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 May 26, 2018
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
|
|
(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 796,675,676 shares of Common Stock ($1 par value) outstanding as of June 26, 2018.
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements.
THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
First Quarter Ended |
|
|
||||
|
|
|
May 26, |
|
May 20, |
|
|
||
|
(In millions, except per share amounts) |
|
2018 |
|
2017 |
|
|
||
|
Sales |
|
$ |
37,530 |
|
$ |
36,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below |
|
|
29,362 |
|
|
28,281 |
|
|
|
Operating, general and administrative |
|
|
6,122 |
|
|
6,367 |
|
|
|
Rent |
|
|
276 |
|
|
270 |
|
|
|
Depreciation and amortization |
|
|
741 |
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
1,029 |
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(192) |
|
|
(177) |
|
|
|
Non-service component of company-sponsored pension plan costs |
|
|
(10) |
|
|
(9) |
|
|
|
Mark to market gain on Ocado securities |
|
|
36 |
|
|
— |
|
|
|
Gain on sale of business |
|
|
1,771 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings before income tax expense |
|
|
2,634 |
|
|
445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
616 |
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests |
|
|
2,018 |
|
|
297 |
|
|
|
Net loss attributable to noncontrolling interests |
|
|
(8) |
|
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to The Kroger Co. |
|
$ |
2,026 |
|
$ |
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to The Kroger Co. per basic common share |
|
$ |
2.39 |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares used in basic calculation |
|
|
839 |
|
|
914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to The Kroger Co. per diluted common share |
|
$ |
2.37 |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares used in diluted calculation |
|
|
846 |
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.125 |
|
$ |
0.120 |
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
2
THE KROGER CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
|
|
|
First Quarter Ended |
|
||||
|
|
|
May 26, |
|
May 20, |
|
||
|
(In millions) |
|
2018 |
|
2017 |
|
||
|
Net earnings including noncontrolling interests |
|
$ |
2,018 |
|
$ |
297 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Realized and unrealized 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) |
|
|
15 |
|
|
13 |
|
|
Unrealized gains and losses on cash flow hedging activities, net of income tax(3) |
|
|
4 |
|
|
(36) |
|
|
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(4) |
|
|
1 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
16 |
|
|
(23) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
2,034 |
|
|
274 |
|
|
Comprehensive loss attributable to noncontrolling interests |
|
|
(8) |
|
|
(6) |
|
|
Comprehensive income attributable to The Kroger Co. |
|
$ |
2,042 |
|
$ |
280 |
|
|
(1) |
Amount is net of tax of $(1) for the first quarter of 2018. |
|
(2) |
Amount is net of tax of $4 for the first quarter of 2018 and $8 for the first quarter of 2017. |
|
(3) |
Amount is net of tax of $1 for the first quarter of 2018 and $(21) for the first quarter of 2017. |
|
(4) |
Amount is net of tax of $1 for the first quarter of 2018. |
The accompanying notes are an integral part of the Consolidated Financial Statements.
3
THE KROGER CO.
