UNITED STATES
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 FISCAL YEAR ENDED December 31, 2004

Commission file number 1-3433

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

2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code: 989-636-1000

Securities registered pursuant to Section 12(b) of the Act:

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 [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [   ]

The aggregate market value of voting stock held by non-affiliates as of June 30, 2004 (based upon the closing price of $40.70 per common share as quoted on the New York Stock Exchange), was approximately $37.8 billion. For purposes of this computation, it is assumed that the shares of voting stock held by Directors, Officers, the Dow Employees' Pension Plan Trust, and the Retirement Program for Employees of Union Carbide Corporation and its Participating Subsidiary Companies would be deemed to be stock held by affiliates. Non-affiliated common stock outstanding at June 30, 2004 was 929,444,379 shares.

Total common stock outstanding at January 31, 2005 was 953,570,755 shares.

Documents Incorporated by Reference

Part III: Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 2005.

The Dow Chemical Company

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2004

TABLE OF CONTENTS

PART I

2

The Dow Chemical Company and Subsidiaries
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. On February 6, 2001, the merger of Union Carbide Corporation ("Union Carbide") with a subsidiary of The Dow Chemical Company was completed, and Union Carbide became a wholly owned subsidiary of Dow.

       The Company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other specialized products and services. Except as otherwise indicated by the context, the terms "Company" or "Dow" as used herein mean The Dow Chemical Company and its consolidated subsidiaries.

       The Company's principal executive offices are located at 2030 Dow Center, Midland, Michigan 48674, telephone 989-636-1000. Its Internet website address is www.dow.com. All of the Company's filings with the U.S. Securities and Exchange Commission are available free of charge through the Investor Relations page on this website, immediately upon filing.

BUSINESS AND PRODUCTS

Corporate Profile

Dow is a leading science and technology company that provides innovative chemical, plastic and agricultural products and services to many essential consumer markets. In 2004, Dow had annual sales of approximately $40 billion and employed approximately 43,000 people. The Company serves customers in 175 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. The Company has 165 manufacturing sites in 37 countries and supplies more than 3,300 products grouped within the operating segments listed on the following pages.

PERFORMANCE PLASTICS

Applications: automotive interiors, exteriors, under-the-hood and body engineered systems • building and construction, thermal and acoustic insulation, roofing • communications technology, telecommunication cables, electrical and electronic connectors • footwear • home and office furnishings: kitchen appliances, power tools, floor care products, mattresses, carpeting, flooring, furniture padding, office furniture • information technology equipment and consumer electronics • packaging, food and beverage containers, protective packaging • sports and recreation equipment • wire and cable insulation and jacketing materials for power utility and telecommunications

Building and Construction business manufactures and markets an extensive line of insulation and cushion packaging foam solutions. The business has been the recognized leader in extruded polystyrene insulation marketed with the STYROFOAM brand for more than 50 years and offers an extensive line of science-based insulation solutions. The business also manufactures foam solutions for a wide range of applications including cushion packaging, electronics protection and material handling.

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Products: ENVISION custom foam laminates; ETHAFOAM polyethylene foam; EQUIFOAM comfort products; IMMOTUS acoustic panels; LAMDEX polyolefin foam; PROPEL polypropylene foam; QUASH sound management foam; SARAN vapor retarder film and tape; STYROFOAM brand products (including extruded polystyrene, STYROFOAM WEATHERMATE PLUS housewraps and all-purpose tape); SYNERGY soft touch foam; TRYMER polyisocyanurate foam

Dow Automotive business provides manufacturers of passenger cars, light trucks and commercial vehicles with solutions that perform for interior, exterior, and under-the-hood applications. The business also provides research and development, design expertise and advanced engineering support to help meet or exceed performance targets in all vehicle segments.

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Products: AFFINITY polyolefin plastomers; AMPLIFY functional polymers; BETABRACE reinforcing composites; BETADAMP acoustical damping systems; BETAFOAM NVH and structural foams; BETAGUARD sealants; BETAMATE structural adhesives; BETASEAL glass bonding systems; CALIBRE polycarbonate resins; Cyclic butylene terephthalate resins; DOW polypropylene resins and automotive components made with DOW polypropylene; Injection-molded dashmats and underhood barriers; INSPIRE performance polymers; INTEGRAL adhesive film; ISONATE pure and modified methylene diphenyl diisocyanate (MDI) products;

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ISOPLAST engineering thermoplastic polyurethane resins; MAGNUM ABS resins; PAPI polymeric MDI; PELLETHANE thermoplastic polyurethane elastomers; PULSE engineering resins; SPECFLEX semi-flexible polyurethane foam systems; SPECTRIM reaction moldable polymers; STRANDFOAM polypropylene foam; VERSIFY plastomers and elastomers; VORANATE specialty isocyanates; VORANOL polyether polyols

Engineering Plastics business offers one of the broadest ranges of engineering polymers and compounds of any global plastics supplier. The business complements its product portfolio with technical and commercial capabilities to develop solutions that deliver improved performance to customers while lowering their total cost.

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Products: CALIBRE polycarbonate resins; EMERGE advanced resins; ISOPLAST engineering thermoplastic polyurethane resins; MAGNUM ABS resins; PELLETHANE thermoplastic polyurethane elastomers; PULSE engineering resins; TYRIL SAN resins

Epoxy Products and Intermediates business manufactures a wide range of epoxy products, as well as intermediates used by other major epoxy producers. Dow is a leading global producer of epoxy products, supporting customers with high-quality raw materials, technical service and production capabilities.

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Products: Acetone; Acrylic monomers; Allyl chloride; Bisphenol A; D.E.H. epoxy catalyst resins; D.E.N. epoxy novolac resins; D.E.R. epoxy resins (liquids, solids and solutions); Epichlorohydrin; Epoxy acrylates; OPTIM glycerine; Phenol; UV specialty epoxies

Polyurethanes and Thermoset Systems business is a leading global producer of polyurethane raw materials and thermoset systems. Differentiated by its ability to globally supply a high-quality, consistent and complete product range, this business emphasizes both existing and new business developments while facilitating customer success with a global market and technology network.

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Products: THE ENHANCER and LIFESPAN carpet backings; FROTH-PAK polyurethane spray foam; GREAT STUFF polyurethane foam sealant; INSTA-STIK roof insulation adhesive; ISONATE MDI; PAPI polymeric MDI; Propylene glycol; Propylene oxide; SPECFLEX copolymer polyols; SYNTEGRA waterborne polyurethane dispersions; TILE BOND roof tile adhesive; VORACOR, VORALAST, VORALUX and VORASTAR polyurethane systems; VORANATE isocyanate; VORANOL and VORANOL VORACTIV polyether and copolymer polyols; WOODSTALK fiberboard products

Technology Licensing and Catalyst business includes licensing and supply of related catalysts for the UNIPOL polypropylene process, the METEOR process for ethylene oxide (EO) and ethylene glycol (EG), the LP OXO process for oxo alcohols, and the QBIS bisphenol A process. Licensing of the UNIPOL polyethylene process and related catalysts, including metallocene catalysts, are handled through Univation Technologies, LLC, a 50:50 joint venture co-owned by Union Carbide. The business also includes UOP LLC, a 50:50 joint venture co-owned by Union Carbide, which supplies process technology, catalysts, molecular sieves and adsorbents to the petroleum refining, petrochemical and gas processing industries.

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Products: LP OXO process technology; METEOR EO/EG process technology and catalysts; QBIS bisphenol A process technology and DOWEX QCAT catalyst; SHAC catalysts; UNIPOL process technology

Wire and Cable Compounds business is the leading global producer of a variety of performance polyolefin products that are marketed worldwide for wire and cable applications. Chief among these are polyolefin-based compounds for high-performance insulation, semiconductives and jacketing systems for power distribution, telecommunications and flame-retardant wire and cable.

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Products: REDI-LINK polyethylene; SI-LINK crosslinkable polyethylene; UNIGARD high-performance flame-retardant compounds; UNIGARD reduced emissions flame-retardant compounds; UNIPURGE purging compounds; Wire and cable insulation and jacketing compounds; ZETABON coated metal cable armor

The Performance Plastics segment also includes the INCLOSIA Solutions business focused on consumer electronics. Also part of the Performance Plastics segment is an extensive line of specialty plastic resins and films for food and specialty packaging applications, window envelope films, medical films and metal lamination films, such as SARAN films, SARANEX films, PROCITE polystyrene films and TRENCHCOAT polyolefin films.

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PERFORMANCE CHEMICALS

Applications: agricultural and pharmaceutical products and processing • building materials • chemical processing and intermediates • food processing and ingredients • household products • paints, coatings, inks, adhesives, lubricants • personal care products • pulp and paper manufacturing, coated paper and paperboard • textiles and carpet • water purification

Acrylics and Oxide Derivatives business is the world's largest supplier of glycol ethers and amines, and a leading supplier of acrylics, producing an array of products serving a diverse set of market applications, including coatings, household and personal care products, gas treating and agricultural products.

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Products: Acrylic acid/Acrylic esters; Alkyl alkanolamines; DRYTECH superabsorbent polymers; Ethanolamines; Ethylene oxide- and propylene oxide-based glycol ethers; Ethyleneamines; Isopropanolamines

Dow Latex business is the world's largest supplier of synthetic latex. Within Dow Latex, Emulsion Polymers is the most globally diverse of the styrene-butadiene latex suppliers, and the largest supplier of latex for coating paper and paperboard used in magazines, catalogues and food packaging. UCAR Emulsion Systems is a leading global supplier of water-based emulsions used as key components in decorative and industrial paints, adhesives, textile products, and construction products such as caulks and sealants.

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Products: Acrylic latex; Butadiene-vinylidene latex; NEOCAR branched vinyl ester latexes; POLYPHOBE rheology modifiers; Polystyrene latex; Styrene-acrylate latex; Styrene-butadiene latex; UCAR all-acrylic, styrene-acrylic and vinyl-acrylic latexes

Specialty Chemicals business provides products used as functional ingredients or processing aids in the manufacture of a diverse range of products. Applications include agricultural and pharmaceutical products and processing, building and construction, chemical processing and intermediates, food processing and ingredients, household products, coatings, pulp and paper manufacturing, and transportation. Dow Haltermann Custom Processing provides contract and custom manufacturing services to other specialty chemical and agricultural chemical producers.

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Products: CARBOWAX polyethylene glycols and methoxypolyethylene glycols; Diphenyloxide; DOW polypropylene glycols; DOWFAX, TERGITOL and TRITON surfactants; DOWTHERM, SYLTHERM and UCARTHERM heat transfer fluids; UCAR deicing fluids; UCON fluids; VERSENE chelating agents; Fine and specialty chemicals from the Dow Haltermann Custom Processing business; Test and reference fuels, printing ink distillates, pure hydrocarbons and esters, and derivatives from Haltermann Products, a wholly owned subsidiary of Dow

Specialty Polymers business provides a diverse portfolio of multi-functional ingredients and polymers for numerous markets and applications. Within Specialty Polymers, Liquid Separations uses several technologies to separate dissolved minerals and organics from water, making purer water for human and industrial uses. Specialty Polymers businesses also market a range of products that enhance the physical and sensory properties of end-use products in a wide range of applications including food, pharmaceuticals, oilfields, paints and coatings, personal care, and building and construction.

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Products: Acrolein derivatives; Basic nitroparaffins and nitroparaffin-based specialty chemicals of ANGUS Chemical Company, a wholly owned subsidiary of Dow; Biocides; CELLOSIZE hydroxyethyl cellulose; DOWEX ion exchange resins; ETHOCEL ethylcellulose resins; FILMTEC membranes; METHOCEL cellulose ethers; POLYOX water- soluble resins; Products for hair/skin care from Amerchol Corporation, a wholly owned subsidiary of Dow

The Performance Chemicals segment also includes peroxymeric chemicals, solution vinyl resins and other specialty chemicals, as well as the results of Dowpharma, which provides the pharmaceutical and biopharmaceutical industries with products and services for drug discovery, development, manufacturing and delivery.

