Cover and table of contents

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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​

FORM 10-Q

​

​

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

For the quarterly period ended November 5, 2022

OR

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☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

For the transition period from to

Commission file number 1-303

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​

​

The Kroger Co.

(Exact name of registrant as specified in its charter)

​

​

​	​	​
Ohio	​	31-0345740
(State or other jurisdiction of	​	(I.R.S. Employer
incorporation or organization)	​	Identification No.)

​

1014 Vine Street**,** Cincinnati**,** Ohio 45202

(Address of principal executive offices)

(Zip Code)

​

(513) 762-4000

(Registrant’s telephone number, including area code)

​

Unchanged

(Former name, former address and former fiscal year, if changed since last report)

​

​

Securities registered pursuant to Section 12(b) of the Act:

​

Title of each class	Trading Symbol	Name of each exchange on which registered
Common, $1.00 Par Value	KR	New York Stock Exchange

​

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

​

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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​	​	​	​	​
Large accelerated filer	☒	​	Accelerated filer	☐
Non-accelerated filer	☐	​	Smaller reporting company	☐
​	​	​	Emerging growth company	☐

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

​

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

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There were 715,821,875 shares of Common Stock ($1 par value) outstanding as of December 6, 2022.

​

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PART I – FINANCIAL INFORMATION

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Item 1.	Financial Statements.

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Third Quarter Ended					​	Three Quarters Ended					​
​	​	November 5,		​	November 6,		​	November 5,		​	November 6,		​
(In millions, except per share amounts)		2022			2021			2022			2021
Sales	​	$	34,198	​	$	31,860	​	$	113,436	​	$	104,840	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​	​	​	​	​	​	​	​	​	​	​	​	​
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	​		26,890	​		24,959	​		89,234	​		81,820	​
Operating, general and administrative	​		5,587	​		5,177	​		18,001	​		17,692	​
Rent	​		195	​		197	​		642	​		648	​
Depreciation and amortization	​		685	​		659	​		2,259	​		2,168	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating profit	​		841	​		868	​		3,300	​		2,512	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other income (expense)	​	​	​	​	​	​	​	​	​	​	​	​	​
Interest expense	​	​	(119)	​	​	(135)	​	​	(422)	​	​	(438)	​
Non-service component of company-sponsored pension plan costs	​	​	11	​	​	(77)	​	​	38	​	​	(44)	​
Loss on investments	​	​	(207)	​	​	(94)	​	​	(637)	​	​	(694)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings before income tax expense	​		526	​		562	​		2,279	​		1,336	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income tax expense	​		126	​		77	​		481	​		239	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​		400	​		485	​		1,798	​		1,097	​
Net income attributable to noncontrolling interests	​		2	​		2	​		5	​		7	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co.	​	$	398	​	$	483	​	$	1,793	​	$	1,090	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per basic common share	​	$	0.55	​	$	0.64	​	$	2.47	​	$	1.44	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in basic calculation	​		716	​		742	​		719	​		747	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	0.55	​	$	0.64	​	$	2.44	​	$	1.43	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in diluted calculation	​		724	​		752	​		728	​		757	​

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Third Quarter Ended					​	Three Quarters Ended					​
​	​	November 5,		​	November 6,		​	November 5,		​	November 6,		​
(In millions)		2022			2021			2022			2021
Net earnings including noncontrolling interests	​	$	400	​	$	485	​	$	1,798	​	$	1,097	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other comprehensive income	​	​	​	​	​	​	​	​	​	​	​	​	​
Change in pension and other postretirement defined benefit plans, net of income tax(1)	​	​	13	​	​	132	​	​	12	​	​	134	​
Unrealized gains and losses on cash flow hedging activities, net of income tax(2)	​		37	​		—	​		37	​		—	​
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(3)	​	​	2	​	​	2	​	​	6	​	​	5	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total other comprehensive income	​		52	​		134	​		55	​	​	139	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income	​		452	​		619	​		1,853	​		1,236	​
Comprehensive income attributable to noncontrolling interests	​		2	​		2	​		5	​		7	​
Comprehensive income attributable to The Kroger Co.	​	$	450	​	$	617	​	$	1,848	​	$	1,229	​

(1)	Amount is net of tax of $37 for the third quarter of 2021. Amount is net of tax of $39 for the first three quarters of 2021.

