E-Z-GO 2002 Annual Report Download - page 22

sitions of the InteSys and Tempo businesses. For Industrial Components and Fastening Systems, the
primary factor was the decline in demand in certain industries in which these segments operate due to
the economic slowdown. The Finance segment’s impairment charge was in its franchise finance division
and was primarily the result of decreasing loan volumes and an unfavorable securitization market. No
impairment charge was appropriate for these segments under the previous goodwill impairment
accounting standard, which Textron applied based on undiscounted cash flows.
Segment profit of $835 million in 2002 decreased $91 million from $926 million in 2001 primarily due to
low volume manufacturing inefficiencies, the divestitures of Trim and TECT, which contributed $95 mil-
lion to the decrease, lower results in the Finance segment, changes in sales volume and an unfavorable
mix, the cost related to the recall, inspection and customer care program at the aircraft engine business
and an increase in reserves for receivables and inventory. These decreases were partially offset by unfa-
vorable 2001 profit adjustments at Bell Helicopter, the benefit of restructuring activities and higher pric-
ing. The preceding items are discussed more fully in the segment commentary that follows.
Corporate expenses and other, net decreased $38 million primarily due to $15 million in lower stock-
based compensation and related hedge costs, royalty income of $13 million in 2002 related to the Trim
divestiture, lower costs of $5 million as a result of organizational changes made in the third quarter of
2001 and higher income of $4 million related to retirement plans, partially offset by an increase of $7 mil-
lion in product liability reserves related to exited businesses.
Interest expense, net decreased $54 million primarily due to the benefit of $45 million as a result of a
lower level of average debt primarily from the pay down of debt with the proceeds from the divestiture of
Trim, the benefit of a lower interest rate environment and the receipt of $5 million for accumulated inter-
est on the preferred shares that C&A repurchased.
Income taxes – The effective tax rate for 2002 was 20.4% compared to the federal statutory income tax
rate of 35.0%. The lower effective rate was primarily due to the tax impact of 9.5% related to the sale of
the Snorkel business and the OmniQuip Textron Inc. holding company, a favorable change in the tax law
related to the deductibility of dividends paid on company stock held by an employee stock ownership
plan of 3.7% (1.8% of this reduction represents a nonrecurring benefit upon implementation of the new
tax law), a benefit of 2.5% for a tax refund as a result of the settlement of a prior year tax dispute and
1.8% related to the benefit from export sales, partially offset by the impact of 2.1% for state income taxes
and 1.4% for permanent items related to the divesture of Trim. The effective tax rate for 2001 was 54.2%
compared to the federal statutory income tax rate of 35.0%. The higher effective rate was primarily due
to the impact of 22.3% for the non-tax deductibility of goodwill written off in 2001, 2.7% for permanent
items related to the divesture of Trim and 2.7% for state income taxes, partially offset by 2.9% related to
the benefit from export sales.
Outlook
At this time, there are no indications that the weakened economy has begun to recover. Textron antici-
pates its markets will remain sluggish during 2003. Total revenues are expected to be down about 6%,
primarily as a result of lower jet deliveries at Cessna Aircraft. To strengthen operating efficiencies and
better align its operations with current economic and market conditions, Textron will continue to incur
restructuring charges from its previously announced program through 2004. As a result of strong cost
reduction programs, Textron expects to improve segment margins in 2003.
2001 vs. 2000
Revenues decreased to $12.3 billion in 2001 from $13.1 billion in 2000, primarily due to softening sales
in most short-cycle businesses and pricing pressures, partially offset by higher aircraft sales. Net
income was $166 million for 2001, down from $218 million in 2000. Diluted earnings per share before the
cumulative effect of change in accounting principle, net of income taxes, were $1.16 in 2001 and $1.90
in 2000. During 2001, Textron recognized special charges of $437 million and a gain of $342 million on
the sale of Trim and TECT. In 2000, Textron recognized $483 million in special charges and recorded a
cumulative effect of a change in accounting principle, net of income taxes, of $59 million for the adop-
tion of the EITF consensus on Issue No. 99-5 “Accounting for Pre-Production Costs Related to Long
Term Supply Arrangements”.
Special charges of $437 million in 2001 included goodwill and other intangible asset impairment
charges of $319 million, restructuring expense of $109 million and e-business investment losses of $9
million. Special charges of $483 million in 2000 included goodwill impairment charges of $349 million,
e-business investment losses of $117 million and restructuring expenses of $17 million.
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