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PROXY
(in millions except per share data and percentages)
Fiscal Year | | 2005 (1) | | 2004 (1) | | Percent Change (2) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 60,553 | $ | 56,434 | 7.3 | % | ||||||||
Operating Profit | $ | 2,035 | $ | 843 | 141.4 | % | ||||||||
Net earnings (loss) per share | $ | 1.31 | $ | (0.14 | ) | N/A | ||||||||
Average shares used in calculation | 731 | 736 | (0.7 | )% | ||||||||||
Net cash provided by operating activities | $ | 2,192 | $ | 2,330 | (5.9 | )% | ||||||||
Capital expenditures | $ | 1,306 | $ | 1,634 | (20.1 | )% | ||||||||
Identical supermarket sales (3) | $ | 54,143 | $ | 51,413 | 5.3 | % | ||||||||
Identical supermarket sales excluding supermarket fuel operations (3) | $ | 50,866 | $ | 49,154 | 3.5 | % | ||||||||
Comparable supermarket sales (4) | $ | 55,607 | $ | 52,514 | 5.9 | % | ||||||||
Comparable supermarket sales excluding supermarket fuel operations (4) | $ | 52,200 | $ | 50,226 | 3.9 | % |
(1) | The results as presented were affected by certain income and expense items that fluctuated between periods, including a 2004 goodwill impairment charge totaling $904, pre-tax, $861 after-tax, or $1.16 per share. |
(2) | The percent calculations were based on the rounded numbers as presented. |
(3) | We define a supermarket as identical when the store has been in operation and has not been expanded or relocated for five full quarters. Annualized identical supermarket sales are calculated as a summation of four quarters of identical sales. |
(4) | We define a supermarket as comparable when the store has been in operation for five full quarters, including expansions and relocations. Annualized comparable supermarket sales are calculated as a summation of four quarters of comparable sales. |
SAVE TIME AND MONEY
• | managing costs and expenses while providing what our Customers tell us they expect in service, selection, value, and everyday store conditions; |
• | investing in capital projects to keep our stores Customer-centered and fresh; |
• | implementing technology and logistics systems to reduce costs and improve service; |
• | reducing the Company’s debt; |
• | repurchasing stock; and |
• | now—for the first time in 18 years—paying a quarterly cash dividend to shareholders. |
• | our people—who are among the most talented in our industry; |
• | a high-quality asset base, with leading market shares in many of the nation’s largest and fastest growing markets; |
• | broad geographic diversity and multiple retail formats that allow Kroger to meet the needs of virtually every Customer; |
• | an extensive collection of consumer data generated from our customer loyalty cards as well as our valued partnership with dunnhumby USA that gives us insight into our Customers’ shopping habits; |
• | a successful track record of competing against supercenter operators; and |
• | outstanding private label products that can only be found at a Kroger-family store. |
Brenda Mullins, Central Division
Bryan Foltz, Cincinnati/Dayton Division
Brenda Backman, City Market
John Bell Crosby, Delta Division
Larry Gerwick, Dillon Stores
Liz Herrera, Food 4 Less
Sharon Cole, Fred Meyer
Bill Gonzales, Fry’s
Aubrey Hanson, Great Lakes Division
Cindy Shireman, Jay C Stores
Mark Lamach, King Soopers
Larry Brown, Mid-Atlantic Division
Phil Howard, Mid-South Division
Randy Bennett, QFC
Natalie Carrick, Ralphs
Terry McAninch, Smith’s
Gary Spencer Chevalier, Southwest Division
United Way Committee, Winchester Farms Dairy
Community Service Team, Country Oven Bakery
James Carter, Layton Dairy
Roberta McKelvin, Pontiac Foods
Erica Pontius, General Office
Corporate Food Technology Team, General Office
David B. Dillon
Chairman of the Board and
Chief Executive Officer
of The Kroger Co.:
1. | To elect five directors; |
2. | To consider, act upon and approve five corporate governance proposals presented by Kroger; |
3. | To consider and act upon a proposal to ratify the selection of auditors for the year 2006; |
4. | To act upon two shareholder proposals, if properly presented at the annual meeting; and |
5. | To transact such other business as may properly be brought before the meeting; |
Paul W. Heldman, Secretary
(ITEM NO. 1)
Name | | Professional Occupation (1) | | Age | | Director Since | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
NOMINEES FOR DIRECTOR FOR TERMS OF OFFICE CONTINUING UNTIL 2009 OR 2007 (2) |
Reuben V. Anderson | Mr. Anderson is a member in the Jackson, Mississippi, office of Phelps Dunbar, a regional law firm based in New Orleans. Prior to joining this law firm, he was a justice of the Supreme Court of Mississippi. Mr. Anderson is a director of Trustmark National Bank and BellSouth Corporation. He is a member of the Audit and Public Responsibilities Committees. | 63 | 1991 | |||||||||||
Don W. McGeorge | Mr. McGeorge was elected President and Chief Operating Officer of Kroger in 2003. Before that he was elected Executive Vice President in 2000 and Senior Vice President in 1997. | 51 | 2003 | |||||||||||
W. Rodney McMullen | Mr. McMullen was elected Vice Chairman of Kroger in 2003. Before that he was elected Executive Vice President in 1999 and Senior Vice President in 1997. Mr. McMullen is a director of Cincinnati Financial Corporation. | 45 | 2003 | |||||||||||
Clyde R. Moore | Mr. Moore is the Chairman and Chief Executive Officer of First Service Networks, a national provider of facility and maintenance repair services. He is a director of First Service Networks. Mr. Moore is a member of the Audit and Public Responsibilities Committees. | 52 | 1997 |
Name | | Professional Occupation (1) | | Age | | Director Since |
---|
Steven R. Rogel | Mr. Rogel was elected Chairman of the Board of Weyerhaeuser Company in 1999 and has been President and Chief Executive Officer and a director thereof since December 1997. Before that time he was Chief Executive Officer, President and a director of Willamette Industries, Inc. Mr. Rogel served as Chief Operating Officer of Willamette Industries, Inc. until October 1995 and, before that time, as an executive and group vice president for more than five years. He is a director of Weyerhaeuser Company and Union Pacific Corporation. Mr. Rogel has been appointed by the Board to serve as Lead Director. He is chair of the Corporate Governance Committee and a member of the Financial Policy Committee. | 63 | 1999 |
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE UNTIL 2008 |
Robert D. Beyer | Mr. Beyer is Chief Executive Officer of The TCW Group, Inc., an investment management firm, where he has been employed since 1995. From 1991 to 1995, he was the co-Chief Executive Officer of Crescent Capital Corporation, which was acquired by TCW in 1995. Mr. Beyer is also a member of the Board of Directors of TCW and its ultimate parent, Société Générale Asset Management, S.A. He is chair of the Financial Policy Committee and a member of the Compensation Committee. | 46 | 1999 | |||||||||||
John T. LaMacchia | Mr. LaMacchia is Chairman of the Board of Tellme Networks, Inc., a provider of voice application networks. From September 2001 through December 2004 he was also Chief Executive Officer of Tellme Networks. From October 1993 through February 1999, Mr. LaMacchia was President and Chief Executive Officer of Cincinnati Bell Inc. From May 1999 to May 2000 he was Chief Executive Officer of CellNet Data Systems, Inc., a provider of wireless data communications. Mr. LaMacchia is a director of Tellme Networks, Inc. He is chair of the Compensation Committee and a member of the Corporate Governance Committee. | 64 | 1990 | |||||||||||
Katherine D. Ortega | Ms. Ortega served as an Alternate Representative of the United States to the 45th General Assembly of the United Nations in 1990-1991. Prior to that, she served as Treasurer of the United States. Ms. Ortega is a director of Rayonier Inc., Washington Mutual Investors Fund and JPMorgan Value Opportunities Fund, and Trustee of the American Funds Tax Exempt Series I. She is chair of the Public Responsibilities Committee and a member of the Corporate Governance Committee. | 71 | 1992 |
Name | | Professional Occupation (1) | | Age | | Director Since |
---|
Bobby S. Shackouls | Until the merger of Burlington Resources Inc. and ConocoPhillips, which became effective on March 31, 2006, Mr. Shackouls was Chairman of the Board of Burlington Resources Inc., a natural resources business, since July 1997 and its President and Chief Executive Officer since December 1995. He had been a director of that company since 1995 and President and Chief Executive Officer of Burlington Resources Oil and Gas Company (formerly known as Meridian Oil Inc.), a wholly-owned subsidiary of Burlington Resources, since 1994. Mr. Shackouls is a director of ConocoPhillips. He is vice chair of the Audit and Compensation Committees. | 55 | 1999 |
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE UNTIL 2007 |
John L. Clendenin | Mr. Clendenin is Chairman Emeritus of BellSouth Corporation, a holding company with subsidiaries in the telecommunications business. From January 1984 through December 1996 he was its Chairman of the Board and Chief Executive Officer. Mr. Clendenin is a director of Equifax Incorporated, The Home Depot, Inc., Powerwave Technologies, Inc., and Acuity Brands, Inc. He is a member of the Compensation and Corporate Governance Committees. | 71 | 1986 | |||||||||||
David B. Dillon | Mr. Dillon was elected Chairman of the Board of Kroger in 2004, Chief Executive Officer in 2003, and President and Chief Operating Officer in 2000. He served as President in 1999, and as President and Chief Operating Officer from 1995-1999. Mr. Dillon was elected Executive Vice President of Kroger in 1990 and President of Dillon Companies, Inc. in 1986. He is a director of Convergys Corporation. | 55 | 1995 | |||||||||||
David B. Lewis | Mr. Lewis is Chairman, President and Chief Executive Officer of Lewis & Munday, a Detroit based law firm with offices in Washington, D.C. and Seattle. He is a director of H&R Block and Lewis & Thompson Agency, Inc. Mr. Lewis has served on the Board of Directors of Conrail, Inc., LG&E Energy Corp., M.A. Hanna, TRW, Inc. and Comerica, Inc. He is chair of the Audit Committee and vice chair of the Public Responsibilities Committee. | 61 | 2002 |
Name | | Professional Occupation (1) | | Age | | Director Since |
---|
Susan M. Phillips | Dr. Phillips is Dean and Professor of Finance at The George Washington University School of Business, a position she has held since 1998. She was a member of the Board of Governors of the Federal Reserve System from December 1991 though June 1998. Before her Federal Reserve appointment, Dr. Phillips served as Vice President for Finance and University Services and Professor of Finance in The College of Business Administration at the University of Iowa from 1987 through 1991. She is a director of State Farm Mutual Automobile Insurance Company, State Farm Life Insurance Company, State Farm Companies Foundation, National Futures Association, the Chicago Board Options Exchange and the Chicago Futures Exchange. Dr. Phillips also is a trustee of the Financial Accounting Foundation. She is a member of the Audit and Financial Policy Committees. | 61 | 2003 |
(1) | Except as noted, each of the directors has been employed by his or her present employer (or a subsidiary) in an executive capacity for at least five years. |
(2) | If the Board declassification proposal (see Item No. 2 below) is approved by shareholders, these directors will be elected to one-year terms continuing until 2007. |
• | Demonstrated ability in fields considered to be of value in the deliberations of the Board, including business management, public service, education, science, law and government; |
• | Highest standards of personal character and conduct; |
• | Willingness to fulfill the obligations of directors and to make the contribution of which he or she is capable, including regular attendance and participation at Board and committee meetings, and preparation for all meetings including review of all meeting materials provided in advance of the meeting; and |
• | Ability to understand the perspectives of Kroger’s customers, taking into consideration the diversity of our customers including regional and geographic differences. |
• | Warrant Dividend Plan—Kroger’s Board allowed our warrant dividend plan to expire on March 19, 2006; |
• | Executive Severance—Kroger’s Board adopted a policy that requires shareholder approval for any new severance arrangements with senior executives that would exceed 2.99 times average annual W-2 earnings over the prior five years. The limits apply to any severance arrangement, regardless of any change-in-control provision; |
• | Majority Voting—Kroger’s Board also adopted a policy requiring, so long as cumulative voting is not in effect, any director in an uncontested election who receives more “withheld” votes than “for” votes to tender his or her resignation. The Corporate Governance Committee or the remainder of the Board will be required to act on that resignation within 90 days; and |
• | Stock Ownership—Our Board adopted a stock ownership policy covering officers, directors and other key executives. This policy is more particularly described in the Guidelines. |
Governance Committee for further consideration. The chair of the Corporate Governance Committee will take such action as he or she deems appropriate, which may include referral to the Corporate Governance Committee or the entire Board.
SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Compensation | Long-Term Compensation | |||||||||||||||||||||||||||
Awards | Payouts | |||||||||||||||||||||||||||
Name and Principal Position | Year | | Salary ($) | | Bonus ($) | | Other Annual Compensation ($) | | Restricted Stock Awards ($) | | Securities Underlying Options/ SARs (#) | | LTIP Payouts ($) | | All Other Compensation ($) | |||||||||||||
(1) | (2) | (3) | (4) | (5) | ||||||||||||||||||||||||
David B. Dillon | 2005 | $ | 1,100,000 | $ | 1,940,131 | $ | 43,355 | $ | 0 | 300,000 | $ | 0 | $ | 62,407 | ||||||||||||||
Chairman and Chief | 2004 | $ | 1,083,974 | $ | 736,361 | $ | 33,900 | $ | 0 | 300,000 | $ | 0 | $ | 52,256 | ||||||||||||||
Executive Officer | 2003 | $ | 880,062 | $ | 244,962 | $ | 21,622 | $ | 2,517,000 | 0 | $ | 0 | $ | 28,575 | ||||||||||||||
W. Rodney McMullen | 2005 | $ | 773,000 | $ | 1,221,870 | $ | 13,368 | $ | 0 | 75,000 | $ | 0 | $ | 20,186 | ||||||||||||||
Vice Chairman | 2004 | $ | 772,647 | $ | 468,979 | $ | 10,469 | $ | 0 | 75,000 | $ | 0 | $ | 18,341 | ||||||||||||||
2003 | $ | 704,077 | $ | 181,865 | $ | 8,614 | $ | 1,678,000 | 0 | $ | 0 | $ | 14,333 | |||||||||||||||
Don W. McGeorge | 2005 | $ | 773,000 | $ | 1,221,870 | $ | 29,903 | $ | 0 | 75,000 | $ | 0 | $ | 40,088 | ||||||||||||||
President and Chief | 2004 | $ | 772,647 | $ | 468,979 | $ | 24,834 | $ | 0 | 75,000 | $ | 0 | $ | 35,155 | ||||||||||||||
Operating Officer | 2003 | $ | 681,462 | $ | 176,298 | $ | 16,480 | $ | 1,678,000 | 0 | $ | 0 | $ | 23,509 | ||||||||||||||
Paul W. Heldman | 2005 | $ | 618,000 | $ | 710,005 | $ | 20,829 | $ | 0 | 40,000 | $ | 0 | $ | 32,706 | ||||||||||||||
Senior Vice President, | 2004 | $ | 617,808 | $ | 275,870 | $ | 19,577 | $ | 0 | 40,000 | $ | 0 | $ | 27,698 | ||||||||||||||
Secretary and General | 2003 | $ | 567,739 | $ | 116,913 | $ | 14,934 | $ | 671,200 | 0 | $ | 0 | $ | 21,007 | ||||||||||||||
Counsel | ||||||||||||||||||||||||||||
Donald E. Becker | 2005 | $ | 536,250 | $ | 685,238 | $ | 24,780 | $ | 969,000 | 40,000 | $ | 0 | $ | 37,630 | ||||||||||||||
Executive Vice President | 2004 | $ | 487,981 | $ | 242,978 | $ | 16,746 | $ | 156,500 | 40,000 | $ | 0 | $ | 25,503 | ||||||||||||||
2003 | $ | 438,462 | $ | 95,108 | $ | 14,214 | $ | 0 | 0 | $ | 0 | $ | 22,416 | |||||||||||||||
Michael S. Heschel | 2005 | $ | 596,022 | $ | 772,750 | $ | 43,055 | $ | 0 | 45,000 | $ | 0 | $ | 71,072 | ||||||||||||||
Former Executive Vice | 2004 | $ | 599,692 | $ | 297,940 | $ | 55,401 | $ | 0 | 45,000 | $ | 0 | $ | 84,310 | ||||||||||||||
President and Chief | 2003 | $ | 578,077 | $ | 130,275 | $ | 44,244 | $ | 419,500 | 0 | $ | 0 | $ | 68,183 | ||||||||||||||
Information Officer |
(1) | These amounts include reimbursement for the tax effects of the payment of certain premiums on a policy of life insurance, reimbursement for the tax effects of participation in a non-qualified retirement plan, and the value of financial planning services. For 2005, the amounts included for financial planning services were $4,500, $0, $3,200, $0, $0 and $4,000, respectively, for Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel. Excluded from these totals is income imputed to the named executive officer when accompanied on our aircraft during business travel by non-business travelers. These amounts for 2005, calculated using the applicable terminal charge and Standard Industry Fare Level (SIFL) mileage rates, were $9,913, $1,379 and $707 for Mr. Dillon, Mr. Becker and Mr. Heschel, respectively. Separately, we require that officers who make personal use of our aircraft must reimburse us for the full amount of the variable cost associated with the operation of the aircraft on such flights in accordance with a time-sharing arrangement consistent with FAA regulations. |
(2) | Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel had 75,000, 50,000, 50,000, 20,000, 57,500, and 0 restricted shares outstanding, respectively, at January 28, 2006. These shares had an aggregate value of $1,392,750, $928,500, $928,500, $371,400, $1,067,775 and 0, respectively, based on the market price of Kroger’s common stock on January 28, 2006. The restrictions on the shares awarded to Messrs. Dillon, McMullen, McGeorge and Heldman lapse in 2006. The restrictions on the shares awarded to Mr. Becker lapse as to 12,500 shares in 2006, 15,000 shares in 2007, and 30,000 shares in 2008. Dividends, as and when declared, are payable on these shares. |
(3) | Represents options granted during the respective fiscal year. These options vest over five years. No options were granted to the named executive officers during 2003. Options terminate in 10 years if not earlier exercised or terminated. No stock appreciation rights (“SARs”) were granted in any of the three years presented. |
(4) | No long-term incentive plan payout was made to the named executive officers in the three years presented. |
(5) | For 2005, these amounts include the reimbursement of certain premiums for policies of life insurance in the amounts of $62,407, $20,186, $40,088, $32,706, $37,630, and $63,770, respectively, for Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel. As to 2003 and 2004, these amounts include the reimbursement discussed above as well as our matching contribution under The Kroger Co. Savings Plan. This matching contribution ended on July 1, 2004. For 2005, this amount for Mr. Heschel includes a payment made to him on his retirement in the amount of $7,302. |
OPTION/SAR GRANTS IN LAST FISCAL YEAR | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Individual Grants | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term | ||||||||||||||||||||||||||||||
Name | | Number of Securities Underlying Options/SAR Granted | | % of Total Options/SARs Granted to Employees in Fiscal Year | | Exercise or Base Price ($/Share) | | Expiration Date | | 0% | | 5% | | 10% | |||||||||||||||||
David B. Dillon | 300,000 | 4.41 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 3,091,332 | $ | 7,834,041 | |||||||||||||||||||
W. Rodney McMullen | 75,000 | 1.10 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 772,833 | $ | 1,958,510 | |||||||||||||||||||
Don McGeorge | 75,000 | 1.10 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 772,833 | $ | 1,958,510 | |||||||||||||||||||
Paul W. Heldman | 40,000 | 0.59 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 412,178 | $ | 1,044,539 | |||||||||||||||||||
Donald E. Becker | 40,000 | 0.59 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 412,178 | $ | 1,044,539 | |||||||||||||||||||
Michael S. Heschel | 45,000 | 0.66 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 463,700 | $ | 1,175,106 |
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES TABLE | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | | Shares Acquired on Exercise (#) | | Value Realized ($) | | Number of Securities Underlying Unexercised Options/SARs at F/Y End (1) (#) Exercisable/ Unexercisable | | Value of Unexercised In-the-Money Options/SARs at F/Y End (1) ($) Exercisable/ Unexercisable | |||||||||||
David B. Dillon | 172,000 | $ | 1,669,930 | 576,000/849,000 | $ | 1,188,580/$1,333,247 | |||||||||||||
W. Rodney McMullen | 40,000 | $ | 388,900 | 450,000/355,000 | $ | 1,342,238/$507,580 | |||||||||||||
Don McGeorge | 48,000 | $ | 493,440 | 422,500/347,500 | $ | 1,802,385/$507,580 | |||||||||||||
Paul W. Heldman | 50,000 | $ | 477,250 | 322,499/208,001 | $ | 1,050,392/$283,884 | |||||||||||||
Donald E. Becker | 16,000 | $ | 152,720 | 276,999/194,001 | $ | 938,340/$274,003 | |||||||||||||
Michael S. Heschel | 0 | $ | 0 | 534,000/45,000 | $ | 1,108,766/$98,325 |
(1) | No SARs were granted or outstanding during the fiscal year. |
• | be competitive in total compensation; |
• | include, as part of total compensation, opportunities for equity ownership; |
• | use incentives that offer more than competitive compensation when Kroger achieves superior results; and |
• | base incentive payments, or annual bonus, on adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”); on identical sales results; on achievement of strategic initiatives and on the extent to which the sales and EBITDA results of designated capital projects exceed a minimum threshold established for those projects. |
2005 Plan also provides for other equity-based awards, including restricted stock, and during fiscal year 2005 Kroger awarded 250,800 shares of restricted stock to 135 employees, including some of the executive officers. While historically the overwhelming majority of equity awards have been in the form of non-qualified stock options, in 2006 the Committee intends to begin reducing the number of stock options granted and increasing the number of shares of restricted stock awards without materially affecting the cost of the program.
John T. LaMacchia, Chair Bobby S. Shackouls, Vice Chair Robert D. Beyer John L. Clendenin |
OF THE KROGER CO., S&P 500 AND PEER GROUP**
INDEXED RETURNS Years Ending | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Company Name / Index | | Base Period 2000 | | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | |||||||||||||||
THE KROGER CO | 100 | 82.61 | 61.32 | 75.29 | 70.05 | 75.46 | |||||||||||||||||||||
S&P 500 INDEX | 100 | 83.99 | 66.77 | 89.85 | 94.65 | 105.66 | |||||||||||||||||||||
PEER GROUP | 100 | 100.68 | 76.57 | 89.33 | 95.64 | 93.76 |
* | Total assumes $100 invested on February 4, 2001, in The Kroger Co., S&P 500 Index and the Peer Group, with reinvestment of dividends. |
** | The Peer Group consists of Albertson’s, Inc., Costco Wholesale Corp., CVS Corp, Delhaize Group SA (ADR), Great Atlantic & Pacific Tea Company, Inc., Koninklijke Ahold NV (ADR), Marsh Supermarkets Inc. (Class A), Safeway Inc., Supervalu Inc., Target Corp., Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market Inc. and Winn-Dixie Stores, Inc. |
Years of Service | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Five Year Average Remuneration | 15 | 20 | 25 | 30 | 35 | 40 | ||||||||||||||||||||||
$ | 150,000 | $ | 33,750 | $ | 45,000 | $ | 56,250 | $ | 67,500 | $ | 78,750 | $ | 90,000 | |||||||||||||||
250,000 | 56,250 | 75,000 | 93,750 | 112,500 | 131,250 | 150,000 | ||||||||||||||||||||||
450,000 | 101,250 | 135,000 | 168,750 | 202,500 | 236,250 | 270,000 | ||||||||||||||||||||||
650,000 | 146,250 | 195,000 | 243,750 | 292,500 | 341,250 | 390,000 | ||||||||||||||||||||||
850,000 | 191,250 | 255,000 | 318,750 | 382,500 | 446,250 | 510,000 | ||||||||||||||||||||||
900,000 | 202,500 | 270,000 | 337,500 | 405,000 | 472,500 | 540,000 | ||||||||||||||||||||||
1,200,000 | 270,000 | 360,000 | 450,000 | 540,000 | 630,000 | 720,000 | ||||||||||||||||||||||
1,500,000 | 337,500 | 450,000 | 562,500 | 675,000 | 787,500 | 900,000 | ||||||||||||||||||||||
1,800,000 | 405,000 | 540,000 | 675,000 | 810,000 | 945,000 | 1,080,000 | ||||||||||||||||||||||
2,200,000 | 495,000 | 660,000 | 825,000 | 990,000 | 1,155,000 | 1,320,000 |
Name | | Amount and Nature of Beneficial Ownership | ||
---|---|---|---|---|
Reuben V. Anderson | 51,245 | (1) | ||
Donald E. Becker | 365,485 | (2)(7)(11) | ||
Robert D. Beyer | 47,912 | (3) | ||
John L. Clendenin | 56,100 | (4) | ||
David B. Dillon .. | 1,580,759 | (2)(8)(11) | ||
Paul W. Heldman | 536,883 | (2)(9)(11) | ||
Michael S. Heschel | 653,463 | (2)(11) | ||
John T. LaMacchia | 61,100 | (4) | ||
David B. Lewis .. | 14,000 | (5) | ||
Don W. McGeorge | 673,815 | (2)(10)(11) | ||
W. Rodney McMullen | 877,079 | (2)(11) | ||
Clyde R. Moore .. | 33,100 | (4) | ||
Katherine D. Ortega | 58,456 | (1) | ||
Susan M. Phillips | 16,500 | (6) | ||
Steven R. Rogel | 35,128 | (3) | ||
Bobby S. Shackouls | 22,100 | (3) | ||
Directors and Executive Officers as a group (including those named above) | 7,055,305 | (2)(12)(13) |
(1) | This amount includes 28,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(2) | This amount includes shares that represent options that are or become exercisable on or before May 7, 2006, in the following amounts: Mr. Becker, 260,999; Mr. Dillon, 696,000; Mr. Heldman, 338,499; Mr. Heschel, 534,000; Mr. McGeorge, 452,500; Mr. McMullen, 480,000; and all directors and executive officers as a group, 4,326,550. |
(3) | This amount includes 12,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(4) | This amount includes 20,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(5) | This amount includes 5,000 shares that represent options that are or become exercisable on or before May 7, 2006. |
(6) | This amount includes 2,000 shares that represent options that are or become exercisable on or before May 7, 2006. |
(7) | This amount includes 10,228 shares owned by Mr. Becker’s wife and 1,050 shares owned by his children. Mr. Becker disclaims beneficial ownership of these shares. |
(8) | This amount includes 219,100 shares owned by Mr. Dillon’s wife and children, and 54,024 shares in his children’s trust. Mr. Dillon disclaims beneficial ownership of these shares. |
(9) | This amount includes 320 shares owned by Mr. Heldman’s children. Mr. Heldman disclaims beneficial ownership of these shares. |
(10) | This amount includes 10,063 shares owned by Mr. McGeorge’s wife. Mr. McGeorge disclaims beneficial ownership of these shares. |
(11) | The fractional interest resulting from allocations under Kroger’s defined contribution plans has been rounded to the nearest whole number. |
(12) | The figure shown includes an aggregate of 2,005 additional shares held by, or for the benefit of, the immediate families or other relatives of all directors and executive officers as a group not listed above. In each case the director or executive officer disclaims beneficial ownership of those shares. |
(13) | No director or officer owned as much as 1% of the common stock of Kroger. The directors and executive officers as a group beneficially owned 1% of the common stock of Kroger. |
Name | | Address of Beneficial Owner | | Amount and Nature of Ownership | | Percentage of Class | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
AXA Financial, Inc. | 1290 Avenue of the Americas New York, NY 10104 | 66,138,246 | 9.1 | % | ||||||||||
Brandes Investment Partners, L.P. | 11988 El Camino Real, Suite 500 San Diego, CA 92130 | 53,100,578 | 7.3 | % | ||||||||||
Lord, Abbett & Co. LLC | 90 Hudson Street Jersey City, NJ 07302 | 48,971,337 | 6.7 | % | ||||||||||
The Kroger Co. Savings Plan | 1014 Vine Street Cincinnati, OH 45202 | 50,064,465 | (1) | 6.9 | % |
(1) | Shares beneficially owned by plan trustees for the benefit of participants in employee benefit plans. |
Bobby S. Shackouls, Vice Chair
Reuben V. Anderson
Clyde R. Moore
Susan M. Phillips
• | shareholder approval of any future severance arrangements with any of Kroger’s senior officers if the payments involved exceed 2.99 times W-2 earnings; |
• | tender of resignation by any director in an uncontested election who receives more “withheld” votes than “for” votes; and |
• | adoption of a policy of stock ownership for officers, directors and other key executives. |
(ITEM NO. 2)
(ITEM NO. 3)
(ITEM NO. 4)
• | mergers or consolidations; |
• | sales, leases, exchanges, mortgages, pledges, transfers or other dispositions; |
• | issuances of securities or rights to acquire securities; |
• | adoptions of plans of liquidation or dissolution of Kroger; or |
• | reclassifications of securities. |
(ITEM NO. 5)
(ITEM NO. 6)
(ITEM NO. 7)
Fiscal 2005 | Fiscal 2004 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees | $ | 4,623,476 | $ | 6,052,828 | ||||||||||
Audit-Related Fees | 53,500 | 247,624 | ||||||||||||
Tax Fees | — | 264,023 | ||||||||||||
