Quarterly Report (10-q)

Date : 09/24/2019 @ 8:13PM
Source : Edgar (US Regulatory)
Stock : Kroger Co (KR)
Quote : 27.105  0.405 (1.52%) @ 8:17PM
Kroger share price Chart

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 17, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to         

Commission file number 1-303

GRAPHIC

The Kroger Co.

(Exact name of registrant as specified in its charter)

Ohio

31-0345740

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1014 Vine Street, Cincinnati, Ohio 45202

(Address of principal executive offices)

(Zip Code)

(513) 762-4000

(Registrant’s telephone number, including area code)

Unchanged

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common, $1.00 Par Value

KR

New York Stock Exchange

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  .

There were 801,621,398 shares of Common Stock ($1 par value) outstanding as of September 18, 2019.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Second Quarter Ended

Two Quarters Ended

August 17,

August 18,

August 17,

August 18,

(In millions, except per share amounts)

    

2019

    

2018

    

2019

    

2018

 

Sales

$

28,168

$

28,014

$

65,419

$

65,735

Operating expenses

Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below

 

22,007

 

21,976

 

50,990

 

51,395

Operating, general and administrative

 

4,811

 

4,711

 

11,125

 

10,968

Rent

 

200

 

204

 

474

 

480

Depreciation and amortization

 

591

 

574

 

1,370

 

1,315

Operating profit

 

559

 

549

 

1,460

 

1,577

Other income (expense)

Interest expense

(130)

(144)

(327)

(336)

Non-service component of company-sponsored pension plan costs

(4)

(4)

(1)

(13)

Mark to market (loss) gain on Ocado securities

(45)

216

61

252

Gain on sale of businesses

 

 

11

176

 

1,782

Net earnings before income tax expense

 

380

 

628

 

1,369

 

3,262

Income tax expense

 

93

 

127

 

319

 

743

Net earnings including noncontrolling interests

 

287

 

501

 

1,050

 

2,519

Net loss attributable to noncontrolling interests

 

(10)

 

(7)

 

(19)

 

(15)

Net earnings attributable to The Kroger Co.

$

297

$

508

$

1,069

$

2,534

Net earnings attributable to The Kroger Co. per basic common share

$

0.37

$

0.63

$

1.32

$

3.05

Average number of common shares used in basic calculation

 

800

 

797

 

799

 

821

Net earnings attributable to The Kroger Co. per diluted common share

$

0.37

$

0.62

$

1.31

$

3.03

Average number of common shares used in diluted calculation

 

805

 

805

 

805

 

829

The accompanying notes are an integral part of the Consolidated Financial Statements.

2

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

    

Second Quarter Ended

Two Quarters Ended

August 17,

August 18,

August 17,

August 18,

(In millions)

    

2019

    

2018

    

2019

    

2018

 

Net earnings including noncontrolling interests

$

287

$

501

$

1,050

$

2,519

Other comprehensive income (loss)

Realized gains and losses on available for sale securities, net of income tax(1)  

 

 

(4)

Change in pension and other postretirement defined benefit plans, net of income tax(2)

9

8

16

23

Unrealized gains and losses on cash flow hedging activities, net of income tax(3)

 

(55)

 

(4)

 

(63)

 

Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(4)

1

1

2

2

Cumulative effect of accounting change(5)

(146)

Total other comprehensive (loss) income

 

(45)

 

5

 

(191)

 

21

Comprehensive income

 

242

 

506

 

859

 

2,540

Comprehensive loss attributable to noncontrolling interests

 

(10)

 

(7)

 

(19)

 

(15)

Comprehensive income attributable to The Kroger Co.

$

252

$

513

$

878

$

2,555

(1) Amount is net of tax of ($1) for the first two quarters of 2018.
(2) Amount is net of tax of $2 for the second quarter of 2019 and $3 for the second quarter of 2018. Amount is net of tax of $5 for the first two quarters of 2019 and $7 for the first two quarters of 2018.
(3) Amount is net of tax of ($17) for the second quarter of 2019 and ($2) for the second quarter of 2018. Amount is net of tax of ($26) for the first two quarters of 2019 and ($1) for the first two quarters of 2018.
(4) Amount is net of tax of $1 for the second quarter of 2019 and $1 for the second quarter of 2018. Amount is net of tax of $2 for the first two quarters of 2019 and $2 for the first two quarters of 2018.
(5) Related to the adoption of Accounting Standards Update (“ASU”) 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," (see Note 5 for additional details).

