tdccform10-k2009.htm
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,
2009
Commission
file number: 1-3433
THE
DOW CHEMICAL COMPANY
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction of
incorporation
or organization)
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38-1285128
(I.R.S.
Employer Identification No.)
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2030
DOW CENTER, MIDLAND, MICHIGAN 48674
(Address
of principal executive
offices)
(Zip Code)
Registrant’s
telephone number, including area code: 989-636-1000
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
Common
Stock, par value $2.50 per share
Debentures,
6.85%, final maturity 2013
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Name of each exchange on which
registered
Common
Stock registered on the New York and
Chicago
Stock Exchanges
Debentures
registered on the New York Stock Exchange
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
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Yes o
No
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
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Yes þ
No
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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.
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þ Yes o No
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Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
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þ Yes o No
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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.
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þ |
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
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o Yes þ No
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The
aggregate market value of voting common stock held by non-affiliates as of
June 30, 2009 (based upon the closing price of $16.14 per common
share as quoted on the New York Stock Exchange), was approximately
$18.4 billion. For purposes of this computation, it is assumed that
the shares of voting stock held by Directors, Officers and the Dow
Employees’ Pension Plan Trust would be deemed to be stock held by
affiliates. Non-affiliated common stock outstanding at
June 30, 2009 was 1,140,566,930 shares.
Total
common stock outstanding at January 31, 2010 was 1,150,293,750
shares.
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DOCUMENTS
INCORPORATED BY REFERENCE
Part
III: Proxy Statement for the Annual Meeting of Stockholders to be
held on May 13, 2010.
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The
Dow Chemical Company
ANNUAL
REPORT ON FORM 10-K
For
the fiscal year ended December 31, 2009
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PAGE
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PART
I
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Business.
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3
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Risk
Factors.
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13
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Unresolved
Staff Comments.
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16
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Properties.
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17
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Legal
Proceedings.
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18
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Submission
of Matters to a Vote of Security Holders.
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23
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PART
II
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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27
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Selected
Financial Data.
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28
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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30
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Quantitative
and Qualitative Disclosures About Market Risk.
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77
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Financial
Statements and Supplementary Data.
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78
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
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158
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Controls
and Procedures.
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159
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Other
Information.
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161
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PART
III
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Directors,
Executive Officers and Corporate Governance.
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162
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Executive
Compensation.
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162
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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162
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Certain
Relationships and Related Transactions, and Director
Independence.
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162
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Principal
Accounting Fees and Services.
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162
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PART
IV
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Exhibits,
Financial Statement Schedules.
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163
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165
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The
Dow Chemical Company and Subsidiaries
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. Except
as otherwise indicated by the context, the terms “Company” or “Dow” as used
herein mean The Dow Chemical Company and its consolidated subsidiaries. On
April 1, 2009, the merger of Rohm and Haas Company (“Rohm and Haas”) with a
subsidiary of the Company was completed, and Rohm and Haas became a wholly owned
subsidiary of Dow.
The
Company is engaged in the manufacture and sale of chemicals, plastic materials,
agricultural products and services, advanced materials and other specialized
products and services.
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
combines the power of science and technology with the “Human Element” to
passionately innovate what is essential to human progress. The Company connects
chemistry and innovation with the principles of sustainability to help address
many of the world’s most challenging problems such as the need for clean water,
renewable energy generation and conservation, and increasing agricultural
productivity. Dow’s diversified industry-leading portfolio of specialty
chemical, advanced materials, agrosciences and plastics businesses deliver a
broad range of technology-based products and solutions to customers in
approximately 160 countries and in high growth sectors such as electronics,
water, energy, coatings and agriculture. In 2009, Dow had annual sales of
$44.9 billion and employed approximately 52,000 people worldwide. The
Company’s more than 5,000 products are manufactured at 214 sites in
37 countries across the globe. The following descriptions of the Company’s
eight operating segments include a representative listing of products for each
business.
ELECTRONIC
AND SPECIALTY MATERIALS
Applications: chemical
mechanical planarization (CMP) pads and slurries • chemical processing and
intermediates • electronic displays • food and pharmaceutical processing and
ingredients • printed circuit board materials • semiconductor packaging,
connectors and industrial finishing • water purification
Electronic Materials is a
leading global supplier of materials for chemical mechanical planarization;
materials used in the production of electronic displays; products and
technologies that drive leading edge semiconductor design; materials used in the
fabrication of printed circuit boards; and integrated metallization processes
critical for interconnection, corrosion resistance, metal finishing and
decorative applications. These enabling materials are found in applications such
as consumer electronics, flat panel displays and
telecommunications.
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Products: ACuPLANE™ CMP
slurries; AR™ antireflective coatings; AUROLECTROLESS™ immersion gold
process; COPPER GLEAM™ acid copper plating products; DURAPOSIT™
electroless nickel process; ENLIGHT™ products for photovoltaic
manufacturers; EPIC™ immersion photoresists; INTERVIA™ photodielectrics
for advanced packaging; LITHOJET™ digital imaging processes; OPTOGRADE™
metalorganic precursors; VISIONPAD™ CMP
pads
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Specialty Materials is a
portfolio of businesses characterized by a vast global footprint, a broad array
of unique chemistries, multi-functional ingredients and technology capabilities,
combined with key positions in the pharmaceuticals, food, home and personal
care, water and energy production, and industrial specialty industries. These
technology capabilities and market platforms enable the businesses to develop
innovative solutions that address modern societal needs for sufficient and clean
water, air and energy, material preservation and improved health care, disease
prevention, nutrition and wellness. The businesses’ global footprint and
geographic reach provide multiple opportunities for value growth. Specialty
Materials consists of five global businesses: Dow Water and Process Solutions,
Dow Home and Personal Care, Dow Microbial Control, Dow Wolff Cellulosics and
Performance Materials.
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Products and Services:
Acrolein derivatives; ACUDYNE™ hair fixatives; ACULYN™ rheology modifiers;
ACUMER™ scale inhibitors and dispersants; AMBERLITE™ ion exchange resins;
AUTOMATE™ liquid dyes; Basic nitroparaffins and nitroparaffin-based
specialty chemicals; BOROL™ bleaching solution; CANGUARD™ BIT
preservatives; CELLOSIZE™ hydroxyethyl cellulose; Chiral compounds and
biocatalysts; CLEAR+STABLE™ carboxymethyl cellulose; CORRGUARD™ amino
alcohol; CYCLOTENE™ advanced electronics resins; DOW™ electrodeionization;
DOW™ latex powders; DOW™ ultrafiltration; DOWEX™ ion exchange resins;
DOWICIDE™ antimicrobial bactericides and fungicides; DURAPLUS™ floor care
polymers; ECOSURF™ biodegradable surfactants; EVOCAR™ vinyl acetate
ethylene; FILMTEC™ elements; FORTEFIBER™ soluble dietary fiber;
FOUNDATIONS™ latex; Hydrocarbon resins; Industrial biocides; METHOCEL™
cellulose ethers; MORTRACE™ marking technologies; NEOCAR™ branched vinyl
ester latexes; OPULYN™ opacifiers; POLYOX™ water-soluble resins; PRIMENE™
amines; Quaternaries; Reverse osmosis, electrodeionization and
ultrafiltration modules; SATINFX™ delivery system; SATISFIT™ Weight Care
Technology; SILK™ semiconductor dielectric resins; SOLTERRA™ Boost
ultraviolet protection-boosting polymers; SOLTEX™ waterproofing polymer;
SUNSPHERES™ SPF boosters; UCAR™ all-acrylic, styrene-acrylic and
vinyl-acrylic latexes; UCAR™ POLYPHOBE™ rheology modifiers; UCARE™
polymers; UCARHIDE™ opacifier; WALOCEL™ cellulose polymers; WALSRODER™
nitrocellulose
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The
Electronic and Specialty Materials segment also includes the Company’s share of
the results of Dow Corning Corporation, a joint venture of the
Company.
COATINGS
AND INFRASTRUCTURE
Applications: building and
construction, insulation and weatherization, roofing membrane systems, adhesives
and sealants • construction materials (vinyl siding, vinyl windows, vinyl
fencing) • flexible and rigid packaging • general mortars and concrete, cement
modifiers and plasters, tile adhesives and grouts • house and traffic paints •
leather, textile, graphic arts and paper • metal coatings • processing aids for
plastic production • tapes and labels
Adhesives and Functional
Polymers is a portfolio of businesses that primarily manufacture sticking
and bonding solutions for a wide range of applications, including adhesive tapes
and paper labels, flexible packaging and leather, textile and imaging. These
products are supported with market recognized best-in-class technical support
and end-use application knowledge. Many of the businesses’ water-borne
technologies are well-positioned to support more environmentally preferred
applications.
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Products: ADCOTE™ and
AQUA-LAM™ laminating adhesives; MOR-FREE™ solventless adhesives; ROBOND™
acrylic adhesives; SERFENE™ barrier coatings; Solvent-based polyurethanes
and polyesters; TYMOR™ tie resins
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Dow Building and Construction
is comprised of two global businesses – Dow Building Solutions and Dow
Construction Chemicals – which offer extensive lines of industry-leading
insulation, housewrap, sealant and adhesive products and systems, as well as
construction chemical solutions. Through its strong sales support, customer
service and technical expertise, Dow Building Solutions provides meaningful
solutions for improving the energy efficiency in homes and buildings today,
while also addressing the industry’s emerging needs and demands. Additionally,
Dow Construction Chemicals provides solutions for increased durability, greater
water resistance and lower systems costs. As a leader in insulation solutions,
the businesses’ products help curb escalating utility bills, reduce a building’s
carbon footprint and provide a more comfortable indoor environment.
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Products: AQUASET™
acrylic thermosetting resins; CELLOSIZE™ hydroxyethyl cellulose;
FROTH-PAK™ polyurethane spray foam; GREAT STUFF™ polyurethane foam
sealant; INSTA-STIK™ roof insulation adhesive; POWERHOUSE™ solar shingle;
RHOPLEX™ aqueous acrylic polymer emulsions; STYROFOAM™ brand insulation
products (including extruded polystyrene and polyisocyanurate rigid foam
sheathing products); THERMAX™ insulation; TILE BOND™ roof tile adhesive;
WEATHERMATE™ weather barrier solutions (housewraps, sill pans, flashings
and tapes)
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Dow Coating Materials is the
largest coatings supplier in the world and a premier supplier of raw materials
for architectural paints and industrial coatings. The business manufactures and
delivers solutions that leverage high quality, technologically advanced product
offerings for paint and coatings. The business also offers technologies used in
industrial coatings, including packaging, pipelines, wood, automotive, marine,
maintenance and protective industries. The business is also the leader in the
conversion of solvent to water-based technologies, which enable customers to
offer more environmentally friendly products, including low volatile organic
compound (VOC) paints and other sustainable coatings.
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Products: ACRYSOL™
rheology modifiers; AVANSE™, ELASTENE™, PRIMAL™ and RHOPLEX™ acrylics;
CELLOSOLVE™ and the CARBITOL™ and DOWANOL™ series of oxygenated solvents;
D.E.H.™ curing agent and intermediates; D.E.R.™ and D.E.N.™ liquid and
epoxy resins; FORTEGRA™ Epoxy Tougheners; OROTAN™ and TAMOL™ dispersants;
ROPAQUE™ opaque polymers; TRITON™, TERGITOL™, DOWFAX™ and ECOSURF™ SA
surfactants
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HEALTH
AND AGRICULTURAL SCIENCES
Applications: agricultural
seeds, traits (genes) and oils • control of weeds, insects and plant diseases
for agriculture and pest management
Dow AgroSciences is a global
leader in providing agricultural and plant biotechnology products, pest
management solutions and healthy oils. The business invents, develops,
manufactures and markets products for use in agriculture, industrial and
commercial pest management and food service.
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Products: AGROMEN™
seeds; BRODBECK™ seed; CLINCHER™ herbicide; DAIRYLAND™ seed; DELEGATE™
insecticide; DITHANE™ fungicide; FORTRESS™ fungicide; GARLON™ herbicide;
GLYPHOMAX™ herbicide; GRANITE™ herbicide; HERCULEX™ I, HERCULEX™ RW and
HERCULEX™ XTRA insect protection; KEYSTONE™ herbicides; LAREDO™ fungicide;
LONTREL™ herbicide; LORSBAN™ insecticides; MILESTONE™ herbicide; MUSTANG™
herbicide; MYCOGEN™ seeds; NEXERA™ canola and sunflower seeds; PHYTOGEN™
cottonseeds; PROFUME™ gas fumigant; RENZE™ seed; SENTRICON™ termite colony
elimination system; SIMPLICITY™ herbicide; STARANE™ herbicide; TELONE™
soil fumigant; TORDON™ herbicide; TRACER™ NATURALYTE™ insect control;
TRIUMPH™ seed; VIKANE™ structural fumigant; WIDESTRIKE™ insect
protection
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The
Health and Agricultural Sciences segment also includes the results of the
AgroFresh business, providing a portfolio of products used for maintaining the
freshness of fruits, vegetables and flowers.
PERFORMANCE
SYSTEMS
Applications: automotive
interiors, exteriors, under-the-hood and body engineered systems • bedding •
caps and closures • food and specialty packaging • footwear • furniture •
gaskets and sealing components • manufactured housing and modular construction •
medical equipment • mining • pipe treatment • pressure sensitive adhesives •
transportation • vinyl exteriors • waterproofing membranes • wire and cable
insulation and jacketing materials for power utility and
telecommunications
Automotive Systems is a
leading global provider of technology-driven solutions that meet consumer demand
for vehicles that are safer, stronger, quieter, lighter, more comfortable and
stylish. The business provides plastics, adhesives, glass bonding systems,
emissions control technology, films, fluids, structural enhancement and
acoustical management solutions to original equipment manufacturers, tier,
aftermarket and commercial transportation customers. With offices and
application development centers around the world, Automotive Systems provides
materials science expertise and comprehensive technical capabilities to its
customers worldwide.
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Products: AERIFY™ diesel
particulate filters; BETAFOAM™ NVH acoustical foams; BETAMATE™ structural
adhesives; BETASEAL™ glass bonding systems; DOW™ polyethylene resins;
IMPAXX™ energy management foam; INSPIRE™ performance polymers; INTEGRAL™
adhesive films; ISONATE™ pure and modified methylene diphenyl diisocyanate
(MDI) products; MAGNUM™ ABS resins; PELLETHANE™ thermoplastic polyurethane
elastomers; Premium brake fluids and lubricants; PULSE™ engineering
resins; SPECFLEX™ semi-flexible polyurethane foam
systems
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Dow Elastomers offers a unique
set of elastomers, specialty films and plastic additive products for customers
worldwide. The business is focused on delivering innovative solutions that allow
for differentiated participation in multiple industries and applications. The
business offers a broad range of performance elastomers and plastomers,
specialty copolymers, synthetic rubber, specialty resins, and films and plastic
additives. Key applications include adhesives, transportation, building and
construction, packaging and consumer durables.
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Products: ADVASTAB™
thermal stabilizer; AFFINITY™ polyolefin plastomers (POPs); AMPLIFY™
functional polymers; DOW™ Adhesive Film; DOW™ Backing Layer Film; DOW™
Medical Device Film; DOW™ Medical Packaging Film; DOW™ very low density
polyethylene; ENGAGE™ polyolefin elastomers; INFUSE™ olefin block
copolymers; INTEGRAL™ adhesive films; NORDEL™ hydrocarbon rubber; NYLOPAK™
nylon barrier films; OPTICITE™ films; PARALOID™ EXL impact modifier;
PRIMACOR™ copolymers; PROCITE™ window envelope films; PULSE™ engineering
resins; SARAN™ barrier resins; SARANEX™ barrier films; TRENCHCOAT™
protective films; TRYCITE™ polystyrene film; TYBRITE™ clear packaging
film; TYRIN™ chlorinated polyethylene; VERSIFY™ plastomers and
elastomers
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Dow Wire and Cable is the
world’s leading provider of polymers, additives and specialty oil
technology-based solutions for electrical and telecommunication applications.
Through its suite of polyolefin ENDURANCE™ products, the business sets industry
standards for assurance of longevity, efficiency, ease of installation and
protection in the transmission, distribution and consumption of power, voice and
data. In addition to world-class power, telecommunications and flame
retardant/specialty cable applications, the business supports its product
offerings with solid research, product development, engineering and market
validation expertise.
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Products: ENGAGE™
polyolefin elastomers; NORDEL™ hydrocarbon rubber; SI-LINK™ and REDI-LINK™
moisture crosslinkable polyethylene-based wire and cable insulation
compounds; TYRIN™ chlorinated polyethylene; UNIGARD™ flame retardant
compound for specialty wire and cable
applications
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The
Formulated Systems
business manufactures and markets custom formulated, rigid and semi-rigid,
flexible, integral skin and microcellular polyurethane foams and systems and
tailor-made epoxy solutions and systems. These products are used in a broad
range of applications including appliances, athletic equipment, automotive,
bedding, construction, decorative molding, furniture, shoe soles and wind
turbines.
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Products: AIRSTONE™
epoxy systems; Encapsulants and chemical compositions; ENFORCER™
Technology and ENHANCER™ Technology for polyurethane carpet and turf
backing; HYPERKOTE™, TRAFFIDECK™ and VERDISEAL™ waterproofing systems;
HYPOL™ hydrophilic polyurethane prepolymers; RENUVA™ Renewable Resource
Technology; SPECFIL™ urethane components; SPECFLEX™ copolymer polyols;
SPECTRIM™ reaction moldable products; VORACOR™ and VORALAST™ polyurethane
systems and VORALAST™ R renewable content system; VORAMER™ industrial
adhesives and binders; VORASTAR™ polymers; XITRACK™ polyurethane rail
ballast stabilization systems
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The
Performance Systems segment also includes the results of Dow Fiber Solutions,
providing differentiated fibers and process improvements to the textile
industry, and Dow Oil and Gas, providing products for use in exploration and
production, refining and gas processing, transportation, and fuel and lubricant
performance.
PERFORMANCE
PRODUCTS
Applications: adhesives •
aircraft and runway deicing fluids • appliances • carpeting • chelating agents •
chemical intermediates • civil engineering • cleaning products • coated paper
and paperboard • composites • construction • corrosion inhibitors • detergents,
cleaners and fabric softeners • electrical castings, potting and encapsulation
and tooling • electrical laminates • electronics • flavors and fragrances •
flooring • footwear • gas treatment • heat transfer fluids • home and office
furnishings • industrial coatings • mattresses • metalworking fluids • packaging
• sealants • surfactants
The
Amines business is the
world’s largest producer of ethanolamines, ethyleneamines and isopropanolamines
used in a wide variety of applications, including gas treatment, heavy-duty
liquid detergents, herbicide formulations for the agricultural industry and
personal care products.
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Products: Alkyl
alkanolamines; Ethanolamines; Ethyleneamines; Isopropanolamines;
Piperazine; VERSENE™ chelating
agents
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The
Emulsion Polymers
business provides a broad line of styrene-butadiene products supporting
customers in paper and paperboard applications, as well as carpet and artificial
turf backings.
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Products:
Styrene-butadiene latex
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The
Epoxy business is the
world’s largest producer of epoxy resins and intermediates. The business is the
most feedstock-integrated supplier in the world. Epoxies provide good adhesion
and coating protection over a range of environmental conditions, making them
ideal for applications such as transportation, marine and civil
engineering.
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Products: D.E.H.™ epoxy
curing agents or hardeners; D.E.N.™ epoxy novolac resins; D.E.R.™ epoxy
resins (liquids, solids and solutions); Epoxy intermediates (acetone,
allyl chloride, epichlorohydrin and phenol); Epoxy resin waterborne
emulsions and dispersions; FORTEGRA™ epoxy tougheners; Glycidyl
methacrylate (GMA)
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The
Oxygenated Solvents
business offers a full range of acetone derivatives, alcohols, esters, and
ethylene- and propylene-based glycol ether products. The business is the
industry leader in solvent products used in cleaning products, inks,
electronics, mining, paints and coatings, personal care and other
applications.
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Products: Acetic esters;
Acetone derivatives; Alcohols; Aldehydes; Butyl CARBITOL™ and Butyl
CELLOSOLVE™ solvents; Carboxylic acids; DOWANOL™ glycol ethers; ECOSOFT™
IK solvent; PROGLYDE™ DMM solvent; UCAR™
propionates
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The
Performance Fluids, Polyglycols
and Surfactants business is one of the world’s leading suppliers of
polyglycols and surfactants, with a broad range of products and technology and a
proven record of performance and economy. The business also produces a broad
line of lubricants, hydraulic fluids, aircraft deicing fluids and thermal
fluids, with some of the most recognized brand names in the industry. Product
applications include chemical processing, cleaning, heating, cooling, food and
beverage processing, fuel additives, paints and coatings, pharmaceuticals and
silicone surfactants.
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Products: AMBITROL™ and
NORKOOL™ coolants; CARBOWAX™ and CARBOWAX SENTRY™ polyethylene glycols and
methoxypolyethylene glycols; DOW™ polypropylene glycols; DOW™ SYMBIO base
fluid; DOWFAX™, TERGITOL™ and TRITON™ surfactants; DOWFROST™ and DOWTHERM™
heat transfer fluids; ECOSURF™ biodegradable surfactants; SYNALOX™
lubricants; UCAR™ deicing fluids; UCON™
fluids
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The
Performance Monomers
business produces specialty monomer products that are sold externally as well as
consumed internally as building blocks used in downstream polymer businesses.
The business’ products are used in several applications, including cleaning
materials, personal care products, paints, coatings and inks.
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Products: Acrylic
acid/acrylic esters; ACUMER™, ACUSOL™, DURAMAX™, OPTIDOSE™, ROMAX™ and
TAMOL™ dispersants; Methyl
methacrylate
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The
Polyurethanes business
is a leading global producer of polyurethane raw materials. Dow’s polyurethane
products are used in a broad range of applications including appliance, athletic
equipment, automotive, bedding, construction, decorative molding, furniture and
shoe soles.
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Products: ECHELON™
polyurethane prepolymer; ISONATE™ methylene diphenyl diisocyanate (MDI);
MONOTHANE™ single component polyurethane elastomers; PAPI™ polymeric MDI;
Propylene glycol; Propylene oxide; RENUVA™ Renewable Resource Technology;
VORANATE™ isocyanate; VORANOL™ VORACTIV™ polyether and copolymer
polyols
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The
Performance Products segment also includes the results of Dow Haltermann, a
provider of world-class contract manufacturing services to companies in the fine
and specialty chemicals and polymers industries, and SAFECHEM, a wholly owned
subsidiary that manufactures closed-loop systems to manage the risks associated
with chlorinated solvents. The segment also includes a portion of the results of
the OPTIMAL Group of Companies (through September 30, 2009; see Note E
to the Consolidated Financial Statements regarding the divestiture of this group
of joint ventures) and the SCG-Dow Group, joint ventures of the
Company.
BASIC
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
The
Polyethylene business is
the world’s leading supplier of polyethylene-based solutions through sustainable
product differentiation. With multiple catalyst and process technologies, the
business offers customers one of the industry’s broadest ranges of polyethylene
resins.
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Products: 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; TUFLIN™
linear low density polyethylene (LLDPE) resins; UNIVAL™ HDPE
resins
|
The
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.
|
·
|
Products: DOW™
homopolymer polypropylene resins; DOW™ impact copolymer polypropylene
resins; DOW™ random copolymer polypropylene resins; INSPIRE™ performance
polymers; UNIPOL™ PP process technology; SHAC™ and SHAC™ ADT catalyst
systems
|
The
Styrenics 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.
|
·
|
Products: Licensing and
supply of related catalysts, process control software and services for the
Mass ABS process technology; STYRON A-TECH™ and C-TECH™ advanced
technology polystyrene resins and a full line of STYRON™ general purpose
polystyrene resins; STYRON™ high-impact polystyrene
resins
|
The
Basic Plastics segment also includes the results of the Basic Plastics Licensing
and Catalyst business and the Polycarbonate and Compounds and Blends business.
It also includes the results of Equipolymers, Americas Styrenics LLC and
Univation Technologies (which licenses the UNIPOL™ polyethylene process and
sells related catalysts, including metallocene catalysts), as well as a portion
of the results of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins
Company K.S.C. and the SCG-Dow Group, all joint ventures of the
Company.
BASIC
CHEMICALS
Applications: agricultural
products • alumina • automotive antifreeze and coolant systems • carpet and
textiles • chemical processing • dry cleaning • household cleaners and plastic
products • inks • metal cleaning • packaging, food and beverage containers •
paints, coatings and adhesives • personal care products • petroleum refining •
pharmaceuticals • plastic pipe • protective packaging • pulp and paper
manufacturing • soaps and detergents • water treatment
The
Chlor-Alkali/Chlor-Vinyl
business focuses on the production of chlorine for consumption by
downstream Dow derivatives, as well as production, marketing and supply of
ethylene dichloride, vinyl chloride monomer and caustic soda. These products are
used for applications such as alumina production, pulp and paper manufacturing,
soaps and detergents and building and construction. Dow is the world’s largest
producer of both chlorine and caustic soda.
|
·
|
Products: Caustic soda;
Chlorine; Ethylene dichloride (EDC); Hydrochloric acid; Vinyl chloride
monomer (VCM)
|
The
Ethylene Oxide/Ethylene
Glycol business is the world’s largest producer of purified ethylene
oxide, principally used in Dow’s downstream performance derivatives. Dow is also
a key supplier of ethylene glycol to MEGlobal, a 50:50 joint venture and a world
leader in the manufacture and marketing of merchant monoethylene glycol and
diethylene glycol. Ethylene glycol is used in polyester fiber, polyethylene
terephthalate (PET) for food and beverage container applications, polyester
film, and aircraft and runway deicers.
|
·
|
Products: Ethylene oxide
(EO); Ethylene glycol (EG); METEOR™ EO/EG process technology and
catalysts
|
The
Basic Chemicals segment also includes the results of the Chlorinated Organics
business. Also included in the Basic Chemicals segment are the results of
MEGlobal and a portion of the results of EQUATE Petrochemical Company K.S.C.,
The Kuwait Olefins Company K.S.C. and the OPTIMAL Group of Companies (through
September 30, 2009; see Note E to the Consolidated Financial
Statements regarding the divestiture of this group of joint ventures), all joint
ventures of the Company.
HYDROCARBONS
AND ENERGY
Applications: polymer and
chemical production • power
The 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
principally for use in Dow’s global operations. The business regularly sells its
by-products and buys and sells products in order to balance regional production
capabilities and derivative requirements. The business also sells products to
certain Dow joint ventures. Dow is the world leader in the production of olefins
and aromatics.
|
·
|
Products: Benzene;
Butadiene; Butylene; Cumene; Ethylene; Propylene; Styrene; Power, steam
and other utilities
|
The
Hydrocarbons and Energy segment also includes the results of Compañía Mega S.A.
and a portion of the results of The Kuwait Olefins Company K.S.C. and the
SCG-Dow Group, joint ventures of the Company.
Corporate includes the results
of Ventures (which includes new business incubation platforms focused on
identifying and pursuing new commercial opportunities); Venture Capital;
non-business aligned technology licensing and catalyst activities; the Company’s
insurance operations and environmental operations; and certain corporate
overhead costs and cost recovery variances not allocated to the operating
segments. Corporate also includes the results of the Salt business, which the
Company acquired with the April 1, 2009 acquisition of Rohm and Haas and
sold to K+S Aktiengesellschaft on October 1, 2009.
Industry
Segments and Geographic Area Results
See
Note Y to the Consolidated Financial Statements for information by
operating segment and geographic area.
Competition
Historically,
the chemical industry has operated in a competitive environment, and that
environment is expected to continue. The Company experiences substantial
competition in each of its operating segments and in each of the geographic
areas in which it operates. In addition to other chemical companies, the
chemical divisions of major national and international oil companies, advanced
material suppliers and producers of crop protection chemicals and agricultural
biotechnology provide substantial competition in the United States and abroad.
Dow competes worldwide on the basis of quality, technology, price and customer
service, and for 2009, continued to be the largest U.S. producer of
chemicals and plastics, in terms of sales.
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 and Texas; Alberta, Canada; Brazil; and Germany. The Company also owns
limestone deposits in Texas.
The
Company purchases hydrocarbon raw materials including 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, propylene and styrene to supplement internal
production. Expenditures for hydrocarbon feedstocks and energy accounted for
35 percent of the Company’s production costs and operating expenses for the
year ended December 31, 2009. The Company purchases these raw materials on
both short- and long-term contracts.
Other
significant raw materials include acrylonitrile, flame retardants, aniline,
bisphenol, methanol, rubber, carbon black, ammonia, formaldehyde, acetic acid
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 2009, and expects to
continue to have adequate supplies of raw materials in 2010.
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-seven
percent of the sales of the Basic Chemicals segment in 2009 were to one
customer, with which the Company has an ongoing supply contract. Sales to
MEGlobal, a 50:50 joint venture with Petrochemical Industries Company (K.S.C.)
of Kuwait, represented approximately 11 percent of the sales in the Basic
Chemicals segment. Excess ethylene glycol produced in Dow’s plants in the United
States and Europe is sold to MEGlobal. Ten percent of the sales of the
Hydrocarbons and Energy segment in 2009 were to another customer, with which the
Company has an ongoing supply contract. Other than the sales to these customers,
no significant portion of the business of any operating segment is dependent
upon a single customer.
No
single product accounted for more than 5 percent of the Company’s
consolidated net sales in 2009.
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 $1,492 million in 2009, $1,310 million in
2008 and $1,305 million in 2007. At December 31, 2009, the Company
employed approximately 6,700 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, 2009, the Company owned 3,661 active U.S. patents and 13,793
active foreign patents as follows:
Patents
Owned at December 31, 2009
|
|
|
|
U.S.
|
|
|
Foreign
|
|
Electronic
and Specialty Materials
|
|
|
1,029 |
|
|
|
2,653 |
|
Coatings
and Infrastructure
|
|
|
658 |
|
|
|
2,793 |
|
Health
and Agricultural Sciences
|
|
|
512 |
|
|
|
1,810 |
|
Performance
Systems
|
|
|
608 |
|
|
|
3,009 |
|
Performance
Products
|
|
|
318 |
|
|
|
1,360 |
|
Basic
Plastics
|
|
|
255 |
|
|
|
1,296 |
|
Basic
Chemicals
|
|
|
21 |
|
|
|
93 |
|
Hydrocarbons
and Energy
|
|
|
25 |
|
|
|
179 |
|
Corporate
|
|
|
235 |
|
|
|
600 |
|
Total
|
|
|
3,661 |
|
|
|
13,793 |
|
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 $269 million in 2009,
$307 million in 2008 and $247 million in 2007. The Company incurred
royalties to others of $102 million in 2009, $60 million in 2008 and
$57 million in 2007. 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 its patents,
licenses and trademarks in the aggregate 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, 2009, including direct
or indirect ownership interest for each, are listed below:
|
·
|
Americas
Styrenics LLC – 50 percent – a U.S. limited liability company that
manufactures polystyrene and styrene monomer.
|
|
·
|
Compañía
Mega S.A. – 28 percent – an Argentine company that owns a natural gas
separation and fractionation plant, which provides feedstocks to the
Company’s petrochemical plant located in Bahia Blanca,
Argentina.
|
|
·
|
Dow
Corning Corporation – 50 percent – a U.S. company that manufactures
silicone and silicone products. See Note N to the Consolidated
Financial Statements.
|
|
·
|
EQUATE
Petrochemical Company K.S.C. – 42.5 percent – a Kuwait-based company that
manufactures ethylene, polyethylene and ethylene glycol.
|
|
·
|
Equipolymers
– 50 percent – a company, headquartered in Horgen, Switzerland, that
manufactures purified terephthalic acid, and manufactures and markets
polyethylene terephthalate resins.
|
|
·
|
The
Kuwait Olefins Company K.S.C. – 42.5 percent – a Kuwait-based company
that manufactures ethylene and ethylene glycol.
|
|
·
|
MEGlobal
– 50 percent – a company, headquartered in Dubai, United Arab Emirates,
that manufactures and markets monoethylene glycol and diethylene
glycol.
|
|
·
|
The
SCG-Dow Group [consisting of Siam Polyethylene Company Limited –
49 percent; Siam Polystyrene Company Limited – 50 percent; Siam
Styrene Monomer Co., Ltd. – 50 percent; Siam Synthetic Latex Company
Limited – 50 percent] – Thailand-based companies that manufacture
polyethylene, polystyrene, styrene and latex.
|
|
·
|
Univation
Technologies, LLC – 50 percent – a U.S. limited liability company
that develops, markets and licenses polyethylene process technology and
related catalysts.
|
See
Note H to the Consolidated Financial Statements for additional
information.
Financial
Information About Foreign and Domestic Operations and Export Sales
In
2009, the Company derived 68 percent of its sales and had 49 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 Y to the Consolidated
Financial Statements, and discussions of the Company’s risk management program
for foreign exchange and interest rate risk management appear in Part I, Item
1A. Risk Factors; Part II, Item 7A. Quantitative and Qualitative Disclosures
About Market Risk; and Note J to the Consolidated Financial
Statements.
Protection
of the Environment
Matters
pertaining to the environment are discussed in Part I, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, and
Notes A and N to the Consolidated Financial Statements.
Employees
Personnel
count was 52,195 at December 31, 2009, 46,102 at December 31, 2008 and
45,856 at December 31, 2007. Headcount increased from 2008 due primarily to
the acquisition of Rohm and Haas Company (“Rohm and Haas”) (an increase of
approximately 15,400), offset by declines related to restructuring activities
(approximately 5,600), business divestitures (approximately 3,700) and transfers
to a joint venture (approximately 170). Headcount increased slightly in
2008 from year-end 2007 primarily due to acquisitions.
Other
Activities
Dow
engages in the property and casualty insurance and reinsurance business
primarily through its Liana Limited subsidiaries.
The
Dow Chemical Company and Subsidiaries
The
factors described below represent the Company’s principal risks.
The
Company operates in a global, competitive environment in each of its operating
segments and geographic areas.
The
Company sells its broad range of products and services in a competitive, global
environment. Dow competes worldwide on the basis of quality, price, technology
and customer service. Increased levels of competition could result in lower
prices or lower sales volume, which would have a negative impact on the
Company’s results of operations.
The
earnings generated by the Company’s basic chemical and basic plastic products
vary from period to period based in part on the balance of supply relative to
demand within the industry.
The
balance of supply relative to demand within the industry may be significantly
impacted by the addition of new capacity. For basic commodities, capacity is
generally added in large increments as world-scale facilities are built. This
may disrupt industry balances and result in downward pressure on prices due to
the increase in supply, which could negatively impact the Company’s results of
operations.
The Company’s global business
operations give rise to market risk exposure.
The
Company’s global business operations give rise to market risk exposure related
to changes in foreign exchange rates, interest rates, commodity prices and other
market factors such as equity prices. To manage such risks, Dow enters into
hedging transactions, pursuant to established guidelines and policies. If Dow
fails to effectively manage such risks, it could have a negative impact on the
Company’s results of operations.
Volatility
in purchased feedstock and energy costs impacts Dow’s operating costs and adds
variability to earnings.
Purchased
feedstock and energy costs account for a substantial portion of the Company’s
total production costs and operating expenses. The Company uses its feedstock
flexibility and financial and physical hedging programs to lower overall
feedstock costs. However, when these costs increase, the Company is not always
able to immediately raise selling prices and, ultimately, the ability to pass on
underlying cost increases is greatly dependent on market conditions. Conversely,
when these costs decline, selling prices decline as well. As a result,
volatility in these costs could negatively impact the Company’s results of
operations.
The
Company is party to a number of claims and lawsuits arising out of the normal
course of business with respect to commercial matters, including product
liability, governmental regulation and other actions.
Certain
of the claims and lawsuits facing the Company purport to be class actions and
seek damages in very large amounts. All such claims are being contested. With
the exception of the possible effect of the asbestos-related liability of Union
Carbide Corporation (“Union Carbide”), described below, it is the opinion of the
Company’s management that the possibility is remote that the aggregate of all
such claims and lawsuits will have a material adverse impact on the Company’s
consolidated financial statements.
Union
Carbide is and has been involved in a large number of asbestos-related suits
filed primarily in state courts during the past three decades. At
December 31, 2009, Union Carbide’s asbestos-related liability for pending
and future claims was $839 million ($934 million at December 31,
2008) and its receivable for insurance recoveries related to the asbestos
liability was $84 million ($403 million at December 31, 2008). At
December 31, 2009, Union Carbide also had receivables of $448 million
($272 million at December 31, 2008) for insurance recoveries for
defense and resolution costs. It is the opinion of the Company’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.
If
key suppliers are unable to provide the raw materials required for production,
Dow may not be able to obtain the raw materials from other sources and on as
favorable terms.
The
Company purchases hydrocarbon raw materials, including liquefied petroleum
gases, crude oil, naphtha, natural gas and condensate. The Company also
purchases electric power, benzene, ethylene, propylene and styrene to supplement
internal production, as well as other raw materials. If the Company’s key
suppliers are unable to provide the raw materials required for production, it
could have a negative impact on Dow’s results of operations. For example, in
2005 and 2008, the Company experienced temporary supply disruptions related to
major hurricanes on the U.S. Gulf Coast. In addition, volatility and disruption
of financial markets could limit suppliers’ ability to obtain adequate financing
to maintain operations, which could have a negative impact on Dow’s results of
operations.
Adverse
conditions in the global economy and disruption of financial markets could
negatively impact Dow’s customers and therefore Dow’s results of
operations.
A
continuation of the economic downturn in the businesses or geographic areas in
which Dow sells its products could reduce demand for these products and result
in a decrease in sales volume that could have a negative impact on Dow’s results
of operations. In addition, volatility and disruption of financial markets could
limit customers’ ability to obtain adequate financing to maintain operations,
which could result in a decrease in sales volume and have a negative impact on
Dow’s results of operations.
Weather-related
matters could impact the Company’s results of operations.
In
2005 and 2008, major hurricanes caused significant disruption in Dow’s
operations on the U.S. Gulf Coast, logistics across the region and the supply of
certain raw materials, which had an adverse impact on volume and cost for some
of Dow’s products. If similar weather-related matters occur in the future, it
could negatively affect Dow’s results of operations, due to the Company’s
substantial presence on the U.S. Gulf Coast.
Actual or alleged violations of
environmental laws or permit requirements could result in restrictions or
prohibitions on plant operations, substantial civil or criminal sanctions, as
well as the assessment of strict liability and/or joint and several
liability.
The
Company is subject to extensive federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, protection of the
environment, and the generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste materials. At
December 31, 2009, the Company had accrued obligations of $619 million
($312 million at December 31, 2008) for environmental remediation and
restoration costs, including $80 million ($22 million at
December 31, 2008) for the remediation of Superfund sites. This is
management’s best estimate of the costs for remediation and restoration with
respect to environmental matters for which the Company has accrued liabilities,
although the ultimate cost with respect to these particular matters could range
up to approximately twice that amount. Costs and capital expenditures relating
to environmental, health or safety matters are subject to evolving regulatory
requirements and depend on the timing of the promulgation and enforcement of
specific standards which impose the requirements. Moreover, changes in
environmental regulations could inhibit or interrupt the Company’s operations,
or require modifications to its facilities. Accordingly, environmental, health
or safety regulatory matters could result in significant unanticipated costs or
liabilities.
Local,
state and federal governments have begun a regulatory process that could lead to
new regulations impacting the security of chemical plant locations and the
transportation of hazardous chemicals.
Growing
public and political attention has been placed on protecting critical
infrastructure, including the chemical industry, from security threats.
International terrorism, natural disasters and political unrest in some areas of
the world have increased concern regarding the security of chemical production
and distribution. In addition, local, state and federal governments have begun a
regulatory process that could lead to new regulations impacting the security of
chemical plant locations and the transportation of hazardous chemicals, which
could result in higher operating costs and interruptions in normal business
operations.
Increased
concerns regarding the safety of chemicals in commerce and their potential
impact on the environment have resulted in more restrictive regulations and
could lead to additional regulations in the future.
Concerns
regarding the safety of chemicals in commerce and their potential impact on the
environment reflect a growing trend in societal demands for increasing levels of
product safety and environmental protection. These concerns could manifest
themselves in stockholder proposals, preferred purchasing and continued pressure
for more stringent regulatory intervention. In addition, these concerns could
influence public perceptions, the viability of the Company’s products, the
Company’s reputation, the cost to comply with regulations, and the ability to
attract and retain employees, which could have a negative impact on the
Company’s results of operations.
The
value of investments is influenced by economic and market conditions, which
could have a negative impact on the Company’s financial condition and results of
operations.
The
economic environment impacts the fair value of pension and insurance assets,
which could trigger increased future funding requirements of the pension trusts
and could result in additional other-than-temporary impairment losses for
certain insurance assets.
Volatility
and disruption of financial markets could affect access to credit.
The
economic environment can cause contraction in the availability of credit in the
marketplace. This could reduce sources of liquidity for the
Company.
A
downgrade of the Company’s credit rating could have a negative impact on the
Company’s ability to access credit markets.
The
Company’s credit rating is currently investment grade. The Company’s long-term
and short-term credit ratings were downgraded by Fitch, Standard & Poor’s
and Moody’s in the first half of 2009. If the Company’s credit ratings are
further downgraded, borrowing costs will increase on certain indebtedness, and
it could have a negative impact on the Company’s ability to access credit
markets.
Increased
costs related to the financing of the Rohm and Haas acquisition could reduce the
Company’s flexibility to respond to changing business and economic conditions or
fund capital expenditures or working capital needs.
In
2009, the Company issued common equity securities, preferred equity securities
and debt securities to partially finance the $15.7 billion acquisition of
Rohm and Haas Company (“Rohm and Haas”) on April 1, 2009. This financing
requires additional interest and dividend payments and thus may reduce the
Company’s flexibility to respond to changing business and economic conditions or
fund capital expenditure or working capital needs. This may also increase the
Company’s vulnerability to adverse economic conditions.
Failure
to effectively integrate Rohm and Haas could adversely impact the Company’s
financial condition and results of operations.
The
April 1, 2009 acquisition of Rohm and Haas was a significant acquisition
and a significant step in the implementation of Dow’s strategy. While the
Company has acquired businesses in the past, the magnitude of the integration of
this acquisition could present significant challenges and costs, especially
given the effects of the current global economic environment. If the integration
of Rohm and Haas is not completed as planned, the Company may not realize the
benefits, such as cost and growth synergies, anticipated from the acquisition
and the costs of achieving those benefits may be higher than, and the timing
different from, the Company’s current expectations. Realizing the benefits of
the acquisition requires the successful integration of some or all of the sales
and marketing, distribution, manufacturing, engineering, finance, information
technology systems and administrative operations of Rohm and Haas with those of
Dow. This will require substantial attention from the management of the combined
company, which may decrease the time management devotes to normal and customary
operations. In addition, the integration and implementation activities could
result in higher expenses and/or the use of more cash or other financial
resources than expected. If the integration of Rohm and Haas is not successfully
executed, it could adversely affect the Company’s financial condition and
results of operations.
An
impairment of goodwill would negatively impact the Company’s financial
results.
The
April 1, 2009 acquisition of Rohm and Haas increased the Company’s goodwill
by $9.6 billion. At least annually, the Company performs an impairment test
for goodwill. When tested, if the carrying value of goodwill exceeds the
estimated fair value, impairment is deemed to have occurred and the carrying
value of goodwill is written down to fair value with a charge against earnings.
Accordingly, any determination requiring the write-off of a significant portion
of goodwill recorded in connection with the acquisition could negatively impact
the Company’s results of operations.
Failure
to execute certain asset divestitures could adversely affect Dow’s financial
condition and results of operations.
The
Company is focused on reducing its indebtedness and is pursuing a strategy of
divesting certain assets to achieve that goal. If the Company is unable to
successfully sell such assets, it could limit Dow’s ability to reduce
indebtedness and could adversely affect the Company’s financial condition and
results of operations.
The
Dow Chemical Company and Subsidiaries
PART
I, Item 1B. Unresolved Staff Comments.
UNRESOLVED
STAFF COMMENTS
None.
The
Dow Chemical Company and Subsidiaries
PROPERTIES
The
Company operates 214 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 2009,
the Company’s chemicals and plastics production facilities and plants operated
at approximately 74 percent of capacity. The Company’s major production
sites are as follows:
United
States:
|
Plaquemine
and Hahnville, Louisiana; Midland, Michigan; Freeport, Seadrift, Texas
City and Deer Park, Texas; Marlborough, Massachusetts.
|
Canada:
|
Fort
Saskatchewan, Alberta.
|
Germany:
|
Boehlen;
Leuna; Rheinmuenster; Schkopau; Stade.
|
France:
|
Drusenheim.
|
The
Netherlands:
|
Terneuzen.
|
Spain:
|
Tarragona.
|
Argentina:
|
Bahia
Blanca.
|
Brazil:
|
Aratu.
|
Including
the major production sites, the Company has plants and holdings in the following
geographic areas:
United
States:
|
62
manufacturing locations in 23 states.
|
Canada:
|
5
manufacturing locations in 3 provinces.
|
Europe:
|
64
manufacturing locations in 17 countries.
|
Latin
America:
|
29
manufacturing locations in 5 countries.
|
Asia
Pacific:
|
48
manufacturing locations in 9 countries.
|
India,
Middle East and Africa:
|
6
manufacturing locations in 4
countries.
|
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.
A
summary of properties, classified by type, is provided in Note G to the
Consolidated Financial Statements. Additional information regarding leased
properties can be found in Note Q to the Consolidated Financial
Statements.
The
Dow Chemical Company and Subsidiaries
PART
I, Item 3. Legal Proceedings.
LEGAL
PROCEEDINGS
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. Since then, the rate of filing has 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:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Claims
unresolved at January 1
|
|
|
75,706 |
|
|
|
90,322 |
|
|
|
111,887 |
|
Claims
filed
|
|
|
8,455 |
|
|
|
10,922 |
|
|
|
10,157 |
|
Claims
settled, dismissed or otherwise resolved
|
|
|
(9,131 |
) |
|
|
(25,538 |
) |
|
|
(31,722 |
) |
Claims
unresolved at December 31
|
|
|
75,030 |
|
|
|
75,706 |
|
|
|
90,322 |
|
Claimants
with claims against both UCC and Amchem
|
|
|
24,146 |
|
|
|
24,213 |
|
|
|
28,937 |
|
Individual
claimants at December 31
|
|
|
50,884 |
|
|
|
51,493 |
|
|
|
61,385 |
|
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, the damages
alleged are not expressly identified as to Union Carbide, Amchem or any other
particular defendant, even when specific damages are alleged with respect to a
specific disease or injury. 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-related liability.
Estimating
the Liability
Based
on a study completed by Analysis, Research & Planning Corporation (“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. Since then, Union Carbide has compared current asbestos claim and
resolution activity to the results of the most recent ARPC study at each balance
sheet date to determine whether the accrual continues to be appropriate. In
addition, Union Carbide has requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity each November since 2004 to determine the
appropriateness of updating the most recent ARPC study.
In
November 2007, Union Carbide requested ARPC to review Union Carbide’s 2007
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2007. In December 2007, ARPC stated that
an update of its study would not provide a more likely estimate of future events
than the estimate 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, 2007, Union Carbide’s asbestos-related liability for pending
and future claims was $1.1 billion.
In
November 2008, Union Carbide requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2008. The resulting study, completed by
ARPC in December 2008, stated that the undiscounted cost of resolving pending
and future asbestos-related claims against Union Carbide and Amchem, excluding
future defense and processing costs, through 2023 was estimated to be between
$952 million and $1.2 billion. As in its earlier studies, ARPC
provided estimates for a longer period of time in its December 2008 study, but
also reaffirmed its prior advice that forecasts for shorter periods of time are
more accurate than those for longer periods of time.
In
December 2008, based on ARPC’s December 2008 study and Union Carbide’s own
review of the asbestos claim and resolution activity, Union Carbide decreased
its asbestos-related liability for pending and future claims to
$952 million, which covered the 15-year period ending 2023, excluding
future defense and processing costs. The reduction was $54 million and was
shown as “Asbestos-related credit” in the consolidated statements of income. At
December 31, 2008, the asbestos-related liability for pending and future claims
was $934 million.
In
November 2009, Union Carbide requested ARPC to review Union Carbide’s 2009
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2008 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2009. In December 2009, ARPC
stated that an update of its study would not provide a more likely estimate of
future events than the estimate 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, 2009, Union Carbide’s asbestos-related liability for
pending and future claims was $839 million.
At
December 31, 2009, approximately 23 percent of the recorded liability
related to pending claims and approximately 77 percent related to future
claims. At December 31, 2008, approximately 21 percent of the recorded
liability related to pending claims and approximately 79 percent related to
future claims.
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:
Defense
and Resolution Costs
|
|
|
Aggregate
Costs
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
to
Date as of
Dec.
31, 2009
|
|
Defense
costs
|
|
$ |
62 |
|
|
$ |
60 |
|
|
$ |
84 |
|
|
$ |
687 |
|
Resolution
costs
|
|
$ |
94 |
|
|
$ |
116 |
|
|
$ |
88 |
|
|
$ |
1,480 |
|
The
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 a number of factors, including 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.
Union
Carbide expenses defense costs as incurred. The pretax impact for defense and
resolution costs, net of insurance, was $58 million in 2009,
$53 million in 2008 and $84 million in 2007, and was reflected in
“Cost of sales” in the consolidated statements of income.
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. 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. The Wellington Agreement and other agreements with insurers
are designed to facilitate an orderly resolution and collection of Union
Carbide’s insurance policies and to resolve issues that the insurance carriers
may raise.
In
September 2003, Union Carbide filed a comprehensive insurance coverage case, now
proceeding in the Supreme Court of the State of New York, County of New York,
seeking to confirm its rights to insurance for various asbestos claims and to
facilitate an orderly and timely collection of insurance proceeds (the
“Insurance Litigation”). The Insurance Litigation 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, in order to facilitate an orderly resolution and collection
of such insurance policies and to resolve issues that the insurance carriers may
raise. Since the filing of the case, Union Carbide has reached settlements with
several of the carriers involved in the Insurance Litigation, including
settlements reached with two significant carriers in the fourth quarter of 2009,
resulting in a shift between receivable balances further discussed below. The
Insurance Litigation is ongoing.
Union
Carbide’s receivable for insurance recoveries related to its asbestos liability
was $84 million at December 31, 2009 and $403 million at
December 31, 2008. The decrease in the receivable was principally due to
settlements reached in the fourth quarter of 2009 with two significant carriers
involved in the Insurance Litigation. At December 31, 2009 and
December 31, 2008, all 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 to the receivable for insurance recoveries related to its asbestos
liability, Union Carbide had receivables for defense and resolution costs
submitted to insurance carriers that have settlement agreements in place
regarding their asbestos-related insurance coverage. The balance of these
receivables increased in 2009 principally as a result of settlements reached in
the fourth quarter of 2009 with two significant carriers involved in the
Insurance Litigation.
Receivables
for Costs Submitted to Insurance Carriers With Settlement Agreements at
December 31
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Receivables
for defense costs
|
|
$ |
91 |
|
|
$ |
28 |
|
Receivables
for resolution costs
|
|
|
357 |
|
|
|
244 |
|
Total
|
|
$ |
448 |
|
|
$ |
272 |
|
After
a 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, Union Carbide continues to believe that its recorded
receivable for insurance recoveries from all insurance carriers is probable of
collection.
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, 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.
Environmental
Matters
Rohm
and Haas Colombia Ltda. (“ROHC”), a wholly owned subsidiary of the Company,
received an Administrative Complaint dated March 26, 2009 from the
Corporacion Autonoma Regional del Atlantico for an alleged violation relating to
a release of high manganese level water into a river adjoining ROHC’s
Barranquilla, Colombia manufacturing facilities, seeking a civil penalty of
$527,320. The fine was reduced to $130,000 and has been paid.
Rohm
and Haas Texas Incorporated (“ROHT”), a wholly owned subsidiary of the Company,
received an Administrative Complaint (the “Complaint”) dated February 29,
2008 from the Texas Council of Environmental Quality (the “TCEQ”) seeking a
civil penalty in an amount of less than $100,000 related to operations at its
Deer Park, Texas manufacturing facility. Several similar matters were
subsequently added to the Complaint (the “Supplemented Complaint”) by the TCEQ.
On June 17, 2008, the Supplemented Complaint was tentatively settled with
the TCEQ staff for $64,800, and the Supplemented Complaint was signed and mailed
to the TCEQ, along with payment of $64,800. On September 21, 2009, TCEQ
management disagreed with the manner in which the TCEQ staff calculated the
civil penalty, and ROHT received an amended Supplemented Complaint from the TCEQ
seeking an increase of the civil penalty to $178,100. On January 13, 2010,
the matter was settled by the TCEQ Commissioners at their public meeting for the
$64,800 previously paid.
On
October 19, 2009, the Company received an Administrative Complaint from the
TCEQ related to two alleged air emission events and failure to monitor some
equipment for fugitive air emissions at the Company’s Freeport, Texas site,
seeking a civil penalty in the amount of $146,917. This matter has tentatively
been settled with the TCEQ staff for the assessed amount, subject to approval by
the TCEQ Commissioners.
On
November 3, 2009, ROHT received an additional Administrative Complaint from
the TCEQ seeking a civil penalty in the amount of $542,000 for 20 air emission
events, all of which occurred before ROHT became a wholly owned subsidiary of
Dow. This matter has tentatively been settled with the TCEQ staff for the
assessed amount, subject to approval by the TCEQ Commissioners.
Dow
Benelux B.V. (“Dow Benelux”), a wholly owned subsidiary of the Company, received
an administrative order (the “Order”) dated December 1, 2009 from the Dutch
Emission Authority seeking an administrative fine in an amount of 150,000 Euro.
The Order pertains to Dow Benelux’s failure to timely obtain a carbon dioxide
emission permit related to operations at its Terneuzen, The Netherlands
facility. Although the Company is seeking to have the Order reversed, resolution
of the Order may result in a fine in excess of $100,000.
Derivative
Litigation
On
February 9, 2009, Michael D. Blum, in the name of and on behalf of the
Company, commenced an action in the Court of Chancery of the State of Delaware
against certain officers and directors of the Company (the “Defendants”)
alleging, among other things, that the Defendants breached their fiduciary duty
by causing the Company to enter into an Agreement and Plan of Merger for the
acquisition of Rohm and Haas Company without any contingencies for failure of
financing or to receive the proceeds of the formation of a 50:50 global
petrochemicals joint venture with Petrochemical Industries Company
(K.S.C.).
On
February 12, 2009, Norman R. Meier, also in the name of and on behalf of
the Company, filed a nearly identical action in the same court. Since that time,
the court has consolidated the two actions and determined that the complaint
filed by Norman Meier shall be the operative complaint. The relief sought in
this litigation includes the implementation of certain corporate governance
reforms by the Company as well as monetary damages and attorneys’ fees. On
April 15, 2009, the Defendants filed a motion to dismiss the litigation. On
January 11, 2010, the court granted Defendants’ motion and dismissed all
claims. It is uncertain whether the plaintiffs will continue to pursue this
litigation. The Company continues to believe that these lawsuits are entirely
without merit and will continue to oppose them vigorously if
necessary.
Rohm
and Haas Pension Plan Matters
In
December 2005, a federal judge in the U.S. District Court for the Southern
District of Indiana (the “District Court”) issued a decision granting a class of
participants in the Rohm and Haas Pension Plan (the “Rohm and Haas Plan”) who
had retired from Rohm and Haas Company (“Rohm and Haas”), now a wholly owned
subsidiary of the Company, and who elected to receive a lump sum benefit from
the Rohm and Haas Plan, the right to a cost-of-living adjustment (“COLA”) as
part of their retirement benefit. In August 2007, the Seventh Circuit Court
of Appeals affirmed the District Court’s decision, and in March 2008, the
U.S. Supreme Court denied the Rohm and Haas Plan’s petition to review the
Seventh Circuit’s decision. The case was returned to the District Court for
further proceedings. In October 2008 and February 2009, the District
Court issued rulings that have the effect of including in the class all Rohm and
Haas retirees who received a lump sum distribution without a COLA from the Rohm
and Haas Plan since January 1976. These rulings are subject to appeal, and
the District Court has not yet determined the amount of the COLA benefits that
may be due to the class participants. The Rohm and Haas Plan and the plaintiffs
entered into a settlement agreement which was preliminarily approved by the
District Court on November 24, 2009. In addition to settling the litigation
with respect to the Rohm and Haas retirees, the settlement agreement provides
for the amendment of the complaint and amendment to the Rohm and Haas Plan to
include active employees. Notices of the proposed settlement have been provided
to class members, and a hearing has been set for March 12, 2010, to
determine whether the settlement will be finally approved.
A
pension liability associated with this matter of $185 million was
recognized as part of the acquisition of Rohm and Haas on April 1, 2009.
The liability, which was determined in accordance with the accounting guidance
for contingencies, recognized the estimated impact of the above described
judicial decisions on the long-term Rohm and Haas Plan obligations owed to the
applicable Rohm and Haas retirees and active employees. At December 31,
2009, the Company had a liability of $183 million associated with this
matter.
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
2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Set
forth below is information related to the Company’s executive officers as of
February 10, 2010.
WILLIAM
F. BANHOLZER, 53. DOW EXECUTIVE VICE PRESIDENT, VENTURES, NEW
BUSINESS DEVELOPMENT & LICENSING AND CHIEF TECHNOLOGY OFFICER. Employee of
Dow since 2005. General Electric Company, Chemical Engineer 1983-1989.
Laboratory Manager and Leader R&D Center 1989-1992. Engineering Manager of
Superabrasives Business 1992-1997. Vice President of Global Engineering, GE
Lighting 1997-1999. Vice President of Global Technology, GE Advanced Materials
1999-2005. Dow Corporate Vice President and Chief Technology Officer 2005 to
February 2009. Executive Vice President and Chief Technology Officer February
2009 to date. Ventures, New Business Development & Licensing May 2009 to
date. Director of Dow Corning Corporation,* Dow Kokam LLC* and Mycogen
Corporation,* Member of Dow Corning Corporation Corporate Responsibility
Committee. Elected to the U.S. National Academy of Engineering (“NAE”) in 2002.
Elected NAE Councilor 2005. Member of American Chemical Society and American
Institute of Chemical Engineers. Advisory Board member for chemistry and
chemical engineering at Massachusetts Institute of Technology and University of
California, Berkeley.
CAROL
A. DUDLEY-WILLIAMS, 51. DOW SENIOR VICE PRESIDENT, BASIC CHEMICALS
DIVISION. Employee of Dow since 1980. Director of Analytical Science Lab
1993-1995. Global R&D Director Epoxy Products and Intermediates Business
1995-1999. North America Chlor-Alkali Assets Business Operations Leader, Site
Leader 1999-2000. Business Vice President Chlor-Alkali Assets 2000-2003. Vice
President Global Purchasing 2003-2004. R&D Vice President Hydrocarbons &
Energy, Chemicals & Intermediates and Corporate R&D 2004-2005. Vice
President Business Development Market Facing Businesses 2005-2006. Vice
President R&D, Performance Plastics & Chemicals Portfolio 2006-2007.
Corporate Vice President Market Facing, Business Development and Licensing
2007-2008. Senior Vice President Basic Chemicals Division December 2008 to date.
Advisory Board member Engineering Department at Carnegie Mellon University.
Member of Society of Women Engineers. Member of American Institute of Chemical
Engineers.
RONALD
C. EDMONDS, 52. DOW VICE PRESIDENT AND CONTROLLER. Employee of Dow
since 1992. Arthur Anderson & Co. 1979-1982. The Upjohn Company 1982-1991.
Chiquita Brands International 1991-1992. Dow Latin America Audit Manager
1992-1994. Latin America Payables Controller 1994-1997. Global Payables
Controller 1997-1998. Global Procurement Service Center Leader 1998-2001. Global
Accounting Director 2001-2007. Business Finance Vice President for Performance
Plastics and Chemicals and Market Facing Businesses 2007 to June 2009. Vice
President and Assistant Controller July 2009 to November 2009. Vice President
and Controller November 2009 to date. Director of Dorinco Reinsurance Company,*
DSL Holdings Inc.* and Liana Limited.* Member of the American Institute of
Certified Public Accountants, Michigan Association of Certified Public
Accountants, and Financial Executives International.
GREGORY
M. FREIWALD, 56. DOW EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES AND
CORPORATE AFFAIRS. Employee of Dow since 1979. Human Resources Manager, Chemical
& Performance Business-U.S. Region 1992-1993. Human Resources Director for
Executive, Finance, Law and Corporate 1993-1994. Latin America Human Resources
and Quality Performance Director 1994-1996. Latin America Human Resources Leader
and PBBPolisur S.A.* Human Resources Integration Leader 1996-1997. Global Human
Resources, Resources Center Director 1997-2001. Senior Human Resources Director
for Global Human Resources, Resource Center and Human Resources Director for
Geographic Council 2001-2004. Human Resources Vice President, Operations
2004-2005. Human Resources Vice President 2005-2006. Vice President, Corporate
Affairs and Executive Compensation 2006-2007. Senior Vice President, Human
Resources and Corporate Affairs 2008 to February 2009. Executive Vice President,
Human Resources and Corporate Affairs February 2009 to date.
MICHAEL
R. GAMBRELL, 56. DOW EXECUTIVE VICE PRESIDENT, MANUFACTURING AND
ENGINEERING OPERATIONS. Employee of Dow since 1976. Business Director for the
North America Chlor-Alkali Assets Business 1989-1992. General Manager for the
Plastic Lined Pipe Business 1992-1994. Vice President of Operations for Latin
America 1994-1996. Corporate Director, Technology Centers and Global Process
Engineering 1996-1998. Global Business Director, Chlor-Alkali Assets Business
1998-2000. Business Vice President, EDC/VCM & ECU Management 2000-2003.
Business Vice President, Chlor-Vinyl Business 2003. Senior Vice President,
Chemicals and Intermediates 2003-2005. Executive Vice President, Basic Plastics
and Chemicals Portfolio 2005-2007. Executive Vice President, Basic Plastics and
Chemicals, and Manufacturing and Engineering 2007 to February 2009. Executive
Vice President, Manufacturing and Engineering Operations February 2009 to date.
Ex-officio member of the Dow Board of Director’s Environment, Health and Safety
Committee. Board member of Oman Petrochemical Industries Company LLC.* Director
of TRW Automotive Holdings Corporation. Director of the National Association of
Manufacturers. Member of U.S.-India Business Council. Recipient of the
President’s Distinguished Career Award from Rose-Hulman Institute of Technology
1996.
HEINZ
HALLER, 54. DOW EXECUTIVE VICE PRESIDENT, MARKETING AND SALES,
PERFORMANCE SYSTEMS AND EXECUTIVE OVERSIGHT, ASIA PACIFIC. Employee of Dow
1980-1994 and since 2006. Sales representative 1980-1983. Marketing manager,
Chlorinated Solvents 1984-1985. Frankfurt Sales office manager and Regional
manager, Emulsion Polymers and Specialty Chemicals 1986-1989. Dow business
operations manager, Emulsion Polymers, New Ventures and Plastic Lined Pipe
1989-1992. Global business director, Emulsion Polymers 1993-1994. Managing
Director in Horgen, Plüss-Staufer AG 1994-1999. Chief Executive Officer, Red
Bull Sauber AG and Sauber Petronas Engineering AG 2000-2002. Managing Director,
Allianz Capital Partners GmbH 2002-2006. Dow Corporate Vice President, Strategic
Development and New Ventures 2006-2007. Executive Vice President, Performance
Plastics and Chemicals 2007 to February 2009. Executive Vice President, Health,
Agriculture and Infrastructure Group February 2009 to May 2009. Executive Vice
President, Performance Systems May 2009 to date. Director of Mycogen
Corporation,* Dow Kokam LLC* and Dow Corning Corporation.* Member of the Dow
AgroSciences LLC* Members Committee. Director of the Michigan Molecular
Institute.
CHARLES
J. KALIL, 58. DOW EXECUTIVE VICE PRESIDENT, LAW AND GOVERNMENT
AFFAIRS, GENERAL COUNSEL AND CORPORATE SECRETARY. Employee of Dow since 1980.
U.S. Department of Justice – Assistant U.S. Attorney, Eastern District of
Michigan 1977-1980. General Counsel of Petrokemya (a former 50:50 joint venture
of the Company) 1982-1983. Regional Counsel to Middle East/Africa 1983-1986.
Senior Environmental Attorney 1986-1987. Litigation Staff Counsel and Group
Leader 1987-1990. Senior Financial Law Counsel, Mergers and Acquisitions
1990-1992. General Counsel and Area Director of Government and Public Affairs
for Dow Latin America 1992-1997. Special Counsel and Manager of INSITE™ legal
issues 1997-2000. Assistant General Counsel for Corporate and Financial Law
2000-2003. Associate General Counsel for Corporate Legal Affairs 2003-2004. Dow
Corporate Vice President and General Counsel 2004-2007. Senior Vice President
and General Counsel 2007-2008. Executive Vice President and General Counsel
March 2008 to date. Corporate Secretary 2005 to date. Board member of Dow
Corning Corporation,* Dorinco Reinsurance Company,* Liana Limited* and Oman
Petrochemical Industries Company LLC.* Member of the Conference Board’s Council
of Chief Legal Officers. Member of the American Bar Association, District of
Columbia Bar and the State Bar of Michigan.
DAVID
E. KEPLER, 57. DOW EXECUTIVE VICE PRESIDENT, BUSINESS SERVICES, CHIEF
SUSTAINABILITY OFFICER AND CHIEF INFORMATION OFFICER. Employee of Dow since
1975. Computer Services Manager of Dow U.S.A. Eastern Division 1984-1988.
Commercial Director of Dow Canada Performance Products 1989-1991. Director of
Pacific Area Information Systems 1991-1993. Manager of Information Technology
for Chemicals and Plastics 1993-1994. Director of Global Information Systems
Services 1994-1995. Director of Global Information Application 1995-1998. Vice
President 1998-2000. Chief Information Officer 1998 to date. Corporate Vice
President with responsibility for eBusiness 2000 to date. Responsibility for
Advanced Electronic Materials 2002-2003. Responsibility for Shared Services –
Customer Service, Information Systems, Purchasing, Six Sigma, Supply Chain, and
Work Process Improvement 2004 to date. Senior Vice President with responsibility
for EH&S 2006-2008. Responsibility as Chief Sustainability Officer 2007 to
date. Executive Vice President March 2008 to date. Director of Dorinco
Reinsurance Company* and Liana Limited.* Director of Teradata Corporation.
Chairman of the MidMichigan Innovation Center Board of Directors. Member of U.S.
Chamber of Commerce Board of Directors and Vice Chairman of the Great Lakes
Region. Member of the American Chemical Society, the American Institute of
Chemical Engineers, and the University of California Board of
Trustees.
ANDREW
N. LIVERIS, 55. DOW PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN.
DIRECTOR SINCE 2004. Employee of Dow since 1976. General manager of Dow’s
Thailand operations 1989-1992. Group business director for Emulsion Polymers and
New Ventures 1992-1993. General manager of Dow’s start-up businesses in
Environmental Services 1993-1994. Vice President of Dow’s start-up businesses in
Environmental Services 1994-1995. President of Dow Chemical Pacific Limited*
1995-1998. Vice President of Specialty Chemicals 1998-2000. Business Group
President for Performance Chemicals 2000-2003. President and Chief Operating
Officer 2003-2004. President and Chief Executive Officer 2004 to date and
Chairman 2006 to date. Director of Citigroup, Inc. Chairman of the U.S.-China
Business Council; Vice Chairman of the U.S. Business Council; Past Chairman of
the American Chemistry Council and the International Council of Chemical
Associations. Member of the United States Climate Action Partnership, the
American Australian Association, the Business Roundtable, the Detroit Economic
Club, the National Petroleum Council and the Société de Chimie Industrielle.
Member of the Board of Trustees of Tufts University.
JUAN
R. LUCIANO, 48. DOW SENIOR VICE PRESIDENT, HYDROCARBONS AND ENERGY,
BASIC PLASTICS, AND JOINT VENTURES, AND EXECUTIVE OVERSIGHT, LATIN AMERICA.
Employee of Dow since 1985. Sales & Marketing Manager Specialty Chemicals
1994-1996. Senior Marketing Manager for the Americas, Polyglycols within
Specialty Chemicals Portfolio 1996-1999. Business Director Chelants, Specialty
Chemicals 1999-2000. Global Business Director LDPE/PRIMACOR™/SARAN™/Slurry PE
2000-2001. Global Business Director Polypropylene 2001-2004. Business Vice
President Engineering Polymers 2004-2006. Global Business Vice President Olefins
and Aromatics 2006-2007. Business Group President Hydrocarbons and Energy
2007-2008. Senior Vice President Hydrocarbons and Energy, Basic Plastics, and
Joint Ventures 2008 to date. Members Committee of Dow Hydrocarbons and Resources
LLC.*
JAMES
D. MCILVENNY, 51. DOW SENIOR VICE PRESIDENT, PERFORMANCE PRODUCTS.
Employee of Dow since 1982. Business Manager Separation Systems 1989-1994.
Director of Marketing, Sales and Service Liquid Separations 1994-1995. Global
Business Director Liquid Separations 1995-1998. President and Chief Executive
Officer FilmTec Corporation* 1995-1998. President and Chief Executive Officer
Hampshire Chemical Corp.* 1998-2001. Business Vice President Specialty Polymers
2001-2004. President Greater China 2004-2006. President Dow Asia Pacific and
Greater China 2006-2008. Senior Vice President Performance Products September
2009 to date.
GEOFFERY
E. MERSZEI, 58. DOW EXECUTIVE VICE PRESIDENT, PRESIDENT OF DOW
EUROPE, MIDDLE EAST AND AFRICA; AND CHAIRMAN OF DOW EUROPE. Employee of Dow
1977-2001 and since 2005. Dow Middle East/Africa Credit Manager 1977-1980. Dow
Asia Pacific Credit Manager 1980-1982. Dow Asia Pacific Finance and Credit
Manager 1982-1983. Dow Germany and Eastern Europe Treasurer 1983-1986. Dow
Foreign Exchange Manager 1986-1988. Director of Finance for Dow Asia Pacific
1988-1991. Director of Finance/Treasurer for Dow Europe 1991-1996. Dow Vice
President and Treasurer 1996-2001. Alcan, Inc., Executive Vice President
and Chief Financial Officer 2001-2005. Dow Executive Vice President and Chief
Financial Officer 2005 to November 2009. Board member of The Dow Chemical
Company 2005 to November 2009. President of Dow Europe, Middle East and Africa,
and Chairman of Dow Europe November 2009 to date. Board member of Dow Corning
Corporation.* Chairman of Dow International Holdings, S.A.* Board member of
Chemical Financial Corporation. Trustee and Executive Committee Member of the
United States Council for International Business.
FERNANDO
RUIZ, 54. DOW CORPORATE VICE PRESIDENT AND TREASURER. Employee of Dow
since 1980. Treasurer, Ecuador Region 1982-1984. Treasurer, Mexico Region
1984-1988. Financial Operations Manager, Corporate Treasury 1988-1991. Assistant
Treasurer, USA Area 1991-1992. Senior Finance Manager, Corporate Treasury
1992-1996. Assistant Treasurer 1996-2001. Corporate Director of Insurance and
Risk Management 2001. Corporate Vice President and Treasurer 2001 to date.
President and Chief Executive Officer, Liana Limited* and Dorinco Reinsurance
Company* 2001 to date. President of Dow Credit Corporation* 2001 to date.
Director of Dow Financial Services Inc.* Member of Financial Executives
International and Michigan State University (Eli Broad College of Business)
Advisory Board. Member of DeVry, Inc. Board of Directors.
WILLIAM
H. WEIDEMAN, 55. DOW VICE PRESIDENT AND INTERIM CHIEF FINANCIAL
OFFICER. Employee of Dow since 1976. Controller of Texas Operations 1994-1996.
Global Business Controller for Specialty Chemicals 1996-1998. Global Finance
Director for Specialty Chemicals 1998-2000. Global Finance Director for
Performance Chemicals 2000-2004. Finance Vice President, Chemicals and
Intermediates and Dow Ventures 2004-2006. Group Finance Vice President for Basic
Chemicals and Plastics Portfolio 2006. Vice President and Controller 2006 to
November 2009. Vice President and Interim Chief Financial Officer November 2009
to date. Director of Diamond Capital Management Inc.,* Dorinco Reinsurance
Company* and Liana Limited.* Director of the Dow Chemical Employees’ Credit
Union and Family and Children’s Services of Midland. Board and finance committee
member of Mid Michigan Medical Center. Member of Financial Executives
International Committee on Corporate Reporting, Member of Central Michigan
University Accounting Advisory Committee and Central Michigan University
Development Board.
* 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 10,
2010. Dow Kokam LLC – ultimately 45 percent owned by
Dow. Dow Corning Corporation and Oman Petrochemical Industries
Company LLC – companies ultimately 50 percent owned by
Dow. Diamond Capital Management Inc.; Dorinco Reinsurance Company;
Dow AgroSciences LLC; Dow Chemical Pacific Limited; Dow Credit Corporation; Dow
Financial Services Inc.; Dow Hydrocarbons and Resources LLC; Dow International
Holdings, S.A.; DSL Holdings Inc.; FilmTec Corporation; Hampshire Chemical
Corp.; Liana Limited; Mycogen Corporation and PBBPolisur S.A. – all ultimately
wholly owned subsidiaries of Dow. Ownership by Dow described above
may be either direct or indirect.
