E-Z-GO 2005 Annual Report Download - page 67

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ability to hold to recovery, information regarding the market and industry trends for the investee’s business, the financial strength and specific
prospects of the investee, and investment analyst reports, if available. If a decline in the fair value of an investment security is judged to be other
than temporary, the cost basis is written down to fair value with a charge to earnings.
In the normal course of business, Textron has entered into various joint venture agreements that are not controlled by Textron but where Textron
has the ability to exercise significant influence over the operating and financial policies. Textron’s investments in these ventures are accounted for
under the equity method of accounting. At December 31, 2005 and January 1, 2005, Textron Manufacturing’s investment in these unconsolidated
joint ventures totaled $16 million and $13 million, respectively, and is included in Other Assets. In addition, at January 1, 2005, distributions
from one of the joint ventures exceeded Textron’s investment by $18 million. Under the equity method, only Textron’s share of the ventures’ net
earnings and losses is included in the Consolidated Statement of Operations. Textron Manufacturing’s share of net income (loss) from these ven-
tures totaled $1 million in 2005, $(11) million in 2004 and $(14) million in 2003. Since these amounts are not considered material for separate
presentation, they are included within Cost of Sales.
Textron’s joint venture agreement with Boeing creates contractual, rather than ownership, rights related to the V-22. Accordingly, Textron does not
account for this joint venture under the equity method of accounting. Textron accounts for all of Bell Helicopter’s rights and obligations under the
specific requirements of the V-22 Contracts allocated to Bell Helicopter under the joint venture agreement. Revenues and cost of sales reflect Bell
Helicopter’s performance under the V-22 Contracts. All assets used in performance of the V-22 Contracts owned by Bell Helicopter, including
inventory and unpaid receivables, and all liabilities arising from Bell Helicopter’s obligations under the V-22 Contracts, are included in the Con-
solidated Balance Sheet.
Inventories
Inventories are carried at the lower of cost or estimated net realizable value. The cost of approximately 70% of inventories is determined using the
last-in, first-out method (“LIFO”). The cost of remaining inventories, other than those related to certain long-term contracts, is generally valued by
the first-in, first-out method (“FIFO”). 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 improvements and build-
ings are depreciated primarily over estimated lives ranging from five to 40 years, while machinery and equipment are depreciated primarily over
three to 15 years. Expenditures for improvements that increase asset values and extend useful lives are capitalized.
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 recognized based on the amount by which the car-
rying 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 information, 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 components. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its
estimated fair value. Fair values 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 corrob-
orate discounted cash flow results.
Notes to the Consolidated Financial Statements