E-Z-GO 2001 Annual Report Download - page 27

In conjunction with the initiation of the 2000 restructuring program and Textron’s fourth quarter multi-year
financial planning process, management identified certain indicators of potential impairment of long-lived
assets including goodw ill. As a result, Textron performed an impairment review which identified impaired
goodwill of $194 million in Industrial Products, $128 million in Fastening Systems and $27 million in
Automotive, resulting in an aggregate w rite-dow n of $349 million. The largest portions of the goodw ill
charge were at Turbine Engine Components ($178 million) and Flexalloy ($96 million).
During the end of 2000, the value of Textron’s e-business investment portfolio had fallen substantially.
Textron determined that this decline in value was other than temporary and recorded a pre-tax charge of
$117 million to w rite-down the portfolio to the current fair value.
In 1999, Textron recorded special charges of $18 million related to restructuring activities. The charges
included severance costs, asset impairments and other exit related costs associated w ith the cost
reduction efforts and plant closures in the former Industrial segment, and headcount reductions in the
Aircraft segment. These restructuring expenses w ere offset by a $19 million gain as a result of shares
granted to Textron from M anulife Financial Corporation's initial public offering on their demutualization of
Manufacturers Life Insurance Company.
Recently, the Securities and Exchange Commission (SEC) issued new advice regarding disclosure of
critical accounting policies. In response to this advice, w e have identified the accounting policies listed
below that w e believe are most critical to the portrayal of Textron’s financial condition and results of
operations, and that require management’s most difficult, subjective and complex judgments in estimating
the effect of inherent uncertainties. This section should be read in conjunction with Note 1 to the consolidated
financial statements which includes other significant accounting policies.
Receivable and Inventory Reserves
We evaluate the collectibility of our commercial and finance receivables based on a combination of factors.
In circumstances where w e are aw are of a specific customer’s inability to meet its financial obligations to
us (e.g., bankruptcy filings, substantial down-grading of credit scores), we record a specific reserve for
bad debts for amounts w e estimate to be potentially uncollectible. For homogenous loan pools and all
other receivables, w e recognize reserves for bad debts based on current delinquencies, historical loss
experience, the value of underlying collateral and general economic conditions and trends.
In areas where we have significant collateralized finance receivables w ith large customers such as national
rental companies, a single default could have a material impact on Textron if there is a significant decline
in the market value of the collateral due to market saturation as a result of numerous companies trying to
sell used equipment during an economic recession. We also have receivable and collateral concentrations
in aircraft and other equipment that may require additional reserves if the market w eakens and becomes
saturated w ith used aircraft and equipment resulting in low er market values. While w e believe our
reserves are adequate, if economic circumstances change significantly resulting in higher expected
defaults or there is an unexpected material adverse change in a major customer’s ability to meet its
financial obligations to us, our original estimates of the recoverability of amounts due us could be reduced
by a significant amount requiring additional reserves.
Long-Term Contracts
We recognize revenue and profit as w ork on certain government long-term engineering, development and
production contracts progresses using the contract method of accounting, which relies on estimates of the
total contract cost and revenue. Estimated contract cost and revenue are based on current contract specifi-
cations, expected engineering requirements and the achievement of contract milestones, including
product deliveries. Since the financial reporting of these contracts depends on estimates, w hich are
assessed periodically during the term of the contract, contract earning rates are subject to revisions as the
contract progresses. Revisions in earnings estimates are reflected in the period in w hich the facts that give
rise to the revision become known. Accordingly, favorable changes in estimates result in additional profit
recognition, and unfavorable changes in estimates result in the reversal of previously recognized earnings.
Any anticipated losses on contracts are charged to earnings when identified. Program earnings could be
reduced by a material amount resulting in a charge to income if (a) total estimated contract costs are
significantly higher than expected due to changes in customer specifications prior to contract amendment,
(b) there is a change in engineering efforts required during the development stage of the contract, or (c)
we are unable to meet contract milestones.
Critical
Accounting
Policies
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