Dow Chemical 2009 Annual Report Download - page 93

Table of Contents
Outlook for 2010
In 2009, Dow and the chemical industry as a whole faced significant economic headwinds across much of the world, with early signs of recovery beginning to
emerge in the latter half of the year. High unemployment in developed regions, lingering effects from the global financial crisis, and cautious business and
consumer spending all contributed to challenging economic conditions throughout the year. Despite these demanding times, Dow remained focused on its
strategic transformation to an earnings growth company and emphasized its commitment to financial discipline, most notably accomplishing the following in
2009: closing the acquisition of Rohm and Haas; accelerating significant cost synergies related to the acquisition and other restructuring programs; completing
capital market transactions that improved the Company’s capital structure; and divesting non-core assets to support the reduction of financial leverage.
Looking to 2010, the Company’s plans do not assume an accelerated rebound in business conditions from year-end 2009 levels, particularly in developed
regions. In the United States, high unemployment and cautious consumer spending are expected to temper an economic rebound, with growth still expected in
the year but at a muted pace. Recovery in Western Europe and developed countries in Asia Pacific is expected to lag the United States, as government stimulus
programs may end, credit conditions remain tight, and the lingering impacts of the financial crisis continue in these regions. Emerging geographies, however,
are projected to continue leading the economic recovery. Strong growth is expected in developing countries such as Brazil, India and China, which have been
among the fastest to rebound from the global financial crisis on the back of robust local demand and steadily improving export markets. Product inventories
across value chains have started the year at relatively low levels, and early signs suggest that inventory re-stocking reflects improving underlying demand
conditions, although the sustainability of these trends remains uncertain. Government stimulus programs in developed regions have had modest impact on
downstream demand to date, and it remains to be seen if longer-term investments (e.g., infrastructure and alternative energy) will invigorate end-market
demand. Meanwhile, the positive impact of stimuli in developing countries, most notably China, is expected to continue bolstering local demand. Volatility in
feedstock and energy costs is expected to continue in 2010, with a gradual economic recovery in developed regions expected to keep upward pressure on prices.
The relatively low cost of natural gas in the United States and a comparatively weak U.S. dollar are expected to benefit local ethylene producers who can meet
export market demand. However, supply fundamentals across the ethylene chain are expected to be negatively impacted by significant capacity additions in the
year, which are projected to put downward pressure on the profitability of older and higher-cost assets within the industry.
The Company will continue to implement its strategic transformation while remaining focused on reducing financial leverage and preferentially investing
in its Performance businesses and in emerging geographies. The Company expects to generate positive cash flow from operations in 2010. Capital spending is
expected to increase slightly from 2009 levels to $1.6 billion, well below the expected level of depreciation but sufficient to invest for growth and maintain the
safety and reliability of the Company’s facilities. Research and development spending is projected to rise to approximately $1.6 billion. Equity in earnings of
Dow’s nonconsolidated affiliates is expected to return to pre-recession levels, driven by robust fundamentals at the Company’s principal joint ventures, in
particular Dow Corning, EQUATE and The Kuwait Olefins Company K.S.C.
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