GOODWILL AND OTHER INTANGIBLE ASSETS
The following tables show changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012, by operating segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
2013 Goodwill | Electronic and Functional Materials |
| | Coatings and Infrastructure Solutions |
| | Ag Sciences |
| | Perf Materials |
| | Perf Plastics |
| | Feedstocks and Energy |
| | Total |
|
In millions | | | | | | |
Gross goodwill at Jan 1, 2013 | $ | 4,945 |
| | $ | 4,052 |
| | $ | 1,558 |
| | $ | 1,169 |
| | $ | 1,381 |
| | $ | 63 |
| | $ | 13,168 |
|
Accumulated impairments at Jan 1, 2013 | — |
| | — |
| | — |
| | (429 | ) | | — |
| | — |
| | (429 | ) |
Net goodwill at Jan 1, 2013 | $ | 4,945 |
| | $ | 4,052 |
| | $ | 1,558 |
| | $ | 740 |
| | $ | 1,381 |
| | $ | 63 |
| | $ | 12,739 |
|
Acquisition of a seed company | — |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
Sale of Dow Plastics Additives product line | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) |
Foreign currency impact | 18 |
| | 24 |
| | — |
| | 1 |
| | 14 |
| | — |
| | 57 |
|
Net goodwill at Dec 31, 2013 | $ | 4,963 |
| | $ | 4,076 |
| | $ | 1,563 |
| | $ | 738 |
| | $ | 1,395 |
| | $ | 63 |
| | $ | 12,798 |
|
Accumulated impairments at Dec 31, 2013 | — |
| | — |
| | — |
| | 429 |
| | — |
| | — |
| | 429 |
|
Gross goodwill at Dec 31, 2013 | $ | 4,963 |
| | $ | 4,076 |
| | $ | 1,563 |
| | $ | 1,167 |
| | $ | 1,395 |
| | $ | 63 |
| | $ | 13,227 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 Goodwill | Electronic and Functional Materials |
| | Coatings and Infrastructure Solutions |
| | Ag Sciences |
| | Perf Materials |
| | Perf Plastics |
| | Feedstocks and Energy |
| | Total |
|
In millions | | | | | | |
Gross goodwill at Jan 1, 2012 | $ | 4,934 |
| | $ | 4,041 |
| | $ | 1,558 |
| | $ | 1,168 |
| | $ | 1,375 |
| | $ | 63 |
| | $ | 13,139 |
|
Accumulated impairments at Jan 1, 2012 | — |
| | — |
| | — |
| | (209 | ) | | — |
| | — |
| | (209 | ) |
Net goodwill at Jan 1, 2012 | $ | 4,934 |
| | $ | 4,041 |
| | $ | 1,558 |
| | $ | 959 |
| | $ | 1,375 |
| | $ | 63 |
| | $ | 12,930 |
|
Lightscape Materials, Inc | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Goodwill impairment | — |
| | — |
| | — |
| | (220 | ) | | — |
| | — |
| | (220 | ) |
Foreign currency impact | 8 |
| | 11 |
| | — |
| | 1 |
| | 6 |
| | — |
| | 26 |
|
Net goodwill at Dec 31, 2012 | $ | 4,945 |
| | $ | 4,052 |
| | $ | 1,558 |
| | $ | 740 |
| | $ | 1,381 |
| | $ | 63 |
| | $ | 12,739 |
|
Accumulated impairments at Dec 31, 2012 | — |
| | — |
| | — |
| | 429 |
| | — |
| | — |
| | 429 |
|
Gross goodwill at Dec 31, 2012 | $ | 4,945 |
| | $ | 4,052 |
| | $ | 1,558 |
| | $ | 1,169 |
| | $ | 1,381 |
| | $ | 63 |
| | $ | 13,168 |
|
Goodwill Impairments
The Company performs an impairment test for goodwill annually during the fourth quarter. Qualitative factors may be assessed by the Company to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors assessed by the Company include, but are not limited to, GDP growth rates, long-term hydrocarbon and energy prices, equity and credit market activity, discount rates, foreign exchange rates and overall financial performance. Qualitative factors assessed for the reporting units include, but are not limited to, changes in industry and market structure, competitive environments, planned capacity and new product launches, cost factors such as raw material prices, and financial performance of each reporting unit.
