Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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Consolidated Financial Statements of The Kroger Co.

For the Fiscal Year Ended February 3, 2024

Table of Contents

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​	Page
Report of Independent Registered Public Accounting Firm	52
Consolidated Balance Sheets	55
Consolidated Statements of Operations	56
Consolidated Statements of Comprehensive Income	57
Consolidated Statements of Cash Flows	58
Consolidated Statements of Changes in Shareholders’ Equity	59
Notes to Consolidated Financial Statements	60

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Report of Independent Registered Public Accounting Firm

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To the Board of Directors and Shareholders of The Kroger Co.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Kroger Co. and its subsidiaries (the “Company”) as of February 3, 2024 and January 28, 2023, and the related consolidated statements of operations, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended February 3, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment – Kroger Specialty Pharmacy (“KSP”) Reporting Unit

As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated goodwill balance was $2.9 billion as of February 3, 2024 and the goodwill associated with the KSP reporting unit was $243 million. Management reviews goodwill annually for impairment in the fourth quarter of each year, and also upon the occurrence of triggering events. The fair value of a reporting unit is compared to its carrying value for purposes of identifying potential impairment. Goodwill impairment is recognized for any excess of the reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The fair value of the Company's KSP reporting unit was estimated using multiple valuation techniques, a discounted cash flow model (income approach), a market multiple model and comparable mergers and acquisition model (market approaches), with each method weighted in the calculation. The income approach relies on management’s estimates of revenue growth rates, margin assumptions, and discount rate to estimate future cash flows. The market approaches require the determination of an appropriate peer group, which is utilized to derive estimated fair values based on selected market multiples.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the KSP reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s cash flow projections and significant assumptions related to revenue growth rates, margin assumptions, discount rate, peer group determination, and market multiple selection; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s KSP reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate, evaluating the appropriateness of the income and market approach models, testing the completeness, accuracy, and relevance of the underlying data used in the models and evaluating the significant assumptions used by management related to the revenue growth rates, margin assumptions, discount rate, peer group determination, and market multiple selection. Evaluating management’s assumptions relating to revenue growth rates and margin assumptions involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Evaluating the Company’s peer group determinations included evaluating the appropriateness of the identified peer companies. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow and market models, and certain significant assumptions related to the discount rate, peer group determination, and market multiples.

/s/ PricewaterhouseCoopers LLP

Cincinnati, Ohio

April 2, 2024

We have served as the Company’s auditor since 1929.

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THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

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​	​	​	​	​	​	​	​
​		February 3,			January 28,
(In millions, except par amounts)	​	2024		​	2023
ASSETS	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​
Cash and temporary cash investments	​	$	1,883	​	$	1,015	​
Store deposits in-transit	​		1,215	​		1,127	​
Receivables	​		2,136	​		2,234	​
FIFO inventory	​		9,414	​		9,756	​
LIFO reserve	​		(2,309)	​		(2,196)	​
Prepaid and other current assets	​	​	609	​	​	734	​
Total current assets	​		12,948	​		12,670	​
​	​	​	​	​	​	​	​
Property, plant and equipment, net	​		25,230	​		24,726	​
Operating lease assets	​	​	6,692	​	​	6,662	​
Intangibles, net	​		899	​		899	​
Goodwill	​		2,916	​		2,916	​
Other assets	​		1,820	​		1,750	​
​	​	​	​	​	​	​	​
Total Assets	​	$	50,505	​	$	49,623	​
​	​	​	​	​	​	​	​
LIABILITIES	​	​	​	​	​	​	​
Current liabilities	​	​	​	​	​	​	​
Current portion of long-term debt including obligations under finance leases	​	$	198	​	$	1,310	​
Current portion of operating lease liabilities	​	​	670	​	​	662	​
Accounts payable	​		10,381	​		10,179	​
Accrued salaries and wages	​		1,323	​		1,746	​
Other current liabilities	​		3,486	​		3,341	​
Total current liabilities	​		16,058	​		17,238	​
​	​	​	​	​	​	​	​
Long-term debt including obligations under finance leases	​	​	12,028	​	​	12,068	​
Noncurrent operating lease liabilities	​	​	6,351	​	​	6,372	​
Deferred income taxes	​		1,579	​		1,672	​
Pension and postretirement benefit obligations	​		385	​		436	​
Other long-term liabilities	​		2,503	​		1,823	​
​	​	​	​	​	​	​	​
Total Liabilities	​		38,904	​		39,609	​
​	​	​	​	​	​	​	​
Commitments and contingencies see Note 12	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
SHAREOWNERS’ EQUITY	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Preferred shares, $100 par per share, 5 shares authorized and unissued	​	​	—	​	​	—	​
Common shares, $1 par per share, 2,000 shares authorized; 1,918 shares issued in 2023 and 2022	​		1,918	​		1,918	​
Additional paid-in capital	​		3,922	​		3,805	​
Accumulated other comprehensive loss	​		(489)	​		(632)	​
Accumulated earnings	​		26,946	​		25,601	​
Common shares in treasury, at cost, 1,198 shares in 2023 and 1,202 shares in 2022	​		(20,682)	​		(20,650)	​
​	​	​	​	​	​	​	​
Total Shareowners’ Equity - The Kroger Co.	​		11,615	​		10,042	​
Noncontrolling interests	​		(14)	​		(28)	​
​	​	​	​	​	​	​	​
Total Equity	​		11,601	​		10,014	​
​	​	​	​	​	​	​	​
Total Liabilities and Equity	​	$	50,505	​	$	49,623	​

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The accompanying notes are an integral part of the consolidated financial statements.

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

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Years Ended February 3, 2024, January 28, 2023 and January 29, 2022

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​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​		​	​		​	​
​	​	​	2023			2022			2021		​
(In millions, except per share amounts)			(53 weeks)		​	(52 weeks)		​	(52 weeks)
Sales	​	​	$	150,039	​	$	148,258	​	$	137,888	​
​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​	​	​	​	​	​	​	​	​	​	​
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	​	​		116,675	​		116,480	​		107,539	​
Operating, general and administrative	​	​		26,252	​		23,848	​		23,203	​
Rent	​	​		891	​		839	​		845	​
Depreciation and amortization	​	​		3,125	​		2,965	​		2,824	​
​	​	​	​	​	​	​	​	​	​	​	​
Operating profit	​	​		3,096	​		4,126	​		3,477	​
​	​	​	​	​	​	​	​	​	​	​	​
Other income (expense)	​	​	​	​	​	​	​	​	​	​	​
Interest expense	​	​		(441)	​		(535)	​		(571)	​
Non-service component of company-sponsored pension plan benefits (costs)	​	​	​	30	​	​	39	​	​	(34)	​
Gain (loss) on investments	​	​	​	151	​	​	(728)	​	​	(821)	​
​	​	​	​	​	​	​	​	​	​	​	​
Net earnings before income tax expense	​	​		2,836	​		2,902	​		2,051	​
​	​	​	​	​	​	​	​	​	​	​	​
Income tax expense	​	​		667	​		653	​		385	​
​	​	​	​	​	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​	​		2,169	​		2,249	​		1,666	​
Net income attributable to noncontrolling interests	​	​		5	​		5	​		11	​
​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co.	​	​	$	2,164	​	$	2,244	​	$	1,655	​
​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per basic common share	​	​	$	2.99	​	$	3.10	​	$	2.20	​
​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in basic calculation	​	​		718	​		718	​		744	​
​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	​	$	2.96	​	$	3.06	​	$	2.17	​
​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in diluted calculation	​	​		725	​		727	​		754	​

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The accompanying notes are an integral part of the consolidated financial statements.

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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Years Ended February 3, 2024, January 28, 2023 and January 29, 2022

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​	​	​	​	​	​	​	​	​	​
​	​	​		​	​		​	​
​	​	2023		​	2022			2021
(In millions)		(53 weeks)		​	(52 weeks)		​	(52 weeks)
Net earnings including noncontrolling interests	​	$	2,169	​	$	2,249	​	$	1,666
​	​	​	​	​	​	​	​	​	​
Other comprehensive (loss) income	​	​	​	​	​	​	​	​	​
Change in pension and other postretirement defined benefit plans, net of income tax(1)	​	​	(46)	​	​	(83)	​	​	156
Unrealized gains and losses on cash flow hedging activities, net of income tax(2)	​		183	​		(89)	​		—
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(3)	​	​	6	​	​	7	​	​	7
​	​	​	​	​	​	​	​	​	​
Total other comprehensive income (loss)	​		143	​		(165)	​		163
​	​	​	​	​	​	​	​	​	​
Comprehensive income	​		2,312	​		2,084	​		1,829
Comprehensive income attributable to noncontrolling interests	​		5	​		5	​		11
Comprehensive income attributable to The Kroger Co.	​	$	2,307	​	$	2,079	​	$	1,818

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(1)	Amount is net of tax (benefit) expense of $(14) in 2023, $(26) in 2022 and $48 in 2021.

(2)	Amount is net of tax expense (benefit) of $56 in 2023 and $(27) in 2022.

(3)	Amount is net of tax expense of $2 in 2023, $2 in 2022 and $3 in 2021.

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The accompanying notes are an integral part of the consolidated financial statements.

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Years Ended February 3, 2024, January 28, 2023 and January 29, 2022

​	​	​	​	​	​	​	​	​	​	​
​	​	​		​	​		​	​
​	​	2023			2022			2021		​
(In millions)		(53 weeks)		​	(52 weeks)		​	(52 weeks)
Cash Flows from Operating Activities:	​	​	​	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​	$	2,169	​	$	2,249	​	$	1,666	​
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:	​	​	​	​	​	​	​	​	​	​
Depreciation and amortization	​		3,125	​		2,965	​		2,824	​
Asset impairment charges	​	​	69	​	​	68	​	​	64	​
Goodwill and fixed asset impairment charges related to Vitacost.com	​	​	—	​	​	164	​	​	—	​
Operating lease asset amortization	​	​	625	​	​	614	​	​	605	​
LIFO charge	​		113	​		626	​		197	​
Share-based employee compensation	​		172	​		190	​		203	​
Company-sponsored pension plans (benefit) expense	​		(9)	​		(26)	​		50	​
Deferred income taxes	​		(155)	​		161	​		(31)	​
Gain on the sale of assets	​	​	(56)	​	​	(40)	​	​	(44)	​
(Gain) loss on investments	​	​	(151)	​	​	728	​	​	821	​
Other	​		78	​		(8)	​		64	​
Changes in operating assets and liabilities:	​	​	​	​	​	​	​	​	​	​
Store deposits in-transit	​		(88)	​		(45)	​		13	​
Receivables	​		14	​		(222)	​		(61)	​
Inventories	​		342	​		(1,370)	​		80	​
Prepaid and other current assets	​		72	​		(36)	​		232	​
Accounts payable	​		545	​		44	​		903	​
Accrued expenses	​		(222)	​		(167)	​		(134)	​
Income taxes receivable and payable	​		68	​	​	(190)	​	​	16	​
Operating lease liabilities	​	​	(695)	​	​	(622)	​	​	(618)	​
Other	​		772	​		(585)	​		(660)	​
​	​	​	​	​	​	​	​	​	​	​
Net cash provided by operating activities	​		6,788	​		4,498	​		6,190	​
​	​	​	​	​	​	​	​	​	​	​
Cash Flows from Investing Activities:	​	​	​	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​		(3,904)	​		(3,078)	​		(2,614)	​
Proceeds from sale of assets	​		101	​	​	78	​	​	153	​
Other	​		53	​		(15)	​		(150)	​
​	​	​	​	​	​	​	​	​	​	​
Net cash used by investing activities	​		(3,750)	​		(3,015)	​		(2,611)	​
​	​	​	​	​	​	​	​	​	​	​
Cash Flows from Financing Activities:	​	​	​	​	​	​	​	​	​	​
Proceeds from issuance of long-term debt	​		15	​		—	​		56	​
Payments on long-term debt including obligations under finance leases	​		(1,301)	​	​	(552)	​	​	(1,442)	​
Dividends paid	​	​	(796)	​	​	(682)	​	​	(589)	​
Financing fees paid	​	​	—	​	​	(84)	​	​	(5)	​
Proceeds from issuance of capital stock	​	​	50	​		134	​		172	​
Treasury stock purchases	​		(62)	​		(993)	​		(1,647)	​
Proceeds from financing arrangement	​	​	—	​	​	—	​	​	166	​
Other	​	​	(76)	​		(112)	​		(156)	​
​	​	​	​	​	​	​	​	​	​	​
Net cash used by financing activities	​		(2,170)	​		(2,289)	​		(3,445)	​
​	​	​	​	​	​	​	​	​	​	​
Net increase (decrease) in cash and temporary cash investments	​		868	​		(806)	​		134	​
​	​	​	​	​	​	​	​	​	​	​
Cash and temporary cash investments:	​	​	​	​	​	​	​	​	​	​
Beginning of year	​		1,015	​		1,821	​		1,687	​
End of year	​	$	1,883	​	$	1,015	​	$	1,821	​
​	​	​	​	​	​	​	​	​	​	​
Reconciliation of capital investments:	​	​	​	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​	$	(3,904)	​	$	(3,078)	​	$	(2,614)	​
Payments for lease buyouts	​	​	—	​		21	​		—	​
Changes in construction-in-progress payables	​		344	​		(281)	​		(542)	​
Total capital investments, excluding lease buyouts	​	$	(3,560)	​	$	(3,338)	​	$	(3,156)	​
​	​	​	​	​	​	​	​	​	​	​
Disclosure of cash flow information:	​	​	​	​	​	​	​	​	​	​
Cash paid during the year for interest	​	$	488	​	$	545	​	$	607	​
Cash paid during the year for income taxes	​	$	751	​	$	698	​	$	513	​

​

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The accompanying notes are an integral part of the consolidated financial statements.

