DELPHI 2012 Annual Report Download - page 60

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The Company’s effective tax rates in both periods are affected by the tax rates in the jurisdictions in which the Company
operates, the relative amount of income earned in each jurisdiction and the relative amount of losses or income for which no tax
benefit or expense was recognized due to a valuation allowance. The Company's geographic income mix was favorably
impacted in 2012, as compared to 2011, primarily due to underlying business results, tax settlements and tax planning
initiatives.
The effective tax rate was 16% and 20% for the year ended December 31, 2012 and 2011, respectively. The effective tax
rate for the year ended December 31, 2012 was impacted by the release of $29 million of valuation allowances, a favorable tax
settlement of $26 million, a $30 million reduction in tax reserves due to resolution of open issues with tax authorities and a
reduction of $17 million in withholding tax expense, offset by an increase of $17 million primarily related to uncertain tax
positions outside the U.S. The effective tax rate in the year ended December 31, 2011 was impacted by the release of a $52
million valuation allowance, offset by an increase of $17 million in tax reserves and $10 million in withholding tax expense
primarily related to the funding of the redemption of all the outstanding Class A and Class C membership interests in Delphi
Automotive LLP.
The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013. The tax bill retroactively reinstates expired
tax provisions known as tax extenders including the research and development tax credit. The income tax accounting effect,
including any retroactive effect, of a tax law change is accounted for in the period of enactment, which in this case is the first
quarter of 2013. As a result, the Company did not recognize a tax benefit of approximately $22 million in 2012 related to the
research and development credit which will favorably impact the first quarter results in 2013.
Equity Income
Year Ended December 31,
2012 2011 Favorable/
(unfavorable)
(in millions)
Equity income, net of tax............................................................................................ $ 27 $ 22 $ 5
Equity income, net of tax reflects Delphi’s interest in the results of ongoing operations of entities accounted for as equity-
method investments. Equity income increased during the year ended December 31, 2012 as compared to the year ended
December 31, 2011 primarily due to improved performance of our Mexican and Korean joint ventures and a $7 million
impairment charge related to a European joint venture in 2011, partially offset by an $8 million of gain on the sale of our 49.5%
interest in Daesung Electric, Co., Ltd in 2011.
Results of Operations by Segment
We operate our core business along the following operating segments, which are grouped on the basis of similar product,
market and operating factors:
• Electrical/Electronic Architecture, which includes complete electrical architecture and component products.
• Powertrain Systems, which includes extensive systems integration expertise in gasoline, diesel and fuel handling
and full end-to-end systems including fuel injection, combustion, electronics controls, exhaust handling, test and
validation capabilities, diesel and automotive aftermarket, and original equipment service.
• Electronics and Safety, which includes component and systems integration expertise in infotainment and
connectivity, body controls and security systems, displays, mechatronics, passive and active safety electronics and
electric and hybrid electric vehicle power electronics, as well as advanced development of software.
• Thermal Systems, which includes heating, ventilating and air conditioning systems, components for multiple
transportation and other adjacent markets, and powertrain cooling and related technologies.
• Eliminations and Other, which includes i) the elimination of inter-segment transactions, and ii) certain other
expenses and income of a non-operating or strategic nature.
Our management utilizes segment EBITDA as a key performance measure. Segment EBITDA should not be considered a
substitute for results prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) and should not be considered an alternative to net income attributable to Delphi, which is the most directly
comparable financial measure to EBITDA that is in accordance with U.S. GAAP. Segment EBITDA, as determined and
measured by us, should also not be compared to similarly titled measures reported by other companies.