Cover and table of contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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

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For the quarterly period ended August 12, 2023

OR

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

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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)

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​	​	​
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)

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(513) 762-4000

(Registrant’s telephone number, including area code)

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Unchanged

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

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

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

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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 ☐

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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. ☐

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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 719,315,778 shares of Common Stock ($1 par value) outstanding as of September 12, 2023.

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PART I – FINANCIAL INFORMATION

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Item 1.	Financial Statements.

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended					​	Two Quarters Ended					​
​	​	August 12,		​	August 13,		​	August 12,		​	August 13,		​
(In millions, except per share amounts)		2023			2022			2023			2022
Sales	​	$	33,853	​	$	34,638	​	$	79,018	​	$	79,238	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses	​	​	​	​	​	​	​	​	​	​	​	​	​
Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below	​		26,475	​		27,392	​		61,555	​		62,343	​
Operating, general and administrative	​		6,935	​		5,417	​		14,328	​		12,414	​
Rent	​		206	​		191	​		470	​		448	​
Depreciation and amortization	​		716	​		684	​		1,674	​		1,574	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating profit (loss)	​		(479)	​		954	​		991	​		2,459	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other income (expense)	​	​	​	​	​	​	​	​	​	​	​	​	​
Interest expense	​	​	(93)	​	​	(127)	​	​	(247)	​	​	(303)	​
Non-service component of company-sponsored pension plan benefits	​	​	8	​	​	11	​	​	17	​	​	26	​
Gain (loss) on investments	​	​	367	​	​	103	​	​	290	​	​	(429)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) before income tax expense	​		(197)	​		941	​		1,051	​		1,753	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income tax expense (benefit)	​		(18)	​		209	​		268	​		356	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) including noncontrolling interests	​		(179)	​		732	​		783	​		1,397	​
Net income attributable to noncontrolling interests	​		1	​		1	​		1	​		3	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) attributable to The Kroger Co.	​	$	(180)	​	$	731	​	$	782	​	$	1,394	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) attributable to The Kroger Co. per basic common share	​	$	(0.25)	​	$	1.01	​	$	1.08	​	$	1.92	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in basic calculation	​		719	​		716	​		718	​		720	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) attributable to The Kroger Co. per diluted common share	​	$	(0.25)	​	$	1.00	​	$	1.07	​	$	1.89	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Average number of common shares used in diluted calculation	​		719	​		725	​		725	​		730	​

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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 (LOSS)

(unaudited)

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​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Second Quarter Ended					​	Two Quarters Ended					​
​	​	August 12,		​	August 13,		​	August 12,		​	August 13,		​
(In millions)		2023			2022			2023			2022
Net earnings (loss) including noncontrolling interests	​	$	(179)	​	$	732	​	$	783	​	$	1,397	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other comprehensive (loss) income	​	​	​	​	​	​	​	​	​	​	​	​	​
Change in pension and other postretirement defined benefit plans, net of income tax(1)	​	​	(3)	​	​	(1)	​	​	(7)	​	​	(1)	​
Unrealized gains and losses on cash flow hedging activities, net of income tax(2)	​		105	​		—	​		196	​		—	​
Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(3)	​	​	2	​	​	2	​	​	3	​	​	4	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total other comprehensive income	​		104	​		1	​		192	​	​	3	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income (loss)	​		(75)	​		733	​		975	​		1,400	​
Comprehensive income attributable to noncontrolling interests	​		1	​		1	​		1	​		3	​
Comprehensive income (loss) attributable to The Kroger Co.	​	$	(76)	​	$	732	​	$	974	​	$	1,397	​

(1)	Amount is net of tax of $(1) for the second quarter of 2023 and $1 for the second quarter of 2022. Amount is net of tax of $(2) for the first two quarters of 2023.

(2)	Amount is net of tax of $33 for the second quarter of 2023 and $59 for the first two quarters of 2023.

(3)	Amount is net of tax of $1 for the first two quarters of 2023 and 2022.

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

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THE KROGER CO.

