|
UNITED STATES |
OMB APPROVAL |
|
SECURITIES AND EXCHANGE COMMISSION |
OMB Number: 3235-0059 |
|
Washington, D.C. 20549 |
Expires: January 31, 2008 |
|
SCHEDULE 14A |
Estimated average burden hours per response... 14 |
Proxy
Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x | |
Filed by a Party other than the Registrant o | |
Check the appropriate box: | |
x | Preliminary Proxy Statement |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o | Definitive Proxy Statement |
o | Definitive Additional Materials |
o | Soliciting Material Pursuant to Rule §240.14a-12 |
Payment of Filing Fee (Check the appropriate box):
x | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |
1. | Title of each class of securities to which transaction applies: | |
|
||
2. | Aggregate number of securities to which transaction applies: | |
|
||
3. | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |
|
||
4. | Proposed maximum aggregate value of transaction: | |
|
||
5. | Total fee paid: | |
|
||
SEC 1913 (04-05) Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
||
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |
1. | Amount Previously Paid: | |
2. | Form, Schedule or Registration Statement No.: | |
3. | Filing Party: | |
4. | Date Filed: | |
Fiscal Year |
|
2005 (1) |
|
2004 (1) |
|
Percent Change (2) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales |
$ | 60,553 | $ | 56,434 | 7.3 | % | ||||||||
Operating
Profit |
$ | 2,035 | $ | 843 | 141.4 | % | ||||||||
Net earnings
(loss) per share |
$ | 1.31 | $ | (0.14 | ) | N/A | ||||||||
Average shares
used in calculation |
731 | 736 | (0.7 | )% | ||||||||||
Net cash provided
by operating activities |
$ | 2,192 | $ | 2,330 | (5.9 | )% | ||||||||
Capital
expenditures |
$ | 1,306 | $ | 1,634 | (20.1 | )% | ||||||||
Identical
supermarket sales (3) |
$ | 54,143 | $ | 51,413 | 5.3 | % | ||||||||
Identical
supermarket sales excluding supermarket fuel operations (3) |
$ | 50,866 | $ | 49,154 | 3.5 | % | ||||||||
Comparable
supermarket sales (4) |
$ | 55,607 | $ | 52,514 | 5.9 | % | ||||||||
Comparable
supermarket sales excluding supermarket fuel operations (4) |
$ | 52,200 | $ | 50,226 | 3.9 | % |
(1) |
The results as presented were affected by certain income and expense items that fluctuated between periods, including a 2004 goodwill impairment charge totaling $904, pre-tax, $861 after-tax, or $1.16 per share. |
(2) |
The percent calculations were based on the rounded numbers as presented. |
(3) |
We define a supermarket as identical when the store has been in operation and has not been expanded or relocated for five full quarters. Annualized identical supermarket sales are calculated as a summation of four quarters of identical sales. |
(4) |
We define a supermarket as comparable when the store has been in
operation for five full quarters, including expansions and relocations. Annualized comparable supermarket sales are calculated as a summation of four
quarters of comparable sales. |
|
managing costs and expenses while providing what our Customers tell us they expect in service, selection, value, and everyday store conditions; |
|
investing in capital projects to keep our stores Customer-centered and fresh; |
|
implementing technology and logistics systems to reduce costs and improve service; |
|
reducing the Companys debt; |
|
repurchasing stock; and |
|
nowfor the first time in 18 yearspaying a quarterly cash dividend to shareholders. |
|
our peoplewho are among the most talented in our industry; |
|
a high-quality asset base, with leading market shares in many of the nations largest and fastest growing markets; |
|
broad geographic diversity and multiple retail formats that allow Kroger to meet the needs of virtually every Customer; |
|
an extensive collection of consumer data generated from our customer loyalty cards as well as our valued partnership with dunnhumby USA that gives us insight into our Customers shopping habits; |
|
a successful track record of competing against supercenter operators; and |
|
outstanding private label products that can only be found at a Kroger-family store. |
1. |
To elect five directors; |
2. |
To consider, act upon and approve five corporate governance proposals presented by Kroger; |
3. |
To consider and act upon a proposal to ratify the selection of auditors for the year 2006; |
4. |
To act upon two shareholder proposals, if properly presented at the annual meeting; and |
5. |
To transact such other business as may properly be brought before the meeting; |
Name |
|
Professional Occupation (1) |
|
Age |
|
Director Since |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
NOMINEES FOR DIRECTOR FOR TERMS OF
OFFICE CONTINUING UNTIL 2009 OR 2007 (2) |
Reuben V.
Anderson |
Mr.
Anderson is a member in the Jackson, Mississippi, office of Phelps Dunbar, a regional law firm based in New Orleans. Prior to joining this law firm, he
was a justice of the Supreme Court of Mississippi. Mr. Anderson is a director of Trustmark National Bank and BellSouth Corporation. He is a member of
the Audit and Public Responsibilities Committees. |
63 | 1991 | |||||||||||
Don W.
McGeorge |
Mr.
McGeorge was elected President and Chief Operating Officer of Kroger in 2003. Before that he was elected Executive Vice President in 2000 and Senior
Vice President in 1997. |
51 | 2003 | |||||||||||
W. Rodney
McMullen |
Mr.
McMullen was elected Vice Chairman of Kroger in 2003. Before that he was elected Executive Vice President in 1999 and Senior Vice President in 1997.
Mr. McMullen is a director of Cincinnati Financial Corporation. |
45 | 2003 | |||||||||||
Clyde R.
Moore |
Mr.
Moore is the Chairman and Chief Executive Officer of First Service Networks, a national provider of facility and maintenance repair services. He is a
director of First Service Networks. Mr. Moore is a member of the Audit and Public Responsibilities Committees. |
52 | 1997 |
Name |
|
Professional Occupation (1) |
|
Age |
|
Director Since |
---|
Steven R.
Rogel |
Mr.
Rogel was elected Chairman of the Board of Weyerhaeuser Company in 1999 and has been President and Chief Executive Officer and a director thereof since
December 1997. Before that time he was Chief Executive Officer, President and a director of Willamette Industries, Inc. Mr. Rogel served as Chief
Operating Officer of Willamette Industries, Inc. until October 1995 and, before that time, as an executive and group vice president for more than five
years. He is a director of Weyerhaeuser Company and Union Pacific Corporation. Mr. Rogel has been appointed by the Board to serve as Lead Director. He
is chair of the Corporate Governance Committee and a member of the Financial Policy Committee. |
63 | 1999 |
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
UNTIL 2008 |
Robert D.
Beyer |
Mr.
Beyer is Chief Executive Officer of The TCW Group, Inc., an investment management firm, where he has been employed since 1995. From 1991 to 1995, he
was the co-Chief Executive Officer of Crescent Capital Corporation, which was acquired by TCW in 1995. Mr. Beyer is also a member of the Board of
Directors of TCW and its ultimate parent, Société Générale Asset Management, S.A. He is chair of the Financial Policy
Committee and a member of the Compensation Committee. |
46 | 1999 | |||||||||||
John T.
LaMacchia |
Mr.
LaMacchia is Chairman of the Board of Tellme Networks, Inc., a provider of voice application networks. From September 2001 through December 2004 he was
also Chief Executive Officer of Tellme Networks. From October 1993 through February 1999, Mr. LaMacchia was President and Chief Executive Officer of
Cincinnati Bell Inc. From May 1999 to May 2000 he was Chief Executive Officer of CellNet Data Systems, Inc., a provider of wireless data
communications. Mr. LaMacchia is a director of Tellme Networks, Inc. He is chair of the Compensation Committee and a member of the Corporate Governance
Committee. |
64 | 1990 | |||||||||||
Katherine D.
Ortega |
Ms.
