E-Z-GO 2003 Annual Report Download - page 47

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In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Charac-
teristics of Both Liabilities and Equity.” SFAS No. 150 requires that an issuer classify certain financial
instruments as liabilities. Many of the instruments included within the Statement’s scope, such as
mandatorily redeemable shares, were previously classified as equity. SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003 and was effective at the beginning of
the first interim period beginning after June 15, 2003 for all other instruments. As required, Textron
adopted this Statement when it became effective in July 2003 and reported its obligated mandatorily
redeemable preferred securities as liabilities and all related expenses prospectively as components of
income from operations.
Subsequent to adoption, on November 7, 2003, the FASB issued FASB Staff Position (FSP) 150-3,
“Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Cer-
tain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB State-
ment No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity.” FSP 150-3 deferred the effective date of SFAS No. 150 for certain mandatorily redeemable non-
controlling interests. Textron’s obligated mandatorily redeemable preferred securities were included in
this deferral. FSP 150-3 states that entities that have already adopted SFAS No. 150 for instruments
within the scope of its indefinite deferral shall reverse the effects of that adoption in the first fiscal period
beginning after the date the FSP was issued. Textron will adopt FSP 150-3 in the first quarter of 2004.
Since Textron Finance’s mandatorily redeemable preferred securities will be included in the adoption of
FIN 46 in the first quarter of 2004, and Textron Manufacturing redeemed its preferred securities in July
2003, the adoption of FSP 150-3 will have no impact on Textron’s results of operations or financial
position.
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the “Act”) was signed into law. This Act introduced a prescription drug benefit under Medicare Part D
along with a federal subsidy to sponsors of retiree health care benefit plans that provide a similar bene-
fit. On January 12, 2004, the FASB issued FSP 106-1, “Accounting and Disclosure Requirements Relat-
ed to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” to address the
accounting and disclosure implications resulting from the Act. FSB 106-1 is effective for financial state-
ments for fiscal years ending after December 7, 2003 and provides a one-time election to delay report-
ing the effects of the Act until authoritative guidance on the accounting for the federal subsidy is issued.
Textron has elected to defer accounting for the Act in accordance with this one-time election until
authoritative guidance on the appropriate accounting is issued.
On August 1, 2003, Textron consummated the sale of its remaining OmniQuip business to JLG Indus-
tries, Inc. for $90 million in cash and a $10 million promissory note that was paid in full in February 2004.
In the second quarter of 2003, Textron recorded $30 million in special charges for the impairment of $15
million in intangible assets and $15 million in goodwill based on the fair value implied by the sale price of
OmniQuip under negotiation at that time. There was no further gain or loss recorded upon the consum-
mation of the sale.
In addition to its financing relationship with Textron Finance, OmniQuip also utilized third-party finance
institutions to provide wholesale financing to certain customers. While these finance receivables are not
reflected on Textron’s balance sheet, the finance institutions have recourse to Textron and may require
Textron to repurchase equipment related to defaults. Textron generally has a secured interest in any
equipment repurchased. The balance of this portfolio at January 3, 2004 was $7 million and $47 million
at December 28, 2002.
Textron Manufacturing has retained certain non-operating assets and liabilities of the OmniQuip busi-
ness. These remaining assets and liabilities are included in the consolidated balance sheet as of Janu-
ary 3, 2004 and are comprised of assets amounting to approximately $15 million, including the $10 mil-
lion note due from JLG Industries, Inc., and liabilities of approximately $36 million. The liabilities retained
include $29 million in reserves related to a recourse liability to cover potential losses on approximately
$115 million in finance receivables held by Textron Finance. See Note 3 for further discussion on trans-
actions between Textron’s Manufacturing and Finance borrowing groups.