01—Abstract
Summary
Summary of the 10-K/A filed April 18, 2005. Cited figures are marked; the original filing is the authoritative source.
This Amendment No. 1 to Form 10-K for The Kroger Co. (fiscal year ended January 29, 2005) was filed solely to insert a conformed signature on PricewaterhouseCoopers LLP's audit report in Item 8, which was inadvertently omitted from the original filing.
The amended filing contains the full financial statements and notes. Net loss for fiscal 2004 was $(100) million, or $(0.14) per diluted share, compared with net earnings of $312 milliona in fiscal 2003 and $1,202 million in fiscal 2002. Sales rose to $56,434 million from $53,791 million in 2003, while operating profit fell to $847 million from $1,370 million, driven largely by a $900 million non-cash goodwill impairment charge related to the Ralphs and Food 4 Less divisions.
The auditor's report identifies a material weakness in internal control over financial reporting as of January 29, 2005: the company did not maintain effective control over the determination of deferred income tax balances related to a business combination. The deficiency resulted in a year-end audit adjustment affecting deferred income tax liabilities, goodwill and the goodwill impairment charge. Management's assessment and the auditor's opinion both conclude that internal control over financial reporting was not effective as of that date.
Balance sheet figures show total assets of $20,491 millionb, long-term debt of $7,900 million including obligations under capital leases and financing obligations, and total shareowners' equity of $3,540 million, down from $3,985 million a year earlier. Net cash provided by operating activities was $2,330 million in 2004. The filing also notes that Standard & Poor's placed the company's ratings on CreditWatch with negative implications in March 2005, and it discloses ongoing litigation, including a federal investigation of Ralphs' hiring practices during the 2003-2004 labor dispute and a lawsuit under the Sherman Act.
02—Key points
Key Highlights
- Fiscal 2004 net loss of $(100) million, or $(0.14) per diluted share, versus net earnings of $312 million in fiscal 2003, after a $900 million pre-tax, non-cash goodwill impairment charge tied to the Ralphs and Food 4 Less divisions.
- Sales increased to $56,434 million in fiscal 2004 from $53,791 million in fiscal 2003, while operating profit declined to $847 million from $1,370 million.
- Management and the auditor concluded that internal control over financial reporting was not effective as of January 29, 2005, due to a material weakness in determining deferred income tax balances related to a business combination.
- Long-term debt including capital leases and financing obligations was $7,900 million at January 29, 2005, versus $8,116 million a year earlier; total shareowners' equity fell to $3,540 million from $3,985 million.
- Net cash provided by operating activities was $2,330 million in fiscal 2004, compared with $2,215 million in fiscal 2003.
- Standard & Poor's placed Kroger's ratings on CreditWatch with negative implications on March 16, 2005, indicating any downgrade would be limited to one level and not below investment grade.
- The company faces a federal investigation of Ralphs' hiring practices during the 2003-2004 labor dispute and a Sherman Act lawsuit over Mutual Strike Assistance Agreement payments of approximately $147 million to other retailers; management does not expect a material effect from the Sherman Act case.
03—Questions
Frequently Asked Questions
Why did Kroger report a net loss in fiscal 2004?
The net loss of $(100) million was driven primarily by a $900 million pre-tax, non-cash goodwill impairment charge at the Ralphs and Food 4 Less divisions. The filing states that these divisions' operating performance suffered from the intense competitive environment during the 2003 southern California labor dispute and the investments in personnel, training, capital and price reductions needed to recover business.
What is the material weakness the auditor identified?
The auditor identified a material weakness: the company did not maintain effective controls over the determination of deferred income tax balances related to a business combination. This deficiency resulted in a year-end audit adjustment affecting deferred income tax liabilities, goodwill and the goodwill impairment charge. As a result, the auditor concluded that the company had not maintained effective internal control over financial reporting as of January 29, 2005.
Why was this amendment filed?
Amendment No. 1 was filed solely to insert a conformed signature to the Report of Independent Registered Public Accounting Firm in Item 8, which had inadvertently been omitted from the original filing.
How did the company's debt and equity change during fiscal 2004?
Long-term debt including obligations under capital leases and financing obligations was $7,900 million at January 29, 2005, down from $8,116 million at January 31, 2004. Total shareowners' equity decreased to $3,540 million from $3,985 million, reflecting the net loss, treasury stock purchases of $294 million, and a $78 million other comprehensive loss, partly offset by stock issuances.
What regulatory and legal risks did Kroger disclose?
The filing discloses a U.S. Attorney's investigation of Ralphs' hiring practices during the October 2003 to February 2004 labor dispute, in which a grand jury has convened, and the company states it cannot estimate potential penalties. It also discloses a California Attorney General lawsuit over the Mutual Strike Assistance Agreement, under which the company paid approximately $147 million to other retailers, and a DEA-referred investigation of King Soopers pharmacies. The company does not expect the lawsuit or the DEA matter to have a material effect on its financial condition.
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