CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Nov. 07, 2009 | 3 Months Ended
Nov. 08, 2008 | 9 Months Ended
Nov. 07, 2009 | 9 Months Ended
Nov. 08, 2008 |
Sales | $17,669 | $17,615 | $58,203 | $58,853 |
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below | 13,666 | 13,545 | 44,583 | 45,456 |
Operating, general and administrative | 3,140 | 3,104 | 10,263 | 9,998 |
Rent | 152 | 152 | 502 | 510 |
Depreciation and amortization | 356 | 335 | 1,157 | 1,095 |
Goodwill impairment charge | 1,113 | 1,113 | ||
Operating profit (loss) | (758) | 479 | 585 | 1,794 |
Interest expense | 105 | 106 | 383 | 369 |
Earnings (loss) before income tax expense | (863) | 373 | 202 | 1,425 |
Income tax expense | 13 | 136 | 396 | 522 |
Net earnings (loss) including noncontrolling interests | (876) | 237 | (194) | 903 |
Net earnings (loss) attributable to noncontrolling interests | (1) | (9) | 3 | |
Net earnings (loss) attributable to The Kroger Co. | ($875) | $237 | ($185) | $900 |
Net earnings (loss) attributable to The Kroger Co. per basic common share (in dollars per share) | -1.35 | 0.36 | -0.29 | 1.37 |
Average number of common shares used in basic calculation (in shares) | 646 | 649 | 647 | 653 |
Net earnings (loss) attributable to The Kroger Co. per diluted common share (in dollars per share) | -1.35 | 0.36 | -0.29 | 1.36 |
Average number of common shares used in diluted calculation (in shares) | 646 | 655 | 647 | 659 |
Dividends declared per common share (in dollars per share) | 0.095 | 0.09 | 0.275 | 0.27 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Nov. 07, 2009
| Jan. 31, 2009
|
Current assets | ||
Cash and temporary cash investments | $517 | $263 |
Deposits in-transit | 669 | 631 |
Receivables | 817 | 944 |
FIFO inventory | 6,093 | 5,659 |
LIFO credit | (848) | (800) |
Prefunded employee benefits | 300 | |
Prepaid and other current assets | 282 | 209 |
Total current assets | 7,530 | 7,206 |
Property, plant and equipment, net | 13,818 | 13,161 |
Goodwill | 1,158 | 2,271 |
Other assets | 578 | 573 |
Total Assets | 23,084 | 23,211 |
Current liabilities | ||
Current portion of long-term debt including obligations under capital leases and financing obligations | 578 | 558 |
Trade accounts payable | 4,169 | 3,822 |
Accrued salaries and wages | 783 | 828 |
Deferred income taxes | 344 | 344 |
Other current liabilities | 2,290 | 2,077 |
Total current liabilities | 8,164 | 7,629 |
Long-term debt including obligations under capital leases and financing obligations | ||
Face-value long-term debt including obligations under capital leases and financing obligations | 7,421 | 7,460 |
Adjustment to reflect fair-value interest rate hedges | 55 | 45 |
Long-term debt including obligations under capital leases and financing obligations | 7,476 | 7,505 |
Deferred income taxes | 436 | 384 |
Pension and postretirement benefit obligations | 914 | 1,174 |
Other long-term liabilities | 1,242 | 1,248 |
Total Liabilities | 18,232 | 17,940 |
SHAREOWNERS' EQUITY | ||
Preferred stock, $100 par per share, 5 shares authorized and unissued | 0 | 0 |
Common stock, $1 par per share, 1,000 shares authorized; 957 shares issued in 2009 and 955 shares issued in 2008 | 957 | 955 |
Additional paid-in capital | 3,339 | 3,266 |
Accumulated other comprehensive loss | (491) | (495) |
Accumulated earnings | 7,123 | 7,489 |
Common stock in treasury, at cost, 311 shares in 2009 and 306 shares in 2008 | (6,145) | (6,039) |
Total Shareowners' Equity - The Kroger Co. | 4,783 | 5,176 |
Noncontrolling interests | 69 | 95 |
Total Equity | 4,852 | 5,271 |
Total Liabilities and Equity | $23,084 | $23,211 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
Share data in Millions, except Per Share data | Nov. 07, 2009
| Jan. 31, 2009
|
CONSOLIDATED BALANCE SHEETS | ||
Preferred stock, par value per share (in dollars per share) | $100 | $100 |
Preferred stock, shares authorized (in shares) | 5 | 5 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Common stock, par value per share (in dollars per share) | $1 | $1 |
Common stock, shares authorized (in shares) | 1,000 | 1,000 |
Common stock, shares issued (in shares) | 957 | 955 |
Common stock in treasury, shares (in shares) | 311 | 306 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 9 Months Ended
Nov. 07, 2009 | 9 Months Ended
Nov. 08, 2008 |
Cash Flows From Operating Activities: | ||
Net earnings (loss) including noncontrolling interests | ($194) | $903 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
Depreciation and amortization | 1,157 | 1,095 |
Goodwill impairment charge | 1,113 | |
Asset impairment charge | 44 | 21 |
LIFO charge | 48 | 155 |
Stock-based employee compensation | 64 | 69 |
Expense for Company-sponsored pension plans | 24 | 35 |
Deferred income taxes | 51 | 147 |
Other | 15 | 7 |
Changes in operating assets and liabilities net of effects from acquisitions of businesses: | ||
Deposits in-transit | (38) | 66 |
Receivables | (4) | (20) |
Inventories | (434) | (669) |
Prepaid expenses | 228 | 302 |
Trade accounts payable | 351 | 293 |
