SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934 for the quarterly period ended
October 7, 1995 or
- --- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
______________ to___________
Commission file number 1-303
THE KROGER CO.
An Ohio Corporation I.R.S. Employer Identification
No. 31-0345740
1014 Vine Street, Cincinnati, OH 45202
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 762-4000
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 .
-------- -----------
There were 123,617,733 shares of Common Stock ($1 par value)
outstanding as of October 20, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited information for the quarters ended October 7, 1995
and October 8, 1994 includes the results of operations of The
Kroger Co. for the 16 and 40 week periods ended October 7, 1995 and
October 8, 1994, and of Dillon Companies, Inc. for the 13 and 39
week periods ended September 30, 1995 and October 1, 1994. In the
opinion of management, the information reflects all adjustments
(consisting only of normal recurring adjustments) which 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.
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
3rd Quarter Ended 3 Quarters Ended
---------------------- ------------------------
October 7, October 8, October 7, October 8,
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $6,959,216 $6,650,256 $18,077,061 $17,373,289
---------- ---------- ----------- -----------
Costs and expenses:
Merchandise costs, including warehousing and
transportation. . . . . . . . . . . . . . . . . . . . 5,284,006 5,052,997 13,681,241 13,187,111
Operating, general and administrative. . . . . . . . . 1,303,774 1,251,569 3,348,224 3,214,447
Rent . . . . . . . . . . . . . . . . . . . . . . . . . 86,561 90,256 227,711 233,078
Depreciation and amortization. . . . . . . . . . . . . 89,424 82,574 231,670 209,268
Interest expense, net. . . . . . . . . . . . . . . . . 93,430 100,722 243,393 251,762
Total. . . . . . . . . . . . . . . . . . . . . . . 6,857,195 6,578,118 17,732,239 17,095,666
---------- ---------- ----------- -----------
Earnings before income tax expense and
extraordinary loss . . . . . . . . . . . . . . . . . . 102,021 72,138 344,822 277,623
Tax expense . . . . . . . . . . . . . . . . . . . . . . 39,344 20,941 135,205 100,758
---------- ---------- ----------- -----------
Earnings before extraordinary loss. . . . . . . . . . . 62,677 51,197 209,617 176,865
Extraordinary loss (net of income tax credit) . . . . . (1,516) (15,175) (12,303) (26,152)
---------- ---------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 61,161 $ 36,022 $ 197,314 $ 150,713
========== ========== =========== ===========
Primary earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .52 $ .45 $ 1.78 $ 1.56
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.13) (.10) (.23)
----- ----- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . $ .51 $ .32 $ 1.68 $ 1.33
===== ===== ====== ======
Average number of common shares used in primary per
share calculation. . . . . . . . . . . . . . . . . . . 121,617 114,194 117,669 113,126
Fully diluted earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .49 $ .43 $ 1.66 $ 1.45
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.12) (.10) (.20)
----- ----- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . $ .48 $ .31 $ 1.56 $ 1.25
===== ===== ====== ======
Average number of common shares used in fully diluted
per share calculations . . . . . . . . . . . . . . . . 129,019 131,711 128,441 130,921
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)
<CAPTION>
October 7, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary cash investments . . . . . . . . . . $ 43,880 $ 27,223
Receivables . . . . . . . . . . . . . . . . . . . . . . 266,127 270,811
Inventories:
FIFO cost . . . . . . . . . . . . . . . . . . . . . . 1,957,823 2,053,207
Less LIFO reserve . . . . . . . . . . . . . . . . . . (451,560) (438,184)
---------- ----------
1,506,263 1,615,023
Property held for sale. . . . . . . . . . . . . . . . . 49,549 39,631
