tdcc1q0504q.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 MARCH 31, 2010
 
 
 
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 March 31, 2010
1,154,900,085 shares

 
 
 

The Dow Chemical Company

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2010


   
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The Dow Chemical Company and Subsidiaries
   
Three Months Ended
   
March 31,
    
March 31,
In millions, except per share amounts      (Unaudited)
  
2010
    
2009
Net Sales
   $ 13,417     $ 9,041  
Cost of sales
     11,541       8,138  
Research and development expenses
     407       292  
Selling, general and administrative expenses
     662       443  
Amortization of intangibles
     128       22  
Restructuring charges
     16       19  
Acquisition and integration related expenses
     26       48  
Equity in earnings of nonconsolidated affiliates
     304       65  
Sundry income (expense) - net
     83       (3 )
Interest income
     7       12  
Interest expense and amortization of debt discount
     376       154  
Income (Loss) from Continuing Operations Before Income Taxes
     655       (1 )
Provision (Credit) for income taxes
     103       (25 )
Net Income from Continuing Operations
     552       24  
Income from discontinued operations, net of income taxes
     -       11  
Net Income
     552       35  
Net income attributable to noncontrolling interests
     1       11  
Net Income Attributable to The Dow Chemical Company
     551       24  
Preferred stock dividends
     85       -  
Net Income Available for The Dow Chemical Company Common Stockholders
   $ 466     $ 24  
                 
                 
Per Common Share Data:
                
Net income from continuing operations available for common stockholders
   $ 0.42     $ 0.02  
Discontinued operations attributable to common stockholders
     -       0.01  
Earnings per common share - basic
   $ 0.42     $ 0.03  
                 
Net income from continuing operations available for common stockholders
   $ 0.41     $ 0.02  
Discontinued operations attributable to common stockholders
     -       0.01  
Earnings per common share - diluted
   $ 0.41     $ 0.03  
                 
Common stock dividends declared per share of common stock
   $ 0.15     $ 0.15  
Weighted-average common shares outstanding - basic
     1,117.5       925.4  
Weighted-average common shares outstanding - diluted
     1,137.9       932.0  
                 
                 
Depreciation
   $ 591     $ 455  
Capital Expenditures
   $ 294     $ 234  
See Notes to the Consolidated Financial Statements.
                


  The Dow Chemical Company and Subsidiaries
 
 
  
March 31,
  
Dec. 31,
In millions     (Unaudited)
    
2010
  
2009
Assets
              
Current Assets
              
Cash and cash equivalents (variable interest entities restricted - 2010: $172)
     $ 2,923     $ 2,846  
Accounts and notes receivable:
                  
Trade (net of allowance for doubtful receivables - 2010: $142; 2009: $160)
       5,439       5,656  
     Other
       5,016       3,539  
Inventories
       7,020       6,847  
Deferred income tax assets - current
       482       654  
Assets held for sale - current
       431       -  
Total current assets
       21,311       19,542  
Investments
                  
Investment in nonconsolidated affiliates
       3,006       3,224  
Other investments (investments carried at fair value - 2010: $2,148; 2009: $2,136)
     2,551       2,561  
Noncurrent receivables
       248       210  
Total investments
       5,805       5,995  
Property
                  
Property
       50,324       53,567  
Accumulated depreciation
       32,992       35,426  
Net property (variable interest entities restricted - 2010: $801)
       17,332       18,141  
Other Assets
                  
Goodwill
       13,129       13,213  
Other intangible assets (net of accumulated amortization - 2010: $1,360; 2009: $1,302)
     5,784       5,966  
Deferred income tax assets - noncurrent
       2,356       2,039  
Asbestos-related insurance receivables - noncurrent
       313       330  
Deferred charges and other assets
       853       792  
Assets held for sale - noncurrent
       663       -  
Total other assets
       23,098       22,340  
Total Assets
     $ 67,546     $ 66,018  
                   
Liabilities and Equity
                  
Current Liabilities
                  
Notes payable
     $ 2,594     $ 2,139  
Long-term debt due within one year
       1,773       1,082  
Accounts payable:
                  
     Trade
       4,652       4,153  
     Other
       2,082       2,014  
Income taxes payable
       324       176  
Deferred income tax liabilities - current
       64       78  
Dividends payable
       255       254  
Accrued and other current liabilities
       3,161       3,209  
Total current liabilities
       14,905       13,105  
Long-Term Debt
       18,835       19,152  
Other Noncurrent Liabilities
                  
Deferred income tax liabilities - noncurrent
       1,345       1,367  
Pension and other postretirement benefits - noncurrent
       7,263       7,242  
Asbestos-related liabilities - noncurrent
       727       734  
Other noncurrent obligations
       3,313       3,294  
Liabilities held for sale - noncurrent
       66       -  
Total other noncurrent liabilities
       12,714       12,637  
Stockholders' Equity
                  
Preferred stock, series A ($1.00 par, $1,000 liquidation preference, 4,000,000 shares)
     4,000       4,000  
Common stock
       2,908       2,906  
Additional paid-in capital
       1,908       1,913  
Retained earnings
       16,746       16,704  
Accumulated other comprehensive loss
       (4,258 )     (3,892 )
Unearned ESOP shares
       (508 )     (519 )
Treasury stock at cost
       (379 )     (557 )
The Dow Chemical Company's stockholders' equity
       20,417       20,555  
Noncontrolling interests
       675       569  
Total equity
       21,092       21,124  
Total Liabilities and Equity
     $ 67,546     $ 66,018  
See Notes to the Consolidated Financial Statements.
                  


