COMPANY-OWNED LIFE INSURANCE
Our investments in company-owned life insurance (“COLI”) policies are recorded at their net cash surrender value.
Our investments in whole life COLI policies are intended to be utilized as a long-term funding source for post-retirement medical benefits, deferred compensation and supplemental retirement plan obligations, which as of February 22, 2013 aggregated approximately $151, with a related deferred tax asset of approximately $55. See Note 13 for additional information. We believe the investments in whole life COLI policies represent a stable funding source for these long-term benefit obligations. Consequently, we allocate net returns in cash surrender value, normal insurance expenses and any death benefit gains (“COLI income”) related to our investments in whole life COLI policies between Cost of sales and Operating expenses on the Consolidated Statements of Income. This is consistent with the allocation of the costs associated with the long-term employee benefit obligations that the investments in whole life policies are intended to fund. This designation does not result in our investments in whole life COLI policies representing a committed funding source for employee benefit obligations. They are subject to claims from creditors, and we can designate them to another purpose at any time.
Our variable life COLI policies are primarily considered a source of corporate liquidity. COLI income related to our investments in variable life COLI policies has been recorded in Investment income on the Consolidated Statements of Income. During 2013 and Q4 2012, the allocation of our investments in variable life COLI policies included substantially all fixed income securities. Prior to Q4 2012, this allocation had been set at 80% fixed income and 20% equity.
|
| | | | | | | | | | | |
Type | Ability to Choose
Investments | Net Return | Target Asset Allocation as of February 22, 2013 | Net Cash Surrender Value |
February 22,
2013 | February 24,
2012 |
Whole life COLI policies | No ability | A rate of return set periodically by the
insurance companies | Not applicable | $ | 109.6 |
| | $ | 114.5 |
| |
Variable life COLI policies | Can allocate across a set of choices provided by the insurance companies | Fluctuates depending on performance of underlying investments | 100% fixed income | 116.2 |
| | 113.1 |
| |
| | | | $ | 225.8 |
| | $ | 227.6 |
| |
Following is a summary of the allocation of COLI income for 2013, 2012 and 2011:
|
| | | | | | | | | | | | |
COLI Income | Whole Life
Policies | Variable Life
Policies | Total |
2013 | | | | | | |
Cost of sales | $ | 1.2 |
| | $ | — |
| | $ | 1.2 |
| |
Operating expenses | 4.6 |
| | — |
| | 4.6 |
| |
Operating income | 5.8 |
| | — |
| | 5.8 |
| |
Investment income | — |
| | 3.0 |
| | 3.0 |
| |
Income before income tax expense | $ | 5.8 |
| | $ | 3.0 |
| | $ | 8.8 |
| |
2012 | | | | | | |
Cost of sales | $ | 1.0 |
| | $ | — |
| | $ | 1.0 |
| |
Operating expenses | 4.1 |
| | — |
| | 4.1 |
| |
Operating income | 5.1 |
| | — |
| | 5.1 |
| |
Investment income | — |
| | 3.2 |
| | 3.2 |
| |
Income before income tax expense | $ | 5.1 |
| | $ | 3.2 |
| | $ | 8.3 |
| |
2011 | | | | | | |
Cost of sales | $ | 1.2 |
| | $ | — |
| | $ | 1.2 |
| |
Operating expenses | 4.6 |
| | — |
| | 4.6 |
| |
Operating income | 5.8 |
| | — |
| | 5.8 |
| |
Investment income | — |
| | 10.6 |
| | 10.6 |
| |
Income before income tax expense | $ | 5.8 |
| | $ | 10.6 |
| | $ | 16.4 |
| |
