The Kroger Co Annual Report 2018

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FY2018 Annual Report · The Kroger Co

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Notice of 2019 Annual Meeting of Shareholders

2019 Proxy Statement

and

2018 Annual Report

(cid:3)

Supermarkets

Price-Impact Stores

Multi-Department Stores

Bring it all home.

Jewelry Stores

Specialty Retailers

Services

Fellow Shareholders:

2018 was year one of Restock Kroger, our three-year plan to create shareholder value by pursuing our vision to

serve America through food inspiration and uplift.

I’m pleased to report that Kroger achieved what we set out to do last year. We delivered over $1 billion in savings

through cost controls and process improvements, invested for the future, and delivered against our operating profit and
cash flow goals.

Landing the first year of a three-year plan is always the toughest and most critical, since everything that follows

depends on the foundation we’ve built. That foundation positions us to deliver on our 2020 Restock Kroger objectives
and transform the company for long-term growth.

Restock Kroger is our commitment our customers, associates and communities. By serving these stakeholders,
our shareholders are rewarded. We are investing for the future while also growing today. We are introducing new ways
to shop, fresh foods to savor, and new ways to save, all so that our customers will love shopping with us. We are
investing in our associates more than ever before. We are establishing new ways to live our Purpose through Zero
Hunger | Zero Waste. And, through it all, we are reinventing the retail growth model. Together, this will transform Kroger
for the better.

Of course, transformational change is hard, and we recognize that we have a lot of work to do. Just look at the

Fortune 500 list. You can count about a dozen companies that have truly transformed themselves in the last
10-15 years. And fewer than a quarter of the companies who were on the list 30 years ago are here at all today. But
transformation is an imperative, and we are energized by that today just as we always have been throughout our
136-year history.

Stakeholder expectations continue to evolve. Customers want to shop on their terms for anything, anytime,
anywhere. Associates want more opportunities to grow, both personally and professionally, and to be a part of teams
that respect and care about them. Shareholders rightly want sustainable, long-term growth and profitability – plus a
growing dividend. And all stakeholders want to know that we are inspired by purpose and motivated by a vision that
Kroger uniquely can deliver.

It’s an exciting time in the food retail industry. And even as the industry, our stakeholders and our company

embrace change, several things remain constant: our relentless commitment to customers, our clarity of Purpose – To
Feed the Human Spirit, and our customer Promise – everyone friendly and caring, everything fresh, uplift every way,
and improve every day.

Restock Kroger has four main drivers: Redefine the Grocery Customer Experience, Partner for Customer Value,
Develop Talent, and Live Our Purpose. Combined, these drivers come together to Create Shareholder Value through
incremental operating profit and cash flow growth by 2020. Our long-term strategy and annual business plan are
reviewed and approved by Kroger’s engaged Board of Directors.

Redefine the Grocery Customer Experience

We are transforming Kroger to be the leading omnichannel retailer in the food industry.

Our customers don’t distinguish between an in store and online experience; rather, they have a need or a problem
to solve and want the easiest, most seamless solution. That could mean a delicious restaurant-style meal on the run, a
meal kit for dinner tonight, an online order for Pickup or Delivery to stock up on grocery essentials for the week, a Ship
order of pantry and household staples … and the list goes on. We are rapidly expanding our capabilities to be relevant,
available and accessible to our customers in both digital and physical environments.

We’ve been building Kroger’s digital platform for several years. We are very pleased with the growth of digital
sales, which grew 58% in 2018. The annual run rate for digital sales was about $5 billion at the end of 2018. Going
forward, we are trending toward a run rate of $9 billion.

We continue working to seamlessly integrate our growing digital platform with our brick-and-mortar grocery

business to serve customers anything, anytime, anywhere. At the end of 2018, we offered Pickup or Delivery to 91% of
Kroger households. By the end of 2019, with full integration of Kroger Ship into our ecosystem, we will reach 100% of
America.

Our Brands continues to shine. Our portfolio of brands grew at a record-setting pace in 2018, even reaching 30.5%

unit share in the fourth quarter for the first time. Innovation remains a key driver of growth. We introduced 1,022 new
items last year alone, which helped drive strong year-over-year sales lift across Kroger, Private Selection, and Simple
Truth.

Simple Truth continued to outperform with double-digit sales growth in 2018. Simple Truth is now a $2.3 billion

brand. Designed to be a solution for customers who don’t want to have to examine the label to understand what is in
every product, all Simple Truth items are free from more than 101 ingredients that customers told us they don’t want in
their food. And in 2018 we formed partnerships that offer new platforms to expand the brand’s reach even further,
including our pilots with Walgreens and Alibaba’s TMall platform in China.

Partner for Customer Value

Transformation requires innovative partnerships. We are identifying partners who will help us deliver customer

value today and in the future.

We announced several exciting new partnerships in 2018, including Home Chef, Microsoft, Nuro, and Ocado
among others. All of these partnerships accelerate our ability to provide customers anything, anytime, anywhere. And
each partner shares our passion for exploring the nexus between technology and innovative customer experiences.

I’d like to highlight two of these partnerships, Home Chef and Ocado. We merged with Home Chef, an online meal

kit company, in 2018. What made Home Chef such a compelling merger partner is their combination of
technology-enabled culinary expertise and customer data driven decision making. Home Chef is #1 in customer
satisfaction among meal kit companies because they are relentlessly focused on the customer. They continue to grow
and shape the meal solutions category. Shortly after our merger, Home Chef launched their first ever in-store meal kits.
Today the products are available in nearly 700 locations and we have plans for further expansion.

Our exclusive licensing agreement with Ocado, one of the world’s largest dedicated online grocery retailers, will

enable Kroger to provide a faster, more curated ecommerce shopping experience for customers than ever before. The
Ocado Smart Platform utilizes advanced robotics and efficient automated warehouse technology to create an
end-to-end supply chain solution that will advance our already-strong supply chain infrastructure. What does that mean
for customers? Fresher food, delivered faster, to enjoy longer. We’ve identified the locations for the first three Ocado
customer fulfillment centers, or ‘‘sheds’’, in the U.S. – southwest Ohio, central Florida and the Mid-Atlantic region – and
will name additional locations in 2019.

Develop Talent

Transformation starts with our people, which is why Develop Talent is a driver of Restock Kroger. Our talent

development strategy has three parts: investing in associates, improving the associate experience, and developing high
performing teams and leaders.

We are investing an incremental $500 million in our associates over the three years of Restock Kroger. In 2018,
we accelerated these planned investments to increase wages for our store associates. The federal tax reform was a
catalyst enabling us to accelerate these investments. We chose to take a balanced approach to ensure tax reform
benefited our shareholders, customers and associates alike. Shareholders are benefiting from approximately a third of
the tax savings flowing through to net earnings per diluted share. Another third of the savings is being reinvested to
improve the customer experience. And we are investing the final third to improve the associate experience through an
increased 401k match, expanded associate discounts, and a new industry-leading education assistance program called
Feed Your Future. Our combined efforts significantly improved employee retention in one of the tightest labor markets
in years.

Feed Your Future strengthens human capital by improving access to education. We launched the program a year

ago, which is available to all associates, full or part time, after six months of service. Among all the participants, 83%
are hourly store associates.

Many people’s first job is in retail. Kroger has always been a place where people can ‘come for a job and stay for a

career.’ And, certainly, our hope with programs like Feed Your Future is that associates will bring their educational
growth back to Kroger through increased performance and responsibility. But whether or not an associate remains with
Kroger for the long term, we know that the investment we are making in them is going to last. It is going to give that
person a better life, which is going to make the world a better place.

Live Our Purpose

Increasingly, customers, associates and investors are choosing to shop with, work for and invest in companies that
are purpose driven and making the world a better place. At Kroger, our Purpose is to Feed the Human Spirit. And while
we live our purpose in large ways and small every day across our stores, manufacturing plants, distribution facilities
and offices, one of the most innovative ways we Feed the Human Spirit is through our social impact plan, Zero Hunger |
Zero Waste.

136 years in the grocery business have taught us a few things about people and about food. We know that meals

matter. Families that share meals together have children who do better in all aspects of their lives. Yet there is a
fundamental absurdity in the U.S. food system – 40% of the food produced here goes to waste, while 1 in 8 Americans
struggle with hunger. In fact, 1 in 6 children go hungry every day. That just doesn’t make sense.

We believe we can address this absurdity – perhaps better than anyone.

Zero Hunger | Zero Waste aims to end hunger in the places we call home and eliminate waste across the company

by 2025.

In 2018, we celebrated several milestones on our journey. Kroger donated more than 316 million meals in food and

funds to feed hungry families. That’s more than 100 million pounds of nutritious food directed to local Feeding America
food banks, and enough to feed nearly 80,000 food insecure people for a whole year. Our teams increased recycling by
nearly 20% across the company, bringing total waste diversion to 76% as we work toward zero waste-to-landfill.

Also, in 2018 Kroger became the first major U.S. retailer to commit to phasing out single-use plastic grocery bags

and transition to more sustainable options to better protect the planet. And we were thrilled to be recognized on Fortune
magazine's Change the World 2018 list for using Kroger’s scale for good – engaging our business to solve society’s
most complex issues – through Zero Hunger | Zero Waste.

We welcome you to join us on our journey, too. You can follow along at www.thekrogerco.com or

#zerohungerzerowaste.

Create Shareholder Value

We are transforming from a grocery company to a growth company.

We are creating a virtuous circle built on our grocery business and the data that business generates. We use data

both to serve our more than 60 million customers better and to create new business opportunities that leverage our
consumer insights.

We are improving our seamless ecosystem by offering customers incredible physical and digital experiences, great

meals and amazing products, friendly and caring associates, and unprecedented convenience.

A constantly-improving customer ecosystem generates traffic, customer data and insights.

These then fuel the growth of adjacent alternative profit streams like our Kroger Personal Finance, 84.51°, and
Media businesses. It is worth noting that each of these businesses beat their operating profit targets for 2018. This was
very encouraging because they are the biggest line items in our portfolio of alternative profit businesses.

It is a virtuous circle that works for customers and shareholders. Delivering an amazing customer experience creates

incremental new profit streams, and new profit streams provide capital that can be reinvested in our core grocery business,
making the seamless experience possible. Both parts are necessary to deliver sustainable, long-term growth and profitability.

Strategic Sale of Assets

Throughout 2018 we explored strategic alternatives for several business units that had greater potential for growth
outside of the Kroger ecosystem. Those explorations resulted in the sale of our Convenience Store business, YouTech,
and Turkey Hill business. These transactions generated value for shareholders and will allow for each of these
businesses to reach their full potential. The sale of YouTech includes a long-term services agreement with Inmar to
provide digital coupon services to the Kroger family of stores and we will continue to offer our customers Turkey Hill’s
popular ice cream, iced teas, lemonades and other products.

iii

As America’s grocer, Kroger has the winning combination of local presence plus a digital ecosystem, enhanced by

strategic partnerships, that together enable us to offer our customers anything, anytime, anywhere. We are deploying
our assets to serve more customers and create asset-light, margin-rich alternative profit streams. We are living our
Purpose and pursuing our Restock Kroger vision to serve America through food inspiration and uplift.

Very few Fortune 500 companies have transformed themselves since the list’s inception more than six decades

ago. But Kroger has done so time and again by always focusing on the ever-evolving needs of our customers. We will
transform because we have transformed, repeatedly, through our 136-year history.

When I think about Barney Kroger’s fledgling business on Pearl Street near the Ohio River delivering groceries to

customer homes by horse-drawn carriage … and compare that to our business in Houston delivering groceries to
customer homes by Nuro’s self-driving R1 robot … there are some dramatic differences but, really, it’s about the same
thing: delivering for our customers. It’s just a different kind of horsepower.

For our associates: Thank you for what you do every day, for our customers, the communities we call home, and

each other.

For our shareholders and other stakeholders: On behalf of all of us, thank you for your continued confidence in

Kroger.

Sincerely,

Rodney McMullen
Chairman and CEO

Kroger Safe Harbor Statement

This letter contains ‘‘forward-looking statements’’ within the meaning of the safe harbor provisions of the United
States Private Securities Litigation Reform Act of 1995 about future performance of Kroger, including with respect to
Kroger’s ability to achieve short- and long-term sales and earnings goals, sustainable long-term shareholder value,
ability to execute on our growth strategy and business plan, ability to execute on Restock Kroger, ability to increase
dividends, ability to grow market share, and ability to develop new brands and implement new technologies, among
other statements. These statements are based on management’s assumptions and beliefs in light of the information
currently available to it. These statements are indicated by words such as ‘‘achieve,’’ ‘‘believe,’’ ‘‘committed,’’
‘‘continue,’’ ‘‘deliver,’’ ‘‘effect,’’ ‘‘future,’’ ‘‘growth,’’ ‘‘imperative,’’ ‘‘may, ‘‘plan,’’ ‘‘reinventing;’’ ‘‘result,’’ ‘‘strategy,’’ ‘‘strong,’’
‘‘sustainable,’’ ‘‘transform,’’ ‘‘trend,’’ ‘‘vision,’’ and ‘‘will,’’ as well as similar words or phrases. These statements are
subject to known and unknown risks, uncertainties and other important factors that could cause actual results and
outcomes to differ materially from those contained in the forward-looking statements. These include the specific risk
factors identified in ‘‘Risk Factors’’ and ‘‘Outlook’’ in Kroger’s Annual Report on Form 10-K and any subsequent filings
with the Securities and Exchange Commission.

Congratulations to The Kroger Co. Zero Hunger I Zero Waste Champions for 2018:

2018 Zero Hunger I Zero Waste Champion Award

Division

Recipient

Atlanta
Central
Cincinnati
Columbus
Dallas
Delta
Dillon Stores
Food 4 Less
Fred Meyer
Fry’s
Houston
King Soopers/City Market
Louisville
Mariano’s
Michigan
Mid-Atlantic
Nashville
QFC
Ralphs
Roundy’s
Ruler
Smith’s

Matt Hall
Mike Brown
Tina Huff
Charlotte Sullivan
Booker Johnson
Amber Winchester
Kristen Honeycutt
Renee Morris
Terri Gigliotti
Luke Adams
Chris Foreman
Brad Crowe
Doug Oberhausen
Suzanne McDonnell
Liz Olson
Jade Hughes
Clarissa Whitfield
Amber Brask
Fawad Khan
Charles Barthel, Mitchell Prince
Gary Dwiggins
Dayzjah Sagapolu, Gus Sagapolu

Kenlake Foods
Westover Dairy
Pace Dairy - Crawfordsville
County Oven Bakery
Layton Dough

Karl Smith
Wendy Cheatham
Charlene Hall
Michael Brown
Dave Ross

Supply Chain
Kroger Technology

84.51

Ryan McCloy
Denise Haskamp, Jeff Pitzer, Devin Thomas,
Erin Neace, Randal McClimans
Reid McCreary, Melissa Bailey, Tiffany Barker,
Stephen Eadicicco, Lindsey Hasis
Dana Urner

Notice of 2019 Annual Meeting of Shareholders

Fellow Kroger Shareholders:

It is our pleasure to invite you to join our Board of Directors, senior leadership, and other Kroger

associates at The Kroger Co. Annual Meeting of Shareholders.

When:

Where:

Thursday, June 27, 2019, at 11:00 a.m. eastern time.

Music Hall
Music Hall Ballroom
1241 Elm Street
Cincinnati, OH 45202

Items of Business:

1. To elect 11 director nominees.
2. To approve our executive compensation, on an advisory basis.
3. To consider and act upon a proposal to approve The Kroger Co. 2019 Long-Term

Incentive Plan.

4. To approve an amendment to our Regulations to permit Board amendments in

accordance with Ohio law.

5. To ratify the selection of our independent auditor for fiscal year 2019.
6. To vote on two shareholder proposals, if properly presented at the meeting.
7. To transact other business as may properly come before the meeting.

Who can Vote:

Holders of Kroger common shares at the close of business on the record date May 1,
2019 are entitled to notice of and to vote at the meeting.

How to Vote:

Your vote is important! Please vote your proxy in one of the following ways:

Attending the Meeting:

1. Via the internet, by visiting www.proxyvote.com.
2. By telephone, by calling the number on your proxy card, voting instruction form or

notice.

3. By mail, by marking, signing, dating and mailing your proxy card if you requested
printed materials, or your voting instruction form. No postage is required if mailed
in the United States.
In person, by attending the meeting in Cincinnati.

Shareholders holding shares at the close of business on the record date may attend
the meeting. If you own your shares through a brokerage firm you must bring your
brokerage statement to show you owned the shares as of the record date and valid
photo identification, such as a driver’s license or passport. If you own your shares
directly, you should bring the notice of meeting that was mailed to you, or the top
portion of your proxy card, and valid photo identification. We reserve the right to
exclude any person who cannot provide the required items.

Webcast of the Meeting:

If you are unable to attend the meeting, you may listen to a live webcast of the
meeting by visiting ir.kroger.com at 11:00 a.m. eastern time on June 27, 2019.

We appreciate your continued confidence in Kroger, and we look forward to seeing you at the meeting.

May 14, 2019
Cincinnati, Ohio

By Order of the Board of Directors,
Christine S. Wheatley, Secretary

Proxy Statement

May 14, 2019

We are providing this notice, proxy statement and annual report to the shareholders of The Kroger Co.
(‘‘Kroger’’, ‘‘we’’, ‘‘us’’, ‘‘our’’) in connection with the solicitation of proxies by the Board of Directors of Kroger (the
‘‘Board’’) for use at the Annual Meeting of Shareholders to be held on June 27, 2019, at 11:00 a.m. eastern time, at
the Music Hall Ballroom, Music Hall, 1241 Elm St., Cincinnati, Ohio 45202, and at any adjournments thereof.

Our principal executive offices are located at 1014 Vine Street, Cincinnati, Ohio 45202-1100. Our telephone

number is 513-762-4000. This notice, proxy statement and annual report, and the accompanying proxy card were
first furnished to shareholders on May 14, 2019.

Who can vote?

You can vote if, as of the close of business on May 1, 2019, you were a shareholder of record of Kroger

common shares.

Who is asking for my vote, and who pays for this proxy solicitation?

Your proxy is being solicited by Kroger’s Board of Directors. Kroger is paying the cost of solicitation. We have

hired D.F. King & Co., Inc., 48 Wall Street, New York, New York, a proxy solicitation firm, to assist us in soliciting
proxies and we will pay them a fee estimated not to exceed $17,500 for base solicitation fees.

We also will reimburse banks, brokers, nominees, and other fiduciaries for postage and reasonable expenses

incurred by them in forwarding the proxy material to beneficial owners of our common shares.

Proxies may be solicited personally, by telephone, electronically via the Internet, or by mail.

Who are the members of the Proxy Committee?

Anne Gates, W. Rodney McMullen, and Ronald L. Sargent, all Kroger Directors, are the members of the Proxy

Committee for our 2019 Annual Meeting.

How do I vote my proxy?

You can vote your proxy in one of the following ways:

1. Via the internet, by visiting www.proxyvote.com.

2. By telephone, by calling the number on your proxy card, voting instruction form, or notice.

3. By mail, by marking, signing, dating, and mailing your proxy card if you requested printed materials, or

your voting instruction form. No postage is required if mailed in the United States.

In person, by attending the meeting in Cincinnati.

What do I need to attend the meeting in person in Cincinnati?

Shareholders holding shares at the close of business on the record date may attend the meeting. If you own
your shares through a brokerage firm you must bring your brokerage statement to show you owned the shares as
of the record date and valid photo identification, such as a driver’s license or passport. If you own your shares
directly, you should bring the notice of meeting that was mailed to you, or the top portion of your proxy card, and
valid photo identification. We reserve the right to exclude any person who cannot provide the required items.

Can I change or revoke my proxy?

The common shares represented by each proxy will be voted in the manner you specified unless your proxy is

revoked before it is exercised. You may change or revoke your proxy by providing written notice to Kroger’s
Secretary at 1014 Vine Street, Cincinnati, Ohio 45202, in person at the meeting, or by executing and sending us a
subsequent proxy.

How many shares are outstanding?

As of the close of business on May 1, 2019, the record date, our outstanding voting securities consisted of

806,682,213 common shares.

How many votes per share?

Each common share outstanding on the record date will be entitled to one vote on each of the 11 director
nominees and one vote on each other proposal. Shareholders may not cumulate votes in the election of directors.

What voting instructions can I provide?

You may instruct the proxies to vote ‘‘For’’ or ‘‘Against’’ each proposal, or you may instruct the proxies to

‘‘Abstain’’ from voting.

What happens if proxy cards or voting instruction forms are returned without instructions?

If you are a registered shareholder and you return your proxy card without instructions, the Proxy Committee

will vote in accordance with the recommendations of the Board.

If you hold shares in street name and do not provide your broker with specific voting instructions on proposals

1 – 4 and 6 and 7, which are considered non-routine matters, your broker does not have the authority to vote on
those proposals. This is generally referred to as a ‘‘broker non-vote.’’ Proposal 5, ratification of auditors, is
considered a routine matter and, therefore, your broker may vote your shares according to your broker’s discretion.

The vote required, including the effect of broker non-votes and abstentions for each of the matters presented

for shareholder vote, is set forth below.

What are the voting requirements and voting recommendation for each of the proposals?

Proposals

No. 1 Election of Directors

No. 2 Advisory Vote to Approve
Executive Compensation

No. 3 Vote to Approve The

Kroger Co. 2019 Long-Term
Incentive Plan

No. 4 Vote to Approve

Amendment to Regulations
to Permit Board Amendments
in Accordance with Ohio Law

No. 5 Ratification of

Independent Auditors

Nos. 6 and 7 Shareholder

Proposals

Board
Recommendation

Voting Approval
Standard

Effect of
Abstention

Effect of
broker
Non-vote

FOR each
Director Nominee

FOR

AGAINST
each Proposal

More votes ‘‘FOR’’ than
‘‘AGAINST’’ since an
uncontested election

Affirmative vote of the
majority of shares
participating in the voting

Affirmative vote of 75%
of the outstanding
shares

Affirmative vote of the
majority of shares
participating in the voting

No Effect

Vote Against

No Effect

Not Applicable

No Effect

Important Notice Regarding the Availability of Proxy Materials for the Shareholder
Meeting to be Held on June 27, 2019

The Notice of 2019 Annual Meeting, Proxy Statement and 2018 Annual Report and the means to vote by internet
are available at www.proxyvote.com.

Kroger’s Corporate Governance Practices

Kroger is committed to strong corporate governance. We believe that strong governance builds trust and
promotes the long-term interests of our shareholders. Highlights of our corporate governance practices include the
following:

Board Governance Practices

✓ Strong Board oversight of enterprise risk.

✓ All director nominees are independent, except for the CEO.

✓ All five Board committees are fully independent.

✓ Robust code of ethics.

✓ Annual evaluation of the Chairman and CEO by the independent directors, led by the independent Lead

Director.

✓ Annual Board and committee self-assessments.

✓ Commitment to Board refreshment and diversity.

✓ Regular executive sessions of the independent directors, at the Board and committee level.

✓ Strong independent Lead Director with clearly defined role and responsibilities.

✓ High degree of Board interaction with management to ensure successful oversight and succession

planning.

Shareholder Rights

✓ All directors are elected annually with a simple majority standard for all uncontested director elections and

by plurality in contested director elections.

✓ No poison pill (shareholder rights plan).

✓ Shareholders have the right to call a special meeting.

✓ Regular engagement with shareholders to understand their perspectives and concerns on a broad array of

topics, including corporate governance matters.

✓ Responsive to shareholder feedback.

✓ Adopted proxy access for director nominees, enabling a shareholder, or group of up to 20 shareholders,
holding 3% of the Company’s common shares for at least three years to nominate candidates for the
greater of two seats or 20% of board nominees.

Compensation Governance

✓ Pay program tied to performance and business strategy.

✓ Majority of pay is long-term and at-risk with no guaranteed bonuses or salary increases.

✓ Stock ownership guidelines align executive and director interests with those of shareholders.

✓ Prohibition on all hedging, pledging, and short sales of Kroger securities by directors and executive

officers.

✓ No tax gross-up payments to executives.

Proposals to Shareholders

Item No. 1. Election of Directors

You are being asked to elect 11 director nominees for a one-year term. The Board of Directors
recommends that you vote FOR the election of all director nominees.

As of the date of this proxy statement, Kroger’s Board of Directors consists of 12 members. All nominees, if
elected at the 2019 Annual Meeting, will serve until the annual meeting in 2020, or until their successors have been
elected by the shareholders or by the Board pursuant to Kroger’s Regulations, and qualified. As previously
disclosed, Mr. Robert D. Beyer has informed the Board that he is retiring from the Board effective as of June 27,
2019 and will not stand for re-election.

Kroger’s Articles of Incorporation provide that the vote required for election of a director nominee by the
shareholders, except in a contested election or when cumulative voting is in effect, is the affirmative vote of a
majority of the votes cast for or against the election of a nominee.

The experience, qualifications, attributes, and skills that led the Corporate Governance Committee and the
Board to conclude that the following individuals should serve as directors are set forth opposite each individual’s
name. The committee memberships stated below are those in effect as of the date of this proxy statement.

Nominees for Directors for Terms of Office Continuing until 2020

Nora A. Aufreiter

Age 59

Director Since 2014

Committees:
Financial Policy
Public Responsibilities

Ms. Aufreiter is Director Emeritus of McKinsey & Company, a global management
consulting firm. She retired in June 2014 after more than 27 years with McKinsey, most
recently as a director and senior partner. During that time, she worked extensively in the
U.S., Canada, and internationally with major retailers, financial institutions, and other
consumer-facing companies. Before joining McKinsey, Ms. Aufreiter spent three years in
financial services working in corporate finance and investment banking. She is a
member of the Board of Directors of The Bank of Nova Scotia. She is also on the board
of two privately held companies, The Neiman Marcus Group, and Cadillac Fairview, one
of North America’s largest owners, operators and developers of commercial real estate.
Ms. Aufreiter also serves on the boards of St. Michael’s Hospital and the Canadian
Opera Company, and is a member of the Dean’s Advisory Board for the Ivey Business
School in Ontario, Canada.

Ms. Aufreiter has over 30 years of broad business experience in a variety of retail
sectors. Her vast experience in leading McKinsey’s North American Retail Practice,
North American Branding service line and the Consumer Digital and Omnichannel
service line is of particular value to the Board. She also brings to the Board valuable
insight on commercial real estate.

Anne Gates

Age 59

Director Since 2015

Committees:
Audit*
Public Responsibilities

Ms. Gates was President of MGA Entertainment, Inc., a privately-held developer,
manufacturer, and marketer of toy and entertainment products for children, from
2014 until her retirement in 2017. Ms. Gates held roles of increasing responsibility with
The Walt Disney Company from 1992-2012. Her roles included Executive Vice
President, Managing Director, and Chief Financial Officer for Disney Consumer
Products, and Senior Vice President of Operations, Planning and Analysis. Prior to
joining Disney, Ms. Gates worked for PepsiCo and Bear Stearns. She is currently a
director of Tapestry, Inc. and Raymond James Financial, Inc.

Ms. Gates has over 25 years of experience in the retail and consumer products industry.
She brings to Kroger financial expertise gained while serving as President of MGA and
CFO of a division of The Walt Disney Company. Ms. Gates has a broad business
background in finance, marketing, strategy and business development, including
international business. Her expertise in toy and entertainment products is of particular
value to the Board. Ms. Gates has been designated an Audit Committee financial expert
and she serves as Chair of the Audit Committee.

