NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Postretirement Healthcare Benefits
Fleetwood provides healthcare benefits to certain retired employees from retirement age to when they become eligible for Medicare coverage or reach age 65, whichever is sooner. Employees initially become eligible for benefits after meeting certain age and service requirements. The cost of providing retiree healthcare benefits is actuarially determined and accrued over the service period of the active employee group.
On April 29, 2007, Fleetwood adopted the recognition and disclosure provisions of SFAS No. 158, which required Fleetwood to recognize the funded status of its employee defined benefit plans in the April 29, 2007 consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment at adoption represents the net unamortized actuarial losses and unrecognized prior service costs, which were previously netted against the plans’ funded status in Fleetwood’s consolidated balance sheet pursuant to the provisions of SFAS No. 106. These amounts will be subsequently recognized as net periodic postretirement benefit cost pursuant to Fleetwood’s historical accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods that are not recognized as net periodic postretirement benefit cost in the same periods will be recognized as a component of other comprehensive income. Those costs will be subsequently recognized as a component of net periodic postretirement benefit cost on the same basis as the amounts recognized in accumulated other comprehensive income at the adoption of SFAS No. 158.
The adoption of SFAS No. 158 had no effect on Fleetwood’s consolidated statement of income for the year ended April 29, 2007, or for any prior period presented. The primary effect of adoption was a decrease to other comprehensive income of approximately $205,000 and a related increase to accrued postretirement benefits cost.
The components of the net periodic postretirement benefit cost are as follows:
| 2007 | 2006 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Service cost—benefits earned during the year | $ | 230 | $ | 568 | $ | 445 | |||||
| Interest cost on projected benefit obligation | 427 | 628 | 712 | ||||||||
| Recognized net actuarial loss | 351 | 975 | 1,103 | ||||||||
| Amortization of unrecognized prior service cost | (588 | ) | (701 | ) | (1,515 | ) | |||||
| Net periodic postretirement benefit cost | $ | 420 | $ | 1,470 | $ | 745 | |||||
The changes in the benefit obligation and the unfunded status as of the measurement dates of April 29, 2007 and April 30, 2006 of the postretirement benefit plan are as follows:
| 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Change in accumulated postretirement benefit obligation: Accumulated benefit obligation at beginning of year |
$ | 7,433 | $ | 11,744 | |||
| Service cost | 230 | 568 | |||||
| Interest cost | 427 | 628 | |||||
| Actuarial gain | (1,710 | ) | (4,787 | ) | |||
| Net benefits paid | (432 | ) | (720 | ) | |||
| Accumulated benefit obligation at end of year | $ | 5,948 | $ | 7,433 | |||
| Funded status | $ | (5,948 | ) | $ | (7,433 | ) | |
| Unrecognized net actuarial loss | 1,802 | 3,864 | |||||
| Unrecognized prior service cost | (1,597 | ) | (2,186 | ) | |||
| Accrued postretirement benefits | $ | (5,743 | ) | $ | (5,755 | ) | |
The following table summarizes amounts recognized in shareholders’ equity:
| April 29, 2007 |
April 30, 2006 |
||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Prior service cost | $ | (1,597 | ) | $ | — | ||
| Net actuarial loss | 1,802 | — | |||||
| Total | $ | 205 | $ | — | |||
The disclosure above is not applicable to fiscal 2006 due to SFAS No. 158 being effective as of April 29, 2007.
To determine the amount of the benefit obligation, a discount rate of 5.75% and 6.00% was used in fiscal years 2007 and 2006, respectively, and the assumed healthcare cost trend rate was assumed to begin at 8.50% and reduce over seven years to an ultimate level of 5.00% per year. A 1.00% increase in the assumed healthcare cost trend rate would increase the total service cost and interest cost by $59,000 and the accumulated postretirement benefit obligation (APBO) by $414,000. A 1.00% decrease in the assumed healthcare cost trend rate would decrease the total service cost and interest cost by $52,000 and the APBO by $376,000.
Fleetwood funds postretirement healthcare benefits on a pay-as-you-go basis. Fleetwood expects to make cash payments of approximately $492,000 related to its postretirement healthcare plan in fiscal 2008.
The following benefit payments, which reflect future service as appropriate, are expected to be paid:
| Postretirement Healthcare Benefits |
|||
|---|---|---|---|
| (Amounts in thousands) | |||
| 2008 | $ | 492 | |
| 2009 | 510 | ||
| 2010 | 546 | ||
| 2011 | 527 | ||
| 2012 | 556 | ||
| 2013-2017 | 3,116 | ||