Dow Chemical 2013 Annual Report Download - page 55

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Polypropylene business, divested on September 30, 2011, and Dow Haltermann, divested during 2011. Excluding these
divestitures, volume increased 1 percent. Volume improved or remained flat in all operating segments except Feedstocks and
Energy (down 3 percent) and Electronic and Functional Materials (down 1 percent), with the most pronounced increase in
Agricultural Sciences (up 10 percent). Volume increased in Asia Pacific (up 3 percent) and EMEA (up 1 percent), remained
unchanged in North America, and declined in Latin America (down 1 percent). See Note 5 to the Consolidated Financial
Statements for additional information concerning the Company's divestitures.
Sales in the United States accounted for 33 percent of total sales in 2013 and 32 percent of total sales in 2012 and 2011. See the
Sales Price and Volume tables at the end of the section titled “Segment Results” for details regarding the change in sales by
operating segment and geographic area. In addition, sales and other information by operating segment and geographic area are
provided in Note 24 to the Consolidated Financial Statements.
Gross Margin
Gross margin was $9.5 billion in 2013, and $9.0 billion in 2012 and 2011. Gross margin in 2013 was positively impacted by
higher selling prices, lower turnaround costs, and lower expenses resulting from the 2012 restructuring activities which more
than offset a $319 million increase in purchased feedstock and energy costs and increased performance-based compensation
costs. Gross margin in 2013 was reduced by $181 million for asset impairments and related costs, including the shutdown of
manufacturing facilities, in the Chlor-Alkali/Chlor-Vinyl business, Dow Building and Construction business, Dow Formulated
Systems business, Dow Plastics Additives business, Epoxy business and Corporate. The asset impairments and related costs
were reflected in the following segments: Coatings and Infrastructure Solutions ($61 million), Performance Materials ($38
million), Feedstocks and Energy ($66 million) and Corporate ($16 million). Gross margin in 2013 was also reduced by $40
million in implementation costs related to the Company's restructuring programs (reflected in Corporate). See Note 11 to the
Consolidated Financial Statements for additional information regarding the asset impairments.
Gross margin was $9.0 billion in 2012 and 2011. Gross margin in 2012 was flat compared with the prior year as a decline in
selling prices and decreased volume was offset by a $2.5 billion decrease in purchased feedstock and energy costs and the
favorable impact of currency on costs. Gross margin was also favorably impacted by the recovery of previously expensed
product liability claims, pursuant to an Insurance Allocation Agreement with Dow Corning.
Gross margin in 2011 was positively impacted by higher selling prices, which more than offset a $4.3 billion increase in
purchased feedstock and energy costs, lower operating rates, increases in other raw material costs and the unfavorable impact of
currency on costs. In 2011, gross margin was reduced by $77 million in asset impairments and related costs, including
environmental costs, in the Polyurethanes business (reflected in Performance Materials) and a $60 million warranty accrual
adjustment related to an exited business (reflected in Coatings and Infrastructure Solutions). See Environmental Matters in
Management's Discussion and Analysis of Financial Condition and Results of Operations; and Note 11 to the Consolidated
Financial Statements for additional information concerning these matters.
Operating Rate
Dow's global plant operating rate was 81 percent of capacity in 2013 and 2012 and 80 percent in 2011. Operating rates
remained flat in 2013 compared with the prior year. In 2012, operating rates increased from 2011 due to actions taken by
management to rationalize capacity through shutdowns contributing to the improvement.
Personnel Count
Personnel count was 52,731 at December 31, 2013, down from 54,353 at December 31, 2012. Headcount decreased from year
end 2012 due primarily to the Company's 2012 restructuring programs. Personnel count at December 31, 2012 increased from
51,705 at December 31, 201l due to growth initiatives and the inclusion of 1,946 seasonal employees in the Agricultural
Sciences operating segment as part of the Company's personnel count. This increase was partially offset by decreases related to
the 2012 restructuring programs.
Research and Development Expenses
Research and development (“R&D”) expenses were $1,747 million in 2013, compared with $1,708 million in 2012 and
$1,646 million in 2011. In 2013 and 2012, R&D expense increased largely due to higher spending on strategic growth
initiatives in Agricultural Sciences. In 2013, R&D expenses were also impacted by increased performance-based compensation
costs and $2 million of implementation costs related to the Company's restructuring programs (reflected in Corporate).
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $3,024 million in 2013, compared with $2,861 million in 2012
and $2,788 million in 2011. In 2013, SG&A expenses increased 6 percent from 2012, primarily due to increased performance-
based compensation costs and increased spending on growth initiatives in Agricultural Sciences. In 2012, SG&A expenses