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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K

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

FOR THE YEAR ENDED DECEMBER 31, 1999

Commission file number 1-3433

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

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

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

Securities registered pursuant to Section12(b) of the Act:

Title of each class
   Name of each exchange
on which registered
Common Stock, par value $2.50 per share   Common Stock registered on the New York, Chicago and Pacific Stock Exchanges
Debentures, 6.85%, final maturity 2013   Debentures registered on the
New York Stock Exchange

    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 / /

    The aggregate market value of voting stock held by nonaffiliates as of February 10, 2000 (based upon the closing price of $105.9375 per common share as quoted on the New York Stock Exchange), is approximately $23.57 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors, Officers and the Dow Employees' Pension Plan Trust would be deemed to be stock held by affiliates. Nonaffiliated common stock outstanding at February 10, 2000 numbered 222,491,943 shares. Total common stock outstanding at February 10, 2000 numbered 225,020,631.


Documents Incorporated by Reference

    Part III: Proxy Statement for the Annual Meeting of Stockholders to be held on May 11, 2000.


THE DOW CHEMICAL COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS

 
    
   Page
 
 PART I
 
Item 1.		  
 		  
Business		  
 		  
3
 
Item 2.		  
 		  
Properties		  
 		  
9
 
Item 3.		  
 		  
Legal Proceedings		  
 		  
10
 
Item 4.		  
 		  
Submission of Matters to a Vote of Security Holders		  
 		  
15
 
 		  
 		  
Executive Officers of the Registrant		  
 		  
15
 
 PART II
 
Item 5.		  
 		  
Market for Registrant's Common Equity and Related Stockholder Matters		  
 		  
17
 
Item 6.		  
 		  
Selected Financial Data		  
 		  
18
 
Item 7.		  
 		  
Management's Discussion and Analysis of Financial Condition
and Results of Operations		  
 		  
19
 
Item 7A.		  
 		  
Quantitative and Qualitative Disclosures about Market Risk		  
 		  
32
 
Item 8.		  
 		  
Financial Statements and Supplementary Data		  
 		  
34
 
Item 9.		  
 		  
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure		  
 		  
73
 
 PART III
 
Item 10.		  
 		  
Directors and Executive Officers of the Registrant		  
 		  
73
 
Item 11.		  
 		  
Executive Compensation		  
 		  
73
 
Item 12.		  
 		  
Security Ownership of Certain Beneficial Owners and Management		  
 		  
73
 
Item 13.		  
 		  
Certain Relationships and Related Transactions		  
 		  
73
 
 PART IV
 
Item 14.		  
 		  
Exhibits, Financial Statement Schedules, and Reports on Form 8-K		  
 		  
73
 
SIGNATURES		  
 		  
77

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PART I

ITEM 1.  BUSINESS


THE COMPANY

    The Dow Chemical Company was incorporated in 1947 under Delaware law and is the successor to a Michigan corporation, of the same name, organized in 1897. The Company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other specialized products and services. Its principal executive offices are located at 2030 Dow Center, Midland, Michigan 48674, telephone 517-636-1000. Except as otherwise indicated by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.


BUSINESS AND PRODUCTS

Corporate Profile

    The Dow Chemical Company is a global science and technology based company that develops and manufactures a portfolio of chemicals, plastics and agricultural products and services for customers in 162 countries around the world. With annual sales of $19 billion, Dow conducts its operations through 14 global businesses employing 39,200 people. The Company has 123 manufacturing sites in 32 countries and supplies more than 2,400 products grouped within the operating segments listed on the following pages. The Corporate Profile is an integral part of Note R to the Financial Statements.

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Industry Segments and Geographic Area Results

See Note R to the Financial Statements for disclosure of information by operating segment and geographic area.

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Number of Products

    Dow manufactures and supplies more than 2,400 products and services, and no single one accounted for more than 5 percent of the Company's consolidated sales in 1999.

Competition

    The Company experiences substantial competition in each of its industry segments. During 1999, the Company was the second largest chemical company in the United States and in the top five worldwide, in terms of sales. The chemical industry has been historically competitive and this condition is expected to continue. The chemical divisions of the major international oil companies also provide substantial competition both in the United States and abroad. The Company competes worldwide on the basis of quality, price and customer service.

Raw Materials

    The Company operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce a number of products that are sold as finished goods at various points in those processes.

    The two major raw material streams that feed the integrated production of the Company's finished goods are chlorine-based and hydrocarbon-based raw materials.

