Income Taxes


A.	Taxes on Income

The effective tax rate was (33.3)% for the second quarter of 2015, compared with 30.5% for the second quarter of 2014. The negative effective tax rate for the second quarter of 2015 was driven by a pre-tax loss which resulted from restructuring charges recorded in the quarter related to the operational efficiency initiative and supply network strategy. See Note 6. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives for additional information. In addition the effective tax rate for the second quarter of 2015 includes a $6 million discrete tax benefit related to prior period tax adjustments, partially offset by a valuation allowance of $3 million, and changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs.

The effective tax rate was 36.5% for the six months ended June 28, 2015, compared with 31.1% for the six months ended June 29, 2014. The higher effective tax rate for the six months ended June 28, 2015 was primarily attributable to:


•	changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations, restructuring charges related to the operational efficiency initiative and supply network strategy, as well as repatriation costs; and


•	the recording of a valuation allowance of $3 million in the second quarter of 2015;

partially offset by:


•	an $9 million discrete tax benefit recorded in the first quarter of 2015 related to a revaluation of deferred taxes as a result of a change in tax rates; and


•	a $6 million discrete tax benefit recorded related to prior period tax adjustments.


B.	Deferred Taxes

As of June 28, 2015, the total net deferred income tax liability of $52 million is included in Current deferred tax assets ($127 million), Noncurrent deferred tax assets ($65 million), Accrued expenses ($10 million) and Noncurrent deferred tax liabilities ($234 million).

As of December 31, 2014, the total net deferred income tax liability of $125 million is included in Current deferred tax assets ($109 million), Noncurrent deferred tax assets ($54 million), Accrued expenses ($11 million) and Noncurrent deferred tax liabilities ($277 million).


C.	Tax Contingencies

As of June 28, 2015, the tax liabilities associated with uncertain tax positions of $57 million (exclusive of interest and penalties related to uncertain tax positions of $8 million) are included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($51 million).

As of December 31, 2014, the tax liabilities associated with uncertain tax positions of $54 million (exclusive of interest and penalties related to uncertain tax positions of $8 million) are included in Noncurrent deferred tax assets ($6 million) and Other taxes payable ($48 million).

Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.