The Kroger Co. (KR) 10-Q 27 Jun 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	4 Months Ended
	May 20, 2017	Jun. 21, 2017
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 20, 2017
Amendment Flag	false
Current Fiscal Year End Date	--02-03
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		897,346,365
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Millions, $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
CONSOLIDATED STATEMENTS OF OPERATIONS
Sales	$ 36,285	$ 34,604
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	28,281	26,669
Operating, general and administrative	6,376	5,779
Rent	270	262
Depreciation and amortization	736	694
Operating profit	622	1,200
Interest expense	177	155
Earnings before income tax expense	445	1,045
Income tax expense	148	350
Net earnings including noncontrolling interests	297	695
Net loss attributable to noncontrolling interests	(6)	(1)
Net earnings attributable to The Kroger Co.	$ 303	$ 696
Net earnings attributable to The Kroger Co. per basic common share	$ 0.33	$ 0.72
Average number of common shares used in basic calculation	914	954
Net earnings attributable to The Kroger Co. per diluted common share	$ 0.32	$ 0.71
Average number of common shares used in diluted calculation	925	966
Dividends declared per common share	$ 0.120	$ 0.105

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions		4 Months Ended
		May 20, 2017	May 21, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings including noncontrolling interests		$ 297	$ 695
Other comprehensive income (loss)
Unrealized gains and losses on available for sale securities, net of income tax	[1]		(6)
Change in pension and other postretirement defined benefit plans, net of income tax	[2]	13	9
Unrealized gains and losses on cash flow hedging activities, net of income tax	[3]	(36)	(27)
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax			1
Total other comprehensive income (loss)		(23)	(23)
Comprehensive income		274	672
Comprehensive loss attributable to noncontrolling interests		(6)	(1)
Comprehensive income attributable to The Kroger Co.		$ 280	$ 673
[1]	Amount is net of tax of $(3) for the first quarter of 2016.
[2]	Amount is net of tax of $8 for the first quarter of 2017 and $5 for the first quarter of 2016.
[3]	Amount is net of tax of $(21) for the first quarter of 2017 and $(15) for the first quarter of 2016.

CONSOLIDATED STATEMENTS OF COM4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unrealized gain (loss) on available for sale securities, income tax		$ (3)
Change in pension and other postretirement defined benefit plans, income tax	$ 8	5
Unrealized gains and losses on cash flow hedging activities, income tax	$ (21)	$ (15)

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	May 20, 2017	Jan. 28, 2017
Current assets
Cash and temporary cash investments	$ 356	$ 322
Store deposits in-transit	952	910
Receivables	1,394	1,649
FIFO inventory	7,676	7,852
LIFO reserve	(1,317)	(1,291)
Prepaid and other current assets	477	898
Total current assets	9,538	10,340
Property, plant and equipment, net	21,133	21,016
Intangibles, net	1,141	1,153
Goodwill	3,031	3,031
Other assets	956	965
Total Assets	35,799	36,505
Current liabilities
Current portion of long-term debt including obligations under capital leases and financing obligations	1,854	2,252
Trade accounts payable	6,078	5,818
Accrued salaries and wages	1,135	1,234
Deferred income taxes		251
Other current liabilities	3,448	3,305
Total current liabilities	12,515	12,860
Long-term debt including obligations under capital leases and financing obligations	11,590	11,825
Deferred income taxes	2,181	1,927
Pension and postretirement benefit obligations	1,552	1,524
Other long-term liabilities	1,826	1,659
Total Liabilities	29,664	29,795
Commitments and contingencies (see Note 7)
SHAREHOLDERS’ 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 2017 and 2016	1,918	1,918
Additional paid-in capital	3,104	3,070
Accumulated other comprehensive loss	(738)	(715)
Accumulated earnings	15,735	15,543
Common shares in treasury, at cost, 1,017 shares in 2017 and 994 shares in 2016	(13,874)	(13,118)
Total Shareholders’ Equity - The Kroger Co.	6,145	6,698
Noncontrolling interests	(10)	12
Total Equity	6,135	6,710
Total Liabilities and Equity	$ 35,799	$ 36,505

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Millions	May 20, 2017	Jan. 28, 2017
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	1,017	994

