kroger_def14a.htm
SCHEDULE 14A
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IN PROXY STATEMENT
SCHEDULE 14A
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________
PROXY
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
PROXY
STATEMENT
AND
2009 ANNUAL
REPORT
________
FELLOW SHAREHOLDERS:
The Kroger team delivered solid results in
2009. In doing so, we further strengthened our competitive position – improving
our unique advantage in the marketplace by continuing to successfully execute
our Customer 1st
business strategy in one of the most challenging retail environments in recent
history.
As a Shareholder of Kroger, you
should know that our Customers always come first. This philosophy drives our
focus on programs that help loyal Customers get even more value as they shop
more frequently in our stores. This Customer-centric approach also drives the
increase in the total number of loyal Customers we serve.
2009
Highlights
We generated an increase in total
sales to $76.7 billion and reported net earnings of $70 million or $0.11 per
diluted share. Excluding the effect of a non-cash impairment charge taken in the
third quarter for southern California assets, the net earnings for fiscal 2009
would have been $1.12 billion or $1.71 per diluted share.
Even in the face of high
unemployment, unprecedented deflation, and a weak U.S. economy, Kroger improved
its operational performance and continued to focus on creating value for our
Shareholders. We did this by:
- Increasing revenue from loyal
households;
- Generating strong tonnage
growth;
- Growing identical
sales;
- Investing in our stores to keep
them fresh and inviting;
- Increasing market
share;
- Returning more than $450 million
to our Shareholders; and
- Listening to our Customers and
Associates.
We are increasing revenue from loyal
households.
By offering a unique and
personalized value proposition for our diverse shoppers, we increased the number
of households that are loyal to Kroger and earned a greater share of their
business. These loyal households represent our very best Customers.
Kroger’s unique offerings include
rewarding Customers for their loyalty in multiple ways, tailoring offers that
are meaningful to their individual households through the use of our robust
shopper loyalty data, and delighting them with a pleasant and convenient
shopping experience.
We are generating strong tonnage
growth.
Strong growth in sales of our
Corporate Brands along with national brand items is driving the most dramatic
tonnage growth in Kroger’s history. Our strong volume growth is a direct result
of our investments in pricing, service and product offering and is among the
strongest in the industry in both perishable and non-perishable categories. Our
associates in our plants, warehouses and stores are doing an outstanding job
keeping up with the tremendous volume growth we are generating.
1
We are growing identical
sales.
Throughout 2009, Kroger successfully grew
identical sales, one of the key objectives of our business model. Identical
supermarket sales increased 2.1%, without fuel, compared with the prior year.
Through the efforts of all of our Associates, we continue to widen the gap
between Kroger’s identical sales growth trends and those of most of our
competitors. We believe this trend has extremely positive implications for our
Associates, Customers and Shareholders both now and as we continue to grow our
business.
We continue to invest in our stores
to keep them fresh and inviting for Customers.
Our remodeled stores continue to
generate favorable returns and we plan to continue on our steady course of
remodeling stores and other assets to keep them innovative and appealing to our
Customers. These projects enhance the overall shopping experience for our
Customers, improve the work environment for our Associates, and help drive
sales. Remodels also enable us to utilize more efficient technology, which
creates cost savings we can invest in our strategy.
We are increasing Kroger’s market
share.
Growing market share is an important
part of Kroger’s long-term strategy. In 2009, Kroger’s overall market share
increased approximately 60 basis points, according to Nielsen Homescan Data.
Kroger’s market share increased in 13 of the 17 marketing areas outlined by the
Nielsen report, declined in three, and remained unchanged in one.
We are rewarding our
Shareholders.
In 2009, we returned more than $450
million to our Shareholders through our dividend program and share repurchases.
We increased our quarterly dividend in 2009 by more than 5% per share in a year
when many large companies reduced or eliminated dividends. This marked the third
increase in the quarterly dividend since the program was initiated in 2006. In
2009, Kroger paid $237.6 million in cash dividends. Kroger’s dividend enhances
total shareholder return by more than 1.5% on an annual basis. During the year,
Kroger repurchased 10.3 million shares of stock at an average price of $21.25
per share for a total investment of $218.3 million.
We listen to our Customers and
Associates.
Every quarter, we track what our
Customers say about us in four key areas: our people, our prices, our products,
and the overall shopping experience in our stores. Their feedback helps us offer
a better overall shopping experience. It includes clean stores with quick
checkout lines; well-trained, friendly Associates; and a relevant assortment of
products that offer more value for the way our Customers live.
In 2009, our Customers told us we
improved more in each of our key Customer 1st areas than in any
year since we began these Customer surveys in 2004. We saw a good balance of
improvement across all four keys. These surveys provide meaningful insight we
can act on immediately. We will continue to seek feedback from our Customers and
incorporate what they tell us into the way we manage our business. We conduct
similar surveys of our Associates and continue to make improvements based on
what our Associates tell us is important to them. Associate engagement is a
critical part of our Customer 1st
strategy.
2
We are committed to
safety.
Safety is a core value at Kroger. As a result
of our deeply engaging safety programs, we have reduced our accident rates in
our stores and plants by 72% over the past 14 years. We continue to strive to
achieve our goal of zero accidents.
We partner with our Customers and
Associates to support the communities we serve.
We touch the lives of millions of
Customers every day through our family of stores. We consider it a privilege to
partner with our Customers and Associates to improve the communities we serve.
We focus our efforts on hunger relief, local community organizations, especially
K-12 schools, and women’s health initiatives. In 2009, our family of stores, the
Kroger Foundation, and our Associates and Customers donated more than $150
million to support organizations and causes that are important to
them.
Every year, Kroger proudly
recognizes some of the many Associates who make outstanding contributions to
their communities. The winners of The Kroger Co. Community Service Award for
2009 are listed following this letter.
We are proud of what our Associates
accomplished throughout the year and we look forward to building on this
momentum.
We continue to make strong progress
on our Sustainability agenda.
At Kroger, we have four focus areas
for Sustainability:
1) |
Using energy more
efficiently, which reduces our carbon footprint; |
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2) |
Recycling and
reducing waste, including plastic bags and waste generated in our
stores; |
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3) |
Reducing the
effects of our supply chain; |
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4) |
Enabling our
Customers and Associates to improve their own communities and take
meaningful steps to protect the environment. |
In 2009, we continued our aggressive
program to reduce energy usage in our stores and plants. In the past 10 years,
Kroger has reduced its energy consumption by more than 27%. This year, we
installed LED lighting and energy-efficient motors in freezer cases in many of
our stores.
We are off to a good start toward
our waste reduction goal of saving 1 billion plastic bags. Our Associates are
helping us achieve this goal by increasing the number of items placed in each
bag while still meeting the needs of Customers. At the same time, our Customers
are using more reusable bags for their shopping trips. Every reusable bag has
the potential to save 1,000 plastic bags over its lifetime.
Our fleet efficiency improved by
more than 7% in 2009, meaning our Logistics team delivered more cases of
products per gallon of fuel used.
As Customer interest in buying
locally grown products has increased, we have standardized programs to make it
easier for our stores to source fresh products from local farmers and small
businesses, reducing transportation and minimizing handling.
3
We are confronting our
challenges.
As we look ahead, the slow pace of the
economic recovery will continue to influence Kroger’s business in fiscal 2010.
Unemployment levels remain high, suppressing consumer confidence and spending.
Volatility in inflation or deflation and changes in the competitive landscape
will continue to affect our business in the coming year. Significant increases
in health care and pension costs, as well as credit card fees, will also affect
our business. We will address these challenges, and others, as we continue to
grow our business over the long term.
Kroger stands apart from others in
our industry because of our Customer 1st strategy and our
Associates’ commitment to making it a reality every day for every Customer who
visits one of our stores.
We believe Kroger will continue to
be in the best position to deliver Shareholder value now and as the economy and
consumer confidence improve.
On behalf of the entire Kroger team,
thank you for your continued trust and support.
David B. Dillon
Chairman of the Board and
Chief Executive
Officer
4
Congratulations to the winners of The Kroger
Co. Community Service Award for 2009:
Division |
Recipient |
Atlanta |
Greg Smith |
Central |
Chris Fought |
Cincinnati |
Cultural Advisory Council |
City Market |
Linda Dukart |
Columbus |
Doug Jarrells |
Delta |
Steven Hicks |
Dillon Stores |
Monte Werth |
Food 4 Less |
Teri Roach |
Fred Meyer |
Andrew Thompson |
Fry’s |
Robert & Laura Hamblen |
Jay C Stores |
William E. Lee |
King Soopers |
Ron Daniels |
Michigan |
Denise Bennett |
Mid-Atlantic |
Rick Ramsuer |
Mid-South |
Betty “Joe” Hughes |
QFC |
Ronald Davidson |
Ralphs |
Frank Devera |
Smith’s |
Sub for Santa Committee - Store 477 |
Southwest |
JoAnn “JoJo” Garcia |
______ |
|
KB Specialty Foods |
Laurie Foster |
Layton Dairy |
Tom Ostler |
Pace Dairy Food of Indiana |
Annette Hitch |
State Avenue |
Wendell Lundy |
______ |
|
Corporate |
Kelly Lee |
______ |
|
Turkey Hill Dairy |
Protectors of the Tea (Highville Fire Co.) |
Turkey Hill Minit Markets |
Erin Dimitriou Smith |
Logistics |
Patti Murray |
5
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Cincinnati, Ohio, May
14, 2010
To All Shareholders
of The Kroger Co.:
The annual meeting of shareholders of The
Kroger Co. will be held at the DUKE ENERGY CONVENTION CENTER, Junior Ballroom,
3rd Floor, 525 Elm
Street, Cincinnati, Ohio 45202, on June 24, 2010, at 11 a.m., eastern time, for
the following purposes:
1. |
To elect the
directors for the ensuing year; |
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2. |
To consider and
act upon a proposal to adopt an amendment to the Company’s Amended
Articles of Incorporation; |
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3. |
To consider and
act upon a proposal to ratify the selection of independent auditors for
the year 2010; |
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4. |
To act upon a
shareholder proposal, if properly presented at the annual meeting;
and |
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5. |
To transact such
other business as may properly be brought before the
meeting; |
all as set forth in the Proxy
Statement accompanying this Notice. Holders of common shares of record at the
close of business on April 26, 2010 will be entitled to vote at the
meeting.
ATTENDANCE
Only shareholders and persons holding proxies
from shareholders may attend the meeting. Please bring to the meeting the notice of the meeting or the top
portion of your proxy card that was mailed to you as this will serve as your
admission ticket. Several parking areas are
located in close proximity to the Duke Energy Convention Center, including the
Sixth Street Parking Garage that connects to the Convention Center via the
Skywalk.
YOUR MANAGEMENT DESIRES TO HAVE A
LARGE NUMBER OF SHAREHOLDERS REPRESENTED AT THE MEETING, IN PERSON OR BY PROXY.
PLEASE VOTE YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR BY TELEPHONE. IF YOU
HAVE ELECTED TO RECEIVE PRINTED MATERIALS, YOU MAY SIGN AND DATE THE PROXY AND
MAIL IT IN THE SELF-ADDRESSED ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF
MAILED WITHIN THE UNITED STATES.
If you are unable to attend the
annual meeting, you may listen to a live webcast of the meeting, which will be
accessible through our website, www.thekrogerco.com, at 11 a.m., eastern
time.
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By order of the Board of
Directors, Paul W. Heldman,
Secretary
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6
PROXY STATEMENT
Cincinnati, Ohio, May
14, 2010
Your proxy is solicited by the Board of
Directors of The Kroger Co., and the cost of solicitation will be borne by
Kroger. We will reimburse banks, brokers, nominees, and other fiduciaries for
postage and reasonable expenses incurred by them in forwarding the proxy
material to their principals. Kroger has retained D.F. King & Co., Inc., 48
Wall Street, New York, New York, to assist in the solicitation of proxies and
will pay that firm a fee estimated at present not to exceed $15,000. Proxies may
be solicited personally, by telephone, electronically via the Internet, or by
mail.
David B. Dillon, John T. LaMacchia,
and Bobby S. Shackouls, all of whom are Kroger directors, have been named
members of the Proxy Committee.
The principal executive offices of
The Kroger Co. are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our
telephone number is 513-762-4000. This Proxy Statement and Annual Report, and
the accompanying proxy, were first furnished to shareholders on May 14,
2010.
As of the close of business on April
26, 2010, our outstanding voting securities consisted of 644,849,993 shares of
common stock, the holders of which will be entitled to one vote per share at the
annual meeting. The shares represented by each proxy will be voted unless the
proxy is revoked before it is exercised. Revocation may be in writing to
Kroger’s Secretary, or in person at the meeting, or by appointment of a
subsequent proxy. Shareholders may not cumulate votes in the election of
directors.
The effect of broker non-votes and
abstentions on matters presented for shareholder vote is as
follows:
Item No. 1, Election of
Directors – The election
of directors is determined by plurality. Broker non-votes and abstentions will
have no effect on this proposal.
Item No. 2, Amendment to Amended
Articles of Incorporation
– The affirmative vote representing a majority of the outstanding common shares
is required to amend Kroger’s Amended Articles of Incorporation as set forth in
this Proxy Statement. Accordingly, broker non-votes and abstentions will have
the same effect as votes against this proposal.
Item No. 3, Selection of
Auditors – Ratification by
shareholders of the selection of auditors requires the affirmative vote of the
majority of shares participating in the voting. Accordingly, abstentions will
have no effect on this proposal.
Item No. 4, Shareholder
Proposal – The affirmative
vote of a majority of shares participating in the voting on a shareholder
proposal is required for its adoption. Proxies will be voted AGAINST this
proposal unless the Proxy Committee is otherwise instructed on a proxy properly
executed and returned. Abstentions and broker non-votes will have no effect on
this proposal.
7
PROPOSALS TO SHAREHOLDERS
ELECTION OF DIRECTORS
(ITEM NO. 1)
The Board of Directors, as now authorized,
consists of fourteen members. All members are to be elected at the annual
meeting to serve until the annual meeting in 2011, or until their successors
have been elected by the shareholders or by the Board of Directors pursuant to
Kroger’s Regulations, and qualified. Candidates for director receiving the
greatest number of votes cast by holders of shares entitled to vote at a meeting
at which a quorum is present are elected, up to the maximum number of directors
to be chosen at the meeting. Pursuant to guidelines adopted by the Board, in an
uncontested election where cumulative voting is not in effect, any nominee who
receives a greater number of votes “withheld” from his or her election than
votes “for” such election promptly will tender his or her resignation following
certification of the shareholder vote. The Corporate Governance Committee of our
Board of Directors will consider the resignation offer and recommend to the
Board whether to accept the resignation.
The experience, qualifications,
attributes, and skills that led the Corporate Governance Committee and the Board
to conclude that the following individuals should serve as directors are set
forth opposite each individual’s name. The committee memberships stated below
are those in effect as of the date of this proxy statement. It is intended that,
except to the extent that authority is withheld, proxies will be voted for the
election of the following persons:
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Professional |
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Director |
Name |
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Occupation (1) |
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Age |
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Since |
NOMINEES FOR DIRECTOR FOR TERMS OF OFFICE CONTINUING UNTIL 2011
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Reuben V. Anderson
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Mr. Anderson is
a Senior Partner 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 AT&T Inc., and during the past five years was a director
of AT&T Inc., BellSouth Corporation, Burlington Resources Inc., and
Trustmark Corporation. He is a member of the Corporate Governance and
Public Responsibilities Committees.
Mr. Anderson
has extensive litigation experience, and he served as the first
African-American Justice on the Mississippi Supreme Court. His knowledge
and judgment gained through years of legal practice are of great value to
the Board. In addition, as former Chairman of the Board of Trustees of
Tougaloo College and a resident of Mississippi, he brings to the Board his
insights into the African-American community and the southern region of
the United States. Mr. Anderson has served on numerous board committees,
including audit, public policy, finance, executive, and nominating
committees.
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67
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1991
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8
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Professional |
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Director |
Name |
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Occupation (1) |
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Age |
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Since |
Robert D. Beyer
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Mr. Beyer is
Chairman of Chaparal Investments LLC, a private investment firm and
holding company that he founded in 2009. From 2005 to 2009, Mr. Beyer
served as Chief Executive Officer of The TCW Group, Inc., a global
investment management firm. From 2000 to 2005, he served as President and
Chief Investment Officer of Trust Company of the West, the principal
operating subsidiary of TCW. Mr. Beyer is a member of the Board of
Directors of The Allstate Corporation, and in the past five years was a
director of The TCW Group, Inc. and its parent, Société Générale Asset
Management, S.A. He is chair of the Financial Policy Committee and a
member of the Compensation Committee.
Mr. Beyer
brings to Kroger his experience as CEO of TCW, a global investment
management firm serving many of the largest institutional investors in the
U.S. He has exceptional insight into Kroger’s financial strategy, and his
experience qualifies him to chair the Financial Policy Committee. While at
TCW, he also conceived and developed the firm’s risk management
infrastructure, an experience that is useful to the Kroger Board in
performing its risk management oversight functions. His experience in
managing compensation programs makes him a valued member of the
Compensation Committee. His abilities and service as a director were
recognized by his peers, who selected Mr. Beyer as an Outstanding Director
in 2008 as part of the Outstanding Directors Program of the Financial Times.
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50
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1999
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David B. Dillon
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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
to 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, and has served on that board during the past five
years.
Mr. Dillon
brings to Kroger his extensive knowledge of the supermarket business,
having over 30 years of experience with Kroger and Dillon Companies. In
addition to his depth of knowledge of Kroger and the fiercely competitive
industry in which Kroger operates, he has gained a wealth of experience by
serving on compensation and governance committees of another
board.
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59
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1995
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9
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Professional |
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Director |
Name |
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Occupation (1) |
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Age |
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Since |
Susan J. Kropf
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Ms. Kropf was
President and Chief Operating Officer of Avon Products Inc., a
manufacturer and marketer of beauty care products, from 2001 until her
retirement in January 2007. She joined Avon in 1970. Prior to her most
recent assignment, Ms. Kropf had been Executive Vice President and Chief
Operating Officer, Avon North America and Global Business Operations from
1998 to 2000. From 1997 to 1998 she was President, Avon U.S. Ms. Kropf was
a member of Avon’s Board of Directors from 1998 to 2006. She currently is
a member of the Board of Directors of Coach, Inc., MeadWestvaco
Corporation, and Sherwin Williams Company. Ms. Kropf has served on those
boards, as well as the board of Avon Products, during the past five years.
She is a member of the Audit and Public Responsibilities
Committees.
Ms. Kropf has
gained a unique consumer insight, having led a major beauty care company.
She has extensive experience in manufacturing, marketing, supply chain
operations, customer service, and product development, all of which assist
her in her role as a member of Kroger’s Board. Ms. Kropf has a strong
financial background, and has served on compensation, audit, and corporate
governance committees of other boards. She was inducted into the YWCA
Academy of Women Achievers.
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61
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2007
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John T. LaMacchia
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Mr. LaMacchia
served as Chairman of the Board of Tellme Networks, Inc., a provider of
voice application networks, from September 2001 to May 2007. From
September 2001 through December 2004 he was also Chief Executive Officer
of Tellme Networks. From May 1999 to May 2000 Mr. LaMacchia was Chief
Executive Officer of CellNet Data Systems, Inc., a provider of wireless
data communications. From October 1993 through February 1999, he was
President and Chief Executive Officer of Cincinnati Bell Inc. During the
past five years, Mr. LaMacchia served on the board of Burlington Resources
Inc. He is chair of the Compensation Committee and a member of the
Corporate Governance Committee.
Mr. LaMacchia
brings to Kroger his tenure leading both large and small companies. He has
developed expertise in compensation and governance issues through his
experience on compensation and corporate governance committees of Kroger
and other boards.
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68
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1990
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10
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Professional |
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Director |
Name |
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Occupation (1) |
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Age |
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Since |
David B. Lewis |
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Mr. Lewis is
Chairman of Lewis & Munday, a Detroit based law firm with offices in
Washington, D.C., Seattle, and Hartford. He is a director of H&R
Block, and has served on that Board during the past five years.
Previously, Mr. Lewis has served on the Board of Directors of Conrail,
Inc., LG&E Energy Corp., Lewis & Thompson Agency, Inc., M.A.
Hanna, TRW, Inc., and Comerica, Inc. He is a member of the Financial
Policy Committee and vice chair of the Public Responsibilities
Committee.
In addition to his background as a
practicing attorney and expertise in bond financing, Mr. Lewis brings to
Kroger’s Board his financial background gained while earning his MBA in
Finance as well as his service and leadership on Kroger’s and other audit
committees. He is a former chairman of the National Association of
Securities Professionals.
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65 |
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2002 |
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W. Rodney McMullen
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Mr. McMullen
was elected President and Chief Operating Officer of Kroger in August
2009. Prior to that he was elected Vice Chairman in 2003, Executive Vice
President in 1999, and Senior Vice President in 1997. Mr. McMullen is a
director of Cincinnati Financial Corporation, and has served on that Board
during the past five years.
Mr. McMullen has broad experience in the
supermarket business, having spent his career spanning over 30 years with
Kroger. He has a strong financial background and played a major role as
architect of Kroger’s strategic plan. Mr. McMullen is actively involved in
the day-to-day operations of Kroger. His service on the compensation,
executive, and investment committees of Cincinnati Financial Corporation
adds depth to his extensive retail experience.
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49 |
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2003 |
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Jorge P.
Montoya |
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Mr. Montoya was
President of The Procter & Gamble Company’s Global Snacks &
Beverage division, and President of Procter & Gamble Latin America,
from 1999 until his retirement in 2004. Prior to that, he was an Executive
Vice President of Procter & Gamble, a provider of branded consumer
packaged goods, from 1995 to 1999. Mr. Montoya is a director of The Gap,
Inc., and served on the Board of Rohm & Haas Company during the past
five years. He is chair of the Public Responsibilities Committee and a
member of the Compensation Committee.
Mr. Montoya brings to Kroger’s Board over
30 years of leadership experience at a premier consumer products company.
He has a deep knowledge of the Hispanic market, as well as consumer
products and retail operations. Mr. Montoya has vast experience in
marketing and general management, including international business. He was
named among the 50 most important Hispanics in Business & Technology,
in Hispanic Engineer & Information
Technology Magazine.