    Salt, limestone and natural brine are the base raw materials used in the production of chlor-alkali products and derivatives. The Company owns salt deposits in Louisiana, Michigan and Texas; Alberta, Canada; Brazil; and Germany. The Company also owns natural brine deposits in Michigan and limestone deposits in Texas.

    Hydrocarbon raw materials include liquefied petroleum gases (LPG), crude oil, naphtha, natural gas and condensate. These raw materials are used in the production of both saleable products and energy. The Company also purchases electric power, benzene, ethylene and styrene to supplement internal production. Expenditures for hydrocarbons and energy accounted for 27% of the Company's operating costs and expenses for the year ended December 31, 1999. The Company purchases these raw materials on both short-term and long-term contracts.

    Other significant raw materials include ammonia, acrylonitrile, aniline, bisphenol, cellulose, organic acids, and toluene diamine. The Company purchases these raw materials on both short-term and long-term contracts.

    The Company has, and expects to continue to have, adequate supplies of raw materials during 2000 and subsequent years.

Method of Distribution

    All products and services are marketed primarily through the Company's sales force, although in some instances more emphasis is placed on sales through distributors. No significant portion of the business of any operating segment is dependent upon a single customer.

Research and Development

    The Company is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes and to develop new applications for existing products. Research and Development expenses were $845 million in 1999 compared with $807 million in 1998 and $785 million in 1997. The Company employs approximately 5,500 people in various research and development activities.

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Patents, Licenses and Trademarks

    The Company continually applies for and obtains United States and foreign patents. At December 31, 1999, the Company owned 2,843 active United States patents and 8,475 active foreign patents as follows:

 
   U. S.
   Foreign
Performance Plastics   944   2,378
Performance Chemicals   356   1,072
Agricultural Products   425   1,421
Chemicals   122   266
Plastics   484   1,571
Hydrocarbons and Energy   23   103
Other   489   1,664
Total   2,843   8,475

    Dow's primary purpose in obtaining patents is to protect the results of its research for use in operations and licensing. Dow is also party to a substantial number of patent licenses and other technology agreements. The Company had revenue related to patent and technology royalties totaling $58 million in 1999, $44 million in 1998 and $54 million in 1997, and incurred royalties to others of $14 million in 1999, $3 million in 1998 and $5 million in 1997. Dow also has a substantial number of trademarks and trademark registrations in the United States and in other countries, including the "Dow in Diamond" trademark. Although the Company considers that, in the aggregate, its patents, licenses and trademarks constitute a valuable asset, it does not regard its business as being materially dependent upon any single patent, license or trademark.

Principal Partly Owned Companies

    Principal companies in which Dow owns a 50 percent interest include DuPont Dow Elastomers L.L.C., which manufactures and markets thermoset and thermoplastic elastomer products; Gurit-Essex, A.G., a Swiss company, which supplies European automobile manufacturers with proprietary specialty products; and Dow Corning Corporation, a manufacturer of silicone and silicone products, which voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code (see Note P to the Financial Statements). Dow has a 45 percent interest in Total Raffinaderij Nederland N.V., which provides feedstocks for Dow's major petrochemical site at Terneuzen, the Netherlands, and also services the Benelux and nearby countries. Dow has a 28 percent interest in Compañía Mega S.A., an Argentine company which is constructing a natural gas separation and fractionation plant. The plant will provide feedstocks to the Company's petrochemical plant, Petroquímica Bahía Blanca, located in Bahia Blanca, Argentina. Dow also owns an 80 percent interest in Buna Sow Leuna Olefinverbund (BSL), a former East German integrated chemical complex. Bundesanstalt für vereinigungsbedingte Sonderaufgaben (BvS) will maintain a 20 percent ownership until the end of the reconstruction period, which is expected to be June 2000. The Company expects to include the financial results of BSL as a nonconsolidated affiliate until the end of the reconstruction period. This acquisition offers Dow both new products (e.g. polypropylene, acrylic acid and synthetic rubber) and expanded geographic reach for core chlorine-based and hydrocarbon-based chemicals and plastics.

Financial Information About Foreign and Domestic Operations and Export Sales

    In 1999, the Company derived 60 percent of its sales and had 46 percent of its property investment outside the United States. While the Company's international operations may be subject to a number of additional risks, such as changes in currency exchange rates, the Company does not regard its foreign operations, on the whole, as carrying any greater risk than its operations in the United States. Information on sales and long-lived assets by geographic area for each of the last three years appears

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in Note R to the Financial Statements, and discussions of the Company's risk management program for foreign exchange and interest rate risk management appear in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note J to the Financial Statements.

