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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 4, 2017

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, 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. (Check one):

 

Large accelerated filer

 

Accelerated filer

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

 

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 881,361,794 shares of Common Stock ($1 par value) outstanding as of December 4, 2017.

 

 

 

 


 

 

PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements.

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter Ended

 

Three Quarters Ended

 

 

 

November 4,

 

November 5,

 

November 4,

 

November 5,

 

(In millions, except per share amounts)

    

2017

    

2016

    

2017

    

2016

 

Sales

 

$

27,749

 

$

26,557

 

$

91,631

 

$

87,726

 

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

 

 

21,532

 

 

20,653

 

 

71,422

 

 

68,019

 

Operating, general and administrative

 

 

4,708

 

 

4,443

 

 

15,606

 

 

14,695

 

Rent

 

 

196

 

 

199

 

 

691

 

 

666

 

Depreciation and amortization

 

 

573

 

 

549

 

 

1,871

 

 

1,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

740

 

 

713

 

 

2,041

 

 

2,578

 

Interest expense

 

 

136

 

 

124

 

 

453

 

 

396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income tax expense

 

 

604

 

 

589

 

 

1,588

 

 

2,182

 

Income tax expense

 

 

215

 

 

206

 

 

552

 

 

727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings including noncontrolling interests

 

 

389

 

 

383

 

 

1,036

 

 

1,455

 

Net loss attributable to noncontrolling interests

 

 

(8)

 

 

(8)

 

 

(17)

 

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to The Kroger Co.

 

$

397

 

$

391

 

$

1,053

 

$

1,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.44

 

$

0.41

 

$

1.16

 

$

1.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares used in basic calculation

 

 

887

 

 

940

 

 

901

 

 

946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

0.44

 

$

0.41

 

$

1.15

 

$

1.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares used in diluted calculation

 

 

893

 

 

953

 

 

910

 

 

962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.125

 

$

0.120

 

$

0.370

 

$

0.345

 

 

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

 

2


 

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Third Quarter Ended

 

Three Quarters Ended

 

 

 

November 4,

 

November 5,

 

November 4,

 

November 5,

 

(In millions)

    

2017

    

2016

    

2017

    

2016

 

Net earnings including noncontrolling interests

 

$

389

 

$

383

 

$

1,036

 

$

1,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

 

 —

 

 

(20)

 

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

 

 

10

 

 

 8

 

 

33

 

 

23

 

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

 

 

 9

 

 

46

 

 

(26)

 

 

(52)

 

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

 

 

 1

 

 

 —

 

 

 2

 

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

20

 

 

54

 

 

 9

 

 

(48)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

409

 

 

437

 

 

1,045

 

 

1,407

 

Comprehensive loss attributable to noncontrolling interests

 

 

(8)

 

 

(8)

 

 

(17)

 

 

(14)

 

Comprehensive income attributable to The Kroger Co.

 

$

417

 

$

445

 

$

1,062

 

$

1,421

 


(1)

Amount is net of tax of $(16) for the first three quarters of 2016.

(2)

Amount is net of tax of $5 for the third quarter of 2017 and $4 for the third quarter of 2016.  Amount is net of tax of $19 for the first three quarters of 2017 and $14 for the first three quarters of 2016.    

(3)

Amount is net of tax of $5 for the third quarter of 2017 and $27 for the third quarter of 2016.  Amount is net of tax of $(15) for the first three quarters of 2017 and $(31) for the first three quarters of 2016.