The Dow Chemical Company and Subsidiaries
   
Three Months Ended
   
March 31,
  
March 31,
In millions    (Unaudited)
  
2010
  
2009
Operating Activities
            
Net Income
   $ 552     $ 35  
Adjustments to reconcile net income to net cash used in operating activities:
                
          Depreciation and amortization
     757       508  
          Credit for deferred income tax
     (155 )     (83 )
          Earnings of nonconsolidated affiliates less than (in excess of) dividends received
     (12 )     496  
          Pension contributions
     (77 )     (51 )
          Net loss on sales of investments
     30       2  
          Net gain on sales of property, businesses and consolidated companies
     (92 )     -  
          Other net loss
     12       -  
          Restructuring charges
     16       19  
          Excess tax benefits from share-based payment arrangements
     (1 )     -  
Changes in assets and liabilities, net of effects of acquired and divested companies:
                
          Accounts and notes receivable
     (1,536 )     (23 )
          Inventories
     (605 )     120  
          Accounts payable
     343       (614 )
          Other assets and liabilities
     754       (486 )
Cash used in operating activities
     (14 )     (77 )
Investing Activities
                
Capital expenditures
     (294 )     (234 )
Proceeds from sales of property, businesses and consolidated companies
     104       33  
Acquisitions of businesses
     (5 )     (5 )
Investments in consolidated companies, net of cash acquired
     (62 )     (7 )
Investments in nonconsolidated affiliates
     (50 )     (17 )
Distributions from nonconsolidated affiliates
     18       3  
Proceeds from interests in trade accounts receivable conduits
     528       -  
Purchases of investments
     (321 )     (108 )
Proceeds from sales and maturities of investments
     327       159  
Cash provided by (used in) investing activities
     245       (176 )
Financing Activities
                
Changes in short-term notes payable
     528       (1,564 )
Proceeds from notes payable
     84       -  
Payments on notes payable
     (657 )     -  
Proceeds from revolving credit facility
     -       3,000  
Proceeds from issuance of long-term debt
     171       74  
Payments on long-term debt
     (75 )     (367 )
Purchases of treasury stock
     (9 )     (5 )
Proceeds from issuance of common stock
     13       -  
Proceeds from sales of common stock
     51       -  
Issuance costs for debt and equity securities
     -       (265 )
Excess tax benefits from share-based payment arrangements
     1       -  
Distributions to noncontrolling interests
     -       (23 )
Dividends paid to stockholders
     (253 )     (388 )
Cash provided by (used in) financing activities
     (146 )     462  
Effect of Exchange Rate Changes on Cash
     (8 )     (53 )
Summary
                
Increase in cash and cash equivalents
     77       156  
Cash and cash equivalents at beginning of year
     2,846       2,800  
Cash and cash equivalents at end of period
   $ 2,923     $ 2,956  
See Notes to the Consolidated Financial Statements.
                


The Dow Chemical Company and Subsidiaries
   
Three Months Ended
   
March 31,
  
March 31,
In millions      (Unaudited)
  
2010
  
2009
Preferred Stock
            
Balance at beginning of year and end of period
   $ 4,000       -  
Common Stock
                
Balance at beginning of year
     2,906     $ 2,453  
Common stock issued
     2       -  
Balance at end of period
     2,908       2,453  
Additional Paid-in Capital
                
Balance at beginning of year
     1,913       872  
Common stock issued
     2       -  
Stock-based compensation and allocation of ESOP shares
     (7 )     (47 )
Balance at end of period
     1,908       825  
Retained Earnings
                
Balance at beginning of year
     16,704       17,013  
Net income available for The Dow Chemical Company common stockholders
     466       24  
Dividends declared on common stock (Per share: $0.15 in 2010, $0.15 in 2009)
     (168 )     (139 )
Other
     (8 )     (2 )
Impact of adoption of ASU 2009-17, net of tax
     (248 )     -  
Balance at end of period
     16,746       16,896  
Accumulated Other Comprehensive Income (Loss)
                
Unrealized Gains (Losses) on Investments at beginning of year
     79       (111 )
Net change in unrealized gains (losses)
     13       (24 )
Balance at end of period
     92       (135 )
Cumulative Translation Adjustments at beginning of year
     624       221  
Translation adjustments
     (430 )     (384 )
Balance at end of period
     194       (163 )
Pension and Other Postretirement Benefit Plans at beginning of year
     (4,587 )     (4,251 )
Adjustments to pension and other postretirement benefit plans
     42       5  
Balance at end of period
     (4,545 )     (4,246 )
Accumulated Derivative Gain (Loss) at beginning of year
     (8 )     (248 )
Net hedging results
     1       (61 )
Reclassification to earnings
     8       179  
Balance at end of period
     1       (130 )
Total accumulated other comprehensive loss
     (4,258 )     (4,674 )
Unearned ESOP Shares
                
Balance at beginning of year
     (519 )     -  
Shares allocated to ESOP participants
     11       -  
Balance at end of period
     (508 )     -  
Treasury Stock
                
Balance at beginning of year
     (557 )     (2,438 )
Purchases
     (9 )     (5 )
Issuance to employees and employee plans
     187       59  
Balance at end of period
     (379 )     (2,384 )
The Dow Chemical Company's Stockholders' Equity
     20,417       13,116  
Noncontrolling Interests
                
Balance at beginning of year
     569       69  
Net income attributable to noncontrolling interests
     1       11  
Impact of adoption of ASU 2009-17
     100       -  
Other
     5       (17 )
Balance at end of period
     675       63  
Total Equity
   $ 21,092     $ 13,179  
See Notes to the Consolidated Financial Statements.
                