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
Cash Flows from Operating Activities:
Net earnings including noncontrolling interests	$ 297	$ 695
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	736	694
LIFO charge	25	15
Stock-based employee compensation	53	43
Expense for Company-sponsored pension plans	35	25
Deferred income taxes	6
Other	(50)	(1)
Changes in operating assets and liabilities net of effects from mergers of businesses:
Store deposits in-transit	(42)	31
Receivables	149	85
Inventories	177	101
Prepaid and other current assets	409	232
Trade accounts payable	260	104
Accrued expenses	(86)	(320)
Income taxes receivable and payable	153	350
Other	187	25
Net cash provided by operating activities	2,309	2,079
Cash Flows from Investing Activities:
Payments for property and equipment	(817)	(1,090)
Proceeds from sale of assets	83	71
Other	(10)	(32)
Net cash used by investing activities	(744)	(1,051)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt	1	11
Payments on long-term debt	(84)	(54)
Net borrowings (payments) on commercial paper	(545)	256
Dividends paid	(111)	(102)
Proceeds from issuance of capital stock	17	15
Treasury stock purchases	(772)	(1,027)
Other	(37)	(13)
Net cash used by financing activities	(1,531)	(914)
Net increase in cash and temporary cash investments	34	114
Cash and temporary cash investments:
Beginning of year	322	277
End of year	356	391
Reconciliation of capital investments:
Payments for property and equipment	(817)	(1,090)
Changes in construction-in-progress payables	(104)	(55)
Total capital investments	(921)	(1,145)
Disclosure of cash flow information:
Cash paid during the year for interest	188	167
Cash paid during the year for income taxes	$ 11	$ 7

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 Loss	Accumulated Earnings	Noncontrolling Interest	Total
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 loss net of income tax				(23)			(23)
Other		5	$ (7)			65	63
Cash dividends declared (per common share)					(102)		(102)
Net earnings including noncontrolling interests					696	(1)	695
Balances at May. 21, 2016	$ 1,918	3,008	$ (12,422)	(703)	14,605	42	6,448
Balances (in shares) at May. 21, 2016	1,918		977
Balances at Jan. 28, 2017	$ 1,918	3,070	$ (13,118)	(715)	15,543	12	6,710
Balances (in shares) at Jan. 28, 2017	1,918		994
Issuance of common stock:
Stock options exercised			$ 17				17
Stock options exercised (in shares)			(1)
Restricted stock issued		(11)	$ 5				(6)
Treasury stock activity:
Treasury stock purchases, at cost			$ (747)				(747)
Treasury stock purchases, at cost (in shares)			24
Stock options exchanged			$ (25)				(25)
Share-based employee compensation		53					53
Other comprehensive loss net of income tax				(23)			(23)
Other		(8)	(6)			(16)	(30)
Cash dividends declared (per common share)					(111)		(111)
Net earnings including noncontrolling interests					303	(6)	297
Balances at May. 20, 2017	$ 1,918	$ 3,104	$ (13,874)	$ (738)	$ 15,735	$ (10)	$ 6,135
Balances (in shares) at May. 20, 2017	1,918		1,017

CONSOLIDATED STATEMENTS OF CHA9

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (Parenthetical) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
Other comprehensive gain (loss), income tax	$ (13)	$ (13)
Cash dividends declared per common share (in dollars per share)	$ 0.120	$ 0.105

ACCOUNTING POLICIES

ACCOUNTING POLICIES	4 Months Ended
	May 20, 2017
ACCOUNTING POLICIES
ACCOUNTING POLICIES	1. 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 28, 2017 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 20, 2017 and May 21, 2016, includes the results of operations of the Company for the 16-week periods then ended. Fair Value Measurements Fair value measurements are classified and disclosed in one of the following three categories: Level 1 – Quoted prices are available in active markets for identical assets or liabilities; Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable; Level 3 – Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company records cash 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 at approximated fair value. Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments. Refer to Note 2 for the disclosure of debt instrument fair values. During the second quarter of 2016, the Company adopted Accounting Standards Update (“ASU”) 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This amendment addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. As a result of the adoption, the Company recognized $16 of excess tax benefits related to share-based payments in its provision for income taxes for the first quarter of 2016. This item was historically recorded in additional paid-in capital. In addition, for the first quarter of 2016, cash flows related to excess tax benefits are classified as an operating activity. Cash paid on employees’ behalf related to shares withheld for tax purposes is classified as a financing activity. The Consolidated Statements of Operations and Consolidated Statements of Cash Flows have been revised to reflect the effects of the ASU adoption on the first quarter of 2016 Consolidated Financial Statements.

