UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q~~

FORM 10-Q

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

For the quarterly period ended May ~~21, 2016~~20, 2017

OR☐

oTRANSITION 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~~
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.~~days. Yes x☒ No o☐

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 x☒ No o☐

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

Large accelerated filer		x☒		Accelerated filer		o☐
Non-accelerated filer (do not check if a smaller reporting company)		o☐		Smaller reporting company	☐
	o		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 o☐ No x.☒.

There were ~~948,992,301~~897,346,365 shares of Common Stock ($1 par value) outstanding as of June ~~22, 2016.~~21, 2017.

PART I —– FINANCIAL INFORMATION

Item 1.Financial Statements.

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

~~(in millions, except per share amounts)~~

(unaudited)

	First Quarter Ended
	May 21,			May 23,		First Quarter Ended
	2016			2015		May 20,		May 21,
(In millions, except per share amounts)						2017		2016
Sales	$	34,604		$	33,051	$	36,285	$	34,604
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	26,669			25,760			28,281		26,669
Operating, general and administrative	5,779			5,354			6,376		5,779
Rent	262			215			270		262
Depreciation and amortization	694			620			736		694

Operating profit	1,200			1,102			622		1,200
Interest expense	155			148			177		155

Earnings before income tax expense	1,045			954			445		1,045
Income tax expense	366			330			148		350

Net earnings including noncontrolling interests	679			624			297		695
Net earnings (loss) attributable to noncontrolling interests	(1		)	5
Net loss attributable to noncontrolling interests							(6)		(1)

Net earnings attributable to The Kroger Co.	$	680		$	619	$	303	$	696

Net earnings attributable to The Kroger Co. per basic common share	$	0.71		$	0.63	$	0.33	$	0.72

Average number of common shares used in basic calculation	954			969			914		954

Net earnings attributable to The Kroger Co. per diluted common share	$	0.70		$	0.62	$	0.32	$	0.71

Average number of common shares used in diluted calculation	966			983			925		966

Dividends declared per common share	$	0.105		$	0.093	$	0.120	$	0.105

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

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~(in millions and unaudited)~~(unaudited)

First Quarter Ended

May 21,
2016

May 23,
2015

Net earnings including noncontrolling interests

$
679

$
624

Other comprehensive income (loss)

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

(6
)
3

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

9

16

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

(27
)
20

Amortization of unrealized gains on cash flow hedging activities, net of income tax

1

¾

Total other comprehensive income (loss)

(23
)
39

Comprehensive income

656

663

Comprehensive income (loss) attributable to noncontrolling interests

(1
)
5

Comprehensive income attributable to The Kroger Co.

$
657

$
658


	First Quarter Ended
	May 20,		May 21,
(In millions)	2017		2016
Net earnings including noncontrolling interests	$	297	$	695

Other comprehensive income (loss)
Unrealized gains and losses on available for sale securities, net of income tax(1)		—		(6)
Change in pension and other postretirement defined benefit plans, net of income tax(2)		13		9
Unrealized gains and losses on cash flow hedging activities, net of income tax(3)		(36)		(27)
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax		—		1

Total other comprehensive loss		(23)		(23)

Comprehensive income		274		672
Comprehensive loss attributable to noncontrolling interests		(6)		(1)
Comprehensive income attributable to The Kroger Co.	$	280	$	673

(1)

Amount is net of tax of $(3) for the first quarter of ~~2016 and $1 for the first quarter of 2015.~~2016.

(2)

Amount is net of tax of $8 for the first quarter of 2017 and $5 for the first quarter of ~~2016 and $9 for the first quarter of 2015.~~2016.

(3)

Amount is net of tax of $(21) for the first quarter of 2017 and $(15) for the first quarter of ~~2016 and $12 for the first quarter of 2015.~~2016.

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

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

~~(in millions, except per share amounts)~~

(unaudited)

	May 21,			January 30,
	2016			2016			May 20,		January 28,
(In millions, except par amounts)							2018		2017
ASSETS
Current assets
Cash and temporary cash investments	$	391		$	277		$	356	$	322
Store deposits in-transit	892			923				952		910
Receivables	1,314			1,734				1,394		1,649
FIFO inventory	7,354			7,440				7,676		7,852
LIFO reserve	(1,288		)	(1,272		)		(1,317)		(1,291)
Prepaid and other current assets	553			790				477		898
Total current assets	9,216			9,892				9,538		10,340

Property, plant and equipment, net	20,161			19,619				21,133		21,016
Intangibles, net	1,043			1,053				1,141		1,153
Goodwill	2,744			2,724				3,031		3,031
Other assets	637			609				956		965

Total Assets	$	33,801		$	33,897		$	35,799	$	36,505

LIABILITIES
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	$	2,676		$	2,370		$	1,854	$	2,252
Trade accounts payable	5,846			5,728				6,078		5,818
Accrued salaries and wages	1,202			1,426				1,135		1,234
Deferred income taxes	221			221				—		251
Other current liabilities	3,200			3,226				3,448		3,305
Total current liabilities	13,145			12,971				12,515		12,860

Long-term debt including obligations under capital leases and financing obligations	9,710			9,709				11,590		11,825
Deferred income taxes	1,739			1,752				2,181		1,927
Pension and postretirement benefit obligations	1,395			1,380				1,552		1,524
Other long-term liabilities	1,364			1,287				1,826		1,659

Total Liabilities	27,353			27,099				29,664		29,795

Commitments and contingencies (see Note 8)
Commitments and contingencies (see Note 7)

SHAREOWNERS’ EQUITY
SHAREHOLDERS’ EQUITY

Preferred shares, $100 per share, 5 shares authorized and unissued	¾			¾				—		—
Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2016 and 2015	1,918			1,918
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	3,024			2,980				3,104		3,070
Accumulated other comprehensive loss	(703		)	(680		)		(738)		(715)
Accumulated earnings	14,589			14,011				15,735		15,543
Common shares in treasury, at cost, 977 shares in 2016 and 951 shares in 2015	(12,422		)	(11,409		)
Common shares in treasury, at cost, 1,017 shares in 2017 and 994 shares in 2016								(13,874)		(13,118)

Total Shareowners’ Equity - The Kroger Co.	6,406			6,820
Total Shareholders’ Equity - The Kroger Co.								6,145		6,698
Noncontrolling interests	42			(22		)		(10)		12

Total Equity	6,448			6,798				6,135		6,710

Total Liabilities and Equity	$	33,801		$	33,897		$	35,799	$	36,505

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

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	First Quarter Ended
	May 20,		May 21,
(In millions)	2017		2016
Cash Flows from Operating Activities:
Net earnings including noncontrolling interests	$	297	$	695
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization		736		694
LIFO charge		25		15
Stock-based employee compensation		53		43
Expense for Company-sponsored pension plans		35		25
Deferred income taxes		6		—
Other		(50)		(1)
Changes in operating assets and liabilities net of effects from mergers of businesses:
Store deposits in-transit		(42)		31
Receivables		149		85
Inventories		177		101
Prepaid and other current assets		409		232
Trade accounts payable		260		104
Accrued expenses		(86)		(320)
Income taxes receivable and payable		153		350
Other		187		25

Net cash provided by operating activities		2,309		2,079

Cash Flows from Investing Activities:
Payments for property and equipment		(817)		(1,090)
Proceeds from sale of assets		83		71
Other		(10)		(32)

Net cash used by investing activities		(744)		(1,051)

Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		1		11
Payments on long-term debt		(84)		(54)
Net borrowings (payments) on commercial paper		(545)		256
Dividends paid		(111)		(102)
Proceeds from issuance of capital stock		17		15
Treasury stock purchases		(772)		(1,027)
Other		(37)		(13)

Net cash used by financing activities		(1,531)		(914)

Net increase in cash and temporary cash investments		34		114

Cash and temporary cash investments:
Beginning of year		322		277
End of year	$	356	$	391

Reconciliation of capital investments:
Payments for property and equipment	$	(817)	$	(1,090)
Changes in construction-in-progress payables		(104)		(55)
Total capital investments	$	(921)	$	(1,145)

Disclosure of cash flow information:
Cash paid during the year for interest	$	188	$	167
Cash paid during the year for income taxes	$	11	$	7

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

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	—		—		—	(1)		15		—		—		—		15
Restricted stock issued	—		—		(20)	—		6		—		—		—		(14)
Treasury stock activity:
Treasury stock purchases, at cost	—		—		—	26		(1,000)		—		—		—		(1,000)
Stock options exchanged	—		—		—	1		(27)		—		—		—		(27)
Share-based employee compensation	—		—		43	—		—		—		—		—		43
Other comprehensive loss net of income tax of $(13)	—		—		—	—		—		(23)		—		—		(23)
Other	—		—		5	—		(7)		—		—		65		63
Cash dividends declared ($0.105 per common share)	—		—		—	—		—		—		(102)		—		(102)
Net earnings including noncontrolling interests	—		—		—	—		—		—		696		(1)		695

Balances at May 21, 2016	1,918	$	1,918	$	3,008	977	$	(12,422)	$	(703)	$	14,605	$	42	$	6,448

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

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

~~THE KROGER CO.~~

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~OF CASH FLOWS~~

~~(in millions and unaudited)~~

Quarter Ended

May 21,
2016

May 23,
2015

Cash Flows from Operating Activities:

Net earnings including noncontrolling interests

$
679

$
624

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

Depreciation and amortization

694

620

LIFO charge

15

28

Stock-based employee compensation

43

52

Expense for Company-sponsored pension plans

25

30

Deferred income taxes

¾

(52
)
Other

(1
)
34

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

Store deposits in-transit

31

26

Receivables

85

43

Inventories

101

(62
)
Prepaid and other current assets

232

249

Trade accounts payable

104

380

Accrued expenses

(332
)
(237
)
Income taxes receivable and payable

351

10

Other

25

10

Net cash provided by operating activities

2,052

1,755

Cash Flows from Investing Activities:

Payments for property and equipment, including payments for lease buyouts

(1,090
)
(879
)
Proceeds from sale of assets

71

4

Other

(32
)
17

Net cash used by investing activities

(1,051
)
(858
)

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

11

4

Payments on long-term debt

(54
)
(13
)
Net borrowings (payments) on commercial paper

256

(285
)
Dividends paid

(102
)
(91
)
Excess tax benefits on stock-based awards

14

37

Proceeds from issuance of capital stock

15

46

Treasury stock purchases

(1,027
)
(585
)
Investment in the remaining equity of a noncontrolling interest

¾

(26
)

Net cash used by financing activities

(887
)
(913
)

Net increase (decrease) in cash and temporary cash investments

114

(16
)

Cash and temporary cash investments:

Beginning of year

277

268

End of quarter

$
391

$
252

Reconciliation of capital investments:

Payments for property and equipment, including payments for lease buyouts

$
(1,090
)
$
(879
)
Payments for lease buyouts

¾

16

Changes in construction-in-progress payables

(55
)
(52
)
Total capital investments, excluding lease buyouts

$
(1,145
)
$
(915
)

Disclosure of cash flow information:

Cash paid during the quarter for interest

$
167

$
156

Cash paid during the quarter for income taxes

$
7

$
321

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

~~THE KROGER CO.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY~~

~~(in millions, except per share amounts)~~

~~(unaudited)~~

Accumulated

Additional

Other

Common Stock

Paid-In

Treasury Stock

Comprehensive

Accumulated

Noncontrolling

Shares

Amount

Capital

Shares

Amount

Gain (Loss)

