Graco 2007 Annual Report Download - page 36

Newell Rubbermaid Inc. 2007 Annual Report
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Other Long-Lived Assets
The Company continuously evaluates if impairment indicators related to its property, plant and equipment and other long-lived assets are present. These
impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent
or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with
a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If
impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets. The sum of the undiscounted future cash
flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various assumptions regarding
future revenue and expenses, working capital, and proceeds from asset disposals on a basis consistent with the Company’s strategic plan. If the carrying
amount exceeds the sum of the undiscounted future cash flows, the Company discounts the future cash flows using a discount rate required for a similar
investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, the
Company performs its testing of the asset group at the product-line level, as this is the lowest level for which identifiable cash flows are available.
Product Liability Reserves
The Company has a self-insurance program for product liability that includes reserves for self-retained losses and certain excess and aggregate risk
transfer insurance. The Company uses historical loss experience combined with actuarial evaluation methods, review of significant individual files and
the application of risk transfer programs in determining required product liability reserves. The Company’s actuarial evaluation methods take into account
claims incurred but not reported when determining the Company’s product liability reserve. The Company has product liability reserves of $34.4 million
as of December 31, 2007. While the Company believes that it has adequately reserved for these claims, the ultimate outcome of these matters may exceed
the amounts recorded by the Company, and such additional losses may be material to the Company’s Consolidated Financial Statements.
Legal and Environmental Reserves
The Company is subject to losses resulting from extensive and evolving federal, state, local and foreign laws and regulations, as well as contract and other
disputes. The Company evaluates the potential legal and environmental losses relating to each specific case and determines the probable loss based on
historical experience and estimates of cash flows for certain environmental matters. The estimated losses take into account anticipated costs associated
with investigative and remediation efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably
estimated. No insurance recovery is taken into account in determining the Company’s cost estimates or reserve, nor do the Company’s cost estimates or
reserve reflect any discounting for present value purposes, except with respect to long-term operations and maintenance Comprehensive Environmental
Response, Compensation and Liability (“CERCLA”) matters which are estimated at present value. The Company’s estimate of environmental response costs
associated with these matters as of December 31, 2007 ranged between $14.5 million and $33.9 million. As of December 31, 2007, the Company had a
reserve of $18.8 million for such environmental response costs in the aggregate, which is included in other accrued liabilities and other noncurrent
liabilities in the Consolidated Balance Sheets.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, the Company accounts for deferred income taxes
using the asset and liability approach. Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences
between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to
reduce the deferred tax assets to an amount that will more likely than not be realized. No provision is made for the U.S. income taxes on the undistributed
earnings of non-U.S. subsidiaries as substantially all such earnings are permanently reinvested.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and
other tax authorities. Although the Company believes that the positions taken on previously filed tax returns are reasonable, it has established tax and
interest reserves in recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes and
interest. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the
expected timing of the reversals of existing temporary differences and tax planning strategies.
The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”), on January 1, 2007. FIN 48 requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. The
Company’s ongoing assessments of the more-likely-than-not outcomes of tax authority examinations and related tax positions require significant judgment
and can increase or decrease the Company’s effective tax rate, as well as impact operating results. The adoption of FIN 48 did not result in an adjustment
to beginning retained earnings; however it did result in the reclassification of certain income tax assets and liabilities from current to long-term in the
Company’s Consolidated Balance Sheet. See Footnote 16 of the Notes to Consolidated Financial Statements for further information.