Ortega served as an Alternate Representative of the United States to the 45th General Assembly of the United Nations in 1990-1991. Prior to that, she
served as Treasurer of the United States. Ms. Ortega is a director of Rayonier Inc., Washington Mutual Investors Fund and JPMorgan Value Opportunities
Fund, and Trustee of the American Funds Tax Exempt Series I. She is chair of the Public Responsibilities Committee and a member of the Corporate
Governance Committee. |
71 | 1992 |
Name |
|
Professional Occupation (1) |
|
Age |
|
Director Since |
---|
Bobby S.
Shackouls |
Until
the merger of Burlington Resources Inc. and ConocoPhillips, which became effective on March 31, 2006, Mr. Shackouls was Chairman of the Board of
Burlington Resources Inc., a natural resources business, since July 1997 and its President and Chief Executive Officer since December 1995. He had been
a director of that company since 1995 and President and Chief Executive Officer of Burlington Resources Oil and Gas Company (formerly known as Meridian
Oil Inc.), a wholly-owned subsidiary of Burlington Resources, since 1994. Mr. Shackouls is a director of ConocoPhillips. He is vice chair of the Audit
and Compensation Committees. |
55 | 1999 |
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
UNTIL 2007 |
John L.
Clendenin |
Mr.
Clendenin is Chairman Emeritus of BellSouth Corporation, a holding company with subsidiaries in the telecommunications business. From January 1984
through December 1996 he was its Chairman of the Board and Chief Executive Officer. Mr. Clendenin is a director of Equifax Incorporated, The Home
Depot, Inc., Powerwave Technologies, Inc., and Acuity Brands, Inc. He is a member of the Compensation and Corporate Governance
Committees. |
71 | 1986 | |||||||||||
David B.
Dillon |
Mr.
Dillon was elected Chairman of the Board of Kroger in 2004, Chief Executive Officer in 2003, and President and Chief Operating Officer in 2000. He
served as President in 1999, and as President and Chief Operating Officer from 1995-1999. Mr. Dillon was elected Executive Vice President of Kroger in
1990 and President of Dillon Companies, Inc. in 1986. He is a director of Convergys Corporation. |
55 | 1995 | |||||||||||
David B.
Lewis |
Mr.
Lewis is Chairman, President and Chief Executive Officer of Lewis & Munday, a Detroit based law firm with offices in Washington, D.C. and Seattle.
He is a director of H&R Block and Lewis & Thompson Agency, Inc. Mr. Lewis has served on the Board of Directors of Conrail, Inc., LG&E
Energy Corp., M.A. Hanna, TRW, Inc. and Comerica, Inc. He is chair of the Audit Committee and vice chair of the Public Responsibilities
Committee. |
61 | 2002 |
Name |
|
Professional Occupation (1) |
|
Age |
|
Director Since |
---|
Susan M.
Phillips |
Dr.
Phillips is Dean and Professor of Finance at The George Washington University School of Business, a position she has held since 1998. She was a member
of the Board of Governors of the Federal Reserve System from December 1991 though June 1998. Before her Federal Reserve appointment, Dr. Phillips
served as Vice President for Finance and University Services and Professor of Finance in The College of Business Administration at the University of
Iowa from 1987 through 1991. She is a director of State Farm Mutual Automobile Insurance Company, State Farm Life Insurance Company, State Farm
Companies Foundation, National Futures Association, the Chicago Board Options Exchange and the Chicago Futures Exchange. Dr. Phillips is a member of
the Audit and Financial Policy Committees. |
61 | 2003 |
(1) |
Except as noted, each of the directors has been employed by his or her present employer (or a subsidiary) in an executive capacity for at least five years. |
(2) |
If the Board declassification proposal (see Item No. 2 below) is approved by shareholders, these directors will be elected to one-year terms continuing until 2007. |
|
Demonstrated ability in fields considered to be of value in the deliberations of the Board, including business management, public service, education, science, law and government; |
|
Highest standards of personal character and conduct; |
|
Willingness to fulfill the obligations of directors and to make the contribution of which he or she is capable, including regular attendance and participation at Board and committee meetings, and preparation for all meetings including review of all meeting materials provided in advance of the meeting; and |
|
Ability to understand the perspectives of Krogers customers, taking into consideration the diversity of our customers including regional and geographic differences. |
|
Warrant Dividend PlanKrogers Board allowed our warrant dividend plan to expire on March 19, 2006; |
|
Executive SeveranceKrogers Board adopted a policy that requires shareholder approval for any new severance arrangements with senior executives that would exceed 2.99 times average annual W-2 earnings over the prior five years. The limits apply to any severance arrangement, regardless of any change-in-control provision; |
|
Majority VotingKrogers Board also adopted a policy requiring, so long as cumulative voting is not in effect, any director in an uncontested election who receives more withheld votes than for votes to tender his or her resignation. The Corporate Governance Committee or the remainder of the Board will be required to act on that resignation within 90 days; and |
|
Stock OwnershipOur Board adopted a stock ownership policy covering officers, directors and other key executives. This policy is more particularly described in the Guidelines. |
SUMMARY COMPENSATION TABLE |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Compensation |
Long-Term Compensation |
||||||||||||||||||||||||||||||||||
Awards |
Payouts |
||||||||||||||||||||||||||||||||||
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($) |
|
Other Annual Compensation ($) |
|
Restricted Stock Awards ($) |
|
Securities Underlying Options/ SARs (#) |
|
LTIP Payouts ($) |
|
All Other Compensation ($) |
|||||||||||||||||||
(1) |
(2) |
(3) |
(4) |
(5) |
|||||||||||||||||||||||||||||||
David B.
Dillon |
2005 | $ | 1,100,000 | $ | 1,940,131 | $ | 43,355 | $ | 0 | 300,000 | $ | 0 | $ | 62,407 | |||||||||||||||||||||
Chairman and
Chief |
2004 | $ | 1,083,974 | $ | 736,361 | $ | 33,900 | $ | 0 | 300,000 | $ | 0 | $ | 52,256 | |||||||||||||||||||||
Executive
Officer |
2003 | $ | 880,062 | $ | 244,962 | $ | 21,622 | $ | 2,517,000 | 0 | $ | 0 | $ | 28,575 | |||||||||||||||||||||
W. Rodney
McMullen |
2005 | $ | 773,000 | $ | 1,221,870 | $ | 13,368 | $ | 0 | 75,000 | $ | 0 | $ | 20,186 | |||||||||||||||||||||
Vice
Chairman |
2004 | $ | 772,647 | $ | 468,979 | $ | 10,469 | $ | 0 | 75,000 | $ | 0 | $ | 18,341 | |||||||||||||||||||||
2003 | $ | 704,077 | $ | 181,865 | $ | 8,614 | $ | 1,678,000 | 0 | $ | 0 | $ | 14,333 | ||||||||||||||||||||||
Don W.
McGeorge |
2005 | $ | 773,000 | $ | 1,221,870 | $ | 29,903 | $ | 0 | 75,000 | $ | 0 | $ | 40,088 | |||||||||||||||||||||
President and
Chief |
2004 | $ | 772,647 | $ | 468,979 | $ | 24,834 | $ | 0 | 75,000 | $ | 0 | $ | 35,155 | |||||||||||||||||||||
Operating
Officer |
2003 | $ | 681,462 | $ | 176,298 | $ | 16,480 | $ | 1,678,000 | 0 | $ | 0 | $ | 23,509 | |||||||||||||||||||||
Paul W.
Heldman |
2005 | $ | 618,000 | $ | 710,005 | $ | 20,829 | $ | 0 | 40,000 | $ | 0 | $ | 32,706 | |||||||||||||||||||||
Senior Vice
President, |
2004 | $ | 617,808 | $ | 275,870 | $ | 19,577 | $ | 0 | 40,000 | $ | 0 | $ | 27,698 | |||||||||||||||||||||
Secretary and
General |
2003 | $ | 567,739 | $ | 116,913 | $ | 14,934 | $ | 671,200 | 0 | $ | 0 | $ | 21,007 | |||||||||||||||||||||
Counsel |
|||||||||||||||||||||||||||||||||||
Donald E.
