E-Z-GO 2008 Annual Report Download - page 81

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Notes to the Consolidated Financial Statements
68
Amount of Gain(Loss) in OCI Reclassification Adjustment
Reclassification Adjustment (Effective Portion) Gain(Loss) Amount
Gain(Loss) Location
(In millions) (Effective Portion) 2008 2007 2008 2007
Cash Flow Hedges
Manufacturing group:
Foreign currency exchange contracts Cost of sales $ (37) $ 52 $ (14) $ 37
Commodity contracts Cost of sales (6) (5) — —
Forward contracts for
Textron Inc. stock Selling and administrative (7) 14 (9) 1
Finance group:
Interest rate exchange contracts Interest expense, net (5) — (2) —
The amount of ineffectiveness on our fair value hedge and our foreign currency exchange contracts is not significant. Approximately $11 million
of ineffectiveness related to the forward contracts for Textron Inc. stock, which is recorded in selling and administrative expense in 2008.
Our Manufacturing group also enters into certain foreign currency derivative instruments that do not meet hedge accounting criteria and primarily
are intended to protect against exposure related to intercompany financing transactions. We reported a loss of $49 million in 2008 and
$12 million in 2007 within selling and administrative expenses related to these instruments.
Note 10. Fair Values of Assets and Liabilities
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” effective for financial statements issued for fiscal years
beginning after November 15, 2007. SFAS No. 157 replaces multiple existing definitions of fair value with a single definition, establishes a
consistent framework for measuring fair value and expands financial statement disclosures regarding fair value measurements. This Statement
applies only to fair value measurements that already are required or permitted by other accounting standards and does not require any new fair
value measurements. In February 2008, the FASB delayed until the first quarter of 2009 the effective date of SFAS No. 157 for nonfinancial assets
and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.
The adoption of SFAS No. 157 for our financial assets and liabilities in the first quarter of 2008 did not have a material impact on our financial
position or results of operations. Our nonfinancial assets and liabilities that meet the deferral criteria include goodwill, intangible assets, property,
plant and equipment, and other long-term investments, which primarily represent collateral that is received by the Finance group in satisfaction of
troubled loans. We do not expect that the adoption of SFAS No. 157 for these nonfinancial assets and liabilities will have a material impact on our
financial position or results of operations.
In accordance with the provisions of SFAS No. 157, we measure fair value at the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The Statement prioritizes the assumptions that market
participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest
priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in
which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of
Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets
that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would
use in pricing the asset or liability, based on the best information available in the circumstances. Valuation techniques for assets and liabilities
measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use
unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are
utilized only to the extent that observable inputs are not available or cost-effective to obtain.