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63 |
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2007 |
11
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Professional |
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Director |
Name |
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Occupation (1) |
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Age |
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Since |
Clyde R. Moore |
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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
Compensation and Corporate Governance Committees.
Mr. Moore has over 25 years of general
management experience in public and private companies. He has sound
experience as a corporate leader overseeing all aspects of a facilities
management firm and a manufacturing concern. Mr. Moore’s expertise
broadens the scope of the Board’s experience to provide oversight to
Kroger’s facilities and manufacturing businesses.
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56 |
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1997 |
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Susan M. Phillips
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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
through 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, and the Chicago
Board Options Exchange. Dr. Phillips also is a trustee of the Financial
Accounting Foundation. She is a member of the Audit and Financial Policy
Committees.
Dr. Phillips brings to the Board strong
financial acumen, along with a deep understanding of, and involvement
with, the relationship between corporations and the government. Her
experience in academia brings a unique and diverse viewpoint to the
deliberations of the Board. Dr. Phillips has been designated an Audit
Committee financial expert.
|
|
65 |
|
2003 |
12
|
|
Professional |
|
|
|
Director |
Name |
|
Occupation (1) |
|
Age |
|
Since |
Steven R. Rogel |
|
Mr. Rogel was elected Chairman of the Board of Weyerhaeuser
Company, a forest products company, in 1999 and was President and Chief
Executive Officer and a director thereof from December 1997 to January 1,
2008 when he relinquished the role of President. He relinquished the CEO
role in April of 2008 and retired as Chairman as of April 2009. Before
that time Mr. Rogel was Chief Executive Officer, President and a director
of Willamette Industries, Inc. He 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. Mr. Rogel
is a director of Union Pacific Corporation and EnergySolutions, Inc. He is a
member of the Corporate Governance and Financial Policy
Committees.
Mr. Rogel has extensive
experience in management of large corporations at all levels. He brings to
the Board a unique perspective, having led a national supplier of paper
products prior to his recent retirement. Mr. Rogel previously served as
Kroger’s Lead Director, and has served on compensation, finance, audit,
and governance committees of other corporations.
|
|
67 |
|
1999 |
|
|
|
|
|
|
|
James A. Runde
|
|
Mr. Runde is a special advisor and a former Vice Chairman of Morgan
Stanley, a financial services provider, where he has been employed since
1974. He was a member of the Board of Directors of Burlington Resources
Inc. prior to its acquisition by ConocoPhillips in 2006. Mr. Runde serves
as a trustee of Marquette University and the Pierpont Morgan Library. He
is a member of the Compensation and Financial Policy
Committees.
Mr. Runde brings to Kroger’s
Board a strong financial background, having led a major financial services
provider. He has served on the compensation committee of a major
corporation.
|
|
63 |
|
2006 |
|
|
|
|
|
|
|
Ronald L.
Sargent |
|
Mr. Sargent is Chairman and Chief Executive Officer of Staples,
Inc., a consumer products retailer, where he has been employed since 1989.
Prior to joining Staples, Mr. Sargent spent 10 years with Kroger in
various positions. In addition to serving as a director of Staples, Mr.
Sargent is a director of Mattel, Inc. He is chair of the Audit Committee
and a member of the Public Responsibilities Committee.
Mr. Sargent has over 30 years of retail experience, first with
Kroger and then with increasing levels of responsibility and leadership at
Staples, Inc. His efforts helped carve out a new market niche for the
international retailer that he leads. His understanding of retail
operations and consumer insights are of particular value to the Board. Mr.
Sargent has been designated an Audit Committee financial
expert.
|
|
54 |
|
2006 |
13
|
|
Professional |
|
|
|
Director |
Name |
|
Occupation (1) |
|
Age |
|
Since |
Bobby S. Shackouls |
|
Until the merger of Burlington Resources Inc. and ConocoPhillips,
which became effective in 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
has been appointed by Kroger’s Board to serve as Lead Director. Mr.
Shackouls is chair of the Corporate Governance Committee and a member of
the Audit Committee.
Mr. Shackouls brings to the
Board the critical thinking that comes with a chemical engineering
background. His guidance of a major natural resources company, coupled
with his corporate governance expertise, forms the foundation of his
leadership role on Kroger’s Board.
|
|
59 |
|
1999 |
____________________
(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. |
14
INFORMATION CONCERNING THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
The Board of Directors has a number of
standing committees including Audit, Compensation, and Corporate Governance
Committees. All standing committees are composed exclusively of independent
directors. All Board committees have charters that can be found on our corporate
website at www.thekrogerco.com under Guidelines on Issues of Corporate Governance. During 2009, the Audit Committee met seven
times, the Compensation Committee met six times, and the Corporate Governance
Committee met two times. Committee memberships are shown on pages 8 through 14
of this Proxy Statement. The Audit Committee reviews financial reporting and
accounting matters pursuant to its charter and selects our independent
accountants. The Compensation Committee recommends for determination by the
independent members of our Board the compensation of the Chief Executive
Officer, determines the compensation of Kroger’s other senior management, and
administers some of our incentive programs. Additional information on the
Compensation Committee’s processes and procedures for consideration of executive
compensation are addressed in the Compensation Discussion and Analysis below.
The Corporate Governance Committee develops criteria for selecting and retaining
members of the Board, seeks out qualified candidates for the Board, and reviews
the performance of Kroger, the Board, and along with the other independent board
members, the CEO.
The Corporate Governance Committee will
consider shareholder recommendations for nominees for membership on the Board of
Directors. Recommendations relating to our annual meeting in June 2011, together
with a description of the proposed nominee’s qualifications and other relevant
information, must be submitted in writing to Paul W. Heldman, Secretary, and
received at our executive offices not later than January 14, 2011. Shareholders
who desire to submit a candidate for director should send the name of the
proposed candidate, along with information regarding the proposed candidate’s
background and experience, to the attention of Kroger’s Secretary at our
executive offices. The shareholder also should indicate the number of shares
beneficially owned by the shareholder. The Secretary will forward the
information to the Corporate Governance Committee for its consideration. The
Committee will use the same criteria in evaluating candidates submitted by
shareholders as it uses in evaluating candidates identified by the Committee.
These criteria are:
- 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 Kroger’s customers, taking into consideration the diversity of
our customers, including regional and geographic differences.
Racial, ethnic, and gender diversity is an
important element in promoting full, open, and balanced deliberations of issues
presented to the Board, and is considered by the Corporate Governance Committee.
Some consideration also is given to the geographic location of director
candidates in order to provide a reasonable distribution of members from the
operating areas of the Company.
15
The Corporate Governance Committee typically
recruits candidates for Board membership through its own efforts and through
suggestions from other directors and shareholders. The Committee on occasion has
retained an outside search firm to assist in identifying and recruiting Board
candidates who meet the criteria established by the Committee.
CORPORATE GOVERNANCE
The Board of Directors has adopted
Guidelines on Issues of Corporate
Governance. These
Guidelines, which include copies of the current charters
for the Audit, Compensation, and Corporate Governance Committees, and the other
committees of the Board of Directors, are available on our corporate website at
www.thekrogerco.com. Shareholders may obtain a copy of the Guidelines by
making a written request to Kroger’s Secretary at our executive
offices.
INDEPENDENCE
The Board of Directors has determined that all
of the directors, with the exception of Messrs. Dillon and McMullen, have no
material relationships with Kroger and therefore are independent for purposes of
the New York Stock Exchange listing standards. The Board made its determination
based on information furnished by all members regarding their relationships with
Kroger. After reviewing the information, the Board determined that all of the
non-employee directors were independent because (i) they all satisfied the
independence standards set forth in Rule 10A-3 of the Securities Exchange Act of
1934, (ii) they all satisfied the criteria for independence set forth in Rule
303A.02 of the New York Stock Exchange Listed Company Manual, and (iii) other
than business transactions between Kroger and entities with which the directors
are affiliated, the value of which falls below the thresholds identified by the
New York Stock Exchange listing standards, none had any material relationships
with us except for those arising directly from their performance of services as
a director for Kroger.
LEAD DIRECTOR
The Lead Director presides over all executive
sessions of the non-management directors, serves as the principal liaison
between the non-management directors and management, and consults with the
Chairman regarding information to be sent to the Board, meeting agendas, and
establishing meeting schedules. Unless otherwise determined by the Board, the
chair of the Corporate Governance Committee is designated as the Lead
Director.
AUDIT COMMITTEE EXPERTISE
The Board of Directors has determined that
Susan M. Phillips and Ronald L. Sargent, independent directors who are members
of the Audit Committee, are “audit committee financial experts” as defined by
applicable SEC regulations and that all members of the Audit Committee are
“financially literate” as that term is used in the NYSE listing
standards.
CODE OF ETHICS
The Board of Directors has adopted
The Kroger Co. Policy on Business
Ethics, applicable to all
officers, employees and members of the Board of Directors, including Kroger’s
principal executive, financial, and accounting officers. The Policy is available
on our corporate website at www.thekrogerco.com. Shareholders may obtain a copy
of the Policy by making a written request to Kroger’s
Secretary at our executive offices.
16
COMMUNICATIONS WITH THE BOARD
The Board has established two separate
mechanisms for shareholders and interested parties to communicate with the
Board. Any shareholder or interested party who has concerns regarding
accounting, improper use of Kroger assets, or ethical improprieties may report
these concerns via the toll-free hotline (800-689-4609) or email address
(helpline@kroger.com) established by the Board’s Audit Committee. The concerns
are investigated by Kroger’s Vice President of Auditing and reported to the
Audit Committee as deemed appropriate by the Vice President of
Auditing.
Shareholders or interested parties also may
communicate with the Board in writing directed to Kroger’s Secretary at our
executive offices. The Secretary will consider the nature of the communication
and determine whether to forward the communication to the chair of the Corporate
Governance Committee. Communications relating to personnel issues or our
ordinary business operations, or seeking to do business with us, will be
forwarded to the business unit of Kroger that the Secretary deems appropriate.
All other communications will be forwarded to the chair of the Corporate
Governance Committee for further consideration. The chair of the Corporate
Governance Committee will take such action as he or she deems appropriate, which
may include referral to the Corporate Governance Committee or the entire
Board.
ATTENDANCE
The Board of Directors met seven times in
2009. During 2009, all incumbent directors attended at least 75% of the
aggregate number of meetings of the Board and committees on which that
director served. Members of the Board are expected to use their best efforts to
attend all annual meetings of shareholders. All fifteen members of the
Board then in office attended last year’s annual meeting.
COMPENSATION CONSULTANTS
The Compensation Committee directly engages a
compensation consultant from Mercer Human Resource Consulting to advise the
Committee in the design of compensation for executive officers. In 2009, Kroger
paid that consultant $158,839 for work conducted for the Committee. Kroger, on
management’s recommendation, retained the parent and affiliated companies of
Mercer Human Resource Consulting to perform other services for Kroger in 2009,
for which Kroger paid $5,234,161. These other services primarily related to
insurance claims (for which Kroger was reimbursed by insurance carriers as
claims were adjusted), insurance brokerage and bonding commissions, and pension
consulting. Kroger also made payments to affiliated companies for insurance
premiums that were collected by the affiliated companies on behalf of insurance
carriers, but these amounts are not included in the totals referenced above, as
the amounts were paid over to insurance carriers for services provided by those
carriers. Although neither the Committee nor the Board expressly approved the
other services, the Committee determined that the consultant is independent
because (a) he was first engaged by the Committee before he became associated
with Mercer; (b) he works exclusively for the Committee and not for our
management; (c) he does not benefit from the other work that Mercer’s parent and
affiliated companies perform for Kroger; and (d) neither the consultant nor the
consultant’s team perform any other services on behalf of Kroger.
In 2009 the Compensation Committee also
directly engaged a second compensation consultant, from Frederick W. Cook &
Co., Inc., to review Kroger’s executive compensation. The Committee determined
that the consultant is independent because neither he nor his company provide
any other services for Kroger.
17
BOARD OVERSIGHT OF ENTERPRISE RISK
While risk management is primarily the
responsibility of Kroger’s management team, the Board of Directors is
responsible for the overall supervision of our risk management activities. The
Board’s oversight of the material risks faced by Kroger occurs at both the full
Board level and at the committee level.
The Board’s Audit Committee has oversight
responsibility not only for financial reporting of Kroger’s major financial
exposures and the steps management has taken to monitor and control those
exposures, but also for the effectiveness of management’s processes that monitor
and manage key business risks facing Kroger, as well as the major areas of risk
exposure and management’s efforts to monitor and control that exposure. The
Audit Committee also discusses with management its policies with respect to risk
assessment and risk management.
Management provides regular updates throughout
the year to the respective committees regarding the management of the risks they
oversee, and each of these committees reports on risk to the full Board at each
regular meeting of the Board.
In addition to the reports from the
committees, the Board receives presentations throughout the year from various
department and business unit leaders that include discussion of significant
risks as necessary. At each Board meeting, the Chairman and CEO addresses
matters of particular importance or concern, including any significant areas of
risk that require Board attention. Additionally, through dedicated sessions
focusing entirely on corporate strategy, the full Board reviews in detail
Kroger’s short- and long-term strategies, including consideration of significant
risks facing Kroger and their potential impact. The independent directors, in
executive sessions led by the Lead Director, address matters of particular
concern, including significant areas of risk, that warrant further discussion or
consideration outside the presence of Kroger employees.
We believe that our approach to risk
oversight, as described above, optimizes our ability to assess
inter-relationships among the various risks, make informed cost-benefit
decisions, and approach emerging risks in a proactive manner for Kroger. We also
believe that our risk structure complements our current Board leadership
structure, as it allows our independent directors, through the five fully
independent Board committees, and in executive sessions of independent directors
led by an independent Lead Director, to exercise effective oversight of the
actions of management, led by Mr. Dillon as Chairman and CEO, in identifying
risks and implementing effective risk management policies and
controls.
BOARD LEADERSHIP STRUCTURE
Our Board is composed of twelve independent
directors and two management directors, Mr. Dillon, the Chairman of the Board
and CEO, and Mr. McMullen, President and Chief Operating Officer. In addition,
as provided in our Guidelines on Issues of Corporate Governance, the Board has designated one of the
independent directors as Lead Director. The Board has established five standing
committees — audit, compensation, corporate governance, financial policy, and
public responsibilities. Each of the Board committees is composed solely of
independent directors, each with a different independent director serving as
committee chair. We believe that the mix of experienced independent and
management directors that make up our Board, along with the independent role of
our Lead Director and our independent Board committees, benefits Kroger and its
shareholders.
The Board believes that it is beneficial to
Kroger and its shareholders to designate one of the directors as a Lead
Director. The Lead Director serves a variety of roles, including reviewing and
approving Board agendas, meeting materials and schedules to confirm the
appropriate topics are reviewed and sufficient time is allocated to each;
serving as liaison between the Chairman of the Board, management, and the
18
non-management
directors; presiding at the executive sessions of independent directors and at
all other meetings of the Board of Directors at which the Chairman of the Board
is not present; and calling an executive session of independent directors at any
time. Bobby Shackouls, an independent director and the chair of the Corporate
Governance Committee, is currently our Lead Director. Mr. Shackouls is an
effective Lead Director for Kroger due to, among other things, his independence,
his deep strategic and operational understanding of Kroger obtained while
serving as a Kroger director, his corporate governance knowledge acquired during
his tenure as a member of our Corporate Governance Committee, his previous
experience on other boards, and his prior experience as a CEO of a Fortune 500
company.
With respect to the roles of Chairman and CEO,
the Guidelines provide that the Board believes that it is in
the best interests of Kroger and its shareholders for one person to serve as
Chairman and CEO. The Board recognizes that there may be circumstances in which
it is in the best interests of Kroger and its shareholders for the roles to be
separated, and the Board exercises its discretion as it deems appropriate in
light of prevailing circumstances. The Board believes that the combination or
separation of these positions should continue to be considered as part of the
succession planning process, as was the case in 2003 when the roles were
separated. Since 2004, the roles have been combined.
Our Board and each of its committees
conduct an annual evaluation to determine whether they are functioning
effectively. As part of this annual self-evaluation, the Board assesses whether
the current leadership structure continues to be appropriate for Kroger and its
shareholders. Our Guidelines provide the flexibility for our Board to
modify our leadership structure in the future as appropriate. We believe that
Kroger, like many U.S. companies, has been well-served by this flexible
leadership structure.
19
COMPENSATION DISCUSSION AND ANALYSIS |
EXECUTIVE COMPENSATION – GENERAL PRINCIPLES
The Compensation Committee of the Board has
the primary responsibility for establishing the compensation of Kroger’s
executive officers, including the named executive officers who are identified in
the Summary Compensation Table below, with the exception of the Chief Executive
Officer. The Committee’s role regarding the CEO’s compensation is to make
recommendations to the independent members of the Board; those independent Board
members establish the CEO’s compensation.
The Committee’s philosophy on compensation
generally applies to all levels of Kroger management. It requires Kroger
to:
- Make total compensation
competitive;
- Include opportunities for equity
ownership as part of compensation; and
- Use incentive compensation to help
drive performance by providing superior pay for superior results.
The following discussion and analysis
addresses the compensation of the named executive officers, and the factors
considered by the Committee in setting compensation for the named executive
officers and making recommendations to the independent Board members in the case
of the CEO’s compensation. Additional detail is provided in the compensation
tables and the accompanying narrative disclosures that follow this discussion
and analysis.
EXECUTIVE COMPENSATION – OBJECTIVES
The Committee has several related objectives
regarding compensation. First, the Committee believes that compensation must be
designed to attract and retain those best suited to fulfill the challenging
roles that executive officers play at Kroger. Second, some elements of
compensation should help align the interests of the officers with your interests
as shareholders. Third, compensation should create strong incentives for the
officers (a) to achieve the annual business plan targets established by the
Board, and (b) to achieve Kroger’s long-term strategic objectives. In developing
compensation programs and amounts to meet these objectives, the Committee
exercises judgment to ensure that executive officer compensation does not exceed
reasonable and competitive levels in light of Kroger’s performance and the needs
of the business.
To meet these objectives, the Committee has
taken a number of steps over the last several years, including the
following:
- Consulted regularly with its
independent advisor from Mercer Human Resource Consulting on the design of
compensation plans and on the amount of compensation that is necessary and
appropriate for Kroger’s senior leaders in light of the Committee’s
objectives. In 2009, the Committee retained another independent consultant to
determine whether the compensation plans and amounts comport with the
Committee’s objectives and produce value for Kroger’s
shareholders.
- Conducted an annual review of all
components of compensation, quantifying total compensation for the named
executive officers on tally sheets. The review includes an assessment for each
named executive officer, including the CEO, of salary; performance-based cash
compensation, or bonus (both annual and long-term); equity; accumulated
realized and unrealized stock option gains and
20
|
restricted
stock values; the value of any perquisites; retirement benefits; severance
benefits available under The Kroger Co. Employee Protection Plan; and
earnings and payouts available under Kroger’s nonqualified deferred
compensation program.
|
- Considered internal pay equity at
Kroger. The Committee is aware of reported concerns at other companies
regarding disproportionate compensation awards to chief executive officers.
The Committee has assured itself that the compensation of Kroger’s CEO and
that of the other named executive officers bears a reasonable relationship to
the compensation levels of other executive positions at Kroger taking into
consideration performance and differences in
responsibilities.
- Recommended share ownership
guidelines, adopted by the Board of Directors. These guidelines require
directors, officers and some other key executives to acquire and hold a
minimum dollar value of Kroger stock. The guidelines require the CEO to
acquire and maintain ownership of Kroger shares equal to 5 times his base
salary; the Vice Chairman (which position was eliminated during the latter
part of 2009) and the Chief Operating Officer at 4 times their base salaries;
Executive Vice Presidents, Senior Vice Presidents, and non-employee directors
at 3 times their base salaries or annual base cash retainers; and other
officers and key executives at 2 times their base salaries.
ESTABLISHING EXECUTIVE COMPENSATION
The independent members of the Board have the
exclusive authority to determine the amount of the CEO’s salary; the bonus
potential for the CEO; the nature and amount of any equity awards made to the
CEO; and any other compensation questions related to the CEO. In setting the
annual bonus potential for the CEO, the independent directors determine the
dollar amount that will be multiplied by the percentage payout under the annual
bonus plan applicable to all corporate management, including the named executive
officers. The independent directors retain discretion to reduce the percentage
payout the CEO would otherwise receive. The independent directors thus make a
separate determination annually concerning both the CEO’s bonus potential and
the percentage of bonus paid.
The Committee performs the same function and
exercises the same authority as to the other named executive officers. The
Committee’s annual review of compensation for the named executive officers
includes the following:
- A detailed report, by officer,
that describes current compensation, the value of equity compensation
previously awarded, the value of retirement benefits earned, and any severance
or other benefits payable upon a change of control.
- An internal equity comparison of
compensation at various senior levels. This current and historical analysis is
undertaken to ensure that the relationship of CEO compensation to other senior
officer compensation, and senior officer compensation to other levels in the
organization, is equitable.
- Reports from the Committee’s
compensation consultants (described below) comparing named executive officer
and other senior executive compensation with that of other companies,
primarily our competitors, to ensure that the Committee’s objectives of
competitiveness are met.
- A recommendation from the CEO
(except in the case of his own compensation) for salary, bonus potential, and
equity awards for each of the senior officers including the other named
executive officers. The CEO’s recommendation takes into consideration the
objectives established by and the reports received by the Committee as well as
his assessment of individual job performance and contribution to our
management team.
- Historical information regarding
salary, bonus, and equity compensation for a 3-year period.
21
In considering each of the factors above, the
Committee does not make use of a formula, but rather subjectively reviews each
in making its compensation determination.
THE COMMITTEE’S COMPENSATION CONSULTANTS AND BENCHMARKING
As referenced earlier in this proxy statement,
the Committee directly engages a compensation consultant from Mercer Human
Resource Consulting to advise the Committee in the design of compensation for
executive officers. The Mercer consultant conducts an annual competitive
assessment of executive positions at Kroger for the Committee. The assessment is
one of several bases, as described above, on which the Committee determines
compensation. The consultant assesses base salary; target annual
performance-based bonus; target cash compensation (the sum of salary and bonus);
annualized long-term incentive awards, such as stock options, other equity
awards, and performance-based long-term bonuses; and total direct compensation
(the sum of all these elements). The consultant compares these elements against
those of other companies in a group of publicly-traded food and drug retailers.
