Edgar Filing: DOW CHEMICAL CO /DE/

tdcc2q0910q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 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) 989-636-1000 (Registrant's telephone number, including area code)
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 (§232.405 of this chapter) 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 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 Exchange Act). o Yes þ No

Class Common Stock, par value $2.50 per share	Outstanding at June 30, 2009 1,143,619,623 shares

The Dow Chemical Company

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended June 30, 2009

TABLE OF CONTENTS

		PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
	Consolidated Statements of Operations	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Consolidated Statements of Equity	6
	Consolidated Statements of Comprehensive Income	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	48
	Disclosure Regarding Forward-Looking Information	48
	Results of Operations	49
	Changes in Financial Condition	61
	Other Matters	64
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	68
Item 4.	Controls and Procedures.	69
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	70
Item 1A.	Risk Factors.	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	74
Item 4.	Submission of Matters to a Vote of Security Holders.	75
Item 6.	Exhibits.	75
SIGNATURE		77
EXHIBIT INDEX		78

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.

The Dow Chemical Company and Subsidiaries
Consolidated Statements of Operations
	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
In millions, except per share amounts (Unaudited)	2009			2008		2009			2008
Net Sales	$	11,322		$	16,349	$	20,363		$	31,140
Cost of sales		9,764			14,621		17,902			27,505
Research and development expenses		381			335		673			666
Selling, general and administrative expenses		663			514		1,106			1,012
Amortization of intangibles		112			25		134			47
Restructuring charges		662			-		681			-
Acquisition-related expenses		52			-		100			-
Equity in earnings of nonconsolidated affiliates		122			251		187			525
Sundry income - net		23			37		20			83
Interest income		9			25		21			49
Interest expense and amortization of debt discount		525			151		679			296
Income (Loss) from Continuing Operations Before Income Taxes		(683	)		1,016		(684	)		2,271
Provision (Credit) for income taxes		(248	)		240		(273	)		536
Net Income (Loss) from Continuing Operations		(435	)		776		(411	)		1,735
Income from discontinued operations, net of income taxes		103			5		114			11
Net Income (Loss)		(332	)		781		(297	)		1,746
Net income attributable to noncontrolling interests		12			19		23			43
Net Income (Loss) Attributable to The Dow Chemical Company		(344	)		762		(320	)		1,703
Preferred stock dividends		142			-		142			-
Net Income (Loss) Available for The Dow Chemical Company Common Stockholders	$	(486	)	$	762	$	(462	)	$	1,703


Per Common Share Data:
Net income (loss) from continuing operations available for common stockholders	$	(0.57	)	$	0.81	$	(0.59	)	$	1.81
Discontinued operations attributable to common stockholders		0.10			0.01		0.12			0.01
Earnings (Loss) per common share - basic	$	(0.47	)	$	0.82	$	(0.47	)	$	1.82

Net income (loss) from continuing operations available for common stockholders	$	(0.57	)	$	0.81	$	(0.59	)	$	1.79
Discontinued operations attributable to common stockholders		0.10			-		0.12			0.01
Earnings (Loss) per common share - diluted	$	(0.47	)	$	0.81	$	(0.47	)	$	1.80

Common stock dividends declared per share of common stock	$	0.15		$	0.42	$	0.30		$	0.84
Weighted-average common shares outstanding - basic		1,026.1			929.8		975.8			936.0
Weighted-average common shares outstanding - diluted		1,035.5			939.4		983.8			945.5


Depreciation	$	624		$	497	$	1,079		$	992
Capital Expenditures	$	325		$	597	$	559		$	956
See Notes to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets
		June 30,		Dec. 31,
In millions (Unaudited)		2009		2008
Assets
Current Assets
Cash and cash equivalents	$	2,648		$ 2,800
Accounts and notes receivable:
Trade (net of allowance for doubtful receivables - 2009: $145; 2008: $124)		5,531		3,782
Other		3,072		3,074
Inventories		6,684		6,036
Deferred income tax assets - current		448		368
Total current assets		18,383		16,060
Investments
Investment in nonconsolidated affiliates		3,027		3,204
Other investments		2,492		2,245
Noncurrent receivables		329		276
Total investments		5,848		5,725
Property
Property		51,673		48,391
Accumulated depreciation		34,296		34,097
Net property		17,377		14,294
Other Assets
Goodwill		13,248		3,394
Other intangible assets (net of accumulated amortization - 2009: $995; 2008: $825)		5,296		829
Deferred income tax assets - noncurrent		2,362		3,900
Asbestos-related insurance receivables - noncurrent		627		658
Deferred charges and other assets		924		614
Assets held for sale		2,103		-
Total other assets		24,560		9,395
Total Assets	$	66,168		$ 45,474

Liabilities and Equity
Current Liabilities
Notes payable	$	695		$ 2,360
Long-term debt due within one year		1,090		1,454
Accounts payable:
Trade		3,394		3,306
Other		2,038		2,227
Income taxes payable		125		637
Deferred income tax liabilities - current		93		88
Dividends payable		274		411
Accrued and other current liabilities		3,418		2,625
Total current liabilities		11,127		13,108
Long-Term Debt		21,983		8,042
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent		1,446		746
Pension and other postretirement benefits - noncurrent		6,620		5,466
Asbestos-related liabilities - noncurrent		793		824
Other noncurrent obligations		3,411		3,208
Liabilities held for sale		565		-
Total other noncurrent liabilities		12,835		10,244
Preferred Securities of Subsidiaries		-		500
Stockholders' Equity
Preferred stock, series A ($1.00 par, $1,000 liquidation preference, 4,000,000 shares)		4,000		-
Common stock		2,906		2,453
Additional paid-in capital		2,010		872
Retained earnings		16,242		17,013
Accumulated other comprehensive loss		(4,047	)	(4,389	)
Unearned ESOP shares		(541	)	-
Treasury stock at cost		(851	)	(2,438	)
The Dow Chemical Company's stockholders' equity		19,719		13,511
Noncontrolling interests		504		69
Total equity		20,223		13,580
Total Liabilities and Equity	$	66,168		$ 45,474
See Notes to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows
	Six Months Ended
	June 30,			June 30,
In millions (Unaudited)	2009			2008
Operating Activities
Net Income (Loss)	$	(297	)	$	1,746
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,271			1,143
Provision (Credit) for deferred income tax		(486	)		137
Earnings of nonconsolidated affiliates less than dividends received		430			89
Pension contributions		(127	)		(79	)
Net loss (gain) on sales of consolidated companies		7			(26	)
Net gain on sales of investments		(8	)		(26	)
Net gain on sales of property and businesses		(189	)		(28	)
Other net loss (gain)		13			(18	)
Restructuring charges		676			-
Excess tax benefits from share-based payment arrangements		-			(2	)
Changes in assets and liabilities, net of effects of acquired and divested companies:
Accounts and notes receivable		(949	)		(1,489	)
Inventories		357			(847	)
Accounts payable		(552	)		1,169
Other assets and liabilities		(83	)		(353	)
Cash provided by operating activities		63			1,416
Investing Activities
Capital expenditures		(559	)		(956	)
Proceeds from sales of property, businesses and consolidated companies		265			149
Purchase of previously leased assets		-			(63	)
Investments in consolidated companies, net of cash acquired		(14,834	)		(231	)
Investments in nonconsolidated affiliates		(41	)		(116	)
Distributions from nonconsolidated affiliates		5			4
Purchase of unallocated Rohm and Haas ESOP shares		(552	)		-
Purchases of investments		(230	)		(511	)
Proceeds from sales and maturities of investments		317			500
Cash used in investing activities		(15,629	)		(1,224	)
Financing Activities
Changes in short-term notes payable		(1,801	)		738
Proceeds from revolving credit facility		3,000			-
Payments on revolving credit facility		(2,100	)		-
Proceeds from Term Loan		9,226			-
Payments on Term Loan		(5,089	)		-
Proceeds from issuance of long-term debt		5,160			981
Payments on long-term debt		(618	)		(80	)
Purchases of treasury stock		(5	)		(804	)
Proceeds from issuance of common stock		966			-
Proceeds from issuance of preferred stock		7,000			-
Proceeds from sales of common stock		553			53
Issuance costs for debt and equity securities		(368	)		-
Excess tax benefits from share-based payment arrangements		-			2
Distributions to noncontrolling interests		(24	)		(24	)
Dividends paid to stockholders		(527	)		(786	)
Cash provided by financing activities		15,373			80
Effect of Exchange Rate Changes on Cash		41			103
Summary
Increase (Decrease) in cash and cash equivalents		(152	)		375
Cash and cash equivalents at beginning of year		2,800			1,736
Cash and cash equivalents at end of period	$	2,648		$	2,111
See Notes to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries
Consolidated Statements of Equity
	Six Months Ended
	June 30,			June 30,
In millions (Unaudited)	2009			2008
Preferred Stock
Balance at beginning of year		-			-
Preferred stock issued	$	7,000			-
Preferred stock repurchased		(2,500	)		-
Preferred stock converted to common stock		(500	)		-
Balance at end of period		4,000			-
Common Stock
Balance at beginning of year		2,453		$	2,453
Common stock issued		453			-
Balance at end of period		2,906			2,453
Additional Paid-in Capital
Balance at beginning of year		872			902
Common stock issued		2,655			-
Sale of shares to ESOP		(1,529	)		-
Stock-based compensation and allocation of ESOP shares		12			(98	)
Balance at end of period		2,010			804
Retained Earnings
Balance at beginning of year		17,013			18,004
Net income (loss) available for The Dow Chemical Company common stockholders		(462	)		1,703
Dividends declared on common stock (Per share: $0.30 in 2009, $0.84 in 2008)		(305	)		(779	)
Other		(4	)		(9	)
Balance at end of period		16,242			18,919
Accumulated Other Comprehensive Income (Loss), Net of Tax
Unrealized Gains (Losses) on Investments at beginning of year		(111	)		71
Net change in unrealized gains (losses)		51			(84	)
Balance at end of period		(60	)		(13	)
Cumulative Translation Adjustments at beginning of year		221			723
Translation adjustments		98			540
Balance at end of period		319			1,263
Pension and Other Postretirement Benefit Plans at beginning of year		(4,251	)		(989	)
Adjustments to pension and other postretirement benefit plans		39			17
Balance at end of period		(4,212	)		(972	)
Accumulated Derivative Gain (Loss) at beginning of year		(248	)		25
Net hedging results		(68	)		83
Reclassification to earnings		222			(12	)
Balance at end of period		(94	)		96
Total accumulated other comprehensive income (loss)		(4,047	)		374
Unearned ESOP Shares
Balance at beginning of year		-			-
Shares acquired		(553	)		-
Shares allocated to ESOP participants		12			-
Balance at end of period		(541	)		-
Treasury Stock
Balance at beginning of year		(2,438	)		(1,800	)
Purchases		(5	)		(846	)
Sale of shares to ESOP		1,529			-
Issuance to employees and employee plans		63			229
Balance at end of period		(851	)		(2,417	)
The Dow Chemical Company's Stockholders' Equity		19,719			20,133
Noncontrolling Interests
Balance at beginning of year		69			414
Net income attributable to noncontrolling interests		23			43
Purchase of noncontrolling interest's share of subsidiary		-			(200	)
Acquisition of Rohm and Haas Company noncontrolling interests		432			-
Other		(20	)		(20	)
Balance at end of period		504			237
Total Equity	$	20,223		$	20,370
See Notes to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries
Consolidated Statements of Comprehensive Income
	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
In millions (Unaudited)	2009			2008			2009			2008
Net Income (Loss)	$	(332	)	$	781		$	(297	)	$	1,746
Other Comprehensive Income (Loss), Net of Tax
Net change in unrealized gains (losses) on investments		75			(55	)		51			(84	)
Translation adjustments		482			(33	)		98			540
Adjustments to pension and other postretirement benefit plans		34			3			39			17
Net gains on cash flow hedging derivative instruments		36			44			154			71
Total other comprehensive income (loss)		627			(41	)		342			544
Comprehensive Income		295			740			45			2,290
Comprehensive income attributable to noncontrolling interests, net of tax		12			19			23			43
Comprehensive Income Attributable to The Dow Chemical Company	$	283		$	721		$	22		$	2,247
See Notes to the Consolidated Financial Statements.

