Graco 2010 Annual Report Download - page 39

Newell Rubbermaid Inc. 2010 Annual Report
NEWELL RUBBERMAID 2010 Annual Report 35
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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 capitalized only if such modifications result in additional functionality of the software. Capitalized software costs were
$216.4 million at December 31, 2010. Capitalized interest costs included in capitalized software were not material as of
December 31, 2010.
The Company amortizes internal-use software costs using the straight-line method over the estimated useful life of the
software, which typically ranges from three to 12 years. 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 $42.3 million as of December 31, 2010. 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.
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”) and other matters which are estimated at
present value. The Company’s estimate of environmental response costs associated with these matters as of December 31, 2010
ranged between $17.2 million and $29.6 million. As of December 31, 2010, the Company had a reserve of $19.3 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 relevant authoritative guidance, 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 relevant authoritative guidance, 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 16 of the Notes to
Consolidated Financial Statements for further information.