E-Z-GO 2005 Annual Report Download - page 93

Note 19. Variable Interest Entities
BAAC is a joint venture established in 1998 between Bell Helicopter and a predecessor of Agusta S.p.A. to share certain costs and profits for the
joint design, development, manufacture, marketing, sale, customer training and product support of the civil tiltrotor Model BA609 and until
December 2005, the commercial helicopter Model AB139. This venture is a variable interest entity since it relies on its partners to fund the devel-
opment and provide services for substantially all of the ventures’ operations.
On December 20, 2005, Bell Helicopter and Agusta entered into a realignment of BAAC, which included the sale by Bell Helicopter of its 25%
profit interest in the Model AB139 medium twin helicopter program to Agusta. Agusta assumed ownership of all aspects of the Model AB139 pro-
gram from BAAC, including all existing customer obligations. In exchange for its interest, Bell Helicopter received $10 million in cash, a $20 mil-
lion note and a note for contingent payments from Agusta based on future Model AB139 sales. Bell Helicopter recognized a $30 million pre-tax
gain upon the sale of its interest which is included in Segment Profit. The contingent receipts are expected to begin with aircraft deliveries in 2008
and will be recorded into income prospectively as the future sales occur.
In addition, the realignment allows Agusta to increase its profit interest in the Model BA609 from the original 25% to a maximum of 40% by
increasing its investment during the development phase. These development activities may include cash contributions to reimburse Bell Heli-
copter for certain development costs incurred on behalf of BAAC (see Note 17). At year-end, Agusta’s profit interest was approximately 31%.
Prior to the realignment, only certain marketing and administrative costs were charged to BAAC, while development costs were recorded sepa-
rately by the parties, with Bell Helicopter’s share of the development costs charged to Textron’s earnings as a period expense. As a result of the
realignment, BAAC now includes only the Model BA609 tiltrotor, and Bell Helicopter has a controlling voting interest in BAAC. Accordingly, Bell
Helicopter will absorb more than half of BAAC’s expected losses and residual returns. As a result, Textron has consolidated BAAC prospectively
as of December 20, 2005.
Note 20. Supplemental Financial Information
Accrued Liabilities
Textron Manufacturing’s accrued liabilities are composed of the following:
December 31, January 1,
(In millions) 2005 2005
Customer deposits $ 521 $ 549
Warranty and product maintenance contracts 318 280
Salaries, wages and employer taxes 258 225
Deferred revenue 102 110
Accrued interest 37 52
Dividends payable 46 48
Other 467 438
Total accrued liabilities $ 1,749 $ 1,702
Warranty and Product Maintenance Contracts
Textron provides limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from
one to five years. Textron estimates the costs that may be incurred under warranty programs and records a liability in the amount of such costs at
the time product revenue is recognized. Factors that affect this liability include the number of products sold, historical and anticipated rates of
warranty claims and cost per claim. Textron periodically assesses the adequacy of its recorded warranty and product maintenance liabilities and
adjusts the amounts as necessary.
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Notes to the Consolidated Financial Statements