E-Z-GO 2012 Annual Report Download - page 65

Textron Inc. Annual Report ● 2012 53
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 37% 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.
We may perform a qualitative assessment based on economic, industry and company-specific factors as the initial step in our
annual goodwill impairment test for selected reporting units. If we determine that it is more likely than not that a reporting unit’s
fair value exceeds its carrying value, we do not perform a quantitative assessment. For all other reporting units, we calculate the
fair value of each reporting unit, primarily using discounted cash flows. The discounted cash flows 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, 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 business having similar risks and business characteristics to the
reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, the reporting unit is not
impaired, and no further analysis is performed. Otherwise, the amount of the impairment must be determined by comparing the
carrying amount of the reporting unit goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is
determined by assigning a fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible
assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting
unit goodwill exceeds the implied fair value, an impairment loss would be recognized in an amount equal to that excess.
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
Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in
the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are
recognized as a component of other comprehensive (loss) income (OCI) and are amortized into net periodic pension cost in future
periods.
Derivative Financial Instruments
We are exposed to market risk primarily from changes in interest rates and currency exchange rates. We do not hold or issue
derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net
these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. All derivative
instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed
on a specific exposure basis. For financial instruments qualifying as fair value hedges, we record changes in fair value in earnings,
offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures being hedged. For cash flow
hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes.
Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.