Prepaid and other current assets. . . . . . . . . . . . 209,988 199,437
---------- ----------
Total current assets. . . . . . . . . . . . . . . . 2,075,807 2,152,125
Property, plant and equipment, net. . . . . . . . . . . . 2,482,956 2,252,663
Investments and other assets. . . . . . . . . . . . . . . 281,257 302,886
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $4,840,020 $4,707,674
========== ==========
LIABILITIES
Current liabilities
Current portion of long-term debt . . . . . . . . . . . $ 14,521 $ 7,926
Current portion of obligations under
capital leases. . . . . . . . . . . . . . . . . . . . 8,878 8,467
Accounts payable. . . . . . . . . . . . . . . . . . . . 1,441,660 1,425,612
Other current liabilities . . . . . . . . . . . . . . . 1,013,858 952,963
---------- ----------
Total current liabilities . . . . . . . . . . . . . 2,478,917 2,394,968
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 3,331,930 3,726,343
Obligations under capital leases. . . . . . . . . . . . . 173,487 162,851
Deferred income taxes . . . . . . . . . . . . . . . . . . 157,830 172,690
Other long-term liabilities . . . . . . . . . . . . . . . 427,149 404,506
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 6,569,313 6,861,358
---------- ----------
SHAREOWNERS' DEFICIT
Common capital stock, par $1, at stated value
Authorized: 350,000,000 shares
Issued: 1995 - 133,141,753 shares
1994 - 120,573,148 shares. . . . . . . . . . . 565,695 338,568
Accumulated deficit . . . . . . . . . . . . . . . . . . . (2,051,422) (2,248,736)
Common stock in treasury, at cost
1995 - 9,573,979 shares
1994 - 9,576,231 shares . . . . . . . . . . . (243,566) (243,516)
---------- ----------
Total Shareowners' Deficit (1,729,293) (2,153,684)
---------- ----------
Total Liabilities and Shareowners' Deficit. . . . . . $4,840,020 $4,707,674
========== ==========
</TABLE>
- ----------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
(unaudited)
<CAPTION>
3 Quarters Ended
------------------------------
October 7, October 8,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . $ 197,314 $ 150,713
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . 12,303 26,152
Depreciation and amortization. . . . . . . . . . . . . . . . 231,670 209,268
Amortization of deferred financing costs . . . . . . . . . . 9,803 11,373
Gain on sale of investment . . . . . . . . . . . . . . . . . (25,099)
Contribution of stock. . . . . . . . . . . . . . . . . . . . 4,364
LIFO charge. . . . . . . . . . . . . . . . . . . . . . . . . 16,500 15,500
Net increase in cash from changes in operating assets and
liabilities, net of effects from sale of subsidiary,
detail below . . . . . . . . . . . . . . . . . . . . . . . 157,134 154,830
Other changes, net . . . . . . . . . . . . . . . . . . . . . (4,128) 1,361
-------- ----------
Net cash provided by operating activities . . . . . . . . 620,596 548,462
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (462,095) (372,944)
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . 48,489 9,907
Increase in property held for sale. . . . . . . . . . . . . . . (8,861) (6,131)
(Increase) decrease in other investments . . . . . . . . . . . 7,836 (8,952)
Proceeds from sale of investment. . . . . . . . . . . . . . . . 50,469
-------- ----------
Net cash used by investing activities . . . . . . . . . . (414,631) (327,651)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt prepayment costs . . . . . . . . . . . . . . . . . . . . . (16,597) (14,676)
Financing charges incurred. . . . . . . . . . . . . . . . . . . (7,379) (14,431)
Principal payments under capital lease obligations. . . . . . . (6,619) (6,145)
Proceeds from issuance of long-term debt. . . . . . . . . . . . 76,698 886,824
Reductions in long-term debt. . . . . . . . . . . . . . . . . . (264,673) (1,172,848)
Proceeds from sale of treasury stock. . . . . . . . . . . . . . 151 30,528
Proceeds from issuance of capital stock . . . . . . . . . . . . 29,111 22,652
-------- ----------
Net cash used by financing activities . . . . . . . . . . (189,308) (268,096)
-------- ----------
Net increase (decrease) in cash and temporary cash investments. . 16,657 (47,285)
