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Kroger Annual Report, Year Ended Jan 2, 1999

Filing Date
Filed March 26, 1999
Period End
January 2, 1999
Security
KR
In the record · 2016–202610-K1210-Q328-K137

KR filed 12 annual reports (10-K), 32 quarterly reports (10-Q) and 137 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Oct ’17Oct ’17
  2. Leadership change8-K · Dec ’19Dec ’19
  3. FY2022 annual report10-K · Mar ’22Mar ’22
  4. Impairment8-K · Dec ’25Dec ’25

01—Abstract

Summary

Summary of the 10-K filed March 26, 1999. Cited figures are marked; the original filing is the authoritative source.

The Kroger Co. reported fiscal 1998 (53 weeks ended January 2, 1999) sales of $28.20 billiona, up from $26.57 billion in 1997, with net earnings of $410.8 million, or $1.55 per diluted share, compared with $411.7 million in 1997.

Earnings before extraordinary loss were $449.9 millionb, or $1.70 per diluted share. Results were affected by one-time expenses of $52.4 million pre-tax and a $89.7 million pre-tax accounting change for store inventories from the retail method to the item cost method, which reduced earnings by $55.6 million. Excluding one-time expenses, EBITDA rose 12.4% to $1.556 billion.

Identical food store sales increased 1.0% for the full year, and the company opened, acquired or expanded 96 food stores during 1998. Capital expenditures were $923.5 millionc, and the company expects 1999 capital spending of $850-$950 million. The balance sheet remained a shareowners' deficit of $387.8 million at year-end 1998, improved from $784.8 million a year earlier.

Long-term debt, including capital leases and the current portion, was $3.404 billiond, and the company had $1.147 billion available under its Credit Agreement. The company has not paid cash dividends on common stock for the past three fiscal years and is prohibited from paying them under its Credit Agreement. Management raised its long-term EPS growth target to a 15%-17% average annual increase over fiscal 1999-2001 and, assuming the merger closes, to 16%-18% from 2000.

The filing describes a pending merger with Fred Meyer, Inc., in which each Fred Meyer share would convert into one newly issued Kroger share, accounted for as a pooling of interests and expected to close in spring 1999 subject to shareholder and antitrust approvals. The company also changed its fiscal year-end to the Saturday nearest January 31, and it disclosed Year 2000 remediation with a total projected cost of $30.9 million, of which $15.1 million had been incurred.

02—Key points

Key Highlights

  1. Sales rose to $28.20 billion in fiscal 1998 from $26.57 billion, a 6.2% increase, with food store sales up 6.5%.
  2. Net earnings were $410.8 million, or $1.55 per diluted share; earnings before extraordinary loss were $449.9 million, or $1.70 per diluted share.
  3. One-time expenses of $52.4 million pre-tax and an $89.7 million pre-tax LIFO accounting change affected 1998 results; the accounting change reduced earnings by $55.6 million, or $0.21 per diluted share.
  4. Shareowners' deficit narrowed to $387.8 million from $784.8 million at year-end 1997.
  5. Pending merger with Fred Meyer, Inc. on a one-for-one share exchange basis, expected to close in spring 1999 as a pooling of interests.
  6. Capital expenditures were $923.5 million in 1998, and 1999 capital spending is expected at $850-$950 million.
  7. No cash dividends have been paid on common stock for the past three fiscal years, and the Credit Agreement prohibits them.

03—Questions

Frequently Asked Questions

  1. Why did the company's earnings per share fall to a level where net earnings were flat year over year?

    Net earnings were $410.8 million in 1998 compared with $411.7 million in 1997. The filing attributes the 1998 results to one-time expenses of $32.5 million net of tax from logistics and Texas consolidation projects and a $55.6 million after-tax accounting change for store inventories, along with an extraordinary loss of $39.1 million. Earnings before extraordinary loss rose to $449.9 million from $444.0 million.

  2. Will the company pay dividends to shareholders?

    No. The company has not paid cash dividends on its common stock for the past three fiscal years, and it is prohibited from paying cash dividends under the terms of its Credit Agreement. The Credit Agreement permits dividends in the form of company stock.

  3. What is the status of the Fred Meyer merger?

    Kroger announced the merger on October 19, 1998. Fred Meyer, Inc. shareholders would receive one newly issued Kroger common share for each Fred Meyer share. The transaction is to be accounted for as a pooling of interests and is expected to close in spring 1999, subject to shareholder approval, antitrust clearance and customary closing conditions. The company suspended its stock repurchase program because of the merger agreement.

  4. How is the company's debt position and liquidity?

    Long-term debt, including capital leases and the current portion, was $3.404 billion at year-end 1998, down from $3.517 billion a year earlier. Borrowings under the Credit Agreement totaled $844 million at year-end, and $1.147 billion was available for short-term liquidity needs. Operating activities provided $1.142 billion of cash in 1998.

  5. What is the company's Year 2000 exposure and cost?

    The company estimates its total Year 2000 project cost over four years at $30.9 million, with $15.1 million incurred to date, funded from operating cash flow. It expects to complete all work, including testing and contingency plans, by the end of the third quarter of 1999, and it notes that business-critical IT systems were 83% complete through Phase 3.

04—Continue

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