(4)

Amount is net of tax of $1 for the third quarter of 2017 and 2016.  Amount is net of tax of $2 for the first three quarters of 2017 and $1 for 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

(unaudited)

 

 

 

 

 

 

 

 

 

 

    

November 4,

    

January 28,

 

(In millions, except par amounts)

 

2017

 

2017

 

ASSETS 

 

 

 

 

 

 

 

Current assets 

 

 

 

 

 

 

 

Cash and temporary cash investments 

 

$

352

 

$

322

 

Store deposits in-transit 

 

 

1,163

 

 

910

 

Receivables 

 

 

1,452

 

 

1,649

 

FIFO inventory 

 

 

8,222

 

 

7,852

 

LIFO reserve 

 

 

(1,305)

 

 

(1,291)

 

Assets held for sale

 

 

604

 

 

 —

 

Prepaid and other current assets 

 

 

437

 

 

898

 

Total current assets 

 

 

10,925

 

 

10,340

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net 

 

 

20,966

 

 

21,016

 

Intangibles, net

 

 

1,113

 

 

1,153

 

Goodwill 

 

 

3,035

 

 

3,031

 

Other assets 

 

 

989

 

 

965

 

 

 

 

 

 

 

 

 

Total Assets 

 

$

37,028

 

$

36,505

 

 

 

 

 

 

 

 

 

LIABILITIES 

 

 

 

 

 

 

 

Current liabilities 

 

 

 

 

 

 

 

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

 

$

1,729

 

$

2,252

 

Trade accounts payable 

 

 

6,307

 

 

5,818

 

Accrued salaries and wages 

 

 

1,074

 

 

1,234

 

Deferred income taxes 

 

 

 —

 

 

251

 

Liabilities held for sale

 

 

259

 

 

 —

 

Other current liabilities 

 

 

3,521

 

 

3,305

 

Total current liabilities 

 

 

12,890

 

 

12,860

 

 

 

 

 

 

 

 

 

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

 

 

13,118

 

 

11,825

 

Deferred income taxes 

 

 

2,452

 

 

1,927

 

Pension and postretirement benefit obligations

 

 

522

 

 

1,524

 

Other long-term liabilities 

 

 

1,835

 

 

1,659

 

 

 

 

 

 

 

 

 

Total Liabilities 

 

 

30,817

 

 

29,795

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ 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 2017 and 2016

 

 

1,918

 

 

1,918

 

Additional paid-in capital 

 

 

3,124

 

 

3,070

 

Accumulated other comprehensive loss 

 

 

(706)

 

 

(715)

 

Accumulated earnings 

 

 

16,263

 

 

15,543

 

Common shares in treasury, at cost, 1,037 shares in 2017 and 994 shares in 2016

 

 

(14,364)

 

 

(13,118)

 

 

 

 

 

 

 

 

 

Total Shareholders’ Equity - The Kroger Co.

 

 

6,235

 

 

6,698

 

Noncontrolling interests 

 

 

(24)

 

 

12

 

 

 

 

 

 

 

 

 

Total Equity 

 

 

6,211

 

 

6,710

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity 

 

$

37,028

 

$

36,505

 

 

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

4


 

 

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Quarters Ended

 

 

 

November 4,

 

November 5,

 

(In millions)

    

2017

    

2016

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net earnings including noncontrolling interests 

 

$

1,036

 

$

1,455

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,871

 

 

1,768

 

LIFO charge

 

 

46

 

 

19

 

Stock-based employee compensation

 

 

118

 

 

110

 

Expense for Company-sponsored pension plans

 

 

68

 

 

62

 

Deferred income taxes

 

 

267

 

 

 5

 

Other

 

 

 5

 

 

(27)

 

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

 

 

 

 

 

 

 

Store deposits in-transit

 

 

(268)

 

 

(120)

 

Receivables

 

 

45

 

 

48

 

Inventories

 

 

(466)

 

 

(798)

 

Prepaid and other current assets

 

 

426

 

 

219

 

Trade accounts payable

 

 

620

 

 

509

 

Accrued expenses

 

 

26

 

 

(144)

 

Income taxes receivable and payable

 

 

143

 

 

267

 

Contribution to Company-sponsored pension plans

 

 

(1,000)

 

 

 —

 

Other

 

 

117

 

 

83

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

3,054

 

 

3,456

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Payments for property and equipment, including payments for lease buyouts

 

 

(2,137)

 

 

(3,025)