The Dow Chemical Company and Subsidiaries
   
Three Months Ended
  
   
March 31,
  
March 31,
In millions      (Unaudited)
  
2010
  
2009
Net Income
   $ 552     $ 35  
Other Comprehensive Income (Loss), Net of Tax
                
Net change in unrealized gains (losses) on investments
     13       (24 )
 Translation adjustments
     (430 )     (384 )
Adjustments to pension and other postretirement benefit plans
     42       5  
Net gains on cash flow hedging derivative instruments
     9       118  
Total other comprehensive loss
     (366 )     (285 )
Comprehensive Income (Loss)
     186       (250 )
Comprehensive income attributable to noncontrolling interests, net of tax
     1       11  
Comprehensive Income (Loss) Attributable to The Dow Chemical Company
   $ 185     $ (261 )
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
 
Table of Contents

       Note
  
Page
 
A
Consolidated Financial Statements
8
 
B
Recent Accounting Guidance
8
 
C
Restructuring
9
 
D
Acquisitions
10
 
E
Divestitures
12
 
F
Inventories
13
 
G
Goodwill and Other Intangible Assets
13
 
H
Financial Instruments
14
 
I
Fair Value Measurements
21
 
J
Commitments and Contingent Liabilities
22
 
K
Transfers of Financial Assets
29
 
L
Variable Interest Entities
31
 
M
Pension Plans and Other Postretirement Benefits
33
 
N
Stock-Based Compensation
34
 
O
Earnings Per Share Calculations
35
 
P
Operating Segments and Geographic Areas
36


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, 2009.

Certain changes to prior year balance sheet amounts have been made in accordance with the accounting guidance for business combinations to reflect adjustments made during the measurement period to provisional amounts recorded for assets acquired and liabilities assumed from Rohm and Haas Company (“Rohm and Haas”) on April 1, 2009.


NOTE B – RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
On January 1, 2010, the Company adopted Accounting Standards Update (“ASU”) 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” This ASU 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 Company evaluated the impact of adopting the guidance and the terms and conditions in place at January 1, 2010 and determined that certain sales of accounts receivable would be classified as secured borrowings. Under these arrangements, $915 million was outstanding at January 1, 2010. The maximum amount of receivables available for participation in these programs was $1,939 million at January 1, 2010. See Note K for additional information about transfers of financial assets.

On January 1, 2010, the Company adopted ASU 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amended the consolidation guidance applicable to variable interest entities and required additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. The Company evaluated the impact of this guidance and determined that the adoption results in the consolidation of two additional joint ventures, an owner trust and an entity that is used to monetize accounts receivable. At January 1, 2010, $793 million in assets (net of tax, including the impact on “Investment in nonconsolidated affiliates”), $941 million in liabilities, $100 million in noncontrolling interest and a cumulative effect adjustment to retained earnings of $248 million were recorded as a result of the adoption of this guidance. See Note L for additional information about variable interest entities.


On January 1, 2010, the Company adopted ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which adds disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies existing disclosure requirements related to the level of disaggregation and input and valuation techniques. See Note I for additional disclosures about fair value measurements.

Accounting Guidance Issued But Not Adopted as of March 31, 2010
In October 2009, the Financial Accounting Standards Board issued ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force,” which amends the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. This ASU is effective for fiscal years 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.


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 as well as actions to advance the Company’s strategy and to respond to continued weakness in the global economy. The restructuring plan included 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 by the end of 2011. As a result of the restructuring activities, the Company recorded pretax restructuring charges of $677 million in the second quarter of 2009, 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 severance component of the 2009 restructuring charges of $155 million was for the separation of approximately 2,500 employees under the terms of the Company’s ongoing benefit arrangements, primarily over two years. At December 31, 2009, severance of $72 million had been paid and a currency adjusted liability of $84 million remained for approximately 1,221 employees. In the first quarter of 2010, severance of $30 million was paid, leaving a currency adjusted liability of $51 million for approximately 869 employees at March 31, 2010.

In the first quarter of 2010, the Company recorded an additional $8 million charge to adjust the impairment of long-lived assets and other assets related to the divestiture of certain acrylic monomer and specialty latex assets completed in the first quarter of 2010, and an additional $8 million charge related to the shutdown of a small manufacturing facility under the 2009 restructuring plan. The impact of these charges is shown as “Restructuring charges” in the consolidated statements of income and was reflected in the following operating segments:  Electronic and Specialty Materials ($8 million), Coatings and Infrastructure ($5 million) and Performance Products ($3 million).