Accrued expenses | (1) | 16 |
Income taxes receivable and payable | 229 | (25) |
Contribution to Company-sponsored pension plans | (265) | (20) |
Other | (13) | (18) |
Net cash provided by operating activities | 2,375 | 2,357 |
Cash Flows From Investing Activities: | ||
Payments for capital expenditures | (1,766) | (1,613) |
Proceeds from sale of assets | 7 | 51 |
Payments for acquisitions | (23) | (80) |
Other | (13) | (10) |
Net cash used by investing activities | (1,795) | (1,652) |
Cash Flows From Financing Activities: | ||
Proceeds from issuance of long-term debt | 505 | 778 |
Dividends paid | (176) | (168) |
Payments on long-term debt | (426) | (1,017) |
Borrowing (payments) on credit facility | (129) | 133 |
Excess tax benefits on stock-based awards | 2 | 13 |
Proceeds from issuance of capital stock | 30 | 164 |
Treasury stock purchases | (130) | (626) |
Decrease in book overdrafts | (4) | (19) |
Other | 2 | 10 |
Net cash used by financing activities | (326) | (732) |
Net increase (decrease) in cash and temporary cash investments | 254 | (27) |
Cash from Consolidated Variable Interest Entity | 65 | |
Cash and temporary cash investments: | ||
Beginning of year | 263 | 242 |
End of quarter | 517 | 280 |
Reconciliation of capital expenditures: | ||
Payments for capital expenditures | (1,766) | (1,613) |
Changes in construction-in-progress payables | (65) | (106) |
Total capital expenditures | (1,831) | (1,719) |
Disclosure of cash flow information: | ||
Cash paid during the year for interest | 434 | 404 |
Cash paid during the year for income taxes | $119 | $444 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (USD $) | |||||||
In Millions | Common Stock
| Additional Paid-In Capital
| Treasury Stock
| Accumulated Other Comprehensive Gain (Loss)
| Accumulated Earnings
| Noncontrolling Interest
| Total
|
Beginning balance (in shares) at Feb. 02, 2008 | 947 | 284 | |||||
Beginning balance at Feb. 02, 2008 | $947 | $3,031 | ($5,422) | ($122) | $6,480 | $7 | $4,921 |
Issuance of common stock: | |||||||
Stock options exercised | 7 | 155 | 2 | 164 | |||
Stock options exercised (in shares) | 7 | ||||||
Restricted stock issued | (43) | 27 | (16) | ||||
Restricted stock issued (in shares) | (1) | ||||||
Treasury stock activity: | |||||||
Treasury stock purchases, at cost | (448) | (448) | |||||
Treasury stock purchases, at cost (in shares) | 17 | ||||||
Stock options exchanged | (177) | (177) | |||||
Stock options exchanged (in shares) | 6 | ||||||
Tax benefits from exercise of stock options | 33 | 33 | |||||
Share-based employee compensation | 69 | 69 | |||||
Other comprehensive gain net of income tax of $2 in 2009 and $5 in 2008 | 7 | 7 | |||||
Purchase of non-wholly owned entity | 97 | 97 | |||||
Other | 12 | (12) | (11) | (11) | |||
Cash dividends declared ($0.275 per common share in 2009 and $0.27 per common share in 2008) | (177) | (177) | |||||
Net earnings (loss) including noncontrolling interests | 900 | 3 | 903 | ||||
Ending Balance at Nov. 08, 2008 | 954 | 3,257 | (6,030) | (115) | 7,203 | 96 | 5,365 |
Ending Balance (in shares) at Nov. 08, 2008 | 954 | 306 | |||||
Treasury stock activity: | |||||||
Beginning balance (in shares) at Jan. 31, 2009 | 955 | 306 | |||||
Beginning balance at Jan. 31, 2009 | 955 | 3,266 | (6,039) | (495) | 7,489 | 95 | 5,271 |
Issuance of common stock: | |||||||
Stock options exercised | 2 | 27 | 1 | 30 | |||
Stock options exercised (in shares) | 2 | ||||||
Restricted stock issued | (56) | 40 | (16) | ||||
Restricted stock issued (in shares) | (1) | ||||||
Treasury stock activity: | |||||||
Treasury stock purchases, at cost | (106) | (106) | |||||
Treasury stock purchases, at cost (in shares) | 5 | ||||||
Stock options exchanged | (24) | (24) | |||||
Stock options exchanged (in shares) | 1 | ||||||
Tax benefits from exercise of stock options | 20 | 20 | |||||
Share-based employee compensation | 64 | 64 | |||||
Other comprehensive gain net of income tax of $2 in 2009 and $5 in 2008 | 4 | 4 | |||||
Other | 18 | (17) | (17) | (16) | |||
Cash dividends declared ($0.275 per common share in 2009 and $0.27 per common share in 2008) | (181) | (181) | |||||
Net earnings (loss) including noncontrolling interests | (185) | (9) | (194) | ||||
Ending Balance at Nov. 07, 2009 | $957 | $3,339 | ($6,145) | ($491) | $7,123 | $69 | $4,852 |
Ending Balance (in shares) at Nov. 07, 2009 | 957 | 311 |
1_CONSOLIDATED STATEMENTS OF CH
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Parenthetical) (USD $) | ||
In Millions, except Per Share data | 9 Months Ended
Nov. 07, 2009 | 9 Months Ended
Nov. 08, 2008 |
Other comprehensive gain, income tax | $2 | $5 |
Cash dividends declared per common share (in dollars per share) | 0.275 | 0.27 |
ACCOUNTING POLICIES
ACCOUNTING POLICIES | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