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AGRICULTURAL SCIENCES

Applications: control of weeds, insects and plant diseases for agriculture and pest management • agricultural seeds and traits (genes)

Dow AgroSciences is a global leader in providing pest management, agricultural and crop biotechnology products and solutions. The business develops, manufactures and markets products for crop production; weed, insect and plant disease management; and industrial and commercial pest management. Dow AgroSciences is building a leading plant genetics and biotechnology business in agricultural seeds, traits, animal health and food safety.

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Products: CLINCHER herbicide; DITHANE fungicide; LORSBAN insecticides; FORTRESS fungicide; FULTIME herbicide; GALLANT herbicide; GARLON herbicide; GLYPHOMAX herbicide; GRANDSTAND herbicide; HERCULEX I insect protection; KEYSTONE herbicide; LONTREL herbicide; MUSTANG herbicide; MYCOGEN seeds; NATREON canola oil; PHYTOGEN brand cottonseeds; PROFUME gas fumigant; SENTRICON Termite Colony Elimination System; STARANE herbicide; STINGER herbicide; TELONE soil fumigant; TORDON herbicide; TRACER NATURALYTE insect control; VIKANE structural fumigant

PLASTICS

Applications: adhesives • appliances and appliance housings • agricultural films • automotive parts and trim • beverage bottles • bins, crates, pails and pallets • building and construction • coatings • consumer and durable goods • consumer electronics • disposable diaper liners • fibers and nonwovens • films, bags and packaging for food and consumer products • hoses and tubing • household and industrial bottles • housewares • hygiene and medical films • industrial and consumer films and foams • information technology • oil tanks and road equipment • plastic pipe • textiles • toys, playground equipment and recreational products • wire and cable compounds

Polyethylene business is the world's leading supplier of polyethylene-based solutions through sustainable product differentiation. Through the use of multiple catalyst and process technologies, the business offers customers one of the industry's broadest ranges of polyethylene solutions via a strong global network of local experts focused on partnering for long-term success.

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Products: AFFINITY polyolefin plastomers; AMPLIFY functional polymers; ASPUN fiber grade resins; ATTANE ultra low density polyethylene (ULDPE) resins; CONTINUUM bimodal polyethylene resins; DOW high density polyethylene (HDPE) resins; DOW low density polyethylene (LDPE) resins; DOWLEX polyethylene resins; ELITE enhanced polyethylene (EPE) resins; FLEXOMER very low density polyethylene (VLDPE) resins; PRIMACOR copolymers; TUFLIN linear low density polyethylene (LLDPE) resins; UNIVAL HDPE resins

Polypropylene business, a major global polypropylene supplier, provides a broad range of products and solutions tailored to customer needs by leveraging Dow's leading manufacturing and application technology, research and product development expertise, extensive market knowledge and strong customer relationships.

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Products: Homopolymer polypropylene resins; Impact copolymer polypropylene resins; INSPIRE performance polymers; Random copolymer polypropylene resins

Polystyrene business, the global leader in the production of polystyrene resins, is uniquely positioned with geographic breadth and participation in a diversified portfolio of applications. Through market and technical leadership and low cost capability, the business continues to improve product performance and meet customer needs.

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Products: STYRON A-TECH advanced technology polystyrene resins; STYRON general purpose polystyrene resins; STYRON high-impact polystyrene resins; STYRON ignition-resistant polystyrene resins

The Plastics segment also includes polybutadiene rubber, styrene-butadiene rubber, several specialty resins, such as VERSIFY plastomers and elastomers and DOW XLA elastic fiber for the textile industry, and the results of DuPont Dow Elastomers L.L.C. and Equipolymers, 50:50 joint ventures.

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CHEMICALS

Applications: agricultural products • alumina • automotive antifreeze and coolant systems • carpet and textiles • chemical processing • dry cleaning • dust control • household cleaners and plastic products • inks • metal cleaning • packaging, food and beverage containers, protective packaging • paints, coatings and adhesives • personal care products • petroleum refining • pharmaceuticals • plastic pipe • pulp and paper manufacturing • snow and ice control • soaps and detergents • water treatment

Core Chemicals business is a leading global producer of each of its basic chemical products, which are sold to many industries worldwide, and also serve as key raw materials in the production of a variety of Dow's performance and plastics products.

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Products: Acids; Alcohols; Aldehydes; Caustic soda; Chlorine; Chloroform; COMBOTHERM blended deicer; DOWFLAKE calcium chloride; DOWPER dry cleaning solvent; Esters; Ethylene dichloride (EDC); LIQUIDOW liquid calcium chloride; MAXICHECK procedure for testing the strength of reagents; MAXISTAB stabilizers for chlorinated solvents; Methyl chloride; Methylene chloride; Monochloroacetic acid (MCAA); Oxo products; PELADOW calcium chloride pellets; Perchloroethylene; SAFE-TAINER closed-loop delivery system; Trichloroethylene; Vinyl acetate monomer (VAM); Vinyl chloride monomer (VCM); Vinylidene chloride (VDC)

Ethylene Oxide/Ethylene Glycol business is a key supplier of ethylene glycol to MEGlobal, a 50:50 joint venture of the Company and a world leader in the manufacture and marketing of merchant monoethylene glycol and diethylene glycol. Dow also supplies ethylene oxide to internal derivatives businesses. Ethylene glycol is used in polyester fiber, polyethylene terephthalate (PET) for food and beverage container applications, polyester film and antifreeze.

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Products: Ethylene glycol (EG); Ethylene oxide (EO)

The Chemicals segment includes the results of MEGlobal.

HYDROCARBONS AND ENERGY

Applications: polymer and chemical production • power

Hydrocarbons and Energy business encompasses the procurement of fuels, natural gas liquids and crude oil-based raw materials, as well as the supply of monomers, power and steam for use in Dow's global operations. Dow is the world leader in the production of olefins and styrene.

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Products: Benzene; Butadiene; Butylene; Cumene; Ethylene; Propylene; Styrene; Power, steam and other utilities

Unallocated and Other includes the results of Dow Ventures (which includes Advanced Electronic Materials and new business incubation platforms which are focused on identifying and pursuing new commercial opportunities); Venture Capital; the Company's insurance operations and environmental operations; as well as Cargill Dow LLC and Dow Corning Corporation, both of which are 50:50 joint ventures.

Industry Segments and Geographic Area Results

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

Number of Products

Dow manufactures and supplies more than 3,300 products and services. No single product accounted for more than 5 percent of the Company's consolidated net sales in 2004.

Competition

The Company experiences substantial competition in each of its industry segments. During 2004, the Company was the largest U.S. producer of chemicals and plastics, in terms of sales. The chemical industry has been historically competitive, and this competitive environment 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.

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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, 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 43 percent of the Company's production costs and operating expenses for the year ended December 31, 2004. The Company purchases these raw materials on both short- and long-term contracts.

       Other significant raw materials include acrylonitrile, aniline, bisphenol, co-monomers (for linear low density polyethylene), methanol, rubber, and toluene diamine. The Company purchases these raw materials on both short- and long-term contracts.

       The Company had adequate supplies of raw materials during 2004 and expects to continue to have adequate supplies of raw materials in 2005.

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.

       Twenty-one percent of the sales of the Chemicals segment in 2004 were to one customer. The Company has a supply contract with this customer on an ongoing basis. In addition, sales to MEGlobal, a 50:50 joint venture with Petrochemical Industries Company of Kuwait, represented approximately 12 percent of the sales in the Chemicals segment. Excess ethylene glycol produced in Dow's plants in the United States and Europe is sold to MEGlobal. See Note C to the Consolidated Financial Statements for further discussion on the formation of MEGlobal in the second quarter of 2004. Other than the sales to these customers, 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 $1,022 million in 2004, compared with $981 million in 2003 and $1,066 million in 2002. At December 31, 2004, the Company employed approximately 5,800 people in various research and development activities.

Patents, Licenses and Trademarks

The Company continually applies for and obtains U.S. and foreign patents. At December 31, 2004, the Company owned 2,933 active U.S. patents and 9,466 active foreign patents as follows:

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       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 $246 million in 2004, $185 million in 2003 and $129 million in 2002, and incurred royalties to others of $42 million in 2004, $33 million in 2003 and $34 million in 2002. 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

Dow's principal nonconsolidated affiliates at December 31, 2004, including direct or indirect ownership interest for each, are listed below:

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Dow Corning Corporation – 50 percent – a U.S. company that manufactures silicone and silicone products.
See Item 3. Legal Proceedings and Note K to the Consolidated Financial Statements.

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DuPont Dow Elastomers L.L.C. – 50 percent – a U.S. company that manufactures and markets thermoset
and thermoplastic elastomer products. See Note K to the Consolidated Financial Statements.

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EQUATE Petrochemical Company K.S.C. – 45 percent – a Kuwait-based company that manufactures
ethylene, polyethylene and ethylene glycol.

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Equipolymers – 50 percent – a company, headquartered in Zurich, Switzerland, that manufactures purified terephthalic acid, and manufactures and markets polyethylene terephthalate resins. See Note C to the
Consolidated Financial Statements.

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MEGlobal – 50 percent – a company, headquartered in London, England, that manufactures and markets monoethylene glycol and diethylene glycol. See Note C to the Consolidated Financial Statements.

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The OPTIMAL Group [consisting of OPTIMAL Olefins (Malaysia) Sdn Bhd – 23.75 percent;
OPTIMAL Glycols (Malaysia) Sdn Bhd – 50 percent; OPTIMAL Chemicals (Malaysia) Sdn Bhd –
50 percent] – Malaysian companies operating an ethane/propane cracker, an ethylene glycol facility
and a production facility for ethylene and propylene derivatives within a world-scale, integrated
chemical complex located in Kerteh, Terengganu, Malaysia. Manufacturing began in 2002.

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The Siam Group – 49 percent [consisting of Pacific Plastics (Thailand) Limited; Siam Polyethylene
Company Limited; Siam Polystyrene Company Limited; Siam Styrene Monomer Co., Ltd.; Siam
Synthetic Latex Company Limited] – Thailand-based companies that manufacture polyurethanes,
polyethylene, polystyrene, styrene, and latex.

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UOP LLC – 50 percent – a U.S. company that supplies process technology, catalysts, molecular sieves and adsorbents to the petroleum refining, petrochemical and gas-processing industries worldwide.

       See Note G to the Consolidated Financial Statements for additional information on the Company's principal nonconsolidated affiliates.

Financial Information About Foreign and Domestic Operations and Export Sales

In 2004, the Company derived 63 percent of its sales and had 48 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 in Note U to the Consolidated Financial Statements, and discussions of the Company's risk management program for foreign exchange and interest rate risk management appear in Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Note I to the Consolidated Financial Statements.

Protection of the Environment

Matters pertaining to the environment are discussed in Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation, and Notes A and K to the Consolidated Financial Statements.

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Employees

Personnel count was 43,203 at December 31, 2004; 46,372 at December 31, 2003; and 49,959 at December 31, 2002. In 2004, headcount continued to decline as the Company remained focused on improving organizational efficiency and financial performance. The decline in headcount in 2003 was the direct result of the Company's Action Plan initiated in early 2003 and attrition.

Other Activities

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

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The Dow Chemical Company and Subsidiaries
PART I, Item 2. Properties.

PROPERTIES

The Company operates 165 manufacturing sites in 37 countries. Properties of Dow include facilities which, in the opinion of management, are suitable and adequate for the manufacture and distribution of Dow's products. During 2004, the Company's chemicals and plastics production facilities and plants operated at approximately 88 percent of capacity. The Company's major production sites are as follows:

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

       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. Dow leases an ethylene plant in Fort Saskatchewan, Alberta, Canada; an ethylene plant and a polyethylene plant in Terneuzen, The Netherlands; and a pipeline in Germany.

       A summary of properties, classified by type, is provided in Note E to the Consolidated Financial Statements. Additional information regarding leased properties can be found in Note N to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries
PART I, Item 3. Legal Proceedings.

LEGAL PROCEEDINGS

Breast Implant Matters

On May 15, 1995, Dow Corning Corporation ("Dow Corning"), in which the Company is a 50 percent shareholder, voluntarily filed for protection under Chapter 11 of the Bankruptcy Code to resolve litigation related to Dow Corning's breast implant and other silicone medical products. On June 1, 2004, Dow Corning's Joint Plan of Reorganization (the "Joint Plan") became effective and Dow Corning emerged from bankruptcy. The Joint Plan contains release and injunction provisions resolving all tort claims brought against various entities, including the Company, involving Dow Corning's breast implant and other silicone medical products.

