Kroger 2012 Annual Report Download - page 120

A-62
NO T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S , CO N T I N U E D
benefit cash flows. The discount rates are the single rates that produce the same present value of cash flows.
The selection of the 4.29% and 4.11% discount rates as of year-end 2012 for pension and other benefits,
respectively, represents the hypothetical bond portfolio using bonds with an AA or better rating constructed
with the assistance of an outside consultant. In 2011 and 2010, the Company’s policy was to match the plan’s
cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for
each maturity. Benefit cash flows due in a particular year can theoretically be “settled” by “investing” them
in the zero-coupon bond that matures in the same year. The discount rates are the single rates that produce
the same present value of cash flows. The selection of the 4.55% and 4.40% discount rates as of year-end
2011 for pension and other benefits, respectively, represents the equivalent single rates constructed under
a broad-market AA yield curve constructed with the assistance of an outside consultant. A 100 basis point
increase in the discount rate would decrease the projected pension benefit obligation as of February 2, 2013,
by approximately $412.
To determine the expected rate of return on pension plan assets, the Company considers current and
anticipated plan asset allocations as well as historical and forecasted rates of return on various asset categories.
For 2012, 2011 and 2010, the Company assumed a pension plan investment return rate of 8.5%. The Company
pension plan’s average rate of return was 9.7% for the 10 calendar years ended December 31, 2012, net of all
investment management fees and expenses. The rate of return for the Company-sponsored defined benefit
pension plans for the calendar year ending December 31, 2012 was 15.0%, net of investment management
fees and expenses. For the past 20 years, the Company’s average annual rate of return has been 9.9%, and the
average annual rate of return for the S&P 500 has been 8.5%. Based on the above information and forward
looking assumptions for investments made in a manner consistent with the Company’s target allocations, the
Company believes an 8.5% rate of return assumption is reasonable.
The Company calculates its expected return on plan assets by using the market-related value of plan
assets. The market-related value of plan assets is determined by adjusting the actual fair value of plan assets for
gains or losses on plan assets. Gains or losses represent the difference between actual and expected returns
on plan investments for each plan year. Gains or losses on plan assets are recognized evenly over a five year
period. Using a different method to calculate the market-related value of plan assets would provide a different
expected return on plan assets.
The funded status increased in 2012, compared to 2011, due mostly to the return on plan assets, offset
slightly by a decrease in the discount rate used to calculate the present value of the Company’s benefit
obligation.
The Company uses the RP-2000 projected 2018 mortality table in calculating the pension obligation.
Pension Benefits
Qualified Plans Non-Qualified Plan Other Benefits
2012 2011 2010 2012 2011 2010 2012 2011 2010
Components of net periodic benefit cost:
Service cost...................... $ 44 $ 41 $ 40 $ 3 $ 3 $ 2 $16 $13 $12
Interest cost ..................... 146 158 158 9 10 12 16 17 17
Expected return on plan assets....... (210) (207) (196) — — — — — —
Amortization of:
Prior service cost (credit) ........ — — — — 1 (1) (4) (5) (5)
Actuarial (gain) loss ............. 88 57 44 9 7 6 — (2) (3)
Net periodic benefit cost .............. $ 68 $ 49 $ 46 $21 $21 $19 $28 $23 $21