(2)	Amount is net of tax of $11 for the third quarter and the first three quarters of 2022.

(3)	Amount is net of tax of $1 for the first three quarters of 2022 and $4 for the first three quarters of 2021.

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

​

THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(unaudited)

​

​	​	​	​	​	​	​	​
​		November 5,			January 29,
(In millions, except par amounts)	​	2022		​	2022
ASSETS	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​
Cash and temporary cash investments	​	$	916	​	$	1,821	​
Store deposits in-transit	​		1,209	​		1,082	​
Receivables	​		2,019	​		1,828	​
FIFO inventory	​		10,628	​		8,353	​
LIFO reserve	​		(1,962)	​		(1,570)	​
Prepaid and other current assets	​	​	593	​	​	660	​
Total current assets	​		13,403	​		12,174	​
​	​	​	​	​	​	​	​
Property, plant and equipment, net	​		24,080	​		23,789	​
Operating lease assets	​	​	6,705	​	​	6,695	​
Intangibles, net	​		906	​		942	​
Goodwill	​		3,076	​		3,076	​
Other assets	​		1,817	​		2,410	​
​	​	​	​	​	​	​	​
Total Assets	​	$	49,987	​	$	49,086	​
​	​	​	​	​	​	​	​
LIABILITIES	​	​	​	​	​	​	​
Current liabilities	​	​	​	​	​	​	​
Current portion of long-term debt including obligations under finance leases	​	$	788	​	$	555	​
Current portion of operating lease liabilities	​	​	654	​	​	650	​
Trade accounts payable	​		8,219	​		7,117	​
Accrued salaries and wages	​		1,463	​		1,736	​
Other current liabilities	​		6,614	​		6,265	​
Total current liabilities	​		17,738	​		16,323	​
​	​	​	​	​	​	​	​
Long-term debt including obligations under finance leases	​	​	12,442	​	​	12,809	​
Noncurrent operating lease liabilities	​	​	6,370	​	​	6,426	​
Deferred income taxes	​		1,481	​		1,562	​
Pension and postretirement benefit obligations	​		407	​		478	​
Other long-term liabilities	​		1,620	​		2,059	​
​	​	​	​	​	​	​	​
Total Liabilities	​		40,058	​		39,657	​
​	​	​	​	​	​	​	​
Commitments and contingencies see Note 7	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
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 2022 and 2021	​		1,918	​		1,918	​
Additional paid-in capital	​		3,758	​		3,657	​
Accumulated other comprehensive loss	​		(412)	​		(467)	​
Accumulated earnings	​		25,338	​		24,066	​
Common shares in treasury, at cost, 1,202 shares in 2022 and 1,191 shares in 2021	​		(20,647)	​		(19,722)	​
​	​	​	​	​	​	​	​
Total Shareowners’ Equity - The Kroger Co.	​		9,955	​		9,452	​
Noncontrolling interests	​		(26)	​		(23)	​
​	​	​	​	​	​	​	​
Total Equity	​		9,929	​		9,429	​
​	​	​	​	​	​	​	​
Total Liabilities and Equity	​	$	49,987	​	$	49,086	​

