The Kroger Co. (KR) 10-Q 30 Jun 15 2015 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	4 Months Ended
	May. 23, 2015	Jun. 26, 2015
Document and Entity Information
Entity Registrant Name	KROGER CO
Entity Central Index Key	56,873
Document Type	10-Q
Document Period End Date	May 23, 2015
Amendment Flag	false
Current Fiscal Year End Date	--01-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		485,711,614
Document Fiscal Year Focus	2,015
Document Fiscal Period Focus	Q1

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Millions, $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales	$ 33,051	$ 32,961
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	25,760	26,065
Operating, general and administrative	5,354	5,168
Rent	215	217
Depreciation and amortization	620	581
Operating profit	1,102	930
Interest expense	148	147
Earnings before income tax expense	954	783
Income tax expense	330	274
Net earnings including noncontrolling interests	624	509
Net earnings attributable to noncontrolling interests	5	8
Net earnings attributable to The Kroger Co.	$ 619	$ 501
Net earnings attributable to The Kroger Co. per basic common share	$ 1.27	$ 0.99
Average number of common shares used in basic calculation	484	501
Net earnings attributable to The Kroger Co. per diluted common share	$ 1.25	$ 0.98
Average number of common shares used in diluted calculation	492	507
Dividends declared per common share	$ 0.185	$ 0.165

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions		4 Months Ended
		May. 23, 2015	May. 24, 2014
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings including noncontrolling interests		$ 624	$ 509
Other comprehensive income (loss)
Unrealized gains and losses on available for sale securities, net of income tax	[1]	3	(1)
Amortization of amounts included in net periodic pension expense, net of income tax	[2]	16	8
Unrealized gains on cash flow hedging activities, net of income tax	[3]	20
Total other comprehensive income		39	7
Comprehensive income		663	516
Comprehensive income attributable to noncontrolling interests		5	8
Comprehensive income attributable to The Kroger Co.		$ 658	$ 508
[1]	Amount is net of tax of $1 for the first quarter of 2015 and $(1) for the first quarter of 2014.
[2]	Amount is net of tax of $9 for the first quarter of 2015 and $4 for the first quarter of 2014.
[3]	Amount is net of tax of $12 for the first quarter of 2015.

CONSOLIDATED STATEMENTS OF COM4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unrealized gains and losses on available for sale securities, income tax	$ 1	$ (1)
Amortization of amounts included in net periodic pension expense, income tax	9	$ 4
Unrealized gains on cash flow hedging activities, income tax	$ 12

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	May. 23, 2015	Jan. 31, 2015
Current assets
Cash and temporary cash investments	$ 252	$ 268
Store deposits in-transit	962	988
Receivables	1,218	1,266
FIFO inventory	6,995	6,933
LIFO reserve	(1,273)	(1,245)
Prepaid and other current assets	429	701
Total current assets	8,583	8,911
Property, plant and equipment, net	18,212	17,912
Intangibles, net	743	757
Goodwill	2,304	2,304
Other assets	626	613
Total Assets	30,468	30,497
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	1,591	1,885
Trade accounts payable	5,431	5,052
Accrued salaries and wages	1,146	1,291
Deferred income taxes	286	287
Other current liabilities	2,864	2,888
Total current liabilities	11,318	11,403
Long-term debt including obligations under capital leases and financing obligations
Face-value of long-term debt including obligations under capital leases and financing obligations	9,717	9,712
Adjustment to reflect fair-value interest rate hedges	(1)
Long-term debt including obligations under capital leases and financing obligations	9,716	9,712
Deferred income taxes	1,180	1,209
Pension and postretirement benefit obligations	1,458	1,463
Other long-term liabilities	1,260	1,268
Total Liabilities	$ 24,932	$ 25,055
Commitments and contingencies (see Note 8)
SHAREOWNERS' EQUITY
Preferred shares, $100 per share, 5 shares authorized and unissued
Common shares, $1 par per share, 1,000 shares authorized; 959 shares issued in 2015 and 2014	$ 959	$ 959
Additional paid-in capital	3,826	3,707
Accumulated other comprehensive loss	(773)	(812)
Accumulated earnings	12,895	12,367
Common shares in treasury, at cost, 478 shares in 2015 and 472 shares in 2014	(11,350)	(10,809)
Total Shareowners' Equity - The Kroger Co.	5,557	5,412
Noncontrolling interests	(21)	30
Total Equity	5,536	5,442
Total Liabilities and Equity	$ 30,468	$ 30,497

