E-Z-GO 2013 Annual Report Download - page 85

72Textron Inc. Annual Report • 2013
The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:
2013 2012 2011
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes 2.4 2.2 3.1
Non-U.S. tax rate differential and foreign tax credits (7.2) (5.4) (9.4)
Research credit (3.8) — (2.5)
Other, net (0.3) (0.9) 1.9
Effective rate 26.1% 30.9% 28.1%
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 28,
2013
December 29,
2012
Balance at beginning of year $ 290 $ 294
Additions for tax positions related to current year 15 5
Additions for tax positions of prior years 1 2
Reductions for tax positions of prior years (17) (3)
Reductions for expiration of statute of limitations and settlements (5) (8)
Balance at end of year $ 284 $ 290
At both December 28, 2013 and December 29, 2012, approximately $204 million of these unrecognized tax benefits, if recognized,
would favorably affect our effective tax rate in a future period. The remaining $80 million in unrecognized tax benefits were
related to discontinued operations.
It is reasonably possible that within the next 12 months our unrecognized tax benefits, exclusive of interest, may decrease in the
range of $0 to $213 million, as a result of the conclusion of audits and any related appeals or review processes, the expiration of
statutes of limitations and additional worldwide uncertain tax positions. This potential decrease primarily relates to uncertainties
with respect to prior dispositions and research tax credits. However, based on the process of finalizing audits and any required
review process by relevant authorities, it is difficult to estimate the timing and amount of potential changes to our unrecognized
tax benefits. 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 Canada, China, Germany, Japan, Mexico 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.
During 2013, 2012 and 2011, we recognized net tax-related interest expense totaling approximately $6 million, $9 million and $10
million, respectively, in the Consolidated Statements of Operations. At December 28, 2013 and December 29, 2012, we had a total
of $126 million and $134 million, respectively, of net accrued interest expense included in our Consolidated Balance Sheets.