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The Dow Chemical Company and Subsidiaries

PART I – FINANCIAL INFORMATION, Item 1. Financial Statements.

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A – CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements of The Dow Chemical Company and its subsidiaries (“Dow” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

NOTE B – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Noncontrolling Interests

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51.” The Statement established accounting and reporting standards for noncontrolling interests in a subsidiary and for deconsolidation of a subsidiary. The Statement was effective January 1, 2009 for the Company. The retrospective presentation and disclosure requirements outlined by SFAS No. 160 have been incorporated into this Quarterly Report on Form 10-Q for the interim period ended June 30, 2009.

The implementation of SFAS No. 160 revised all previous references to “minority interests” in the consolidated financial statements to “noncontrolling interests,” and resulted in the following changes:

The Consolidated Statements of Operations now present “Net Income (Loss),” which includes “Net income attributable to noncontrolling interests” and “Net Income (Loss) Attributable to The Dow Chemical Company.” “Net Income (Loss) Available for The Dow Chemical Company Common Stockholders” is equivalent to the previously reported “Net Income Available for Common Stockholders.” No change was required to the presentation of earnings per share by SFAS No. 160.

The Consolidated Balance Sheets now present “Noncontrolling interests” as a component of “Total equity.” “Noncontrolling interests” is equivalent to the previously reported “Minority Interest in Subsidiaries.” “The Dow Chemical Company’s stockholders’ equity” is equivalent to the previously reported “Net stockholders’ equity.”

The Consolidated Statements of Comprehensive Income now present “Comprehensive Income,” which includes “Comprehensive income attributable to noncontrolling interests” and “Comprehensive Income Attributable to The Dow Chemical Company.” “Comprehensive Income Attributable to The Dow Chemical Company” is equivalent to the previously reported “Comprehensive Income.”

·	The Consolidated Statements of Cash Flows now begin with “Net Income (Loss)” instead of “Net Income Available for Common Stockholders.”

·	Interim Consolidated Statements of Equity have been added to fulfill the disclosure requirements of SFAS No. 160.

Other Accounting Pronouncements

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS No. 157, “Fair Value Measurements,” for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 157 for these assets and liabilities. Since the Company’s fair value measurements for nonfinancial assets and nonfinancial liabilities were consistent with the guidance of the Statement, the adoption of the Statement did not have a material impact on the Company’s consolidated financial statements. The Company’s enhanced disclosures are included in Note I.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133.” The Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The Statement was effective for fiscal years and interim periods beginning after November 15, 2008, which was January 1, 2009 for the Company. The Company’s enhanced disclosures are included in Note H.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This FSP was effective for fiscal years beginning after

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December 15, 2008, which was January 1, 2009 for the Company. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” The FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value per SFAS No. 157, if the acquisition-date fair value can be reasonably determined. If the fair value cannot be reasonably determined, then the asset or liability should be recognized in accordance with SFAS No. 5, “Accounting for Contingencies,” and FASB Interpretation (“FIN”) No. 14, “Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5.” The FSP also requires new disclosures for the assets and liabilities within the scope of the FSP. The Company is applying the guidance of the FSP to business combinations completed on or after January 1, 2009. See Note D for disclosures related to a recent business combination.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" and Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting,” to require disclosures about the fair value of financial instruments during interim reporting periods. The FSP was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Company. The Company’s enhanced disclosures are included in Note H.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Company. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. The FSP was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Company. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” The Statement establishes the principles and requirements for evaluating and reporting subsequent events, including the period subject to evaluation for subsequent events, the circumstances requiring recognition of subsequent events in the financial statements, and the required disclosures. The Statement was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Company. The Company has evaluated subsequent events in accordance with the Statement through the filing of this Quarterly Report on Form 10-Q on August 3, 2009.

Accounting Standards Issued But Not Yet Adopted

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The FSP requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk, and is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The Company will include the required disclosures in the Company’s Annual Report on Form 10-K for the annual period ending December 31, 2009.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140.” The Statement amends SFAS No. 140 to improve the information provided in financial statements concerning transfers of financial assets, including the effects of transfers on financial position, financial performance and cash flows, and any continuing involvement of the transferor with the transferred financial assets. The Statement is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for the Company, and interim periods within that annual reporting period. The Company is currently evaluating the impact of adopting the Statement on January 1, 2010.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” which amends the consolidation guidance applicable to variable interest entities and requires additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. The Statement is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for the Company, and interim periods within that annual reporting period. The Company is currently evaluating the impact of adopting the Statement on January 1, 2010.