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Millions	May. 23, 2015	Jan. 31, 2015
CONSOLIDATED BALANCE SHEETS
Preferred shares, per share (in dollars per share)	$ 100	$ 100
Preferred shares, shares authorized	5	5
Preferred shares, shares unissued	5	5
Common shares, par per share (in dollars per share)	$ 1	$ 1
Common shares, shares authorized	1,000	1,000
Common shares, shares issued	959	959
Common shares in treasury, shares	478	472

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
Cash Flows From Operating Activities:
Net earnings including noncontrolling interests	$ 624	$ 509
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	620	581
LIFO charge	28	28
Stock-based employee compensation	52	40
Expense for Company-sponsored pension plans	30	12
Deferred income taxes	(52)	(56)
Other	34	24
Changes in operating assets and liabilities net of effects from acquisitions of businesses:
Store deposits in-transit	26	21
Receivables	43	20
Inventories	(62)	(25)
Prepaid and other current assets	249	288
Trade accounts payable	380	375
Accrued expenses	(237)	(111)
Income taxes receivable and payable	10	(28)
Other	10	73
Net cash provided by operating activities	1,755	1,751
Cash Flows From Investing Activities:
Payments for property and equipment, including payments for lease buyouts	(879)	(730)
Proceeds from sale of assets	4	9
Other	17	18
Net cash used by investing activities	(858)	(703)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt	4	17
Payments on long-term debt	(13)	(14)
Net payments of commercial paper	(285)	(5)
Dividends paid	(91)	(84)
Excess tax benefits on stock-based awards	37	12
Proceeds from issuance of capital stock	46	33
Treasury stock purchases	(585)	(1,143)
Investment in the remaining equity of a noncontrolling interest	(26)
Net cash used by financing activities	(913)	(1,184)
Net decrease in cash and temporary cash investments	(16)	(136)
Cash and temporary cash investments:
Beginning of year	268	401
End of quarter	252	265
Reconciliation of capital investments:
Payments for property and equipment, including payments for lease buyouts	(879)	(730)
Payments for lease buyouts	16	17
Changes in construction-in-progress payables	(52)	4
Total capital investments, excluding lease buyouts	(915)	(709)
Disclosure of cash flow information:
Cash paid during the quarter for interest	156	134
Cash paid during the quarter for income taxes	$ 321	$ 351

CONSOLIDATED STATEMENTS OF CHAN

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY - USD ($) shares in Millions, $ in Millions	Common Stock	Additional Paid-In Capital	Treasury Stock	Accumulated Other Comprehensive Gain (Loss)	Accumulated Earnings	Noncontrolling Interest	Total
Balance at Feb. 01, 2014	$ 959	$ 3,549	$ (9,641)	$ (464)	$ 10,981	$ 11	$ 5,395
Balance (in shares) at Feb. 01, 2014	959		451
Issuance of common stock:
Stock options exercised			$ 33				33
Stock options exercised (in shares)			(2)
Restricted stock issued		(9)	$ 4				(5)
Treasury stock activity:
Treasury stock purchases, at cost			$ (1,094)				(1,094)
Treasury stock purchases, at cost (in shares)			24
Stock options exchanged			$ (49)				(49)
Stock options exchanged (in shares)			1
Share-based employee compensation		40					40
Other comprehensive gain net of income tax of $22 and $3 for the first quarter of 2015 and 2014, respectively				7			7
Other		15	$ 1			2	18
Cash dividends declared ($0.185 and $0.165 per common share for the first quarter of 2015 and 2014, respectively)					(84)		(84)
Net earnings including noncontrolling interests					501	8	509
Balance at May. 24, 2014	$ 959	3,595	$ (10,746)	(457)	11,398	21	4,770
Balance (in shares) at May. 24, 2014	959		474
Balance at Jan. 31, 2015	$ 959	3,707	$ (10,809)	(812)	12,367	30	5,442
Balance (in shares) at Jan. 31, 2015	959		472
Issuance of common stock:
Stock options exercised			$ 46				46
Stock options exercised (in shares)			(2)
Restricted stock issued		(11)	$ (1)				(12)
Treasury stock activity:
Treasury stock purchases, at cost			$ (498)				(498)
Treasury stock purchases, at cost (in shares)			7
Stock options exchanged			$ (87)				(87)
Stock options exchanged (in shares)			1
Share-based employee compensation		52					52
Other comprehensive gain net of income tax of $22 and $3 for the first quarter of 2015 and 2014, respectively				39			39
Investment in the remaining equity of a noncontrolling interest		40				(57)	(17)
Other		38	$ (1)			1	38
Cash dividends declared ($0.185 and $0.165 per common share for the first quarter of 2015 and 2014, respectively)					(91)		(91)
Net earnings including noncontrolling interests					619	5	624
Balance at May. 23, 2015	$ 959	$ 3,826	$ (11,350)	$ (773)	$ 12,895	$ (21)	$ 5,536
Balance (in shares) at May. 23, 2015	959		478

