E-Z-GO 2005 Annual Report Download - page 36

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16
Textron Inc.
Segment Profit
Segment profit increased $296 million in 2005 primarily due to higher sales volume of $319 million, higher pricing of $159 million and higher
profit in the Finance segment of $26 million. These increases were partially offset by inflation of $227 million.
Segment profit increased $145 million in 2004 primarily due to $242 million in cost-reduction initiatives, a $50 million benefit from restructuring
activities and $30 million of higher pricing. These increases were partially offset by inflation of $167 million.
Special Charges
Special charges are summarized below:
(In millions)
2005 2004 2003
Restructuring $ 6 $ 71 $ 62
C&A-related charges 112 — —
Gain on sale of C&A common stock — (12) —
Unamortized issuance costs on preferred securities — — 15
Total special charges $ 118 $ 59 $ 77
Restructuring Program
Textron substantially completed its company-wide restructuring program at the end of 2005. Textron approved and committed to a restructuring
program in the fourth quarter of 2000 to improve returns at core businesses and to complete the integration of certain acquisitions. This program
was expanded in 2001 and in 2002 as part of Textron’s strategic effort to improve operating efficiencies. Textron’s restructuring program included
corporate and segment direct and indirect workforce reductions, consolidation of facilities, rationalization of certain product lines, outsourcing of
non-core production activity, the divestiture of non-core businesses and the streamlining of sales and administrative overhead. Under this pro-
gram, Textron reduced its workforce by approximately 8,000 employees from continuing operations, representing approximately 19% of its global
workforce since the program was first announced, and has closed 85 facilities.
As of December 31, 2005, Textron had incurred total program costs of $306 million, which is composed of $164 million in severance costs, $44
million in contract termination costs, $34 million in asset impairment charges (net of gains on the sale of fixed assets) and $64 million in other
associated costs. Total program costs incurred by segment include $219 million in the Industrial segment, $38 million in the Cessna segment,
$29 million in the Bell segment, $9 million in the Finance segment and $11 million at Corporate.
Other Charges (Gain)
Textron records any charges incurred or gains realized in connection with the 2001 disposition of the Automotive Trim business (“Trim”) as Spe-
cial Charges. In connection with this disposition of Trim to subsidiaries of Collins & Aikman Corporation (“C&A”), Textron Finance has recourse
to Textron Manufacturing for equipment leases with the subsidiaries. The outstanding balance on these leases totaled approximately $70 million
at December 31, 2005. During the fourth quarter of 2005, the lease term for these leases expired and C&A failed to make one of its lease pay-
ments. While Textron Finance is currently in negotiations with C&A to renew these leases, Textron Manufacturing recorded an additional reserve
of $10 million in the fourth quarter of 2005 based on uncertainties related to these leases.
In addition to the Textron Finance equipment leases, certain operating leases were transferred and assigned to subsidiaries of C&A upon the sale
of Trim. As discussed in Note 18 to the Consolidated Financial Statements, Textron has guaranteed C&A’s payments under these operating leases
and certain environmental matters. In May 2005, C&A and substantially all of its U.S. subsidiaries, including C&A Products Co. (“C&A Prod-
ucts”), filed for Chapter 11 bankruptcy protection, and in July 2005, C&A’s European subsidiaries filed a group-wide administration order in the
United Kingdom. These filings effectively reduced Textron’s ability to seek recourse from C&A under the indemnity provisions of the purchase and
sale agreement, should a default occur. Based on C&A’s recent failure to pay certain leases, as well as the negotiations entered into as part of the
potential sale of C&A’s European operations, Textron recorded $11 million in the fourth quarter of 2005 to cover its exposure under these leases,
along with certain environmental and workers’ compensation matters.
Textron also acquired preferred stock in C&A Products and C&A common stock in connection with the Trim disposition. Based on C&A Products’
filing for Chapter 11 bankruptcy protection and relevant market considerations, Textron recorded charges of approximately $91 million in 2005 to
write off the remaining book value of its investment in the preferred stock. In 2004, Textron sold its remaining investment in the C&A common
stock for cash proceeds of $34 million and recorded a pre-tax gain of $12 million.