E-Z-GO 2005 Annual Report Download - page 87

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Notes to the Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant portions of Textron’s net deferred tax assets and liabilities were as follows:
December 31, January 1,
(In millions) 2005 2005
Deferred tax assets:
Deferred revenue $18$24
Restructuring reserve 12 14
Warranty and product maintenance reserves 109 99
Self-insured liabilities, including environmental 83 92
Deferred compensation 170 162
Allowance for credit losses 59 74
Amortization of goodwill and other intangibles 22 28
Loss carryforwards 45 64
Obligation for postretirement benefits 6 —
Other, principally timing of other expense deductions 145 141
Total deferred tax assets 669 698
Valuation allowance for deferred tax assets (116) (125)
$ 553 $ 573
Deferred tax liabilities:
Textron Finance transactions, principally leasing $ (525) $ (505)
Property, plant and equipment, principally depreciation (94) (96)
Inventory (62) (53)
Obligation for postretirement benefits — (2)
Currency translation adjustment (10) (3)
Total deferred tax liabilities (691) (659)
Net deferred tax liability $ (138) $ (86)
At December 31, 2005 and January 1, 2005, Textron had non-U.S. net operating loss carryforwards for income tax purposes of $95 million and
$94 million, respectively, of which $78 million and $82 million, respectively, can be carried forward indefinitely. The balance expires at various
dates through 2020. At January 1, 2005, Textron had U.S. net operating loss carryforwards for income tax purposes of $64 million that were
utilized in 2005. At December 31, 2005 and January 1, 2005, Textron had federal and state credit carryforwards for income tax purposes of $23
million and $15 million, respectively. If not utilized, the federal and state tax credit carryforwards will begin to expire in 2015.
A valuation allowance at December 31, 2005 and January 1, 2005 of $116 million and $125 million, respectively, has been recognized to offset
the related deferred tax assets due to the uncertainty of realizing the benefits of the deferred tax assets. The decrease in the valuation allowance
was primarily related to deferred tax assets resulting from minimum pension liability adjustments recorded in Other Comprehensive Income
(Loss) for certain foreign jurisdictions and currency translation adjustments, partially offset by a valuation allowance related to contingent
receipts.
Textron’s income taxes payable for federal and state purposes have been reduced by the tax benefits from employee stock options. Textron
receives an income tax benefit for certain stock options calculated as the difference between the fair market value of the stock issued at the time of
exercise and the option price, tax effected. See Note 13 for the net tax benefits to employee stock options.
The undistributed earnings of Textron’s foreign subsidiaries on which tax is not provided, which approximated $530 million at the end of 2005,
are considered to be indefinitely reinvested. If the earnings of foreign subsidiaries were distributed, taxes, net of foreign tax credits, would be
increased by approximately $111 million in 2005.
On October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law and includes a deduction of 85% of certain foreign earnings
that are repatriated, as defined in the AJCA. During 2005, Textron repatriated $435 million in cash from foreign subsidiaries under this provision
related to continuing operations. Tax expense of $0.9 million and $11 million was recognized in 2005 and 2004, respectively, related to this repa-
triation. In addition, Textron repatriated approximately $183 million in cash related to its discontinued operations and recorded related tax
expense of $2 million in 2005.