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
|
May 26, |
|
February 3, |
|
||
|
(In millions, except par amounts) |
|
2018 |
|
2018 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and temporary cash investments |
|
$ |
691 |
|
$ |
347 |
|
|
Store deposits in-transit |
|
|
1,053 |
|
|
1,161 |
|
|
Receivables |
|
|
1,583 |
|
|
1,637 |
|
|
FIFO inventory |
|
|
7,650 |
|
|
7,781 |
|
|
LIFO reserve |
|
|
(1,263) |
|
|
(1,248) |
|
|
Assets held for sale |
|
|
42 |
|
|
604 |
|
|
Prepaid and other current assets |
|
|
530 |
|
|
835 |
|
|
Total current assets |
|
|
10,286 |
|
|
11,117 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
21,195 |
|
|
21,071 |
|
|
Intangibles, net |
|
|
1,100 |
|
|
1,100 |
|
|
Goodwill |
|
|
2,925 |
|
|
2,925 |
|
|
Other assets |
|
|
1,055 |
|
|
984 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
36,561 |
|
$ |
37,197 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Current portion of long-term debt including obligations under capital leases and financing obligations |
|
$ |
2,242 |
|
$ |
3,560 |
|
|
Trade accounts payable |
|
|
6,202 |
|
|
5,858 |
|
|
Accrued salaries and wages |
|
|
1,011 |
|
|
1,099 |
|
|
Liabilities held for sale |
|
|
18 |
|
|
259 |
|
|
Other current liabilities |
|
|
4,003 |
|
|
3,421 |
|
|
Total current liabilities |
|
|
13,476 |
|
|
14,197 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt including obligations under capital leases and financing obligations |
|
|
12,059 |
|
|
12,029 |
|
|
Deferred income taxes |
|
|
1,590 |
|
|
1,568 |
|
|
Pension and postretirement benefit obligations |
|
|
789 |
|
|
792 |
|
|
Other long-term liabilities |
|
|
1,706 |
|
|
1,706 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
29,620 |
|
|
30,292 |
|
|
|
|
|
|
|
|
|
|
|
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 2018 and 2017 |
|
|
1,918 |
|
|
1,918 |
|
|
Additional paid-in capital |
|
|
3,059 |
|
|
3,161 |
|
|
Accumulated other comprehensive loss |
|
|
(455) |
|
|
(471) |
|
|
Accumulated earnings |
|
|
18,924 |
|
|
17,007 |
|
|
Common shares in treasury, at cost, 1,122 shares in 2018 and 1,048 shares in 2017 |
|
|
(16,476) |
|
|
(14,684) |
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity - The Kroger Co. |
|
|
6,970 |
|
|
6,931 |
|
|
Noncontrolling interests |
|
|
(29) |
|
|
(26) |
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
6,941 |
|
|
6,905 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
$ |
36,561 |
|
$ |
37,197 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
4
THE KROGER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
First Quarter Ended |
|
||||
|
|
|
May 26, |
|
May 20, |
|
||
|
(In millions) |
|
2018 |
|
2017 |
|
||
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests |
|
$ |
2,018 |
|
$ |
297 |
|
|
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
741 |
|
|
736 |
|
|
LIFO charge |
|
|
15 |
|
|
25 |
|
|
Stock-based employee compensation |
|
|
45 |
|
|
53 |
|
|
Expense for company-sponsored pension plans |
|
|
27 |
|
|
35 |
|
|
Deferred income taxes |
|
|
17 |
|
|
6 |
|
|
Gain on sale of business |
|
|
(1,771) |
|
|
— |
|
|
Mark to market gain on Ocado securities |
|
|
(36) |
|
|
— |
|
|
Other |
|
|
— |
|
|
(50) |
|
|
Changes in operating assets and liabilities net of effects from mergers of businesses: |
|
|
|
|
|
|
|
|
Store deposits in-transit |
|
|
108 |
|
|
(42) |
|
|
Receivables |
|
|
(123) |
|
|
149 |
|
|
Inventories |
|
|
134 |
|
|
177 |
|
|
Prepaid and other current assets |
|
|
307 |
|
|
409 |
|
|
Trade accounts payable |
|
|
345 |
|
|
260 |
|
|
Accrued expenses |
|
|
43 |
|
|
(86) |
|
|
Income taxes receivable and payable |
|
|
558 |
|
|
153 |
|
|
Other |
|
|
(60) |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,368 |
|
|
2,309 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
|
(758) |
|
|
(817) |
|
|
Proceeds from sale of assets |
|
|
47 |
|
|
83 |
|
|
Purchases of stores |
|
|
(44) |
|
|
— |
|
|
Net proceeds from sale of business |
|
|
2,142 |
|
|
— |
|
|
Other |
|
|
(38) |
|
|
(10) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
|
1,349 |
|
|
(744) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
1,010 |
|
|
1 |
|
|
Payments on long-term debt |
|
|
(214) |
|
|
(84) |
|
|
Net payments on commercial paper |
|
|
(2,120) |
|
|
(545) |
|
|
Dividends paid |
|
|
(110) |
|
|
(111) |
|
|
Proceeds from issuance of capital stock |
|
|
10 |
|
|
17 |
|
|
Treasury stock purchases |
|
|
(1,809) |
|
|
(772) |
|
|
Other |
|
|
(140) |