CONSOLIDATED BALANCE SHEETS

(unaudited)

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​	​	​	​	​	​	​	​
​		August 12,			January 28,
(In millions, except par amounts)	​	2023		​	2023
ASSETS	​	​	​	​	​	​	​
Current assets	​	​	​	​	​	​	​
Cash and temporary cash investments	​	$	2,420	​	$	1,015	​
Store deposits in-transit	​		1,141	​		1,127	​
Receivables	​		1,820	​		2,234	​
FIFO inventory	​		9,126	​		9,756	​
LIFO reserve	​		(2,298)	​		(2,196)	​
Prepaid and other current assets	​	​	642	​	​	734	​
Total current assets	​		12,851	​		12,670	​
​	​	​	​	​	​	​	​
Property, plant and equipment, net	​		24,894	​		24,726	​
Operating lease assets	​	​	6,697	​	​	6,662	​
Intangibles, net	​		885	​		899	​
Goodwill	​		2,916	​		2,916	​
Other assets	​		1,959	​		1,750	​
​	​	​	​	​	​	​	​
Total Assets	​	$	50,202	​	$	49,623	​
​	​	​	​	​	​	​	​
LIABILITIES	​	​	​	​	​	​	​
Current liabilities	​	​	​	​	​	​	​
Current portion of long-term debt including obligations under finance leases	​	$	716	​	$	1,310	​
Current portion of operating lease liabilities	​	​	669	​	​	662	​
Trade accounts payable	​		7,597	​		7,119	​
Accrued salaries and wages	​		1,182	​		1,746	​
Other current liabilities	​		6,373	​		6,401	​
Total current liabilities	​		16,537	​		17,238	​
​	​	​	​	​	​	​	​
Long-term debt including obligations under finance leases	​	​	12,075	​	​	12,068	​
Noncurrent operating lease liabilities	​	​	6,369	​	​	6,372	​
Deferred income taxes	​		1,452	​		1,672	​
Pension and postretirement benefit obligations	​		419	​		436	​
Other long-term liabilities	​		2,746	​		1,823	​
​	​	​	​	​	​	​	​
Total Liabilities	​		39,598	​		39,609	​
​	​	​	​	​	​	​	​
Commitments and contingencies see Note 6	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
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	​		3,840	​		3,805	​
Accumulated other comprehensive loss	​		(440)	​		(632)	​
Accumulated earnings	​		25,984	​		25,601	​
Common shares in treasury, at cost, 1,198 shares in 2023 and 1,202 shares in 2022	​		(20,676)	​		(20,650)	​
​	​	​	​	​	​	​	​
Total Shareowners’ Equity - The Kroger Co.	​		10,626	​		10,042	​
Noncontrolling interests	​		(22)	​		(28)	​
​	​	​	​	​	​	​	​
Total Equity	​		10,604	​		10,014	​
​	​	​	​	​	​	​	​
Total Liabilities and Equity	​	$	50,202	​	$	49,623	​

​

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

​

​

THE KROGER CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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​	​	​	​	​	​	​	​
​	​	Two Quarters Ended					​
​	​	August 12,		​	August 13,		​
(In millions)		2023			2022
Cash Flows from Operating Activities:	​	​	​	​	​	​	​
Net earnings including noncontrolling interests	​	$	783	​	$	1,397	​
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:	​	​	​	​	​	​	​
Depreciation and amortization	​		1,674	​		1,574	​
Operating lease asset amortization	​	​	330	​	​	329	​
LIFO charge	​		102	​		240	​
Share-based employee compensation	​		92	​		103	​
Company-sponsored pension plans	​		(6)	​		(20)	​
Deferred income taxes	​		(278)	​		(40)	​
Gain on the sale of assets	​	​	(43)	​	​	(13)	​
(Gain) loss on investments	​	​	(290)	​	​	429	​
Other	​		84	​		66	​
Changes in operating assets and liabilities:	​	​	​	​	​	​	​
Store deposits in-transit	​		(14)	​		(5)	​
Receivables	​		227	​		(10)	​
Inventories	​		630	​		(774)	​
Prepaid and other current assets	​		68	​		115	​
Trade accounts payable	​		478	​		330	​
Accrued expenses	​		(434)	​		(407)	​
Income taxes receivable and payable	​		252	​	​	(41)	​
Operating lease liabilities	​	​	(378)	​	​	(373)	​
Other	​		1,087	​		(473)	​
​	​	​	​	​	​	​	​
Net cash provided by operating activities	​		4,364	​		2,427	​
​	​	​	​	​	​	​	​
Cash Flows from Investing Activities:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​		(1,954)	​		(1,430)	​
Proceeds from sale of assets	​		89	​	​	37	​
Other	​		70	​		5	​
​	​	​	​	​	​	​	​
Net cash used by investing activities	​		(1,795)	​		(1,388)	​
​	​	​	​	​	​	​	​
Cash Flows from Financing Activities:	​	​	​	​	​	​	​
Payments on long-term debt including obligations under finance leases	​		(708)	​	​	(486)	​
Dividends paid	​	​	(376)	​	​	(307)	​
Proceeds from issuance of capital stock	​	​	36	​		119	​
Treasury stock purchases	​		(47)	​		(975)	​
Other	​	​	(69)	​		(109)	​
​	​	​	​	​	​	​	​
Net cash used by financing activities	​		(1,164)	​		(1,758)	​
​	​	​	​	​	​	​	​
Net increase (decrease) in cash and temporary cash investments	​		1,405	​		(719)	​
​	​	​	​	​	​	​	​
Cash and temporary cash investments:	​	​	​	​	​	​	​
Beginning of year	​		1,015	​		1,821	​
End of period	​	$	2,420	​	$	1,102	​
​	​	​	​	​	​	​	​
Reconciliation of capital investments:	​	​	​	​	​	​	​
Payments for property and equipment, including payments for lease buyouts	​	$	(1,954)	​	$	(1,430)	​
Payments for lease buyouts	​	​	—	​		10	​
Changes in construction-in-progress payables	​		183	​		(74)	​
Total capital investments, excluding lease buyouts	​	$	(1,771)	​	$	(1,494)	​
​	​	​	​	​	​	​	​
Disclosure of cash flow information:	​	​	​	​	​	​	​
Cash paid during the year for interest	​	$	308	​	$	379	​
Cash paid during the year for income taxes	​	$	290	​	$	432	​

