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
June 15, 1996 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 125,677,587 shares of Common Stock ($1 par value)
outstanding as of July 12, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited information for the quarters ended June 15, 1996 and
June 17, 1995 includes the results of operations of The Kroger Co.
for the 12 and 24 week periods ended June 15, 1996 and June 17,
1995, and of Dillon Companies, Inc. for the 13 and 26 week periods
ended June 29, 1996 and July 1, 1995. 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>
2nd Quarter Ended 2 Quarters Ended
---------------------- ------------------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $5,844,366 $5,652,890 $11,628,620 $11,117,844
---------- ---------- ----------- -----------
Costs and expenses:
Merchandise costs, including warehousing and
transportation. . . . . . . . . . . . . . . . . . . . 4,412,202 4,267,794 8,780,169 8,397,233
Operating, general and administrative. . . . . . . . . 1,084,528 1,028,785 2,160,443 2,044,450
Rent . . . . . . . . . . . . . . . . . . . . . . . . . 69,316 71,216 139,044 141,150
Depreciation and amortization. . . . . . . . . . . . . 80,354 73,405 155,997 142,246
Interest expense, net. . . . . . . . . . . . . . . . . 70,523 74,639 141,149 149,963
---------- ---------- ---------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . 5,716,923 5,515,839 11,376,802 10,875,042
---------- ---------- ---------- -----------
Earnings before income tax expense and
extraordinary loss . . . . . . . . . . . . . . . . . . 127,443 137,051 251,818 242,802
Tax expense . . . . . . . . . . . . . . . . . . . . . . 49,065 54,587 96,950 95,861
---------- ---------- ---------- -----------
Earnings before extraordinary loss. . . . . . . . . . . 78,378 82,464 154,868 146,941
Extraordinary loss (net of income tax credit) . . . . . (766) (5,451) (1,850) (10,788)
---------- ---------- ---------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 77,612 $ 77,013 $ 153,018 $ 136,153
========== ========== ========== ===========
Primary earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .60 $ .71 $ 1.19 $ 1.28
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.05) (.01) (.09)
----- ----- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . $ .59 $ .66 $ 1.18 $ 1.19
===== ===== ====== ======
Average number of common shares used in primary per
share calculation. . . . . . . . . . . . . . . . . . . 131,144 115,391 130,670 115,191
Fully diluted earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .60 $ .67 $ 1.18 $1.19
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.04) (.01) (.09)
----- ----- ------ -----
Net earnings . . . . . . . . . . . . . . . . . . . $ .59 $ .63 $ 1.17 $ 1.10
===== ===== ====== ======
Average number of common shares used in fully diluted
per share calculations . . . . . . . . . . . . . . . . 131,144 126,638 130,878 126,459
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)
<CAPTION>
June 15, December 30,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Receivables . . . . . . . . . . . . . . . . . . . . . . $ 276,776 $ 288,067
Inventories:
FIFO cost . . . . . . . . . . . . . . . . . . . . . . 1,963,016 2,034,880
Less LIFO reserve . . . . . . . . . . . . . . . . . . (456,163) (449,163)
---------- ----------
1,506,853 1,585,717
Property held for sale. . . . . . . . . . . . . . . . . 132,009 40,527
Prepaid and other current assets. . . . . . . . . . . . 216,159 192,673
---------- ----------
Total current assets. . . . . . . . . . . . . . . . 2,131,797 2,106,984
Property, plant and equipment, net. . . . . . . . . . . . 2,765,805 2,662,338
Investments and other assets. . . . . . . . . . . . . . . 296,365 275,395
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $5,193,967 $5,044,717
========== ==========
LIABILITIES
Current liabilities
Current portion of long-term debt . . . . . . . . . . . $ 24,613 $ 24,939
Current portion of obligations under
capital leases. . . . . . . . . . . . . . . . . . . . 9,120 8,975
Accounts payable. . . . . . . . . . . . . . . . . . . . 1,398,085 1,540,067
Other current liabilities . . . . . . . . . . . . . . . 1,038,758 991,456
---------- ----------
Total current liabilities . . . . . . . . . . . . . 2,470,576 2,565,437
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 3,372,458 3,318,499
Obligations under capital leases. . . . . . . . . . . . . 171,053 171,229
Deferred income taxes . . . . . . . . . . . . . . . . . . 154,750 153,232
Other long-term liabilities . . . . . . . . . . . . . . . 449,439 439,333
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 6,618,276 6,647,730
---------- ----------
SHAREOWNERS' DEFICIT
Common capital stock, par $1, at stated value
Authorized: 350,000,000 shares
Issued: 1996 - 134,975,881 shares
1995 - 133,777,921 shares. . . . . . . . . . . 612,258 586,541
Accumulated deficit . . . . . . . . . . . . . . . . . . . (1,792,905) (1,945,923)
Common stock in treasury, at cost
1996 - 9,576,934 shares
1995 - 9,575,950 shares . . . . . . . . . . . (243,662) (243,631)
---------- ----------
Total Shareowners' Deficit (1,424,309) (1,603,013)
---------- ----------
Total Liabilities and Shareowners' Deficit. . . . . . $5,193,967 $5,044,717
========== ==========
</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>
2 Quarters Ended
------------------------------
June 15, June 17,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . $ 153,018 $ 136,153
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . 1,850 10,788
Depreciation and amortization. . . . . . . . . . . . . . . . 155,997 142,246
Amortization of deferred financing costs . . . . . . . . . . 6,466 6,720
LIFO charge. . . . . . . . . . . . . . . . . . . . . . . . . 7,000 7,000
Net (decrease) increase in cash from changes in operating
assets and liabilities, net of effects from sale of
subsidiary, detail below . . . . . . . . . . . . . . . . . (70,006) 130,910
Other changes, net . . . . . . . . . . . . . . . . . . . . . 602 491
--------- ----------
Net cash provided by operating activities . . . . . . . . 254,927 434,308
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (258,831) (244,405)
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . 6,659 40,828
Increase in property held for sale. . . . . . . . . . . . . . . (92,264) (6,086)
Increase in other investments . . . . . . . . . . . . . . . . . (28,789) (205)
--------- ----------
Net cash used by investing activities . . . . . . . . . . (373,225) (209,868)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt prepayment costs . . . . . . . . . . . . . . . . . . . . . (2,744) (14,055)
Financing charges incurred. . . . . . . . . . . . . . . . . . . (1,262) (5,718)
Principal payments under capital lease obligations. . . . . . . (4,543) (4,375)
Proceeds from issuance of long-term debt. . . . . . . . . . . . 102,675 66,548
Reductions in long-term debt. . . . . . . . . . . . . . . . . . (49,042) (255,923)
Increase in book overdrafts . . . . . . . . . . . . . . . . . . 48,361
Proceeds from sale of treasury stock. . . . . . . . . . . . . . 14
Proceeds from issuance of capital stock . . . . . . . . . . . . 24,853 9,724
--------- ----------
Net cash provided (used) by financing activities. . . . . 118,298 (203,785)
--------- ----------
Net increase in cash and temporary cash investments . . . . . . . 0 20,655
Cash and temporary cash investments:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 0 27,223
--------- ----------
End of quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 47,878
========= ==========
INCREASE (DECREASE) IN CASH FROM CHANGES IN OPERATING ASSETS AND LIABILITIES:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,864 $ 174,603
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 11,291 6,669
Prepaid and other current assets. . . . . . . . . . . . . . . (23,703) (17,909)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . (190,343) (54,827)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 1,518 (14,172)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 59,367 36,546
---------- ----------
$ (70,006) $ 130,910
========== ==========
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
Supplemental disclosures of cash flow information:
2 Quarters Ended
-------------------------
June 15, June 17,
1996 1995
--------- --------
Cash paid during the period for:
Interest (net of amount capitalized) $138,243 $152,205
Income taxes 62,362 97,159
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
1. BASIS OF PRESENTATION
---------------------
The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all
disclosures required by generally accepted accounting
principles.
2. INCOME TAXES
------------
The effective income tax rate differs from the expected
statutory rate primarily due to the effect of certain state
taxes.