* Denotes Committee Chair

Susan J. Kropf

Age 70

Director Since 2007

Committees:
Compensation &
Talent Development
Corporate Governance

Ms. Kropf was President and Chief Operating Officer of Avon Products Inc., a
manufacturer and marketer of beauty care products, from 2001 until her retirement in
January 2007. She joined Avon in 1970 and, during her tenure at Avon, Ms. Kropf also
served as Executive Vice President and Chief Operating Officer, Avon North America
and Global Business Operations from 1998 to 2000 and President, Avon U.S. from
1997 to 1998. Ms. Kropf was a member of Avon’s Board of Directors from 1998 to 2006.
She is currently a director of Avon Products, Inc., Tapestry, Inc., and Sherwin Williams
Company. She also serves on the board of a privately held company, New Avon, LLC. In
the past five years she also served as a director of MeadWestvaco Corporation.

Ms. Kropf has unique and valuable consumer insight, having led a major, publicly-traded
retailer of beauty and related consumer products. She has extensive experience in
manufacturing, marketing, supply chain operations, customer service, and product
development, all of which assist her in her role as a member of Kroger’s Board.
Ms. Kropf has a strong financial background and has significant boardroom experience
through her service on the boards of various public companies, including experience
serving on compensation, audit, and corporate governance committees. She was
inducted into the YWCA Academy of Women Achievers. Ms. Kropf received recognition
from the National Association of Corporate Directors as an NACD Directorship
100 ‘‘Class of 2016’’ member.

Mr. McMullen was elected Chairman of the Board in January 2015 and Chief Executive
Officer of Kroger in January 2014. He served as Kroger’s President and Chief Operating
Officer from August 2009 to December 2013. Prior to that, Mr. McMullen was elected to
various roles at Kroger including Vice Chairman in 2003, Executive Vice President,
Strategy, Planning, and Finance in 1999, Senior Vice President in 1997, Group Vice
President and Chief Financial Officer in June 1995, and Vice President, Planning and
Capital Management in 1989. He is a director of Cincinnati Financial Corporation and
VF Corporation.

Mr. McMullen has broad experience in the supermarket business, having spent his
career spanning over 40 years with Kroger. He has a strong background in finance,
operations, and strategic partnerships, having served in a variety of roles with Kroger,
including as our CFO, COO, and Vice Chairman. His service as chair of Cincinnati
Financial Corporation’s compensation committee and on its executive and investment
committees, as well as his service on the audit and nominating and governance
committees of VF Corporation, adds depth to his extensive retail experience.

Mr. Montoya was President of The Procter & Gamble Company’s Global Snacks &
Beverage division, and President of Procter & Gamble Latin America, from 1999 until his
retirement in 2004. Prior to that, he was an Executive Vice President of Procter &
Gamble, a provider of branded consumer packaged goods, from 1995 to 1999.
Mr. Montoya is a director of The Gap, Inc.

Mr. Montoya brings to Kroger’s Board over 30 years of leadership experience at a
premier consumer products company. He has a deep knowledge of the Hispanic
market, as well as consumer products and retail operations. Mr. Montoya has vast
experience in marketing and general management, including international business. He
was named among the 50 most important Hispanics in Business & Technology, in
Hispanic Engineer & Information Technology Magazine.

W. Rodney McMullen
Chairman and Chief
Executive Officer

Age 58

Director Since 2003

Jorge P. Montoya

Age 72

Director Since 2007

Committees:
Compensation &
Talent Development
Public Responsibilities*

* Denotes Committee Chair

Clyde R. Moore

Age 65

Director Since 1997

Committees:
Compensation &
Talent Development*
Corporate Governance

Mr. Moore was the Chairman of First Service Networks, a national provider of facility
and maintenance repair services, until his retirement in 2015. Prior to his retirement, he
was Chairman and Chief Executive Officer of First Service Networks from 2000 to 2014.

Mr. Moore has over 30 years of general management experience in public and private
companies. He has sound experience as a corporate leader overseeing all aspects of a
facilities management firm and numerous manufacturing companies. Mr. Moore’s
expertise broadens the scope of the Board’s experience to provide oversight to Kroger’s
facilities, digital, and manufacturing businesses. Additionally, his expertise and
leadership as Chair of the Compensation and Talent Development Committee is of
particular value to the Board.

James A. Runde

Age 72

Director Since 2006

Committees:
Compensation &
Talent Development
Financial Policy*

Ronald L. Sargent

Lead Director

Age 63

Director Since 2006

Committees:
Audit
Corporate Governance*
Public Responsibilities

Bobby S. Shackouls

Age 68

Director Since 1999

Committees:
Audit
Corporate Governance

Mr. Runde is a special advisor and former Vice Chairman of Morgan Stanley, a financial
services provider, where he was employed from 1974 until his retirement in 2015. He
was a member of the Board of Directors of Burlington Resources, Inc. prior to its
acquisition by ConocoPhillips in 2006. Mr. Runde serves as a Trustee Emeritus of
Marquette University and the Pierpont Morgan Library.

Mr. Runde brings to Kroger’s Board a strong financial background, having led a major
financial services provider. He also has served on the compensation committee of a
major corporation.

Mr. Sargent was Chairman and Chief Executive Officer of Staples, Inc., a business
products retailer, where he was employed from 1989 until his retirement in January
2017. Prior to joining Staples, Mr. Sargent spent 10 years with Kroger in various
positions. He is a director of Five Below, Inc. and Wells Fargo & Company. In the past
five years, he served as a director of Staples, Inc.

Mr. Sargent has over 35 years of retail experience, first with Kroger and then with
increasing levels of responsibility and leadership at Staples, Inc. His efforts helped
carve out a new market niche for the international retailer. His understanding of retail
operations, consumer insights, and e-commerce are of particular value to the Board.
Mr. Sargent has been designated an Audit Committee financial expert and serves as
Lead Director of the Board.

Mr. Shackouls was Chairman of the Board of Burlington Resources Inc., a natural
resources business, from July 1997 until its merger with ConocoPhillips in 2006 and its
President and Chief Executive Officer from December 1995 until 2006. Mr. Shackouls
was also President and Chief Executive Officer of Burlington Resources Oil and Gas
Company (formerly known as Meridian Oil Inc.), a wholly-owned subsidiary of Burlington
Resources, from 1994 to 1995. Mr. Shackouls is a director of Oasis Petroleum Inc.,
Quintana Energy Services, Plains GP Holdings, L.P., and Plains All American Pipeline,
L.P. Plains GP Holdings, L.P. is the ultimate general partner of Plains All American
Pipeline, L.P. and although the two are separate publicly traded companies, they are
governed by a single board, and directors receive compensation for service on the
single board.

Mr. Shackouls brings to the Board the critical thinking that comes with a chemical
engineering background, as well as his experience leading a major natural resources
company, coupled with his corporate governance expertise.

* Denotes Committee Chair

Mark S. Sutton

Age 57

Director Since 2017

Committees:
Audit
Public Responsibilities

Ashok Vemuri

Age 51

Director Since 2019

Committees:
Financial Policy
Public Responsibilities

Mr. Sutton is Chairman and Chief Executive Officer of International Paper, a leading
global producer of renewable fiber-based packaging, pulp, and paper products. Prior to
becoming CEO, he served as President and Chief Operating Officer with responsibility
for running the company’s global business. Mr. Sutton joined International Paper in 1984
as an Electrical Engineer. He held roles of increasing responsibility throughout his
career, including Mill Manager, Vice President of Corrugated Packaging Operations
across Europe, the Middle East and Africa, Vice President of Corporate Strategic
Planning, and Senior Vice President of several business units, including global supply
chain, before being named CEO in 2014. Mr. Sutton is a member of The Business
Council. He serves on the boards of the American Forest & Paper Association, The
Business Roundtable, the International Advisory Board of the Moscow School of
Management – Skolkovo. He was appointed Chairman of the U.S. – Russian Business
Council and New Memphis Institute Board of Governors. He also serves on the Board
for Memphis Tomorrow.

Mr. Sutton has over thirty years of leadership experience with increasing levels of
responsibility and leadership at International Paper. He brings to the Board the critical
thinking that comes with an electrical engineering background as well as his experience
leading a global company. His strong strategic planning background and supply chain
experience are of particular value to the Board. Mr. Sutton has been designated an
Audit Committee financial expert.

Mr. Vemuri has served as Chief Executive Officer and a Director of Conduent
Incorporated, a global digital interactions company, since the company’s inception as a
result of the spin-off from Xerox Corporation in January 2017. He previously served as
Chief Executive Officer of Xerox Business Services, LLC and as an Executive Vice
President of Xerox Corporation from July 2017 to December 2017. Prior to that, he was
President, Chief Executive Officer, and a member of the Board of Directors of IGATE
Corporation, a New Jersey-based global technology and services company now part of
Capgemini, from 2013 to 2015. Before joining IGATE, Mr. Vemuri spent 14 years at
Infosys Limited, a multinational consulting and technology services company, in a
variety of leadership and business development roles and served on the board of
Infosys from 2011 to 2013. Prior to joining Infosys in 1999, Mr. Vemuri worked in the
investment banking industry at Deutsche Bank and Bank of America.

Mr. Vemuri brings to the Board a proven track record of leading technology services
companies through growth and corporate transformations. His experience as CEO of
global technology companies is of particular value to the Board as he brings a unique
operational, financial, and client experience perspective.

The Board of Directors Recommends a Vote For Each Director Nominee.

Board Diversity and Succession Planning

Our director nominees reflect a wide array of experience, skills, and backgrounds. Each director is individually
qualified to make unique and substantial contributions to Kroger. Collectively, our directors’ diverse viewpoints and
independent-mindedness enhance the quality and effectiveness of Board deliberations and decision making. Our
Board is a dynamic group of new and experienced members, providing an appropriate balance of institutional
knowledge and fresh perspectives about Kroger due to the varied length of tenure on the Board. This blend of
qualifications, attributes, and tenure results in highly effective board leadership.

The Corporate Governance Committee considers racial, ethnic, and gender diversity to be important elements

in promoting full, open, and balanced deliberations of issues presented to the Board. The Corporate Governance
Committee considers director candidates who help the Board reflect the diversity of our shareholders, associates,
customers, and the communities in which we operate. Some consideration is also given to the geographic location
of director candidates in order to provide a reasonable distribution of members from Kroger’s operating areas.

Board succession planning is an ongoing, year-round process. The Corporate Governance Committee
recognizes the importance of thoughtful Board refreshment and engages in a continuing process of identifying
attributes sought for future Board members. The Corporate Governance Committee takes into account the Board

and committee evaluations regarding the specific qualities, skills, and experiences that would contribute to overall
Board and committee effectiveness, as well as the future needs of the Board and its committees in light of Kroger’s
current and long-term business strategies, and the skills and qualifications of directors who are expected to retire in
the future.

The Corporate Governance Committee believes that it has been successful in its efforts to promote gender

and ethnic diversity on our Board. The Corporate Governance Committee and Board believe that our director
nominees for election at our 2019 annual meeting bring to our Board a variety of different experiences, skills, and
qualifications that contribute to a well-functioning diverse Board that effectively oversees the Company’s strategy
and management. The charts below show the diversity of our director nominees and the skills and experience that
we consider important for our directors in light of our current business, strategy, and structure:

Business
Management

Retail

Consumer

Financial
Expertise

Risk
Management

Operations
& Technology

Sustainability

Manufacturing

Nora
Aufreiter

Anne
Gates

Susan
Kropf

Rodney
McMullen

Jorge
Montoya

Clyde
Moore

James
Runde

Ronald
Sargent

Bobby
Shackouls

Mark
Sutton

Ashok
Vemuri

Total
(of 11)

●

Ethnic Diversity

Gender Diversity

18% of
Board is
ethnically
diverse

27%
Women

Information Concerning the Board of Directors

Board Leadership Structure and Lead Independent Director

The Board is currently composed of eleven independent non-employee directors and one management
director, Mr. McMullen, the Chairman and CEO. Kroger has a governance structure in which independent directors
exercise meaningful and vigorous oversight.

As provided in Kroger’s Guidelines on Issues of Corporate Governance (the ‘‘Guidelines’’), the Board has
designated one of the independent directors as Lead Director. The Lead Director works with the Chairman to share
governance responsibilities, facilitate the development of Kroger’s strategy and grow shareholder value. The Lead
Director serves a variety of roles, consistent with current best practices, including:

•

reviewing and approving Board meeting agendas, materials, and schedules to confirm that the appropriate
topics are reviewed, with sufficient information provided to directors on each topic and appropriate time is
allocated to each;

serving as the principal liaison between the Chairman, management, and the independent directors;

presiding at the executive sessions of independent directors and at all other meetings of the Board at
which the Chairman is not present;

calling meetings of independent directors at any time; and

serving as the Board’s representative for any consultation and direct communication, following a request,
with major shareholders.

The Lead Director carries out these responsibilities in numerous ways, including:

•

facilitating communication and collegiality among the Board;

soliciting direct feedback from non-employee directors;

overseeing the succession planning process, including meeting with a wide range of employees including
corporate and division management associates;

• meeting with the CEO frequently to discuss strategy;

•

serving as a sounding board and advisor to the CEO; and

discussing Company matters with other directors between meetings.

Unless otherwise determined by the independent members of the Board, the Chair of the Corporate

Governance Committee is designated as the Lead Director. Ronald L. Sargent, an independent director and the
Chair of the Corporate Governance Committee, was recently appointed Lead Director in June 2018. Mr. Sargent is
an effective Lead Director for Kroger due to, among other things:

•

his independence;

his deep strategic and operational understanding of Kroger obtained while serving as a Kroger director;

his insight into corporate governance;

his experience as the CEO of an international retailer;

his experience on the boards of other large publicly traded companies; and

his engagement and commitment to carrying out the role and responsibilities of the Lead Director.

With respect to the roles of Chairman and CEO, the Guidelines provide that the Board will determine whether it

is in the best interests of Kroger and our shareholders for the roles to be combined. The Board exercises this
judgment as it deems appropriate in light of prevailing circumstances. Upon retirement of our former Chairman,
David B. Dillon, on December 31, 2014, the Board determined that it is in the best interests of Kroger and our
shareholders for one person to serve as the Chairman and CEO, as was the case from 2004 through 2013, with
another individual serving as independent Lead Director. The Board believes that this leadership structure improves
the Board’s ability to focus on key policy and operational issues and helps the Company operate in the long-term
interest of shareholders. Additionally, this structure provides an effective balance between strong Company
leadership and appropriate safeguards and oversight by independent directors. The Board believes that the
structure of the Chairman and independent Lead Director position should continue to be considered as part of the
succession planning process.

Annual Board Evaluation Process

The Board and each of its committees conduct an annual evaluation to determine whether the Board is
functioning effectively both at the Board and at the committee levels. As part of this annual evaluation, the Board
assesses whether the current leadership structure and function continues to be appropriate for Kroger and its

shareholders. The Guidelines provide the flexibility for the Board to modify our leadership structure in the future as
appropriate. We believe that Kroger, like many U.S. companies, is well-served by this flexible leadership structure.

The Board recognizes that a robust evaluation process is an essential component of strong corporate
governance practices and ensuring Board effectiveness. The Corporate Governance Committee oversees an
annual evaluation process led by the Lead Independent Director (who also serves as Chair of the Corporate
Governance Committee).

Each director completes a detailed written annual evaluation of the Board and the committees on which he or

she serves and the Lead Director conducts interviews with each of the directors. These Board evaluations are
designed to assess the skills, qualifications, and experience represented on the Board and its committees, and to
determine whether the Board and its committees are functioning effectively. The process also evaluates the
relationship between management and the Board, including the level of access to management, responsiveness of
management, and the effectiveness of the Board’s evaluation of management performance. The results of this
Board evaluation are discussed by the full Board and each committee, as applicable, and changes to the Board’s
and its committees’ practices are implemented as appropriate.

Committees of the Board of Directors

To assist the Board in undertaking its responsibilities, and to allow deeper engagement in certain areas of

company oversight, the Board has established five standing committees: Audit, Compensation and Talent
Development (‘‘Compensation’’), Corporate Governance, Financial Policy, and Public Responsibilities. All
committees are composed exclusively of independent directors, as determined under the New York Stock
Exchange (‘‘NYSE’’) listing standards. The current charter of each Board committee is available on our website at
ir.kroger.com under Investors – Governance – Guidelines on Issues of Corporate Governance.

Name of Committee, Number of
Meetings, and Current Members

Committee Functions

Audit Committee

Meetings in 2018: 5

Members:

Anne Gates, Chair
Ronald L. Sargent
Bobby S. Shackouls
Mark S. Sutton

• Oversees the Company’s financial reporting and accounting matters,
including review of the Company’s financial statements and the audit
thereof, the Company’s financial reporting and accounting process,
and the Company’s systems of internal control over financial reporting

• Selects, evaluates, and oversees the compensation and work of the

independent registered public accounting firm and reviews its
performance, qualifications, and independence

• Oversees and evaluates the Company’s internal audit function,
including review of its audit plan, policies and procedures, and
significant findings

• Oversees risk assessment and risk management, including review of
cybersecurity risks as well as legal or regulatory matters that could
have a significant effect on the Company

• Reviews and monitors the Company’s compliance programs, including

the whistleblower program

Compensation Committee

• Recommends for approval by the independent directors the

Meetings in 2018: 4

Members:

Clyde R. Moore, Chair
Susan J. Kropf
Jorge P. Montoya
James A. Runde

compensation of the CEO and approves the compensation of other
senior management

• Administers the Company’s executive compensation policies and

programs, including determining grants of equity awards under the
plans

• Has sole authority to retain and direct the committee’s compensation

consultant

• Assists the full Board with senior management succession planning

Name of Committee, Number of
Meetings, and Current Members

Committee Functions

Corporate Governance Committee

• Oversees the Company’s corporate governance policies and

Meetings in 2018: 2

Members:

Ronald L. Sargent, Chair
Robert D. Beyer
Susan J. Kropf
Clyde R. Moore
Bobby S. Shackouls

procedures

• Develops criteria for selecting and retaining directors, including

identifying and recommending qualified candidates to be director
nominees

• Designates membership and Chairs of Board committees

• Reviews the Board’s performance and director independence

• Establishes and reviews the practices and procedures by which the

Board performs its functions

Financial Policy Committee

• Reviews and recommends financial policies and practices

Meetings in 2018: 2

Members:

James A. Runde, Chair
Nora A. Aufreiter
Robert D. Beyer
Ashok Vemuri

• Oversees management of the Company’s financial resources

• Reviews the Company’s annual financial plan, significant capital

investments, plans for major acquisitions or sales, issuance of new
common or preferred stock, dividend policy, creation of additional debt
and other capital structure considerations including additional leverage
or dilution in ownership

• Monitors the investment management of assets held in pension and

profit sharing plans administered by the Company

Public Responsibilities Committee

• Reviews the Company’s policies and practices affecting its social and

Meetings in 2018: 2

Members:

Jorge P. Montoya, Chair
Nora A. Aufreiter
Anne Gates
Ronald L. Sargent
Mark S. Sutton
Ashok Vemuri

public responsibility as a corporate citizen, including: community
relations, charitable giving, supplier diversity, sustainability,
government relations, political action, consumer and media relations,
food and pharmacy safety and the safety of customers and employees

• Reviews and examines the Company’s evaluation of and response to
changing public expectations and public issues affecting the business

Director Nominee Selection Process

The Corporate Governance Committee is responsible for recommending to the Board a slate of nominees for

election at each annual meeting of shareholders. The Corporate Governance Committee recruits candidates for
Board membership through its own efforts and through recommendations from other directors and shareholders. In
addition, the Corporate Governance Committee has retained an independent search firm to assist in identifying and
recruiting director candidates who meet the criteria established by the Corporate Governance Committee.

These criteria are:

•

demonstrated ability in fields considered to be of value to the Board in the deliberation and long-term
planning of the Board and Kroger, including business management, public service, education, science,
technology, e-commerce, law, and government;

experience in high growth companies and nominees whose business experience can help the Company
innovate and derive new value from existing assets;

highest standards of personal character and conduct;

willingness to fulfill the obligations of directors and to make the contribution of which he or she is capable,
including regular attendance and participation at Board and committee meetings, and preparation for all
meetings, including review of all meeting materials provided in advance of the meeting; and

ability to understand the perspectives of Kroger’s customers, taking into consideration the diversity of our
customers, including regional and geographic differences.

The Corporate Governance Committee also considers the specific experience and abilities of director

candidates in light of our current business, strategy and structure, and the current or expected needs of the Board
in its identification and recruitment of director candidates.

The Guidelines on Issues of Corporate Governance includes a policy that a director’s normal retirement occurs
at the Annual Meeting of Shareholders following the year in which the director reaches the age of 72. However, the
Board believes that it is important to monitor the Board’s composition, skills, diversity, and needs in the context of
the Company’s overall strategy, and, therefore, may elect to waive the policy in circumstances it deems necessary.
Two directors will have reached their normal retirement date at the Annual Meeting, Jorge P. Montoya and James
A. Runde. Upon review of the matter, the Corporate Governance Committee recommended, and the Board
approved, waiving the retirement date for Mr. Montoya and Mr. Runde and nominating these directors for re-
election at the Annual Meeting for an additional one-year term. The Corporate Governance Committee and the
Board believe that Mr. Montoya’s and Mr. Runde’s experience as directors and their knowledge of the Company’s
business and strategy, particularly in light of the transition of the grocery industry will continue to be of value to the
Board. Also, in light of Mr. Beyer, a long-tenured director, retiring from the Board, and the addition of four new
directors since 2014, the Corporate Governance and Board believe it provides necessary continuity for
Mr. Montoya and Mr. Runde to remain on the Board for an additional year.

Shareholder Engagement

Maintaining ongoing relationships with our shareholders, and understanding our shareholders’ views, is a

priority for both our Board and management team. We have a longstanding history of engaging with our
shareholders through our investor relations team’s year-round outreach program. At the direction of our Board, we
expanded our shareholder engagement program in 2016 to include outreach to our largest shareholders’
governance teams. In 2018, we requested meetings with shareholders representing nearly 50% of our outstanding
shares during proxy season and off season engagement and ultimately engaged with shareholders representing
over a third of our outstanding shares.

During these engagements, some of which included the participation of our Lead Director, we discussed and

solicited feedback on a range of topics, including business strategy, corporate governance, executive
compensation and sustainability. In addition, we attended industry events to further engage with shareholders and
subject matter experts. These conversations provided valuable insights into our shareholders’ perspectives and
their feedback was shared with, and considered by, our full Board.

Candidates Nominated by Shareholders

The Corporate Governance Committee will consider shareholder recommendations for director nominees for
election to the Board. If shareholders wish to nominate a person or persons for election to the Board at our 2020
annual meeting, written notice must be submitted to Kroger’s Secretary, and received at our executive offices, in
accordance with Kroger’s Regulations, not later than March 30, 2020. Such notice should include the name, age,
business address and residence address of such person, the principal occupation or employment of such person,
the number of Kroger common shares owned of record or beneficially by such person and any other information
relating to the person that would be required to be included in a proxy statement relating to the election of directors.
The Secretary will forward the information to the Corporate Governance Committee for its consideration. The
Corporate Governance Committee will use the same criteria in evaluating candidates submitted by shareholders as
it uses in evaluating candidates identified by the Corporate Governance Committee, as described above. See
‘‘Director Nominee Selection Process.’’

Eligible shareholders have the ability to submit director nominees for inclusion in our proxy statement for the
2020 annual meeting of shareholders. To be eligible, shareholders must have owned at least 3% of our common
shares for at least three years. Up to 20 shareholders will be able to aggregate for this purpose. Nominations must
be submitted to our Corporate Secretary at our principal executive offices no earlier than December 15, 2019 and
no later than January 14, 2020.

Corporate Governance Guidelines

The Board has adopted the Guidelines on Issues of Corporate Governance, which includes copies of the
current charters for each of the five standing committees of the Board. The Guidelines are available on our website
at ir.kroger.com under Investors – Governance – Guidelines on Issues of Corporate Governance. Shareholders
may also obtain a copy of the Guidelines by making a written request to Kroger’s Secretary at our executive offices.

Independence

The Board has determined that all of the non-employee directors have no material relationships with Kroger
and satisfy the criteria for independence set forth in Rule 303A.02 of the NYSE Listed Company Manual. Therefore,
all non-employee directors are independent for purposes of the NYSE listing standards. The Board made its
determination based on information furnished by all members regarding their relationships with Kroger and its
management, and other relevant information. The Board considered, among other things, that

•

the value of any business transactions between Kroger and entities with which the directors are affiliated
falls below the thresholds identified by the NYSE listing standards, and

none had any material relationships with Kroger other than serving on our Board.

Audit Committee Expertise

The Board has determined that Anne Gates, Ronald L. Sargent and Mark S. Sutton, independent directors

who are members of the Audit Committee, are ‘‘audit committee financial experts’’ as defined by applicable
Securities and Exchange Commission (‘‘SEC’’) regulations and that all members of the Audit Committee are
‘‘financially literate’’ as that term is used in the NYSE listing standards and are independent in accordance with
Rule 10A-3 of the Securities Exchange Act of 1934.

Code of Ethics

The Board has adopted The Kroger Co. Policy on Business Ethics, applicable to all officers, employees and
directors, including Kroger’s principal executive, financial and accounting officers. The Policy is available on our
website at ir.kroger.com under Investors – Governance – Policy on Business Ethics. Shareholders may also obtain
a copy of the Policy by making a written request to Kroger’s Secretary at our executive offices.

Communications with the Board

The Board has established two separate mechanisms for shareholders and interested parties to communicate

with the Board. Any shareholder or interested party who has concerns regarding accounting, improper use of
Kroger assets, or ethical improprieties may report these concerns via the toll-free hotline (800-689-4609) or email
address (helpline@kroger.com) established by the Board’s Audit Committee. The concerns are investigated by
Kroger’s Vice President, Chief Ethics and Compliance Officer and the Vice President of Internal Audit and reported
to the Audit Committee as deemed appropriate.

Shareholders or interested parties also may communicate with the Board in writing directed to Kroger’s
Secretary at our executive offices. Communications relating to personnel issues, ordinary business operations, or
companies seeking to do business with us, will be forwarded to the business unit of Kroger that the Secretary
deems appropriate. All other communications will be forwarded to the Chair of the Corporate Governance
Committee for further consideration. The Chair of the Corporate Governance Committee will take such action as he
or she deems appropriate, which may include referral to the full Corporate Governance Committee or the entire
Board.

Attendance

The Board held five meetings in fiscal year 2018. During fiscal 2018, all incumbent directors attended at least

75% of the aggregate number of meetings of the Board and committees on which that director served. Members of
the Board are expected to use their best efforts to attend all annual meetings of shareholders. All 11 of the then
current members attended last year’s annual meeting.

Independent Compensation Consultants

The Compensation Committee directly engages a compensation consultant to advise the Compensation
Committee in the design of Kroger’s executive compensation. The Committee retained Korn Ferry Hay Group, Inc.
(‘‘Korn Ferry’’) beginning in December 2017. Retained by and reporting directly to the Compensation Committee,
Korn Ferry provided the Committee with assistance in evaluating Kroger’s executive compensation programs and
policies.

In fiscal 2018, Kroger paid Korn Ferry $366,831 for work performed for the Compensation Committee. Kroger,
on management’s recommendation, retained Korn Ferry to provide other services for Kroger in fiscal 2018. These
other services primarily related to consulting on administrative management and digital and technology
compensation structure redesign. The Compensation Committee expressly approved Korn Ferry performing these

additional services. After taking into consideration the NYSE’s independence standards and the SEC rules, the
Compensation Committee determined that Korn Ferry was independent, and their work has not raised any conflict
of interest.

