E-Z-GO 1999 Annual Report Download - page 40

New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133
“Accounting for Derivative Instruments and Hedging Activities.” FAS 133 requires an
entity to recognize all derivatives as either assets or liabilities and measure those instru-
ments at fair value. In June 1999, the FASB issued FAS 137 which deferred the effective
date of FAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000.
Textron is evaluating the potential impact of this pronouncement on future reporting.
At the September 23, 1999 meeting, the EITF reached a consensus on Issue 99-5,
“Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements.”
The Issue addresses pre-production costs incurred by original equipment manufacturers
(OEM) suppliers (e.g., automotive manufacturers) to perform certain services related to
the design and development of the parts they will supply to the OEM as well as the
design and development costs to build molds, dies and other tools that will be used in
producing the parts. The consensus generally requires all design and development costs
for products to be sold under long-term supply arrangements to be expensed unless
there is a contractual guarantee that provides for specific required payments for design
and development costs.
The Task Force concluded that the provisions of this consensus should be applied
prospectively for costs incurred after December 31, 1999, with the option to elect adop-
tion through a cumulative effect of change in accounting principle. At January 1, 2000,
other assets includes approximately $93 million of customer engineering costs for which
customer reimbursement is anticipated but not contractually guaranteed. Textron will
comply with the provisions of this consensus by writing-off all capitalized customer
engineering costs that would not qualify for capitalization. In the first quarter of fiscal
2000, Textron will report a Cumulative Effect of Change in Accounting Principle of
$59 million (net of tax), or approximately $0.39 per diluted share related to the adoption
of this consensus. The effect of this change in accounting on future results will not have
a significant impact on income from continuing operations in the affected segments
(principally Automotive).
* * * * *
Forward-looking Information: Certain statements in this Report, and other oral and written state-
ments made by Textron from time to time, are forward-looking statements, including those that
discuss strategies, goals, outlook or other non-historical matters; or project revenues, income,
returns or other financial measures. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those contained in the state-
ments, including the following: (a) the extent which Textron is able to successfully integrate
acquisitions, (b) changes in worldwide economic and political conditions and associated impact
on interest and foreign exchange rates, (c) the occurrence of work stoppages and strikes at key
facilities of Textron or Textron’s customers or suppliers, (d) the extent to which the Company is
able to successfully develop, introduce, and launch new products and enter new markets, and (e)
the level of government funding for Textron products. For the Aircraft Segment: (a) the timing of
certifications of new aircraft products and (b) the occurrence of a severe downturn in the U.S.
economy that discourages businesses from purchasing business jets. For the Automotive Segment:
(a) the level of consumer demand for the vehicle models for which Textron supplies parts to auto-
motive original equipment manufacturers (“OEM’s”) and (b) the ability to offset, through cost
reductions, pricing pressure brought by automotive OEM customers. For the Industrial Segment:
the ability of Textron Fastening Systems to offset, through cost reductions, pricing pressure
brought by automotive OEM customers. For the Finance Segment: (a) the level of sales of Textron
products for which Textron Financial Corporation offers financing and (b) the ability of Textron
Financial Corporation to maintain credit quality and control costs when entering new markets.
38 Consistent Growth