For 2009, the group consisted of:
Costco Wholesale |
Supervalu |
CVS |
Target |
Great Atlantic & Pacific Tea |
Walgreens |
Rite Aid |
Wal-Mart |
Safeway |
|
This peer group is
the same group as was used in 2008.
The make-up of the compensation peer group is
reviewed annually and modified as circumstances warrant. Industry consolidation
and other competitive forces will change the peer group used over time. The
consultant also provides the Committee data from companies in “general
industry,” a representation of major publicly-traded companies. These data are
reference points, particularly for senior staff positions where competition for
talent extends beyond the retail sector.
In 2009, the Committee directly engaged an
additional compensation consultant to conduct a review of Kroger’s executive
compensation. This consultant, from Frederic W. Cook & Co., Inc., examined
the compensation philosophy, peer group composition, annual cash bonus, and
long-term incentive compensation including equity awards. The consultant
concluded that Kroger’s executive compensation program met the Committee’s
objectives, and that it provides a strong linkage between pay and
performance.
Kroger is the second-largest company as
measured by annual revenues when compared with the peer group referenced above
and is the largest traditional food and drug retailer. The Committee has
therefore sought to ensure that salaries paid to our executive officers are at
or above the median paid by competitors for comparable positions and to provide
annual bonus potentials to our executive officers that, if annual business plan
objectives are achieved, would cause their total cash compensation to be
meaningfully above the median.
COMPONENTS OF EXECUTIVE COMPENSATION AT KROGER
Compensation for our named executive
officers is comprised of the following:
- Salary;
- Performance-Based Annual Cash
Bonus (annual, non-equity incentive pay);
- Performance-Based Long-Term Cash
Bonus (long-term, non-equity incentive pay);
22
- Equity;
- Retirement and other benefits;
and
- Perquisites.
SALARY
We provide our named executive officers and
other employees a fixed amount of cash compensation – salary – for their work.
Salaries for named executive officers (with the exception of the CEO) are
established each year by the Committee. The CEO’s salary is established by the
independent directors. Salaries for the named executive officers were reviewed
in June.
The amount of each executive’s
salary is influenced by numerous factors including:
- An assessment of individual
contribution in the judgment of the CEO and the Committee (or, in the
case of the CEO, of the
Committee and the independent directors);
- Benchmarking with comparable
positions at peer group companies;
- Tenure; and
- Relationship with the salaries of
other executives at Kroger.
The assessment of individual contribution is
based on a subjective determination, without the use of performance targets, in
the following areas:
- Leadership;
- Contribution to the officer
group;
- Achievement of established
objectives, to the extent applicable;
- Decision-making
abilities;
- Performance of the areas or groups
directly reporting to the officer;
- Increased
responsibilities;
- Strategic thinking;
and
- Furtherance of Kroger’s core
values.
The named executive officers received salary
increases, to the amounts shown below, following the annual review of their
compensation in June.
|
|
Salaries |
|
|
2007 |
|
2008 |
|
2009 |
David B. Dillon |
|
$ |
1,185,000 |
|
$ |
1,220,000 |
|
$ |
1,260,000 |
J. Michael Schlotman |
|
$ |
525,000 |
|
$ |
545,000 |
|
$ |
567,000 |
W. Rodney McMullen |
|
$ |
833,000 |
|
$ |
860,000 |
|
$ |
890,000 |
Don W. McGeorge |
|
$ |
833,000 |
|
$ |
860,000 |
|
$ |
890,000 |
Donald E. Becker |
|
$ |
600,000 |
|
$ |
620,000 |
|
$ |
645,000 |
Paul W. Heldman |
|
$ |
665,000 |
|
$ |
685,000 |
|
$ |
710,000 |
23
PERFORMANCE-BASED ANNUAL CASH BONUS
A large percentage of our employees at all
levels, including the named executive officers, are eligible to receive a
performance-based annual cash bonus based on Kroger or unit performance. The
Committee establishes bonus potentials for each executive officer, other than
the CEO whose bonus potential is established by the independent directors.
Actual payouts, which can exceed 100% of the potential amounts, represent the
extent to which performance meets or exceeds the thresholds established by the
Committee.
The Committee considers several factors in
making its determination or recommendation as to bonus potentials. First, the
individual’s level within the organization is a factor in that the Committee
believes that more senior executives should have a substantial part of their
compensation dependent upon Kroger’s performance. Second, the individual’s
salary is a factor so that a substantial portion of a named executive officer’s
total cash compensation is dependent upon Kroger’s performance. Finally, the
Committee considers the reports of its compensation consultants to assess the
bonus potentials of the named executive officers in light of total compensation
paid to comparable executive positions in the industry.
The annual cash bonus potential in effect at
the end of the year for each named executive officer is shown below. Actual
bonus payouts are prorated to reflect changes, if any, to bonus potentials
during the year.
|
|
Annual Bonus
Potential |
|
|
2007 |
|
2008 |
|
2009 |
David B. Dillon |
|
$ |
1,500,000 |
|
$ |
1,500,000 |
|
$ |
1,500,000 |
J. Michael Schlotman |
|
$ |
500,000 |
|
$ |
500,000 |
|
$ |
500,000 |
W. Rodney McMullen |
|
$ |
1,000,000 |
|
$ |
1,000,000 |
|
$ |
1,000,000 |
Don W. McGeorge |
|
$ |
1,000,000 |
|
$ |
1,000,000 |
|
$ |
1,000,000 |
Donald E. Becker |
|
$ |
550,000 |
|
$ |
550,000 |
|
$ |
550,000 |
Paul W. Heldman |
|
$ |
550,000 |
|
$ |
550,000 |
|
$ |
550,000 |
The amount of bonus that the named executive
officers earn each year is determined by Kroger’s performance compared to
targets established by the Committee based on the business plan adopted by the
Board of Directors. In 2009, thirty percent of bonus was earned based on an
identical sales target for Kroger’s supermarkets and other business operations;
thirty percent was based on a target for EBITDA, excluding supermarket fuel;
thirty percent was based on implementation and results of a set of measures
under our strategic plan; and ten percent was based on the performance of new
capital projects compared to their budgets. An additional 5% would be earned if
Kroger achieved three goals with respect to its supermarket fuel operations;
achievement of at least 80% of the targeted fuel EBITDA as set forth in the
business plan, increase of at least 3% in gallons sold at identical fuel
centers, and achievement of the planned number of fuel centers placed in
service. Likewise, a 5% reduction in bonus would result if any of the three fuel
goals was not achieved.
Over time the Committee has placed an
increased emphasis on the strategic plan by making the target more difficult to
achieve. The bonus plan allows for minimal bonus to be earned at relatively low
levels to provide incentive for achieving even higher levels of
performance.
Following the close of the year, the Committee
reviewed Kroger’s performance against the identical sales, EBITDA, strategic
plan, and capital projects objectives and determined the extent to which Kroger
achieved those objectives. Kroger’s EBITDA, excluding impairment charges, for
2009 was $3.655 billion, and Kroger’s identical sales for 2009 were 2.3%. In
2009, Kroger’s supermarket fuel EBITDA was $89.192 million, or 81.1% of the goal
established at the beginning of the year. Kroger’s sale of fuel in identical
24
supermarket fuel
centers was 591.6 million gallons, or 5.3% over the prior year. We placed 117
supermarket fuel centers in operation during 2009, exceeding our goal of 111
centers. As a result, the officers earned the additional 5% fuel bonus. As a
result of the Company’s performance when compared to the targets established by
the Committee, and based on the business plan adopted by the Board of Directors,
the named executive officers earned 38.450% of their bonus potentials, which
percentage payout is substantially lower than the bonus payouts over the last
several years, principally reflecting the degree to which Kroger failed to
achieve its EBITDA and sales goals.
The 2009 targets established by the Committee
for annual bonus amounts based on identical sales and EBITDA results, the actual
2009 results, and the bonus percentage earned in each of the components of named
executive officer bonus, were as follows:
|
|
Targets |
|
|
|
|
|
Component |
|
Minimum |
|
100% |
|
Result |
|
Amount Earned |
Identical Sales |
|
2.0% |
|
4.0%/5.0%* |
|
2.3% |
|
2.001 |
% |
EBITDA |
|
$4.005
Billion |
|
$4.152
Billion |
|
$3.655 Billion |
|
0 |
% |
Strategic Plan** |
|
|
|
|
|
|
|
21.951 |
% |
Capital Projects** |
|
|
|
|
|
|
|
9.498 |
% |
Fuel Bonus |
|
[as described in the text
above] |
|
5.000 |
% |
|
|
|
|
|
|
|
|
38.450 |
% |
____________________
* |
|
Identical sales of 4% pay at 100% if EBITDA goal is achieved. If
EBITDA goal is not achieved, identical sales of 5% pay at
100%. |
|
** |
|
The
Strategic Plan and Capital Projects components also were established by
the Committee but are not disclosed as they are competitively
sensitive. |
In 2009, as in all years, the Committee
retained discretion to reduce the bonus payout for named executive officers if
the Committee determined for any reason that the bonus payouts were not
appropriate. The independent directors retained that discretion for the CEO’s
bonus. Those bodies also retained discretion to adjust the targets under the
plan should unanticipated developments arise during the year. No adjustments
were made to the payout or the targets during 2009.
The percentage paid for 2009 represented and
resulted from performance that, due to a weak economy and persistent deflation,
did not meet our original business plan objectives. A comparison of bonus
percentages for the named executive officers in prior years demonstrates the
variability of incentive compensation:
|
|
Annual Cash Bonus |
Fiscal Year |
|
Percentage |
2009 |
|
38.450 |
% |
2008 |
|
104.948 |
% |
2007 |
|
128.104 |
% |
2006 |
|
141.118 |
% |
2005 |
|
132.094 |
% |
2004 |
|
55.174 |
% |
2003 |
|
24.100 |
% |
2002 |
|
9.900 |
% |
2001 |
|
31.760 |
% |
2000 |
|
80.360 |
% |
25
The actual amounts of annual performance-based
cash bonuses paid to the named executive officers for 2009 are shown in the
Summary Compensation Table under the heading “Non-Equity Incentive Plan
Compensation.” These amounts represent the bonus potentials for each named
executive officer multiplied by the percentage earned in 2009. In no event can
any participant receive a performance-based annual cash bonus in excess of
$5,000,000. Beginning with the 2009 annual cash bonus, the maximum amount that a
participant, including each named executive officer, can earn is further limited
to 200% of the participant’s potential amount.
After considering recommendations made by its
compensation consultants, the Committee determined to reduce the number of
metrics considered for purposes of calculating annual bonuses. Beginning with
the annual bonus for 2010, thirty percent of bonus will be based on an identical
sales target for Kroger’s supermarkets and other business operations; thirty
percent will be based on a target for EBITDA, excluding supermarket fuel; and
forty percent will be based on implementation and results of a set of measures
under our strategic plan. An additional 5% will be earned if Kroger achieves
three goals with respect to its supermarket fuel operations, subject to
adjustment by the Committee based on the effects of certain fuel programs;
achievement of at least 80% of the targeted fuel EBITDA as set forth in the
business plan, increase of at least 3% in gallons sold at identical fuel
centers, and achievement of the planned number of fuel centers placed in
service.
PERFORMANCE-BASED LONG-TERM CASH BONUS
After reviewing executive compensation with
its consultant in 2005, the Committee determined that the long-term component,
which was made up of equity awards, of Kroger’s executive compensation was not
competitive. The Committee developed a plan to provide an incentive to the named
executive officers to achieve the long-term goals established by the Board of
Directors by conditioning a portion of compensation on the achievement of those
goals. Beginning in 2006, approximately 140 Kroger executives, including the
named executive officers, are eligible to participate in a performance-based
cash bonus plan designed to reward participants for improving the long-term
performance of Kroger. Bonuses are earned based on the extent to which Kroger
advances its strategic plan by:
- improving its performance in four
key categories, based on results of customer surveys; and
- reducing total operating costs as
a percentage of sales, excluding fuel.
The 2006 plan consisted of two components. The
phase-in component measured improvements through fiscal year 2007. The other
component measured the improvements through fiscal year 2009. Actual payouts
were based on the degree to which improvements were achieved, and were awarded
in increments based on the participant’s salary at the end of fiscal year 2005.
Participants received a 1% payout for each point by which the performance in the
key categories increased, and a 0.25% payout for each percentage reduction in
operating costs. The Committee administers the plan and determined the bonus
payout amounts based on achievement of the performance criteria. Total operating
costs as a percentage of sales, excluding fuel, at the commencement of the 2006
plan were 28.78%, and at the end of the phase-in period were 27.89%. Combining
this operating cost improvement with our performance in our key categories
resulted in payouts for the phase-in component of 36.25% of the participant’s
annual salary in effect at the end of fiscal year 2005. Total operating costs as
a percentage of sales, excluding fuel, at the end of fiscal year 2009 were
27.38%. Combining this operating cost improvement with our performance in our
key categories resulted in payouts for the full four-year performance period of
59.75% of the participant’s annual salary in effect at the end of fiscal year
2005.
26
After reviewing an analysis conducted by its
independent compensation consultant in 2007, the Committee determined that
continuation of the long-term cash bonus was necessary in order for long-term
compensation for the named executive officers to be competitive and to continue
to focus the officers on achieving Kroger’s long-term business objectives. As a
result, the Committee adopted a 2008 long-term bonus plan under which bonuses
are earned based on the extent to which Kroger advances its strategic plan
by:
- improving its performance in four
key categories, based on results of customer surveys;
- reducing total operating costs as
a percentage of sales, excluding fuel; and
- improving its performance in
eleven key attributes designed to measure associate satisfaction and
one key attribute designed to measure
how Kroger’s focus on its values supports how associates do business, based on the results of associate
surveys.
The 2008 plan measures improvements through
fiscal year 2011. Participants receive a 1% payout for each point by which the
performance in the key categories increases, a 0.25% payout for each percentage
reduction in operating costs, and a 1% payout based on improvement in associate
engagement measures. Total operating costs as a percentage of sales, excluding
fuel, at the commencement of the 2008 plan were 27.89%. Actual payouts are based
on the degree to which improvements are achieved, and will be awarded based on
the participant’s salary at the end of fiscal year 2007. In no event can any
participant receive a performance-based long-term cash bonus in excess of
$5,000,000.
Although the Committee is considering adoption
of a new 2010 long-term bonus plan, that plan has not yet been
adopted.
EQUITY
Awards based on Kroger’s common stock are
granted periodically to the named executive officers and a large number of other
employees. Equity participation aligns the interests of employees with your
interests as shareholders, and Kroger historically has distributed equity awards
widely. In 2009, Kroger granted 3,598,620 stock options to approximately 7,100
employees, including the named executive officers, under one of Kroger’s
long-term incentive plans. The options permit the holder to purchase Kroger
common stock at an option price equal to the closing price of Kroger common
stock on the date of the grant. The Committee adopted a policy of granting
options only at one of the four Committee meetings conducted shortly following
Kroger’s public release of its quarterly earnings results.
Kroger’s long-term incentive plans also
provide for other equity-based awards, including restricted stock. During 2009
Kroger awarded 2,575,994 shares of restricted stock to approximately 11,130
employees, including the named executive officers. This amount is comparable to
amounts awarded over the past few years as we began reducing the number of stock
options granted and increasing the number of shares of restricted stock awards.
The change in Kroger’s broad-based equity program from predominantly stock
options to a mixture of options and restricted shares was precipitated by (a)
the perception of increased value that restricted shares offer, (b) the
retention benefit to Kroger of restricted shares, and (c) accounting conventions
that now require stock options to be expensed, making the change cost-neutral to
Kroger.
The Committee considers several factors in
determining the amount of options and restricted shares awarded to the named
executive officers or, in the case of the CEO, recommending to the independent
directors the amount awarded. These factors include:
- The compensation consultant’s
benchmarking report regarding equity-based and other long-term compensation awarded by our
competitors;
27
- The officer’s level in the
organization and the internal relationship of equity-based awards
within Kroger;
- Individual performance;
and
- The recommendation of the CEO, for
all named executive officers other than in the case of the CEO.
The Committee has long recognized that the
amount of compensation provided to the named executive officers through
equity-based pay is often below the amount paid by our competitors. Lower
equity-based awards for the named executive officers and other senior management
permit a broader base of Kroger associates to participate in equity
awards.
Amounts of equity awards issued and
outstanding for the named executive officers are set forth in the tables that
follow this discussion and analysis.
RETIREMENT AND OTHER BENEFITS
Kroger maintains a defined benefit and several
defined contribution retirement plans for its employees. The named executive
officers participate in one or more of these plans, as well as one or more
excess plans designed to make up the shortfall in retirement benefits created by
limitations under the Internal Revenue Code on benefits to highly compensated
individuals under qualified plans. Additional details regarding retirement
benefits available to the named executive officers can be found in the 2009
Pension Benefits table and the accompanying narrative description that follows
this discussion and analysis.
Kroger also maintains an executive deferred
compensation plan in which some of the named executive officers participate.
This plan is a nonqualified plan under which participants can elect to defer up
to 100% of their cash compensation each year. Compensation deferred bears
interest, until paid out, at the rate representing Kroger’s cost of ten-year
debt in the year of deferral as determined by Kroger’s CEO prior to the
beginning of each deferral year. In 2009, that rate was 6.15%. Deferred amounts
are paid out only in cash, in accordance with a deferral option selected by the
participant at the time the deferral election is made.
We adopted The Kroger Co. Employee Protection
Plan, or KEPP, during fiscal year 1988. That plan was amended and restated in
2007. All of our management employees and administrative support personnel whose
employment is not covered by a collective bargaining agreement, with at least
one year of service, are covered. KEPP provides for severance benefits and
extended Kroger-paid health care, as well as the continuation of other benefits
as described in the plan, when an employee is actually or constructively
terminated without cause within two years following a change in control of
Kroger (as defined in the plan). Participants are entitled to severance pay of
up to 24 months’ salary and bonus. The actual amount is dependent upon pay level
and years of service. KEPP can be amended or terminated by the Board at any time
prior to a change in control.
Stock option and restricted stock agreements
with participants in Kroger’s long-term incentive plans provide that those
awards “vest,” with options becoming immediately exercisable and restrictions on
restricted stock lapsing, upon a change in control as described in the
agreements.
None of the named executive officers, except
Mr. McGeorge, is party to an employment agreement. Under that agreement, Mr.
McGeorge, former President and Chief Operating Officer, and former member of
Kroger’s Board of Directors, will continue as an active Kroger employee, and
will continue to receive his salary and other active employee benefits through
October 1, 2011. During that period, Mr. McGeorge will not engage in any
business activity in competition with Kroger’s retail business. Thereafter, his
active employment will cease and he will be eligible to receive retirement
benefits.
28
PERQUISITES
The Committee does not believe that it is
necessary for the attraction or retention of management talent to provide the
named executive officers a substantial amount of compensation in the form of
perquisites. In 2009, the only perquisites provided were:
- payments of premiums of life
insurance, accidental death and dismemberment insurance, and long-term disability insurance policies, and
reimbursement of the tax effects of the life insurance and accidental death and dismemberment insurance
payments; and
- reimbursement for the tax effects
of participation in a nonqualified retirement plan.
The life insurance benefit, along with
reimbursement of the tax effect of that benefit, was offered beginning several
years ago to replace a split-dollar life insurance benefit that was
substantially more costly to Kroger. Currently, 157 active executives, including
the named executive officers, and 65 retired executives, receive this benefit.
Beginning in 2010, Kroger no longer will reimburse the tax effects of insurance
premiums or participation in a nonqualified retirement plan, as these
“gross-ups” have been eliminated.
In addition, the named executive officers are
entitled to the following benefit that does not constitute a perk as defined by
the SEC rules:
- personal use of Kroger aircraft,
which officers may lease from Kroger, and pay the average variable
cost of operating the aircraft, making
officers more available and allowing for a more efficient use of their time.
The total amount of perquisites furnished to
the named executive officers is shown in the Summary Compensation Table and
described in more detail in footnote 6 to that table.
EXECUTIVE COMPENSATION RECOUPMENT POLICY
If a material error of facts results in the
payment to an executive officer at the level of Group Vice President or higher
of an annual bonus or a long-term bonus in an amount higher than otherwise would
have been paid, as determined by the Committee, then the officer, upon demand
from the Committee, will reimburse Kroger for the amounts that would not have
been paid if the error had not occurred. This recoupment policy applies to those
amounts paid by Kroger within 36 months prior to the detection and public
disclosure of the error. In enforcing the policy, the Committee will take into
consideration all factors that it deems appropriate, including:
- The materiality of the amount of
payment involved;
- The extent to which other benefits
were reduced in other years as a result of the achievement of performance levels based on the
error;
- Individual officer culpability, if
any; and
- Other factors that should offset
the amount of overpayment.
SECTION 162 (M) OF THE INTERNAL REVENUE CODE
Tax laws place a limit of $1,000,000 on the
amount of some types of compensation for the CEO and the next four most highly
compensated officers that is tax deductible by Kroger. Compensation that is
deemed to be “performance-based” is excluded for purposes of the calculation and
is tax deductible. Awards under Kroger’s long-term incentive plans, when payable
upon achievement of stated performance criteria, should
29
be considered
performance-based and the compensation paid under those plans should be tax
deductible. Generally, compensation expense related to stock options awarded to
the CEO and the next four most highly compensated officers should be deductible.
On the other hand, Kroger’s awards of restricted stock that vest solely upon the
passage of time are not performance-based. As a result, compensation expense for
those awards to the CEO and the next four most highly compensated officers is
not deductible, to the extent that the related compensation expense, plus any
other expense for compensation that is not performance-based, exceeds
$1,000,000.
Kroger’s bonus plans rely on performance
criteria, and have been approved by shareholders. As a result, bonuses paid
under the plans to the CEO and the next four most highly compensated officers
will be deductible by Kroger. In Kroger’s case, this group of individuals is not
identical to the group of named executive officers.
Kroger’s policy is, primarily, to design and
administer compensation plans that support the achievement of long-term
strategic objectives and enhance shareholder value. Where it is material and
supports Kroger’s compensation philosophy, the Committee also will attempt to
maximize the amount of compensation expense that is deductible by
Kroger.
COMPENSATION COMMITTEE REPORT
|
The Compensation Committee has reviewed and
discussed with management of the Company the Compensation Discussion and
Analysis contained in this proxy statement. Based on its review and discussions
with management, the Compensation Committee has recommended to the Company’s
Board of Directors that the Compensation Discussion and Analysis be included in
the Company’s proxy statement and incorporated by reference into its annual
report on Form 10-K.
