Letter from the Site Leader — Bob Walker

Every year brings with it challenges and change and 2003 was no different. The economy continued to be unpredictable, our company started a global reorganization targeted at enhancing our competitive position, and here at Texas Operations we experienced a work stoppage. In 2004, we continue to work to meet these and other challenges for the long-term success of our employees, our site, and our community.

The future of Texas Operations depends on how competitive we can be in a global marketplace. This is also the case for the Union Carbide and other Dow and Dow affiliated sites along the Gulf Coast. A key component of being and staying competitive is reducing our total cost to serve. Included in these costs are labor costs and conditions, the maintenance costs of our plants, and the costs to convert our raw materials, such as natural gas, into the products we sell. In addition, our safety and environmental performance needs to be best in class in order to compete for Dow's investment dollars.

In 2003 site leadership worked hard with union leadership to negotiate innovative labor agreements, which addressed flexibility, skill initiatives and empowerment, within our bargained-for workforce. These new contracts will enable Texas Operations to achieve Best in Class performance, while helping to ensure our long-term success.

This success, however, is threatened by the fact that volatile energy costs are having a devastating effect on the U.S. chemical industry and the entire manufacturing base. Texas Operations’ current energy bill is $1 million a day higher, while the company's global energy costs increased by $2.7 billion or 33 percent.

There is an energy crisis in this country with oil and natural gas prices continuing to climb. The competitive advantage that Dow and other U.S. producers have had with a stable source of low-cost natural gas, which was one of the key reasons Texas Operations was developed in the first place, has disappeared and is unlikely to return anytime soon. That is why there must be a comprehensive energy policy in this country.

Texas Operations continues to work on energy-saving initiatives, but for this site to grow we must have access to a globally-competitive supply of natural gas and natural gas liquids. That is why Dow signed a 20-year agreement with Freeport LNG in February 2004.

2003 was the first year since 1995 that Dow increased profit margins, but to continue to compete in the global market the company must constantly reduce cost structure and increase the effectiveness of our organization. This is important but difficult because these steps often involve job reductions.

The elimination of jobs is being done globally and the reorganization process has reached Texas Operations. The decisions are tough and not a reflection on the quality of the people, but rather a part of business realities and of the challenges and changes that Dow and Texas Operations faced in 2003 and continue to face in 2004.

Like change, working to remain competitive is never easy. Dow and Texas Operations recognize this and are working to ensure the future of our company and our site for the benefit of our employees, communities, and investors. So while 2004 will present us with more challenges, I am convinced that in the end we will be a stronger and more successful company because of the way we meet those challenges today.

Bob Walker
Vice President of Dow Texas Operations