Rayovac 2004 Annual Report Download - page 46

Pensions
Our accounting for pension benefits is primarily based on discount rate, expected and actual return on plan
assets, and other assumptions made by management, and is impacted by outside factors such as equity and fixed
income market performance. Pension liability is principally the estimated present value of future benefits, net of
plan assets. In calculating the estimated present value of future benefits, net of plan assets, for 2004 and 2003, we
used a discount rate of 5.25% to 6.25% and 5.0% to 6.0%, respectively. In adjusting the discount rate from 2004
to 2003, we considered the change in the general market interest rates of debt and solicited the advice of our
actuary. We believe the discount rate used is reflective of the rate at which the pension benefits could be
effectively settled.
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 calculated by applying an assumed rate of return to the fair value of plan assets. In both
2004 and 2003, we used an expected return on plan assets of 4.0 % to 8.5%. Based on the advice of our
independent actuary, we believe the expected rate of return is reflective of the long-term average rate of earnings
expected on the funds invested. An increase in the expected return on plan assets used by us would have the
effect of decreasing future pension expense. If such expected return 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 11 to the Consolidated Financial Statements for a more complete discussion of our employee
benefit plans.
Restructuring and Related Charges
Restructuring liabilities are recorded for estimated costs of facility closures, significant organizational
adjustments, and measures undertaken by management to exit certain activities. Costs for such activities are
estimated by management after evaluating detailed analyses of the cost to be incurred. Such liabilities could
include amounts for items such as severance costs and related benefits (including settlements of pension plans),
impairment of property and equipment and other current or long term assets, lease termination payments, plus
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 the restructuring plan.
During fiscal 2003, we adopted the requirements of SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities, which impacts the timing of recognition of certain exit or disposal costs.
We report restructuring and related charges associated with manufacturing and related initiatives in cost of
goods sold. Restructuring and related charges reflected 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-manufacturing related functions.
Restructuring and related charges reflected in operating expenses include, but are not limited to, termination and
related costs, any asset impairments relating to the functional area described above, and other costs directly
related to the initiatives implemented.
See Note 15 to the Consolidated Financial Statements for a more complete discussion of recent restructuring
initiatives and related costs.
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