Graco 2012 Annual Report Download - page 98

Download and view the complete annual report

Please find page 98 of the 2012 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 118

  • 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
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

92
publicly traded, fair value is determined on the basis of quoted market prices and, accordingly, these investments have been classified as Level 1. Other
investment securities are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date and have
been classified as Level 2.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets which are measured at fair value on a nonrecurring basis include property, plant and equipment,
goodwill, intangible assets and certain other assets.
The Company’s annual impairment tests of goodwill and indefinite-lived intangible assets did not result in the Company recording
any impairment charges during 2012 and 2010. During 2011, in conjunction with the Company's annual impairment tests of
goodwill and indefinite-lived intangible assets, the Company recognized non-cash impairment charges of $382.6 million, primarily
related to goodwill impairment in the Baby & Parenting and Hardware reporting units (Hardware is included in the Specialty
segment). In making the assessment of goodwill impairment, management relies on a number of factors including operating results,
business plans, economic projections, anticipated future cash flows, transactions, and marketplace data. Accordingly, these fair
value measurements fall in Level 3 of the fair value hierarchy. The factors used by management in the impairment analysis are
inherently subject to uncertainty. While the Company believes it has made reasonable estimates and assumptions to determine the
fair value of its reporting units, if actual results are not consistent with management’s estimates and assumptions, goodwill and
other intangible assets may be overstated and could potentially trigger additional impairment charges.
During 2012 and 2011, impairments associated with plans to dispose of certain property, plant and equipment were not material,
while the Company recorded $6.0 million of such impairments in 2010. The Company generally uses projected cash flows,
discounted as necessary, to estimate the fair values of the impaired assets using key inputs such as management’s projections of
cash flows on a held-and-used basis (if applicable), management’s projections of cash flows upon disposition and discount rates.
Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy. These assets and certain liabilities are
measured at fair value on a nonrecurring basis as part of the Company’s impairment assessments and as circumstances require.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, derivative
instruments, notes payable and short- and long-term debt. The carrying values for current financial assets and liabilities, including
cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short maturity of such
instruments. The fair values of the Company’s derivative instruments are recorded in the Consolidated Balance Sheets and are
disclosed in Footnote 11. The fair values of certain of the Company’s short- and long-term debt are based on quoted market prices
and are as follows (in millions):
2012 2011
Fair Value Book Value Fair Value Book Value
Medium-term notes $ 1,803.6 $ 1,703.9 $ 1,679.7 $ 1,632.3
Preferred securities underlying the junior convertible subordinated debentures — — 356.0 421.2
The carrying amounts of all other significant debt approximate fair value.
FOOTNOTE 19
Industry Segment Information
In October 2012, the Company committed to an expansion of Project Renewal, designed to further simplify and align the business
around two key activities – Brand & Category Development and Market Execution & Delivery. As part of the expanded program,
the Company’s Consumer and Professional groups were eliminated and the Company’s nine global business units were streamlined
into six business segments. As a result, the 2011 and 2010 segment information in this footnote and Footnotes 4 and 7 pertaining
to restructuring and goodwill and other intangible assets, net, respectively, has been presented to reflect the six business segments.