Blogging Employee Benefits

October 12, 2006

Embroidering on Early FAS 158 Boilerplate

Filed under: Accounting, OPEBs, Pensions — Fuguerre @ 10:34 pm

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158”). SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to (a) recognize the overfunded or underfunded status of a benefit plan in its statement of financial position, (b) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”, or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”, (c) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end, and (d) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. SFAS No. 158 is effective for the Company’s fiscal year ending February 22, 2007. The Company is in the process of evaluating SFAS No. 158.

So reads an excerpt from New Albertson’s recently filed 10-Q filing for the quarterly period ended August 31, 2006. Almost verbatim is an excerpt from the recent quarterly statement filed by Levi Strauss, and close variants or simplified versions appear in the 10-Qs of OMNOVA Solutions, Apogee Enterprises, Circuit City, Sealy, Bed Bath & Beyond, Constellation Brands, RPM International, A.G. Edwards, Herman Miller, The Mosaic Company, U.S. Cellular, Telephone and Data Systems, and Chattem, to point out but a few of the statements filed since the September 29 publication of the new accounting standard.

Stretching slightly farther is Lehman Brothers, whose 10-Q supplements the boilerplate norm with the most basic financial conclusion of a retrospective calculation that FAS 158 itself neither requires nor permits, but which can nonetheless provide some indication of potential effect, provided one factors in the rise in interest rates and the gains in the equity markets since the prior yearend –

Based on information available at November 30, 2005, we would have reduced Accumulated other comprehensive income (net of tax) by approximately $300 million. The actual impact of adopting SFAS 158 will be dependent upon the then current fair value of plan assets and the amount of projected benefit obligation measured as of the adoption date.

But so far, Hartmarx takes the first 10-Q batch’s award for the best FAS 158 commentary, managing in its brief summary not only to provide an estimate of financial effect more recent than the 2005 yearend, but also to assure investors that debt covenants will remain unaffected, as well as to point to the distinct possibility that the company could decide to be a FAS 158 early adopter. A great model, a standard other employers should reach for in making their own statements during this brief period prior to the effective date of the new rules –

In September 2006, FASB issued Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”). SFAS 158 requires an employer that is a business entity and sponsors one or more single employer benefit plans to (1) recognize the funded status of the benefit in its statement of financial position, (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost, (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year end statement of financial position and (4) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs on credits, and transition asset or obligations. SFAS 158 is effective no later than the end of the Company’s fiscal year ended November 30, 2007. Since SFAS 158 was recently issued, management has not yet determined whether SFAS 158 will be adopted early in its statement of financial position as of November 30, 2006 or if SFAS 158 will be adopted in its statement of financial position as of November 30, 2007. If SFAS 158 had been effective as of August 31, 2006, total assets would have been approximately $18 million lower, total liabilities would have been approximately $9 million higher and shareholders’ equity would have been approximately $27 million lower. Because our net pension liabilities are dependent upon future events and circumstances, the impact at the time of adoption of SFAS 158 may differ from these amounts. Adoption of SFAS 158 will not have any effect on the Company’s compliance with its debt covenants.

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