E-Z-GO 2009 Annual Report Download - page 61

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 in the fourth quarter 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 carrying value of a reporting unit exceeds its estimated fair value. Fair
values are established primarily using discounted cash flows that incorporate assumptions for the unit’s short- and long-term revenue growth
rates, operating margins and discount rates, which represent our best estimates of current and forecasted market conditions, current cost
structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a
company having similar risks and business characteristics to the reporting unit being assessed. 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 recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets 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) income (OCI) and
amortized into net periodic pension cost in future periods.
Derivative Financial Instruments
We are exposed to market risk primarily from changes in interest rates and currency exchange rates. We do not hold or issue derivative financial
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 at fair value in the Consolidated Balance Sheets.
Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as fair value hedges, we
record changes in fair value in earnings, offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures being
hedged. For cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred
taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
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 financing 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 financing liability.
Product and Environmental Liabilities
We accrue product liability claims and related defense costs on the occurrence method when a loss is probable and reasonably estimable. Our
estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience and
considering the insurance coverage and deductibles in effect at the date of the incident.
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Notes to the Consolidated Financial Statements