tdcc3q0910q.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 SEPTEMBER 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 September 30, 2009
1,143,726,067 shares

 
 

 
 

The Dow Chemical Company

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 30, 2009

TABLE OF CONTENTS


   
PAGE
 
 
   
Item 1.
3
 
 
 
3
 
 
 
4
 
 
 
5
 
 
 
6
 
 
 
7
 
 
 
8
 
 
Item 2.
51
 
 
 
51
 
 
 
53
 
 
 
67
 
 
 
71
 
 
Item 3.
75
 
 
Item 4.
76
 
 
 
   
Item 1.
77
 
 
Item 1A.
78
 
 
Item 2.
81
 
 
Item 6.
81
 
 
83
 
 
84
 


 
                       
                       
                         
The Dow Chemical Company and Subsidiaries
             
   
Three Months Ended
 
Nine Months Ended
 
   
Sept. 30,
 
Sept. 30,
 
Sept. 30,
 
Sept. 30,
 
In millions, except per share amounts      (Unaudited)
 
2009
 
2008
 
2009
 
2008
 
Net Sales
  $ 12,046     $ 15,371     $ 32,409     $ 46,511  
Cost of sales
    10,386       13,949       28,288       41,454  
Research and development expenses
    400       334       1,073       1,000  
Selling, general and administrative expenses
    683       497       1,789       1,509  
Amortization of intangibles
    108       21       242       68  
Restructuring charges
    -       -       681       -  
Purchased in-process research and development
    -       27       -       27  
Acquisition and integration related expenses
    21       18       121       18  
Equity in earnings of nonconsolidated affiliates
    224       266       411       791  
Sundry income (expense) - net
    813       (34 )     833       49  
Interest income
    6       23       27       72  
Interest expense and amortization of debt discount
    488       160       1,167       456  
Income from Continuing Operations Before Income Taxes
    1,003       620       319       2,891  
Provision (Credit) for income taxes
    204       180       (69 )     716  
Net Income from Continuing Operations
    799       440       388       2,175  
Income (Loss) from discontinued operations, net of income taxes (benefit)
    (4 )     8       110       19  
Net Income
    795       448       498       2,194  
Net income (loss) attributable to noncontrolling interests
    (1 )     20       22       63  
Net Income Attributable to The Dow Chemical Company
    796       428       476       2,131  
Preferred stock dividends
    85       -       227       -  
Net Income Available for The Dow Chemical Company Common Stockholders
  $ 711     $ 428     $ 249     $ 2,131  
                                 
                                 
Per Common Share Data:
                               
Net income from continuing operations available for common stockholders
  $ 0.65     $ 0.45     $ 0.13     $ 2.27  
Discontinued operations attributable to common stockholders
    (0.01 )     0.01       0.11       0.02  
Earnings per common share - basic
  $ 0.64     $ 0.46     $ 0.24     $ 2.29  
                                 
Net income from continuing operations available for common stockholders
  $ 0.64     $ 0.45     $ 0.13     $ 2.24  
Discontinued operations attributable to common stockholders
    (0.01 )     0.01       0.11       0.02  
Earnings per common share - diluted
  $ 0.63     $ 0.46     $ 0.24     $ 2.26  
                                 
Common stock dividends declared per share of common stock
  $ 0.15     $ 0.42     $ 0.45     $ 1.26  
Weighted-average common shares outstanding - basic
    1,108.4       925.2       1,020.0       932.4  
Weighted-average common shares outstanding - diluted
    1,120.7       934.0       1,029.4       941.7  
                                 
                                 
Depreciation
  $ 601     $ 505     $ 1,680     $ 1,497  
Capital Expenditures
  $ 266     $ 628     $ 825     $ 1,584  
See Notes to the Consolidated Financial Statements.
                               



