DOW CHEMICAL CO /DE/ | 2013 | FY | 3

RESTRUCTURING

4Q12 Restructuring
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 accelerates the Company's structural cost reduction program and will affect approximately 2,850 positions and result in the shutdown of approximately 20 manufacturing facilities. These actions are expected to be completed 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 shown in the following table:

4Q12 Restructuring Charges by Operating Segment
 
Costs Associated with Exit or Disposal Activities

 
 
 
Impairment of Long-Lived Assets, Other Assets and Equity Method Investments

 
 
In millions
 
 
Severance Costs

 
 
Total

Electronic and Functional Materials
 
$
5

 
$
—

 
$
43

 
$
48

Coatings and Infrastructure Solutions
 
—

 
—

 
16

 
16

Performance Materials
 
14

 
—

 
178

 
192

Performance Plastics
 
7

 
—

 
19

 
26

Feedstocks and Energy
 
—

 
—

 
7

 
7

Corporate
 
13

 
375

 
313

 
701

Total 4Q12 Restructuring charges
 
$
39

 
$
375

 
$
576

 
$
990

Adjustments to 4Q12 Restructuring charges
 
 
 
 
 
 
 
 
2013 - Performance Plastics
 
(6
)
 
—

 
—

 
(6
)
Net 4Q12 Restructuring charges
 
$
33

 
$
375

 
$
576

 
$
984



Details regarding the components of the 4Q12 Restructuring charges are discussed below:

Costs Associated with Exit or Disposal Activities
The restructuring charges for costs associated with exit or disposal activities totaled $39 million in the fourth quarter of 2012 and included $9 million of curtailment costs associated with other postretirement benefit plans, impacting Corporate; contract cancellation fees of $25 million, impacting Performance Materials ($13 million), Performance Plastics ($7 million), Electronic and Functional Materials ($5 million); and environmental remediation of $5 million impacting Performance Materials ($1 million) and Corporate ($4 million).

Severance Costs
The restructuring charges in the fourth quarter of 2012 included severance of $375 million for the separation of approximately 2,850 employees under the terms of the Company's ongoing benefit arrangements, primarily by March 31, 2015. These costs were charged against Corporate. At December 31, 2013, severance of $236 million had been paid and a liability of $139 million remained for 759 employees.

Impairment of Long-Lived Assets, Other Assets and Equity Method Investments
The restructuring charges related to the write-down and write-off of assets in the fourth quarter of 2012 totaled $576 million. Details regarding the write-downs and write-offs are as follows:

•
As a result of weak global demand for lithium-ion batteries, the Company recorded a pretax impairment charge of $303 million related to the write-down of Dow Kokam LLC's long-lived assets, impacting Corporate. At the time of the impairment, Dow had a 63.6 percent ownership interest in Dow Kokam LLC. The impact to Dow, after adjustments for income taxes and the portion attributable to noncontrolling interests, was $189 million.

•
In response to global economic conditions and competitive dynamics, the decision was made to shut down and/or consolidate a number of manufacturing facilities, with an impact of $246 million, summarized as follows:

•
A Dow Automotive Systems diesel particulate filters manufacturing facility in Midland, Michigan was shut down, resulting in the write-down of assets associated with this facility of $114 million, impacting the Performance Materials segment. The facility was shut down in the fourth quarter of 2012.

•
Certain Oxygenated Solvents manufacturing facilities in Texas City, Texas were consolidated and/or shut down, resulting in an asset write-down of $36 million against the Performance Materials segment. The assets were shut down in the fourth quarter of 2012.

•
An asset write-down of $17 million for a sodium borohydride manufacturing facility in Delfzijl, The Netherlands was recorded against the Electronic and Functional Materials segment in the fourth quarter of 2012. The manufacturing facility was shut down in the third quarter of 2013.

•
Two Interconnect Technologies manufacturing facilities, one in Lucerne, Switzerland and the other in Marlborough, Massachusetts, will be shut down, resulting in a charge in the fourth quarter of 2012 related to the write-down of assets of $13 million against the Electronics and Functional Materials segment. The manufacturing facility in Massachusetts was shut down in the fourth quarter of 2013; the manufacturing facility in Switzerland is expected to be shut down in the fourth quarter of 2014.

•
An asset write-down of $10 million for a polyethylene manufacturing facility in Tessenderlo, Belgium was recorded against the Performance Plastics segment in the fourth quarter of 2012. The manufacturing facility was shut down in the second quarter of 2013.

•
Certain Dow Building and Construction manufacturing assets in Midland, Michigan were shut down in the fourth quarter of 2012. As a result, an asset write-down of $9 million was recorded against the Coatings and Infrastructure Solutions segment.

•
Dow Formulated Systems manufacturing capacity was consolidated in the United States, resulting in the shut down of a Solon, Ohio manufacturing facility and an asset write-down of $5 million in the fourth quarter of 2012, impacting the Performance Materials segment. The manufacturing facility was shut down in the third quarter of 2013.

•
The decision was made to shut down a number of small manufacturing, research and development, and administrative facilities to optimize the assets of the Company. Write-downs of $42 million were recorded in the fourth quarter of 2012, impacting Performance Materials ($20 million), Electronic and Functional Materials ($13 million), Coatings and Infrastructure Solutions ($4 million) and Corporate ($5 million). These facilities are expected to be shut down no later than the fourth quarter of 2014.

•
Certain capital projects were canceled resulting in the write-off of project spending of $8 million against the Feedstocks and Energy ($7 million) and Coatings and Infrastructure Solutions ($1 million) segments.

•
Due to a change in the Company's strategy regarding its ownership in Nippon Unicar Company Limited ("NUC"), a 50:50 joint venture, the Company determined its equity investment in NUC to be other-than-temporarily impaired and recorded a $9 million write-down of its interest in NUC against the Performance Plastics segment in the fourth quarter of 2012. Dow divested its ownership interest in NUC on July 1, 2013.

•
The fourth quarter of 2012 restructuring charge also included the write-off of other assets associated with plant closures totaling $10 million. These charges are reflected in the results of the operating segments impacted by the restructuring activities.

The following table summarizes the activities related to the Company's 4Q12 Restructuring reserve, which is included in "Accrued and other current liabilities" and "Other noncurrent obligations" in the consolidated balance sheets:

4Q12 Restructuring Activities
 
Costs Associated with Exit or Disposal Activities

 
 
 
Impairment of Long-Lived Assets, Other Assets and Equity Method Investments

 
 
In millions
 
 
Severance Costs

 
 
Total

Restructuring charges recognized in the fourth quarter of 2012
 
$
39

 
$
375

 
$
576

 
$
990

Charges against the reserve
 
(9
)
 
—

 
(576
)
 
(585
)
Cash payments
 
—

 
(8
)
 
—

 
(8
)
Reserve balance at December 31, 2012
 
$
30

 
$
367

 
$
—

 
$
397

Adjustments to the reserve
 
(6
)
 
—

 
—

 
(6
)
Cash payments
 
(5
)
 
(228
)
 
—

 
(233
)
Reserve balance at December 31, 2013
 
$
19

 
$
139

 
$
—

 
$
158



1Q12 Restructuring
On March 27, 2012, the Company's Board of Directors approved a restructuring plan ("1Q12 Restructuring") 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 includes the elimination of approximately 900 positions. In addition, the Company shut down a number of manufacturing facilities. These actions were substantially completed at 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 or 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 (credits)" in the consolidated statements of income and reflected in the Company's segment results as shown in the following table:
1Q12 Restructuring Charges by Operating Segment
 
Costs Associated with Exit or Disposal Activities

 
 
 
Impairment of Long-Lived Assets and Other Assets

 
 
In millions
 
 
Severance Costs

 
 
Total

Electronic and Functional Materials
 
$
—

 
$
—

 
$
17

 
$
17

Coatings and Infrastructure Solutions
 
4

 
—

 
37

 
41

Performance Materials
 
146

 
—

 
40

 
186

Corporate
 
—

 
113

 
—

 
113

Total 1Q12 Restructuring charges
 
$
150

 
$
113

 
$
94

 
$
357

Adjustment to 1Q12 Restructuring charges:
 
 
 
 
 
 
 
 
2012 - Coatings and Infrastructure Solutions
 
—

 
—

 
(4
)
 
(4
)
2013 - Coatings and Infrastructure Solutions
 
(1
)
 
—

 
—

 
(1
)
2013 - Performance Materials
 
(15
)
 
—

 
—

 
(15
)
Net 1Q12 Restructuring charges
 
$
134

 
$
113

 
$
90

 
$
337



Details regarding the components of the 1Q12 Restructuring charge are discussed below:

Costs Associated with Exit or Disposal Activities
The restructuring charges for costs associated with exit or disposal activities totaled $150 million in the first quarter of 2012 and included contract cancellation fees of $149 million, impacting Performance Materials ($146 million) and Coatings and Infrastructure Solutions ($3 million), and asbestos abatement costs of $1 million impacting Coatings and Infrastructure Solutions.

Severance Costs
The restructuring charges in the first quarter of 2012 included severance of $113 million for the separation of approximately 900 employees under the terms of the Company's ongoing benefit arrangements, primarily by December 31, 2013. These costs were charged against Corporate. At December 31, 2013, severance of $110 million had been paid and a liability of $3 million remained for 42 employees.

