E-Z-GO 2004 Annual Report Download - page 60

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Note 1 Summary of Significant Accounting Policies
Nature of Operations
Textron Inc. (“Textron”) is a global, multi-industry company with manufacturing and finance operations primarily in North America,
Western Europe, South America and Asia/Pacific. Textron’s principal markets are summarized below by segment:
Segment Principal Markets
Bell •Commercial and military helicopters and tiltrotors
•Defense and aerospace
•Piston aircraft engines
Cessna •General aviation aircraft
•Business jets including fractional ownership
•Commercial transportation, humanitarian flights, tourism and freight
Fastening Systems •Aerospace
•Automotive
•Computer, electronics, electrical and industrial equipment
•Construction
•Non-automotive transportation
•Telecommunications
Industrial •Automotive original equipment manufacturers and other industrial suppliers
•Golf courses, resort communities and municipalities, and commercial and industrial users
•Original equipment manufacturers, governments, distributors and end users of fluid and power systems
•Electrical construction and maintenance, telecommunications and plumbing industries
Finance •Secured commercial loans and leases
Principles of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of Textron Inc. and all of its majority-owned subsidiaries (more than
50%) along with entities that are required to be consolidated in accordance with Textron’s consolidation policy. This policy
requires the consolidation of variable interest entities in which Textron is designated as the primary beneficiary in accordance with
Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), as
amended. FIN 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s
expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity. Variable interest entities are defined as entities with a level of invested equity insufficient to fund
future activities to operate on a standalone basis, or whose equity holders lack certain characteristics of a controlling financial
interest. If an entity does not meet the definition of a variable interest entity under FIN 46, Textron accounts for the entity under
the provisions of Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in
Common Stock,” which requires the consolidation of all majority-owned subsidiaries where the company has the ability to
exercise control.
Textron’s financings are conducted through two borrowing groups: Textron Manufacturing and Textron Finance. This framework is
designed to enhance Textron’s borrowing power by separating the Finance segment. To support creditors in evaluating the separate
borrowing groups, Textron presents separate balance sheets and statements of cash flows for each borrowing group. Textron Man-
ufacturing consists of Textron Inc., the parent company, consolidated with the entities that operate in the Bell, Cessna, Fastening
Systems and Industrial business segments. Textron Finance consists of Textron’s wholly owned commercial finance subsidiary,
Textron Financial Corporation, consolidated with its subsidiaries, which are the entities through which Textron operates its Finance
segment. Textron Finance finances its operations by borrowing from its own group of external creditors. All significant intercom-
pany transactions are eliminated, including retail and wholesale financing activities for inventory sold by Textron Manufacturing
financed by Textron Finance.
Reclassifications
A portion of Textron Finance’s business involves financing retail purchases and leases for new and used aircraft and equipment
manufactured by Textron Manufacturing’s Bell, Cessna and Industrial segments. The cash flows related to these captive financing
activities are reflected as operating activities (by Textron Manufacturing) and as investing activities (by Textron Finance) based on
each group’s operations. For example, when product is sold to a customer and financed by Textron Finance, Textron Finance
Notes to Consolidated Financial Statements
39