Protection of the Environment

    Matters pertaining to the environment are discussed in Legal Proceedings, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes A and P to the Financial Statements.

Employees

    The personnel count at December 31, 1999 was 39,239 versus 39,029 at the end of 1998, and 42,861 at the end of 1997.

Other Activities

    Dow engages in the property and casualty insurance and reinsurance business primarily through its Liana Limited subsidiaries.

ITEM 2.  PROPERTIES

    The Company operates 123 manufacturing sites in 32 countries. The Company considers that its properties are in good operating condition and that its machinery and equipment have been well maintained. The Company's chemicals and plastics production facilities and plants operated at approximately 89 percent of capacity during 1999. The following are the major production sites:

United States:   Midland, Michigan; Freeport, Texas; Pittsburg, California; Plaquemine, Louisiana.
Canada:   Sarnia, Ontario; Fort Saskatchewan, Alberta.
Germany:   Stade; Rheinmuenster.
France:   Drusenheim.
The Netherlands:   Terneuzen.
Spain:   Tarragona.
Argentina:   Bahia Blanca.
Brazil:   Aratu.

    Including the major production sites, the Company has plants and holdings in the following geographic areas:

United States:   35   manufacturing locations in 19 states.
Canada:   5   manufacturing locations in 3 provinces.
Europe:   44   manufacturing locations in 15 countries.
Latin America:   23   manufacturing locations in 6 countries.
Pacific:   16   manufacturing locations in 9 countries.

    All of Dow's plants are owned or leased, subject to certain easements of other persons which, in the opinion of Management, do not substantially interfere with the continued use of such properties or materially affect their value.

    A summary of properties, classified by type, is contained in Note G to the Financial Statements.

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ITEM 3.  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.

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    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.

    Judge Pointer has been 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 December 1993 ruling as to plaintiffs' corporate control claims but vacated that ruling as to plaintiffs' direct participation claims.

    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 4th 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

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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),

12

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 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

13

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, have 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 are scheduled to be heard by U. S. District Court Judge Denise Page Hood commencing on April 12, 2000. 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 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.

Environmental Matters

    On March 25, 1998, Dow AgroSciences LLC, a wholly owned subsidiary of the Company, made a written inquiry to the United States Environmental Protection Agency (EPA) with regard to alleged violations of the Federal Insecticide, Fungicide and Rodenticide Act for which the EPA has verbally indicated that it is seeking a civil penalty in the amount of $792,000.

    On November 13, 1998, the Michigan Department of Environmental Quality ("MDEQ") commenced an investigation of alleged unpermitted release and improper storage of material containing dioxin and furans at Radian International LLC's ("Radian") waste treatment facility which is located within the Company's Michigan Operations manufacturing site. This waste treatment facility processes dried tertiary pond solids for transport to the Company's incinerator under an agreement with the State of Michigan. The Company has been included in the MDEQ investigation even though the waste treatment facility in question is owned and operated by Radian. At this juncture, a fine in excess of $100,000 against both companies is possible, although the Company may ultimately have indemnification rights against Radian.

    On April 29, 1999, the EPA filed an administrative complaint against the Company. The complaint alleges that reports made by the Company to emergency response authorities regarding the release of certain hazardous chemicals at the Company's Michigan Operations, occurring between November 1997 and October 1998, were not made as promptly as required. Proposed civil fines total $661,237. The complaint was subsequently amended to reference an additional release and additional civil fines of

14

$27,500 were proposed. On December 21, 1999, the matter was settled and the Company paid a civil fine of $82,834 and agreed to perform certain environmental projects valued at $48,446.

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

    No matter was submitted to a vote of security holders during the fourth quarter of 1999.

EXECUTIVE OFFICERS OF THE REGISTRANT

    Set forth below is information related to the Company's executive officers as of March 13, 2000.

    ARNOLD A. ALLEMANG, 57. DOW VICE PRESIDENT, OPERATIONS. DIRECTOR SINCE 1996. Employee of Dow since 1965. Director of Technology Centers, Dow U.S.A. 1989-92. Manufacturing General Manager, Dow Benelux N.V.* 1992-93. Regional Vice President, Manufacturing and Administration, Dow Benelux N.V.* 1993. Vice President, Manufacturing Operations, Dow Europe S.A.* 1993-95. Dow Vice President and Director of Manufacturing and Engineering 1996-97. Dow Vice President, Operations 1997 to date. Director of Liana Limited* and Dorinco Reinsurance Company.* Representative on the Members Committees of DuPont Dow Elastomers L.L.C.* President of Dow Environmental Inc.* Member of the American Chemical Society; the Advisory Board, Center for Chemical Process Safety, American Institute of Chemical Engineers; and College of Engineering Advisory Council, Kansas State University.

