UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended November 6, 2004
OR
For the transition period from to
Commission file number 1-303
THE KROGER CO.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(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 x No ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.
There were 732,174,961 shares of Common Stock ($1 par value) outstanding as of December 10, 2004.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share amounts)
(unaudited)
Sales
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below
Operating, general and administrative
Rent
Depreciation and amortization
Earnings from operations
Interest expense
Earnings before income tax expense
Income tax expense
Net earnings
Net earnings per basic common share
Weighted average number of common shares used in basic calculation
Net earnings per diluted common share
Weighted average number of common shares used in diluted calculation
The accompanying notes are an integral part of the Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets
Cash, including temporary cash investments of $15 at January 31, 2004
Store deposits in-transit (Note 1)
Receivables
Inventory
Prefunded employee benefits
Prepaid and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Fair value interest rate hedges (Note 11)
Other assets and investments
Total Assets
LIABILITIES
Current liabilities
Current portion of long-term debt, at face value, including obligations under capital leases
Accounts payable
Accrued salaries and wages
Deferred income taxes
Other current liabilities
Total current liabilities
Long-term debt including obligations under capital leases
Long-term debt, at face value, including obligations under capital leases
Adjustment to reflect fair value interest rate hedges (Note 11)
Other long-term liabilities
Total Liabilities
Commitments and Contingencies (Note 12)
SHAREOWNERS’ EQUITY
Preferred stock, $100 par, 5 shares authorized and unissued
Common stock, $1 par, 1,000 shares authorized: 917 shares issued at November 6, 2004, and 913 shares issued at January 31, 2004
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated earnings
Common stock in treasury, at cost, 185 shares at November 6, 2004, and 170 shares at January 31, 2004
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions and unaudited)
November 8,
2003
Cash Flows From Operating Activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
LIFO charge
Other
Changes in operating assets and liabilities net of effects from acquisitions of businesses:
Inventories
Store deposits in-transit
Prepaid expenses
Accrued expenses
Accrued income taxes
Contribution to company-sponsored pension plan
Net cash provided by operating activities
Cash Flows From Investing Activities:
Capital expenditures, excluding acquisitions
Proceeds from sale of assets
Payments for acquisitions, net of cash acquired
Net cash used by investing activities
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt
Reductions in long-term debt
Debt prepayment costs
Financing charges incurred
Increase (decrease) in book overdrafts
Proceeds from interest rate swap terminations
Proceeds from issuance of capital stock
Treasury stock purchases
Net cash used by financing activities
Net decrease in cash and temporary cash investments
Cash and temporary cash investments:
Beginning of year
End of quarter
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
Cash paid during the year for income taxes
Non-cash changes related to purchase acquisitions:
Fair value of assets acquired
Goodwill recorded
Liabilities assumed
NOTES TOCONSOLIDATED FINANCIAL STATEMENTS
All amounts are in millions except per share amounts.
Certain prior-year amounts have been reclassified to conform to current-year presentation.
1. ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying financial statements include the consolidated accounts of The Kroger Co. and its subsidiaries. The January 31, 2004 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 fiscal 2003 Annual Report on Form 10-K of The Kroger Co. filed with the SEC on April 14, 2004, as amended.
The unaudited information included in the Consolidated Financial Statements for the third quarter and three quarters ended November 6, 2004 and November 8, 2003 includes the results of operations of the Company for the 12-week and 40-week periods then ended.
Store Closing Costs
All closed store liabilities related to exit or disposal activities initiated after December 31, 2002, are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The Company provides for closed store liabilities relating to the present value of the estimated remaining noncancellable lease payments after the closing date, net of estimated subtenant income. The Company estimates the net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on closed stores. The closed store lease liabilities usually are paid over the lease terms associated with the closed stores, which generally have remaining terms ranging from one to 20 years. Adjustments to closed store liabilities primarily relate to changes in subtenant income and lease buyouts. Adjustments are made for changes in estimates in the period in which the change becomes known. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or is no longer needed for its originally intended purpose, is adjusted to income in the period when the change is identified.
Owned stores held for disposal are reduced to their estimated net realizable value. Costs to reduce the carrying values of property, equipment and leasehold improvements are accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Inventory write-downs, if any, in connection with store closings, are classified in “Merchandise costs.” Costs to transfer inventory and equipment from closed stores are expensed as incurred.
The following table summarizes accrual activity for future lease obligations of stores closed in the normal course of business.
Balance at January 31, 2004
Additions
Payments
Adjustments
Balance at November 6, 2004
Stock Option Plans
The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations to account for its stock option plans. The Company grants options for common stock at an option price equal to the fair market value of the stock at the date of the grant. Accordingly, the Company does not record stock-based compensation expense for these options. The Company also makes restricted stock awards. Compensation expense included in net earnings for restricted stock awards totaled approximately $1 and $2, after-tax, for the third quarter of 2004 and 2003, respectively. Restricted stock expense totaled $6 after-tax, for both the first three quarters of 2004 and 2003. The Company’s stock option plans are more fully described in the Company’s fiscal 2003 Annual Report on Form 10-K.
