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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 1-303
January 1, 1994
THE KROGER CO.
An Ohio Corporation I.R.S. Employer Identification
No. 31-0345740
Address Telephone Number
- ------- ----------------
1014 Vine St. (513) 762-4000
Cincinnati, Ohio 45202
Securities registered pursuant to section 12 (b) of the Act:
Name of Exchange on
Title of Class which Registered
- -------------- --------------------------
Common $1 par value New York Stock Exchange
108,129,456 shares outstanding on
February 11, 1994
6-3/8% Convertible Junior Subordinated New York Stock Exchange
Notes due 1999, face $1000
200,000 notes outstanding
9% Senior Subordinated Notes New York Stock Exchange
due 1999, face $1000
125,000 notes outstanding
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 .
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the Common Stock of The Kroger Co.
held by nonaffiliates as of February 11, 1994: $2,521,592,309
Documents Incorporated by Reference:
Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act on or before April 6, 1994 incorporated by
reference into Parts II and III of Form 10-K.
PART I
ITEM 1. BUSINESS
The Company was founded in 1883, incorporated in 1902, and
maintains its principal executive offices in Cincinnati, Ohio. The
Company is the nation's largest supermarket operator measured by
total sales for 1993. The retail food business in which the
Company is engaged is highly competitive. The Company had
approximately 190,000 employees on January 1, 1994. At January 1,
1994, the Company operated 1,277 supermarkets in 24 states.
At January 1, 1994, the Company operated, directly or through
franchise agreements, 931 convenience stores in 16 states. The
Company also operates food processing facilities which enable the
Company's stores to offer quality, low-cost private label
perishable and non-perishable products, and a warehouse and
distribution system which supplies products to its stores.
FOOD OPERATIONS
- ---------------
As of January 1, 1994, the Company operated 1,277 supermarkets, the
locations of most of which are leased. Of this number, 1,038
supermarkets were operated under the Kroger name principally in the
Midwest, South, Southeast, and Southwest in sixteen states (the
"Kroger Supermarkets"). Dillon Companies, Inc. ("Dillon"), a
wholly-owned subsidiary of the Company, operated 239 supermarkets
in nine states, directly or through wholly-owned subsidiaries
("Dillon Supermarkets"). The Dillon Supermarkets are principally
located in Colorado, Kansas, Arizona and Missouri, and operated
under various names including "Dillon Food Stores," "King Soopers,"
"Fry's Food Stores," "Gerbes Supermarkets," "City Market," and
"Sav-Mor."
Foodland Distributors is a joint wholesaling venture formed in 1984
by the Company and Wetterau Incorporated which sells a full line of
grocery and general merchandise products and support services to
independent and chain store retailers, including Kroger, in
Michigan.
The Kroger and Dillon Supermarkets sell national and regional brand
food and grocery products as well as private label products. Over
one-half of these private label items are manufactured by the
Company. The remainder are manufactured by outside vendors to
Kroger specifications. The Dillon Supermarkets also offer private
label items supplied by Topco Associates (a private label buying
group) and private label merchandise supplied by local cooperatives
and wholesalers.
The Company's primary focus is on the combination food and drug
store format, which offers a pharmacy plus a variety of service-
oriented specialty departments in addition to the more traditional
presentation of supermarkets. Combining a food store with a
pharmacy, a typical combination store offers more than 40,000
individual items in a modern format. Specialty departments
including floral, service meat, seafood, pharmacy, expanded health
and beauty care, video rental, book stores, cosmetics, photo
finishing, deli, bakery, cheese and seasonal nonfood general
merchandise, provide shoppers with a convenient one-stop shopping
opportunity.
The Company's combination stores range from 40,000 to 80,328 square
feet in size with an average size of 50,486 square feet. At
January 1, 1994, combination stores accounted for 55% of the store
base, 68% of supermarket square footage, and 70% of food store
sales. These figures compare with 48% of the store base, 62% of
supermarket square footage, and 61% of food store sales at year end
1988.
The Company's superstores, which have no pharmacy and limited
specialty departments, and fewer square feet, continue to be an
important component of the Company's store mix. At January 1,
1994, superstores represented 38% of the store base but only 28% of
the square footage and 27% of the food store sales. Superstores
average 30,665 square feet in size.
Conventional stores are the oldest store format and offer few, if
any, specialty departments. Conventional stores are substantially
smaller in total square footage, averaging 17,203 square feet, and
contributed 3% of total supermarket sales in 1993.
CONVENIENCE STORES
- ------------------
At January 1, 1994, the Company's Dillon convenience store group
operated, directly or through franchise agreements, 931 convenience
stores in 16 states as follows:
Chain No. Stores Sq. Feet States of Operation
- ----- ---------- ----------- -----------------------
Kwik Shop 192 495,000 Iowa, Kansas, Nebraska,
Oklahoma, Illinois
Quik Stop 117 262,000 California
Time Savers 123 297,000 Louisiana
Turkey Hill 215 525,000 Pennsylvania
Loaf 'N Jug 71 224,000 Colorado, New Mexico,
Oklahoma
Mini Mart 109 267,000 Colorado, Montana, Nebraska,
North Dakota, South Dakota,
Wyoming
Tom Thumb 104 271,000 Alabama, Florida
--- ---------
931 2,341,000
Dillon convenience stores averaged 2,514 square feet at January 1,
1994. The average store employs six to seven employees, with one
or two employees on duty at any given time.
Each week, an average of 1,450 customers visit a typical Dillon
convenience store to purchase gasoline and 5,300 customers visit to
purchase groceries. Each gasoline customer spends an average of
$8.74 per visit and each inside store customer spends an average of
$1.97 per visit. The average convenience store carries 3,000
items. About 62% of a convenience store's non-gasoline sales are
generated by five product categories: soft drinks, beer, snacks,
candy and tobacco products.
Each convenience store division is independently run and requires
little general or administrative corporate support. The
convenience store group has grown primarily by acquisition.
MANUFACTURING OPERATIONS
- ------------------------
The Company's 37 food processing facilities supply private label
products to the Company's supermarkets. The Company's dairy
division provides private label milk, ice cream, cheese, cultured
products, bottled water and juice. The Company's bakeries provide
a wide variety of bread, rolls and sweet goods. The Company's
grocery products division produces deli items, spices, salad
dressings, jellies, peanut butter, and a host of other grocery
items.
OTHER
- -----
The Company plans to expend $45-$60 million during the period 1994-
1998 to remain in compliance with environmental laws relating to
underground storage tanks and refrigerants.
ITEM 2. PROPERTIES
As of January 1, 1994, the Company operated more than 2,200 owned
or leased supermarkets, convenience stores, distribution warehouses
and food processing facilities, through store marketing areas,
subsidiaries or affiliates. These facilities are located
principally in the Midwest, South and Southwest. A majority of the
properties used in the conduct of the Company's business are
leased.
Store equipment, fixtures and leasehold improvements, as well as
processing and manufacturing equipment, are generally owned by the
Company. The total cost of the Company's owned assets is reported
in Schedule V - Property, Plant and Equipment and the Accumulated
Depreciation and Amortization are set forth in Schedule VI.
Leased premises generally have base terms ranging from ten to
twenty-five years with renewal options for additional periods.
Some options provide the right to purchase the property after
conclusion of the lease term. Store rentals are normally payable
monthly at a stated amount or at a guaranteed minimum amount plus a
percentage of sales over a stated dollar volume. Rentals for the
distribution, processing and miscellaneous facilities generally are
payable monthly at stated amounts. For additional information on
leased premises, see "Leases" in the Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
There are pending against the Company various claims and lawsuits
arising in the normal course of business, including suits charging
violations of certain antitrust and civil rights laws. Some of
these suits purport or have been determined to be class actions
and/or seek substantial damages. Any damages that may be awarded
in antitrust cases will be automatically trebled. Although it is
not possible at this time to evaluate the merits of these claims
and lawsuits, nor their likelihood of success, the Company is of
the opinion that any resulting liability will not have a material
adverse effect on the Company's financial position.
Following the announcement of the Restructuring Program, several
complaints purporting to be class actions were filed in the Court
of Common Pleas, Hamilton County, Ohio (the "Court"). The Court
then consolidated the actions under the caption In Re: The
Kroger Co. Shareholders Litigation, Consolidated C.A. No. A-8807634
(the "Shareholder Action"). On October 7, 1988, a consolidated
amended complaint was filed naming the Company and the Board of
Directors as defendants (the "Consolidated Complaint"). The
Consolidated Complaint alleged, among other things, that the Board
of Directors breached its fiduciary duties to the Company's
shareholders in adopting the Restructuring Program. The Company
subsequently entered into a settlement agreement with attorneys for
most of the plaintiffs but the Court of Appeals, Hamilton County,
Ohio, declined, on procedural grounds, to uphold the agreement. As
a result, the Shareholder Action was remanded to the trial court
for further proceedings. The Company thereafter filed a motion for
summary judgment. On July 17, 1992, the Court granted the
Company's motion for summary judgment and entered judgment in favor
of the Company, and the judgment was appealed. On November 19,
1993, the Court of Appeals affirmed the judgment of the trial court
in favor of the Company. The time period for any further appeals
has lapsed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock Price Range
- -----------------------------------------------------------------------------------
1993 1992
--------------------- --------------------
Quarter High Low High Low
- ------- ------ ------- ------ ------
1st 19-1/2 14 21-1/8 16-3/4
2nd 19-5/8 16-5/8 19-1/8 15-5/8
3rd 21-3/4 16-1/4 16 11-1/4
4th 20-7/8 17-1/2 15-7/8 11-3/8
Main trading market - New York Stock Exchange (Symbol KR)
Number of shareowners at year-end 1993: 66,304
Number of shareowners at February 11, 1994 70,746
Determined by number of shareholders of record
The Company has not paid dividends on its Common Stock for the past
two fiscal years. See Quarterly Data Note to Consolidated
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED
------------------------------------------------------------------
JANUARY 1, JANUARY 2, DECEMBER 28, DECEMBER 29, DECEMBER 30,
1994 1993 1991 1990 1989
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Sales from continuing
operations............. $22,384,301 $22,144,588 $21,350,530 $20,260,974 $19,103,671
Earnings (loss) from
continuing operations
before extraordinary
loss and cumulative ef-
fect of change in
accounting(A).......... 170,805 101,160 100,694 83,290 (16,251)
Extraordinary loss (net
of income tax
credit)(B) ............ (23,832) (107,103) (20,839) (910) (56,471)
Cumulative effect of
change in accounting
(net of income tax
credit)(C)............. (159,193)
Net earnings (loss)(A).. (12,220) (5,943) 79,855 82,380 (72,722)
Earnings (loss) per
share
Earnings (loss) from
continuing operations
before extraordinary
loss(A)............... 1.50 1.11 1.12 .96 (.23)
Extraordinary loss(B).. (.19) (1.17) (.23) (.01) (.69)
Cumulative effect of
change in
accounting(C)......... (1.28)
Net earnings (loss)(A). .03 (.06) .89 .95 (.92)
Total assets............ 4,480,464 4,303,084 4,114,351 4,118,542 4,241,987
Long-term obligations,
including obligations
under capital leases... 4,135,013 4,472,978 4,407,764 4,557,838 4,737,393
Shareowners' deficit.... (2,459,642) (2,700,044) (2,749,183) (2,860,461) (2,965,543)
Cash dividends per com-
mon share.............. (D) (D) (D) (D) (D)
- -------------------------------------------------------------------------------------------
(A) See Other Charges in the Notes to Consolidated Financial Statements for
information pertaining to 1993. During the year ended December 29, 1990 the
Company recorded a pre-tax gain of $26,754 related to the disposition of an
equity investment in an unaffiliated company. During the year ended
December 30, 1989 the Company recorded a pre-tax gain of $28,405 from the
sale of assets and recorded a $10,362 pre-tax charge to earnings related to
the revaluation of various assets.
(B) See Extraordinary Loss in the Notes to Consolidated Financial Statements.
(C) See Postretirement Health Care and Life Insurance Benefits in the Notes to
Consolidated Financial Statements.