​

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THE KROGER CO.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

​

Years Ended February 3, 2024, January 28, 2023 and January 29, 2022

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​					​			​					​		Accumulated				​			​			​
​	​	​	​	​	​	​	Additional		​	​	​	​	​	​	Other		​	​	​	​	​	​	​	​	​
​	​	Common Stock				​	Paid-In		​	Treasury Stock				​	Comprehensive		​	Accumulated		​	Noncontrolling		​	​	​
(In millions, except per share amounts)	​	Shares	​	Amount		​	Capital		​	Shares	​	Amount		​	Income (Loss)		​	Earnings		​	Interest		​	Total
Balances at January 30, 2021		1,918	​	$	1,918	​	$	3,461		1,160	​	$	(18,191)	​	$	(630)	​	$	23,018	​	$	(26)	​	$	9,550
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(7)	​		172	​		—	​		—	​		—	​		172
Restricted stock issued		—	​		—	​		(137)		(3)	​		73	​		—	​		—	​		—	​		(64)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		35	​		(1,422)	​		—	​		—	​		—	​		(1,422)
Stock options exchanged		—	​		—	​		—		6	​		(225)	​		—	​		—	​		—	​		(225)
Share-based employee compensation		—	​		—	​		203		—	​		—	​		—	​		—	​		—	​		203
Other comprehensive income net of tax of $51		—	​		—	​		—		—	​		—	​		163	​		—	​		—	​		163
Other		—	​		—	​		130		—	​		(129)	​		—	​		—	​		(8)	​		(7)
Cash dividends declared ($0.81 per common share)		—	​		—	​		—		—	​		—	​		—	​		(607)	​		—	​	​	(607)
Net earnings including non-controlling interests		—	​		—	​		—		—	​		—	​		—	​		1,655	​		11	​		1,666
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at January 29, 2022		1,918	​	$	1,918	​	$	3,657		1,191	​	$	(19,722)	​	$	(467)	​	$	24,066	​	$	(23)	​	$	9,429
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(4)	​		134	​		—	​		—	​		—	​		134
Restricted stock issued		—	​		—	​		(173)		(4)	​		62	​		—	​		—	​		—	​		(111)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		16	​		(821)	​		—	​		—	​		—	​		(821)
Stock options exchanged		—	​		—	​		—		3	​		(172)	​		—	​		—	​		—	​		(172)
Share-based employee compensation		—	​		—	​		190		—	​		—	​		—	​		—	​		—	​		190
Other comprehensive loss net of tax of $(51)		—	​		—	​		—		—	​		—	​		(165)	​		—	​		—	​		(165)
Other		—	​		—	​		131		—	​		(131)	​		—	​		—	​		(10)	​		(10)
Cash dividends declared ($0.99 per common share)	​	—	​		—	​		—		—	​		—	​		—	​		(709)	​		—	​		(709)
Net earnings including non-controlling interests		—	​		—	​		—		—	​		—	​		—	​		2,244	​		5	​		2,249
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at January 28, 2023		1,918	​	$	1,918	​	$	3,805		1,202	​	$	(20,650)	​	$	(632)	​	$	25,601	​	$	(28)	​	$	10,014
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		50	​		—	​		—	​		—	​		50
Restricted stock issued		—	​		—	​		(163)		(3)	​		88	​		—	​		—	​		—	​		(75)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exchanged		—	​		—	​		—		1	​		(62)	​		—	​		—	​		—	​		(62)
Share-based employee compensation		—	​		—	​		172		—	​		—	​		—	​		—	​		—	​		172
Other comprehensive income net of tax of $44		—	​		—	​		—		—	​		—	​		143	​		—	​		—	​		143
Other		—	​		—	​		108		—	​		(108)	​		—	​		—	​		9	​		9
Cash dividends declared ($1.13 per common share)		—	​		—	​		—		—	​		—	​		—	​		(819)	​		—	​		(819)
Net earnings including non-controlling interests		—	​		—	​		—		—	​		—	​		—	​		2,164	​		5	​		2,169
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at February 3, 2024		1,918	​	$	1,918	​	$	3,922		1,198	​	$	(20,682)	​	$	(489)	​	$	26,946	​	$	(14)	​	$	11,601

​

​

The accompanying notes are an integral part of the consolidated financial statements.

​

​

​

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

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

​

1.	ACCOUNTING POLICIES

​

The following is a summary of the significant accounting policies followed in preparing these financial statements.

​

Description of Business, Basis of Presentation and Principles of Consolidation

​

The Kroger Co. (the “Company”) was founded in 1883 and incorporated in 1902. The Company is a food and drug retailer that operates 2,722 supermarkets, 2,257 pharmacies and 1,665 fuel centers in 35 states and the District of Columbia while also operating online through a digital ecosystem to offer customers an omnichannel shopping experience. The Company also manufactures and processes food for sale by its supermarkets and online. The accompanying financial statements include the consolidated accounts of the Company, its wholly-owned subsidiaries and other consolidated entities. Intercompany transactions and balances have been eliminated.

​

Reclassifications

​

The Company reclassified $3.1 billion of liabilities from other current liabilities to accounts payable on the Consolidated Balance Sheet for the year ended January 28, 2023 to conform to the current year presentation. This reclassification was made to better align the presentation of liabilities associated with our third-party financing arrangements and other current liabilities on the Consolidated Balance Sheet with management’s internal reporting. A similar reclassification was made to the Consolidated Statement of Cash Flows resulting in a change to accounts payable and accrued expenses within net cash provided by operating activities for the years ended February 3, 2024, January 28, 2023, and January 29, 2022. The reclassification did not affect total current liabilities on the Company’s Consolidated Balance Sheet or total operating cash flows on the Consolidated Statement of Cash Flows.

​

Fiscal Year

​

The Company’s fiscal year ends on the Saturday nearest January 31. The last three fiscal years consist of the 53-week period ended February 3, 2024 and the 52-week periods ended January 28, 2023 and January 29, 2022.

​

Pervasiveness of Estimates

​

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of consolidated revenues and expenses during the reporting period is also required. Actual results could differ from those estimates.

​

Cash, Temporary Cash Investments and Book Overdrafts

​

Cash and temporary cash investments represent store cash and short-term investments with original maturities of less than three months. Book overdrafts are included in “Accounts payable” and “Accrued salaries and wages” in the Consolidated Balance Sheets.

​

Deposits In-Transit

​

Deposits in-transit generally represent funds deposited to the Company’s bank accounts at the end of the year related to sales, a majority of which were paid for with debit cards, credit cards and checks, to which the Company does not have immediate access but settle within a few days of the sales transaction.

​

​

Inventories

​

Inventories are stated at the lower of cost (principally on a last-in, first-out “LIFO” basis) or market. In total, approximately 91% of inventories in 2023 and 89% of inventories in 2022 were valued using the LIFO method. The remaining inventories, including substantially all fuel inventories, are stated at the lower of cost (on a FIFO basis) or net realizable value. Replacement cost was higher than the carrying amount by $2,309 at February 3, 2024 and $2,196 at January 28, 2023. The Company follows the Link-Chain, Dollar-Value LIFO method for purposes of calculating its LIFO charge.

The item-cost method of accounting to determine inventory cost before the LIFO adjustment is followed for substantially all store inventories at the Company’s supermarket divisions. This method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances and cash discounts) of each item and recording the cost of items sold. The item-cost method of accounting allows for more accurate reporting of periodic inventory balances and enables management to more precisely manage inventory. In addition, substantially all of the Company’s inventory consists of finished goods and is recorded at actual purchase costs (net of vendor allowances and cash discounts).

​

The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the financial statement date.

​

Property, Plant and Equipment

​

Property, plant and equipment are recorded at cost or, in the case of assets acquired in a business combination, at fair value. Depreciation and amortization expense, which includes the depreciation of assets recorded under finance leases, is computed principally using the straight-line method over the estimated useful lives of individual assets. Buildings and land improvements are depreciated based on lives varying from 10 to 40 years. All new purchases of store equipment are assigned lives varying from three to nine years. Leasehold improvements are amortized over the shorter of the lease term to which they relate, which generally varies from four to 25 years, or the useful life of the asset. Food production plant, fulfillment center and distribution center equipment is depreciated over lives varying from three to 15 years. Information technology assets are generally depreciated over three to five years. Depreciation and amortization expense was $3,125 in 2023, $2,965 in 2022 and $2,824 in 2021.

​

Interest costs on significant projects constructed for the Company’s own use are capitalized as part of the costs of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and any gain or loss is reflected in net earnings. Refer to Note 3 for further information regarding the Company’s property, plant and equipment.

​

Leases

​

The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company determines if an arrangement is a lease at inception. Finance and operating lease assets and liabilities are recognized at the lease commencement date. Finance and operating lease liabilities represent the present value of minimum lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, lease incentives and impairment, if any. To determine the present value of lease payments, the Company estimates an incremental borrowing rate which represents the rate used for a secured borrowing of a similar term as the lease.

​

​

Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Operating lease payments are charged on a straight-line basis to rent expense over the lease term and finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Assets under finance leases are amortized in accordance with the Company’s normal depreciation policy for owned assets or over the lease term, if shorter. The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. For additional information on leases, see Note 9 to the Consolidated Financial Statements.

​

Goodwill

​

The Company reviews goodwill for impairment during the fourth quarter of each year, or earlier upon the occurrence of a triggering event. The Company performs reviews of each of its operating divisions and other consolidated entities (collectively, “reporting units”) that have goodwill balances. Generally, fair value is determined using a market multiple model, or discounted projected future cash flows, and is compared to the carrying value of a reporting unit for purposes of identifying potential impairment. Projected future cash flows are based on management’s knowledge of the current operating environment and expectations for the future. Goodwill impairment is recognized for any excess of the reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Results of the goodwill impairment reviews performed during 2023, 2022 and 2021 are summarized in Note 2.

​

Impairment of Long-Lived Assets

​

The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores. If the Company identifies impairment for long-lived assets to be held and used, the Company compares the assets’ current carrying value to the assets’ fair value. Fair value is based on current market values or discounted future cash flows. The Company records impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. The Company recorded asset impairments totaling $69, $68 and $64 in 2023, 2022 and 2021, respectively. Costs to reduce the carrying value of long-lived assets for each of the years presented have been included in the Consolidated Statements of Operations as Operating, general and administrative (“OG&A”) expense.

​

Accounts Payable Financing Arrangement

​

The Company has an agreement with a third party to provide an accounts payable tracking system which facilitates participating suppliers’ ability to finance payment obligations from the Company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers’ decisions to finance amounts under this arrangement. As of February 3, 2024, and January 28, 2023, the Company had $325 and $314 in “Accounts payable,” respectively, associated with financing arrangements.

​

​

Contingent Consideration

​

The Company’s Home Chef business combination involved potential payment of future consideration that is contingent upon the achievement of certain performance milestones. The Company recorded contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-weighted future cash flows, discounted back to present value using a discount rate determined in accordance with accepted valuation methods. The liability for contingent consideration is remeasured to fair value at each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized in earnings until the contingency is resolved. In 2022, adjustments to increase the contingent consideration liability as of year-end were recorded for $20 in OG&A expense. The Company made the final contingent consideration payment in the second quarter of 2023, which was based on the fair value of the outstanding year-end 2022 liability.

​

Store Closing Costs

​

The Company regularly evaluates the performance of its stores and periodically closes those stores that are underperforming. Related liabilities arise, such as severance, contractual obligations and other accruals associated with store closings. The Company records a liability for costs associated with an exit or disposal activity when the liability is incurred, usually in the period the store closes. Adjustments to closed store liabilities primarily relate to actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known.

​

Owned stores held for disposal are reduced to their estimated net realizable value. Costs to reduce the carrying values of property, plant, equipment and operating lease assets are accounted for in accordance with the Company’s policy on impairment of long-lived assets. Inventory write-downs, if any, in connection with store closings, are classified in the Consolidated Statements of Operations as “Merchandise costs.” Costs to transfer inventory and equipment from closed stores are expensed as incurred.

​

Interest Rate Risk Management

​

The Company uses derivative instruments primarily to manage its exposure to changes in interest rates. The Company’s current program relative to interest rate protection and the methods by which the Company accounts for its derivative instruments are described in Note 6.

​

Benefit Plans and Multi-Employer Pension Plans

​

The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized as part of net periodic benefit cost are required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”). The Company has elected to measure defined benefit plan assets and obligations as of January 31, which is the month-end that is closest to its fiscal year-ends.

​

The determination of the obligation and expense for company-sponsored pension plans and other post-retirement benefits is dependent on the selection of assumptions used by actuaries and the Company in calculating those amounts. Those assumptions are described in Note 14 and include, among others, the discount rate, the expected long-term rate of return on plan assets, mortality and the rates of increase in compensation and health care costs. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in future periods. While the Company believes that the assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the pension and other post-retirement obligations and future expense.

​

The Company also participates in various multi-employer plans for substantially all union employees. Pension expense for these plans is recognized as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. Refer to Note 15 for additional information regarding the Company’s participation in these various multi-employer pension plans.

​

​

The Company administers and makes contributions to the employee 401(k) retirement savings accounts. Contributions to the employee 401(k) retirement savings accounts are expensed when contributed or over the service period in the case of automatic contributions. Refer to Note 14 for additional information regarding the Company’s benefit plans.

​

Share Based Compensation

​

The Company recognizes compensation expense for all share-based payments granted under fair value recognition provisions. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award based on the fair value at the date of the grant. The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the underlying shares on the grant date of the award. Stock options typically expire 10 years from the date of grant. Stock options vest between one and four years from the date of grant. In addition to stock options, the Company awards restricted stock to employees and incentive shares to nonemployee directors under various plans. The restrictions on these restricted stock awards generally lapse between one and four years from the date of the awards. The Company determines the fair value for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award.

​

Deferred Income Taxes

​

Deferred income taxes are recorded to reflect the tax consequences of differences between the tax basis of assets and liabilities and their financial reporting basis. Refer to Note 4 for the types of differences that give rise to significant portions of deferred income tax assets and liabilities.

​

Uncertain Tax Positions

​

The Company reviews the tax positions taken or expected to be taken on tax returns to determine whether and to what extent a benefit can be recognized in its consolidated financial statements. Refer to Note 4 for the amount of unrecognized tax benefits and other related disclosures related to uncertain tax positions.

​

Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. As of February 3, 2024, the years ended February 1, 2020 and forward remain open for review for federal income tax purposes.

​

The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.

​

Self-Insurance Costs

​

The Company is primarily self-insured for costs related to workers’ compensation and general liability claims. Liabilities are actuarially determined and are recognized based on claims filed and an estimate of claims incurred but not reported. The liabilities for workers’ compensation claims are accounted for on a present value basis. The Company has purchased stop-loss coverage to limit its exposure to any significant exposure on a per claim basis. The Company is insured for covered costs in excess of these per claim limits.

​

​

The following table summarizes the changes in the Company’s self-insurance liability through February 3, 2024:

​

​	​	​	​	​	​	​	​	​	​	​
​		2023			2022			2021
Beginning balance	​	$	712	​	$	721	​	$	731	​
Expense(1)	​		330	​		227	​		226	​
Claim payments	​		(281)	​		(236)	​		(236)	​
Ending balance	​		761	​		712	​		721	​
Less: Current portion	​		(281)	​		(236)	​		(236)	​
Long-term portion	​	$	480	​	$	476	​	$	485	​

	(1)	The increase in 2023, compared to 2022 and 2021, was the result of higher claim costs.

​

The current portion of the self-insured liability is included in “Other current liabilities,” and the long-term portion is included in “Other long-term liabilities” in the Consolidated Balance Sheets.

​

The Company maintains surety bonds related to self-insured workers’ compensation claims. These bonds are required by most states in which the Company is self-insured for workers’ compensation and are placed with third-party insurance providers to insure payment of the Company’s obligations in the event the Company is unable to meet its claim payment obligations up to its self-insured retention levels. These bonds do not represent liabilities of the Company, as the Company has recorded reserves for the claim costs.

​

The Company also maintains insurance coverages for certain risks, including cyber exposure and property-related losses. The Company’s insurance coverage begins for these exposures ranging from $25 to $30.

