E-Z-GO 2006 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2006 E-Z-GO annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

Product and Environmental Liabilities
We accrue product liability claims on the occurrence method when a loss is probable and reasonably estimable based on historical experience
and the insurance coverage and deductibles in effect at the date of the incident.
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can
be reasonably estimated. Our environmental liabilities are undiscounted and do not take into consideration possible future insurance proceeds or
significant amounts from claims against other third parties.
Research and Development Costs
Research and development costs that are either not specifically covered by contracts or represent our share under cost-sharing arrangements are
charged to expense as incurred. Research and development costs incurred under contracts with others are reported as cost of sales over the
period that revenue is recognized.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and lia-
bilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of
available evidence, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that we believe it is more likely than
not that we will realize these benefits. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any
changes in our estimates in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive income (loss), as
appropriate. In assessing the need for a valuation allowance, we look to the future reversal of existing taxable temporary differences, taxable
income in carryback years, the feasibility of tax planning strategies and estimated future taxable income.
Recently Announced Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An
interpretation of FASB Statement No. 109” (“FIN 48”). This Interpretation provides a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. We will adopt this Inter-
pretation in the first quarter of 2007 and do not expect the adoption to have a material impact on our financial position or results of operations.
In July 2006, the FASB issued FASB Staff Position FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating
to Income Taxes Generated by a Leveraged Lease Transaction.” This Staff Position amends Statement of Financial Accounting Standards (“SFAS”)
No. 13, “Accounting for Leases” and requires a recalculation of returns on leveraged leases if there is a change or projected change in the timing
of cash flows related to income taxes generated by the leveraged lease. In accordance with this guidance, the difference between the revised calcu-
lation of earnings since lease inception and the actual amount of cumulative earnings recognized is recorded in income from continuing opera-
tions. We are required to adopt this guidance in the first quarter of 2007. Upon adoption, the estimated change in the projected cash flows must be
reported as an adjustment to retained earnings. The adoption of this Staff Position resulted in a $33 million reduction in retained earnings at the
beginning of fiscal 2007.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement replaces multiple existing definitions of fair
value with a single definition, establishes a consistent framework for measuring fair value and expands financial statement disclosures regarding
fair value measurements. This Statement applies only to fair value measurements that already are required or permitted by other accounting
standards and does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning subsequent to November
15, 2007. We will adopt this Statement in the first quarter of 2008 and currently are evaluating its impact on our financial position and results
of operations.
45
Textron Inc.