Clippings from the Dow Chemical Corporation 1998 Annual Report
http://www.dow.com

CONTENTS
Company Overview
Important Developments
Products & Services
Major Competitors
Key Executives
Selected Financial Data
Investment Data

Business Summary - Dow Chemical Company
Dow Chemical Company is engaged in the manufacture and sale of chemicals, plastic materials, agriculture, and consumer products and other specialized products and services. Dow is a diversified manufacturer and supplier of chemicals, plastics, and agriculture products.

The plastics business provides customers with high performance polymers and products. The Chemicals business provides specialty products used by customers in industries such automotive, consumer products, and food processing, pulp and paper, and crop protection.

INDUSTRY OVERVIEW
Industry Environment
Industry Issues
Industry Trends
Industry Characteristics
Market Shares

COMPANY PROFILES

Basic Chemicals Specialty Chemicals Ethyl Corp. Hanna, M.A. Lubrizol Corp.
Dupont Airgas Ferro Corp. Hercules Lyondell Petrochemicals
Dow Chemical Betz Dearborn Fuller (H.B.) Int. Flavors & Fragrances Millenium Chemicals
FMC Corp. Calgon Carbon Furon Co. Lawter Industries Morton International
Olin Corp. Ecolab Inc. Great Lakes Chemical Lily Industries NCH Corp.
Nalco Chemical Corp. Quaker Chemical Sherwin-Williams Valspar Corp. Witco Corp.
Praxair Inc. Schulman, A. Sigma Aldrich Wellman Inc.  
Union Carbide Englehard Corp.
RPM, Inc. Rohm & Hass


INTERNATIONAL STOCK MARKET DATA
Industrial Index

INDUSTRY ENVIRONMENT
The performance of commodity chemical producers has been very lackluster during 1998. Selling prices of petrochemicals and plastics continued to decline from 1997 peak levels. The impact was somewhat offset by lower raw materials prices. Companies also benefited from restructuring and cost reductions.

In many key chemical segments prices were very soft. Petrochemicals and plastics were very soft due to capacity problems. Fertilizer prices were down due to adverse spring weather conditions in key markets which hurt early season demand by farmers and to lower prices for nitrogen fertilizer. Chemical producers were also impacted by lower oil prices which hurt demand for products used in the processing of petroleum. In addition, pesticides and apparel fibers also had soft demand.

Economic problems in Asia had a devastating impact on chemical sales.

Auto production was reduced in June 1998 as a result of strikes at two GM plants. The two plants make fenders, hoods, and instrument panels for virtually energy GM car sold in North America. Subsequently, the strike caused shutdowns in all assembly plants due to a lack of parts.

INDUSTRY ISSUES

INDUSTRY TRENDS

Industry Consolidation.
Chemical producers will continue to merge and acquire companies that complement their existing product lines. In 1998, Lyondell Petrochemical and Millenium merged their petrochemical and plastics business into a joint venture named Equistar.

INDUSTRY CHARACTERISTICS
U.S. chemical companies produce over 70,000 different chemical substances and account for 24 % of the world's production. Foreign sales account for approximately 50% of total production.

Key markets for basic chemical producers include the automotive, construction, and manufacturing industries. These three industry sectors are major users of plastics, pigments, and industrial gases. Demand for industrial chemicals is ultimately derived from the demand for consumer goods. Consumers who purchase home furnishings and appliances will stimulate demand for the goods used to manufacture these products.

Commodity chemicals are used in finished consumer products such as soaps and detergents. Revenue is driven by volume demand and pricing. Profits are determined by a combination of product mix, capacity utilization, and production efficiency. A chemical producers product line can be either broad or narrow. But its important to meet economies of scale to achieve the greatest cost advantage.

Cyclical Industry.
The chemical business is closely tied to the health of the U.S. economy such as retail sales, exchange rates, and consumer spending. Demand for chemicals is derived from the demand of consumer products. The chemical industry depends heavily on the automobile, manufacturing, and housing business which are very cyclical. These customer segments make the chemical industry cyclical as well. Chemical producers often face supply and demand imbalances as a result of economic cycles. Many are unable to forecast capacity additions which may not match demand.

Capital Intensity.
The chemical industry is very capital intensive . The cost of building a new facility can often be hundreds of millions of dollars. Large plants are needed to build efficient plants and achieve economies of scale.

Heavy Government Regulation.
Chemical producers manufacture a wide variety of industrial solvents, cleaners, liquid wastes, and unwanted byproducts from the manufacturing process. Chemical producers are regulated by the EPA (Evironmental Protection Agency) which sets standards on chemical disposing processes.

Chemicals and allied products industries manufacture more than 50,000 different chemical substances. Most are used as basic materials in other industries, but some are used directly by consumers. These include such diverse products as organic chemicals (including petrochemicals) and inorganic chemicals (including industrial gases and alkalies and chlorine), plastic resins and synthetic rubber, drugs and pharmaceuticals, soaps and detergents, cosmetics, paints and coatings, agricultural chemicals (including fertilizers and pesticides), adhesives and sealants, and a variety of miscellaneous chemicals (including essential oils, salts, and distilled water).

The chemical and allied products industry is one of the largest U.S. industries. The industry employs about 850,000 persons, and manufacturing facilities are located in every state. The industry is also the largest U.S. exporting sector and has maintained a positive trade balance for the last decade. This is in part due to its extensive globalization. The U.S. chemical industry had more than $400 billion in sales which accounts for about 24 % of total world chemical production.

The health of the industry is closely tied to the U.S. and global economy, as reflected in the movements of the GNP, personnel consumption expenditures, retail sales, and exchange rates. Industries such as automobiles, housing, and electronics are have increased chemical industry shipments in 1997. Capacity utilization for the industry was sustained at slightly more than 81 percent, about the same as the previous year's operating rate. Apparent domestic consumption (product shipments plus imports minus exports) rose 1.4 percent, reflecting a slowdown in domestic economic activity.

Deal Structure:

•100% Stock-for-Stock; Tax Free; Pooling of Interests

•0.537 Dow shares per one Union Carbide share

•$66.96 per Union Carbide share based on Dow close as of 8/3/99

Closing Date:

•Anticipated Q1, 2000

Cost Synergies:

•At least $500 million per year achieved by end of second year

Equity Issuance:

•Equity issuance of approximately 3.8 million shares to qualify for pooling

Ownership:

•75% by Dow shareholders •25% by Union Carbide shareholders

Governance:

•Dr. Joyce and one Union Carbide director to join Dow Board

Approvals:

•Hart-Scott-Rodino •European Union •Union Carbide Shareholders

Other Terms:

•$300 million breakup fee

•19.9% equity option

The Dow Chemical Company
The Dow Chemical Company is the fifth largest chemical company in the world, with annual sales of more than $20 billion. The company provides chemicals, plastics, energy, agricultural products, consumer goods and environmental services to customers in almost all countries around the world. Dow operates 94 manufacturing sites in 30 countries and employs about 39,500 people who are dedicated to applying chemistry to benefit customers, employees, shareholders and society.