E-Z-GO 2011 Annual Report Download - page 64

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. 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 36% 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.
In September 2011, the Financial Accounting Standards Board issued guidance that permits companies to perform a qualitative
assessment based on economic, industry and company-specific factors as the initial step in the annual goodwill impairment test for
all or selected reporting units. Based on the results of the qualitative assessment, companies are only required to perform Step 1 of
the annual impairment test for a reporting unit if the company concludes that it is more likely than not that the unit’s fair value is
less than its carrying amount. As permitted, we adopted this guidance in the fourth quarter of 2011 to reduce the costs associated
with determining each reporting unit’s fair value for the units where it is more likely than not that the fair value exceeds its
carrying amount. For the reporting units for which we did not elect to perform a qualitative assessment, we calculated fair value of
each reporting unit 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.
Goodwill is considered to be potentially impaired when the carrying value of a reporting unit exceeds its estimated fair value.
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
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