Cash and temporary cash investments:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 27,223 121,253
-------- ----------
End of quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 43,880 $ 73,968
======== ==========
INCREASE (DECREASE) IN CASH FROM CHANGES IN OPERATING ASSETS AND LIABILITIES:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,453 $ 22,699
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 3,732 30,847
Prepaid and other current assets. . . . . . . . . . . . . . . (11,816) (12,364)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 18,907 (4,454)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . (14,860) (18,859)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 73,718 136,961
-------- ----------
$157,134 $ 154,830
======== ==========
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
3 Quarters Ended
--------------------------
October 7, October 8,
1995 1994
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest (net of amount capitalized) $238,792 $230,611
Income taxes 151,114 112,484
</TABLE>
- -----------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. INCOME TAXES
------------
The effective income tax rate differs from the expected
statutory rate primarily due to the effect of certain state
taxes. Additionally, in the third quarter ended October 8,
1994, tax expense includes a $5.9 million credit (4 cents per
fully-diluted share) from the donation of a $4.3 million book
value asset to The Kroger Co. Foundation that had a market
value of $19.6 million.
2. EXTRAORDINARY LOSS
------------------
The extraordinary loss for the three quarters ended October 7,
1995 and October 8, 1994 of $12.3 million and $26.2 million,
respectively (net of income taxes of $7.9 million and $16.7
million, respectively) and for the third quarter ended October
7, 1995 and October 8, 1994 of $1.5 million and $15.2 million
(net of income taxes of $1.0 million and $9.7 million,
respectively) is related to the early retirement of long-term
debt. During the third quarter of 1995 the Company
repurchased $24.9 million of its senior subordinated debt
issues. Year-to-date 1995 purchases total $226.3 million.
3. EARNINGS PER COMMON SHARE
-------------------------
Primary earnings per common share equals net earnings divided
by the weighted average number of common shares outstanding,
after giving effect to dilutive stock options. Fully diluted
earnings per common share for the third quarter and three
quarters ended October 7, 1995 are computed by adjusting both
net earnings and shares outstanding as if the September 1995
conversion of its Convertible Junior Subordinated Notes
occurred on the first day of the period. Fully diluted
earnings per common share for the third quarter and three
quarters ended October 8, 1994 are computed by adjusting both
net earnings and shares outstanding for the effect of the
assumed conversion of the Convertible Junior Subordinated
Debentures issued in March 1991 and the Convertible Junior
Subordinated Notes issued in December 1992. The Convertible
Junior Subordinated Debentures were not included for the third
quarter and three quarters ended October 7, 1995 because they
were redeemed on October 24, 1994.
4. LONG-TERM DEBT
--------------
During the third quarter of 1995 the Company issued a
redemption notice to the holders of the remaining outstanding
balance of its $200 million of 6-3/8% Convertible Junior
Subordinated Notes due 1999. All of the holders elected to
convert the Notes into approximately 10.7 million shares of
common stock on or before the redemption date of September 5,
1995. Conversion of the Notes to equity reduces the Company's
annual interest expense by approximately $13 million.
During 1995 the Company issued $6.2 million General Term
Notes(R), Series B, with initial interest rates, either fixed
or variable, ranging from 9% to 9-1/4% and maturities ranging
from 2004 through 2005. The Company also issued 9.27% First
Mortgage Bonds in the amount of $35.6 million due 2010 and
$14.4 million of 9.0% mortgages due 2010.
