E-Z-GO 2002 Annual Report Download - page 65

Costs related to restructuring that are reflected in the consolidated statement of operations include the
following:
(In millions) 2002 2001
Cost of sales:
Outsourcing operations $4$9
Plant rearrangement and inventory disposal 4 9
Other 24
10 22
Selling and administrative expenses:
Machinery, equipment and inventory relocation 7 6
Employee replacement, relocation and related 3 5
Other 21
12 12
Total $ 22 $ 34
Goodwill and Other Intangible Assets
In conjunction with Textron’s restructuring activities and review of long-lived assets, Textron wrote down
goodwill and other intangible assets by $319 million in 2001 and $349 million in 2000. For 2001, the
impairment charge was primarily related to goodwill and other intangible assets at OmniQuip within the
Industrial Products segment. For 2000, Textron recognized impairment charges for goodwill only of $205
million in Industrial Components primarily related to Turbine Engine Components Textron (TECT), $128
million in Fastening Systems primarily related to Flexalloy, and $16 million in Industrial Products. See
Note 7 regarding the after-tax transitional impairment charge of $488 million reported under the caption
“Cumulative effect of change in accounting principle, net of income taxes” in 2002.
During the third quarter of 2001, certain long-lived asset impairment indicators were identified for
OmniQuip which caused Textron to perform an impairment review. Key impairment indicators included
OmniQuip’s operating performance against plan despite restructuring efforts to improve operating effi-
ciencies and streamline operations. Additionally, the strategic review process completed in August 2001
confirmed that the economic and market conditions combined with 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 were less than the carrying amount of
OmniQuip’s long-lived assets indicating that there was 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 fore-
cast to project future cash flows and a risk-based rate of 11%. The calculation resulted in an impairment
charge of $317 million, including goodwill of $306 million and other intangible assets of $11 million.
In 2000, a similar calculation was performed when indicators of potential impairment of long-lived assets
were identified in connection with multi-year financial planning, as well as the initiation of the current
restructuring program. Based on the indicators, Textron performed an impairment review for the applica-
ble operating units. Key indicators with respect to TECT were deteriorating margins and its inability to
generate new contracts that had resulted in a significantly decreased revenue base. Key indicators for
Flexalloy were 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
without significant additional investment. Also, the synergies within Fastening Systems, which were ini-
tially viewed to be significant due to Textron’s existing market share, were considerably less than antici-
pated. Accordingly, future cash flow projections were not expected to achieve the level of growth origi-
nally anticipated at the time of Flexalloy’s acquisition. Using a risk-based rate of 11%, the impairment
calculation resulted in a fourth quarter 2000 write down of goodwill for TECT of $178 million, Flexalloy of
$96 million and $75 million related to other operating units.
Investments
During the second half of 2002, the C&A common stock owned by Textron experienced a decline in
market value. Textron acquired this stock as a result of the disposition of the Trim business. In December
2002, Moody’s lowered its liquidity rating of C&A. Due to this indicator and the extended length of time
and extent to which the market value of the stock was less than the carrying value, Textron determined
that the decline in the market value of the stock was other than temporary and wrote down its investment
in the stock. The write-down resulted in a pre-tax loss of $38 million which is included in special charges.
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