All Other Fees | — | — | ||||||||||||
Total | $ | 4,676,976 | $ | 6,564,475 |
(ITEM NO. 8)
1 | These are the same improvements that Hormel Foods recently touted in a letter to PETA describing CAK. |
(ITEM NO. 9)
1. | The company’s operating definition of sustainability. |
2. | A review of current company policies and practices related to social, environmental, and economic sustainability. |
3. | A summary of long-term plans to integrate sustainability objectives throughout company operations. |
Paul W. Heldman, Secretary
I. | Purpose |
II. | COMPOSITION |
III. | MEETINGS |
IV. | RESPONSIBILITIES AND DUTIES |
1. | Meet to review and discuss with management and the independent auditors the Company’s annual audited financial statements, including the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and any certification, report or opinion rendered by the Company’s independent auditors or the Company’s Principal Executive or |
Financial Officers in connection with those financial statements prior to filing with the SEC, and recommend to the Board whether the audited financial statements should be included in the annual report on Form 10-K. |
2. | Meet to review and discuss with management and the independent auditors the quarterly financial statements, including the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and any certification, report or opinion rendered by the Company’s independent auditors or the Company’s Principal Executive or Financial Officers in connection with those financial statements prior to filing with the SEC. |
3. | Review earnings press releases, and discuss the Company’s practices with respect to earnings press releases, and financial information and earnings guidance provided to analysts and rating agencies. |
4. | Review material changes in accounting policies, and financial reporting practices and material developments in financial reporting standards brought to the attention of the Audit Committee by the Company’s management or independent auditors. |
5. | Review material questions of choice with respect to the appropriate accounting principles and practices to be used in the preparation of the Company’s financial statements and brought to the attention of the Audit Committee by the Company’s management or independent auditors. |
6. | Review the performance of the independent auditors annually, and select (subject to ratification by the Company’s shareholders); evaluate; compensate; oversee; and, where appropriate replace, the independent auditors, which will report directly to the Audit Committee. The Audit Committee will oversee compliance by the independent auditors with the applicable requirements respecting the rotation of audit partners. |
7. | Consider the independence of the independent auditors at least annually, and review an annual written statement, prepared by the independent auditors, delineating all relationships between the independent auditors and the Company, consistent with the Independence Standards Board Standard No. 1, regarding relationships and services, which may affect the independence of the independent auditors. |
8. | �� | Obtain and review an annual written report, prepared by the independent auditors, describing: their internal quality control procedures and any material issues raised by the most recent internal quality control review or peer review, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues. |
9. | Approve in advance all audit and non-audit services to be performed by the independent auditors. |
10. | In consultation with management, the independent auditors and the internal auditors, review the reliability and integrity of the Company’s financial accounting policies, financial reporting processes, and disclosure and disclosure control practices and procedures. |
11. | Discuss with management the major areas of risk exposure and management’s efforts to monitor and control such exposure, and discuss policies with respect to risk assessment and risk management. |
12. | Review any significant disagreement among management and the independent auditors or the internal auditing department in connection with the preparation of the financial statements. |
13. | Review annually the audit plans of both the internal auditor and the independent auditors. |
14. | Review periodically with the independent and internal auditors any audit problems or difficulties and management’s responses. |
15. | Review with the Company’s counsel any legal matter, including environmental matters, that could have a significant effect on the Company. |
16. | Receive reports from the independent auditors and management regarding, and review and discuss the adequacy and effectiveness of, the Company’s internal controls, including any significant deficiencies in internal controls and significant changes in internal controls brought to the attention of the Audit Committee by the independent auditors or management. |
17. | Establish and oversee procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting and auditing matters. |
18. | Establish and oversee procedures for compliance with and reporting violations of The Kroger Co. Policy on Business Ethics. |
19. | Set clear hiring policies for employees or former employees of the independent auditors. |
20. | Review and assess, annually or more frequently as circumstances dictate, the adequacy of this Charter and recommend changes to the Corporate Governance Committee as appropriate. |
21. | Annually evaluate the Audit Committee’s performance and discuss the evaluation with the full Board of Directors. |
V. | OUTSIDE ADVISORS |
________________, 2006
AMENDED ARTICLES OF INCORPORATION
OF
THE KROGER CO.
whether or not the issue of any additional shares of such series or any future series in addition to such series or any other class of stock shall be subject to any restrictions and, if so, the nature of such restrictions.
outstanding for any purpose, and all rights with respect to such shares shall thereupon cease and terminate, except only the rights of the holders of the certificates for such shares to receive, out of the funds so deposited in trust, from and after the date of such deposit, the amount payable upon the redemption thereof, without interest; provided, however, that no right of conversion, if any, belonging to such shares, if such right of conversion is, by its terms, to exist for a period beyond the date of the publication of such notice or the making of such deposit, shall be impaired by the publication of such notice or the making of such deposit. At the expiration of six (6) years after the date of such deposit, such trust shall terminate. Any such moneys then remaining on deposit with such bank or trust company shall be paid over to the Corporation, and thereafter the holders of the certificates for such shares shall have no claims against such bank or trust company, but only claims as unsecured creditors against the Corporation for the amount payable upon the redemption thereof without interest.
OF
THE KROGER CO.
SHAREHOLDERS
of the Company owned of record or beneficially by the shareholder along with evidence of ownership thereof, a description of any material interest the shareholder has in the subject of the business requested to be conducted and any arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business, a representation that the shareholder intends to appear in person at the meeting to bring such matter before the meeting, and such other information regarding the business proposed by such shareholder as would be required to be included in the proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission.
BOARD OF DIRECTORS
OFFICERS
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
jurisdiction, the determination as to (1) shall be made by the directors of the Company acting at a meeting at which a quorum consisting of directors who are not parties to or threatened with any such action, suit, or proceeding is present. Any director who is a party to or threatened with any such action, suit or proceeding shall not be qualified to vote and, if for this reason a quorum of directors cannot be obtained to vote on such indemnification, no indemnification shall be made except in accordance with the procedure set forth in paragraph B of this Article IV.
CERTIFICATES FOR SECURITIES
SEAL
AMENDMENTS
2005 ANNUAL REPORT
David B. Dillon Chairman of the Board and Chief Executive Officer | J. Michael Schlotman Senior Vice President and Chief Financial Officer |
Fiscal Years Ended | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
January 28, 2006 (52 weeks) | January 29, 2005 (52 weeks) | January 31, 2004 (52 weeks) | February 1, 2003 (52 weeks) | February 2, 2002 (52 weeks) | |||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||
Sales | $ | 60,553 | $ | 56,434 | $ | 53,791 | $ | 51,760 | $ | 50,098 | |||||||||||||
Earnings (loss) before cumulative effect of accounting change | 958 | (104 | ) | 285 | 1,218 | 1,040 | |||||||||||||||||
Cumulative effect of accounting change (1) | — | — | — | (16 | ) | — | |||||||||||||||||
Net earnings (loss) | 958 | (104 | ) | 285 | 1,202 | 1,040 | |||||||||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||||||
Earnings (loss) before cumulative effect of accounting change | 1.31 | (0.14 | ) | 0.38 | 1.54 | 1.26 | |||||||||||||||||
Cumulative effect of accounting change (1) | — | — | — | (.02 | ) | — | |||||||||||||||||
Net earnings (loss) | 1.31 | (0.14 | ) | 0.38 | 1.52 | 1.26 | |||||||||||||||||
Total assets | 20,482 | 20,491 | 20,767 | 20,349 | 19,100 | ||||||||||||||||||
Long-term liabilities, including obligations under capital leases and financing obligations | 9,377 | 10,537 | 10,515 | 10,569 | 10,005 | ||||||||||||||||||
Shareowners’ equity | 4,390 | 3,619 | 4,068 | 3,937 | 3,592 | ||||||||||||||||||
Cash dividends per common share(2) | — | — | — | — | — |
(1) | Amounts are net of tax. Refer to Note 4 of the Consolidated Financial Statements. |
(2) | During the fiscal year ended February 2, 2002, the Company was prohibited from paying cash dividends under the terms of its previous Credit Agreement. On May 22, 2002, the Company entered into a new Credit Agreement, at which time the restriction on payment of cash dividends was eliminated. However, no cash dividends were declared or paid in any of the periods presented. |
2005 | 2004 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter | | High | | Low | | High | | Low | |||||||||||
1st | $ | 18.22 | $ | 15.15 | $ | 19.67 | $ | 15.95 | |||||||||||
2nd | $ | 20.00 | $ | 16.46 | $ | 18.36 | $ | 14.70 | |||||||||||
3rd | $ | 20.88 | $ | 19.09 | $ | 17.31 | $ | 14.65 | |||||||||||
4th | $ | 20.58 | $ | 18.42 | $ | 17.75 | $ | 15.53 |
Main trading market: New York Stock Exchange (Symbol KR) | ||
Number of shareholders of record at year-end 2005: | 50,522 | |
Number of shareholders of record at March 31, 2006: | 54,742 | |
Determined by number of shareholders of record |
(a) | (b) | (c) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining for future issuance under equity compensation plans excluding securities reflected in column (a) | |||||||||||
Equity compensation plans approved by security holders | 62,684,409 | (1) | $ | 18.6498 | 21,981,686 | |||||||||
Equity compensation plans not approved by security holders | — | $ | — | — | ||||||||||
Total | 62,684,409 | (1) | $ | 18.6498 | 21,981,686 |
(1) | This amount includes 3,377,803 unregistered warrants outstanding and originally issued to The Yucaipa Companies pursuant to a Warrant Agreement dated as of May 23, 1996, between Smith’s Food & Drug Centers, Inc. and The Yucaipa Companies, as Consultant. |
Period(1) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) (in millions) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
First four weeks November 6, 2005 to December 3, 2005 | 191,497 | $ | 19.42 | 190,000 | $ | 154 | ||||||||||||
Second four weeks December 4, 2005 to December 31, 2005 | 670,000 | $ | 19.07 | 370,000 | $ | 147 | ||||||||||||
Third four weeks January 1, 2006 to January 28, 2006 | 1,978,628 | $ | 18.88 | 1,750,000 | $ | 114 | ||||||||||||
Total | 2,840,125 | $ | 18.97 | 2,310,000 | $ | 114 |
(1) | The reported periods conform to the Company’s fiscal calendar composed of thirteen 28-day periods. The fourth quarter of 2005 contained three 28-day periods. |
(2) | Shares were repurchased under (i) a $500 million stock repurchase program, authorized by the Board of Directors on September 16, 2004, and (ii) a program announced on December 6, 1999, to repurchase common stock to reduce dilution resulting from our employee stock option plans, which program is limited to proceeds received from exercises of stock options and the tax benefits associated therewith. The programs have no expiration date but may be terminated by the Board of Directors at any time. No shares were purchased other than through publicly announced programs during the periods shown. |
(3) | Amounts shown in this column reflect amounts remaining under the $500 million stock repurchase program referenced in Note 2 above. Amounts to be invested under the program utilizing option exercise proceeds are dependent upon option exercise activity. |
RESULTS OF OPERATIONS
price reductions and higher energy, credit card and pension costs with continued recovery from the 2003 - 2004 labor dispute in southern California, as well as improvements in shrink, advertising, warehousing, and health care costs.
for a total investment of $319 million. During fiscal 2003, we repurchased 19 million shares of Kroger stock for a total investment of $301 million.
(in millions)
2005 | Percentage Increase | 2004 | Percentage Increase | 2003 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total food store sales without fuel | $ | 53,472 | 4.6 | % | $ | 51,106 | 2.9 | % | $ | 49,650 | ||||||||||||
Total food store fuel sales | 3,526 | 53.0 | % | 2,305 | 59.0 | % | 1,450 | |||||||||||||||
Total food store sales | $ | 56,998 | 6.7 | % | $ | 53,411 | 4.5 | % | $ | 51,100 | ||||||||||||
Other sales | 3,555 | 17.6 | % | 3,023 | 12.3 | % | 2,691 | |||||||||||||||
Total Sales | $ | 60,553 | 7.3 | % | $ | 56,434 | 4.9 | % | $ | 53,791 |
(in millions)
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Including fuel centers | $ | 54,144 | $ | 51,413 | ||||||
Excluding fuel centers | $ | 50,866 | $ | 49,154 | ||||||
Including fuel centers | 5.3 | % | 2.1 | % | ||||||
Excluding fuel centers | 3.5 | % | 0.8 | % |
(in millions)
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Including supermarket fuel centers | $ | 55,607 | $ | 52,514 | ||||||
Excluding supermarket fuel centers | $ | 52,200 | $ | 50,226 | ||||||
Including supermarket fuel centers | 5.9 | % | 2.6 | % | ||||||
Excluding supermarket fuel centers | 3.9 | % | 1.3 | % |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Beginning of year | 2,532 | 2,532 | 2,488 | |||||||||||
Opened | 28 | 41 | 44 | |||||||||||
Opened (relocation) | 12 | 20 | 14 | |||||||||||
Acquired | 1 | 15 | 25 | |||||||||||
Acquired (relocation) | — | 3 | 5 | |||||||||||
Closed (operational) | (54 | ) | (56 | ) | (25 | ) | ||||||||
Closed (relocation) | (12 | ) | (23 | ) | (19 | ) | ||||||||
End of year | 2,507 | 2,532 | 2,532 | |||||||||||
Total food store square footage (in millions) | 142 | 141 | 140 |
long-lived assets to be held and used, we compare discounted future cash flows to the asset’s current carrying value. We record impairment when the carrying value exceeds the discounted cash flows. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on our previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal.