​

Revenue Recognition

​

Sales

​

The Company recognizes revenues from the retail sale of products, net of sales taxes, at the point of sale. Pharmacy sales are recorded when the product is provided to the customer. Digital channel originated sales are recognized either upon pickup in store or upon delivery to the customer. Amounts billed to a customer related to shipping and delivery represent revenues earned for the goods provided and are classified as sales. When shipping is discounted, it is recorded as an adjustment to sales. Discounts provided to customers by the Company at the time of sale, including those provided in connection with loyalty cards, are recognized as a reduction in sales as the products are sold. Discounts provided by vendors, usually in the form of coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons. The Company records a receivable from the vendor for the difference in sales price and cash received. For merchandise sold in one of the Company’s stores or online, tender is accepted at the point of sale. The Company acts as principal in certain vendor arrangements where the purchase and sale of inventory are virtually simultaneous. The Company records revenue and related costs on a gross basis for these arrangements. For pharmacy sales, collection of third-party receivables is typically expected within three months or less from the time of purchase. The third-party receivables from pharmacy sales are recorded in “Receivables” in the Company’s Consolidated Balance Sheets and were $616 as of February 3, 2024 and $867 as of January 28, 2023.

​

Gift Cards and Gift Certificates

​

The Company does not recognize revenue when it sells its own gift cards and gift certificates (collectively “gift cards”). Rather, it records a deferred revenue liability equal to the amount received. A sale is then recognized when the gift cards are redeemed to purchase the Company’s products. The Company’s gift cards do not expire. While gift cards are generally redeemed within 12 months, some are never fully redeemed. The Company recognizes gift card breakage under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. The Company’s gift card deferred revenue liability was $228 as of February 3, 2024 and $200 as of January 28, 2023.

​

​

Disaggregated Revenues

​

The following table presents sales revenue by type of product for the year-ended February 3, 2024, January 28, 2023, and January 29, 2022:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2023				​	2022				​	2021
​		Amount			% of total		Amount			% of total		Amount			% of total
Non Perishable(1)	​	$	76,903		51.3	%	$	74,121		50.0	%	$	69,648		50.6	%
Fresh(2)	​		35,686		23.8	%		35,433		23.9	%		33,972		24.6	%
Supermarket Fuel	​		16,621		11.1	%		18,632		12.6	%		14,678		10.6	%
Pharmacy	​		14,259		9.5	%		13,377		9.0	%		12,401		9.0	%
Other(3)	​		6,570		4.3	%		6,695		4.5	%		7,189		5.2	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Sales	​	$	150,039		100	%	$	148,258		100	%	$	137,888		100	%

	(1)	Consists primarily of grocery, general merchandise, health and beauty care and natural foods.

	(2)	Consists primarily of produce, floral, meat, seafood, deli, bakery and fresh prepared.

	(3)	Consists primarily of sales related to food production plants to outside parties, data analytic services, third-party media revenue, other consolidated entities, specialty pharmacy, in-store health clinics, Kroger Personal Finance, digital coupon services and other online sales not included in the categories above. The decrease in 2022, compared to 2021, is primarily due to discontinued patient therapies at Kroger Specialty Pharmacy.

​

Merchandise Costs

​

The “Merchandise costs” line item of the Consolidated Statements of Operations includes product costs, net of discounts and allowances; advertising costs (see separate discussion below); inbound freight charges; warehousing costs, including receiving and inspection costs; transportation costs; and food production and operational costs. Warehousing, transportation and manufacturing management salaries are also included in the “Merchandise costs” line item; however, purchasing management salaries and administration costs are included in the “OG&A” line item along with most of the Company’s other managerial and administrative costs. Shipping and delivery costs associated with the Company’s digital offerings originating from non-retail store locations are included in the “Merchandise costs” line item. Rent expense and depreciation and amortization expense are shown separately in the Consolidated Statements of Operations.

​

Warehousing and transportation costs include distribution center direct wages, transportation direct wages, repairs and maintenance, utilities, inbound freight and, where applicable, third-party warehouse management fees. These costs are recognized in the periods the related expenses are incurred.

​

The Company believes the classification of costs included in merchandise costs could vary widely throughout the industry. The Company’s approach is to include in the “Merchandise costs” line item the direct, net costs of acquiring products and making them available to customers. The Company believes this approach most accurately presents the actual costs of products sold.

​

The Company recognizes all vendor allowances as a reduction in merchandise costs when the related product is sold. When possible, vendor allowances are applied to the related product cost by item and, therefore, reduce the carrying value of inventory by item. When the items are sold, the vendor allowance is recognized. When it is not possible, due to systems constraints, to allocate vendor allowances to the product by item, vendor allowances are recognized as a reduction in merchandise costs based on inventory turns and, therefore, recognized as the product is sold.

​

Advertising Costs

​

The Company’s advertising costs are recognized in the periods the related expenses are incurred and are included in the “Merchandise costs” line item of the Consolidated Statements of Operations. The Company’s advertising costs totaled $1,089 in 2023, $1,030 in 2022 and $984 in 2021. The Company does not record vendor allowances for co-operative advertising as a reduction of advertising expense.

​

​

Operating, General and Administrative Expenses

OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Shipping and delivery costs associated with the Company's digital offerings originating from retail store locations, including third-party delivery fees, are included in the “OG&A” line item of the Consolidated Statements of Operations. Rent expense, depreciation and amortization expense and interest expense are shown separately in the Consolidated Statement of Operations.

​

Consolidated Statements of Cash Flows

​

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be temporary cash investments.

​

Segments

​

The Company operates supermarkets, multi-department stores and fulfillment centers throughout the United States. The Company’s retail operations, which represent 97% of the Company’s consolidated sales, are its only reportable segment. The Company aggregates its operating divisions into one reportable segment due to the operating divisions having similar economic characteristics with similar long-term financial performance. In addition, the Company’s operating divisions offer customers similar products, have similar distribution methods, operate in similar regulatory environments, purchase the majority of the merchandise for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve similar types of customers, and are allocated capital from a centralized location. Operating divisions are organized primarily on a geographical basis so that the operating division management team can be responsive to local needs of the operating division and can execute company strategic plans and initiatives throughout the locations in their operating division. This geographical separation is the primary differentiation between these retail operating divisions. The geographical basis of organization reflects how the business is managed and how the Company’s Chief Executive Officer, who acts as the Company’s chief operating decision maker, assesses performance internally. All of the Company’s operations are domestic.

​

​

​

2.	GOODWILL AND INTANGIBLE ASSETS

​

The following table summarizes the changes in the Company’s net goodwill balance through February 3, 2024:

​

​	​	​	​	​	​	​	​
​		2023			2022
Balance beginning of year	​	​	​	​	​	​	​
Goodwill	​	$	5,737	​	$	5,737	​
Accumulated impairment losses	​		(2,821)	​		(2,661)	​
Subtotal	​		2,916	​		3,076	​
​	​	​	​	​	​	​	​
Activity during the year	​	​	​	​	​	​	​
Impairment charge related to Vitacost.com	​	​	—	​	​	(160)	​
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Balance end of year	​	​	​	​	​	​	​
Goodwill	​		5,737	​		5,737	​
Accumulated impairment losses	​		(2,821)	​		(2,821)	​
Total Goodwill	​	$	2,916	​	$	2,916	​

​

Testing for impairment is performed annually, or on an interim basis upon the occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual evaluation of goodwill and indefinite-lived intangible assets was performed during the fourth quarter of 2023, 2022 and 2021. The evaluation did not result in impairment in 2023 or 2021. The evaluation resulted in an impairment in 2022.

​

​

Based on the results of the Company’s impairment assessment in the fourth quarter of 2022, Vitacost.com recorded a $160 goodwill impairment. In the fourth quarter of 2022, as the Company’s digital strategy evolved, the Company’s primary focus was to effectively utilize its Pickup and Delivery capabilities. This reprioritization resulted in reduced long-term profitability expectations and a decline in the market value for one underlying channel of business and led to the pre-tax and after-tax impairment charge of $160. The pre-impairment goodwill balance for Vitacost.com was $160 as of the fourth quarter 2022. There is no goodwill remaining for Vitacost.com as of January 28, 2023.

​

The following table summarizes the Company’s intangible assets balance through February 3, 2024:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2023					​	2022
​		Gross carrying			Accumulated			Gross carrying			Accumulated
​	​	amount		​	amortization(1)		​	amount		​	amortization(1)
Definite-lived pharmacy prescription files	​	$	360	​	$	(259)	​	$	325	​	$	(230)	​
Definite-lived customer relationships	​	​	186	​	​	(179)	​	​	186	​	​	(173)	​
Definite-lived other	​		118	​		(103)	​		112	​		(96)	​
Indefinite-lived trade name	​		685	​		—	​		685	​		—	​
Indefinite-lived liquor licenses	​		91	​		—	​		90	​		—	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total	​	$	1,440	​	$	(541)	​	$	1,398	​	$	(499)	​

(1)	Pharmacy prescription files are amortized to merchandise costs, customer relationships are amortized to depreciation and amortization expense and other intangibles are amortized to OG&A expense and depreciation and amortization expense.

​

Amortization expense associated with intangible assets totaled approximately $42, $52 and $59, during fiscal years 2023, 2022 and 2021, respectively. Future amortization expense associated with the net carrying amount of definite-lived intangible assets for the years subsequent to 2023 is estimated to be approximately:

​

​	​	​	​
2024		$	42
2025	​		38
2026	​		17
2027	​		8
2028	​		8
Thereafter	​		10
​	​	​	​
Total future estimated amortization associated with definite-lived intangible assets	​	$	123

​

​

3.	PROPERTY, PLANT AND EQUIPMENT, NET

​

Property, plant and equipment, net consists of:

​

​	​	​	​	​	​	​	​
​		2023			2022
Land	​	$	3,512	​	$	3,442	​
Buildings and land improvements	​		15,137	​		14,539	​
Equipment	​		19,375	​		17,328	​
Leasehold improvements	​		12,394	​		11,435	​
Construction-in-progress	​		3,574	​		4,044	​
Leased property under finance leases	​		2,701	​		2,580	​
​	​	​	​	​	​	​	​
Total property, plant and equipment	​		56,693	​		53,368	​
Accumulated depreciation and amortization	​		(31,463)	​		(28,642)	​
​	​	​	​	​	​	​	​
Property, plant and equipment, net	​	$	25,230	​	$	24,726	​

​

Accumulated depreciation and amortization for leased property under finance leases was $730 at February 3, 2024 and $562 at January 28, 2023.

​

Approximately $104 and $124, net book value, of property, plant and equipment collateralized certain mortgages at February 3, 2024 and January 28, 2023, respectively.

​

Capitalized implementation costs associated with cloud computing arrangements of $257, net of accumulated amortization of $65, and $193, net of accumulated amortization of $36, are included in “Other assets” in the Company’s Consolidated Balance Sheets as of February 3, 2024 and January 28, 2023, respectively. The corresponding cash flows related to these arrangements are included in “Net cash provided by operating activities” in the Company’s Consolidated Statements of Cash Flows.

​

4.	TAXES BASED ON INCOME

​

The provision for taxes based on income consists of:

​

​	​	​	​	​	​	​	​	​	​	​
​		2023			2022			2021
Federal	​	​	​	​	​	​	​	​	​	​
Current	​	$	707	​	$	401	​	$	349	​
Deferred	​		(130)	​		162	​		(46)	​
​	​	​	​	​	​	​	​	​	​	​
Subtotal federal	​		577	​		563	​		303	​
​	​	​	​	​	​	​	​	​	​	​
State and local	​	​	​	​	​	​	​	​	​	​
Current	​		114	​		91	​		67	​
Deferred	​		(24)	​		(1)	​		15	​
​	​	​	​	​	​	​	​	​	​	​
Subtotal state and local	​		90	​		90	​		82	​
​	​	​	​	​	​	​	​	​	​	​
Total	​	$	667	​	$	653	​	$	385	​

​

A reconciliation of the statutory federal rate and the effective rate follows:

​

​	​	​	​	​	​	​	​
​		2023		2022		2021
Statutory rate		21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit		2.5	​	2.5	​	3.2	​
Credits		(1.1)	​	(0.8)	​	(1.3)	​
Resolution of tax audit examinations		—	​	(0.2)	​	(3.1)	​
Excess tax benefits from share-based payments	​	(0.7)	​	(1.9)	​	(1.3)	​
Impairment of goodwill related to Vitacost.com	​	—	​	1.2	​	—	​
Non-deductible legal settlements	​	1.4	​	—	​	—	​
Non-deductible executive compensation	​	0.3	​	0.5	​	0.6	​
Other changes, net		0.1	​	0.2	​	(0.3)	​
​	​	​	​	​	​	​	​
Effective income tax rate		23.5	%	22.5	%	18.8	%

​

The 2023 tax rate differed from the federal statutory rate due to the effect of state income taxes and the nondeductible portion of opioid settlement charges, partially offset by the benefit from share-based payments and the utilization of tax credits.

​

The 2022 tax rate differed from the federal statutory rate due to the effect of state income taxes and non-deductible goodwill impairment charges related to Vitacost.com, partially offset by the benefits from share-based payments and the utilization of tax credits.

​

The 2021 tax rate differed from the federal statutory rate primarily due to a discrete benefit of $47 which was primarily from the favorable outcome of income tax audit examinations covering multiple years, the benefit from share-based payments and the utilization of tax credits, partially offset by the effect of state income taxes.

​

The tax effects of significant temporary differences that comprise tax balances were as follows:

​

​	​	​	​	​	​	​	​
​		2023			2022
Deferred tax assets:	​	​	​	​	​	​	​
Compensation related costs	​	$	361	​	$	409	​
Lease liabilities	​		2,100	​		1,892	​
Closed store reserves	​		51	​		51	​
Unrealized losses on hedging instruments	​		—	​		74	​
Net operating loss and credit carryforwards	​		76	​		101	​
Deferred income	​	​	102	​	​	104	​
Legal settlements	​	​	313	​	​	—	​
Allowance for uncollectible receivables	​	​	30	​	​	26	​
Other	​	​	—	​		13	​
​	​	​	​	​	​	​	​
Subtotal	​		3,033	​		2,670	​
Valuation allowance	​		(55)	​		(83)	​
​	​	​	​	​	​	​	​
Total deferred tax assets	​		2,978	​		2,587	​
​	​	​	​	​	​	​	​
Deferred tax liabilities:	​	​	​	​	​	​	​
Depreciation and amortization	​		(2,038)	​		(1,954)	​
Operating lease assets	​		(1,985)	​	​	(1,759)	​
Insurance related costs	​	​	(241)	​	​	(257)	​
Inventory related costs	​	​	(259)	​	​	(281)	​
Equity investments in excess of tax basis	​	​	—	​	​	(8)	​
Other	​	​	(16)	​	​	—	​
​	​	​	​	​	​	​	​
Total deferred tax liabilities	​		(4,539)	​		(4,259)	​
​	​	​	​	​	​	​	​
Deferred income taxes	​	$	(1,561)	​	$	(1,672)	​

​

As of February 3, 2024, deferred tax assets of $18 are included in “Other assets” in the Company’s Consolidated Balance Sheets. At February 3, 2024, the Company had net operating loss carryforwards for state income tax purposes of $1,499. These net operating loss carryforwards expire from 2024 through 2043. The utilization of certain of the Company’s state net operating loss carryforwards may be limited in a given year. Further, based on the analysis described below, the Company has recorded a valuation allowance against some of the deferred tax assets resulting from its state net operating losses.

