8-K

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

FORM 8-K

Current Report

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

Date of Report (Date of earliest event reported): January 31, 2002

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

Delaware	1-3433	38-1285128
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(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: 989-636-1000

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Item 5.    Other Events.

        The Dow Chemical Company issued a press release on January 31, 2002, announcing results for the fourth quarter of 2001.

Item 7.    Financial Statements and Exhibits.

(c)

Exhibits.

        99.1 Press release issued by The Dow Chemical Company on January 31, 2002, announcing results for the fourth quarter of 2001.

2

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: January 31, 2002

/s/ Frank H. Brod Frank H. Brod
Vice President and Controller

3

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release issued by The Dow Chemical Company on January 31, 2002, announcing results for the fourth quarter of 2001.

4

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Item 5. Other Events.
Item 7. Financial Statements and Exhibits.

SIGNATURE
EXHIBIT INDEX

EX-99.1

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EXHIBIT 99.1

January 31, 2002

Dow Reports 2001 Earnings

Fourth Quarter of 2001 Highlights

•

Sales for the quarter were $6.3 billion, down 12 percent from a year ago, reflecting lower price and flat volume. Excluding acquisitions, volume declined 5 percent.



•

EBIT decreased to $144 million, excluding unusual items, due to the impact of weak demand and lower operating rates.



•

Dow recorded a loss in earnings per share of $0.01, excluding unusual items.

2001 Highlights

•

Sales decreased to $27.8 billion, due to a 6 percent decline in price and flat volume compared with 2000. Excluding acquisitions, volume was down 3 percent.



•

Price declines totaling $1.6 billion, compared with the previous year, more than offset approximately $750 million in lower feedstock and energy costs.



•

Excluding unusual items, EBIT was $1.3 billion and earnings per share were $0.52.

	3 Months Ended December 31					12 Months Ended December 31
(In millions, except for per share amounts)
	2001			2000		2001			2000
Net Sales	$	6,346		$	7,231	$	27,805		$	29,534
Earnings Before Interest, Income Taxes and Minority Interests (EBIT)		106			380		35			3,105
Earnings (Loss) Per Common Share		(0.04	)		0.16		(0.43	)		1.85
Excluding Unusual Items:
Underlying EBIT		144			400		1,347			3,125
Underlying Earnings (Loss) Per Common Share	$	(0.01	)	$	0.18	$	0.52		$	1.87

Review of Fourth Quarter Results

        The Dow Chemical Company today announced fourth quarter sales of $6.3 billion, compared with $7.2 billion a year ago. The company reported quarterly earnings before interest, income taxes and minority interests (EBIT) of $106 million, a net loss of $37 million and a loss in earnings per share of $0.04.

        In underlying results for the quarter, Dow recorded EBIT of $144 million, a net loss of $12 million and a loss in earnings per share of $0.01. (See "Supplemental Information" at the end of this release for a description of unusual items in 2001 and 2000.)

        The substantial decline in EBIT from a year ago stemmed primarily from weak demand, particularly in December. Dow's operating rates declined to 73 percent during the quarter as many businesses slowed operations to balance inventories with demand. While feedstock and energy costs declined by approximately $950 million compared with the same period in 2000, the benefit was largely offset by a decline in price of about $850 million.

        "This has been one of the most challenging quarters that Dow has ever faced," said Michael D. Parker, president and chief executive officer, citing trough margins associated with very weak demand.

        Sales for the quarter decreased 12 percent from a year ago, reflecting lower price and flat volume. Excluding acquisitions, volume declined 5 percent. Price was down in all geographic areas. Double-digit price declines in the basics segments—particularly in the polyethylene, polystyrene and chlor alkali

businesses—and in some Performance Plastics businesses more than offset a slight increase in price in Performance Chemicals. Volume was down in most segments and, on a geographic basis, was particularly weak in the U.S. and Latin America.

        Performance Chemicals EBIT rose 75 percent—from $77 million to $135 million—compared with the same quarter a year ago, reflecting lower feedstock and energy costs, stable prices and the impact of cost synergies from acquisitions. Performance Plastics EBIT decreased to $72 million, compared with $204 million a year ago, reflecting a significant slowdown in demand in electronics and other key industries as well as price declines that outpaced the lower feedstock and energy costs.

        In Agricultural Products, EBIT rose substantially from a year ago. The segment recorded strong volume growth through the combined effect of the acquisition of Rohm and Haas Company's agricultural chemicals business and growth in new products.

