Tecumseh Products 2012 Annual Report Download - page 29

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changes in any other assumptions, a 0.5% decrease in the discount rate and a 0.5% decrease in the rate of return on plan assets
would have increased 2012 expense by $0.5 million and $0.7 million, respectively. Historically, these assumptions, specifically
our actual return on assets and financial market-based discount rates, have not differed materially from actual results; however,
unanticipated events will impact future results of operations and could result in material changes to our reserves in future
periods.
See Note 5, “Pension and Other Postretirement Benefit Plans” of the Notes to Consolidated Financial Statements in Item 8 of
this report for more information regarding costs and assumptions for postretirement benefits.
Impairment of Long-Lived Assets
It is our policy to review our long-lived assets for possible impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable. At December 31, 2012 and 2011, other than those assets for which
impairment charges had been taken, we do not believe there was a material amount of assets that had associated undiscounted
projected cash flows that were materially less than their carrying values. If there are in the future, we will disclose that fact and
the carrying amount of the assets at risk of impairment. Additional restructuring actions taken will be based upon our
assessment of ongoing economic activity and any such additional actions, if warranted, could result in further restructuring and/
or asset impairment charges in the foreseeable future, and, accordingly, could have a significant effect on our consolidated
financial position and future operating results. Such events could include a loss of a significant customer or market share, the
decision to relocate production to other locations or the decision to cease production of specific models of products.
We recognize losses related to the impairment of long-lived assets when the estimated future undiscounted cash flows are less
than the asset's carrying value or when the assets become permanently idle. Assumptions and estimates used in the evaluation
of impairment are consistent with our business plan, including current and future economic trends, the effects of new
technologies and foreign currency movements, and are subject to a high degree of judgment and complexity. All of these
variables ultimately affect management's estimate of the expected future cash flows to be derived from the asset or group of
assets under evaluation, as well as the estimate of their fair value. Changes in the assumptions and estimates, or our inability to
achieve our business plan, may affect the carrying value of long-lived assets and could result in additional impairment charges
in future periods.
Share-based Compensation
Share-based payment awards exchanged for employee services are recorded at fair value on the date of grant and re-measured
quarterly over the life of the award. The awards are expensed in the consolidated statement of operations over the requisite
employee service period. Our plan authorizes two types of incentive awards for our key employees, both of which are based
upon the value of our Class A common stock: stock appreciation rights (“SARs”) and phantom shares. Both types of awards are
settled in cash. Stock-based compensation expense for the SARs includes an estimate for forfeitures and is generally
recognized over the vesting period on a straight-line basis. We determine the fair value of the SARs using the Black-Scholes
option pricing model. The Black-Scholes option pricing model incorporates certain assumptions, such as risk-free interest rate,
expected volatility, expected dividend yield and the expected life of the SARs, in order to arrive at a fair value
estimate. Expected volatilities are based on the historical volatility of our common stock and that of an index of companies in
our industry group. The risk-free interest rate is based upon quoted market yields for United States Treasury debt
securities. The expected dividend yield is based upon our history of not having issued a dividend since the second quarter of
2005 and management's current expectation of future action surrounding dividends. We believe that the assumptions selected
by management are reasonable; however, significant changes could materially impact the results of the calculation of fair value.
The fair value of the phantom shares is determined based on the closing stock price on our Class A common stock on the initial
grant date and revalued based on the closing price of our Class A common stock as of the last business day of each quarterly
period.
In addition to the awards to our employees, we grant deferred stock units ("DSUs") to our non-employee directors under our
Outside Directors' Deferred Stock Unit Plan. These awards are fully vested when made. We measure the fair value of
outstanding DSUs based upon the closing stock price of our Class A common stock on the last day of the reporting period. We
will pay out the DSUs to a director after the earlier of a Company Change in Control, as defined in the plan, or the date when
he or she ceases to be a non-employee director for any reason. Since the DSUs are settled in cash rather than by issuing equity
instruments, we record an expense for DSUs, with a corresponding liability on our balance sheet. For further discussion of
these plans, see Note 10, “Share-based Compensation Arrangements,” of the Notes to the Consolidated Financial Statements in
Item 8 of this report.