E-Z-GO 2001 Annual Report Download - page 43

updated assumptions and compares such amounts w ith the carrying value of the retained interests. When
the carrying value exceeds the fair value of the retained interests and the decline is determined to be other
than temporary, the retained interest is w ritten dow n to fair value.
Investment Securities
Investments in marketable securities and retained interests from securitizations are classified as available-
for-sale and are recorded at their fair value as a component of other assets. Unrealized gains and losses
on these securities, net of income taxes, are included in shareholders’ equity as a component of accumu-
lated other comprehensive loss (OCL). If a decline in the fair value of a marketable security is judged to be
other than temporary, the cost basis is w ritten dow n to fair value w ith a charge to earnings. Non-marketable
equity securities are accounted for under either the cost or equity method of accounting.
Inventories
Inventories are carried at the low er of cost or market. The cost of approximately 60% of inventories is
determined using the last-in, first-out method. The cost of remaining inventories, other than those related
to certain long-term contracts, are generally valued by the first-in, first-out method. Costs for commercial
helicopters are determined on an average cost basis by model considering the expended and estimated
costs for the current production release.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line
method. Land improvements and buildings are depreciated primarily over estimated lives ranging from 12
to 40 years, while machinery and equipment are depreciated primarily over 3 to 10 years. Expenditures
for improvements that increase asset values and extend useful lives are capitalized. Expenditures for
maintenance and repairs are expensed as incurred.
Intangible Assets
Intangible assets are primarily comprised of goodwill which is amortized using the straight-line method
over the estimated period of benefit, ranging from 10 to 40 years. Accumulated amortization of goodw ill
totaled $654 million and $564 million in 2001 and 2000, respectively. Textron periodically evaluates the
recoverability of intangible assets whenever events or changes in circumstances, such as declines in
sales, earnings or cash flows or material adverse changes in the business climate indicate that the
carrying amount of an asset may not be recoverable.
Derivative Financial Instruments
As of December 31, 2000, Textron adopted Statement of Financial Accounting Standards (SFAS) No. 133,
“ Accounting for Derivative Instruments and Hedging Activities,” as amended, w hich requires that all
derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation
and effectiveness of hedging relationships. Changes in the fair value of derivative financial instruments
are either recognized periodically in income or in shareholders’ equity as a component of comprehensive
income (loss) depending on w hether the derivative financial instrument qualifies for hedge accounting, and
if so, w hether it qualifies as a fair value hedge or cash flow hedge. In accordance with SFAS No. 133, Textron
recorded a cumulative transition adjustment to increase accumulated OCL by approximately $15 million,
net of income taxes, to recognize the fair value of cash flow hedges as of the date of adoption. The
cumulative effect of adoption w as not material to the consolidated statement of income.
Textron is exposed to market risk, primarily from changes in interest rates, currency exchange rates and
securities pricing. To manage the volatility relating to these exposures, Textron nets the exposures on a
consolidated basis to take advantage of natural offsets. For the residual portion, Textron enters into various
derivative transactions pursuant to Textron’s policies in such areas as counterparty exposure and hedging
practices. Designation is performed on a specific exposure basis to support hedge accounting. Changes
in fair value of financial instruments qualifying as fair value hedges are recorded in income, offset in part
or in whole by corresponding changes in the fair value of the underlying exposures being hedged.
Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in OCL net of deferred taxes. Textron has not incurred or recognized any gains or
losses in earnings as the result of the ineffectiveness of or the exclusion from its assessment of hedge
effectiveness of its fair value or cash flow hedges. Changes in fair value of derivatives not qualifying as
hedges are reported in income. Textron does not hold or issue derivative financial instruments for trading
or speculative purposes.
Prior to the adoption of SFAS No. 133, interest rate sw aps were accounted for on the accrual basis with
the differential to be paid or received recorded currently as an adjustment to interest expense. Premiums
Textron Annual Report 41