 

Proceeds from sale of assets

 

 

120

 

 

114

 

Payments for acquisitions, net of cash acquired

 

 

(16)

 

 

(401)

 

Other

 

 

(2)

 

 

39

 

 

 

 

 

 

 

 

 

Net cash used by investing activities

 

 

(2,035)

 

 

(3,273)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

1,503

 

 

1,785

 

Payments on long-term debt

 

 

(769)

 

 

(1,332)

 

Net borrowings (payments) on commercial paper

 

 

(45)

 

 

1,200

 

Dividends paid

 

 

(333)

 

 

(316)

 

Proceeds from issuance of capital stock

 

 

31

 

 

51

 

Treasury stock purchases

 

 

(1,292)

 

 

(1,401)

 

Other

 

 

(84)

 

 

(73)

 

 

 

 

 

 

 

 

 

Net cash used by financing activities

 

 

(989)

 

 

(86)

 

 

 

 

 

 

 

 

 

Net increase in cash and temporary cash investments

 

 

30

 

 

97

 

 

 

 

 

 

 

 

 

Cash and temporary cash investments:

 

 

 

 

 

 

 

Beginning of year

 

 

322

 

 

277

 

End of year

 

$

352

 

$

374

 

 

 

 

 

 

 

 

 

Reconciliation of capital investments:

 

 

 

 

 

 

 

Payments for property and equipment, including payments for lease buyouts

 

$

(2,137)

 

$

(3,025)

 

Payments for lease buyouts

 

 

 9

 

 

 5

 

Changes in construction-in-progress payables

 

 

(149)

 

 

14

 

Total capital investments, excluding lease buyouts

 

$

(2,277)

 

$

(3,006)

 

 

 

 

 

 

 

 

 

Disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the year for interest

 

$

469

 

$

410

 

Cash paid during the year for income taxes

 

$

168

 

$

450

 

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 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 28, 2017

 

1,918

 

$

1,918

 

$

3,070

 

994

 

$

(13,118)

 

$

(715)

 

$

15,543

 

$

12

 

$

6,710

 

Issuance of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 —

 

 

 —

 

 

 —

 

(2)

 

 

31

 

 

 —

 

 

 —

 

 

 —

 

 

31

 

Restricted stock issued

 

 —

 

 

 —

 

 

(115)

 

(2)

 

 

82

 

 

 —

 

 

 —

 

 

 —

 

 

(33)

 

Treasury stock activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock purchases, at cost

 

 —

 

 

 —

 

 

 —

 

45

 

 

(1,247)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,247)

 

Stock options exchanged

 

 —

 

 

 —

 

 

 —

 

 2

 

 

(45)

 

 

 —

 

 

 —

 

 

 —

 

 

(45)

 

Share-based employee compensation

 

 —

 

 

 —

 

 

118

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

118

 

Other comprehensive income net of income tax of $6

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 9

 

 

 —

 

 

 —

 

 

 9

 

Other

 

 —

 

 

 —

 

 

51

 

 —

 

 

(67)

 

 

 —

 

 

 —

 

 

(19)

 

 

(35)

 

Cash dividends declared ($0.370 per common share)

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(333)

 

 

 —

 

 

(333)

 

Net earnings including noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1,053

 

 

(17)

 

 

1,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at November 4, 2017

 

1,918

 

$

1,918

 

$

3,124

 

1,037

 

$

(14,364)

 

$

(706)

 

$

16,263

 

$

(24)

 

$

6,211

 

 

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 28, 2017 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 adjustments, all of which are of a normal, recurring nature that are necessary for a fair statement 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 28, 2017.

 

The unaudited information in the Consolidated Financial Statements for the third quarter and three quarters ended November 4, 2017 and November 5, 2016, includes the results of operations of the Company for the 12 and 40-week periods then ended.

 

Fair Value Measurements

 

Fair value measurements are classified and disclosed in one of the following three categories:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities;

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable;

 

Level 3 – Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability. 

