Dow Chemical 2015 Annual Report Download - page 48

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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). See Notes 5, 13 and 17 to the Consolidated
Financial Statements for additional information.
Net Interest Expense
Net interest expense (interest expense less capitalized interest and interest income) was $875 million in 2015, down from
$932 million in 2014 and $1,060 million in 2013. In 2015, net interest expense decreased due to the impact of higher
capitalized interest as a result of increased capital spending, primarily related to U.S. Gulf Coast projects, which more than
offset higher interest expense related to the issuance of $2 billion of debt in 2014. In 2014, net interest expense decreased
reflecting the impact of the Company's 2013 deleveraging activities and lower debt financing costs. Interest income was
$71 million in 2015, $51 million in 2014 and $41 million in 2013. Interest expense (net of capitalized interest) and amortization
of debt discount totaled $946 million in 2015, $983 million in 2014 and $1,101 million in 2013. See Liquidity and Capital
Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the
Consolidated Financial Statements for additional information related to debt financing activity.
Provision for Income Taxes
The provision for income taxes was $2,147 million in 2015, compared with $1,426 million in 2014 and $1,988 million in 2013.
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 method investments are taxed at the joint venture level.
The underlying factors affecting the Company's overall tax rate are summarized in Note 23 to the Consolidated Financial
Statements.
The tax rate for 2015 was positively impacted by portfolio actions, specifically the tax-efficient split-off of the Company's
chlorine value chain, the non-taxable gain from the Univation step acquisition, and the sale of MEGlobal. The geographic mix
of earnings favorably impacted the tax rate with the gain from the ANGUS Chemical Company divestiture and continued
profitability improvement in Europe and Asia Pacific providing most of the benefit. The tax rate was unfavorably impacted by
foreign subsidiaries repatriating cash to the United States which was primarily derived from divestiture proceeds. Reduced
equity earnings and continued increases in statutory income in Latin America and Canada due to local currency devaluations
also unfavorably impacted the tax rate. These factors resulted in an effective tax rate of 21.6 percent for 2015.
The tax rate for 2014 was positively impacted by the geographic mix of earnings, with the most notable components being
improved profitability in Europe and Asia Pacific. Equity earnings remained strong, providing additional favorable impact on
the tax rate. The tax rate was also favorably impacted by a reduction in the tax impact on remittances by foreign subsidiaries to
the United States. The tax rate was negatively 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.
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.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $98 million in 2015, $67 million in 2014 and $29 million in 2013. Net
income attributable to noncontrolling interests increased in 2015 compared with 2014, primarily due to higher earnings at most
of the Company's consolidated joint ventures which was partially offset by an after-tax loss related to the exercise of an equity
option by a noncontrolling interest in a variable interest entity. In addition to the items previously discussed, 2015 was also
impacted by noncontrolling interests' portion of the 2015 restructuring charge. Net income attributable to noncontrolling
interests increased in 2014 compared with 2013, primarily due to increased earnings at certain Performance Materials &
Chemicals joint ventures and the 2013 divestiture of Dow Kokam. See Notes 3, 5, 20 and 25 to the Consolidated Financial
Statements for additional information on these matters.