E-Z-GO 2007 Annual Report Download - page 87

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Notes to the Consolidated Financial Statements
66
Income tax expense for continuing operations is summarized as follows:
(In millions) 2007 2006 2005
Current:
Federal $ 333 $ 152 $ 128
State 20 8 17
Foreign 58 43 26
411 203 171
Deferred:
Federal 10 44 64
State (23) 28 (7)
Foreign (13) (6) (5)
(26) 66 52
Income tax expense $ 385 $ 269 $ 223
The following table reconciles the federal statutory income tax rate to our effective income tax rate:
2007 2006 2005
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes 1.0 2.3 0.9
Favorable tax settlements (1.1) (2.4) —
Canadian dollar functional currency (0.1) (1.2) —
Foreign tax rate differential (1.0) (2.7) (5.0)
Manufacturing deduction (1.5) (0.5) (0.4)
Equity hedge income (1.4) (0.8) (0.4)
Export sales benefi t — (0.8) (1.1)
Valuation allowance on contingent receipts — — 2.1
Other, net (1.3) (1.3) (0.9)
Effective income tax rate 29.6% 27.6% 30.2%
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed
assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We assess our income tax positions and
record tax benefi ts for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available
at the reporting date. For those tax positions for which it is more likely than not that a tax benefi t will be sustained, we record the amount that has
a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest
and penalties are accrued, where applicable. If we do not believe that it is not more likely than not that a tax benefi t will be sustained, no tax benefi t
is recognized.
However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax
examinations, new regulatory or judicial pronouncements, or other relevant events. As a result, our effective tax rate may fl uctuate signifi cantly on
a quarterly and annual basis.
We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement
No. 109” (“FIN 48”), at the beginning of fi scal 2007, which resulted in an increase of approximately $22 million to our December 31, 2006
retained earnings balance. FIN 48 provides a comprehensive model for the fi nancial statement recognition, measurement, presentation and
disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax benefi ts represent tax positions for
which reserves have been established. Unrecognized state tax benefi ts and interest related to unrecognized tax benefi ts are refl ected net of
applicable tax benefi ts.