E-Z-GO 2012 Annual Report Download - page 66

54 Textron Inc. Annual Report ● 2012
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are
recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or
substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign
operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments
are recorded in the cumulative translation adjustment account with the offset recorded as an adjustment to debt.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates
are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred
and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts,
existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties.
Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or
significant amounts from claims against other third parties.
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.
Warranty and Product Maintenance Contracts
We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods
ranging from one to five years. We estimate the costs that may be incurred under warranty programs and record a liability in the
amount of such costs at the time product revenues are recognized. Factors that affect this liability include the number of products
sold, historical and anticipated rates of warranty claims, and cost per claim. We assess the adequacy of our recorded warranty and
product maintenance liabilities periodically and adjust the amounts as necessary. Additionally, we may establish warranty
liabilities related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S.
Government contracts. In accordance with government regulations, we recover a portion of company-funded research and
development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not
reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-
funded research and development costs were $584 million, $525 million, and $403 million in 2012, 2011 and 2010, respectively,
and are included in cost of sales.
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of
assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted
tax rates in effect for the year taxes are expected to be paid or recovered. Deferred income tax assets represent amounts available
to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions
and credits by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing
taxable temporary differences, taxable income in carryback years, available tax planning strategies and estimated future taxable
income. We recognize net tax-related interest and penalties for continuing operations in income tax expense.
Note 2. Discontinued Operations
In pursuing our business strategies, we have periodically divested certain non-core businesses. For several previously-disposed
businesses, we have retained certain assets and liabilities. All residual activity relating to our previously-disposed businesses that
meet the appropriate criteria is included in discontinued operations.
In connection with the 2008 sale of the Fluid & Power business unit, we received a six-year note with a face value of $28 million
and a five-year note with a face value of $30 million, which were both recorded in the Consolidated Balance Sheet net of a
valuation allowance. In the fourth quarter of 2011, we received full payment of both of these notes plus interest, resulting in a gain
of $52 million that was recorded in Other losses, net.