True Value 2007 Annual Report Download - page 30

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2007 FINANCIAL REPORT | 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
($ in thousands)
• Benefit plans – At December 29, 2007, accruals related to
benefit plans were included in Accrued expenses of $72,993
in the accompanying Consolidated Balance Sheet. True Value
works with an actuarial firm in the valuation of benefit obliga-
tions. True Value selects certain actuarial assumptions on
which to base the calculation of the actuarial valuation of the
obligation, such as the discount rate (interest rate used to
determine present value of obligations payable in the future),
medical cost trend rate, expected return on assets and
expected mortality to determine the expected future benefit
obligations. The discount rate was based on an analysis of
bond rates with terms that have similar duration as the pen-
sion liabilities. The medical cost trend rate was based on an
analysis of inflation rates and medical inflation rates and the
long-term trend for these rates. The expected return on
assets was based on an analysis of historical real returns on
True Value’s portfolio mix over 30-year periods. This analysis
produced a range of rates that True Value adjusted for a
future inflation factor and the impact of trust fees. True Value
used a rate within this range of rates. To the extent that the
actual rates, and other demographic assumptions such as
turnover and mortality, vary from the assumptions used to
determine the present actuarial valuation of these benefits,
True Value may have to increase its provision for expenses.
The assumptions used to determine True Value’s pension
obligations for all plans were as follows for the years ended:
December 29, December 30,
2007 2006
Measurement Date 12/29/2007 12/30/2006
Weighted average assumptions:
Discount rate 6.00% 5.75%
Lump sum rate 5.00% 5.50%
The assumptions used to determine True Value’s net periodic
pension cost for all plans were as follows for the years ended:
December 29, December 30, December 31,
2007 2006 2005
Measurement Date 12/30/2006 12/31/2005 12/31/2004
Weighted average assumptions:
Discount rate 5.75% 5.25% 5.50%
Expected return on assets 8.00% 8.00% 8.00%
Rate of compensation increase 3.50% 3.50% 3.50%
Assumed discount rates and expected return on assets have
a significant effect on the amounts reported for the pension
plans. A one-percentage-point change in assumed discount
rates and expected return on assets would have the follow-
ing effects:
One One
Percent Percent
($ in thousands) Decrease Increase
Sensitivity to Discount Rate:
Projected Benefit Obligation
as of 12/29/2007 $ 6,106 $ (5,653)
2007 Pension expense 5 (6)
2007 Settlement expense 427 (454)
Total 2007 Pension expense $ 432 $ (460)
Sensitivity to Expected Return on Assets:
2007 Expected Return on Assets $ (660) $ 660