Question

Identifying Operating and Nonrecurring Income Components

Following is the The Dow Chemical Company income statement.

($ millions) For Year Ended December 31	2014	2013
Net sales	$58,167	$57,080
Cost of sales	47,464	47,594
Research and development expenses	1,647	1,747
Selling, general, and administrative expenses	3,106	3,024
Amortization of intangibles	436	461
Goodwill and other intangible asset impairment losses	50	-
Restructuring charges (credits)	(3)	(22)
Asbestos-related charge	78	-
Equity in earnings of nonconsolidated affiliates	835	1,034
Sundry income (expense)—net	(27)	2,554
Interest income	51	41
Interest expense and amortization of debt discount	983	1,101
Income before income taxes	5,265	6,804
Provision for income taxes	1,426	1,988
Net income	$3,839	$4,816

Required

a. Identify the components in its statement that you would consider operating.
b. Identify those components that you would consider nonrecurring.

($ millions) For Year Ended	December 31		a.	b.
	2014	2013	Operating?	Nonrecurring?
Net sales	$58,167	$57,080	AnswerYesNo	AnswerYesNo
Cost of sales	47,464	47,594	AnswerYesNo	AnswerYesNo
Research and development expenses	1,647	1,747	AnswerYesNo	AnswerYesNo
Selling, general, and administrative expenses	3,106	3,024	AnswerYesNo	AnswerYesNo
Amortization of intangibles	436	461	AnswerYesNo	AnswerYesNo
Goodwill and other intangible asset impairment losses	50	-	AnswerYesNo	AnswerYesNo
Restructuring charges (credits)	(3)	(22)	AnswerYesNo	AnswerYesNo
Asbestos-related charge	78	-	AnswerYesNo	AnswerYesNo
Equity in earnings of nonconsolidated affiliates	835	1,034	AnswerYesNo	AnswerYesNo
Sundry income (expense)—net	(27)	2,554	AnswerYesNo	AnswerYesNo
Interest income	51	41	AnswerYesNo	AnswerYesNo
Interest expense and amortization of debt discount	983	1,101	AnswerYesNo	AnswerYesNo
Income before income taxes	5,265	6,804
Provision for income taxes	1,426	1,988	AnswerYesNo	AnswerYesNo
Net income	$3,839	$4,816

c. Compute net operating profit after taxes (NOPAT) and net operating profit margin (NOPM) for each year.
Assume a statutory tax rate of 35%.

	2014	2013
NOPAT (Round your answer to the nearest million dollar.)	$ ? million	$ ? million
NOPM (Round your answer to one decimal place.)	? %	? %

Answer 1

a&b
	($ millions) For Year Ended	31-Dec		a.	b.
		2014	2013	Operating?	Nonrecurring?
	Net sales	$58,167	$57,080	yes	No
	Cost of sales	47,464	47,594	yes	No
	Research and development expenses	1,647	1,747	No	Yes
	Selling, general, and administrative expenses	3,106	3,024	Yes	No
	Amortization of intangibles	436	461	No	Yes
	Goodwill and other intangible asset impairment losses	50	-	No	Yes
	Restructuring charges (credits)	-3	-22	No	Yes
	Asbestos-related charge	78	-	No	Yes
	Equity in earnings of nonconsolidated affiliates	835	1,034	No	No
	Sundry income (expense)—net	-27	2,554	No	No
	Interest income	51	41	No	No
	Interest expense and amortization of debt discount	983	1,101	No	Yes
	Income before income taxes	5,265	6,804
	Provision for income taxes	1,426	1,988	No	No
	Net income	$3,839	$4,816
c	NOPAT and NOPM(Tax rate is 35%)
		2014	2013
	NOPAT (Round your answer to the nearest million dollar.)	2495.35	3130.4
	NOPM (Round your answer to one decimal place.)         { NOPAT/ Net Sales}x 100
		4.29%	5.48%