The following table summarizes the 2010 activities related to the Company’s restructuring reserve:

2010 Activities Related to 2009 Restructuring
In millions
  
Impairment of Long-Lived Assets and Other Assets
  
Costs associated with Exit or Disposal Activities
    
Severance Costs
  
Total
Reserve balance at December 31, 2009
     -     $ 68     $ 84     $ 152  
Adjustment to reserve
   $ 16       -       -       16  
Cash payments
     -       -       (30 )     (30 )
Charges against reserve
     (16 )     -       -       (16 )
Foreign currency impact
     -       -       (3 )     (3 )
Reserve balance at March 31, 2010
     -     $ 68     $ 51     $ 119  



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 primarily by the end of 2011. At December 31, 2009, a currency adjusted liability of $68 million remained for approximately 552 employees. In the first quarter of 2010, severance of $9 million was paid, leaving a currency adjusted liability of $60 million for approximately 487 employees at March 31, 2010.

Restructuring Reserve Assumed from Rohm and Haas
  
In millions
  
Severance Costs
Reserve balance at December 31, 2009
   $ 68  
Cash payments
     (9 )
Foreign currency impact
     1  
Reserve balance at March 31, 2010
   $ 60  

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 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 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, 2009, severance of $289 million had been paid and a currency adjusted liability of $53 million remained for approximately 293 employees. In the first quarter of 2010, severance of $16 million was paid, leaving a currency adjusted liability of $33 million for approximately 138 employees at March 31, 2010.

The following table summarizes 2010 activities related to the Company’s 2008 restructuring reserve:

2010 Activities Related to 2008 Restructuring
 
 
In millions
  
Costs associated
with Exit or
Disposal
Activities
  
Severance Costs
  
Total
Reserve balance at December 31, 2009
   $ 135     $ 53     $ 188  
Cash payments
     -       (16 )     (16 )
Foreign currency impact
     (2 )     (4 )     (6 )
Reserve balance at March 31, 2010
   $ 133     $ 33     $ 166  


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, Ramses Acquisition Corp., a direct wholly owned subsidiary of the Company, merged with and into Rohm and Haas, with Rohm and Haas continuing as the surviving corporation and becoming a direct wholly owned subsidiary of the Company.



The following table summarizes the fair values of the assets acquired and liabilities assumed from Rohm and Haas on April 1, 2009. Since the acquisition, net adjustments of $145 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. These adjustments are summarized in the table presented below. The balance sheet at December 31, 2009 has been retrospectively adjusted to reflect these adjustments as required by the accounting guidance for business combinations.

Assets Acquired and Liabilities Assumed
on April 1, 2009
 
In millions
  
Initial
Valuation
    
2009
Adjustments
to Fair
Value
  
Dec. 31,
2009
    
2010
Adjustments
to Fair
Value
  
March 31,
2010
  
Purchase Price
   $ 15,681       -     $ 15,681       -     $ 15,681  
Fair Value of Assets Acquired
                                        
Current assets
   $ 2,710       -     $ 2,710     $ (18 )   $ 2,692  
Property
     3,930     $ (138 )     3,792       -       3,792  
Other intangible assets (1)
     4,475       830       5,305       -       5,305  
Other assets
     1,288       32       1,320       -       1,320  
Net assets of the Salt business (2)
     1,475       (167 )     1,308       -       1,308  
Total Assets Acquired
   $ 13,878     $ 557     $ 14,435     $ (18 )   $ 14,417  
Fair Value of Liabilities and Noncontrolling Interests Assumed
                                        
Current liabilities
   $ 1,218     $ (11 )   $ 1,207     $ (1 )   $ 1,206  
Long-term debt
     2,528       13       2,541       -       2,541  
Accrued and other liabilities and noncontrolling interests
     702       -       702       -       702  
Pension benefits
     1,119       -       1,119       -       1,119  
Deferred tax liabilities – noncurrent
     2,482       311       2,793       82       2,875  
Total Liabilities and Noncontrolling Interests Assumed
   $ 8,049     $ 313     $ 8,362     $ 81     $ 8,443  
Goodwill (1)
   $ 9,852     $ (244 )   $ 9,608     $ 99     $ 9,707  
(1)
See Note G for additional information.
(2)
Morton International, Inc.

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 Assumed on April 1, 2009
In millions
  
As Adjusted
  
Intangible assets
   $ 1,754  
Property
     526  
Long-term debt
     191  
Inventories
     80  
Other accruals and reserves
     324  
Total Deferred Tax Liabilities
   $ 2,875  

The acquisition resulted in the recognition of $9,707 million of goodwill, which is not deductible for tax purposes. See Note G for further information on goodwill, including the allocation by segment.

Rohm and Haas Acquisition and Integration Related Expenses
During the first quarter of 2010, pretax charges totaling $26 million were recorded for integration costs related to the April 1, 2009 acquisition of Rohm and Haas. During the first quarter of 2009, pretax charges totaling $48 million were recorded for legal expenses and other transaction costs related to the acquisition. These charges, which were expensed in accordance with the accounting guidance for business combinations, were recorded in “Acquisition and integration related expenses” and reflected in Corporate.




