E-Z-GO 2008 Annual Report Download - page 98

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Textron Inc.
production and sales. The arrangements require contributions from the participants totaling $14 million, which are due once the development
effort reaches certain predetermined milestones, as well as in-kind development contributions from one participant. The other two arrangements
are with Canadian governmental organizations. These arrangements, which currently include the Model 429 aircraft and may potentially include
certain future aircraft, each require cash contributions of up to CAD 115 million from the participants, based on a percentage of qualifying
research and development costs incurred.
Each of the participants under these arrangements is entitled to payments from Bell Helicopter, with the commercial participants also entitled to
discounts, based on future sales of the Model 429 aircraft. In addition, there are certain requirements related to production of future Model 429
aircraft in Canada. Based on the development activities completed and costs incurred, we have recorded income of $15 million, $22 million and
$22 million in 2008, 2007 and 2006, respectively, related to these arrangements.
Cessna began developing the Citation Columbus, a wide-body, eight-passenger business jet in 2008. As part of the development of the jet, we
entered into a risk-sharing arrangement with a supplier for the development of the aircraft. The arrangement requires contributions from the
supplier of $50 million, which are due once the development effort reaches certain predetermined milestones. The contributions will be
recognized as a reduction of research and development costs ratably as development costs are incurred. Based on development activities
completed and costs incurred, contributions of $3 million were recognized as an offset to research and development expense in 2008. We have
also contracted with several other suppliers to perform development efforts related to the Columbus aircraft on a fixed-price basis. Our obligations
to these suppliers are based on the progress toward completion of certain predetermined milestones. The related development costs are accrued
as the milestones are completed. Based on the milestone progress achieved, we have recorded expense of $17 million in 2008 related to these
arrangements.
In 2008, 2007 and 2006, we received, or were due to receive, $23 million, $33 million and $41 million, respectively, in cost reimbursements of
company-funded amounts from our risk-sharing partners. Based on these reimbursements, our net company-funded costs totaled $453 million,
$332 million and $310 million in 2008, 2007 and 2006, respectively.
Note 18. Guarantees and Indemnifications
Our Manufacturing group extends a variety of financial and performance guarantees to third parties as provided in the table below:
January 3, 2009 December 29, 2007
Maximum Carrying Maximum Carrying
Potential Amount of Potential Amount of
(In millions) Payment* Liability Payment* Liability
Performance guarantee $ 331 $ — $ 300 $ —
Guaranteed minimum resale contracts 30 3 30 3
Guarantees related to dispositions 17 19 17 29
Debt obligations of joint ventures 3 — 4 —
* These agreements include uncapped guarantees as described below.
Performance Guarantee
In 2004, through our Bell Helicopter business, we formed AgustaWestlandBell LLC (AWB LLC) with AgustaWestland North America Inc. (AWNA).
This venture was created for the joint design, development, manufacture, sale, customer training and product support of the VH-71 helicopter, and
certain variations and derivatives thereof, to be offered and sold to departments or agencies of the U.S. Government. In March 2005, AWB LLC
received a $1.2 billion cost reimbursement-type subcontract from Lockheed Martin for the System Development and Demonstration phase of the
U.S. Marine Corps Helicopter Squadron Program, which was increased to $1.4 billion in December 2008. We guaranteed to Lockheed Martin the
due and prompt performance by AWB LLC of all its obligations under this subcontract, provided that our liability under the guaranty shall not
exceed 49% of AWB LLC’s aggregate liability to Lockheed Martin under the subcontract. AgustaWestland N.V., AWNA’s parent company, has
guaranteed the remaining 51% to Lockheed Martin. We have entered into cross-indemnification agreements with AgustaWestland N.V. in which
each party indemnifies the other related to any payments required under these agreements that result from the indemnifying party’s workshare
under any subcontracts received. AWB LLC’s maximum obligation is 50% of the total contract value, or $676 million, for a maximum amount of
our liability under the guarantee of $331 million at January 3, 2009 through completion. Under the current phase of the contract, we do not believe
that there is any performance risk with respect to the guarantee. In late January 2009, the Pentagon declared a Nunn-McCurdy Act breach for this
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