3. EXTRAORDINARY LOSS
------------------
The extraordinary loss for the two quarters ended June 15,
1996 and June 17, 1995 of $1.9 million and $10.8 million,
respectively (net of income taxes of $1.2 million and $6.9
million, respectively) and for the second quarter ended June
15, 1996 and June 17, 1995 of $.8 million and $5.5 million
(net of income taxes of $.4 million and $3.5 million,
respectively) is related to the early retirement of long-term
debt. During the second quarter of 1996 the Company
repurchased $8.4 million of its senior debt issues and
refinanced $14.6 million of its various mortgages. Year-to-
date 1996 purchases total $25.2 million of senior debt and
$15.5 million mortgage refinances. Purchases of debt were
funded by excess cash from operations, proceeds from
miscellaneous asset sales, and funds borrowed under the
Company's Credit Agreement.
4. 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 second quarter and two
quarters ended June 17, 1995 are computed by adjusting both
net earnings and shares outstanding for the effect of the
assumed conversion of the Convertible Junior Subordinated
Notes issued in December 1992. The Convertible Junior
Subordinated Notes were not included for the second quarter
and two quarters ended June 15, 1996 because they were
redeemed on September 5, 1995.
5. SUBSEQUENT EVENTS
-----------------
On June 25, 1996, The Kroger Co. filed Registration Statement
No. 333-06763 on Form S-3 with the Securities and Exchange
Commission pursuant to Rule 415. The Registration Statement
was amended by Amendment No. 1 to the Registration Statement
filed on July 12, 1996, and by Post-Effective Amendment No. 1
to the Registration Statement filed on July 17, 1996. The
Registration Statement provides for the issuance of Debt
Securities in an aggregate amount of $744,227,000. Pursuant
to a Prospectus Supplement dated July 24, 1996, The Kroger Co.
is issuing $240,000,000 of Debt Securities designated 8.15%
Senior Notes due 2006. The form of indenture therefor, styled
First Supplemental Indenture dated as of July 29, 1996, is
incorporated herein by reference as Exhibit 4.1 hereto. The
proceeds will be used to repay amounts outstanding under the
Company's Bank Credit Agreement, and thereafter to use
borrowings under the Credit Agreement to repurchase or redeem
other debt of the Company and for other general corporate
purposes.
On July 18, 1996 the Company notified the trustee of its 9%
Senior Subordinated Notes due 1999 (the "Notes") that it will
redeem the entire $125 million principal amount of Notes on
August 17, 1996. The Company will incur a $.7 million
extraordinary charge in connection with this redemption.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Total sales for the second quarter of 1996 increased 3.4% over
second quarter 1995 to $5.84 billion as compared to $5.65 billion.
Food store sales increased 2.7% over the 1995 second quarter.
Sales in the second quarter were negatively affected by a 44-day
strike in the Company's King Soopers division in Colorado.
Supermarket sales, excluding King Soopers during the strike,
increased 4.5% for the quarter. Sales in the Company's existing
units not affected by the strike were bolstered by the opening or
expansion of 21 stores and strong results in existing stores in
most of the Company's markets. In some of the Company's markets,
sales were adversely affected by heightened competition. Food
store square footage increased 5.4% over the second quarter of
1995. The 1996 second quarter sales in identical food stores,
units that have been in operation for one full year and have not
been expanded, decreased 1.1%, including the impact from the King
Soopers strike, versus a 1.5% increase in the second quarter of
1995. Identical store sales, excluding the King Soopers division,
increased .6% over 1995's second quarter. Year-to-date identical
sales, excluding King Soopers, were up 1.3%. Identical store sales
were negatively affected by the Company's aggressive storing
program and increased competition in some markets such as
Nashville, Atlanta, Phoenix, Roanoke and Raleigh/Durham.
Comparable store sales, which includes results from expanded and
relocated stores, increased 3.2% in the quarter excluding King
Soopers.
The Denver strike, which was settled in late June with the
ratification of a three-year contract, will have a negative effect
on third quarter sales and profit as operations return to normal.
The effect is expected to be substantially less than that in the
second quarter. The Company has instituted a marketing effort
intended to restore sales to their pre-strike level.
A review of sales trends by lines of business includes:
<TABLE>
<CAPTION>
(in thousands of dollars)
2nd Quarter
% of 1996 ----------------------
Lines of Business Sales 1996 1995 Change
--------------------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Food Stores ........ 92.9% $5,427,220 $5,285,521 +2.7%
Convenience Stores .. 4.2% 245,821 220,349 +11.6%
Other Sales ........ 2.9% 171,325 147,020 +16.5%
--------- ---------- ----------
Total Sales ........ 100.0% $5,844,366 $5,652,890 +3.4%
<CAPTION>
(in thousands of dollars)
2 Quarters Year-to-date
% of 1996 ------------------------
Lines of Business Sales 1996 1995 Change
----------------- --------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Food Stores ........ 93.4% $10,859,973 $10,434,665 +4.1%
Convenience Stores .. 3.9% 449,096 407,403 +10.2%
Other Sales ........ 2.7% 319,550 275,776 +15.9%
------ ----------- -----------
Total Sales ........ 100.0% $11,628,619 $11,117,844 +4.6%
</TABLE>
The increase in total convenience stores sales was the result of a
3.8% increase in in-store sales combined with a 15.4% increase in
gasoline sales. Gas gallons sold during the quarter increased 7.1%
over 1995's second quarter. Convenience stores' identical grocery
sales increased 3.0% and identical gasoline sales increased 8.9%.
Sales for the six company convenience store group were strengthened
by a 7.9% increase in the average retail price per gallon of
gasoline.
Other sales primarily consist of outside sales by the Company's
manufacturing divisions. The Company's manufacturing plants, which
include bakeries, dairies and grocery product plants, have been
successful in securing contracts with outside parties to utilize
excess plant capacity.
The Company's accelerated storing program is focused on investing
in existing Kroger markets and adjacent geographic regions where
the Company has a strong franchise and can leverage marketing,
distribution and overhead costs. This strategy has an effect on
identical store sales due to the shifting of some sales from
existing stores to new stores. This effect will continue as the
approximately 90 to 100 additional new stores or remodels that are
planned for the remainder of the year are completed. Total sales,
however, will benefit from the increased and improved square
footage.
Additionally, savings that will be realized from technology and
logistics improvements should allow more competitive pricing and
improved service to increase sales in both existing and new store
locations. Inflation is not expected to have a material effect on
sales.
EBITD
The Company's Credit Agreement and the indentures underlying
approximately $1.2 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 June 15, 1996 the Company was in
compliance with all covenants of its Credit Agreement and publicly
issued debt. The Company believes it has adequate coverage of its
debt covenants to continue to respond effectively to competitive
conditions.
During the second quarter 1996, EBITD, which does not include the
effect of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", decreased 2.1% to $285.8 million from $292.1 million.
Year-to-date 1996 EBITD increased 2.7% to $564.0 million from
$548.9 million. Excluding the effects of the King Soopers strike,
EBITD would have been approximately $314.5 million for the second
quarter, a 7.7% increase. The King Soopers strike will have a
negative effect, though much smaller than the second quarter's, on
EBITD in the third quarter. Strike adjusted EBITD was positively
influenced by the increase in food store sales from existing and
new stores combined with improvements in gross profit rates, and
private label sales that are outpacing total sales increases.
EBITD was dampened by a slower rate of growth in C-store EBITD and
increased commodity costs.
MERCHANDISE COSTS
Merchandise costs, including warehousing and transportation expense
and LIFO charges, for the second quarter 1996 were even with the
second quarter of 1995 as a percent of sales. Merchandise costs
were negatively affected by the strike but were positively affected
by the Company's advances in coordinated purchasing and increases
in private label sales. The Company has completed the transition
of three consolidation centers and expects to open a fourth in
Fountain, Colorado in August. These consolidations will have a
positive effect on merchandising costs in the long run but had
sizeable up front costs associated with the transition in the
second quarter.
