E-Z-GO 2009 Annual Report Download - page 47

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Warranty Liabilities
We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from
one to five years. A significant portion of these liabilities arises from our commercial aircraft businesses. We also may incur costs related to
product recalls.
We estimate the costs that may be incurred under warranty programs and record a liability in the amount of such costs at the time product revenue
is recognized. Factors that affect this liability include the number of products sold, historical costs per claim, contractual recoveries from vendors,
and historical and anticipated rates of warranty claims, including production and warranty patterns for new models. During our initial aircraft
model launches, we typically incur higher warranty-related costs until the production process matures, at which point warranty costs moderate.
We assess the adequacy of our recorded warranty and product maintenance liabilities periodically and adjust the amounts as necessary.
Adjustments are made to accruals as claim data and actual experience warrant. Should future warranty experience differ materially from our
historical experience, we may be required to record additional warranty liabilities, which could have a material adverse effect on our results of
operations and cash flows in the period in which these additional liabilities are required.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and
liabilities, applying tax rates expected to be enacted for the year in which we expect the differences will reverse or settle. 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 a 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.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed
assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We assess our income tax positions and
record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the
reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax
benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant
information. Interest and penalties are accrued, where applicable. We recognize net tax-related interest and penalties for continuing operations in
income tax expense. If we do not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized. However,
our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, new
regulatory or judicial pronouncements, or other relevant events. As a result, our effective tax rate may fluctuate significantly on a quarterly and
annual basis.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations