E-Z-GO 2013 Annual Report Download - page 64

51 Textron Inc. Annual Report • 2013
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.
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 calculate the fair value of each reporting unit, primarily using discounted cash flows. The discounted cash flows incorporate
assumptions for 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’s 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. If the carrying amount of the goodwill exceeds the
implied fair value, an impairment loss would be recognized in an amount equal to that excess.
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 64% of our gross intangible assets are amortized based on the cash flow streams used to value
the assets, with the remaining assets amortized using the straight-line method. 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.
Finance Receivables
Finance receivables primarily include finance receivables classified as held for investment, and also include finance receivables
classified as held for sale. 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 losses.