Kroger 2011 Annual Report Download

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PR O X Y
NO T I C E O F AN N U A L ME E T I N G O F SH A R E H O L D E R S
PR O X Y ST A T E M E N T
A N D
2011 AN N U A L RE P O R T

Table of contents

  • Page 1
    PROX Y NOTICE OF ANNUAL MEETING OF SHAREHOLDERS PROX Y STATEMENT AND 2 011 A N N U A L R E P O R T

  • Page 2
    Kroger Bring it all home. Convenience Stores Jewelry Stores Services COVER PRINTED ON RECYCLED PAPER

  • Page 3
    ... a record 67 million shares. Our team successfully delivered on several key commitments in 2011: •฀ Effectively used free cash flow to reward Shareholders. •฀ Continued to win Customer loyalty. •฀ Grew market share. •฀ Increased identical supermarket sales for an industry-leading...

  • Page 4
    ... brand in other categories throughout this year and 2013. Our Prices. A key feature of our Customer 1st strategy is price investment. We are currently saving shoppers $2.2 billion annually through our everyday low prices. These investments are possible because of Kroger's innovative cycle of value...

  • Page 5
    ... the communities we serve and rewarding Shareholders. The importance of these things to our Company and our leadership will never change. Valuing our Associates We are proud of our record as a job creator. Kroger has created more than 29,000 new jobs in the last five years, and today employs more...

  • Page 6
    ...In fiscal 2011, Kroger returned more than $1.8 billion to shareholders through share repurchases and cash dividends. Total payout to Shareholders has averaged over 90 percent of Kroger's adjusted net income over the past five years. In fiscal 2011 Kroger repurchased $1.4 billion of our Common Shares...

  • Page 7
    Congratulations to the winners of The Kroger Co. Community Service Award for 2011: Division Atlanta Central Cincinnati City Market Columbus Delta Dillon Stores Food 4 Less Fred Meyer Fry's Jay C Stores King Soopers Michigan Mid-Atlantic Mid-South QFC Ralphs Smith's Southwest _____ Country Oven ...

  • Page 8
    ...Street, Cincinnati, Ohio 45202, on June 21, 2012, at 11 a.m., eastern time, for the following purposes: 1. 2. 3. 4. 5. To elect the directors for the ensuing year; To consider and act upon an advisory vote to approve executive compensation; To consider and act upon a proposal to ratify the selection...

  • Page 9
    ... principal executive offices of The Kroger Co. are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our telephone number is 513-762-4000. This Proxy Statement and Annual Report, and the accompanying proxy, were first furnished to shareholders on May 11, 2012. As of the close of business on...

  • Page 10
    ...a member of the Corporate Governance and Public Responsibilities Committees. Mr. Anderson has extensive litigation experience, and he served as the first African-American Justice on the Mississippi Supreme Court. His knowledge and judgment gained through years of legal practice are of great value to...

  • Page 11
    ... and service as a director were recognized by his peers, who selected Mr. Beyer as an Outstanding Director in 2008 as part of the Outstanding Directors Program of the Financial Times. 52 1999 David B. Dillon Mr. Dillon was elected Chairman of the Board of Kroger in 2004, Chief Executive Officer...

  • Page 12
    .... She is a member of the Audit and Public Responsibilities Committees. Ms. Kropf has gained a unique consumer insight, having led a major beauty care company. She has extensive experience in manufacturing, marketing, supply chain operations, customer service, and product development, all of which...

  • Page 13
    ... provider of facility and maintenance repair services. He is a director of First Service Networks. Mr. Moore is a member of the Compensation and Corporate Governance Committees. Mr. Moore has over 25 years of general management experience in public and private companies. He has sound experience as...

  • Page 14
    ...years. Mr. Rogel is a director of Union Pacific Corporation and a director and non-executive Chairman of the Board of EnergySolutions, Inc. He is a member of the Corporate Governance and Financial Policy Committees. Mr. Rogel has extensive experience in management of large corporations at all levels...

