E-Z-GO 2009 Annual Report Download - page 60

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Notes to the Consolidated Financial Statements
believe that unanticipated changes in both internal and external factors affecting our financial performance, liquidity position or the value and/or
marketability of our finance receivables could result in a modification of this assessment.
Finance receivables held for sale are carried at the lower of cost or fair value. At the time of transfer to held for sale classification, we establish a
valuation allowance for any shortfall between the carrying value, net of all deferred fees and costs, and fair value. In addition, any allowance for
loan losses previously allocated to these finance receivables is reclassified to the valuation allowance account, which is netted with finance
receivables held for sale on the balance sheet. This valuation allowance is adjusted quarterly through earnings for any changes in the fair value of
the finance receivables below the carrying value. Fair value changes can occur based on market interest rates, market liquidity and changes in the
credit quality of the borrower and value of underlying loan collateral. If we determine that finance receivables classified as held for sale will not be
sold and we have the intent and ability to hold the finance receivables for the foreseeable future, until maturity or payoff, the finance receivables
are reclassified to held for investment at the lower of cost or fair value at that time.
Finance Receivables Held for Investment
Finance receivables are classified as held for investment when we have the intent and the ability to hold the receivable for the foreseeable future or
until maturity or payoff. Finance receivables held for investment are generally recorded at the amount of outstanding principal less allowance for
loan losses.
Provisions for losses on finance receivables held for investment are charged to income in amounts sufficient to maintain the allowance at a level
considered adequate to cover losses in the portfolio. We evaluate the allowance by examining current delinquencies, characteristics of the
existing accounts, historical loss experience, underlying collateral value, and general economic conditions and trends. In addition, for larger
balance commercial loans, we consider borrower specific information, industry trends and estimated discounted cash flows. Finance receivables
held for investment generally are written down to the fair value (less estimated costs to sell) of the related collateral at the earlier of the date when
the collateral is repossessed or when no payment has been received for six months. Finance receivables are charged off when they are deemed to
be uncollectible.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO)
method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We
determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current
production release.
Costs on long-term contracts represent costs incurred for production, allocable operating overhead, advances to suppliers, and, in the case of
contracts with the U.S. Government, allocable research and development and general and administrative expenses. Since our inventoried costs
include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant
to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of
advances, performance-based payments and progress payments. Such advances and payments are reflected as an offset against the related
inventory balances.
Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded in accrued 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
buildings are depreciated primarily over estimated lives ranging from four to 40 years, while machinery and equipment are depreciated primarily
over one to 15 years. We capitalize expenditures for improvements that increase asset values and extend useful lives.
Intangible and Other Long-Lived Assets
At acquisition, we estimate and record the fair value of purchased intangible assets primarily using a discounted cash flow analysis of anticipated
cash flows reflecting incremental revenues and/or cost savings resulting from the acquired intangible asset using market participant assumptions.
Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that reflects the
pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 35% of our gross intangible
assets are amortized using the straight-line method, with the remaining assets, primarily customer agreements, amortized based on the cash flow
streams used to value the asset.