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

​

​	​	​	​	​	​	​	​
​	​	Three Quarters Ended					​
​	​	November 5,		​	November 6,		​
(In millions)		2022			2021
Cash Flows from Operating Activities:	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​	$	1,798	​	$	1,097	​
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:	​	​	​	​	​	​	​
Depreciation and amortization	​		2,259	​		2,168	​
Operating lease asset amortization	​	​	471	​	​	468	​
LIFO charge	​		392	​		177	​
Share-based employee compensation	​		145	​		159	​
Company-sponsored pension plans	​		(28)	​		56	​
Deferred income taxes	​		(93)	​		34	​
Gain on the sale of assets	​	​	(36)	​	​	(34)	​
Loss on investments	​	​	637	​	​	694	​
Other	​		82	​		106	​
Changes in operating assets and liabilities:	​	​	​	​	​	​	​
Store deposits in-transit	​		(127)	​		(44)	​
Receivables	​		(130)	​		(80)	​
Inventories	​		(2,267)	​		(673)	​
Prepaid and other current assets	​		99	​		371	​
Trade accounts payable	​		1,102	​		1,200	​
Accrued expenses	​		146	​		(40)	​
Income taxes receivable and payable	​		(69)	​	​	(54)	​
Operating lease liabilities	​	​	(533)	​	​	(532)	​
Other	​		(510)	​		(282)	​
​	​	​	​	​	​	​	​
Net cash provided by operating activities	​		3,338	​		4,791	​
​	​	​	​	​	​	​	​
Cash Flows from Investing Activities:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​		(2,261)	​		(2,008)	​
Proceeds from sale of assets	​		71	​	​	139	​
Other	​		(2)	​		(90)	​
​	​	​	​	​	​	​	​
Net cash used by investing activities	​		(2,192)	​		(1,959)	​
​	​	​	​	​	​	​	​
Cash Flows from Financing Activities:	​	​	​	​	​	​	​
Proceeds from issuance of long-term debt	​		—	​		43	​
Payments on long-term debt including obligations under finance leases	​		(526)	​	​	(915)	​
Dividends paid	​	​	(494)	​	​	(433)	​
Financing fees paid	​	​	(62)	​	​	(5)	​
Proceeds from issuance of capital stock	​	​	127	​		118	​
Treasury stock purchases	​		(985)	​		(1,049)	​
Proceeds from financing arrangement	​	​	—	​	​	166	​
Other	​	​	(111)	​		(156)	​
​	​	​	​	​	​	​	​
Net cash used by financing activities	​		(2,051)	​		(2,231)	​
​	​	​	​	​	​	​	​
Net (decrease) increase in cash and temporary cash investments	​		(905)	​		601	​
​	​	​	​	​	​	​	​
Cash and temporary cash investments:	​	​	​	​	​	​	​
Beginning of year	​		1,821	​		1,687	​
End of period	​	$	916	​	$	2,288	​
​	​	​	​	​	​	​	​
Reconciliation of capital investments:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​	$	(2,261)	​	$	(2,008)	​
Payments for lease buyouts	​	​	10	​		—	​
Changes in construction-in-progress payables	​		59	​		(144)	​
Total capital investments, excluding lease buyouts	​	$	(2,192)	​	$	(2,152)	​
​	​	​	​	​	​	​	​
Disclosure of cash flow information:	​	​	​	​	​	​	​
Cash paid during the year for interest	​	$	456	​	$	493	​
Cash paid during the year for income taxes	​	$	649	​	$	364	​

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	Accumulated		​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	Additional		​	​	​	​	​	​	Other		​	​	​	​	​	​	​	​	​
​	​	Common Stock				​	Paid-In		​	Treasury Stock				​	Comprehensive		​	Accumulated		​	Noncontrolling		​	​	​
(In millions, except per share amounts)		Shares		Amount			Capital			Shares		Amount			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		—	​		—	​		—		(2)	​		31	​		—	​		—	​		—	​		31
Restricted stock issued		—	​		—	​		(35)		(1)	​		17	​		—	​		—	​		—	​		(18)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		10	​		(338)	​		—	​		—	​		—	​		(338)
Stock options exchanged		—	​		—	​		—		2	​		(64)	​		—	​		—	​		—	​		(64)
Share-based employee compensation		—	​		—	​		56		—	​		—	​		—	​		—	​		—	​		56
Other comprehensive income net of income tax of $2		—	​		—	​		—		—	​		—	​		3	​		—	​		—	​		3
Other		—	​		—	​		23		—	​		(23)	​		—	​		1	​		3	​		4
Cash dividends declared ($0.18 per common share)		—	​		—	​		—		—	​		—	​		—	​		(138)	​		—	​		(138)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		140	​		3	​		143
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at May 22, 2021		1,918		$	1,918		$	3,505		1,169		$	(18,568)		$	(627)		$	23,021		$	(20)		$	9,229
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		54	​		—	​		—	​		—	​		54
Restricted stock issued		—	​		—	​		(99)		(2)	​		56	​		—	​		—	​		—	​		(43)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		8	​		(299)	​		—	​		—	​		—	​		(299)
Stock options exchanged		—	​		—	​		—		1	​		(50)	​		—	​		—	​		—	​		(50)
Share-based employee compensation		—	​		—	​		52		—	​		—	​		—	​		—	​		—	​		52
Other comprehensive income net of income tax of $4		—	​		—	​		—		—	​		—	​		2	​		—	​		—	​		2
Other		—	​		—	​		69		—	​		(69)	​		—	​		—	​		(2)	​		(2)
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(154)	​		—	​		(154)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		467	​		2	​		469
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at August 14, 2021		1,918		$	1,918		$	3,527		1,174		$	(18,876)		$	(625)		$	23,334		$	(20)		$	9,258
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(1)	​		33	​		—	​		—	​		—	​		33
Restricted stock issued		—	​		—	​		(3)		—	​		—	​		—	​		—	​		—	​		(3)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		6	​		(251)	​		—	​		—	​		—	​		(251)
Stock options exchanged		—	​		—	​		—		1	​		(47)	​		—	​		—	​		—	​		(47)
Share-based employee compensation		—	​		—	​		51		—	​		—	​		—	​		—	​		—	​		51
Other comprehensive income net of income tax of $37		—	​		—	​		—		—	​		—	​		134	​		—	​		—	​		134
Other		—	​		—	​		15		—	​		(15)	​		—	​		(1)	​		(10)	​		(11)
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(158)	​		—	​		(158)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		483	​		2	​		485
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at November 6, 2021		1,918		$	1,918		$	3,590		1,180		$	(19,156)		$	(491)		$	23,658		$	(28)		$	9,491
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(2)	​		54	​		—	​		—	​		—	​		54
Restricted stock issued		—	​		—	​		—		—	​		—	​		—	​		—	​		—	​		—
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		11	​		(534)	​		—	​		—	​		—	​		(534)
Stock options exchanged		—	​		—	​		—		2	​		(64)	​		—	​		—	​		—	​		(64)
Share-based employee compensation		—	​		—	​		44		—	​		—	​		—	​		—	​		—	​		44
Other comprehensive income net of income tax of $8		—	​		—	​		—		—	​		—	​		24	​		—	​		—	​		24
Other		—	​		—	​		23		—	​		(22)	​		—	​		—	​		1	​		2
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(157)	​		—	​		(157)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		565	​		4	​		569
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at January 29, 2022		1,918		$	1,918		$	3,657		1,191		$	(19,722)		$	(467)		$	24,066		$	(23)		$	9,429