(D) The Company is prohibited from paying cash dividends under the terms of its
restated Credit Agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALES
Sales in the fourth quarter 1993, which included 12 weeks, decreased 5.2% below
the same quarter in 1992, which included 13 weeks. Adjusting 1992's sales for
the extra week and excluding sales from the Company's San Antonio, Texas stores
which were sold in August 1993, sales in the 1993 fourth quarter increased
3.8%. Sales for the full year, including the extra week in 1992 and the San
Antonio sales, increased 1.1% over those for 1992. Excluding the extra week and
the San Antonio stores, full year 1993 sales increased 3.6% over 1992. A review
of sales by lines of business for the three years ended January 1, 1994, is as
follows:
1993 1992 1991
% OF 1993 -------------- -------------- --------------
SALES AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE
------------------------------------------------------------
(MILLIONS OF DOLLARS)
Food Stores.............. 91.3% $20,443 +1.1% $20,199 +3.4% $19,533 +5.7%
Convenience Stores....... 4.3% 951 +3.9% 916 +6.0% 864 +0.2%
Other sales.............. 4.4% 990 -3.9% 1,030 +8.0% 954 +4.4%
------ ------- ------- -------
Total sales.............. 100.0% $22,384 +1.1% $22,145 +3.7% $21,351 +5.4%
Sales in identical food stores for the full year 1993 (those operating a full
year and not expanded) increased 1.6% from the prior year. Excluding Michigan,
which had a sixty-seven day strike during the second and third quarters of
1992, identical food stores sales increased 1.2% for all of 1993 and 1.1% in
the fourth quarter 1993 versus the same periods in 1992. These increases were
achieved despite low overall food inflation and deflation in some commodities
in both 1993 and 1992, intense new supermarket competition in markets like
Houston, Texas and Toledo, Ohio, and expanding supercenter competition in many
other markets.
1993 convenience stores sales changes as compared to the same periods in 1992
were as follows:
4TH QUARTER YEAR-TO-DATE
--------------------------
Total Sales............................................ -3.8% 3.9%
Identical.............................................. 1.7% 3.6%
In-Store Sales:
Total................................................ -4.1% 2.7%
Identical............................................ 3.9% 4.5%
Gasoline Sales:
Total................................................ -3.5% 5.2%
Identical............................................ -.6% 2.6%
Gasoline Gallons:
Total................................................ .1% 7.7%
Identical............................................ 3.4% 5.3%
The fourth quarter and full year 1993 sales for the seven-company convenience
store group were enhanced by strong in-store sales and increases in gasoline
gallons sold but were depressed by decreases in gasoline retail prices.
Other sales include outside sales by the Company's manufacturing divisions and
sales of general merchandise to a drug store company in which the Company
maintains an equity interest. The drug store company is expected to complete an
expansion of its warehouse in early 1994 and to discontinue its purchases from
the Company. The Company expects that this will result in a decline of
approximately 45% to 50% in other sales.
Total food store square footage, excluding the San Antonio stores disposition,
increased 3.2%, 2.5% and 2.2% in 1993, 1992, and 1991, respectively. The
Company expects to increase retail food store square footage by 4 1/2 to 5%
each year from 1994 through 1996. Convenience store square footage declined .7%
and 2.1% in 1993 and 1991 respectively, and increased .2% in 1992. Sales per
average square foot for the last three years were:
TOTAL SALES
PER
AVERAGE SQUARE
FOOT
--------------
1993 1992 1991
-------------------------
Food Stores...................................................... $398 $402 $398
Convenience Stores............................................... $405 $389 $364
Food stores sales per average square foot for 1992 includes the extra week.
Without the extra week the amount would have been $394.
The Company was able to maintain sales growth in 1993 in the face of new and
intense competition for a number of reasons. Fierce price competition in
markets, such as Dayton, Ohio and Houston and Dallas, Texas, has abated
somewhat. The Company's Michigan operations have begun to recover from a
prolonged strike in 1992. The Company's efforts to reduce the cost of products
through improved procurement and distribution practices have made the Company
more price competitive and attractive to consumers without sacrificing gross
profit. Finally, the shift in customer interest to private label products has
enhanced sales. The Company's line of private label products, many of which are
manufactured by the Company, have met with increasing acceptance by consumers.
While these factors likely will continue to benefit the Company in 1994, the
ability to generate sales growth may be limited by significant competitive
entries into markets such as Atlanta and Indiana, as well as continued
supercenter growth.
Sales in 1992 showed an improvement over 1991 primarily due to the extra week
in the fiscal year. Sales in 1991 benefited from the purchase of the former
Great Scott! Stores in Michigan in late 1990, the continued maturation of the
Company's combination food store format, and significant growth in private
label products.
EBITD
The Company's Credit Agreement, dated January 21, 1992, and the indentures
underlying approximately $1.7 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").
These 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 January 1, 1994 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 1993, EBITD, which does not include the effect of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", or the charges related to the
disposition of the San Antonio stores, increased 7.5% to $976.8 million
compared to $908.2 million in 1992 and $968.0 million in 1991. 1992's EBITD was
negatively affected by a Michigan strike which reduced EBITD by approximately
$69 million and was increased by the extra week in the fiscal year. 1993's
EBITD increase was primarily the result of increased sales combined with an
improved gross profit rate.
MERCHANDISE COSTS
Merchandise costs include warehousing and transportation expenses and LIFO
charges or credits. The following table shows merchandising costs as a percent
of sales and the relative effect of LIFO charges:
1993 1992 1991
---------------------
Merchandise costs as reported............................. 76.43% 77.12% 77.19%
LIFO charge (credit)...................................... (.02%) .03% .12%
------ ------ ------
Merchandise costs as adjusted............................. 76.45% 77.09% 77.07%
The Company's gross profit rate in 1993 improved over previous years in all
categories with the exceptions of pharmacy and deli. The improvement was due in
large measure to improved results in Michigan which was affected by a strike in
1992, an increase in private label sales, a reduction in coupon costs, and
cost reduction programs in procurement and warehousing.
The Company expects gross profit as a percent of sales to improve in the future
as benefits are derived from coupon scanning and a decline in multiple
couponing. Coupon scanning allows the Company to readily determine the validity
of coupons presented. The effect of reduced multiple couponing is enhanced by a
reduction in the face value and quantity of vendor coupons. The Company also
expects to show gross profit improvement from coordinated procurement and the
continued expansion of private label sales. The Company produces many of its
own private label products and, therefore, has lower product costs for such
items than could be obtained through procurement. Some of the gross profit
benefit will be reflected in lower prices to protect or enhance the Company's
competitive position.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses as a percent of sales in 1993,
1992 and 1991 were 17.98%, 17.51% and 17.15%, respectively. Excluding the
effect of SFAS No. 106 from 1993, operating, general and administrative
expenses as a percent of sales were 17.89%.
The increase in operating, general and administrative expenses over last year
was due in part to the increase in incentive pay for both management and store
employees, reflecting 1993's improved performance compared to 1992. The Company
also has experienced increases in collectively bargained wages, health
insurance, general liability claims, and other store expenses.
Controlling operating, general and administrative expenses is a significant
challenge to the Company. Beginning in 1992 and continuing through 1995, the
Company expects to spend approximately $125 million of capital to increase
technological capabilities with the goal of reducing operating costs. The
Company has dedicated management resources to improve its procurement,
logistics, administrative, and accounting functions, both to realize the
benefits of improved technological capability and otherwise to control costs.
The Company also has begun the redesign of some specialty departments within
the food stores to realize cost savings. The Company currently is absorbing the
expense of converting some full service departments to self service. This
effort will continue during 1994 and 1995, and the Company expects to realize
some benefit from these efforts beginning in late 1994.
INCOME TAXES
The effective income tax rates were 39.8%, 41.7% and 40.3% for 1993, 1992 and
1991, respectively. 1993's income tax expense includes a $4.2 million charge to
increase deferred taxes for the change in the federal income tax rate.
NET EARNINGS (LOSS)
Net earnings (loss) totaled $(12.2) million in 1993 compared to $(5.9) million
in 1992 and $79.9 million in 1991. Earnings in 1993 compared to 1992 and 1991
was affected by: (i) a 1993 charge against earnings of $159.2 million after
taxes for the cumulative effect of a change in accounting for retiree benefits,
(ii) an extraordinary loss from the early retirement of debt in 1993 of $23.8
million compared to $107.1 million in 1992 and $20.8 million in 1991, (iii) a
sixty-seven day strike in Michigan during 1992, (iv) a LIFO credit in 1993 of
$3.2 million versus a charge of $8.1 million in 1992 and $26.2 million in 1991,
and (v) net interest expense in 1993 of $390.0 million versus $474.8 million in
1992 and $531.1 million in 1991. 1993's net earnings also include a $4.4
million pre-tax ($2.7 million after tax) one-time charge related to a change in
the estimated useful life of certain computer equipment and a $22.7 million
charge ($15 million after tax) in connection with the disposition of the San
Antonio stores. Severance pay, unemployment benefits costs and loss on sale of
assets are included in this charge.
LIQUIDITY AND CAPITAL RESOURCES
DEBT MANAGEMENT AND INTEREST EXPENSE
The Company continued to reduce interest expense during 1993. The Company was
successful in placing $1.6 billion of senior subordinated or senior secured
debt during 1992 and 1993 with an average rate of 9.39% and $200 million of
convertible junior subordinated notes with a rate of 6.375%. The Company also
borrowed $100 million at a rate equal to LIBOR + 1.25% or, at the Company's
election, such lenders' base rate + .25%, pursuant to a term facility under the
Credit Agreement. The proceeds from these offerings and the issuance of
13,275,000 shares of common stock with proceeds of $203.5 million, were used to
redeem or repurchase, on the open market, high yield subordinated debt with an
average rate of 14.2% (see "Repurchase and Redemption of Subordinated Debt").
As a result of these transactions the Company has reduced the weighted average
cost of its long-term debt including capital leases to 8.2% at year-end 1993
versus 11.6% at the beginning of 1990. Long-term debt, including capital leases
and current portions thereof, decreased $348 million to $4.206 billion at year
end 1993 from $4.554 billion at year end 1992.
Required principal repayments over the next five years increased to $1.048
billion at year end 1993 versus $534.5 million and $541.3 million at year-end
1992 and 1991, respectively. Scheduled debt maturities for the five years
subsequent to 1993, 1992 and 1991 were:
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Year 1....................................... $ 63,053 $ 73,248 $ 73,580
Year 2....................................... 111,010 115,017 123,368
Year 3....................................... 117,434 111,549 114,927
Year 4....................................... 146,784 118,032 111,451
Year 5....................................... 609,769 116,669 117,926
1993's Year 5 maturities include the entire $362.0 million outstanding under
the Company's Working Capital Facility under its Credit Agreement, $68.0
million of Facility D under its Credit Agreement, and the remaining 11 1/8%
Senior Notes outstanding at January 1, 1994 of $138.4 million. The Company has
notified the trustee for the Senior Notes that it will redeem these notes on
March 15, 1994. Maturities shown for 1991 reflect the restated Credit Agreement
dated January 21, 1992.
The Company's interest rate on Credit Agreement borrowings is variable. The
average interest rate, including the effect of interest rate swaps, on the
Company's bank debt, which totaled $847.0 million at year-end 1993, including
Facility D, versus $851.0 million at year-end 1992, was 4.57% compared to 5.42%
at the end of 1992 and 6.13% at the end of 1991. The decline is due to
generally lower market interest rates and achieving a .25% interest rate step
down in January, 1993.
The Company currently has in place various interest rate hedging agreements
aggregating $1.4 billion. The effect of these agreements is to: (i) fix the
rate on $100 million floating rate debt until July, 1994 (ii) swap the
contractual interest rate on $350 million of seven and ten year debt
instruments to the rates available on three to five year fixed rate instruments
(upon expiration of the three to five year swap agreements the fixed
contractual rate will become floating for the remainder of the seven and ten
year term of debt), (iii) swap the contractual interest rate on $600 million of
seven and ten year fixed-rate instruments into floating-rate instruments and
(iv) cap six month LIBOR on $350 million for one to five years at rates of
3.70% to 5.50%. $50 million of the caps expire in each of July 1994, July 1995,
July 1997 and July 1998. The remaining $150 million cap expires in November
1995.
