The Kroger Co. (KR) 10-Q 28 Jun 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	4 Months Ended
	May 21, 2016	Jun. 22, 2016
Document and Entity Information Abstract
Entity Registrant Name	KROGER CO
Entity Central Index Key	56,873
Document Type	10-Q
Document Period End Date	May 21, 2016
Amendment Flag	false
Current Fiscal Year End Date	--01-28
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		948,992,301
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q1

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Millions, $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales	$ 34,604	$ 33,051
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	26,669	25,760
Operating, general and administrative	5,779	5,354
Rent	262	215
Depreciation and amortization	694	620
Operating profit	1,200	1,102
Interest expense	155	148
Earnings before income tax expense	1,045	954
Income tax expense	366	330
Net earnings including noncontrolling interests	679	624
Net earnings (loss) attributable to noncontrolling interests	(1)	5
Net earnings attributable to The Kroger Co.	$ 680	$ 619
Net earnings attributable to The Kroger Co. per basic common share	$ 0.71	$ 0.63
Average number of common shares used in basic calculation	954	969
Net earnings attributable to The Kroger Co. per diluted common share	$ 0.70	$ 0.62
Average number of common shares used in diluted calculation	966	983
Dividends declared per common share	$ 0.105	$ 0.093

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions		4 Months Ended
		May 21, 2016	May 23, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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
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
[1]	Amount is net of tax of $(3) for the first quarter of 2016 and $1 for the first quarter of 2015.
[2]	Amount is net of tax of $5 for the first quarter of 2016 and $9 for the first quarter of 2015.
[3]	Amount is net of tax of $(15) for the first quarter of 2016 and $12 for the first quarter of 2015.

CONSOLIDATED STATEMENTS OF COM4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unrealized gain (loss) on available for sale securities, income tax	$ (3)	$ 1
Amortization of amounts included in net periodic pension expense, income tax	5	9
Unrealized gain (loss) on cash flow hedging activities, income tax	$ (15)	$ 12

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	May 21, 2016	Jan. 30, 2016
Current assets
Cash and temporary cash investments	$ 391	$ 277
Store deposits in-transit	892	923
Receivables	1,314	1,734
FIFO inventory	7,354	7,440
LIFO reserve	(1,288)	(1,272)
Prepaid and other current assets	553	790
Total current assets	9,216	9,892
Property, plant and equipment, net	20,161	19,619
Intangibles, net	1,043	1,053
Goodwill	2,744	2,724
Other assets	637	609
Total Assets	33,801	33,897
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	2,676	2,370
Trade accounts payable	5,846	5,728
Accrued salaries and wages	1,202	1,426
Deferred income taxes	221	221
Other current liabilities	3,200	3,226
Total current liabilities	13,145	12,971
Long-term debt including obligations under capital leases and financing obligations	9,710	9,709
Deferred income taxes	1,739	1,752
Pension and postretirement benefit obligations	1,395	1,380
Other long-term liabilities	1,364	1,287
Total Liabilities	$ 27,353	$ 27,099
Commitments and contingencies (see Note 8)
SHAREOWNERS' EQUITY
Preferred shares, $100 per share, 5 shares authorized and unissued
Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2016 and 2015	$ 1,918	$ 1,918
Additional paid-in capital	3,024	2,980
Accumulated other comprehensive loss	(703)	(680)
Accumulated earnings	14,589	14,011
Common shares in treasury, at cost, 977 shares in 2016 and 951 shares in 2015	(12,422)	(11,409)
Total Shareholders' Equity - The Kroger Co.	6,406	6,820
Noncontrolling interests	42	(22)
Total Equity	6,448	6,798
Total Liabilities and Equity	$ 33,801	$ 33,897

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Millions	May 21, 2016	Jan. 30, 2016
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	2,000	2,000
Common shares, shares issued	1,918	1,918
Common shares in treasury, shares	977	951

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	4 Months 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		(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		(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 year	391	252
Reconciliation of capital investments:
Payments for property and equipment, including payments for lease buyouts	(1,090)	(879)
Payments for lease buyouts		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

