Sunbeam 2008 Annual Report Download - page 26

Management’s Discussion and Analysis
Jarden Corporation Annual Report 2008
results, significant changes in the manner of use of the assets or the strategy for the overall business, significant decrease in the market value
of the assets and significant negative industry or economic trends. When the Company determines that the carrying amount of long-lived
assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on
the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The cash flows are
estimated utilizing various assumptions regarding future revenue and expenses, working capital, and proceeds from disposal. If the carrying
amount exceeds the sum of the undiscounted future cash flows, the Company discounts the future cash flows using a discount rate
required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying
value of the asset group.
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 modifications to the assumptions based on current
rates and trends when it is deemed appropriate to do so. The effect of modifications is generally deferred and amortized over future periods.
The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, mar-
ket conditions and input from its actuaries and investment advisors. The pension and postretirement obligations are measured as of
December 31 for 2008 (the “2008 measurement date”). The pension and postretirement obligations are measured as of September 30 and
December 31 for 2007. The pension and postretirement obligations for 2007 measured at December 31 are the obligations resulting from
the acquisitions of K2 and Pure Fishing.
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 tominimizeplan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of
plan liabilities,plan funded status,and corporatefinancial condition. The investment portfolios contain a diversified blend of equity and fixed-
income investments. Furthermore, equity investments 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 ongo-
ing basis through annual liabilitymeasurements, 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, historical asset
returns, current and expected future market conditions, risk and active management premiums. The prospective target asset allocation per-
centage for both the pension and postretirement plans is approximately 55% – 65% for equity securities, approximately 25% – 40% for bonds
and approximately 0%-20% for other securities. However, in reaction to the adverse market conditions in 2008 and in an effort to preserve
asset values, the Company has temporarily under-weighted its equity investments. At December 31, 2008 the plan assets were allocated as
follows; Equities: 42%—Other Investments: 58%. The Company believes that this current actual asset allocation is not indicative of the desired
long-term target allocation and that it will begin re-allocating sometime during 2009 to achieve the long-term target asset allocation.
For 2008 actual returns on plan assets for the Company’s U.S. pension plans are below the expected long-term rate of return due to
the current adverse conditions in the global securities markets. Continued actual returns below the expected rate may impact the amount
and timing of futurerequired contributions to these plans. The actual amount of future contribution will depend, in part, on long-term actu-
al return on assets and future discount rates. Pension contributions for 2009 are estimated to be approximately $25 million, compared to
$18.3 million in 2008.
The weighted average expected return on plan assets assumption at the 2008 measurement date was approximately 8.0% for the
Company’s pension plans. The weighted average discount rate at the 2008 measurement date used to measure the pension and postretire-
ment benefit obligations was 6.13% and 6.25%, respectively. A one percentage point decrease in the discount rate at the 2008 measure-
ment dates would increase the pension plans’ projected benefit obligation by approximately $37 million.
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 actuaries and benefit providers. At the 2008 measurement date, the current weighted average
healthcare trend rate assumption was 7.25% for pre-age 65 and 7.75% for post-age 65. The current trend rate gradually decreases to an
ultimate trend rate of 4.5%.
Aone percentage point increase in the assumed health care cost trend rates would have the following effects:
(In millions)
Postretirement benefit obligation $ 0.1
Service and interest cost components of postretirement benefit cost 0.1
24