NOTE E – DIVESTITURES

Pending Divestiture of the Styron Business Unit
On March 2, 2010, the Company announced the entry into a definitive agreement to sell the Styron business unit (“Styron”) to an affiliate of Bain Capital Partners for $1.63 billion. The Company announced its plan to form the business unit in July 2009, for the purpose of preparing certain businesses and products of the Company to operate under a different ownership structure. Businesses and products in Styron include: Styrenics – polystyrene, acrylonitrile butadiene styrene, styrene acrylonitrile and expandable polystyrene; Emulsion Polymers; Polycarbonate and Compounds and Blends; Synthetic Rubber; and Automotive Plastics. Certain styrene monomer assets will also be included in the sale. The definitive agreement specifies the assets and liabilities related to the businesses and products that will be included in the sale. Dow has an option to receive up to 15 percent of the equity of Styron as part of the sale consideration. Additionally, the transaction is expected to include several long-term supply, service and purchase agreements. The transaction is expected to close mid-year 2010, subject to regulatory approvals.

The assets and liabilities of Styron were classified as held for sale at March 31, 2010. The results of operations were not classified as discontinued operations, as the operations and cash flows related to the assets and liabilities to be sold can not be clearly distinguished from the rest of the Company. Additionally, the Company expects continuing cash flows as a result of the supply, service and purchase agreements.

The following table presents the major classes of assets and liabilities recorded as held for sale at March 31, 2010:

Styron Assets and Liabilities
Held for Sale
 
In millions
  
Coatings and
Infra-structure
    
Perf
Systems
    
Perf Products
    
Basic Plastics
    
Hydro-carbons
and
Energy
    
Corp.
    
Total
  
Inventories
     -     $ 110     $ 73     $ 167     $ 81       -     $ 431  
Assets held for sale - current
     -     $ 110     $ 73     $ 167     $ 81       -     $ 431  
Investment in nonconsolidated affiliates
     -       -       -     $ 225       -       -     $ 225  
Net property
   $ 13     $ 136     $ 135       120     $ 8     $ 12       424  
Finite-lived intangible assets, net
     -       2       9       2       1       -       14  
Assets held for sale - noncurrent
   $ 13     $ 138     $ 144     $ 347     $ 9     $ 12     $ 663  
Pension and other postretirement benefits
     -       -       -       -       -     $ 66     $ 66  
Liabilities held for sale - noncurrent
     -       -       -       -       -     $ 66     $ 66  

The definitive agreement also provides for a working capital adjustment as part of the transaction. Certain of the businesses within Styron have associated goodwill of approximately $120 million at March 31, 2010.

Divestiture of the Calcium Chloride Business
On June 30, 2009, the Company completed the sale of the Calcium Chloride business for net proceeds of $204 million and recognized a pretax gain of $162 million. The results of the Calcium Chloride business are reflected as “Income from discontinued operations, net of income taxes” in the consolidated statements of income for all periods presented.

The following table presents the results of discontinued operations:

Discontinued Operations
 
In millions
  
Three Months Ended March 31,2009
  
Net sales
   $ 46  
Income before income taxes
   $ 18  
Provision for income taxes
   $ 7  
Income from discontinued operations, net of income taxes
   $ 11  





Divestiture Required as a Condition to the Acquisition of Rohm and Haas
As a condition of the United States Federal Trade Commission’s (“FTC’s”) approval of the April 1, 2009 acquisition of Rohm and Haas, 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. On July 31, 2009, the Company entered into a definitive agreement that included the sale of the portion of its acrylic monomer business and the portion of its specialty latex business. The sale was completed on January 25, 2010. Additional impairment charges of $8 million for these assets were recognized in the first quarter of 2010 (see Note C).

The Company has entered into a definitive agreement for the sale of its hollow sphere particle business; closing of the sale is pending regulatory approval.


NOTE F – INVENTORIES

The following table provides a breakdown of inventories:

Inventories
In millions
  
March 31, 2010
    
Dec. 31,
2009
  
Finished goods
   $ 4,090     $ 3,887  
Work in process
     1,610       1,593  
Raw materials
     684       671  
Supplies
     636       696  
Total inventories
   $ 7,020     $ 6,847  

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $1,005 million at March 31, 2010 and $818 million at December 31, 2009.


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
Infra-
structure
  
Health
and Ag Sciences
    
Perf
Systems
  
Perf
Products
  
Basic
Plastics
    
Hydro-carbons
and
Energy
    
Total
Net goodwill
at Dec. 31, 2009
   $ 5,950     $ 4,079     $ 1,546     $ 962     $ 548     $ 65     $ 63     $ 13,213  
Foreign currency impact
     (34 )     (37 )     -       (8 )     (5 )     -       -       (84 )
Net goodwill
at March 31, 2010
   $ 5,916     $ 4,042     $ 1,546     $ 954     $ 543     $ 65     $ 63     $ 13,129  

The recording of the April 1, 2009 acquisition of Rohm and Haas (see Note D) resulted in goodwill of $9,707 million, which is not deductible for tax purposes. During the first quarter of 2010, goodwill related to the acquisition of Rohm and Haas increased $99 million for net adjustments made during the measurement period to the fair values of the assets acquired and liabilities assumed. In the table above, these retrospective adjustments are reflected in the net goodwill at December 31, 2009, in accordance with the accounting guidance for business combinations. The retrospective adjustments increased goodwill for the operating segments as follows:  Electronic and Specialty Materials ($39 million), Coatings and Infrastructure ($51 million), Health and Agricultural Sciences ($2 million), Performance Systems ($3 million) and Performance Products ($4 million). Accumulated impairments were $250 million at March 31, 2010 and December 31, 2009.