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In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162.” The Statement establishes the FASB Accounting Standards Codification, along with rules and interpretive releases of the U. S. Securities and Exchange Commission under authority of federal securities laws, as the source of authoritative GAAP in the United States. The Statement is effective for interim and annual reporting periods ending after September 15, 2009, which is September 30, 2009 for the Company. The Company will conform to the FASB Accounting Standards Codification in the Quarterly Report on Form 10-Q for the interim period ending September 30, 2009.

In July 2009, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance.” The Issue applies to entities that lend their own equity shares to underwriters to facilitate convertible debt offerings or other financing, and is effective for new share lending arrangements entered into in periods beginning on or after June 15, 2009, which is July 1, 2009 for the Company. The Issue becomes effective on a retroactive basis for any share lending arrangements outstanding in periods beginning on or after December 15, 2009, which is January 1, 2010 for the Company. The Company does not have arrangements of this nature, thus the Issue is not anticipated to have an impact on the Company’s consolidated financial statements.

NOTE C – RESTRUCTURING

2009 Restructuring

On June 30, 2009, the Company’s Board of Directors approved a restructuring plan related to the Company’s acquisition of Rohm and Haas Company (“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. As a result of the restructuring activities, the Company recorded pretax restructuring charges of $677 million, consisting of asset write-downs and write-offs of $454 million, costs associated with exit or disposal activities of $68 million and severance costs of $155 million. The impact of the charges is shown as “Restructuring charges” in the consolidated statements of operations and was reflected in the Company’s segment results as shown in the following table, which also reflects adjustments made in 2009 to the 2008 and 2007 restructuring charges, as discussed in the sections titled “2008 Restructuring” and “2007 Restructuring.”

2009 Restructuring Charges by Operating Segment
In millions	Impairment of Long-Lived Assets and Other Assets		Costs associated with Exit or Disposal Activities			Severance Costs		Total
Electronic and Specialty Materials	$	68		-			-	$	68
Coatings and Infrastructure		167	$	4			-		171
Performance Products		73		-			-		73
Basic Plastics		1		-			-		1
Basic Chemicals		75		-			-		75
Hydrocarbons and Energy		65		-			-		65
Corporate		5		64		$	155		224
Total 2009 restructuring charges	$	454	$	68		$	155	$	677
Adjustments to 2008 restructuring:
Corporate		-		-			19		19
Adjustments to 2007 restructuring:
Health and Agricultural Sciences		-		(15	)		-		(15	)
Net 2009 restructuring charges	$	454	$	53		$	174	$	681

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Details regarding the components of the 2009 restructuring charges are discussed below:

Impairment of Long-Lived Assets and Other Assets

The restructuring charges related to the write-down or write-off of assets in the second quarter of 2009 totaled $454 million. Write-downs were related to Dow’s facilities located in Hahnville and Plaquemine, Louisiana, the United States Federal Trade Commission (“FTC”) required divestiture of certain acrylic monomer and specialty latex assets in North America and other small manufacturing facilities where the combination of Dow and Rohm and Haas resulted in overlapping manufacturing capabilities. Details regarding these write-downs or write-offs are as follows:

·	Due to continued weakness in the global economy, the decision was made to shut down a number of hydrocarbon and basic chemicals facilities, with an impact of $126 million, including the following:

·	Ethylene manufacturing facility in Hahnville, Louisiana. A write-off of the net book value of the related buildings, machinery and equipment against the Hydrocarbons and Energy segment was recorded. The facility shut down in the second quarter of 2009.

·	Ethylene oxide/ethylene glycol manufacturing facility in Hahnville, Louisiana. A write-off of the net book value of the related buildings, machinery and equipment against the Basic Chemicals segment was recorded. The facility shut down in the second quarter of 2009.

·	Ethylene dichloride and vinyl chloride monomer manufacturing facility in Plaquemine, Louisiana. A write-down of the net book value of the related buildings, machinery and equipment against the Basic Chemicals segment was recorded. The facility will shut down in mid-2011.

·	With the completion of the Company’s acquisition of Rohm and Haas the following charges were recognized:

Due to an expected loss arising from the FTC required divestitures of certain acrylic monomer and specialty latex assets within eight months of the closing of the acquisition of Rohm and Haas, the Company recognized an impairment charge of $205 million against the Coatings and Infrastructure ($134 million) and Performance Products ($71 million) segments in the second quarter of 2009.

The decision was made to shut down a number of small manufacturing facilities to optimize the assets of the Company. Write-downs or write-offs of $96 million were recorded in the second quarter of 2009, primarily impacting the Electronic and Specialty Materials ($66 million) and Coatings and Infrastructure ($28 million) segments.

The restructuring charges in the second quarter of 2009 also included the write-off of capital project spending ($20 million) and other assets ($7 million) associated with plant closures. These charges were reflected in the results of the operating segments impacted by the restructuring activities.

Costs Associated with Exit or Disposal Activities

The restructuring charges for costs associated with exit or disposal activities totaled $68 million in the second quarter of 2009 and included environmental remediation of $64 million, impacting Corporate, with the remainder relating to contract termination fees and other charges.

Severance Costs

The restructuring charges included severance of $155 million for the separation of approximately 2,500 employees under the terms of the Company’s ongoing benefit arrangements, primarily over the next two years. These costs were charged against Corporate. At June 30, 2009, severance of $5 million had been paid and a liability of $150 million remained for approximately 2,320 employees.

The following table summarizes the activities related to the Company’s restructuring reserve:

2009 Restructuring Activities In millions	Impairment of Long-Lived Assets and Other Assets			Costs associated with Exit or Disposal Activities		Severance Costs			Total
Restructuring charges recognized in the second quarter of 2009	$	454		$	68	$	155		$	677
Cash payments		-			-		(5	)		(5	)
Charges against reserve		(454	)		-		-			(454	)
Reserve balance at June 30, 2009		-		$	68	$	150		$	218

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Dow expects to incur future costs related to its restructuring activities, as the Company continually looks for ways to enhance the efficiency and cost effectiveness of its operations, and to ensure competitiveness across its businesses and across geographic areas. Future costs are expected to include demolition costs related to the closed facilities, which will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.