CONSOLIDATED STATEMENTS OF CHA9

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
Other comprehensive gain (loss), income tax	$ 22	$ 3
Cash dividends declared per common share (in dollars per share)	$ 0.185	$ 0.165

ACCOUNTING POLICIES

ACCOUNTING POLICIES	4 Months Ended
	May. 23, 2015
ACCOUNTING POLICIES
ACCOUNTING POLICIES	1. A 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 (“VIEs”) in which the Company is the primary beneficiary. The January 31, 2015 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 31, 2015. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 23, 2015 and May 24, 2014, includes the results of operations of the Company for the 16-week periods then ended. The net increase (decrease) in book overdrafts previously reported in financing activities in the Consolidated Statements of Cash Flows is now reported within operating activities. Prior year amounts have been revised to the current year presentation. These revisions were not material to the prior years. Refer to Note 6 for an additional change to the Consolidated Balance Sheets for a recently adopted accounting standard regarding the presentation of debt issuance costs.

MERGER

MERGER	4 Months Ended
	May. 23, 2015
MERGER
MERGER	2. M ERGER On August 18, 2014, the Company closed its merger with Vitacost.com, Inc. (“Vitacost.com”) and there have not been any changes in the Company’s preliminary purchase price allocation in the first quarter of 2015. Pro forma results of operations, assuming the transaction had taken place at the beginning of 2013, are included in the following table. The pro forma information includes historical results of operations of Vitacost.com 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 Vitacost.com and the Company. The pro forma information does not include efficiencies, cost reductions or synergies 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 the 2013. First Quarter Ended May 24, 2014 Sales $ Net earnings including noncontrolling interests Net earnings attributable to noncontrolling interests Net earnings attributable to The Kroger Co. $

DEBT OBLIGATIONS

DEBT OBLIGATIONS	4 Months Ended
	May. 23, 2015
DEBT OBLIGATIONS
DEBT OBLIGATIONS	3. D EBT O BLIGATIONS Long-term debt consists of: May 23, January 31, 2015 2015 0.76% to 8.00% Senior notes due through 2043 $ $ 5.00% to 12.75% Mortgages due in varying amounts through 2027 0.37% to 0.46% Commercial paper due through June 2015 Other Total debt, excluding capital leases and financing obligations Less current portion ) ) Total long-term debt, excluding capital leases and financing obligations $ $

BENEFIT PLANS

BENEFIT PLANS	4 Months Ended
	May. 23, 2015
BENEFIT PLANS
BENEFIT PLANS	4 . B ENEFIT P LANS The following table provides the components of net periodic benefit costs for the Company-sponsored pension plans and other post-retirement benefits for the first quarters of 2015 and 2014. First Quarter Pension Benefits Other Benefits 2015 2014 2015 2014 Components of net periodic benefit cost: Service cost $ $ $ $ Interest cost Expected return on plan assets ) ) — — Amortization of: Prior service cost — — ) ) Actuarial loss ) ) Net periodic benefit expense $ $ $ $ The Company contributed $5 to its Company-sponsored defined benefit pension plans in the first quarter of 2015. The Company is not required and does not expect to make any additional contributions in 2015. The Company contributed $62 and $56 to employee 401(k) retirement savings accounts in the first quarters of 2015 and 2014, respectively. During the first quarter of 2014, the Company incurred a charge of $56 (after-tax) due to commitments and withdrawal liabilities arising from the restructuring of certain multi-employer pension plan obligations. 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.

