The change in our total sales for the third quarter and the first three quarters of 2007 was primarily the result of identical store sales increases and increased fuel gallons, as well as inflation in almost all grocery and perishable categories as well as fuel. Identical store sales growth for the third quarter of 2007 was 7.7% including supermarket fuel operations and 5.7% excluding supermarket fuel operations. Increases in the number of customer transactions and average transaction size in the third quarter of 2007 were responsible for our increases in identical supermarket sales and total sales, excluding fuel.
We define a supermarket as comparable when it has been in operation for five full quarters, including expansions and relocations. Our comparable supermarket sales results are summarized in the table below. The comparable supermarket dollar figures presented were used to calculate the third quarter 2007 percent changes.
We calculate First-In, First-Out (“FIFO”) Gross Margin as follows: Sales minus merchandise costs plus Last-In, First-Out (“LIFO”) charge. Merchandise costs include advertising, warehousing and transportation, but exclude depreciation expenses and rent expense. FIFO gross margin is an important measure used by management to evaluate merchandising and operational effectiveness.
Our FIFO gross margin rate decreased 110 basis points to 23.38% for the third quarter of 2007 from 24.48% for the third quarter of 2006, primarily due to the lower margins associated with fuel sales. Our retail fuel sales lower our FIFO gross margin rate due to the very low FIFO gross margin on retail fuel sales as compared to non-fuel sales. Excluding the effect of retail fuel operations, our FIFO gross margin rate decreased 34 basis points for the third quarter of 2007 compared to the third quarter of 2006, as we continue to reinvest operating cost savings into our customer 1st strategy.
Our FIFO gross margin rate declined 52 basis points to 23.68% for the first three quarters of 2007 from 24.20% for the first three quarters of 2006. Excluding the effect of retail fuel operations , FIFO gross margin, as a percent of sales, declined 18 basis points versus the first three quarters of last year. This decline results from our reinvesting operating cost savings into our Customer 1st strategy.
Operating, General and Administrative Expenses
Operating, general and administrative (“OG&A”) expenses consist primarily of employee-related costs such as wages, health care benefit costs and retirement plan costs. We do not include rent expense, depreciation and amortization expense, and interest expense, among other items, in OG&A. OG&A expenses, as a percent of sales, decreased 78 basis points to 17.49% for the third quarter of 2007 from 18.27% for the third quarter of 2006. Our retail fuel sales lower our OG&A rate due to very low OG&A rates on retail fuel sales as compared to non-fuel sales. OG&A expenses, as a percent of sales excluding fuel, decreased 49 basis points for the third quarter of 2007 compared to the third quarter of 2006. This decline resulted from identical sales growth, increased productivity, progress made in controlling our utility expenses, and health care and pension cost savings recently negotiated in completed labor agreements. These gains were partially offset by higher credit card fees.
OG&A expenses, as a percent of sales, decreased 52 basis points to 17.47% for the first three quarters of 2007 from 17.99% for the first three quarters of 2006. Excluding the effect of retail fuel operations and the non-recurring legal expense in 2006, OG&A, as a percent of sales, declined 24 basis points versus the first three quarters of last year. This decline was primarily the result of identical sales growth and the same cost controls noted in the preceding paragraph.
Rent Expense
Rent expense was $150 million, or .93% of sales, for the third quarter of 2007, compared to $139 million, or .95% of sales, for the third quarter of 2006. For the first three quarters, rent expense was $488 million, or .92% of total sales in 2007, compared to $488 million, or .99% of sales, in 2006. The decrease in rent expense, as a percent of sales, in both the third quarter and the first three quarters of 2007, compared to the same periods of 2006, results from strong sales growth and also implementation of our strategy to own rather than lease whenever possible. Excluding the effect of retail fuel operations, rent as a percent of sales, declined 1 and 7 basis points in the third quarter and the first three quarters of 2007, respectively, compared to the same periods of 2006.
Depreciation Expense
Depreciation expense was $315 million, or 1.96% of total sales, for the third quarter of 2007 compared to $295 million, or 2.01% of total sales, for the third quarter of 2006. Depreciation expense was $1,030 million, or 1.94% of total sales, for the first three quarters of 2007 compared to $973 million, or 1.97% of total sales, for the first three quarters of 2006. The increase in depreciation expense, in total dollars, was the result of higher capital expenditures during the last rolling four quarters of 2007 compared to the comparable period in 2006. Excluding the effect of retail fuel operations, depreciation as a percent of sales, remained constant in both the third quarter and the first three quarters of 2007 compared to the same periods of 2006.