The accompanying notes are an integral part of the Consolidated Financial Statements.

3

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(unaudited)

    

August 17,

    

February 2,

 

(In millions, except par amounts)

2019

2019

 

ASSETS 

Current assets 

Cash and temporary cash investments 

$

629

$

429

Store deposits in-transit 

 

983

 

1,181

Receivables 

 

1,567

 

1,589

FIFO inventory 

 

7,847

 

8,123

LIFO reserve 

 

(1,321)

 

(1,277)

Assets held for sale

 

 

166

Prepaid and other current assets 

435

592

Total current assets 

 

10,140

 

10,803

Property, plant and equipment, net 

 

21,820

 

21,635

Operating lease assets

6,861

Intangibles, net

 

1,103

 

1,258

Goodwill 

 

3,095

 

3,087

Other assets 

 

1,443

 

1,335

Total Assets 

$

44,462

$

38,118

LIABILITIES 

Current liabilities 

Current portion of long-term debt including obligations under finance leases

$

1,353

$

3,157

Current portion of operating lease liabilities

675

Trade accounts payable 

 

6,268

 

6,059

Accrued salaries and wages 

 

1,099

 

1,227

Liabilities held for sale

51

Other current liabilities 

 

3,955

 

3,780

Total current liabilities 

 

13,350

 

14,274

Long-term debt including obligations under finance leases

12,130

12,072

Noncurrent operating lease liabilities

6,463

Deferred income taxes 

 

1,502

 

1,562

Pension and postretirement benefit obligations

 

482

 

494

Other long-term liabilities 

 

1,882

 

1,881

Total Liabilities 

 

35,809

 

30,283

Commitments and contingencies see Note 8

SHAREHOLDERS’ EQUITY 

Preferred shares, $100 par per share, 5 shares authorized and unissued 

Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2019 and 2018

 

1,918

 

1,918

Additional paid-in capital 

 

3,270

 

3,245

Accumulated other comprehensive loss 

 

(537)

 

(346)

Accumulated earnings 

 

20,647

 

19,681

Common shares in treasury, at cost, 1,116 shares in 2019 and 1,120 shares in 2018

 

(16,587)

 

(16,612)

Total Shareholders’ Equity - The Kroger Co.

 

8,711

 

7,886

Noncontrolling interests 

 

(58)

 

(51)

Total Equity 

 

8,653

 

7,835

Total Liabilities and Equity 

$

44,462

$

38,118

The accompanying notes are an integral part of the Consolidated Financial Statements.

4

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Two Quarters Ended

August 17,

August 18,

(In millions)

    

2019

    

2018

 

Cash Flows from Operating Activities:

Net earnings including noncontrolling interests 

$

1,050

$

2,519

Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:

Depreciation and amortization

 

1,370

 

1,315

Non-cash operating lease cost

346

LIFO charge

 

46

 

27

Stock-based employee compensation

 

89

 

81

Expense for company-sponsored pension plans

 

22

 

38

Deferred income taxes

 

(49)

 

92

Gain on sale of businesses

(176)

(1,782)

Gain on the sale of assets

(157)

Mark to market gain on Ocado securities

(61)

(252)

Other

 

(23)

 

32

Changes in operating assets and liabilities net of effects from mergers and disposals of businesses:

Store deposits in-transit

 

198

 

144

Receivables

 

44

 

(73)

Inventories

 

274

 

252

Prepaid and other current assets

 

68

 

365

Trade accounts payable

 

209

 

94

Accrued expenses

 

104

 

200

Income taxes receivable and payable

 

(34)

 

397

Operating lease liabilities

(313)

Proceeds from contract associated with sale of business

295

Other

 

(25)

 

(189)

Net cash provided by operating activities

 

3,277

 

3,260

Cash Flows from Investing Activities:

Payments for property and equipment

 

(1,581)

 

(1,487)

Proceeds from sale of assets

 

247

 

67

Payments for acquisitions, net of cash acquired

(197)

Purchases of stores

(44)

Net proceeds from sale of businesses

327

2,169

Purchases of Ocado securities

(392)

Other

 

(32)

 

12

Net cash (used) provided by investing activities

 

(1,039)

 

128

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

 

53

 

1,016

Payments on long-term debt including obligations under finance leases

 

(1,025)

 

(249)

Net payments on commercial paper

 

(800)

 

(1,946)

Dividends paid

(226)

(211)

Proceeds from issuance of capital stock

18

40

Treasury stock purchases

 

(23)

 

(1,979)

Other

(35)

 

(45)

Net cash used by financing activities

 

(2,038)

 

(3,374)

Net increase in cash and temporary cash investments

 

200

 

14

Cash and temporary cash investments:

Beginning of year

 

429

 

347

End of period

$

629

$

361

Reconciliation of capital investments:

Payments for property and equipment

$

(1,581)

$

(1,487)

Changes in construction-in-progress payables

 

29

 

(43)

Total capital investments

$

(1,552)

$

(1,530)

Disclosure of cash flow information:

Cash paid during the year for interest

$

306

$

312

Cash paid during the year for income taxes

$

454

$

263

The accompanying notes are an integral part of the Consolidated Financial Statements.

5

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury Stock

Comprehensive

Accumulated

Noncontrolling

(In millions, except per share amounts)

  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Loss

  

Earnings

  

Interest

  

Total

Balances at February 3, 2018

 

1,918

 

$

1,918

 

$

3,161

 

1,048

 

$

(14,684)

 

$

(471)

 

$

17,007

 

$

(26)

 

$

6,905

Issuance of common stock:

Stock options exercised

 

 

 

 

(1)

 

10

 

 

 

 

10

Restricted stock issued

 

 

 

(6)

 

 

5

 

 

 

 

(1)

Treasury stock activity:

Treasury stock purchases, at cost

 

 

 

(134)

 

74

 

(1,792)

 

 

 

 

(1,926)

Stock options exchanged

 

 

 

 

1

 

(17)

 

 

 

 

(17)

Share-based employee compensation

 

 

 

45

 

 

 

 

 

 

45

Other comprehensive income net of income tax of $5

 

 

 

 

 

 

16

 

 

 

16

Other

 

 

 

(7)

 

 

2

 

 

 

5

 

Cash dividends declared ($0.125 per common share)

 

 

 

 

 

 

 

(109)

 

 

(109)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

2,026

 

(8)

 

2,018

Balances at May 26, 2018

 

1,918

 

$

1,918

 

$

3,059

 

1,122

 

$

(16,476)

 

$

(455)

 

$

18,924

 

$

(29)

 

$

6,941

Issuance of common stock:

Stock options exercised

 

 

 

 

(2)

 

30

 

 

 

 

30

Restricted stock issued

 

 

 

(104)

 

(2)

 

64

 

 

 

 

(40)

Treasury stock activity:

Treasury stock purchases, at cost

 

 

 

134

 

2

 

(135)

 

 

 

 

(1)

Stock options exchanged

 

 

 

 

1

 

(35)

 

 

 

 

(35)

Share-based employee compensation

 

 

 

36

 

 

 

 

 

 

36

Other comprehensive income net of income tax of $2

 

 

 

 

 

 

5

 

 

 

5

Other

 

 

 

55

 

 

(53)

 

 

 

 

2

Cash dividends declared ($0.14 per common share)

 

 

 

 

 

 

 

(101)

 

 

(101)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

508

 

(7)

 

501

Balances at August 18, 2018

 

1,918

 

$

1,918

 

$

3,180

 

1,121

 

$

(16,605)

 

$

(450)

 

$

19,331

 

$

(36)

 

$

7,338

Issuance of common stock:

Stock options exercised

 

 

 

 

(1)

 

15

 

 

 

 

15

Restricted stock issued

 

 

 

(4)

 

 

3

 

 

 

 

(1)