Compensation
Committee:
John T. LaMacchia, Chair
Robert D. Beyer
Jorge P. Montoya
Clyde R. Moore
James A. Runde
30
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation of
the Chief Executive Officer, Chief Financial Officer, each of the Company’s
three most highly compensated executive officers other than the CEO and CFO, and
one additional former executive officer (the “named executive officers”) during
the fiscal years presented:
SUMMARY COMPENSATION
TABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
Name and Principal |
|
|
|
Salary |
|
Bonus |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Position |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
|
($) |
|
|
($) |
|
|
|
|
|
|
|
|
|
(3) |
|
(3) |
|
(4) |
|
|
(5) |
|
|
|
(6) |
|
|
|
|
David B. Dillon |
|
2009 |
|
$ |
1,239,822 |
|
— |
|
$ |
2,569,100 |
|
$ |
1,494,000 |
|
|
$ |
1,234,000 |
|
|
|
$ |
3,630,041 |
|
|
|
$ |
172,430 |
|
|
$ |
10,339,393 |
Chairman and CEO |
|
2008 |
|
$ |
1,204,758 |
|
— |
|
$ |
3,290,150 |
|
$ |
2,015,123 |
|
|
$ |
1,574,220 |
|
|
|
$ |
2,191,743 |
|
|
|
$ |
170,307 |
|
|
$ |
10,446,301 |
|
|
2007 |
|
$ |
1,173,291 |
|
— |
|
$ |
3,109,700 |
|
$ |
2,302,901 |
|
|
$ |
2,320,310 |
|
|
|
$ |
922,570 |
|
|
|
$ |
168,543 |
|
|
$ |
9,997,315 |
|
J. Michael Schlotman |
|
2009 |
|
$ |
556,280 |
|
— |
|
$ |
223,400 |
|
$ |
132,800 |
|
|
$ |
461,125 |
|
|
|
$ |
795,146 |
|
|
|
$ |
42,609 |
|
|
$ |
2,211,360 |
Senior Vice |
|
2008 |
|
$ |
537,124 |
|
— |
|
$ |
286,100 |
|
$ |
179,122 |
|
|
$ |
524,740 |
|
|
|
$ |
292,491 |
|
|
|
$ |
41,135 |
|
|
$ |
1,860,712 |
President |
|
2007 |
|
$ |
518,726 |
|
— |
|
$ |
282,700 |
|
$ |
209,355 |
|
|
$ |
788,864 |
|
|
|
$ |
202,069 |
|
|
|
$ |
38,690 |
|
|
$ |
2,040,404 |
and CFO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Rodney McMullen(1) |
|
2009 |
|
$ |
875,062 |
|
— |
|
$ |
2,345,700 |
|
$ |
431,600 |
|
|
$ |
846,368 |
|
|
|
$ |
1,301,742 |
|
|
|
$ |
56,639 |
|
|
$ |
5,857,111 |
President and COO |
|
2008 |
|
$ |
848,686 |
|
— |
|
$ |
1,001,350 |
|
$ |
582,147 |
|
|
$ |
1,049,480 |
|
|
|
$ |
348,933 |
|
|
|
$ |
59,900 |
|
|
$ |
3,890,496 |
|
|
2007 |
|
$ |
823,948 |
|
— |
|
$ |
848,100 |
|
$ |
628,064 |
|
|
$ |
1,546,472 |
|
|
|
$ |
216,946 |
|
|
|
$ |
57,367 |
|
|
$ |
4,120,897 |
|
Don W. McGeorge(2) |
|
2009 |
|
$ |
875,062 |
|
— |
|
$ |
781,900 |
|
$ |
431,600 |
|
|
$ |
846,368 |
|
|
|
$ |
1,975,403 |
|
|
|
$ |
104,523 |
|
|
$ |
5,014,856 |
Former President |
|
2008 |
|
$ |
848,686 |
|
— |
|
$ |
1,001,350 |
|
$ |
582,147 |
|
|
$ |
1,049,480 |
|
|
|
$ |
723,203 |
|
|
|
$ |
107,203 |
|
|
$ |
4,312,069 |
and
COO and |
|
2007 |
|
$ |
823,948 |
|
— |
|
$ |
848,100 |
|
$ |
628,064 |
|
|
$ |
1,546,472 |
|
|
|
$ |
536,736 |
|
|
|
$ |
105,803 |
|
|
$ |
4,489,123 |
Former Special |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisor to CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald E. Becker |
|
2009 |
|
$ |
632,816 |
|
— |
|
$ |
279,250 |
|
$ |
166,000 |
|
|
$ |
534,125 |
|
|
|
$ |
1,773,062 |
|
|
|
$ |
127,165 |
|
|
$ |
3,512,418 |
Executive Vice |
|
2008 |
|
$ |
611,712 |
|
— |
|
$ |
1,215,925 |
|
$ |
233,903 |
|
|
$ |
577,214 |
|
|
|
$ |
902,879 |
|
|
|
$ |
120,668 |
|
|
$ |
3,662,301 |
President |
|
2007 |
|
$ |
592,312 |
|
— |
|
$ |
353,375 |
|
$ |
261,693 |
|
|
$ |
900,322 |
|
|
|
$ |
657,628 |
|
|
|
$ |
121,428 |
|
|
$ |
2,886,758 |
|
Paul W. Heldman |
|
2009 |
|
$ |
697,638 |
|
— |
|
$ |
279,250 |
|
$ |
166,000 |
|
|
$ |
580,730 |
|
|
|
$ |
1,275,401 |
|
|
|
$ |
99,199 |
|
|
$ |
3,098,218 |
Executive Vice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President, Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
General Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(1) |
|
Effective August 1, 2009, Mr. McMullen relinquished his position as
Vice Chairman and became President and Chief Operating
Officer. |
(2) |
|
Effective August 1, 2009, Mr. McGeorge relinquished his positions
as President and Chief Operating Officer and became Special Advisor to the
Chief Executive Officer. Effective December 1, 2009, Mr. McGeorge
relinquished his responsibilities as Special Advisor to the Chief
Executive Officer and was no longer an executive officer. |
(3) |
|
These
amounts represent the aggregate grant date fair value of awards computed
in accordance with FASB ASC Topic 718. |
(4) |
|
Non-equity incentive plan compensation for 2009 consists of
payments under an annual cash bonus and a long-term cash bonus program. In
accordance with the terms of the 2009 performance-based annual cash bonus
program, Kroger paid 38.45% of bonus potentials for the executive officers
including the named executive officers, as follows: Mr. Dillon: $576,750;
Mr. Schlotman: $192,250; Mr. McMullen: $384,500; Mr. McGeorge: $384,500;
Mr. Becker: $211,475; and Mr. Heldman: $211,475. These
amounts |
31
|
|
were
earned with respect to performance in 2009, and paid in March 2010. The
2006 Long-Term Bonus Plan is a performance-based cash bonus plan designed
to reward participants for improving the long-term performance of the
Company. The first component of the plan covered performance during fiscal
years 2006 and 2007, and the second component of the plan covered
performance during fiscal years 2006, 2007, 2008, and 2009. The following
amounts, representing payouts at 59.75% of bonus potentials, were earned
under the second component of the plan and were paid in March 2010: Mr.
Dillon: $657,250; Mr. Schlotman: $268,875; Mr. McMullen: $461,868; Mr.
McGeorge: $461,868; Mr. Becker: $322,650; and Mr. Heldman:
$369,255. |
(5) |
|
Amounts are attributable to change in pension value and
preferential earnings on nonqualified deferred compensation. Earnings on
nonqualified deferred compensation are deemed to be preferential to the
extent that they exceed 120% of the applicable federal long-term rate that
corresponds most closely to the rate, when set, under the plan. Amounts
deferred in 2009 bear interest at the average cost of Kroger’s ten-year
debt, or 6.15%. One hundred twenty percent of the applicable federal rate
is 5.26%. The rate of preferential earnings for amounts deferred in 2009
is 0.89%. During 2009, pension values increased primarily due to: (i) a
one percent decrease in the discount rate as determined by the plan
actuary; (ii) increases in final average earnings used in determining
pension benefits; (iii) an additional year of credited service; and (iv)
an increase in present value due to participant aging. Since the benefits
are based on final average earnings and service, the effect of the final
average earnings increase is larger for those with longer service. Please
refer to the 2009 Pension Benefits table for further information regarding
credited service. The amount listed for Mr. Dillon includes preferential
earnings on nonqualified deferred compensation in the amount of $557 and
change in pension value in the amount of $3,629,484. The amount listed for
Mr. McMullen includes preferential earnings on nonqualified deferred
compensation in the amount of $4,891 and change in pension value in the
amount of $1,296,851. The amount listed for Mr. Heldman includes
preferential earnings on nonqualified deferred compensation in the amount
of $1,347 and change in pension value in the amount of $1,274,054. The
amounts for the remaining named executive officers represent only change
in pension value. |
(6) |
|
The
following table provides the items and amounts included in All Other
Compensation for 2009: |
|
|
|
|
|
|
|
Accidental |
|
Tax Effect of |
|
|
|
|
|
|
Tax Effect of |
|
|
|
|
|
Tax Effect |
|
Death and |
|
Accidental |
|
Long-Term |
|
Participation
in |
|
|
|
Life |
|
of Life |
|
Dismemberment |
|
Death and |
|
Disability |
|
Nonqualified |
|
|
|
Insurance |
|
Insurance |
|
Insurance |
|
Dismemberment |
|
Insurance |
|
Retirement |
|
|
|
Premium |
|
Premium |
|
Premium |
|
Premium |
|
Premium |
|
Plan |
|
Mr. Dillon |
|
$99,247 |
|
$59,675 |
|
$228 |
|
$108 |
|
|
|
— |
|
|
|
$ |
13,172 |
|
|
Mr. Schlotman |
|
$23,455 |
|
$13,546 |
|
$228 |
|
$115 |
|
|
|
— |
|
|
|
$ |
5,265 |
|
|
Mr. McMullen |
|
$28,367 |
|
$16,539 |
|
$228 |
|
$104 |
|
|
$ |
2,778 |
|
|
|
$ |
8,623 |
|
|
Mr. McGeorge |
|
$55,989 |
|
$32,770 |
|
$228 |
|
$117 |
|
|
|
— |
|
|
|
$ |
15,419 |
|
|
Mr. Becker |
|
$64,715 |
|
$38,788 |
|
$228 |
|
$108 |
|
|
$ |
2,720 |
|
|
|
$ |
20,606 |
|
|
Mr. Heldman |
|
$52,913 |
|
$31,816 |
|
$228 |
|
$108 |
|
|
$ |
2,778 |
|
|
|
$ |
11,356 |
|
|
The life
insurance and payment of the tax effect of the premium payment by Kroger
have been offered over the past several years to a large number of
executives, including the named executive officers, in substitution for
split-dollar life insurance coverage that was substantially more costly to
Kroger. Excluded from the amounts shown in the table is income imputed to
the named executive officer when accompanied on our aircraft during
business travel by non-business travelers. These amounts for Mr. Dillon,
Mr. Schlotman, and Mr. Heldman, calculated using the applicable terminal
charge and Standard Industry Fare Level (SIFL) mileage rates, were $8,233,
$1,443, and $818, respectively. The other named executive officers had no
such imputed income for 2009. Separately, we require
that
|
32
|
officers who
make personal use of our aircraft reimburse us for the average variable
cost associated with the operation of the aircraft on such flights in
accordance with a time-sharing arrangement consistent with FAA
regulations. Beginning in 2010, Kroger no longer will compensate for the
tax effects of the insurance premiums or the nonqualified retirement
plan.
|
GRANTS OF PLAN-BASED AWARDS
The following table provides information about
equity and non-equity awards granted to the named executive officers in
2009:
2009 GRANTS OF PLAN-BASED
AWARDS |
|
|
|
|
Estimated
Possible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts Under |
|
Estimated Future |
|
Exercise |
|
Grant |
|
|
|
|
Non-Equity |
|
Payouts
Under |
|
or Base |
|
Date Fair |
|
|
|
|
Incentive Plan |
|
Equity Incentive |
|
Price
of |
|
Value
of |
|
|
|
|
Awards |
|
Plan Awards |
|
Option |
|
Stock and |
|
|
Grant |
|
Target |
|
Maximum |
|
Target |
|
Awards |
|
Option |
Name |
|
Date |
|
($) |
|
($) |
|
(#) |
|
($/Sh) |
|
Awards |
|
|
|
|
|
(1) |
|
|
(2) |
|
|
|
|
|
|
(5) |
|
|
|
|
|
David B. Dillon |
|
|
|
$ |
1,500,000 |
|
$ |
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
115,000 |
(3) |
|
|
|
|
|
|
|
|
$ |
2,569,100 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
225,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
1,494,000 |
|
J. Michael Schlotman |
|
|
|
$ |
500,000 |
|
$ |
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
10,000 |
(3) |
|
|
|
|
|
|
|
|
$ |
223,400 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
20,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
132,800 |
|
W. Rodney McMullen |
|
|
|
$ |
1,000,000 |
|
$ |
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
105,000 |
(3) |
|
|
|
|
|
|
|
|
$ |
2,345,700 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
65,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
431,600 |
|
Don W. McGeorge |
|
|
|
$ |
1,000,000 |
|
$ |
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
35,000 |
(3) |
|
|
|
|
|
|
|
|
$ |
781,900 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
65,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
431,600 |
|
Donald E. Becker |
|
|
|
$ |
550,000 |
|
$ |
1,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
12,500 |
(3) |
|
|
|
|
|
|
|
|
$ |
279,250 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
25,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
166,000 |
|
Paul W. Heldman |
|
|
|
$ |
550,000 |
|
$ |
1,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
12,500 |
(3) |
|
|
|
|
|
|
|
|
$ |
279,250 |
|
|
|
6/25/2009 |
|
|
|
|
|
|
|
|
25,000 |
(4) |
|
|
|
$ |
22.34 |
|
|
|
$ |
166,000 |
|
____________________
(1) |
|
These
amounts represent the bonus potential of the named executive officer under
the Company’s 2009 performance-based annual cash bonus
program. |
(2) |
|
By the
terms of this plan, no single cash bonus to a participant may exceed
$5,000,000, and payouts are further limited to no more than 200% of a
participant’s potential. The amount actually earned under this plan is
shown in the Summary Compensation Table. |
(3) |
|
This
amount represents the number of restricted shares awarded under one of the
Company’s long-term incentive plans. |
(4) |
|
This
amount represents the number of stock options granted under one of the
Company’s long-term incentive plans. |
(5) |
|
Options are granted at fair market value of Kroger common stock on
the date of the grant. Fair market value is defined as the closing price
of Kroger stock on the date of the grant. |
The Compensation Committee of the Board of
Directors, and the independent members of the Board in the case of the CEO,
established bonus potentials, shown in this table as “target” amounts, for the
performance-based annual cash bonus award for the named executive officers.
Amounts were payable
33
to the extent that
performance met specific objectives established at the beginning of the
performance period. As described in the Compensation Discussion and Analysis,
actual earnings can exceed the target amounts if performance exceeds the
thresholds.
Restrictions on restricted stock awards made
to the named executive officers lapse, as long as the officer is then in our
employ, in equal amounts on each of the five anniversaries of the date the award
is made, except that: restrictions on 30,000 shares awarded to Mr. Becker in
2008 lapse in 2011; 70,000 shares awarded to Mr. McMullen in 2009 vest as
follows: 15,000 shares on 6/25/2012, 20,000 shares on 6/25/2013, and 35,000
shares on 6/25/2014; 11,000 shares awarded to Mr. Heldman in 2006 vest as
follows: 3,000 shares on 5/4/2010 and 8,000 shares on 5/4/2011; and 30,000
shares awarded to Mr. Heldman in 2008 vest as follows: 6,000 shares on
6/26/2011, 12,000 shares on 6/26/2012, and 12,000 shares on 6/26/2013. Any
dividends declared on Kroger common stock are payable on restricted stock.
Nonqualified stock options granted to the named executive officers vest in equal
amounts on each of the five anniversaries of the date of grant. Those options
were granted at the fair market value of Kroger common stock on the date of the
grant. Options are granted only on one of the four dates of regularly scheduled
Compensation Committee meetings conducted shortly following Kroger’s public
release of its quarterly earnings results.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table discloses outstanding
equity-based incentive compensation awards for the named executive officers as
of the end of fiscal year 2009. Each outstanding award is shown separately.
Option awards include performance-based nonqualified stock options. The vesting
schedule for each award is described in the footnotes to this
table.