Earnings

Interest

Total

Balances at January 31, 2015

1,918

$
1,918

$
2,748

944

$
(10,809
)
$
(812
)
$
12,367

$
30

$
5,442

Issuance of common stock:

Stock options exercised

—

—

—

(4
)
46

—

—

—

46

Restricted stock issued

—

—

(11
)
—

(1
)
—

—

—

(12
)
Treasury stock activity:

Treasury stock purchases, at cost

—

—

—

14

(498
)
—

—

—

(498
)
Stock options exchanged

—

—

—

2

(87
)
—

—

—

(87
)
Share-based employee compensation

—

—

52

—

—

—

—

—

52

Other comprehensive gain net of income tax of $22

—

—

—

—

—

39

—

—

39

Investment in the remaining equity of a noncontrolling interest

—

—

40

—

—

—

—

(57
)
(17
)
Other

—

—

38

—

(1
)
—

—

1

38

Cash dividends declared ($0.093 per common share)

—

—

—

—

—

—

(91
)
—

(91
)
Net earnings including noncontrolling interests

—

—

—

—

—

—

619

5

624

Balances at May 23, 2015

1,918

$
1,918

$
2,867

956

$
(11,350
)
$
(773
)
$
12,895

$
(21
)
$
5,536

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

—

—

—

(1
)
15

—

—

—

15

Restricted stock issued

—

—

(20
)
—

6

—

—

—

(14
)
Treasury stock activity:

Treasury stock purchases, at cost

—

—

—

26

(1,000
)
—

—

—

(1,000
)
Stock options exchanged

—

—

—

1

(27
)
—

—

—

(27
)
Share-based employee compensation

—

—

43

—

—

—

—

—

43

Other comprehensive loss net of income tax of $(13)

—

—

—

—

—

(23
)
—

—

(23
)
Other

—

—

21

—

(7
)
—

—

65

79

Cash dividends declared ($0.105 per common share)

—

—

—

—

—

—

(102
)
—

(102
)
Net earnings including noncontrolling interests

—

—

—

—

—

—

680

(1
)
679

Balances at May 21, 2016

1,918

$
1,918

$
3,024

977

$
(12,422
)
$
(703
)
$
14,589

$
42

$
6,448

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

N~~OTES TO~~ U~~NAUDITED~~ C~~ONSOLIDATED~~ F~~INANCIAL~~ S~~TATEMENTS~~

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

1.1.ACCOUNTING POLICIESA~~CCOUNTING~~ P~~OLICIES~~

Basis of Presentation and Principles of Consolidation

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries, and the variable interest entities in which the Company is the primary beneficiary. The January ~~30, 2016~~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 all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January ~~30, 2016.~~28, 2017.

The unaudited information in the Consolidated Financial Statements for the first quarters ended May ~~21, 2016~~20, 2017 and May ~~23, 2015,~~21, 2016, includes the results of operations of the Company for the 16-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 andand 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 32 for the disclosure of debt instrument fair values.

~~On June 25, 2015,~~During the ~~Company’s Board~~second quarter of Directors approved a two-for-one stock split of The Kroger Co.’s common shares in the form of a 100% stock dividend, which was effective July 13, 2015. All share and per share amounts in the Company’s Consolidated Financial Statements and related notes have been retroactively adjusted to reflect the stock split for all periods presented.

2.M~~ERGER~~

~~On December 18, 2015,~~2016, the Company ~~closed~~adopted Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. As a result of the adoption, the Company recognized $16 of excess tax benefits related to share-based payments in its ~~merger with Roundy’s, Inc. (“Roundy’s”) and there have not been any changes in the Company’s preliminary purchase price allocation in~~provision for income taxes for the first quarter of 2016. This item was historically recorded in additional paid-in capital. In addition, for the first quarter of 2016, cash flows related to excess tax benefits are classified as an operating activity. Cash paid on employees’ behalf related to shares withheld for tax purposes is classified as a financing activity. The Consolidated Statements of Operations and Consolidated Statements of Cash Flows have been revised to reflect the effects of the ASU adoption on the first quarter of 2016 Consolidated Financial Statements.

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

First Quarter Ended
May 23, 2015

Sales

$
34,336

Net earnings including noncontrolling interests

627

Net earnings attributable to noncontrolling interests

5

Net earnings attributable to The Kroger Co.

$
622

3.2.DEBT OBLIGATIONSD~~EBT~~ O~~BLIGATIONS~~

Long-term debt consists of:

	May 21,			January 30,
	2016			2016			May 20,		January 28,
1.14% to 8.00% Senior notes due through 2043	$	9,830		$	9,826
5.00% to 12.75% Mortgages due in varying amounts through 2027	56			58
0.64% to 0.66% Commercial paper due through May 2016	1,246			990
							2017		2017
1.50% to 8.00% Senior Notes due through 2047							$	11,313	$	11,311
5.63% to 12.75% Mortgages due in varying amounts through 2027								36		38
0.91% to 1.15% Commercial paper borrowings due through May 2017								880		1,425
Other	502			522				473		541

Total debt, excluding capital leases and financing obligations	11,634			11,396				12,702		13,315

Less current portion	(2,626		)	(2,318		)		(1,800)		(2,197)

Total long-term debt, excluding capital leases and financing obligations	$	9,008		$	9,078		$	10,902	$	11,118

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 ~~21, 2016~~20, 2017 and January ~~30, 2016.~~28, 2017. At May ~~21, 2016,~~20, 2017, the fair value of total debt was ~~$12,530~~$13,369 compared to a carrying value of ~~$11,634.~~$12,702. At January ~~30, 2016,~~28, 2017, the fair value of total debt was ~~$12,344~~$13,905 compared to a carrying value of ~~$11,396.~~$13,315.

In anticipation of future debt refinancing in fiscal years 2016, 2017 and 2018, the Company, in the first quarter of 2016, entered into additional forward-starting interest rate swap agreements with an aggregate notional amount totaling $1,300. After entering into these additional forward-starting interest rate swaps, the Company has a total of $1,700 notional amount of forward-starting interest rate swaps outstanding. The forward-starting interest rate swaps entered into in the first quarter of 2016 were designated as cash-flow hedges as defined by GAAP.

4.3.BENEFIT PLANSB~~ENEFIT~~ P~~LANS~~

The following table provides the components of net periodic benefit ~~costs~~cost for the Company-sponsored defined benefit pension plans and other post-retirement ~~benefits~~benefit plans for the first quarters of ~~2016~~2017 and ~~2015.~~2016.


													First Quarter Ended
	First Quarter												Pension Benefits				Other Benefits
	Pension Benefits						Other Benefits						May 20,		May 21,		May 20,		May 21,
	2016			2015			2016			2015			2017		2016		2017		2016
Components of net periodic benefit cost:
Service cost	$	21		$	19		$	3		$	4		$	24	$	21	$	3	$	3
Interest cost	58			51			3			3				56		58		3		3
Expected return on plan assets	(73		)	(71		)	—			—				(73)		(73)		—		—
Amortization of:
Prior service cost	—			—			(2		)	(4		)		—		—		(2)		(2)
Actuarial loss	19			31			(3		)	(2		)
Actuarial loss (gain)														26		19		(3)		(3)
Curtailment														2		—		—		—

Net periodic benefit expense	$	25		$	30		$	1		$	1
Net periodic benefit cost													$	35	$	25	$	1	$	1

The Company is not required ~~and does not expect~~ to make any contributions to its Company-sponsored pension plans in 2017, but may make contributions to the extent such contributions are beneficial to the Company. The Company did not make any contributions to its Company-sponsored pension plans in the first quarter of 2017 or 2016.

The Company contributed ~~$68~~$73 and ~~$62~~$68 to employee 401(k) retirement savings accounts in the first quarters of ~~2016~~2017 and ~~2015,~~2016, respectively.

The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded.

During the first quarter of 2017, the Company incurred a charge of $199, $126 net of tax, due to withdrawing from two multi-employer pension plans, which represents the Company’s best estimate, absent demand letters from the multi-employer pension plans. Demand letters from the impacted multi-employer pension plans may be received in 2017, or later, and the ultimate withdrawal liability may change from the currently estimated amount. Any future charge will be recorded in the period in which the change is identified. Based on ERISA regulations, the liability will be paid out in installments, which vary by plan, over a period of up to 20 years. The net present value of the liability was determined using a risk free interest rate. The charge was recorded in the ‘Operating, general and administrative’ caption in the Consolidated Statements of Operations and the liability was recorded in the ‘Other long-term liabilities’ caption in the Consolidated Balance Sheets.

5.4.EARNINGS PER COMMON SHAREE~~ARNINGS~~ PER C~~OMMON~~ S~~HARE~~

Net earnings attributable to The Kroger Co. per basic common share equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the ~~weighted average~~weighted-average number of common shares outstanding. Net earnings attributable to The Kroger Co. per diluted common share ~~equals~~equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the ~~weighted average~~weighted-average number of common shares outstanding, after giving effect to dilutive stock options. The following table provides a reconciliation of net earnings attributable to The Kroger Co. and shares used in calculating net earnings attributable to The Kroger Co. per basic common share to those used in calculating net earnings attributable to The Kroger Co. per diluted common share:

First Quarter Ended

First Quarter Ended

May 21, 2016

May 23, 2015

Earnings
(Numerator)

Shares
(Denominator)

Per Share
Amount

Earnings
(Numerator)

Shares
(Denominator)

Per Share
Amount

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

$
674

954

$
0.71

$
613

969

$
0.63

Dilutive effect of stock options

12

14

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

$
674

966

$
0.70

$
613

983

$
0.62


	First Quarter Ended					First Quarter Ended
	May 20, 2017					May 21, 2016
				Per					Per
	Earnings		Shares	Share		Earnings		Shares	Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Net earnings attributable to The Kroger Co. per basic common share	$	301	914	$	0.33	$	690	954	$	0.72
Dilutive effect of stock options			11					12

Net earnings attributable to The Kroger Co. per diluted common share	$	301	925	$	0.32	$	690	966	$	0.71

The Company had combined undistributed and distributed earnings to participating securities totaling $2 in the first quarter of 2017 and $6 in ~~both~~ the first ~~quarters~~quarter of ~~2016 and 2015.~~2016.

The Company had options outstanding for approximately 9 million and 3 million ~~and 65 thousand~~shares during the first quarters of ~~2016~~2017 and ~~2015,~~2016, respectively, that were excluded from the ~~computation~~computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share.

6.5.RECENTLY ADOPTED ACCOUNTING STANDARDSR~~ECENTLY~~ A~~DOPTED~~ A~~CCOUNTING~~ S~~TANDARDS~~

In ~~September~~November 2015, the Financial Accounting Standards Board (“FASB”) ~~amended Accounting Standards Codification 805, “Business Combinations.~~issued ASU 2015-17, ��Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” ~~The~~This amendment ~~eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized~~requires deferred tax liabilities and assets be classified as noncurrent in a ~~business combination.~~classified statement of financial position. This amendment became effective for the Company beginning January ~~31, 2016,~~29, 2017, and was adopted prospectively in accordance with the standard. The ~~adoption~~implementation of this amendment ~~did not have an~~resulted in the reclassification of current deferred tax liabilities as non-current and had no effect on the Company’s ~~Consolidated Balance Sheets or~~ Consolidated Statements of Operations.

