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Section 1: 10-Q (10-Q)

kr_Current_Folio_10Q

 

 

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 November 5, 2016

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

 


 

 

Picture 2

(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, OH 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)

 


 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  ☒  No  ☐

 

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer (do not check if a smaller reporting company)

 

Smaller reporting company

 

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 938,124,655 shares of Common Stock ($1 par value) outstanding as of December 7, 2016.

 

 

 

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements.

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended

 

Three Quarters Ended

 

 

 

November 5,

 

November 7,

 

November 5,

 

November 7,

 

 

    

2016

    

2015

    

2016

    

2015

 

Sales

 

$

26,557

 

$

25,075

 

$

87,726

 

$

83,665

 

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

 

 

20,653

 

 

19,478

 

 

68,019

 

 

65,303

 

Operating, general and administrative

 

 

4,443

 

 

4,169

 

 

14,695

 

 

13,591

 

Rent

 

 

199

 

 

172

 

 

666

 

 

542

 

Depreciation and amortization

 

 

549

 

 

484

 

 

1,768

 

 

1,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

713

 

 

772

 

 

2,578

 

 

2,648

 

Interest expense

 

 

124

 

 

107

 

 

396

 

 

369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income tax expense

 

 

589

 

 

665

 

 

2,182

 

 

2,279

 

Income tax expense

 

 

206

 

 

238

 

 

727

 

 

795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings including noncontrolling interests

 

 

383

 

 

427

 

 

1,455

 

 

1,484

 

Net earnings (loss) attributable to noncontrolling interests

 

 

(8)

 

 

(1)

 

 

(14)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to The Kroger Co.

 

$

391

 

$

428

 

$

1,469

 

$

1,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.41

 

$

0.44

 

$

1.54

 

$

1.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares used in basic calculation

 

 

940

 

 

965

 

 

946

 

 

966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.41

 

$

0.43

 

$

1.52

 

$

1.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares used in diluted calculation

 

 

953

 

 

979

 

 

962

 

 

980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.120

 

$

0.105

 

$

0.345

 

$

0.303

 

 

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

 

2


 

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions and unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Third Quarter Ended

 

Three Quarters Ended

 

 

 

November 5,

 

November 7,

 

November 5,

 

November 7,

 

 

    

2016

    

2015

    

2016

    

2015

 

Net earnings including noncontrolling interests

 

$

383

 

$

427

 

$

1,455

 

$

1,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 —

 

 

1

 

 

(20)

 

 

8

 

Amortization of amounts included in net periodic pension expense, net of income tax(2)

 

 

8

 

 

12

 

 

23

 

 

41

 

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

 

 

46

 

 

(3)

 

 

(52)

 

 

14

 

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

 

 

 —

 

 

 —

 

 

1

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

54

 

 

10

 

 

(48)

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

437

 

 

437

 

 

1,407

 

 

1,547

 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

(8)

 

 

(1)

 

 

(14)

 

 

4

 

Comprehensive income attributable to The Kroger Co.

 

$

445

 

$

438

 

$

1,421

 

$

1,543

 

 

(1)

Amount is net of tax of $1 for the third quarter of 2015. Amount is net of tax of $(16) for the first three quarters of 2016 and $5 for the first three quarters of 2015.

(2)

Amount is net of tax of $4 for the third quarter of 2016 and $8 for the third quarter of 2015. Amount is net of tax of $14 for the first three quarters of 2016 and $25 for the first three quarters of 2015.

(3)

Amount is net of tax of $27 for the third quarter of 2016 and $(2) for the third quarter of 2015. Amount is net of tax of $(31) for the first three quarters of 2016 and $8 for the first three quarters of 2015.

(4)

Amount is net of tax of $1 for the third quarter of 2016 and the first three quarters of 2016.

 

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

 

 

 

 

3


 

 

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

    

November 5,

    

January 30,

 

 

 

2016

 

2016

 

ASSETS 

 

 

 

 

 

 

 

Current assets 

 

 

 

 

 

 

 

Cash and temporary cash investments 

 

$

374

 

$

277

 

Store deposits in-transit 

 

 

1,043

 

 

923

 

Receivables 

 

 

1,488

 

 

1,734

 

FIFO inventory 

 

 

8,268

 

 

7,440

 

LIFO reserve 

 

 

(1,292)

 

 

(1,272)

 

Prepaid and other current assets 

 

 

522

 

 

790

 

Total current assets 

 

 

10,403

 

 

9,892

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net 

 

 

20,966

 

 

19,619

 

Intangibles, net

 

 

1,164

 

 

1,053

 

Goodwill 

 

 

3,035

 

 

2,724

 

Other assets 

 

 

939

 

 

609

 

 

 

 

 

 

 

 

 

Total Assets 

 

$

36,507

 

$

33,897

 

 

 

 

 

