E-Z-GO 2006 Annual Report Download - page 36

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15
Corporate expenses and other, net increased $42 million in 2005, principally due to $16 million for higher compensation and pension costs, $9
million for corporate initiatives and $7 million for the corporate portion of share-based compensation expense recorded upon the adoption of a
new accounting standard.
Income Taxes
A reconciliation of the federal statutory income tax rate to the effective income tax rate is provided below:
2006 2005 2004
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
Valuation allowance on contingent receipts — 2.1 —
State income taxes 2.3 0.9 1.3
Special foreign dividend — 0.1 2.1
Favorable tax settlements (2.4) — —
Canadian dollar functional currency (1.2) — —
Foreign tax rate differential (2.7) (5.0) (4.8)
Export sales benefit (0.8) (1.1) (1.0)
Other, net (2.6) (1.8) (2.0)
Effective income tax rate 27.6% 30.2% 30.6%
Discontinued Operations
Discontinued operations reflect after-tax results of Fastening Systems, InteSys, OmniQuip and the Small Business Direct financing business, all
of which have been sold. See Note 2 to the consolidated financial statements for additional discussion of these divestiture activities.
Operating results of these discontinued businesses, primarily related to Fastening Systems, are as follows:
(In millions)
2006 2005 2004
Revenue $ 1,101 $ 1,936 $ 1,994
(Loss) income from discontinued operations before special charges (94) (388) 72
Special charges — (11) (91)
Loss from discontinued operations (94) (399) (19)
Income tax (expense) benefit (11) 40 9
Operating loss from discontinued operations, net of income taxes (105) (359) (10)
Gain on disposal, net of income taxes — 46 —
Loss from discontinued operations, net of income taxes $ (105) $ (313) $ (10)
In 2005, the loss from discontinued operations includes a $335 million goodwill impairment charge related to our Fastening Systems business.
In addition, we recorded an after-tax charge of approximately $52 million in the fourth quarter of 2005, which included $37 million related to pre-
viously deferred foreign currency translation losses and $7 million in curtailment losses for employee retirement plans. After these charges, we
assessed the estimated fair value of the business and determined that no further adjustment to the carrying value was required at that time. In the
second quarter of 2006, we recorded an additional $120 million after-tax impairment charge to record the business at the estimated fair value less
cost to sell at the time based on offers received from potential purchasers.
In 2005, we recorded a net $46 million gain on disposal, primarily related to a tax benefit recorded upon the sale of InteSys.
Segment Analysis
Our four reportable segments are: Bell, Cessna, Industrial and Finance. These segments reflect the manner in which we manage our operations.
Segment profit is an important measure used to evaluate performance and for decision-making purposes. Segment profit for the manufacturing
segments excludes interest expense, certain corporate expenses and special charges. The measurement for the Finance segment includes interest
income and expense and excludes special charges.
Textron Inc.