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL
YEAR-END |
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
Number of |
|
Shares or |
|
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
Units of |
|
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
Units of Stock |
|
Stock
That |
|
|
Options |
|
Options |
|
Unearned |
|
Exercise |
|
Option |
|
That Have |
|
Have Not |
|
|
(#) |
|
(#) |
|
Options |
|
Price |
|
Expiration |
|
Not Vested |
|
Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
(#) |
|
($) |
|
Date |
|
(#) |
|
($) |
David B. Dillon |
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24.43 |
|
|
|
5/10/2011 |
|
|
|
48,000 |
(8) |
|
|
$ |
1,028,640 |
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
(6) |
|
|
|
$ |
24.43 |
|
|
|
5/10/2011 |
|
|
|
66,000 |
(9) |
|
|
$ |
1,414,380 |
|
|
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23.00 |
|
|
|
5/9/2012 |
|
|
|
92,000 |
(10) |
|
|
$ |
1,971,560 |
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
(7) |
|
|
|
$ |
23.00 |
|
|
|
5/9/2012 |
|
|
|
115,000 |
(11) |
|
|
$ |
2,464,450 |
|
|
|
210,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14.93 |
|
|
|
12/12/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17.31 |
|
|
|
5/6/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
60,000 |
(1) |
|
|
|
|
|
|
|
|
$ |
16.39 |
|
|
|
5/5/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
144,000 |
|
|
|
96,000 |
(2) |
|
|
|
|
|
|
|
|
$ |
19.94 |
|
|
|
5/4/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
88,000 |
|
|
|
132,000 |
(3) |
|
|
|
|
|
|
|
|
$ |
28.27 |
|
|
|
6/28/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
180,000 |
(4) |
|
|
|
|
|
|
|
|
$ |
28.61 |
|
|
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000 |
(5) |
|
|
|
|
|
|
|
|
$ |
22.34 |
|
|
|
6/25/2019 |
|
|
|
|
|
|
|
|
|
34
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL
YEAR-END |
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
Market |
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Value of |
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
Number of |
|
Shares or |
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
Shares or |
|
Units of |
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
Units of Stock |
|
Stock
That |
|
Options |
|
Options |
|
Unearned |
|
Exercise |
|
Option |
|
That Have |
|
Have Not |
|
(#) |
|
(#) |
|
Options |
|
Price |
|
Expiration |
|
Not Vested |
|
Vested |
Name |
Exercisable |
|
Unexercisable |
|
(#) |
|
($) |
|
Date |
|
(#) |
|
($) |
J. Michael Schlotman |
10,000 |
|
|
|
|
|
|
|
|
$ |
24.43 |
|
5/10/2011 |
|
4,000 |
(8) |
|
$ |
85,720 |
|
|
|
|
|
|
|
10,000 |
(6) |
|
$ |
24.43 |
|
5/10/2011 |
|
6,000 |
(9) |
|
$ |
128,580 |
|
20,000 |
|
|
|
|
|
|
|
|
$ |
23.00 |
|
5/9/2012 |
|
8,000 |
(10) |
|
$ |
171,440 |
|
|
|
|
|
|
|
10,000 |
(7) |
|
$ |
23.00 |
|
5/9/2012 |
|
10,000 |
(11) |
|
$ |
214,300 |
|
60,000 |
|
|
|
|
|
|
|
|
$ |
14.93 |
|
12/12/2012 |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
$ |
17.31 |
|
5/6/2014 |
|
|
|
|
|
|
|
32,000 |
|
|
8,000 |
(1) |
|
|
|
|
$ |
16.39 |
|
5/5/2015 |
|
|
|
|
|
|
|
12,000 |
|
|
8,000 |
(2) |
|
|
|
|
$ |
19.94 |
|
5/4/2016 |
|
|
|
|
|
|
|
8,000 |
|
|
12,000 |
(3) |
|
|
|
|
$ |
28.27 |
|
6/28/2017 |
|
|
|
|
|
|
|
4,000 |
|
|
16,000 |
(4) |
|
|
|
|
$ |
28.61 |
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
20,000 |
(5) |
|
|
|
|
$ |
22.34 |
|
6/25/2019 |
|
|
|
|
|
|
W. Rodney McMullen |
125,000 |
|
|
|
|
|
|
|
|
$ |
16.59 |
|
2/11/2010 |
|
12,000 |
(8) |
|
$ |
257,160 |
|
25,000 |
|
|
|
|
|
|
|
|
$ |
24.43 |
|
5/10/2011 |
|
18,000 |
(9) |
|
$ |
385,740 |
|
|
|
|
|
|
|
25,000 |
(6) |
|
$ |
24.43 |
|
5/10/2011 |
|
28,000 |
(10) |
|
$ |
600,040 |
|
50,000 |
|
|
|
|
|
|
|
|
$ |
23.00 |
|
5/9/2012 |
|
35,000 |
(11) |
|
$ |
750,050 |
|
|
|
|
|
|
|
25,000 |
(7) |
|
$ |
23.00 |
|
5/9/2012 |
|
70,000 |
(13) |
|
$ |
1,500,100 |
|
150,000 |
|
|
|
|
|
|
|
|
$ |
14.93 |
|
12/12/2012 |
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
$ |
17.31 |
|
5/6/2014 |
|
|
|
|
|
|
|
60,000 |
|
|
15,000 |
(1) |
|
|
|
|
$ |
16.39 |
|
5/5/2015 |
|
|
|
|
|
|
|
36,000 |
|
|
24,000 |
(2) |
|
|
|
|
$ |
19.94 |
|
5/4/2016 |
|
|
|
|
|
|
|
24,000 |
|
|
36,000 |
(3) |
|
|
|
|
$ |
28.27 |
|
6/28/2017 |
|
|
|
|
|
|
|
13,000 |
|
|
52,000 |
(4) |
|
|
|
|
$ |
28.61 |
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
65,000 |
(5) |
|
|
|
|
$ |
22.34 |
|
6/25/2019 |
|
|
|
|
|
|
Don W. McGeorge |
25,000 |
|
|
|
|
|
|
|
|
$ |
24.43 |
|
5/10/2011 |
|
12,000 |
(8) |
|
$ |
257,160 |
|
|
|
|
|
|
|
25,000 |
(6) |
|
$ |
24.43 |
|
5/10/2011 |
|
18,000 |
(9) |
|
$ |
385,740 |
|
50,000 |
|
|
|
|
|
|
|
|
$ |
23.00 |
|
5/9/2012 |
|
28,000 |
(10) |
|
$ |
600,040 |
|
|
|
|
|
|
|
25,000 |
(7) |
|
$ |
23.00 |
|
5/9/2012 |
|
35,000 |
(11) |
|
$ |
750,050 |
|
150,000 |
|
|
|
|
|
|
|
|
$ |
14.93 |
|
12/12/2012 |
|
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
$ |
17.31 |
|
5/6/2014 |
|
|
|
|
|
|
|
60,000 |
|
|
15,000 |
(1) |
|
|
|
|
$ |
16.39 |
|
5/5/2015 |
|
|
|
|
|
|
|
36,000 |
|
|
24,000 |
(2) |
|
|
|
|
$ |
19.94 |
|
5/4/2016 |
|
|
|
|
|
|
|
24,000 |
|
|
36,000 |
(3) |
|
|
|
|
$ |
28.27 |
|
6/28/2017 |
|
|
|
|
|
|
|
13,000 |
|
|
52,000 |
(4) |
|
|
|
|
$ |
28.61 |
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
65,000 |
(5) |
|
|
|
|
$ |
22.34 |
|
6/25/2019 |
|
|
|
|
|
|
35
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL
YEAR-END |
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
Market |
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Value of |
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
Number of |
|
Shares or |
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
Shares or |
|
Units of |
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
Units of Stock |
|
Stock
That |
|
Options |
|
Options |
|
Unearned |
|
Exercise |
|
Option |
|
That Have |
|
Have Not |
|
(#) |
|
(#) |
|
Options |
|
Price |
|
Expiration |
|
Not Vested |
|
Vested |
Name |
Exercisable |
|
Unexercisable |
|
(#) |
|
($) |
|
Date |
|
(#) |
|
($) |
Donald E. Becker |
12,500 |
|
|
|
|
|
|
|
|
$ |
24.43 |
|
5/10/2011 |
|
5,000 |
(8) |
|
$ |
107,150 |
|
|
|
|
|
|
|
12,500 |
(6) |
|
$ |
24.43 |
|
5/10/2011 |
|
7,500 |
(9) |
|
$ |
160,725 |
|
26,667 |
|
|
|
|
|
|
|
|
$ |
23.00 |
|
5/9/2012 |
|
10,000 |
(10) |
|
$ |
214,300 |
|
|
|
|
|
|
|
13,333 |
(7) |
|
$ |
23.00 |
|
5/9/2012 |
|
12,500 |
(11) |
|
$ |
267,875 |
|
80,000 |
|
|
|
|
|
|
|
|
$ |
14.93 |
|
12/12/2012 |
|
30,000 |
(12) |
|
$ |
642,900 |
|
40,000 |
|
|
|
|
|
|
|
|
$ |
17.31 |
|
5/6/2014 |
|
|
|
|
|
|
|
32,000 |
|
|
8,000 |
(1) |
|
|
|
|
$ |
16.39 |
|
5/5/2015 |
|
|
|
|
|
|
|
15,000 |
|
|
10,000 |
(2) |
|
|
|
|
$ |
19.94 |
|
5/4/2016 |
|
|
|
|
|
|
|
10,000 |
|
|
15,000 |
(3) |
|
|
|
|
$ |
28.27 |
|
6/28/2017 |
|
|
|
|
|
|
|
5,000 |
|
|
20,000 |
(4) |
|
|
|
|
$ |
28.61 |
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
25,000 |
(5) |
|
|
|
|
$ |
22.34 |
|
6/25/2019 |
|
|
|
|
|
|
Paul W. Heldman |
12,500 |
|
|
|
|
|
|
|
|
$ |
24.43 |
|
5/10/2011 |
|
5,000 |
(8) |
|
$ |
107,150 |
|
|
|
|
|
|
|
12,500 |
(6) |
|
$ |
24.43 |
|
5/10/2011 |
|
7,500 |
(9) |
|
$ |
160,725 |
|
26,667 |
|
|
|
|
|
|
|
|
$ |
23.00 |
|
5/9/2012 |
|
10,000 |
(10) |
|
$ |
214,300 |
|
|
|
|
|
|
|
13,333 |
(7) |
|
$ |
23.00 |
|
5/9/2012 |
|
12,500 |
(11) |
|
$ |
267,875 |
|
80,000 |
|
|
|
|
|
|
|
|
$ |
14.93 |
|
12/12/2012 |
|
11,000 |
(14) |
|
$ |
235,730 |
|
40,000 |
|
|
|
|
|
|
|
|
$ |
17.31 |
|
5/6/2014 |
|
30,000 |
(15) |
|
$ |
642,900 |
|
32,000 |
|
|
8,000 |
(1) |
|
|
|
|
$ |
16.39 |
|
5/5/2015 |
|
|
|
|
|
|
|
15,000 |
|
|
10,000 |
(2) |
|
|
|
|
$ |
19.94 |
|
5/4/2016 |
|
|
|
|
|
|
|
10,000 |
|
|
15,000 |
(3) |
|
|
|
|
$ |
28.27 |
|
6/28/2017 |
|
|
|
|
|
|
|
5,000 |
|
|
20,000 |
(4) |
|
|
|
|
$ |
28.61 |
|
6/26/2018 |
|
|
|
|
|
|
|
|
|
|
25,000 |
(5) |
|
|
|
|
$ |
22.34 |
|
6/25/2019 |
|
|
|
|
|
|
____________________
(1) |
|
Stock
options vest on 5/5/2010. |
|
|
|
(2) |
|
Stock
options vest in equal amounts on 5/4/2010 and 5/4/2011. |
|
(3) |
|
Stock
options vest in equal amounts on 6/28/2010, 6/28/2011, and
6/28/2012. |
|
(4) |
|
Stock
options vest in equal amounts on 6/26/2010, 6/26/2011, 6/26/2012, and
6/26/2013. |
|
(5) |
|
Stock
options vest in equal amounts on 6/25/2010, 6/25/2011, 6/25/2012,
6/25/2013, and 6/25/2014. |
|
(6) |
|
Performance stock options vest on 11/10/2010 or earlier if
performance criteria is satisfied prior to such date. |
|
(7) |
|
Performance stock options vest on 11/9/2011 or earlier if
performance criteria is satisfied prior to such date. |
|
(8) |
|
Restricted stock vests in equal amounts on 5/4/2010 and
5/4/2011. |
|
(9) |
|
Restricted stock vests in equal amounts on 6/28/2010, 6/28/2011,
and 6/28/2012. |
36
(10) |
|
Restricted stock
vests in equal amounts on 6/26/2010, 6/26/2011, 6/26/2012, and
6/26/2013. |
|
|
|
(11) |
|
Restricted stock
vests in equal amounts on 6/25/2010, 6/25/2011, 6/25/2012, 6/25/2013, and
6/25/2014. |
|
(12) |
|
Restricted stock
vests as follows: 30,000 shares on 6/26/2011. |
|
(13) |
|
Restricted stock
vests as follows: 15,000 shares on 6/25/2012, 20,000 shares on 6/25/2013,
and 35,000 shares on 6/25/2014. |
|
(14) |
|
Restricted stock
vests as follows: 3,000 shares on 5/4/2010 and 8,000 shares on
5/4/2011. |
|
(15) |
|
Restricted stock
vests as follows: 6,000 shares on 6/26/2011, 12,000 shares on 6/26/2012,
and 12,000 shares on 6/26/2013. |
From 1997 through 2002, Kroger granted to the
named executive officers performance-based nonqualified stock options. These
options, having a term of ten years, vest six months prior to their date of
expiration unless earlier vesting because Kroger’s stock price achieved the
specified annual rate of appreciation set forth in the stock option agreement.
That rate ranged from 13% to 16%. To date, only the performance-based options
granted in 1997, 1998, 1999, and 2000 have vested, and those granted in 1997,
1998, and 1999 expired if not earlier exercised.
OPTION EXERCISES AND STOCK VESTED
The following table provides the
stock options exercised and restricted stock vested during 2009.
2009 OPTION EXERCISES AND STOCK
VESTED |
|
Option Awards |
|
Stock Awards |
|
Number of |
|
|
|
|
Number of |
|
|
|
|
Shares Acquired |
|
Value Realized |
|
Shares Acquired |
|
Value Realized |
|
on Exercise |
|
on Exercise |
|
on Vesting |
|
on Vesting |
Name |
(#) |
|
($) |
|
(#) |
|
($) |
David B. Dillon |
210,000 |
|
|
$ |
842,352 |
|
69,000 |
|
|
$ |
1,537,740 |
J. Michael Schlotman |
10,000 |
|
|
$ |
41,462 |
|
6,000 |
|
|
$ |
133,740 |
W. Rodney McMullen |
25,000 |
|
|
$ |
98,530 |
|
19,000 |
|
|
$ |
423,600 |
Don W. McGeorge |
150,000 |
|
|
$ |
718,380 |
|
19,000 |
|
|
$ |
423,600 |
Donald E. Becker |
15,000 |
|
|
$ |
56,793 |
|
7,500 |
|
|
$ |
167,175 |
Paul W. Heldman |
120,000 |
|
|
$ |
484,944 |
|
10,500 |
|
|
$ |
233,505 |
Options granted under our various long-term
incentive plans have a ten-year life and expire if not exercised within that
ten-year period.
37
PENSION BENEFITS
The following table provides information on
pension benefits as of 2009 year-end for the named executive
officers.
2009 PENSION
BENEFITS |
|
|
|
|
Number |
|
Present |
|
Payments |
|
|
|
|
of Years |
|
Value of |
|
During |
|
|
|
|
Credited |
|
Accumulated |
|
Last
Fiscal |
|
|
|
|
Service |
|
Benefit |
|
Year |
Name |
|
Plan Name |
|
(#) |
|
($) |
|
($) |
David B. Dillon |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
14 |
|
$ |
411,308 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
14 |
|
$ |
5,255,296 |
|
$0 |
|
|
Dillon Companies, Inc. Excess Benefit
Pension Plan |
|
20 |
|
$ |
6,307,670 |
|
$0 |
|
J. Michael Schlotman |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
24 |
|
$ |
484,669 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
24 |
|
$ |
1,882,087 |
|
$0 |
|
W. Rodney McMullen |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
24 |
|
$ |
425,557 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
24 |
|
$ |
3,419,640 |
|
$0 |
|
Don W. McGeorge |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
30 |
|
$ |
717,122 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
30 |
|
$ |
5,856,870 |
|
$0 |
|
Donald E. Becker |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
35 |
|
$ |
1,190,343 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
35 |
|
$ |
5,594,503 |
|
$0 |
|
Paul W. Heldman |
|
The Kroger Consolidated Retirement
Benefit Plan |
|
27 |
|
$ |
800,055 |
|
$0 |
|
|
The Kroger Co. Excess Benefit
Plan |
|
27 |
|
$ |
4,074,513 |
|
$0 |
The named executive officers all participate
in The Kroger Consolidated Retirement Benefit Plan (the “Consolidated Plan”),
which is a qualified defined benefit pension plan. The Consolidated Plan
generally determines accrued benefits using a cash balance formula, but retains
benefit formulas applicable under prior plans for certain “grandfathered
participants” who were employed by Kroger on December 31, 2000. Each of the
named executive officers is eligible for these grandfathered benefits under the
Consolidated Plan. Their benefits, therefore, are determined using formulas
applicable under prior plans, including the Kroger formula covering service to
The Kroger Co. and the Dillon Companies, Inc. Pension Plan formula covering
service to Dillon Companies, Inc.
The named executive officers also are eligible
to receive benefits under The Kroger Co. Excess Benefit Plan (the “Kroger Excess
Plan”), and Mr. Dillon also is eligible to receive benefits under the Dillon
Companies, Inc. Excess Benefit Pension Plan (the “Dillon Excess Plan”). These
plans are collectively referred to as the “Excess Plans.” The Excess Plans are
each considered to be nonqualified deferred compensation plans as defined in
Section 409A of the Internal Revenue Code. The purpose of the Excess Plans is to
make up the shortfall in retirement benefits caused by the limitations on
benefits to highly compensated individuals under qualified plans in accordance
with the Internal Revenue Code.
Each of the named executive officers will
receive benefits under the Consolidated Plan and the Excess Plans, determined as
follows:
- 1½% times years of credited
service multiplied by the average of the highest five years of total
earnings (base salary and
annual bonus) during the last ten calendar years of employment, reduced by
1¼% times years of credited
service multiplied by the primary social security benefit;
- normal retirement age is
65;
38
- unreduced benefits are payable
beginning at age 62; and
- benefits payable between ages 55
and 62 will be reduced by ¹/3
of one percent for each of the
first 24 months and by ½ of one
percent for each of the next 60 months by which the commencement of
benefits precedes age 62.
Although participants generally receive
credited service beginning at age 21, those participants who commenced
employment prior to 1986, including all of the named executive officers, began
to accrue credited service after attaining age 25. In the event of a termination
of employment, Messrs. Becker, Dillon, Heldman, and McGeorge currently are
eligible for a reduced early retirement benefit, as they each have attained age
55.
Mr. Dillon also participates in the Dillon
Employees’ Profit Sharing Plan (the “Dillon Plan”). The Dillon Plan is a
qualified defined contribution plan under which Dillon Companies, Inc. and its
participating subsidiaries may choose to make discretionary contributions each
year that are then allocated to each participant’s account. Participation in the
Dillon Plan was frozen effective January 1, 2001. Participants in the Dillon
Plan elect from among a number of investment options and the amounts in their
accounts are invested and credited with investment earnings in accordance with
their elections. Prior to July 1, 2000, participants could elect to make
voluntary contributions under the Dillon Plan, but that option was discontinued
effective as of July 1, 2000. Participants can elect to receive their Dillon
Plan benefit in the form of either a lump sum payment or installment
payments.
Due to offset formulas contained in the
Consolidated Plan and the Dillon Excess Plan, Mr. Dillon’s accrued benefit under
the Dillon Plan offsets a portion of the benefit that would otherwise accrue for
him under those plans for his service with Dillon Companies, Inc. Although
benefits that accrue under defined contribution plans are not reportable under
the accompanying table, we have added narrative disclosure of the Dillon Plan
because of the offsetting effect that benefits under that plan has on benefits
accruing under the Consolidated Plan and the Dillon Excess Plan.
The assumptions used in calculating the
present values are set forth in Note 13 to the consolidated financial statements
in Kroger’s Form 10-K for fiscal year 2009 ended January 30, 2010. The discount
rate used to determine the present values is 6%, which is the same rate used at
the measurement date for financial reporting purposes.
NONQUALIFIED DEFERRED COMPENSATION
The following table provides information on
nonqualified deferred compensation for the named executive officers for
2009.
2009 NONQUALIFIED DEFERRED
COMPENSATION |
|
Executive |
|
Registrant |
|
Aggregate |
|
Aggregate |
|
Aggregate |
|
Contributions |
|
Contributions |
|
Earnings |
|
Withdrawals/ |
|
Balance
at |
|
in Last FY |
|
in Last FY |
|
in Last FY |
|
Distributions |
|
Last FYE |
Name |
($) |
|
($) |
|
($) |
|
($) |
|
($) |
David B. Dillon |
$ |
60,000 |
(1) |
|
$0 |
|
$ |
48,893 |
|
$0 |
|
$ |
709,833 |
J. Michael Schlotman |
$ |
0 |
|
|
$0 |
|
$ |
0 |
|
$0 |
|
$ |
0 |
W. Rodney McMullen |
$ |
209,896 |
(1) |
|
$0 |
|
$ |
313,596 |
|
$0 |
|
$ |
4,657,327 |
Don W. McGeorge |
$ |
0 |
|
|
$0 |
|
$ |
16,828 |
|
$0 |
|
$ |
210,591 |
Donald E. Becker |
$ |
0 |
|
|
$0 |
|
$ |
0 |
|
$0 |
|
$ |
0 |
Paul W. Heldman |
$ |
0 |
|
|
$0 |
|
$ |
29,955 |
|
$0 |
|
$ |
502,669 |
____________________
(1) |
|
These amounts
represent the deferral of annual bonus earned in fiscal year 2008 and paid
in March 2009. These amounts are included in the Summary Compensation
Table for 2008. |
39
Eligible participants may elect to defer up to
100% of the amount of their salary that exceeds the sum of the FICA wage base
and pre-tax insurance and other Internal Revenue Code Section 125 plan
deductions, as well as 100% of their annual and long-term bonus compensation.
Deferral account amounts are credited with interest at the rate representing
Kroger’s cost of ten-year debt as determined by Kroger’s CEO prior to the
beginning of each deferral year. The interest rate established for deferral
amounts for each deferral year will be applied to those deferral amounts for all
subsequent years until the deferred compensation is paid out. Participants can
elect to receive lump sum distributions or quarterly installments for periods up
to ten years. Participants also can elect between lump sum distributions and
quarterly installments to be received by designated beneficiaries if the
participant dies before distribution of deferred compensation is
completed.
DIRECTOR COMPENSATION
The following table describes the fiscal year
2009 compensation for non-employee directors. Employee directors receive no
compensation for their Board service.
2009 DIRECTOR
COMPENSATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
Earned |
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
All |
|
|
|
|
|
or Paid |
|
Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
Other |
|
|
|
|
|
in Cash |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
|
|
|
|
(1) |
|
(1) |
|
|
|
|
|
|
|
(10) |
|
|
|
Reuben V. Anderson |
|
$ |
74,795 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
|
— |
(8) |
|
$114 |
|
$ |
178,859 |
Robert D. Beyer |
|
$ |
86,762 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
$ |
1,036 |
(9) |
|
$114 |
|
$ |
191,862 |
Susan J. Kropf |
|
$ |
84,763 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(4) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
188,827 |
John T. LaMacchia |
|
$ |
86,762 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
$ |
3,900 |
(8) |
|
$114 |
|
$ |
194,726 |
David B. Lewis |
|
$ |
83,960 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(5) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
188,024 |
Jorge P. Montoya |
|
$ |
86,762 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(4) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
190,826 |
Clyde R. Moore |
|
$ |
74,795 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
$ |
900 |
(8) |
|
$114 |
|
$ |
179,759 |
Susan M. Phillips |
|
$ |
84,775 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(6) |
|
$0 |
|
$ |
510 |
(9) |
|
$114 |
|
$ |
189,349 |
Steven R. Rogel |
|
$ |
74,795 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
178,859 |
James A. Runde |
|
$ |
74,795 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(7) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
178,859 |
Ronald L. Sargent |
|
$ |
91,730 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(7) |
|
$0 |
|
$ |
9 |
(9) |
|
$114 |
|
$ |
195,803 |
Bobby S. Shackouls |
|
$ |
116,679 |
|
$ |
65,195 |
(2) |
|
$ |
38,755 |
(3) |
|
$0 |
|
|
N/A |
|
|
$114 |
|
$ |
220,743 |
____________________
(1) |
|
These
amounts represent the aggregate grant date fair value of awards computed
in accordance with FASB ASC Topic 718. |
|
|
|
(2) |
|
Aggregate number of stock awards outstanding at fiscal year end was
4,875 shares. |
|
(3) |
|
Aggregate number of stock options outstanding at fiscal year end
was 47,000 shares. |
|
(4) |
|
Aggregate number of stock options outstanding at fiscal year end
was 18,000 shares. |
|
(5) |
|
Aggregate number of stock options outstanding at fiscal year end
was 43,000 shares. |
|
(6) |
|
Aggregate number of stock options outstanding at fiscal year end
was 33,000 shares. |
|
(7) |
|
Aggregate number of stock options outstanding at fiscal year end
was 23,000 shares. |
|
(8) |
|
This
amount reflects the change in pension value for the applicable directors.
Only those directors elected to the Board prior to July 17, 1997 are
eligible to participate in the outside director retirement plan. Mr.
Anderson’s pension value decreased by $700. In accordance with SEC rules,
negative amounts are required to be disclosed, but not reflected in the
sum of total compensation. |
40
(9) |
|
This amount
reflects preferential earnings on nonqualified deferred compensation. For
a complete explanation of preferential earnings, please refer to footnote
5 to the Summary Compensation Table. |
|
|
|
(10) |
|
This amount
reflects the cost to the Company per director for providing accidental
death and dismemberment insurance coverage for non-employee directors.
These premiums are paid on an annual basis in
February. |
Each non-employee director receives an annual
retainer of $75,000. The chair of each committee receives an additional annual
retainer of $12,000. Each member of the Audit Committee receives an additional
annual retainer of $10,000. The director designated as the “Lead Director”
receives an additional annual retainer of $20,000. Each non-employee director
also receives annually, at the regularly scheduled Board meeting held in
December, restricted stock and nonqualified stock option awards. On December 10,
2009 each non-employee director received 3,250 shares of restricted stock and an
award of 6,500 nonqualified stock options.
Non-employee directors first elected prior to
July 17, 1997 receive a major medical plan benefit as well as an unfunded
retirement benefit. The retirement benefit equals the average cash compensation
for the five calendar years preceding retirement. Participants who retire from
the Board prior to age 70 will be credited with 50% vesting after five years of
service, and 10% for each additional year up to a maximum of 100%. Benefits for
participants who retire prior to age 70 begin at the later of actual retirement
or age 65.
We also maintain a deferred compensation plan,
in which all non-employee members of the Board are eligible to participate.
Participants may defer up to 100% of their cash compensation. They may elect
from either or both of the following two alternative methods of determining
benefits:
- interest accrues until paid out at
the rate of interest determined prior to the beginning of the deferral year to
represent Kroger’s cost of ten-year debt; and
- amounts are credited in “phantom”
stock accounts and the amounts in those accounts fluctuate with the price of Kroger common stock.
In both cases, deferred amounts are paid out
only in cash, based on deferral options selected by the participants at the time
the deferral elections are made. Participants can elect to have distributions
made in a lump sum or in quarterly installments, and may make comparable
elections for designated beneficiaries who receive benefits in the event that
deferred compensation is not completely paid out upon the death of the
participant.