Becker |
2005 | $ | 536,250 | $ | 685,238 | $ | 24,780 | $ | 969,000 | 40,000 | $ | 0 | $ | 37,630 | |||||||||||||||||||||
Executive Vice
President |
2004 | $ | 487,981 | $ | 242,978 | $ | 16,746 | $ | 156,500 | 40,000 | $ | 0 | $ | 25,503 | |||||||||||||||||||||
2003 | $ | 438,462 | $ | 95,108 | $ | 14,214 | $ | 0 | 0 | $ | 0 | $ | 22,416 | ||||||||||||||||||||||
Michael S.
Heschel |
2005 | $ | 596,022 | $ | 772,750 | $ | 43,055 | $ | 0 | 45,000 | $ | 0 | $ | 71,072 | |||||||||||||||||||||
Former
Executive Vice |
2004 | $ | 599,692 | $ | 297,940 | $ | 55,401 | $ | 0 | 45,000 | $ | 0 | $ | 84,310 | |||||||||||||||||||||
President and
Chief |
2003 | $ | 578,077 | $ | 130,275 | $ | 44,244 | $ | 419,500 | 0 | $ | 0 | $ | 68,183 | |||||||||||||||||||||
Information
Officer |
(1) |
These amounts include reimbursement for the tax effects of the payment of certain premiums on a policy of life insurance, reimbursement for the tax effects of participation in a non-qualified retirement plan, and the value of financial planning services. For 2005, the amounts included for financial planning services were $4,500, $0, $3,200, $0, $0 and $4,000, respectively, for Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel. Excluded from these totals is income imputed to the named executive officer when accompanied on our aircraft during business travel by non-business travelers. These amounts for 2005, calculated using the applicable terminal charge and Standard Industry Fare Level (SIFL) mileage rates, were $9,913, $1,379 and $707 for Mr. Dillon, Mr. Becker and Mr. Heschel, respectively. Separately, we require that officers who make personal use of our aircraft must reimburse us for the full amount of the variable cost associated with the operation of the aircraft on such flights in accordance with a time-sharing arrangement consistent with FAA regulations. |
(2) |
Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel had 75,000, 50,000, 50,000, 20,000, 57,500, and 0 restricted shares outstanding, respectively, at January 28, 2006. These shares had an aggregate value of $1,392,750, $928,500, $928,500, $371,400, $1,067,775 and 0, respectively, based on the market price of Krogers common stock on January 28, 2006. The restrictions on the shares awarded to Messrs. Dillon, McMullen, McGeorge and Heldman lapse in 2006. The restrictions on the shares awarded to Mr. Becker lapse as to 12,500 shares in 2006, 15,000 shares in 2007, and 30,000 shares in 2008. Dividends, as and when declared, are payable on these shares. |
(3) |
Represents options granted during the respective fiscal year. These options vest over five years. No options were granted to the named executive officers during 2003. Options terminate in 10 years if not earlier exercised or terminated. No stock appreciation rights (SARs) were granted in any of the three years presented. |
(4) |
No long-term incentive plan payout was made to the named executive officers in the three years presented. |
(5) |
For 2005, these amounts include the reimbursement of certain premiums for policies of life insurance in the amounts of $62,407, $20,186, $40,088, $32,706, $37,630, and $63,770, respectively, for Messrs. Dillon, McMullen, McGeorge, Heldman, Becker and Heschel. As to 2003 and 2004, these amounts include the reimbursement discussed above as well as our matching contribution under The Kroger Co. Savings Plan. This matching contribution ended on July 1, 2004. For 2005, this amount for Mr. Heschel includes a payment made to him on his retirement in the amount of $7,302. |
OPTION/SAR GRANTS IN LAST FISCAL YEAR |
|||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Individual Grants |
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term |
||||||||||||||||||||||||||||||
Name |
|
Number of Securities Underlying Options/SAR Granted |
|
% of Total Options/SARs Granted to Employees in Fiscal Year |
|
Exercise or Base Price ($/Share) |
|
Expiration Date |
|
0% |
|
5% |
|
10% |
|||||||||||||||||
David B.
Dillon |
300,000 | 4.41 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 3,091,332 | $ | 7,834,041 | |||||||||||||||||||
W. Rodney
McMullen |
75,000 | 1.10 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 772,833 | $ | 1,958,510 | |||||||||||||||||||
Don
McGeorge |
75,000 | 1.10 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 772,833 | $ | 1,958,510 | |||||||||||||||||||
Paul W.
Heldman |
40,000 | 0.59 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 412,178 | $ | 1,044,539 | |||||||||||||||||||
Donald E.
Becker |
40,000 | 0.59 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 412,178 | $ | 1,044,539 | |||||||||||||||||||
Michael S.
Heschel |
45,000 | 0.66 | % | $ | 16.39 | 5/5/2015 | $ | 0 | $ | 463,700 | $ | 1,175,106 |
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES TABLE |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
|
Shares Acquired on Exercise (#) |
|
Value Realized ($) |
|
Number of Securities Underlying Unexercised Options/SARs at F/Y End (1) (#) Exercisable/ Unexercisable |
|
Value of Unexercised In-the-Money Options/SARs at F/Y End (1) ($) Exercisable/ Unexercisable |
|||||||||||
David B.
Dillon |
172,000 | $ | 1,669,930 | 576,000/849,000 | $ | 1,188,580/$1,333,247 | |||||||||||||
W. Rodney
McMullen |
40,000 | $ | 388,900 | 450,000/355,000 | $ | 1,342,238/$507,580 | |||||||||||||
Don
McGeorge |
48,000 | $ | 493,440 | 422,500/347,500 | $ | 1,802,385/$507,580 | |||||||||||||
Paul W.
Heldman |
50,000 | $ | 477,250 | 322,499/208,001 | $ | 1,050,392/$283,884 | |||||||||||||
Donald E.
Becker |
16,000 | $ | 152,720 | 276,999/194,001 | $ | 938,340/$274,003 | |||||||||||||
Michael S.
Heschel |
0 | $ | 0 | 534,000/45,000 | $ | 1,108,766/$98,325 |
(1) |
No SARs were granted or outstanding during the fiscal year. |
|
be competitive in total compensation; |
|
include, as part of total compensation, opportunities for equity ownership; |
|
use incentives that offer more than competitive compensation when Kroger achieves superior results; and |
|
base incentive payments, or annual bonus, on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA); on identical sales results; on achievement of strategic initiatives and on the extent to which the sales and EBITDA results of designated capital projects exceed a minimum threshold established for those projects. |
John T. LaMacchia, Chair Bobby S. Shackouls, Vice Chair Robert D. Beyer John L. Clendenin |
INDEXED RETURNS Years Ending |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Company Name / Index |
|
Base Period 2000 |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|||||||||||||||
THE KROGER
CO |
100 | 82.61 | 61.32 | 75.29 | 70.05 | 75.46 | |||||||||||||||||||||
S&P 500
INDEX |
100 | 83.99 | 66.77 | 89.85 | 94.65 | 105.66 | |||||||||||||||||||||
PEER
GROUP |
100 | 100.68 | 76.57 | 89.33 | 95.64 | 93.76 |
* |
Total assumes $100 invested on February 4, 2001, in The Kroger Co., S&P 500 Index and the Peer Group, with reinvestment of dividends. |
** |
The Peer Group consists of Albertsons, Inc., Costco Wholesale Corp., CVS Corp, Delhaize Group SA (ADR), Great Atlantic & Pacific Tea Company, Inc., Koninklijke Ahold NV (ADR), Marsh Supermarkets Inc. (Class A), Safeway Inc., Supervalu Inc., Target Corp., Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market Inc. and Winn-Dixie Stores, Inc. |
Years of Service |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Five Year Average Remuneration |
15 |
20 |
25 |
30 |
35 |
40 |
|||||||||||||||||||||
$150,000 | $ | 33,750 | $ | 45,000 | $ | 56,250 | $ | 67,500 | $ | 78,750 | $ | 90,000 | |||||||||||||||
250,000 | 56,250 | 75,000 | 93,750 | 112,500 | 131,250 | 150,000 | |||||||||||||||||||||
450,000 | 101,250 | 135,000 | 168,750 | 202,500 | 236,250 | 270,000 | |||||||||||||||||||||
650,000 | 146,250 | 195,000 | 243,750 | 292,500 | 341,250 | 390,000 | |||||||||||||||||||||
850,000 | 191,250 | 255,000 | 318,750 | 382,500 | 446,250 | 510,000 | |||||||||||||||||||||
900,000 | 202,500 | 270,000 | 337,500 | 405,000 | 472,500 | 540,000 | |||||||||||||||||||||
1,200,000 | 270,000 | 360,000 | 450,000 | 540,000 | 630,000 | 720,000 | |||||||||||||||||||||
1,500,000 | 337,500 | 450,000 | 562,500 | 675,000 | 787,500 | 900,000 | |||||||||||||||||||||
1,800,000 | 405,000 | 540,000 | 675,000 | 810,000 | 945,000 | 1,080,000 | |||||||||||||||||||||
2,200,000 | 495,000 | 660,000 | 825,000 | 990,000 | 1,155,000 | 1,320,000 |
Name
|
|
Amount and Nature of Beneficial Ownership |
||
---|---|---|---|---|
Reuben V.
