E-Z-GO 2008 Annual Report Download - page 64

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Notes to the Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and all of its majority-owned subsidiaries, along with any variable
interest entities for which we are the primary beneficiary. In the normal course of business, we have entered into various joint ventures or
investments in other entities that qualify as operating businesses. Generally, these ventures meet the criteria for exclusion from the scope of
Financial Accounting Standards Board (FASB) Interpretation No. 46(R), “Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51.”
As discussed in Note 20, Segment and Geographic Data, we changed our segment structure effective as of the beginning of fiscal 2008 to report
five segments: Cessna, Bell, Textron Systems, Industrial and Finance. All prior periods in these Consolidated Financial Statements have been
recast to reflect the new segment reporting structure.
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with all of
its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments, except for Textron Financial
Corporation. The Finance group consists of Textron Financial Corporation consolidated with its subsidiaries. We designed this framework to
enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and
delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each
borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support
those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Our Finance group provides captive financing for retail purchases and leases for new and used aircraft and equipment manufactured by our
Manufacturing group. In the Consolidated Statements of Cash Flows, cash received from customers or from securitizations is reflected as
operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash
flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our
Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing
activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the
cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is
transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original
financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and
assumptions that affect the amounts reported in the financial statements. Estimates are used in accounting for, among other items, finance
receivables held for sale, long-term contracts, inventory valuation, residual values of leased assets, allowance for credit losses on receivables, the
amount and timing of future cash flows expected to be received on impaired loans, product liability, workers’ compensation, actuarial
assumptions for the pension and postretirement plans, future cash flows associated with goodwill and long-lived asset valuations, and
environmental and warranty reserves. Our 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 our assessments of the probable future outcomes of these matters. Actual
results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in
the statement of operations in the period that they are determined.
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
We generally recognize revenue for the sale of products, which are not under long-term contracts, upon delivery. For commercial 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, we evaluate the
arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of
accounting. The total fee from the arrangement is then allocated to each unit of accounting based on its relative fair value, taking into
consideration any performance, cancellation, termination or refund-type provisions. Fair value generally is established for each unit of accounting