​

At February 3, 2024, the Company had state credit carryforwards of $7 which expire from 2024 through 2037. The utilization of certain of the Company’s credits may be limited in a given year. Further, based on the analysis described below, the Company has recorded a valuation allowance against some of the deferred tax assets resulting from its state credits.

​

The Company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate whether these assets are more likely than not to be realized based on all available evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and the Company’s tax methods of accounting. Unless deferred tax assets are more likely than not to be realized, a valuation allowance is established to reduce the carrying value of the deferred tax asset until such time that realization becomes more likely than not. Increases and decreases in these valuation allowances are included in "Income tax expense" in the Consolidated Statements of Operations. As of February 3, 2024, January 28, 2023, and January 29, 2022, the total valuation allowance was $55, $83, and $72, respectively.

​

​

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including positions effecting only the timing of tax benefits, is as follows:

​

​	​	​	​	​	​	​	​	​	​	​
​		2023			2022			2021
Beginning balance	​	$	93	​	$	100	​	$	193	​
Additions based on tax positions related to the current year	​		10	​		8	​		10	​
Additions for tax positions of prior years	​		3	​		6	​		9	​
Reductions for tax positions of prior years	​		(9)	​		(4)	​		(108)	​
Settlements	​	​	(1)	​		(9)	​		—	​
Lapse of statute	​	​	(6)	​	​	(8)	​	​	(4)	​
Ending balance	​	$	90	​	$	93	​	$	100	​

​

As of February 3, 2024, January 28, 2023, and January 29, 2022 the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $62, $66, and $73 respectively.

​

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense. During the years ended February 3, 2024, January 28, 2023, and January 29, 2022, the Company recognized approximately $1, $(6), and $(15), respectively, in interest and penalties (recoveries). The Company had accrued approximately $15, $14, and $22 for the payment of interest and penalties as of February 3, 2024, January 28, 2023, and January 29, 2022, respectively.

​

As of February 3, 2024, the years ended February 1, 2020 and forward remain open for review for federal income tax purposes.

​

5.	DEBT OBLIGATIONS

​

Long-term debt consists of:

​

​	​	​	​	​	​	​
​	​	February 3,		​	January 28,
​		2024			2023
1.70% to 8.00% Senior Notes due through 2049	​	$	9,123	​	$	10,215
Other	​		1,064	​		1,077
​	​	​	​	​	​	​
Total debt, excluding obligations under finance leases	​		10,187	​		11,292
Less current portion	​		(25)	​		(1,153)
​	​	​	​	​	​	​
Total long-term debt, excluding obligations under finance leases	​	$	10,162	​	$	10,139

​

In 2023, the Company repaid $600 of senior notes bearing an interest rate of 3.85% and $500 of senior notes bearing an interest rate of 4.00%, all using cash on hand.

​

In 2022, the Company repaid $400 of senior notes bearing an interest rate of 2.80% using cash on hand.

​

​

Additionally in 2021, the Company acquired 28, previously leased, properties for a purchase price of $455. Separately, the Company also entered into a transaction to sell those properties to a third party for total proceeds of $621. Total cash proceeds received as a result of the transactions was $166. The sale transaction did not qualify for sale-leaseback accounting treatment. As a result, the Company recorded property, plant and equipment for the $455 price paid and recorded a $621 financing obligation. The leases have a base term of 25 years and twelve option periods of five years each. The Company has the option to purchase the individual properties for fair market value at the end of the base term or at the end of any option period. The Company is obligated to repurchase the properties at the end of the base term for $300 if the lessor exercises its put option.

​

On July 6, 2021, the Company entered into an amended and restated credit agreement, which credit agreement was further amended on November 9, 2022 (as so amended, the “Credit Agreement”) providing for a $2,750 unsecured revolving credit facility (the “Revolving Credit Facility”), with a termination date of July 6, 2026, unless extended as permitted under the Credit Agreement. The Company has the ability to increase the size of the Revolving Credit Facility by up to an additional $1,250, subject to certain conditions.

​

Borrowings under the Credit Agreement bear interest, at the Company’s option, at either (i) adjusted Term SOFR plus a market spread, based on the Company’s Public Debt Rating or (ii) the base rate, defined as the highest of (a) the Federal Funds Rate plus 0.5%, (b) Bank of America’s prime rate, and (c) one-month Term SOFR plus 1.0%, plus a market rate spread based on the Company’s Public Debt Rating. The Company will also pay a Commitment Fee based on its Public Debt Rating and Letter of Credit fees equal to a market rate spread based on the Company’s Public Debt Rating. “Public Debt Rating” means, as of any date, the rating that has been most recently announced by either S&P or Moody’s, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Company.

​

The Credit Agreement contains a covenant, which, among other things, requires the maintenance of a Leverage Ratio of not greater than (i) 3.50:1.00 or (ii) upon the consummation of the proposed merger with Albertsons, 4.50 to 1.00, with step downs to 4.25:1.00, 4.00:1.00, 3.75:1.00 and 3.50:1.00 effective at the end of the third, fifth, seventh and ninth, full fiscal quarters after the consummation of the proposed merger, respectively. The Company may repay the Credit Agreement in whole or in part at any time without premium or penalty. The Credit Agreement is not guaranteed by the Company’s subsidiaries.

​

On October 13, 2022, the Company entered into a merger agreement with Albertsons Companies, Inc. (“Albertsons”). For additional information about the Company’s unsecured bridge term loan facility and term loan credit agreement associated with the merger agreement, see Note 16 to the Consolidated Financial Statements.

​

As of February 3, 2024, and January 28, 2023, the Company had no commercial paper borrowings and no borrowings under the Credit Agreement.

​

As of February 3, 2024, the Company had outstanding letters of credit in the amount of $314, of which $2 reduces funds available under the Credit Agreement. As of January 28, 2023, the Company had outstanding letters of credit in the amount of $310, of which $2 reduces funds available under the Credit Agreement. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

​

Most of the Company’s outstanding public debt is subject to early redemption at varying times and premiums, at the option of the Company. In addition, subject to certain conditions, some of the Company’s publicly issued debt is subject to redemption, in whole or in part, at the option of the holder upon the occurrence of a redemption event, upon not less than five days’ notice prior to the date of redemption, at a redemption price equal to the default amount, plus a specified premium. “Redemption Event” is defined in the indentures as the occurrence of (i) any person or group, together with any affiliate thereof, beneficially owning 50% or more of the voting power of the Company, (ii) any one person or group, or affiliate thereof, succeeding in having a majority of its nominees elected to the Company’s Board of Directors, in each case, without the consent of a majority of the continuing directors of the Company or (iii) both a change of control and a below investment grade rating.

​

​

The aggregate annual maturities and scheduled payments of long-term debt, as of year-end 2023, and for the years subsequent to 2023 are:

​

​	​	​	​	​
2024		$	25
2025	​		92	​
2026	​		1,305	​
2027	​		611	​
2028	​		642	​
Thereafter	​		7,512	​
​	​	​	​	​
Total debt	​	$	10,187	​

​

​

6.	DERIVATIVE FINANCIAL INSTRUMENTS

​

GAAP requires that derivatives be carried at fair value on the balance sheet and provides for hedge accounting when certain conditions are met. The Company’s derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects. Ineffective cash flow hedges, if any, are recognized in current period earnings. Other comprehensive income or loss is reclassified into current period earnings when the hedged transaction affects earnings. Changes in the fair value of derivative instruments designated as “fair value” hedges, along with corresponding changes in the fair values of the hedged assets or liabilities, are recorded in current period earnings. Ineffective fair value hedges, if any, are recognized in current period earnings. Changes in fair value of derivative instruments not designated as hedges are recognized in current period earnings and included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations.

​

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives used as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company discontinues hedge accounting prospectively.

​

Interest Rate Risk Management

​

The Company is exposed to market risk from fluctuations in interest rates. The Company manages its exposure to interest rate fluctuations through the use of a commercial paper program, interest rate swaps (fair value hedges) and forward-starting interest rate swaps (cash flow hedges). The Company’s current program relative to interest rate protection contemplates hedging the exposure to changes in the fair value of fixed-rate debt attributable to changes in interest rates. To do this, the Company uses the following guidelines: (i) use average daily outstanding borrowings to determine annual debt amounts subject to interest rate exposure, (ii) limit the average annual amount subject to interest rate reset and the amount of floating rate debt to a combined total amount that represents 25% of the carrying value of the Company’s debt portfolio or less, (iii) include no leveraged products, and (iv) hedge without regard to profit motive or sensitivity to current mark-to-market status.

​

The Company reviews compliance with these guidelines annually with the Finance Committee of the Board of Directors. These guidelines may change as the Company’s needs dictate.

​

Fair Value Interest Rate Swaps

​

The Company did not have any outstanding interest rate derivatives classified as fair value hedges as of February 3, 2024 and January 28, 2023.

​

​

Cash Flow Forward-Starting Interest Rate Swaps

​

As of February 3, 2024 and January 28, 2023, the Company had five forward-starting interest rate swap agreements with a maturity date of August 1, 2027 with an aggregate notional amount totaling $5,350. A forward-starting interest rate swap is an agreement that effectively hedges the variability in future benchmark interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. The Company entered into these forward-starting interest rate swaps in order to lock in fixed interest rates on its forecasted issuances of debt.

​

A notional amount of $2,350 of these forward-starting interest rate swaps was designated as a cash-flow hedge as defined by GAAP. Accordingly, the changes in fair value of these forward-starting interest rate swaps are recorded to accumulated other comprehensive income and reclassified into net earnings when the hedged transaction affects net earnings. As of February 3, 2024, the fair value of the interest rate swaps designated as cash flow hedges was recorded in “Other Assets” for $125 and accumulated other comprehensive income for $95, net of tax. As of January 28, 2023, the fair value of the interest rate swaps designated as cash flow hedges was recorded in “Other long-term liabilities” for $116 and accumulated other comprehensive loss for $89, net of tax.

​

The remainder of the notional amount of $3,000 of the forward-starting interest rate swaps was not designated as a cash-flow hedge. Accordingly, the changes in the fair value of these forward-starting interest rate swaps not designated as cash-flow hedges are recognized through net earnings. As of February 3, 2024, the fair value of these swaps was recorded in “Other Assets” for $35 and “Other long-term liabilities” for $3. In 2023, the Company recognized an unrealized gain of $174 related to these swaps that is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations. As of January 28, 2023, the fair value of these swaps was recorded in “Other long-term liabilities” for $142. In 2022, the Company recognized an unrealized loss of $142 related to these swaps that is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations.

​

The following table summarizes the effect of the Company’s derivative instruments designated as cash flow hedges for 2023, 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year-To-Date																	​	​
​	​	Amount of Gain/(Loss) in								​	Amount of Gain/(Loss)								​	​
​	​	AOCI on Derivative								​	Reclassified from AOCI into Income								​	Location of Gain/(Loss)
Derivatives in Cash Flow Hedging Relationships		2023		​	2022			2021			2023		​	2022			2021			Reclassified into Income
Forward-Starting Interest Rate Swaps, net of tax(1)	​	$	60	​	$	(129)	​	$	(47)	​	$	(6)	​	$	(7)	​	$	(7)		Interest expense	​

​

	(1)	The amounts of Gain/(Loss) reclassified from AOCI into income on derivatives include unamortized proceeds and payments from forward-starting interest rate swaps once classified as cash flow hedges that were terminated prior to the end of 2020.

​

For the above cash flow interest rate swaps, the Company has entered into International Swaps and Derivatives Association master netting agreements that permit the net settlement of amounts owed under their respective derivative contracts. Under these master netting agreements, net settlement generally permits the Company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. These master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.

​

Collateral is generally not required of the counterparties or of the Company under these master netting agreements. As of February 3, 2024, no cash collateral was received or pledged under the master netting agreements.

​

​

The effect of the net settlement provisions of these master netting agreements on the Company’s derivative balances upon an event of default or termination event is as follows as of February 3, 2024 and January 28, 2023:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	Gross Amounts Not Offset in the					​	​	​
​	​	​	​	​	​	​	​	Net Amount		​	Balance Sheet					​	​	​
​		Gross Amount			Gross Amounts Offset			Presented in the			Financial			​	​		​	​
February 3, 2024	​	Recognized		​	in the Balance Sheet		​	Balance Sheet		​	Instruments		​	Cash Collateral		​	Net Amount
Assets	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash Flow Forward-Starting Interest Rate Swaps	​	$	160	​	$	—	​	$	160	​	$	—	​	$	—	​	$	160	​
Liabilities	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash Flow Forward-Starting Interest Rate Swaps	​	$	3	​	$	—	​	$	3	​	$	—	​	$	—	​	$	3	​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	Gross Amounts Not Offset in the					​	​	​
​	​	​	​	​	​	​	​	Net Amount		​	Balance Sheet					​	​	​
​		Gross Amount			Gross Amounts Offset			Presented in the			Financial			​	​		​	​
January 28, 2023	​	Recognized		​	in the Balance Sheet		​	Balance Sheet		​	Instruments		​	Cash Collateral		​	Net Amount
Liabilities	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash Flow Forward-Starting Interest Rate Swaps	​	$	258	​	$	—	​	$	258	​	$	—	​	$	—	​	$	258	​

​

​

7.	FAIR VALUE MEASUREMENTS

​

GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy defined in the standards are as follows:

​

Level 1 - Quoted prices are available in active markets for identical assets or liabilities;

​

Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable;

​

Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability.

​

​

For items carried at (or adjusted to) fair value in the consolidated financial statements, the following tables summarize the fair value of these instruments at February 3, 2024 and January 28, 2023:

​

February 3, 2024 Fair Value Measurements Using

​

​	​	​	​	​	​	​	​	​	​	​
​		Quoted Prices in			​	​		​	​
​	​	Active Markets		​	​	​	​	​	​
​	​	for Identical		​	Significant Other		​	​	​
​	​	Assets		​	Observable Inputs		​	​	​
​	​	(Level 1)		​	(Level 2)		​	Total
Marketable Securities	​	$	646	​	$	—	​	$	646	​
Forward-Starting Interest Rate Swaps and Commodity Contracts	​		—	​		155	​		155	​
Total	​	$	646	​	$	155	​	$	801	​

​

January 28, 2023 Fair Value Measurements Using

​

​	​	​	​	​	​	​	​	​	​	​
​		Quoted Prices in			​	​		​	​
​	​	Active Markets		​	​	​	​	​	​
​	​	for Identical		​	Significant Other		​	​	​
​	​	Assets		​	Observable Inputs		​	​	​
​	​	(Level 1)		​	(Level 2)		​	Total
Marketable Securities	​	$	463	​	$	—	​	$	463	​
Forward-Starting Interest Rate Swaps	​	​	—	​		(258)	​		(258)	​
Total	​	$	463	​	$	(258)	​	$	205	​

​

The Company values interest rate hedges using observable forward yield curves. These forward yield curves are classified as Level 2 inputs.

