Graco 2010 Annual Report Download - page 86

Newell Rubbermaid Inc. 2010 Annual Report
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82 NEWELL RUBBERMAID 2010 Annual Report
FOOTNOTE 20
LITIGATION AND CONTINGENCIES
The Company is involved in legal proceedings in the ordinary course of its business. These proceedings include claims for damages
arising out of use of the Company’s products, allegations of infringement of intellectual property, commercial disputes and
employment matters, as well as environmental matters. Some of the legal proceedings include claims for punitive as well as
compensatory damages, and certain proceedings may purport to be class actions.
The Company, using current product sales data and historical trends, actuarially calculates the estimate of its exposure
for product liability. As a result of the most recent analysis, the Company has product liability reserves of $42.3 million as of
December 31, 2010. The Company is insured for product liability claims for amounts in excess of established deductibles and
accrues for the estimated liability as described up to the limits of the deductibles. All other claims and lawsuits are handled
on a case-by-case basis.
In July 2007, the Company acquired all of the outstanding equity interests of PSI Systems, Inc. (“Endicia”), provider of Endicia
Internet Postage. Endicia is party to a lawsuit against it alleging patent infringement which was filed on November 22, 2006 in the
U.S. District Court for the Central District of California. In this case, Stamps.com seeks unspecified damages, attorneys’ fees and
injunctive relief in order to prevent Endicia from continuing to engage in activities that are alleged to infringe on Stamps.com’s
patents. In 2010, the Court entered judgment in favor of the Company terminating the action on summary judgment, and
Stamps.com has appealed that judgment. A separate case, in which Endicia and Stamps.com each claim infringement of different
patents, remains pending in the same court. There can be no assurance the Company will prevail on appeal or otherwise be
successful in defending itself in these matters.
The Company (through two of its affiliates) has been involved in litigation originally filed in June 2008 in the U.S. District
Court for the Western District of North Carolina with Worthington Cylinders (the “Supplier”) over breach of a supply contract and
price increases levied by the Supplier after having wrongfully terminated the contract prior to its expiration. In February 2010,
a jury determined that the Supplier: (a) breached the supply agreement; (b) illegally traded upon the goodwill of the Company;
and (c) committed deceptive trade practices in violation of relevant laws. The jury awarded damages of $13.0 million to the
Company, and the Company was subsequently awarded an additional $2.8 million in pre-judgment interest and attorneys’ fees.
The Supplier has appealed the judgment. Under the relevant authoritative accounting guidance, the Company has not recorded
any gains in 2010 related to the favorable jury verdict and intends to withhold such action until all contingencies relating to this
matter have been resolved.
As of December 31, 2010, the Company was involved in various matters concerning federal and state environmental laws and
regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency and certain
state environmental agencies as a potentially responsible party (“PRP”) at contaminated sites under the Federal Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”) and equivalent state laws.
In assessing its environmental response costs, the Company has considered several factors, including the extent of the Company’s
volumetric contribution at each site relative to that of other PRPs; the kind of waste; the terms of existing cost sharing and
other applicable agreements; the financial ability of other PRPs to share in the payment of requisite costs; the Company’s prior
experience with similar sites; environmental studies and cost estimates available to the Company; the effects of inflation on
cost estimates; and the extent to which the Company’s, and other parties’, status as PRPs is disputed.
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
remediation and response costs in the aggregate, which is included in other accrued liabilities and other noncurrent liabilities in
the Consolidated Balance Sheets. No insurance recovery was taken into account in determining the Company’s cost estimates or
reserve, nor do the Company’s cost estimates or reserves reflect any discounting for present value purposes, except with respect
to certain long-term operations and maintenance CERCLA matters, which are estimated at their present value of $16.2 million
by applying a 5% discount rate to undiscounted obligations of $24.5 million.
Because of the uncertainties associated with environmental investigations and response activities, the possibility that the
Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs
and the possibility that sites acquired in business combinations may require environmental response costs, actual costs to be
incurred by the Company may vary from the Company’s estimates.
The City of Sao Paulo’s Green and Environmental Office (the “Sao Paulo G&E Office”) is seeking fines of up to approximately
$4.0 million related to alleged improper storage of hazardous materials at the Company’s tool manufacturing facility located in
Sao Paulo, Brazil. The Company has obtained a stay of enforcement of a notice of fine due October 1, 2009 issued by the Sao Paulo
G&E Office. The Company plans to continue to contest the fines.
Although management of the Company cannot predict the ultimate outcome of these legal proceedings with certainty, it
believes that the ultimate resolution of the Company’s legal proceedings, including any amounts it may be required to pay in
excess of amounts reserved, will not have a material effect on the Company’s consolidated financial statements.
In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain
representations and indemnifications related to legal, environmental, product liability, tax or other types of issues. Based on
the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under
all of these agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances
involved in each particular agreement. Historically, payments made by the Company under these agreements did not have a
material effect on the Company’s business, financial condition or results of operations.
As of December 31, 2010, the Company had $61.6 million in standby letters of credit primarily related to the Company’s
self-insurance programs, including workers’ compensation, product liability and medical.