The following table illustrates the effect on net earnings, net earnings per basic common share and net earnings per diluted common share as if compensation cost for all options had been determined based on the fair market value recognition provision of SFAS No. 123, “Accounting for Stock-Based Compensation:”
Net earnings, as reported
Add: Stock-based compensation expense included in net earnings, net of income tax benefits
Subtract: Total stock-based compensation expense determined under fair value method for all awards, net of income tax benefits
Pro forma net earnings
Net earnings per basic common share, as reported
Pro forma earnings per basic common share
Net earnings per diluted common share, as reported
Pro forma earnings per diluted common share
Store Deposits In-Transit
Store deposits in-transit generally represent funds deposited to the Company’s bank accounts at the end of the quarter related to sales, a majority of which were paid for with credit cards and checks, to which the Company does not have immediate access. In previous years, these items were netted against accounts payable. Store deposits in-transit totaled $567 and $579 for the third quarter of 2004 and the fourth quarter of 2003, respectively. Accounts payable totaled $3,906 and $3,637 for the third quarter of 2004 and the fourth quarter of 2003, respectively.
2. MERGER-RELATED COSTS
The following table is a summary of the changes in accruals related to various business combinations:
The $58 liability for facility closure costs primarily represents the present value of lease obligations remaining through 2019 for locations closed in California prior to the Fred Meyer merger. The $14 liability relates to a charitable contribution required as a result of the Fred Meyer merger. The Company is required to complete this contribution by May 2006.
3. RESTRUCTURING CHARGES AND RELATEDITEMS
Restructuring charges
The following table summarizes the changes in the balances of liabilities associated with the 2001 restructuring plan:
Facility
Closure Costs
The $4 liability for facility closure costs relates to the present value of lease obligations remaining through 2009 related to the consolidation of the Company’s Nashville division office.
Store closing liabilities
In 2001 and 2000, the Company implemented two distinct, formalized plans that coordinated the closings of several locations over relatively short periods of time. The following table summarizes the changes in the balances of the liabilities related to the closings:
Balances at January 31, 2004
Balances at November 6, 2004
The $14 liability for store closing liabilities relates to the present value of lease obligations remaining through 2020. Sales at the stores remaining under the plans totaled $19 and $25 for the rolling four-quarter periods ended November 6, 2004, and November 8, 2003, respectively. Net operating income or loss for these stores cannot be determined on a separately identifiable basis.
4. GOODWILL, NET
The following table summarizes the changes in the Company’s net goodwill balance:
Purchase accounting adjustments in accordance with SFAS No. 141
The Company reviews goodwill for impairment during the fourth quarter of each year, and also upon the occurrence of trigger events. The reviews are performed at the operating division level. Generally, fair value represents a multiple of earnings, or discounted projected future cash flows. Potential impairment is indicated when the carrying value of a division, including goodwill, exceeds its fair value. If potential for impairment exists, the fair value of a division is subsequently measured against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the division’s goodwill. Impairment loss is recognized for any excess of the carrying value of the division’s goodwill over the implied fair value.
5. COMPREHENSIVE INCOME
Comprehensive income is as follows:
Reclassification adjustment for losses included in net earnings, net of tax(1)
Unrealized gain on hedging activities, net of tax(2)
Comprehensive income
During 2003, other comprehensive income consisted of reclassifications of previously deferred losses on cash flow hedges into net earnings as well as market value adjustments to reflect cash flow hedges at fair value as of the respective balance sheet dates. The reclassification adjustment for the year-to-date period of 2003 includes $12 of after-tax loss related to the second quarter 2003 Dynegy settlement that is more fully described in “Other Items” in the Management’s Discussion and Analysis section.
6. BENEFIT PLANS
The following table provides the components of net periodic benefit costs for the first three quarters of 2004 and 2003:
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Prior service cost
Actuarial loss
Net periodic benefit cost
7. INCOMETAXES
The effective income tax rate was 36.7% for the first three quarters of 2004 and 37.5% for the first three quarters of 2003. The effective income tax rate differed from the federal statutory rate primarily because of the effect of state taxes and open items with various taxing authorities.
8. EARNINGS PERCOMMON SHARE
Earnings per basic common share equals net earnings divided by the weighted average number of common shares outstanding. Earnings per diluted common share equals net earnings divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options, restricted stock and warrants.
The following table provides a reconciliation of earnings and shares used in calculating earnings per basic common share to those used in calculating earnings per diluted common share:
Third Quarter Ended
November 6, 2004
November 8, 2003
Earnings per basic common share
Dilutive effect of stock options, restricted stock and warrants
Earnings per diluted common share
Three Quarters Ended
The Company had options outstanding for approximately 39 shares and 26 shares during the third quarter of 2004 and 2003, respectively, that were excluded from the computations of earnings per diluted common share because their inclusion would have had an anti-dilutive effect on earnings per share. For the first three quarters of 2004 and 2003, the Company had options outstanding for approximately 31 and 34 shares, respectively, that were excluded from the computations of diluted earnings per share because their inclusion would have had an anti-dilutive effect on earnings per share.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2004, the FASB issued Staff Position (“FSP”) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP No. 106-2 supersedes FSP No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” and provides guidance on the accounting, disclosure and transition related to the Prescription Drug Act. FSP No. 106-2 became effective for the Company in the third quarter of 2004. The adoption of FSP No. 106-2 had no material effect on the Company’s Consolidated Financial Statements.
In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-10, “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers.” Issue No. 03-10 addresses the accounting for manufacturer sales incentives offered directly to consumers, including manufacturer coupons. EITF Issue No. 03-10 became effective for the Company on February 1, 2004, the beginning of its first quarter of 2004. Adoption of EITF Issue No. 03-10 reduced the Company’s sales and merchandise costs by $17.3 during the first three quarters of 2004.
10. GUARANTOR SUBSIDIARIES
The Company’s outstanding public debt (the “Guaranteed Notes”) is jointly and severally, fully and unconditionally guaranteed by The Kroger Co. and certain of its subsidiaries (the “Guarantor Subsidiaries”). At November 6, 2004, a total of approximately $6.1 billion of Guaranteed Notes were outstanding. The Guarantor Subsidiaries and non-guarantor subsidiaries are direct or indirect wholly-owned subsidiaries of The Kroger Co. Separate financial statements of The Kroger Co. and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable. The Company believes that separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors.