The Compensation Committee may engage an additional compensation consultant from time to time as it

deems advisable.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee was an officer or employee of Kroger during fiscal 2018, and no

member of the Compensation Committee is a former officer of Kroger or was a party to any related person
transaction involving Kroger required to be disclosed under Item 404 of Regulation S-K. During fiscal 2018, none of
our executive officers served on the board of directors or on the compensation committee of any other entity that
has or had executive officers serving as a member of Kroger’s Board of Directors or Compensation Committee of
the Board.

Board Oversight of Enterprise Risk

While risk management is primarily the responsibility of Kroger’s management team, the Board is responsible

for strategic planning and overall supervision of our risk management activities. The Board’s oversight of the
material risks faced by Kroger occurs at both the full Board level and at the committee level.

The Board receives presentations throughout the year from various department and business unit leaders that

include discussion of significant risks as necessary. At each Board meeting, the Chairman and CEO addresses
matters of particular importance or concern, including any significant areas of risk that require Board attention.
Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail
Kroger’s short- and long-term strategies, including consideration of significant risks facing Kroger and their potential
impact. The independent directors, in executive sessions led by the Lead Director, address matters of particular
concern, including significant areas of risk, that warrant further discussion or consideration outside the presence of
Kroger employees. At the committee level, reports are given by management subject matter experts to each
committee on risks within the scope of their charters.

The Audit Committee has oversight responsibility not only for financial reporting of Kroger’s major financial

exposures and the steps management has taken to monitor and control those exposures, but also for the
effectiveness of management’s processes that monitor and manage key business risks facing Kroger, as well as
the major areas of risk exposure, and management’s efforts to monitor and control the major areas of risk exposure
including cybersecurity risk. The Audit Committee incorporates its risk oversight function into its regular reports to
the Board and also discusses with management its policies with respect to risk assessment and risk management.

Management provides regular updates throughout the year to the respective Board committees regarding
management of the risks they oversee. For example, our Vice President, Chief Ethics and Compliance Officer
provides regular updates to the Audit Committee on our compliance risks and actions taken to mitigate that risk;
and our Executive Vice President and Chief Information Officer and our Chief Information Security Officer provide
regular updates on our cybersecurity risks and actions taken to mitigate that risk to the Audit Committee. The Audit
Committee reports on risk to the full Board at each regular meeting of the Board.

We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-

relationships among the various risks, make informed cost-benefit decisions, and approach emerging risks in a
proactive manner for Kroger. We also believe that our risk structure complements our current Board leadership
structure, as it allows our independent directors, through the five fully independent Board committees, and in
executive sessions of independent directors led by the Lead Director, to exercise effective oversight of the actions
of management, led by Mr. McMullen as Chairman and CEO, in identifying risks and implementing effective risk
management policies and controls.

Director Compensation

2018 Director Compensation

The following table describes the 2018 compensation for non-employee directors. Mr. McMullen does not

receive compensation for his Board service.

Name

Nora A. Aufreiter

Robert D. Beyer

Anne Gates

Susan J. Kropf

Jorge P. Montoya

Clyde R. Moore

James A. Runde

Ronald L. Sargent

Bobby S. Shackouls

Mark S. Sutton
Ashok Vemuri(4)

Fees
Earned or
Paid in
Cash

Stock
Awards(1)

Option
Awards(2)

$ 87,692

$175,621

—

$104,005

$175,621

$112,400

$175,621

$ 87,692

$175,621

$102,647

$175,621

$107,636

$175,621

$102,647

$175,621

$136,752

$175,621

$ 97,663

$175,621

$ 97,663

$175,621

$ 8,036

$ 87,508

—

Change in Pension
Value
And Nonqualified
Deferred Compensation
Earnings(3)

$11,117

—

$10,311

—

$ 3,688

—

Total

$263,313

$290,743

$288,021

$263,313

$278,268

$293,568

$278,268

$316,061

$273,284

$ 95,544

(1) Amounts reported in the Stock Awards column represent the aggregate grant date fair value of the annual

incentive share award, computed in accordance with FASB ASC Topic 718. On July 12, 2018, each non-
employee director then serving received 6,261 incentive shares with a grant date fair value of $175,621.
Mr. Vemuri received a prorated award of 3,048 shares with a grant date fair value of $87,508 on January 24,
2019 when he joined the Board.

(2) Options are no longer granted to non-employee directors. The aggregate number of previously granted stock
options that remained unexercised and outstanding at fiscal year-end was as follows: Mr. Shackouls held
7,800 options and Messrs. Beyer, Montoya, Moore, Runde, and Sargent and Ms. Kropf each held
52,000 options.

(3) The amounts reported for Mr. Beyer and Mr. Sargent represent preferential earnings on nonqualified deferred
compensation. For a complete explanation of preferential earnings, please refer to footnote 5 to the Summary
Compensation Table. The amount reported for Mr. Moore represents the change in actuarial present value of
his accumulated benefit under the pension plan for non-employee directors. Pension values may fluctuate
significantly from year to year depending on a number of factors, including age, average annual earnings, and
the assumptions used to determine the present value, such as the discount rate. The increase in the actuarial
present value of his accumulated pension benefit for 2018 is primarily due to additional benefit accruals but
offset by the increase in the discount rate and mortality project scale updates.

(4) Because Mr. Vemuri was appointed to the Board on January 24, 2019, he received a prorated cash retainer.

Annual Compensation

Each non-employee director receives an annual cash retainer of $90,000. The Lead Director receives an

additional annual retainer of $37,500 per year; the members of the Audit Committee each receive an additional
annual retainer of $10,000; the Chair of the Audit Committee receives an additional annual retainer of $25,000; the
Chair of Compensation Committee receives an additional annual retainer of $20,000; and the Chair of each of the
other committees receive an additional annual retainer of $15,000, Each non-employee director also receives an
annual grant of incentive shares (Kroger common shares) with a value of approximately $175,000.

The Board has determined that compensation of non-employee directors must be competitive on an ongoing

basis to attract and retain directors who meet the qualifications for service on the Board. Non-employee director
compensation was adjusted in 2018 and will be reviewed from time to time as the Corporate Governance
Committee deems appropriate.

Pension Plan

Non-employee directors first elected prior to July 17, 1997 receive an unfunded retirement benefit equal to the

average cash compensation for the five calendar years preceding retirement. Only Mr. Moore is eligible for this
benefit. Benefits begin at the later of actual retirement or age 65.

Nonqualified Deferred Compensation

We also maintain a deferred compensation plan for non-employee directors. Participants may defer up to
100% of their cash compensation and/or the receipt of all (and not less than all) of the annual award of incentive
shares.

Cash Deferrals

Cash deferrals are credited to a participant’s deferred compensation account. Participants may elect from

either or both of the following two alternative methods of determining benefits:

•

interest accrues until paid out at the rate of interest determined prior to the beginning of the deferral year
to represent Kroger’s cost of ten-year debt; and/or

amounts are credited in ‘‘phantom’’ stock accounts and the amounts in those accounts fluctuate with the
price of Kroger common shares.

In both cases, deferred amounts are paid out only in cash, based on deferral options selected by the

participant at the time the deferral elections are made. Participants can elect to have distributions made in a lump
sum or in quarterly installments, and may make comparable elections for designated beneficiaries who receive
benefits in the event that deferred compensation is not completely paid out upon the death of the participant.

Incentive Share Deferrals

Participants may also defer the receipt of all (and not less than all) of the annual award of incentive shares.

Distributions will be made by delivery of Kroger common shares within 30 days after the date which is six months
after the participant’s separation of service.

Beneficial Ownership of Common Stock

The following table sets forth the common shares beneficially owned as of April 1, 2019 by Kroger’s directors,

the NEOs, and the directors and executive officers as a group. The percentage of ownership is based on
798,332,967 of Kroger common shares outstanding on April 1, 2019. Shares reported as beneficially owned include
shares held indirectly through Kroger’s defined contribution plans and other shares held indirectly, as well as
shares subject to stock options exercisable on or before May 31, 2019. Except as otherwise noted, each beneficial
owner listed in the table has sole voting and investment power with regard to the common shares beneficially
owned by such owner.

Name

Nora A. Aufreiter(2)
Robert D. Beyer(2)
Robert W. Clark
Michael J. Donnelly
Anne Gates(2)
Christopher T. Hjelm
Susan J. Kropf
W. Rodney McMullen
Jorge P. Montoya(3)
Clyde R. Moore
James A. Runde
Ronald L. Sargent(2)
J. Michael Schlotman
Bobby S. Shackouls(2)
Mark S. Sutton(2)
Ashok Vemuri
Directors and executive officers as a group (29 persons, including

Amount and Nature
of Beneficial
Ownership(1)
(a)

Options Exercisable
on or before
May 31,
2019 – included
in column (a)
(b)

25,879
185,998
413,471
710,584
20,548
618,933
140,171
4,269,645
109,079
158,571
164,613
171,921
872,796
87,906
16,041
3,048

—
52,000
217,807
370,667
—
352,504
52,000
1,481,750
52,000
52,000
52,000
52,000
587,159
7,800
—
—

those named above)

10,677,615

4,457,326

(1) No director or officer owned as much as 1% of Kroger common shares. The directors and executive officers as

a group beneficially owned 1.34% of Kroger common shares.

(2) This amount includes incentive share awards that were deferred under the deferred compensation plan for

independent directors in the following amounts: Ms. Aufreiter, 9,225; Mr. Beyer, 7,198; Ms. Gates, 7,488;
Mr. Sargent, 30,261; Mr. Shackouls, 30,261; Mr. Sutton, 6,350.

(3) This amount includes 22,000 shares held in Mr. Montoya’s trust. He disclaims beneficial ownership of these

shares.

The following table sets forth information regarding the beneficial owners of more than five percent of Kroger

common shares as of April 1, 2019 based on reports on Schedule 13G filed with the SEC.

Name

Address

BlackRock, Inc.

Vanguard Group Inc.

55 East 52nd St.
New York, NY 10055

100 Vanguard Blvd.
Malvern, PA 19355

Amount and Nature
of Ownership

Percentage
of Class

57,852,610(1)

7.30%

68,141,855(2)

8.54%

(1) Reflects beneficial ownership by BlackRock Inc., as of December 31, 2018, as reported on Amendment No. 9

to Schedule 13G filed with the SEC on February 6, 2019, reporting sole voting power with respect to
49,985,270 common shares, and sole dispositive power with regard to 57,852,610 common shares.

(2) Reflects beneficial ownership by Vanguard Group Inc. as of December 31, 2018, as reported on Amendment

No. 4 to Schedule 13G filed with the SEC on February 11, 2019, reporting sole voting power with respect to
929,753 common shares, shared voting power with respect to 203,972 common shares, sole dispositive power
of 67,029,453 common shares, and shared dispositive power of 1,112,402 common shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and certain persons

who own more than 10% of our outstanding common shares, to file reports of ownership and changes in ownership
with the SEC and to furnish us with copies of those reports.

Based solely on our review of the copies of Forms 3, 4 and 5 received by Kroger, and written representations

from certain reporting persons that no Form 5 was required for that person, we believe that during 2018 all filing
requirements applicable to our executive officers, directors and 10% beneficial owners were timely satisfied.

Related Person Transactions

The Board has adopted a written policy requiring that any Related Person Transaction may be consummated

or continue only if the Audit Committee approves or ratifies the transaction in accordance with the policy. A ‘‘Related
Person Transaction’’ is one (a) involving Kroger, (b) in which one of our directors, nominees for director, executive
officers, or greater than five percent shareholders, or their immediate family members, have a direct or indirect
material interest; and (c) the amount involved exceeds $120,000 in a fiscal year.

The Audit Committee will approve only those Related Person Transactions that are in, or not inconsistent with,

the best interests of Kroger and its shareholders, as determined by the Audit Committee in good faith in
accordance with its business judgment. No director may participate in any review, approval or ratification of any
transaction if he or she, or an immediate family member, has a direct or indirect material interest in the transaction.

Where a Related Person Transaction will be ongoing, the Audit Committee may establish guidelines for

management to follow in its ongoing dealings with the related person and the Audit Committee will review and
assess the relationship on an annual basis to ensure it complies with such guidelines and that the Related Person
Transaction remains appropriate.

Compensation Discussion and Analysis

Executive Summary

Named Executive Officers

This Compensation Discussion and Analysis provides a discussion and analysis of our compensation program

for our named executive officers (‘‘NEOs’’). For the 2018 fiscal year ended February 2, 2019, the NEOs were:

Name

Title

W. Rodney McMullen
J. Michael Schlotman
Michael J. Donnelly
Christopher T. Hjelm
Robert W. Clark

Chairman and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Information Officer
Senior Vice President

Summary of Key Compensation Practices

What we do:

What we do not do:

✓ Align pay and performance

✘ No employment contracts with executives

✓ Significant share ownership guidelines of 5x salary

✘ No special severance or change in control

for our CEO

programs applicable only to executive officers

✓ Multiple performance metrics under our short- and
long-term performance-based plans discourage
excessive risk taking

✘ No tax gross-up payments for executives

✘ No re-pricing or backdating of options

✓ Balance between short-term and long-term

compensation to discourage short-term risk taking
at the expense of long-term results

✓ Engagement of an independent compensation

consultant

✓ Robust clawback policy

✓ Ban on hedging, pledging and short sales of Kroger

securities

✓ Limited perquisites

✘ No guaranteed salary increases or bonuses

✘ No payment of dividends or dividend equivalents

until performance units are earned

✘ No single-trigger cash severance benefits upon a

change in control

Summary of Fixed and At-Risk Pay Elements

The fixed and at-risk pay elements of NEO compensation are reflected in the following table and charts.

Element

Form

Description

Base
Salary

Cash

• Attract, incentivize, retain talented executives
• Benchmarked to peer group
• Fixed cash component

• Board reviews annually
• No automatic or guaranteed increases
• Based on individual performance & experience

Other
Benefits

Retirement &
Limited
Perquisites

• Kroger maintains several defined benefit and defined contribution retirement plans for its employees, in
addition to an executive deferred compensation plan and The Kroger Co. Employee Protection Plan
• Executives receive limited perquisites because the Compensation Committee does not believe it is
necessary for the attraction or retention of executive talent

Annual
Incentive
Plan

Cash Bonus

• Metrics and targets align with annual business goals; payout depends on actual performance against
each goal
• Rewards and incentivizes Kroger employees, including NEOs, for annual performance on key financial
and operational measures
• Benchmarked to peer group median

Long-Term
Incentive
Plan

Time-
Based
Awards

Performance
Units

Long-Term
Cash Bonus

Restricted
Stock

• Drive profitability and growth, create shareholder value, foster executive retention, and align executive
and shareholder interests
• All components paid in performance-based long-term cash bonuses and performance units to align
executive and shareholder interests; vesting over a 3-year period
• Rewards and incentivizes approximately 140 key employees, including NEOs, for long-term
performance on key financial and operational measures

• Stock options and restricted stock for NEOs vest over 4 years; exercise price of stock options is closing
price on day of grant
• Provides direct alignment to stock price appreciation and rewards executives for the achievement of

Stock Options

long-term business objectives and providing incentives for the creation of shareholder value

-
T
R
O
H
S

L
A
U
N
N
A

E
V

T
N
E
C
N

M
R
E
T

E
V

T
N
E
C
N

M
R
E
T
-

G
N
O
L

D
E
X

K
S

-
T
A

E
L
B
A

R
A
V

The amounts used in the charts below are based on the amounts reported in the Summary Compensation
Table for 2018, excluding the Change in Pension Value and Nonqualified Deferred Compensation Earnings column.

CEO

Not at
Risk 14%

At Risk 86%

CEO

Annual
18%

Long-Term
82%

CEO

Non-
Equity
37%

Equity
63%

86% of CEO pay is At Risk

82% of CEO pay is Long-Term

63% of CEO pay is Equity

Average of Other NEOs

Not at
Risk 17%

At Risk 83%

Annual
22%

Long-Term
78%

Non-
Equity
41%

Equity
59%

83% of Other NEO pay is At Risk

78% of Other NEO pay is Long-Term

59% of Other NEO pay is Equity

Realignment of Performance-Based Pay to Restock Kroger for 2018 and Beyond

Restock Kroger

In October 2017, we announced Restock Kroger, our plan to redefine the food and grocery customer

experience in America and to create value for our shareholders. We developed the plan because, though we are
proud of our long history of success and our strengths, we recognize that what got us here will not get us where we
want to be in the future. Restock Kroger has four main drivers:

1. Redefine the Food and Grocery Customer Experience: Focus on data and personalization, digital,

space optimization, Our Brands, and smart pricing

2. Expand Partnerships to Create Customer Value: Focus on front end transformation, technology

innovation, cost reduction, and alternative profit streams

3. Develop Talent: Accelerate high-performance leadership culture through future talent development,

training, and a rebalancing of pay and benefits

4. Live Kroger’s Purpose: Meet Zero Hunger | Zero Waste targets and achieve 2020 sustainability goals

The three-year Restock Kroger plan is fueled by capital investments, cost savings, and Restock cash flow.1 As

a result of our plan, over the three-year time period 2018 – 2020, we expect to generate:

•

$400 million in incremental FIFO operating profit, and

$6.5 billion of Restock cash flow before dividends.

We have prioritized our estimated $9 billion in capital investments to support Restock Kroger over the three-

year time period. We are looking first for sales-driving and cost-savings opportunities across both brick-and-mortar
and digital platforms; followed by investments in logistics and technology platforms; and finally, capital for storing
activity.2

Our Compensation Committee is Focused on Pay for Performance

The Compensation Committee has long maintained a strong pay for performance philosophy. Compensation
must align the interests of our NEOs with the interests of our shareholders and must create incentives to achieve
the annual business plan targets and longer term company objectives.

We implemented a long-term performance-based bonus program available to Kroger executives at the level of
Vice President and above more than ten years ago, and the metrics were tailored to our long-term measures at that
time. As our business objectives have shifted, the Compensation Committee is focused on ensuring performance
metrics are aligned with our long-term strategy.

Our Long-Term Compensation Program: Align with Restock Kroger

We made new commitments to shareholders on a three-year time horizon under Restock Kroger. We believe

that the success of Restock Kroger depends on the focused attention of our leadership team and associates on the
goals of Restock Kroger and that it is essential to implement new performance metrics that mirror these new
commitments. Accordingly, in 2018, we made changes to our program to align with Restock Kroger.

Our 2018 three-year long-term plan (2018 – 2020) has performance metrics tied entirely to Restock Kroger

goals: Restock cash flow and cost savings included in FIFO operating profit growth, with a return on invested
capital modifier. We implemented a metric based on the cost savings imbedded in the achievement of operating
profit growth, because cost savings is essential to fund the strategic projects that will produce the operating profit
growth. We believe it is a more meaningful metric than operating profit growth itself, because it forces us to focus
on the savings that we need to support sustainable incremental operating profit growth.

Since we grant a new three-year long-term incentive plan each year, at any one time, there are three

outstanding plans. Because the 2016-2018 and 2017-2019 long term plans were mid-cycle, we felt strongly that we
should focus on Restock Kroger metrics rather than having competing priorities. As a result, in setting 2018

1 Restock cash flow is an adjusted free cash flow measure calculated as net cash provided by operating activities
minus net cash used by investing activities plus or minus adjustments for certain items.

2 For important risk, uncertainties and other factors relating to these forward-looking statements, see the Risk
Factors in our Annual Report on Form 10-K that accompanies this proxy statement.

compensation, the Compensation Committee determined that the metrics of the two mid-cycle plans should be
modified to align with Restock Kroger and the payouts for the then current NEOs should be addressed as
described below.

For the outstanding 2016 – 2018 long-term plan, fiscal year 2016 and 2017 performance was measured on the
pre-existing plan metrics and was applied to two-thirds of the previously granted cash and performance unit bonus
target amounts. Fiscal year 2018 performance was measured on the Restock Kroger metrics of Restock cash flow
and savings included in FIFO operating profit growth, and was applied to one-third of the previously granted cash
and performance unit bonus target amounts.

Similarly, for the outstanding 2017 – 2019 long-term plan, fiscal year 2017 performance will be measured on
the pre-existing plan metrics and will be applied to one-third of the previously granted cash and performance unit
bonus target amounts. Fiscal year 2018 and 2019 performance will be measured on the Restock Kroger metrics of
Restock cash flow and cost savings included in FIFO operating profit growth, and will be applied to two-thirds of the
previously granted cash and performance unit bonus target amounts.

With respect to the mid-cycle plans for the then current NEOs, we did not adjust the cash bonus potentials or
re-issue previously issued performance unit grants, we did not allow the re-earning of cash and performance units
that were not earned in the completed year(s) of the outstanding plans, and we did not change the timing of the
payout under the outstanding plans. Mr. Clark, who was not a named executive officer at the time the 2016 plan
was modified, was eligible for a different plan as described below. These plan updates are illustrated below.

2016

2017

2018

2019

2020

S
D
O

R
E
P

E
C
N
A
M
R
O
F
R
E
P

T
L

2016 – 2018

2/3 Existing
Plan Metrics

1/3 Restock
Kroger Metrics

2017– 2019

1/3 Existing
Plan Metrics

2/3 Restock
Kroger Metrics

2018 – 2020

100% Restock
Kroger Metrics

EXISTING PLAN METRICS

RESTOCK KROGER METRICS

• Customer 1st Strategy

• Restock Cash Flow

METRICS

• Improvement in Associate
Engagement

• Savings Included in Net Operating Profit Growth

• Return on Invested Capital (2018 – 2020 Plan Only)

• Reduction in Operating Cost as a
Percentage of Sales, ex. Fuel

• Return on Invested Capital

Our Annual Cash Bonus Program: Based on Meeting Financial Goals

We also redesigned the performance-based annual cash bonus plan to better align with our financial goals of

Restock Kroger and to simplify the way we reward our associates. The 2018 annual plan had the following metrics:

ID supermarket sales

2. Earnings per share

3. Kroger Way Plans – strategic business plans that support Restock Kroger

To further support the cost saving focus of Restock Kroger, for any payout under the Kroger Way Plans metric,

the Company must have met its cost savings goals for 2018.

Our Compensation Philosophy and Objectives

As one of the largest retailers in the world, our executive compensation philosophy is to attract and retain the

best management talent as well as motivate these employees to achieve our business and financial goals. Kroger’s
incentive plans are designed to reward the actions that lead to long-term value creation. The Compensation
Committee believes that there is a strong link between our business strategy, the performance metrics in our short-
term and long-term incentive programs, and the business results that drive shareholder value.

We believe our strategy creates value for shareholders in a manner consistent with our core purpose: To Feed

the Human Spirit.

To achieve our objectives, the Compensation Committee seeks to ensure that compensation is competitive

and that there is a direct link between pay and performance. To do so, it is guided by the following principles:

•

A significant portion of pay should be performance-based, with the percentage of total pay tied to
performance increasing proportionally with an NEO’s level of responsibility.

Compensation should include incentive-based pay to drive performance, providing superior pay for
superior performance, including both a short- and long-term focus.

Compensation policies should include an opportunity for, and a requirement of, equity ownership to align
the interests of NEOs and shareholders.

Components of compensation should be tied to an evaluation of business and individual performance
measured against metrics that directly drive our business strategy.

The Compensation Committee has three related objectives regarding compensation:

•

First, the Compensation Committee believes that compensation must be designed to attract and retain
those individuals who are best suited to be an officer at Kroger.

Second, a majority of compensation should help align the interests of our NEOs with the interests of our
shareholders.

Third, compensation should create strong incentives for the NEOs to achieve the annual business plan
targets established by the Board, and to achieve Kroger’s long-term strategic objectives.

Components of Executive Compensation at Kroger

Compensation for our NEOs is comprised of the following:

•

Annual Compensation:

○

Salary

Performance-Based Annual Cash Bonus

Long-Term Compensation:

○

Performance-Based Long-Term Incentive Plan (consisting of a long-term cash bonus and
performance units)

Non-qualified stock options

Restricted stock

Retirement and other benefits

Limited perquisites

The annual and long-term performance-based compensation awards described herein were made pursuant to

our 2014 Long-Term Incentive and Cash Bonus Plan, which was approved by our shareholders in 2014.

Annual Compensation – Salary

Our philosophy with respect to salary is to provide a sufficient and stable source of fixed cash compensation.

All of our compensation cannot be at-risk or long-term. It is important to provide a meaningful annual salary to
attract and retain a high caliber leadership team, and to have an appropriate level of cash compensation that is not
variable.

Salaries for the NEOs (with the exception of the CEO) are established each year by the Compensation

Committee, in consultation with the CEO. The CEO’s salary is established by all of the independent directors.
Salaries for the NEOs were reviewed in June of 2018.

The amount of each NEO’s salary is influenced by numerous factors including:

•

An assessment of individual contribution in the judgment of the CEO and the Compensation Committee
(or, in the case of the CEO, of the Compensation Committee and the independent directors);

Benchmarking with comparable positions at peer group companies;

Tenure in role; and

Relationship to other Kroger executives’ salaries.

The assessment of individual contribution is a qualitative determination, based on the following factors:

•

Leadership;

Contribution to the officer group;

Achievement of established objectives;

Decision-making abilities;

Performance of the areas or groups directly reporting to the NEO;

Increased responsibilities;

Strategic thinking; and

Furtherance of Kroger’s core values.

Annual Compensation – Performance-Based Annual Cash Bonus

The NEOs participate in a performance-based annual cash bonus plan. The amount of annual cash bonus that

the NEOs earn each year is based upon Kroger’s performance compared to goals established by the
Compensation Committee and the independent directors based on the business plan adopted by the Board of
Directors. A minimum level of performance must be achieved before any payouts are earned, while a payout of up
to 200% of target bonus potential can be achieved for superior performance. There are no guaranteed or minimum
payouts; if none of the performance goals are achieved, then none of the bonus is earned and no payout is made.

The annual cash bonus plan is designed to encourage decisions and behavior that drive the annual operating

results and the long-term success of the Company. Kroger’s success is based on a combination of factors, and
accordingly the Compensation Committee believes that it is important to encourage behavior that supports multiple
elements of our business strategy.

Establishing Annual Cash Bonus Potentials

The Compensation Committee establishes annual cash bonus potentials for each NEO, other than the CEO,

whose annual cash bonus potential is established by the independent directors. Actual payouts represent the
extent to which performance meets or exceeds the goals established by the Compensation Committee. Actual
payouts may be as low as zero if performance does not meet the goals established by the Compensation
Committee or as high as 200% of the potential bonus amount if the performance far exceeds these pre-established
goals.

The Compensation Committee considers multiple factors in making its determination or recommendation as to

annual cash bonus potentials:

•

The individual’s level within the organization, as the Compensation Committee believes that more senior
executives should have a more substantial part of their compensation dependent upon Kroger’s
performance;

•

The individual’s salary, as the Compensation Committee believes that a significant portion of a NEO’s total
cash compensation should be dependent upon Kroger’s performance;

The individual’s level in the organization and the internal relationship of annual cash bonus potentials
within Kroger;

Individual performance;

The recommendation of the CEO for the other NEOs; and

The compensation consultant’s benchmarking report regarding annual cash bonus potential and total
compensation awarded by our peer group.

2018 Annual Cash Bonus Plan Metrics

The annual cash bonus plan is a broad-based plan used across the Kroger enterprise. Approximately

41,000 associates receive bonus payouts based all or in part on the bonus plan described below. The 2018 annual
cash bonus plan had the following measurable performance metrics, all of which are interconnected:

Metric

Weight

Rationale for Use

ID Supermarket Sales

Earnings Per Share

Combined
67%,
based on
a grid

Kroger Way Plans

33%

•

ID Supermarket Sales represent sales, without fuel, at our
supermarkets that have been open without expansion or
relocation for five full quarters.

