UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

For the quarterly period ended May 23, 2009

 

OR

 

 

For the transition period from         to        

 

Commission file number 1-303

 

 

(Exact name of registrant as specified in its charter)

 

 

 

1014 Vine Street, Cincinnati, OH 45202

(Address of principal executive offices)

(Zip Code)

 

(513) 762-4000

(Registrant’s telephone number, including area code)

 

Unchanged

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x.

 

There were 651,449,993 shares of Common Stock ($1 par value) outstanding as of June 26, 2009.

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.           Financial Statements.

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

 

		First Quarter Ended
		May 23,			May 24,
		2009			2008
Sales		$	22,799		$	23,144
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below		17,267			17,845
Operating, general and administrative		4,035			3,890
Rent		200			207
Depreciation and amortization		453			433
Operating profit		844			769
Interest expense		163			152
Earnings before income tax expense		681			617
Income tax expense		250			227
Net earnings including noncontrolling interests		431			390
Net earnings (loss) attributable to noncontrolling interests		(4		)	4
Net earnings attributable to The Kroger Co.		$	435		$	386
Net earnings attributable to The Kroger Co. per basic common share		$	0.67		$	0.58
Average number of common shares used in basic calculation		648			657
Net earnings attributable to The Kroger Co. per diluted common share		$	0.66		$	0.58
Average number of common shares used in diluted calculation		651			663
Dividends declared per common share		$	.09		$	.09

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

2

 

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

(unaudited)

 

		May 23,			January 31,
		2009			2009
ASSETS
Current assets
Cash and temporary cash investments		$	638		$	263
Deposits in-transit		657			631
Receivables		795			944
FIFO inventory		5,634			5,659
LIFO credit		(823		)	(800		)
Prefunded employee benefits		37			300
Prepaid and other current assets		301			209
Total current assets		7,239			7,206
Property, plant and equipment, net		13,347			13,161
Goodwill		2,271			2,271
Other assets		572			573
Total Assets		$	23,429		$	23,211
LIABILITIES
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations		$	941		$	558
Trade accounts payable		4,013			3,822
Accrued salaries and wages		802			828
Deferred income taxes		344			344
Other current liabilities		2,070			2,077
Total current liabilities		8,170			7,629
Long-term debt including obligations under capital leases and financing obligations
Face-value long-term debt including obligations under capital leases and financing obligations		6,932			7,460
Adjustment to reflect fair-value interest rate hedges		40			45
Long-term debt including obligations under capital leases and financing obligations		6,972			7,505
Deferred income taxes		438			384
Pension and postretirement benefit obligations		971			1,174
Other long-term liabilities		1,233			1,248
Total Liabilities		17,784			17,940
Commitments and contingencies (see Note 10)
SHAREOWNERS’ EQUITY
Preferred stock, $100 par per share, 5 shares authorized and unissued		—			—
Common stock, $1 par per share, 1,000 shares authorized; 955 shares issued in 2009 and 955 shares issued in 2008		955			955
Additional paid-in capital		3,291			3,266
Accumulated other comprehensive loss		(494		)	(495		)
Accumulated earnings		7,865			7,489
Common stock in treasury, at cost, 307 shares in 2009 and 306 shares in 2008		(6,056		)	(6,039		)
Total Shareowners’ Equity - The Kroger Co.		5,561			5,176
Noncontrolling interests		84			95
Total Equity		5,645			5,271
Total Liabilities and Equity		$	23,429		$	23,211

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

3

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions and unaudited)

 