​

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

​

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THE KROGER CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY

(unaudited)

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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	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 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 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 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 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
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		—	​		7	​		—	​		—	​		—	​		7
Restricted stock issued		—	​		—	​		(3)		—	​		3	​		—	​		—	​		—	​		—
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exchanged		—	​		—	​		—		—	​		(8)	​		—	​		—	​		—	​		(8)
Share-based employee compensation		—	​		—	​		45		—	​		—	​		—	​		—	​		—	​		45
Other comprehensive loss net of tax of ($63)		—	​		—	​		—		—	​		—	​		(220)	​		—	​		—	​		(220)
Other		—	​		—	​		5		—	​		(5)	​		—	​		—	​		(2)	​		(2)
Cash dividends declared ($0.26 per common share)		—	​		—	​		—		—	​		—	​		—	​		(188)	​		—	​		(188)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		451	​		—	​		451
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at January 28, 2023		1,918		$	1,918		$	3,805		1,202		$	(20,650)		$	(632)		$	25,601		$	(28)		$	10,014

​

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			Income (Loss)			Earnings			Interest			Total
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		—	​		—	​		—		(1)	​		23	​		—	​		—	​		—	​		23
Restricted stock issued		—	​		—	​		(72)		(1)	​		30	​		—	​		—	​		—	​		(42)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exchanged		—	​		—	​		—		—	​		(29)	​		—	​		—	​		—	​		(29)
Share-based employee compensation		—	​		—	​		49		—	​		—	​		—	​		—	​		—	​		49
Other comprehensive income net of tax of $26		—	​		—	​		—		—	​		—	​		88	​		—	​		—	​		88
Other		—	​		—	​		44		—	​		(44)	​		—	​		—	​		3	​		3
Cash dividends declared ($0.26 per common share)		—	​		—	​		—		—	​		—	​		—	​		(188)	​		—	​		(188)
Net earnings including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		962	​		—	​		962
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at May 20, 2023		1,918		$	1,918		$	3,826		1,200		$	(20,670)		$	(544)		$	26,375		$	(25)		$	10,880
Issuance of common stock:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exercised		—	​		—	​		—		(1)	​		13	​		—	​		—	​		—	​		13
Restricted stock issued		—	​		—	​		(85)		(1)	​		55	​		—	​		—	​		—	​		(30)
Treasury stock activity:	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stock options exchanged		—	​		—	​		—		—	​		(18)	​		—	​		—	​		—	​		(18)
Share-based employee compensation		—	​		—	​		43		—	​		—	​		—	​		—	​		—	​		43
Other comprehensive income net of tax of $32		—	​		—	​		—		—	​		—	​		104	​		—	​		—	​		104
Other		—	​		—	​		56		—	​		(56)	​		—	​		—	​		2	​		2
Cash dividends declared ($0.29 per common share)		—	​		—	​		—		—	​		—	​		—	​		(211)	​		—	​		(211)
Net earnings (loss) including noncontrolling interests		—	​		—	​		—		—	​		—	​		—	​		(180)	​		1	​		(179)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balances at August 12, 2023		1,918		$	1,918		$	3,840		1,198		$	(20,676)		$	(440)		$	25,984		$	(22)		$	10,604

​

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 28, 2023 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 28, 2023.

