E-Z-GO 2014 Annual Report Download - page 56

individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the
collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This
allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific
reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default
trends, collateral values and both general economic and specific industry trends. Finance receivables are charged off at the earlier
of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the
receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.
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 income (loss) (OCI) and are amortized into net periodic pension cost in future
periods.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest 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. Credit risk related to
derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and
through periodic settlements of positions.
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.
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.
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.
50 Textron Inc. Annual Report • 2014