E-Z-GO 2012 Annual Report Download - page 33

Textron Inc. Annual Report ● 2012 21
Special Charges
There were no amounts recorded within special charges in 2012 and 2011. In 2010, special charges included restructuring charges
totaling $99 million, including $76 million of severance costs. These charges were related to a global restructuring program
initiated in the fourth quarter of 2008 to reduce overhead costs and improve productivity across the company and included the
announcement of the exit of portions of our commercial finance business. This restructuring program was substantially completed
at the end of 2011. In 2010, special charges also included a $91 million non-cash pre-tax charge to reclassify a foreign exchange
loss from equity to the Statement of Operations as a result of substantially liquidating a Canadian Finance entity.
Other Losses, net
In 2011, other losses, net included $55 million in losses on the early extinguishment of a portion of our convertible notes which
was largely offset by a $52 million gain from the collection on notes receivable in connection with the disposition of the Fluid &
Power business in 2008 as discussed in Note 2 to the Consolidated Financial Statements.
Income Tax Expense (Benefit)
Our effective rate was 30.9% in 2012, 28.1% in 2011 and (6.4)% in 2010, and generally differs from the U.S. federal statutory rate
of 35% due to certain earnings from our operations in lower-tax jurisdictions throughout the world. The jurisdictions with
favorable tax rates that have the most significant effective rate impact in the periods presented include primarily Canada, Belgium
and China. We have not provided for U.S. taxes for those earnings because we plan to reinvest all of those earnings indefinitely
outside of the United States. Our effective rate will fluctuate based on the mix of earnings from our U.S. and foreign operations.
For a full reconciliation of our effective rate to the U.S. federal statutory rate of 35% see Note 14 to the Consolidated Financial
Statements.
Subsequent to year end, the American Taxpayer Relief Act of 2012 was enacted on January 2, 2013 to retroactively reinstate and
extend the Federal Research and Development Tax Credit from January 1, 2012 to December 31, 2013. As a result, our income
tax provision in the first quarter of 2013 will include a discrete tax benefit that will reduce the annual effective tax rate by
approximately one percent.
Segment Analysis
We operate in, and report financial information for, the following five business segments: Cessna, Bell, Textron Systems,
Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making
purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and special
charges. The measurement for the Finance segment excludes special charges and includes interest income and expense along with
intercompany interest expense.
In our discussion of comparative results for the Manufacturing group, changes in revenue and segment profit typically are
expressed for our commercial business in terms of volume, pricing, foreign exchange and acquisitions. Additionally, changes in
segment profit may be expressed in terms of mix, inflation and cost performance. Volume changes in revenue represent
increases/decreases in the number of units delivered or services provided. Pricing represents changes in unit pricing. Foreign
exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are
different from the prior period. Acquisitions refer to the results generated from businesses that were acquired within the previous
12 months. For segment profit, mix represents a change due to the composition of products and/or services sold at different profit
margins. Inflation represents higher material, wages, benefits, pension or other costs. Cost performance reflects an increase or
decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap,
labor efficiency, overhead, product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.
Approximately 29% of our revenues were derived from contracts with the U.S. Government in 2012. For our segments that have
significant contracts with the U.S. Government, we typically express changes in segment profit related to the government business
in terms of volume, changes in program performance or changes in contract mix. Changes in volume that are discussed in net
sales typically drive corresponding changes in our segment profit based on the profit rate for a particular contract. Changes in
program performance typically relate to profit recognition associated with revisions to total estimated costs at completion that
reflect improved or deteriorated operating performance or award fee rates. Changes in contract mix refers to changes in operating
margin due to a change in the relative volume of contracts with higher or lower fee rates such that the overall average margin rate
for the segment changes.