        In the basics segments, EBIT decreased from the same quarter last year. A modest rise in Chemicals EBIT was more than offset by a sharp decline in Plastics EBIT, which reflected extremely difficult industry conditions that also weakened earnings from the segment's equity companies.

Review of Year-End Results

        Dow reported annual sales of $27.8 billion, a decline of 6 percent from a year ago. In underlying results for the year, the company reported EBIT of $1.3 billion, net income of $469 million and earnings per share of $0.52. (See "Supplemental Information" at the end of this release.)

        A decrease in EBIT for the year reflected a price decline of $1.6 billion that was only partially offset by lower feedstock and energy costs of approximately $750 million.

        "The chemical industry has been, and is, facing the worst business environment in decades," said Parker, noting that the year began with a spike in feedstock and energy costs and was later marked by trough margins and weak demand. "At the same time, Dow has had the added challenge of integrating Union Carbide and other strategic acquisitions. Our people have risen to these challenges, putting us ahead of schedule in our integration plans—successfully merging the cultures and capturing synergies—and meeting our Six Sigma commitment. As business conditions improve, the benefit of this work will be further leveraged and will significantly impact the bottom line."

        The sales decline in 2001 reflected a 6 percent decrease in price and flat volume. Excluding acquisitions, volume was down 3 percent. Price was down in all geographic areas and in all segments except Performance Chemicals. Volume increases in Europe, Latin America and Asia Pacific offset declines in North America.

        Though the combined performance segments recorded lower EBIT for the year, Performance Chemicals EBIT rose 14 percent. In the basics segments, EBIT declined substantially from a year ago, as margins were compressed due to price declines.

        Dow took a number of actions during the year to strengthen its portfolio and accelerate long-term value growth. In addition to its merger with Union Carbide, Dow completed several other acquisitions, including the agricultural chemicals business from Rohm and Haas; Ascot Plc, a custom manufacturer of fine and specialty chemicals; EniChem's polyurethanes business; the remaining interest in Gurit-Essex AG; a polypropylene plant in Germany from Basell; Reichhold, Inc.'s paper and carpet latex business; and the assets of the Celotex Corporation's foam insulation business.

        Commenting on the outlook for 2002, Parker said that, while there has been little evidence of a recovery to date, industry conditions are not expected to deteriorate further. "We expect the business environment to remain challenging throughout the year—stable in the first half, with the potential for improvement in the second half," he said. "However, Dow should see an improvement in earnings for the year, as it benefits from progressively stronger volume, the realization of cost synergies, the impact of Six Sigma efforts and, ultimately, a higher level of operational and business excellence."

        Dow anticipates that results in the first quarter of 2002 will be similar to the fourth quarter of 2001.

        The company will host a live audio Webcast of its earnings conference call with investors to discuss Dow's business results and outlook as well as recent volatility in its stock price at 10 a.m. EST today on www.dow.com. A replay of the Webcast will be available on Dow's Web site until mid-February.

        Dow is a leading science and technology company that provides innovative chemical, plastic and agricultural products and services to many essential consumer markets. With annual sales of $28 billion, Dow serves customers in more than 170 countries and a wide range of markets that are vital to human progress, including food, transportation, health and medicine, personal and home care, and building and construction, among others. Committed to the principles of sustainable development, Dow and its approximately 50,000 employees seek to balance economic, environmental and social responsibilities.

        Note: The forward-looking statements contained in this document involve risks and uncertainties that may affect the company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the company's expectations will be realized. The company assumes no obligation to provide revisions to any forward-looking statements should circumstances change.

Supplemental Information

        The following information and tables summarize the impact of unusual items on EBIT, net income and earnings per share for 2001 and 2000, on a fourth quarter and full-year basis.

Description of Unusual Items—Fourth Quarters of 2001 and 2000

        Results in the fourth quarter of 2001 were unfavorably impacted by a $33 million pretax charge for merger-related expenses and restructuring and a $5 million pretax charge for costs to Dow's insurance subsidiaries for claims related to the events of September 11.

        Unusual items in the fourth quarter of 2000 included a pretax gain of $98 million on the sale of the Cochin pipeline system; an $81 million pretax charge for the anticipated loss on the disposition of certain businesses required for regulatory approval of Dow's merger with Union Carbide; a $6 million pretax charge for purchased in-process research and development costs related to the acquisition of Flexible Products; and a $31 million pretax charge from UOP LLC related primarily to losses associated with certain customer contracts coupled with restructuring charges.