Treasury stock activity:

Stock options exchanged

 

 

 

 

 

(17)

 

 

 

 

(17)

Share-based employee compensation

 

 

 

34

 

 

 

 

 

 

34

Other comprehensive income net of income tax of $15

 

 

 

 

 

 

48

 

 

 

48

Other

 

 

 

(1)

 

 

(4)

 

 

 

3

 

(2)

Cash dividends declared ($0.14 per common share)

 

 

 

 

 

 

 

(113)

 

 

(113)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

317

 

(9)

 

308

Balances at November 10, 2018

 

1,918

 

$

1,918

 

$

3,209

 

1,120

 

$

(16,608)

 

$

(402)

 

$

19,535

 

$

(42)

 

$

7,610

Issuance of common stock:

Stock options exercised

 

 

 

 

 

10

 

 

 

 

10

Restricted stock issued

 

 

 

(5)

 

(1)

 

2

 

 

 

 

(3)

Treasury stock activity:

Stock options exchanged

 

 

 

 

1

 

(14)

 

 

 

 

(14)

Share-based employee compensation

 

 

 

39

 

 

 

 

 

 

39

Other comprehensive income net of income tax of $17

 

 

 

 

 

 

56

 

 

 

56

Other

 

 

 

2

 

 

(2)

 

 

 

(1)

 

(1)

Cash dividends declared ($0.14 per common share)

 

 

 

 

 

 

 

(113)

 

 

(113)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

259

 

(8)

 

251

Balances at February 2, 2019

 

1,918

 

$

1,918

 

$

3,245

 

1,120

 

$

(16,612)

 

$

(346)

 

$

19,681

 

$

(51)

 

$

7,835

The accompanying notes are an integral part of the Consolidated Financial Statements.

6

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury Stock

Comprehensive

Accumulated

Noncontrolling

(In millions, except per share amounts)

  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Loss

  

Earnings

  

Interest

  

Total

Balances at February 2, 2019

1,918

 

$

1,918

 

$

3,245

 

1,120

 

$

(16,612)

 

$

(346)

 

$

19,681

 

$

(51)

 

$

7,835

Issuance of common stock:

Stock options exercised

 

 

 

 

(1)

 

12

 

 

 

 

12

Restricted stock issued

 

 

 

(14)

 

 

10

 

 

 

 

(4)

Treasury stock activity:

Stock options exchanged

 

 

 

 

 

(15)

 

 

 

 

(15)

Share-based employee compensation

 

 

 

48

 

 

 

 

 

 

48

Other comprehensive loss net of income tax of ($5)

 

 

 

 

 

 

(146)

 

 

 

(146)

Cumulative effect of accounting change

146

146

Other

 

 

 

8

 

 

(8)

 

 

(5)

 

11

 

6

Cash dividends declared ($0.14 per common share)

 

 

 

 

 

 

 

(113)

 

 

(113)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

772

 

(9)

 

763

Balances at May 25, 2019

 

1,918

 

$

1,918

 

$

3,287

 

1,119

 

$

(16,613)

 

$

(492)

 

$

20,481

 

$

(49)

 

$

8,532

Issuance of common stock:

Stock options exercised

 

 

 

 

(1)

 

6

 

 

 

 

6

Restricted stock issued

 

 

 

(109)

 

(2)

 

79

 

 

 

 

(30)

Treasury stock activity:

Stock options exchanged

 

 

 

 

 

(8)

 

 

 

 

(8)

Share-based employee compensation

 

 

 

41

 

 

 

 

 

 

41

Other comprehensive loss net of income tax of ($14)

 

 

 

 

 

 

(45)

 

 

 

(45)

Other

 

 

 

51

 

 

(51)

 

 

 

1

 

1

Cash dividends declared ($0.16 per common share)

 

 

 

 

 

 

 

(131)

 

 

(131)

Net earnings including noncontrolling interests

 

 

 

 

 

 

 

297

 

(10)

 

287

Balances at August 17, 2019

 

1,918

 

$

1,918

 

$

3,270

 

1,116

 

$

(16,587)

 

$

(537)

 

$

20,647

 

$

(58)

 

$