Impairment of Long-Lived Assets and Other Assets
The restructuring charges related to the write-down and write-off of assets in the first quarter of 2012 totaled $94 million. Details regarding the write-downs and write-offs are as follows:

•
The Company evaluated its facilities that manufacture STYROFOAM™ brand insulation and as a result, the decision was made to shut down facilities in Balatonfuzfo, Hungary; Estarreja, Portugal; and Charleston, Illinois. In addition, a facility in Terneuzen, The Netherlands was idled and impaired. Write-downs associated with these facilities of $37 million were recorded in the first quarter of 2012 against the Coatings and Infrastructure Solutions segment. The Netherlands facility was shut down at the end of the second quarter of 2012. The remaining facilities were shut down in the fourth quarter of 2012.

•
The decision was made to shut down and/or consolidate certain manufacturing assets in the Polyurethanes and Epoxy businesses in Texas and Germany. Write-downs associated with these assets of $15 million were recorded in the first quarter of 2012 against the Performance Materials segment. The manufacturing assets in Texas were shut down in the second quarter of 2012. The German manufacturing assets were shut down in 2012.

•
Certain capital projects were canceled resulting in the write-off of project spending of $42 million against the Performance Materials ($25 million) and Electronic and Functional Materials ($17 million) segments.

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.

The following table summarizes the activities related to the Company's 1Q12 Restructuring reserve:

1Q12 Restructuring Activities
 
Costs Associated with Exit or Disposal Activities

 
 
 
 
 
 
In millions
 
 
Severance Costs

 
Impairment of Long-Lived Assets and Other Assets

 
Total

Restructuring charges recognized in the first quarter of 2012
 
$
150

 
$
113

 
$
94

 
$
357

Adjustments to the reserve
 
—

 
—

 
(4
)
 
(4
)
Charges against the reserve
 
—

 
—

 
(90
)
 
(90
)
Cash payments
 
(45
)
 
(82
)
 
—

 
(127
)
Noncash settlements
 
(47
)
 
—

 
—

 
(47
)
Foreign currency impact
 
(2
)
 
—

 
—

 
(2
)
Reserve balance at December 31, 2012
 
$
56

 
$
31

 
$
—

 
$
87

Adjustments to the reserve
 
(16
)
 
—

 
—

 
(16
)
Cash payments
 
(15
)
 
(28
)
 
—

 
(43
)
Noncash settlements
 
(8
)
 
—

 
—

 
(8
)
Foreign currency impact
 
(1
)
 
—

 
—

 
(1
)
Reserve balance at December 31, 2013
 
$
16

 
$
3

 
$
—

 
$
19



The reserve balance is included in the consolidated balance sheets as "Accrued and other current liabilities." The 1Q12 Restructuring activities were substantially completed in 2013, with remaining liabilities related to severance and contract cancellation fees to be settled over time.

Dow expects to incur additional costs in the future related to its 1Q12 and 4Q12 Restructuring activities, as the Company continually looks for ways to enhance the efficiency and cost effectiveness of its operations, and to ensure competitiveness across its businesses and geographic areas. Future costs are expected to include demolition costs related to closed facilities and restructuring plan implementation costs; these will be recognized as incurred. The Company also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.

2013 Adjustments to 1Q12 and 4Q12 Restructuring Plans
In 2013, the Company reduced the 4Q12 Restructuring reserve related to contract cancellation fees by $6 million, impacting Performance Plastics. The Company also reduced the 1Q12 Restructuring reserve related to the adjustment of contract cancellation fees and asbestos abatement costs by $16 million, impacting Coatings and Infrastructure Solutions ($1 million) and Performance Materials ($15 million).

Restructuring Reserve Assumed from Rohm and Haas
Included in liabilities assumed in the April 1, 2009 acquisition of Rohm and Haas Company ("Rohm and Haas") was a reserve of $122 million for severance and employee benefits for the separation of 1,255 employees under the terms of Rohm and Haas’ ongoing benefit arrangement. The separations resulted from plant shutdowns, production schedule adjustments, productivity improvements and reductions in support services. A currency adjusted liability of $12 million remained at December 31, 2010; $5 million for employees who had left the Company and continued to receive annuity payments primarily through the third quarter of 2011 and $7 million for approximately 44 employees.

In the first quarter of 2011, the Company decreased the restructuring reserve by $6 million to adjust the reserve to the expected future severance payments. The impact of this adjustment is shown as "Cost of sales" in the consolidated statements of income and was reflected in Corporate. Severance payments of $7 million were made in the first half of 2011, bringing the program to a close.

Restructuring Reserve Assumed from Rohm and Haas
In millions
Severance
Costs

Reserve balance at December 31, 2010
$
12

Cash payments
(7
)
Adjustments to reserve
(6
)
Foreign currency impact
1

Reserve balance at June 30, 2011
$
—

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