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE	4 Months Ended
	May. 23, 2015
EARNINGS PER COMMON SHARE
EARNINGS PER COMMON SHARE	5. E ARNINGS P ER 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 number of common shares outstanding. Net earnings attributable to The Kroger Co. per diluted common share equals net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the 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 23, 2015 May 24, 2014 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $ The Company had undistributed and distributed earnings to participating securities totaling $6 and $4 for the first quarters of 2015 and 2014, respectively. The Company had options outstanding for approximately 65 thousand and 2 million shares during the first quarters of 2015 and 2014, respectively, that were excluded from the computation of earnings per diluted common share because their inclusion would have had an anti-dilutive effect on earnings per share.

RECENTLY ADOPTED ACCOUNTING STA

RECENTLY ADOPTED ACCOUNTING STANDARDS	4 Months Ended
	May. 23, 2015
RECENTLY ADOPTED ACCOUNTING STANDARDS
RECENTLY ADOPTED ACCOUNTING STANDARDS	6. R ECENTLY A DOPTED A CCOUNTING S TANDARDS In April 2015, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification 835, “Interest-Imputation of Interest.” The amendment simplifies the presentation of debt issuance costs related to a recognized debt liability by requiring it be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This amendment became effective for the Company beginning February 1, 2015, and was adopted retrospectively in accordance with the standard. The adoption of this amendment resulted in amounts previously reported in other assets to now be reported within long-term debt including obligations under capital leases and financing obligations in the Consolidated Balance Sheets. These amounts were not material to the prior year. The adoption of this amendment did not have an effect on the Company’s Consolidated Statements of Operations.

RECENTLY ISSUED ACCOUNTING STAN

RECENTLY ISSUED ACCOUNTING STANDARDS	4 Months Ended
	May. 23, 2015
RECENTLY ISSUED ACCOUNTING STANDARDS
RECENTLY ISSUED ACCOUNTING STANDARDS	7. R ECENTLY I SSUED A CCOUNTING S TANDARDS In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “ Revenue from Contracts with Customers,” 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. This guidance will be effective for the Company in the first quarter of its fiscal year ending January 27, 2018. Early adoption is not permitted. The Company is currently in the process of evaluating the effect of adoption of this ASU on the Company’s Consolidated Financial Statements. In April 2015, the FASB issued ASU 2015-04, “Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” This amendment permits an entity to measure defined benefit plan assets and obligations using the month end that is closest to the entity’s fiscal year end for all plans. This guidance will be effective for the Company in its fiscal year ending January 28, 2017. 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 April 2015, the FASB issued ASU 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This amendment removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share. This guidance will be effective for the Company in its fiscal year ending January 28, 2017. The implementation of this amendment will have an effect on the Company’s Notes to the Consolidated Financial Statements and will not have an effect on the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	4 Months Ended
	May. 23, 2015
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES	8. C 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.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	4 Months Ended
	May. 23, 2015
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS	9. F AIR V ALUE M EASUREMENTS GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy defined in the standards are as follows: 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. For items carried at (or adjusted to) fair value in the consolidated financial statements, the following tables summarize the fair value of these instruments at May 23, 2015 and January 31, 2015: May 23, 2015 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Trading Securities $ $ — $ — $ Available-for-Sale Securities — — Warrants — — Long-Lived Assets — — Interest Rate Hedges — ) — ) Total $ $ $ $ January 31, 2015 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Trading Securities $ $ — $ — $ Available-for-Sale Securities — — Warrants — — Long-Lived Assets — — Interest Rate Hedges — ) — ) Total $ $ ) $ $ In the first quarter of 2015, unrealized gains on the Level 1 available-for-sale securities totaled $4. The Company values warrants using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model is classified as a Level 2 input. The Company values interest rate hedges using observable forward yield curves. These forward yield curves are classified as Level 2 inputs. Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, long-lived assets, and in the valuation of store lease exit costs. The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 3 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015 for further discussion related to the Company’s carrying value of goodwill. Long-lived assets and store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. See Note 1 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended January 31, 2015 for further discussion of the Company’s policies regarding the valuation of long-lived assets and store lease exit costs. For the first quarter of 2015, long-lived assets with a carrying amount of $25 were written down to their fair value of $3 resulting in an impairment charge of $22. For the first quarter of 2014, long-lived assets with a carrying amount of $14 were written down to their fair value of $6 resulting in an impairment charge of $8. In fiscal year 2014, long-lived assets with a carrying amount of $59 were written down to their fair value of $22, resulting in an impairment charge of $37. Fair Value of Other Financial Instruments Current and Long-term Debt 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 23, 2015 and January 31, 2015. At May 23, 2015, the fair value of total debt was $11,643 compared to a carrying value of $10,746. At January 31, 2015, the fair value of total debt was $12,319 compared to a carrying value of $11,026. Cash and Temporary Cash Investments, Store Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Trade Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities The carrying amounts of these items approximated fair value. Other Assets The fair values of these investments were estimated based on quoted market prices for those or similar investments, or estimated cash flows, if appropriate. At May 23, 2015 and January 31, 2015, the carrying and fair value of long-term investments for which fair value is determinable was $140 and $133, respectively. At May 23, 2015 and January 31, 2015, the carrying value of notes receivable for which fair value is determinable was $104 and $98, respectively.

