in its then-current form because the funds committed to it by industry participants were inadequate. The order provided that plaintiffs who had previously agreed to participate in the Settlement Agreement could opt out after November 30, 1995.

The Company's maximum exposure for breast implant product liability claims asserted against Dow Corning is limited to its investment in Dow Corning which, after the 1995 second quarter charge noted above, is zero. As a result, any future charges by Dow Corning related to such claims or as a result of the Chapter 11 proceeding would not have an adverse impact on the Company's consolidated financial statements.

The Company is separately named as a defendant in over 14,000 breast implant product liability cases. In these situations, plaintiffs have alleged that the Company should be liable for Dow Corning's alleged torts based on the Company's 50 percent stock ownership in Dow Corning and that the Company should be liable by virtue of alleged "direct participation" by the Company or its agents in Dow Corning's breast implant business. These latter, direct participation claims include counts sounding in strict liability, fraud, aiding and abetting, conspiracy, concert of action and negligence.

In his opinion, Judge Pointer reaffirmed the view he had expressed in his December 1993 ruling that the Company is a separate, independent entity from Dow Corning and therefore has no legal responsibility as a result of its ownership of Dow Corning stock for Dow Corning's breast implant business. However, Judge Pointer stated that, under the law of at least some states (although not necessarily all states), actions allegedly taken by the Company independent of its role as a stockholder in Dow Corning could give rise to liability under a negligence theory. Judge Pointer declined to address plaintiffs' other legal theories, including strict liability, fraud, aiding and abetting, conspiracy and concert of action. It is impossible to predict the outcome or to estimate the cost to the Company of resolving any of the federal product liability cases. The Company has filed claims with insurance carriers to recover in the event it is held liable in the federal (or any other) breast implant litigation.

After Judge Pointer's initial ruling in December 1993, summary judgment was granted to the Company in approximately 4,000 breast implant cases pending in state courts in California, Indiana, Michigan, New Jersey and New York, and over 100 actions in Pennsylvania were dismissed. Of these rulings, the California ruling was final and was appealed. On September 25, 1996, the California Court of Appeal for the 4^th District affirmed the trial court's order granting summary judgment to the Company. On July 9, 1998, the California Supreme Court affirmed the decision of the Court of Appeal, and the California summary judgment order in favor of the Company is now final. The Michigan ruling was made final on March 20, 1997. On September 14, 1999, the Michigan Court of Appeals affirmed summary judgment in Maples v. The Dow Chemical Company, a case determinative of all cases pending in Michigan state court. The time for filing a petition for leave to appeal to the Michigan Supreme Court has passed with no petition having been filed. Pursuant to a stipulated order, all cases that were pending on the state court docket will now be dismissed with prejudice. Since federal courts in diversity

cases are bound to apply state court interpretations of state law questions, the Maples affirmance should also result in dismissal of all claims against the Company pending in federal court and governed by Michigan law. The New Jersey ruling has been reconsidered and all claims were again dismissed, except the negligence claim. Plaintiffs in New York filed a motion to reconsider based on Judge Pointer's April 25, 1995 ruling. On September 22, 1995, Judge Lobis, presiding over the consolidated New York breast implant litigation, dismissed all counts of all cases filed against the Company in New York on the ground that no reasonable jury could find against the Company. On May 28, 1996, the New York Supreme Court Appellate Division affirmed the lower court's dismissal of all claims against the Company. New York's highest court subsequently denied plaintiffs' petition for review, and the order dismissing all claims against the Company is now final. Other rulings that are not final decisions are also subject to reconsideration. On October 20, 1996, in a Louisiana state court breast implant case styled Spitzfaden v. Dow Corning, et al., the court entered an order maintaining certification of a class of Louisiana plaintiffs consisting of recipients of Dow Corning breast implants who, as of January 15, 1997, (i) are residents of Louisiana, (ii) are former residents of Louisiana who are represented by Louisiana counsel, or (iii) received their implants in Louisiana and are represented by Louisiana counsel, together with the spouses and children of such plaintiffs, and representatives of the estates of class members who are deceased. On August 18, 1997, at the conclusion of the first of four phases of this case, the jury found in part that the Company had been negligent in the testing and/or research of silicone, had misrepresented and concealed unspecified hazards associated with using silicone in the human body and had conspired with Dow Corning to misrepresent or conceal such hazards. The Company has appealed the jury's verdict. On December 1, 1997, the trial court decertified the class. The parties have since entered into a confidential settlement, the terms of which are dependent on the outcome of the appeal and are reflected, in part, in the Joint Plan (defined below). Any settlement amounts paid by the Company will be reimbursed by Dow Corning in accordance with the terms of the Joint Plan if the Joint Plan becomes effective. Further action in the Spitzfaden case itself will commence, if at all, only after the resolution of the pending appeal. The Company remains a defendant in other breast implant product liability cases originally brought in state courts and continues to be named as a defendant as cases are filed in various courts which are then transferred to the United States District Court, Eastern District of Michigan. It is impossible to predict the outcome or to estimate the cost to the Company of resolving any of the product liability cases described above.