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	Accumulated		​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	Additional		​	​	​	​	​	​	Other		​	​	​	​	​	​	​	​	​
​	​	Common Stock				​	Paid-In		​	Treasury Stock				​	Comprehensive		​	Accumulated		​	Noncontrolling		​	​	​
(In millions, except per share amounts)		Shares		Amount			Capital			Shares		Amount			Loss			Earnings			Interest			Total
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)	​		113	​		—	​		—	​		—	​		113
Restricted stock issued		—	​		—	​		(77)		(2)	​		12	​		—	​		—	​		—	​		(65)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		10	​		(520)	​		—	​		—	​		—	​		(520)
Stock options exchanged		—	​		—	​		—		3	​		(145)	​		—	​		—	​		—	​		(145)
Share-based employee compensation		—	​		—	​		57		—	​		—	​		—	​		—	​		—	​		57
Other comprehensive income net of income tax of $-		—	​		—	​		—		—	​		—	​		2	​		—	​		—	​		2
Other		—	​		—	​		77		—	​		(77)	​		—	​		—	​		3	​		3
Cash dividends declared ($0.21 per common share)		—	​		—	​		—		—	​		—	​		—	​		(147)	​		—	​		(147)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		664	​		2	​		666
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at May 21, 2022		1,918		$	1,918		$	3,714		1,198		$	(20,339)		$	(465)		$	24,583		$	(18)		$	9,393
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		—	​		6	​		—	​		—	​		—	​		6
Restricted stock issued		—	​		—	​		(89)		(2)	​		47	​		—	​		—	​		—	​		(42)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		6	​		(300)	​		—	​		—	​		—	​		(300)
Stock options exchanged		—	​		—	​		—		—	​		(10)	​		—	​		—	​		—	​		(10)
Share-based employee compensation		—	​		—	​		46		—	​		—	​		—	​		—	​		—	​		46
Other comprehensive income net of income tax of $1		—	​		—	​		—		—	​		—	​		1	​		—	​		—	​		1
Other		—	​		—	​		45		—	​		(45)	​		—	​		—	​		(1)	​		(1)
Cash dividends declared ($0.26 per common share)		—	​		—	​		—		—	​		—	​		—	​		(186)	​		—	​		(186)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		731	​		1	​		732
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at August 13, 2022		1,918		$	1,918		$	3,716		1,202		$	(20,641)		$	(464)		$	25,128		$	(18)		$	9,639
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		—	​		8	​		—	​		—	​		—	​		8
Restricted stock issued		—	​		—	​		(4)		—	​		—	​		—	​		—	​		—	​		(4)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Treasury stock purchases, at cost		—	​		—	​		—		—	​		(1)	​		—	​		—	​		—	​		(1)
Stock options exchanged		—	​		—	​		—		—	​		(9)	​		—	​		—	​		—	​		(9)
Share-based employee compensation		—	​		—	​		42		—	​		—	​		—	​		—	​		—	​		42
Other comprehensive income net of income tax of $11		—	​		—	​		—		—	​		—	​		52	​		—	​		—	​		52
Other		—	​		—	​		4		—	​		(4)	​		—	​		—	​		(10)	​		(10)
Cash dividends declared ($0.26 per common share)		—	​		—	​		—		—	​		—	​		—	​		(188)	​		—	​		(188)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		398	​		2	​		400
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at November 5, 2022		1,918		$	1,918		$	3,758		1,202		$	(20,647)		$	(412)		$	25,338		$	(26)		$	9,929