• We believe this is the best measure of the real growth of our
supermarket sales across the enterprise. A key driver of our
model is strong ID Supermarket Sales; it is the engine that
fuels our growth.

•

In previous years, we used Net Operating Profit as a
performance metric as it allowed us to evaluate our earnings
from operating the business; we cannot achieve solid Net
Operating Profit without a strong operating model.

• During the first year of Restock Kroger, our business plan
anticipated a reduction in Net Operating Profit, so we
substituted Earnings per Share for the 2018 annual bonus
plan to better motivate our associates across the enterprise
to increase this measure of earnings growth as Earnings Per
Share were expected to grow in 2018.

• Each major business line and department created a Kroger
Way Plan – a strategic business plan to directly support one
of the four pillars of Restock Kroger.

• Each proprietary Kroger Way Plan outlines both the resource

allocation and the return commitment for that plan.
Combined, these plans form the basis for achieving the three-
year Restock Kroger commitments.

• Because cost savings is foundational to the success of

Restock Kroger, no payout can be earned under the Kroger
Way Plan metric without the Company achieving 2018 cost
savings of $950 million – regardless of the extent of the
progress on the Kroger Way Plans.

Total of 3 Metrics

100%

Results of 2018 Annual Cash Bonus Plan

The 2018 goals established by the Compensation Committee, the actual 2018 results, and the bonus
percentage earned for each of the performance metrics of the 2018 annual cash bonus plan were as follows:

Payout Matrix
ID Sales and EPS for
2018 Fiscal Year

EPS

$1.73
$1.90
$2.06
$2.11

ID Supermarket Sales

0%
10%
50%
75%

1.65%

1.3 %
50 %
100 %
125 %

2%
75%
125%
150%

4%
100%
175%
200%

Performance Metrics

ID Sales/EPS
Kroger Way Plans
Total Earned

(1) See grid above.

Result
ID Sales = 1.22%
EPS = $2.11
(2)

Payout
Percentage
(A)

91.76%1
90%

Weight
(B)

67%
33%

Amount
Earned
(A) x (B)

61.48%
29.71%
91.18%

(2) The Company achieved cost savings of $1.10 billion, which is an amount in excess of the savings threshold of
$950 million. Because the threshold was achieved, it was possible to earn a payout on this metric. The Kroger
Way Plan measures were approved by the Compensation Committee but are not disclosed as they are
competitively sensitive.

Following the close of the year, the Compensation Committee reviewed Kroger’s performance against each of

the metrics outlined above and determined the extent to which Kroger achieved those objectives. Due to our
performance when compared to the goals established by the Compensation Committee, the payout on the
2018 annual bonus was 91.18% of the participant’s bonus potential.

In 2018, as in all years, the Compensation Committee retained discretion to reduce the annual cash bonus
payout for all executive officers, including the NEOs, if the Compensation Committee determined for any reason
that the bonus payouts were not appropriate given their assessment of Company performance – however, no
adjustments were made in 2018 that affected NEO bonuses. The independent directors retained that discretion for
the CEO’s bonus. The Compensation Committee and the independent directors also retained discretion to adjust
the goals for each metric under the plan should unanticipated developments arise during the year.

The actual annual cash bonus percentage payout for 2018 reflects strong performance on adjusted earnings
per share and performance below business plan objectives on identical supermarket sales. The strong link between
pay and performance is illustrated by a comparison of earned amounts under our annual cash bonus plan in
previous years, such as 2009, 2016, and 2017, when payouts were particularly low. In those years, we failed to
achieve many of our business plan objectives. A comparison of actual annual cash bonus percentage payouts this
year and in prior years demonstrates the variability of annual cash bonus incentive compensation and its strong link
to our performance:

Fiscal Year
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008

Annual Cash Bonus
Payout Percentage

91.2%
3.8%
19.9%
126.7%
121.5%
104.9%
85.9%
138.7%
53.9%
38.5%
104.9%

As described above, the annual cash bonus payout percentage is applied to each NEO’s bonus potential,
which is determined by the Compensation Committee, and the independent directors in the case of the CEO. The
actual amounts of performance-based annual cash bonuses paid to the NEOs for 2018 are reported in the
Summary Compensation Table in the ‘‘Non-Equity Incentive Plan Compensation’’ column and footnote 3 to that
table.

Long-Term Compensation

The Compensation Committee believes in the importance of providing an incentive to the NEOs to achieve the

long-term goals established by the Board. As such, a majority of compensation is conditioned on the achievement
of the Company’s long-term goals and is delivered via four long-term compensation vehicles: long-term cash
bonus, performance units, stock options, and restricted stock. Long-term compensation promotes long-term value
creation and discourages the over-emphasis of attaining short-term goals at the expense of long-term growth.

The Compensation Committee considers several factors in determining the target value of long-term

compensation awarded to the NEOs or, in the case of the CEO, recommending to the independent directors the
amount awarded. These factors include:

•

Individual performance;

The NEO’s level in the organization and the internal relationship of long-term compensation awards within
Kroger;

The compensation consultant’s benchmarking report regarding long-term compensation awarded by our
peer group; and

The recommendation of the CEO, for the other NEOs.

Long-term incentives are structured to be a combination of performance- and time-based compensation that

reflects elements of financial and common shares performance to provide both retention value and alignment with
company performance. Long-term cash bonus and performance unit payouts are contingent on the achievement of
certain strategic performance and financial measures and incentivize recipients to promote long-term value creation
and enhance shareholder wealth by supporting the Company’s long-term strategic goals. Stock options and
restricted stock are linked to common shares performance creating alignment between the NEOs and our
shareholders’ interests. Options have no initial value and recipients only realize benefits if the value of our common
shares increases following the date of grant.

A majority of long-term compensation is equity-based (performance units, stock options, and restricted stock)

and is tied to the future value of our common shares, further aligning the interests of our NEOs with our
shareholders. All four components of long-term compensation are intended to focus executive behaviors on our
long-term strategy. Each component is described in more detail below.

Amounts of long-term compensation awards issued and outstanding for the NEOs are set forth in the

Executive Compensation Tables section.

Long-Term Incentive Plan Design

In recent years, we have adopted a new Long-Term Incentive Plan each year, which provides for overlapping

three-year performance periods. The Long-Term Incentive Plans adopted in 2016 and 2017, which consist of a
performance-based long-term cash bonus and performance units, have the following characteristics:

•

The long-term cash bonus potential is equal to the participant’s salary at the end of the fiscal year
preceding the plan effective date (or for those participants entering the plan after the commencement
date, the date of eligibility for the plan).

In addition, a fixed number of performance units based on level and individual performance is awarded to
each participant at the beginning of the performance period (or for those participants entering the plan
after the commencement date, the date of eligibility for the plan). The earned awards are paid out in
Kroger common shares based on actual performance, along with a cash amount equal to the dividends
paid during the performance period on the number of issued common shares ultimately earned.

The actual long-term cash bonus and number of performance units earned are each determined based on
our performance against the metrics established by the Compensation Committee (the independent
directors, for the CEO) at the beginning of the performance period.

•

Performance at the end of the three-year period is measured against the baseline of each performance
metric established at the beginning of the performance period.

The payout percentage, based on the extent to which the performance metrics are achieved, is applied to
both the long-term cash bonus potential and the number of performance units awarded.

Actual payouts cannot exceed 100% of the long-term cash bonus potential or 100% of the number of
performance units awarded.

The Compensation Committee anticipates adopting a new Long-Term Incentive Plan each year, measuring

improvement over successive three-year periods

2016 and 2017 Long-Term Incentive Plan Metrics

The following table summarizes the metrics applied to fiscal years 2016 and 2017 and the payout percentages:

Metric

Customer 1st Strategy

Rationale for Use

• Kroger’s Customer 1st Strategy is the focus, in our decision-making, on the
customer. This proprietary metric measures the improvement in how Kroger
is perceived by customers in each of People, Products, Shopping Experience
and Price.

• 4% payout per unit of improvement.

Improvement in Associate

• Kroger measures associate engagement in an annual survey of associates.

Engagement

Reduction in Operating Costs(1)
as a Percentage of Sales,
without Fuel

ROIC(2)

• 4% payout per unit of improvement.

• An essential part of Kroger’s model is to increase productivity and efficiency,

and to take costs out of the business in a sustainable way.

• 0.50% payout per 0.01% reduction in operating costs.

• Part of our long-term growth strategy is to make substantial capital
investments over time. This measure is intended to hold executives
accountable for the returns on the capital investments.

• 1% payout per 0.01% improvement in ROIC.

(1) Operating Costs is a non-GAAP measure and is calculated as the sum of (i) operating, general and

administrative expenses, depreciation and amortization, and rent expense, without fuel, and (ii) warehouse
and transportation costs, shrink, and advertising expenses, for our supermarket operations, without fuel.
Operating costs will exclude one-time expenses incurred in lieu of future anticipated obligations. Future
expenses that are avoided by virtue of the incurrence of the one-time expense will be deemed to be total
operating costs in the year in which they otherwise would have been incurred.

(2) Return on invested capital is a non-GAAP measure and is calculated by dividing adjusted operating profit for
the prior four quarters by the average invested capital. Adjusted operating profit is calculated by excluding
certain items included in operating profit, and adding our last-in, first out (‘‘LIFO’’) charge, depreciation and
amortization, and rent. Average invested capital will be calculated as the sum of (i) the average of our total
assets, (ii) the average LIFO reserve, (iii) the average accumulated depreciation and amortization, and (iv) a
rent factor equal to total rent for the last four quarters multiplied by a factor of eight; minus (i) the average taxes
receivable, (ii) the average trade accounts payable, (iii) the average accrued salaries and wages, and (iv) the
average other current liabilities, excluding accrued income taxes.

As described above, under ‘‘Realignment of Performance-Based Pay to Restock Kroger for 2018 and Beyond’’

the metrics listed above for the 2016 and 2017 plans will be used to measure performance through 2017 and will
be applied to the previously granted cash and performance unit bonus targets on a prorated basis. Performance for
2018 and 2019 will be measured on the Restock Kroger metrics of free cash flow and cost savings included in
FIFO operating profit growth and will also be applied to bonus targets on a prorated basis.

Results of 2016 Long-Term Incentive Plan

The 2016 Long-Term Incentive Plan, which measured performance over the three-year period from 2016 to
2018, paid out in March 2019. The 2016 plan was modified during 2018 as described above with respect to the
then current named executive officers and was calculated in two parts as follows:

Part 1: Fiscal year 2016 and 2017 performance was measured on the existing plan metrics and was applied to

two-thirds of the previously granted cash and performance unit bonus target amounts.

Metric
Customer 1st Strategy(1)
Improvement in Associate Engagement(1)
Reduction in Operating Cost as a

Percentage of Sales, without Fuel

Return on Invested Capital

Total

Baseline Result

*
*

Improvement
(A)

No improvement
No improvement

26.16% 26.95% No improvement
13.73% 11.14% No improvement

Payout per
Improvement
(B)

Percentage
Earned
(A) x (B)

4.0%
4.0%

0.5%
1.0%

0.0%
0.0%

0.0%

(1) The Customer 1st Strategy and Improvement in Associate Engagement components were established by the
Compensation Committee at the beginning of the performance period, but are not disclosed as they are
competitively sensitive.

Part 2: Fiscal year 2018 performance was measured on the Restock Kroger metrics of Restock cash flow and

savings included in FIFO operating profit growth, with each metric accounting for 50% of the payout. The payout
percentage was applied to one-third of the previously granted cash and performance unit bonus target amounts.

Savings included in FIFO operating

profit growth

Cumulative Free Cash Flow

Total Payout

Cut in = 50%
Payout

Goal = 100%
Payout

Payout

Result

Percentage Weight

$0.950B
$1.200B

$1.016B
$1.860B

$1.100B
$1.907B

100%
100%

50%
50%

Payout
Amount

50%
50%

100%

Accordingly, no payout was earned on 2/3rds of the bonus target and 100% payout was earned on 1/3rd of the

bonus target, resulting in a 33% overall payout. The then current NEOs received long-term cash bonus payments in
an amount equal to 33% of that executive’s long-term cash bonus potential and were issued the number of Kroger
common shares equal to 33% of the number of performance units awarded to that executive, along with a cash
amount equal to the dividends paid on that number of common shares during the three year performance period.
Mr. Clark, who was not a named executive officer at the time the 2016 plan was modified, received a 0% payment
with respect to 2016 and 2017 performance and received a 100% payout with respect to 2018 performance on the
full amount of his bonus target. The cash payout and dividends paid on common shares earned under the 2016
Long-Term Incentive Plan are reported in the ‘‘Non-Equity Incentive Plan Compensation’’ and ‘‘All Other
Compensation’’ columns of the Summary Compensation Table and footnotes 4 and 5 to that table, respectively, and
the common shares issued under the plan are reported in the 2018 Option Exercises and Stock Vested Table and
footnote 2 to that table.

2018-2020 Long-Term Incentive Plan Design

The Long-Term Incentive Plan adopted in 2018, which consists of a performance-based long-term cash bonus

and performance units, has the following characteristics:

•

The long-term cash bonus potential is set by the Compensation Committee, and the independent directors
in the case of the CEO.

In addition, a fixed number of performance units is awarded to each participant at the beginning of a three
(3) year performance period (or for those participants entering the plan after the commencement date, the
date of eligibility for the plan). The earned awards are paid out in Kroger common shares based on actual
performance, along with a cash amount equal to the dividends paid during the performance period on the
number of issued common shares ultimately earned.

•

The payout percentage, based on the extent to which the performance metrics are achieved, is applied to
both the long-term cash bonus potential and the number of performance units awarded.

Actual payouts cannot exceed 120% of the long-term cash bonus potential or number of performance
units awarded.

Each of the following plan components account for 50% of the potential payout.

Plan Component

2018-2020

Cumulative Savings Included in Net Operating Profit Growth

Cut in = 50% payout

Goal = 100% payout

Cut in = 50% payout

Goal = 100% payout

Cumulative Free Cash Flow

$3.0B

$4.450B

$4.875B

$6.5B

After the calculation of the two metrics above, a Return on Invested Capital multiplier is applied, as follows:

ROIC Modifier Component

ROIC Results

Less than 12.24%

12.24% - 12.44%

Greater than 12.44%

Payout Modifier

80%

100%

120%

Stock Options and Restricted Stock

Stock options and restricted stock continue to play an important role in rewarding NEOs for the achievement of

long-term business objectives and providing incentives for the creation of shareholder value. Awards based on
Kroger’s common shares are granted annually to the NEOs and a large number of other employees. Kroger
historically has distributed time-based equity awards widely, aligning the interests of employees with your interest
as shareholders.

The options permit the holder to purchase Kroger common shares at an option price equal to the closing price

of Kroger common shares on the date of the grant. Options are granted only on one of the four dates of Board
meetings conducted after Kroger’s public release of its quarterly earnings results.

The Compensation Committee determines the vesting schedule for stock options and restricted stock. During
2018, the Compensation Committee granted to the NEOs stock options and restricted stock, each with a four-year
vesting schedule, with the exception of a restricted stock grant awarded to Mr. Clark, which vests 25% on each of
the first two anniversaries of the grant date and 50% on the third anniversary of the grant date.

As discussed below under Stock Ownership Guidelines, covered individuals, including the NEOs, must hold
100% of common shares issued pursuant to performance units earned, the shares received upon the exercise of
stock options or upon the vesting of restricted stock, except those necessary to pay the exercise price of the
options and/or applicable taxes, until applicable stock ownership guidelines are met, unless the disposition is
approved in advance by the CEO, or by the Board or Compensation Committee for the CEO.

Retirement and Other Benefits

Kroger maintains several defined benefit and defined contribution retirement plans for its employees. The
NEOs participate in one or more of these plans, as well as one or more excess plans designed to make up the
shortfall in retirement benefits created by limitations under the Internal Revenue Code (the ‘‘Code’’) on benefits to
highly compensated individuals under qualified plans. Additional details regarding certain retirement benefits
available to the NEOs can be found below in footnote 4 to the Summary Compensation Table and the
2018 Pension Benefits Table and the accompanying narrative.

Kroger also maintains an executive deferred compensation plan in which some of the NEOs participate. This

plan is a nonqualified plan under which participants can elect to defer up to 100% of their cash compensation each
year. Additional details regarding our nonqualified deferred compensation plans available to the NEOs can be
found below in the 2018 Nonqualified Deferred Compensation Table and the accompanying narrative.

Kroger also maintains The Kroger Co. Employee Protection Plan (‘‘KEPP’’), which covers all of our

management employees who are classified as exempt under the federal Fair Labor Standards Act and certain
administrative or technical support personnel who are not covered by a collective bargaining agreement, with at
least one year of service. KEPP provides for severance benefits and extended Kroger-paid health care, as well as
the continuation of other benefits as described in the plan, when an employee is actually or constructively
terminated without cause within two years following a ‘‘change in control’’ of Kroger (as defined in KEPP).
Participants are entitled to severance pay of up to 24 months’ salary and target annual bonus. The actual amount is
dependent upon pay level and years of service. KEPP can be amended or terminated by the Board at any time
prior to a change in control.

Performance-based long-term cash bonus, performance unit, stock option, and restricted stock agreements
with award recipients provide that those awards ‘‘vest,’’ with 50% of the long-term cash bonus potential being paid,
common shares equal to 50% of the performance units being awarded, options becoming immediately exercisable,
and restrictions on restricted stock lapsing upon a change in control as described in the grant agreements.

None of the NEOs are party to an employment agreement.

Perquisites

Our NEOs receive limited perquisites because the Compensation Committee does not believe that it is
necessary for the attraction or retention of management talent to provide executives a substantial amount of
compensation in the form of perquisites. In 2018, some NEOs received premiums paid on life insurance policies.
Further details on these benefits can be found in footnote 6 to the Summary Compensation Table.

Process for Establishing Executive Compensation

The Compensation Committee of the Board has the primary responsibility for establishing the compensation of

our executive officers, including the NEOs, with the exception of the CEO. The Compensation Committee’s role
regarding the CEO’s compensation is to make recommendations to the independent members of the Board; those
members of the Board establish the CEO’s compensation.

The Compensation Committee directly engaged Korn Ferry as a compensation consultant to advise the
Compensation Committee in the design of compensation for executive officers, through the 2018 compensation
planning cycle.

Korn Ferry conducted an annual competitive assessment of executive positions at Kroger for the

Compensation Committee. The assessment is one of several bases, as described above, on which the
Compensation Committee determines compensation. The consultant assessed:

•

base salary;

target performance-based annual cash bonus;

target annual cash compensation (the sum of salary and annual cash bonus potential);

annualized long-term compensation, such as performance-based long-term cash bonus potential and
performance units, stock options and restricted stock; and

total direct compensation (the sum of target annual cash compensation and annualized long-term
compensation).

In addition to the factors identified above, the consultant also reviewed actual payout amounts against the targeted
amounts.

The consultant compared these elements against those of other companies in a group of publicly traded

companies selected by the Compensation Committee. For 2018, our peer group consisted of:

Best Buy
Cardinal Health
Costco Wholesale
CVS Health
Express Scripts

Home Depot
Johnson & Johnson
Lowes
Procter & Gamble
Sysco

Target
TJX Companies
Wal-Mart
Walgreens Boots Alliance

The make-up of the compensation peer group is reviewed annually and modified as circumstances warrant. The

Compensation Committee modified the peer group in 2016 because of industry consolidation and other competitive
forces. Previously, the Compensation Committee used a primary peer group consisting only of food and drug retailers.
In addition, the Compensation Committee considered data from ‘‘general industry’’ companies provided by its
independent compensation consultant, a representation of major publicly-traded companies of similar size and scope
from outside the retail industry. This data provided reference points, particularly for senior executive positions where
competition for talent extends beyond the retail sector. The modified peer group includes a combination of food and
drug retailers, other large retailers based on revenue size, and large consumer-facing companies. Median 2018
revenue for the peer group was $91.47 billion, compared to our 2018 revenue of $121.16 billion.

Considering the size of Kroger in relation to other peer group companies, the Compensation Committee
believes that salaries paid to our NEOs should be competitively positioned relative to amounts paid by peer group
companies for comparable positions. The Compensation Committee also aims to provide an annual cash bonus
potential to our NEOs that, if achieved at superior levels, would cause total cash compensation to be meaningfully
above the median. Actual payouts may be as low as zero if performance does not meet the baselines established
by the Compensation Committee.

The independent members of the Board have the exclusive authority to determine the amount of the CEO’s

compensation. In setting total compensation, the independent directors consider the median compensation of the
peer group’s CEOs. With respect to the annual bonus, the independent directors make two determinations: (1) they
determine the annual cash bonus potential that will be multiplied by the annual cash bonus payout percentage
earned that is applicable to the NEOs and (2) the independent directors determine the annual cash bonus amount
paid to the CEO by retaining discretion to reduce the annual cash bonus percentage payout the CEO would
otherwise receive under the formulaic plan.

The Compensation Committee performs the same function and exercises the same authority as to the other

NEOs. In its annual review of compensation for the NEOs the Compensation Committee:

•

Conducts an annual review of all components of compensation, quantifying total compensation for the
NEOs on tally sheets. The review includes a summary for each NEO of salary; performance-based annual
cash bonus; long-term performance-based cash and performance unit compensation; stock options;
restricted stock; accumulated realized and unrealized stock option gains and restricted stock and
performance unit values; the value of any perquisites; retirement benefits; company paid health and
welfare benefits; banked vacation; severance benefits available under KEPP; and earnings and payouts
available under Kroger’s nonqualified deferred compensation program.

Considers internal pay equity at Kroger to ensure that the CEO is not compensated disproportionately.
The Compensation Committee has determined that the compensation of the CEO and that of the other
NEOs bears a reasonable relationship to the compensation levels of other executive positions at Kroger
taking into consideration performance and differences in responsibilities.

Reviews a report from the Compensation Committee’s compensation consultant reflecting a
comprehensive review of each element of pay mix, both annual and long-term and comparing NEO and
other senior executive compensation with that of other companies, including both our peer group of
competitors and a larger general industry group, to ensure that the Compensation Committee’s objectives
of competitiveness are met.

Takes into account a recommendation from the CEO (except in the case of his own compensation) for
salary, annual cash bonus potential and long-term compensation awards for each of the senior officers
including the other NEOs. The CEO’s recommendation takes into consideration the objectives established
by and the reports received by the Compensation Committee as well as his assessment of individual job
performance and contribution to our management team.

The Compensation Committee does not make use of a formula, but both qualitatively and quantitatively

considers each of the factors identified above in setting compensation.

Shareholder Engagement & the 2018 Advisory Vote to Approve Executive Compensation

At the 2018 annual meeting, we held our eighth annual advisory vote on executive compensation. Over

90.94% of the votes cast were in favor of the advisory vote in 2018. In 2018, we also requested meetings with
shareholders representing nearly 50% of our outstanding shares during the proxy season and off season
engagement and ultimately engaged with shareholders representing over a third of our outstanding shares.
Conversations with our shareholders in these meetings included discussions of our compensation program, with
our shareholders providing feedback that they appreciate the pay for performance nature of our program’s
structure. In light of this feedback and the strong support for our executive compensation program at the
2018 annual meeting, the Compensation Committee made no material changes in the structure of our
compensation programs for 2018.

Stock Ownership Guidelines

To more closely align the interests of our officers and directors with your interests as shareholders, the Board
has adopted stock ownership guidelines. These guidelines require non-employee directors, executive officers, and
other key executives to acquire and hold a minimum dollar value of Kroger common shares as set forth below:

Chief Executive Officer

President and Chief Operating Officer

Position

Executive Vice Presidents and Senior Vice Presidents

Group Vice Presidents, Division Presidents, and Other Designated Key

Executives

Non-employee Directors

Multiple

5 times base salary

4 times base salary

3 times base salary

2 times base salary

5 times annual base cash retainer

All covered individuals are expected to achieve the target level within five years of appointment to their
positions. Until the requirements are met, covered individuals, including the NEOs, must hold 100% of common
shares issued pursuant to performance units earned, shares received upon the exercise of stock options and upon
the vesting of restricted stock, except those necessary to pay the exercise price of the options and/or applicable
taxes, and must retain all Kroger common shares unless the disposition is approved in advance by the CEO, or by
the Board or Compensation Committee for the CEO.

Executive Compensation Recoupment Policy (Clawback)

If a material error of facts results in the payment to an executive officer at the level of Group Vice President or

higher of an annual cash bonus or a long-term cash bonus in an amount higher than otherwise would have been
paid, as determined by the Compensation Committee, then the officer, upon demand from the Compensation
Committee, will reimburse Kroger for the amounts that would not have been paid if the error had not occurred. This
recoupment policy applies to those amounts paid by Kroger within 36 months prior to the detection and public
disclosure of the error. In enforcing the policy, the Compensation Committee will take into consideration all factors
that it deems appropriate, including:

•

the materiality of the amount of payment involved;

the extent to which other benefits were reduced in other years as a result of the achievement of
performance levels based on the error;

individual officer culpability, if any; and

other factors that should offset the amount of overpayment.

Compensation Policies as They Relate to Risk Management

As part of the Compensation Committee’s review of our compensation practices, the Compensation

Committee considers and analyzes the extent to which risks arise from such practices and their impact on Kroger’s
business. As discussed in this Compensation Discussion and Analysis, our policies and practices for compensating
employees are designed to, among other things, attract and retain high quality and engaged employees. In this

process, the Compensation Committee also focuses on minimizing risk through the implementation of certain
practices and policies, such as the executive compensation recoupment policy, which is described above under
‘‘Executive Compensation Recoupment Policy (Clawback)’’. Accordingly, we do not believe that our compensation
practices and policies create risks that are reasonably likely to have a material adverse effect on Kroger.

Prohibition on Hedging and Pledging

After considering best practices related to ownership of company shares, the Board adopted a policy

prohibiting Kroger directors and executive officers from engaging, directly or indirectly, in the pledging of, hedging
transactions in, or short sales of, Kroger securities.

Section 162(m) of the Internal Revenue Code

Prior to the effective date of the Tax Cuts and Jobs Act of 2017, Section 162(m) of the Code generally
disallowed a federal tax deduction to public companies for compensation greater than $1 million paid in any tax
year to specified executive officers unless the compensation was ‘‘qualified performance-based compensation’’
under that section. Pursuant to the Tax Cuts and Jobs Act of 2017, the exception for ‘‘qualified performance-based
compensation’’ under Section 162(m) of the Code was eliminated with respect to all remuneration in excess of
$1 million other than qualified performance based compensation pursuant to a written binding contract in effect on
November 2, 2017 or earlier which was not modified in any material respect on or after such date (the legislation
providing for such transition rule, the ‘‘Transition Rule’’).

As a result, performance based compensation that the Compensation Committee structured in previous years

with the intent of qualifying as performance-based compensation under Section 162(m) that will be paid after
January 1, 2018 may not be fully deductible, depending on the application of the Transition Rule. The committee
will—consistent with its past practice—continue to retain flexibility to design compensation programs that are in the
best long-term interests of the company and our shareholders, with deductibility of compensation being one of a
variety of considerations taken into account.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with Kroger’s management the Compensation
Discussion and Analysis contained in this proxy statement. Based on its review and discussions with management,
the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be
included in Kroger’s proxy statement and incorporated by reference into its Annual Report on Form 10-K.

Compensation Committee:

Clyde R. Moore, Chair
Susan J. Kropf
Jorge P. Montoya
James A. Runde

Executive Compensation Tables

Summary Compensation Table

The following table and footnotes provide information regarding the compensation of the NEOs for the fiscal

years presented.