       To the extent not previously resolved in state court actions, cases involving Dow Corning's breast implant and other silicone medical products filed against the Company are currently pending in the U.S. District Court for the Eastern District of Michigan as a result of being transferred to that court for resolution in the context of the Joint Plan. Should cases involving Dow Corning's breast implant and other silicone medical products be filed against the Company in the future, they will be accorded similar treatment. It is the opinion of the Company's management that the possibility is remote that a resolution of all such cases will have a material adverse impact on the Company's consolidated financial statements.

Environmental Matters

On July 8, 2003, the Michigan Department of Environmental Quality ("MDEQ") issued a Letter of Violation alleging that Dow AgroSciences LLC, an indirect wholly owned subsidiary of the Company, had violated certain provisions of its Renewable Operating Air Permit at its Harbor Beach, Michigan, facility. Although the Letter of Violation did not include a penalty for the alleged violations, it is possible that the MDEQ will assess a civil penalty in excess of $100,000 at a later date.

Asbestos-Related Matters of Union Carbide Corporation

Introduction

Union Carbide Corporation ("Union Carbide"), a wholly owned subsidiary of the Company, is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing products located on Union Carbide's premises, and Union Carbide's responsibility for asbestos suits filed against a former Union Carbide subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to Union Carbide's products.

       Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including Union Carbide and Amchem, increased in 2001, 2002 and the first half of 2003. In the second half of 2003 and throughout 2004, the rate of filing significantly abated. Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

       The table below provides information regarding asbestos-related claims filed against Union Carbide and Amchem:

       A review of a representative sample of cases outstanding at December 31, 2004 showed that in more than 98 percent of the cases filed against Union Carbide and Amchem, no specific amount of damages is alleged or, if an amount is alleged, it merely represents jurisdictional amounts or amounts to be proven at trial. This percentage increased with the more recently filed cases included in the review. Even in those situations where specific damages are alleged, the claims frequently seek

12

the same amount of damages, irrespective of the disease or injury. Plaintiffs' lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, even when specific damages are alleged with respect to a specific disease or injury, those damages are not expressly identified as to Union Carbide, Amchem or any other particular defendant. In fact, there are no personal injury cases in which only Union Carbide and/or Amchem are the sole named defendants. For these reasons and based upon Union Carbide's litigation and settlement experience, Union Carbide does not consider the damages alleged against Union Carbide and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

Estimating the Liability

Through the third quarter of 2002, Union Carbide had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against Union Carbide and Amchem in the future due to a number of reasons. During the third and fourth quarters of 2002, Union Carbide worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against Union Carbide and Amchem. ARPC concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against Union Carbide and Amchem because of various uncertainties associated with the litigation of those claims. Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised Union Carbide that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face Union Carbide and Amchem if certain assumptions were made. As a result, the following assumptions were made and then used by ARPC:

•

In the near term, the number of future claims to be filed against Union Carbide and Amchem will be at
a level consistent with levels experienced immediately prior to 2001.

•

The number of future claims to be filed against Union Carbide and Amchem will decline at a fairly
constant rate each year from 2003.

•

The average resolution value for pending and future claims will be equivalent to those experienced
during 2001 and 2002.

       Based on the resulting study completed by ARPC in January 2003, Union Carbide increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Approximately 28 percent of the recorded liability related to pending claims and approximately 72 percent related to future claims.

       At each balance sheet date, Union Carbide compares current asbestos claim and resolution activity to the assumptions in the ARPC study to determine whether the accrual continues to be appropriate.

       In November 2003, Union Carbide requested ARPC to review Union Carbide's asbestos claim and resolution activity during 2003 and determine the appropriateness of updating the study. In response to that request, ARPC reviewed and analyzed data through November 25, 2003 to determine the number of asbestos-related filings and costs associated with 2003 activity. In January 2004, ARPC stated that an update at that time would not provide a more likely estimate of future events than that reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on Union Carbide's own review of the asbestos claim and resolution activity and ARPC's response, Union Carbide determined that no change to the accrual was required at December 31, 2003.

       In November 2004, Union Carbide again requested ARPC to review Union Carbide's historical asbestos claim and resolution activity and determine the appropriateness of updating the January 2003 study. In response to this request, ARPC reviewed and analyzed data through November 14, 2004, and again concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against Union Carbide and Amchem because of various uncertainties associated with the litigation of those claims. ARPC did advise Union Carbide, however, that it was reasonable and feasible to construct a new estimate of the cost to Union Carbide of resolving current and future asbestos-related claims using the same two widely used forecasting methodologies used by ARPC in its January 2003 study, if certain assumptions were made. As a result, the following assumptions were made and then used by ARPC:

•

The number of future claims to be filed annually against Union Carbide and Amchem is unlikely to
exceed the level of claims experienced during 2004.

•

The number of claims filed against Union Carbide and Amchem annually from 2001 to 2003 is
considered anomalous for the purpose of estimating future filings.

13

•

The number of future claims to be filed against Union Carbide and Amchem will decline at a fairly
constant rate each year from 2005.

•

The average resolution value for pending and future claims will be equivalent to those experienced
during 2003 and 2004 (excluding settlements from closed claims filed in Madison County, Illinois
with respect to future claims, as those settlements are not considered to be relevant for predicting
the cost of resolving future claims).

       The resulting study completed by ARPC in January 2005 stated that the undiscounted cost to Union Carbide of resolving pending and future asbestos-related claims against Union Carbide and Amchem, excluding future defense and processing costs, through 2017 was estimated to be between approximately $1.5 billion and $2.0 billion, depending on which of the two accepted methodologies was used. At December 31, 2004, Union Carbide's recorded asbestos-related liability for pending and future claims was $1.6 billion. Based on the low end of the range in the January 2005 study, Union Carbide's recorded asbestos-related liability for pending and future claims at December 31, 2004 would be sufficient to resolve asbestos-related claims against Union Carbide and Amchem into 2019. As in its January 2003 study, ARPC did provide estimates for a longer period of time in its January 2005 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

       Union Carbide's asbestos-related liability for pending and future claims was $1.6 billion at December 31, 2004 and $1.9 billion at December 31, 2003. At December 31, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims. At December 31, 2003, approximately 33 percent of the recorded liability related to pending claims and approximately 67 percent related to future claims.

       Based on ARPC's January 2003 and January 2005 studies, Union Carbide's recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, Union Carbide's management determined that no change to the accrual was required at December 31, 2004.

Defense and Resolution Costs

The following table provides information regarding defense and resolution costs related to asbestos-related claims filed against Union Carbide and Amchem:

       The annual average resolution payment per asbestos claimant and the rate of new claim filings has fluctuated both up and down since the beginning of 2001. Union Carbide's management expects such fluctuations to continue in the future based upon the number and type of claims settled in a particular period, the jurisdictions in which such claims arose, and the extent to which any proposed legislative reform related to asbestos litigation is being considered. The average cost of resolving claims increased during 2004 due to the resolution of a large percentage of claims alleging mesothelioma as an illness and the resolution of a large percentage of claims from difficult jurisdictions. Additionally, Union Carbide found it advantageous to resolve a relatively large number of cases in 2004 that would normally not have been resolved until 2005, based on past practice.

Insurance Receivables

At December 31, 2002, Union Carbide increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. Combined with the previously mentioned increase in the asbestos-related liability at December 31, 2002, this resulted in a net charge to Union Carbide's income statement of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002.

       The insurance receivable related to the asbestos liability was determined by Union Carbide after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which Union Carbide and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers.

14

       Union Carbide's receivable for insurance recoveries related to its asbestos liability was $712 million at December 31, 2004 and $1.0 billion at December 31, 2003. At December 31, 2004, $464 million of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

       In addition, Union Carbide had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

       Union Carbide's insurance policies generally provide coverage for asbestos liability costs, including coverage for both resolution and defense costs. As previously noted, Union Carbide increased its receivable for insurance recoveries related to its asbestos liability at December 31, 2002, thereby recording the full favorable income statement impact of its insurance coverage in 2002. Accordingly, defense and resolution costs recovered from insurers reduce Union Carbide's insurance receivable. Prior to increasing the insurance receivable related to the asbestos liability at December 31, 2002, the impact on Union Carbide's results of operations for defense costs was the amount of those costs not covered by insurance. Since Union Carbide expenses defense costs as incurred, defense costs for asbestos-related litigation (net of insurance) have impacted, and will continue to impact, results of operations. The pretax impact for defense and resolution costs, net of insurance, was $82 million in 2004, $94 million in 2003, and $9 million in 2002, and was reflected in "Cost of sales."

       In September 2003, Union Carbide filed a comprehensive insurance coverage case in the Circuit Court for Kanawha County in Charleston, West Virginia, seeking to confirm its rights to insurance for various asbestos claims (the "West Virginia action"). Although Union Carbide already has settlements in place concerning coverage for asbestos claims with many of its insurers, including those covered by the 1985 Wellington Agreement, this lawsuit was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with Union Carbide regarding their asbestos-related insurance coverage. Union Carbide continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is collectible. Union Carbide reached this conclusion after a further review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis of forum non conveniens (i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts.

Summary

The amounts recorded by Union Carbide for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, projecting future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for Union Carbide to be higher or lower than those projected or those recorded.

       Because of the uncertainties described above, Union Carbide's management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing Union Carbide and Amchem. Union Carbide's management believes that it is reasonably possible that the cost of disposing of Union Carbide's asbestos-related claims, including future defense costs, could have a material adverse impact on Union Carbide's results of operations and cash flows for a particular period and on the consolidated financial position of Union Carbide.

       It is the opinion of Dow's management that it is reasonably possible that the cost of Union Carbide disposing of its asbestos-related claims, including future defense costs, could have a material adverse impact on the Company's results of operations and cash flows for a particular period and on the consolidated financial position of the Company.

15

The Dow Chemical Company and Subsidiaries
PART I, Item 4. Submission of Matters to a Vote of Security Holders.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter of 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information related to the Company's executive officers as of February 18, 2005.

ARNOLD A. ALLEMANG, 62. DOW SENIOR ADVISOR. DIRECTOR SINCE 1996. Employee of Dow since 1965. 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 GmbH* 1993-95. Dow Vice President and Director of Manufacturing and Engineering 1996-97. Dow Vice President, Operations 1997-2000. Executive Vice President 2000 to 2004. Director of Dow Corning Corporation*. Member of the Advisory Board for Kansas State University, College of Engineering; President's Circle of Sam Houston State University; American Chemical Society; Board of Directors for the National Association of Manufacturers; and National Action Counsel for Minorities in Engineering.

FRANK H. BROD, 50. DOW VICE PRESIDENT AND CONTROLLER. Employee of Dow since 1975. Controller, Essex Chemical Corporation* 1988-91. Financial Controller and Information Systems Director for Dow Chemical Company Limited* 1991-93. Financial & Statutory Controller 1993-95. Controller, Dow Europe GmbH* and Finance Director for Dow's Global Fabricated Products Business 1995-98. Global Accounting Director 1998-2000. Vice President and Controller, The Dow Chemical Company 2000 to date. Director of Dow Credit Corporation*; Dow Financial Holdings, Inc.*; Diamond Capital Management, Inc.*; Dow Hydrocarbons and Resources Inc.*; Liana Limited*; and Dow Global Technologies, Inc.* Board member, UOP LLC*. Chairman of the Committee on Corporate Reporting of Financial Executives International and a member of FEI's Board of Directors. Member of American Institute of Certified Public Accountants, Michigan Association of CPAs and Texas Society of CPAs. Director of Wolverine Bank, FSB. Member of Financial Accounting Standards Board's Emerging Issues Task Force and its Agenda Committee.

