Dow Chemical 2014 Annual Report Download - page 58

34
Net sales for 2013 were $57.1 billion, up 1 percent from $56.8 billion in 2012, with price up 1 percent and volume flat. Price
increases in Agricultural Sciences, Performance Materials & Chemicals and Performance Plastics (each up 1 percent) more than
offset price declines in Consumer Solutions (down 2 percent) and Infrastructure Solutions (down 1 percent). Price increased in
North America and Latin America (both up 2 percent), which more than offset a decline in Asia Pacific (down 2 percent). Price
in EMEAI remained flat. Volume was mixed by operating segment with increases in Agricultural Sciences (up 11 percent),
Infrastructure Solutions (up 4 percent) and Consumer Solutions (up 3 percent) offset by volume declines in Performance
Plastics (down 4 percent) and Performance Materials & Chemicals (down 2 percent). Excluding the impact of recent
divestitures, Performance Plastics volume was down 3 percent. Volume increased in Latin America (up 8 percent), Asia Pacific
(up 3 percent) and North America (up 1 percent), which was offset by a decline in EMEAI (down 4 percent).
Sales in the United States accounted for 33 percent of total sales in 2014, 33 percent of total sales in 2013 and 32 percent of
total sales in 2012. See the Sales Volume and Price tables at the beginning 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 25 to the Consolidated Financial Statements.
Gross Margin
Gross margin was $10.7 billion in 2014, $9.5 billion in 2013 and $9.0 billion in 2012. Gross margin in 2014 was positively
impacted by increased sales volume, a $392 million decrease in purchased feedstock and energy costs, lower other raw material
costs and increased operating rates. Gross margin in 2014 was reduced by a $100 million warranty accrual adjustment related to
an exited business (reflected in Infrastructure Solutions) and by $23 million for asset impairments related to the Dow Electronic
Materials business (reflected in Consumer Solutions). See Notes 11 and 14 to the Consolidated Financial Statements for
additional information regarding these items.
Gross margin was $9.5 billion in 2013 and $9.0 billion in 2012. Gross margin in 2013 was positively impacted by higher selling
prices, lower maintenance 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 and Vinyl business, Energy & Water Solutions business, Polyurethanes business,
Performance Monomers business, Epoxy business and Corporate. The asset impairments and related costs were reflected in the
following segments: Infrastructure Solutions ($95 million), Performance Materials & Chemicals ($70 million) and Corporate
($16 million). Gross margin in 2013 was also reduced by $40 million in implementation costs related to the Company's 2012
Restructuring programs (reflected in Corporate). See Note 11 to the Consolidated Financial Statements for additional
information regarding these asset impairments.
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 positively impacted by the recovery of previously expensed product liability claims, pursuant to an Insurance Allocation
Agreement with Dow Corning.
Operating Rate
Dow's global plant operating rate was 85 percent of capacity in 2014, compared with 81 percent in 2013 and 2012. Operating
rates improved in 2014 primarily due to increased demand and actions taken by management to increase asset utilization.
Operating rates remained flat in 2013 compared with the prior year.
Personnel Count
Personnel count was 53,216 at December 31, 2014, up from 52,731 at December 31, 2013. Headcount increased in 2014 as
hiring to support the Company's growth initiatives more than offset declines due to the Company's 2012 Restructuring
programs. Personnel count at December 31, 2013, decreased from 54,353 at December 31, 2012, due primarily to the 2012
Restructuring programs.
Research and Development Expenses
Research and development (“R&D”) expenses were $1,647 million in 2014, compared with $1,747 million in 2013 and
$1,708 million in 2012. R&D expenses decreased 6 percent in 2014 primarily due to cost reduction initiatives, notably in
Performance Materials & Chemicals. In 2013, 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).