  • Page 15
    ... by Kroger's Board to serve as Lead Director. Mr. Shackouls is chair of the Corporate Governance Committee and a member of the Audit Committee. Mr. Shackouls brings to the Board the critical thinking that comes with a chemical engineering background. His guidance of a major natural resources company...

  • Page 16
    ... Proxy Statement. The Audit Committee reviews financial reporting and accounting matters pursuant to its charter and selects our independent accountants. The Compensation Committee recommends for determination by the independent members of our Board the compensation of the Chief Executive Officer...

  • Page 17
    ... as defined by applicable SEC regulations and that all members of the Audit Committee are "financially literate" as that term is used in the NYSE listing standards. CODE OF ETHICS The Board of Directors has adopted The Kroger Co. Policy on Business Ethics, applicable to all officers, employees and...

  • Page 18
    ... of shareholders. All fourteen members of the Board attended last year's annual meeting. COMPENSATION CONSULTANTS The Compensation Committee directly engages a compensation consultant from Mercer Human Resource Consulting to advise the Committee in the design of compensation for executive officers...

  • Page 19
    ...audit, compensation, corporate governance, financial policy, and public responsibilities. Each of the Board committees is composed solely of independent directors, each with a different independent director serving as committee chair. We believe that the mix of experienced independent and management...

  • Page 20
    ... in rewarding named executive officers for the achievement of long-term business objectives and providing incentives for the creation of shareholder value. In sum, the Committee believes our management produced outstanding results in 2011, exceeding our aggressive business plan objectives for sales...

  • Page 21
    ... the annual business plan targets established by the Board, and (b) to ensure that the officers achieve Kroger's long-term strategic objectives. In developing compensation programs and amounts to meet these objectives, the Committee exercises judgment to ensure that executive officer compensation is...

  • Page 22
    ... Board of Directors. These guidelines require directors, officers and some other key executives to acquire and hold a minimum dollar value of Kroger shares. The guidelines require the CEO to acquire and maintain ownership of Kroger shares equal to 5 times his base salary; the Chief Operating Officer...

  • Page 23
    ... as stock options, restricted shares, and performance-based long-term cash bonuses and performance-based equity awards; and •฀ Total direct compensation (the sum of all these elements). •฀ The consultant compares these elements against those of other companies in a group of publicly-traded...

  • Page 24
    ... Retirement and other benefits; and •฀ Perquisites. SALARY We provide our named executive officers and other employees a fixed amount of cash compensation - salary - for their work. Salaries for named executive officers (with the exception of the CEO) are established each year by the Committee...

  • Page 25
    ...end of 2011, exceeding our goal of 1,075 centers. As a result, the officers earned the additional 5% fuel bonus. Due to the Company's excellent performance when compared to the targets established by the Committee, and based on the business plan adopted by the Board of Directors, the named executive...

  • Page 26
    ... from performance that significantly exceeded our business plan objectives. A comparison of bonus percentages for the named executive officers in prior years demonstrates the variability of incentive compensation: Fiscal Year Annual Cash Bonus Percentage 2011 2010 2009 2008 2007 2006 2005 2004 2003...

  • Page 27
    ... the long-term goals established by the Board of Directors by conditioning a portion of compensation on the achievement of those goals. Approximately 140 Kroger executives, including the named executive officers, are eligible to participate in a performance-based cash bonus plan designed to reward...

  • Page 28
    ... awards widely. In 2011, Kroger granted 3,912,405 stock options to approximately 7,650 employees, including the named executive officers, under one of Kroger's long-term incentive plans. The options permit the holder to purchase Kroger common shares at an option price equal to the closing price...

  • Page 29
    ... in 2007. All of our management employees and administrative support personnel whose employment is not covered by a collective bargaining agreement, with at least one year of service, are covered. KEPP provides for severance benefits and extended Kroger-paid health care, as well as the continuation...

  • Page 30
    ... of named executive officers. Kroger's policy is, primarily, to design and administer compensation plans that support the achievement of long-term strategic objectives and enhance shareholder value. Where it is material and supports Kroger's compensation philosophy, the Committee also will attempt...

  • Page 31
    ... was President of the Company's Ralphs division until he was elected Senior Vice President of Merchandising on June 23, 2011. The amounts in the table reflect his compensation during all of fiscal year 2011. The stock awards reflected in the table consist of both time-based and performance-based...