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
Balances at Jan. 31, 2015	$ 1,918	$ 2,748	$ (10,809)	$ (812)	$ 12,367	$ 30	$ 5,442
Balances (in shares) at Jan. 31, 2015	1,918		944
Issuance of common stock:
Stock options exercised			$ 46				46
Stock options exercised (in shares)			(4)
Restricted stock issued		(11)	$ (1)				(12)
Treasury stock activity:
Treasury stock purchases, at cost			$ (498)				(498)
Treasury stock purchases, at cost (in shares)			14
Stock options exchanged			$ (87)				(87)
Stock options exchanged (in shares)			2
Share-based employee compensation		52					52
Other comprehensive gain (loss) net of income tax of $(13) and $22 for the first quarter of 2016 and 2015, respectively				39			39
Investment in the remaining equity of a non-controlling interest		40				(57)	(17)
Other		38	$ (1)			1	38
Cash dividends declared ($0.105 and $0.093 per common share for the first quarter of 2016 and 2015, respectively)					(91)		(91)
Net earnings including noncontrolling interests					619	5	624
Balances at May. 23, 2015	$ 1,918	2,867	$ (11,350)	(773)	12,895	(21)	5,536
Balances (in shares) at May. 23, 2015	1,918		956
Balances at Jan. 30, 2016	$ 1,918	2,980	$ (11,409)	(680)	14,011	(22)	6,798
Balances (in shares) at Jan. 30, 2016	1,918		951
Issuance of common stock:
Stock options exercised			$ 15				15
Stock options exercised (in shares)			(1)
Restricted stock issued		(20)	$ 6				(14)
Treasury stock activity:
Treasury stock purchases, at cost			$ (1,000)				(1,000)
Treasury stock purchases, at cost (in shares)			26
Stock options exchanged			$ (27)				(27)
Stock options exchanged (in shares)			1
Share-based employee compensation		43					43
Other comprehensive gain (loss) net of income tax of $(13) and $22 for the first quarter of 2016 and 2015, respectively				(23)			(23)
Other		21	$ (7)			65	79
Cash dividends declared ($0.105 and $0.093 per common share for the first quarter of 2016 and 2015, respectively)					(102)		(102)
Net earnings including noncontrolling interests					680	(1)	679
Balances at May. 21, 2016	$ 1,918	$ 3,024	$ (12,422)	$ (703)	$ 14,589	$ 42	$ 6,448
Balances (in shares) at May. 21, 2016	1,918		977

CONSOLIDATED STATEMENTS OF CHA9

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
Other comprehensive gain (loss), income tax	$ (13)	$ 22
Cash dividends declared per common share (in dollars per share)	$ 0.105	$ 0.093

ACCOUNTING POLICIES

ACCOUNTING POLICIES	4 Months Ended
	May 21, 2016
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 in which the Company is the primary beneficiary. The January 30, 2016 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. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 21, 2016 and May 23, 2015, 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 a nd 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 3 for the disclosure of debt instrument fair values. 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, 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.

MERGER

MERGER	4 Months Ended
	May 21, 2016
MERGER
MERGER	2. M ERGER On December 18, 2015, the Company closed its merger with Roundy’s, Inc. (“Roundy’s”) and there have not been any changes in the Company’s preliminary purchase price allocation in the first quarter of 2016. 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 1 st 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 $ 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 21, 2016
DEBT OBLIGATIONS
DEBT OBLIGATIONS	3. D EBT O BLIGATIONS Long-term debt consists of: May 21, January 30, 2016 2016 1.14% to 8.00% Senior notes due through 2043 $ $ 5.00% to 12.75% Mortgages due in varying amounts through 2027 0.64% to 0.66% Commercial paper due through May 2016 Other Total debt, excluding capital leases and financing obligations Less current portion ) ) Total long-term debt, excluding capital leases and financing obligations $ $ 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 and January 30, 2016. At May 21, 2016, the fair value of total debt was $12,530 compared to a carrying value of $11,634. At January 30, 2016, the fair value of total debt was $12,344 compared to a carrying value of $11,396. 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.

BENEFIT PLANS

BENEFIT PLANS	4 Months Ended
	May 21, 2016
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 2016 and 2015. First Quarter Pension Benefits Other Benefits 2016 2015 2016 2015 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 is not required and does not expect to make any contributions in 2016. The Company contributed $68 and $62 to employee 401(k) retirement savings accounts in the first quarters of 2016 and 2015, 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.

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE	4 Months Ended
	May 21, 2016
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 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 $ $ $ $ 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 in both the first quarters of 2016 and 2015. The Company had options outstanding for approximately 3 million and 65 thousand during the first quarters of 2016 and 2015, 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 21, 2016
RECENTLY ADOPTED ACCOUNTING STANDARDS
RECENTLY ADOPTED ACCOUNTING STANDARDS	6. R ECENTLY A DOPTED A CCOUNTING S TANDARDS In September 2015, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification 805, “Business Combinations.” The amendment eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. This amendment became effective for the Company beginning January 31, 2016, and was adopted prospectively in accordance with the standard. The adoption of this amendment did not have an effect on the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations.

RECENTLY ISSUED ACCOUNTING STAN

RECENTLY ISSUED ACCOUNTING STANDARDS	4 Months Ended
	May 21, 2016
RECENTLY ISSUED ACCOUNTING STANDARDS ABSTRACT
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. 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 adoption is permitted as of the first quarter of the Company’s fiscal year ending February 3, 2018. 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 in the first quarter of fiscal year ending February 1, 2020. Early adoption is permitted. The implementation of this amendment will result in a significant increase to 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. 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.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	4 Months Ended
	May 21, 2016
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.