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

Other Intangible Assets
  
At March 31, 2010
    
At December 31, 2009
  
In millions
  
Gross
Carrying
Amount
    
Accumulated Amortization
  
Net
    
Gross
Carrying
Amount
    
Accumulated Amortization
  
Net
  
Intangible assets with finite lives:
                                    
Licenses and intellectual property
   $ 1,705     $ (335 )   $ 1,370     $ 1,729     $ (320 )   $ 1,409  
Patents
     120       (92 )     28       140       (107 )     33  
Software
     874       (445 )     429       875       (439 )     436  
Trademarks
     691       (123 )     568       694       (110 )     584  
Customer related
     3,540       (298 )     3,242       3,613       (261 )     3,352  
Other
     139       (67 )     72       142       (65 )     77  
Total other intangible assets, finite lives
   $ 7,069     $ (1,360 )   $ 5,709     $ 7,193     $ (1,302 )   $ 5,891  
IPR&D (1), indefinite lives
     75       -       75       75       -       75  
Total other intangible assets
   $ 7,144     $ (1,360 )   $ 5,784     $ 7,268     $ (1,302 )   $ 5,966  
(1)   Purchased in-process research and development (“IPR&D”).

The following table provides information regarding amortization expense:

Amortization Expense
  
Three Months Ended
  
In millions
  
March 31, 2010
    
March 31, 2009
  
Other intangible assets, excluding software
   $ 128     $ 22  
Software, included in “Cost of sales”
   $ 21     $ 14  

Total estimated amortization expense for 2010 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
  
2010
   $ 575  
2011
   $ 561  
2012
   $ 540  
2013
   $ 520  
2014
   $ 496  
2015
   $ 479  


NOTE H – FINANCIAL INSTRUMENTS

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

Investing Results
 
In millions
  
Three Months Ended
March 31, 2010
Proceeds from sales of available-for-sale securities
   $ 320  
Gross realized gains
   $ 13  
Gross realized losses
   $ (1 )



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

Contractual Maturities of Debt Securities
at March 31, 2010
  
In millions
  
Amortized Cost
    
Fair Value
  
Within one year
   $ 43     $ 43  
One to five years
     615       657  
Six to ten years
     582       610  
After ten years
     273       288  
Total
   $ 1,513     $ 1,598  

At March 31, 2010, the Company had $400 million of held-to-maturity securities (primarily Treasury Bills) classified as cash equivalents, as these securities had original maturities of three months or less. At December 31, 2009, the amount held was zero. The Company’s investments in held-to-maturity securities are held at amortized cost, which approximates fair value. At March 31, 2010, the Company had investments in money market funds of $73 million classified as cash equivalents ($164 million at December 31, 2009).

The net unrealized gain recognized during the first quarter of 2010 on trading securities held at March 31, 2010 was $7 million.

The following tables provide the fair value and gross unrealized losses of the Company’s investments that were deemed to be temporarily impaired at March 31, 2010 and December 31, 2009, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

Temporarily Impaired Securities at March 31, 2010
  
   
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
   $ 222     $ (2 )     -       -     $ 222     $ (2 )
Corporate bonds
     51       (1 )   $ 8     $ (1 )     59       (2 )
Total debt securities
   $ 273     $ (3 )   $ 8     $ (1 )   $ 281     $ (4 )
Equity securities
     82       (3 )     1       -       83       (3 )
Total temporarily impaired securities
   $ 355     $ (6 )   $ 9     $ (1 )   $ 364     $ (7 )


Temporarily Impaired Securities at December 31, 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
   $ 217     $ (4 )     -       -     $ 217     $ (4 )
Corporate bonds
     27       (1 )   $ 13     $ (1 )     40       (2 )
Total debt securities
   $ 244     $ (5 )   $ 13     $ (1 )   $ 257     $ (6 )
Equity securities
     40       (2 )     7       (1 )     47       (3 )
Total temporarily impaired securities
   $ 284     $ (7 )   $ 20     $ (2 )   $ 304     $ (9 )

Portfolio managers regularly review the Company’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of a 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 first quarter of 2010.

For equity securities, the Company’s investments are primarily in Standard & Poor’s (“S&P”) 500 companies; however, the Company’s policies 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 an S&P sector or subset. 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 whether unrealized losses represent an other-than-temporary impairment. In the first quarter of 2010, other-than-temporary impairment write-downs on investments still held by the Company were zero.

The aggregate cost of the Company’s cost method investments totaled $119 million at March 31, 2010 and $129 million at December 31, 2009. Due to the nature of these investments, the fair market value is not readily determinable. These investments are reviewed for impairment indicators. At March 31, 2010, the Company’s impairment analysis identified indicators which resulted in a reduction in the cost basis of these investments of $15 million.

