E-Z-GO 2001 Annual Report Download - page 57

Deferred income taxes have not been provided for the undistributed earnings of foreign subsidiaries,
which approximated $488 million at year-end 2001. M anagement intends to reinvest those earnings for an
indefinite period, except for distributions having an immaterial tax effect. If foreign subsidiaries’ earnings
were distributed, 2001 taxes, net of foreign tax credits, would be increased by approximately $61 million.
Goodwill and Other Intangible Assets
In conjunction with Textron’s restructuring activities and review of long-lived assets, Textron w rote dow n
goodwill and other intangible assets by $319 million and $349 million in 2001 and 2000, respectively. For
2001, the impairment charge related primarily to OmniQuip w ithin the Industrial Products segment. For
2000, Textron recognized goodw ill impairment charges of $194 million in Industrial Products primarily
related to Turbine Engine Components Textron (TECT), $128 million in Fastening Systems primarily related
to Flexalloy, and $27 million in Automotive.
During the third quarter of 2001, certain long-lived asset impairment indicators w ere identified for
OmniQuip w hich caused Textron to perform an impairment review. Key impairment indicators included
OmniQuip’s operating performance against plan despite restructuring efforts to improve operating
efficiencies and streamline operations. Additionally, the strategic review process completed in August 2001
confirmed that the economic and market conditions combined w ith the saturation of light construction
equipment handlers in the market had negatively impacted the projected results for the foreseeable
future. The undiscounted cash flow projections performed w ere less than the carrying amount of
OmniQuip’s long-lived assets indicating that there w as an impairment. Textron used a discounted pre-tax
cash flow calculation in determining the fair value of the long-lived assets utilizing the multi-year forecast
to project future cash flow s and a risk-based rate of 11%. The calculation resulted in an impairment charge
of $317 million, including goodw ill of $306 million and other intangible assets of $11 million.
For 2000, indicators of potential impairment of long-lived assets w ere identified in connection w ith multi-year
financial planning, as w ell as the initiation of the current restructuring program. Based on the indicators,
Textron 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, w ere deteriorating margins and its inability to generate new contracts that had resulted in a
significantly decreased revenue base. Key indicators for Flexalloy, a vendor-managed inventory company,
serving primarily the heavy truck industry w ithin Fastening Systems, w ere 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 cannot be easily
replicated over a large number of smaller customers w ithout significant additional investment. Also, the
synergies w ithin Fastening Systems, w hich w ere initially view ed to be significant due to Textron’s existing
market share, were considerably less than anticipated. Accordingly, future cash flow projections w ere not
expected to achieve the level of grow th originally anticipated at the time of Flexalloy’s acquisition.
The undiscounted cash flow projections performed for the applicable operating units w ere less than the
carrying amounts of long-lived assets indicating that there w as an impairment. The discounted pre-tax
cash flow calculations for purposes of determining the fair value of the long-lived assets w ere 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 w rite dow n of
goodwill for TECT of $178 million, Flexalloy of $96 million and $75 million related to other operating units.
The cash flow projections used in performing the review for these operating units w ere based upon
management’s best estimate of future results. Actual results could differ materially from those estimates.
Restructuring
To improve returns at core businesses and to complete the integration of certain acquisitions, Textron
approved and committed to a restructuring program in the fourth quarter of 2000 based upon targeted
cost reductions. The program includes corporate and segment direct and indirect w orkforce reductions,
consolidation of facilities primarily in the United States and Europe, rationalization of certain product lines,
outsourcing of non-core production activity, the divestiture of non-core businesses and streamlining of
sales and administrative overhead.
In 2001, Textron recorded restructuring expenses of $109 million in special charges. These restructuring
costs included $81 million of severance and related benefits, and other exit costs ($27 million for Industrial
Products, $25 million for Fastening Systems, $14 million for Automotive, $5 million for Aircraft, $3 million
for Finance and $7 million at Corporate) and $28 million for fixed asset impairment w rite-downs, primarily
14. Special
Charges, Net
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