The Board has determined that compensation of
non-employee directors must be competitive on an on-going basis to attract and
retain directors who meet the qualifications for service on Kroger’s Board.
Non-employee director compensation will be reviewed from time to time as the
Corporate Governance Committee deems appropriate.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Other than an agreement with Mr. McGeorge,
Kroger has no contracts, agreements, plans or arrangements that provide for
payments to the named executive officers in connection with resignation,
severance, retirement, termination, or change in control, except for those
available generally to salaried employees. The Kroger Co. Employee Protection
Plan, or KEPP, applies to all management employees and administrative support
personnel who are not covered by a collective bargaining agreement, with at
least one year of service, and provides severance benefits when a participant’s
employment is terminated actually or constructively within two years following a
change in control of Kroger. For purposes of KEPP, a change in control occurs
if:
- any person or entity (excluding
Kroger’s employee benefit plans) acquires 20% or more of the voting power of
Kroger;
41
- a merger, consolidation, share
exchange, division, or other reorganization or transaction with Kroger results
in Kroger’s voting securities existing prior to that event representing less
than 60% of the combined voting power immediately after the event;
- Kroger’s shareholders approve a
plan of complete liquidation or winding up of Kroger or an agreement for the
sale or disposition of all or substantially all of Kroger’s assets;
or
- during any period of 24
consecutive months, individuals at the beginning of the period who
constituted Kroger’s Board of
Directors cease for any reason to constitute at least a majority of the Board
of Directors.
Assuming that a change in control occurred on
the last day of Kroger’s fiscal year 2009, and the named executive officers had
their employment terminated, they would receive a maximum payment, or, in the
case of group term life insurance, a benefit having a cost to Kroger, in the
amounts shown below:
|
|
|
Additional |
|
Accrued |
|
|
|
|
|
|
|
Severance |
|
Vacation and |
|
and
Banked |
|
Group Term |
|
Tuition |
|
Outplacement |
Name |
Benefit |
|
Bonus |
|
Vacation |
|
Life Insurance |
|
Reimbursement |
|
Reimbursement |
David B. Dillon |
$4,620,000 |
|
$99,615 |
|
$630,000 |
|
$29 |
|
$5,000 |
|
$10,000 |
J. Michael Schlotman |
$1,834,000 |
|
$34,619 |
|
$283,500 |
|
$29 |
|
$5,000 |
|
$10,000 |
W. Rodney McMullen |
$3,180,000 |
|
$66,891 |
|
$445,000 |
|
$29 |
|
$5,000 |
|
$10,000 |
Don W. McGeorge |
$3,180,000 |
|
$66,891 |
|
$222,500 |
|
$29 |
|
$5,000 |
|
$10,000 |
Donald E. Becker |
$2,060,000 |
|
$38,285 |
|
$496,154 |
|
$29 |
|
$5,000 |
|
$10,000 |
Paul W. Heldman |
$2,190,000 |
|
$38,910 |
|
$150,192 |
|
$29 |
|
$5,000 |
|
$10,000 |
Each of the named executive officers also is
entitled to continuation of health care coverage for up to 24 months at the same
contribution rate as existed prior to the change in control. The cost to Kroger
cannot be calculated, as Kroger self insures the health care benefit and the
cost is based on the health care services utilized by the participant and
eligible dependents.
Under KEPP benefits will be reduced, to the
extent necessary, so that payments to an executive officer will in no event
exceed 2.99 times the officer’s average W-2 earnings over the preceding five
years.
Kroger’s change in control benefits under KEPP
and under stock option and restricted stock agreements are discussed further in
the Compensation Discussion and Analysis section under the “Retirement and Other
Benefits” heading.
On June 24, 2009, we entered into an agreement
with Don W. McGeorge regarding an orderly transition of his responsibilities and
his retirement. Pursuant to that agreement, effective August 1, 2009, Mr.
McGeorge relinquished his duties and responsibilities as President and Chief
Operating Officer and assumed the office of Special Advisor to the CEO.
Effective December 1, 2009, Mr. McGeorge relinquished his responsibilities as
Special Advisor, was no longer an officer of Kroger, and retired from the Board.
Mr. McGeorge will continue as an active employee through October 1, 2011, after
which he will retire and will be eligible to receive retirement benefits. Prior
to that time, he will continue to receive his annual salary of $890,000 and his
annual performance-based bonus, based on his bonus potential of $1,000,000, at
the same rate earned by the other participants in the corporate plan. Mr.
McGeorge will be eligible for a performance-based long-term bonus under the 2008
Long-Term Bonus Plan, based on his potential for that plan of $833,000, at the
same rate earned by the other participants under that plan. He will continue to
be treated as an active employee under Kroger’s stock incentive and employee
benefit plans, and will not engage in any business activity in competition with
Kroger’s retail business through October 1, 2011.
42
COMPENSATION POLICIES AS THEY RELATE TO RISK MANAGEMENT
Kroger’s compensation policies and practices
for its employees are designed to attract and retain highly qualified and
engaged employees, and to minimize risks that would have a material adverse
effect on Kroger. One of these policies, the executive compensation recoupment
policy, is more particularly described in the Compensation Discussion and
Analysis. Kroger does not believe that its compensation policies and practices
create risks that are reasonably likely to have a material adverse effect on
Kroger.
BENEFICIAL OWNERSHIP OF COMMON STOCK
As of February 13, 2010, Kroger’s directors,
the named executive officers, and the directors and executive officers as a
group, beneficially owned shares of Kroger’s common stock as
follows:
|
|
Amount and Nature |
|
|
of |
Name |
|
Beneficial Ownership |
Reuben V. Anderson |
|
74,065 |
(1) |
Donald E. Becker |
|
398,305 |
(2)(3)(4) |
Robert D. Beyer |
|
116,112 |
(1) |
David B. Dillon |
|
2,240,058 |
(2)(3)(5) |
Paul W. Heldman |
|
523,519 |
(2)(3)(6) |
Susan J. Kropf |
|
14,300 |
(7) |
John T. LaMacchia |
|
86,900 |
(1) |
David B. Lewis |
|
45,800 |
(8) |
Don W. McGeorge |
|
741,216 |
(2)(9) |
W. Rodney McMullen |
|
1,053,125 |
(2)(3) |
Jorge P. Montoya |
|
11,437 |
(7) |
Clyde R. Moore |
|
64,500 |
(1) |
Susan M. Phillips |
|
46,335 |
(10) |
Steven R. Rogel |
|
63,328 |
(1) |
James A. Runde |
|
20,800 |
(11) |
Ronald L. Sargent |
|
19,800 |
(11) |
J. Michael Schlotman |
|
287,125 |
(2)(3) |
Bobby S. Shackouls |
|
50,300 |
(1) |
Directors and
Executive Officers as a group (including those named above) |
|
8,371,137 |
(2)(3) |
(1) |
|
This
amount includes 29,300 shares that represent options that are or become
exercisable on or before April 14, 2010. |
|
|
|
(2) |
|
This
amount includes shares that represent options that are or become
exercisable on or before April 14, 2010, in the following amounts: Mr.
Becker, 221,167; Mr. Dillon, 1,132,000; Mr. Heldman, 221,167; Mr.
McGeorge, 433,000; Mr. McMullen, 433,000; Mr. Schlotman, 186,000; and all
directors and executive officers as a group, 4,157,834. |
|
(3) |
|
The
fractional interest resulting from allocations under Kroger’s defined
contribution plans has been rounded to the nearest whole
number. |
|
(4) |
|
This
amount includes 10,228 shares owned by Mr. Becker’s wife. Mr. Becker
disclaims beneficial ownership of these shares. |
43
(5) |
|
This
amount includes 168,432 shares owned by Mr. Dillon’s wife, and 18,008
shares in his children’s trust. Mr. Dillon disclaims beneficial ownership
of these shares. |
|
|
|
(6) |
|
This
amount includes 320 shares owned by Mr. Heldman’s children. Mr. Heldman
disclaims beneficial ownership of these shares. |
|
(7) |
|
This
amount includes 3,300 shares that represent options that are or become
exercisable on or before April 14, 2010. |
|
(8) |
|
This
amount includes 25,300 shares that represent options that are or become
exercisable on or before April 14, 2010. |
|
(9) |
|
This
amount includes 10,115 shares owned by Mr. McGeorge’s wife. Mr. McGeorge
disclaims beneficial ownership of these shares. |
|
(10) |
|
This
amount includes 15,300 shares that represent options that are or become
exercisable on or before April 14, 2010. |
|
(11) |
|
This
amount includes 6,300 shares that represent options that are or become
exercisable on or before April 14, 2010. |
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.
No director or officer owned Kroger
common stock pledged as security.
As of February 13, 2010, the following
reported beneficial ownership of Kroger common stock based on reports on
Schedule 13G filed with the Securities and Exchange Commission or other reliable
information as follows:
|
|
|
Amount and |
|
|
|
|
|
Nature of |
|
Percentage |
Name |
Address of Beneficial
Owner |
|
Ownership |
|
of Class |
BlackRock, Inc. |
55 East 52nd Street |
|
41,036,784 |
|
|
6.3% |
|
New York, NY 10055 |
|
|
|
|
|
|
The Kroger Co. Savings Plan |
1014 Vine Street |
|
33,902,651 |
(1) |
|
5.4% |
|
Cincinatti, OH 45202 |
|
|
|
|
|
____________________
(1) |
|
Shares
beneficially owned by plan trustees for the benefit of participants in
employee benefit plan. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act
of 1934 requires our officers and directors, and persons who own more than 10%
of a registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Those
officers, directors and shareholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of
forms received by Kroger, and any written representations from certain reporting
persons that no Forms 5 were required for those persons, we believe that during
fiscal year 2009 all filing requirements applicable to our officers, directors
and 10% beneficial owners were timely satisfied, with one exception. Mr. Ronald
L. Sargent filed a Form 4 three days late reporting phantom shares received in
connection with a deferred compensation plan due to a technical failure by the
plan record keeper that caused him to receive late notification of the
transaction.
44
RELATED PERSON TRANSACTIONS
Pursuant to our Statement of Policy with Respect to Related Person Transactions
and the rules of the SEC,
Kroger has the following related person transactions, which were approved by
Kroger’s Audit Committee, to disclose:
- During fiscal year 2009, Kroger
entered into a series of purchase transactions with Staples, Inc., totaling
approximately $17.7 million. This amount represents substantially less than 2%
of Staples’ annual consolidated gross revenue. The vast majority of this
amount represents purchases of office supplies and equipment that previously
had been made from Corporate Express until its acquisition by Staples in July
2008. Kroger’s relationship with Corporate Express existed prior to its
acquisition by Staples. Ronald L. Sargent, a member of Kroger’s Board of
Directors, is Chairman and Chief Executive Officer of Staples.
- During fiscal year 2009, Kroger
paid J.P. Morgan/Chase approximately $380,000 for commercial banking fees.
This amount represents substantially less than 2% of J.P. Morgan/Chase’s
annual consolidated gross revenue. The son of Kroger CFO J. Michael Schlotman
was employed by J.P. Morgan during a portion of fiscal year 2009, but had no
responsibility for or involvement with any services provided to
Kroger.
Director independence is discussed above under
the heading “Information Concerning the Board of Directors.” Kroger’s policy on
related person transactions is as follows:
STATEMENT OF POLICY
WITH RESPECT TO
RELATED PERSON TRANSACTIONS
A. INTRODUCTION
It is the policy of Kroger’s Board of
Directors that any Related Person Transaction may be consummated or may continue
only if the Committee approves or ratifies the transaction in accordance with
the guidelines set forth in this policy. The Board of Directors has determined
that the Audit Committee of the Board is best suited to review and approve
Related Person Transactions.
For the purposes of this policy, a
“Related Person” is:
|
1. |
|
any
person who is, or at any time since the beginning of Kroger’s last fiscal
year was, a director or executive officer of Kroger or a nominee to become
a director of Kroger; |
|
|
|
2. |
|
any
person who is known to be the beneficial owner of more than 5% of any
class of Kroger’s voting securities; and |
|
|
|
3. |
|
any
immediate family member of any of the foregoing persons, which means any
child, stepchild, parent, stepparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the director, executive officer, nominee or more than 5%
beneficial owner, and any person (other than a tenant or employee) sharing
the household of such director, executive officer, nominee or more than 5%
beneficial owner. |
For the purposes of this policy, a “Related
Person Transaction” is a transaction, arrangement or relationship (or any series
of similar transactions, arrangements or relationships) since the beginning of
Kroger’s last fiscal year in which Kroger (including any of its subsidiaries)
was, is or will be a participant
45
and the amount
involved exceeds $120,000, and in which any Related Person had, has or will have
a direct or indirect material interest (other than solely as a result of being a
director or a less than 10 percent beneficial owner of another
entity).
Notwithstanding the foregoing, the Audit
Committee has reviewed the following types of transactions and has determined
that each type of transaction is deemed to be pre-approved, even if the amount
involved exceeds $120,000.
|
1. |
|
Certain Transactions
with Other Companies. Any transaction for property or services in
the ordinary course of business involving payments to or from another
company at which a Related Person’s only relationship is as an employee
(including an executive officer), director, or beneficial owner of less
than 10% of that company’s shares, if the aggregate amount involved in any
fiscal year does not exceed the greater of $1,000,000 or 2 percent of that
company’s annual consolidated gross revenues. |
|
|
|
2. |
|
Certain Company
Charitable Contributions. Any charitable contribution, grant or
endowment by Kroger (or one of its foundations) to a charitable
organization, foundation, university or other not for profit organization
at which a Related Person’s only relationship is as an employee (including
an executive officer) or as a director, if the aggregate amount involved
does not exceed $250,000 or 5 percent, whichever is lesser, of the
charitable organization’s latest publicly available annual consolidated
gross revenues. |
|
|
|
3. |
|
Transactions where all
Shareholders Receive Proportional Benefits. Any transaction where
the Related Person’s interest arises solely from the ownership of Kroger
common stock and all holders of Kroger common stock received the same
benefit on a pro rata basis. |
|
|
|
4. |
|
Executive Officer and
Director Compensation. (a) Any employment by Kroger of an executive
officer if the executive officer’s compensation is required to be reported
in Kroger’s proxy statement, (b) any employment by Kroger of an executive
officer if the executive officer is not an immediate family member of a
Related Person and the Compensation Committee approved (or recommended
that the Board approve) the executive officer’s compensation, and (c) any
compensation paid to a director if the compensation is required to be
reported in Kroger’s proxy statement. |
|
|
|
5. |
|
Other
Transactions. (a) Any transaction involving a Related Person where
the rates or charges involved are determined by competitive bids, (b) any
transaction with a Related Person involving the rendering of services as a
common or contract carrier, or public utility, at rates or charges fixed
in conformity with law or governmental authority, or (c) any transaction
with a Related Person involving services as a bank depositary of funds,
transfer agent, registrar, trustee under a trust indenture or similar
services. |
B. AUDIT COMMITTEE APPROVAL
In the event management becomes aware of any
Related Person Transactions that are not deemed pre-approved under paragraph A
of this policy, those transactions will be presented to the Committee for
approval at the next regular Committee meeting, or where it is not practicable
or desirable to wait until the next regular Committee meeting, to the Chair of
the Committee (who will possess delegated authority to act between Committee
meetings) subject to ratification by the Committee at its next regular meeting.
If advance approval of a Related Person Transaction is not feasible, then the
Related Person Transaction will
46
be presented to the
Committee for ratification at the next regular Committee meeting, or where it is
not practicable or desirable to wait until the next regular Committee meeting,
to the Chair of the Committee for ratification, subject to further ratification
by the Committee at its next regular meeting.
In connection with
each regular Committee meeting, a summary of each new Related Person Transaction
deemed pre-approved pursuant to paragraphs A(1) and A(2) above will be provided
to the Committee for its review.
If a Related Person
Transaction will be ongoing, the Committee may establish guidelines for
management to follow in its ongoing dealings with the Related Person.
Thereafter, the Committee, on at least an annual basis, will review and assess
ongoing relationships with the Related Person to see that they are in compliance
with the Committee’s guidelines and that the Related Person Transaction remains
appropriate.
The Committee (or the
Chair) will approve only those Related Person Transactions that are in, or are
not inconsistent with, the best interests of Kroger and its shareholders, as the
Committee (or the Chair) determines in good faith in accordance with its
business judgment.
No director will
participate in any discussion or approval of a Related Person Transaction for
which he or she, or an immediate family member (as defined above), is a Related
Person except that the director will provide all material information about the
Related Person Transaction to the Committee.
C. DISCLOSURE
Kroger will disclose
all Related Person Transactions in Kroger’s applicable filings as required by
the Securities Act of 1933, the Securities Exchange Act of 1934 and related
rules.
47
AUDIT COMMITTEE REPORT
The primary function
of the Audit Committee is to represent and assist the Board of Directors in
fulfilling its oversight responsibilities regarding the Company’s financial
reporting and accounting practices including the integrity of the Company’s
financial statements; the Company’s compliance with legal and regulatory
requirements; the independent public accountants’ qualifications and
independence; the performance of the Company’s internal audit function and
independent public accountants; and the preparation of this report that SEC
rules require be included in the Company’s annual proxy statement. The Audit
Committee performs this work pursuant to a written charter approved by the Board
of Directors. The Audit Committee charter most recently was revised during
fiscal 2010 and is available on the Company’s website at
http://www.thekrogerco.com/documents/GuidelinesIssues.pdf. The Audit Committee
has implemented procedures to assist it during the course of each fiscal year in
devoting the attention that is necessary and appropriate to each of the matters
assigned to it under the Committee’s charter. The Audit Committee held seven
meetings during fiscal year 2009. The Audit Committee meets separately with the
Company’s internal auditor and PricewaterhouseCoopers LLP, the Company’s
independent public accountants, without management present, to discuss the
results of their audits, their evaluations of the Company’s internal control
over financial reporting, and the overall quality of the Company’s financial
reporting. The Audit Committee also meets separately with the Company’s Chief
Financial Officer and General Counsel when needed. Following these separate
discussions, the Audit Committee meets in executive session.
Management of the
Company is responsible for the preparation and presentation of the Company’s
financial statements, the Company’s accounting and financial reporting
principles and internal controls, and procedures that are designed to provide
reasonable assurance regarding compliance with accounting standards and
applicable laws and regulations. The independent public accountants are
responsible for auditing the Company’s financial statements and expressing
opinions as to the financial statements’ conformity with generally accepted
accounting principles and the effectiveness of the Company’s internal control
over financial reporting.
In the performance of
its oversight function, the Audit Committee has reviewed and discussed with
management and PricewaterhouseCoopers LLP the audited financial statements for
the year ended January 30, 2010, management’s assessment of the effectiveness of
the Company’s internal control over financial reporting as of January 30, 2010,
and PricewaterhouseCoopers’ evaluation of the Company’s internal control over
financial reporting as of that date. The Audit Committee has also discussed with
the independent public accountants the matters that the independent public
accountants must communicate to the Audit Committee under applicable
requirements of the Public Company Accounting Oversight Board.
With respect to the
Company’s independent public accountants, the Audit Committee, among other
things, discussed with PricewaterhouseCoopers LLP matters relating to its
independence and has received the written disclosures and the letter from the
independent public accountants required by applicable requirements of the Public
Company Accounting Oversight Board regarding the independent public accountants’
communications with the Audit Committee concerning independence. The Audit
Committee has reviewed and approved in advance all services provided to the
Company by PricewaterhouseCoopers LLP. The Audit Committee conducted a review of
services provided by PricewaterhouseCoopers LLP which included an evaluation by
management and members of the Audit Committee.
48
Based upon the review
and discussions described in this report, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial statements be
included in the Company’s Annual Report on Form 10-K for the year ended January
30, 2010, as filed with the SEC.
This report is
submitted by the Audit Committee.
Ronald L. Sargent,
Chair
Susan J. Kropf
Susan M. Phillips
Bobby S.
Shackouls
49
AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION
(ITEM NO. 2)
The Board of
Directors recommends that shareholders approve an amendment to Kroger’s articles
of incorporation requiring a majority vote for the election of
directors.
Ohio law provides
that, unless otherwise specified in a company’s articles of incorporation, a
director is elected by a plurality of the votes cast. Kroger’s articles of
incorporation do not specify the voting standard required in director elections,
so Kroger directors currently are elected by a plurality vote; that is, a
director nominee who receives the highest number of affirmative votes cast is
elected, whether or not those votes constitute a majority including withheld
votes.
In 2006, Kroger’s
Board of Directors adopted as Kroger policy a form of majority voting for
uncontested director elections, implementing this policy through its
Guidelines on Issues of Corporate
Governance. Under this
policy, directors continue to be elected by a plurality vote, but the policy
requires that a director nominee who receives a greater number of “withheld”
votes than “for” votes must immediately tender his or her resignation from the
Board. The Board then would decide, through a process managed by the Corporate
Governance Committee and excluding the nominee in question, whether to accept
the resignation. The Board’s explanation of its decision would be promptly
disclosed in a publicly issued press release.
At the annual meeting
of shareholders held in 2009, Kroger’s shareholders adopted a proposal that
requested the Board of Directors take steps to amend the articles of
incorporation to provide for majority voting for directors in uncontested
elections. After consideration of the shareholder proposal, the Board has
authorized, and recommends that shareholders approve, an amendment to Kroger’s
articles of incorporation that would specify that director nominees in an
uncontested election would be elected by a majority vote. Under this provision,
each vote is specifically counted “for” or “against” the director’s election. An
affirmative majority of the total number of votes cast “for” or “against” a
director nominee will be required for election. Shareholders also will be
entitled to abstain with respect to the election of a director. Abstentions will
have no effect in determining whether the required affirmative majority vote has
been obtained.
Under Ohio law,
shareholders must approve an amendment to Kroger’s articles of incorporation to
change the voting standard in director elections. If the proposed amendment is
approved, a new paragraph will be added as ARTICLE SIXTH of Kroger’s articles of
incorporation (with succeeding articles renumbered accordingly), that reads as
follows:
“The vote required
for election of a director by the shareholders will, except in a contested
election or when cumulative voting is in effect, be the affirmative vote of a
majority of the votes cast in favor of or against the election of a nominee at a
meeting of shareholders. In a contested election or when cumulative voting is in
effect, directors will be elected by a plurality of the votes cast at a meeting
of shareholders by the holders of shares entitled to vote in the election. An
election will be considered contested if as of the record date there are more
nominees for election than positions on the Board of Directors to be filled by
election at the meeting.”
