Graco 2005 Annual Report Download - page 46

Download and view the complete annual report

Please find page 46 of the 2005 Graco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 81

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81

Income Tax Contingencies: The Company establishes a tax contingency reserve for certain tax
exposures when it is not probable that the Company's tax position will be ultimately sustained. The
Company eliminates a tax contingency reserve balance when it becomes probable that the Company's tax
position will ultimately be sustained, which generally occurs when the statute of limitations for a speciÑc
exposure item has expired or when the Company has reached agreement with the taxing authorities on the
treatment of an item. The Company 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.
Fair Value of 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.
Prior to 2006, the Company has elected to follow the accounting provisions of APB No. 25 in
accounting for its stock option plans. As a result, the Company grants Ñxed stock options under which no
compensation cost is recognized. The following table is a reconciliation of the Company's net
income/(loss) and earnings/(loss) per share to pro-forma net income/(loss) and pro-forma earn-
ings/(loss) per share for the year ended December 31, (in millions, except per share data):
2005 2004 2003
Net income (loss):
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $251.3 $(116.1) $(46.6)
Fair value option expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11.0) (14.2) (19.0)
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $240.3 $(130.3) $(65.6)
Basic income (loss) per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.92 $ (0.42) $(0.17)
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.88 (0.47) (0.24)
Diluted income (loss) per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.91 $ (0.42) $(0.17)
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.87 (0.47) (0.24)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 2005, 2004 and 2003, respectively: risk-
free interest rate of 3.9%, 4.2% and 4.0%; expected dividend yields of 3.0%, 3.0% and 3.0%; expected lives
of 6.5, 8.0 and 6.9 years; and expected volatility of 33%, 30% and 32%.
45