(R) Registered Service mark of J. W. Korth & Company
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Total sales for the third quarter of 1995 increased 4.6% over third
quarter 1994 to a new third quarter record of $6.96 billion. Food
stores sales increased 5.0% over the 1994 third quarter. Sales are
being positively affected by the Company's accelerated store
construction. Square footage increased 4.3% over the third quarter
of 1994. Sales in identical food stores, units that have been in
operation for one full year and have not been expanded, increased
1.4% versus a 2.3% increase in 1994. Identical store sales were
adversely affected by new competitive store openings as well as by
the Company's new stores. The Company's capital expenditure
emphasis is more heavily concentrated in existing markets with
growth potential which causes sales from existing stores to be
shifted to new stores within proximity of the existing stores.
Year-to-date identical sales were up 1.3%. The Company estimates
that inflation affected sales by approximately 1%.
A review of sales trends by lines of business includes:
<TABLE>
<CAPTION>
(in thousands of dollars)
3rd Quarter
% of 1995 ----------------------
Lines of Business Sales 1995 1994 Change
--------------------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Food Stores ........ 94.0% $6,540,486 $6,229,127 +5.0%
Convenience Stores .. 3.3% 232,890 246,936 (5.7%)
Other sales ........ 2.7% 185,840 174,193 +6.7%
--------- ---------- ---------- ------
Total sales ........ 100.0% $6,959,216 $6,650,256 +4.6%
<CAPTION>
(in thousands of dollars)
3 Quarters Year-to-date
% of 1995 ------------------------
Lines of Business Sales 1995 1994 Change
---------------------- --------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Food Stores ........ 93.9% $16,975,151 $16,204,547 +4.8%
Convenience Stores .. 3.5% 640,294 672,699 (4.8%)
Other sales ........ 2.6% 461,616 496,043 (6.9%)
--------- ----------- ----------- ------
Total sales ........ 100.0% $18,077,061 $17,373,289 +4.1%
</TABLE>
The decrease in total convenience stores sales is due to the sale
in January 1995 of Time Saver Stores, Inc., which operated 116
convenience stores. Adjusting 1994 third quarter sales to exclude
Time Saver's sales would result in a 6.2% increase in convenience
stores sales in the third quarter of 1995 and an 8.4% increase
year-to-date. Convenience stores identical grocery sales increased
3.5% and identical gasoline sales decreased .3%. The decrease in
identical gasoline sales was a product of a .7% increase in gallons
sold combined with a 1.0% decrease in the average retail price per
gallon.
Other sales primarily consists of outside sales by the Company's
manufacturing divisions. The 6.7% increase in other sales for the
third quarter of 1995 over the third quarter of 1994 reflects the
increased level of outside sales of manufactured product. Through
the first quarter of 1994, sales of general merchandise to Hook-
SupeRx, Inc. (HSI) were also included in other sales. Purchases
were discontinued by HSI in the first quarter 1994. Adjusting
third quarter 1994 year-to-date other sales to eliminate the HSI
sales would produce a 3.1% increase in other sales.
Total sales increased 5.1% for the quarter and 4.8% year-to-date
after adjusting for the other sales to HSI and the sale of Time
Saver Stores, Inc.
As the Company's storing program progresses, the impact on
identical sales from the shifting of sales from existing stores to
new stores is expected to continue. Total sales, however, are
expected to benefit from the additional new stores or remodels that
are planned for the remainder of the year. Competitive pressures
in some markets also will continue to affect sales. The Company's
geographic diversity, however, is expected to help limit the
competitive impact on consolidated sales.
EBITD
The Company's Credit Agreement and the indentures underlying
approximately $1.3 billion of publicly issued debt contain various
restrictive covenants, many of which are based on earnings before
interest, taxes, depreciation, LIFO charge, unusual and
extraordinary items ("EBITD"). All such covenants are based,
among other things, upon generally accepted accounting principles
("GAAP") as applied on a date prior to January 3, 1993. The
ability to generate EBITD at levels sufficient to satisfy the
requirements of these agreements is a key measure of the Company's
financial strength. The presentation of EBITD is not intended to
be an alternative to any GAAP measure of performance but rather to
facilitate an understanding of the Company's performance compared
to its debt covenants. At October 7, 1995 the Company was in
compliance with all covenants of its Credit Agreement. The Company
believes it has adequate coverage of its debt covenants to continue
to respond effectively to competitive conditions.