  The Dow Chemical Company and Subsidiaries
  Consolidated Balance Sheets
         
   
Sept. 30,
 
Dec. 31,
In millions     (Unaudited)
 
2009
 
2008
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 2,581     $ 2,800  
Accounts and notes receivable:
               
     Trade (net of allowance for doubtful receivables - 2009: $159; 2008: $124)
    5,586       3,782  
     Other
    3,201       3,074  
Inventories
    6,970       6,036  
Deferred income tax assets - current
    689       368  
Total current assets
    19,027       16,060  
Investments
               
Investment in nonconsolidated affiliates
    2,946       3,204  
Other investments
    2,603       2,245  
Noncurrent receivables
    341       276  
Total investments
    5,890       5,725  
Property
               
Property
    53,105       48,391  
Accumulated depreciation
    35,168       34,097  
Net property
    17,937       14,294  
Other Assets
               
Goodwill
    13,327       3,394  
Other intangible assets (net of accumulated amortization - 2009: $1,132; 2008: $825)
    5,254       829  
Deferred income tax assets - noncurrent
    1,999       3,900  
Asbestos-related insurance receivables - noncurrent
    618       658  
Deferred charges and other assets
    783       614  
Assets held for sale
    2,195       -  
Total other assets
    24,176       9,395  
Total Assets
  $ 67,030     $ 45,474  
                 
Liabilities and Equity
               
Current Liabilities
               
Notes payable
  $ 1,692     $ 2,360  
Long-term debt due within one year
    1,362       1,454  
Accounts payable:
               
     Trade
    3,643       3,306  
     Other
    2,062       2,227  
Income taxes payable
    135       637  
Deferred income tax liabilities - current
    78       88  
Dividends payable
    253       411  
Accrued and other current liabilities
    3,109       2,625  
Total current liabilities
    12,334       13,108  
Long-Term Debt
    20,631       8,042  
Other Noncurrent Liabilities
               
Deferred income tax liabilities - noncurrent
    1,333       746  
Pension and other postretirement benefits - noncurrent
    6,644       5,466  
Asbestos-related liabilities - noncurrent
    757       824  
Other noncurrent obligations
    3,548       3,208  
Liabilities held for sale
    538       -  
Total other noncurrent liabilities
    12,820       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
    2,025       872  
Retained earnings
    16,785       17,013  
Accumulated other comprehensive loss
    (3,613 )     (4,389 )
Unearned ESOP shares
    (528 )     -  
Treasury stock at cost
    (846 )     (2,438 )
The Dow Chemical Company's stockholders' equity
    20,729       13,511  
Noncontrolling interests
    516       69  
Total equity
    21,245       13,580  
Total Liabilities and Equity
  $ 67,030     $ 45,474  
See Notes to the Consolidated Financial Statements.
               

 

 
The Dow Chemical Company and Subsidiaries
   
Nine Months Ended
   
Sept. 30,
 
Sept. 30,
In millions    (Unaudited)
 
2009
 
2008
Operating Activities
           
Net Income
  $ 498     $ 2,194  
Adjustments to reconcile net income to net cash provided by operating activities:
               
          Depreciation and amortization
    2,023       1,681  
          Purchased in-process research and development
    -       27  
          Provision (Credit) for deferred income tax
    (520 )     74  
          Earnings of nonconsolidated affiliates less than (in excess of) dividends received
    260       (115 )
          Pension contributions
    (201 )     (122 )
          Net gain on sales of investments
    (66 )     (24 )
          Net gain on sales of property, businesses and consolidated companies
    (189 )     (45 )
          Other net loss (gain)
    (2 )     5  
          Net gain on sales of ownership interest in nonconsolidated affiliates
    (785 )     -  
          Restructuring charges
    676       -  
          Excess tax benefits from share-based payment arrangements
    -       (8 )
Changes in assets and liabilities, net of effects of acquired and divested companies:
               
          Accounts and notes receivable
    (1,277 )     123  
          Inventories
    (60 )     (698 )
          Accounts payable
    (178 )     (177 )
          Other assets and liabilities
    492       (453 )
Cash provided by operating activities
    671       2,462  
Investing Activities
               
