True Value 2010 Annual Report Download - page 48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Financial Report 2010 27
unrecognized actuarial losses decreased $4,398 to $22,664.
Major sources of this change that occurred during 2010 include
greater than expected asset returns during 2010 of $2,081 as a
result of the favorable returns in the equity markets, actuarial and
demographic gains of $881, actuarial losses recognized under
ASC 715-30 settlement accounting of $2,138 and amortization
of actuarial losses recognized of $1,748. Partially offsetting these
decreases was a net increase resulting from decreases in the
discount rate, lump sum conversion rate and retirement rates
during 2010 of $2,450.
One of True Value’s pension plans is the supplemental retirement
plan (“SRP”), which is an unfunded unqualified defined benefit
plan. The SRP had a Projected Benefit Obligation (“PBO”) of
$3,703 and $3,738 as of January 1, 2011 and January 2, 2010,
respectively. Since the SRP is an unfunded plan, there were no
plan assets at January 1, 2011 and January 2, 2010.
At January 1, 2011, True Value recorded in the Pension line of
the Consolidated Balance Sheet a net unfunded PBO of $12,120
for all True Value administered pension plans. The unrecognized
actuarial loss for both plans of $22,664 was recorded as a reduction
of Members’ equity in Accumulated other comprehensive loss.
The amount of Accumulated other comprehensive income that
is expected to be recognized into expense during 2011 resulting
from recognition of deferred actuarial losses from amortization
and settlements is $4,121.
The components of net periodic pension cost for True Value
administered pension plans were as follows for the years ended:
January 1, January 2, January 3,
($ in thousands) 2011 2010 2009
Components of net periodic
pension cost:
Service cost $ – $ – $ 225
Interest cost 3,716 4,141 4,091
Expected return on assets (4,019) (4,679) (5,189)
Amortization of actuarial loss 1,748 863 204
Settlement loss 2,138 2,427 2,862
Net Pension Cost $ 3,583 $ 2,752 $ 2,193
The assumptions used to determine True Value’s net periodic
pension cost for all plans were as follows for the years ended:
January 1, January 2, January 3,
2011 2010 2009
Measurement Date 1/2/2010 1/3/2009 12/29/2007
Weighted average assumptions:
Discount rate 5.50% 6.25% 6.00%
Expected return on assets 7.00% 8.00% 8.00%
Rate of compensation increase N/A N/A 3.50%
As of September 30, 2008 all True Value sponsored pension plans
were frozen; therefore, the rate of compensation increase was
no longer applicable beginning with fiscal year 2009 as shown
in the chart above.
PLAN ASSETS
Plan assets are invested in a diversified portfolio consisting
primarily of common stocks, bonds and cash equivalents, which
reflect varying rates of return. The overall rate of return objective
for the plan assets is a reasonable rate consistent with risk levels
established by True Value. It has also been True Value’s policy to
maintain plan assets sufficient to avoid the benefit restrictions
under the Internal Revenue Code section 436.
Plan assets are diversified across several asset classes and invest-
ment managers, and are generally invested in liquid funds and
securities. Investment risk is also controlled by monitoring plan
assets against target allocations on a periodic basis and with con-
tinual monitoring of investment managers’ performance relative
to the investment guidelines established with each investment
manager. True Value utilizes an investment consultant to facilitate
meeting its investment objectives.
The target asset allocation of the plan assets and the actual split
by asset category is as follows for the years ended:
January 1, January 2,
Asset Category Target 2011 2010
Fixed income – Investment grade 45.0% 41.1% 38.7%
Domestic equities – Large cap 17.0% 17.7% 35.7%
Domestic equities – Mid cap 4.0% 4.3% 7.8%
Domestic equities – Small cap 4.0% 4.2% 7.6%
Foreign equities –
International, Large cap 15.0% 15.0% 6.9%
Foreign equities –
Emerging Markets, Large cap 5.0% 5.0% 3.1%
Real estate investment trusts 5.0% 5.0% 0.0%
Alternative investments –
Commodities 5.0% 5.3% 0.0%
Cash Equivalents 0.0% 2.4% 0.2%
Total 100.0% 100.0% 100.0%