Graco 2008 Annual Report Download - page 33

Newell Rubbermaid Inc. 2008 Annual Report
31
Legal and Environmental Reserves
The Company is subject to losses resulting from extensive and evolving federal, state, local and foreign laws and regulations, as well as contract and other
disputes. The Company evaluates the potential legal and environmental losses relating to each specific case and determines the probable loss based on
historical experience and estimates of cash flows for certain environmental matters. The estimated losses take into account anticipated costs associated
with investigative and remediation efforts where an assessment has indicated that a probable liability has been incurred and the cost can be reasonably
estimated. No insurance recovery is taken into account in determining the Company’s cost estimates or reserve, nor do the Company’s cost estimates or
reserve reflect any discounting for present value purposes, except with respect to long-term operations and maintenance Comprehensive Environmental
Response, Compensation and Liability (“CERCLA”) matters which are estimated at present value. The Company’s estimate of environmental response costs
associated with these matters as of December 31, 2008 ranged between $12.6 million and $30.3 million. As of December 31, 2008, the Company had a
reserve of $15.1 million for such environmental response costs in the aggregate, which is included in other accrued liabilities and other noncurrent liabilities
in the Consolidated Balance Sheet.
Income Taxes
In accordance with SFAS No. 109, “Accounting for Income Taxes,” the Company accounts for deferred income taxes using the asset and liability approach.
Under this approach, deferred income taxes are recognized based on the tax effects of temporary differences between the financial statement and tax bases
of assets and liabilities, as measured by current enacted tax rates. Valuation allowances are recorded to reduce the deferred tax assets to an amount that
will more likely than not be realized. No provision is made for the U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries as substantially
all such earnings are permanently reinvested.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by the IRS and other tax authorities.
Although the Company believes that the positions taken on previously filed tax returns are reasonable, it has established tax and interest reserves in
recognition that various taxing authorities may challenge the positions taken, which could result in additional liabilities for taxes and interest. The Company
regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the
reversals of existing temporary differences and tax planning strategies.
For uncertain tax positions, the Company applies the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”), which requires application of a “more likely than not” threshold to the recognition and derecognition of tax
positions. The Company’s ongoing assessments of the more-likely-than-not outcomes of tax authority examinations and related tax positions require
significant judgment and can increase or decrease the Company’s effective tax rate as well as impact operating results. See Footnote 15 of the Notes to
Consolidated Financial Statements for further information.
Pensions and Other Postretirement Benefits
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions
include factors such as discount rates, health care cost trend rates, expected return on plan assets, mortality rates and rate of compensation increases,
discussed below:
•฀ Discount rates: The Company generally estimates the discount rate for its pension and other postretirement benefit obligations using an
iterative process based on a hypothetical investment in a portfolio of high-quality bonds that approximate the estimated cash flows of the
pension and other postretirement benefit obligations. The Company believes this approach permits a matching of future cash outflows related
to benefit payments with future cash inflows associated with bond coupons and maturities.
•฀ ฀
Health care cost trend rate: The Company’s health-care cost trend rate is based on historical retiree cost data, near term health care outlook,
and industry benchmarks and surveys.
•฀ ฀Expected return on plan assets: The Company’s expected return on plan assets is derived from reviews of asset allocation strategies and
anticipated future long-term performance of individual asset classes. The Company’s analysis gives appropriate consideration to recent plan
performance and historical returns; however, the assumptions are primarily based on long-term, prospective rates of return.
•฀ ฀
Mortality rates: Mortality rates are based on actual and projected plan experience.
•฀ ฀Rate of compensation increase: The rate of compensation increases reflects the Company’s long-term actual experience and its outlook,
including consideration of expected rates of inflation.
In accordance with generally accepted accounting principles, actual results that differ from the assumptions are accumulated and amortized over
future periods, and therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement
plan obligations and future expense. See Footnote 12 of the Notes to Consolidated Financial Statements for additional information on the assumptions used.