  • Page 32
    ... March 2012. The 2008 Long-Term Bonus Plan is a performance-based cash bonus plan designed to reward participants for improving the long-term performance of the Company. The plan covered performance during fiscal years 2008, 2009, 2010, and 2011, and the bonus potential amount equalled the executive...

  • Page 33
    ... the items and amounts included in All Other Compensation for 2011: Accidental Death and Long-Term Amounts Related to Relocation and Dismemberment Disability Acceptance of Insurance Insurance Achievement Executive Position* Premium Premium Award Life Insurance Premium Mr. Dillon Mr. Schlotman Mr...

  • Page 34
    ... potential of the named executive officer under the Company's performance-based 2011 Long-Term Bonus Plan, a performance-based long-term cash bonus program. The "Target" amount equals the annual base salary of the named executive officer as of the last day of fiscal year 2010. Bonuses are determined...

  • Page 35
    (4) This amount represents the number of stock options granted under one of the Company's long-term incentive plans. Options are granted at fair market value of Kroger common shares on the date of the grant. Fair market value is defined as the closing price of Kroger shares on the date of the grant...

  • Page 36
    ...vesting schedule for each award is described in the footnotes to this table. Market value of unvested shares is based on Kroger's closing stock price of $24.30 on January 27, 2012, the last trading day of the 2011 fiscal year. Option Awards Equity Incentive Plan Awards: Number of Number of Number of...

  • Page 37
    ... Option Options Options Unearned Exercise Option (#) (#) Options Price Expiration Exercisable Unexercisable (#) ($) Date Stock Awards Equity Equity Incentive Incentive Plan Plan Awards: Awards: Market Number of Market or Value of Unearned Payout Value Number of Shares or Shares, of Unearned Shares...

  • Page 38
    ...executive officers performance-based nonqualified stock options. These options, having a term of ten years, vest six months prior to their date of expiration unless earlier vesting because Kroger's stock price achieved the specified annual rate of appreciation set forth in the stock option agreement...

  • Page 39
    ...information on pension benefits as of 2011 year-end for the named executive officers. 2011 PENSION BENEFITS Payments Number Present During of Years Value of Credited Accumulated Last Fiscal Benefit Year Service ($) ($) (#) Name Plan Name David B. Dillon The Kroger Consolidated Retirement Benefit...

  • Page 40
    ...base and pre-tax insurance and other Internal Revenue Code Section 125 plan deductions, as well as 100% of their annual and long-term bonus compensation. Deferral account amounts are credited with interest at the rate representing Kroger's cost of ten-year debt as determined by Kroger's CEO prior to...

  • Page 41
    ...Aggregate number of stock options outstanding at fiscal year end was 36,000 shares. (7) This amount reflects the change in pension value for the applicable directors. Only those directors elected to the Board prior to July 17, 1997 are eligible to participate in the outside director retirement plan...

  • Page 42
    ...of ten-year debt; and •฀ amounts are credited in "phantom" stock accounts and the amounts in those accounts fluctuate with the price of Kroger common shares. In both cases, deferred amounts are paid out only in cash, based on deferral options selected by the participants at the time the deferral...

  • Page 43
    ... executive officers also is entitled to continuation of health care coverage for up to 24 months at the same contribution rate as existed prior to the change in control. The cost to Kroger cannot be calculated, as Kroger self insures the health care benefit and the cost is based on the health care...

  • Page 44
    ...; Mr. Schlotman, 141,000; and all directors and executive officers as a group, 4,230,734. The fractional interest resulting from allocations under Kroger's defined contribution plans has been rounded to the nearest whole number. This amount includes 87,618 shares owned by Mr. Dillon's wife, 18,008...

  • Page 45
    ... year 2011 all filing requirements applicable to our officers, directors and 10% beneficial owners were timely satisfied. R EL AT ED P E R SON TR A NSAC T IONS Pursuant to our Statement of Policy with Respect to Related Person Transactions and the rules of the SEC, Kroger has the following related...

