E-Z-GO 2003 Annual Report Download - page 66

Severance costs are generally paid on a monthly basis over the severance period granted to each
employee or on a lump sum basis when required. Severance costs include outplacement costs, which
are paid in accordance with normal payment terms. Contract termination costs are generally paid upon
exiting the facility or over the remaining lease term. Other associated costs primarily include outsourcing
certain operations, plant rearrangement, machinery and equipment relocation, and employee replace-
ment and relocation costs, which are paid in accordance with normal payment terms.
The specific restructuring measures and associated estimated costs are based on Textron’s best judg-
ment under prevailing circumstances. Textron believes that the restructuring reserve balance of $35 mil-
lion is adequate to cover the costs presently accruable relating to activities formally identified and com-
mitted to under approved plans as of January 3, 2004, and anticipates that all actions related to these
liabilities will be completed within a twelve-month period.
In July 2003, Textron redeemed its 7.92% Junior Subordinated Deferrable Interest Debentures due
2045. The debentures were held by Textron’s wholly owned trust, and the proceeds from their redemp-
tion were used to redeem all of the $500 million Textron Capital I trust preferred securities. Upon the
redemption, $15 million in unamortized issuance costs were written off and recorded in special charges.
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. Textron sold its remaining investment in C&A common stock for cash proceeds of $34 million
and a pre-tax gain of $12 million in the first quarter of 2004.
During 2001, Textron recorded a $6 million impairment charge related to its e-business securities, and
subsequently realized a $3 million net loss on the sale of its remaining e-business securities. These
charges are included in special charges on the consolidated statement of operations. Textron had no
remaining investments in e-business securities as of January 3, 2004 and December 28, 2002.
Textron is subject to legal proceedings and other claims arising out of the conduct of Textron’s business,
including proceedings and claims relating to private sector transactions; government contracts; pro-
duction partners; product liability; employment; and environmental, safety, and health matters. Some of
these legal proceedings and claims seek damages, fines, or penalties in substantial amounts or remedi-
ation of environmental contamination. Under federal government procurement regulations, certain
claims brought by the U.S. Government could result in Textron’s suspension or debarment from U.S.
Government contracting for a period of time. On the basis of information presently available, Textron
believes that these proceedings and claims will not have a material effect on Textron’s financial position
or results of operations.
During 2002, the Lycoming aircraft engine business, in conjunction with the Federal Aviation Administra-
tion, recalled approximately 950 turbocharged airplane engines and mandated the inspection of anoth-
er 736 engines to replace potentially faulty crankshafts manufactured by a third-party supplier.
Lycoming 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. This program is substantially complete. It is possible, however, that additional engines outside
of the current recall could potentially be affected. Accordingly, Textron has continued to monitor the per-
formance of the crankshafts previously supplied by the third party to ensure that the current recall,
inspection, repair and customer care program adequately covers all engines with potentially faulty
crankshafts. Lycoming’s program for the inspection and replacement of potentially defective zinc-plated
bolts manufactured by a third-party supplier for use in certain aircraft engines is substantially complete.
Management believes that Textron’s reserves are adequate based on the estimated remaining costs of
these programs. Actual costs could vary depending upon the actual experience of the programs, recov-
eries received from third parties or expansion of the existing programs.
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