True Value 2009 Annual Report Download - page 43

Notes To Consolidated Financial Statements
($ in thousands)
28 True Value Company
The discount rate of 5.50% was primarily based on spot-yields as
of January 2, 2010 from the J.P. Morgan Pension Discount Curve.
The J.P. Morgan Pension Discount Curve was developed using
high-quality corporate bonds.
The plan assumes a future lump sum conversion rate of 5.00%
in the calculation of the PBO as of January 2, 2010 and January
3, 2009. For all frozen plan participants, the benefits under the
plan are defined as a frozen annuity payable at age 65. Upon
termination or retirement, the participant has an option to take
the benefit as a lump sum amount. The lump sum is calculated by
converting the deferred annuity to a lump sum using the mortality
and conversion interest rate set forth in the plan. In general, the
lower the lump sum conversion rate, the higher the lump sum
benefit payable. Since the liability (PBO) is the present value of
the future benefit payments, the assumed lump sum conversion
rate will have an impact on the calculation of the PBO.
The basis used to develop the best-estimate range for the
expected long-term rate of return on assets assumption was the
target asset allocation and the current J.P. Morgan long-term
capital market assumptions in a mean-variance model. Returns
are arithmetic averages since the expected long-term rate of
return on assets assumption is applied on a year-by-year basis to
determine the annual cost. To approximate the return, a portfolio
of 70% equity securities and 30% debt securities was assumed.
Using the plan’s expected asset mix, the best-estimate range
of annual rates of return was 6.55% – 8.91%. From this range,
True Value selected a rate of 8.00% as a reasonable estimate for
this assumption based on the historical data described in the
above, as well as information on the historical returns on assets
invested in the pension trust, and expected future conditions.
This rate is net of both investment related expenses and other
administrative expenses charged to the pension trust.
The average expected future service under the plan during 2009
was approximately 8.3 years.
True Value also contributes to the True Value Company Employee
Savings and Compensation Deferral Plan (the “401(k) Plan”) in
accordance with IRS regulations. Under the 401(k) Plan, each
participant may elect to contribute an amount up to 50% of the
participant’s annual compensation, not to exceed $16.5 for 2009
and $15.5 for both 2008 and 2007. Also, plan participants who are
50 years of age or older may elect to make additional catch-up
contributions not to exceed $5.5 for 2009 and $5 for 2008 and
2007. The total participants’ deferred compensation including
True Value’s contributions to the participants’ balances may not
exceed $49, $46 and $45 in 2009, 2008 and 2007, respectively.
Beginning in 2007, True Value’s 401(k) Plan for most participants
included a 100% guaranteed match up to a total of 5% of the
participant’s annual compensation. Also, based on True Value
achieving certain financial goals and at the discretion of the
board of directors, an additional 1% of most participants’
annual compensation could be earned. For certain other plan
participants covered by certain collective bargaining agreements
in 2008 and 2007, and for all plan participants previous to 2007,
True Value’s 401(k) Plan included a guaranteed match of one-
third of a participant’s contribution up to a total of 2% of the
participant’s annual compensation. Also, based on True Value
achieving certain financial goals, a match of greater than one-
third of a participant’s contribution could be earned. The plans
for certain other participants covered by certain collective
bargaining agreements were similarly amended by True Value
at later dates between year-end 2006 and September 30, 2008.
Therefore, a portion of the 401(k) Plan for these certain other
plan participants was funded in accordance with the amended
plan and a portion with the plan in effect prior to amendment.
True Value recognized costs of $5,041, $5,754 and $5,134 for
2009, 2008 and 2007, respectively, for the 401(k) Plan.
12. SEGMENT INFORMATION
True Value is principally engaged as a wholesaler of hardware
and related products and is a manufacturer of paint products.
True Value identifies segments based on management responsi-
bility and the nature of the business activities of each component
of its business. True Value measures segment earnings as oper-
ating earnings including an allocation for interest expense and
income taxes.