E-Z-GO 2007 Annual Report Download - page 68

Textron Inc.
Fair Values of Financial Instruments
The fair value of our cash and cash equivalents, accounts receivable, accounts payable, and variable-rate receivables and debt approximates
the carrying value of these fi nancial instruments. We determine the estimated fair values of other fi nancial instruments, including debt, equity
and risk management instruments, using available market information and valuation methodologies, primarily discounted cash fl ow analysis
or independent investment bankers.
Product and Environmental Liabilities
We accrue product liability claims and related defense costs 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. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently
enacted laws and regulations, which all are subject to a number of factors and uncertainties. Our environmental liabilities are undiscounted and
do not take into consideration possible future insurance proceeds or signifi cant amounts from claims against other third parties.
Research and Development Costs
Research and development costs that are either not specifi cally 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 fi nancial reporting and tax bases of assets and
liabilities, applying enacted tax rates expected to be in effect for the year in which we expect the differences will reverse or settle. Based on the
evaluation of available evidence, we recognize future tax benefi ts, such as net operating loss carryforwards, to the extent that we believe it is more
likely than not that we will realize these benefi ts. We recognize interest and penalties related to unrecognized tax benefi ts in income tax expense.
We periodically assess the likelihood that we will be able to recover our deferred tax assets and refl ect 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 September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” SFAS No.157
replaces multiple existing defi nitions of fair value with a single defi nition, establishes a consistent framework for measuring fair value and
expands fi nancial 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 in the
fi rst quarter of 2008, and we do not expect the adoption will have a material impact on our fi nancial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment
to FASB Statement No. 115.” SFAS No. 159 allows companies to choose to measure eligible assets and liabilities at fair value with changes in
value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing
asset or liability, if an event triggers a new basis of accounting. SFAS No. 159 is effective in the fi rst quarter of 2008. We do not expect to elect to
re-measure any of our existing fi nancial assets or liabilities under its provisions.
Note 2. Discontinued Operations
In August 2006, we completed the sale of our Fastening Systems business to Platinum Equity, a private equity investment fi rm, for approximately
$613 million in cash and the assumption of $16 million of net indebtedness and certain liabilities. There was no gain or loss recorded upon
completion of the sale. Prior to the consummation of the sale of the Fastening Systems business, we recorded impairment and other charges of
$120 million in 2006 and $387 million in 2005, which are described below. The results of this business were accounted for as discontinued
operations in the Consolidated Financial Statements for all periods presented herein.
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