During the third quarter 1995, EBITD, which does not include the
effect of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", increased 8.8% to $299.0 million from $274.8 million.
Year-to-date 1995 EBITD increased 9.6% to $847.9 million from
$773.5 million. The increase in EBITD was the result of many
factors, including the increase in total sales, an improvement in
gross profit rates, and a decline in operating, general and
administrative expenses as a percentage of sales.
MERCHANDISE COSTS
Merchandise costs, including warehousing and transportation expense
and LIFO charges, for the third quarter 1995 were favorably
affected by the Company's advances in consolidated warehousing and
distribution, improvements in coordinated purchasing, and increased
private label sales. Warehousing and distribution costs as a
percent of sales decreased 5 basis points from the 3rd quarter of
1994. The Company continues to invest capital in technology and
logistics with the goal of reducing the costs of operations.
<TABLE>
<CAPTION>
3 Quarters
3rd Quarter Year-to-date
--------------- ---------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Merchandise Costs - LIFO 75.93% 75.98% 75.68% 75.90%
LIFO Charge .14% .13% .09% .08%
------ ------ ------ ------
Merchandise Costs - FIFO 75.79% 75.85% 75.59% 75.82%
</TABLE>
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses in the third quarter
1995 decreased to 18.73% of sales from 18.82% last year. Year-to-
date operating, general and administrative expenses in 1995 were
18.52% compared to 18.50% in 1994.
Sales growth has helped to control operating, general and
administrative expenses as a percentage of sales. Decreases in
life, health and accident insurance costs as well as a reduction in
utility expenses have also contributed to the rate decline.
Additionally, the Company is negotiating longer term labor
agreements which are helping to control total employee costs.
Operating, general and administrative expenses are negatively
affected by the Company's capital expansion program as costs are
incurred to open and expand new stores.
NET INTEREST EXPENSE
Net interest expense declined to $93.4 million in the third quarter
1995 from $100.7 million in last year's third quarter. Year-to-
date net interest expense totalled $243.4 million as compared to
$251.8 million in 1994. The Company expects 1995 net interest
expense to total approximately $315-$320 million. The conversion
of the Company's remaining $200 million of 6-3/8% Convertible
Junior Subordinated Notes that were due in 1999 into 10.7 million
shares of common stock will save approximately $13 million of
interest expense on an annual basis.
The Company has purchased a portion of the debt issued by the
lenders of certain of its structured financings, which cannot be
retired early, in an effort to effectively further reduce the
Company's interest expense. Excluding the debt incurred to make
these purchases, which are classified as investments, and
reflecting the conversion of the Convertible Junior Subordinated
Notes to stock, the Company's long-term debt at the end of the
third quarter was $3.47 billion, down from $3.91 billion at the end
of the 1994 third quarter. Net operating working capital declined
to $6.2 million, a decrease of $193.5 million as compared to the
third quarter 1994.
NET EARNINGS
The Company's net earnings in the third quarter 1995 were $61.2
million or $.48 per share on a fully diluted basis compared to net
earnings in the third quarter 1994 of $36.0 million or $.31 per
share. Net earnings in 1995 were negatively affected by an
extraordinary loss of $1.5 million or $.01 per share compared to an
extraordinary loss of $15.2 million or $.12 per share in 1994.
Year-to-date net earnings in 1995 were $197.3 million or $1.56 per
share on a fully-diluted basis compared to net earnings in 1994 of
$150.7 million or $1.25 per share. 1995 year-to-date net earnings
included a $12.3 million extraordinary loss compared to a $26.2
million extraordinary loss in 1994. The extraordinary loss in both
years resulted from the early retirement of the Company's high-cost
debt. The Company expects to incur an extraordinary loss in each
quarter of 1995 as it continues to retire high-cost debt.
