Kroger 2011 Annual Report Download - page 71

A-16
We recognize expense in connection with these plans as contributions are funded or, in the case of the
UFCW consolidated pension plan, when commitments are made, in accordance with GAAP. We made cash
contributions to these plans of $946 million in 2011, $262 million in 2010 and $233 million in 2009. The cash
contributions for 2011 include the Company’s $650 million contribution to the UFCW consolidated pension
plan in the fourth quarter of 2011.
Based on the most recent information available to us, we believe that the present value of actuarially
accrued liabilities in most of these multi-employer plans substantially exceeds the value of the assets held in
trust to pay benefits. We have attempted to estimate the amount by which these liabilities exceed the assets,
(i.e., the amount of underfunding), as of December 31, 2011. Because Kroger is only one of a number of
employers contributing to these plans, we also have attempted to estimate the ratio of Kroger’s contributions to
the total of all contributions to these plans in a year as a way of assessing Kroger’s “share” of the underfunding.
Nonetheless, the underfunding is not a direct obligation or liability of Kroger or of any employer except as
noted above. As of December 31, 2011, we estimate that Kroger’s share of the underfunding of multi-employer
plans to which Kroger contributes was $2.3 billion, pre-tax, or $1.4 billion, after-tax. This represents a decrease
in the estimated amount of underfunding of approximately $280 million, pre-tax, or $175 million, after-tax, as
of December 31, 2011, compared to December 31, 2010. The December 31, 2011 estimate of our underfunding
includes the effect of our $650 million contribution to the UFCW consolidated pension plan made in January
2012. The decrease in the amount of underfunding is attributable to the Company’s $650 million contribution
to the UFCW consolidated pension plan, partially offset by increases in underfunded amounts in other plans.
Our estimate is based on the most current information available to us including actuarial evaluations and other
data (that include the estimates of others), and such information may be outdated or otherwise unreliable.
We have made and disclosed this estimate not because, except as noted above, this underfunding is a
direct liability of Kroger. Rather, we believe the underfunding is likely to have important consequences. In
2011, excluding the $650 million contribution to our UFCW consolidated pension plan, our contributions to
these plans increased approximately 13% over the prior year and have grown at a compound annual rate of
approximately 9% since 2006. In 2012, we expect to contribute approximately $240 million to our multi-employer
pension plans, subject to collective bargaining and capital market conditions. This amount reflects a contribution
decrease due to the UFCW consolidated pension plan. Based on current market conditions, we expect meaningful
increases in funding and in expense as a result of increases in multi-employer pension plan contributions over the
next few years. Finally, underfunding means that, in the event we were to exit certain markets or otherwise
cease making contributions to these funds, we could trigger a substantial withdrawal liability. Any adjustment
for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably
estimated, in accordance with GAAP.
The amount of underfunding described above is an estimate and could change based on contract
negotiations, returns on the assets held in the multi-employer plans and benefit payments. The amount could
decline, and Kroger’s future expense would be favorably affected, if the values of the assets held in the trust
significantly increase or if further changes occur through collective bargaining, trustee action or favorable
legislation. On the other hand, Kroger’s share of the underfunding could increase and Kroger’s future expense
could be adversely affected if the asset values decline, if employers currently contributing to these funds cease
participation or if changes occur through collective bargaining, trustee action or adverse legislation.
See Note 14 to the Consolidated Financial Statements for more information relating to our participation
in these multi-employer pension plans.
Deferred Rent
We recognize rent holidays, including the time period during which we have access to the property for
construction of buildings or improvements, as well as construction allowances and escalating rent provisions
on a straight-line basis over the term of the lease. The deferred amount is included in Other Current Liabilities
and Other Long-Term Liabilities on the Consolidated Balance Sheets.