DEBT OBLIGATIONS

DEBT OBLIGATIONS	4 Months Ended
	May 20, 2017
DEBT OBLIGATIONS
DEBT OBLIGATIONS	2. Long-term debt consists of: May 20, January 28, 2017 2017 1.50% to 8.00% Senior Notes due through 2047 $ 11,313 $ 11,311 5.63% to 12.75% Mortgages due in varying amounts through 2027 36 38 0.91% to 1.15% Commercial paper borrowings due through May 2017 880 1,425 Other 473 541 Total debt, excluding capital leases and financing obligations 12,702 13,315 Less current portion (1,800) (2,197) Total long-term debt, excluding capital leases and financing obligations $ 10,902 $ 11,118 The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence. If quoted market prices were not available, the fair value was based upon the net present value of the future cash flow using the forward interest rate yield curve in effect at May 20, 2017 and January 28, 2017. At May 20, 2017, the fair value of total debt was $13,369 compared to a carrying value of $12,702. At January 28, 2017, the fair value of total debt was $13,905 compared to a carrying value of $13,315.

BENEFIT PLANS

BENEFIT PLANS	4 Months Ended
	May 20, 2017
BENEFIT PLANS
BENEFIT PLANS	3. The following table provides the components of net periodic benefit cost for the Company-sponsored defined benefit pension plans and other post-retirement benefit plans for the first quarters of 2017 and 2016. First Quarter Ended Pension Benefits Other Benefits May 20, May 21, May 20, May 21, 2017 2016 2017 2016 Components of net periodic benefit cost: Service cost $ 24 $ 21 $ 3 $ 3 Interest cost 56 58 3 3 Expected return on plan assets (73) (73) — — Amortization of: Prior service cost — — (2) (2) Actuarial loss (gain) 26 19 (3) (3) Curtailment 2 — — — Net periodic benefit cost $ 35 $ 25 $ 1 $ 1 The Company is not required to make any contributions to its Company-sponsored pension plans in 2017, but may make contributions to the extent such contributions are beneficial to the Company. The Company did not make any contributions to its Company-sponsored pension plans in the first quarter of 2017 or 2016. The Company contributed $73 and $68 to employee 401(k) retirement savings accounts in the first quarters of 2017 and 2016, respectively. The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded. During the first quarter of 2017, the Company incurred a charge of $199, $126 net of tax, due to withdrawing from two multi-employer pension plans, which represents the Company’s best estimate, absent demand letters from the multi-employer pension plans. Demand letters from the impacted multi-employer pension plans may be received in 2017, or later, and the ultimate withdrawal liability may change from the currently estimated amount. Any future charge will be recorded in the period in which the change is identified. Based on ERISA regulations, the liability will be paid out in installments, which vary by plan, over a period of up to 20 years. The net present value of the liability was determined using a risk free interest rate. The charge was recorded in the ‘Operating, general and administrative’ caption in the Consolidated Statements of Operations and the liability was recorded in the ‘Other long-term liabilities’ caption in the Consolidated Balance Sheets.

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE	4 Months Ended
	May 20, 2017
EARNINGS PER COMMON SHARE
EARNINGS PER COMMON SHARE	4. 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 equal 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 20, 2017 May 21, 2016 Per Per Earnings Shares Share Earnings Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net earnings attributable to The Kroger Co. per basic common share $ 301 914 $ 0.33 $ 690 954 $ 0.72 Dilutive effect of stock options 11 12 Net earnings attributable to The Kroger Co. per diluted common share $ 301 925 $ 0.32 $ 690 966 $ 0.71 The Company had combined undistributed and distributed earnings to participating securities totaling $2 in the first quarter of 2017 and $6 in the first quarter of 2016. The Company had options outstanding for approximately 9 million and 3 million shares during the first quarters of 2017 and 2016, respectively, that were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share.