​

The accompanying notes are an integral part of the Consolidated Financial Statements.

​

​

​

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

​

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

​

1.	ACCOUNTING POLICIES

​

Basis of Presentation and Principles of Consolidation

​

The accompanying financial statements include the consolidated accounts of The Kroger Co., its wholly-owned subsidiaries and other consolidated entities. The January 29, 2022 balance sheet was derived from audited financial statements and, due to its summary nature, does not include all disclosures required by generally accepted accounting principles (“GAAP”). Significant intercompany transactions and balances have been eliminated. References to the “Company” in these Consolidated Financial Statements mean the consolidated company.

​

In the opinion of management, the accompanying unaudited Consolidated Financial Statements include adjustments, all of which are of a normal, recurring nature that are necessary for a fair statement of results of operations for such periods but should not be considered as indicative of results for a full year. The financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted, pursuant to SEC regulations. Accordingly, the accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

​

The unaudited information in the Consolidated Financial Statements for the third quarters and three quarters ended November 5, 2022 and November 6, 2021 includes the results of operations of the Company for the 12 and 40 week periods then ended.

​

Fair Value Measurements

​

Fair value measurements are classified and disclosed in one of the following three categories:

​

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

​

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

​

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

​

The Company records cash and temporary cash investments, store deposits in-transit, receivables, prepaid and other current assets, trade accounts payable, accrued salaries and wages and other current liabilities at approximated fair value. Certain other investments and derivatives are recorded as Level 1, 2 or 3 instruments.

​

The equity investment in Ocado is measured at fair value through net earnings. The fair value of all shares owned, which is measured using Level 1 inputs, was $332 and $987 as of November 5, 2022 and January 29, 2022, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. An unrealized loss for this Ocado investment of approximately $655 and $694 for the first three quarters of 2022 and 2021, respectively, is included in “Loss on investments” in the Company’s Consolidated Statements of Operations. An unrealized loss of $225 and $94 for this Level 1 investment was recorded for the third quarters of 2022 and 2021, respectively, and is included in “Loss on investments” in the Company’s Consolidated Statements of Operations.

​

The Company's forward-starting interest rate swaps are considered a Level 2 instrument. The Company values interest rate hedges using observable forward yield curves. These forward yield curves are classified as Level 2 inputs. As of November 5, 2022, the fair value of the interest rate swaps was recorded in other assets and other long-term liabilities for $67 and $1, respectively, and accumulated other comprehensive income for $37 net of tax.

​

​

2.	DEBT OBLIGATIONS

​

Long-term debt consists of:

​

​	​	​	​	​	​	​
​	​	November 5,		​	January 29,
​		2022			2022
1.70% to 8.00% Senior Notes due through 2049	​	$	10,213	​	$	10,607
Other	​		1,101	​		1,138
​	​	​	​	​	​	​
Total debt, excluding obligations under finance leases	​		11,314	​		11,745
Less current portion	​		(650)	​		(451)
​	​	​	​	​	​	​
Total long-term debt, excluding obligations under finance leases	​	$	10,664	​	$	11,294

​

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 November 5, 2022 and January 29, 2022. At November 5, 2022, the fair value of total debt was $9,805 compared to a carrying value of $11,314. At January 29, 2022, the fair value of total debt was $13,189 compared to a carrying value of $11,745.