		Quarter Ended
		May 23, 2009			May 24, 2008
Cash Flows from Operating Activities:
Net earnings including noncontrolling interests		$	431		$	390
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		453			433
LIFO charge		23			40
Stock-based employee compensation		25			25
Expense for Company-sponsored pension plans		12			9
Deferred income taxes		54			59
Other		6			10
Changes in operating assets and liabilities net of effects from acquisitions of businesses:
Store deposits in-transit		(26		)	15
Receivables		18			6
Inventories		25			(48		)
Prepaid expenses		171			224
Trade accounts payable		245			311
Accrued expenses		(97		)	(160		)
Income taxes receivable and payable		176			17
Contribution to Company-sponsored pension plans		(200		)	—
Other		(28		)	11
Net cash provided by operating activities		1,288			1,342
Cash Flows from Investing Activities:
Payments for capital expenditures		(635		)	(577		)
Proceeds from sale of assets		6			23
Payments for acquisitions		—			(80		)
Other		(5		)	1
Net cash used by investing activities		(634		)	(633		)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		3			775
Dividends paid		(59		)	(50		)
Payments on long-term debt		(25		)	(975		)
Payments on credit facility		(129		)	(127		)
Excess tax benefits on stock-based awards		—			4
Proceeds from issuance of capital stock		2			80
Treasury stock purchases		(20		)	(381		)
Decrease in book overdrafts		(53		)	(28		)
Other		2			(7		)
Net cash used by financing activities		(279		)	(709		)
Net increase in cash and temporary cash investments		375			—
Cash from Consolidated Variable Interest Entity		—			65
Cash and temporary cash investments:
Beginning of year		263			242
End of quarter		$	638		$	307
Reconciliation of capital expenditures:
Payments for property and equipment		$	(635	)	$	(577	)
Changes in construction-in-progress payables		(18		)	(60		)
Total capital expenditures		$	(653	)	$	(637	)
Disclosure of cash flow information:
Cash paid during the quarter for interest		$	163		$	148
Cash paid during the quarter for income taxes		$	37		$	139

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

4

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(in millions, except per share amounts)

(unaudited)

 

															Accumulated
							Additional								Other
		Common Stock					Paid-In			Treasury Stock					Comprehensive			Accumulated			Noncontrolling
		Shares		Amount			Capital			Shares		Amount			Gain (Loss)			Earnings			Interest			Total
Balances at February 2, 2008		947		$	947		$	3,031		284		$	(5,422	)	$	(122	)	$	6,480		$	7		$	4,921
Issuance of common stock:
Stock options exercised		3		3			77			—		(1		)	—			—			—			79
Restricted stock issued		—		—			(6		)	—		4			—			—			—			(2		)
Treasury stock activity:
Treasury stock purchases, at cost		—		—			—			11		(297		)	—			—			—			(297		)
Stock options exchanged		—		—			—			3		(84		)	—			—			—			(84		)
Tax benefits from exercise of stock options		—		—			7			—		—			—			—			—			7
Share-based employee compensation		—		—			25			—		—			—			—			—			25
Other comprehensive gain net of income tax of $3		—		—			—			—		—			5			—			—			5
Purchase of non-wholly owned entity		—		—			—			—		—			—			—			97			97
Other		—		—			—			—		—			—			—			(3		)	(3		)
Cash dividends declared ($0.09 per common share)		—		—			—			—		—			—			(59		)	—			(59		)
Net earnings including noncontrolling interests		—		—			—			—		—			—			386			4			390
Balances at May 24, 2008		950		$	950		$	3,134		298		$	(5,800	)	$	(117	)	$	6,807		$	105		$	5,079
Balances at January 31, 2009		955		$	955		$	3,266		306		$	(6,039	)	$	(495	)	$	7,489		$	95		$	5,271
Issuance of common stock:
Stock options exercised		—		—			2			—		—			—			—			—			2
Restricted stock issued		—		—			(5		)	—		3			—			—			—			(2		)
Treasury stock activity:
Treasury stock purchases, at cost		—		—			—			1		(17		)	—			—			—			(17		)
Stock options exchanged		—		—			—			—		(3		)	—			—			—			(3		)
Tax benefits from exercise of stock options		—		—			2			—		—			—			—			—			2
Share-based employee compensation		—		—			25			—		—			—			—			—			25
Other comprehensive gain net of income tax of $-		—		—			—			—		—			1			—			—			1
Other		—		—			1			—		—			—			—			(7		)	(6		)
Cash dividends declared ($0.09 per common share)		—		—			—			—		—			—			(59		)	—			(59		)
Net earnings including noncontrolling interests		—		—			—			—		—			—			435			(4		)	431
Balances at May 23, 2009		955		$	955		$	3,291		307		$	(6,056	)	$	(494	)	$	7,865		$	84		$	5,645

