Harris Teeter 2012 Annual Report Download - page 22

maturity equal to the average payout of the related liability. A 25 basis point decrease in the discount rate would not significantly
increase the estimated liabilities. The Company constantly reviews the relevant, significant factors and makes adjustments where
the facts and circumstances dictate.
The variety of healthcare plans available to employees are primarily self-insured. 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. The Company’s total accrual for self-insured healthcare claims totaled $5.1 million and $3.9 million as of
October 2, 2012 and October 2, 2011, respectively. Historical experience is continually monitored, and accruals are adjusted
when warranted by changes in facts and circumstances.
Management believes that the use of actuarial studies to determine self-insurance reserves represents a consistent method
of measuring these subjective estimates.
Impairment of Goodwill and Other Long-lived Assets and Closed Store Obligations
The Company assesses its goodwill and other 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.
The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and
operating results. The Company believes that, based on current estimates and assumptions of projected cash flows, materially
different reported results are not likely to result from the impairment of goodwill or other long-lived assets. However, a change
in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially
different reported results.
The Company records liabilities for closed stores that are under long-term lease agreements. The liability represents an
estimate of the present value of the remaining non-cancelable lease payments after the anticipated closing date, net of estimated
subtenant income. The closed store liabilities usually are paid over the lease terms associated with the closed stores, unless settled
earlier. Management estimates the subtenant income and future cash flows based on its historical experience and knowledge
of (1) the market in which the store is located, (2) the results of its previous efforts to dispose of similar assets and (3) the current
economic conditions. The actual cost of disposition for these leases is affected by specific real estate markets, inflation rates
and general economic conditions and may differ significantly from those assumed and estimated.
Store closings generally are completed within one year after the decision to close. Adjustments to closed store liabilities
primarily relate to changes in subtenants and actual costs differing from original estimates. Adjustments are made for changes
in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement
of the obligation is reversed to income in the period that such settlement is determined. The Company periodically reviews the
relevant, significant factors used in its estimates and makes adjustments where the facts and circumstances dictate. The
Company’s closed store reserve amounted to $23.7 million and $10.5 million as of October 2, 2012 and October 2, 2011,
respectively. Individual closed store reserves are likely to be adjusted up or down in the future to reflect changes in assumptions.
However, the Company’s historical assumptions and judgments regarding closed store reserves have been reasonably accurate.
Retirement Plans and Post-Retirement Benefit Plans
The Company maintains certain retirement benefit plans for substantially all full-time employees and supplemental
retirement benefit plans for certain selected directors and officers of the Company and its subsidiaries. The qualified pension
plan is a non-contributory, funded defined benefit plan, while the non-qualified supplemental retirement benefit plans are
unfunded, defined benefit plans. The Company’s current funding policy for its qualified pension plan is to contribute annually
an amount in excess of the contributions required by regulatory authorities to meet minimum funding requirements, as
determined by its actuaries to be effective in increasing the funding ratios and reducing the volatility of future contributions.
18