E-Z-GO 2014 Annual Report Download - page 57

Warranty and Product Maintenance Liabilities
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 costs per claim, contractual recoveries from vendors and historical and anticipated rates of warranty claims,
including production and warranty patterns for new models. 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 $694 million, $651 million, and $584 million in 2014, 2013 and 2012, 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.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from
Contracts with Customers,” that outlines a comprehensive five-step revenue recognition model based on the principle that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services. Entities have the option of using
either a full retrospective or a modified retrospective approach for the adoption. This ASU is effective for our company at the
beginning of fiscal 2017; early adoption is not permitted. We are currently evaluating the new guidance to determine the impact it
is expected to have on our consolidated financial statements, along with the transition method we expect to utilize.
51 Textron Inc. Annual Report • 2014