		EBIT						Net Income						$ Per Share
(In millions, except for per share amounts)		3 Months Ended Dec. 31, 2001			3 Months Ended Dec. 31, 2000			3 Months Ended Dec. 31, 2001			3 Months Ended Dec. 31, 2000			3 Months Ended Dec. 31, 2001			3 Months Ended Dec. 31, 2000
Unusual items:
	Merger-related expenses and restructuring	$	(33	)		—		$	(22	)		—		$	(0.03	)		—
	Gain on sale of Cochin pipeline		—		$	98			—		$	62			—		$	0.07
	Recognition of anticipated loss on disposition of certain merger-related businesses		—			(81	)		—			(55	)		—			(0.06	)
	Purchased in-process R&D		—			(6	)		—			(6	)		—			(0.01	)
	Reinsurance company loss on WTC		(5	)		—			(3	)		—			(0.00	)		—
	UOP restructuring		—			(31	)		—			(23	)		—			(0.02	)
	Total unusual items	$	(38	)	$	(20	)	$	(25	)	$	(22	)	$	(0.03	)	$	(0.02	)
As reported		$	106		$	380		$	(37	)	$	149		$	(0.04	)	$	0.16
Underlying earnings		$	144		$	400		$	(12	)	$	171		$	(0.01	)	$	0.18

Description of Unusual Items—2001 and 2000

        Unusual items in 2001 had a net negative impact to earnings of $1.3 billion (pretax), or $0.95 per share. These items included a special pretax charge of $1.5 billion, or $1.10 per share, for costs related to Dow's merger with Union Carbide. The charge included transaction costs, employee severance, the write-down of duplicate assets and facilities and other merger-related expenses. Other unusual items included: a gain of $0.18 per share on the sale of stock in Schlumberger Ltd.; a charge of $0.05 per share for purchased in-process research and development associated with the acquisition of Rohm and Haas' agricultural chemicals business; a charge of $0.01 per share for costs to Dow's insurance subsidiaries for claims related to the events of September 11; and a charge of $0.01 per share for restructuring expenses at Dow Corning Corporation, in which Dow is a 50 percent shareholder. Additionally, earnings of $0.04 per share were reclassified as a transition adjustment gain due to an accounting change related to derivative instruments and hedging activities (SFAS No. 133).

        All of the unusual items in 2000 were recorded in the fourth quarter and are described in the previous section.

		EBIT						Net Income						$ Per Share
(In millions, except for per share amounts)		12 Months Ended Dec. 31, 2001			12 Months Ended Dec. 31, 2000			12 Months Ended Dec. 31, 2001			12 Months Ended Dec. 31, 2000			12 Months Ended Dec. 31, 2001			12 Months Ended Dec. 31, 2000
Unusual items:
	Merger-related expenses and restructuring	$	(1,487	)		—		$	(992	)		—		$	(1.10	)		—
	Gain on sale of Schlumberger stock		266			—			168			—			0.18			—
	Gain on sale of Cochin pipeline		—		$	98			—		$	62			—		$	0.07
	Recognition of anticipated loss on disposition of certain merger-related businesses		—			(81	)		—			(55	)		—			(0.06	)
	Accounting change		—			—			32			—			0.04			—
	Purchased in-process R&D		(69	)		(6	)		(43	)		(6	)		(0.05	)		(0.01	)
	Reinsurance company loss on WTC		(11	)		—			(8	)		—			(0.01	)		—
	Dow Corning restructuring		(11	)		—			(11	)		—			(0.01	)		—
	UOP restructuring		—			(31	)		—			(23	)		—			(0.02	)
	Total unusual items	$	(1,312	)	$	(20	)	$	(854	)	$	(22	)	$	(0.95	)	$	(0.02	)
As reported		$	35		$	3,105		$	(385	)	$	1,675		$	(0.43	)	$	1.85
Underlying earnings		$	1,347		$	3,125		$	469		$	1,697		$	0.52		$	1.87

# # #

THE DOW CHEMICAL COMPANY—4Q01 EARNINGS
FINANCIAL STATEMENTS (Note A)