Capital expenditures
    (825 )     (1,584 )
Proceeds from sales of property, businesses and consolidated companies
    278       209  
Purchase of previously leased assets
    (713 )     (63 )
Investments in consolidated companies, net of cash acquired
    (14,838 )     (316 )
Investments in nonconsolidated affiliates
    (115 )     (128 )
Distributions from nonconsolidated affiliates
    7       6  
Proceeds from sales of nonconsolidated affiliates
    1,403       -  
Purchase of unallocated Rohm and Haas ESOP shares
    (552 )     -  
Purchases of investments
    (300 )     (725 )
Proceeds from sales and maturities of investments
    440       664  
Cash used in investing activities
    (15,215 )     (1,937 )
Financing Activities
               
Changes in short-term notes payable
    (892 )     880  
Proceeds from revolving credit facility
    3,000       -  
Payments on revolving credit facility
    (2,100 )     -  
Proceeds from Term Loan
    9,226       -  
Payments on Term Loan
    (8,226 )     -  
Proceeds from issuance of long-term debt
    8,005       1,265  
Payments on long-term debt
    (1,576 )     (84 )
Redemption of preferred securities of subsidiaries
    (500 )     -  
Purchases of treasury stock
    (5 )     (898 )
Proceeds from issuance of common stock
    966       -  
Proceeds from issuance of preferred stock
    7,000       -  
Proceeds from sales of common stock
    554       59  
Issuance costs for debt and equity securities
    (368 )     (66 )
Excess tax benefits from share-based payment arrangements
    -       8  
Distributions to noncontrolling interests
    (44 )     (44 )
Dividends paid to stockholders
    (779 )     (1,174 )
Cash provided by (used in) financing activities
    14,261       (54 )
Effect of Exchange Rate Changes on Cash
    64       54  
Summary
               
Increase (Decrease) in cash and cash equivalents
    (219 )     525  
Cash and cash equivalents at beginning of year
    2,800       1,736  
Cash and cash equivalents at end of period
  $ 2,581     $ 2,261  
See Notes to the Consolidated Financial Statements.
               



The Dow Chemical Company and Subsidiaries
       
   
Nine Months Ended
   
Sept. 30,
 
Sept. 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
    2,643       -  
Sale of shares to ESOP
    (1,529 )     -  
Stock-based compensation and allocation of ESOP shares
    39       (37 )
Balance at end of period
    2,025       865  
Retained Earnings
               
Balance at beginning of year
    17,013       18,004  
Net income available for The Dow Chemical Company common stockholders
    249       2,131  
Dividends declared on common stock (Per share: $0.45 in 2009, $1.26 in 2008)
    (471 )     (1,167 )
Other
    (6 )     (14 )
Balance at end of period
    16,785       18,954  
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)
    158       (173 )
     Balance at end of period
    47       (102 )
Cumulative Translation Adjustments at beginning of year
    221       723  
     Translation adjustments
    331       (208 )
     Balance at end of period
    552       515  
Pension and Other Postretirement Benefit Plans at beginning of year
    (4,251 )     (989 )
     Adjustments to pension and other postretirement benefit plans
    64       30  
     Balance at end of period
    (4,187 )     (959 )
Accumulated Derivative Gain (Loss) at beginning of year
    (248 )     25  
     Net hedging results
    (68 )     (158 )
     Reclassification to earnings
    291       (8 )
     Balance at end of period
    (25 )     (141 )
Total accumulated other comprehensive loss
    (3,613 )     (687 )
Unearned ESOP Shares
               
Balance at beginning of year
    -       -  
Shares acquired
    (553 )     -  
Shares allocated to ESOP participants
    25       -  
Balance at end of period
    (528 )     -  
Treasury Stock
               
Balance at beginning of year
    (2,438 )     (1,800 )
Purchases
    (5 )     (898 )
Sale of shares to ESOP
    1,529       -  
Issuance to employees and employee plans
    68       241  
Balance at end of period
    (846 )     (2,457 )
The Dow Chemical Company's Stockholders' Equity
    20,729       19,128  
Noncontrolling Interests
               