(a) | Company-sponsored Pension Plans |
Percentage Point Change | Projected Benefit Obligation Decrease/(Increase) | Expense Decrease/(Increase) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Discount Rate | ± 1.0 | % | $ | 277/($315 | ) | $ | 27/($33 | ) | ||||||
Expected Return on Assets | ± 1.0 | % | — | $ | 15/($15 | ) |
(b) | Multi-Employer Plans |
we have established an allowance, is audited and fully resolved. As of January 28, 2006, tax years 2002 through 2004 were undergoing examination by the Internal Revenue Service.
• | Our Applicable Percentage Ratio (the ratio of Consolidated EBITDA to Consolidated Total Interest Expense, as defined in the credit facilities) was 6.70 to 1 as of January 28, 2006. If this ratio declined to below 4.75 to 1, the cost of our borrowings under the credit facilities would increase at least 0.13%. The cost of our borrowings under the credit facilities would be similarly affected by a one-level downgrade in our credit rating. |
• | Our Leverage Ratio (the ratio of Net Debt to Consolidated EBITDA, as defined in the credit facilities) was 2.23 to 1 as of January 28, 2006. If this ratio exceeded 3.50 to 1, we would be in default of our credit facilities and our ability to borrow under these facilities would be impaired. |
• | Our Fixed Charge Coverage Ratio (the ratio of Consolidated EBITDA plus Consolidated Rental Expense to Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facilities) was 3.38 to 1 as of January 28, 2006. If this ratio fell below 1.70 to 1, we would be in default of our credit facilities and our ability to borrow under these facilities would be impaired. |
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | ||||||||||||||||||||||||||||||
Long-term debt | $ | 527 | $ | 527 | $ | 1,000 | $ | 912 | $ | 42 | $ | 3,739 | $ | 6,747 | ||||||||||||||||
Interest on long-term debt (1) | 480 | 423 | 329 | 303 | 250 | 1,922 | 3,707 | |||||||||||||||||||||||
Capital lease obligations | 61 | 57 | 54 | 52 | 51 | 344 | 619 | |||||||||||||||||||||||
Operating lease obligations | 784 | 732 | 684 | 635 | 588 | 4,075 | 7,498 | |||||||||||||||||||||||
Charitable contributions | 14 | — | — | — | — | — | 14 | |||||||||||||||||||||||
Minimum contributions to Company-sponsored pension plans | — | — | — | — | — | — | — | |||||||||||||||||||||||
Low-income housing obligations | 47 | 6 | 2 | — | — | — | 55 | |||||||||||||||||||||||
Financed lease obligations | 11 | 11 | 11 | 11 | 11 | 159 | 214 | |||||||||||||||||||||||
Construction commitments | 95 | — | — | — | — | — | 95 | |||||||||||||||||||||||
Purchase obligations | 362 | 60 | 18 | 5 | 1 | — | 446 | |||||||||||||||||||||||
Total | $ | 2,381 | $ | 1,816 | $ | 2,098 | $ | 1,918 | $ | 943 | $ | 10,239 | $ | 19,395 | ||||||||||||||||
Other Commercial Commitments | ||||||||||||||||||||||||||||||
Credit facilities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Standby letters of credit | 314 | — | — | — | — | — | 314 | |||||||||||||||||||||||
Surety bonds | 106 | — | — | — | — | — | 106 | |||||||||||||||||||||||
Guarantees | 11 | — | — | — | — | — | 11 | |||||||||||||||||||||||
Total | $ | 431 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 431 |
(1) | Amounts include contractual interest payments using the interest rate as of January 28, 2006 applicable to Kroger’s variable interest debt instruments, excluding commercial paper borrowings due to the short-term nature of these borrowings, and stated fixed interest rates for all other debt instruments. |
borrowings under the credit agreements and commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the credit facilities. In addition to the credit facilities, we maintain a $50 million money market line, borrowings under which also reduce the funds available under our credit facilities. The money market line borrowings allow us to borrow from banks at mutually agreed upon rates, usually at rates below the rates offered under the credit agreements. As of January 28, 2006, we had no outstanding borrowings under our credit agreements and commercial paper program. We had no borrowings under the money market line as of January 28, 2006. The outstanding letters of credit that reduced the funds available under our credit facilities totaled $303 million as of January 28, 2006.
risk by hedging an underlying economic exposure. Because of the high correlation between the hedging instrument and the underlying exposure, fluctuations in the value of the instruments generally are offset by reciprocal changes in the value of the underlying exposure. The interest rate derivatives we use are straightforward instruments with liquid markets.
The Fair-Value column includes the fair-value of our debt instruments and interest rate derivatives as of January 28, 2006. Refer to Notes 7, 8 and 9 to the Consolidated Financial Statements:
Expected Year of Maturity | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair Value | ||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Debt | |||||||||||||||||||||||||||||||||||
Fixed rate | $ | (519 | ) | $ | (526 | ) | $ | (994 | ) | $ | (896 | ) | $ | (35 | ) | $ | (3,639 | ) | $ | (6,609 | ) | $ | (6,900 | ) | |||||||||||
Average interest rate | 7.78 | % | 7.78 | % | 7.27 | % | 7.76 | % | 8.98 | % | 6.66 | % | |||||||||||||||||||||||
Variable rate | $ | (8 | ) | $ | (1 | ) | $ | (6 | ) | $ | (16 | ) | $ | (7 | ) | $ | (100 | ) | $ | (138 | ) | $ | (138 | ) | |||||||||||
Average interest rate | 3.29 | % | 3.32 | % | 3.33 | % | 3.38 | % | 3.42 | % | 3.80 | % |
Average Notional Amounts Outstanding | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair Value | ||||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||||||||||
Interest Rate Derivatives | |||||||||||||||||||||||||||||||||||
Variable to fixed | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||
Average pay rate | |||||||||||||||||||||||||||||||||||
Average receive rate | |||||||||||||||||||||||||||||||||||
Fixed to variable | $ | 1,238 | $ | 1,050 | $ | 363 | $ | 300 | $ | 300 | $ | 300 | $ | 1,375 | $ | (34 | ) | ||||||||||||||||||
Average pay rate | 8.02 | % | 7.78 | % | 5.71 | % | 5.16 | % | 5.23 | % | 5.26 | % | |||||||||||||||||||||||
Average receive rate | 6.90 | % | 6.74 | % | 5.38 | % | 4.95 | % | 4.95 | % | 4.95 | % |
the aggregation criteria listed in (a)-(e) of paragraph 17 of SFAS No. 131. EITF No. 04-10 became effective for fiscal years ending after September 15, 2005, and did not have a material effect on our Consolidated Financial Statements.
• | We expect earnings per share growth of approximately 6% - 8% in 2006. This includes the effect of a 53rd week in fiscal 2006, which will be substantially offset by the expensing of stock options. We anticipate the expensing of stock options will reduce net earnings approximately $0.05 - $0.06 per diluted share. We also expect 2007 earnings per share growth to be approximately 6% - 8%, based on comparable 52-week results for 2006. |
• | We expect identical food store sales growth, excluding fuel sales, to exceed 3.5% in 2006. |
• | In fiscal 2006, we will continue to focus on driving sales growth and balancing investments in gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers. We expect operating margins in southern California to improve slightly due to the continued recovery in that market, although we expect improvement in 2006 will be less than in 2005. We expect operating margins, excluding the effect of fuel sales, to hold steady in the balance of the Company. |
• | We plan to use, over the long-term, one-third of cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend. |
• | We expect to obtain sales growth from new square footage, as well as from increased productivity from existing locations. |
• | Capital expenditures reflect our strategy of growth through expansion and acquisition, as well as focusing on productivity increase from our existing store base through remodels. In addition, we will continue our emphasis on self-development and ownership of real estate, logistics and technology improvements. The continued capital spending in technology is focused on improving store operations, logistics, manufacturing procurement, category management, merchandising and buying practices, and should reduce merchandising costs. We intend to continue using cash flow from operations to finance capital expenditure requirements. We expect capital investment for 2006 to be in the range of $1.7 - $1.9 billion, excluding acquisitions. Total food store square footage is expected to grow 1.5% - 2% before acquisitions and operational closings. |
• | Based on current operating trends, we believe that cash flow from operations and other sources of liquidity, including borrowings under our commercial paper program and bank credit facilities, will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. We also believe we have adequate coverage of our debt covenants to continue to respond effectively to competitive conditions. |
• | We expect that our OG&A results will be affected by increased costs, such as higher energy costs, pension costs and credit card fees, as well as any future labor disputes, offset by improved productivity from process changes, cost savings negotiated in recently completed labor agreements and leverage gained through sales increases. |
• | We expect that our effective tax rate for 2006 will be approximately 37.5%. |
• | We will continue to evaluate under-performing stores. We anticipate operational closings will continue at an above-historical rate. |
• | We expect rent expense, as a percent of total sales and excluding closed-store activity, will decrease due to the emphasis our current strategy places on ownership of real estate. |
• | We believe that in 2006 there will be opportunities to reduce our operating costs in such areas as administration, labor, shrink, warehousing and transportation. These savings will be invested in our core business to drive profitable sales growth and offer improved value and shopping experiences for our customers. |
• | Although we are not required to make cash contributions during fiscal 2006, we made a $150 million cash contribution to our qualified pension plans on March 27, 2006. Additional contributions may be made if our cash flows from operations exceed our expectations. We expect any elective contributions made during 2006 will reduce our contributions in future years. Among other things, investment performance of plan assets, the interest rates required to be used to calculate pension obligations and future changes in legislation will determine the amounts of any additional contributions. |
• | We expect our contributions to multi-employer pension plans to increase at 5% per year over the $196 million we contributed during 2005. |
• | We have various labor agreements expiring in 2006, covering smaller groups of associates than those contracts negotiated in 2005. In all of these contracts, rising health care and pension costs will continue to be an important issue in negotiations. A prolonged work stoppage at a substantial number of stores could have a material effect on our results. |
• | Our ability to achieve sales and earnings goals may be affected by: labor disputes; industry consolidation; pricing and promotional activities of existing and new competitors, including non-traditional competitors; our response to these actions; the state of the economy, including the inflationary and deflationary trends in certain commodities; stock repurchases; and the success of our future growth plans. |
• | In addition to the factors identified above, our identical store sales growth could be affected by increases in Kroger private label sales, the effect of our “sister stores” (new stores opened in close proximity to an existing store) and reductions in retail pricing. |
• | Our operating margins could fail to improve if our operations in southern California do not improve as expected or if we are unsuccessful at containing our operating costs. |
• | We have estimated our exposure to the claims and litigation arising in the normal course of business, as well as in material litigation facing the Company, and believe we have made adequate provisions for them where it is reasonably possible to estimate and where we believe an adverse outcome is probable. Unexpected outcomes in these matters, however, could result in an adverse effect on our earnings. |
• | The proportion of cash flow used to reduce outstanding debt, repurchase common stock or pay a cash dividend may be affected by the amount of outstanding debt available for pre-payments, changes in borrowing rates and the market price of Kroger common stock. |
• | Consolidation in the food industry is likely to continue and the effects on our business, either favorable or unfavorable, cannot be foreseen. |
• | Rent expense, which includes subtenant rental income, could be adversely affected by the state of the economy, increased store closure activity and future consolidation. |
• | Depreciation expense, which includes the amortization of assets recorded under capital leases, is computed principally using the straight-line method over the estimated useful lives of individual assets, or the remaining terms of leases. Use of the straight-line method of depreciation creates a risk that future asset write-offs or potential impairment charges related to store closings would be larger than if an accelerated method of depreciation was followed. |
• | Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities and the deductibility of certain expenses. |
• | We believe the multi-employer pension funds to which we contribute are substantially underfunded, and we believe the effect of that underfunding will be the increased contributions we have projected over the next several years. Should asset values in these funds deteriorate, or if employers withdraw from these funds without providing for their share of the liability, or should our estimates prove to be understated, our contributions could increase more rapidly than we have anticipated. |
• | The grocery retail industry continues to experience fierce competition from other traditional food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores and restaurants. Our continued success |
is dependent upon our ability to compete in this industry and to reduce operating expenses, including managing health care and pension costs contained in our collective bargaining agreements. The competitive environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained profitable growth are considerable, unanticipated actions of competitors could adversely affect our sales. |
• | Changes in laws or regulations, including changes in accounting standards, taxation requirements and environmental laws may have a material effect on our financial statements. |
• | Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth and employment and job growth in the markets in which we operate, may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could affect sales and earnings. |
• | Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since gasoline generates low profit margins, including generating decreased margins as the market price increases, we expect to see our FIFO gross profit margins decline as gasoline sales increase. Although this negatively affects our FIFO gross margin, gasoline sales provide a positive effect on operating, general and administrative expenses as a percent of sales. |
• | Our ability to integrate any companies we acquire or have acquired, and achieve operating improvements at those companies, will affect our operations. |
• | Our capital expenditures could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted or if our logistics and technology projects are not completed in the time frame expected or on budget. |
• | Our expected square footage growth and the number of store projects completed during the year are dependent upon our ability to acquire desirable sites for construction of new facilities as well as the timing and completion of projects. |
• | Interest expense could be adversely affected by the interest rate environment, changes in the Company’s credit ratings, fluctuations in the amount of outstanding debt, decisions to incur prepayment penalties on the early redemption of debt and any factor that adversely affects our operations that results in an increase in debt. |
• | Our estimated expense of $0.05 - $0.06 per diluted share, from the adoption of SFAS No. 123-R, requiring the expensing of stock options, could vary if the assumptions that were used to calculate the expense prove to be inaccurate or are changed. |
• | The amount we contribute to Company-sponsored pension plans could vary if the amount of cash flow that we generate differs from that expected. |
• | Adverse weather conditions could increase the cost our suppliers charge for their products, or may decrease the customer demand for certain products. Additionally, increases in the cost of inputs, such as utility costs or raw material costs, could negatively affect financial ratios and earnings. |
• | Although we presently operate only in the United States, civil unrest in foreign countries in which our suppliers do business may affect the prices we are charged for imported goods. If we are unable to pass on these increases to our customers, our FIFO gross margin and net earnings will suffer. |
The Kroger Co.:
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
April 7, 2006
CONSOLIDATED BALANCE SHEETS
(In millions) | | January 28, 2006 | | January 29, 2005 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Current assets | ||||||||||
Cash and temporary cash investments | $ | 210 | $ | 144 | ||||||
Deposits In-Transit | 488 | 506 | ||||||||
Receivables | 680 | 661 | ||||||||
Receivables – Taxes | 6 | 167 | ||||||||
FIFO Inventory | 4,886 | 4,729 | ||||||||
LIFO Credit | (400 | ) | (373 | ) | ||||||
Prefunded employee benefits | 300 | 300 | ||||||||
Prepaid and other current assets | 296 | 272 | ||||||||
Total current assets | 6,466 | 6,406 | ||||||||
Property, plant and equipment, net | 11,365 | 11,497 | ||||||||
Goodwill, net | 2,192 | 2.191 | ||||||||
Other assets | 459 | 397 | ||||||||
Total Assets | $ | 20,482 | $ | 20,491 | ||||||
LIABILITIES | ||||||||||
Current liabilities | ||||||||||
Current portion of long-term debt including obligations under capital leases and financing obligations | $ | 554 | $ | 71 | ||||||
Accounts payable | 3,550 | 3,598 | ||||||||
Accrued salaries and wages | 742 | 659 | ||||||||
Deferred income taxes | 217 | 286 | ||||||||
Other current liabilities | 1,652 | 1,721 | ||||||||
Total current liabilities | 6,715 | 6,335 | ||||||||
Long-term debt including obligations under capital leases and financing obligations | ||||||||||
Face value long-term debt including obligations under capital leases and financing obligations | 6,651 | 7,830 | ||||||||
Adjustment to reflect fair value interest rate hedges | 27 | 70 | ||||||||
Long-term debt including obligations under capital leases and financing obligations | 6,678 | 7,900 | ||||||||
Deferred income taxes | 843 | 841 | ||||||||
Other long-term liabilities | 1,856 | 1,796 | ||||||||
Total Liabilities | 16,092 | 16,872 | ||||||||
Commitments and Contingencies | ||||||||||
SHAREOWNERS’ EQUITY | ||||||||||
Preferred stock, $100 par, 5 shares authorized and unissued | — | — | ||||||||
Common stock, $1 par, 1,000 shares authorized: 927 shares issued in 2005 and 918 shares issued in 2004 | 927 | 918 | ||||||||
Additional paid-in capital | 2,536 | 2,432 | ||||||||
Accumulated other comprehensive loss | (243 | ) | (202 | ) | ||||||
Accumulated earnings | 4,573 | 3,620 | ||||||||
Common stock in treasury, at cost, 204 shares in 2005 and 190 shares in 2004 | (3,403 | ) | (3,149 | ) | ||||||
Total Shareowners’ Equity | 4,390 | 3,619 | ||||||||
Total Liabilities and Shareowners’ Equity | $ | 20,482 | $ | 20,491 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts) | | 2005 (52 weeks) | | 2004 (52 weeks) | | 2003 (52 weeks) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 60,553 | $ | 56,434 | $ | 53,791 | ||||||||
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below | 45,565 | 42,140 | 39,637 | |||||||||||
Operating, general and administrative | 11,027 | 10,611 | 10,354 | |||||||||||
Rent | 661 | 680 | 657 | |||||||||||
Depreciation and amortization | 1,265 | 1,256 | 1,209 | |||||||||||
Goodwill impairment charge | — | 904 | 471 | |||||||||||
Asset impairment charges | — | — | 120 | |||||||||||
Operating Profit | 2,035 | 843 | 1,343 | |||||||||||
Interest expense | 510 | 557 | 604 | |||||||||||
Earnings before income tax expense | 1,525 | 286 | 739 | |||||||||||
Income tax expense | 567 | 390 | 454 | |||||||||||
Net earnings (loss) | $ | 958 | $ | (104 | ) | $ | 285 | |||||||
Net earnings (loss) per basic common share | $ | 1.32 | $ | (0.14 | ) | $ | 0.38 | |||||||
Average number of common shares used in basic calculation | 724 | 736 | 747 | |||||||||||
Net earnings (loss) per diluted common share | $ | 1.31 | $ | (0.14 | ) | $ | 0.38 | |||||||
Average number of common shares used in diluted calculation | 731 | 736 | 754 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) | | 2005 (52 weeks) | | 2004 (52 weeks) | | 2003 (52 weeks) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows From Operating Activities: | ||||||||||||||
Net earnings (loss) | $ | 958 | $ | (104 | ) | $ | 285 | |||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 1,265 | 1,256 | 1,209 | |||||||||||
LIFO charge | 27 | 49 | 34 | |||||||||||
Pension expense for Company-sponsored pension plans | 138 | 117 | 92 | |||||||||||
Goodwill impairment charge | — | 861 | 471 | |||||||||||
Asset impairment charges | — | — | 120 | |||||||||||
Deferred income taxes | (63 | ) | 230 | 329 | ||||||||||
Other | 39 | 59 | 22 | |||||||||||
Changes in operating assets and liabilities net of effects from acquisitions of businesses: | ||||||||||||||
Store deposits in-transit | 18 | 73 | (363 | ) | ||||||||||
Inventories | (157 | ) | (236 | ) | (20 | ) | ||||||||
Receivables | (19 | ) | 13 | 3 | ||||||||||
Prepaid expenses | 31 | (31 | 5 | |||||||||||
Accounts payable | (80 | ) | 167 | 44 | ||||||||||
Accrued expenses | 162 | (10 | ) | 132 | ||||||||||
Income taxes receivable (payable) | 200 | (86 | ) | (62 | ) | |||||||||
Contribution to company sponsored pension plans | (300 | ) | (35 | ) | (100 | ) | ||||||||
Other | (27 | ) | 7 | 14 | ||||||||||
Net cash provided by operating activities | 2,192 | 2,330 | 2,215 | |||||||||||
Cash Flows From Investing Activities: | ||||||||||||||
Capital expenditures, excluding acquisitions | (1,306 | ) | (1,634 | ) | (2,000 | ) | ||||||||
Proceeds from sale of assets | 69 | 86 | 68 | |||||||||||
Payments for acquisitions, net of cash acquired | — | (25 | ) | (87 | ) | |||||||||
Other | (42 | ) | (35 | ) | (7 | ) | ||||||||
Net cash used by investing activities | (1,279 | ) | (1,608 | ) | (2,026 | ) | ||||||||
Cash Flows From Financing Activities: | ||||||||||||||
Proceeds from issuance of long-term debt | 14 | 616 | 347 | |||||||||||
Proceeds from lease-financing transactions | 76 | 6 | — | |||||||||||
Payments on long-term debt | (103 | ) | (701 | ) | (816 | ) | ||||||||
Borrowings (payments) on bank revolver | (694 | ) | (309 | ) | 329 | |||||||||
Debt prepayment costs | — | (25 | ) | (17 | ) | |||||||||
Financing charges incurred | — | (5 | ) | (3 | ) | |||||||||
Proceeds from issuance of capital stock | 78 | 25 | 39 | |||||||||||
Treasury stock purchases | (252 | ) | (319 | ) | (301 | ) | ||||||||
Cash received from interest rate swap terminations | — | — | 114 | |||||||||||
Increase (decrease) in book overdrafts | 34 | (25 | ) | 107 | ||||||||||
Net cash used by financing activities | (847 | ) | (737 | ) | (201 | ) | ||||||||
Net increase (decrease) in cash and temporary cash investments | 66 | (15 | ) | (12 | ) | |||||||||
Cash and temporary cash investments: | ||||||||||||||
Beginning of year | 144 | 159 | 171 | |||||||||||
End of year | $ | 210 | $ | 144 | $ | 159 | ||||||||
Disclosure of cash flow information: | ||||||||||||||
Cash paid during the year for interest | $ | 511 | $ | 590 | $ | 589 | ||||||||
Cash paid during the year for income taxes | $ | 431 | $ | 206 | $ | 139 |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREOWNERS’ EQUITY
Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | Shares | | Amount | | Additional Paid-In Capital | | Shares | | Amount | | Accumulated Other Comprehensive Gain (Loss) | | Accumulated Earnings | | Total | |||||||||||||||||||
Balances at February 1, 2003 | 908 | $ | 908 | $ | 2,317 | 150 | $ | (2,521 | ) | $ | (206 | ) | $ | 3,439 | $ | 3,937 | ||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||
Stock options and warrants exercised | 4 | 4 | 35 | — | — | — | — | 39 | ||||||||||||||||||||||||||
Restricted stock issued | 1 | 1 | 9 | — | — | — | — | 10 | ||||||||||||||||||||||||||
Treasury stock activity: | ||||||||||||||||||||||||||||||||||
Treasury stock purchases, at cost | — | — | — | 19 | (301 | ) | — | — | (301 | ) | ||||||||||||||||||||||||
Stock options and restricted stock exchanged | — | — | — | 1 | (5 | ) | (5 | ) | ||||||||||||||||||||||||||
Tax benefits from exercise of stock options and warrants | — | — | 21 | — | — | — | — | 21 | ||||||||||||||||||||||||||
Other comprehensive gain, net of income tax of $(49) | — | — | — | — | — | 82 | — | 82 | ||||||||||||||||||||||||||
Net earnings | — | — | — | — | — | — | 285 | 285 | ||||||||||||||||||||||||||
Balances at January 31, 2004 | 913 | 913 | 2,382 | 170 | (2,827 | ) | (124 | ) | 3,724 | 4,068 | ||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||
Stock options and warrants exercised | 4 | 4 | 25 | — | — | — | — | 29 | ||||||||||||||||||||||||||
Restricted stock issued | 1 | 1 | 9 | — | — | — | — | 10 | ||||||||||||||||||||||||||
Treasury stock activity: | �� | |||||||||||||||||||||||||||||||||
Treasury stock purchases, at cost | — | — | — | 18 | (294 | ) | — | — | (294 | ) | ||||||||||||||||||||||||
Stock options and restricted stock exchanged | — | — | — | 2 | (28 | ) | — | — | (28 | ) | ||||||||||||||||||||||||
Tax benefits from exercise of stock options and warrants | — | — | 16 | — | — | — | — | 16 | ||||||||||||||||||||||||||
Other comprehensive loss net of income tax of $47 | — | — | — | — | — | (78 | ) | — | (78 | ) | ||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (104 | ) | (104 | ) | ||||||||||||||||||||||||
Balances at January 29, 2005 | 918 | 918 | 2,432 | 190 | (3,149 | ) | (202 | ) | 3,620 | 3,619 | ||||||||||||||||||||||||
Issuance of common stock: | ||||||||||||||||||||||||||||||||||
Stock options and warrants exercised | 8 | 8 | 57 | — | — | — | — | 65 | ||||||||||||||||||||||||||
Restricted stock issued | 1 | 1 | 13 | — | — | — | — | 14 | ||||||||||||||||||||||||||
Treasury stock activity: | ||||||||||||||||||||||||||||||||||
Treasury stock purchases, at cost | — | — | — | 14 | (239 | ) | — | — | (239 | ) | ||||||||||||||||||||||||
Stock options and restricted stock exchanged | — | — | — | — | (15 | ) | — | — | (15 | ) | ||||||||||||||||||||||||
Tax benefits from exercise of stock options and warrants | — | — | 34 | — | — | — | — | 34 | ||||||||||||||||||||||||||
Other comprehensive loss net of income tax of $26 | — | — | — | — | — | (41 | ) | — | (41 | ) | ||||||||||||||||||||||||
Other | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||
Net earnings | — | — | — | — | — | — | 958 | 958 | ||||||||||||||||||||||||||
Balances at January 28, 2006 | 927 | $ | 927 | $ | 2,536 | 204 | $ | (3,403 | ) | $ | (243 | ) | $ | 4,573 | $ | 4,390 | ||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||
Net earnings (loss) | $ | 958 | $ | (104 | ) | $ | 285 | |||||||||||||||||||||||||||
Reclassification adjustment for losses included in net earnings (loss), net of income tax of $(14) in 2003 | — | — | 23 | |||||||||||||||||||||||||||||||
Unrealized gain (loss) on hedging activities, net of income tax of $(1) in 2005, $1 in 2004 and $(2) in 2003 | 1 | (1 | ) | 3 | ||||||||||||||||||||||||||||||
Additional minimum pension liability adjustment, net of income tax of $26 in 2005, $46 in 2004 and $(33) in 2003 | (42 | ) | (77 | ) | 56 | |||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 917 | $ | (182 | ) | $ | 367 |
Certain prior-year amounts have been reclassified to conform to current year presentation.
1. | ACCOUNTING POLICIES |
Future Lease Obligations | ||||||
---|---|---|---|---|---|---|
Balance at January 31, 2004 | $ | 35 | ||||
Additions | 28 | �� | ||||
Payments | (10 | ) | ||||
Adjustments | 12 | |||||
Balance at January 29, 2005 | 65 | |||||
Additions | 10 | |||||
Payments | (8 | ) | ||||
Adjustments | (2 | ) | ||||
Balance at January 28, 2006 | $ | 65 |
| 2005 | | 2004 | | 2003 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net earnings (loss), as reported | $ | 958 | $ | (104 | ) | $ | 285 | |||||||
Add: Stock-based compensation expense included in net earnings, net of income tax benefits | 5 | 8 | 8 | |||||||||||
Subtract: Total stock-based compensation expense determined under fair value method for all awards, net of income tax benefits(1) | (34 | ) | (48 | ) | (48 | ) | ||||||||
Pro forma net earnings (loss) | $ | 929 | $ | (144 | ) | $ | 245 | |||||||
Earnings (loss) per basic common share, as reported | $ | 1.32 | $ | (0.14 | ) | $ | 0.38 | |||||||
Pro forma earnings (loss) per basic common share | $ | 1.28 | $ | (0.20 | ) | $ | 0.33 | |||||||
Earnings (loss) per diluted common share, as reported | $ | 1.31 | $ | (0.14 | ) | $ | 0.38 | |||||||
Pro forma earnings (loss) per diluted common share | $ | 1.27 | $ | (0.20 | ) | $ | 0.32 |
(1) | Refer to Note 12 for a summary of the assumptions used for options issued in each year at an option price equal to the fair market value of the stock at the date of the grant. |
before a particular matter, for which an allowance has been established, is audited and fully resolved. As of January 28, 2006, tax years 2002 through 2004 were undergoing examination by the Internal Revenue Service.
to systems constraints, to allocate vendor allowances to the product by item, vendor allowances are recognized as a reduction in merchandise costs based on inventory turns and therefore recognized as the product is sold.