PHILLIP H. COOK, 57. DOW SENIOR VICE PRESIDENT, PERFORMANCE CHEMICALS AND THERMOSETS. Employee of Dow since 1970. Commercial Vice President for Dow-United Technologies Composite Products, Inc. (a former 50:50 joint venture of the Company) 1989-93. Global Business Manager for Epoxy Products 1993-95. Vice President, Business Development for Greater China 1995-98. Vice President and Global Business Director for ethylene dichloride, vinyl chloride monomer, chlorine, caustic soda and HCL 1998-2000. Global Business Vice President for Epoxy Products & Intermediates 2000-03. Senior Vice President, Performance Chemicals and Thermosets, 2003 to date. Member of the Board of Managers of UOP LLC* and Univation Technologies, LLC*. Member of the Visiting Committee of the Department of Chemical Engineering and member of the College of Engineering Foundation Advisory Council of The University of Texas at Austin. Director and member of Executive Committee of the National Paint & Coatings Association. Member of the Board of Directors for the Midland Country Club.

MICHAEL R. GAMBRELL, 51. DOW SENIOR VICE PRESIDENT, CHEMICALS AND INTERMEDIATES. Employee of Dow since 1976. Business Director for the North America Chlor-Alkali Assets Business 1989-92. General Manager for the Plastic Lined Pipe Business 1992-94. Vice President of Operations for Latin America 1994-96. Corporate Director, Technology Centers and Global Process Engineering 1996-98. Global Business Director of the Chlor-Alkali Assets Business 1998-2000. Business Vice President for EDC/VCM & ECU Management 2000-03. Business Vice President for the Chlor-Vinyl Business 2003. Senior Vice President, Chemicals and Intermediates 2003 to date. Chairman of the Board of Directors of the Chlorine Chemistry Council and World Chlorine Council. Board member of MEGlobal*, the OPTIMAL Group* and Midland Chamber of Commerce. Recipient of the President's Distinguished Alumnus Award from Rose-Hulman Institute of Technology 1996.

16

CHARLES J. KALIL, 53. DOW CORPORATE VICE PRESIDENT AND GENERAL COUNSEL. Employee of Dow since 1980. General Counsel of Petrokemya (a former 50:50 joint venture of the Company) 1982-83. Regional Counsel to Middle East/Africa 1983-86. Senior Environmental Attorney 1986-87. Litigation Staff Counsel and Group Leader 1987-90. Senior Financial Law Counsel, Mergers and Acquisitions 1990-92. General Counsel and Area Director of Government and Public Affairs for Dow Latin America 1992-97. Special Counsel and Manager of INSITE legal issues 1997-2000. Assistant General Counsel for Corporate and Financial Law 2000-03. Associate General Counsel for Corporate Legal Affairs 2003-04. Dow Corporate Vice President and General Counsel November 2004 to date. U.S. Department of Justice – Assistant U.S. Attorney, Eastern District of Michigan 1977-80. Board member of Dorinco Reinsurance Company* and Liana Limited*. Member of Dow Private Equity Advisory Committee. Member of the American Bar Association, District of Columbia Bar and the State Bar of Michigan.

DAVID E. KEPLER, 52. CORPORATE VICE PRESIDENT, SHARED SERVICES, AND CHIEF INFORMATION OFFICER. Employee of Dow since 1975. Computer Services Manager of Dow U.S.A. Eastern Division 1984-88. Commercial Director of Dow Canada Performance Products 1989-91. Director of Pacific Area Information Systems 1991-93. Manager of Information Technology for Chemicals and Plastics 1993-94. Director of Global Information Systems Services 1994-95. Director of Global Information Application 1995-98. Vice President 1998-2000. Chief Information Officer 1998 to date. Corporate Vice President and responsible for eBusiness 2000 to date. Responsibility for Advanced Electronic Materials 2002-03. Responsibility for Shared Services – Customer Service, Information Systems, Purchasing, Six Sigma, Supply Chain, and Work Process Improvement – 2004 to date. Member of U.S. Chamber of Commerce Board of Directors, the American Chemical Society, and the American Institute of Chemical Engineers. Leads the Chemical Sector Cybersecurity Information Sharing Forum.

ROMEO KREINBERG, 54. DOW SENIOR VICE PRESIDENT, PLASTICS. Employee of Dow since 1977. Business Operations Manager for Latex and New Ventures in the Corporate Product Department 1987-89. Regional Commercial Director for Dow Iberica 1989-90. Regional Commercial Director for the new unified German geography 1990-91. Management Board for Dow Deutschland GmbH* 1991-92. General Manager for Dow Italy and Vice President of Dow Europe GmbH* 1992-94. Vice President for Polyethylene and PET/PTA, Dow Europe 1994-95. Global Vice President for Polyethylene and PET/PTA 1995-2000. Business Group President for Polyolefins and Elastomers 2000-2003. Senior Vice President, Plastics 2003 to date. Board member of Oman Petrochemical Industries Company LLC*; PBBPolisur S.A.*; Univation Technologies, LLC*; and United States Council for International Business. Corporate sponsor of Dow's Asian Diversity Network.

ANDREW N. LIVERIS, 50. DOW PRESIDENT AND CHIEF EXECUTIVE OFFICER. DIRECTOR SINCE 2004. Employee of Dow since 1976. General manager of Dow's Thailand operations 1989-92. Group business director for Emulsion Polymers and New Ventures 1992-93. General manager of Dow's start-up businesses in Environmental Services 1993-94. Vice President of Dow's start-up businesses in Environmental Services 1994-95. President of Dow Chemical Pacific Limited* 1995-98. Vice President of Specialty Chemicals 1998-2000. President of Performance Chemicals Business Group 2000-03. President and Chief Operating Officer November 2003 to November 2004. President and Chief Executive Officer November 2004 to date. Director of Dow Corning Corporation*. Member of the Board of Trustees of the Herbert H. and Grace A. Dow Foundation. Member of the Midland advisory board of Comerica Bank. Fellow of The Institute of Chemical Engineers.

RICHARD L. MANETTA, 60. DOW CORPORATE VICE PRESIDENT AND SPECIAL COUNSEL TO THE CEO. Employee of Dow since 2001. Corporate Vice President and General Counsel July 2001 to November 2004. Corporate Vice President and Special Counsel to the CEO November 2004 to date. Ford Motor Company – Assistant General Counsel for Automotive Safety and Product Litigation 1989-1994, Assistant General Counsel for Discovery 1994-1999, Associate General Counsel for Litigation 1999-2000, Deputy General Counsel & Director of Regulatory Compliance 2000-July 2001. Member of the American Bar Association and the Michigan State Bar. Lifetime member of The Fellows of the Michigan State Bar Foundation. Recipient of the National Bar Association's Presidential Award in 2000, the Wolverine Bar Association Award in 2001, and the State of Michigan's Access to Justice Award in 2003.

17

J. PEDRO REINHARD, 59. 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 GmbH* Finance Director 1981-85. 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 Members Committee, Dow AgroSciences LLC*. Director of Dow Corning Corporation*, Royal Bank of Canada, The Coca-Cola Company and Sigma-Aldrich Corporation. Advisory Board member of Swiss Re America Holding Corporation. Member of the Financial Executives International and The Conference Board's Council of Financial Executives.

LUCIANO RESPINI, 58, CORPORATE VICE PRESIDENT, GEOGRAPHY, MARKETING AND SALES, HUMAN RESOURCES, AND PUBLIC AFFAIRS. Corporate responsibility for Diversity and Inclusion. Employee of Dow since 1965. President of Dow Europe GmbH* 1998 to 2004. Member of the Board of Sulzer AG, CEFIC (European Chemical Industry Council) and member of the Editorial Board of ECN (European Chemical News).

FERNANDO RUIZ, 49. DOW VICE PRESIDENT AND TREASURER. Employee of Dow since 1980. Treasurer, Ecuador Region 1982-84. Treasurer, Mexico Region 1984-88. Financial Operations Manager, Corporate Treasury 1988-91. Assistant Treasurer, USA Area 1991-92. Senior Finance Manager, Corporate Treasury 1992-96. Assistant Treasurer, The Dow Chemical Company 1996-2001. Corporate Director of Insurance and Risk Management 2001. President and Chief Executive Officer, Liana Limited* and Dorinco Reinsurance Company* 2001 to date. Vice President and Treasurer, The Dow Chemical Company, 2001 to date. President of Dow Credit Corporation* 2001 to date. Director of Dow Financial Services Inc.* and EQUATE Petrochemical Company K.S.C.* Member of Financial Executives International, the Midland Economic Development Council, Citibank's Customer Advisory Board and Michigan State University (Eli Broad College of Business) Advisory Board.

GARY R. VEURINK, 54. CORPORATE VICE PRESIDENT, MANUFACTURING AND ENGINEERING. Employee of Dow since 1972. Global Manufacturing Director for Engineering Plastics 1995-98. Vice President, Global Purchasing, 1998-2000. Site Director for Michigan Operations and Business Operations Director for Performance Chemicals 2000-04. Business operations leader and Vice President of Manufacturing and Engineering for the Chemicals and Intermediates portfolio during 2004. Recipient of Outstanding Alumnus Award of the South Dakota School of Mines and Technology and member of the Academic Advisory Board. President and Executive Council member of the Lake Huron Area Council of the Boy Scouts of America. Member of Board of Trustees of the Michigan Chapter of the Nature Conservancy.

LAWRENCE J. WASHINGTON, JR., 59. DOW CORPORATE VICE PRESIDENT, SUSTAINABILITY, ENVIRONMENT, HEALTH & SAFETY. 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 2004. Vice President, Public Affairs 1997 to 2004. Director of Chemical Bank and Trust Company, Liana Limited* and Dorinco Reinsurance Company*. Trustee of The Keystone Center. 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 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 February 18, 2005.) The OPTIMAL Group – comprised of companies ultimately 23.75 to 50 percent owned by Dow. EQUATE Petrochemical Company K.S.C. – a company ultimately 45 percent owned by Dow. Dow Corning Corporation; MEGlobal; Oman Petrochemical Industries Company LLC; Univation Technologies, LLC; and UOP LLC – companies ultimately 50 percent owned by Dow. Diamond Capital Management, Inc.; Dorinco Reinsurance Company; Dow AgroSciences LLC; Dow Benelux N.V.; Dow Chemical Company Limited; Dow Chemical Pacific Limited; Dow Credit Corporation; Dow Deutschland GmbH; Dow Europe GmbH; Dow Financial Holdings, Inc.; Dow Financial Services Inc.; Dow Hydrocarbons and Resources Inc.; Dow Global Technologies, Inc.; Essex Chemical Corporation; Liana Limited; and PBBPolisur S.A. – all ultimately wholly owned subsidiaries of Dow. Ownership by Dow described above may be either direct or indirect.

18

The Dow Chemical Company and Subsidiaries
PART II, Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company's common stock is the New York Stock Exchange.

       Quarterly market and dividend information can be found at the end of Part II, Item 8. Financial Statements and Supplementary Data, following the Notes to the Consolidated Financial Statements.

       At December 31, 2004, there were 108,260 registered common stockholders. The Company estimates that there were an additional 396,000 stockholders whose shares were held in nominee names at December 31, 2004. At January 31, 2005, there were 108,620 registered common stockholders.

       On February 10, 2005, the Board of Directors announced a quarterly dividend of $0.335 per share, payable April 29, 2005, to stockholders of record on March 31, 2005. Since 1912, the Company has paid a cash dividend every quarter and, in each instance, Dow has maintained or increased the amount of the dividend, adjusted for stock splits. During that 92-year period, Dow has increased the amount of the quarterly dividend 45 times (approximately 12 percent of the time) and maintained the amount of the quarterly dividend approximately 88 percent of the time. The Company declared dividends of $1.34 per share in 2004, 2003 and 2002.

       See Part III, Item 11. Executive Compensation for information relating to the Company's equity compensation plans.

       On August 3, 1999, the Board of Directors terminated its 1997 authorization which allowed the Company to repurchase shares of Dow common stock. Since that time, the only shares purchased by the Company are those shares received from employees and non-employee directors to pay taxes owed as a result of the exercise of stock options or the delivery of stock grants. See Note O to the Consolidated Financial Statements for information regarding the Company's stock compensation plans.

19

The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data

(1)

Restated for the sale of the pharmaceutical businesses in 1995.



(2)

Adjusted for reclassification of freight on sales in 2000 and reclassification of insurance operations in 2002.