 

The Company records cash and temporary cash investments, store deposits in-transit, receivables, prepaid and other current assets, trade accounts payable, accrued salaries and wages and other current liabilities at approximated fair value.  Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments.  Refer to Note 2 for the disclosure of debt instrument fair values.

 

 

 

 

 

7


 

 

2.DEBT OBLIGATIONS

 

Long-term debt consists of:

 

 

 

 

 

 

 

 

 

 

 

November 4,

 

January 28,

 

 

    

2017

    

2017

 

1.50% to 8.00% Senior Notes due through 2048

 

$

12,198

 

$

11,311

 

5.63% to 12.75% Mortgages due in varying amounts through 2027

 

 

32

 

 

38

 

0.91% to 1.36% Commercial paper borrowings due through November 2017

 

 

1,380

 

 

1,425

 

Other

 

 

454

 

 

541

 

 

 

 

 

 

 

 

 

Total debt, excluding capital leases and financing obligations

 

 

14,064

 

 

13,315

 

Less current portion

 

 

(1,677)

 

 

(2,197)

 

 

 

 

 

 

 

 

 

Total long-term debt, excluding capital leases and financing obligations

 

$

12,387

 

$

11,118

 

 

 

In the second quarter of 2017, the Company issued $400 of senior notes due in fiscal year 2022 bearing an interest rate of 2.80%,  $600 of senior notes due in fiscal year 2027 bearing an interest rate of 3.70% and $500 of senior notes due in fiscal year 2048 bearing an interest rate of 4.65%.  Additionally, in the third quarter of 2017, the Company repaid, upon maturity, $600 of senior notes bearing an interest rate of 6.40%, with proceeds from the second quarter senior notes issuances.  In connection with the senior note issuances, the Company also terminated forward-starting interest rate swap agreements with an aggregate notional amount of $600. These forward-starting interest rate swap agreements were hedging the variability in future benchmark interest payments attributable to changing interest rates on the forecasted issuance of fixed-rate debt issued during the second quarter of 2017.  Since these forward-starting interest rate swap agreements were classified as cash flow hedges, the unamortized loss of $20,  $12 net of tax, has been deferred in Accumulated Other Comprehensive Loss, the Company will continue to amortize to earnings as the interest payments are made.

 

In the third quarter of 2017, the Company entered into an amended and restated $2,750 unsecured revolving credit facility (the “Amended and Restated Credit Agreement”), with a termination date of August 29, 2022, unless extended as permitted under the Amended and Restated Credit Agreement. This Amended and Restated Credit Agreement amended the Company’s $2,750 credit facility that would otherwise have terminated on June 30, 2019.  The notable changes from the previous agreement include: (1) the Company has the ability to increase the size of the Amended and Restated Credit Agreement by up to an additional $1,000,  subject to certain conditions compared to $750 in the prior agreement; (2) the Company’s Public Debt Rating, as opposed to the Company’s Leverage Ratio, is now used as one of the factors in calculating the Company’s Interest Rate, Commitment Fee, and Letter of Credit Fees; (3) reduced annual Commitment and certain Letter of Credit Fees at the Company’s current Public Debt Rating.  Public Debt Rating means, as of any date, the rating that has been most recently announced by either S&P or Moody’s, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Company.  The financial covenants in the Amended and Restated Credit Agreement did not change compared to the prior credit agreement.

 

The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence.  If quoted market prices were not available, the fair value was based upon the net present value of the future cash flow using the forward interest rate yield curve in effect at November 4, 2017 and January 28, 2017.  At November 4, 2017, the fair value of total debt was $14,504 compared to a carrying value of $14,064.  At January 28, 2017, the fair value of total debt was $13,905 compared to a carrying value of $13,315.

 

8


 

 

3.BENEFIT  PLANS

 

The following table provides the components of net periodic benefit cost for the Company-sponsored defined benefit pension plans and other post-retirement benefit plans for the third quarters of 2017 and 2016.