Tecumseh Products 2014 Annual Report Download - page 46

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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
trends, the effects of new technologies and foreign currency movements, all of which 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 the 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.
Deposits – Our deposits primarily relate to social taxes and judicial matters and release of the monies to us depends on the
outcome of these matters.
Revenue Recognition – Revenue from the sale of our products are recognized once the risk and rewards of ownership have
transferred to the customers, which, in most cases, coincide with shipment of the products. For other cases involving export
sales, title transfers either when the products are delivered to the port of embarkation or received at the port of the country of
destination.
Income Taxes – Income taxes are accounted for using the asset and liability method. Under this method, income tax expense is
recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of
assets and liabilities, and for operating loss and tax credit carry forwards. We record a valuation allowance to reduce our
deferred tax assets to the amount that we believe is more likely than not to be realized. In addition, we establish reserves for
income taxes to address potential exposures involving tax positions that could be challenged by tax authorities.
Derivative Financial Instruments – In the normal course of business, we employ established policies and procedures to manage
our exposure to changes in foreign exchange rates and commodity prices using financial instruments deemed appropriate by
management. As part of our risk management strategy, we may use derivative instruments, including interest rate swaps,
currency forward exchange contracts and commodity futures contracts to hedge certain variable interest rate exposures, foreign
exchange exposures and commodity prices. Our objective is to offset gains and losses resulting from these exposures with
losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings. Derivative positions are
used only to manage our underlying exposures. We do not use derivative financial instruments for speculative purposes. We
formally designate and document all of our hedging relationships at the inception of the hedge as either fair value hedges or
cash flow hedges, as applicable. In addition, we document our strategy for undertaking each hedge transaction and our method
of assessing ongoing effectiveness. We record all derivative instruments at fair value.
For a derivative designated as a cash flow hedge, the gain or loss on the derivative is initially reported as a component of AOCI
and subsequently reclassified into the statement of operations when the hedged transaction occurs. For a derivative designated
as a fair value hedge, the gain or loss on the derivative in the period of change and the offsetting loss or gain of the hedged item
attributed to the hedged risk are recognized in the statement of operations. For cash flow hedges, we assess the effectiveness of
our futures and forwards contracts using the dollar offset method and de-designate the derivative if it is determined that the
derivative will no longer be highly effective at offsetting the cash flows of the hedged item. At the time a derivative is de-
designated, any losses recorded in AOCI are recognized in our Consolidated Statements of Operations while gains remain in
AOCI on our Consolidated Balance Sheets until the original hedged transaction occurs. All subsequent gains and losses related
to de-designated derivatives are recognized in our Consolidated Statements of Operations. See Note 14, “Derivative
Instruments and Hedging Activities”, for a description of derivative instruments.
Product Warranty – Provision is made for the estimated cost of maintaining product warranties at the time the product is sold
based upon historical claims experienced for each major product line. For most of our customers, warranty coverage on our
compressors is provided for a period of twelve months to three years from the date of manufacture. In the U.S., for wholesale
customers only, the warranty is provided for a period of up to twelve months from the date of their resale.
Self-Insured Risks – Provision is made for the estimated costs of known and anticipated claims under the deductible portions of
our health, product liability and workers’ compensation insurance programs.
Environmental Expenditures – Expenditures for environmental remediation are expensed or capitalized, as appropriate.
Liabilities relating to probable remedial activities are recorded when the costs of such activities can be reasonably estimated.
Liabilities are not reduced for possible recoveries from insurance carriers.
Earnings (Loss) Per Share – Basic income (loss) per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted earnings per share reflect the dilutive effect that would result
from the conversion of, or exercise of a right to acquire, equity securities. Diluted earnings per share are not presented because