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require฀us฀to฀make฀judgments฀regarding฀potential฀outcomes.฀
At฀December฀31,฀2004฀and฀2003,฀inventory฀reserves฀totaled฀
$221.1฀million,฀or฀17.6%,฀and฀$232.5฀million,฀or฀18.7%,฀of฀
gross฀inventory,฀respectively.฀We฀believe฀that฀our฀reserves฀are฀
adequate฀to฀cover฀anticipated฀losses฀under฀current฀conditions.฀
Significant฀or฀unanticipated฀changes฀to฀our฀estimates฀and฀
forecasts,฀either฀adverse฀or฀positive,฀could฀impact฀the฀amount฀
and฀timing฀of฀any฀additional฀provisions฀for฀excess฀or฀obsolete฀
inventory฀that฀may฀be฀required.฀A฀five฀percent฀difference฀in฀
this฀reserve฀would฀have฀had฀a฀pre-tax฀impact฀of฀approximately฀
$11.1฀million฀in฀2004.
Impairment฀of฀Long-Lived฀Assets
Long-lived฀assets,฀which฀include฀property,฀goodwill,฀intan-
gible฀assets,฀investments฀in฀affiliates฀and฀certain฀other฀assets,฀
comprise฀a฀significant฀amount฀of฀our฀total฀assets.฀We฀review฀
the฀carrying฀values฀of฀these฀assets฀for฀impairment฀periodically,฀
and฀at฀least฀annually฀for฀goodwill,฀or฀whenever฀events฀or฀
changes฀in฀circumstances฀indicate฀that฀the฀carrying฀amounts฀
may฀not฀be฀recoverable.฀An฀impairment฀loss฀is฀recorded฀in฀the฀
period฀in฀which฀it฀is฀determined฀that฀the฀carrying฀amount฀is฀
not฀recoverable.฀This฀requires฀us฀to฀make฀judgments฀regarding฀
long-term฀forecasts฀of฀future฀revenues฀and฀costs฀related฀to฀the฀
assets฀subject฀to฀review.฀In฀turn,฀these฀forecasts฀are฀uncertain฀
in฀that฀they฀require฀assumptions฀about฀demand฀for฀our฀prod-
ucts฀and฀services,฀future฀market฀conditions฀and฀technological฀
developments.฀Significant฀and฀unanticipated฀changes฀to฀these฀
assumptions฀could฀require฀a฀provision฀for฀impairment฀in฀a฀
future฀period.฀Given฀the฀nature฀of฀these฀evaluations฀and฀their฀
application฀to฀specific฀assets฀and฀specific฀times,฀it฀is฀not฀possi-
ble฀to฀reasonably฀quantify฀the฀impact฀of฀changes฀in฀these฀
assumptions;฀however,฀based฀upon฀our฀evaluation฀of฀the฀฀
current฀business฀climate฀in฀which฀we฀operate,฀we฀do฀not฀cur-
rently฀anticipate฀that฀any฀significant฀asset฀impairment฀losses฀
will฀be฀necessary.
Income฀Taxes
The฀liability฀method฀is฀used฀for฀determining฀our฀income฀
taxes,฀under฀which฀current฀and฀deferred฀tax฀liabilities฀and฀
assets฀are฀recorded฀in฀accordance฀with฀enacted฀tax฀laws฀and฀
rates.฀Under฀this฀method,฀the฀amounts฀of฀deferred฀tax฀liabili-
ties฀and฀assets฀at฀the฀end฀of฀each฀period฀are฀determined฀using฀
the฀tax฀rate฀expected฀to฀be฀in฀effect฀when฀taxes฀are฀actually฀
paid฀or฀recovered.฀Valuation฀allowances฀are฀established฀to฀
reduce฀deferred฀tax฀assets฀when฀it฀is฀more฀likely฀than฀not฀that฀
some฀portion฀or฀all฀of฀the฀deferred฀tax฀assets฀will฀not฀be฀real-
ized.฀In฀determining฀the฀need฀for฀valuation฀allowances,฀we฀
have฀considered฀and฀made฀judgments฀and฀estimates฀regarding฀
estimated฀future฀taxable฀income฀and฀ongoing฀prudent฀and฀
feasible฀tax฀planning฀strategies.฀These฀estimates฀and฀judg-
ments฀include฀some฀degree฀of฀uncertainty฀and฀changes฀in฀
these฀estimates฀and฀assumptions฀could฀require฀us฀to฀adjust฀
the฀valuation฀allowances฀for฀our฀deferred฀tax฀assets.฀Histori-
cally,฀changes฀to฀valuation฀allowances฀have฀been฀caused฀by฀
major฀changes฀in฀the฀business฀cycle฀in฀certain฀countries฀and฀
changes฀in฀local฀country฀law.฀The฀ultimate฀realization฀of฀the฀฀
฀
deferred฀tax฀assets฀depends฀on฀the฀generation฀of฀sufficient฀
taxable฀income฀in฀the฀applicable฀taxing฀jurisdictions.
