Income Tax Provision

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Provision

NOTE E – Income Tax Provision

Income tax expense of approximately $6 million and $4 million was recorded for the three months ended September 30, 2014 and 2013, respectively, and income tax expense of approximately $14 million and $12 million was recorded for the nine months ended September 30, 2014 and 2013, respectively. This resulted in an effective tax rate of 23% for the nine months ended September 30, 2014, as compared to 36% in the same period last year and compared to 38% for the full year of 2013.   The effective tax rate for the nine months ended September 30, 2014 includes a $4 million benefit for discrete items, primarily resulting from the conclusion of a tax audit and differences related to 2013 tax provision estimates compared to 2013 actual tax return items.  The effective tax rate for the nine months ended September 30, 2013 includes a $6 million charge for discrete items, primarily resulting from the conclusion of a tax audit by the China tax authorities. The estimated annual tax rate for 2014 is expected to be approximately 29%, excluding discrete items.  The Company’s effective tax rates for the nine months ended September 30, 2014 and 2013, excluding discrete items, were lower than the U.S. statutory tax rate of 35%, principally from the impact of income in lower-taxed jurisdictions.

For the three months ended September 30, 2014, the Company reported domestic and foreign pre-tax income/(loss) of approximately $(3) million and $29 million, respectively. For the nine months ended September 30, 2014, the Company reported domestic and foreign pre-tax income of approximately $1 million and $62 million, respectively. Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. The Company intends to permanently reinvest overseas all of its earnings from its foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to U.S. tax; accordingly, deferred U.S. taxes are not recorded on undistributed foreign earnings.

The impact of tax holidays decreased the Company’s tax expense by approximately  $3 million for both the nine months ended September 30, 2014 and 2013. The benefit of the tax holidays on both basic and diluted earnings per share for both the nine months ended September 30, 2014 and 2013 was approximately $0.06.  

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2007, or for the 2010 tax year.  The Company is no longer subject to China income tax examinations by tax authorities for tax years before 2004.  With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2006. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s reserve for any adjustments that may result from tax audits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense. As of September 30, 2014, the gross amount of unrecognized tax benefits was approximately $21 million.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.