E-Z-GO 2008 Annual Report Download - page 67

54
agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance-
based payments and progress payments. Such advances and payments are reflected as an offset against the related inventory balances.
Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded in accrued liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. Land improvements and
buildings are depreciated primarily over estimated lives ranging from four to 40 years, while machinery and equipment are depreciated primarily
over one to 15 years. We capitalize expenditures for improvements that increase asset values and extend useful lives.
Intangible and Other Long-Lived Assets
At acquisition, we estimate and record the fair value of purchased intangible assets primarily using discounted cash flow analysis of anticipated
cash flows reflecting incremental revenues and/or cost savings resulting from the acquired intangible asset, reflecting market participant
assumptions. Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 40% of our gross
intangible assets with finite lives are amortized using the straight-line method, with the remaining assets, primarily customer agreements,
amortized based on the cash flow streams used to value the asset.
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 flows, 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 flows.
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 flows, 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 financial 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 flow methodology. The determination of discounted cash flows is based on the businesses’ strategic plans and
long-range planning forecasts. When available, comparative market multiples are used to corroborate discounted cash flow results.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement
benefit 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 Defined Benefit 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 defined benefit 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,
reduced shareholders’ equity (increase to accumulated other comprehensive loss) by $647 million, net of tax, and had no impact on results 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 are being amortized into net periodic pension cost.
Notes to the Consolidated Financial Statements