Kroger 2010 Annual Report Download - page 108

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A-28
spending; changes in government-funded benefit programs; manufacturing commodity costs; diesel
fuel costs related to our logistics operations; trends in consumer spending; the extent to which our
customers exercise caution in their purchasing in response to economic conditions; the inconsistent
pace of the economic recovery; changes in inflation or deflation in product and operating costs; stock
repurchases; and the success of our future growth plans. Our ability to achieve sales and earnings
goals may also be affected by our ability to manage the factors identified above.
•฀ The฀extent฀to฀which฀the฀adjustments฀we฀are฀making฀to฀our฀strategy฀create฀value฀for฀our฀shareholders฀
will depend primarily on the reaction of our customers and our competitors to these adjustments,
as well as operating conditions, including inflation or deflation, increased competitive activity, and
cautious spending behavior of our customers.
•฀ Our฀product฀cost฀inflation฀could฀vary฀from฀our฀estimate฀due฀to฀general฀economic฀conditions,฀weather,฀
availability of raw materials and ingredients in the products that we sell and their packaging, and
other factors beyond our control.
•฀ Our฀ ability฀ to฀ use฀ free฀ cash฀ flow฀ to฀ continue฀ to฀ maintain฀ our฀ debt฀ coverage฀ and฀ to฀ reward฀ our฀
shareholders could be affected by unanticipated increases in net total debt, our inability to generate
free cash flow at the levels anticipated, and our failure to generate expected earnings.
•฀ The฀timing฀of฀our฀recognition฀of฀LIFO฀expense฀will฀be฀affected฀primarily฀by฀changes฀in฀product฀costs฀
during the year.
•฀ If฀actual฀results฀differ฀significantly฀from฀anticipated฀future฀results฀for฀certain฀reporting฀units฀including฀
variable interest entities, an impairment loss for any excess of the carrying value of the reporting
units’ goodwill over the implied fair value would have to be recognized.
•฀ 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฀ decline฀ more฀ than฀ expected฀ if฀ we฀ are฀ unable฀ to฀ pass฀
on any cost increases, fail to deliver the cost savings contemplated or if changes in the cost of our
inventory and the timing of those changes differ from our expectations.
•฀ We฀could฀fail฀to฀realize฀our฀expected฀operating฀margin฀per฀gallon฀of฀fuel฀and฀fuel฀gallons฀sold฀based฀
upon changes in the price of fuel, a change in our operating costs, or if a pattern of rapid changes in
fuel costs occurs.
•฀ We฀have฀estimated฀our฀exposure฀to฀the฀claims฀and฀litigation฀arising฀in฀the฀normal฀course฀of฀business,฀
as well as to the material litigation facing Kroger, and believe we have made provisions where it is
reasonably possible to estimate and where 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.