Rayovac 2005 Annual Report Download - page 57

evaluation of the customer’s fi nancial condition
and history. We monitor our customers’ credit and
fi nancial conditions based on changing economic
conditions and adjust our credit policies with respect
to any individual customer as we determine appro-
priate. These adjustments may include, but are not
limited to, restricting shipments to customers, reduc-
ing credit limits, shortening credit terms, requiring
cash payments in advance of shipment, or securing
credit insurance.
See Note 2(b), Signifi cant Accounting Policies –
Revenue Recognition, Note 2(c), Signifi cant Account-
ing Policies – Use of Estimates, and Note 2(e), Sig-
nifi cant Accounting Policies – Concentrations of
Credit Risk and Major Customers, of the Notes to
Consolidated Financial Statements included in this
Annual Report on Form 10-K for more information
about our revenue recognition and credit policies.
Pensions
Our accounting for pension benefi ts 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 fi xed income market perfor-
mance. Pension liability is principally the estimated
present value of future benefi ts, net of plan assets.
In calculating the estimated present value of future
benefi ts, net of plan assets, for 2005 and 2004, we
used a discount rate of 4.0% to 6.25% and 5.25%
to 6.25%, respectively. In adjusting the discount rate
from 2005 to 2004, 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 refl ective of the rate at which the
pension benefi ts 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. We used an expected
return on plan assets of 4.0% to 9.5% and 4.0% to
8.5% in 2005 and 2004, 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. An increase in the expected return on plan
assets used by us would have the effect of decreas-
ing future pension expense. 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 11, Employee Benefi t Plans, of the
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 measured 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 adjustments, and measures
undertaken by management to exit certain activities.
Costs for such activities are estimated by manage-
ment after evaluating detailed analyses of the cost
to be incurred. Such liabilities could include amounts
for items such as severance costs and related bene-
fi ts (including settlements of pension plans), impair-
ment 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 esti-
mates. 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.
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-manufacturing
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 functional area described
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
2005 ANNUAL REPORT 37