E-Z-GO 2004 Annual Report Download - page 64

Inventories
Inventories are carried at the lower of cost or estimated net realizable value. The cost of approximately 65% of inventories is deter-
mined using the last-in, first-out method. The cost of remaining inventories, other than those related to certain long-term con-
tracts, is 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. Customer deposits are recorded
against inventory when the right of offset exists. All other customer deposits are recorded as liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. Land improve-
ments and buildings are depreciated primarily over estimated lives ranging from 5 to 40 years, while machinery and equipment are
depreciated primarily over 3 to 15 years. Expenditures for improvements that increase asset values and extend useful lives are cap-
italized.
Impairment of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. Management assesses the recoverability of
the cost of the asset based on a review of projected undiscounted cash flows. In the event an impairment loss is identified, it is rec-
ognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. If an asset is
held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market infor-
mation, including appraisals or brokers’ estimates, and/or projected discounted cash flows.
Goodwill
Management evaluates the recoverability of goodwill annually or more frequently if 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 value of a
reporting unit or indefinite-lived intangible asset might be impaired. The reporting unit represents the operating segment unless
discrete financial information is prepared and reviewed by segment management for businesses one level below that operating
segment (a “component”), in which case such component is the reporting unit. In certain instances, components of an operating
segment have been aggregated and deemed to be a single reporting unit based on similar economic characteristics of the compo-
nents. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair val-
ues are established primarily using a discounted cash flow methodology. The determination of discounted cash flows is based on
the businesses’ strategic plans and long-range planning forecasts. When available, comparative market multiples are used to cor-
roborate discounted cash flow results.
Derivative Financial Instruments
Textron is exposed to market risk primarily from changes in interest rates, currency exchange rates and securities pricing. To man-
age the volatility relating to these exposures, Textron nets the exposures on a consolidated basis to take advantage of natural off-
sets. For the residual portion, Textron enters into various derivative transactions pursuant to Textron’s policies in areas such as
counterparty exposure and hedging practices. All derivative instruments are reported on the balance sheet at fair value. Designa-
tion to support hedge accounting is performed on a specific exposure basis. Changes in fair value of financial instruments qualify-
ing 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 other comprehensive (loss) income, net of deferred taxes. 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.
Foreign currency denominated assets and liabilities are translated into U.S. dollars with the adjustments from the currency rate
changes 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 swaps, 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 other comprehensive
loss with the offset recorded as an adjustment to the non-U.S. dollar financing liability.
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Textron Inc.