Memorex 2010 Annual Report Download - page 37

Restructuring Reserves. Employee-related severance charges are largely based upon distributed employment
policies and substantive severance plans. Generally, these charges are reflected in the quarter in which the Board
approves the associated actions, the actions are probable and the amounts are estimable. In the event that the Board
approves the associated actions post the balance sheet date, but ultimately confirms the existence of a probable liability as
of the balance sheet date, a reasonable estimate of these charges are recorded in the period in which the probable liability
existed. This estimate takes into account all information available as of the date the financial statements are issued.
Severance amounts for which affected employees were required to render service in order to receive benefits at their
termination dates were measured at the date such benefits were communicated to the applicable employees and
recognized as expense over the employees’ remaining service periods.
Other Accrued Liabilities. We also have other accrued liabilities, including uninsured claims and pensions. These
accruals are based on a variety of factors including past experience and various actuarial assumptions and, in many cases,
require estimates of events not yet reported to us. If future experience differs from these estimates, operating results in
future periods would be impacted.
We sponsor defined benefit pension plans in both U.S. and foreign entities. Expenses and liabilities for the pension
plans are actuarially calculated. These calculations are based on our assumptions related to the discount rate, expected
return on plan assets, projected salary increases and mortality rates. The annual measurement date for these assumptions
is December 31. See Note 9 to the Consolidated Financial Statements includes disclosures of these assumptions for both
the U.S. and international plans.
The discount rate assumptions are tied to portfolios of long-term high quality bonds and are, therefore, subject to
annual fluctuations. A lower discount rate increases the present value of the pension obligations, which results in higher
pension expense. The discount rate used in calculating the benefit obligation in the United States was 5.0 percent at
December 31, 2010, as compared with 5.5 percent at December 31, 2009. A discount rate reduction of 0.25 percent
increases U.S. pension plan expense (pre-tax) by approximately $0.1 million.
The expected return on assets assumptions on the investment portfolios for the pension plans are based on the
long-term expected returns for the investment mix of assets currently in the respective portfolio. Because the rate of return
is a long-term assumption, it generally does not change each year. We use historic return trends of the asset portfolio
combined with recent market conditions to estimate the future rate of return.
The rate of return used in calculating the U.S. pension plan expense for 2010, 2009 and 2008 was 8.0 percent. A
reduction of 0.25 percent for the expected return on plan assets assumption will increase United States net pension plan
expense (pre-tax) by $0.2 million. Expected returns on asset assumptions for non-U.S. plans are determined in a manner
consistent with the United States plan.
The projected salary increase assumption is based on historic trends and comparisons to the external market. Higher
rates of increase result in higher pension expenses. In the United States, we have used the rate of 4.75 percent for the
past four years. Beginning in 2011, the projected salary increase assumption is not applicable in the United States due to
the elimination of benefit accruals as of January 1, 2011. See Note 9 to the Consolidated Financial Statements for further
information regarding this change in benefits. Mortality assumptions were obtained from the IRS 2011 Static Mortality
Table.
Recently Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued additional disclosure requirements for
assets and liabilities held at fair value. Specifically, the new guidance requires a gross presentation of activities within the
Level 3 roll forward and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. This
guidance is applicable to all entities currently required to provide disclosures about recurring and nonrecurring fair value
measurements. The effective date for these disclosures is the first interim or annual reporting period beginning after
December 15, 2009, except for the gross presentation of the Level 3 roll forward information, which is required for annual
reporting periods beginning after December 15, 2010 and for interim reporting periods within those years. The disclosures
did not have a material impact on our Consolidated Financial Statements.
In December 2010, the FASB issued additional guidance for entities with reporting units that have carrying amounts
equal to zero or are negative. These entities are required to assess whether it is more likely than not that the reporting
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