ACCUMULATED OTHER COMPREHENSIVE

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	4 Months Ended
	May. 23, 2015
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	10. 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 2014 and 2015 : Cash Flow Hedging Activities(1) Available for sale Securities(1) Pension and Postretirement Defined Benefit Plans(1) Total(1) Balance at February 1, 2014 $ ) $ $ ) $ ) OCI before reclassifications(2) — ) — ) Amounts reclassified out of AOCI(3) — — Net current-period OCI — ) Balance at May 24, 2014 $ ) $ $ ) $ ) Balance at January 31, 2015 $ ) $ $ ) $ ) OCI before reclassifications(2) — Amounts reclassified out of AOCI(3) — — Net current-period OCI Balance at May 23, 2015 $ ) $ $ ) $ ) (1) All amounts are net of tax. (2) Net of tax of $(1) for available for sale securities for the first quarter of 2014 and $12 and $1 for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2015. (3) Net of tax of $4 for pension and postretirement defined benefit plans for the first quarter of 2014 and $9 for pension and postretirement defined benefit plans for the first quarter of 2015. The following table represents the items reclassified out of AOCI and the related tax effects for the first quarters of 2015 and 2014: First Quarter Ended May 23, 2015 First Quarter Ended May 24, 2014 Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(1) Tax expense ) ) Net of tax Total reclassifications, net of tax $ $ (1) 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 for additional details).

SUBSEQUENT EVENT

SUBSEQUENT EVENT	4 Months Ended
	May. 23, 2015
SUBSEQUENT EVENT
SUBSEQUENT EVENT	11. S UBSEQUENT E VENT On June 25, 2015, the Company’s Board of Directors approved a two-for-one stock split of The Kroger Co.’s common shares in the form of a 100% stock dividend. Shareholders of record at the close of business on July 6, 2015 will receive one additional common share, with a par value of $1 per share, for each common share owned on that date. The additional shares are expected to be distributed on or about July 13, 2015. All numbers of shares outstanding and per share amounts in the Consolidated Financial Statements and Notes to Unaudited Consolidated Financial Statements are presented on a pre-split basis. Subsequent to the distribution date, all historical numbers of shares outstanding and per share amounts presented in future financial statements will be retroactively adjusted. Pro-forma unaudited earnings per share are as follows, giving retroactive effect to the stock split: First Quarter Ended First Quarter Ended May 23, 2015 May 24, 2014 As reported: 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $ First Quarter Ended First Quarter Ended May 23, 2015 May 24, 2014 Pro-forma: 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $

ACCOUNTING POLICIES (Policies)

ACCOUNTING POLICIES (Policies)	4 Months Ended
	May. 23, 2015
ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation	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 (“VIEs”) in which the Company is the primary beneficiary. The January 31, 2015 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 31, 2015. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 23, 2015 and May 24, 2014, includes the results of operations of the Company for the 16-week periods then ended. The net increase (decrease) in book overdrafts previously reported in financing activities in the Consolidated Statements of Cash Flows is now reported within operating activities. Prior year amounts have been revised to the current year presentation. These revisions were not material to the prior years. Refer to Note 6 for an additional change to the Consolidated Balance Sheets for a recently adopted accounting standard regarding the presentation of debt issuance costs.