Third quarter earnings before the extraordinary loss totalled $62.7
million in 1995 compared to $51.2 million in 1994. Year-to-date
earnings before the extraordinary loss totalled $209.6 million in
1995 compared to $176.9 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter 1995 the Company purchased $24.9 million
of its various senior subordinated debt issues. Through three
quarters of 1995 the Company has purchased $226.3 million of these
issues. Additionally, in the third quarter the holders of the
remaining $200 million of the Company's 6-3/8% Convertible Junior
Subordinated Notes elected to convert the Notes into common stock
upon receipt of the Company's redemption notice.
At the end of the third quarter 1995 the Company had $605.3 million
available under its Credit Agreement to meet short-term liquidity
needs.
Capital expenditures for the third quarter 1995 totaled $217.7
million compared to $190.7 million for the third quarter 1994.
Capital expenditures for the year are expected to total
approximately $625 million compared to $534.1 million during all of
1994. This will enable the Company to open or expand approximately
90 stores and remodel 65 additional stores. Capital expenditures
also will be made in the areas of logistics and technology
projects. Through three quarters of 1995, the Company has opened,
expanded or acquired 48 new stores and completed 49 remodels.
During the first three quarters of 1995 the Company issued $6.2
million of senior subordinated notes with interest rates ranging
from 9% to 9-1/4% and maturities ranging from 2004 through 2005.
The Company also issued 9.27% First Mortgage Bonds in the amount of
$35.6 million due in the year 2010 and $14.4 million of 9.0%
mortgages due in 2010. The net proceeds of the offerings were
initially used to repay amounts outstanding under the Credit
Agreement and thereafter the Company used amounts available
thereunder to purchase, on the open market, portions of its higher-
cost long-term debt.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company generated $620.6 million of cash from operating
activities through the first three quarters of 1995 compared to
$548.5 million during the same period last year. The increase is
due in part to increased operating profits before depreciation of
$75.9 million over 1994. Changes in operating assets and
liabilities also provided $157.1 million of cash in 1995 compared
to $154.8 million in 1994.
Investing activities used $414.6 million in cash during the first
three quarters of 1995 compared to $327.7 million last year. The
net increase in the use of cash is due to $89.2 million of
additional capital expenditures combined with a $11.9 million
decrease in cash proceeds from the sale of assets and investments.
These additional uses of cash were offset by a net decrease of
$14.1 million in the use of cash to increase property held for sale
and other investments.
Financing activities used $189.3 million in cash compared to $268.1
million in the first three quarters of last year. The decrease is
due to a decline of $98.0 million in the use of cash for the net
reduction in long-term debt and a decrease of $5.1 million to pay
for debt prepayment and new financing charges. This was offset by
a $23.9 million reduction in cash proceeds from the sale of stock.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3.1 - Amended Articles of Incorporation and
-----------
Regulations of the Company are hereby incorporated by
reference to Exhibits 4.1 and 4.2 of the Company's
Registration Statement on Form S-3 as filed with the
Securities and Exchange Commission on January 28, 1993, and
bearing Registration No. 33-57552.
Exhibit 4.1 - Instruments defining the rights of holders of
-----------
long-term debt of the Company and its subsidiaries are not
filed as Exhibits because the amount of debt under each
instrument is less than 10% of the consolidated assets of the
Company. The Company undertakes to file these instruments
with the Commission upon request.
Exhibit 11.1 - Statement of Computation of Consolidated
------------
Earnings (Loss) Per Share.
Exhibit 27.1 - Financial Data Schedule.
------------
Exhibit 99.1 - Additional Exhibits - Statement of Computation
------------
of Ratio of Earnings to Fixed Charges.
(b) The Company disclosed and filed its second quarter 1995
earnings release in its Current Report on Form 8-K dated July
18, 1995.
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE KROGER CO.
