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2003 Demonstrates the Strength of Dow’s Commitment to the Triple Bottom Line of Sustainability
Early in 2003, we pledged that the entire Dow organization would focus on improving both our financial and safety results, regardless of how difficult industry conditions might be. Dow people answered the call. 2003 earnings were $1.87 per share, including a tax benefit of $0.49 per share, compared with a loss of $0.37 per share in 2002, which included a net charge of $0.71 per share for restructuring and other items. Excluding all of the special items, earnings increased from $0.34 per share in 2002 to $1.38 per share in 2003. We also made substantial progress toward improving our cash flow. In 2002, free cash flow (cash from operations minus capital expenditures and dividends paid to stockholders) was a negative $732 million. In 2003, it was a positive $1.45 billion, a turnaround of $2.2 billion – well beyond our turnaround target of $1 billion. We also improved our financial ratios, including a reduction in our net debt to total capital ratio from 56 percent to 50 percent. Meanwhile, Dow’s stock rose 40 percent during the year. As measured by total shareholder return, Dow has outperformed the Standard & Poors (S&P) 500 and the S&P Chemicals Index both in 2003 and over the past five years. Governance The Company continues its focus on sound corporate governance. In 2003, the Board of Directors elected its first Presiding Director, Harold T. Shapiro, instituted and disclosed new Corporate Governance Guidelines, and launched a corporate governance web site with a link to contact the Directors by email. Committee charters were adopted for each standing Board Committee and are posted on the governance web site. At the 2004 Annual Meeting, stockholders will be asked to approve a return to annual election of all Directors to allow for greater accountability. The Board has also adopted an updated Code of Business Conduct to reinforce the importance of ethical business practices worldwide. In November, as part of its succession planning responsibilities, the Board named Andrew N. Liveris as President and Chief Operating Officer. Andrew, an Australian with a 27-year Dow career, brings a wealth of experience to his new role, including many years working in Dow's Asian operations and as head of Performance Chemicals. He is leading our effort to further improve the Company's productivity and to accelerate implementation of the Company's strategy. We have also now formed the Office of the Chief Executive, a group of senior managers that oversees the Company's strategic priorities. Two new Directors were added in 2003: Jeff M. Fettig, President and Chief Executive Officer of Whirlpool Corporation, and Keith R. McKennon, retired Chairman and Chief Executive Officer of PacifiCorp and former Dow Director. They bring valuable experience and insight to our Board. Environment, Health, and Safety Of all our accomplishments, our environmental, health, and safety results were probably what gave Dow people the most satisfaction. These represent our concern for one another and for the communities where we work and live. We improved our injury and illness rate by 19 percent in 2003, and there were no injuries at all in more than 70 percent of our plants. Overall, we have reduced our injury and illness rate by 77 percent from 1994 when we set our ambitious 2005 Environmental, Health, and Safety Goals. We also posted a 23 percent yearly reduction in leaks, breaks, and spills; a 63 percent improvement from 1994. Our recognition of the strong interrelationship between economic prosperity, environmental stewardship, and corporate social responsibility, and our ongoing commitment to improving our performance in all three areas have enabled us to proactively strengthen our Company instead of operating in a weak or reactive mode. Energy Management One example of Dow leadership was in the area of energy use. The chemical industry has been hit hard by increases in energy costs and, in some cases, by shortfalls in the supply of oil and gas. Take away the huge impact of energy costs on Dow in 2002 and 2003, and our financial results would have been much better. In the long run, we need to take a more strategic look at energy use and exert greater control over our energy supply. In 2003, we took initial steps to do just that. We announced our collaboration with General Motors Corporation in the world’s largest application to date of hydrogen fuel cells in a new power generation project in Freeport, Texas. It is the first time a carmaker has used its fuel cell technology to provide electricity and heat for buildings and manufacturing inside a chemical plant. Dow will ultimately use about 400 GM fuel cells to generate 35 megawatts of electricity. This represents two percent of the total electricity used by Dow in Freeport and is roughly the equivalent power used by 25,000 average homes for a year. This is a big step for evaluating fuel cell technology and a significant step on the road to the hydrogen economy. Dow sees fuel cells as one potential solution to the environmental challenges associated with being an energy-intensive company. Through our commitment to the principles of Sustainable Development, Dow continues to explore and invest in alternative energy solutions. Other Examples While energy use is one area where our Company is benefiting from the sustainability mindset we have embraced, we would like to draw your attention to some of our other innovative solutions to global sustainability issues, such as:
You’ll find many other examples in this 2003 Public Report.
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