E-Z-GO 2010 Annual Report Download - page 76

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classified as held for sale were identified at the individual loan level; whereas golf course mortgages were identified as a portion of a
larger portfolio with common characteristics based on the intention to balance the sale of certain loans with the collection of others to
maximize economic value. These finance receivables are recorded at fair value on a nonrecurring basis during periods in which the
fair value is lower than the cost value. See the “Finance Receivables Held for Sale” section in Note 4 for information regarding
changes in classification of certain finance receivables between held for sale and held for investment.
There are no active, quoted market prices for our finance receivables. The estimate of fair value was determined based on the use of
discounted cash flow models to estimate the exit price we expect to receive in the principal market for each type of loan in an orderly
transaction, which includes both the sale of pools of similar assets and the sale of individual loans. The models we used incorporate
estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants
combined with estimated loan cash flows based on credit losses, payment rates and credit line utilization rates. Where available,
assumptions related to the expectations of current market participants are compared with observable market inputs, including bids
from prospective purchasers of similar loans and certain bond market indices for loans perceived to be of similar credit quality.
Although we utilize and prioritize these market observable inputs in our discounted cash flow models, these inputs are not typically
derived from markets with directly comparable loan structures, industries and collateral types. Therefore, all valuations of finance
receivables held for sale involve significant management judgment, which can result in differences between our fair value estimates
and those of other market participants.
Other assets — Other assets include repossessed assets and properties, operating assets received in satisfaction of troubled finance
receivables and other investments, which are accounted for under the equity method of accounting and have no active, quoted market
prices. 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 our other
investments, the discounted cash flow models incorporate assumptions specific to the nature of the investments’ business and
underlying assets and include industry valuation benchmarks such as discount rates, capitalization rates and cash flow multiples. 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 and other investments, 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.
Goodwill — In the fourth quarter of 2009, we performed our annual goodwill impairment test using the annual operating plan along
with its long-range forecast that was submitted to management in connection with our annual strategic planning process. This
information indicated a more delayed recovery from previous estimates for the Golf and Turf Care reporting unit, as the economic
recovery was proceeding slower than originally anticipated, resulting in lower golf membership and revenue per round of golf played
in North America and delayed new course construction. Using undiscounted cash flows, we determined that the fair value of the Golf
and Turf Care reporting unit had dropped to a level below its carrying value. Accordingly, we performed the required Step 2
calculation to determine the fair value of the reporting unit’s assets and liabilities in order to perform a purchase price allocation. In
performing this analysis, we used assumptions that we believe a market participant would utilize in valuing the assets and liabilities of
the business. Valuation methods used included the income and market approach depending on the nature of the asset/liability. Our
calculation supported a goodwill amount of $61 million and required the impairment charge to reduce the carrying amount by $80
million.
Property, Plant and Equipment — In connection with our restructuring program, we have exited certain facilities and product lines.
We performed impairment tests for the property, plant and equipment affected by such decisions and recorded impairment charges as
appropriate. Fair value for these assets was primarily determined using discounted cash flow methodology. In 2009, in connection
with the cancellation of the Citation Columbus development program, we recorded a $43 million impairment charge 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.