Graco 2011 Annual Report Download - page 53

NEWELL RUBBERMAID 2011 Annual Report 51
2011 Financial Statements and Related Information
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 one to three years for restricted stock units and
performance-based restricted stock units. The Company estimates future forfeiture rates based on its historical experience.
See Footnote 15 for additional information.
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards
updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” ASU 2011-04 amends
Accounting Standards Codification Topic 820, “Fair Value Measurement and Disclosure.” ASU 2011-04 clarifies the application of
certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using
significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim reporting periods beginning on or after
December 15, 2011. The new guidance is to be adopted prospectively, and early adoption is not permitted. The Company does not
expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which requires an entity to present the total
of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 eliminates
the option to present comprehensive income and its components as part of the statement of stockholders’ equity. ASU 2011-05 will be
effective for the Company’s interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption
of ASU 2011-05 to have a material effect on its operating results or financial position.
In September 2011, the FASB issued ASU 2011-08, “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for
Impairment,” which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, a more detailed two-step
goodwill impairment test will need to be performed which is used to identify potential goodwill impairments and to measure the amount
of goodwill impairment losses to be recognized, if any. ASU 2011-08 will be effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not expect the
adoption of ASU 2011-08 to have a material impact on the Company’s financial statements.
Other recently issued ASUs were assessed and determined to be either not applicable or are expected to have a minimal impact on
the Company’s consolidated financial position and results of operations.
FOOTNOTE 2
DISCONTINUED OPERATIONS
On July 1, 2011, the Company sold its hand torch and solder business to an affiliate of Worthington Industries, Inc. (“Worthington”) for
cash consideration of $51.0 million, $8.0 million of which were held in escrow. If and when the relevant conditions are resolved and the
escrow is released, the Company will recognize the $8.0 million held in escrow as income in discontinued operations in the Company’s
financial statements. The cash consideration paid in connection with the transaction provided for settlement of all claims involving the
Company’s litigation with Worthington referenced in Footnote 20. In connection with the sale of the business, the Company transferred
net assets with a carrying value of approximately $11.1 million to Worthington, representing property, plant and equipment, certain
intangible assets, and net working capital. The Company allocated $35.2 million of the Hardware global business unit’s goodwill to the
hand torch and solder business on a relative fair value basis as of July 1, 2011, and the $35.2 million of goodwill was written off in
connection with the sale. The Company retained approximately $13.0 million of accounts receivable associated with the hand torch and
solder business that resulted from sales prior to July 1, 2011.
Pursuant to a Transition Services Agreement between the Company and Worthington, the Company provided certain sales,
distribution, information technology, accounting and finance services to Worthington through September 30, 2011.