CINCINNATI, July 21, 2020 /PRNewswire/ -- The Kroger Co.
(NYSE: KR) announced today a tentative agreement with 20 local
unions of the United Food and Commercial Workers (UFCW) to withdraw
from the UFCW International Union-Industry Pension Fund ("National
Fund"), a multi-employer pension plan. This would allow 33,000
Kroger family of companies' associates across 14 divisions to
participate in a new variable annuity pension plan that improves
security for future retirement benefits.
This tentative agreement has been approved by Kroger and the
National Fund board of trustees. The 20 UFCW local unions
representing Kroger family of companies' associates have agreed to
present this tentative agreement to their members for
ratification.
"In an environment where pensions are faced with funding
challenges, we are pleased to have reached a tentative agreement
that will protect benefits for our associates," said Gary Millerchip, Kroger's chief financial
officer. "Our strong financial position is allowing us to make this
investment in our associates and support our commitment to deliver
sustainable and attractive total shareholder returns by addressing
future pension cost increases and minimizing Kroger's future
exposure to market risk associated with the current pension plan.
Our strong free cash flow and confidence in our model is allowing
us to pursue this opportunity, while still accomplishing our other
capital priorities such as returning cash to shareholders via our
dividend and share repurchase program."
Kroger continues to expect to exceed the 2020 outlook shared in
its April 1 Business Update for
identical sales without fuel, adjusted FIFO operating profit,
adjusted EPS and adjusted free cash flow.
Pending ratification of the tentative agreement, Kroger expects
to pay the National Fund withdrawal liability of $962 million, on a pre-tax basis, to fulfill
obligations for past service for associates and retirees in the
National Fund. Kroger would also make a $27
million contribution to a transition reserve in the new
variable annuity pension plan. On an after-tax basis, the
withdrawal liability and contribution to the transition reserve,
total approximately $760 million.
This withdrawal liability would be satisfied by installment
payments to the National Fund over the next three years.
The tentative agreement also establishes a pension benefit
formula for the Kroger organization's contributions to the new plan
through June 2028 – at which time it
is subject to negotiations with the union. This effectively
fixes the terms of the Kroger family of companies' collectively
bargained pension obligation with these 20 UFCW local unions for
the next eight years, thereby addressing Kroger's projected future
pension costs and minimizing future exposure to market risk
associated with the current plan.
As a result of this tentative agreement, the company would incur
a charge to net earnings during the quarter that respective UFCW
locals ratify the agreement. This is expected to be in the third
quarter of 2020. The charge to net earnings is estimated to be
approximately $0.96 per diluted share
on a GAAP basis. This does not affect adjusted earnings per diluted
share results for 2020, which are provided on a basis that excludes
adjustment items such as this contribution.
The Stop and Shop Supermarket Company LLC and Albertsons
Companies, Inc. have each entered into a separate tentative
agreement with the UFCW local unions to withdraw from the National
Fund. Kroger and Stop & Shop have agreed to transition to the
new variable annuity pension plan for 33,000 Kroger family of
companies' associates and 18,000 Stop & Shop employees.
Together, Kroger, Stop & Shop and the UFCW would create the
UFCW and Employer's Variable Annuity Pension Plan for benefits for
future service.
This tentative agreement is subject to ratification by 33,000
Kroger family of companies' associates, including most Meat and
Deli clerks and some Retail clerks, from 20 UFCW local unions
covering 40 separate UFCW contracts, as well as ratification
by the UFCW locals covering employees of Stop & Shop. The
possibility exists that the membership of one or more of the UFCW
locals of Kroger or Stop & Shop will fail to ratify the
tentative agreement. If this were to occur, Kroger would not move
forward with this transaction and would not withdraw from the
National Fund or transition its affected associates to the new
variable annuity pension plan.
Kroger Chief Financial Officer Gary
Millerchip will discuss this new pension arrangement during
a conference call with investors tomorrow at 10:00 a.m. (ET). Kroger has published a
Multi-Employer Pension Plan Primer presentation that is available
as a reference at ir.kroger.com. The call will be broadcast live
online at ir.kroger.com. An on-demand replay of the webcast
investor conference call will be available at approximately
2:00 p.m. (ET) on Wednesday, July 22,
2020.
Capital Allocation Strategy
The Company continues to
generate strong free cash flow and remains committed to investing
in the business to drive profitable 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 Kroger
At The Kroger Co. (NYSE: KR), we are
Fresh for Everyone™ and dedicated to our Purpose: To Feed the
Human Spirit®. We are, across our family of companies, nearly half
a million associates who serve over 11 million customers daily
through a seamless shopping experience under a variety
of banner names. We are committed to creating
#ZeroHungerZeroWaste communities by 2025. To learn more about us,
visit our newsroom and investor relations site.
This press release contains certain 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. These statements are
indicated by words such as "commitment," "continue," "will,"
"expects," "achieves," and "would." The timing of our payments in
satisfaction of our withdrawal liability to the National Fund will
be affected by our ability to generate amounts through free cash
flow or other sources of funds, including borrowings. The extent to
which the Company's withdrawal from the National Fund and its
participation in a new variable annuity pension plan will reduce
future pension costs, lower future financial risk and stabilize
future retirement related benefit costs will be affected primarily
by the effectiveness of the new variable annuity pension plan and
the cost of funding the Company's withdrawal from the
National Fund. Our expectations regarding our withdrawal from the
National Fund and the establishment of the new variable
annuity pension plan would fail to be realized if the applicable
UFCW local unions of the Company or Ahold Delhaize's brand Stop
& Shop fails to ratify the agreement providing for the
withdrawal from the National Fund and the establishment of the new
variable annuity pension plan. Our expectation that our annual
pension costs will be lower than the projected costs, our future
financial risk will be lowered, and that pension benefits to
covered associates will be more secure could prove inaccurate if
the investment performance of the National Fund following our
withdrawal is better than projected. Our belief that contributions
and related expense would continue to grow in 2020 and beyond
absent this agreement is primarily based on actuarial assumptions
and anticipated investment performance of assets in the National
Fund.
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, or temporary store
closures due to reduced workforces or government mandates; 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 on Restock Kroger; 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.
These forward-looking statements are subject to uncertainties
and other factors that could cause actual results to differ
materially. We assume no obligation to update the information
contained herein. 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.