CINCINNATI, May 21, 2021 /PRNewswire/ -- The Kroger Co. (KR) - Get Report today announced that certain associates within the Fred Meyer and QFC divisions have ratified an agreement with four local unions for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. This new arrangement will help secure the pension benefits of more than 10,600 Kroger Family of Companies' associates and is expected to minimize the organization's exposure to market risk going forward while also reducing administrative costs.
"I am delighted we have reached an agreement to address the underfunding of the Sound Retirement Trust, which is ineligible for relief under the Emergency Pension Plan Relief Act of 2021. This agreement is a great outcome for our associates as it better protects previously earned benefits and will stabilize future benefits," said Gary Millerchip, Kroger's CFO.
"As with previously announced pension restructuring agreements, this agreement allows us to minimize future exposure to market risk, produces a return on investment above our internal hurdle rate by mitigating future costs and provides a more secure future for our associates' pension benefits. The proactive steps Kroger has taken over many years to address the significant underfunding challenges faced by multi-employer pension plans, puts us in a position of strength to continue to deliver strong and sustainable total shareholder return," continued Millerchip.
This agreement has been approved by the UFCW Consolidated Pension Plan, the Pension Benefit Guaranty Corporation, Sound Retirement Trust, and the local unions. As a result, Kroger will transfer approximately $400 million in net accrued pension liabilities, on a pre-tax basis, to fulfill obligations for past service for associates and retirees from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. On an after-tax basis, approximately $310 million would be needed to execute this transaction. This agreement will be satisfied by installment payments to the UFCW Consolidated Pension Plan and is expected to be paid evenly over the next six years. Benefits for future service for these associates are expected to accrue in a newly created variable annuity pension plan administered by the Sound Retirement Trust.
As a result of this agreement, the organization will incur a charge to net earnings during the first quarter of 2021. The charge to net earnings is estimated to be approximately $0.40 per diluted share on a GAAP basis. This does not affect adjusted earnings per diluted share results for 2021, which are provided on a basis that excludes adjustment items such as this contribution.
Capital Allocation StrategyThe organization continues to generate strong free cash flow and remains committed to investing in the business to drive long-term sustainable earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time.
About KrogerAt The Kroger Co. (KR) - Get Report, we are dedicated to our Purpose: to Feed the Human Spirit™. We are, across our family of companies nearly half a million associates who serve over nine million customers daily through a seamless digital shopping experience and 2,800 retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.
This press release contains certain statements that constitute "forward-looking statements" about the future performance of the Company. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as "achieve," "believe," "contemplates," "continue," "deliver," "expect," "future," "guidance," "strategy," "target," "trends," and "will." Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in our annual report on Form 10-K for our last fiscal year and any subsequent filings, as well as the following:
- Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: COVID-19 related factors, risks and challenges, including among others, the length of time that the pandemic continues, the temporary inability of customers to shop due to illness, quarantine, or other travel restrictions or financial hardship, shifts in demand away from discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-filling activities, reduced workforces which may be caused by, but not limited to, the temporary inability of the workforce to work due to illness, quarantine, or government mandates, temporary store closures due to reduced workforces or government mandates, or the availability and efficacy of a vaccine; labor negotiations or disputes; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities, changes in tariffs, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel margins; changes in government-funded benefit programs and the extent and effectiveness of any COVID-19 stimulus packages; manufacturing commodity costs; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; changes in inflation or deflation in product and operating costs; stock repurchases; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events, including the coronavirus; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and widening and deepening our strategic moats of fresh, our brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.
- Kroger's effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.
Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties
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SOURCE The Kroger Co.