Tecumseh Products 2012 Annual Report Download - page 42

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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Accounting Policies
Business Description – Tecumseh Products Company (the “Company”, "we", "us" or "our") is a global manufacturer of
hermetically sealed compressors for (i) commercial refrigeration applications, including walk-in coolers and freezers, ice
makers, dehumidifiers, water coolers, food service equipment and refrigerated display cases and vending machines;
(ii) household refrigerator and freezer applications; and (iii) residential and specialty air conditioning and heat pump
applications, including window air conditioners, packaged terminal air conditioners and recreational vehicle and mobile air
conditioners.
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of the Company and
our subsidiaries. All significant intercompany transactions and balances have been eliminated from the consolidated financial
statements.
Foreign Currency Translation and Transaction Gains and Losses – The financial position and operating results of substantially
all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities
are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses are translated at
average rates of exchange during the period. Resulting translation gains or losses are included as a component of accumulated
other comprehensive income, a separate component of stockholders’ equity. Transaction gains and losses arising from
transactions denominated in a currency other than the functional currency of the entity involved are included in the
consolidated statement of operations.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents – Cash and cash equivalents consist of bank deposits
and other highly liquid investments that are readily convertible into cash with original maturities of three months or less.
Restricted cash and cash equivalents consist of funds utilized as cash collateral for hedging activities, funds restricted to
funding our defined contribution retirement plan and funds posted as collateral for our non-U.S. letters of credit.
Cash and cash equivalents outside of North American locations amounted to $22.3 and $21.3 million at December 31, 2012 and
2011, respectively.
In the U.S., only a small portion of our cash balances are insured by the Federal Deposit Insurance Corporation ("FDIC"). All
cash that we hold in the U.S. is held at two major financial institutions. Any cash we hold in the U.S. that is not utilized for day-
to-day working capital requirements is primarily invested in secure, institutional money market funds, which are strictly
regulated by the U.S. Securities and Exchange Commission and operate under tight requirements for the liquidity,
creditworthiness, and diversification of their assets.
Accounts Receivable – Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful
accounts. We determine our allowance by considering a number of factors, including the length of time trade accounts
receivable are past due and the customer’s current ability to pay its obligation.
Inventories – Inventories are valued at the lower of cost or market, on the first-in, first-out basis. Cost in inventory includes
purchased parts and materials, direct labor and applied manufacturing overhead. We maintain an allowance for slow-moving
inventory for items which we do not expect to sell within the next 24 months.
Property, Plant and Equipment, Net – Property, plant and equipment, including significant improvements, are recorded at cost.
Repairs and maintenance and any gains or losses on disposition are included in operations. Depreciation is recorded on a
straight-line basis to allocate the cost of depreciable assets and leasehold improvements over their estimated service lives,
which generally fall within the following ranges:
Land improvements.............................................................................................................. 10 years
Buildings and improvements................................................................................................ 10-40 years
Machinery, equipment and tooling....................................................................................... 2-10 years
Impairment of Long-Lived Assets – We review our long-lived assets for possible impairment whenever events and
circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to estimated future undiscounted cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assumptions and
estimates used in the evaluation of impairment are consistent with our business plan, including current and future economic