​

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, long-lived assets and in the valuation of store lease exit costs. The Company reviews goodwill and indefinite-lived intangible assets for impairment annually, during the fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 2 for further discussion related to the Company’s carrying value of goodwill. Long-lived assets and store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. See Note 1 for further discussion of the Company’s policies for impairments of long-lived assets and valuation of store lease exit costs. In 2023, long-lived assets with a carrying amount of $72 were written down to their fair value of $3, resulting in an impairment charge of $69. In 2022, long-lived assets with a carrying amount of $69 were written down to their fair value of $1, resulting in an impairment charge of $68.

​

Fair Value of Other Financial Instruments

​

Current and Long-term Debt

​

The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence. If quoted market prices were not available, the fair value was based upon the net present value of the future cash flow using the forward interest rate yield curve in effect at respective year-ends. At February 3, 2024, the fair value of total debt excluding obligations under finance leases was $9,401 compared to a carrying value of $10,187. At January 28, 2023, the fair value of total debt excluding obligations under finance leases was $10,593 compared to a carrying value of $11,292.

​

​

Contingent Consideration

​

As a result of the Home Chef merger in 2018, the Company recognized a contingent liability of $91 on the acquisition date. The contingent consideration was measured using unobservable (Level 3) inputs and was included in “Other long-term liabilities” within the Consolidated Balance Sheet. The Company estimated the fair value of the earnout liability by applying a Monte-Carlo simulation method using the Company’s projection of future operating results for both the online and offline businesses related to the Home Chef merger and the estimated probability of achievement of the earnout target metrics. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the fair value of the earnout liability. The liability is remeasured to fair value using the Monte-Carlo simulation method at each reporting period, and the change in fair value, including accretion for the passage of time, is recognized in net earnings until the contingency is resolved. In 2020, the Company amended the contingent consideration agreement including the performance milestones to align with the Company’s current business strategies. In 2022, the Company recorded adjustments to increase the contingent consideration liability for $20 in OG&A. During 2023, the Company made the final contingent consideration payment of $83 which was based on the fair value of the outstanding year-end 2022 liability.

​

Cash and Temporary Cash Investments, Store Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities

​

The carrying amounts of these items approximated fair value due to their short-term nature.

​

Other Assets

​

The fair value of certain financial instruments, measured using Level 1 inputs, was $578 and $401 as of February 3, 2024 and January 28, 2023, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. The unrealized loss for these Level 1 investments was approximately $66 and $586 for 2023 and 2022, respectively, and is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations.

​

The Company held other equity investments without a readily determinable fair value. These investments are measured initially at cost and remeasured for observable price changes to fair value through net earnings. The value of these investments was $92 and $320 as of February 3, 2024 and January 28, 2023, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. The decrease in the value of these other equity investments without a readily determinable fair value was the result of one of the Company’s investments now being measured using Level 1 inputs. There were no other observable price changes or impairments for these investments without a readily determinable fair value during 2023 or 2022, and as such, they are excluded from the fair value measurements table above for February 3, 2024 and January 28, 2023.

​

The following table presents the Company’s remaining other assets as of February 3, 2024 and January 28, 2023:

​

​	​	​	​	​	​	​
​		February 3, 2024			January 28, 2023
Other Assets	​	​	​	​	​	​
Equity method and other long-term investments	​	$	290	​	$	274
Notes receivable	​		78	​		169
Prepaid deposits under certain contractual arrangements	​		193	​		199
Implementation costs related to cloud computing arrangements	​	​	257	​	​	193
Forward-starting interest rate swaps	​	​	160	​	​	—
Funded asset status of pension plans	​	​	44	​	​	69
Other	​	​	128	​	​	125
Total	​	$	1,150	​	$	1,029

​

​

8.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

​

The following table represents the changes in AOCI by component for the years ended February 3, 2024 and January 28, 2023:

​

​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Pension and		​	​	​
​	​	Cash Flow		​	Postretirement		​	​	​
​	​	Hedging		​	Defined Benefit		​	​	​
​		Activities(1)			Plans(1)			Total(1)
Balance at January 29, 2022	​	$	(47)	​	$	(420)	​	$	(467)
OCI before reclassifications(2)	​	​	(89)	​	​	(88)	​		(177)
Amounts reclassified out of AOCI(3)	​	​	7	​		5	​		12
Net current-period OCI	​	​	(82)	​		(83)	​		(165)
Balance at January 28, 2023	​	$	(129)	​	$	(503)	​	$	(632)
​	​	​	​	​	​	​	​	​	​
Balance at January 28, 2023	​	$	(129)	​	$	(503)	​	$	(632)
OCI before reclassifications(2)	​		183	​		(35)	​		148
Amounts reclassified out of AOCI(3)	​		6	​		(11)	​		(5)
Net current-period OCI	​		189	​		(46)	​		143
Balance at February 3, 2024	​	$	60	​	$	(549)	​	$	(489)

(1)	All amounts are net of tax.

(2)	Net of tax of $(28) and $(27) for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of January 28, 2023. Net of tax of $(11) and $56 for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of February 3, 2024.

(3)	Net of tax of $2 and $2 for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of January 28, 2023. Net of tax of $(3) and $2 for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of February 3, 2024.

​

The following table represents the items reclassified out of AOCI and the related tax effects for the years ended February 3, 2024, January 28, 2023 and January 29, 2022:

​

​	​	​	​	​	​	​	​	​	​	​	​
​	​		For the year ended		​	For the year ended		​	For the year ended		​
​			February 3, 2024			January 28, 2023			January 29, 2022
​	​	​	​	​	​	​	​	​	​	​	​
Cash flow hedging activity items	​	​	​	​	​	​	​	​	​	​	​
Amortization of gains and losses on cash flow hedging activities(1)	​	​	$	8	​	$	9	​	$	10	​
Tax expense	​	​		(2)	​		(2)	​		(3)	​
Net of tax	​	​		6	​		7	​		7	​
​	​	​	​	​	​	​	​	​	​	​	​
Pension and postretirement defined benefit plan items	​	​	​	​	​	​	​	​	​	​	​
Amortization of amounts included in net periodic pension cost(2)	​	​		(14)	​		7	​		97	​
Tax expense		​		3	​		(2)	​		(23)	​
Net of tax		​		(11)	​		5	​		74	​
Total reclassifications, net of tax		​	$	(5)	​	$	12	​	$	81	​

(1)	Reclassified from AOCI into interest expense.

(2)	Reclassified from AOCI into non-service component of company-sponsored pension plan costs. These components are included in the computation of net periodic pension expense.

​

​

​

​

​

9.	LEASES AND LEASE-FINANCED TRANSACTIONS

​

The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company operates in leased facilities in approximately half of its store locations. Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain properties or portions thereof are subleased to others for periods generally ranging from one to 20 years.

​

The following table provides supplemental balance sheet classification information related to leases:

​

​	​	​	​	​	​	​	​	​
​		​		February 3,			January 28,
​	​	Classification	​	2024		​	2023
Assets	​	​	​	​	​	​	​	​
Operating	​	Operating lease assets	​	$	6,692	​	$	6,662
Finance	​	Property, plant and equipment, net(1)	​	​	1,971	​	​	2,018
​	​	​	​	​	​	​	​	​
Total leased assets	​	​	​	$	8,663	​	$	8,680
​	​	​	​	​	​	​	​	​
Liabilities	​	​	​	​	​	​	​	​
Current	​	​	​	​	​	​	​	​
Operating	​	Current portion of operating lease liabilities	​	$	670	​	$	662
Finance	​	Current portion of long-term debt including obligations under finance leases	​	​	173	​	​	157
​	​	​	​	​	​	​	​	​
Noncurrent	​	​	​	​	​	​	​	​
Operating	​	Noncurrent operating lease liabilities	​	​	6,351	​	​	6,372
Finance	​	Long-term debt including obligations under finance leases	​	​	1,866	​	​	1,929
​	​	​	​	​	​	​	​	​
Total lease liabilities	​	​	​	$	9,060	​	$	9,120

	(1)	Finance lease assets are recorded net of accumulated amortization of $730 and $562 as of February 3, 2024 and January 28, 2023.

​

The following table provides the components of lease cost:

​

​	​	​	​	​	​	​	​	​
​	​	​	​	Year-To-Date		​	Year-To-Date
Lease Cost	​	Classification		February 3, 2024			January 28, 2023
Operating lease cost(1)	​	Rent Expense	​	$	1,006	​	$	950
Sublease and other rental income	​	Rent Expense	​		(115)	​		(111)
Finance lease cost	​	​	​		​	​		​
Amortization of leased assets	​	Depreciation and Amortization	​	​	195	​	​	161
Interest on lease liabilities	​	Interest Expense	​	​	78	​	​	66
​	​	​	​	​	​	​	​	​
Net lease cost	​	​	​	$	1,164	​	$	1,066

	(1)	Includes short-term leases and variable lease costs, which are immaterial.

​

​

Maturities of operating and finance lease liabilities are listed below. Amounts in the table include options to extend lease terms that are reasonably certain of being exercised.

​

​	​	​	​	​	​	​	​	​	​
​	​	Operating		​	Finance		​	​
​	​	Leases		​	Leases		​	Total
2024	​	$	961	​	$	243	​	$	1,204
2025	​		898	​		240	​		1,138
2026	​		838	​		240	​		1,078
2027	​		784	​		242	​		1,026
2028	​		722	​		238	​		960
Thereafter	​		5,738	​		1,359	​		7,097
​	​	​	​	​	​	​	​	​	​
Total lease payments	​	​	9,941	​	​	2,562	​	$	12,503
​	​	​	​	​	​	​	​	​	​
Less amount representing interest	​		2,920	​	​	523	​	​	​
​	​	​	​	​	​	​	​	​	​
Present value of lease liabilities(1)	​	$	7,021	​	$	2,039	​	​	​

	(1)	Includes the current portion of $670 for operating leases and $173 for finance leases.

​

Total future minimum rentals under non-cancellable subleases at February 3, 2024 were $212.

​

The following table provides the weighted-average lease term and discount rate for operating and finance leases:

​

​	​	​	​	​	​	​
​	​	February 3, 2024		​	January 28, 2023
Weighted-average remaining lease term (years)	​	​	​	​	​	​
Operating leases	​	13.9	​	​	14.3	​
Finance leases	​	11.8	​	​	12.7	​
Weighted-average discount rate	​	​	​	​	​	​
Operating leases	​	4.4	%	​	4.2	%
Finance leases	​	3.8	%	​	3.5	%
​	​	​	​	​	​	​

​

The following table provides supplemental cash flow information related to leases:

​

​	​	​	​	​	​
​	Year-To-Date		​	Year-To-Date
​	February 3, 2024		​	January 28, 2023
Cash paid for amounts included in the measurement of lease liabilities	​	​	​	​	​
Operating cash flows from operating leases	$	984	​	$	903
Operating cash flows from finance leases	$	78	​	$	66
Financing cash flows from finance leases	$	173	​	$	132
Leased assets obtained in exchange for new operating lease liabilities	$	700	​	$	602
Leased assets obtained in exchange for new finance lease liabilities	$	168	​	$	656
Net gain recognized from sale and leaseback transactions(1)	$	37	​	$	30
Impairment of operating lease assets	$	15	​	$	1
Impairment of finance lease assets	$	—	​	$	2

	(1)	In 2023, the Company entered into sale leaseback transactions related to nine properties, which resulted in total proceeds of $52. In 2022, the Company entered into sale leaseback transactions related to five properties, which resulted in total proceeds of $44.

​

​

On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International Holdings Limited and Ocado Group plc (“Ocado”), which has since been amended. Under this agreement, Ocado will partner exclusively with the Company in the U.S., enhancing the Company’s digital and robotics capabilities in its distribution networks. In 2023, the Company opened one additional Kroger Delivery customer fulfillment center in Frederick, Maryland. The Company determined the arrangement with Ocado contains a lease of the robotic equipment used to fulfill customer orders. As a result, the Company establishes a finance lease when each facility begins fulfilling orders to customers. The base term of each lease is 10 years with options to renew at the Company’s sole discretion. The Company elected to combine the lease and non-lease elements in the contract. As a result, the Company will account for all payments to Ocado as lease payments. In 2023, the Company recorded finance lease assets of $147 and finance lease liabilities of $135 related to the Company’s agreement with Ocado. In 2022, the Company recorded finance lease assets of $629 and finance lease liabilities of $583 related to the Company’s agreement with Ocado. As of February 3, 2024 and January 28, 2023, the Company had $960 and $928, respectively, of net finance lease assets included within “Property, plant and equipment, net” in the Company’s Consolidated Balance Sheets related to the Company's agreement with Ocado. As of February 3, 2024 and January 28, 2023, the Company had $100 and $88, respectively, of current finance lease liabilities recorded within “Current portion of long-term debt including obligations under finance leases" and $814 and $785, respectively, of non-current finance lease liabilities recorded within “Long-term debt including obligations under finance leases” in the Company’s Consolidated Balance Sheets.

​

10.	EARNINGS PER COMMON SHARE

​

Net earnings attributable to The Kroger Co. per basic 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. 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:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	For the year ended							​	For the year ended							​	For the year ended
​	​	February 3, 2024							​	January 28, 2023							​	January 29, 2022
​		​	​		​		Per			​	​		​		Per			​	​		​		Per
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share
(in millions, except per share amounts)	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount
Net earnings attributable to The Kroger Co. per basic common share	​	$	2,146		718	​	$	2.99	​	$	2,224		718	​	$	3.10	​	$	1,639		744	​	$	2.20	​
Dilutive effect of stock options	​	​	​		7	​	​	​	​	​	​		9	​	​	​	​	​	​		10	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	2,146		725	​	$	2.96	​	$	2,224		727	​	$	3.06	​	$	1,639		754	​	$	2.17	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

​

The Company had combined undistributed and distributed earnings to participating securities totaling $18, $20 and $16 in 2023, 2022 and 2021, respectively.

​

The Company had stock options outstanding for approximately 2.8 million, 1.7 million and 2.4 million shares, respectively, for the years ended February 3, 2024, January 28, 2023 and January 29, 2022, which 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 diluted share.

​

11.	STOCK-BASED COMPENSATION

​

The Company recognizes compensation expense for all share-based payments granted. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award based on the fair value at the date of the grant.

​

The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the underlying shares on the grant date of the award. The Company accounts for stock options under the fair value recognition provisions. Stock options typically expire 10 years from the date of grant. Stock options vest between one and four years from the date of grant.

​

​

In addition to the stock options described above, the Company awards restricted stock to employees and incentive shares to nonemployee directors under various plans. The restrictions on the restricted share awards generally lapse between one and four years from the date of the awards. The Company determines the fair value for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award.

​

At February 3, 2024, approximately 40 million common shares were available for future options or restricted stock grants under the 2019 Amended and Restated Long-Term Incentive Plan. Options granted reduce the shares available under the Plans at a ratio of one to one. Restricted stock grants reduce the shares available under the Plans at a ratio of 2.83 to one.

​

Equity awards granted are based on the aggregate value of the award on the grant date. This can affect the number of shares granted in a given year as equity awards. Excess tax benefits related to equity awards are recognized in the provision for income taxes. Equity awards may be approved at one of four meetings of its Board of Directors occurring shortly after the Company’s release of quarterly earnings. The 2023 primary grants were made in conjunction with the March and June meetings of the Company’s Board of Directors.

​

All awards become immediately exercisable upon certain changes of control of the Company.

​

Stock Options

​

Changes in options outstanding under the stock option plans are summarized below:

​

​	​	​	​	​	​	​
​		Shares		Weighted-
​	​	subject	​	average
​	​	to option	​	exercise
​		(in millions)		price
Outstanding, year-end 2020		26.8	​	$	26.65	​
Granted		2.1	​	$	35.45	​
Exercised		(7.1)	​	$	24.70	​
Canceled or Forfeited		(0.7)	​	$	28.88	​
​	​	​	​	​	​	​
Outstanding, year-end 2021		21.1	​	$	28.15	​
Granted		1.2	​	$	56.13	​
Exercised		(5.4)	​	$	26.02	​
Canceled or Forfeited		(0.3)	​	$	31.54	​
​	​	​	​	​	​	​
Outstanding, year-end 2022		16.6	​	$	30.81	​
Granted		1.3	​	$	47.23	​
Exercised		(2.4)	​	$	24.04	​
Canceled or Forfeited		(0.1)	​	$	39.45	​
​	​	​	​	​	​	​
Outstanding, year-end 2023		15.4	​	$	33.11	​

​

A summary of options outstanding, exercisable and expected to vest at February 3, 2024 follows:

​

​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	Weighted-average	​	​	​	​	Aggregate
​	​	​	​	remaining	​	Weighted-average		​	intrinsic
​		Number of shares		contractual life		exercise price		​	value
​		(in millions)		(in years)	​	​	​	​	(in millions)		​
Options Outstanding		15.4		4.78	​	$	33.11	​	$	214	​
Options Exercisable		11.8		3.84	​	$	30.01	​	$	194	​
Options Expected to Vest		3.5		7.87	​	$	43.24	​	$	20	​

​

​

​

Restricted stock

​

Changes in restricted stock outstanding under the restricted stock plans are summarized below:

​

​	​	​	​	​	​	​
​		Restricted		​	​
​	​	shares	​	Weighted-average
​	​	outstanding	​	grant-date
​	​	(in millions)	​	fair value
Outstanding, year-end 2020		7.8	​	$	28.46	​
Granted		3.9	​	$	37.29	​
Lapsed		(4.0)	​	$	29.58	​
Canceled or Forfeited		(0.5)	​	$	31.31	​
​	​	​	​	​	​	​
Outstanding, year-end 2021		7.2	​	$	32.52	​
Granted		3.0	​	$	50.50	​
Lapsed		(4.0)	​	$	32.16	​
Canceled or Forfeited		(0.4)	​	$	38.32	​
​	​	​	​	​	​	​
Outstanding, year-end 2022		5.8	​	$	41.76	​
Granted		3.5	​	$	47.06	​
Lapsed		(3.1)	​	$	40.37	​
Canceled or Forfeited		(0.3)	​	$	45.32	​
​	​	​	​	​	​	​
Outstanding, year-end 2023		5.9	​	$	45.49	​

​

The weighted-average grant date fair value of stock options granted during 2023, 2022 and 2021 was $15.17, $15.91 and $8.54, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The Black-Scholes model utilizes accounting judgment and financial estimates, including the term option holders are expected to retain their stock options before exercising them, the volatility of the Company’s share price over that expected term, the dividend yield over the term and the number of awards expected to be forfeited before they vest. Using alternative assumptions in the calculation of fair value would produce fair values for stock option grants that could be different than those used to record stock-based compensation expense in the Consolidated Statements of Operations. The decrease in the fair value of the stock options granted during 2023, compared to 2022, resulted primarily from decreases in the Company’s share price, partially offset by an increase in the weighted-average risk-free interest rate. The increase in the fair value of the stock options granted during 2022, compared to 2021, resulted primarily from increases in the Company’s share price, the weighted-average expected volatility, and an increase in the weighted-average risk-free interest rate.

​

The following table reflects the weighted-average assumptions used for grants awarded to option holders:

​

​	​	​	​	​	​	​	​
​		2023		2022		2021
Weighted average expected volatility		31.14	%	30.47	%	28.52	%
Weighted average risk-free interest rate		4.09	%	2.09	%	1.21	%
Expected dividend yield		2.11	%	1.82	%	2.00	%
Expected term (based on historical results)		7.1	years	7.2	years	7.2	years

​

The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date, continuously compounded, which matures at a date that approximates the expected term of the options. The dividend yield was based on our history and expectation of dividend payouts. Expected volatility was determined based upon historical stock volatilities; however, implied volatility was also considered. Expected term was determined based upon historical exercise and cancellation experience.

​

Total stock compensation recognized in 2023, 2022 and 2021 was $172, $190 and $203, respectively. Stock option compensation recognized in 2023, 2022 and 2021 was $17, $19 and $20, respectively. Restricted shares compensation recognized in 2023, 2022 and 2021 was $155, $171 and $183, respectively.

​

​

The total intrinsic value of stock options exercised was $55, $159 and $121 in 2023, 2022 and 2021, respectively. The total amount of cash received in 2023 by the Company from the exercise of stock options granted under share-based payment arrangements was $50. As of February 3, 2024, there was $212 of total unrecognized compensation expense remaining related to non-vested share-based compensation arrangements granted under the Plans. This cost is expected to be recognized over a weighted-average period of approximately two years. The total fair value of options that vested was $16, $19 and $20 in 2023, 2022 and 2021, respectively.

​

Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury shares. Proceeds received from the exercise of options, and the related tax benefit, may be utilized to repurchase the Company’s common shares under a stock repurchase program adopted by the Company’s Board of Directors. During 2023, the Company repurchased approximately one million common shares in such a manner.

​

12.	COMMITMENTS AND CONTINGENCIES

​

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.

​

The principal contingencies are described below:

​

Insurance — The Company’s workers’ compensation risks are self-insured in most states. In addition, other workers’ compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans and self-insured retention plans. The liability for workers’ compensation risks is accounted for on a present value basis. Actual claim settlements and expenses incident thereto may differ from the provisions for loss. Property risks have been underwritten by a subsidiary and are all reinsured with unrelated insurance companies. Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates.

​

Litigation — Various claims and lawsuits arising in the normal course of business, including personal injury, contract disputes, employment discrimination, wage and hour and other regulatory claims are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. 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 when an adverse outcome is probable. Nonetheless, assessing and predicting the outcomes of these matters involves 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.

​

The Company is one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to create a public nuisance through the distribution and dispensing of opioids.

​

On September 8, 2023, the Company announced that it reached an agreement in principle with plaintiffs to settle the majority of opioid claims that have been or could be brought against Kroger by states in which they operate, subdivisions, and Native American tribes. Along with the execution of certain non-monetary conditions that remain under discussion, the Company has agreed to pay up to $1,200 to states and subdivisions and $36 to Native American tribes in funding for abatement efforts, and approximately $177 to cover attorneys’ fees and costs. States, subdivisions, and the Native American tribes will have an opportunity to opt-in to participate in the settlement, and the Company will have full discretion to determine whether there is sufficient participation for the settlement to become effective. If all conditions are satisfied, the settlement would allow for the full resolution of all claims on behalf of participating states, subdivisions and Native American tribes and is not an admission of any wrongdoing or liability.

​

As a result, the Company concluded that the agreement in principle for the settlement of opioid claims was probable, and for which the related loss was reasonably estimable. Accordingly, in 2023, the Company recognized opioid settlement charges of $1,413, $1,113 net of tax, relating to the nationwide opioid settlement framework. This charge is included in “Operating, general and administrative” in the Company’s Consolidated Statement of Operations.

​

The agreement in principle described above includes payments of approximately $1,236 and $177, in equal installments over 11 years and 6 years, respectively. As of February 3, 2024, the Company recorded $284 and $1,129 of the estimated settlement liability in “Other current liabilities” and “Other long-term liabilities,” respectively, in the Company’s Consolidated Balance Sheets. The current portion of the estimated settlement liability is recorded in “Accrued expenses” and the long-term portion of the estimated settlement liability is recorded in “Other” within “Changes in operating assets and liabilities” in the Company’s Consolidated Statement of Cash Flows for fiscal year 2023.

​

Because of the conditions remaining to satisfy, the Company cannot predict if the agreement will become effective, and whether unfavorable developments may occur. The amount of the actual loss may differ materially from the accrual estimate recorded as of February 3, 2024.

​

Additionally, in 2023, the Company recorded a charge of $62 relating to a settlement of opioid litigation claims with the State of West Virginia. The agreed upon settlement framework resolves all opioid lawsuits and claims by the West Virginia Attorney General.

​

In 2022, the Company recorded a charge of $85 relating to a settlement of opioid litigation claims with the State of New Mexico. The agreed upon settlement framework allocates $85 among various constituents related to the state of New Mexico. This settlement agreement resolved all opioid lawsuits and claims by the state of New Mexico against the Company.

​

The foregoing settlements are not admissions of wrongdoing or liability by the Company and the Company will continue to vigorously defend against any other claims and lawsuits relating to opioids that the settlements do not resolve.

​

Assignments — The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees is unable to fulfill its lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote.

​

​

13.	STOCK

​

Preferred Shares

​

The Company has authorized five million shares of voting cumulative preferred shares; two million shares were available for issuance at February 3, 2024. The shares have a par value of $100 per share and are issuable in series.

​

Common Shares

​

The Company has authorized two billion common shares, $1 par value per share.

​

Common Stock Repurchase Program

​

The Company maintains stock repurchase programs that comply with Rule 10b5-1 of the Securities Exchange Act of 1934 to allow for the orderly repurchase of The Kroger Co. common shares, from time to time. The Company made no open market purchases in 2023. The Company made open market purchases totaling $821 and $1,422 under these repurchase programs in 2022 and 2021, respectively.

​

In addition to these repurchase programs, in December 1999, the Company began a program to repurchase common shares to reduce dilution resulting from its employee stock option plans. This program is solely funded by proceeds from stock option exercises and the related tax benefit. The Company repurchased approximately $62, $172 and $225 under the stock option program during 2023, 2022 and 2021, respectively.

​

14.	COMPANY- SPONSORED BENEFIT PLANS

​

The Company administers non-contributory defined benefit retirement plans for some non-union employees and union-represented employees as determined by the terms and conditions of collective bargaining agreements. These include several qualified pension plans (the “Qualified Plans”) and non-qualified pension plans (the “Non-Qualified Plans”). The Non-Qualified Plans pay benefits to any employee that earns in excess of the maximum allowed for the Qualified Plans by Section 415 of the Internal Revenue Code. The Company only funds obligations under the Qualified Plans. Funding for the company-sponsored pension plans is based on a review of the specific requirements and on evaluation of the assets and liabilities of each plan.

​

In addition to providing pension benefits, the Company provides certain health care benefits for retired employees. Based on an employee’s age, years of service and position with the Company, the employee may be eligible for retiree health care benefits. Funding of retiree health care benefits occurs as claims or premiums are paid.

​

The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets. Actuarial gains or losses and prior service credits that have not yet been recognized as part of net periodic benefit cost are required to be recorded as a component of AOCI. The Company has elected to measure defined benefit plan assets and obligations as of January 31, which is the month-end that is closest to its fiscal year-ends.

​

​

Amounts recognized in AOCI as of February 3, 2024 and January 28, 2023 consist of the following (pre-tax):

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Pension Benefits					​	Other Benefits					​	Total
​		2023			2022			2023			2022			2023			2022
Net actuarial loss (gain)	​	$	817	​	$	785	​	$	(92)	​	$	(108)	​	$	725	​	$	677	​
Prior service credit	​		—	​		—	​		(11)	​		(23)	​		(11)	​		(23)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total	​	$	817	​	$	785	​	$	(103)	​	$	(131)	​	$	714	​	$	654	​

​

Other changes recognized in other comprehensive income (loss) in 2023, 2022 and 2021 were as follows (pre-tax):

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Pension Benefits								​	Other Benefits								​	Total
​		2023			2022			2021			2023			2022			2021			2023			2022			2021
Incurred net actuarial loss (gain)	​	$	42	​	$	101	​	$	(109)	​	$	4	​	$	15	​	$	2	​	$	46	​	$	116	​	$	(107)	​
Amortization of prior service credit	​		—	​		—	​		—	​		11	​		13	​		12	​		11	​		13	​		12	​
Amortization of net actuarial gain (loss)	​		(10)	​		(31)	​		(126)	​		13	​		11	​		17	​		3	​		(20)	​		(109)	​
Total recognized in other comprehensive income (loss)	​	$	32	​	$	70	​	$	(235)	​	$	28	​	$	39	​	$	31	​	$	60	​	$	109	​	$	(204)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total recognized in net periodic benefit cost and other comprehensive income (loss)	​	$	36	​	$	58	​	$	(164)	​	$	15	​	$	25	​	$	10	​	$	51	​	$	83	​	$	(154)	​

​

Information with respect to change in benefit obligation, change in plan assets, the funded status of the plans recorded in the Consolidated Balance Sheets, net amounts recognized at the end of fiscal years, weighted-average assumptions and components of net periodic benefit cost follow:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Pension Benefits											​	​	​	​	​	​
​	​	Qualified Plans					​	Non-Qualified Plans					​	Other Benefits
​		2023			2022			2023			2022			2023			2022
Change in benefit obligation:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Benefit obligation at beginning of fiscal year	​	$	2,463	​	$	2,977	​	$	271	​	$	325	​	$	165	​	$	150	​
Service cost	​		17	​		8	​		—	​		—	​		4	​		5	​
Interest cost	​		116	​		92	​		13	​		10	​		8	​		5	​
Plan participants’ contributions	​		4	​		4	​		—	​		—	​		9	​		12	​
Actuarial (gain) loss	​		(42)	​		(421)	​		(3)	​		(40)	​		—	​		8	​
Plan settlements	​	​	(11)	​	​	(33)	​	​	(1)	​	​	(2)	​	​	—	​	​	—	​
Benefits paid	​		(165)	​		(159)	​		(24)	​		(22)	​		(21)	​		(22)	​
Other	​		(14)	​		(5)	​		—	​		—	​		3	​		7	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Benefit obligation at end of fiscal year	​	$	2,368	​	$	2,463	​	$	256	​	$	271	​	$	168	​	$	165	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Change in plan assets:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Fair value of plan assets at beginning of fiscal year	​	$	2,496	​	$	3,096	​	$	—	​	$	—	​	$	—	​	$	—	​
Actual return on plan assets	​		65	​		(409)	​		—	​		—	​		—	​		—	​
Employer contributions	​		27	​		2	​		26	​		24	​		12	​		10	​
Plan participants’ contributions	​		4	​		4	​		—	​		—	​		9	​		12	​
Plan settlements	​	​	(11)	​	​	(33)	​	​	(2)	​	​	(2)	​	​	—	​	​	—	​
Benefits paid	​		(165)	​		(159)	​		(24)	​		(22)	​		(21)	​		(22)	​
Other	​		(17)	​		(5)	​		—	​		—	​		—	​		—	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Fair value of plan assets at end of fiscal year	​	$	2,399	​	$	2,496	​	$	—	​	$	—	​	$	—	​	$	—	​
Funded (unfunded) status and net asset and liability recognized at end of fiscal year	​	$	31	​	$	33	​	$	(256)	​	$	(271)	​	$	(168)	​	$	(165)	​

​

​

​

As of February 3, 2024, other assets and other current liabilities include $44 and $36, respectively, of the net asset and liability recognized for the above benefit plans. As of January 28, 2023, other assets and other current liabilities include $69 and $36, respectively, of the net asset and liability recognized for the above benefit plans. Pension plan assets do not include common shares of The Kroger Co.