ACCOUNTING POLICIES | 1. ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries, and the Variable Interest Entities (VIE) in which the Company is the primary beneficiary. The January31, 2009 balance sheet was derived from audited financial statements, adjusted for the adoption of the new standards for the Companys noncontrolling interest in a subsidiary and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (GAAP). Significant intercompany transactions and balances have been eliminated. References to the Company in these Consolidated Financial Statements mean the consolidated company. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rulesand regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the Annual Report on Form10-K of The Kroger Co. for the fiscal year ended January31, 2009. The unaudited information in the Consolidated Financial Statements for the third quarter and three quarters ended November7, 2009 and November8, 2008 includes the results of operations of the Company for the 40-week periods then ended. In the first quarter of 2009, the Company adopted the new standards for a parents noncontrolling interests in a subsidiary and applied it retrospectively. As a result, the Company reclassified noncontrolling interests in amounts of $95 from the mezzanine section to equity in the January31, 2009 Consolidated Balance Sheet. Certain reclassifications to the Consolidated Statements of Operations have been made to prior period amounts to conform to the presentation of the current period under the new standards. Recorded amounts for prior periods previously presented as Net Earnings, which are now presented as Net Earnings Attributable to The Kroger Co., have not changed as a result of the adoption of the new standards. Impairment of Long-Lived Assets In accordance with GAAP, the Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain trigger events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a trigger event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores. If |
Goodwill
Goodwill | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
GOODWILL | 2. GOODWILL The following table summarizes the changes in the Companys goodwill balance through November7, 2009. Goodwill Balance at January31, 2009 Goodwill $ 3,672 Accumulated impairment losses (1,401 ) 2,271 Goodwill impairment charge (1,113 ) Balance at November7, 2009 $ 1,158 Balance at November7, 2009 Goodwill $ 3,672 Accumulated impairment losses (2,514 ) Balance at November7, 2009 $ 1,158 Testing for impairment must be performed annually, or on an interim basis upon the occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company last performed its annual test for impairment during the fourth quarter of 2008 and was scheduled to do so again in the fourth quarter of 2009. In the third quarter of 2009, the Company's operating performance suffered due to deflation and intense competition. Based on the revised forecast for the current year and the initial results of the Company's annual budget process of the supermarket reporting units, management believed that there were circumstances evident to warrant impairment testing at these reporting units as of November 7, 2009. The Company did not test for impairment the variable interest entities with recorded goodwill as no triggering event occurred. All reporting units will be tested in the fourth quarter during our annual review of goodwill. Based on the results of the Company's step 1 analysis, the Ralphs reporting unit in Southern California was the only reporting unit for which there was a potential impairment. The operating performance of the Ralphs reporting unit was significantly affected by the current economic conditions and responses to competitive actions in Southern California. As a result of this decline in current and future expected cash flows, along with comparable fair value information, management concluded that the carrying value of goodwill for the Ralphs reporting unit exceeded its implied fair value, resulting in a pre-tax impairment charge of $1.11 billion ($1.04 billion after tax). Subsequent to the impairment, no goodwill remains at the Ralphs reporting unit. The Company believes additional goodwill impairments will not be reasonably possible in the fourth quarter of 2009 upon completion of the Companys annual review of goodwill impairment. A 10% reduction in fair value of the other supermarket reporting units would not indicate a potential for impairment of the Companys remaining goodwill balance for these reporting units, except for one supermarket reporting unit with less than $20 of recorded goodwill. |
STOCK OPTION PLANS
STOCK OPTION PLANS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
