E-Z-GO 2002 Annual Report Download - page 23

Segment profit of $926 million in 2001 decreased $580 million from $1,506 million in 2000 due to lower
sales volumes and pricing pressures at Industrial Components, Fastening Systems and Industrial Prod-
ucts, lower profit at Bell Helicopter due primarily to reduced profitability on certain military contracts and
commercial helicopter programs, manufacturing inefficiencies resulting from reduced production at
Fastening Systems and Industrial Products, and $34 million in costs related to restructuring incurred in
2001. These negative factors were partially offset by higher Citation business jet volume at Cessna Air-
craft, the benefit of restructuring and other cost reduction activities and an increase in syndication and
securitization income in the Finance segment. The preceding items are discussed more fully in the seg-
ment commentary that follows.
Corporate expenses and other, net decreased $12 million, due primarily to the impact of organizational
changes made in 2000.
Interest expense, net for Textron Manufacturing increased $10 million. Interest expense increased $4
million due to a higher level of average debt, primarily as a result of lower cash flow from operations dur-
ing the first nine months of 2001, partially offset by the benefit of a lower interest rate environment. Inter-
est income decreased $6 million due to the settlement of a note receivable in 2000.
Income Taxes - 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. The effec-
tive tax rate for 2000 was 50.4% compared to the federal statutory income tax rate of 35.0%. The higher
effective rate was primarily due to the impact of 19.0% for the non-tax deductibility of goodwill written-off
during 2000 and 3.8% for state income taxes, partially offset by 1.9% related to the benefit from export
sales.
Aircraft
2002 vs. 2001
The Aircraft segment’s revenues and profit increased $125 million and $114 million, respectively.
•Cessna Aircraft’s revenues increased $110 million primarily due to higher sales volume of used aircraft
of $125 million, higher pricing of $115 million (including the favorable impact of $68 million related to the
expiration of lower introductory pricing on certain business jet models), higher spare parts and service
sales of $17 million and higher Caravan sales of $9 million. These increases were partially offset by $89
million in lower sales volume of single engine piston aircraft and aircraft engines, lower Citation business
jet volume of $49 million and higher trade-in allowances of $15 million for used aircraft. Profit decreased
$28 million reflecting cost of $31 million related to the recall, inspection and customer care program at
the Lycoming aircraft engine business as described below. Excluding the impact of the above program
at Lycoming, profit increased $3 million due to higher pricing of $115 million and the net benefit of $5
million from restructuring activities, partially offset by inflation of $60 million, the impact of $26 million for
trade-in allowances and inventory write-downs related to the valuation of used aircraft, an unfavorable
sales mix of $19 million (due to higher volume of used aircraft at minimal contribution) and start-up costs
of $14 million for the new Sovereign business jet.
In August 2002, the Lycoming aircraft engine business recalled approximately 950 airplane engines to
replace potentially faulty crankshafts manufactured by a third party supplier. In conjunction with a Fed-
eral Aviation Administration (FAA) directive, aircraft with these engines have been grounded. After
detecting a potentially defective crankshaft in an aircraft beyond the group included in the August recall,
Lycoming and the FAA mandated inspection of all turbocharged aircraft with engines that use this spe-
cific component. This precautionary measure applies to an additional 736 engines, which are being test-
ed in the field within the next 50 hours of operation or within six months, whichever comes first. Lycoming
anticipates that only a portion of the crankshafts in the additional engines will need to be replaced.
Lycoming has initiated a comprehensive customer care program to replace the defective crankshafts,
make any necessary related repairs, and compensate its customers for the loss of use of their aircraft
during the recall. Textron is continuing to monitor performance of the crankshafts previously supplied by
the third party supplier to ensure that the current recall, inspection and customer care program ade-
quately covers all engines with potentially faulty crankshafts. It is possible that additional engines out-
side of the current recall could potentially be affected. Lycoming also initiated a program for the inspec-
tion and possible replacement of potentially defective zinc-plated bolts manufactured by a third party
supplier for use in certain aircraft engines. Textron’s reserves for the recall, inspection and customer
care program are based on management’s best estimate as of December 28, 2002. Actual costs could
21
00 01 02
9% 6% 3%
$4,537
$4,797
$4,922
01 00 02
24% (29%) 34%
$475
$338
$452
Aircraft
Revenues
Segment Profit