SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
October 5, 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 126,141,021 shares of Common Stock ($1 par value)
outstanding as of October 5, 1996.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited information for the quarters ended October 5, 1996
and October 7, 1995 includes the results of operations of The
Kroger Co. for the 16 and 40 week periods ended October 5, 1996 and
October 7, 1995, and of Dillon Companies, Inc. for the 13 and 39
week periods ended September 28, 1996 and September 30, 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>
3rd Quarter Ended 3 Quarters Ended
---------------------- -----------------------
October 5, October 7, October 5, October 7,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $7,343,132 $6,959,216 $18,971,752 $18,077,061
---------- ---------- ----------- -----------
Costs and expenses:
Merchandise costs, including warehousing and
transportation. . . . . . . . . . . . . . . . . . . . 5,582,031 5,284,006 14,362,201 13,681,241
Operating, general and administrative. . . . . . . . . 1,361,525 1,303,774 3,521,968 3,348,224
Rent . . . . . . . . . . . . . . . . . . . . . . . . . 88,913 86,561 227,958 227,711
Depreciation and amortization. . . . . . . . . . . . . 101,192 89,424 257,189 231,670
Interest expense, net. . . . . . . . . . . . . . . . . 91,831 93,430 232,979 243,393
--------- ---------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . 7,225,492 6,857,195 18,602,295 17,732,239
---------- ---------- ----------- -----------
Earnings before income tax expense and
extraordinary loss . . . . . . . . . . . . . . . . . . 117,640 102,021 369,457 344,822
Tax expense . . . . . . . . . . . . . . . . . . . . . . 45,292 39,344 142,241 135,205
---------- ---------- ----------- -----------
Earnings before extraordinary loss. . . . . . . . . . . 72,348 62,677 227,216 209,617
Extraordinary loss (net of income tax credit) . . . . . (928) (1,516) (2,778) (12,303)
---------- ---------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 71,420 $ 61,161 $ 224,438 $ 197,314
========== ========== =========== ===========
<S> <C> <C> <C> <C>
Primary earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .55 $ .52 $ 1.73 $ 1.78
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.01) (.02) (.10)
----- ----- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . $ .54 $ .51 $ 1.71 $ 1.68
===== ===== ====== ======
Average number of common shares used in primary per
share calculation. . . . . . . . . . . . . . . . . . . 131,499 121,617 131,009 117,669
Fully diluted earnings per common share:
Earnings from operations . . . . . . . . . . . . . . . $ .55 $ .49 $ 1.72 $ 1.66
Extraordinary loss . . . . . . . . . . . . . . . . . . (.01) (.01) (.02) (.10)
----- ----- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . $ .54 $ .48 $ 1.70 $ 1.56
===== ===== ====== ======
Average number of common shares used in fully diluted
per share calculations . . . . . . . . . . . . . . . . 132,276 129,019 131,982 128,441
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)
<CAPTION>
October 5, December 30,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Receivables . . . . . . . . . . . . . . . . . . . . . . $ 306,339 $ 288,067
Inventories:
FIFO cost . . . . . . . . . . . . . . . . . . . . . . 2,119,639 2,034,880
Less LIFO reserve . . . . . . . . . . . . . . . . . . (463,863) (449,163)
----------- -----------
1,655,776 1,585,717
Property held for sale. . . . . . . . . . . . . . . . . 101,140 40,527
Prepaid and other current assets. . . . . . . . . . . . 210,020 192,673
----------- -----------
Total current assets. . . . . . . . . . . . . . . . 2,273,275 2,106,984
Property, plant and equipment, net. . . . . . . . . . . . 2,926,370 2,662,338
Investments and other assets. . . . . . . . . . . . . . . 390,381 275,395
----------- -----------
Total Assets. . . . . . . . . . . . . . . . . . . . $5,590,026 $5,044,717
=========== ===========
LIABILITIES
Current liabilities
Current portion of long-term debt . . . . . . . . . . . $ 21,721 $ 24,939
Current portion of obligations under
capital leases. . . . . . . . . . . . . . . . . . . . 9,203 8,975
Accounts payable. . . . . . . . . . . . . . . . . . . . 1,504,517 1,540,067
Other current liabilities . . . . . . . . . . . . . . . 1,028,243 991,456
----------- -----------
Total current liabilities . . . . . . . . . . . . . 2,563,684 2,565,437
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 3,576,493 3,318,499
Obligations under capital leases. . . . . . . . . . . . . 169,752 171,229
Deferred income taxes . . . . . . . . . . . . . . . . . . 155,427 153,232
Other long-term liabilities . . . . . . . . . . . . . . . 464,609 439,333