(3)

Adjusted for 3-for-1 stock split in 2000.



(4)

Included Temporary Equity in 1994-1999.



(5)

Stockholders of record as reported by the transfer agent. The Company estimates that there were an additional 396,000 stockholders whose shares were held in nominee names at December 31, 2004.

20

The Dow Chemical Company and Subsidiaries
PART II, Item 6. Selected Financial Data (Continued)

(1)

Restated for the sale of the pharmaceutical businesses in 1995.



(2)

Adjusted for reclassification of freight on sales in 2000 and reclassification of insurance operations in 2002.



(3)

Adjusted for 3-for-1 stock split in 2000.



(4)

Included Temporary Equity in 1994-1999.



(5)

Stockholders of record as reported by the transfer agent. The Company estimates that there were an additional 396,000 stockholders whose shares were held in nominee names at December 31, 2004.

21

The Dow Chemical Company and Subsidiaries
PART II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.

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 ("Dow" or 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. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

ABOUT DOW

Dow is a diversified, worldwide manufacturer of more than 3,300 basic and performance chemical, plastic, and agricultural products that serve numerous consumer markets, including food, transportation, health and medicine, personal and home care, and building and construction. Dow is the largest U.S. producer of chemicals and plastics, in terms of sales, with total sales of $40 billion in 2004. The Company conducts its worldwide operations through global businesses, which are reported in six operating segments: Performance Plastics, Performance Chemicals, Agricultural Sciences, Plastics, Chemicals, and Hydrocarbons and Energy.

       In 2004, the Company sold its products and services to customers in 175 countries throughout the world. Forty-two percent of the Company's sales were to customers in North America; 36 percent were in Europe; while the remaining 22 percent were to customers in Asia Pacific and Latin America. The Company employs approximately 43,000 people and has a broad, global reach with 165 manufacturing sites in 37 countries.

22

2004 OVERVIEW

Building on the Company's 2003 results, 2004 was a year of significant progress for Dow. Continued global economic growth drove higher demand for chemicals and plastics, tightening industry supply/demand balances and providing support for margin expansion (i.e., the increase in the spread between selling prices and feedstock costs). The benefits of better industry fundamentals were supplemented by the Company's actions to improve its earnings and financial strength, including:

•

Managing prices to restore margins, without sacrificing volume

•

Institutionalizing the reduction in structural costs achieved in 2003

•

Maintaining a disciplined approach to capital spending and working capital management

•

Shutting down underutilized or non-competitive facilities

•

Divesting non-strategic assets

       As a result of these actions, sales increased 23 percent to $40 billion, establishing a new sales record for the Company. Prices rose 17 percent, with substantial increases in all operating segments and all geographic areas. Volume grew 6 percent, reflecting a healthy demand for Dow products worldwide. Feedstock and energy costs remained high and volatile, increasing by over $3.4 billion, or 28 percent, compared with 2003. Despite this increase in costs, the improvement in Dow's product prices resulted in an expansion in margin of $2 billion, restoring a portion of previously lost margin. Because of improving industry conditions and Dow's drive to raise prices, over the past two years the Company has recovered roughly one-third of the $8.9 billion in margin lost between 1995 and 2002.

       The Company continued its focus on controlling expenses. Research and development, and selling, general and administrative expenses fell to 6.1 percent of sales, the lowest percentage in the Company's history. Total structural costs (such as labor, materials and supplies, purchased services and travel costs) were flat with 2003, after adjusting for the impact of currency. The Company reduced its workforce by more than 3,100 people, almost 7 percent. Over the past two years, the Company has reduced its workforce by 13.5 percent.

       Capital spending in 2004 was held to the target level of $1.3 billion, $571 million below the level of depreciation, without sacrificing the efficiency, safety and environmental performance of Dow's manufacturing facilities. As discussed in Environmental Matters, the Company's key environmental and safety measures continued to improve in 2004.

       While the substantial increase in sales resulted in a $1.9 billion increase in working capital, the Company maintained tight control of working capital ratios, reducing days-sales-outstanding-in-receivables from 42 days to 40 days, and holding days-sales-in-inventory at 57 days, slightly higher than the 56 days reached at the end of 2003. Inventories built in late 2004 will meet customer demand during planned maintenance activity and plant outages in early 2005.

       During 2004, the Company shut down 12 small, non-competitive facilities. In most instances, production was or will be shifted to more efficient facilities; in a few cases, the Company decided to exit a business because of inadequate financial returns.

       In February 2004, Dow acquired the acrylates business of Celanese AG. This acquisition positioned the Company's existing acrylics activities into a complete, integrated acrylics chain, establishing Dow as a major presence in higher value, less cyclical, downstream markets.

       Dow completed two major divestitures in June 2004, tied to the formation of strategic joint ventures with Petrochemical Industries Company ("PIC") of Kuwait. The Company sold a 50 percent interest in its Canadian ethylene glycol ("EG") assets as part of the formation of MEGlobal. This 50:50 joint venture manufactures and markets EG globally, and markets excess EG produced at Dow's plants in the United States and Europe, as well as EG from EQUATE Petrochemical Company K.S.C. ("EQUATE") and the OPTIMAL Group ("OPTIMAL"), two of the Company's existing joint ventures. The Company sold a 50 percent interest in its polyethylene terephthalate/purified terephthalic acid ("PET"/"PTA") business as part of the formation of Equipolymers, a 50:50 joint venture that manufactures and markets PET globally. The Company recorded a pretax gain of $563 million on the sale of the EG assets and PET/PTA business in the second quarter of 2004. These transactions, which resulted in cash proceeds of $845 million, allowed the Company to capture a portion of the future value of these businesses while retaining a share of the earnings potential of EG and PET. The formation of these joint ventures was designed to shift the future asset base for these products to a region with low-cost feedstocks and improve the Company's ability to serve its global customers, particularly those in the fast-growing Asian region. See Note C to the Consolidated Financial Statements for additional information.

       Separately, Dow divested its DERAKANE epoxy vinyl ester resin business to Ashland Specialty Chemical in December 2004, recording a pretax gain of $90 million in the fourth quarter. Because of changes in the competitive environment, continued successful participation in this business would have required investment in areas outside of Dow's core capabilities.

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       As a result of these actions and improved industry conditions, Dow substantially increased earnings and reduced net debt in 2004.

•

Diluted earnings per common share were $2.93 in 2004 (including the net favorable impact of restructuring activities, the gain on the sale of the DERAKANE business, and tax valuation adjustments, which totaled $0.22 per share) compared with $1.87 in 2003 (which included tax valuation adjustments equivalent to $0.49 per share).

•

Total debt was reduced $515 million. The ratio of debt to total capitalization was 47.9 percent at the end of 2004, down from 55.4 percent at the end of 2003.

       For 2005, the Company expects that continued global economic growth will further improve chemical industry demand, thereby tightening industry supply/demand balances. However, the high and volatile feedstock and energy costs that have characterized this industry for the past two years are expected to continue, which is why Dow will continue to focus on financial discipline, lowering the total cost to serve customers and price/volume management in order to further improve financial performance in 2005.

RESULTS OF OPERATION

Dow's sales rose to a new record high of $40.2 billion in 2004, up 23 percent compared with sales of $32.6 billion in 2003. Sales were $27.6 billion in 2002. Compared with last year, prices improved 17 percent and volume grew 6 percent. For 2004, prices were up in all operating segments and all geographic areas due to improved industry fundamentals, the continuing increase in feedstock and energy costs, and the favorable impact of currency in Europe, which accounted for approximately 4 percent of the increase in sales. The increase in volume in 2004 reflected an improvement in economic conditions, with volume growth in all operating segments, except Hydrocarbons and Energy, and in all geographic areas. In 2003, sales grew 18 percent, as prices rose 14 percent and volume grew 4 percent, compared with 2002. The increase in prices, which was driven by increasing feedstock and energy costs and the favorable impact of currency in Europe (which accounted for approximately 6 percent of the increase in sales), was broad-based as prices improved across all businesses and in all geographic areas. The increase in volume in 2003 reflected an improvement in economic conditions. See Sales Price and Volume table on page 36 for details regarding the change in sales.

       Sales in the United States accounted for 37 percent of total sales in 2004, compared with 39 percent in 2003 and 41 percent in 2002. Sales and other information by operating segment and geographic area are provided in Note U to the Consolidated Financial Statements. See Segment Results for a narrative discussion of results for each of the operating segments.

       Gross margin for 2004 was $5,917 million, compared with $4,455 million in 2003 and $3,829 million in 2002. Compared with last year, gross margin improved $1,462 million in 2004, as the increase in selling prices of $5.4 billion (including the favorable impact of currency), as well as volume growth and the impact of improved operating rates, more than offset an increase of $3.4 billion in feedstock and energy costs and the negative impact of currency on costs. Gross margin for 2003 improved $626 million from 2002, as higher selling prices of $4.0 billion, volume growth and improved operating rates, more than offset an increase of $2.7 billion in feedstock and energy costs and the negative impact of currency on costs.

       Dow's global plant operating rate for its chemicals and plastics businesses was 88 percent of capacity in 2004, up from 82 percent of capacity in 2003 and 78 percent in 2002. Operating rates continued to improve in 2004 as the Company increased run rates to support increasing demand, reflecting improved economic conditions around the world. The lower operating rate in 2002 reflected a slowdown in production at several of the Company's plants, in an effort to manage inventory levels. Depreciation expense was $1,904 million in 2004, compared with $1,753 million in 2003 and $1,680 million in 2002.

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       Personnel count was 43,203 at December 31, 2004; 46,372 at December 31, 2003; and 49,959 at December 31, 2002. In 2004, headcount continued to decline as the Company remained focused on improving organizational efficiency and financial performance. The decline in headcount in 2003 was the direct result of the Company's Action Plan initiated in early 2003 and attrition.

       Operating expenses (research and development, and selling, general and administrative expenses) totaled $2,458 million in 2004, up 4 percent from $2,373 million in 2003, but down 8 percent from $2,664 million in 2002. Research and development ("R&D") expenses were $1,022 million in 2004, compared with $981 million in 2003 and $1,066 million in 2002. The increase in R&D expenses in 2004 was primarily due to higher spending on growth initiatives, especially in the Agricultural Sciences segment, and the start-up of two pilot plants in the Plastics segment. Selling, general and administrative ("SG&A") expenses were $1,436 million in 2004, up from $1,392 million in 2003, but down 10 percent from $1,598 million in 2002. SG&A expenses rose in 2004 primarily due to an increase in the allowance for doubtful receivables (reflecting the higher level of sales), higher fringe benefits, higher pension and medical expenses, and the negative impact of currency on expenses. SG&A expenses were 4 percent of sales in 2004 and 2003, down from 6 percent of sales in 2002.

       The following table illustrates the relative size of the primary components of total production costs and operating expenses of Dow. More information about each of these components can be found in other sections of Management's Discussion and Analysis of Financial Condition and Results of Operation, Notes to the Consolidated Financial Statements, and Part II, Item 6. Selected Financial Data.

       Amortization of intangibles was $81 million in 2004, $63 million in 2003 and $65 million in 2002. The increase in amortization in 2004 was primarily due to the first quarter write-off of goodwill associated with Hampshire Chemical's manufacturing facility in Nashua, New Hampshire, that produces HAMPOSYL surfactants. In the first quarter of 2004, the Company made the decision to discontinue production of HAMPOSYL surfactants and as a result, wrote off goodwill of $13 million associated with this line of business in the Performance Chemicals segment. The manufacturing facility for this line of business was shut down in the third quarter of 2004; demolition of the facility is underway and is expected to be

25

complete in 2005. During the fourth quarter of 2004, the Company performed impairment tests for goodwill in conjunction with its annual planning and budgeting process. As a result of this review, it was determined that no goodwill impairments existed. See Notes F and H to the Consolidated Financial Statements for additional information regarding goodwill and other intangible assets.

