Rayovac 2007 Annual Report Download - page 33

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
SPECTRUM BRANDS | 2007 ANNUAL REPORT 31
See Note 2(b), Signifi cant Accounting Policies and Practices –
Revenue Recognition; Note 2(c), Signifi cant Accounting Policies
and Practices – Use of Estimates; and Note 2(e), Signifi cant
Accounting Policies and Practices – Concentrations of Credit Risk
and Major Customers and Employees, of Notes to Consolidated
Financial Statements of 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
both Fiscal 2007 and 2006, we used discount rates of 4.50% to
6.25% in Fiscal 2007 and 4.55% to 6.25% in Fiscal 2006. In
adjusting the discount rates from Fiscal 2006 to 2007, we con-
sidered the change in the general market interest rates of debt
and solicited the advice of our actuary. We believe the discount
rates used are refl ective of the rates 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 expected returns on plan assets of 4.5% to 8.0%
in Fiscal 2007 and 4.0% to 8.0% in Fiscal 2006. 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 ulti-
mately decrease future pension expense. If plan assets decline due
to poor performance by the markets and/or interest rate declines,
our pension liability will increase, ultimately increasing future
pension expense.
Effective September 30, 2007, we adopted SFAS No. 158,
“Employers’ Accounting for Defi ned Benefi t Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87,
88, 106, and 132(R)” (“SFAS 158”). The recognition and disclo-
sure provisions of this statement require recognition of the
overfunded or underfunded status of defi ned benefi t pension
and postretirement plans as an asset or liability in the statement
of fi nancial position, and recognition of changes in that funded
status in Accumulated other comprehensive income in the year
in which the adoption occurs. We measure plan assets and obli-
gations of our domestic pension plans as of June 30 each year
and September 30 each year for our foreign pension plans and
our other domestic postretirement plans. The measurement
date provisions of SFAS 158, which will become effective for us
in our fi scal year ended September 30, 2009 (“Fiscal 2009”),
will require us to measure all of our defi ned benefi t pension and
postretirement plan assets and obligations as of September 30
which is our fi scal yearend.
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 charges are recognized and measured accord-
ing to the provisions of SFAS No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities” (“SFAS 146”). Under
SFAS 146, restructuring charges include, but are not limited to,
termination and related costs consisting primarily of severance
costs and retention bonuses, and contract termination costs
consisting primarily of lease termination costs. Related charges,
as defi ned by us, include, but are not limited to, other costs
directly associated with exit and integration activities, including
impairment of property and other assets, departmental costs of
full-time incremental integration employees, and any other
items related to the exit or integration activities. Costs for such
activities are estimated by us after evaluating detailed analyses
of the cost to be incurred. We present restructuring and related
charges on a combined basis.
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 initia-
tives impacting sales, marketing, distribution or other non-
manufacturing related functions. Restructuring and related