E-Z-GO 2014 Annual Report Download - page 39

Other Long-Term Liabilities
Other long-term liabilities included in the table consist primarily of undiscounted amounts in the Consolidated Balance Sheet as of
January 3, 2015, representing obligations under deferred compensation arrangements and estimated environmental remediation
costs. Payments under deferred compensation arrangements have been estimated based on management’s assumptions of expected
retirement age, mortality, stock price and rates of return on participant deferrals. The timing of cash flows associated with
environmental remediation costs is largely based on historical experience. Other long-term liabilities, such as deferred taxes,
unrecognized tax benefits and product liability, warranty and litigation reserves, have been excluded from the table due to the
uncertainty of the timing of payments combined with the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods
and services with defined terms as to price, quantity and delivery dates. Approximately 33% of the purchase obligations we
disclose represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for
which we have full recourse under customary contract termination clauses.
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of
January 3, 2015:
Payments Due by Period
(In millions)
Total
Year 1
Years 2-3
Years 4-5
More Than 5
Years
Liabilities reflected in balance sheet:
Term debt
$ 665
$ 82
$ 363
$ 115
$ 105
Subordinated debt
299
—
—
—
299
Securitized debt
98
46
35
9
8
Interest on borrowings
227
37
47
21
122
Total Finance group
$ 1,289
$ 165
$ 445
$ 145
$ 534
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.
At January 3, 2015, the Finance group also had $33 million in other liabilities 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.
33 Textron Inc. Annual Report • 2014