​

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

​

In the third quarter of 2021, the Company repaid $500 of senior notes bearing an interest rate of 2.95% using cash on hand. Additionally, in the first three quarters of 2021, the Company repaid $300 of senior notes bearing an interest rate of 2.60% using cash on hand.

​

In the third quarter of 2022, the Company entered into five forward-starting interest rate swap agreements with a maturity date of August 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 were designated as cash-flow hedges as defined by GAAP. Accordingly, the changes in fair value of these forward-starting interest rate swaps are recorded to other comprehensive income and reclassified into net earnings when the hedged transaction affects net earnings. As of November 5, 2022, the fair value of these interest rate swaps was recorded in other assets for $48 and accumulated other comprehensive income for $37 net of tax. The remainder of the notional amount of $3,000 of the forward-starting interest swaps were not designated as cash-flow hedges. Accordingly, the changes in the fair value of the forward-starting interest rate swaps not designated as cash-flow hedges are recognized through net earnings. As of November 5, 2022, the fair value of these swaps was recorded in other assets and other long-term liabilities for $19 and $1, respectively. During the third quarter and the first three quarters of 2022, the Company recognized an unrealized gain of $18 that is included in “Loss on investments” in the Company’s Consolidated Statements of Operations.

​

During the first quarter of 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.

​

For additional information about the Company’s unsecured bridge loan facility and term loan credit agreement, see Note 10 to the Consolidated Financial Statements.

​

​

3.	BENEFIT PLANS

​

The following table provides the components of net periodic benefit cost for the company-sponsored defined benefit pension plans and other postretirement benefit plans for the third quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Third Quarter Ended
​	​	Pension Benefits					​	Other Benefits
​	​	November 5,		​	November 6,		​	November 5,		​	November 6,
​		2022			2021			2022			2021
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	2		$	2		$	1		$	1	​
Interest cost	​		23	​		24	​		1	​		1	​
Expected return on plan assets	​		(35)	​		(36)	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service cost	​		—	​		—	​		(3)	​		(3)	​
Actuarial loss (gain)	​		6	​		8	​		(3)	​		(4)	​
Settlement loss recognized	​	​	—	​	​	87	​	​	—	​	​	—	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	(4)		$	85		$	(4)		$	(5)	​

​

The following table provides the components of net periodic benefit cost for the company-sponsored defined benefit pension plans and other postretirement benefit plans for the first three quarters of 2022 and 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Quarters Ended
​	​	Pension Benefits					​	Other Benefits
​	​	November 5,		​	November 6,		​	November 5,		​	November 6,
​		2022			2021			2022			2021
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	7		$	9		$	3		$	3	​
Interest cost	​		77	​		78	​		4	​		3	​
Expected return on plan assets	​		(118)	​		(129)	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service cost	​		—	​		—	​		(10)	​		(10)	​
Actuarial loss (gain)	​		20	​		29	​		(11)	​		(14)	​
Settlement loss recognized	​	​	—	​	​	87	​	​	—	​	​	—	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	(14)		$	74		$	(14)		$	(18)	​

​

The Company is not required to make any contributions to its company-sponsored pension plans in 2022, but may make contributions to the extent such contributions are beneficial to the Company. The Company did not make any significant contributions to its company-sponsored pension plans in the first three quarters of 2022 or 2021.

​

The Company contributed $244 and $221 to employee 401(k) retirement savings accounts in the first three quarters of 2022 and 2021, respectively.

​

The Company also contributes to various multi-employer pension plans based on obligations arising from most of its collective bargaining agreements. These plans provide retirement benefits to participants based on their service to contributing employers. The Company recognizes expense in connection with these plans as contributions are funded. In addition to the recurring multi-employer pension contributions the Company makes in the normal course of business, in the first three quarters of 2021, the Company contributed an incremental $106, $81 net of tax, to multi-employer pension plans, helping stabilize future associate benefits.

​

During the first quarter of 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.

​

​

During the third quarter of 2021, the Company settled certain company-sponsored pension plan obligations using existing assets of the plans. The Company recognized a non-cash settlement charge of $87, $68 net of tax, associated with the settlement of its obligations for the eligible participants’ pension balances that were distributed out of the plans via a lump sum distribution or the purchase of an annuity contract, based on each participant’s election. The settlement charge is included in “Non-service component of company-sponsored pension plan costs” in the Consolidated Statements of Operations.