The Company currently expects 1994 net interest expense, based on year-end 1993
rates, to total $330-$340 million compared to $390.0 million, $474.8 million
and $531.1 million in 1993, 1992 and 1991, respectively.
To meet any short-term liquidity needs, the Company has available an $850
million Working Capital Facility under its Credit Agreement. A portion of the
Company's short-term borrowings are permitted to be in the form of commercial
paper. At January 1, 1994, the Company had outstanding $98.0 million of
commercial paper and $264.0 million under the Working Capital Facility. At
year-end 1993, after deducting amounts set aside as backup for the Company's
unrated commercial paper program and stand-by letters of credit, $317.8 million
was available under the Working Capital Facility. There are no annual principal
payments required under the Working Capital Facility, which expires on January
3, 1998.
COMMON STOCK
On March 4, 1993 the Company issued 12,500,000 shares of its common stock
through a public offering. On April 1, 1993, the Company issued an additional
775,000 shares of its common stock pursuant to an over-allotment option granted
to the underwriters in connection with the offering. The Company realized net
proceeds of $203.5 million on these issues which were used initially to repay
amounts outstanding under the Working Capital Facility, and thereafter the
Company used amounts available under the Working Capital Facility to purchase
or redeem outstanding indebtedness of the Company.
REPURCHASE AND REDEMPTION OF SUBORDINATED DEBT
During 1993 the Company repurchased $300.6 million face amount of Junior
Subordinated Discount Debentures with an accreted value of $285.1 million,
$71.2 million Senior Subordinated Debentures, $111.6 million Senior Notes, and
$33.5 million Senior Subordinated Reset Notes. Additionally, the Company
redeemed the remaining $498.2 million Junior Subordinated Discount Debentures.
The redemptions were effected using funds from asset sales, the sale of
treasury stock to employee benefit plans, proceeds from the sale of common
stock and new financings, and excess cash from operations. The outstanding
balances of these debt issues at January 1, 1994 were $0 for the Junior
Subordinated Discount Debentures, $0 for the Senior Subordinated Debentures,
$138.4 million for the Senior Notes, and $66.5 million for the Senior
Subordinated Reset Notes. The Company issued a redemption notice for the
remaining Senior Notes on February 13, 1994. The redemption will be effected on
March 15, 1994.
During 1992 the Company repurchased $269.9 million face amount of Junior
Subordinated Discount Debentures with an accreted value of $231.1 million,
$343.9 million Senior Subordinated Debentures and $256.2 million Subordinated
Debentures. Additionally, the Company redeemed $120.5 million Senior
Subordinated Debentures and $304.6 million Subordinated Debentures.
During 1991 the Company repurchased $303.8 million face amount of Junior
Subordinated Discount Debentures with an accreted value of $217.9 million,
$59.3 million Senior Subordinated Debentures and $64.2 million Subordinated
Debentures.
CAPITAL EXPENDITURES
Capital expenditures totaled $376.1 million for 1993, $241.2 million for 1992
and $208.1 million in 1991. During 1993 the Company opened, acquired or
expanded 46 food stores and 10 convenience stores compared to 42 food stores
and 19 convenience stores in 1992 and 42 food stores and 4 convenience stores
in 1991. The Company also completed 70 food store and 21 convenience store
remodels during 1993. During 1993, 32 food stores were closed or sold including
the 15 San Antonio stores sold to Megafood Stores, Inc. in August 1993. 17
convenience stores also were closed. The Company expects capital expenditures
to approximate $1.5 billion over the next three years. In 1994 the Company
plans to increase food store square footage by 4 1/2%-5% by opening, expanding
or acquiring approximately 60 food stores and completing within-the-wall
remodels of 60-70 food stores, including the recently completed purchase of 10
stores in Houston, Texas from AppleTree Markets, Inc. The increased square
footage is planned for existing Company markets where the Company has an
established market position and an existing administrative and logistical
network. The Company's ability to realize its capital expenditure plan will
depend, in part, on its ability to generate sufficient free cash flow. The
Company expects to dedicate one half of its free cash flow in excess of
planned expenditures to its capital program and the remainder to debt
reduction.
CONSOLIDATED STATEMENT OF CASH FLOWS
During 1993 the Company generated $617.3 million in cash from operating
activities compared to $532.8 million in 1992 and $448.4 million in 1991. The
increase from 1992 is due to an increase in operating net income of $69.6
million. Additionally, the Company experienced an increase in cash from changes
in operating assets and liabilities of $105.5 million. The increase is due to
an increase in accounts payable over and above the increase in inventory values
of $47.7 million, an increase in income taxes payable of $17.5 million, and an
increase in self-insured workers compensation and general liability accruals of
$34.4 million. The increase in 1992 from 1991 is due to an increase in cash of
$45.1 million from changes in operating assets and liabilities and a $56.3
million reduction in interest expense.
Investing activities used $368.3 million compared to $264.3 million of cash
used in 1992 and $187.9 million of cash used in 1991. The increase in the use
of cash in 1993 is due to an increase in the level of capital expenditures over
1992 of $134.9 million and an increased use of cash of $18.2 million for
investments. This was offset by an increase in cash over 1992 from reduced
current year expenditures for additions to property held for sale and increased
proceeds from the sale of property, plant and equipment. The increase in 1992
from 1991 is due to an increase in cash used for capital expenditures and
additions to property held for sale.
Cash used by financing activities totaled $231.7 million compared to $168.4
million and $311.1 million in 1992 and 1991, respectively. The increase in the
use of cash during 1993 is due to a debt reduction, excluding capital leases
and the interest accretion on the Junior Subordinated Discount Debentures, of
$423.0 million versus 1992's debt reduction of $38.8 million. The debt
reduction was offset by proceeds from the sale of stock and lower debt
prepayment and financing costs incurred.
OTHER ISSUES
The Company is party to more than 200 collective bargaining agreements with
local unions representing approximately 110,000 of the Company's employees.
Among the contracts that have expired or will expire in the remainder of 1994
are those covering store employees in Charleston (WV), Nashville, Louisville,
Cincinnati, Phoenix and Tucson as well as warehouse and distribution employees
in a number of the Company's operating divisions. Typical agreements are 3 to 4
years in duration, and as such agreements expire, the Company expects to
negotiate with the unions and to enter into new collective bargaining
agreements. There can be no assurance, however, that such agreements will be
reached without work stoppage. A prolonged work stoppage affecting a
substantial number of stores could have a material adverse effect on the
results of the Company's operations.
As of January 3, 1993 the Company implemented SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" using the immediate
recognition approach. This new standard requires that the expected cost of
retiree health benefits be charged to expense during the years that the
employees render service rather than the Company's past practice of recognizing
these costs on a cash basis. As part of adopting the new standard, the Company
recorded in 1993 a non-cash charge against earnings of $248.7 million before
taxes ($159.2 million after taxes). This cumulative adjustment as of January 3,
1993 represents the discounted present value of expected future retiree health
benefits attributed to employees' service rendered prior to that date.
In addition, the new standard results in additional annual expense, which for
the year ended January 1, 1994 totaled $19.5 million before taxes. The increase
in the annual postretirement benefit expense does not affect the Company's
EBITD.
Effective December 29, 1991, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes". The adoption of SFAS No. 109 had a material
effect on the Company's financial statements in the first quarter of 1993 due
to the adoption of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company recognized a deferred tax benefit of
$89.5 million in connection with the adoption of SFAS No. 106. A portion of
this tax benefit would not have been recognized under the Company's previous
method of accounting for income taxes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Shareowners and Board of Directors
The Kroger Co.
We have audited the consolidated financial statements and the
financial statement schedules of The Kroger Co. listed in Item
14(a) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of The Kroger Co. as of January 1, 1994, and January 2,
1993, and the consolidated results of its operations and its cash
flows for the years ended January 1, 1994, January 2, 1993, and
December 28, 1991, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in the notes to the consolidated financial statements,
the Company changed its method of accounting for postretirement
benefit costs other than pensions, as of January 3, 1993.
(Coopers & Lybrand)
COOPERS & LYBRAND
Cincinnati, Ohio
February 8, 1994
CONSOLIDATED BALANCE SHEET
JANUARY 1, JANUARY 2,
(In thousands of dollars) 1994 1993
- ---------------------------------------------------------------------------------
ASSETS
Current assets
Cash and temporary cash investments..................... $ 121,253 $ 103,995
Receivables............................................. 287,925 275,173
Inventories:
FIFO cost.............................................. 2,001,376 1,989,137
Less LIFO reserve...................................... (422,097) (433,694)
---------- ----------
1,579,279 1,555,443
Property held for sale.................................. 37,721 37,080
Prepaid and other current assets........................ 199,652 196,808
---------- ----------
Total current assets.................................. 2,225,830 2,168,499
Property, plant and equipment, net....................... 1,981,308 1,877,172
Investments and other assets............................. 273,326 257,413
---------- ----------
TOTAL ASSETS.......................................... $4,480,464 $4,303,084
========== ==========
LIABILITIES
Current liabilities
Current portion of long-term debt....................... $ 63,053 $ 73,248
Current portion of obligations under capital leases..... 7,962 7,309
Accounts payable........................................ 1,357,532 1,297,630
Other current liabilities............................... 822,284 795,845
---------- ----------
Total current liabilities............................. 2,250,831 2,174,032
Long-term debt........................................... 3,975,362 4,323,950
Obligations under capital leases......................... 159,651 149,028
Deferred income taxes.................................... 182,891 278,097
Other long-term liabilities.............................. 371,371 78,021
---------- ----------
TOTAL LIABILITIES..................................... 6,940,106 7,003,128
---------- ----------
SHAREOWNERS' DEFICIT
Common capital stock, par $1
Authorized: 350,000,000 shares
Issued: 1993--118,549,173 shares
1992--104,378,000 shares................................. 308,534 104,378
Accumulated deficit...................................... (2,490,932) (2,475,561)
Common stock in treasury, at cost
1993--10,901,846 shares
1992--12,925,729 shares.................................. (277,244) (328,861)
---------- ----------
TOTAL SHAREOWNERS' DEFICIT............................ (2,459,642) (2,700,044)
---------- ----------
TOTAL LIABILITIES AND SHAREOWNERS' DEFICIT............ $4,480,464 $4,303,084
========== ==========
- ---------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended January 1, 1994, January 2, 1993 and December 28, 1991
1993 1992 1991
(In thousands, except per share amounts) (52 WEEKS) (53 WEEKS) (52 WEEKS)
- --------------------------------------------------------------------------------
Sales.................................... $22,384,301 $22,144,588 $21,350,530
----------- ----------- -----------
Costs and expenses
Merchandise costs, including warehousing
and transportation..................... 17,109,060 17,078,839 16,480,580
Operating, general and administrative... 4,024,468 3,877,550 3,661,887
Rent.................................... 290,309 288,113 266,328
Depreciation and amortization........... 263,810 251,822 242,022
Net interest expense.................... 389,991 474,849 531,118
Other charges........................... 22,725
----------- ----------- -----------
Total................................. 22,100,363 21,971,173 21,181,935
----------- ----------- -----------
Earnings before tax expense, extraordi-
nary loss and cumulative effect of
change in accounting.................... 283,938 173,415 168,595
Tax expense.............................. 113,133 72,255 67,901
----------- ----------- -----------
Earnings before extraordinary loss and
cumulative effect of change in account-
ing..................................... 170,805 101,160 100,694
Extraordinary loss, net of income tax
credit.................................. (23,832) (107,103) (20,839)
Cumulative effect of change in account-
ing, net of income tax credit........... (159,193)
----------- ----------- -----------
Net earnings (loss)................... $ (12,220) $ (5,943) $ 79,855
=========== =========== ===========
Accumulated Deficit
Beginning of year....................... $(2,475,561) $(2,460,725) $(2,540,580)
Net earnings (loss)..................... (12,220) (5,943) 79,855
Sales of treasury stock below average
cost................................... (3,151) (8,893)
----------- ----------- -----------
End of year............................. $(2,490,932) $(2,475,561) $(2,460,725)
=========== =========== ===========
Primary earnings (loss) per Common Share
Earnings before extraordinary loss and
cumulative effect
of change in accounting................ $ 1.60 $ 1.11 $ 1.12
Extraordinary loss...................... (.22) (1.17) (.23)
Cumulative effect of change in account- (1.49)
ing.................................... ------ ------ ------
Net earnings (loss)..................... $ (.11) $ (.06) $ .89
====== ====== ======
Average number of common shares used in
primary
calculation............................. 106,711 91,364 90,218
Fully-diluted earnings (loss) per Common
Share
Earnings before extraordinary loss and
cumulative effect
of change in accounting................ $ 1.50 $ 1.11 $ 1.11
Extraordinary loss...................... (.19) (1.17) (.23)
Cumulative effect of change in account- (1.28)
ing.................................... ------ ------ ------
Net earnings (loss)..................... $ .03 $ (.06) $ .88
====== ====== ======
Average number of common shares used in
fully-diluted
calculation............................. 124,293 91,452 90,461
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended January 1, 1994, January 2, 1993 and December 28, 1991
1993 1992 1991
(In thousands of dollars) (52 WEEKS) (53 WEEKS) (52 WEEKS)
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings (loss)....................... $ (12,220) $ (5,943) $ 79,855
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Extraordinary loss....................... 23,832 107,103 20,839
Cumulative effect of change in account-
ing..................................... 159,193
Depreciation and amortization............ 263,810 251,822 242,022
Amortization of discount on Junior Subor-
dinated Debentures...................... 64,198 112,321 115,760
Amortization of deferred financing costs. 15,051 10,660 13,326
Loss on sale of property, plant and
equipment............................... 1,004 3,541 6,485
LIFO charge (credit)..................... (3,172) 8,143 26,244
Other changes, net....................... 140
Net increase (decrease) in cash from
changes in operating assets and liabili-
ties, detailed hereafter................ 105,495 45,127 (56,113)
----------- ----------- ---------
Net cash provided by operating activi-
ties................................... 617,331 532,774 448,418
----------- ----------- ---------
Cash Flows From Investing Activities:
Capital expenditures...................... (376,138) (241,234) (208,076)
Proceeds from sale of property, plant and
equipment................................ 40,296 6,562 8,938
Additions to property held for sale....... (10,900) (26,291) (3,925)
Decrease (increase) in other investments.. (21,602) (3,375) 19,138
Other changes, net........................ (3,926)
----------- ----------- ---------
Net cash used by investing activities... (368,344) (264,338) (187,851)
----------- ----------- ---------
Cash Flows From Financing Activities:
Debt prepayment costs..................... (33,484) (136,613) (28,854)
Financing charges incurred................ (18,159) (39,695) (10,793)
Principal payments under capital lease ob-
ligations................................ (7,557) (6,561) (6,915)
Proceeds from issuance of long-term debt.. 724,826 1,354,666 229,514
Reductions in long-term debt.............. (1,147,807) (1,393,435) (521,537)
Proceeds from issuance of capital stock... 212,015 3,167 13,036
Proceeds from sale of treasury stock...... 36,277 48,843 10,303
Capital stock reacquired.................. (96) (44) (819)
Tax benefit of non-qualified stock op-
tions.................................... 2,256 1,258 4,928
----------- ----------- ---------
Net cash used by financing activities... (231,729) (168,414) (311,137)
----------- ----------- ---------
Net increase (decrease) in cash and tempo-
rary cash investments..................... 17,258 100,022 (50,570)
Cash and Temporary Cash Investments:
Beginning of year......................... 103,995 3,973 54,543
----------- ----------- ---------
End of year............................... $ 121,253 $ 103,995 $ 3,973
=========== =========== =========
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
Years Ended January 1, 1994, January 2, 1993 and December 28, 1991
1993 1992 1991
(In thousands of dollars) (52 WEEKS) (53 WEEKS) (52 WEEKS)
- ------------------------------------------------------------------------------
Increase (Decrease) In Cash From Changes In
Operating Assets And Liabilities:
Inventories (FIFO).......................... $(12,239) $(21,328) $(120,872)
Receivables................................. (12,752) (14,092) 15,877
Prepaid and other current assets............ (10,993) (18,186) 356
Accounts payable............................ 59,902 29,935 70,159
Accrued expenses............................ 8,037 53,078 (25,594)
Deferred income taxes....................... 2,175 (34,331) (21,616)
Other liabilities........................... 71,365 50,051 25,577
-------- -------- ---------
$105,495 $ 45,127 $ (56,113)
======== ======== =========
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share amounts.
ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
preparing these financial statements:
Principles of Consolidation
The consolidated financial statements include the Company and all of its
subsidiaries.
Segments of Business
The Company operates primarily in one business segment--retail food and drug
stores. This segment represents more than 90% of consolidated revenue,
operating profit and identifiable assets. The Company also manufactures and
processes food for sale by its supermarkets and operates convenience stores.
Inventories
Inventories are stated at the lower of cost (principally LIFO) or market.
Approximately 89% of inventories for 1993 and 1992 were valued using the LIFO
method. Cost for the balance of the inventories is determined using the FIFO
method.
Property Held for Sale
Property held for sale includes the net book value of property, plant and
equipment that are in the process of being sold. The property is valued at the
lower of cost or market on an individual property basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization, which includes the amortization of assets recorded under capital
leases, are computed principally using the straight-line method over the
estimated useful lives of individual assets, composite group lives or the
initial or remaining terms of leases. Buildings and land improvements are
depreciated based on lives varying from 10 to 40 years and equipment
depreciation is based on lives varying from three to 15 years. Leasehold
improvements are amortized over their useful lives which vary from four to 25
years.
Interest Rate Hedging Agreements
The Company uses interest rate swaps and caps to hedge a portion of its
variable rate borrowings against increases in interest rates. The interest
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements currently as a component of interest
expense. Gains and losses from the disposition of hedge agreements are deferred
and amortized over the term of the related agreements.
Deferred Income Taxes
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting bases. The types of differences that give rise to
significant portions of deferred income tax liabilities or assets relate to:
property, plant and equipment, inventories, accruals for restructuring and
other charges and accruals for compensation-related costs. Deferred income
taxes are classified as a net current and noncurrent asset or liability based
on the classification of the related asset or liability for financial
reporting. A deferred tax asset or liability that is not related to an asset or
liability for financial reporting is classified according to the expected
reversal date. See Taxes Based on Income footnote.
Consolidated Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be temporary cash investments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Cash paid during the year for interest and income taxes was as follows:
1993 1992 1991
--------------------------
Interest............................................. $329,495 $367,126 $414,288
Income taxes......................................... 92,745 48,195 56,445
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of:
1993 1992
----------------------
Land.................................................... $ 195,469 $ 188,382
Buildings and land improvements......................... 652,411 630,437
Equipment............................................... 2,405,106 2,214,378
Leaseholds and leasehold improvements................... 699,868 675,615
Leased property under capital leases.................... 234,114 217,244
---------- ----------
4,186,968 3,926,056
Accumulated depreciation and amortization............... (2,205,660) (2,048,884)
---------- ----------
$1,981,308 $1,877,172
Substantially all property, plant and equipment collateralizes debt of the
Company. (See Debt Obligations footnote.)
INVESTMENTS AND OTHER ASSETS
Investments and other assets consists of:
1993 1992
----------------------
Deferred financing costs................................ $110,684 $112,278
Goodwill................................................ 51,192 55,287
Other................................................... 111,450 89,848
---------- ----------
$273,326 $257,413
The Company is amortizing deferred financing costs using the interest method
and the straight-line basis over the life of the related borrowings.
Substantially all goodwill is amortized on the straight-line method over forty
years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
OTHER CHARGES
On June 14, 1993, the Company announced its intention to dispose of 15 San
Antonio, Texas stores. The Company recognized a pre-tax charge of $22,725 in
connection with the disposition. Severance pay, unemployment benefits costs and
loss on sale of assets are included in this charge.
OTHER CURRENT LIABILITIES
Other current liabilities consists of:
1993 1992
-----------------
Salaries and wages............................................ $252,210 $233,060
Taxes, other than income taxes................................ 122,852 138,357
Interest...................................................... 62,494 75,407
Other......................................................... 384,728 349,021
-------- --------
$822,284 $795,845
TAXES BASED ON INCOME
Effective December 29, 1991 the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
No cumulative effect adjustment was required for the adoption of SFAS No. 109
due to the Company's previous use of the liability method under SFAS No. 96.
Adoption of SFAS No. 109 did not have a material impact on income tax expense
in 1992.
The adoption of SFAS No. 109 had a material impact on the Company's financial
statements in 1993 due to the adoption of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." The Company recognized a
deferred tax benefit of $89,546 in connection with the adoption of SFAS No.
106. A portion of this tax benefit would not have been recognized under SFAS
No. 96.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The provision for taxes based on income consists of:
1993 1992 1991
----------------------------
Federal
Current......................................... $ 92,863 $ 80,934 $ 71,101
Deferred........................................ 2,174 (34,331) (21,616)
-------- -------- --------
95,037 46,603 49,485
State and local.................................. 18,096 25,652 18,416
-------- -------- --------
113,133 72,255 67,901
Tax credit from extraordinary loss............... (14,607) (65,644) (12,772)
Tax credit from cumulative effect of change in
accounting...................................... (89,546)
-------- -------- --------
$ 8,980 $ 6,611 $ 55,129
Tax laws enacted in 1993 increased federal income tax rates retroactive to the
beginning of 1993. Deferred taxes have been adjusted to reflect the increased
federal income tax rates. This adjustment increased the deferred tax provision
by $4,200 in 1993. Targeted job tax credits reduced the tax provision by $2,608
in 1993, $3,378 in 1992 and $4,116 in 1991.
A reconciliation of the statutory federal rate and the effective rate is as
follows:
1993 1992 1991
----------------
Statutory rate................................................ 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit................ 4.1 9.8 7.2
Tax credits................................................... (1.0) (2.1) (2.6)
Tax rate change effect on deferred taxes...................... 1.5
Other, net.................................................... .2 1.7
---- ---- ----
39.8% 41.7% 40.3%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of significant temporary differences and carryforwards that
comprise deferred tax balances were as follows:
1993 1992
- -------------------------------------------------------------------------------
Current deferred tax assets:
Compensation related costs............................. $ 25,902 $ 24,016
Insurance related costs................................ 34,023 33,185
Inventory related costs................................ 19,523 16,829
Tax credit carryforwards............................... 11,653
Alternative minimum tax credit carryforwards........... 13,971 5,857
Other.................................................. 17,054 15,367
--------- ---------
110,473 106,907
--------- ---------
Current deferred tax liabilities:
Compensation related costs............................. (26,001) (27,485)
Lease accounting....................................... (5,408) (5,271)
Inventory related costs................................ (17,568) (725)
Other.................................................. (9,331) (13,427)
--------- ---------
(58,308) (46,908)
--------- ---------
Current deferred taxes, net (in prepaid and other cur-
rent assets)........................................... $ 52,165 $ 59,999
========= =========
Long-term deferred tax assets:
Compensation related costs............................. $ 99,170 $ 3,222
Insurance related costs................................ 21,021 9,224
Lease accounting....................................... 22,269 21,150
Alternative minimum tax credit carryforwards........... 13,974
Other.................................................. 6,798 9,326
--------- ---------
149,258 56,896
--------- ---------
Long-term deferred tax liabilities:
Depreciation........................................... (285,104) (293,179)
Compensation related costs............................. (5,267) (4,559)
Insurance related costs................................ (12,726)
Lease accounting....................................... (11,391) (370)
Deferred charges....................................... (9,735) (10,517)
Other.................................................. (20,652) (13,642)
--------- ---------
(332,149) (334,993)
--------- ---------
Long-term deferred taxes, net........................... $(182,891) $(278,097)
========= =========
As of January 1, 1994, the Company has alternative minimum tax credit
carryforwards of $13,971. This amount will be allowed as a credit against
regular tax in the future to the extent that regular tax expense exceeds the
alternative minimum tax expense. These credits do not have an expiration date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEBT OBLIGATIONS
Long-term debt consists of:
1993 1992
---------------------
Variable rate Senior Term Facility, due in varying
amounts through 1998.................................... $ 386,208 $ 489,197
Variable rate Working Capital Facility, due 1998......... 361,954 361,789
Variable rate Facility D, due 1997 and 1998.............. 98,796
9 1/4% Senior Secured Debentures, due 2005............... 200,000
8 1/2% Senior Secured Debentures, due 2003............... 200,000
11 1/8% Senior Notes, due 1998........................... 138,386 250,000
8 3/4% Senior Subordinated Reset Notes, due 1999......... 66,513 100,000
9% Senior Subordinated Notes, due 1999................... 125,000 125,000
9 3/4% Senior Subordinated Debentures, due 2004.......... 175,000 175,000
9 3/4% Senior Subordinated Debentures, due 2004, Series
B....................................................... 100,000 100,000
9 7/8% Senior Subordinated Debentures, due 2002.......... 250,000 250,000
6% to 9 5/8% Senior Subordinated Notes, due 1999 to 2008. 238,182 68,470
10% Senior Subordinated Notes, due 1999.................. 250,000 250,000
12 7/8% Senior Subordinated Debentures, due 1999......... 71,157
6 3/8% Convertible Junior Subordinated Notes, due 1999... 200,000 200,000
8 1/4% Convertible Junior Subordinated Debentures, due
2011.................................................... 170,000 170,000
15 1/2% Junior Subordinated Discount Debentures, net of
$80,932 unamortized discount in 1992 due 2008 with an
approximate effective rate of 13.88%.................... 719,485
10% Mortgage loans, with semi-annual payments due through
2004.................................................... 609,223 610,173
3 3/5% to 10 3/8% industrial revenue bonds, due in vary-
ing amounts through 2021................................ 211,270 229,145
7% to 12 7/8% mortgages, due in varying amounts through
2017.................................................... 232,469 204,640
3 1/2% to 12% notes, due in varying amounts through 2011. 25,414 23,142
---------- ----------
Total debt............................................... 4,038,415 4,397,198
Less current portion..................................... 63,053 73,248
---------- ----------
Total long-term debt..................................... $3,975,362 $4,323,950
The aggregate annual maturities and scheduled payments of long-term debt for
the five years subsequent to 1993 are:
1994...................................................... $ 63,053
1995...................................................... $111,010
1996...................................................... $117,434
1997...................................................... $146,784
1998...................................................... $609,769
Credit Agreement
The Company entered into a restated Credit Agreement, dated January 21, 1992
(the "Credit Agreement"). This agreement replaced the credit agreement dated as
of December 20, 1989. The following constitutes a summary of the principal
terms and conditions of the Credit Agreement.
The Credit Agreement provides for: (i) a six-year senior term facility of
$605,817 (the "Term Facility") and (ii) a working capital revolving credit
facility of $850,000, with a $450,000 sublimit for the issuance of standby and
documentary letters of credit (the "Working Capital Facility" and together with
the Term Facility, the "Facilities").
The Term Facility expires in 1998, and is subject to quarterly amortization of
$25,747 on the third day of each January, April, July and October. The January
3, 1994 and April 3, 1994 payments were made during 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Facility D
The Credit Agreement provides for additional borrowings of up to $500,000 in
the aggregate pursuant to a new term facility and through issuance of senior
secured debt. During 1993 the Company issued $400,000 of senior secured debt
(see description below) and on October 14, 1993 borrowed $100,000 from a
syndicate of banks under Facility D. Facility D is subject to the same
collateral, prepayment and covenant restrictions described below for the
Facilities. The Facility D bank borrowings bear interest at a rate equal to
LIBOR plus 1 1/4% and are subject to quarterly amortization of $8,000 beginning
January 5, 1997 with a final payment of $52,000 due on July 5, 1998. The
January 5, 1997 payment has been reduced to $6,796 due to the application of
mandatory prepayments.
Interest Rates
Loans under the Facilities bear interest at the option of the Company at a rate
equal to either (i) the rate of interest announced from time to time by
Citibank, N.A., as its base rate (the "Base Rate") plus the Applicable Margin
(as defined below) or (ii) an adjusted Eurodollar rate based upon the London
interbank offered rate ("LIBOR") plus the Applicable Margin.
Applicable Margin means a percentage per annum determined by reference to the
Cash Interest Coverage Ratio set forth below:
APPLICABLE APPLICABLE
MARGIN FOR MARGIN FOR
BASE RATE EURODOLLAR
CASH INTEREST COVERAGE RATIO ADVANCES RATE ADVANCES
- --------------------------------------------------------------------------------
less than 1.75 : 1..................................... 3/4% 1 3/4%
1.75 : 1 or greater, but less than 2.10 : 1............ 1/2 1 1/2
2.10 : 1 or greater, but less than 2.50 : 1............ 1/4 1 1/4
2.50 : 1 or greater.................................... 1/4 1
At January 1, 1994, the Applicable Margin is 1/4% for Base Rate advances and 1%
for Eurodollar Rate Advances. No more than one increase or decrease in the
Applicable Margin shall occur in any six-month period.
Collateral
The Company's obligations under the Facilities are collateralized by a pledge
of the stock of subsidiaries of the Company and substantially all assets, both
real and personal, of the Company and its subsidiaries.
Prepayment
The Company may prepay the Facilities, in whole or in part, at any time,
without a prepayment penalty. Voluntary prepayments will be applied, at the
option of the Company, either (i) to repay the Term Facility in the inverse
order of maturity or (ii) to repay the next two quarterly scheduled Term
Facility payments and then to repay the remaining Term Facility payments pro
rata. The Facilities are subject to certain mandatory prepayments in connection
with asset dispositions, certain stock issuances, certain incurrences of debt
and sale and leaseback transactions and in respect of a percentage of the
Company's excess annual cash as defined in the Credit Agreement.
Certain Covenants
The Credit Agreement contains covenants which, among other things, (i) restrict
investments, capital expenditures, and other material outlays and commitments
relating thereto, (ii) restrict the incurrence of debt, including the
incurrence of debt by subsidiaries, (iii) restrict dividends and payment,
prepayments, and repurchases of subordinated debt, capital stock or other
securities, (iv) restrict mergers and acquisitions and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
changes of business or conduct of business, (v) restrict transactions with
affiliates, (vi) restrict certain sales of assets, (vii) restrict changes in
accounting treatment and reporting practices except as permitted under
generally accepted accounting principles, (viii) require the maintenance of
certain financial ratios and levels, including interest coverage ratios, fixed
charge coverage ratios and total debt ratios, (ix) require the Company to
provide financial statements and an annual business plan of the Company and its
subsidiaries and (x) require the Company to maintain interest rate protection
providing that at least 70% of the Company's indebtedness for all borrowed
money is maintained at a fixed rate of interest.
Interest Rate Protection Program
The Company currently has in place various interest rate hedging agreements
aggregating $1,400,000. The effect of these agreements is to: (i) fix the rate
on $100,000 floating rate debt for a period of two years (expires July, 1994),
(ii) swap the contractual interest rate on $350,000 of seven and ten year debt
instruments to the rates available on three to five year fixed rate instruments
(upon expiration of the three to five year swap agreements the fixed
contractual rate will become floating for the remainder of the seven and ten
year term of the debt), (iii) swap the contractual interest rate on $600,000 of
seven and ten year fixed rate instruments into floating rate instruments and
(iv) cap six month LIBOR on $350,000 for one to five years at rates of 3.70% to
5.50%. $50,000 of the caps expire in each of July 1994, July 1995, July 1997
and July 1998 and the remaining $150,000 expires in November 1995. The Company
is exposed to credit loss in the event of non-performance by the other parties
to the interest rate hedging agreements. However, the Company does not
anticipate non-performance by the counterparties. Through the interest rate
hedging agreements at January 1, 1994, the Company effectively pays interest at
approximately 3.9% and receives interest at approximately 5.4% on the
notional amount of these agreements.
9 1/4% Senior Secured Debentures
On January 25, 1993, the Company issued $200,000 of 9 1/4% Senior Secured
Debentures (the "9 1/4% Senior Secureds"). The 9 1/4% Senior Secureds become
due on January 1, 2005. The 9 1/4% Senior Secureds are redeemable at any time
on or after January 1, 1998 in whole or in part at the option of the Company.
The redemption prices commence at 104.625% and are reduced by 1.156% annually
until January 1, 2002 when the redemption price is 100%.
8 1/2% Senior Secured Debentures
On July 1, 1993, the Company issued $200,000 of 8 1/2% Senior Secured
Debentures (the "8 1/2% Senior Secureds"). The 8 1/2% Senior Secureds become
due on June 15, 2003. The 8 1/2% Senior Secureds are redeemable at any time on
or after June 15, 1998 in whole or in part at the option of the Company. The
redemption prices commence at 104.250% and are reduced by 1.4165% annually
until June 15, 2001 when the redemption price is 100%.
11 1/8% Senior Notes
The Company notified the trustee for the 11 1/8% Senior Notes on February 13,
1994 that it will redeem the remaining outstanding notes on March 15, 1994 at a
redemption price of 105%. The Company expects to record an extraordinary loss
of approximately $4,100 in connection with the redemption.
Senior Subordinated Debentures
In December 1992 $110,506 of Senior Subordinated Debentures were called for
redemption, for which funds were deposited in a trust account in December 1992,
and were redeemed in January 1993. Accordingly, the called debentures were
treated as redeemed for financial reporting purposes in 1992. The remaining
$71,157 Senior Subordinated Debentures were called for redemption on December
29, 1992 and redeemed on January 29, 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Senior Subordinated Indebtedness
During 1993 the Company issued $169,712 of Senior Subordinated Indebtedness.
Senior Subordinated Indebtedness, including that issued during 1993, consists
of the following: (i) $100,000 8 3/4% Senior Subordinated Reset Notes (the
"Reset Notes"), due June 15, 1999. On each of June 15, 1994 and June 15, 1996,
unless previously redeemed, the interest rate on the Reset Notes will, if
necessary, be adjusted from the rate then in effect to a rate to be determined
on the basis of market rates then in effect so that the Reset Notes would have
a market value of 101% of principal amount immediately after the resetting of
the rate except that the rate cannot be reset below 8 3/4%. The Reset Notes are
redeemable at the option of the Company, in whole but not in part, either on
June 15, 1994 or on June 15, 1996, at a redemption price equal to 101% of
principal amount. During 1993, the Company repurchased $33,487 of the Reset
Notes. (ii) $125,000 9% Senior Subordinated Notes due August 15, 1999. This
issue is redeemable at any time on or after August 15, 1996 in whole or in part
at the option of the Company at par. (iii) $175,000 9 3/4% Senior Subordinated
Debentures due February 15, 2004. This issue is redeemable at any time on or
after February 15, 1997 in whole or in part at the option of the Company. The
redemption prices commence at 104.875% in 1997 and are reduced by 1.625%
annually until 2000 when the redemption price is 100%. (iv) $100,000 9 3/4%
Senior Subordinated Debentures due February 15, 2004, Series B. This issue is
redeemable at any time on or after February 15, 1997 in whole or in part at the
option of the Company. The redemption prices commence at 104.875% in 1997 and
are reduced by 1.625% annually until 2000 when the redemption price is 100%.
(v) $250,000 9 7/8% Senior Subordinated Debentures due August 1, 2002. This
issue is redeemable at any time on or after August 1, 1999 in whole or in part
at the option of the Company at par. (vi) $238,182 6% to 9 5/8% Senior
Subordinated Notes due August 15, 1999 to October 15, 2008. Portions of these
issues are subject to early redemption by the Company. (vii) $250,000 10%
Senior Subordinated Notes due May 1, 1999. This issue is not subject to early
redemption by the Company. The proceeds from these offerings, together with
proceeds from the sale of common stock were used to initially repay amounts
outstanding under the Working Capital Facility and, thereafter, the Company
used amounts available under the Working Capital Facility to purchase or redeem
outstanding indebtedness of the Company.
6 3/8% Convertible Junior Subordinated Notes
The $200,000 of 6 3/8% Convertible Junior Subordinated Notes (the "6 3/8%
Convertibles") become due December 1, 1999. The 6 3/8% Convertibles are
convertible into shares of the Company's common stock at a conversion price of
$18.68 at any time at the option of the holder. The 6 3/8% Convertibles are
redeemable, in whole or in part, at the option of the Company at any time after
December 17, 1992 at the scheduled redemption prices. The redemption prices
commence at 106.375% and are reduced by .9105% annually each December 1
thereafter until 1999, when the 6 3/8% Convertibles mature, except that, until
December 8, 1995, the 6 3/8% Convertibles cannot be redeemed by the Company
unless the closing price of the Company's common stock equals or exceeds 150%
of the then effective conversion price per share at least 20 out of 30
consecutive trading days ending within 10 days prior to mailing of the
redemption notice. At January 1, 1994, the Company has reserved 10,706,638
shares of common stock for future conversion of the 6 3/8% Convertibles.
8 1/4% Convertible Junior Subordinated Debentures
The $170,000 of 8 1/4% Convertible Junior Subordinated Debentures (the "8 1/4%
Convertibles") become due on April 15, 2011. The 8 1/4% Convertibles are
convertible into shares of the Company's common stock at a conversion price of
$26.70 at any time at the option of the holder. The 8 1/4% Convertibles are
redeemable at any time on or after April 15, 1994 in whole or in part at the
option of the Company at the scheduled redemption prices plus accrued interest.
The redemption prices commence at 105.775% in 1994 and are reduced by .825%
annually thereafter until 2001 when the redemption price is 100%. At January 1,
1994, the Company had reserved 6,367,041 shares of common stock for future
conversions of the 8 1/4% Convertibles.
Junior Subordinated Discount Debentures
The Junior Subordinated Discount Debentures were redeemed on October 15, 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Redemption Event
Subject to certain conditions (including repayment in full of all obligations
under the Credit Agreement or obtaining the requisite consents under the Credit
Agreement), the Company's publicly issued debt will be subject to redemption,
in whole or in part, at the option of the holder upon the occurrence of a
redemption event, upon not less than five days' notice prior to the date of
redemption, at a redemption price equal to the default amount, plus a specified
premium. "Redemption Event" is defined in the indentures as the occurrence of
(i) any person or group, together with any affiliate thereof, beneficially
owning 50% or more of the voting power of the Company or (ii) any one person or
group, or affiliate thereof, succeeding in having a majority of its nominees
elected to the Company's Board of Directors, in each case, without the consent
of a majority of the continuing directors of the Company.
Mortgage Financing
During 1989 the Company completed a $612,475, 10% mortgage financing of 127 of
its retail properties, distribution warehouse facilities, food processing
facilities and other properties (the "Properties"), with a net book value of
$325,327 held by thirteen newly formed wholly-owned subsidiaries. The wholly-
owned subsidiaries mortgaged the Properties, which are leased to the Company or
affiliates of the Company, to a newly formed special purpose corporation,
Secured Finance Inc.
The mortgage loans have a maturity of 15 years. The Properties are subject to
the liens of Secured Finance Inc. The mortgage loans are subject to semi-annual
payments of interest and principal on $150,000 of the borrowing based on a 30-
year payment schedule and interest only on the remaining $462,475 principal
amount. The unpaid principal amount will be due on December 15, 2004.
Commercial Paper
Under the Credit Agreement the Company is permitted to issue up to $850,000 of
unrated commercial paper and borrow up to $850,000 from the lenders under the
Credit Agreement on a competitive bid basis. The total of unrated commercial
paper, $97,954 at January 1, 1994, and competitive bid borrowings, $264,000 at
January 1, 1994, however, may not exceed $850,000. All commercial paper and
competitive bid borrowings must be supported by availability under the Working
Capital Facility portion of the Credit Agreement. These borrowings have been
classified as long-term because the Company expects that during 1994 these
borrowings will be refinanced using the same type of securities. Additionally,
the Company has the ability to refinance the short-term borrowings under the
Working Capital Facility which matures January 3, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash And Short-term Investments
The carrying amount approximates fair value because of the short maturity of
those instruments.
Long-term Investments
The fair values of these investments are estimated based on quoted market
prices for those or similar investments.
Long-term Debt
The fair value of the Company's long-term debt, including the current portion
thereof, is estimated based on the quoted market price for the same or similar
issues.
Interest Rate Protection Agreements
The fair value of these agreements is based on the net present value of the
future cash flows using interest rates in effect at January 1, 1994 and
represents a net cash inflow for both years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of the Company's financial instruments are as
follows:
1993 1992
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
Cash and short-term investments... $ 121,253 $ 121,253 $ 103,995 $ 103,995
Long-term investments for which it
is
. Practicable..................... $ 19,734 $ 36,516 $ 20,375 $ 65,344
. Not Practicable................. $ 39,625 $ -- $ 20,922 $ --
Long-term debt for which it is
. Practicable..................... $2,113,081 $2,261,420 $2,479,112 $2,527,127
. Not Practicable................. $1,925,334 $ -- $1,918,086 $ --
Interest Rate Protection Agree-
ments............................ $ -- $ 45,312 $ -- $ 2,587
The investments for which it was not practicable to estimate fair value relate
to equity investments in unrelated entities for which there is no market and
investments in real estate development partnerships for which there is no
market.
It was not practicable to estimate the fair value of $846,958 of long-term debt
outstanding under the Company's Credit Agreement. There is no market for this
debt. It was not practicable to estimate the fair value of $609,223 of long-
term debt related to a mortgage transaction completed in 1989. This financing
was a credit enhanced 90% loan-to-value package for which there is no market or
current similar transactions. The remaining amount relates to Industrial
Revenue Bonds, various mortgages and other notes for which there is no market.
LEASES
The Company operates primarily in leased facilities. Lease terms generally
range from 10 to 25 years with options to renew at varying terms. Certain of
the leases provide for contingent payments based upon a percent of sales.
Rent expense (under operating leases) consists of:
1993 1992 1991
-------- -------- --------
Minimum rentals...................................... $275,336 $270,763 $253,345
Contingent payments.................................. 14,973 17,350 12,983
-------- -------- --------
$290,309 $288,113 $266,328
Assets recorded under capital leases consists of:
1993 1992
--------- --------
Distribution and manufacturing facilities.................. $ 38,742 $ 38,742
Store facilities........................................... 195,372 178,502
Less accumulated amortization.............................. (106,273) (98,684)
--------- --------
$ 127,841 $118,560
Minimum annual rentals for the five years subsequent to 1993 and in the
aggregate are:
CAPITAL OPERATING
LEASES LEASES
-------- ----------
1994...................................................... $ 28,275 $ 267,638
1995...................................................... 27,717 249,911
1996...................................................... 26,921 231,734
1997...................................................... 26,117 213,222
1998...................................................... 25,468 214,442
Thereafter................................................ 229,546 1,573,190
-------- ----------
364,044 $2,750,137
Less estimated executory costs included in capital leases. (27,247)
--------
Net minimum lease payments under capital leases........... 336,797
Less amount representing interest......................... (169,184)
--------
Present value of net minimum lease payments under capital
leases................................................... $167,613
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
EXTRAORDINARY LOSS
The extraordinary loss in 1993, 1992 and 1991 relates to premiums paid to
retire certain indebtedness early and the write-off of related deferred
financing costs.
EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share equals net earnings (loss) divided by
the weighted average number of common shares outstanding, after giving effect
to dilutive stock options. Fully diluted earnings per common share equals net
earnings plus, for 1993, after tax interest incurred on the 8 1/4% Convertibles
and 6 3/8% Convertibles of $16,065 divided by common shares outstanding after
giving effect to dilutive stock options and, for 1993, shares assumed to be
issued on conversion of the Company's convertible securities. The convertible
securities are not included in the fully diluted earnings per share calculation
for 1992 because they are anti-dilutive. They are not included in the fully
diluted earnings per share calculation for 1991 because the 8 1/4% Convertibles
were anti-dilutive and the 6 3/8% Convertibles had not been issued.
PREFERRED STOCK
The Company has authorized 5,000,000 shares of voting cumulative preferred
stock; 2,000,000 were available for issuance at January 1, 1994. The stock has
a par value of $100 and is issuable in series. Under the Credit Agreement, the
Company is prohibited from issuing shares of preferred stock.
COMMON STOCK
The Company has authorized 350,000,000 shares of $1 par common stock. The main
trading market for the Company's common stock is the New York Stock Exchange,
where it is listed under the symbol KR. For the three years ended January 1,
1994, changes in common stock were:
ISSUED IN TREASURY
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------
December 30, 1990................ 102,170,937 $ 103,778 16,594,285 $ 423,659
Exercise of stock options includ-
ing restricted stock grants..... 1,586,159 17,543 66,984 1,351
Sale of treasury shares to the
Company's employee benefit
plans........................... (4,279) (571,149) (14,582)
Tax benefit from exercise of non-
qualified stock options......... 4,928
----------- --------- ---------- ---------
December 28, 1991................ 103,757,096 121,970 16,090,120 410,428
Exercise of stock options includ-
ing restricted stock grants..... 620,904 6,233 82,299 1,252
Sale of treasury shares to the
Company's employee benefit
plans........................... (25,082) (3,246,690) (82,819)
Tax benefit from exercise of non-
qualified stock options......... 1,257
----------- --------- ---------- ---------
January 2, 1993.................. 104,378,000 104,378 12,925,729 328,861
Exercise of stock options includ-
ing restricted stock grants..... 896,173 10,658 9,342 62
Sale of treasury shares to the
Company's employee benefit
plans........................... (12,251) (2,033,225) (51,679)
Shares issued through public of-
fering.......................... 13,275,000 203,493
Tax benefit from exercise of non-
qualified stock options......... 2,256
----------- --------- ---------- ---------
January 1, 1994.................. 118,549,173 $ 308,534 10,901,846 $277,244
STOCK OPTION PLANS
The Company grants options for common stock under various plans at an option
price equal to the fair market value of the stock at the date of grant. In
addition to cash payments, the plans provide for the exercise of options by
exchanging issued shares of stock of the Company. At January 1, 1994 and
January 2,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1993, 706,759 and 925,804 shares of common stock, respectively, were available
for future options. Options may be granted under the 1985, 1987, 1988 and 1990
plans until 1995, 1997, 1998 and 2000, respectively, and generally will expire
10 years from the date of grant. Options become exercisable six months from the
date of grant. At January 1, 1994, options for 11,512,159 shares were
exercisable. All grants outstanding become immediately exercisable upon certain
changes of control of the Company.
Changes in options outstanding under the stock option plans, excluding
restricted stock grants, were:
SHARES SUBJECT OPTION PRICE
TO OPTION RANGE PER SHARE
-----------------------------
Outstanding, December 30, 1990................... 7,053,458 $ 2.88--$18.57
Granted.......................................... 2,186,200 $15.69--$23.44
Exercised........................................ (1,503,603) $ 2.88--$16.19
Cancelled or expired............................. (43,024) $ 9.13--$23.44
----------
Outstanding, December 28, 1991................... 7,693,031 $ 3.24--$23.44
Granted.......................................... 5,172,145 $11.75--$19.69
Exercised........................................ (561,629) $ 3.24--$18.57
Cancelled or expired............................. (101,850) $ 9.13--$23.44
----------
Outstanding, January 2, 1993..................... 12,201,697 $ 4.69--$23.44
Granted.......................................... 314,865 $17.50--$21.13
Exercised........................................ (784,658) $ 4.69--$18.69
Cancelled or expired............................. (123,545) $ 9.13--$23.44
----------
Outstanding, January 1, 1994..................... 11,608,359 $ 4.92--$23.44
In addition to stock options, the Company may grant stock appreciation rights
(SARs) to certain officers. In general, the eligible optionees are permitted to
surrender the related option and receive shares of the Company's common stock
and/or cash having a value equal to the appreciation on the shares subject to
the options. The appreciation of SARs is charged to earnings in the current
period based upon the market value of common stock. As of January 1, 1994 and
January 2, 1993 there were no SARs outstanding.
The Company also may grant limited stock appreciation rights (LSARs) to
executive officers in tandem with the related options. LSARs operate in the
same manner as SARs but are exercisable only following a change of control of
the Company. As of January 1, 1994 and January 2, 1993, there were no LSARs
outstanding.
Also, the Company may grant restricted stock awards to eligible employee
participants. In general, a restricted stock award entitles an employee to
receive a stated number of shares of common stock of the Company subject to
forfeiture if the employee fails to remain in the continuous employ of the
Company for a stipulated period. The holder of an award shall be entitled to
the rights of a shareowner except that the restricted shares and the related
rights to vote or receive dividends may not be transferred. The award is
charged to earnings over the period in which the employee performs services and
is based upon the market value of common stock at the date of grant. As of
January 1, 1994 and January 2, 1993, awards related to 101,217 and 184,800
shares, respectively, were outstanding.
CONTINGENCIES
The Company continuously evaluates contingencies based upon the best available
evidence.
Management believes that allowances for loss have been provided to the extent
necessary and that its assessment of contingencies is reasonable. To the extent
that resolution of contingencies results in amounts that vary from management's
estimates, future earnings will be charged or credited.
The principal contingencies are described below:
Income Taxes--The Company has settled all tax years through 1983 with the
Internal Revenue Service. The Internal Revenue Service has completed its
examination of the Company's tax returns for 1984 through 1986 and the Company
has made payments based on its proposed settlement. The Company has provided
for this and other tax contingencies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Insurance--The Company's workers' compensation risks are self-insured in
certain states. In addition, other workers' compensation risks and certain
levels of insured general liability risks are based on retrospective premiums.
The liability for workers' compensation risks is accounted for on a present
value basis. Actual claim settlements and expenses incident thereto may differ
from the provisions for loss. Other levels of general liability risks have been
underwritten by a subsidiary. Operating divisions and subsidiaries have paid
premiums, and the insurance subsidiary has provided loss allowances, based upon
actuarially-determined estimates.
Litigation--Various suits and claims arising in the ordinary course of business
are pending against the Company. In the opinion of management, these suits and
claims will not have a material effect on the financial position or results of
operations of the Company.
WARRANT DIVIDEND PLAN
On February 28, 1986, the Company adopted a warrant dividend plan in which each
holder of common stock is entitled to one common stock purchase right for each
share of common stock owned. When exercisable, the nonvoting rights entitle the
registered holder to purchase one share of common stock at a price of $60 per
share. The rights will become exercisable, and separately tradeable, ten days
after a person or group acquires 20% or more of the Company's common stock. In
the event the rights become exercisable and thereafter the Company is acquired
in a merger or other business combination, each right will entitle the holder
to purchase common stock of the surviving corporation, for the exercise price,
having a market value of twice the exercise price of the right. Under certain
other circumstances, including the acquisition of 25% or more of the Company's
common stock, each right will entitle the holder to receive upon payment of the
exercise price, shares of common stock with a market value of two times the
exercise price. At the Company's option, the rights, prior to becoming
exercisable, are redeemable in their entirety at a price of $.025 per right.
The rights are subject to adjustment and expire March 19, 1996.
PENSION PLANS
The Company administers non-contributory defined benefit retirement plans for
substantially all non-union employees. Funding for the pension plans is based
on a review of the specific requirements and on evaluation of the assets and
liabilities of each plan. Employees are eligible to participate upon the
attainment of age 21 (25 for participants prior to January 1, 1986) and the
completion of one year of service, and benefits are based upon final average
salary and years of service. Vesting is based upon years of service.
The Company-administered pension benefit obligations and the assets were valued
as of the end of 1993 and 1992. The assets are invested in cash and short-term
investments or listed stocks and bonds, including $85,389 and $61,918 of common
stock of The Kroger Co. at the end of 1993 and 1992, respectively. The status
of the plans at the end of 1993 and 1992 was:
1993 1992
------------------
Actuarial present value of benefit obligations:
Vested employees........................................... $541,563 $449,406
Non-vested employees....................................... 16,229 14,750
-------- --------
Accumulated benefit obligations............................ 557,792 464,156
Additional amounts related to projected salary increases... 103,301 103,439
-------- --------
Projected benefit obligations.............................. 661,093 567,595
Plan assets at fair value................................... 768,115 661,472
-------- --------
Plan assets in excess of projected benefit obligations...... $107,022 $ 93,877
Consisting of:
Unamortized transitional asset............................. $ 41,790 $ 51,065
Unamortized prior service cost and net gain................ 65,702 52,349
Adjustment required to recognize minimum liability......... 7,966 5,426
Accrued pension cost in Consolidated Balance Sheet......... (8,436) (14,963)
-------- --------
$107,022 $ 93,877
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The components of net periodic pension income for 1993, 1992 and 1991 are as
follows:
1993 1992 1991
-----------------------------
Service cost.................................... $ 17,752 $ 17,237 $ 13,729
Interest cost................................... 48,601 45,774 42,767
Return on assets................................ (141,143) (35,664) (150,380)
Net amortization and deferral................... 68,041 (40,384) 86,342
-------- -------- ---------
Net periodic pension income for the year........ $ (6,749) $(13,037) $ (7,542)
Assumptions:
Discount rate.................................. 7.25% 8.5% 8.5%
Salary Progression rate........................ 4.25% 5.5% 5.5%
Long-term rate of return on plan assets........ 9.5% 10.0% 10.0%
1993 assumptions represent the rates in effect at the end of the fiscal year.
These rates were used to calculate the actuarial present value of the benefit
obligations at January 1, 1994. However, for the calculation of periodic
pension income for 1993 the long-term rate of return rate used was 10%, the
discount rate was 8.5% and the salary progression rate was 5 1/2%. The 1994
calculation of periodic pension income will be based on the assumptions in the
table above for 1993.
The Company also administers certain defined contribution plans for eligible
union and non-union employees. The cost of these plans for 1993, 1992 and 1991
was $20,388, $16,371 and $14,617, respectively.
The Company participates in various multi-employer plans for substantially all
union employees. Benefits are generally based on a fixed amount for each year
of service. Contributions and expense for 1993, 1992 and 1991 were $86,377,
$85,010 and $79,735, respectively. Information on the actuarial present value
of accumulated plan benefits and net assets available for benefits relating to
the multi-employer plans is not available.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for retired employees. The majority of the
Company's employees may become eligible for these benefits if they reach normal
retirement age while employed by the Company. Funding of retiree health care
and life insurance benefits occurs as claims or premiums are paid. For 1993,
1992 and 1991, the combined payments for these benefits were $12,266, $9,538 and
$9,746, respectively.
As of January 3, 1993 the Company implemented SFAS No. 106 using the immediate
recognition approach. This new standard requires that the expected cost of
retiree benefits be charged to expense during the years that the employees
render service rather than the Company's past practice of recognizing these
costs on a cash basis. As part of adopting the new standard, the Company
recorded in 1993, a one-time, non-cash charge against earnings of $248,739
before taxes ($159,193 after taxes). This cumulative adjustment as of January
3, 1993 represents the discounted present value of expected future retiree
benefits attributed to employees' service rendered prior to that date.
The following table sets forth the postretirement benefit plans combined status
at January 1, 1994:
1993
--------
Accumulated postretirement benefit obligation (APBO)
Retirees............................................................. $ 99,306
Fully eligible active participants................................... 55,095
Other active participants............................................ 113,974
--------
268,375
Less unrecognized net loss........................................... (4,876)
--------
Accrued postretirement benefit cost.................................. $263,499
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The components of net periodic postretirement benefit costs are as follows:
1993
-------
Service costs (benefits attributed to employee services during the
year)................................................................. $10,261
Interest cost on accumulated postretirement benefit obligations........ 19,607
-------
$29,868
The significant assumptions used in calculating the APBO are as follows:
HEALTH CARE TREND RATE
-------------------------
DISCOUNT YEARS TO
RATE INITIAL ULTIMATE ULTIMATE
-------- ------- -------- --------
Transition Obligation........................ 8% 15% 6% 15
Year-end 1993................................ 7 1/4% 13% 4.5% 13
The impact of a one percent increase in the medical trend rate is as follows:
PERIODIC
COST APBO
-----------------------
Transition..................................................... $2,000 $ 9,800
Year-end 1993.................................................. $2,331 $17,135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
QUARTERLY DATA (UNAUDITED)
QUARTER
---------------------------------------------- TOTAL
FOURTH YEAR
(12 WEEKS (52 WEEKS
1993) 1993)
FIRST SECOND THIRD (13 WEEKS (53 WEEKS
1993 (12 WEEKS) (12 WEEKS) (16 WEEKS) 1992) 1992)
Sales................... $5,173,926 $5,329,373 $6,478,645 $5,402,358 $22,384,301
Merchandise costs....... 3,964,439 4,074,455 4,968,568 4,101,598 17,109,060
Extraordinary loss...... (9,042) (2,136) (8,834) (3,820) (23,832)
Cumulative effect of
change in accounting... (159,193) (159,193)
Net earnings (loss)..... (138,771) 27,485 16,375 82,691 (12,220)
Primary earnings (loss)
per common share:
Earnings before ex-
traordinary loss and
cumulative effect of
change in accounting. .30 .27 .23 .79 1.60
Extraordinary loss.... (.09) (.02) (.08) (.03) (.22)
Cumulative effect of (1.63) (1.49)
change in accounting. ----- ----- ----- ----- -----
Primary net earnings
(loss) per common
share.................. (1.42) .25 .15 .76 (.11)
Fully-diluted earnings
(loss) per
common share:
Earnings before ex-
traordinary loss and
cumulative effect of
change in accounting. .29 .27 .23 .71 1.50
Extraordinary loss.... (.08) (.02) (.07) (.03) (.19)
Cumulative effect of
change in accounting (1.38) (1.28)
..................... ----- ----- ----- ----- -----
Fully-diluted net earn-
ings per common share.. (1.17) .25 .16 .68 .03
1992
- ------------------------------------------------------------------------------------
Sales................... $5,038,493 $5,072,230 $6,333,076 $5,700,789 $22,144,588
Merchandise costs....... 3,883,768 3,925,278 4,905,118 4,364,675 17,078,839
Extraordinary loss...... (30,270) (33,895) (27,292) (15,646) (107,103)
Net earnings (loss)..... (9,293) (29,368) (20,429) 53,147 (5,943)
Primary earnings (loss)
per common share:
Earnings before ex-
traordinary loss..... .23 .05 .08 .74 1.11
Extraordinary loss.... (.34) (.37) (.30) (.17) (1.17)
---- ---- ---- ---- -----
Primary net earnings
(loss) per common
share.................. (.11) (.32) (.22) .57 (.06)
Fully-diluted earnings
(loss) per common
share:
Earnings before ex-
traordinary loss..... .23 .05 .08 .71 1.11
Extraordinary loss.... (.34) (.37) (.30) (.15) (1.17)
---- ---- ---- ---- -----
Fully-diluted net earn-
ings (loss) per common
share.................. (.11) (.32) (.22) .56 (.06)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONCLUDED
First quarter 1993 reflects an after tax charge of 159,153 for the cumulative
effect of a change in accounting for postretirement health care and life
insurance benefits. Second quarter 1993 includes a $22,725 charge in connection
with the disposition of 15 stores. Third quarter 1993 reflects a LIFO credit of
$4,000 compared with a charge of $4,800 in the third quarter 1992. Second and
third quarters 1992 were negatively affected by a 67 day strike in Michigan.
The extraordinary loss in the four quarters of 1993 and 1992 relates to
expenses associated with the early retirement of debt.
Common Stock Price Range
1993 1992
------------- -------------
QUARTER HIGH LOW HIGH LOW
-------------------------------------------
1st................... 19 1/2 14 21 1/8 16 3/4
2nd................... 19 5/8 16 5/8 19 1/8 15 5/8
3rd................... 21 3/4 16 1/4 16 11 1/4
4th................... 20 7/8 17 1/2 15 7/8 11 3/8
Under the restated Credit Agreement dated January 21, 1992, the Company is
prohibited from paying cash dividends during the term of the Credit Agreement.
The Company is permitted to pay dividends in the form of stock of the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning directors is set
forth in Item No. 1, Election of Directors, of the definitive proxy
statement to be filed by the Company with the Securities and
Exchange Commission and is hereby incorporated by reference into
this Form 10-K.
One of the Company's officers, Mr. Michael S. Heschel, filed a
Form 5 for failure to report two separate sales of 4,000 shares
each of the Company's common stock by Mr. Heschel's spouse.
Mr. Heschel has disclaimed beneficial ownership of these shares.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of the names and ages of the executive
officers and the positions held by each such person as of
February 14, 1994. Except as otherwise noted below, each person
has held such office for at least five years and was elected to his
present office at the 1993 Organizational Meeting of the Board of
Directors held May 20, 1993, and will hold such office at the
discretion of the Board for the ensuing year until removed or
replaced.
Recent
Name Age Employment History
- ---- --- ------------------
Richard L. Bere 62 Mr. Bere was elected President
and Chief Operating Officer on
September 13, 1990. Prior to
this he was elected Senior Vice
President effective July 15,
1989. Before his election he
was Vice President of the
Company's Southland Marketing
Area. Mr. Bere joined the
Company in 1957.
David B. Dillon 42 Mr. Dillon was elected Executive
Vice President on September 13,
1990, and Chairman of the Board
of Dillon Companies, Inc. on
September 8, 1992. Prior to
this he was elected President of
Dillon Companies, Inc. on
April 22, 1988. Before his
election he was appointed
President of Dillon Companies,
Inc.
Donald F. Dufek 56 Mr. Dufek was elected Senior
Vice President on May 19, 1988.
Prior to this he was elected
Group Vice President on
April 21, 1985. He has been
with the Company since 1962 and
before his election was
appointed Vice President -
Distribution in 1984, Vice
President of the Columbus
Marketing Area in 1982, and Vice
President - Store Operations
Services in 1977.
Paul W. Heldman 42 Mr. Heldman was elected
Secretary on May 21, 1992, and
Vice President and General
Counsel effective June 18, 1989.
Prior to his election he held
various positions in the
Company's Law Department.
Mr. Heldman joined the Company
in 1982.
Michael S. Heschel 52 Mr. Heschel was elected Senior
Vice President - Information
Systems and Services on
February 10, 1994. He was
elected Group Vice President -
Management Information Services
on July 18, 1991. Prior to this
Mr. Heschel served as Chairman
and Chief Executive Officer of
Security Pacific Automation
Company. From 1985 to 1990 he
was Vice President of Baxter
International, Inc.
Lorrence T. Kellar 56 Mr. Kellar was elected Group
Vice President on July 18, 1986.
He was elected Vice President
and Treasurer on October 2,
1981. He has been with the Com-
pany since 1965.
Patrick J. Kenney 57 Mr. Kenney was elected Senior
Vice President on September 13,
1990. Prior to his election, he
was President of the Company's
Texas Marketing Area.
Mr. Kenney joined the Company in
1955.
Thomas E. Murphy 51 Mr. Murphy was elected Group
Vice President effective
October 24, 1986. He was
appointed Vice President and
Senior Counsel on November 7,
1982. Mr. Murphy has been with
the Company since July 1, 1974.
Jack W. Partridge, Jr. 48 Mr. Partridge was elected Group
Vice President on December 7,
1989. Prior to his election, he
was appointed Vice President -
Public Affairs in 1980.
Mr. Partridge joined the Company
in 1975.
Joseph A. Pichler 54 Mr. Pichler was elected Chairman
of the Board on September 13,
1990, and Chief Executive
Officer effective June 17, 1990.
He was elected President and
Chief Operating Officer on
October 24, 1986, and Executive
Vice President on July 16, 1985.
He joined Dillon Companies, Inc.
in 1980 as Executive Vice
President and was elected
President of Dillon Companies,
Inc. in 1982.
Ronald R. Rice 58 Mr. Rice was elected Group Vice
President on April 16, 1992. He
has been with the Company since
1957 and before his election was
appointed President -
Dairy/Bakery Division in 1991,
Vice President - Dairy/ Bakery
Division in 1986, and Vice
President - Dairy Division in
1974.
William J. Sinkula 63 Mr. Sinkula was elected
Executive Vice President on
September 13, 1990. He was
elected Senior Vice President on
September 23, 1988, and Group
Vice President on January 3,
1983. He has been with the
Company since 1979. Mr. Sinkula
serves as the Chief Financial
Officer.
Lawrence M. Turner 46 Mr. Turner was elected Vice
President on December 5, 1986.
He was elected Treasurer on
December 2, 1984. Mr. Turner
has been with the Company since
1974.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the section
entitled Compensation of Executive Officers in the definitive proxy
statement to be filed by the Company with the Securities and
Exchange Commission and is hereby incorporated by reference into
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is set forth in the
tabulation of the amount and nature of Beneficial Ownership of the
Company's securities in the definitive proxy statement to be filed
by the Company with the Securities and Exchange Commission and is
hereby incorporated by reference into this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the section
entitled Information Concerning The Board Of Directors - Certain
Transactions in the definitive proxy statement to be filed by the
Company with the Securities and Exchange Commission and is hereby
incorporated by reference into this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
THE KROGER CO.
Dated: March 11, 1994 By (*Joseph A. Pichler)
Joseph A. Pichler, Chairman
of the Board of Directors and
Chief Executive Officer
Dated: March 11, 1994 By (*William J. Sinkula)
William J. Sinkula
Executive Vice President and
Chief Financial Officer
Dated: March 11, 1994 By (*W. Rodney McMullen)
W. Rodney McMullen
Vice President - Financial
Services and Control and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities indicated on the 11th
day of March, 1994.
(*Reuben V. Anderson) Director
Reuben V. Anderson
(*Richard L. Bere) Director, President and
Richard L. Bere Chief Operating Officer
(*Raymond B. Carey, Jr.) Director
Raymond B. Carey, Jr.
(*John L. Clendenin) Director
John L. Clendenin
(*Ray E. Dillon, Jr.) Director
Ray E. Dillon, Jr.
_______________________________ Director
Richard W. Dillon
(*Lyle Everingham) Director
Lyle Everingham
________________________________ Director
John T. LaMacchia
________________________________ Director
Patricia Shontz Longe
(*T. Ballard Morton, Jr.) Director
T. Ballard Morton, Jr.
(*Thomas H. O'Leary) Director
Thomas H. O'Leary
(*John D. Ong) Director
John D. Ong
________________________________ Director
Katherine D. Ortega
(*Joseph A. Pichler) Chairman of the Board of
Joseph A. Pichler Directors, Chief Executive
Officer, and Director
(*Martha Romayne Seger) Director
Martha Romayne Seger
*By: (Paul W. Heldman)
Paul W. Heldman
Attorney-in-fact
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheet as of January 1, 1994
and January 2, 1993
Consolidated Statement of Operations and Accumulated
Deficit for the years ended January 1, 1994,
January 2, 1993 and December 28, 1991
Consolidated Statement of Cash Flows for the years
ended January 1, 1994, January 2, 1993
and December 28,1991
Notes to Consolidated Financial Statements
Financial Statement Schedules:
V - Property, Plant and Equipment
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
X - Supplementary Income Statement Information
Schedules other than those listed above are omitted for the reason
that they are not applicable or are not required or the information
is included in the financial statements or notes thereto.
(b) Reports on Form 8-K.
On October 15, 1993, the Company filed a Current Report on
Form 8-K disclosing the filing of a registration statement
pursuant to Rule 415 and the issuance of $200,000,000 of Debt
Securities pursuant thereto, and filing the Distribution
Agreement dated as of October 15, 1993, among the Company, J.
W. Korth & Company, Kemper Securities, Inc. and J. J. B.
Hilliard, W.L. Lyons, Inc. and the First Supplemental
Indenture dated as of October 15, 1993, between the Company
and Star Bank, National Association, as Trustee, both relating
thereto. On October 20, 1993, the Company filed a Current
Report on Form 8-K disclosing its unaudited earnings for the
third quarter 1993.
(c) Exhibits
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
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
10.1 Material Contracts - Third Amended and Restated
Employment Agreement dated as of July 22, 1993, between
the Company and Joseph A. Pichler - Incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended October 9, 1993
11.1 Statement Regarding Computation of Per Share Earnings
12.1 Statement of Computation of Ratio of Earnings to
Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
24.1 Powers of Attorney
99.1 Annual Reports on Form 11-K for The Kroger Co.
Savings Plan and the Dillon Companies, Inc. Employee
Stock Ownership Plan and Trust for the Year 1993
will be filed by amendment on or before May 2, 1994
THE KROGER CO.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In thousands of dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Other
Changes,
Balance at Retirements Transfers Balance
Beginning Additions or Between at End
Description of Period at Cost Sales Accounts(A) of Period
- -------------------------- ---------- --------- ------------ ----------- --------------
For the Fiscal Year Ended:
January 1, 1994:
Land $ 188,382 9,589 9,751 7,249 195,469
Buildings and land
improvements $ 630,437 58,547 28,314 (8,259) 652,411
Equipment $2,214,378 249,547 62,889 4,070 2,405,106
Leaseholds and leasehold
improvements $ 675,615 58,455 34,159 (43) 699,868
Leased property under
capital leases $ 217,244 18,554 1,684 0 234,114
---------- -------- ------- -------- ---------
$3,926,056 394,692 136,797 3,017 4,186,968
========== ======== ======= ======== =========
January 2, 1993:
Land $ 182,471 3,819 5,965 8,057 188,382
Buildings and land
improvements $ 586,374 22,650 654 22,067 630,437
Equipment $2,107,869 165,290 63,344 4,563 2,214,378
Leaseholds and leasehold
improvements $ 650,244 49,476 25,695 1,590 675,615
Leased property under
capital leases $ 226,070 3,442 12,268 0 217,244
---------- -------- ------- -------- ---------
$3,753,028 244,677 107,926 36,277 3,926,056
========== ======== ======= ======== =========
December 28, 1991:
Land $ 182,611 6,170 6,985 675 182,471
Buildings and land
improvements $ 595,533 1,780 18,581 7,642 586,374
Equipment $2,012,077 148,896 59,223 6,119 2,107,869
Leaseholds and leasehold
improvements $ 618,870 51,230 23,227 3,371 650,244
Leased property under
capital leases $ 213,634 17,903 5,460 (7) 226,070
---------- -------- ------- -------- ---------
$3,622,725 225,979 113,476 17,800 3,753,028
========== ======== ======= ======== =========
(A) Includes the transfer of assets to or from property held for sale.
THE KROGER CO.
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(In thousands of dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
Other
Changes,
Balance at Retirements Transfers Balance at
Beginning Additions or Between the End
Description of Period at Cost Sales Accounts(A) of Period
- -------------------------- ---------- ---------- ------------ ----------- -----------
For the Fiscal Year Ended:
January 1, 1994:
Buildings and land
improvements $ 214,193 24,010 7,036 177 231,344
Equipment $1,432,061 172,907 61,164 195 1,543,999
Leaseholds and leasehold
improvements $ 303,946 50,837 30,674 (64) 324,045
Leased property under
capital leases $ 98,684 9,523 1,935 0 106,272
---------- -------- ------- -------- ---------
$2,048,884 257,277 100,809 308 2,205,660
========== ======== ======= ======== =========
January 2, 1993:
Buildings and land
improvements $ 192,371 21,608 1,071 1,285 214,193
Equipment $1,331,390 161,152 58,972 (1,509) 1,432,061
Leaseholds and leasehold
improvements $ 275,692 49,064 21,819 1,009 303,946
Leased property under
capital leases $ 96,827 9,149 7,087 (205) 98,684
---------- -------- ------- -------- ---------
$1,896,280 240,973 88,949 580 2,048,884
========== ======== ======= ======== =========
December 28, 1991:
Buildings and land
improvements $ 174,495 20,837 3,632 671 192,371
Equipment $1,235,011 157,309 59,501 (1,429) 1,331,390
Leaseholds and leasehold
improvements $ 246,900 46,519 19,672 1,945 275,692
Leased property under
capital leases $ 92,125 9,164 4,455 (7) 96,827
---------- -------- ------- -------- ---------
$1,748,531 233,829 87,260 1,180 1,896,280
========== ======== ======= ======== =========
(A) Includes the transfer of assets to or from property held for sale.
THE KROGER CO.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands of dollars)
Col. A Col. B
Charged to Costs and Expenses
-------------------------------------------------
January 1, January 2, December 28,
ITEM A 1994 1993 1991
------ ------------ ------------ ------------
Maintenance and repairs * * *
Depreciation and amortization
of intangible assets, preoperating
costs and similar deferrals * * *
Taxes, other than payroll and income
taxes * * *
Royalties * * *
Advertising costs $225,640 $230,185 $221,863
* Does not exceed one percent of total sales and revenues.