 

 

 

 

LIABILITIES 

 

 

 

 

 

 

 

Current liabilities 

 

 

 

 

 

 

 

Current portion of long-term debt including obligations under capital leases and financing obligations 

 

$

3,019

 

$

2,370

 

Trade accounts payable 

 

 

6,310

 

 

5,728

 

Accrued salaries and wages 

 

 

1,153

 

 

1,426

 

Deferred income taxes 

 

 

221

 

 

221

 

Other current liabilities 

 

 

3,421

 

 

3,226

 

Total current liabilities 

 

 

14,124

 

 

12,971

 

 

 

 

 

 

 

 

 

Long-term debt including obligations under capital leases and financing obligations 

 

 

10,817

 

 

9,709

 

Deferred income taxes 

 

 

1,759

 

 

1,752

 

Pension and postretirement benefit obligations

 

 

1,381

 

 

1,380

 

Other long-term liabilities 

 

 

1,796

 

 

1,287

 

 

 

 

 

 

 

 

 

Total Liabilities 

 

 

29,877

 

 

27,099

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREOWNERS’ EQUITY 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2016 and 2015

 

 

1,918

 

 

1,918

 

Additional paid-in capital 

 

 

3,039

 

 

2,980

 

Accumulated other comprehensive loss 

 

 

(728)

 

 

(680)

 

Accumulated earnings 

 

 

15,150

 

 

14,011

 

Common shares in treasury, at cost, 984 shares in 2016 and 951 shares in 2015

 

 

(12,767)

 

 

(11,409)

 

 

 

 

 

 

 

 

 

Total Shareowners’ Equity - The Kroger Co.

 

 

6,612

 

 

6,820

 

Noncontrolling interests 

 

 

18

 

 

(22)

 

 

 

 

 

 

 

 

 

Total Equity 

 

 

6,630

 

 

6,798

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity 

 

$

36,507

 

$

33,897

 

 

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

4


 

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions and unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Quarters Ended

 

 

 

November 5,

 

November 7,

 

 

    

2016

    

2015

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net earnings including noncontrolling interests 

 

$

1,455

 

$

1,484

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,768

 

 

1,581

 

LIFO charge

 

 

19

 

 

58

 

Stock-based employee compensation

 

 

110

 

 

130

 

Expense for Company-sponsored pension plans

 

 

62

 

 

79

 

Deferred income taxes

 

 

5

 

 

(149)

 

Other

 

 

(27)

 

 

67

 

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

 

 

 

 

 

 

 

Store deposits in-transit

 

 

(120)

 

 

26

 

Receivables

 

 

48

 

 

1

 

Inventories

 

 

(798)

 

 

(693)

 

Prepaid and other current assets

 

 

219

 

 

242

 

Trade accounts payable

 

 

509

 

 

814

 

Accrued expenses

 

 

(144)

 

 

240

 

Income taxes receivable and payable

 

 

267

 

 

45

 

Other

 

 

83

 

 

(80)

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

3,456

 

 

3,845

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Payments for property and equipment, including payments for lease buyouts

 

 

(3,025)

 

 

(2,532)

 

Proceeds from sale of assets

 

 

114

 

 

34

 

Payments for mergers

 

 

(401)

 

 

 —

 

Other

 

 

39

 

 

(82)

 

 

 

 

 

 

 

 

 

Net cash used by investing activities

 

 

(3,273)

 

 

(2,580)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

1,785

 

 

58

 

Payments on long-term debt

 

 

(1,332)

 

 

(547)

 

Net borrowings on commercial paper

 

 

1,200

 

 

100

 

Dividends paid

 

 

(316)

 

 

(283)

 

Excess tax benefits on stock-based awards

 

 

 —

 

 

83

 

Proceeds from issuance of capital stock

 

 

51

 

 

94

 

Treasury stock purchases

 

 

(1,401)

 

 

(659)

 

Investment in the remaining equity of a noncontrolling interest

 

 

 —

 

 

(26)

 

Other

 

 

(73)

 

 

(79)

 

 

 

 

 

 

 

 

 

Net cash used by financing activities

 

 

(86)

 

 

(1,259)

 

 

 

 

 

 

 

 

 

Net increase in cash and temporary cash investments

 

 

97

 

 

6

 

 

 

 

 

 

 

 

 

Cash and temporary cash investments:

 

 

 

 

 

 

 

Beginning of year

 

 

277

 

 

268

 

End of quarter

 

$

374

 

$

274

 

 

 

 

 

 

 

 

 

Reconciliation of capital investments:

 

 

 

 

 

 

 

Payments for property and equipment, including payments for lease buyouts

 

$

(3,025)

 

$

(2,532)

 

Payments for lease buyouts

 

 

5

 

 

16

 

Changes in construction-in-progress payables

 

 

14

 

 

(42)

 

