Dow Chemical 2009 Annual Report Download - page 65

Table of Contents
Research and development (“R&D”) expenses were $1,492 million in 2009 compared with $1,310 million in 2008 and $1,305 million in 2007. R&D
expenses were up 14 percent compared with 2008, due to the acquisition of Rohm and Haas and strategic growth initiatives at Dow AgroSciences, partially
offset by cost savings initiatives. The increase in R&D expenses in 2008 versus 2007 was primarily due to planned spending for growth initiatives in the
Performance businesses and the addition of R&D expenses related to new acquisitions.
Selling, general and administrative (“SG&A”) expenses were $2,487 million in 2009 compared with $1,966 million in 2008 and $1,861 million in
2007. SG&A expenses increased 27 percent in 2009 due primarily to the acquisition of Rohm and Haas, partially offset by cost savings initiatives. The
increase in SG&A expenses in 2008 versus 2007 was primarily due to planned spending for growth initiatives in the Performance businesses, such as product
launches and advertising, and the addition of SG&A expenses related to new acquisitions.
The following table illustrates the relative size of the primary components of total production costs and operating expenses of Dow. More information about
each of these components can be found in other sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations, Notes
to the Consolidated Financial Statements, and Part II, Item 6. Selected Financial Data.
Production Costs and Operating Expenses
Cost components as a percent of total 2009 2008 2007
Hydrocarbon feedstocks and energy 35% 48% 49%
Salaries, wages and employee benefits 15 10 11
Maintenance 3 3 3
Depreciation 5 4 4
Restructuring charges 2 1 1
Supplies, services and other raw materials 40 34 32
Total 100% 100% 100%
Amortization of intangibles was $399 million in 2009, $92 million in 2008 and $72 million in 2007. The increase in amortization of intangibles in 2009
reflected the impact of the amortization of the fair value of intangibles acquired from Rohm and Haas. Amortization of intangibles was up in 2008 compared to
2007 due to several small acquisitions in 2007. See Notes D and I to the Consolidated Financial Statements for additional information regarding the acquisition
of Rohm and Haas and goodwill and other intangible assets.
During the fourth quarter of 2009, the Company performed its annual impairment tests for goodwill. It was determined that goodwill associated with the
Dow Haltermann business unit was impaired. The impairment was based on a review performed by management in which discounted cash flows did not
support the carrying value of the goodwill. As a result, the Company recorded a pretax goodwill impairment loss of $7 million, impacting the Performance
Products segment. During the fourth quarter of 2008, the Company performed its annual impairment tests for goodwill. It was determined that goodwill
associated with the Automotive Systems and Polypropylene reporting units was impaired. The impairment was based on a review performed by management
in which discounted cash flows did not support the carrying value of the goodwill. The Company recorded pretax charges totaling $239 million for goodwill
impairment losses including $209 million for the Automotive Systems reporting unit (impacting the Performance Systems segment) and $30 million for the
Polypropylene reporting unit (impacting the Basic Plastics segment). See Note I to the Consolidated Financial Statements for additional information regarding
goodwill.
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