E-Z-GO 2002 Annual Report Download - page 30

annual impairment test in the fourth quarter of 2002 using the estimates from our long-term strategic
plans. No adjustment was required to the carrying value of our goodwill or other intangible assets based
on the analysis performed.
Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated
fair value. Fair values are primarily established using a discounted cash flow methodology. The determi-
nation of discounted cash flows is based on the businesses’ strategic plans and long-range planning
forecasts. The revenue growth rates included in the plans are management’s best estimates based on
current and forecasted market conditions, and the profit margin assumptions are projected by each
segment based on the current cost structure and anticipated cost reductions. If different assumptions
were used in these plans, the related undiscounted cash flows used in measuring impairment could be
different potentially resulting in an impairment charge.
Securitized Transactions
Securitized transactions involve the sale of finance receivables to qualified special purpose trusts.
While the assets sold are no longer on our balance sheet, our retained interests are included in other
assets. We may retain an interest in the transferred assets in the form of interest-only securities, subordi-
nated certificates, cash reserve accounts and servicing rights and obligations. We do not provide
legal recourse to third-party investors that purchase interests in our securitizations beyond the credit
enhancement inherent in the retained interest-only securities, subordinated certificates and cash
reserve accounts. We estimate the fair value of the retained interests based on the present value of
future expected cash flows using our best estimates of credit losses, prepayment speeds, forward inter-
est rate yield curves, and discount rates commensurate with the risks involved. These assumptions are
reviewed each quarter, and the retained interests are written down when the carrying value exceeds the
fair value and the decline is estimated to be other than temporary. Based on our sensitivity analysis, as
discussed in Note 3 to the consolidated financial statements, a 20% adverse change in either the pre-
payment speed, expected credit losses or the residual cash flows discount rate would not result in a
material charge to income.
Pension and Other Postretirement Benefits
Assumptions used in determining projected benefit obligations and the fair values of plan assets for our
pension plans and other postretirement benefits are evaluated periodically by management in consulta-
tion with outside actuaries and investment advisors. Changes in assumptions are based on relevant
company data, such as the rate of increase in compensation levels and the long-term rate of return on
plan assets. Critical assumptions, such as the discount rate used to measure the benefit obligations, the
expected long-term rate of return on plan assets and health care cost projections, are evaluated and
updated annually. We have assumed that the expected long-term rate of return on plan assets will be
8.9%. Over the last ten-and twenty-year periods, our pension plan assets have earned in excess of our
current assumed long-term rate of return on plan assets.
At the end of each year, we determine the discount rate that reflects the current rate at which the pen-
sion liabilities could be effectively settled. This rate should be in line with rates for high quality fixed
income investments available for the period to maturity of the pension benefits, and changes as long-
term interest rates change. At year-end 2002, we determined this rate to be 6.75%. Postretirement bene-
fit plan discount rates are the same as those used by our defined benefit pension plan in accordance
with the provisions of SFAS No. 106.
In the fourth quarter of 2002, we recorded a non-cash adjustment to equity through other comprehen-
sive loss of $91 million to reflect additional minimum pension liability. Based on our current assumptions,
as well as the impact of recent market declines in the value of our pension assets, we estimate that our
pension income, excluding curtailment gains, will decline from $95 million in 2002 to approximately $34
million in 2003.
The trend in health care costs is difficult to estimate and it has an important effect on postretirement lia-
bilities. The 2002 health care cost trend rate, which is the weighted average annual projected rate of
increase in the per capita cost of covered benefits, was 10%. This rate is assumed to decrease to 5.0%
by 2006 and then remain at that level.
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