The following table summarizes the fair value of financial instruments at March 31, 2010 and December 31, 2009:

Fair Value of Financial Instruments
  
   
At March 31, 2010
    
At December 31, 2009
  
In millions
  
Cost
    
Gain
    
Loss
    
Fair Value
    
Cost
    
Gain
    
Loss
    
Fair Value
  
Marketable securities (1):
                                                
Debt securities:
                                                
U.S. Treasury obligations and direct obligations of U.S. government agencies
   $ 669     $ 28     $ (2 )   $ 695     $ 676     $ 25     $ (4 )   $ 697  
Corporate bonds
     844       61       (2 )     903       868       56       (2 )     922  
Total debt securities
   $ 1,513     $ 89     $ (4 )   $ 1,598     $ 1,544     $ 81     $ (6 )   $ 1,619  
Equity securities
     485       68       (3 )     550       455       65       (3 )     517  
Total marketable securities
   $ 1,998     $ 157     $ (7 )   $ 2,148     $ 1,999     $ 146     $ (9 )   $ 2,136  
Long-term debt including debt due within one year (2)
   $ (20,608 )   $ 136     $ (2,057 )   $ (22,529 )   $ (20,234 )   $ 126     $ (1,794 )   $ (21,902 )
Derivatives relating to:
                                                                
Foreign currency
     -     $ 51     $ (38 )   $ 13       -     $ 81     $ (20 )   $ 61  
Commodities
     -     $ 15     $ (4 )   $ 11       -     $ 5     $ (18 )   $ (13 )
(1) Included in “Other investments” in the consolidated balance sheets.
  
(2) Cost includes fair value adjustments of $25 million at March 31, 2010 and December 31, 2009.
  

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 where appropriate. The guidance requires companies to recognize all derivative instruments as either assets or liabilities at fair value. 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. 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 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 2010. No significant concentration of credit risk existed at March 31, 2010.

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 March 31, 2010, the Company had open interest rate swaps with maturity dates prior to 2012.

Foreign Currency Risk Management
The Company’s global operations require active participation in foreign exchange markets. The Company enters into foreign exchange forward contracts and options, and cross-currency swaps to hedge various currency exposures or create desired exposures. Exposures primarily relate to assets, liabilities and bonds denominated in foreign currencies, as well as economic exposure, which is derived from the risk that currency fluctuations could affect the dollar value of future cash flows related to operating activities. The primary business objective of the activity is to optimize the U.S. dollar value of the Company’s assets, liabilities and future cash flows with respect to exchange rate fluctuations. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. At March 31, 2010, the Company had forward contracts, options and cross-currency swaps to buy, sell or exchange foreign currencies. These contracts had various expiration dates, primarily in the second quarter of 2010.

Commodity Risk Management
The Company has exposure to the prices of commodities in its procurement of certain raw materials. The primary purpose of commodity hedging activities is to manage the price volatility associated with these forecasted inventory purchases. At March 31, 2010, the Company had futures contracts, options and swaps to buy, sell or exchange commodities. These agreements had various expiration dates through 2011.

Accounting for Derivative Instruments and Hedging Activities
Cash Flow Hedges
For derivatives that are designated and qualify as cash flow hedging instruments, the effective portion of the gain or loss on the derivative is recorded in “Accumulated other comprehensive income (loss)” (“AOCI”); it is reclassified to “Cost of sales” in the same period or periods that the hedged transaction affects income. The unrealized amounts in AOCI fluctuate based on changes in the fair value of open contracts at the end of each reporting period. The Company anticipates volatility in AOCI and net income from its cash flow hedges. The amount of volatility varies with the level of derivative activities and market conditions during any period. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period income.

The net loss from previously terminated interest rate cash flow hedges included in AOCI at March 31, 2010 was $2 million after tax ($2 million after tax at December 31, 2009). The Company had open interest rate derivatives with a notional U.S. dollar equivalent of $29 million at March 31, 2010 ($30 million at December 31, 2009).


 
Current open foreign currency forward contracts hedge forecasted transactions until November 2010. The effective portion of the mark-to-market effects of the foreign currency forward contracts is recorded in AOCI; it is reclassified to income in the same period or periods that the underlying feedstock purchase affects income. The net gain from the foreign currency hedges included in AOCI at March 31, 2010 was $11 million after tax (net loss of $5 million after tax at December 31, 2009). At March 31, 2010, the Company had open forward contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of $1,354 million ($645 million at December 31, 2009).

Commodity swaps, futures and option contracts with maturities of not more than 36 months are utilized and designated as cash flow hedges of forecasted commodity purchases. Current open contracts hedge forecasted transactions until December 2011. The effective portion of the mark-to-market effect of the cash flow hedge instrument is recorded in AOCI; it is reclassified to income in the same period or periods that the underlying commodity purchase affects income. The net gain/loss from commodity hedges included in AOCI was zero at March 31, 2010 and December 31, 2009. At March 31, 2010 and December 31, 2009, the Company had the following aggregate notionals of outstanding commodity forward contracts to hedge forecasted purchases:

Commodity
  
March 31, 2010
    
Dec. 31, 2009
  
Notional Volume Unit
Crude Oil
     -       0.7  
million barrels
Ethane
     2.2       -  
million barrels
Naphtha
     -       50  
kilotons
Natural Gas
     -       2.0  
million million British thermal units

Fair Value Hedges
For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current period income and reflected as “Interest expense and amortization of debt discount” in the consolidated statements of income. The short-cut method is used when the criteria are met. The Company had no open interest rate swaps designated as fair value hedges of underlying fixed rate debt obligations at March 31, 2010 and December 31, 2009.