       In the second quarter of 2004, the Company recorded a net pretax gain of $20 million related to restructuring activities. The net impact of these transactions, shown as "Restructuring net gain" in the consolidated statements of income, included gains totaling $563 million related to the divestiture of assets in conjunction with the formation of two new joint ventures, MEGlobal and Equipolymers, substantially offset by asset impairments of $99 million related to the future sale or shutdown of facilities; the recognition of a liability of $148 million associated with a loan guarantee for Cargill Dow LLC ("Cargill Dow"), reflected in Unallocated and Other; and employee-related restructuring charges of $296 million, reflected in Unallocated and Other. The gain related to MEGlobal was $439 million and was reflected in the Chemicals segment. The gain for Equipolymers was $124 million and was reflected in the Plastics segment. The employee-related restructuring charges included severance of $225 million for a workforce reduction of 2,455 people and curtailment costs of $71 million associated with Dow's defined benefit plans. For additional information, see Notes B and C to the Consolidated Financial Statements.

       During 2002, the Company recorded merger and integration costs of $41 million and additional merger-related severance of $66 million. "Merger-related expenses and restructuring" also included the following charges in 2002: severance of $5 million related to a workforce reduction at Dow AgroSciences; and asset write-downs and impairments of $131 million and severance of $37 million related to restructuring activities undertaken by the Company following the appointment of a new President and CEO in late 2002. See Notes B and F to the Consolidated Financial Statements for additional information.

       In the fourth quarter of 2002, following the completion of a study to estimate the cost of resolving pending and potential future asbestos-related claims filed against Union Carbide and Amchem Products, Inc., the amount recorded for asbestos-related liabilities was increased to $2.2 billion, resulting in a charge of $828 million after recording related insurance receivables. See Legal Proceedings, Critical Accounting Policies, Asbestos-Related Matters of Union Carbide Corporation, and Note K to the Consolidated Financial Statements for additional information.

       Dow's share of the earnings of nonconsolidated affiliates in 2004 was $923 million, up substantially from $322 million in 2003 and $40 million in 2002. Compared with last year, equity earnings increased primarily due to stronger results from EQUATE, OPTIMAL, Dow Corning Corporation ("Dow Corning"), Siam Polyethylene Company Limited, DuPont Dow Elastomers L.L.C. ("DDE"), and UOP LLC ("UOP"). In addition to these improvements, results for MEGlobal and Equipolymers were included in equity earnings for the first time in the third quarter of 2004. Equity earnings for 2004 also included the favorable impact of the recognition of investment tax allowances by one of the Company's joint ventures. Equity earnings in 2003 increased from 2002 primarily due to stronger results from EQUATE, OPTIMAL, Dow Corning, Compañía Mega S.A., and Univation Technologies, LLC, partially offset by a decline in results from DDE. Equity earnings in 2002 were negatively impacted by three items: Dow's $10 million share of a restructuring charge recorded by UOP, reflected in the Performance Plastics segment; Dow's $8 million share of a restructuring charge recorded by DDE, reflected in the Plastics segment; and goodwill impairment losses of $16 million related to investments in nonconsolidated affiliates, reflected in Unallocated and Other.

       Sundry income – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income for 2004 was $136 million, compared with $146 million in 2003 and $54 million in 2002. Sundry income for 2004 included a gain of $90 million on the sale of the DERAKANE epoxy vinyl ester resin business (reflected in the Performance Plastics segment) and a loss of approximately $30 million on the sale of assets in the first quarter (reflected in Unallocated and Other). Sundry income in 2003 included several small gains on sales of non-strategic assets, including a gain of $47 million on the sale of several product lines of Amerchol Corporation, a wholly owned subsidiary (reflected in the Performance Chemicals segment), and the favorable impact of foreign currency exchange versus 2002, primarily due to the devaluation of the Argentine peso in the first quarter of 2002. Sundry income in 2002 included a gain of $63 million on the sale of the Company's share in Oasis Pipe Line Company in the fourth quarter (reflected in the Hydrocarbons and Energy segment).

       Net interest expense (interest expense less capitalized interest and interest income) was $661 million in 2004, down from $736 million in 2003 and $708 million in 2002. Interest income was $86 million in 2004, compared with $92 million in 2003 and $66 million in 2002. Interest income was higher in 2004 and 2003, compared with 2002, reflecting higher levels of cash and cash equivalents. Interest expense (net of capitalized interest) and amortization of debt discount totaled $747 million in 2004, $828 million in 2003 and $774 million in 2002. Compared with last year, interest expense declined primarily due to a reduction in total debt. Interest expense for 2003 was up versus 2002 due to higher levels of total debt in 2003.

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       Income (loss) before income taxes and minority interests ("profit before tax") was $3,796 million, up significantly from $1,751 million in 2003 and a loss of $622 million in 2002. In 2004, selling prices rose $5.4 billion (including the favorable impact of currency on sales), volume grew 6 percent overall and equity earnings improved significantly, as previously discussed, offsetting the unfavorable impact of higher feedstock and energy costs of $3.4 billion and the negative impact of currency on costs, resulting in a substantial improvement in profit before tax. In 2003, selling prices rose $4.0 billion (including the favorable impact of currency on sales), volume improved and the Company further reduced structural costs. These combined improvements more than offset the impact of higher feedstock and energy costs of $2.7 billion and the negative impact of currency on costs, resulting in a significant improvement in earnings. Profit before tax in 2003 was further improved by increases in equity earnings and sundry income.

       The provision for income taxes was $877 million in 2004 versus a credit for income taxes of $82 million in 2003 and a credit of $280 million in 2002. In the fourth quarter of 2004, the Company's provision for income taxes was reduced by tax benefits of $146 million related to the revised estimate of the future utilization of operating loss carryforwards in Argentina, Italy and Brazil ($101 million) and the impact of a legislated decrease in the tax rate in The Netherlands on deferred tax liabilities ($45 million). In 2003, the Company's provision for income taxes was reduced by tax benefits of $454 million related to the utilization of foreign tax credits ($114 million), which had previously been reserved and would have otherwise expired, and revised estimates regarding the future utilization of operating loss carryforwards in Germany ($340 million related to the reversal of Dow Olefinverbund GmbH's [formerly Buna Sow Leuna Olefinverbund ("BSL")] valuation allowance). Dow's effective tax rate for 2004 was 27 percent, excluding the impact of the tax benefits of $146 million, compared with 21.2 percent in 2003, excluding the impact of the tax benefits of $454 million, and 45 percent (credit) in 2002. The Company's effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax credits available. The effective tax rates for 2004 and 2003 declined due to a higher percentage of foreign sourced income compared with 2002 and stronger earnings from a number of the Company's joint ventures. Since most of the earnings from the equity companies are taxed at the joint venture level, the impact of higher equity earnings has reduced Dow's overall effective tax rate. The 2002 tax rate was impacted by an increase in the valuation allowance of $350 million, primarily due to an increase in the valuation allowance for U.S. foreign tax credits of $114 million and the recording of valuation allowances against tax loss carryforwards in Argentina and Brazil of $192 million. The underlying factors affecting Dow's overall effective tax rates are summarized in Note T to the Consolidated Financial Statements.

       Minority interests' share of net income in 2004 was $122 million, up from $94 million in 2003 and $63 million in 2002. The increase in minority interest in the last two years was primarily due to improved results at PBBPolisur S.A.

       Cumulative effect of changes in accounting principles included an after-tax charge of $9 million related to the adoption of Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting for Asset Retirement Obligations" in 2003 and an after-tax transition adjustment gain of $67 million related to the adoptions of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" in 2002. See Note A to the Consolidated Financial Statements for additional information regarding changes in accounting principles.

       Net income (loss) available for common stockholders was $2,797 million in 2004 (earnings of $2.93 per share), compared with $1,730 million in 2003 (earnings of $1.87 per share) and a net loss of $338 million in 2002 (a loss of $0.37 per share).

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       The following table summarizes the impact of certain items recorded in 2004, 2003 and 2002:

SEGMENT RESULTS

The Company uses EBIT (which Dow defines as earnings before interest, income taxes and minority interests) as its measure of profit/loss for segment reporting purposes. EBIT includes all operating items relating to the businesses and excludes items that principally apply to the Company as a whole. In the first quarter of 2004, the Company made changes to its internal organizational structure; this reorganization did not result in a change to Dow's operating segments, but it did result in the renaming of several of the businesses within the operating segments. The Corporate Profile included in Note U to the Consolidated Financial Statements reflects these changes. Additional information regarding the Company's operating segments and a reconciliation of EBIT to "Net Income Available for Common Stockholders" can also be found in Note U.

PERFORMANCE PLASTICS

Performance Plastics sales increased 22 percent to $9.5 billion in 2004, compared with $7.8 billion in 2003. Sales were $7.1 billion in 2002. In 2004, volume increased 12 percent over 2003, while prices increased 10 percent, including the favorable impact of currency in Europe. Currency accounted for approximately 4 percent of the increase in sales. Sales in 2003 reflected a 10 percent price improvement, while volume was unchanged versus 2002.

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       EBIT for the segment was $1.0 billion in 2004, compared with $701 million in 2003 and $612 million in 2002. EBIT improved in 2004 due to higher prices and stronger volumes. In addition, the Company sold its DERAKANE epoxy vinyl resin business to Ashland Specialty Chemicals in December 2004, resulting in a pretax gain of $90 million. EBIT increased in 2003 due to strengthening prices and emphasis on cost control.

       Building and Construction sales increased 16 percent in 2004, reflecting gains in both price and volume. Prices increased 9 percent in an attempt to recover margins lost to increasing raw material costs. Volume increased 7 percent due to high levels of new housing starts in North America and increased sales growth in eastern and southern Europe related to more stringent energy consumption regulations, which resulted in increased sales of insulation products. EBIT decreased slightly due to higher raw material and freight costs.

       Dow Automotive sales increased 11 percent versus 2003, with a 6 percent improvement in prices as Dow Automotive increased prices in order to restore margins. Improving supply/demand balances resulted in increased pricing power for polymers. Volume was up 5 percent, exceeding the annual growth rate for the global automotive industry, as the business continued to expand its position within its traditional customer base. EBIT in 2004 was favorably impacted by the divestiture of the Company's interest in Core Products SAS, a 50:50 joint venture with L&L Holding Company LLC. Despite this gain, EBIT in 2004 declined as higher raw material costs and operating expenses offset the improvement in selling prices.

       Engineering Plastics sales were up 31 percent compared with 2003. Prices increased 12 percent to compensate for escalating feedstock and energy costs, and as a result of tight supply in most geographic areas. Volume was up 19 percent versus 2003 as improving economic conditions increased demand from appliance, electronics and automotive industries. EBIT in 2004 was up as higher prices and volumes more than offset significant increases in raw material costs.

       Epoxy Products and Intermediates reported a 32 percent increase in sales compared with 2003. Prices improved 17 percent reflecting increases across the entire range of epoxy products in response to substantially higher costs for benzene, propylene and bisphenol. Volume was up 15 percent versus 2003, driven by increased consumer spending and higher demand for industrial applications. Epoxy supply was tight across all geographic areas as most producers ran at full operating rates to meet demand. The business completed a shutdown of its facility in Sarnia, Ontario, Canada in August 2004, and consolidated production within facilities in Freeport, Texas, and The People's Republic of China. The shutdown, combined with the consolidation of research facilities into Freeport, Texas, improved the competitiveness of the epoxy business. EBIT in 2004 improved due to improved pricing and volume.

       Polyurethanes and Thermoset Systems sales were up 25 percent in 2004 versus the prior year. Prices increased 12 percent, led by price increases for polyols and methylene diphenyl diisocyanate ("MDI"). Volume increased 13 percent led by stronger demand for polyols and MDI in the appliance and rigid construction businesses, particularly in The People's Republic of China and the Middle East. Asset optimization initiatives included the permanent shutdown of the Company's polyol facility at Priolo, Italy, which resulted in a write-down of $22 million (see Note F to the Consolidated Financial Statements), and the start-up of a new MDI facility in Freeport, Texas, in November 2004 that is expected to be at full capacity in early 2005. EBIT increased in 2004 due to higher selling prices and improved capacity utilization; however, margin growth was limited due to rising raw material costs throughout the year. In addition, EBIT was favorably impacted by the $90 million gain on the sale of the DERAKANE business.