7.6.RECENTLY ISSUED ACCOUNTING STANDARDSR~~ECENTLY~~ I~~SSUED~~ A~~CCOUNTING~~ S~~TANDARDS~~

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715)”, which requires that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The ASU also requires that only the service cost component of pension and postretirement benefit costs is eligible for capitalization. The update is effective for annual periods beginning after December 15, 2017 and interim periods within that annual period. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. The Company does not expect application of this ASU to have a material impact on its Consolidated Financial Statements.

In May 2014, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU 2014-09, “Revenue from Contracts with Customers,”as amended by several subsequent ASUs, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Per ASU 2015-14, “Deferral of Effective Date,” this guidance will be effective for the Company in the first quarter of its fiscal year ending February 2, 2019. ~~Early~~The Company is currently in the process of evaluating the effect of adoption ~~is permitted as~~of this ASU on its Consolidated Financial Statements. The Company’s initial assessment of the ~~first quarter of~~new guidance has identified customer loyalty programs and gross versus net reporting relative to arrangements with certain third parties as transactions potentially affected by the ~~Company’s fiscal year ending February 3, 2018.~~new guidance. Additionally, the Company continues to evaluate the adoption method that will be used to implement the new guidance.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” This amendment requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance will be effective for the fiscal year ending February 3, 2018. Early adoption is permitted. The implementation of this amendment will not have an effect on the Company’s Consolidated Statements of Operations and will not have a significant effect on the Company’s Consolidated Balance Sheets.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which provides guidance for the recognition of lease agreements. The standard’s core principle is that a company will now recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. This guidance will be effective for the Company in the first quarter of fiscal year ending February 1, 2020. Early adoption is permitted. The ~~implementation~~adoption of this ~~amendment~~ASU will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, ~~on the Company’s Consolidated Balance Sheets~~ and the Company is currently evaluating the other effects of adoption of this ASU on its Consolidated Financial Statements.This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to the Company’s lease accounting information technology system in order to determine the best implementation strategy.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance will be effective for the fiscal year ending February 3, 2018. Early adoption is permitted. The Company is evaluating potential early adoption of this standard during fiscal 2016, but does not expect the adoption of this standard to have a material effect on the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets.

8.7.COMMITMENTS AND CONTINGENCIESC~~OMMITMENTS AND~~ C~~ONTINGENCIES~~

The Company continuously evaluates contingencies based upon the best available evidence.

The Company believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from the Company’s estimates, future earnings will be charged or credited.

Litigation —Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust, wage and hour, or civil rights laws, as well as product liability cases, 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 all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material effect on the Company’s financial position, results of operations, or cash flows.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made provisions where it is reasonably possible to estimate and where an adverse outcome is probable. Nonetheless, assessing and predicting the outcomes of these matters involve substantial uncertainties. Management currently believes that the aggregate range of loss for the Company’s exposure is not material to the Company. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse effect on the Company’s financial condition,, results of operations, or cash flows.

9.8.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) A~~CCUMULATED~~ O~~THER~~ C~~OMPREHENSIVE~~ I~~NCOME~~ (L~~OSS~~)

The following table represents the changes in AOCI by component for the first quarters of ~~2015~~2016 and ~~2016:~~2017:

Cash Flow
Hedging
Activities(1)

Available for sale
Securities(1)

Pension and
Postretirement
Defined Benefit
Plans(1)

Total(1)

Balance at January 31, 2015

$
(49
)
$
17

$
(780
)
$
(812
)
OCI before reclassifications(2)

20

3

—

23

Amounts reclassified out of AOCI(3)

—

—

16

16

Net current-period OCI

20

3

16

39

Balance at May 23, 2015

$
(29
)
$
20

$
(764
)
$
(773
)

Balance at January 30, 2016

$
(51
)
$
20

$
(649
)
$
(680
)
OCI before reclassifications(2)

(27
)
(6
)
—

(33
)
Amounts reclassified out of AOCI(3)

1

—

9

10

Net current-period OCI

(26
)
(6
)
9

(23
)
Balance at May 21, 2016

$
(77
)
$
14

$
(640
)
$
(703
)


					Pension and
	Cash Flow				Postretirement
	Hedging		Available for sale		Defined Benefit
	Activities(1)		Securities(1)		Plans(1)		Total(1)
Balance at January 30, 2016	$	(51)	$	20	$	(649)	$	(680)
OCI before reclassifications(2)		(27)		(6)		—		(33)
Amounts reclassified out of AOCI(3)		1		—		9		10
Net current-period OCI		(26)		(6)		9		(23)
Balance at May 21, 2016	$	(77)	$	14	$	(640)	$	(703)

Balance at January 28, 2017	$	(2)	$	—	$	(713)	$	(715)
OCI before reclassifications(2)		(36)		—		—		(36)
Amounts reclassified out of AOCI(3)		—		—		13		13
Net current-period OCI		(36)		—		13		(23)
Balance at May 20, 2017	$	(38)	$	—	$	(700)	$	(738)

~~(1)~~ ~~All amounts are net of tax.~~

~~(2)~~ Net of tax of $12 and $1 for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2015 and $(15) and $(3) for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2016.

~~(3)~~ ~~Net of tax of $9 for pension and postretirement defined benefit plans for the first quarter of 2015 and $5 for pension and postretirement defined benefit plans for the first quarter of 2016.~~

(1)

All amounts are net of tax.

(2)

Net of tax of $(15) and $(3) for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2016. Net of tax of $(21) for cash flow hedging activities for the first quarter of 2017.

(3)

Net of tax of $5 for pension and postretirement defined benefit plans for the first quarter of 2016. Net of tax of $8 for pension and postretirement defined benefit plans for the first quarter of 2017.

The following table represents the items reclassified out of AOCI and the related tax effects for the first quarters of ~~2016~~2017 and ~~2015:~~2016:

First Quarter Ended
May 21, 2016

First Quarter Ended
May 23, 2015

Gains on cash flow hedging activities

Amortization of gains and losses on cash flow hedging activities(1)

$
1

$
—

Tax expense

—

—

Net of tax

1

—

Pension and postretirement defined benefit plan items

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

14

25

Tax expense

(5
)
(9
)
Net of tax

9

16

Total reclassifications, net of tax

$
10

$
16


	First Quarter Ended
	May 20,		May 21,
	2017		2016
Cash flow hedging activity items
Amortization of gains and losses on cash flow hedging activities(1)	$	—	$	1
Tax expense		—		—
Net of tax		—		1

Pension and postretirement defined benefit plan items
Amortization of amounts included in net periodic pension expense(2)		21		14
Tax expense		(8)		(5)
Net of tax		13		9
Total reclassifications, net of tax	$	13	$	10

~~(1)~~ ~~Reclassified from AOCI into interest expense.~~

~~(2)~~ Reclassified from AOCI into merchandise costs and operating, general and administrative expense. These components are included in the computation of net periodic pension expense (see Note 4 to the Company’s Consolidated Financial Statements

(1)

Reclassified from AOCI into interest expense.

(2)

Reclassified from AOCI into merchandise costs and operating, general and administrative expense. These components are included in the computation of net periodic pension expense (see Note 3 for additional details).

9.INCOME TAXES

The effective income tax rate was 33.3% and 33.5% for the first quarters of 2017 and 2016, respectively. The effective income tax rate for the first quarter of 2017 differed from the federal statutory rate due to the utilization of tax credits and deductions partially offset by the effect of state income taxes. The effective income tax rate for the first quarter of 2016 differed from the federal statutory rate due to the adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718)”.

10.VOLUNTARY RETIREMENT OFFERING

In 2016, the Company announced a Voluntary Retirement Offering (“VRO”) for certain non-store associates. Approximately 1,300 associates irrevocably accepted the VRO in the first quarter of 2017. Due to the employee acceptances, the Company recognized a VRO charge of $184, $117 net of tax, in the first quarter of 2017, which was comprised of $165 for severance and other benefits, as well as $19 of other non-cash charges. This charge was recorded in the ‘Operating, general and administrative’ caption within the Consolidated Statements of Operations. The Company paid $149 of the severance and other benefits in the first quarter of 2017, and will fulfill all payment obligations by the end of the fourth quarter of 2017.

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.

O~~VERVIEW~~USE OF NON-GAAP FINANCIAL MEASURES

~~First quarter 2016 total~~The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles (“GAAP”). We provide non-GAAP measures, including First-In, First-Out (“FIFO”) gross margin, FIFO operating profit, adjusted net earnings and adjusted net earnings per diluted share because management believes these metrics are useful to investors and analysts. These non-GAAP financial measures should not be considered as an alternative to gross margin, operating profit, net earnings and net earnings per diluted share or any other GAAP measure of performance. These measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. Our calculation and reasons these are useful metrics to investors and analysts are explained below.

We calculate FIFO gross margin as sales ~~were $34.6 billion compared with $33.1 billion~~less merchandise costs, including advertising, warehousing, and transportation expenses, but excluding the Last-In, First-Out (“LIFO”) charge. Merchandise costs exclude depreciation and rent expenses. FIFO gross margin is an important measure used by management to evaluate merchandising and operational effectiveness. Management believes FIFO gross margin is a useful metric to investors and analysts because it measures our day-to-day merchandising and operational effectiveness.

We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an important measure used by management to evaluate operational effectiveness. Management believes FIFO operating profit is a useful metric to investors and analysts because it measures our day-to-day operational effectiveness.

We believe the adjusted net earnings per diluted share metric presents more comparable quarter-over-quarter and year-over-year comparisons for our net earnings per diluted share because adjusted items are not the ~~same period~~result of ~~2015. This increase was attributable to identical supermarket sales increases,~~ our ~~merger with Roundy’s and an increase in supermarket square footage, partially offset by a decrease in the average retail fuel price. Identical supermarket sales, excluding fuel, increased 2.4% in~~normal operations.

OVERVIEW

Notable items for the first quarter of 2016, compared to the first quarter of 2015, primarily due to an increase in the number of households shopping with us and an increase in visits per household. First quarter 2016 product cost inflation was slightly positive compared to the same period of 2015. This continues our trend of positive identical supermarket sales growth for 50 consecutive quarters. Our Customer 1st ~~Strategy continues to deliver solid results.~~2017 are:

~~For the first quarter of 2016, net earnings totaled $680 million, or $0.70 per diluted share, compared to $619 million, or $0.62 per diluted share for the same period of 2015. The 12.9% increase in~~

Net earnings per diluted share of $0.32.

Net earnings for the first quarter of 2017 includes $199 million ($126 million after-tax) related to the withdrawal liability for certain multi-employer pension funds and $184 million ($117 million after-tax) related to the voluntary retirement offering (“VRO”) (collectively, the “2017 Adjusted Items”).

Adjusted net earnings per diluted share of $0.58.

Identical supermarket sales, excluding fuel, decreased 0.2%.

Increased total households and loyal households shopping with us led to positive unit growth.

Gross margin declined as a percentage of sales, primarily due to price investments. Operating, general and administrative (“OG&A”) expenses increased as a percentage of sales, primarily due to investing in incremental labor hours and wage increases designed to improve associate engagement and retention and investment in our digital strategy.

We returned $884 million to shareholders from share repurchases and dividend payments.