​

The unaudited information in the Consolidated Financial Statements for the second quarters ended August 12, 2023 and August 13, 2022 includes the results of operations of the Company for the 12 and 28 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 (loss). The fair value of all shares owned, which is measured using Level 1 inputs, was $492 and $401 as of August 12, 2023 and January 28, 2023, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. An unrealized gain for this Level 1 investment of approximately $91 and an unrealized loss of approximately $429 for the first two quarters of 2023 and 2022, respectively, is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations. An unrealized gain for this Ocado investment of approximately $255 and $103 for the second quarters of 2023 and 2022, respectively, is included in “Gain (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 swaps using observable forward yield curves. These forward yield curves are classified as Level 2 inputs. Refer to Note 2 for the disclosure of forward-starting interest rate swap fair values.

​

Refer to Note 2 for the disclosure of debt instrument fair values.

​

​

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. The payment term that the Company has with participating suppliers under these programs is approximately 90 days.

​

As of August 12, 2023 and January 28, 2023, the Company had $234 and $249, respectively, in “Trade accounts payable” in the Company’s Consolidated Balance Sheets associated with financing arrangements. As of August 12, 2023 and January 28, 2023, the Company had $83 and $65, respectively, in “Other current liabilities” associated with financing arrangements.

​

2.	DEBT OBLIGATIONS

​

Long-term debt consists of:

​

​	​	​	​	​	​	​
​	​	August 12,		​	January 28,
​		2023			2023
1.70% to 8.00% Senior Notes due through 2049	​	$	9,620	​	$	10,215
Other	​		1,068	​		1,077
​	​	​	​	​	​	​
Total debt, excluding obligations under finance leases	​		10,688	​		11,292
Less current portion	​		(545)	​		(1,153)
​	​	​	​	​	​	​
Total long-term debt, excluding obligations under finance leases	​	$	10,143	​	$	10,139

​

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 August 12, 2023 and January 28, 2023. At August 12, 2023, the fair value of total debt was $9,537 compared to a carrying value of $10,688. At January 28, 2023, the fair value of total debt was $10,593 compared to a carrying value of $11,292.

​

In the second quarter of 2023, the Company repaid $600 of senior notes bearing an interest rate of 3.85% 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 was 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 “Accumulated other comprehensive income (loss)” and reclassified into “Net earnings (loss)” when the hedged transaction affects net earnings. The remainder of the notional amount of $3,000 of the forward-starting interest swaps was not designated as a cash-flow hedge. 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 (loss).”

​

​

As of August 12, 2023 and January 28, 2023, the fair value of the interest rate swaps designated as cash-flow hedges was $136 and $(116), respectively. As of August 12, 2023 and January 28, 2023, the amount included in “Accumulated other comprehensive income (loss)” is $104 and $(89), net of tax, respectively. As of August 12, 2023 and January 28, 2023, the fair value of forward-starting interest swaps not designated as cash-flow hedges was $57 and $(142), respectively. During the second quarter of 2023, the Company recognized an unrealized gain of $112 related to these swaps that is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations. During the first two quarters of 2023, the Company recognized an unrealized gain of $199 related to these swaps that is included in “Gain (loss) on investments” in the Company’s Consolidated Statements of Operations.