The non-guaranteeing subsidiaries represented less than 3% on an individual and aggregate basis of consolidated assets, pre-tax earnings, cash flow and equity, except for consolidated pre-tax earnings for the third quarter of 2004 and 2003. Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below. The non-guaranteeing subsidiaries, in aggregate, represented approximately 3.2% and 8.5% of third quarter 2004 and 2003, respectively, consolidated pre-tax earnings. Therefore, the non-guarantor subsidiaries’ information is separately presented in the Condensed Consolidating Statements of Earnings for the third quarter of 2004 and 2003.
There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above. The obligations of each guarantor under its guarantee are limited to the maximum amount permitted under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law (e.g. laws requiring adequate capital to pay dividends) respecting fraudulent conveyance or fraudulent transfer.
The following tables present summarized financial information as of November 6, 2004, and January 31, 2004, and for the third quarter ended, and three quarters ended, November 6, 2004 and November 8, 2003:
Condensed Consolidating
Balance Sheets
As of November 6, 2004
Cash, including temporary cash investments
Accounts receivable
Net inventories
Investment in and advances to subsidiaries
Total assets
Current portion of long-term debt including obligations under capital leases
Face value long-term debt including obligations under capital leases
Adjustment to reflect fair value interest rate hedges
Fair value interest rate hedges
Total liabilities
Shareowners’ Equity
Total liabilities and shareowners’ equity
As of January 31, 2004
Statements of Earnings
For the Quarter Ended November 6, 2004
Merchandise costs, including warehousing and transportation
Earnings (loss) from operations
Equity in earnings of subsidiaries
Earnings (loss) before tax expense
Tax expense (benefit)
For the Quarter Ended November 8, 2003
Merchandise costs, including warehousing and Transportation
For the Three Quarters Ended November 6, 2004
For the Three Quarters Ended November 8, 2003
Statements of Cash Flows
For the Three Quarter Ended November 6, 2004
Cash flows from investing activities:
Capital expenditures
Cash flows from financing activities:
Net change in advances to subsidiaries
Net cash (used) by financing activities
Net (decrease) in cash and temporary cash investments
Net cash provided (used) by operating activities
Net provided (used) by financing activities
Net increase (decrease) in cash and temporary cash investments
11. FAIR VALUE INTEREST RATE HEDGES
In the first quarter of 2003, the Company reconfigured a portion of its interest derivative portfolio by terminating six interest rate swap agreements that were accounted for as fair value hedges. Approximately $114 of proceeds received as a result of these terminations were recorded as adjustments to the carrying values of the underlying debt and are being amortized over the remaining lives of the debt. As of November 6, 2004, the unamortized balances totaled approximately $85.
During the first two quarters of 2003, the Company initiated 10 new interest rate swap agreements that are being accounted for as fair value hedges. During the second quarter of 2004, the Company terminated three of the interest rate swap agreements. As of November 6, 2004, liabilities totaling $2 have been recorded to reflect the fair value of the remaining interest rate swap agreements, offset by reductions in the fair value of the underlying debt.
12. COMMITMENTS AND CONTINGENCIES
The Company continuously evaluates contingencies based upon the best available evidence.
Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Allowances for loss are included in other current liabilities and other long-term liabilities. To the extent that resolution of contingencies or an updated allowance analysis results in amounts that vary from management’s estimates, future earnings will be charged or credited.
The principal contingencies are described below.
Insurance — The Company’s workers’ compensation risks are self-insured in certain states. In addition, other workers’ compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans, and self-insured retention plans. Liabilities for workers’ compensation risks are accounted for on a present value basis. Liabilities for general liability risks are not present-valued. Actual claim settlements and expenses incident thereto may differ from the provisions for loss.
Litigation — The United States Attorney’s Office for the Central District of California informed the Company that it is investigating the hiring practices of Ralphs Grocery Company, a wholly-owned subsidiary of The Kroger Co., during the labor dispute from October 2003 through February 2004. Among matters under investigation is the allegation that some locked-out employees were enabled to work under false identities or false Social Security numbers, despite Company policy forbidding such conduct. A grand jury has convened to consider whether such acts violated federal criminal statutes. The Company is cooperating with the investigation, and it is too early to determine whether charges will be filed or what potential penalties Ralphs may face. In addition, these alleged practices are the subject of claims that Ralphs’ conduct of the lockout was unlawful, and that Ralphs should be liable under the National Labor Relations Act (“NLRA”). The Los Angeles Regional Office of the National Labor Relations Board (“NLRB”) has notified the charging parties that all charges alleging that Ralphs’ lockout violated the NLRA have been dismissed. The charging parties have appealed that decision to the General Counsel of the NLRB.
The Company is involved in various legal actions arising in the normal course of business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position of the Company.
Assignments – The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy obligations under leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to satisfy a material amount of these obligations is remote.
Benefit Plans – The Company administers certain non-contributory defined benefit retirement plans for substantially all non-union employees and some union-represented employees as determined by the terms and conditions of collective bargaining agreements. Funding for the pension plans is based on a review of the specific requirements and an evaluation of the assets and liabilities of each plan.
In addition to providing pension benefits, the Company provides certain health care benefits for retired employees. Funding for the retiree health care benefits occurs as claims or premiums are paid.