<TABLE>
<CAPTION>
2 Quarters
2nd Quarter Year-to-date
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Merchandise Costs - LIFO 75.49% 75.50% 75.50% 75.53%
LIFO Charge .05% .06% .06% .06%
------ ------ ------ ------
Merchandise Costs - FIFO 75.44% 75.44% 75.44% 75.47%
</TABLE>
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses in the second
quarter 1996 increased to 18.56% of sales from 18.20% last year.
Year-to-date operating, general and administrative expenses in 1996
were 18.58% compared to 18.39% in 1995. The increase in the rate
of operating, general and administrative costs can be attributed to
the King Soopers strike, reduced revenue from baled salvage sales
and higher store wages. The Company's capital expansion program
negatively affects operating, general and administrative expenses
as costs are incurred to open and expand new stores in greater
numbers than the prior year.
The Company's focus is on controlling operating, general and
administrative expenses. There are a number of administrative
changes underway to reduce support costs. While the Company
believes that these programs will bring about cost reductions,
there can be no assurances of these results.
NET INTEREST EXPENSE
Net interest expense declined to $70.5 million in the second
quarter 1996 from $74.6 million in last year's second quarter.
Year-to-date net interest expense totalled $141.1 million as
compared to $150.0 million in the first half of 1995. The Company
expects 1996 net interest expense to total approximately $300 to
$305 as compared to $312.7 million in 1995.
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. The Company purchased $15.1 million of
this debt during the second quarter of 1996, bringing the total
investments to $73.8 million. Excluding the debt incurred to make
these purchases, which are classified as investments, the Company's
long-term debt at the end of the second quarter was $3.50 billion,
down from $3.65 billion at the end of the 1995 second quarter. The
Company does not expect a reduction in long-term debt during 1996
from the year-end 1995 balance. Net operating working capital
declined by $.9 million to $52.8 million as compared to the second
quarter 1995's $53.7 million.
NET EARNINGS
The Company's net earnings in the second quarter 1996 were $77.6
million or $.59 per share on a fully diluted basis compared to net
earnings in the second quarter 1995 of $77.0 million or $.63 per
share. Net earnings in 1996 were negatively affected by the King
Soopers strike and by an extraordinary loss of $.8 million or $.01
per share compared to an extraordinary loss of $5.5 million or $.04
per share in 1995. Year-to-date net earnings in 1996 were $153.0
million or $1.17 per share on a fully-diluted basis compared to net
earnings in 1995 of $136.2 million or $1.10 per share. 1996 year-
to-date net earnings included a $1.8 million extraordinary loss
compared to $10.8 million in 1995. 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 1996 as it continues to retire high-cost debt.
Second quarter earnings before the extraordinary loss totalled
$78.4 million in 1996 compared to $82.5 million in 1995. Year-to-
date earnings before the extraordinary loss totalled $154.9 million
in 1996 compared to $146.9 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter 1996 the Company purchased $8.3 million
of its various senior and subordinated debt issues. Through two
quarters of 1996 the Company has purchased $25.2 million of these
issues.
At the end of the second quarter 1996, the Company had $459.6
million available under its Credit Agreement to meet short-term
liquidity needs.
On April 29, 1996, the Company notified its lenders under the
Credit Agreement of the Company's election to release the
collateral securing the Company's obligations under the Credit
Agreement. The collateral had also secured the Company's
obligations under its two issues of Senior Secured Debentures.
Upon release of the collateral, the Credit Agreement and the Senior
Secured Debentures became unsecured.
The Company invested $178.2 million in fixed assets during the
second quarter, $85.2 million of these expenditures were invested
in long-term property, plant and equipment. The remaining $93.0
million was placed in property that the Company intends to include
in sale leaseback transactions. Capital expenditures for the
second quarter 1995 were $150.5 million in property, plant and
equipment and $1.7 million in property held for sale. Capital
expenditures for the year are expected to total approximately $850
million. This will enable the Company to open or expand
approximately 115 stores and remodel 50 to 60 additional stores.
Capital expenditures will also be made in the areas of logistics
and technology projects. Through two quarters of 1996, the Company
has opened, expanded or acquired 46 food stores and completed 21
remodels.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company generated $254.9 million of cash from operating
activities during the first half of 1996 compared to $434.3 million
during the same period last year. The decrease is due in part to
changes in operating assets and liabilities that used $70.0 million
of cash in 1996 compared to providing $130.9 million in 1995. The
largest component of the change in operating assets and liabilities
was net owned inventory which increased $118.5 million in the first
half of 1996 versus a decrease of $119.8 million in 1995's first
half. This use of cash was offset somewhat by increased operating
profits before depreciation of $21.7 million over 1995.
Investing activities used $373.2 million in cash during the first
half of 1996 compared to $209.9 million last year. The net
increase in the use of cash is due to $100.6 million of additional
capital expenditures and investments in property held for sale and
an additional $28.6 million used for the purchase of investments.
These increases in the use of cash were combined with a decrease of
$34.2 million in the inflow of cash from the sale of assets.
Financing activities provided $118.3 million in cash compared to
the use of $203.8 million in the first half of last year. The
change is due to a decline of $243.0 million in the use of cash for
the net reduction in long-term debt as well as an increase in book
overdrafts of $48.4 million. Additionally, the Company realized
$24.9 million from the exercise of stock options as compared to
$9.7 million during the first half of 1995. Debt prepayment
premium and new financing costs used $4.0 million in 1996 as
compared to $19.8 million in 1995.
With respect to the foregoing statements in Management's Discussion
and Analysis that are forward looking in nature, the Company's
actual results could adversely be affected by delays in completion
of projects, labor disputes or competitive activity in the
marketplace.
SUBSEQUENT EVENTS
On June 25, 1996, The Kroger Co. filed Registration Statement No.
333-06763 on Form S-3 with the Securities and Exchange Commission
pursuant to Rule 415. The Registration Statement was amended by
Amendment No. 1 to the Registration Statement filed on July 12,
1996, and by Post-Effective Amendment No. 1 to the Registration
Statement filed on July 17, 1996. The Registration Statement
provides for the issuance of Debt Securities in an aggregate amount
of $744,227,000. Pursuant to a Prospectus Supplement dated July
24, 1996, The Kroger Co. is issuing $240,000,000 of Debt Securities
designated 8.15% Senior Notes due 2006. The form of indenture
therefor, styled First Supplemental Indenture dated as of July 29,
1996, is incorporated herein by reference as Exhibit 4.1 hereto.
The proceeds will be used to repay amounts outstanding under the
Company's Bank Credit Agreement, and thereafter to use borrowings
under the Credit Agreement to repurchase or redeem other debt of
the Company and for other general corporate purposes.
On July 18, 1996 the Company notified the trustee of its 9% Senior
Subordinated Notes due 1999 (the "Notes") that it would redeem the
entire $125 million principal amount of Notes on August 17, 1996.
The Company will incur a $.7 million extraordinary charge in
connection with this redemption.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Fry's Food Stores of Arizona, Inc. ("Fry's"), a
subsidiary of the Company, is currently a defendant and
cross-defendant in actions pending in the U.S. District
Court for the Southern District of Florida (the "Court")
entitled Harley S. Tropin v. Kenneth Thenen, et. al.,
-------------------------------------------
No. 93-2502-CIV-MORENO and Walco Investments, Inc., et.
----------------------------
al. v. Kenneth Thenen, et al., No. 93-2534-CIV-MORENO.
-----------------------------
The plaintiff and cross-claimants in these actions seek
unspecified damages against numerous defendants and
cross-defendants, including Fry's. Plaintiffs and cross-
claimants allege that a former employee of Fry's supplied
false information to third parties in connection with
purported sales transactions between Fry's and affiliates
of Premium Sales Corporation or certain limited
partnerships. Claims have been alleged against Fry's for
breach of implied contract, aiding and abetting
conspiracy, conversion and civil theft, negligent
supervision, fraud, and violations of 18 U.S.C. Sections
1961 and 1962(d) and Chapter 895, Florida Statutes.
Fry's has entered into an agreement with Harley S. Tropin
as trustee and receiver for the Premium Sales Corporation
and certain affiliates to settle all claims against
Fry's. That agreement is subject to the execution of a
definitive settlement agreement and the approval of the
Court.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) May 16, 1996 - Annual Meeting of Shareholders.