Net Foreign Investment Hedges
For derivative instruments that are designated and qualify as net foreign investment hedges, the effective portion of the gain or loss on the derivative is included in “Cumulative Translation Adjustments” in AOCI. The results of hedges of the Company’s net investment in foreign operations included in “Cumulative Translation Adjustments” in AOCI was a net gain of $71 million after tax at March 31, 2010 (net loss of $56 million after tax at December 31, 2009). At March 31, 2010, the Company had open forward contracts or outstanding options to buy, sell or exchange foreign currencies that were designated as net foreign investment hedges with second quarter 2010 expiration dates with a notional U.S. dollar equivalent of $281 million (zero at December 31, 2009). At March 31, 2010, the Company had outstanding foreign-currency denominated debt designated as a hedge of net foreign investment of $1,762 million ($1,879 million at December 31, 2009).

Other Derivative Instruments
The Company utilizes futures, options and swap instruments that are effective as economic hedges of commodity price exposures, but do not meet the hedge accounting criteria in the accounting guidance for derivatives and hedging. At March 31, 2010 and December 31, 2009, the Company had the following aggregate notionals of outstanding commodity contracts:

Commodity
  
March 31, 2010
    
Dec. 31, 2009
  
Notional Volume Unit
Ethane
     3.7       0.9  
million barrels
Ethylene
     0.4       -  
million pounds
Natural Gas
     10.5       2.8  
million million British thermal units



The Company also uses foreign exchange forward contracts, options, and cross-currency swaps that are not designated as hedging instruments primarily to manage foreign currency and interest rate exposure. The Company had open foreign exchange contracts with various expiration dates to buy, sell or exchange foreign currencies with a U.S. dollar equivalent of $15,281 million at March 31, 2010 ($15,312 million at December 31, 2009).

The following table provides the fair value and gross balance sheet classification of derivative instruments at March 31, 2010 and December 31, 2009:

Fair Value of Derivative Instruments
In millions
Balance Sheet Classification
  
March 31,
2010
    
Dec. 31,
2009
  
Asset Derivatives
              
Derivatives designated as hedges:
              
Foreign currency
Accounts and notes receivable – Other
   $ 29     $ 4  
Commodities
Accounts and notes receivable – Other
     12       4  
Total derivatives designated as hedges
     $ 41     $ 8  
Derivatives not designated as hedges:
                  
Foreign currency
Accounts and notes receivable – Other
   $ 77     $ 125  
Commodities
Accounts and notes receivable – Other
     16       28  
Total derivatives not designated as hedges
     $ 93     $ 153  
Total asset derivatives
     $ 134     $ 161  
Liability Derivatives
                  
Derivatives designated as hedges:
                  
Foreign currency
Accounts payable – Other
   $ 22     $ 3  
Commodities
Accounts payable – Other
     11       -  
Total derivatives designated as hedges
     $ 33     $ 3  
Derivatives not designated as hedges:
                  
Foreign currency
Accounts payable – Other
   $ 71     $ 65  
Commodities
Accounts payable – Other
     13       42  
Total derivatives not designated as hedges
     $ 84     $ 107  
Total liability derivatives
     $ 117     $ 110  

 

Effect of Derivative Instruments for the
three months ended March 31, 2010
 
In millions
  
Change in Unrealized
Gain (Loss)
in AOCI (1,2)
  
Income Statement Classification
    
Loss
Reclassified
from AOCI to Income (3)
  
Additional
 Gain (Loss) Recognized in Income (3,4)
Derivatives designated as hedges:
                        
Cash flow:
                        
Commodities
   $ (4 )  
Cost of sales
     $ (2 )     -  
Foreign currency
     10    
Cost of sales
       (6 )     -  
Net foreign investment:
                              
Foreign currency
     (3 )    n/a       -       -  
Total derivatives designated as hedges
   $ 3             $ (8 )     -  
Derivatives not designated as hedges:
                                
Foreign currency (5)
     -    
Sundry income (expense) – net
       -     $ 99  
Commodities
     -    
Cost of sales
       -       (1 )
Total derivatives not designated as hedges
     -               -     $ 98  
Total derivatives
   $ 3             $ (8 )   $ 98  


Effect of Derivative Instruments for the
three months ended March 31, 2009
 
In millions
  
Change in Unrealized
Loss in AOCI
(1,2)
  
Income Statement Classification
    
Gain (Loss) Reclassified
from AOCI to Income (3)
  
Additional Loss Recognized in Income (3,4)
Derivatives designated as hedges:
                        
Cash flow:
                        
Interest rates
     -    
Cost of sales
     $ (3 )     -  
Commodities
   $ (5 )  
Cost of sales
       (187 )   $ (1 )
Foreign currency
     (10 )  
Cost of sales
       11       -  
Net foreign investment:
                              
Foreign currency
     (3 )    n/a       -       -  
Total derivatives designated as hedges
   $ (18 )           $ (179 )   $ (1 )
Derivatives not designated as hedges:
                                
Foreign currency (5)
     -    
Sundry income (expense) – net
       -     $ (94 )
Commodities
     -    
Cost of sales
       -       (1 )