STOCK OPTION PLANS | 3. STOCK OPTION PLANS The Company recognized total stock-based compensation of $19 and $21 in the third quarter ended November7, 2009 and November8, 2009, respectively. The Company recorded $64 and $69 of stock-based compensation for the first three quarters ended November7, 2009 and November8, 2008, respectively. These costs were recognized as operating, general and administrative costs in the Companys Consolidated Statements of Operations. The Company grants options for common stock (stock options) to employees, as well as to its non-employee directors, under various plans at an option price equal to the fair market value of the stock at the date of grant. In addition to stock options, the Company awards restricted stock to employees and its non-employee directors under various plans. Equity awards may be made once each quarter on a predetermined date. It has been the Companys practice to make a general annual grant to employees, which occurred in the second quarter of 2009. Special grants may be made in the other three quarters. It has been the Companys practice to make a grant to non-employee directors in Decemberof each year. Stock options granted in the first three quarters of 2009 expire 10 years from the date of grant and vest from one year to five years from the date of grant. Restricted stock awards granted in the first three quarters of 2009 have restrictions that lapse in one year to five years from the date of the awards. All grants and awards become immediately exercisable, in the case of options, and restrictions lapse, in the case of restricted stock, upon certain changes of control of the Company. Changes in equity awards outstanding under the plans are summarized below. Stock Options Shares subjectto option Weighted-average exercise price Outstanding, January31, 2009 39.7 $ 21.58 Granted 3.5 $ 22.33 Exercised (1.8 ) $ 16.55 Canceled or Expired (5.2 ) $ 27.13 Outstanding, November7, 2009 36.2 $ 21.10 Restricted Stock Restricted shares outstanding Weighted-average grant-date fairvalue Outstanding, January31, 2009 4.1 $ 27.22 Granted 2.5 $ 22.32 Lapsed (2.1 ) $ 27.40 Canceled or Expired (0.1 ) $ 25.69 Outstanding, November7, 2009 4.4 $ 24.39 The weighted-average fair value of stock options granted during the first three quarters ended November7, 2009 and November8, 2008, was $6.30 and $8.67, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The Black-Scholes model utilizes extensive accounting judgment and financial estimates, including the term employees are expected to retain their stock options before exercising them, the volatility of the Companys stock price over that expected term, the dividend yield over the term, and the number of awards expected to be forfeited before they vest. Using alternative assumptions in the calculation of fair value |
DEBT OBLIGATIONS
DEBT OBLIGATIONS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
DEBT OBLIGATIONS | 4. DEBT OBLIGATIONS Long-term debt consists of: November7, January31, 2009 2009 Commercial Paper and Money Market Borrowings $ $ 129 3.90% to 8.05% Senior Notes and Debentures due through 2038 7,308 7,186 5.00% to 9.88% Mortgages due in varying amounts through 2034 108 119 Other 153 163 Total debt, excluding capital leases and financing obligations 7,569 7,597 Less current portion (547 ) (528 ) Total long-term debt, excluding capital leases and financing obligations $ 7,022 $ 7,069 On June 1, 2009, the Company repaid $350 of senior notes bearing an interest rate of 7.25%. During the third quarter of 2009, the Company issued $500 of senior notes bearing an interest rate of 3.90% due in 2015, the proceeds of which will be used to repay, $500 of senior notes bearing an interest rate of 8.05% maturing in the first quarter of 2010. |
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
COMPREHENSIVE INCOME | 5. COMPREHENSIVE INCOME Comprehensive income is as follows: Third Quarter Ended Year-To-Date November7, 2009 November8, 2008 November7, 2009 November8, 2008 Net earnings(loss) including noncontrolling interests $ (876 ) $ 237 $ (194 ) $ 903 Unrealized gain on hedging activities, net of tax(1) 3 Amortization of unrealized gains and losses on hedging activities, net of tax(2) 1 2 1 Amortization of amounts included in net periodic pension expense(3) 4 1 2 3 Other Comprehensive income (871 ) 238 (190 ) 910 Comprehensive income (loss) attributable to noncontrolling interests (1 ) (9 ) 3 Comprehensive income (loss) attributable to The Kroger Co. $ (870 ) $ 238 $ (181 ) $ 907 (1) Amount is net of tax of $2 for the first three quarters of 2008. (2) Amount is net of tax of $1 for the first three quarters of 2008. (3) Amount is net of tax of $2 for the third quarter of 2009. Amount is net of tax of $2 for both the first three quarters of 2009 and 2008. During 2009 and 2008, unrealized gains and losses on hedging activities included in comprehensive income consisted of reclassifications of unrealized gains and losses on cash flow hedges into net earnings. |
BENEFIT PLANS
BENEFIT PLANS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