(c) The shareholders elected one director, David B.
Dillon, to serve until the annual meeting in 1998,
and elected four other directors to serve until the
annual meeting in 1999, or until their successors
have been elected and qualified, and ratified the
selection of Coopers & Lybrand L.L.P. as Company
auditors for 1996.
Votes were cast as follows:
<TABLE>
<CAPTION>
For Withheld Broker Non-Vote
---------- --------- ---------------
<S> <C> <C> <C>
David B. Dillon 98,018,647 2,610,288 -0-
Richard W. Dillon 97,981,864 2,647,071 -0-
John T. LaMacchia 98,057,144 2,571,791 -0-
Edward M. Liddy 98,029,420 2,599,515 -0-
T. Ballard Morton, Jr. 98,086,674 2,542,261 -0-
Katherine D. Ortega 97,996,452 2,632,483 -0-
<CAPTION>
For Against Withheld Broker Non-Vote
---------- --------- -------- ---------------
<S> <C> <C> <C> <C>
Coopers & Lybrand L.L.P. 98,959,831 896,237 772,867 -0-
</TABLE>
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 4.2 -
-----------
First Supplemental Indenture dated as of July 29, 1996,
between the Company and Comerica Bank, as Trustee,
relating to the Company's 8.15% Senior Notes due 2006.
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 first quarter
1996 earnings release in its Current Report on
Form 8-K dated April 17, 1996.
<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: July 29, 1996 (Joseph A. Pichler)
Joseph A. Pichler
Chairman of the Board
and Chief Executive
Officer
Dated: July 29, 1996 (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 4.2 - First Supplemental Indenture dated as of July 29,
1996, between the Company and Comerica Bank, as
Trustee, relating to the Company's 8.15% Senior
Notes due 2006.
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>
EXHIBIT 4.2
THE KROGER CO.
TO
COMERICA BANK
Trustee
__________
FIRST SUPPLEMENTAL INDENTURE
Dated as of July 29, 1996
TO
INDENTURE
Dated as of July 15, 1996
__________
8.15% SENIOR NOTES DUE 2006
<PAGE>
TABLE OF CONTENTS
__________
Page
----
PARTIES..................................................
RECITALS OF THE COMPANY..................................
ARTICLE ONE
-----------
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions...............................
ARTICLE TWO
-----------
SECURITY FORMS
Section 201. Form of Securities of this Series.........
Section 202. Form of Face of Security..................
Section 203. Form of Reverse of Security...............
ARTICLE THREE
-------------
THE SERIES OF SECURITIES
Section 301. Title and Terms...........................
ARTICLE FOUR
-------------
MODIFICATIONS AND ADDITIONS TO THE INDENTURE
Section 401. Modifications to the Consolidation, Merger,
Conveyance, Transfer or Lease Provisions..
Section 402. Other Modifications.......................
Section 403. Additional Covenants; Defeasance and Covenant
Defeasance................................
ARTICLE FIVE
-------------
MISCELLANEOUS
Section 501. Miscellaneous..............................
Testimonium................................
Signatures and Seals.......................
Acknowledgments............................
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of July 29, 1996,
between The Kroger Co., a corporation duly organized and existing
under the laws of the State of Ohio (herein called the "Company"),
having its principal office at 1014 Vine Street, Cincinnati, Ohio
45202, and Comerica Bank, a banking corporation duly organized and
existing under the laws of the State of Michigan, as Trustee
(herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has heretofore executed and delivered to the
Trustee an Indenture dated as of July 15, 1996 (the "Indenture"),
providing for the issuance from time to time of the Company's
unsecured debentures, notes or other evidences of indebtedness
(herein and therein called the "Securities"), to be issued in one
or more series as in the Indenture provided.
Section 201 of the Indenture permits the form of the
Securities of any series to be established pursuant to an indenture
supplemental to the Indenture.
Section 301 of the Indenture permits the terms of the
Securities of any series to be established in an indenture
supplemental to the Indenture.
Section 901(7) of the Indenture provides that, without the
consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental to the Indenture for
the purpose of establishing the form or terms of Securities of any
series as permitted by Sections 201 and 301 of the Indenture.
The Company, pursuant to the foregoing authority, proposes in
and by this First Supplemental Indenture to establish the terms and
form of the Securities of a new series and to amend and supplement
the Indenture in certain respects with respect to the Securities of
such series.
All things necessary to make this First Supplemental Indenture
a valid agreement of the Company, and a valid amendment of and
supplement to the Indenture, have been done.
<PAGE>
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually agreed, for
the equal and proportionate benefit of all Holders of the
Securities of the series to be created hereby, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
Section 101. Definitions.
-----------
(a) For all purposes of this First Supplemental Indenture:
(1) Capitalized terms used herein without definition
shall have the meanings specified in the Indenture;
(2) All references herein to Articles and Sections,
unless otherwise specified, refer to the
corresponding Articles and Sections of this First
Supplemental Indenture and, where so specified, to
the Articles and Sections of the Indenture as
supplemented by this First Supplemental Indenture;
and
(3) The terms "hereof", "herein", "hereby", "hereto",
"hereunder" and "herewith" refer to this First
Supplemental Indenture.
(b) For all purposes of the Indenture and this First
Supplemental Indenture, with respect to the Securities of
the series created hereby, except as otherwise expressly
provided or unless the context otherwise requires:
"Attributable Debt" means, in connection with a Sale
and Lease-Back Transaction, as of any particular time,
the aggregate of present values (discounted at a rate per
annum equal to the interest rate borne by the Securities
of the series created by this First Supplemental
Indenture) of the obligations of the Company or any
Restricted Subsidiary for net rental payments during the
remaining primary term of the applicable lease,
calculated in accordance with generally accepted
accounting principles. The term "net rental payments"
under any lease for any period shall mean the sum of the
rental and other payments required to be paid in such
period by the lessee thereunder, not including, however,
any amounts required to be paid by such lessee (whether
or not designated as rental or additional rental) on
account of maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates, operating and
labor costs or similar charges required to be paid by
such lessee thereunder or any amounts required to be paid
by such lessee thereunder contingent upon the amount of
sales, maintenance and repairs, reconstruction,
insurance, taxes, assessments, water rates or similar
charges.
"Business Day" means any day other than a Saturday
or Sunday or a day on which banking institutions in New
York City or Detroit, Michigan are authorized or
obligated by law or executive order to close.
"Capital Lease" means any lease of property which,
in accordance with generally accepted accounting
principles, should be capitalized on the lessee's balance
sheet or for which the amount of the asset and liability
thereunder as if so capitalized should be disclosed in a
note to such balance sheet; and "Capitalized Lease
Obligation" means the amount of the liability which
should be so capitalized or disclosed.
"Consolidated Net Tangible Assets" means for the
Company and its Subsidiaries on a consolidated basis
determined in accordance with generally accepted
accounting principles, the aggregate amounts of assets
(less depreciation and valuation reserves and other
reserves and items deductible from gross book value of
specific asset accounts under generally accepted
accounting principles) which under generally accepted
accounting principles would be included on a balance
sheet after deducting therefrom (a) all liability items
except deferred income taxes, commercial paper, short-
term bank Indebtedness, Funded Indebtedness, other long-
term liabilities and shareholders' equity and (b) all
goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles,
which in each case would be so included on such balance
sheet.
"Funded Indebtedness" means any Indebtedness
maturing by its terms more than one year from the date of
the determination thereof, including (i) any Indebtedness
having a maturity of 12 months or less but by its terms
renewable or extendible at the option of the obligor to a
date later than 12 months from the date of the
determination thereof and (ii) rental obligations payable
more than 12 months from the date of determination
thereof under Capital Leases (such rental obligations to
be included as Funded Indebtedness at the amount so
capitalized at the date of such computation and to be
included for the purposes of the definition of
Consolidated Net Tangible Assets both as an asset and as
Funded Indebtedness at the amount so capitalized).