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

All amounts in the notes to Consolidated Financial Statements are in millions except per share amounts.

 

Certain prior-year amounts have been reclassified to conform to current-year presentation.

 

1.              ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries, and the Variable Interest Entities (“VIE”) in which the Company is the primary beneficiary.  The January 31, 2009 balance sheet was derived from audited financial statements, adjusted for the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 (SFAS 160) and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company.

 

In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the 2008 Annual Report on Form 10-K of The Kroger Co. for the fiscal year ended January 31, 2009.

 

The unaudited information in the Consolidated Financial Statements for the first quarter ended May 23, 2009 and May 24, 2008 includes the results of operations of the Company for the 16-week periods then ended.

 

In the first quarter of 2009, the Company adopted SFAS No. 160, and applied it retrospectively.  As a result, the Company reclassified noncontrolling interests in amounts of $95 from the mezzanine section of the Consolidated Balance Sheet to equity in the January 31, 2009 Consolidated Balance Sheet.  Certain reclassifications to the Consolidated Statement of Operations have been made to prior period amounts to conform to the presentation of the current period under SFAS 160.  Recorded amounts for prior periods previously presented as Net Earnings, which are now presented as Net Earnings Attributable to The Kroger Co., have not changed as a result of the adoption of SFAS 160.

 

Impairment of Long-Lived Assets

 

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain trigger events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a trigger event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores. If the Company identifies impairment for long-lived assets to be held and used, the Company compares the assets’ current carrying value to the assets’ fair value. Fair value is determined based on market values or discounted future cash flows. The Company records impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for sale, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. The Company recorded asset impairments in the normal course of business totaling $11 in the first quarter of 2009 and $15 in the first quarter of 2008. Costs to reduce the carrying value of long-lived assets for each of the years presented have been included in the Consolidated Statements of Operations as “Operating, general and administrative” expense.

 

Store Closing and Other Expense Allowances

 

All closed store liabilities related to exit or disposal activities initiated after December 31, 2002, are accounted for in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  The Company provides for closed store liabilities relating to the present value of the estimated remaining noncancelable lease payments after the closing date, net of estimated subtenant income.  The Company estimates the net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on closed stores.  The closed store lease liabilities usually are paid over the lease terms associated with the closed stores, which generally have remaining terms ranging from one to 20 years.  Adjustments to closed store liabilities primarily relate to changes in subtenant income and actual exit costs differing from original estimates.  Adjustments are made for changes in estimates in the period in which the change becomes known.  Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally intended purpose, is adjusted to income in the proper period.

 

Owned stores held for disposal are reduced to their estimated net realizable value.  Costs to reduce the carrying values of property, equipment and leasehold improvements are accounted for in accordance with the Company’s policy on impairment of long-lived assets.  Inventory write-downs, if any, in connection with store closings, are classified in “Merchandise costs.”  Costs to transfer inventory and equipment from closed stores are expensed as incurred.

 

6

 

The following table summarizes accrual activity for future lease obligations of stores that were closed in the normal course of business and locations closed in California prior to the Fred Meyer merger in 1999.