Total capital investments, excluding lease buyouts

 

$

(3,006)

 

$

(2,558)

 

 

 

 

 

 

 

 

 

Disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the year for interest

 

$

410

 

$

397

 

Cash paid during the year for income taxes

 

$

450

 

$

864

 

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

 

 

5


 

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(in millions, except per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Treasury Stock

 

Comprehensive

 

Accumulated

 

Noncontrolling

 

 

 

 

 

  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Gain (Loss)

  

Earnings

  

Interest

  

Total

 

Balances at January 31, 2015

 

1,918

 

$

1,918

 

$

2,748

 

944

 

$

(10,809)

 

$

(812)

 

$

12,367

 

$

30

 

$

5,442

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 —

 

 

 —

 

 

 —

 

(7)

 

 

94

 

 

 —

 

 

 —

 

 

 —

 

 

94

 

Restricted stock issued

 

 —

 

 

 —

 

 

(113)

 

(3)

 

 

34

 

 

 —

 

 

 —

 

 

 —

 

 

(79)

 

Treasury stock activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock purchases, at cost

 

 —

 

 

 —

 

 

 —

 

14

 

 

(500)

 

 

 —

 

 

 —

 

 

 —

 

 

(500)

 

Stock options exchanged

 

 —

 

 

 —

 

 

 —

 

4

 

 

(159)

 

 

 —

 

 

 —

 

 

 —

 

 

(159)

 

Share-based employee compensation

 

 —

 

 

 —

 

 

130

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

130

 

Other comprehensive gain net of income tax of $38

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

63

 

 

 —

 

 

 —

 

 

63

 

Investment in the remaining equity of a noncontrolling interest

 

 —

 

 

 —

 

 

40

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(57)

 

 

(17)

 

Other

 

 —

 

 

 —

 

 

143

 

 —

 

 

(60)

 

 

 —

 

 

 —

 

 

(3)

 

 

80

 

Cash dividends declared ($0.303 per common share)

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(293)

 

 

 —

 

 

(293)

 

Net earnings including noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,480

 

 

4

 

 

1,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at November 7, 2015

 

1,918

 

$

1,918

 

$

2,948

 

952

 

$

(11,400)

 

$

(749)

 

$

13,554

 

$

(26)

 

$

6,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 30, 2016

 

1,918

 

$

1,918

 

$

2,980

 

951

 

$

(11,409)

 

$

(680)

 

$

14,011

 

$

(22)

 

$

6,798

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 —

 

 

 —

 

 

 —

 

(4)

 

 

51

 

 

 —

 

 

 —

 

 

 —

 

 

51

 

Restricted stock issued

 

 —

 

 

 —

 

 

(111)

 

(2)

 

 

55

 

 

 —

 

 

 —

 

 

 —

 

 

(56)

 

Treasury stock activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock purchases, at cost

 

 —

 

 

 —

 

 

 —

 

37

 

 

(1,319)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,319)

 

Stock options exchanged

 

 —

 

 

 —

 

 

 —

 

2

 

 

(82)

 

 

 —

 

 

 —

 

 

 —

 

 

(82)

 

Share-based employee compensation

 

 —

 

 

 —

 

 

110

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

110

 

Other comprehensive loss net of income tax of $(32)

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(48)

 

 

 —

 

 

 —

 

 

(48)

 

Other

 

 —

 

 

 —

 

 

60

 

 —

 

 

(63)

 

 

 —

 

 

 —

 

 

54

 

 

51

 

Cash dividends declared ($0.345 per common share)

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(330)

 

 

 —

 

 

(330)

 

Net earnings including noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,469

 

 

(14)

 

 

1,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at November 5, 2016

 

1,918

 

$

1,918

 

$

3,039

 

984

 

$

(12,767)

 

$

(728)

 

$

15,150

 

$

18

 

$

6,630

 

 

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

 

 

6


 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

All amounts in the Notes to the Unaudited Consolidated Financial Statements are in millions except per share amounts.

 

1.ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries, and the variable interest entities in which the Company is the primary beneficiary.  The January 30, 2016 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”).  Significant intercompany transactions and balances have been eliminated.  References to the “Company” in these Consolidated Financial Statements mean the consolidated company.

 

In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year.  The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations.  Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

 

The unaudited information in the Consolidated Financial Statements for the third quarters and three quarters ended November 5, 2016 and November 7, 2015, includes the results of operations of the Company for the 12 and 40-week periods then ended.

 

Refer to Note 6 for a description of changes to the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for a recently adopted accounting standard regarding the presentation of employee share-based compensation payments.

 

Revenue Recognition

 

The Company changed from the remote method to the proportional method of recognizing gift card and gift certificate revenue, which had an immaterial effect on earnings.

