Dow Chemical 2009 Annual Report Download - page 43

Table of Contents
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.
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