01—Abstract
Summary
Summary of the 10-K filed April 27, 2000. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported sales of $45.35 billiona for the 52 weeks ended January 29, 2000, up from $43.08 billion in the prior 53-week year.
Net earnings were $628 millionb, or $0.73 per diluted share, compared with $237 million, or $0.28 per diluted share, in fiscal 1998. Earnings before extraordinary loss rose to $638 million from $494 million, but the filing attributes much of the period's activity to the May 27, 1999 merger with Fred Meyer Inc., which was accounted for as a pooling of interests, and to merger related costs of $383 million in 1999 and $269 million in 1998. EBITDA, as defined under the company's credit agreement, was $3,181 million in 1999 versus $2,783 million in 1998.
Cash flow and balance sheet items warrant attention. Net cash provided by operating activities was $1,558 millionc, down from $1,838 million, and capital expenditures were $1,701 million. Total debt was $9.0 billion, and shareowners' equity stood at $2,683 million, up from $1,917 million.
The company has not paid cash dividends for the past three fiscal years and is prohibited from paying them under its Credit Agreement. Management guided to capital expenditures of $1.5 to $1.7 billiond for fiscal 2000, expects $260 million of synergy savings in 2000, and expects earnings per share to grow 16% to 18% on average annually over the next three years. The filing also discloses risks, including 90 collective bargaining agreements expiring in 2000, with a prolonged work stoppage potentially having a material adverse effect on operations.
The company is also engaged in efforts to dispose of its interest in Santee Dairy, which may result in a loss. Management states that the pending legal claims are not expected to have a material adverse effect on financial position.
02—Key points
Key Highlights
- Sales of $45.35 billion for fiscal 1999 (52 weeks), up from $43.08 billion in fiscal 1998 (53 weeks); the company describes itself as the largest U.S. grocery retailer by annual sales.
- Net earnings of $628 million, or $0.73 per diluted share, versus $237 million, or $0.28 per diluted share, in 1998.
- Merger related costs of $383 million in 1999 and $269 million in 1998, tied to the May 27, 1999 Fred Meyer merger.
- EBITDA (as defined in the Credit Agreement) of $3,181 million in 1999, up from $2,783 million in 1998.
- Net cash provided by operating activities of $1,558 million in 1999, compared with $1,838 million in 1998; capital expenditures were $1,701 million.
- Management expects fiscal 2000 capital expenditures of $1.5 to $1.7 billion and synergy savings of $260 million in 2000, rising to $380 million in 2002 and beyond.
- No cash dividends paid in the past three fiscal years, and the Credit Agreement prohibits cash dividends during its term.
03—Questions
Frequently Asked Questions
Why did Kroger's reported results change so much between 1998 and 1999?
The May 27, 1999 Fred Meyer merger was accounted for as a pooling of interests, so the financial statements were restated to combine Kroger, Fred Meyer and QFC for all periods presented. The 1999 year also contained 52 weeks versus 53 weeks in 1998 due to a fiscal calendar change, and the 1998 results included the Ralphs/Food 4 Less acquisition from March 10, 1998.
How much debt does Kroger carry, and how is it structured?
Total debt, including capital leases and the current portion, was $9.0 billion in 1999. Long-term debt was $8,045 million, with a current portion of $536 million. The company has several lines of credit totaling approximately $4 billion, with $874 million unused at January 29, 2000.
What risks does the filing identify for fiscal 2000?
The filing cites a risk of work stoppages, since 90 collective bargaining agreements expire in 2000 and a prolonged stoppage could materially affect operations. It also notes risks in integrating Fred Meyer, the competitive environment, and the possibility that Santee Dairy disposal results in a loss. The company says it may not achieve expected synergy benefits.
What is management's outlook for earnings and capital spending?
Management expects a 16% to 18% average annual increase in earnings per share over the next three years and expects to reduce working capital by $500 million over the next five years. Capital expenditures for fiscal 2000 are expected to total $1.5 to $1.7 billion, excluding acquisitions.
Is Kroger returning cash to shareholders?
Kroger has not paid cash dividends for the past three fiscal years and is prohibited from paying cash dividends under its Credit Agreement, though it may pay dividends in the form of stock. The board authorized repurchases of up to $750 million of common stock on March 31, 2000, replacing a $100 million program authorized in January 2000.
04—Continue