Dow Chemical 2011 Annual Report Download - page 233

139
Treasury Stock
The total number of treasury shares purchased by the Company, primarily shares received from employees and non-employee
directors to pay taxes owed to the Company as a result of the exercise of stock options or the delivery of deferred stock, was
0.5 million in 2011, 0.5 million in 2010 and 0.5 million in 2009.
The Company issues shares for options exercised as well as for the release of deferred and restricted stock out of treasury
stock or as new common stock shares. The number of treasury shares issued to employees and non-employee directors under
the Company’s option and purchase programs was 5.6 million in 2011, 7.5 million in 2010 and 8.7 million in 2009.
Reserved Treasury Stock at December 31
Shares in millions
Stock option and deferred stock plans
2011
—
2010
5.1
2009
12.2
On May 11, 2009, the Company sold 36.7 million shares from treasury stock to the ESOP.
NOTE X – INCOME TAXES
Operating loss carryforwards amounted to $4,859 million at December 31, 2011 and $4,572 million at December 31, 2010. At
December 31, 2011, $644 million of the operating loss carryforwards were subject to expiration in 2012 through 2016. The
remaining operating loss carryforwards expire in years beyond 2016 or have an indefinite carryforward period. Tax credit
carryforwards at December 31, 2011 amounted to $403 million ($479 million at December 31, 2010), net of uncertain tax
positions, of which $5 million is subject to expiration in 2012 through 2016. The remaining tax credit carryforwards expire in
years beyond 2016.
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted
to $10,073 million at December 31, 2011, $9,798 million at December 31, 2010 and $8,707 million at December 31, 2009. It is
not practicable to calculate the unrecognized deferred tax liability on those earnings.
The Company had valuation allowances that primarily related to the realization of recorded tax benefits on tax loss
carryforwards from operations in the United States, Brazil and Asia Pacific of $1,152 million at December 31, 2011 and
$682 million at December 31, 2010.
The tax rate for 2011 was negatively impacted by a $264 million valuation allowance recorded in the fourth quarter of
2011. The valuation allowance was recorded against the deferred tax assets of two Dow entities in Brazil. As a result of the
global recession in 2008-2009, coupled with rapidly deteriorating isocyanate industry conditions and increasing local costs,
these two entities were in a three-year cumulative pretax operating loss position at December 31, 2011. While the Company
expects to realize the tax loss carryforwards generated by these operating losses based on several factors - including forecasted
margin expansion resulting from improving economic conditions, higher industry growth rates in Brazil, improving Dow
operating rates, and a restructuring of legal entities to maximize the use of existing tax loss carryforwards - Dow was unable to
overcome the negative evidence of recent cumulative operating losses; and at December 31, 2011, the Company could not
assert it was more likely than not that it will realize its deferred tax assets in the two Brazilian entities. Accordingly, the
Company established the valuation allowance against the deferred tax assets of these companies in the fourth quarter of 2011. If
in the future, as a result of the Company's plans and expectations, one or both of these entities generates sufficient profitability
such that the evaluation of the recoverability of the deferred tax assets changes, the valuation allowance could be reversed in
whole or in part in a future period.
The tax rate for 2011 was positively impacted by a high level of equity earnings as a percentage of total earnings, earnings
in foreign locations taxed at rates less than the U.S. statutory rate, the sale of a contract manufacturing subsidiary and the
reorganization of a joint venture. These factors, combined with the Brazil valuation allowance, resulted in an effective tax rate
of 22.7 percent for 2011.
The tax rate for 2010 was positively impacted by a high level of equity earnings as a percentage of total earnings, the
release of a tax valuation allowance, a tax law change, and improved financial results in jurisdictions with tax rates that are
lower than the U.S. statutory rate. These factors resulted in an effective tax rate of 17.2 percent for 2010.