 

 

2.MERGER

 

On September 2, 2016, the Company closed its merger with Modern HC Holdings, Inc. (“ModernHEALTH”) by purchasing 100% of the outstanding shares of ModernHEALTH for $407.  This merger allows the Company to expand its specialty pharmacy services by significantly increasing geographic reach and patient therapies.  The merger was accounted for under the purchase method of accounting and was financed through the issuance of commercial paper.  In a business combination, the purchase price is allocated to assets acquired and liabilities assumed based on their fair values, with any excess of purchase price over fair value recognized as goodwill. In addition to recognizing the assets and liabilities on the acquired company’s balance sheet, the Company reviews supply contracts, leases, financial instruments, employment agreements and other significant agreements to identify potential assets or liabilities that require recognition in connection with the application of acquisition accounting under Accounting Standards Codification (“ASC”) 805. Intangible assets are recognized apart from goodwill when the asset arises from contractual or other legal rights, or are separable from the acquired entity such that they may be sold, transferred, licensed, rented or exchanged either on a standalone basis or in combination with a related contract, asset or liability.

 

7


 

 

Pending finalization of the Company’s valuation and other items, the following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as part of the merger with ModernHEALTH:

 

 

 

 

 

 

 

    

September 2,

 

 

 

2016

 

ASSETS

 

 

 

 

Total current assets

 

$

82

 

 

 

 

 

 

Property, plant and equipment

 

 

8

 

Intangibles

 

 

136

 

 

 

 

 

 

Total Assets, excluding Goodwill

 

 

226

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Total current liabilities

 

 

(70)

 

 

 

 

 

 

Fair-value of long-term debt including obligations under capital leases and financing obligations

 

 

(1)

 

Deferred income taxes

 

 

(33)

 

 

 

 

 

 

Total Liabilities

 

 

(104)

 

 

 

 

 

 

Total Identifiable Net Assets

 

 

122

 

Goodwill

 

 

285

 

Total Purchase Price

 

$

407

 

 

Of the $136 allocated to intangible assets, the Company recorded $131 and $5 related to pharmacy prescription files and distribution agreements, respectively.  The Company will amortize the pharmacy prescription files and distribution agreements, using the straight line method, over 10 years.  The goodwill recorded as part of the merger was attributable to the assembled workforce of ModernHEALTH and operational synergies expected from the merger, as well as any intangible assets that did not qualify for separate recognition.  The merger was treated as a stock purchase for income tax purposes.  The assets acquired and liabilities assumed as part of the merger did not result in a step up of tax basis and goodwill is not expected to be deductible for tax purposes.

 

On December 18, 2015, the Company closed its merger with Roundy’s, Inc. (“Roundy’s”).  In the second quarter of 2016, there was a purchase price allocation adjustment to reduce goodwill and other current liabilities by $8.

 

Pro forma results of operations, assuming the Roundy’s merger had taken place at the beginning of 2014 and the ModernHEALTH merger had taken place at the beginning of 2015, are included in the following table.  The pro forma information includes historical results of operations of Roundy’s and ModernHEALTH, as well as adjustments for interest expense that would have been incurred due to financing the mergers, depreciation and amortization of the assets acquired and excludes the pre-merger transaction related expenses incurred by Roundy’s, ModernHEALTH and the Company.  The pro forma information does not include efficiencies, cost reductions, synergies or investments in our Customer 1st Strategy expected to result from the mergers.  The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the Roundy’s merger been completed at the beginning of 2014 or the ModernHEALTH merger been completed at the beginning of 2015.  The sales and net earnings of ModernHEALTH are not material to the Company’s 2016 results.

 

 

 

 

 

 

 

 

 

 

    

Third Quarter Ended

 

Three Quarters Ended

 

 

 

November 7, 2015

    

November 7, 2015

 

Sales

 

$

25,989

 

$

87,406

 

Net earnings including noncontrolling interests

 

 

426

 

 

1,487

 

Net earnings (loss) attributable to noncontrolling interests

 

 

(1)

 

 

4

 

 

 

 

 

 

 

 

 

Net earnings attributable to The Kroger Co.

 

$

427

 

$

1,483

 

 

 

 

8


 

 

3.DEBT OBLIGATIONS

 

Long-term debt consists of:

 

 

 

 

 

 

 

 

 

 

 

November 5,

 

January 30,

 

 

    

2016

    

2016

 

1.14% to 8.00% Senior Notes due through 2046

 

$

10,319

 

$

9,826

 

5.00% to 12.75% Mortgages due in varying amounts through 2027

 

 

49

 

 

58

 

0.63% to 0.67% Commercial paper borrowings due through November 2016

 

 

2,190

 

 

990

 

Other

 

 

527

 

 

522

 

 

 

 

 

 

 

 

 

Total debt, excluding capital leases and financing obligations

 

 

13,085

 

 

11,396

 

Less current portion

 

 

(2,964)

 

 

(2,318)