Dow Chemical 2011 Annual Report Download - page 70

36
The provision for income taxes was $817 million in 2011, compared with $481 million in 2010 and a credit of $97 million
in 2009. The Company's effective tax rate fluctuates based on, among other factors, where income is earned, reinvestment
assertions regarding earned income and the level of income relative to tax credits available. For example, as the percentage of
foreign sourced income increases, the Company's effective tax rate declines. The Company's tax rate is also influenced by the
level of equity earnings, since most of the earnings from the Company's equity company investments are taxed at the joint
venture level.
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 business 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.
In 2010, the effective tax rate was 17.2 percent and 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. In 2009, the effective tax rate was negative 20.7 percent,
and was reduced by several factors: a significantly higher level of equity earnings as a percent of total earnings, favorable
accrual-to-return adjustments in various geographies, the recognition of domestic losses and an improvement in financial
results in jurisdictions with tax rates that are lower than the U.S. statutory rate.
On June 30, 2009, the Company sold the Calcium Chloride business and recognized a $162 million pretax gain. The results
of operations related to the Calcium Chloride business have been reclassified and reported as income from discontinued
operations. Income from discontinued operations (net of income taxes) was $110 million ($0.10 per share) in 2009.
Net income attributable to noncontrolling interests was $42 million in 2011, $11 million in 2010 and $28 million in 2009.
Net income attributable to noncontrolling interests was higher in 2011 compared with 2010, reflecting improved results in
certain affiliates, primarily in the Electronic and Functional Materials, Agricultural Sciences and Performance Materials
segments. Net income attributable to noncontrolling interests declined in 2010 compared with 2009 as a result of the July 2009
redemption of the Tornado Finance V.O.F. preferred partnership units. See Note S and U to the Consolidated Financial
Statements for additional information concerning these noncontrolling interests.
Preferred stock dividends of $340 million were recognized in 2011 and 2010. These dividends related to the Company's
Cumulative Convertible Perpetual Preferred Stock, Series A ("Series A"). In 2009, preferred stock dividends of $312 million
were recognized, $255 million of the dividends related to Series A, and $57 million related to the Cumulative Perpetual
Preferred Stock, Series B and Cumulative Convertible Perpetual Preferred Stock, Series C, both of which were retired in the
second quarter of 2009. See Notes V and W to the Consolidated Financial Statements for additional information.