Dow Chemical 2014 Annual Report Download - page 150

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The Company may issue shares for purchases under the Employee Stock Purchase Plan, for options exercised as well as for the
release of deferred, performance deferred and restricted stock out of treasury stock or as new common stock shares. The
number of treasury shares issued to employees under the Company’s stock-based compensation programs was 7.1 million in
2014, zero in 2013 and zero in 2012.
NOTE 22 – INCOME TAXES
Domestic and Foreign Components of Income Before Income Taxes
In millions 2014 2013 (1) 2012 (2)
Domestic $ 1,652 $ 3,979 $ (401)
Foreign 3,613 2,825 2,066
Total $ 5,265 $ 6,804 $ 1,665
(1) In 2013, the domestic component of "Income Before Income Taxes" included a gain of
$2.195 billion related to the K-Dow arbitration and a $451 million gain related to the sale of
Dow's Polypropylene Licensing and Catalysts business.
(2) In 2012, the domestic component of "Income Before Income Taxes" was significantly
impacted by the Company's 1Q12 and 4Q12 restructuring charges.
Provision for Income Taxes
2014 2013 2012
In millions Current Deferred Total Current Deferred Total Current Deferred Total
Federal (1) $ (161) $ 442 $ 281 $ 805 $ 278 $ 1,083 $ 241 $ (312) $ (71)
State and local (4) 43 39 42 (73) (31) 9 (10) (1)
Foreign 1,125 (19) 1,106 1,028 (92) 936 780 (143) 637
Total $ 960 $ 466 $ 1,426 $ 1,875 $ 113 $ 1,988 $ 1,030 $ (465) $ 565
(1) Reflects the 2014 impact of accelerated deductions.
Reconciliation to U.S. Statutory Rate
In millions 2014 2013 2012
Taxes at U.S. statutory rate $ 1,843 $ 2,381 $ 583
Equity earnings effect (307) (276) (115)
Foreign income taxed at rates other than 35% (1) (195) (76) (76)
U.S. tax effect of foreign earnings and dividends 54 102 13
Goodwill impairment losses — — 77
Discrete equity earnings (2) 26 — 48
Change in permanent reinvestment assertions — — (236)
Change in valuation allowances 33 (197) 135
Unrecognized tax benefits (30) 243 122
Federal tax accrual adjustments (3) 29 4
Gain from K-Dow arbitration (3) — (212) —
Other – net 5 (6) 10
Total tax provision $ 1,426 $ 1,988 $ 565
Effective tax rate 27.1% 29.2% 33.9%
(1) Includes the tax provision for statutory taxable income in foreign jurisdictions for which there is no
corresponding amount in “Income Before Income Taxes.”
(2) Includes nonrecurring charges related to equity in earnings of nonconsolidated affiliates.
(3) In 2013, the K-Dow arbitration award generated a tax rate benefit of $212 million due to the tax
treatment of certain components of the award. See Note 14 for further information.
The tax rate for 2014 was favorably impacted by the geographic mix of earnings, with the most notable components being
improved profitability in Europe and Asia Pacific as well as equity earnings providing additional favorable impact on the tax
rate. The tax rate was also favorably impacted by a reduction in the tax on remittances by foreign subsidiaries to the United
States. The tax rate was unfavorably impacted by a continued increase in statutory income in Latin America due to local
currency devaluations, and increases in valuation allowances, primarily in Asia Pacific. These factors resulted in an effective
tax rate of 27.1 percent for 2014.