E-Z-GO 2009 Annual Report Download - page 58

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 its majority-owned subsidiaries. As discussed in Note 2, on April
3, 2009, we sold HR Textron, and in November 2008, we completed the sale of our Fluid & Power business unit. Both of these businesses have
been classified as discontinued operations, and all prior period information has been recast to reflect this presentation.
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its
majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments. The Finance group, which also is the
Finance segment, consists of Textron Financial Corporation (TFC), its subsidiaries and the securitization trusts consolidated into it, along with
two other finance subsidiaries owned by Textron Inc. 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.
We have evaluated subsequent events up to the time of our filing with the Securities and Exchange Commission on February 25, 2010, which is
the date that these financial statements were issued.
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, 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. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated
Statements 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. Taxes collected from customers
and remitted to government authorities are recorded on a net basis within cost of sales.
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
using the sales price charged when the same or similar items are sold separately. We recognize revenue when the recognition criteria for each
unit of accounting are met.
49
Notes to the Consolidated Financial Statements