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,
traded under the symbol “DOW.”
Quarterly
market and dividend information can be found in Quarterly Statistics at the end
of Part II, Item 8. Financial Statements and Supplementary Data, following the
Notes to the Consolidated Financial Statements.
At
December 31, 2009, there were 89,946 registered common stockholders. The
Company estimates that there were an additional 563,000 stockholders whose
shares were held in nominee names at December 31, 2009. At January 31,
2010, there were 89,529 registered common stockholders.
On
December 10, 2009, the Board of Directors declared a quarterly dividend of
$0.15 per share, payable January 29, 2010, to stockholders of record
on December 31, 2009. On February 10, 2010, the Board of Directors declared
a quarterly dividend of $0.15 per share, payable April 30, 2010, to
stockholders of record on March 31, 2010. Since 1912, the Company has paid
a cash dividend every quarter and, in each instance prior to February 12,
2009, had maintained or increased the amount of the dividend, adjusted for stock
splits. During this 97-year period, Dow has increased the amount of the
quarterly dividend 47 times (approximately 12 percent of the time), and
maintained the amount of the quarterly dividend approximately 88 percent of
the time. The dividend was reduced in February 2009, for the first time in the
97-year period, due to uncertainty in the credit markets, unprecedented lower
demand for chemical products, the ongoing global recession and pending business
issues. The Company declared dividends of $0.60 per share in 2009, $1.68 per
share in 2008 and $1.635 per share in 2007.
See
Part III, Item 11. Executive Compensation for information relating to the
Company’s equity compensation plans.
The
following table provides information regarding purchases of the Company’s common
stock by the Company during the three months ended December 31,
2009:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
Period
|
|
Total number of shares
purchased (1)
|
|
|
Average
price paid per share
|
|
|
Total
number of shares purchased as part of the Company’s publicly announced
share repurchase program
|
|
|
Approximate
dollar value of shares that may yet be purchased under the Company’s
publicly announced share repurchase program
|
|
October
2009
|
|
|
2,442 |
|
|
$ |
25.05 |
|
|
|
- |
|
|
|
- |
|
November
2009
|
|
|
2,187 |
|
|
$ |
24.28 |
|
|
|
- |
|
|
|
- |
|
December
2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Fourth
quarter 2009
|
|
|
4,629 |
|
|
$ |
24.69 |
|
|
|
- |
|
|
|
- |
|
(1)
|
Represents
shares received from employees and non-employee directors to pay taxes
owed to the Company as a result of the exercise of stock options or the
delivery of deferred stock. For information regarding the Company’s stock
option plans, see Note S to the Consolidated Financial
Statements.
|
The
Dow Chemical Company and Subsidiaries
|
PART
II, Item 6. Selected Financial Data.
|
In
millions, except as noted (Unaudited)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Summary of Operations
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(2)
|
|
$ |
44,875 |
|
|
$ |
57,361 |
|
|
$ |
53,375 |
|
|
$ |
49,009 |
|
|
$ |
46,186 |
|
Cost of sales
(2)
|
|
|
39,148 |
|
|
|
51,913 |
|
|
|
46,302 |
|
|
|
41,448 |
|
|
|
38,194 |
|
Research
and development expenses
|
|
|
1,492 |
|
|
|
1,310 |
|
|
|
1,305 |
|
|
|
1,164 |
|
|
|
1,073 |
|
Selling,
general and administrative expenses
|
|
|
2,487 |
|
|
|
1,966 |
|
|
|
1,861 |
|
|
|
1,660 |
|
|
|
1,542 |
|
Amortization
of intangibles
|
|
|
399 |
|
|
|
92 |
|
|
|
72 |
|
|
|
50 |
|
|
|
55 |
|
Special
charges: restructuring, merger-related, asbestos-related, IPR&D,
impariment losses
|
|
|
869 |
|
|
|
1,117 |
|
|
|
635 |
|
|
|
414 |
|
|
|
114 |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
630 |
|
|
|
787 |
|
|
|
1,122 |
|
|
|
959 |
|
|
|
964 |
|
Sundry
income - net
|
|
|
891 |
|
|
|
89 |
|
|
|
324 |
|
|
|
137 |
|
|
|
755 |
|
Interest
expense - net
|
|
|
1,532 |
|
|
|
562 |
|
|
|
454 |
|
|
|
431 |
|
|
|
564 |
|
Income
(Loss) from continuing operations before income taxes
|
|
|
469 |
|
|
|
1,277 |
|
|
|
4,192 |
|
|
|
4,938 |
|
|
|
6,363 |
|
Provision
(Credit) for income taxes
|
|
|
(97 |
) |
|
|
651 |
|
|
|
1,230 |
|
|
|
1,142 |
|
|
|
1,769 |
|
Net
income (loss) from continuing operations
|
|
|
566 |
|
|
|
626 |
|
|
|
2,962 |
|
|
|
3,796 |
|
|
|
4,594 |
|
Income
from discontinued operations, net of income taxes
|
|
|
110 |
|
|
|
28 |
|
|
|
23 |
|
|
|
21 |
|
|
|
23 |
|
Net
income attributable to noncontrolling interests
|
|
|
28 |
|
|
|
75 |
|
|
|
98 |
|
|
|
93 |
|
|
|
82 |
|
Preferred
stock dividends
|
|
|
312 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
(Loss) before cumulative effect of changes in accounting
principles
|
|
|
336 |
|
|
|
579 |
|
|
|
2,887 |
|
|
|
3,724 |
|
|
|
4,535 |
|
Cumulative
effect of changes in accounting principles
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20 |
) |
Net
income (loss) available for The Dow Chemical Company common
stockholders
|
|
$ |
336 |
|
|
$ |
579 |
|
|
$ |
2,887 |
|
|
$ |
3,724 |
|
|
$ |
4,515 |
|
Per share of common stock (in
dollars): (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations per common share -
basic
|
|
|
0.22 |
|
|
|
0.59 |
|
|
|
3.00 |
|
|
|
3.85 |
|
|
|
4.66 |
|
Discontinued
operations per common share - basic
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.03 |
|
Earnings
(Loss) per common share - basic
|
|
|
0.32 |
|
|
|
0.62 |
|
|
|
3.03 |
|
|
|
3.87 |
|
|
|
4.69 |
|
Net
income (loss) from continuing operations per common share -
diluted
|
|
|
0.22 |
|
|
|
0.59 |
|
|
|
2.97 |
|
|
|
3.80 |
|
|
|
4.60 |
|
Discontinued
operations per common share - diluted
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Earnings
(Loss) per common share - diluted
|
|
|
0.32 |
|
|
|
0.62 |
|
|
|
2.99 |
|
|
|
3.82 |
|
|
|
4.62 |
|
Cash
dividends declared per share of common stock
|
|
|
0.60 |
|
|
|
1.68 |
|
|
|
1.635 |
|
|
|
1.50 |
|
|
|
1.34 |
|
Cash
dividends paid per share of common stock
|
|
|
0.87 |
|
|
|
1.68 |
|
|
|
1.59 |
|
|
|
1.46 |
|
|
|
1.34 |
|
Book
value per share of common stock
|
|
|
18.42 |
|
|
|
14.62 |
|
|
|
20.62 |
|
|
|
17.81 |
|
|
|
15.84 |
|
Weighted-average common shares
outstanding - basic (3)
|
|
|
1,043.2 |
|
|
|
930.4 |
|
|
|
953.1 |
|
|
|
962.3 |
|
|
|
963.2 |
|
Weighted-average common shares
outstanding - diluted (3)
|
|
|
1,053.9 |
|
|
|
939.0 |
|
|
|
965.6 |
|
|
|
974.4 |
|
|
|
976.8 |
|
Convertible
preferred shares outstanding (thousands)
|
|
|
4,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Year-end
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
65,937 |
|
|
$ |
45,474 |
|
|
$ |
48,801 |
|
|
$ |
45,581 |
|
|
$ |
45,934 |
|
Working
capital
|
|
|
6,454 |
|
|
|
2,952 |
|
|
|
6,209 |
|
|
|
6,608 |
|
|
|
6,741 |
|
Property
- gross
|
|
|
53,567 |
|
|
|
48,391 |
|
|
|
47,708 |
|
|
|
44,381 |
|
|
|
41,934 |
|
Property
- net
|
|
|
18,141 |
|
|
|
14,294 |
|
|
|
14,388 |
|
|
|
13,722 |
|
|
|
13,537 |
|
Long-term
debt and redeemable preferred stock
|
|
|
19,152 |
|
|
|
8,042 |
|
|
|
7,581 |
|
|
|
8,036 |
|
|
|
9,186 |
|
Total
debt
|
|
|
22,373 |
|
|
|
11,856 |
|
|
|
9,715 |
|
|
|
9,546 |
|
|
|
10,706 |
|
The
Dow Chemical Company's stockholders' equity
|
|
|
20,555 |
|
|
|
13,511 |
|
|
|
19,389 |
|
|
|
17,065 |
|
|
|
15,324 |
|
Financial
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
as percent of net sales (2)
|
|
|
3.3 |
% |
|
|
2.3 |
% |
|
|
2.4 |
% |
|
|
2.4 |
% |
|
|
2.3 |
% |
Income
(Loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as percent of
net sales (2)
|
|
|
1.0 |
% |
|
|
2.2 |
% |
|
|
7.9 |
% |
|
|
10.1 |
% |
|
|
13.8 |
% |
Return on stockholders' equity
(4)
|
|
|
2.0 |
% |
|
|
4.3 |
% |
|
|
14.9 |
% |
|
|
21.8 |
% |
|
|
29.5 |
% |
Debt
as a percent of total capitalization
|
|
|
51.4 |
% |
|
|
45.7 |
% |
|
|
31.8 |
% |
|
|
34.1 |
% |
|
|
39.1 |
% |
General
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$ |
1,410 |
|
|
$ |
2,276 |
|
|
$ |
2,075 |
|
|
$ |
1,775 |
|
|
$ |
1,597 |
|
Depreciation
|
|
|
2,291 |
|
|
|
2,016 |
|
|
|
1,959 |
|
|
|
1,904 |
|
|
|
1,904 |
|
Salaries
and wages paid
|
|
|
5,152 |
|
|
|
4,681 |
|
|
|
4,404 |
|
|
|
3,935 |
|
|
|
4,309 |
|
Cost
of employee benefits
|
|
|
1,389 |
|
|
|
981 |
|
|
|
1,130 |
|
|
|
1,125 |
|
|
|
988 |
|
Number
of employees at year-end (thousands)
|
|
|
52.2 |
|
|
|
46.1 |
|
|
|
45.9 |
|
|
|
42.6 |
|
|
|
42.4 |
|
Number of Dow stockholders of
record at year-end (thousands) (5)
|
|
|
89.9 |
|
|
|
94.6 |
|
|
|
98.7 |
|
|
|
103.1 |
|
|
|
105.6 |
|
(1) |
Adjusted
to report sale of the Calcium Chloride business in 2009 as discontinued
operations.
|
(4)
|
Included
Temporary Equity in 1999.
|
|
|
|
|
|
|
|
|
|
(2)
|
Adjusted
for reclassification of freight on sales in 2000 and of insurance
operations in 2002.
|
(5)
|
Stockholders
of record as reported by the transfer agent. The Company
|
|
(3)
|
Adjusted
for 3-for-1 stock split in 2000.
|
|
estimates
that there were an additional 563,000 stockholders whose
shares
|
|
|
|
were
held in nominee names at December 31, 2009.
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
|
PART
II, Item 6. Selected Financial Data.
|
In
millions, except as noted (Unaudited)
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
Summary of Operations
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(2)
|
|
$ |
40,063 |
|
|
$ |
32,536 |
|
|
$ |
27,545 |
|
|
$ |
27,988 |
|
|
$ |
29,727 |
|
|
$ |
26,065 |
|
Cost of sales
(2)
|
|
|
34,175 |
|
|
|
28,110 |
|
|
|
23,737 |
|
|
|
23,838 |
|
|
|
24,256 |
|
|
|
20,377 |
|
Research
and development expenses
|
|
|
1,022 |
|
|
|
981 |
|
|
|
1,066 |
|
|
|
1,072 |
|
|
|
1,119 |
|
|
|
1,075 |
|
Selling,
general and administrative expenses
|
|
|
1,434 |
|
|
|
1,390 |
|
|
|
1,595 |
|
|
|
1,762 |
|
|
|
1,822 |
|
|
|
1,773 |
|
Amortization
of intangibles
|
|
|
81 |
|
|
|
63 |
|
|
|
65 |
|
|
|
178 |
|
|
|
139 |
|
|
|
160 |
|
Special
charges: restructuring, merger-related, asbestos-related, IPR&D,
impariment losses
|
|
|
543 |
|
|
|
- |
|
|
|
1,108 |
|
|
|
1,556 |
|
|
|
6 |
|
|
|
100 |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
923 |
|
|
|
322 |
|
|
|
40 |
|
|
|
29 |
|
|
|
354 |
|
|
|
95 |
|
Sundry
income - net
|
|
|
699 |
|
|
|
146 |
|
|
|
54 |
|
|
|
394 |
|
|
|
352 |
|
|
|
329 |
|
Interest
expense - net
|
|
|
661 |
|
|
|
736 |
|
|
|
708 |
|
|
|
648 |
|
|
|
519 |
|
|
|
432 |
|
Income
(Loss) from continuing operations before income taxes
|
|
|
3,769 |
|
|
|
1,724 |
|
|
|
(640 |
) |
|
|
(643 |
) |
|
|
2,572 |
|
|
|
2,572 |
|
Provision
(Credit) for income taxes
|
|
|
867 |
|
|
|
(92 |
) |
|
|
(287 |
) |
|
|
(239 |
) |
|
|
834 |
|
|
|
867 |
|
Net
income (loss) from continuing operations
|
|
|
2,902 |
|
|
|
1,816 |
|
|
|
(353 |
) |
|
|
(404 |
) |
|
|
1,738 |
|
|
|
1,705 |
|
Income
from discontinued operations, net of income taxes
|
|
|
17 |
|
|
|
17 |
|
|
|
11 |
|
|
|
19 |
|
|
|
9 |
|
|
|
11 |
|
Net
income attributable to noncontrolling interests
|
|
|
122 |
|
|
|
94 |
|
|
|
63 |
|
|
|
32 |
|
|
|
72 |
|
|
|
74 |
|
Preferred
stock dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
Income
(Loss) before cumulative effect of changes in accounting
principles
|
|
|
2,797 |
|
|
|
1,739 |
|
|
|
(405 |
) |
|
|
(417 |
) |
|
|
1,675 |
|
|
|
1,637 |
|
Cumulative
effect of changes in accounting principles
|
|
|
- |
|
|
|
(9 |
) |
|
|
67 |
|
|
|
32 |
|
|
|
- |
|
|
|
(20 |
) |
Net
income (loss) available for The Dow Chemical Company common
stockholders
|
|
$ |
2,797 |
|
|
$ |
1,730 |
|
|
$ |
(338 |
) |
|
$ |
(385 |
) |
|
$ |
1,675 |
|
|
$ |
1,617 |
|
Per share of common stock (in
dollars): (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations per common share -
basic
|
|
|
2.96 |
|
|
|
1.86 |
|
|
|
(0.38 |
) |
|
|
(0.45 |
) |
|
|
1.87 |
|
|
|
1.84 |
|
Discontinued
operations per common share - basic
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Earnings
(Loss) per common share - basic
|
|
|
2.98 |
|
|
|
1.88 |
|
|
|
(0.37 |
) |
|
|
(0.43 |
) |
|
|
1.88 |
|
|
|
1.85 |
|
Net
income (loss) from continuing operations per common share -
diluted
|
|
|
2.91 |
|
|
|
1.85 |
|
|
|
(0.38 |
) |
|
|
(0.45 |
) |
|
|
1.84 |
|
|
|
1.80 |
|
Discontinued
operations per common share - diluted
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.02 |
|
Earnings
(Loss) per common share - diluted
|
|
|
2.93 |
|
|
|
1.87 |
|
|
|
(0.37 |
) |
|
|
(0.43 |
) |
|
|
1.85 |
|
|
|
1.82 |
|
Cash
dividends declared per share of common stock
|
|
|
1.34 |
|
|
|
1.34 |
|
|
|
1.34 |
|
|
|
1.295 |
|
|
|
1.16 |
|
|
|
1.16 |
|
Cash
dividends paid per share of common stock
|
|
|
1.34 |
|
|
|
1.34 |
|
|
|
1.34 |
|
|
|
1.25 |
|
|
|
1.16 |
|
|
|
1.16 |
|
Book
value per share of common stock
|
|
|
12.88 |
|
|
|
9.89 |
|
|
|
8.36 |
|
|
|
11.04 |
|
|
|
13.22 |
|
|
|
12.40 |
|
Weighted-average common shares
outstanding - basic (3)
|
|
|
940.1 |
|
|
|
918.8 |
|
|
|
910.5 |
|
|
|
901.8 |
|
|
|
893.2 |
|
|
|
874.9 |
|
Weighted-average common shares
outstanding - diluted (3)
|
|
|
953.8 |
|
|
|
926.1 |
|
|
|
910.5 |
|
|
|
901.8 |
|
|
|
904.5 |
|
|
|
893.5 |
|
Convertible
preferred shares outstanding (thousands)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.3 |
|
Year-end
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
45,885 |
|
|
$ |
41,891 |
|
|
$ |
39,562 |
|
|
$ |
35,515 |
|
|
$ |
35,991 |
|
|
$ |
33,456 |
|
Working
capital
|
|
|
5,384 |
|
|
|
3,578 |
|
|
|
2,519 |
|
|
|
2,183 |
|
|
|
1,150 |
|
|
|
2,848 |
|
Property
- gross
|
|
|
41,898 |
|
|
|
40,812 |
|
|
|
37,934 |
|
|
|
35,890 |
|
|
|
34,852 |
|
|
|
33,333 |
|
Property
- net
|
|
|
13,828 |
|
|
|
14,217 |
|
|
|
13,797 |
|
|
|
13,579 |
|
|
|
13,711 |
|
|
|
13,011 |
|
Long-term
debt and redeemable preferred stock
|
|
|
11,629 |
|
|
|
11,763 |
|
|
|
11,659 |
|
|
|
9,266 |
|
|
|
6,613 |
|
|
|
6,941 |
|
Total
debt
|
|
|
12,594 |
|
|
|
13,109 |
|
|
|
13,036 |
|
|
|
10,883 |
|
|
|
9,450 |
|
|
|
8,708 |
|
The
Dow Chemical Company's stockholders' equity
|
|
|
12,270 |
|
|
|
9,175 |
|
|
|
7,626 |
|
|
|
9,993 |
|
|
|
11,840 |
|
|
|
10,940 |
|
Financial
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
as percent of net sales (2)
|
|
|
2.6 |
% |
|
|
3.0 |
% |
|
|
3.9 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
4.1 |
% |
Income
(Loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as percent of
net sales (2)
|
|
|
9.4 |
% |
|
|
5.3 |
% |
|
|
(2.3 |
)% |
|
|
(2.3 |
)% |
|
|
8.7 |
% |
|
|
9.9 |
% |
Return on stockholders' equity
(4)
|
|
|
22.8 |
% |
|
|
18.9 |
% |
|
|
(4.4 |
)% |
|
|
(3.9 |
)% |
|
|
14.1 |
% |
|
|
14.7 |
% |
Debt
as a percent of total capitalization
|
|
|
47.9 |
% |
|
|
55.4 |
% |
|
|
59.2 |
% |
|
|
48.9 |
% |
|
|
42.5 |
% |
|
|
42.2 |
% |
General
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$ |
1,333 |
|
|
$ |
1,100 |
|
|
$ |
1,623 |
|
|
$ |
1,587 |
|
|
$ |
1,808 |
|
|
$ |
2,176 |
|
Depreciation
|
|
|
1,904 |
|
|
|
1,753 |
|
|
|
1,680 |
|
|
|
1,595 |
|
|
|
1,554 |
|
|
|
1,516 |
|
Salaries
and wages paid
|
|
|
3,993 |
|
|
|
3,608 |
|
|
|
3,202 |
|
|
|
3,215 |
|
|
|
3,395 |
|
|
|
3,536 |
|
Cost
of employee benefits
|
|
|
885 |
|
|
|
783 |
|
|
|
611 |
|
|
|
540 |
|
|
|
486 |
|
|
|
653 |
|
Number
of employees at year-end (thousands)
|
|
|
43.2 |
|
|
|
46.4 |
|
|
|
50.0 |
|
|
|
52.7 |
|
|
|
53.3 |
|
|
|
51.0 |
|
Number of Dow stockholders of
record at year-end (thousands) (5)
|
|
|
108.3 |
|
|
|
113.1 |
|
|
|
122.5 |
|
|
|
125.1 |
|
|
|
87.9 |
|
|
|
87.7 |
|
(1) |
Adjusted
to report sale of the Calcium Chloride business in 2009 as discontinued
operations.
|
(4)
|
Included
Temporary Equity in 1999.
|
|
|
|
|
|
|
|
|
|
(2)
|
Adjusted
for reclassification of freight on sales in 2000 and of insurance
operations in 2002.
|
(5)
|
Stockholders
of record as reported by the transfer agent. The Company
|
|
(3)
|
Adjusted
for 3-for-1 stock split in 2000.
|
|
estimates
that there were an additional 563,000 stockholders whose
shares
|
|
|
|
were
held in nominee names at December 31, 2009.
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
PART
II, Item 7. Management’s Discussion and Analysis of
Financial
Condition
and Results of Operations.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
|
Acquisition
of Rohm and Haas
Company
|
|
|
Electronic
and Specialty
Materials
|
|
|
Coatings
and
Infrastructure
|
|
|
Health
and Agricultural
Sciences
|
|
|
Sales
Price and Volume
Charts
|
|
|
Liquidity
and Capital
Resources
|
|
|
Off-Balance
Sheet
Arrangements
|
|
|
Critical
Accounting
Policies
|
|
|
Asbestos-Related
Matters of Union Carbide
Corporation
|
|
|
Matters
Involving the Formation of K-Dow
Petrochemicals
|
|
|
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
combines the power of science and technology with the “Human Element” to
passionately innovate what is essential to human progress. The Company connects
chemistry and innovation with the principles of sustainability to help address
many of the world’s most challenging problems such as the need for clean water,
renewable energy generation and conservation, and increasing agricultural
productivity. Dow’s diversified industry-leading portfolio of specialty
chemical, advanced materials, agrosciences and plastics businesses deliver a
broad range of technology-based products and solutions to customers in
approximately 160 countries and in high growth sectors such as electronics,
water, energy, coatings and agriculture. In 2009, Dow had annual sales of
$44.9 billion. The Company conducts its worldwide operations through global
businesses, which are reported in eight operating segments: Electronic and
Specialty Materials, Coatings and Infrastructure, Health and Agricultural
Sciences, Performance Systems, Performance Products, Basic Plastics, Basic
Chemicals, and Hydrocarbons and Energy.
In
2009, the Company sold its products and its services to customers in
approximately 160 countries throughout the world. Thirty-five percent of
the Company’s sales were to customers in North America; 34 percent were in
Europe; while the remaining 31 percent were to customers in Asia Pacific,
Latin America, and India, Middle East and Africa (“IMEA”). The Company employs
approximately 52,000 people and has a broad, global reach with 214 manufacturing
sites in 37 countries.
2009
OVERVIEW
Dow
and the chemical industry as a whole faced significant economic challenges
across much of the world in 2009. While early signs of recovery began to emerge
in the latter half of the year, high unemployment in developed regions,
lingering effects of the global financial crisis, and cautious business and
consumer spending all contributed to challenging economic conditions throughout
the year. Despite these challenging business conditions, Dow remained focused on
its strategy to transform into an earnings growth company, most notably
completing the acquisition of Rohm and Haas Company (“Rohm and Haas”) on April
1, 2009, combining the two organizations’ best-in-class technologies, broad
geographic reach and strong market channels.
Dow’s
reported sales declined 22 percent from 2008 to $44.9 billion, as difficult
economic conditions persisted for much of the year. Sales were down 30 percent
on a pro forma(1)
basis, driven by declines of 17 percent in price and 13 percent in
volume. While feedstock and energy costs remained volatile in 2009, they were
markedly lower than the previous year as a result of weak demand across many
end-markets. The Company’s purchased feedstock and energy costs fell
$10.2 billion (40 percent) compared with 2008, although a rising cost
trend began to emerge in the latter half of the fourth quarter.
On
a pro forma basis, the Performance segments (Electronic and Specialty Materials;
Coatings and Infrastructure; Health and Agricultural Sciences; Performance
Systems; and Performance Products) reported smaller declines in price than the
Basics segments (Basic Plastics; Basic Chemicals; and Hydrocarbons and Energy).
Double-digit volume declines were reported by all operating segments, except
Health and Agricultural Sciences and Basic Plastics, reflecting the severe
downturn in economic conditions. On a geographic basis, volume declined in North
America and Europe, while the emerging geographies of Asia Pacific, Latin
America and IMEA performed markedly better. These results reflect the trend of
emerging geographies leading the economic recovery throughout 2009. In addition,
in the latter half of the year, Dow’s results from joint ventures began to
approach the level of earnings reported prior to the economic downturn. Dow’s
equity in earnings of nonconsolidated affiliates totaled $630 million for
the year.
Overall,
Dow’s focus on price and volume management, control of discretionary spending
and capital expenditures, and active portfolio management were instrumental to
the Company’s ability to respond to the challenging economic environment. The
Company continued to invest for growth, reinforcing its strategic focus on
science-based innovation and technology integration, as research and development
(“R&D”) expenses reached $1.5 billion, or $1.6 billion on a pro
forma basis. The Company ended the year with $2.8 billion of cash and cash
equivalents, and throughout the year the Company had sufficient liquidity and
financial flexibility to meet all of its business obligations.
In
the year, Dow remained focused on accelerating its strategic transformation into
an earnings growth company and emphasizing the Company’s commitment to financial
discipline. Actions taken during 2009 included:
|
·
|
Dow
completed its acquisition of Rohm and Haas, marking a significant
milestone in Dow’s transformation into an earnings growth company. With
this acquisition, Dow became a leading global specialty chemicals and
advanced materials company. See Note D to the Consolidated Financial
Statements for additional
information.
|
|
·
|
The
Company’s Board of Directors approved a restructuring plan related to
Dow’s acquisition of Rohm and Haas as well as actions to advance the
Company’s strategy and to respond to continued weakness in the global
economy. The restructuring plan includes the elimination of approximately
2,500 positions primarily resulting from synergies achieved as a result of
the acquisition of Rohm and Haas. In addition, the Company will shut down
a number of manufacturing facilities. These actions are expected to be
completed primarily during the next two years. Several ethylene and
ethylene-derivative assets were impacted by the announcement and these
shutdowns are expected to reduce Dow’s ethylene demand by approximately
30 percent on the U.S. Gulf Coast. See Note C to the
Consolidated Financial Statements for additional
information.
|
(1) The
unaudited pro forma historical information reflects the combination of Dow and
Rohm and Haas assuming the transaction had been consummated on January 1,
2008.
|
·
|
Dow
priced a public common stock offering of 150 million shares of common
stock, with total gross proceeds of approximately $2.25 billion. Of
these shares, approximately $1 billion in gross proceeds were through
shares offered by the Company and $1.25 billion were through shares
offered by accounts and funds managed by Paulson & Co. Inc. and trusts
created by members of the Haas family. All of the net proceeds received by
Dow were used to repay a portion of its term loan borrowings. See
Note W to the Consolidated Financial Statements for additional
information.
|
|
·
|
Dow
issued $6 billion of debt securities in a public offering in May. Of
the notes offered, $1.35 billion aggregate principal amount were
offered by accounts and funds managed by Paulson & Co. Inc. and trusts
created by members of the Haas family. Together with the common stock
offering priced earlier in the year, Dow retired all remaining Perpetual
Preferred Stock, Series B from its capital structure at par. Part of the
net proceeds received by Dow was used to repay a portion of its term loan
borrowings. Dow issued an additional $2.75 billion of debt securities
in a public offering in August. Part of the net proceeds received by Dow
was used to repay a portion of its term loan borrowings. See Notes O
and V to the Consolidated Financial Statements for additional
information.
|
|
·
|
Dow
converted Cumulative Convertible Perpetual Preferred Stock, Series C
(“preferred series C”), issued to partially finance the acquisition
of Rohm and Haas, into 31.0 million shares of the Company’s common
stock in June and all shares of preferred series C were retired. See
Note V to the Consolidated Financial Statements for additional
information.
|
|
·
|
The
Company repaid the outstanding balance of its revolving credit facility.
See Note O to the Consolidated Financial Statements for additional
information.
|
|
·
|
Dow
completed the sale of its Calcium Chloride business for net proceeds of
$204 million.
|
|
·
|
Dow
completed the sale of its ownership interest in Total Raffinaderij
Nederland N.V. (“TRN”), a joint venture with Total S.A., and related
inventory for $742 million.
|
|
·
|
Dow
completed the sale of its ownership interest in the OPTIMAL Group of
Companies, nonconsolidated affiliates, to Petroliam Nasional Berhad for
net proceeds of $660 million.
|
|
·
|
Dow
completed the divestiture of Morton International, Inc., the Salt business
of Rohm and Haas, to K+S Aktiengesellschaft for net proceeds of
$1,576 million. Approximately $1 billion in proceeds from the
transaction were used to pay the remaining outstanding balance of Dow’s
term loan borrowings.
|
See
Note E to the Consolidated Financial Statements for additional information
on divestitures.
|
·
|
Dow
AgroSciences LLC and Monsanto Company announced the completion of U.S. and
Canadian regulatory authorizations for SmartStax™, the agriculture
industry’s most advanced, all-in-one corn trait
platform.
|
|
·
|
Dow
unveiled its line of POWERHOUSE™ solar shingle, revolutionary photovoltaic
solar panels in the form of solar shingles that can be integrated into
rooftops with standard asphalt shingle materials. The product was named
one of “The 50 Best Inventions of 2009” by TIME
Magazine.
|
|
·
|
Dow
and its joint venture partner selected Midland, Michigan as the site to
construct a new facility to produce affordable advanced superior lithium
polymer battery technology for hybrid and electric vehicles. The first
phase of the site is projected to cost more than $300 million and
cover 400,000 square feet. The joint venture – between the Company and
Townsend Kokam LLC, known as Dow Kokam – announced that it had been
awarded a $161 million federal grant from the United States
Department of Energy.
|
|
·
|
Dow
and BASF SE jointly announced their support for the Patent Asset Index™, a
new methodology that measures R&D effectiveness, innovation strength
and how these factors lead to sustained competitive advantage. Findings
based on 2008 results rank Dow first in the critical measurement of
Competitive Impact™. These results show that Dow is among the most
innovative companies in the global chemical
industry.
|
|
·
|
Dow
launched a new business and innovation hub in the Asia Pacific region, the
Shanghai Dow Center. The center is comprised of a state-of-the-art R&D
facility and Dow’s regional headquarters for its businesses and
functions.
|
Looking
to 2010, the Company’s plans do not assume an accelerated rebound in business
conditions from year-end 2009 levels, particularly in developed countries. In
the United States, high unemployment and cautious consumer spending are expected
to temper an economic rebound, with growth still expected in the year but at a
muted pace. Recovery in Western Europe and developed countries in Asia Pacific
is expected to lag the United States, as government stimulus programs
may
end,
credit conditions remain tight, and the lingering impacts of the financial
crisis continue in these regions. Emerging geographies, however, are projected
to continue leading the economic recovery. Strong growth is expected in
developing countries such as Brazil, India and China, which have been among the
fastest to rebound from the global financial crisis on the back of robust local
demand and steadily improving export markets. The Company will continue to
implement its strategic transformation and remain focused on reducing financial
leverage, while preferentially investing in its Performance businesses and in
emerging geographies.
Dow’s
results of operations and financial condition for the year ended
December 31, 2009 are described in further detail in the following
discussion and analysis.
ACQUISITION
OF ROHM AND HAAS COMPANY
On
April 1, 2009, the Company completed the acquisition of Rohm and Haas.
Pursuant to the July 10, 2008 Agreement and Plan of Merger (the “Merger
Agreement”), Ramses Acquisition Corp., a direct wholly owned subsidiary of the
Company, merged with and into Rohm and Haas (the “Merger”), with Rohm and Haas
continuing as the surviving corporation becoming a direct wholly owned
subsidiary of the Company.
The
Company pursued the acquisition of Rohm and Haas to make the Company a leading
specialty chemicals and advanced materials company, combining the two
organizations’ best-in-class technologies, broad geographic reach and strong
industry channels to create a business portfolio with significant growth
opportunities.
Pursuant
to the terms and conditions of the Merger Agreement, each outstanding share of
Rohm and Haas common stock was converted into the right to receive cash of
$78 per share, plus additional cash consideration of $0.97 per share. The
additional cash consideration represented 8 percent per annum on the
$78 per share consideration from January 10, 2009 to the closing of
the Merger, less dividends declared by Rohm and Haas with a dividend record date
between January 10, 2009 and the closing of the Merger. All options to
purchase shares of common stock of Rohm and Haas granted under the Rohm and Haas
stock option plans and all other Rohm and Haas equity-based compensation awards,
whether vested or unvested as of April 1, 2009, became fully vested and
converted into the right to receive cash of $78.97 per share, less any
applicable exercise price. Total cash consideration paid to Rohm and Haas
shareholders was $15.7 billion.
The
Company expects the transaction to create $1.3 billion in estimated pretax
annual cost synergies and savings including increased purchasing power for raw
materials; manufacturing and supply chain work process improvements; and the
elimination of redundant corporate overhead for shared services and governance.
The Company also anticipates that the transaction will produce significant
growth synergies through the application of each company’s innovative
technologies and as a result of the combined businesses’ broader product
portfolio in key industry segments with strong global growth rates.
On
July 31, 2009, the Company entered into a definitive agreement for the sale
of certain acrylic monomer and specialty latex assets, as required by the United
States Federal Trade Commission (“FTC”), for approval of the April 1, 2009
acquisition of Rohm and Haas (see Note D to the Consolidated Financial
Statements). The transaction closed on January 25, 2010.
RESULTS
OF OPERATIONS
Results
of Rohm and Haas are included in the Company’s consolidated results from the
acquisition forward. In order to provide the most meaningful comparison of
results of operations, the 2009 versus 2008 comparisons for net sales are
presented on a pro forma basis, reflecting the combination of Dow and Rohm and
Haas assuming the transaction had been consummated on January 1, 2008.
Comparisons for 2008 versus 2007 are on an actual, reported basis.
Net
sales for 2009 were $44.9 billion, down 22 percent from
$57.4 billion in 2008. On a pro forma basis, net sales for 2009 were
$46.6 billion down from pro forma net sales of $66.9 billion in 2008.
Compared with 2008 on a pro forma basis, prices fell 17 percent, with
double-digit price decreases in all operating segments, with the exception of
Electronic and Specialty Materials (down 4 percent), Health and
Agricultural Sciences (down 6 percent) and Coatings and Infrastructure
(down 7 percent) and in all geographic areas. Price declines were most
pronounced in the Basics segments, with Basic Chemicals and Hydrocarbons and
Energy each down 28 percent and Basic Plastics down 27 percent, driven
by significantly lower feedstock and energy costs. From a geographic standpoint,
price declines were most pronounced in Latin America and Europe, where prices
declined 21 percent. Volume decreased 13 percent as a result of the
continued weakness in the global economy with declines in all operating segments
except Health and Agricultural Sciences, which reported growth of
4 percent. Volume decreases were most pronounced in North America (down
18 percent) from reduced levels in 2008 due to Hurricanes Gustav and Ike
which hit the U.S. Gulf Coast, resulting in temporary plant outages and Europe
(down 15 percent).
Dow
reported net sales of $57.4 billion in 2008, up 7 percent from
$53.4 billion in 2007. Compared with 2007, prices rose 12 percent
(with currency accounting for approximately 3 percent of the increase),
with increases in all operating segments and in all geographic areas. In 2008,
double-digit price increases were reported in all operating segments except
Electronic and Specialty Materials (up 8 percent) and Coatings and
Infrastructure (up 5 percent), driven by continuing increases in feedstock
and energy costs. In 2008, volume declined 5 percent from 2007, with volume
changes mixed among the segments. Through the first half of 2008, volume
improved 3 percent overall despite a 5 percent decline in the United
States, but fell in the second half of 2008, most notably in the fourth quarter,
as global demand collapsed. From a geographic standpoint, 2008 volume was down
in all geographic areas, except IMEA, which was up 3 percent from 2007. The
most significant volume decline was in the United States, which ended the year
down 11 percent from 2007.
Sales
in the United States accounted for 32 percent of total sales in 2009 and
2008 and 34 percent in 2007. See the Sales Price and Volume table at the
end of the section titled “Segment Results” for details regarding the change in
sales by operating segment and geographic area. In addition, sales and other
information by operating segment and geographic area are provided in Note Y
to the Consolidated Financial Statements.
Gross
margin for 2009 was $5.7 billion compared with $5.4 billion in 2008
and $7.1 billion in 2007. Despite the significant drop in sales, gross
margin increased as a result of the acquisition of Rohm and Haas, a
$10.2 billion decrease in feedstock and energy costs, lower other raw
material and freight costs, and the favorable impact of currency on costs. In
2009, gross margin was reduced by hedging losses of $56 million related to
the sale of the Company’s 45 percent ownership interest in TRN (see
Note E to the Consolidated Financial Statements). In 2008, despite the
impact of higher selling prices of $6.8 billion, gross margin decreased
compared to 2007, reflecting a $5.9 billion increase in feedstock and
energy costs, lower sales volume, higher costs of other raw materials,
significantly reduced operating rates and the unfavorable impact of currency on
costs. Gross margin was also impacted by Hurricanes Gustav and Ike, which hit
the U.S. Gulf Coast, resulting in temporary outages for several of the Company’s
Gulf Coast production facilities and resulting in $181 million in
additional manufacturing expenses including the repair of property damage,
clean-up costs, unabsorbed fixed costs and inventory write-offs. In addition,
gross margin was reduced by legal expenses and other costs of $69 million
in the fourth quarter of 2008 related to the K-Dow transaction; these costs were
expensed (to “Cost of sales”) upon PIC’s refusal to close the K-Dow transaction
(reflected in Corporate).
Dow’s
global plant operating rate (for its chemicals and plastics businesses) was
74 percent of capacity in 2009 compared with 77 percent in 2008 and
87 percent of capacity in 2007. Operating rates in 2009 were down compared
with 2008 reflecting the continued weakness in the global economy. In 2008,
operating rates were impacted by actions taken by management in response to
lower demand resulting from the slowing global economy, especially in the second
half of the year, as well as by Hurricanes Gustav and Ike which hit the U.S.
Gulf Coast in the third quarter of 2008. In 2007, operating rates reflected a
higher level of demand. Depreciation expense was $2,291 million in 2009,
$2,016 million in 2008 and $1,959 million in 2007.
Personnel
count was 52,195 at December 31, 2009, 46,102 at December 31, 2008 and
45,856 at December 31, 2007. Headcount increased from 2008 due primarily to
the acquisition of Rohm and Haas (an increase of approximately 15,400), offset
by declines related to restructuring activities (approximately 5,600), business
divestitures (approximately 3,700) and transfers to a joint venture
(approximately 170). Headcount increased slightly in 2008 from year-end
2007 primarily due to acquisitions.
Research
and development (“R&D”) expenses were $1,492 million in 2009 compared
with $1,310 million in 2008 and $1,305 million in 2007. R&D
expenses were up 14 percent compared with 2008, due to the acquisition of
Rohm and Haas and strategic growth initiatives at Dow AgroSciences, partially
offset by cost savings initiatives. The increase in R&D expenses in 2008
versus 2007 was primarily due to planned spending for growth initiatives in the
Performance businesses and the addition of R&D expenses related to new
acquisitions.
Selling,
general and administrative (“SG&A”) expenses were $2,487 million in
2009 compared with $1,966 million in 2008 and $1,861 million in 2007.
SG&A expenses increased 27 percent in 2009 due primarily to the
acquisition of Rohm and Haas, partially offset by cost savings initiatives. The
increase in SG&A expenses in 2008 versus 2007 was primarily due to planned
spending for growth initiatives in the Performance businesses, such as product
launches and advertising, and the addition of SG&A expenses related to new
acquisitions.
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 Operations, Notes to the
Consolidated Financial Statements, and Part II, Item 6. Selected Financial
Data.
Production
Costs and Operating Expenses
|
|
Cost
components as a percent of total
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Hydrocarbon
feedstocks and energy
|
|
|
35 |
% |
|
|
48 |
% |
|
|
49 |
% |
Salaries,
wages and employee benefits
|
|
|
15 |
|
|
|
10 |
|
|
|
11 |
|
Maintenance
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Depreciation
|
|
|
5 |
|
|
|
4 |
|
|
|
4 |
|
Restructuring
charges
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
Supplies,
services and other raw materials
|
|
|
40 |
|
|
|
34 |
|
|
|
32 |
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Amortization
of intangibles was $399 million in 2009, $92 million in 2008 and
$72 million in 2007. The increase in amortization of intangibles in 2009
reflected the impact of the amortization of the fair value of intangibles
acquired from Rohm and Haas. Amortization of intangibles was up in 2008 compared
to 2007 due to several small acquisitions in 2007. See Notes D and I to the
Consolidated Financial Statements for additional information regarding the
acquisition of Rohm and Haas and goodwill and other intangible
assets.
During
the fourth quarter of 2009, the Company performed its annual impairment tests
for goodwill. It was determined that goodwill associated with the Dow Haltermann
business unit was impaired. The impairment was based on a review performed by
management in which discounted cash flows did not support the carrying value of
the goodwill. As a result, the Company recorded a pretax goodwill impairment
loss of $7 million, impacting the Performance Products segment. During the
fourth quarter of 2008, the Company performed its annual impairment tests for
goodwill. It was determined that goodwill associated with the Automotive Systems
and Polypropylene reporting units was impaired. The impairment was based on a
review performed by management in which discounted cash flows did not support
the carrying value of the goodwill. The Company recorded pretax charges totaling
$239 million for goodwill impairment losses including $209 million for
the Automotive Systems reporting unit (impacting the Performance Systems
segment) and $30 million for the Polypropylene reporting unit (impacting
the Basic Plastics segment). See Note I to the Consolidated Financial
Statements for additional information regarding goodwill.
In
June 2009, Dow’s Board of Directors approved a restructuring plan that
incorporated actions related to the Company’s acquisition of Rohm and Haas as
well as additional actions to advance the Company’s strategy and to respond to
continued weakness in the global economy. The restructuring plan included the
shutdown of a number of facilities and a global workforce reduction. As a
result, the Company recorded restructuring charges totaling $677 million in
the second quarter of 2009, which included asset write-downs and write-offs of
$454 million, severance costs of $155 million and costs associated
with exit or disposal activities of $68 million. The impact of the charges
was shown as “Restructuring charges” in the consolidated statements of income
and was reflected in the Company’s segment results as follows: $68 million
in Electronic and Specialty Materials, $171 million in Coatings and
Infrastructure, $73 million in Performance Products, $1 million in
Basic Plastics, $75 million in Basic Chemicals, $65 million in
Hydrocarbons and Energy and $224 million in Corporate.
See
Note C to the Consolidated Financial Statements for details on the
restructuring charges.
In
addition to the charges related to the 2009 restructuring plan, the Company
recorded the following adjustments to its restructuring plans during 2009: in
the first quarter, the Company recorded additional severance of $19 million
related to 2008 restructuring activities, reflected in Corporate; in the second
quarter, the Company recorded a $15 million reduction in the 2007
restructuring reserve, reflected in the Health and Agricultural Sciences
segment; and in the fourth quarter, the Company recorded a $5 million reduction
to the 2007 restructuring reserve and $13 million in additional charges related
to the 2009 restructuring activities, both reflected in Corporate. Additionally,
in the fourth quarter of 2009, the Company reduced the restructuring liability
assumed from Rohm and Haas by $9 million, reflected in "Cost of sales" and
impacting Corporate.
On
December 5, 2008, the Company’s Board of Directors approved a restructuring
plan as part of a series of actions to advance the Company’s strategy and
respond to the severe economic downturn in the latter part of the year. The
restructuring plan included the shutdown of a number of facilities and a global
workforce reduction, which are targeted for completion by the end of 2010. As a
result of the shutdowns and global workforce reduction, the Company recorded
pretax restructuring charges of $785 million in the fourth quarter of 2008.
The charges consisted of asset write-downs and write-offs of $336 million,
costs associated with exit or disposal activities of $128 million and
severance costs of $321 million. The impact of the charges is shown as
“Restructuring charges” in the consolidated statements of income and was
reflected in the Company’s segment results as follows: $10 million in
Electronic and Specialty Materials, $16 million in Coatings and
Infrastructure, $68 million in Performance Systems, $39 million in
Performance Products, $98 million in Basic Plastics, $106 million in
Basic Chemicals, $18 million in Hydrocarbons and Energy, and
$430 million in Corporate. In addition to the charges related to the 2008
restructuring plan, the Company also recorded additional pretax charges of
$60 million related to the 2007 restructuring plan, primarily impacting the
Basic Plastics segment, and a reduction of $6 million related to the 2006
restructuring plan. When the 2008 restructuring plan has been fully implemented,
the Company expects to realize ongoing annual savings of approximately
$700 million.
On
December 3, 2007, the Company’s Board of Directors approved a restructuring plan
that included the shutdown of a number of assets and organizational changes
within targeted support functions to improve the efficiency and cost
effectiveness of the Company’s global operations. As a result of these shutdowns
and organizational changes, which were substantially complete at the end of
2009, the Company recorded pretax restructuring charges totaling
$590 million in 2007. The charges consisted of asset write-downs and
write-offs of $422 million, costs associated with exit or disposal
activities of $82 million and severance costs of $86 million. The
charges were reflected in the Company’s segment results as follows:
$27 million in Electronic and Specialty Materials, $20 million in
Coatings and Infrastructure, $77 million in Health and Agricultural
Sciences, $155 million in Performance Systems, $59 million in
Performance Products, $96 million in Basic Plastics, $7 million in
Basic Chemicals, $44 million in Hydrocarbons and Energy, and
$105 million in Corporate. In 2007, the Company also recorded a
$12 million reduction of the 2006 restructuring charges, which included an
$8 million reduction of the estimated severance costs (included in
Corporate) and a $4 million reduction of the reserve for contract
termination fees (included in Performance Products). The Company expects to
realize ongoing annual savings of approximately $180 million related to the
2007 restructuring plan.
During
2009, a pretax charge of $7 million was recorded for purchased in-process
research and development (“IPR&D”) related to the purchase of lithium ion
battery technology by the Ventures business, impacting Corporate. During 2008,
pretax charges totaling $44 million were recorded for purchased IPR&D
related to acquisitions within the Health and Agricultural Sciences segment.
Purchased IPR&D in 2007 amounted to $57 million in pretax charges;
$50 million was related to
acquisitions
within the Health and Agricultural Sciences segment and $7 million was
related to the acquisition of Wolff Walsrode on June 30, 2007 and impacted
the results of the Electronic and Specialty Materials segment. See Note D
to the Consolidated Financial Statements for information regarding these
charges.
Pretax
charges totaling $166 million in 2009 and $49 million in 2008 were recorded
for integration costs, legal expenses and other transaction costs related to the
acquisition of Rohm and Haas; these charges were reflected in Corporate. In
2008, these charges were expensed in anticipation of a 2009 closing of the
acquisition and the revision of the accounting guidance related to business
combinations. In 2009, the Company also recorded $60 million in
acquisition-related retention costs. These costs were recorded in “Cost of
sales,” “Research and development expenses,” and “Selling, general and
administrative expenses” in the consolidated statements of income and reflected
in Corporate.
Following
the December 2008 completion of a study to review Union Carbide’s asbestos claim
and resolution activity, Union Carbide decreased its asbestos-related liability
for pending and future claims (excluding future defense and processing costs) by
$54 million. The reduction was shown as “Asbestos-related credit” in the
consolidated statements of income and was reflected in the results of Corporate.
See Note N to the Consolidated Financial Statements for additional
information regarding asbestos-related matters of Union Carbide.
Dow’s
share of the earnings of nonconsolidated affiliates in 2009 was
$630 million, compared with $787 million in 2008 and
$1,122 million in 2007. Equity earnings declined compared with 2008,
reflecting the overall decrease in global demand and poor economic conditions,
with EQUATE Petrochemical Company K.S.C. (“EQUATE”), Dow Corning Corporation
(“Dow Corning”) and the OPTIMAL Group of Companies (“OPTIMAL”) reporting the
largest declines. Improved results were reported by The Kuwait Olefins Company
K.S.C. in 2009 due to additional production capacity for ethylene oxide/ethylene
glycol and polyethylene. Equity earnings for 2009 were negatively impacted by an
impairment of $65 million related to Equipolymers and $29 million for
the Company’s share of a restructuring charge related to Dow Corning. Equity
earnings in 2008 declined compared with 2007, reflecting volatile feedstock and
energy costs in 2008 and the collapse in global demand that took place in the
fourth quarter of 2008. Equity earnings for 2008 reflected decreased earnings
from MEGlobal, EQUATE, Equipolymers and Siam Polyethylene Company Limited (“Siam
Polyethylene”); partially offset by increased earnings from Dow Corning and
OPTIMAL. See Note H to the Consolidated Financial Statements for additional
information on nonconsolidated affiliates.
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 - net for 2009 was
$891 million, up from $89 million in 2008 and $324 million in
2007. The increase in 2009 was principally due to a pretax gain of
$513 million on the sale of the Company’s ownership interest in TRN, a
nonconsolidated affiliate, and related inventory on September 1, 2009; and a
pretax gain of $339 million on the sale of the Company’s ownership interest
in OPTIMAL on September 30, 2009. Sundry income - net in 2009 was reduced
by a loss of $56 million related to the Company’s early extinguishment of
debt in the third quarter of 2009. See “Changes in Financial Condition” for
additional information on the Company’s early extinguishment of debt. In 2008,
net sundry income reflected unfavorable foreign exchange hedging results and a
decrease in net gains on the sale of assets. In 2007, net sundry income
reflected the impact of favorable foreign exchange hedging results and gains on
the sale of miscellaneous assets.
Net
interest expense (interest expense less capitalized interest and interest
income) was $1,532 million in 2009, up from $562 million in 2008 and
$454 million in 2007. Interest expense (net of capitalized interest) and
amortization of debt discount totaled $1,571 million in 2009,
$648 million in 2008 and $584 million in 2007. Interest expense
increased due to an increased
level
of debt throughout 2009 compared with 2008 and 2007 due to the debt financing
activity related to the April 1, 2009 acquisition of Rohm and Haas. See
“Changes in Financial Condition” for additional information regarding debt
financing activity related to the acquisition. Interest income was
$39 million in 2009, down from $86 million in 2008 and
$130 million in 2007, principally due to lower interest rates on
investments.
The
provision for income taxes was a credit of $97 million in 2009 compared
with a provision of $651 million in 2008 and $1,230 million in 2007.
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. For
example, as the percentage of foreign sourced income increases, the Company’s
effective tax rate declines. The Company’s tax rate is also influenced by the
level of equity earnings, since most of the earnings from the Company’s equity
company investments are taxed at the joint venture level.
The
tax rate for 2009 was reduced by several factors: a significantly higher level
of equity earnings as a percent of total earnings, favorable accrual-to-return
adjustments in various geographies, the recognition of domestic losses and an
improvement in financial results in jurisdictions with tax rates that are lower
than the U.S. statutory rate. These factors resulted in an effective tax rate of
negative 20.7 percent for 2009.
In
2008, the effective tax rate was 51.0 percent compared with
29.3 percent in 2007. The tax rate for 2008 was negatively impacted by
goodwill impairment losses that were not deductible for tax purposes. The tax
rate for 2007 was negatively impacted by a change in German tax law that was
enacted in August 2007 and included a reduction in the German income tax rate.
As a result of the change, the Company adjusted the value of its net deferred
tax assets in Germany (using the lower tax rate) and recorded a charge of
$362 million against the “Provision for income taxes”. Also in 2007, the
Company changed the legal ownership structure of its investment in EQUATE,
resulting in a favorable impact to the “Provision for income taxes” of
$113 million. Excluding these items, the effective tax rate was
23.4 percent in 2007.
On
June 30, 2009, the Company sold the Calcium Chloride business and
recognized a $162 million pretax gain. The results of operations related to
the Calcium Chloride business have been reclassified and reported as income from
discontinued operations for all periods presented. Income from discontinued
operations (net of income taxes) for 2009 was $110 million ($0.10 per
share), compared with $28 million ($0.03 per share) in 2008 and
$23 million ($0.02 per share) in 2007.
Net
income attributable to noncontrolling interests was $28 million in 2009,
$75 million in 2008 and $98 million in 2007. The decline since 2007
was related to the third quarter of 2008 redemption by the outside partner of
its ownership interest in Hobbes Capital S.A. (see Note U to the
Consolidated Financial Statements).
Preferred
stock dividends of $312 million were recognized in 2009. Dividends related
to the Company’s Cumulative Convertible Perpetual Preferred Stock, Series A
were $255 million. The remaining $57 million of dividends related to the
Cumulative Perpetual Preferred Stock, Series B and Cumulative Perpetual
Preferred Stock, Series C, both of which were retired in the second quarter
of 2009. See Notes V and W to the Consolidated Financial Statements for
additional information.
Net
income available for common stockholders was $336 million ($0.32 per
share) in 2009 compared with $579 million ($0.62 per share) in 2008
and $2,887 million ($2.99 per share) in 2007.
The
following table summarizes the impact of certain items recorded in 2009, 2008
and 2007:
Certain
Items Impacting Results
|
|
Pretax
|
|
Impact
on Net Income (2)
|
|
Impact
on EPS (3)
|
In
millions, except per share amounts
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-time
increase in cost of sales related to fair valuation of Rohm and Haas
inventories
|
|
$ |
(209 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
(132 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
(0.13 |
) |
|
|
- |
|
|
|
- |
|
Impact
of Hurricanes Gustav and Ike
|
|
|
- |
|
|
$ |
(181 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
(115 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
(0.12 |
) |
|
|
- |
|
K-Dow
related expenses
|
|
|
- |
|
|
|
(69 |
) |
|
|
- |
|
|
|
- |
|
|
|
(44 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.05 |
) |
|
|
- |
|
Goodwill
impairment losses
|
|
|
(7 |
) |
|
|
(239 |
) |
|
|
- |
|
|
|
(7 |
) |
|
|
(230 |
) |
|
|
- |
|
|
|
(0.01 |
) |
|
|
(0.25 |
) |
|
|
- |
|
Restructuring
charges
|
|
|
(689 |
) |
|
|
(839 |
) |
|
$ |
(578 |
) |
|
|
(466 |
) |
|
|
(628 |
) |
|
$ |
(436 |
) |
|
|
(0.45 |
) |
|
|
(0.68 |
) |
|
$ |
(0.46 |
) |
Purchased
in-process research and development charges
|
|
|
(7 |
) |
|
|
(44 |
) |
|
|
(57 |
) |
|
|
(5 |
) |
|
|
(44 |
) |
|
|
(50 |
) |
|
|
(0.01 |
) |
|
|
(0.05 |
) |
|
|
(0.05 |
) |
Transaction,
integration and other acquisition costs
|
|
|
(226 |
) |
|
|
(49 |
) |
|
|
- |
|
|
|
(170 |
) |
|
|
(43 |
) |
|
|
- |
|
|
|
(0.16 |
) |
|
|
(0.05 |
) |
|
|
- |
|
Equity
in earnings of nonconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dow
Corning restructuring
|
|
|
(29 |
) |
|
|
- |
|
|
|
- |
|
|
|
(27 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.03 |
) |
|
|
- |
|
|
|
- |
|
Equipolymers
impairment
|
|
|
(65 |
) |
|
|
- |
|
|
|
- |
|
|
|
(65 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.06 |
) |
|
|
- |
|
|
|
- |
|
Sundry
income - net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of TRN (4)
|
|
|
457 |
|
|
|
- |
|
|
|
- |
|
|
|
321 |
|
|
|
- |
|
|
|
- |
|
|
|
0.29 |
|
|
|
- |
|
|
|
- |
|
Gain
on sale of OPTIMAL
|
|
|
339 |
|
|
|
- |
|
|
|
- |
|
|
|
198 |
|
|
|
- |
|
|
|
- |
|
|
|
0.18 |
|
|
|
- |
|
|
|
- |
|
Loss
on early extinguishment of debt
|
|
|
(56 |
) |
|
|
- |
|
|
|
- |
|
|
|
(36 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.03 |
) |
|
|
- |
|
|
|
- |
|
Provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
German
tax law change
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(362 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.38 |
) |
Change
in EQUATE legal ownership structure
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
113 |
|
|
|
- |
|
|
|
- |
|
|
|
0.12 |
|
Total
|
|
$ |
(492 |
) |
|
$ |
(1,421 |
) |
|
$ |
(635 |
) |
|
$ |
(389 |
) |
|
$ |
(1,104 |
) |
|
$ |
(735 |
) |
|
$ |
(0.41 |
) |
|
$ |
(1.20 |
) |
|
$ |
(0.77 |
) |
(1)
|
Impact
on “Income from Continuing Operations Before Income
Taxes”
|
(2)
|
Impact
on “Net Income from Continuing
Operations”
|
(3)
|
Impact
on “Net income from continuing operations available for common
stockholders - Earnings per common share -
diluted”
|
(4)
|
Consists
of a $513 million gain in “Sundry income – net” and hedging losses of
$56 million in “Cost of
sales.”
|
SEGMENT
RESULTS
In
order to provide the most meaningful comparison of results by operating segment
in the following discussion and analysis, actual results for the last nine
months of 2009 plus pro forma historical results for the first quarter of 2009
are compared with pro forma historical results for 2008. The unaudited pro forma
historical segment information is based on the historical consolidated financial
statements and accompanying notes of both Dow and Rohm and Haas and was prepared
to illustrate the effects of the Company’s acquisition of Rohm and Haas,
assuming the acquisition of Rohm and Haas had been consummated on
January 1, 2008. In addition, the unaudited pro forma historical segment
information reflects the impact of increased depreciation and amortization
expense resulting from the fair valuation of assets acquired from Rohm and Haas
assuming that the transaction had been consummated on January 1,
2008.
The
unaudited pro forma historical segment information is not necessarily indicative
of the results of operations that would have actually occurred had the
acquisition been completed as of the date indicated, nor is it indicative of the
future operating results of the combined company. The unaudited pro forma
historical segment information does not reflect future events that may occur
after the acquisition of Rohm and Haas, including the potential realization of
operating cost savings (synergies) or restructuring activities or other costs
related to the planned integration of Rohm and Haas, and does not consider
potential impacts of current market conditions on revenues, expense efficiencies
or asset dispositions (with the exception of the sale of Dow’s Calcium Chloride
business).
The
following table, which summarizes the pretax impact of certain items recorded by
Rohm and Haas prior to the acquisition, is provided for pro forma comparison
purposes.
Certain
Items Impacting Rohm and Haas Results
In
millions
|
|
Three
months ended March 31, 2009
|
|
|
Year
ended Dec. 31, 2008
|
|
Impact
of Hurricanes Gustav and Ike
|
|
$ |
(2 |
) |
|
$ |
(29 |
) |
Restructuring
charges
|
|
|
(2 |
) |
|
|
(199 |
) |
Transaction
and other acquisition costs
|
|
|
(80 |
) |
|
|
(54 |
) |
Gain
on sale of 40 percent equity investment in UP Chemical
Company
|
|
|
- |
|
|
|
87 |
|
Total
Rohm and Haas Certain Items
|
|
$ |
(84 |
) |
|
$ |
(195 |
) |
ELECTRONIC
AND SPECIALTY MATERIALS
2009
Versus 2008 (Pro Forma Comparison)
Electronic
and Specialty Materials sales were $4,614 million for 2009, down
19 percent from $5,729 million in 2008, as volume dropped
15 percent and prices declined 4 percent. The decrease in volume was
broad-based with declines in all geographic areas, except IMEA, and in both
businesses due to the global downturn in the electronics and construction
industries. EBITDA for 2009 was $1,060 million compared with
$1,565 million for 2008. Despite the impact of lower SG&A expenses and
lower raw material costs during 2009, EBITDA declined as a result of lower
volume, a decrease in equity earnings from Dow Corning, which included the
Company’s $29 million share of a restructuring charge, restructuring charges of
$68 million (see Note C to the Consolidated Financial Statements), and
an increase in cost of sales of $75 million related to the fair valuation
of Rohm and Haas inventories. EBITDA for 2008 included the gain on the sale of
Rohm and Haas’ investment in UP Chemical Company of $87 million,
restructuring charges of $22 million and hurricane-related costs of
$3 million.
Electronic
Materials sales for 2009 were down 23 percent versus 2008, driven by a
22 percent decrease in volume and a 1 percent decline in prices.
Volume declined in all geographic areas reflecting the global economic downturn.
Asia Pacific, however, reported signs of recovery in the second half of 2009 due
to a rebound in electronics demand and re-stocking within the value chain.
Despite lower SG&A expenses driven by the Company’s cost control programs,
EBITDA decreased significantly due to lower volume. EBITDA for 2009 was reduced
by $12 million of restructuring charges and a $28 million increase in cost
of sales related to the fair valuation of Rohm and Haas inventories. EBITDA for
2008 included a gain of $87 million resulting from the sale of Rohm and
Haas’ investment in UP Chemical Company, restructuring charges of
$12 million and hurricane-related costs of $1 million.
Specialty
Materials sales for 2009 were down 18 percent versus 2008 with volume down
12 percent and prices down 6 percent. Volume declined across all major
businesses and geographic areas. Volume declines in ion exchange resins and
reverse osmosis membranes, particularly for large industrial water projects,
were principally due to lower infrastructure spending and cautious capital
spending by customers. Volume declines in cellulosics were driven by weaker
construction industry conditions. Prices declined in all geographic areas,
especially in North America and Europe. EBITDA for 2009 decreased due to lower
selling prices and volume which more than offset lower raw material costs and
SG&A expenses. EBITDA for 2009 was reduced by $56 million of
restructuring charges and by a $47 million increase in cost of sales
related to the fair valuation of Rohm and Haas inventories. EBITDA for 2008
included restructuring charges of $10 million and hurricane-related costs
of $2 million.
2008
Versus 2007 (Actual Comparison)
Electronic
and Specialty Materials sales increased 27 percent to $2,620 million
in 2008, compared with $2,071 million in 2007. Volume increased
19 percent and prices increased 8 percent including a 3 percent
favorable currency impact. The improvement in volume was driven by the full-year
impact of the 2007 acquisition of Wolff Walsrode. The increase in prices in 2008
was driven by higher raw material costs. EBITDA for 2008 was $835 million
compared with $737 million in 2007. EBITDA increased in 2008 due to higher
sales volume and increased equity earnings from Dow Corning. EBITDA for 2008 was
reduced by restructuring charges totaling $10 million related to the closure of
two manufacturing assets and $2 million of hurricane-related costs. EBITDA
in 2007 was reduced by restructuring charges totaling $27 million and a
$7 million charge for IPR&D related to the acquisition of Wolff
Walsrode. (See Notes C and D to the Consolidated Financial Statements
for additional information on restructuring charges and IPR&D.)
Electronic
and Specialty Materials Outlook for 2010
Electronic
and Specialty Materials sales are expected to increase in 2010, driven by
continued recovery in the electronics, construction, water and health care
industries and by continued growth in emerging economies.
Electronic
Materials sales volume is expected to increase driven by higher demand for
consumer electronics.
Specialty
Materials sales are expected to increase, driven by higher demand for
cellulosics used in the construction industry and for METHOCEL™ cellulose ethers
used in pharmaceutical applications. Increased demand for reverse osmosis
membranes for water desalination projects and industrial applications is
expected to drive higher sales for Dow Water and Process Solutions. Sales of
biocides and the specialty chemical products of ANGUS Chemical Company are also
expected to increase versus 2009.
COATINGS
AND INFRASTRUCTURE
2009
Versus 2008 (Pro Forma Comparison)
Coatings
and Infrastructure sales were $4,788 million for 2009, down 23 percent
from $6,219 million in 2008, as volume dropped 16 percent and prices
dropped 7 percent. EBITDA for 2009 was $467 million compared with
$654 million for 2008. EBITDA for 2009 was reduced by $172 million of
restructuring charges and by an $82 million increase in cost of sales
related to the fair valuation of Rohm and Haas inventories. As a result of these
charges and the decrease in sales, EBITDA declined in 2009 despite lower raw
material and freight costs and lower SG&A expenses. EBITDA for 2008 included
$39 million of restructuring charges. See Note C to the Consolidated
Financial Statements for additional information on restructuring
charges.
Adhesives
and Functional Polymers sales for 2009 were down 16 percent versus 2008, as
volume decreased 9 percent and prices decreased 7 percent. Volume declined
in all geographic areas due to lower demand for packaging, adhesive tapes and
paper labels. Prices were lower in all geographic areas as well. EBITDA for 2009
was negatively impacted by a $23 million increase in cost of sales related
to the fair valuation of Rohm and Haas inventories and a restructuring charge of
$1 million. Despite these charges and a decline in sales, EBITDA for 2009
was slightly higher versus 2008 primarily due to lower raw material costs and
SG&A expenses. EBITDA for 2008 included a restructuring charge of $9
million.
Dow
Building and Construction sales for 2009 were down 21 percent versus 2008,
as volume decreased 17 percent and prices decreased 4 percent, with half of the
decline due to the unfavorable impact of currency. The decrease in volume was
broad-based, with declines in all geographic areas, principally due to a lower
demand for materials used in residential and commercial construction. EBITDA in
2009 was reduced by $24 million of restructuring charges and a
$12 million increase in cost of sales related to the fair valuation of Rohm
and Haas inventories. As a result of these charges, the decline in sales and
increased expenses related to a regulatory-required changeover in foaming agent
in North America, EBITDA for 2009 declined despite the benefit of lower raw
material costs. EBITDA for 2008 included a restructuring charge of $13
million.
Dow
Coating Materials sales were down 26 percent from 2008, as volume decreased
18 percent and prices decreased 8 percent. The decrease in volume was
due to weak demand for architectural and industrial coatings. Demand for
coatings was down significantly due to the downturn in the housing industry,
particularly in North America and Europe. EBITDA in 2009 was reduced
significantly by $147 million of restructuring charges, primarily due to
impairment on the specialty latex
assets
related to the FTC required divestiture, and a $47 million increase in cost
of sales related to the fair valuation of Rohm and Haas inventories. As a result
of these charges and the decrease in sales, EBITDA declined despite the benefit
of lower raw material and freight costs, and lower SG&A expenses. EBITDA for
2008 included a restructuring charge of $17 million.
2008
Versus 2007 (Actual Comparison)
Coatings
and Infrastructure sales increased 45 percent to $2,654 million in
2008, compared with $1,836 million in 2007. Volume increased
40 percent and prices increased 5 percent primarily due to a favorable
currency impact. The improvement in volume was primarily due to the formation of
the Dow Coating Materials business where sales were previously included in
Epoxy. EBITDA for 2008 was $134 million, compared with $51 million in
2007. EBITDA increased in 2008 due to higher sales volume. EBITDA for 2008 was
reduced by restructuring charges totaling $16 million related to the closure of
several manufacturing assets announced in the fourth quarter. EBITDA in 2007 was
reduced by restructuring charges totaling $20 million. See Note C to
the Consolidated Financial Statements for additional information on
restructuring charges.
Coatings
and Infrastructure Outlook for 2010
Coatings
and Infrastructure sales are expected to increase in 2010 driven by continued
recovery in the construction and housing industries, impacting demand for
insulation products and architectural coatings.
Adhesives
and Functional Polymers sales are expected to increase modestly due to higher
demand for packaging, especially in the emerging economies. Price increases are
expected to be driven by higher raw material costs. Adhesive tapes sales will
likely be under pressure, particularly in Europe and Asia Pacific, due to higher
raw material costs and increased competition.
Dow
Building and Construction sales volume is expected to increase due to a modest
recovery in residential construction in North America and Japan, partially
offset by lower commercial construction, especially in North America and Europe.
Further, it is expected that the implementation of more stringent energy codes
and new insulation system solutions will provide higher sales for construction
and building products. Prices for insulation products are expected to rise
modestly, driven by higher raw material costs.
Dow
Coating Materials sales volume is expected to increase, especially in the
emerging economies. Demand for architectural coatings is expected to increase
modestly, driven by the gradual recovery of the housing industry in North
America.
HEALTH
AND AGRICULTURAL SCIENCES
2009
Versus 2008 (Pro Forma Comparison)
Health
and Agricultural Sciences sales were $4,537 million in 2009, down from
$4,609 million in 2008. Sales decreased 2 percent, as prices declined
6 percent (half due to currency), while volume increased 4 percent.
Reduced farm income and tighter credit markets in many regions created
significant downward pricing pressure during 2009. Prices declined as farm
income was negatively impacted by falling crop commodity prices combined with
the relatively higher costs of purchases made earlier in the year. The commodity
product glyphosate accounted for the vast majority of the overall decline in
prices compared with 2008. Volume increased as new seed acquisitions and growth
in the corn, soybean and sunflower portfolios resulted in a 33 percent
sales growth in the seeds, traits and oils business. Volume for new agricultural
chemicals products also increased as pyroxsulam cereal herbicide sales more than
tripled and penoxsulam rice herbicide and spinetoram
insecticide
had continued strong growth. AgroFresh posted record sales volume growth as the
SMARTFRESH™ technology for maintaining the just-harvested quality and freshness
of fruits and vegetables continued to receive excellent channel support in all
geographic areas.
EBITDA
for 2009 was $577 million, compared with $892 million in 2008. EBITDA
was negatively impacted by higher costs associated with the valuation of
inventory based on reduced raw material prices, unfavorable currency exchange
rates, glyphosate price declines, and increased R&D and SG&A expenses to
support growth initiatives. Results for 2009 were favorably impacted by a
$15 million reduction in the 2007 restructuring reserve, originally related
to pre-acquisition contract termination fees between the Company and Rohm and
Haas. EBITDA for 2008 was negatively impacted by charges of $44 million for
IPR&D related to seed acquisitions, $3 million in restructuring charges
and $2 million related to the 2008 hurricanes. See Note C to the
Consolidated Financial Statements for information on restructuring
charges.
2008
Versus 2007 (Actual Comparison)
Health
and Agricultural Sciences sales were
$4,535 million in 2008, up from $3,779 million in 2007. Compared with
2007, sales increased 20 percent with prices increasing 12 percent and
volume increasing 8 percent. Prices increased in response to strong demand,
escalating raw material costs and tight global supply of certain products.
Volume increased as both the seeds, traits and oils and agricultural chemicals
portfolios benefited from strong farm economics and excellent growing conditions
across the northern hemisphere. New cereal herbicide pyroxsulam had a strong and
successful launch, and together with spinetoram insecticide received excellent
customer support in their first full year. Six new acquisitions were completed
in 2008, as Dow AgroSciences continued to increase its scale and reach in the
seeds industry.
EBITDA
for 2008 was $872 million, compared with $576 million in 2007. EBITDA
for 2008 improved significantly due to the increase in sales, the result of the
buoyant agricultural market and new product launches. As previously discussed,
EBITDA in 2008 was negatively impacted by $44 million of IPR&D
write-offs, $3 million in restructuring charges and $2 million related
to the 2008 hurricanes. EBITDA in 2007 was negatively impacted by
$77 million of restructuring charges primarily related to the impairment of
the Company’s manufacturing site in Lauterbourg, France, and by $50 million
of IPR&D charges related to acquisitions.
Health
and Agricultural Sciences Outlook for 2010
Health
and Agricultural Sciences sales for 2010 are expected to grow above 2009 levels.
Volume is anticipated to increase in key regions as the agricultural industry is
expected to return to the less volatile long-term growth trend that existed
before the 2008 and 2009 growing seasons. In 2010, the milestone launch of
SmartStax™ combined insect-resistant and herbicide-tolerant technology is
planned, which is expected to be considered the industry-leading corn stacked
trait. New products sales of pyroxsulam, spinetoram, penoxsulam and aminopyralid
are expected to continue to record strong growth. Investments in technology,
scale and reach in the seeds, traits and oils business remain a
priority.
PERFORMANCE
SYSTEMS
2009
Versus 2008 (Pro Forma Comparison)
Performance
Systems sales were $5,854 million in 2009, down from $8,228 million in
2008. Sales declined 29 percent with volume declining 18 percent and
prices declining 11 percent. The decrease in volume was broad-based across
all geographic areas and most businesses, with declines driven by the global
economic slowdown in the automotive, construction and utility industries. The
drop in prices was also broad-based, with decreases reported in all geographic
areas driven by lower feedstock and other raw material costs.