"Non-Restricted Subsidiary" means any Subsidiary
that the Company's Board of Directors has in good faith
declared pursuant to a written resolution not to be of
material importance, either singly or together with all
other Non-Restricted Subsidiaries, to the business of the
Company and its consolidated Subsidiaries taken as a
whole.
"Operating Assets" means all merchandise
inventories, furniture, fixtures and equipment (including
all transportation and warehousing equipment but
excluding office equipment and data processing equipment)
owned or leased pursuant to Capital Leases by the Company
or a Restricted Subsidiary.
"Operating Property" means all real property and
improvements thereon owned or leased pursuant to Capital
Leases by the Company or a Restricted Subsidiary and
constituting, without limitation, any store, warehouse,
service center or distribution center wherever located,
provided that such term shall not include any store,
warehouse, service center or distribution center which
the Company's Board of Directors declares by written
resolution not to be of material importance to the
business of the Company and its Restricted Subsidiaries.
"Restricted Subsidiaries" means all Subsidiaries
other than Non-Restricted Subsidiaries.
"Sale and Lease-Back Transaction" has the meaning
specified in Section 1010.
"Subsidiary" means (i) any corporation or other
entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the
board of directors or other persons performing similar
functions are at the time directly or indirectly owned by
the Company and/or one or more Subsidiaries or (ii) any
partnership of which more than 50% of the partnership
interest is owned by the Company or any Subsidiary.
ARTICLE TWO
Security Forms
Section 201. Form of Securities of this Series.
---------------------------------
The Securities of this series shall be in the form set forth
in this Article.
Section 202. Form of Face of Security.
------------------------
THE KROGER CO.
8.15% Senior Notes due 2006
No. __________ $ __________
The Kroger Co., a corporation duly organized and existing
under the laws of the State of Ohio (herein called the "Company",
which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to
pay to _________________________, or registered assigns, the
principal sum of ___________________ Dollars on July 15, 2006, and
to pay interest thereon from July 15, 1996 or from the most recent
Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on January 15 and July 15 in each year,
commencing January 15, 1997, at the rate of interest of 8.15% per
annum until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, which
shall be the January 1 or July 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date. Any
such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record
Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders of Securities not less than 10 days prior
to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be
listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the
Company maintained for that purpose in Detroit, Michigan, in such
coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of
- -------- -------
interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security
Register.
In the case where any Interest Payment Date or the maturity
date of this Security does not fall on a Business Day, payment of
interest or principal otherwise payable on such day need not be
made on such day, but may be made on the next succeeding Business
Day with the same form and effect as if made on such Interest
Payment Date or the maturity date of this Security.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this
place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual
signature, this Security shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated:
THE KROGER CO.
By ________________________________
Attest:
_____________________________
Section 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of Securities
of the Company (herein called the "Securities") issued and to be
issued under an Indenture dated as of July 15, 1996, as
supplemented by the First Supplemental Indenture dated as of July
29, 1996 (as so supplemented, herein called the "Indenture"), each
between the Company and Comerica Bank, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal
amount to $240,000,000.
The Securities of this series are not subject to redemption
prior to maturity.
The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of this Security or (ii) certain
restrictive covenants and Events of Default with respect to this
Security, in each case upon compliance with certain conditions set
forth therein.
If an Event of Default shall occur and be continuing, the
principal of all Securities of this series may be declared due and
payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the
Securities of each series to be affected under the Indenture at any
time by the Company and the Trustee with the consent of the Holders
of 50% in aggregate principal amount of the Securities at the time
Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of specified percentages
in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all the Securities of such
series, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange therefor or
in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
As set forth in, and subject to, the provisions of the
Indenture, no Holder of any Security will have any right to
institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless such Holder shall have previously given
to the Trustee written notice of a continuing Event of Default, the
Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a
majority in principal amount of the Outstanding Securities a
direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days; provided, however, that
-------- -------
such limitations do not apply to a suit instituted by the Holder
hereof for the enforcement of payment of the principal of (and
premium, if any) or any interest on this Security on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Security at the
times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is
registerable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of like tenor, of
authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferee.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities are exchangeable for a
like aggregate principal amount of Securities of like tenor, of a
different authorized denomination, as requested by the Holder
surrendering the same.
Except where otherwise specifically provided in the Indenture,
no service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or
the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not
this Security be overdue, and neither the Company, the Trustee nor
any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
ARTICLE THREE
The Series of Securities
Section 301. Title and Terms.
----------------
There shall be a series of Securities designated as the "8.15%
Senior Notes due 2006" of the Company. Their Stated Maturity shall
be July 15, 2006, and they shall bear interest at the rate of 8.15%
per annum.
Interest on the Securities of this series will be payable
semi-annually on January 15 and July 15 of each year, commencing
January 15, 1997, until the principal thereof is made available for
payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will be paid to the
Person in whose name the Securities of this series (or one or more
Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the
January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
In the case where any Interest Payment Date or the maturity
date of the Securities of this series does not fall on a Business
Day, payment of interest or principal otherwise payable on such
date need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made
on such Interest Payment Date or the maturity date of the
Securities of this series.
The aggregate principal amount of Securities of this series
which may be authenticated and delivered under this First
Supplemental Indenture is limited to $240,000,000, except for
Securities authenticated and delivered upon registration or
transfer of, or in exchange for, or in lieu of, other Securities of
this series pursuant to Section 304, 305 and 306 of the Indenture
and except for any Securities of this series which, pursuant to
Section 303 of the Indenture, are deemed never to have been
authenticated and delivered under the Indenture.
The Securities of this series will be represented by one or
more Global Securities representing the entire $240,000,000
aggregate principal amount of the Securities of this series, and
the Depositary with respect to such Global Security or Global
Securities will be The Depository Trust Company.
The Place of Payment for the principal of (and premium, if
any) and interest on the Securities of this series shall be the
office or agency of the Company in the City of Detroit, State of
Michigan, maintained for such purpose, which shall be the Corporate
Trust Office of the Trustee and at any other office or agency
maintained by the Company for such purpose; provided, however, that
-------- -------
at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
The Securities of this series are not redeemable prior to
maturity and the provisions of Article Eleven of the Indenture are
not applicable to Securities of this series.
The Securities of this series are not subject to a sinking
fund and the provisions of Section 501(3) and Article Twelve of the
Indenture shall not be applicable to the Securities of this series.
The Securities of this series are subject to defeasance at the
option of the Company as provided in this First Supplemental
Indenture.
ARTICLE FOUR
Modifications and Additions to the Indenture
Section 401. Modifications to the Consolidation, Merger,
Conveyance, Transfer or Lease Provisions.
-------------------------------------------
With respect to the Securities of this series, Section 801 of
the Indenture shall be deleted in its entirety and the following
shall be substituted therefor:
"Section 801. Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions.
-----------------------------------------
The Company covenants that it will not merge with or into or
consolidate with any corporation, partnership, or other entity or
sell, lease or convey all or substantially all of its assets to any
other Person, unless (i) either the Company shall be the continuing
corporation, or the successor entity or the Person which acquires
by sale, lease or conveyance all or substantially all the assets of
the Company (if other than the Company) shall be a corporation or
partnership organized under the laws of the United States of
America or any State thereof or the District of Columbia and shall
expressly assume all obligations of the Company under this
Indenture and the Securities of the series created by the First
Supplemental Indenture, including the due and punctual payment of
the principal of and interest on all the Securities of the series
created by the First Supplemental Indenture according to their
tenor, and the due and punctual performance and observance of all
of the covenants and conditions of the Indenture to be performed or
observed by the Company, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the Trustee
by such entity, and (ii) the Company, such person or such successor
entity, as the case may be, shall not, immediately after such
merger or consolidation, or such sale, lease or conveyance, be in
default in the performance of any such covenant or condition and,
immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be
continuing.
Section 802. Successor Substituted
---------------------
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any sale, lease or conveyance of
all or substantially all of the assets of the Company in accordance
with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or to which such sale, lease or
conveyance is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of
a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities."
Section 4.02. Other Modifications.
