E-Z-GO 2001 Annual Report Download - page 28

Goodwill and Other Intangible Assets
Management periodically evaluates the recoverability of goodwill and other intangible assets w henever
events or changes in circumstances, such as declines in sales, earnings or cash flow s or material adverse
changes in the business climate indicate that the carrying amount of an asset may not be recoverable.
Textron’s goodw ill and other intangible assets are not considered impaired based on management’s
estimates of future cash flows applying the current accounting standards. The implementation of new
accounting standards in this area during 2002 may result in an impairment charge in certain segments. Any
impairment charge upon the implementation of these standards w ould be recorded as a cumulative effect
of a change in accounting principle.
Securitized Transactions
Securitized transactions involve the sale of finance receivables to qualified special purpose trusts. While
the assets sold are no longer on our balance sheet, our retained interests are included in other assets.
Textron Finance retains servicing responsibilities and subordinated interests in the form of interest-only
securities, subordinated certificates and cash reserve accounts. Textron continues to be exposed to the
credit risk inherent in the securitized receivables because it has provided credit enhancement to the third
party investors by its retained interests in the securitization trusts. We estimate the fair value of the
retained interests based on the present value of future expected cash flows using our best estimates of
credit losses, prepayment speeds, forward interest rate yield curves, and discount rates commensurate
with the risks involved. These assumptions are review ed each quarter, and the retained interests are w ritten
dow n when the carrying value exceeds the fair value and the decline is estimated to be other than temporary.
Based on our sensitivity analysis, as discussed in Note 3 to the consolidated financial statements, a 20%
adverse change in either the prepayment speed, expected credit losses or the residual cash flow s
discount rate w ould not result in a material charge to income.
Pension Benefits
An important element in determining pension income is the expected return on plan assets. We have
assumed that the expected long-term rate of return on plan assets w ill be 9.25% . Over the last ten years,
our pension plan assets have earned just under 11%; therefore, w e believe that our assumption of future
returns is reasonable. The plan assets have earned a rate of return substantially less than 9% in the last
tw o years. Should this trend continue, future pension income will decline.
At the end of each year, we determine the discount rate that reflects the current rate at which the pension
liabilities could be effectively settled at the end of the year. This rate should be in line w ith rates for high
quality fixed income investments available for the period to maturity of the pension benefits, and changes
as long term interest rates change. At year-end 2001, w e determined this rate to be 7.25% . Changes in
discount rates over the past three years have not materially affected pension income, and the net effect
of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and
experience, have been deferred as allowed by SFAS No. 87.
Other Postretirement Benefits
We use various actuarial assumptions including the discount rate and the expected trend in health care
costs to estimate the costs and benefit obligations for our retiree health plan. The trend in health care
costs is difficult to estimate and it has an important effect on postretirement liabilities. Postretirement
benefit plan discount rates are the same as those used by Textron’s defined benefit pension plan in
accordance with the provisions of SFAS No. 106.
The 2001 health care cost trend rate, which is the weighted average annual projected rate of increase in
the per capita cost of covered benefits, was 8% . This rate is assumed to decrease to 5.5% by 2005 and
then remain at that level.
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