Dow Chemical 2013 Annual Report Download - page 57

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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 ("Dow Kokam")
long-lived assets and a global workforce reduction. These actions are expected to be completed primarily by March 31, 2015.
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
(credits)" 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.
During the fourth quarter of 2013, the Company recognized a pretax gain of $16 million for adjustments to asbestos abatement
costs and contract cancellation fees related to the 1Q12 Restructuring plan and a $6 million pretax gain for adjustments to
contract cancellation fees related to the 4Q12 Restructuring plan. These gains were included in "Restructuring charges
(credits)" in the consolidated statements of income and reflected in Performance Materials ($15 million), Performance Plastics
($6 million) and Coatings and Infrastructure Solutions ($1 million). See Note 3 to the Consolidated Financial Statements for
details on the restructuring charges.
Acquisition-related Integration Expenses
Charges totaling $31 million in 2011 were recorded for integration costs, legal expenses and other transaction costs related to
the acquisition of Rohm and Haas. These charges were shown as "Acquisition-related integration expenses" in the consolidated
statements of income and reflected in Corporate.
Equity in Earnings of Nonconsolidated Affiliates
Dow’s share of the earnings of nonconsolidated affiliates in 2013 was $1,034 million, compared with $536 million in 2012 and
$1,223 million in 2011. In 2013, equity earnings increased primarily due to increased earnings at Dow Corning Corporation
("Dow Corning"), EQUATE Petrochemical Company K.S.C., The Kuwait Sytrene Company K.S.C. and MEGlobal as well as
improved results from The SCG-Dow Group, Sadara and Map Ta Phut Olefins Company Limited. Equity earnings for 2013
also include a $10 million loss related to asset impairment charges at a formulated electrolytes manufacturing joint venture
(reflected in Corporate). In 2012, equity earnings decreased primarily due to lower earnings at Dow Corning, MEGlobal and
The SCG-Dow Group as well as equity losses from Sadara equal to the Company's share of development expenses. Equity
earnings for 2012 also include a $73 million loss related to project development and other costs associated with the contribution
of development costs to Sadara (reflected in Corporate).
The Company's share of equity earnings from Dow Corning decreased substantially in 2012 compared with 2011, primarily due
to weakness in the silicon value chain. During 2012, Dow Corning's sales of solar-grade polycrystalline silicon products
declined, driven by depressed prices and declining sales volumes that resulted from the July 2012 Chinese Ministry of
Commerce ("MOFCOM") antidumping and countervailing duty investigations of U.S. and Korean-based solar-grade
polycrystalline silicon products. In response to these market conditions, Dow Corning recorded an impairment charge in the
fourth quarter of 2012 related to the abandonment of a partially constructed polycrystalline silicon plant expansion. The
Company's share of this charge was $59 million. Dow Corning also delayed the start-up of another polycrystalline plant
expansion, pending market condition improvements. Furthermore, Dow Corning initiated restructuring actions in the fourth
quarter of 2012, including workforce reductions and asset impairments of which Dow's share of the charge was approximately
$30 million. During the fourth quarter of 2012, Dow Corning conducted impairment testing of its polycrystalline silicon
business. The estimate of undiscounted cash flows indicated the polycrystalline silicon asset group was expected to be
recovered.
During 2013, Dow Corning evaluated its polycrystalline silicon asset group for impairment, in response to a preliminary
determination and imposed provisional antidumping and countervailing duties by MOFCOM. Dow Corning’s estimate of future
undiscounted cash flows continued to indicate the polycrystalline silicon asset group is recoverable. However, due to continued
pricing deterioration, ongoing oversupply in the market and other adverse conditions that result in non-performance by
customers under long-term contracts, it is reasonably possible that the estimate of undiscounted cash flows could change in the
near term, resulting in the write-down of assets to fair value. If an asset impairment is recorded at Dow Corning related to the
polycrystalline silicon asset group, the maximum potential after-tax impact to Dow is estimated to be approximately $930
million.
Equity earnings for 2011 included an $86 million gain related to cash collected on a previously impaired note receivable related
to Equipolymers (reflected in Performance Plastics). See Note 8 to the Consolidated Financial Statements for additional
information on nonconsolidated affiliates.