Graco 2005 Annual Report Download - page 43

Cash and Cash Equivalents: Cash and cash equivalents include cash on-hand and 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, Ñrst-out
(LIFO) or Ñrst-in, Ñrst-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
diÅerence between the cost of inventory and the net realizable value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Property, Plant and Equipment: Property, plant, and equipment is stated at cost. Expenditures for
maintenance and repairs are charged to expense. Depreciation expense is calculated principally on the
straight-line basis. Useful lives determined by the Company are as follows: buildings and improvements
(20-40 years), and machinery and equipment (3-12 years).
Goodwill and Other IndeÑnite-Lived Intangible Assets: The Company conducts its annual test of
impairment for goodwill and indeÑnite life intangible assets in the third quarter because it coincides with
its annual strategic planning process for all of its businesses. The Company also tests for impairment if
events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the
indeÑnite life intangible asset is below its carrying amount.
The Company cannot predict the occurrence of certain events that might adversely aÅect the reported
value of goodwill and other intangible assets. Such events may include, but are not limited to, strategic
decisions made in response to economic and competitive conditions, the impact of the economic
environment on the Company's customer base, or a material adverse change in its relationships with
signiÑcant customers.
The Company assesses the fair value of its reporting units for its goodwill and other indeÑnite lived
intangible assets (primarily trademarks and trade names) in its impairment tests generally based upon a
discounted cash Öow methodology. The discounted cash Öows are estimated utilizing various assumptions
regarding future revenue and expenses, working capital, terminal value, and market discount rates. The
underlying assumptions used are consistent with those used in the strategic plan.
Goodwill Impairment
The Company evaluates goodwill impairment one level below the reporting segment. If the carrying
amount of the reporting unit is greater than the fair value, goodwill impairment may be present. The
Company measures the goodwill impairment based upon the fair value of the underlying assets and
liabilities of the reporting unit, including any unrecognized intangible assets, and estimates the implied fair
value of goodwill. An impairment charge is recognized to the extent the recorded goodwill exceeds the
implied fair value of goodwill.
Other IndeÑnite-Lived Intangible Asset Impairment (primarily Trademarks and Tradenames)
If the carrying amount of the intangible asset exceeds its fair value, an impairment charge is recorded
to the extent the recorded intangible asset exceeds the fair value.
See Footnotes 7 and 18 for additional detail on goodwill and other intangible assets.
Other Long-Lived Assets: The Company tests its other long-lived assets for impairment in
accordance with Statement of Financial Accounting Standards No. 144 (""SFAS No. 144''), ""Accounting
for the Impairment or Disposal of Long-Lived Assets.'' In accordance with SFAS No. 144, the Company
evaluates if impairment indicators related to its property, plant and equipment and other long-lived assets
are present. These impairment indicators may include a signiÑcant decrease in the market price of a long-
lived asset or asset group, a signiÑcant 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 Öow loss
combined with a history of operating or cash Öow losses or a forecast that demonstrates continuing losses
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