BENEFIT PLANS | 6. BENEFIT PLANS The following table provides the components of net periodic benefit costs for the Company-sponsored pension plans and other post-retirement benefit plans for the third quarter of 2009 and 2008. Third Quarter Pension Benefits Other Benefits 2009 2008 2009 2008 Components of net periodic benefit cost: Service cost $ 12 $ 11 $ 3 $ 3 Interest cost 36 40 5 4 Expected return on plan assets (53 ) (40 ) Amortization of: Prior service cost 1 (2 ) (2 ) Actuarial loss 9 8 (2 ) Net periodic benefit cost $ 5 $ 19 $ 4 $ 5 The following table provides the components of net periodic benefit costs for the Company-sponsored pension plans and other post-retirement benefit plans for the first three quarters of 2009 and 2008. Year-To-Date Pension Benefits Other Benefits 2009 2008 2009 2008 Components of net periodic benefit cost: Service cost $ 28 $ 32 $ 8 $ 8 Interest cost 130 124 15 15 Expected return on plan assets (147 ) (136 ) Amortization of: Prior service cost 2 2 (5 ) (5 ) Actuarial loss 11 13 (4 ) Net periodic benefit cost $ 24 $ 35 $ 14 $ 18 The Company contributed $265 to Company-sponsored pension plans in the first three quarters of 2009. The Company contributed $88 and $75 to employee 401(k)retirement savings accounts in the first three quarters of 2009 and 2008, respectively. The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded. |
INCOME TAXES
INCOME TAXES | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
INCOME TAXES | 7. INCOME TAXES The effective income tax rate was 196.0% and 36.6% for the first three quarters of 2009 and 2008, respectively. The 2009 effective income tax rate differed from the federal statutory rate primarily due to the discrete goodwill impairment charge being mostly non-deductible for tax purposes. The 2008 effective income tax rate differed from the federal statutory rate primarily due to the effect of state income taxes. There were no material changes in unrecognized tax benefits during the first three quarters of 2009. |
EARNINGS PER COMMON SHARE
EARNINGS PER COMMON SHARE | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
EARNINGS PER COMMON SHARE | 8. EARNINGS PER COMMON SHARE Net earnings (loss) attributable to The Kroger Co. per basic common share equals net earnings (loss) attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding. Net earnings (loss) attributable to The Kroger Co. per diluted common share equals net earnings (loss) attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options. The following table provides a reconciliation of net earnings (loss) attributable to The Kroger Co. and shares used in calculating net earnings (loss) attributable to The Kroger Co. per basic common share to those used in calculating net earnings (loss) attributable to The Kroger Co. per diluted common share: Third Quarter Ended Third Quarter Ended November7, 2009 November8, 2008 Earnings(Numerator) Shares(Denominator) Per ShareAmount Earnings(Numerator) Shares(Denominator) Per ShareAmount Net earnings (loss) attributable to The Kroger Co. per basic common share $ (875 ) 646 $ (1.35 ) $ 236 649 $ 0.36 Dilutive effect of stock options 6 Net earnings (loss) attributable to The Kroger Co. per diluted common share $ (875 ) 646 $ (1.35 ) $ 236 655 $ 0.36 Year-To-Date Year-To-Date November7, 2009 November8, 2008 Earnings(Numerator) Shares(Denominator) Per ShareAmount Earnings(Numerator) Shares(Denominator) Per ShareAmount Net earnings (loss) attributable to The Kroger Co. per basic common share $ (185 ) 647 $ (0.29 ) $ 895 653 $ 1.37 Dilutive effect of stock options 6 Net earnings (loss) attributable to The Kroger Co. per diluted common share $ (185 ) 647 $ (0.29 ) $ 895 659 $ 1.36 The Company had undistributed and distributed earnings to participating securities totaling $1 in the third quarter of 2008. For the first three quarters of 2008, the Company had undistributed and distributed earnings to participating securities totaling $5. Due to the Company having a net loss in both the third quarter and first three quarters of 2009, no allocation was made to participating securities due to the anti-dilutive effect. For the third quarter and the first three quarters of 2009, net earnings (loss) attributable to The Kroger Co. per diluted common share equals net earnings (loss) attributable to The Kroger Co. per basic common share due to the Company having a net loss in both time periods. The Company had options outstanding for approximately 12 shares during the third quarter of 2008 that were excluded from the computations of net earnings attributable to The Kroger Co. per diluted common share because their inclusion would have had an anti-dilutive effect on earnings per share. For the first three quarters of 2008, the Company h |
RECENTLY ADOPTED ACCOUNTING STA
RECENTLY ADOPTED ACCOUNTING STANDARDS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
