Graco 2007 Annual Report Download - page 48

Newell Rubbermaid Inc. 2007 Annual Report
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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. 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 are stated at cost. Expenditures for maintenance and repairs are expensed as incurred. 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 Indefinite-Lived Intangible Assets
The Company conducts its annual test for impairment of goodwill and indefinite-lived intangible assets in the third quarter because it coincides with its
annual strategic planning process.
The Company evaluates goodwill for impairment annually at the operating segment level (herein referred to as the reporting unit). The Company
also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying
amount. If the carrying amount of the reporting unit is greater than the fair value, impairment may be present. The Company assesses the fair value of its
reporting units for its goodwill based on discounted cash flow models, earnings multiples or an actual sales offer received from a prospective buyer, if
available. Assumptions critical to the Company’s fair value estimates under the discounted cash flow model include the discount rate, projected average
revenue growth, projected long-term growth rates in the determination of terminal values, and product costs.
The Company measures the amount of any goodwill impairment based upon the estimated 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.
The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. The Company also
tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below
its carrying amount. Assumptions critical to the Company’s evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty
rates used in its evaluation of trade names, projected average revenue growth, and projected long-term growth rates in the determination of terminal values. An
impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
See Footnote 7 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 (“SFAS”) No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” 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 significant decrease in the market price of a long-lived asset or asset group, a
significant 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 flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the
use of a long-lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or group of assets.
The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated
utilizing various assumptions regarding future revenue and expenses, working capital, and proceeds from asset disposals on a basis consistent with the strategic
plan. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company determines the assets’ fair value by discounting the
future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair
value and the carrying value of the asset group. Generally, the Company performs its testing of the asset group at the product-line level, as this is the
lowest level for which identifiable cash flows are available.