Graco 2009 Annual Report Download - page 36

Newell Rubbermaid Inc. 2009 Annual Report
34
Pensions and Other Postretirement Benefits
Pension and other postretirement benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions
include factors such as discount rates, health care cost trend rates, expected return on plan assets, mortality rates and rate of compensation increases,
as discussed below:
•
Discount rates: The Company generally estimates the discount rate for its pension and other postretirement benefit obligations using an iterative
process based on a hypothetical investment in a portfolio of high-quality bonds that approximate the estimated cash flows of the pension and other
postretirement benefit obligations. The Company believes this approach permits a matching of future cash outflows related to benefit payments
with future cash inflows associated with bond coupons and maturities.
•
Health care cost trend rate: The Company’s health care cost trend rate is based on historical retiree cost data, near-term health care outlook and
industry benchmarks and surveys.
• Expected return on plan assets: The Company’s expected return on plan assets is derived from reviews of asset allocation strategies and historical
and anticipated future long-term performance of individual asset classes. The Company’s analysis gives consideration to historical returns and
long-term, prospective rates of return.
• Mortality rates: Mortality rates are based on actual and projected plan experience.
•
Rate of compensation increase: The rate of compensation increases reflects the Company’s long-term actual experience and its outlook, including
consideration of expected rates of inflation.
In accordance with generally accepted accounting principles, actual results that differ from the assumptions are accumulated and amortized over future periods,
and therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the assumptions used are
appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement plan obligations and future
expense. See Footnote 13 of the Notes to Consolidated Financial Statements for additional information on the assumptions used. The following tables summarize the
Company’s pension and other postretirement plan assets and obligations included in the Consolidated Balance Sheet as of December 31, 2009 (in millions):
U.S. International
Pension plan assets and obligations, net:
Prepaid benefit cost $ — $ 3.5
Accrued current benefit cost (11.7) (4.0)
Accrued noncurrent benefit cost (322.2) (88.7)
Net liability recognized in the Consolidated Balance Sheet $ (333.9) $ (89.2)
U.S.
Other postretirement benefit obligations:
Accrued current benefit cost $ (16.0)
Accrued noncurrent benefit cost (152.1)
Liability recognized in the Consolidated Balance Sheet $ (168.1)
The following table summarizes the net pre-tax cost associated with pensions and other postretirement benefit obligations in the Consolidated Statement
of Operations for the year ended December 31, (in millions):
2009 2008 2007
Net pension cost $ 18.1 $ 18.3 $ 14.4
Net postretirement benefit costs 8.7 8.8 10.1
Total $ 26.8 $ 27.1 $ 24.5
The Company used weighted-average discount rates of 6.2% and 6.3% to determine the expenses for 2009 for the pension and postretirement plans,
respectively. The Company used a weighted-average expected return on assets of 7.3% to determine the expense for the pension plans for 2009. The
following table illustrates the sensitivity to a change in certain assumptions for the pension and postretirement plan expenses, holding all other
assumptions constant (in millions):
Impact on 2009
Expense
25 basis point decrease in discount rate +$0.9
25 basis point increase in discount rate -$0.5
25 basis point decrease in expected return on assets +$2.6
25 basis point increase in expected return on assets -$2.6