The Company was also a defendant in ten federal silicone jaw implant cases involving implants manufactured by Dow Corning. Federal District Court Judge Paul A. Magnuson has been appointed by the Federal Judicial Panel on Multidistrict Litigation to oversee all of the product liability cases involving silicone jaw implants filed in the U.S. federal courts. On March 31, 1995, Judge Magnuson granted the Company's motion for summary judgment, concluding, based on virtually the same arguments that were presented to Judge Pointer, that no reasonable jury could find in favor of plaintiffs on any of their claims against the Company. On June 13, 1995, Judge Magnuson denied plaintiffs' motion to reconsider his ruling based on Judge Pointer's April 25, 1995 decision, and granted the Company's request to enter a final judgment in its favor. The United States Court of Appeals for the Eighth Circuit affirmed the summary judgment in favor of the Company on May 16, 1997. That judgment is now final.

On November 3, 1994, Judge Michael Schneider, presiding in the consolidated breast implant cases in Harris County, Texas, granted in part and denied in part the Company's motion for summary judgment. Judge Schneider granted the Company's motion as to (i) all claims based on the Company's stockholder status in Dow Corning, (ii) the claim that the Company was liable in negligence for failing to supervise Dow Corning, and (iii) plaintiffs' licensor-licensee claim. Judge Schneider denied the Company's motion with regard to plaintiffs' claims sounding in fraud, aiding and abetting, conspiracy, certain negligence claims and a claim brought under the Texas Deceptive Trade Practices Act. As a result, the Company remains a defendant as to such claims in the Harris County product liability cases. In those cases (and in cases brought in certain other jurisdictions including those before Judge Pointer),

the Company has filed cross-claims against Dow Corning on the ground that if the Company and Dow Corning are found jointly and severally liable, Dow Corning should bear appropriate responsibility for the injuries judged to be caused by its product. In certain jurisdictions, the Company has also filed cross-claims and/or third party claims against Corning. It is impossible to predict the outcome or to estimate the cost to the Company of resolving any of the Harris County product liability cases.

In an order dated December 1, 1994, Judge Frank Andrews, presiding in the consolidated breast implant cases in Dallas County, Texas, granted the Company's motion for summary judgment "in all respects except as to theories of conspiracy and strict liability as a component supplier." As a result, the Company remains a defendant as to such claims in the Dallas County product liability cases. It is impossible to predict the outcome or to estimate the cost to the Company of resolving any of these actions.

In addition to the jury findings in the first phase of the Louisiana state case noted above, three breast implant product liability cases brought against the Company have now been tried to judgment. In February 1995, a Harris County jury exonerated the Company in one case and found the Company jointly and severally liable with Dow Corning for $5.23 million on a single count in a second case. After the verdict, however, the Court overturned the jury's verdict and entered judgment for the Company. On October 30, 1995, a state court jury in Reno, Nevada found the Company liable for $4.15 million in compensatory damages and $10 million in punitive damages. On December 31, 1998, the Nevada Supreme Court reversed and vacated the $10 million punitive damages award and affirmed the $4.15 million compensatory damages award. The Company filed a motion asking the Court to reconsider that portion of its opinion affirming the compensatory damages award. On February 12, 1999, that motion was denied. Subsequently, the parties negotiated a confidential settlement and the case has been dismissed with prejudice. The Company will be reimbursed by Dow Corning for all settlement amounts paid, in accordance with the terms of the Joint Plan if the Joint Plan becomes effective.

On May 13, 1997, United States District Court Judge Denise Page Hood ordered that all breast implant claims currently pending against the Company as to which judgment had not been entered, whether pending in state or federal courts, be transferred to the United States District Court, Eastern District of Michigan pursuant to a decision issued by the United States Court of Appeals for the Sixth Circuit on May 8, 1997. On August 1, 1997, Judge Hood issued her case management order with respect to the transferred claims, and ordered that all implant claims later filed in federal or state courts against the Company should likewise be transferred. On August 5, 1997, the Tort Committee in Dow Corning's bankruptcy case filed a petition for a writ of certiorari with the United States Supreme Court seeking review of the May 8, 1997 decision of the Sixth Circuit. On November 10, 1997, the Supreme Court denied the Tort Committee's petition.

Judge Hood's May 13, 1997 order transferred the Louisiana state court breast implant case, Spitzfaden v. Dow Corning, et al., to the United States District Court, Eastern District of Michigan. The plaintiffs in that case filed an emergency motion to transfer, or abstain and remand, the case back to the Louisiana state court. On May 21, 1997, Judge Hood "abstain(ed) from the claims involved in Phases I and II" of that case resulting in its return to the Louisiana state court and the resumption of the trial. The Company sought review of Judge Hood's May 21 decision by the United States Court of Appeals for the Sixth Circuit. On June 25, 1998, the Sixth Circuit rejected the Company's argument that Judge Hood's May 21, 1997 order returning Phases I and II of the Spitzfaden proceeding to Louisiana was an abuse of her discretion.