Anderson |
51,245 | (1) | ||
Donald E.
Becker |
365,485 | (2)(7)(11) | ||
Robert D.
Beyer |
47,912 | (3) | ||
John L.
Clendenin |
56,100 | (4) | ||
David B. Dillon
.. |
1,580,759 | (2)(8)(11) | ||
Paul W.
Heldman |
536,883 | (2)(9)(11) | ||
Michael S.
Heschel |
653,463 | (2)(11) | ||
John T.
LaMacchia |
61,100 | (4) | ||
David B. Lewis
.. |
14,000 | (5) | ||
Don W.
McGeorge |
673,815 | (2)(10)(11) | ||
W. Rodney
McMullen |
877,079 | (2)(11) | ||
Clyde R. Moore
.. |
33,100 | (4) | ||
Katherine D.
Ortega |
58,456 | (1) | ||
Susan M.
Phillips |
16,500 | (6) | ||
Steven R.
Rogel |
35,128 | (3) | ||
Bobby S.
Shackouls |
22,100 | (3) | ||
Directors and Executive Officers as a group (including those named above) |
7,055,305 | (2)(12)(13) |
(1) |
This amount includes 28,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(2) |
This amount includes shares that represent options that are or become exercisable on or before May 7, 2006, in the following amounts: Mr. Becker, 260,999; Mr. Dillon, 696,000; Mr. Heldman, 338,499; Mr. Heschel, 534,000; Mr. McGeorge, 452,500; Mr. McMullen, 480,000; and all directors and executive officers as a group, 4,326,550. |
(3) |
This amount includes 12,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(4) |
This amount includes 20,600 shares that represent options that are or become exercisable on or before May 7, 2006. |
(5) |
This amount includes 5,000 shares that represent options that are or become exercisable on or before May 7, 2006. |
(6) |
This amount includes 2,000 shares that represent options that are or become exercisable on or before May 7, 2006. |
(7) |
This amount includes 10,228 shares owned by Mr. Beckers wife and 1,050 shares owned by his children. Mr. Becker disclaims beneficial ownership of these shares. |
(8) |
This amount includes 219,100 shares owned by Mr. Dillons wife and children, and 54,024 shares in his childrens trust. Mr. Dillon disclaims beneficial ownership of these shares. |
(9) |
This amount includes 320 shares owned by Mr. Heldmans children. Mr. Heldman disclaims beneficial ownership of these shares. |
(10) |
This amount includes 10,063 shares owned by Mr. McGeorges wife. Mr. McGeorge disclaims beneficial ownership of these shares. |
(11) |
The fractional interest resulting from allocations under Krogers defined contribution plans has been rounded to the nearest whole number. |
(12) |
The figure shown includes an aggregate of 2,005 additional shares held by, or for the benefit of, the immediate families or other relatives of all directors and executive officers as a group not listed above. In each case the director or executive officer disclaims beneficial ownership of those shares. |
(13) |
No director or officer owned as much as 1% of the common stock of Kroger. The directors and executive officers as a group beneficially owned 1% of the common stock of Kroger. |
Name |
|
Address of Beneficial Owner |
|
Amount and Nature of Ownership |
|
Percentage of Class |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
AXA Financial,
Inc. |
1290
Avenue of the Americas New York, NY 10104 |
66,138,246 | 9.1 | % | ||||||||||
Brandes
Investment Partners, L.P. |
11988
El Camino Real, Suite 500 San Diego, CA 92130 |
53,100,578 | 7.3 | % | ||||||||||
Lord, Abbett
& Co. LLC |
90
Hudson Street Jersey City, NJ 07302 |
48,971,337 | 6.7 | % | ||||||||||
The Kroger Co.
Savings Plan |
1014
Vine Street Cincinnati, OH 45202 |
50,064,465 | (1) | 6.9 | % |
(1) |
Shares beneficially owned by plan trustees for the benefit of participants in employee benefit plans. |
|
shareholder approval of any future severance arrangements with any of Krogers senior officers if the payments involved exceed 2.99 times W-2 earnings; |
|
tender of resignation by any director in an uncontested election who receives more withheld votes than for votes; and |
|
adoption of a policy of stock ownership for directors and officers. |
|
mergers or consolidations; |
|
sales, leases, exchanges, mortgages, pledges, transfers or other dispositions; |
|
issuances of securities or rights to acquire securities; |
|
adoptions of plans of liquidation or dissolution of Kroger; or |
|
reclassifications of securities. |
Fiscal 2005 |
Fiscal 2004 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit
Fees |
$ | 4,623,476 | $ | 6,052,828 | ||||||||||
Audit-Related
Fees |
53,500 | 247,624 | ||||||||||||
Tax
Fees |
| 264,023 | ||||||||||||
All Other
Fees |
| | ||||||||||||
Total |
$ | 4,676,976 | $ | 6,564,475 |
1 |
These are the same improvements that Hormel Foods recently touted in a letter to PETA describing CAK. |
1. |
The companys operating definition of sustainability. |
2. |
A review of current company policies and practices related to social, environmental, and economic sustainability. |
3. |
A summary of long-term plans to integrate sustainability objectives throughout company operations. |
I. |
Purpose |
II. |
COMPOSITION |
III. |
MEETINGS |
IV. |
RESPONSIBILITIES AND DUTIES |
1. |
Meet to review and discuss with management and the independent auditors the Companys annual audited financial statements, including the Companys specific disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations, and any certification, report or opinion rendered by the Companys independent auditors or the Companys Principal Executive or |
Financial Officers in connection with those financial statements prior to filing with the SEC, and recommend to the Board whether the audited financial statements should be included in the annual report on Form 10-K. |
2. |
Meet to review and discuss with management and the independent auditors the quarterly financial statements, including the Companys specific disclosures under Managements Discussion and Analysis of Financial Condition and Results of Operations and any certification, report or opinion rendered by the Companys independent auditors or the Companys Principal Executive or Financial Officers in connection with those financial statements prior to filing with the SEC. |
3. |
Review earnings press releases, and discuss the Companys practices with respect to earnings press releases, and financial information and earnings guidance provided to analysts and rating agencies. |
4. |
Review material changes in accounting policies, and financial reporting practices and material developments in financial reporting standards brought to the attention of the Audit Committee by the Companys management or independent auditors. |
5. |
Review material questions of choice with respect to the appropriate accounting principles and practices to be used in the preparation of the Companys financial statements and brought to the attention of the Audit Committee by the Companys management or independent auditors. |
6. |
Review the performance of the independent auditors annually, and select (subject to ratification by the Companys shareholders); evaluate; compensate; oversee; and, where appropriate replace, the independent auditors, which will report directly to the Audit Committee. The Audit Committee will oversee compliance by the independent auditors with the applicable requirements respecting the rotation of audit partners. |
7. |
Consider the independence of the independent auditors at least annually, and review an annual written statement, prepared by the independent auditors, delineating all relationships between the independent auditors and the Company, consistent with the Independence Standards Board Standard No. 1, regarding relationships and services, which may affect the independence of the independent auditors. |
8. |
