Income Taxes

The following table sets out the tax expense and the effective tax rate for the company from continuing operations:



	Quarter Ended
(In millions)	September 28, 2013			September 29, 2012
Continuing operations
Income before income taxes	$	44		$	75
Income tax expense (benefit)	15			26
Effective tax rate	33.4		%	35.3		%

First Quarter 2014

In the first quarter of 2014, the company recognized tax expense of $15 million on pretax income from continuing operations of $44 million, or an effective tax rate of 33.4%. The tax expense and related effective tax rate on continuing operations were determined by applying a 33.5% estimated annual effective tax rate to pretax earnings and then recognizing various discrete tax items, none of which were material individually or in the aggregate.

First Quarter 2013

In the first quarter of 2013, the company recognized a tax expense of $26 million on pretax income from continuing operations of $75 million, or an effective tax rate of 35.3%. The tax expense and related effective tax rate on continuing operations was determined by applying a 35.3% estimated annual effective tax rate to pretax earnings.

Unrecognized Tax Benefits

Each quarter, the company makes a determination of the tax liability needed for unrecognized tax benefits that should be recorded in the financial statements. For tax benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The year-to-date net liability for unrecognized tax benefits as of September 28, 2013 is $65 million which is unchanged from June 29, 2013. At this time, the company estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by $5 million to $30 million in the next twelve months from a variety of uncertain tax positions as a result of the completion of tax audits currently in process and the expiration of statutes of limitations.

The company’s tax returns are routinely audited by federal, state, and foreign tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service (IRS) has completed examinations of the company’s U.S. income tax returns through 2008. With few exceptions, the company is no longer subject to state and local income tax examinations by tax authorities for years prior to 2005.