Rayovac 2010 Annual Report Download - page 92

Our trade receivables subject us to credit risk which is evaluated based on changing economic, political and
specific customer conditions. We assess these risks and make provisions for collectibility based on our best
estimate of the risks presented and information available at the date of the financial statements. The use of
different assumptions may change our estimate of collectibility. We extend credit to our customers based upon an
evaluation of the customer’s financial condition and credit history and generally do not require collateral. Our
credit terms generally range between 30 and 90 days from invoice date, depending upon the evaluation of the
customer’s financial condition and history. We monitor our customers’ credit and financial condition in order to
assess whether the economic conditions have changed and adjust our credit policies with respect to any
individual customer as we determine appropriate. These adjustments may include, but are not limited to,
restricting shipments to customers, reducing credit limits, shortening credit terms, requiring cash payments in
advance of shipment or securing credit insurance.
See Note 3(b), Significant Accounting Policies and Practices—Revenue Recognition, Note 3(c), Significant
Accounting Policies and Practices—Use of Estimates and Note 3(e), Significant Accounting Policies and
Practices—Concentrations of Credit Risk and Major Customers and Employees, of 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 benefits is primarily based on a 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, we used discount rates
of 4.2 to 13.6% in Fiscal 2010 and 5.0 to 11.8% in Fiscal 2009. In adjusting the discount rates from Fiscal 2009
to 2010, we considered the change in the general market interest rates of debt and solicited the advice of our
actuary. We believe the discount rates used are reflective of the rates 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. We used
expected returns on plan assets of 4.5% to 7.8% in Fiscal 2010 and 4.5% to 8.0% in Fiscal 2009. Based on the
advice of our independent actuary, we believe the expected rates of return are reflective 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 ultimately 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.
See Note 10, Employee Benefit Plans, of Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K for a more complete discussion of our employee benefit plans.
Restructuring and Related Charges
Restructuring charges are recognized and measured according to the provisions of ASC Topic 420: “Exit or
Disposal Cost Obligations,” (“ASC 420”). Under ASC 420, 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 defined 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.
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