The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income

		Three Months Ended						Twelve Months Ended
In millions except for per share amounts (Unaudited)		Dec. 31, 2001			Dec. 31, 2000			Dec. 31, 2001			Dec. 31, 2000
Net Sales		$	6,346		$	7,231		$	27,805		$	29,534
	Cost of sales		5,420			6,137			23,652			24,131
	Research and development expenses		268			299			1,072			1,119
	Selling, general and administrative expenses		424			471			1,765			1,825
	Amortization of intangibles		60			33			178			139
	Purchased in-process research and development charges (Note B)		—			6			69			6
	Merger-related expenses and restructuring (Note C)		33			—			1,487			—
	Insurance and finance company operations, pretax income		10			16			30			85
	Equity in earnings (losses) of nonconsolidated affiliates		(55	)		(11	)		29			354
	Sundry income—net		10			90			394			352
Earnings before Interest, Income Taxes and Minority Interests			106			380			35			3,105
	Interest income		24			46			85			146
	Interest expense and amortization of debt discount		178			171			733			665
Income (Loss) before Income Taxes and Minority Interests			(48	)		255			(613	)		2,586
	Provision (Credit) for income taxes		(28	)		89			(228	)		839
	Minority interests' share in income		17			17			32			72
Income (Loss) before Cumulative Effect of Change in Accounting Principle			(37	)		149			(417	)		1,675
	Cumulative effect of change in accounting principle (Note D)		—			—			32			—
Net Income (Loss) Available for Common Stockholders		$	(37	)	$	149		$	(385	)	$	1,675
Share Data
	Earnings (Loss) before cumulative effect of change in accounting principle per common share—basic	$	(0.04	)	$	0.17		$	(0.46	)	$	1.88
	Earnings (Loss) per common share—basic	$	(0.04	)	$	0.17		$	(0.43	)	$	1.88
	Earnings (Loss) before cumulative effect of change in accounting principle per common share—diluted	$	(0.04	)	$	0.16		$	(0.46	)	$	1.85
	Earnings (Loss) per common share—diluted	$	(0.04	)	$	0.16		$	(0.43	)	$	1.85
	Common stock dividends declared per share of Dow common stock	$	0.335		$	0.29		$	1.295		$	1.16
	Weighted-average common shares outstanding—basic		905.2			895.7			901.8			893.2
	Weighted-average common shares outstanding—diluted		905.2			904.3			901.8			904.5
Depreciation		$	421		$	403		$	1,595		$	1,554
Capital Expenditures		$	589		$	508		$	1,587		$	1,808

Notes to Financial Statements:

Note A:	On February 6, 2001, a wholly owned subsidiary of The Dow Chemical Company ("Dow" or "Company") merged with Union Carbide Corporation ("Union Carbide") and, as a result, Union Carbide became a wholly owned subsidiary of the Company. The merger was accounted for as a pooling of interests. Accordingly, the consolidated financial statements have been prepared to give retroactive effect to the merger and include the combined accounts of Dow and Union Carbide for all periods presented.         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 supplemental consolidated financial statements and notes thereto included in a Form 8-K filed by the Company on April 4, 2001 for the year ended December 31, 2000.
Note B:	During the fourth quarter of 2000, a pretax charge of $6 million was recorded for purchased in-process research and development costs associated with the acquisition of Flexible Products Company in February 2000.     During the third quarter of 2001, a pretax charge of $69 million was recorded for purchased in-process research and development costs associated with the acquisition of Rohm & Haas' agricultural chemicals business on June 1, 2001.
Note C:	During 2001, pretax costs of $1,487 million were recorded for merger-related expenses and restructuring. These costs included transaction costs, employee severance, the write-down of duplicate assets and facilities, and other merger-related expenses.
Note D:	On January 1, 2001, the Company recorded a cumulative transition adjustment gain of $32 million (net of related income tax of $19 million), upon adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Note E:	During the third quarter of 2001, a third party contributed $500 million for a preferred security interest in a newly formed consolidated subsidiary of the Company.

