Dow Chemical 2013 Annual Report Download - page 58

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Sundry Income (Expense) - Net
Sundry income (expense) - net includes a variety of income and expense items such as the gain or loss on foreign currency
exchange, dividends from investments, and gains and losses on sales of investments and assets. Sundry income (expense) - net
for 2013 was net income of $2.554 billion, compared with net expense of $27 million in 2012 and net expense of $316 million
in 2011. In 2013, sundry income (expense) - net included a gain of $2.161 billion related to damages awarded to the Company
in the K-Dow arbitration proceeding (reflected in Corporate), a $451 million gain on the sale of the Dow Polypropylene
Licensing and Catalysts business (reflected in Performance Plastics), an $87 million gain on the sale of a 7.5 percent ownership
interest in Freeport LNG Development, L.P. (reflected in Feedstocks and Energy), a $26 million gain on the sale of the
Company's ownership interest in Dow Kokam (reflected in Corporate), gains on asset sales and equity method investments and
a $326 million loss on the early extinguishment of debt (reflected in Corporate).
In 2012, sundry income (expense) - net included $123 million of losses on the early extinguishment of debt (reflected in
Corporate), foreign currency exchange losses and non-income tax related expenses which were partially offset by gains related
to small divestitures and asset sales and a gain related to post-closing adjustments on the sale of a contract manufacturing
business (reflected in Performance Materials).
In 2011, sundry income (expense) - net included a $482 million loss on the early extinguishment of debt (reflected in
Corporate), a $42 million loss on the sale of a contract manufacturing business (reflected in Performance Materials) and losses
on foreign currency exchange, partially offset by a small gain on the divestiture of the Polypropylene business (reflected in
Performance Plastics) and gains on other small divestitures and asset sales, $25 million of dividend income received from the
Company's ownership interest in Styron (reflected in Corporate), gains from the mark-to-market of trading securities, favorable
working capital adjustments from prior divestitures, and a gain from the consolidation of a joint venture. See Liquidity and
Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Note 5 to
the Consolidated Financial Statements for additional information concerning the Company's divestitures, Note 14 to the
Consolidated Financial Statements for additional information related to the K-Dow arbitration proceeding and Note 16 for
additional information related to the early extinguishment of debt.
Net Interest Expense
Net interest expense (interest expense less capitalized interest and interest income) was $1,060 million in 2013, down from
$1,228 million in 2012 and $1,301 million in 2011, reflecting the impact of redemption of debt and lower debt financing costs.
Interest income was $41 million in 2013 and 2012 and $40 million in 2011. Interest expense (net of capitalized interest) and
amortization of debt discount totaled $1,101 million in 2013, $1,269 million in 2012 and $1,341 million in 2011. See Liquidity
and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations for
additional information regarding debt financing activity.
Provision for Income Taxes
The provision for income taxes was $1,988 million in 2013, compared with $565 million in 2012 and $817 million in 2011.
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 2013 was favorably impacted by increased equity earnings; the K-Dow arbitration award, due to favorable tax
treatment of certain components of the award; and, changes in valuation allowances in the United States on state income tax
attributes and capital loss carryforwards. The tax rate was unfavorably impacted by adjustments to uncertain tax positions
related to court rulings on two separate tax matters and the establishment of valuation allowances outside the United States.
Additionally, the tax rate was unfavorably impacted by an increase in statutory taxable income in Latin America, primarily due
to local currency devaluation. These factors resulted in an effective tax rate of 29.2 percent for 2013.
The tax rate for 2012 was negatively impacted by a change in the geographic mix of earnings, notably a decrease in earnings in
Europe and an increase in earnings in the United States, as well as reductions in equity earnings. Equity earnings were further
impacted by asset impairment and restructuring charges at Dow Corning. Additionally, the Company's impairment of Dow
Formulated Systems goodwill and the impairment of the long-lived assets of Dow Kokam received minimal tax relief. The tax
rate was favorably impacted by a change in the permanent reinvestment assertions of certain affiliates in Europe and Asia
Pacific; however, this was primarily offset by unfavorable adjustments to uncertain tax positions and valuation
allowances. These factors resulted in an effective tax rate of 33.9 percent for 2012.