  • Page 46
    ... proxy statement, (b) any employment by Kroger of an executive officer if the executive officer is not an immediate family member of a Related Person and the Compensation Committee approved (or recommended that the Board approve) the executive officer's compensation, and (c) any compensation paid to...

  • Page 47
    ... an immediate family member (as defined above), is a Related Person except that the director will provide all material information about the Related Person Transaction to the Committee. C. DISCLOSURE Kroger will disclose all Related Person Transactions in Kroger's applicable filings as required by...

  • Page 48
    ... upon the review and discussions described in this report, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended January 28, 2012, as filed with the SEC. This report is...

  • Page 49
    ... by Kroger's Regulations or otherwise, the Board of Directors is submitting the selection of PricewaterhouseCoopers LLP to shareholders for ratification, as it has in past years, as a good corporate governance practice. If the shareholders fail to ratify the selection, the Audit Committee may...

  • Page 50
    ... Kroger's consolidated financial statements, the issuance of comfort letters to underwriters, consents, and assistance with the review of documents filed with the SEC. Audit-Related Fees. We did not engage PricewaterhouseCoopers LLP for any audit-related services for the years ended January 28, 2012...

  • Page 51
    Whereas, we believe violations of human rights in Kroger's supply chain can lead to negative publicity, public protests, and a loss of consumer confidence that can have a negative impact on shareholder value, and Whereas, Kroger's current vendor Code of Conduct is based heavily on compliance with ...

  • Page 52
    ... entitled to overtime pay when working more than eight hours per day; •฀ Workers have a right to form and join unions and to collectively bargain; and •฀ Worker representatives are to be free from discrimination and have access to the workplace. Kroger has developed its own code of conduct...

  • Page 53
    ...and describing efforts by the company to implement this strategy. Supporting Statement: Proponents believe policy options reviewed in the report should include taking responsibility for post-consumer package recycling, and participating in development of producer financed and managed EPR systems. TH...

  • Page 54
    ...of that report is available to shareholders on request by writing to: Scott M. Henderson, Treasurer, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100 or by calling 1-513-762-1220. Our SEC filings are available to the public from the SEC's web site at www.sec.gov. The management knows of...

  • Page 55
    2011 ANNUAL REPORT

  • Page 56
    ... these policies. M A N AG E M E N T 'S R E P O R T ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer...

  • Page 57
    ... amounts have been revised or reclassified to conform to the current year presentation. For further information, see Note 1 to the Consolidated Financial Statements. COMMON STOCK PRICE RANGE 2011 Quarter High Low High 2010 Low 1st ...2nd ...3rd...4th... $25.48 $25.85 $23.78 $24.83 $21.29 $21.52...

  • Page 58
    ...line graph comparing the five-year cumulative total shareholder return on Kroger's common shares, based on the market price of the common shares and assuming reinvestment of dividends, with the cumulative total return of companies in the Standard & Poor's 500 Stock Index and a peer group composed of...

  • Page 59
    ... Board of Directors at any time. Total shares purchased include shares that were surrendered to the Company by participants under the Company's long-term incentive plans to pay for taxes on restricted stock awards. The amounts shown in this column reflect amounts remaining under the $1 billion share...

  • Page 60
    ... health care. In these negotiations, we will also need to address the underfunding of our multi-employer pension plans. STORES As of January 28, 2012, the Company operated, either directly or through its subsidiaries, 2,435 supermarkets and multi-department stores, 1,090 of which had fuel centers...

  • Page 61
    ... the product quality meets our customers' expectations in taste and efficacy, and we guarantee it. Kroger Value is the value brand, designed to deliver good quality at a very affordable price. Approximately 40% of the corporate brand units sold are produced in the Company's manufacturing plants; the...

  • Page 62
    ... and increase market share by offering customers good prices and superior products and service. Based on Nielsen Homescan Data, our estimated market share increased in total by approximately 50 basis points in 2011 across our 19 marketing areas outlined by the Nielsen report. This information also...