The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			Dec. 31, 2001			Dec. 31, 2000
Assets
Current Assets
	Cash and cash equivalents		$	220		$	278
	Marketable securities and interest-bearing deposits			44			163
	Accounts and notes receivable:
		Trade (net of allowance for doubtful receivables—2001: $123; 2000: $103)		2,868			3,655
		Other		2,230			2,764
	Inventories:
		Finished and work in process		3,569			3,396
		Materials and supplies		871			817
	Deferred income tax assets—current			506			250
	Total current assets			10,308			11,323
Investments
	Investment in nonconsolidated affiliates			1,581			2,096
	Other investments			1,663			2,528
	Noncurrent receivables			802			674
	Total investments			4,046			5,298
Property
	Property			35,890			34,852
	Less accumulated depreciation			22,311			21,141
	Net property			13,579			13,711
Other Assets
	Goodwill (net of accumulated amortization—2001: $569; 2000: $459)			3,130			1,928
	Deferred income tax assets—noncurrent			2,248			1,968
	Deferred charges and other assets			2,204			1,763
	Total other assets			7,582			5,659
Total Assets			$	35,515		$	35,991
Liabilities and Stockholders' Equity
Current Liabilities
	Notes payable		$	1,209		$	2,519
	Long-term debt due within one year			408			318
	Accounts payable:
		Trade		2,713			2,975
		Other		926			1,594
	Income taxes payable			190			258
	Deferred income tax liabilities—current			236			35
	Dividends payable			323			217
	Accrued and other current liabilities			2,120			2,257
	Total current liabilities			8,125			10,173
Long-Term Debt				9,266			6,613
Other Noncurrent Liabilities
	Deferred income tax liabilities—noncurrent			760			1,165
	Pension and other postretirement benefits—noncurrent			2,475			2,238
	Other noncurrent obligations			3,539			3,012
	Total other noncurrent liabilities			6,774			6,415
Minority Interest in Subsidiaries				357			450
Preferred Securities of Subsidiaries (Note E)				1,000			500
Stockholders' Equity
	Common stock			2,453			2,453
	Additional paid-in capital			—			—
	Unearned ESOP shares			(90	)		(103	)
	Retained earnings			11,112			12,675
	Accumulated other comprehensive loss			(1,070	)		(560	)
	Treasury stock at cost			(2,412	)		(2,625	)
	Net stockholders' equity			9,993			11,840
Total Liabilities and Stockholders' Equity			$	35,515		$	35,991

See Notes to Financial Statements.

The Dow Chemical Company and Subsidiaries
Operating Segments and Geographic Areas

		Three Months Ended						Twelve Months Ended
In millions (Unaudited)		Dec. 31, 2001			Dec. 31, 2000			Dec. 31, 2001			Dec. 31, 2000
Operating segment sales
	Performance Plastics	$	1,707		$	1,942		$	7,321		$	7,667
	Performance Chemicals		1,225			1,295			5,081			5,343
	Agricultural Products		721			570			2,612			2,346
	Plastics		1,380			1,715			6,452			7,118
	Chemicals		754			971			3,552			4,109
	Hydrocarbons and Energy		506			696			2,511			2,626
	Unallocated and Other		53			42			276			325
	Total	$	6,346		$	7,231		$	27,805		$	29,534
Operating segment EBIT
	Performance Plastics	$	72		$	204		$	643		$	1,029
	Performance Chemicals		135			77			611			536
	Agricultural Products		35			(13	)		104			212
	Plastics		(33	)		117			125			945
	Chemicals		16			13			111			422
	Hydrocarbons and Energy		(8	)		112			(22	)		136
	Unallocated and Other		(111	)		(130	)		(1,537	)		(175	)
	Total	$	106		$	380		$	35		$	3,105
Geographic area sales
	United States	$	2,576		$	3,057		$	11,725		$	12,787
	Europe		2,066			2,106			8,891			8,742
	Rest of World		1,704			2,068			7,189			8,005
	Total	$	6,346		$	7,231		$	27,805		$	29,534

The Dow Chemical Company and Subsidiaries
Sales Volume and Price by Operating Segment and Geographic Area

		Three Months Ended Dec. 31, 2001						Twelve Months Ended Dec. 31, 2001
Percentage change from prior year
		Volume		Price		Total		Volume		Price		Total
Operating segments
	Performance Plastics	(4	)%	(8	)%	(12	)%	(1	)%	(4	)%	(5	)%
	Performance Chemicals	(6	)%	1	%	(5	)%	(6	)%	1	%	(5	)%
	Agricultural Products	28	%	(2	)%	26	%	15	%	(4	)%	11	%
	Plastics	(2	)%	(18	)%	(20	)%	1	%	(10	)%	(9	)%
	Chemicals	(12	)%	(10	)%	(22	)%	(9	)%	(5	)%	(14	)%
	Hydrocarbons and Energy	14	%	(41	)%	(27	)%	10	%	(14	)%	(4	)%
	Total	—		(12	)%	(12	)%	—		(6	)%	(6	)%
Geographic areas
	United States	(7	)%	(9	)%	(16	)%	(5	)%	(3	)%	(8	)%
	Europe	11	%	(13	)%	(2	)%	10	%	(8	)%	2	%
	Rest of World	—		(18	)%	(18	)%	(2	)%	(8	)%	(10	)%
	Total	—		(12	)%	(12	)%	—		(6	)%	(6	)%

End of Dow Chemical 4Q01 Earnings Release

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EXHIBIT 99.1