Graco 2010 Annual Report Download - page 55

Newell Rubbermaid Inc. 2010 Annual Report
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NEWELL RUBBERMAID 2010 Annual Report 51
the change to a U.S. Dollar functional currency, monetary assets and liabilities denominated in Bolivar Fuertes generate income
or expense for changes in value associated with parallel exchange rate fluctuations against the U.S. Dollar. From January 2010
to May 2010, the Company used the parallel market rate to determine the U.S. Dollar equivalent values of its Venezuelan subsidiary’s
transactions and balances. In May 2010, the Venezuelan government enacted reforms to its foreign currency exchange control
regulations to close down the parallel exchange market. In early June 2010, the Venezuelan government introduced a newly
regulated foreign currency exchange system, Transaction System for Foreign Currency Denominated Securities (“SITME”). Foreign
currency exchange through SITME is allowed within a specified band of 4.5 to 5.3 Bolivar Fuerte to U.S. Dollar, but most of the
exchanges have been executed at the rate of 5.3 Bolivar Fuerte to U.S. Dollar. The Company began applying the SITME rate of
5.3 Bolivar Fuerte to U.S. Dollar in May 2010. The transition to the SITME rate resulted in a foreign exchange gain of $5.6 million,
which is recognized in other income for the year ended December 31, 2010.
The Company transitioned to the parallel market rate in December 2009 and has used the parallel market rate and SITME rate
in 2010 because of indications that the Venezuelan government is not likely to provide substantial currency exchange at the
official rate for companies importing nonessential products, as well as difficulties in obtaining approval for the conversion of
local currency to U.S. Dollars at the official exchange rate (for imported products, royalties and distributions). The Company’s
Venezuelan subsidiary had approximately $29.5 million of net monetary assets denominated in Bolivar Fuertes as of December 31,
2010, which are subject to changes in value based on changes in the SITME rate.
Using predominantly the official rate for translation in 2009, the company’s Venezuelan operations generated net sales of
approximately $65.0 million and operating income of approximately $25.0 million in 2009. Net sales and operating income in
2010 declined approximately $49.0 million and $16.0 million, respectively, compared to 2009 due solely to the change in the
exchange rate used to convert the Company’s Venezuela results to U.S. Dollars from predominately the official exchange rate
in 2009 to the parallel market rate and SITME rate in 2010.
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
that are considered to be permanently invested.
The Company’s income tax provisions are based on calculations and assumptions that are subject to examination by the
Internal Revenue Service 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.
The authoritative guidance 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.
Stock-Based Compensation
Stock-based compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line basis over the requisite
service period of the award, which is generally three to five years for stock options and three years for restricted stock, restricted
stock units and performance share awards. The Company estimates future forfeiture rates based on its historical experience. See
Footnote 15 for additional information.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is recorded within stockholders’ equity and encompasses foreign currency translation
adjustments, gains (losses) on derivative instruments and unrecognized pension and other postretirement costs. The following table
displays the components of accumulated other comprehensive loss as of and for the year ended December 31, 2010 (in millions):
Foreign Unrecognized After-Tax Accumulated
Currency Pension & Other Derivative Other
Translation Postretirement Hedging Comprehensive
Loss Costs, Net of Tax Gain (Loss) Loss
Balance at December 31, 2009 $ (166.3) $ (418.4) $ (0.5) $ (585.2)
Current year change (13.1) (7.0) 0.3 (19.8)
Balance at December 31, 2010 $(179.4) $(425.4) $(0.2) $(605.0)