  • Page 63
    ... diluted share) are useful metrics to investors and analysts because the one-time charges reflected in net earnings, and net earnings per diluted share, are non-recurring and are not directly related to our day-to-day business. Sales Total Sales (in millions) 2011 Percentage Increase 2010 Percentage...

  • Page 64
    ... product cost inflation related to tobacco and pharmacy products. Operating, General and Administrative Expenses Operating, general and administrative ("OG&A") expenses consist primarily of employee-related costs such as wages, health care benefit and retirement plan costs, utilities and credit card...

  • Page 65
    ... 2011, compared to 2010. The 2011 decrease, compared to 2010, resulted primarily from increased identical supermarket sales growth, productivity improvements and strong cost controls at the store level, offset partially by increased credit and debit card fees, incentive compensation, and health care...

  • Page 66
    ... open market purchases of Kroger common shares totaling $1.4 billion in 2011, $505 million in 2010 and $156 million in 2009 under these repurchase programs. In addition to these repurchase programs, we also repurchase common shares to reduce dilution resulting from our employee stock option plans...

  • Page 67
    ...' compensation claims on a present value basis utilizing a risk-adjusted discount rate. A 25 basis point decrease in our discount rate would increase our liability by approximately $5 million. General liability claims are not discounted. We are also similarly self-insured for property-related losses...

  • Page 68
    ... on current and future expected cash flows, the Company believes additional goodwill impairments are not reasonably likely. For additional information relating to our results of the goodwill impairment reviews performed during 2011, 2010 and 2009 see Note 2 to the Consolidated Financial Statements...

  • Page 69
    .... Note 13 to the Consolidated Financial Statements discusses the effect of a 1% change in the assumed health care cost trend rate on other post-retirement benefit costs and the related liability. The objective of our discount rate assumptions was intended to reflect the rates at which the pension...

  • Page 70
    ... from the Company based on participant contributions, plan compensation, and length of service. Multi-Employer Pension Plans We also contribute to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These plans provide retirement benefits to...

  • Page 71
    ... if the asset values decline, if employers currently contributing to these funds cease participation or if changes occur through collective bargaining, trustee action or adverse legislation. See Note 14 to the Consolidated Financial Statements for more information relating to our participation...

  • Page 72
    ... concluded by the Internal Revenue Service covered the years 2005 through 2007. The assessment of our tax position relies on the judgment of management to estimate the exposures associated with our various filing positions. Share-Based Compensation Expense We account for stock options under the fair...

  • Page 73
    ... in other long-term liabilities. Prepaid expenses decreased in 2010, compared to 2009, due to Kroger not prefunding $300 million of employee benefits in 2010. These amounts are also net of cash contributions to our Company-sponsored defined benefit pension plans totaling $52 million in 2011, $141...

  • Page 74
    ... fund future scheduled principal payments of long-term debt from our cash flows from operating activities. We also currently do not expect to purchase our common shares at the levels we did in 2011. We used our commercial paper program toward the end of 2011 to fund our common share purchases. We...

  • Page 75
    ...defined in our credit facility, includes an adjustment for unusual gains and losses including our UFCW consolidated pension plan charge in 2011. Our credit agreement is more fully described in Note 5 to the Consolidated Financial Statements. We were in compliance with our financial covenants at year...

  • Page 76
    ... out of agreements to provide services to Kroger; indemnities related to the sale of our securities; indemnities of directors, officers and employees in connection with the performance of their work; and indemnities of individuals serving as fiduciaries on benefit plans. While Kroger's aggregate...

  • Page 77
    ... 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 attributable to The Kroger Co.; identical supermarket sales growth; expected product cost; expected pension plan contributions...

  • Page 78
    ... five year time period. In 2012, annual earnings per diluted share growth are expected to be higher than this due to a combination of the benefit of the 53rd week, a lower expected LIFO charge, the benefit of our share buyback program during 2011, the benefits from the pension plan consolidation and...

  • Page 79
    ... these savings in our core business to drive profitable sales growth and offer improved value and shopping experiences for our customers. •฀ Although฀we฀are฀not฀required฀to฀make฀cash฀contributions฀to฀the฀Company-sponsored฀defined฀benefit฀ pension plans during 2012, we...

