E-Z-GO 2006 Annual Report Download - page 20

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18
The following notes and calculation pertain to the table contained within the Chairman’s Letter:
(1) Segment profi t is an important measure used to evaluate performance and for decision-making purposes. Segment profi t for manufacturing
segments excludes interest expense, certain corporate expenses and special charges. The measurement for the Finance segment includes interest
income and expense and excludes special charges.
(2) Free cash fl ow in 2006 includes Textron Manufacturing’s net cash fl ow from operations of $1.1 billion and proceeds from the sale of property, plant
and equipment of $7 million, less capital expenditures of $419 million and capital lease additions of $16 million. Free cash fl ow in 2005 includes
Textron Manufacturing’s net cash fl ow from operations of $894 million and proceeds from the sale of property, plant and equipment of $23 million,
less capital expenditures of $356 million and capital lease additions of $15 million.
(3) We measure performance based on our return on invested capital (“ROIC”), which is calculated by dividing ROIC income by average invested capital.
ROIC income represents income from continuing operations and adds back after-tax amounts for 1) interest expense for the Manufacturing group,
2) non-restructuring related special charges and 3) gains or losses on the sale of businesses or product lines. In 2005, we also added back the
after-tax loss from operations for the discontinued operations of the Fastening Systems business and amortization expense of intangible assets.
At the beginning of the year, our invested capital represents total shareholders’ equity and Manufacturing group debt, less cash and cash equiva-
lents of the Manufacturing group. At the end of the year, we typically adjust ending invested capital for signifi cant events unrelated to our normal
operations for the year. In 2006, we adjusted invested capital to eliminate the impact of the adoption of Statement of Financial Accounting Standards
(“SFAS”) No. 158, eliminate the net cash proceeds from the sale of the Fastening Systems business and to eliminate the net cash used by the
Manufacturing group for acquisitions. In 2005, we adjusted invested capital to eliminate the impact of non-restructuring related special charges, a
gain on the sale of a product line and non-operating net charges from discontinued operations.
Our calculation of ROIC is as follows:
(Dollars in millions) 2006 2005
ROIC Income
Income from continuing operations $ 706 $ 516
Interest expense for Manufacturing group 58 58
Special charges and gain on sale of a product line — 69
Adjustment for discontinued operations — (12)
Amortization expense of intangible assets* — 2
ROIC Income $ 764 $ 633
Invested Capital at end of year
Total shareholders’ equity $ 2,649 $ 3,276
Total Manufacturing group debt** 1,800 1,953
Cash and cash equivalents for Manufacturing group** (733) (817)
Adjustment to shareholders’ equity related to adoption of SFAS No. 158 647 —
Eliminate net cash proceeds from the sale of Fastening Systems business 644 —
Net cash used in 2006 by Manufacturing group for acquisitions (338) —
Eliminate impact of 2005 special charges and gain on sale of a product line — 69
Eliminate impact of 2005 net charges from discontinued operations*** — 263
Invested Capital at end of year, as adjusted 4,669 4,744
Invested Capital at beginning of year 4,412 4,838
Average Invested Capital $ 4,541 $ 4,791
Return on Invested Capital 16.8% 13.2%
* In 2006, we changed our policy for calculating ROIC income to include amortization expense of intangible assets.
** Amounts for 2005 include amounts classifi ed as discontinued operations of the Fastening Systems business.
*** Amount excludes a $38 million cumulative translation adjustment charge included within loss from discontinued operations, net of income
taxes, that was fully offset by an increase in the other comprehensive (loss) income component of shareholders’ equity.