-------------------
With respect to the Securities of this series, the Indenture
shall be modified as follows:
(a) The eighth paragraph of Section 305 of the Indenture
shall bemodified by inserting ", and a successor Depositary
is not appointed by the Company within 90 days" at the end of
clause (i) in such paragraph; and
(b) Section 401 of the Indenture shall be modified by adding
to the end of such Section the following paragraph:
"For the purpose of this Section 401, trust
funds may consist of (A) money in an amount, or
(B) U.S. Government Obligations (as defined in
Section 1304) which through the scheduled
payment of principal and interest in respect
thereof in accordance with their terms will
provide, not later than one day before the due
date of any payment, money in an amount, or (C)
a combination thereof, sufficient, in the
opinion of a nationally recognized firm of
independent public accountants expressed in a
written certification thereof delivered to the
Trustee, to pay and discharge, the principal
of, premium, if any, and each installment of
interest on the Securities of this series on
the Stated Maturity of such principal or
installment of interest on the day on which
such payments are due and payable in accordance
with the terms of this Indenture and of such
Securities of this series."
Section 403. Additional Covenants; Defeasance and Covenant
Defeasance.
----------------------------------------------
(a) With respect to the Securities of this series, the
following provisions shall be added as Sections 1009 and 1010 and
as Article Thirteen (Section references contained in these
additional provisions are to the Indenture as supplemented by this
First Supplemental Indenture):
"Section 1009. Limitations on Liens.
--------------------
After the date hereof and so long as any Securities of
the series created by the First Supplemental Indenture
are Outstanding, the Company will not issue, assume or
guarantee, and will not permit any Restricted Subsidiary
to issue, assume or guarantee, any Indebtedness which is
secured by a mortgage, pledge, security interest, lien or
encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the
nature thereof, and any agreement to give any of the
foregoing) (each being hereinafter referred to as a
"lien" or "liens") of or upon any Operating Property or
Operating Asset, whether now owned or hereafter acquired,
of the Company or any Restricted Subsidiary without
effectively providing that the Securities of the series
created by the First Supplemental Indenture (together
with, if the Company shall so determine, any other
Indebtedness of the Company ranking equally with the
Securities) shall be equally and ratably secured by a
lien on such assets ranking ratably with and equal to (or
at the Company's option prior to) such secured
Indebtedness; provided that the foregoing restriction
shall not apply to:
(a) liens on any property or assets of any corporation
existing at the time such corporation becomes a
Restricted Subsidiary provided that such lien does not
extend to any other property of the Company or any of its
Restricted Subsidiaries;
(b) liens on any property or assets (including stock)
existing at the time of acquisition of such property or
assets by the Company or a Restricted Subsidiary, or
liens to secure the payment of all or any part of the
purchase price of such property or assets (including
stock) upon the acquisition of such property or assets by
the Company or a Restricted Subsidiary or to secure any
indebtedness incurred, assumed or guaranteed by the
Company or a Restricted Subsidiary for the purpose of
financing all or any part of the purchase price of such
property or, in the case of real property, construction
or improvements thereon or attaching to property
substituted by the Company to obtain the release of a
lien on other property of the Company on which a lien
then exists, which indebtedness is incurred, assumed or
guaranteed prior to, at the time of, or within 18 months
after such acquisition (or in the case of real property,
the completion of construction (including any
improvements on an existing asset) or commencement of
full operation at such property, whichever is later
(which in the case of a retail store is the opening of
the store for business to the public)); provided that in
the case of any such acquisition, construction or
improvement, the lien shall not apply to any other
property or assets theretofore owned by the Company or a
Restricted Subsidiary;
(c) liens on any property or assets to secure
Indebtedness of a Restricted Subsidiary to the Company or
to another Restricted Subsidiary;
(d) liens on any property or assets of a corporation
existing at the time such corporation is merged into or
consolidated with the Company or a Restricted Subsidiary
or at the time of a purchase, lease or other acquisition
of the assets of a corporation or firm as an entirety or
substantially as an entirety by the Company or a
Restricted Subsidiary provided that such lien does not
extend to any other property of the Company or any of its
Restricted Subsidiaries;
(e) liens on any property or assets of the Company or a
Restricted Subsidiary in favor of the United States of
America or any State thereof, or any department, agency
or instrumentality or political subdivision of the United
States of America or any State thereof, or in favor of
any other country, or any political subdivision thereof,
to secure partial, progress, advance or other payments
pursuant to any contract or statute or to secure any
Indebtedness incurred or guaranteed for the purpose of
financing all or any part of the purchase price (or, in
the case of real property, the cost of construction) of
the property or assets subject to such liens (including,
but not limited to, liens incurred in connection with
pollution control, industrial revenue or similar
financings);
(f) liens existing on properties or assets of the
Company or any Restricted Subsidiary existing on the date
hereof; provided that such liens secure only those
obligations which they secure on the date hereof or any
extension, renewal or replacement thereof;
(g) any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in
part, of any lien referred to in the foregoing clauses
(a) through (f), inclusive; provided that such extension,
renewal or replacement shall be limited to all or a part
of the property or assets which secured the lien so
extended, renewed or replaced (plus improvements and
construction on real property);
(h) liens imposed by law, such as mechanics',
workmen's, repairmen's, materialmen's, carriers',
warehouseman's, vendors', or other similar liens arising
in the ordinary course of business of the Company or a
Restricted Subsidiary, or governmental (federal, state or
municipal) liens arising out of contracts for the sale of
products or services by the Company or any Restricted
Subsidiary, or deposits or pledges to obtain the release
of any of the foregoing liens;
(i) pledges, liens or deposits under worker's
compensation laws or similar legislation and liens or
judgments thereunder which are not currently
dischargeable, or in connection with bids, tenders,
contracts (other than for the payment of money) or leases
to which the Company or any Restricted Subsidiary is a
party, or to secure the public or statutory obligations
of the Company or any Restricted Subsidiary, or in
connection with obtaining or maintaining self-insurance
or to obtain the benefits of any law, regulation or
arrangement pertaining to unemployment insurance, old age
pensions, social security or similar matters, or to
secure surety, appeal or customs bonds to which the
Company or any Restricted Subsidiary is a party, or in
litigation or other proceedings such as, but not limited
to, interpleader proceedings, and other similar pledges,
liens or deposits made or incurred in the ordinary course
of business;
(j) liens created by or resulting from any litigation or
other proceeding which is being contested in good faith
by appropriate proceedings, including liens arising out
of judgments or awards against the Company or any
Restricted Subsidiary with respect to which the Company
or such Restricted Subsidiary is in good faith
prosecuting an appeal or proceedings for review or for
which the time to make an appeal has not yet expired; or
final unappealable judgment liens which are satisfied
within 30 days of the date of judgment; or liens incurred
by the Company or any Restricted Subsidiary for the
purpose of obtaining a stay or discharge in the course of
any litigation or other proceeding to which the Company
or such Restricted Subsidiary is a party;
(k) liens for taxes or assessments or governmental
charges or levies not yet due or delinquent, or which can
thereafter be paid without penalty, or which are being
contested in good faith by appropriate proceedings;
landlord's liens on property held under lease; and any
other liens or charges incidental to the conduct of the
business of the Company or any Restricted Subsidiary or
the ownership of the property or assets of any of them
which were not incurred in connection with the borrowing
of money or the obtaining of advances or credit and which
do not, in the opinion of the Company, materially impair
the use of such property or assets in the operation of
the business of the Company or such Restricted Subsidiary
or the value of such property or assets for the purposes
of such business; or
(l) liens not permitted by clauses (a) through (k) above
if at the time of, and after giving effect to, the
creation or assumption of any such lien, the aggregate
amount of all Indebtedness of the Company and its
Restricted Subsidiaries secured by all such liens not so
permitted by clauses (a) through (k) above together with
the Attributable Debt in respect of Sale and Lease-Back
Transactions permitted by paragraph (a) of Section 1010
does not exceed 10% of Consolidated Net Tangible Assets.
Section 1010. Limitations on Sale and Lease-Back
----------------------------------
Transactions.