2. | MERGER-RELATED COSTS |
Facility Closure Costs | Incentive Awards and Contributions | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at February 1, 2003 | $ | 74 | $ | 20 | ||||||
Adjustment of charitable contribution allowance | — | (5 | ) | |||||||
Payments | (10 | ) | — | |||||||
Balance at January 31, 2004 | 64 | 15 | ||||||||
Payments | (7 | ) | (1 | ) | ||||||
Balance at January 29, 2005 | 57 | 14 | ||||||||
Payments | (4 | ) | — | |||||||
Balance at January 28, 2006 | $ | 53 | $ | 14 |
3. | ASSET IMPAIRMENT CHARGE AND RELATED ITEMS |
experienced a substantial decline in operating performance when compared to prior year performance and budgeted 2003 results. Additionally, the Company forecasted a further decline in the future operating performance of the division reflecting the necessary investments in capital and targeted retail price reductions in order to maintain and grow market share and provide acceptable long-term return on capital. The impairment charge, which was non-deductible for income tax purposes, adjusted the carrying value of the division’s goodwill to its implied fair value. As of January 28, 2006, the Company maintained $166 of goodwill for the Smith’s division.
Balance at February 1, 2003 | $ | 3,606 | ||||
Goodwill impairment charge | (471 | ) | ||||
Goodwill recorded | 9 | |||||
Purchase accounting adjustments | (6 | ) | ||||
Balance at January 31, 2004 | 3,138 | |||||
Goodwill impairment charge | (904 | ) | ||||
Goodwill recorded | 6 | |||||
Purchase accounting adjustments | (49 | ) | ||||
Balance at January 29, 2005 | 2,191 | |||||
Goodwill impairment charge | — | |||||
Goodwill recorded | — | |||||
Purchase accounting adjustments | 1 | |||||
Balance at January 28, 2006 | $ | 2,192 |
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Land | $ | 1,675 | $ | 1,580 | ||||||
Buildings and land improvements | 5,142 | 4,975 | ||||||||
Equipment | 7,980 | 7,797 | ||||||||
Leasehold improvements | 3,917 | 3,804 | ||||||||
Construction-in-progress | 511 | 541 | ||||||||
Leased property under capital leases and financing obligations | 561 | 506 | ||||||||
19,786 | 19,203 | |||||||||
Accumulated depreciation and amortization | (8,421 | ) | (7,706 | ) | ||||||
Total | $ | 11,365 | $ | 11,497 |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Federal | ||||||||||||||
Current | $ | 609 | $ | 96 | $ | 177 | ||||||||
Deferred | (79 | ) | 258 | 238 | ||||||||||
530 | 354 | 415 | ||||||||||||
State and local | ||||||||||||||
Current | 42 | 25 | 18 | |||||||||||
Deferred | (5 | ) | 11 | 21 | ||||||||||
37 | 36 | 39 | ||||||||||||
Total | $ | 567 | $ | 390 | $ | 454 |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State income taxes, net of federal tax benefit | 1.6 | % | 2.6 | % | 3.4 | % | ||||||||
Non-deductible goodwill | 0.0 | % | 101.7 | % | 22.3 | % | ||||||||
Other changes, net | 0.6 | % | (2.9 | )% | 0.7 | % | ||||||||
37.2 | % | 136.4 | % | 61.4 | % |
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Current deferred tax assets: | ||||||||||
Net operating loss carryforwards | $ | 18 | $ | 19 | ||||||
Other | 42 | — | ||||||||
Total current deferred tax assets | 60 | 19 | ||||||||
Current deferred tax liabilities: | ||||||||||
Compensation related costs | (2 | ) | (19 | ) | ||||||
Insurance related costs | (107 | ) | (136 | ) | ||||||
Inventory related costs | (168 | ) | (119 | ) | ||||||
Other | — | (31 | ) | |||||||
Total current deferred tax liabilities | (277 | ) | (305 | ) | ||||||
Current deferred taxes | $ | (217 | ) | $ | (286 | ) | ||||
Long-term deferred tax assets: | ||||||||||
Compensation related costs | $ | 290 | $ | 383 | ||||||
Insurance related costs | 9 | 15 | ||||||||
Lease accounting | 106 | 60 | ||||||||
Closed store reserves | 95 | 115 | ||||||||
Net operating loss carryforwards | 26 | 79 | ||||||||
Other | 21 | 147 | ||||||||
Long-term deferred tax assets, net | 547 | 799 | ||||||||
Long-term deferred tax liabilities: | ||||||||||
Depreciation | (1,193 | ) | (1,437 | ) | ||||||
Deferred income | (197 | ) | (203 | ) | ||||||
Total long-term deferred tax liabilities | (1,390 | ) | (1,640 | ) | ||||||
Long-term deferred taxes | $ | (843 | ) | $ | (841 | ) |
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Credit Facilities | $ | — | $ | 694 | ||||||
4.95% to 8.92% Senior Notes and Debentures due through 2031 | 6,390 | 6,391 | ||||||||
5.00% to 9.95% mortgages due in varying amounts through 2017 | 179 | 218 | ||||||||
Other | 178 | 202 | ||||||||
Total debt | 6,747 | 7,505 | ||||||||
Less current portion | (527 | ) | (46 | ) | ||||||
Total long-term debt | $ | 6,220 | $ | 7,459 |
2006 | $ | 527 | ||||
2007 | 527 | |||||
2008 | 1,000 | |||||
2009 | 912 | |||||
2010 | 42 | |||||
Thereafter | 3,739 | |||||
Total debt | $ | 6,747 |
8. | FINANCIAL INSTRUMENTS |
2005 | 2004 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Pay Floating | Pay Fixed | Pay Floating | Pay Fixed | ||||||||||||||||
Notional amount | $ | 1,375 | $ | — | $ | 1,375 | $ | — | |||||||||||
Duration in years | 3.28 | — | 4.29 | — | |||||||||||||||
Average variable rate | 8.14 | % | — | 6.29 | % | — | |||||||||||||
Average fixed rate | 6.98 | % | — | 6.98 | % | — |
9. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
2005 | 2004 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||||
Cash and temporary cash investments | $ | 210 | $ | 210 | $ | 144 | $ | 144 | |||||||||||
Store deposits in-transit | $ | 488 | $ | 488 | $ | 506 | $ | 506 | |||||||||||
Long-term investments for which it is | |||||||||||||||||||
Practicable | $ | 118 | $ | 118 | $ | 89 | $ | 89 | |||||||||||
Not Practicable | $ | 1 | $ | — | $ | 15 | $ | — | |||||||||||
Debt for which it is(1) | |||||||||||||||||||
Practicable | $ | (6,747 | ) | $ | (7,038 | ) | $ | (7,505 | ) | $ | (8,304 | ) | |||||||
Not Practicable | $ | — | $ | — | $ | — | $ | — | |||||||||||
Interest Rate Protection Agreements | |||||||||||||||||||
Receive fixed swaps(2) | $ | (34 | ) | $ | (34 | ) | $ | (11 | ) | $ | (11 | ) | |||||||
Forward-starting swaps(3) | $ | (2 | ) | $ | (2 | ) | $ | — | $ | — | |||||||||
Corrugated Cardboard Price Protection Agreements(4) | $ | 3 | $ | 3 | $ | (2 | ) | $ | (2 | ) |
(1) | Excludes capital lease and lease-financing obligations. |
(2) | As of January 28, 2006, the Company maintained 10 interest rate swap agreements, with notional amounts totaling $1,375, to manage its exposure to changes in the fair value of its fixed rate debt resulting from interest rate movements by effectively converting a portion of the Company’s debt from fixed to variable rates. These agreements mature at varying times between July 2006 and January 2015. Variable rates for these agreements are based on U.S. dollar London Interbank Offered Rate (“LIBOR”). The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and is recognized over the life of the agreements as an adjustment to interest expense. These interest rate swap agreements are being accounted for as fair value hedges. As of January 28, 2006, other long-term liabilities totaling $34 were recorded to reflect the fair value of these agreements, offset by decreases in the fair value of the underlying debt. |
(3) | As of January 28, 2006, the Company maintained three forward-starting interest rate swap agreements, with notional amounts totaling $750, to manage its exposure to changes in future benchmark interest rates. A forward-starting interest rate swap is an agreement that effectively hedges future benchmark interest rates, including general corporate spreads, on debt for an established period of time. The Company entered into the forward-starting interest rate swaps in order to lock in fixed interest rates on the Company’s forecasted issuance of debt in fiscal 2007 and 2008. As of January 28, 2006, other long-term liabilities totaling $2 were recorded to reflect the fair value of these agreements. |
(4) | See Note 8 for a description of the corrugated cardboard price protection agreements. |
10. | LEASES AND LEASE-FINANCED TRANSACTIONS |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum rentals | $ | 760 | $ | 772 | $ | 744 | ||||||||
Contingent payments | 8 | 9 | 9 | |||||||||||
Sublease income | (107 | ) | (101 | ) | (96 | ) | ||||||||
$ | 661 | $ | 680 | $ | 657 |
Capital Leases | Operating Leases | Lease- Financed Transactions | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 | $ | 61 | $ | 784 | $ | 3 | ||||||||
2007 | 57 | 732 | 3 | |||||||||||
2008 | 54 | 684 | 3 | |||||||||||
2009 | 52 | 635 | 3 | |||||||||||
2010 | 51 | 588 | 4 | |||||||||||
Thereafter | 344 | 4,075 | 96 | |||||||||||
619 | $ | 7,498 | $ | 112 | ||||||||||
Less estimated executory costs included in capital leases | (3 | ) | ||||||||||||
Net minimum lease payments under capital leases | 616 | |||||||||||||
Less amount representing interest | (270 | ) | ||||||||||||
Present value of net minimum lease payments under capital leases | $ | 346 |
11. | EARNINGS PER COMMON SHARE |
For the year ended January 28, 2006 | For the year ended January 29, 2005 | For the year ended January 31, 2004 | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Earnings (Numer- ator) | Shares (Denomi- nator) | Per Share Amount | Earnings (Numer- ator) | Shares (Denomi- nator) | Per Share Amount | Earnings (Numer- ator) | Shares (Denomi- nator) | Per Share Amount | |||||||||||||||||||||||||||||||
Basic EPS | $ | 958 | 724 | $ | 1.32 | $ | (104 | ) | 736 | $ | (0.14 | ) | $ | 285 | 747 | $ | 0.38 | ||||||||||||||||||||||
Dilutive effect of stock option awards and warrants | 7 | — | 7 | ||||||||||||||||||||||||||||||||||||
Diluted EPS | $ | 958 | 731 | $ | 1.31 | $ | (104 | ) | 736 | $ | (0.14 | ) | $ | 285 | 754 | $ | 0.38 |
Shares subject to option | Weighted- average Exercise price | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Outstanding, year-end 2002 | 66.2 | $ | 16.97 | |||||||
Granted | 0.3 | $ | 16.34 | |||||||
Exercised | (4.9 | ) | $ | 7.59 | ||||||
Canceled or Expired | (1.5 | ) | $ | 21.19 | ||||||
Outstanding, year-end 2003 | 60.1 | $ | 17.62 | |||||||
Granted | 6.7 | $ | 17.28 | |||||||
Exercised | (4.2 | ) | $ | 7.29 | ||||||
Canceled or Expired | (1.1 | ) | $ | 20.99 | ||||||
Outstanding, year-end 2004 | 61.5 | $ | 18.20 | |||||||
Granted | 6.8 | $ | 16.50 | |||||||
Exercised | (7.7 | ) | $ | 9.81 | ||||||
Canceled or Expired | (1.3 | ) | $ | 20.92 | ||||||
Outstanding, year-end 2005 | 59.3 | $ | 19.03 |
Range of Exercise Prices | | Number Outstanding | | Weighted- Average Remaining Contractual Life | | Weighted- Average Exercise Price | | Options Exercisable | | Weighted- Average Exercise Price | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In years) | ||||||||||||||||||||||
$ 5.66 - $14.92 | 8.1 | 0.90 | $ | 11.70 | 8.1 | $ | 11.69 | |||||||||||||||
$14.93 - $16.38 | 7.3 | 6.86 | $ | 14.95 | 5.3 | $ | 14.94 | |||||||||||||||
$16.39 - $17.30 | 12.1 | 6.89 | $ | 16.48 | 4.8 | $ | 16.59 | |||||||||||||||
$17.31 - $22.26 | 12.7 | 5.32 | $ | 19.37 | 7.5 | $ | 20.06 | |||||||||||||||
$22.27 - $31.91 | 19.1 | 4.77 | $ | 25.10 | 15.2 | $ | 25.23 | |||||||||||||||
$ 5.66 - $31.91 | 59.3 | 5.05 | $ | 19.03 | 40.9 | $ | 19.24 |
2005 | 2004 | 2003 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual | Pro Forma | Actual | Pro Forma | Actual | Pro Forma | ||||||||||||||||||||||
Net earnings (loss) | $ | 958 | $ | 929 | $ | (104 | ) | $ | (144 | ) | $ | 285 | $ | 245 | |||||||||||||
Earnings (loss) per diluted common share | $ | 1.31 | $ | 1.27 | $ | (0.14 | ) | $ | (0.20 | ) | $ | 0.38 | $ | 0.32 |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted average expected volatility (based on historical volatility) | 30.83 | % | 30.13 | % | 30.23 | % | ||||||||
Weighted average risk-free interest rate | 4.11 | % | 3.99 | % | 3.33 | % | ||||||||
Expected term (based on historical results) | 8.7 | years | 8.7 | years | 8.5 | years |
dispute in southern California, violated Section 1 of the Sherman Act. The lawsuit seeks declarative and injunctive relief. On May 25, 2005, the Court denied a motion for a summary judgment filed by the defendants. Ralphs and the other defendants filed a notice of an interlocutory appeal to the United States Court of Appeals for the Ninth Circuit. On November 29, 2005, the appellate court dismissed the appeal. The Company continues to believe it has strong defenses against this lawsuit and is vigorously defending it. Although this lawsuit is subject to uncertainties inherent to the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of this action will have a material effect, favorable or adverse, on the Company’s financial condition, results of operations or cash flows.
the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.
