Sunbeam 2006 Annual Report Download - page 38

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Management’s Discussion and Analysis
Jarden Corporation 2006 Annual Report
Pension and postretirement plans
The Company records annual amounts relating to its pension and postretirement plans based on calculations, which
include various actuarial assumptions, including discount rates, assumed rates of return, compensation increases, turnover
rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifica-
tions to the assumptions based on current rates and trends when it is deemed appropriate to do so. The effect of modifica-
tions is generally deferred and amortized over future periods. The Company believes that the assumptions utilized in record-
ing its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and
investment advisors. The pension and postretirement obligations are measured as of September 30 for all years presented.
The Company employs a total return investment approach for its pension and postretirement benefit plans whereby a mix
of equities and fixed income investments are used to maximize the long-term return of pension and postretirement plan
assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk toler-
ance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition.
The investment portfolios contain a diversified blend of equity and fixed-income investments. Furthermore, equity invest-
ments are diversified across geography and market capitalization through investments in U.S. large-capitalization stocks, U.S.
small-capitalization stocks and international securities. Investment risk is measured and monitored on an ongoing basis
through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, his-
torical asset returns, current and expected futuremarket conditions, risk and active management premiums. The prospective
target asset allocation percentage for both the pension and postretirement plans is approximately 55%-65%for equity securi-
ties, approximately 25%-40%for bonds and approximately 0%-20%for other securities.
The weighted average expected return on plan assets assumption for the plan year ended September 30,2006 was approxi-
mately 8.2%for the Company’s pension plans. The weighted average discount rate used at September 30,2006 to measure
both the pension and postretirement benefit obligations was 5.76% and 5.85%, respectively. A one percentage point decrease
in the discount rate at September 30,2006 would increase the pension plan’s accumulated benefit obligation by approximately
$30.0million.
The health care cost trend rates used in valuing the Company’s postretirement benefit obligation are established based
upon actual health carecost trends and consultation with its actuaries and benefit providers. At September 30,2006,the cur-
rent weighted average healthcare trend rate assumption was 8.75%for pre-age 65 and 10.07%for post-age 65.The current
trend rate gradually decreases to an ultimate trend rate of 5.0%.
Aone percentage point increase in the assumed health care cost trend rates would have the following effects:
(in millions)
Accumulated postretirement benefit obligation $0.9
Aggregate of the service and interest cost components net postretirement benefit cost 0.1
Aone percentage point decrease in the assumed health care cost trend rates would have the following effects (in millions):
Accumulated postretirement benefit obligation $(0.9)
Aggregate of the service and interest cost components net postretirement benefit cost (0.1)
Product liability
As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related damages
for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of
goods. Each year the Company sets its product liability insurance program, which is an occurrence-based program based on
current and historical claims experience and the availability and cost of related insurance.