2013 Goodwill Impairment Testing
In 2013, the Company assessed qualitative factors for 14 of its 19 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 included in the qualitative test. The Company performed the first step of the quantitative testing for the remaining 5 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. As a result, no additional quantitative testing was required for the reporting units.
2012 Goodwill Impairment Testing
In 2012, the Company assessed qualitative factors for 11 of its 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 included in the qualitative test. 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 Dow Formulated Systems. 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, 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 the Performance Materials segment. The goodwill impairment loss represents the total amount of goodwill carried by the Dow Formulated Systems reporting unit.
2011 Goodwill Impairment Testing
In 2011, the Company assessed qualitative factors for each reporting unit carrying goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of each reporting unit exceeded its carrying value. Additional quantitative testing was not required for any of the Company's reporting units.
Other Intangible Assets
The following table provides information regarding the Company’s other intangible assets:
|
| | | | | | | | | | | | | | | | | | | | | | | |
Other Intangible Assets at December 31 | 2013 | | 2012 |
In millions | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Net |
|
Intangible assets with finite lives: | | | | | | | | | | | |
Licenses and intellectual property | $ | 1,774 |
| | $ | (908 | ) | | $ | 866 |
| | $ | 1,729 |
| | $ | (747 | ) | | $ | 982 |
|
Patents | 125 |
| | (109 | ) | | 16 |
| | 120 |
| | (100 | ) | | 20 |
|
Software | 1,186 |
| | (591 | ) | | 595 |
| | 1,047 |
| | (548 | ) | | 499 |
|
Trademarks | 686 |
| | (345 | ) | | 341 |
| | 691 |
| | (285 | ) | | 406 |
|
Customer related | 3,622 |
| | (1,181 | ) | | 2,441 |
| | 3,688 |
| | (974 | ) | | 2,714 |
|
Other | 154 |
| | (136 | ) | | 18 |
| | 158 |
| | (131 | ) | | 27 |
|
Total other intangible assets, finite lives | $ | 7,547 |
| | $ | (3,270 | ) | | $ | 4,277 |
| | $ | 7,433 |
| | $ | (2,785 | ) | | $ | 4,648 |
|
IPR&D (1), indefinite lives | 37 |
| | — |
| | 37 |
| | 63 |
| | — |
| | 63 |
|
Total other intangible assets | $ | 7,584 |
| | $ | (3,270 | ) | | $ | 4,314 |
| | $ | 7,496 |
| | $ | (2,785 | ) | | $ | 4,711 |
|
(1) In-process research and development ("IPR&D") purchased in a business combination.
The following table provides information regarding amortization expense related to intangible assets:
|
| | | | | | | | | | | | |
Amortization Expense In millions | | 2013 |
| | 2012 |
| | 2011 |
|
Other intangible assets, excluding software (1) | | $ | 461 |
| | $ | 478 |
| | $ | 496 |
|
Software, included in “Cost of sales” | | $ | 67 |
| | $ | 63 |
| | $ | 94 |
|
(1) Includes a $3 million asset impairment charge related to intangible assets in 2013.
During 2013, the Company recognized a $3 million asset impairment charge related to software, which is recorded in "Cost of sales" and reflected in Corporate.
Total estimated amortization expense for the next five fiscal years is as follows:
|
| | | |
Estimated Amortization Expense for Next Five Years In millions |
2014 | $ | 509 |
|
2015 | $ | 491 |
|
2016 | $ | 481 |
|
2017 | $ | 447 |
|
2018 | $ | 429 |
|
