Graco 2005 Annual Report Download - page 28

generally assesses its tax contingency reserves on a quarterly basis. Management cannot determine with
certainty the ultimate resolution of these tax matters. Actual results may diÅer from the recorded amounts.
Pending Adoption of New Accounting Pronouncements
Stock Options
In December 2004, the Financial Accounting Standards Board (""FASB'') issued Statement of
Financial Accounting Standards No. 123 (revised) (""SFAS 123(R)''), ""Share-Based Payment.''
SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the Ñnancial statements based on their fair values (i.e., pro forma disclosure is no
longer an alternative to Ñnancial statement recognition). The Statement supersedes Accounting Principles
Board Opinion (""APB'') No. 25, ""Accounting for Stock Issued to Employees,'' and will require adoption
no later than January 1, 2006. The Company has adopted the provisions of the new standard using the
modiÑed prospective method and using the Black-Scholes option pricing model eÅective January 1, 2006.
As a result of adoption, the Company expects to recognize approximately $15 million to $20 million, pre-
tax, in additional expense in 2006.
International Operations
For the years ended December 31, 2005, 2004 and 2003, the Company's non-U.S. businesses
accounted for approximately 28%, 29% and 28% of net sales, respectively (see Footnote 20 to the
Consolidated Financial Statements). Changes in both U.S. and non-U.S. net sales are shown below for the
years ended December 31, (in millions, except percentages):
2005 vs. 2004 vs.
2004% 2003%
2005 2004 2003 Change Change
U.S. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,537.1 $4,611.1 $4,787.1 (1.6)% (3.7)%
Non-U.S. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,805.4 1,868.7 1,827.7 (3.4) 2.2
$6,342.5 $6,479.8 $6,614.8 (2.1)% (2.0)%
CAUTIONARY LANGUAGE CONCERNING
FORWARD-LOOKING STATEMENTS
Certain statements in this annual report and the documents incorporated herein by reference
constitute forward-looking statements, as deÑned by the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties. The statements relate to, and other forward-
looking statements that may be made by the Company may relate to, but are not limited to, information
or assumptions about the eÅects of Project Acceleration, sales (including pricing), income/(loss), earnings
per share, return on equity, return on invested capital, capital expenditures, working capital, cash Öow,
dividends, capital structure, debt to capitalization ratios, interest rates, internal growth rates, restructuring,
impairment and other charges, potential losses on divestitures, impact of changes in accounting standards,
pending legal proceedings and claims (including environmental matters), future economic performance,
operating income improvements, costs and cost savings (including raw material inÖation, productivity and
streamlining), synergies, management's plans, goals and objectives for future operations and growth. These
statements generally are accompanied by words such as ""intend,'' ""anticipate,'' ""believe,'' ""estimate,''
""project,'' ""target,'' ""plan,'' ""expect,'' ""will,'' ""should'' or similar statements. You should understand that
forward-looking statements are not guarantees because there are inherent diÇculties in predicting future
results. Actual results could diÅer materially from those expressed or implied in the forward-looking
statements. The factors that are discussed below under ""Risk Factors'', as well as the matters that are set
forth generally in this annual report and the Company's 2005 Annual Report on Form 10-K, as Ñled with
the Securities and Exchange Commission (the ""2005 Form 10-K''), could cause actual results to diÅer.
Some of these factors are described as criteria for success. The Company's failure to achieve, or
27