Kroger Reviews Lease Costs

Kroger, in its announcement Monday, said that the company management and its audit committee concluded that Kroger should restate its previously issued consolidated financial statements for fiscal years 2001, 2002 and 2003 as a result of the change in accounting. The effect of the accounting change on its 2001 accumulated earnings would be a reduction of less than $25 million, and annual net earnings for any year affected by the change currently are estimated to be reduced by less than a penny per share, the company noted.

"These adjustments will have no effect on historical or future cash flows or the timing of payments under the related leases," Kroger said. It noted that many retailers and restaurant companies have reviewed their previous interpretations of the lease accounting rules and have subsequently announced that they will be correcting their financial results. Kroger is one of the largest of these, with 2,532 supermarkets and other stores in 32 states 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.

Among the many companies besides Kroger that have acted upon the SEC letter in recent weeks is Boulder, CO-based Wild Oats. The grocery chain said that its recently reported financial results should be considered preliminary because "they do not contain anticipated adjustments relating to the company's accounting for leases" in connection with the SEC letter. Wild Oats announced in an SEC filing that the company needed to restate its financial statements for previous periods, but it said that the adjustments made will be "all non-cash and will not have an impact on the company's cash position, net sales or same-store sales."