 

		Future Lease Obligations
		May 23, 2009			May 24, 2008
Balance at beginning of year		$	65		$	74
Additions		—			2
Payments		(4		)	(4		)
Adjustments		(1		)	2
Balance at end of first quarter		$	60		$	74

 

2.              DEBT OBLIGATIONS

 

Long-term debt consists of:

 

		May 23,			January 31,
		2009			2009
Commercial Paper and Money Market Borrowings		$	—		$	129
4.95% to 9.20% Senior Notes and Debentures due through 2038		7,186			7,186
5.00% to 9.95% Mortgages due in varying amounts through 2034		114			119
Other		156			163
Total debt, excluding capital leases and financing obligations		7,456			7,597
Less current portion		(912		)	(528		)
Total long-term debt, excluding capital leases and financing obligations		$	6,544		$	7,069

 

On June 1, 2009, the Company repaid $350 of senior notes bearing an interest rate of 7.25%.  In the first quarter of 2010, $500 of senior notes bearing an interest rate of 8.05% will mature.

 

3.              COMPREHENSIVE INCOME

 

Comprehensive income is as follows:

 

		First Quarter Ended
		May 23, 2009			May 24, 2008
Net earnings		$	431		$	390
Unrealized gain on hedging activities, net of tax(1)		—			3
Amortization of amounts included in net periodic pension expense(2)		—			1
Amortization of unrealized gains and losses on hedging activities, net of tax		1			—
Other		—			1
Comprehensive income		432			395
Comprehensive income (loss) attributable to noncontrolling interests		(4		)	4
Comprehensive income attributable to The Kroger Co.		$	436		$	391

 

(1)		Amount is net of tax of $2 for the first quarter of 2008.
(2)		Amount is net of tax of $1 for the first quarter of 2008.

 

7

 

During 2008, unrealized gains on hedging activities included in other comprehensive income consisted of reclassifications of unrealized gains on cash flow hedges into net earnings.

 

4.              BENEFIT PLANS

 

The following table provides the components of net periodic benefit costs for the Company-sponsored pension plans and other post-retirement benefits for the first quarter of 2009 and 2008.

 

		First Quarter
		Pension Benefits						Other Benefits
		2009			2008			2009			2008
Components of net periodic benefit cost:
Service cost		$	10		$	12		$	3		$	3
Interest cost		54			48			5			6
Expected return on plan assets		(54		)	(55		)	—			—
Amortization of:
Prior service cost		1			1			(2		)	(2		)
Actuarial loss		1			3			(1		)	—
Net periodic benefit cost		$	12		$	9		$	5		$	7

 

The Company contributed $200 to Company-sponsored pension plans in the first quarter of 2009.

 

The Company contributed $35 and $31 to employee 401(k) retirement savings accounts in the first quarter of 2009 and 2008, respectively.

 

The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded, in accordance with SFAS No. 87, Employers’ Accounting for Pensions.

 

5.              INCOME TAXES

 

The effective income tax rate was 36.7% and 36.8% for the first quarter of 2009 and 2008, respectively.  The 2009 and 2008 effective income tax rate differed from the federal statutory rate primarily due to the effect of state income taxes.  There were no material changes in unrecognized tax benefits during the first quarter of 2009.

 

6.              EARNINGS PER COMMON SHARE

 

Net earnings attributable to The Kroger Co. per basic common share equals net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding.  Net earnings attributable to The Kroger Co. per diluted common share equals net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options.  The following table provides a reconciliation of net earnings attributable to The Kroger Co. and shares used in calculating net earnings attributable to The Kroger Co. per basic common share to those used in calculating net earnings attributable to The Kroger Co. per diluted common share:

 

		First Quarter Ended								First Quarter Ended
		May 23, 2009								May 24, 2008
		Earnings (Numerator)			Shares (Denominator)		Per Share Amount			Earnings (Numerator)			Shares (Denominator)		Per Share Amount
Net earnings attributable to The Kroger Co. per basic common share		$	432		648		$	0.67		$	384		657		$	0.58
Dilutive effect of stock options					3								6
Net earnings attributable to The Kroger Co. per diluted common share		$	432		651		$	0.66		$	384		663		$	0.58

 

8

 

The Company had undistributed and distributed earnings to participating securities totaling $3 and $2 in the first quarter of 2009 and 2008, respectively.

