Kroger 2013 Annual Report Download - page 55

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of฀strategic฀initiatives;฀and฀(iv)฀achievement฀of฀supermarket฀fuel฀center฀goals฀for฀EBITDA,฀gallons฀sold,฀and฀
number฀ of฀ fuel฀ centers.฀ Initially฀ the฀ Performance฀ Goals฀ for฀ long-term฀ bonuses฀ will฀ include฀ the฀ following฀
components:฀ (i)฀ performance฀ in฀ four฀ key฀ categories฀ in฀ Kroger’s฀ strategic฀ plan,฀ (ii)฀ reduction฀ in฀ operating฀
costs฀as฀a฀percentage฀of฀sales,฀(iii)฀performance฀in฀categories฀designed฀to฀measure฀associate฀engagement,฀and฀
(iv)฀return฀on฀invested฀capital.฀No฀single฀Cash฀Bonus฀to฀a฀participant฀may฀exceed฀$5,000,000.
CE R T A I N F E D E R A L I N C O M E T A X C O N S E Q U E N C E S
Nonstatutory Stock Options, Stock Appreciation Rights, and Performance Units. A grantee will not
recognize฀income฀on฀the฀grant฀of฀a฀nonstatutory฀stock฀option,฀stock฀appreciation฀right฀or฀performance฀unit,฀
but฀generally฀will฀recognize฀ordinary฀income฀upon฀the฀exercise฀thereof.฀The฀amount฀of฀income฀recognized฀
upon฀the฀exercise฀of฀a฀nonstatutory฀stock฀option฀generally฀will฀be฀measured฀by฀the฀excess,฀if฀any,฀of฀the฀fair฀
market฀value฀of฀the฀shares฀at฀the฀time฀of฀exercise฀over฀the฀exercise฀price,฀provided฀the฀shares฀issued฀are฀either฀
transferable฀ or฀ not฀ subject฀ to฀ a฀ substantial฀ risk฀ of฀ forfeiture.฀ The฀ amount฀ of฀ income฀ recognized฀ upon฀ the฀
exercise฀of฀a฀stock฀appreciation฀right฀or฀a฀performance฀unit,฀in฀general,฀will฀be฀equal฀to฀the฀amount฀of฀cash฀
received฀and฀the฀fair฀market฀value฀of฀any฀shares฀received฀at฀the฀time฀of฀exercise,฀provided฀the฀shares฀issued฀
are฀either฀transferable฀or฀not฀subject฀to฀a฀substantial฀risk฀of฀forfeiture,฀plus฀the฀amount฀of฀any฀taxes฀withheld.฀
Under฀certain฀circumstances,฀income฀on฀the฀exercise฀of฀a฀performance฀unit฀will฀be฀deferred฀if฀the฀grantee฀
makes฀a฀proper฀election฀to฀defer฀such฀income.฀In฀some฀cases฀the฀recognition฀of฀income฀by฀a฀grantee฀from฀the฀
exercise฀of฀a฀performance฀unit฀may฀be฀delayed฀for฀up฀to฀six฀months฀if฀a฀sale฀of฀the฀shares฀would฀subject฀the฀
grantee฀to฀suit฀under฀Section฀16(b)฀of฀the฀Exchange฀Act฀unless฀the฀grantee฀elects฀to฀recognize฀income฀at฀the฀
time of receipt of such shares. In either case, the amount of income recognized is measured with respect to
the฀fair฀market฀value฀of฀the฀common฀stock฀at฀the฀time฀the฀income฀is฀recognized.
In฀ the฀ case฀ of฀ ordinary฀ income฀ recognized฀ by฀ a฀ grantee฀ as฀ described฀ above฀ in฀ connection฀ with฀ the฀
exercise฀ of฀ a฀nonstatutory฀ stock฀ option,฀a฀stock฀ appreciation฀right,฀or฀a฀performance฀unit,฀Kroger฀ will฀be฀
entitled฀to฀a฀deduction฀in฀the฀amount฀of฀ordinary฀income฀so฀recognized฀by฀the฀grantee.฀Kroger฀will฀report฀the฀
income฀to฀be฀recognized฀by฀grantee฀and฀will฀withhold฀the฀appropriate฀taxes.
Incentive Shares and Restricted Stock. A฀grantee฀of฀incentive฀shares฀or฀restricted฀stock฀is฀not฀required฀
to include the value of such shares in ordinary income until the first time the grantee’s rights in the shares
are฀ transferable฀ or฀ are฀ not฀ subject฀ to฀ a฀ substantial฀ risk฀ of฀ forfeiture,฀ whichever฀ occurs฀ earlier,฀ unless฀ the฀
grantee฀elects฀to฀be฀taxed฀on฀receipt฀of฀the฀shares.฀In฀either฀case,฀the฀amount฀of฀such฀income฀will฀be฀equal฀
to฀the฀excess฀of฀the฀fair฀market฀value฀of฀the฀stock฀at฀the฀time฀the฀income฀is฀recognized฀over฀the฀amount฀paid฀
for฀the฀stock.฀Kroger฀will฀be฀entitled฀to฀a฀ deduction฀in฀the฀amount฀of฀the฀ordinary฀income฀recognized฀by฀
the฀grantee฀for฀Kroger’s฀taxable฀year฀which฀includes฀the฀last฀day฀of฀the฀grantee’s฀taxable฀year฀in฀which฀such฀
grantee฀recognizes฀the฀income.฀Kroger฀will฀report฀the฀income฀to฀be฀recognized฀by฀grantee฀and฀will฀withhold฀
the appropriate taxes.
General. The฀rules฀governing฀the฀tax฀treatment฀of฀options,฀stock฀appreciation฀rights,฀performance฀units,฀
incentive฀shares฀and฀restricted฀stock฀and฀stock฀acquired฀upon฀the฀exercise฀of฀options,฀stock฀appreciation฀rights฀
and฀performance฀units฀are฀quite฀technical,฀so฀that฀the฀above฀description฀of฀tax฀consequences฀is฀necessarily฀
general฀in฀nature฀and฀does฀not฀purport฀to฀be฀complete.฀Moreover,฀statutory฀provisions฀are,฀of฀course,฀subject฀
to change, as are their interpretations, and their application may vary in individual circumstances. Finally,
the฀tax฀consequences฀under฀applicable฀state฀law฀may฀not฀be฀the฀same฀as฀under฀the฀federal฀income฀tax฀laws.
Tax Deductibility Cap.฀Section฀162(m)฀of฀the฀Code฀provides฀that฀certain฀compensation฀received฀in฀any฀
year฀ by฀ a฀ “covered฀ employee”฀ in฀ excess฀ of฀ $1,000,000฀ is฀ non-deductible฀ by฀ Kroger฀ for฀ federal฀ income฀ tax฀
purposes.฀Section฀162 (m)฀provides฀an฀exception,฀however,฀for฀“performance-based฀compensation.”฀To฀the฀extent฀
practicable฀under฀the฀circumstances,฀the฀Committee฀currently฀intends฀to฀ structure฀grants฀ and฀awards฀ made฀
under฀the฀Plan฀to฀“covered฀employees”฀as฀performance-based฀compensation฀that฀is฀exempt฀from฀Section฀162(m).
This฀summary฀of฀the฀2014฀Long-Term฀Incentive฀and฀Cash฀Bonus฀Plan฀is฀qualified฀in฀its฀entirety฀by฀the฀
complete฀text฀of฀the฀Plan฀that฀is฀set฀forth฀in฀Appendix฀1฀of฀this฀Proxy฀Statement.