Obtain and review an annual written report, prepared by the independent auditors, describing: their internal quality control procedures and any material issues raised by the most recent internal quality control review or peer review, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues. |
9. |
Approve in advance all audit and non-audit services to be performed by the independent auditors. |
10. |
In consultation with management, the independent auditors and the internal auditors, review the reliability and integrity of the Companys financial accounting policies, financial reporting processes, and disclosure and disclosure control practices and procedures. |
11. |
Discuss with management the major areas of risk exposure and managements efforts to monitor and control such exposure, and discuss policies with respect to risk assessment and risk management. |
12. |
Review any significant disagreement among management and the independent auditors or the internal auditing department in connection with the preparation of the financial statements. |
13. |
Review annually the audit plans of both the internal auditor and the independent auditors. |
14. |
Review periodically with the independent and internal auditors any audit problems or difficulties and managements responses. |
15. |
Review with the Companys counsel any legal matter, including environmental matters, that could have a significant effect on the Company. |
16. |
Receive reports from the independent auditors and management regarding, and review and discuss the adequacy and effectiveness of, the Companys internal controls, including any significant deficiencies in internal controls and significant changes in internal controls brought to the attention of the Audit Committee by the independent auditors or management. |
17. |
Establish and oversee procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting and auditing matters. |
18. |
Establish and oversee procedures for compliance with and reporting violations of The Kroger Co. Policy on Business Ethics. |
19. |
Set clear hiring policies for employees or former employees of the independent auditors. |
20. |
Review and assess, annually or more frequently as circumstances dictate, the adequacy of this Charter and recommend changes to the Corporate Governance Committee as appropriate. |
21. |
Annually evaluate the Audit Committees performance and discuss the evaluation with the full Board of Directors. |
V. |
OUTSIDE ADVISORS |
David B.
Dillon Chairman of the Board and Chief Executive Officer |
J. Michael Schlotman Senior Vice President and Chief Financial Officer |
Fiscal Years Ended |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
January 28, 2006 (52 weeks) |
January 29, 2005 (52 weeks) |
January 31, 2004 (52 weeks) |
February 1, 2003 (52 weeks) |
February 2, 2002 (52 weeks) |
|||||||||||||||||||
(In millions, except per share
amounts) |
|||||||||||||||||||||||
Sales |
$ | 60,553 | $ | 56,434 | $ | 53,791 | $ | 51,760 | $ | 50,098 | |||||||||||||
Earnings
(loss) before cumulative effect of accounting change |
958 | (104 | ) | 285 | 1,218 | 1,040 | |||||||||||||||||
Cumulative
effect of accounting change (1) |
| | | (16 | ) | | |||||||||||||||||
Net earnings
(loss) |
958 | (104 | ) | 285 | 1,202 | 1,040 | |||||||||||||||||
Diluted
earnings (loss) per share: |
|||||||||||||||||||||||
Earnings
(loss) before cumulative effect of accounting change |
1.31 | (0.14 | ) | 0.38 | 1.54 | 1.26 | |||||||||||||||||
Cumulative
effect of accounting change (1) |
| | | (.02 | ) | | |||||||||||||||||
Net earnings
(loss) |
1.31 | (0.14 | ) | 0.38 | 1.52 | 1.26 | |||||||||||||||||
Total
assets |
20,482 | 20,491 | 20,767 | 20,349 | 19,100 | ||||||||||||||||||
Long-term
liabilities, including obligations under capital leases and financing obligations |
9,377 | 10,537 | 10,515 | 10,569 | 10,005 | ||||||||||||||||||
Shareowners equity |
4,390 | 3,619 | 4,068 | 3,937 | 3,592 | ||||||||||||||||||
Cash dividends
per common share(2) |
| | | | |
(1) |
Amounts are net of tax. Refer to Note 4 of the Consolidated Financial Statements. |
(2) |
During the fiscal year ended February 2, 2002, the Company was prohibited from paying cash dividends under the terms of its previous Credit Agreement. On May 22, 2002, the Company entered into a new Credit Agreement, at which time the restriction on payment of cash dividends was eliminated. However, no cash dividends were declared or paid in any of the periods presented. |
2005 |
2004 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter |
|
High |
|
Low |
|
High |
|
Low |
|||||||||||
1st |
$ | 18.22 | $ | 15.15 | $ | 19.67 | $ | 15.95 | |||||||||||
2nd |
$ | 20.00 | $ | 16.46 | $ | 18.36 | $ | 14.70 | |||||||||||
3rd |
$ | 20.88 | $ | 19.09 | $ | 17.31 | $ | 14.65 | |||||||||||
4th |
$ | 20.58 | $ | 18.42 | $ | 17.75 | $ | 15.53 |
(a) |
(b) |
(c) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining for future issuance under equity compensation plans excluding securities reflected in column (a) |
|||||||||||
Equity
compensation plans approved by security holders |
62,684,409 | (1) | $ | 18.6498 | 21,981,686 | |||||||||
Equity
compensation plans not approved by security holders |
| $ | | | ||||||||||
Total |
62,684,409 | (1) | $ | 18.6498 | 21,981,686 |
(1) |
This amount includes 3,377,803 unregistered warrants outstanding and originally issued to The Yucaipa Companies pursuant to a Warrant Agreement dated as of May 23, 1996, between Smiths Food & Drug Centers, Inc. and The Yucaipa Companies, as Consultant. |
Period(1) |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) (in millions) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
First four
weeks November 6, 2005 to December 3, 2005 |
191,497 | $ | 19.42 | 190,000 | $ | 154 | ||||||||||||
Second four
weeks December 4, 2005 to December 31, 2005 |
670,000 | $ | 19.07 | 370,000 | $ | 147 | ||||||||||||
Third four
weeks January 1, 2006 to January 28, 2006 |
1,978,628 | $ | 18.88 | 1,750,000 | $ | 114 | ||||||||||||
Total |
2,840,125 | $ | 18.97 | 2,310,000 | $ | 114 |
(1) |
The reported periods conform to the Companys fiscal calendar composed of thirteen 28-day periods. The fourth quarter of 2005 contained three 28-day periods. |
(2) |
Shares were repurchased under (i) a $500 million stock repurchase program, authorized by the Board of Directors on September 16, 2004, and (ii) a program announced on December 6, 1999, to repurchase common stock to reduce dilution resulting from our employee stock option plans, which program is limited to proceeds received from exercises of stock options and the tax benefits associated therewith. The programs have no expiration date but may be terminated by the Board of Directors at any time. No shares were purchased other than through publicly announced programs during the periods shown. |
(3) |
Amounts shown in this column reflect amounts remaining under the $500 million stock repurchase program referenced in Note 2 above. Amounts to be invested under the program utilizing option exercise proceeds are dependent upon option exercise activity. |
2005 |
Percentage Increase |
2004 |
Percentage Increase |
2003 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total food
store sales without fuel |
$ | 53,472 | 4.6 | % | $ | 51,106 | 2.9 | % | $ | 49,650 | ||||||||||||
Total food
store fuel sales |
3,526 | 53.0 | % | 2,305 | 59.0 | % | 1,450 | |||||||||||||||
Total food
store sales |
$ | 56,998 | 6.7 | % | $ | 53,411 | 4.5 | % | $ | 51,100 | ||||||||||||
Other
sales |
3,555 | 17.6 | % | 3,023 | 12.3 | % | 2,691 | |||||||||||||||
Total
Sales |
$ | 60,553 | 7.3 | % | $ | 56,434 | 4.9 | % | $ | 53,791 |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Including fuel
centers |
