E-Z-GO 2009 Annual Report Download - page 90

Textron Inc.
The following table reconciles the federal statutory income tax rate to our effective income tax rate:
2009 2008 2007
Federal statutory income tax rate (35.0)% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes 0.4 2.3 1.0
Goodwill impairment 18.5 8.4 —
Non-U.S. tax rate differential (13.5) (5.7) (0.5)
Valuation allowance on contingent receipts (7.3) (0.5) —
Research credit (4.7) (1.9) (0.8)
Unrecognized tax benefits and related interest (4.1) 3.4 1.2
Change in status of subsidiary (3.6) 5.0 —
Manufacturing deduction (3.1) (2.8) (1.6)
Equity hedge loss (income) 0.5 6.2 (1.5)
Other, net 0.9 (0.8) (3.0)
Effective income tax rate (51.0)% 48.6% 29.8%
The amount of income taxes we pay is subject to ongoing audits by U.S. 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.
Our 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, is as follows:
January 2, January 3,
(In millions) 2010 2009
Balance at beginning of year $ 324 $ 367
Additions for tax positions related to current year 9 24
Additions for tax positions of prior years 11 4
Reductions for tax positions of prior years (43) (71)
Reductions for expiration of statute of limitations (1) —
Reductions for settlements with tax authorities (6) —
Balance at end of year $ 294 $ 324
At January 2, 2010 and January 3, 2009, approximately $208 million and $210 million, respectively, of these unrecognized tax benefits, if
recognized, would favorably affect our effective tax rate in any future period. The remaining $86 million and $114 million, respectively, in
unrecognized tax benefits are related to discontinued operations. Unrecognized tax benefits were reduced in 2009 and 2008 primarily due to the
sale of CESCOM assets and the HR Textron and Fluid & Power sales. We do not expect the amount of the unrecognized tax benefits disclosed
above to change significantly over the next 12 months.
In the normal course of business, we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as
Belgium, Canada, Germany, Japan, the United Kingdom and the U.S. With few exceptions, we no longer are subject to U.S. federal, state and local
income tax examinations for years before 1997 and no longer are subject to non-U.S. income tax examinations in our major jurisdictions for years
before 2004.
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