E-Z-GO 2011 Annual Report Download - page 90

The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:
2011
2010
2009
Federal statutory income tax rate
35.0%
35.0%
(35.0)%
Increase (decrease) in taxes resulting from:
State income taxes
3.1
(2.7)
0.4
Non-U.S. tax rate differential and foreign tax credits
(9.4)
(60.5)
(13.5)
Unrecognized tax benefits and interest
1.2
17.5
(4.1)
Nondeductible healthcare claims
—
12.7
—
Change in status of subsidiaries
—
12.0
(3.6)
Research credit
(2.5)
(5.4)
(4.7)
Cash surrender value of life insurance
(1.5)
(5.1)
(1.9)
Valuation allowance on contingent receipts
—
(2.0)
(7.3)
Goodwill impairment
—
—
18.5
Other, net
2.2
(7.9)
0.2
Effective rate
28.1%
(6.4)%
(51.0)%
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 settlement of income tax
examinations, new regulatory or judicial pronouncements, expiration of statutes of limitations 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:
(In millions)
December 31,
2011
January 1,
2011
Balance at beginning of year
$ 285
$ 294
Additions for tax positions related to current year
8
7
Additions for tax positions of prior years
8
8
Reductions for tax positions of prior years
(7)
(17)
Reductions for expiration of statute of limitations
—
(5)
Reductions for settlements with tax authorities
—
(2)
Balance at end of year
$ 294
$ 285
At December 31, 2011 and January 1, 2011, approximately $206 million and $197 million, respectively, of these unrecognized tax
benefits, if recognized, would favorably affect our effective tax rate in a future period. The remaining $88 million in unrecognized
tax benefits are related to discontinued operations. Unrecognized tax benefits were reduced in 2011 and 2010, primarily related to
favorable tax audit resolutions. Based on the outcome of appeals proceedings and the expiration of statutes of limitations, it is
possible that certain audit cycles for U.S. and foreign jurisdictions could be completed during the next 12 months, which could
result in a change in our balance of unrecognized tax benefits with the aggregate tax effect of the differences between tax return
positions and the benefits being recognized in our financial statements. Although the outcome of these matters cannot be
determined, we believe adequate provision has been made for any potential unfavorable financial statement impact.
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 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. We are no longer subject to non-U.S. income tax
examinations in our major jurisdictions for years before 2005.
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Textron Inc. Annual Report • 2011 79