Pension Benefits | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Qualified Plans | Non-Qualified Plan | Other Benefits | |||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||||
Change in benefit obligation: | |||||||||||||||||||||||||||
Benefit obligation at beginning of fiscal year | $ | 2,019 | $ | 1,741 | $ | 113 | $ | 103 | $ | 366 | $ | 363 | |||||||||||||||
Service cost | 118 | 106 | 1 | 1 | 12 | 10 | |||||||||||||||||||||
Interest cost | 113 | 109 | 6 | 6 | 19 | 21 | |||||||||||||||||||||
Plan participants’ contributions | — | — | — | — | 9 | 9 | |||||||||||||||||||||
Amendments | — | — | 3 | — | 4 | (24 | ) | ||||||||||||||||||||
Actuarial (gain) loss | 145 | 154 | (12 | ) | 7 | (22 | ) | 19 | |||||||||||||||||||
Benefits paid | (111 | ) | (91 | ) | (6 | ) | (4 | ) | (32 | ) | (32 | ) | |||||||||||||||
Benefit obligation at end of fiscal year | $ | 2,284 | $ | 2,019 | $ | 105 | $ | 113 | $ | 356 | $ | 366 | |||||||||||||||
Change in plan assets: | |||||||||||||||||||||||||||
Fair value of plan assets at beginning of fiscal year | $ | 1,458 | $ | 1,379 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Actual return on plan assets | 167 | 135 | — | — | — | — | |||||||||||||||||||||
Employer contribution | 300 | 35 | 6 | 4 | 23 | 23 | |||||||||||||||||||||
Plan participants’ contributions | — | — | — | — | 9 | 9 | |||||||||||||||||||||
Benefits paid | (111 | ) | (91 | ) | (6 | ) | (4 | ) | (32 | ) | (32 | ) | |||||||||||||||
Fair value of plan assets at end of fiscal year | $ | 1,814 | $ | 1,458 | $ | — | $ | — | $ | — | $ | — |
Pension Benefits | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Qualified Plans | Non-Qualified Plan | Other Benefits | |||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||||
Net liability recognized at end of fiscal year: | |||||||||||||||||||||||||||
Funded status at end of year | $ | (470 | ) | $ | (561 | ) | $ | (105 | ) | $ | (113 | ) | $ | (356 | ) | $ | (366 | ) | |||||||||
Unrecognized actuarial (gain) loss | 541 | 457 | 27 | 41 | 23 | 45 | |||||||||||||||||||||
Unrecognized prior service cost | 9 | 11 | 8 | 11 | (49 | ) | (60 | ) | |||||||||||||||||||
Unrecognized net transition (asset) obligation | (1 | ) | — | 1 | — | 1 | 1 | ||||||||||||||||||||
Net liability recognized at end of fiscal year | $ | 79 | $ | (93 | ) | $ | (69 | ) | $ | (61 | ) | $ | (381 | ) | $ | (380 | ) | ||||||||||
Prepaid benefit cost | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Accrued benefit liability | (217 | ) | (273 | ) | (112 | ) | (103 | ) | (381 | ) | (380 | ) | |||||||||||||||
Additional minimum liability | (80 | ) | (119 | ) | 12 | (4 | ) | — | — | ||||||||||||||||||
Intangible asset | 10 | 13 | 8 | 11 | — | — | |||||||||||||||||||||
Accumulated other comprehensive loss | 366 | 286 | 23 | 35 | — | — | |||||||||||||||||||||
Net liability recognized at end of fiscal year | $ | 79 | $ | (93 | ) | $ | (69 | ) | $ | (61 | ) | $ | (381 | ) | $ | (380 | ) |
Pension Benefits | Other Benefits | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Weighted average assumptions | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||
Discount rate – Benefit obligation | 5.70 | % | 5.75 | % | — | 5.70 | % | 5.75 | % | — | |||||||||||||||||
Discount rate – Net periodic benefit cost | 5.75 | % | 6.25 | % | 6.75 | % | 5.75 | % | 6.25 | % | 6.75 | % | |||||||||||||||
Expected return on plan assets | 8.50 | % | 8.50 | % | 8.50 | % | |||||||||||||||||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % |
Pension Benefits | |||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Qualified Plans | Non-Qualified Plan | Other Benefits | |||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||
Components of net periodic benefit cost: | |||||||||||||||||||||||||||||||||||||||
Service cost | $ | 118 | $ | 106 | $ | 99 | $ | 1 | $ | 1 | $ | 1 | $ | 12 | $ | 10 | $ | 8 | |||||||||||||||||||||
Interest cost | 113 | 109 | 101 | 6 | 6 | 6 | 19 | 21 | 21 | ||||||||||||||||||||||||||||||
Expected return on plan assets | (130 | ) | (121 | ) | (122 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||
Amortization of: | |||||||||||||||||||||||||||||||||||||||
Transition asset | (1 | ) | (1 | ) | (1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||
Prior service cost | 3 | 3 | 3 | 2 | 2 | 2 | (7 | ) | (5 | ) | (5 | ) | |||||||||||||||||||||||||||
Actuarial (gain) loss | 24 | 9 | — | 2 | 3 | 3 | — | — | — | ||||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 127 | $ | 105 | $ | 80 | $ | 11 | $ | 12 | $ | 12 | $ | 24 | $ | 26 | $ | 24 |
Qualified Plans | Non-Qualified Plan | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | ||||||||||||||||
PBO at end of fiscal year | $ | 2,284 | $ | 2,019 | $ | 105 | $ | 113 | |||||||||||
ABO at end of fiscal year | $ | 2,111 | $ | 1,851 | $ | 100 | $ | 106 | |||||||||||
Fair value of plan assets at end of year | $ | 1,814 | $ | 1,458 | $ | — | $ | — |
Pension Benefits | Other Benefits | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
2006 | $ | 139 | $ | 21 | ||||||
2007 | $ | 147 | $ | 22 | ||||||
2008 | $ | 154 | $ | 23 | ||||||
2009 | $ | 162 | $ | 24 | ||||||
2010 | $ | 161 | $ | 25 | ||||||
2011–2015 | $ | 978 | $ | 141 |
Target allocations | Actual allocations | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2005 | 2004 | |||||||||||||
Pension plan asset allocation, as of December 31: | |||||||||||||||
Domestic equity securities | 38.0 | % | 36.1 | % | 39.5 | % | |||||||||
International equity securities | 23.0 | 25.2 | 25.1 | ||||||||||||
Investment grade debt securities | 18.0 | 17.8 | 18.6 | ||||||||||||
High yield debt securities | 8.0 | 7.6 | 8.2 | ||||||||||||
Private equity | 4.5 | 4.2 | 3.8 | ||||||||||||
Hedge funds | 4.0 | 3.8 | 2.3 | ||||||||||||
Real estate | 1.5 | 1.1 | 0.5 | ||||||||||||
Other | 3.0 | 4.3 | 2.0 | ||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % |
1% Point Increase | 1% Point Decrease | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
Effect on total of service and interest cost components | $ | 4 | $ | (3 | ) | |||||
Effect on postretirement benefit obligation | $ | 41 | $ | (35 | ) |
concludes that operating segments that do not meet the quantitative thresholds can be aggregated on if aggregation is consistent with the objectives and basic principles of SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, the segments have similar economic characteristics, and the segments share a majority of the aggregation criteria listed in (a) - (e) of paragraph 17 of SFAS No. 131. EITF No. 04-10 became effective for fiscal years ending after September 15, 2005, and did not have a material effect on our Consolidated Financial Statements.
Balance Sheets
As of January 28, 2006
The Kroger Co. | Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current assets | ||||||||||||||||||
Cash | $ | 39 | $ | 171 | $ | — | $ | 210 | ||||||||||
Store deposits in-transit | 46 | 442 | — | 488 | ||||||||||||||
Receivables | 1,088 | 526 | (928 | ) | 686 | |||||||||||||
Net inventories | 460 | 4,026 | — | 4,486 | ||||||||||||||
Prepaid and other current assets | 355 | 241 | — | 596 | ||||||||||||||
Total current assets | 1,988 | 5,406 | (928 | ) | 6,466 | |||||||||||||
Property, plant and equipment, net | 1,255 | 10,110 | — | 11,365 | ||||||||||||||
Goodwill, net | 56 | 2,136 | — | 2,192 | ||||||||||||||
Other assets | (509 | ) | 968 | — | 459 | |||||||||||||
Investment in and advances to subsidiaries | 10,808 | — | (10,808 | ) | — | |||||||||||||
Total Assets | $ | 13,598 | $ | 18,620 | $ | (11,736 | ) | $ | 20,482 | |||||||||
Current liabilities | ||||||||||||||||||
Current portion of long-term debt including obligations under capital leases and financing obligations | $ | 554 | $ | — | $ | — | $ | 554 | ||||||||||
Accounts payable | 263 | 4,215 | (928 | ) | 3,550 | |||||||||||||
Other current liabilities | (151 | ) | 2,762 | — | 2,611 | |||||||||||||
Total current liabilities | 666 | 6,977 | (928 | ) | 6,715 | |||||||||||||
Long-term debt including obligations under capital leases and financing obligations | ||||||||||||||||||
Face value long-term debt including obligations under capital leases and financing obligations | 6,651 | — | — | 6,651 | ||||||||||||||
Adjustment to reflect fair value interest rate hedges | 27 | — | — | 27 | ||||||||||||||
Long-term debt including obligations under capital leases and financing obligations | 6,678 | — | — | 6,678 | ||||||||||||||
Other long-term liabilities | 1,864 | 835 | — | 2,699 | ||||||||||||||
Total Liabilities | 9,208 | 7,812 | (928 | ) | 16,092 | |||||||||||||
Shareowners’ Equity | 4,390 | 10,808 | (10,808 | ) | 4,390 | |||||||||||||
Total Liabilities and Shareowners’ equity | $ | 13,598 | $ | 18,620 | $ | (11,736 | ) | $ | 20,482 |
Balance Sheets
As of January 29, 2005
The Kroger Co. | Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current assets | ||||||||||||||||||
Cash | $ | 32 | $ | 112 | $ | — | $ | 144 | ||||||||||
Store deposits in-transit | 20 | 486 | — | 506 | ||||||||||||||
Receivables | 583 | 747 | (502 | ) | 828 | |||||||||||||
Net inventories | 415 | 3,941 | — | 4,356 | ||||||||||||||
Prepaid and other current assets | 275 | 297 | — | 572 | ||||||||||||||
Total current assets | 1,325 | 5,583 | (502 | ) | 6,406 | |||||||||||||
Property, plant and equipment, net | 1,277 | 10,220 | — | 11,497 | ||||||||||||||
Goodwill, net | 20 | 2,171 | — | 2,191 | ||||||||||||||
Other assets | 642 | (245 | ) | — | 397 | |||||||||||||
Investment in and advances to subsidiaries | 10,668 | — | (10,668 | ) | — | |||||||||||||
Total assets | $ | 13,932 | $ | 17,729 | $ | (11,170 | ) | $ | 20,491 | |||||||||
Current liabilities | ||||||||||||||||||
Current portion of long-term debt including obligations under capital leases and financing obligations | $ | 71 | $ | — | $ | — | $ | 71 | ||||||||||
Accounts payable | 188 | 3,912 | (502 | ) | 3,598 | |||||||||||||
Other current liabilities | 319 | 2,347 | — | 2,666 | ||||||||||||||
Total current liabilities | 578 | 6,259 | (502 | ) | 6,335 | |||||||||||||
Long-term debt including obligations under capital leases and financing obligations | ||||||||||||||||||
Face value long-term debt including obligations under capital leases and financing obligations | 7,797 | 33 | — | 7,830 | ||||||||||||||
Adjustment to reflect fair value interest rate hedges | 70 | — | — | 70 | ||||||||||||||
Long-term debt including obligations under capital leases and financing obligations | 7,867 | 33 | — | 7,900 | ||||||||||||||
Other long-term liabilities | 1,868 | 769 | — | 2,637 | ||||||||||||||
Total liabilities | 10,313 | 7,061 | (502 | ) | 16,872 | |||||||||||||
Shareowners’ Equity | 3,619 | 10,668 | (10,668 | ) | 3,619 | |||||||||||||
Total liabilities and shareowners’ equity | $ | 13,932 | $ | 17,729 | $ | (11,170 | ) | $ | 20,491 |
Statements of Operations
For the Year ended January 28, 2006
The Kroger Co. | Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 8,693 | $ | 52,822 | $ | (962 | ) | $ | 60,553 | |||||||||
Merchandise costs, including warehousing and transportation | 6,502 | 40,021 | (958 | ) | 45,565 | |||||||||||||
Operating, general and administrative | 1,657 | 9,368 | 2 | 11,027 | ||||||||||||||
Rent | 165 | 502 | (6 | ) | 661 | |||||||||||||
Depreciation and amortization | 139 | 1,126 | — | 1,265 | ||||||||||||||
Operating profit | 230 | 1,805 | — | 2,035 | ||||||||||||||
Interest expense | 498 | 12 | — | 510 | ||||||||||||||
Equity in earnings of subsidiaries | 1,164 | — | (1,164 | ) | — | |||||||||||||
Earnings (loss) before tax expense | 896 | 1,793 | (1,164 | ) | 1,525 | |||||||||||||
Tax expense (benefit) | (62 | ) | 629 | — | 567 | |||||||||||||
Net earnings (loss) | $ | 958 | $ | 1,164 | $ | (1,164 | ) | $ | 958 |
Statements of Operations
For the Year ended January 29, 2005
The Kroger Co. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 8,003 | $ | 49,432 | $ | 41 | $ | (1,042 | ) | $ | 56,434 | |||||||||||
Merchandise costs, including warehousing and transportation | 6,420 | 36,721 | — | (1,001 | ) | 42,140 | ||||||||||||||||
Operating, general and administrative | 1,126 | 9,494 | (9 | ) | — | 10,611 | ||||||||||||||||
Rent | 194 | 527 | — | (41 | ) | 680 | ||||||||||||||||
Depreciation and amortization | 110 | 1,142 | 4 | — | 1,256 | |||||||||||||||||
Goodwill impairment charge | — | 904 | — | — | 904 | |||||||||||||||||
Operating profit | 153 | 644 | 46 | — | 843 | |||||||||||||||||
Interest expense | 529 | 6 | 22 | — | 557 | |||||||||||||||||
Equity in earnings of subsidiaries | 430 | — | — | (430 | ) | — | ||||||||||||||||
Earnings (loss) before tax expense | 54 | 638 | 24 | (430 | ) | 286 | ||||||||||||||||
Tax expense (benefit) | 158 | 231 | 1 | — | 390 | |||||||||||||||||
Net earnings (loss) | $ | (104 | ) | $ | 407 | $ | 23 | $ | (430 | ) | $ | (104 | ) |
Statements of Operations