 

The Company had options outstanding for approximately 21 and 10 shares during the first quarter of 2009 and 2008, respectively, that were excluded from the computations of earnings per diluted common share because their inclusion would have had an anti-dilutive effect on earnings per share.

 

The share amounts above for the first quarter of 2008 differ from those previously reported due to the adoption of Financial Accounting Standards Board Staff Position (“FSP”) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.  It clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and included in the calculation of basic EPS.  The Company adopted this FSP effective February 1, 2009.

 

7.              RECENTLY ADOPTED ACCOUNTING STANDARDS

 

In December 2007, the FASB issued SFAS 160, which establishes accounting and reporting standards for a parent’s noncontrolling interest in a subsidiary and the accounting for future ownership changes with respect to the subsidiary.  This standard defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary that is not attributable, directly or indirectly, to a parent.  SFAS 160 requires, among other things, that a noncontrolling interest be clearly identified, labeled and presented in the consolidated balance sheet as equity, but separate from the parent’s equity; that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and that if a subsidiary is deconsolidated, the parent measure at fair value any noncontrolling equity investment that the parent retains in the former subsidiary and recognize a gain or loss in net income based on the fair value of the non-controlling equity investment.  The Company adopted SFAS 160 effective February 1, 2009, and applied it retrospectively.  As a result, the Company reclassified noncontrolling interests in amounts of $95 from the mezzanine section of the Consolidated Balance Sheet to equity in the January 31, 2009 Consolidated Balance Sheet.  Certain reclassifications to the Consolidated Statement of Operations have been made to prior period amounts to conform to the presentation of the current period under SFAS 160.  Recorded amounts for prior periods previously presented as Net Earnings, which are now presented as Net Earnings Attributable to The Kroger Co., have not changed as a result of the adoption of SFAS 160.

 

Effective February 1, 2009, the Company adopted FSP No. FAS 157-2, Effective Date of Statement No. 157 (FSP 157-2).  FSP 157-2 deferred the effective date of SFAS No. 157, Fair Value Measurements, for most non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008.  See Note 12 to the Consolidated Financial Statements for further discussion of the adoption of FSP 157-2.

 

Effective February 1, 2009, the Company adopted SFAS No. 141 (Revised 2007), Business Combinations (SFAS 141R), which replaces SFAS No. 141.  SFAS 141R further expands the definitions of a business and the fair value measurement and reporting in a business combination.  All business combinations completed after February 1, 2009, will be accounted for under SFAS 141R.  The Company did not complete any business combinations during the first quarter of fiscal 2009.

 

Effective February 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (SFAS 161).  SFAS 161 requires enhanced disclosures on an entity’s derivative and hedging activities.  The new disclosures required by this standard are included in Note 11 to the Consolidated Financial Statements.

 

Effective February 1, 2009, the Company adopted FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.   It clarifies that share-based payment awards that entitle their holders to receive nonforfeitable dividends before vesting should be considered participating securities and included in the calculation of basic EPS.  See Note 6 to the Consolidated Financial Statements for further discussion of its adoption.

 

9

 

8.              RECENTLY ISSUED ACCOUNTING STANDARDS

 

In December 2008, the FASB issued FSP No. FAS 132(R)-1, Employers’ Disclosure about Postretirement Benefit Plan Assets (FSP 132(R)-1).  FSP 132(R)-1 provides additional guidance on employers’ disclosures about the plan assets of defined benefit pension or other postretirement plans.  FSP 132(R)-1 requires disclosures about how investment allocation decisions are made, the fair value of each major category of plan assets, valuation techniques used to develop fair value measurements of plan assets, the impact of measurements on changes in plan assets when using significant unobservable inputs and significant concentrations of risk in the plan assets.  FSP 132(R)-1 will become effective for the Company’s fiscal year beginning January 31, 2010.  The Company is currently evaluating the effect the adoption of FSP 132(R)-1 will have on its Consolidated Financial Statements.

