Dow Chemical 2014 Annual Report Download - page 151

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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 as well as 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 LLC 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.
Deferred Tax Balances at December 31 2014 2013
In millions
Deferred Tax
Assets (1)
Deferred Tax
Liabilities
Deferred Tax
Assets (1)
Deferred Tax
Liabilities
Property $ 63 $ 2,005 $ 62 $ 2,165
Tax loss and credit carryforwards 1,843 — 2,012 —
Postretirement benefit obligations 4,526 1,220 3,619 1,150
Other accruals and reserves (2) 1,213 411 1,901 392
Intangibles 217 691 113 827
Inventory 412 177 217 197
Long-term debt — 673 — 600
Investments 103 102 137 111
Other – net 999 771 1,143 794
Subtotal $ 9,376 $ 6,050 $ 9,204 $ 6,236
Valuation allowances (1,106) — (1,112) —
Total $ 8,270 $ 6,050 $ 8,092 $ 6,236
(1) Included in current deferred tax assets are prepaid tax assets totaling $358 million in 2014 and $205 million in 2013.
(2) The reduction in deferred tax assets in 2014 reflects the impact of accelerated deductions.
Gross operating loss carryforwards amounted to $11,080 million at December 31, 2014 and $11,435 million at December 31,
2013. At December 31, 2014, $1,520 million of the operating loss carryforwards were subject to expiration in 2015 through
2019. The remaining operating loss carryforwards expire in years beyond 2019 or have an indefinite carryforward period. Tax
credit carryforwards at December 31, 2014 amounted to $130 million ($124 million at December 31, 2013), net of uncertain
tax positions, of which $22 million is subject to expiration in 2015 through 2019. The remaining tax credit carryforwards expire
in years beyond 2019 or have an indefinite carryforward period.
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 $1,106 million at December 31, 2014 and
$1,112 million at December 31, 2013.
Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to
$18,037 million at December 31, 2014, $16,139 million at December 31, 2013 and $14,504 million at December 31, 2012. It is
not practicable to calculate the unrecognized deferred tax liability on undistributed earnings.
Total Gross Unrecognized Tax Benefits
In millions 2014 2013 2012
Balance at January 1 $ 266 $ 409 $ 339
Increases related to positions taken on items from prior years 42 385 66
Decreases related to positions taken on items from prior years (57) (137) (32)
Increases related to positions taken in the current year 10 10 53
Settlement of uncertain tax positions with tax authorities (13) (393) (9)
Decreases due to expiration of statutes of limitations (8) (8) (8)
Balance at December 31 $ 240 $ 266 $ 409