-------------
After the date hereof and so long as any Securities of
the series created by the First Supplemental Indenture
are Outstanding, the Company agrees that it will not, and
will not permit any Restricted Subsidiary to, enter into
any arrangement with any Person providing for the leasing
by the Company or a Restricted Subsidiary of any
Operating Property or Operating Asset (other than any
such arrangement involving a lease for a term, including
renewal rights, for not more than 3 years and leases
between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries), whereby such Operating
Property or Operating Asset has been or is to be sold or
transferred by the Company or any Restricted Subsidiary
to such Person (herein referred to as a "Sale and Lease-
Back Transaction"), unless:
(a) the Company or such Restricted Subsidiary would, at
the time of entering into a Sale and Lease-Back
transaction, be entitled to incur Indebtedness secured
by a lien on the Operating Property or Operating Asset to
be leased in an amount at least equal to the Attributable
Debt in respect of such Sale and Lease-Back Transaction
without equally and ratably securing the Securities of
the series created by the First Supplemental Indenture
pursuant to Section 1009; or
(b) the proceeds of the sale of the Operating Property
or Operating Asset to be leased are at least equal to the
fair market value of such Operating Property or Operating
Asset (as determined by the chief financial officer or
chief accounting officer of the Company) and an amount in
cash equal to the net proceeds from the sale of the
Operating Property or Operating Asset so leased is
applied, within 180 days of the effective date of any
such Sale and Lease-Back Transaction, to the purchase or
acquisition (or, in the case of Operating Property, the
construction) of Operating Property or Operating Assets
or to the retirement, repurchase, redemption or repayment
(other than at maturity or pursuant to a mandatory
sinking fund or redemption provision and other than
Indebtedness owned by the Company or any Restricted
Subsidiary) of Securities of the series created by the
First Supplemental Indenture or of Funded Indebtedness of
the Company ranking on a parity with or senior to the
Securities of the series created by the First
Supplemental Indenture, or in the case of a Sale and
Lease-Back Transaction by a Restricted Subsidiary, of
Funded Indebtedness of such Restricted Subsidiary;
provided that in connection with any such retirement, any
related loan commitment or the like shall be reduced in
an amount equal to the principal amount so retired.
The foregoing restriction shall not apply to, in the case of
any Operating Property or Operating Asset acquired or constructed
subsequent to the date eighteen months prior to the date of this
Indenture, any Sale and Lease-Back Transaction with respect to such
Operating Asset or Operating Property (including presently owned
real property upon which such Operating Property is to be
constructed) if a binding commitment is entered into with respect
to such Sale and Lease-Back Transaction within 18 months after the
later of the acquisition of the Operating Property or Operating
Asset or the completion of improvements or construction thereon or
commencement of full operations at such Operating Property (which
in the case of a retail store is the opening of the store for
business to the public).
ARTICLE THIRTEEN
Defeasance and Covenant Defeasance
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
-----------
The Company may at its option by Board Resolution, at any
time, elect to have either Section 1302 or Section 1303 applied to
the Outstanding Securities of this series upon compliance with the
conditions set forth below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
-------------------------
Upon the Company's exercise of the option provided in Section
1301 applicable to this Section, the Company shall be deemed to
have been discharged from its obligations with respect to the
Outstanding Securities of the series created by the First
Supplemental Indenture on the date the conditions set forth below
are satisfied (hereinafter, "Defeasance"). For this purpose, such
Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding
Securities of this series and to have satisfied all its other
obligations under such Securities of this series and this Indenture
insofar as such Securities of this series are concerned (and the
Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which
shall survive until otherwise terminated or discharged hereunder:
(A) the rights of Holders of Outstanding Securities of this series
to receive, solely from the trust fund described in Section 1304
and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any) and interest on such
securities when such payments are due, (B) the Company's
obligations with respect to such Securities of this series under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this
Article Thirteen. Subject to compliance with this Article
Thirteen, the Company may exercise its option under this Section
1302 notwithstanding the prior exercise of its option under Section
1303.
SECTION 1303. Covenant Defeasance.
--------------------
Upon the Company's exercise of the option provided in Section
1301 applicable to this Section, the Company shall be released
from its obligations under Section 501(4) (in respect of the
covenants in Sections 1008 through 1010), Section 801 and Sections
1008 through 1010, the Securities of this series and the Holders of
Securities of this series, on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant Defeasance").
For this purpose, such covenant Defeasance means that the Company
may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such Section,
whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or by reason of any reference
in any such Section to any other provision herein or in any other
document, but the remainder of this Indenture and such Securities
of this series shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities of this
series:
(1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another
trustee satisfying the requirements of Section 609 who
shall agree to comply with the provisions of this Article
Thirteen applicable to it) as trust funds in trust for
the purpose of making the following payments,
specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities
of this series, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled
payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than
one day before the due date of any payment, money in an
amount, or (C) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent
public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal
of, premium, if any, and each installment of interest on
the Securities of this series on the Stated Maturity of
such principal or installment of interest on the day on
which such payments are due and payable in accordance
with the terms of this Indenture and of such Securities
of this series. For this purpose, "U.S. Government
Obligations" means securities that are (x) direct
obligations of the United States of America for the
payment of which its full faith and credit is pledged or
(y) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not
callable or redeemable at the option of the Company
thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended) as custodian with
respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such
U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt,
provided that (except as required by law) such custodian
--------
is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any
amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of
principal of or interest on the U.S. Government
Obligation evidenced by such depositary receipt.
(2) No Event of Default or event which with notice or
lapse of time or both would become an Event of Default
shall have occurred and be continuing on the date of such
deposit or, insofar as subsections 501(6) and (7) are
concerned, at any time during the period ending on the
121st day after the date of such deposit (it being
understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such Defeasance or covenant Defeasance shall not
cause the Trustee to have a conflicting interest as
defined in Section 608 and for purposes of the Trust
Indenture Act with respect to any securities of the
Company.
(4) Such Defeasance or covenant Defeasance shall not
result in a breach or violation of, or constitute a
default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it
is bound.
(5) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for
relating to either the Defeasance under Section 1302 or
the covenant Defeasance under Section 1303 (as the case
may be) have been complied with.
(6) In the case of an election under Section 1302, the
Company shall have delivered to the Trustee an Opinion of
Counsel stating that (x) the Company has received from,
or there has been published by, the Internal Revenue
Service a ruling, or (y) since the date of this First
Supplemental Indenture there has been a change in the
applicable Federal income tax law, in either case to the
effect that and based thereon such opinion shall confirm
that, the Holders of the Outstanding Securities of this
series will not recognize income, gain or loss for
Federal income tax purposes as a result of such
Defeasance or covenant Defeasance and will be subject to
Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case
if such Defeasance or covenant Defeasance had not
occurred."
SECTION 1305. Deposited Money and U.S. Government Obligations to
--------------------------------------------------
Be Held in Trust; Other Miscellaneous
-------------------------------------
Provisions.
----------
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying
trustee--collectively, for purposes of this Section 1305, the
"Trustee") pursuant to Section 1304 in respect of the Securities of
this series shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities of this series
and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Securities of
this series, of all sums due and to become due thereon in respect
of principal (and premium, if any) and interest, but such money
need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 1304 or the
principal and interest received in respect thereof other than any
such tax, fee or other charge which by law is for the account of
the Holders of the Outstanding Securities of this series.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company
from time to time upon Company Request any money or U.S. Government
Obligations held by it as provided in Section 1304 which, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered
to the Trustee, are in excess of the amount thereof which would
then be required to be deposited to effect an equivalent Defeasance
or covenant Defeasance.
SECTION 1306. Reinstatement.
--------------
If the Trustee or the Paying Agent is unable to apply any
money in accordance with Section 1302 or 1303 by reason of any
order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Securities of
this series shall be revived and reinstated as though no deposit
had occurred pursuant to this Article Thirteen until such time as
the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 1302 or 1303; provided, however, that if
-------- -------
the Company makes any payment of principal of (and premium, if any)
or interest on any Security of this series following the
reinstatement of its obligations, the Company shall be subjugated
to the rights of the Holders of such Securities of this series to
receive such payment from the money held by the Trustee or the
Paying Agent.