The following table provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per diluted common share to adjusted net earnings attributable to The Kroger Co. per diluted common share, for the first quarter of 2017 and 2016 ~~compared to net earnings~~($ in millions, except per ~~diluted~~ share for the first quarter of 2015, resulted primarily from an increase in non-fuel First-In, First Out (“FIFO”) operating profit, a lower Last-In, First-Out (“LIFO”) charge, an increase in earnings from fuel and lower weighted average common shares outstanding due to common share repurchases, partially offset by increased tax expense.amounts):


	First Quarter Ended
	May 20,		May 21,		Percentage
	2017		2016		Change
Net earnings attributable to The Kroger Co.	$	303	$	696	(56.5)
Adjustments for pension plan withdrawal liabilities₍₁₎₍₂₎		126		—
Adjustments for VRO₍₁₎₍₂₎		117		—
2017 Adjusted Items₍₁₎₍₂₎		243		—

Adjusted net earnings attributable to The Kroger Co.	$	546	$	696	(21.6)

Net earnings attributable to The Kroger Co. per diluted common share	$	0.32	$	0.71	(54.9)
Adjustments for pension plan withdrawal liabilities₍₃₎		0.13		—
Adjustments for VRO₍₃₎		0.13		—
2017 Adjusted Items₍₃₎		0.26		—

Adjusted net earnings attributable to The Kroger Co. per diluted common share	$	0.58	$	0.71	(18.3)

Average number of common shares used in diluted calculation		925		966

(1)

The amount presented represents the after-tax effect of the adjustments.

(2)

The pre-tax adjustments for the pension plan withdrawal liabilities and VRO are $199 million and $184 million, respectively.

(3)

The amount presented represents the net earnings per diluted common share effect of the adjustments.

RESULTS OF OPERATIONS

~~RESULTS OF OPERATIONS~~Sales

~~Net Earnings~~

Net earnings totaled $680 million for the first quarter of 2016, an increase of 9.9% from net earnings of $619 million for the first quarter of 2015. The increase in net earnings for the first quarter of 2016, compared to the first quarter of 2015, resulted primarily from an increase in non-fuel FIFO operating profit, a lower LIFO charge and an increase in earnings from fuel, partially offset by increased tax expense. The increase in non-fuel FIFO operating profit for the first quarter of 2016, compared to the first quarter of 2015, resulted primarily from the benefit of increased supermarket sales, productivity improvements, effective cost controls and decreases in incentive plans and utility costs, partially offset by continued investments in lower prices for our customers and increases in chargebacks related to credit card chip technology implementation, healthcare benefit and shrink costs. Included in continued investments in lower prices for our customers is the cost of our Pharmacy programs, which experienced high levels of inflation that were not fully passed on to the customer in the first quarter of 2016. The increase in our net earnings from fuel for the first quarter of 2016, compared to the first quarter of 2015, resulted primarily from increases in the average margin per gallon of fuel sold and in fuel gallons sold.

Net earnings of $0.70 per diluted share for the first quarter of 2016 represented an increase of 12.9% over net earnings of $0.62 per diluted share for the first quarter of 2015. Net earnings per diluted share increased in the first quarter of 2016, compared to the first quarter of 2015, due to an increase in non-fuel FIFO operating profit, a lower LIFO charge, an increase in earnings from fuel and lower weighted average shares outstanding due to common share repurchases, partially offset by increased tax expense.

~~Sales~~

Total Sales

($ in millions)


									First Quarter Ended
	First Quarter								May 20,		Percentage		May 21,		Percentage
	2016		Percentage Increase(2)		2015		Percentage Increase(3)		2017		Change(2)		2016		Change(3)
Total supermarket sales without fuel	$	29,534	8.0	%	$	27,356	5.8	%	$	29,941	1.4	%	$	29,534	8.0	%
Fuel sales	3,903		(14.7	)%	4,573		(26.0	)%		4,702	20.5	%		3,903	(14.7)	%
Other sales(1)	1,167		4.0	%	1,122		22.0	%		1,642	40.7	%		1,167	4.0	%

Total sales	$	34,604	4.7	%	$	33,051	0.3	%	$	36,285	4.9	%	$	34,604	4.7	%

(1)

Other sales primarily relate to sales at convenience stores, excluding fuel; jewelry stores; food production plants to outside customers; data analytic services; variable interest entities; Kroger Specialty Pharmacy; in-store health clinics; digital coupon services; and online sales by Vitacost.com.

(2)

This column represents the percentage change in the first quarter of 2017, compared to the first quarter of 2016.

(3)

This column represents the percentage change in the first quarter of 2016, compared to the first quarter of 2015.

~~(1)~~ Other sales primarily relate to sales at convenience stores, excluding fuel; jewelry stores; food production plants to outside customers; variable interest entities; a specialty pharmacy; in-store health clinics; sales on digital coupon services; and online sales by Vitacost.com.

~~(2)~~ ~~This column represents the percentage increase in the first quarter of 2016, compared to the first quarter of 2015.~~

~~(3)~~ ~~This column represents the percentage increase in the first quarter of 2015, compared to the first quarter of 2014.~~

Total sales increased in the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015,~~2016, by ~~4.7%~~4.9%. ~~The~~This increase ~~in total sales for the first quarter of 2016, compared to the first quarter of 2015,~~ was primarily due to our ~~increase~~increases in total supermarket sales, without fuel, ~~partially offset by a decrease in~~ fuel sales ~~due to a decrease in the average retail fuel price of 19.1%~~and our merger with Modern HC Holdings, Inc. (“ModernHEALTH”). The increase in total supermarket sales without fuel for the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015,~~2016, was primarily due ~~to our identical supermarket sales increase, excluding fuel, of 2.4%, our merger with Roundy’s and~~ an increase in supermarket square ~~footage.~~footage, partially offset by our identical supermarket sales decrease, excluding fuel, of 0.2%. Identical supermarket sales, excluding fuel, for the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015, increased~~2016, decreased primarily due to product cost deflation of 0.2% and continued investments in lower prices for our customers, partially offset by an increase in the number of households shopping with usus. Excluding mergers, acquisitions and ~~an increase in visits per household. First~~operational closings, total supermarket square footage at the end of the first quarter ~~2016 product cost inflation was slightly positive compared to~~of 2017 increased 3.4% over the ~~same period for 2015.~~end of the first quarter of 2016. Total fuel sales ~~decreased 14.7%~~increased 20.5% in the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015,~~2016, primarily due to ~~a decrease~~an increase in the average retail fuel price of ~~19.1%, partially offset by~~18.6% and an increase in fuel gallons sold of ~~5.5%~~1.6%. The ~~decrease~~increase in the average retail fuel price was caused by ~~a decrease~~an increase in the product cost of fuel.

We define a supermarket as identical when it has been in operation without expansion or relocation for five full quarters. Although identical supermarket sales is a relatively standard term, numerous methods exist for calculating identical supermarket sales growth. As a result, the method used by our management to calculate identical supermarket sales may differ from methods other companies use to calculate identical supermarket sales. We urge you to understand the methods used by other companies to calculate identical supermarket sales before comparing our identical supermarket sales to those of other such companies. Fuel discounts received at our fuel centers and earned based on in-store purchases are included in all of the identical supermarket sales results calculations illustrated below and reduce our identical supermarket sales results. Differences between total supermarket sales and identical supermarket sales primarily relate to changes in supermarket square footage. Identical supermarket sales include sales from all departments at identical ~~Fred Meyer~~ multi-department ~~stores and Roundy’s stores that are identical as if they were part of the Company in the prior year.~~stores. Our identical supermarket sales results are summarized in the ~~table below.~~following table. We used the identical supermarket dollar figures presented below to calculate percentage changes for the first quarter of ~~2016.~~2017.

Identical Supermarket Sales

($ in millions)

First Quarter

2016

Percentage
Increase(1)

2015

Percentage
Increase(2)

Including fuel centers

$
31,312

0.4
%
$
31,198

0.6
%
Excluding fuel centers

$
28,295

2.4
%
$
27,626

5.7
%


	First Quarter
	May 20,		Percentage		May 21,		Percentage
	2017		Change(1)		2016		Change(2)
Including fuel centers	$	32,252	1.6	%	$	31,758	0.4	%
Excluding fuel centers	$	28,627	(0.2)	%	$	28,689	2.4	%

~~(1)~~ ~~This column represents the percentage increase in identical supermarket sales in the first quarter of 2016, compared to the first quarter of 2015.~~

~~(2)~~ ~~This column represents the percentage increase in identical supermarket sales in the first quarter of 2015, compared to the first quarter of 2014.~~

(1)

This column represents the percentage changes in identical supermarket sales in the first quarter of 2017, compared to the first quarter of 2016.

(2)

This column represents the percentage changes in identical supermarket sales in the first quarter of 2016, compared to the first quarter of 2015.

Gross Margin, LIFO and FIFO Gross Margin

Our gross margin rate, as a percentage of sales, was 22.06% for the first quarter of 2017, as compared to 22.93% for the first quarter of ~~2016, as compared to 22.06% for the first quarter of 2015. The increase in the gross margin rate, as a percentage of sales, in the first quarter of 2016, compared to the first quarter of 2015,~~2016. This decrease resulted primarily from ~~a decrease in fuel sales, a lower LIFO charge and our merger with Roundy’s due to its historically higher gross margin rate, partially offset by~~ continued investments in lower prices for our customers, unfavorable pricing and cost effects due to a deflationary operating environment, higher fuel sales, a higher LIFO charge, our merger with ModernHEALTH due to its lower gross margin rate and increased warehousing, transportation and shrink costs, as a percentage of ~~sales.~~

~~We calculate FIFO gross margin as~~ sales, ~~less merchandise~~partially offset by decreased advertising costs, including advertising, warehousing, and transportation expenses, but excluding the LIFO charge. Merchandise costs exclude depreciation and rent expenses. Our LIFO charge was $15 million for the first quarter of 2016 compared to $28 million for the first quarter of 2015. FIFO gross margin is a non-GAAP financial measure and should not be considered as an alternative to gross margin or any other GAAP measure of performance. FIFO gross margin should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. FIFO gross margin is an important measure used by management to evaluate merchandising and operational effectiveness. Management believes FIFO gross margin is a useful metric to investors and analysts because it measures our day-to-day merchandising and operational effectiveness.

~~Our FIFO gross margin rate was 22.98% for the first quarter~~percentage of ~~2016, as compared to 22.14% for the first quarter of 2015. Our~~sales. Higher fuel sales ~~lower~~decrease our gross margin rate, as a percentage of sales, due to the very low gross margin rate, as a percentage of sales, on fuel sales as compared to non-fuel sales.

Our LIFO charge was $25 million for the first quarter of 2017 compared to a charge of $15 million for the first quarter of 2016. Our increased LIFO charge reflects our expected year end product cost inflation for 2017 compared to 2016.

Our FIFO gross margin rate, which excludes the first quarter LIFO charge, was 22.13% for the first quarter of 2017, as compared to 22.98% for the first quarter of 2016. Excluding the effect of fuel and ~~Roundy’s,~~ModernHEALTH, our FIFO gross margin rate decreased ~~two~~45 basis points in the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015. The~~2016. This decrease ~~in FIFO gross margin rate, excluding fuel and Roundy’s, in the first quarter of 2016, compared to the first quarter of 2015,~~ resulted primarily from continued investments in lower prices for our customers, unfavorable pricing and cost effects due

to a deflationary operating environment and increased warehousing, transportation and shrink costs, as a percentage of sales, partially offset by decreased advertising costs, as a percentage of sales.

Operating, General and Administrative Expenses

OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utility, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A.

