Question

Dow Chemical included the following information in footnotes to its 2016 Form 10-K:

2016 Restructuring

On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the recent ownership restructure of Dow Corning Corporation ("Dow Corning"). These actions, aligned with Dow’s value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. These actions are expected to be substantially completed by June 30, 2018.

As a result of these actions, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance charges of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million.

1. Reconcile the various parts of Dow Chemical’s “Restructuring charges” of $449 million.
2. How should Dow Chemical report the restructuring charges in its income statement and on its balance sheet?
3. The SEC has expressed concern about abuses surrounding restructuring charges. What is the nature of the SEC’s concerns? Reference SEC rules with your answer.

Answer 1

Particulars	$ Million	Reporting
Severance Charges	268.00	- The Acivity is non recurring nature. - All cost will be transferred to Income Statement under Non Operating Expenses. - There is no effect on the stake of stakeholders.
Asset Write Down & W/Off	153.00	- It depends on the company. - Company can show further fixed assets on revalued amount or same value.
Exit & Disposal Activities	28.00	- The Exit costs will be transferred under Employee termination benefits. - Costs to exit an activity should be recognized as liability if a. The commitment date has occured b. such costs are true exit costs i.e. there is no future benefits exists for such costs.
Restructuring Charges	449.00