Harris Teeter 2009 Annual Report Download - page 29

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Self-insurance Reserves for Workers’ Compensation, Healthcare and General Liability
The Company is primarily self-insured for most U.S. workers’ compensation claims, healthcare claims
and general liability and automotive liability losses. The Company has purchased insurance coverage in order to
establish certain limits to its exposure on a per claim basis.
Actual U.S. workers’ compensation claims, and general liability and automotive liability losses, are
reported to the Company by third party administrators. The third party administrators also report initial
estimates of related loss reserves. The open claims and initial loss reserves are subjected to examination by the
Company’s risk management and accounting management utilizing a consistent methodology which involves
various assumptions, judgment and other factors. Such factors include but are not limited to the probability
of settlement, the amount at which settlement can be achieved, the probable duration of the claim, the cost
development pattern of the claim and the applicable cost development factor. The Company determines the
estimated reserve required for U.S. worker compensation claims in each accounting period. This requires that
management determine estimates of the costs of claims incurred and accrue for such expenses in the period
in which the claims are incurred. The Company measures the liabilities associated with claims for workers’
compensation, general liability and automotive liability at Harris Teeter through the use of actuarial methods to
project an estimate of ultimate cost for claims incurred. The estimated cost for claims incurred are discounted to
present values using a discount rate representing a return on high-quality fixed income securities with an average
maturity equal to the average payout of the related liability. Harris Teeter liabilities represent approximately 95%
of the total Company self-insurance reserves for workers compensation, general liability and automotive liability
claims. For liabilities associated with A&E’s workers’ compensation, general liability and automotive liability
claims, management estimates the ultimate cost for claims incurred based on actual claims, reviewed for the
status and probabilities associated with potential settlement and then adjusts them by development factors from
published insurance industry sources. The Company constantly reviews the relevant, significant factors and
makes adjustments where the facts and circumstances dictate. Management does not believe the likelihood is
significant that existing worker compensation claims, general liability claims and automotive liability claims
will be settled for materially higher amounts than those accrued.
The variety of healthcare plans available to employees are primarily self-insured, although some locations
have insured health maintenance organization plans. The Company records an accrual for the estimated amount of
self-insured healthcare claims incurred by all participants but not yet reported (IBNR) using an actuarial method
of applying a development factor to the reported claims amount. The most significant factors which impact on the
determination of the required accrual are the historical pattern of the timeliness of claims processing, changes
in the nature or types of benefit plans, changes in the plan benefit designs, employer-employee cost sharing
factors, and medical trends and inflation. Historical experience and industry trends are continually monitored,
and accruals are adjusted when warranted by changes in facts and circumstances. The Company believes that the
total healthcare cost accruals are reasonable and adequate to cover future payments on pre-existing claims.
Impairment of Long-lived Assets and Closed Store Obligations
The Company assesses its long-lived assets for possible impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount to the net non-discounted cash flows expected to be generated by the asset.
An impairment loss is recognized for any excess of net book value over the estimated fair value of the asset
impaired. The fair value is estimated based on expected future cash flows.
The value of property and equipment associated with closed stores and facilities is adjusted to reflect
recoverable values based on the Company’s prior history of disposing of similar assets and current economic
conditions. Management continually reviews its fair value estimates and records impairment charges for assets
held for sale when management determines, based on new information which it believes to be reliable, that such
charges are appropriate.