Zaandam, the Netherlands, July 21, 2020 – Ahold Delhaize announces today that its U.S. brand Stop & Shop, reached a tentative agreement to terminate its participation in the United Food & Commercial Workers International Union (UFCW) – Industry Pension Fund (the “National Plan”), through a transaction that the National Plan’s trustees determined to be in the best interests of the National Plan’s participants and beneficiaries. While the plan is not in critical status, the tentative agreement does importantly improve the security of pension benefits for associates as well as reduces financial risk for the company. If ratified by the UFCW Locals, the transaction will be treated as an extraordinary item and will therefore not impact the underlying operating results outlook for 2020. This statement should not be interpreted as an update to any component of the previously issued 2020 outlook. As is customary, the 2020 outlook will be updated on August 5th, when the company reports Q2 2020 results.
Pending ratification of this agreement, Stop & Shop expects to pay the National Plan withdrawal liability of $649 million (€567 million), on a pre-tax basis, to fulfill Stop & Shop’s obligations for past service for associates and retirees in the National Plan. Stop & Shop will also make an $18 million (€16 million) contribution to a transition reserve for a new variable annuity pension plan, described in further detail below. On an after-tax basis, the withdrawal liability and contribution to the transition reserve total approximately $500 million (€437 million). The withdrawal liability will be satisfied by installment payments to the National Plan over the next three years. Ahold Delhaize will therefore recognize a provision in these amounts, which will impact Q3 IFRS results. The provision will be excluded from both underlying operating profit and underlying earnings per share. While the majority of this obligation will be paid in 2020, the Group’s full year 2020 free cash flow outlook, which is expected to be in excess of €1.5 billion, will not be impacted due to the strong level of free cash flow generated in Q1.
Kroger and Albertsons have also entered into separate tentative agreements with the UFCW Locals and the National Plan Trustees to withdraw from the National Plan. Together, Ahold Delhaize’s brand Stop & Shop, Kroger, and the UFCW Locals plan to create the UFCW International Union-Industry Variable Annuity Pension Plan for future benefits. This new plan is designed to protect the benefit accrual of participants, with a significantly reduced risk of plan underfunding and improved visibility on annual contributions. The annual contribution by Stop & Shop to fund the new variable annuity plan is expected to be nearly identical to the annual contributions previously estimated for the National Plan during the next eight years. Therefore, this change also has no impact to the previously issued financial outlook.
These tentative agreements have been approved by Stop & Shop, the National Plan board of trustees and the UFCW local unions. They remain contingent upon approval and ratification by Stop & Shop and Kroger associates in 25 local UFCW unions, which is expected to occur by October 1, 2020. Together, these agreements are expected to materially improve the security of pension benefits for associates and reduce financial risk for the company.
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