E-Z-GO 2010 Annual Report Download - page 61

49
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. Inventoried costs related to long-term contracts are stated at actual production
costs, including 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.
Asset Retirement Obligations
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and
asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there
currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset
retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
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.
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset held for use
exceeds the sum of the undiscounted expected future cash flows, the carrying value of the asset generally is written down to fair value.
Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Fair value is determined using pertinent
market information, including estimated future discounted cash flows.
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances,
such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value
of a reporting unit might be impaired. The reporting unit represents the operating segment unless discrete financial information is
prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component
is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based
on similar economic characteristics. Goodwill is considered to be potentially impaired when the carrying value of a reporting unit
exceeds its estimated fair value. Fair values are established primarily using discounted cash flows that incorporate assumptions for
the unit’s short- and long-term revenue growth rates, operating margins and discount rates, which represent our best estimates of
current and forecasted market conditions, current cost structure, anticipated net cost reductions, and the implied rate of return that we
believe a market participant would require for an investment in a company having similar risks and business characteristics to the
reporting unit being assessed. When available, comparative market multiples are used to corroborate discounted cash flow results.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and
postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these
obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost
projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors.
We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of
compensation increases. We recognize the overfunded or underfunded status of our pension and postretirement plans in the