Harris Teeter 2008 Annual Report Download - page 30

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The determination of the Company’s obligation and expense for pension, deferred compensation and
other post-retirement benefits is dependent on certain assumptions selected by management and used by the
Company and its actuaries in calculating such amounts. The more significant of those assumptions applicable to
the qualified pension plan include the discount rate, the expected long-term rate of return on plan assets, the rates
of increase in future compensation and the rates of future employee turnover. Those assumptions also apply to
determinations of the obligations and expense of the following plans, except as noted: (1) supplemental pension
– no funded assets to be measured, and (2) deferred compensation arrangement and post-retirement mortality
benefit – no funded assets to be measured and no dependency on future rates of compensation or turnover.
In accordance with generally accepted accounting principles, actual results that differ from management’s
assumptions are accumulated and amortized over future periods and, therefore, generally affect the Company’s
recognized expense and recorded obligation in such future periods. While management believes that its
selections of values for the various assumptions are appropriate, significant differences in actual experience
or significant changes in the assumptions may materially affect pension and other post-retirement obligations
and future expense. As an example, as of September 28, 2008, each 25 basis point reduction in the discount rate
would effectively increase total pension liabilities (the qualified pension plan and the supplemental retirement
benefit plan) by approximately $9.2 million and could increase future pension expense through the amortization
of accumulated unrecognized actuarial losses.
Recent Accounting Standards
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157,
“Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No.
157 does not require any new fair value measurements. SFAS No. 157 becomes effective for the Company’s 2009
fiscal year beginning on September 29, 2008, with the exception of its application to nonfinancial assets and
nonfinancial liabilities which has been delayed for one year as a result of the FASB’s February 2008 issuance of
Staff Position 157-2, “Effective Date of FASB Statement No. 157.” The adoption of this standard is not expected
to have a material effect on the Company’s financial position, results of operations or cash flows.
In October 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active.” This FSP applies to financial assets within the
scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS
No. 157. FSP No. FAS 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a financial asset when the market
for that financial asset is not active. This FSP became effective upon issuance, including prior periods for which
financial statements have not been issued and did not have a material effect on the Company’s financial position,
results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits companies to measure
many financial instruments and certain other items at fair value at specified election dates. Unrealized gains and
losses on these items will be reported in earnings at each subsequent reporting date. The fair value option may be
applied instrument by instrument (with a few exceptions), is irrevocable and is applied only to entire instruments
and not to portions of instruments. This new standard becomes effective for the Company’s 2009 fiscal year
beginning on September 29, 2008. The adoption of this standard is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) is a
revision of SFAS No. 141 that requires most identifiable assets, liabilities, noncontrolling interest, and goodwill
acquired in a business combination to be recorded at “full fair value.” This new standard applies to all business
combinations, including combinations among mutual entities and combinations by contract alone. SFAS No.
141(R) becomes effective for the Company’s 2010 fiscal year beginning on September 28, 2009 and will be
applied to business combinations occurring after the effective date.