ACCUMULATED OTHER COMPREHENSIVE

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	4 Months Ended
	May 21, 2016
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	9. 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 and 2016 : Cash Flow Hedging Activities(1) Available for sale Securities(1) Pension and Postretirement Defined Benefit Plans(1) Total(1) Balance at January 31, 2015 $ ) $ $ ) $ ) OCI before reclassifications(2) — Amounts reclassified out of AOCI(3) — — Net current-period OCI Balance at May 23, 2015 $ ) $ $ ) $ ) Balance at January 30, 2016 $ ) $ $ ) $ ) OCI before reclassifications(2) ) ) — ) Amounts reclassified out of AOCI(3) — Net current-period OCI ) ) ) Balance at May 21, 2016 $ ) $ $ ) $ ) (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. The following table represents the items reclassified out of AOCI and the related tax effects for the first quarters of 2016 and 2015: 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) $ $ — Tax expense — — Net of tax — Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(2) Tax expense ) ) Net of tax Total reclassifications, net of tax $ $ (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 for additional details).

ACCOUNTING POLICIES (Policies)

ACCOUNTING POLICIES (Policies)	4 Months Ended
	May 21, 2016
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 in which the Company is the primary beneficiary. The January 30, 2016 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. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 21, 2016 and May 23, 2015, includes the results of operations of the Company for the 16-week periods then ended.
Fair Value Measurements	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 a nd 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 3 for the disclosure of debt instrument fair values. 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, 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.

MERGER (Tables)

MERGER (Tables)	4 Months Ended
	May 21, 2016
MERGER
Schedule of pro forma results of operations	First Quarter Ended May 23, 2015 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 21, 2016
DEBT OBLIGATIONS
Schedule of long-term debt	May 21, January 30, 2016 2016 1.14% to 8.00% Senior notes due through 2043 $ $ 5.00% to 12.75% Mortgages due in varying amounts through 2027 0.64% to 0.66% Commercial paper due through May 2016 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 21, 2016
BENEFIT PLANS
Schedule of components of net periodic benefit costs	First Quarter Pension Benefits Other Benefits 2016 2015 2016 2015 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 21, 2016
EARNINGS PER COMMON SHARE
Schedule of earnings per common and diluted shares	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 $ $ $ $ Dilutive effect of stock options Net earnings attributable to The Kroger Co. per diluted common share $ $ $ $

ACCUMULATED OTHER COMPREHENSI24

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)	4 Months Ended
	May 21, 2016
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 January 31, 2015 $ ) $ $ ) $ ) OCI before reclassifications(2) — Amounts reclassified out of AOCI(3) — — Net current-period OCI Balance at May 23, 2015 $ ) $ $ ) $ ) Balance at January 30, 2016 $ ) $ $ ) $ ) OCI before reclassifications(2) ) ) — ) Amounts reclassified out of AOCI(3) — Net current-period OCI ) ) ) Balance at May 21, 2016 $ ) $ $ ) $ ) (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.
Schedule of items reclassified out of AOCI and the related tax effects	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) $ $ — Tax expense — — Net of tax — Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(2) Tax expense ) ) Net of tax Total reclassifications, net of tax $ $ (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 for additional details).

ACCOUNTING POLICIES (Details)

ACCOUNTING POLICIES (Details)	Jun. 25, 2015	May 21, 2016	May 23, 2015
Basis of Presentation and Principles of Consolidation
Length of fiscal period		112 days	112 days
Stock split conversion ratio	2
Common stock dividend rate percentage	100.00%

MERGER (Details)

MERGER (Details) $ in Millions	4 Months Ended
	May 23, 2015USD ($)
Pro forma results of operations
Sales	$ 34,336
Net earnings including noncontrolling interests	627
Net earnings attributable to noncontrolling interests	5
Net earnings attributable to The Kroger Co.	$ 622

DEBT OBLIGATIONS (Details)

DEBT OBLIGATIONS (Details) - USD ($) $ in Millions	4 Months Ended	12 Months Ended
	May 21, 2016	Jan. 30, 2016
Debt
Total debt, excluding capital leases and financing obligations	$ 11,634	$ 11,396
Less current portion	(2,626)	(2,318)
Total long-term debt, excluding capital leases and financing obligations	9,008	9,078
Forward-starting interest rate swaps | Designated | Cash flow hedges
Debt
Notional amount	1,700
Forward-starting interest rate swaps | Designated | Cash flow hedges | Derivative contracts entered into during first quarter of 2016
Debt
Notional amount	1,300
Fair value
Debt
Fair value of total debt	12,530	12,344
Carrying Value
Debt
Fair value of total debt	11,634	11,396
Senior notes due through 2043
Debt
Total debt, excluding capital leases and financing obligations	$ 9,830	$ 9,826
Interest rate, minimum range (as a percent)	1.14%	1.14%
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	$ 56	$ 58
Interest rate, minimum range (as a percent)	5.00%	5.00%
Interest rate, maximum range (as a percent)	12.75%	12.75%
Commercial paper due through May 2016
Debt
Total debt, excluding capital leases and financing obligations	$ 1,246	$ 990
Interest rate, minimum range (as a percent)	0.64%	0.64%
Interest rate, maximum range (as a percent)	0.66%	0.66%
Other
Debt
Total debt, excluding capital leases and financing obligations	$ 502	$ 522

