Sunbeam 2014 Annual Report Download - page 31

Jarden Corporation Annual Report 2014 29
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, historical
asset returns, current and expected future market conditions, risk and active management premiums. The prospective target asset
allocation percentage for the pension plans is approximately 25%–40% for equity securities, approximately 20%–40% for xed-
income investments and approximately 25%–45% for other securities. At December31, 2014, the domestic plan assets were allocated
as follows: Equities: approximately 30% and Other Investments (alternative investments, xed-income securities, cash and other):
approximately 70%.
For 2014, 2013 and 2012, the actual return on plan assets for the Company’s U.S. pension plan assets was approximately $28 million, $19
million and $28 million, respectively, versus an expected return on plan assets of approximately $18 million, $17 million and $16 million,
respectively. The actual amount of future contributions will depend, in part, on long-term actual return on assets and future discount
rates. Pension contributions for 2015 are estimated to be approximately $19 million, compared to approximately $20million in 2014.
The weighted average expected return on plan assets assumption for 2014 was approximately 7.1% for the Company’s pension
plans. The weighted average discount rate at the 2014 measurement date used to measure the pension and postretirement benet
obligations was approximately 3.6% and 3.9%, respectively. A one percentage point increase in the discount rate at the 2014
measurement date would decrease the pension plans’ projected benet obligation by approximately $40 million.
The healthcare cost trend rates used in valuing the Company’s postretirement benet obligation are established based upon actual
healthcare cost trends and consultation with actuaries and benet providers. At the 2014 measurement date, the current weighted
average healthcare cost trend rate assumption was approximately 6.5%. The current healthcare cost trend rate gradually decreases to
an ultimate healthcare cost trend rate of 4.5%. A one percentage point change in assumed healthcare cost trend rates would not have a
material effect on the postretirement benet obligation or the service and interest cost components of postretirement benet costs.
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Product Liability
As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related costs 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.
Product liabilities are based on estimates (which include actuarial determinations made by an independent actuarial consultant as to
liability exposure, taking into account prior experience, number of claims and other relevant factors); thus, the Company’s ultimate
liability may exceed or be less than the amounts accrued. The methods of making such estimates and establishing the resulting liability
are reviewed on a regular basis and any adjustments resulting therefrom are reected in current operating results.
Product Warranty Costs
The Company recognizes warranty costs based on an estimate of amounts required to meet future warranty obligations arising as part
of the sale of its products. The Company accrues an estimated liability at the time of a product sale based on historical claim rates
applied to current period sales, as well as any information applicable to current product sales that may indicate a deviation from such
historical claim rate trends.
Stock-Based Compensation
The fair value of stock options is determined using the Black-Scholes option-pricing. The fair value of the market-based restricted
stock awards is determined using a Monte Carlo simulation embedded in a lattice model, and for all other restricted stock awards
the fair value is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value
of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the
Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise
behavior. Additionally, the Company estimates forfeitures for stock options and restricted stock awards at the grant date of the
award based on historical experience and estimates are adjusted as necessary if actual forfeitures differ from these estimates. Certain
performance awards require management’s judgment as to whether performance targets will be achieved.
Compensation costs for stock-based awards reects the number of awards expected to vest and is ultimately adjusted in future
periods to reect the actual number of vested awards. Compensation costs for awards with performance conditions is only recognized
if and when it becomes probable that the performance condition will be achieved. The probability of vesting is reassessed each
reporting period and the compensation costs is adjusted based on this probability assessment. The cumulative effect on current and
prior periods of a change in the estimated number of shares for which the requisite service is expected to be or has been rendered is
recognized in compensation cost in the period of the change.
Management’s Discussion and Analysis
Jarden Corporation Annual Report 2014