Name and Principal
Position(1)
W. Rodney McMullen

Chairman and Chief
Executive Officer
J. Michael Schlotman

Executive Vice President
and Chief Financial Officer

Michael J. Donnelly

Executive Vice President
and Chief Operating Officer

Christopher T. Hjelm

Executive Vice President
and Chief Information Officer

Robert Clark

Senior Vice President

Stock
Awards
($)(1)

Option
Awards
($)(2)

Salary
($)

Fiscal
Year
2018 $1,311,984 $4,999,996 $2,367,858
2,700,116
2017
2,699,044
2016
2018
752,700
1,040,846
2017
1,040,436
2016
769,118
2018
780,637
2017
780,323
2016
364,751
2018
780,637
2017
780,323
2016
374,947
2018

5,166,317
5,125,034
2,350,843
1,973,228
1,973,247
2,355,780
2,230,028
1,480,011
2,142,600
1,480,025
1,480,011
2,625,003

1,318,752
1,251,781
907,292
898,316
850,360
885,677
817,967
757,036
751,673
744,245
706,567
473,958

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
$ 335,955
1,690,923
3,139,537
295,994
873,808
1,436,752
205,544
1,032,483
2,207,236
228
520
832
284,854

Non-Equity
Incentive Plan
Compensation
($)(3)
$2,692,833
359,806
719,945
1,374,160
207,136
372,855
1,344,160
183,832
341,308
1,145,133
173,536
326,280
905,900

All Other
Compensation
($)(5)
$329,246
298,463
282,051
91,133
242,637
141,427
133,014
247,149
188,569
112,118
190,917
151,201
102,653

Total
($)
$12,037,872
11,534,377
13,217,392
5,772,122
5,235,971
5,815,077
5,693,293
5,292,096
5,754,483
4,516,503
3,369,880
3,445,214
4,767,315

(1) Amounts reflect the grant date fair value of restricted stock and performance units granted each fiscal year, as
computed in accordance with FASB ASC Topic 718. Because Mr. Clark was not a NEO at the time the existing
long-term plans were modified, he received additional grants which are reflected in the table. The following
table reflects the value of each type of award granted to the NEOs in 2018:

Name

Restricted Stock

Performance Units

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

$2,368,205

$1,454,505

$1,480,788

$1,400,004

$1,500,002

$2,631,791

$ 896,338

$ 874,992

$ 742,596

$1,125,001

The grant date fair value of the performance units reflected in the stock awards column and in the table above
is computed based on the probable outcome of the performance conditions as of the grant date. This amount
is consistent with the estimate of aggregate compensation cost to be recognized by the Company over the
three-year performance period of the award determined as of the grant date under FASB ASC Topic 718,
excluding the effect of estimated forfeitures. The assumptions used in calculating the valuations are set forth in
Note 12 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2018.

Assuming that the highest level of performance conditions is achieved, the aggregate fair value of the
2018 performance unit awards at the grant date is as follows:

Name

Value of Performance Units
Assuming Maximum Performance

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

$3,158,150

$1,075,605

$1,049,990

$ 891,115

$1,200,001

(2) These amounts represent the aggregate grant date fair value of option awards computed in accordance with
FASB ASC Topic 718. The assumptions used in calculating the valuations are set forth in Note 12 to the
consolidated financial statements in Kroger’s Form 10-K for fiscal year 2018.

(3) Non-equity incentive plan compensation earned for 2018 consists of amounts earned under the

2018 performance-based annual cash bonus plan and the 2016 LTIP.

Name

Annual Cash Bonus

Long-Term Cash Bonus

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

$2,279,500

$1,094,160

$ 911,800

$ 455,900

$413,333

$280,000

$250,000

$233,333

$450,000

In accordance with the terms of the 2018 performance-based annual cash bonus plan, Kroger paid 91.18% to
the NEOs. These amounts were earned with respect to performance in 2018 and paid in March 2019. See
‘‘Results of 2018 Annual Cash Bonus Plan’’ in the CD&A for more information on this plan.

The long-term cash bonus awarded under the 2016 LTIP is a performance-based bonus plan designed to
reward participants for improving the long-term performance of the Company. See ‘‘Results of 2016 LTIP’’ in
the CD&A for more information on this plan.

(4) For 2018, the amounts reported consist of the aggregate change in the actuarial present value of each NEO’s
accumulated benefit under a defined benefit pension plan (including supplemental plans), which applies to
Messrs. McMullen, Schlotman, Donnelly, and Clark, and preferential earnings on nonqualified deferred
compensation, which applies to Messrs. McMullen, Donnelly, and Hjelm. Neither Mr. Schlotman nor Mr. Clark
participate in a nonqualified deferred compensation plan.

Name

Change in
Pension Value

Preferential Earnings on Nonqualified
Deferred Compensation

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

$224,954

$295,994

$199,248

—

$284,854

$111,001

—

$ 6,296

228

—

Change in Pension Value. These amounts represent the aggregate change in the actuarial present value of
accumulated pension benefits. Pension values may fluctuate significantly from year to year depending on a
number of factors, including age, years of service, average annual earnings and the assumptions used to
determine the present value, such as the discount rate. The increase in the actuarial present value of
accumulated pension benefits for 2018 compared to 2017 is due to additional benefits accrued, as applicable.
Please see the 2018 Pension Benefits section for further information regarding the assumptions used in
calculating pension benefits.

Preferential Earnings on Nonqualified Deferred Compensation. Messrs. McMullen, Donnelly and Hjelm
participate in The Kroger Co. Executive Deferred Compensation Plan (the ‘‘Deferred Compensation Plan’’).
Under the plan, deferred compensation earns interest at a rate representing Kroger’s cost of ten-year debt, as
determined by the CEO and approved by the Compensation Committee prior to the beginning of each deferral
year. For each participant, a separate deferral account is created each year and the interest rate established
for that year is applied to that deferral account until the deferred compensation is paid out. If the interest rate
established by Kroger for a particular year exceeds 120% of the applicable federal long-term interest rate that
corresponds most closely to the plan rate, the amount by which the plan rate exceeds 120% of the
corresponding federal rate is deemed to be above-market or preferential. In fifteen of the twenty-four years in
which at least one NEO deferred compensation, the rate set under the plan for that year exceeds 120% of the
corresponding federal rate. For each of the deferral accounts in which the plan rate is deemed to be above-
market, Kroger calculates the amount by which the actual annual earnings on the account exceed what the

annual earnings would have been if the account earned interest at 120% of the corresponding federal rate,
and discloses those amounts as preferential earnings. Amounts deferred in 2018 earn interest at a rate higher
than 120% of the corresponding federal rate; accordingly, there are preferential earnings on these amounts.

(5) Amounts reported in the ‘‘All Other Compensation’’ column for 2018 include the dollar value of premiums paid

by the Company for life insurance, Company contributions to defined contribution retirement plans, dividend
equivalents paid on earned performance units, and dividends paid on unvested restricted stock. The following
table identifies the value of each benefit.

Life
Insurance
Premiums

$94,560

—

$18,454

Retirement Plan
Contributions(a)

—

$45,534

$40,831

$34,509

Payment of
Dividend
Equivalents
on Earned
Performance
Units

$35,953

$12,899

$ 9,675

$ 7,086

Dividends
Paid on
Unvested
Restricted
Stock

$198,734

$ 78,234

$ 77,805

$ 61,612

$ 42,604

Other(b)

—

Name

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

(a) Retirement plan contributions. The Company makes automatic and matching contributions to NEOs’

accounts under the applicable defined contribution plan on the same terms and using the same formulas
as other participating employees. The Company also makes contributions to NEOs’ accounts under the
applicable defined contribution plan restoration plan, which is intended to make up the shortfall in
retirement benefits caused by the limitations on benefits to highly compensated individuals under the
defined contribution plans in accordance with the Code. The aggregate amounts in the table above
represent the following contributions for 2018:

• Mr. Donnelly – a $13,750 matching contribution to the Dillon Companies, Inc. Employees’ Profit

Sharing Plan and a $31,784 matching contribution to the Dillon Companies, Inc. Excess Benefit Profit
Sharing Plan;

• Mr. Hjelm – a $13,750 matching contribution and a $2,000 automatic company contribution to The
Kroger Co. 401(k) Retirement Savings Account Plan and a $25,081 contribution to The Kroger Co.
401(k) Retirement Savings Account Restoration Plan; and

• Mr. Clark – a $13,750 matching contribution to the Dillon Companies, Inc. Employees’ Profit Sharing

Plan and a $20,759 matching contribution to the Dillon Companies, Inc. Excess Benefit Profit Sharing
Plan.

(b) Other. For each of the NEOs the total amount of other benefits was less than $10,000.

2018 Grants of Plan-Based Awards

The following table provides information about equity and non-equity incentive awards granted to the NEOs in

2018.

Name

W. Rodney McMullen

J. Michael Schlotman

Michael J. Donnelly

Christopher T. Hjelm

Robert W. Clark

Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards

Estimated Future
Payouts Under
Equity Incentive
Plan Awards

Grant
Date

Target
($)

Maximum
($)

Target
(#)(3)

Maximum
(#)(3)

$2,500,000(1) $5,000,000(1)
$2,631,800(2) $3,158,160(2)

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(4)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(5)

Exercise
or Base
Price of
Option
Awards
($/Sh)

Grant
Date Fair
Value of
Stock
and
Option
Awards

7/13/2018
7/13/2018
7/13/2018

$1,200,000(1) $2,400,000(1)
$ 896,350(2) $1,075,620(2)

93,825

112,590

$1,200,000(1) $2,400,000(1)
$ 875,000(2) $1,050,000(2)

31,955

38,346

$1,000,000(1) $2,000,000(1)
$ 742,600(2) $ 891,120(2)

31,194

37,433

$ 500,000(1) $1,000,000(1)
$1,350,000(2) $1,440,000(2)

26,474

31,769

349,293

$28.05

111,034

$28.05

113,456

$28.05

53,806

$28.05

84,428

51,854

52,791

49,911

53,476

40,107

42,781

55,310

$28.05

$2,368,205
$2,367,858
$2,631,791

$1,454,505
$ 752,700
$ 896,338

$1,480,788
$ 769,118
$ 874,992

$1,400,004
$ 364,751
$ 742,596

$1,500,002
$ 374,947
$1,125,001

(1) These amounts relate to the 2018 performance-based annual cash incentive bonus plan. The amount listed

under ‘‘Target’’ represents the annual cash incentive bonus potential of the NEO. By the terms of the plan,
payouts are limited to no more than 200% of a participant’s annual cash incentive bonus potential; accordingly,
the amount listed under ‘‘Maximum’’ is two times that officer’s annual cash incentive bonus potential amount.
The amounts actually earned under this plan were paid in March 2019 and are included in the Summary
Compensation Table for 2018 in the ‘‘Non-Equity Incentive Plan Compensation’’ column and are described in
footnote 4 to that table.

(2) These amounts relate to the long-term cash incentive potential under the 2018 Long-Term Incentive Plan,
which covers performance during fiscal years 2018, 2019 and 2020. By the terms of the plan, payouts are
limited to no more than 120% of a participant’s long-term cash incentive potential; accordingly, the amount
listed under ‘‘Target’’ is the participant’s long-term cash incentive potential. The amount listed under
‘‘Maximum’’ is 120%.

(3) These amounts represent performance units awarded under the 2018 Long-Term Incentive Plan, which covers
performance during fiscal years 2018, 2019 and 2020. The amount listed under ‘‘Maximum’’ represents the
maximum number of common shares that can be earned by the NEO under the award or 120% of the target
amount. This amount is consistent with the estimate of aggregate compensation cost to be recognized by the
Company over the three-year performance period of the award determined as of the grant date under FASB
ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value reported in the last
column is based on the probable outcome of the performance conditions as of the grant date. The aggregate
grant date fair value of these awards is included in the Summary Compensation Table for 2018 in the ‘‘Stock
Awards’’ column and described in footnote 1 to that table.

(4) These amounts represent the number of shares of restricted stock granted in 2018. The aggregate grant date
fair value reported in the last column is calculated in accordance with FASB ASC Topic 718. The aggregate
grant date fair value of these awards is included in the Summary Compensation Table for 2018 in the ‘‘Stock
Awards’’ column and described in footnote 1 to that table.

(5) These amounts represent the number of stock options granted in 2018. Options are granted with an exercise
price equal to the closing price of Kroger common shares on the grant date. The aggregate grant date fair
value reported in the last column is calculated in accordance with FASB ASC Topic 718. The aggregate grant
date fair value of these awards is included in the Summary Compensation Table for 2018 in the ‘‘Option
Awards’’ column.

The Compensation Committee, and the independent members of the Board in the case of the CEO,

established the incentive potential amounts for the performance-based annual cash incentive awards (shown in this
table as ‘‘Target’’), the number of performance units awarded (shown in this table as ‘‘Target’’), and the bonus
potential amounts for the long-term cash incentive awards (shown in this table as ‘‘Target’’). Amounts are payable
to the extent that Kroger’s actual performance meets specific performance metrics established by the
Compensation Committee at the beginning of the performance period. There are no guaranteed or minimum
payouts; if none of the performance metrics are achieved, then none of the award is earned and no payout is
made. As described in the CD&A, actual earnings under the performance-based annual cash incentive plan may
exceed the target amount if the Company’s performance exceeds the performance goals, but are limited to
200% of the target amount. The performance units and the long-term cash incentive potentials awarded under the
2018 LTIP are more particularly described in the CD&A.

The annual restricted stock and nonqualified stock options awards granted to the NEOs vest in equal amounts

on each of the first four anniversaries of the grant date, so long as the officer remains a Kroger employee.
Mr. Clark’s July 13, 2018 restricted stock award of 26,738 shares were special awards that vest 25% on each of the
first two anniversaries of the grant date, and 50% on the third anniversary of the grant date. Any dividends declared
on Kroger common shares are payable on unvested restricted stock.

2018 Outstanding Equity Awards at Fiscal Year-End

The following table provides information about outstanding equity-based incentive compensation awards for
the NEOs as of the end of 2018. The vesting schedule for each award is described in the footnotes to this table.
The market value of unvested restricted stock and unearned performance units is based on the closing price of
Kroger’s common shares of $28.07 on February 1, 2019, the last trading day of fiscal 2018.

Option Awards

Stock Awards

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
(#)

Equity
Incentive Plan
Awards: Market
or Payout Value
of Unearned
Shares, Units
or Other Rights
That Have Not
Vested
($)

Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

Market Value
of Shares
or Units of
Stock That
Have Not
Vested
($)
$ 631,575
$ 966,675
$1,685,126
$3,674,110
84,428(10) $2,369,894

22,500(6)
34,438(7)
60,033(8)
130,891(9)

6,000(6)
$ 168,420
15,444(7)
$ 433,513
23,692(8)
$ 665,034
51,656(9)
$1,449,984
51,854(10) $1,455,542

4,500(6)
$ 126,315
11,819(7)
$ 331,759
17,770(8)
$ 498,804
38,744(9)
$1,087,544
21,203(11) $ 595,168
52,791(10) $1,481,843

4,500(6)
$ 126,315
11,584(7)
$ 325,163
17,770(8)
$ 498,804
38,744(9)
$1,087,544
49,911(10) $1,401,002

2,700(6)
75,789
$
5,213(7)
$ 146,329
11,115(8)
$ 311,998
24,566(9)
$ 689,568
26,738(10) $ 750,536
26,738(12) $ 750,536

84,492(13)
90,916(14)

$2,505,197
$2,702,036

29,429(13)
30,964(14)

$ 872,573
$ 935,075

22,074(13)
30,227(14)

$ 654,481
$ 898,346

22,074(13)
25,653(14)

$ 654,481
$ 762,416

12,808(15)
12,955(14)

$ 373,467
$ 385,010

Name

W. Rodney
McMullen

J. Michael
Schlotman

Michael J.
Donnelly

Christopher T.
Hjelm

Robert W. Clark

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
130,000
140,000
182,880
194,880
194,880
240,000
141,249
143,236
114,625
—
50,000
91,280
109,280
109,280
64,000
63,918
55,215
44,186
—
40,000
70,720
50,720
50,720
48,000
35,957
41,411
33,139
—
16,000
24,000
40,576
50,720
50,720
48,000
47,938
41,411
33,139
—
21,500
7,000
22,500
10,000
16,000
25,000
30,000
24,000
17,982
22,811
21,014

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

—
—
—
—
—

60,000(1)
94,166(2)
214,855(3)
458,502(4)
349,293(5)

—
—
—
—

16,000(1)
42,613(2)
82,823(3)
176,744(4)
111,034(5)

—
—
—
—

12,000(1)
23,972(2)
62,117(3)
132,559(4)
113,456(5)

—
—
—
—
—

12,000(1)
31,960(2)
62,117(3)
132,559(4)
53,806(5)

6,000(1)
11,988(2)
34,219(3)
84,060(4)
55,310(5)

(1) Stock options vest on 7/15/2019.

Option
Exercise
Price
($)
$11.17
$10.08
$12.37
$10.98
$18.88
$24.67
$38.33
$37.48
$22.92
$28.05
$10.08
$12.37
$10.98
$18.88
$24.67
$38.33
$37.48
$22.92
$28.05
$10.08
$12.37
$10.98
$18.88
$24.67
$38.33
$37.48
$22.92
$28.05
$11.17
$10.08
$12.37
$10.98
$18.88
$24.67
$38.33
$37.48
$22.92
$28.05
$10.08
$10.94
$12.37
$11.76
$10.98
$15.75
$18.88
$24.67
$38.33
$37.48
$22.92
$28.05

Option
Expiration
Date
6/25/2019
6/24/2020
6/23/2021
7/12/2022
7/15/2023
7/15/2024
7/15/2025
7/13/2026
7/13/2027
7/13/2028
6/24/2020
6/23/2021
7/12/2022
7/15/2023
7/15/2024
7/15/2025
7/13/2026
7/13/2027
7/13/2028
6/24/2020
6/23/2021
7/12/2022
7/15/2023
7/15/2024
7/15/2025
7/13/2026
7/13/2027
7/13/2028
6/25/2019
6/24/2020
6/23/2021
7/12/2022
7/15/2023
7/15/2024
7/15/2025
7/13/2026
7/13/2027
7/13/2028
6/24/2020
9/16/2020
6/23/2021
12/8/2021
7/12/2022
3/14/2023
7/15/2023
7/15/2024
7/15/2025
7/13/2026
7/13/2027
7/13/2028

(2) Stock options vest in equal amounts on 7/15/2019 and 7/15/2020.

(3) Stock options vest in equal amounts on 7/13/2019, 7/13/2020, and 7/13/2021.

(4) Stock options vest in equal amounts on 7/13/2019, 7/13/2020, 7/13/2021, and 7/13/2022.

(5) Stock options vest in equal amounts on 7/13/2019, 7/13/2020, 7/13/2021, and 7/13/2022.

(6) Restricted stock vests on 7/15/2019.

(7) Restricted stock vests in equal amounts on 7/15/2019 and 7/15/2020.

(8) Restricted stock vests in equal amounts on 7/13/2019, 7/13/2020, and 7/13/2021.

(9) Restricted stock vests in equal amounts on 7/13/2019, 7/13/2020, 7/13/2021, and 7/13/2022.

(10) Restricted stock vests in equal amounts on 7/13/2019, 7/13/2020, 7/13/2021, and 7/13/2022.

(11) Restricted stock vests 33% on 12/7/2019 and 67% on 12/7/2020.

(12) Restricted stock vests 25% on each of 7/13/2019, 25% on 7/13/2020, and 50% on 7/13/2021.

(13) Performance units granted under the 2017 long-term incentive plan are earned as of the last day of fiscal

2019, to the extent performance conditions are achieved. Because the awards earned are not currently
determinable, in accordance with SEC rules, the number of units and the corresponding market value reflect
performance through 2018, including cash payments equal to projected dividend equivalent payments.

(14) Performance units granted under the 2018 long-term incentive plan are earned as of the last day of fiscal

2020, to the extent performance conditions are achieved. Because the awards earned are not currently
determinable, in accordance with SEC rules, the number of units and the corresponding market value reflect
performance through 2018, including cash payments equal to projected dividend equivalent payments.

(15) Performance units granted under the 2018 – 2019 long-term incentive plan are earned as of the last day of

fiscal 2019, to the extent performance conditions are achieved. Because the awards earned are not currently
determinable, in accordance with SEC rules, the number of units and the corresponding market value reflect
performance through 2018, including cash payments equal to projected dividend equivalent payments.

2018 Option Exercises and Stock Vested

The following table provides information regarding 2018 stock options exercised, restricted stock vested, and

common shares issued pursuant to performance units earned under long-term incentive plans.

Name

W. Rodney McMullen

J. Michael Schlotman

Michael J. Donnelly

Christopher T. Hjelm

Robert W. Clark

Option Awards(1)

Stock Awards(2)

Number
of Shares
Acquired on
Exercise
(#)

Value
Realized on
Exercise
($)

Number
of Shares
Acquired on
Vesting
(#)

130,000

$1,528,800

163,526

—

14,500

$ 259,402

55,948

48,916

40,731

31,722

Value
Realized on
Vesting
($)

$4,560,593

$1,543,895

$1,361,803

$1,124,299

$ 843,380

(1) Stock options have a ten-year life and expire if not exercised within that ten-year period. The value realized on

exercise is the difference between the exercise price of the option and the closing price of Kroger’s common
shares on the exercise date.

(2) The Stock Awards columns include vested restricted stock and earned performance units, as follows:

Name

Mr. McMullen

Mr. Schlotman

Mr. Donnelly

Mr. Hjelm

Mr. Clark

Vested Restricted Stock
Number of
Shares

Value
Realized

Earned Performance Units
Number of
Shares

Value
Realized

139,068

$3,955,257

24,458

47,173

42,335

34,150

18,353

$1,326,714

$1,198,923

$ 961,419

$ 512,497

8,775

6,581

13,369

$605,336

$217,181

$162,880

$330,883

Restricted stock. The table includes the number of shares acquired upon vesting of restricted stock and the
value realized on the vesting of restricted stock, based on the closing price of Kroger common shares on the
vesting date.

Performance Units. Participants in the 2016 LTIP, as modified, were awarded performance units that were
earned based on performance criteria established by the Compensation Committee as described on page 19
of the CD&A. Actual payouts were based on the level of performance achieved and were paid in common
shares. The number of common shares issued, and the value realized based on the closing price of Kroger
common shares of $24.75 on March 14, 2019, the date of deemed delivery of the shares, are reflected in the
table above.

2018 Pension Benefits

The following table provides information regarding pension benefits for the NEOs as of the last day of fiscal

2018.

Name

W. Rodney McMullen

J. Michael Schlotman

Michael J. Donnelly

Christopher T. Hjelm

Robert W. Clark

Number of
Years Credited
Service
(#)

Present Value
of Accumulated
Benefit
($)(1)

Payments during
Last fiscal year
($)

—

$ 1,478,015

$14,735,498

$ 1,601,117

$ 7,632,275

841,548

$ 6,072,232

—(2)

314,368

$ 1,521,638

—

—
—(2)

—

Plan Name

Pension Plan

Excess Plan

Pension Plan

Excess Plan

Pension Plan

Excess Plan

Pension Plan

Excess Plan

(1) The discount rate used to determine the present values was 4.22% for each of The Kroger Consolidated

Retirement Benefit Plan Spin Off (the ‘‘Pension Plan’’) and The Kroger Co. Consolidated Retirement Excess
Benefit Plan (the ‘‘Excess Plan’’), which are the same rates used at the measurement date for financial
reporting purposes. Additional assumptions used in calculating the present values are set forth in Note 15 to
the consolidated financial statements in Kroger’s 10-K for fiscal year 2018.

(2) Mr. Hjelm does not participate in the Pension Plan or the Excess Plan.

Pension Plan and Excess Plan

In 2018, Messrs. McMullen, Schlotman, Donnelly, and Clark were participants in the Pension Plan, which is a

qualified defined benefit pension plan. Messrs. McMullen, Schlotman, Donnelly, and Clark also participate in the
Excess Plan, which is a nonqualified deferred compensation plan as defined in Section 409A of the Code. The
purpose of the Excess Plan is to make up the shortfall in retirement benefits caused by the limitations on benefits to
highly compensated individuals under the qualified defined benefit pension plans in accordance with the Code.

Although participants generally receive credited service beginning at age 21, certain participants in the

Pension Plan and the Excess Plan who commenced employment prior to 1986, including Messrs. McMullen,
Schlotman and Clark, began to accrue credited service after attaining age 25 and one year of service. The Pension
Plan and the Excess Plan generally determine accrued benefits using a cash balance formula but retain benefit
formulas applicable under prior plans for certain ‘‘grandfathered participants’’ who were employed by Kroger on
December 31, 2000. Each of Messrs. McMullen, Schlotman, Donnelly and Clark are eligible for these
grandfathered benefits.

Grandfathered Participants

Benefits for grandfathered participants are determined using formulas applicable under prior plans, including
the Kroger formula covering service to The Kroger Co. and the Dillon formula covering service to Dillon Companies,
Inc. As ‘‘grandfathered participants,’’ Messrs. McMullen, Schlotman, Donnelly, and Clark will receive benefits under
the Pension Plan and the Excess Plan, determined as follows:

•

11∕2% times years of credited service multiplied by the average of the highest five years of total earnings
(base salary and annual cash bonus) during the last ten calendar years of employment, reduced by
11∕4% times years of credited service multiplied by the primary social security benefit;

normal retirement age is 65;

unreduced benefits are payable beginning at age 62; and

benefits payable between ages 55 and 62 will be reduced by 1∕3 of one percent for each of the first
24 months and by 1∕2 of one percent for each of the next 60 months by which the commencement of
benefits precedes age 62.

In 2018, we announced changes to these company-sponsored pension plans. The Company will freeze the
compensation and service periods used to calculate pension benefits for active employees who participate in the
affected pension plans, including the NEO participants as of December 31, 2019. Beginning January 1, 2020, the
affected active employees will no longer accrue additional benefits for future service and eligible compensation
received under these plans.

In the event of a termination of employment other than death or disability, Messrs. McMullen, Schlotman, and

Donnelly currently are eligible for a reduced early retirement benefit, as each has attained age 55. If a
‘‘grandfathered participant’’ becomes disabled while employed by Kroger and after attaining age 55, the participant
will receive the full retirement benefit. If a married ‘‘grandfathered participant’’ dies while employed by Kroger, the
surviving spouse will receive benefits as though a retirement occurred on such date, based on the greater of: actual
benefits payable to the participant if he or she was over age 55, or the benefits that would have been payable to
the participant assuming he or she was age 55 on the date of death.

Offsetting Benefits

Messrs. Donnelly and Clark also participate in the Dillon Companies, Inc. Employees’ Profit Sharing Plan (the
‘‘Dillon Profit Sharing Plan’’), which is a qualified defined contribution plan under which Dillon Companies, Inc. and
its participating subsidiaries may choose to make discretionary contributions each year that are allocated to each
participant’s account. Participation in the Dillon Profit Sharing Plan was frozen in 2001 and participants are no
longer able to make employee contributions, but certain participants, including Messrs. Donnelly and Clark, are still
eligible for employer contributions. Participants elect from among a number of investment options and the amounts
in their accounts are invested and credited with investment earnings in accordance with their elections. Due to
offset formulas contained in the Pension Plan, Messrs. Donnelly and Clark’s accrued benefits under the Dillon
Profit Sharing Plan offset a portion of the benefit that would otherwise accrue for him under the Pension Plan for his
service with Dillon Companies, Inc. Messrs. Donnelly and Clark also participate in the Dillon Companies, Inc.
Excess Benefit Profit Sharing Plan (‘‘Dillon Excess Profit Sharing Plan’’) which provides Company contributions in
excess of the qualified plan limits. The Dillon Excess Profit Sharing Plan is offset by Messrs. Donnelly and Clark’s
benefit from the Excess Plan. The offsets are reflected in the Pension Benefits table above.