$ | 54,144 | $ | 51,413 | ||||||
Excluding fuel
centers |
$ | 50,866 | $ | 49,154 | ||||||
Including fuel
centers |
5.3 | % | 2.1 | % | ||||||
Excluding fuel
centers |
3.5 | % | 0.8 | % |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Including
supermarket fuel centers |
$ | 55,607 | $ | 52,514 | ||||||
Excluding
supermarket fuel centers |
$ | 52,200 | $ | 50,226 | ||||||
Including
supermarket fuel centers |
5.9 | % | 2.6 | % | ||||||
Excluding
supermarket fuel centers |
3.9 | % | 1.3 | % |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Beginning of
year |
2,532 | 2,532 | 2,488 | |||||||||||
Opened |
28 | 41 | 44 | |||||||||||
Opened
(relocation) |
12 | 20 | 14 | |||||||||||
Acquired |
1 | 15 | 25 | |||||||||||
Acquired
(relocation) |
| 3 | 5 | |||||||||||
Closed
(operational) |
(54 | ) | (56 | ) | (25 | ) | ||||||||
Closed
(relocation) |
(12 | ) | (23 | ) | (19 | ) | ||||||||
End of
year |
2,507 | 2,532 | 2,532 | |||||||||||
Total food store
square footage (in millions) |
142 | 141 | 140 |
(a) |
Company-sponsored Pension Plans |
Percentage Point Change |
Projected Benefit Obligation Decrease/(Increase) |
Expense Decrease/(Increase) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Discount
Rate |
± 1.0 | % | $ | 277/($315 | ) | $ | 27/($33 | ) | ||||||
Expected
Return on Assets |
± 1.0 | % | | $ | 15/($15 | ) |
(b) |
Multi-Employer Plans |
|
Our Applicable Percentage Ratio (the ratio of Consolidated EBITDA to Consolidated Total Interest Expense, as defined in the credit facilities) was 6.70 to 1 as of January 28, 2006. If this ratio declined to below 4.75 to 1, the cost of our borrowings under the credit facilities would increase at least 0.13%. The cost of our borrowings under the credit facilities would be similarly affected by a one-level downgrade in our credit rating. |
|
Our Leverage Ratio (the ratio of Net Debt to Consolidated EBITDA, as defined in the credit facilities) was 2.23 to 1 as of January 28, 2006. If this ratio exceeded 3.50 to 1, we would be in default of our credit facilities and our ability to borrow under these facilities would be impaired. |
|
Our Fixed Charge Coverage Ratio (the ratio of Consolidated EBITDA plus Consolidated Rental Expense to Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facilities) was 3.38 to 1 as of January 28, 2006. If this ratio fell below 1.70 to 1, we would be in default of our credit facilities and our ability to borrow under these facilities would be impaired. |
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
Total |
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations |
||||||||||||||||||||||||||||||
Long-term
debt |
$ | 527 | $ | 527 | $ | 1,000 | $ | 912 | $ | 42 | $ | 3,739 | $ | 6,747 | ||||||||||||||||
Interest
on long-term debt (1) |
480 | 423 | 329 | 303 | 250 | 1,922 | 3,707 | |||||||||||||||||||||||
Capital
lease obligations |
61 | 57 | 54 | 52 | 51 | 344 | 619 | |||||||||||||||||||||||
Operating
lease obligations |
784 | 732 | 684 | 635 | 588 | 4,075 | 7,498 | |||||||||||||||||||||||
Charitable contributions |
14 | | | | | | 14 | |||||||||||||||||||||||
Minimum
contributions to Company-sponsored pension plans |
| | | | | | | |||||||||||||||||||||||
Low-income housing obligations |
47 | 6 | 2 | | | | 55 | |||||||||||||||||||||||
Financed
lease obligations |
11 | 11 | 11 | 11 | 11 | 159 | 214 | |||||||||||||||||||||||
Construction commitments |
95 | | | | | | 95 | |||||||||||||||||||||||
Purchase
obligations |
362 | 60 | 18 | 5 | 1 | | 446 | |||||||||||||||||||||||
Total |
$ | 2,381 | $ | 1,816 | $ | 2,098 | $ | 1,918 | $ | 943 | $ | 10,239 | $ | 19,395 | ||||||||||||||||
Other
Commercial Commitments |
||||||||||||||||||||||||||||||
Credit
facilities |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Standby
letters of credit |
314 | | | | | | 314 | |||||||||||||||||||||||
Surety
bonds |
106 | | | | | | 106 | |||||||||||||||||||||||
Guarantees |
11 | | | | | | 11 | |||||||||||||||||||||||
Total |
$ | 431 | $ | | $ | | $ | | $ | | $ | | $ | 431 |
(1) |
Amounts include contractual interest payments using the interest rate as of January 28, 2006 applicable to Krogers variable interest debt instruments, excluding commercial paper borrowings due to the short-term nature of these borrowings, and stated fixed interest rates for all other debt instruments. |
Expected Year of Maturity |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
Total |
Fair Value |
||||||||||||||||||||||||||||
(In millions) |
|||||||||||||||||||||||||||||||||||
Debt |
|||||||||||||||||||||||||||||||||||
Fixed
rate |
$ | (519 | ) | $ | (526 | ) | $ | (994 | ) | $ | (896 | ) | $ | (35 | ) | $ | (3,639 | ) | $ | (6,609 | ) | $ | (6,900 | ) | |||||||||||
Average
interest rate |
7.78 | % | 7.78 | % | 7.27 | % | 7.76 | % | 8.98 | % | 6.66 | % | |||||||||||||||||||||||
Variable rate |
$ | (8 | ) | $ | (1 | ) | $ | (6 | ) | $ | (16 | ) | $ | (7 | ) | $ | (100 | ) | $ | (138 | ) | $ | (138 | ) | |||||||||||
Average
interest rate |
3.29 | % | 3.32 | % | 3.33 | % | 3.38 | % | 3.42 | % | 3.80 | % |
Average Notional Amounts Outstanding |
|||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
Total |
Fair Value |
||||||||||||||||||||||||||||
(In millions) |
|||||||||||||||||||||||||||||||||||
Interest Rate Derivatives |
|||||||||||||||||||||||||||||||||||
Variable to fixed |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||||||||
Average
pay rate |
|||||||||||||||||||||||||||||||||||
Average
receive rate |
|||||||||||||||||||||||||||||||||||
Fixed
to variable |
$ | 1,238 | $ | 1,050 | $ | 363 | $ | 300 | $ | 300 | $ | 300 | $ | 1,375 | $ | (34 | ) | ||||||||||||||||||
Average
pay rate |
8.02 | % | 7.78 | % | 5.71 | % | 5.16 | % | 5.23 | % | 5.26 | % | |||||||||||||||||||||||
Average
receive rate |
6.90 | % | 6.74 | % | 5.38 | % | 4.95 | % | 4.95 | % | 4.95 | % |
|
We expect earnings per share growth of approximately 6% - 8% in 2006. This includes the effect of a 53rd week in fiscal 2006, which will be substantially offset by the expensing of stock options. We anticipate the expensing of stock options will reduce net earnings approximately $0.05 - $0.06 per diluted share. We also expect 2007 earnings per share growth to be approximately 6% - 8%, based on comparable 52-week results for 2006. |
|
We expect identical food store sales growth, excluding fuel sales, to exceed 3.5% in 2006. |
|
In fiscal 2006, we will continue to focus on driving sales growth and balancing investments in gross margin and improved customer service with operating cost reductions to provide a better shopping experience for our customers. We expect operating margins in southern California to improve slightly due to the continued recovery in that market, although we expect improvement in 2006 will be less than in 2005. We expect operating margins, excluding the effect of fuel sales, to hold steady in the balance of the Company. |
|
We plan to use, over the long-term, one-third of cash flow for debt reduction and two-thirds for stock repurchase or payment of a cash dividend. |
|
We expect to obtain sales growth from new square footage, as well as from increased productivity from existing locations. |
|
Capital expenditures reflect our strategy of growth through expansion and acquisition, as well as focusing on productivity increase from our existing store base through remodels. In addition, we will continue our emphasis on self-development and ownership of real estate, logistics and technology improvements. The continued capital spending in technology is focused on improving store operations, logistics, manufacturing procurement, category management, merchandising and buying practices, and should reduce merchandising costs. We intend to continue using cash flow from operations to finance capital expenditure requirements. We expect capital investment for 2006 to be in the range of $1.7 - $1.9 billion, excluding acquisitions. Total food store square footage is expected to grow 1.5% - 2% before acquisitions and operational closings. |