Balance at beginning of year
    69       414  
Net income attributable to noncontrolling interests
    22       63  
Purchase of noncontrolling interests' share of subsidiaries
    -       (374 )
Acquisition of Rohm and Haas Company noncontrolling interests
    432       -  
Other
    (7 )     (33 )
Balance at end of period
    516       70  
Total Equity
  $ 21,245     $ 19,198  
See Notes to the Consolidated Financial Statements.
               




The Dow Chemical Company and Subsidiaries
             
   
Three Months Ended
 
Nine Months Ended
   
Sept. 30,
 
Sept. 30,
 
Sept. 30,
 
Sept. 30,
In millions      (Unaudited)
 
2009
 
2008
 
2009
 
2008
Net Income
  $ 795     $ 448     $ 498     $ 2,194  
Other Comprehensive Income (Loss), Net of Tax
                               
Net change in unrealized gains (losses) on investments
    107       (89 )     158       (173 )
Translation adjustments
    233       (748 )     331       (208 )
Adjustments to pension and other postretirement benefit plans
    25       13       64       30  
Net gains (losses) on cash flow hedging derivative instruments
    69       (237 )     223       (166 )
Total other comprehensive income (loss)
    434       (1,061 )     776       (517 )
Comprehensive Income (Loss)
    1,229       (613 )     1,274       1,677  
Comprehensive income (loss) attributable to noncontrolling interests, net of tax
    (1 )     20       22       63  
Comprehensive Income (Loss) Attributable to The Dow Chemical Company
  $ 1,230     $ (633 )   $ 1,252     $ 1,614  
See Notes to the Consolidated Financial Statements.
                               

 
 The Dow Chemical Company and Subsidiaries
 PART I – FINANCIAL INFORMATION, Item 1. Financial Statements.
 (Unaudited)                                                                                        Notes to the Consolidated Financial Statements 
 
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 Company’s Annual Report on
Form 10-K for the year ended December 31, 2008 and the audited consolidated financial statements and notes thereto included in the Current Report on Form 8-K dated September 25, 2009.


NOTE B – RECENT ACCOUNTING GUIDANCE

Accounting Standards Codification
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“Codification” or “ASC”) became the single source of authoritative GAAP (other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The Codification is topically based with topics organized by ASC number and updated with Accounting Standards Updates (“ASUs”). ASUs will replace accounting guidance that historically was issued as FASB Statements (“SFAS”), FASB Interpretations (“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”) Issues or other types of accounting standards. The Codification became effective September 30, 2009 for the Company and disclosures within this Quarterly Report on Form 10-Q have been updated to reflect the change.

Accounting for Noncontrolling Interests
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (codified in ASC Topic 810, “Consolidation”), was effective January 1, 2009 for the Company and established accounting and reporting standards for noncontrolling interests in a subsidiary and for deconsolidation of a subsidiary. The retrospective presentation and disclosure requirements outlined by the consolidation guidance have been incorporated into this Quarterly Report on Form 10-Q for the interim period ended September 30, 2009.
 
In accordance with the new guidance on noncontrolling interests, the Company revised all previous references to “minority interests” in the consolidated financial statements to “noncontrolling interests,” and also made the following changes:
 
·
The Consolidated Statements of Income now present “Net Income,” which includes “Net income (loss) attributable to noncontrolling interests” and “Net Income Attributable to The Dow Chemical Company.” “Net Income 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.
 
·
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 (Loss),” which includes “Comprehensive income (loss) attributable to noncontrolling interests, net of tax” and “Comprehensive Income (Loss) Attributable to The Dow Chemical Company.” “Comprehensive Income (Loss) 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” instead of “Net Income Available for Common Stockholders.”
 
·
Interim Consolidated Statements of Equity have been added to fulfill the disclosure requirements.

