E-Z-GO 2008 Annual Report Download - page 33

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special charges by segment for the year ended January 3, 2009 are as follows:
Restructuring Charges
Total
Severance Contract Asset Total Other Special
(In millions) Costs Terminations Impairments Restructuring Charges Charges
Cessna $ 5 $ — $ — $ 5 $ — $ 5
Textron Systems 1 — — 1 — 1
Industrial 16 — 9 25 — 25
Finance 15 1 11 27 462 489
Corporate 6 — — 6 — 6
$ 43 $ 1 $ 20 $ 64 $ 462 $ 526
Corporate Expenses and Other, net
Corporate expenses and other, net decreased $86 million in 2008, compared with 2007, primarily due to lower compensation expenses, largely
caused by stock depreciation.
Corporate expenses and other, net increased $50 million in 2007, compared with 2006, primarily due to $26 million of higher compensation
expenses, largely related to stock appreciation, $14 million of higher professional and consulting fees for corporate initiatives, $11 million of
increased costs for divested operations, primarily due to higher pension costs and other retained liabilities, and a $6 million increase in our
contribution to the Textron Charitable Trust, partially offset by an $8 million gain on an insurance settlement.
Interest Expense
Interest expense for the Manufacturing group increased $38 million to $125 million in 2008, compared with 2007, primarily due to higher
borrowing costs associated with our commercial paper borrowing in 2008.
Income Taxes
The following table reconciles the federal statutory income tax rate to our effective income tax rate:
2008 2007 2006
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes 2.1 1.0 2.3
Goodwill impairment 8.0 — —
Favorable tax settlements — (1.1) (2.4)
Canadian dollar functional currency — (0.1) (1.2)
Non-U.S. tax rate differential (5.6) (0.5) (2.4)
Manufacturing deduction (2.7) (1.6) (0.5)
Equity hedge loss (income) 5.9 (1.5) (0.8)
Tax contingencies and related interest 3.3 1.2 0.7
Change in status of non-U.S. subsidiary 4.8 — —
Research credit (1.8) (0.8) (0.6)
Other, net (1.3) (1.8) (2.5)
Effective income tax rate 47.7% 29.8% 27.6%
In 2008, the effective income tax rate was significantly impacted by the plan announced in the fourth quarter of 2008 to exit portions of the Finance
segment’s business. This plan resulted in the impairment of all of the Finance segment’s goodwill, of which only a small portion was deductible
for tax purposes. In addition, due to the change in the investment status of the Finance segment’s Canadian subsidiary, we incurred $31 million in
additional tax expense.
Discontinued Operations
In November 2008, we completed the sale of our Fluid & Power business unit to Clyde Blowers Limited, a U.K.-based worldwide leader in the
areas of power, materials handling, intermodal transport and logistics, and pump technologies. This sale included our Gear Technologies,
Hydraulics, Maag Pump and Union Pump product lines, along with each of their respective brands. We received approximately $527 million in
cash, a six-year note with a face value of $28 million and up to $50 million based on final 2008 operating results that will be determined by the