RECENTLY ADOPTED ACCOUNTING STANDARDS | 9. RECENTLYADOPTEDACCOUNTINGSTANDARDS In December2007, the FASB amended its existing standards for a parents noncontrolling interest in a subsidiary and the accounting for future ownership changes with respect to the subsidiary. The new standard defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary that is not attributable, directly or indirectly, to a parent. The new standard requires, among other things, that a noncontrolling interest be clearly identified, labeled and presented in the consolidated balance sheet as equity, but separate from the parents equity; that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and that if a subsidiary is deconsolidated, the parent measure at fair value any noncontrolling equity investment that the parent retains in the former subsidiary and recognize a gain or loss in net income based on the fair value of the non-controlling equity investment. The Company adopted the new standard effective February1, 2009, and applied it retrospectively. As a result, the Company reclassified noncontrolling interests in amounts of $95 from the mezzanine section to equity in the January31, 2009 Consolidated Balance Sheet. Certain reclassifications to the Consolidated Statements of Operations have been made to prior period amounts to conform to the presentation of the current period under the new standard. Recorded amounts for prior periods previously presented as Net Earnings, which are now presented as Net Earnings Attributable to The Kroger Co., have not changed as a result of the adoption of the new standard. Effective February1, 2009, the Company adopted new standards that deferred the fair value disclosures for most non-financial assets and non-financial liabilities to fiscal years beginning after November15, 2008. See Note 14 to the Consolidated Financial Statements for further discussion of the adoption of the new standards. Effective February1, 2009, the Company adopted new standards related to business combinations. The new standards expand the definitions of a business and the fair value measurement and reporting in a business combination. All business combinations completed after February1, 2009, will be accounted for under the new standards. Effective February1, 2009, the Company adopted the new standards that require enhanced disclosures on an entitys derivative and hedging activities. The new disclosures required by the new standards are included in Note 13 to the Consolidated Financial Statements. Effective February1, 2009, the Company adopted the new standards that clarify that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and included in the computation of EPS pursuant to the two-class method. See Note 8 to the Consolidated Financial Statements for further discussion of its adoption. Effective May24, 2009, the Company adopted new standards for subsequent events. The purpose of |
RECENTLY ISSUED ACCOUNTING STAN
RECENTLY ISSUED ACCOUNTING STANDARDS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
RECENTLY ISSUED ACCOUNTING STANDARDS | 10. RECENTLYISSUEDACCOUNTINGSTANDARDS In December2008, the FASB amended its existing standards to provide additional guidance on employers disclosures about the plan assets of defined benefit pension or other postretirement plans. The new standards require disclosures about how investment allocation decisions are made, the fair value of each major category of plan assets, valuation techniques used to develop fair value measurements of plan assets, the effect of measurements on changes in plan assets when using significant unobservable inputs and significant concentrations of risk in the plan assets. The new standards become effective for fiscal years ending after December15, 2009. The Company is currently evaluating the effect the adoption of the new standards will have on its Consolidated Financial Statements. In June2009, the FASB amended its existing standards to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The new standards will become effective for the Companys fiscal year beginning January31, 2010. The Company is currently evaluating the effect the adoption of the new standards will have on its Consolidated Financial Statements. |
GUARANTOR SUBSIDIARIES
GUARANTOR SUBSIDIARIES | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
GUARANTOR SUBSIDIARIES | 11. GUARANTORSUBSIDIARIES The Companys outstanding public debt (the Guaranteed Notes) is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and certain of its subsidiaries (the Guarantor Subsidiaries). At November7, 2009, a total of approximately $7.31 billion of Guaranteed Notes were outstanding. The Guarantor Subsidiaries and non-guarantor subsidiaries are direct or indirect subsidiaries of The Kroger Co. Separate financial statements of The Kroger Co. and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable. The Company believes that separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors. The non-guaranteeing subsidiaries, including non-wholly owned entities, represent less than 3% on an individual and aggregate basis of consolidated assets, pre-tax earnings, cash flow, and equity. Therefore, the non-guarantor subsidiaries information, including non-wholly owned entities, is not separately presented and recorded amounts are included within the Guarantor Subsidiaries totals in the tables below. There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above. The obligations of each guarantor under its guarantee are limited to the maximum amount permitted under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law (e.g. laws requiring adequate capital to pay dividends) respecting fraudulent conveyance