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . 6,929,965 6,647,730
----------- -----------
SHAREOWNERS' DEFICIT
Common capital stock, par $1, at stated value
Authorized: 350,000,000 shares
Issued: 1996 - 135,613,811 shares
1995 - 133,777,921 shares. . . . . . . . . . . 625,218 586,541
Accumulated deficit . . . . . . . . . . . . . . . . . . . (1,721,485) (1,945,923)
Common stock in treasury, at cost
1996 - 9,577,175 shares
1995 - 9,575,950 shares . . . . . . . . . . . (243,672) (243,631)
----------- -----------
Total Shareowners' Deficit (1,339,939) (1,603,013)
----------- -----------
Total Liabilities and Shareowners' Deficit. . . . . . $5,590,026 $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>
3 Quarters Ended
------------------------------
October 5, October 7,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . $ 224,438 $ 197,314
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . 2,778 12,303
Depreciation and amortization. . . . . . . . . . . . . . . . 257,189 231,670
Amortization of deferred financing costs . . . . . . . . . . 10,194 9,803
LIFO charge. . . . . . . . . . . . . . . . . . . . . . . . . 14,700 16,500
Net increase (decrease) in cash from changes in operating
assets and liabilities, net of effects from sale of
subsidiary, detail below . . . . . . . . . . . . . . . . . (162,541) 157,134
Other changes, net . . . . . . . . . . . . . . . . . . . . . (5,219) (4,128)
----------- -----------
Net cash provided by operating activities . . . . . . . . 341,539 620,596
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (518,271) (462,095)
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . 12,126 48,489
Increase in property held for sale. . . . . . . . . . . . . . . (61,914) (8,861)
(Increase) decrease in other investments . . . . . . . . . . . (118,365) 7,836
----------- -----------
Net cash used by investing activities . . . . . . . . . . (686,424) (414,631)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt prepayment costs . . . . . . . . . . . . . . . . . . . . . (4,080) (16,597)
Financing charges incurred. . . . . . . . . . . . . . . . . . . (9,940) (7,379)
Principal payments under capital lease obligations. . . . . . . (6,818) (6,619)
Proceeds from issuance of long-term debt. . . . . . . . . . . . 461,892 76,698
Reductions in long-term debt. . . . . . . . . . . . . . . . . . (207,116) (264,673)
Proceeds from sale of treasury stock. . . . . . . . . . . . . . 151
Proceeds from issuance of capital stock . . . . . . . . . . . . 37,352 29,111
Increase in book overdrafts . . . . . . . . . . . . . . . . . . 73,595
----------- -----------
Net cash provided (used) by financing activities. . . . . 344,885 (189,308)
----------- -----------
Net increase in cash and temporary cash investments . . . . . . . 0 16,657
Cash and temporary cash investments:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 0 27,223
----------- -----------
End of quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 43,880
=========== ===========
INCREASE (DECREASE) IN CASH FROM CHANGES IN OPERATING ASSETS AND LIABILITIES:
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . $ (84,759) $ 87,453
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . (18,272) 3,732
Prepaid and other current assets. . . . . . . . . . . . . . . (17,645) (11,816)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . (109,145) 18,907
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 2,195 (14,860)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 65,085 73,718
----------- -----------
$ (162,541) $ 157,134
=========== ===========
</TABLE>
- -------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
3 Quarters Ended
--------------------------
October 5, October 7,
1996 1995
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest (net of amount capitalized) $221,856 $238,792
Income taxes 139,166 151,114
</TABLE>
- -------------------------------------------------------------------
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 three quarters ended October 5,
1996 and October 7, 1995 of $2.8 million and $12.3 million,
respectively (net of income taxes of $1.7 million and $7.9
million, respectively) and for the third quarter ended October
5, 1996 and October 7, 1995 of $.9 million and $1.5 million,
respectively (net of income taxes of $.6 million and $1.0
million, respectively) is related to the early retirement of
long-term debt. During the third quarter of 1996 the Company
repurchased $3.2 million of its Senior Subordinated Debt
issues and $19.8 million of Senior Debt. Purchases of debt
were financed by excess cash flow from operations, proceeds
from miscellaneous asset sales, and funds borrowed under the
Company's Credit Agreement.