Dated: November 1, 1995 (Joseph A. Pichler)
Joseph A. Pichler
Chairman of the Board and
Chief Executive Officer
Dated: November 1, 1995 (J. Michael Schlotman)
J. Michael Schlotman
Vice President and
Corporate Controller
<PAGE>
Exhibit Index
-------------
Exhibit
- -------
Exhibit 3.1 - Amended Articles of Incorporation and Regulations of
the Company are hereby incorporated by reference to Exhibits 4.1
and 4.2 of the Company's Registration Statement on Form S-3 as
filed with the Securities and Exchange Commission on January 28,
1993, and bearing Registration No. 33-57552.
Exhibit 4.1 - Instruments defining the rights of holders of long-
term debt of the Company and its subsidiaries are not filed as
Exhibits because the amount of debt under each instrument is less
than 10% of the consolidated assets of the Company. The Company
undertakes to file these instruments with the Commission upon
request.
Exhibit 11.1 - Statement of Computation of Consolidated Earnings
(Loss) Per Share.
Exhibit 27.1 - Financial Data Schedule.
Exhibit 99.1 - Additional Exhibits - Statement of Computation of
Ratio of Earnings to Fixed Charges.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE QUARTERS ENDED OCTOBER 7,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> OCT-07-1995
<CASH> 43,880
<SECURITIES> 0
<RECEIVABLES> 266,127
<ALLOWANCES> 0
<INVENTORY> 1,957,823
<CURRENT-ASSETS> 2,075,807
<PP&E> 4,937,509
<DEPRECIATION> 2,454,554
<TOTAL-ASSETS> 4,840,020
<CURRENT-LIABILITIES> 2,478,917
<BONDS> 3,528,816
<COMMON> 565,695
0
0
<OTHER-SE> (2,051,422)
<TOTAL-LIABILITY-AND-EQUITY> 4,840,020
<SALES> 18,077,061
<TOTAL-REVENUES> 18,077,061
<CGS> 13,681,241
<TOTAL-COSTS> 13,681,241
<OTHER-EXPENSES> 3,807,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,393
<INCOME-PRETAX> 344,822
<INCOME-TAX> 135,205
<INCOME-CONTINUING> 209,617
<DISCONTINUED> 0
<EXTRAORDINARY> (12,303)
<CHANGES> 0
<NET-INCOME> 197,314
<EPS-PRIMARY> $1.68
<EPS-DILUTED> $1.56
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
COMPUTATION OF CONSOLIDATED EARNINGS (LOSS) PER SHARE
(in thousands, except per share amounts)
(unaudited)
3rd Quarter Ended 3 Quarters Ended
----------------------- -----------------------
October 7, October 8, October 7, October 8,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings before extraordinary loss . . . . . . . . $ 62,677 $ 51,197 $ 209,617 $ 176,865
Extraordinary loss . . . . . . . . . . . . . . . . (1,516) (15,175) (12,303) (26,152)
---------- --------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 61,161 $ 36,022 $ 197,314 $ 150,713
========== ========= ========== ==========
PRIMARY (1)
- -----------
Weighted average common and dilutive
common equivalent shares:
Common stock outstanding . . . . . . . . . . . 116,334 110,374 113,312 109,491
Stock options. . . . . . . . . . . . . . . . . 5,283 3,820 4,357 3,635
---------- --------- --------- --------
121,617 114,194 117,669 113,126
========== ========= ========= ========
Primary earnings from continuing
operations per share . . . . . . . . . . . . . . $ .52 $ .45 $ 1.78 $ 1.56
Primary results of extraordinary loss per share . . (.01) (.13) (.10) (.23)
---------- --------- --------- ----------
Primary net earnings per share. . . . . . . . . . . $ .51 $ .32 $ 1.68 $ 1.33
========== ========= ========= ==========
FULLY DILUTED <F1>
Weighted average common shares
and all other dilutive securities:
Common stock outstanding . . . . . . . . . . . 123,020 110,374 122,405 109,491
Stock options. . . . . . . . . . . . . . . . . 5,999 4,263 6,036 4,356
Convertible debt . . . . . . . . . . . . . . . 17,074 17,074
---------- --------- --------- ---------
