Graco 2005 Annual Report Download - page 67

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Resolution of Tax Contingencies
2005
In January 2005, the Company reached agreement with the Internal Revenue Service (IRS) relating
to the appropriate treatment of a speciÑc deduction included in the Company's 2003 U.S. federal income
tax return. The Company requested accelerated review of the transaction under the IRS' Pre-Filing
Agreement Program that resulted in aÇrmative resolution in late January 2005. A $58.6 million beneÑt
was recorded in income taxes for 2005 related to this issue. The amount was fully reserved as of
December 31, 2004.
In 2005, the statute of limitations on certain tax positions for which the Company had provided tax
reserves, in whole or in part, expired resulting in the reversal of the provisions and interest accrued thereon
in the amounts of $15.3 million.
2004
In 2004, the Company received a refund of $2.9 million from the IRS relating to amounts previously
paid and recorded this amount as a reduction to income taxes. Also during 2004, the statute of limitations
on certain transactions for which the Company had provided tax reserves, in whole or in part, expired
resulting in the reversal of the provisions and interest accrued thereon in the amount of $43.6 million.
Accordingly, the impact was recorded as a reduction to income taxes.
In 2004, due to signiÑcant restructuring activity and certain changes in the Company's business model
aÅecting the utilization of net operating loss carryovers, particularly in certain European countries, the
valuation allowance on certain net operating losses previously tax-beneÑted has been increased by
$31.0 million. This amount was recorded in income taxes for 2004.
FOOTNOTE 18
Impairment Charges
2005
In 2005, the Company recorded non-cash impairment charges of $34.4 million ($19.5 million
goodwill, $12.2 million trademarks and tradenames, and $2.7 million in property, plant and equipment)
related to its United Kingdom window fashion business, which is included in the Company's Home
Fashions segment. Restructuring and other investments made in the business in prior years have not
resulted in the expected returns. Additionally, the business continues to face economic challenges, as
retailers move to a direct product sourcing model. The Company is exploring alternatives for this business.
As a result of these factors, management performed the required impairment tests and determined that an
impairment charge was required. The Company used the discounted cash Öows method to determine the
estimated fair market value of the business.
66