In addition, we
propose to make minor statutory conforming changes. All changes are shown on
Appendix 1, with additions shown underlined and deletions shown as
strikeouts.
If approved, this
amendment will become effective upon the filing with the Ohio Secretary of State
of Amended Articles of Incorporation. Kroger would make such a filing promptly
after the annual meeting.
50
Upon approval of this proposal and
the filing of the Amended Articles of Incorporation, an incumbent director who
does not receive the requisite affirmative majority of the votes cast for his or
her re-election must tender his or her resignation. Under Ohio law, an incumbent
director who is not re-elected may remain in office until his or her successor
is elected and qualified, continuing as a “holdover” director until his or her
position is filled. The Board will adopt a holdover director resignation policy
to address the continuation in office of a director that would result from
application of the holdover director provision. Under the holdover director
resignation policy, the Board will decide whether to accept the resignation in a
process similar to the one the Board currently uses pursuant to the existing
policy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SELECTION OF AUDITORS
(ITEM NO. 3)
The Audit Committee
of the Board of Directors is responsible for the appointment, compensation and
retention of Kroger’s independent auditor, as required by law and by applicable
NYSE rules. On March 10, 2010, the Audit Committee appointed
PricewaterhouseCoopers LLP as Kroger’s independent auditor for the fiscal year
ending January 29, 2011. While shareholder ratification of the selection of
PricewaterhouseCoopers LLP as Kroger’s independent auditor is not required by
Kroger’s Regulations or otherwise, the Board of Directors is submitting the
selection of PricewaterhouseCoopers LLP to shareholders for ratification, as it
has in past years, as a good corporate governance practice. If the shareholders
fail to ratify the selection, the Audit Committee may, but is not required to,
reconsider whether to retain that firm. Even if the selection is ratified, the
Audit Committee in its discretion may direct the appointment of a different
auditor at any time during the year if it determines that such a change would be
in the best interests of Kroger and its shareholders.
A representative of
PricewaterhouseCoopers LLP is expected to be present at the meeting to respond
to appropriate questions and to make a statement if he or she desires to do
so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
DISCLOSURE OF AUDITOR FEES
The following
describes the fees billed to Kroger by PricewaterhouseCoopers LLP related to the
fiscal years ended January 30, 2010 and January 31, 2009:
|
Fiscal Year 2009 |
|
Fiscal Year 2008 |
Audit Fees |
$ |
4,155,234 |
|
|
$ |
4,093,444 |
|
Audit-Related Fees |
|
38,254 |
|
|
|
54,248 |
|
Tax Fees |
|
— |
|
|
|
— |
|
All Other Fees |
|
— |
|
|
|
— |
|
Total |
$ |
4,193,488 |
|
|
$ |
4,147,692 |
|
|
|
|
|
|
|
|
|
Audit
Fees for the years ended
January 30, 2010 and January 31, 2009, respectively, were for professional
services rendered for the audits of Kroger’s consolidated financial statements,
the issuance of comfort letters to underwriters, consents, income tax provision
procedures, and assistance with the review of documents filed with the
SEC.
51
Audit-Related
Fees for the years ended
January 30, 2010 and January 31, 2009, respectively, were for assurance and
related services pertaining to accounting consultation in connection with
acquisitions, attest services that are not required by statute or regulation,
and consultations concerning financial accounting and reporting
standards.
Tax
Fees. We did not engage
PricewaterhouseCoopers LLP for other tax services for the years ended January
30, 2010 and January 31, 2009.
All Other
Fees. We did not engage
PricewaterhouseCoopers LLP for other services for the years ended January 30,
2010 and January 31, 2009.
The Audit Committee
requires that it approve in advance all audit and non-audit work performed by
PricewaterhouseCoopers LLP. On March 10, 2010, the Audit Committee approved
services to be performed by PricewaterhouseCoopers LLP for the remainder of
fiscal year 2010 that are related to the audit of Kroger or involve the audit
itself. In 2007, the Audit Committee adopted an audit and non-audit service
pre-approval policy. Pursuant to the terms of that policy, the Committee will
annually pre-approve certain defined services that are expected to be provided
by the independent auditors. If it becomes appropriate during the year to engage
the independent accountant for additional services, the Audit Committee must
first approve the specific services before the independent accountant may
perform the additional work.
PricewaterhouseCoopers
LLP has advised the Audit Committee that neither the firm, nor any member of the
firm, has any financial interest, direct or indirect, in any capacity in Kroger
or its subsidiaries.
SHAREHOLDER PROPOSAL
(ITEM NO. 4)
We have been notified
by a shareholder, the name and shareholdings of which will be furnished promptly
to any shareholder upon written or oral request to Kroger’s Secretary at
Kroger’s executive offices, that it intends to propose the following resolution
at the annual meeting:
SHAREHOLDER RESOLUTION
WHEREAS, in 2007, the
Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report
states it is “very likely” that anthropogenic greenhouse gas emissions have
heavily contributed to global warming. Furthermore, “Impacts of climate change
will vary regionally but, aggregated and discounted to the present, they are
very likely to impose net annual costs which will increase over time as global
temperatures increase.”
WHEREAS, in 2008, the
United States Department of Agriculture (USDA) reported that, “No matter the
region, weather and climate factors such as temperature, precipitation, CO2 concentrations, and
water availability directly
impact the health and well-being of plants, pasture, rangeland, and livestock.”
Specifically, “Climate change affects average temperatures and temperature
extremes; timing and geographical patterns of precipitation; snowmelt, runoff,
evaporation, and soil moisture; the frequency of disturbances, such as drought,
insect and disease outbreaks, severe storms, and forest fires; atmospheric
composition and air quality; and patterns of human settlement and land use
change,” which directly impact crop yields and meat production.
WHEREAS, in 2008,
Acclimatise, a risk management firm, reported that climate-related “impacts will
be felt throughout a company’s business model, with consequences for its raw
materials, supply chains, essential utilities, assets and operations, markets,
customers and products, its workforce and the communities in which it is
located.”
52
WHEREAS, increasingly
investors believe that there is an intersection between climate change and
corporate financial performance. Goldman Sachs reported in May, 2009, “We find
that while many companies acknowledge the challenges climate change presents …
there are significant differences in the extent to which companies are taking
action. Differences in the effectiveness of response across industries create
opportunities to lose or establish competitive advantage, which we believe will
prove increasingly important to investment performance.”
WHEREAS, a 2008
report by Ceres and RiskMetrics ranked Kroger’s corporate climate change
governance in the bottom-half of an industry peer group and the bottom third of
all companies analyzed, representing 63 of the world’s largest retail,
pharmaceutical, technology, apparel and other consumer-facing
companies.
WHEREAS, the Carbon
Disclosure Project (CDP), representing 475 institutional investors with assets
of more than $55 trillion under management, requested 3,700 corporations to
disclose their climate-related risks in February, 2009. Kroger currently does
not publicly respond to the CDP questionnaire.
WHEREAS, leading
companies in the food retailing industry, such Tesco, Wal-Mart, and Sainsbury’s,
publicly report on risks, including implications to their product and
manufacturing supply chain, from climate change.
WHEREAS, information
from corporations on their climate change risks and strategies is essential to
investors as they assess the strengths of corporate securities in the context of
climate change.
RESOLVED:
Shareholders request that within 6 months of the 2010 annual meeting, the Board
of Directors provide a report to shareholders, prepared at reasonable cost and
omitting proprietary information, describing how Kroger will assess and manage
the impacts of climate change on the corporation, with specific regard to its
supply chain, and plans to disclose such information through public reporting
mechanisms.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING REASONS:
Kroger recognizes the
important role it plays as a good steward of the environment. We have numerous
“green” initiatives in place to save energy and preserve our natural resources.
For each of the past several years Kroger has published on-line The Kroger Co. Public Responsibilities Report and Doing Our Part – The Kroger Co.’s Green Report that highlight the company’s “green”
initiatives in greater detail.
This proposal is
similar to one submitted by a shareholder in each of the annual meetings held in
2007 and 2008. Those proposals were defeated by shareholders.
This proposal
requests assessment of climate change and furnishing a report to shareholders.
We believe such a report in many ways would be duplicative of the current
efforts underway, and would provide little benefit to shareholders beyond what
Kroger already has furnished. We believe it would be a waste of time, resources,
and money for Kroger and our shareholders.
We have developed our
own form of reporting that we believe provides beneficial and cost effective
disclosure to our shareholders on the environmental issues that are relevant to
our business operations. These reports are published on the Kroger
website.
53
__________________
SHAREHOLDER PROPOSALS
– 2011 ANNUAL MEETING. Shareholder proposals intended for inclusion in our proxy
material relating to Kroger’s annual meeting in June 2011 should be addressed to
the Secretary of Kroger and must be received at our executive offices not later
than January 14, 2011. These proposals must comply with the proxy rules
established by the SEC. In addition, the proxy solicited by the Board of
Directors for the 2011 annual meeting of shareholders will confer discretionary
authority to vote on any shareholder proposal presented at the meeting unless we
are provided with notice of the proposal on or before March 31, 2011. Please
note, however, that Kroger’s Regulations require a minimum of 45 days’ advance
notice to Kroger in order for a matter to be brought before shareholders at the
annual meeting. As a result, any attempt to present a proposal without notifying
Kroger on or before March 31, 2011, will be ruled out of order and will not be
permitted.
__________________
Attached to this
Proxy Statement is Kroger’s 2009 Annual Report which includes a brief
description of Kroger’s business, including the general scope and nature thereof
during 2009, together with the audited financial information contained in our
2009 report to the SEC on Form 10-K. A copy of that report is available to shareholders on request by writing
to: Scott M. Henderson, Treasurer, The Kroger Co., 1014 Vine Street, Cincinnati,
Ohio 45202-1100 or by calling 1-513-762-1220. Our SEC filings are available to the public
from the SEC’s web site at www.sec.gov.
The management knows
of no other matters that are to be presented at the meeting but, if any should
be presented, the Proxy Committee expects to vote thereon according to its best
judgment.
By order of the Board of Directors, |
Paul W. Heldman, Secretary |
54
Appendix 1
FILED WITH SECRETARY OF STATE OF OHIO
JUNE 22, 2006
__________________,
2010
AMENDED ARTICLES OF INCORPORATION
OF
THE KROGER CO.
The Kroger Co., a
corporation for profit, heretofore organized and now existing under the laws of
the State of Ohio, makes and files these Amended Articles of Incorporation and
states:
FIRST. The name of
the Corporation is THE KROGER CO.
SECOND. The principal
office of the Corporation is located at Cincinnati, in Hamilton County,
Ohio.
THIRD. The purpose of
said Corporation is to engage in any lawful act or activity for which
corporations may be formed under Sections 1701.01 to 1701.9899,
inclusive, of the Ohio Revised Code.
FOURTH. SECTION A.
The maximum number of shares which the Corporation is authorized to have
outstanding is one billion five million (1,005,000,000), classified as follows:
five million (5,000,000) Cumulative Preferred Shares of the par value of $100.00
each; and one billion (1,000,000,000) Common Shares of the par value of $1.00
each.
The express terms and
provisions of the shares of the foregoing classes of stock of the Corporation
shall be as follows:
SECTION B. The
holders of Common Shares shall have no pre-emptive rights to subscribe for or
purchase any shares of any class.
SECTION C. 1. The
authorized shares of Cumulative Preferred Shares may be issued in series from
time to time. All shares of any one series of Cumulative Preferred Shares shall
be alike in every particular and all shares of Cumulative Preferred Shares shall
rank equally. The express terms and provisions of shares of different series
shall be identical except that there may be variations in respect of the
dividend rate, dates of payment of dividends and dates from which they are
cumulative, redemption rights and price, liquidation price, sinking fund
requirements, conversion rights, and restrictions on issuance of shares of the
same series or of any other class or series. The Board of Directors of the
Corporation is authorized to fix, by the adoption of an amendment to the
Articles creating each such series of the Cumulative Preferred Shares, (a) the
designation and number of shares of such series, (b) the dividend rate of such
series, (c) the dates of payment of dividends on shares of such series and the
dates from which they are cumulative, (d) the redemption rights of the
Corporation with respect to shares of such series and the price or prices at
which shares of such series may be redeemed, (e) the amount or amounts payable
to holders of shares of such series on any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, which may be different for
voluntary and involuntary liquidation, dissolution, or winding up, (f) the
amount of the sinking fund, if any, to be applied to the purchase or redemption
of shares of such series and the manner of its application, (g) whether or not
the shares of such series shall be made convertible into, or exchangeable for,
shares of any other class or classes or of any other series of the same class of
stock of the Corporation, and if made so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and the adjustments, if
any, at which such conversion or exchange may be made, and (h) whether or not
the issue of any additional shares of such series or any future series in
addition to such series or any other class of stock shall be subject to any
restrictions and, if so, the nature of such restrictions.
55
2. Dividends on
Cumulative Preferred Shares of any series shall be payable at rates and on dates
to be fixed by the Board of Directors at the time of the creation of such
series. Dividends of the Cumulative Preferred Shares of all series shall be
cumulative, and no dividends shall be declared or paid upon or set apart for the
Common Stock Shares
unless and until full dividends on the outstanding Cumulative Preferred Shares
of all series shall have been paid or declared and set apart for payment with
respect to all past dividend periods and the current dividend period. In case of
any series of Cumulative Preferred Shares, dividends shall accrue from and be
cumulative from such dates as may be fixed by the Board of Directors at the time
of the creation of such series. In the event of the issue of additional
Cumulative Preferred Shares of any series after the initial issue of shares of
such series all dividends paid on Cumulative Preferred Shares of such series
prior to the issue of such additional Cumulative Preferred Shares and all
dividends declared and payable to holders of record of Cumulative Preferred
Shares of such series on a date prior to such additional issue shall be deemed
to have been paid on the additional shares so issued.
3. If upon any
liquidation, dissolution or winding up, the assets distributable among the
holders of the Cumulative Preferred Shares of all series shall be insufficient
to permit the payment of the full preferential amounts to which they shall be
entitled, then the entire assets of the Corporation shall be distributed among
the holders of the Cumulative Preferred Shares of all series then outstanding,
ratably in proportion to the full preferential amounts to which they are
respectively entitled. Nothing in this paragraph shall be deemed to prevent the
purchase, acquisition or other retirement by the Corporation of any shares of
its outstanding stock as now or in the future authorized or permitted by the
laws of Ohio. A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale or transfer of all or substantially
all of its property, shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation.
4. Notice of any
proposed redemption of Cumulative Preferred Shares of any series shall be given
by the Corporation by publication at least once in one daily newspaper printed
in the English language and of general circulation in the Borough of Manhattan,
City of New York, State of New York, and in the City of Cincinnati, State of
Ohio, the first publication to be at least sixty (60) days, and not more than
ninety (90) days, prior to the date fixed for such redemption. Notice of any
proposed redemption of Cumulative Preferred Shares of any series also shall be
given by the Corporation by mailing a copy of such notice, at least sixty (60)
days, and not more than ninety (90) days, prior to the date fixed for such
redemption, to the holders of record of the Cumulative Preferred Shares to be
redeemed, at their respective addresses then appearing upon the books of the
Corporation; but no failure to mail such notice, or defect therein or in the
mailing thereof shall affect the validity of the proceedings for such
redemption. In case of the redemption of a part only of the Cumulative Preferred
Shares of any series at the time outstanding, the shares to be redeemed shall be
selected by lot or pro rata, as the Board of Directors may determine. The Board
of Directors shall have full power and authority, subject to the limitations and
provisions herein contained, to prescribe the manner in which, and the terms and
conditions upon which, the shares of the Cumulative Preferred Shares of any
series shall be redeemed from time to time. On or at any time before the
redemption date specified in such notice, the Corporation shall deposit in
trust, for the holders of the shares to be redeemed, funds necessary for such
redemption with a bank or trust company organized under the laws of the United
States of America or the State of New York and doing business in the Borough of
Manhattan, City of New York, or organized under the laws of the United States of
America or of the State of Ohio and doing business in the City of Cincinnati,
Ohio; and designated in such notice of redemption. Upon the publication of the
notice of redemption as above provided, or upon the making of such deposit,
whichever is later, all shares with respect to the redemption of which such
notice and deposit shall have been given and made shall, whether or not the
certificates therefor shall have been surrendered for cancellation, be deemed to
be no longer outstanding for any purpose, and all rights with respect to such
shares shall thereupon cease and terminate, except only the rights of the
holders of the certificates for such shares to
56
receive, out of the
funds so deposited in trust, from and after the date of such deposit, the amount
payable upon the redemption thereof, without interest; provided, however, that
no right of conversion, if any, belonging to such shares, if such right of
conversion is, by its terms, to exist for a period beyond the date of the
publication of such notice or the making of such deposit, shall be impaired by
the publication of such notice or the making of such deposit. At the expiration
of six (6) years after the date of such deposit, such trust shall terminate. Any
such moneys then remaining on deposit with such bank or trust company shall be
paid over to the Corporation, and thereafter the holders of the certificates for
such shares shall have no claims against such bank or trust company, but only
claims as unsecured creditors against the Corporation for the amount payable
upon the redemption thereof without interest.
5. At all meetings of
the shareholders, every holder of record of shares of Cumulative Preferred
Shares and every holder of record
of Common Stock Shares
shall be entitled to vote and shall have one vote for each share outstanding in
his name on the books of the Corporation on the record date fixed for such
purpose, or if no record date is fixed, on the date next preceding the day of
such meeting, provided that (1) in the event that the Corporation should have
failed to pay dividends on any series of Cumulative Preferred Shares for six or
more quarterly dividends, the holders of Cumulative Preferred Shares of all
series, voting as a single class, shall be entitled to elect two directors, each
for a one-year term, at the meeting of shareholders for the election of
directors next succeeding the time such failure to pay these six dividends first
occurs, and (2) no amendment to the Articles of Incorporation or Regulations
shall be made which would be substantially prejudicial to the holders of
outstanding Cumulative Preferred Shares or any series thereof without the
favorable vote of the holders of two-thirds of the Cumulative Preferred Shares,
voting as a single class, then outstanding, unless such amendment shall not
equally affect all series, in such case the favorable vote of the holders of
two-thirds of the adversely affected series shall also be required. The right of
holders of Cumulative Preferred Shares to elect these two directors shall
terminate when all such unpaid dividends on Cumulative Preferred Shares have
been paid and the directors then in office and elected by the holders of
Cumulative Preferred Shares shall forthwith cease to hold office upon such
payments.
6. The holders of the
Cumulative Preferred Shares shall have no pre-emptive rights to subscribe for or
purchase any shares of any class.
FIFTH. SECTION A.
Section 1701.831 of the Ohio Revised Code does not apply to the
Corporation.
SECTION B.
Shareholders are not permitted to vote cumulatively in the election of
directors. Any amendment to this Section B of Article Fifth will require the
affirmative vote of the holders of record of shares entitling them to exercise
75% of the voting power on such proposal.
SIXTH. The vote required
for election of a director by the shareholders will, except in a contested
election or when cumulative voting is in effect, be the affirmative vote of a
majority of the votes cast in favor of or against the election of a nominee at a
meeting of shareholders. In a contested election or when cumulative voting is in
effect, directors will be elected by a plurality of the votes cast at a meeting
of shareholders by the holders of shares entitled to vote in the election. An
election will be considered contested if as of the record date there are more
nominees for election than positions on the Board of Directors to be filled by
election at the meeting.
SEVENTH.
The following provisions are hereby agreed to for the purpose of defining,
limiting and regulating the exercise of the authority of the Corporation or of
its shareholders, or of any class of its shareholders, or of its directors, or
for the purpose of creating and defining rights and privileges of the
shareholders among themselves.
57
(a) This Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Amended Articles of Incorporation in the manner now or hereafter
prescribed by law, and all rights conferred on officers, directors, and
shareholders herein, including but not limited to the rights of dissenting
shareholders conferred by Ohio law, are granted subject to this
reservation.
(b) Action on any
matter at any shareholders’ meeting, or without such meeting, regarding which
the statutes of Ohio provide that unless otherwise provided in the articles of
incorporation or regulations of a corporation, there shall be the affirmative
vote or consent of a larger portion than the holders of a majority of the shares
entitled to vote thereon or consent thereto, may be taken by the affirmative
vote or consent of the holders of a majority of shares entitled to vote thereon
or consent thereto, but in the event that the vote or consent is required to be
by classes, then, except as otherwise provided herein, action may be taken on
such matter by the affirmative vote or consent of the holders of a majority of
each class of shares entitled to vote by classes on such matter.
(c) The Corporation
may, when authorized by the Board of Directors and without any action by the
shareholders, purchase, hold, sell and reissue any of its shares in such manner
and under such terms and conditions as may be prescribed by the
directors.
(d) The Board of
Directors shall have the power and authority to determine the fair value of any
property other than money to be received by the Corporation in payment of its
shares.
(e) The foregoing
clauses shall be construed both as objects and powers, and it is hereby
expressly provided that the foregoing enumeration of specific powers shall not
be held to limit or restrict in any manner the powers of this Corporation, and
are in furtherance of and in addition to, and not in limitation of, the general
powers conferred by the laws of the State of Ohio.
SEVENTHEIGHTH.
These Amended Articles of Incorporation supersede and take the place of the
existing Amended Articles of Incorporation.
58
________
2009
ANNUAL REPORT
________
FINANCIAL REPORT 2009
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The Kroger Co. has the
responsibility for preparing the accompanying financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis and are
not misstated due to material error or fraud. The financial statements include
amounts that are based on management’s best estimates and judgments. Management
also prepared the other information in the report and is responsible for its
accuracy and consistency with the financial statements.
The Company’s financial statements have been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose selection has been approved by the shareholders.
Management has made available to PricewaterhouseCoopers LLP all of the Company’s
financial records and related data, as well as the minutes of the shareholders’
and directors’ meetings. Furthermore, management believes that all
representations made to PricewaterhouseCoopers LLP during its audit were valid
and appropriate.
Management also recognizes its responsibility
for fostering a strong ethical climate so that the Company’s affairs are
conducted according to the highest standards of personal and corporate conduct.