For the Year ended January 31, 2004
The Kroger Co. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 6,935 | $ | 47,752 | $ | 45 | $ | (941 | ) | $ | 53,791 | |||||||||||
Merchandise costs, including warehousing and transportation | 5,583 | 34,943 | — | (889 | ) | 39,637 | ||||||||||||||||
Operating, general and administrative | 1,305 | 9,060 | (11 | ) | — | 10,354 | ||||||||||||||||
Rent | 168 | 541 | — | (52 | ) | 657 | ||||||||||||||||
Depreciation and amortization | 91 | 1,114 | 4 | — | 1,209 | |||||||||||||||||
Goodwill impairment charge | — | 471 | — | — | 471 | |||||||||||||||||
Asset impairment charge | — | 120 | — | — | 120 | |||||||||||||||||
Operating profit (loss) | (212 | ) | 1,503 | 52 | — | 1,343 | ||||||||||||||||
Interest expense | 568 | 15 | 21 | — | 604 | |||||||||||||||||
Equity in earnings of subsidiaries | 939 | — | — | (939 | ) | — | ||||||||||||||||
Earnings (loss) before tax expense | 159 | 1,488 | 31 | (939 | ) | 739 | ||||||||||||||||
Tax expense (benefit) | (126 | ) | 571 | 9 | — | 454 | ||||||||||||||||
Net earnings (loss) | $ | 285 | $ | 917 | $ | 22 | $ | (939 | ) | $ | 285 |
Statements of Cash Flows
For the Year ended January 28, 2006
The Kroger Co. | Guarantor Subsidiaries | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by operating activities | $ | 1,171 | $ | 1,021 | $ | 2,192 | ||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (188 | ) | (1,118 | ) | (1,306 | ) | ||||||||
Other | 11 | 16 | 27 | |||||||||||
Net cash used by investing activities | (177 | ) | (1,102 | ) | (1,279 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of long-term debt | 14 | — | 14 | |||||||||||
Reductions in long-term debt | (764 | ) | (33 | ) | (797 | ) | ||||||||
Proceeds from issuance of capital stock | 78 | — | 78 | |||||||||||
Capital stock reacquired | (252 | ) | — | (252 | ) | |||||||||
Other | 77 | 33 | 110 | |||||||||||
Net change in advances to subsidiaries | (140 | ) | 140 | — | ||||||||||
Net cash provided (used) by financing activities | (987 | ) | 140 | (847 | ) | |||||||||
Net (decrease) increase in cash and temporary cash investments | 7 | 59 | 66 | |||||||||||
Cash and temporary investments: | ||||||||||||||
Beginning of year | 32 | 112 | 144 | |||||||||||
End of year | $ | 39 | $ | 171 | $ | 210 |
Statements of Cash Flows
For the Year ended January 29, 2005
The Kroger Co. | Guarantor Subsidiaries | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by operating activities | $ | (890 | ) | $ | 3,220 | $ | 2,330 | |||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (161 | ) | (1,473 | ) | (1,634 | ) | ||||||||
Other | 22 | 4 | 26 | |||||||||||
Net cash used by investing activities | (139 | ) | (1,469 | ) | (1,608 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of long-term debt | 616 | — | 616 | |||||||||||
Reductions in long-term debt | (724 | ) | (286 | ) | (1,010 | ) | ||||||||
Proceeds from issuance of capital stock | 25 | — | 25 | |||||||||||
Capital stock reacquired | (319 | ) | — | (319 | ) | |||||||||
Other | (27 | ) | (22 | ) | (49 | ) | ||||||||
Net change in advances to subsidiaries | 1,464 | (1,464 | ) | — | ||||||||||
Net cash provided (used) by financing activities | 1,035 | (1,772 | ) | (737 | ) | |||||||||
Net (decrease) increase in cash and temporary cash investments | 6 | (21 | ) | (15 | ) | |||||||||
Cash and temporary investments: | ||||||||||||||
Beginning of year | 26 | 133 | 159 | |||||||||||
End of year | $ | 32 | $ | 112 | $ | 144 |
Statements of Cash Flows
For the Year ended January 31, 2004
The Kroger Co. | Guarantor Subsidiaries | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by operating activities | $ | 385 | $ | 1,830 | $ | 2,215 | ||||||||
Cash flows from investing activities: | ||||||||||||||
Capital expenditures | (176 | ) | (1,824 | ) | (2,000 | ) | ||||||||
Other | (59 | ) | 33 | (26 | ) | |||||||||
Net cash used by investing activities | (235 | ) | (1,791 | ) | (2,026 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of long-term debt | 247 | 100 | 347 | |||||||||||
Reductions in long-term debt | (347 | ) | (140 | ) | (487 | ) | ||||||||
Proceeds from issuance of capital stock | 39 | — | 39 | |||||||||||
Proceeds from interest rate swap terminations | 114 | — | 114 | |||||||||||
Capital stock reacquired | (301 | ) | — | (301 | ) | |||||||||
Other | (23 | ) | 110 | 87 | ||||||||||
Net change in advances to subsidiaries | 104 | (104 | ) | — | ||||||||||
Net cash provided (used) by financing activities | (167 | ) | (34 | ) | (201 | ) | ||||||||
Net (decrease) increase in cash and temporary cash investments | (17 | ) | 5 | (12 | ) | |||||||||
Cash and temporary investments: | ||||||||||||||
Beginning of year | 43 | 128 | 171 | |||||||||||
End of year | $ | 26 | $ | 133 | $ | 159 |
Quarter | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | | First (16 Weeks) | | Second (12 Weeks) | | Third (12 Weeks) | | Fourth (12 Weeks) | | Total Year (52 Weeks) | ||||||||||||
Sales | $ | 17,948 | $ | 13,865 | $ | 14,020 | $ | 14,720 | $ | 60,553 | ||||||||||||
Net earnings | $ | 294 | $ | 196 | $ | 185 | $ | 283 | $ | 958 | ||||||||||||
Net earnings per basic common share | $ | 0.40 | $ | 0.27 | $ | 0.26 | $ | 0.39 | $ | 1.32 | ||||||||||||
Average number of shares used in basic calculation | 727 | 722 | 724 | 724 | 724 | |||||||||||||||||
Net earnings per diluted common share | $ | 0.40 | $ | 0.27 | $ | 0.25 | $ | 0.39 | $ | 1.31 | ||||||||||||
Average number of shares used in diluted calculation | 732 | 730 | 732 | 730 | 731 |
2004 | | First (16 Weeks) | | Second (12 Weeks) | | Third (12 Weeks) | | Fourth (12 Weeks) | | Total Year (52 Weeks) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales | $ | 16,905 | $ | 12,980 | $ | 12,854 | $ | 13,695 | $ | 56,434 | ||||||||||||
Net earnings (loss) | $ | 263 | $ | 142 | $ | 143 | $ | (652 | ) | $ | (104 | ) | ||||||||||
Net earnings (loss) per basic common share | $ | 0.35 | $ | 0.19 | $ | 0.19 | $ | (0.89 | ) | $ | (0.14 | ) | ||||||||||
Average number of shares used in basic calculation | 741 | 737 | 736 | 730 | 736 | |||||||||||||||||
Net earnings (loss) per diluted common share | $ | 0.35 | $ | 0.19 | $ | 0.19 | $ | (0.89 | ) | $ | (0.14 | ) | ||||||||||
Average number of shares used in diluted calculation | 749 | 744 | 742 | 730 | 736 |
Employee Investment Plans Division
P. O. Box 1089
Newark, New Jersey 07101
Toll Free 1-800-872-3307
Written Shareholder inquiries: | Certificate transfer and address changes: | |||||
---|---|---|---|---|---|---|
The Bank of New York | The Bank of New York | |||||
Shareholder Relations Department | Receive and Deliver Department | |||||
P.O. Box 11258 | P.O. Box 11002 | |||||
Church Street Station | Church Street Station | |||||
New York, New York 10286 | New York, New York 10286 |
Chief Executive Officer
and General Counsel
Chief Information Officer
Chief Operating Officer
Chief Financial Officer
(50% owned by Kroger)
Supermarket Petroleum
The Kroger Co. | Three Ways to Vote VOTE BY INTERNET OR TELEPHONE OR MAIL 24 Hours a Day - 7 Days a Week It's Fast and Convenient |
INTERNET | OR | TELEPHONE | OR | |||||
https://www.proxyvotenow.com/krc |
1-866-388-1533 | |||||||
• Go to the website address listed above.
• Have your proxy card ready.
• Follow the simple instructions that appear on your computer screen. |
• Use any touch-tone telephone.
• Have your proxy card ready.
• Follow the simple recorded instructions. |
• Mark, sign and date your proxy card.
• Detach your proxy card.
• Return your proxy card in the postage-paid envelope provided. |
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. If you have submitted your proxy by the Internet or telephone there is no need for you to mail back your proxy card.
For shareholders who have elected to receive The Kroger Co. Proxy Statement and Annual Report electronically, you can now view the 2006 Annual Meeting materials on the Internet by pointing your browser tohttp://www.kroger.com/reports. | ||||
NOTE: Admission Ticket printed on reverse is required for admission to Annual Meeting. |
1-866-388-1533 CALL TOLL-FREE TO VOTE |
o | THE INTERNET AND TELEPHONE VOTING FACILITIES WILL BE AVAILABLE UNTIL 5:00 P.M. E.D.T. ON JUNE 21, 2006. vDETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY THE INTERNET OR TELEPHONEv |
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. | x Votes MUST be indicated |
The Board of Directors recommends a vote FOR the nominees and FOR Proposals 2, 3, 4, 5, 6 and 7. | ||||||||||||||||||||||
1. ELECTION OF DIRECTORS | ||||||||||||||||||||||
FOR all nominees o listed below | WITHHOLD AUTHORITY to vote o for all nominees listed below | *EXCEPTIONS o | ||||||||||||||||||||
Nominees: | 01 Reuben V. Anderson, 02 Don W. McGeorge, 03 W. Rodney McMullen, 04 Clyde R. Moore, and 05 Steven R. Rogel. | |||||||||||||||||||||
(INSTRUCTION: To withhold authority to vote for any individual nominee mark the “Exceptions” box and write that nominee’s name on the space provided below.) | ||||||||||||||||||||||
*EXCEPTIONS____________________________________________ |
FOR | AGAINST | ABSTAIN | ||||||||||
2. Annual Election of All Directors. | o | o | o | |||||||||
3. Elimination of Cumulative Voting For Directors. | o | o | o | |||||||||
4. Elimination of Supermajority Requirement for Some Transactions. | o | o | o | |||||||||
5. Opt Out of the Ohio Control Share Acquisition Statute. | o | o | o | |||||||||
6. Rules of Conduct for Shareholder Meetings; Meetings outside of Cincinnati. | o | o | o | |||||||||
7. Approval of PricewaterhouseCoopers LLP, as auditors. | o | o | o | |||||||||
The Board of Directors recommends a vote AGAINST Proposals 8 and 9. | ||||||||||||
8. Approve shareholder proposal, if properly presented, to recommend progress reports on suppliers’ controlled-atmosphere killing of chickens. | o | o | o | |||||||||
9. Approve shareholder proposal, if properly presented, to recommend the preparation of sustainability report. | o | o | o |
S C A N L I N E
| ||||||
Please sign below exactly as name appears hereon. Joint owners should each sign. Where applicable, indicate position or representative capacity. |
Date | Share Owner sign here | Co-Owner sign here |
ADMISSION TICKET
You are cordially invited to attend the annual meeting of shareholders of The Kroger Co. to be held on Thursday, June 22, 2006 at 11:00 a.m. E.D.T. at The Music Hall Ballroom, Music Hall, 1243 Elm Street, Cincinnati, Ohio.
You should present this admission ticket in order to gain admittance to the meeting. This ticket admits only the shareholder listed on the reverse side and is not transferable. If your shares are held in the name of a broker, trust, bank or other nominee, you should bring with you a proxy or letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares.
v FOLD AND DETACH HEREv
THE KROGER CO.
P R O X Y
This Proxy is Solicited on Behalf of the Board of Directors
for the Annual Meeting to be Held June 22, 2006
The undersigned hereby appoints each of DAVID B. DILLON, STEVEN R. ROGEL, and JOHN T. LA MACCHIA, or if more than one is present and acting then a majority thereof, proxies, with full power of substitution and revocation, to vote the common shares of The Kroger Co. that the undersigned is entitled to vote at the annual meeting of shareholders, and at any adjournment thereof, with all the powers the undersigned would possess if personally present, including authority to vote on the matters shown on the reverse in the manner directed, and upon any other matter that properly may come before the meeting. The undersigned hereby revokes any proxy previously given to vote those shares at the meeting or at any adjournment.
The proxies are directed to vote as specified on the reverse hereof and in their discretion on all other matters coming before the meeting. Except as specified to the contrary on the reverse, the shares represented by this proxy will be voted FOR all nominees listed, including the discretion to cumulate votes, FOR Proposals 2, 3, 4, 5, 6 and 7 and AGAINST Proposals 8 and 9.
(continued, and to be signed, on other side)
If you wish to vote in accordance with the recommendations of the Board of Directors, all you need do is sign and return this card. The Proxy Committee cannot vote your shares unless you sign and return the card or vote your proxy by Internet or telephone. | THE KROGER CO. P.O. BOX 11382 NEW YORK, N.Y. 10203-0382 | To change your address, please mark this box. | o | |||||
To consent to future access of the annual reports and proxy materials electronically via the Internet, please mark this box. I understand that the Company may no longer distribute printed materials to me for any future shareholder meeting until such consent is revoked. I understand that I may revoke my consent at any time. | o | To include any comments, please mark this box. | o |