Restructuring Reserve Assumed from Rohm and Haas

Included in liabilities assumed in the April 1, 2009 acquisition of Rohm and Haas was a reserve of $122 million for severance and employee benefits for the separation of 1,255 employees under the terms of Rohm and Haas’ ongoing benefit arrangement. The separations resulted from plant shutdowns, production schedule adjustments, productivity improvements and reductions in support services. Cash payments are expected to be paid over the next two years. In the second quarter of 2009, severance of $24 million was paid, leaving a currency adjusted liability of $94 million for approximately 847 employees at June 30, 2009.

Restructuring Reserve Assumed from Rohm and Haas In millions	Severance and Employee Benefits
Reserve balance assumed on April 1, 2009	$	122
Cash payments		(24	)
Foreign currency impact		(4	)
Reserve balance at June 30, 2009	$	94

2008 Restructuring

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 recent, severe economic downturn. The restructuring plan includes the shutdown of a number of facilities and a global workforce reduction, which are targeted to be completed 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 was shown as “Restructuring charges” in the 2008 consolidated statements of operations.

The severance component of the 2008 restructuring charges of $321 million was for the separation of approximately 3,000 employees under the terms of Dow’s ongoing benefit arrangements, primarily over two years. At December 31, 2008, a liability of $319 million remained for approximately 2,965 employees. During the first quarter of 2009, the Company increased the severance reserve by a net amount of $19 million, including approximately 500 additional employees. For the six-month period ended June 30, 2009, severance of $236 million was paid, and a currency adjusted liability of $104 million remained for approximately 838 employees.

The following table summarizes 2009 activities related to the Company’s 2008 restructuring reserve:

2009 Activities Related to 2008 Restructuring In millions	Costs associated with Exit or Disposal Activities		Severance Costs			Total
Reserve balance at December 31, 2008	$	128	$	319		$	447
Adjustment to reserve		-		19			19
Cash payments		-		(123	)		(123	)
Foreign currency impact		-		(5	)		(5	)
Reserve balance at March 31, 2009	$	128	$	210		$	338
Cash payments		-		(113	)		(113	)
Foreign currency impact		4		7			11
Reserve balance at June 30, 2009	$	132	$	104		$	236

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2007 Restructuring

On December 3, 2007, the Company’s Board of Directors approved a restructuring plan that includes 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 are scheduled to be completed by the end of 2009, the Company recorded pretax restructuring charges totaling $590 million in the fourth quarter of 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 impact of the charges was shown as “Restructuring charges” in the 2007 consolidated statements of income.

The severance component of the 2007 restructuring charges of $86 million was for the separation of approximately 978 employees under the terms of Dow’s ongoing benefit arrangements, primarily over two years. At December 31, 2008, a liability of $37 million remained for approximately 527 employees. For the six-month period ended June 30, 2009, severance of $17 million was paid, and a currency adjusted liability of $20 million remained for approximately 245 employees.

Cash payments of $18 million in the first quarter and $18 million in the second quarter were made in 2009 related to contract termination fees.

In the second quarter of 2009, the Company reduced the reserve related to contract termination fees as a result of the Company’s acquisition of Rohm and Haas, impacting the Health and Agricultural Sciences segment. The initial liability established in 2007 included contract termination fees related to the cancellation of contract manufacturing agreements between the Company and Rohm and Haas. Following completion of the acquisition, the liability for these fees was reversed.

The following table summarizes 2009 activities related to the Company’s 2007 restructuring reserve:

2009 Activities Related to 2007 Restructuring In millions	Costs associated with Exit or Disposal Activities			Severance Costs			Total
Reserve balance at December 31, 2008	$	93		$	37		$	130
Cash payments		(18	)		(12	)		(30	)
Foreign currency impact		1			(1	)		-
Reserve balance at March 31, 2009	$	76		$	24		$	100
Cash payments		(18	)		(5	)		(23	)
Adjustment to reserve		(15	)		-			(15	)
Foreign currency impact		7			1			8
Reserve balance at June 30, 2009	$	50		$	20		$	70

2006 Restructuring

On August 29, 2006, the Company’s Board of Directors approved a plan to shut down a number of assets around the world as the Company continued its drive to improve the competitiveness of its global operations. As a consequence of these shutdowns, which were completed in the first quarter of 2009, and other optimization activities, the Company recorded pretax restructuring charges totaling $591 million in 2006. The charges consisted of asset write-downs and write-offs of $346 million, costs associated with exit or disposal activities of $172 million and severance costs of $73 million. The impact of the charges was shown as “Restructuring charges” in the 2006 consolidated statements of income.

The shutdowns and optimization activities related to the 2006 restructuring plan are substantially complete, with remaining liabilities related to environmental remediation and pension to be paid over time.

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NOTE D – ACQUISITIONS

Acquisition of Rohm and Haas

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 and 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.

The acquisition of Rohm and Haas was accounted for under Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”).

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 $15,681 million. As part of the purchase price, $552 million in cash was paid to the Rohm and Haas Company Employee Stock Ownership Plan (“Rohm and Haas ESOP”) on April 1, 2009 for 7.0 million shares of Rohm and Haas common stock held by the Rohm and Haas ESOP.

As a condition of the FTC’s approval of the Merger, the Company is required to divest a portion of its acrylic monomer business, a portion of its specialty latex business and its hollow sphere particle business within eight months of the closing of the Merger. Total net sales and cost of sales for these businesses amounted to approximately one percent of the Company’s 2008 net sales and cost of sales.

