Kroger 2011 Annual Report Download - page 80

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A-25
•฀ 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฀ pass฀ on฀ product฀ cost฀ increases฀ will฀ depend฀ on฀ the฀ reactions฀ of฀ our฀ customers฀ and฀
competitors to those increases.
•฀ 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.
•฀ Our฀LIFO฀charge฀and฀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฀or฀fail฀to฀meet฀expectations฀if฀we฀are฀unable฀to฀pass฀
on any cost increases, if we 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฀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.
•฀ 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, compensation as defined by the
plan, and length of service of participants.
•฀ The฀amounts฀of฀our฀contributions฀and฀recorded฀expense฀related฀to฀multi-employer฀pension฀funds฀could฀
vary from the amounts that we expect, and 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.