||The amounts and timing of future Company contributions to the funded qualified defined benefit pension plan are unknown because they are dependent on pension fund asset performance. |
Critical Accounting Estimates
The Company prepares its
consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). The Companys most significant accounting policies are disclosed in Note A to the
consolidated financial statements. The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual amounts will differ from those estimates. The Company considers the following policies to involve the most judgment in the preparation of the Companys consolidated financial statements.
Excess and Discontinued Inventory. The Companys inventories are valued at the lower of cost or market. Reserves for excess and
discontinued products are estimated. The amount of the reserve is determined based on projected sales information, plans for discontinued products and other factors. Though management considers these balances adequate, changes in sales volumes due
to unanticipated economic or competitive conditions are among the factors that would result in materially different amounts for this item.
and Other Intangible Assets. The Company performs impairment testing for goodwill and other intangible assets annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. For goodwill, the
Company performs impairment reviews for the Companys reporting units using a fair-value method based on managements judgments and assumptions. The Company estimates the fair value of the reporting units by an allocation of market
capitalization value, cross-checked by a present value of future cash flows calculation. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. Based on our most recent goodwill
impairment assessment performed during the fourth quarter of 2014, the fair value of each reporting unit significantly exceeded its carrying value, except for the businesses acquired in 2014. The fair value of those businesses still exceeded their
carrying value, and the results related to the analyses for those businesses are in line with managements expectations given the recent date of appraisal and purchase price allocation. Accordingly, step two of the impairment analysis was not
The Company also performs a separate impairment test for each other intangible asset with indefinite life, based on estimated future use and
discounting estimated future cash flows. A considerable amount of management judgment and assumptions are required in performing the impairment tests. Though management considers its judgments and assumptions to be reasonable, changes in economic or
market conditions, product offerings or marketing strategies could change the estimated fair values and result in impairment charges.
Taxes. In the preparation of the Companys consolidated financial statements, management calculates income taxes. This includes estimating current tax liability as well as assessing temporary differences resulting from different
treatment of items for tax and financial statement purposes. These differences result in deferred tax assets and liabilities, which are recorded on the balance sheet using statutory rates in effect for the year in which the differences are expected
to reverse. These assets and liabilities are analyzed regularly and management assesses the likelihood that deferred tax assets will be recoverable from future taxable income. A valuation allowance is established to the extent that management
believes that recovery is not likely. Liabilities for uncertain tax positions are also established for potential and ongoing audits of federal, state and international issues. The Company routinely monitors the potential impact of such situations
and believes that liabilities are properly stated. Valuations related to amounts owed and tax rates could be impacted by changes to tax codes, changes in statutory rates, the Companys future taxable income levels and the results of tax audits.
Retirement Obligations. The measurements of the Companys pension and postretirement medical obligations are dependent on a number of
assumptions including estimates of the present value of projected future payments, taking into consideration future events such as salary increase and demographic experience. These assumptions may have an impact on the expense and timing of future
The assumptions used in developing the required estimates for pension obligations include discount rate, inflation, salary increases,
retirement rates, expected return on plan assets and mortality rates. The assumptions used in developing the required estimates for postretirement medical obligations include discount rates, rate of future increase in medical costs and participation
For U.S. plans, the Company establishes its discount rate assumption by reference to a yield curve published by an actuary and projected plan cash
flows. For plans outside the U.S., the Company establishes a rate by country by reference to highly rated corporate bonds. These reference points have been determined to adequately match expected plan cash flows. The Company bases its inflation
assumption on an evaluation of external market indicators. The salary assumptions are based on actual historical experience, the near-term outlook and assumed inflation. Retirement rates are based on experience. The investment return assumption is
based on the expected long-term performance of plan assets. In setting this number, the Company considers the input of actuaries and