DELPHI 2012 Annual Report Download - page 66

44
Income Taxes
Year Ended December 31,
2011 2010 Favorable/
(unfavorable)
(in millions)
Income tax expense..................................................................................................... $ 305 $ 258 $ (47)
The effective tax rate was 20% and 27% in 2011 and 2010, respectively. The Company’s tax rate is affected by the tax
rates in the jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction, and the relative
amount of losses or income for which no tax benefit or expense was recognized due to a valuation allowance. In 2011, tax
incentives of $64 million were obtained in various non-U.S. countries, primarily Hi-Tech Enterprise status in China and the
Maquiladora regime in Mexico, and a $65 million tax benefit for income earned in jurisdictions where a valuation allowance
has been recorded, primarily in France.
We recognized a $52 million and $21 million tax benefit in 2011 and 2010, respectively, related to changes in judgment
of valuation allowances for the realization of deferred tax assets. During 2011, the Company recorded a withholding tax of $10
million related to the funding of the redemption of all the outstanding Class A and Class C membership interests and $27
million related to changes in our assertion with respect to our intent to repatriate foreign earnings in certain countries.
Our annual effective tax rate may be impacted by future events including changes in tax laws, geographic income mix,
cash requirements, tax audits, closure of tax years, legal entity restructuring and changes in valuation allowances on deferred
tax assets. Our effective tax rate can potentially have wide variances from quarter to quarter, resulting from interim reporting
requirements and the recognition of discrete events.
Equity Income
Year Ended December 31,
2011 2010 Favorable/
(unfavorable)
(in millions)
Equity income, net of tax............................................................................................ $ 22 $ 17 $ 5
Equity income reflects our interest in the results of ongoing operations of entities accounted for as equity-method
investments. Equity income increased during the year ended December 31, 2011 as compared to 2010 partially due to the
recognition of $8 million of gain on the sale of our 49.5% interest in Daesung Electric, Co., Ltd as well as improved
performance at our Mexican joint venture. These increases were partially offset by a $7 million impairment charge related to a
European joint venture.
Results of Operations by Segment
Through December 31, 2010, we evaluated performance based on stand-alone segment Adjusted EBITDA and accounted
for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices. Our management
believed that Adjusted EBITDA was a meaningful measure of performance and it was used by management to analyze
Company and stand-alone segment operating performance. Management also used Adjusted EBITDA for planning and
forecasting purposes. Effective January 1, 2011, our management began utilizing segment EBITDA as a key performance
measure because our restructuring was substantially completed by the end of 2010. Segment EBITDA and Adjusted EBITDA
should not be considered substitutes for results prepared in accordance with U.S. GAAP and should not be considered
alternatives to net income attributable to Delphi, which is the most directly comparable financial measure to EBITDA and
Adjusted EBITDA that is in accordance with U.S. GAAP. Segment EBITDA and Adjusted EBITDA, as determined and
measured by us, should also not be compared to similarly titled measures reported by other companies.