E-Z-GO 2006 Annual Report Download - page 92

Warranty and Product Maintenance Contracts
We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to
five years. We estimate the costs that may be incurred under warranty programs and record a liability in the amount of such costs at the time prod-
uct 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. We assess the adequacy of our recorded warranty and product maintenance liabilities periodically and adjust the amounts
as necessary.
Changes in our warranty and product maintenance liability are as follows:
(In millions) 2006 2005 2004
Accrual at beginning of year $ 318 $ 280 $ 302
Provision 189 188 146
Settlements (167) (149) (151)
Adjustments to prior accrual estimates (25) (1) (17)
Accrual at end of year $ 315 $ 318 $ 280
Note 18. Variable Interest Entities
BAAC is a joint venture established in 1998 between our Bell Helicopter unit 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,
through December 2005, the commercial helicopter Model AB139. This venture is a variable interest entity since it relies on its partners to fund
the development and to provide services for substantially all of the venture’s operations.
On December 20, 2005, we entered into an agreement with Agusta to realign BAAC. Under this agreement, we sold our 25% profit interest in the
Model AB139 medium twin helicopter program to Agusta. Agusta assumed ownership of all aspects of the Model AB139 program from BAAC,
including all existing customer obligations. In exchange for our interest, we received $10 million in cash, a $20 million note and a note for contin-
gent payments from Agusta based on future Model AB139 sales. We recognized a $30 million pre-tax gain upon the sale of our 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.
The realignment also allows Agusta to increase its profit interest in the Model BA609 to a maximum of 40% by increasing its investment during
the development phase. These development activities may include cash contributions to reimburse us for certain development costs incurred on
behalf of BAAC (see Note 16). At year-end, Agusta’s profit interest was approximately 30%.
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 our share of the development costs charged to our earnings as a period expense. As a result of the realignment, BAAC
now includes only the Model BA609 tiltrotor, and we have a controlling voting interest in BAAC. Accordingly, we will absorb more than half of
BAAC’s expected losses and residual returns. As its primary beneficiary, we have consolidated BAAC prospectively as of December 20, 2005.
Note 19. Supplemental Cash Flow and Other Information
Supplemental Cash Flow Information
We have made the following cash payments:
(In millions) 2006 2005 2004
Interest paid:
Manufacturing group $ 111 $ 108 $ 106
Finance group $ 341 $ 204 $ 157
Taxes paid, net of refunds received:
Manufacturing group $ 173 $ 107 $ (16)
Finance group $ 2 $ 22 $ 61
Discontinued operations $ (40) $ (33) $ (16)
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Textron Inc.