This responsibility is characterized and reflected in The Kroger Co. Policy on Business Ethics, which is publicized throughout the Company
and available on the Company’s website at www.thekrogerco.com. The Kroger Co. Policy on Business Ethics addresses, among other things, the necessity
of ensuring open communication within the Company; potential conflicts of
interests; compliance with all domestic and foreign laws, including those
related to financial disclosure; and the confidentiality of proprietary
information. The Company maintains a systematic program to assess compliance
with these policies.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible
for establishing and maintaining adequate internal control over financial
reporting for the Company. With the participation of the Chief Executive Officer
and the Chief Financial Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our
management has concluded that the Company’s internal control over financial
reporting was effective as of January 30, 2010.
David B. Dillon |
J. Michael Schlotman |
Chairman of the Board
and |
Senior Vice President
and |
Chief Executive Officer |
Chief Financial
Officer |
A-1
SELECTED FINANCIAL DATA
|
|
Fiscal Years Ended |
|
|
January 30, |
|
January 31, |
|
February 2, |
|
February 3, |
|
January 28, |
|
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
|
(52 weeks) |
|
(52 weeks)* |
|
(52 weeks)* |
|
(53 weeks)* |
|
(52 weeks)* |
|
|
(In millions, except per share
amounts) |
Sales |
|
|
$ |
76,733 |
|
|
|
$ |
76,148 |
|
|
|
$ |
70,336 |
|
|
|
$ |
66,166 |
|
|
|
$ |
60,589 |
|
Net earnings including noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interests |
|
|
|
57 |
|
|
|
|
1,250 |
|
|
|
|
1,224 |
|
|
|
|
1,126 |
|
|
|
|
964 |
|
Net earnings attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Kroger Co. |
|
|
|
70 |
|
|
|
|
1,249 |
|
|
|
|
1,209 |
|
|
|
|
1,115 |
|
|
|
|
958 |
|
Net earnings attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Kroger Co. per
diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common share |
|
|
|
0.11 |
|
|
|
|
1.89 |
|
|
|
|
1.73 |
|
|
|
|
1.54 |
|
|
|
|
1.31 |
|
Total assets |
|
|
|
23,093 |
|
|
|
|
23,257 |
|
|
|
|
22,339 |
|
|
|
|
21,210 |
|
|
|
|
20,478 |
|
Long-term liabilities, including obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under capital leases and
financing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations |
|
|
|
10,473 |
|
|
|
|
10,311 |
|
|
|
|
8,696 |
|
|
|
|
8,711 |
|
|
|
|
9,377 |
|
Total Shareowners’ equity – |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Kroger Co. |
|
|
|
4,832 |
|
|
|
|
5,205 |
|
|
|
|
4,942 |
|
|
|
|
4,923 |
|
|
|
|
4,390 |
|
Cash dividends per
common share |
|
|
|
0.365 |
|
|
|
|
0.345 |
|
|
|
|
0.29 |
|
|
|
|
0.195 |
|
|
|
|
— |
|
* |
|
Certain prior year amounts have been
revised or reclassified to conform to the current year presentation. For
further information, see note 1 to the Consolidated Financial
Statements. |
COMMON STOCK PRICE RANGE
|
|
2009 |
|
2008 |
Quarter |
|
High |
|
Low |
|
High |
|
Low |
1st |
|
$ |
23.01 |
|
$ |
19.39 |
|
$ |
28.13 |
|
$ |
23.39 |
2nd |
|
$ |
23.63 |
|
$ |
20.51 |
|
$ |
30.99 |
|
$ |
25.86 |
3rd |
|
$ |
24.80 |
|
$ |
20.13 |
|
$ |
29.91 |
|
$ |
22.30 |
4th |
|
$ |
24.12 |
|
$ |
19.45 |
|
$ |
29.03 |
|
$ |
22.40 |
|
Main trading
market: New York Stock Exchange (Symbol KR) |
|
Number of
shareholders of record at year-end 2009: 41,307 |
|
Number of
shareholders of record at March 26, 2010:
40,478 |
During 2008, the Company paid one
quarterly dividend of $0.075 and three quarterly dividends of $0.09. During
2009, the Company paid three quarterly dividends of $0.09 and one quarterly
dividend of $0.095. On March 1, 2010, the Company paid a quarterly dividend of
$0.095 per share. On March 10, 2010, the Company announced that its Board of
Directors has declared a quarterly dividend of $0.095 per share, payable on June
1, 2010, to shareholders of record at the close of business on May 14,
2010.
A-2
PERFORMANCE GRAPH
Set forth below is a line graph comparing the
five-year cumulative total shareholder return on Kroger’s common stock, based on
the market price of the common stock and assuming reinvestment of dividends,
with the cumulative total return of companies in the Standard & Poor’s 500
Stock Index and a peer group composed of food and drug companies.
Historically, our peer group has consisted of
the major food store companies. In recent years there have been significant
changes in the industry, including consolidation and increased competition from
supercenters, drug chains, and discount stores. As a result, several years ago
we changed our peer group to include companies operating supermarkets,
supercenters and warehouse clubs in the United States as well as the major drug
chains with which Kroger competes. Last year, we changed our peer group (the
“Peer Group”) once again to add Tesco plc, as it has become a competitor in the
U.S. market.
COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL
RETURN*
Among The Kroger Co., the S&P 500, and Peer
Group**
|
|
Base |
|
INDEXED RETURNS |
|
|
Period |
|
Years Ending |
Company Name/Index |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
The Kroger Co. |
|
100 |
|
107.71 |
|
151.31 |
|
153.71 |
|
134.81 |
|
130.01 |
S&P 500 Index |
|
100 |
|
111.63 |
|
128.37 |
|
126.05 |
|
76.43 |
|
101.76 |
Peer Group |
|
100 |
|
98.97 |
|
112.15 |
|
115.56 |
|
93.85 |
|
116.27 |
Kroger’s fiscal year ends on the
Saturday closest to January 31.
A-3
____________________
* |
|
Total assumes $100 invested on January
30, 2005, in The Kroger Co., S&P 500 Index, and the Peer Group, with
reinvestment of dividends. |
|
** |
|
The Peer Group consists of Albertson’s,
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., Tesco plc, Wal-Mart Stores Inc., Walgreen Co., Whole Foods Market
Inc. and Winn-Dixie Stores, Inc. Albertson’s, Inc., was substantially
acquired by Supervalu in July 2006, and is included through 2005. Marsh
Supermarkets was acquired by Marsh Supermarkets Holding Corp. in September
2006, and is included through 2005. Winn-Dixie emerged from bankruptcy in
2006 as a new issue and returns for the old and new issue were calculated
then weighted to determine the 2006 return. |
Data supplied by Standard &
Poor’s.
The foregoing Performance Graph will
not be deemed incorporated by reference into any other filing, absent an express
reference thereto.
A-4
ISSUER PURCHASES OF EQUITY SECURITES
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Dollar |
|
|
|
|
|
|
|
|
Shares |
|
Value of Shares |
|
|
|
|
|
|
|
|
Purchased as |
|
that May Yet Be |
|
|
|
|
|
|
|
|
Part of Publicly |
|
Purchased Under |
|
|
Total Number |
|
Average |
|
Announced |
|
the Plans or |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Programs (3) |
Period (1) |
|
Purchased |
|
Per Share |
|
Programs (2) |
|
(in millions) |
First period - four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
November 8, 2009 to December 5, 2009 |
|
|
600,030 |
|
|
$22.89 |
|
|
600,030 |
|
|
$379 |
Second period - four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
December 6, 2009 to
January 2, 2010 |
|
|
1,644,922 |
|
|
$20.83 |
|
|
1,526,102 |
|
|
$362 |
Third period – four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2010 to January 30, 2010 |
|
|
2,262,717 |
|
|
$20.72 |
|
|
2,069,474 |
|
|
$337 |
Total |
|
|
4,507,669 |
|
|
$21.05 |
|
|
4,195,606 |
|
|
$337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________
(1) |
|
The reported periods conform to the
Company’s fiscal calendar composed of thirteen 28-day periods. The fourth
quarter of 2009 contained three 28-day periods. |
|
(2) |
|
Shares were repurchased under (i) a $1
billion stock repurchase program, authorized by the Board of Directors on
January 18, 2008, and (ii) a program announced on December 6, 1999, to
repurchase common stock to reduce dilution resulting from our employee
stock option and long-term incentive plans, which program is limited to
proceeds received from exercises of stock options and associated tax
benefits. The programs have no expiration date but may be terminated by
the Board of Directors at any time. Total shares purchased include shares
that were surrendered to the Company by participants in the Company’s
long-term incentive plans to pay for taxes on restricted stock
awards. |
|
(3) |
|
Amounts shown in this column reflect
amounts remaining under the $1 billion stock repurchase program referenced
in clause (i) of Note 2 above. Amounts to be repurchased under the program
utilizing option exercise proceeds are dependent upon option exercise
activity. |
A-5
BUSINESS
The Kroger Co. was founded in 1883 and
incorporated in 1902. As of January 30, 2010, the Company was one of the largest
retailers in the United States based on annual sales. The Company also
manufactures and processes some of the food for sale in its supermarkets. The
Company’s principal executive offices are located at 1014 Vine Street,
Cincinnati, Ohio 45202, and its telephone number is (513) 762-4000. The Company
maintains a web site (www.kroger.com) that includes additional information about
the Company. The Company makes available through its web site, free of charge,
its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its current
reports on Form 8-K and its interactive data files, including amendments. These
forms are available as soon as reasonably practicable after the Company has
filed with, or furnished them electronically to, the SEC.
The Company’s revenues are earned and cash is
generated as consumer products are sold to customers in its stores. The Company
earns income predominantly by selling products at price levels that produce
revenues in excess of its costs to make these products available to its
customers. Such costs include procurement and distribution costs, facility
occupancy and operational costs, and overhead expenses. The Company’s fiscal
year ends on the Saturday closest to January 31.
EMPLOYEES
As of January 30, 2010, the Company employed
approximately 334,000 full and part-time employees. A majority of the Company’s
employees are covered by collective bargaining agreements negotiated with local
unions affiliated with one of several different international unions. There are
approximately 305 such agreements, usually with terms of three to five
years.
During 2010, the Company has major labor
contracts to be negotiated covering store employees in Albuquerque, Cincinnati,
Dallas, Detroit, Ft. Wayne, Houston, Little Rock, Portland, Seattle and Toledo.
The Company will also negotiate agreements with the Teamsters for employees in
California and Portland. Negotiations in 2010 will be challenging as the Company
must have competitive cost structures in each market while meeting our
associates’ needs for good wages, affordable health care and increases in
Company pension contributions.
STORES
As of January 30, 2010, the Company operated,
either directly or through its subsidiaries, 2,468 supermarkets and
multi-department stores, 893 of which had fuel centers. Approximately 43% of
these supermarkets were operated in Company-owned facilities, including some
Company-owned buildings on leased land. The Company’s current strategy
emphasizes self-development and ownership of store real estate. The Company’s
stores operate under several banners that have strong local ties and brand
equity. Supermarkets are generally operated under one of the following formats:
combination food and drug stores (“combo stores”); multi-department stores;
marketplace stores; or price impact warehouses.
The combo stores are the primary food store
format. They typically draw customers from a 2 – 2½ mile radius. The Company
believes this format is successful because the stores are large enough to offer
the specialty departments that customers desire for one-stop shopping, including
natural food and organic sections, pharmacies, general merchandise, pet centers
and high-quality perishables such as fresh seafood and organic
produce.
Multi-department stores are significantly
larger in size than combo stores. In addition to the departments offered at a
typical combo store, multi-department stores sell a wide selection of general
merchandise items such as apparel, home fashion and furnishings, electronics,
automotive products, toys and fine jewelry.
A-6
Marketplace stores are smaller in size than
multi-department stores. They offer full-service grocery and pharmacy
departments as well as an expanded general merchandise area that includes
outdoor living products, electronics, home goods and toys.
Price impact warehouse stores offer a
“no-frills, low cost” warehouse format and feature everyday low prices plus
promotions for a wide selection of grocery and health and beauty care items.
Quality meat, dairy, baked goods and fresh produce items provide a competitive
advantage. The average size of a price impact warehouse store is similar to that
of a combo store.
Many of the stores mentioned above, with
exception of the price impact warehouse stores, include fuel
centers.
In addition to the supermarkets, as of January
30, 2010, the Company operated through subsidiaries, 777 convenience stores and
374 fine jewelry stores. All of our fine jewelry stores located in malls are
operated in leased locations. In addition, 87 convenience stores were operated
through franchise agreements. Approximately 51% of the convenience stores
operated by subsidiaries were operated in Company-owned facilities. The
convenience stores offer a limited assortment of staple food items and general
merchandise and, in most cases, sell gasoline.
SEGMENTS
The Company operates retail food and drug
stores, multi-department stores, jewelry stores, and convenience stores
throughout the United States. The Company’s retail operations, which represent
substantially all of the Company’s consolidated sales, earnings and total
assets, are its only reportable segment. All of the Company’s operations are
domestic. Revenues, profit and losses, and total assets are shown in the
Company’s Consolidated Financial Statements set forth in Item 8
below.
MERCHANDISING AND MANUFACTURING
Corporate brand products play an important
role in the Company’s merchandising strategy. Our supermarkets, on average,
stock approximately 11,000 private label items. The Company’s corporate brand
products are produced and sold in three “tiers.” Private Selection is the
premium quality brand designed to be a unique item in a category or to meet or
beat the “gourmet” or “upscale” brands. The “banner brand” (Kroger, Ralphs, King
Soopers, etc.), which represents the majority of the Company’s private label
items, is designed to satisfy customers with quality products. Before Kroger
will carry a banner brand product, the product quality must meet our customers’
expectations in taste and efficacy, and we guarantee it. Kroger Value is the
value brand, designed to deliver good quality at a very affordable
price.
Approximately 39% of the corporate brand units
sold are produced in the Company’s manufacturing plants; the remaining corporate
brand items are produced to the Company’s strict specifications by outside
manufacturers. The Company performs a “make or buy” analysis on corporate brand
products and decisions are based upon a comparison of market-based transfer
prices versus open market purchases. As of January 30, 2010, the Company
operated 40 manufacturing plants. These plants consisted of 18 dairies, 10 deli
or bakery plants, five grocery product plants, three beverage plants, two meat
plants and two cheese plants.
A-7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR BUSINESS
The Kroger Co. was founded in 1883 and
incorporated in 1902. It is one of the nation’s largest retailers, as measured
by revenue, operating 2,468 supermarket and multi-department stores under two
dozen banners including Kroger, Ralphs, Fred Meyer, Food 4 Less, King Soopers,
Smith’s, Fry’s, Fry’s Marketplace, Dillons, QFC and City Market. Of these
stores, 893 have fuel centers. We also operate 777 convenience stores and 374
fine jewelry stores.
Kroger operates 40 manufacturing plants,
primarily bakeries and dairies, which supply approximately 39% of the corporate
brand units sold in our retail outlets.
Our revenues are earned and cash is generated
as consumer products are sold to customers in our stores. We earn income
predominately by selling products at price levels that produce revenues in
excess of the costs we incur to make these products available to our customers.
Such costs include procurement and distribution costs, facility occupancy and
operational costs, and overhead expenses. Our operations are reported as a
single reportable segment: the retail sale of merchandise to individual
customers.
OUR 2009 PERFORMANCE
By focusing on the customer through our
Customer 1st strategy, we were able to report solid
results in 2009 (excluding the non-cash asset impairment charges totaling $1.14
billion, pre-tax ($1.05 billion, after-tax), related to our division in southern
California) during what continues to be a difficult operating environment. In
2009, our identical supermarket sales increased 2.1%, excluding fuel. Our 2009
earnings were $0.11 per diluted share or $1.71 per diluted share, excluding the
non-cash asset impairment charges referred to above. We did not achieve our
original goals for identical supermarket sales growth of 3% to 4% and earnings
per share of $2.00 to $2.05 per diluted share, as cautious consumers,
significant deflation, and intense competition affected margins and sales
growth. Nonetheless, we strengthened our overall competitive position by
increasing the number of households that are loyal to Kroger and we are earning
a greater share of their business. As a result, we continue to generate tonnage
growth in both perishable and non-perishable categories that is among the
strongest in the industry. Sustainable identical sales and earnings growth
remains one of our key long-term objectives. We continue to widen the gap
between our identical supermarkets sales growth trends and those of several of
our competitors. We believe this has extremely positive implications for our
associates, customers and shareholders now and as we grow our business in the
future.
Market share is an important part of our
long-term strategy. Market share is important to us because it allows us to
leverage the fixed costs in our business over a wider revenue base. Our
fundamental operating philosophy is to maintain and increase market share. Based
on Nielsen Homescan Data, our estimated market share increased in total by
approximately 60 basis points in 2009 across the 17 divisions in which we
operate. Nielsen Homescan Data includes scanned products across many retail
channels, not including restaurants. This information also indicates that our
market share increased in 13 of the divisions, declined in three, and remained
unchanged in one. These market share results are consistent with our long-term
strategy.
A-8
RESULTS OF OPERATIONS
The following discussion summarizes our
operating results for 2009 compared to 2008 and for 2008 compared to 2007.
Comparability is affected by income and expense items that fluctuated
significantly between and among the periods.
Net Earnings
Net earnings totaled $70 million for 2009,
compared to net earnings totaling $1.2 billion in each of 2008 and 2007. The net
earnings for 2009 include non-cash asset impairment charges totaling $1.05
billion, after-tax, related to a division in southern California (the “non-cash
impairment charges”). The impairment primarily resulted from the write-off of
the Ralphs division goodwill balance. Excluding these impairment charges,
adjusted net earnings for the year would have been $1.1 billion. Additionally,
the decrease in net earnings for 2009, compared to 2008, resulted from lower
retail fuel margins and decreased operating profit, partially offset by a LIFO
charge of $49 million pre-tax, compared to a LIFO charge of $196 million pre-tax
in 2008. 2008 net earnings also included after-tax costs of $16 million from
disruption and damage caused by Hurricane Ike. The slight increase in our net
earnings for 2008, compared to 2007, resulted from strong non-fuel identical
supermarket sales growth and strong fuel results.
Management believes adjusted net earnings (and
adjusted earnings per share) in 2009 are useful metrics to investors and
analysts because impairment charges are non-recurring, non-cash charges that are
not directly related to our day-to-day business. We also excluded these charges
from our incentive plan calculations for the year.
2009 earnings per diluted share totaled $0.11
and 2009 adjusted earnings per diluted share totaled $1.71, compared to $1.89 in
2008, or $1.91, excluding the $.02 per diluted share for costs for damage and
disruption caused by Hurricane Ike, and $1.73 in 2007. The decline in adjusted
net earnings per share in 2009, compared to 2008, resulted from lower retail
fuel margins and decreased operating profit, partially offset by lower LIFO
charges and after-tax costs of $16 million from disruption and damage caused by
Hurricane Ike in 2008. Our earnings per share growth in 2008, compared to 2007,
resulted from increased net earnings, strong identical sales growth and the
repurchase of Kroger stock.
Sales
Total Sales |
(in millions) |
|
|
|
|
|
Percentage |
|
|
|
|
Percentage |
|
|
|
|
|
2009 |
|
Increase |
|
2008 |
|
Increase |
|
2007 |
Total supermarket sales without
fuel |
|
$ |
65,649 |
|
2.9 |
% |
|
$ |
63,795 |
|
6.1 |
% |
|
$ |
60,142 |
Total supermarket fuel sales |
|
|
6,671 |
|
(10.6 |
%) |
|
|
7,464 |
|
30.0 |
% |
|
|
5,741 |
Total supermarket sales |
|
$ |
72,320 |
|
1.5 |
% |
|
$ |
71,259 |
|
8.2 |
% |
|
$ |
65,883 |
Other sales (1) |
|
|
4,413 |
|
(9.7 |
%) |
|
|
4,889 |
|
9.8 |
% |
|
|
4,453 |
Total sales |
|
$ |
76,733 |
|
0.8 |
% |
|
$ |
76,148 |
|
8.3 |
% |
|
$ |
70,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________
(1) |
|
Other sales primarily relate to sales at
convenience stores, including fuel, jewelry stores, sales by our
manufacturing plants to outside customers, and variable interest
entities. |
A-9
The slight increase in total sales
and the decrease in other sales and total supermarket fuel sales for 2009
compared to 2008 was attributable to the year-over-year decline in retail fuel
prices. The change in our total supermarket sales without fuel for 2009 over
2008 was primarily the result of increases in identical supermarket sales and
retail square footage. Identical supermarket sales, excluding fuel, increased
due to increased transaction count offset partially by a lower average sale per
shopping trip.
We define a supermarket as identical
when it has been in operation without expansion or relocation for five full
quarters. Fuel center discounts received at our fuel centers and earned based on
in-store purchases are included in all of the supermarket identical sales
results calculations illustrated below. Differences between total supermarket
sales and identical supermarket sales primarily relate to changes in supermarket
square footage. Identical supermarket sales include all sales at identical Fred
Meyer multi-department stores. We calculate annualized identical supermarket
sales by adding together four quarters of identical supermarket sales. Our
identical supermarket sales results are summarized in the table below, based on
the 52-week period of 2009, compared to the 52-week period of the previous year.
The identical store count in the table below represents the total number of
identical supermarkets as of January 30, 2010 and January 31, 2009.
Identical Supermarket Sales
(in
millions)
|
|
2009 |
|
2008 |
Including supermarket fuel
centers |
|
$ |
68,981 |
|
|
$ |
68,600 |
|
Excluding supermarket fuel centers |
|
$ |
62,734 |
|
|
$ |
61,414 |
|
|
Including supermarket fuel
centers |
|
|
0.6 |
% |
|
|
6.9 |
% |
Excluding supermarket fuel centers |
|
|
2.1 |
% |
|
|
5.0 |
% |
Identical 4th Quarter store count |
|
|
2,325 |
|
|
|
2,369 |
|
We define a supermarket as
comparable when it has been in operation for five full quarters, including
expansions and relocations. As is the case for identical supermarket sales, fuel
center discounts received at our fuel centers and earned based on in-store
purchases are included in all of the supermarket comparable sales results
calculations illustrated below. Comparable supermarket sales include all sales
at comparable Fred Meyer multi-department stores. We calculate annualized
comparable supermarket sales by adding together four quarters of comparable
sales. Our annualized comparable supermarket sales results are summarized in the
table below, based on the 52-week period of 2009, compared to the same 52-week
period of the previous year. The comparable store count in the table below
represents the total number of comparable supermarkets as of January 30, 2010
and January 31, 2009.
Comparable Supermarket Sa