    ANTHONY J. CARBONE, 59. VICE CHAIRMAN OF THE BOARD OF DIRECTORS AND DOW EXECUTIVE VICE PRESIDENT. DIRECTOR SINCE 1995. Employee of Dow since 1962. Dow Latin America Marketing Director for Plastics 1974-76. Dow Business Manager for Styrofoam 1976-80, Director of Marketing for Functional Products and Systems 1980-83. Dow U.S.A. General Manager of the Coatings and Resins Department 1983-86, General Manager of Separation Systems 1986-87, Vice President Dow Plastics 1987-91. Dow North America Group Vice President for Plastics 1991-93. Group Vice President, Global Plastics 1993-95. Group Vice President—Global Plastics, Hydrocarbons and Energy 1995-96. Executive Vice President, 1996 to date. Vice Chairman of the Board of Directors, February 2000 to date. Board member of the Society of Plastics Industries and the American Plastics Council. Member of the American Chemical Society and Advisory Council for the Heritage Foundation.

    RICHARD M. GROSS, 52. DOW VICE PRESIDENT AND DIRECTOR OF RESEARCH AND DEVELOPMENT. Employee of Dow since 1974. Research and Development Director, North American Chemicals and Metals/Hydrocarbons 1992-95. Director of Core Technologies Research and Development 1995-98. Director of Continental Operations 1995-97. Vice President of Dow North America and Director of Michigan Operations 1997-98. Vice President and Director of Research and Development 1998 to date. Recipient of 1996 Genesis Award for Excellence in People Development. Member of the American Chemical Society, the American Institute of Chemical Engineers, the Industrial Research Institute, and National Chemical Sciences Roundtable. Member of the Governing Board and 2nd Vice Chair, the Council for Chemical Research. Member and past Chair, External Advisory Board, Chemical Engineering Department, Georgia Institute of Technology. Member of the Chemical Engineering Advisory Board at Worcester Polytechnic Institute. Member of the Advisory Board of the National Science Resources Center.

    G. MICHAEL LYNCH, 56. DOW VICE PRESIDENT AND CONTROLLER. Employee of Dow since 1997. Controller for Plastics and Trim Division, Ford Motor Company 1991-93. Assistant Corporate Controller, International Automotive Group and Financial Services, Ford Motor Company 1993-94. Controller, Automotive Components Division, Ford Motor Company 1994-97. Vice President and Controller, The Dow Chemical Company, 1997 to date. Director of Dow Credit Corporation;* Dow Holdings, Inc.;* Dow Financial Holdings, Inc.;* and Diamond Capital Management, Inc.*

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Member of the Executive Committee of the Conference Board's Controllers Council and the Committee on Corporate Reporting of the Financial Executives Institute.

    GEOFFERY E. MERSZEI, 48. DOW VICE PRESIDENT AND TREASURER. Employee of Dow since 1978. Director of Finance, Dow Chemical (Hong Kong) Limited* 1989-92. Director of Finance, Dow Europe S.A.* 1992-96. Vice President and Treasurer, The Dow Chemical Company 1996 to date. Member of the Conference Board's Council of Financial Executives. Chairman of the Committee on Corporate Finance for the Financial Executive Institute. Member of the Citibank Advisory Board.

    MICHAEL D. PARKER, 53. DOW EXECUTIVE VICE PRESIDENT AND PRESIDENT OF DOW NORTH AMERICA. DIRECTOR SINCE 1995. Employee of Dow since 1968. Dow Europe S.A.* Product Marketing Manager for Epoxy Resins 1977-79. Director of Marketing for Inorganic Chemicals 1979-82. Director of Marketing for Organic Chemicals 1982-83. Commercial Director for the Functional Products Department 1983-84. Dow U.S.A. General Manager of the Specialty Chemicals Department 1984-87. Dow Chemical Pacific Limited* Commercial Vice President 1987-88, President 1988-93. Dow Group Vice President 1993-96. Group Vice President—Chemicals and Hydrocarbons 1993-95. Business Vice President for Chemicals 1995 to date. President Dow North America 1995 to date. Executive Vice President 1996 to date. Director, Destec Energy, Inc. 1995-97. Director of the National Association of Manufacturers, the National Legal Center for the Public Interest and the Chlorine Chemistry Council.

