Dow Chemical 2011 Annual Report Download - page 51

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The Dow Chemical Company and Subsidiaries
PART I, Item 1A. Risk Factors.
RISK FACTORS
The factors described below represent the Company's principal risks.
Global Economic Conditions: The Company operates in a global, competitive environment, which gives rise to
operating and market risk exposure.
The Company sells its broad range of products and services in a competitive, global environment, and competes worldwide for
sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in
lower prices or lower sales volume, which could have a negative impact on the Company's results of operations.
Economic conditions around the world and in certain industries in which the Company does business also impact sales
prices and volume. As a result, an economic downturn in the geographic areas or industries in which Dow sells its products
could reduce demand for these products and result in decreased sales volume, which 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. The Company's global business operations also 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.
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 other-than-temporary impairment losses for certain insurance
assets.
Financial Obligations and Credit Markets: Market conditions could reduce the Company's flexibility to respond to
changing business conditions or fund capital needs.
Interest and dividend payments could increase the Company's vulnerability to adverse economic conditions and reduce the
Company's flexibility to respond to changing business and economic conditions or to fund capital expenditures or working
capital needs. In addition, the economic environment could result in a contraction in the availability of credit in the marketplace
and reduce sources of liquidity for the Company. This could result in higher borrowing costs.
Raw Materials: Availability of purchased feedstocks and energy and the volatility of these costs impact Dow's
operating costs and add variability to earnings.
The Company purchases hydrocarbon raw materials including liquefied petroleum gases, naphtha, natural gas and condensate.
The Company also purchases electric power, benzene, ethylene and propylene 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.
Purchased feedstock and energy costs account for a substantial portion of the Company's total production costs and
operating expenses. While the Company uses its feedstock flexibility and financial and physical hedging programs to lower
overall feedstock costs, 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.
Supply/Demand Balance: Earnings generated by the Company's basic chemical and plastic products vary 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,
especially for basic commodities where 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.