EBITDA
for 2009 was $675 million, compared with $274 million in 2008. EBITDA
increased from 2008 as a decrease in raw material and feedstock costs, lower
freight costs, and lower R&D and SG&A expenses offset lower selling
prices and lower volume. EBITDA for 2009 was reduced by an increase in cost of
sales related to the fair valuation of Rohm and Haas inventories ($30 million)
and favorably impacted by $1 million from the sale of the Company’s
ownership interest in OPTIMAL. EBITDA for 2008 was negatively impacted by a
goodwill impairment loss of $209 million associated with the Automotive
System reporting unit (See Note I to the Consolidated Financial
Statements), costs of $6 million related to the U.S. Gulf Coast hurricanes,
and restructuring charges of $72 million related to the closure or
impairment of several manufacturing facilities. See Note C to the
Consolidated Financial Statements for information on restructuring
charges.
Automotive
Systems sales decreased 36 percent versus 2008, with a 29 percent
decrease in volume and a 7 percent decrease in prices. Compared with 2008,
volume declined in most geographic areas due to the downturn in the global
economy as original equipment manufacturers served by the business in North
America, Europe, and Latin America had decreased production. Volume in Asia
Pacific started to recover in the second half of the year due to government
stimulus programs in China. Prices were down across all geographic areas due to
lower feedstock costs and weak demand. EBITDA for 2009 increased compared with
2008 in part due to lower feedstock costs and lower SG&A expenses. EBITDA in
2008 was reduced by the goodwill impairment of $209 million and
restructuring charges of $27 million related to the closure or impairment of
several manufacturing facilities.
Dow
Elastomers sales decreased 30 percent versus 2008, with an 18 percent
decrease in volume and a 12 percent decrease in prices. Double-digit volume
declines were reported in all geographic areas as the business continued to be
impacted by weakness in the global automotive and construction industries.
EBITDA for 2009 increased compared with 2008 as lower feedstock and other raw
material costs and lower SG&A and R&D expenses more than offset the
decline in volume and selling prices. EBITDA for 2009 was reduced by an increase
in cost of sales related to the fair valuation of Rohm and Haas inventories
($30 million). EBITDA in 2008 was impacted by $44 million of
restructuring charges, primarily related to the shutdown of facilities that
manufactured NORDEL™ hydrocarbon rubber in Seadrift, Texas and TYRIN™
chlorinated polyethylene in Plaquemine, Louisiana and $5 million of costs
related to the U.S. Gulf Coast hurricanes.
Formulated
Systems sales decreased 23 percent versus 2008, with a 14 percent
decrease in prices and a 9 percent decrease in volume. Prices were down in
all geographic areas driven by lower feedstock costs. Volume was down in all
geographic areas except Asia Pacific where volume increased significantly,
primarily due to increased demand in China, particularly for epoxy systems used
in wind energy applications. EBITDA for 2009 increased compared with 2008,
primarily due to lower raw material costs and cost savings
initiatives.
Dow
Wire and Cable sales decreased 30 percent versus 2008, with a
17 percent decrease in volume and a 13 percent decrease in prices.
Volume was down in all geographic areas due to the continued weakness in the
construction industry. Prices were also down in all geographic areas driven by
lower raw material costs. Despite the decrease in sales, EBITDA for 2009 was
flat with 2008 as cost savings initiatives offset the decrease in selling prices
and volume.
2008
Versus 2007 (Actual Comparison)
Performance
Systems sales were $7,540 million in 2008, up from $6,597 million in
2007. Compared with 2007, sales increased 14 percent as prices rose
12 percent, including a 4 percent favorable impact of currency, and
volume increased 2 percent. The improvement in prices was broad-based with
increases in all geographic areas.
EBITDA
for 2008 was $235 million, compared with $624 million in 2007. Results
for 2008 were negatively impacted by a goodwill impairment loss of
$209 million, costs of $6 million related to the U.S. Gulf Coast
hurricanes, and restructuring charges of $70 million related to the closure
or impairment of several manufacturing facilities announced in the fourth
quarter. Despite the improvement in prices, EBITDA for 2008 declined from 2007
due to reduced operating rates across the Company’s manufacturing facilities,
significant increases in feedstock and other raw material costs, and the
unfavorable
impact
of currency on costs. Results for 2007 were negatively impacted by restructuring
charges of $155 million related to the fourth quarter of 2007 announced
closure or impairment of a number of manufacturing facilities. See Note C
to the Consolidated Financial Statements for information on restructuring
charges.
Performance
Systems Outlook for 2010
Performance
Systems sales are expected to increase as recovery from the global economic
downturn continues. A number of the businesses within the Performance Systems
segment stand to benefit from increased spending on infrastructure projects. In
addition to increased sales volume in 2010, feedstock and other raw material
costs are expected to be higher, creating upward pressure on selling
prices.
Automotive
Systems expects sales to grow slightly during the year as competitive pressure
remains. Prices are expected to be flat with 2009.
Dow
Elastomers expects sales volume to increase in 2010 as the recovery continues
around the globe, particularly in the automotive and construction industries.
Prices are projected to be higher due to increasing feedstock and energy and
other raw material costs. Dow Elastomers anticipates growth due to new products
and technologies such as photovoltaic films. Competitive activity will continue
to put pressure on volume as increased capacity within the industry is expected
in 2010.
Formulated
Systems expects volume to show moderate growth in 2010 due to the continued
recovery of wind turbine construction and infrastructure projects. Prices are
expected to increase driven by higher feedstock and other raw material
costs.
Dow
Wire and Cable expects sales volume to increase as strong growth continues in
China and India. Expected government stimulus plans will help accelerate
spending on infrastructure projects in North America and Latin America, which is
expected to fuel growth in the business. Prices are expected to increase, driven
by higher feedstock and other raw material costs.
PERFORMANCE
PRODUCTS
2009
Versus 2008 (Pro Forma Comparison)
Performance
Products sales were $9,123 million in 2009, down from $13,127 million
in 2008. Sales declined 31 percent with prices declining 19 percent
and volume declining 12 percent. The sharp drop in prices was largely
driven by a decline in feedstock and energy and other raw material costs. Volume
was down in all businesses as a result of the reduction in global demand. From a
geographic standpoint, North America and Europe experienced double-digit volume
declines as a result of the global economic downturn. Asia Pacific and IMEA each
reported a slight volume increase.
EBITDA
for 2009 was $1,099 million, up from $1,064 million in 2008. Compared
with last year, the benefits of lower raw material and freight costs and lower
SG&A and R&D expenses were more than offset by the declines in prices
and volume. EBITDA for 2009 was positively impacted by a gain of
$145 million on the sale of the Company’s ownership interest in OPTIMAL,
partially offset by restructuring charges of $73 million and an increase in
cost of sales of $22 million related to the fair valuation of Rohm and Haas
inventories. EBITDA for 2008 was negatively impacted by costs of
$78 million
related to the U.S. Gulf Coast hurricanes and restructuring charges of
$39 million related to the closure of several manufacturing facilities
announced in the fourth quarter of 2008. See Note C to the Consolidated
Financial Statements for information on restructuring charges.
Amines
sales for the year decreased 19 percent versus 2008, with a 14 percent
decrease in prices and a 5 percent decrease in volume. Prices were lower in
all geographic areas, due to significantly lower feedstock costs. Volume
declined dramatically in North America and Latin America, driven by demand
destruction from the global economic downturn, while volume in Europe and Asia
Pacific increased. EBITDA for 2009 increased substantially compared with 2008,
favorably impacted by the gain on the sale of the Company’s ownership interest
in OPTIMAL and by a reduction in raw material costs.
Polyurethanes
sales for the year decreased 26 percent versus 2008, with a 24 percent
decrease in prices and a 2 percent decrease in volume. Compared with 2008,
Polyurethanes showed double-digit price declines in all geographic areas driven
by lower feedstock and energy costs. Volume declines in Europe and North America
due to the weak global economic conditions were only partially offset by volume
growth in Asia Pacific and IMEA. EBITDA for 2009 decreased compared with 2008 as
the sharp decrease in feedstock and energy and other raw material costs did not
offset the significant decrease in prices. EBITDA for 2008 was reduced by
hurricane-related costs of $25 million.
Epoxy
sales declined 38 percent versus 2008, with a 21 percent decrease in
volume and a 17 percent decrease in prices. Volume showed double-digit
declines in all geographic areas, except Latin America where volume declined
only slightly. The reduction in prices was driven by lower feedstock and energy
costs and an oversupply of key epoxy intermediate products across the industry.
EBITDA for 2009 declined from 2008 as the decline in sales and higher
manufacturing costs more than offset the decline in feedstock and energy costs.
EBITDA for 2008 was reduced by hurricane-related costs of $15 million and
restructuring charges of $28 million.
Oxygenated
Solvents sales
declined 35 percent versus 2008, with prices decreasing 18 percent and
volume decreasing 17 percent. Prices and volume declined in all geographic
areas, with the exception of a slight volume increase in Latin America. The
sales decline was influenced by the slowdown of the global economy and weak
demand, resulting in lower plant utilization rates for the Company. EBITDA
increased compared with 2008, favorably impacted by lower feedstock and energy
costs and the gain on sale of the Company’s ownership interest in OPTIMAL of
$39 million.
Performance
Fluids, Polyglycols and Surfactants sales decreased 20 percent versus 2008,
with a 14 percent decrease in volume and a 6 percent decrease in
prices. Compared with 2008, volume and prices declined in all geographic areas
as a result of the overall global economic downturn. EBITDA for 2009 increased
as the favorable impact of lower raw material costs more than offset the decline
in prices and volume. EBITDA for 2009 was also favorably impacted by the gain on
the sale of the Company’s ownership interest in OPTIMAL of
$25 million.
Performance
Monomers sales for the year declined by 32 percent versus 2008, with a
23 percent decrease in prices and a 9 percent decrease in volume.
Driven by significantly lower raw material costs, price declines occurred in all
geographic areas; however, since the second quarter of 2009, prices increased
sequentially each quarter for the remainder of the year. Volume increases in
Asia Pacific and IMEA were strong, but not enough to compensate for the demand
destruction in North America and Europe. Despite lower raw material costs and
lower SG&A expenses, EBITDA for 2009 declined as results were negatively
impacted by the impairment of certain acrylic monomer assets of $71 million
that the Company was required to divest as a condition of the FTC approval for
the Company’s acquisition of Rohm and Haas, as well as the increase in cost of
sales related to the fair valuation of Rohm and Haas inventory of
$22 million. EBITDA for 2008 was reduced by hurricane-related costs of
$22 million.
2008
Versus 2007 (Actual Comparison)
Performance
Products sales were $12,216 million in 2008, down from $12,976 million
in 2007. Compared with 2007, sales declined 6 percent with prices
increasing 12 percent and volume declining 18 percent. The improvement
in prices was broad-based, supported by higher feedstock and raw material costs,
with double-digit increases realized in all businesses (except Epoxy where
prices increased 3 percent) and geographic areas. Volume declined sharply
in 2008 due to the downturn in the global economy experienced late in the
year.
EBITDA
for 2008 was $1,050 million, compared with $1,991 million in 2007.
Results for 2008 were negatively impacted by costs of $59 million related
to the U.S. Gulf Coast hurricanes and restructuring charges of $39 million
related to the closure of several manufacturing facilities announced in the
fourth quarter. EBITDA declined from 2007 as the favorable impact of higher
selling prices in 2008 was more than offset by increased feedstock and energy
and raw material costs and decreased sales volume resulting from contraction in
the global economy.
Results
for 2007 were negatively impacted by restructuring charges of $55 million,
including a charge of $42 million related to the write-down of the
Company’s indirect 50 percent interest in Dow Reichhold Specialty Latex
LLC, and charges of $13 million related to the write-down of two
manufacturing facilities.
Performance
Products Outlook
for 2010
The
anticipated recovery of the global economy, along with various government
stimulus programs and expected growth in emerging geographies, improves the 2010
outlook for Performance Products. Several businesses have already noted
increased demand in the later part of 2009 and expect further strengthening in
2010. The restructuring efforts completed in 2008 and 2009 are expected to have
a positive impact on 2010 business results.
Amines
sales are expected to grow in 2010, with volume growth exceeding anticipated
price reductions for the business related to industry overcapacity. The business
has been successfully increasing sales in certain industry segments, helped by
increased sales volume with some key customers. Demand in Asia Pacific,
particularly China, is expected to more than offset sluggish demand in Europe
and North America.
Polyurethanes
prices are expected to rise in 2010, driven by anticipated increases in
feedstock and energy costs. Volume is expected to improve relative to 2009
resulting from the improvement in global economic conditions, which should have
a positive impact on the industry operating rates. Healthy economic conditions
in Asia Pacific are expected to more than compensate for projected soft demand
in Europe.
Epoxy
sales are expected to grow due to continued economic recovery. As demand
improves, some margin recovery is expected. Adding to the positive outlook for
the business in 2010, demand growth for halogen-free products is anticipated,
along with a reduction in competitor capacity in certain industry
segments.
The
Oxygenated Solvents business continues to focus on price management to retain
margins. This is anticipated to result in favorable financial results as demand
rebounds with an overall improvement in the economy. Volume is expected to be up
slightly.
Performance
Monomers positive sales demand trend from the latter part of 2009 is expected to
continue into 2010. The recovery of the global economy, stability in the
established industries and growth, especially in the emerging geographies, are
expected to positively impact the business. Sales are expected to increase,
driven by higher prices due to higher raw material costs, combined with more
positive industry supply/demand balances.
In
July 2009, the Company announced that styrene-butadiene latex would align with
Styron, a new business unit of Dow being formed to prepare styrene-butadiene
latex and other businesses to operate under a different ownership structure in
the future. Styrene-butadiene latex is still managed within the Performance
Products segment.
BASIC
PLASTICS
2009
Versus 2008
For
the Basic Plastics segment, there was no difference between actual and pro forma
sales and EBITDA for 2009 and 2008.
Basic
Plastics sales for 2009 were $9,925 million, down 30 percent from $14,240
million in 2008. Double-digit price declines were reported in all geographic
areas during 2009. The decline in feedstock costs and the weak pricing
environment that developed in late 2008 carried forward into 2009, resulting in
prices that were 27 percent lower than those of 2008. After reaching a low
point during the first quarter of 2009, prices improved during the remainder of
the year. Volume was negatively impacted by weak global economic conditions,
declining 3 percent for the year. Volume improved, however, in Asia
Pacific, Latin America and IMEA as the economic recovery began to gather
momentum and demand increased. Lower natural gas and other feedstock prices in
North America, as well as delays in the startup of new Middle East industry
production capacity, resulted in economic conditions that favored the export of
North American production into these geographic areas. Volume in North America
and Europe was lower as weak economic conditions persisted throughout the year.
The volume decline in North America also reflected the May 2008 formation of
Americas Styrenics LLC.
EBITDA
for 2009 was $1,665 million, down from $1,746 million in 2008. While Basic
Plastics benefited from a significant decline in feedstock costs, lower raw
material and freight costs and lower SG&A expenses, these favorable impacts
were more than offset by the decline in prices. Equity earnings were down
slightly from 2008 as improved earnings from Americas Styrenics LLC, The Kuwait
Olefins Company K.S.C., LG DOW Polycarbonate Limited and Siam Polyethylene were
more than offset by lower earnings from EQUATE. EBITDA in 2009 was impacted by
$65 million of impairment charges related to the Company’s investment in
Equipolymers, a nonconsolidated affiliate, and $1 million of restructuring
charges. EBITDA in 2008 was reduced by restructuring charges totaling
$148 million. The 2008 restructuring charges reflect the write-down of the
Company’s investment in a project to form a joint venture in Oman with the Oman
Petrochemicals Industries Company LLC; costs related to the shutdown of
production facilities (Terneuzen, The Netherlands; Freeport, Texas; and
Riverside, Missouri); as well as costs associated with the permanent shutdown of
the operations of the Pétromont and Company, Limited Partnership (“Pétromont”)
joint venture in Varennes, Canada. (See Note C to the Consolidated
Financial Statements for information on restructuring charges.) EBITDA in 2008
also included a goodwill impairment loss of $30 million associated with the
polypropylene reporting unit (see Note I to the Consolidated Financial
Statements), as well as costs of $16 million related to the U.S. Gulf Coast
hurricanes.
Polyethylene
sales were down 28 percent compared with 2008 as prices decreased
29 percent and volume improved 1 percent. Double-digit price declines
were reported in all geographic areas, reflecting significantly lower feedstock
costs. While prices improved in all geographic areas since the first quarter of
the year, they remained significantly lower than in 2008. Volume was up
slightly, with improvement in Asia Pacific, Latin America, and IMEA. Significant
volume improvement was realized in Asia Pacific as government economic stimulus
programs in China created increased demand. This increased demand, along with
delays in new Middle East industry capacity and lower natural gas prices in
North America, created economic conditions that promoted the export of North
American production into Asia Pacific. Volume was lower in North America and
Europe as weak economic conditions continued to dampen demand. EBITDA declined
in 2009 as the favorable impact of lower feedstock and raw material costs and
lower SG&A expenses were more than offset by the decline in prices and lower
equity earnings from EQUATE. EBITDA in 2008 reflected restructuring charges of
$142 million related to the write-down of costs associated with the Oman
Petrochemicals Industries Company LLC joint venture; and costs associated
with the permanent closure of the Pétromont joint venture. EBITDA for 2008 also
reflected costs of $12 million related to the U.S. Gulf Coast
hurricanes.
Polypropylene
sales were down 32 percent compared with 2008 as prices decreased
32 percent and volume was flat. Double-digit price declines were reported
in all geographic areas due to the significant decline in feedstock costs and
weak global economic conditions. Volume improved in Asia Pacific; volume in
Latin America also improved as demand in the consumer and industrial sectors
continued to be strong. Volume declined in North America as demand in the health
care, consumer, and industrial sectors was lower. EBITDA was higher than 2008
primarily driven by lower propylene costs. EBITDA in 2008 included a
$30 million goodwill impairment loss and $2 million of costs related
to the U.S. Gulf Coast hurricanes.
Styrenics
sales for 2009 were down 44 percent compared with 2008, as volume declined
23 percent and prices decreased 21 percent. Volume was down with
significant declines in all geographic areas except IMEA. North America volume
was reduced by the May 2008 formation of Americas Styrenics LLC, a
nonconsolidated affiliate. While government stimulus programs in China resulted
in higher demand for appliance applications, overall demand in Asia Pacific was
considerably lower than 2008. In Europe, demand in the commodity food packaging
area stabilized; however, demand in the construction industry remained weak.
Prices were down as a result of lower feedstock costs and weak global demand.
EBITDA was up significantly from 2008 as the decline in prices was offset by the
benefit of lower feedstock, raw material and freight costs, lower R&D and
SG&A expenses, and higher equity earnings from Americas Styrenics
LLC.
2008
Versus 2007
Sales
for the Basic Plastics segment were $14,240 million in 2008, up
1 percent from $14,167 million in 2007. Prices increased
12 percent in 2008, while volume decreased 11 percent. While strong
price increases were reported in all geographic areas, there was considerable
decline in prices in the fourth quarter. During the first nine months of 2008,
prices moved significantly higher in response to rapidly escalating feedstock
costs. In the fourth quarter, an unprecedented drop in feedstock costs and the
global economic crisis resulted in significant price declines across all
geographic areas and product lines. While volume improved in IMEA, high prices,
wide fluctuations in feedstock costs, and growing weakness in the global economy
resulted in volume declines in all other geographic areas. North America volume
was reduced by the May 2008 formation of Americas Styrenics LLC; the December
2007 closure of the polypropylene manufacturing facility at St. Charles
Operations in Hahnville, Louisiana; and the impact of the U.S. Gulf Coast
hurricanes.
EBITDA
for 2008 was $1,746 million, down from $2,804 million in 2007. EBITDA
declined in 2008 as price increases were not sufficient to offset the
significant increases in feedstock and other raw material costs, lower equity
earnings, and reduced operating rates. While equity earnings from EQUATE were
slightly higher than 2007, EBITDA was negatively impacted by significantly lower
earnings from Siam Polyethylene, Equipolymers, LG DOW Polycarbonate Limited and
Sumitomo Dow Limited, and a loss from Americas Styrenics LLC. EBITDA in 2008 was
reduced by restructuring charges totaling $148 million. EBITDA also
included a goodwill impairment loss of $30 million associated with the
polypropylene reporting unit, as well as costs of $16 million related to
the U.S. Gulf Coast hurricanes. EBITDA in 2007 reflected restructuring charges
totaling $96 million primarily related to the announced shutdown of the
polypropylene production facility at St. Charles Operations in Hahnville,
Louisiana, the write-down of the Company’s 50 percent interest in
Pétromont, and the write-off of abandoned engineering costs.
Basic
Plastics Outlook for 2010
Feedstock
costs are expected to increase during 2010 as the global economic recovery
continues to gather momentum. New global industry polyethylene and polypropylene
capacity is expected to start up during the year, further increasing competition
and weakening supply fundamentals.
With
feedstock costs expected to rise, polyethylene prices are expected to increase.
Equity earnings from EQUATE are expected to be higher as the result of improved
economic conditions coupled with the full-year contribution of a polyethylene
capacity expansion that was successfully started up in the second quarter of
2009.
Polypropylene
is expected to remain challenged in 2010. Slowly recovering demand and the
impact of new industry production capacity will pressure supply fundamentals.
The Company’s focus in North America will continue to target higher margin
products in the food services, rigid packaging, film, and health and hygiene
segments. The business expects this focus on differentiated products and
operating efficiencies to result in improved margins.
Styrenics
prices and volume are expected to improve in 2010 as the economic recovery
results in strong demand growth, particularly in the appliance industry in
China. Improvement is also anticipated in Europe as the result of demand growth
and the impact of capacity shutdowns in 2009. Equity earnings from Americas
Styrenics LLC are also expected to be significantly higher as economic recovery
continues in North America and Latin America. In July 2009, the Company
announced that Styrenics would align with Styron, a new business unit of Dow
being formed to prepare Styrenics and other businesses to operate under a
different ownership structure in the future.
BASIC
CHEMICALS
2009
Versus 2008
For
the Basic Chemicals segment, there was no difference between actual and pro
forma sales and EBITDA for 2009 and 2008.
Basic
Chemicals sales were $2,467 million in 2009, down from $4,265 million
in 2008. Sales declined 42 percent with prices declining 28 percent
and volume declining 14 percent. Both volume and prices were down across
all businesses, primarily due to unfavorable supply/demand
balances.
EBITDA
for 2009 was $103 million, compared with $278 million in 2008. EBITDA
for 2009 was positively impacted by a $193 million gain on the sale of OPTIMAL
and negatively impacted by restructuring charges of $75 million. EBITDA in
2008 was negatively impacted by hurricane-related costs of $35 million and
restructuring charges of $103 million related to the impairment of the
ethylene oxide/ethylene glycol (“EO/EG”) plant at Wilton, England; the
impairment of the chlorinated organics plant in Aratu, Brazil; and the closure
of the chlor-alkali plant in Oyster Creek, Texas (see Note C to the
Consolidated Financial Statements for information on restructuring charges).
EBITDA declined in 2009, as the benefit of significantly lower feedstock and
energy costs and increased equity earnings from The Kuwait Olefins Company
K.S.C. were more than offset by lower prices, lower volume, and declines in
equity earnings from EQUATE and OPTIMAL.
Chlor-Alkali/Chlor-Vinyl
sales decreased 41 percent compared with 2008, with a 34 percent
decrease in prices and a 7 percent decrease in volume. Caustic soda sales
were impacted by weak demand in the alumina, chemical processing and pulp and
paper industries, driving both prices and volume down. Prices for vinyl chloride
monomer (“VCM”) were down compared with last year on weak demand in the housing
and construction industries. Volume for VCM was essentially unchanged as
increased sales to customers exporting polyvinyl chloride offset the decline in
North American domestic demand. Included in EBITDA for 2009 was a restructuring
charge of $50 million related to the shutdown of the ethylene
dichloride/VCM manufacturing facility in Plaquemine, Louisiana. EBITDA for 2009
decreased compared with 2008 as the benefit of lower feedstock and energy costs
was more than offset by substantial declines in prices and volume and the
restructuring charge.
EO/EG
sales decreased 55 percent versus 2008, with a 32 percent decrease in
volume and a 23 percent decrease in prices. Compared with 2008, EG volume
declined due to pressure from new industry capacity, while prices declined due
to lower ethylene prices and weak demand. EBITDA for 2009 increased compared
with 2008 due primarily to the gain on the sale of OPTIMAL, while the benefit of
lower feedstock costs offset lower selling prices and lower equity earnings from
EQUATE and OPTIMAL.
2008
Versus 2007
Sales
for Basic Chemicals were $4,265 million in 2008, compared with
$4,434 million in 2007. Overall, sales decreased 4 percent as volume
decreased 17 percent and prices rose 13 percent. Volume decreased
across all businesses and geographic areas, except IMEA, with the largest
decline in EO/EG, mainly driven by weak economic conditions, poor industry
fundamentals and planned and unplanned outages. Price increases were realized in
all geographic areas except Asia Pacific, with particular strength in Latin
America and North America, driven by significant increases in feedstock and
energy costs through the third quarter of 2008 and tight industry supply/demand
balances in the caustic soda market that drove prices higher.
EBITDA
for Basic Chemicals was $278 million in 2008, compared with
$952 million in 2007. Results for the segment in 2008 were reduced by
hurricane-related costs and restructuring charges. EBITDA in 2008 declined
sharply from 2007 due to higher feedstock and energy costs which compressed
margins, and lower equity earnings from EQUATE and MEGlobal. In 2007, results
were reduced by restructuring charges of $7 million related to the
write-off of capital project spending.
Basic
Chemicals Outlook for 2010
Caustic
soda sales are expected to decrease in 2010 due to continued weak demand in the
chemical processing and pulp and paper industries. However, both prices and
volume are expected to continue to improve over the trough conditions that
existed in the third quarter of 2009, as downstream industries continue to
recover.
VCM
sales are expected to increase in 2010 through increased demand from existing
contractual customers and expected price increases resulting from cost pressure
related to higher feedstock and energy prices.
EG
sales are expected to decrease in 2010 as volume is negatively impacted by
increased industry run rates and the full-year impact of new industry production
capacity in the Middle East and Asia Pacific that started up in 2009, as well as
the anticipated startup of new industry production capacity in Asia Pacific
during 2010. In the first quarter of 2010, the Company shut down the EO/EG plant
in Wilton, England.
Equity
earnings are expected to remain relatively flat compared with 2009 as increased
earnings from EQUATE and The Kuwait Olefins Company K.S.C. are expected to be
offset by lower earnings from MEGlobal, in line with the Company’s expectations
for the EO/EG business.
HYDROCARBONS
AND ENERGY
2009
Versus 2008
For
the Hydrocarbons and Energy segment, there was no difference between actual and
pro forma sales and EBITDA for 2009 and 2008.
Hydrocarbons
and Energy sales were $4,241 million in 2009, down significantly from
$8,968 million in 2008. Sales declined 53 percent with prices
declining 28 percent and volume declining 25 percent. The decrease in selling
prices in 2009 was driven by the impact of the global economic recession and the
unprecedented decline of crude oil and other commodity prices that began in the
fourth quarter of 2008 and continued into 2009. Volume declined sharply in 2009
due to lower ethylene cracker operating rates and lower refinery sales as a
result of a planned maintenance turnaround at TRN and the September 1, 2009 sale
of the Company’s ownership interest in TRN.
The
Hydrocarbons and Energy business transfers materials to Dow’s derivatives
businesses at net cost, which results in EBITDA that is typically at or near
breakeven. EBITDA for 2009 was $391 million, driven by a $457 million gain
on the sale of the Company’s interest in TRN and restructuring charges of
$65 million, primarily related to the Company’s decision to shut down the
ethylene manufacturing facility in Hahnville, Louisiana. EBITDA for 2008 was a
loss of $70 million due to hurricane-related costs of $52 million and
restructuring charges of $18 million.
The
Company uses derivatives of crude oil and natural gas as feedstocks in its
ethylene facilities, while natural gas is used as fuel. The Company’s cost of
purchased feedstock and energy declined $10.2 billion (40 percent) in
2009. Crude oil prices decreased, and on average, 2009 prices were $36 per
barrel (37 percent) lower than 2008 levels. North American natural gas
prices also decreased significantly, and were approximately $5.04 per million
Btu lower than in 2008, a decrease of 56 percent.
2008
Versus 2007
Hydrocarbons
and Energy sales were $8,968 million in 2008 compared with
$7,105 million in 2007. In 2008, prices were up 21 percent and volume
increased 5 percent from 2007. The increase in selling prices in 2008 was
driven by significantly higher overall feedstock, monomer and energy costs.
Sales of monomers increased compared with 2007 due to a styrene supply contract
with Americas Styrenics LLC.
EBITDA
in 2008 was a loss of $70 million. In 2007, EBITDA was a loss of
$45 million, primarily due to restructuring charges of $44 million
related to the shutdown of the Company’s styrene monomer plant in Camaçari,
Brazil and the closure of storage wells in Fort Saskatchewan, Canada. See
Note C to the Consolidated Financial Statements for information on
restructuring charges.
Hydrocarbons
and Energy Outlook for 2010
Crude
oil and natural gas prices are expected to remain volatile and sensitive to
external factors such as weather, economic activity and geopolitical tensions.
The Company expects crude oil prices, on average, to be higher than 2009. While
improving economic conditions are expected to improve ethylene margins slightly
over margins in 2009, the improvement will largely be negated by the startup of
significant new industry capacity in the Middle East and Asia Pacific. Ethylene
margins could improve somewhat compared with these expectations if the pace of
capacity rationalization elsewhere within the industry accelerates, and/or
demand improves more than current economic projections indicate. The economic
outlook continues to be uncertain, as the global markets wait for signs of
demand recovery, while the energy sector remains volatile.
CORPORATE
2009
Versus 2008 (Pro Forma Comparison)
Sales
for Corporate, which primarily related to Morton International, Inc. (the Salt
business acquired with the Rohm and Haas acquisition) and the Company’s
insurance operations, were $1,095 million in 2009, down from
$1,539 million in 2008. Included in the results for Corporate
are:
|
·
|
results
of Morton International, Inc. (see Note E to the Consolidated
Financial Statements),
|
|
·
|
results
of insurance company operations,
|
|
·
|
gains
and losses on sales of financial
assets,
|
|
·
|
stock-based
compensation expense and severance
costs,
|
|
·
|
changes
in the allowance for doubtful
receivables,
|
|
·
|
expenses
related to Ventures,
|
|
·
|
asbestos-related
defense and resolution costs,
|
|
·
|
foreign
exchange hedging results, and
|
|
·
|
certain
overhead and other cost recovery variances not allocated to the operating
segments.
|
EBITDA
for 2009 was a loss of $1,092 million, unchanged from 2008. EBITDA for 2009
was reduced by costs related to the April 1, 2009 acquisition of Rohm and Haas
of $362 million, including a $166 million of other transaction and
integration costs expensed in accordance with the accounting guidance for
business combinations, $60 million of acquisition-related retention expenses, a
$56 million loss on the early extinguishment of debt, and $80 million of
transaction and other acquisition costs incurred by Rohm and Haas prior to the
April 1, 2009 acquisition. EBITDA was also impacted by
$224 million
of 2009 restructuring charges, including employee-related severance expenses of
$155 million, environmental obligations of $64 million, and
$5 million of asset write-offs; plus $28 million in adjustments
related to prior year restructuring plans. EBITDA for 2009 was further reduced
by $2 million of costs related to the 2008 hurricanes.
EBITDA
for 2008 was negatively impacted by $594 million of 2008 restructuring
charges, including employee-related severance expense of $321 million,
pension curtailment costs and termination benefits of $88 million, asset
write-offs and environmental obligations of $21 million, Rohm and Haas
restructuring charges of $162 million and net adjustments to prior year
restructuring plans of $2 million. EBITDA for 2008 was also negatively
impacted by legal expenses and other costs related to the K-Dow transaction of
$69 million and the acquisition of Rohm and Haas of $103 million; and
costs associated with the U.S. Gulf Coast hurricanes of
$18 million.
See
Note C to the Consolidated Financial Statements for information on
restructuring charges.
2008
Versus 2007 (Actual Comparison)
Sales
for Corporate were $323 million in 2008, compared with $410 million in
2007. EBITDA was a loss of $1,005 million in 2008 compared with a loss of
$854 million in 2007. EBITDA for 2008 was reduced by 2008 restructuring
charges totaling $430 million, including employee-related severance
expenses of $321 million, pension curtailment costs and termination
benefits of $88 million, asset write-offs and environmental obligations of
$21 million; net unfavorable adjustments to prior year restructuring plans
of $2 million; increased spending related to acquisitions and joint venture
formation activity, including legal expenses and other costs related to the
K-Dow transaction of $69 million and the acquisition of Rohm and Haas of
$49 million; and costs associated with the U.S. Gulf Coast hurricanes of
$9 million. EBITDA in 2008 was also impacted by lower foreign exchange
hedging results, lower earnings from insurance company operations, a reduction
in performance-based compensation (including stock-based compensation) of
$295 million compared with 2007, and a $54 million reduction in the
asbestos-related liability.
EBITDA
for 2007 was reduced by 2007 restructuring charges totaling $105 million,
including employee-related severance expenses of $86 million, pension
curtailment costs and termination benefits of $15 million and asset
write-offs of $4 million; franchise taxes of approximately
$80 million; and higher performance-based compensation expenses (including
stock-based compensation) of approximately $230 million. EBITDA for 2007
was favorably impacted by improved results from insurance company operations,
foreign exchange hedging results, and an $8 million favorable adjustment to
the restructuring charge for employee-related expenses recorded in the third
quarter of 2006.
See
Note C to the Consolidated Financial Statements for information on
restructuring charges.
Sales
Price and Volume by Operating Segment and Geographic Area
Pro
Forma Comparison
|
|
|
|
|
|
|
2009
|
|
|
|
|
Percent
change from prior year
|
|
Volume
|
|
|
Price
|
|
|
Total
|
|
Operating
Segments:
|
|
|
|
|
|
|
|
|
|
Electronic
and Specialty Materials
|
|
|
(15 |
)% |
|
|
(4 |
)% |
|
|
(19 |
)% |
Coatings
and Infrastructure
|
|
|
(16 |
) |
|
|
(7 |
) |
|
|
(23 |
) |
Health
and Agricultural Sciences
|
|
|
4 |
|
|
|
(6 |
) |
|
|
(2 |
) |
Performance
Systems
|
|
|
(18 |
) |
|
|
(11 |
) |
|
|
(29 |
) |
Performance
Products
|
|
|
(12 |
) |
|
|
(19 |
) |
|
|
(31 |
) |
Basic
Plastics
|
|
|
(3 |
) |
|
|
(27 |
) |
|
|
(30 |
) |
Basic
Chemicals
|
|
|
(14 |
) |
|
|
(28 |
) |
|
|
(42 |
) |
Hydrocarbons
and Energy
|
|
|
(25 |
) |
|
|
(28 |
) |
|
|
(53 |
) |
Total
|
|
|
(13 |
)% |
|
|
(17 |
)% |
|
|
(30 |
)% |
Geographic
Areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(19 |
)% |
|
|
(14 |
)% |
|
|
(33 |
)% |
Europe
|
|
|
(15 |
) |
|
|
(21 |
) |
|
|
(36 |
) |
Rest
of World
|
|
|
(4 |
) |
|
|
(17 |
) |
|
|
(21 |
) |
Total
|
|
|
(13 |
)% |
|
|
(17 |
)% |
|
|
(30 |
)% |
Sales
Price and Volume by Operating Segment and Geographic Area
Actual
Comparison
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
Percent
change from prior year
|
|
Volume
|
|
|
Price
|
|
|
Total
|
|
|
Volume
|
|
|
Price
|
|
|
Total
|
|
Operating
Segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic
and Specialty Materials
|
|
|
19 |
% |
|
|
8 |
% |
|
|
27 |
% |
|
|
20 |
% |
|
|
3 |
% |
|
|
23 |
% |
Coatings
and Infrastructure
|
|
|
40 |
|
|
|
5 |
|
|
|
45 |
|
|
|
(2 |
) |
|
|
4 |
|
|
|
2 |
|
Health
and Agricultural Sciences
|
|
|
8 |
|
|
|
12 |
|
|
|
20 |
|
|
|
9 |
|
|
|
2 |
|
|
|
11 |
|
Performance
Systems
|
|
|
2 |
|
|
|
12 |
|
|
|
14 |
|
|
|
10 |
|
|
|
6 |
|
|
|
16 |
|
Performance
Products
|
|
|
(18 |
) |
|
|
12 |
|
|
|
(6 |
) |
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
Basic
Plastics
|
|
|
(11 |
) |
|
|
12 |
|
|
|
1 |
|
|
|
1 |
|
|
|
8 |
|
|
|
9 |
|
Basic
Chemicals
|
|
|
(17 |
) |
|
|
13 |
|
|
|
(4 |
) |
|
|
(10 |
) |
|
|
5 |
|
|
|
(5 |
) |
Hydrocarbons
and Energy
|
|
|
5 |
|
|
|
21 |
|
|
|
26 |
|
|
|
3 |
|
|
|
12 |
|
|
|
15 |
|
Total
|
|
|
(5 |
)% |
|
|
12 |
% |
|
|
7 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
|
9 |
% |
Geographic
Areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(11 |
)% |
|
|
12 |
% |
|
|
1 |
% |
|
|
(1 |
)% |
|
|
1 |
% |
|
|
- |
|
Europe
|
|
|
(3 |
) |
|
|
14 |
|
|
|
11 |
|
|
|
5 |
|
|
|
12 |
|
|
|
17 |
% |
Rest
of World
|
|
|
(2 |
) |
|
|
12 |
|
|
|
10 |
|
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
Total
|
|
|
(5 |
)% |
|
|
12 |
% |
|
|
7 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
|
9 |
% |
LIQUIDITY AND CAPITAL
RESOURCES
The
Company’s cash flows from operating, investing and financing activities, as
reflected in the Consolidated Statements of Cash Flows, are summarized in the
following table:
Cash
Flow Summary
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
2,075 |
|
|
$ |
4,711 |
|
|
$ |
4,484 |
|
Investing
activities
|
|
|
(14,767 |
) |
|
|
(2,737 |
) |
|
|
(2,858 |
) |
Financing
activities
|
|
|
12,659 |
|
|
|
(978 |
) |
|
|
(2,728 |
) |
Effect
of exchange rate changes on cash
|
|
|
79 |
|
|
|
68 |
|
|
|
81 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
$ |
46 |
|
|
$ |
1,064 |
|
|
$ |
(1,021 |
) |
Cash
provided by operating activities in 2009 declined compared with 2008 due to an
increase in working capital requirements primarily driven by an increase in
trade accounts receivable. The increase in trade accounts receivable reflected
the increase in sales toward the end of 2009 versus the end of 2008 primarily
due to the acquisition of Rohm and Haas in 2009. Despite significantly lower
earnings in 2008, cash provided by operating activities improved compared with
2007 due to a reduction in working capital requirements, largely the result of
the Company’s intense focus on cost control and cash generation in the fourth
quarter of 2008 in response to the global economic downturn.
Cash
used in investing activities in 2009 increased over 2008, reflecting the
April 1, 2009 acquisition of Rohm and Haas for $15,681 million and the
purchase of a previously leased ethylene plant in Canada for $713 million,
partially offset by the proceeds from the sale of the Company’s interest in
nonconsolidated affiliates (TRN for $742 million and OPTIMAL for
$660 million), net proceeds from the sale of Morton ($1,576 million)
and lower capital expenditures. Cash used in investing activities in 2008 was
down slightly compared with 2007, as an increase in capital expenditures of
$201 million and an increase in investments in nonconsolidated affiliates
(including $69 million in Americas Styrenics LLC and $161 million
additional investment in two Kuwaiti joint ventures) was more than offset by a
lower level of investing in consolidated companies, despite acquisitions of
several small agricultural seed companies totaling $100 million in
2008.
Cash
provided by financing activities increased significantly in 2009, reflecting the
funding for the acquisition of Rohm and Haas as discussed in further detail
below, partially offset by the redemption of the preferred partnership units and
accrued dividends of Tornado Finance V.O.F. of $520 million. Cash used in
financing activities in 2008 was down significantly compared with 2007, as cash
generated by proceeds from issuances of long-term debt in excess of payments on
long-term debt and a decrease in purchases of treasury stock more than offset a
reduction in the change in proceeds from the issuance of promissory notes under
the Company’s U.S. commercial paper program and lower proceeds from the sales of
common stock (related to the exercise of stock options and the Employees’ Stock
Purchase Plan).
Despite
the still challenging economic market environment, management expects that the
Company will continue to have sufficient liquidity and financial flexibility to
meet all of its business obligations.
The
Company has undertaken several restructuring plans during the past three years
as follows:
|
·
|
On
December 3, 2007, the Board of Directors approved a restructuring
plan (the “2007 Plan”) that included the shutdown of a number of assets
and organizational changes within targeted functions. These restructuring
activities were substantially complete at the end of
2009.
|
|
·
|
On
December 5, 2008, the Board of Directors approved a restructuring
plan (the “2008 Plan”) that included the shutdown of a number of
facilities and a global workforce reduction. These restructuring
activities are targeted to be completed by the end of
2010.
|
|
·
|
On
June 30, 2009, following the acquisition of Rohm and Haas, the Board
of Directors approved a restructuring plan (the “2009 Plan”) that includes
the elimination of approximately 2,500 positions and the shutdown of a
number of manufacturing facilities. These restructuring activities are
scheduled to be completed primarily during the next two
years.
|
|
·
|
Included
in the liabilities assumed with the April 1, 2009 acquisition of Rohm
and Haas was a reserve of $122 million for severance and employee
benefits for the separation of 1,255 employees associated with Rohm
and Haas’ 2008 restructuring initiatives. The separations resulted from
plant shutdowns, production schedule adjustments, productivity
improvements and reductions in support services. These restructuring
activities are scheduled to be completed during the next two
years.
|
The
restructuring activities related to the 2007 Plan, the 2008 Plan, the 2009 Plan
and the severance reserve assumed from Rohm and Haas are expected to result in
additional cash expenditures of approximately $468 million over the next
two years related to severance costs, contract termination fees, asbestos
abatement and environmental remediation (see Note C to the Consolidated
Financial Statements). The Company expects to incur future costs related to its
restructuring activities, as the Company continually looks for ways to enhance
the efficiency and cost effectiveness of its operations to ensure
competitiveness across its businesses and across geographic areas. Future costs
are expected to include demolition costs related to the closed facilities, which
will be recognized as incurred. The Company also expects to incur additional
employee-related costs, including involuntary termination benefits and pension
plan settlement costs, related to its other optimization activities. These costs
cannot be reasonably estimated at this time.
Working
Capital at December 31
In
millions
|
|
2009
|
|
|
2008
|
|
Current
assets
|
|
$ |
19,560 |
|
|
$ |
16,060 |
|
Current
liabilities
|
|
|
13,106 |
|
|
|
13,108 |
|
Working
capital
|
|
$ |
6,454 |
|
|
$ |
2,952 |
|
Current
ratio
|
|
1.49:1
|
|
|
1.23:1
|
|
At
December 31, 2009, trade receivables were $5.7 billion, up from
$3.8 billion at December 31, 2008, primarily driven by the acquisition
of Rohm and Haas. Days-sales-outstanding-in-receivables (excluding the impact of
sales of receivables) was 45 days at December 31, 2009 compared with
42 days at December 31, 2008, with the increase primarily due to the
acquisition of Rohm and Haas. At December 31, 2009, total inventories were
$6.8 billion, up from $6.0 billion at December 31, 2008, which
reflects the acquisition of inventories from Rohm and Haas.
Days-sales-in-inventory at December 31, 2009 was 64 days versus
58 days at December 31, 2008.
Total
Debt at December 31
In
millions
|
|
2009
|
|
|
2008
|
|
Notes
payable
|
|
$ |
2,139 |
|
|
$ |
2,360 |
|
Long-term
debt due within one year
|
|
|
1,082 |
|
|
|
1,454 |
|
Long-term
debt
|
|
|
19,152 |
|
|
|
8,042 |
|
Total
debt
|
|
$ |
22,373 |
|
|
$ |
11,856 |
|
Debt
as a percent of total capitalization
|
|
|
51.4 |
% |
|
|
45.7 |
% |
Debt
as a percent of total capitalization increased from 45.7 percent in 2008 to
51.4 percent in 2009, reflecting the increased borrowing to fund the
acquisition of Rohm and Haas.
As
part of its ongoing financing activities, Dow has the ability to issue
promissory notes under its U.S. and Euromarket commercial paper programs. At
December 31, 2009, the Company had $721 million of commercial paper
outstanding. Through January 2010, the Company maintained access to the
commercial paper market at competitive rates.
In
the event Dow has short-term liquidity needs and is unable to access these
short-term markets for any reason, Dow has the ability to access liquidity
through its committed and available $3 billion Five Year Competitive
Advance and Revolving Credit Facility Agreement dated April 24, 2006 (“Revolving
Credit Facility”) with various U.S. and foreign banks. The Revolving Credit
Facility has a maturity date in April 2011 and provides for interest at a
LIBOR-plus rate or Base rate as defined in the Agreement. On March 9, 2009,
the Company borrowed $3 billion under the Revolving Credit Facility, and
the Company used the funds to finance its day-to-day operations, to repay
indebtedness maturing in the ordinary course of business and for other general
corporate purposes. At December 31, 2009, all outstanding balances had been
repaid, leaving the full $3 billion credit facility available to the
Company.
At
December 31, 2009, the Company had $220 million of SEC-registered
securities available for issuance under the Company’s U.S. retail medium-term
note program (InterNotes), Euro 5 billion (approximately $7.2 billion)
available for issuance under the Company’s Euro Medium Term Note Program, as
well as Japanese yen 50 billion (approximately $542 million) of
securities available for issuance under a shelf registration filed with the
Tokyo Stock Exchange on July 31, 2006, and renewed on July 31, 2008.
In addition, as a well-known seasoned issuer, the Company filed an automatic
shelf registration for an unspecified amount of mixed securities with the SEC on
February 23, 2007. Under this shelf registration, the Company may offer
common stock, preferred stock, depositary shares, debt securities, warrants,
stock purchase contracts and stock purchase units with pricing and availability
dependent on market conditions.
On
April 1, 2009, the Company completed the acquisition of Rohm and Haas.
Pursuant to the July 10, 2008 Agreement and Plan of Merger (the “Merger
Agreement”), Ramses Acquisition Corp., a direct wholly owned subsidiary of the
Company, merged with and into Rohm and Haas (the “Merger”), with Rohm and Haas
continuing as the surviving corporation and a direct wholly owned subsidiary of
the Company. Financing for the April 1, 2009 transaction included debt of
$9.2 billion obtained through a Term Loan Agreement (“Term Loan”), as well
as equity investments by Berkshire Hathaway Inc. (“BHI”) and the Kuwait
Investment Authority (“KIA”) in the form of Cumulative Convertible Perpetual
Preferred Stock, Series A of 3 million shares for $3 billion
(BHI) and 1 million shares for $1 billion (KIA).
In
connection with the closing of the Merger, the Company entered into an
Investment Agreement with certain trusts established by members of the Haas
family (the “Haas Trusts”) and Paulson & Co. Inc. (“Paulson”), each of whom
was a significant shareholder of Rohm and Haas common stock at the time of the
Merger. Under the Investment Agreement, the Haas Trusts and Paulson purchased
from the Company 2.5 million shares (Haas Trusts - 1.5 million shares;
Paulson - 1.0 million shares) of Cumulative Perpetual Preferred Stock,
Series B (“preferred series B”) for an aggregate price of
$2.5 billion, with $1.5 billion from the Haas Trusts and
$1.0 billion from Paulson. The Haas Trusts made an additional investment in
0.5 million shares of Cumulative Convertible Perpetual Preferred Stock,
Series C (“preferred series C”) for an aggregate price of
$500 million.
In
May 2009, the Company entered into a purchase agreement with the Haas Trusts and
Paulson, whereby the Haas Trusts and Paulson agreed to sell to the Company their
shares of the preferred series B in consideration for shares of the
Company’s common stock and/or notes at the discretion of the
Company.
On
May 6, 2009, the Company launched a public offering of 150.0 million
shares of its common stock. Included in the 150.0 million shares offered to
the public were 83.3 million shares issued to the Haas Trusts and Paulson
in a private transaction in consideration for 1.2 million shares of
preferred series B, at par plus accrued dividends, held by the Haas Trusts
and Paulson. Gross proceeds were $2,250 million, of which the Company’s net
proceeds (after underwriting discounts and commissions) were $966 million
for the sale of the Company’s 66.7 million shares.
On
May 7, 2009, the Company issued $6 billion of debt securities in a
public offering. The offering included $1.75 billion aggregate principal
amount of 7.6 percent notes due 2014; $3.25 billion aggregate
principal amount of 8.55 percent notes due 2019; and $1 billion
aggregate principal amount of 9.4 percent notes due 2039. An aggregate
principal amount of $1.35 billion of the 8.55 percent notes due 2019
were offered by accounts and funds managed by Paulson and the Haas Trusts. These
investors received notes from the Company in payment for 1.3 million shares
of preferred series B, at par plus accrued dividends. The Company used the
net proceeds received from this offering for refinancing, renewals, replacements
and refunding of outstanding indebtedness, including repayment of a portion of
the Term Loan.
Upon
the consummation of the above transactions, all shares of preferred
series B were retired.
On
May 26, 2009, the Company entered into an underwriting agreement and filed the
corresponding shelf registration statement to effect the conversion of preferred
series C into the Company’s common stock. On June 9, 2009, following
the end of the sale period and determination of the share conversion amount, the
Company issued 31.0 million shares of common stock to the Haas Trusts and
all shares of preferred series C were retired.
On
August 4, 2009, the Company issued $2.75 billion of debt securities in
a public offering. The offering included $1.25 billion aggregate principal
amount of 4.85 percent notes due 2012; $1.25 billion aggregate
principal amount of 5.90 percent notes due 2015; and $0.25 billion
aggregate principal amount of floating rate notes due 2011. The Company used the
net proceeds received from this offering for refinancing, renewals, replacements
and refunding of outstanding indebtedness, including repayment of a portion of
the Term Loan.
On
October 1, 2009, the remaining balance of the Term Loan was fully repaid
using proceeds from the sale of the Salt business. See Note E to the
Consolidated Financial Statements for more information on the divestiture of the
Salt business.
See
Notes D, O, V and W to the Consolidated Financial Statements for more
information on the acquisition of Rohm and Haas and the corresponding financing
activities.
On
June 4, 2009, the preferred partner of Tornado Finance V.O.F., a
consolidated foreign subsidiary of the Company, notified Tornado Finance V.O.F.
that the preferred partnership units would be redeemed in full on July 9,
2009 as permitted by the terms of the partnership agreement. On July 9,
2009, the preferred partnership units and accrued dividends were redeemed for a
total of $520 million. See Note U to the Consolidated Financial
Statements.
On
August 21, 2009, the Company executed a buy-back of 175 million Euro
of private placement debt acquired from Rohm and Haas and recognized a
$56 million pretax loss on early extinguishment included in “Sundry
income – net.”
Between
May and December 2009, the Company issued $640 million in retail
medium-term notes with varying maturities in 2014, 2016 and 2019, at various
interest rates averaging 6.45 percent.
On
May 1, 2008, the Company issued $800 million in unsecured notes with a
coupon rate of 5.70 percent, semi-annual interest payments due every May
and November, and the principal amount due at maturity on May 15, 2018.
Between May and December 2008, the Company issued $579 million in retail
medium-term notes with varying maturities in 2013, 2015 and 2018 and at various
interest rates averaging 6.15 percent. Net proceeds from the notes were
primarily used to refinance maturing debt. On September 29, 2008, Calvin
Capital LLC (“Calvin”), a newly formed wholly owned subsidiary of the Company,
issued a three-year $674 million note payable (“Note”) with a floating rate
based on London Interbank Offered
Rate
(LIBOR). The Note was issued in exchange for the redemption of the other
partner’s ownership in Hobbes Capital S.A. and was a non-cash transaction (see
Note R of the Consolidated Financial Statements for further information on
this transaction). On September 28, 2009, Calvin repaid the Note in
full.
Dow’s
public debt instruments and documents for its private funding transactions
contain, among other provisions, certain covenants and default provisions. The
Company’s most significant debt covenant with regard to its financial position
is the obligation to maintain the ratio of the Company’s consolidated
indebtedness to consolidated capitalization at no greater than 0.65 to 1.00 at
any time the aggregate outstanding amount of loans under the primary credit
agreements exceeds $500 million. The ratio of the Company’s consolidated
indebtedness to consolidated capitalization as defined in the credit agreements
was 0.495 to 1.00 at December 31, 2009. At December 31, 2009,
management believes the Company was in compliance with all covenants and default
provisions. For information on Dow’s covenants and default provisions, see
Note O to the Consolidated Financial Statements.
The
Company’s credit rating is currently investment grade. The Company’s long-term
credit ratings were downgraded by Fitch on March 13, 2009 from BBB+ to BBB
with outlook negative. The Company’s long-term credit ratings were downgraded by
Moody’s on April 22, 2009 from Baa1 to Baa3 with outlook negative and
Moody’s concluded its review of the Company’s credit risk. The Company’s
long-term credit ratings were downgraded by Standard & Poor’s on
April 1, 2009 from BBB to BBB- with credit watch negative. On May 6,
2009, Standard & Poor’s removed the credit watch negative, but maintained
outlook negative. On February 2, 2010, Standard & Poor’s changed
the Company’s outlook from negative to stable. The Company’s short-term credit
ratings are A-3/P-3/F3 stable/negative/negative by
Standard & Poor’s, Moody’s, and Fitch. If the Company’s credit
ratings are further downgraded, borrowing costs will increase on certain
indentures, and it could have a negative impact on the Company’s ability to
access credit markets.
On
October 26, 2006, the Company announced that its Board of Directors had approved
a share buy-back program, authorizing up to $2 billion to be spent on the
repurchase of the Company’s common stock (the “2006 Program”). Purchases under
the 2006 Program began in March 2007, following completion of a program approved
in 2005, under which the Company purchase 6.2 million shares in 2007. In
2007, the Company purchased 26.2 million shares under the 2006 Program. In 2008,
the Company purchased 21.9 million shares under the 2006 Program, bringing
the total number of shares purchased under this program to 48.1 million and
bringing the program to a close.
Capital
Expenditures
Capital
spending for the year was $1,410 million, down from $2,276 million in
2008 and $2,075 million in 2007. In 2009 there was an additional
$273 million of capital spending by a consolidated variable interest entity
(see Note R to the Consolidated Financial Statements). In 2009,
approximately 43 percent of the Company’s capital expenditures were
directed toward additional capacity for new and existing products, compared with
40 percent in 2008 and 31 percent in 2007. In 2009, approximately
20 percent was committed to projects related to environmental protection,
safety, loss prevention and industrial hygiene compared with 18 percent in
2008 and 23 percent in 2007. The remaining capital was utilized to maintain
the Company’s existing asset base, including projects related to productivity
improvements, energy conservation and facilities support.
Major
projects underway during 2009 included: the design and construction of a new
chlor-alkali production facility to replace existing facilities, and the
replacement of furnaces used in the production of ethylene in Freeport, Texas;
construction of a regional headquarters facility in Shanghai, China; and
construction of a new polyols plant in Terneuzen, The Netherlands.
Additional major projects included upgrades to isopropanol production facilities
in Texas City, Texas; construction of a facility to produce diesel particulate
filters in Midland, Michigan; the construction of a facility to produce DOWANOL™
glycol ethers in Zhangjiagang, China; and the installation of two new steam
boilers in Stade, Germany. Because the Company designs and builds most of its
capital projects in-house, it had no material capital commitments other than for
the purchase of materials from fabricators and construction labor. The Company
expects capital spending in 2010 to be approximately $1.6 billion not
including capital spending by the consolidated variable interest
entity.
Contractual
Obligations
The
following tables summarize the Company’s contractual obligations, commercial
commitments and expected cash requirements for interest at December 31,
2009. Additional information related to these obligations can be found in Notes
N, O, P, Q and X to the Consolidated Financial Statements.
Contractual
Obligations at December 31, 2009
|
|
|
|
|
Payments
Due by Year
|
|
|
|
|
|
|
|
In
millions
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and beyond
|
|
|
Total
|
|
Long-term
debt – current and noncurrent (1)
|
|
$ |
1,082 |
|
|
$ |
1,796 |
|
|
$ |
2,843 |
|
|
$ |
862 |
|
|
$ |
2,201 |
|
|
$ |
11,935 |
|
|
$ |
20,719 |
|
Deferred
income tax liabilities – noncurrent (2)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,285 |
|
|
|
1,285 |
|
Pension
and other postretirement benefits
|
|
|
496 |
|
|
|
565 |
|
|
|
1,188 |
|
|
|
1,327 |
|
|
|
1,330 |
|
|
|
2,241 |
|
|
|
7,147 |
|
Other
noncurrent obligations (3)
|
|
|
133 |
|
|
|
327 |
|
|
|
198 |
|
|
|
139 |
|
|
|
133 |
|
|
|
3,098 |
|
|
|
4,028 |
|
Uncertain
tax positions, including interest and penalties (4)
|
|
|
76 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
600 |
|
|
|
676 |
|
Other
contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
operating lease commitments
|
|
|
245 |
|
|
|
168 |
|
|
|
132 |
|
|
|
111 |
|
|
|
85 |
|
|
|
1,225 |
|
|
|
1,966 |
|
Purchase
commitments – take-or-pay and throughput obligations
|
|
|
2,845 |
|
|
|
2,655 |
|
|
|
1,716 |
|
|
|
1,088 |
|
|
|
944 |
|
|
|
5,969 |
|
|
|
15,217 |
|
Purchase
commitments – other (5)
|
|
|
20 |
|
|
|
5 |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
20 |
|
|
|
48 |
|
Expected
cash requirements for interest
|
|
|
1,364 |
|
|
|
1,319 |
|
|
|
1,229 |
|
|
|
1,095 |
|
|
|
1,045 |
|
|
|
9,354 |
|
|
|
15,406 |
|
Total
|
|
$ |
6,261 |
|
|
$ |
6,835 |
|
|
$ |
7,309 |
|
|
$ |
4,622 |
|
|
$ |
5,738 |
|
|
$ |
35,727 |
|
|
$ |
66,492 |
|
(1)
|
Excludes
unamortized debt discount of $485 million, which is reflected in
“2015 and beyond.”
|
|
(2)
|
Deferred
income tax liabilities may vary according to changes in tax laws, tax
rates and the operating results of the Company. As a result, it is
impractical to determine whether there will be a cash impact to an
individual year. All noncurrent deferred income tax liabilities have been
reflected in “2015 and beyond.”
|
|
(3)
|
Annual
payments to resolve asbestos litigation will vary based on changes in
defense strategies, changes in state and national law, and claims filing
and resolution rates. As a result, it is impractical to determine the
anticipated payments in any given year. Therefore, the majority of the
noncurrent asbestos-related liability of $734 million has been
reflected in “2015 and beyond.”
|
|
(4)
|
Due to
uncertainties in the timing of the effective settlement of tax positions
with the respective taxing authorities, the Company is unable to determine
the timing of payments related to its uncertain tax positions, including
interest and penalties. Amounts beyond the current year are therefore
reflected in “2015 and beyond.”
|
|
(5)
|
Includes
outstanding purchase orders and other commitments greater than $1 million,
obtained through a survey conducted within the
Company.
|
|
Off-Balance
Sheet Arrangements
Guarantees
arise during the ordinary course of business from relationships with customers
and nonconsolidated affiliates when the Company undertakes an obligation to
guarantee the performance of others if specific triggering events occur.
Information regarding the Company’s outstanding guarantees at December 31,
2009 is disclosed in Note N to the Consolidated Financial
Statements.
The
Company leases an ethylene facility in The Netherlands from an owner trust that
is a variable interest entity (“VIE”). Dow is not the primary beneficiary of the
owner trust and therefore is not required to consolidate the owner trust. In
addition, the Company holds a variable interest in a joint venture accounted for
under the equity method of accounting. The Company is not the primary
beneficiary of the joint venture and therefore is not required to consolidate
the entity. Additional information regarding these VIEs can be found in
Note R to the Consolidated Financial Statements. See Note B to the
Consolidated Financial Statements for information regarding the impact of
adopting Accounting Standards Update (“ASU”) 2009-17, “Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities,” on January 1, 2010.
Since
1997, the Company has routinely sold, without recourse, a participation in pools
of qualifying trade accounts receivable. Additional information regarding sale
of accounts receivable can be found in Note L to the Consolidated Financial
Statements. See Note B to the Consolidated Financial Statements for
information regarding the impact of adopting ASU 2009-16, “Transfers and
Servicing (Topic 860): Accounting for Transfers of Financial Assets,” on
January 1, 2010.
Fair
Value Measurements
The
Company’s assets and liabilities measured at fair value are classified in the
fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation.
Assets and liabilities that are traded on an exchange with a quoted price are
classified as Level 1. Assets and liabilities that are valued based on a
bid or bid evaluation are classified as Level 2. The custodian of the
Company’s debt and equity securities uses multiple industry-recognized vendors
for pricing information and established processes for validation and
verification to assist the Company in its process for determining and validating
fair values for these assets. The Company currently has no assets or liabilities
measured on a recurring basis that are valued using unobservable inputs and
therefore no assets or liabilities measured on a recurring basis are classified
as Level 3. For pension or other post retirement benefit plan assets
classified as Level 3, the total fair value is based on significant
unobservable inputs including assumptions where there is little, if any, market
activity for the investment. The sensitivity of fair
value estimates is immaterial relative to the assets and liabilities measured at
fair value, as well as to the total equity of the Company. See
Note K to the Consolidated Financial Statements for the Company’s
disclosures about fair value measurements.
Portfolio
managers and external investment managers regularly review all of the Company’s
holdings to determine if any investments are other-than-temporarily impaired.
The analysis includes reviewing the amount of the temporary impairment, as well
as the length of time it has been impaired. In addition, specific guidelines for
each instrument type are followed to determine if an other-than-temporary
impairment has occurred. For debt securities, the credit rating of the issuer,
current credit rating trends and the trends of the issuer’s overall sector are
considered in determining whether unrealized losses represent an
other-than-temporary impairment. For equity securities, the Company’s
investments are primarily in Standard & Poor’s (“S&P”) 500 companies;
however, the Company also allows investments in companies outside of the S&P
500. The Company considers the evidence to support the recovery of the cost
basis of a security including volatility of the stock, the length of time the
security has been in a loss position, value and growth expectations, and overall
market and sector fundamentals, as well as technical analysis, in determining
impairment. In 2009, other-than-temporary impairment write-downs were
$93 million ($42 million in 2008).
Dividends
On
December 10, 2009, the Board of Directors declared a quarterly dividend of
$0.15 per share, payable January 29, 2010, to stockholders of record on
December 31, 2009. On February 10, 2010, the Board of Directors
declared a quarterly dividend of $0.15 per share, payable April 30, 2010, to
stockholders of record on March 31, 2010. Since 1912, the Company has paid
a cash dividend every quarter and, in each instance prior to February 12,
2009, had maintained or increased the amount of the dividend, adjusted for stock
splits. During this 97-year period, Dow has increased the amount of the
quarterly dividend 47 times (approximately 12 percent of the time), and
maintained the amount of the quarterly dividend approximately 88 percent of
the time. The dividend was reduced in February 2009, for the first time in the
97-year period, due to uncertainty in the credit markets, unprecedented lower
demand for chemical products and the ongoing global recession. The Company
declared dividends of $0.60 per share in 2009, $1.68 per share in 2008 and
$1.635 per share in 2007.
On
December 10, 2009, the Board of Directors declared a quarterly dividend of
$85 million to Cumulative Convertible Perpetual Preferred Stock,
Series A shareholders of record on December 15, 2009, which was paid
on January 4, 2010. On February 10, 2010, the Board of Directors
declared a quarterly dividend of $85 million to these shareholders, payable
on April 1, 2010. Ongoing dividends related to Cumulative Convertible
Perpetual Preferred Stock, Series A will accrue at the rate of
$85 million per quarter, and are payable quarterly subject to Board of
Directors’ approval.
Outlook
for 2010
In
2009, Dow and the chemical industry as a whole faced significant economic
headwinds across much of the world, with early signs of recovery beginning to
emerge in the latter half of the year. High unemployment in developed regions,
lingering effects from the global financial crisis, and cautious business and
consumer spending all contributed to challenging economic conditions throughout
the year. Despite these demanding times, Dow remained focused on its strategic
transformation to an earnings growth company and emphasized its commitment to
financial discipline, most notably accomplishing the following in 2009: closing
the acquisition of Rohm and Haas; accelerating significant cost synergies
related to the acquisition and other restructuring programs; completing capital
market transactions that improved the Company’s capital structure; and divesting
non-core assets to support the reduction of financial leverage.
Looking
to 2010, the Company’s plans do not assume an accelerated rebound in business
conditions from year-end 2009 levels, particularly in developed regions. In the
United States, high unemployment and cautious consumer spending are expected to
temper an economic rebound, with growth still expected in the year but at a
muted pace. Recovery in Western Europe and developed countries in Asia Pacific
is expected to lag the United States, as government stimulus programs may end,
credit conditions remain tight, and the lingering impacts of the financial
crisis continue in these regions. Emerging geographies, however, are projected
to continue leading the economic recovery. Strong growth is expected in
developing countries such as Brazil, India and China, which have been among the
fastest to rebound from the global financial crisis on the back of robust local
demand and steadily improving export markets. Product inventories across value
chains have started the year at relatively low levels, and early signs suggest
that inventory re-stocking reflects improving underlying demand conditions,
although the sustainability of these trends remains uncertain. Government
stimulus programs in developed regions have had modest impact on downstream
demand to date, and it remains to be seen if longer-term investments (e.g.,
infrastructure and alternative energy) will invigorate end-market demand.
Meanwhile, the positive impact of stimuli in developing countries, most notably
China, is expected to continue bolstering local demand. Volatility in feedstock
and energy costs is expected to continue in 2010, with a gradual economic
recovery in developed regions expected to keep upward pressure on prices. The
relatively low cost of natural gas in the United States and a comparatively weak
U.S. dollar are expected to benefit local ethylene producers who can meet export
market demand. However, supply fundamentals across the ethylene chain are
expected to be negatively impacted by significant capacity additions in the
year, which are projected to put downward pressure on the profitability of older
and higher-cost assets within the industry.
The
Company will continue to implement its strategic transformation while remaining
focused on reducing financial leverage and preferentially investing in its
Performance businesses and in emerging geographies. The Company expects to
generate positive cash flow from operations in 2010. Capital spending is
expected to increase slightly from 2009 levels to $1.6 billion, well below the
expected level of depreciation but sufficient to invest for growth and maintain
the safety and reliability of the Company’s facilities. Research and development
spending is projected to rise to approximately $1.6 billion. Equity in earnings
of Dow’s nonconsolidated affiliates is expected to return to pre-recession
levels, driven by robust fundamentals at the Company’s principal joint ventures,
in particular Dow Corning, EQUATE and The Kuwait Olefins Company
K.S.C.
OTHER
MATTERS
Recent
Accounting Guidance
See
Note B to the Consolidated Financial Statements for a summary of recent
accounting guidance.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) requires management to make judgments, assumptions and estimates that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Note A to the Consolidated Financial Statements
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Following are the
Company’s critical accounting policies impacted by judgments, assumptions and
estimates:
Litigation
The
Company is subject to legal proceedings and claims arising out of the normal
course of business. The Company routinely assesses the likelihood of any adverse
judgments or outcomes to these matters, as well as ranges of probable losses. A
determination of the amount of the reserves required, if any, for these
contingencies is made after thoughtful analysis of each known issue and an
actuarial analysis of historical claims experience for incurred but not reported
matters. Dow has an active risk management program consisting of numerous
insurance policies secured from many carriers. These policies provide coverage
that is utilized to minimize the impact, if any, of the legal proceedings. The
required reserves may change in the future due to new developments in each
matter. For further discussion, see Note N to the Consolidated Financial
Statements.
Asbestos-Related
Matters of Union Carbide Corporation
Union
Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company,
and a former Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”), are and
have been involved in a large number of asbestos-related suits filed primarily
in state courts during the past three decades. Based on a study completed by
Analysis, Research & Planning Corporation (“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. Union Carbide
also increased the receivable for insurance recoveries related to its asbestos
liability to $1.35 billion at December 31, 2002. Since then, Union
Carbide has compared current asbestos claim and resolution activity to the
results of the most recent ARPC study at each balance sheet date to determine
whether the accrual continues to be appropriate. In addition, Union Carbide has
requested ARPC to review Union Carbide’s historical asbestos claim and
resolution activity each November since 2004 to determine the appropriateness of
updating the most recent ARPC study.
In
November 2007, Union Carbide requested ARPC to review Union Carbide’s 2007
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2007. In December 2007, ARPC stated that
an update of its study would not provide a more likely estimate of future events
than the estimate 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, 2007, Union Carbide’s asbestos-related liability for pending
and future claims was $1.1 billion.
In
November 2008, Union Carbide requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2008. The resulting study, completed by ARPC
in December 2008, stated that the undiscounted cost of resolving pending and
future asbestos-related claims against Union Carbide and Amchem, excluding
future defense and processing costs, through 2023 was estimated to be between
$952 million and $1.2 billion. As in its earlier studies, ARPC
provided estimates for a longer period of time in its December 2008 study, but
also reaffirmed its prior advice that forecasts for shorter periods of time are
more accurate than those for longer periods of time.
In
December 2008, based on ARPC’s December 2008 study and Union Carbide’s own
review of the asbestos claim and resolution activity, Union Carbide decreased
its asbestos-related liability for pending and future claims to
$952 million, which covered the 15-year period ending 2023, excluding
future defense and processing costs. The reduction was $54 million and was
shown as “Asbestos-related credit” in the consolidated statements of income. At
December 31, 2008, the asbestos-related liability for pending and future
claims was $934 million.
In
November 2009, Union Carbide requested ARPC to review Union Carbide’s 2009
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2008 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2009. In December 2009, ARPC
stated that an update of its study would not provide a more likely estimate of
future events than the estimate 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, 2009, Union Carbide’s asbestos-related liability for
pending and future claims was $839 million.
Union
Carbide’s receivable for insurance recoveries related to its asbestos liability
was $84 million at December 31, 2009 and $403 million at
December 31, 2008. The decrease in the receivable was principally due to
settlements reached in the fourth quarter of 2009 with two significant carriers.
In addition, Union Carbide had receivables of $448 million at
December 31, 2009 and $272 million at December 31, 2008 for
insurance recoveries for defense and resolution costs submitted to insurance
carriers that have settlement agreements in place regarding their
asbestos-related insurance coverage. The balance of these receivables increased
in 2009 principally as a result of settlements reached in the fourth quarter of
2009 with two significant carriers.
The
amounts recorded by Union Carbide for the asbestos-related liability and related
insurance receivable were based upon current, known facts. However, 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.
For
additional information, see Legal Proceedings, Asbestos-Related Matters of Union
Carbide Corporation in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and Note N to the Consolidated
Financial Statements.
Environmental
Matters
The
Company determines the costs of environmental remediation of its facilities and
formerly owned facilities based on evaluations of current law and existing
technologies. Inherent uncertainties exist in such evaluations primarily due to
unknown environmental conditions, changing governmental regulations and legal
standards regarding liability, and emerging remediation technologies. The
recorded liabilities are adjusted periodically as remediation efforts progress,
or as additional technical or legal information becomes available. In the case
of landfills and other active waste management facilities, Dow recognizes the
costs over the useful life of the facility. At December 31, 2009, the
Company had accrued obligations of $619 million for environmental
remediation and restoration costs, including $80 million for the
remediation of Superfund sites. The balance included $159 million of
environmental liabilities assumed from Rohm and Haas on April 1, 2009,
related to the remediation of current and former Rohm and Haas-owned sites. This
is management’s best estimate of the costs for remediation and restoration with
respect to environmental matters for which the Company has accrued liabilities,
although the ultimate cost with respect to these particular matters could range
up to approximately twice that amount. The Company had accrued obligations of
$312 million at December 31, 2008 for environmental remediation and
restoration costs, including $22 million for the remediation of Superfund
sites. For further discussion, see Environmental Matters in Management’s
Discussion and Analysis of Financial Condition and Results of Operations and
Notes A and N to the Consolidated Financial Statements.
Goodwill
The
Company assesses goodwill recoverability through business financial performance
reviews, enterprise valuation analysis, and impairment tests.
Annual
goodwill impairment tests are completed during the Company’s fourth quarter of
the year in accordance with the subsequent measurement provisions of the
accounting guidance for goodwill. The tests are performed at the reporting unit
level which is defined as one level below operating segment with the exception
of Health and Agricultural Sciences which is both an operating segment and a
reporting unit. Reporting units are the level at which discrete financial
information is available and reviewed by business management on a regular basis.
The Company has defined eight operating segments and 29 reporting units.
Goodwill is carried by 20 of the Company’s 29 reporting units.
In
addition to the annual goodwill impairment tests, the Company reviews the
financial performance of its reporting units over the course of the year to
assess whether circumstances have changed that would more likely than not
indicate that the fair value of a reporting unit has declined below its carrying
value. In cases where an indication of impairment is determined to exist, the
Company completes an interim goodwill impairment test specifically for that
reporting unit.
The
Company utilizes a discounted cash flow methodology to calculate the fair value
of its reporting units. This valuation technique has been selected by management
as the most meaningful valuation method due to the limited number of market
comparables for the Company’s reporting units. However, where market comparables
are available, the Company includes EBIT/EBITDA multiples as part of the
reporting unit valuation analysis.