2018 Nonqualified Deferred Compensation

The following table provides information on nonqualified deferred compensation for the NEOs for 2018.

Messrs. Schlotman, Hjelm and Clark do not participate in a nonqualified deferred compensation plan.

Name

W. Rodney McMullen

J. Michael Schlotman

Michael J. Donnelly

Christopher T. Hjelm

Robert Clark

Executive Contributions
in Last FY
$131,544(3)

—

$ 91,916(4)

—

Aggregate Earnings
in Last FY(1)

Aggregate Balance
at Last FYE(2)

$666,069

—

$ 36,245

$ 12,294

—

$10,563,424

—

668,829

272,006

—

(1) These amounts include the aggregate earnings on all accounts for each NEO, including any above-market or
preferential earnings. The following amounts earned in 2018 are deemed to be preferential earnings and are
included in the ‘‘Change in Pension Value and Nonqualified Deferred Compensation Earnings’’ column of the
Summary Compensation Table for 2018: Mr. McMullen, $111,001; Mr. Donnelly, $6,296; and Mr. Hjelm, $228.

(2) The following amounts in the Aggregate Balance column were reported in the Summary Compensation Tables

covering fiscal years 2006 – 2017: Mr. McMullen, $3,102,637; Mr. Donnelly, $232,576; and Mr. Hjelm,
$149,370.

(3) This amount includes the deferral of $59,583 of his salary in fiscal 2018; this amount is included in the ‘‘Salary’’
column of the Summary Compensation Table for 2018. This amount also includes the deferral of $57,600 of his
2015 Long-Term Incentive Plan cash incentive earned for performance over the three year period 2015 to
2017 and paid in March 2018 and the deferral of $14,361 of his 2017 performance-based annual cash
incentive plan earned in 2017 and paid in March 2018; these amounts are included in the ‘‘Non-Equity
Incentive Plan Compensation’’ column of the Summary Compensation Table for 2017.

(4) This amount includes the deferral of $79,548 of his 2015 Long-Term Incentive Plan cash incentive earned for
performance over the three year period 2015 to 2017 and paid in March 2018; this amount is included in the
‘‘Non-Equity Incentive Plan Compensation’’ column of the Summary Compensation Table for 2018 and the
deferral of $12,368 of his 2017 performance-based annual cash incentive plan earned in 2017 and paid in
March 2018.

Executive Deferred Compensation Plan

Messrs. McMullen, Donnelly and Hjelm participate in the Deferred Compensation Plan, which is a nonqualified
deferred compensation plan. Participants may elect to defer up to 100% of the amount of their salary that exceeds
the sum of the FICA wage base and pre-tax insurance and other Code Section 125 plan deductions, as well as up
to 100% of their annual and long-term cash bonus compensation. Kroger does not match any deferral or provide
other contributions. Deferral account amounts are credited with interest at the rate representing Kroger’s cost of
ten-year debt as determined by Kroger’s CEO and approved by the Compensation Committee prior to the
beginning of each deferral year. The interest rate established for deferral amounts for each deferral year will be
applied to those deferral amounts for all subsequent years until the deferred compensation is paid out. Amounts
deferred in 2018 earn interest at a rate of 3.6%. Participants can elect to receive lump sum distributions or quarterly
installments for periods up to ten years. Participants also can elect between lump sum distributions and quarterly
installments to be received by designated beneficiaries if the participant dies before distribution of deferred
compensation is completed.

Participants may not withdraw amounts from their accounts until they leave Kroger, except that Kroger has

discretion to approve an early distribution to a participant upon the occurrence of an unforeseen emergency.
Participants who are ‘‘specified employees’’ under Section 409A of the Code, which includes the NEOs, may not
receive a post-termination distribution for at least six months following separation. If the employee dies prior to or
during the distribution period, the remainder of the account will be distributed to his or her designated beneficiary in
lump sum or quarterly installments, according to the participant’s prior election.

Potential Payments upon Termination or Change in Control

Kroger does not have employment agreements or other contracts, agreements, plans or arrangements that
provide for payments to the NEOs in connection with a termination of employment or a change in control of Kroger.
However, KEPP, award agreements for stock options, restricted stock and performance units, and the long-term
cash bonus plans provide for certain payments and benefits to participants, including the NEOs, in the event of a
termination of employment or a change in control of Kroger, as defined in the applicable plan or agreement. Our
pension plan and nonqualified deferred compensation plan also provide for certain payments and benefits to
participants in the event of a termination of employment, as described above in the 2018 Pension Benefits section
and the 2018 Nonqualified Deferred Compensation section, respectively.

The Kroger Co. Employee Protection Plan

KEPP applies to all management employees who are classified as exempt under the federal Fair Labor
Standards Act and to certain administrative or technical support personnel who are not covered by a collective
bargaining agreement, with at least one year of service, including the NEOs. KEPP provides severance benefits
when a participant’s employment is terminated actually or constructively within two years following a change in
control of Kroger, as defined in KEPP. The actual amount of the severance benefit is dependent on pay level and
years of service. Exempt employees, including the NEOs, are eligible for the following benefits:

•

a lump sum severance payment equal to up to 24 months of the participant’s annual base salary and
target annual bonus potential;

a lump sum payment equal to the participant’s accrued and unpaid vacation, including banked vacation;

continued medical and dental benefits for up to 24 months and continued group term life insurance
coverage for up to 6 months; and

up to $10,000 as reimbursement for eligible outplacement expenses.

In the event that any payments or benefits received or to be received by an eligible employee in connection

with a change in control or termination of employment (whether pursuant to KEPP or any other plan, arrangement
or agreement with Kroger or any person whose actions result in a change in control) would constitute parachute
payments within the meaning of Section 280G of the Code and would be subject to the excise tax under
Section 4999 of the Code, then such payments and benefits will either be (i) paid in full or (ii) reduced to the
minimum extent necessary to ensure that no portion of such payments or benefits will be subject to the excise tax,
whichever results in the eligible employee receiving the greatest aggregate amount on an after-tax basis.

Long-Term Incentive Awards

The following table describes the treatment of long-term incentive awards following a termination of

employment or change in control of Kroger, as defined in the applicable agreement. In each case, the continued
vesting, exercisability or eligibility for the incentive awards will end if the participant provides services to a
competitor of Kroger.

Triggering Event

Stock Options

Restricted Stock

Performance Units

Involuntary

Termination

Voluntary

Termination/
Retirement

- Prior to minimum

age and five
years of
service(1)

Voluntary

Termination/
Retirement

- After minimum age
and five years of
service(1)

Death

Forfeit all unvested options.
Previously vested options
remain exercisable for the
shorter of one year after
termination or the
remainder of the original
10-year term.

Unvested options held
greater than 1 year
continue vesting on the
original schedule. All
options are exercisable for
remainder of the original
10-year term.

Unvested options are
immediately vested. All
options are exercisable for
the remainder of the
original 10-year term.

Disability

Change in

Control(3)

Unvested options are
immediately vested. All
options are exercisable for
remainder of the original
10-year term.

Unvested options are
immediately vested and
exercisable

Unvested shares
immediately vest

Forfeit all unvested shares

Forfeit all rights to
units for which the
three year
performance period
has not ended

Performance-Based
Long-Term
Cash Bonus

Forfeit all rights to long-term
cash bonuses for which the
three year performance
period has not ended

Forfeit all unvested shares

Forfeit all rights to
units for which the
three year
performance period
has not ended

Forfeit all rights to long-term
cash bonuses for which the
three year performance
period has not ended

Unvested shares held
greater than 1 year
continue vesting on the
original schedule

Pro rata portion(2) of
units earned based on
performance results
over the full three-year
period

Pro rata portion(2) of long-
term cash bonuses earned
based on performance
results over the full three-
year period

Unvested shares
immediately vest

Pro rata portion(2) of
units earned based on
performance results
through the end of the
fiscal year in which
death occurs. Award
will be paid following
the end of such fiscal
year.

Pro rata portion(2) of long-
term cash bonuses earned
based on performance
results through the end of
the fiscal year in which
death occurs. Award will be
paid following the end of
such fiscal year.

Pro rata portion(2) of
units earned based on
performance results
over the full three-year
period

Pro rata portion(2) of long-
term cash bonuses earned
based on performance
results over the full three-
year period

50% of the units
granted at the
beginning of the
performance period
earned immediately

50% of the bonus granted at
the beginning of the
performance period earned
immediately

(1) The minimum age requirement is age 62 for stock options and restricted stock and age 55 for performance

units and the long-term cash bonus.

(2) The prorated amount is equal to the number of weeks of active employment during the performance period

divided by the total number of weeks in the performance period.

(3) These benefits are payable upon a change in control of Kroger, as defined in the applicable agreement, with or

without a termination of employment.

Quantification of Payments upon Termination or Change in Control

The following table provides information regarding certain potential payments that would have been made to

the NEOs if the triggering event occurred on the last day of the fiscal year, February 2, 2019, given compensation,
age and service levels as of that date and, where applicable, based on the closing market price per Kroger
common share on the last trading day of the fiscal year ($28.07 on February 1, 2019). Amounts actually received
upon the occurrence of a triggering event will vary based on factors such as the timing during the year of such
event, the market price of Kroger common shares, and the officer’s age, length of service and compensation level.

W. Rodney McMullen

Name

Involuntary
Termination

Voluntary
Termination/
Retirement

Death

Disability

Change
in Control
without
Termination

Change in
Control with
Termination

Accrued and Banked Vacation

$653,934

$ 653,934

$ 653,934 $ 653,934

$ 653,934

Severance
Continued Health and Welfare Benefits(1)
Stock Options(2)
Restricted Stock(3)
Performance Units(4)
Long-Term Cash Bonus(5)
Executive Group Life Insurance

J. Michael Schlotman

—

3,718,393

9,327,380

1,511,079

3,051,377

1,415,406

1,935,900

—

1,973,850

—

7,631,808

25,337

3,718,393

9,327,380

3,051,377

1,935,900

—

Accrued and Banked Vacation

$445,773

$ 445,773

$ 445,773 $ 445,773

$ 445,773

Severance
Continued Health and Welfare Benefits(1)
Stock Options(2)
Restricted Stock(3)
Performance Units(4)
Long-Term Cash Bonus(5)
Executive Group Life Insurance

Michael J. Donnelly

—

966,932

4,172,493

526,083

663,997

526,083

663,997

—

1,384,875

526,083

663,997

—

1,052,639

855,120

—

4,246,512

25,313

966,932

4,172,493

1,052,639

855,120

—

Accrued and Banked Vacation

$173,813

$ 173,813

$ 173,813 $ 173,813

$ 173,813

Severance
Continued Health and Welfare Benefits(1)
Stock Options(2)
Restricted Stock(3)
Performance Units(4)
Long-Term Cash Bonus(5)
Executive Group Life Insurance

Christopher T. Hjelm

—

725,808

4,202,520

12,229

725,808

4,121,434

396,927

591,401

396,927

591,401

—

1,351,875

396,927

591,401

—

890,956

761,250

—

890,956

761,250

—

Accrued and Banked Vacation

$ 5,884

5,884

5,884 $

5,884

Severance
Continued Health and Welfare Benefits(1)
Stock Options(2)
Restricted Stock(3)
Performance Units(4)
Long-Term Cash Bonus(5)
Executive Group Life Insurance

Robert W. Clark

—

724,615

3,529,800

55,345

724,615

3,438,828

395,402

551,974

395,402

551,974

—

1,147,350

395,402

551,974

—

824,711

710,500

—

824,711

710,500

—

Accrued and Banked Vacation

$ 5,769

5,769

5,769 $

5,769

Severance
Continued Health and Welfare Benefits(1)
Stock Options(2)
Restricted Stock(3)
Performance Units(4)
Long-Term Cash Bonus(5)
Executive Group Life Insurance

—

454,415

2,000,016

32,916

454,415

2,724,755

155,010

210,968

750,000

155,010

210,968

—

375,268

506,518

—

375,268

506,518

—

(1) Represents the aggregate present value of continued participation in the Company’s medical, dental and
executive term life insurance plans, based on the premiums payable by the Company during the eligible
period. The eligible period for continued medical and dental benefits is based on the level and length of
service, which is 24 months for all NEOs. The eligible period for continued executive term life insurance
coverage is six months for the NEOs. The amounts reported may ultimately be lower if the NEO is no longer
eligible to receive benefits, which could occur upon obtaining other employment and becoming eligible for
substantially equivalent benefits through the new employer.

(2) Amounts reported in the death, disability and change in control columns represent the intrinsic value of the

accelerated vesting of unvested stock options, calculated as the difference between the exercise price of the
stock option and the closing price per Kroger common share on February 1, 2019. A value of $0 is attributed to
stock options with an exercise price greater than the market price on the last day of the fiscal year. In
accordance with SEC rules, no amount is reported in the voluntary termination/retirement column because
vesting is not accelerated, but the options may continue to vest on the original schedule if the conditions
described above are met.

(3) Amounts reported in the death, disability and change in control columns represent the aggregate value of the
accelerated vesting of unvested restricted stock. In accordance with SEC rules, no amount is reported in the
voluntary termination/retirement column because vesting is not accelerated, but the restricted stock may
continue to vest on the original schedule if the conditions described above are met.

(4) Amounts reported in the voluntary termination/retirement, death and disability columns represent the

aggregate value of the performance units granted in 2017 and 2018, based on performance through the last
day of fiscal 2018 and prorated for the portion of the performance period completed. Amounts reported in the
change in control column represent the aggregate value of 50% of the maximum number of performance units
granted in 2017 and 2018. Awards under the 2016 Long-Term Incentive Plan were earned as of the last day of
2018 so each NEO age 55 or over was entitled to receive (regardless of the triggering event) the amount
actually earned, which is reported in the Stock Awards column of the 2018 Stock Vested Table.

(5) Amounts reported in the voluntary termination/retirement, death and disability columns represent the

aggregate value of the long-term cash bonuses granted in 2017 and 2018, based on performance through the
last day of fiscal 2018 and prorated for the portion of the performance period completed. Amounts reported in
the change in control column represent the aggregate value of 50% of the long-term cash bonus potentials
under the 2017 and 2018 Long-Term Incentive Plans. Awards under the 2016 Long-Term Incentive Plan were
earned as of the last day of 2018, so each NEO age 55 or over was entitled to receive (regardless of the
triggering event) the amount actually earned, which is reported in the Non-Equity Incentive Plan Compensation
column of the Summary Compensation Table for 2018.

CEO Pay Ratio

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and
Item 402(u) of Regulation S-K, we are providing the following information regarding the ratio of the annual total
compensation of our Chairman and CEO, Mr. McMullen, to the annual total compensation of our median employee.

As reported in the Summary Compensation Table, our CEO had annual total compensation for 2018
of $12,037,872. Using this Summary Compensation Table methodology, the annual total compensation of our
median employee for 2018 was $24,912. As a result, we estimate that the ratio of our CEO’s annual total
compensation to that of our median employee for fiscal 2018 was 483 to 1.

This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll

records and the methodology described below. The SEC rules for identifying the median compensated employee
and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a
variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that
reflect their compensation practices. As such, other companies may have different employment and compensation
practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own
pay ratios. Therefore, the estimated pay ratio reported above may not be comparable to the pay ratios reported by
other companies and should not be used as a basis for comparison between companies.

We identify the ‘‘median employee’’ from our employee population on the last day of our 11th fiscal period
(December 8, 2018), which included full-time, part-time, temporary, and seasonal employees who were employed
on that date. The consistently applied compensation measure we used was ‘‘base salary/wages paid,’’ which we
measured from the beginning of our fiscal year, February 4, 2018, through February 2, 2019; and we multiplied the

average weekly earnings during this period of each full-time and part-time permanent employee by 52, which was
the number of weeks in fiscal 2018. We annualized the earnings of all permanent employees who were on a leave
of absence or were new-hires in 2018. We did not make any other adjustments permissible by the SEC nor did we
make any other material assumptions or estimates to identify our median employee. The median employee did not
change from the prior year. There were no changes in our employee population or compensation arrangements
that would have significantly affected our pay ratio calculation.

Once the median employee was identified, we then determined the median employee’s annual total
compensation using the Summary Compensation Table methodology as detailed in Item 402(c)(2)(x) of
Regulation S-K and compared it to the annual total compensation of Mr. McMullen as detailed in the ‘‘Total’’ column
of the Summary Compensation Table for 2018, to arrive at the pay ratio disclosed above.

Item No. 2 Advisory Vote to Approve Executive Compensation

You are being asked to vote, on an advisory basis, to approve the compensation of our NEOs. The Board of
Directors recommends that you vote FOR the approval of compensation of our NEOs.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, requires that we give
our shareholders the right to approve, on a nonbinding, advisory basis, the compensation of our NEOs as disclosed
earlier in this proxy statement in accordance with the SEC’s rules.

As discussed earlier in the CD&A, our compensation philosophy is to attract and retain the best management

talent and to motivate these employees to achieve our business and financial goals. Our incentive plans are
designed to reward the actions that lead to long-term value creation. To achieve our objectives, we seek to ensure
that compensation is competitive and that there is a direct link between pay and performance. To do so, we are
guided by the following principles:

•

A significant portion of pay should be performance-based, with the percentage of total pay tied to
performance increasing proportionally with an executive’s level of responsibility;

Compensation should include incentive-based pay to drive performance, providing superior pay for
superior performance, including both a short- and long-term focus;

Compensation policies should include an opportunity for, and a requirement of, equity ownership to align
the interests of executives and shareholders; and

Components of compensation should be tied to an evaluation of business and individual performance
measured against metrics that directly drive our business strategy.

The vote on this resolution is not intended to address any specific element of compensation. Rather, the vote

relates to the compensation of our NEOs as described in this proxy statement. The vote is advisory. This means
that the vote is not binding on Kroger. The Compensation Committee of the Board is responsible for establishing
executive compensation. In so doing, the Compensation Committee will consider, along with all other relevant
factors, the results of this vote.

We ask our shareholders to vote on the following resolution:

‘‘RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to Item 402 of
Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and the related
narrative discussion, is hereby APPROVED.’’

The next advisory vote will occur at our 2020 annual meeting.

The Board of Directors Recommends a Vote For This Proposal.

Item No. 3 Vote to Approve The Kroger Co. 2019 Long-Term Incentive Plan

You are being asked to vote to approve the Kroger 2019 Long-Term Incentive Plan (the ‘‘2019 Plan’’). Our
Board of Directors has adopted and recommends that you vote FOR this proposal.

Under this Item No. 3, the Board is recommending that our shareholders approve the 2019 Plan, which was
adopted, subject to shareholder approval, by the Board of Directors on April 29, 2019. The 2019 Plan is intended to
replace our shareholder-approved 2014 Long-Term Incentive and Cash Bonus Plan, as amended (the
‘‘2014 Plan’’), and our shareholder-approved 2011 Long-Term Incentive and Cash Bonus Plan, as amended (the
‘‘2011 Plan’’), and to implement, among other things:

•

Authorization of 38,000,000 new shares for issuance under the 2019 Plan;

A mandated minimum vesting period of one (1) year; and

A double-trigger approach for change-in-control vesting if awards are not assumed, substituted or
otherwise replaced in connection with the change-in-control.

If the 2019 Plan is approved by our shareholders, it will become effective as of the date of the Annual Meeting
and no additional awards will be granted under the 2014 Plan or the 2011 Plan. In the event that our shareholders
do not approve this Proposal, the 2019 Plan will not become effective, and the 2014 Plan and 2011 Plan will
continue to be effective in accordance with their terms. No awards have or will be made under the 2019 Plan prior
to its approval by shareholders at the Annual Meeting.

As described above in the section entitled ‘‘Compensation Discussion and Analysis’’ beginning on page 19
above, the Compensation Committee of the Board of Directors has long maintained a strong pay for performance
philosophy designed to attract and retain the best management talent, to motivate employees to achieve our
business and financial goals, and to reward the actions that lead to long-term value creation. The Compensation
Committee believes that there is a strong link between our business strategy, the performance metrics in our short-
term and long-term incentive programs, and the business results that drive shareholder value. To achieve our
objectives, the Compensation Committee seeks to ensure that compensation is competitive and that a significant
portion of pay should be performance-based, with the percentage of total pay tied to performance increasing
proportionally with an NEO’s level of responsibility. If the 2019 Plan is approved, the Company will be able to
continue to provide equity awards as part of its compensation program, which is necessary to successfully attract
and retain the best possible candidates for positions of substantial responsibility within the Company and to ensure
that compensation is competitive and has a direct link with performance. Moreover, awarding equity compensation
aligns the interests of our NEOs with the interests of our shareholders and creates incentives to achieve the annual
business plan targets and longer term company objectives. The details and design elements of the 2019 Plan are
set forth in the section entitled ‘‘—Summary of the 2019 Plan’’ beginning on page 52 below.

Providing equity and equity-based awards aligns employee compensation interests with the investment
interests of our shareholders, and reduces cash compensation expense, permitting cash to be reinvested in our
business or returned to our shareholders. Approval of the 2019 Plan will allow Kroger to continue to provide equity
and equity-based awards to recruit and compensate its officers and other key employees beyond the time at which
the shares reserved under the 2014 Plan and the 2011 Plan would be depleted. If the 2019 Plan is not approved,
the Company will continue to grant awards under the 2014 Plan and the 2011 Plan until there are no longer any
shares available for grant.

We are requesting approval of 38,000,000 shares for awards under the 2019 Plan. Awards may also be made
under the 2019 Plan with respect to an estimated 23,783,636 shares that, as of April 23, 2019, remain available for
grant under the 2014 Plan and the 2011 Plan, each of which has previously been approved by our shareholders. In
addition, if and only to the extent forfeited in accordance with the terms of such plans, a maximum of
26,311,950 shares previously granted under the 2014 Plan and the 2011 Plan may become available for awards
under the 2019 Plan (for the avoidance of doubt, such shares are not initially available for grant under the
2019 Plan). We refer to the aggregate number of shares available for awards under the 2019 Plan as the ‘‘share
reserve.’’ The share reserve will be reduced by one share for each share subject to a stock option or share
appreciation right, and by 2.83 shares for each share subject to a restricted stock award, award of restricted stock
units (including performance units), or other share award. In determining the number of shares to request under the
2019 Plan, we evaluated our share availability under the 2014 Plan and the 2011 Plan, recent share usage, our
historical annual equity award grant rate, our historical forfeiture rate and our estimates of the number of shares
needed to attract new executive hires. We expect that the share reserve will allow us to continue to appropriately
grant equity awards at reasonable and desirable levels for approximately the next three years; however, the

amount of future awards is not currently known and will depend on various factors that cannot be predicted,
including, but not limited to, the price of our shares on future grant dates, the volatility of the stock and the types of
awards that will be granted.

Key Plan Provisions

•

The 2019 Plan has a ten-year term;

The 2019 Plan provides for the following types of equity awards: stock options (both incentive stock
options and nonqualified stock options), share appreciation rights, restricted stock awards, restricted stock
units (including performance units), cash incentive awards and share awards;

38,000,000 shares will be newly authorized for issuance pursuant to awards under the 2019 Plan;

An estimated 23,783,636 shares that remain available for grant under the 2014 Plan and the 2011 Plan as
of April 23, 2019 may also be granted under the 2019 Plan;

Any shares subject to outstanding awards under the 2014 Plan or 2011 Plan that are forfeited, cancelled
or otherwise expire that would have been added back to the share reserves under the 2014 Plan or
2011 Plan, will roll over into the share reserve of the 2019 Plan, subject to a maximum of
26,311,950 shares that may be forfeited under such plans as described above;

The share reserve will be reduced by one share for each share subject to a stock option or share
appreciation right, and by 2.83 shares for each share subject to a restricted stock award, award of
restricted stock units (including performance units), or other share award;

All types of equity awards granted under the 2019 Plan may have all or a significant portion of
compensation linked to the achievement of performance goals by the Company and/or the participant; and

The 2019 Plan will be administered by the Compensation Committee, which is comprised entirely of
independent non-employee directors, and which may delegate authority to a committee of executives in
respect of awards to Kroger associates who are not our NEOs or subject to Section 16 under the
Exchange Act.

In addition, the 2019 Plan increases flexibility for design of performance-based awards following the repeal of
the exemption for performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986,
as amended (‘‘Section 162(m)’’). The Compensation Committee aims to continue to retain flexibility to design
compensation programs that are in the long-term best interests of Kroger and our shareholders, with deductibility of
compensation being only one of a range of considerations taken into account.

Key Shareholder Considerations

Shareholders should consider the following in determining whether to approve the 2019 Plan:

•

Our burn rate is reasonable. As detailed in the table below, our three-year average adjusted burn rate,
which we define as the number of shares subject to time-based equity awards granted and performance-
based equity awards earned in a fiscal year divided by the weighted average common shares outstanding
for that fiscal year, with a multiplier as assigned by ISS of 2.5 for full value shares, is 1.87%. It is our
intention to remain within the burn rate guidelines established by ISS for our industry.

Fiscal Year

Options
Granted

Full-Value
Shares
Granted

Total
Granted
(full-value
shares
adjusted)*

Weighted
Average # of
Common
Shares

Outstanding Burn Rate

2018

2017

2016

2,780,977

4,611,375

14,309,415

810,166,210

7,000,000

5,800,000

21,500,000

895,000,000

4,800,000

3,600,000

13,800,000

942,000,000

1.77%

2.40%

1.46%

Total Granted = Options + (Adjusted Full-Value Shares)

•

Dilution. Dilution is commonly measured by ‘‘overhang,’’ which generally refers to the amount of total
potential dilution to current shareholders that could result from future issuance of the shares reserved
under an equity compensation plan. As of April 23, 2019, 34,671,157 shares were subject to outstanding

equity awards under our 2014 Plan and 2011 Plan, 13,481,250 shares were subject to outstanding equity
awards under our 2008 Long-Term Incentive and Cash Bonus Plan, as amended (the “2008 Plan”), and
our 2005 Long-Term Incentive Plan, as amended (the “2005 Plan”), an additional 23,783,636 shares were
reserved for issuance under our 2014 Plan and 2011 Plan (and, for the avoidance of doubt, no shares
remain available for issuance under the 2008 Plan and the 2005 Plan), and we are requesting an
additional 38,000,000 shares for grant under the 2019 Plan, which based on 798,429,109 shares
outstanding on April 23, 2019, results in a total potential dilution of 13.77%. This overhang is reasonable
compared to that of our peers.

Clawbacks. Awards granted under the 2019 Plan may be subject to recoupment in accordance with
Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recoupment
of erroneously awarded compensation). Awards may also be subject to recoupment under the terms of the
2019 Plan for a period of one (1) year following after the settlement of an award under the 2019 Plan or
may be subject to Kroger’s clawback policy as described on page 33 above in the section entitled
‘‘Executive Compensation Recoupment Policy (Clawback)’’ in the ‘‘Compensation Discussion & Analysis’’.

