Rayovac 2011 Annual Report Download - page 87

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. Our 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 2011 and of 4.2% to 13.6% in Fiscal 2010. In adjusting the discount
rates from Fiscal 2010 to 2011, 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 3.0% to 7.8% in Fiscal 2011 and 4.5% to 7.8% in Fiscal 2010. 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 and required funding contributions. Similarly, an understatement of the expected
return would ultimately decrease future pension expense and required funding contributions. If plan assets
decline due to poor performance by the markets and/or interest rates decline resulting in a lower discount rate,
our pension liability will increase, ultimately increasing future pension expense and required funding
contributions.
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.
Liabilities from restructuring and related charges 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 costs 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 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 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.
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