OG&A expenses, as a percentage of sales, increased 5087 basis points to 17.57% for the first quarter of 2017 from 16.70% for the first quarter of ~~2016~~2016. This increase resulted primarily from ~~16.20% for~~ the ~~first quarter~~loss of ~~2015.~~sales leverage due to a deflationary operating environment and continued investments in lower prices, investing in our digital strategy, the 2017 Adjusted Items, increases in store wages attributed to investing in incremental labor hours and higher wages to improve retention, employee engagement and customer experience and increases in credit card costs, partially offset by savings from the VRO, effective cost controls, higher fuel sales and our merger with ModernHEALTH due to its lower OG&A rate, as a percentage of sales. The ~~increase~~VRO, which is included in the ~~OG&A rate~~2017 Adjusted Items, was completed in the first quarter of ~~2016, compared~~2017, and is expected to ~~the first quarter of 2015, resulted primarily from a decrease~~result in ~~fuel sales, our merger with Roundy’s due to its historically higher~~future OG&A rate, compared to our other retail divisions, and increases in chargebacks related to credit card chip technology implementation and healthcare benefit costs, partially offset by increased supermarket sales, productivity improvements, effective cost controls and decreases in incentive plans and utility costs.savings. Our fuel sales lower our OG&A rate, as a percentage of sales, due to the very low OG&A rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel, the 2017 Adjusted Items and ~~Roundy’s,~~ModernHEALTH, our OG&A rate ~~decreased 11~~increased 27 basis points in the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015. The decrease in the adjusted OG&A rate, excluding fuel and Roundy’s, in the first quarter of 2016, compared to the first quarter of 2015,~~2016. This increase resulted primarily from ~~increased supermarket~~the loss of sales ~~productivity improvements, effective cost controls~~leverage due to a deflationary operating environment and ~~decreases~~continued investments in ~~incentive plans~~lower prices, investing in our digital strategy, increases in store wages attributed to investing in incremental labor hours and ~~utility~~higher wages to improve retention, employee engagement and customer experience and increases in credit card costs, partially offset by ~~increases in chargebacks related to credit card chip technology implementation~~savings from the VRO and ~~healthcare costs.~~effective cost controls, as a percentage of sales.

Rent Expense

Rent expense ~~was $262 million in the first quarter of 2016 compared to $215 million in the first quarter of 2015. Rent expense,~~increased on a total dollars basis and decreased as a percentage of sales ~~was 0.76% in~~for the first quarter of 2016, compared to 0.65% in the first quarter of 2015. Rent expense, as a percentage of sales, increased 11 basis point in the first quarter of 2016, compared to the first quarter of 2015. The increase in rent expense, as a percentage of sales and total dollars, is2017 due to our merger with Roundy’s and its higher volume of leased versus owned supermarkets. Excluding Roundy’s, rent expense decreased 1 basis point in the first quarter of 2016, compared to the first quarter of 2015. The decrease is due to our continued emphasis on owning rather than leasing, whenever possible.to:

Increasing retail square footage and

Higher fuel sales, which decreases our rent expense rate, as a percentage of sales.

Depreciation and Amortization Expense

Depreciation and amortization expense increased on a total dollars and percentage of sales basis for the first quarter of 2017 due to:

Additional depreciation on capital investments, excluding mergers and lease buyouts of $3.4 billion, during the rolling four quarter period ending with the first quarter of 2017,

Loss of sales leverage due to a deflationary operating environment and continued investments in lower prices, and

Higher fuel sales partially off-set the increase, as a percentage of sales.

Operating Profit and FIFO Operating Profit

Operating profit was ~~$694~~$622 million, or ~~2.01%~~1.71% of ~~total~~ sales, for the first quarter of ~~2016~~2017, compared to $620 million, or 1.88% of total sales, for the first quarter of 2015. The increase in our depreciation and amortization expense for the first quarter of 2016, compared to the first quarter of 2015, in total dollars and as a percentage of sales, was the result of additional depreciation on capital investments, excluding mergers and lease buyouts of $3.6 billion, during the rolling four quarter period ending with the first quarter of 2016, and our merger with Roundy’s.

~~Operating Profit and FIFO Operating Profit~~

~~Operating profit was~~ $1.2 billion, or 3.47% of sales, for the first quarter of ~~2016,~~2016. Operating profit, as a percentage of sales, decreased 176 basis points in the first quarter of 2017, compared to ~~$1.1 billion,~~the first quarter of 2016, due to lower gross margin, increased OG&A, depreciation and amortization expenses and a higher LIFO charge, partially offset by lower rent expense, as a percentage of sales. Specific factors of these operating trends are discussed earlier in this section.

FIFO operating profit was $648 million, or ~~3.33%~~1.78% of sales, for the first quarter of ~~2015. Operating profit, as a percentage of sales, increased 14 basis points in the first quarter of 2016,~~2017, compared to the first quarter of 2015, primarily due to increased supermarket sales, the effect of fuel sales, a lower LIFO charge, productivity improvements effective cost controls and decreases in incentive plans and utility costs, as a percentage of sales, partially offset by continued investments in lower prices for our customers, our merger with Roundy’s due to its historically lower operating profit rate, compared to our other retail divisions, and increases in chargebacks related to credit card chip technology implementation, healthcare benefit and shrink costs, as a percentage of sales.

We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is a non-GAAP financial measure and should not be considered as an alternative to operating profit or any other GAAP measure of performance. FIFO operating profit should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. FIFO operating profit is an important measure used by management to evaluate operational effectiveness. Management believes FIFO operating profit is a useful metric to investors and analysts because it measures our day-to-day operational effectiveness. Since fuel discounts are earned based on in-store purchases, fuel operating profit does not include fuel discounts, which are allocated to our in-store supermarket location departments. We also derive OG&A expenses, rent and depreciation and amortization through the use of estimated allocations in the calculation of fuel operating profit.

~~FIFO operating profit was~~ $1.2 billion, or 3.51% of sales, for the first quarter of ~~2016, compared to $1.1 billion, or 3.42% of sales, for the first quarter of 2015.~~2016. Fuel sales lower our operating profit rate due to the very low operating profit rate, as a percentage of sales, of fuel sales compared to non-fuel sales. FIFO operating profit, as a percentage of sales excluding fuel, the 2017 Adjusted Items and ~~the effects of our Roundy’s merger, increased 2~~ModernHEALTH, decreased 82 basis points in the first quarter of ~~2016,~~2017, compared to ~~2015.~~2016 due to lower gross margin, increased OG&A, depreciation and amortization and rent expenses.

Income Taxes

Our effective income tax rate was 33.3% and 33.5% for the first quarter of 2017 and 2016, respectively. The ~~increase~~effective income tax rate for the first quarter of 2017 differed from the federal statutory rate due to the utilization of tax credits and deductions partially offset by the effect of state income taxes. The effective income tax rate for the first quarter of 2016 differed from the federal statutory rate due to the adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718)”.

Net Earnings and Net Earnings Per Diluted Share

Our net earnings are based on the factors discussed in ~~our adjusted FIFO operating profit rate~~the Results of Operations section.

Net earnings of $0.32 per diluted share for the first quarter of 2017 represented a decrease of 54.9% from net earnings of $0.71 per diluted share for the first quarter of 2016. Excluding the 2017 Adjusted Items, net earnings of $0.58 per diluted share for the first quarter of 2017 represented a decrease of 18.3% from net earnings of $0.71 per diluted share in the first quarter of ~~2016 compared to~~2016. The net earnings of the first quarter of ~~2015, was~~2016 do not include any adjusted items. The 18.3% decrease resulted primarily ~~due to~~from lower non-fuel FIFO operating profit, a higher LIFO charge and increased ~~supermarket sales, productivity improvements effective cost controls and decreases in incentive plans and utility costs, as a percentage of sales,~~interest expense, partially offset by ~~continued investments in~~higher fuel earnings, decreased income tax expense and lower ~~prices for our customers and increases in chargebacks related~~weighted average common shares outstanding due to ~~credit card chip technology implementation, healthcare benefit and shrink costs, as a percentage of sales.~~common share repurchases.

LIQUIDITY AND CAPITAL RESOURCES

L~~IQUIDITY AND~~ C~~APITAL~~ R~~ESOURCES~~Cash Flow Information

~~Cash Flow Information~~

Net cash provided by operating activities

We generated ~~$2.1~~$2.3 billion of cash from operating activities during the first quarter of ~~2016~~2017 compared to ~~$1.8~~$2.1 billion during the first quarter ~~2015. The cash provided by operating activities came from net earnings including noncontrolling interests, adjusted for non-cash expenses, and changes in working capital.~~of 2016. The cash provided from operating activities increased in the first quarter of ~~2016~~2017 versus ~~2015,~~2016, primarily due to ~~an increase~~higher non-cash expenses and changes in working capital, partially offset by a decrease in net earnings including noncontrolling ~~interests, higher depreciation and amortization and changes in working capital.~~interests. Changes in working capital provided cash from operating activities of ~~$572~~$1 billion in the first quarter of 2017, compared to $583 million in the first quarter of ~~2016 and $409 million in the first quarter of 2015. The~~2016. This increase ~~in cash provided by changes in working capital for the first quarter of 2016, compared to the first quarter of 2015,~~ was primarily due to ~~lower tax payments due to a 2015 tax deduction associated with tangible property regulations,~~higher cash provided by trade accounts payable, accrued expenses and prepaid and other current assets, partially offset by lower cash provided by ~~net owned inventory in the first quarter of 2016 compared to first quarter of 2015.~~income taxes receivable and payable.

Net cash used by investing activities

We used ~~$1.1 billion~~$744 million of cash for investing activities during the first quarter of ~~2016~~2017 compared to ~~$858 million~~$1.1 billion during the first quarter of ~~2015.~~2016. The amount of cash used for investing activities ~~increased~~decreased in the first quarter of ~~2016~~2017 versus ~~2015,~~2016, primarily due to ~~increased~~decreased cash payments for capital ~~investments, partially offset by increased proceeds from the sale of assets.~~investments.

Net cash used by financing activities

We used ~~$887 million~~$1.5 billion of cash for financing activities in the first quarter of ~~2016~~2017 compared to ~~$913~~$914 million induring the first quarter of ~~2015.~~2016. The ~~decrease in the~~ amount of cash used for financing activities for the first quarter of ~~2016,~~2017, compared to the first quarter of ~~2015, was~~2016, increased $617 million primarily due to ~~higher~~an increase in payments on commercial paper, partially offset by lower repurchases of our outstanding common ~~shares, offset by an increase in borrowings on commercial paper.~~shares.

Debt Management

Asof May ~~21, 2016,~~20, 2017, we maintained a $2.75 billion (with the ability to increase by $750 million), unsecured revolving credit facility that, unless extended, terminates on June 30, 2019. Outstanding borrowings under the credit facility, the commercial paper borrowings, and some outstanding letters of credit, reduce funds available under the credit facility. As of May ~~21, 2016,~~20, 2017, we had ~~$1.2 billion~~$880 million of outstanding commercial paper and no borrowings under our credit facility. The outstanding letters of credit that reduce funds available under our credit facility totaled ~~$13~~$6.1 million as of May ~~21, 2016.~~20, 2017.

Our bank credit facility and the indentures underlying our publicly issued debt contain various restrictive covenants. As of May ~~21, 2016,~~20, 2017, we were in compliance with the financial covenants. Furthermore, management believes it is not reasonably likely that we will fail to comply with these financial covenants in the foreseeable future.