4. EARNINGS PER COMMON SHARE
--------------------------
Primary and fully diluted 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
three quarters ended October 7, 1995 is computed by adjusting
net earnings 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 third quarter ended October 7, 1995 and the third
quarter and three quarters ended October 5, 1996 because they
were redeemed on September 5, 1995.
5. LONG-TERM DEBT
--------------
In the third quarter the Company issued $240.0 million of
8.15% Senior Notes. The net proceeds of the offering were
initially used to repay amounts outstanding under the working
capital facility and, thereafter the Company will use amounts
available under the working capital facility to purchase, on
the open market, or redeem portions of its high cost long-term
debt and for other general corporate purposes.
On August 17, 1996 the Company redeemed the entire $125
million principal amount of its 9% Senior Subordinated Notes
due 1999.
6. SUBSEQUENT EVENTS
-----------------
On October 18, 1996, the Company notified its lenders under
the Credit Agreement that it qualified for a reduction in its
borrowing cost under the agreement. This reduction was
achieved as a result of the Company's improved coverage
ratios.
On November 8, 1996, the Company notified the trustee of its
General Term Notes, Series B that it intends to redeem
approximately $9.7 million of these notes on December 15,
1996. These securities are redeemable at par.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Total sales for the third quarter of 1996 increased 5.5% over the
third quarter 1995 to a new third quarter record of $7.34 billion.
Food stores sales increased 4.9% over the 1995 third quarter.
Sales were enhanced by the opening or expansion of 31 stores during
the quarter versus 18 in last year's third quarter. Square footage
increased 5.9% over the third quarter of 1995. Sales in identical
food stores, units that have been in operation for one full year
and have not been expanded, increased .8% for the quarter versus a
1.4% increase in 1995. Year-to-date identical sales, increased .6%
versus a 1.3% increase in 1995. Identical store sales, excluding
the strike in the King Soopers and City Markets divisions, were up
.9% for the third quarter and 1.1% year-to-date. The Company's
capital expenditure emphasis is more heavily concentrated in
existing markets with growth potential which causes sales from
existing stores to be shifted to new stores within close proximity
of the existing stores, resulting in a reduction in same store
sales. In the third quarter comparable store sales, which include
results from expanded and relocated stores, increased 3.7%.
A review of sales trends by lines of business includes:
<TABLE>
<CAPTION>
(in thousands of dollars)
3rd Quarter
% of 1996 ----------------------
Lines of Business Sales 1996 1995 Change
--------------------- ------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Food Stores ........ 93.5% $6,862,770 $6,540,486 +4.9%
Convenience Stores .. 3.5% 257,475 232,890 +10.6%
Other sales ........ 3.0% 222,887 185,840 +19.9%
------- ---------- ----------
Total sales ........ 100.0% $7,343,132 $6,959,216 +5.5%
</TABLE>
<TABLE>
<CAPTION>
(in thousands of dollars)
3 Quarters Year-to-date
% of 1996 ------------------------
Lines of Business Sales 1996 1995 Change
--------------------- --------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Food Stores ........ 93.4% $17,722,744 $16,975,151 +4.4%
Convenience Stores .. 3.7% 706,571 640,294 +10.4%
Other sales ........ 2.9% 542,437 461,616 +17.5%
--------- ----------- -----------
Total sales ........ 100.0% $18,971,752 $18,077,061 +4.9%
</TABLE>
The increase in total convenience stores sales for the third
quarter was the result of a 1.5% increase in in-store sales
combined with a 16.2% increase in gasoline sales. Sales for the
convenience store group were strengthened by a combination of a
6.3% increase in the average retail price per gallon of gasoline
and an 8.7% increase in gallons sold as compared to the third
quarter of 1995. Convenience stores identical grocery sales
increased 1.2% and identical gasoline sales increased 8.9%.
Other sales primarily consist of outside sales by the Company's
manufacturing divisions. The 19.9% increase in other sales for the
third quarter of 1996 over the third quarter of 1995 reflects the
increased level of outside sales of manufactured product.
As the Company's storing program progresses, the impact on
identical sales from the shifting of sales from existing stores to
new stores is expected to continue for the remainder of the year.