​

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 (benefit) for the company-sponsored defined benefit pension plans and other postretirement benefit plans for the second quarters of 2023 and 2022:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended
​	​	Pension Benefits					​	Other Benefits
​	​	August 12,		​	August 13,		​	August 12,		​	August 13,
​		2023			2022			2023			2022
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	3		$	2		$	1		$	1	​
Interest cost	​		29	​		24	​		2	​		—	​
Expected return on plan assets	​		(35)	​		(35)	​		—	​		—	​
Amortization of:	​	​	​	​	​	​	​	​	​	​	​	​	​
Prior service cost	​		—	​		—	​		(3)	​		(3)	​
Actuarial loss (gain)	​		2	​		6	​		(3)	​		(3)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	(1)		$	(3)		$	(3)		$	(5)	​

​

The following table provides the components of net periodic benefit cost (benefit) for the company-sponsored defined benefit pension plans and other post-retirement benefit plans for the first two quarters of 2023 and 2022:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Two Quarters Ended
​	​	Pension Benefits					​	Other Benefits
​	​	August 12,		​	August 13,		​	August 12,		​	August 13,
​		2023			2022			2023			2022
Components of net periodic benefit cost (benefit):	​	​	​	​	​	​	​	​	​	​	​	​	​
Service cost		$	9		$	5		$	2		$	2	​
Interest cost	​		69	​		54	​		3	​		3	​
Expected return on plan assets	​		(80)	​		(82)	​		—	​		—	​
Amortization of:	​	​	​	​	​	0	​	​	​	​	​	0	​
Prior service cost	​		—	​		—	​		(6)	​		(7)	​
Actuarial loss (gain)	​		4	​		14	​		(7)	​		(8)	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic benefit cost (benefit)		$	2		$	(9)		$	(8)		$	(10)	​

​

The Company is not required to make any contributions to its company-sponsored pension plans in 2023, 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 two quarters of 2023 or 2022.

​

The Company contributed $179 and $175 to employee 401(k) retirement savings accounts in the first two quarters of 2023 and 2022, respectively.

​

​

4.	EARNINGS PER COMMON SHARE

​

Net earnings (loss) attributable to The Kroger Co. per basic common share equal net earnings (loss) attributable to The Kroger Co. less income (loss) allocated to participating securities divided by the weighted-average number of common shares outstanding. Net earnings (loss) attributable to The Kroger Co. per diluted common share equal net earnings (loss) attributable to The Kroger Co. less income (loss) 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 (loss) attributable to The Kroger Co. and shares used in calculating net earnings (loss) attributable to The Kroger Co. per basic common share to those used in calculating net earnings (loss) attributable to The Kroger Co. per diluted common share:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended							​	Second Quarter Ended							​
​	​	August 12, 2023							​	August 13, 2022
​		​	​		​		Per			​	​		​		Per		​
​	​	Earnings		​	Shares	​	Share		​	Earnings		​	Shares	​	Share		​
​	​	(Numerator)		​	(Denominator)	​	Amount		​	(Numerator)		​	(Denominator)	​	Amount		​
Net earnings (loss) attributable to The Kroger Co. per basic common share	​	$	(179)		719	​	$	(0.25)	​	$	724		716	​	$	1.01	​
Dilutive effect of stock options	​	​	​		—	​	​	​	​	​	​		9	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings (loss) attributable to The Kroger Co. per diluted common share	​	$	(179)		719	​	$	(0.25)	​	$	724		725	​	$	1.00	​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Two Quarters Ended							​	Two Quarters Ended							​
​	​	August 12, 2023							​	August 13, 2022							​
​		​	​		​		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	​	$	775		718	​	$	1.08	​	$	1,381		720	​	$	1.92	​
Dilutive effect of stock options	​	​	​		7	​	​	​	​	​	​		10	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net earnings attributable to The Kroger Co. per diluted common share	​	$	775		725	​	$	1.07	​	$	1,381		730	​	$	1.89	​

​

The Company had combined undistributed and distributed earnings to participating securities totaling $(1) and $7 in the second quarters of 2023 and 2022, respectively. For the first two quarters of 2023 and 2022, the Company had combined undistributed and distributed earnings to participating securities of $7 and $13, respectively.

​

The Company had options outstanding for approximately 2 million shares during the second quarter of 2022 that were excluded from the computations of net earnings (loss) per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings (loss) per share. In the second quarter of 2023, there was no dilutive effect of stock options due to the Company having a net loss. The Company had options outstanding for approximately 3 million and 1 million shares during the first two quarters of 2023 and 2022, 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 two quarters of 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. During the first two quarters of 2023, the Company recorded finance lease assets of $139 and finance lease liabilities of $129 related to the Company’s agreement with Ocado. As of August 12, 2023 and January 28, 2023, the Company had $983 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 August 12, 2023 and January 28, 2023, the Company had $97 and $88, respectively, of current finance lease liabilities recorded within “Current portion of long-term debt including obligations under finance leases" and $834 and $785, respectively, of non-current finance lease liabilities recorded within “Long-term debt including obligations under finance leases.”