Fair Value Measurements
On January 1, 2009, the Company adopted FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (codified in ASC Topic 820, “Fair Value Measurements and Disclosures”), related to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on the financial statements on a recurring basis. Since the Company’s fair value measurements for nonfinancial assets and nonfinancial liabilities were consistent with the guidance, the adoption of the guidance did not have a material impact on the Company’s consolidated financial statements. The Company’s enhanced disclosures are included in Note J.

 
On June 30, 2009, the Company adopted 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” (codified in ASC Topic 820). This FSP provides additional guidance for estimating the fair value when the market activity for an asset or liability has declined significantly. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
On June 30, 2009, the Company adopted FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (codified in ASC Topic 270, “Interim Reporting”). This guidance requires disclosures about the fair value of financial instruments during interim reporting periods. The Company’s enhanced disclosures are included in Note I.
 
On August 28, 2009, the FASB issued ASU 2009-05, “Measuring Liabilities at Fair Value,” to provide guidance on measuring the fair value of liabilities under ASC Topic 820. This ASU clarifies the fair value measurements for a liability in an active market and the valuation techniques in the absence of a Level 1 measurement. This ASU is effective for the first reporting period (including interim periods) beginning after issuance, which is October 1, 2009 for the Company. The adoption of this ASU is not anticipated to have a material impact on the Company’s consolidated financial statements.

Other Recently Adopted Accounting Guidance
On January 1, 2009, the Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (codified in ASC Topic 815, “Derivatives and Hedging”). This guidance requires enhanced disclosures about an entity’s derivative and hedging activities. The Company’s enhanced disclosures are included in Note I.
 
On January 1, 2009, the Company adopted EITF Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (codified in ASC Topic 260, “Earnings Per Share”), related to 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 guidance 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. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
On January 1, 2009, the Company adopted FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (codified in ASC Topic 805, “Business Combinations” and ASC Topic 820), related to assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance states that assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value, if the acquisition date fair value can be reasonably determined. If the acquisition date fair value cannot be reasonably determined, then the asset or liability should be recognized in accordance with ASC Topic 450, “Contingencies” (formerly SFAS No. 5, “Accounting for Contingencies” and FIN No. 14, “Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5”). This guidance also requires new disclosures for the assets and liabilities within the scope of this Topic. See Note D for disclosures related to a recent business combination.
 
On June 30, 2009, the Company adopted FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (codified in ASC Topic 320, “Investments - Debt and Equity Securities”). This guidance 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 adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
On June 30, 2009, the Company adopted SFAS No. 165, “Subsequent Events” (codified in ASC Topic 855, “Subsequent Events”). This guidance 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 Company has evaluated subsequent events in accordance with this guidance through the filing of this Quarterly Report on Form 10-Q on October 30, 2009.

Accounting Guidance Issued But Not Yet Adopted
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (codified in ASC Topic 715, “Compensation - Retirement Benefits”). 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” (codified in ASC Topic 860, “Transfers and Servicing”). The guidance amends SFAS No. 140 and is intended 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 guidance.
 
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.
 
In September 2009, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 08-1, “Revenue Arrangements with Multiple Deliverables,” which amends the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. This Issue is effective for fiscal periods beginning on or after June 15, 2010, which is January 1, 2011 for the Company. The Company is currently evaluating the impact of adopting the guidance.
 
In September 2009, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 09-3, “Applicability of Statement of Position 97-2 to Certain Arrangements that Include Software Elements,” which clarifies the accounting guidance for sales of tangible products containing both software and hardware elements. This Issue is effective for fiscal periods beginning on or after June 15, 2010, which is January 1, 2011 for the Company. The Company is currently evaluating the impact of adopting the guidance.
 