Following is the amount of net sales and earnings from the Rohm and Haas acquired businesses included in the Company’s results since the April 1, 2009 acquisition. Included in the results from Rohm and Haas was $257 million of restructuring charges (see Note C for information regarding the Company’s 2009 restructuring activities) and a one-time increase in cost of sales of $209 million related to the fair value step-up of inventories acquired from Rohm and Haas and sold in the second quarter of 2009.

Rohm and Haas Results of Operations In millions	April 1 - June 30, 2009
Net sales	$	1,849
Loss from Continuing Operations Before Income Taxes	$	(339	)

The following table provides actual results of operations for the three-month period ended June 30, 2009, pro forma results of operations for the three-month period ended June 30, 2008 and pro forma results of operations for the six-month periods ended June 30, 2009 and June 30, 2008, as if Rohm and Haas had been acquired on January 1 of each year. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as increased depreciation and amortization expense on assets acquired from Rohm and Haas resulting from the fair valuation of assets acquired and the impact of acquisition financing in place at June 30, 2009. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Rohm and Haas. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company.

Pro Forma Results of Operations	Three Months Ended					Six Months Ended
In millions, except per share amounts	Actual June 30, 2009			Pro Forma June 30, 2008		Pro Forma June 30, 2009			Pro Forma June 30, 2008
Net sales	$	11,322		$	18,913	$	22,132		$	36,208
Net income (loss) available for The Dow Chemical Company common stockholders	$	(486	)	$	589	$	(887	)	$	1,283
Earnings (Loss) per common share - diluted	$	(0.47	)	$	0.53	$	(0.79	)	$	1.15

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The following table summarizes the fair values of the assets acquired and liabilities assumed from Rohm and Haas on April 1, 2009. The valuation process is not complete. Final determination of the fair values may result in further adjustments to the values presented below.

Assets Acquired and Liabilities Assumed In millions	On April 1, 2009
Purchase Price	$	15,681
Fair Value of Assets Acquired
Current assets	$	2,710
Property		3,930
Other intangible assets (1)		4,475
Other assets		1,288
Net assets of the Salt business (2)		1,475
Total Assets Acquired	$	13,878
Fair Value of Liabilities and Noncontrolling Interests Assumed
Current liabilities	$	1,218
Long-term debt		2,528
Accrued and other liabilities and noncontrolling interests		702
Pension benefits		1,119
Deferred tax liabilities – noncurrent		2,482
Total Liabilities and Noncontrolling Interests Assumed	$	8,049
Goodwill (1)	$	9,852

(1) See Note G for additional information.

(2) Morton International, Inc.; see Note E.

The fair value of receivables acquired (net of the Salt business) was $1,001 million, with gross contractual amounts receivable of $1,048 million. Liabilities assumed from Rohm and Haas on April 1, 2009 included certain contingent environmental liabilities valued at $159 million and a liability of $185 million related to Rohm and Haas Pension Plan matters (see Note J), which were valued in accordance with SFAS No. 5, “Accounting for Contingencies.” Operating loss carryforwards of $2,189 million were acquired from Rohm and Haas at April 1, 2009, $137 million of which were subject to expiration in 2009 through 2013.

The following table summarizes the major classes of assets and liabilities underlying the deferred tax liabilities resulting from the acquisition of Rohm and Haas:

Deferred Tax Liabilities In millions	On April 1, 2009
Intangible assets	$	1,196
Property		504
Long-term debt		238
Inventory		80
Other accruals and reserves		464
Total Deferred Tax Liabilities	$	2,482

The acquisition resulted in the recognition of $9,852 million of goodwill, which is not deductible for tax purposes. See Note G for further information on goodwill including the allocation by segment.

Goodwill largely consists of expected synergies resulting from the acquisition. Key areas of cost savings include 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.

Financing for the Rohm and Haas Acquisition

Financing for the acquisition of Rohm and Haas included debt and equity financing (see Notes K, O and P).

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Acquisition-Related Expenses

During the second quarter of 2009, pretax charges totaling $52 million ($100 million during the first six months of 2009) were recorded for legal expenses and other transaction costs related to the April 1, 2009 acquisition of Rohm and Haas. These charges were expensed in accordance with SFAS 141R, recorded in “Acquisition-related expenses” and reflected in Corporate. An additional $34 million of acquisition-related retention expenses were incurred during the second quarter of 2009 and recorded in “Cost of sales,” “Research and development expenses,” and “Selling, general and administrative expenses” and reflected in Corporate.

NOTE E – DIVESTITURES

Divestiture of the Rohm and Haas Salt Business

On April 1, 2009, the Company announced the entry into a definitive agreement to sell the stock of Morton International, Inc. (“Morton”), the Salt business of Rohm and Haas, to K+S Aktiengesellschaft. The transaction is subject to customary closing conditions, including regulatory approval, and is expected to close in 2009. The transaction values Morton at $1,675 million, with proceeds subject to customary post-closing adjustments. Net proceeds from the sale are anticipated to be used to pay down long-term debt. The results of operations for the Salt business are reported in Corporate. The following table provides the major classes of assets and liabilities related to Morton, which have been presented as noncurrent assets and liabilities held for sale in the consolidated balance sheets:

Assets and Liabilities Held for Sale In millions	At June 30, 2009
Current assets	$	286
Property		398
Other intangible assets		1,318
Deferred charges and other assets		101
Assets held for sale	$	2,103
Current liabilities	$	136
Deferred income tax liabilities - noncurrent		334
Pension and other post retirement benefits		82
Other noncurrent obligations		13
Liabilities held for sale	$	565

Divestiture of the Calcium Chloride Business

On June 30, 2009, the Company completed the sale of the Calcium Chloride business and recognized a pretax gain of $162 million. The results of the Calcium Chloride business, including the second quarter of 2009 gain on the sale, are reflected as “Income from discontinued operations, net of income taxes” in the consolidated statements of operations for all periods presented.

