E-Z-GO 1998 Annual Report Download - page 56

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14. Textron files a consolidated federal income tax return for all U.S. subsidiaries and
separate returns for foreign subsidiaries. Textron recognizes deferred income taxes for
temporary differences between the financial reporting basis and income tax basis of
assets and liabilities based on enacted tax rates expected to be in effect when
amounts are likely to be realized or settled.
The following table shows income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust:
(In millions)
1998 1997 1996
United States $582 $441 $393
Foreign 181 207 147
Total $763 $648 $540
Income tax expense is summarized as follows:
(In millions)
1998 1997 1996
Federal:
Current $225 $ 82 $121
Deferred (25) 71 15
State 33 27 25
Foreign 61 70 50
Income tax expense $294 $250 $211
The following reconciles the federal statutory income tax rate to the effective income
tax rate reflected in the consolidated statement of income:
1998 1997 1996
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes
resulting from:
State income taxes 2.7 2.8 3.0
Goodwill 4.3 2.7 2.8
Other – net (3.5) (1.9) (1.7)
Effective income tax rate 38.5% 38.6% 39.1%
Textron’s net deferred tax asset consisted of gross deferred tax assets and gross
deferred tax liabilities of $1,775 million and $1,576 million, respectively, at the end of 1998
and $1,517 million and $1,362 million, respectively, at the end of 1997.
The components of Textron’s net deferred tax asset were as follows:
(In millions)
January 2, 1999 January 3, 1998
Textron Finance transactions, principally leasing $(350) $(334)
Self insured liabilities (including environmental) 205 207
Obligation for postretirement benefits 186 222
Fixed assets, principally depreciation (171) (146)
Deferred compensation 152 115
Inventory (48) (47)
Allowance for credit losses 33 25
Other, principally timing of other expense deductions 192 113
$ 199 $ 155
Deferred income taxes have not been provided for the undistributed earnings of
foreign subsidiaries, which approximated $506 million at the end of 1998. Management
intends to reinvest those earnings for an indefinite period, except for distributions having
an immaterial tax effect. If foreign subsidiaries’ earnings were distributed, 1998 taxes, net
of foreign tax credits, would be increased by approximately $68 million.
Income Taxes
52 1998 TEXTRON ANNUAL REPORT