The determination of the obligation and expense for the Company’s pension and other post-retirement benefits is dependent on the
Company’s selection of assumptions used by actuaries in calculating those amounts. Those assumptions are described in the Company’s fiscal 2003 Annual Report on Form 10-K and include, among others, the discount rate, the expected long-term rate of return on plan assets, and the rates of increase in compensation and health care costs. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Company believes that the assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the pension and other post-retirement obligations and future expense.
In addition to the $14 and $100 contributed during the second quarter of 2004 and the first quarter of 2003, respectively, the Company contributed $21 to the company-sponsored pension plans during the third quarter of 2004. Among other things, investment performance of plan assets, the interest rates required to be used to calculate the pension obligations and future changes in legislation, will determine the amounts of any additional contributions.
The Company also participates in various multi-employer pension plans for substantially all employees represented by unions. The Company is required to make contributions to these plans in amounts established under collective bargaining agreements. Pension expense for these plans is recognized as contributions are funded. Benefits are generally based on a fixed amount for each year of service. The Company contributed $169 to these plans in fiscal 2003. The Company would have contributed an additional $13 to these plans in 2003 had there been no labor disputes. Based on the most recent information available to the Company, it believes these plans continue to be underfunded. Based on various factors, underfunding could result in the imposition of an excise tax equal to 5% of the deficiency in the first year of a funding deficiency and 100% of the deficiency thereafter, until corrected. As a result, we expect that contributions to these plans will continue to increase and the benefit levels and related issues will continue to create collective bargaining challenges. Several of our recently completed labor agreements, including Ralphs in southern California, resulted in a reduction of liabilities. These multi-employer funds are managed by trustees, appointed by management of the employers (including Kroger) and the labor unions in equal number, who have fiduciary obligations to act prudently. Thus, while we expect contributions to these funds to continue to increase as they have in recent years, the amount of the increase will depend upon the outcome of collective bargaining, actions taken by trustees and the actual return on assets held in these funds and the discount rate used in each fund. For these reasons, it is not practicable to determine the amount by which the Company’s multi-employer pension contributions will increase. Moreover, if the Company were to exit markets, it may be required to pay a withdrawal liability. Any adjustments for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated.
13. SUBSEQUENT EVENTS
On December 9, 2004, the Company announced an offering of $300, 4.95% senior notes due in 2015. The Company expects net proceeds from the offering of approximately $297. The Company intends to use the net proceeds from the offering to repay amounts under our credit facilities and short-term borrowings, and for other general corporate purposes. The transaction is expected to settle on December 20, 2004. The Company initiated three new interest rate swap agreements related to this offering.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis should be read in conjunction with the Consolidated Financial Statements.
OVERVIEW
We are pleased with our sales performance in the third quarter. Kroger’s identical food-store sales showed strong improvement over the second quarter. Our continued focus on fulfilling our customers’ needs is an important part of our strategy to increase earnings through strong, sustainable identical food-store sales growth.
The improved identical-sales performance in the third quarter versus the second quarter continues to move us toward our sales targets for the year. Based on year-to-date performance, however, it will be a challenge to achieve the Company’s previously announced identical food-store sales target of 1.3% for the full fiscal year, which excludes fuel and stores affected by labor disputes.
The Company experienced a 141-day work stoppage in southern California that ended February 29, 2004. The southern California market remains competitive and we are focused on improving identical food-store sales in that market to pre-strike levels. Identical food-store sales for Ralphs and Food 4 Less together, as compared to the third quarter of 2002, are down slightly less than 1% for the full quarter. We believe a comparison to 2002 results is more representative due to the disruption caused by the labor dispute in 2003. Ralphs continues to be down, partially offset by sales increases at Food 4 Less. We continue to emphasize store conditions, associate training, and competitive pricing. Our identical food-store sales trends did improve in the third quarter at both Ralphs and Food 4 Less compared to the second quarter. We continue to make progress and execute our business plan in southern California.
During the third quarter, major labor contracts covering nearly 20,000 associates in Seattle, Cincinnati and at Food 4 Less in southern California were ratified without a work stoppage. In each case, we continued to make progress toward our goal of labor cost competitiveness. These new agreements have included a variety of measures to bring our labor costs more in line with the competition, including modest cost sharing by our associates for health care benefits and caps on cost increases in health care plans.
Negotiations continue with the UFCW at King Soopers in Denver, and Smith’s and Food 4 Less in Las Vegas. We remain hopeful that we can reach new agreements in those markets without work stoppages. Looking ahead to 2005, we have major UFCW contracts expiring in Roanoke, the Atlanta area, Portland (non-food), Columbus, and Dallas (clerks). We also have various Teamsters contracts expiring, including one in southern California and a separate one that covers several facilities in the Midwest. We continue to be committed to achieving a cost structure that enables us to grow our business and create more good jobs, while providing our associates with competitive wages and benefits.
For a more detailed discussion of our expectations and uncertainties related to those expectations, please see the “Outlook” section, below.
RESULTS OF OPERATIONS
Total sales for the third quarter of 2004 were $12.9 billion, an increase of 5.9% over total sales of $12.1 billion for the third quarter of 2003. Total food store sales increased 5.5% including fuel and 3.8% excluding fuel. For the first three quarters of 2004, total sales were $42.7 billion, an increase of 4.9% over total sales of $40.8 billion for the first three quarters of 2003. Total food store sales for the first three quarters of 2004 increased 4.5% including fuel, and 3.0% excluding fuel over total food store sales for the first three quarters of 2003. The difference between total sales and total food store sales primarily relates to sales at convenience and jewelry stores and sales by manufacturing plants to outside firms.
