Graco 2008 Annual Report Download - page 32

Newell Rubbermaid Inc. 2008 Annual Report
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For the impairment testing as of December 31, 2008, the economic events and circumstances that arose during the fourth quarter of 2008, and the
associated impact on the outlooks for certain of the Company’s reporting units, led the Company to record a non-cash impairment charge of $299.4 million
principally related to goodwill of certain business units in the Tools & Hardware and Office Products segments. See Footnote 7 of the Notes to Consolidated
Financial Statements for further information.
The Company cannot predict the occurrence of events that might adversely affect 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 and net sales, a material negative change in its relationships with significant customers, or sustained
declines in the Company’s market capitalization relative to its reported stockholders’ equity. The Company periodically evaluates the impact of economic
and other conditions on the Company and its business units to assess whether impairment indicators are present. Subsequent to December 31, 2008, the
Company’s total market capitalization periodically declined below the Company’s December 31, 2008 consolidated stockholders’ equity balance. If the
Company’s total market capitalization is below consolidated stockholders’ equity balance at a future reporting date or for a sustained period, the Company
considers this an indicator of potential impairment of goodwill. The Company utilizes market capitalization in corroborating its assessment of the fair value
of its reporting units. As a result, the Company may be required to perform additional impairment tests based on changes in the economic environment and
other factors which could result in additional impairment charges in the future.
Capitalized Software Costs
The Company capitalizes costs associated with internal-use software during the application development stage after both the preliminary project stage has
been completed and the Company’s management has authorized and committed to funding for further project development. Capitalized internal-use software
costs include: (i) external direct costs of materials and services consumed in developing or obtaining the software; (ii) payroll and payroll-related costs
for employees who are directly associated with and who devote time directly to the project; and (iii) interest costs incurred while developing the software.
Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. The Company
expenses as incurred research and development, general and administrative and indirect costs associated with internal-use software. In addition, the
Company expenses as incurred training, maintenance and other internal-use software costs incurred during the post-implementation stage. Costs
associated with upgrades and enhancements of internal-use software are only capitalized if such modifications result in additional functionality of the
software. Capitalized software costs were $153.2 million at December 31, 2008. Capitalized interest costs included in capitalized software were not
material as of December 31, 2008.
The Company amortizes internal-use software costs using the straight-line method over the estimated useful life of the software. Capitalized software
costs are evaluated annually for indicators of impairment including but not limited to a significant change in available technology or the manner in which
the software is being used. Impaired items are written down to their estimated fair values.
Other Long-Lived Assets
The Company continuously 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 Company’s strategic plan.
If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company discounts 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.
Product Liability Reserves
The Company has a self-insurance program for product liability that includes reserves for self-retained losses and certain excess and aggregate risk
transfer insurance. The Company uses historical loss experience combined with actuarial evaluation methods, review of significant individual files and the
application of risk transfer programs in determining required product liability reserves. The Company’s actuarial evaluation methods take into account
claims incurred but not reported when determining the Company’s product liability reserve. The Company has product liability reserves of $42.5 million as
of December 31, 2008. While the Company believes that it has adequately reserved for these claims, the ultimate outcome of these matters may exceed the
amounts recorded by the Company, and such additional losses may be material to the Company’s Consolidated Financial Statements.