E-Z-GO 2000 Annual Report Download - page 56

costs. Severance and other costs accrued during the fourth quarter of 2000 for the Automotive and
Industrial Products segments were $1 million and $15 million, respectively. No costs were accrued
for Fastening Systems during the fourth quarter. Facility consolidations will occur primarily in the
United States and Europe. The Company anticipates incurring additional restructuring charges as it com-
pletes and commits to additional activities within Automotive, Fastening Systems and Industrial
Products segments. The Company expects to fund the cash requirements of its restructuring activities
with cash flow from operations and additional borrowings under its existing credit facilities.
As of December 30, 2000, the Industrial Products segment had terminated 204 employees and
Automotive did not yet have any terminations under the 2000 restructuring program.
In conjunction with the restructuring plan and review of long-lived assets including goodwill, the
Company recorded an asset impairment charge of $1 million for fixed assets and $349 million for
goodwill in the fourth quarter of 2000 principally related to Turbine Engine Components Textron
(TECT), part of the Industrial Products segment and Flexalloy, part of the Fastening Systems seg-
ment. Yearly amortization of this goodwill was approximately $12 million.
Indicators of potential impairment of long-lived assets including goodwill were identified in connec-
tion with multi-year financial planning in the fourth quarter of 2000, as well as the initiation of the
2000 restructuring program. Based on the indicators, the Company performed an overall impairment
review for the applicable operating units. Key indicators with respect to TECT, a manufacturer of air
and land-based gas turbine engines components and airframe structures, was deteriorating margins
and its inability to generate new contracts, which has resulted in a significantly decreased revenue
base. Key indicators for Flexalloy, a vendor-managed inventory company, serving primarily the heavy
truck industry within Fastening Systems, were its performance against plan and the negative effect
on its vendor-managed business model by other supply chain competitors. The business is dependent
upon large customers, and the service level for larger customers can not be easily replicated over a
large number of smaller customers without significant additional investment. Also, the synergies
within Fastening Systems, which were initially viewed to be significant due to Textron’s existing mar-
ket share, have been considerably less than anticipated. Accordingly, future cash flow projections are
not expected to achieve the level of growth originally anticipated at the time of Flexalloy’s acquisition.
The undiscounted cash flow projections performed for the applicable operating units were less
than the carrying amounts of long-lived assets including goodwill indicating that there was an
impairment. The discounted pre-tax cash flow calculation for purposes of determining the fair value
of the long-lived assets was performed utilizing the multi-year financial plan (adjusted for planned
restructuring activities) to project future cash flows and a risk-based rate of 11%. The calculation
resulted in a fourth quarter 2000 write down of goodwill for TECT of $178 million, Flexalloy of
$96 million and $75 million related to four other operating units. The calculation also showed that
fixed assets and approximately $57 million of remaining goodwill were substantially recoverable at
these units. By segment, Automotive recognized goodwill impairment charges of $27 million and
fixed asset impairment charges of $1 million and Fastening Systems and Industrial Products recog-
nized goodwill impairment charges of $128 million and $194 million, respectively, in 2000. The cash
flow projections used in performing the review for these operating units were based upon manage-
ment’s best estimate of future results. Actual results could differ materially from those estimates.
Accruable restructuring costs and asset impairment charges recorded in earnings have been
included in special charges, net on the consolidated statement of income.
An analysis of Textron’s 2000 restructuring related special charges and reserve accounts is sum-
marized below.
Asset Facilities
(In millions) Impairments Severance & Other Total
Balance at January 1, 2000 $ – $ – $– $ –
Additions 350 15 1 366
Utilized (350) (1) – (351)
Balance at December 30, 2000 $ – $14 $1 $ 15
The specific restructuring measures and associated estimated costs are based on the Company’s
best judgment under prevailing circumstances. The Company believes that the restructuring reserve
balance of $15 million is adequate to carry out the restructuring activities formally identified and com-
mitted to as of December 30, 2000 and anticipates that all actions related to these liabilities will be
completed by December 29, 2001.
TEXTRON 2000 ANNUAL REPORT 54