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Textron Inc. Annual Report • 2013 34
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of
December 28, 2013:
Payments Due by Period
(In millions) Total
Less than 1
Year 1-3 Years 4-5 Years
More Than 5
Years
Liabilities reflected in balance sheet:
Term deb
t
$ 783 $ 174 $ 357 $ 133 $ 119
Securitized debt
(
1
)
172 49 93 26 4
Subordinated deb
t
299
—
—
—
299
Interest on borrowin
g
s
(
2
)
260 40 67 24 129
Total Finance
g
rou
p
$ 1,514 $ 263 $ 517 $ 183 $ 551
(1) Securitized debt payments do not represent contractual obligations of the Finance group, and we do not provide legal
recourse to investors who purchase interests in the securitizations beyond the credit enhancement inherent in the retained
subordinate interests.
(2) Interest payments reflect the current interest rate paid on the related debt. They do not include anticipated changes in market
interest rates, which could have an impact on the interest rate according to the terms of the related debt.
At December 28, 2013, the Finance group also had $93 million in other liabilities, primarily accounts payable and accrued
expenses, that are payable within the next 12 months.
Critical Accounting Estimates
To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must
make complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we
believe are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these
policies require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This
section should be read in conjunction with Note 1 to the Consolidated Financial Statements, which includes other significant
accounting policies.
Long-Term Contracts
We make a substantial portion of our sales to government customers pursuant to long-term contracts. These contracts require
development and delivery of products over multiple years and may contain fixed-price purchase options for additional products.
We account for these long-term contracts under the percentage-of-completion method of accounting. Under this method, we
estimate profit as the difference between total estimated revenues and cost of a contract. The percentage-of-completion method of
accounting involves the use of various estimating techniques to project costs at completion and, in some cases, includes estimates
of recoveries asserted against the customer for changes in specifications. Due to the size, length of time and nature of many of our
contracts, the estimation of total contract costs and revenues through completion is complicated and subject to many variables
relative to the outcome of future events over a period of several years. We are required to make numerous assumptions and
estimates relating to items such as expected engineering requirements, complexity of design and related development costs,
product performance, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead and
capital costs, manufacturing efficiencies and the achievement of contract milestones, including product deliveries, technical
requirements, or schedule.
Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with
finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change.
Adjustments to projected costs are recognized in earnings when determinable. Anticipated losses on contracts are recognized in
full in the period in which the losses become probable and estimable. Due to the significance of judgment in the estimation
process described above, it is likely that materially different revenues and/or cost of sales amounts could be recorded if we used
different assumptions or if the underlying circumstances were to change. Our earnings could be reduced by a material amount
resulting in a charge to earnings if (a) total estimated contract costs are significantly higher than expected due to changes in
customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously
estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required during the development stage of the
contract or (d) we are unable to meet contract milestones.