Total sales, however, are expected to benefit from the additional
new stores or remodels that are planned for the remainder of the
year. Competitive pressures in some markets also will continue to
affect sales. The Company's geographic diversity, however, is
expected to help limit the competitive impact on consolidated
sales.
EBITD
The Company's Credit Agreement and the indentures underlying
approximately $1.1 billion of publicly issued debt contain various
restrictive covenants, many of which are based on earnings before
interest, taxes, depreciation, LIFO charge, unusual and
extraordinary items ("EBITD"). All such covenants are based,
among other things, upon generally accepted accounting principles
("GAAP") as applied on a date prior to January 3, 1993. The
ability to generate EBITD at levels sufficient to satisfy the
requirements of these agreements is a key measure of the Company's
financial strength. The presentation of EBITD is not intended to
be an alternative to any GAAP measure of performance but rather to
facilitate an understanding of the Company's performance compared
to its debt covenants. At October 5, 1996 the Company was in
compliance with all covenants of its Credit Agreement. The Company
believes it has adequate coverage of its debt covenants to continue
to respond effectively to competitive conditions.
During the third quarter 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", increased 8.2% to $323.6 million from $299.0 million.
Year-to-date 1996 EBITD increased 4.7% to $887.5 million from
$847.9 million. Excluding the effect of strikes in the King
Soopers and City Market divisions, EBITD would have been
approximately $328.3 million for the third quarter, a 9.8% increase
and year-to-date would have been $921.0 million, an 8.6% increase.
MERCHANDISE COSTS
The Company continues to invest capital in technology, logistics
and category management systems with the goal of reducing
merchandising cost, as well as increasing sales.
<TABLE>
<CAPTION>
3 Quarters
3rd Quarter Year-to-date
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Merchandise Costs - LIFO 76.02% 75.93% 75.70% 75.68%
LIFO Charge .11% .14% .07% .09%
------ ------ ------ ------
Merchandise Costs - FIFO 75.91% 75.79% 75.63% 75.59%
</TABLE>
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses in the third quarter
1996 decreased to 18.54% of sales from 18.73% in last year's third
quarter. The decrease can be attributed to lower employee cost
during the third quarter. Year-to-date operating, general and
administrative expenses in 1996 were 18.56% compared to 18.52% in
1995.
Sales growth has helped to control operating, general and
administrative expenses as a percentage of sales. Operating,
general and administrative expenses are negatively affected by the
Company's capital expansion program as costs are incurred to open
and expand new stores.
The Company's is focusing on controlling operating, general and
administrative expenses. A number of administrative changes are
underway to reduce support costs. While the Company believes that
these programs will bring about cost reductions, there can be no
assurance of these results.
NET INTEREST EXPENSE
Net interest expense declined to $91.8 million in the third quarter
1996 from $93.4 million in last year's third quarter. Year-to-date
net interest expense totaled $233.0 million as compared to $243.4
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 $79.7 million of
this Debt during the third quarter of 1996, bringing the total
investment to $153.5 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 third quarter would have been
$3.62 billion, up from $3.47 billion at the end of the 1995 third
quarter, due to the Company's increased storing program and an
increase in net operating working capital. Net operating working
capital increased by $96.8 million to $103.0 million as compared to
$6.2 million in the third quarter 1995.
NET EARNINGS
Third quarter earnings before the extraordinary loss totaled $72.3
million in 1996 compared to $62.7 million in 1995. Year-to-date
earnings before the extraordinary loss totaled $227.2 million in
1996 compared to $209.6 million in 1995.
The Company's net earnings in the third quarter 1996 were $71.4
million or $.54 per share on a fully diluted basis compared to net
earnings in the third quarter 1995 of $61.2 million or $.48 per
share. Net earnings in 1996 were negatively affected by the King
Soopers and City Market strikes and by an extraordinary loss of $.9
million or $.01 per share compared to an extraordinary loss of $1.5
million or $.01 per share in 1995. Year-to-date net earnings in
1996 were $224.4 million or $1.70 per share on a fully-diluted
basis compared to net earnings in 1995 of $197.3 million or $1.56
per share. 1996 year-to-date net earnings included a $2.8 million
extraordinary loss compared to a $12.3 million extraordinary loss
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 the fourth quarter of
1996 and, depending on the interest rate environment, in each
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter 1996 the Company purchased $23.0 million
of its various debt issues. Through three quarters of 1996 the
Company has purchased $48.2 million of these issues. Additionally,
in the third quarter the Company redeemed the entire $125 million
face amount of the Company's 9% Senior Subordinated Notes and
issued $240.0 million of 8.15% Senior Notes.
At the end of the third quarter 1996 the Company had $535.1 million
available under its Credit Agreement to meet short-term liquidity
needs.
Capital expenditures for the third quarter 1996 totaled $259.4
million compared to $217.7 million for the third quarter 1995.
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 in 1996. Capital expenditures also includes investments in
the areas of logistics and technology projects. Through three
quarters of 1996, the Company has opened, expanded or acquired 77
new stores and completed 34 remodels.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company generated $341.5 million of cash from operating
activities through the first three quarters of 1996 compared to
$620.6 million during the same period last year. The decrease is
due in part to changes in operating assets and liabilities that
used $162.5 million of cash in 1996 compared to providing $157.1
million in 1995. The largest component of the change in operating
assets and liabilities was net owned inventory, which increased
$193.9 million in the third quarter versus a decrease of $106.3
million in the third quarter of 1995, due in part to the Company's
storing program. This use of cash was offset somewhat by an
increase in operating profits before depreciation of $43.1 million
over 1995.
Investing activities used $686.4 million in cash during the first
three quarters of 1996 compared to $414.6 million last year. The
net increase in the use of cash is due to $109.2 million of
additional capital expenditures and investments in property held
for sale and an additional $126.2 million used for purchase of
investments. Proceeds from the sale of assets decreased $36.4
million from prior year.
Financing activities provided $344.9 million in cash compared to
the use of $189.3 million in the first three quarters of last year.
The increase in cash from financing activities was used primarily
to fund increases in capital expenditures and investments in
working capital. Additionally, the Company realized $37.4 million
from the exercise of stock options as compared to $29.1 million
during the first three quarters of 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 October 18, 1996, the Company notified its lenders under the
Credit Agreement that it qualified for a reduction in its borrowing
cost under the agreement. This reduction was achieved as a result
of the Company's improved coverage ratios.
On November 8, 1996, the Company notified the trustee of its
General Term Notes, Series B that it intends to redeem
approximately $9.7 million of these notes on December 15, 1996.
These securities are redeemable at par.
<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, certain affiliates and the
representatives of the class to settle all claims against
Fry's. On October 21, 1996, the Court approved the
settlement agreement and, upon the completion of certain
administrative tasks and assuming no appeals, the cases
against Fry's will be dismissed.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3.1 - Amended Articles of Incorporation and
-----------
Regulations of the Company are hereby incorporated by
reference to Exhibits 4.1 and 4.2 of the Company's
Registration Statement on Form S-3 as filed with the
Securities and Exchange Commission on January 28, 1993,
and bearing Registration No. 33-57552.
Exhibit 4.1 - Instruments defining the rights of holders
-----------
of long-term debt of the Company and its subsidiaries are
not filed as Exhibits because the amount of debt under
each instrument is less than 10% of the consolidated
assets of the Company. The Company undertakes to file
these instruments with the Commission upon request.
Exhibit 11.1 - Statement of Computation of Consolidated
------------
Earnings (Loss) Per Share.
Exhibit 27.1 - Financial Data Schedule.
------------
Exhibit 99.1 - Additional Exhibits - Statement of
------------
Computation of Ratio of Earnings to Fixed Charges.
(b) The Company disclosed and filed its preliminary second
quarter 1996 earnings release in its Current Report on
Form 8-K dated July 9, 1996 and its final second quarter
1996 earnings release in its Current Report on Form 8-K
dated July 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: November 12, 1996 (Joseph A. Pichler)
Joseph A. Pichler
Chairman of the Board and
Chief Executive Officer
Dated: November 12, 1996 (J. Michael Schlotman)
J. Michael Schlotman
Vice President and
Corporate Controller
EXHIBIT 11.1
<TABLE>
COMPUTATION OF CONSOLIDATED EARNINGS (LOSS) PER SHARE
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
3rd Quarter Ended 3 Quarters Ended
----------------------- -----------------------
October 5, October 7, October 5, October 7,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings before extraordinary loss . . . . . . . . $ 72,348 $ 62,677 $ 272,216 $ 209,617
Extraordinary loss . . . . . . . . . . . . . . . . (928) (1,516) (2,778) (12,303)
---------- --------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 71,420 $ 61,161 $ 224,438 $ 197,314
========== ========= ========== ==========
PRIMARY
- -------
Weighted average common and dilutive
common equivalent shares:
Common stock outstanding . . . . . . . . . . . 125,753 116,334 125,187 113,312
Stock options. . . . . . . . . . . . . . . . . 5,746 5,283 5,822 4,357
---------- --------- ---------- ----------
131,499 121,617 131,009 117,669
========== ========= ========== ==========
Primary earnings from continuing
operations per share . . . . . . . . . . . . . . $ .55 $ .52 $ 1.73 $ 1.78
Primary results of extraordinary loss per share . . (.01) (.01) (.02) (.10)
---------- --------- ---------- ----------
Primary net earnings per share. . . . . . . . . . . $ .54 $ .51 $ 1.71 $ 1.68
========== ========= ========== ==========
FULLY DILUTED <F1>
- ------------------
Weighted average common shares
and all other dilutive securities:
Common stock outstanding . . . . . . . . . . . 125,753 123,020 125,188 122,405
Stock options. . . . . . . . . . . . . . . . . 6,523 5,999 6,794 6,036
---------- --------- ---------- ----------
132,276 129,019 131,982 128,441
========== ========= ========== ==========
Fully diluted earnings from
continuing operations per share <F1> . . . . . . $ .55 $ .49 $ 1.72 $ 1.66
Fully diluted results of extraordinary
loss per share . . . . . . . . . . . . . . . . . (.01) (.01) (.02) (.10)
---------- --------- ---------- ----------
Fully diluted net earnings per share <F1> . . . . . $ .54 $ .48 $ 1.70 $ 1.56
========== ========= ========== ==========
</TABLE>
[FN]
<F1> Earnings used to calculate fully diluted earnings per share
have been adjusted to reflect the tax effected interest
expense of $3.6 million for the three quarters ended October
7, 1995 that would have been avoided in connection with the
assumed conversion of the convertible debt issue as of the
beginning of the year.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE QUARTERS ENDED OCTOBER 5,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> OCT-5-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 306,339
<ALLOWANCES> 0
<INVENTORY> 2,119,639
<CURRENT-ASSETS> 2,273,275
<PP&E> 5,563,186
<DEPRECIATION> 2,636,816
<TOTAL-ASSETS> 5,590,026
<CURRENT-LIABILITIES> 2,563,684
<BONDS> 3,777,169
<COMMON> 625,218
0
0
<OTHER-SE> (1,965,157)
<TOTAL-LIABILITY-AND-EQUITY> 5,590,026
<SALES> 18,971,752
<TOTAL-REVENUES> 18,971,752
<CGS> 14,362,201
<TOTAL-COSTS> 14,362,201
<OTHER-EXPENSES> 4,007,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 232,979
<INCOME-PRETAX> 369,457
<INCOME-TAX> 142,241
<INCOME-CONTINUING> 227,216
<DISCONTINUED> 0
<EXTRAORDINARY> (2,778)
<CHANGES> 0
<NET-INCOME> 224,438
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.70
</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 31, 1995 and for the three quarters ended
October 5, 1996 and October 7, 1995.
<TABLE>
<CAPTION>
Three Quarters Ended Fiscal Years Ended
--------------------- ---------------------------------------------------------------
October 5, October 7, December 30, December 31, January 1, January 2, December 28,
1996 1995 1995 1994 1994 1993 1991
(40 Weeks) (40 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 . . . . . . . $369,457 $344,822 $509,538 $421,363 $283,938 $173,415 $168,595
Fixed charges. . . . . . 370,507 376,035 489,939 500,599 556,008 640,004 687,227
Capitalized interest . . (7,800) (3,165) (6,785) (2,521) 230 (960) 122
-------- -------- -------- -------- -------- -------- --------
$732,164 $717,692 $992,692 $919,441 $840,176 $812,459 $855,944
======== ======== ======== ======== ======== ======== ========
Fixed Charges
Interest . . . . . . . . $241,483 $247,151 $320,236 $331,097 $391,693 $476,932 $536,485
Portion of rental
payments deemed to be
interest. . . . . . . . 129,024 128,884 169,703 169,502 164,315 163,072 150,742
-------- -------- -------- -------- -------- -------- --------
$370,507 $376,035 $489,939 $500,599 $556,008 $640,004 $687,227
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges . . . . . 2.0 1.9 2.0 1.8 1.5 1.3 1.2
</TABLE>