RECENTLY ADOPTED ACCOUNTING STA

RECENTLY ADOPTED ACCOUNTING STANDARDS	4 Months Ended
	May 20, 2017
RECENTLY ADOPTED ACCOUNTING STANDARDS
RECENTLY ADOPTED ACCOUNTING STANDARDS	5. In November 2015, the Financial Accounting Standards Board (“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 amendment became effective for the Company beginning January 29, 2017, and was adopted prospectively in accordance with the standard. The implementation of this amendment resulted in the reclassification of current deferred tax liabilities as non-current and had no effect on the Company’s Consolidated Statements of Operations.

RECENTLY ISSUED ACCOUNTING STAN

RECENTLY ISSUED ACCOUNTING STANDARDS	4 Months Ended
	May 20, 2017
RECENTLY ISSUED ACCOUNTING STANDARDS
RECENTLY ISSUED ACCOUNTING STANDARDS	6. In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715)”, which requires that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The ASU also requires that only the service cost component of pension and postretirement benefit costs is eligible for capitalization. The update is effective for annual periods beginning after December 15, 2017 and interim periods within that annual period. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. The Company does not expect application of this ASU to have a material impact on its Consolidated Financial Statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” as amended by several subsequent ASUs, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Per ASU 2015-14, “Deferral of Effective Date,” this guidance will be effective for the Company in the first quarter of its fiscal year ending February 2, 2019. The Company is currently in the process of evaluating the effect of adoption of this ASU on its Consolidated Financial Statements. The Company’s initial assessment of the new guidance has identified customer loyalty programs and gross versus net reporting relative to arrangements with certain third parties as transactions potentially affected by the new guidance. Additionally, the Company continues to evaluate the adoption method that will be used to implement the new guidance. In February 2016, the FASB issued ASU 2016-02, “Leases”, which provides guidance for the recognition of lease agreements. The standard’s core principle is that a company will now recognize most leases on its balance sheet as lease liabilities with corresponding right-of-use assets. This guidance will be effective for the Company in the first quarter of fiscal year ending February 1, 2020. Early adoption is permitted. The adoption of this ASU will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the other effects of adoption of this ASU on its Consolidated Financial Statements. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to the Company’s lease accounting information technology system in order to determine the best implementation strategy.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	4 Months Ended
	May 20, 2017
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES	7. 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 20, 2017
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	8. The following table represents the changes in AOCI by component for the first quarters of 2016 and 2017: Pension and Cash Flow Postretirement Hedging Available for sale Defined Benefit Activities(1) Securities(1) Plans(1) Total(1) Balance at January 30, 2016 $ (51) $ 20 $ (649) $ (680) OCI before reclassifications(2) (27) (6) — (33) Amounts reclassified out of AOCI(3) 1 — 9 10 Net current-period OCI (26) (6) 9 (23) Balance at May 21, 2016 $ (77) $ 14 $ (640) $ (703) Balance at January 28, 2017 $ (2) $ — $ (713) $ (715) OCI before reclassifications(2) (36) — — (36) Amounts reclassified out of AOCI(3) — — 13 13 Net current-period OCI (36) — 13 (23) Balance at May 20, 2017 $ (38) $ — $ (700) $ (738) (1) All amounts are net of tax. (2) Net of tax of $(15) and $(3) for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2016. Net of tax of $(21) for cash flow hedging activities for the first quarter of 2017. (3) Net of tax of $5 for pension and postretirement defined benefit plans for the first quarter of 2016. Net of tax of $8 for pension and postretirement defined benefit plans for the first quarter of 2017. The following table represents the items reclassified out of AOCI and the related tax effects for the first quarters of 2017 and 2016: First Quarter Ended May 20, May 21, 2017 2016 Cash flow hedging activity items Amortization of gains and losses on cash flow hedging activities(1) $ — $ 1 Tax expense — — Net of tax — 1 Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(2) 21 14 Tax expense (8) (5) Net of tax 13 9 Total reclassifications, net of tax $ 13 $ 10 (1) Reclassified from AOCI into interest expense. (2) Reclassified from AOCI into merchandise costs and operating, general and administrative expense. These components are included in the computation of net periodic pension expense (see Note 3 for additional details).

INCOME TAXES

INCOME TAXES	4 Months Ended
	May 20, 2017
INCOME TAXES
INCOME TAXES	9. The effective income tax rate was 33.3% and 33.5% for the first quarters of 2017 and 2016, respectively. The effective income tax rate for the first quarter of 2017 differed from the federal statutory rate due to the utilization of tax credits and deductions partially offset by the effect of state income taxes. The effective income tax rate for the first quarter of 2016 differed from the federal statutory rate due to the adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718)”.

VOLUNTARY RETIREMENT OFFERING

VOLUNTARY RETIREMENT OFFERING	4 Months Ended
	May 20, 2017
VOLUNTARY RETIREMENT OFFERING
VOLUNTARY RETIREMENT OFFERING	10. In 2016, the Company announced a Voluntary Retirement Offering (“VRO”) for certain non-store associates. Approximately 1,300 associates irrevocably accepted the VRO in the first quarter of 2017. Due to the employee acceptances, the Company recognized a VRO charge of $184, $117 net of tax, in the first quarter of 2017, which was comprised of $165 for severance and other benefits, as well as $19 of other non-cash charges. This charge was recorded in the ‘Operating, general and administrative’ caption within the Consolidated Statements of Operations. The Company paid $149 of the severance and other benefits in the first quarter of 2017, and will fulfill all payment obligations by the end of the fourth quarter of 2017.

ACCOUNTING POLICIES (Policies)

ACCOUNTING POLICIES (Policies)	4 Months Ended
	May 20, 2017
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 28, 2017 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all normal, recurring adjustments that are necessary for a fair presentation of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017. The unaudited information in the Consolidated Financial Statements for the first quarters ended May 20, 2017 and May 21, 2016, 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 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 at approximated fair value. Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments. Refer to Note 2 for the disclosure of debt instrument fair values.

DEBT OBLIGATIONS (Tables)

DEBT OBLIGATIONS (Tables)	4 Months Ended
	May 20, 2017
DEBT OBLIGATIONS
Schedule of long-term debt	May 20, January 28, 2017 2017 1.50% to 8.00% Senior Notes due through 2047 $ 11,313 $ 11,311 5.63% to 12.75% Mortgages due in varying amounts through 2027 36 38 0.91% to 1.15% Commercial paper borrowings due through May 2017 880 1,425 Other 473 541 Total debt, excluding capital leases and financing obligations 12,702 13,315 Less current portion (1,800) (2,197) Total long-term debt, excluding capital leases and financing obligations $ 10,902 $ 11,118

BENEFIT PLANS (Tables)

BENEFIT PLANS (Tables)	4 Months Ended
	May 20, 2017
BENEFIT PLANS
Schedule of components of net periodic benefit cost	First Quarter Ended Pension Benefits Other Benefits May 20, May 21, May 20, May 21, 2017 2016 2017 2016 Components of net periodic benefit cost: Service cost $ 24 $ 21 $ 3 $ 3 Interest cost 56 58 3 3 Expected return on plan assets (73) (73) — — Amortization of: Prior service cost — — (2) (2) Actuarial loss (gain) 26 19 (3) (3) Curtailment 2 — — — Net periodic benefit cost $ 35 $ 25 $ 1 $ 1

EARNINGS PER COMMON SHARE (Tabl

EARNINGS PER COMMON SHARE (Tables)	4 Months Ended
	May 20, 2017
EARNINGS PER COMMON SHARE
Schedule of earnings per common and diluted shares	First Quarter Ended First Quarter Ended May 20, 2017 May 21, 2016 Per Per Earnings Shares Share Earnings Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net earnings attributable to The Kroger Co. per basic common share $ 301 914 $ 0.33 $ 690 954 $ 0.72 Dilutive effect of stock options 11 12 Net earnings attributable to The Kroger Co. per diluted common share $ 301 925 $ 0.32 $ 690 966 $ 0.71

