E-Z-GO 2004 Annual Report Download - page 66

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Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and
the amount is reasonably estimated. Textron’s environmental liabilities are undiscounted and do not take into consideration possi-
ble future insurance proceeds or significant amounts from claims against other third parties.
Research and Development Costs
Research and development costs not specifically covered by contracts and those related to Textron’s share of research and devel-
opment activity in connection with cost sharing arrangements are charged to expense as incurred. Research and development
costs incurred under contracts with others are reported as cost of sales over the period that revenue is recognized, consistent with
Textron’s contract accounting policy.
Recently Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123-R”), which replaces
SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for
Stock Issued to Employees.” SFAS 123-R requires companies to measure compensation costs for share-based payments to
employees, including stock options, at fair value and expense such compensation over the service period beginning with the first
interim or annual period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an
alternative to financial statement recognition. Textron is required to adopt SFAS 123-R in the third quarter of fiscal 2005. Under
SFAS 123-R, companies must determine the appropriate fair value model to be used for valuing share-based payments, the amor-
tization method for compensation cost and the transition method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Management is evaluating the requirements of SFAS 123-R. Management believes
the impact of adopting SFAS 123-R will result in additional expense of approximately $15 million, net of income taxes, for 2005.
This estimate is subject to change based on a number of factors, including the actual number of stock option awards granted,
changes in assumptions underlying the option value estimates, such as the risk-free interest rate, and tax deductions for employee
disqualifying dispositions, if any.
Note 2 Acquisitions and Dispositions
Acquisitions
Textron has a joint venture, CitationShares, with TAG Aviation USA, Inc. (“TAG”) to sell fractional share interests in business jets.
On June 30, 2004, Textron acquired an additional 25% interest in CitationShares from TAG for cash and the assumption of debt
guarantees previously provided by TAG. Additional cash consideration may also be payable to TAG based on CitationShares’ future
operating results. TAG has the right to sell its remaining 25% interest to Textron in the years 2009 through 2011, and Textron has
the right to purchase the remaining interest in 2010 or 2011, for an amount based on a multiple of earnings.
As a result of this transaction, Textron owns 75% of CitationShares and has consolidated its financial results prospectively as of
June 30, 2004. Assets acquired of $47 million included $22 million of inventory, primarily Citation jets, and liabilities acquired of
$59 million included $47 million of third-party debt that was immediately repaid. Additionally, CitationShares had approximately
$31 million of operating lease obligations as of the acquisition date that Textron has fully guaranteed.
Discontinued Operations
During the fourth quarter of 2004, Textron reached a final decision to sell the remainder of its InteSys operations, and as a result,
financial results of this business, net of income taxes, are now reported as discontinued operations. The carrying value of this
business approximated fair value at the date of the decision to sell. Textron’s consolidated statements of operations and related
footnote disclosures have been recast to reflect the InteSys business, previously included in the Industrial segment, as a discontin-
ued operation for the periods presented. The amounts exclude general corporate overhead previously allocated to the business for
reporting purposes. Textron uses a centralized approach to the cash management and financing of its operations, and accordingly,
does not allocate debt or interest expense to its discontinued businesses.
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Textron Inc.