E-Z-GO 2006 Annual Report Download - page 67

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Note 2. Discontinued Operations
Our consolidated financial statements and related footnote disclosures reflect the sold businesses of Fastening Systems, InteSys, OmniQuip and
the Small Business Direct financing business as discontinued operations, net of applicable income taxes, for all periods presented in accordance
with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
We generally use a centralized approach to the cash management and financing of our manufacturing operations and, accordingly, do not allocate
debt or interest expense to our discontinued businesses. Any debt and related interest expense of a specific entity within a business is recorded by
the respective entity. General corporate overhead previously allocated to the businesses for reporting purposes is excluded from amounts
reported as discontinued operations.
In August 2006, we completed the sale of our Fastening Systems business to Platinum Equity, a private equity investment firm, for approximately
$613 million in cash and the assumption of $16 million of net indebtedness and certain liabilities. There was no gain or loss recorded upon com-
pletion of the sale. The purchase price is subject to final adjustment based on the audited net asset value, net debt and cash balances at the clos-
ing date. We currently are negotiating with Platinum Equity and expect to finalize the purchase price in early 2007.
Prior to the consummation of the sale of the Fastening Systems business, we recorded impairment and other charges of $120 million in 2006 and
$387 million in 2005, which are described below.
In September 2005, our Board of Directors approved management’s recommendation to explore strategic alternatives for the Fastening Systems
business. Based on the approval of this recommendation and the likelihood of execution, we determined that an impairment indicator existed for
both the Fastening Systems’ goodwill and its long-lived assets. In our assessment of potential impairment of the goodwill, we estimated the fair
value of the business using independent third-party valuations. This fair value amount then was compared with the carrying amount of the busi-
ness. As the carrying amount exceeded the fair value, we then measured the amount of goodwill impairment loss. The excess of the fair value of
the business over the fair value amounts assigned to its assets and liabilities represents the implied fair value of goodwill. The carrying amount of
the goodwill exceeded the implied fair value of that goodwill, resulting in an impairment loss of $335 million, which was recorded in the third
quarter of 2005.
In December 2005, our Board of Directors authorized the divestiture of the Fastening Systems business, and we recorded an after-tax charge
of approximately $52 million, which included $37 million related to previously deferred foreign currency translation losses and $7 million in
curtailment losses for employee retirement plans. After these charges, we assessed the estimated fair value of the business and determined that
no further adjustment to the carrying value was required at that time. In the second quarter of 2006, we recorded an additional $120 million
after-tax impairment charge to record the business at the estimated fair value less cost to sell at that time based on offers received from potential
purchasers.
In 2005, we recorded a net $46 million gain on disposal primarily related to a tax benefit recorded upon the sale of InteSys.
Operating results of these discontinued businesses, primarily related to Fastening Systems, are as follows:
(In millions) 2006 2005 2004
Revenue $ 1,101 $ 1,936 $ 1,994
(Loss) income from discontinued operations before special charges (94) (388) 72
Special charges — (11) (91)
Loss from discontinued operations (94) (399) (19)
Income tax (expense) benefit (11) 40 9
Operating loss from discontinued operations, net of income taxes (105) (359) (10)
Gain on disposal, net of income taxes — 46 —
Loss from discontinued operations, net of income taxes $ (105) $ (313) $ (10)
At December 30, 2006, assets of discontinued operations included current assets of $69 million related to the sale of the Fastening Systems
business, and liabilities of discontinued operations included current liabilities of $57 million, representing liabilities retained upon the sale of the
Fastening Systems business.
Notes to the Consolidated Financial Statements