E-Z-GO 2002 Annual Report Download - page 44

on the facts and circumstances available at the time estimates are made, historical experience, risk of
loss, general economic conditions and trends, and management’s assessments of the probable future
outcome of these matters. Actual results could differ from such estimates.
Certain prior period amounts have been reclassified to conform to the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid securities with original maturi-
ties of ninety days or less.
Revenue Recognition
Revenue is generally recognized when products are delivered or services are performed. With respect
to aircraft, delivery is upon completion of manufacturing, customer acceptance and the transfer of the
risk and rewards of ownership.
Revenue under fixed-price contracts is generally recorded as deliveries are made. Certain long-term
fixed-price contracts provide for periodic delivery after a lengthy period of time over which significant
costs are incurred or require a significant amount of development effort in relation to total contract vol-
ume. Revenues under those contracts and all cost-reimbursement-type contracts are recorded as costs
are incurred. Certain contracts are awarded with fixed-price incentive fees. Incentive fees are consid-
ered when estimating revenues and profit rates, and are recorded when these amounts are reasonably
determined. Long-term contract profits are based on estimates of total sales value and costs at comple-
tion. Such estimates are reviewed and revised periodically throughout the contract life. Revisions to con-
tract profits are recorded when the revisions to estimated sales value or costs are made. Estimated con-
tract losses are recorded when identified.
Revenues under the V-22 low-rate initial production contract are recorded as costs are incurred, primari-
ly due to the significant engineering effort required over a lengthy period of time during the initial devel-
opment stage in relation to total contract volume. Under the low-rate production releases, Textron contin-
ues to manufacture aircraft which may subsequently be modified for engineering changes. Beginning
with new production releases in 2003, the development effort will be substantially completed. As a
result, revenue on new production releases will be recognized as units are delivered.
Revenue from certain qualifying non-cancelable aircraft and other product lease contracts are account-
ed for as sales-type leases. The present value of all payments (net of executory costs and any guaran-
teed residual values) is recorded as revenue, and the related costs of the product are charged to cost of
sales. Generally, this lease financing is through Textron Finance and the associated interest is recorded
over the term of the lease agreement using the interest method. Lease financing transactions which do
not qualify as sales-type leases are accounted for under the operating method wherein revenue is
recorded as earned over the lease period.
Finance revenues include interest on finance receivables which is recognized using the interest method
to provide a constant rate of return over the terms of the receivables. Finance revenues also include
direct loan origination costs and fees received, which are deferred and amortized over the contractual
lives of the respective receivables using the interest method. Unamortized amounts are recognized in
revenues when receivables are sold or pre-paid. Accrual of interest income is suspended for accounts
that are contractually delinquent by more than three months, unless collection is not doubtful. In addi-
tion, detailed reviews of loans may result in earlier suspension if collection is doubtful. Accrual of interest
is resumed when the loan becomes contractually current, and suspended interest income is recognized
at that time.
Allowance for Losses on Finance Receivables
Provisions for losses on finance receivables are charged to income in amounts sufficient to maintain the
allowance at a level considered adequate to cover losses in the existing receivable portfolio. Manage-
ment evaluates the allowance by examining current delinquencies, the characteristics of the existing
accounts, historical loss experience, the value of the underlying collateral and general economic condi-
tions and trends. Finance receivables are charged off when they are deemed to be uncollectible.
Finance receivables are written down to the fair value (less estimated costs to sell) of the related collat-
eral at the earlier of the date the collateral is repossessed or when no payment has been received for six
months, unless management deems the receivable collectible.
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