I. INCOME TAXES

 

Our effective tax rate was 20 percent and 30 percent for the three and six months ended June 30, 2015, respectively, primarily due to the decrease in the valuation allowance resulting from the partial utilization of our U.S. Federal net operating loss carryforward.

 

For the three and six months ended June 30, 2014, we incurred a 13 percent effective tax rate expense on pre-tax income and a 50 percent effective tax rate benefit on pre-tax loss, respectively, primarily due to the decrease in the valuation allowance resulting from the anticipated partial utilization of our U.S. Federal net operating loss carryforward and from a tax benefit recorded in the second quarter of 2014 to adjust certain income tax returns to amounts as filed.

 

Although we recorded an income tax benefit on a loss from continuing operations for the six months ended June 30, 2014, based on actual results, we recorded an income tax expense on income from continuing operations for the full year 2014.

 

We file our tax returns as a member of the Masco consolidated group for U.S. Federal and certain state jurisdictions through June 30, 2015, the Effective Date. As a result, certain tax attributes, primarily the net operating loss carryforward, are treated as an asset of the Masco consolidated group and may be utilized by the Masco consolidated group through the end of December 31, 2015, Masco’s tax year end.

 

Of the $434 million deferred tax assets on net operating loss carryforwards recorded at December 31, 2014, all but $32 million has been and is anticipated to be utilized  by the Masco consolidated group by December 31, 2015, resulting in a reduction in the corresponding deferred tax asset and valuation allowance as of June 30, 2015. 

 

It is reasonably possible that the continued improvements in our operations could result in the objective positive evidence necessary to warrant the reversal of all or a portion of the valuation allowance for U.S. Federal and certain state jurisdictions by the end of 2015.