MERGER (Tables)

MERGER (Tables)	4 Months Ended
	May. 23, 2015
MERGER
Schedule of pro forma results of operations	First Quarter Ended May 24, 2014 Sales $ Net earnings including noncontrolling interests Net earnings attributable to noncontrolling interests Net earnings attributable to The Kroger Co. $

DEBT OBLIGATIONS (Tables)

DEBT OBLIGATIONS (Tables)	4 Months Ended
	May. 23, 2015
DEBT OBLIGATIONS
Schedule of long-term debt	May 23, January 31, 2015 2015 0.76% to 8.00% Senior notes due through 2043 $ $ 5.00% to 12.75% Mortgages due in varying amounts through 2027 0.37% to 0.46% Commercial paper due through June 2015 Other Total debt, excluding capital leases and financing obligations Less current portion ) ) Total long-term debt, excluding capital leases and financing obligations $ $

BENEFIT PLANS (Tables)

BENEFIT PLANS (Tables)	4 Months Ended
	May. 23, 2015
BENEFIT PLANS
Schedule of components of net periodic benefit costs	First Quarter Pension Benefits Other Benefits 2015 2014 2015 2014 Components of net periodic benefit cost: Service cost $ $ $ $ Interest cost Expected return on plan assets ) ) — — Amortization of: Prior service cost — — ) ) Actuarial loss ) ) Net periodic benefit expense $ $ $ $

EARNINGS PER COMMON SHARE (Tabl

EARNINGS PER COMMON SHARE (Tables)	4 Months Ended
	May. 23, 2015
EARNINGS PER COMMON SHARE
Schedule of earnings per common and diluted shares	First Quarter Ended First Quarter Ended May 23, 2015 May 24, 2014 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	4 Months Ended
	May. 23, 2015
FAIR VALUE MEASUREMENTS
Summary of fair value measurements	May 23, 2015 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Trading Securities $ $ — $ — $ Available-for-Sale Securities — — Warrants — — Long-Lived Assets — — Interest Rate Hedges — ) — ) Total $ $ $ $ January 31, 2015 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Trading Securities $ $ — $ — $ Available-for-Sale Securities — — Warrants — — Long-Lived Assets — — Interest Rate Hedges — ) — ) Total $ $ ) $ $

ACCUMULATED OTHER COMPREHENSI27

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)	4 Months Ended
	May. 23, 2015
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Schedule of changes in AOCI by component	Cash Flow Hedging Activities(1) Available for sale Securities(1) Pension and Postretirement Defined Benefit Plans(1) Total(1) Balance at February 1, 2014 $ ) $ $ ) $ ) OCI before reclassifications(2) — ) — ) Amounts reclassified out of AOCI(3) — — Net current-period OCI — ) Balance at May 24, 2014 $ ) $ $ ) $ ) Balance at January 31, 2015 $ ) $ $ ) $ ) OCI before reclassifications(2) — Amounts reclassified out of AOCI(3) — — Net current-period OCI Balance at May 23, 2015 $ ) $ $ ) $ ) (1) All amounts are net of tax. (2) Net of tax of $(1) for available for sale securities for the first quarter of 2014 and $12 and $1 for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2015. (3) Net of tax of $4 for pension and postretirement defined benefit plans for the first quarter of 2014 and $9 for pension and postretirement defined benefit plans for the first quarter of 2015.
Schedule of items reclassified out of AOCI and the related tax effects	First Quarter Ended May 23, 2015 First Quarter Ended May 24, 2014 Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(1) Tax expense ) ) Net of tax Total reclassifications, net of tax $ $ (1) 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 for additional details).

