Sunbeam 2010 Annual Report Download - page 22

Management’s Discussion and Analysis
Jarden Corporation Annual Report 2010
Product Liability
As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related costs for substantial
money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. Each year
the Company sets its product liability insurance program, which is an occurrence-based program, based on current and historical
claims experience and the availability and cost of related insurance.
Product liabilities are based on estimates (which include actuarial determinations made by an independent actuarial consultant as to
liability exposure, taking into account prior experience, number of claims and other relevant factors); thus, the Company’s ultimate
liability may exceed or be less than the amounts accrued. The methods of making such estimates and establishing the resulting
liability are reviewed on a regular basis and any adjustments resulting therefrom are reflected in current operating results.
Stock-Based Compensation
The fair value of stock options is determined using the Black-Scholes option-pricing. The fair value of the market-based restricted
stock awards is determined using a Monte Carlo simulation embedded in a lattice model, and for all other restricted stock awards
the fair value is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value
of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the
Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise
behavior. Additionally, the Company estimates forfeiture for options and restricted stock awards at the grant date of the award
based on historical experience and are adjusted as necessary if actual forfeitures differ from these estimates. Certain performance
awards require management’s judgment as to whether performance targets will be achieved.
Product Warranty Costs
The Company recognizes warranty costs based on an estimate of amounts required to meet future warranty obligations arising as
part of the sale of its products. The Company accrues an estimated liability at the time of a product sale based on historical claim
rates applied to current period sales, as well as any information applicable to current product sales that may indicate a deviation
from such historical claim rate trends.
Contingencies
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of
business. In addition, the Company or various of its subsidiaries have been identified by the United States Environmental Protection
Agency or a state environmental agency as a Potentially Responsible Party pursuant to the federal Superfund Act and/or state
Superfund laws comparable to the federal law at various sites. Based on currently available information, the Company does not
believe that the disposition of any of the legal or environmental disputes the Company or its subsidiaries are currently involved in
will have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. It is
possible, that as additional information becomes available, the impact on the Company of an adverse determination could have a
different effect.
The weighted average expected return on plan assets assumption for 2010 was approximately 7.9% for the Company’s pension
plans. The weighted average discount rate at the 2010 measurement date used to measure the pension and postretirement benefit
obligations was approximately 5.2% and 5.5%, respectively. A one percentage point increase in the discount rate at the 2010
measurement date would decrease the pension plans’ projected benefit obligation by approximately $43 million.
The health care cost trend rates used in valuing the Company’s postretirement benefit obligation are established based upon actual
health care cost trends and consultation with actuaries and benefit providers. At the 2010 measurement date, the current weighted
average healthcare trend rate assumption was 7.5%. The current trend rate gradually decreases to an ultimate trend rate of 4.5%.
A one percentage point change in assumed healthcare cost trend rates would have the following effects:
(In millions) 1% Increase 1% Decrease
Service and interest cost components of postretirement benefit costs $ 0.1 (0.1)
Postretirement benefit obligation 1.5 (1.2)
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