E-Z-GO 2008 Annual Report Download - page 94

Textron Inc.
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%
The amount of income taxes we pay is subject to ongoing audits by federal, state and non-U.S. 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 benefits 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 benefit will be sustained, we record the largest amount of
tax benefit with 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 benefit will be
sustained, no tax benefit is recognized.
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 fluctuate significantly 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 fiscal 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 financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax benefits represent tax positions for which reserves
have been established. Unrecognized state tax benefits and interest related to unrecognized tax benefits are reflected net of applicable tax benefits.
A reconciliation of our unrecognized tax benefits, excluding accrued interest, for 2008 and 2007 is as follows:
January 3, December 29,
(In millions) 2009 2007
Balance at beginning of year $ 367 $ 345
Additions based on tax positions related to the current year 24 33
Additions for tax positions of prior years 4 5
Reductions for tax positions of prior years (71) (6)
Settlements — (10)
Balance at end of year $ 324 $ 367
At January 3, 2009 and December 29, 2007, approximately $210 million and $205 million, respectively, of these unrecognized tax benefits, if
recognized, would favorably affect our effective tax rate in any future period. The remaining $114 million and $162 million, respectively, in
unrecognized tax benefits are related to discontinued operations, which were reduced in 2008 primarily due to the Fluid & Power sale. We do not
expect the amount of the unrecognized tax benefits disclosed above to change significantly over the next 12 months.
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