​

The following table outlines the weighted average assumptions associated with pension and other benefit costs for 2023, 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Pension Benefits					​	Other Benefits
Weighted average assumptions		2023		2022		2021		2023		2022		2021
Discount rate — Benefit obligation		5.27	%	4.90	%	3.17	%	5.21	%	4.86	%	3.01	%
Discount rate — Net periodic benefit cost		4.90	%	3.17	%	2.72	%	4.86	%	3.01	%	2.43	%
Expected long-term rate of return on plan assets		5.50	%	5.50	%	5.50	%	​	​	​	​	​	​
Rate of compensation increase — Net periodic benefit cost		2.57	%	3.05	%	3.03	%	​	​	​	​	​	​
Rate of compensation increase — Benefit obligation		2.52	%	2.57	%	3.05	%	​	​	​	​	​	​
Cash Balance plan interest crediting rate	​	3.30	%	3.30	%	3.30	%	​	​	​	​	​	​

​

The Company’s discount rate assumptions were intended to reflect the rates at which the pension benefits could be effectively settled. They take into account the timing and amount of benefits that would be available under the plans. The Company’s policy is to match the plan’s cash flows to that of a hypothetical bond portfolio whose cash flow from coupons and maturities match the plan’s projected benefit cash flows. The discount rates are the single rates that produce the same present value of cash flows. The selection of the 5.27% and 5.21% discount rates as of year-end 2023 for pension and other benefits, respectively, represents the hypothetical bond portfolio using bonds with an AA or better rating constructed with the assistance of an outside consultant. A 100-basis point increase in the discount rate would decrease the projected pension benefit obligation as of February 3, 2024, by approximately $210.

​

The Company’s assumed pension plan investment return rate was 5.50% in 2023, 2022, and 2021. The value of all investments in the company-sponsored defined benefit pension plans during the calendar year ended December 31, 2023, net of investment management fees and expenses, increased 8.2% and for fiscal year 2023 investments increased 2.8%. Historically, the Company’s pension plans’ average rate of return was 4.8% for the 10 calendar years ended December 31, 2023, net of all investment management fees and expenses. For the past 20 years, the Company’s pension plans’ average annual rate of return has been 7.1%. To determine the expected rate of return on pension plan assets held by the Company, the Company considers current and forecasted plan asset allocations as well as historical and forecasted rates of return on various asset categories.

​

The Company calculates its expected return on plan assets by using the market-related value of plan assets. The market-related value of plan assets is determined by adjusting the actual fair value of plan assets for gains or losses on plan assets. Gains or losses represent the difference between actual and expected returns on plan investments for each plan year. Gains or losses on plan assets are recognized evenly over a five-year period. Using a different method to calculate the market-related value of plan assets would provide a different expected return on plan assets.

​

The pension benefit unfunded status decreased in 2023, compared to 2022, due primarily to an increase in discount rates, which lowered the benefit obligation more than the plan’s lower actual rate of return versus expected rate of return on assets. The Company’s Qualified Plans were fully funded as of February 3, 2024 and January 28, 2023.

​

​

The following table provides the components of the Company’s net periodic benefit costs for 2023, 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Pension Benefits																	​	​	​	​	​	​	​	​	​
​	​	Qualified Plans								​	Non-Qualified Plans								​	Other Benefits
​		2023			2022			2021			2023			2022			2021			2023			2022			2021
Components of net periodic benefit cost:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost	​	$	17	​	$	8	​	$	12	​	$	—	​	$	—	​	$	—	​	$	4	​	$	5	​	$	4	​
Interest cost	​		116	​		92	​		92	​		13	​		10	​		9	​		8	​		5	​		4	​
Expected return on plan assets	​		(150)	​		(153)	​		(168)	​		—	​		—	​		—	​		—	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service credit	​		—	​		—	​		—	​		—	​		—	​		—	​		(11)	​		(13)	​		(12)	​
Actuarial (gain) loss	​		5	​		22	​		33	​		4	​		5	​		6	​		(13)	​		(11)	​		(17)	​
Settlement loss recognized	​	​	1	​	​	4	​	​	87	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—	​	​	—	​
Other	​	​	—	​		—	​		(1)	​		(2)	​		—	​		1	​		(1)	​		—	​		—	​
Net periodic benefit cost	​	$	(11)	​	$	(27)	​	$	55	​	$	15	​	$	15	​	$	16	​	$	(13)	​	$	(14)	​	$	(21)	​

​

The following table provides the projected benefit obligation (“PBO”) and the fair value of plan assets for those company-sponsored pension plans with projected benefit obligations in excess of plan assets:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Qualified Plans					​	Non-Qualified Plans
​		2023			2022			2023			2022
PBO at end of fiscal year	​	$	159	​	$	176	​	$	256	​	$	271	​
Fair value of plan assets at end of year	​	$	150	​	$	141	​	$	—	​	$	—	​

​

The following table provides the accumulated benefit obligation (“ABO”) and the fair value of plan assets for those company-sponsored pension plans with accumulated benefit obligations in excess of plan assets:

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Qualified Plans					​	Non-Qualified Plans
​		2023			2022			2023			2022
ABO at end of fiscal year	​	$	159	​	$	176	​	$	256	​	$	271
Fair value of plan assets at end of year	​	$	150	​	$	141	​	$	—	​	$	—

​

The following table provides information about the Company’s estimated future benefit payments:

​

​	​	​	​	​	​	​	​
​		Pension			Other
​	​	Benefits		​	Benefits
2024	​	$	210	​	$	13	​
2025	​	$	210	​	$	14	​
2026	​	$	211	​	$	15	​
2027	​	$	210	​	$	16	​
2028	​	$	208	​	$	16	​
2029 —2033	​	$	982	​	$	80	​

​

​

​

The following table provides information about the target and actual pension plan asset allocations as of February 3, 2024:

​

​	​	​	​	​	​	​	​
​	​	​	​	Actual
​	​	Target allocations	​	Allocations
​		2023		2023		2022
Pension plan asset allocation	​	​	​	​	​	​	​
Global equity securities		5.0	%	5.4	%	4.9	%
Investment grade debt securities		78.0	​	78.9	​	75.8	​
High yield debt securities		3.0	​	3.1	​	2.9	​
Private equity		10.0	​	8.5	​	9.8	​
Hedge funds		2.0	​	2.4	​	2.3	​
Real estate		2.0	​	1.7	​	1.8	​
Other		—	​	—	​	2.5	​
​	​	​	​	​	​	​	​
Total		100.0	%	100.0	%	100.0	%

​

Investment objectives, policies and strategies are set by the Retirement Benefit Plan Management Committee (the “Committee”). The primary objectives include holding and investing the assets and distributing benefits to participants and beneficiaries of the pension plans. Investment objectives have been established based on a comprehensive review of the capital markets and each underlying plan’s current and projected financial requirements. The time horizon of the investment objectives is long-term in nature and plan assets are managed on a going-concern basis.

​

Investment objectives and guidelines specifically applicable to each manager of assets are established and reviewed annually. Derivative instruments may be used for specified purposes, including rebalancing exposures to certain asset classes. Any use of derivative instruments for a purpose or in a manner not specifically authorized is prohibited, unless approved in advance by the Committee.

​

The target allocations shown for 2023 were established at the beginning of 2023 based on the Company’s liability-driven investment (“LDI”) strategy. An LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability.

​

The Company did not make any significant contributions to its company-sponsored pension plans in 2023, and the Company is not required to make any contributions to these plans in 2024. If the Company does make any contributions in 2024, the Company expects these contributions will decrease its required contributions in future years. Among other things, investment performance of plan assets, the interest rates required to be used to calculate the pension obligations and future changes in legislation, will determine the amounts of any contributions. The Company expects 2024 net periodic benefit costs for company-sponsored pension plans to be approximately $(2).

​

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The Company used a 6.90% initial health care cost trend rate, which is assumed to decrease on a linear basis to a 4.00% ultimate health care cost trend rate in 2046, to determine its expense.

​

​

The following tables, set forth by level within the fair value hierarchy, present the Qualified Plans’ assets at fair value as of February 3, 2024 and January 28, 2023:

​

Assets at Fair Value as of February 3, 2024

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Quoted Prices in		​	​	​	​	Significant		​	​		​	​	​
​	​	Active Markets for		​	Significant Other		​	Unobservable		​	Assets		​	​	​
​	​	Identical Assets		​	Observable Inputs		​	Inputs		​	Measured		​	​	​
​		(Level 1)			(Level 2)			(Level 3)			at NAV			Total
Cash and cash equivalents	​	$	151	​	$	—	​	$	—	​	$	—	​	$	151	​
Corporate Stocks	​		2	​		—	​		—	​		—	​		2	​
Corporate Bonds	​		—	​		1,092	​		—	​		—	​		1,092	​
U.S. Government Securities	​		—	​		140	​		—	​		—	​		140	​
Mutual Funds	​		108	​		—	​		—	​		—	​		108	​
Collective Trusts	​		—	​		—	​		—	​		513	​		513	​
Hedge Funds	​		—	​		—	​		29	​		29	​		58	​
Private Equity	​		—	​		—	​		—	​		203	​		203	​
Real Estate	​		—	​		—	​		24	​		15	​		39	​
Other	​		—	​		93	​		—	​		—	​		93	​
Total	​	$	261	​	$	1,325	​	$	53	​	$	760	​	$	2,399	​

​

Assets at Fair Value as of January 28, 2023

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Quoted Prices in		​	​	​	​	Significant		​	​		​	​	​
​	​	Active Markets for		​	Significant Other		​	Unobservable		​	Assets		​	​	​
​	​	Identical Assets		​	Observable Inputs		​	Inputs		​	Measured		​	​	​
​		(Level 1)			(Level 2)			(Level 3)			at NAV			Total
Cash and cash equivalents	​	$	178	​	$	—	​	$	—	​	$	—	​	$	178	​
Corporate Stocks	​		4	​		—	​		—	​		—	​		4	​
Corporate Bonds	​		—	​		1,113	​		—	​		—	​		1,113	​
U.S. Government Securities	​		—	​		115	​		—	​		—	​		115	​
Mutual Funds	​		124	​		—	​		—	​		—	​		124	​
Collective Trusts	​		—	​		—	​		—	​		514	​		514	​
Hedge Funds	​		—	​		—	​		31	​		28	​		59	​
Private Equity	​		—	​		—	​		—	​		248	​		248	​
Real Estate	​		—	​		—	​		28	​		16	​		44	​
Other	​		—	​		97	​		—	​		—	​		97	​
Total	​	$	306	​	$	1,325	​	$	59	​	$	806	​	$	2,496	​

​

Certain investments that are measured at fair value using the NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented for these investments in the preceding tables are intended to permit reconciliation of the fair value hierarchies to the total fair value of plan assets.

​

​

For measurements using significant unobservable inputs (Level 3) during 2023 and 2022, a reconciliation of the beginning and ending balances is as follows:

​

​	​	​	​	​	​	​
​		Hedge Funds			Real Estate
Ending balance, January 29, 2022	​	$	39	​	$	37
Contributions into Fund	​		—	​		1
Realized gains	​		—	​		12
Unrealized gains	​		(3)	​		(6)
Distributions	​		(5)	​		(16)
​	​	​	​	​	​	​
Ending balance, January 28, 2023	​		31	​		28
Contributions into Fund	​		—	​		1
Realized gains	​		1	​		—
Unrealized gains	​		1	​		(3)
Distributions	​		(4)	​		(2)
​	​	​	​	​	​	​
Ending balance, February 3, 2024	​	$	29	​	$	24

​

See Note 7 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement.

​

The following is a description of the valuation methods used for the Qualified Plans’ assets measured at fair value in the above tables:

​

	●	Cash and cash equivalents: The carrying value approximates fair value.

​

	●	Corporate Stocks: The fair values of these securities are based on observable market quotations for identical assets and are valued at the closing price reported on the active market on which the individual securities are traded.

​

	●	Corporate Bonds: The fair values of these securities are primarily based on observable market quotations for similar bonds, valued at the closing price reported on the active market on which the individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flow approach using current yields on similar instruments of issuers with similar credit ratings, including adjustments for certain risks that may not be observable, such as credit and liquidity risks.

​

	●	U.S. Government Securities: Certain U.S. Government securities are valued at the closing price reported in the active market in which the security is traded. Other U.S. government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for similar securities, the security is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.

​

	●	Mutual Funds: The fair values of these securities are based on observable market quotations for identical assets and are valued at the closing price reported on the active market on which the individual securities are traded.

​

	●	Collective Trusts: The collective trust funds are public investment vehicles valued using a Net Asset Value (NAV) provided by the manager of each fund. These assets have been valued using NAV as a practical expedient.

​

	●	Hedge Funds: The Hedge funds classified as Level 3 include investments that are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3. Certain other hedge funds are private investment vehicles valued using a NAV provided by the manager of each fund. These assets have been valued using NAV as a practical expedient.

​

​

	●	Private Equity: Private Equity investments are valued based on the fair value of the underlying securities within the fund, which include investments both traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager to value investments. Fair values of all investments are adjusted annually, if necessary, based on audits of the private equity fund financial statements; such adjustments are reflected in the fair value of the plan’s assets.

​

	●	Real Estate: Real estate investments include investments in real estate funds managed by a fund manager. These investments are valued using a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches. The valuations for these investments are not based on readily observable inputs and are classified as Level 3 investments. Certain other real estate investments are valued using a NAV provided by the manager of each fund. These assets have been valued using NAV as a practical expedient.

​

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

​

The Company contributed and expensed $322, $315 and $289 to employee 401(k) retirement savings accounts in 2023, 2022 and 2021, respectively. The 401(k) retirement savings account plans provide to eligible employees both matching contributions and automatic contributions from the Company based on participant contributions, compensation as defined by the plan and length of service.

​

15.	MULTI-EMPLOYER PENSION PLANS

​

The Company contributes to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These multi-employer pension plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed in equal number by employers and unions. The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.

​

The Company recognizes expense in connection with these plans as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. The Company made cash contributions to these plans of $635 in 2023, $620 in 2022 and $1,109 in 2021. The decrease in 2023 and 2022, compared to 2021, is due to the contractual payments the Company made in 2021 related to its commitments established for the restructuring of certain multi-employer pension plan agreements.