       Technology Licensing and Catalyst sales were up 23 percent compared with 2003 as the global economic recovery favorably impacted investments within the chemical industry. This increase in commercial licensing activity improved sales in the technology licensing business, including sales to MEGlobal and EQUATE, joint ventures of the Company. The polyolefins catalyst licensing businesses continued to face strong competitive pressures, especially in Asia Pacific. Equity earnings increased with improved financial results at UOP and Univation Technologies, LLC, both 50:50 joint ventures of the Company. EBIT in 2004 improved as a result of higher equity earnings and increased licensing activity.

       Wire and Cable sales were up 20 percent in 2004, driven by volume recovery in all geographies except Europe. Demand was strong in both the telecommunications and power industries. The production facility in Bound Brook, New Jersey was shut down in 2004 to improve capacity utilization and optimize costs within the business. EBIT in 2004 improved as a result of higher volumes, lower costs, and increased equity earnings from Nippon Unicar Company Limited, a 50:50 joint venture, resulting from a gain on the sale of the joint venture's silicone business.

Performance Plastics Outlook for 2005

For the Performance Plastics segment, continued favorable economic conditions in 2005 are expected to result in higher sales compared with 2004. Capacity utilization of most products within the industry is expected to improve, and volume growth is expected across all end-use applications. Profitability is expected to improve with continued focus on improving margins and optimizing cost performance.

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       Building and Construction expects prices and volumes to increase in 2005. Housing starts in North America are expected to ease after several years of sustained growth, but demand for extruded polystyrene is expected to continue as the preferred solution for many insulation applications. Growth in Russia and The People's Republic of China represent new opportunities for volume improvement. An over-supply situation is anticipated to continue in Europe as new industry facilities are expected to come on-line in 2005. However, increased demand in eastern and southern Europe is expected to be the greatest opportunity for growth, due to customer implementation of increasingly stringent energy policies.

       Dow Automotive plans to continue the implementation of value pricing initiatives to offset anticipated downward pressure on prices from auto producers. Volume growth for Dow Automotive is expected through expanded participation with non-traditional customers. Engineering Plastics expects increased demand for copolymers and polycarbonate to tighten supply/demand balances.

       Epoxy Products and Intermediates anticipates an improvement in sales with higher volumes across all geographies, especially in the coatings and civil engineering industries. Epoxy Products anticipates continued upward price pressure due to high raw material costs and tight supply/demand balances. Global industry capacity will remain relatively unchanged with only one world-scale production facility starting up 2005 in The People's Republic of China.

       Polyurethanes results are expected to improve in 2005, due to anticipated price and margin improvements related to the shortage of available capacity for MDI. The business plans to shut down its MDI facility in LaPorte, Texas, after the startup of its new facility in Freeport, Texas, is completed. Technology Licensing and Catalyst expects the intense competitive environment within the polyolefins catalyst business to continue in 2005, although new investment activity is expected to continue in emerging geographies and may result in additional licensing revenues. Wire and Cable anticipates sales in 2005 to grow at GDP levels, with expected margin improvement over raw material costs.

PERFORMANCE CHEMICALS

Performance Chemicals sales increased 20 percent to $6.7 billion in 2004, compared with $5.6 billion in 2003 and $5.1 billion in 2002. Volume grew 11 percent, while prices rose 9 percent. The increase in volume was due in part to the acquisition of the acrylates business from Celanese AG on February 2, 2004. Compared with last year, prices increased due to tight supply/demand balances for acrylics and oxide derivatives, and higher styrene and butadiene costs in Dow Latex. Prices increased 7 percent from 2002 to 2003 due to the favorable impact of currency in Europe and higher prices in those businesses most directly impacted by feedstock costs. Volume increased 1 percent from 2002 to 2003. Volume growth in Europe, Latin America and Asia Pacific was partially offset by a decline in North America due to weak economic conditions in the first three quarters of 2003.

       EBIT for 2004 was $600 million compared with $682 million in 2003 and $650 million in 2002. EBIT for 2004 was negatively impacted by a $22 million charge related to the shutdown of Hampshire Chemical's Nashua, New Hampshire, manufacturing site (see Notes F and H to the Consolidated Financial Statements). The charge included a $9 million write-down of the net book value of the facility and a $13 million write-off of goodwill. The Nashua site was shut down in 2004. In addition, EBIT in 2004 was negatively impacted by asset impairments totaling $89 million as follows: a $60 million write-down of the Company's contract manufacturing plant in Smithfield, Rhode Island, resulting from the pending disposal of the site; a $21 million partial write-down of a Hampshire Chemical business; and an $8 million write-off of a latex manufacturing facility. EBIT for 2003 was favorably impacted by a gain of $47 million on the sale of several product lines of Amerchol. Excluding the 2004 charges and the 2003 gain, EBIT for 2004 was up over 2003 as higher selling prices and volume growth more than offset the impact of increased feedstock costs. EBIT in 2003 increased from 2002 due to the gain on the Amerchol sale and the combined impact of higher prices and volume, the favorable impact of currency, and a strong focus on cost reductions.

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       Acrylics and Oxide Derivatives sales were up 48 percent versus 2003, with volume increasing 31 percent and prices increasing 17 percent. Acrylics volume increased due to strong demand for acrylates and the acquisition of the acrylates business of Celanese AG in February 2004. Oxide derivatives volume improved due to increased demand for coatings and wet strength resin (amines) across all geographic areas, with especially strong growth in Asia Pacific. Prices increased due to tight supply/demand balances across most product lines and rising raw material prices. EBIT in 2004 improved significantly over 2003 due to higher prices, stronger demand and higher equity earnings from OPTIMAL, partially offset by higher raw material costs.

       Dow Latex sales were up 20 percent versus 2003, with volume increasing 6 percent and prices increasing 14 percent. Volume for styrene-butadiene latex sold into the paper, carpet and architectural coatings industries grew 4 percent. UCAR Emulsion Systems volume was strong in all geographic areas, demonstrating recovery from the effect of poor weather on the demand for paint in North America and the overall impact of SARS on demand in Asia Pacific in the first half of 2003. Despite increased sales in 2004, EBIT declined primarily due to costs associated with the closure of the Somerset, New Jersey, site, which resulted in an $8 million write-down of the latex manufacturing facility (see Note F to the Consolidated Financial Statements), and a significant increase in raw material costs.

       Specialty Chemicals sales were up 11 percent versus 2003, with a 6 percent increase in price, including the favorable impact of currency in Europe, and a 5 percent increase in volume. Both price and volume increased for functional solutions and surfactants. Price increases were driven by the relatively balanced industry supply/demand situation and sharply higher raw materials costs. Despite improvements in volume and price, EBIT was down for the year due to higher raw material costs and charges related to the shutdown of Hampshire Chemical's Nashua, New Hampshire, manufacturing site (see Note F to the Consolidated Financial Statements).

       Specialty Polymers sales were up 6 percent versus 2003, with volume increasing 5 percent and prices increasing 1 percent, including the favorable impact of currency in Europe. Compared with last year, volume was up in all geographic areas. Sales were strong for ANGUS Chemical Company's products, biocides, CELLOSIZE cellulose ethers, FILMTEC membranes, and METHOCEL cellulose ethers. EBIT declined in 2004 due to a $21 million write-down of a Hampshire Chemical business in the second quarter of 2004. The results for 2003 also included the $47 million gain on the sale of several product lines of Amerchol.

Performance Chemicals Outlook for 2005

Performance Chemicals expects continued growth in 2005 as economic conditions continue to improve. Prices are expected to remain at relatively high levels in 2005 reflecting tight supply/demand balances in many markets. EBIT is also expected to improve in 2005 due to slightly higher volumes, improved pricing and improved operating rates. However, uncertainty still remains due to the volatility of feedstock and energy costs.

       Acrylics and Oxide Derivatives prices and margins are expected to continue to increase in 2005, reflecting tight industry supply/demand conditions and high raw material costs. Prices for superabsorbents are expected to increase sharply in 2005, reflecting anticipated limited supply of acrylic acid within the industry. Acrylic and Oxide Derivative volume is expected to be flat, limited by production capacity. Inventories are expected to remain at low levels with many markets tight to sold out during 2005. Superabsorbents volume is expected to increase in 2005 reflecting increased commitments from several strategic accounts in late 2004.

       Volume for Dow Latex is expected to grow in 2005, but at slightly lower rates than those experienced in 2004. Prices, which increased significantly in the second half of 2004, are likely to remain near year-end 2004 levels through most of 2005 reflecting high and volatile monomer raw material costs. For the full year, average prices are expected to be significantly higher than in 2004.

       Specialty Polymers revenues are expected to increase in 2005, driven primarily by increased volume. Margins are expected to increase slightly due to higher plant operating rates and expected strength in higher value end-use markets.

AGRICULTURAL SCIENCES

Sales for Agricultural Sciences were a record $3.4 billion in 2004, compared with $3.0 billion in 2003 and $2.7 billion in 2002. Volume grew 9 percent versus 2003, while prices improved by 3 percent, primarily due to the favorable impact of currency in Europe. Favorable farm commodity prices resulted in increased demand for crop protection chemicals, both for increased acreage planted and for improved yields on existing acreage. Sales for newer products, including florasulam herbicide, HERCULEX I insect protection traits, and gamma cyhalothrin insecticide, continued to grow. Growth in the insecticide portfolio was led by spinosad insect control products, particularly in India, and chlorpyrifos sold into West Africa

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to combat the ongoing locust outbreak. Other product lines, including cereal herbicides, soybean fungicides and corn herbicides also contributed to the overall volume increase. In 2003, prices improved 7 percent versus 2002, largely due to the favorable impact of currency, while volume grew 4 percent. Significant price improvements in 2003 were reported in Latin America, due to improved economic conditions, and in Europe, primarily due to favorable currency impact. Volume growth in 2003 was driven by the newer products listed above and spinosad insect control products, while sales for existing products grew due to increased insect pressure in North America and the strength of the product portfolio acquired from Rohm and Haas in 2001.

       EBIT in 2004 was $586 million versus $441 million in 2003 and $154 million in 2002. EBIT improved in 2004 due to volume increases and operational efficiencies. Volume gains, improved pricing, expense control and increased operational efficiencies also drove the strong EBIT improvement in 2003 over 2002. EBIT in 2002 was unfavorably impacted by seed plant write-offs, the impact of a new import tax and currency weakness in Argentina, and severance of $5 million related to a workforce reduction program.

Agricultural Sciences Outlook for 2005

Agricultural Sciences sales and operational results for 2005 are expected to remain at the strong levels achieved in 2004. While industry conditions should remain strong, the high commodity prices and strong market growth of 2004 are not expected to be repeated in 2005. New product growth in corn (the HERCULEX product line) and canola (acres planted with NEXERA seed) will likely be offset by challenges in mature product lines. Competition is expected to intensify in the number and complexity of marketing programs, product offers, and in extended sales terms. Generics will continue to grow and challenge key markets. Dow AgroSciences expects to launch penoxsulum rice herbicide and WIDESTRIKE cotton trait in the United States during 2005 and continue to invest in and build significant new business platforms in animal health and healthy oils.

PLASTICS

Sales for the Plastics segment were $10.0 billion in 2004, up from $7.8 billion in 2003 and $6.5 billion in 2002. Prices increased 24 percent in 2004 compared with 2003, while volume increased 5 percent. The increase in selling prices reflected the significantly higher feedstock and energy costs in 2004, supported by improved industry supply/demand balances. Volume also increased during 2004 as global economic conditions continued to improve and demand returned to historical growth levels. Compared with last year, volume declined in Europe due to the June 2004 formation of Equipolymers, a new 50:50 joint venture, as sales of PET/PTA were sourced through that joint venture beginning on July 1, 2004 (see Note C to the Consolidated Financial Statements). Synthetic rubber volume declined as a result of the decision to idle the facility in Pernis, The Netherlands, in the second quarter of 2004. Two new production facilities were started up in Tarragona, Spain during 2004: a facility for the commercial scale production of VERSIFY resins began operations in the third quarter and a facility for the commercial production of DOW XLA elastic fibers began operations in the fourth quarter. Sales in 2003 were higher than in 2002 as prices, including the favorable impact of currency in Europe, improved 22 percent and volume decreased 2 percent. Currency accounted for approximately 7 percent of the increase in sales.