We define a food store as an identical store when the store has been in operation without expansion or relocation for five full quarters. Differences between total food store sales and identical food store sales primarily relate to changes in food store square footage. Our identical food store sales results, which exclude the West Virginia stores closed during the labor dispute and include Ralphs and Food 4 Less stores in southern California, are summarized in the table below. The Ralphs and Food 4 Less stores in southern California together accounted for 0.1% of the increase. The identical food store dollar figures presented were used to calculate percentage changes for the third quarter of 2004.
Identical Food Store Sales
(in millions)
Including supermarket fuel centers
Excluding supermarket fuel centers
We define a food store as a comparable store when the store has been in operation for five full quarters, including expansions and relocations. Our comparable food store sales results, excluding the West Virginia stores closed during the labor dispute and including Ralphs and Food 4 less stores in southern California, are summarized in the table below. The comparable food store dollar figures presented were used to calculate percentage changes for the third quarter of 2004.
Comparable Food Store Sales
We are very pleased with our sales performance in the third quarter of 2004. We believe our strong identical food-store sales growth is a reflection of our continued focus on fulfilling our customers’ needs.
FIFO Gross Margin
We calculate First-In, First-Out (“FIFO”) Gross Margin as follows: Sales minus merchandise costs plus Last-In, First Out (“LIFO”) charge. Merchandise costs include advertising, warehousing and transportation, but exclude depreciation and rent expense. FIFO gross margin is an important measure used by management to evaluate merchandising and operational effectiveness.
Our FIFO gross margin rate declined 67 basis points to 25.16% for the third quarter of 2004 from 25.83% for the third quarter of 2003. Of this decline, the effect of fuel sales accounted for a 66 basis point reduction in our FIFO gross margin rate. Our year-to-date FIFO gross margin rate declined 85 basis points to 25.51% in 2004 from 26.36% in 2003. The effect of fuel sales accounted for a 48 basis point reduction in our year-to-date FIFO gross margin rate. The declining gross margin rate on non-fuel sales reflects our continuing investment in lower retail prices.
The estimated effect of the labor dispute, more fully described in “Other Items,” also affected our FIFO gross margin rates.
Operating, General and Administrative Expenses
Operating, general and administrative (“OG&A”) expenses consist primarily of employee-related costs such as wages, health care benefit costs and retirement plan costs. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.
OG&A expenses, as a percent of sales, decreased 52 basis points to 18.98% for the third quarter of 2004 from 19.50% for the third quarter of 2003. Fuel sales accounted for a decrease in our OG&A rate of 33 basis points during the third quarter of 2004. OG&A
expenses at the supermarket divisions not affected by work stoppages, and excluding the effect of fuel, increased 23 basis points, of which incentive plan and employee benefit costs accounted for most of the increase. For the year-to-date period, OG&A expenses, as a percent of sales, decreased 18 basis points to 18.93% in 2004 from 19.11% in 2003. Fuel sales accounted for a decrease in our OG&A rate of 33 basis points for the year-to-date period of 2004.
Rent Expense
Rent expense, as a percent of total sales, was 1.23% and 1.26% in the third quarter of 2004 and 2003, respectively. For the year-to-date period, rent expense, as a percent of total sales, was 1.23% and 1.22% for 2004 and 2003, respectively. The increase in rent expense, as a percent of sales, was primarily related to our emphasis on closing under performing stores. We closed 20 stores, including 14 operational closings, in the third quarter of 2004 compared to 16 stores during the third quarter of 2003. For the year-to-date periods, we closed 63 stores, including 47 operational closings, in 2004 and 27 stores in 2003.
Depreciation and Amortization Expense
Depreciation expense, as a percent of total sales, was 2.24% and 2.31% in the third quarter of 2004 and 2003, respectively. The decrease in depreciation expense, as a percent of sales, was the result of our continued tightening of capital expenditures in addition to leverage from our increased sales. For the year-to-date periods, depreciation expense, as a percent of total sales, was 2.22% in both 2004 and 2003.
Interest Expense
Interest expense, as a percent of total sales, was .91% and 1.22% in the third quarter of 2004 and 2003, respectively. Interest expense for the third quarter of 2003, as a percent of total sales, was negatively affected by 15 basis points by premiums paid in connection with the repurchase of $100 million of long-term bonds. The remaining decrease in interest expense, as a percent of sales, is related to lower overall net borrowings and lower average borrowing costs. For the year-to-date periods of 2004 and 2003, interest expense, as a percent of total sales, was 1.03% and 1.17%, respectively. The year-to-date decrease in interest expense, as a percent of sales, was primarily related to lower net borrowings and lower borrowing costs in 2004 compared to 2003.
Income Taxes
We expect the effective tax rate for fiscal 2004 will be in the range of 37.0%. Our effective income tax rate was 35.0% for the third quarter of 2004 and 37.5% for the third quarter of 2003. For the year-to-date periods of 2004 and 2003, our effective income tax rate was 36.7% and 37.5%, respectively. The effective income tax rates differ from the federal statutory rate primarily due to the effect of state taxes and open items with various taxing authorities.
Net Earnings
Net earnings totaled $143 million, or $0.19 per diluted share, in the third quarter of 2004. These results represent an increase of 30% from net earnings of $110 million, or $0.15 per diluted share for the third quarter of 2003. Results in the third quarter of 2003 include the items described below in “Other Items” and “Previously Reported Estimated Effect of Labor Disputes.” Those items represented approximately $0.13 of after-tax expense per diluted share in the third quarter of 2003, consisting of the estimated effects of the labor disputes and the premiums paid in connection with the repurchase of $100 million of long-term bonds.
