Graco 2008 Annual Report Download - page 46

Newell Rubbermaid Inc. 2008 Annual Report
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTE 1
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Newell Rubbermaid (the “Company”) is a global marketer of consumer and commercial products that touch the lives of people where they work, live and
play. The Company’s strong portfolio of brands includes Sharpie,
® Paper Mate, ® Dymo, ® Expo, ® Waterman, ® Parker,® Rolodex, ® Irwin, ® Lenox, ® BernzOmatic, ®
Rubbermaid,
® TC, ® Levolor, ® Graco, ® Aprica, ® Calphalon® and Good.® The Company’s multi-product offering consists of well known name-brand consumer
and commercial products in four business segments: Cleaning, Organization & Décor; Office Products; Tools & Hardware; and Other (Home & Family).
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company, its majority owned subsidiaries and variable interest entities where the
Company is the primary beneficiary, after elimination of intercompany transactions.
Use of Estimates
The preparation of these financial statements requires the use of certain estimates by management in determining the Company’s assets, liabilities,
revenues and expenses and related disclosures. Actual results could differ from those estimates.
Reclassifications
Certain 2007 and 2006 amounts have been reclassified to conform to the 2008 presentation.
Concentration of Credit Risk
The Company sells products to customers in diversified industries and geographic regions and, therefore, has no significant concentrations of credit risk.
The Company continuously evaluates the creditworthiness of its customers and generally does not require collateral.
The Company evaluates the collectibility of accounts receivable based on a combination of factors. When aware of a specific customer’s inability to
meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, the Company
records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records
reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due and historical collection
experience. Accounts are also reviewed for potential write-off on a case by case basis. Accounts deemed uncollectible are written off, net of expected
recoveries. If circumstances related to specific customers change, the Company’s estimates of the recoverability of receivables could be further adjusted.
The Company’s forward exchange contracts, cross currency interest rate swaps, and option contracts do not subject the Company to risk due to
foreign exchange rate movement, because gains and losses on these instruments generally offset gains and losses on the assets, liabilities, and other
transactions being hedged. The Company is exposed to credit-related losses in the event of non-performance by counterparties to certain derivative
financial instruments. The Company does not obtain collateral or other security to support derivative financial instruments subject to credit risk, but
monitors the credit standing of the counterparties.
The credit exposure that results from commodity, interest rate, and foreign exchange risk is the fair value of contracts with a positive fair value as
of the reporting date. The credit exposure on the Company’s interest rate and foreign currency derivatives at December 31, 2008 was $62.3 million and
$7.2 million, respectively. The credit exposure on the Company’s commodity derivatives at December 31, 2008 was immaterial.
Sales Recognition
Sales of merchandise and freight billed to customers are recognized when title passes and all substantial risks of ownership change, which generally occurs
either upon shipment or upon delivery based upon contractual terms. Sales are net of provisions for cash discounts, returns, customer discounts (such as
volume or trade discounts), cooperative advertising and other sales related discounts.
Cash and Cash Equivalents
Cash and cash equivalents include cash on-hand and highly-liquid investments that have a maturity of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost or market value using the last-in, first-out (LIFO) or first-in, first-out (FIFO) methods (see Footnote 5 for additional
information). The Company reduces its inventory value for estimated obsolete and slow moving inventory in an amount equal to the difference between the
cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. As of December 31, 2008 and 2007, the
Company’s reserves for excess and obsolete inventory and shrink reserves totaled $101.9 million and $68.0 million, respectively. If actual market conditions
are less favorable than those projected by management, additional inventory write-downs may be required.