    FRANK P. POPOFF, 64. CHAIRMAN OF THE DOW BOARD OF DIRECTORS. DIRECTOR SINCE 1982. Employee of Dow since 1959. Dow Europe S.A.* Executive Vice President 1980-81, President 1981-85. Dow Executive Vice President 1985-87, President 1987-93, President and Chief Operating Officer 1987, Chief Executive Officer 1987-95, Chairman of the Board 1992 to date. Director of American Express Company; U S WEST, Inc.; United Technologies Corporation; Chemical Financial Corporation; Chemical Bank and Trust Company; the Indiana University Foundation; and the Michigan Molecular Institute. Past Chairman of the Chemical Manufacturers Association. Member of The Business Council, the Business Council for Sustainable Development, the Council for Competitiveness, and the American Chemical Society.

    J. PEDRO REINHARD, 54. DOW EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. DIRECTOR SINCE 1995. Employee of Dow since 1970. Dow Brazil Area Finance Director 1978-81. Dow Europe S.A.* Finance Director 1981-85. Dow Assistant Treasurer 1984-85. Dow Europe S.A.* Vice President 1985-88. Managing Director, Dow Italy 1985-88. Dow Treasurer 1988-96, Vice President 1990-95, Financial Vice President 1995-96, Chief Financial Officer 1995 to date, Executive Vice President 1996 to date. Chairman of the Board of Liana Limited.* Representative on the Members Committee, Dow AgroSciences LLC.* Member of the Financial Executives Institute and The Conference Board's Council of Financial Executives.

    JOHN SCRIVEN, 57. DOW VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Employee of Dow since 1975. General Counsel, Dow Europe S.A.* 1983-93. Vice President, Dow Europe S.A.* 1986-93. Associate General Counsel 1993-94. Vice President and General Counsel, 1994 to date. Secretary 1996 to date. Chairman, Global Ethics & Compliance Committee 1998 to date. Director of Dorinco Insurance (Ireland) Limited,* Dorinco Reinsurance Company* and Liana Limited.* Solicitor, Supreme Court of the United Kingdom. Member, State Bar of Michigan. Visiting Professor at McGeorge School of Law, University of the Pacific, Sacramento, California. Guest Lecturer to the Swiss Banking Institute, Zurich, Switzerland. Member, North America Board of Advisors of the Swiss American Chamber of Commerce. Member, Board of Directors of the American Arbitration Association.

    WILLIAM S. STAVROPOULOS, 60. DOW PRESIDENT AND CHIEF EXECUTIVE OFFICER. DIRECTOR SINCE 1990. Employee of Dow since 1967. President of Dow Latin America

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1984-85. Dow U.S.A. Commercial Vice President for Basics and Hydrocarbons 1985-87. Group Vice President for Plastics and Hydrocarbons 1987-90. President of Dow U.S.A. 1990-93. Dow Vice President 1990-91, Senior Vice President 1991-93, Chief Operating Officer 1993-95, President 1993 to date, Chief Executive Officer 1995 to date. Director of Dow Corning Corporation,* NCR Corporation, BellSouth Corporation, Chemical Financial Corporation, and Chemical Bank and Trust Company. Representative on the Members Committee, Dow AgroSciences LLC.* Member of the American Chemical Society, The Business Council, The Business Roundtable, and the Society of Chemical Industry. Serves on the Joint Automotive Suppliers Governmental Action Council and the University of Notre Dame Advisory Council for the College of Science. Board member of the American Plastics Council, Chemical Manufacturers Association, University of Washington Foundation, American Enterprise Institute for Public Policy Research, Midland Community Center, and U.S. Council for International Business.

    LAWRENCE J. WASHINGTON, JR., 54. DOW VICE PRESIDENT, ENVIRONMENT, HEALTH & SAFETY, HUMAN RESOURCES AND PUBLIC AFFAIRS. Employee of Dow since 1969. General Manager, Western Division 1987-90. Vice President, Dow North America, and General Manager of the Michigan Division 1990-94. Vice President, Human Resources 1994 to date. Vice President, Environment, Health & Safety and Public Affairs 1997 to date. Director of Chemical Bank and Trust Company and Liana Limited.* Member of the National Advisory Board for Michigan Technological University and the Advisory Council, College of Engineering and Science, University of Detroit Mercy.