  • Page 80
    ...฀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฀or฀fail฀to฀meet...

  • Page 81
    ...฀ 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...

  • Page 82
    ... the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and changes in shareowners' equity present fairly, in all material respects, the financial position of The Kroger Co. and its subsidiaries at January 28, 2012 and January 29, 2011, and the...

  • Page 83
    ... ...Property, plant and equipment, net ...Goodwill ...Other assets ...Total Assets ...LIABILITIES Current liabilities Current portion of long-term debt including obligations under capital leases and financing obligations ...Trade accounts payable...Accrued salaries and wages ...Deferred income taxes...

  • Page 84
    THE K ROGER CO. CONSOLIDATED STATEMENTS OF OPER ATIONS Years Ended January 28, 2012, January 29, 2011 and January 30, 2010 (In millions, except per share amounts) 2011 2010 (52 weeks) (52 weeks) 2009 (52 weeks) Sales ...Merchandise costs, including advertising, warehousing, and transportation, ...

  • Page 85
    ... ...Asset impairment charge ...LIFO charge ...Stock-based employee compensation ...Expense for Company-sponsored pension plans ...Deferred income taxes ...Other ...Changes in operating assets and liabilities net of effects from acquisitions of businesses: Store deposits in-transit ...Inventories...

  • Page 86
    ...Balances at January 29, 2011 ...Issuance of common stock: Stock options exercised ...Restricted stock issued ...Treasury stock activity: Treasury stock purchases, at cost ...Stock options exchanged ...Share-based employee compensation ...Other comprehensive loss net of income tax of $(167) ...Other...

  • Page 87
    ... conform to current year presentation. 1. ACCOUNTING POLICIES The following is a summary of the significant accounting policies followed in preparing these financial statements. Description of Business, Basis of Presentation and Principles of Consolidation The Kroger Co. (the "Company") was founded...

  • Page 88
    ... of the division's goodwill over the implied fair value. Results of the goodwill impairment reviews performed during 2011, 2010 and 2009 are summarized in Note 2 to the Consolidated Financial Statements. Impairment of Long-Lived Assets The Company monitors the carrying value of long-lived assets...

  • Page 89
    ...subtenant income. The Company estimates the net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on closed stores. The closed store lease liabilities usually are paid over the lease terms associated with the closed stores, which generally have...

  • Page 90
    ... 401(k) retirement savings accounts. Contributions to the employee 401(k) retirement savings accounts are expensed when contributed. Refer to Note 13 for additional information regarding the Company's benefit plans. Stock Based Compensation The Company accounts for stock options under fair value...

  • Page 91
    ... to remit the value of the unredeemed gift card. The amount of breakage has not been material for 2011, 2010 and 2009. Merchandise Costs The "Merchandise costs" line item of the Consolidated Statements of Operations includes product costs, net of discounts and allowances; advertising costs (see...

  • Page 92
    ... deposited to the Company's bank accounts at the end of the year related to sales, a majority of which were paid for with credit cards and checks, to which the Company does not have immediate access but that settle within a few days of the sales transaction. Consolidated Statements of Cash Flows...

  • Page 93
    ... store sales, outside manufacturing sales and sales from entities not controlled by the Company. GOODWILL 2. The following table summarizes the changes in the Company's net goodwill balance through January 28, 2012. 2011 2010 Balance beginning of the year Goodwill ...Accumulated impairment losses...

  • Page 94
    ... at the Ralphs reporting unit. Based on current and future expected cash flows, the Company believes additional goodwill impairments are not reasonably likely. 3. P R O P E R T Y, P L A N T AND E Q U I P M E N T, NE T Property, plant and equipment, net consists of: 2011 2010 Land ...Buildings and...

  • Page 95
    ...local Current ...Deferred ...Total... $146 78 224 42 (19) 23 $247 $ 697 (136) 561 95 (55) 40 $ 601 $ 193 275 468 41 23 64 $ 532 A reconciliation of the statutory federal rate and the effective rate follows: 2011 2010 2009 Statutory rate...State income taxes, net of federal tax benefit ...Credits...