The
discounted cash flow valuations are completed with the use of key assumptions,
including projected revenue growth rate, discount rate, tax rate, currency
exchange rates, terminal value, and long-term hydrocarbons and energy prices.
These key assumptions are reevaluated with each annual impairment test and
values are updated based on current facts and circumstances. The tax rate,
currency exchange rates, and long-term hydrocarbons and energy prices are
established for the Company as a whole and applied consistently to all reporting
units, while revenue growth rate, terminal value (calculated using the Gordon
Growth Model), and discount rate are evaluated by reporting unit to account for
differences in business fundamentals and industry risk.
For
the 2009 annual impairment test, the tax rate was set at 25 percent,
currency exchange rates were projected by year for 54 currencies, and
long-term hydrocarbons and energy prices were forecast by geographic area by
year and included all key feedstocks as well as natural gas and crude oil (due
to the correlation to naphtha). Discount rates ranged from 9.1 percent to
11.4 percent based on an assessment of likely market participants and
relative industry risk of each reporting unit. Terminal values were
differentiated based on the cash flow projections of each reporting unit and the
projected Net Operating Profit After Tax (“NOPAT”) growth rate, which ranged
from negative 1.3 percent to positive 4.5 percent. Revenue growth
rates or Compounded Annual Growth Rates (“CAGR”) over a ten-year cash flow
forecast period varied by reporting unit based on underlying business
fundamentals and future expectations with rates ranging from negative
0.4 percent to positive 18 percent.
Changes
in key assumptions can affect the results of goodwill impairment tests. The
changes made to key assumptions in 2009 did not result in a significant change
in the impairment analysis conclusion. The key assumptions with the most
significant impact on reporting unit fair value calculations include the
discount rate and terminal value NOPAT growth rate. For the 2009 impairment
test, management completed sensitivity analysis on both of these key
assumptions. An increase of 100 basis points in the discount rate would
have resulted in a fair value, based on discounted cash flows, which exceeded
the carrying value for all but one of the Company’s reporting units. For the one
exception, Electronic Materials, fair value would have fallen below carrying
value by approximately $350 million. For the terminal value NOPAT growth
rate, a decrease of 100 basis points would have resulted in a fair value,
based on discounted cash flows, which exceeded the carrying value for all of the
Company’s reporting units. Additional sensitivity analysis was completed on the
combined impact of a 100 basis point increase in the discount rate and a 100
basis point decrease in the terminal value NOPAT growth rate. This analysis
resulted in fair values, based on discounted cash flows, that exceeded carrying
values for all reporting units except Electronic Materials and Adhesives and
Functional Polymers. For Electronic Materials, a 100 basis point increase
in the discount rate coupled with a 100 basis point decrease in the
terminal value NOPAT growth rate resulted in a fair value that was approximately
$540 million below the carrying value of the reporting unit. For Adhesives
and Functional Polymers, the same analysis resulted in a fair value that was
approximately equal to the carrying value of the reporting unit.
In
completing the annual impairment test for 2009, management evaluated the
reasonableness of differences noted between the fair value and carrying value of
each reporting unit. For certain reporting units comprised primarily of recently
acquired Rohm and Haas businesses (i.e., Electronic Materials and Adhesives and
Functional Polymers), fair value did not exceed book value by a significant
margin which is reasonable given that the Rohm and Haas acquisition closed
within the current year. The Automotive Systems reporting unit, which recorded a
$209 million partial impairment of goodwill at the end of 2008, continues
to be closely monitored by management as fair value, while improved from a year
ago, remains relatively close to book value.
Based
on the fair value analysis completed by the Company in the fourth quarter, using
the key assumptions defined for the Company as well as the key assumptions
defined specifically for each reporting unit, management concluded that fair
value exceeded carrying value for all reporting units except the Dow Haltermann
reporting unit. As a result, the Company recorded a goodwill impairment charge
of $7 million in the fourth quarter of 2009 which represents the total
amount of goodwill carried by the Dow Haltermann reporting unit. Due to the
conclusion that the goodwill associated with the Dow Haltermann reporting unit
was impaired, management also initiated a review of the underlying assets of the
reporting unit to assess whether or not any additional asset impairment existed.
Based on the undiscounted cash flow analysis completed in accordance with ASC
Topic 360, “Property, Plant, and Equipment,” no further impairment existed.
Further impairment of the Dow Haltermann reporting unit could occur if the
expected future cash flows decline. The cash flows used in the undiscounted cash
flow analysis pertaining to Dow Haltermann represented management's best
estimate at the time of the analysis.
The
Company also monitors and evaluates its market capitalization relative to book
value. When the market capitalization of the Company falls below book value,
management undertakes a process to evaluate whether a change in circumstances
has occurred that would indicate it is more likely than not that the fair value
of any of its reporting units has declined below carrying value. This evaluation
process includes the use of third-party market-based valuations and internal
discounted cash flow analysis. As part of the annual goodwill impairment tests,
the Company also compares market capitalization with the estimated fair value of
its reporting units to ensure that significant differences are understood. At
December 31, 2009 and December 31, 2008, Dow’s market capitalization
exceeded book value.
Pension
and Other Postretirement Benefits
The
amounts recognized in the consolidated financial statements related to pension
and other postretirement benefits are determined from actuarial valuations.
Inherent in these valuations are assumptions including expected return on plan
assets, discount rates at which the liabilities could be settled at
December 31, 2009, rate of increase in future compensation levels,
mortality rates and health care cost trend rates. These assumptions are updated
annually and are disclosed in Note P to the Consolidated Financial
Statements. In accordance with U.S. GAAP, actual results that differ from the
assumptions are accumulated and amortized over future periods and, therefore,
affect expense recognized and obligations recorded in future periods. The U.S.
pension plans represent approximately 71 percent of the Company’s pension
plan assets and 71 percent of the pension obligations.
The
following information relates to the U.S. plans only; a similar approach is used
for the Company’s non-U.S. plans.
The
Company determined the expected long-term rate of return on assets by performing
a detailed analysis of historical and expected returns based on the strategic
asset allocation approved by the Board of Directors and the underlying return
fundamentals of each asset class. The Company’s historical experience with the
pension fund asset performance was also considered. The expected return of each
asset class is derived from a forecasted future return confirmed by historical
experience. The expected long-term rate of return is an assumption and not what
is expected to be earned in any one particular year. The weighted-average
long-term rate of return assumption used for determining net periodic pension
expense for 2009 was 8.46 percent. This assumption was lowered to
8.14 percent for determining 2010 net periodic pension expense. Future
actual pension expense will depend on future investment performance, changes in
future discount rates and various other factors related to the population of
participants in the Company’s pension plans.
The
discount rates utilized to measure the pension and other postretirement
obligations of the U.S. qualified plans are based on the yield on high-quality
fixed income instruments at the measurement date. Future expected actuarially
determined cash flows of Dow’s major U.S. plans are matched against the
Citigroup Pension Discount Curve (Above Median) to arrive at a single discount
rate by plan. The resulting discount rate decreased from 6.61 percent at
December 31, 2008 to 5.97 percent at December 31,
2009.
At
December 31, 2009, the U.S. qualified plans were underfunded on a projected
benefit obligation basis by $3.2 billion. The underfunded amount increased
by approximately $900 million compared with December 31, 2008. The
increase was primarily due to the acquisition of plan assets and obligations
from Rohm and Haas combined with lower discount rates. The increase was
partially offset by favorable plan asset returns during the year. The Company
did not make any contributions to the U.S. qualified plans in 2009.
The
assumption for the long-term rate of increase in compensation levels for the
principal U.S. qualified plans is 4.25 percent for 2010 and
4.50 percent thereafter. Since 2002, the Company has used a generational
mortality table to determine the duration of its pension and other
postretirement obligations.
The
following discussion relates to all of the Company’s pension plans.
The
Company bases the determination of pension expense or income on a market-related
valuation of plan assets, which reduces year-to-year volatility. This
market-related valuation recognizes investment gains or losses over a five-year
period from the year in which they occur. Investment gains or losses for this
purpose represent the difference between the expected return calculated using
the market-related value of plan assets and the actual return based on the
market value of plan assets. Since the market-related value of plan assets
recognizes gains or losses over a five-year period, the future value of plan
assets will be impacted when previously deferred gains or losses are recorded.
Over the life of the plan, both gains and losses have been recognized and
amortized. At December 31, 2009, net losses of $1,785 million remain
to be recognized in the calculation of the market-related value of plan assets.
These net losses will result in increases in future pension expense as they are
recognized in the market-related value of assets and are a component of the
total net loss of $6,376 million shown under “Pretax amounts recognized in
AOCI at December 31” in the table entitled “Change in Projected Benefit
Obligations, Plan Assets and Funded Status of All Significant Plans” included in
Note P to the Consolidated Financial Statements. The other
$4,591 million of net losses represents cumulative changes in plan
experience and actuarial assumptions. The net decrease or increase in the
market-related value of assets due to the recognition of prior gains and losses
is presented in the following table:
Net
Decrease (Increase) in Market-Related Asset Value Due to Recognition of
Prior Gains and Losses
In
millions
|
|
2010
|
|
$ |
573 |
|
2011
|
|
|
662 |
|
2012
|
|
|
724 |
|
2013
|
|
|
(174 |
) |
Total
|
|
$ |
1,785 |
|
Based
on the 2010 pension assumptions and the changes in the market-related value of
assets due to the recognition of prior asset losses, the Company expects net
periodic benefit costs to increase by approximately $250 million for all
pension and other postretirement benefits in 2010 compared with
2009.
A
25 basis point increase or decrease in the long-term return on assets
assumption would change the Company’s total pension expense for 2010 by
approximately $40 million. A 25 basis point increase or decrease in
the discount rate assumption would change the Company’s total pension expense
for 2010 by approximately $50 million. A 25 basis point change in the
long-term return and discount rate assumptions would have an immaterial impact
on the other postretirement benefit expense for 2010.
Income
Taxes
Deferred
tax assets and liabilities are determined based on temporary differences between
the financial reporting and tax bases of assets and liabilities, applying
enacted tax rates expected to be in effect for the year in which the differences
are expected to reverse. Based on the evaluation of available evidence, both
positive and negative, the Company recognizes future tax benefits, such as net
operating loss carryforwards and tax credit carryforwards, to the extent that
realizing these benefits is considered to be more likely than not.
At
December 31, 2009, the Company had a net deferred tax asset balance of
$1.3 billion, after valuation allowances of $721 million.
In
evaluating the ability to realize the deferred tax assets, the Company relies
on, in order of increasing subjectivity, taxable income in prior carryback
years, the future reversals of existing taxable temporary differences, tax
planning strategies and forecasted taxable income using historical and projected
future operating results.
At
December 31, 2009, the Company had deferred tax assets for tax loss and tax
credit carryforwards of $2.4 billion, $52 million of which is subject
to expiration in the years 2010-2014. In order to realize these deferred tax
assets for tax loss and tax credit carryforwards, the Company needs taxable
income of approximately $7.4 billion across multiple jurisdictions. The
taxable income needed to realize the deferred tax assets for tax loss and tax
credit carryforwards that are subject to expiration between 2010-2014 is
approximately $347 million.
The
Company recognizes the financial statement effects of an uncertain income tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination. At December 31, 2009, the
Company had uncertain tax positions for both domestic and foreign issues of
$650 million.
The
Company accrues for non-income tax contingencies when it is probable that a
liability to a taxing authority has been incurred and the amount of the
contingency can be reasonably estimated. At December 31, 2009, the Company
had a non-income tax contingency reserve for both domestic and foreign issues of
$189 million.
For
additional information, see Notes A and X to the Consolidated Financial
Statements.
Environmental
Matters
Environmental
Policies
Dow
is committed to world-class environmental, health and safety (“EH&S”)
performance, as demonstrated by industry-leading performance, a long-standing
commitment to Responsible Care®, and a strong commitment to achieve the
Company’s 2015 Sustainability Goals – goals that set the standard for
sustainability in the chemical industry by focusing on improvements in Dow’s
local corporate citizenship and product stewardship, and by actively pursuing
methods to reduce the Company’s environmental impact.
To
meet the Company’s public commitments, as well as the stringent laws and
government regulations related to environmental protection and remediation to
which its global operations are subject, Dow has well-defined policies,
requirements and management systems. Dow’s EH&S Management System (“EMS”)
defines the “who, what, when and how” needed for the businesses to achieve the
Company’s policies, requirements, performance objectives, leadership
expectations and public commitments. To ensure effective utilization, the EMS is
integrated into a company-wide management system for EH&S, Operations,
Quality and Human Resources.
It
is Dow’s policy to adhere to a waste management hierarchy that minimizes the
impact of wastes and emissions on the environment. First, Dow works to eliminate
or minimize the generation of waste and emissions at the source through
research, process design, plant operations and maintenance. Second, Dow finds
ways to reuse and recycle materials. Finally, unusable or non-recyclable
hazardous waste is treated before disposal to eliminate or reduce the hazardous
nature and volume of the waste. Treatment may include destruction by chemical,
physical, biological or thermal means. Disposal of waste materials in landfills
is considered only after all other options have been thoroughly evaluated. Dow
has specific requirements for waste that is transferred to non-Dow facilities,
including the periodic auditing of these facilities.
Dow
believes third-party verification and transparent public reporting are
cornerstones of world-class EH&S performance and building public trust. As
such, numerous Dow sites in Europe, Latin America, Asia Pacific and North
America have received third-party verification of Dow’s compliance with
Responsible Care® and with outside specifications such as ISO-14001. Dow
continues to be a global champion of Responsible Care® and has worked to broaden
the application and impact of Responsible Care® around the world through
engagement with suppliers, customers and joint venture partners.
Dow’s
EH&S policies helped the Company achieve excellent safety performance in
2009. Dow’s 2009 recordable injury/illness frequency rate; injury/illness
severity rate; leaks, breaks and spills performance; and process safety
performance were all at best ever levels and favorably position the Company to
achieve its 2015 sustainability goals. Further improvement in each of these
areas as well as environmental compliance remain a top management priority, with
initiatives underway to further improve performance and compliance in
2010.
Detailed
information on Dow’s performance regarding environmental matters and goals can
be found online on Dow’s Sustainability webpage at www.dow.com.
Chemical
Security
Public
and political attention continues to be placed on the protection of critical
infrastructure, including the chemical industry, from security threats.
Terrorist attacks and natural disasters have increased concern about the
security of chemical production and distribution. Many, including Dow and the
American Chemistry Council, have called for uniform risk-based and
performance-based national standards for securing the U.S. chemical industry.
The Maritime Transportation Security Act (“MTSA”) of 2002 and its regulations
further set forth risk-based and performance-based standards that must be met at
U.S. Coast Guard-regulated facilities. U.S. Chemical Plant Security legislation
was passed in 2006 and the Department of Homeland Security (“DHS”) is now
implementing the regulations known as the Chemical Facility Anti-Terrorism
Standards. The Company is complying with the requirements of the Rail
Transportation Security Rule issued by the U.S. Transportation Security
Administration (“TSA”). Dow continues to support uniform risk-based national
standards for securing the chemical industry.
The
focus on security is not new to Dow. A comprehensive, multi-level security plan
for the Company has been maintained since 1988. This plan, which has been
activated in response to significant world and national events since then, is
reviewed on an annual basis. Dow continues to improve its security plans,
placing emphasis on the safety of Dow communities and people by being prepared
to meet risks at any level and to address both internal and external
identifiable risks. Dow’s security plans also are developed to avert
interruptions of normal business work operations that could materially and
adversely affect the Company’s results of operations, liquidity and financial
condition.
Dow
played a key role in the development and implementation of the American
Chemistry Council’s Responsible Care® Security Code, which requires that all
aspects of security – including facility, transportation and cyberspace – be
assessed and gaps addressed. Through the Company’s global implementation of the
Security Code, Dow has permanently heightened the level of security – not just
in the United States, but worldwide. Dow employs several hundred employees and
contractors in its Emergency Services and Security department worldwide. In
addition, Dow has committed approximately $200 million in capital over a
ten-year period for plant security, supply chain and cyberspace security
enhancements, regulatory compliance and response capabilities as well as other
components of Dow’s security program. These costs are not considered material to
the Company’s consolidated financial statements.
Through
the implementation of the Security Code, including voluntary security
enhancements and upgrades made since 2002, Dow is well-positioned to comply with
the new U.S. chemical facility regulations and other regulatory security
frameworks. In addition, Dow was the first chemical company to receive coverage
under the Support Anti-terrorism by Fostering Effective Technologies Act
(“SAFETY Act”) from the DHS in 2007 for the Company’s MTSA regulated sites, and
the first to receive coverage under SAFETY Act in 2008 for the Company’s Rail
Transportation Security Services. This unprecedented certification helps
validate Dow’s efforts and provides additional liability coverage in the event
of a terrorist attack.
Dow
continues to work collaboratively across the supply chain on Responsible Care®,
Supply Chain Design, Emergency Preparedness, Shipment Visibility and
transportation of hazardous materials. Dow is cooperating with public and
private entities to lead the implementation of advanced tank car design, and
track and trace technologies. Further, Dow’s Distribution Risk Review process
that has been in place for decades was expanded to address potential threats in
all modes of transportation across the Company’s supply chain. To reduce
vulnerabilities, Dow maintains security measures that meet or exceed regulatory
and industry security standards in all areas in which the Company
operates.
Dow
continually works to strengthen partnerships with local responders, law
enforcement and security agencies, and to enhance confidence in the integrity of
the Company’s security and risk management program, as well as strengthen its
preparedness and response capabilities. Dow also works closely with its supply
chain partners and strives to educate lawmakers, regulators and communities
about the Company’s resolve and actions to date that mitigate security and
crisis threats.
Climate
Change
Dow
is committed to reducing its greenhouse gas (“GHG”) intensity (pounds of GHG per
pound of product), developing climate-friendly products and processes and, over
the longer term, implementing technology solutions to achieve even greater
climate change improvements. Since 1990, Dow has reduced its absolute GHG
emissions by more than 20 percent, a more rapid reduction than required by
Kyoto Protocol targets. Since 1994, Dow has achieved a 22 percent
improvement in energy intensity (the amount of energy required to produce one
pound of product). In doing so, it has avoided consuming more than 1,700
trillion Btus, a savings that when converted to electricity would more than
supply the residential electrical energy needs of California for one year.
Through its energy savings, Dow has prevented approximately 90 million
metric tons of carbon dioxide from entering the atmosphere. This trend could
change, depending on business growth, capacity utilization and the pace of new
technology development.
Dow
also contributes to the climate change solution by producing products that help
others reduce GHG emissions, such as lightweight plastics for automobiles and
insulation for energy efficient homes and appliances. Dow has demonstrated its
commitment to technological innovation and conservation. For example, Dow’s
building insulation materials and air-sealing products can save up to
20 percent on heating and cooling costs and significantly reduce GHG
emissions. The Company’s STYROFOAM™ insulation is installed in over
20 million buildings worldwide, saving over $10 billion in energy
costs annually. Dow’s DOWTHERM™ A heat transfer fluids are used in three
50-megawatt solar units in Spain to help convert heat energy into electricity.
The three solar plants will generate 150 megawatts of clean energy
annually, enough to power 90,000 homes and save 450,000 tons of carbon dioxide
per year.
Gains
made toward Dow’s Energy Efficiency goal will directly impact progress in
meeting its 2015 Climate Change goal to reduce GHG intensity by 2.5 percent
a year per pound of product, from a 2005 baseline. Dow is studying the life
cycle impact of its products on climate change and additional global projects
that could offset the Company’s overall GHG emissions through carbon dioxide
reduction.
Dow’s
Energy & Climate Change Policy and Issue Management Team is tasked with
developing and implementing a comprehensive strategy that addresses the
challenges of climate change and energy security and is advocating an
international framework that establishes clear pathways to help slow, stop and
reverse the rate of GHG emissions.
Environmental
Remediation
Dow
accrues the costs of remediation of its facilities and formerly owned facilities
based on current law and existing technologies. The nature of such remediation
includes, for example, the management of soil and groundwater contamination and
the closure of contaminated landfills and other waste management facilities. In
the case of landfills and other active waste management facilities, Dow
recognizes the costs over the useful life of the facility. The accounting
policies adopted to properly reflect the monetary impacts of environmental
matters are discussed in Note A to the Consolidated Financial Statements.
To assess the impact on the financial statements, environmental experts review
currently available facts to evaluate the probability and scope of potential
liabilities. Inherent uncertainties exist in such evaluations primarily due to
unknown environmental conditions, changing governmental regulations and legal
standards regarding liability, and emerging remediation technologies. These
liabilities are adjusted periodically as remediation efforts progress or as
additional technical or legal information becomes available. Dow had an accrued
liability of $539 million at December 31, 2009, related to the
remediation of current or former Dow-owned sites. The balance included
$86 million of environmental liabilities assumed from Rohm and Haas on
April 1, 2009, related to the remediation of current and former Rohm and
Haas-owned sites (see Note D to the Consolidated Financial Statements). At
December 31, 2008, the liability related to remediation was
$290 million.
In
addition to current and former Dow-owned sites, under the Federal Comprehensive
Environmental Response, Compensation and Liability Act and equivalent state laws
(hereafter referred to collectively as “Superfund Law”), Dow is liable for
remediation of other hazardous waste sites where Dow allegedly disposed of, or
arranged for the treatment or disposal of, hazardous substances. Because
Superfund Law imposes joint and several liability upon each party at a site, Dow
has evaluated its potential liability in light of the number of other companies
that also have been named potentially responsible parties (“PRPs”) at each site,
the estimated apportionment of costs among all PRPs, and the financial ability
and commitment of each to pay its expected share. The Company’s remaining
liability for the remediation of Superfund sites, including environmental
liabilities of $73 million assumed from Rohm and Haas related to the
remediation of Superfund sites, was $80 million at December 31, 2009
($22 million at December 31, 2008). The Company has not recorded any
third-party recovery related to these sites as a receivable.
Information
regarding environmental sites is provided below:
Environmental
Sites
|
|
Dow-owned Sites (1)
|
|
|
Superfund Sites (2)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Number
of sites at January 1
|
|
|
252 |
|
|
|
251 |
|
|
|
85 |
|
|
|
94 |
|
Sites
acquired from Rohm and Haas
|
|
|
42 |
|
|
|
- |
|
|
|
39 |
|
|
|
- |
|
Sites
added during year
|
|
|
2 |
|
|
|
3 |
|
|
|
6 |
|
|
|
9 |
|
Sites
closed during year
|
|
|
(5 |
) |
|
|
(2 |
) |
|
|
(6 |
) |
|
|
(18 |
) |
Number
of sites at December 31
|
|
|
291 |
|
|
|
252 |
|
|
|
124 |
|
|
|
85 |
|
(1)
|
Dow-owned
sites are sites currently or formerly owned by Dow, where remediation
obligations are imposed in the United States by the Resource Conservation
Recovery Act or analogous state law. 153 of these sites were formerly
owned by Dowell Schlumberger, Inc., a group of companies in which the
Company previously owned a 50 percent interest. Dow sold its interest in
Dowell Schlumberger in 1992. |
|
(2)
|
Superfund
sites are sites, including sites not owned by Dow, where remediation
obligations are imposed by Superfund Law. |
|
The
Company’s manufacturing sites in Freeport, Texas; Midland, Michigan; and
Philadelphia, Pennsylvania; and a Superfund site in Wood-Ridge, New Jersey, are
the sites for which the Company has the largest environmental remediation
accruals.
From
the start of operations at the Freeport site in the 1940s until the mid-1970s,
manufacturing wastes were typically placed in on-site pits and landfills. The
resulting soil and groundwater contamination is being assessed and remediated
under the provisions of the Resource Conservation Recovery Act (“RCRA”), in
concert with the state of Texas. At December 31, 2009, the Company had an
accrual of $29 million ($25 million at December 31, 2008) related
to environmental remediation at the Freeport manufacturing site. In 2009,
$3 million ($5 million in 2008) was spent on environmental remediation
at the Freeport site.
Similar
to the Freeport site, in the early days of operations at the Midland site,
manufacturing wastes were usually disposed of on-site, resulting in soil and
groundwater contamination, which has been contained and managed on-site under a
series of RCRA permits and regulatory agreements. The most recent Hazardous
Waste Operating License for the Midland site, issued in 2003, also included
provisions for the Company to conduct an investigation to determine the nature
and extent of off-site contamination from historic Midland site operations. The
scope of the investigation includes Midland area soils; the Tittabawassee and
Saginaw River sediment and floodplain soils; and Saginaw Bay, and requires the
Company to conduct interim response actions. In January 2010, the Company
entered into a Federal Comprehensive Environmental Response, Compensation, and
Liability Act Administrative Order on Consent to perform a Remedial
Investigation, Feasibility Study and Remedial Design for the Tittabawassee and
Saginaw River sediment and floodplain soils, and Saginaw Bay. See Note N to
the Consolidated Financial Statements for additional information. At
December 31, 2009, the Company had an accrual of $64 million
($35 million at December 31, 2008) for environmental remediation and
investigation associated with the Midland site. In 2009, the Company spent
$19 million ($36 million in 2008) on environmental remediation at the
Midland site.
On
April 1, 2009, the Company acquired Rohm and Haas’ Philadelphia Plant,
which has been an industrial site since the early 1700s, and since the 1920s
used by Rohm and Haas for the manufacture of a wide range of chemical products.
Chemical disposal practices in the early years resulted in soil and groundwater
contamination at the site and in the sediments of the adjacent Frankford Inlet.
The site has undergone a number of investigations and interim cleanup measures
under the RCRA Corrective Action Program, and in 2009, was transferred to the
regulatory management of the Pennsylvania One Cleanup Program. At
December 31, 2009, the Company had an accrual of $58 million for
environmental remediation at the Philadelphia Plant. Since the acquisition, the
Company has spent $1 million on environmental remediation at the
Philadelphia Plant.
Rohm
and Haas is a lead PRP at the Wood-Ridge, New Jersey Ventron/Velsicol Superfund
Site, and the adjacent Berry’s Creek Study Area. Rohm and Haas is a successor in
interest to a company that owned and operated a mercury processing facility,
where wastewater and waste handling resulted in contamination of soils and
adjacent creek sediments. The Ventron/Velsicol site is currently undergoing
remediation. The Berry’s Creek Study Area is under the preliminary
remedial
investigation
phase and the PRP group is conducting an investigation of sediment contamination
in Berry’s Creek. Sediment removal was undertaken by the PRP group in 2009 in
connection with an unrelated project to replace a flood control tidegate in the
creek. At December 31, 2009, the Company had an accrual of $25 million
for environmental remediation at the two Wood-Ridge sites. Since the
April 1, 2009 acquisition, the Company has spent $24 million on
environmental remediation at the two Wood-Ridge sites.
In
total, the Company’s accrued liability for probable environmental remediation
and restoration costs was $619 million at December 31, 2009, compared
with $312 million at the end of 2008. This is management’s best estimate of
the costs for remediation and restoration with respect to environmental matters
for which the Company has accrued liabilities, although the ultimate cost with
respect to these particular matters could range up to approximately twice that
amount. It is the opinion of the Company’s management that the possibility is
remote that costs in excess of those disclosed will have a material adverse
impact on the Company’s consolidated financial statements.
The
amounts charged to income on a pretax basis related to environmental remediation
totaled $269 million in 2009, $140 million in 2008 and
$92 million in 2007. Capital expenditures for environmental protection were
$219 million in 2009, $193 million in 2008 and $189 million in
2007.
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. Since then, the rate of filing has 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:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Claims
unresolved at January 1
|
|
|
75,706 |
|
|
|
90,322 |
|
|
|
111,887 |
|
Claims
filed
|
|
|
8,455 |
|
|
|
10,922 |
|
|
|
10,157 |
|
Claims
settled, dismissed or otherwise resolved
|
|
|
(9,131 |
) |
|
|
(25,538 |
) |
|
|
(31,722 |
) |
Claims
unresolved at December 31
|
|
|
75,030 |
|
|
|
75,706 |
|
|
|
90,322 |
|
Claimants
with claims against both UCC and Amchem
|
|
|
24,146 |
|
|
|
24,213 |
|
|
|
28,937 |
|
Individual
claimants at December 31
|
|
|
50,884 |
|
|
|
51,493 |
|
|
|
61,385 |
|
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, the damages
alleged are not expressly identified as to Union Carbide, Amchem or any other
particular defendant, even when specific damages are alleged with respect to a
specific disease or injury. 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-related liability.
Estimating
the Liability
Based
on a study completed by Analysis, Research & Planning Corporation (“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. Since then, Union Carbide has compared current asbestos claim and
resolution activity to the results of the most recent ARPC study at each balance
sheet date to determine whether the accrual continues to be appropriate. In
addition, Union Carbide has requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity each November since 2004 to determine the
appropriateness of updating the most recent ARPC study.
In
November 2007, Union Carbide requested ARPC to review Union Carbide’s 2007
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2007. In December 2007, ARPC stated that
an update of its study would not provide a more likely estimate of future events
than the estimate 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, 2007, Union Carbide’s asbestos-related liability for pending
and future claims was $1.1 billion.
In
November 2008, Union Carbide requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2008. The resulting study, completed by
ARPC in December 2008, stated that the undiscounted cost of resolving pending
and future asbestos-related claims against Union Carbide and Amchem, excluding
future defense and processing costs, through 2023 was estimated to be between
$952 million and $1.2 billion. As in its earlier studies, ARPC
provided estimates for a longer period of time in its December 2008 study,
but also reaffirmed its prior advice that forecasts for shorter periods of time
are more accurate than those for longer periods of time.
In
December 2008, based on ARPC’s December 2008 study and Union Carbide’s own
review of the asbestos claim and resolution activity, Union Carbide decreased
its asbestos-related liability for pending and future claims to
$952 million, which covered the 15-year period ending 2023, excluding
future defense and processing costs. The reduction was $54 million and was
shown as “Asbestos-related credit” in the consolidated statements of income. At
December 31, 2008, the asbestos-related liability for pending and future
claims was $934 million.
In
November 2009, Union Carbide requested ARPC to review Union Carbide’s 2009
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2008 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2009. In December 2009, ARPC
stated that an update of its study would not provide a more likely estimate of
future events than the estimate 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, 2009, Union Carbide’s asbestos-related liability for
pending and future claims was $839 million.
At
December 31, 2009, approximately 23 percent of the recorded liability
related to pending claims and approximately 77 percent related to future
claims. At December 31, 2008, approximately 21 percent of the recorded
liability related to pending claims and approximately 79 percent related to
future claims.
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:
Defense
and Resolution Costs
|
|
|
Aggregate
Costs
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
to
Date as of
Dec.
31, 2009
|
|
Defense
costs
|
|
$ |
62 |
|
|
$ |
60 |
|
|
$ |
84 |
|
|
$ |
687 |
|
Resolution
costs
|
|
$ |
94 |
|
|
$ |
116 |
|
|
$ |
88 |
|
|
$ |
1,480 |
|
The
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 a number of factors, including 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.
Union
Carbide expenses defense costs as incurred. The pretax impact for defense and
resolution costs, net of insurance, was $58 million in 2009,
$53 million in 2008 and $84 million in 2007, and was reflected in
“Cost of sales” in the consolidated statements of income.
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. 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. The Wellington Agreement and other agreements with insurers
are designed to facilitate an orderly resolution and collection of Union
Carbide’s insurance policies and to resolve issues that the insurance carriers
may raise.
In
September 2003, Union Carbide filed a comprehensive insurance coverage case, now
proceeding in the Supreme Court of the State of New York, County of New York,
seeking to confirm its rights to insurance for various asbestos claims and to
facilitate an orderly and timely collection of insurance proceeds (the
“Insurance Litigation”). The Insurance Litigation 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, in order to facilitate an orderly resolution and collection
of such insurance policies and to resolve issues that the insurance carriers may
raise. Since the filing of the case, Union Carbide has reached settlements with
several of the carriers involved in the Insurance Litigation, including
settlements reached with two significant carriers in the fourth quarter of 2009,
resulting in a shift between receivable balances further discussed below. The
Insurance Litigation is ongoing.
Union
Carbide’s receivable for insurance recoveries related to its asbestos liability
was $84 million at December 31, 2009 and $403 million at
December 31, 2008. The decrease in the receivable was principally due to
settlements reached in the fourth quarter of 2009 with two significant carriers
involved in the Insurance Litigation. At December 31, 2009 and
December 31, 2008, all 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 to the receivable for insurance recoveries related to its asbestos
liability, Union Carbide had receivables for defense and resolution costs
submitted to insurance carriers that have settlement agreements in place
regarding their asbestos-related insurance coverage. The balance of these
receivables increased in 2009 principally as a result of settlements reached in
the fourth quarter of 2009 with two significant carriers involved in the
Insurance Litigation.
Receivables
for Costs Submitted to Insurance Carriers With Settlement Agreements at
December 31
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Receivables
for defense costs
|
|
$ |
91 |
|
|
$ |
28 |
|
Receivables
for resolution costs
|
|
|
357 |
|
|
|
244 |
|
Total
|
|
$ |
448 |
|
|
$ |
272 |
|
After
a 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, Union Carbide continues to believe that its recorded
receivable for insurance recoveries from all insurance carriers is probable of
collection.
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, 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.
Matters
Involving the Formation of K-Dow Petrochemicals
Introduction
On
December 13, 2007, the Company and Petrochemical Industries Company
(K.S.C.) (“PIC”) of Kuwait, a wholly owned subsidiary of Kuwait Petroleum
Corporation (“KPC”), announced plans to form a 50:50 global petrochemicals joint
venture. The proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was
expected to have revenues of more than $11 billion and employ more than
5,000 people worldwide.
On
November 28, 2008, the Company entered into a Joint Venture Formation
Agreement (the “JVFA”) with PIC that provided for the establishment of K-Dow. To
form the joint venture, the Company would transfer by way of contribution and
sale to K-Dow, assets used in the research, development, manufacture,
distribution, marketing and sale of polyethylene, polypropylene, polycarbonate,
polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related
licensing and catalyst technologies; and K-Dow would assume certain related
liabilities. PIC would receive a 50 percent equity interest in K-Dow in
exchange for the payment by PIC of the initial purchase price, estimated to be
$7.5 billion. The purchase price was subject to certain post-closing
adjustments.
Failure
to Close
On
December 31, 2008, the Company received a written notice from PIC with
respect to the JVFA advising the Company of PIC’s position that certain
conditions to closing were not satisfied and, therefore, PIC was not obligated
to close the transaction. On January 2, 2009, PIC refused to close the
K-Dow transaction in accordance with the JVFA. The Company disagrees with the
characterizations and conclusions expressed by PIC in the written notice and the
Company has informed PIC that it breached the JVFA. On January 6, 2009, the
Company announced that it would seek to fully enforce its rights under the terms
of the JVFA and various related agreements. Currently, the Company continues in
a process to consider alternatives for these businesses.
Arbitration
The
Company’s claims against PIC are subject to an arbitration agreement between the
parties, which provides for arbitration under the Rules of Arbitration of the
International Chamber of Commerce. On February 18, 2009, the Company
initiated arbitration proceedings against PIC alleging that PIC breached the
JVFA by failing to close the transaction on January 2, 2009. The Company is
seeking damages in excess of $2.5 billion in the arbitration
proceeding.
The
Dow Chemical Company and Subsidiaries
PART
II, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
Dow’s
business operations give rise to market risk exposure due to changes in foreign
exchange rates, interest rates, commodity prices and other market factors such
as equity prices. To manage such risks effectively, the Company enters into
hedging transactions, pursuant to established guidelines and policies, which
enable it to mitigate the adverse effects of financial market risk. Derivatives
used for this purpose are designated as hedges per the accounting guidance
related to derivatives and hedging activities, where appropriate. A secondary
objective is to add value by creating additional non-specific exposure within
established limits and policies; derivatives used for this purpose are not
designated as hedges. The potential impact of creating such additional exposures
is not material to the Company’s results.
The
global nature of Dow’s business requires active participation in the foreign
exchange markets. As a result of investments, production facilities and other
operations on a global basis, the Company has assets, liabilities and cash flows
in currencies other than the U.S. dollar. The primary objective of the Company’s
foreign exchange risk management is to optimize the U.S. dollar value of net
assets and cash flows, keeping the adverse impact of currency movements to a
minimum. To achieve this objective, the Company hedges on a net exposure basis
using foreign currency forward contracts, over-the-counter option contracts,
cross-currency swaps, and nonderivative instruments in foreign currencies.
Exposures primarily relate to assets, liabilities and bonds denominated in
foreign currencies, as well as economic exposure, which is derived from the risk
that currency fluctuations could affect the dollar value of future cash flows
related to operating activities. The largest exposures are denominated in
European currencies, the Japanese yen and the Canadian dollar, although
exposures also exist in other currencies of Asia Pacific, Latin America, and
India, Middle East and Africa.
The
main objective of interest rate risk management is to reduce the total funding
cost to the Company and to alter the interest rate exposure to the desired risk
profile. Dow uses interest rate swaps, “swaptions,” and exchange-traded
instruments to accomplish this objective. The Company’s primary exposure is to
the U.S. dollar yield curve.
Dow
has a portfolio of equity securities derived primarily from the investment
activities of its insurance subsidiaries. This exposure is managed in a manner
consistent with the Company’s market risk policies and procedures.
Inherent
in Dow’s business is exposure to price changes for several commodities. Some
exposures can be hedged effectively through liquid tradable financial
instruments. Feedstocks for ethylene production and natural gas constitute the
main commodity exposures. Over-the-counter and exchange traded instruments are
used to hedge these risks when feasible.
Dow
uses value at risk (“VAR”), stress testing and scenario analysis for risk
measurement and control purposes. VAR estimates the maximum potential loss in
fair market values, given a certain move in prices over a certain period of
time, using specified confidence levels. The VAR methodology used by the Company
is a historical simulation model which captures co-movements in market rates
across different instruments and market risk exposure categories. The historical
simulation model uses a 97.5 percent confidence level and the historical
scenario period includes at least six months of historical data. The 2009 and
2008 year-end and average daily VAR for the aggregate of all positions are shown
below. These amounts are immaterial relative to the total equity of the
Company:
Total
Daily VAR at December 31
|
|
2009
|
|
|
2008
|
|
In
millions
|
|
Year-end
|
|
|
Average
|
|
|
Year-end
|
|
|
Average
|
|
Foreign
exchange
|
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
$ |
3 |
|
Interest
rate
|
|
$ |
207 |
|
|
$ |
205 |
|
|
$ |
161 |
|
|
$ |
105 |
|
Equities
|
|
$ |
7 |
|
|
$ |
11 |
|
|
$ |
24 |
|
|
$ |
16 |
|
Commodities
|
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
6 |
|
|
$ |
13 |
|
Composite
|
|
$ |
212 |
|
|
$ |
207 |
|
|
$ |
158 |
|
|
$ |
112 |
|
The
Company’s daily VAR for the aggregate of all positions increased from a
composite VAR of $158 million at December 31, 2008 to a composite of
$212 million at December 31, 2009. The increase related primarily to
an increase in the interest rate VAR from $161 million to
$207 million, principally due to debt issued in the second and third
quarters of 2009.
See
Note J to the Consolidated Financial Statements for further disclosure
regarding market risk.
The
Dow Chemical Company and Subsidiaries
PART
II, Item 8. Financial Statements and Supplementary
Data.
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
The
Dow Chemical Company:
We
have audited the accompanying consolidated balance sheets of The Dow Chemical
Company and subsidiaries (the "Company") as of December 31, 2009 and 2008, and
the related consolidated statements of income, equity, comprehensive income and
cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule listed in
the Index at Item 15 (a) 2. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Dow Chemical Company and
subsidiaries at December 31, 2009 and 2008, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2009, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company’s internal control over
financial reporting as of December 31, 2009, based on the criteria established
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 19, 2010 expressed an
unqualified opinion on the Company's internal control over financial
reporting.
/s/ DELOITTE
& TOUCHE LLP
Deloitte
& Touche LLP
Midland,
Michigan
February
19, 2010
The
Dow Chemical Company and Subsidiaries
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share amounts) For the years ended
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
Sales
|
|
$ |
44,875 |
|
|
$ |
57,361 |
|
|
$ |
53,375 |
|
Cost
of sales
|
|
|
39,148 |
|
|
|
51,913 |
|
|
|
46,302 |
|
Research
and development expenses
|
|
|
1,492 |
|
|
|
1,310 |
|
|
|
1,305 |
|
Selling,
general and administrative expenses
|
|
|
2,487 |
|
|
|
1,966 |
|
|
|
1,861 |
|
Amortization
of intangibles
|
|
|
399 |
|
|
|
92 |
|
|
|
72 |
|
Goodwill
impairment losses
|
|
|
7 |
|
|
|
239 |
|
|
|
- |
|
Restructuring
charges
|
|
|
689 |
|
|
|
839 |
|
|
|
578 |
|
Purchased
in-process research and development charges
|
|
|
7 |
|
|
|
44 |
|
|
|
57 |
|
Acquisition
and integration related expenses
|
|
|
166 |
|
|
|
49 |
|
|
|
- |
|
Asbestos-related
credit
|
|
|
- |
|
|
|
54 |
|
|
|
- |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
630 |
|
|
|
787 |
|
|
|
1,122 |
|
Sundry
income - net
|
|
|
891 |
|
|
|
89 |
|
|
|
324 |
|
Interest
income
|
|
|
39 |
|
|
|
86 |
|
|
|
130 |
|
Interest
expense and amortization of debt discount
|
|
|
1,571 |
|
|
|
648 |
|
|
|
584 |
|
Income
from Continuing Operations Before Income Taxes
|
|
|
469 |
|
|
|
1,277 |
|
|
|
4,192 |
|
Provision
(Credit) for income taxes
|
|
|
(97 |
) |
|
|
651 |
|
|
|
1,230 |
|
Net
Income from Continuing Operations
|
|
|
566 |
|
|
|
626 |
|
|
|
2,962 |
|
Income
from discontinued operations, net of income taxes
|
|
|
110 |
|
|
|
28 |
|
|
|
23 |
|
Net
Income
|
|
|
676 |
|
|
|
654 |
|
|
|
2,985 |
|
Net
income attributable to noncontrolling interests
|
|
|
28 |
|
|
|
75 |
|
|
|
98 |
|
Net
Income Attributable to The Dow Chemical Company
|
|
|
648 |
|
|
|
579 |
|
|
|
2,887 |
|
Preferred
stock dividends
|
|
|
312 |
|
|
|
- |
|
|
|
- |
|
Net
Income Available for The Dow Chemical Company Common
Stockholders
|
|
$ |
336 |
|
|
$ |
579 |
|
|
$ |
2,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations available for common
stockholders
|
|
$ |
0.22 |
|
|
$ |
0.59 |
|
|
$ |
3.00 |
|
Discontinued
operations attributable to common stockholders
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.03 |
|
Earnings
per common share - basic
|
|
$ |
0.32 |
|
|
$ |
0.62 |
|
|
$ |
3.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations available for common
stockholders
|
|
$ |
0.22 |
|
|
$ |
0.59 |
|
|
$ |
2.97 |
|
Discontinued
operations attributable to common stockholders
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.02 |
|
Earnings
per common share - diluted
|
|
$ |
0.32 |
|
|
$ |
0.62 |
|
|
$ |
2.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock dividends declared per share of common stock
|
|
$ |
0.60 |
|
|
$ |
1.68 |
|
|
$ |
1.635 |
|
Weighted-average
common shares outstanding - basic
|
|
|
1,043.2 |
|
|
|
930.4 |
|
|
|
953.1 |
|
Weighted-average
common shares outstanding - diluted
|
|
|
1,053.9 |
|
|
|
939.0 |
|
|
|
965.6 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
(In
millions, except share amounts) At December 31
|
|
2009
|
|
|
2008
|
|
Assets
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,846 |
|
|
$ |
2,800 |
|
Accounts
and notes receivable:
|
|
|
|
|
|
|
|
|
Trade
(net of allowance for doubtful receivables - 2009: $160; 2008:
$124)
|
|
|
5,656 |
|
|
|
3,782 |
|
Other
|
|
|
3,539 |
|
|
|
3,074 |
|
Inventories
|
|
|
6,847 |
|
|
|
6,036 |
|
Deferred
income tax assets - current
|
|
|
672 |
|
|
|
368 |
|
Total
current assets
|
|
|
19,560 |
|
|
|
16,060 |
|
Investments
|
|
|
|
|
|
|
|
|
Investment
in nonconsolidated affiliates
|
|
|
3,224 |
|
|
|
3,204 |
|
Other
investments (investments carried at fair value - 2009: $2,136; 2008:
$1,853)
|
|
|
2,561 |
|
|
|
2,245 |
|
Noncurrent
receivables
|
|
|
210 |
|
|
|
276 |
|
Total
investments
|
|
|
5,995 |
|
|
|
5,725 |
|
Property
|
|
|
|
|
|
|
|
|
Property
|
|
|
53,567 |
|
|
|
48,391 |
|
Less
accumulated depreciation
|
|
|
35,426 |
|
|
|
34,097 |
|
Net
property
|
|
|
18,141 |
|
|
|
14,294 |
|
Other
Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
13,114 |
|
|
|
3,394 |
|
Other
intangible assets (net of accumulated amortization - 2009: $1,302; 2008:
$825)
|
|
|
5,966 |
|
|
|
829 |
|
Deferred
income tax assets - noncurrent
|
|
|
2,039 |
|
|
|
3,900 |
|
Asbestos-related
insurance receivables - noncurrent
|
|
|
330 |
|
|
|
658 |
|
Deferred
charges and other assets
|
|
|
792 |
|
|
|
614 |
|
Total
other assets
|
|
|
22,241 |
|
|
|
9,395 |
|
Total
Assets
|
|
$ |
65,937 |
|
|
$ |
45,474 |
|
Liabilities
and Equity
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$ |
2,139 |
|
|
$ |
2,360 |
|
Long-term
debt due within one year
|
|
|
1,082 |
|
|
|
1,454 |
|
Accounts
payable:
|
|
|
|
|
|
|
|
|
Trade
|
|
|
4,153 |
|
|
|
3,306 |
|
Other
|
|
|
2,014 |
|
|
|
2,227 |
|
Income
taxes payable
|
|
|
186 |
|
|
|
637 |
|
Deferred
income tax liabilities - current
|
|
|
78 |
|
|
|
88 |
|
Dividends
payable
|
|
|
254 |
|
|
|
411 |
|
Accrued
and other current liabilities
|
|
|
3,200 |
|
|
|
2,625 |
|
Total
current liabilities
|
|
|
13,106 |
|
|
|
13,108 |
|
Long-Term
Debt
|
|
|
19,152 |
|
|
|
8,042 |
|
Other
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Deferred
income tax liabilities - noncurrent
|
|
|
1,285 |
|
|
|
746 |
|
Pension
and other postretirement benefits - noncurrent
|
|
|
7,242 |
|
|
|
5,466 |
|
Asbestos-related
liabilities - noncurrent
|
|
|
734 |
|
|
|
824 |
|
Other
noncurrent obligations
|
|
|
3,294 |
|
|
|
3,208 |
|
Total
other noncurrent liabilities
|
|
|
12,555 |
|
|
|
10,244 |
|
Preferred
Securities of Subsidiaries
|
|
|
- |
|
|
|
500 |
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, series A ($1.00 par, $1,000 liquidation preference, 4,000,000
shares)
|
|
|
4,000 |
|
|
|
- |
|
Common
stock (authorized 1,500,000,000 shares of $2.50 par value each;
issued
1,162,375,462 shares)
|
|
|
2,906 |
|
|
|
2,453 |
|
Additional
paid-in capital
|
|
|
1,913 |
|
|
|
872 |
|
Retained
earnings
|
|
|
16,704 |
|
|
|
17,013 |
|
Accumulated
other comprehensive loss
|
|
|
(3,892 |
) |
|
|
(4,389 |
) |
Unearned
ESOP shares
|
|
|
(519 |
) |
|
|
- |
|
Treasury
stock at cost (2009: 12,158,605 shares; 2008: 57,031,291
shares)
|
|
|
(557 |
) |
|
|
(2,438 |
) |
The
Dow Chemical Company's stockholders' equity
|
|
|
20,555 |
|
|
|
13,511 |
|
Noncontrolling
interests
|
|
|
569 |
|
|
|
69 |
|
Total
equity
|
|
|
21,124 |
|
|
|
13,580 |
|
Total
Liabilities and Equity
|
|
$ |
65,937 |
|
|
$ |
45,474 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
(In
millions) For the years ended December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
676 |
|
|
$ |
654 |
|
|
$ |
2,985 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,827 |
|
|
|
2,236 |
|
|
|
2,190 |
|
Purchased
in-process research and development charges
|
|
|
7 |
|
|
|
44 |
|
|
|
57 |
|
Provision
(Credit) for deferred income tax
|
|
|
(652 |
) |
|
|
(260 |
) |
|
|
494 |
|
Earnings
of nonconsolidated affiliates less than (in excess of) dividends
received
|
|
|
60 |
|
|
|
49 |
|
|
|
(348 |
) |
Pension
contributions
|
|
|
(355 |
) |
|
|
(185 |
) |
|
|
(183 |
) |
Net
loss (gain) on sales of investments
|
|
|
(9 |
) |
|
|
1 |
|
|
|
(143 |
) |
Net
gain on sales of property, businesses and consolidated
companies
|
|
|
(256 |
) |
|
|
(127 |
) |
|
|
(108 |
) |
Other
net loss (gain)
|
|
|
(22 |
) |
|
|
15 |
|
|
|
(75 |
) |
Net
gain on sales of ownership interest in nonconsolidated
affiliates
|
|
|
(795 |
) |
|
|
- |
|
|
|
- |
|
Goodwill
impairment losses
|
|
|
7 |
|
|
|
239 |
|
|
|
- |
|
Restructuring
charges
|
|
|
684 |
|
|
|
837 |
|
|
|
577 |
|
Asbestos-related
credit
|
|
|
- |
|
|
|
(54 |
) |
|
|
- |
|
Excess
tax benefits from share-based payment arrangements
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(31 |
) |
Changes
in assets and liabilities, net of effects of acquired and divested
companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(990 |
) |
|
|
2,853 |
|
|
|
(1,002 |
) |
Inventories
|
|
|
63 |
|
|
|
812 |
|
|
|
(712 |
) |
Accounts
payable
|
|
|
304 |
|
|
|
(1,062 |
) |
|
|
799 |
|
Other
assets and liabilities
|
|
|
536 |
|
|
|
(1,333 |
) |
|
|
(16 |
) |
Cash
provided by operating activities
|
|
|
2,075 |
|
|
|
4,711 |
|
|
|
4,484 |
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,410 |
) |
|
|
(2,276 |
) |
|
|
(2,075 |
) |
Capital
expenditures of consolidated variable interest entity
|
|
|
(273 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from sales of property and businesses
|
|
|
294 |
|
|
|
252 |
|
|
|
211 |
|
Acquisitions
of businesses
|
|
|
(35 |
) |
|
|
- |
|
|
|
(143 |
) |
Purchases
of previously leased assets
|
|
|
(713 |
) |
|
|
(63 |
) |
|
|
(30 |
) |
Investments
in consolidated companies, net of cash acquired
|
|
|
(15,045 |
) |
|
|
(336 |
) |
|
|
(867 |
) |
Proceeds
from sales of consolidated companies
|
|
|
1,563 |
|
|
|
66 |
|
|
|
- |
|
Investments
in nonconsolidated affiliates
|
|
|
(122 |
) |
|
|
(331 |
) |
|
|
(78 |
) |
Distributions
from nonconsolidated affiliates
|
|
|
9 |
|
|
|
6 |
|
|
|
63 |
|
Proceeds
from sales of ownership interests in nonconsolidated
affiliates
|
|
|
1,413 |
|
|
|
- |
|
|
|
30 |
|
Purchase
of unallocated Rohm and Haas ESOP shares
|
|
|
(552 |
) |
|
|
- |
|
|
|
- |
|
Purchases
of investments
|
|
|
(580 |
) |
|
|
(855 |
) |
|
|
(1,952 |
) |
Proceeds
from sales and maturities of investments
|
|
|
684 |
|
|
|
800 |
|
|
|
1,983 |
|
Cash
used in investing activities
|
|
|
(14,767 |
) |
|
|
(2,737 |
) |
|
|
(2,858 |
) |
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in short-term notes payable
|
|
|
(418 |
) |
|
|
825 |
|
|
|
1,220 |
|
Proceeds
from revolving credit facility
|
|
|
3,000 |
|
|
|
- |
|
|
|
- |
|
Payments
on revolving credit facility
|
|
|
(3,000 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from Term Loan
|
|
|
9,226 |
|
|
|
- |
|
|
|
- |
|
Payments
on Term Loan
|
|
|
(9,226 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from issuance of long-term debt
|
|
|
8,283 |
|
|
|
1,453 |
|
|
|
21 |
|
Payments
on long-term debt
|
|
|
(1,790 |
) |
|
|
(760 |
) |
|
|
(1,354 |
) |
Redemption
of preferred securities of subsidiaries and payment of accrued
dividends
|
|
|
(520 |
) |
|
|
- |
|
|
|
- |
|
Purchases
of treasury stock
|
|
|
(5 |
) |
|
|
(898 |
) |
|
|
(1,462 |
) |
Proceeds
from issuance of common stock
|
|
|
966 |
|
|
|
- |
|
|
|
- |
|
Proceeds
from issuance of preferred stock
|
|
|
7,000 |
|
|
|
- |
|
|
|
- |
|
Proceeds
from sales of common stock
|
|
|
555 |
|
|
|
72 |
|
|
|
379 |
|
Issuance
costs for debt and equity securities
|
|
|
(368 |
) |
|
|
(70 |
) |
|
|
- |
|
Excess
tax benefits from share-based payment arrangements
|
|
|
10 |
|
|
|
8 |
|
|
|
31 |
|
Distributions
to noncontrolling interests
|
|
|
(24 |
) |
|
|
(45 |
) |
|
|
(51 |
) |
Dividends
paid to stockholders
|
|
|
(1,030 |
) |
|
|
(1,563 |
) |
|
|
(1,512 |
) |
Cash
provided by (used in) financing activities
|
|
|
12,659 |
|
|
|
(978 |
) |
|
|
(2,728 |
) |
Effect
of Exchange Rate Changes on Cash
|
|
|
79 |
|
|
|
68 |
|
|
|
81 |
|
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in cash and cash equivalents
|
|
|
46 |
|
|
|
1,064 |
|
|
|
(1,021 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
2,800 |
|
|
|
1,736 |
|
|
|
2,757 |
|
Cash
and cash equivalents at end of year
|
|
$ |
2,846 |
|
|
$ |
2,800 |
|
|
$ |
1,736 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
|
Consolidated
Statements of Equity
|
|
|
|
|
|
|
|
|
|
|
(In
millions) For the years ended December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Preferred
stock issued
|
|
$ |
7,000 |
|
|
|
- |
|
|
|
- |
|
Preferred
stock repurchased
|
|
|
(2,500 |
) |
|
|
- |
|
|
|
- |
|
Preferred
stock converted to common stock
|
|
|
(500 |
) |
|
|
- |
|
|
|
- |
|
Balance
at end of year
|
|
|
4,000 |
|
|
|
- |
|
|
|
- |
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
2,453 |
|
|
$ |
2,453 |
|
|
$ |
2,453 |
|
Common
stock issued
|
|
|
453 |
|
|
|
- |
|
|
|
- |
|
Balance
at end of year
|
|
|
2,906 |
|
|
|
2,453 |
|
|
|
2,453 |
|
Additional
Paid-in Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
872 |
|
|
|
902 |
|
|
|
830 |
|
Common
stock issued
|
|
|
2,643 |
|
|
|
- |
|
|
|
- |
|
Sale
of shares to ESOP
|
|
|
(1,529 |
) |
|
|
- |
|
|
|
- |
|
Stock-based
compensation and allocation of ESOP shares
|
|
|
(73 |
) |
|
|
(30 |
) |
|
|
72 |
|
Balance
at end of year
|
|
|
1,913 |
|
|
|
872 |
|
|
|
902 |
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
17,013 |
|
|
|
18,004 |
|
|
|
16,987 |
|
Net
income available for The Dow Chemical Company common
stockholders
|
|
|
336 |
|
|
|
579 |
|
|
|
2,887 |
|
Dividends
declared on common stock (Per share: $0.60 in 2009, $1.68 in 2008
and
$1.635 in 2007)
|
|
|
(639 |
) |
|
|
(1,556 |
) |
|
|
(1,548 |
) |
Other
|
|
|
(6 |
) |
|
|
(14 |
) |
|
|
(32 |
) |
Impact
of the adoption of FIN No. 48
|
|
|
- |
|
|
|
- |
|
|
|
(290 |
) |
Balance
at end of year
|
|
|
16,704 |
|
|
|
17,013 |
|
|
|
18,004 |
|
Accumulated
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(Losses) Gains on Investments at beginning of year
|
|
|
(111 |
) |
|
|
71 |
|
|
|
42 |
|
Net
change in unrealized gains (losses)
|
|
|
190 |
|
|
|
(182 |
) |
|
|
29 |
|
Balance
at end of year
|
|
|
79 |
|
|
|
(111 |
) |
|
|
71 |
|
Cumulative
Translation Adjustments at beginning of year
|
|
|
221 |
|
|
|
723 |
|
|
|
(12 |
) |
Translation
adjustments
|
|
|
403 |
|
|
|
(502 |
) |
|
|
735 |
|
Balance
at end of year
|
|
|
624 |
|
|
|
221 |
|
|
|
723 |
|
Pension
and Other Postretirement Benefit Plans at beginning of
year
|
|
|
(4,251 |
) |
|
|
(989 |
) |
|
|
(2,192 |
) |
Net
prior service credit (cost)
|
|
|
19 |
|
|
|
16 |
|
|
|
(74 |
) |
Net
(loss) gain
|
|
|
(355 |
) |
|
|
(3,278 |
) |
|
|
1,277 |
|
Balance
at end of year
|
|
|
(4,587 |
) |
|
|
(4,251 |
) |
|
|
(989 |
) |
Accumulated
Derivative (Loss) Gain at beginning of year
|
|
|
(248 |
) |
|
|
25 |
|
|
|
(73 |
) |
Net
hedging results
|
|
|
(65 |
) |
|
|
(452 |
) |
|
|
20 |
|
Reclassification
to earnings
|
|
|
305 |
|
|
|
179 |
|
|
|
78 |
|
Balance
at end of year
|
|
|
(8 |
) |
|
|
(248 |
) |
|
|
25 |
|
Total
accumulated other comprehensive loss
|
|
|
(3,892 |
) |
|
|
(4,389 |
) |
|
|
(170 |
) |
Unearned
ESOP Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares
acquired
|
|
|
(553 |
) |
|
|
- |
|
|
|
- |
|
Shares
allocated to ESOP participants
|
|
|
34 |
|
|
|
- |
|
|
|
- |
|
Balance
at end of year
|
|
|
(519 |
) |
|
|
- |
|
|
|
- |
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
(2,438 |
) |
|
|
(1,800 |
) |
|
|
(970 |
) |
Purchases
|
|
|
(5 |
) |
|
|
(898 |
) |
|
|
(1,455 |
) |
Sale
of shares to ESOP
|
|
|
1,529 |
|
|
|
- |
|
|
|
- |
|
Issuance
to employees and employee plans
|
|
|
357 |
|
|
|
260 |
|
|
|
625 |
|
Balance
at end of year
|
|
|
(557 |
) |
|
|
(2,438 |
) |
|
|
(1,800 |
) |
The
Dow Chemical Company's Stockholders' Equity
|
|
|
20,555 |
|
|
|
13,511 |
|
|
|
19,389 |
|
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
69 |
|
|
|
414 |
|
|
|
365 |
|
Net
income attributable to noncontrolling interests
|
|
|
28 |
|
|
|
75 |
|
|
|
98 |
|
Purchase
of noncontrolling interests' share of subsidiaries
|
|
|
- |
|
|
|
(376 |
) |
|
|
(1 |
) |
Distributions
to noncontrolling interests
|
|
|
(24 |
) |
|
|
(45 |
) |
|
|
(51 |
) |
Acquisition
of Rohm and Haas Company noncontrolling interests
|
|
|
432 |
|
|
|
- |
|
|
|
- |
|
Consolidation
of variable interest entity
|
|
|
46 |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
18 |
|
|
|
1 |
|
|
|
3 |
|
Balance
at end of year
|
|
|
569 |
|
|
|
69 |
|
|
|
414 |
|
Total
Equity
|
|
$ |
21,124 |
|
|
$ |
13,580 |
|
|
$ |
19,803 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
|
Consolidated
Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
(In
millions) For the years ended December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
Income
|
|
$ |
676 |
|
|
$ |
654 |
|
|
$ |
2,985 |
|
Other
Comprehensive Income (Loss), Net of Tax (tax amounts shown below for 2009,
2008, 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains (losses) during the period (net of tax of $53, $(70),
$42)
|
|
|
134 |
|
|
|
(158 |
) |
|
|
70 |
|
Less: Reclassification
adjustments for net amounts included in net income (net of tax
of $30,
$(13), $(22))
|
|
|
56 |
|
|
|
(24 |
) |
|
|
(41 |
) |
Cumulative
translation adjustments (net of tax of $(15), $(22), $5)
|
|
|
403 |
|
|
|
(502 |
) |
|
|
735 |
|
Defined
benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost arising during period (net of tax of $(1), $-,
$(53))
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(88 |
) |
Net
gain (loss) arising during period (net of tax of $(257), $(1,561),
$630)
|
|
|
(433 |
) |
|
|
(3,307 |
) |
|
|
1,150 |
|
Less: Amortization
of prior service cost included in net periodic pension costs (net of
tax
of $8, $8, $5)
|
|
|
20 |
|
|
|
20 |
|
|
|
14 |
|
Less: Amortization
of net loss included in net periodic pension costs (net of tax of
$40,
$13, $67)
|
|
|
78 |
|
|
|
29 |
|
|
|
127 |
|
Net
gains (losses) on cash flow hedging derivative instruments (net of tax of
$56, $(49), $14)
|
|
|
240 |
|
|
|
(273 |
) |
|
|
98 |
|
Total
other comprehensive income (loss)
|
|
|
497 |
|
|
|
(4,219 |
) |
|
|
2,065 |
|
Comprehensive
Income (Loss)
|
|
|
1,173 |
|
|
|
(3,565 |
) |
|
|
5,050 |
|
Comprehensive
income attributable to noncontrolling interests, net of
tax
|
|
|
28 |
|
|
|
75 |
|
|
|
98 |
|
Comprehensive
Income (Loss) Attributable to The Dow Chemical Company
|
|
$ |
1,145 |
|
|
$ |
(3,640 |
) |
|
$ |
4,952 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
Notes
to the Consolidated Financial Statements
Table
of Contents
Note
|
|
Page
|
|
A
|
Summary
of Significant Accounting Policies
|
84
|
|
B
|
Recent
Accounting Guidance
|
87
|
|
C
|
Restructuring
|
90
|
|
D
|
Acquisitions
|
98
|
|
E
|
Divestitures
|
101
|
|
F
|
Inventories
|
103
|
|
G
|
Property
|
103
|
|
H
|
Nonconsolidated
Affiliates and Related Company Transactions
|
104
|
|
I
|
Goodwill
and Other Intangible Assets
|
106
|
|
J
|
Financial
Instruments
|
108
|
|
K
|
Fair
Value Measurements
|
114
|
|
L
|
Supplementary
Information
|
116
|
|
M
|
Earnings
Per Share Calculations
|
117
|
|
N
|
Commitments
and Contingent Liabilities
|
118
|
|
O
|
Notes
Payable, Long-Term Debt and Available Credit Facilities
|
126
|
|
P
|
Pension
Plans and Other Postretirement Benefits
|
129
|
|
Q
|
Leased
Property
|
136
|
|
R
|
Variable
Interest Entities
|
136
|
|
S
|
Stock-Based
Compensation
|
137
|
|
T
|
Limited
Partnership
|
141
|
|
U
|
Preferred
Securities of Subsidiaries
|
141
|
|
V
|
Redeemable
Preferred Stocks
|
142
|
|
W
|
Stockholders’
Equity
|
142
|
|
X
|
Income
Taxes
|
144
|
|
Y
|
Operating
Segments and Geographic Areas
|
147
|
NOTE
A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation and Basis of Presentation
The
accompanying consolidated financial statements of The Dow Chemical Company and
its subsidiaries (“Dow” or the “Company”) were prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and include the assets, liabilities, revenues and expenses of all
majority-owned subsidiaries over which the Company exercises control and, when
applicable, entities for which the Company has a controlling financial interest
or is the primary beneficiary. Intercompany transactions and balances are
eliminated in consolidation. Investments in nonconsolidated affiliates
(20-50 percent owned companies, joint ventures and partnerships) are
accounted for using the equity method.
Use
of Estimates in Financial Statement Preparation
The
preparation of financial statements in accordance with U.S. GAAP requires the
use of estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. The Company’s consolidated financial statements
include amounts that are based on management’s best estimates and judgments.
Actual results could differ from those estimates.
Foreign
Currency Translation
The
local currency has been primarily used as the functional currency throughout the
world. Translation gains and losses of those operations that use local currency
as the functional currency are included in the consolidated balance sheets in
“Accumulated other comprehensive income (loss)” (“AOCI”). Where the U.S. dollar
is used as the functional currency, foreign currency gains and losses are
reflected in income.
Environmental
Matters
Accruals
for environmental matters are recorded when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated based
on current law and existing technologies. These accruals are adjusted
periodically as assessment and remediation efforts progress or as additional
technical or legal information becomes available. Accruals for environmental
liabilities are included in the consolidated balance sheets in “Accrued and
other current liabilities” and “Other noncurrent obligations” at undiscounted
amounts. Accruals for related insurance or other third-party recoveries for
environmental liabilities are recorded when it is probable that a recovery will
be realized and are included in the consolidated balance sheets as “Accounts and
notes receivable - Other.”
Environmental
costs are capitalized if the costs extend the life of the property, increase its
capacity, and/or mitigate or prevent contamination from future operations.
Environmental costs are also capitalized in recognition of legal asset
retirement obligations resulting from the acquisition, construction and/or
normal operation of a long-lived asset. Costs related to environmental
contamination treatment and cleanup are charged to expense. Estimated future
incremental operations, maintenance and management costs directly related to
remediation are accrued when such costs are probable and reasonably
estimable.
Cash
and Cash Equivalents
Cash
and cash equivalents include time deposits and readily marketable securities
with original maturities of three months or less.
Financial
Instruments
The
Company calculates the fair value of financial instruments using quoted market
prices whenever available. When quoted market prices are not available for
various types of financial instruments (such as forwards, options and swaps),
the Company uses standard pricing models with market-based inputs that take into
account the present value of estimated future cash flows.
The
Company utilizes derivatives to manage exposures to currency exchange rates,
commodity prices and interest rate risk. The fair values of all derivatives are
recognized as assets or liabilities at the balance sheet date. Changes in the
fair value of these instruments are reported in income or AOCI, depending on the
use of the derivative and whether it qualifies for hedge accounting
treatment.
Gains
and losses on derivatives that are designated and qualify as cash flow hedging
instruments are recorded in AOCI, to the extent the hedges are effective, until
the underlying transactions are recognized in income. To the extent effective,
gains and losses on derivative and nonderivative instruments used as hedges of
the Company’s net investment in foreign operations are recorded in AOCI as part
of the cumulative translation adjustment. The ineffective portions of cash flow
hedges and hedges of net investment in foreign operations, if any, are
recognized in income immediately.
Gains
and losses on derivatives designated and qualifying as fair value hedging
instruments, as well as the offsetting losses and gains on the hedged items, are
reported in income in the same accounting period. Derivatives not designated as
hedging instruments are marked-to-market at the end of each accounting period
with the results included in income.
Inventories
Inventories
are stated at the lower of cost or market. The method of determining cost for
each subsidiary varies among last-in, first-out (“LIFO”); first-in, first-out
(“FIFO”); and average cost, and is used consistently from year to
year.
Property
Land,
buildings and equipment, including property under capital lease agreements, are
carried at cost less accumulated depreciation. Depreciation is based on the
estimated service lives of depreciable assets and is calculated using the
straight-line method, unless the asset was capitalized before 1997 when the
declining balance method was used. Fully depreciated assets are retained in
property and accumulated depreciation accounts until they are removed from
service. In the case of disposals, assets and related accumulated depreciation
are removed from the accounts, and the net amounts, less proceeds from disposal,
are included in income.
Impairment
and Disposal of Long-Lived Assets
The
Company evaluates long-lived assets and certain identifiable intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When undiscounted future
cash flows are not expected to be sufficient to recover an asset’s carrying
amount, the asset is written down to its fair value.
Long-lived
assets to be disposed of other than by sale are classified as held and used
until they are disposed of. Long-lived assets to be disposed of by sale are
classified as held for sale and are reported at the lower of carrying amount or
fair value less cost to sell, and depreciation is ceased.
Goodwill
and Other Intangible Assets
The
Company records goodwill when the purchase price of a business acquisition
exceeds the estimated fair value of net identified tangible and intangible
assets acquired. Goodwill is tested for impairment at the reporting unit level
annually, or more frequently when events or changes in circumstances indicate
that the fair value of a reporting unit has more likely than not declined below
its carrying value. The Company primarily utilizes a discounted cash flow
methodology to calculate the fair value of its reporting units.
Finite-lived
intangible assets such as purchased customer lists, licenses, intellectual
property, patents, trademarks and software, are amortized over their estimated
useful lives, generally on a straight-line basis for periods ranging from three
to twenty years. Finite-lived intangible assets are reviewed for impairment or
obsolescence annually, or more frequently if events or changes in circumstances
indicate that the carrying amount of an intangible asset may not be recoverable.
If impaired, intangible assets are written down to fair value based on
discounted cash flows.
Asset
Retirement Obligations
The
Company records asset retirement obligations as incurred and reasonably
estimable, including obligations for which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the Company. The fair values of obligations are recorded as
liabilities on a discounted basis and are accreted over time for the change in
present value. Costs associated with the liabilities are capitalized and
amortized over the estimated remaining useful life of the asset, generally for
periods of 10 years or less.
Investments
Investments
in debt and marketable equity securities (including warrants), primarily held by
the Company’s insurance operations, are classified as trading,
available-for-sale or held-to-maturity. Investments classified as trading are
reported at fair value with unrealized gains and losses included in income.
Those classified as available-for-sale are reported at fair value with
unrealized gains and losses recorded in AOCI. Those classified as
held-to-maturity are recorded at amortized cost. The cost of investments sold is
determined by specific identification. The Company routinely reviews
available-for-sale and held-to-maturity securities for other-than-temporary
declines in fair value below the cost basis, and when events or changes in
circumstances indicate the carrying value of an asset may not be recoverable,
the security is written down to fair value, establishing a new cost
basis.
Revenue
Sales
are recognized when the revenue is realized or realizable, and has been earned.
Approximately 98 percent of the Company’s sales are related to sales of
product. The remaining 2 percent are related to the Company’s service
offerings, insurance operations, and licensing of patents and technology.
Revenue for product sales is recognized as risk and title to the product
transfer to the customer, which usually occurs at the time shipment is made.
Substantially all of the Company’s products are sold FOB (free on board)
shipping point or, with respect to countries other than the United States, an
equivalent basis. As such, title to the product passes when the product is
delivered to the freight carrier. Dow’s standard terms of delivery are included
in its contracts of sale, order confirmation documents and invoices. Freight
costs and any directly related costs of transporting finished product to
customers are recorded as “Cost of sales.”
Revenue
related to the Company’s insurance operations includes third-party insurance
premiums, which are earned over the terms of the related insurance policies and
reinsurance contracts. Revenue related to the initial licensing of patents and
technology is recognized when earned; revenue related to running royalties is
recognized according to licensee production levels.
Legal
Costs
The
Company expenses legal costs, including those legal costs expected to be
incurred in connection with a loss contingency, as incurred.
Severance
Costs
The
Company routinely reviews its operations around the world in an effort to ensure
competitiveness across its businesses and geographic areas. When the reviews
result in a workforce reduction related to the shutdown of facilities or other
optimization activities, severance benefits are provided to employees primarily
under Dow’s ongoing benefit arrangements. These severance costs are accrued
under the guidance of ASC Topic 712, “Compensation – Nonretirement
Postemployment Benefits,” once management commits to a plan of termination
including the number of employees to be terminated, their job classifications or
functions, their locations and the expected completion date.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities using enacted rates. The effect of a change in
tax rates on deferred tax assets is recognized in income in the period that
includes the enactment date.
Annual
tax provisions include amounts considered sufficient to pay assessments that may
result from examinations of prior year tax returns; however, the amount
ultimately paid upon resolution of issues raised may differ from the amounts
accrued.
The
Company recognizes the financial statement effects of an uncertain income tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination. The Company accrues for other
tax contingencies when it is probable that a liability to a taxing authority has
been incurred and the amount of the contingency can be reasonably estimated. The
current portion of uncertain income tax positions is included in “Income taxes
payable” and the long-term portion is included in “Other noncurrent obligations”
in the consolidated balance sheets.
Provision
is made for taxes on undistributed earnings of foreign subsidiaries and related
companies to the extent that such earnings are not deemed to be permanently
invested.