SUBSEQUENT EVENT (Tables)

SUBSEQUENT EVENT (Tables)	4 Months Ended
	May. 23, 2015
SUBSEQUENT EVENT
Schedule of pro-forma unaudited earnings per share, giving retroactive effect to the stock split	First Quarter Ended First Quarter Ended May 23, 2015 May 24, 2014 As reported: 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $ First Quarter Ended First Quarter Ended May 23, 2015 May 24, 2014 Pro-forma: 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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $

ACCOUNTING POLICIES (Details)

ACCOUNTING POLICIES (Details)	4 Months Ended
	May. 23, 2015	May. 24, 2014
Basis of Presentation and Principles of Consolidation
Length of first fiscal period	112 days	112 days

MERGER (Details)

MERGER (Details) $ in Millions	4 Months Ended
	May. 24, 2014USD ($)
Pro forma results of operations
Sales	$ 33,092
Net earnings including noncontrolling interests	502
Net earnings attributable to noncontrolling interests	8
Net earnings attributable to The Kroger Co.	$ 494

DEBT OBLIGATIONS (Details)

DEBT OBLIGATIONS (Details) - USD ($) $ in Millions	4 Months Ended	12 Months Ended
	May. 23, 2015	Jan. 31, 2015
Debt
Total debt, excluding capital leases and financing obligations	$ 10,746	$ 11,026
Less current portion	(1,549)	(1,844)
Total long-term debt, excluding capital leases and financing obligations	9,197	9,182
Senior notes due through 2043
Debt
Total debt, excluding capital leases and financing obligations	$ 9,229	$ 9,224
Interest rate, minimum range (as a percent)	0.76%	0.76%
Interest rate, maximum range (as a percent)	8.00%	8.00%
Mortgages due in varying amounts through 2027
Debt
Total debt, excluding capital leases and financing obligations	$ 71	$ 73
Interest rate, minimum range (as a percent)	5.00%	5.00%
Interest rate, maximum range (as a percent)	12.75%	12.75%
Other
Debt
Total debt, excluding capital leases and financing obligations	$ 456	$ 454
Commercial paper due through June 2015
Debt
Total debt, excluding capital leases and financing obligations	$ 990	$ 1,275
Interest rate, minimum range (as a percent)	0.37%	0.37%
Interest rate, maximum range (as a percent)	0.46%	0.46%

BENEFIT PLANS (Details)

BENEFIT PLANS (Details) - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
BENEFIT PLANS
Cost of other defined contribution plans	$ 62	$ 56
Multiemployer pension plan charge (after-tax)		56
Pension Benefits
Components of net periodic benefit cost:
Service cost	19	14
Interest cost	51	56
Expected return on plan assets	(71)	(74)
Amortization of:
Actuarial loss	31	16
Net periodic benefit expense	30	12
Contributions into Fund	5
Other Benefits
Components of net periodic benefit cost:
Service cost	4	4
Interest cost	3	4
Amortization of:
Prior service cost	(4)	(2)
Actuarial loss	(2)	(2)
Net periodic benefit expense	$ 1	$ 4

EARNINGS PER COMMON SHARE (Deta

EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
EARNINGS PER COMMON SHARE
Net earnings attributable to The Kroger Co. per basic common share	$ 613	$ 497
Average number of common shares used in basic calculation	484,000	501,000
Net earnings attributable to The Kroger Co. per basic common share	$ 1.27	$ 0.99
Dilutive effect of stock options (in shares)	8,000	6,000
Net earnings attributable to The Kroger Co. per diluted common share	$ 613	$ 497
Average number of common shares used in diluted calculation	492,000	507,000
Net earnings attributable to The Kroger Co. per diluted common share	$ 1.25	$ 0.98
Undistributed and distributed earnings to participating securities	$ 6	$ 4
Shares excluded from the earnings per share calculation due to anti-dilutive effect on earnings per share	65	2,000

FAIR VALUE MEASUREMENTS (Detail

FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Millions	4 Months Ended		12 Months Ended
	May. 23, 2015	May. 24, 2014	Jan. 31, 2015
Fair value of financial instruments carried at fair value
Asset impairment charge	$ 22	$ 8	$ 37
Carrying Value
Fair value of financial instruments carried at fair value
Total debt	10,746		11,026
Long-term investments	140		133
Notes receivable	104		98
Carrying Value | Before impairment
Fair value of financial instruments carried at fair value
Long-Lived Assets	25	14	59
Fair value
Fair value of financial instruments carried at fair value
Total	118		92
Total debt	11,643		12,319
Long-term investments	140		133
Notes receivable	104		98
Recurring | Fair value
Fair value of financial instruments carried at fair value
Trading Securities	47		47
Available-for-Sale Securities	40		36
Warrants	29		26
Recurring | Fair value | Interest Rate Hedges
Fair value of financial instruments carried at fair value
Interest Rate Hedges	(1)		(39)
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value of financial instruments carried at fair value
Trading Securities	47		47
Available-for-Sale Securities	40		36
Total	87		83
Unrealized gains on Available-for-Sale Securities	4
Recurring | Significant Other Observable Inputs (Level 2)
Fair value of financial instruments carried at fair value
Warrants	29		26
Total	28		(13)
Recurring | Significant Other Observable Inputs (Level 2) | Interest Rate Hedges
Fair value of financial instruments carried at fair value
Interest Rate Hedges	(1)		(39)
Nonrecurring | Fair value
Fair value of financial instruments carried at fair value
Long-Lived Assets	3	$ 6	22
Nonrecurring | Significant Unobservable Inputs (Level 3)
Fair value of financial instruments carried at fair value
Long-Lived Assets	3		22
Total	$ 3		$ 22

