E-Z-GO 2009 Annual Report Download - page 59

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Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting.
Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. We then recognize that
estimated profit over the contract term based on either the costs incurred (under the cost-to-cost method, which typically is used for development
effort) or the units delivered (under the units-of-delivery method, which is used for production effort), as appropriate under the circumstances.
Revenues under all cost-reimbursement contracts are recorded using the cost-to-cost method. Revenues under fixed-price contracts generally are
recorded using the units-of-delivery method; however, when the contracts provide for periodic delivery after a lengthy period of time over which
significant costs are incurred or require a significant amount of development effort in relation to total contract volume, revenues are recorded
using the cost-to-cost method.
Our long-term contract profits are based on estimates of total contract cost and revenue utilizing current contract specifications, expected
engineering requirements and the achievement of contract milestones, including product deliveries. Certain contracts are awarded with fixed-
price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of
several years, and the estimation of these costs requires substantial judgment. We review and revise these estimates periodically throughout the
contract term. Revisions to contract profits are recorded when the revisions to estimated revenues or costs are made. Anticipated losses on
contracts are recognized in full in the period in which the losses become probable and estimable.
Our Bell segment has a joint venture with The Boeing Company to provide engineering, development and test services related to the V-22 aircraft,
as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (the “V-22 Contracts”). This joint venture
agreement creates contractual, rather than ownership, rights related to the V 22. Accordingly, we do not account for this joint venture under the
equity method of accounting. We account for all of our rights and obligations under the specific requirements of the V-22 Contracts allocated to
us under the joint venture agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized
using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid
receivables, and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Finance Revenues — Finance revenues include interest on finance receivables, direct loan origination costs and fees received, and capital and
leveraged lease earnings, as well as portfolio gains/losses. We recognize interest using the interest method to provide a constant rate of return
over the terms of the receivables. We generally suspend the accrual of interest income for accounts that are contractually delinquent by more than
three months. In addition, detailed reviews of loans may result in earlier suspension. We resume the accrual of interest when the loan becomes
contractually current and recognize the suspended interest income at that time. Cash payments on nonaccrual accounts, including finance
charges, generally are applied to reduce loan principal.
Revenues on direct loan origination costs and fees received are deferred and amortized to finance revenues over the contractual lives of the
respective receivables and credit lines using the interest method. When receivables are sold or prepaid, unamortized amounts are recognized in
finance revenues. Portfolio gains/losses include gains/losses on the sale or early termination of finance assets and impairment charges related to
repossessed assets and properties and operating assets received in satisfaction of troubled finance receivables.
Leases — Certain qualifying noncancelable aircraft and other product lease contracts are accounted for as sales-type leases. Upon delivery, we
record the present value of all payments (net of executory costs and any guaranteed residual values) under these leases as revenues, and the
related costs of the product are charged to cost of sales. For lease financing transactions that do not qualify as sales-type leases, we record
revenues as earned over the lease period.
Finance Receivables Held for Sale
Finance receivables are classified as held for sale based on a determination that there no longer is the intent to hold the finance receivables for the
foreseeable future, until maturity or payoff, or there no longer is the ability to hold the finance receivables until maturity. Our decision to classify
certain finance receivables as held for sale is based on a number of factors, including, but not limited to, contractual duration, type of collateral,
credit strength of the borrowers, the existence of continued contractual commitments and the perceived marketability of the finance receivables.
On an ongoing basis, these factors, combined with our overall liquidation strategy, determine which finance receivables we have the positive
intent to hold for the foreseeable future and which finance receivables we will hold for sale. Our current strategy is based on an evaluation of both
our performance and liquidity position and changes in external factors affecting the value and/or marketability of our finance receivables. A
change in this strategy could result in a change in the classification of our finance receivables. As a result of the significant influence of economic
and liquidity conditions on our business plans and strategies, and the rapid changes in these and other factors we utilize to determine which
assets are classified as held for sale, we currently believe the term “foreseeable future” represents a time period of six to nine months. We also
50
Notes to the Consolidated Financial Statements