On September 30, 2009, the FASB issued ASU 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” to provide guidance within ASC Topic 820 on measuring the fair value of certain alternative investments in entities that calculate net asset values. This ASU is effective for interim and annual periods ending after December 15, 2009, which is December 31, 2009 for the Company. The adoption of this ASU is not expected to have a material 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 income 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  

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 acquisition of 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 September 30, 2009, severance of $37 million had been paid and a currency adjusted liability of $120 million remained for approximately 1,791 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  
Cash payments
    -       -       (32 )     (32 )
Foreign currency impact
    -       -       2       2  
Reserve balance at September 30, 2009
    -     $ 68     $ 120     $ 188  

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 and third quarters of 2009, severance of $35 million was paid, leaving a currency adjusted liability of $85 million for approximately 667 employees at September 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  
Cash payments
    (11 )
Foreign currency impact
    2  
Reserve balance at September 30, 2009
  $ 85  



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 income.
 
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 nine-month period ended September 30, 2009, severance of $275 million was paid, and a currency adjusted liability of $65 million remained for approximately 407 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  
Cash payments
    -       (39 )     (39 )
Foreign currency impact
    3       -       3  
Reserve balance at September 30, 2009
  $ 135     $ 65     $ 200  

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 nine-month period ended September 30, 2009, severance of $22 million was paid, and a currency adjusted liability of $15 million remained for approximately 165 employees.
 
Cash payments of $37 million have been 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  
Cash payments
    (1 )     (5 )     (6 )
Foreign currency impact
    2       -       2  
Reserve balance at September 30, 2009
  $ 51     $ 15     $ 66  

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.


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 the accounting guidance for business combinations.
 
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), 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 and a pretax loss of $56 million on the early extinguishment of debt.

Rohm and Haas Results of Operations
 
In millions
 
April 1 - Sept. 30, 2009
Net sales
  $ 3,867  
Loss from Continuing Operations Before Income Taxes
  $ (284 )

The following table provides actual results of operations for the three-month period ended September 30, 2009, pro forma results of operations for the three-month period ended September 30, 2008 and pro forma results of operations for the nine-month periods ended September 30, 2009 and September 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 September 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
   
Nine Months Ended
 
In millions, except per share amounts
 
Actual Sept. 30,
2009
   
Pro Forma Sept. 30, 2008
   
Pro Forma Sept. 30, 2009
   
Pro Forma Sept. 30, 2008
 
Net sales
  $ 12,046     $ 17,839     $ 34,178     $ 54,047  
Net income (loss) available for The Dow Chemical
Company common stockholders
  $ 711     $ 219     $ (440 )   $ 1,412  
Earnings (Loss) per common share - diluted
  $ 0.63     $ 0.20     $ (0.40 )   $ 1.26  


 
The following table summarizes the fair values of the assets acquired and liabilities assumed from Rohm and Haas on April 1, 2009. In the third quarter of 2009, net adjustments of $79 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments are reflected in the values presented below. 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
    3,851  
Other intangible assets (1)
    4,475  
Other assets
    1,307  
Net assets of the Salt business (2)
    1,442  
Total Assets Acquired
  $ 13,785  
Fair Value of Liabilities and Noncontrolling Interests Assumed
       
Current liabilities
  $ 1,207  
Long-term debt
    2,541  
Accrued and other liabilities and noncontrolling interests
    702  
Pension benefits
    1,119  
Deferred tax liabilities – noncurrent
    2,466  
Total Liabilities and Noncontrolling Interests Assumed
  $ 8,035  
Goodwill (1)
  $ 9,931  
(1) See Note H for additional information.
(2) Morton International, Inc.; see Note E.
 
The fair value of receivables acquired from Rohm and Haas on April 1, 2009 (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 K), which were valued in accordance with the accounting guidance for contingencies. Operating loss carryforwards of $2,189 million were acquired from Rohm and Haas on 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
  $ 1,195  
Property
    495  
Long-term debt
    233  
Inventory
    80  
Other accruals and reserves
    463  
Total Deferred Tax Liabilities
  $ 2,466  

The acquisition resulted in the recognition of $9,931 million of goodwill, which is not deductible for tax purposes. See Note H 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 L, P and Q).

Rohm and Haas Acquisition and Integration Related Expenses
During the third quarter of 2009, pretax charges totaling $21 million ($121 million during the first nine months of 2009) were recorded for legal expenses and other transaction and integration costs related to the April 1, 2009 acquisition of Rohm and Haas. These charges were expensed in accordance with the accounting guidance for business combinations and were recorded in “Acquisition and integration related expenses” and were reflected in Corporate. For the three and nine months ended September 30, 2008, pretax charges totaling $18 million related to legal expenses and other transaction costs related to the acquisition of Rohm and Haas were recorded and reflected in Corporate. An additional $26 million of acquisition-related retention expenses were incurred during the third quarter of 2009 ($60 million during the first nine months of 2009) and recorded in “Cost of sales,” “Research and development expenses,” and “Selling, general and administrative expenses” and reflected in Corporate.

Purchased In-Process Research and Development
Purchased in-process research and development (“IPR&D”) represents the value assigned in a business combination to acquired research and development projects that, as of the date of the acquisition, had not established technological feasibility and had no alternative future use. In the third quarter of 2008, the Company recorded a charge of $27 million for IPR&D projects associated with recent acquisitions of germplasm from Texas Triumph Seed Co., Inc. in February 2008, and germplasm from Dairyland Seed Co., Inc. and Bio-Plant Research Ltd. in August 2008.


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 (“K+S”). The transaction received regulatory approval and closed on October 1, 2009. See subsequent event discussion below. 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 Sept. 30, 2009
 
Current assets
  $ 374  
Property
    434  
Other intangible assets
    1,285  
Deferred charges and other assets
    102  
Assets held for sale
  $ 2,195  
Current liabilities
  $ 124  
Deferred income tax liabilities - noncurrent
    311  
Pension and other post retirement benefits
    89  
Other noncurrent obligations
    14  
Liabilities held for sale
  $ 538  

Subsequent Event
On October 1, 2009, the Company completed the divestiture of its interest in Morton to K+S and received net proceeds of $1,576 million, with proceeds subject to customary post-closing adjustments. One billion dollars in proceeds from this transaction were used to pay off the Term Loan used to fund the acquisition of Rohm and Haas.

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 (Loss) from discontinued operations, net of income taxes (benefit)” in the consolidated statements of income for all periods presented.

 
The following table presents the results of discontinued operations:

Discontinued Operations
 
Three Months Ended
   
Nine Months Ended
 
In millions
 
Sept. 30,
2009
 
Sept. 30,
2008
   
Sept. 30,
2009
   
Sept. 30,
2008
 
Net sales
    -     $ 40     $ 70     $ 104  
Income (loss) before income taxes (benefit)
  $ (7 )   $ 13     $ 175     $ 30  
Provision (credit) for income taxes
  $ (3 )   $ 5     $ 65     $ 11  
Income (loss) from discontinued operations, net of income taxes (benefit)
  $ (4 )   $ 8     $ 110     $ 19  

Divestiture of Investments in Nonconsolidated Affiliates
On September 1, 2009, the Company completed the sale of its ownership interest in Total Raffinaderij Nederland N.V. (“TRN”), a nonconsolidated affiliate, and related inventory to Total S.A for $742 million. This resulted in a pretax net gain of $457 million which consisted of a gain of $513 million reflected in “Sundry income (expense) – net” and a charge of $56 million related to the recognition of hedging losses which were recorded to “Cost of sales.”
 
On September 30, 2009 the Company completed the sale of its ownership interest in the OPTIMAL Group of Companies (“OPTIMAL”), nonconsolidated affiliates, for $660 million to Petroliam Nasional Berhad. This resulted in a pretax net gain of $328 million included in “Sundry income (expense) –net.”
 
Net proceeds from these divestitures were used to pay down debt.