​

The Company continues to evaluate and address potential exposure to under-funded multi-employer pension plans as it relates to the Company’s associates who are beneficiaries of these plans. These under-fundings are not a liability of the Company. When an opportunity arises that is economically feasible and beneficial to the Company and its associates, the Company may negotiate the restructuring of under-funded multi-employer pension plan obligations to help stabilize associates’ future benefits and become the fiduciary of the restructured multi-employer pension plan. The commitments from these restructurings do not change the Company’s debt profile as it relates to its credit rating since these off-balance sheet commitments are typically considered in the Company’s investment grade debt rating.

​

​

The Company is currently designated as the named fiduciary of the United Food and Commercial Workers (“UFCW”) Consolidated Pension Plan and the International Brotherhood of Teamsters (“IBT”) Consolidated Pension Fund and has sole investment authority over these assets. Due to opportunities arising, the Company has restructured certain multi-employer pension plans. The significant effects of these restructuring agreements recorded in our Consolidated Financial Statements are:

​

	●	In 2022, the Company incurred a $25 charge, $19 net of tax, for obligations related to withdrawal liabilities for certain multi-employer pension funds.

​

	●	In 2021, associates within the Fred Meyer and QFC divisions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. The Company transferred $449, $344 net of tax, in net accrued pension liabilities and prepaid escrow funds to fulfill obligations for past service for associates and retirees. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and will be paid evenly over seven years.

​

The risks of participating in multi-employer pension plans are different from the risks of participating in single-employer pension plans in the following respects:

​

	●	Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

​

	●	If a participating employer stops contributing to the plan, the unfunded obligations of the plan allocable to such withdrawing employer may be borne by the remaining participating employers.

​

	●	If the Company stops participating in some of its multi-employer pension plans, the Company may be required to pay those plans an amount based on its allocable share of the unfunded vested benefits of the plan, referred to as a withdrawal liability.

​

The Company’s participation in multi-employer plans is outlined in the following tables. The EIN / Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit pension plan number. The most recent Pension Protection Act Zone Status available in 2023 and 2022 is for the plan’s year-end at December 31, 2022 and December 31, 2021, respectively. Among other factors, generally, plans in the red zone are less than 65 percent funded, plans in the yellow zone are less than 80 percent funded and plans in the green zone are at least 80 percent funded. The FIP/RP Status Pending / Implemented Column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Unless otherwise noted, the information for these tables was obtained from the Forms 5500 filed for each plan’s year-end at December 31, 2022 and December 31, 2021. The multi-employer contributions listed in the table below are the Company’s multi-employer contributions made in fiscal years 2023, 2022 and 2021.

​

​

The following table contains information about the Company’s multi-employer pension plans:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​								FIP/RP			​			​			​
​	​	​	​	Pension Protection			​	Status	​	​	​	​	​	​	​	​	​	​	​
​	​	EIN / Pension	​	Act Zone Status			​	Pending/	​	Multi-Employer Contributions								​	Surcharge
Pension Fund	​	Plan Number	​	2023	​	2022	​	Implemented	​	2023		​	2022		​	2021		​	Imposed(5)
SO CA UFCW Unions & Food Employers Joint Pension Trust Fund(1)(2)		95-1939092 - 001		Red		Red		Implemented	​	$	83	​	$	84	​	$	83		No	​
Desert States Employers & UFCW Unions Pension Plan(1)		84-6277982 - 001		Green		Green		No	​		19	​		20	​		22		No	​
Sound Variable Annuity Pension Trust(1)(3)		86-3278029 - 001		Green		Green		No	​		15	​		14	​		24		No	​
Rocky Mountain UFCW Unions and Employers Pension Plan(1)		84-6045986 - 001		Green		Green		No	​		27	​		27	​		29		No	​
Oregon Retail Employees Pension Plan(1)		93-6074377 - 001		Green		Red		Implemented	​		10	​		9	​		10		No	​
Bakery and Confectionary Union & Industry International Pension Fund(1)		52-6118572 - 001		Red		Red		Implemented	​		7	​		7	​		8		No	​
Retail Food Employers & UFCW Local 711 Pension(1)		51-6031512 - 001		Red		Red		Implemented	​		11	​		11	​		11		No	​
UFCW International Union — Industry Variable Annuity Pension Plan(4)		51-6055922 - 001		Green		Green		No	​		263	​		282	​		550		No	​
Western Conference of Teamsters Pension Plan		91-6145047 - 001		Green		Green		No	​		39	​		40	​		37		No	​
Central States, Southeast & Southwest Areas Pension Plan		36-6044243 - 001		Red		Red		Implemented	​		40	​		34	​		37		No	​
UFCW Consolidated Pension Plan(1)		58-6101602 – 001		Green		Green		No	​		98	​		56	​		243		No	​
IBT Consolidated Pension Plan(1)(6)	​	82-2153627 - 001	​	N/A	​	N/A	​	No	​	​	7	​	​	7	​	​	29	​	No	​
Other	​	​	​	​	​	​	​	​	​		16	​		29	​		26	​	​	​
Total Contributions	​	​	​	​	​	​	​	​	​	$	635	​	$	620	​	$	1,109	​	​	​

(1)	The Company's multi-employer contributions to these respective funds represent more than 5% of the total contributions received by the pension funds.

(2)	The information for this fund was obtained from the Form 5500 filed for the plan's year-end at March 31, 2023 and March 31, 2022.

(3)	The 2022 information for this fund was obtained from the Form 5500 filed for the plan’s year-end at September 30, 2021.

(4)	The information for this fund was obtained from the Form 5500 filed for the plan's year-end at June 30, 2022 and June 30, 2021.

(5)	Under the Pension Protection Act, a surcharge may be imposed when employers make contributions under a collective bargaining agreement that is not in compliance with a rehabilitation plan. As of February 3, 2024, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by the applicable pension fund.

(6)	The plan was formed after 2006, and therefore is not subject to zone status certifications.

​

​

The following table describes (a) the expiration date of the Company’s collective bargaining agreements and (b) the expiration date of the Company’s most significant collective bargaining agreements for each of the material multi-employer funds in which the Company participates:

​

​	​	​	​	​	​	​	​
​	​	Expiration Date	​	​	​	​
​	​	of Collective	​	Most Significant Collective
​	​	Bargaining	​	Bargaining Agreements(1)
Pension Fund		Agreements		Count		Expiration
SO CA UFCW Unions & Food Employers Joint Pension Trust Fund		June 2024 to March 2025		1		March 2025	​
UFCW Consolidated Pension Plan		February 2024 to August 2027		3		February 2024 to March 2026	​
Desert States Employers & UFCW Unions Pension Plan		June 2025 to March 2026		1		March 2026	​
Sound Variable Annuity Pension Trust		January 2024(2) to April 2026		4		May 2025	​
Rocky Mountain UFCW Unions and Employers Pension Plan		January 2025		1		January 2025	​
Oregon Retail Employees Pension Plan		August 2024 to March 2026		2		August 2024 to July 2025	​
Bakery and Confectionary Union & Industry International Pension Fund		April 2024 to September 2025		4		May 2024 to October 2024	​
Retail Food Employers & UFCW Local 711 Pension		January 2024(2) to April 2026		1		March 2025	​
UFCW International Union — Industry Variable Annuity Pension Plan		June 2025		1		June 2025	​
Western Conference of Teamsters Pension Plan		April 2024 to May 2027		4		April 2024 to September 2025	​
IBT Consolidated Pension Plan	​	September 2024 to September 2027	​	2	​	September 2024 to September 2027	​

(1)

This column represents the number of significant collective bargaining agreements and their expiration date for each of the Company’s pension funds listed above. For the purposes of this table, the “significant collective bargaining agreements” are the largest based on covered employees that, when aggregated, cover the majority of the employees for which we make multi-employer contributions for the referenced pension fund.

(2)	Certain collective bargaining agreements are operating under an extension.

​

Based on the most recent information available to it, the Company believes the present value of actuarial accrued liabilities in most of these multi-employer plans exceeds the value of the assets held in trust to pay benefits. Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these funds, the Company could trigger a withdrawal liability. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and it can be reasonably estimated.

​

The Company also contributes to various other multi-employer benefit plans that provide health and welfare benefits to active and retired participants. Total contributions made by the Company to these other multi-employer health and welfare plans were approximately $1,182 in 2023, $1,129 in 2022 and $1,197 in 2021.

​

16.	PROPOSED MERGER WITH ALBERTSONS COMPANIES, INC.

​

As previously disclosed, on October 13, 2022, the Company entered into a merger agreement with Albertsons Companies, Inc. (“Albertsons”) pursuant to which all of the outstanding shares of Albertsons common and preferred stock (on an as converted basis) automatically will be converted into the right to receive $34.10 per share, subject to certain reductions described below.

​

The per share cash purchase price of $34.10 payable to Albertsons shareholders in the merger would be reduced by an amount equal to $6.85, which is the per share amount of a special pre-closing cash dividend that was paid on January 20, 2023 to Albertsons shareholders of record as of October 24, 2022. The adjusted per share cash purchase price is expected to be $27.25.

​

In connection with obtaining the requisite regulatory clearance necessary to consummate the transaction, the Company and Albertsons expect to make store divestitures. Subject to the outcome of the divestiture process and as described in the merger agreement, Albertsons was prepared to establish an Albertsons subsidiary (“SpinCo”). SpinCo would be spun-off to Albertsons shareholders immediately prior to the closing of the merger and operate as a standalone public company. As described in more detail below, on September 8, 2023, the Company and Albertsons announced that they entered into a comprehensive divestiture plan with C&S Wholesale Grocers, LLC (“C&S”). As a result of the comprehensive divestiture plan announced with C&S, the Company has exercised its right under the merger agreement to sell what would have been the SpinCo business to C&S. Consequently, the spin-off previously contemplated by the Company and Albertsons is no longer a requirement under the merger agreement and will no longer be pursued by the Company and Albertsons.

​

On September 8, 2023, the Company and Albertsons announced they entered into a definitive agreement with C&S for the sale of 413 stores, as well as the QFC, Mariano’s and Carrs brand names, the exclusive licensing rights to the Albertsons banner in Arizona, California, Colorado and Wyoming, eight distribution centers, two offices and certain other assets in connection with the proposed merger. In addition, Kroger will divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands. All fuel centers and pharmacies associated with the divested stores will remain with the stores and continue to operate. The stores will be divested by the Company following the closing of the proposed merger with Albertsons. The definitive purchase agreement has customary representations and warranties and covenants of a transaction of its type. The transaction is subject to fulfillment of customary closing conditions, including clearance by the Federal Trade Commission (“FTC”) and the completion of the proposed merger. C&S will pay the Company all-cash consideration of approximately $1,900, including customary adjustments. Prior to the closing, the Company may, in connection with securing FTC and other governmental clearance, require C&S to purchase up to an additional 237 stores in certain geographies.

​

In connection with the merger agreement, on October 13, 2022, the Company entered into a commitment letter with certain lenders pursuant to which the lenders have committed to provide a $17,400 senior unsecured bridge term loan facility, which, if entered into, would mature 364 days after the closing date of the merger. The commitments are intended to be drawn to finance the merger with Albertsons only to the extent the Company does not arrange for alternative financing prior to closing. As alternative financing for the merger is secured, the commitments with respect to the bridge term loan facility under the commitment letter will be reduced. Upfront fees with respect to the bridge term loan facility are included in “Financing fees paid” in the Company’s Consolidated Statements of Cash Flows and will be recognized as operating, general and administrative expense in the Company’s Consolidated Statements of Operations over the commitment period.

​

On November 9, 2022, the Company executed a term loan credit agreement with certain lenders pursuant to which the lenders committed to provide, contingent upon the completion of the merger with Albertsons and certain other customary conditions to funding, (1) senior unsecured term loans in an aggregate principal amount of $3,000 maturing on the third anniversary of the merger closing date and (2) senior unsecured term loans in an aggregate principal amount of $1,750 maturing on the date that is 18 months after the merger closing date (collectively, the “Term Loan Facilities”). Borrowings under the Term Loan Facilities will be used to pay a portion of the consideration and other amounts payable in connection with the merger with Albertsons. The entry into the term loan credit agreement reduces the commitments under the Company’s $17,400 bridge facility commitment by $4,750. Borrowings under the Term Loan Facilities will bear interest at rates that vary based on the type of loan and the Company’s debt rating. In addition to the sources of financing described above, the Company expects to finance the transaction with senior notes issuances, borrowings under its commercial paper program, bank credit facility capacity and cash on hand.

In accordance with the terms of the agreement, the parties have extended, and may continue to extend the original outside date of January 13, 2024 from time to time in 30-day increments for up to 270 days in the aggregate ending on October 9, 2024. The Company will be obligated to pay a termination fee of $600 if the merger agreement is terminated by either party in connection with the occurrence of the Outside Date, and, at the time of such termination, all closing conditions other than regulatory approval have been satisfied.

On February 26, 2024, the Federal Trade Commission (“FTC”) instituted an administrative proceeding to prohibit the merger. Simultaneously, the FTC (joined by nine States) filed suit in the United States District Court for the District of Oregon, requesting a preliminary injunction to block the merger. On January 15, 2024 and February 14, 2024, the attorneys general of Washington and Colorado, respectively, filed suit in their respective state courts, also seeking to enjoin the merger. In the federal litigation, the Company and Albertsons have stipulated to a temporary restraining order that prevents the merger from closing until 11:59 PM Eastern Time on the fifth business day after the court rules on the FTC’s motion for a preliminary injunction or until after the date set by the court, whichever is later. The FTC administrative proceeding is currently scheduled to begin on July 31, 2024, while a preliminary injunction hearing in the federal case is set to begin on August 26, 2024. A trial on the State of Washington’s request for a permanent injunction is scheduled to begin on September 16, 2024. In conjunction with that lawsuit, the Defendants have committed that they will not close the merger until five days after that court rules (so long as that ruling occurs by a date certain). In the Colorado case, the court has scheduled a preliminary injunction hearing to begin on August 12, 2024 and a permanent injunction hearing to begin on September 30, 2024. In addition to these regulatory actions, private plaintiffs have filed suit in the United States District Court for the Northern District of California also seeking to enjoin the transaction. That case is stayed pending resolution of the FTC’s motion for a preliminary injunction. The Company, Albertsons and C&S continue to discuss enhancements to the divestiture plan to address issues raised by federal and state regulators.

​

17. RECENTLY ISSUED ACCOUNTING STANDARDS

​

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance amends existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently assessing the effect that adoption of this guidance will have on its Consolidated Financial Statements.

​

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently assessing the effect that adoption of this guidance will have on its Consolidated Financial Statements and segment disclosures.

​

18. SUBSEQUENT EVENTS

​

In the first quarter of 2024, the Company fully exited its position in a Level 1 equity investment, receiving proceeds totaling approximately $303 and resulting in a gain.

​

On March 18, 2024, the Company announced a definitive agreement for the sale of its Kroger Specialty Pharmacy business, subject to customary closing conditions and any regulatory reviews, to CarelonRx, a subsidiary of Elevance Health, for approximately $485. The transaction is expected to result in a gain, and it is expected to close in the second half of 2024.

​

​

​