Dow Chemical 2012 Annual Report Download - page 47

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Operational Event: A significant operational event could negatively impact the Company's results of operations.
As a diversified chemical manufacturing company, the Company's operations, the transportation of products, cyber attacks, or
severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could
result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at
large, which could have a negative impact on the Company's results of operations.
Major hurricanes have 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.
Due to the Company's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural
phenomena in the future could negatively affect Dow's results of operations.
Company Strategy: Implementing certain elements of the Company's strategy could negatively impact the Company's
financial results.
The Company has formed joint ventures and is evaluating the formation of other joint ventures in emerging geographies to
build and operate integrated, world-scale facilities. Large projects like these, as well as other proposed and existing projects of
varying size in these geographies, are accompanied by uncertainty and risks including: navigating different government
regulatory environments; relationships with new, local partners; project funding commitments and guarantees; war, terrorism
and political instability; uninsurable risks; suppliers not performing as expected resulting in increased risk of extended project
timelines; and determining raw material supply and other details regarding product movement. If the implementation of these
projects is not successful, it could adversely affect the Company's financial condition, cash flows and results of operations.
Goodwill: An impairment of goodwill could negatively impact the Company's financial results.
The April 1, 2009 acquisition of Rohm and Haas Company increased the Company's goodwill by $9.7 billion. At least annually,
the Company assesses goodwill for impairment. If an initial qualitative assessment identifies that it is more likely than not that
the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The
Company may also elect to skip the qualitative testing and proceed directly to quantitative testing. If the quantitative testing
indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value with a charge against earnings.
Since the Company utilizes a discounted cash flow methodology to calculate the fair value of its reporting units, continued
weak demand for a specific product line or business could result in an impairment. Accordingly, any determination requiring
the write-off of a significant portion of goodwill could negatively impact the Company's results of operations.
Pension and Other Postretirement Benefits: Increased obligations and expenses related to the Company's defined
benefit pension plans and other postretirement benefit plans could negatively affect Dow's financial condition and
results of operations.
The Company has defined benefit pension plans and other postretirement benefit plans (the “plans”) in the United States and a
number of other countries. The assets of the Company's funded plans are primarily invested in fixed income and equity
securities of U.S. and foreign issuers. Changes in the market value of plan assets, investment returns, discount rates, mortality
rates, regulations and the rate of increase in compensation levels may affect the funded status of the Company's plans and could
cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status of the plans. A
significant increase in the Company's obligations or future funding requirements could have a negative impact on the
Company's results of operations and cash flows for a particular period and on the Company's financial condition.
Implementation of ERP system: The Company's implementation of a new enterprise resource planning
(“ERP”) system may adversely affect the Company's business and results of operations or the effectiveness of
internal control over financial reporting.
During the first quarter of 2011, the Company began business implementation of a new ERP system that will deliver a new
generation of work processes and information systems. ERP implementations are complex and time-consuming projects
that involve substantial expenditures on system software and implementation activities that take several years. ERP
implementations also require transformation of business and financial processes in order to reap the benefits of the ERP
system. The staging of implementation allows a gradual build of risk in terms of business impact. If the Company does not
effectively implement the ERP system as planned or if the system does not operate as intended, it could adversely affect
financial reporting systems, the Company's ability to produce financial reports, and/or the effectiveness of internal control
over financial reporting.