*  A number of Company entities are referenced to in the biographies and are defined as follows. (Some of these entities have had various names over the years. The names and relationships to the Company, unless otherwise indicated, are stated in this footnote as they existed as of the Annual Meeting record date.) Dow Corning Corporation and DuPont Dow Elastomers L.L.C.—companies ultimately 50 percent-owned by Dow. Diamond Capital Management, Inc., Dorinco Insurance (Ireland) Limited, Dorinco Reinsurance Company, Dow AgroSciences LLC, Dow Benelux N.V., Dow Chemical (Hong Kong) Limited, Dow Chemical Pacific Limited, Dow Credit Corporation, Dow Environmental Inc., Dow Europe S.A., Dow Financial Holding, Inc., Dow Holdings, Inc., and Liana Limited—all ultimately wholly owned subsidiaries of Dow. Ownership by Dow described above may be either direct or indirect.


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

    The principal market for the Company's common stock is the New York Stock Exchange. On February 10, 2000, the Company declared a cash dividend of 87 cents per share, payable April 28, 2000, to stockholders of record on March 31, 2000. This will be the 353rd consecutive quarterly dividend since 1912. There were 87,176 common stockholders of record as of March 13, 2000. The Company estimates that there were an additional 126,000 stockholders whose shares were held in nominee names at December 31, 1999.

    Quarterly market and dividend information can be found in Part II, Item 8 (Financial Statements & Supplementary Data) on page 72.

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ITEM 6.  SELECTED FINANCIAL DATA

The Dow Chemical Company and Subsidiaries

Five-year Summary of Selected Financial Data

 
   1999
   1998
   1997
   1996
   1995
  
 
   (Unaudited)

  
 
   In millions, except as noted

  
Summary of Operations (1)                                
Net sales   $ 18,929   $ 18,441   $ 20,018   $ 20,053   $ 20,200  
Cost of sales     14,302     13,799     14,679     14,108     13,337  
Research and development expenses     845     807     785     761     808  
Selling, general and administrative expenses     1,530     1,666     1,880     2,136     2,187  
Amortization of intangibles     146     88     61     39     38  
Purchased in-process research and development charges     6     349     —     —     —  
Special charges     94     458     —     —     —  
Insurance and finance company operations, pretax income     127     112     113     78     61  
Other income (expense)     343     980     511     405     (222 )
   
 
 
 
 
 
Earnings before interest, income taxes and minority interests     2,476     2,366     3,237     3,492     3,669  
Interest expense—net     310     354     289     204     140  
   
 
 
 
 
 
Income before income taxes and minority interests     2,166     2,012     2,948     3,288     3,529  
Provision for income taxes     766     685     1,041     1,187     1,442  
Minority interests' share in income     69     17     99     194     196  
Preferred stock dividends     5     6     6     7     7  
   
 
 
 
 
 
Income from continuing operations     1,326     1,304     1,802     1,900     1,884  
Discontinued operations net of income taxes     —     —     —     —     187  
   
 
 
 
 
 
Net income available for common stockholders   $ 1,326   $ 1,304   $ 1,802   $ 1,900   $ 2,071  
   
 
 
 
 
 
Per share of common stock (dollars):                                
Income from continuing operations—basic   $ 6.02   $ 5.83   $ 7.81   $ 7.71   $ 7.03  
Net income available for common stockholders—basic     6.02     5.83     7.81     7.71     7.72  
Income from continuing operations—diluted     5.93     5.76     7.70     7.60     6.93  
Net income available for common stockholders—diluted     5.93     5.76     7.70     7.60     7.61  
Cash dividends declared     3.48     3.48     3.36     3.00     2.90  
Cash dividends paid     3.48     3.48     3.24     3.00     2.80  
Weighted-average common shares outstanding     220.1     223.5     230.6     246.3     268.2  
Convertible preferred shares outstanding     1.3     1.4     1.4     1.5     1.5  
 
 Year-end Financial Position		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 
Total assets   $ 25,499   $ 23,830   $ 24,040   $ 24,673   $ 23,582  
Working capital     2,552     1,198     1,629     4,276     5,451  
Property—gross     24,276     24,435     23,345     23,737     23,218  
Property—net     8,490     8,447     8,052     8,484     8,113  
Long-term debt and redeemable preferred stock     5,072     4,094     4,245     4,230     4,733  
Total debt     6,057     5,877     6,258     5,468     5,403  
Net stockholders' equity     8,323     7,429     7,626     7,954     7,361  
 
 Financial Ratios		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 		  
 
Research and development expenses as percent of net sales (1)</