SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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 28, 1996
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
126,987,871 shares outstanding on
March 10, 1997
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No .
---------- --------
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K[ ].
The aggregate market value of the Common Stock of The Kroger Co.
held by non-affiliates as of February 28, 1997: $6,689,444,184
Documents Incorporated by Reference:
Proxy Statement to be filed pursuant to Regulation 14A of
the Exchange Act on or before April 28, 1997, incorporated by
reference into Parts II and III of Form 10-K.
PART II
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED
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DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1, JANUARY 2,
1996 1995 1994 1994 1993
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS)
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(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Sales from continuing operations............. $25,170,909 $23,937,795 $22,959,122 $22,384,301 $22,144,588
Earnings from continuing operations
before extraordinary loss and
cumulative effect of change in
accounting.................................. 352,735 318,866 268,903 170,805 101,160
Extraordinary loss (net of income
tax credit)<F1>............................. (2,862) (16,053) (26,707) (23,832) (107,103)
Cumulative effect of change in
accounting (net of income tax
credit)<F2>................................ (159,193)
Net earnings (loss).......................... 349,873 302,813 242,196 (12,220) (5,943)
Fully diluted earnings (loss) per share
Earnings from continuing operations
before extraordinary loss................... 2.67 2.50 2.19 1.50 1.11
Extraordinary loss <F1>..................... (.02) (.12) (.21) (.19) (1.17)
Cumulative effect of change in
accounting <F2>............................. (1.28)
Net earnings (loss)......................... 2.65 2.38 1.98 .03 (.06)
Total assets................................. 5,825,413 5,044,717 4,707,674 4,480,464 4,303,084
Long-term obligations, including obligations
under capital leases........................ 3,659,491 3,489,728 3,889,194 4,135,013 4,472,978
Shareowners' deficit......................... (1,181,706) (1,603,013) (2,153,684) (2,459,642) (2,700,044)
Cash dividends per common share.............. <F3> <F3> <F3> <F3> <F3>
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[FN]
<F1> See Extraordinary Loss in the Notes to Consolidated Financial
Statements.
<F2> See Post-retirement Health Care and Life Insurance Benefits in
the respective year's Notes to Consolidated Financial
Statements.
<F3> 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 1996 were $6.2 billion
compared to $5.9 billion in the fourth quarter of 1995, a 5.8%
increase. Sales for the full year increased 5.1%. Food stores sales
for the fourth quarter 1996 were 5.0% ahead of the fourth quarter
1995 and 4.5% ahead for the year. A review of sales by lines of
business for the three years ended December 28, 1996, is as
follows:
1996 1995 1994
% OF 1996 ------------------ ---------------- ----------------
SALES AMOUNT CHANGE AMOUNT CHANGE AMOUNT CHANGE
---------- ------- -------- ------ ------ ------ ------
(MILLIONS OF DOLLARS)
Food Stores.............. 93.4% $23,508 + 4.5% $22,488 +4.9% $21,442 +4.9%
Convenience Stores....... 3.8% 948 +11.6% 850 -5.4% 898 -5.6%
Other sales.............. 2.8% 714 +19.0% 600 -3.1% 619 -37.5%
------ ------- ------ ------- ----- ------- ------
Total sales.............. 100.0% $25,170 +5.1% $23,938 +4.3% $22,959 +2.6%
Sales in identical food stores, stores that have been in operation
and have not been expanded or relocated for one full year,
increased .5% in the fourth quarter and .5% for the full year.
Identical store sales, excluding the strike in the King Soopers and
City Markets divisions, were up 1.0% for the full year. In the
fourth quarter comparable store sales, which include results of
expanded and relocated stores, increased 4.0%. The increase in
food stores' sales can be attributed primarily to inflation of less
than .5%, the opening or expansion of 116 food stores, and higher
average sales per customer. Higher sales per customer are the
result of the Company's focus on the combination food and drug
store, combining a food store with a pharmacy and numerous
specialty departments such as floral, video rental, and book
stores. The Company expects to emphasize this "one-stop shopping"
convenience format tailored to each market to obtain future sales
growth.
Convenience stores' sales increased 11.6% for the year and 15.4%
during the fourth quarter of 1996. The convenience stores' sales
increase can be attributed to a 12% increase in gas retails for the
quarter on a 10.5% increase in gallons sold. In-store sales in
identical convenience stores increased 1.9% for both the fourth
quarter and the full year. Gasoline sales at identical convenience
stores increased 13.3% in the fourth quarter 1996 on a 1.1%
increase in gallons sold, and gasoline sales increased 8.9% for the
year on a 1.5% increase in gallons sold.
Other sales primarily consists of outside sales by the Company's
manufacturing divisions. The increase in other sales compared to
1995 was 24.2% for the fourth quarter and 19.0% for the year.
Manufacturing division outside sales increased 22.5% in the fourth
quarter 1996 and 15.4% for the full year.
Total food store square footage increased 6.7%, 4.6% and 4.7% in
1996, 1995, and 1994, respectively. The Company expects to
increase retail food store square footage by approximately 5-6% in
both 1997 and 1998. Convenience store square footage increased 1.5%
in 1996, decreased 10.6% in 1995, and increased .4% in 1994.
Sales per average square foot for the last three years were:
TOTAL SALES
PER
AVERAGE SQUARE
FOOT
---------------
1996 1995 1994
---- ---- ----
Food Stores............................. $403 $405 $404
Convenience Stores...................... $519 $475 $436
Sales per average square foot for convenience stores for 1996,
1995, and 1994 exclude stores that are operated by franchisees. The
decrease in sales per average square foot for food stores can be
attributed to a large increase in square footage at the end of 1996
as new store construction was completed.
The Company produced record sales in 1996 despite work stoppages at
the King Soopers and City Markets divisions. In 1996 and 1995 sales
improved despite increased competition from other food retailers,
supercenters, mass merchandisers, and restaurants. The Company's
wide regional diversity allowed it to withstand these challenges
and to produce record results.
The sales improvement in 1994 was the result of new square footage
combined with the increased productivity of existing stores.
The Company's future food store strategy is to invest in existing
Kroger markets or adjacent geographic regions where the Company has
a strong franchise and can leverage marketing, distribution, and
overhead dollars. Consistent increases from the Company's existing
store base combined with incremental contributions from the capital
spending program are expected.
EBITD
The Company's Senior Competitive Advance and Revolving Credit
Facility Agreement (the "Credit Agreement"), as amended, and the
indentures underlying approximately $1.2 billion of publicly issued
debt, contain various restrictive covenants, many of which are
based on earnings before interest, taxes, depreciation, LIFO
charge, unusual and extraordinary items ("EBITD"). All such
covenants are based, among other things, upon generally accepted
accounting principles ("GAAP") as applied on a date prior to
January 3, 1993. The ability to generate EBITD at levels
sufficient to satisfy the requirements of these agreements is a key
measure of the Company's financial strength. The presentation of
EBITD is not intended to be an alternative to any GAAP measure of
performance but rather to facilitate an understanding of the
Company's performance compared to its debt covenants. At December
28, 1996, the Company was in compliance with all covenants of its
Credit Agreement. The Company believes it has adequate coverage of
its debt covenants to continue to respond effectively to
competitive conditions.
EBITD, which does not include the effect of Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions," increased 6.7% in
1996 to $1.241 billion compared to $1.163 billion in 1995 and
$1.065 billion in 1994. Excluding the effect of strikes in the
King Soopers and City Markets divisions, EBITD would have been
approximately $1.274 billion for 1996. EBITD growth was generated
by sales gains, and reduced operating, general and administrative
expenses as a percent of sales. The Company's strong storing
program continued to produce incremental EBITD increases as well.
EBITD increases in 1995 and 1994 were due in large part to
increased sales combined with improved gross profits rates.
MERCHANDISE COSTS
Merchandise costs include warehousing and transportation expenses
and LIFO charges or credits. The following table shows the relative
effect that LIFO charges have had on merchandising costs as a
percent of sales:
1996 1995 1994
---- ---- ----
Merchandise costs as reported.............. 75.65% 75.60% 75.81%
LIFO charge................................ .05% .05% .07%
----- ----- -----
Merchandise costs as adjusted.............. 75.60% 75.55% 75.74%
On a consolidated basis, cost of goods increased for the year.
However, the consolidated gross profit rate does not reflect the
general trend in food stores. The food stores' gross profit rates
were favorable to last year. Much of the decline in the
consolidated gross profit rate was due to lower gross margins
experienced at the convenience stores, primarily in gasoline. The
Company will continue to invest capital in technology focusing on
improved store operations, procurement, and distribution practices.
Warehousing costs as a percent of sales declined from 1995's rates.
The gross profit rate is expected to be favorably influenced by the
Company's advances in consolidated distribution and coordinated
purchasing, reduced transportation costs, and strong private label
sales.
The Company expects to limit product cost increases through
continued use of technology, outsourcing, and a variety of store
level efficiency enhancements.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating, general and administrative expenses as a percent of
sales in 1996, 1995 and 1994 were 18.34%, 18.41% and 18.42%,
respectively.
Operating, general and administrative costs declined 40 basis
points in the fourth quarter and 7 basis points for the full year.
The improved fourth quarter results were caused by a combination of
factors, including favorable workers compensation and general
liability trends, cost reduction achieved through enhanced
technology, a reduction in employee benefit costs, and reduced
administrative expenses.
The Company's goal for 1997 is to further reduce operating, general
and administrative expense rates. Increased sales volume combined
with investments in new technologies and logistics programs to
improve efficiencies and lower costs while maintaining customer
service, should help achieve this goal. In 1997, the Company plans
to open or expand approximately 100 stores compared to 116 in 1996.
This expansion program will adversely affect operating, general and
administrative rates as upfront costs associated with the opening
of new stores are incurred.
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 1984-1989.
All issues have been resolved with one exception. Efforts to
resolve this 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 Company is awaiting a decision from the Internal
Revenue Service regarding appeal. This issue for years 1987-1989
is being held in abeyance pending the ultimate outcome of this
court case. The Company has provided for this and other tax
contingencies.
NET EARNINGS
Net earnings totaled $349.8 million in 1996 compared to $302.8
million in 1995 and $242.2 million in 1994. Earnings in 1996
compared to 1995 and 1994 were affected by: (i) an after tax
extraordinary loss from the early retirement of debt in 1996 of
$2.9 million compared to $16.1 million in 1995 and $26.7 million in
1994, (ii) net interest expense in 1996 of $300.0 million versus
$312.7 million in 1995 and $327.6 million in 1994, and (iii)
depreciation expense of $343.7 million, $311.3 million and $277.8
million in 1996, 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Debt Management and Interest Expense
Net interest expense declined to $300.0 million in 1996 as compared
to $312.7 million in 1995 and $327.6 million in 1994.
In 1996, the Company made open market purchases of $49.9 million of
its senior and subordinated debt and redeemed $134.7 million of its
subordinated debt. The repurchases and redemption were effected
with 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. Interest
expense was adversely affected in 1995 by an increase in market
rates. In 1994 the Company repurchased or redeemed $559.5 million
of high rate senior debt. A portion of these redemptions were
financed by $111.4 million of new subordinated debt and $132.3
million in additional bank borrowings.
The Company has in place a Senior Competitive Advance and Revolving
Credit Facility Agreement ("Credit Agreement") providing a $1.75
billion revolving credit loan through July 20, 2002. The average
interest rate on the Company's bank debt, which totaled $1.001
billion at year-end 1996 versus $1.008 billion at year-end 1995 was
6.16% compared to 6.84% in 1995 and 5.57% in 1994. The Company's
rate on the bank debt is variable.
The Company currently expects 1997 net interest expense, estimated
using year-end 1996 rates, to total approximately $295 million. A
1% increase in market rates would increase this estimated expense
by approximately $6.5 million. A 1% decrease in market rates would
reduce the estimated expense by approximately $9.4 million.
Long-term debt, including capital leases and current portion
thereof, increased $157.0 million to $3.681 billion at year-end
1996 from $3.524 billion at year-end 1995. The Company purchased a
portion of the debt issued by the lenders of certain of its
structured financings, which cannot be retired early, in an effort
to effectively further reduce the Company's interest expense.
Excluding the debt incurred to make these purchases, which are
classified as investments, the Company's long-term debt would be
$152.6 million less or $3.528 billion at year-end 1996 compared to
$3.465 billion at year-end 1995.
Required principal repayments over the next five years amount to
$285.8 million at year-end 1996 versus $429.2 million and $670.7
million at year-end 1995 and 1994, respectively. Scheduled debt
maturities for the five years subsequent to 1996, 1995 and 1994
were:
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Year 1.................................. $ 11,642 $ 24,939 $ 7,926
Year 2.................................. 16,095 11,838 14,341
Year 3.................................. 197,876 16,839 12,875
Year 4.................................. 28,868 337,419 15,507
Year 5.................................. 31,301 38,212 620,012
In 1996, Year 3 maturities include the remaining $124.7 million of
10% Senior Subordinated Notes.
In 1995, Year 4 maturities included the remaining $139.2 million of
10% Senior Subordinated Notes, and $125.0 million of 9% Senior
Subordinated Notes.
In 1994, Year 5 maturities included $125 million of 9% Senior
Subordinated Notes, $200 million of 6 3/8% Convertible Junior
Subordinated Notes, and $222.6 million of 10% Senior Subordinated
Notes. In 1995 the Company issued a redemption notice to the
holders of the remaining outstanding balance of the 6 3/8%
Convertible Junior Subordinated Notes. All of the holders elected
to convert the notes into approximately 10.7 million shares of
common stock.
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 billion 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.
The Company currently has in place various interest rate hedging
agreements with notional amounts aggregating $3.160 billion. The
effect of these agreements is to: (i) fix the rate on $465 million
floating rate debt, with $100 million of swaps expiring in December
1998, $125 million expiring in January 1999, $75 million expiring
in January 2001, $65 million expiring in December 2004, and the
remaining $100 million expiring in 2007, for which the Company pays
an average rate of 6.72% and receives 6 month LIBOR; (ii) fix the
rate on $860 million floating rate debt incurred to purchase the
Company's high-rate public bonds in the open market to match the
original maturity of the debt purchased, with the Company borrowing
at an effective rate that is lower than the yield to maturity of
the repurchased debt and paying an average rate of 7.11% and
receiving 6 month LIBOR on these agreements which will expire $375
million in 2000, $395 million in 2001, and $90 million in 2002;
(iii) swap the contractual interest rate on $350 million of seven
and ten year debt instruments into floating-rate instruments, for
which the Company pays 6 month LIBOR and receives an average rate
of 7.04%, with $100 million of these contracts expiring in May 1999
and the remaining $250 million expiring in August 2002, and
concurrently, fixing the rate on $200 million of floating rate
debt, with $100 million expiring in May 1997, and $100 million
expiring in August 1998, for which the Company pays an average rate
of 6.87%; effectively changing a portion of the Company's interest
rate exposure from seven to ten years to three to five years; (iv)
swap the contractual interest rate on $735 million of four, seven
and ten year fixed-rate instruments into floating-rate instruments,
for which the Company pays 6 month LIBOR and receives an average
rate of 5.99%, with $75 million of these swaps expiring in February
1998, $75 million expiring in March 1998, $50 million expiring in
October 1999, $100 million expiring in November 1999, $50 million
expiring in July 2000, $110 million expiring in November 2000, $125
million expiring in January 2001, and $150 million expiring in July
2003; and (v) cap six month LIBOR on $550 million for one to five
years at rates between 5.0% and 6.0%, with $50 million of the caps
expiring in each of July 1997 and July 1998, $100 million expiring
in December 1997, $100 million expiring in each of January 1997 and
January 1998, and the remaining $150 million expiring in January
1999. Interest expense was increased $11,071 and $2,760 in 1996 and
1995, respectively, and reduced $13,449 in 1994, as a result of the
Company's hedging program.
The Company's borrowings under the Credit Agreement are permitted
to be in the form of commercial paper. At December 28, 1996, the
Company had $187.7 million of commercial paper outstanding of the
$1.001 billion in total bank borrowings. After deducting amounts
set aside as backup for the Company's unrated commercial paper
program, $739.5 million was available under the Company's Credit
Agreement to meet short-term liquidity needs. There are no
principal payments required under the Credit Agreement until its
expiration on July 20, 2002.
COMMON STOCK
On September 5, 1995 the Company issued approximately 10.7 million
shares of common stock in connection with the redemption of its 6
3/8% Convertible Junior Subordinated Notes and the election by
holders to convert their Notes to stock.
REPURCHASE AND REDEMPTION OF DEBT
In 1996, the Company redeemed the entire $125 million outstanding
balance of its 9% Senior Subordinated Notes and approximately $9.7
million of its General Term Notes, Series B. The Company also made
open market purchases totaling $23.4 million of its 9 1/4% Senior
Secured Debentures and $26.5 million of its various senior
subordinated debt issues. Borrowings under the Credit Agreement,
proceeds from exercise of stock options, the issuance of new senior
debt, the sale of assets and excess cash from operations were used
to finance these redemptions and repurchases. The outstanding
balances of these debt issues at December 28, 1996, were $695.8
million for the senior subordinated debt issues which includes the
General Term Notes, and $107.6 million for the 9 1/4% Senior
Secured Debentures.
During 1995 the Company redeemed the remaining outstanding amount
of its 6 3/8% Convertible Junior Subordinated Notes. The holders
elected thereupon to convert their Notes into 10.7 million shares
of common stock. The Company also repurchased, on the open market,
$29.1 million of its 9 1/4% Senior Secured Debentures and $253.9
million of its various senior subordinated debt issues. The
redemptions and repurchases were affected using additional bank
borrowings, cash from operations, proceeds from the sale of assets
and working capital improvements. The outstanding balances of these
debt issues at December 30, 1995, were $857.1 million for the
senior subordinated debt issues and $131.0 million for the 9 1/4%
Senior Secured Debentures.
During 1994 the Company redeemed the remaining outstanding amounts
of its 11 1/8% Senior Notes, its 8 3/4% Senior Subordinated Reset
Notes and its 8 1/4% Convertible Junior Subordinated Debentures.
The Company also repurchased $144.8 million of its various senior
subordinated debt issues and $39.9 million of its 9 1/4% Senior
Secured Debentures. The redemptions and repurchases were affected
using funds from asset sales, the sale of treasury stock to
employee benefit plans, proceeds from new financings, excess cash
from operations and additional bank borrowings. The outstanding
balances of these debt issues at December 31, 1994, were $1.105
billion for the Senior Subordinated Debt issues, and $160.2 million
for the 9 1/4% Senior Secured Debentures.
CAPITAL EXPENDITURES
Capital expenditures totaled $733.8 million for 1996, compared to
$726.1 million in 1995. Capital outlays in 1994 were $534.0
million. During 1996 the Company opened, acquired or expanded 116
food stores and 31 convenience stores compared to 83 food stores
and 19 convenience stores in 1995 and 82 food stores and 17
convenience stores in 1994. The Company also completed 53 food
store and 9 convenience store remodels during 1996. During 1996,
the Company closed or sold 49 food stores and 19 convenience
stores.
The Company expects 1997 capital expenditures, including additional
Company owned real estate, logistics projects, and continuing
technology investments, to total approximately $800-$850 million.
Food store square footage is expected to increase 5-6% through the
opening, expansion or acquisition of approximately 90-100 food
stores. The Company also expects to complete within-the-wall
remodels of 50 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's ability to execute its capital
expenditure plan will depend, in part, on its ability to generate
continued EBITD growth.
CONSOLIDATED STATEMENT OF CASH FLOWS
During 1996 the Company generated $477.8 million in cash from
operating activities compared to $798.5 million in 1995 and $750.3
million in 1994. The decrease from 1995 is primarily due to an
increase in operating assets and liabilities that used $248.5
million of cash in 1996 compared to generating cash of $143.0
million in 1995. The largest component of the change in operating
assets and liabilities was net owned inventories due in part to the
Company's storing program and warehouse expansions which increased
$224.5 million as compared to a decrease of $109.1 million in 1995.
Additionally, prepaid and other assets increased $120.6 million,
primarily because of the Company's funding of a Voluntary Employee
Benefit Association Trust for employee benefit plan expenses.
Offsetting these net uses of cash were increases in net earnings
before extraordinary losses of $47.1 million and non-cash charges
for depreciation and amortization of $32.5 million.
Investing activities used $856.9 million compared to $665.6 million
of cash used in 1995 and $546.5 million of cash used in 1994. The
increase in the use of cash was due to increased purchase of
investments of $140.9 million and increased capital expenditures of
$7.7 million combined with a decrease in proceeds from sale of
assets and investments of $40.3 million.
Cash provided by financing activities in 1996 totaled $379.1
million compared to uses of $160.2 million and $297.8 million in
1995 and 1994, respectively. The decrease in the use of cash during
1996 as compared to 1995 is due to a 1996 net debt increase of
$146.9 million versus 1995's net debt reduction of $191.0 million.
Additionally, $6.8 million less cash was needed for debt
prepayments and finance charges and an additional $175.4 million
was provided by outstanding checks. An additional $19.5 million
was provided from the sale of stock and related transactions.
OTHER ISSUES
The Company is party to more than 200 collective bargaining
agreements with local unions representing approximately 160,000 of
the Company's employees. During 1996 the Company negotiated over
50 labor contracts, but it did incur work stoppages in the King
Soopers and City Markets divisions. Typical agreements are 3 to 5
years in duration, and as such agreements expire, the Company
expects to negotiate with the unions and to enter into new
collective bargaining agreements. There can be no assurance,
however, that such agreements will be reached without work
stoppage. A prolonged work stoppage affecting a substantial number
of stores could have a material adverse effect on the results of
the Company's operations. Major union contracts that will be
negotiated in 1997 include Phoenix, Dallas, Atlanta and Nashville
store employees.
SUBSEQUENT EVENTS
On January 29, 1997, the Company announced that it would begin a
stock repurchase program in order to reduce dilution caused by the
Company's stock option plans for employees. The repurchase program
will be funded by proceeds derived from employee stock option
exercises, plus associated tax benefits.
Effective as of February 15, 1997, the Company redeemed the entire
outstanding balances of its 9 3/4% Senior Subordinated Debentures
and its 9 3/4% Senior Subordinated Debentures, Series B, both of
which were due in 2004. The balance outstanding under both issues
totaled approximately $142 million.
SPECIAL NOTE
The foregoing Management's Discussion and Analysis contains certain
forward-looking statements about the future performance of the
Company which are based on management's assumptions and beliefs in
light of the information currently available to it. These
forward-looking statements are subject to uncertainties and other
factors that could cause actual results to differ materially from
those statements including, but not limited to: competitive
practices and pricing in the food and drug industries generally and
particularly in the Company's principal markets; changes in the
financial markets related to the cost of the Company's capital; the
ability of the Company to access the public debt and equity markets
to refinance indebtedness and fund the Company's capital
expenditure program on satisfactory terms; supply or quality
control problems with the Company's vendors; labor disputes and
material shortages; and changes in economic conditions that affect
the buying patterns of the Company's customers.
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: April 24, 1997 By: (Paul W. Heldman)
Paul W. Heldman
Vice President, Secretary
and General Counsel
INDEX OF EXHIBITS
-----------------
Exhibit
- -------
23.2 Consent of Independent Accountants
23.3 Consent of Independent Accountants
99.2 Financial Statements for The Kroger Co. Savings Plan for
the Year Ended December 31, 1996
99.3 Financial Statements for the Dillon Companies, Inc.
Employees' Stock Ownership and Savings Plan for the Year
Ended December 31, 1996