Earnings
per Common Share
The
calculation of earnings per common share is based on the weighted-average number
of the Company’s common shares outstanding for the applicable period. The
calculation of diluted earnings per common share reflects the effect of all
potential dilutive common shares that were outstanding during the respective
periods, unless the effect of doing so is antidilutive.
NOTE
B – RECENT ACCOUNTING GUIDANCE
Accounting
Standards Codification
On
July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification™ (“Codification” or “ASC”) became the single source of
authoritative U.S. GAAP (other than rules and interpretive releases of the U.S.
Securities and Exchange Commission). The Codification is topically based with
topics organized by ASC number and updated with Accounting Standards Updates
(“ASUs”). ASUs replace accounting guidance that was historically issued as
Statements of Financial Accounting Standards (“SFAS”), FASB Interpretations
(“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”)
Abstracts and other types of accounting standards. The Codification became
effective September 30, 2009 for the Company, and disclosures within this
Annual Report on Form 10-K have been updated to reflect the change.
Accounting
for Noncontrolling Interests
SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements – an amendment of
ARB No. 51” (codified in ASC Topic 810, “Consolidation”), was effective
January 1, 2009 for the Company, and established accounting and
reporting standards for noncontrolling interests in a subsidiary and for
deconsolidation of a subsidiary. The retrospective presentation and disclosure
requirements outlined by the consolidation guidance have been incorporated into
this Annual Report on Form 10-K.
In
accordance with the new guidance on noncontrolling interests, the Company
revised all previous references to “minority interests” in the consolidated
financial statements to “noncontrolling interests,” and made the following
changes:
|
·
|
The
Consolidated Statements of Income now present “Net Income,” which includes
“Net income attributable to noncontrolling interests” and “Net Income
Attributable to The Dow Chemical Company.” “Net Income Available for The
Dow Chemical Company Common Stockholders” is equivalent to the previously
reported “Net Income Available for Common Stockholders.” No change was
required to the presentation of earnings per
share.
|
|
·
|
The
Consolidated Balance Sheets now present “Noncontrolling interests” as a
component of “Total equity.” “Noncontrolling interests” is equivalent to
the previously reported “Minority Interest in Subsidiaries.” “The Dow
Chemical Company’s stockholders’ equity” is equivalent to the previously
reported “Net stockholders’
equity.”
|
|
·
|
The
Consolidated Statements of Cash Flows now begin with “Net Income” instead
of “Net Income Available for Common
Stockholders.”
|
|
·
|
The
Consolidated Statements of Equity now include a section for
“Noncontrolling interests.”
|
|
·
|
The
Consolidated Statements of Comprehensive Income now separately present the
components of “Comprehensive Income (Loss),” “Comprehensive income
attributable to noncontrolling interests, net of tax” and “Comprehensive
Income (Loss) Attributable to The Dow Chemical Company.” “Comprehensive
Income (Loss) Attributable to The Dow Chemical Company” is equivalent to
the previously reported “Comprehensive
Income.”
|
On
December 31, 2009, the Company adopted ASU 2010-02, “Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary – a Scope Clarification,” which clarifies the decrease-in-ownership
provisions of ASC Topic 810-10 and guidance applicability. In addition, the ASU
expands the required disclosures upon deconsolidation of a subsidiary. The
Company will apply this ASU, as applicable, to transactions in the
future.
Fair
Value Measurements
On
January 1, 2009, the Company adopted FSP No. FAS 157-2,
“Effective Date of FASB Statement No. 157” (codified in ASC Topic 820,
“Fair Value Measurements and Disclosures”), related to nonfinancial assets and
nonfinancial liabilities that are not recognized or disclosed at fair value on
the financial statements on a recurring basis. Since the Company’s fair value
measurements for nonfinancial assets and nonfinancial liabilities were
consistent with the guidance of the FSP, the adoption of the guidance did not
have a material impact on the Company’s consolidated financial statements. The
Company’s required disclosures are included in Note K.
On June 30, 2009,
the Company adopted FSP No. FAS 157-4, “Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (codified in ASC
Topic 820). This FSP provided additional guidance for estimating the fair
value when the market activity for an asset or liability has declined
significantly. The adoption of this guidance did not have a material impact on
the Company’s consolidated financial statements.
On
October 1, 2009, the Company adopted ASU 2009-05, “Fair Value Measurements
and Disclosures (Topic 820): Measuring Liabilities at Fair Value.” This ASU
clarified the fair value measurements for a liability in an active market and
the valuation techniques in the absence of a Level 1 measurement. The adoption of
this ASU did not have a material impact on the Company’s consolidated financial
statements.
On
December 31, 2009, the Company adopted ASU 2009-12, “Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent),” which provided
guidance within ASC Topic 820 on measuring the fair value of certain
alternative investments in entities that calculate net asset values. The adoption of
this ASU did not have a material impact on the Company’s consolidated financial
statements.
Other
Recently Adopted Accounting Guidance
On
December 31, 2008, the Company early adopted SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133” (codified in ASC Topic 815,
“Derivatives and Hedging”). This guidance required enhanced disclosures about an
entity’s derivative and hedging activities. The Company’s required disclosures
are included in Note J.
On
January 1, 2009, the Company adopted EITF Issue
No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities” (codified in ASC Topic 260,
“Earnings Per Share”), related to whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share under the two-class method. The guidance affects entities that accrue
dividends on share-based payment awards during the awards’ service period when
the dividends are not required to be returned if employees forfeit the award.
The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
On
January 1, 2009, the Company adopted FSP No. FAS 141(R)-1,
“Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies” (codified in ASC Topic 805, “Business
Combinations” and ASC Topic 820). This guidance states that assets acquired and
liabilities assumed in a business combination that arise from contingencies
should be recognized at fair value if the acquisition date fair value can be
reasonably determined. If the acquisition date fair value cannot be reasonably
determined, then the asset or liability should be recognized in accordance with
ASC Topic 450, “Contingencies” (formerly SFAS No. 5, “Accounting for
Contingencies,” and FIN No. 14, “Reasonable Estimation of the Amount
of a Loss - an interpretation of FASB Statement No. 5”). The FSP also requires
new disclosures for the assets and liabilities within the scope of this Topic.
See Note D for disclosures related to a recent business
combination.
On
June 30, 2009, the Company adopted FSP No. FAS 115-2 and
FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments” (codified in ASC Topic 320, “Investments - Debt and
Equity Securities”). This guidance amends the other-than-temporary impairment
guidance for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
On
June 30, 2009, the Company adopted SFAS No. 165, “Subsequent Events”
(codified in ASC Topic 855, “Subsequent Events”). This guidance established
the principles and requirements for evaluating and reporting subsequent events,
including the period subject to evaluation for subsequent events, the
circumstances requiring recognition of subsequent events in the financial
statements, and the required disclosures. The Company has evaluated subsequent
events in accordance with this guidance through the filing of this Annual Report
on Form 10-K on February 19, 2010.
On
December 31, 2009, the Company adopted FSP No. FAS 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets” (codified in
ASC Topic 715, “Compensation - Retirement Benefits”). The FSP requires
new disclosures on investment policies and strategies, categories of plan
assets, fair value measurements of plan assets, and significant concentrations
of risk. The required disclosures are included in Note P.
Accounting
Guidance Issued But Not Adopted as of December 31, 2009
In December 2009, the
FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860):
Accounting for Transfers of Financial Assets.” This ASU is intended to improve
the information provided in financial statements concerning transfers of
financial assets, including the effects of transfers on financial position,
financial performance and cash flows, and any continuing involvement of the
transferor with the transferred financial assets. This ASU is effective for the
first annual reporting period after November 15, 2009, which is
January 1, 2010 for the Company. The Company is evaluating the impact of
adopting the guidance and anticipates that certain sales of accounts
receivables, under the terms and conditions in place at December 31, 2009,
would be classified as secured borrowings in the consolidated balance sheets
upon adoption. Under these arrangements, $915 million was outstanding at
January 1, 2010. The maximum amount of receivables available for
participation in these programs was $1,939 million at January 1, 2010;
the average monthly participation in 2009 was approximately $936 million.
In January 2010, the Company terminated one of these arrangements and replaced
it with a new arrangement that is expected to qualify for treatment as a sale
under ASU 2009-16. Such arrangement related to $294 million of the
$915 million outstanding at January 1, 2010 and $1,100 million of
the $1,939 million maximum participation.
In
December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities,” which amended the consolidation guidance applicable to
variable interest entities and required additional disclosures concerning an
enterprise’s continuing involvement with variable interest entities. This ASU is
effective for the first annual reporting period after November 15, 2009, which
is January 1, 2010 for the Company. The Company is currently evaluating the
impact of adopting the guidance and anticipates that upon adoption the ethylene
facility disclosed as a variable interest entity in Note R will be
consolidated by the Company as primary beneficiary. At January 1, 2010, the
estimated obligation on this arrangement was $394 million and the estimated
net book value of the asset was approximately $80 million; the difference
would be recognized as a cumulative effect adjustment to retained earnings. The
outstanding obligation related to the facility will mature in 2014.
In
October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging
Issues Task Force,” which amends the criteria for when to evaluate individual
delivered items in a multiple deliverable arrangement and how to allocate
consideration received. This ASU is effective for fiscal years beginning on or
after June 15, 2010, which is January 1, 2011 for the Company. The
Company is currently evaluating the impact of adopting the
guidance.
In
January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements,” which adds disclosure requirements about transfers in and out of
Levels 1 and 2 and separate disclosures about activity relating to Level 3
measurements and clarifies input and valuation techniques. This ASU is effective
for the first reporting period beginning after December 15, 2009. The
Company is currently evaluating the impact of adopting the guidance and will
include any required disclosures in its report for the interim period ended
March 31, 2010, as appropriate.
NOTE
C – RESTRUCTURING
2009
Restructuring
On
June 30, 2009, the Company’s Board of Directors approved a restructuring plan
related to the Company’s acquisition of Rohm and Haas Company (“Rohm and Haas”)
as well as actions to advance the Company’s strategy and to respond to continued
weakness in the global economy. The restructuring plan included the elimination
of approximately 2,500 positions primarily resulting from synergies achieved as
a result of the acquisition of Rohm and Haas. In addition, the Company will shut
down a number of manufacturing facilities. These actions are expected to be
completed primarily during the next two years. As a result of the
restructuring activities, the Company recorded pretax restructuring charges of
$677 million in the second quarter of 2009, consisting of asset write-downs
and write-offs of $454 million, costs associated with exit or disposal
activities of $68 million and severance costs of $155 million. The
impact of the charges is shown as “Restructuring charges” in the consolidated
statements of income and was reflected in the Company’s segment results as shown
in the following table, which also reflects adjustments made in 2009 to the
current plan, as well as the 2008 and 2007 plans, as discussed below and in the
sections titled “2008 Restructuring” and “2007 Restructuring.”
2009
Restructuring Charges by Operating Segment
|
|
In
millions
|
|
Impairment
of Long-Lived Assets and Other Assets
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Electronic
and Specialty Materials
|
|
$ |
68 |
|
|
|
- |
|
|
|
- |
|
|
$ |
68 |
|
Coatings
and Infrastructure
|
|
|
167 |
|
|
$ |
4 |
|
|
|
- |
|
|
|
171 |
|
Performance
Products
|
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
73 |
|
Basic
Plastics
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Basic
Chemicals
|
|
|
75 |
|
|
|
- |
|
|
|
- |
|
|
|
75 |
|
Hydrocarbons
and Energy
|
|
|
65 |
|
|
|
- |
|
|
|
- |
|
|
|
65 |
|
Corporate
|
|
|
5 |
|
|
|
64 |
|
|
$ |
155 |
|
|
|
224 |
|
Total
2009 restructuring charges
|
|
$ |
454 |
|
|
$ |
68 |
|
|
$ |
155 |
|
|
$ |
677 |
|
Adjustments
to restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
- Corporate
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
2008
- Corporate
|
|
|
- |
|
|
|
- |
|
|
|
19 |
|
|
|
19 |
|
2007
- Health and Agricultural Sciences
|
|
|
- |
|
|
|
(15 |
) |
|
|
- |
|
|
|
(15 |
) |
2007
- Corporate
|
|
|
- |
|
|
|
- |
|
|
|
(5 |
) |
|
|
(5 |
) |
Net
2009 restructuring charges
|
|
$ |
454 |
|
|
$ |
66 |
|
|
$ |
169 |
|
|
$ |
689 |
|
Details
regarding the components of the 2009 restructuring charges are discussed
below:
Impairment
of Long-Lived Assets and Other Assets
The
restructuring charges related to the write-down or write-off of assets totaled
$454 million. Write-downs were related to Dow’s facilities located in
Hahnville and Plaquemine, Louisiana; the United States Federal Trade Commission
(“FTC”) required divestiture of certain acrylic monomer and specialty latex
assets in North America; and other small manufacturing facilities where the
acquisition of Rohm and Haas resulted in overlapping manufacturing capabilities.
Details regarding these write-downs or write-offs are as follows:
|
·
|
Due
to continued weakness in the global economy, the decision was made to shut
down a number of hydrocarbon and basic chemicals facilities, with an
impact of $126 million, including the
following:
|
|
·
|
Ethylene
manufacturing facility in Hahnville, Louisiana. A write-off of the net
book value of the related buildings, machinery and equipment against the
Hydrocarbons and Energy segment was recorded. The facility shut down in
the second quarter of 2009.
|
|
·
|
Ethylene
oxide/ethylene glycol manufacturing facility in Hahnville, Louisiana. A
write-off of the net book value of the related buildings, machinery and
equipment against the Basic Chemicals segment was recorded. The facility
shut down in the second quarter of
2009.
|
|
·
|
Ethylene
dichloride and vinyl chloride monomer manufacturing facility in
Plaquemine, Louisiana. A write-down of the net book value of the related
buildings, machinery and equipment against the Basic Chemicals segment was
recorded. The facility will shut down in
mid-2011.
|
|
·
|
With
the completion of the Company’s acquisition of Rohm and Haas, the
following charges were recognized:
|
|
·
|
Due
to an expected loss arising from the FTC required divestitures of certain
acrylic monomer and specialty latex assets within eight months of the
closing of the acquisition of Rohm and Haas, the Company recognized an
impairment charge of $205 million against the Coatings and
Infrastructure ($134 million) and Performance Products ($71 million)
segments in the second quarter of 2009. The divestiture of the assets was
completed in January 2010 (see
Note E).
|
|
·
|
The
decision was made to shut down a number of small manufacturing facilities
to optimize the assets of the Company. Write-downs of $96 million were
recorded in the second quarter of 2009, primarily impacting the Electronic
and Specialty Materials ($66 million) and Coatings and Infrastructure ($28
million) segments.
|
The
restructuring charges in the second quarter of 2009 also included the write-off
of capital project spending ($20 million) and other assets
($7 million) associated with plant closures. These charges were reflected
in the results of the operating segments impacted by the restructuring
activities.
Costs
Associated with Exit or Disposal Activities
The
restructuring charges for costs associated with exit or disposal activities
totaled $68 million in the second quarter of 2009 and included
environmental remediation of $64 million, impacting Corporate, with the
remainder relating to contract termination fees and other charges. In the fourth
quarter of 2009, the Company increased the reserve by $13 million to
reflect additional expense for pension settlements related to the Rohm and Haas
acquisition.
Severance
Costs
The
restructuring charges included severance of $155 million for the separation
of approximately 2,500 employees under the terms of the Company’s ongoing
benefit arrangements, primarily over the next two years. These costs were
charged against Corporate. At December 31, 2009, severance of
$72 million had been paid and a currency adjusted liability of
$84 million remained for approximately 1,221 employees.
The
following table summarizes the activities related to the Company’s restructuring
reserve:
2009
Restructuring Activities
In
millions
|
|
Impairment
of Long-Lived Assets and Other Assets
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Restructuring
charges recognized in the second quarter of 2009
|
|
$ |
454 |
|
|
$ |
68 |
|
|
$ |
155 |
|
|
$ |
677 |
|
Cash
payments
|
|
|
- |
|
|
|
- |
|
|
|
(72 |
) |
|
|
(72 |
) |
Charges
against reserve
|
|
|
(454 |
) |
|
|
(13 |
) |
|
|
- |
|
|
|
(467 |
) |
Adjustment
to reserve
|
|
|
- |
|
|
|
13 |
|
|
|
- |
|
|
|
13 |
|
Foreign
currency impact
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Reserve
balance at December 31, 2009
|
|
|
- |
|
|
$ |
68 |
|
|
$ |
84 |
|
|
$ |
152 |
|
Dow
expects to incur future costs related to its restructuring activities, as the
Company continually looks for ways to enhance the efficiency and cost
effectiveness of its operations, and to ensure competitiveness across its
businesses and across geographic areas. Future costs are expected to include
demolition costs related to the closed facilities, which will be recognized as
incurred. The Company also expects to incur additional employee-related costs,
including involuntary termination benefits, related to its other optimization
activities. These costs cannot be reasonably estimated at this
time.
Restructuring
Reserve Assumed from Rohm and Haas
Included
in liabilities assumed in the April 1, 2009 acquisition of Rohm and Haas was a
reserve of $122 million for severance and employee benefits for the
separation of 1,255 employees under the terms of Rohm and Haas’ ongoing
benefit arrangement. The separations resulted from plant shutdowns, production
schedule adjustments, productivity improvements and reductions in support
services. Cash payments are expected to be paid over the next two years. In the
fourth quarter of 2009, the Company decreased the severance reserve assumed from
Rohm and Haas by $9 million, recorded in “Cost of sales,” to adjust the
reserve to the expected future severance payments. In the nine-month period
following the acquisition, severance of $43 million was paid, leaving a
currency adjusted liability of $68 million for approximately
552 employees at December 31, 2009.
Restructuring
Reserve Assumed from Rohm and Haas
|
|
In
millions
|
|
Severance
Costs
|
|
Reserve
balance assumed on April 1, 2009
|
|
$ |
122 |
|
Cash
payments
|
|
|
(43 |
) |
Adjustments
to reserve
|
|
|
(9 |
) |
Foreign
currency impact
|
|
|
(2 |
) |
Reserve
balance at December 31, 2009
|
|
$ |
68 |
|
2008
Restructuring
On
December 5, 2008, the Company’s Board of Directors approved a restructuring
plan as part of a series of actions to advance the Company’s strategy and
respond to the severe economic downturn. The restructuring plan included the
shutdown of a number of facilities and a global workforce reduction, which are
targeted to be completed by the end of 2010. As a result of the shutdowns and
global workforce reduction, the Company recorded pretax restructuring charges of
$785 million in the fourth quarter of 2008. The charges consisted of asset
write-downs and write-offs of $336 million, costs associated with exit or
disposal activities of $128 million and severance costs of
$321 million. The impact of the charges is shown as “Restructuring charges”
in the consolidated statements of income and was reflected in the Company’s
segment results as shown in the following table, which also reflects adjustments
made in 2008 to the 2007 and 2006 restructuring charges. See the section titled
“2007 Restructuring” for further discussion of adjustments to the 2007
restructuring charges.
2008
Restructuring Charges by Operating Segment
|
|
In
millions
|
|
Impairment
of Long-Lived Assets and Other Assets
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Electronic
and Specialty Materials
|
|
$ |
10 |
|
|
|
- |
|
|
|
- |
|
|
$ |
10 |
|
Coatings
and Infrastructure
|
|
|
15 |
|
|
$ |
1 |
|
|
|
- |
|
|
|
16 |
|
Performance
Systems
|
|
|
67 |
|
|
|
1 |
|
|
|
- |
|
|
|
68 |
|
Performance
Products
|
|
|
39 |
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
Basic
Plastics
|
|
|
96 |
|
|
|
2 |
|
|
|
- |
|
|
|
98 |
|
Basic
Chemicals
|
|
|
86 |
|
|
|
20 |
|
|
|
- |
|
|
|
106 |
|
Hydrocarbons
and Energy
|
|
|
15 |
|
|
|
3 |
|
|
|
- |
|
|
|
18 |
|
Corporate
|
|
|
8 |
|
|
|
101 |
|
|
$ |
321 |
|
|
|
430 |
|
Total
2008 restructuring charges
|
|
$ |
336 |
|
|
$ |
128 |
|
|
$ |
321 |
|
|
$ |
785 |
|
Adjustments
to 2007 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Systems
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Health
and Agricultural Sciences
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
Basic
Plastics
|
|
|
30 |
|
|
|
20 |
|
|
|
- |
|
|
|
50 |
|
Corporate
|
|
|
- |
|
|
|
5 |
|
|
|
- |
|
|
|
5 |
|
Adjustments
to 2006 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Chemicals
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
(3 |
) |
|
|
(3 |
) |
Net
2008 restructuring charges
|
|
$ |
366 |
|
|
$ |
155 |
|
|
$ |
318 |
|
|
$ |
839 |
|
Details
regarding the components of the 2008 restructuring charges are discussed
below:
Impairment
of Long-Lived Assets and Other Assets
The
restructuring charges related to the write-down or write-off of assets in 2008
totaled $336 million and included the impact of plant closures and
impairments of $288 million. The most significant write-downs were related
to Dow’s facilities located in Oyster Creek, Freeport, Seadrift and Texas City,
Texas; Pittsburg, California; Terneuzen, The Netherlands; Varennes, Quebec,
Canada; Plaquemine, Louisiana; Aratu, Brazil; King’s Lynn and Wilton, England;
assets related to the pending sale of the automotive sealants business in
Europe; and project investment costs related to a potential joint venture in
Oman. Details regarding these write-downs or write-offs are as
follows:
|
·
|
Due
to a severe economic downturn, the Company decided in the fourth quarter
of 2008 to shut down a number of facilities, including the
following:
|
|
·
|
Chlor-alkali
manufacturing facility in Oyster Creek, Texas. A $31 million
write-off of the net book value of the related buildings, machinery and
equipment against the Basic Chemicals segment was recorded in the fourth
quarter of 2008. This facility was shut down in the first quarter of
2009.
|
|
·
|
Styrene
and styrene derivatives manufacturing facilities principally in Freeport,
Texas; Pittsburg, California; Terneuzen, The Netherlands; King’s Lynn,
England; and Varennes, Canada. A $37 million write-off of the net
book value of the related buildings, machinery and equipment was recorded
in the fourth quarter of 2008 against the Hydrocarbons and Energy
($14 million), Basic Plastics ($6 million), Performance Products
($10 million) and Coatings and Infrastructure ($2 million)
segments, as well as Corporate ($5 million). The facilities were shut
down in the fourth quarter of 2009.
|
|
·
|
Facilities
that manufacture NORDEL™ hydrocarbon rubber in Seadrift, Texas, and TYRIN™
chlorinated polyethylene in Plaquemine, Louisiana. A $36 million
write-down of the net book value of the related buildings, machinery and
equipment against the Performance Systems segment was recorded in the
fourth quarter of 2008. Both facilities were closed in the first quarter
of 2009.
|
|
·
|
Solution
vinyl resin manufacturing facilities in Texas City, Texas. A
$26 million write-down of the net book value of the related
buildings, machinery and equipment against the Performance Products
segment was recorded in the fourth quarter of 2008. This plant was shut
down in the third quarter of 2009.
|
|
·
|
Perchloroethylene/carbon
tetrachloride manufacturing facility in Aratu, Brazil. An $11 million
write-off of the net book value of the related buildings, machinery and
equipment against the Basic Chemicals segment was recorded in the fourth
quarter of 2008. This facility is expected to be shut down by the end of
the first quarter of 2010.
|
|
·
|
In
addition to the locations described above, the restructuring charges for
plant closures included $26 million related to the shutdown of
several small production
facilities.
|
|
·
|
The
Company decided in the fourth quarter of 2008 to pursue strategic
alternatives regarding its Wilton, England, ethylene oxide/ethylene glycol
(“EO/EG”) plant. Based on the results of asset impairment testing, an
impairment charge of $30 million against the Basic Chemicals segment
was recorded in the fourth quarter of 2008. The plant was shut down in
January 2010.
|
|
·
|
Due
to an expected loss on the pending sale of the automotive sealants
business in Europe, an impairment charge of $8 million against the
Performance Systems segment was recorded in the fourth quarter of 2008.
The business was sold in the first quarter of
2009.
|
|
·
|
Due
to a change in scope, the Company’s investment (primarily engineering
costs) in a project to form a joint venture to design, build and operate a
petrochemical complex in Oman was written down. An $83 million
write-down of the project-related spending against the Basic Plastics
segment was recorded in the fourth quarter of
2008.
|
The
restructuring charges in the fourth quarter of 2008 also included the write-off
of capital project spending ($13 million); spare parts ($9 million)
and catalysts ($6 million) associated with plant closures; other assets
($5 million); as well as a loss on the sale of inventory ($15 million)
associated with the divestiture of the automotive sealants business in Europe.
These write-offs were related to the businesses involved in the shutdown of
assets and were therefore reflected in the results of various operating
segments.
Costs
Associated with Exit or Disposal Activities
The
restructuring charges for costs associated with exit or disposal activities
totaled $128 million in 2008 and included pension curtailment costs and
termination benefits of $88 million reflected in Corporate; and
environmental remediation and asbestos abatement of $40 million primarily
impacting Basic Chemicals and Corporate.
Severance
Costs
As
a result of the Company’s decision to shut down assets around the world and
implement a global workforce reduction, the restructuring charges included
severance of $321 million for the separation of approximately
3,000 employees under the terms of Dow’s ongoing benefit arrangements,
primarily over the next two years. These costs were charged against Corporate.
In the first quarter 2009, the Company increased the severance reserve by
$19 million, including approximately 500 additional employees. At
December 31, 2009, severance of approximately $289 million had been
paid and a currency adjusted liability of $53 million remained for
approximately 293 employees.
The
following table summarizes the activities related to the Company’s restructuring
reserve:
2008
Restructuring Activities
In
millions
|
|
Impairment
of Long-Lived Assets and Other Assets
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Restructuring
charges recognized in the fourth quarter of 2008
|
|
$ |
336 |
|
|
$ |
128 |
|
|
$ |
321 |
|
|
$ |
785 |
|
Cash
payments
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
(2 |
) |
Charges
against reserve
|
|
|
(336 |
) |
|
|
- |
|
|
|
- |
|
|
|
(336 |
) |
Reserve
balance at December 31, 2008
|
|
|
- |
|
|
$ |
128 |
|
|
$ |
319 |
|
|
$ |
447 |
|
Adjustment
to reserve
|
|
|
- |
|
|
|
- |
|
|
|
19 |
|
|
|
19 |
|
Cash
payments
|
|
|
- |
|
|
|
- |
|
|
|
(287 |
) |
|
|
(287 |
) |
Foreign
currency impact
|
|
|
- |
|
|
|
7 |
|
|
|
2 |
|
|
|
9 |
|
Reserve
balance at December 31, 2009
|
|
|
- |
|
|
$ |
135 |
|
|
$ |
53 |
|
|
$ |
188 |
|
2007
Restructuring
On
December 3, 2007, the Company’s Board of Directors approved a restructuring plan
that included the shutdown of a number of assets and organizational changes
within targeted support functions to improve the efficiency and cost
effectiveness of the Company’s global operations. As a result of these shutdowns
and organizational changes, which were substantially complete at year-end 2009,
the Company recorded pretax restructuring charges totaling $590 million in
the fourth quarter of 2007. The charges consisted of asset write-downs and
write-offs of $422 million, costs associated with exit or disposal
activities of $82 million and severance costs of $86 million. The
impact of the charges is shown as “Restructuring charges” in the consolidated
statements of income and was reflected in the Company’s segment results as shown
in the following table, which also reflects adjustments made in 2007 to the 2006
restructuring charges.
2007
Restructuring Charges by Operating Segment
|
|
In
millions
|
|
Impairment
of Long-Lived Assets, Other Intangible Assets and Equity
Investments
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Electronic
and Specialty Materials
|
|
$ |
25 |
|
|
$ |
2 |
|
|
|
- |
|
|
$ |
27 |
|
Coatings
and Infrastructure
|
|
|
19 |
|
|
|
1 |
|
|
|
- |
|
|
|
20 |
|
Health
and Agricultural Sciences
|
|
|
58 |
|
|
|
19 |
|
|
|
- |
|
|
|
77 |
|
Performance
Systems
|
|
|
123 |
|
|
|
32 |
|
|
|
- |
|
|
|
155 |
|
Performance
Products
|
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
|
59 |
|
Basic
Plastics
|
|
|
96 |
|
|
|
- |
|
|
|
- |
|
|
|
96 |
|
Basic
Chemicals
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
Hydrocarbons
and Energy
|
|
|
31 |
|
|
|
13 |
|
|
|
- |
|
|
|
44 |
|
Corporate
|
|
|
4 |
|
|
|
15 |
|
|
$ |
86 |
|
|
|
105 |
|
Total
2007 restructuring charges
|
|
$ |
422 |
|
|
$ |
82 |
|
|
$ |
86 |
|
|
$ |
590 |
|
Adjustments
to 2006 restructuring charge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Products
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
(4 |
) |
Corporate
|
|
|
- |
|
|
|
- |
|
|
|
(8 |
) |
|
|
(8 |
) |
Net
2007 restructuring charges
|
|
$ |
422 |
|
|
$ |
78 |
|
|
$ |
78 |
|
|
$ |
578 |
|
Details
regarding the components of the 2007 restructuring charges are discussed
below:
Impairment
of Long-Lived Assets, Other Intangible Assets and Equity
Investments
The
restructuring charges related to the write-down or write-off of assets and
equity investments in 2007 totaled $422 million and included the impact of
plant closures and impairments of $273 million. The most significant plant
write-downs affected Dow’s facilities located in Lauterbourg, France; Camaçari,
Brazil; Aratu, Brazil; Tarragona, Spain; Hahnville, Louisiana; and Berre,
France; and assets related to the exit of the automotive sealants business in
North America, Latin America and Asia Pacific. Details regarding these
write-downs are as follows:
|
·
|
Due
to overcapacity within the industry, a disadvantaged cost position and
increasing pressure from generic suppliers, the Company launched an
information/consultation process with local employee representatives on a
closure project in the fourth quarter of 2007 and recorded an asset
impairment charge related to its agricultural products manufacturing site
located in Lauterbourg, France. Upon completion of the
information/consultation process, the plant was shut down in the fourth
quarter of 2008. A $44 million write-down of the net book value of
the related buildings, machinery and equipment against the Health and
Agricultural Sciences segment was recorded in the fourth quarter of
2007.
|
|
·
|
The
Company evaluated the economic and financial feasibility of its styrene
plant in Camaçari, Brazil, and due to raw material competitiveness, the
age of the facility, as well as the ready availability of styrene within
the global marketplace, the Company idled the facility in the fourth
quarter of 2007 and recorded a $14 million write-down of the net book
value of the related buildings, machinery and equipment against the
Hydrocarbons and Energy segment. The assets were sold in the fourth
quarter of 2009.
|
|
·
|
The
Company decided to close its hydroxyethyl cellulose manufacturing facility
located in Aratu, Brazil, due to a number of factors, including capacity
limitations, high structural and raw material costs, and older technology.
A $12 million write-down of the net book value of the related
buildings, machinery and equipment was recorded against the Electronic and
Specialty Materials segment in the fourth quarter of 2007. The facility
was shut down in the first quarter of
2008.
|
|
·
|
The
Company determined that the operating costs of its fiber solution
manufacturing plant in Tarragona, Spain, could not be sustained. The
Company is continuing to evaluate more economically viable alternative
manufacturing options. As a result, the Company recorded a
$29 million impairment write-down of the net book value of the
related buildings, machinery and equipment against the Performance Systems
segment in the fourth quarter of
2007.
|
|
·
|
Due
to a number of factors, including the inability to secure an economically
sustainable source of propylene and the use of older technologies at the
plant, Union Carbide decided in the fourth quarter of 2007 to shut down
its polypropylene facility at St. Charles Operations in Hahnville,
Louisiana. As a result of the decision, a $23 million write-down of
the net book value of the related buildings, machinery and equipment was
recorded against the Basic Plastics segment in the fourth quarter of 2007.
The plant was shut down in the first quarter of
2008.
|
|
·
|
The
Company determined that it would not be possible to renegotiate an
economically viable contract manufacturing agreement to continue the
operations of the rubber plant located in Berre, France. A
$27 million impairment write-down of the net book value of the
related buildings, machinery and equipment was recorded against the
Performance Systems segment in the fourth quarter of 2007. The plant was
shut down in the second quarter of
2008.
|
|
·
|
The
Company assessed the long-term profitability of its participation in the
automotive sealants business and determined that the projected results are
inconsistent with the financial performance expected of a market-facing
business. As a result, in the fourth quarter of 2007, the Company made the
decision to exit the automotive sealants business in North America, Asia
Pacific and Latin America by mid-2009, which was completed in 2009. The
business explored strategic options within Europe and decided in the
fourth quarter of 2008 to divest the automotive sealants business within
Europe. A $58 million write-down of the net book value of the related
buildings, machinery and equipment against the Performance Systems segment
was recorded in the fourth quarter of
2007.
|
In
addition to the write-downs described above, the restructuring charges for plant
closures included $66 million related to the shutdown of several small
production facilities and the closure of certain storage wells in
Canada.
The
restructuring charges in the fourth quarter of 2007 also included the write-down
of investments in nonconsolidated affiliates of $99 million. The most
significant write-downs were related to the Company’s investment in Pétromont
and Company, Limited Partnership (“Pétromont”) and Dow Reichhold Specialty Latex
LLC. Details regarding these write-downs are as follows:
|
·
|
Due
to an unfavorable financial outlook, reflecting significant long-term
economic challenges, the Company determined in the fourth quarter of 2007
that its equity investment in Pétromont, a 50 percent owned company,
was other-than-temporarily impaired and recorded a $46 million
write-down of its interest in Pétromont against the Basic Plastics
segment. In the fourth quarter of 2008, the joint venture announced the
permanent shutdown of its operations. As a result of this announcement,
the Company recorded an additional charge of $50 million in the
fourth quarter of 2008.
|
|
·
|
Due
to the loss of a significant portion of business and the lack of
replacement business opportunities, the Company determined its equity
investment in Dow Reichhold Specialty Latex LLC, a 50:50 joint venture, to
be other-than-temporarily impaired and recorded a $42 million
write-down of its interest in Dow Reichhold Specialty Latex LLC against
the Performance Products segment in the fourth quarter of 2007. An
agreement was reached in the third quarter of 2008 to end the Company’s
involvement in the joint venture.
|
In
addition to the write-downs described above, the restructuring charges for
investments in nonconsolidated affiliates included $11 million related to
the dissolution of two smaller joint ventures.
The
restructuring charges in the fourth quarter of 2007 also included the write-off
of capital project spending ($37 million); and trademarks and patents
($2 million), which the Company determined to be of no further value; as
well as spare parts and catalysts ($11 million) associated with the plant
closures. These write-offs were principally related to the businesses involved
in the shutdown of assets and were therefore reflected in the results of various
operating segments.
Costs
Associated with Exit or Disposal Activities
The
restructuring charges for costs associated with exit or disposal activities
totaled $82 million in 2007 and included contract termination fees of
$53 million, pension curtailment costs and termination benefits of
$15 million, environmental remediation of $7 million and
$7 million of other related costs. In the fourth quarter of 2008, an
additional $5 million was recorded for environmental remediation and
reflected in Corporate.
Contract
termination fees of $53 million represented the Company’s best estimate of
the fair value to negotiate the settlement of the early cancellation of several
service and supply agreements principally related to the shutdown of
manufacturing assets within the Performance Systems and Health and Agricultural
Sciences segments. In the fourth quarter of 2008, based on negotiated
settlements related to contract termination fees, the contract termination fees
associated with the 2007 restructuring charge were increased $5 million and
reflected in the Performance Systems ($2 million) and Health and
Agricultural Sciences ($3 million) segments.
In
the second quarter of 2009, the Company reduced the reserve related to contract
termination fees by $15 million as a result of the Company’s acquisition of
Rohm and Haas, impacting the Health and Agricultural Sciences segment. The
initial liability established in 2007 included contract termination fees related
to the cancellation of contract manufacturing agreements between the Company and
Rohm and Haas. Following completion of the acquisition, the liability for these
fees was reversed.
Severance
Costs
As
a result of the Company’s decision to shut down assets around the world, and
complete other workforce optimization activities, the restructuring charges
recorded in 2007 included severance of $86 million for the separation of
approximately 978 employees under the terms of Dow’s ongoing benefit
arrangements, primarily over two years. These costs were charged against
Corporate. At December 31, 2007, severance of approximately $1 million
had been paid to 12 employees and a liability of $85 million remained
for approximately 966 employees. During 2008, severance of $47 million was
paid to 439 employees, bringing the total payments against the program to
$48 million paid to 451 employees. At December 31, 2008, a
currency adjusted liability of $37 million remained for approximately
527 employees. In the fourth quarter of 2009, the Company reduced the
severance reserve by $5 million as redeployment opportunities for affected
employees were identified. During 2009, severance of $23 million was paid,
bringing the total payments against the program to $71 million. At
December 31, 2009, a currency adjusted liability of $9 million
remained for approximately 124 employees, with anticipated departure dates
primarily in the first quarter of 2010.
The
following table summarizes the activities related to the Company’s restructuring
reserve:
2007
Restructuring Activities
In
millions
|
|
Impairment
of Long-Lived Assets, Other Intangible Assets and Equity
Investments
|
|
|
Costs
associated with Exit or Disposal Activities
|
|
|
Severance
Costs
|
|
|
Total
|
|
Restructuring
charges recognized in the fourth quarter of 2007
|
|
$ |
422 |
|
|
$ |
82 |
|
|
$ |
86 |
|
|
$ |
590 |
|
Cash
payments
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
(1 |
) |
Charges
against reserve
|
|
|
(422 |
) |
|
|
(3 |
) |
|
|
- |
|
|
|
(425 |
) |
Reserve
balance at December 31, 2007
|
|
|
- |
|
|
$ |
79 |
|
|
$ |
85 |
|
|
$ |
164 |
|
Adjustments
to reserve
|
|
$ |
30 |
|
|
|
30 |
|
|
|
- |
|
|
|
60 |
|
Cash
payments
|
|
|
- |
|
|
|
(7 |
) |
|
|
(47 |
) |
|
|
(54 |
) |
Charges
against reserve
|
|
|
(30 |
) |
|
|
- |
|
|
|
- |
|
|
|
(30 |
) |
Foreign
currency impact
|
|
|
- |
|
|
|
(9 |
) |
|
|
(1 |
) |
|
|
(10 |
) |
Reserve
balance at December 31, 2008
|
|
|
- |
|
|
$ |
93 |
|
|
$ |
37 |
|
|
$ |
130 |
|
Adjustments
to reserve
|
|
|
- |
|
|
|
(15 |
) |
|
|
(5 |
) |
|
|
(20 |
) |
Cash
payments
|
|
|
- |
|
|
|
(38 |
) |
|
|
(23 |
) |
|
|
(61 |
) |
Foreign
currency impact
|
|
|
- |
|
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
Reserve
balance at December 31, 2009
|
|
|
- |
|
|
$ |
51 |
|
|
$ |
9 |
|
|
$ |
60 |
|
The
shutdowns and optimization activities related to the 2007 restructuring plan
were substantially complete in 2009, with remaining liabilities primarily
related to environmental remediation and pension to be paid over
time.
NOTE
D – ACQUISITIONS
Acquisition
of Rohm and Haas
On
April 1, 2009, the Company completed the acquisition of Rohm and Haas.
Pursuant to the July 10, 2008 Agreement and Plan of Merger (the “Merger
Agreement”), Ramses Acquisition Corp., a direct wholly owned subsidiary of the
Company, merged with and into Rohm and Haas (the “Merger”), with Rohm and Haas
continuing as the surviving corporation and becoming a direct wholly owned
subsidiary of the Company.
The
Company pursued the acquisition of Rohm and Haas to make the Company a leading
specialty chemicals and advanced materials company, combining the two
organizations’ best-in-class technologies, broad geographic reach and strong
industry channels to create a business portfolio with significant growth
opportunities.
Pursuant
to the terms and conditions of the Merger Agreement, each outstanding share of
Rohm and Haas common stock was converted into the right to receive cash of
$78 per share, plus additional cash consideration of $0.97 per share. The
additional cash consideration represented 8 percent per annum on the
$78 per share consideration from January 10, 2009 to the closing of
the Merger, less dividends declared by Rohm and Haas with a dividend record date
between January 10, 2009 and the closing of the Merger. All options to
purchase shares of common stock of Rohm and Haas granted under the Rohm and Haas
stock option plans and all other Rohm and Haas equity-based compensation awards,
whether vested or unvested as of April 1, 2009, became fully vested and
converted into the right to receive cash of $78.97 per share, less any
applicable exercise price. Total cash consideration paid to Rohm and Haas
shareholders was $15,681 million. As part of the purchase price,
$552 million in cash was paid to the Rohm and Haas Company Employee Stock
Ownership Plan (“Rohm and Haas ESOP”) on April 1, 2009 for 7.0 million
shares of Rohm and Haas common stock held by the Rohm and Haas
ESOP.
As
a condition of the FTC’s approval of the Merger, the Company is required to
divest a portion of its acrylic monomer business, a portion of its specialty
latex business and its hollow sphere particle business. Total net sales and cost
of sales for these businesses amounted to approximately one percent of the
Company’s 2008 net sales and cost of sales. The sale of the required portion of
the acrylic monomer business and the required portion of the specialty latex
business was completed on January 25, 2010 (see Note E).
The
following table provides net sales and results of operations from the Rohm and
Haas acquired businesses included in the Company’s results since the
April 1, 2009 acquisition. Included in the results from Rohm and Haas was
$257 million of restructuring charges (see Note C for information
regarding the Company’s 2009 restructuring activities), a one-time increase in
cost of sales of $209 million related to the fair value step-up of
inventories acquired from Rohm and Haas and sold in the second quarter of 2009
and a pretax loss of $56 million on the early extinguishment of
debt.
Rohm
and Haas Results of Operations
In
millions
|
|
April 1
- Dec. 31, 2009
|
|
Net
sales
|
|
$ |
5,599 |
|
Loss
from Continuing Operations Before Income Taxes
|
|
$ |
(134 |
) |
The
following table provides pro forma net sales and results of operations for the
years ended December 31, 2009 and December 31, 2008, as if Rohm and
Haas had been acquired on January 1 of each year. The unaudited pro forma
results reflect certain adjustments related to the acquisition, such as
increased depreciation and amortization expense on assets acquired from Rohm and
Haas resulting from the fair valuation of assets acquired and the impact of
acquisition financing in place at December 31, 2009. The pro forma results
do not include any anticipated cost synergies or other effects of the planned
integration of Rohm and Haas. Accordingly, such pro forma amounts are not
necessarily indicative of the results that actually would have occurred had the
acquisition been completed on the dates indicated, nor are they indicative of
the future operating results of the combined company.
Pro
Forma Results of Operations
In
millions, except per share amounts
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
45,853 |
|
|
$ |
65,704 |
|
Net
income (loss) available for The Dow Chemical Company common
stockholders
|
|
$ |
(501 |
) |
|
$ |
(317 |
) |
Earnings
(Loss) per common share - diluted
|
|
$ |
(0.45 |
) |
|
$ |
(0.29 |
) |
The
following table summarizes the fair values of the assets acquired and
liabilities assumed from Rohm and Haas on April 1, 2009. Since the
acquisition, net adjustments of $244 million were made to the fair values
of the assets acquired and liabilities assumed with a corresponding adjustment
to goodwill. These adjustments are reflected in the values presented below. The
valuation process is not complete. Final determination of the fair values may
result in further adjustments to the values presented below.
Assets
Acquired and Liabilities Assumed on April 1, 2009
In
millions
|
|
Initial
Valuation
|
|
|
Net
Adjustments to Fair Value
|
|
|
As
Adjusted
|
|
Purchase
Price
|
|
$ |
15,681 |
|
|
|
- |
|
|
$ |
15,681 |
|
Fair
Value of Assets Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
2,710 |
|
|
|
- |
|
|
$ |
2,710 |
|
Property
|
|
|
3,930 |
|
|
$ |
(138 |
) |
|
|
3,792 |
|
Other
intangible assets (1)
|
|
|
4,475 |
|
|
|
830 |
|
|
|
5,305 |
|
Other
assets
|
|
|
1,288 |
|
|
|
32 |
|
|
|
1,320 |
|
Net
assets of the Salt business (2)
|
|
|
1,475 |
|
|
|
(167 |
) |
|
|
1,308 |
|
Total
Assets Acquired
|
|
$ |
13,878 |
|
|
$ |
557 |
|
|
$ |
14,435 |
|
Fair
Value of Liabilities and Noncontrolling Interests Assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$ |
1,218 |
|
|
$ |
(11 |
) |
|
$ |
1,207 |
|
Long-term
debt
|
|
|
2,528 |
|
|
|
13 |
|
|
|
2,541 |
|
Accrued
and other liabilities and noncontrolling interests
|
|
|
702 |
|
|
|
- |
|
|
|
702 |
|
Pension
benefits
|
|
|
1,119 |
|
|
|
- |
|
|
|
1,119 |
|
Deferred
tax liabilities – noncurrent
|
|
|
2,482 |
|
|
|
311 |
|
|
|
2,793 |
|
Total
Liabilities and Noncontrolling Interests Assumed
|
|
$ |
8,049 |
|
|
|
313 |
|
|
$ |
8,362 |
|
Goodwill
(1)
|
|
$ |
9,852 |
|
|
$ |
(244 |
) |
|
$ |
9,608 |
|
(1)
|
See Note I for additional
information.
|
(2)
|
Morton International, Inc.; see
Note E.
|
The
fair value of receivables acquired from Rohm and Haas on April 1, 2009 (net of
the Salt business) was $1,001 million, with gross contractual amounts
receivable of $1,048 million. Liabilities assumed from Rohm and Haas on
April 1, 2009 included certain contingent environmental liabilities valued
at $159 million and a liability of $185 million related to Rohm and
Haas Pension Plan matters (see Note N), which were valued in accordance
with the accounting guidance for contingencies. Operating loss carryforwards of
$2,189 million were acquired from Rohm and Haas on April 1, 2009,
$137 million of which were subject to expiration in 2009 through
2013.
The
following table summarizes the major classes of assets and liabilities
underlying the deferred tax liabilities resulting from the acquisition of Rohm
and Haas:
Deferred
Tax Liabilities Assumed on April 1, 2009
In
millions
|
|
As
Adjusted
|
|
Intangible
assets
|
|
$ |
1,491 |
|
Property
|
|
|
475 |
|
Long-term
debt
|
|
|
233 |
|
Inventory
|
|
|
80 |
|
Other
accruals and reserves
|
|
|
514 |
|
Total
Deferred Tax Liabilities
|
|
$ |
2,793 |
|
The
acquisition resulted in the recognition of $9,608 million of goodwill,
which is not deductible for tax purposes. See Note I for further
information on goodwill, including the allocation by segment.
Goodwill
largely consists of expected synergies resulting from the acquisition. Key areas
of cost savings include increased purchasing power for raw materials;
manufacturing and supply chain work process improvements; and the elimination of
redundant corporate overhead for shared services and governance. The Company
also anticipates that the transaction will produce significant growth synergies
through the application of each company’s innovative technologies and through
the combined businesses’ broader product portfolio in key industry segments with
strong global growth rates.
Financing
for the Rohm and Haas Acquisition
Financing
for the acquisition of Rohm and Haas included debt and equity financing (see
Notes O, V and W).
Rohm
and Haas Acquisition and Integration Related Expenses
During
2009, pretax charges totaling $166 million ($49 million during 2008)
were recorded for legal expenses and other transaction and integration costs
related to the April 1, 2009 acquisition of Rohm and Haas. These charges,
which were expensed in accordance with the accounting guidance for business
combinations, were recorded in “Acquisition and integration related expenses”
and reflected in Corporate. An additional $60 million of
acquisition-related retention expenses were incurred during 2009 and recorded in
“Cost of sales,” “Research and development expenses,” and “Selling, general and
administrative expenses” and reflected in Corporate.
Acquisition
of Wolff Walsrode
Consistent
with the Company’s strategy to invest in its Performance businesses, the Company
announced on December 18, 2006, that it had reached an agreement with the
Bayer Group to acquire Wolff Walsrode AG and certain related affiliates and
assets (“Wolff Walsrode”), subject to regulatory approval. Wolff Walsrode,
headquartered in Bomlitz, Germany, specializes in cellulose derivatives, food
casings and site services. Following approval from the European Commission on
June 20, 2007, Dow acquired Wolff Walsrode on June 30, 2007 for a cash
purchase price of approximately $603 million.
The
Company evaluated the materiality of assets acquired, liabilities assumed and
results of operations, individually and in the aggregate at June 30, 2007,
and concluded that such assets, liabilities and results of operations were not
material to the consolidated financial statements.
The
results of Wolff Walsrode’s operations were reflected in the Company’s
consolidated income statements beginning in the third quarter of 2007, primarily
in the Electronic and Specialty Materials segment.
Purchased
In-Process Research and Development
Purchased
in-process research and development (“IPR&D”) represents the value assigned
in a business combination to acquired research and development projects that, as
of the date of the acquisition, had not established technological feasibility
and had no alternative future use. Prior to January 1, 2009, amounts
assigned to IPR&D meeting these criteria were charged to expense as part of
the allocation of the purchase price of the business combination. With the
adoption of ASC Topic 805, “Business Combinations,” on January 1,
2009, IPR&D acquired in a business combination is capitalized and tested for
impairment annually.
The
Company recorded pretax charges totaling $7 million in 2009 for IPR&D
projects associated with the purchase of technology that was not part of a
business combination. The Company recorded pretax charges totaling
$44 million in 2008 and $57 million in 2007 for IPR&D projects
associated with several acquisitions. The estimated values assigned to the
IPR&D projects were determined primarily based on a discounted cash flow
model and are shown below:
In-Process
Research and Development Projects Acquired
In
millions
|
Date
of Acquisition
|
|
Estimated
Value Assigned to IPR&D
|
|
2009
|
|
|
|
|
Lithium
ion battery technology purchase
|
October
30, 2009
|
|
$ |
7 |
|
2008
|
|
|
|
|
|
Germplasm
from Triumph Seed Co., Inc.
|
February
29, 2008
|
|
$ |
4 |
|
Germplasm
from Dairyland Seed Co., Inc. and Bio-Plant Research Ltd.
|
August
29, 2008
|
|
|
23 |
|
Germplasm
from Südwestsaat GbR
|
December 16,
2008
|
|
|
17 |
|
Total
2008 IPR&D
|
|
|
$ |
44 |
|
2007
|
|
|
|
|
|
Germplasm
from Maize Technologies International
|
May
1, 2007
|
|
$ |
2 |
|
Manufacturing
process R&D from Wolff Walsrode
|
June
30, 2007
|
|
|
7 |
|
Germplasm
from Agromen Tecnologia Ltda.
|
August
1, 2007
|
|
|
26 |
|
Germplasm
from Duo Maize
|
August
30, 2007
|
|
|
3 |
|
Intellectual
property for crop trait discovery from Exelixis Plant
Sciences
|
September
4, 2007
|
|
|
19 |
|
Total
2007 IPR&D
|
|
|
$ |
57 |
|
The
IPR&D charges outlined above are shown as “Purchased in-process research and
development charges” in the consolidated statements of income. The 2009
IPR&D charges related to a technology purchase for projects within the
Ventures business, impacting Corporate. The 2008 IPR&D charges were related
to projects within the Health and Agricultural Sciences segment. In 2007,
IPR&D charges of $50 million related to projects within the Health and
Agricultural Sciences segment; $7 million related to IPR&D acquired
from Wolff Walsrode and impacted the results for the Electronic and Specialty
Materials segment.
NOTE
E – DIVESTITURES
Divestiture
of the Rohm and Haas Salt Business
On
April 1, 2009, the Company announced the entry into a definitive agreement
to sell the stock of Morton International, Inc. (“Morton”), the Salt business of
Rohm and Haas, to K+S Aktiengesellschaft (“K+S”). On October 1, 2009, the
Company completed the divestiture of its interest in Morton to K+S and received
net proceeds of $1,576 million, with proceeds subject to customary
post-closing adjustments. As a result, the Company recognized a pretax
$37 million gain on the sale in the fourth quarter of 2009, included in
“Sundry income –net.” One billion dollars in proceeds from this transaction were
used to pay off the Term Loan Agreement used to fund the acquisition of Rohm and
Haas (see Note O). The results of operations for the Salt business were
reported in Corporate and were not material to the consolidated financial
statements.
Salt
Business Assets and Liabilities Divested
In
millions
|
|
At
Oct. 1, 2009
|
|
Current
assets
|
|
$ |
374 |
|
Property
|
|
|
434 |
|
Other
intangible assets
|
|
|
1,151 |
|
Deferred
charges and other assets
|
|
|
102 |
|
Assets
divested
|
|
$ |
2,061 |
|
Current
liabilities
|
|
$ |
124 |
|
Deferred
income tax liabilities - noncurrent
|
|
|
311 |
|
Pension
and other post retirement benefits
|
|
|
89 |
|
Other
noncurrent obligations
|
|
|
14 |
|
Liabilities
divested
|
|
$ |
538 |
|
Divestiture
of the Calcium Chloride Business
On
June 30, 2009, the Company completed the sale of the Calcium Chloride
business for net proceeds of $204 million and recognized a pretax gain of
$162 million. The results of the Calcium Chloride business, including the
second quarter of 2009 gain on the sale, are reflected as “Income from
discontinued operations, net of income taxes (benefit)” in the consolidated
statements of income for all periods presented.
The
following table presents the results of discontinued operations:
Discontinued
Operations
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
70 |
|
|
$ |
153 |
|
|
$ |
138 |
|
Income
before income taxes
|
|
$ |
175 |
|
|
$ |
44 |
|
|
$ |
37 |
|
Provision
for income taxes
|
|
$ |
65 |
|
|
$ |
16 |
|
|
$ |
14 |
|
Income
from discontinued operations, net of income taxes
|
|
$ |
110 |
|
|
$ |
28 |
|
|
$ |
23 |
|
Divestiture
of Investments in Nonconsolidated Affiliates
On
September 1, 2009, the Company completed the sale of its ownership interest
in Total Raffinaderij Nederland N.V. (“TRN”), a nonconsolidated affiliate, and
related inventory to Total S.A. for $742 million. This sale resulted in a
pretax net gain of $457 million, which consisted of a gain of
$513 million reflected in “Sundry income – net” and a charge of
$56 million related to the recognition of hedging losses which were
recorded to “Cost of sales.”
On
September 30, 2009 the Company completed the sale of its ownership interest
in the OPTIMAL Group of Companies (“OPTIMAL”), nonconsolidated affiliates, for
net proceeds $660 million to Petroliam Nasional Berhad. This sale resulted
in a pretax gain of $339 million included in “Sundry income
–net.”
Net
proceeds from these divestitures were used to pay down debt.
Subsequent
Event
On
July 31, 2009, the Company entered into a definitive agreement that
included the sale of a portion of its acrylic monomer business and a portion of
its specialty latex business as required as a condition of the FTC’s approval of
the Company’s acquisition of Rohm and Haas (see Note D). As a consequence,
an impairment charge of $205 million for these assets was recognized in the
second quarter of 2009 restructuring charge (see Note C). The sale was
completed on January 25, 2010 and the impact of this sale is not expected
to be material to the Company’s consolidated financial statements.
NOTE
F – INVENTORIES
The
following table provides a breakdown of inventories:
Inventories
at December 31
In
millions
|
|
2009
|
|
|
2008
|
|
Finished
goods
|
|
$ |
3,887 |
|
|
$ |
3,351 |
|
Work
in process
|
|
|
1,593 |
|
|
|
1,217 |
|
Raw
materials
|
|
|
671 |
|
|
|
830 |
|
Supplies
|
|
|
696 |
|
|
|
638 |
|
Total
inventories
|
|
$ |
6,847 |
|
|
$ |
6,036 |
|
The
reserves reducing inventories from a FIFO basis to a LIFO basis amounted to
$818 million at December 31, 2009 and $627 million at
December 31, 2008. Inventories valued on a LIFO basis, principally
hydrocarbon and U.S. chemicals and plastics product inventories, represented
29 percent of the total inventories at December 31, 2009 and
32 percent of the total inventories at December 31, 2008.
A
reduction of certain inventories resulted in the liquidation of some of the
Company’s LIFO inventory layers, increasing pretax income $84 million in
2009, decreasing pretax income $45 million in 2008 and increasing pretax
income $321 million in 2007.
NOTE
G – PROPERTY
Property
at December 31
|
|
Estimated
|
|
|
|
|
|
|
|
In
millions
|
|
Useful
Lives
(Years)
|
|
|
2009
|
|
|
2008
|
|
Land
|
|
|
- |
|
|
$ |
942 |
|
|
$ |
590 |
|
Land
and waterway improvements
|
|
|
15-25 |
|
|
|
1,342 |
|
|
|
1,308 |
|
Buildings
|
|
|
5-55 |
|
|
|
4,811 |
|
|
|
3,700 |
|
Machinery
and equipment
|
|
|
3-20 |
|
|
|
39,983 |
|
|
|
36,285 |
|
Utility
and supply lines
|
|
|
5-20 |
|
|
|
2,306 |
|
|
|
2,248 |
|
Other
property
|
|
|
3-30 |
|
|
|
2,170 |
|
|
|
2,166 |
|
Construction
in progress
|
|
|
- |
|
|
|
2,013 |
|
|
|
2,094 |
|
Total
property
|
|
|
|
|
|
$ |
53,567 |
|
|
$ |
48,391 |
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Depreciation
expense
|
|
$ |
2,291 |
|
|
$ |
2,016 |
|
|
$ |
1,959 |
|
Manufacturing
maintenance and repair costs
|
|
$ |
1,473 |
|
|
$ |
1,622 |
|
|
$ |
1,482 |
|
Capitalized
interest
|
|
$ |
61 |
|
|
$ |
97 |
|
|
$ |
85 |
|
NOTE
H – NONCONSOLIDATED AFFILIATES AND RELATED COMPANY TRANSACTIONS
The
Company’s investments in related companies accounted for using the equity method
(“nonconsolidated affiliates”) were $3,224 million at December 31,
2009 and $3,204 million at December 31, 2008. At December 31,
2009, the carrying amount of the Company’s investments in nonconsolidated
affiliates was $52 million more than its share of the investees’ net
assets, exclusive of additional differences for Dow Corning Corporation (“Dow
Corning”), MEGlobal, Equipolymers and Americas Styrenics LLC, which are
discussed separately below. This difference was $90 million at
December 31, 2008. Dividends received from the Company’s nonconsolidated
affiliates were $690 million in 2009, $836 million in 2008 and
$774 million in 2007.
On
May 15, 1995, Dow Corning, in which the Company is a 50 percent
shareholder, voluntarily filed for protection under Chapter 11 of the U.S.
Bankruptcy Code (see Note N). As a result, the Company fully reserved its
investment in Dow Corning and reserved its 50 percent share of equity
earnings from that time through the third quarter of 2000. In November 2000,
following affirmation of the Bankruptcy Court’s order confirming the Joint Plan
of Reorganization (the “Joint Plan”), the Company reviewed the value of its
investment in Dow Corning, revised its assessment of the recoverability of its
investment, and determined that it had adequately provided for the
other-than-temporary decline associated with the bankruptcy. On June 1,
2004, Dow Corning’s Joint Plan became effective and Dow Corning emerged from
bankruptcy. Since May 1995, a difference between the Company’s 50 percent
share of the underlying equity of Dow Corning and the carrying value of this
investment has existed. The Company considers the difference to be permanent.
The Company’s investment in Dow Corning was $227 million less than the
Company’s proportionate share of Dow Corning’s underlying net assets at
December 31, 2009 and December 31, 2008.
At
December 31, 2009, the Company’s investment in MEGlobal was
$257 million less than the Company’s proportionate share of MEGlobal’s
underlying net assets ($265 million less at December 31, 2008). This
amount represents the difference between the value of certain assets of the
joint venture and the Company’s related valuation on a U.S. GAAP basis, of which
$67 million is being amortized over the remaining useful lives of the
assets and $190 million represents the Company’s share of the joint
venture’s goodwill.
At
December 31, 2009, the Company’s investment in Equipolymers was
$8 million less than the Company’s proportionate share of Equipolymers’
underlying net assets ($9 million less at December 31, 2008). This
amount represents the difference between the value of certain assets of the
joint venture and the Company’s related valuation on a U.S. GAAP basis, all of
which is being amortized over the remaining useful lives of the assets. In the
fourth quarter of 2009, the Company recognized an impairment loss of
$65 million related to its investment in Equipolymers.
At
December 31, 2009, the Company’s investment in Americas Styrenics LLC was
$136 million less than the Company’s proportionate share of Americas
Styrenics LLC’s underlying net assets ($150 million less at
December 31, 2008). This amount represents the difference between the book
value of assets contributed to the joint venture by the Company at the time of
formation (May 1, 2008) and the Company’s 50 percent share of the
total recorded value of the joint venture’s assets. This difference is being
amortized over the remaining useful lives of the assets.
All
of the nonconsolidated affiliates in which the Company has investments are
privately held companies; therefore, quoted market prices are not
available.
See
Note E for information regarding the divestiture of the Company’s
investment in two nonconsolidated affiliates in 2009.
Principal
Nonconsolidated Affiliates
Dow’s
principal nonconsolidated affiliates and the Company’s direct or indirect
ownership interest for each at December 31, 2009, 2008 and 2007 are as
follows:
Principal
Nonconsolidated Affiliates at December 31
|
|
Ownership
Interest
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Americas
Styrenics LLC
|
|
|
50 |
% |
|
|
50 |
% |
|
|
- |
|
Compañía
Mega S.A.
|
|
|
28 |
% |
|
|
28 |
% |
|
|
28 |
% |
Dow
Corning Corporation
|
|
|
50 |
% |
|
|
50 |
% |
|
|
50 |
% |
EQUATE
Petrochemical Company K.S.C.
|
|
|
42.5 |
% |
|
|
42.5 |
% |
|
|
42.5 |
% |
Equipolymers
|
|
|
50 |
% |
|
|
50 |
% |
|
|
50 |
% |
The
Kuwait Olefins Company K.S.C.
|
|
|
42.5 |
% |
|
|
42.5 |
% |
|
|
42.5 |
% |
MEGlobal
|
|
|
50 |
% |
|
|
50 |
% |
|
|
50 |
% |
The
OPTIMAL Group of Companies: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIMAL
Chemicals (Malaysia) Sdn. Bhd.
|
|
|
- |
|
|
|
50 |
% |
|
|
50 |
% |
OPTIMAL
Glycols (Malaysia) Sdn. Bhd.
|
|
|
- |
|
|
|
50 |
% |
|
|
50 |
% |
OPTIMAL
Olefins (Malaysia) Sdn. Bhd.
|
|
|
- |
|
|
|
23.75 |
% |
|
|
23.75 |
% |
The
SCG-Dow Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pacific
Plastics (Thailand) Limited
|
|
|
- |
|
|
|
- |
|
|
|
49 |
% |
Siam
Polyethylene Company Limited
|
|
|
49 |
% |
|
|
49 |
% |
|
|
49 |
% |
Siam
Polystyrene Company Limited
|
|
|
50 |
% |
|
|
50 |
% |
|
|
49 |
% |
Siam
Styrene Monomer Co., Ltd.
|
|
|
50 |
% |
|
|
50 |
% |
|
|
49 |
% |
Siam
Synthetic Latex Company Limited
|
|
|
50 |
% |
|
|
50 |
% |
|
|
49 |
% |
Univation
Technologies, LLC
|
|
|
50 |
% |
|
|
50 |
% |
|
|
50 |
% |
(1)
|
On
September 30, 2009, the Company completed the sale of its ownership
interest in the OPTIMAL Group of Companies; see Note E. |
|
The
Company’s investment in its principal nonconsolidated affiliates was
$2,359 million at December 31, 2009 and $2,439 million at
December 31, 2008. Equity earnings from these companies were
$587 million in 2009, $824 million in 2008 and $1,072 million in
2007. The summarized financial information presented below represents the
combined accounts (at 100 percent) of the principal nonconsolidated
affiliates.
Summarized
Balance Sheet Information at December 31
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Current
assets
|
|
$ |
6,916 |
|
|
$ |
6,391 |
|
Noncurrent
assets
|
|
|
14,538 |
|
|
|
14,226 |
|
Total
assets
|
|
$ |
21,454 |
|
|
$ |
20,617 |
|
Current
liabilities
|
|
$ |
4,147 |
|
|
$ |
3,644 |
|
Noncurrent
liabilities
|
|
|
10,504 |
|
|
|
9,876 |
|
Total
liabilities
|
|
$ |
14,651 |
|
|
$ |
13,520 |
|
Summarized
Income Statement Information
|
|
In
millions
|
|
2009 (1)
|
|
|
2008 (2)
|
|
|
2007
|
|
Sales
|
|
$ |
12,590 |
|
|
$ |
15,508 |
|
|
$ |
13,884 |
|
Gross
profit
|
|
$ |
2,910 |
|
|
$ |
4,064 |
|
|
$ |
3,492 |
|
Net
income
|
|
$ |
1,281 |
|
|
$ |
1,940 |
|
|
$ |
2,451 |
|
(1)
|
The
summarized income statement information for 2009 includes the results for
the OPTIMAL Group of Companies from January 1, 2009 through
September 30, 2009 (see Note E). |
|
(2)
|
The
summarized income statement information for 2008 includes the results for
Americas Styrenics LLC from May 1, 2008 through December 31,
2008. |
|
The
Company has service agreements with some of these entities, including contracts
to manage the operations of manufacturing sites and the construction of new
facilities; licensing and technology agreements; and marketing, sales, purchase
and lease agreements.
Excess
ethylene glycol produced in Dow’s plants in the United States and Europe is sold
to MEGlobal and represented 1 percent of total net sales in 2009
(2 percent of total net sales in 2008 and 2007). In addition, the Company
sells ethylene to MEGlobal as a raw material for its ethylene glycol plants in
Canada. The impact of these sales to MEGlobal by operating segment is summarized
below:
Impact
of Sales to MEGlobal by Operating Segment
|
|
Percent
of segment sales
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Basic
Chemicals
|
|
|
11 |
% |
|
|
14 |
% |
|
|
21 |
% |
Hydrocarbons
and Energy
|
|
|
4 |
% |
|
|
3 |
% |
|
|
4 |
% |
Overall,
transactions with other nonconsolidated affiliates and balances due to and due
from these entities were not material to the consolidated financial
statements.
NOTE
I – GOODWILL AND OTHER INTANGIBLE ASSETS
The
following table shows changes in the carrying amount of goodwill for the year
ended December 31, 2009, by operating segment:
Goodwill
In
millions
|
|
Electronic
and Specialty Materials
|
|
|
Coatings
and Infrastructure
|
|
Health
and Ag Sciences
|
|
|
Perf
Systems
|
|
|
Perf
Products
|
|
|
Basic
Plastics
|
|
|
Hydrocarbons
and Energy
|
|
Total
|
|
Gross
goodwill at
Jan. 1, 2009
|
|
$ |
785 |
|
|
$ |
91 |
|
|
$ |
1,391 |
|
|
$ |
785 |
|
|
$ |
427 |
|
|
$ |
95 |
|
|
$ |
63 |
|
|
$ |
3,637 |
|
Accumulated
impairments at
Jan. 1, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(213 |
) |
|
|
- |
|
|
|
(30 |
) |
|
|
- |
|
|
|
(243 |
) |
Net
goodwill at
Jan. 1, 2009
|
|
$ |
785 |
|
|
$ |
91 |
|
|
$ |
1,391 |
|
|
$ |
572 |
|
|
$ |
427 |
|
|
$ |
65 |
|
|
$ |
63 |
|
|
$ |
3,394 |
|
Goodwill
related to 2009 acquisition of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rohm
and Haas
|
|
|
5,077 |
|
|
|
3,881 |
|
|
|
154 |
|
|
|
378 |
|
|
|
118 |
|
|
|
- |
|
|
|
- |
|
|
|
9,608 |
|
Hyland
Seed assets
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Adjustment
related to 2008 acquisition of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairyland
Seed Co., Inc.
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
Poly-Carb,
Inc.
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Stevens
Roofing Systems
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
Impairment
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
Foreign
currency impact
|
|
|
49 |
|
|
|
53 |
|
|
|
- |
|
|
|
10 |
|
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
118 |
|
Net
goodwill at
Dec. 31, 2009
|
|
$ |
5,911 |
|
|
$ |
4,028 |
|
|
$ |
1,544 |
|
|
$ |
959 |
|
|
$ |
544 |
|
|
$ |
65 |
|
|
$ |
63 |
|
|
$ |
13,114 |
|
Accumulated
impairments at
Dec. 31, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
213 |
|
|
|
7 |
|
|
|
30 |
|
|
|
- |
|
|
|
250 |
|
Gross
goodwill at
Dec. 31, 2009
|
|
$ |
5,911 |
|
|
$ |
4,028 |
|
|
$ |
1,544 |
|
|
$ |
1,172 |
|
|
$ |
551 |
|
|
$ |
95 |
|
|
$ |
63 |
|
|
$ |
13,364 |
|
The
recording of the April 1, 2009 acquisition of Rohm and Haas (see
Note D) resulted in goodwill of $9,608 million, which is not
deductible for tax purposes. During 2009, goodwill related to the acquisition of
Rohm and Haas was reduced $244 million for net adjustments (including
adjustments to the allocation by business unit) made to the fair values of the
assets acquired and liabilities assumed.
Goodwill
Impairments
During
the fourth quarter of 2009, the Company performed its annual impairment tests
for goodwill. As a result of this review, it was determined that the goodwill
associated with the Dow Haltermann reporting unit was impaired. The impairment
was based on a review of the Dow Haltermann reporting unit performed by
management, in which discounted cash flows did not support the carrying value of
the goodwill due to poor future projections for the business. As a result, an
impairment loss of $7 million was recognized in the fourth quarter of 2009
against the Performance Products segment.
During
the fourth quarter of 2008, the Company performed its annual impairment tests
for goodwill. As a result of this review, it was determined that the goodwill
associated with the Automotive Systems reporting unit was impaired. The
impairment was based on a review of the Automotive Systems reporting unit
performed by management, in which discounted cash flows did not support the
carrying value of the goodwill due to the severe downturn in the automotive
industry and the future projections for the business. As a result, an estimated
impairment loss of $209 million was recognized in the fourth quarter of
2008 against the Performance Systems segment. As required by the goodwill and
other intangible assets topic of the ASC, the second step of goodwill impairment
testing to determine the implied fair value of goodwill for the Dow Automotive
reporting unit was finalized in the first quarter of 2009. No adjustment was
required to be made to the estimated impairment loss based on completion of the
allocation process.
Also
as a result of the 2008 annual tests, it was determined that the goodwill
associated with the Polypropylene reporting unit was impaired. The impairment
was based on a review of the Polypropylene reporting unit performed by
management, in which discounted cash flows did not support the carrying value of
the goodwill due to demand decline in North America and Western Europe, as well
as significant new industry capacity that came on stream in 2008 and additional
industry capacity that was expected in 2009. As a result, an impairment loss of
$30 million was recognized in the fourth quarter of 2008 against the Basic
Plastics segment.
Other
Intangible Assets
The
following table provides information regarding the Company’s other intangible
assets:
Other
Intangible Assets at December 31
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
In
millions
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Intangible
assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
and intellectual property
|
|
$ |
1,729 |
|
|
$ |
(320 |
) |
|
$ |
1,409 |
|
|
$ |
316 |
|
|
$ |
(192 |
) |
|
$ |
124 |
|
Patents
|
|
|
140 |
|
|
|
(107 |
) |
|
|
33 |
|
|
|
139 |
|
|
|
(100 |
) |
|
|
39 |
|
Software
|
|
|
875 |
|
|
|
(439 |
) |
|
|
436 |
|
|
|
700 |
|
|
|
(363 |
) |
|
|
337 |
|
Trademarks
|
|
|
694 |
|
|
|
(110 |
) |
|
|
584 |
|
|
|
169 |
|
|
|
(61 |
) |
|
|
108 |
|
Customer
related
|
|
|
3,613 |
|
|
|
(261 |
) |
|
|
3,352 |
|
|
|
210 |
|
|
|
(66 |
) |
|
|
144 |
|
Other
|
|
|
142 |
|
|
|
(65 |
) |
|
|
77 |
|
|
|
120 |
|
|
|
(43 |
) |
|
|
77 |
|
Total
other intangible assets, finite lives
|
|
$ |
7,193 |
|
|
$ |
(1,302 |
) |
|
$ |
5,891 |
|
|
$ |
1,654 |
|
|
$ |
(825 |
) |
|
$ |
829 |
|
IPR&D,
indefinite lives
|
|
|
75 |
|
|
|
- |
|
|
|
75 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
other intangible assets
|
|
$ |
7,268 |
|
|
$ |
(1,302 |
) |
|
$ |
5,966 |
|
|
$ |
1,654 |
|
|
$ |
(825 |
) |
|
$ |
829 |
|
Intangible
assets acquired with the April 1, 2009 acquisition of Rohm and Haas
amounted to $5,305 million including net adjustments made since the
acquisition that increased the fair value of these assets $830 million.
