E-Z-GO 2010 Annual Report Download - page 58

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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 its majority-owned subsidiaries. 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 consolidated subsidiaries and three 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 reclassified certain prior period amounts to conform to the current presentation related to assets and liabilities of
discontinued operations that are now combined with continuing operations on the Consolidated Balance Sheet due to their
insignificance to the balance sheet.
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. 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 Equivalents
Cash and 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.
When a sale arrangement involves multiple deliverables, 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. These arrangements typically involve the customization services we offer to customers who
purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and
assumes risk of loss. We consider the aircraft and the customization services to be separate units of accounting and allocate contract
price between the two on a relative selling price basis using the best evidence of selling price for each of the arrangement deliverables,
typically by reference to the price charged when the same or similar items are sold separately by us, taking into consideration any
performance, cancellation, termination or refund-type provisions. We recognize revenue when the recognition criteria for each unit of
accounting are met.
Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of
accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. We
then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method
(which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-
price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded
using the cost-to-cost method.