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 |