BENEFIT PLANS - COMPONENTS OF N

BENEFIT PLANS - COMPONENTS OF NET PERIODIC BENEFIT COSTS (Details) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
Pension Benefits
Components of net periodic benefit cost:
Service cost	$ 21	$ 19
Interest cost	58	51
Expected return on plan assets	(73)	(71)
Amortization of:
Actuarial loss	19	31
Net periodic benefit expense	25	30
Other Benefits
Components of net periodic benefit cost:
Service cost	3	4
Interest cost	3	3
Amortization of:
Prior service cost	(2)	(4)
Actuarial loss	(3)	(2)
Net periodic benefit expense	$ 1	$ 1

BENEFIT PLANS - DEFINED CONTRIB

BENEFIT PLANS - DEFINED CONTRIBUTION PLAN INFORMATION (Details) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
BENEFIT PLANS
Contribution to 401(k) retirement savings accounts	$ 68	$ 62

EARNINGS PER COMMON SHARE (Deta

EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
EARNINGS PER COMMON SHARE
Net earnings attributable to The Kroger Co. per basic common share	$ 674	$ 613
Average number of common shares used in basic calculation	954,000	969,000
Net earnings attributable to The Kroger Co. per basic common share	$ 0.71	$ 0.63
Dilutive effect of stock options (in shares)	12,000	14,000
Net earnings attributable to The Kroger Co. per diluted common share	$ 674	$ 613
Average number of common shares used in diluted calculation	966,000	983,000
Net earnings attributable to The Kroger Co. per diluted common share	$ 0.70	$ 0.62
Undistributed and distributed earnings to participating securities	$ 6	$ 6
Shares excluded from the earnings per share calculation due to anti-dilutive effect on earnings per share	3,000	65

ACCUMULATED OTHER COMPREHENSI31

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - CHANGES IN AOCI BY COMPONENT (Details) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	$ (680)	$ (812)
OCI before reclassifications	(33)	23
Amounts reclassified out of AOCI	10	16
Total other comprehensive income (loss)	(23)	39
Balance at the end of the period	(703)	(773)
Unrealized gain (loss) on cash flow hedging activities, income tax	(15)	12
Unrealized gain (loss) on available for sale securities, income tax	(3)	1
Amortization of amounts included in net periodic pension expense, income tax	5	9
Cash Flow Hedging Activities
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	(51)	(49)
OCI before reclassifications	(27)	20
Amounts reclassified out of AOCI	1
Total other comprehensive income (loss)	(26)	20
Balance at the end of the period	(77)	(29)
Unrealized gain (loss) on cash flow hedging activities, income tax	(15)	12
Available for sale Securities
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	20	17
OCI before reclassifications	(6)	3
Total other comprehensive income (loss)	(6)	3
Balance at the end of the period	14	20
Unrealized gain (loss) on available for sale securities, income tax	(3)	1
Pension and Postretirement Defined Benefit Plans
Accumulated other comprehensive income (loss)
Balance at the beginning of the period	(649)	(780)
Amounts reclassified out of AOCI	9	16
Total other comprehensive income (loss)	9	16
Balance at the end of the period	(640)	(764)
Amortization of amounts included in net periodic pension expense, income tax	$ 5	$ 9

ACCUMULATED OTHER COMPREHENSI32

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - ITEMS RECLASSIFIED OUT OF AOCI (Details) - USD ($) $ in Millions	4 Months Ended
	May 21, 2016	May 23, 2015
Reclassification out of AOCI and the related tax effects
Tax expense	$ (366)	$ (330)
Net earnings attributable to The Kroger Co.	680	619
Reclassification out of AOCI
Reclassification out of AOCI and the related tax effects
Net earnings attributable to The Kroger Co.	10	16
Reclassification out of AOCI | Cash Flow Hedging Activities
Reclassification out of AOCI and the related tax effects
Amortization of gains and losses on cash flow hedging activities	1
Net earnings attributable to The Kroger Co.	1
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	14	25
Tax expense	(5)	(9)
Net earnings attributable to The Kroger Co.	$ 9	$ 16