E-Z-GO 2001 Annual Report Download - page 44

paid to terminate agreements designated as hedges were deferred and amortized to expense over the
remaining term of the original life of the contract. If the underlying debt w as then paid early, unamortized
premiums were recognized as an adjustment to the gain or loss associated w ith the debt’s extinguishment.
For foreign currency forward contracts hedging firm sales and purchase commitments, gains and losses
were included in the measurement of the underlying transactions w hen they occurred. Gains and losses
from currency rate changes on hedges of foreign currency transactions were recorded currently in income.
Foreign currency denominated assets and liabilities are translated into U.S. dollars w ith the adjustments
from the currency rate changes being recorded in the cumulative translation adjustment account in
shareholders’ equity until the related foreign entity is sold or substantially liquidated. Foreign currency
financing transactions, including currency sw aps, are used to effectively hedge long-term investments in
foreign operations with the same corresponding currency. Foreign currency gains and losses on the
hedge of the long-term investments are recorded in the cumulative translation adjustment account in
accumulated OCL w ith the offset recorded as an adjustment to the non-U.S. dollar financing liability.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, accounts payable and variable-rate receiv-
ables and debt approximate cost. The estimated fair values of other financial instruments, including debt,
equity and risk management instruments, have been determined using available market information and
valuation methodologies, primarily discounted cash flow analysis or independent investment bankers. The
estimated fair value of nonperforming loans included in finance receivables are based on discounted cash
flow analyses using risk-adjusted interest rates or the fair value of the related collateral. Because consid-
erable judgment is required in interpreting market data, the estimates are not necessarily indicative of the
amounts that could be realized in a current market
Stock-Based Compensation
Stock-based compensation awards to employees are accounted for using the intrinsic value method
prescribed in APB 25, “ Accounting for Stock Issued to Employees” and related interpretations.
Product and Environmental Liabilities
Product liability claims are accrued on the occurrence method based on insurance coverage and
deductibles in effect at the date of the incident and management’s assessment of the probability of loss
when reasonably estimable.
Environmental liabilities are recorded based on the most probable cost, if know n, or on the estimated
minimum cost, determined on a site-by-site basis. Textron’s environmental liabilities are undiscounted and
do not take into consideration possible future insurance proceeds or significant amounts from claims
against other third parties.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards (SFAS) No. 141, “ Business Combinations,” and No. 142, “ Goodwill and Other Intangible Assets,”
effective for fiscal years beginning after December 15, 2001. Under the new rules, goodw ill, along with
intangible assets deemed to have indefinite lives, w ill no longer be amortized but will be subject to annual
impairment tests in accordance w ith the Statements. Also, business combinations initiated after June 30,
2001 must be accounted for using the purchase method of accounting.
Textron will apply the new rules on accounting for goodw ill and other intangible assets beginning in the
first quarter of 2002. Application of the nonamortization provisions of the Statement, excluding Automotive
Trim, w ould have resulted in an increase in net income of $81 million. During 2002, Textron w ill perform
the first of the required impairment tests of goodw ill and indefinite lived intangible assets as of December 30,
2001 and has not yet determined what the effect of these tests w ill be on Textron’s results of operations
and financial position.
In August 2001, the FASB issued SFAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived
Assets.” SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed
of by sale. Discontinued operations w ill be measured similar to other long-lived assets classified as held
for sale at the lower of its carrying amount or fair value less cost to sell. Future operating losses w ill no
longer be recognized before they occur. SFAS No. 144 also broadens the presentation of discontinued
operations to include a component of an entity w hen operations and cash flow s can be clearly distin-
guished. The provisions of this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. At this time, the adoption of this Statement is not expected to have
a material effect on Textron’s results of operations or financial position.
42 Textron Annual Report