The 2019 Plan follows best market practices. The 2019 Plan has been designed consistent with the
qualitative standards of proxy advisory firms and equity plan best practices. As a result, the 2019 Plan:

•

○

provides that no award may vest prior to the one-year anniversary of such award’s date of grant
(other than vesting upon the death or disability of the participant, or upon a change in control), except
that up to 5% of the share reserve of the 2019 Plan may be subject to awards that do not meet such
minimum vesting requirement;

does not permit the repricing of awards granted under the 2019 Plan unless approved by
shareholders;

does not provide for automatic acceleration of vesting of equity awards upon a change in control of
the Company, also known as a ‘‘single-trigger acceleration;’’

does not contain an annual ‘‘evergreen provision,’’ and therefore shareholder approval is required to
increase the maximum number of shares that may be issued under the 2019 Plan;

contains a ‘‘fungible share pool’’ provision, which limits shareholder dilution by charging the share
reserve with 2.83 shares for each share subject to a full value award;

provides that all stock options and share appreciation rights have an exercise price equal to at least
the fair market value of our common shares on the date the stock option or share appreciation right is
granted, except in certain situations in which we are assuming options granted by another company
that we are acquiring;

provides that (i) no dividends or dividend equivalent rights will be paid or provided with respect to
awards other than restricted shares and share awards, and (ii) dividend equivalents accrued with
respect to awards of restricted stock units (including performance units), if any, may not be paid
before the date such awards have vested; and

○

does not provide for any tax gross-ups.

Summary of the 2019 Plan

The principal features of the 2019 Plan are summarized below. The summary does not purport to be a
complete statement of the terms of the 2019 Plan and is qualified in its entirety by reference to the full text of the
2019 Plan, a copy of which is attached as Appendix A to this Proxy Statement.

Purpose

The purpose of the 2019 Plan is to align the interests of eligible participants with our shareholders by providing

incentive compensation tied to Kroger’s performance. The intent of the 2019 Plan is to advance Kroger’s interests
and increase shareholder value by attracting, retaining and motivating key personnel.

Administration

Pursuant to its terms, the 2019 Plan may be administered by the Compensation Committee of the Board, such

other committee of the Board appointed by the Board to administer the Plan or the Board, as determined by the
Board (such administrator of the 2019 Plan, the ‘‘Committee’’). The Committee has the power and discretion

necessary to administer the 2019 Plan, with such powers including, but not limited to, the authority to select
persons to participate in the 2019 Plan, determine the form and substance of awards under the 2019 Plan,
determine the conditions and restrictions, if any, subject to which such awards will be made, modify the terms of
awards, accelerate the vesting of awards upon termination of service, and make determinations regarding a
participant’s termination of employment or service for purposes of an award. The Committee’s determinations,
interpretations and actions under the 2019 Plan are binding on the Company, the participants in the 2019 Plan and
all other parties. Generally, the 2019 Plan will be administered by our Compensation Committee, which solely
consists of independent directors, as appointed by the Board from time to time. The Compensation Committee may
delegate authority to a committee of executives in respect of awards to Kroger associates who are not our NEOs or
subject to Section 16 under the Exchange Act, as permitted under the 2019 Plan.

Eligibility

Any employee, officer, non-employee director, consultant or advisor to the Company or any of its subsidiaries

or affiliates can participate in the 2019 Plan, at the Committee’s discretion. In its determination of eligible
participants, the Committee may consider any and all factors it considers relevant or appropriate, and designation
of a participant in any year does not require the Committee to designate that person to receive an award in any
other year. As of the record date, 439,000 employees, 19 officers, 11 non-employee directors, and no consultants
or advisors are eligible to participate in the Plan.

Awards

The types of awards available under the 2019 Plan include stock options (both incentive and non-qualified),

share appreciation rights, restricted stock awards, restricted stock units (including performance units), cash
incentive awards and share awards. All awards granted to participants under the 2019 Plan will be represented by
an award agreement. No award granted to participants under the 2019 Plan may vest prior to the one year
anniversary of such award’s date of grant (except for awards in respect of up to 5% of the share reserve of the
2019 Plan, and awards that vest upon the death or disability of the participant, or upon a change in control (to the
extent that awards are not continued, assumed or substituted, or upon a qualifying termination of service following
such change in control, as described below)).

Stock Options

A stock option grant entitles a participant to purchase a specified number of Company shares (the ‘‘Shares’’)

during a specified term (with a maximum term of 10 years) at an exercise price that will not be less than the fair
market value of a Share as of the date of grant.

Subject to the minimum vesting requirements described above, the Committee will determine the requirements

for vesting and exercisability of the stock options, which may be based on the continued employment or service of
the participant with the Company for a specified time period, upon the attainment of performance goals or both. The
stock options may terminate prior to the end of the term or vesting date upon termination of employment or service
(or for any other reason), as determined by the Committee. No dividends or dividend equivalent rights will be paid
or granted with respect to stock options. Unless approved by the Company’s shareholders, the Committee may not
take any action with respect to a stock option that would be treated as a ‘‘repricing’’ under the then applicable rules,
regulations or listing requirements of the stock exchange on which Shares are listed.

Stock options granted under the 2019 Plan are either non-qualified stock options or incentive stock options

(with incentive stock options intended to meet the applicable requirements under the Code). Stock options are
nontransferable except in limited circumstances.

Share Appreciation Rights

A share appreciation right (SAR) granted under the 2019 Plan will give the participant a right to receive, upon
exercise or other payment of the SAR, an amount in cash, Shares or a combination of both equal to the excess of
(a) the fair market value of a Share on the date of exercise over (b) the base price of the SAR that the Committee
specified on the date of the grant. The base price of a SAR will not be less than the fair market value of a Share as
of the date of grant. The right of exercise in connection with a SAR may be made by the participant or automatically
upon a specified date or event. SARs are non-transferable, except in limited circumstances.

Subject to the minimum vesting requirements described above, the Committee will determine the requirements

for vesting and exercisability of the SARs, which may be based on the continued employment or service of the
participant with the Company for a specified time period or upon the attainment of specific performance goals. The

SARs may be terminated prior to the end of the term (with a maximum term of 10 years) upon termination of
employment or service, as determined by the Committee. No dividends or dividend equivalent rights will be paid or
granted with respect to SARs. Unless approved by the Company’s shareholders, the Committee may not take any
action with respect to a SAR that would be treated as a ‘‘repricing’’ under the then applicable rules, regulations or
listing requirements of the stock exchange on which Shares are listed.

Restricted Stock Awards

A restricted stock award is a grant of a specified number of Shares to a participant, which restrictions will lapse

upon the terms that the Committee determines at the time of grant. Subject to the minimum vesting requirements
described above, the Committee will determine the requirements for the lapse of the restrictions for the restricted
stock awards, which may be based on the continued employment or service of the participant with the Company
over a specified time period, upon the attainment of performance goals, or both.

The participant will have the rights of a shareholder with respect to the shares granted under a restricted stock

award, including the right to vote the shares and receive all dividends and other distributions with respect thereto,
unless the Committee determines otherwise to the extent permitted under applicable law. Any shares granted
under a restricted stock award are nontransferable, except in limited circumstances. A participant may make an
election under Section 83(b) of the Code for tax planning purposes.

Restricted Stock Units (including Performance Units)

A restricted stock unit or performance unit granted under the 2019 Plan will give the participant a right to
receive, upon vesting and settlement of the restricted stock units (commonly known as RSUs) or performance
units, one Share per vested unit or an amount per vested unit equal to the fair market value of one Share as of the
date of determination, or a combination thereof, at the discretion of the Committee. The Committee may grant
RSUs or performance units together with dividend equivalent rights (which will not be paid until the award vests),
and the holder of any RSUs or performance units will not have any rights as a shareholder, such as dividend or
voting rights, until the Shares underlying the RSUs or performance units are delivered.

Subject to the minimum vesting requirements described above, the Committee will determine the requirements
for vesting and payment of the RSUs and performance units, which may be based on the continued employment or
service of the participant with the Company for a specified time period and, for performance units, also upon the
attainment of specific performance goals. RSU and performance unit awards will be forfeited if the vesting
requirements are not satisfied. RSUs and performance units are nontransferable, except in limited circumstances.

Cash Incentive Awards

Cash incentive awards if granted under the 2019 Plan may be payable based on the achievement of business

and/or individual performance goals over a performance period, and may also be based on the continued
employment or service of a participant with the Company during the performance period, or such other conditions
as determined by the Committee. Cash incentive awards may be paid in any combination of cash or Shares, based
on the fair market value of such Shares at the time of payment. The Compensation Committee will determine the
requirements for vesting and payment of any cash incentive awards granted under the 2019 Plan.

Share Awards

Share awards may be granted to eligible participants under the 2019 Plan and consist of an award of Shares.

A share award may be granted for past employment or service, in lieu of bonus or other cash compensation, as
director’s compensation or any other purpose as determined by the Committee. Subject to the minimum vesting
requirements described above, the Committee will determine the requirements for the vesting and payment of the
share award, with the possibility that awards may be made with no vesting requirements. Upon receipt of the share
award, the participant will have all rights of a shareholder with respect to the Shares, including the right to vote and
receive dividends.

Performance-Based Compensation

All types of awards granted under the 2019 Plan may be granted with vesting, payment, lapse of restrictions

and/or exercisability requirements that are subject to the attainment of specific performance goals (with the
exception of cash incentive awards, which must be granted subject to the attainment of performance goals). The
Committee may adjust performance goals, or the manner of measurement thereof, as it deems appropriate.

Plan Amendments or Termination

The Board may amend, modify, suspend or terminate the 2019 Plan, provided that if such amendment,
modification, suspension or termination materially and adversely affects any award the Company must obtain the
affected participant’s consent. Certain amendments or modifications of the 2019 Plan may also be subject to the
approval of our shareholders as required by SEC and NYSE rules or applicable law.

Termination of Service

Awards under the 2019 plan may be subject to reduction, cancellation or forfeiture upon termination of service

or failure to meet applicable performance conditions or other vesting terms.

Under the 2019 Plan, unless an award agreement provides otherwise, if a participant’s employment or service
is terminated for cause, or if after termination the Committee determines that the participant engaged in an act that
falls within the definition of cause, or if after termination the participant engages in conduct that violates any
continuing obligation of the participant with respect to the Company, the Company may cancel, forfeit and/or recoup
any or all of that participant’s outstanding awards. In addition, if the Committee makes the determination above, the
Company may suspend the participant’s right to exercise any stock option or share appreciation right, receive any
payment or vest in any award pending a determination of whether the act falls within the definition of cause. The
2019 plan incorporates by reference the definition of cause from the KEPP. If a participant voluntarily terminates
employment or service in anticipation of an involuntary termination for cause, that shall be deemed a termination for
cause.

The Company has the right to recoup any gain realized by the participant from the exercise, vesting or
payment of any award if, within one year after such exercise, vesting or payment, the participant is terminated for
cause, the Committee determines the participant is subject to recoupment due to a clawback policy, or after the
participant’s termination the Committee determines that the participant engaged in an act that falls within the
definition of cause or materially violated any continuing obligation of the participant with respect to the Company.

Change in Control

Under the 2019 Plan, in the event of a change in control of the Company, as defined in the 2019 Plan, all

outstanding awards shall either (a) be continued or assumed by the surviving company or its parent, or
(b) substituted by the surviving company or its parent for awards, with substantially similar terms (with appropriate
adjustments to the type of consideration payable upon settlement, including conversion into the right to receive
securities, cash or a combination of both, and with appropriate adjustment of performance conditions or deemed
achieved of such conditions at the greater of the target level or actual performance, unless otherwise provided in
an award agreement).

Only to the extent that outstanding awards are not continued, assumed or substituted upon or following a

change in control, the Committee may, but is not obligated to, make adjustments to the terms and conditions of
outstanding awards, including without limitation (i) acceleration of exercisability, vesting and/or payment
immediately prior to or upon or following such event, (ii) upon written notice, providing that any outstanding stock
option and share appreciation right must be exercised during a period of time immediately prior to such event or
other period (contingent upon the consummation of such event), and at the end of such period, such stock options
and share appreciation rights shall terminate to the extent not so exercised, and (iii) cancellation of all or any
portion of outstanding awards for fair value (in the form of cash, Shares, other property or any combination of such
consideration), less any applicable exercise or base price.

Notwithstanding the foregoing, if a participant’s employment or service is terminated upon or within twenty four

(24) months following a change in control by the Company without cause or by the participant for good reason
(defined in the 2019 Plan by reference to the KEPP), the unvested portion (if any) of all outstanding awards held by
the participant will immediately vest (and, to the extent applicable, become exercisable) and be paid in full upon
such termination, with any performance conditions deemed achieved at the greater of the target level or actual
performance, unless otherwise provided in an award agreement.

Assumption of Awards in Connection with an Acquisition

The Committee may assume or substitute any previously granted awards of an employee, director or
consultant of another corporation who becomes eligible by reason of a corporate transaction. The terms of the
assumed award may vary from the terms and conditions otherwise required by the 2019 Plan if the Committee
deems it necessary. The assumed awards will not reduce the total number of shares available for awards under the
2019 Plan.

Shares Available

38,000,000 Shares are available for awards under the 2019 Plan.

Awards may also be made under the 2019 Plan with respect to an estimated 23,783,636 shares that, as of
April 23, 2019, remain available for grant under the 2014 Plan and the 2011 Plan, each of which has previously
been approved by our shareholders. In addition, if forfeited in accordance with their terms, a maximum of
26,311,950 shares previously granted under the 2014 Plan and the 2011 Plan may become available for awards
under the 2019 Plan. We refer to the aggregate number of shares available for awards under the 2019 Plan as the
‘‘share reserve.’’ Within the share reserve, a total of 10,000,000 Shares are available for awards of incentive stock
options.

If any award granted under the 2019 Plan is canceled, expired, forfeited, surrendered, settled by delivery of

fewer shares than the number underlying the award, or otherwise terminated without delivery of the Shares or
payment of consideration to the participant, then such shares will be returned to the 2019 Plan and be available for
future awards under the 2019 Plan. However, shares that are withheld from an award in payment of the exercise,
base or purchase price or taxes or not issued or delivered as a result of the net settlement of an outstanding stock
option, share appreciation right or other award will not be returned to the 2019 nor available for future awards under
the 2019 Plan.

The share reserve will be reduced by one share for each Share subject to a stock option or share appreciation

right, and by 2.83 shares for each Share subject to a restricted stock award, award of restricted stock units
(including performance units), or other share award. If a Share that was subject to an award that counted as one
share is returned to the share reserve, the share reserve will be credited with one share. If a Share that was
subject to an award that counts as 2.83 shares is returned to the share reserve, the share reserve will be credited
with 2.83 shares.

Adjustments

In the event of any recapitalization, reclassification, share dividend, extraordinary dividend, share split, reverse

share split, merger, reorganization, consolidation, combination, spin-off or other similar corporate event or
transaction affecting the common shares of the Company, the Committee will make equitable adjustments to (i) the
number and kind of Shares or other securities available for awards and covered by outstanding awards, (ii) the
exercise, base or purchase price, or other value determinations of outstanding awards, and/or (iii) any other terms
of an award affected by the corporate event.

Tax Consequences

Incentive Stock Options

An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise

of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their
shares within two years following the date the option was granted nor within one year following the exercise of the
option normally will recognize a capital gain or loss equal to the difference, if any, between the sale price and the
purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company
will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two
years after the date of grant or within one year after the date of exercise (a ‘‘disqualifying disposition’’), the
difference between the fair market value of the shares on the exercise date and the option exercise price (not to
exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained,
would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount
will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss.
Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should
be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by
applicable provisions of the Code.

The difference between the option exercise price and the fair market value of the shares on the exercise date

is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to
an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply
with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax
credits which may arise with respect to optionees subject to the alternative minimum tax.

Nonqualified Stock Options

Options not designated or qualifying as incentive stock options will be nonqualified stock options having no
special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option.
Upon exercise of a nonqualified stock option, the optionee normally recognizes ordinary income equal to the
amount that the fair market value of the shares on such date exceeds the exercise price. If the optionee is an
employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the
sale of shares acquired by the exercise of a nonqualified stock option, any gain or loss, based on the difference
between the sale price and the fair market value on the exercise date, will be taxed as capital gain or loss.

Share Appreciation Rights

In general, no taxable income is reportable when SARs are granted to a participant. Upon exercise, the
participant will recognize ordinary income in an amount equal to the fair market value of any cash or shares
received. If the participant is an employee, such ordinary income generally is subject to withholding of income and
employment taxes. Any additional gain or loss recognized upon any later disposition of the shares would be capital
gain or loss.

Restricted Stock Awards

A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value

of the shares on the vesting date. If the participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The participant may elect, pursuant to Section 83(b) of the Code, to
accelerate the ordinary income tax event to the date of acquisition by filing an election with the Internal Revenue
Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to
a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value
on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Restricted Stock Unit Awards (including Performance Unit Awards)

There are no immediate tax consequences of receiving an award of RSUs or performance units. A participant

who is awarded RSUs or performance units will be required to recognize ordinary income in an amount equal to the
fair market value of shares issued to such participant at the end of the applicable vesting period or, if later, the
settlement date elected by the Committee or a participant. If the participant is an employee, such ordinary income
generally is subject to withholding of income and employment taxes. Any additional gain or loss recognized upon
any later disposition of any shares received would be capital gain or loss.

Cash Incentive Awards

A participant generally will recognize no income upon the grant of a performance cash incentive award. Upon

the settlement of such award, participants normally will recognize ordinary income in the year of receipt in an
amount equal to the cash received and the fair market value of any unrestricted shares received. If the participant
is an employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon
the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair
market value on the date the ordinary income tax event occurs, will be taxed as capital gain or loss.

Share Awards

A participant acquiring unrestricted shares generally will recognize ordinary income equal to the fair market
value of the shares on the grant date. If the participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of unrestricted shares acquired pursuant to a share
award, any gain or loss, based on the difference between the sale price and the fair market value on the date the
shares are granted, will be taxed as capital gain or loss.

Section 409A

Section 409A provides certain requirements for non-qualified deferred compensation arrangements with
respect to an individual’s deferral and distribution elections and permissible distribution events. Certain types of
awards granted under the 2019 Plan may be subject to the requirements of Section 409A. It is intended that the
2019 Plan and all awards comply with, or be exempt from, the requirements of Section 409A. If an award is subject
to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income
on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation is
actually or constructively received. Also, if an award that is subject to Section 409A fails to comply with
Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation
recognized as ordinary income, as well as interest on such deferred compensation.

Tax Effect for the Company

The Company generally will be entitled to a tax deduction in connection with an award under the 2019 Plan in

an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such
income (for example, the exercise of a nonqualified stock option). Special rules limit the deductibility of
compensation paid to our chief executive officer, chief financial officer and the other ‘‘covered employees’’ as
determined under Section 162(m) of the Code and applicable guidance. Under Section 162(m), the annual
compensation paid to any of these covered employees, including awards that Kroger grants pursuant to the
2019 Plan, whether performance-based or otherwise, will be subject to the $1 million annual deduction limitation.
Because of the elimination of the performance-based compensation exemption, it is possible that all or a portion of
the compensation paid to covered employees in the form of equity grants under the 2019 Plan may not be
deductible by the Company, to the extent that the annual deduction limitation is exceeded.

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON

PARTICIPANTS AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE 2019 PLAN. IT DOES NOT
PURPORT TO BE COMPLETE AND DOES NOT DISCUSS THE IMPACT OF EMPLOYMENT OR OTHER TAX
REQUIREMENTS, THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH, OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE, OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT
MAY RESIDE.

New Plan Benefits

The issuance of any awards under the 2019 Plan will be at the discretion of the Committee. In addition, the
benefit of any awards granted under the 2019 Plan will depend on a number of factors, including the fair market
value of Company shares on future dates, and actual Company performance against performance goals
established with respect to performance awards, among other things. Therefore, it is not possible to determine the
amount or form of any award that will be granted to any individual in the future. For information regarding awards
granted to our NEOs under the 2014 Plan during the 2018 fiscal year, please refer to the Grants of Plan-Based
Awards table on page 38 made to our NEOs in fiscal 2018.

Equity Compensation Plan Information

The following table provides information regarding shares outstanding and available for issuance under our

existing equity compensation plans, effective as of February 2, 2019.

Plan Category

Equity compensation plans approved by

security holders

Equity compensation plans not approved

by security holders

Total

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)

Weighted average
exercise price of
outstanding
options, warrants
and rights(1)

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

36,526,924

—

36,526,924

$23.42

—

$23.42

28,386,544

—

28,386,544

(1) The total number of securities reported includes the maximum number of common shares, 2,378,494, that may
be issued under performance units granted under our long-term incentive plans. The nature of the awards is
more particularly described in the Compensation Discussion and Analysis section of this proxy statement. The
weighted-average exercise price in column (b) does not take these performance unit awards into account.
Based on historical data, or in the case of the awards made in 2016 through 2018 and earned in 2018 the
actual payout percentage, our best estimate of the number of common shares that will be issued under the
performance unit grants is approximately 2,379,302.

Equity Compensation Plan Information as of April 23, 2019

The information included in this Proxy Statement and our Annual Report on Form 10-K for the fiscal year
ending February 2, 2019 is updated by the following information regarding all existing equity compensation plans
as of April 23, 2019:

•

Total number of stock options outstanding: 35,698,349

• Weighted-average exercise price of stock options outstanding: $23.57

• Weighted-average remaining contractual term of stock options outstanding: 5.88 years

•

Total number of full value awards outstanding (including performance units): 12,454,058

Total number of shares of common stock outstanding: 798,429,109

Total number of shares that were available for grant under the 2014 Plan: 13,012,884 (12,490,005
options, 522,879 restricted)

Total number of shares that were available for grant under the 2011 Plan: 10,770,752 (7,305,393 options,
3,465,359 restricted)

Additional Information

For further discussion of our compensation program and the long-term incentive awards granted under our
incentive plans, see ‘‘Compensation Discussion & Analysis’’ and the discussion of ‘‘Long-Term Compensation’’
therein.

The Board of Directors Recommends a Vote For This Proposal.

Item No. 4, Vote to Approve Amendment to Regulations to Permit Board Amendments in
Accordance with Ohio Law

Under this Item No. 4, we are asking our shareholders to approve an amendment to our Regulations
allowing the Board of Directors to adopt amendments to the Regulations to the extent permitted by Ohio
law. Our Regulations currently require our shareholders to adopt all amendments.

We also asked shareholders to approve this proposal at our 2018 Annual Meeting. We received the

overwhelming support of 97% of our shareholders that voted on the proposal. However, the proposal requires the
affirmative vote of 75% of outstanding shares, rather than of shares voted. We received the support of 73% of our
outstanding shares falling just short of the 75% necessary that must support the proposal for the proposal to pass.
Because of the overwhelming support, this year we are again requesting that our shareholders afford us the
flexibility that many other Ohio public companies have to more efficiently oversee the company’s governance by
giving our Board the ability to amend our Regulations in certain circumstances.

The text of the revised Article VII of our Regulations, with the additional text proposed by the amendment

indicated by underlining is set forth below. The following discussion is qualified in its entirety by reference to the
proposed text of the amendment below.

Like many Ohio companies that have also amended their regulations to permit amendments by their boards of

directors, we are asking our shareholders to approve Item No. 4 in light of the following:

• Many jurisdictions, such as Delaware, have historically allowed the directors of a corporation to amend the

corporation’s bylaws (the Delaware equivalent of Ohio’s regulations) without shareholder approval.

•

Since 2006, Ohio law provides Ohio corporations with flexibility similar to Delaware corporations, to make
certain amendments to their regulations without shareholder approval, if the authority is provided in the
corporation’s articles of incorporation or regulations, subject to statutory limitations that prohibit directors
from amending the regulations in a way that affects important rights that Ohio law reserves for
shareholders.

Giving this flexibility to our Board of Directors would enable them efficiently and cost-effectively streamline
and improve the Regulations as needed in the future and also to quickly adapt them to changes in state
law or governance trends, such as adopting or amending proxy access provisions or adopting modern
provisions regarding electronic notice and actions.

Even if this Item No. 4 is approved, under Ohio law, only our shareholders would be able to make the following

amendments to our Regulations:

•

changing the percentage of common shares needed to call a special shareholders’ meeting;

changing the length of the time period required for notice of shareholders’ meetings;

changing the requirement for a quorum at shareholders’ meetings;

prohibiting shareholder or director actions from being authorized or taken without a meeting;

defining terms of office for directors or providing for classification of directors;

requiring greater than a majority vote of shareholders to remove directors without cause;

changing the requirements for a quorum at directors’ meetings or the required vote for an action of the
directors; or

including a requirement that a control share acquisition of the corporation be approved by the
corporation’s shareholders.

Accordingly, if shareholders approve Item No. 4:

•

Article VII of our Regulations would be revised to allow the Board of Directors to amend our Regulations in
the future to the extent permitted by Ohio law, which authority could not be delegated to a committee of
the Board of Directors; and; and

the Board would be able to amend, repeal and adopt new regulations to implement ministerial and other
changes to our Regulations, other than with respect to the matters reserved for shareholders under Ohio
law, including as set forth above, without the time-consuming and expensive process of seeking
shareholder approval.

The amendment also clarifies that the power to amend the Regulations, whether exercised by the Board or

shareholders, includes the power to adopt new regulations.

If Item No. 4 is approved, we would promptly notify shareholders of any amendments to our Regulations made

by the Board of Directors either by filing a report with the SEC or by sending a notice to shareholders of record as
of the date of the adoption of the amendment. Our shareholders would continue to be able to adopt, amend and
repeal the Regulations without action by the Board and, therefore, to change any amendment made by the Board
of Directors should they determine that to be appropriate.

The actual text of the revised Article VII of our Regulations, with changes indicated by underlining, is set forth

below. The amendment would become effective at the time of the shareholder vote.

ARTICLE VII

Amendment of Regulations

These regulations may be amended or repealed or new regulations may be adopted
(A) at any meeting of the shareholders called for that purpose or without such meeting by
the affirmative vote or consent of the holders of record of shares entitling them to exercise a
majority of the voting power on such proposal except that the affirmative vote or consent of
the holders of record of shares entitling them to exercise 75% of the voting power on such
proposal shall be required to amend, alter, change or repeal Sections 1 or 5 of Article II or
this Article VII, or to amend, alter, change or repeal these regulations in any way inconsistent
with the intent of the foregoing provisions, or (B) by the board of Directors to the extent
permitted by the Ohio Revised Code.

The Board of Directors Recommends a Vote For This Proposal.

Item No. 5 Ratification of the Appointment of Kroger’s Independent Auditor

You are being asked to ratify the appointment of Kroger’s independent auditor, PricewaterhouseCoopers
LLC. The Board of Directors recommends that you vote FOR the ratification of PricewaterhouseCoopers
LLP as our independent registered public accounting firm.

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight

responsibilities regarding the Company’s financial reporting and accounting practices including the integrity of the
Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the
independent public accountants’ qualifications and independence; the performance of the Company’s internal audit
function and independent public accountants; and the preparation of the Audit Committee Report. The Audit
Committee performs this work pursuant to a written charter approved by the Board of Directors. The Audit
Committee charter most recently was revised during fiscal 2012 and is available on the Company’s website at
ir.kroger.com under Investors – Governance – Committee Composition. The Audit Committee has implemented
procedures to assist it during the course of each fiscal year in devoting the attention that is necessary and
appropriate to each of the matters assigned to it under the Audit Committee’s charter. The Audit Committee held
5 meetings during fiscal year 2018.

Selection of Independent Auditor

The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation,
retention, and oversight of Kroger’s independent auditor, as required by law and by applicable NYSE rules. On
March 13, 2019, the Audit Committee appointed PricewaterhouseCoopers LLP as Kroger’s independent auditor for
the fiscal year ending February 1, 2020. PricewaterhouseCoopers LLP or its predecessor firm has been the
Company’s independent auditor since 1929.