  • Page 96
    ...Total current deferred tax liabilities ...Current deferred taxes ...Long-term deferred tax assets: Compensation related costs ...Lease accounting ...Closed store reserves ...Insurance related costs ...Net operating loss and credit carryforwards ...Other ...Long-term deferred tax assets ...Long-term...

  • Page 97
    ... generally limited to the federal audit changes reported. 5. DEBT OBLIGATIONS Long-term debt consists of: 2011 2010 Commercial paper ...2.20% to 8.00% Senior notes and debentures due through 2040 ...5.00% to 9.50% Mortgages due in varying amounts through 2034 ...Other ...Total debt ...Less current...

  • Page 98
    ... directors of the Company or (iii) both a change of control and a below investment grade rating. The aggregate annual maturities and scheduled payments of long-term debt, as of year-end 2011, and for the years subsequent to 2011 are: 2012 ...2013 ...2014 ...2015 ...2016 ...Thereafter ...Total...

  • Page 99
    ... to current mark-to-market status. Annually, the Company reviews with the Financial Policy Committee of the Board of Directors compliance with these guidelines. These guidelines may change as the Company's needs dictate. Fair Value Interest Rate Swaps The table below summarizes the outstanding...

  • Page 100
    ...) 2011 2010 2011 2010 Derivatives in Cash Flow Hedging Relationships Location of Gain/ (Loss) Reclassified into Income (Effective Portion) Forward-Starting Interest Rate Swaps, net of tax ...Commodity Price Protection $(29) $(5) $(2) $(2) Interest expense The Company enters into purchase...

  • Page 101
    ..., 2011: January 28, 2012 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Unobservable Inputs (Level 3) Significant Other Observable Inputs (Level 2) Total Available-for-Sale Securities ...Long-Lived Assets ...Interest Rate Hedges ...Total...

  • Page 102
    ...value is determinable were $50 and $69, respectively. 8. LEASES AND L E A SE-FI NA NCED TR A NSAC T IONS While the Company's current strategy emphasizes ownership of store real estate, the Company operates primarily in leased facilities. Lease terms generally range from 10 to 20 years with options...

  • Page 103
    ...market value of the underlying shares on the grant date of the award, over the period the awards lapse. As of January 28, 2012, approximately 11 million common shares were available for future restricted stock awards under the 2005, 2008, and 2011 Long-Term Incentive Plans (the "Plans"). The Company...

  • Page 104
    ... stock awards. All awards become immediately exercisable upon certain changes of control of the Company. Stock Options Changes in options outstanding under the stock option plans are summarized below: Shares subject to option (in millions) Weightedaverage exercise price Outstanding, year-end 2008...

  • Page 105
    ... in the Company's share price. The following table reflects the weighted-average assumptions used for grants awarded to option holders: 2011 2010 2009 Weighted average expected volatility...Weighted average risk-free interest rate ...Expected dividend yield ...Expected term (based on historical...

  • Page 106
    ... remaining related to non-vested share-based compensation arrangements granted under the Company's equity award plans. This cost is expected to be recognized over a weighted-average period of approximately two years. The total fair value of options that vested was $33, $37 and $39 in 2011, 2010 and...

  • Page 107
    ...repurchase common shares to reduce dilution resulting from its employee stock option plans. This program is solely funded by proceeds from stock option exercises, and the related tax benefit. The Company repurchased approximately $127, $40 and $62 under the stock option program during 2011, 2010 and...

  • Page 108
    ... the next fiscal year are as follows (pre-tax): Pension Benefits 2012 Other Benefits 2012 Total 2012 Net actuarial loss (gain) ...Prior service cost (credit) ...Total... $ 101 1 $ 102 $- (4) $ (4) $ 101 (3) $ 98 Other changes recognized in other comprehensive income in 2011, 2010, and 2009 were...

  • Page 109
    ... common shares of The Kroger Co. Weighted average assumptions Pension Benefits 2011 2010 2009 2011 Other Benefits 2010 2009 Discount rate - Benefit obligation ...Discount rate - Net periodic benefit cost ...Expected return on plan assets ...Rate of compensation increase - Net periodic benefit...