ACCUMULATED OTHER COMPREHENSI35

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	$ (812)	$ (464)
OCI before reclassifications	23	(1)
Amounts reclassified out of AOCI	16	8
Total other comprehensive income	39	7
Balance at the end of the period	(773)	(457)
OCI before reclassifications, tax	12
Cash Flow Hedging Activities
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	(49)	(25)
OCI before reclassifications	20
Total other comprehensive income	20
Balance at the end of the period	(29)	(25)
OCI before reclassifications, tax	12
Available for sale Securities
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	17	12
OCI before reclassifications	3	(1)
Total other comprehensive income	3	(1)
Balance at the end of the period	20	11
OCI before reclassifications, tax	1	(1)
Pension and Postretirement Defined Benefit Plans
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	(780)	(451)
Amounts reclassified out of AOCI	16	8
Total other comprehensive income	16	8
Balance at the end of the period	(764)	(443)
Amounts reclassified out of AOCI, tax	$ 9	$ 4

ACCUMULATED OTHER COMPREHENSI36

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details 2) - USD ($) $ in Millions	4 Months Ended
	May. 23, 2015	May. 24, 2014
Reclassification out of AOCI and the related tax effects
Tax expense	$ (330)	$ (274)
Net earnings attributable to The Kroger Co.	619	501
Reclassification out of AOCI
Reclassification out of AOCI and the related tax effects
Net earnings attributable to The Kroger Co.	16	8
Reclassification out of AOCI | Pension and Postretirement Defined Benefit Plans
Reclassification out of AOCI and the related tax effects
Amortization of amounts included in net periodic pension expense	25	12
Tax expense	(9)	(4)
Net earnings attributable to The Kroger Co.	$ 16	$ 8

SUBSEQUENT EVENT (Details)

SUBSEQUENT EVENT (Details) - USD ($) $ / shares in Units, $ in Millions	Jun. 25, 2015	May. 23, 2015	May. 24, 2014	Jan. 31, 2015
Subsequent Event
Common shares, par per share (in dollars per share)		$ 1		$ 1
Net earnings attributable to The Kroger Co. per basic common share		$ 613	$ 497
Average number of common shares used in basic calculation		484,000,000	501,000,000
Net earnings attributable to The Kroger Co. per basic common share		$ 1.27	$ 0.99
Dilutive effect of stock options (in shares)		8,000,000	6,000,000
Net earnings attributable to The Kroger Co. per diluted common share		$ 613	$ 497
Average number of common shares used in diluted calculation		492,000,000	507,000,000
Net earnings attributable to The Kroger Co. per diluted common share		$ 1.25	$ 0.98
Subsequent Event
Subsequent Event
Stock split conversion ratio	2
Common stock dividend rate percentage	100.00%
Number of additional common shares received as a result of the stock split	1
Common shares, par per share (in dollars per share)	$ 1
Subsequent Event | Pro-forma
Subsequent Event
Net earnings attributable to The Kroger Co. per basic common share		$ 613	$ 497
Average number of common shares used in basic calculation		969,000,000	1,002,000,000
Net earnings attributable to The Kroger Co. per basic common share		$ 0.63	$ 0.50
Dilutive effect of stock options (in shares)		14,000,000	12,000,000
Net earnings attributable to The Kroger Co. per diluted common share		$ 613	$ 497
Average number of common shares used in diluted calculation		983,000,000	1,014,000,000
Net earnings attributable to The Kroger Co. per diluted common share		$ 0.62	$ 0.49