|
Based on current operating trends, we believe that cash flow from operations and other sources of liquidity, including borrowings under our commercial paper program and bank credit facilities, will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. We also believe we have adequate coverage of our debt covenants to continue to respond effectively to competitive conditions. |
|
We expect that our OG&A results will be affected by increased costs, such as higher energy costs, pension costs and credit card fees, as well as any future labor disputes, offset by improved productivity from process changes, cost savings negotiated in recently completed labor agreements and leverage gained through sales increases. |
|
We expect that our effective tax rate for 2006 will be approximately 37.5%. |
|
We will continue to evaluate under-performing stores. We anticipate operational closings will continue at an above-historical rate. |
|
We expect rent expense, as a percent of total sales and excluding closed-store activity, will decrease due to the emphasis our current strategy places on ownership of real estate. |
|
We believe that in 2006 there will be opportunities to reduce our operating costs in such areas as administration, labor, shrink, warehousing and transportation. These savings will be invested 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 during fiscal 2006, we made a $150 million cash contribution to our qualified pension plans on March 27, 2006. Additional contributions may be made if our cash flows from operations exceed our expectations. We expect any elective contributions made during 2006 will reduce our contributions in future years. Among other things, investment performance of plan assets, the interest rates required to be used to calculate pension obligations and future changes in legislation will determine the amounts of any additional contributions. |
|
We expect our contributions to multi-employer pension plans to increase at 5% per year over the $196 million we contributed during 2005. |
|
We have various labor agreements expiring in 2006, covering smaller groups of associates than those contracts negotiated in 2005. In all of these contracts, rising health care and pension costs will continue to be an important issue in negotiations. A prolonged work stoppage at a substantial number of stores could have a material effect on our results. |
|
Our ability to achieve sales and earnings goals may be affected by: labor disputes; industry consolidation; pricing and promotional activities of existing and new competitors, including non-traditional competitors; our response to these actions; the state of the economy, including the inflationary and deflationary trends in certain commodities; stock repurchases; and the success of our future growth plans. |
|
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 could fail to improve if our operations in southern California do not improve as expected or if we are unsuccessful at containing our operating costs. |
|
We have estimated our exposure to the claims and litigation arising in the normal course of business, as well as in material litigation facing the Company, and believe we have made adequate provisions for them where it is reasonably possible to estimate and where we believe an adverse outcome is probable. Unexpected outcomes in these matters, however, could result in an adverse effect on our earnings. |
|
The proportion of cash flow used to reduce outstanding debt, repurchase common stock or pay a cash dividend may be affected by the amount of outstanding debt available for pre-payments, changes in borrowing rates and the market price of Kroger common stock. |
|
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 was 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. |
|
We believe the multi-employer pension funds to which we contribute are substantially underfunded, and we believe the effect of that underfunding will be the increased contributions we have projected over the next several years. Should asset values in these funds deteriorate, or 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. |
|
The grocery retail industry continues to experience fierce competition from other traditional food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores and restaurants. Our continued success |
is dependent upon our ability to compete in this industry and to reduce operating expenses, including managing health care and pension costs contained in our collective bargaining agreements. The competitive environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained profitable growth are considerable, unanticipated actions of competitors could adversely affect our sales. |
|
Changes in laws or regulations, including changes in accounting standards, taxation requirements and environmental laws may have a material effect on our financial statements. |
|
Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth and employment and job growth in the markets in which we operate, may affect our ability to hire and train qualified employees to operate our stores. This would negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could affect sales and earnings. |
|
Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since gasoline generates low profit margins, including generating decreased margins as the market price increases, we expect to see our FIFO gross profit margins decline as gasoline sales increase. Although this negatively affects our FIFO gross margin, gasoline sales provide a positive effect on operating, general and administrative expenses as a percent of sales. |
|
Our ability to integrate any companies we acquire or have acquired, and achieve operating improvements at those companies, will affect our operations. |
|
Our capital expenditures could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted or if our logistics and technology projects are not completed in the time frame expected or on budget. |
|
Our expected square footage growth and the number of store projects completed during the year are dependent upon our ability to acquire desirable sites for construction of new facilities as well as the timing and completion of projects. |
|
Interest expense could be adversely affected by the interest rate environment, changes in the Companys credit ratings, fluctuations in the amount of outstanding debt, decisions to incur prepayment penalties on the early redemption of debt and any factor that adversely affects our operations that results in an increase in debt. |
|
Our estimated expense of $0.05 - $0.06 per diluted share, from the adoption of SFAS No. 123-R, requiring the expensing of stock options, could vary if the assumptions that were used to calculate the expense prove to be inaccurate or are changed. |
|
The amount we contribute to Company-sponsored pension plans could vary if the amount of cash flow that we generate differs from that expected. |
|
Adverse weather conditions could increase the cost our suppliers charge for their products, or may decrease the customer demand for certain products. Additionally, increases in the cost of inputs, such as utility costs or raw material costs, could negatively affect financial ratios and earnings. |
|