These adjustments are reflected in the values presented in the tables above and
below:
Rohm
and Haas Intangible Assets
In
millions
|
|
Gross
Carrying Amount
|
|
|
Weighted-average
Amortization Period
|
|
Intangible
assets with finite lives:
|
|
|
|
|
|
|
Licenses
and intellectual property
|
|
$ |
1,410 |
|
|
10
years
|
|
Software
|
|
|
73 |
|
|
3
years
|
|
Trademarks
|
|
|
513 |
|
|
10
years
|
|
Customer
related
|
|
|
3,235 |
|
|
16
years
|
|
Total
intangible assets, finite lives
|
|
$ |
5,231 |
|
|
14
years
|
|
IPR&D,
indefinite lives
|
|
|
74 |
|
|
|
- |
|
Total
intangible assets
|
|
$ |
5,305 |
|
|
|
|
|
During
2009, the Company acquired software for $201 million, including
$73 million of software acquired from Rohm and Haas. The weighted-average
amortization period for the acquired software is four years.
The
following table provides information regarding amortization
expense:
Amortization
Expense
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Other
intangible assets, excluding software
|
|
$ |
399 |
|
|
$ |
92 |
|
|
$ |
72 |
|
Software,
included in “Cost of sales”
|
|
$ |
76 |
|
|
$ |
48 |
|
|
$ |
47 |
|
Total
estimated amortization expense for the next five fiscal years is as
follows:
Estimated
Amortization Expense
for
Next Five Years
In
millions
|
|
2010
|
|
$ |
575 |
|
2011
|
|
$ |
566 |
|
2012
|
|
$ |
548 |
|
2013
|
|
$ |
527 |
|
2014
|
|
$ |
504 |
|
NOTE
J – FINANCIAL INSTRUMENTS
Investments
The
Company’s investments in marketable securities are primarily classified as
available-for-sale.
Investing
Results
|
|
|
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Proceeds
from sales of available-for-sale securities
|
|
$ |
593 |
|
|
$ |
851 |
|
|
$ |
1,994 |
|
Gross
realized gains
|
|
$ |
32 |
|
|
$ |
56 |
|
|
$ |
137 |
|
Gross
realized losses
|
|
$ |
(28 |
) |
|
$ |
(18 |
) |
|
$ |
(23 |
) |
The
following table summarizes the contractual maturities of the Company’s
investments in debt securities:
Contractual
Maturities of Debt Securities at December 31, 2009
|
|
In
millions
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Within
one year
|
|
$ |
41 |
|
|
$ |
41 |
|
One
to five years
|
|
|
600 |
|
|
|
636 |
|
Six
to ten years
|
|
|
614 |
|
|
|
640 |
|
After
ten years
|
|
|
289 |
|
|
|
302 |
|
Total
|
|
$ |
1,544 |
|
|
$ |
1,619 |
|
At
December 31, 2009, the Company had no held-to-maturity securities
classified as cash equivalents. At December 31, 2008, the Company had
$250 million of held-to-maturity securities (primarily Treasury Bills)
classified as cash equivalents, as these securities had original maturities of
three months or less. The Company’s investments in held-to-maturity securities
are held at amortized cost, which approximates fair value. At December 31,
2009, the Company had investments in money market funds of $164 million
classified as cash equivalents.
The
net unrealized gain recognized during 2009 on trading securities still held at
December 31, 2009 was $7 million.
The
following tables provide the fair value and gross unrealized losses of the
Company’s investments that were deemed to be temporarily impaired at
December 31, 2009 and 2008, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position:
Temporarily
Impaired Securities at December 31, 2009
|
|
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
In
millions
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and direct obligations of U.S. government
agencies
|
|
$ |
217 |
|
|
$ |
(4 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
217 |
|
|
$ |
(4 |
) |
Corporate
bonds
|
|
|
27 |
|
|
|
(1 |
) |
|
$ |
13 |
|
|
$ |
(1 |
) |
|
|
40 |
|
|
|
(2 |
) |
Total
debt securities
|
|
$ |
244 |
|
|
$ |
(5 |
) |
|
$ |
13 |
|
|
$ |
(1 |
) |
|
$ |
257 |
|
|
$ |
(6 |
) |
Equity
securities
|
|
|
40 |
|
|
|
(2 |
) |
|
|
7 |
|
|
|
(1 |
) |
|
|
47 |
|
|
|
(3 |
) |
Total
temporarily impaired securities
|
|
$ |
284 |
|
|
$ |
(7 |
) |
|
$ |
20 |
|
|
$ |
(2 |
) |
|
$ |
304 |
|
|
$ |
(9 |
) |
Temporarily
Impaired Securities at December 31, 2008
|
|
|
|
Less
than 12 months
|
|
|
12
months or more
|
|
|
Total
|
|
In
millions
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and direct obligations of U.S. government
agencies
|
|
$ |
14 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
14 |
|
|
|
- |
|
Corporate
bonds
|
|
|
388 |
|
|
$ |
(35 |
) |
|
$ |
8 |
|
|
$ |
(1 |
) |
|
|
396 |
|
|
$ |
(36 |
) |
Other
|
|
|
4 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
Total
debt securities
|
|
$ |
406 |
|
|
$ |
(35 |
) |
|
$ |
10 |
|
|
$ |
(1 |
) |
|
$ |
416 |
|
|
$ |
(36 |
) |
Equity
securities
|
|
|
268 |
|
|
|
(152 |
) |
|
|
37 |
|
|
|
(25 |
) |
|
|
305 |
|
|
|
(177 |
) |
Total
temporarily impaired securities
|
|
$ |
674 |
|
|
$ |
(187 |
) |
|
$ |
47 |
|
|
$ |
(26 |
) |
|
$ |
721 |
|
|
$ |
(213 |
) |
Portfolio
managers regularly review the Company’s holdings to determine if any investments
are other-than-temporarily impaired. The analysis includes reviewing the amount
of a temporary impairment, as well as the length of time it has been impaired.
In addition, specific guidelines for each instrument type are followed to
determine if an other-than-temporary impairment has occurred.
For
debt securities, the credit rating of the issuer, current credit rating trends,
the trends of the issuer’s overall sector, the ability of the issuer to pay
expected cash flows and the length of time the security has been in a loss
position are considered in determining whether unrealized losses represent an
other-than-temporary impairment. The Company did not have any credit-related
losses during 2009.
For
equity securities, the Company’s investments are primarily in Standard &
Poor’s (“S&P”) 500 companies; however, the Company’s policies allow
investments in companies outside of the S&P 500. The largest holdings
are Exchange Traded Funds that represent the S&P 500 index or Dow Jones
index. The decrease in temporarily impaired equity securities from
December 31, 2008 to December 31, 2009 relates to the broad recovery
in the equity markets in 2009, as well as impairments taken. The Company
considers the evidence to support the recovery of the cost basis of a security
including volatility of the stock, the length of time the security has been in a
loss position, value and growth expectations, and overall market and sector
fundamentals, as well as technical analysis, in determining whether unrealized
losses represent an other-than-temporary impairment. In 2009,
other-than-temporary impairment write-downs were $93 million
($42 million in 2008).
The
aggregate cost of the Company’s cost method investments totaled
$129 million at December 31, 2009 ($104 million at
December 31, 2008). Due to the nature of these investments, the fair market
value is not readily determinable. These investments are reviewed for impairment
indicators. During 2009, the Company’s impairment analysis identified indicators
which resulted in a reduction in the cost basis of these investments of
$10 million. During 2008, there were no impairment indicators or
circumstances that resulted in an adjustment to the cost basis of these
investments.
The
following table summarizes the fair value of financial instruments at December
31, 2009 and 2008:
Fair
Value of Financial Instruments at December 31
|
|
|
|
2009
|
|
|
2008
|
|
In
millions
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair
Value
|
|
Marketable
securities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
1,544 |
|
|
$ |
81 |
|
|
$ |
(6 |
) |
|
$ |
1,619 |
|
|
$ |
1,443 |
|
|
$ |
88 |
|
|
$ |
(36 |
) |
|
$ |
1,495 |
|
Equity
securities
|
|
|
455 |
|
|
|
65 |
|
|
|
(3 |
) |
|
|
517 |
|
|
|
518 |
|
|
|
17 |
|
|
|
(177 |
) |
|
|
358 |
|
Total
marketable securities
|
|
$ |
1,999 |
|
|
$ |
146 |
|
|
$ |
(9 |
) |
|
$ |
2,136 |
|
|
$ |
1,961 |
|
|
$ |
105 |
|
|
$ |
(213 |
) |
|
$ |
1,853 |
|
Long-term
debt including debt due within one year (2)
|
|
$ |
(20,234 |
) |
|
$ |
126 |
|
|
$ |
(1,794 |
) |
|
$ |
(21,902 |
) |
|
$ |
(9,496 |
) |
|
$ |
551 |
|
|
$ |
(38 |
) |
|
$ |
(8,983 |
) |
Derivatives
relating to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
$ |
81 |
|
|
$ |
(20 |
) |
|
$ |
61 |
|
|
|
- |
|
|
$ |
122 |
|
|
$ |
(163 |
) |
|
$ |
(41 |
) |
Commodities
|
|
|
- |
|
|
$ |
5 |
|
|
$ |
(18 |
) |
|
$ |
(13 |
) |
|
|
- |
|
|
$ |
65 |
|
|
$ |
(220 |
) |
|
$ |
(155 |
) |
(1)
Included in “Other investments” in the consolidated balance
sheets.
|
|
(2)
Cost includes fair value adjustments of $25 million in 2009 and
$27 million in 2008.
|
|
Risk
Management
Dow’s
business operations give rise to market risk exposure due to changes in interest
rates, foreign currency exchange rates, commodity prices and other market
factors such as equity prices. To manage such risks effectively, the Company
enters into hedging transactions, pursuant to established guidelines and
policies, which enable it to mitigate the adverse effects of financial market
risk. Derivatives used for this purpose are designated as cash flow, fair value
or net foreign investment hedges where appropriate. The guidance requires
companies to recognize all derivative instruments as either assets or
liabilities at fair value. A secondary objective is to add value by creating
additional nonspecific exposures within established limits and policies;
derivatives used for this purpose are not designated as hedges. The potential
impact of creating such additional exposures is not material to the Company’s
results.
The
Company’s risk management program for interest rate, foreign currency and
commodity risks is based on fundamental, mathematical and technical models that
take into account the implicit cost of hedging. Risks created by derivative
instruments and the mark-to-market valuations of positions are strictly
monitored at all times, using value at risk and stress tests. Credit
risk arising from these contracts is not significant because the Company
minimizes counterparty concentration, deals primarily with major financial
institutions of solid credit quality, and the majority of its hedging
transactions mature in less than three months. In addition, the Company
minimizes concentrations of credit risk through its global orientation in
diverse businesses with a large number of diverse customers and suppliers. It is
the Company’s policy not to have credit-risk-related contingent features in its
derivative instruments. The Company does not anticipate losses from credit risk,
and the net cash requirements arising from risk management activities are not
expected to be material in 2010. No significant concentration of credit risk
existed at December 31, 2009.
The
Company reviews its overall financial strategies and the impacts from using
derivatives in its risk management program with the Company’s Board of Directors
and revises its strategies as market conditions dictate.
Interest
Rate Risk Management
The
Company enters into various interest rate contracts with the objective of
lowering funding costs or altering interest rate exposures related to fixed and
variable rate obligations. In these contracts, the Company agrees with other
parties to exchange, at specified intervals, the difference between fixed and
floating interest amounts calculated on an agreed-upon notional principal
amount. At December 31, 2009, the Company had open interest rate swaps with
maturity dates prior to 2012.
Foreign
Currency Risk Management
The
Company’s global operations require active participation in foreign exchange
markets. The Company enters into foreign exchange forward contracts and options,
and cross-currency swaps to hedge various currency exposures or create desired
exposures. Exposures primarily relate to assets, liabilities and bonds
denominated in foreign currencies, as well as economic exposure, which is
derived from the risk that currency fluctuations could affect the dollar value
of future cash flows related to operating activities. The primary business
objective of the activity is to optimize the U.S. dollar value of the Company’s
assets, liabilities and future cash flows with respect to exchange rate
fluctuations. Assets and liabilities denominated in the
same
foreign currency are netted, and only the net exposure is hedged. At
December 31, 2009, the Company had forward contracts, options and
cross-currency swaps to buy, sell or exchange foreign currencies. These
contracts had various expiration dates, primarily in the first quarter of
2010.
Commodity
Risk Management
The
Company has exposure to the prices of commodities in its procurement of certain
raw materials. The primary purpose of commodity hedging activities is to manage
the price volatility associated with these forecasted inventory purchases. At
December 31, 2009, the Company had futures contracts, options and swaps to
buy, sell or exchange commodities. These agreements had various expiration dates
primarily in 2010.
Accounting
for Derivative Instruments and Hedging Activities
Cash
Flow Hedges
For
derivatives that are designated and qualify as cash flow hedging instruments,
the effective portion of the gain or loss on the derivative is recorded in
“Accumulated other comprehensive income (loss)” (“AOCI”); it is reclassified to
“Cost of sales” in the same period or periods that the hedged transaction
affects income. The unrealized amounts in AOCI fluctuate based on changes in the
fair value of open contracts at the end of each reporting period. The Company
anticipates volatility in AOCI and net income from its cash flow hedges. The
amount of volatility varies with the level of derivative activities and market
conditions during any period. Gains and losses on the derivative representing
either hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current period income.
The
net loss from previously terminated interest rate cash flow hedges included in
AOCI at December 31, 2009 was $2 million after tax ($9 million
after tax at December 31, 2008). During 2009, 2008 and 2007, there was no
material impact on the consolidated financial statements due to interest rate
hedge ineffectiveness. The Company had open interest rate derivatives with a
notional U.S. dollar equivalent of $30 million at December 31, 2009
(none at December 31, 2008).
Current
open foreign currency forward contracts hedge forecasted transactions until June
2010. The effective portion of the mark-to-market effects of the foreign
currency forward contracts is recorded in AOCI; it is reclassified to income in
the same period or periods that the underlying feedstock purchase affects
income. The net loss from the foreign currency hedges included in AOCI at
December 31, 2009 was $5 million after tax (net gain of
$15 million after tax at December 31, 2008). During 2009, 2008 and
2007, there was no material impact on the consolidated financial statements due
to foreign currency hedge ineffectiveness. At December 31, 2009, the
Company had open forward contracts with various expiration dates to buy, sell or
exchange foreign currencies with a U.S. dollar equivalent of $645 million
($3,219 million at December 31, 2008).
Commodity
swaps, futures and option contracts with maturities of not more than 36 months
are utilized and designated as cash flow hedges of forecasted commodity
purchases. Current open contracts hedge forecasted transactions until June 2010.
The effective portion of the mark-to-market effect of the cash flow hedge
instrument is recorded in AOCI; it is reclassified to income in the same period
or periods that the underlying commodity purchase affects income. Due to the
September 1, 2009 sale of TRN, the Company recognized a pretax loss of
$56 million for cash flow hedges of forecasted purchases that will not
occur as a result of the sale (see Note E). The net gain/loss from
commodity hedges included in AOCI at December 31, 2009 was zero (net loss
of $239 million after tax at December 31, 2008). During 2009, 2008 and
2007, there was no material impact on the consolidated financial statements due
to commodity hedge ineffectiveness. At December 31, 2009 and 2008, the
Company had the following aggregate notionals of outstanding commodity forward
contracts to hedge forecasted purchases:
Commodity
|
|
2009
|
|
|
2008
|
|
Notional
Volume Unit
|
Crude
Oil
|
|
|
0.7 |
|
|
|
1.8 |
|
million
barrels
|
Naphtha
|
|
|
50 |
|
|
|
33 |
|
kilotons
|
Natural
Gas
|
|
|
2.0 |
|
|
|
11.8 |
|
million
million British thermal units
|
Fair
Value Hedges
For
derivative instruments that are designated and qualify as fair value hedges, the
gain or loss on the derivative as well as the offsetting loss or gain on the
hedged item attributable to the hedged risk are recognized in current period
income and reflected as “Interest expense and amortization of debt discount” in
the consolidated statements of income. The short-cut method is used when the
criteria are met. The Company had no open interest rate swaps designated as fair
value hedges of underlying fixed rate debt obligations at December 31, 2009
and 2008.
Net
Foreign Investment Hedges
For
derivative instruments that are designated and qualify as net foreign investment
hedges, the effective portion of the gain or loss on the derivative is included
in “Cumulative Translation Adjustments” in AOCI. The results of hedges of the
Company’s net investment in foreign operations included in “Cumulative
Translation Adjustments” in AOCI was a net loss of $56 million after tax at
December 31, 2009 (net gain of $36 million after tax at
December 31, 2008). During 2009, 2008 and 2007 there was no material impact
on the consolidated financial statements due to hedge ineffectiveness. At
December 31, 2009 and 2008, the Company had no open forward contracts or
outstanding options to buy, sell or exchange foreign currencies. At
December 31, 2009, the Company had outstanding foreign-currency denominated
debt designated as a hedge of net foreign investment of $1,879 million
($1,267 million at December 31, 2008).
Other
Derivative Instruments
The
Company utilizes futures, options and swap instruments that are effective as
economic hedges of commodity price exposures, but do not meet the hedge
accounting criteria in the accounting guidance for derivatives and hedging. At
December 31, 2009 and 2008, the Company had the following aggregate
notionals of outstanding commodity contracts:
Commodity
|
|
2009
|
|
|
2008
|
|
Notional
Volume Unit
|
Ethane
|
|
|
0.9 |
|
|
|
- |
|
million
barrels
|
Natural
Gas
|
|
|
2.8 |
|
|
|
- |
|
million
million British thermal units
|
The
Company also uses foreign exchange forward contracts, options, and
cross-currency swaps that are not designated as hedging instruments primarily to
manage foreign currency and interest rate exposure. The Company had open foreign
exchange contracts with various expiration dates to buy, sell or exchange
foreign currencies with a U.S. dollar equivalent of $15,312 million at
December 31, 2009 ($10,799 million at December 31,
2008).
The
following table provides the fair value and gross balance sheet classification
of derivative instruments:
Fair
Value of Derivative Instruments at December 31
|
|
|
|
|
|
|
In
millions
|
Balance
Sheet Classification
|
|
2009
|
|
|
2008
|
|
Asset
Derivatives
|
|
|
|
|
|
|
|
Derivatives
designated as hedges:
|
|
|
|
|
|
|
|
Foreign
currency
|
Accounts
and notes receivable – Other
|
|
$ |
4 |
|
|
$ |
77 |
|
Commodities
|
Accounts
and notes receivable – Other
|
|
|
4 |
|
|
|
68 |
|
Total
derivatives designated as hedges
|
|
|
$ |
8 |
|
|
$ |
145 |
|
Derivatives
not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
Accounts
and notes receivable – Other
|
|
$ |
125 |
|
|
$ |
235 |
|
Commodities
|
Accounts
and notes receivable – Other
|
|
|
28 |
|
|
|
63 |
|
Total
derivatives not designated as hedges
|
|
|
$ |
153 |
|
|
$ |
298 |
|
Total
asset derivatives
|
|
|
$ |
161 |
|
|
$ |
443 |
|
Liability
Derivatives
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
Accounts
payable – Other
|
|
$ |
3 |
|
|
$ |
69 |
|
Commodities
|
Accounts
payable – Other
|
|
|
- |
|
|
|
262 |
|
Commodities
|
Other
noncurrent obligations
|
|
|
- |
|
|
|
22 |
|
Total
derivatives designated as hedges
|
|
|
$ |
3 |
|
|
$ |
353 |
|
Derivatives
not designated as hedges:
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
Accounts
payable – Other
|
|
$ |
65 |
|
|
$ |
284 |
|
Commodities
|
Accounts
payable – Other
|
|
|
42 |
|
|
|
61 |
|
Total
derivatives not designated as hedges
|
|
|
$ |
107 |
|
|
$ |
345 |
|
Total
liability derivatives
|
|
|
$ |
110 |
|
|
$ |
698 |
|
Effect
of Derivative Instruments
at
December 31, 2009
In
millions
|
|
Change
in Unrealized Loss in AOCI (1)
|
|
|
Income
Statement Classification
|
|
|
Gain (Loss) Reclassified from
AOCI to Income (2)
|
|
|
Additional
Gain (Loss) Recognized
in Income (2,3)
|
|
Derivatives
designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rates
|
|
|
- |
|
|
Interest
expense (4)
|
|
|
|
- |
|
|
$ |
(1 |
) |
Cash
flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rates
|
|
|
- |
|
|
Cost
of sales
|
|
|
$ |
(9 |
) |
|
|
- |
|
Interest
rates
|
|
|
- |
|
|
Interest
expense (4)
|
|
|
|
(1 |
) |
|
|
- |
|
Commodities
|
|
$ |
(2 |
) |
|
Cost
of sales
|
|
|
|
(306 |
) |
|
|
(1 |
) |
Foreign
currency
|
|
|
(10 |
) |
|
Cost
of sales
|
|
|
|
11 |
|
|
|
- |
|
Net
foreign investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
n/a |
|
|
|
- |
|
|
|
- |
|
Total
derivatives designated as hedges
|
|
$ |
(12 |
) |
|
|
|
|
|
$ |
(305 |
) |
|
$ |
(2 |
) |
Derivatives
not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency (5)
|
|
|
- |
|
|
Sundry
income – net
|
|
|
|
- |
|
|
$ |
(32 |
) |
Commodities
|
|
|
- |
|
|
Cost
of sales
|
|
|
|
- |
|
|
|
3 |
|
Total
derivatives not designated as hedges
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
$ |
(29 |
) |
Total
derivatives
|
|
$ |
(12 |
) |
|
|
|
|
|
$ |
(305 |
) |
|
$ |
(31 |
) |
Effect
of Derivative Instruments
at
December 31, 2008
In
millions
|
|
Change in Unrealized Gain
(Loss) in AOCI (1)
|
|
|
Income
Statement Classification
|
|
|
Loss Reclassified from AOCI to
Income (2)
|
|
|
Additional Loss Recognized in
Income (2,3)
|
|
Derivatives
designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rates
|
|
|
- |
|
|
Interest
expense (4)
|
|
|
|
- |
|
|
$ |
(2 |
) |
Cash
flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rates
|
|
|
- |
|
|
Cost
of sales
|
|
|
$ |
(12 |
) |
|
|
- |
|
Interest
rates
|
|
|
- |
|
|
Interest
expense (4)
|
|
|
|
(1 |
) |
|
|
- |
|
Commodities
|
|
$ |
(353 |
) |
|
Cost
of sales
|
|
|
|
(154 |
) |
|
|
(1 |
) |
Foreign
currency
|
|
|
7 |
|
|
Cost
of sales
|
|
|
|
(12 |
) |
|
|
- |
|
Net
foreign investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
1 |
|
|
n/a |
|
|
- |
|
|
|
- |
|
Total
derivatives designated as hedges
|
|
$ |
(345 |
) |
|
|
|
|
|
$ |
(179 |
) |
|
$ |
(3 |
) |
Derivatives
not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency (5)
|
|
|
- |
|
|
Sundry
income – net
|
|
|
|
- |
|
|
$ |
(167 |
) |
Commodities
|
|
|
- |
|
|
Cost
of sales
|
|
|
|
- |
|
|
|
(34 |
) |
Total
derivatives not designated as hedges
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
$ |
(201 |
) |
Total
derivatives
|
|
$ |
(345 |
) |
|
|
|
|
|
$ |
(179 |
) |
|
$ |
(204 |
) |
(1)
|
Net
unrealized gains/losses from hedges related to interest rates and
commodities are included in “Accumulated Derivative Gain (Loss) – Net
hedging results” in the consolidated statements of equity; net unrealized
gains/losses from hedges related to foreign currency (net of tax) are
included in “Cumulative Translation Adjustments – Translation adjustments”
in the consolidated statements of
equity.
|
(3)
|
Amounts
impacting income not related to AOCI reclassification; also includes
immaterial amounts of hedge
ineffectiveness.
|
(4)
|
Interest
expense and amortization of debt
discount.
|
(5)
|
Foreign
currency derivatives not designated as hedges are offset by foreign
exchange gains/losses resulting from the underlying exposures of foreign
currency denominated assets and
liabilities.
|
The
net after-tax amounts to be reclassified from AOCI to income within the next 12
months are a $2 million loss for interest rate contracts and a
$5 million loss for foreign currency contracts.
NOTE
K – FAIR VALUE MEASUREMENTS
The
following tables summarize the bases used to measure certain assets and
liabilities at fair value on a recurring basis in the consolidated balance
sheets at December 31, 2009 and 2008:
Basis
of Fair Value Measurements on a Recurring Basis
at
December 31, 2009
In
millions
|
|
Quoted
Prices in Active Markets for Identical Items
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Counterparty and Cash
Collateral Netting (1)
|
|
|
Total
|
|
Assets
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities (2)
|
|
$ |
483 |
|
|
$ |
34 |
|
|
|
- |
|
|
$ |
517 |
|
Debt
securities (2)
|
|
|
- |
|
|
|
1,619 |
|
|
|
- |
|
|
|
1,619 |
|
Derivatives
relating to: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
|
129 |
|
|
$ |
(48 |
) |
|
|
81 |
|
Commodities
|
|
|
28 |
|
|
|
4 |
|
|
|
(27 |
) |
|
|
5 |
|
Total
assets at fair value
|
|
$ |
511 |
|
|
$ |
1,786 |
|
|
$ |
(75 |
) |
|
$ |
2,222 |
|
Liabilities
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
relating to: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
$ |
68 |
|
|
$ |
(48 |
) |
|
$ |
20 |
|
Commodities
|
|
$ |
24 |
|
|
|
18 |
|
|
|
(24 |
) |
|
|
18 |
|
Total
liabilities at fair value
|
|
$ |
24 |
|
|
$ |
86 |
|
|
$ |
(72 |
) |
|
$ |
38 |
|
Basis
of Fair Value Measurements on a Recurring Basis
at
December 31, 2008
In
millions
|
|
Quoted
Prices in Active Markets for Identical Items
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Counterparty and Cash
Collateral Netting (1)
|
|
|
Total
|
|
Assets
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities (2)
|
|
$ |
337 |
|
|
$ |
21 |
|
|
|
- |
|
|
$ |
358 |
|
Debt
securities (2)
|
|
|
- |
|
|
|
1,495 |
|
|
|
- |
|
|
|
1,495 |
|
Derivatives
relating to: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
|
312 |
|
|
$ |
(190 |
) |
|
|
122 |
|
Commodities
|
|
|
- |
|
|
|
131 |
|
|
|
(66 |
) |
|
|
65 |
|
Total
assets at fair value
|
|
$ |
337 |
|
|
$ |
1,959 |
|
|
$ |
(256 |
) |
|
$ |
2,040 |
|
Liabilities
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
relating to: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
- |
|
|
$ |
353 |
|
|
$ |
(190 |
) |
|
$ |
163 |
|
Commodities
|
|
$ |
49 |
|
|
|
296 |
|
|
|
(125 |
) |
|
|
220 |
|
Total
liabilities at fair value
|
|
$ |
49 |
|
|
$ |
649 |
|
|
$ |
(315 |
) |
|
$ |
383 |
|
(1)
|
Cash
collateral is classified as “Accounts and notes receivable – Other” in the
consolidated balance sheets. Amounts represent the estimated net
settlement amount when applying netting and set-off rights included in
master netting arrangements between the Company and its counterparties and
the payable or receivable for cash collateral held or placed with the same
counterparty. |
|
(2)
|
The
Company’s investments in equity and debt securities are primarily
classified as available-for-sale and are included in “Other investments”
in the consolidated balance sheets. |
|
(3)
|
See
Note J for the classification of derivatives in the consolidated
balance sheets. |
|
For
assets and liabilities classified as Level 1 (measured using quoted prices
in active markets), the total fair value is either the price of the most recent
trade at the time of the market close or the official close price, as defined by
the exchange in which the asset is most actively traded on the last trading day
of the period, multiplied by the number of units held without consideration of
transaction costs.
For
assets and liabilities classified as Level 2, the fair value is based on
the price a dealer would pay for the security or similar securities, adjusted
for any terms specific to that asset or liability. Market inputs are obtained
from well established and recognized vendors of market data and subjected to
tolerance/quality checks. For derivative assets and liabilities, the fair value
is calculated using standard industry models used to calculate the fair value of
the various financial instruments based on significant observable market inputs,
such as foreign exchange rates, commodity prices, swap rates, interest rates and
implied volatilities obtained from various market sources.
For
all other assets and liabilities for which observable inputs are used, fair
value is derived through the use of fair value models, such as a discounted cash
flow model or other standard pricing models. See Note J for further
information on the types of instruments used by the Company for risk
management.
Assets
and liabilities related to forward contracts, interest rate swaps, currency
swaps, options and other conditional or exchange contracts executed with the
same counterparty under a master netting arrangement are netted. Collateral
accounts are netted with corresponding assets and liabilities. The Company
borrowed $3 million of cash collateral against $5 million of
unrealized gains at December 31, 2009. The net $2 million was
classified as “Accounts and notes receivable – Other” in the consolidated
balance sheets.
The
following table summarizes the bases used to measure certain assets and
liabilities at fair value on a nonrecurring basis:
Basis
of Fair Value Measurements on a Nonrecurring Basis in 2009
In
millions
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Other Unobservable Inputs
(Level
3)
|
|
|
Total
|
|
|
Total
Losses 2009
|
|
Assets
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
and other assets
|
|
|
- |
|
|
$ |
30 |
|
|
$ |
30 |
|
|
$ |
(464 |
) |
Net
assets held for sale
|
|
$ |
1,657 |
|
|
|
- |
|
|
|
1,657 |
|
|
|
- |
|
Goodwill
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
Total
assets at fair value
|
|
$ |
1,657 |
|
|
$ |
30 |
|
|
$ |
1,687 |
|
|
$ |
(471 |
) |
As
part of the restructuring plan that was approved on June 30, 2009, the
Company will shut down a number of manufacturing facilities during the next two
years. Long-lived assets with a carrying value of $425 million were written
down to the fair value of $26 million, resulting in an impairment charge of
$399 million, which was included in the second quarter of 2009
restructuring charge (see Note C). In the fourth quarter of 2009, the
Company recognized an impairment loss of $65 million related to its
investment in Equipolymers with a remaining fair value of the investment of
$4 million. The long-lived assets were valued based on bids received from
third parties and using discounted cash flow analysis based on assumptions that
market participants would use. Key inputs included anticipated revenues,
associated manufacturing costs, capital expenditures and discount, growth and
tax rates.
On
April 1, 2009, the Company announced the entry into a definitive agreement
to sell the newly acquired stock of Morton International, Inc., the Salt
business of Rohm and Haas, to K+S Aktiengesellschaft. The assets were classified
as held for sale with a net carrying value of $1,657 million at
September 30, 2009. The held for sale assets were valued based on the
definitive agreement with K+S Aktiengesellschaft, less estimated cost to sell.
The assets were sold on October 1, 2009 (see Note E).
During
the fourth quarter of 2009, the Company performed its annual impairment tests
for goodwill. As a result of this review, it was determined that the goodwill
associated with the Dow Haltermann reporting unit was impaired. The impairment
was based on a review of the Dow Haltermann reporting unit performed by
management, in which discounted cash flows did not support the carrying value of
the goodwill due to poor future projections for the business. As a result, an
impairment loss of $7 million was recognized in the fourth quarter of 2009
against the Performance Products segment.
NOTE
L – SUPPLEMENTARY INFORMATION
Accrued
and Other Current Liabilities
“Accrued
and other current liabilities” were $3,200 million at December 31,
2009 and $2,625 million at December 31, 2008. Accrued payroll, which
is a component of “Accrued and other current liabilities,” was $736 million
at December 31, 2009 and $732 million at December 31, 2008. No
other component of accrued liabilities was more than 5 percent of total
current liabilities.
Sundry
Income – Net
|
|
|
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Gain
on sale of TRN
|
|
$ |
513 |
|
|
|
- |
|
|
|
- |
|
Gain
on sale of OPTIMAL
|
|
|
339 |
|
|
|
- |
|
|
|
- |
|
Gain
on sales of other assets and securities
|
|
|
100 |
|
|
$ |
91 |
|
|
$ |
171 |
|
Foreign
exchange gain (loss)
|
|
|
1 |
|
|
|
(17 |
) |
|
|
73 |
|
Dividend
income
|
|
|
- |
|
|
|
3 |
|
|
|
9 |
|
Other
– net
|
|
|
(62 |
) |
|
|
12 |
|
|
|
71 |
|
Total
sundry income – net
|
|
$ |
891 |
|
|
$ |
89 |
|
|
$ |
324 |
|
Other
Supplementary Information
|
|
|
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
payments for interest
|
|
$ |
1,140 |
|
|
$ |
713 |
|
|
$ |
671 |
|
Cash
payments for income taxes
|
|
$ |
1,034 |
|
|
$ |
864 |
|
|
$ |
966 |
|
Provision
for doubtful receivables (1)
|
|
$ |
11 |
|
|
$ |
20 |
|
|
$ |
2 |
|
(1)
Included in “Selling, general and administrative expenses” in the
consolidated statements of income.
|
|
Sales
of Accounts Receivable
Since
1997, the Company has routinely sold, without recourse, a participation in pools
of qualifying trade accounts receivable. According to the agreements of the
various programs, Dow maintains the servicing of these receivables. No servicing
liability is recorded as the related costs are insignificant. As receivables in
the pools are collected, new qualifying receivables are added. The maximum
amount of receivables available for sale in the pools was $1,939 million in
2009, $1,874 million in 2008 and $2,324 million in 2007. The average
monthly participation in the pools was $936 million in 2009
$586 million in 2008 and $271 million in 2007.
The
net cash flow in any given period represents the discount on sales, which is
recorded as interest expense. The average monthly discount was not material in
2009, 2008 and 2007.
See
Note B for information regarding the anticipated impact of adopting ASU
2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets,” on January 1, 2010.
NOTE
M – EARNINGS PER SHARE CALCULATIONS
Net
Income
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
income from continuing operations
|
|
$ |
566 |
|
|
$ |
626 |
|
|
$ |
2,962 |
|
Income
from discontinued operations, net of income taxes
|
|
|
110 |
|
|
|
28 |
|
|
|
23 |
|
Net
income attributable to noncontrolling interests
|
|
|
(28 |
) |
|
|
(75 |
) |
|
|
(98 |
) |
Net
income attributable to The Dow Chemical Company
|
|
$ |
648 |
|
|
$ |
579 |
|
|
$ |
2,887 |
|
Preferred
stock dividends
|
|
|
(312 |
) |
|
|
- |
|
|
|
- |
|
Net
income available for common stockholders
|
|
$ |
336 |
|
|
$ |
579 |
|
|
$ |
2,887 |
|
Earnings Per
Share Calculations - Basic
Dollars
per share
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
income from continuing operations
|
|
$ |
0.54 |
|
|
$ |
0.67 |
|
|
$ |
3.10 |
|
Income
from discontinued operations, net of income taxes
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.03 |
|
Net
income attributable to noncontrolling interests
|
|
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
(0.10 |
) |
Net
income attributable to The Dow Chemical Company
|
|
$ |
0.62 |
|
|
$ |
0.62 |
|
|
$ |
3.03 |
|
Preferred
stock dividends
|
|
|
(0.30 |
) |
|
|
- |
|
|
|
- |
|
Net
income available for common stockholders
|
|
$ |
0.32 |
|
|
$ |
0.62 |
|
|
$ |
3.03 |
|
Earnings Per
Share Calculations - Diluted
Dollars
per share
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
income from continuing operations
|
|
$ |
0.54 |
|
|
$ |
0.67 |
|
|
$ |
3.07 |
|
Income
from discontinued operations, net of income taxes
|
|
|
0.10 |
|
|
|
0.03 |
|
|
|
0.02 |
|
Net
income attributable to noncontrolling interests
|
|
|
(0.02 |
) |
|
|
(0.08 |
) |
|
|
(0.10 |
) |
Net
income attributable to The Dow Chemical Company
|
|
$ |
0.62 |
|
|
$ |
0.62 |
|
|
$ |
2.99 |
|
Preferred
stock dividends (1)
|
|
|
(0.30 |
) |
|
|
- |
|
|
|
- |
|
Net
income available for common stockholders
|
|
$ |
0.32 |
|
|
$ |
0.62 |
|
|
$ |
2.99 |
|
Shares
in millions
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares - basic
|
|
|
1,043.2 |
|
|
|
930.4 |
|
|
|
953.1 |
|
Plus
dilutive effect of stock options and awards
|
|
|
10.7 |
|
|
|
8.6 |
|
|
|
12.5 |
|
Weighted-average
common shares - diluted
|
|
|
1,053.9 |
|
|
|
939.0 |
|
|
|
965.6 |
|
Stock
options and deferred stock awards excluded from EPS calculations (2)
|
|
|
57.3 |
|
|
|
42.8 |
|
|
|
21.9 |
|
Conversion
of preferred stock excluded from EPS calculations (3)
|
|
|
78.5 |
|
|
|
- |
|
|
|
- |
|
(1)
|
Preferred
stock dividends were not added back in the calculation of diluted earnings
per share because the effect of adding them back would have been
antidilutive. |
|
(2)
|
These
outstanding options to purchase shares of common stock and deferred stock
awards were excluded from the calculation of diluted earnings per share
because the effect of including them would have been
antidilutive. |
|
(3)
|
Conversion
of the Cumulative Convertible Perpetual Preferred Stock, Series A into
shares of the Company’s common stock was excluded from the calculation of
diluted earnings per share because the effect of including them would have
been antidilutive. |
|
NOTE
N – COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
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 were transferred to the U.S. District Court for the Eastern District of
Michigan (the “District Court”) for resolution in the context of the Joint Plan.
On October 6, 2005, all such cases then pending in the District Court against
the Company were dismissed. 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 future cases
will have a material adverse impact on the Company’s consolidated financial
statements.
As
part of the Joint Plan, Dow and Corning Incorporated agreed to provide a credit
facility to Dow Corning in an aggregate amount of $300 million, which was
reduced to $250 million effective June 1, 2009. The Company’s share of
the credit facility was originally $150 million, but was reduced to
$125 million effective June 1, 2009, and is subject to the terms and
conditions stated in the Joint Plan. At December 31, 2009, no draws had
been taken against the credit facility.
DBCP
Matters
Numerous
lawsuits have been brought against the Company and other chemical companies,
both inside and outside of the United States, alleging that the manufacture,
distribution or use of pesticides containing dibromochloropropane (“DBCP”) has
caused personal injury and property damage, including contamination of
groundwater. It is the opinion of the Company’s management that the possibility
is remote that the resolution of such lawsuits will have a material adverse
impact on the Company’s consolidated financial statements.
Environmental
Matters
Accruals
for environmental matters are recorded when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated based
on current law and existing technologies. At December 31, 2009, the Company
had accrued obligations of $619 million for environmental remediation and
restoration costs, including $80 million for the remediation of Superfund
sites. The balance includes $159 million of environmental liabilities
assumed from Rohm and Haas on April 1, 2009 (see Note D). Also
included in the December 31, 2009 balance is $64 million of
environmental reserves recognized as part of the 2009 restructuring plan (see
Note C). This is management’s best estimate of the costs for remediation
and restoration with respect to environmental matters for which the Company has
accrued liabilities, although the ultimate cost with respect to these particular
matters could range up to approximately twice that amount. Inherent
uncertainties exist in these estimates primarily due to unknown environmental
conditions, changing governmental regulations and legal standards regarding
liability, and emerging remediation technologies for handling site remediation
and restoration. At December 31, 2008, the Company had accrued obligations
of $312 million for environmental remediation and restoration costs,
including $22 million for the remediation of Superfund sites.
The
following table summarizes the activity in the Company’s accrued obligations for
environmental matters for the years ended December 31, 2009 and
2008:
Accrued
Obligations for Environmental Matters
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$ |
312 |
|
|
$ |
322 |
|
Additional
accruals
|
|
|
271 |
|
|
|
141 |
|
Assumed
from Rohm and Haas
|
|
|
159 |
|
|
|
- |
|
Charges
against reserve
|
|
|
(143 |
) |
|
|
(138 |
) |
Adjustments
to reserve
|
|
|
20 |
|
|
|
(13 |
) |
Balance
at December 31
|
|
$ |
619 |
|
|
$ |
312 |
|
The
amounts charged to income on a pretax basis related to environmental remediation
totaled $269 million in 2009, $140 million in 2008 and
$92 million in 2007. Capital expenditures for environmental protection were
$219 million in 2009, $193 million in 2008 and $189 million in
2007.
Midland
Site Environmental Matters
On
June 12, 2003, the Michigan Department of Environmental Quality (“MDEQ”)
issued a Hazardous Waste Operating License (the “License”) to the Company’s
Midland, Michigan manufacturing site (the “Midland site”), which included
provisions requiring the Company to conduct an investigation to determine the
nature and extent of off-site contamination in Midland area soils; Tittabawassee
and Saginaw River sediment and floodplain soils; and Saginaw Bay.
Discussions
between the Company and the MDEQ occurred in 2004 and early 2005 regarding how
to proceed with off-site corrective action under the License, resulting in the
execution of the Framework for an Agreement between the State of Michigan (the
“State”) and The Dow Chemical Company (the “Framework”) on January 20,
2005. The Framework committed the Company to propose a remedial investigation
work plan by the end of 2005, conduct certain studies, and take certain
immediate interim remedial actions in the City of Midland and along the
Tittabawassee River.
Characterization
and feasibility study work has been conducted since 2003 and the results of such
work have been supplied to the MDEQ as provided for under the License. On
June 15, 2009, Dow submitted a report to the MDEQ that consolidated soil
and sediment sampling data, as well as other data, collected under sampling work
plans approved by the MDEQ in 2006, 2007 and 2008. Additional feasibility
studies are ongoing under MDEQ oversight.
Removal
Actions
From
July 2007 through February 2009, the Company and the U.S. Environmental
Protection Agency (“EPA”) negotiated and entered into six removal orders under
Section 106 of the Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”). The CERCLA removal orders required soil and sediment
removal; paving of roads, driveways and a parking lot; cleaning of homes; and
further assessment of some area soil in areas along the Saginaw and
Tittabawassee Rivers. The work under all removal orders has been
completed.
EPA
CERCLA Special Notice Process
On
October 31, 2008, the EPA informed the Company that the Company would
receive a Special Notice Letter (“Letter”) offering to enter into negotiations
for an administrative order on consent (“AOC”) for the Company to conduct or
fund a remedial investigation, a feasibility study and a remedial design for the
Tittabawassee River, Saginaw River and Saginaw Bay. On November 18, 2008,
the Company entered into a Confidentiality Agreement with the EPA and the MDEQ
regarding the Letter negotiations. On December 15, 2008, the Company
received the Letter from the EPA, proposing that the Company enter into
negotiations on an AOC to perform a remedial investigation, a feasibility study,
an engineering evaluation, a cost analysis and a remedial design for the
Tittabawassee River, Saginaw River and Saginaw Bay. The Letter also included a
demand for $1.8 million for the EPA’s response costs through
October 31, 2008. Following the EPA’s provision of documentation of its
past costs to the Company, the Company invoked the dispute resolution provision
in the removal orders regarding the EPA past response costs and is negotiating a
resolution of the disputed costs with the EPA.
On
December 22, 2008, the Company indicated it was willing to enter into
negotiations, which commenced. On February 13, 2009, the Company made a
proposal to the EPA to perform the work. The Company was notified by the EPA on
June 2, 2009 that the EPA accepted the Company’s February 13, 2009
letter as a Good Faith Offer and negotiations were completed on
September 25, 2009. Following the Company’s execution of the AOC, the EPA
and the MDEQ issued the AOC for public comment on October 19, 2009. The
public comment period on the AOC ended December 17, 2009. On
January 14, 2010, the EPA and the State executed the AOC, making it
effective as of January 21, 2010.
The
AOC requires the Company to perform a remedial investigation, a feasibility
study, an engineering evaluation, a cost analysis and a remedial design for the
Tittabawassee River, Saginaw River and Saginaw Bay, and pay the oversight costs
of the EPA and the State, but defers the payment of the EPA and the State’s past
costs for subsequent negotiation under another order. The Tittabawassee River
and the first six miles of the Saginaw River are designated as the first
Operable Unit for purposes of the investigative and feasibility study work and
the work will be performed in a largely upriver to downriver sequence for
between five and seven geographic segments of the Tittabawassee and Upper
Saginaw Rivers. The remainder of the Saginaw River and Saginaw Bay are
designated as a second Operable Unit and that work may also be geographically
segmented. The AOC does not obligate the Company to perform removal or remedial
action; such work can only be required by a separate order.
Attached
to the AOC is language of a proposed modification to the License, which was
issued for a sixty day public comment period on February 4, 2010. If
approved, the modification will provide that work completed under the AOC
satisfies the comparable License requirement, unless the State invokes the
dispute resolution mechanism set forth in the AOC.
Corrective
action obligations with respect to the City of Midland remain under the
oversight of the State under the Resource Conservation Recovery Act (“RCRA”)
License. The Company and the State are in ongoing discussions regarding the
implementation of these corrective action requirements.
Alternative
Dispute Resolution Process
The
Framework contemplates that the Company, the State and other federal and tribal
governmental entities negotiate the terms of an agreement or agreements to
resolve potential governmental claims against the Company related to historical
off-site contamination associated with the Midland site. The Company and the
governmental parties began to meet in the fall of 2005 and entered into a
Confidentiality Agreement in December 2005. The Company continues to conduct
negotiations with the governmental parties under the Federal Alternative Dispute
Resolution Act.
On
September 12, 2007, the EPA issued a press release reporting that they were
withdrawing from the alternative dispute resolution process. On
September 28, 2007, the Company entered into a Funding and Participation
Agreement with the natural resource damage trustees that addressed the Company’s
payment of past costs incurred by the trustees, payment of the costs of a
trustee coordinator and a process to review additional cooperative studies that
the Company might agree to fund or conduct with the natural resource damage
trustees. On March 18, 2008, the Company and the natural resource damage
trustees entered into a Memorandum of Understanding to provide a mechanism for
the Company to fund cooperative studies related to the assessment of natural
resource damages. On April 7, 2008, the natural resource damage trustees
released their “Natural Resource Damage Assessment Plan for the Tittabawassee
River System Assessment Area.”
At
December 31, 2009, the Company had an accrual for off-site corrective
action of $25 million (included in the total accrued obligation of
$619 million). At December 31, 2008, the accrual for off-site
corrective action was $8 million (included in the total accrued obligation
of $312 million at December 31, 2008).
Environmental
Matters Summary
It
is the opinion of the Company’s management that the possibility is remote that
costs in excess of those disclosed will have a material adverse impact on the
Company’s consolidated financial statements.
Asbestos-Related
Matters of Union Carbide Corporation
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. Since then, the rate of filing has 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.
Based
on a study completed by Analysis, Research & Planning Corporation (“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. Since then, Union Carbide has compared current asbestos claim and
resolution activity to the results of the most recent ARPC study at each balance
sheet date to determine whether the accrual continues to be appropriate. In
addition, Union Carbide has requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity each November since 2004 to determine the
appropriateness of updating the most recent ARPC study.
In
November 2007, Union Carbide requested ARPC to review Union Carbide’s 2007
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2007. In December 2007, ARPC
stated that an update of its study would not provide a more likely estimate of
future events than the estimate 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, 2007, Union Carbide’s asbestos-related liability for
pending and future claims was $1.1 billion.
In
November 2008, Union Carbide requested ARPC to review Union Carbide’s historical
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2006 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2008. The resulting study, completed by
ARPC in December 2008, stated that the undiscounted cost of resolving pending
and future asbestos-related claims against Union Carbide and Amchem, excluding
future defense and processing costs, through 2023 was estimated to be between
$952 million and $1.2 billion. As in its earlier studies, ARPC
provided estimates for a longer period of time in its December 2008 study, but
also reaffirmed its prior advice that forecasts for shorter periods of time are
more accurate than those for longer periods of time.
In
December 2008, based on ARPC’s December 2008 study and Union Carbide’s own
review of the asbestos claim and resolution activity, Union Carbide decreased
its asbestos-related liability for pending and future claims to
$952 million, which covered the 15-year period ending 2023, excluding
future defense and processing costs. The reduction was $54 million and was
shown as “Asbestos-related credit” in the consolidated statements of income. At
December 31, 2008, the asbestos-related liability for pending and future
claims was $934 million.
In
November 2009, Union Carbide requested ARPC to review Union Carbide’s 2009
asbestos claim and resolution activity and determine the appropriateness of
updating its December 2008 study. In response to that request, ARPC
reviewed and analyzed data through October 31, 2009. In December 2009, ARPC
stated that an update of its study would not provide a more likely estimate of
future events than the estimate 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, 2009, Union Carbide’s asbestos-related liability for
pending and future claims was $839 million.
At
December 31, 2009, approximately 23 percent of the recorded liability
related to pending claims and approximately 77 percent related to future
claims. At December 31, 2008, approximately 21 percent of the recorded
liability related to pending claims and approximately 79 percent related to
future claims.
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. 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. The Wellington Agreement and other agreements with insurers
are designed to facilitate an orderly resolution and collection of Union
Carbide’s insurance policies and to resolve issues that the insurance carriers
may raise.
In
September 2003, Union Carbide filed a comprehensive insurance coverage case, now
proceeding in the Supreme Court of the State of New York, County of New York,
seeking to confirm its rights to insurance for various asbestos claims and to
facilitate an orderly and timely collection of insurance proceeds (the
“Insurance Litigation”). The Insurance Litigation 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, in order to facilitate an orderly resolution and collection
of such insurance policies and to resolve issues that the insurance carriers may
raise. Since the filing of the case, Union Carbide has reached settlements with
several of the carriers involved in the Insurance Litigation, including
settlements reached with two significant carriers in the fourth quarter of 2009,
resulting in a shift between receivable balances further discussed below. The
Insurance Litigation is ongoing.
Union
Carbide’s receivable for insurance recoveries related to its asbestos liability
was $84 million at December 31, 2009 and $403 million at
December 31, 2008. The decrease in the receivable was principally due to
settlements reached in the fourth quarter of 2009 with two significant carriers
involved in the Insurance Litigation. At December 31, 2009 and
December 31, 2008, all 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 to the receivable for insurance recoveries related to its asbestos
liability, Union Carbide had receivables for defense and resolution costs
submitted to insurance carriers that have settlement agreements in place
regarding their asbestos-related insurance coverage. The balance of these
receivables increased in 2009 principally as a result of settlements reached in
the fourth quarter of 2009 with two significant carriers involved in the
Insurance Litigation.
Receivables
for Costs Submitted to Insurance Carriers With Settlement Agreements
at
December 31
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Receivables
for defense costs
|
|
$ |
91 |
|
|
$ |
28 |
|
Receivables
for resolution costs
|
|
|
357 |
|
|
|
244 |
|
Total
|
|
$ |
448 |
|
|
$ |
272 |
|
Union
Carbide expenses defense costs as incurred. The pretax impact for defense and
resolution costs, net of insurance, was $58 million in 2009,
$53 million in 2008 and $84 million in 2007, and was reflected in
“Cost of sales.”
After
a 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, Union Carbide continues to believe that its recorded
receivable for insurance recoveries from all insurance carriers is probable of
collection.
The
amounts recorded by Union Carbide for the asbestos-related liability and related
insurance receivable described above were based upon current, known facts.
However, 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.
Synthetic
Rubber Industry Matters
In
2003, the U.S., Canadian and European competition authorities initiated separate
investigations into alleged anticompetitive behavior by certain participants in
the synthetic rubber industry. Certain subsidiaries of the Company (but as to
the investigation in Europe only) have responded to requests for documents and
are otherwise cooperating in the investigations.
On
June 10, 2005, the Company received a Statement of Objections from the
European Commission (the “EC”) stating that it believed that the Company and
certain subsidiaries of the Company (the “Dow Entities”), together with other
participants in the synthetic rubber industry, engaged in conduct in violation
of European competition laws with respect to the butadiene rubber and emulsion
styrene butadiene rubber businesses. In connection therewith, on
November 29, 2006, the EC issued its decision alleging infringement of
Article 81 of the Treaty of Rome and imposed a fine of
Euro 64.575 million (approximately $85 million) on the Dow
Entities; several other companies were also named and fined. As a result, the
Company recognized a loss contingency of $85 million related to the fine in
the fourth quarter of 2006. The Company has appealed the EC’s decision. On
October 13, 2009, the Court of First Instance held a hearing on the appeal
of all parties. Subsequent to the imposition of the fine, the Company and/or
certain subsidiaries of the Company became named parties in various related
U.S., United Kingdom and Italian civil actions.
Additionally,
on March 10, 2007, the Company received a Statement of Objections from the
EC stating that it believed that DuPont Dow Elastomers L.L.C. (“DDE”), a former
50:50 joint venture with E.I. du Pont de Nemours and Company (“DuPont”),
together with other participants in the synthetic rubber industry, engaged in
conduct in violation of European competition laws with respect to the
polychloroprene business. This Statement of Objections specifically names the
Company, in its capacity as a former joint venture owner of DDE. On
December 5, 2007, the EC announced its decision to impose a fine on the
Company, among others, in the amount of Euro 48.675 million
(approximately $70 million). The Company previously transferred its joint
venture ownership interest in DDE to DuPont in 2005, and DDE then changed its
name to DuPont Performance Elastomers L.L.C. (“DPE”). In February 2008, DuPont,
DPE and the Company each filed an appeal of the December 5, 2007 decision
of the EC. Based on the Company’s allocation agreement with DuPont, the
Company’s share of this fine, regardless of the outcome of the appeals, will not
have a material adverse impact on the Company’s consolidated financial
statements.
Rohm
and Haas Pension Plan Matters
In
December 2005, a federal judge in the U.S. District Court for the Southern
District of Indiana (the “District Court”) issued a decision granting a class of
participants in the Rohm and Haas Pension Plan (the “Rohm and Haas Plan”) who
had retired from Rohm and Haas, now a wholly owned subsidiary of the Company,
and who elected to receive a lump sum benefit from the Rohm and Haas Plan, the
right to a cost-of-living adjustment (“COLA”) as part of their retirement
benefit. In August 2007, the Seventh Circuit Court of Appeals affirmed the
District Court’s decision, and in March 2008, the U.S. Supreme Court denied
the Rohm and Haas Plan’s petition to review the Seventh Circuit’s decision. The
case was returned to the District Court for further proceedings. In
October 2008 and February 2009, the District Court issued rulings that
have the effect of including in the class all Rohm and Haas retirees who
received a lump sum distribution without a COLA from the Rohm and Haas Plan
since January 1976. These rulings are subject to appeal, and the District
Court has not yet determined the amount of the COLA benefits that may be due to
the class participants. The Rohm and Haas Plan and the plaintiffs entered into a
settlement agreement which was preliminarily approved by the District Court on
November 24, 2009. In addition to settling the litigation with respect to
the Rohm and Haas retirees, the settlement agreement provides for the amendment
of the complaint and amendment to the Rohm and Haas Plan to include active
employees. Notices of the proposed settlement have been provided to class
members, and a hearing has been set for March 12, 2010, to determine
whether the settlement will be finally approved.
A
pension liability associated with this matter of $185 million was
recognized as part of the acquisition of Rohm and Haas on April 1, 2009.
The liability, which was determined in accordance with the accounting guidance
for contingencies, recognized the estimated impact of the above described
judicial decisions on the long-term Rohm and Haas Plan obligations owed to the
applicable Rohm and Haas retirees and active employees. At December 31,
2009, the Company had a liability of $183 million associated with this
matter.
Other
Litigation Matters
In
addition to breast implant, DBCP, environmental and synthetic rubber industry
matters, the Company is party to a number of other claims and lawsuits arising
out of the normal course of business with respect to commercial matters,
including product liability, governmental regulation and other actions. Certain
of these actions purport to be class actions and seek damages in very large
amounts. All such claims are being contested. Dow has an active risk management
program consisting of numerous insurance policies secured from many carriers at
various times. These policies provide coverage that will be utilized to minimize
the impact, if any, of the contingencies described above.
Summary
Except
for the possible effect of Union Carbide’s asbestos-related liability described
above, it is the opinion of the Company’s management that the possibility is
remote that the aggregate of all claims and lawsuits will have a material
adverse impact on the Company’s consolidated financial statements.
Purchase
Commitments
The
Company has numerous agreements for the purchase of ethylene-related products
globally. The purchase prices are determined primarily on a cost-plus basis.
Total purchases under these agreements were $784 million in 2009,
$1,502 million in 2008 and $1,624 million in 2007. The Company’s
take-or-pay commitments associated with these agreements at December 31,
2009 are included in the table below.
The
Company also has various commitments for take-or-pay and throughput agreements.
Such commitments are at prices not in excess of current market prices. The terms
of all but two of these agreements extend from one to 25 years. One agreement
has terms extending to 35 years and another has terms extending to
80 years. The determinable future commitments for these agreements are
included for 10 years in the following table which presents the fixed and
determinable portion of obligations under the Company’s purchase commitments at
December 31, 2009:
Fixed
and Determinable Portion of Take-or-Pay and
Throughput
Obligations at December 31, 2009
In
millions
|
|
2010
|
|
$ |
2,845 |
|
2011
|
|
|
2,655 |
|
2012
|
|
|
1,716 |
|
2013
|
|
|
1,088 |
|
2014
|
|
|
944 |
|
2015
and beyond
|
|
|
5,969 |
|
Total
|
|
$ |
15,217 |
|
In
addition to the take-or-pay obligations at December 31, 2009, the Company
had outstanding commitments which ranged from one to seven years for steam,
electrical power, materials, property and other items used in the normal course
of business of approximately $48 million. Such commitments were at prices
not in excess of current market prices.
Guarantees
The
Company provides a variety of guarantees, as described more fully in the
following sections.
Guarantees
Guarantees
arise during the ordinary course of business from relationships with customers
and nonconsolidated affiliates when the Company undertakes an obligation to
guarantee the performance of others (via delivery of cash or other assets) if
specified triggering events occur. With guarantees, such as commercial or
financial contracts, non-performance by the guaranteed party triggers the
obligation of the Company to make payments to the beneficiary of the guarantee.
The majority of the Company’s guarantees relate to debt of nonconsolidated
affiliates, which have expiration dates ranging from less than one year to
eleven years, and trade financing transactions in Latin America and Asia
Pacific, which typically expire within one year of their inception. The
Company’s current expectation is that future payment or performance related to
the non-performance of others is considered unlikely.
Residual
Value Guarantees
The
Company provides guarantees related to leased assets specifying the residual
value that will be available to the lessor at lease termination through sale of
the assets to the lessee or third parties.
The
following tables provide a summary of the final expiration, maximum future
payments and recorded liability reflected in the consolidated balance sheets for
each type of guarantee:
Guarantees
at December 31, 2009
In
millions
|
Final
Expiration
|
|
Maximum
Future Payments
|
|
|
Recorded
Liability
|
|
Guarantees
|
2020
|
|
$ |
358 |
|
|
$ |
52 |
|
Residual
value guarantees
|
2014
|
|
|
695 |
|
|
|
5 |
|
Total
guarantees
|
|
|
$ |
1,053 |
|
|
$ |
57 |
|
Guarantees
at December 31, 2008
In
millions
|
Final
Expiration
|
|
Maximum
Future Payments
|
|
|
Recorded
Liability
|
|
Guarantees
|
2014
|
|
$ |
330 |
|
|
$ |
23 |
|
Residual
value guarantees
|
2015
|
|
|
985 |
|
|
|
4 |
|
Total
guarantees
|
|
|
$ |
1,315 |
|
|
$ |
27 |
|
Asset
Retirement Obligations
Dow
has 214 manufacturing sites in 37 countries. Most of these sites
contain numerous individual manufacturing operations, particularly at the
Company’s larger sites. Asset retirement obligations are recorded as incurred
and reasonably estimable, including obligations for which the timing and/or
method of settlement are conditional on a future event that may or may not be
within the control of the Company. The retirement of assets may involve such
efforts as remediation and treatment of asbestos, contractually required
demolition, and other related activities, depending on the nature and location
of the assets, and retirement obligations are typically realized only upon
demolition of those facilities. In identifying asset retirement obligations, the
Company considers identification of legally enforceable obligations, changes in
existing law, estimates of potential settlement dates and the calculation of an
appropriate discount rate to be used in calculating the fair value of the
obligations. Dow has a well-established global process to identify, approve and
track the demolition of retired or to-be-retired facilities; and no assets are
retired from service until this process has been followed. Dow typically
forecasts demolition projects based on the usefulness of the assets;
environmental, health and safety concerns; and other similar considerations.
Under this process, as demolition projects are identified and approved,
reasonable estimates are determined for the time frames during which any related
asset retirement obligations are expected to be settled. For those assets where
a range of potential settlement dates may be reasonably estimated, obligations
are recorded. Dow routinely reviews all changes to items under consideration for
demolition to determine if an adjustment to the value of the asset retirement
obligation is required.
The
Company has recognized asset retirement obligations for the following
activities: demolition and remediation activities at manufacturing sites in the
United States, Canada, Brazil and Europe; and capping activities at landfill
sites in the United States, Canada, Brazil and Europe. The Company has also
recognized conditional asset retirement obligations related to asbestos
encapsulation as a result of planned demolition and remediation activities at
manufacturing and administrative sites in the United States, Canada, Brazil and
Europe. The aggregate carrying amount of conditional asset retirement
obligations recognized by the Company (included in the asset retirement
obligations balance) was $41 million at December 31, 2009 and
2008.
The
following table shows changes in the aggregate carrying amount of the Company’s
asset retirement obligations:
Asset
Retirement Obligations
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$ |
106 |
|
|
$ |
116 |
|
Additional
accruals (1)
|
|
|
7 |
|
|
|
7 |
|
Assumed
from Rohm and Haas (2)
|
|
|
13 |
|
|
|
- |
|
Sold
with Salt business (3)
|
|
|
(12 |
) |
|
|
- |
|
Liabilities
settled
|
|
|
(21 |
) |
|
|
(14 |
) |
Accretion
expense
|
|
|
1 |
|
|
|
3 |
|
Revisions
in estimated cash flows
|
|
|
1 |
|
|
|
1 |
|
Other
|
|
|
6 |
|
|
|
(7 |
) |
Balance
at December 31
|
|
$ |
101 |
|
|
$ |
106 |
|
(1)
|
In
2008, the Company recognized asset retirement obligations of
$4 million related to the 2008 restructuring plan (see
Note C). |
|
The
discount rate used to calculate the Company’s asset retirement obligations at
December 31, 2009 was 2.45 percent (7.13 percent at
December 31, 2008). These obligations are included in the consolidated
balance sheets as “Other noncurrent obligations.”
The
Company has not recognized conditional asset retirement obligations for which a
fair value cannot be reasonably estimated in its consolidated financial
statements. Assets that have not been submitted/reviewed for potential
demolition activities are considered to have continued usefulness and are
generally still operating normally. Therefore, without a plan to demolish the
assets or the expectation of a plan, such as shortening the useful life of
assets for depreciation purposes in accordance with the accounting guidance
related to property, plant and equipment, the Company is unable to reasonably
forecast a time frame to use for present value calculations. As such, the
Company has not recognized obligations for individual plants/buildings at its
manufacturing sites where estimates of potential settlement dates cannot be
reasonably made. In addition, the Company has not recognized conditional asset
retirement obligations for the capping of its approximately 52 underground
storage wells at Dow-owned sites when there are no plans or expectations of
plans to exit the sites. It is the opinion of the Company’s management that the
possibility is remote that such conditional asset retirement obligations, when
estimable, will have a material adverse impact on the Company’s consolidated
financial statements based on current costs.
NOTE
O – NOTES PAYABLE, LONG-TERM DEBT AND AVAILABLE CREDIT FACILITIES
Notes
Payable at December 31
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Commercial
paper
|
|
$ |
721 |
|
|
$ |
1,597 |
|
Notes
payable to banks
|
|
|
1,285 |
|
|
|
661 |
|
Notes
payable to related companies
|
|
|
131 |
|
|
|
102 |
|
Notes
payable trade
|
|
|
2 |
|
|
|
- |
|
Total
notes payable
|
|
$ |
2,139 |
|
|
$ |
2,360 |
|
Year-end
average interest rates
|
|
|
2.18 |
% |
|
|
4.04 |
% |
Long-Term
Debt at December 31
In
millions
|
|
2009
Average Rate
|
|
|
2009
|
|
|
2008
Average Rate
|
|
|
2008
|
|
Promissory
notes and debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Final
maturity 2009
|
|
|
- |
|
|
|
- |
|
|
|
6.76 |
% |
|
$ |
682 |
|
Final
maturity 2010
|
|
|
9.13 |
% |
|
$ |
281 |
|
|
|
9.14 |
% |
|
|
275 |
|
Final
maturity 2011
|
|
|
5.32 |
% |
|
|
1,054 |
|
|
|
6.13 |
% |
|
|
806 |
|
Final
maturity 2012
|
|
|
5.14 |
% |
|
|
2,280 |
|
|
|
6.00 |
% |
|
|
907 |
|
Final
maturity 2013
|
|
|
6.05 |
% |
|
|
389 |
|
|
|
6.85 |
% |
|
|
139 |
|
Final
maturity 2014
|
|
|
7.60 |
% |
|
|
1,750 |
|
|
|
- |
|
|
|
- |
|
Final
maturity 2015 and thereafter
|
|
|
7.70 |
% |
|
|
10,130 |
|
|
|
7.05 |
% |
|
|
2,682 |
|
Other
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
dollar loans, various rates and maturities
|
|
|
1.95 |
% |
|
|
35 |
|
|
|
2.43 |
% |
|
|
700 |
|
Foreign
currency loans, various rates and maturities
|
|
|
3.65 |
% |
|
|
754 |
|
|
|
3.23 |
% |
|
|
73 |
|
Medium-term
notes, varying maturities through 2022
|
|
|
6.39 |
% |
|
|
1,624 |
|
|
|
6.25 |
% |
|
|
1,072 |
|
Foreign
medium-term notes, various rates and maturities
|
|
|
4.13 |
% |
|
|
1 |
|
|
|
4.13 |
% |
|
|
1 |
|
Foreign
medium-term notes, final maturity 2010, Euro
|
|
|
4.37 |
% |
|
|
576 |
|
|
|
4.37 |
% |
|
|
561 |
|
Foreign
medium-term notes, final maturity 2011, Euro
|
|
|
4.63 |
% |
|
|
713 |
|
|
|
4.63 |
% |
|
|
690 |
|
Pollution
control/industrial revenue bonds, varying maturities through
2038
|
|
|
5.21 |
% |
|
|
1,114 |
|
|
|
5.61 |
% |
|
|
904 |
|
Capital
lease obligations
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
46 |
|
Unamortized
debt discount
|
|
|
- |
|
|
|
(485 |
) |
|
|
- |
|
|
|
(15 |
) |
Unexpended
construction funds
|
|
|
- |
|
|
|
(26 |
) |
|
|
- |
|
|
|
(27 |
) |
Long-term
debt due within one year
|
|
|
- |
|
|
|
(1,082 |
) |
|
|
- |
|
|
|
(1,454 |
) |
Total
long-term debt
|
|
|
- |
|
|
$ |
19,152 |
|
|
|
- |
|
|
$ |
8,042 |
|
Annual
Installments on Long-Term Debt for Next Five Years
In
millions
|
|
2010
|
|
$ |
1,082 |
|
2011
|
|
$ |
1,796 |
|
2012
|
|
$ |
2,843 |
|
2013
|
|
$ |
862 |
|
2014
|
|
$ |
2,201 |
|
On
March 9, 2009, the Company borrowed $3 billion under its Five Year
Competitive Advance and Revolving Credit Facility Agreement, dated
April 24, 2006; $1.6 billion of the funds were repaid on May 15,
2009; $0.5 billion of the funds were repaid on June 30, 2009; and the
remaining $0.9 billion of the funds were repaid on December 30, 2009. The funds
were due in April 2011 and bore interest at a variable London Interbank Offered
Rate (“LIBOR”)-plus rate or Base rate as defined in the Agreement. The Company
used the funds to finance day-to-day operations, to repay indebtedness maturing
in the ordinary course of business and for other general corporate purposes. At
December 31, 2009, the Company had an unused and committed balance of
$3 billion under the Agreement.
Debt
financing for the acquisition of Rohm and Haas was provided by a
$9,226 million draw on a Term Loan Agreement dated September 8, 2008
(“Term Loan”) on April 1, 2009. The original maturity date of the Term Loan
was April 1, 2010, provided however, that the maturity date could have been
extended for an additional year at the option of the Company, for a maximum
outstanding balance of $8.0 billion. Prepaid up-front debt issuance costs
of $304 million were paid. Amortization of the prepaid costs was
accelerated concurrent with the repayment of the Term Loan. The Term Loan was
repaid through a combination of proceeds obtained through asset sales and the
issuance of debt and equity securities. At December 31, 2009, the Term Loan
balance was zero and the Term Loan was terminated.
On
May 7, 2009, the Company issued $6 billion of debt securities in a
public offering. The offering included $1.75 billion aggregate principal
amount of 7.6 percent notes due 2014; $3.25 billion aggregate
principal amount of 8.55 percent notes due 2019; and $1 billion
aggregate principal amount of 9.4 percent notes due 2039. Aggregate
principal amount of $1.35 billion of the 8.55 percent notes due 2019
were offered by accounts and funds managed by Paulson & Co. Inc. and
trusts created by members of the Haas family. These investors received notes
from the Company in payment for 1.3 million shares of the Company’s
Perpetual Preferred Stock, Series B, at par plus accrued dividends (see
Note V for further information). The Company used the net proceeds received
from this offering for refinancing, renewals, replacements and refunding of
outstanding indebtedness, including repayment of a portion of the Term
Loan.
On
August 4, 2009, the Company issued $2.75 billion of debt securities in
a public offering. The offering included $1.25 billion aggregate principal
amount of 4.85 percent notes due 2012; $1.25 billion aggregate
principal amount of 5.90 percent notes due 2015; and $0.25 billion
aggregate principal amount of LIBOR-plus based floating rate notes due 2011. The
Company used the net proceeds received from this offering for refinancing,
renewals, replacements and refunding of outstanding indebtedness, including
repayment of a portion of the Term Loan.
The
fair value of debt assumed from Rohm and Haas on April 1, 2009 of
$2,576 million is reflected in the long-term debt table above. On
August 21, 2009, the Company executed a buy-back of 175 million Euro
of private placement debt acquired from Rohm and Haas and recognized a
$56 million pretax loss on this early extinguishment, included in “Sundry
income – net.”
On
September 28, 2009, Calvin Capital LLC, a wholly owned subsidiary of the
Company, repaid a $674 million note payable which was issued in September
2008.
The
Company’s outstanding debt of $20.2 billion has been issued under
indentures which contain, among other provisions, covenants with which the
Company must comply while the underlying notes are outstanding. Such covenants
include obligations to not allow liens on principal U.S. manufacturing
facilities, enter into sale and lease-back transactions with respect to
principal U.S. manufacturing facilities, or merge or consolidate with any other
corporation, or sell or convey all or substantially all of the Company’s assets.
The outstanding debt also contains customary default provisions. Failure of the
Company to comply with any of these covenants could result in a default under
the applicable indenture, which would allow the note holders to accelerate the
due date of the outstanding principal and accrued interest on the subject
notes.
The
Company’s primary credit agreements contain covenant and default provisions in
addition to the covenants set forth above with respect to the Company’s debt.
Significant other covenants and default provisions related to these agreements
include:
|
(a)
|
the
obligation to maintain the ratio of the Company’s consolidated
indebtedness to consolidated capitalization at no greater than 0.65 to
1.00 at any time the aggregate outstanding amount of loans under the
primary credit agreements exceeds
$500 million,
|
|
(b)
|
a
default if the Company or an applicable subsidiary fails to make any
payment on indebtedness of $50 million or more when due, or any other
default under the applicable agreement permits the acceleration of
$200 million or more of principal, or results in the acceleration of
$100 million or more of principal,
and
|
|
(c)
|
a
default if the Company or any applicable subsidiary fails to discharge or
stay within 30 days after the entry of a final judgment of more than
$200 million.
|
Failure
of the Company to comply with any of the covenants or default provisions could
result in a default under the applicable credit agreement which would allow the
lenders to not fund future loan requests and to accelerate the due date of the
outstanding principal and accrued interest on any outstanding
loans.
At
December 31, 2009, management believes the Company was in compliance with
all of the covenants and default provisions referred to above.
NOTE
P – PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Acquisition
of Rohm and Haas
With
the April 1, 2009 acquisition of Rohm and Haas (see Note D), the
Company assumed sponsorship of qualified and non-qualified pension and other
postretirement benefit plans that provide defined benefits to U.S. and non-U.S.
employees. As a result, the Company acquired the following plan assets and
obligations from Rohm and Haas:
Plan
Assets and Obligations Acquired from Rohm and Haas
on April 1, 2009
(1)
|
|
In
millions
|
|
Defined
Benefit Pension
Plans
|
|
|
Other
Postretirement Benefits
|
|
Fair
value of plan assets
|
|
$ |
1,439 |
|
|
$ |
18 |
|
Projected
benefit obligation
|
|
$ |
2,168 |
|
|
$ |
338 |
|
(1)
|
Does
not include plan assets and obligations of Morton that were sold to K+S on
October 1, 2009 (see Note E). |
|
Pension
Plans
The
Company has defined benefit pension plans that cover employees in the United
States and a number of other countries. The U.S. qualified plan covering the
parent company is the largest plan. Benefits are based on length of service and
the employee’s three highest consecutive years of compensation. Employees hired
after January 1, 2008 earn benefits that are based on a set percentage of
annual pay, plus interest.
