DELPHI 2014 Annual Report Download - page 67

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The decrease in other income, net is a result of Delphi amending its Credit Agreement and repaying the entire balance of
the Tranche B Term Loan from the Original Credit Agreement, resulting in a loss on extinguishment of debt of $39 million,
partially offset by the absence of transaction costs of $13 million incurred in 2012 related to the acquisition of MVL.
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,
2013 2012 Favorable/
(unfavorable)
(in millions)
Income tax expense..................................................................................................... $ 256 $ 212 $ (44)
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 Company's geographic income mix was favorably impacted in 2013, as compared
to 2012, primarily due to tax planning initiatives.
The effective tax rate was 17% and 16% for the year ended December 31, 2013 and 2012, respectively. The American
Taxpayer Relief Act of 2012 was enacted 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.
The effective tax rate in the year ended December 31, 2012 was impacted by the release of a $29 million valuation
allowance, a favorable tax settlement of $26 million, a $30 million reduction in tax reserves due to resolution of open issues
with tax authorities, offset by an increase of $17 million primarily related to uncertain tax positions outside the U.S and an
increase of $6 million related to a reduction to the corporate income tax rate in the United Kingdom from 25% to 23%.
Equity Income
Year Ended December 31,
2013 2012 Favorable/
(unfavorable)
(in millions)
Equity income, net of tax............................................................................................ $ 34 $ 27 $ 7
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, 2013 as compared to the year ended
December 31, 2012 primarily due to improved performance of our Korean joint ventures.
Results of Operations by Segment
Through December 31, 2013, 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, 2014, our management began utilizing segment Adjusted Operating Income as the
key performance measure of segment income of loss and for planning and forecasting purposes, as management believes this