Graco 2005 Annual Report Download - page 73

FOOTNOTE 21
Litigation and Contingencies
The Company is involved in legal proceedings in the ordinary course of its business. These
proceedings include claims for damages arising out of use of the Company's products, allegations of
infringement of intellectual property, commercial disputes and employment matters as well as
environmental matters described below. Some of the legal proceedings include claims for punitive as well
as compensatory damages, and certain proceedings purport to be class actions.
The Company, using current product sales data and historical trends, actuarially calculates the estimate
of its exposure for product liability. As a result of the most recent analysis, the Company has product
liability reserves of $28.3 million as of December 31, 2005. The Corporation is insured for product liability
claims for amounts in excess of established deductibles and accrues for the estimated liability as described
up to the limits of the deductibles. All other claims and lawsuits are handled on a case-by-case basis.
As of December 31, 2005, the Company was involved in various matters concerning federal and state
environmental laws and regulations, including matters in which the Company has been identiÑed by the
U.S. Environmental Protection Agency and certain state environmental agencies as a potentially
responsible party (""PRP'') at contaminated sites under the Federal Comprehensive Environmental
Response, Compensation and Liability Act (""CERCLA'') and equivalent state laws.
In assessing its environmental response costs, the Company has considered several factors, including
the extent of the Company's volumetric contribution at each site relative to that of other PRPs; the kind
of waste; the terms of existing cost sharing and other applicable agreements; the Ñnancial ability of other
PRPs to share in the payment of requisite costs; the Company's prior experience with similar sites;
environmental studies and cost estimates available to the Company; the eÅects of inÖation on cost
estimates; and the extent to which the Company's, and other parties', status as PRPs is disputed.
The Company's estimate of environmental response costs associated with these matters as of
December 31, 2005 ranged between $12.8 million and $23.8 million. As of December 31, 2005, the
Company had a reserve equal to $15.4 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. No insurance recovery was taken into account in determining the Company's cost estimates or
reserve, nor do the Company's cost estimates or reserve reÖect any discounting for present value purposes,
except with respect to four long-term (30 year) operations and maintenance CERCLA matters which are
estimated at present value of $5.6 million.
Because of the uncertainties associated with environmental investigations and response activities, the
possibility that the Company could be identiÑed as a PRP at sites identiÑed in the future that require the
incurrence of environmental response costs and the possibility of additional sites as a result of businesses
acquired, actual costs to be incurred by the Company may vary from the Company's estimates.
Although management of the Company cannot predict the ultimate outcome of these legal
proceedings with certainty, it believes that the ultimate resolution of the Company's legal proceedings,
including any amounts it may be required to pay in excess of amounts reserved, will not have a material
eÅect on the Company's Consolidated Financial Statements.
In the normal course of business and as part of its acquisition and divestiture strategy, the Company
may provide certain representations and indemniÑcations related to legal, environmental, product liability,
tax or other types of issues. Based on the nature of these representations and indemniÑcations, it is not
possible to predict the maximum potential payments under all of these agreements due to the conditional
nature of the Company's obligations and the unique facts and circumstances involved in each particular
agreement. Historically, payments made by the Company under these agreements did not have a material
eÅect on the Company's business, Ñnancial condition or results of operation.
As of December 31, 2005, the Company had $96.7 million in standby letters of credit primarily related
to the Company's self-insurance programs, including workers' compensation, product liability, and medical.
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