ARTICLE FIVE
MISCELLANEOUS
Section 501. Miscellaneous.
--------------
(a) The Trustee accepts the trusts created by the Indenture,
as supplemented by this First Supplemental Indenture, and agrees to
perform the same upon the terms and conditions of the Indenture, as
supplemented by this First Supplemental Indenture.
(b) The recitals contained herein shall be taken as
statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this First
Supplemental Indenture.
(c) All capitalized terms used and not defined herein shall
have the respective meanings assigned to them in the Indenture.
(d) Each of the Company and the Trustee makes and reaffirms
as of the date of execution of this First Supplemental Indenture
all of its respective representations, covenants and agreements set
forth in the Indenture.
(e) All covenants and agreements in this First Supplemental
Indenture by the Company or the Trustee shall bind its respective
successors and assigns, whether so expressed or not.
(f) In case any provisions in this First Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
(g) Nothing in this First Supplemental Indenture, express or
implied, shall give to any Person, other than the parties hereto
and their successors under the Indenture and the Holders of the
series of Securities created hereby, any benefit or any legal or
equitable right, remedy or claim under the Indenture.
(h) If any provision hereof limits, qualifies or conflicts
with a provision of the Trust Indenture Act of 1939, as may be
amended from time to time, that is required under such Act to be a
part of and govern this First Supplemental Indenture, the latter
provision shall control. If any provision hereof modifies or
excludes any provision of such Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this
First Supplemental Indenture as so modified or excluded, as the
case may be.
(i) This First Supplemental Indenture shall be governed by
and construed in accordance with the laws of the State of New York.
(j) All amendments to the Indenture made hereby shall have
effect only with respect to the series of Securities created
hereby.
(k) All provisions of this First Supplemental Indenture shall
be deemed to be incorporated in, and made a part of, the Indenture;
and the Indenture, as supplemented by this First Supplemental
Indenture, shall be read, taken and construed as one and the same
instrument.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year
first above written.
THE KROGER CO.
By _______________________
Name:
Title:
Attest:
______________________________
Assistant Secretary
COMERICA BANK,
as Trustee
By______________________
Name:
Title:
Attest:
______________________________
Assistant Secretary
STATE OF _________ )
) ss.:
COUNTY OF _________ )
On the ____th day of ______, 1996, before me personally came
___________________, to me known, who, being by me duly sworn, did
depose and say that he is _____________ of The Kroger Co., one of
the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
STATE OF _____________ )
) ss.:
COUNTY OF ____________ )
On the ______th day of _____, 1996, before me personally came
_________________, to me known, who, being by me duly sworn, did
depose and say that he is a _____________ of Comerica Bank, one of
the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
EXHIBIT 11.1
COMPUTATION OF CONSOLIDATED EARNINGS (LOSS) PER SHARE
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
2nd Quarter Ended 2 Quarters Ended
------------------------ ----------------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings before extraordinary loss . . . . . . . . $ 78,378 $ 82,464 $ 154,868 $ 146,941
Extraordinary loss . . . . . . . . . . . . . . . . (766) (5,451) (1,850) (10,788)
---------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . $ 77,612 $ 77,013 $ 153,018 $ 136,153
========== ========= ========= =========
PRIMARY <F1>
- ------------
Weighted average common and dilutive
common equivalent shares:
Common stock outstanding . . . . . . . . . . . 125,223 111,465 124,810 111,298
Stock options. . . . . . . . . . . . . . . . . 5,921 3,926 5,860 3,893
--------- -------- --------- ---------
131,144 115,391 130,670 115,191
========= ======== ========= =========
Primary earnings before extraordinary loss
per share. . . . . . . . . . . . . . . . . . . . $ .60 $ .71 $ 1.19 $ 1.28
Primary results of extraordinary loss per share . . (.01) (.05) (.01) (.09)
--------- -------- --------- ---------
Primary net earnings per share. . . . . . . . . . . $ .59 $ .66 $ 1.18 $ 1.19
========= ======== ========= =========
FULLY DILUTED <F1>
- ------------------
Weighted average common shares
and all other dilutive securities:
Common stock outstanding . . . . . . . . . . . 125,223 111,465 124,810 111,298
Stock options. . . . . . . . . . . . . . . . . 5,921 4,466 6,068 4,454
Convertible debt . . . . . . . . . . . . . . . 10,707 10,707
131,144 126,638 130,878 126,459
Fully diluted earnings before extraordinary
loss per share <F2>. . . . . . . . . . . . . . . $ .60 $ .67 $ 1.18 $ 1.19
Fully diluted results of extraordinary
loss per share . . . . . . . . . . . . . . . . . (.01) (.04) (.01) (.09)
Fully diluted net earnings per share <F2> . . . . . $ .59 $ .63 $ 1.17 $ 1.10
</TABLE>
[FN]
<F1> The Convertible Junior Subordinated Notes issued in December
1992 are not included in the computation of primary earnings
per share for the quarter and two quarters ended June 17, 1995
since they were not common stock equivalents. They are
included in the fully diluted earnings per share calculation
for the quarter and two quarters ended June 17, 1995. The
notes were converted into common stock on or before the
redemption date of September 5, 1995
<F2> Earnings for 1995 used to calculate fully diluted earnings per
share have been adjusted to reflect the tax effected interest
expense of $1.8 million and $3.6 million, respectively, for
the quarter and two quarters ended June 15, 1995 that would
have been avoided in connection with the assumed conversion of
the convertible debt issue as of the beginning of the year.
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 TWO QUARTERS ENDED JUNE 15, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-15-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 276,776
<ALLOWANCES> 0
<INVENTORY> 1,506,853
<CURRENT-ASSETS> 2,131,797
<PP&E> 5,341,000
<DEPRECIATION> 2,575,195
<TOTAL-ASSETS> 5,193,967
<CURRENT-LIABILITIES> 2,470,576
<BONDS> 3,577,244
<COMMON> 368,596
0
0
<OTHER-SE> (1,792,905)
<TOTAL-LIABILITY-AND-EQUITY> 5,193,967
<SALES> 11,628,620
<TOTAL-REVENUES> 11,628,620
<CGS> 8,780,169
<TOTAL-COSTS> 8,780,169
<OTHER-EXPENSES> 2,455,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,149
<INCOME-PRETAX> 251,818
<INCOME-TAX> 96,950
<INCOME-CONTINUING> 154,868
<DISCONTINUED> 0
<EXTRAORDINARY> (1,850)
<CHANGES> 0
<NET-INCOME> 153,018
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.17
</TABLE>
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 30, 1995 and for the two quarters ended June
15, 1996 and June 17, 1995.
<TABLE>
<CAPTION>
Two Quarters Ended Fiscal Years Ended
--------------------- ---------------------------------------------------------------
June 15, June 17, December 30, December 31, January 1, January 2, December 28,
1996 1995 1995 1994 1994 1993 1991
(24 Weeks) (24 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 weeks) (52 weeks)
---------- ---------- ------------ ----------- ----------- ---------- ------------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Earnings before tax
expense, extraordinary
loss and cumulative
effect of change in
accounting . . . . . . . $252,610 $242,802 $509,538 $421,363 $283,938 $173,415 $168,595
Fixed charges. . . . . . 225,112 231,975 489,939 500,599 556,008 640,004 687,227
Capitalized interest . . (4,927) (1,735) (6,785) (2,521) 230 (960) 122
-------- -------- -------- -------- -------- -------- --------
$472,795 $473,042 $992,692 $919,441 $840,176 $812,459 $855,944
======== ======== ======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest . . . . . . . . $146,413 $152,084 $320,236 $331,097 $391,693 $476,932 $536,485
Portion of rental
payments deemed to be
interest. . . . . . . . 78,699 79,891 169,703 169,502 164,315 163,072 150,742
-------- -------- -------- -------- -------- -------- --------
$225,112 $231,975 $489,939 $500,599 $556,008 $640,004 $687,227
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges . . . . . 2.1 2.0 2.0 1.8 1.5 1.3 1.2
</TABLE>
<PAGE>
