E-Z-GO 2009 Annual Report Download - page 77

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Notes to the Consolidated Financial Statements
68
Impaired Finance Receivables — Finance receivable impairment is measured by comparing the expected future cash flows discounted at the
finance receivable’s effective interest rate, or the fair value of the collateral if the receivable is collateral dependent, with its carrying amount. If the
carrying amount is higher, we establish a reserve based on this difference. This evaluation is inherently subjective as it requires estimates,
including the amount and timing of future cash flows expected to be received on impaired finance receivables and the underlying collateral, that
may differ from actual results. Impaired nonaccrual finance receivables are included in the table above since the measurement of required
reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. Fair values of collateral are
determined based on the use of appraisals, industry pricing guides, input from market participants, our recent experience selling similar assets or
internally developed discounted cash flow models. In 2009 and 2008, fair value measurements recorded on impaired finance receivables resulted
in a $165 million and $63 million, respectively, charge to provision for loan losses and primarily were related to initial fair value adjustments.
Other assets — Other assets include repossessed assets and properties and operating assets received in satisfaction of troubled finance
receivables. The fair value of these assets is determined based on the use of appraisals, industry pricing guides, input from market participants,
our recent experience selling similar assets or internally developed discounted cash flow models. For repossessed assets and properties, which
are considered assets held for sale, if the carrying amount of the asset is higher than the estimated fair value, we record a corresponding charge to
income for the difference. For operating assets received in satisfaction of troubled finance receivables, if the sum of the undiscounted cash flows
is estimated to be less than the carrying value, we record a charge to income for any shortfall between estimated fair value and the carrying
amount. In 2009, fair value measurements recorded on these assets resulted in a $41 million charge to Finance revenues in the Consolidated
Statements of Operations.
In connection with the cancellation of the Citation Columbus development program, we recorded a $43 million impairment charge in the second
quarter of 2009 to write off capitalized costs related to tooling and a partially constructed manufacturing facility, which we no longer consider to be
recoverable. The fair value of the remaining assets was determined using Level 3 inputs and was less than $1 million. See Note 12 for more detail
regarding these charges.
Assets and Liabilities Not Recorded at Fair Value
The carrying amounts and estimated fair values of our financial instruments that are not reflected in the financial statements at fair value are
as follows:
January 2, 2010 January 3, 2009
Carrying Estimated Carrying Estimated
(In millions) Value Fair Value Value Fair Value
Manufacturing group
Debt, excluding leases $ (3,474) $ (3,762) $ (2,438) $ (2,074)
Finance group
Finance receivables held for investment, excluding leases 5,159 4,703 5,665 4,828
Retained interest in securitizations, excluding interest-only strips 6 6 188 178
Investment in other marketable securities 68 55 95 78
Debt (5,667) (5,439) (7,388) (6,507)
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions. We utilize the same valuation
methodologies to determine the fair value estimates for finance receivables held for investment as described above for finance receivables held
for sale.
Investments in other marketable securities represent notes receivable issued by securitization trusts that purchase timeshare notes receivable
from timeshare developers. These notes are classified as held-to-maturity and are held at cost. The estimate of fair value was based on observable
market inputs for similar securitization interests in markets that currently are inactive.
In 2009 and 2008, approximately 54% and 82%, respectively, of the fair value of term debt for the Finance group was determined based on
observable market transactions. The remaining Finance group debt was determined based on discounted cash flow analyses using observable
market inputs from debt with similar duration, subordination and credit default expectations.