Document mBKBq5R0ZRQDyr3mOObxdXyGB

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, mcludes certain forward-looking statements The forward-looking statements reflect Cooper's expectations, objectives and goals with respect to future events and financial performance, and are based on assumptions and estimates which Cooper believes are reasonable Forwardlooking statements mclude, but are not limited to, statements regarding facility consolidations and costreduction programs, resolution of mcome tax matters, potential liability exposure resulting from FederalMogul Corporation's bankruptcy filing and any statements regardmg future revenues, earnings, cash flows and capital expenditures Cooper wishes to caution readers not to put undue reliance on these statements and that actual results could differ materially from anticipated results Important factors which may affect the actual results mclude, but are not limited to, the resolution of Federal-Mogul's bankruptcy proceedings, political developments, market and economic conditions, changes in raw material and energy costs, industry competition, the net effects of Cooper's cost-reduction programs, changes m financial markets including foreign currency rate fluctuations and changing legislation and regulations The forward-looking statements contained m this report are intended to qualify for the safe harbor provisions of Section 2 IE of the Securities Exchange Act of 1934, as amended Critical Accounting Policies and Estimates The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to management's discussion and analysis The preparation of financial statements m conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contmgent assets and liabilities Cooper believes the following critical accounting pohcies mvolve additional management judgement due to the sensitivity of the methods, assumptions and estimates necessary m determining the related asset and liability amounts Cooper recognizes revenues in accordance with invoice terms, typically when products are shipped and accmals for sales returns and other allowances are provided at the time of shipment based upon past experience If actual future returns and allowances differ from past experience, additional allowances may be required Cooper provides estimated inventory allowances for slow-moving and obsolete inventory based on current assessments about future demands, market conditions and related management initiatives If market conditions are less favorable than those projected by management, additional inventory allowances may be required Cooper has recorded a valuation allowance to reduce its deferred tax asset related to a capital loss carryforward on the sale of the Automotive Products segment Cooper limited the amount of tax benefits recognizable from this asset based on an evaluation of the amount of capital loss carryforward that is expected to be ultimately realized An adjustment to mcome could be required if Cooper determined it could realize this deferred tax asset m excess of the net recorded amount or it would not be able to realize all or part of its net deferred tax asset Pension assets and liabilities are determined on an actuarial basis and are affected by the estimated market value of plan assets, estimates of the expected return on plan assets and discount rates Actual changes m the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets will affect the amount of pension expense ultimately recognized The postretirement benefits other than pensions liability is also determined on an actuarial basis and is affected by assumptions mcludmg the discount rate and expected trends in health care costs Changes m the discount rate and differences between actual and expected health care costs will affect the recorded amount of postretirement benefits expense Environmental liabilities are accmed based on estimates of known environmental remediation exposures The liabilities mclude accmals for sites owned by Cooper and third-party sites where Cooper was 12