Although we presently operate only in the United States, civil unrest in foreign countries in which our suppliers do business may affect the prices we are charged for imported goods. If we are unable to pass on these increases to our customers, our FIFO gross margin and net earnings will suffer. |
(In millions) |
|
January 28, 2006 |
|
January 29, 2005 |
||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||||
Current
assets |
||||||||||
Cash and
temporary cash investments |
$ | 210 | $ | 144 | ||||||
Deposits
In-Transit |
488 | 506 | ||||||||
Receivables |
680 | 661 | ||||||||
Receivables
Taxes |
6 | 167 | ||||||||
FIFO
Inventory |
4,886 | 4,729 | ||||||||
LIFO
Credit |
(400 | ) | (373 | ) | ||||||
Prefunded
employee benefits |
300 | 300 | ||||||||
Prepaid and
other current assets |
296 | 272 | ||||||||
Total
current assets |
6,466 | 6,406 | ||||||||
Property,
plant and equipment, net |
11,365 | 11,497 | ||||||||
Goodwill,
net |
2,192 | 2.191 | ||||||||
Other
assets |
459 | 397 | ||||||||
Total
Assets |
$ | 20,482 | $ | 20,491 | ||||||
LIABILITIES |
||||||||||
Current
liabilities |
||||||||||
Current
portion of long-term debt including obligations under capital leases and financing obligations |
$ | 554 | $ | 71 | ||||||
Accounts
payable |
3,550 | 3,598 | ||||||||
Accrued
salaries and wages |
742 | 659 | ||||||||
Deferred
income taxes |
217 | 286 | ||||||||
Other
current liabilities |
1,652 | 1,721 | ||||||||
Total
current liabilities |
6,715 | 6,335 | ||||||||
Long-term debt
including obligations under capital leases and financing obligations |
||||||||||
Face value
long-term debt including obligations under capital leases and financing obligations |
6,651 | 7,830 | ||||||||
Adjustment
to reflect fair value interest rate hedges |
27 | 70 | ||||||||
Long-term
debt including obligations under capital leases and financing obligations |
6,678 | 7,900 | ||||||||
Deferred
income taxes |
843 | 841 | ||||||||
Other
long-term liabilities |
1,856 | 1,796 | ||||||||
Total
Liabilities |
16,092 | 16,872 | ||||||||
Commitments
and Contingencies |
||||||||||
SHAREOWNERS EQUITY |
||||||||||
Preferred
stock, $100 par, 5 shares authorized and unissued |
| | ||||||||
Common stock,
$1 par, 1,000 shares authorized: 927 shares issued in 2005 and 918 shares issued in 2004 |
927 | 918 | ||||||||
Additional
paid-in capital |
2,536 | 2,432 | ||||||||
Accumulated
other comprehensive loss |
(243 | ) | (202 | ) | ||||||
Accumulated
earnings |
4,573 | 3,620 | ||||||||
Common stock
in treasury, at cost, 204 shares in 2005 and 190 shares in 2004 |
(3,403 | ) | (3,149 | ) | ||||||
Total
Shareowners Equity |
4,390 | 3,619 | ||||||||
Total
Liabilities and Shareowners Equity |
$ | 20,482 | $ | 20,491 |
(In millions, except per share amounts) |
|
2005 (52 weeks) |
|
2004 (52 weeks) |
|
2003 (52 weeks) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales |
$ | 60,553 | $ | 56,434 | $ | 53,791 | ||||||||
Merchandise
costs, including advertising, warehousing, and transportation, excluding items shown separately below |
45,565 | 42,140 | 39,637 | |||||||||||
Operating,
general and administrative |
11,027 | 10,611 | 10,354 | |||||||||||
Rent |
661 | 680 | 657 | |||||||||||
Depreciation and
amortization |
1,265 | 1,256 | 1,209 | |||||||||||
Goodwill
impairment charge |
| 904 | 471 | |||||||||||
Asset impairment
charges |
| | 120 | |||||||||||
Operating
Profit |
2,035 | 843 | 1,343 | |||||||||||
Interest
expense |
510 | 557 | 604 | |||||||||||
Earnings
before income tax expense |
1,525 | 286 | 739 | |||||||||||
Income tax
expense |
567 | 390 | 454 | |||||||||||
Net earnings
(loss) |
$ | 958 | $ | (104 | ) | $ | 285 | |||||||
Net earnings
(loss) per basic common share |
$ | 1.32 | $ | (0.14 | ) | $ | 0.38 | |||||||
Average number
of common shares used in basic calculation |
724 | 736 | 747 | |||||||||||
Net earnings
(loss) per diluted common share |
$ | 1.31 | $ | (0.14 | ) | $ | 0.38 | |||||||
Average number
of common shares used in diluted calculation |
731 | 736 | 754 |
(In millions) |
|
2005 (52 weeks) |
|
2004 (52 weeks) |
|
2003 (52 weeks) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows
From Operating Activities: |
||||||||||||||
Net earnings
(loss) |
$ | 958 | $ | (104 | ) | $ | 285 | |||||||
Adjustments
to reconcile net earnings (loss) to net cash provided by operating activities: |
||||||||||||||
Depreciation
and amortization |
1,265 | 1,256 | 1,209 | |||||||||||
LIFO
charge |
27 | 49 | 34 | |||||||||||
Pension
expense for Company-sponsored pension plans |
138 | 117 | 92 | |||||||||||
Goodwill
impairment charge |
| 861 | 471 | |||||||||||
Asset
impairment charges |
| | 120 | |||||||||||
Deferred
income taxes |
(63 | ) | 230 | 329 | ||||||||||
Other |
39 | 59 | 22 | |||||||||||
Changes in
operating assets and liabilities net of effects from acquisitions of businesses: |
||||||||||||||
Store
deposits in-transit |
18 | 73 | (363 | ) | ||||||||||
Inventories |
(157 | ) | (236 | ) | (20 | ) | ||||||||
Receivables |
(19 | ) | 13 | 3 | ||||||||||
Prepaid
expenses |
31 | (31 | 5 | |||||||||||
Accounts
payable |
(80 | ) | 167 | 44 | ||||||||||
Accrued
expenses |
162 | (10 | ) | 132 | ||||||||||
Income taxes
receivable (payable) |
200 | (86 | ) | (62 | ) | |||||||||
Contribution
to company sponsored pension plans |
(300 | ) | (35 | ) | (100 | ) | ||||||||
Other |
(27 | ) | 7 | 14 | ||||||||||
Net cash
provided by operating activities |
2,192 | 2,330 | 2,215 | |||||||||||
Cash Flows
From Investing Activities: |
||||||||||||||
Capital
expenditures, excluding acquisitions |
(1,306 | ) | (1,634 | ) | (2,000 | ) | ||||||||
Proceeds
from sale of assets |
69 | 86 | 68 | |||||||||||
Payments for
acquisitions, net of cash acquired |
| (25 | ) | (87 | ) | |||||||||
Other |
(42 | ) | (35 | ) | (7 | ) | ||||||||
Net cash
used by investing activities |
(1,279 | ) | (1,608 | ) | (2,026 | ) | ||||||||
Cash Flows
From Financing Activities: |
||||||||||||||
Proceeds
from issuance of long-term debt |
14 | 616 | 347 | |||||||||||
Proceeds
from lease-financing transactions |
76 | 6 | | |||||||||||
Payments on
long-term debt |
(103 | ) | (701 | ) | (816 | ) | ||||||||
Borrowings
(payments) on bank revolver |
(694 | ) | (309 | ) | 329 | |||||||||
Debt
prepayment costs |
| (25 | ) | (17 | ) | |||||||||
Financing
charges incurred |
| (5 | ) | (3 | ) | |||||||||
Proceeds
from issuance of capital stock |
78 | 25 | 39 | |||||||||||
Treasury
stock purchases |
(252 | ) | (319 | ) | (301 | ) | ||||||||
Cash
received from interest rate swap terminations |
| | 114 | |||||||||||
Increase
(decrease) in book overdrafts |
34 | (25 | ) | 107 | ||||||||||
Net cash
used by financing activities |
(847 | ) | (737 | ) | (201 | ) | ||||||||
Net increase
(decrease) in cash and temporary cash investments |
66 | (15 | ) | (12 | ) | |||||||||
Cash and
temporary cash investments: |
||||||||||||||
Beginning of
year |
144 | 159 | 171 | |||||||||||
End of
year |
$ | 210 | $ | 144 | $ | 159 | ||||||||
Disclosure of
cash flow information: |
||||||||||||||
Cash paid
during the year for interest |
$ | 511 | $ | 590 | $ | 589 | ||||||||
Cash paid
during the year for income taxes |
$ | 431 | $ | 206 | $ | 139 |
Common Stock |
Treasury Stock |
|||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) |
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Shares |
|
Amount |
|
Accumulated Other Comprehensive Gain (Loss) |
|
Accumulated Earnings |
|
Total |
|
|||||||||||||||||||||
Balances
at February 1, 2003 |
908 | $ | 908 | $ | 2,317 | 150 | $ | (2,521 | ) | $ | (206 | ) | $ | 3,439 | $ | 3,937 | ||||||||||||||||||||||
Issuance
of common stock: |
||||||||||||||||||||||||||||||||||||||
Stock
options and warrants exercised |
4 | 4 | 35 | | | | |