E-Z-GO 2007 Annual Report Download - page 67

Notes to the Consolidated Financial Statements
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Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset held for use exceeds the sum of the
undiscounted expected future cash fl ows, the carrying value of the asset is generally written down to fair value. Long-lived assets held for sale are
stated at the lower of cost or fair value less cost to sell. Fair value is determined using pertinent market information, including estimated future
discounted cash fl ows.
Goodwill
We evaluate the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings
or cash fl ows, or material adverse changes in the business climate, indicate that the carrying value of a reporting unit might be impaired. The
reporting unit represents the operating segment unless discrete fi nancial information is prepared and reviewed by segment management for
businesses one level below that operating segment (a “component”), in which case such component is the reporting unit. In certain instances,
we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. Goodwill is
considered to be potentially impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established
primarily using a discounted cash fl ow methodology. The determination of discounted cash fl ows is based on the businesses’ strategic plans and
long-range planning forecasts. When available, comparative market multiples are used to corroborate discounted cash fl ow results.
Pension and Postretirement Benefi t Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include signifi cant pension and postretirement
benefi t obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related
expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these
assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee
demographic factors such as retirement patterns, mortality, turnover and the rate of compensation increases.
We adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defi ned Benefi t Pension and Other
Postretirement Plans - An amendment of FASB Statement Nos. 87, 88, 106, and 132(R)” on December 30, 2006. In accordance with this
Statement, we recognize the overfunded or underfunded status of our pension and postretirement plans on the balance sheet and recognize
changes in the funded status of our defi ned benefi t plans in comprehensive income in the year in which they occur. Actuarial gains and losses that
are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive loss and amortized into net
periodic pension cost in future periods.
At December 30, 2006, the impact of implementing SFAS No. 158 reduced total assets by $313 million, increased total liabilities by $334 million
and reduced shareholders’ equity (increase to accumulated other comprehensive loss) by $647 million, net of tax. In addition, we classifi ed
$92 million of pension and postretirement benefi t liabilities as current. The adoption did not affect our Consolidated Statement of Operations.
The adjustment to accumulated other comprehensive loss at adoption represents the net unrecognized actuarial losses, unrecognized prior
service costs (credits) and unrecognized transition obligation remaining from the initial adoption of SFAS No. 87, “Employers’ Accounting for
Pensions,” all of which were previously netted against the plan’s funded status in our balance sheet pursuant to the provisions of SFAS No. 87.
These amounts will be subsequently amortized into net periodic pension cost in future periods.
Derivative Financial Instruments
We are exposed to market risk primarily from changes in interest rates, currency exchange rates and securities pricing. We do not hold or issue
derivative fi nancial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures
on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our
policies in areas such as counterparty exposure and hedging practices. All derivative instruments are reported on the balance sheets at fair value.
Designation to support hedge accounting is performed on a specifi c exposure basis. For fi nancial instruments qualifying as fair value hedges,
we record changes in fair value in income, offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures
being hedged. For cash fl ow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in other
comprehensive (loss) income, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in income.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the
cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign
currency fi nancing transactions, including currency swaps, to effectively hedge long-term investments in foreign operations with the same
corresponding currency. Foreign currency gains and losses on the hedge of the long term investments are recorded in the cumulative translation
adjustment account with the offset recorded as an adjustment to the non-U.S. dollar fi nancing liability.