-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WaP95eEd82SkTAejRrQx9nNJH6AK/ms4fOQKCkNBa9/iBsOzoF3k7Aiet3TDqwdx NB0/82co/1SDhqpxCnxpaw== 0000950131-98-001893.txt : 19980324 0000950131-98-001893.hdr.sgml : 19980324 ACCESSION NUMBER: 0000950131-98-001893 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980323 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KROGER CO CENTRAL INDEX KEY: 0000056873 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 310345740 STATE OF INCORPORATION: OH FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00303 FILM NUMBER: 98571075 BUSINESS ADDRESS: STREET 1: 1014 VINE ST CITY: CINCINNATI STATE: OH ZIP: 452-1 BUSINESS PHONE: 5137624000 10-K 1 FORM 10-K 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 December 27, 1997 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 255,664,563 shares outstanding on March 17, 1998 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 10K or any amendment to this Form 10K [_]. The aggregate market value of the voting and non-voting common equity of The Kroger Co. held by nonafflilates as of February 27, 1998: $10,760,140,852 Documents Incorporated by Reference: Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act on or before April 27, 1998 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 1997. The retail food business in which the Company is engaged is highly competitive. The Company had approximately 212,000 full and part-time employees on December 27, 1997 and operated 1,392 supermarkets in 24 states. At December 27, 1997, the Company had 697 Company owned and directly operated convenience stores in 15 states. Additionally the Company had 119 franchised convenience stores in 4 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 December 27, 1997, the Company operated 1,392 supermarkets, most of which are leased. Of this number, 1,132 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 260 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 the names "Dillon Food Stores," "King Soopers," "Fry's Food Stores," "Gerbes Supermarkets," "City Market," and "Sav-Mor." 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 wholesalers. The Company's primary supermarket 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 food stores. 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 generally range from 40,000 to 80,000 square feet in size with an average size of 54,173 square feet. At December 27, 1997, combination stores accounted for 67% of the store base, 79% of supermarket square footage, and 80% 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, limited specialty departments, and fewer square feet, continue to be an important component of the Company's store mix. At December 27, 1997, superstores represented 25% of the store base, 19% of the square footage and 18% of the food store sales. Superstores average 33,420 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 13,568 square feet, and contributed 2% of total supermarket sales in 1997. CONVENIENCE STORES At December 27, 1997, the Company's Dillon convenience store group operated, directly or through franchise agreements, 816 convenience stores in 15 states as follows:
No. Stores Chain Company Owned Franchise Sq. Feet States of Operation - ----- ------------- --------- -------- -------------------------- Kwik Shop 165 6 435,000 Iowa, Kansas, Nebraska, Illinois Quik Stop 113 255,000 California Turkey Hill 229 576,000 Pennsylvania Loaf 'N Jug 81 253,000 Colorado, New Mexico, Oklahoma Mini Mart 110 273,000 Colorado, Montana, Nebraska, North Dakota, South Dakota, Wyoming Tom Thumb 112 303,000 Alabama, Florida --- --- --------- 697 119 2,095,000
Dillon convenience stores averaged 2,567 square feet at December 27, 1997. The average store employs six to seven employees, with one or two employees on duty at any given time. Each week, an average of 1,536 transactions occur at a typical Dillon convenience store to purchase gasoline and 5,034 transactions occur to purchase groceries. Each gasoline transaction averages $11.00 and each inside store transaction averages $2.34. The average convenience store carries 3,000 items. Approximately 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 36 food processing facilities supply private label products to the Company's supermarkets. The Company's dairy divisions provide 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 divisions produce deli items, spices, salad dressings, jellies, peanut butter, and a host of other grocery items. ITEM 2. PROPERTIES As of December 27, 1997, the Company operated more than 2,200 owned or leased supermarkets, convenience stores, distribution warehouses and food processing facilities, through divisions, marketing areas, subsidiaries or affiliates. These facilities are located principally in the Midwest, South, Southeast 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 and capitalized leases at December 27, 1997 was $6.183 billion while the accumulated depreciation was $2.887 billion. 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. 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 - --------------------------------------------------------------- 1997 1996 ------------------- ------------------ Quarter High Low High Low - ------- ------- -------- -------- ------- 1st 28-1/8 22-11/16 19-13/16 16-3/4 2nd 29-1/8 23-13/16 22 18-3/4 3rd 31-1/16 27-1/8 22-1/2 18-9/16 4th 37-5/16 28-1/2 23-3/4 20-3/8
Main trading market - New York Stock Exchange (Symbol KR) Number of shareowners at year-end 1997: 47,268 Number of shareowners at March 17, 1998 46,960 Determined by number of shareholders of record The Company has not paid dividends on its Common Stock for the past three fiscal years. See Quarterly Data Note to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA
FISCAL YEARS ENDED ------------------------------------------------------------------- DECEMBER 27, DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1, 1997 1996 1995 1994 1994 (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) ------------------------------------------------------------------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Sales................... $26,567,348 $25,170,909 $23,937,795 $22,959,122 $22,384,301 Earnings before extraordinary loss and cumulative effect of change in accounting... 444,032 352,735 318,866 268,903 170,805 Extraordinary loss (net of income tax benefit)(A) ........... (32,376) (2,862) (16,053) (26,707) (23,832) Cumulative effect of change in accounting (net of income tax benefit)(B)............ (159,193) Net earnings (loss)..... 411,656 349,873 302,813 242,196 (12,220) Diluted earnings (loss) per share Earnings before ex- traordinary loss...... 1.69 1.36 1.28 1.10 .76 Extraordinary loss(A).. (.12) (.01) (.06) (.10) (.10) Cumulative effect of change in accounting(B)......... (.65) Net earnings (loss).... 1.57 1.35 1.22 1.00 .01 Total assets............ 6,301,341 5,892,465 5,044,717 4,707,674 4,480,464 Long-term obligations, including obligations under capital leases... 3,493,075 3,659,491 3,489,728 3,889,194 4,135,013 Shareowners' deficit.... (784,848) (1,181,706) (1,603,013) (2,153,684) (2,459,642) Cash dividends per com- mon share.............. (C) (C) (C) (C) (C) - ---------------------------------------------------------------------------------------------
(A) See Extraordinary Loss in the Notes to Consolidated Financial Statements. (B) See Postretirement Health Care and Life Insurance Benefits in the respective year's Notes to Consolidated Financial Statements. (C) The Company is prohibited from paying cash dividends under the terms of its Credit Agreement. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES Total sales for the fourth quarter of 1997 were $6.5 billion compared to $6.2 billion in the fourth quarter of 1996, a 5.0% increase. Total sales and food store sales both increased 5.5% for the full year. Food stores sales for the fourth quarter 1997 rose 5.2% compared to the fourth quarter 1996. Sales by lines of business for the three years ended December 27, 1997, were as follows:
1997 1996 1995 % OF 1997 -------------- -------------- -------------- SALES AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE --------- ------- ------ ------- ------ ------- ------ (MILLIONS OF DOLLARS) Food Stores.............. 93.4% $24,801 +5.5% $23,508 +4.5% $22,488 +4.9% Convenience Stores....... 3.8% 1,006 +6.0% 948 +11.6% 850 -5.4% Other sales.............. 2.8% 760 +6.5% 714 +19.0% 600 -3.1% ----- ------- ------- ------- Total Sales.............. 100.0% $26,567 +5.5% $25,170 +5.1% $23,938 +4.3%
Sales in identical food stores, which include stores that have been in operation and have not been expanded or relocated for five quarters, increased .7% in the fourth quarter and were flat for the full year. Comparable store sales, which include identical stores plus expanded and relocated stores, increased 3.0% in the fourth quarter. The increase in food store sales correlates to the 5.7% square footage growth generated by the Company's capital expenditure program. This program enabled the Company to open, relocate or expand 96 food stores during 1997. Most of the new and expanded stores feature the Company's combination store format. Combination stores are expected to generate higher sales per customer by the inclusion of numerous specialty departments, such as pharmacies, video rental, floral shops, and book stores. This "one-stop shopping" format saves time and travel for customers and is adaptable to the demographics of individual markets. Convenience stores total sales increased 6.0% for the year and 2.3% during the fourth quarter of 1997. The lower sales increase during the fourth quarter can be attributed to a 4.3% decrease in gasoline retails for the quarter. Gasoline sales increased 8.5% for the year on a 7.9% increase in gallons sold. In-store sales in identical convenience stores increased 2.7% for the fourth quarter and 1.5% for the full year. Gasoline sales at identical convenience stores decreased 0.9% in 1997 on a 1.2% decrease in gallons sold. Other sales primarily consist of sales by the Company's manufacturing divisions to non-affiliated entities. Compared to 1996, other sales increased 0.9% for the fourth quarter and 6.5% for the year. Manufacturing division outside sales declined 2.6% in the fourth quarter 1997 and increased 4.7% for the full year. Total food store square footage increased 5.7%, 6.7%, and 4.6% in 1997, 1996, and 1995, respectively. Convenience store square footage decreased 1.3% in 1997, increased 1.5% in 1996, and decreased 10.6% in 1995. Sales per average square foot for the last three years were:
TOTAL SALES PER AVERAGE SQUARE FOOT -------------------- 1997 1996 1995 ------ ------ ------ Food Stores................................................ $398 $401 $405 Convenience Stores......................................... $548 $519 $475
Sales per average square foot for convenience stores exclude stores operated by franchisees. The decrease in sales per average square foot for food stores can be attributed to Company's substantial new construction program. EBITD The Company's 364-Day Credit Agreement and Five-Year Credit Agreement (collectively, the "Credit Agreement") and the indentures underlying approximately $706 million of publicly issued debt contain various restrictive covenants. Many covenants are based on earnings before interest, taxes, depreciation, LIFO charge, unusual and extraordinary items ("EBITD"). 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. Rather EBITD results facilitate an understanding of the Company's performance compared to its debt covenants. At December 27, 1997 the Company was in compliance with all Credit Agreement and indenture covenants. The Company believes it has adequate coverage of its debt covenants to continue to respond effectively to competitive conditions. EBITD increased 13.2% in 1997 to $1.385 billion compared to $1.224 billion in 1996. EBITD in 1995 was $1.148 billion. Excluding the effect of strikes in the King Soopers and City Market divisions, EBITD would have been approximately $1.256 billion in 1996. EBITD growth in 1997 was generated by increased sales at higher gross profit and reduced operating, general and administrative expense rates as a percent of sales. The Company's capital expenditure program continued to produce incremental EBITD increases. MERCHANDISE COSTS Merchandise costs include warehousing and transportation expenses and charges related to valuing inventory on the Last In First Out method (LIFO). The following table shows the relative effect of LIFO charges on merchandising costs as a percent of sales:
1997 1996 1995 ------ ------ ------ Merchandise costs as reported.............................. 75.27% 75.65% 75.60% LIFO charge................................................ .03% .05% .05% ------ ------ ------ Merchandise costs as adjusted.............................. 75.24% 75.60% 75.55%
The merchandise cost rate for 1996 increased as a result of the work stoppages in Colorado. OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES Operating, general and administrative expenses as a percent of sales were 18.30%, 18.34% and 18.41%, in 1997, 1996, and 1995 respectively. Operating, general and administrative costs declined three basis points in the fourth quarter of 1997 and four basis points for the full year. The improved results were caused by a combination of factors, including cost reductions achieved through enhanced technology, a reduction in employee benefit costs, and reduced administrative expenses. INCOME TAXES The Company has closed 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 tax years 1984-1992. With one exception, all issues have been resolved for tax years 1984-1989. A second issue remains unresolved for tax years 1990-1992. Efforts to resolve the issue for tax years 1984-1986 with the Appeals Division of the Internal Revenue Service were unsuccessful. As a result the Company filed a petition with the United States Tax Court in Washington, D.C. Litigation was completed in November 1995 and a decision was rendered in January 1997 in favor of the Company. The Commissioner of Internal Revenue has appealed this case to the United States Court of Appeals for the Sixth Circuit. The issue before the court is being held in abeyance for tax years 1987-1992 pending the ultimate outcome of this appeal. The other issue for tax years 1990-1992 is being temporarily held in abeyance by the Internal Revenue Service. The Company has made provisions for these and other tax contingencies. NET EARNINGS Net earnings totaled $411.7 million in 1997 as compared to $349.9 million in 1996 and $302.8 million in 1995. Earnings in 1997 compared to 1996 and 1995 were affected by: (i) an after tax extraordinary loss from the early retirement of debt in 1997 of $32.4 million compared to $2.9 million in 1996 and $16.1 million in 1995, (ii) net interest expense in 1997 of $285.9 million compared to $300.0 million in 1996 and $312.7 million in 1995, (iii) depreciation expense in 1997 of $380.2 million, compared to $343.8 million in 1996 and $311.3 million in 1995, (iv) and the effect of the work stoppages during 1996 in Colorado. LIQUIDITY AND CAPITAL RESOURCES Debt Management and Interest Expense During 1997, the Company redeemed $316.2 million of senior subordinated debt, repurchased $11.5 million of its senior and senior subordinated debt issues, and prepaid $178.0 million of mortgage loans. The redemptions and repurchases were financed with the issuance of $200 million of senior debt, bank borrowings and excess cash flow from operations. In 1996, the Company made open market purchases of $49.9 million of its senior and subordinated debt and redeemed $134.7 of its subordinated debt. The repurchases and redemption were effected with the proceeds from the issuance of $240 million of new senior debt, additional bank borrowings and cash generated from operations. In 1995 the Company repurchased, on the open market, $283.0 million of high yield senior and subordinated debt which was financed by cash generated from operations and lower cost bank debt. The Company has in place a 364-Day Credit Agreement and a Five-Year Credit Agreement with a consortium of bank lenders. The 364-Day Credit Agreement is a revolving credit facility in the amount of $500 million, that terminates on May 27, 1998, unless extended as provided in the Credit Agreement. The Five-Year Credit Agreement is a revolving credit facility in the amount of $1.5 billion, that terminates on May 28, 2002, unless extended or terminated earlier by the Company as provided in the Credit Agreement. The average interest rate on the Company's bank debt was 6.06% in 1997 compared to 6.16% in 1996. The borrowing under the Credit Agreement at year-end 1997 totaled $1.262 billion compared to $1.001 billion at year-end 1996. The borrowing rate on the bank debt is variable. At December 27, 1997 the Company had $709.6 million available under its Credit Agreement to meet short-term liquidity needs. Long-term debt, including capital leases and current portion thereof, decreased $163.4 million to $3.517 billion at year-end 1997 from $3.681 billion at year-end 1996. The Company purchased a portion of the debt issued by the lenders of certain structured financings in an effort to further reduce the Company's effective interest expense. The Company pre-funded $160 million of employee benefit costs at year-end 1997 compared to $110 million at year-end 1996. Excluding the debt incurred to make these purchases, which are classified as investments, and the pre-funding of employee benefits, the Company's long- term debt would have been $315.0 million less, or $3.202 billion, at year-end 1997 compared to $3.418 billion at year-end 1996. Interest Rate Protection Program The Company uses derivatives to limit its exposure to rising interest rates. The Company follows these guidelines in using derivatives: (i) use average daily bank balance to determine annual debt amounts subject to interest rate exposure, (ii) limit the annual amount of floating rate debt to a total of $1.0 billion or less, (iii) include no leveraged derivative products, and (iv) hedge without regard to profit motive or sensitivity to current mark-to-market status. The Company's compliance with these guidelines is reviewed semi-annually with the Financial Policy Committee of the Company's Board of Directors. The table below provides information about the Company's interest rate derivative and underlying debt portfolio. The amounts per year represent the contractual maturities of long-term debt, excluding capital leases, and the outstanding notional amount of interest rate derivatives. Interest rates reflect the weighted average for the maturing instruments. The variable component of each interest rate derivative and the expected interest rate for variable rate long-term debt are based on 6 month LIBOR using the forward yield curve as of December 27, 1997.
EXPECTED YEAR OF MATURITY ------------------------------------------------------------------------ (IN THOUSANDS) 1998 1999 2000 2001 2002 THEREAFTER TOTAL --------- --------- ------- ------- --------- ---------- --------- LONG-TERM DEBT - ------------------------ Fixed rate.............. 14,304 164,835 10,613 14,274 168,284 1,649,771 2,022,081 Average interest rate... 8.86% 8.88% 8.81% 8.81% 8.74% 8.75% Variable rate........... 1,262,058 36,616 1,298,674 Average interest rate... 6.06% 6.14% 6.28% 6.39% 6.49% 6.19% INTEREST RATE DERIVATIVES - ------------------------ Variable to fixed....... 1,300,000 1,000,000 675,000 352,500 97,500 65,000 1,400,000 Average pay rate........ 6.86% 7.08% 7.28% 7.20% 6.68% 6.80% 6.92% Average receive rate.... 5.56% 5.64% 5.78% 5.89% 5.99% 6.05% 5.62% Fixed to variable....... 910,000 760,000 605,000 400,000 275,000 150,000 1,135,000 Average pay rate........ 5.56% 5.64% 5.78% 5.82% 5.99% 6.05% 5.62% Average receive rate.... 6.43% 6.24% 6.26% 6.55% 6.41% 6.03% 6.33%
It was not practicable to determine a fair value for $480.1 million of fixed rate or any of the variable rate debt. The remaining $1,542.0 million of fixed rate debt had an estimated fair value of $1,675.0 million. The variable to fixed interest rate derivatives had an estimated fair value of a negative $41.6 million. The fixed to variable rate interest rate derivatives had an estimated fair value of $11.3 million. CAPITAL EXPENDITURES Capital expenditures for 1997 totaled $612.2 million, compared to $733.8 million in 1996, and $726.1 million in 1995, net of reclassification for property held for sale. During 1997 the Company opened, acquired or expanded 96 food stores and 15 convenience stores as compared to 116 food stores and 31 convenience stores in 1996, and 83 food stores and 19 convenience stores in 1995. The Company also completed 48 food store and 9 convenience store remodels during 1997. During 1997, the Company closed or sold 41 food stores and 30 convenience stores. CONSOLIDATED STATEMENT OF CASH FLOWS During 1997 the Company generated $853.6 million in cash from operating activities compared to $499.4 million in 1996 and $810.1 million in 1995. The increase over 1996 is primarily due to a decrease in operating assets and liabilities that provided $12.9 million of cash in 1997 compared to using $226.9 million in 1996. The largest component of the change in operating assets and liabilities was a decrease in net owned inventories of $16.6 million compared to a decrease of $224.5 million in 1996. Offsetting these net uses of cash were increases in net earnings of $61.8 million and non-cash charges for depreciation and amortization of $36.5 million. Investing activities used $579.4 million of cash in 1997 compared to $856.9 million in 1996 and $665.6 million in 1995. The decrease in the use of cash was caused by decreased purchases of investments of $145.1 million and decreased capital expenditures of $121.7 million. Cash used by financing activities in 1997 totaled $275.7 million as compared to $345.4 million provided in 1996 and $151.4 million used in 1995. The increase in the use of cash during 1997 as compared to 1996 was caused by a net debt decrease of $169.6 million in 1997 versus a net debt increase of $146.9 million in 1996. An additional $13.1 million of cash was used for debt prepayments and finance charges, and $85.2 million was used to repurchase capital stock. OTHER ISSUES The Company is party to more than 200 collective bargaining agreements with local unions representing approximately 162,000 of the Company's employees. During 1997 the Company negotiated over 30 labor contracts without any work stoppages. Typical agreements are 3 to 5 years in duration and, as agreements expire, the Company expects 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. No major union contracts will be negotiated in 1998. OUTLOOK The Company's outlook for 1998 is positive. Statements below regarding the Company's expectations, hopes, beliefs, intentions or strategies are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. While we believe that the statements are accurate, uncertainties and other factors could cause actual results to differ materially from those statements. In particular: . The Company's food store strategy is to invest in existing Kroger markets or in areas adjacent to markets where the Company has a strong franchise and can leverage marketing, distribution, and overhead dollars. The Company expects consistent sales and earnings increases from the existing store base combined with incremental sales and earnings contributions as a result of the capital investment program. . Management believes that the combination store format and the Company's geographic diversity are strategic advantages that will allow Kroger to withstand continued competition from other food retailers, supercenters, mass merchandisers, and restaurants. . As new stores mature and capital spending levels off, the Company expects to achieve increases in sales per average food store square foot. . The Company continues to invest capital in technology to enhance Kroger's distribution network in order to improve store operations, product procurement and distribution practices. These initiatives, combined with increasing private label sales, are expected to have a favorable influence on the gross profit rate. . The Company's goal is to further reduce operating, general and administrative expense rates. Increased sales volume combined with investments in new technologies and lower costs, while maintaining or improving customer service, should help achieve this goal. . The Company currently expects 1998 net interest expense, estimated using year-end 1997 rates, to total approximately $280 million. A 1% increase in market rates would increase the estimated expense by approximately $6.5 million. A 1% decrease in market rates would reduce the estimated expense by approximately $9.4 million. . The Company expects to increase retail food store square footage by approximately 5% in both 1998 and 1999. In 1998, the Company plans to open or expand 90-100 stores compared to 96 in 1997. The Company expects 1998 capital expenditures, including additional Company owned real estate, logistics projects, and continuing technology investments, to total approximately $775 million. The Company also expects to complete within-the-wall remodels of 60 food stores. 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 is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. Based on current information, costs of addressing potential problems are not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Accordingly, the Company believes it has allocated the resources necessary to resolve all significant year 2000 issues in a timely manner. Inflationary factors, increased competition, construction delays, and labor disputes could affect the Company's ability to obtain expected increases in sales and earnings. Delays in store maturity, increased competition and increased capital spending could adversely affect the anticipated increase in sales per square foot. Increases in gross profit rate may not be achieved if start up costs are higher than expected or if problems associated with integrating new systems occur. Increased operating costs and changes in inflationary trends, could prevent the Company from reducing operating, general and administrative expenses, while new technologies could fail to achieve the desired savings and efficiencies. Net interest expenses could exceed expectations due to acquisitions, inflation, or increased competition. The Company's ability to achieve its construction goals could be hampered by construction delays, labor disputes, increase competition, delays in technology projects, and its ability to generate continued EBITD growth. The inherent complexity of computer software and reliance on third party software vendors to interface with the Company's systems could affect the completion of necessary "year 2000" modifications. 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 accompanying consolidated balance sheet of The Kroger Co. as of December 27, 1997 and December 28, 1996, and the related consolidated statements of operations and accumulated deficit, and cash flows for the years ended December 27, 1997, December 28, 1996, and December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 December 27, 1997 and December 28, 1996, and the consolidated results of its operations and its cash flows for the years ended December 27, 1997, December 28, 1996, and December 30, 1995, in conformity with generally accepted accounting principles. (Coopers & Lybrand L.L.P.) Coopers & Lybrand L.L.P. Cincinnati, Ohio January 22, 1998 CONSOLIDATED BALANCE SHEET
DECEMBER 27, December 28, (In thousands of dollars) 1997 1996 - --------------------------------------------------------------------------------- ASSETS Current assets Cash................................................. $ 65,484 $ 67,052 Receivables.......................................... 400,529 324,050 Inventories: FIFO cost........................................... 2,273,896 2,175,630 Less LIFO reserve................................... (467,931) (461,689) ----------- ----------- 1,805,965 1,713,941 Property held for sale............................... 39,672 38,333 Prepaid and other current assets..................... 328,901 276,440 ----------- ----------- Total current assets............................... 2,640,551 2,419,816 Property, plant and equipment, net.................... 3,296,599 3,063,534 Investments and other assets.......................... 364,191 409,115 ----------- ----------- TOTAL ASSETS....................................... $ 6,301,341 $ 5,892,465 =========== =========== LIABILITIES Current liabilities Current portion of long-term debt.................... $ 14,304 $ 11,642 Current portion of obligations under capital leases.. 10,031 9,501 Accounts payable..................................... 1,781,527 1,717,308 Other current liabilities............................ 1,137,654 1,041,521 ----------- ----------- Total current liabilities.......................... 2,943,516 2,779,972 Long-term debt........................................ 3,306,451 3,478,743 Obligations under capital leases...................... 186,624 180,748 Deferred income taxes................................. 166,013 151,036 Other long-term liabilities........................... 483,585 483,672 ----------- ----------- TOTAL LIABILITIES.................................. 7,086,189 7,074,171 ----------- ----------- SHAREOWNERS' DEFICIT Common capital stock, par $1 Authorized: 350,000,000 shares Issued: 1997--277,153,260 shares 1996--272,923,042 shares..................... 728,644 658,230 Accumulated deficit................................... (1,184,394) (1,596,050) Common stock in treasury, at cost 1997--22,182,650 shares 1996--19,163,712 shares...................... (329,098) (243,886) ----------- ----------- TOTAL SHAREOWNERS' DEFICIT......................... (784,848) (1,181,706) ----------- ----------- TOTAL LIABILITIES AND SHAREOWNERS' DEFICIT......... $ 6,301,341 $ 5,892,465 =========== =========== - ---------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
1997 1996 1995 (In thousands, except per share amounts) (52 WEEKS) (52 Weeks) (52 Weeks) - -------------------------------------------------------------------------------- Sales.................................... $26,567,348 $25,170,909 $23,937,795 ----------- ----------- ----------- Costs and expenses Merchandise costs, including warehousing and transportation..................... 19,996,381 19,041,465 18,098,027 Operating, general and administrative... 4,861,426 4,616,749 4,406,445 Rent.................................... 331,012 301,629 299,828 Depreciation and amortization........... 380,221 343,769 311,272 Net interest expense.................... 285,945 299,984 312,685 ----------- ----------- ----------- Total................................. 25,854,985 24,603,596 23,428,257 ----------- ----------- ----------- Earnings before tax expense and extraor- dinary loss............................. 712,363 567,313 509,538 Tax expense.............................. 268,331 214,578 190,672 ----------- ----------- ----------- Earnings before extraordinary loss....... 444,032 352,735 318,866 Extraordinary loss, net of income tax benefit................................. (32,376) (2,862) (16,053) ----------- ----------- ----------- Net earnings.......................... $ 411,656 $ 349,873 $ 302,813 =========== =========== =========== Accumulated Deficit Beginning of year....................... $(1,596,050) $(1,945,923) $(2,248,736) Net earnings............................ 411,656 349,873 302,813 ----------- ----------- ----------- End of year............................. $(1,184,394) $(1,596,050) $(1,945,923) =========== =========== =========== Basic earnings per Common Share Earnings before extraordinary loss ..... $ 1.75 $ 1.41 $ 1.38 Extraordinary loss...................... (.13) (.01) (.07) ------ ------ ------ Net earnings............................ $ 1.62 $ 1.40 $ 1.31 ====== ====== ====== Average number of common shares used in basic calculation....................... 254,284 250,979 231,468 Diluted earnings per Common Share Earnings before extraordinary loss ..... $ 1.69 $ 1.36 $ 1.28 Extraordinary loss...................... (.12) (.01) (.06) ------ ------ ------ Net earnings............................ $ 1.57 $ 1.35 $ 1.22 ====== ====== ====== Average number of common shares used in diluted calculation..................... 262,860 258,837 251,716
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
1997 1996 1995 (In thousands of dollars) (52 WEEKS) (52 Weeks) (52 Weeks) - ---------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net earnings.................................. $ 411,656 $ 349,873 $ 302,813 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary loss........................... 32,376 2,862 16,053 Depreciation and amortization................ 380,221 343,769 311,272 Amortization of deferred financing costs..... 13,907 13,004 13,189 Loss (gain) on sale of assets................ (3,142) 4,496 (710) LIFO charge.................................. 6,242 12,526 14,103 Other changes, net........................... (527) (200) (1,176) Net increase (decrease) in cash from changes in operating assets and liabilities......... 12,857 (226,931) 154,507 --------- --------- --------- Net cash provided by operating activities... 853,590 499,399 810,051 --------- --------- --------- Cash Flows From Investing Activities: Capital expenditures.......................... (612,198) (733,883) (726,142) Proceeds from sale of assets.................. 24,657 9,242 49,530 (Increase) decrease in property held for sale. (4,165) 580 2,942 (Increase) decrease in other investments...... 12,269 (132,796) 8,106 --------- --------- --------- Net cash used by investing activities....... (579,437) (856,857) (665,564) --------- --------- --------- Cash Flows From Financing Activities: Debt prepayment costs......................... (8,012) (4,196) (22,244) Financing charges incurred.................... (27,210) (17,927) (6,716) Principal payments under capital lease obligations.................................. (9,662) (9,229) (8,780) Proceeds from issuance of long-term debt...... 662,322 382,161 113,246 Reductions in long-term debt.................. (831,952) (235,214) (304,234) Outstanding checks............................ (17,493) 181,993 38,918 Proceeds from issuance of capital stock....... 41,498 48,120 38,602 Capital stock reacquired...................... (85,212) (254) (217) --------- --------- --------- Net cash provided (used) by financing activities................................. (275,721) 345,454 (151,425) --------- --------- --------- Net decrease in cash and temporary cash investments................................... (1,568) (12,004) (6,938) Cash and Temporary Cash Investments: Beginning of year............................. 67,052 79,506 86,444 --------- --------- --------- End of year................................... $ 65,484 $ 67,052 $ 79,506 ========= ========= ========= Increase (Decrease) In Cash From Changes In Operating Assets And Liabilities: Inventories (FIFO)............................ $ (98,266) $(140,750) $ 10,396 Receivables................................... (76,478) (35,983) (18,207) Prepaid and other current assets.............. (53,476) (120,641) (3,992) Accounts payable.............................. 81,712 (83,808) 98,681 Other current liabilities..................... 51,534 76,423 43,501 Deferred income taxes......................... 65,354 45,665 (10,008) Other liabilities............................. 42,477 32,163 34,136 --------- --------- --------- $ 12,857 $(226,931) $ 154,507 ========= ========= ========= - ----------------------------------------------------------------------------------
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. Certain prior year amounts have been restated to conform to current year presentation. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of consolidated revenues and expenses during the reporting period also is required. Actual results could differ from those estimates. Segments of Business The Company operates primarily in one business segment--retail food and drug stores, predominately in the Midwest and South as well as Colorado, Arizona, and Kansas. 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 others and operates convenience stores. Inventories Inventories are stated at the lower of cost (principally LIFO) or market. Approximately 90% of inventories for 1997 and 88% of inventories for 1996 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 the Company plans to sell. 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 ten to 40 years. 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 Protection Agreements The Company uses interest rate swaps and caps to hedge a portion of its borrowings against changes 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. Advertising Costs The Company's advertising costs are predominately expensed as incurred and included in "operating, general and administrative expenses." Advertising expenses amounted to $312,000, $302,000, and $281,000 for 1997, 1996, and 1995, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Deferred Income Taxes Deferred income taxes are recorded to reflect the tax consequences 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 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. Outstanding checks, which are included in accounts payable, represent disbursements that are funded as the item is presented for payment. Cash paid during the year for interest and income taxes was as follows:
1997 1996 1995 -------------------------- Interest............................................. $304,176 $304,240 $322,411 Income taxes......................................... 154,025 166,732 175,151
PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consists of:
1997 1996 ------------------------ Land.................................................. $ 352,319 $ 308,451 Buildings and land improvements....................... 1,263,700 1,034,441 Equipment............................................. 3,106,548 2,895,826 Leaseholds and leasehold improvements................. 908,948 807,422 Construction-in-progress.............................. 278,821 417,080 Leased property under capital leases.................. 272,911 263,398 ----------- ----------- 6,183,247 5,726,618 Accumulated depreciation and amortization............. (2,886,648) (2,663,084) ----------- ----------- $ 3,296,599 $ 3,063,534 =========== ===========
Approximately $369,295 and $461,285, original cost, of Property, Plant and Equipment collateralizes certain mortgage obligations at 1997 and 1996, respectively. INVESTMENTS AND OTHER ASSETS Investments and other assets consists of:
1997 1996 ----------------- Deferred financing costs...................................... $ 59,939 $ 90,171 Goodwill...................................................... 39,119 39,745 Investments in Debt Securities................................ 155,141 152,675 Other......................................................... 109,992 126,524 -------- -------- $364,191 $409,115 ======== ========
The Company is amortizing deferred financing costs using the interest method. Substantially all goodwill is amortized on the straight-line method over 40 years. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED OTHER CURRENT LIABILITIES Other current liabilities consists of:
1997 1996 --------------------- Salaries and wages....................................... $ 300,202 $ 292,393 Taxes, other than income taxes........................... 147,905 146,781 Interest................................................. 36,699 39,202 Other.................................................... 652,848 563,145 ---------- ---------- $1,137,654 $1,041,521 ========== ==========
TAXES BASED ON INCOME The provision for taxes based on income consists of:
1997 1996 1995 ---------------------------- Federal Current.......................................... $173,715 $146,296 $178,936 Deferred......................................... 65,354 43,638 (10,008) -------- -------- -------- 239,069 189,934 168,928 State and local................................... 29,262 24,644 21,744 -------- -------- -------- 268,331 214,578 190,672 Tax credit from extraordinary loss................ (19,427) (1,792) (10,263) -------- -------- -------- $248,904 $212,786 $180,409 ======== ======== ========
Targeted job tax credits reduced the tax provision by $1,206 in 1995. A reconciliation of the statutory federal rate and the effective rate is as follows:
1997 1996 1995 ---------------- Statutory rate................................................ 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit................ 2.7 2.8 2.8 Tax credits................................................... (.2) (.2) (.4) Other, net.................................................... .2 .2 ---- ---- ---- 37.7% 37.8% 37.4% ==== ==== ====
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The tax effects of significant temporary differences that comprise deferred tax balances were as follows:
1997 1996 - ------------------------------------------------------------------------------- Current deferred tax assets: Compensation related costs............................. $ 32,772 $ 27,873 Insurance related costs................................ 35,971 33,109 Inventory related costs................................ 16,257 19,092 Other.................................................. 18,001 19,844 --------- --------- 103,001 99,918 --------- --------- Current deferred tax liabilities: Compensation related costs............................. (85,913) (63,691) Lease accounting....................................... (4,128) (3,680) Inventory related costs................................ (62,830) (33,116) Other.................................................. (9,658) (8,582) --------- --------- (162,529) (109,069) --------- --------- Current deferred taxes, net............................. $ (59,528) $ (9,151) ========= ========= Long-term deferred tax assets: Compensation related costs............................. $ 130,825 $ 125,466 Insurance related costs................................ 37,788 43,492 Lease accounting....................................... 25,110 24,214 Other.................................................. 20,692 15,466 --------- --------- 214,415 208,638 --------- --------- Long-term deferred tax liabilities: Depreciation........................................... (339,951) (312,546) Compensation related costs............................. (10,328) (14,239) Lease accounting....................................... (740) (1,863) Deferred charges....................................... (6,653) (7,471) Other.................................................. (22,756) (23,555) --------- --------- (380,428) (359,674) --------- --------- Long-term deferred taxes, net........................... $(166,013) $(151,036) ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED DEBT OBLIGATIONS Long-term debt consists of:
1997 1996 ---------- ---------- Five-Year Credit Agreement............................... $1,262,058 Variable Rate Revolving Credit Facility, due 2002........ $1,001,459 Credit Facility.......................................... 110,000 9 1/4% Senior Secured Debentures, due 2005............... 100,648 107,648 8 1/2% Senior Secured Debentures, due 2003............... 197,845 200,000 8.15% Senior Notes due 2006.............................. 240,000 240,000 7.65% Senior Notes due 2007.............................. 200,000 9 3/4% Senior Subordinated Debentures, due 2004.......... 96,008 9 3/4% Senior Subordinated Debentures, due 2004, Series B....................................................... 46,050 9 7/8% Senior Subordinated Debentures, due 2002.......... 81,530 83,065 6 3/4% to 9 5/8% Senior Subordinated Notes, due 1999 to 2009.................................................... 171,909 346,064 10% Senior Subordinated Notes, due 1999.................. 123,861 124,703 10% Mortgage loans, with semi-annual payments due through 2004.................................................... 426,219 605,665 4 9/10% to 8 5/8% Industrial Revenue Bonds, due in vary- ing amounts through 2021................................ 201,030 203,785 7 7/8% to 10 1/4% mortgages, due in varying amounts through 2017............................................ 267,368 280,711 3 1/2% to 10 1/4% notes, due in varying amounts through 2017.................................................... 48,287 45,227 ---------- ---------- Total debt............................................... 3,320,755 3,490,385 Less current portion..................................... 14,304 11,642 ---------- ---------- Total long-term debt..................................... $3,306,451 $3,478,743 ========== ==========
The aggregate annual maturities and scheduled payments of long-term debt for the five years subsequent to 1997 are:
1998.................................................... $ 14,304 1999.................................................... $ 164,835 2000.................................................... $ 10,613 2001.................................................... $ 14,274 2002.................................................... $1,430,342
The Company has purchased a portion of the debt issued by the lenders of certain of its structured financings in an effort to effectively further reduce the Company's interest expense. Excluding the debt incurred to make these purchases, which are classified as investments, the Company's total debt would be $155,141 less or $3,165,614 for 1997 and $152,675 less or $3,337,710 for 1996. 364-Day Credit Agreement and Five-Year Credit Agreement The Company has outstanding a 364-Day Credit Agreement and a Five-Year Credit Agreement dated as of May 28, 1997 (collectively the "Credit Agreement"). The following constitutes only a summary of the principal terms and conditions of the Credit Agreement. Reference is directed to the Credit Agreement attached as an exhibit to the Company's Current Report on Form 8-K dated June 2, 1997. The 364-Day facility is a revolving credit facility in the amount of $500,000, that terminates on May 27, 1998, unless extended in accordance with its terms. It may be converted into a term loan maturing two years after the conversion unless earlier terminated by the Company as provided in the Credit Agreement. The Five-Year facility is a revolving credit facility in the amount of $1,500,000. It terminates on May 28, 2002, unless extended or earlier terminated by the Company as provided in the Credit Agreement. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Interest Rates Borrowings under the Credit Agreement bear interest at the option of the Company at a rate equal to either (i) the highest, from time to time, of (A) the base rate of Citibank, N.A., (B) 1/2% over a moving average of secondary market morning offering rates for three month certificates of deposit adjusted for reserve requirements, and (C) 1/2% over the federal funds rate or (ii) an adjusted Eurodollar rate based upon the London Interbank Offered Rate ("Eurodollar Rate") plus an Applicable Margin. The Applicable Margin for the 364-Day facility varies from .125% to .200% prior to conversion to a term loan facility and thereafter, if exercised by the Company, from .175% to .300%. The Applicable Margin for the Five-Year facility varies from .105% to .175%. In addition, the Company pays a Facility Fee ranging from .050% to .100% on the entire amount of the 364-Day facility and a Facility Fee ranging from .070% to .125% on the entire amount of the Five-Year facility. Both the Applicable Margin and the Facility Fee vary based on the Company's achievement of a financial ratio. As of December 27, 1997, the Applicable Margin for the 364-Day facility was .155% and for the Five-Year facility was .135%. The Facility Fee for the 364-Day facility was .070% and for the Five-Year facility was .090%. Prepayment The Company may prepay the Credit Agreement, in whole or in part, at any time, without a prepayment penalty. Certain Covenants The Credit Agreement contains covenants which, among other things, (i) restrict dividends; (ii) restrict mergers and consolidations; (iii) restrict certain sales of assets; (iv) restrict changes in accounting treatment and reporting practices except as permitted under generally accepted accounting principles; and (v) require the maintenance of certain financial ratios and levels, including fixed charge coverage ratios and leverage ratios. 9 1/4% Senior Secured Debentures On January 25, 1993, the Company issued $200,000 of 9 1/4% Senior Secured Debentures. This issue was redeemed effective January 2, 1998 at 104.625%. 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 price commences at 104.250% and is reduced by 1.4165% annually until June 15, 2001, when the redemption price is 100%. These debentures were originally secured. On April 29, 1996, all collateral was released pursuant to the terms of the indenture. Senior Subordinated Indebtedness Senior Subordinated Indebtedness consists of the following: (i) $250,000 9 7/8% Senior Subordinated Debentures due August 1, 2002, redeemable at any time on or after August 1, 1999, in whole or in part at the option of the Company at par (the Company has repurchased $168,470 of the 9 7/8% Senior Subordinated Debentures in total, $1,535 in 1997); (ii) $355,774 6 3/4% to 9 5/8% Senior Subordinated Notes due March 15, 1999 to October 15, 2009, with portions of these issues subject to early redemption by the Company at varying times and premiums (the Company has repurchased or redeemed $183,865 of the notes in total, $174,155 in 1997); (iii) $250,000 10% Senior Subordinated Notes due May 1, 1999. This issue is not subject to early redemption by the Company (the Company has repurchased $126,139 of the 10% Senior Subordinated Notes in total, $842 in 1997). 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 13 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 had an original 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. During 1997 the Company prepaid 35 mortgages with an original balance of $150,347. The mortgage balances at the time of the prepayment totaled $148,315. Pursuant to the terms of the mortgages a 20% premium payment was required. The premium totaled $29,663 and was applied, on a pro-rata basis, to the 92 remaining mortgage loans. Subsequent to the prepayment the remaining mortgage loans totaled $426,219. The remaining mortgage loans are subject to semi-annual payments of interest and principal on $99,095 based on the original 30-year payment schedule, adjusted for the pre-payment, and interest only on the remaining $327,124 principal amount. Commercial Paper Under the Credit Agreement the Company is permitted to issue up to $2,000,000 of unrated commercial paper and borrow up to $2,000,000 from the lenders under the Credit Agreement on a competitive bid basis. The total of unrated commercial paper, $84,000 at December 27, 1997, and competitive bid borrowings, $282,000 at December 27, 1997, however, may not exceed $2,000,000. All commercial paper and competitive bid borrowings must be supported by availability under the Credit Agreement. These borrowings have been classified as long-term because the Company expects that during 1998 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 Five-Year facility of the Credit Agreement which matures May 28, 2002. Interest Rate Protection Program The Company uses derivatives to limit its exposure to rising interest rates. The guidelines the Company follows are: (i) use average daily bank balance to determine annual debt amounts subject to interest rate exposure, (ii) limit the annual amount of debt subject to interest rate reset and the amount of floating rate debt to a combined total of $1,000,000 or less, (iii) include no leveraged products, and (iv) hedge without regard to profit motive or sensitivity to current mark-to-market status. The Company's compliance with these guidelines is reviewed semi-annually with the Financial Policy Committee of the Company's Board of Directors. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The table below indicates the types of swaps used, their duration, and their respective interest rates. The variable component of each interest rate derivative is based on the 6 month LIBOR using the forward yield curve as of December 27, 1997.
1997 1996 ---------- ---------- Receive fixed swaps Notional amount........................................ $1,085,000 $1,085,000 Duration in years...................................... 3.0 4.0 Average receive rate................................... 6.33% 6.33% Average pay rate....................................... 5.79% 5.77% Receive variable swaps Notional amount........................................ $1,250,000 $1,150,000 Duration in years...................................... 2.7 3.7 Average receive rate................................... 5.83% 5.75% Average pay rate....................................... 6.92% 6.96% Interest rate caps Notional amount........................................ $ 200,000 $ 450,000 Duration in years...................................... .9 1.3 Average receive rate................................... 5.81% 5.65%
In addition, as of December 27, 1997, the Company hedged $200,000 of fixed rate debt expected to be issued in 1998 by swapping $100,000 of 7 year variable rate debt and $100,000 of 10 year variable rate debt for a 6.75% fixed rate. Based on the terms of the agreements the Company expects the hedges to be terminated during 1998. Any gain or loss from the hedges will be deferred and amortized over the shorter of the life of the fixed rate debt or the terminated hedges. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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: 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 the forward interest rate yield curve in effect at the respective years-end. If the swaps and caps were cancelled as of the respective years-end the result would have been a net cash outflow for 1997 and 1996. The swaps and caps are linked to the Company's debt portfolio. (See Accounting Policies and Debt Obligations footnotes.) The estimated fair values of the Company's financial instruments are as follows:
1997 1996 --------------------- --------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- Long-term investments for which it is Practicable.................... $ 167,609 $ 168,512 $ 154,748 $ 154,645 Not Practicable................ $ 33,605 $ -- $ 31,576 $ -- Long-term debt for which it is Practicable.................... $1,542,012 $1,674,983 $1,849,203 $1,980,925 Not Practicable................ $1,778,743 $ -- $1,641,182 $ -- Interest Rate Protection Agree- ments Receive fixed swaps............ $ -- $ 11,307 $ -- $ 4,900 Receive variable swaps......... $ -- $ (42,016) $ -- $ (37,311) Interest rate caps............. $ 1,130 $ 434 $ 3,854 $ 2,807 ---------- ---------- ---------- ---------- $ 1,130 $ (30,275) $ 3,854 $ (29,604) ========== ========== ========== ==========
The investments for which it was not practicable to estimate fair value relate to equity investments accounted for under the equity method and investments in real estate development partnerships for which there is no market. It was not practicable to estimate the fair value of $1,262,058 of long- term debt outstanding under the Company's Credit Agreement. There is no liquid market for this debt. The remaining long-term debt that it was not practicable to estimate relates to Industrial Revenue Bonds of $201,030, various mortgages of $267,368, and other notes of $48,287 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 on a percent of sales. Rent expense (under operating leases) consists of:
1997 1996 1995 -------- -------- -------- Minimum rentals...................................... $321,782 $291,256 $288,961 Contingent payments.................................. 9,230 10,373 10,867 -------- -------- -------- $331,012 $301,629 $299,828 ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Assets recorded under capital leases consists of:
1997 1996 -------- --------- Distribution and manufacturing facilities.................. $ 30,382 $ 30,381 Store facilities........................................... 242,529 233,017 Less accumulated amortization.............................. (123,891) (118,589) -------- --------- $149,020 $ 144,809 ======== =========
Minimum annual rentals for the five years subsequent to 1997 and in the aggregate are:
CAPITAL OPERATING LEASES LEASES -------- ---------- 1998....................................................... $ 33,201 $ 311,199 1999....................................................... 32,912 289,903 2000....................................................... 31,968 266,225 2001....................................................... 30,909 246,497 2002....................................................... 29,848 230,057 Thereafter................................................. 259,263 1,985,448 -------- ---------- 418,101 $3,329,329 ========== Less estimated executory costs included in capital leases.. 18,484 -------- Net minimum lease payments under capital leases............ 399,617 Less amount representing interest.......................... 202,962 -------- Present value of net minimum lease payments under capital leases.................................................... $196,655 ========
EXTRAORDINARY LOSS The extraordinary loss in 1997, 1996, and 1995 relates to premiums paid to retire certain indebtedness early and the write-off of related deferred financing costs. EARNINGS PER COMMON SHARE Basic earnings per common share equals net earnings divided by the weighted average number of common shares outstanding. Diluted earnings per common share equals net earnings divided by the weighted average number of common shares outstanding after giving effect to dilutive stock options. Diluted earnings per common share for 1995 is computed by adjusting both earnings before extraordinary loss and shares outstanding as if the September 1995 conversion of the 6 3/8% Convertible Junior Subordinated Notes occurred on the first day of the year. Earnings per share calculations have been made in compliance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 became effective for fourth quarter 1997 calculations. Prior year calculations have been restated to reflect the adoption of SFAS 128. On March 20, 1997, the Company's Board of Directors declared a 2-for-1 stock split to shareholders of record at the close of business on April 7, 1997. All share amounts prior to this date have been restated to reflect this stock split. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table provides a reconciliation of earnings before extraordinary loss and shares used in calculating basic earnings per share to those used in calculating diluted earnings per share.
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 30, 1995 ------------------------ ------------------------ ------------------------ INCOME SHARES PER- INCOME SHARES PER- INCOME SHARES PER- (NUMER- (DENOMI- SHARE (NUMER- (DENOMI- SHARE (NUMER- (DENOMI- SHARE ATOR) NATOR) AMOUNT ATOR) NATOR) AMOUNT ATOR) NATOR) AMOUNT -------- -------- ------ -------- -------- ------ -------- -------- ------ Basic EPS - --------- Earnings before extraor- dinary loss............ $444,032 254,284 $1.75 $352,735 250,979 $1.41 $318,866 231,468 $1.38 ===== ===== ===== Effect of Dilutive Secu- rities - ------------------------ Stock option awards.... 8,576 7,858 6,258 Convertible debenture.. 3,590 13,990 Diluted EPS - ----------- Income available to shareholders plus -------- ------- -------- ------- -------- ------- assumed conversions... $444,032 262,860 $1.69 $352,735 258,837 $1.36 $322,456 251,716 $1.28 ======== ======= ===== ======== ======= ===== ======== ======= =====
PREFERRED STOCK The Company has authorized 5,000,000 shares of voting cumulative preferred stock; 2,000,000 were available for issuance at December 27, 1997. The stock has a par value of $100 and is issuable in series. 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 December 27, 1997, changes in common stock were:
ISSUED IN TREASURY -------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ----------------------------------------- December 31, 1994................... 241,146,296 $338,568 19,152,462 $243,516 Exercise of stock options including restricted stock grants............ 5,013,334 40,017 16,240 272 Shares issued on conversion of Con- vertible Junior Subordinated Notes. 21,396,212 196,451 (16,802) (157) Tax benefit from exercise of non- qualified stock options............ 11,505 ----------- -------- ---------- -------- December 30, 1995................... 267,555,842 586,541 19,151,900 243,631 Exercise of stock options including restricted stock grants............ 5,367,200 50,091 11,812 255 Tax benefit from exercise of non- qualified stock options............ 21,598 ----------- -------- ---------- -------- December 28, 1996................... 272,923,042 658,230 19,163,712 243,886 Exercise of stock options including restricted stock grants............ 4,230,218 43,693 (605) 280 Open market purchases............... 3,019,543 84,932 Tax benefit from exercise of non- qualified stock options............ 26,721 ----------- -------- ---------- -------- December 27, 1997................... 277,153,260 $728,644 22,182,650 $329,098 =========== ======== ========== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED STOCK OPTION PLANS The Company grants options for common stock to employees under various plans, as well as to its non-employee directors owning a minimum of 1,000 shares of common stock of the Company, 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 December 27, 1997, 7,997,891 shares of common stock were available for future options. Options generally will expire 10 years from the date of grant. Options vest in one year to five years or, for 511,000 shares, upon the Company's stock reaching certain pre-determined market prices. 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:
WEIGHTED AVERAGE SHARES SUBJECT OF EXERCISE TO OPTION PRICE OF OPTIONS ------------------------------- Outstanding, December 31, 1994.................. 24,611,764 $ 8.72 Granted......................................... 5,549,300 $ 12.85 Exercised....................................... (4,678,780) $ 8.45 Cancelled or expired............................ (155,230) $ 7.09 ---------- Outstanding, December 30, 1995.................. 25,327,054 $ 9.68 Granted......................................... 5,687,020 $ 20.71 Exercised....................................... (5,339,416) $ 9.04 Cancelled or expired............................ (183,518) $ 16.12 ---------- Outstanding, December 28, 1996.................. 25,491,140 $ 12.23 Granted......................................... 3,110,560 $ 26.67 Exercised....................................... (4,229,352) $ 9.89 Cancelled or expired............................ (210,670) $ 12.53 ---------- Outstanding, December 27, 1997.................. 24,161,678 $ 14.50 ==========
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans other than for restricted stock awards. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and diluted net earnings per share would have been reduced by approximately $13,616, or $.05 per share, $12,800, or $.05 per share and $5,200 or $.04 per share, for 1997, 1996 and 1995, respectively. The weighted average fair value of the options granted during 1997, 1996, and 1995 was estimated as $10.82, $5.89 and $3.96, respectively, on the date of grant using the Black- Scholes option-pricing model with the following weighted average assumptions: volatility of 24.0%, 22.7% and 26.6% for 1997, 1996 and 1995, respectively; risk-free interest rate of 5.7%, 6.3% and 6.4% for 1997, 1996 and 1995, respectively; and an expected term of approximately 5.4 years for 1997 and 3.3 years for both 1996 and 1995. A summary of options outstanding and exercisable at December 27, 1997 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ------------------------ WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF NUMBER REMAINING AVERAGE OPTIONS AVERAGE EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE PRICE AS OF 12/27/97 LIFE PRICE AS OF 12/27/97 PRICE - --------------------------------------------------------------------------- $ 2.46-$ 7.85 4,244,086 3.06 $ 6.41 4,244,086 $ 6.41 $ 8.10-$10.57 2,669,430 4.42 9.34 2,669,430 9.34 $11.69-$11.69 3,096,529 6.39 11.69 3,096,529 11.69 $11.72-$12.66 2,130,366 3.48 11.74 2,130,366 11.74 $12.75-$20.41 4,188,380 7.31 12.75 3,340,949 12.75 $20.75-$26.13 4,848,391 8.30 20.75 2,637,430 20.75 $26.88-$36.47 2,984,496 9.39 26.99 8,875 26.88 ---------- ---------- 24,161,678 18,127,665 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED At December 28, 1996 and December 30, 1995, options for 16,906,890 shares and 17,738,446 shares, respectively, were exercisable at a weighted average exercise price of $9.44 and $8.52, respectively. 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 is 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 for those grants without performance contingencies. As of December 27, 1997 and December 28, 1996, awards related to 354,850 and 357,804 shares, respectively, were outstanding. Of the awards outstanding at December 27, 1997 and December 28, 1996, 200,000 shares are contingent on the attainment of certain performance objectives. The charge to earnings for grants with performance-contingent vesting includes share appreciation between the grant date and the vesting date. Incentive shares may be granted under the 1994 plan, which consist of shares of common stock issued subject to achievement of performance goals. No incentive shares were outstanding as of December 27, 1997 and December 28, 1996. 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 closed 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 tax years 1984-1992. With one exception, all issues have been resolved for tax years 1984-1989. A second issue remains unresolved for tax years 1990-1992. Efforts to resolve the issue for tax years 1984-1986 with the Appeals Division of the Internal Revenue Service were unsuccessful. As a result the Company filed a petition with the United States Tax Court in Washington, D.C. Litigation was completed in November 1995 and a decision was rendered in January 1997 in favor of the Company. The Commissioner of Internal Revenue has appealed this case to the United States Court of Appeals for the Sixth Circuit. The issue before the court is being held in abeyance for tax years 1987-1992 pending the ultimate outcome of this appeal. The other issue for tax years 1990-1992 is being temporarily held in abeyance by the Internal Revenue Service. The Company has provided for this and other tax contingencies. 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 premium plans, deductible plans, and self-insured retention plans. 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. Property risks have been underwritten by a subsidiary and are reinsured with unrelated insurance companies. Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates. Litigation--The Company is involved in various legal actions arising in the normal course of business. Management is of the opinion that their outcome will not have a material adverse effect on the Company's financial position or results of operations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED WARRANT DIVIDEND PLAN On February 28, 1986, the Company adopted a warrant dividend plan providing for preferred stock purchase rights to owners of the Company's common stock. The Plan was amended and restated as of April 4, 1997. Each right, when exercisable, entitles the holder to purchase from the Company one ten-thousandth of a share of Series A Preferred Shares, par value $100 per share, at $87.50 per one ten- thousandth of a share. The rights will become exercisable, and separately tradeable, ten days after a person or group acquires 10% or more of the Company's common stock or ten business days following a tender offer or exchange offer resulting in a person or group having beneficial ownership of 10% 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 certain acquisitions of the Company in a merger or other business combination transaction, or if 50% or more of the Company's assets or earning power are sold under certain circumstances, each right will entitle the holder to receive upon payment of the exercise price, shares of common stock of the acquiring company 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 $.01 per right. The rights are subject to adjustment and expire March 19, 2006. This summary description of the Plan is qualified in its entirety by the terms of the plan more particularly set forth in the Company's Form 8-A/A dated April 4, 1997. 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 1997 and 1996. Substantially all plan assets are invested in cash and short-term investments or listed stocks and bonds, including $135,274 and $94,229 of common stock of The Kroger Co. at the end of 1997 and 1996, respectively. The status of the plans at the end of 1997 and 1996 was:
1997 1996 ------------------- Actuarial present value of benefit obligations: Vested employees........................................... $ 768,261 $686,203 Non-vested employees....................................... 50,499 40,837 ---------- -------- Accumulated benefit obligations............................ 818,760 727,040 Additional amounts related to projected salary increases... 124,696 147,057 ---------- -------- Projected benefit obligations.............................. 943,456 874,097 Plan assets at fair value................................... 1,095,118 947,725 ---------- -------- Plan assets in excess of projected benefit obligations...... $ 151,662 $ 73,628 ========== ======== Consisting of: Unamortized transitional asset............................. $ 5,914 $ 14,456 Unamortized prior service cost and net gain................ 132,369 40,860 Adjustment required to recognize minimum liability......... 12,398 13,619 Prepaid pension cost in Consolidated Balance Sheet......... 981 4,693 ---------- -------- $ 151,662 $ 73,628 ========== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The components of net periodic pension expense (income) for 1997, 1996 and 1995 are as follows:
1997 1996 1995 ------------------------------- Service cost.................................. $ 26,682 $ 25,977 $ 20,249 Interest cost................................. 67,701 61,090 57,218 Return on assets.............................. (191,755) (110,819) (211,942) Net amortization and deferral................. 105,055 28,785 131,360 --------- --------- --------- Net periodic pension expense (income) for the year......................................... $ 7,683 $ 5,033 $ (3,115) ========= ========= ========= Assumptions: Discount rate................................ 7.25% 7.75% 7.25% Salary Progression rate...................... 3.75% 4.75% 4.25% Long-term rate of return on plan assets...... 9.5% 9.5% 9.5%
1997 and 1996 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 December 27, 1997 and December 28, 1996, respectively. However, for the calculation of periodic pension expense for 1997 and 1996 the assumptions in the table above for 1996 and 1995, respectively, were used. The 1998 calculation of periodic pension expense will be based on the assumptions in the table above for 1997. The Company also administers certain defined contribution plans for eligible union and non-union employees. The cost of these plans for 1997, 1996 and 1995 was $22,445, $21,278 and $24,902, 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 1997, 1996 and 1995 were $83,506, $88,758 and $90,872, 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 1997, 1996, and 1995, the combined payments for these benefits were $13,304, $10,634 and $10,025, respectively. The following table sets forth the postretirement benefit plans combined status at December 27, 1997 and December 28, 1996:
1997 1996 -------- -------- Accumulated postretirement benefit obligation (APBO) Retirees.................................................... $105,678 $ 96,262 Fully eligible active participants.......................... 40,542 53,387 Other active participants................................... 84,522 103,523 -------- -------- 230,742 253,172 Unrecognized net gain....................................... 75,389 59,762 -------- -------- Accrued postretirement benefit cost......................... $306,131 $312,934 ======== ========
The components of net periodic postretirement benefit costs are as follows:
1997 1996 1995 ------- ------- ------- Service costs (benefits attributed to employee serv- ices during the year).............................. $ 9,463 $ 9,557 $ 9,344 Interest cost on accumulated postretirement benefit obligations........................................ 19,608 18,006 20,662 Net amortization and deferral....................... (2,586) (991) (725) ------- ------- ------- $26,485 $26,572 $29,281 ======= ======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The significant assumptions used in calculating the APBO are as follows:
HEALTH CARE TREND RATE ------------------------- DISCOUNT YEARS TO RATE INITIAL ULTIMATE ULTIMATE -------- ------- -------- -------- Year-end 1995................................ 7.25% 10.0% 5.0% 7 Year-end 1996................................ 7.75% 9.3% 5.0% 6 Year-end 1997................................ 7.25% 5.0% 5.0% N/A
The effect of a one percent increase in the medical trend rate is as follows:
PERIODIC COST APBO ----------------- Year-end 1995.................................................. $4,037 $32,209 Year-end 1996.................................................. $4,114 $23,942 Year-end 1997.................................................. $2,734 $20,464
RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income," and No. 131 "Disclosure about Segments of an Enterprise and Related Information". The Company has not yet determined what effect, if any, these statements will have. QUARTERLY DATA (UNAUDITED)
QUARTER ---------------------------------------------- TOTAL FIRST SECOND THIRD FOURTH YEAR 1997 (12 WEEKS) (12 WEEKS) (16 WEEKS) (12 WEEKS) (52 WEEKS) - ------------------------------------------------------------------------------------- Sales................... $6,139,413 $6,231,794 $7,686,639 $6,509,502 $26,567,348 Merchandise costs....... 4,626,389 4,682,365 5,789,948 4,897,679 19,996,381 Extraordinary loss...... (5,210) (3,033) (803) (23,330) (32,376) Net earnings............ 87,050 105,104 95,727 123,775 411,656 Basic earnings per com- mon share: Earnings before ex- traordinary loss .... .36 .43 .38 .58 1.75 Extraordinary loss.... (.02) (.01) (.09) (.13) ---- ---- ---- ---- ---- Basic net earnings per common share........... .34 .42 .38 .49 1.62 Diluted earnings per common share: Earnings before ex- traordinary loss .... .35 .41 .37 .56 1.69 Extraordinary loss.... (.02) (.01) (.09) (.12) ---- ---- --- ---- ---- Diluted net earnings per common share........... .33 .40 .37 .47 1.57 1996 - ------------------------------------------------------------------------------------- Sales................... $5,784,254 $5,844,366 $7,343,132 $6,199,157 $25,170,909 Merchandise costs....... 4,367,967 4,412,202 5,582,032 4,679,264 19,041,465 Extraordinary loss...... (1,084) (766) (928) (84) (2,862) Net earnings............ 75,406 77,612 71,420 125,435 349,873 Basic earnings per com- mon share: Earnings before ex- traordinary loss .... .31 .31 .29 .50 1.41 Extraordinary loss.... (.01) (.01) ---- ---- ---- ---- ---- Basic net earnings per common share........... .31 .31 .28 .50 1.40 Diluted earnings per common share: Earnings before ex- traordinary loss .... .30 .30 .28 .48 1.36 Extraordinary loss.... (.01) ---- ---- ---- ---- ---- Diluted net earnings per common share........... .30 .30 .28 .48 1.35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONCLUDED Common Stock Price Range
1997 1996 ----------------- ------------------ QUARTER HIGH LOW HIGH LOW ----------------------------------------------------- 1st............. 28 1/8 22 11/16 19 13/16 16 3/4 2nd............. 29 1/8 23 13/16 22 18 3/4 3rd............. 31 1/16 27 1/8 22 1/2 18 9/16 4th............. 37 5/16 28 1/2 23 3/4 20 3/8
The number of shareowners of record of common stock as of March 9, 1998, was 46,973. Under the Company's Credit Agreement dated May 28, 1997, 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. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely on its review of the copies of all Section 16(a) forms received by the Company, or written representations from certain persons that no Forms 5 were required for those persons, the Company believes that during fiscal year 1997 all filing requirements applicable to its officers, directors and ten percent beneficial owners were satisfied except that Mr. Ronald R. Rice inadvertently filed an amended Form 5, reporting a gift of 600 shares by a trust under which he is a trustee and a beneficiary, 24 days late. 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 6, 1998. Except as otherwise noted below, each person has held office for at least five years and was elected to that office at the 1997 Organizational Meeting of the Board of Directors held May 15, 1997. Each officer will hold office at the discretion of the Board for the ensuing year until removed or replaced.
Recent Name Age Employment History - ---- --- ------------------ Warren F. Bryant 52 Mr. Bryant was elected President and Chief Executive Officer of Dillon Companies, Inc. effective September 1, 1996. Prior to this he was elected President and Chief Operating Officer of Dillon Companies, Inc. on June 18, 1995, Senior Vice President of Dillon Companies, Inc. on May 1, 1993, and Vice President of Dillon Companies, Inc. on March 1, 1990. Before this Mr. Bryant served as Vice President of Marketing, Dillon Stores Division, from June 1988 until March 1990, and in a number of key management positions with the Company, including Director of Merchandising for the Mid-Atlantic Marketing Area and Director of Operations for the Charleston, West Virginia division of the Mid-Atlantic Marketing Area. He joined the Company in 1964. David B. Dillon 46 Mr. Dillon was elected President and Chief Operating Officer of Kroger effective June 18, 1995. Prior to this he was elected Executive Vice President on September 13, 1990, Chairman of the Board of Dillon Companies, Inc. on September 8, 1992, and President of Dillon Companies, Inc. on April 22, 1986. Before his election he was appointed President of Dillon Companies, Inc.
Paul W. Heldman 46 Mr. Heldman was elected Senior Vice President effective October 5, 1997, 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 56 Mr. Heschel was elected Executive Vice President effective June 18, 1995. Prior to this he was elected Senior Vice President - Information Systems and Services on February 10, 1994, and Group Vice President - Management Information Services on July 18, 1991. Before 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. Lynn Marmer 45 Ms. Marmer was elected Group Vice President effective January 19, 1998. Prior to her election, Ms. Marmer was an attorney in the Company's Law Department. Ms. Marmer joined the Company in 1997. Before joining the Company she was a partner in the law firm of Dinsmore & Shohl. Don W. McGeorge 43 Mr. McGeorge was elected Senior Vice President effective August 10, 1997. Prior to his election, Mr. McGeorge was President of the Company's Columbus Marketing Area effective December 29, 1996; and prior thereto President of the Company's Michigan Marketing Area effective June 20, 1993. Before this he served in a number of key management positions with the Company, including Vice President of Merchandising of the Company's Nashville Marketing Area. Mr. McGeorge joined the Company in 1977. W. Rodney McMullen 37 Mr. McMullen was elected Senior Vice President effective October 5, 1997, Group Vice President and Chief Financial Officer effective June 18, 1995. Prior to this he was appointed Vice President-Control and Financial Services on March 4, 1993, and Vice President, Planning and Capital Management effective December 31, 1989. Mr. McMullen joined the Company in 1978 as a part-time stock clerk. Joseph A. Pichler 58 Mr. Pichler was elected Chairman of the Board on September 13, 1990, and Chief Executive Officer effective June 17, 1990. Prior to this he was elected President and Chief Operating Officer on October 24, 1986, and Executive Vice President on July 16, 1985. Mr. Pichler joined Dillon Companies, Inc. in 1980 as Executive Vice President and was elected President of Dillon Companies, Inc. in 1982. Ronald R. Rice 62 Mr. Rice was elected Senior Vice President on April 21, 1994. Prior to this he was elected Group Vice President and appointed President, Manufacturing on April 16, 1992. Mr. Rice 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. James R. Thorne 51 Mr. Thorne was elected Senior Vice President effective June 18, 1995. Prior to his election Mr. Thorne was appointed President of the Company's Mid-Atlantic Marketing Area in 1993. Before this Mr. Thorne served in a number of key management positions in the Mid- Atlantic Marketing Area, including Advertising Manager, Zone Manager, Director of Operations, and Vice President-Merchandising. Mr. Thorne joined the Company in 1966 as a part-time grocery clerk. Lawrence M. Turner 50 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. 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 December 27, 1997 and December 28, 1996 Consolidated Statement of Operations and Accumulated Deficit for the years ended December 27, 1997, December 28, 1996, and December 30, 1995 Consolidated Statement of Cash Flows for the years ended December 27, 1997, December 28, 1996, and December 30, 1995 Notes to Consolidated Financial Statements Financial Statement Schedules: There are no Financial Statement Schedules included with this filing 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 22, 1997, the Company filed a current report on Form 8-K disclosing its unaudited earnings for the third quarter 1997
(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 is hereby 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 27.1 Financial Data Schedule 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 1997 will be filed by amendment on or before April 27, 1998
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 23, 1998 By (*Joseph A. Pichler) Joseph A. Pichler, Chairman of the Board of Directors and Chief Executive Officer Dated: March 23, 1998 By (*W. Rodney McMullen) W. Rodney McMullen Senior Vice President and Chief Financial Officer Dated: March 23, 1998 By (*J. Michael Schlotman) J. Michael Schlotman Vice President & Corporate Controller 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 23th day of March, 1998.
(*Reuben V. Anderson) Director Reuben V. Anderson (*John L. Clendenin) Director John L. Clendenin (*David B. Dillon) President, Chief Operating David B. Dillon Officer, and Director (*John T. LaMacchia) Director John T. LaMacchia (*Edward M. Liddy) Director Edward M. Liddy (*Patricia Shontz Longe) Director Patricia Shontz Longe (*Clyde R. Moore) Director Clyde R. Moore (*T. Ballard Morton, Jr). Director T. Ballard Morton, Jr.
_______________________ Director Thomas H. O'Leary (*John D. Ong) Director John D. Ong (Katherine D. Ortega) 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 (*James D. Woods) Director James D. Woods *By: (Paul W. Heldman) Paul W. Heldman Attorney-in-fact
EX-12.1 2 STATEMENT OF COMP RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES OF THE KROGER CO. AND CONSOLIDATED SUBSIDIARY COMPANIES AND UNCONSOLIDATED COMPANIES AS IF CONSOLIDATED FOR THE FIVE FISCAL YEARS ENDED December 27,1997
Five Years Ended ----------------------------------------------------------------------- December 27, December 28, December 30, December 31, January 1, 1997 1996 1995 1994 1994 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ------------- ------------- ------------- ------------- ----------- (in thousands of dollars) Earnings Earnings from continuing operations before tax expense, extraordinary loss and cumulative effect of change in accounting............ $ 712,363 $ 567,313 $509,538 $421,363 $283,938 Fixed charges............. 482,338 482,680 489,939 500,599 556,008 Capitalized interest...... (8,550) (10,887) (6,785) (2,521) 230 ---------- ---------- -------- -------- -------- $1,186,151 $1,039,106 $992,692 $919,441 $840,176 ========== ========== ======== ======== ======== Fixed Charges Interest.................. $ 294,985 $ 311,958 $320,236 $331,097 $391,693 Portion of rental payments deemed to be interest.... 187,353 170,722 169,703 169,502 164,315 ---------- ---------- -------- -------- -------- $ 482,338 $ 482,280 $489,939 $500,599 $556,008 ========== ========== ======== ======== ======== Ratio of Earnings to Fixed Charges.............. 2.5 2.2 2.0 1.8 1.5
EX-21.1 3 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF THE KROGER CO. ------------------------------ Name State of Incorporation/Organization ---- ----------------------------------- Agri-Products, Inc. Arkansas Bluefield Beverage Company Ohio Country Oven, Inc. Ohio Dillon Companies, Inc. Kansas Also Doing Business As: Dillon Food Stores N/A* Dillon Stores Division, Inc. N/A* Gerbes Supermarkets N/A* King Soopers, Inc. N/A* Sav-Mor N/A* Turkey Hill Dairy, Inc. N/A* Turkey Hill Minit Markets N/A* Drug Distributors, Inc. Indiana Eight Holdings, Inc. Delaware Eleven Holdings, Inc. Delaware Embassy International, Inc. Ohio Fifteen Holdings, Inc. Delaware Five Holdings, Inc. Delaware Four Holdings, Inc. Delaware Fourteen Holdings, Inc. Delaware Ft. Wayne Food Stores, Inc. Ohio Gateway Freightline, Inc. Ohio Also Doing Business As: GFL N/A* Illinois Gateway Freightline, Inc. N/A* Henke & Pillot, Inc. Texas Henpil, Inc. Texas (Subsidiary of Rocket Newco, Inc.) Inter-American Foods, Inc. Ohio J.V. Distributing, Inc. Michigan Jubilee Products, Inc. Ohio KRGP Inc. Ohio KRLP Inc. Ohio The Kroger Co. of Michigan Michigan Also Doing Business As: The Apple Orchard Fruit Market N/A* Bi-Lo Discount Foods N/A* Michigan Dairy N/A* World of Videos, Movies and Munch More N/A* Kroger Dedicated Logistics Co. Ohio Kroger Limited Partnership I Ohio (limited partnership) Also Doing Business As: Kentucky Distribution Center N/A* Kroger Kare Home Infusion N/A* The Pet Food Super Center N/A* The Petfood Place N/A* Peyton's Southeastern N/A* Peyton's Southeastern, Inc. N/A* EX-23.1 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of The Kroger Co. on Form S-8 (File No. 2-98858), Form S-8 (File No. 33-2056), Form S-8 (File No. 33-20734), Form S-8 (File No. 33-29640), Form S-8 (File No. 33- 25698), Form S-8 (File No. 33-29271), Form S-8 (File No. 33-38121), Form S-8 (File No. 33-38122), Form S-8 (File No. 33-53747), Form S-8 (File No. 33-55501), Form S-8 (File No. 333-11859), Form S-8 (File No. 333-11909), Form S-3 (File No. 333-06763), Form S-8 (File No. 333-27211) and Form S-3 (File No. 33-61563) of our report dated January 22, 1998, on our audits of the consolidated financial statements of The Kroger Co. as of December 27, 1997, and December 28, 1996, and for the years ended December 27, 1997, December 28, 1996, and December 30, 1995, which report is included in this Annual Report on Form 10-K. (Coopers & Lybrand L.L.P.) Coopers & Lybrand L.L.P. Cincinnati, Ohio March 13, 1998 EX-24.1 5 POWERS OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, That each of the undersigned directors of THE KROGER CO. (the "Company") hereby makes, constitutes and appoints Paul W. Heldman and Bruce M. Gack, or either of them, his or her true and lawful attorneys-in-fact to sign and execute for and on his or her behalf the Company's annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable The Kroger Co. to comply with said Act or the rules and regulations thereunder. IN WITNESS WHEREOF, the undersigned directors have hereunto set their hands as of the 20th day of February, 1998. (Reuben V. Anderson) (T. Ballard Morton, Jr.) Reuben V. Anderson T. Ballard Morton, Jr. (John L. Clendenin) ___________________________ John L. Clendenin Thomas H. O'Leary (David B. Dillon) (John D. Ong) David B. Dillon John D. Ong (John T. LaMacchia) (Katherine D. Ortega) John T. LaMacchia Katherine D. Ortega (Edward M. Liddy) (Joseph A. Pichler) Edward M. Liddy Joseph A. Pichler (Patricia Shontz Longe) (Martha Romayne Seger) Patricia Shontz Longe Martha Romayne Seger (Clyde R. Moore) (James D. Woods) Clyde R. Moore James D. Woods EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: The undersigned officer of THE KROGER CO. (the "Company") does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company's annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable The Kroger Co. to comply with said Act or the rules and regulations thereunder. IN WITNESS WHEREOF, I have hereunto set my hand. (J. Michael Schlotman) February 20, 1998 J. Michael Schlotman Vice President & Corporate Controller and Principal Accounting Officer EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: The undersigned officer of THE KROGER CO. (the "Company") does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company's annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable The Kroger Co. to comply with said Act or the rules and regulations thereunder. IN WITNESS WHEREOF, I have hereunto set my hand. (Joseph A. Pichler) February 20, 1998 Joseph A. Pichler Chief Executive Officer and Director EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: The undersigned officer of THE KROGER CO. (the "Company") does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company's annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable The Kroger Co. to comply with said Act or the rules and regulations thereunder. IN WITNESS WHEREOF, I have hereunto set my hand. (W. Rodney McMullen) February 20, 1998 W. Rodney McMullen Senior Vice President and Chief Financial Officer EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: The undersigned officer of THE KROGER CO. (the "Company") does hereby severally make, constitute and appoint Paul W. Heldman and Bruce M. Gack, or either of them, his true and lawful attorneys-in-fact to sign and execute for and on his behalf the Company's annual report on Form 10-K, and any and all amendments thereto, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, in such form as they, or either of them, may approve and to do any and all other acts which said attorneys-in-fact, or either of them, may deem necessary or desirable to enable The Kroger Co. to comply with said Act or the rules and regulations thereunder. IN WITNESS WHEREOF, I have hereunto set my hand. (David B. Dillon) February 20, 1998 David B. Dillon President and Chief Operating Officer and Director EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statement of operations, consolidated balance sheet and consolidated statement of cash flows for the year ended December 27, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-27-1997 DEC-27-1997 65,484 0 400,529 0 2,273,896 2,640,551 6,183,247 2,886,647 6,301,341 2,943,516 3,517,410 0 0 728,644 (1,184,394) 6,301,341 26,567,348 26,567,348 19,996,381 19,996,381 5,858,604 0 285,945 712,363 268,331 444,032 0 (32,375) 0 411,657 1.62 1.57
-----END PRIVACY-ENHANCED MESSAGE-----