DELPHI 2014 Annual Report Download - page 61

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Refer to Note 19. Other income, net and Note 11. Debt to the audited consolidated financial statements included herein
for additional information.
Income Taxes
Year Ended December 31,
2014 2013 Favorable/
(unfavorable)
(in millions)
Income tax expense..................................................................................................... $ 282 $ 256 $ (26)
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.
The effective tax rate was 17% and 17% for the years ended December 31, 2014 and 2013, respectively. The effective tax
rate in the year ended December 31, 2014 was impacted by favorable geographic income mix in 2014 as compared to 2013,
primarily due to changes in the underlying operations of the business as well as tax planning initiatives, and the resulting
favorable impact on foreign tax credits. These favorable impacts were offset by net increases resulting from changes in
judgment related to deferred tax asset valuation allowances of $18 million in 2014.
The effective tax rate in the year ended December 31, 2013 was impacted by the enactment of the American Taxpayer
Relief Act of 2012 on January 2, 2013, which retroactively reinstated 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 was the first quarter of 2013. As a result, the effective tax rate for
the year ended December 31, 2013 was impacted by a tax benefit of approximately $22 million related to the 2012 research and
development credit in addition to the 2013 research and development credit. On July 17, 2013, the United Kingdom Finance
Bill of 2013 became law as the Finance Act 2013 (the “U.K. Finance Act”). The U.K. Finance Act provides for a reduction to
the corporate income tax rate from 23% to 21% effective April 1, 2014, with a further reduction to 20% effective April 1, 2015.
The impact of this legislation was recorded as a discrete item during the third quarter of 2013, the period of enactment, and
resulted in increased tax expense of approximately $12 million for the year ended December 31, 2013 due to the resultant
impact on the net deferred tax asset balances. Additionally, the effective tax rate in the year ended December 31, 2013 was
impacted by a reduction in tax reserves of $13 million, partially offset by an increase in withholding taxes due to overall
increased earnings and full year inclusion of MVL activity in 2013.
Equity Income
Year Ended December 31,
2014 2013 Favorable/
(unfavorable)
(in millions)
Equity income, net of tax............................................................................................ $ 17 $ 34 $ (17)
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 decreased during the year ended December 31, 2014 as compared to the year ended
December 31, 2013, which is primarily attributable to declines in performance at our Korean joint ventures as compared to the
prior period.
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, electronic controls, test and validation capabilities,
aftermarket, and original equipment service.