Dow Chemical 2012 Annual Report Download - page 55

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Price was down 3 percent compared with 2011, with currency representing more than 60 percent of the price decline. Price
was also impacted by weaker demand and a decrease in feedstock and energy costs. The Company's purchased feedstock and
energy costs were $2.5 billion lower than 2011, a decrease of 11 percent. Price declines were reported in all segments except
Agricultural Sciences (up 3 percent).
Volume declined 2 percent due to the impact from recent divestitures(1). Excluding this impact, volume was up 1 percent
with gains in Asia Pacific and Europe, Middle East and Africa ("EMEA"). Volume in North America remained flat primarily
due to the impact of shutdowns of vinyl chloride monomer manufacturing facilities, while Latin America reported a volume
decline.
Dow continued its strategy of investing in science-based innovation and technology integration. Research and development
(“R&D”) expenses for the year were $1.7 billion, an increase of 4 percent compared with 2011. Selling, general and
administrative (“SG&A”) expenses were $2.9 billion, an increase of 3 percent compared with 2011. The increase in R&D and
SG&A expenses was primarily due to growth initiatives in Agricultural Sciences, which reported sales and EBITDA(2) records
in 2012.
In 2012, the Company recorded a pretax goodwill impairment loss of $220 million, the total amount of goodwill carried by
the Dow Formulated Systems reporting unit.
The Company's Board of Directors approved two restructuring plans to optimize the Company's portfolio and to address
macroeconomic uncertainties. The restructuring plans, approved in the first and fourth quarters of 2012, will accelerate the
Company's structural cost reduction program and will affect approximately 3,750 positions and result in the shut down or idling
of nearly 30 manufacturing facilities. These actions are necessary to manage the Company's earnings growth in volatile and
challenging economic conditions. These restructuring charges totaled more than $1.3 billion in 2012.
Dow's earnings from nonconsolidated affiliates totaled $536 million in 2012, down from $1.2 billion in 2011. Dow
Corning Corporation ("Dow Corning") represented the largest decline in equity earnings primarily due to ongoing weakness in
the polycrystalline silicon value chain.
The Company delivered $4.1 billion of cash from operating activities in 2012 and ended the year with $4.3 billion of cash
and cash equivalents. Interest expense declined $72 million from 2011 as the Company reported a $613 million reduction in
gross debt in 2012.
During 2012, Dow demonstrated its clear focus on execution, implementing its stated strategy and maintaining financial
flexibility despite challenging economic conditions. The year was shaped by a number of significant events and progress made
on growth investments. Actions taken during 2012 included:
• The Company generated nearly $8 billion of cash flow from operations in the two-year period ended December 31, 2012,
in-line with the Company's stated goal despite uncertain times.
• Dow's Board of Directors increased the dividend from $0.25 per common share to $0.32 per common share in the second
quarter of 2012, a 28 percent increase. The Company declared dividends of $1.21 per share in 2012 compared with $0.90
per share in 2011, an increase of 34 percent.
• During 2012, Dow continued to take advantage of favorable shale gas dynamics in the United States and achieved a major
milestone in its U.S. Gulf Coast investment strategy. The Company restarted an ethylene cracker in St. Charles, Louisiana
in December - an action that is expected to reduce the Company's ethylene purchases by nearly half in the region. The
Company also announced its intent to build a new, on-purpose propylene production facility and a new, world-scale
ethylene production facility in Freeport, Texas.
• Dow's other major feedstock investment - Sadara Chemical Company ("Sadara"), the Company's joint venture with Saudi
Arabian Oil Company in the Middle East, also remains on track. Great strides were made during 2012, as front-end
engineering and design work was completed, the Product Marketing and Lifting Agreements were signed and construction
was well underway by year end.
(1) The Polypropylene business was divested on September 30, 2011 and Dow Haltermann was divested during 2011.
(2) EBITDA is defined as earnings (i.e., "Net Income") before interest, taxes, depreciation and amortization. See Note 24 to the
Consolidated Financial Statements for a reconciliation of EBITDA to "Income Before Income Taxes."