Net earnings for the first three quarters of 2004 totaled $548 million, or $0.73 per diluted share. These results represent a decrease of 16.0% from net earnings of $652 million, or $0.86 per diluted share for the first three quarters of 2003. Results of both year-to-date periods included the items described below in “Other Items” and “Previously Reported Estimated Effect of Labor Disputes.” For the first three quarters of 2004 and 2003, those items represented approximately $0.15 and $0.18, respectively, of after-tax expense per diluted share.
OTHER ITEMS
The following table summarizes items that affected Kroger’s financial results during the periods presented. These items should not be considered alternatives to net earnings, net cash provided by operating activities or any other Generally Accepted Accounting Principles (“GAAP”) measure of performance or liquidity. These items should not be viewed in isolation or considered substitutes for Kroger’s results as reported in accordance with GAAP. Due to the nature of these items, as described below, it is important to identify these items and review them in conjunction with Kroger’s financial results reported in accordance with GAAP.
These items include charges and credits that were recorded as components of OG&A expense and interest expense.
(In millions except per share amounts)
Items affecting OG&A
Adjustment to charitable contribution liability
Energy purchase commitments – market value adjustment
Energy purchase commitments – Dynegy settlement
Power outage
Reduction of lease liabilities – store closing plans
Total affecting OG&A
Items affecting interest
Debt prepayment premium
Total affecting interest
Total pre-tax loss
Income tax effect
Total after-tax loss
Diluted shares
Estimated diluted per share loss
Items Affecting Operating, General and Administrative Expense and Interest Expense
Lease liabilities – Store closing plans
In connection with the 2001 asset impairment review described below, we recorded pre-tax OG&A expenses of $20 million in 2001 for the present value of lease liabilities for the leased stores identified for closure. In 2000, we also recorded pre-tax expenses of $67 million for the present value of lease liabilities for similar store closings. The 2000 liabilities pertained primarily to stores acquired in the Fred Meyer merger, or to stores operated prior to the merger that were in close proximity to stores acquired in the merger, that were identified as under-performing stores. In both years, liabilities were recorded for the planned closings of the stores.
Due to operational changes, performance improved at five stores that had not yet closed. As a result of this improved performance, in the first quarter of 2003 we modified our original plans and determined that these five locations would remain open. Additionally, closing and exit costs at other locations included in the original plans were less costly than anticipated. In total, we recorded pre-tax income of $10 million in the first quarter of 2003 to adjust these liabilities to reflect the outstanding lease commitments at the locations remaining under the plans.
Power Outage
In the second quarter of 2003, we recorded a $9 million pre-tax expense for the August power outage in northwest Ohio and Michigan. The majority of the expense related to uninsured product losses. Generally, we classify uninsured product and property losses as OG&A expense.
Energy purchase commitments
During March through May 2001, we entered into four separate commitments to purchase electricity from Dynegy, Inc. (“Dynegy”) in California. At the inception of the contracts, forecasted electricity usage indicated that it was probable that all of the electricity would be utilized in our operations. We, therefore, accounted for the contracts in accordance with the normal purchases and normal sales exception under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and no amounts were initially recorded in the financial statements related to these purchase commitments.
During the third quarter of 2001, we determined that one of the contracts, and a portion of a second contract, provided for supplies in excess of our expected demand for electricity. This precluded use of the normal purchases and normal sales exception under SFAS No. 133 for those contracts, and required the contracts to be marked to fair value through current-period earnings. We, therefore, recorded a pre-tax charge of $81 million in the third quarter of 2001 to accrue liabilities for the estimated fair value of these contracts through the December 2006 ending date of the commitments. We re-designated the remaining portion of the second contract as a cash flow hedge of future purchases under the contract. The other two purchase commitments continued to qualify for the normal purchases and normal sales exception under SFAS No. 133 through June 2003.
SFAS No. 133 required the excess contracts to be marked to fair value through current-period earnings each quarter. In the first quarter of 2003, we recorded a pre-tax charge of $3 million to mark the excess contracts to fair value as of May 24, 2003.
On July 3, 2003, we reached an agreement through which we ended supply arrangements with Dynegy in California related to these four power supply contracts. The Federal Energy Regulatory Commission approved the settlement agreement on July 23, 2003. On August 27, 2003, we paid $107 million, before the related tax benefits, to settle disputes with Dynegy related to prior over-payments, terminate two of the four contracts effective July 6, 2003, and terminate the remaining two agreements effective September 1, 2003. As a result of the settlement, we recorded $62 million of pre-tax expense in the second quarter of 2003.
During the second quarter of 2004, we called for redemption our $750 million, 7.375% bonds due in March 2005. The call was funded on July 7, 2004, through a combination of available cash, commercial paper, and credit facility borrowings. We incurred a premium of $24.7 million, pre-tax, in connection with the redemption and anticipate a reduction in interest expense of approximately $21 million, pre-tax, for the current year, as a result of the debt reduction
During the third quarter of 2003, we incurred expenses totaling $18 million, pre-tax, related to premiums paid in connection with the repurchase of $100 million of long-term bonds, and the write-off of the related deferred financing costs.
PREVIOUSLY REPORTED ESTIMATED EFFECT OFLABOR DISPUTES
The following table summarizes the estimated effect of labor disputes on Kroger’s financial results that were previously reported for the periods presented. These items should not be considered alternatives to net earnings, net cash provided by operating activities or any other GAAP measure of performance or liquidity. These items should not be viewed in isolation or considered substitutes for Kroger’s results as reported in accordance with GAAP. Due to the nature of these items, as described below, it is important to identify these items and review them in conjunction with Kroger’s financial results reported in accordance with GAAP.