or fraudulent transfer. The following tables present summarized financial information as of November7, 2009 and January31, 2009 and for the third quarter, and three quarters ended November7, 2009 and November8, 2008: Condensed Consolidating Balance Sheets As of November7, 2009 The Kroger Co. GuarantorSubsidiaries Eliminations Consolidated Current assets Cash and temporary cash investments $ 27 $ 490 $ $ 517 Deposits in-transit 72 597 669 Receivables 2,159 629 (1,971 ) 817 Net inventories 500 4,745 5,245 Prepaid and other current assets 86 196 282 Total current assets 2,844 6,657 (1,971 ) 7,530 Property, plant and equipment, net 1,834 11,984 13,818 Goodwill 5 1,153 1,158 Other assets 810 1,738 (1,970 ) 578 Investment in and advances to subsidiaries 10,184 (10,184 ) Total assets $ 15,677 $ 21,532 $ (14,125 ) $ 23,084 Current liabilities Current portion of long-term debt including obligations under capital leases and financing obligations $ 578 $ $ $ 578 Trade accounts payable 356 3,813 4,169 Other current liabilities 1,077 6,281 (3,941 ) 3,417 Total current liabilities 2 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
COMMITMENTS AND CONTINGENCIES | 12. COMMITMENTS ANDCONTINGENCIES The Company continually evaluates contingencies based upon the best available evidence. The Company believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from the Companys estimates, future earnings will be charged or credited. The principal contingencies are described below: Insurance The Companys workers compensation risks are self-insured in certain states. In addition, other workers compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans, and self-insured retention plans. The liability for workers compensation risks is accounted for on a present value basis. Actual claim settlements and expenses incident thereto may differ from the provisions for loss. Property risks have been underwritten by a subsidiary and are reinsured with unrelated insurance companies. Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates. Litigation On October6, 2006, the Company petitioned the Tax Court (In Re: Ralphs Grocery Company and Subsidiaries, formerly known as Ralphs Supermarkets,Inc., Docket No.20364-06) for a redetermination of deficiencies set by the Commissioner of Internal Revenue. The dispute at issue involves a 1992 transaction in which Ralphs Holding Company acquired the stock of Ralphs Grocery Company and made an election under Section338(h)(10)of the Internal Revenue Code. The Commissioner has determined that the acquisition of the stock was not a purchase as defined by Section338(h)(3)of the Internal Revenue Code and that the acquisition does not qualify as a purchase. The Company believes that it has strong arguments in favor of its position and believes it is more likely than not that its position will be sustained. However, due to the inherent uncertainty involved in the litigation process, there can be no assurances that the Tax Court will rulein favor of the Company. As of November7, 2009, an adverse decision would require a cash payment up to approximately $457. Any accounting implications of an adverse decision in this case would be charged through the statement of operations. On February2, 2004, the Attorney General for the State of California filed an action in Los Angeles federal court (California, ex rel Lockyer v. Safeway,Inc. dba Vons, a Safeway Company; Albertsons,Inc. and Ralphs Grocery Company, a division of The Kroger Co., United States District Court Central District of California, Case No.CV04-0687) alleging that the Mutual Strike Assistance Agreement (the Agreement) between the Company, Albertsons,Inc. and Safeway Inc. (collectively, the Retailers), which was designed to prevent the union from placing disproportionate pressure on one or more of the Retailers by picketing such Retailer(s)but not the other Retailer(s)during the labor dispute in southern California, violated Section1 of the Sherman Act. The lawsuit seeks declarative a |
DERIVATIVE FINANCIAL INSTRUMENT
DERIVATIVE FINANCIAL INSTRUMENTS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
DERIVATIVE FINANCIAL INSTRUMENTS | 13. DERIVATIVE FINANCIALINSTRUMENTS GAAP defines derivatives, requires that derivatives be carried at fair value on the balance sheet, and provides for hedge accounting when certain conditions are met. In accordance with GAAP, the Companys derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivative instruments designated as cash flow hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects. Ineffective portions of cash flow hedges, if any, are recognized in current period earnings. Other comprehensive income or loss is reclassified into current period earnings when the hedged transaction affects earnings. Changes in the fair value of derivative instruments designated as fair value hedges, along with corresponding changes in the fair values of the hedged assets or liabilities, are recorded in current period earnings. Ineffective portions of fair value hedges, if any, are recognized in current period earnings. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives used as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company discontinues hedge accounting prospectively. Interest Rate Risk Management The Company is exposed to market risk from fluctuations in interest rates. The Company manages its exposure to interest rate fluctuations through the use of interest rate swaps (fair value hedges) and forward-starting interest rate swaps (cash flow hedges). The Companys current program relative to interest rate protection contemplates hedging the exposure to changes in the fair value of fixed-rate debt attributable to changes in interest rates. To do this, the Company uses the following guidelines: (i)use average daily outstanding borrowings to determine annual debt amounts subject to interest rate exposure, (ii)limit the average annual amount subject to interest rate reset and the amount of floating rate debt to a combined total of $2,500 or less, (iii)include no leverage products, and (iv)hedge without regard to profit motive or sensitivity to current mark-to-market status. Annually, the Company reviews with the Financial Policy Committee of the Board of Directors compliance with the guidelines. These guidelines may change as the Companys needs dictate. Fair Value Interest Rate Swaps At the end of the third quarter of 2009, the Company maintained 18 interest rate swap agreements that are being accounted for as fair value hedges. The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged items attributable to the hedged risk are recognized in current income as Interest expense. These gains and losses for the third quarter of 2009 and the first three quarters of 2009, were as follows: Third Quarter Ended Year-To-Date November7, 2009 November7, 2009 IncomeStatementClassification Gain/(Loss) onSwaps |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
FAIR VALUE MEASUREMENTS | 14. FAIRVALUEMEASUREMENTS In September2006, the FASB issued new standards defining fair value, establishing a market-based framework for measuring fair value and expanding disclosures about fair value measurements. The new standards did not expand or require any new fair value measurements. The standards are effective for financial assets and financial liabilities for fiscal years beginning after November15, 2007. In February2008, the FASB issued new standards deferring the effective date for most non-financial assets and non-financial liabilities to fiscal years beginning after November15, 2008. The Company adopted the new standards issued in September2006 for financial assets and financial liabilities effective February3, 2008 and adopted the remaining provisions of the new standards for nonfinancial assets and nonfinancial liabilities on February1, 2009. GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy defined in the standards are as follows: Level 1 Quoted prices are available in active markets for identical assets or liabilities; Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable; Level 3 Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability. For those financial instruments carried at fair value in the consolidated financial statements, the following table summarizes the fair value of these instruments at November7, 2009: Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets(Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs(Level 3) Total Available-for-Sale Securities $ 12 $ $ $ 12 Long-Lived Assets 37 37 Interest Rate Hedges 22 22 Total $ 12 $ 22 $ 37 $ 71 Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, and long-lived assets and in the valuation of store lease exit costs. The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 2 for further discussion related to the Companys carrying value of goodwill and its goodwill impairment charge in the third quarter of 2009. Long-lived assets and store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. See Note 1 for further discussion of the Companys policies and recorded amounts for impairments of long-lived assets and valuation of store lease exit costs. In 2009, long-lived assets with a carrying amount of $81 were written down to their fair value of $37, resulting in an impairment charge of $44. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | |
9 Months Ended
Nov. 07, 2009 USD / shares | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
SUBSEQUENT EVENTS | 15. SUBSEQUENT EVENTS In preparing the Companys Consolidated Financial Statements, the Company evaluated subsequent events through the time of filing on December17, 2009. |
Document And Entity Information
Document And Entity Information (USD $) | ||
9 Months Ended
Nov. 07, 2009 | Dec. 11, 2009
| |
Document and Entity Information | ||
Entity Registrant Name | KROGER CO | |
Entity Central Index Key | 0000056873 | |
Document Type | 10-Q | |
Document Period End Date | 2009-11-07 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --01-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 649,891,077 |