We฀operate฀in฀more฀than฀90฀countries฀under฀many฀legal฀
forms.฀As฀a฀result,฀we฀are฀subject฀to฀the฀jurisdiction฀of฀numer-
ous฀domestic฀and฀foreign฀tax฀authorities,฀as฀well฀as฀to฀tax฀
agreements฀and฀treaties฀among฀these฀governments.฀Our฀฀
operations฀in฀these฀different฀jurisdictions฀are฀taxed฀on฀various฀
bases:฀actual฀income฀before฀taxes,฀deemed฀profits฀(which฀are฀
generally฀determined฀using฀a฀percentage฀of฀revenues฀rather฀
than฀profits)฀and฀withholding฀taxes฀based฀on฀revenue.฀Deter-
mination฀of฀taxable฀income฀in฀any฀jurisdiction฀requires฀the฀
interpretation฀of฀the฀related฀tax฀laws฀and฀regulations฀and฀the฀
use฀of฀estimates฀and฀assumptions฀regarding฀significant฀future฀
events฀such฀as฀the฀amount,฀timing฀and฀character฀of฀deductions,฀
permissible฀revenue฀recognition฀methods฀under฀the฀tax฀law฀and฀
the฀sources฀and฀character฀of฀income฀and฀tax฀credits.฀Changes฀
in฀tax฀laws,฀regulations,฀agreements฀and฀treaties,฀foreign฀cur-
rency฀exchange฀restrictions฀or฀our฀level฀of฀operations฀or฀profit-
ability฀in฀each฀taxing฀jurisdiction฀could฀have฀an฀impact฀on฀the฀
amount฀of฀income฀taxes฀that฀we฀provide฀during฀any฀given฀year.
Our฀tax฀filings฀for฀various฀periods฀are฀subjected฀to฀audit฀
by฀the฀tax฀authorities฀in฀most฀jurisdictions฀where฀we฀conduct฀
business.฀These฀audits฀may฀result฀in฀assessments฀of฀additional฀
taxes฀that฀are฀resolved฀with฀the฀authorities฀or฀potentially฀
through฀the฀courts.฀We฀believe฀that฀these฀assessments฀may฀
occasionally฀be฀based฀on฀erroneous฀and฀even฀arbitrary฀interpre-
tations฀of฀local฀tax฀law.฀Resolution฀of฀these฀situations฀inevitably฀
includes฀some฀degree฀of฀uncertainty;฀accordingly,฀we฀provide฀
taxes฀only฀for฀the฀amounts฀we฀believe฀will฀ultimately฀result฀
from฀these฀proceedings.฀The฀resulting฀change฀to฀our฀tax฀liabil-
ity,฀if฀any,฀is฀dependent฀on฀numerous฀factors฀which฀are฀difficult฀
to฀estimate.฀These฀include,฀among฀others,฀the฀amount฀and฀
nature฀of฀additional฀taxes฀potentially฀asserted฀by฀local฀tax฀
authorities;฀the฀willingness฀of฀local฀tax฀authorities฀to฀negotiate฀
a฀fair฀settlement฀through฀an฀administrative฀process;฀the฀impar-
tiality฀of฀the฀local฀courts;฀the฀sheer฀number฀of฀countries฀in฀
which฀we฀do฀business;฀and฀the฀potential฀for฀changes฀in฀the฀
tax฀paid฀to฀one฀country฀to฀either฀produce,฀or฀fail฀to฀produce,฀
an฀offsetting฀tax฀change฀in฀other฀countries.฀Our฀experience฀
has฀been฀that฀the฀estimates฀and฀assumptions฀we฀have฀used฀to฀
provide฀for฀future฀tax฀assessments฀have฀proven฀to฀be฀appropri-
ate.฀However,฀past฀experience฀is฀only฀a฀guide,฀and฀the฀poten-
tial฀exists,฀however฀limited,฀that฀the฀tax฀resulting฀from฀the฀
resolution฀of฀current฀and฀potential฀future฀tax฀controversies฀
may฀differ฀materially฀from฀the฀amount฀accrued.฀While฀we฀have฀
provided฀for฀the฀taxes฀that฀we฀believe฀will฀ultimately฀be฀pay-
able฀as฀a฀result฀of฀these฀assessments,฀the฀aggregate฀assess-
ments฀are฀approximately฀$34.0฀million฀in฀excess฀of฀the฀taxes฀
provided฀for฀in฀our฀consolidated฀financial฀statements.
In฀addition฀to฀the฀aforementioned฀assessments฀that฀have฀
been฀received฀from฀various฀taxing฀authorities,฀we฀provide฀
for฀taxes฀in฀certain฀situations฀where฀assessments฀have฀not฀been฀
received.฀In฀those฀situations,฀we฀consider฀it฀probable฀that฀the฀
taxes฀ultimately฀payable฀will฀exceed฀those฀amounts฀reflected฀in฀
filed฀tax฀returns;฀accordingly,฀taxes฀are฀provided฀in฀those฀situa-
tions฀under฀the฀guidance฀in฀Statement฀of฀Financial฀Accounting฀
Standards฀(“SFAS“)฀No.฀5,฀Accounting฀for฀Contingencies.
2004฀Form฀10-K฀฀฀฀฀25