​

4.	EARNINGS PER COMMON SHARE

​

Net earnings attributable to The Kroger Co. per basic common share equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted-average number of common shares outstanding. Net earnings attributable to The Kroger Co. per diluted common share equal net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted-average number of common shares outstanding, after giving effect to dilutive stock options. The following table provides a reconciliation of net earnings attributable to The Kroger Co. and shares used in calculating net earnings attributable to The Kroger Co. per basic common share to those used in calculating net earnings attributable to The Kroger Co. per diluted common share:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Third Quarter Ended							​	Third Quarter Ended							​
​	​	November 5, 2022							​	November 6, 2021
​		​	​		​		Per			​	​		​		Per		​
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​
​	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount		​
Net earnings attributable to The Kroger Co. per basic common share	​	$	395		716	​	$	0.55	​	$	478		742	​	$	0.64	​
Dilutive effect of stock options	​	​	​		8	​	​	​	​	​	​		10	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	395		724	​	$	0.55	​	$	478		752	​	$	0.64	​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Quarters Ended							​	Three Quarters Ended							​
​	​	November 5, 2022							​	November 6, 2021							​
​		​	​		​		Per			​	​		​		Per
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​
​	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount
Net earnings attributable to The Kroger Co. per basic common share	​	$	1,777		719	​	$	2.47	​	$	1,079		747	​	$	1.44	​
Dilutive effect of stock options	​	​	​		9	​	​	​	​	​	​		10	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	1,777		728	​	$	2.44	​	$	1,079		757	​	$	1.43	​

​

The Company had combined undistributed and distributed earnings to participating securities totaling $3 and $5 in the third quarters of 2022 and 2021, respectively. For the first three quarters of 2022 and 2021, the Company had combined undistributed and distributed earnings to participating securities of $16 and $11, respectively.

​

The Company had options outstanding for approximately 2 million shares and 1 million shares during the third quarters of 2022 and 2021, respectively, that were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share. The Company had options outstanding for approximately 2 million and 3 million shares during each of the first three quarters of 2022 and 2021, respectively, that were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per share.

​

​

5.	LEASES AND LEASE-FINANCED TRANSACTIONS

​

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 the first three quarters of 2022, the Company opened three additional Kroger Delivery customer fulfillment centers in Romulus, Michigan, Dallas, Texas and Pleasant Prairie, Wisconsin, which brings the Company’s total Kroger Delivery customer fulfillment centers to six as of November 5, 2022. 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. During the first three quarters of 2022, the Company recorded finance lease assets of $429 and finance lease liabilities of $391 related to the Company’s agreement with Ocado.

​

6.	RECENTLY ISSUED ACCOUNTING STANDARDS

​

In September 2022, the FASB issued ASU No. 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company is currently assessing the effect that adoption of this guidance will have on its Consolidated Financial Statements.

​

7.	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.

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The principal contingencies are described below:

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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.

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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.

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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.

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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. At present, the Company is named in a significant number of lawsuits pending in various state courts as well as in the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation (“MDL”) pursuant to 28 U.S.C. §1407 in a case entitled In re National Prescription Opiate Litigation. Most of these cases have been stayed, but Kroger entities have been named in five cases that are proceeding on a staggered discovery schedule. Once discovery is completed, those cases will be remanded to the originating federal court for trial. The Company is vigorously defending these matters and believes that these cases are without merit. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.

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In the third quarter of 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 is expected to resolve all opioid lawsuits and claims by the state of New Mexico against the Company. Kroger continues to vigorously defend against other claims and lawsuits relating to opioids.

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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.

