Kroger 2013 Annual Report Download - page 94

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underfunding of multi-employer plans to which Kroger contributes was $1.6 billion, pre-tax, or $1.0 billion,
after-tax. This represents a decrease in the estimated amount of underfunding of approximately $150 million,
pre-tax, or $95 million, after-tax, as of December 31, 2013, compared to December 31, 2012. The decrease in
the amount of underfunding is attributable to the increased returns on the assets held in the multi-employer
plans during 2013. 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evaluations and other data (that include the estimates of others), and such information may be outdated or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 2013,
excluding all payments to the UFCW consolidated pension plan and the pension plans that were consolidated
into the UFCW consolidated pension plan, our contributions to these plans increased approximately 5% over
the prior year and have grown at a compound annual rate of approximately 8% since 2008. In 2014, we expect
to contribute approximately $250 million to multi-employer pension plans, subject to collective bargaining
and capital market conditions. Excluding all payments to the UFCW consolidated pension plan and the pension
plans that were consolidated into the UFCW consolidated pension plan, based on current market conditions,
we expect increases 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.
The Company continues to evaluate our potential exposure to under-funded multi-employer pension plans.
Although these liabilities are not a direct obligation or liability of Kroger, any commitments to fund certain
multi-employer plans will be expensed when our commitment is probable and an estimate can be made.
See Note 16 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.
Uncertain Tax Positions
We review the tax positions taken or expected to be taken on tax returns to determine whether and
to what extent a benefit can be recognized in our consolidated financial statements. Refer to Note 5 to the
Consolidated Financial Statements for the amount of unrecognized tax benefits and other related disclosures
related to uncertain tax positions.
Various taxing authorities periodically audit our income tax returns. These audits include questions
regarding our tax filing positions, including the timing and amount of deductions and the allocation of income
to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions,
including state and local taxes, we record allowances for probable exposures. A number of years may elapse
before a particular matter, for which an allowance has been established, is audited and fully resolved. As of