Interest Expense
Net interest expense was $110 million, or 0.68% of total sales, and $107 million, or 0.73% of total sales, in the third quarters of 2007 and 2006, respectively. For the first three quarters, interest expense was $360 million, or 0.68% of total sales, in 2007 and $372 million, or 0.75% of total sales, in 2006. The increase in net interest expense for the third quarter, when compared to the same period of 2006, resulted primarily from a $528 million increase in total debt at November 10, 2007 compared to November 4, 2006. This increase in total debt reflects additional borrowings to fund a higher level of capital expenditures, as well as additional share repurchases in 2007, compared to the same period of 2006. The reduction in net interest expense year-to-date, when compared to the prior year, resulted primarily from a reduction in the average daily total debt balance during the first three quarters of the year.
Income Taxes
Our effective income tax rate was 24.2% for the third quarter of 2007 and 37.1% for the third quarter of 2006. For the first three quarters, our effective income tax rate was 34.6% in 2007 and 37.6% in 2006. The 2007 effective income tax rate differed from the federal statutory rate primarily due to the effect of state taxes and the resolution of certain tax issues during the third quarter of 2007 that affected tax expense by approximately $40 million. The 2006 effective income tax rate differed from the federal statutory rate primarily due to the effect of state taxes.
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LIQUIDITY ANDCAPITALRESOURCES
Cash Flow Information
Net cash provided by operating activities
We generated $2.3 billion of cash from operating activities during the first three quarters of 2007, compared to $1.8 billion in 2006. The cash generated from operating activities was primarily due to strong operating results adjusted for non-cash expenses. In addition, cash used to purchase additional inventory and to make cash contributions to Company-sponsored pension plans was offset by increases in accounts payable and income taxes payable and a decrease in prepaid expenses. We contributed $52 million to company sponsored pension plans during the first three quarters of 2007 compared to $150 million during the first three quarters of 2006.
Net cash used by investing activities
Investing activities used $1.7 billion of cash during the first three quarters of 2007 compared to $1.1 billion during the first three quarters of 2006. The amount of cash used by investing activities increased in 2007 versus 2006 due primarily to higher capital spending and payments for two acquisitions.
Net cash used by financing activities
Financing activities used $586 million of cash in the first three quarters of 2007 compared to $808 million in the first three quarters of 2006. The decrease in the amount of cash used was a result of proceeds received from the issuance of long term-term debt and capital stock, offset by greater stock repurchases and dividends paid. We received proceeds from the issuance of common stock in connection with exercises of employee stock options.
Debt Management
As of November 10, 2007, we maintained a $2.5 billion, five-year revolving credit facility that terminates in 2011. Outstanding borrowings under the credit agreement and commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the credit agreement. In addition to the credit agreement, we maintained three money market lines totaling $75 million in the aggregate.The money market lines allow us to borrow from banks at mutually agreed upon rates, usually at rates below the rates offered under the credit agreement. As of November 10, 2007, we had outstanding commercial paper and borrowings under our credit agreement totaling $552 and $166 million, respectively, that reduced amounts available under our credit agreement and had no borrowings under the money market line. The outstanding letters of credit that reduced the funds available under our credit agreement totaled $342 million as of November 10, 2007.
Our bank credit facility and the indentures underlying our publicly issued debt contain various restrictive covenants. As of November 10, 2007, we were in compliance with these financial covenants. Furthermore, management believes it is not reasonably likely that Kroger will fail to comply with these financial covenants in the foreseeable future.
Total debt, including both the current and long-term portions of capital leases and lease-financing obligations, increased $528 million to $7.5 billion as of the end of the third quarter of 2007, from $7.0 billion as of the end of the third quarter of 2006. Total debt increased $430 million as of the end of the third quarter of 2007 from $7.1 billion as of year-end 2006. The increases in 2007 resulted from the issuance of $300 million, 6.4% senior notes in the second and third quarters of 2007, respectively, and borrowings under the bank revolver, offset by the repayment of $200 million, 7.65% senior notes and $300 million, 7.80% senior notes which came due during the first half of 2007.
