Kroger 2011 Annual Report Download - page 87

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NO T E S T O CO N S O L I D A T E D FI N A N C I A L ST A T E M E N T S
All dollar amounts are in millions except share and per share amounts.
Certain prior-year amounts have been reclassified to conform to current year presentation.
1. AC C O U N T I N G PO L I C I E S
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 in 1883 and incorporated in 1902. As of January 28,
2012, the Company was one of the largest retailers in the United States based on annual sales. The Company
also manufactures and processes food for sale by its supermarkets. The accompanying financial statements
include the consolidated accounts of the Company, its wholly-owned subsidiaries and the Variable Interest
Entities (“VIEs”) in which the Company is the primary beneficiary. Significant intercompany transactions and
balances have been eliminated.
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 prior year amounts have been revised or reclassified to conform to the current year
presentation. These amounts were not material to the prior periods.
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest January 31. The last three fiscal years consist of
the 52-week periods ended January 28, 2012, January 29, 2011 and January 30, 2010.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities. Disclosure of contingent assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of consolidated revenues and expenses during the reporting period also
is required. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (principally on a last-in, first-out “LIFO” basis) or market. In
total, approximately 97% of inventories for 2011 and 2010 were valued using the LIFO method. Cost for the
balance of the inventories, including substantially all fuel inventories, was determined using the first-in, first-
out (“FIFO”) method. Replacement cost was higher than the carrying amount by $1,043 at January 28, 2012
and $827 at January 29, 2011. The Company follows the Link-Chain, Dollar-Value LIFO method for purposes
of calculating its LIFO charge or credit.
The item-cost method of accounting to determine inventory cost before the LIFO adjustment is followed
for substantially all store inventories at the Company’s supermarket divisions. This method involves counting
each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor
allowances and cash discounts) of each item and recording the cost of items sold. The item-cost method of
accounting allows for more accurate reporting of periodic inventory balances and enables management to
more precisely manage inventory when compared to the retail method of accounting.
The Company evaluates inventory shortages throughout the year based on actual physical counts in its
facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for
estimated shortages as of the financial statement date.