The
Company’s funding policy is to contribute to the plans when pension laws and/or
economics either require or encourage funding. In 2009, Dow contributed
$355 million to its pension plans, including contributions to fund benefit
payments for its non-qualified supplemental plans. Dow expects to contribute
$304 million to its pension plans in 2010.
The
weighted-average assumptions used to determine pension plan obligations and net
periodic benefit costs for the plans are provided in the two tables
below:
Weighted-Average
Assumptions
for
All Pension Plans
|
|
Benefit
Obligations
at December 31 (1)
|
|
|
Net
Periodic Costs
for the Year (1)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
5.71 |
% |
|
|
6.35 |
% |
|
|
6.53 |
% |
|
|
6.33 |
% |
Rate
of increase in future compensation levels
|
|
|
4.14 |
% |
|
|
4.14 |
% |
|
|
4.01 |
% |
|
|
4.14 |
% |
Expected
long-term rate of return on plan assets
|
|
|
- |
|
|
|
- |
|
|
|
8.03 |
% |
|
|
8.12 |
% |
Weighted-Average
Assumptions
for
U.S. Pension Plans
|
|
Benefit
Obligations
at December 31 (1)
|
|
|
Net
Periodic Costs
for the Year (1)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
5.97 |
% |
|
|
6.61 |
% |
|
|
6.82 |
% |
|
|
6.75 |
% |
Rate
of increase in future compensation levels
|
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.31 |
% |
|
|
4.50 |
% |
Expected
long-term rate of return on plan assets
|
|
|
- |
|
|
|
- |
|
|
|
8.46 |
% |
|
|
8.44 |
% |
|
2008
assumptions do not include Rohm and Haas plans acquired on April 1,
2009.
|
|
The
Company determines the expected long-term rate of return on plan assets by
performing a detailed analysis of key economic and market factors driving
historical returns for each asset class and formulating a projected return based
on factors in the current environment. Factors considered include, but are not
limited to, inflation, real economic growth, interest rate yield, interest rate
spreads, and other valuation measures and market metrics. The expected long-term
rate of return for each asset class is then weighted based on the strategic
asset allocation approved by the governing body for each plan. The Company’s
historical experience with the pension fund asset performance is also
considered. A similar process is followed in determining the expected long-term
rate of return for assets held in the Company’s other postretirement benefit
plan trusts. The discount rates utilized to measure the pension and other
postretirement obligations of the U.S. qualified plans are based on the yield on
high-quality fixed income investments at the measurement date. Future expected
actuarially determined cash flows of Dow’s major U.S. plans are matched against
the Citigroup Pension Discount Curve (Above Median) to arrive at a single
discount rate by plan.
The
accumulated benefit obligation for all defined benefit pension plans was
$18.9 billion at December 31, 2009 and $14.9 billion at
December 31, 2008.
Pension
Plans with Accumulated Benefit Obligations in Excess of Plan Assets at
December 31
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Projected
benefit obligations
|
|
$ |
18,113 |
|
|
$ |
13,514 |
|
Accumulated
benefit obligations
|
|
$ |
17,277 |
|
|
$ |
13,027 |
|
Fair
value of plan assets
|
|
$ |
12,679 |
|
|
$ |
9,536 |
|
In
addition to the U.S. qualified plan, U.S. employees are eligible to participate
in defined contribution plans (Employee Savings Plans) by contributing a portion
of their compensation, which is partially matched by the Company. Defined
contribution plans also cover employees in some subsidiaries in other countries,
including Australia, Brazil, Canada, Italy, Spain and the United Kingdom.
Expense recognized for all defined contribution plans was $156 million in
2009, $49 million in 2008 and $125 million in 2007.
Other
Postretirement Benefits
The
Company provides certain health care and life insurance benefits to retired
employees. The Company’s plans outside of the United States are not significant;
therefore, this discussion relates to the U.S. plans only. The plans provide
health care benefits, including hospital, physicians’ services, drug and major
medical expense coverage, and life insurance benefits. For employees hired
before January 1, 1993, the plans provide benefits supplemental to Medicare
when retirees are eligible for these benefits. The Company and the retiree share
the cost of these benefits, with the Company portion increasing as the retiree
has increased years of credited service, although there is a cap on the Company
portion. The Company has the ability to change these benefits at any time.
Employees hired after January 1, 2008 are not covered under the
plans.
The
Company funds most of the cost of these health care and life insurance benefits
as incurred. In 2009, Dow did not make any contributions to its other
postretirement benefit plan trusts. Likewise, Dow does not expect to contribute
assets to its other postretirement benefits plan trusts in 2010.
The
weighted-average assumptions used to determine other postretirement benefit
obligations and net periodic benefit costs for the U.S. plans are provided
below:
U.S.
Plan Assumptions for Other Postretirement Benefits
|
|
Benefit
Obligations
at
December 31
|
|
|
Net
Periodic Costs
for
the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
5.69 |
% |
|
|
6.91 |
% |
|
|
7.11 |
% |
|
|
6.57 |
% |
Expected
long-term rate of return on plan assets
|
|
|
- |
|
|
|
- |
|
|
|
5.15 |
% |
|
|
6.75 |
% |
Initial
health care cost trend rate
|
|
|
9.13 |
% |
|
|
9.72 |
% |
|
|
9.71 |
% |
|
|
10.30 |
% |
Ultimate
health care cost trend rate
|
|
|
5.00 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
Year
ultimate trend rate to be reached
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2018 |
|
|
|
2014 |
|
Increasing
the assumed medical cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31,
2009 by $3 million and the net periodic postretirement benefit cost for the
year by $1 million. Decreasing the assumed medical cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 2009 by $23 million and decrease
the net periodic postretirement benefit cost for the year by
$1 million.
Net
Periodic Benefit Cost for All Significant Plans
|
|
|
|
Defined
Benefit Pension Plans
|
|
|
Other
Postretirement Benefits
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
270 |
|
|
$ |
264 |
|
|
$ |
289 |
|
|
$ |
16 |
|
|
$ |
18 |
|
|
$ |
21 |
|
Interest
cost
|
|
|
1,081 |
|
|
|
961 |
|
|
|
881 |
|
|
|
138 |
|
|
|
117 |
|
|
|
113 |
|
Expected
return on plan assets
|
|
|
(1,254 |
) |
|
|
(1,232 |
) |
|
|
(1,179 |
) |
|
|
(17 |
) |
|
|
(29 |
) |
|
|
(34 |
) |
Amortization
of prior service cost (credit)
|
|
|
31 |
|
|
|
32 |
|
|
|
23 |
|
|
|
(3 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Amortization
of unrecognized loss (gain)
|
|
|
106 |
|
|
|
43 |
|
|
|
191 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
3 |
|
Curtailment/settlement/other
costs (1)
|
|
|
13 |
|
|
|
54 |
|
|
|
11 |
|
|
|
- |
|
|
|
34 |
|
|
|
6 |
|
Net
periodic benefit cost
|
|
$ |
247 |
|
|
$ |
122 |
|
|
$ |
216 |
|
|
$ |
133 |
|
|
$ |
135 |
|
|
$ |
105 |
|
(1)
|
See
Note C for information regarding curtailment and settlement costs recorded
in 2009, 2008 and 2007.
|
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other
Comprehensive Income
for
All Significant Plans
|
|
|
|
Defined
Benefit Pension Plans
|
|
|
Other
Postretirement Benefits
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
loss (gain)
|
|
$ |
804 |
|
|
$ |
4,669 |
|
|
$ |
(1,593 |
) |
|
$ |
(114 |
) |
|
$ |
23 |
|
|
$ |
(201 |
) |
Prior
service cost
|
|
|
2 |
|
|
|
4 |
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Amortization
of prior service (cost) credit
|
|
|
(31 |
) |
|
|
(32 |
) |
|
|
(23 |
) |
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
Amortization
of unrecognized (loss) gain
|
|
|
(119 |
) |
|
|
(43 |
) |
|
|
(191 |
) |
|
|
1 |
|
|
|
1 |
|
|
|
(3 |
) |
Total
recognized in other comprehensive loss (income)
|
|
$ |
656 |
|
|
$ |
4,598 |
|
|
$ |
(1,667 |
) |
|
$ |
(110 |
) |
|
$ |
28 |
|
|
$ |
(198 |
) |
Total
recognized in net periodic benefit cost and other comprehensive loss
(income)
|
|
$ |
903 |
|
|
$ |
4,720 |
|
|
$ |
(1,451 |
) |
|
$ |
23 |
|
|
$ |
163 |
|
|
$ |
(93 |
) |
Change
in Projected Benefit Obligations, Plan Assets and Funded Status of All
Significant Plans
|
|
In
millions
|
|
Defined
Benefit
Pension Plans
|
|
|
Other
Postretirement
Benefits
|
|
Change
in projected benefit obligations
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Benefit
obligation at beginning of year
|
|
$ |
15,573 |
|
|
$ |
15,604 |
|
|
$ |
1,821 |
|
|
$ |
1,890 |
|
Service
cost
|
|
|
270 |
|
|
|
264 |
|
|
|
16 |
|
|
|
18 |
|
Interest
cost
|
|
|
1,081 |
|
|
|
961 |
|
|
|
138 |
|
|
|
117 |
|
Plan
participants’ contributions
|
|
|
27 |
|
|
|
21 |
|
|
|
- |
|
|
|
- |
|
Amendments
|
|
|
2 |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
Actuarial
changes in assumptions and experience
|
|
|
1,718 |
|
|
|
72 |
|
|
|
(75 |
) |
|
|
(71 |
) |
Acquisition/divestiture/other
activity
|
|
|
2,175 |
|
|
|
(8 |
) |
|
|
336 |
|
|
|
- |
|
Benefits
paid
|
|
|
(1,239 |
) |
|
|
(980 |
) |
|
|
(171 |
) |
|
|
(144 |
) |
Currency
impact
|
|
|
307 |
|
|
|
(420 |
) |
|
|
14 |
|
|
|
(23 |
) |
Termination
benefits/curtailment cost
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
34 |
|
Benefit
obligations at end of year
|
|
$ |
19,914 |
|
|
$ |
15,573 |
|
|
$ |
2,079 |
|
|
$ |
1,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
11,573 |
|
|
$ |
16,130 |
|
|
$ |
368 |
|
|
$ |
432 |
|
Actual
return on plan assets
|
|
|
2,155 |
|
|
|
(3,442 |
) |
|
|
56 |
|
|
|
(64 |
) |
Currency
impact
|
|
|
279 |
|
|
|
(341 |
) |
|
|
- |
|
|
|
- |
|
Employer
contributions
|
|
|
355 |
|
|
|
185 |
|
|
|
- |
|
|
|
- |
|
Plan
participants’ contributions
|
|
|
27 |
|
|
|
21 |
|
|
|
- |
|
|
|
- |
|
Acquisition/divestiture/other
activity
|
|
|
1,439 |
|
|
|
- |
|
|
|
18 |
|
|
|
- |
|
Benefits
paid
|
|
|
(1,239 |
) |
|
|
(980 |
) |
|
|
(75 |
) |
|
|
- |
|
Fair
value of plan assets at end of year
|
|
$ |
14,589 |
|
|
$ |
11,573 |
|
|
$ |
367 |
|
|
$ |
368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status at end of year
|
|
$ |
(5,325 |
) |
|
$ |
(4,000 |
) |
|
$ |
(1,712 |
) |
|
$ |
(1,453 |
) |
|
|
|
|
|
|
Net
amounts recognized in the consolidated balance sheets at December
31:
|
|
|
|
|
|
|
|
|
|
Noncurrent
assets
|
|
$ |
110 |
|
|
$ |
12 |
|
|
|
- |
|
|
|
- |
|
Current
liabilities
|
|
|
(54 |
) |
|
|
(45 |
) |
|
$ |
(89 |
) |
|
$ |
(54 |
) |
Noncurrent
liabilities
|
|
|
(5,381 |
) |
|
|
(3,967 |
) |
|
|
(1,623 |
) |
|
|
(1,399 |
) |
Net
amounts recognized in the consolidated balance sheets
|
|
$ |
(5,325 |
) |
|
$ |
(4,000 |
) |
|
$ |
(1,712 |
) |
|
$ |
(1,453 |
) |
|
|
|
|
|
|
Pretax
amounts recognized in AOCI at December 31:
|
|
Net
loss
|
|
$ |
6,376 |
|
|
$ |
5,691 |
|
|
$ |
(86 |
) |
|
$ |
27 |
|
Prior
service cost (credit)
|
|
|
216 |
|
|
|
245 |
|
|
|
(13 |
) |
|
|
(16 |
) |
Pretax
balance in AOCI at end of year
|
|
$ |
6,592 |
|
|
$ |
5,936 |
|
|
$ |
(99 |
) |
|
$ |
11 |
|
In
2010, an estimated net loss of $261 million and prior service cost of
$29 million for the defined benefit pension plans will be amortized from
AOCI to net periodic benefit cost. In 2010, an estimated net gain of
$1 million for other post retirement benefit plans will be amortized from
AOCI to net periodic benefit cost.
Estimated
Future Benefit Payments
The
estimated future benefit payments, reflecting expected future service, as
appropriate, are presented in the following table:
Estimated
Future Benefit Payments at December 31, 2009
|
|
In
millions
|
|
Defined
Benefit Pension
Plans
|
|
|
Other
Postretirement Benefits
|
|
2010
|
|
$ |
1,226 |
|
|
$ |
192 |
|
2011
|
|
|
1,236 |
|
|
|
194 |
|
2012
|
|
|
1,147 |
|
|
|
189 |
|
2013
|
|
|
1,163 |
|
|
|
181 |
|
2014
|
|
|
1,183 |
|
|
|
174 |
|
2015
through 2019
|
|
|
6,402 |
|
|
|
786 |
|
Total
|
|
$ |
12,357 |
|
|
$ |
1,716 |
|
Plan
Assets
Plan
assets consist mainly of equity and fixed income securities of U.S. and foreign
issuers, and may include alternative investments such as real estate, private
equity funds and absolute return strategies. At December 31, 2009, plan
assets totaled $14.6 billion and included Company common stock with a value
of $11 million (less than 1 percent of total plan assets). At
December 31, 2008, plan assets totaled $11.6 billion and included
Company common stock with a value of $7 million (less than 1 percent
of total plan assets).
Investment
Strategy and Risk Management for Plan Assets
The
Company’s investment strategy for the plan assets is to manage the assets in
relation to the liability in order to pay retirement benefits to plan
participants while minimizing cash contributions from the Company over the life
of the plans. This is accomplished by identifying and managing the exposure to
various market risks, diversifying investments in various asset classes and
earning an acceptable long-term rate of return consistent with an acceptable
degree of risk, while considering the liquidity needs of the plans.
The
plans are permitted to use derivative instruments for investment purposes, as
well as for hedging the underlying asset and liability exposure and rebalancing
the asset allocation. The plans use value at risk, stress testing, scenario
analysis and Monte Carlo simulation to monitor and manage risk in the
portfolios.
Equity
securities primarily include investments in large-cap companies located in the
United States or developed non-U.S. markets. Fixed income securities are
primarily invested in investment grade corporate bonds of companies from
diversified industries, U.S. treasuries, non-U.S. developed market securities
and U.S. agency mortgage backed securities. Alternative investments primarily
include investments in real estate, private equity funds and absolute return
strategies. Other significant investment types include insurance contracts and
interest rate, equity and foreign exchange derivative investments and
hedges.
Strategic
Weighted-Average Target Allocation of Plan Assets for All Significant
Plans
|
|
Asset
Category
|
|
Target
Allocation
|
|
Equity
securities
|
|
|
45 |
% |
Fixed
Income securities
|
|
|
35 |
% |
Alternative
investments
|
|
|
15 |
% |
Other
investments
|
|
|
5 |
% |
Total
|
|
|
100 |
% |
Concentration
of Risk
The
Company mitigates the credit risk of investments by establishing guidelines with
investment managers that limit investment in any single issue or issuer to an
amount that is not material to the portfolio being managed. These guidelines are
monitored for compliance both by the Company and external managers. Credit risk
for hedging activity is mitigated by utilizing multiple counterparties and
through collateral support agreements.
The
JP Morgan Federal Agency money market fund is utilized as the sweep vehicle for
the two largest U.S. plans, which from time to time can represent a significant
investment. For one U.S. plan, approximately half of the plan is covered by a
participating group annuity issued by Prudential Insurance Company.
The
following table summarizes the bases used to measure the Company’s pension plan
assets at fair value:
Basis
of Fair Value Measurements of Pension Plan Assets
at
December 31, 2009
In
millions
|
|
Quoted
Prices in Active Markets for Identical Items
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
$ |
100 |
|
|
$ |
730 |
|
|
|
- |
|
|
$ |
830 |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
equity (1)
|
|
|
1,774 |
|
|
$ |
142 |
|
|
|
- |
|
|
$ |
1,916 |
|
Non-U.S.
equity – developed countries
|
|
|
2,203 |
|
|
|
922 |
|
|
|
- |
|
|
|
3,125 |
|
Emerging
market
|
|
|
668 |
|
|
|
490 |
|
|
|
- |
|
|
|
1,158 |
|
Equity
derivatives
|
|
|
1 |
|
|
|
9 |
|
|
|
- |
|
|
|
10 |
|
Total
equity securities
|
|
$ |
4,646 |
|
|
$ |
1,563 |
|
|
|
- |
|
|
$ |
6,209 |
|
Fixed
income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government and municipalities
|
|
|
- |
|
|
$ |
991 |
|
|
|
- |
|
|
$ |
991 |
|
U.S.
agency and agency mortgage backed securities
|
|
|
- |
|
|
|
300 |
|
|
|
- |
|
|
|
300 |
|
Corporate
bonds – investment grade
|
|
|
- |
|
|
|
1,242 |
|
|
|
- |
|
|
|
1,242 |
|
Non-U.S.
governments – developed countries
|
|
|
- |
|
|
|
463 |
|
|
|
- |
|
|
|
463 |
|
Non-U.S.
corporate bonds – developed countries
|
|
|
- |
|
|
|
557 |
|
|
|
- |
|
|
|
557 |
|
Emerging
market debt
|
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
|
30 |
|
Other
asset-backed securities
|
|
|
- |
|
|
|
156 |
|
|
$ |
25 |
|
|
|
181 |
|
Convertible
bonds
|
|
$ |
50 |
|
|
|
386 |
|
|
|
- |
|
|
|
436 |
|
High
yield bonds
|
|
|
- |
|
|
|
176 |
|
|
|
25 |
|
|
|
201 |
|
Other
fixed income funds
|
|
|
- |
|
|
|
878 |
|
|
|
- |
|
|
|
878 |
|
Fixed
income derivatives
|
|
|
(7 |
) |
|
|
(36 |
) |
|
|
- |
|
|
|
(43 |
) |
Total
fixed income securities
|
|
$ |
43 |
|
|
$ |
5,143 |
|
|
$ |
50 |
|
|
$ |
5,236 |
|
Alternative
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
$ |
26 |
|
|
$ |
46 |
|
|
$ |
561 |
|
|
$ |
633 |
|
Private
equity
|
|
|
- |
|
|
|
- |
|
|
|
802 |
|
|
|
802 |
|
Absolute
return
|
|
|
- |
|
|
|
350 |
|
|
|
95 |
|
|
|
445 |
|
Total
alternative investments
|
|
$ |
26 |
|
|
$ |
396 |
|
|
$ |
1,458 |
|
|
$ |
1,880 |
|
Other
|
|
|
- |
|
|
$ |
391 |
|
|
$ |
43 |
|
|
$ |
434 |
|
Total
assets at fair value
|
|
$ |
4,815 |
|
|
$ |
8,223 |
|
|
$ |
1,551 |
|
|
$ |
14,589 |
|
(1)
|
Includes
$11 million of the Company’s common
stock.
|
For
pension or other post retirement benefit plan assets classified as Level 1
(measured using quoted prices in active markets), the total fair value is either
the price of the most recent trade at the time of the market close or the
official close price, as defined by the exchange on which the asset is most
actively traded on the last trading day of the period, multiplied by the number
of units held without consideration of transaction costs.
For
pension or other post retirement benefit plan assets classified as Level 2,
the fair value is based on the price a dealer would pay for the security or
similar securities, adjusted for any terms specific to that asset or liability.
Market inputs are obtained from well established and recognized vendors of
market data and subjected to tolerance/quality checks. For derivative assets and
liabilities, the fair value is calculated using standard industry models used to
calculate the fair value of the various financial instruments based on
significant observable market inputs, such as foreign exchange rates, commodity
prices, swap rates, interest rates and implied volatilities obtained from
various market sources.
For
all other pension or other post retirement benefit plan assets for which
observable inputs are used, fair value is derived through the use of fair value
models, such as a discounted cash flow model or other standard pricing
models.
For
pension or other post retirement benefit plan assets classified as Level 3,
the total fair value is based on significant unobservable inputs including
assumptions where there is little, if any, market activity for the investment.
Investment managers or fund managers provide valuations of the investment on a
monthly or quarterly basis. These valuations are reviewed for reasonableness
based on applicable sector, benchmark and company performance. Adjustments to
valuations are made where appropriate. Where available, audited financial
statements are obtained and reviewed for the investments as support for the
manager’s investment valuation.
The
following table summarizes the changes in fair value of Level 3 pension
plan assets for the year ended December 31, 2009:
Fair
Value Measurement of Level 3 Pension Plan Assets
In
millions
|
|
Equity
Securities
|
|
|
Fixed
Income Securities
|
|
|
Alternative
Investments
|
|
|
Other
Securities
|
|
|
Total
|
|
Balance
at January 1, 2009
|
|
$ |
3 |
|
|
$ |
28 |
|
|
$ |
1,242 |
|
|
$ |
20 |
|
|
$ |
1,293 |
|
Acquisitions
and divestitures
|
|
|
- |
|
|
|
44 |
|
|
|
257 |
|
|
|
20 |
|
|
|
321 |
|
Actual
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating
to assets sold during 2009
|
|
|
(16 |
) |
|
|
(6 |
) |
|
|
(23 |
) |
|
|
- |
|
|
|
(45 |
) |
Relating
to assets held at Dec. 31, 2009
|
|
|
16 |
|
|
|
13 |
|
|
|
(121 |
) |
|
|
2 |
|
|
|
(90 |
) |
Purchases,
sales and settlements
|
|
|
(3 |
) |
|
|
(29 |
) |
|
|
99 |
|
|
|
1 |
|
|
|
68 |
|
Foreign
currency impact
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
4 |
|
Balance
at December 31, 2009
|
|
|
- |
|
|
$ |
50 |
|
|
$ |
1,458 |
|
|
$ |
43 |
|
|
$ |
1,551 |
|
The
following table summarizes the bases used to measure the Company’s other
postretirement benefit plan assets at fair value:
Basis
of Fair Value Measurements of Other Postretirement Benefit Plan Assets at
December 31, 2009
In
millions
|
|
Quoted
Prices in Active Markets for Identical Items
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Total
|
|
Cash
and cash equivalents
|
|
|
- |
|
|
$ |
74 |
|
|
$ |
74 |
|
Equity
securities (1)
|
|
$ |
82 |
|
|
|
- |
|
|
|
82 |
|
Fixed
income securities
|
|
|
3 |
|
|
|
208 |
|
|
|
211 |
|
Total
assets at fair value
|
|
$ |
85 |
|
|
$ |
282 |
|
|
$ |
367 |
|
(1)
|
Includes
no common stock of the Company.
|
Leased
Property
The
Company routinely leases premises for use as sales and administrative offices,
warehouses and tanks for product storage, motor vehicles, railcars, computers,
office machines, and equipment under operating leases. In addition, the Company
leases a gas turbine and aircraft in the United States, and an ethylene plant in
The Netherlands. At the termination of the leases, the Company has the option to
purchase the ethylene plant and certain other leased equipment and buildings
based on a fair market value determination. In 2009, the Company purchased a
previously leased ethylene plant in Canada for $713 million.
Rental
expenses under operating leases, net of sublease rental income, were
$459 million in 2009, $439 million in 2008 and $445 million in
2007. Future minimum rental payments under operating leases with remaining
noncancelable terms in excess of one year are as follows:
Minimum
Operating Lease Commitments at December 31, 2009
In
millions
|
|
2010
|
|
$ |
245 |
|
2011
|
|
|
168 |
|
2012
|
|
|
132 |
|
2013
|
|
|
111 |
|
2014
|
|
|
85 |
|
2015
and thereafter
|
|
|
1,225 |
|
Total
|
|
$ |
1,966 |
|
NOTE
R – VARIABLE INTEREST ENTITIES
Nonconsolidated
Variable Interest Entities
The
Company leases an ethylene facility in The Netherlands from an owner trust that
is a variable interest entity (“VIE”). Dow is not the primary beneficiary of the
owner trust and is, therefore, not required to consolidate the owner trust.
Based on a valuation completed in mid-2003 when Dow entered into the lease, the
facility was valued at $394 million. Upon expiration of the lease, which
matures in 2014, Dow may purchase the facility for an amount based on a fair
market value determination. At December 31, 2009, Dow had provided to the
owner trust a residual value guarantee of $363 million, which represents
Dow’s maximum exposure to loss under the lease. Given the productive nature of
the facility, it is probable that the facility will have continuing value to Dow
or the owner trust in excess of the residual value guarantee. See Note B
for information regarding the anticipated impact of adopting ASU 2009-17,
“Consolidations (Topic 810): Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities,” on January 1,
2010.
The
Company holds a variable interest in a joint venture accounted for under the
equity method of accounting, acquired through the acquisition of Rohm and Haas
on April 1, 2009. The joint venture manufactures crude acrylic acid in the
United States and Germany on behalf of the Company and the other joint venture
partner. The variable interest relates to a cost-plus arrangement between the
joint venture and each joint venture partner. The Company is not the primary
beneficiary, as a majority of the joint venture’s output is sold to the other
joint venture partner, and therefore the entity is not consolidated. At
December 31, 2009, the Company’s investment in the joint venture was
$161 million, classified as “Investment in nonconsolidated affiliates” in
the consolidated balance sheet, representing the Company’s maximum exposure to
loss.
Consolidated
Variable Interest Entities
The
Company holds a variable interest in two joint ventures for which the Company is
the primary beneficiary. One joint venture is in the early stages of
constructing a manufacturing facility to produce propylene oxide in Thailand.
The Company’s variable interest in this joint venture relates to a cost-plus
arrangement between the joint venture and the Company that involves a majority
of the output and ensures a guaranteed return to the joint venture.
The
other joint venture was acquired through the acquisition of Rohm and Haas on
April 1, 2009. This joint venture manufactures products in Japan for the
semiconductor industry. Each joint venture partner holds several equivalent
variable interests, with the exception of a royalty agreement held exclusively
between the joint venture and the Company. In addition, the entire output of the
joint venture is sold to the Company for resale to third-party
customers.
As
the primary beneficiary of these two VIEs, the joint ventures’ assets,
liabilities and results of operations are included in the Company’s consolidated
financial statements. The other joint venture partners’ interest in results of
operations is reflected in “Net income attributable to noncontrolling interests”
in the consolidated statements of income. The other joint venture partners’
interest in the joint ventures’ assets and liabilities is reflected in
“Noncontrolling interests” in the consolidated balance sheet. The following
table summarizes the carrying amount of the two joint ventures’ assets and
liabilities included in the Company’s consolidated balance sheet, before
intercompany eliminations, at December 31, 2009:
VIE
Assets and Liabilities Included in the Consolidated Balance Sheet at
December 31
In
millions
|
|
2009
|
|
Current
assets
|
|
$ |
102 |
|
Property
|
|
|
455 |
|
Other
noncurrent assets
|
|
|
81 |
|
Total
assets
|
|
$ |
638 |
|
Current
liabilities
|
|
$ |
183 |
|
Long-term
debt
|
|
|
125 |
|
Other
noncurrent liabilities
|
|
|
43 |
|
Total
liabilities
|
|
$ |
351 |
|
In
September 2001, Hobbes Capital S.A. (“Hobbes”), a former consolidated foreign
subsidiary of the Company, issued $500 million of preferred securities in
the form of equity certificates. The certificates provided a floating rate of
return (which could be reinvested) based on LIBOR. Under the accounting guidance
for consolidation, Hobbes was a VIE and the Company was the primary beneficiary.
During the third quarter of 2008, the other partner of Hobbes redeemed its
$674 million ownership in Hobbes. Prior to redemption, the equity
certificates were classified as “Preferred Securities of Subsidiaries” and the
reinvested preferred returns were included in “Noncontrolling interests” in the
consolidated balance sheets. The preferred return was included in “Net income
attributable to noncontrolling interests” in the consolidated statements of
income.
NOTE
S – STOCK-BASED COMPENSATION
The
Company grants stock-based compensation to employees and non-employee directors
in the form of the Employees’ Stock Purchase Plan (“ESPP”) and stock option
plans, which include deferred and restricted stock. Information regarding these
plans is provided below.
Accounting
for Stock-Based Compensation
The
Company grants stock-based compensation awards that vest over a specified period
or upon employees meeting certain performance and/or retirement eligibility
criteria. The fair value of equity instruments issued to employees is measured
on the grant date and is recognized over the vesting period or, in the case of
retirement, from the grant date to the date on which retirement eligibility
provisions have been met and additional service is no longer
required.
The
Company uses a lattice-based option valuation model to estimate the fair value
of stock options and a Black-Scholes option valuation model for subscriptions to
purchase shares under the ESPP. The weighted-average assumptions used to
calculate total stock-based compensation are included in the following
table:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Dividend
yield
|
|
|
3.8 |
% |
|
|
4.4 |
% |
|
|
3.5 |
% |
Expected
volatility
|
|
|
43.78 |
% |
|
|
29.57 |
% |
|
|
23.33 |
% |
Risk-free
interest rate
|
|
|
1.61 |
% |
|
|
3.42 |
% |
|
|
4.89 |
% |
Expected
life of stock options granted during period
|
|
6.25
years
|
|
|
6
years
|
|
|
6
years
|
|
Life
of Employees’ Stock Purchase Plan
|
|
9
months
|
|
|
6.5
months
|
|
|
6.6
months
|
|
The
dividend yield assumption for 2009 was based on a 10-year dividend yield
average. In 2008 and 2007, the dividend yield assumption was based on the
Company’s current declared dividend as a percentage of the stock price on the
grant date. The expected volatility assumption for 2009 was based entirely on
historical daily volatility, while the expected volatility assumption for 2008
and 2007 was based on an equal weighting of the historical daily volatility and
current implied volatility from exchange-traded options for the contractual term
of the options. The risk-free interest rate for all years was based on the
weighted-average of U.S. Treasury strip rates over the contractual term of the
options. Based on an analysis of historical exercise patterns, exercise rates
were developed that resulted in an average life of 6.25 years for 2009 and 6
years for 2008 and 2007.
EMPLOYEES’
STOCK PURCHASE PLAN
On
February 13, 2003, the Board of Directors authorized a 10-year ESPP, which
was approved by stockholders at the Company’s annual meeting on May 8,
2003. Under the 2009 annual offering, most employees were eligible to purchase
shares of common stock of the Company valued at up to 20 percent of their
annual base earnings. The value is determined using the plan price multiplied by
the number of shares subscribed to by the employee. The plan price of the stock
is set each year at no less than 85 percent of market price. Approximately
36 percent of the eligible employees enrolled in the annual plan for 2009;
approximately 51 percent of the eligible employees enrolled in the annual
plan for 2008; and approximately 59 percent of the eligible employees
enrolled in 2007.
Employees’
Stock Purchase Plan
|
|
2009
|
|
Shares
in thousands
|
|
Shares
|
|
|
Exercise Price (1)
|
|
Outstanding
at beginning of year
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
10,538 |
|
|
$ |
20.81 |
|
Exercised
|
|
|
(6,563 |
) |
|
$ |
20.81 |
|
Forfeited/Expired
|
|
|
(3,975 |
) |
|
$ |
20.81 |
|
Outstanding
and exercisable at end of year
|
|
|
- |
|
|
|
- |
|
(1)
Weighted-average per share
|
|
|
|
|
|
|
|
|
Additional
Information about ESPP
In
millions, except per share amounts
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Weighted-average
fair value per share of purchase rights granted
|
|
$ |
1.00 |
|
|
$ |
4.33 |
|
|
$ |
10.62 |
|
Total
compensation expense for ESPP
|
|
$ |
10 |
|
|
$ |
20 |
|
|
$ |
57 |
|
Related
tax benefit
|
|
$ |
4 |
|
|
$ |
7 |
|
|
$ |
21 |
|
Total
amount of cash received from the exercise of purchase
rights
|
|
$ |
137 |
|
|
$ |
32 |
|
|
$ |
145 |
|
Total
intrinsic value of purchase rights exercised (1)
|
|
$ |
38 |
|
|
$ |
3 |
|
|
$ |
65 |
|
Related
tax benefit
|
|
$ |
14 |
|
|
$ |
1 |
|
|
$ |
24 |
|
(1)
Difference between the market price at exercise and the price paid by the
employee to exercise the purchase rights
|
|
STOCK
OPTION PLANS
Under
the 1988 Award and Option Plan (the “1988 Plan”), a plan approved by
stockholders, the Company may grant options or shares of common stock to its
employees subject to certain annual and individual limits. The terms of the
grants are fixed at the grant date. At December 31, 2009, there were
19,782,822 shares available for grant under this plan.
Under
the 1994 Non-Employee Directors’ Stock Plan, the Company was previously allowed
to grant up to 300,000 options to non-employee directors; however, no additional
grants will be made under this plan. At December 31, 2009, there were
34,650 options outstanding under this plan.
Under
the 1998 Non-Employee Directors’ Stock Plan, the Company was previously allowed
to grant up to 600,000 options to non-employee directors; however, no additional
grants will be made under this plan. At December 31, 2009, there were
112,600 options outstanding under this plan.
The
exercise price of each stock option equals the market price of the Company’s
stock on the date of grant. Options vest from one to three years, and have a
maximum term of 10 years.
The
following table provides stock option activity for 2009:
Stock
Options
|
|
2009
|
|
Shares
in thousands
|
|
Shares
|
|
|
Exercise Price (1)
|
|
Outstanding
at beginning of year
|
|
|
53,777 |
|
|
$ |
39.39 |
|
Granted
|
|
|
11,416 |
|
|
$ |
9.54 |
|
Exercised
|
|
|
(10 |
) |
|
$ |
27.55 |
|
Forfeited/Expired
|
|
|
(4,939 |
) |
|
$ |
33.52 |
|
Outstanding
at end of year
|
|
|
60,244 |
|
|
$ |
34.22 |
|
Remaining
contractual life in years
|
|
|
|
|
|
|
5.40 |
|
Aggregate
intrinsic value in millions
|
|
$ |
203 |
|
|
|
- |
|
Exercisable
at end of year
|
|
|
40,671 |
|
|
$ |
39.78 |
|
Remaining
contractual life in years
|
|
|
|
|
|
|
3.98 |
|
Aggregate
intrinsic value in millions
|
|
$ |
1 |
|
|
|
- |
|
(1)
Weighted-average per share
|
|
|
|
|
|
|
|
|
Additional
Information about Stock Options
In
millions, except per share amounts
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Weighted-average
fair value per share of options granted
|
|
$ |
2.60 |
|
|
$ |
8.88 |
|
|
$ |
9.81 |
|
Total
compensation expense for stock option plans
|
|
$ |
46 |
|
|
$ |
79 |
|
|
$ |
86 |
|
Related
tax benefit
|
|
$ |
17 |
|
|
$ |
29 |
|
|
$ |
32 |
|
Total
amount of cash received from the exercise of options
|
|
|
- |
|
|
$ |
40 |
|
|
$ |
235 |
|
Total
intrinsic value of options exercised (1)
|
|
|
- |
|
|
$ |
12 |
|
|
$ |
103 |
|
Related
tax benefit
|
|
|
- |
|
|
$ |
4 |
|
|
$ |
38 |
|
(1)
Difference between the market price at exercise and the price paid by the
employee to exercise the options
|
|
Total
unrecognized compensation cost related to unvested stock option awards was
$20 million at December 31, 2009 and is expected to be recognized over
a weighted-average period of 0.7 years.
Deferred
and Restricted Stock
Under
the 1988 Plan, the Company grants deferred stock to certain employees. The
grants vest after a designated period of time, generally two to five years. The
following table shows changes in nonvested deferred stock:
Deferred
Stock
|
|
2009
|
|
Shares
in thousands
|
|
Shares
|
|
|
Grant Date Fair Value
(1)
|
|
Nonvested
at beginning of year
|
|
|
8,116 |
|
|
$ |
43.73 |
|
Granted
|
|
|
6,155 |
|
|
$ |
11.70 |
|
Vested
|
|
|
(1,866 |
) |
|
$ |
43.32 |
|
Canceled
|
|
|
(192 |
) |
|
$ |
26.99 |
|
Nonvested
at end of year
|
|
|
12,213 |
|
|
$ |
27.91 |
|
(1)
Weighted-average per share
|
|
|
|
|
|
|
|
|
Additional
Information about Deferred Stock
|
|
|
|
|
|
|
|
|
|
In
millions, except per share amounts
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Weighted-average
fair value per share of deferred stock granted
|
|
$ |
11.70 |
|
|
$ |
38.38 |
|
|
$ |
43.61 |
|
Total
fair value of deferred stock vested and delivered (1)
|
|
$ |
20 |
|
|
$ |
11 |
|
|
$ |
24 |
|
Related
tax benefit
|
|
$ |
7 |
|
|
$ |
4 |
|
|
$ |
9 |
|
Total
compensation expense for deferred stock awards
|
|
$ |
80 |
|
|
$ |
95 |
|
|
$ |
76 |
|
Related
tax benefit
|
|
$ |
30 |
|
|
$ |
35 |
|
|
$ |
28 |
|
(1)
|
Includes
the fair value of shares vested in prior years and delivered in the
reporting year.
|
Total
unrecognized compensation cost related to deferred stock awards was
$63 million at December 31, 2009 and is expected to be recognized over
a weighted-average period of 0.81 years. At December 31, 2009,
approximately 212,595 deferred shares with a grant date weighted-average fair
value per share of $33.36 had previously vested, but were not issued. These
shares are scheduled to be issued to employees within one to four years or upon
retirement.
Also
under the 1988 Plan, the Company has granted performance deferred stock awards
that vest when the Company attains specified performance targets over a
predetermined period, generally one to three years. Compensation expense related
to performance deferred stock awards is recognized over the lesser of the
service or performance period. The following table shows the performance
deferred stock awards granted:
Performance
Deferred Stock Awards
|
|
|
|
|
|
|
Shares
in millions
|
Performance
Period
|
|
Target Shares Granted
(1)
|
|
|
Grant Date Fair Value
(2)
|
|
2009
|
October
1, 2009 – September 30, 2011
|
|
|
1.1 |
|
|
$ |
26.39 |
|
2009
|
January
1, 2009 – December 31, 2011
|
|
|
1.2 |
|
|
$ |
9.53 |
|
2008
|
January
1, 2008 – December 31, 2010
|
|
|
1.1 |
|
|
$ |
38.62 |
|
2007
|
January
1, 2007 – December 31, 2009
|
|
|
1.0 |
|
|
$ |
43.59 |
|
(1)
|
At
the end of the performance period, the actual number of shares issued can
range from zero to 250 percent of the target shares
granted. |
(2) |
Weighted-average
per share |
The
following table shows changes in nonvested performance deferred
stock:
Performance
Deferred Stock
|
|
2009
|
|
Shares
in thousands
|
|
Shares
|
|
|
Grant Date Fair Value
(1)
|
|
Nonvested
at beginning of year
|
|
|
1,995 |
|
|
$ |
40.95 |
|
Granted
|
|
|
2,339 |
|
|
$ |
18.02 |
|
Vested
|
|
|
(927 |
) |
|
$ |
43.59 |
|
Canceled
|
|
|
(51 |
) |
|
$ |
21.39 |
|
Nonvested
at end of year
|
|
|
3,356 |
|
|
$ |
24.54 |
|
(1) Weighted-average
per share
|
|
|
|
|
|
|
|
|
Additional
Information about Performance Deferred Stock
|
|
|
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Total
fair value of performance deferred stock vested and delivered (1)
|
|
$ |
1 |
|
|
$ |
166 |
|
|
$ |
127 |
|
Related
tax benefit
|
|
|
- |
|
|
$ |
62 |
|
|
$ |
47 |
|
Total
compensation expense for performance deferred stock awards
|
|
$ |
(7 |
) |
|
$ |
17 |
|
|
$ |
69 |
|
Related
tax benefit
|
|
$ |
(2 |
) |
|
$ |
6 |
|
|
$ |
26 |
|
(1)
|
Includes
the fair value of shares vested in prior years and delivered in the
reporting year.
|
During
the second quarter of 2008, the Company settled 0.9 million shares of
performance deferred stock for $35 million in cash. Total unrecognized
compensation cost related to performance deferred stock awards was
$28 million at December 31, 2009 and is expected to be recognized over
a weighted-average period of 0.96 years. At December 31, 2009,
approximately 0.6 million performance deferred shares with a grant date
weighted-average fair value of $43.59 per share were vested, but not issued.
These shares are scheduled to be issued in April 2010.
In
addition, the Company is authorized to grant up to 300,000 deferred shares of
common stock to executive officers of the Company under the 1994 Executive
Performance Plan.
Under
the 2003 Non-Employee Directors’ Stock Incentive Plan, a plan approved by
stockholders, the Company may grant up to 1.5 million shares (including
options, restricted stock and deferred stock) to non-employee directors over the
10-year duration of the program, subject to an annual aggregate award limit of
25,000 shares for each individual director. In 2009, 53,600 shares of restricted
stock with a weighted-average fair value of $6.47 per share were issued under
this plan. The restricted stock issued under this plan cannot be sold, assigned,
pledged or otherwise transferred by the non-employee director, until the
director is no longer a member of the Board.
NOTE
T – LIMITED PARTNERSHIP
In
early 1998, a subsidiary of the Company purchased the 20 percent limited partner
interests of outside investors in a consolidated subsidiary, Chemtech Royalty
Associates L.P., for a fair value of $210 million in accordance with
wind-up provisions in the partnership agreement. The limited partnership was
renamed Chemtech II L.P. (“Chemtech II”). In June 1998, the Company contributed
assets with an aggregate fair value of $783 million (through a wholly owned
subsidiary) to Chemtech II and an outside investor acquired a limited partner
interest in Chemtech II totaling 20 percent in exchange for $200 million.
In September 2000, the Company contributed additional assets with an aggregate
fair value of $18 million (through a wholly owned subsidiary) to Chemtech
II. During the second quarter of 2008, the minority outside investor presented
the Company with a liquidation notice, resulting in Dow’s election to purchase
the outside investor’s share in the partnership for $200 million. The
transaction was completed in the second quarter of 2008.
Prior
to the sale of its interest, the outside investor in Chemtech II received a
cumulative annual priority return on its investment and participated in residual
earnings. For financial reporting purposes, the assets (other than intercompany
loans, which were eliminated), liabilities, results of operations and cash flows
of the partnership and subsidiaries were included in the Company’s consolidated
financial statements, and the outside investor’s limited partner interest was
included in “Noncontrolling interests” in the consolidated balance
sheets.
NOTE
U – PREFERRED SECURITIES OF SUBSIDIARIES
The
following transactions were entered into for the purpose of providing
diversified sources of funds to the Company.
In
July 1999, Tornado Finance V.O.F., a former consolidated foreign subsidiary of
the Company, issued $500 million of preferred securities in the form of
preferred partnership units. The units provided a distribution of
7.965 percent, could be redeemed in 2009 or thereafter, and could be called
at any time by the subsidiary. On June 4, 2009, the preferred partner
notified Tornado Finance V.O.F. that the preferred partnership units would be
redeemed in full on July 9, 2009, as permitted by the terms of the
partnership agreement. On July 9, 2009, the preferred partnership units and
accrued dividends were redeemed for a total of $520 million. Upon
redemption, Tornado Finance V.O.F. was dissolved. The preferred partnership
units were previously classified as “Preferred Securities of Subsidiaries” in
the consolidated balance sheets. The distributions were included in “Net income
attributable to noncontrolling interests” in the consolidated statements of
income.
In
September 2001, Hobbes Capital S.A. (“Hobbes”), a former consolidated foreign
subsidiary of the Company, issued $500 million of preferred securities in
the form of equity certificates. The certificates provided a floating rate of
return (which could be reinvested) based on LIBOR. During the third quarter of
2008, the other partner of Hobbes redeemed its $674 million ownership in
Hobbes. The minority ownership was redeemed in a non-cash transaction in
exchange for a three-year note payable with a floating rate based on LIBOR.
Prior to redemption, the equity certificates of $500 million were
classified as “Preferred Securities of Subsidiaries” and the reinvested
preferred returns were included in “Noncontrolling interests” in the
consolidated balance sheets. The preferred return was included in “Net income
attributable to noncontrolling interests” in the consolidated statements of
income.
NOTE
V – REDEEMABLE PREFERRED STOCKS
Cumulative
Perpetual Preferred Stock, Series B
With
the April 1, 2009 acquisition of Rohm and Haas, certain trusts established
by members of the Haas family (the “Haas Trusts”) and Paulson & Co. Inc.
(“Paulson”) purchased from the Company Cumulative Perpetual Preferred Stock,
Series B (“preferred series B”) in the amount of 2.5 million
shares (Haas Trusts – 1.5 million shares; Paulson – 1.0 million
shares) for an aggregate price of $2.5 billion (Haas Trusts –
$1.5 billion; Paulson – $1.0 billion). Under the terms of the preferred
series B, the holders were entitled to cumulative dividends at a rate of
7 percent per annum in cash and 8 percent per annum either in cash or
as an increase in the liquidation preference of the preferred series B, at
the Company’s option.
In
May 2009, the Company entered into a purchase agreement with the Haas Trusts and
Paulson, whereby the Haas Trusts and Paulson agreed to sell to the Company their
shares of the preferred series B in consideration for shares of the
Company’s common stock and/or notes, at the discretion of the Company. Pursuant
to the purchase agreement, the Company issued 83.3 million shares of its
common stock to the Haas Trusts and Paulson in consideration for the purchase of
1.2 million shares of preferred series B held by the Haas Trusts and
Paulson. In a separate transaction as part of a $6 billion offering of
senior notes, the Company issued $1.35 billion aggregate principal amount
of 8.55 percent notes due 2019 to the Haas Trusts and Paulson in
consideration for the purchase of the remaining 1.3 million shares of
preferred series B at par plus accrued dividends. Upon the consummation of
these transactions, all shares of preferred series B were retired. For
additional information concerning the common stock and debt issuances, see
Notes O and W.
Cumulative
Convertible Perpetual Preferred Stock, Series C
With
the April 1, 2009 acquisition of Rohm and Haas, the Haas Trusts invested
$500 million in Cumulative Convertible Perpetual Preferred Stock,
Series C (“preferred series C”). Under the terms of the preferred
series C, prior to June 8, 2009, the holders were entitled to cumulative
dividends at a rate of 7 percent per annum in cash and 8 percent per
annum either in cash or as an increase in the liquidation preference of the
preferred series C, at the Company’s option. On and after June 8,
2009, the Company would have been required to pay cumulative dividends of
12 percent per annum in cash.
The
preferred series C shares would automatically convert to common stock on
the date immediately following the ten full trading days commencing on the date
on which there was an effective shelf registration statement relating to the
common stock underlying the preferred series C, if such registration
statement was effective prior to June 8, 2009. On May 26, 2009, the
Company entered into an underwriting agreement and filed the corresponding shelf
registration statement to effect the conversion of preferred series C into
the Company’s common stock in accordance with the terms of the preferred
series C. Under the terms of the preferred series C, the shares of
preferred series C would convert into shares of the Company’s common stock
at a conversion price per share of common stock based upon 95 percent of
the average of the common stock volume-weighted average price for the ten
trading days preceding the conversion. After ten full trading days and upon the
automatic conversion of the preferred series C, the Company issued
31.0 million shares of the Company’s common stock to the Haas Trusts on
June 9, 2009, and all shares of preferred series C were retired (see
Note W).
NOTE
W – STOCKHOLDERS’ EQUITY
Cumulative
Convertible Perpetual Preferred Stock, Series A
Equity
securities in the form of Cumulative Convertible Perpetual Preferred Stock,
Series A (“preferred series A”) were issued on April 1, 2009 to
Berkshire Hathaway Inc. in the amount of $3 billion (3 million shares)
and the Kuwait Investment Authority in the amount of $1 billion
(1 million shares). The Company will pay cumulative dividends on preferred
series A at a rate of 8.5 percent per annum in either cash, shares of
common stock, or any combination thereof, at the option of the Company.
Dividends may be deferred indefinitely, at the Company’s option. If deferred,
common stock dividends must also be deferred. Any past due and unpaid dividends
will accrue additional dividends at a rate of 10 percent per annum,
compounded quarterly. If dividends are deferred for any six quarters, the
preferred series A shareholders may elect two directors to the Company’s
Board of Directors until all past due dividends are paid. On December 10,
2009, the Board of Directors declared a quarterly dividend of $85 million
to preferred series A shareholders, which was paid on January 4, 2010.
On February 10, 2010, the Board of Directors declared a quarterly dividend
of $85 million to preferred series A shareholders, payable on
April 1, 2010. Ongoing dividends related to preferred series A will be
$85 million per quarter.
Shareholders
of preferred series A may convert all or any portion of their shares, at
their option, at any time, into shares of the Company’s common stock at an
initial conversion rate of 24.2010 shares of common stock for each share of
preferred series A. Under certain circumstances, the Company will be
required to adjust the conversion rate. On or after the fifth anniversary of the
issuance date, if the common stock price exceeds $53.72 per share for any
20 trading days in a consecutive 30-day window, the Company may, at its
option, at any time, in whole or in part, convert preferred series A into
common stock at the then applicable conversion rate. Upon conversion, accrued
and unpaid dividends will be payable, at the option of the Company, in either
cash, shares of common stock, or any combination thereof.
Common
Stock
On
May 6, 2009, the Company launched a public offering of 150.0 million
shares of its common stock at a price of $15.00 per share. Included in the
150.0 million shares offered to the public were 83.3 million shares
issued to the Haas Trusts and Paulson in consideration for shares of preferred
series B held by the Haas Trusts and Paulson (see Note V). Gross
proceeds were $2,250 million, of which the Company’s net proceeds (after
underwriting discounts and commissions) were $966 million for the sale of
the Company’s 66.7 million shares.
On
May 26, 2009, the Company entered into an underwriting agreement and filed
the corresponding shelf registration statement to effect the conversion of the
preferred series C into shares of the Company’s common stock (see
Note V). On June 9, 2009, following the end of the sale period and
determination of the share conversion amount, the Company issued
31.0 million shares to the Haas Trusts.
Retained
Earnings
There
are no significant restrictions limiting the Company’s ability to pay
dividends.
Undistributed
earnings of nonconsolidated affiliates included in retained earnings were
$1,826 million at December 31, 2009 and $2,089 million at
December 31, 2008.
Employee
Stock Ownership Plan
The
Company has the Dow Employee Stock Ownership Plan (the “ESOP”), which is an
integral part of The Dow Chemical Company Employees’ Savings Plan (the “Plan”).
A significant majority of full-time employees in the United States are eligible
to participate in the Plan. The Company uses the ESOP to provide the Company’s
matching contribution in the form of the Company’s stock to Plan
participants.
In
connection with the acquisition of Rohm and Haas (see Note D), $552 million
in cash was paid to the Rohm and Haas Company Employee Stock Ownership Plan (the
“Rohm and Haas ESOP”) for 7.0 million shares of Rohm and Haas common stock held
by the Rohm and Haas ESOP on April 1, 2009. On the date of the acquisition,
the Rohm and Haas ESOP was merged into the Plan, and the Company assumed the
$78 million balance of debt at 9.8 percent interest with final
maturity in 2020 that was used to finance share purchases by the Rohm and Haas
ESOP in 1990. The outstanding balance of the debt was $71 million at
December 31, 2009.
On
May 11, 2009, the Company sold 36.7 million shares of common stock (from
treasury stock) to the ESOP at a price of $15.0561 per share for a total of
$553 million. The treasury stock was carried at an aggregate historical
cost of $1,529 million.
Dividends
on unallocated shares held by the ESOP are used by the ESOP to make debt service
payments. Dividends on allocated shares are used by the ESOP to make debt
service payments to the extent needed; otherwise, they are paid to the Plan
participants. Shares are released for allocation to participants based on the
ratio of the current year’s debt service to the sum of the principal and
interest payments over the life of the loan. The shares are allocated to Plan
participants in accordance with the terms of the Plan.
In
accordance with the accounting guidance for stock-based compensation,
compensation expense for allocated shares is recorded at the fair value of the
shares on the date of allocation. Under this guidance, ESOP shares that have not
been released or committed to be released are not considered outstanding for
purposes of computing basic and diluted earnings per share.
Compensation
expense for ESOP shares allocated to plan participants was $48 million for
the year ended December 31, 2009; no shares were allocated to plan participants
in 2008. At December 31, 2009, 14.2 million shares out of a total
48.7 million shares held by the ESOP had been allocated to participants’
accounts, 0.4 million shares were released but unallocated and
34.1 million shares, at a fair value of $942 million, were considered
unearned.
Treasury
Stock
On
July 14, 2005, the Board of Directors authorized the repurchase of up to
25 million shares of Dow common stock over the period ending on
December 31, 2007 (the “2005 Program”). During the first quarter of 2007,
the Company purchased 6.2 million shares of the Company’s common stock
under the 2005 Program, bringing the program to a close.
On
October 26, 2006, the Company announced that its Board of Directors had approved
a share buy-back program, authorizing up to $2 billion to be spent on the
repurchase of the Company’s common stock (the “2006 Program”). Purchases under
the 2006 Program began in March 2007, following the completion of the 2005
Program. In 2007, the Company purchased 26.2 million shares of the
Company’s common stock under the 2006 Program. In 2008, the Company purchased
21.9 million shares under the 2006 Program, bringing the total number of
shares purchased under this program to 48.1 million and bringing the
program to a close.
The
total number of treasury shares purchased by the Company, including shares
received from employees and non-employee directors to pay taxes owed to the
Company as a result of the exercise of stock options or the delivery of deferred
stock, was 0.5 million in 2009; 23.0 million in 2008 and
33.3 million in 2007.
The
Company issues shares for options exercised as well as for the release of
deferred and restricted stock out of treasury stock. The Company does not plan
to repurchase shares for this activity in 2010. The number of treasury shares
issued to employees and non-employee directors under the Company’s option and
purchase programs was 8.7 million in 2009, 7.0 million in 2008 and
15.6 million in 2007.
Reserved
Treasury Stock at December 31
|
|
|
|
|
|
|
|
Shares
in millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Stock
option and deferred stock plans
|
|
|
12.2 |
|
|
|
57.0 |
|
|
|
41.0 |
|
In
May 2009, the Company sold 36.7 million shares from treasury stock to the
ESOP.
NOTE
X – INCOME TAXES
Operating
loss carryforwards amounted to $4,550 million at December 31, 2009 and
$4,087 million at December 31, 2008. At December 31, 2009,
$344 million of the operating loss carryforwards were subject to expiration
in 2010 through 2014. The remaining operating loss carryforwards expire in years
beyond 2014 or have an indefinite carryforward period. Tax credit carryforwards
at December 31, 2009 amounted to $656 million ($680 million at
December 31, 2008), net of uncertain tax positions, of which
$1 million is subject to expiration in 2010 through 2014. The remaining tax
credit carryforwards expire in years beyond 2014.
Undistributed
earnings of foreign subsidiaries and related companies that are deemed to be
permanently invested amounted to $8,707 million at December 31, 2009,
$8,043 million at December 31, 2008 and $7,752 million at
December 31, 2007. It is not practicable to calculate the unrecognized
deferred tax liability on those earnings.
The
Company had valuation allowances, which were primarily related to the
realization of recorded tax benefits on tax loss carryforwards from operations
in the United States, Brazil, Asia Pacific and Denmark of $721 million at
December 31, 2009; valuation allowances of $487 million at
December 31, 2008 were primarily related to the realization of recorded tax
benefits on tax loss carryforwards from operations in the United States, Brazil,
Asia Pacific and Switzerland. In 2009, $206 million of valuation allowances
were associated with the deferred tax assets acquired from Rohm and Haas (see
Note D).
The
tax rate for 2009 was reduced by several factors: a significantly higher level
of equity earnings as a percent of total earnings, favorable accrual-to-return
adjustments in various geographies, the recognition of domestic losses and an
improvement in financial results in jurisdictions with tax rates that are lower
than the U.S. statutory rate. These factors resulted in an effective tax rate of
negative 20.7 percent for 2009.
The
tax rate for 2008 was negatively impacted by increased foreign taxes, declining
financial results in jurisdictions with lower tax rates than the United States
and goodwill impairment losses that are not deductible for tax purposes (see
Note I). Additionally, during 2008, the Company determined that it was more
likely than not that certain tax loss carryforwards in the United States and
Asia Pacific would not be utilized due to deteriorating market conditions for
the Company’s products in these areas, which resulted in increases in valuation
allowances of $48 million in the United States and $24 million in Asia
Pacific. These events resulted in an effective tax rate for 2008 that was higher
than the U.S. statutory rate. The Company’s reported effective tax rate for 2008
was 51.0 percent.
The
tax rate for 2007 was negatively impacted by a change in German tax law that was
enacted in August and included a reduction in the German income tax rate, which
was effective January 1, 2008. As a result of the change, the Company
adjusted the value of its net deferred tax assets in Germany (using the lower
tax rate) and recorded a charge of $362 million against the “Provision for
income taxes” in the third quarter of 2007. Additionally, during 2007, the
Company determined that it was more likely than not that certain tax loss
carryforwards in the United States and Brazil would be utilized due to positive
financial performance, adherence to fiscal discipline and improved forecasted
earnings, which resulted in net reversals of valuation allowances of
$71 million related to the United States and $45 million related to
Brazil. In addition, the Company changed the legal ownership structure of its
investment in EQUATE, resulting in a favorable impact to the “Provision for
income taxes” of $113 million in the fourth quarter of 2007. These events,
combined with enacted changes in the tax rates in Canada and Italy, strong
financial results in jurisdictions with lower tax rates than the United States
and improved earnings from a number of the Company’s joint ventures, partially
offset by the impact of uncertain tax positions, resulted in an effective tax
rate for 2007 that was lower than the U.S. statutory rate. The Company’s
reported effective tax rate for 2007 was 29.3 percent.
Domestic
and Foreign Components of Income from Continuing Operations Before Income
Taxes
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Domestic
|
|
$ |
(290 |
) |
|
$ |
(1,290 |
) |
|
$ |
192 |
|
Foreign
|
|
|
759 |
|
|
|
2,567 |
|
|
|
4,000 |
|
Total
|
|
$ |
469 |
|
|
$ |
1,277 |
|
|
$ |
4,192 |
|
Reconciliation
to U.S. Statutory Rate
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Taxes
at U.S. statutory rate
|
|
$ |
164 |
|
|
$ |
447 |
|
|
$ |
1,467 |
|
Equity
earnings effect
|
|
|
(266 |
) |
|
|
(309 |
) |
|
|
(396 |
) |
Change
in legal ownership structure of EQUATE
|
|
|
- |
|
|
|
- |
|
|
|
(113 |
) |
Foreign
income taxed at rates other than 35% (1)
|
|
|
(121 |
) |
|
|
261 |
|
|
|
(686 |
) |
German
tax law change
|
|
|
- |
|
|
|
- |
|
|
|
362 |
|
U.S.
tax effect of foreign earnings and dividends
|
|
|
210 |
|
|
|
164 |
|
|
|
480 |
|
Goodwill
impairment losses
|
|
|
3 |
|
|
|
75 |
|
|
|
- |
|
Change
in valuation allowances
|
|
|
9 |
|
|
|
60 |
|
|
|
(124 |
) |
Unrecognized
tax benefits
|
|
|
21 |
|
|
|
31 |
|
|
|
166 |
|
Federal
tax accrual adjustments
|
|
|
(119 |
) |
|
|
29 |
|
|
|
5 |
|
Other
– net
|
|
|
2 |
|
|
|
(107 |
) |
|
|
69 |
|
Total
tax provision
|
|
$ |
(97 |
) |
|
$ |
651 |
|
|
$ |
1,230 |
|
Effective
tax rate
|
|
|
(20.7 |
)% |
|
|
51.0 |
% |
|
|
29.3 |
% |
(1)
|
Includes
the tax provision for statutory taxable income in foreign jurisdictions
for which there is no corresponding amount in “Income from Continuing
Operations Before Income Taxes.” |
|
Provision
(Credit) for Income Taxes
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
In
millions
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
Federal
|
|
$ |
65 |
|
|
$ |
(538 |
) |
|
$ |
(473 |
) |
|
$ |
3 |
|
|
$ |
(541 |
) |
|
$ |
(538 |
) |
|
$ |
77 |
|
|
$ |
128 |
|
|
$ |
205 |
|
State
and local
|
|
|
27 |
|
|
|
(15 |
) |
|
|
12 |
|
|
|
6 |
|
|
|
(17 |
) |
|
|
(11 |
) |
|
|
87 |
|
|
|
3 |
|
|
|
90 |
|
Foreign
|
|
|
463 |
|
|
|
(99 |
) |
|
|
364 |
|
|
|
918 |
|
|
|
282 |
|
|
|
1,200 |
|
|
|
586 |
|
|
|
349 |
|
|
|
935 |
|
Total
|
|
$ |
555 |
|
|
$ |
(652 |
) |
|
$ |
(97 |
) |
|
$ |
927 |
|
|
$ |
(276 |
) |
|
$ |
651 |
|
|
$ |
750 |
|
|
$ |
480 |
|
|
$ |
1,230 |
|
The
provision for income taxes attributable to discontinued operations (domestic)
was $65 million for 2009, $16 million for 2008 and $14 million
for 2007 (see Note E).
Deferred
Tax Balances at December 31
|
|
2009
|
|
|
2008
|
|
In
millions
|
|
Deferred Tax Assets
(1)
|
|
|
Deferred Tax Liabilities
(2)
|
|
|
Deferred Tax Assets
(1)
|
|
|
Deferred
Tax Liabilities
|
|
Property
|
|
$ |
20 |
|
|
$ |
2,647 |
|
|
$ |
99 |
|
|
$ |
1,908 |
|
Tax
loss and credit carryforwards
|
|
|
2,414 |
|
|
|
- |
|
|
|
2,226 |
|
|
|
- |
|
Postretirement
benefit obligations
|
|
|
3,097 |
|
|
|
1,039 |
|
|
|
2,642 |
|
|
|
950 |
|
Other
accruals and reserves
|
|
|
1,963 |
|
|
|
227 |
|
|
|
1,462 |
|
|
|
306 |
|
Intangibles
|
|
|
40 |
|
|
|
1,646 |
|
|
|
56 |
|
|
|
76 |
|
Inventory
|
|
|
203 |
|
|
|
182 |
|
|
|
139 |
|
|
|
200 |
|
Long-term
debt
|
|
|
8 |
|
|
|
107 |
|
|
|
3 |
|
|
|
89 |
|
Investments
|
|
|
103 |
|
|
|
21 |
|
|
|
186 |
|
|
|
1 |
|
Other
– net
|
|
|
460 |
|
|
|
370 |
|
|
|
791 |
|
|
|
153 |
|
Subtotal
|
|
$ |
8,308 |
|
|
$ |
6,239 |
|
|
$ |
7,604 |
|
|
$ |
3,683 |
|
Valuation
allowance
|
|
|
(721 |
) |
|
|
- |
|
|
|
(487 |
) |
|
|
- |
|
Total
|
|
$ |
7,587 |
|
|
$ |
6,239 |
|
|
$ |
7,117 |
|
|
$ |
3,683 |
|
(1)
|
Included
in current deferred tax assets are prepaid tax assets totaling
$151 million in 2009 and $141 million in 2008. |
(2)
|
The
Company assumed $2,793 million of deferred tax liabilities with the
April 1, 2009 acquisition of Rohm and Haas; see
Note D. |
Uncertain
Tax Positions
On
January 1, 2007, the Company adopted the provisions of FIN No. 48. The
cumulative effect of adoption was a $290 million reduction of retained
earnings. At December 31, 2009, the total amount of unrecognized tax
benefits was $650 million ($736 million at December 31, 2008), of
which $610 million would impact the effective tax rate, if recognized
($690 million at December 31, 2008).
Interest
and penalties associated with uncertain tax positions are recognized as
components of the “Provision for income taxes,” and totaled $10 million in
2009, $3 million in 2008 and $29 million in 2007. The Company’s
accrual for interest and penalties was $68 million at December 31,
2009 and $124 million at December 31, 2008.
Total
Gross Unrecognized Tax Benefits
|
|
|
|
|
|
|
In
millions
|
|
2009
|
|
|
2008
|
|
Balance
at January 1
|
|
$ |
736 |
|
|
$ |
892 |
|
Increases
related to positions taken on items from prior years
|
|
|
57 |
|
|
|
41 |
|
Decreases
related to positions taken on items from prior years
|
|
|
(25 |
) |
|
|
(191 |
) |
Increases
related to positions taken in the current year
|
|
|
71 |
|
|
|
34 |
|
Settlement
of uncertain tax positions with tax authorities
|
|
|
(172 |
) |
|
|
(29 |
) |
Decreases
due to expiration of statutes of limitations
|
|
|
(17 |
) |
|
|
(11 |
) |
Balance
at December 31
|
|
$ |
650 |
|
|
$ |
736 |
|
The
Company is currently under examination in a number of tax jurisdictions. It is
reasonably possible that these examinations may be resolved within twelve
months. As a result, it is reasonably possible that the total gross unrecognized
tax benefits of the Company at December 31, 2009 will be reduced by
approximately $51 million. The amount of settlement remains uncertain and
it is reasonably possible that before settlement, the amount of gross
unrecognized tax benefits may increase or decrease by approximately
$30 million. The impact on the Company’s results of operations is not
expected to be material.
Tax
years that remain subject to examination for the Company’s major tax
jurisdictions are shown below:
Tax
Years Subject to Examination by Major Tax Jurisdiction at December
31
|
Jurisdiction
|
Earliest
Open Year
|
2009
|
2008
|
Argentina
|
2003
|
2002
|
Brazil
|
2004
|
2003
|
Canada
|
2002
|
2001
|
France
|
2007
|
2007
|
Germany
|
2002
|
2002
|
Italy
|
2004
|
2004
|
The
Netherlands
|
2008
|
2008
|
Spain
|
2004
|
2004
|
Switzerland
|
2008
|
2006
|
United
Kingdom
|
2007
|
2006
|
United
States:
|
|
|
Federal
income tax
|
2004
|
2001
|
State
and local income tax
|
1989
|
1989
|
The
reserve for non-income tax contingencies related to issues in the United States
and foreign locations was $189 million at December 31, 2009 and
$163 million at December 31, 2008. This is management’s best estimate
of the potential liability for non-income tax contingencies. Inherent
uncertainties exist in estimates of tax contingencies due to changes in tax law,
both legislated and concluded through the various jurisdictions’ tax court
systems. It is the opinion of the Company’s management that the possibility is
remote that costs in excess of those accrued will have a material adverse impact
on the Company’s consolidated financial statements.
NOTE
Y – OPERATING SEGMENTS AND GEOGRAPHIC AREAS
Dow
is a diversified, worldwide manufacturer and supplier of products used primarily
as raw materials in the manufacture of customer products and services. The
Company serves the following industries: appliance; automotive; agricultural;
building and construction; chemical processing; electronics; furniture;
housewares; oil and gas; packaging; paints, coatings and adhesives; personal
care; pharmaceutical; processed foods; pulp and paper; textile and carpet;
utilities; and water treatment.
Dow
conducts its worldwide operations through global businesses, which are reported
in eight operating segments following the acquisition of Rohm and Haas. The
Company’s operating segments are Electronic and Specialty Materials, Coatings
and Infrastructure, Health and Agricultural Sciences, Performance Systems,
Performance Products, Basic Plastics, Basic Chemicals, and Hydrocarbons and
Energy. Corporate contains the reconciliation between the totals for the
reportable segments and the Company’s totals and includes research and other
expenses related to new business development activities, and other corporate
items not allocated to the reportable operating segments. The Company uses
EBITDA (which Dow defines as earnings before interest, income taxes,
depreciation and amortization) as its measure of profit/loss for segment
reporting purposes. EBITDA by operating segment includes all operating items
relating to the businesses, except depreciation and amortization; items that
principally apply to the Company as a whole are assigned to Corporate. See table
toward the end of this footnote for depreciation and amortization by segment as
well as a reconciliation of EBITDA to “Income from Continuing Operations Before
Income Taxes.”
The
Corporate Profile included below describes the operating segments, and the types
of products and services from which their revenues are derived.
Corporate
Profile
Dow
combines the power of science and technology with the “Human Element” to
passionately innovate what is essential to human progress. The Company connects
chemistry and innovation with the principles of sustainability to help address
many of the world’s most challenging problems such as the need for clean water,
renewable energy generation and conservation, and increasing agricultural
productivity. Dow’s diversified industry-leading portfolio of specialty
chemical, advanced materials, agrosciences and plastics businesses deliver a
broad range of technology-based products and solutions to customers in
approximately 160 countries and in high growth sectors such as electronics,
water, energy, coatings and agriculture. In 2009, Dow had annual sales of
$44.9 billion and employed approximately 52,000 people worldwide. The
Company’s more than 5,000 products are manufactured at 214 sites in
37 countries across the globe. The following descriptions of the Company’s
eight operating segments include a representative listing of products for each
business.
ELECTRONIC
AND SPECIALTY MATERIALS
Applications: chemical
mechanical planarization (CMP) pads and slurries • chemical processing and
intermediates • electronic displays • food and pharmaceutical processing and
ingredients • printed circuit board materials • semiconductor packaging,
connectors and industrial finishing • water purification
Electronic Materials is a
leading global supplier of materials for chemical mechanical planarization;
materials used in the production of electronic displays; products and
technologies that drive leading edge semiconductor design; materials used in the
fabrication of printed circuit boards; and integrated metallization processes
critical for interconnection, corrosion resistance, metal finishing and
decorative applications. These enabling materials are found in applications such
as consumer electronics, flat panel displays and
telecommunications.
|
·
|
Products: ACuPLANE™ CMP
slurries; AR™ antireflective coatings; AUROLECTROLESS™ immersion gold
process; COPPER GLEAM™ acid copper plating products; DURAPOSIT™
electroless nickel process; ENLIGHT™ products for photovoltaic
manufacturers; EPIC™ immersion photoresists; INTERVIA™ photodielectrics
for advanced packaging; LITHOJET™ digital imaging processes; OPTOGRADE™
metalorganic precursors; VISIONPAD™ CMP
pads
|
Specialty Materials is a
portfolio of businesses characterized by a vast global footprint, a broad array
of unique chemistries, multi-functional ingredients and technology capabilities,
combined with key positions in the pharmaceuticals, food, home and personal
care, water and energy production, and industrial specialty industries. These
technology capabilities and market platforms enable the businesses to develop
innovative solutions that address modern societal needs for sufficient and clean
water, air and energy, material preservation and improved health care, disease
prevention, nutrition and wellness. The businesses’ global footprint and
geographic reach provide multiple opportunities for value growth. Specialty
Materials consists of five global businesses: Dow Water and Process Solutions,
Dow Home and Personal Care, Dow Microbial Control, Dow Wolff Cellulosics and
Performance Materials.
|
·
|
Products and Services:
Acrolein derivatives; ACUDYNE™ hair fixatives; ACULYN™ rheology modifiers;
ACUMER™ scale inhibitors and dispersants; AMBERLITE™ ion exchange resins;
AUTOMATE™ liquid dyes; Basic nitroparaffins and nitroparaffin-based
specialty chemicals; BOROL™ bleaching solution; CANGUARD™ BIT
preservatives; CELLOSIZE™ hydroxyethyl cellulose; Chiral compounds and
biocatalysts; CLEAR+STABLE™ carboxymethyl cellulose; CORRGUARD™ amino
alcohol; CYCLOTENE™ advanced electronics resins; DOW™ electrodeionization;
DOW™ latex powders; DOW™ ultrafiltration; DOWEX™ ion exchange resins;
DOWICIDE™ antimicrobial bactericides and fungicides; DURAPLUS™ floor care
polymers; ECOSURF™ biodegradable surfactants; EVOCAR™ vinyl acetate
ethylene; FILMTEC™ elements; FORTEFIBER™ soluble dietary fiber;
FOUNDATIONS™ latex; Hydrocarbon resins; Industrial biocides; METHOCEL™
cellulose ethers; MORTRACE™ marking technologies; NEOCAR™ branched vinyl
ester latexes; OPULYN™ opacifiers; POLYOX™ water-soluble resins; PRIMENE™
amines; Quaternaries; Reverse osmosis, electrodeionization and
ultrafiltration modules; SATINFX™ delivery system; SATISFIT™ Weight Care
Technology; SILK™ semiconductor dielectric resins; SOLTERRA™ Boost
ultraviolet protection-boosting polymers; SOLTEX™ waterproofing polymer;
SUNSPHERES™ SPF boosters; UCAR™ all-acrylic, styrene-acrylic and
vinyl-acrylic latexes; UCAR™ POLYPHOBE™ rheology modifiers; UCARE™
polymers; UCARHIDE™ opacifier; WALOCEL™ cellulose polymers; WALSRODER™
nitrocellulose
|
The
Electronic and Specialty Materials segment also includes the Company’s share of
the results of Dow Corning Corporation, a joint venture of the
Company.
