Tax

The effective tax rate for the three and six months ended June 30, 2014 was 31.8% and 31.1%, respectively, compared to 30.6% and 30.7% for the same periods in 2013. Compared to the U.S. statutory rate, the effective tax rate was positively impacted in the periods by the effect of lower tax rates on income earned in foreign jurisdictions, that is considered to be indefinitely reinvested, foreign exchange losses for tax reporting in Norway, and the deduction in the U.S. for manufacturing activities. The effective tax rate was negatively impacted by foreign dividends net of foreign tax credits.

The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate of 35% was as follows (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

Federal income tax at U.S. federal statutory rate	$	312		$	249		$	588		$	482
Foreign income tax rate differential		(51	)		(65	)		(98	)		(122	)
State income tax, net of federal benefit		9			4			15			12
Nondeductible expenses		8			8			19			16
Tax benefit of manufacturing deduction		(10	)		(8	)		(17	)		(16	)
Foreign dividends, net of foreign tax credits		12			8			21			12
Tax impact of foreign exchange		6			21			(2	)		39
Other		(2	)		1			(3	)		—

Provision for income taxes	$	284		$	218		$	523		$	423

The balance of unrecognized tax benefits at June 30, 2014 was $128 million, $55 million of which if ultimately realized, would be recorded as an income tax benefit. Included in the change in the balance of unrecognized tax benefits was an increase of $1 million associated with certain operating expenses that may not be deductible in foreign jurisdictions.

The Company does not anticipate that its total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within 12 months of this reporting date.

The Company is subject to taxation in the U.S., various states and foreign jurisdictions. The Company has significant operations in the United States, Canada, the United Kingdom, the Netherlands and Norway. Tax years that remain subject to examination by major tax jurisdiction vary by legal entity, but are generally open in the U.S. for tax years after 2009 and outside the U.S. for tax years after 2005.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts have been classified as a component of income tax expense in the financial statements.