E-Z-GO 2014 Annual Report Download - page 54

$18 million and $9 million after tax, or $0.21, $0.06 and $0.03 per diluted share, respectively). For 2014, 2013 and 2012, the gross
favorable program profit adjustments totaled $132 million, $51 million and $88 million, respectively. For 2014, 2013 and 2012,
the gross unfavorable program profit adjustments totaled $37 million, $22 million and $73 million, respectively. The increase in
net program profit adjustments in 2014, compared with 2013, is largely driven by the Bell segment related to the impact of cost
reduction activities in 2014 as well as unfavorable performance in 2013 related to manufacturing inefficiencies. In addition, gross
favorable program profit adjustments in 2014 included $16 million related to the settlement of the System Development and
Demonstration phase of the Armed Reconnaissance Helicopter (ARH) program which was terminated in October 2008.
Revenue Recognition
We generally recognize revenue for the sale of products, which are not under long-term contracts, upon delivery. For commercial
aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership.
Taxes collected from customers and remitted to government authorities are recorded on a net basis.
When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services,
we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement
that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to
customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer
accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization services to be separate units of
accounting and allocate contract price between the two on a relative selling price basis using the best evidence of selling price for
each of the arrangement deliverables, typically by reference to the price charged when the same or similar items are sold separately
by us, taking into consideration any performance, cancellation, termination or refund-type provisions. We recognize revenue when
the recognition criteria for each unit of accounting are met.
Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of
accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract.
We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost
method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues
under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement
contracts are recorded using the cost-to-cost method.
Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications,
expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded
with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are
incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation
process is based on the professional knowledge and experience of engineers and program managers along with finance
professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When
adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact
of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the
period in which the losses become probable and estimable.
Finance Revenues — Finance revenues primarily include interest on finance receivables, capital lease earnings and portfolio
gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the
sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of
return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection
of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are
contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts,
including finance charges, generally are applied to reduce the net investment balance. We resume the accrual of interest when the
loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified,
following a period of performance under the terms of the modification, provided we conclude that collection of all principal and
interest is no longer doubtful. Previously suspended interest income is recognized at that time.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
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
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Textron Inc. Annual Report • 2014