Total debt, including both the current and long-term portions of capital leases and lease-financing obligations, ~~increased $307~~decreased $633 million as of May ~~21, 2016~~20, 2017 compared to fiscal year end ~~2015~~2016 debt of ~~$12.1~~$14.1 billion. The ~~increase~~decrease in debt is primarily due to ~~increased~~decreased commercial paper borrowings.

Common ~~Stock~~Share Repurchase Program

During the first quarter of ~~2016,~~2017, we invested ~~$1.0 billion~~$772 million to repurchase ~~27.1~~25.5 million Kroger common shares at an average price of ~~$37.94~~$30.27 per share. These shares were reacquired under two separate share repurchase programs. The first is a ~~$500 million share repurchase program authorized by our~~series of Board of Directors and announced on June 25, 2015. On March 10, 2016, our Board of Directors approved an additional $500 million share repurchase authority to supplement the June 2015 program (together, the “Share Repurchase Programs”). The Share Repurchase Programs were exhausted during the first quarter of 2016. Director authorizations:

On September 15, 2016, our Board of Directors approved a $500 million share repurchase program (the “September 2016 Share Repurchase Program”).

On March 9, 2017, our Board of Directors approved an additional $500 million share repurchase program (the “March 2017 Share Repurchase Program”) to supplement the September 2016 Share Repurchase Program.

The second 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~~and the associated tax benefits.

The March 2017 Share Repurchase Program was exhausted during the second quarter of 2017. On June 22, ~~2016,~~2017, our Board of Directors approved a ~~new $500 million~~$1 billion share repurchase program ~~to replace the prior authorization, which had been exhausted. As of June 28, 2016, we have not made any repurchases under this program.~~(the “June 2017 Share Repurchase Program”).

During the second quarter through June 27, 2017, the Company used an additional $100 million of cash to repurchase 3.5 million common shares at an average price of $30.00 per share.

Liquidity Needs

We estimate our liquidity needs over the next twelve-month period to range from ~~$6.7~~$6.0 to ~~$7.2~~$6.5 billion, which includes anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments of debt and commercial paper, offset by cash ~~and temporary cash investments~~ on hand at the end of the first quarter of ~~2016.~~2017. Based on current operating trends, we believe that cash flows from operating activities and other sources of liquidity, including borrowings under our commercial paper program and bank credit facility, will be adequate to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months. We have approximately ~~$1.2 billion~~$880 million of commercial paper and ~~$1.3 billion~~$800 million of senior notes maturing in the next twelve months, which is included in the ~~$6.7~~$6.0 to ~~$7.2~~$6.5 billion range of estimated liquidity needs. The commercial paper matures in the second quarter of ~~2016, $800~~2017, $600 million of senior notes mature in the third quarter of ~~2016~~2017 and ~~$450~~$200 million of senior notes mature in the ~~fourth~~first quarter of ~~2016.~~2018. We expect to refinance this debt by issuing additional senior notes or commercial paper on favorable terms based on our past experience. We believe we have adequate coverage of our debt covenants to continue to maintain our current investment grade debt ratings and to respond effectively to competitive conditions.

C~~APITAL~~ I~~NVESTMENTS~~CAPITAL INVESTMENTS

Capital investments, excluding mergers, acquisitions and the purchase of leased facilities, totaled $921 million for the first quarter of 2017, compared to $1.1 billion for the first quarter of ~~2016, compared to $915 million for the first quarter of 2015.~~2016. During the rolling four quarter period ending with the first quarter of ~~2016,~~2017, we opened, ~~acquired,~~ expanded or relocated ~~229~~84 supermarkets and also completed ~~142~~139 major within-the-wall remodels. ~~In the fourth quarter of 2015, we acquired 151 supermarkets due to our merger with Roundy’s.~~ Total supermarket square footage at the end of the first quarter of ~~2016~~2017 increased ~~7.1%~~2.4% from the end of the first quarter of ~~2015.~~2016. Excluding mergers, acquisitions and operational closings, total supermarket square footage at the end of the first quarter of ~~2016~~2017 increased ~~2.0%~~3.4% over the end of the first quarter of ~~2015.~~2016.

R~~ETURN~~

RETURN ON I~~NVESTED~~ C~~APITAL~~ INVESTED CAPITAL

We calculate return on invested capital (“ROIC”) by dividing adjusted operating profit for the prior four quarters by the average invested capital. Adjusted operating profit is calculated by excluding certain items included in operating profit, and adding back our LIFO charge, depreciation and amortization and rent to our U.S. GAAP operating profit of the prior four quarters. Average invested capital is calculated as the sum of (i) the average of our total assets, (ii) the average LIFO reserve, (iii) the average accumulated depreciation and amortization and (iv) a rent factor equal to total rent for the last four quarters multiplied by a factor of eight; minus (i) the average taxes receivable, (ii) the average trade accounts payable, (iii) the average accrued salaries and wages and (iv) the average other current liabilities, excluding accrued income taxes. Averages are calculated for ROIC by adding the beginning balance of the first quarter and the ending balance of the fourth quarter, of the last four quarters, and dividing by two. We use a factor of eight for our total rent as we believe this is a common factor used by our investors, analysts and rating agencies. ROIC is a non-GAAP financial measure of performance. ROIC should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our investment returns on capital. Management believes ROIC is a useful metric to investors and analysts because it measures how effectively we are deploying our assets.

Although ROIC is a relatively standard financial term, numerous methods exist for calculating a company’s ROIC. As a result, the method used by our management to calculate ROIC may differ from methods other companies use to calculate their ROIC. We urge you to understand the methods used by other companies to calculate their ROIC before comparing our ROIC to that of such other companies.

The following table provides a calculation of return on invested capital on a rolling four ~~quarters~~quarter basis ended May ~~21, 2016 and May 23, 2015. The May 21, 2016 calculation of return on invested capital excludes the financial position and results for the Roundy’s transaction.~~20, 2017.

Rolling Four Quarters Ended
($ in millions)

May 21, 2016

May 23, 2015

Return on Invested Capital

Numerator

Operating profit

$
3,674

$
3,309

LIFO charge

15

147

Depreciation and amortization

2,163

1,987

Rent

770

705

Other

(73
)
—

Adjusted operating profit

$
6,549

$
6,148

Denominator

Average total assets

$
32,135

$
29,662

Average taxes receivable(1)

(32
)
(19
)
Average LIFO reserve

1,281

1,199

Average accumulated depreciation and amortization

17,938

16,530

Average trade accounts payable

(5,639
)
(5,344
)
Average accrued salaries and wages

(1,174
)
(1,124
)
Average other current liabilities(2)

(3,025
)
(2,737
)
Adjustment for Roundy’s transaction

(1,115
)
—

Rent x 8

6,160

5,640

Average invested capital

$
46,529

$
43,807

Return on Invested Capital

14.08
%
14.03
%


	Rolling Four Quarters Ended
	($ in millions)
	May 20, 2017
Return on Invested Capital
Numerator
Operating profit	$	2,858
LIFO charge		29
Depreciation and amortization		2,382
Rent		889
Adjustments for pension plan agreements		310
Adjustments for voluntary retirement offering		184
Adjusted operating profit	$	6,652

Denominator
Average total assets	$	34,800
Average taxes receivable (1)		(37)
Average LIFO reserve		1,303
Average accumulated depreciation and amortization		19,464
Average trade accounts payable		(5,962)
Average accrued salaries and wages		(1,169)
Average other current liabilities (2)		(3,324)
Rent x 8		7,112
Average invested capital	$	52,187
Return on Invested Capital		12.75	%

~~(1)~~ ~~As of May 21, 2016 and May 23, 2015, taxes receivable were $48 million and $15 million, respectively.~~

~~(2)~~ As of May 21, 2016 and May 23, 2015, other current liabilities included accrued income taxes of $7 million and $9 million, respectively. Accrued income taxes are removed from other current liabilities in the calculation of average invested capital.

(1)

As of May 20, 2017, taxes receivable was $25 million.

(2)

As of May 20, 2017, other current liabilities included accrued income taxes of $45 million. Accrued income taxes are removed from other current liabilities in the calculation of average invested capital.

C~~RITICAL~~ A~~CCOUNTING~~ P~~OLICIES~~

CRITICAL ACCOUNTING POLICIES

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our critical accounting policies are summarized in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2016.~~28, 2017.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from those estimates.

R~~ECENTLY~~ A~~DOPTED~~ A~~CCOUNTING~~ S~~TANDARDS~~RECENTLY ADOPTED ACCOUNTING STANDARDS

In ~~September~~November 2015, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU 2015-16, “Business Combinations~~Accounting Standards Update (“ASU”) 2015-17, “Income Taxes (Topic ~~805)~~740): ~~Simplifying the Accounting for Measurement-Period Adjustments.~~Balance Sheet Classification of Deferred Taxes.” This amendment ~~eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized~~requires deferred tax liabilities and assets be classified as noncurrent in a ~~business combination.~~classified statement of financial position. This amendment became effective for us beginning January ~~31, 2016,~~29, 2017, and was adopted prospectively in accordance with the standard. The ~~adoption~~implementation of this amendment ~~did not have an~~resulted in the reclassification of current deferred tax liabilities as non-current and had no effect on our ~~Consolidated Balance Sheets or~~ Consolidated Statements of Operations.

R~~ECENTLY~~ I~~SSUED~~ A~~CCOUNTING~~ S~~TANDARDS~~

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715)”, which requires that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The ASU also requires that only the service cost component of pension and postretirement benefit cost is eligible for capitalization. The update is effective for annual periods beginning after December 15, 2017 and interim periods within that annual period. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. We do not expect application of this ASU to have a material impact on our Consolidated Financial Statements.

In May 2014, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU 2014-09, “Revenue from Contracts with Customers,”as amended by several subsequent ASUs, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Per ASU 2015-14, “Deferral of Effective Date,” this guidance will be effective for us in the first quarter of our fiscal year ending February 2, 2019. ~~Early adoption is permitted as~~Our initial assessment of the ~~first quarter of our fiscal year ending February 3, 2018. We are currently in~~new guidance identified customer loyalty programs and gross versus net reporting relative to arrangements with certain third parties as transactions potentially affected by the ~~process of evaluating~~new guidance. Additionally, we continue to evaluate the ~~effect of~~ adoption ~~of this ASU on our Consolidated Financial Statements.~~method that will be used to implement the new guidance.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” This amendment requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance will be effective for our fiscal year ending February 3, 2018. Early adoption is permitted. The implementation of this amendment will not have an effect on our Consolidated Statements of Operations and will not have a significant effect on our Consolidated Balance Sheets.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which provides guidance for the recognition of lease agreements. The standard’s core principle is that a company will now recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. This guidance will be effective for us in the first quarter of fiscal year ending February 1, 2020. Early adoption is permitted. The adoption of this ASU will result in a significant increase to our Consolidated Balance Sheets for lease liabilities and right-of-use assets, and we are currently evaluating the other effects of adoption of this ASU on our Consolidated Financial Statements. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to our lease accounting information technology system in order to determine the best implementation strategy. We believe our current off-balance sheet leasing commitments are reflected in our investment grade debt rating.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance will be effective for our fiscal year ending February 3, 2018. Early adoption is permitted. We are evaluating potential early adoption of this standard during fiscal 2016, but do not expect the adoption of this standard to have a material effect on our Consolidated Statements of Operations or Consolidated Balance Sheets.