On July 7, 1998, Dow Corning, the Company and Corning, on the one hand, and the Tort Claimants' Committee in Dow Corning's bankruptcy on the other, agreed on a binding Term Sheet to resolve all tort claims involving Dow Corning's silicone medical products, including the claims against Corning and the Company (collectively, the Shareholders). The agreement set forth in the Term Sheet

was memorialized in a Joint Plan of Reorganization (the Joint Plan) filed by Dow Corning and the Tort Claimants' Committee (collectively, the Proponents) on November 9, 1998. On February 4, 1999, the Bankruptcy Court approved the disclosure statement describing the Joint Plan. Before the Joint Plan could become effective, however, it was subject to a vote by the claimants, a confirmation hearing and all relevant provisions of the Bankruptcy Code. Voting was completed on May 14, 1999 and the confirmation hearing concluded on July 30, 1999.

It is the opinion of the Company's management that the possibility is remote that plaintiffs will prevail on the theory that the Company should be liable in the breast implant litigation because of its stockholder relationship with Dow Corning. The Company's management believes that there is no merit to plaintiffs' claims that the Company is liable for alleged defects in Dow Corning's silicone products because of the Company's alleged direct participation in the development of those products, and the Company intends to contest those claims vigorously. Management believes that the possibility is remote that a resolution of plaintiffs' direct participation claims, including the vigorous defense against those claims, will have a material adverse impact on the Company's financial position or cash flows. Nevertheless, in light of Judge Pointer's April 25, 1995 ruling, it is possible that a resolution of plaintiffs' direct participation claims, including the vigorous defense against those claims, could have a material adverse impact on the Company's net income for a particular period, although it is impossible at this time to estimate the range or amount of any such impact.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of stockholders of The Dow Chemical Company was held on May 11, 2000. At that meeting the following directors were elected: J. Michael Cook, Willie D. Davis, Michael D. Parker, J. Pedro Reinhard and Paul G. Stern. In addition, the terms of the following directors continued after that meeting: Arnold A. Allemang, Jacqueline K. Barton, David T. Buzzelli, Anthony J. Carbone, John C. Danforth, Enrique C. Falla, Barbara Hackman Franklin, Allan D. Gilmour, Frank P. Popoff, Harold T. Shapiro and William S. Stavropoulos.

The following table gives a brief description of each matter voted upon at the above referenced annual meeting and, as applicable, the number of votes cast for, against or withheld, as well as the number of abstentions and broker nonvotes. Share count data is stated on a pre-split basis.

Description of Matter		For	Against	Withheld	Abstentions	Broker Nonvotes
1.	Election of Directors:
	Class I
	J. Michael Cook	187,097,840	N/A	1,892,012	N/A	N/A
	Willie D. Davis	186,886,871	N/A	2,102,981	N/A	N/A
	Michael D. Parker	186,588,159	N/A	2,401,693	N/A	N/A
	J. Pedro Reinhard	186,578,713	N/A	2,411,139	N/A	N/A
	Paul G. Stern	187,134,081	N/A	1,855,771	N/A	N/A
2.	Amendment of the Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock to one billion five hundred million.	169,835,576	18,168,388	N/A	985,888	N/A
3.	Ratification of the selection of Deloitte & Touche LLP as the Company's independent auditors for 2000.	185,868,882	372,611	N/A	2,748,359	0

N/A—Not applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

Exhibit No.		Description of Exhibit
27		Financial Data Schedule

(b)

Reports on Form 8-K.

The following Current Reports on Form 8-K were filed by the Company during the second quarter of 2000:

On May 11, 2000, the Company filed a Current Report on Form 8-K that included a press release issued on the same date announcing a three-for-one split of the Company's common stock, a cash dividend for the second quarter and future plans for increasing the quarterly dividend.

On June 14, 2000, the Company filed a Current Report on Form 8-K that included a press release issued on the same date announcing that the Company and Union Carbide Corporation expect a third quarter close of the proposed merger of the two companies.

The following Current Report on Form 8-K was filed by the Company subsequent to the second quarter of 2000:

On July 24, 2000, the Company filed a Current Report on Form 8-K attaching a letter agreement executed by Union Carbide Corporation and the Company stating that each of the parties agrees not to exercise any right it may have to terminate their merger agreement pursuant to Section 8.2(i) thereof prior to September 30, 2000.

The following trademarks of The Dow Chemical Company appear in this report: Affinity, Methocel, Styrofoam

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE DOW CHEMICAL COMPANY
Registrant

Date: August 11, 2000

/s/ FRANK H. BROD

Frank H. Brod
Vice President & Controller

QuickLinks

PART I.—FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Notes A and C)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE