Kroger 2010 Annual Report Download - page 109
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• 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.
• Oureffectivetaxratemaydifferfromtheexpectedrateduetochangesinlaws,thestatusofpending
items with various taxing authorities, and the deductibility of certain expenses.
• Theactualamountofautomaticandmatchingcashcontributionstoour401(k)RetirementSavings
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.
• Ifvolatilityinthefinancialmarketscontinuesorworsens,ourcontributionstoCompany-sponsored
defined benefit pension plans could increase more than anticipated in future years.
• Changesinlawsorregulations,includingchangesinaccounting standards,taxationrequirements
and environmental laws may have a material effect on our financial statements.
• Changesinthegeneralbusinessandeconomicconditionsinouroperatingregionsmayaffectthe
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
negativelyaffectsourFIFOgrossmargin,gasolinesalesprovideapositiveeffectonOG&Aexpense
as a percentage of sales.
• Ourcapitalexpenditures,expectedsquarefootagegrowth,andnumberofstoreprojectscompleted
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.
• Interestexpensecouldbeadverselyaffectedbytheinterestrateenvironment,changesinourcredit
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.
• Impairmentlosses,includinggoodwill,couldbeaffectedbychangesinourassumptionsoffuturecash
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.
• OurestimatedexpenseandobligationforKroger-sponsoredpensionplansandotherpost-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.