COATINGS
AND INFRASTRUCTURE
Applications: building and
construction, insulation and weatherization, roofing membrane systems, adhesives
and sealants • construction materials (vinyl siding, vinyl windows, vinyl
fencing) • flexible and rigid packaging • general mortars and concrete, cement
modifiers and plasters, tile adhesives and grouts • house and traffic paints •
leather, textile, graphic arts and paper • metal coatings • processing aids for
plastic production • tapes and labels
Adhesives and Functional
Polymers is a portfolio of businesses that primarily manufacture sticking
and bonding solutions for a wide range of applications, including adhesive tapes
and paper labels, flexible packaging and leather, textile and imaging. These
products are supported with market recognized best-in-class technical support
and end-use application knowledge. Many of the businesses’ water-borne
technologies are well-positioned to support more environmentally preferred
applications.
|
·
|
Products: ADCOTE™ and
AQUA-LAM™ laminating adhesives; MOR-FREE™ solventless adhesives; ROBOND™
acrylic adhesives; SERFENE™ barrier coatings; Solvent-based polyurethanes
and polyesters; TYMOR™ tie resins
|
Dow Building and Construction
is comprised of two global businesses – Dow Building Solutions and Dow
Construction Chemicals – which offer extensive lines of industry-leading
insulation, housewrap, sealant and adhesive products and systems, as well as
construction chemical solutions. Through its strong sales support, customer
service and technical expertise, Dow Building Solutions provides meaningful
solutions for improving the energy efficiency in homes and buildings today,
while also addressing the industry’s emerging needs and demands. Additionally,
Dow Construction Chemicals provides solutions for increased durability, greater
water resistance and lower systems costs. As a leader in insulation solutions,
the businesses’ products help curb escalating utility bills, reduce a building’s
carbon footprint and provide a more comfortable indoor environment.
|
·
|
Products: AQUASET™
acrylic thermosetting resins; CELLOSIZE™ hydroxyethyl cellulose;
FROTH-PAK™ polyurethane spray foam; GREAT STUFF™ polyurethane foam
sealant; INSTA-STIK™ roof insulation adhesive; POWERHOUSE™ solar shingle;
RHOPLEX™ aqueous acrylic polymer emulsions; STYROFOAM™ brand insulation
products (including extruded polystyrene and polyisocyanurate rigid foam
sheathing products); THERMAX™ insulation; TILE BOND™ roof tile adhesive;
WEATHERMATE™ weather barrier solutions (housewraps, sill pans, flashings
and tapes)
|
Dow Coating Materials is the
largest coatings supplier in the world and a premier supplier of raw materials
for architectural paints and industrial coatings. The business manufactures and
delivers solutions that leverage high quality, technologically advanced product
offerings for paint and coatings. The business also offers technologies used in
industrial coatings, including packaging, pipelines, wood, automotive, marine,
maintenance and protective industries. The business is also the leader in the
conversion of solvent to water-based technologies, which enable customers to
offer more environmentally friendly products, including low volatile organic
compound (VOC) paints and other sustainable coatings.
|
·
|
Products: ACRYSOL™
rheology modifiers; AVANSE™, ELASTENE™, PRIMAL™ and RHOPLEX™ acrylics;
CELLOSOLVE™ and the CARBITOL™ and DOWANOL™ series of oxygenated solvents;
D.E.H.™ curing agent and intermediates; D.E.R.™ and D.E.N.™ liquid and
epoxy resins; FORTEGRA™ Epoxy Tougheners; OROTAN™ and TAMOL™ dispersants;
ROPAQUE™ opaque polymers; TRITON™, TERGITOL™, DOWFAX™ and ECOSURF™ SA
surfactants
|
HEALTH
AND AGRICULTURAL SCIENCES
Applications: agricultural
seeds, traits (genes) and oils • control of weeds, insects and plant diseases
for agriculture and pest management
Dow AgroSciences is a global
leader in providing agricultural and plant biotechnology products, pest
management solutions and healthy oils. The business invents, develops,
manufactures and markets products for use in agriculture, industrial and
commercial pest management and food service.
|
·
|
Products: AGROMEN™
seeds; BRODBECK™ seed; CLINCHER™ herbicide; DAIRYLAND™ seed; DELEGATE™
insecticide; DITHANE™ fungicide; FORTRESS™ fungicide; GARLON™ herbicide;
GLYPHOMAX™ herbicide; GRANITE™ herbicide; HERCULEX™ I, HERCULEX™ RW and
HERCULEX™ XTRA insect protection; KEYSTONE™ herbicides; LAREDO™ fungicide;
LONTREL™ herbicide; LORSBAN™ insecticides; MILESTONE™ herbicide; MUSTANG™
herbicide; MYCOGEN™ seeds; NEXERA™ canola and sunflower seeds; PHYTOGEN™
cottonseeds; PROFUME™ gas fumigant; RENZE™ seed; SENTRICON™ termite colony
elimination system; SIMPLICITY™ herbicide; STARANE™ herbicide; TELONE™
soil fumigant; TORDON™ herbicide; TRACER™ NATURALYTE™ insect control;
TRIUMPH™ seed; VIKANE™ structural fumigant; WIDESTRIKE™ insect
protection
|
The
Health and Agricultural Sciences segment also includes the results of the
AgroFresh business, providing a portfolio of products used for maintaining the
freshness of fruits, vegetables and flowers.
PERFORMANCE
SYSTEMS
Applications: automotive
interiors, exteriors, under-the-hood and body engineered systems • bedding •
caps and closures • food and specialty packaging • footwear • furniture •
gaskets and sealing components • manufactured housing and modular construction •
medical equipment • mining • pipe treatment • pressure sensitive adhesives •
transportation • vinyl exteriors • waterproofing membranes • wire and cable
insulation and jacketing materials for power utility and
telecommunications
Automotive Systems is a
leading global provider of technology-driven solutions that meet consumer demand
for vehicles that are safer, stronger, quieter, lighter, more comfortable and
stylish. The business provides plastics, adhesives, glass bonding systems,
emissions control technology, films, fluids, structural enhancement and
acoustical management solutions to original equipment manufacturers, tier,
aftermarket and commercial transportation customers. With offices and
application development centers around the world, Automotive Systems provides
materials science expertise and comprehensive technical capabilities to its
customers worldwide.
|
·
|
Products: AERIFY™ diesel
particulate filters; BETAFOAM™ NVH acoustical foams; BETAMATE™ structural
adhesives; BETASEAL™ glass bonding systems; DOW™ polyethylene resins;
IMPAXX™ energy management foam; INSPIRE™ performance polymers; INTEGRAL™
adhesive films; ISONATE™ pure and modified methylene diphenyl diisocyanate
(MDI) products; MAGNUM™ ABS resins; PELLETHANE™ thermoplastic polyurethane
elastomers; Premium brake fluids and lubricants; PULSE™ engineering
resins; SPECFLEX™ semi-flexible polyurethane foam
systems
|
Dow Elastomers offers a unique
set of elastomers, specialty films and plastic additive products for customers
worldwide. The business is focused on delivering innovative solutions that allow
for differentiated participation in multiple industries and applications. The
business offers a broad range of performance elastomers and plastomers,
specialty copolymers, synthetic rubber, specialty resins, and films and plastic
additives. Key applications include adhesives, transportation, building and
construction, packaging and consumer durables.
|
·
|
Products: ADVASTAB™
thermal stabilizer; AFFINITY™ polyolefin plastomers (POPs); AMPLIFY™
functional polymers; DOW™ Adhesive Film; DOW™ Backing Layer Film; DOW™
Medical Device Film; DOW™ Medical Packaging Film; DOW™ very low density
polyethylene; ENGAGE™ polyolefin elastomers; INFUSE™ olefin block
copolymers; INTEGRAL™ adhesive films; NORDEL™ hydrocarbon rubber; NYLOPAK™
nylon barrier films; OPTICITE™ films; PARALOID™ EXL impact modifier;
PRIMACOR™ copolymers; PROCITE™ window envelope films; PULSE™ engineering
resins; SARAN™ barrier resins; SARANEX™ barrier films; TRENCHCOAT™
protective films; TRYCITE™ polystyrene film; TYBRITE™ clear packaging
film; TYRIN™ chlorinated polyethylene; VERSIFY™ plastomers and
elastomers
|
Dow Wire and Cable is the
world’s leading provider of polymers, additives and specialty oil
technology-based solutions for electrical and telecommunication applications.
Through its suite of polyolefin ENDURANCE™ products, the business sets industry
standards for assurance of longevity, efficiency, ease of installation and
protection in the transmission, distribution and consumption of power, voice and
data. In addition to world-class power, telecommunications and flame
retardant/specialty cable applications, the business supports its product
offerings with solid research, product development, engineering and market
validation expertise.
|
·
|
Products: ENGAGE™ polyolefin elastomers; NORDEL™
hydrocarbon rubber; SI-LINK™ and REDI-LINK™ moisture crosslinkable
polyethylene-based wire and cable insulation compounds; TYRIN™ chlorinated
polyethylene; UNIGARD™ flame retardant compound for specialty wire and
cable applications
|
The
Formulated Systems
business manufactures and markets custom formulated, rigid and semi-rigid,
flexible, integral skin and microcellular polyurethane foams and systems and
tailor-made epoxy solutions and systems. These products are used in a broad
range of applications including appliances, athletic equipment, automotive,
bedding, construction, decorative molding, furniture, shoe soles and wind
turbines.
|
·
|
Products: AIRSTONE™
epoxy systems; Encapsulants and chemical compositions; ENFORCER™
Technology and ENHANCER™ Technology for polyurethane carpet and turf
backing; HYPERKOTE™, TRAFFIDECK™ and VERDISEAL™ waterproofing systems;
HYPOL™ hydrophilic polyurethane prepolymers; RENUVA™ Renewable Resource
Technology; SPECFIL™ urethane components; SPECFLEX™ copolymer polyols;
SPECTRIM™ reaction moldable products; VORACOR™ and VORALAST™ polyurethane
systems and VORALAST™ R renewable content system; VORAMER™ industrial
adhesives and binders; VORASTAR™ polymers; XITRACK™ polyurethane rail
ballast stabilization systems
|
The
Performance Systems segment also includes the results of Dow Fiber Solutions,
providing differentiated fibers and process improvements to the textile
industry, and Dow Oil and Gas, providing products for use in exploration and
production, refining and gas processing, transportation, and fuel and lubricant
performance.
PERFORMANCE
PRODUCTS
Applications: adhesives •
aircraft and runway deicing fluids • appliances • carpeting • chelating agents •
chemical intermediates • civil engineering • cleaning products • coated paper
and paperboard • composites • construction • corrosion inhibitors • detergents,
cleaners and fabric softeners • electrical castings, potting and encapsulation
and tooling • electrical laminates • electronics • flavors and fragrances •
flooring • footwear • gas treatment • heat transfer fluids • home and office
furnishings • industrial coatings • mattresses • metalworking fluids • packaging
• sealants • surfactants
The
Amines business is the
world’s largest producer of ethanolamines, ethyleneamines and isopropanolamines
used in a wide variety of applications, including gas treatment, heavy-duty
liquid detergents, herbicide formulations for the agricultural industry and
personal care products.
|
·
|
Products: Alkyl
alkanolamines; Ethanolamines; Ethyleneamines; Isopropanolamines;
Piperazine; VERSENE™ chelating
agents
|
The
Emulsion Polymers
business provides a broad line of styrene-butadiene products supporting
customers in paper and paperboard applications, as well as carpet and artificial
turf backings.
|
·
|
Products:
Styrene-butadiene latex
|
The
Epoxy business is the
world’s largest producer of epoxy resins and intermediates. The business is the
most feedstock-integrated supplier in the world. Epoxies provide good adhesion
and coating protection over a range of environmental conditions, making them
ideal for applications such as transportation, marine and civil
engineering.
|
·
|
Products: D.E.H.™ epoxy
curing agents or hardeners; D.E.N.™ epoxy novolac resins; D.E.R.™ epoxy
resins (liquids, solids and solutions); Epoxy intermediates (acetone,
allyl chloride, epichlorohydrin and phenol); Epoxy resin waterborne
emulsions and dispersions; FORTEGRA™ epoxy tougheners; Glycidyl
methacrylate (GMA)
|
The
Oxygenated Solvents
business offers a full range of acetone derivatives, alcohols, esters, and
ethylene- and propylene-based glycol ether products. The business is the
industry leader in solvent products used in cleaning products, inks,
electronics, mining, paints and coatings, personal care and other
applications.
|
·
|
Products: Acetic esters;
Acetone derivatives; Alcohols; Aldehydes; Butyl CARBITOL™ and Butyl
CELLOSOLVE™ solvents; Carboxylic acids; DOWANOL™ glycol ethers; ECOSOFT™
IK solvent; PROGLYDE™ DMM solvent; UCAR™
propionates
|
The
Performance Fluids, Polyglycols
and Surfactants business is one of the world’s leading suppliers of
polyglycols and surfactants, with a broad range of products and technology and a
proven record of performance and economy. The business also produces a broad
line of lubricants, hydraulic fluids, aircraft deicing fluids and thermal
fluids, with some of the most recognized brand names in the industry. Product
applications include chemical processing, cleaning, heating, cooling, food and
beverage processing, fuel additives, paints and coatings, pharmaceuticals and
silicone surfactants.
|
·
|
Products: AMBITROL™ and
NORKOOL™ coolants; CARBOWAX™ and CARBOWAX SENTRY™ polyethylene glycols and
methoxypolyethylene glycols; DOW™ polypropylene glycols; DOW™ SYMBIO base
fluid; DOWFAX™, TERGITOL™ and TRITON™ surfactants; DOWFROST™ and DOWTHERM™
heat transfer fluids; ECOSURF™ biodegradable surfactants; SYNALOX™
lubricants; UCAR™ deicing fluids; UCON™
fluids
|
The
Performance Monomers
business produces specialty monomer products that are sold externally as well as
consumed internally as building blocks used in downstream polymer businesses.
The business’ products are used in several applications, including cleaning
materials, personal care products, paints, coatings and inks.
|
·
|
Products: Acrylic
acid/acrylic esters; ACUMER™, ACUSOL™, DURAMAX™, OPTIDOSE™, ROMAX™ and
TAMOL™ dispersants; Methyl
methacrylate
|
The
Polyurethanes business
is a leading global producer of polyurethane raw materials. Dow’s polyurethane
products are used in a broad range of applications including appliance, athletic
equipment, automotive, bedding, construction, decorative molding, furniture and
shoe soles.
|
·
|
Products: ECHELON™
polyurethane prepolymer; ISONATE™ methylene diphenyl diisocyanate (MDI);
MONOTHANE™ single component polyurethane elastomers; PAPI™ polymeric MDI;
Propylene glycol; Propylene oxide; RENUVA™ Renewable Resource Technology;
VORANATE™ isocyanate; VORANOL™ VORACTIV™ polyether and copolymer
polyols
|
The
Performance Products segment also includes the results of Dow Haltermann, a
provider of world-class contract manufacturing services to companies in the fine
and specialty chemicals and polymers industries, and SAFECHEM, a wholly owned
subsidiary that manufactures closed-loop systems to manage the risks associated
with chlorinated solvents. The segment also includes a portion of the results of
the OPTIMAL Group of Companies (through the September 30, 2009 divestiture;
see Note E) and the SCG-Dow Group, joint ventures of the
Company.
BASIC
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
The
Polyethylene business is
the world’s leading supplier of polyethylene-based solutions through sustainable
product differentiation. With multiple catalyst and process technologies, the
business offers customers one of the industry’s broadest ranges of polyethylene
resins.
|
·
|
Products: 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; TUFLIN™
linear low density polyethylene (LLDPE) resins; UNIVAL™ HDPE
resins
|
The
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.
|
·
|
Products: DOW™
homopolymer polypropylene resins; DOW™ impact copolymer polypropylene
resins; DOW™ random copolymer polypropylene resins; INSPIRE™ performance
polymers; UNIPOL™ PP process technology; SHAC™ and SHAC™ ADT catalyst
systems
|
The
Styrenics 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.
|
·
|
Products: Licensing and
supply of related catalysts, process control software and services for the
Mass ABS process technology; STYRON A-TECH™ and C-TECH™ advanced
technology polystyrene resins and a full line of STYRON™ general purpose
polystyrene resins; STYRON™ high-impact polystyrene
resins
|
The
Basic Plastics segment also includes the results of the Basic Plastics Licensing
and Catalyst business and the Polycarbonate and Compounds and Blends business.
It also includes the results of Equipolymers, Americas Styrenics LLC and
Univation Technologies (which licenses the UNIPOL™ polyethylene process and
sells
related
catalysts, including metallocene catalysts), as well as a portion of the results
of EQUATE Petrochemical Company K.S.C., The Kuwait Olefins Company K.S.C. and
the SCG-Dow Group, all joint ventures of the Company.
BASIC
CHEMICALS
Applications: agricultural
products • alumina • automotive antifreeze and coolant systems • carpet and
textiles • chemical processing • dry cleaning • household cleaners and plastic
products • inks • metal cleaning • packaging, food and beverage containers •
paints, coatings and adhesives • personal care products • petroleum refining •
pharmaceuticals • plastic pipe • protective packaging • pulp and paper
manufacturing • soaps and detergents • water treatment
The
Chlor-Alkali/Chlor-Vinyl
business focuses on the production of chlorine for consumption by
downstream Dow derivatives, as well as production, marketing and supply of
ethylene dichloride, vinyl chloride monomer and caustic soda. These products are
used for applications such as alumina production, pulp and paper manufacturing,
soaps and detergents and building and construction. Dow is the world’s largest
producer of both chlorine and caustic soda.
|
·
|
Products: Caustic soda;
Chlorine; Ethylene dichloride (EDC); Hydrochloric acid; Vinyl chloride
monomer (VCM)
|
The
Ethylene Oxide/Ethylene
Glycol business is the world’s largest producer of purified ethylene
oxide, principally used in Dow’s downstream performance derivatives. Dow is also
a key supplier of ethylene glycol to MEGlobal, a 50:50 joint venture and a world
leader in the manufacture and marketing of merchant monoethylene glycol and
diethylene glycol. Ethylene glycol is used in polyester fiber, polyethylene
terephthalate (PET) for food and beverage container applications, polyester
film, and aircraft and runway deicers.
|
·
|
Products: Ethylene oxide
(EO); Ethylene glycol (EG); METEOR™ EO/EG process technology and
catalysts
|
The
Basic Chemicals segment also includes the results of the Chlorinated Organics
business. Also included in the Basic Chemicals segment are the results of
MEGlobal and a portion of the results of EQUATE Petrochemical Company K.S.C.,
The Kuwait Olefins Company K.S.C. and the OPTIMAL Group of Companies (through
the September 30, 2009 divestiture; see Note E), all joint ventures of
the Company.
HYDROCARBONS
AND ENERGY
Applications: polymer and
chemical production • power
The 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
principally for use in Dow’s global operations. The business regularly sells its
by-products and buys and sells products in order to balance regional production
capabilities and derivative requirements. The business also sells products to
certain Dow joint ventures. Dow is the world leader in the production of olefins
and aromatics.
|
·
|
Products: Benzene;
Butadiene; Butylene; Cumene; Ethylene; Propylene; Styrene; Power, steam
and other utilities
|
The
Hydrocarbons and Energy segment also includes the results of Compañía Mega S.A.
and a portion of the results of The Kuwait Olefins Company K.S.C. and the
SCG-Dow Group, joint ventures of the Company.
Corporate includes the results
of Ventures (which includes new business incubation platforms focused on
identifying and pursuing new commercial opportunities); Venture Capital;
non-business aligned technology licensing and catalyst activities; the Company’s
insurance operations and environmental operations; and certain corporate
overhead costs and cost recovery variances not allocated to the operating
segments. Corporate also includes the results of the Salt business, which the
Company acquired with the April 1, 2009 acquisition of Rohm and Haas and
sold to K+S Aktiengesellschaft on October 1, 2009 (see
Note E).
Transfers
of products between operating segments are generally valued at cost. However,
transfers of products to Health and Agricultural Sciences from other segments
are generally valued at market-based prices; the revenues generated by these
transfers are provided in the following table:
Operating
Segment Information
|
|
In
millions
|
|
Electronic
and Specialty Materials
|
|
|
Coatings
and Infrastructure
|
|
|
Health
and Ag Sciences
|
|
|
Perf
Systems
|
|
|
Perf
Products
|
|
|
Basic
Plastics
|
|
|
Basic
Chemicals
|
|
|
Hydrocarbons
and Energy
|
|
|
Corp
|
|
|
Total
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
4,119 |
|
|
$ |
4,156 |
|
|
$ |
4,522 |
|
|
$ |
5,744 |
|
|
$ |
8,996 |
|
|
$ |
9,925 |
|
|
$ |
2,467 |
|
|
$ |
4,241 |
|
|
$ |
705 |
|
|
$ |
44,875 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51 |
|
|
|
- |
|
|
|
52 |
|
|
|
- |
|
|
|
(103 |
) |
|
|
- |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
290 |
|
|
|
3 |
|
|
|
2 |
|
|
|
4 |
|
|
|
31 |
|
|
|
112 |
|
|
|
163 |
|
|
|
33 |
|
|
|
(8 |
) |
|
|
630 |
|
Goodwill
impairment losses (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
Restructuring
charges (2)
|
|
|
68 |
|
|
|
171 |
|
|
|
(15 |
) |
|
|
- |
|
|
|
73 |
|
|
|
1 |
|
|
|
75 |
|
|
|
65 |
|
|
|
251 |
|
|
|
689 |
|
IPR&D
(3)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
Acquisition
and integration related expenses (4)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
166 |
|
|
|
166 |
|
EBITDA
(5)
|
|
|
1,046 |
|
|
|
367 |
|
|
|
573 |
|
|
|
674 |
|
|
|
1,142 |
|
|
|
1,665 |
|
|
|
103 |
|
|
|
391 |
|
|
|
(1,133 |
) |
|
|
4,828 |
|
Total
assets
|
|
|
17,018 |
|
|
|
6,663 |
|
|
|
5,475 |
|
|
|
5,752 |
|
|
|
8,363 |
|
|
|
7,503 |
|
|
|
2,875 |
|
|
|
3,645 |
|
|
|
8,643 |
|
|
|
65,937 |
|
Investment
in nonconsolidated affiliates
|
|
|
1,042 |
|
|
|
28 |
|
|
|
38 |
|
|
|
111 |
|
|
|
409 |
|
|
|
883 |
|
|
|
360 |
|
|
|
331 |
|
|
|
22 |
|
|
|
3,224 |
|
Depreciation
and amortization
|
|
|
490 |
|
|
|
375 |
|
|
|
137 |
|
|
|
326 |
|
|
|
554 |
|
|
|
542 |
|
|
|
275 |
|
|
|
- |
|
|
|
128 |
|
|
|
2,827 |
|
Capital
expenditures
|
|
|
155 |
|
|
|
133 |
|
|
|
166 |
|
|
|
138 |
|
|
|
240 |
|
|
|
56 |
|
|
|
182 |
|
|
|
296 |
|
|
|
44 |
|
|
|
1,410 |
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
2,620 |
|
|
$ |
2,654 |
|
|
$ |
4,535 |
|
|
$ |
7,540 |
|
|
$ |
12,216 |
|
|
$ |
14,240 |
|
|
$ |
4,265 |
|
|
$ |
8,968 |
|
|
$ |
323 |
|
|
$ |
57,361 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
97 |
|
|
|
- |
|
|
|
65 |
|
|
|
- |
|
|
|
(162 |
) |
|
|
- |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
370 |
|
|
|
1 |
|
|
|
4 |
|
|
|
(2 |
) |
|
|
52 |
|
|
|
115 |
|
|
|
214 |
|
|
|
41 |
|
|
|
(8 |
) |
|
|
787 |
|
Goodwill
impairment losses (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
209 |
|
|
|
- |
|
|
|
30 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239 |
|
Restructuring
charges (2)
|
|
|
10 |
|
|
|
16 |
|
|
|
3 |
|
|
|
70 |
|
|
|
39 |
|
|
|
148 |
|
|
|
103 |
|
|
|
18 |
|
|
|
432 |
|
|
|
839 |
|
IPR&D
(3)
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
Acquisition
and integration related expenses (4)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
49 |
|
|
|
49 |
|
Asbestos-related
credit (6)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(54 |
) |
|
|
(54 |
) |
EBITDA
(5)
|
|
|
835 |
|
|
|
134 |
|
|
|
872 |
|
|
|
235 |
|
|
|
1,050 |
|
|
|
1,746 |
|
|
|
278 |
|
|
|
(70 |
) |
|
|
(1,005 |
) |
|
|
4,075 |
|
Total
assets
|
|
|
4,424 |
|
|
|
1,544 |
|
|
|
4,676 |
|
|
|
5,100 |
|
|
|
7,365 |
|
|
|
7,215 |
|
|
|
3,019 |
|
|
|
3,233 |
|
|
|
8,898 |
|
|
|
45,474 |
|
Investment
in nonconsolidated affiliates
|
|
|
889 |
|
|
|
4 |
|
|
|
41 |
|
|
|
111 |
|
|
|
299 |
|
|
|
843 |
|
|
|
479 |
|
|
|
520 |
|
|
|
18 |
|
|
|
3,204 |
|
Depreciation
and amortization
|
|
|
215 |
|
|
|
93 |
|
|
|
111 |
|
|
|
282 |
|
|
|
482 |
|
|
|
648 |
|
|
|
302 |
|
|
|
- |
|
|
|
103 |
|
|
|
2,236 |
|
Capital
expenditures
|
|
|
269 |
|
|
|
148 |
|
|
|
191 |
|
|
|
323 |
|
|
|
507 |
|
|
|
186 |
|
|
|
258 |
|
|
|
389 |
|
|
|
5 |
|
|
|
2,276 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
2,071 |
|
|
$ |
1,836 |
|
|
$ |
3,779 |
|
|
$ |
6,597 |
|
|
$ |
12,976 |
|
|
$ |
14,167 |
|
|
$ |
4,434 |
|
|
$ |
7,105 |
|
|
$ |
410 |
|
|
$ |
53,375 |
|
Intersegment
revenues
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
103 |
|
|
|
5 |
|
|
|
64 |
|
|
|
- |
|
|
|
(172 |
) |
|
|
- |
|
Equity
in earnings of nonconsolidated affiliates
|
|
|
345 |
|
|
|
1 |
|
|
|
4 |
|
|
|
10 |
|
|
|
56 |
|
|
|
235 |
|
|
|
386 |
|
|
|
87 |
|
|
|
(2 |
) |
|
|
1,122 |
|
Restructuring
charges (2)
|
|
|
27 |
|
|
|
20 |
|
|
|
77 |
|
|
|
155 |
|
|
|
55 |
|
|
|
96 |
|
|
|
7 |
|
|
|
44 |
|
|
|
97 |
|
|
|
578 |
|
IPR&D
(3)
|
|
|
7 |
|
|
|
- |
|
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
57 |
|
EBITDA
(5)
|
|
|
737 |
|
|
|
51 |
|
|
|
576 |
|
|
|
624 |
|
|
|
1,991 |
|
|
|
2,804 |
|
|
|
952 |
|
|
|
(45 |
) |
|
|
(854 |
) |
|
|
6,836 |
|
Total
assets
|
|
|
4,458 |
|
|
|
1,351 |
|
|
|
4,152 |
|
|
|
5,790 |
|
|
|
8,805 |
|
|
|
9,672 |
|
|
|
3,824 |
|
|
|
3,370 |
|
|
|
7,379 |
|
|
|
48,801 |
|
Investment
in nonconsolidated affiliates
|
|
|
953 |
|
|
|
4 |
|
|
|
38 |
|
|
|
78 |
|
|
|
256 |
|
|
|
758 |
|
|
|
579 |
|
|
|
402 |
|
|
|
21 |
|
|
|
3,089 |
|
Depreciation
and amortization
|
|
|
186 |
|
|
|
62 |
|
|
|
109 |
|
|
|
272 |
|
|
|
545 |
|
|
|
626 |
|
|
|
288 |
|
|
|
- |
|
|
|
102 |
|
|
|
2,190 |
|
Capital
expenditures
|
|
|
254 |
|
|
|
108 |
|
|
|
116 |
|
|
|
249 |
|
|
|
490 |
|
|
|
176 |
|
|
|
259 |
|
|
|
413 |
|
|
|
10 |
|
|
|
2,075 |
|
(1)
|
See Note I for information regarding the goodwill impairment
losses. |
|
(2)
|
See Note C for information regarding restructuring
charges. |
|
(3)
|
See Note D for information regarding purchased in-process research
and development. |
|
(4)
|
See Note D for information regarding acquisition and integration
related expenses. |
|
(5)
|
The Company
uses EBITDA (which Dow defines as earnings before interest, income taxes,
depreciation and amortization) as its measure of profit/loss for segment
reporting purposes. EBITDA by operating segment
includes all operating items relating to the businesses; items that
principally apply to the Company as a whole are assigned to Corporate. A
reconciliation of EBITDA to “Income from Continuing Operations
Before Income Taxes” is provided below:
|
|
In millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
EBITDA
|
|
$ |
4,828 |
|
|
$ |
4,075 |
|
|
$ |
6,836 |
|
- Depreciation
and amortization
|
|
|
2,827 |
|
|
|
2,236 |
|
|
|
2,190 |
|
+
Interest income
|
|
|
39 |
|
|
|
86 |
|
|
|
130 |
|
- Interest
expense and amortization of debt discount
|
|
|
1,571 |
|
|
|
648 |
|
|
|
584 |
|
Income
from Continuing Operations Before Income Taxes
|
|
$ |
469 |
|
|
$ |
1,277 |
|
|
$ |
4,192 |
|
(6)
|
See Note N for information regarding asbestos-related
credit. |
|
The
Company operates 214 manufacturing sites in 37 countries. The United States is
home to 62 of these sites, representing 51 percent of the Company’s
long-lived assets. Sales are attributed to geographic areas based on customer
location; long-lived assets are attributed to geographic areas based on asset
location.
Geographic
Area Information
|
|
In
millions
|
|
United
States
|
|
|
Europe
|
|
|
Rest
of World
|
|
|
Total
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
14,145 |
|
|
$ |
15,069 |
|
|
$ |
15,661 |
|
|
$ |
44,875 |
|
Long-lived
assets (1)
|
|
$ |
9,212 |
|
|
$ |
5,173 |
|
|
$ |
3,756 |
|
|
$ |
18,141 |
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
18,306 |
|
|
$ |
21,850 |
|
|
$ |
17,205 |
|
|
$ |
57,361 |
|
Long-lived
assets (1)
|
|
$ |
7,631 |
|
|
$ |
4,343 |
|
|
$ |
2,320 |
|
|
$ |
14,294 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
to external customers
|
|
$ |
18,133 |
|
|
$ |
19,614 |
|
|
$ |
15,628 |
|
|
$ |
53,375 |
|
Long-lived
assets (1)
|
|
$ |
7,586 |
|
|
$ |
4,542 |
|
|
$ |
2,260 |
|
|
$ |
14,388 |
|
(1)
Long-lived assets in Germany represented approximately 11 percent of
the total at December 31, 2009 and 14 percent of the total at
December 31, 2008 and December 31, 2007.
|
|
The
Dow Chemical Company and Subsidiaries
|
Selected
Quarterly Financial Data
|
In
millions, except per share amounts (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Year
|
|
Net
sales
|
|
$ |
9,041 |
|
|
$ |
11,322 |
|
|
$ |
12,046 |
|
|
$ |
12,466 |
|
|
$ |
44,875 |
|
Cost
of sales
|
|
|
8,138 |
|
|
|
9,764 |
|
|
|
10,386 |
|
|
|
10,860 |
|
|
|
39,148 |
|
Gross
margin
|
|
|
903 |
|
|
|
1,558 |
|
|
|
1,660 |
|
|
|
1,606 |
|
|
|
5,727 |
|
Goodwill
impairment losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
Restructuring
charges
|
|
|
19 |
|
|
|
662 |
|
|
|
- |
|
|
|
8 |
|
|
|
689 |
|
Purchased
in-process research and development charges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
Acquisition
and integration related expenses
|
|
|
48 |
|
|
|
52 |
|
|
|
21 |
|
|
|
45 |
|
|
|
166 |
|
Net
income (loss) available for common stockholders
|
|
|
24 |
|
|
|
(486 |
) |
|
|
711 |
|
|
|
87 |
|
|
|
336 |
|
Earnings (Loss) per common share
- basic (1)
|
|
|
0.03 |
|
|
|
(0.47 |
) |
|
|
0.64 |
|
|
|
0.08 |
|
|
|
0.32 |
|
Earnings (Loss) per common share
- diluted (1)
|
|
|
0.03 |
|
|
|
(0.47 |
) |
|
|
0.63 |
|
|
|
0.08 |
|
|
|
0.32 |
|
Common
stock dividends declared per share of common
stock
|
|
|
0.15 |
|
|
|
0.15 |
|
|
|
0.15 |
|
|
|
0.15 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price range of common
stock: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
16.68 |
|
|
|
18.99 |
|
|
|
27.24 |
|
|
|
29.50 |
|
|
|
29.50 |
|
Low
|
|
|
5.89 |
|
|
|
8.14 |
|
|
|
14.22 |
|
|
|
23.14 |
|
|
|
5.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Year
|
|
Net
sales
|
|
$ |
14,791 |
|
|
$ |
16,349 |
|
|
$ |
15,371 |
|
|
$ |
10,850 |
|
|
$ |
57,361 |
|
Cost
of sales
|
|
|
12,884 |
|
|
|
14,621 |
|
|
|
13,949 |
|
|
|
10,459 |
|
|
|
51,913 |
|
Gross
margin
|
|
|
1,907 |
|
|
|
1,728 |
|
|
|
1,422 |
|
|
|
391 |
|
|
|
5,448 |
|
Goodwill
impairment losses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239 |
|
|
|
239 |
|
Restructuring
charges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
839 |
|
|
|
839 |
|
Purchased
in-process research and development charges
|
|
|
- |
|
|
|
- |
|
|
|
27 |
|
|
|
17 |
|
|
|
44 |
|
Acquisition
and integration related expenses
|
|
|
- |
|
|
|
- |
|
|
|
18 |
|
|
|
31 |
|
|
|
49 |
|
Asbestos-related
credit
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54 |
|
|
|
54 |
|
Net
income (loss) available for common stockholders
|
|
|
941 |
|
|
|
762 |
|
|
|
428 |
|
|
|
(1,552 |
) |
|
|
579 |
|
Earnings (Loss) per common share
- basic (3)
|
|
|
1.00 |
|
|
|
0.82 |
|
|
|
0.46 |
|
|
|
(1.68 |
) |
|
|
0.62 |
|
Earnings (Loss) per common share
- diluted (3)
|
|
|
0.99 |
|
|
|
0.81 |
|
|
|
0.46 |
|
|
|
(1.68 |
) |
|
|
0.62 |
|
Common
stock dividends declared per share of common
stock
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
0.42 |
|
|
|
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price range of common
stock: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
40.04 |
|
|
|
43.43 |
|
|
|
39.99 |
|
|
|
32.28 |
|
|
|
43.43 |
|
Low
|
|
|
33.01 |
|
|
|
34.30 |
|
|
|
30.82 |
|
|
|
14.93 |
|
|
|
14.93 |
|
See
Notes to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Due
to an increase in the share count during 2009 and a loss in the 2nd
quarter, the sum of the four quarters does not equal the earnings per
share amount calculated for the year. |
(2)
|
Composite
price as reported by the New York Stock
Exchange. |
(3)
|
Due
to a decline in the share count during 2008 and a loss in the 4th quarter,
the sum of the four quarters does not equal the earnings per share amount
calculated for the year. |
The
Dow Chemical Company and Subsidiaries
PART
II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not
applicable.
Evaluation
of Disclosure Controls and Procedures
As
of the end of the period covered by this Annual Report on Form 10-K, the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s Disclosure Committee and the Company’s management, including the
Chief Executive Officer and the Interim Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 and
15d-15. Based upon that evaluation, the Chief Executive Officer and the Interim
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective.
Changes
in Internal Control Over Financial Reporting
On
April 1, 2009, the Company acquired Rohm and Haas Company (“Rohm and Haas”)
(see Note D to the Consolidated Financial Statements). The Company has
extended its Section 404 compliance program under the Sarbanes-Oxley Act of
2002 and the applicable rules and regulations under such Act to include Rohm and
Haas. Management’s Report on Internal Control over Financial Reporting as of
December 31, 2009 includes the acquired Rohm and Haas
businesses.
There
were no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. The Company’s internal control framework and processes are
designed to provide reasonable assurance to management and the Board of
Directors regarding the reliability of financial reporting and the preparation
of the Company’s consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America.
The
Company’s internal control over financial reporting includes those policies and
procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
provide
reasonable assurance that transactions are recorded properly to allow for
the preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and Directors of the Company;
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the consolidated financial statements;
and
|
|
·
|
provide
reasonable assurance as to the detection of
fraud.
|
Because
of its inherent limitations, any system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting and concluded that, as of December 31, 2009, such internal control is
effective. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control—Integrated
Framework. The Rohm and Haas businesses acquired on April 1, 2009
are included in the scope of management’s assessment.
The
Company’s independent auditors, Deloitte & Touche LLP, with direct access to the
Company’s Board of Directors through its Audit Committee, have audited the
consolidated financial statements prepared by the Company. Their report on the
consolidated financial statements is included in Part II, Item 8. Financial
Statements and Supplementary Data. Deloitte & Touche LLP’s report on the Company’s
internal control over financial reporting is included herein.
/s/
ANDREW N. LIVERIS
|
|
/s/
WILLIAM H. WEIDEMAN
|
Andrew
N. Liveris
President,
Chief Executive Officer and
Chairman
of the Board
|
|
William
H. Weideman
Vice
President and Interim Chief Financial Officer
|
/s/
RONALD C. EDMONDS
|
|
|
Ronald
C. Edmonds
Vice
President and Controller
|
|
|
February
19, 2010
|
|
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
The
Dow Chemical Company:
We
have audited the internal control over financial reporting of The Dow Chemical
Company and subsidiaries (the "Company”) as of December 31, 2009, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule listed in the Index at Item 15 (a) 2
as of and for the year ended December 31, 2009 of the Company and our report
dated February 19, 2010 expressed an unqualified opinion on those financial
statements and financial statement schedule.
/s/
DELOITTE & TOUCHE LLP
|
|
|
Deloitte
& Touche
LLP
Midland,
Michigan
|
|
|
February
19, 2010
|
|
|
None.
The
Dow Chemical Company and Subsidiaries
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
Information
relating to Directors, certain executive officers and certain corporate
governance matters (including identification of Audit Committee members and
financial expert(s)) is contained in the definitive Proxy Statement for the
Annual Meeting of Stockholders of The Dow Chemical Company to be held on
May 13, 2010, and is incorporated herein by reference. See also the
information regarding executive officers of the registrant set forth in Part I
under the caption “Executive Officers of the Registrant” in reliance on General
Instruction G to Form 10-K.
On
July 10, 2003, the Board of Directors of the Company adopted a code of
ethics that applies to its principal executive officer, principal financial
officer and principal accounting officer, and is incorporated herein by
reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2003.
Information
relating to executive compensation and the Company’s equity compensation plans
is contained in the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 13, 2010, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Information
with respect to beneficial ownership of Dow common stock by each Director and
all Directors and executive officers of the Company as a group is contained in
the definitive Proxy Statement for the Annual Meeting of Stockholders of The Dow
Chemical Company to be on held May 13, 2010, and is incorporated herein by
reference.
Information
relating to any person who beneficially owns in excess of 5 percent of the
total outstanding shares of Dow common stock is contained in the definitive
Proxy Statement for the Annual Meeting of Stockholders of The Dow Chemical
Company to be on held May 13, 2010, and is incorporated herein by
reference.
Information
with respect to compensation plans under which equity securities are authorized
for issuance is contained in the definitive Proxy Statement for the Annual
Meeting of Stockholders of The Dow Chemical Company to be held on May 13,
2010, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
There
were no reportable relationships or related transactions in 2009.
Information
relating to director independence is contained in the definitive Proxy Statement
for the Annual Meeting of Stockholders of The Dow Chemical Company to be held on
May 13, 2010, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
Information
with respect to fees and services related to the Company’s independent auditors,
Deloitte & Touche LLP,
and the disclosure of the Audit Committee’s pre-approval policies and procedures
are contained in the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 13, 2010, and
are incorporated herein by reference.
The
Dow Chemical Company and Subsidiaries
PART
IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
(a) The
following documents are filed as part of this report:
|
(1)
|
The
Company’s 2009 Consolidated Financial Statements and the Report of
Independent Registered Public Accounting Firm are included in Part II,
Item 8. Financial Statements and Supplementary
Data.
|
|
(2)
|
Financial
Statement Schedules – The following Financial Statement Schedule should be
read in conjunction with the Consolidated Financial Statements and Report
of Independent Registered Public Accounting Firm included in Part II, Item
8. Financial Statements and Supplementary
Data:
|
Schedule
II
|
Valuation
and Qualifying Accounts
|
Schedules
other than the one listed above are omitted due to the absence of conditions
under which they are required or because the information called for is included
in the Consolidated Financial Statements or the Notes to the Consolidated
Financial Statements.
|
(3)
|
Exhibits
– See the Exhibit Index on pages 166-172 of this Annual Report on Form
10-K for exhibits filed with this Annual Report on Form 10-K or
incorporated by reference. The following exhibits, listed on the Exhibit
Index, are filed with this Annual Report on Form
10-K:
|
Exhibit
No.
|
Description
of Exhibit
|
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
Subsidiaries
of The Dow Chemical Company.
|
|
Consent
of Independent Registered Public Accounting Firm.
|
|
Analysis,
Research & Planning Corporation’s Consent.
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
XBRL
Instance Document (1)
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document (1)
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document (1)
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document (1)
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document (1)
|
(1)
|
Pursuant
to Rule 406T of Regulation S-T, this interactive data file is deemed not
filed or part of a registration statement or prospectus for purposes of
sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of section 18 of the Securities Exchange Act of 1934, and
otherwise is not subject to liability under these
sections.
|
A
copy of any exhibit can be obtained via the Internet through the Company’s
Investor Relations webpage on www.dow.com, or the Company
will provide a copy of any exhibit upon receipt of a written request for the
particular exhibit or exhibits desired. All requests should be addressed to the
Vice President and Controller of the Company at the address of the Company’s
principal executive offices.
|
The
Dow Chemical Company and Subsidiaries
|
|
|
|
Valuation
and Qualifying Accounts |
|
|
In
millions
|
For
the Years Ended December 31
|
|
|
COLUMN
A
|
|
COLUMN
B
|
|
|
COLUMN
C
|
|
|
COLUMN
D
|
|
|
|
COLUMN
E
|
|
Description
|
|
Balance
at
Beginning
of
Year
|
|
|
Additions
to Reserves
|
|
|
Deductions
from
Reserves
|
|
|
|
Balance
at
End
of
Year
|
|
2009 |
|
RESERVES
DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
|
|
For
doubtful receivables |
$ |
124 |
|
|
|
59 |
|
|
|
23 |
(1) |
|
|
$ |
160 |
Other
investments and noncurrent receivables
|
$ |
442 |
|
|
|
162 |
|
|
|
52 |
|
|
|
$ |
552 |
|
|
2008 |
|
RESERVES
DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
|
|
For
doubtful receivables |
$ |
118 |
|
|
|
39 |
|
|
|
33 |
(1) |
|
|
$ |
124 |
Other
investments and noncurrent receivables
|
$ |
473 |
|
|
|
20 |
|
|
|
51 |
|
|
|
$ |
442 |
|
|
2007 |
|
RESERVES
DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
|
|
For
doubtful receivables
|
$ |
122 |
|
|
|
14 |
|
|
|
18 |
(1) |
|
|
$ |
118 |
Other
investments and noncurrent receivables
|
$ |
365 |
|
|
|
122 |
|
|
|
14 |
|
|
|
$ |
473 |
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(1)
Deductions represent:
|
|
|
|
|
|
|
|
|
|
Notes
and accounts receivable written off
|
|
$ |
21 |
|
|
$ |
23 |
|
|
$ |
22 |
|
Credits
to profit and loss
|
|
|
1 |
|
|
|
6 |
|
|
|
- |
|
Miscellaneous
other
|
|
|
1 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
$ |
23 |
|
|
$ |
33 |
|
|
$ |
18 |
|
The
Dow Chemical Company and Subsidiaries
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
THE
DOW CHEMICAL COMPAY
|
|
By
|
/s/ R.
C. EDMONDS
|
|
|
R.
C. Edmonds, Vice President and Controller
|
|
Date
|
February 10,
2010
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By
|
/s/ A.
A. ALLEMANG
|
|
By
|
/s/ A.
N. LIVERIS
|
|
A.
A. Allemang, Director
|
|
|
A.
N. Liveris, Director, President, Chief Executive Officer and Chairman of
the Board
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ J.
K. BARTON
|
|
By
|
/s/ P.
POLMAN
|
|
J.
K. Barton, Director
|
|
|
P.
Polman, Director
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/
J. A. BELL
|
|
By
|
/s/ D.
H. REILLEY
|
|
J.
A. Bell, Director
|
|
|
D.
H. Reilley, Director
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ R.
C. EDMONDS
|
|
By
|
/s/ J.
M. RINGLER
|
|
R.
C. Edmonds, Vice President and Controller
|
|
|
J.
M. Ringler, Director
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ J.
M. FETTIG
|
|
By
|
/s/ R.
G. SHAW
|
|
J.
M. Fettig, Director
|
|
|
R.
G. Shaw, Director
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ B.
H. FRANKLIN
|
|
By
|
/s/ P.
G. STERN
|
|
B.
H. Franklin, Director
|
|
|
P.
G. Stern, Presiding Director
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
By
|
/s/ J.
B. HESS
|
|
By
|
/s/ W.
H. WEIDEMAN
|
|
J.
B. Hess, Director
|
|
|
W.
H. Weideman, Vice President and Interim Chief Financial
Officer
|
Date
|
February 10,
2010
|
|
Date
|
February 10,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Dow Chemical Company and Subsidiaries
Exhibit
Index
|
2(a)
|
Agreement
and Plan of Merger dated as of August 3, 1999 among Union Carbide
Corporation, The Dow Chemical Company and Transition Sub Inc.,
incorporated by reference to Annex A to the proxy statement/prospectus
included in The Dow Chemical Company’s Registration Statement on Form S-4,
File No. 333-88443, filed October 5,
1999.
|
|
2(b)
|
Agreement
and Plan of Merger, dated as of July 10, 2008, among The Dow Chemical
Company, Ramses Acquisition Corp. and Rohm and Haas Company, incorporated
by reference to Exhibit 2.1 to The Dow Chemical Company Current
Report on Form 8-K filed on July 10,
2008.
|
|
2(c)
|
Joint
Venture Formation Agreement, dated November 28, 2008, between The Dow
Chemical Company and Petroleum Industries Company (K.S.C.), incorporated
by reference to Exhibit 2.1 to The Dow Chemical Company Current
Report on Form 8-K filed on February 19,
2009.
|
|
2(d)
|
Stock
Purchase Agreement, dated as of April 1, 2009, between Rohm and Haas
Company and K+S Aktiengesellschaft, incorporated by reference to
Exhibit 2.1 to The Dow Chemical Company Current Report on
Form 8-K filed on April 7,
2009.
|
|
2(d)(i)
|
Amendment
No. 1, dated as of October 1, 2009, to the Stock Purchase
Agreement, dated as of April 1, 2009, between Rohm and Haas Company
and K+S Aktiengesellschaft, incorporated by reference to
Exhibit 2(d)(i) to The Dow Chemical Company Quarterly Report for the
quarter ended September 30, 2009.
|
|
3(i)
|
The
Restated Certificate of Incorporation of The Dow Chemical Company as filed
with the Secretary of State, State of Delaware on May 11, 2007,
incorporated by reference to Exhibit 3(i) to The Dow Chemical Company
Quarterly Report on Form 10-Q for the quarter ended June 30,
2007.
|
|
3(i)(a)
|
Certificate
of Designations for the Cumulative Convertible Perpetual Preferred Stock,
Series A, as filed with the Secretary of State, State of Delaware on
March 31, 2009, incorporated by reference to Exhibit 3.1 to The
Dow Chemical Company Current Report on Form 8-K filed on
April 1, 2009.
|
|
3(ii)
|
The
Bylaws of The Dow Chemical Company, as amended and re-adopted in full on
February 10, 2010, effective February 10, 2010, incorporated by
reference to Exhibit 99.1 to The Dow Chemical Company Current Report
on Form 8-K filed on February 12,
2010.
|
|
4
|
Indenture,
dated as of April 1, 1992, between The Dow Chemical Company and the First
National Bank of Chicago, as trustee (incorporated by reference to Exhibit
4.1 to The Dow Chemical Company’s Registration Statement on Form S-3, File
No. 333-88617 (the "S-3 Registration Statement")), as amended by the
Supplemental Indenture, dated as of January 1, 1994, between The Dow
Chemical Company and The First National Bank of Chicago, as trustee
(incorporated by reference to Exhibit 4.2 to the S-3 Registration
Statement), as amended by the Second Supplemental Indenture, dated as of
October 1, 1999, between The Dow Chemical Company and Bank One Trust
Company, N.A. (formerly The First National Bank of Chicago), as trustee
(incorporated by reference to Exhibit 4.3 to the S-3 Registration
Statement), as amended by the Third Supplemental Indenture, dated as of
May 15, 2001, between The Dow Chemical Company and Bank One Trust Company,
N.A. (formerly The First National Bank of Chicago), as trustee
(incorporated by reference to Exhibit 4.4 to The Dow Chemical Company’s
Registration Statement on Form S-4, File No. 333-67368); and all other
such indentures that define the rights of holders of long-term debt of The
Dow Chemical Company and its consolidated subsidiaries as shall be
requested to be furnished to the Securities and Exchange Commission
pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K.
|
|
4(a)
|
Indenture,
dated May 1, 2008, between The Dow Chemical Company and The Bank of
New York Trust Company, N.A., as trustee, incorporated by reference to
Exhibit 4.1 to Post-Effective Amendment No. 1 to The Dow
Chemical Company’s Registration Statement on Form S-3, File
No. 333-140859.
|
|
10(a)
|
The
Dow Chemical Company Executives’ Supplemental Retirement Plan, as amended,
restated and effective as of January 1, 2009, incorporated by
reference to Exhibit 10(a) to The Dow Chemical Company Annual Report
on Form 10-K for the year ended December 31,
2008.
|
|
10(b)
|
The
Dow Chemical Company 1979 Award and Option Plan, as amended and restated
on May 13, 1983, incorporated by reference to Exhibit 10(b) to
The Dow Chemical Company Quarterly Report on Form 10-Q for the quarter
ended March 31, 2009.
|
|
10(b)(i)
|
A
resolution adopted by the Board of Directors of The Dow Chemical Company
on April 12, 1984 amending The Dow Chemical Company 1979 Award and
Option Plan, incorporated by reference to Exhibit 10(b)(i) to The Dow
Chemical Company Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009.
|
|
10(b)(ii)
|
A
resolution adopted by the Board of Directors of The Dow Chemical Company
on April 18, 1985 amending The Dow Chemical Company 1979 Award and
Option Plan, incorporated by reference to Exhibit 10(b)(ii) to The
Dow Chemical Company Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009.
|
|
10(b)(iii)
|
A
resolution adopted by the Executive Committee of the Board of Directors of
The Dow Chemical Company on October 30, 1987 amending The Dow
Chemical Company 1979 Award and Option Plan, incorporated by reference to
Exhibit 10(b)(iii) to The Dow Chemical Company Quarterly Report on
Form 10-Q for the quarter ended March 31,
2009.
|
|
10(c)
|
The
Dow Chemical Company Voluntary Deferred Compensation Plan for Outside
Directors (for deferrals made through December 31, 2004), as amended
effective as of July 1, 1994, incorporated by reference to Exhibit 10(f)
to The Dow Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1994, as amended in the manner described in the
definitive Proxy Statement for the Annual Meeting of Stockholders of The
Dow Chemical Company held on May 14, 1998, incorporated by
reference.
|
|
10(d)
|
Intentionally
left blank.
|
|
10(e)
|
The
Dow Chemical Company Dividend Unit Plan, incorporated by reference to
Exhibit 10(e) to The Dow Chemical Company Quarterly Report on Form 10-Q
for the quarter ended March 31,
2009.
|
|
10(f)
|
The
Dow Chemical Company 1988 Award and Option Plan, as amended and restated
on December 10, 2008, effective as of January 1, 2009,
incorporated by reference to Exhibit 10(f) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended December 31,
2008.
|
|
10(g)
|
Intentionally
left blank.
|
|
10(h)
|
The
Dow Chemical Company 1994 Executive Performance Plan, as amended and
restated on December 10, 2008, effective as of January 1, 2009,
incorporated by reference to Exhibit 10(h) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended December 31,
2008.
|
|
10(i)
|
The
Dow Chemical Company 1994 Non-Employee Directors’ Stock Plan, incorporated
by reference to Exhibit 10(i) to The Dow Chemical Company Quarterly
Report on Form 10-Q for the quarter ended March 31,
2009.
|
|
10(j)
|
Intentionally
left blank.
|
|
10(k)
|
A
written description of the 1998 Non-Employee Directors’ Stock Incentive
Plan, incorporated by reference to the definitive Proxy Statement for the
Annual Meeting of Stockholders of The Dow Chemical Company held on
May 14, 1998.
|
|
10(l)
|
A
written description of compensation for Directors of The Dow Chemical
Company, incorporated by reference to the definitive Proxy Statement for
the Annual Meeting of Stockholders of The Dow Chemical Company to be held
on May 13, 2010.
|
|
10(m)
|
A
written description of the manner in which compensation is set for the
Executive Officers of The Dow Chemical Company, incorporated by reference
to the definitive Proxy Statement for the Annual Meeting of Stockholders
of The Dow Chemical Company to be held on May 13,
2010.
|
|
10(n)
|
A
resolution adopted by the Board of Directors of The Dow Chemical Company
on May 5, 1971, and most recently amended on July 9, 1998,
describing the employee compensation program for decelerating Directors,
incorporated by reference to Exhibit 10(p) to The Dow Chemical Company
Annual Report on Form 10-K for the year ended December 31, 1998; as
amended, re-adopted in full and restated on March 21, 2003,
incorporated by reference to Exhibit 10(n) to The Dow Chemical Company
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003;
as amended, re-adopted in full and restated on February 10, 2005,
incorporated by reference to Exhibit 10(n) to The Dow Chemical Company
Quarterly Report on Form 10-Q for the quarter ended March 31,
2005.
|
|
10(o)
|
The
template used for The Dow Chemical Company Key Employee Insurance Program
(“KEIP”), which provides benefits using insurance policies that replace
benefits otherwise payable under The Dow Chemical Company Executives’
Supplemental Retirement Plan and Company-Paid Life Insurance Plan,
incorporated by reference to Exhibit 10(o) to The Dow Chemical Company
Annual Report on Form 10-K for the year ended December 31, 2002. KEIP
is a component of the annual pension benefits listed in and incorporated
by reference to the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 13,
2010.
|
|
10(p)
|
The
Dow Chemical Company Elective Deferral Plan (for deferrals made through
December 31, 2004), as amended, restated and effective as of
January 1, 2010, incorporated by reference to Exhibit 10.1 to
The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(q)
|
The
Rohm and Haas Company Non-Qualified Savings Plan (for deferrals made
through December 31, 2004), amended and restated effective as of
January 1, 2010, incorporated by reference to Exhibit 10.2 to
The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(r)
|
The
Rohm and Haas Company Non-Qualified Savings Plan (for deferrals made after
January 1, 2005), amended and restated effective as of
January 1, 2010, incorporated by reference to Exhibit 10.3 to
The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(s)
|
The
Summary Plan Description for The Dow Chemical Company Company-Paid Life
Insurance Plan, Employee-Paid Life Insurance Plan, and Dependent Life
Insurance Plan, amended and restated on October 19, 2009, effective
as of January 1, 2010, incorporated by reference to Exhibit 10.4
to The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(t)
|
The
Summary Plan Description for The Dow Chemical Company Retiree Company-Paid
Life Insurance Plan, Retiree Optional Life Insurance Plan, and Retiree
Dependent Life Insurance Plan, amended and restated on October 19,
2009, effective as of January 1, 2010, incorporated by reference to
Exhibit 10.5 to The Dow Chemical Company Current Report on Form 8-K
filed on February 18, 2010.
|
|
10(u)
|
Amended
and Restated 2003 Non-Employee Directors’ Stock Incentive Plan, adopted by
the Board of Directors of The Dow Chemical Company on December 10,
2007, incorporated by reference to Exhibit 10(u) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended December 31,
2007.
|
|
10(v)
|
Non-Qualified
Stock Option Agreement Pursuant to The Dow Chemical Company 1994
Non-Employee Directors’ Stock Plan, incorporated by reference to
Exhibit 10.1 to The Dow Chemical Company Current Report on
Form 8-K filed on September 3,
2004.
|
|
10(w)
|
Non-Qualified
Stock Option Agreement Pursuant to The Dow Chemical Company 2003
Non-Employee Directors’ Stock Incentive Plan, incorporated by reference to
Exhibit 10(w) to The Dow Chemical Company Quarterly Report on
Form 10-Q for the quarter ended September 30,
2004.
|
|
10(x)
|
The
Performance Shares Deferred Stock Agreement Pursuant to The Dow Chemical
Company 1988 Award and Option Plan, as amended, restated and effective as
of January 1, 2009, incorporated by reference to Exhibit 10(x)
to The Dow Chemical Company Annual Report on Form 10-K for the year ended
December 31, 2008.
|
|
10(y)
|
The
Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988 Award
and Option Plan, as amended, restated and effective as of January 1, 2009,
incorporated by reference to Exhibit 10(y) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended December 31,
2008.
|
|
10(z)
|
The
Non-Qualified Stock Option Agreement Pursuant to The Dow Chemical Company
1988 Award and Option Plan, as amended, restated and effective as of
January 1, 2009, incorporated by reference to Exhibit 10(z) to
The Dow Chemical Company Annual Report on Form 10-K for the year ended
December 31, 2008.
|
|
10(aa)
|
Settlement
Agreement and General Release between Richard L. Manetta and The Dow
Chemical Company dated December 10, 2004, incorporated by reference
to Exhibit 10.1 to The Dow Chemical Company Current Report on
Form 8-K filed on December 16,
2004.
|
|
10(bb)
|
Deferred
Compensation Agreement between Richard L. Manetta and The Dow Chemical
Company dated December 10, 2004, incorporated by reference to Exhibit 10.2
to The Dow Chemical Company Current Report on Form 8-K filed on
December 16, 2004.
|
|
10(cc)
|
The
Dow Chemical Company Voluntary Deferred Compensation Plan for Non-Employee
Directors, effective for deferrals after January 1, 2005, as amended and
restated on December 10, 2008, effective as of January 1, 2009,
incorporated by reference to Exhibit 10(cc) to The Dow Chemical
Company Annual Report on Form 10-K for the year ended December 31,
2008.
|
|
10(dd)
|
The
Dow Chemical Company Elective Deferral Plan, effective for deferrals after
January 1, 2005, as amended, restated and effective as of January 1,
2010, incorporated by reference to Exhibit 10.6 to The Dow Chemical
Company Current Report on Form 8-K filed on February 18,
2010.
|
|
10(ee)
|
The
template for communication to employee Directors who are decelerating
pursuant to The Dow Chemical Company Retirement Policy for Employee
Directors, incorporated by reference to Exhibit 10(ee) to The Dow Chemical
Company Quarterly Report on Form 10-Q for the quarter ended June 30,
2005.
|
|
10(ff)
|
Purchase
and Sale Agreement dated as of September 30, 2005 between Catalysts,
Adsorbents and Process Systems, Inc. and Honeywell Specialty Materials
LLC, incorporated by reference to Exhibit 10(ff) to The Dow Chemical
Company Quarterly Report on Form 10-Q for the quarter ended September 30,
2005.
|
|
10(gg)
|
Employment
agreement with Geoffery Merszei, Executive Vice President and Chief
Financial Officer, incorporated by reference to Exhibit 10(gg) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended December
31, 2005.
|
|
10(hh)
|
Employment
agreement dated June 18, 2005, between William F. Banholzer and The
Dow Chemical Company, incorporated by reference to the Current Report on
Form 8-K filed on March 16,
2006.
|
|
10(ii)
|
Employment
agreement dated February 14, 2006, between Heinz Haller and The Dow
Chemical Company, incorporated by reference to Exhibit 10(ii) to The
Dow Chemical Company Annual Report on Form 10-K for the year ended
December 31, 2008.
|
|
10(jj)
|
Change
in Control Executive Severance Agreement - Tier 1, incorporated by
reference to Exhibit 10(jj) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31,
2007.
|
|
10(kk)
|
Change
in Control Executive Severance Agreement - Tier 2, incorporated by
reference to Exhibit 10(kk) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31,
2007.
|
|
10(ll)
|
Voting
Agreement dated as of July 10, 2008, by and among Rohm and Haas
Company, The Dow Chemical Company and each of the persons and entities
listed on Schedule I thereto, incorporated by reference to
Exhibit 10.1 to The Dow Chemical Company Current Report on Form 8-K
filed on July 10, 2008.
|
|
10(mm)
|
Term
Loan Agreement, dated as of September 8, 2008, among The Dow Chemical
Company, as borrower, the lenders party thereto and Citibank, N.A, as
administrative agent for the lenders, incorporated by reference to
Exhibit 99.1 to The Dow Chemical Company Current Report on
Form 8-K filed on September 9,
2008.
|
|
|
First
Amendment to the Term Loan Agreement, dated as of March 4, 2009,
among The Dow Chemical Company, the lenders party to the Term Loan
Agreement dated as of September 8, 2008, Citibank, N.A., as
administrative agent, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley Senior Funding, Inc., as co-syndication
agents, incorporated by reference to Exhibit 10.1 to The Dow Chemical
Company Current Report on Form 8-K filed on March 6,
2009.
|
|
10(nn)
|
Investment
Agreement, dated as of October 27, 2008, between The Dow Chemical
Company and Berkshire Hathaway Inc., incorporated by reference to
Exhibit 10.1 to The Dow Chemical Company Current Report on
Form 8-K filed on October 27,
2008.
|
|
10(oo)
|
Investment
Agreement, dated as of October 27, 2008, between The Dow Chemical
Company and The Kuwait Investment Authority, incorporated by reference to
Exhibit 10.2 to The Dow Chemical Company Current Report on
Form 8-K filed on October 27,
2008.
|
|
10(pp)
|
Securities
Issuance Letter, dated March 4, 2009, among The Dow Chemical Company,
Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley Senior Funding, Inc., incorporated
by reference to Exhibit 10.2 to The Dow Chemical Company Current
Report on Form 8-K filed on March 6,
2009.
|
|
10(qq)
|
Commitment
to Close, dated March 9, 2009, among The Dow Chemical Company, Ramses
Acquisition Corp. and Rohm and Haas Company, incorporated by reference to
Exhibit 10.1 to The Dow Chemical Company Current Report on
Form 8-K filed on March 12,
2009.
|
|
10(rr)
|
Investment
Agreement, dated March 9, 2009, among The Dow Chemical Company,
Paulson & Co. Inc. and the Haas Family Trusts, incorporated by
reference to Exhibit 10.2 to The Dow Chemical Company Current Report
on Form 8-K filed on March 12,
2009.
|
|
10(ss)
|
Letter
Agreement, dated March 9, 2009, among The Dow Chemical Company,
Ramses Acquisition Corp. and the Haas Family Trusts, incorporated by
reference to Exhibit 10.3 to The Dow Chemical Company Current Report
on Form 8-K filed on March 12,
2009.
|
|
10(tt)
|
Letter
Agreement, dated March 9, 2009, among The Dow Chemical Company,
Ramses Acquisition Corp. and Paulson & Co. Inc., incorporated by
reference to Exhibit 10.4 to The Dow Chemical Company Current Report
on Form 8-K filed on March 12,
2009.
|
|
10(uu)
|
Purchase
Agreement, dated May 5, 2009, among The Dow Chemical Company, Paulson
& Co. Inc. and the Haas Family Trusts, incorporated by reference to
Exhibit 10.1 to The Dow Chemical Company Current Report on
Form 8-K filed on May 11,
2009.
|
|
10(vv)
|
Stock
Purchase Agreement, dated May 11, 2009, between The Dow Chemical
Company and Fidelity Management Trust Services, as trustee of a trust
established under The Dow Chemical Company Employees’ Savings Plan,
incorporated by reference to Exhibit 1.1 to The Dow Chemical Company
Current Report on Form 8-K filed on May 14,
2009.
|
|
10(ww)
|
The
Deferred Stock Units Agreement Pursuant to The Dow Chemical Company 1988
Award and Option Plan, as amended, restated and effective as of
January 1, 2010, incorporated by reference to Exhibit 10.7 to
The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(xx)
|
The
Special Deferred Stock Agreement Pursuant to The Dow Chemical Company 1988
Award and Option Plan, as amended, restated and effective as of
January 1, 2010, incorporated by reference to Exhibit 10.8 to
The Dow Chemical Company Current Report on Form 8-K filed on
February 18, 2010.
|
|
10(yy)
|
The
Performance Shares Deferred Stock Units Agreement Pursuant to The Dow
Chemical Company 1988 Award and Option Plan, as amended, restated and
effective as of January 1, 2010, incorporated by reference to
Exhibit 10.9 to The Dow Chemical Company Current Report on Form 8-K
filed on February 18, 2010.
|
|
10(zz)
|
The
Special Performance Shares Deferred Stock Agreement Pursuant to The Dow
Chemical Company 1988 Award and Option Plan, as amended, restated and
effective as of January 1, 2010, incorporated by reference to
Exhibit 10.10 to The Dow Chemical Company Current Report on Form 8-K
filed on February 18, 2010.
|
|
10(aaa)
|
The
Stock Appreciation Rights Agreement Relating to a Stock Option Granted
Under The Dow Chemical Company 1988 Award and Option Plan, as amended,
restated and effective as of January 1, 2010, incorporated by
reference to Exhibit 10.11 to The Dow Chemical Company Current Report
on Form 8-K filed on February 18,
2010.
|
|
12.1
|
Computation
of Ratio of Earnings to Fixed
Charges.
|
|
14
|
Code
of Ethics for Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer, incorporated by reference to Exhibit 14
to The Dow Chemical Company Annual Report on Form 10-K for the year
ended December 31, 2003.
|
|
21
|
Subsidiaries
of The Dow Chemical Company.
|
|
23(a)
|
Consent
of Independent Registered Public Accounting
Firm.
|
|
23(b)
|
Analysis,
Research & Planning Corporation’s
Consent.
|
|
31(a)
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31(b)
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32(a)
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32(b)
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
99.1
|
Replacement
Capital Covenant, dated April 1, 2009, relating to the Cumulative
Perpetual Preferred Stock, Series B, incorporated by reference to
Exhibit 99.2 to The Dow Chemical Company Current Report on
Form 8-K filed on April 1,
2009.
|
|
99.2
|
Replacement
Capital Covenant, dated April 1, 2009, relating to the Cumulative
Convertible Perpetual Preferred Stock, Series C, incorporated by
reference to Exhibit 99.3 to The Dow Chemical Company Current Report
on Form 8-K filed on April 1,
2009.
|
|
99.3
|
Guarantee
relating to the 5.60% Notes of Rohm and Haas Company, incorporated by
reference to Exhibit 99.4 to The Dow Chemical Company Current Report
on Form 8-K filed on April 1,
2009.
|
|
99.4
|
Guarantee
relating to the 6.00% Notes of Rohm and Haas Company, incorporated by
reference to Exhibit 99.5 to The Dow Chemical Company Current Report
on Form 8-K filed on April 1,
2009.
|
|
99.5
|
Guarantee
relating to the 9.80% Debentures of Rohm and Haas Company, incorporated by
reference to Exhibit 99.6 to The Dow Chemical Company Current Report
on Form 8-K filed on April 1,
2009.
|
|
101.INS
|
XBRL
Instance Document (1)
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document (1)
|
|
101.CAL
|
XBRL Taxonomy Extension
Calculation Linkbase Document
(1)
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document (1)
|
|
101.PRE
|
XBRL Taxonomy Extension
Presentation Linkbase Document
(1)
|
|
(1)
Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for
purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not
filed for purposes of section 18 of the Securities Exchange Act of 1934,
and otherwise is not subject to liability under these
sections.
|
The
Dow Chemical Company and Subsidiaries
Trademark
Listing
The
|
following
trademarks or service marks of The Dow Chemical Company and certain
affiliated companies of Dow appear in this report: ACRYSOL,
ACUDYNE, ACULYN, ACUMER, ACuPLANE, ACUSOL, ADCOTE, ADVASTAB, AERIFY,
AFFINITY, AIRSTONE, AMBERLITE, AMBITROL, AMPLIFY, AQUA-LAM,
AQUASET, AR, ASPUN, ATTANE, AUROLECTROLESS, AUTOMATE, AVANSE, BETAFOAM,
BETAMATE, BETASEAL, BOROL, CANGUARD, CARBITOL, CARBOWAX, CARBOWAX SENTRY,
CELLOSIZE, CELLOSOLVE, CLEAR+STABLE, CONTINUUM, COPPER GLEAM, CORRGUARD,
CYCLOTENE, D.E.H., D.E.N., D.E.R., DOW, DOWANOL, DOWEX, DOWFAX, DOWFROST,
DOWICIDE, DOWLEX, DOWTHERM, DURAMAX, DURAPLUS, DURAPOSIT, ECHELON,
ECOSOFT, ECOSURF, ELASTENE, ELITE, ENDURANCE, ENFORCER, ENGAGE, ENHANCER,
ENLIGHT, EPIC, EVOCAR, FILMTEC, FORTEFIBER, FORTEGRA, FOUNDATIONS,
FROTH-PAK, GREAT STUFF, HYPERKOTE, HYPOL, IMPAXX, INFUSE, INSPIRE, INSITE,
INSTA-STIK, INTEGRAL, INTERVIA, ISONATE, LITHOJET, MAGNUM, METEOR,
METHOCEL, MONOTHANE, MOR-FREE, MORTRACE, NEOCAR, NORDEL, NORKOOL, NYLOPAK,
OPTICITE, OPTIDOSE, OPTOGRADE, OPULYN, OROTAN, PAPI, PARALOID, PELLETHANE,
POLYOX, POWERHOUSE, PRIMACOR, PRIMAL, PRIMENE, PROCITE, PROGLYDE, PULSE,
REDI-LINK, RENUVA, RHOPLEX, ROBOND, ROMAX, ROPAQUE, SARAN, SARANEX,
SATINFX, SATISFIT, SERFENE, SHAC, SI-LINK, SILK, SMARTFRESH, SOLTERRA,
SOLTEX, SPECFIL, SPECFLEX, SPECTRIM, STYROFOAM, STYRON, STYRON A-TECH,
STYRON C-TECH, SUNSPHERES, SYNALOX, TAMOL, TERGITOL, THERMAX, TILE BOND,
TRAFFIDECK, TRENCHCOAT, TRITON, TRYCITE, TUFLIN, TYBRITE, TYMOR, TYRIN,
UCAR, UCAR POLYPHOBE, UCARE, UCARHIDE, UCON, UNIGARD, UNIPOL, UNIVAL,
VERDISEAL, VERSENE, VERSIFY, VISIONPAD, VORACOR, VORACTIV, VORALAST,
VORAMER, VORANATE, VORANOL, VORASTAR, WALOCEL, WALSRODER, WEATHERMATE,
XITRACK
|
The
|
following
trademarks or service marks of Dow AgroSciences LLC and certain affiliated
companies of Dow AgroSciences LLC appear in this
report: AGROMEN, BRODBECK, CLINCHER, DAIRYLAND,
DELEGATE, DITHANE, FORTRESS, GARLON, GLYPHOMAX, GRANITE, HERCULEX,
KEYSTONE, LAREDO, LONTREL, LORSBAN, MILESTONE, MUSTANG, MYCOGEN, NEXERA,
PHYTOGEN, PROFUME, RENZE, SENTRICON, SIMPLICITY, STARANE, TELONE, TORDON,
TRACER NATURALYTE, TRIUMPH, VIKANE,
WIDESTRIKE
|
The
|
following
registered service mark of American Chemistry Council appears in this
report: Responsible Care
|
The
following trademark of Ann Arbor Technical Services, Inc. appears in this
report: GeoMorph
The
|
following
trademark of the Financial Accounting Standards Board appears in this
report: FASB Accounting Standards
Codification
|
The
following trademark of Monsanto Technology LLC appears in this
report: SmartStax
The
following trademarks of PatentSight GmbH appear in this
report: Patent Asset Index, Competitive Impact