Graco 2011 Annual Report Download - page 51

NEWELL RUBBERMAID 2011 Annual Report 49
2011 Financial Statements and Related Information
Goodwill and Other Indefinite-Lived Intangible Assets
The Company conducts its annual test for impairment of goodwill and indefinite-lived intangible assets in the third quarter because it
coincides with its annual strategic planning process.
The Company evaluates goodwill for impairment annually at the reporting unit level, which is one level below the operating segment
level. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of a
reporting unit is below its carrying amount. If the carrying amount of the reporting unit is greater than the fair value, impairment may be
present. The Company assesses the fair value of each reporting unit for its goodwill impairment test based on a discounted cash flow
model, an earnings multiple or an actual sales offer received from a prospective buyer, if available. Estimates critical to the Company’s
fair value estimates using earnings multiples include the projected financial performance of the reporting unit and the applicable
earnings multiple. Estimates critical to the Company’s fair value estimates under the discounted cash flow model include the discount
rate, projected average revenue growth, projected long-term growth rates in the determination of terminal values and product costs.
The Company measures the amount of any goodwill impairment based upon the estimated fair value of the underlying assets
and liabilities of the reporting unit, including any unrecognized intangible assets, and estimates the implied fair value of goodwill.
An impairment charge is recognized to the extent the recorded goodwill exceeds the implied fair value of goodwill.
The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually.
The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an
indefinite-lived intangible asset is below its carrying amount. Estimates critical to the Company’s evaluation of indefinite-lived intangible
assets for impairment include the discount rate, royalty rates used in its evaluation of trade names, projected average revenue growth
and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount
of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
See Footnote 7 for additional detail on goodwill and other intangible assets.
Other Long-Lived Assets
The Company tests its other long-lived assets for impairment in accordance with relevant authoritative guidance. The Company
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 projections of revenues and expenses, working capital and proceeds
from asset disposals on a basis consistent with the strategic plan. If the carrying amount exceeds the sum of the undiscounted future
cash flows, the Company determines the assets’ fair value by discounting 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.
Shipping and Handling Costs
The Company records shipping and handling costs as a component of cost of products sold.
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. 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.
Product Warranties
In the normal course of business, the Company offers warranties for a variety of its products. The specific terms and conditions of the
warranties vary depending upon the specific product and markets in which the products were sold. The Company accrues for the
estimated cost of product warranty at the time of sale based on historical experience.
Advertising Costs
The Company expenses advertising costs as incurred. Cooperative advertising with customers is recorded in the Consolidated Financial
Statements as a reduction of net sales and totaled $120.9 million, $107.6 million and $112.6 million for 2011, 2010 and 2009, respectively.
All other advertising costs are recorded in selling, general and administrative expenses and totaled $158.3 million, $152.9 million and
$139.8 million in 2011, 2010 and 2009, respectively.
Research and Development Costs
Research and development costs relating to both future and current products are charged to selling, general and administrative
expenses as incurred. These costs totaled $130.1 million, $128.8 million and $118.4 million in 2011, 2010 and 2009, respectively.