O~~UTLOOK~~

OUTLOOK

This discussion and analysis contains certain forward-looking statements about our future performance. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words such as “comfortable,” “committed,” “will,” “expect,” “goal,” “should,” “intend,” “target,” “believe,” “anticipate,” “plan,” and similar words or phrases. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially. These include the specific risk factors identified in “Risk Factors” and “Outlook” in our Annual Report on Form 10-K for our last fiscal year and any subsequent filings, as well as those identified below.

Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or strategies are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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.

We expect net earnings to be $1.74 to $1.79 per diluted share in 2017, which includes an estimated $0.09 for the 53rd week. We expect 2017 adjusted net earnings per diluted share to be $2.00 to $2.05, including the 53rd week and excluding the 2017 Adjusted Items. Our long-term net earnings per diluted share growth rate guidance is 8% to 11%, plus a growing dividend. We define long-term as over a three to five year time horizon.

For 2017, we expect flat to 1.0% identical supermarket sales growth, excluding fuel.

We expect full-year FIFO operating margin in 2017, excluding fuel, the 2017 Adjusted Items, and the 2016 restructuring of certain multi-employer pension obligations, to decline approximately 20 to 30 basis points compared to 2016 results.

We expect capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be $3.2 to $3.5 billion for 2017. These capital investments include approximately 55 major projects covering new stores, expansions and relocations; 175 major remodels; and other investments including digital, technology, minor remodels, and upgrades to logistics, merchandising systems and infrastructure to support our Customer 1st business strategy.

For 2017, we expect supermarket square footage growth of approximately 1.8% before mergers, acquisitions and operational closings.

We expect the 2017 tax rate to be approximately 35%, excluding the effect of the resolution of certain tax items and the effects from the 2017 Adjusted Items.

For 2017, we anticipate product cost inflation, excluding fuel. We also expect an annualized LIFO charge of approximately $80 million.

We expect 2017 Company-sponsored pension plans expense to be approximately $110 million. We are not required to make a cash contribution in 2017, but may make contributions to the extent such contributions are beneficial to us.

For 2017, we expect to contribute approximately $360 million to multi-employer pension funds, which excludes any additional multi-employer restructuring or withdrawal liabilities that could occur. Of this amount, $35 million was accrued as of January 28, 2017. We continue to evaluate and address our potential exposure to under funded multi-employer pension plans. Although these liabilities are not a direct obligation or liability for Kroger, any new agreements that would commit us to fund certain multi-employer plans will be expensed when our commitment is probable and an estimate can be made.

We are currently negotiating agreements with UFCW for store associates in Dallas and Food 4 Less Warehouse Stores. Negotiations this year will be challenging as we must have competitive cost structures in each market while meeting our associates’ needs for solid wages and good quality, affordable health care and retirement benefits. Also, continued long term financial viability of our current Taft Hartley pension plan participation is important to address.

· We expect net earnings to be $2.19 to $2.28 per diluted share in 2016. Based on current fuel margin trends, we believe it will be at the low-end to midpoint of the range. We expect fuel margins to be at or slightly below the five-year average.

· ~~We expect identical supermarket sales growth, excluding fuel, of 2.5%-3.5% in fiscal year 2016.~~

· ~~We expect full-year FIFO operating margin in 2016, excluding fuel, to expand slightly compared to 2015 results.~~

· We expect capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be $4.1 to $4.4 billion. These capital investments include approximately 100 major projects covering new stores, expansions and relocations, including 10 Ruler locations; 200 to 220 major remodels; and other investments including minor remodels and technology and infrastructure to support our Customer 1st business strategy.

· ~~For 2016, we expect supermarket square footage growth of approximately 3.0% to 3.5% before mergers, acquisitions and operational closings.~~

· ~~We expect 2016 year-end ROIC to increase slightly compared to the fiscal 2015 result, excluding Roundy’s.~~

· We expect the 2016 tax rate to be approximately 35%, excluding the potential effect of early adopting ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”

· ~~For 2016, we anticipate product cost inflation to be less than 1.0%, excluding fuel.~~

· ~~For 2016, we expect an annualized LIFO charge of approximately $50 million, primarily related to our pharmacy inventory.~~

· ~~We expect 2016 Company-sponsored pension plans expense to be approximately $80 million. We do not expect to make a cash contribution in 2016.~~

· For 2016, we expect to contribute $260 million to multi-employer pension funds. We continue to evaluate and address our potential exposure to under-funded multi-employer pension plans. Although these liabilities are not a direct obligation or liability for Kroger, any new agreements that would commit us to fund certain multi-employer plans will be expensed when our commitment is probable and an estimate can be made.

· In 2016, we will negotiate agreements with UFCW for store associates in Little Rock, Nashville, Southern California and Fry’s in Arizona. Negotiations this year will be challenging as we must have competitive cost structures in each market while meeting our associates’ needs for solid wages and good quality, affordable health care and retirement benefits. Also, continued long term financial viability of our current taft Hartley pension plan participation is important to address.

Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include:

· The extent to which our sources of liquidity are sufficient to meet our requirements may be affected by the state of the financial markets and the effect that such condition has on our ability to issue commercial paper at acceptable rates. Our ability to borrow under our committed lines of credit, including our bank credit facilities, could be impaired if one or more of our lenders under those lines is unwilling or unable to honor its contractual obligation to lend to us, or in the event that natural disasters or weather conditions interfere with the ability of our lenders to lend to us. Our ability to refinance maturing debt may be affected by the state of the financial markets.

· Our ability to achieve sales, earnings and cash flow goals may be affected by: labor negotiations or disputes; changes in the types and numbers of businesses that compete with us; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; our response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel margins; changes in government-funded benefit programs; manufacturing commodity costs; diesel fuel costs related to our logistics operations; trends in consumer spending; the extent to which our customers exercise caution in their purchasing in response to economic conditions; the inconsistent pace of the economic recovery; changes in inflation or deflation in product and operating costs; stock repurchases; our ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; our ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of our future growth plans; and the successful integration of Harris Teeter and Roundy’s. Our ability to achieve sales and earnings goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

· During the first three quarters of each fiscal year, our LIFO charge and the recognition of LIFO expense is affected primarily by estimated year-end changes in product costs. Our fiscal year LIFO charge is affected primarily by changes in product costs at year-end.

· If actual results differ significantly from anticipated future results for certain reporting units including variable interest entities, an impairment loss for any excess of the carrying value of the reporting units’ goodwill over the implied fair value would have to be recognized.

· ~~Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.~~

· Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since fuel generates lower profit margins than our supermarket sales, we expect to see our FIFO gross margins decline as fuel sales increase.

The extent to which our sources of liquidity are sufficient to meet our requirements may be affected by the state of the financial markets and the effect that such condition has on our ability to issue commercial paper at acceptable rates. Our ability to borrow under our committed lines of credit, including our bank credit facilities, could be impaired if one or more of our lenders under those lines is unwilling or unable to honor its contractual obligation to lend to us, or in the event that natural disasters or weather conditions interfere with the ability of our lenders to lend to us. Our ability to refinance maturing debt may be affected by the state of the financial markets.

Our ability to achieve sales, earnings and cash flow goals may be affected by: labor negotiations or disputes; changes in the types and numbers of businesses that compete with us; pricing and promotional activities of existing and new competitors, including non-traditional competitors, and the aggressiveness of that competition; our response to these actions; the state of the economy, including interest rates, the inflationary and deflationary trends in certain commodities, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel margins; changes in government-funded benefit programs; manufacturing commodity costs; diesel fuel costs related to our logistics operations; trends in consumer spending; the extent to which our customers exercise caution in their purchasing in response to economic conditions; the inconsistent pace of the economic recovery; changes in inflation or deflation in product and operating costs; stock repurchases; our ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; our ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of our future growth plans; and the successful integration of Harris Teeter and Roundy’s. Our ability to achieve sales and earnings goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

During the first three quarters of each fiscal year, our LIFO charge and the recognition of LIFO expense is affected primarily by estimated year-end changes in product costs. Our fiscal year LIFO charge is affected primarily by changes in product costs at year-end.

If actual results differ significantly from anticipated future results for certain reporting units including variable interest entities, an impairment loss for any excess of the carrying value of the reporting units’ goodwill over the implied fair value would have to be recognized.

Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items with various taxing authorities, and the deductibility of certain expenses.

Changes in our product mix may negatively affect certain financial indicators. For example, we continue to add supermarket fuel centers to our store base. Since fuel generates lower profit margins than our supermarket sales, we expect to see our FIFO gross margins decline as fuel sales increase.

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 in 2016.~~

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, contemplated or implied by forward-looking statements made by us or our representatives. We undertake no obligation to update the forward-looking information contained in this filing.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the fiscal year ended January ~~30, 2016.~~28, 2017.

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 May ~~21, 2016,~~20, 2017, the end of the period covered by this report. Based on that evaluation, Kroger’s Chief Executive Officer and Chief Financial Officer concluded that Kroger’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act) were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there was no change in Kroger’s internal control over financial reporting during the quarter ended May ~~21, 2016,~~20, 2017, 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.

Various claims and lawsuits arising in the normal course of business, including suits charging violations of certain antitrust, wage and hour, or civil rights laws, as well as product liability cases, 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 all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made provisions where it is possible to reasonably estimate and where an adverse outcome is probable. Nonetheless, assessing and predicting the outcomes of these matters involve substantial uncertainties. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse impact on the Company’s financial condition, results of operations, or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c)

ISSUER PURCHASES OF EQUITY SECURITIES


											Maximum
											Dollar Value of
											Shares that May
										Total Number of	Yet Be
										Shares Purchased	Purchased
							Total Number	Average		as Part of Publicly	Under the Plans
							of Shares	Price Paid Per		Announced Plans	or Programs(4)
Period(1)	Total Number of Shares Purchased(2)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)	Maximum Dollar Value of Shares��that May Yet Be Purchased Under the Plans or Programs(4) (in millions)		Purchased(2)	Share		or Programs(3)	(in millions)
First four weeks
January 31, 2016 to February 27, 2016	2,918,349	$	38.16	2,917,321	$	391
January 29, 2017 to February 25, 2017							4,008,651	$	33.61	3,961,005	$	211
Second four weeks
February 28, 2016 to March 26, 2016	9,742,052	$	37.88	9,416,844	$	539
February 26, 2017 to March 25, 2017							6,814,284	$	29.84	6,682,657	$	518
Third four weeks
March 27, 2016 to April 23, 2016	14,420,912	$	37.99	14,420,799	$	¾
March 26, 2017 to April 22, 2017							7,160,990	$	29.53	7,160,953	$	311
Fourth four weeks
April 24, 2016 to May 21, 2016	322,241	$	35.60	322,036	$	¾
April 23, 2017 to May 20, 2017							7,699,058	$	29.60	7,698,768	$	91
Total	27,403,554	$	37.94	27,077,000	$	¾	25,682,983	$	30.27	25,503,383	$	91

(1)

The reported periods conform to our fiscal calendar composed of thirteen 28-day periods. The first quarter of 2017 contained four 28-day periods.

(2)

Includes (i) shares repurchased under two $500 million share repurchase programs approved by the Board of Directors and announced on September 15, 2016 (the “September 2016 Share Repurchase Program”) and March 9, 2017 (the “March 2017 Share Repurchase Program”), respectively, (ii) shares repurchased under a program announced on December 6, 1999 to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (“1999 Repurchase Program”), and (iii) 179,600 shares that were surrendered to the Company by participants under our long-term incentive plans to pay for taxes on restricted stock awards.

