Kroger 2010 Annual Report Download - page 109

Download and view the complete annual report

Please find page 109 of the 2010 Kroger annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

A-29
•฀ 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 were 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.
•฀ The฀actual฀amount฀of฀automatic฀and฀matching฀cash฀contributions฀to฀our฀401(k)฀Retirement฀Savings฀
Account Plan will depend on the number of participants, savings rate, plan compensation, and length
of service of participants.
•฀ Our฀ contributions฀ and฀ recorded฀ expense฀ related฀ to฀ multi-employer฀ pension฀ funds฀ could฀ increase฀
more than anticipated. Should asset values in these funds deteriorate, if employers withdraw from
these funds without providing for their share of the liability, or should our estimates prove to be
understated, our contributions could increase more rapidly than we have anticipated.
•฀ If฀volatility฀in฀the฀financial฀markets฀continues฀or฀worsens,฀our฀contributions฀to฀Company-sponsored฀
defined benefit pension plans could increase more than anticipated in future years.
•฀ 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฀may฀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,
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฀expense฀
as a percentage of sales.
•฀ Our฀capital฀expenditures,฀expected฀square฀footage฀growth,฀and฀number฀of฀store฀projects฀completed฀
over the next fiscal year could differ from our estimate if we are unsuccessful in acquiring suitable
sites for new stores, if development costs vary from those budgeted, if our logistics and technology
or store projects are not completed on budget or within the time frame projected, or if economic
conditions fail to improve, or worsen.
•฀ Interest฀expense฀could฀be฀adversely฀affected฀by฀the฀interest฀rate฀environment,฀changes฀in฀our฀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 and results in an
increase in debt.
•฀ Impairment฀losses,฀including฀goodwill,฀could฀be฀affected฀by฀changes฀in฀our฀assumptions฀of฀future฀cash฀
flows, market values or business valuations in the market. Our cash flow projections include several
years of projected cash flows which would be affected by changes in the economic environment, real
estate market values, competitive activity, inflation and customer behavior.
•฀ Our฀estimated฀expense฀and฀obligation฀for฀Kroger-sponsored฀pension฀plans฀and฀other฀post-retirement฀
benefits could be affected by changes in the assumptions used in calculating those amounts. These
assumptions include, among others, the discount rate, the expected long-term rate of return on plan
assets, average life expectancy and the rate of increases in compensation and health care costs.