Included in the estimated effect of labor disputes for prior periods were charges and credits that were recorded as components of merchandise costs and OG&A expense. The 2003 calculation includes the effect of both the southern California and West Virginia strikes. The estimated effect includes all costs associated with the work stoppages, including expenses under the Mutual Strike Assistance Agreement (“the Agreement”) in southern California entered into with Safeway Inc. and Albertson’s, Inc., and post-strike recovery expenses through the second quarter of 2004.
In the third quarter of 2004, we discontinued reporting the strike effect.
Estimated effect of labor disputes on:
FIFO gross margin(1)
OG&A
For the dispute-affected regions, we compared actual results to budgeted results from the start of the disputes through the first two quarters of 2004. In establishing budgets for 2004, we took into account trends existing in the market as well as changes in our business plan strategies. Based on those budgets, the estimated effects included the difference between reported sales and sales projections less reported merchandising costs and merchandising cost projections and the difference between reported OG&A and OG&A projections.
Differences affecting FIFO gross margin included incremental warehousing, distribution, advertising and inventory shrinkage expenses incurred during the labor dispute, as well as the investment in FIFO gross margin, through targeted retail price reductions, and advertising in order to regain our sales during the post-strike recovery period. Differences in OG&A included costs associated with hiring and training replacement workers, costs associated with bringing in employees from other Kroger divisions to work on a temporary basis, expenses under the Agreement and costs related to hiring and training workers to replace union members who did not return to work after the labor dispute ended.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Information
We generated $2.1 billion and $1.9 billion of cash from operating activities in the first three quarters of 2004 and 2003, respectively. Our decrease in 2004 net earnings was offset by a small net increase in cash provided from changes in operating assets and liabilities and reduced cash contributions to our Company sponsored pension plans. The decrease in our accounts payable balances in 2003 was primarily related to our decision to discontinue the practice of transferring deposits to our concentration account prior to receiving credit for those deposits from other banks. Accrued liabilities declined in 2004 due to the payment of the accrued liability to Retailers under the Agreement described in “Previously Reported Estimated Effect of Labor Disputes.”
Investing activities used $1.2 billion of cash during the first three quarters of 2004 compared to $1.7 billion during the first three quarters of 2003. The amount of cash used by investing activities decreased in 2004 versus 2003 due to a decline in capital expenditures in 2004. The buyout of a synthetic lease that used $202 million of cash in 2003.
Financing activities used $0.9 billion of cash in the first three quarters of 2004 compared to $0.3 billion in the first three quarters of 2003. The increase in the amount of cash used was the result of the increased use of cash to reduce net outstanding debt totaling $514 million in the first three quarters of 2004 compared to $127 million for the first three quarters of 2003, combined with a reduction in the amount of book overdrafts. In addition, we received proceeds totaling $114 million related to the termination of several interest rate swap agreements during the first three quarters of 2003.
Debt Management
On May 21, 2004, we announced we had executed a new five-year revolving credit facility totaling $1.8 billion. The new facility replaced our $1.0 billion 364-day and $812.5 million five-year credit facilities. In addition to the new $1.8 billion credit facility, maturing in 2009, we continue to maintain a $700 million five-year credit facility that matures in 2007. Outstanding credit agreements and commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the credit facilities. In addition, we had a $75 million money market line, borrowings under which also reduce the funds available under the credit facilities. As of November 6, 2004, our outstanding credit agreement and commercial paper borrowings totaled $662 million. We had no borrowings under the money market line as of November 6, 2004. The outstanding letters of credit that reduced the funds available under the credit facilities totaled $283 million at such time.
As of November 6, 2004, we also had a $100 million pharmacy receivable securitization facility that provided capacity incremental to the $2.5 billion of credit facilities described above. Funds received under this $100 million facility do not reduce funds available under the credit facilities. Collection rights to some of Kroger’s pharmacy accounts receivable balances are sold to initiate the drawing of funds under the facility. As of November 6, 2004, we had utilization under the pharmacy receivable securitization facility totaling $92 million.
Our bank credit facilities and the indentures underlying our publicly issued debt contain various restrictive covenants. As of November 6, 2004, we were in compliance with these financial covenants. Furthermore, management believes it is reasonably likely that Kroger will comply with these financial covenants in the foreseeable future.
Total debt, including both the current and long-term portions of capital leases, decreased $607 million to $7.8 billion as of the end of the third quarter of 2004, from $8.4 billion as of the end of the third quarter of 2003. Total debt decreased $543 million to $7.8 billion as of the end of the third quarter of 2004 from $8.4 billion as of year-end 2003. The decreases in 2004 resulted from the use of cash flow from operations to reduce outstanding debt and lower mark-to-market adjustments.
On December 9, 2004, we announced an offering of $300 million, 4.95% senior notes due in 2015. We expect net proceeds from the offering of approximately $297 million, which we will use to repay amounts under our credit facilities and short-term borrowings, and for other general corporate purposes. The transaction is expected to settle on December 20, 2004. We initiated three new interest rate swap agreements related to this offering.
Common Stock Repurchase Program
During the third quarter of 2004, we invested $83 million to repurchase 5.4 million shares of Kroger stock at an average price of $15.18 per share. These shares were reacquired under three separate stock repurchase programs. The first is a $500 million repurchase program that was authorized by Kroger’s Board of Directors in December 2002. The second is a $500 million repurchase program that was authorized by Kroger’s Board of Directors in September 2004. The third is a program that uses the cash proceeds from the exercises of stock options by participants in Kroger’s stock option and long-term incentive plans as well as the associated tax benefits. For the first three quarters of 2004, we acquired 15.5 million shares for a total investment of $249 million. As of November 6, 2004, we had $422 million remaining under the September 2004 $500 million authorization. As of December 10, 2004, we had $390 million remaining under the $500 million authorization.
