1
Exhibit 99.1
------------
The Kroger Co. Savings Plan
Report On Audits Of Financial Statements And Supplemental Schedules
For The Years Ended December 31, 1998 and 1997
2
The Kroger Co. Savings Plan
Index To Financial Statements
December 31, 1998 and 1997
Pages
-----
Report of Independent Accountants 2
Statement of Net Assets Available
For Plan Benefits at December 31, 1998 3
Statement of Net Assets Available
For Plan Benefits at December 31, 1997 4
Statement of Changes in Net Assets
Available For Plan Benefits for
the year ended December 31, 1998 5
Statement of Changes in Net Assets
Available For Plan Benefits for
the year ended December 31, 1997 6
Notes to Financial Statements 7-8
Item 27a - Schedule of Assets Held for Investment
Purposes at December 31, 1998 9
Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1998 10
3
Report of Independent Accountants
---------------------------------
To the Administrative Committee of The Kroger Co. Savings Plan
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the financial position of The
Kroger Co. Savings Plan at December 31, 1998 and 1997. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
In our opinion, the accompanying supplemental schedules of assets held for
investment purposes and reportable transactions are fairly stated in all
material respects in relation to the basic financial statements, taken as a
whole. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. This information is presented for
purposes of additional analysis and is not a required part of the basic
financial statements, but is supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements.
(PricewaterhouseCoopers LLP)
Cincinnati, Ohio
April 16, 1999
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THE KROGER CO. SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
at December 31, 1998
(In thousands of dollars)
--------------------
1998
-------------------------------------------------------------------------
MERRILL
LYNCH MERRILL MERRILL AMERICAN
EMPLOYER EQUITY LYNCH LYNCH CAPITAL
STOCK INDEX BASIC GLOBAL EMERGING TEMPLETON
ASSETS FUND TRUST VALUE ALLOCATION GROWTH FOREIGN
---------- -------- --------- ---------- ---------- ---------
Investments:
The Kroger Co. common shares
(Cost - $313,244) $1,636,141
Contracts with insurance
companies (stated at
contract value)
Mutual funds (cost - $70,531) $26,195 $9,271 $32,398 $11,014
Collective investment trust
(cost - $57,437) $118,631
Participant loans
Temporary cash investments
---------- -------- --------- ---------- ---------- ---------
Total investments 1,636,141 118,631 26,195 9,271 32,398 11,014
Receivables:
Employer contributions 6,293
Interest and dividends
---------- -------- --------- ---------- ---------- ---------
Total assets 1,642,434 118,631 26,195 9,271 32,398 11,014
---------- -------- --------- ---------- ---------- ---------
LIABILITIES
Payable for administrative
fees
---------- -------- --------- ---------- ---------- ---------
Total liabilities
---------- -------- --------- ---------- ---------- ---------
Net assets available for
plan benefits $1,642,434 $118,631 $26,195 $9,271 $32,398 $11,014
========== ======== ========= ========== ========== =========
1998
-----------------------------------------------
TEMPORARY
FIXED PARTICIPANT INVESTMENT
ASSETS INCOME LOANS FUND TOTAL
--------- ----------- ---------- -----------
Investments:
The Kroger Co. common shares
(Cost - $313,244) $1,636,141
Contracts with insurance
companies (stated at
contract value) $130,970 130,970
Mutual funds (cost - $70,531) 78,878
Collective investment trust
(cost - $57,437) 118,631
Participant loans $27,059 27,059
Temporary cash investments 28,303 $5,028 33,331
--------- ----------- ---------- ----------
Total investments 159,273 27,059 5,028 2,025,010
Receivables:
Employer contributions 6,293
Interest and dividends 388 388
--------- ----------- ---------- ----------
Total assets 159,273 27,059 5,416 2,031,691
--------- ----------- ---------- ----------
LIABILITIES
Payable for administrative
fees 140 140
--------- ----------- ---------- ----------
Total liabilities 140 140
--------- ----------- ---------- ----------
Net assets available for
plan benefits $159,273 $27,059 $5,276 $2,031,551
========= =========== ========== ==========
The accompanying notes are an
integral part of the
financial statements.
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THE KROGER CO. SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
at December 31, 1997
(In thousands of dollars)
--------------------
1997
-------------------------------------------------------------------------
MERRILL
LYNCH MERRILL MERRILL AMERICAN
EMPLOYER EQUITY LYNCH LYNCH CAPITAL
STOCK INDEX BASIC GLOBAL EMERGING TEMPLETON
ASSETS FUND TRUST VALUE ALLOCATION GROWTH FOREIGN
---------- -------- --------- ---------- ---------- ---------
Investments:
The Kroger Co. common shares
(Cost - $272,336) $1,050,160
Contracts with insurance
companies (stated at
contract value)
Mutual funds (cost - $59,597) $20,966 $10,018 $21,595 $12,842
Collective investment trust
(cost - $50,757) $92,405
Participant loans
Temporary cash investments
---------- -------- --------- ---------- ---------- ---------
Total investments 1,050,160 92,405 20,966 10,018 21,595 12,842
Receivables:
Employee contributions 1,704 258 87 45 102 55
Employer contributions 3,354
Interest and dividends
---------- -------- --------- ---------- ---------- ---------
Total assets 1,055,218 92,663 21,053 10,063 21,697 12,897
---------- -------- --------- ---------- ---------- ---------
LIABILITIES
Payable for administrative
fees
---------- -------- --------- ---------- ---------- ---------
Total liabilities
---------- -------- --------- ---------- ---------- ---------
Net assets available for
plan benefits $1,055,218 $92,663 $21,053 $10,063 $21,697 $12,897
========== ======== ========= ========== ========== =========
1997
-----------------------------------------------
TEMPORARY
FIXED PARTICIPANT INVESTMENT
ASSETS INCOME LOANS FUND TOTAL
--------- ----------- ---------- ----------
Investments:
The Kroger Co. common shares
(Cost - $272,336) $1,050,160
Contracts with insurance
companies (stated at
contract value) $105,394 105,394
Mutual funds (cost - $59,597) 65,421
Collective investment trust
(cost - $50,757) 92,405
Participant loans $21,117 21,117
Temporary cash investments 16,583 $643 17,226
--------- ----------- ---------- ----------
Total investments 121,977 21,117 643 1,351,723
Receivables:
Employee contributions 321 2,572
Employer contributions 3,354
Interest and dividends 273 273
--------- ----------- ---------- ----------
Total assets 122,298 21,117 916 1,357,922
--------- ----------- ---------- ----------
LIABILITIES
Payable for administrative
fees 120 120
--------- ----------- ---------- ----------
Total liabilities 120 120
--------- ----------- ---------- ----------
Net assets available for
plan benefits $122,298 $21,117 $796 $1,357,802
========= =========== ========== ==========
The accompanying notes are an
integral part of the
financial statements.
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THE KROGER CO. SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the year ended December 31, 1998
(In thousands of dollars)
--------------------
1998
------------------------------------------------------------------------
MERRILL
LYNCH MERRILL MERRILL AMERICAN
EMPLOYER EQUITY LYNCH LYNCH CAPITAL
STOCK INDEX BASIC GLOBAL EMERGING TEMPLETON
FUND TRUST VALUE ALLOCATION GROWTH FOREIGN
---------- -------- --------- ---------- ---------- ---------
Employee contributions $ 40,196 $ 5,959 $2,341 $ 915 $2,474 $1,090
Employer contributions 6,296
Transfer from (to) other funds (51,224) (934) 1,878 (1,391) 1,741 (2,023)
---------- -------- --------- ---------- ---------- ---------
Total contributions
and transfers (4,732) 5,025 4,219 (476) 4,215 (933)
Investment income:
Dividends 2,170 1,084 1,497 1,186
Interest 1,638 217 32 14 38 16
Net appreciation(depreciation) 642,920 26,087 294 (1,042) 6,490 (1,706)
---------- -------- --------- ---------- ---------- ---------
Total additions 639,826 31,329 6,715 (420) 12,240 (1,437)
---------- -------- --------- ---------- ---------- ---------
Distributions to participants 52,611 5,360 1,572 371 1,539 445
Administrative expenses, net
---------- -------- --------- ---------- ---------- ---------
Total deductions 52,611 5,360 1,572 371 1,539 445
---------- -------- --------- ---------- ---------- ---------
Net increase 587,215 25,969 5,143 (791) 10,701 (1,882)
Net assets available for
plan benefits:
Beginning of year 1,055,219 92,662 21,052 10,062 21,697 12,896
---------- -------- --------- ---------- ---------- ---------
End of year $1,642,434 $118,631 $26,195 $9,271 $32,398 $11,014
========== ======== ========= ========== ========== =========
1998
-----------------------------------------------
TEMPORARY
FIXED PARTICIPANT INVESTMENT
INCOME LOANS FUND TOTAL
--------- ----------- ---------- ----------
Employee contributions $ 7,795 $ 60,770
Employer contributions 6,296
Transfer from (to) other funds 42,819 $ 7,445 $1,689
--------- ----------- ---------- ----------
Total contributions
and transfers 50,614 7,445 1,689 67,066
Investment income:
Dividends 5,937
Interest 9,306 115 11,376
Net appreciation(depreciation) 673,043
--------- ----------- ---------- ----------
Total additions 59,920 7,445 1,804 757,422
--------- ----------- ---------- ----------
Distributions to participants 22,520 1,502 (2,672) 83,248
Administrative expenses, net 425 425
--------- ---------- ---------- ----------
Total deductions 22,945 1,502 (2,672) 83,673
--------- ---------- ---------- ----------
Net increase 36,975 5,943 4,476 673,749
Net assets available for
plan benefits:
Beginning of year 122,298 21,116 800 1,357,802
--------- ---------- ---------- ----------
End of year $159,273 $27,059 $5,276 $2,031,551
========= ========== ========== ==========
The accompanying notes are an
integral part of the
financial statements.
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THE KROGER CO. SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
for the year ended December 31, 1997
(In thousands of dollars)
--------------------
1997
------------------------------------------------------------------------
MERRILL
LYNCH MERRILL MERRILL AMERICAN
EMPLOYER EQUITY LYNCH LYNCH CAPITAL
STOCK INDEX BASIC GLOBAL EMERGING TEMPLETON
FUND TRUST VALUE ALLOCATION GROWTH FOREIGN
---------- -------- --------- ---------- ---------- ---------
Employee contributions $ 34,885 $ 5,823 $1,891 $1,067 $2,369 $1,281
Employer contributions 3,354
Transfer from (to) other funds 572 (996) 1,378 (166) (2,021) 350
---------- -------- --------- ---------- ---------- ---------
Total contributions
and transfers 38,811 4,827 3,269 901 348 1,631
Investment income:
Dividends 1,557 1,288 1,935 1,384
Interest 1,250 176 23 14 37 16
Net appreciation(depreciation) 379,149 22,372 2,780 (300) 1,442 (657)
---------- -------- --------- ---------- ---------- ---------
Total additions 419,210 27,375 7,629 1,903 3,762 2,374
---------- -------- --------- ---------- ---------- ---------
Distributions to participants 25,967 2,963 818 633 710 773
Administrative expenses, net
---------- -------- --------- ---------- ---------- ---------
Total deductions 25,967 2,963 818 633 710 773
---------- -------- --------- ---------- ---------- ---------
Net increase 393,243 24,412 6,811 1,270 3,052 1,601
Net assets available for
plan benefits:
Beginning of year 661,976 68,250 14,241 8,792 18,645 11,295
---------- -------- --------- ---------- ---------- ---------
End of year $1,055,219 $92,662 $21,052 $10,062 $21,697 $12,896
========== ======== ========= ========== ========== =========
1997
-----------------------------------------------
TEMPORARY
FIXED PARTICIPANT INVESTMENT
INCOME LOANS FUND TOTAL
--------- ----------- ---------- ----------
Employee contributions $ 8,732 $ 56,048
Employer contributions 3,354
Transfer from (to) other funds (3,669) $ 5,494 $(942)
--------- ----------- ---------- ----------
Total contributions
and transfers 5,063 5,494 (942) 59,402
Investment income:
Dividends 6,164
Interest 8,638 93 10,247
Net appreciation(depreciation) 404,786
--------- ----------- ---------- ----------
Total additions 13,701 5,494 (849) 480,599
--------- ----------- ---------- ----------
Distributions to participants 11,295 1,041 (271) 43,929
Administrative expenses, net 448 448
--------- ---------- ---------- ----------
Total deductions 11,743 1,041 (271) 44,377
--------- ---------- ---------- ----------
Net increase 1,958 4,453 (578) 436,222
Net assets available for
plan benefits:
Beginning of year 120,340 16,663 1,378 921,580
--------- ---------- ---------- ----------
End of year $122,298 $21,116 $800 $1,357,802
========= ========== ========== ==========
The accompanying notes are an
integral part of the
financial statements.
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THE KROGER CO. SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
--------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The following describes the significant policies followed in the
preparation of these financial statements.
INVESTMENTS VALUATION
---------------------
Investments in equity securities, mutual funds and collective trusts
are valued at fair value (quoted market prices where available) or
estimated fair values. Investment contracts are valued at contract
value (cost plus accrued interest).
PERVASIVENESS OF ESTIMATES
--------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of net assets
available for plan benefits as of the date of the Plan's financial
statements and the reported changes in net assets available for plan
benefits during the reporting period. Actual results could differ from
those estimates.
OTHER
-----
Purchases and sales of securities are reflected on a trade date basis.
Gain or loss on sales of securities are based on average cost.
Dividend income is recorded on the ex-dividend date. Income from other
investments is recorded as earned.
The Plan presents in the statement of changes in net assets available
for plan benefits the net appreciation or depreciation in the fair
value of its investments which consists of the realized gains or losses
and the unrealized appreciation or depreciation on those investments.
Participants may borrow from their fund accounts a minimum of $1,000 up
to a maximum equal to the lowest of: a) account balance less $2,500; b)
50% of account balance; c) $50,000 less the highest outstanding loan
balance over the last 12 months. Loan transactions are treated as a
transfer from the investment fund to the Participant Loan Fund. Loan
terms range from 1-4 years or up to 6 years for the purchase of a
primary residence. The loans are collateralized by the balance in the
participant's account and bear interest at a rate of Prime plus 1.5%.
The rate is changed quarterly and the Prime rate used for a quarter is
the Prime rate on the last business day of the previous quarter.
Principal and interest are paid through periodic payroll deductions.
2. PLAN DESCRIPTION
----------------
The Plan provides for eligible employees of The Kroger Co. and
subsidiaries (the "Company") to redirect a portion of their salary, up
to limits defined in the Plan, to the seven investment funds of the
Plan at any time.
Employee contributions to the Plan are limited to the lower of $10,000
or 19% (6% if the participant is a highly compensated employee as
defined by the Internal Revenue Service) of the employee's annual
compensation during the period in which they are a participant in the
Plan, subject to Internal Revenue Service Code limitations.
At the end of each year, the Company makes a basic matching
contribution into the Employer Stock Fund equal to ten percent (10%) of
the salary directed by participants to the Employer Stock Fund during
the year. A supplemental matching contribution is allocated in
proportion to salary directed to all investment funds. The supplemental
contribution is based on the annual financial results of the Company
and determined annually by the Board of Directors. The supplemental
contribution ranges from none to twenty percent (20%) of participant
contributors.
In 1998, the Company made matching and supplemental contributions. The
supplemental contribution was 4%. In 1997, the Company made a matching
contribution but did not make a supplemental contribution.
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Each participant's account is credited with the participant's
contribution and an allocation of the Company's matching contribution,
Plan earnings, and other adjustments as defined in the Plan.
Allocations are based on participant earnings or account balances as
defined. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's account.
Further information about the Plan, including vesting, allocation and
benefit provisions, and employer and employee contributions is
contained in the Plan, and Plan amendments. Copies of these documents
are available from the Company's Personnel Department.
3. INVESTMENT CONTRACTS
--------------------
The Plan's Fixed Income Fund contains various investment contracts
which are fully benefit-responsive. A fully benefit-responsive
investment provides a liquidity guarantee by a financially responsible
third party of principal and previously accrued interest for
liquidations, transfers, loans, or withdrawals initiated by plan
participants under the terms of the ongoing Plan. Certain employer
initiated events (i.e., lay-offs, mergers, bankruptcy, plan
termination) are not eligible for the liquidity guarantee.
The following information is presented in the aggregate for the
investment contracts:
1998 1997
------------ ------------
Fair value $135,981,239 $108,385,328
Crediting interest rates 5.4% to 7.3% 6.0% to 7.3%
Average yield 6.8% 7.1%
The crediting interest rates for the investment contracts are based
upon the contract rate or a predetermined formula which factors in
duration, market value and book value of the investment. Certain of the
crediting rates are adjusted quarterly. The minimum crediting interest
rate for these investments is zero.
The fair value of the investment contracts is calculated as the
aggregate present value of the underlying cash flows using interest
rates quoted for securities with similar duration and credit risk.
4. TAX STATUS
----------
The Plan obtained its latest determination letter in March 1998, in
which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the Internal Revenue Code. Therefore,
no provision for income taxes has been included in the Plan's financial
statements.
Participant contributions and earnings of the Plan are not subject to
federal income tax until distribution, at which time they are taxable
to the recipient.
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THE KROGER CO. SAVINGS PLAN
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
at December 31, 1998
(In thousands of dollars)
-------------------------
NUMBER OF
SHARES 1998
-------
CARRYING
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT COST VALUE
- --------------------------------- --------------- ---------- ----------
EMPLOYER STOCK FUND
-------------------
The Kroger Co. common shares 27,043,649 shs. $ 313,244 $1,636,141
MERRILL LYNCH EQUITY INDEX TRUST
--------------------------------
Collective Investment Trust 1,413,581 shs. 57,437 118,631
MERRILL LYNCH BASIC VALUE
-------------------------
Mutual Funds 688,992 shs. 22,969 26,195
MERRILL LYNCH GLOBAL ALLOCATION
-------------------------------
Mutual Funds 735,187 shs. 10,420 9,271
AMERICAN CAPITAL EMERGING GROWTH
--------------------------------
Mutual Funds 672,433 shs. 24,404 32,398
TEMPLETON FOREIGN
-----------------
Mutual Funds 1,312,699 shs. 12,738 11,014
FIXED INCOME
------------
Guaranteed Investment Contracts(GICs) 2 2
Synthetic GICs 130,968 135,979
Wrapper Contracts for Synthetic GICs (5,011)
---------- ----------
130,970 130,970
PARTICIPANT LOANS
-----------------
Loans to Participants 0 27,059
Temporary Cash Investments 33,719 33,719
---------- ----------
Total $ 605,901 $2,025,398
========== ==========
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THE KROGER CO. SAVINGS PLAN
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
For the Year Ended December 31, 1998
(In thousands of dollars)
---------------
Transaction # of # of Realized
Type Security Description Trans Shares Cost Proceeds Gain(Loss)
- ----------- ----------------------- ----- ----------- ---------- ------------ -----------
KROGER COMMON STOCK
BUY Kroger Co. Common Stock 1080 2,388,034 $111,374
SELL Kroger Co. Common Stock 1338 3,467,293 65,469 $163,318 $97,849
POOLED SEPARATE A/C(GICS)
BUY Fixed Income Fund 1133 113,339,904 113,340
SELL Fixed Income Fund 1189 76,044,030 76,043 76,044 1
TEMPORARY INVESTMENT FUNDS
BUY Temporary Investment Fund 252 158,306,516 158,307
SELL Temporary Investment Fund 250 156,564,640 156,565 156,565
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