ACCUMULATED OTHER COMPREHENSI24

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)	4 Months Ended
	May 20, 2017
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Schedule of changes in AOCI by component	Pension and Cash Flow Postretirement Hedging Available for sale Defined Benefit Activities(1) Securities(1) Plans(1) Total(1) Balance at January 30, 2016 $ (51) $ 20 $ (649) $ (680) OCI before reclassifications(2) (27) (6) — (33) Amounts reclassified out of AOCI(3) 1 — 9 10 Net current-period OCI (26) (6) 9 (23) Balance at May 21, 2016 $ (77) $ 14 $ (640) $ (703) Balance at January 28, 2017 $ (2) $ — $ (713) $ (715) OCI before reclassifications(2) (36) — — (36) Amounts reclassified out of AOCI(3) — — 13 13 Net current-period OCI (36) — 13 (23) Balance at May 20, 2017 $ (38) $ — $ (700) $ (738) (1) All amounts are net of tax. (2) Net of tax of $(15) and $(3) for cash flow hedging activities and available for sale securities, respectively, for the first quarter of 2016. Net of tax of $(21) for cash flow hedging activities for the first quarter of 2017. (3) Net of tax of $5 for pension and postretirement defined benefit plans for the first quarter of 2016. Net of tax of $8 for pension and postretirement defined benefit plans for the first quarter of 2017.
Schedule of items reclassified out of AOCI and the related tax effects	First Quarter Ended May 20, May 21, 2017 2016 Cash flow hedging activity items Amortization of gains and losses on cash flow hedging activities(1) $ — $ 1 Tax expense — — Net of tax — 1 Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension expense(2) 21 14 Tax expense (8) (5) Net of tax 13 9 Total reclassifications, net of tax $ 13 $ 10 (1) Reclassified from AOCI into interest expense. (2) Reclassified from AOCI into merchandise costs and operating, general and administrative expense. These components are included in the computation of net periodic pension expense (see Note 3 for additional details).

ACCOUNTING POLICIES - POLICIES

ACCOUNTING POLICIES - POLICIES (Details)	4 Months Ended
	May 20, 2017	May 21, 2016
Fiscal Year
Length of fiscal period	112 days	112 days

ACCOUNTING POLICIES - ADOPTED A

ACCOUNTING POLICIES - ADOPTED ASU (Details) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
Recently adopted accounting standards
Tax benefits	$ (148)	$ (350)
Accounting Standards Update 2016-09 | Adjustment
Recently adopted accounting standards
Tax benefits		$ 16

DEBT OBLIGATIONS (Details)

DEBT OBLIGATIONS (Details) - USD ($) $ in Millions	May 20, 2017	Jan. 28, 2017
Debt
Total debt, excluding capital leases and financing obligations	$ 12,702	$ 13,315
Less current portion	(1,800)	(2,197)
Total long-term debt, excluding capital leases and financing obligations	10,902	11,118
Fair value of total debt	13,369	13,905
Senior Notes due through 2047
Debt
Total debt, excluding capital leases and financing obligations	$ 11,313	$ 11,311
Senior Notes due through 2047 | Minimum
Debt
Interest rate (as a percent)	1.50%	1.50%
Senior Notes due through 2047 | Maximum
Debt
Interest rate (as a percent)	8.00%	8.00%
Mortgages due in varying amounts through 2027
Debt
Total debt, excluding capital leases and financing obligations	$ 36	$ 38
Mortgages due in varying amounts through 2027 | Minimum
Debt
Interest rate (as a percent)	5.63%	5.63%
Mortgages due in varying amounts through 2027 | Maximum
Debt
Interest rate (as a percent)	12.75%	12.75%
Commercial paper borrowings due through May 2017
Debt
Total debt, excluding capital leases and financing obligations	$ 880	$ 1,425
Commercial paper borrowings due through May 2017 | Minimum
Debt
Interest rate (as a percent)	0.91%	0.91%
Commercial paper borrowings due through May 2017 | Maximum
Debt
Interest rate (as a percent)	1.15%	1.15%
Other
Debt
Total debt, excluding capital leases and financing obligations	$ 473	$ 541

BENEFIT PLANS - COMPONENTS OF N

BENEFIT PLANS - COMPONENTS OF NET PERIODIC BENEFIT COSTS (Details) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
Pension Benefits
Components of net periodic benefit cost:
Service cost	$ 24	$ 21
Interest cost	56	58
Expected return on plan assets	(73)	(73)
Amortization of:
Actuarial (gain) loss	26	19
Curtailment	2
Net periodic benefit cost	35	25
Other Benefits
Components of net periodic benefit cost:
Service cost	3	3
Interest cost	3	3
Amortization of:
Prior service cost	(2)	(2)
Actuarial (gain) loss	(3)	(3)
Net periodic benefit cost	$ 1	$ 1

BENEFIT PLANS - DEFINED CONTRIB

BENEFIT PLANS - DEFINED CONTRIBUTION PLAN INFORMATION (Details) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
BENEFIT PLANS
Contribution to 401(k) retirement savings accounts	$ 73	$ 68