  • Page 110
    ... calculate the market-related value of plan assets would provide a different expected return on plan assets. The funded status decreased in 2011 compared to 2010 due mostly to the decrease in the discount rate used to calculate the present value of the Company's benefit obligation. The Company uses...

  • Page 111
    ...plan's current and projected financial requirements. The time horizon of the investment objectives is long-term in nature and plan assets are managed on a going-concern basis. Investment objectives and guidelines specifically applicable to each manager of assets are established and reviewed annually...

  • Page 112
    ...point change in the assumed health care cost trend rates would have the following effects: 1% Point Increase 1% Point Decrease Effect on total of service and interest cost components ...Effect on postretirement benefit obligation ... $ $ 4 40 $ $ (3) (43) The following table sets forth by level...

  • Page 113
    ..., divided by the number of shares outstanding. The NAV's unit price is quoted on a private market that is not active. However, the NAV is based on the fair value of the underlying securities within the fund, which are traded on an active market, and valued at the closing price reported on the active...

  • Page 114
    ...these plans was $6, $7 and $8 for 2011, 2010 and 2009, respectively. 14 . M U L T I - E M P L O Y E R P E N S I O N P L A N S The Company contributes to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These plans provide retirement benefits to...

  • Page 115
    ... noted, the information for these tables was obtained from the Forms 5500 filed for each plan's year-end at December 31, 2010 and December 31, 2009. The multi-employer contributions listed in the table below are the Company's multi-employer contributions made in fiscal years 2011, 2010, and 2009...

  • Page 116
    ... CONSOLIDATED FINA NCI A L STATEMENTS, CONTINUED The following table contains information about the Company's multi-employer pension plans. Pension Protection Act Zone Status 2011 2010 FIP/RP Status Pending/ Implemented Multi-Employer Contributions 2011 2010 2009 Pension Fund EIN / Pension Plan...

  • Page 117
    ... (6) TO CONSOLIDATED FINA NCI A L STATEMENTS, CONTINUED The Company's multi-employer contributions to these respective funds represent more than 5% of the total contributions received by the pension funds. The information for this fund was obtained from the Form 5500 filed for the plan's year-end...

  • Page 118
    ... TO CONSOLIDATED FINA NCI A L STATEMENTS, CONTINUED The following table describes (a) the expiration date of the Company's collective bargaining agreements and (b) the expiration date of the Company's most significant collective bargaining agreements for each of the material multi-employer funds...

  • Page 119
    .... The Company also contributes to various other multi-employer benefit plans that provide health and welfare benefits to active and retired participants. Total contributions made by the Company to these other multi-employer benefit plans were approximately $1,000 in 2011 and $900 in 2010 and 2009...

  • Page 120
    ...Income tax expense (benefit) ...Net earnings (loss) including noncontrolling interests ...Net earnings (loss) attributable to noncontrolling interests ...Net earnings (loss) attributable to The Kroger Co...$ Net earnings (loss) attributable to The Kroger Co. per basic common share...$ Average number...

  • Page 121
    ... per common share ...$ 0.095 Annual amounts may not sum due to rounding. Certain revenue transactions previously reported in sales and merchandise costs in the Consolidated Statements of Operations are now reported within operating, general and administrative expense as of January 30, 2011. Certain...

  • Page 122
    ... printed financial information, including Kroger's most recent report on Form 10-Q or 10-K, or press release. Written inquiries should be addressed to Shareholder Relations, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100. Information also is available on Kroger's corporate website at...

  • Page 123
    ...A. Grieshaber, Jr. Dillon Stores John P. Hackett Mid-South Division Bryan H. Kaltenbach Food 4 Less Bruce A. Lucia Atlanta Division Bruce A. Macaulay Columbus Division Sukanya Madlinger Cincinnati Division Gary Millerchip Kroger Personal Finance Robert Moeder Central Division Jeffrey A. Parker Kwik...

  • Page 124
    Th e ฀K ro ge r ฀C o .฀•฀1014฀V i n e ฀S T r e e T ฀•฀C i nC i n naT i ,฀o h io ฀45202฀•฀(513)฀762- 4000