129,019 131,711 128,441 130,921
========== ========= ========= =========
Fully diluted earnings from
continuing operations per share <F2> . . . . . . $ .49 $ .43 $ 1.66 $ 1.45
Fully diluted results of extraordinary
loss per share . . . . . . . . . . . . . . . . . (.01) (.12) (.10) (.20)
---------- --------- --------- ---------
Fully diluted net earnings per share <F2> . . . . . $ .48 $ .31 $ 1.56 $ 1.25
========== ========= ========= =========
</TABLE>
[FN]
<F1> The Convertible Junior Subordinated Notes issued in December
1992 and the Convertible Junior Subordinated Debentures issued
in March 1991 are not included in the computation of primary
earnings per share since they are not common stock
equivalents. The Convertible Junior Subordinated Notes were
converted into common stock on or before the redemption date of
September 5, 1995. These shares were included in the weighted
average number of common stock outstanding as of the date of
conversion for primary earnings per share and as of the first
date of the period for fully-diluted earnings per share. The
Convertible Junior Subordinated Notes and the Convertible
Junior Subordinated Debentures are included in the fully
diluted earnings per share calculation for the quarter and
three quarters ended October 8, 1994. The Convertible
Junior Subordinated Debentures are not included for the
quarter and three quarters ended October 7, 1995 as they were
redeemed on October 24, 1994.
<F2> Earnings used to calculate fully diluted earnings per share
have been adjusted to reflect the tax effected interest
expense of $5.1 million for the quarter ended October 8, 1994
and $3.6 million and $12.5 million, respectively, for the
three quarters ended October 7, 1995 and October 8, 1994 that
would have been avoided in connection with the assumed
conversion of the convertible debt issue as of the beginning
of each year.
<PAGE>
EXHIBIT 99.1
Schedule of computation of ratio of earnings to fixed charges of
The Kroger Co. and consolidated subsidiary companies and
unconsolidated companies as if consolidated for the five fiscal
years ended December 31, 1994 and for the two quarters ended
October 7, 1995 and October 8, 1994.
<TABLE>
<CAPTION>
Three Quarters Ended Fiscal Years Ended
-------------------- ---------------------------------------------------------------
October 7, October 8, December 31, January 1, January 2, December 28, December 29,
1995 1994 1994 1994 1993 1991 1990
(40 Weeks) (40 Weeks) (52 Weeks) (52 Weeks) (53 weeks) (52 weeks) (52 Weeks)
---------- ---------- ------------ ----------- ----------- ------------ ------------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Earnings from continuing
operations before tax
expense and
extraordinary loss . . . $344,822 $277,623 $421,363 $283,938 $173,415 $168,595 $142,203
Fixed charges. . . . . . 376,035 386,128 500,599 556,008 640,004 687,227 708,455
Capitalized interest . . (3,165) (1,565) (2,521) 230 (960) 122 (39)
--------- --------- --------- -------- --------- -------- ---------
$717,692 $662,186 $919,441 $840,176 $812,459 $855,944 $850,619
========= ========= ========= ======== ========= ======== =========
Fixed Charges
Interest . . . . . . . . $247,151 $254,206 $331,097 $391,693 $476,932 $536,485 $565,540
Portion of rental
payments deemed to be
interest. . . . . . . . 128,884 131,922 169,502 164,315 163,072 150,742 142,915
-------- --------- --------- -------- --------- -------- ---------
$376,035 $386,128 $500,599 $556,008 $640,004 $687,227 $708,455
======== ========= ========= ======== ========= ======== =========
Ratio of Earnings to
Fixed Charges . . . . . 1.9 1.7 1.8 1.5 1.3 1.2 1.2
</TABLE>
