Dow Chemical 2012 Annual Report Download - page 59

33
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, and Notes to the Consolidated Financial Statements.
Production Costs and Operating Expenses
Cost components as a percent of total 2012 2011 2010
Hydrocarbon feedstocks and energy 37% 42% 41%
Salaries, wages and employee benefits 13 13 14
Maintenance 444
Depreciation 445
Restructuring charges 3——
Supplies, services and other raw materials 39 37 36
Total 100% 100% 100%
Amortization of intangibles was $478 million in 2012, $496 million in 2011 and $509 million in 2010. See Note 9 to the
Consolidated Financial Statements for additional information regarding goodwill and other intangible assets.
The Company performs annual goodwill impairment tests during the fourth quarter of the year. During the fourth quarter
of 2012, the Company performed qualitative testing for 11 of the 20 reporting units carrying goodwill. The qualitative
assessment indicated that it was more likely than not that the fair value exceeded carrying value for those reporting units. The
Company performed the first step of the quantitative testing for the remaining 9 reporting units. The Company utilized a
discounted cash flow methodology to calculate the fair value of the reporting units. Based on the fair value analysis,
management concluded that fair value exceeded carrying value for all reporting units except the Dow Formulated Systems
reporting unit. Management completed the second step of the quantitative test for Dow Formulated Systems which compared
the implied fair value of the reporting unit's goodwill to the carrying value. As a result of this test, the Company recorded an
impairment loss of $220 million in the fourth quarter of 2012, which is included in "Goodwill impairment loss" in the
consolidated statements of income and reflected in Performance Materials. The goodwill impairment loss represents the total
amount of goodwill carried by the Dow Formulated Systems reporting unit.
During the fourth quarter of 2011, the Company performed qualitative testing for all reporting units carrying goodwill. As
a result of this testing, no goodwill impairments were identified. During the fourth quarter of 2010, no impairment indicators
related to the carrying value of goodwill were identified. See Critical Accounting Policies in Other Matters in Management's
Discussion and Analysis of Financial Condition and Results of Operations and Note 9 to the Consolidated Financial Statements
for additional information regarding goodwill and the impairment tests conducted in each year.
On March 27, 2012, the Company's Board of Directors approved a restructuring plan ("1Q12 Restructuring") as part of a
series of actions to optimize its portfolio, respond to changing and volatile economic conditions, particularly in Western
Europe, and to advance the Company's Efficiency for Growth program, which was initiated by the Company in the second
quarter of 2011. The 1Q12 Restructuring plan included the shutdown of a number of facilities and a global workforce
reduction. These actions are expected to be completed primarily by December 31, 2013. As a result of the 1Q12 Restructuring
activities, the Company recorded pretax restructuring charges of $357 million in the first quarter of 2012 consisting of costs
associated with exit and disposal activities of $150 million, severance costs of $113 million and asset write-downs and write-
offs of $94 million. The impact of these charges is shown as "Restructuring charges" in the consolidated statements of income
and reflected in the Company's segment results as follows: $17 million in Electronic and Functional Materials, $41 million in
Coatings and Infrastructure Solutions, $186 million in Performance Materials and $113 million in Corporate. During the fourth
quarter of 2012, the Company recorded a favorable adjustment to the 1Q12 Restructuring charge related to the impairment of
long-lived assets and other assets of $4 million, impacting the Coatings and Infrastructure Solutions segment.
On October 23, 2012, the Company's Board of Directors approved a restructuring plan ("4Q12 Restructuring") to advance
the next stage of the Company's transformation and to address macroeconomic uncertainties. The restructuring plan included
the shutdown of a number of facilities, an impairment charge related to the write-down of Dow Kokam LLC's long-lived assets
and a global workforce reduction. These actions are expected to be completed during the next two years. As a result of the
4Q12 Restructuring activities, the Company recorded pretax restructuring charges of $990 million in the fourth quarter of 2012
consisting of costs associated with exit or disposal activities of $39 million, severance costs of $375 million and asset write-
downs and write-offs of $576 million. The impact of these charges is shown as "Restructuring charges" in the consolidated
statements of income and reflected in the Company's segments results as follows: $48 million in Electronic and Functional
Materials, $16 million in Coatings and Infrastructure Solutions, $192 million in Performance Materials, $26 million in
Performance Plastics, $7 million in Feedstocks and Energy and $701 million in Corporate.