CAPITAL EXPENDITURES
Capital expenditures, excluding acquisitions, totaled $429 million for the third quarter of 2004 compared to $563 million for the third quarter of 2003. Year-to-date, capital expenditures, excluding acquisitions, totaled $1.3 billion in 2004 and $1.6 billion in 2003. Capital expenditures in 2003 included purchases of assets totaling $202 million which were previously financed under a synthetic lease.
During the third quarter of 2004, we opened, acquired, expanded or relocated 30 food stores and completed 33 within-the-wall remodels. In total, we operated 2,531 food stores at the end of the third quarter of 2004 versus 2,530 food stores in operation at the end of the third quarter of 2003. Total food store square footage increased 1.2% over the third quarter of 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2004, the FASB issued Staff Position (“FSP”) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” FSP No. 106-2 supersedes FSP No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” and provides guidance on the accounting, disclosure and transition related to the Prescription Drug Act. FSP No. 106-2 became effective for the third quarter of 2004. The adoption of FSP No. 106-1 had no material effect on our Consolidated Financial Statements.
In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-10, “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers.” Issue No. 03-10 addresses the accounting for manufacturer sales incentives offered directly to consumers, including manufacturer coupons. EITF Issue No. 03-10 became effective for Kroger on February 1, 2004, the beginning of our first quarter of 2004. Adoption of EITF Issue No. 03-10 reduced our sales and merchandise costs by $17.3 million for the first three quarters of 2004. We expect adoption of EITF Issue No. 03-10 will have a similar effect for the balance of fiscal 2004.
OUTLOOK
This discussion and analysis contains certain forward-looking statements about Kroger’s future performance. These statements are based on management’s assumptions and beliefs in light of the information currently available. Such statements relate to, among other things: projected change in net earnings; identical sales growth; expected pension plan contributions; our ability to generate operating cash flow; projected capital expenditures; square footage growth; opportunities to reduce costs; cash flow requirements; and our operating plan for the future; and are indicated by words or phrases such as “comfortable,” “committed,” “expect,” “goal,” “should,” “intend,” “target,” “believe,” “anticipate,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially.
Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934. While we believe that the statements are accurate, uncertainties about the general economy, our labor relations, our ability to execute our plans on a timely basis and other uncertainties described below could cause actual results to differ materially from those statements.
Various uncertainties and other factors could cause us to fail to achieve our goals. These include:
We cannot fully foresee the effects of changes in economic conditions on Kroger’s business. We have assumed economic and competitive situations will not change significantly for 2004.
Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly, actual events and results may vary significantly from those included in or contemplated or implied by forward-looking statements made by us or our representatives.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no other significant changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk on our Form 10-K filed with the SEC on April 14, 2004.
ITEM 4. Controls and Procedures.
The Chief Executive Officer and the Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated Kroger’s disclosure controls and procedures as of the quarter ended November 6, 2004. Based on that evaluation, Kroger’s Chief Executive Officer and Chief Financial Officer concluded that Kroger’s disclosure controls and procedures were effective as of the end of the period covered by this report.
In connection with the evaluation described above, there was no change in Kroger’s internal control over financial reporting during the quarter ended November 6, 2004, that has materially affected, or is reasonably likely to materially affect, Kroger’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The United States Attorney’s office for the Central District of California informed the Company that it is investigating the hiring practices of Ralphs Grocery Company, a wholly-owned subsidiary of The Kroger Co., during the labor dispute from October 2003 through February 2004. Among matters under investigation is the allegation that some locked-out employees were enabled to work under false identities or false Social Security numbers, despite Company policy forbidding such conduct. A grand jury has convened to consider whether such acts violated federal criminal statutes. The Company is cooperating with the investigation, and it is too early to determine whether charges will be filed or what potential penalties Ralphs may face. In addition, these alleged practices are the subject of claims that Ralphs’ conduct of the lockout was unlawful, and that Ralphs should be liable under the National Labor Relations Act (“NLRA”). The Los Angeles Regional Office of the National Labor Relations Board (“NLRB”) has notified the charging parties that all charges alleging that Ralphs’ lockout violated the NLRA have been dismissed. The charging parties have appealed that decision to the General Counsel of the NLRB.
Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust and civil rights laws, are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Any damages that may be awarded in antitrust cases will be automatically trebled. Although it is not possible at this time to evaluate the merits of these claims and lawsuits, nor their likelihood of success, the Company is of the opinion that any resulting liability will not have a material adverse effect on the Company’s financial position.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(b)
Period (1)
MaximumDollar Value ofShares that MayYet BePurchasedUnder the Plansor Programs (3)
First four weeks
August 15, 2004 to September 11, 2004
Second four weeks
September 12, 2004 to October 9, 2004
Third four weeks
October 10, 2004 to November 6, 2004
Total
Item 6. Exhibits and Reports on Form 8-K.
EXHIBIT 4.1 - Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of the Company. The Company undertakes to file these instruments with the Commission upon request.
EXHIBIT 31.1 – Rule 13a–14(a) / 15d–14(a) Certifications – Chief Executive Officer
EXHIBIT 31.2 – Rule 13a–14(a) / 15d–14(a) Certifications – Chief Financial Officer
EXHIBIT 32.1 – Section 1350 Certifications
EXHIBIT 99.1 - Additional Exhibits - Statement of Computation of Ratio of Earnings to Fixed Charges.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ David B. Dillon
/s/ J. Michael Schlotman
Exhibit Index