10-K 1 tdccform10-k2009.htm 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)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
38-1285128
(I.R.S. Employer Identification No.)
 
2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices)                                        (Zip Code)
 
Registrant’s telephone number, including area code: 989-636-1000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Common Stock, par value $2.50 per share
 
 
Debentures, 6.85%, final maturity 2013
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
 
   
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
   
þ Yes o No
 
   
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
   
o Yes þ No
 
   
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.
 
   
þ Yes o No
 
   
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).
 
   
þ Yes o No
 
   
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
      þ  
   
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.
 
Large accelerated filer þ
       Accelerated filer o
 
Non-accelerated filer o
Smaller reporting company  o
 
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
o Yes þ No
 
   
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.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III: Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2010.
 

 
 

 

The Dow Chemical Company
 
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2009
 
   
PAGE
 
PART I
     
Business.
3
 
Risk Factors.
13
 
Unresolved Staff Comments.
16
 
Properties.
17
 
Legal Proceedings.
18
 
Submission of Matters to a Vote of Security Holders.
23
 
       
PART II
     
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
27
 
Selected Financial Data.
28
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
30
 
Quantitative and Qualitative Disclosures About Market Risk.
77
 
Financial Statements and Supplementary Data.
78
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
158
 
Controls and Procedures.
159
 
Other Information.
161
 
       
PART III
     
Directors, Executive Officers and Corporate Governance.
162
 
Executive Compensation.
162
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
162
 
Certain Relationships and Related Transactions, and Director Independence.
162
 
Principal Accounting Fees and Services.
162
 
       
PART IV
     
Exhibits, Financial Statement Schedules.
163
 
       
165
 
       


 
The Dow Chemical Company and Subsidiaries
PART I, Item 1. Business.
 



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.

 
·
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 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.

 
·
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
PART I, Item 1A. Risk Factors.


 
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
PART I, Item 2. Properties.



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
Page
 
                2009 Overview                              
31
 
                Acquisition of Rohm and Haas Company                              
33
 
                Results of Operations                              
33
 
                Segment Results                              
40
 
                Electronic and Specialty Materials                              
41
 
                Coatings and Infrastructure                           
42
 
                Health and Agricultural Sciences                             
43
 
                Performance Systems                              
44
 
                Performance Products                              
46
 
                Basic Plastics                              
49
 
                Basic Chemicals                              
51
 
                Hydrocarbons and Energy                             
52
 
                Sales Price and Volume Charts                              
55
 
                Liquidity and Capital Resources                              
56
 
                Cash Flow                              
56
 
                Working Capital                             
57
 
                Debt                              
57
 
                Capital Expenditures                            
60
 
                Contractual Obligations                              
61
 
                Off-Balance Sheet Arrangements                              
61
 
                Fair Value Measurements                              
62
 
                Dividends                              
62
 
                Outlook for 2010                              
63
 
                Critical Accounting Policies                              
64
 
                Environmental Matters                              
69
 
                Asbestos-Related Matters of Union Carbide Corporation                              
73
 
                Matters Involving the Formation of K-Dow Petrochemicals                              
76
 
   

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: