Why did operating cash flow decline in 1996?

Net cash provided by operating activities fell to $477.8 million from $798.5 million. The filing attributes the decrease mainly to an increase in operating assets and liabilities that used $248.5 million of cash, compared with generating $143.0 million in 1995. The largest component was a $224.5 million increase in net owned inventories, and prepaid and other assets rose $120.6 million, primarily from funding a Voluntary Employee Benefit Association Trust.

Does the Company pay dividends?

No. The Company has not paid dividends on its common stock for the past two fiscal years, and its Credit Agreement prohibits cash dividends during its term. The Company may pay dividends in the form of its own stock.

What labor risks does the Company face in 1997?

The Company is party to more than 200 collective bargaining agreements covering about 160,000 employees. It experienced work stoppages at the King Soopers and City Markets divisions in 1996. Major union contracts to be negotiated in 1997 include those for store employees in Phoenix, Dallas, Atlanta and Nashville. The filing states that a prolonged work stoppage affecting a substantial number of stores could have a material adverse effect on operating results.

How is the Company's debt structured and what changed in 1996?

Long-term debt including capital leases and current portion was $3.68 billion at year-end 1996, up $157.0 million from $3.52 billion. The Company issued $240 million of 8.15% Senior Notes due 2006 and redeemed its $125 million 9% Senior Subordinated Notes. Its $1.75 billion Credit Agreement, with $1.001 billion in bank borrowings outstanding, runs through July 20, 2002. Net interest expense declined to $300.0 million from $312.7 million in 1995.

What did the Company say about its 1997 outlook?

Management expects 1997 net interest expense of approximately $295 million and capital expenditures of $800 to $850 million. It plans to open, expand or acquire about 90 to 100 food stores, increasing food store square footage by 5 to 6%. It also aims to further reduce operating, general and administrative expense rates, though the expansion program is expected to weigh on those rates due to upfront store-opening costs.

KR 10-K FY1996 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 19, 1997. Cited figures are marked; the original filing is the authoritative source.

The Kroger Co. reported record sales of $25.17 billion^a for the fiscal year ended December 28, 1996, up 5.1% from $23.94 billion in 1995.

Food store sales rose 4.5% to $23.51 billion^b, while convenience store sales increased 11.6% to $948 million, driven by a 12% increase in gas retails in the fourth quarter. Net earnings were $349.9 million, or $2.65 per fully diluted share, compared with $302.8 million in 1995. EBITD, the measure used for debt covenant compliance, rose 6.7% to $1.241 billion.

Identical food store sales increased only 0.5% for the full year, and the filing notes that King Soopers and City Markets work stoppages affected results. The balance sheet remains highly leveraged, with a shareowners' deficit of $1.18 billion^c and total long-term debt of $3.68 billion including capital leases. Total assets grew to $5.83 billion from $5.04 billion, largely reflecting higher property, plant and equipment and investments.

Operating cash flow fell to $477.8 million^d from $798.5 million, mainly due to a $248.5 million use of cash from operating assets and liabilities. Capital expenditures were $733.8 million, and management expects 1997 capital spending of approximately $800 to $850 million. The Company has not paid cash dividends for the past two fiscal years and is prohibited from paying them under its Credit Agreement.

Management highlighted several 1997 priorities, including a stock repurchase program to offset dilution from employee stock options, redemption of about $142 million of 9 3/4% senior subordinated debentures, and continued expansion of the combination food and drug store format. Labor risk was flagged: more than 200 collective bargaining agreements cover about 160,000 employees, and major contracts in Phoenix, Dallas, Atlanta and Nashville are up for negotiation in 1997. Management stated that legal proceedings are not expected to have a material adverse effect on financial position.

02—Key points

Key Highlights

Net sales rose 5.1% to $25.17 billion in 1996, with food stores up 4.5% to $23.51 billion and convenience stores up 11.6% to $948 million.
Net earnings increased to $349.9 million, or $2.65 per fully diluted share, from $302.8 million, or $2.38, in 1995.
EBITD increased 6.7% to $1.241 billion, which the Company says is used to measure compliance with its debt covenants; it was in compliance with all Credit Agreement covenants at year-end.
Identical food store sales increased only 0.5% for the full year; excluding the King Soopers and City Markets strike, identical store sales were up 1.0%.
Operating cash flow declined to $477.8 million from $798.5 million, while capital expenditures were $733.8 million.
The shareowners' deficit narrowed to $1.18 billion from $1.60 billion, and total assets rose to $5.83 billion.
The Company plans 1997 capital expenditures of $800 to $850 million and a stock repurchase program to reduce dilution from employee stock options.

03—Questions

Frequently Asked Questions

Why did operating cash flow decline in 1996?
Net cash provided by operating activities fell to $477.8 million from $798.5 million. The filing attributes the decrease mainly to an increase in operating assets and liabilities that used $248.5 million of cash, compared with generating $143.0 million in 1995. The largest component was a $224.5 million increase in net owned inventories, and prepaid and other assets rose $120.6 million, primarily from funding a Voluntary Employee Benefit Association Trust.
Does the Company pay dividends?
No. The Company has not paid dividends on its common stock for the past two fiscal years, and its Credit Agreement prohibits cash dividends during its term. The Company may pay dividends in the form of its own stock.
What labor risks does the Company face in 1997?
The Company is party to more than 200 collective bargaining agreements covering about 160,000 employees. It experienced work stoppages at the King Soopers and City Markets divisions in 1996. Major union contracts to be negotiated in 1997 include those for store employees in Phoenix, Dallas, Atlanta and Nashville. The filing states that a prolonged work stoppage affecting a substantial number of stores could have a material adverse effect on operating results.
How is the Company's debt structured and what changed in 1996?
Long-term debt including capital leases and current portion was $3.68 billion at year-end 1996, up $157.0 million from $3.52 billion. The Company issued $240 million of 8.15% Senior Notes due 2006 and redeemed its $125 million 9% Senior Subordinated Notes. Its $1.75 billion Credit Agreement, with $1.001 billion in bank borrowings outstanding, runs through July 20, 2002. Net interest expense declined to $300.0 million from $312.7 million in 1995.
What did the Company say about its 1997 outlook?
Management expects 1997 net interest expense of approximately $295 million and capital expenditures of $800 to $850 million. It plans to open, expand or acquire about 90 to 100 food stores, increasing food store square footage by 5 to 6%. It also aims to further reduce operating, general and administrative expense rates, though the expansion program is expected to weigh on those rates due to upfront store-opening costs.

04—Continue

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