The following table presents the results of discontinued operations:

Discontinued Operations	Three Months Ended				Six Months Ended
In millions	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Net sales	$	24	$	31	$	70	$	64
Income before income taxes	$	164	$	8	$	182	$	17
Provision for income taxes	$	61	$	3	$	68	$	6
Income from discontinued operations, net of income taxes	$	103	$	5	$	114	$	11

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NOTE F – INVENTORIES

The following table provides a breakdown of inventories:

Inventories In millions	June 30, 2009		Dec. 31, 2008
Finished goods	$	3,596	$	3,351
Work in process		1,656		1,217
Raw materials		745		830
Supplies		687		638
Total inventories	$	6,684	$	6,036

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $515 million at June 30, 2009 and $627 million at December 31, 2008.

NOTE G – GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows the carrying amount of goodwill by operating segment:

Goodwill In millions	Electronic and Specialty Materials		Coatings and Infrastructure		Health and Ag Sciences			Perf Systems		Perf Products		Basic Plastics		Hydrocarbons and Energy		Total
Balance at Dec. 31, 2008	$	785	$	91	$	1,391		$	572	$	427	$	65	$	63	$	3,394
Goodwill related to 2009 acquisition of Rohm and Haas		3,806		5,061		188			385		412		-		-		9,852
Adjustment related to 2008 acquisition of:
Dairyland Seed Co., Inc.		-		-		(1	)		-		-		-		-		(1	)
Stevens Roofing Systems		-		3		-			-		-		-		-		3
Balance at June 30, 2009	$	4,591	$	5,155	$	1,578		$	957	$	839	$	65	$	63	$	13,248

The recording of the April 1, 2009 acquisition of Rohm and Haas (see Note D) resulted in goodwill of $9,852 million, which is not deductible for tax purposes. Intangible assets acquired with the acquisition amounted to $4,475 million as shown below:

Rohm and Haas Intangible Assets In millions	Gross Carrying Amount		Weighted-average Amortization Period
Intangible assets with finite lives:
Licenses and intellectual property	$	1,368	10 years
Software		73	5 years
Trademarks		482	10 years
Customer related		2,478	16 years
Total intangible assets, finite lives	$	4,401	10 years
In-process R&D, indefinite lives		74		-
Total intangible assets	$	4,475

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Goodwill Impairments

During the fourth quarter of 2008, the Company recorded an estimated goodwill impairment loss of $209 million for the Dow Automotive reporting unit. As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” the second step of goodwill impairment testing to determine the implied fair value of goodwill for the Dow Automotive reporting unit was finalized in the first quarter of 2009. No adjustment was required to be made to the estimated impairment loss based on completion of the allocation process.

The following table provides information regarding the Company’s other intangible assets:

Other Intangible Assets	At June 30, 2009							At December 31, 2008
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	1,677	$	(237	)	$	1,440	$	316	$	(192	)	$	124
Patents		140		(104	)		36		139		(100	)		39
Software		813		(395	)		418		700		(363	)		337
Trademarks		654		(78	)		576		169		(61	)		108
Customer related		2,798		(124	)		2,674		210		(66	)		144
Other		133		(57	)		76		120		(43	)		77
Total intangible assets, finite lives	$	6,215	$	(995	)	$	5,220	$	1,654	$	(825	)	$	829
In-process R&D, indefinite lives		76		-			76		-		-			-
Total intangible assets	$	6,291	$	(995	)	$	5,296	$	1,654	$	(825	)	$	829

The following table provides information regarding amortization expense:

Amortization Expense	Three Months Ended				Six Months Ended
In millions	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Other intangible assets, excluding software	$	112	$	25	$	134	$	47
Software, included in “Cost of sales”	$	19	$	11	$	33	$	22

Total estimated amortization expense for 2009 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense In millions
2009	$	435
2010	$	527
2011	$	516
2012	$	496
2013	$	474
2014	$	463

NOTE H – FINANCIAL INSTRUMENTS

Investments

The Company’s investments in marketable securities are primarily classified as available-for-sale. The unrealized gains recognized during the six-month reporting period ended June 20, 2009, on trading securities still held at June 30, 2009 were $3 million.

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Investing Results
In millions	Six Months Ended June 30, 2009
Proceeds from sales of available-for-sale securities	$	210
Gross realized gains	$	4
Gross realized losses	$	(16	)

The following table summarizes the contractual maturities of the Company’s investments in debt securities:

Contractual Maturities of Debt Securities at June 30, 2009
In millions	Amortized Cost		Fair Value
Within one year	$	54	$	54
One to five years		599		624
Six to ten years		619		651
After ten years		303		307
Total	$	1,575	$	1,636

At June 30, 2009 and December 31, 2008, the Company also had $650 million and $250 million of held-to-maturity securities (primarily Treasury bills) classified as cash equivalents, as these securities have original maturities of three months or less. The Company’s investments in held to maturity securities are held at amortized cost, which approximates fair value.