 

In April 2009, the FASB issued three new FASB Staff Positions all of which impact the accounting and disclosure related to certain financial instruments.  FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased.  It also includes guidance on identifying circumstances that indicate a transaction is not orderly.  FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements.  All three FSPs will become effective for the Company’s second quarter beginning May 24, 2009.  The Company does not expect adoption of these FSPs to have a material effect on its Consolidated Financial Statements.

 

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165).  SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date.  SFAS 165 will become effective for the Company’s second quarter beginning May 24, 2009.  The Company does not expect adoption of SFAS 165 to have a material effect on its Consolidated Financial Statements.

 

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167).  SFAS 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  SFAS 167 will become effective for the Company’s fiscal year beginning January 31, 2010.  The Company is currently evaluating the effect the adoption of SFAS 167 will have on its Consolidated Financial Statements.

 

9.    GUARANTOR SUBSIDIARIES

 

The Company’s outstanding public debt (the “Guaranteed Notes”) is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and certain of its subsidiaries (the “Guarantor Subsidiaries”). At May 23, 2009, a total of approximately $7,186 of Guaranteed Notes were outstanding. The Guarantor Subsidiaries and non-guarantor subsidiaries are direct or indirect subsidiaries of The Kroger Co. Separate financial statements of The Kroger Co. and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable. The Company believes that separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors.

 

The non-guaranteeing subsidiaries, including non-wholly owned entities, represent less than 3% on an individual and aggregate basis of consolidated assets, pre-tax earnings, cash flow, and equity. Therefore, the non-guarantor subsidiaries’ information, including non-wholly owned entities, is not separately presented and recorded amounts are included within the Guarantor Subsidiaries totals in the tables below.

 

There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above. The obligations of each guarantor under its guarantee are limited to the maximum amount permitted under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law (e.g. laws requiring adequate capital to pay dividends) respecting fraudulent conveyance or fraudulent transfer.

 

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The following tables present summarized financial information as of May 23, 2009 and January 31, 2009 and for the first quarter ended May 23, 2009 and May 24, 2008:

 

Condensed Consolidating

Balance Sheets

As of May 23, 2009

 

		The Kroger Co.			Guarantor Subsidiaries			Eliminations			Consolidated
Current assets
Cash and temporary cash investments		$	25		$	613		$	—		$	638
Deposits in-transit		66			591			—			657
Receivables		2,117			649			(1,971		)	795
Net inventories		317			4,494			—			4,811
Prepaid and other current assets		113			225			—			338
Total current assets		2,638			6,572			(1,971		)	7,239
Property, plant and equipment, net		1,786			11,561			—			13,347
Goodwill		5			2,266			—			2,271
Other assets		835			1,596			(1,859		)	572
Investment in and advances to subsidiaries		10,921			—			(10,921		)	—
Total assets		$	16,185		$	21,995		$	(14,751	)	$	23,429
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations		$	941		$	—		$	—		$	941
Trade accounts payable		369			3,644			—			4,013
Other current liabilities		918			6,128			(3,830		)	3,216
Total current liabilities		2,228			9,772			(3,830		)	8,170
Long-term debt including obligations under capital leases and financing obligations
Face value long-term debt including obligations under capital leases and financing obligations		6,932			—			—			6,932
Adjustment to reflect fair value interest rate hedges		40			—			—			40
Long-term debt including obligations under capital leases and financing obligations		6,972			—			—			6,972
Other long-term liabilities		1,340			1,302			—			2,642
Total liabilities		10,540			11,074			(3,830		)	17,784
Shareowners’ Equity		5,645			10,921			(10,921		)	5,645
Total liabilities and shareowners’ equity		$	16,185		$	21,995		$	(14,751	)	$	23,429

 

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