|
|
(37) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(3,373) |
|
|
(1,531) |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and temporary cash investments |
|
|
344 |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
Cash and temporary cash investments: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
347 |
|
|
322 |
|
|
End of period |
|
$ |
691 |
|
$ |
356 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of capital investments: |
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
$ |
(758) |
|
$ |
(817) |
|
|
Changes in construction-in-progress payables |
|
|
(91) |
|
|
(104) |
|
|
Total capital investments |
|
$ |
(849) |
|
$ |
(921) |
|
|
|
|
|
|
|
|
|
|
|
Disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
124 |
|
$ |
188 |
|
|
Cash paid during the year for income taxes |
|
$ |
36 |
|
$ |
11 |
|
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 28, 2017 |
|
1,918 |
|
$ |
1,918 |
|
$ |
3,070 |
|
994 |
|
$ |
(13,118) |
|
$ |
(715) |
|
$ |
15,543 |
|
$ |
12 |
|
$ |
6,710 |
|
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
— |
|
|
— |
|
|
— |
|
(1) |
|
|
17 |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
|
|
Restricted stock issued |
|
— |
|
|
— |
|
|
(11) |
|
— |
|
|
5 |
|
|
— |
|
|
— |
|
|
— |
|
|
(6) |
|
|
Treasury stock activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchases, at cost |
|
— |
|
|
— |
|
|
— |
|
24 |
|
|
(747) |
|
|
— |
|
|
— |
|
|
— |
|
|
(747) |
|
|
Stock options exchanged |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
(25) |
|
|
— |
|
|
— |
|
|
— |
|
|
(25) |
|
|
Share-based employee compensation |
|
— |
|
|
— |
|
|
53 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
53 |
|
|
Other comprehensive loss net of income tax of ($13) |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(23) |
|
|
— |
|
|
— |
|
|
(23) |
|
|
Other |
|
— |
|
|
— |
|
|
(8) |
|
— |
|
|
(6) |
|
|
— |
|
|
— |
|
|
(16) |
|
|
(30) |
|
|
Cash dividends declared ($0.12 per common share) |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(111) |
|
|
— |
|
|
(111) |
|
|
Net earnings including noncontrolling interests |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
303 |
|
|
(6) |
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at May 20, 2017 |
|
1,918 |
|
$ |
1,918 |
|
$ |
3,104 |
|
1,017 |
|
$ |
(13,874) |
|
$ |
(738) |
|
$ |
15,735 |
|
$ |
(10) |
|
$ |
6,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 February 3, 2018 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 February 3, 2018.
The unaudited information in the Consolidated Financial Statements for the first quarters ended May 26, 2018 and May 20, 2017, includes the results of operations of the Company for the 16-week periods then ended.
Refer to Note 5 for a description of changes to the Consolidated Statements of Operations for a recently adopted accounting standard regarding the presentation of the non-service component of company-sponsored pension plan costs.
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
Revenue Recognition
Sales
The Company recognizes revenues from the retail sale of products, net of sales taxes, at the point of sale. Pharmacy sales are recorded when the product is provided to the customer. Digital channel originated sales are recognized either upon pickup in store or upon delivery to the customer and may include shipping revenue. Discounts provided to customers by the Company at the time of sale, including those provided in connection with loyalty cards, are recognized as a reduction in sales as the products are sold. Discounts provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons. The Company records a receivable from the vendor for the difference in sales price and cash received. For merchandise sold in one of our stores or online, tender is accepted at the point of sale. Certain pharmacy fees previously recorded as merchandise costs have been reclassified to be recorded as a reduction of sales. Effective February 4, 2018, the Company prospectively reclassified $61 of these pharmacy fees from merchandise costs to sales on the Company’s Consolidated Statements of Operations. For pharmacy sales, collection of third party receivables is typically expected within three months or less from the time of purchase. The third party receivables from pharmacy sales are recorded in Receivables in the Company’s Consolidated Balance Sheets and were $635 as of May 26, 2018 and $571 as of February 3, 2018.