Common Stock Repurchase Program
During the third quarter of 2007, we invested $442 million to repurchase 16.5 million shares of Kroger stock at an average price of $26.77 per share. For the first three quarters of 2007, we invested $1,152 million to repurchase 42.4 million shares of Kroger stock at an average price of $27.15 per share. These shares were reacquired under three separate stock repurchase programs. The first is a $500 million repurchase program that was authorized by Kroger’s Board of Directors on May 4, 2006. The second is a $1 billion repurchase program that was authorized by Kroger’s Board of Directors on June 26, 2007, which replaced the prior $500 million authorization above. The third is a program that purchases shares using the cash proceeds from the exercises of stock options by participants in Kroger’s stock option and long-term incentive plans as well as the associated tax benefits. As of November 10, 2007, we had approximately $202 million remaining under the June 2007 repurchase program.
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CAPITAL EXPENDITURES
Capital expenditures totaled $555 million for the third quarter of 2007 compared to $415 million for the third quarter of 2006. Year-to-date, capital expenditures, excluding acquisitions, totaled $1.6 billion in 2007 and $1.2 billion in 2006. During the third quarter of 2007, we opened, acquired, expanded or relocated 13 food stores and also completed 54 within-the-wall remodels. During the first three quarters of 2007, we opened, acquired, expanded or relocated 82 food stores and also completed 155 within-the-wall remodels. Total food store square footage increased 2.0% from the third quarter of 2006. Excluding acquisitions and operational closings, total food store square footage increased 1.8% over the third quarter of 2006.
CRITICAL ACCOUNTING POLICIES
We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Except as noted below, our critical accounting policies are summarized in our 2006 Annual Report on Form 10-K filed with the SEC on April 4, 2007.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from those estimates.
Accounting for Uncertainty in Income Taxes
Effective February 4, 2007, the Company adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN No. 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
The effect of adoption was to increase retained earnings by $4 million and to decrease our accrual for uncertain tax positions by a corresponding amount. Additionally, we decreased goodwill and accrual for uncertain tax positions by $72 million to reflect the measurement under the rules of FIN No. 48 of an uncertain tax position related to previous business combinations.
As of adoption, the total amount of unrecognized tax benefits for uncertain tax positions, including positions affecting only the timing of tax benefits, was $694 million. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $119 million.
To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense in our Condensed Consolidated Statements of Operations. This accounting policy election is a continuation of the Company’s historical policy. As of February 4, 2007, the amount of accrued interest and penalties included on the Condensed Consolidated Balance Sheets was $118 million.
The IRS concluded a field examination of our 2002 – 2004 U.S. tax returns during the third quarter of 2007. An examination of our 1999 – 2001 U.S. tax returns was completed in 2005. We contested two issues at the appellate level of the IRS. One of the issues was resolved in the third quarter of 2007 and we anticipate that the remaining issue may be resolved within the next 12 months. In the opinion of management, the ultimate disposition of the item noted above will not have a significant effect on our consolidated financial position, liquidity, or results of operations. Additionally, we have a case in the U.S. Tax Court. A decision on this case is not expected within the next 12 months. In connection with this case, we have extended the statute of limitations on our tax years after 1991.
As a result of settlements with taxing authorities during the quarter, we have reclassified unrecognized tax benefits of $168 million from other long-term liabilities to deferred income taxes and accrued taxes payable.
RECENTLYISSUEDACCOUNTINGSTANDARDS
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurement. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurement. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 will become effective for our fiscal year beginning February 3, 2008. We are evaluating the effect the implementation of SFAS No. 157 will have on our Consolidated Financial Statements.
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In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.SFAS No. 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date. SFAS No. 159 will be become effective for our fiscal year beginning February 3, 2008. We are currently evaluating the effect the adoption of SFAS No. 159 will have on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51.SFAS No. 160 will require the consolidation of noncontrolling interests as a component of equity. SFAS No. 160 will become effective for our fiscal year beginning February 1, 2009. We are currently evaluating the effect the adoption of SFAS No. 160 will have on our Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations (SFAS No. 141R), which replaces SFAS No. 141.SFAS No. 141R further expands the definitions of a business and the fair value measurement and reporting in a business combination.SFAS No. 141R will become effective for our fiscal year beginning February 1, 2009. We are currently evaluating the effect the adoption of SFAS No. 141R will have on our Consolidated Financial Statements.
OUTLOOK
This discussion and analysis contains certain forward-looking statements about Kroger’s future performance. These statements are based on management’s assumptions and beliefs in light of the information currently available. Such statements relate to, among other things: projected changes in net earnings; identical sales growth; expected pension plan contributions; our ability to generate operating cash flow; projected capital expenditures; square footage growth; opportunities to reduce costs; cash flow requirements; and our operating plan for the future; and are indicated by words such as “comfortable,” “committed,” “will,” “expect,” “goal,” “should,” “intend,” “target,” “believe,” “anticipate,” “plan,” “striving,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially.
Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. While we believe that the statements are accurate, uncertainties about the general economy, our labor relations, our ability to execute our plans on a timely basis and other uncertainties described below could cause actual results to differ materially.
- We expect earnings per diluted share to slightly exceed our previous guidance of $1.64 - $1.67 for 2007. This represents earnings per share growth of 14% or greater in 2007 from adjusted 2006 earnings of $1.47, which excludes the estimated effect of a 53rd week in 2006 of approximately $0.07 per diluted share.
- We expect identical food store sales growth, excluding fuel sales, of approximately 5% in 2007.
- In 2007, we will continue to focus on increasing 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, excluding fuel, to improve slightly in 2007.
- We plan to use free cash flow to repurchase stock and pay cash dividends.
- Capital expenditures reflect our strategy of growth through expansion and acquisition, as well as focusing on increasing productivity 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 2007 to be in the range of $1.9-$2.1 billion, excluding acquisitions. We expect total food store square footage to grow approximately 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 facility, will be adequate to meet anticipated requirements for working capital, capital expenditures, and interest 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 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.
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- We expect that our effective tax rate for the fourth quarter of 2007 will be approximately 38%. The total fiscal year 2007 tax rate will be approximately 35.6% due to the tax benefit realized in the third quarter of 2007 related to settlements with taxing authorities.
- 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 2007 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 enhanced shopping experiences for our customers.
- Although we are not required to make cash contributions to Company-sponsored pension plans during 2007, we contributed $52 million to these plans during the first three quarters of 2007. Additional voluntary contributions may be made if our cash flows from operations exceed our expectations. We expect any additional elective contributions made during 2007 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. In addition, we expect to make automatic and matching cash contributions to our 401(k) RetirementSavings Account Plan totaling $93 million in 2007.
- We expect our contributions to multi-employer pension plans to increase approximately 1.0% - 2.0% during 2007 over the $204 million we contributed during 2006.
Various uncertainties and other factors could cause us to fail to achieve our goals. These include:
- We have various labor agreements expiring in 2007 and 2008, including agreements covering associates in Memphis, which has been extended, Columbus, Indianapolis, Las Vegas, Louisville, Nashville, Phoenix and Portland. In all of these contracts, rising health care and pension costs will continue to be an important issue in negotiations.
- 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, without fuel, could fail to 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 Kroger, and believe we have made adequate provisions for them where it is reasonably possible to estimate our exposure and where we believe an adverse outcome is probable. Unexpected outcomes in these matters, however, could result in an adverse effect on our earnings.
- 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.
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- 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 OG&A 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, expected square footage growth, and number of store projects completed during the year could differ from our estimates 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.
- 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.
- 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 some costs, 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 actual amount of automatic and matching cash contributions to our 401(k) Retirement Savings Account Plan will depend on the savings rate, plan compensation, and length of service of participants.
We cannot fully foresee the effects of changes in economic conditions on Kroger’s business. We have assumed economic and competitive situations will not change significantly for 2007.
Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in our forward-looking statements. Accordingly, actual events and results may vary significantly from those included in, contemplated or implied by forward-looking statements made by us or our representatives.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K filed with the SEC on April 4, 2007.
Item 4. Controls and Procedures.
The Chief Executive Officer and the Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated Kroger’s disclosure controls and procedures as of the quarter ended November 10, 2007. Based on that evaluation, Kroger’s Chief Executive Officer and Chief Financial Officer concluded that Kroger’s disclosure controls and procedures were effective as of the end of the period covered by this report.
In connection with the evaluation described above, there was no change in Kroger’s internal control over financial reporting during the quarter ended November 10, 2007, that has materially affected, or is reasonably likely to materially affect, Kroger’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust, wage and hour, or civil rights laws, are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Any damages that may be awarded in antitrust cases will be automatically trebled. Although it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material adverse effect on the Company’s financial position.