~~(1)~~ ~~The reported periods conform to our fiscal calendar composed of thirteen 28-day periods. The first quarter of 2016 contained four 28-day periods.~~

(3)

Represents shares repurchased under the September 2016 Share Repurchase Program, the March 2017 Share Repurchase Program and the 1999 Repurchase Program.

(4)

The amounts shown in this column reflect the amount remaining under the September 2016 Share Repurchase Program and the March 2017 Share Repurchase Program as of the specified period end dates. Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The September 2016 Share Repurchase Program, the March 2017 Share Repurchase Program and the 1999 Repurchase Program do not have an expiration date but may be terminated by our Board of Directors at any time. The March 2017 Share Repurchase Program was exhausted during the second quarter of 2017. On June 22, 2017, our Board of Directors approved a $1 billion share repurchase program.

~~(2)~~ Includes (i) shares repurchased under a $500 million share repurchase program authorized by the Board of Directors and announced on June 25, 2015 and the supplemental $500 million of share repurchase authority approved by the Board of Directors and announced on March 10, 2016 (together, the “Share Repurchase Programs”), (ii) shares repurchased under a program announced on December 6, 1999 to repurchase common shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated therewith (“1999 Repurchase Program”), and (iii) 326,554 shares that were surrendered to the Company by participants under our long-term incentive plans to pay for taxes on restricted stock awards.

~~(3)~~ ~~Represents shares repurchased under the 2015 Repurchase Program and the 1999 Repurchase Program.~~

~~(4)~~ The amounts shown in this column reflect the amount remaining under the Share Repurchase Programs. Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The Share Repurchase Programs have been exhausted. The 1999 Repurchase Program does not have an expiration date but may be terminated by the Board of Directors at any time. On June 22, 2016, the Board of Directors approved a new $500 million share repurchase program to replace the prior authorization, which had been exhausted. As of June 28, 2016, no repurchases were made under this program.

Item 6. Exhibits.


EXHIBIT 3.1	-	Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 22, 2010, as amended by the Amendment to Amended Articles of Incorporation, which is hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 23 2015.

EXHIBIT 3.2	-	The Company’s regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 26, 2007.

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 SEC upon request.

EXHIBIT 10.1*	-	The Kroger Co. 2017 Long-Term Cash Bonus Plan.

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 —~~Exhibit - Statement of Computation of Ratio of Earnings to Fixed Charges.

EXHIBIT 101.INS	-	XBRL Instance Document.

EXHIBIT 101.SCH	-	XBRL Taxonomy Extension Schema Document.

EXHIBIT 101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase Document.

EXHIBIT 101.DEF	-	XBRL Taxonomy Extension Definition Linkbase Document.

EXHIBIT 101.LAB	-	XBRL Taxonomy Extension Label Linkbase Document.

EXHIBIT 101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase Document.

*Management contract or compensatory plan or arrangement

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.


	THE KROGER CO.

Dated: June ~~28, 2016~~27, 2017	By:	/s/ W. Rodney McMullen
		W. Rodney McMullen
		Chairman of the Board and Chief Executive Officer

Dated: June ~~28, 2016~~27, 2017	By:	/s/ J. Michael Schlotman
		J. Michael Schlotman
		Executive Vice President and Chief Financial Officer

Exhibit Index


EXHIBIT 3.1	-	Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 22, 2010, as amended by the Amendment to Amended Articles of Incorporation, which is hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 23 2015.

EXHIBIT 3.2	-	The Company’s regulations are hereby incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 26, 2007.

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 SEC upon request.

EXHIBIT 10.1*	-	The Kroger Co. 2017 Long-Term Cash Bonus Plan.

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~~Exhibit — Statement of Computation of Ratio of Earnings to Fixed Charges.

EXHIBIT 101.INS	-	XBRL Instance Document.

EXHIBIT 101.SCH	-	XBRL Taxonomy Extension Schema Document.

EXHIBIT 101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase Document.

EXHIBIT 101.DEF	-	XBRL Taxonomy Extension Definition Linkbase Document.

EXHIBIT 101.LAB	-	XBRL Taxonomy Extension Label Linkbase Document.

EXHIBIT 101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase Document.

* Management contract or compensatory plan or arrangement

	First Quarter Ended
	May 21, 2016			May 23, 2015
Net earnings including noncontrolling interests	$	679		$	624

Other comprehensive income (loss)
Unrealized gains and losses on available for sale securities, net of income tax(1)	(6		)	3
Amortization of amounts included in net periodic pension expense, net of income tax(2)	9			16
Unrealized gains and losses on cash flow hedging activities, net of income tax(3)	(27		)	20
Amortization of unrealized gains on cash flow hedging activities, net of income tax	1			¾

Total other comprehensive income (loss)	(23		)	39

Comprehensive income	656			663
Comprehensive income (loss) attributable to noncontrolling interests	(1		)	5
Comprehensive income attributable to The Kroger Co.	$	657		$	658

	Quarter Ended
	May 21, 2016			May 23, 2015
Cash Flows from Operating Activities:
Net earnings including noncontrolling interests	$	679		$	624
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	694			620
LIFO charge	15			28
Stock-based employee compensation	43			52
Expense for Company-sponsored pension plans	25			30
Deferred income taxes	¾			(52		)
Other	(1		)	34
Changes in operating assets and liabilities net of effects from mergers of businesses:
Store deposits in-transit	31			26
Receivables	85			43
Inventories	101			(62		)
Prepaid and other current assets	232			249
Trade accounts payable	104			380
Accrued expenses	(332		)	(237		)
Income taxes receivable and payable	351			10
Other	25			10

Net cash provided by operating activities	2,052			1,755

Cash Flows from Investing Activities:
Payments for property and equipment, including payments for lease buyouts	(1,090		)	(879		)
Proceeds from sale of assets	71			4
Other	(32		)	17

Net cash used by investing activities	(1,051		)	(858		)

Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	11			4
Payments on long-term debt	(54		)	(13		)
Net borrowings (payments) on commercial paper	256			(285		)
Dividends paid	(102		)	(91		)
Excess tax benefits on stock-based awards	14			37
Proceeds from issuance of capital stock	15			46
Treasury stock purchases	(1,027		)	(585		)
Investment in the remaining equity of a noncontrolling interest	¾			(26		)

Net cash used by financing activities	(887		)	(913		)

Net increase (decrease) in cash and temporary cash investments	114			(16		)

Cash and temporary cash investments:
Beginning of year	277			268
End of quarter	$	391		$	252

Reconciliation of capital investments:
Payments for property and equipment, including payments for lease buyouts	$	(1,090	)	$	(879	)
Payments for lease buyouts	¾			16
Changes in construction-in-progress payables	(55		)	(52		)
Total capital investments, excluding lease buyouts	$	(1,145	)	$	(915	)

Disclosure of cash flow information:
Cash paid during the quarter for interest	$	167		$	156
Cash paid during the quarter for income taxes	$	7		$	321

												Accumulated
				Additional								Other
	Common Stock			Paid-In			Treasury Stock					Comprehensive			Accumulated			Noncontrolling
	Shares	Amount		Capital			Shares		Amount			Gain (Loss)			Earnings			Interest			Total
Balances at January 31, 2015	1,918	$	1,918	$	2,748		944		$	(10,809	)	$	(812	)	$	12,367		$	30		$	5,442
Issuance of common stock:
Stock options exercised	—	—		—			(4	)	46			—			—			—			46
Restricted stock issued	—	—		(11		)	—		(1		)	—			—			—			(12		)
Treasury stock activity:
Treasury stock purchases, at cost	—	—		—			14		(498		)	—			—			—			(498		)
Stock options exchanged	—	—		—			2		(87		)	—			—			—			(87		)
Share-based employee compensation	—	—		52			—		—			—			—			—			52
Other comprehensive gain net of income tax of $22	—	—		—			—		—			39			—			—			39
Investment in the remaining equity of a noncontrolling interest	—	—		40			—		—			—			—			(57		)	(17		)
Other	—	—		38			—		(1		)	—			—			1			38
Cash dividends declared ($0.093 per common share)	—	—		—			—		—			—			(91		)	—			(91		)
Net earnings including noncontrolling interests	—	—		—			—		—			—			619			5			624

Balances at May 23, 2015	1,918	$	1,918	$	2,867		956		$	(11,350	)	$	(773	)	$	12,895		$	(21	)	$	5,536

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	—	—		—			(1	)	15			—			—			—			15
Restricted stock issued	—	—		(20		)	—		6			—			—			—			(14		)
Treasury stock activity:
Treasury stock purchases, at cost	—	—		—			26		(1,000		)	—			—			—			(1,000		)
Stock options exchanged	—	—		—			1		(27		)	—			—			—			(27		)
Share-based employee compensation	—	—		43			—		—			—			—			—			43
Other comprehensive loss net of income tax of $(13)	—	—		—			—		—			(23		)	—			—			(23		)
Other	—	—		21			—		(7		)	—			—			65			79
Cash dividends declared ($0.105 per common share)	—	—		—			—		—			—			(102		)	—			(102		)
Net earnings including noncontrolling interests	—	—		—			—		—			—			680			(1		)	679

Balances at May 21, 2016	1,918	$	1,918	$	3,024		977		$	(12,422	)	$	(703	)	$	14,589		$	42		$	6,448

	First Quarter Ended May 23, 2015
Sales	$	34,336
Net earnings including noncontrolling interests	627
Net earnings attributable to noncontrolling interests	5

Net earnings attributable to The Kroger Co.	$	622

	First Quarter Ended					First Quarter Ended
	May 21, 2016					May 23, 2015
	Earnings (Numerator)		Shares (Denominator)	Per Share Amount		Earnings (Numerator)		Shares (Denominator)	Per Share Amount
Net earnings attributable to The Kroger Co. per basic common share	$	674	954	$	0.71	$	613	969	$	0.63
Dilutive effect of stock options			12					14

Net earnings attributable to The Kroger Co. per diluted common share	$	674	966	$	0.70	$	613	983	$	0.62

	Cash Flow Hedging Activities(1)			Available for sale Securities(1)			Pension and Postretirement Defined Benefit Plans(1)			Total(1)
Balance at January 31, 2015	$	(49	)	$	17		$	(780	)	$	(812	)
OCI before reclassifications(2)	20			3			—			23
Amounts reclassified out of AOCI(3)	—			—			16			16
Net current-period OCI	20			3			16			39
Balance at May 23, 2015	$	(29	)	$	20		$	(764	)	$	(773	)

Balance at January 30, 2016	$	(51	)	$	20		$	(649	)	$	(680	)
OCI before reclassifications(2)	(27		)	(6		)	—			(33		)
Amounts reclassified out of AOCI(3)	1			—			9			10
Net current-period OCI	(26		)	(6		)	9			(23		)
Balance at May 21, 2016	$	(77	)	$	14		$	(640	)	$	(703	)

	First Quarter Ended May 21, 2016			First Quarter Ended May 23, 2015
Gains on cash flow hedging activities
Amortization of gains and losses on cash flow hedging activities(1)	$	1		$	—
Tax expense	—			—
Net of tax	1			—

Pension and postretirement defined benefit plan items
Amortization of amounts included in net periodic pension expense(2)	14			25
Tax expense	(5		)	(9		)
Net of tax	9			16
Total reclassifications, net of tax	$	10		$	16

	First Quarter
	2016		Percentage Increase(1)		2015		Percentage Increase(2)
Including fuel centers	$	31,312	0.4	%	$	31,198	0.6	%
Excluding fuel centers	$	28,295	2.4	%	$	27,626	5.7	%