Rayovac 2006 Annual Report Download - page 54

42 SPECTRUM BRANDS | 2006 ANNUAL REPORT
Pension expense is principally the sum of interest and service
cost of the plan, less the expected return on plan assets and the
amortization of the difference between our assumptions and
actual experience. The expected return on plan assets is calcu-
lated by applying an assumed rate of return to the fair value of
plan assets. We used expected returns on plan assets of 4.0% to
8.0% and 4.0% to 9.5% in 2006 and 2005, respectively. Based
on the advice of our independent actuary, we believe the expected
rates of return are refl ective of the long-term average rate of
earnings expected on the funds invested. If such expected returns
were overstated, it would ultimately increase future pension
expense. Similarly, an understatement of the expected return
would ultimately decrease future pension expense. If plan assets
decline due to poor performance by the markets and/or interest
rate declines, our pension liability would increase, ultimately
increasing future pension expense.
See Note 12, Employee Benefi t Plans, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K
for a more complete discussion of our employee benefi t plans.
Restructuring and Related Charges
Restructuring and related charges are recognized and mea-
sured according to the provisions of SFAS 146, “Accounting for
Costs Associated with Exit or Disposal Activities.”
Liabilities from restructuring and related charges are recorded
for estimated costs of facility closures, signifi cant organizational
adjustment and measures undertaken by management to exit
certain activities. Costs for such activities are estimated by man-
agement after evaluating detailed analyses of the cost to be
incurred. Such liabilities could include amounts for items such as
severance costs and related benefi ts (including settlements of
pension plans), impairment of property and equipment and other
current or long term assets, lease termination payments and any
other items directly related to the exit activities. While the
actions are carried out as expeditiously as possible, restructuring
and related charges are estimates. Changes in estimates resulting
in an increase to or a reversal of a previously recorded liability
may be required as management executes a restructuring plan.
We report restructuring and related charges associated with
manufacturing and related initiatives in cost of goods sold.
Restructuring and related charges refl ected in cost of goods sold
include, but are not limited to, termination and related costs
associated with manufacturing employees, asset impairments
relating to manufacturing initiatives and other costs directly
related to the restructuring initiatives implemented.
We report restructuring and related charges associated with
administrative functions in operating expenses, such as initiatives
impacting sales, marketing, distribution or other non-manufac-
turing related functions. Restructuring and related charges
refl ected in operating expenses include, but are not limited to,
termination and related costs, any asset impairments relating to
the administrative functions and other costs directly related to
the initiatives implemented.
The costs of plans to (i) exit an activity of an acquired com-
pany, (ii) involuntarily terminate employees of an acquired com-
pany or (iii) relocate employees of an acquired company are
measured and recorded in accordance with the provisions of the
EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a
Purchase Business Combination” (“EITF 95-3”). Under EITF 95-3, if
certain conditions are met, such costs are recognized as a liability
assumed as of the consummation date of the purchase business
combination and included in the allocation of the acquisition
cost. Costs related to terminated activities or employees of the
acquired company that do not meet the conditions prescribed in
EITF 95-3 are treated as restructuring and related charges and
expensed as incurred. See Note 16, Restructuring and Related
Charges, of Notes to the Consolidated Financial Statements
included in this Annual Report on Form 10-K for a more complete
discussion of recent restructuring initiatives and related costs.
Loss Contingencies
Loss contingencies are recorded as liabilities when it is prob-
able that a loss has been incurred, and the amount of the loss can
be reasonably estimated. The outcome of existing litigation, the
impact of environmental matters and pending or potential exam-
inations by various taxing authorities are examples of situations
evaluated as loss contingencies. Estimating the probability and
magnitude of losses is often dependent upon management’s judg-
ment of potential actions by third parties and regulators. It is pos-
sible that changes in estimates or an increased probability of an
unfavorable outcome could materially affect future results of
operations. See further discussion in Item 3, “Legal Proceedings,”
and Note 14, Commitments and Contingencies, of Notes to the
Consolidated Financial Statements included in this Annual Report
on Form 10-K.
Other Significant Accounting Policies
Other signifi cant accounting policies, primarily those with
lower levels of uncertainty than those discussed above, are also
critical to understanding the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K contain additional information
related to our accounting policies and should be read in conjunc-
tion with this discussion.
Recently Issued Accounting Standards
In September 2006, the FASB issued FASB Statement No.
158, “Employers’ Accounting for Defi ned Benefi t Pension and Other
Postretirement Plans—An Amendment of FASB Statements No. 87, 88,
106, and 132R,” (“SFAS 158”). This new standard requires an
employer to: (i) recognize in its statement of fi nancial position an
asset for a plan’s overfunded status or a liability for a plan’s under-
funded status; (ii) measure a plan’s assets and its obligations that
2006 Form 10-K Annual Report
Spectrum Brands, Inc.