Gift Cards and Gift Certificates
The Company does not recognize a sale when it sells its own gift cards and gift certificates. Rather, it records a deferred revenue liability equal to the amount received. A sale is then recognized when the gift card or gift certificate is redeemed to purchase the Company’s products. The Company’s gift cards and gift certificates do not expire. While gift cards and gift certificates are generally redeemed within 12 months, some are never fully redeemed. The Company recognizes gift card and gift certificate breakage under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards and gift certificates. The Company’s gift card and gift certificate deferred revenue liability was $72 as of May 26, 2018 and $90 as of February 3, 2018.
Disaggregated Revenues
The following table presents sales revenue by type of product for the first quarters of 2018 and 2017:
|
|
|
First Quarter Ended |
|
First Quarter Ended |
|
||||||
|
|
|
May 26, 2018 |
|
May 20, 2017 |
|
||||||
|
|
|
Amount |
|
% of total |
|
Amount |
|
% of total |
|
||
|
Non Perishable (1) |
|
$ |
18,289 |
|
48.7 |
% |
$ |
17,927 |
|
49.4 |
% |
|
Fresh (2) |
|
|
9,083 |
|
24.2 |
% |
|
8,775 |
|
24.2 |
% |
|
Supermarket Fuel |
|
|
4,560 |
|
12.2 |
% |
|
3,817 |
|
10.5 |
% |
|
Pharmacy |
|
|
3,236 |
|
8.6 |
% |
|
3,198 |
|
8.8 |
% |
|
Convenience Stores |
|
|
944 |
|
2.5 |
% |
|
1,311 |
|
3.6 |
% |
|
Other (3) |
|
|
1,418 |
|
3.8 |
% |
|
1,257 |
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales and other revenue |
|
$ |
37,530 |
|
100 |
% |
$ |
36,285 |
|
100 |
% |
|
(1) |
Consists primarily of grocery, general merchandise, health and beauty care and natural foods. |
|
(2) |
Consists primarily of produce, floral, meat, seafood, deli, bakery and fresh prepared. |
|
(3) |
Consists primarily of sales related to jewelry stores, food production plants to outside vendors, data analytic services, variable interest entities, specialty pharmacy, in-store health clinics, digital coupon services and other online sales not included in the categories above. |
8
2.DEBT OBLIGATIONS
Long-term debt consists of:
|
|
|
May 26, |
|
February 3, |
|
||
|
|
|
2018 |
|
2018 |
|
||
|
1.50% to 8.00% Senior Notes due through 2048 |
|
$ |
12,005 |
|
$ |
12,201 |
|
|
5.63% to 12.75% Mortgages due in varying amounts through 2027 |
|
|
22 |
|
|
22 |
|
|
1.68% Commercial paper borrowings |
|
|
— |
|
|
2,121 |
|
|
2.82% Term Loan due 2019 |
|
|
1,000 |
|
|
— |
|
|
Other |
|
|
450 |
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
Total debt, excluding capital leases and financing obligations |
|
|
13,477 |
|
|
14,787 |
|
|
Less current portion |
|
|
(2,189) |
|
|
(3,509) |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, excluding capital leases and financing obligations |
|
$ |
11,288 |
|
$ |
11,278 |
|
On March 16, 2018, the Company obtained a $1,000 term loan with a maturity date of March 16, 2019. The funds were drawn on March 26, 2018 and were used to reduce outstanding commercial paper borrowings. Under the terms of the agreement, interest rates are adjusted monthly based on the Company’s Public Debt Rating and prevailing LIBOR rates.
Additionally, in the first quarter of 2018, the Company repaid, upon maturity, $200 of senior notes bearing an interest rate of 7%.
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 May 26, 2018 and February 3, 2018. At May 26, 2018, the fair value of total debt was $13,509 compared to a carrying value of $13,477. At February 3, 2018, the fair value of total debt was $15,167 compared to a carrying value of $14,787.
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 first quarters of 2018 and 2017.
|
|
|
First Quarter Ended |
|
||||||||||
|
|
|
Pension Benefits |
|
Other Benefits |
|
||||||||
|
|
|
May 26, |
|
May 20, |
|
May 26, |
|
May 20, |
|
||||
|
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
||||
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
||||||||||||