AUDIT COMMITTEE CHARTER

I.

 

Purpose

 

The primary function of the Audit Committee is to represent and assist the Board of Directors in fulfilling its oversight responsibilities regarding The Kroger Co.’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 auditor’s qualifications and independence; the performance of the Company’s internal audit function and independent auditors; and the preparation of the report that SEC rules require be included in the Company’s annual proxy statement.

II.

 

COMPOSITION

 

The Audit Committee will be composed of three or more directors, as determined by the Board of Directors, each of whom must be “independent” directors (as defined by the NYSE listing requirements and SEC Rule 10A-3). The Corporate Governance Committee of the Board will establish committee membership and will be empowered to remove Audit Committee members at any time. Audit Committee members may not serve on the audit committee of more than three public companies, unless approved in advance by the entire Board of Directors.

All members of the Audit Committee must be “financially literate” as determined by the Board of Directors in its business judgment. At least one member of the Audit Committee must be an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K.

All members of the Audit Committee must comply with all requirements of the NYSE, SEC and all other applicable regulatory authorities.

III.

 

MEETINGS

 

The Audit Committee will meet at least quarterly, if not more frequently as circumstances dictate, and will report to the full Board after each meeting. To foster open communications, the Audit Committee will meet separately and at least quarterly with management, including without limitation the Chief Financial Officer and the General Counsel, the independent auditors and the Vice President of Auditing The Audit Committee will meet with its independent counsel as necessary.

IV.  

 

RESPONSIBILITIES AND DUTIES

 

The Audit Committee will:

1.

 

Meet to review and discuss with management and the independent auditors the Company’s annual audited financial statements, including the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and any certification, report or opinion rendered by the Company’s independent auditors or the Company’s Principal Executive or

 

 

Financial Officers in connection with those financial statements prior to filing with the SEC, and recommend to the Board whether the audited financial statements should be included in the annual report on Form 10-K.

 

2.

 

Meet to review and discuss with management and the independent auditors the quarterly financial statements, including the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and any certification, report or opinion rendered by the Company’s independent auditors or the Company’s Principal Executive or Financial Officers in connection with those financial statements prior to filing with the SEC.

 

3.

 

Review earnings press releases, and discuss the Company’s practices with respect to earnings press releases, and financial information and earnings guidance provided to analysts and rating agencies.

 

4.

 

Review material changes in accounting policies, and financial reporting practices and material developments in financial reporting standards brought to the attention of the Audit Committee by the Company’s management or independent auditors.

 

5.

 

Review material questions of choice with respect to the appropriate accounting principles and practices to be used in the preparation of the Company’s financial statements and brought to the attention of the Audit Committee by the Company’s management or independent auditors.

 

6.

 

Review the performance of the independent auditors annually, and select (subject to ratification by the Company’s shareholders); evaluate; compensate; oversee; and, where appropriate replace, the independent auditors, which will report directly to the Audit Committee. The Audit Committee will oversee compliance by the independent auditors with the applicable requirements respecting the rotation of audit partners.

 

7.

 

Consider the independence of the independent auditors at least annually, and review an annual written statement, prepared by the independent auditors, delineating all relationships between the independent auditors and the Company, consistent with the Independence Standards Board Standard No. 1, regarding relationships and services, which may affect the independence of the independent auditors.

 

8.

 

Obtain and review an annual written report, prepared by the independent auditors, describing: their internal quality control procedures and any material issues raised by the most recent internal quality control review or peer review, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.

 

9.

 

Approve in advance all audit and non-audit services to be performed by the independent auditors.

 

10.

 

In consultation with management, the independent auditors and the internal auditors, review the reliability and integrity of the Company’s financial accounting policies, financial reporting processes, and disclosure and disclosure control practices and procedures.

 

11.

 

Discuss with management the major areas of risk exposure and management’s efforts to monitor and control such exposure, and discuss policies with respect to risk assessment and risk management.

 

12.

 

Review any significant disagreement among management and the independent auditors or the internal auditing department in connection with the preparation of the financial statements.

 

13.

 

Review annually the audit plans of both the internal auditor and the independent auditors.

 

14.

 

Review periodically with the independent and internal auditors any audit problems or difficulties and management’s responses.

 

15.

 

Review with the Company’s counsel any legal matter, including environmental matters, that could have a significant effect on the Company.

 

16.

 

Receive reports from the independent auditors and management regarding, and review and discuss the adequacy and effectiveness of, the Company’s internal controls, including any significant deficiencies in internal controls and significant changes in internal controls brought to the attention of the Audit Committee by the independent auditors or management.

 

17.

 

Establish and oversee procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting and auditing matters.

 

18.

 

Establish and oversee procedures for compliance with and reporting violations of The Kroger Co. Policy on Business Ethics.

 

19.

 

Set clear hiring policies for employees or former employees of the independent auditors.

 

20.

 

Review and assess, annually or more frequently as circumstances dictate, the adequacy of this Charter and recommend changes to the Corporate Governance Committee as appropriate.

 

21.

 

Annually evaluate the Audit Committee’s performance and discuss the evaluation with the full Board of Directors.

 

V.

 

OUTSIDE ADVISORS

 

The Audit Committee may retain at the Company’s expense independent counsel, accountants or other advisors for such purposes as the Audit Committee, in its sole discretion, determines to be appropriate, and will receive appropriate funding from the Company, as determined by the Audit Committee, for the payment of compensation to any such advisors and for the payment of ordinary administrative expenses that are necessary or appropriate in carrying out the Committee’s duties.