The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made adequate provisions therefor. Nonetheless, assessing and predicting the outcomes of these matters involve substantial uncertainties. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluations or predictions could arise that could have a material adverse impact on the Company’s financial condition or results of operation.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c)
ISSUER PURCHASES OF EQUITY SECURITIES
| | | | | | | | | Maximum |
| | | | | | | | | Dollar Value of |
| | | | | | | | | Shares that May |
| | | | | | | Total Number of | | Yet Be |
| | | | | | | Shares Purchased | | Purchased |
| | Total Number | | Average | | as Part of Publicly | | Under the Plans |
| | of Shares | | Price Paid Per | | Announced Plans | | or Programs(3) |
| Period(1) | | Purchased | | Share | | or Programs(2) | | (in millions) |
| First four weeks | | | | | | | | | | |
| August 19, 2007 to September 15, 2007 | | 10,370,886 | | $ | 25.85 | | 10,359,123 | | $ | 347 |
| Second four weeks | | | | | | | | | | |
| September 16, 2007 to October 13, 2007 | | 3,709,137 | | $ | 28.02 | | 3,688,993 | | $ | 259 |
| Third four weeks | | | | | | | | | | |
| October 14, 2007 to November 10, 2007 | | 2,468,054 | | $ | 28.73 | | 2,468,021 | | $ | 202 |
| Total | | 16,548,077 | | $ | 26.77 | | 16,516,137 | | $ | 202 |
| (1) | | The reported periods conform to the Company’s fiscal calendar composed of thirteen 28-day periods. The third quarter of 2007 contained three 28-day periods. |
| (2) | | Shares were repurchased under (i) a $1 billion stock repurchase program, authorized by the Board of Directors on June 26, 2007, 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. Total shares purchased include shares that were surrendered to the Company by participants in the Company’s long-term incentive plans to pay for taxes on restricted stock awards. |
| (3) | | Amounts shown in this column reflect amounts remaining under the $1 billion stock repurchase program referenced in clause (i) of Note 2 above. Amounts to be invested under the program utilizing option exercise proceeds are dependent upon option exercise activity. |
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Item 6. Exhibits.
| EXHIBIT 3.1 | - | Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 20, 2006, filed with the SEC on June 29, 2006. |
| | | |
| EXHIBIT 3.2 | - | Regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 26, 2007, filed with the SEC on July 3, 2007. |
| | | |
| EXHIBIT 4.1 | - | Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of the Company. The Company undertakes to file these instruments with the Commission upon request. |
| | | |
| EXHIBIT 31.1 | - | Rule 13a–14(a) / 15d–14(a) Certifications – Chief Executive Officer. |
| | | |
| EXHIBIT 31.2 | - | Rule 13a–14(a) / 15d–14(a) Certifications – Chief Financial Officer. |
| | | |
| EXHIBIT 32.1 | - | Section 1350 Certifications. |
| | | |
| EXHIBIT 99.1 | - | Additional Exhibits - Statement of Computation of Ratio of Earnings to Fixed Charges. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | THE KROGER CO. |
| |
| Dated: | | December 19, 2007 | By: | /s/ David B. Dillon |
| | | | | David B. Dillon |
| | | | | Chairman of the Board and Chief Executive Officer |
| |
| Dated: | | December 19, 2007 | By: | /s/ J. Michael Schlotman |
| | | | | J. Michael Schlotman |
| | | | | Senior Vice President and Chief Financial Officer |
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Exhibit Index
| Exhibit 3.1 | - | Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s QuarterlyReport on Form 10-Q for the quarter ended May 20, 2006, filed with the SEC on June 29, 2006. |
| | | |
| Exhibit 3.2 | - | Regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q forthe quarter ended May 26, 2007, filed with the SEC on July 3, 2007. |
| | | |
| Exhibit 4.1 | - | Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed asExhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of theCompany. The Company undertakes to file these instruments with the Commission upon request. |
| | | |
| Exhibit 31.1 | - | Rule 13a–14(a) / 15d–14(a) Certifications – Chief Executive Officer. |
| | | |
| Exhibit 31.2 | - | Rule 13a–14(a) / 15d–14(a) Certifications – Chief Financial Officer. |
| | | |
| Exhibit 32.1 | - | Section 1350 Certifications. |
| | | |
| Exhibit 99.1 | - | Additional Exhibits - Statement of Computation of Ratio of Earnings to Fixed Charges. |
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