​

6.	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 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 the second quarter of 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 August 12, 2023, the Company recorded $142 and $1,271 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 the first two quarters of 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 August 12, 2023.

​

In the first quarter of 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.

​

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.

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7.	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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The following table represents the changes in AOCI by component for the first two quarters of 2023 and 2022:

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​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Pension and		​	​	​
​	​	Cash Flow		​	Postretirement		​	​	​
​	​	Hedging		​	Defined Benefit		​	​	​
​		Activities(1)			Plans(1)			Total(1)
Balance at January 29, 2022	​	$	(47)	​	$	(420)	​	$	(467)
Amounts reclassified out of AOCI(3)	​	​	4	​		(1)	​		3
Net current-period OCI	​	​	4	​		(1)	​		3
Balance at August 13, 2022	​	$	(43)	​	$	(421)	​	$	(464)
​	​	​	​	​	​	​	​	​	​
Balance at January 28, 2023	​	$	(129)	​	$	(503)	​	$	(632)
OCI before reclassifications(2)	​		196	​		—	​		196
Amounts reclassified out of AOCI(3)	​		3	​	​	(7)	​		(4)
Net current-period OCI	​		199	​		(7)	​		192
Balance at August 12, 2023	​	$	70	​	$	(510)	​	$	(440)

(1)	All amounts are net of tax.

(2)	Net of tax of $59 for cash flow hedging activities for the first two quarters of 2023.

(3)	Net of tax of $1 for cash flow hedging activities for the first two quarters of 2022. Net of tax of $1 for cash flow hedging activities and $(2) for pension and postretirement defined benefit plans for the first two quarters of 2023.

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The following table represents the items reclassified out of AOCI and the related tax effects for the first two quarters of 2023 and 2022:

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​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Second Quarter Ended					​	Two Quarters Ended
​		August 12,			August 13,			August 12,			August 13,
​	​	2023		​	2022		​	2023		​	2022		​
Cash flow hedging activity items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of gains and losses on cash flow hedging activities(1)	​	$	2	​	$	2	​	$	4	​	$	5	​
Tax expense	​		—	​		—	​		(1)	​		(1)	​
Net of tax	​		2	​		2	​		3	​		4	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Pension and postretirement defined benefit plan items	​	​	​	​	​	​	​	​	​	​	​	​	​
Amortization of amounts included in net periodic pension cost(2)	​		(4)	​		—			(9)			(1)	​
Tax expense			1			(1)			2			—	​
Net of tax			(3)			(1)			(7)			(1)	​
Total reclassifications, net of tax		$	(1)		$	1		$	(4)		$	3	​

(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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8.	INCOME TAXES

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The effective income tax rate was 9.1% for the second quarter of 2023 and 22.3% for the second quarter of 2022. The effective income tax rate was 25.5% for the first two quarters of 2023 and 20.3% for the first two quarters of 2022. The effective income tax rate for the second quarter of 2023 reflects a tax benefit resulting from the pre-tax loss that occurred in the second quarter of 2023. The tax benefit was reduced by the nondeductible portion of opioid settlement charges, partially offset by the effect of state income taxes and the utilization of tax credits and deductions. The effective income tax rate for the first two quarters of 2023 differed from the federal statutory rate primarily due to the nondeductible portion of opioid settlement charges and the effect of state income taxes, partially offset by the utilization of tax credits and deductions. The effective income tax rate for the second quarter of 2022 differed from the federal statutory rate due to the effect of state income taxes, partially offset by the benefit from share-based payments and the utilization of tax credits. The effective income tax rate for the first two quarters of 2022 differed from the federal statutory rate due to 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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9.	RECENTLY ADOPTED ACCOUNTING STANDARDS

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In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs for investors and other allocators of capital. The Company adopted this ASU as of January 29, 2023, other than the roll-forward disclosure requirement which the Company will adopt in fiscal year 2024. For additional information about the Company’s accounts payable finance arrangements, see Note 1 to the Consolidated Financial Statements.

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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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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 current adjusted per share cash purchase price is expected to be $27.25.

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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 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.

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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, 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.

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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 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.

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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) 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.

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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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