The Dow Chemical Company (Dow Chemical) has reported net sales of $57.5 billion for the year-end 2008, compared with the net sales of $53.5 billion in the previous year-end. It has also reported net income of $579 million, or $0.62 per diluted share, for the year-end 2008, compared with the net income of $2.88 billion, or $2.99 per diluted share, in the previous year-end.

Fourth Quarter 2008 Highlights

The company reported a loss of $1.68 per share; excluding certain items, the loss was $0.62 per share. Earnings in the fourth quarter of 2007 were $0.49 per share; excluding certain items, earnings in the fourth quarter of 2007 were $0.84 per share. (See Supplemental Information at the end of the release for a description of these items.) In addition, earnings for the quarter were reduced by a much higher effective tax rate, which was unfavorably impacted by several items totaling $295 million, equivalent to $0.32 per share.

The company delivered on its fourth quarter commitments related to generating cash and controlling costs as outlined in October 2008. Management interventions contributed to cash provided by operating activities of $2.2 billion and free cash flow of $1.2 billion in the quarter.

Sales for the fourth quarter were down 23% from the same period last year to $10.9 billion. Volume declined 17%, and was down in all operating segments and in all geographic areas, reflecting the global economic downturn as well as the de-stocking that occurred through most value chains.

The company reduced production to match market conditions. This resulted in historically low operating rates, particularly in December which was 44%. For the quarter, the operating rate was 64%, a rate not seen in more than 25 years.

Price was down 6% in the quarter, as a 4% increase in the Performance segments was more than offset by a 15% decline in the Basics segments. The decline in Basics was principally due to a 23% drop in feedstock and energy costs versus the same quarter last year.

2008 Full-Year Highlights

Cash provided by operating activities was $4.7 billion in 2008, an improvement of more than $200 million versus 2007, against deteriorating economic conditions.

Despite the sales decline in the fourth quarter, 2008 sales increased 7% compared with 2007, setting another record for the company of $57.5 billion. Price increased 12%, while volume was down 5%.

Dow AgroSciences reported full-year sales and EBIT records. Sales grew 20% to $4.5 billion, reflecting an 8% increase in volume and a 12% increase in price, and delivering EBIT of $761 million.

Equity earnings declined to $787 million from $1.1 billion in 2007, reflecting the global demand destruction that took place in the fourth quarter of 2008.

Comment

Andrew N. Liveris, Dow’s chairman and chief executive officer, stated: “With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year. We immediately put in place a full array of aggressive cash generation and cost and capital control measures that delivered results. We remain intensely focused on those actions that we can control and will continue to do so throughout 2009.”

Review of Fourth Quarter Results

The Dow Chemical Company reported sales of $10.9 billion for the fourth quarter of 2008, representing a 23% decline compared with the same period last year.

The company reported a net loss of $1,552 million, reflecting the impact of net after-tax charges of $978 million related to restructuring activities, goodwill impairment losses, the impact of Hurricanes Gustav and Ike, K-Dow related expenses, purchased in-process research and development charges (IPR&D), and expenses related to the company ’s announced acquisition of Rohm and Haas company . This compares with net income of $472 million in the fourth quarter of 2007, which reflected the impact of after-tax charges of $447 million related to restructuring activities and an adjustment to IPR&D, which were partially offset by a reduction in the provision for income taxes of $113 million related to a change in the legal ownership structure of EQUATE.

Dow Chemical reported a loss per share of $1.68, which included charges totaling $1.06 for the items referenced above. This compares with earnings per share of $0.49 in the year ago period, which included net charges of $0.35 per share for the items referenced above.

Price was down 6% versus the same quarter last year, as a 15% decline in the combined Basics segments was partially offset by an increase of 4% in the combined Performance segments. Performance Chemicals reported price gains of 9%, while Agricultural Sciences was up 6%.

Volume declined 17%, and was down in all operating segments and in all geographic areas, reflecting the global economic downturn as well as the de-stocking that occurred through most value chains.

Purchased feedstock and energy costs were down 23% versus the same quarter last year, contributing to the decline in prices reported in the Basics segments.

Despite prices declining at a slower pace than feedstock and energy costs, the widespread demand destruction in the quarter resulted in margin compression. The company reduced production to match poor market conditions, which resulted in historically low operating rates, particularly in December which was 44%. For the full quarter, the operating rate was 64% – a rate not seen in more than 25 years – which led to higher unabsorbed fixed costs.

Equity earnings/losses were a net loss of $4 million, as nonconsolidated affiliates reported margin compression due to volume and price declines brought on by global recessionary pressures.

Selling, Administrative and Research and Development (SARD) expenses decreased 9% year over year, reflecting the company’s strict spending discipline even as strategic bolt-on acquisitions by Dow AgroSciences continued.

The company delivered on its fourth quarter commitments related to generating cash and controlling costs as outlined in October 2008. Management interventions contributed to cash provided by operating activities of $2.2 billion and free cash flow of $1.2 billion in the quarter.

Dow Chemical’s effective tax rate for the quarter was unfavorably impacted by several items totaling $295 million (equivalent to $0.32 per share), including higher foreign income taxes, principally in Canada; US tax on increased dividends from foreign subsidiaries; and valuation allowances recorded against deferred tax assets.

“With a global economic crisis unfolding during the quarter, we responded with speed and urgency to get ahead of the demand destruction that continued to accelerate as we approached the end of the year,” said Andrew N. Liveris, chairman and chief executive officer. “We immediately put in place a full array of aggressive cash generation and cost and capital control measures that delivered results. We remain intensely focused on those actions that we can control and will continue to do so throughout 2009.”

Performance Plastics

Sales in the performance plastics segment were $3.16 billion, down 20% from the same period last year. Price increased 1%, while volume declined 21%. Polyurethanes reported a loss of volume reflecting global weakness in furniture, automotive, appliance and bedding applications. Dow Epoxy reported stable demand in metal coating applications used in food packaging, marine coatings and in coatings for pipelines and other infrastructure applications, as ongoing projects progressed on schedule. These gains, however, were more than offset by declines in industrial coatings used in building and construction applications.