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8.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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The following table represents the changes in AOCI by component for the first three quarters of 2022 and 2021:

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​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Pension and		​	​	​
​	​	Cash Flow		​	Postretirement		​	​	​
​	​	Hedging		​	Defined Benefit		​	​	​
​		Activities(1)			Plans(1)			Total(1)
Balance at January 30, 2021	​	$	(54)	​	$	(576)	​	$	(630)
OCI before reclassifications(2)	​	​	—	​	​	131	​		131
Amounts reclassified out of AOCI(3)	​	​	5	​		3	​		8
Net current-period OCI	​	​	5	​		134	​		139
Balance at November 6, 2021	​	$	(49)	​	$	(442)	​	$	(491)
​	​	​	​	​	​	​	​	​	​
Balance at January 29, 2022	​	$	(47)	​	$	(420)	​	$	(467)
OCI before reclassifications(2)	​		37	​		13	​		50
Amounts reclassified out of AOCI(3)	​		6	​	​	(1)	​		5
Net current-period OCI	​		43	​		12	​		55
Balance at November 5, 2022	​	$	(4)	​	$	(408)	​	$	(412)

(1)	All amounts are net of tax.

(2)	Net of tax of $37 for pension and postretirement defined benefit plans for the first three quarters of 2021. Net of tax of $11 for cash flow hedging activities for the first three quarters of 2022.

(3)	Net of tax of $4 for cash flow hedging activities and $2 for pension and postretirement defined benefit plans for the first three quarters of 2021. Net of tax of $1 for cash flow hedging activities for the first three quarters of 2022.

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The following table represents the items reclassified out of AOCI and the related tax effects for the third quarters and first three quarters of 2022 and 2021:

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​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Third Quarter Ended					​	Three Quarters Ended
​		November 5,			November 6,			November 5,			November 6,
​	​	2022		​	2021		​	2022		​	2021		​
Cash flow hedging activity items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of gains and losses on cash flow hedging activities(1)	​	$	2	​	$	2	​	$	7	​	$	9	​
Tax expense	​		—	​		—	​		(1)	​		(4)	​
Net of tax	​		2	​		2	​		6	​		5	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Pension and postretirement defined benefit plan items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of amounts included in net periodic pension cost(2)	​		—	​		1			(1)			5	​
Tax expense			—			—			—			(2)	​
Net of tax			—			1			(1)			3	​
Total reclassifications, net of tax		$	2		$	3		$	5		$	8	​

(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 cost (see Note 3 for additional details).

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9.	INCOME TAXES

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The effective income tax rate was 24.0% for the third quarter of 2022 and 13.8% for the third quarter of 2021. The effective income tax rate was 21.1% for the first three quarters of 2022 and 17.9% for the first three quarters of 2021. The effective income tax rate for the third quarter of 2022 differed from the federal statutory rate due to the effect of state income taxes and certain non-deductible expenses, partially offset by the utilization of tax credits. The effective income tax rate for the first three quarters of 2022 differed from the federal statutory rate due to the effect of state income taxes and certain non-deductible expenses, partially offset by the benefit from share-based payments and the utilization of tax credits. The effective income tax rate for the third quarter of 2021 and first three quarters of 2021 differed from the federal statutory rate due to a nonrecurring 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.

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10.	PROPOSED MERGER WITH ALBERTSONS COMPANIES, INC.

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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. This price implies a total enterprise value of approximately $24,600, including the assumption of approximately $4,700 of Albertsons net debt.

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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 is 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. The Company and Albertsons have agreed to work together to determine which stores (if any) would comprise SpinCo, as well as the pro forma capitalization of SpinCo. In addition, between the transaction announcement and closing, Albertsons expects to pay a special cash dividend of up to $4,000 to its shareholders. The per share cash purchase price payable to Albertsons shareholders in the merger would be reduced by an amount equal to (i) three times the four-wall adjusted EBITDA for the stores contributed to SpinCo divided by the number of shares of Albertsons common stock (including shares of Albertsons common stock issuable upon conversion of Albertsons preferred stock) outstanding as of the record date for the spin-off plus (ii) the per share amount of the special pre-closing cash dividend, if paid, to Albertsons shareholders.

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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 principal amount of the bridge term loan facility will be reduced. The bridge term loan facility included upfront fees which 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.

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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) a senior unsecured term loan facility in an aggregate principal amount of $3,000 maturing on the third anniversary of the merger closing date and (2) a senior unsecured term loan facility 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 availability under the Company’s $17,400 bridge term loan facility 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.

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The agreement provides for certain termination rights for the Company and Albertsons, including if the closing does not occur on or prior to January 13, 2024 (the “Outside Date”), provided that the Outside Date may be extended by either party for up to 270 days in the aggregate. 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. The transaction is expected to close in early 2024, subject to the receipt of required regulatory clearance and other customary closing conditions.

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