The following tables provide the fair value and gross unrealized losses of the Company’s investments that were deemed to be temporarily impaired at June 30, 2009 and December 31, 2008, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

Temporarily Impaired Securities at June 30, 2009
	Less than 12 months					12 months or more					Total
In millions	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt securities:
U.S. Treasury obligations and direct obligations of U.S. government agencies	$	56	$	(1	)		-		-		$	56	$	(1	)
Corporate bonds		140		(6	)	$	33		(4	)		173		(10	)
Other		-		-			1		-			1		-
Total debt securities	$	196	$	(7	)	$	34	$	(4	)	$	230	$	(11	)
Equity securities		142		(42	)		123		(55	)		265		(97	)
Total temporarily impaired securities	$	338	$	(49	)	$	157	$	(59	)	$	495	$	(108	)

Temporarily Impaired Securities at December 31, 2008
	Less than 12 months					12 months or more					Total
In millions	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt securities:
U.S. Treasury obligations and direct obligations of U.S. government agencies	$	14		-			-		-		$	14		-
Corporate bonds		388	$	(35	)	$	8	$	(1	)		396	$	(36	)
Other		4		-			2		-			6		-
Total debt securities	$	406	$	(35	)	$	10	$	(1	)	$	416	$	(36	)
Equity securities		268		(152	)		37		(25	)		305		(177	)
Total temporarily impaired securities	$	674	$	(187	)	$	47	$	(26	)	$	721	$	(213	)

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Portfolio managers regularly review all of the Company’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of the temporary impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred.

For debt securities, the credit rating of the issuer, current credit rating trends, the trends of the issuer’s overall sector, the ability of the issuer to pay expected cash flows and the length of time the security has been in a loss position are considered in determining whether unrealized losses represent an other-than-temporary impairment. The Company did not have any credit-related losses during the second quarter of 2009.

For equity securities, the Company’s investments are primarily in Standard & Poor’s (“S&P”) 500 companies; however, the Company’s policies also allow investments in companies outside of the S&P 500. The largest holdings are Exchange Traded Funds that represent the S&P 500 index or Dow Jones index. The decrease in temporarily impaired equity securities from December 31, 2008 to June 30, 2009 relates to the broad recovery in the equity markets during the second quarter of 2009. The Company considers the evidence to support the recovery of the cost basis of a security including volatility of the stock, the length of time the security has been in a loss position, value and growth expectations, and overall market and sector fundamentals, as well as technical analysis, in determining impairment. In the first six months of 2009, other-than-temporary impairment write-downs were $64 million. In 2008, other-than-temporary impairment write-downs were $42 million.

The aggregate cost of the Company’s cost method investments totaled $131 million at June 30, 2009 and $104 million at December 31, 2008. Due to the nature of these investments, the fair market value is not readily determinable. These investments are reviewed for impairment indicators. At June 30, 2009, the Company’s impairment analysis identified indicators which resulted in an adjustment to the cost basis of these investments of $3 million. There were no material impairment indicators or circumstances at December 31, 2008 that would result in a material adjustment to the cost basis of these investments.

The following table summarizes the fair value of financial instruments at June 30, 2009 and December 31, 2008:

Fair Value of Financial Instruments
	At June 30, 2009											At December 31, 2008
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Marketable securities (1):
Debt securities	$	1,575		$	72	$	(11	)	$	1,636		$	1,443		$	88	$	(36	)	$	1,495
Equity securities		488			28		(97	)		419			518			17		(177	)		358
Total marketable securities	$	2,063		$	100	$	(108	)	$	2,055		$	1,961		$	105	$	(213	)	$	1,853
Long-term debt including debt due within one year (2)	$	(23,073	)	$	1,079	$	(141	)	$	(22,135	)	$	(9,496	)	$	551	$	(38	)	$	(8,983	)
Derivatives relating to:
Foreign currency		-		$	62	$	(123	)	$	(61	)		-		$	122	$	(163	)	$	(41	)
Commodities		-		$	22	$	(68	)	$	(46	)		-		$	65	$	(220	)	$	(155	)
(1) Included in “Other investments” in the consolidated balance sheets.
(2) Cost includes fair value adjustments per SFAS No. 133 of $26 million in 2009 and $27 million in 2008.

Risk Management

Dow's business operations give rise to market risk exposure due to changes in interest rates, foreign currency exchange rates, commodity prices and other market factors such as equity prices. To manage such risks effectively, the Company enters into hedging transactions, pursuant to established guidelines and policies, which enable it to mitigate the adverse effects of financial market risk. Derivatives used for this purpose are designated as cash flow, fair value or net foreign investment hedges per SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted, where appropriate. SFAS No. 133 requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheets. A secondary objective is to add value by creating additional nonspecific exposures within established limits and policies; derivatives used for this purpose are not designated as hedges per SFAS No. 133. The potential impact of creating such additional exposures is not material to the Company's results.

The Company’s risk management program for interest rate, foreign currency and commodity risks is based on fundamental, mathematical and technical models that take into account the implicit cost of hedging. Risks created by derivative instruments and the mark-to-market valuations of positions are strictly monitored at all times, using value at risk and stress tests. Credit risk arising from these contracts is not significant because the Company minimizes

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counterparty concentration, deals primarily with major financial institutions of solid credit quality, and the majority of its hedging transactions mature in less than three months. In addition, the Company minimizes concentrations of credit risk through its global orientation in diverse businesses with a large number of diverse customers and suppliers. It is the Company’s policy not to have credit-risk-related contingent features in its derivative instruments. The Company does not anticipate losses from credit risk and the net cash requirements arising from risk management activities are not expected to be material in 2009. No significant concentration of credit risk existed at June 30, 2009.

The Company reviews its overall financial strategies and the impacts from using derivatives in its risk management program with the Company’s Board of Directors and revises its strategies as market conditions dictate.

Interest Rate Risk Management

The Company enters into various interest rate contracts with the objective of lowering funding costs or altering interest rate exposures related to fixed and variable rate obligations. In these contracts, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated on an agreed-upon notional principal amount. At June 30, 2009, the Company had open interest rate swaps with maturity dates prior to 2011.