E-Z-GO 2004 Annual Report Download - page 61

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40
records the origination of the finance receivable within investing activities as a cash outflow. Textron Manufacturing records the
cash received from Textron Finance on the customer’s behalf within operating activities. Although cash is transferred between the
businesses, there is no cash transaction for the consolidated group at the time of the original financing.
Historically, Textron’s consolidated statement of cash flows has presented a combination of the cash flows of both borrowing
groups with no elimination of the captive financing activity. Based on recent views expressed by the staff of the Securities and
Exchange Commission about this industry-wide practice followed by companies with captive finance companies, in 2004, man-
agement elected to change the consolidated classification of these cash flows. Accordingly, the captive financing transactions have
been eliminated, and cash from customers and securitizations is recognized in operating activities within the consolidated state-
ment of cash flows when received. Prior period amounts reported in the consolidated statement of cash flows have been reclassi-
fied to conform with this new presentation; however, the separate cash flow presentations of Textron Manufacturing and Textron
Finance are unchanged.
The impact of the reclassification of these cash flows between investing and operating activities, on a consolidated basis, for the
prior periods presented is as follows:
Year Ended Year Ended
(In millions)
January 3, 2004 December 28, 2002
As As As As
Reported Reclassified Reported Reclassified
Net cash provided by operating activities $ 858 $ 985 $ 626 $ 676
Net cash provided (used) by investing activities $ 62 $ (65) $ (684) $ (734)
Certain other prior period amounts have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these statements and accompanying notes. Some of the more sig-
nificant estimates include inventory valuation, residual values of leased assets, allowance for credit losses on receivables, product
liability, workers’ compensation, actuarial assumptions for the pension and postretirement plans, estimates of future cash flows
associated with long-lived assets, environmental and warranty reserves, and amounts reported under long-term contracts. Man-
agement’s estimates are based 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 outcomes of these mat-
ters. Actual results could differ from such estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments with original maturities of three months 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.
When a sale arrangement involves multiple elements, such as sales of products that include customization and other services, the
deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting. This evaluation
occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allo-
cated to each unit of accounting based on its relative fair value, taking into consideration any performance, cancellation, termina-
tion or refund type provisions. Fair value for each element is established generally based on the sales price charged when the same
or similar element is sold separately. Revenue is recognized when revenue recognition criteria for each unit of accounting are met.
Revenue from certain qualifying noncancelable aircraft and other product lease contracts are accounted for as sales-type leases.
The present value of all payments (net of executory costs and any guaranteed residual values) is recorded as revenue, and the
related costs of the product are charged to cost of sales. Generally, these leases are financed through Textron Finance, and the
associated interest is recorded over the term of the lease agreement using the interest method. Lease financing transactions that
do not qualify as sales-type leases are accounted for under the operating method wherein revenue is recorded as earned over
the lease period.
Notes to Consolidated Financial Statements