NOTE F – INVENTORIES

The following table provides a breakdown of inventories:

Inventories
In millions
 
Sept. 30, 2009
   
Dec. 31, 2008
 
Finished goods
  $ 3,884     $ 3,351  
Work in process
    1,614       1,217  
Raw materials
    765       830  
Supplies
    707       638  
Total inventories
  $ 6,970     $ 6,036  

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $566 million at September 30, 2009 and $627 million at December 31, 2008.


NOTE G – NONCONSOLIDATED AFFILIATES

The table below presents summarized financial information for Dow Corning Corporation and EQUATE Petrochemical Company K.S.C., significant nonconsolidated affiliates (at 100 percent):

Summarized Income Statement Information
 
Nine Months Ended
 
In millions
 
Sept. 30, 2009
   
Sept. 30, 2008
 
Dow Corning Corporation
           
Sales
  $ 3,624     $ 4,146  
Gross profit
  $ 1,186     $ 1,447  
Net income
  $ 309     $ 566  
EQUATE Petrochemical Company K.S.C.
               
Sales
  $ 624     $ 1,024  
Gross profit
  $ 183     $ 671  
Net income
  $ 176     $ 651  



NOTE H – 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
    3,819       5,152       189       387       384       -       -       9,931  
Adjustment related to 2008
acquisition of:
                                                               
Dairyland Seed Co., Inc.
    -       -       (1 )     -       -       -       -       (1 )
Stevens Roofing Systems
    -       3       -       -       -       -       -       3  
Balance at Sept. 30, 2009
  $ 4,604     $ 5,246     $ 1,579     $ 959     $ 811     $ 65     $ 63     $ 13,327  

The recording of the April 1, 2009 acquisition of Rohm and Haas (see Note D) resulted in goodwill of $9,931 million, which is not deductible for tax purposes. In the third quarter of 2009, goodwill related to the acquisition of Rohm and Haas was increased by $79 million as a result of net adjustments made to the fair values of the assets acquired and liabilities assumed. 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    
3 years
 
Trademarks
    482    
10 years
 
Customer related
    2,478    
16 years
 
Total intangible assets, finite lives
  $ 4,401    
13 years
 
In-process R&D, indefinite lives
    74       -  
Total intangible assets
  $ 4,475          

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 the goodwill and other intangible assets topic of the ASC, (formerly 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 September 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
  $ 1,681     $ (279 )   $ 1,402     $ 316     $ (192 )   $ 124  
Patents
    140       (106 )     34       139       (100 )     39  
Software
    853       (419 )     434       700       (363 )     337  
Trademarks
    658       (93 )     565       169       (61 )     108  
Customer related
    2,839       (175 )     2,664       210       (66 )     144  
Other
    136       (60 )     76       120       (43 )     77  
Total intangible assets, finite lives
  $ 6,307     $ (1,132 )   $ 5,175     $ 1,654     $ (825 )   $ 829  
In-process R&D, indefinite lives
    79       -       79       -       -       -  
Total intangible assets
  $ 6,386     $ (1,132 )   $ 5,254     $ 1,654     $ (825 )   $ 829  

The following table provides information regarding amortization expense:

Amortization Expense
 
Three Months Ended
   
Nine Months Ended
 
In millions
 
Sept. 30,
2009
   
Sept. 30, 2008
   
Sept. 30,
2009
   
Sept. 30, 2008
 
Other intangible assets, excluding software
  $ 108     $ 21     $ 242     $ 68  
Software, included in “Cost of sales”
  $ 22     $ 13     $ 55     $ 35  

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

Estimated Amortization Expense
In millions
 
2009
  $ 438  
2010
  $ 545  
2011
  $ 535  
2012
  $ 489  
2013
  $ 457  
2014
  $ 447  


NOTE I – FINANCIAL INSTRUMENTS

Investments
The Company’s investments in marketable securities are primarily classified as available-for-sale.

Investing Results
 
In millions
 
Nine Months Ended Sept. 30, 2009
Proceeds from sales of available-for-sale securities
  $ 263  
Gross realized gains
  $ 7  
Gross realized losses