Kroger 2015 Annual Report Download - page 72

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70
The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:
Kroger believes that the policy advocated by the shareholder proposal is not in the best interests of
our shareholders as it reduces long-term flexibility in the allocation of capital. In a rapidly evolving capital
market, this flexibility is an essential element in the careful management of shareholder capital, which the
Board thoughtfully oversees and reviews on a regular basis.
Our long-term financial strategy continues to be to use cash flow from operations, in a balanced
manner, to repurchase shares, fund dividends, and increase capital investments, all while maintaining our
current investment grade debt rating. Our balanced approach gives us the flexibility to pursue long-term
growth strategies while returning capital to our shareholders.
Kroger is proud of our strong history of capital return to shareholders. We have made significant
commitments over time to return capital to shareholders both through repurchases of our common shares
and payment of cash dividends. We repurchased $703 million of Kroger common shares in 2015, as
well as $1.1 billion in 2014, $338 million in 2013 and $1.2 billion in 2012. Additionally, we paid dividends
totaling $385 million in 2015, $338 million in 2014, $319 million in 2013 and $267 million in 2012. We are
also committed to growing long-term shareholder value through significant capital investments. Excluding
acquisitions, we invested $3.38 billion, $2.89 billion, $2.46 billion and $2.06 billion in capital projects
in 2015, 2014, 2013, and 2012, respectively. Many of our shareholders view both dividends and share
repurchases as an important component of Kroger’s investment profile, especially in light of our balanced
capital return strategy that contributes to a healthy TSR (total shareholder return), which outperforms
both our peers and the S&P 500 over time.
When contemplating capital returns, the Board engages in a thorough analysis and oversight
process. Before the Board approves any share repurchase program or declares a cash dividend, it
takes into account a wide range of factors, including Kroger’s short and long-term growth strategies,
liquidity needs and capital requirements, cash flows, net earnings, debt obligations, and leverage ratios.
The Board also considers how the then-current capital market conditions affect Kroger’s policies and
strategies. There is no one-size-fits-all policy or strategy in returning capital to shareholders that would
satisfy each market condition over the course of time. Balanced capital allocation decisions, overseen by
an effective Board, remain the most effective and flexible strategy to continuously deliver healthy value to
shareholders over the long-term.
This proposal requests that Kroger adopt a general policy that gives preference to share
repurchases relative to cash dividends. We urge you to vote AGAINST this proposal.