BENEFIT PLANS - MULTI EMPLOYER

BENEFIT PLANS - MULTI EMPLOYER PENSION PLAN OBLIGATIONS (Details) - Multi-employer Pension Plan $ in Millions	4 Months Ended
	May 20, 2017USD ($)item
Multiemployer Plans
Charge (before-tax) related to pension plan agreements	$ 199
Charge (after-tax) related to pension plan agreements	$ 126
Number of multi-employer pension plans withdrawn | item	2
Multi-employer pension plan liability payout period	20 years

EARNINGS PER COMMON SHARE (Deta

EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
EARNINGS PER COMMON SHARE
Net earnings attributable to The Kroger Co. per basic common share	$ 301	$ 690
Average number of common shares used in basic calculation	914	954
Net earnings attributable to The Kroger Co. per basic common share	$ 0.33	$ 0.72
Dilutive effect of stock options (in shares)	11	12
Net earnings attributable to The Kroger Co. per diluted common share	$ 301	$ 690
Average number of common shares used in diluted calculation	925	966
Net earnings attributable to The Kroger Co. per diluted common share	$ 0.32	$ 0.71
Undistributed and distributed earnings to participating securities	$ 2	$ 6
Shares excluded from the earnings per share calculation due to anti-dilutive effect on earnings per share	9	3

ACCUMULATED OTHER COMPREHENSI32

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - CHANGES IN AOCI BY COMPONENT (Details) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at the beginning of the period	$ 6,698
Amounts reclassified out of AOCI	13	$ 10
Total other comprehensive income (loss)	(23)	(23)
Balance at the end of the period	6,145
Accumulated Other Comprehensive Loss
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at the beginning of the period	(715)	(680)
OCI before reclassifications	(36)	(33)
Amounts reclassified out of AOCI	13	10
Total other comprehensive income (loss)	(23)	(23)
Balance at the end of the period	(738)	(703)
Cash Flow Hedging Activities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at the beginning of the period	(2)	(51)
OCI before reclassifications	(36)	(27)
Amounts reclassified out of AOCI		1
Total other comprehensive income (loss)	(36)	(26)
Balance at the end of the period	(38)	(77)
OCI before reclassifications, tax	(21)	(15)
Available for sale Securities
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at the beginning of the period		20
OCI before reclassifications		(6)
Total other comprehensive income (loss)		(6)
Balance at the end of the period		14
OCI before reclassifications, tax		(3)
Pension and Postretirement Defined Benefit Plans
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance at the beginning of the period	(713)	(649)
Amounts reclassified out of AOCI	13	9
Total other comprehensive income (loss)	13	9
Balance at the end of the period	(700)	(640)
Amounts reclassified out of AOCI, tax	$ 8	$ 5

ACCUMULATED OTHER COMPREHENSI33

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) - ITEMS RECLASSIFIED OUT OF AOCI (Details) - USD ($) $ in Millions	4 Months Ended
	May 20, 2017	May 21, 2016
Reclassification out of AOCI and the related tax effects
Amortization of gains and losses on cash flow hedging activities	$ 177	$ 155
Tax expense	148	350
Net of tax	(303)	(696)
Total reclassifications, net of tax	13	10
Cash Flow Hedging Activities
Reclassification out of AOCI and the related tax effects
Total reclassifications, net of tax		1
Pension and Postretirement Defined Benefit Plans
Reclassification out of AOCI and the related tax effects
Amortization of amounts included in net periodic pension expense	21	14
Tax expense	(8)	(5)
Total reclassifications, net of tax	$ 13	9
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 of tax		$ 1

INCOME TAXES - EFFECTIVE INCOME

INCOME TAXES - EFFECTIVE INCOME TAX RATE (Details)	4 Months Ended
	May 20, 2017	May 21, 2016
INCOME TAXES
Effective income tax rate (as a percent)	33.30%	33.50%

VOLUNTARY RETIREMENT OFFERING (

VOLUNTARY RETIREMENT OFFERING (Details) $ in Millions	4 Months Ended
	May 20, 2017USD ($)employee
VOLUNTARY RETIREMENT OFFERING
Number of approximate associates that accepted Voluntary Retirement Offer | employee	1,300
VRO charge, before-tax	$ 184
VRO charge, net of tax	117
VRO severance costs and other benefits	165
VRO other non-cash expense	19
VRO lump sum cash payments	$ 149