       EBIT for the year was $1.7 billion, up from $662 million in 2003. EBIT improved as higher selling prices and improved equity earnings, resulting from the advantaged ethylene feedstock position of EQUATE, more than offset the increased feedstock and energy costs. In addition, EBIT in 2004 was favorably impacted by a gain of $124 million on the sale of the PET/PTA business in conjunction with the formation of Equipolymers. In 2003, EBIT was up from $151 million in 2002 as higher selling prices, ongoing cost control efforts and improved equity earnings more than offset the increased feedstock and energy costs. EBIT in 2002 included a $20 million charge for the write-down of ethylene styrene interpolymers market development assets located in Sarnia, Ontario, Canada.

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       Polyethylene sales increased 32 percent in 2004 as prices increased 24 percent and volume increased 8 percent. Prices were pushed higher in response to high feedstock and energy costs and improving supply/demand. The increase in sales volume reflects the strong demand growth that was seen in all geographic areas. These conditions led to improvement in both capacity utilization rates and margins. EBIT improved significantly compared with 2003 as increased selling prices and improved equity earnings from EQUATE and Siam Polyethylene Company Limited more than offset higher feedstock and energy costs.

       Polypropylene sales increased 34 percent in 2004, as prices increased 28 percent and volume increased 6 percent. Polypropylene prices moved higher during the year in response to increasing feedstock and energy costs. Demand increased as the global economic recovery progressed, resulting in high operating rates during the year. Volume was also higher despite monomer shortages and shutdowns that were required due to hurricanes that affected the United States. In 2003, volume in Europe was negatively impacted in the third quarter by a government-mandated (every five years), six-week shutdown of the Company's German facility, Dow Olefinverbund GmbH (formerly BSL) for a safety inspection and maintenance. EBIT improved significantly over 2003 as increased selling prices and cost reduction initiatives more than offset the increase in feedstock and energy costs.

       Polystyrene sales increased 44 percent in 2004 as prices increased 33 percent and volume increased 11 percent. The increase in prices followed the rise in styrene monomer costs, both of which reached record levels. Demand remained strong as the economic recovery continued. New grades of clear thermoforming polystyrene were introduced during 2004 and technology was developed that will enable Dow's polystyrene plants to operate more efficiently. EBIT declined significantly from 2003 as the impact of higher styrene monomer costs were not recovered by the increase in selling prices.

Plastics Outlook for 2005

Feedstock and energy costs will likely remain at high levels during 2005. This factor, combined with solid demand growth, is expected to provide support for higher prices and result in a significant increase in sales in 2005. Volume is also expected to increase in 2005 in all polymers, including contributions from the DOW XLA elastic fiber facility and the continued growth in sales of VERSIFY resins.

       Polyethylene volumes are expected to improve in 2005 as demand continues to remain strong. Industry supply/demand balances are expected to remain tight and this condition will provide support for both higher prices and improved margins. Volume may exhibit some softness in first quarter of 2005, due to the late 2004 slowdown in The People's Republic of China.

       Polypropylene prices are expected to be higher in 2005. Although Dow's production facilities are already running at capacity, volume is expected to improve slightly as de-bottlenecking and process improvements enable increased production. Industry operating rates should remain high and no new production capacity is expected to be added during 2005. In 2004, new grades of INSPIRE performance polymers for thermoforming and blow molding applications were successfully introduced and this technology will be extended to injection molding products in 2005.

       Polystyrene volume should improve in 2005 as demand is expected to remain strong. Prices are expected to remain high due to the cost of styrene monomer; however, raw material costs are expected to be less volatile. The industry is expected to remain competitive as styrene monomer and polystyrene supply are both expected to be sufficient to meet demand.

       On January 3, 2005, the Company announced it had exercised its option to acquire certain assets (ethylene and chlorinated elastomers, including ENGAGE, NORDEL and TYRIN elastomers) from DuPont Dow Elastomers L.L.C. ("DDE"), Dow's 50:50 joint venture with E.I. du Pont de Nemours and Company ("DuPont"). The transaction, which is expected to close by June 30, 2005, includes redemption of the Company's equity interest in DDE. Going forward, the impact on the Plastics segment is expected to be minimal. See Notes G and K to the Consolidated Statements for information regarding the transaction.

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CHEMICALS

Chemicals sales were $5.5 billion in 2004, compared with $4.4 billion in 2003 and $3.4 billion in 2002. Prices rose 22 percent versus 2003. Solvents and intermediates, chlorinated organics, vinyl chloride monomer ("VCM") and EG all experienced higher prices in 2004. Volume was up 3 percent for 2004, with increases in chlorinated organics, caustic soda, VCM and EG despite a decline in volume related to the formation of MEGlobal, a new 50:50 joint venture with PIC, in the second quarter of 2004. Beginning on July 1, 2004, certain sales of EG were sourced through that joint venture. In 2003, prices increased 24 percent and volume grew 6 percent versus 2002.

       EG sales were up substantially from 2003 with prices increasing 31 percent and volume increasing 4 percent. Prices increased due to higher feedstock and energy costs and an improving supply/demand balance. Volume increased as a result of increasing demand in the PET and polyester industries, which use EG as a raw material. While volume improved overall, it was significantly dampened by the formation of MEGlobal.

       VCM sales were up 40 percent due to a 33 percent increase in prices and a 7 percent increase in volume driven by strong industry demand for polyvinyl chloride ("PVC"), which is the major end-use product for VCM. Caustic soda sales were up 5 percent versus 2003 due to a 9 percent increase in volume partially offset by a 4 percent decline in prices. Caustic soda prices hit bottom in the first half of 2004. Demand for caustic soda increased in the second half of 2004, improving industry supply/demand balances and supporting significant price momentum in the latter part of 2004.

       Solvent and Intermediates sales were up 8 percent due to a 14 percent increase in price and a 6 percent decline in volume. The decline in volume was primarily due to the Company's exit of the ethanol business in the second quarter of 2004.

       EBIT was $1,602 million in 2004 compared with $334 million in 2003 and a loss of $78 million in 2002. EBIT in 2004 improved due to the combined impact of stronger volume, higher prices, higher operating rates and increased equity company earnings partially offset by rising feedstock and energy costs. Results for 2004 also included a gain of $439 million associated with the divestiture of assets in conjunction with the formation of MEGlobal in the second quarter of 2004 (see Note C to the Consolidated Financial Statements). EBIT in 2003 increased from 2002 principally due to increased volume, higher prices and cost reductions partially offset by increased feedstock and energy costs. EBIT in 2002 was negatively impacted by costs related to the start-up of expanded VCM facilities in Freeport, Texas, and chlor-alkali facilities in Stade, Germany; and a $13 million charge for the write-down of assets related to the shutdown of a chlor-alkali facility in Fort Saskatchewan, Alberta, Canada (see Note F to the Consolidated Financial Statements).

Chemicals Outlook for 2005

Caustic soda prices are expected to increase significantly in 2005 due to growth in demand and limited industry capacity. Sales volume is expected to decline slightly due to higher internal use in derivative businesses. Margin expansion is anticipated due to tight industry supply/demand balances.

       VCM margins are expected to expand in 2005. With continued strength in the global economy, PVC use is expected to increase, thereby fueling higher demand for VCM, and further tightening industry supply/demand balances. As announced in November 2004, the Company expects to cease its production of ethylene dichloride and reduce its VCM production at the Company's facility in Oyster Creek, Texas, by the end of 2005. While this net reduction accounts for approximately 18 percent of the Company's global VCM capacity, the impact on results is expected to be minimal.

       EG prices are expected to remain high in 2005 as global demand continues to grow and market conditions remain near peak levels. EG volume is expected to decrease due to the impact of the formation of MEGlobal in mid-2004. New EG industry capacity should be minimal, resulting in a tight supply/demand balance.

       Solvents and Intermediates pricing is expected to be driven by changes in feedstock and energy costs. Stronger demand is expected to improve the supply/demand balance in the solvents and intermediates industry. No additional industry capacity is expected to come on-line in 2005.

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HYDROCARBONS AND ENERGY

Hydrocarbon and Energy sales were $4.9 billion in 2004 compared with $3.8 billion in 2003 and $2.4 billion in 2002. In 2004, prices increased 30 percent and volume declined 2 percent compared with 2003. Prices improved following the rise in crude oil and feedstock prices versus the prior year. In 2003, prices were up 27 percent and volume grew 30 percent over 2002. Prices improved following a substantial rise in crude oil and natural gas based feedstock prices compared with 2002. Volume increased due to new contractual commitments and higher spot sales of monomers in 2003.

       The Hydrocarbons and Energy business transfers materials to Dow's derivative businesses at cost. EBIT was $0 in 2004 compared with $6 million in 2003 and $96 million in 2002. EBIT in 2002 included a gain of $63 million on the sale of the Company's share in the Oasis Pipe Line Company, and a loss of $44 million reflecting the impairment of the ethylene production facility in Texas City, Texas, which was shut down during 2003.

       Compared with 2003, the Company's cost of purchased feedstocks and energy in 2004 increased approximately $3.4 billion, or 28 percent, due to price. Derivatives of crude oil and natural gas are used as feedstocks for the Company's ethylene production facilities, while natural gas is used as fuel. Crude oil prices increased throughout the year. On average, 2004 prices were $9 per barrel higher than 2003 levels. North American natural gas prices trended upward throughout the year. In 2004, North American natural gas prices rose 13 percent, an increase of approximately $0.65 per million Btu over 2003.

       In 2004, Texas LNG Holdings, LLC, a wholly owned subsidiary of the Company, purchased a 15 percent ownership interest in Freeport LNG Development, LP. Freeport LNG Development, LP is currently implementing a project to permit, design and construct a liquefied natural gas receiving terminal near Freeport, Texas. The terminal will enable consumers to purchase competitively priced natural gas imported from other regions of the world.

Hydrocarbons and Energy Outlook for 2005

Crude oil and natural gas prices are expected to increase during 2005 compared with 2004. In addition, feedstock and natural gas prices are expected to remain highly volatile. Overall, hydrocarbons and energy prices are expected to be above 2004 levels. Ethylene and propylene margins are expected to expand, benefiting Dow's derivative businesses, as demand continues to strengthen and supply remains tight.

UNALLOCATED AND OTHER

Sales in 2004 were $262 million, compared with $353 million in 2003 and $395 million in 2002. Sales in 2004 were down primarily due to the divestiture of the remaining Sentrachem businesses, completed in the third quarter of 2003. The sales decline between 2003 and 2002 is also primarily due to the Sentrachem divestitures completed in the third quarter of 2003.

       Included in the results for Unallocated and Other are:

•

results of Dow Ventures,

•

asbestos-related defense and resolution costs,

•

overhead and cost recovery variances not allocated to the operating segments,

•

results of insurance operations,

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•

gains and losses on sales of financial assets,

•

foreign exchange hedging results, and

•

Dow's share of the earnings/losses of Dow Corning Corporation ("Dow Corning") and Cargill Dow.

       EBIT in 2004 was a loss of $1.1 billion compared with losses of $339 million in 2003 and $1.5 billion in 2002. Results for 2004 were negatively impacted by employee-related restructuring charges, including severance of $225 million and curtailment expenses of $71 million associated with Dow's defined benefit plans (see Note B to the Consolidated Financial Statements for additional information on the restructuring charges), performance-based employee compensation expense of $317 million, the recognition of a $148 million liability associated with a loan guarantee for Cargill Dow, and asbestos-related defense and resolution costs (net of insurance) of $82 million. Results for 2003 and 2002 were negatively impacted by asbestos-related defense and resolution costs (net of insurance) of $94 million and $9 million, respectively. EBIT for 2002 was negatively impacted by an asbestos-related charge of $828 million, merger-related integration costs of $41 million, additional merger-related severance of $66 million, restructuring severance of $37 million, the write-down of Sentrachem assets of $54 million, Dow's share of Cargill Dow losses, and lower results from insurance operations.

       On January 31, 2005, the Company transferred its 50 percent interest in Cargill Dow to the joint venture partner, Cargill Incorporated. Going forward, the impact to Unallocated and Other is expected to be minimal. See Note B to the Consolidated Financial Statements for additional information.