In determining whether to reappoint the independent auditor, our Audit Committee:

•

Reviews PricewaterhouseCoopers LLP’s independence and performance;

Considers the tenure of the independent registered public accounting firm and safeguards around auditor
independence;

Reviews, in advance, all non-audit services provided by PricewaterhouseCoopers LLP, specifically with
regard to the effect on the firm’s independence;

Conducts an annual assessment of PricewaterhouseCoopers LLP’s performance, including an internal
survey of their service quality by members of management and the Audit Committee;

Conducts regular executive sessions with PricewaterhouseCoopers LLP;

Conducts regular executive sessions with the Vice President of Internal Audit;

Considers PricewaterhouseCoopers LLP’s familiarity with our operations, businesses, accounting policies
and practices and internal control over financial reporting;

Reviews candidates for the lead engagement partner in conjunction with the mandated rotation of the
public accountants’ lead engagement partner;

•

Reviews recent Public Company Accounting Oversight Board reports on PricewaterhouseCoopers LLP
and its peer firms; and

Obtains and reviews a report from PricewaterhouseCoopers LLP describing all relationships between the
independent auditor and Kroger at least annually to assess the independence of the internal auditor.

As a result, the members of the Audit Committee believe that the continued retention of

PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm is in the best interests
of our company and its shareholders.

While shareholder ratification of the selection of PricewaterhouseCoopers LLP as our independent auditor is

not required by Kroger’s Regulations or otherwise, the Board of Directors is submitting the selection of
PricewaterhouseCoopers LLP to shareholders for ratification, as it has in past years, as a good corporate
governance practice. If the shareholders fail to ratify the selection, the Audit Committee may, but is not required to,
reconsider whether to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may
direct the appointment of a different auditor at any time during the year if it determines that such a change would be
in the best interests of our company and our shareholders.

A representative of PricewaterhouseCoopers LLP is expected to be present at the meeting to respond to

appropriate questions and to make a statement if he or she desires to do so.

Audit and Non-Audit Fees

The following table presents the aggregate fees billed for professional services performed by

PricewaterhouseCoopers LLP for the annual audit and quarterly reviews of our consolidated financial statements
for fiscal 2018 and 2017, and for audit-related, tax and all other services performed in 2018 and 2017.

Audit Fees(1)

Audit-Related Fees

All Other Fees

Total

Fiscal Year Ended
February 2, 2019 February 3, 2018

$5,067,485

$1,110,870

900

$6,179,255

$5,193,565

$ 775,000

900

$5,969,465

(1)

Includes annual audit and quarterly reviews of Kroger’s consolidated financial statements, the issuance of
comfort letters to underwriters, consents, and assistance with review of documents filed with the SEC.

The Audit Committee requires that it approve in advance all audit and non-audit work performed by

PricewaterhouseCoopers LLP. In 2007, the Audit Committee adopted an audit and non-audit service pre-approval
policy. Pursuant to the terms of that policy, the Committee will annually pre-approve certain defined services that
are expected to be provided by the independent auditors. If it becomes appropriate during the year to engage the
independent accountant for additional services, the Audit Committee must first approve the specific services before
the independent accountant may perform the additional work.

PricewaterhouseCoopers LLP has advised the Audit Committee that neither the firm, nor any member of the

firm, has any financial interest, direct or indirect, in any capacity in Kroger or its subsidiaries.

The Board of Directors Recommends a Vote For This Proposal.

Audit Committee Report

Management of the Company is responsible for the preparation and presentation of the Company’s financial

statements, the Company’s accounting and financial reporting principles and internal controls, and procedures that
are designed to provide reasonable assurance regarding compliance with accounting standards and applicable
laws and regulations. The independent public accountants are responsible for auditing the Company’s financial
statements and expressing opinions as to the financial statements’ conformity with generally accepted accounting
principles and the effectiveness of the Company’s internal control over financial reporting.

In performing its functions, the Audit Committee:

• Met separately with the Company’s internal auditor and PricewaterhouseCoopers LLP with and without

management present to discuss the results of the audits, their evaluation and management’s assessment
of the effectiveness of Kroger’s internal controls over financial reporting and the overall quality of the
Company’s financial reporting;

• Met separately with the Company’s Chief Financial Officer or the Company’s General Counsel when

needed;

• Met regularly in executive sessions;

•

Reviewed and discussed with management the audited financial statements included in our Annual
Report;

Discussed with PricewaterhouseCoopers LLP the matters required to be discussed under the applicable
requirements of the Public Company Accounting Oversight Board; and

Received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the
applicable requirements of the Public Accounting Oversight Board regarding the independent public
accountant’s communication with the Audit Committee concerning independence and discussed with the
matters related to their independence.

Based upon the review and discussions described in this report, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report
on Form 10-K for the year ended February 2, 2019, as filed with the SEC.

This report is submitted by the Audit Committee.

Anne Gates, Chair
Ronald L. Sargent
Bobby S. Shackouls
Mark S. Sutton

Item No. 6 Shareholder Proposal – Recyclability of Packaging

We have been notified by one shareholder, the name and shareholdings of which will be furnished promptly to

any shareholder upon written or oral request to Kroger’s Secretary at our executive offices, that it intends to
propose the following resolution at the annual meeting:

‘‘WHEREAS: A portion of Kroger house brand product packaging is unrecyclable, including plastics, which are
a growing component of plastic pollution and marine litter. Authorities say that marine litter kills and injures marine
life, spreads toxics, and poses a potential threat to human health. The environmental cost of consumer plastic
products and packaging exceeds $139 billion annually, according to the American Chemistry Council.

Plastic is the fastest growing form of packaging; U.S. flexible plastic sales are estimated at $26 billion. Dried

fruit, frozen meat, cheese, and dog food are some of the Kroger house brand items packaged in unrecyclable
plastic pouches. Private label items account for a quarter of all sales – nearly $20 billion annually. Using
unrecyclable packaging when recyclable alternatives are available wastes valuable resources. William McDonough,
a leading green design advisor, calls pouch packaging a ‘‘monstrous hybrid’’ designed to end up either in a landfill
or incinerator.

Recyclability of household packaging is a growing area of focus as consumers become more environmentally

conscious, yet recycling rates stagnate. Only 14% of plastic packaging is recycled, according to the U.S.
Environmental Protection Agency (EPA). Billions of pouches and similar multi-layer plastic laminates lie buried in
landfills. Unrecyclable packaging is more likely to be littered and swept into waterways. An assessment of marine
debris by the Global Environment Facility concluded that one cause of debris entering oceans is ‘‘design and
marketing of products internationally without appropriate regard to their environmental fate or ability to be
recycled…’’

In the marine environment, plastics break down into indigestible particles that marine life mistake for food.
Studies by the EPA suggest a synergistic effect between plastic debris and persistent, bio-accumulative, toxic
chemicals. Plastics absorb toxics such as polychlorinated biphenyls and dioxins from water or sediment and
transfer them to the marine food web and potentially to human diets. If no actions are taken, oceans are expected
to contain more plastic than fish by 2050!

Making all packaging recyclable, if possible, is the first step needed to reduce the threat posed by plastic
pollution. Better management of plastic could save consumer goods companies $4 billion a year. Companies who
aspire to corporate sustainability yet use these risky materials need to explain why they use unrecyclable
packaging.

Other companies who manufacture and sell food and household goods are moving towards recyclability.
Kroger is lagging behind competitors. Our direct grocery competitors Walmart and Target have both agreed to
make their packaging recyclable by 2025. Colgate-Palmolive, PepsiCo, Procter & Gamble, and Unilever have also
developed packaging recyclability goals.

RESOLVED: Shareowners of Kroger request that the board of directors issue a report, at reasonable cost,
omitting confidential information, assessing the environmental impacts of continuing to use unrecyclable brand
packaging.

Supporting Statement: Proponents believe that the report should include an assessment of the reputational,

financial and operational risks associated with continuing to use unrecyclable brand packaging and, if possible,
goals and a timeline to phase out unrecyclable packaging.’’

The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:

Kroger is committed to advancing sustainability in the area of packaging sustainability as part of our
2020 Sustainability Goals and our Zero Hunger | Zero Waste social impact plan. We agree that improving the
recyclability of product packaging is needed to reduce the environmental impacts of plastic pollution.

Our Commitments

A few years ago, Kroger introduced our 2020 Sustainability Goals, which include several targets to optimize

Our Brands product packaging. These include improving the recyclability of plastic packaging and achieving
20% recycled content in packaging for Kroger manufactured products – which also helps drive demand for recycled
materials. In addition, we pledged to increase communication with our customers about recyclability and help
expand recycling infrastructure because we can not solve this problem alone. We committed to increase
responsible fiber sourcing in paper packaging. And finally, we committed to reduce plastic in Our Brands packaging
by 10 million pounds.

By the end of 2018, we had achieved more than 9 million pounds of reduced plastic in our manufactured
plastic packaging since our 2015 baseline, in large part thanks to converting 8 more dairy plants to our lighter-
weight milk jug, which is 10% lighter than our previous jug. We are in process of analyzing and calculating the
recycled content and certified responsibly grown fiber proportion of our packaging footprint. We continue to add
‘Please Recycle’ to relevant packages, and we are working across relevant business units and with input from our
suppliers to evaluate meaningful opportunities to add and increase recycled content in our packaging as well as
move to more recyclable packaging materials and designs. And finally, we offer our customers an in-store recycling
program through which they can drop plastic film packaging such as shopping bags, bread and produce bags and
bottled water case wraps, in our store lobbies.

The detailed packaging optimization goals for 2020 and an update on our progress can be found at

http://sustainability.kroger.com/2020-goals.html.

Looking Ahead

As we approach 2020, we recognize the need to consider the next generation of packaging goals for Kroger,

and we want to share our plans for 2019 that will inform this work. We will:

1) Track and share progress on Kroger’s current packaging targets in our 2019 Sustainability Report, to be

published mid-year.

2) Conduct an analysis of Our Brands products to fully understand the current state of packaging recyclability
across the portfolio. These findings will help us identify key opportunity areas and set priorities for future
packaging improvements. Kroger will share high-level findings from this analysis in our 2020 Sustainability
Report.

3) Evaluate multi-stakeholder initiatives focused on improving recycling accessibility and infrastructure and

identify opportunities for Kroger to participate and support.

Join the How2Recycle product labeling program to support our recyclability assessment and improve
communication with customers about how to recycle Our Brands packaging.

5) Set a time-bound target to increase recyclability of Our Brands packaging using findings from the analysis

above and other benchmarking.

We believe our current packaging sustainability commitments, as well as the additional steps we have outlined

for 2019, address the primary objectives outlined in the shareholder proposal.

As a result, we urge you to support these efforts and vote AGAINST this proposal.

Item No. 7 Shareholder Proposal – Independent Chairman

We have been notified by several shareholders, the name and shareholdings of which will be furnished

promptly to any shareholder upon written or oral request to Kroger’s Secretary at our executive offices, that it
intends to propose the following resolution at the annual meeting:

‘‘RESOLVED: Shareowners of The Kroger Co. (‘‘Kroger’’) ask the Board of Directors to adopt a policy, and
amend the bylaws as necessary, to require the Chair of the Board to be an independent member of the Board. This
policy shall apply prospectively so as not to violate any contractual obligation. The policy should provide that (i) if
the Board determines that a Chair who was independent when selected is no longer independent, the Board shall
select a new Chair who satisfies the policy within 60 days of that determination; and (ii) compliance with this policy
is waived if no independent director is available and willing to serve as Chair.

SUPPORTING STATEMENT: Except for brief ‘‘apprenticeship’’ periods at the outset of their CEO service,
Kroger CEOs have also held the role of Board Chair for many decades. We believe the combination of these two
roles in a single person weakens a corporation’s governance, which can harm shareholder value. As Intel’s former
Chair Andrew Grove stated, ‘‘The separation of the two jobs goes to the heart of the conception of a corporation. Is
a company a sandbox for the CEO, or is the CEO an employee? If he’s an employee, he needs a boss, and that
boss is the board. The chairman runs the board. How can the CEO be his own boss?’’

In our view, shareholder value is enhanced by an independent Board Chair who can provide a balance of
power between the CEO and the Board and support strong Board oversight. Proxy advisor Glass Lewis opined in a
2016 report that ‘‘shareholders are better served when the board is led by an independent Chairman who we

believe is better able to oversee the executives of the Company and set a pro-shareholder agenda without the
management conflicts that exist when a CEO or other executive also serves as Chairman.1’’

An independent Board Chair has been found in academic studies to improve the performance of public
companies, although evidence overall is inconclusive. While separating the roles of Chair and CEO is the norm in
Europe, 50% of S&P 500 company boards have also implemented this best practice.2

We believe that independent Board leadership would be particularly useful at Kroger in providing more robust

oversight regarding sustainability issues. We agree with the recent observations by State Street Global Advisors’
CEO that ‘‘a long-term horizon requires a focus on sustainability’’ and that boards ‘‘are often better-equipped than
the day-to-day management to see these issues over longer time horizons.3’’

Kroger continues to risk its reputation by selling produce treated with neonicotinoids, a group of insecticides

highly toxic to bees. Kroger has refused to join the Fair Food Program to ensure equitable treatment of farm
workers. Kroger also faces reputational risk associated with its responses to the impacts of food production on
deforestation. Independent Board leadership would, we think, more likely result in improved policies and practices
to mitigate these business risks.

We urge shareholders to vote for this proposal.

The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons:

The Board believes it should have the ability to tailor its structure to Kroger’s needs at any time and that

Kroger’s Board is currently structured to provide the most effective leadership for our shareholders. Our
shareholders’ interests are best served when the company retains the flexibility to select the appropriate person to
serve in the Chairman’s role given the changing circumstances of the retail food marketplace, not by adopting a
rigid ‘‘one size fits all’’ approach.

Kroger has a balanced governance structure in which independent directors, including an independent Lead
Director, exercise meaningful and vigorous oversight. The Board recently appointed a new Lead Director, bringing a
fresh perspective to the role. Mr. Sargent previously served as Chairman and CEO of Staples and brings over
35 years of retail experience and a deep understanding of retail operations, consumer insights, and e-commerce to
the Board. Our strong independent Lead Director serves the same functions as a Chairman and provides the
safeguards that the proposal seeks.

Kroger’s independent Lead Director has a robust set of responsibilities that ensure a strong, independent and

active board that complements the Chairman’s role, which are addressed in detail in the Guidelines (available at
ir.kroger.com). The Lead Director serves a variety of roles, including:

•

Reviewing and approving all Board meeting agendas, meeting materials, and schedule;

Serving as a liaison between the Chairman and the independent directors;

Presiding at the regularly conducted executive sessions of independent directors and meetings of the
Board when the Chairman is not present;

Calling an executive session of the independent directors at any time; and

Serving as the Board’s representative for any consultation and direct communication if requested by major
shareholders.

While our current Chairman is also the CEO, this structure is a reflection of the Board’s current view that both

Kroger and our shareholders are best served by a combination of the roles at this time. Our CEO’s strong
background in finance, operations, and strategic partnerships are particularly important to the Board given Kroger’s
current transformation under the Restock Kroger plan. His consistent leadership, deep industry expertise, and
extensive knowledge of the Company are also especially critical in the midst of the rapidly evolving retail
landscape.

1 www.glasslewis.com/wp-content/uploads/2016/03/2016-In-Depth-Report-INDEPENDENT-BOARD-

CHAIRMAN.pdf

2 https://www.spencerstuart.com/-/media/2018/october/ssbi_2018.pdf
3 www.ssga.com/investment-topics/environmental-social-governance/2017 /long-term-value-begins-at-the-board-

eu. Pdf’’

The Board routinely reviews Kroger’s leadership structure, which includes a discussion of Kroger’s
performance, the impact that the leadership has on that performance, and the structure that best serves the
interests of shareholders. The Board will continue to regularly review Kroger’s leadership structure to ensure that
the structure best addresses Kroger’s evolving and dynamic business in consultation with our shareholders. The
Board believes that retaining the flexibility to determine which type of leadership structure is most effective for
Kroger’s specific circumstances is critical for the long-term success of our company.

Our strong governance practices ensure our Board’s independent leadership and oversight. The Board has
instituted structures and practices, in addition to the independent Lead Director, that create a balanced governance
system of independent and effective oversight, including:

•

all of Kroger’s Board members are independent, except for the CEO;

all members, including chairpersons, of each of the Board committees are independent;

the full Board of independent directors annually evaluate the CEO’s performance, led by the independent
Lead Director;

the full Board and each committee performs annual self-assessments;

the Board is committed to board refreshment and diversity; and

the Board and each of its committees have unfettered access to management and the authority to retain
independent advisors, as they deem appropriate.

For the foregoing reasons, we urge you to vote AGAINST this proposal.

Shareholder Proposals and Director Nominations – 2020 Annual Meeting

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, shareholder proposals
intended for inclusion in the proxy material relating to Kroger’s annual meeting of shareholders in June 2020 should
be addressed to Kroger’s Secretary and must be received at our executive offices not later than January 14, 2020.
These proposals must comply with Rule 14a-8 and the SEC’s proxy rules. If a shareholder submits a proposal
outside of Rule 14a-8 for the 2020 annual meeting and such proposal is not delivered within the time frame
specified in the Regulations, Kroger’s proxy may confer discretionary authority on persons being appointed as
proxies on behalf of Kroger to vote on such proposal.

In addition, Kroger’s Regulations contain an advance notice of shareholder business and director nominations
requirement, which generally prescribes the procedures that a shareholder of Kroger must follow if the shareholder
intends, at an annual meeting, to nominate a person for election to Kroger’s Board of Directors or to propose other
business to be considered by shareholders. These procedures include, among other things, that the shareholder
give timely notice to Kroger’s Secretary of the nomination or other proposed business, that the notice contain
specified information, and that the shareholder comply with certain other requirements. In order to be timely, this
notice must be delivered in writing to Kroger’s Secretary, at our principal executive offices, not later 45 calendar
days prior to the date on which our proxy statement for the prior year’s annual meeting of shareholders was mailed
to shareholders. If a shareholder’s nomination or proposal is not in compliance with the procedures set forth in the
Regulations, we may disregard such nomination or proposal. Accordingly, if a shareholder intends, at the 2020
annual meeting, to nominate a person for election to the Board of Directors or to propose other business, the
shareholder must deliver a notice of such nomination or proposal to Kroger’s Secretary not later than March 30,
2020 and comply with the requirements of the Regulations. Eligible shareholders can submit director nominees for
inclusion in our proxy statement for the 2020 annual meeting of shareholders. To be eligible, shareholders must
have owned at least three percent of our common shares for at least three years. Up to 20 shareholders will be
able to aggregate for this purpose. Nominations must be submitted to our Corporate Secretary at our principal
executive offices no earlier than December 15, 2019 and no later than January 14, 2020.

Shareholder proposals, director nominations, including, if applicable pursuant to proxy access, and advance notices

must be addressed in writing, and addressed and delivered timely to: Corporate Secretary, The Kroger Co., 1014 Vine
Street, Cincinnati, Ohio 45202-1100.

2018 Annual Report

Attached to this Proxy Statement is our 2018 Annual Report which includes a brief description of our business,

including the general scope and nature thereof during fiscal year 2018, together with the audited financial information
contained in our 2018 Annual Report on Form 10-K filed with the SEC. A copy of that report is available to shareholders
on request without charge by writing to: Carin Fike, Treasurer, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202
or by calling 513-762-1220. Our SEC filings are available to the public on the SEC’s website at www.sec.gov.

Householding of Proxy Materials

We have adopted a procedure approved by the SEC called ‘‘householding.’’ Under this procedure,
shareholders of record who have the same address and last name will receive only one copy of the Notice of
Availability of Proxy Materials (or proxy materials in the case of shareholders who receive paper copies of such
materials) unless one or more of these shareholders notifies us that they wish to continue receiving individual
copies. This procedure will reduce our printing costs and postage fees. Householding will not in any way affect
dividend check mailings.

If you are eligible for householding, but you and other shareholders of record with whom you share an address

currently receive multiple copies of our Notice of Availability of Proxy Materials (or proxy materials in the case of
shareholders who receive paper copies of such materials), or if you hold in more than one account, and in either
case you wish to receive only a single copy for your household or if you prefer to receive separate copies of our
documents in the future, please contact your bank or broker, or contact Kroger’s Secretary at 1014 Vine Street,
Cincinnati, Ohio 45202 or via telephone at 513-762-4000.

Beneficial shareholders can request information about householding from their banks, brokers or other holders

of record.

The management knows of no other matters that are to be presented at the meeting, but, if any should be

presented, the Proxy Committee expects to vote thereon according to its best judgment.

By order of the Board of Directors,
Christine S. Wheatley, Secretary

Appendix A

THE KROGER CO.

2019 LONG-TERM INCENTIVE PLAN

1. Purpose.

The purpose of The Kroger Co. 2019 Long-Term Incentive Plan is to further align the interests of eligible
participants with those of the Company’s shareholders by providing incentive compensation opportunities tied to
the performance of the Company and its Common Shares. The Plan is intended to advance the interests of the
Company and increase shareholder value by attracting, retaining and motivating key personnel upon whose
judgment, initiative and effort the successful conduct of the Company’s business is largely dependent.

2. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth

below:

‘‘Affiliate’’ means any Person directly or indirectly controlling, controlled by, or under common control with such

other Person.

‘‘Award’’ means an award of a Stock Option, Share Appreciation Right, Restricted Share Award, Restricted

Share Unit (including Performance Units), Cash Incentive Award or Share Award granted under the Plan.

‘‘Award Agreement’’ means a notice or an agreement entered into between the Company and a Participant

setting forth the terms and conditions of an Award granted to a Participant as provided in Section 16.2 hereof.

‘‘Beneficial Owner’’ has the meaning ascribed to such term in Rule 13d-3 under the Exchange Act.

‘‘Board’’ means the Board of Directors of the Company.

‘‘Cash Incentive Award’’ means an Award that is denominated by a cash amount to an Eligible Person under

Section 10 hereof and payable based on or conditioned upon the attainment of business and/or individual
performance goals over a specified performance period.

‘‘Cause’’ has the meaning set forth in the KEPP, unless otherwise defined in an Award Agreement.

‘‘Change in Control’’ has the meaning set forth in Section 12.4 hereof.

‘‘Code’’ means the Internal Revenue Code of 1986, as amended.

‘‘Committee’’ means (i) the Compensation and Talent Development Committee of the Board, (ii) such other

committee of the Board appointed by the Board to administer the Plan or (iii) the Board, as determined by the
Board.

‘‘Common Shares’’ means the Company’s common shares, par value $1.00 per share.

‘‘Company’’ means The Kroger Co., or any successor thereto.

‘‘Date of Grant’’ means the date on which an Award under the Plan is granted by the Committee or such later

date as the Committee may specify to be the effective date of an Award.

‘‘Disability’’ has the meaning set forth under the Company’s long-term disability plan. Notwithstanding the
foregoing, in any case in which a benefit that constitutes or includes ‘‘nonqualified deferred compensation’’ subject
to Section 409A would be payable by reason of Disability, the term ‘‘Disability’’ will mean a disability described in
Treasury Regulations Section 1.409A-3(i)(4)(i)(A).

‘‘Effective Date’’ has the meaning set forth in Section 17.1 hereof.

‘‘Eligible Person’’ means any person who is an officer, employee, Non-Employee Director, or any natural

person who is a consultant or advisor of the Company or any of its Subsidiaries.

‘‘Exchange Act’’ means the Securities Exchange Act of 1934, as amended, and the rules and regulations

promulgated thereunder, as the same may be amended from time to time.

‘‘Fair Market Value’’ means, as applied to a specific date, the price of a Common Share that is based on the
opening, closing, actual, high, low or average selling prices of a Common Share reported on any established stock
exchange or national market system including without limitation the New York Stock Exchange on the applicable
date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by

the Committee in its discretion. Unless the Committee determines otherwise or unless otherwise specified in an
Award Agreement, Fair Market Value shall be deemed to be equal to the closing price of a Common Share on the
most recent date on which Common Shares were publicly traded. Notwithstanding the foregoing, if the Common
Shares are not traded on any established stock exchange or national market system, Fair Market Value means the
price of a Common Share as established by the Committee acting in good faith based on a valuation method that is
consistent with the requirements of Section 409A of the Code and the regulations thereunder.

‘‘Good Reason’’ has the meaning set forth in the KEPP, as amended from time to time, unless otherwise

defined in an Award Agreement.

‘‘Incentive Stock Option’’ means a Stock Option granted under Section 6 hereof that is intended to meet the

requirements of Section 422 of the Code and the regulations thereunder.

‘‘KEPP’’ means The Kroger Co. Employee Protection Plan, as amended from time to time.

‘‘Non-Employee Director’’ means a member of the Board who is not an employee of the Company or any of its

Subsidiaries.

‘‘Nonqualified Stock Option’’ means a Stock Option granted under Section 6 hereof that is not an Incentive

Stock Option.

‘‘Participant’’ means any Eligible Person who holds an outstanding Award under the Plan.

‘‘Performance Unit’’ means a Restricted Share Unit that is subject to vesting based on the achievement, or the
level of achievement, during a specified performance period of one or more performance goals established by the
Committee.

‘‘Person’’ has the meaning set forth in Section 12.5 hereof.

‘‘Plan’’ means the Kroger Co. 2019 Long-Term Incentive Plan as set forth herein, effective as of the Effective

Date and as may be amended from time to time, as provided herein.

‘‘Restricted Share Award’’ means a grant of Common Shares to an Eligible Person under Section 8 hereof that

are issued subject to such vesting and transfer restrictions as the Committee shall determine, and such other
conditions, as are set forth in the Plan and the applicable Award Agreement.

‘‘Restricted Share Unit’’ means a contractual right granted to an Eligible Person under Section 9 hereof
representing notional unit interests equal in value to a Common Share to be paid or distributed at such times, and
subject to such conditions, as set forth in the Plan and the applicable Award Agreement.

‘‘Securities Act’’ means the Securities Act of 1933, as amended, and the rules and regulations promulgated

thereunder, as the same may be amended from time to time.

‘‘Service’’ means a Participant’s employment with the Company or any Subsidiary or a Participant’s service as
a Non-Employee Director, consultant or other service provider with the Company or any Subsidiary, as applicable.

‘‘Share Appreciation Right’’ means a contractual right granted to an Eligible Person under Section 7 hereof
entitling such Eligible Person to receive a payment, representing the excess of the Fair Market Value of a Common
Share over the base price per share of the right, at such time, and subject to such conditions, as are set forth in the
Plan and the applicable Award Agreement.

‘‘Share Awards’’ means a grant of Common Shares to an Eligible Person under Section 11 hereof.

‘‘Stock Option’’ means a contractual right granted to an Eligible Person under Section 6 hereof to purchase

Common Shares at such time and price, and subject to such conditions, as are set forth in the Plan and the
applicable Award Agreement.

‘‘Subsidiary’’ means an entity (whether or not a corporation) that is wholly or majority owned or controlled,
directly or indirectly, by the Company or any other Affiliate of the Company that is so designated, from time to time,
by the Committee, during the period of such Affiliated status; provided, however, that with respect to Incentive
Stock Options, the term ‘‘Subsidiary’’ shall include only an entity that qualifies under Section 424(f) of the Code as a
‘‘subsidiary corporation’’ with respect to the Company.

‘‘Treasury Regulations’’ means regulations promulgated by the United States Treasury Department.

Administration.

3.1 Committee Members. The Plan shall be administered by a Committee comprised of no fewer than two

members of the Board who are appointed by the Board to administer the Plan. To the extent deemed necessary by
the Board, each Committee member shall satisfy the requirements for (i) an ‘‘independent director’’ under rules
adopted by the New York Stock Exchange or other principal exchange on which the Common Shares are then
listed and (ii) a ‘‘nonemployee director’’ within the meaning of Rule 16b-3 under the Exchange Act. Notwithstanding
the foregoing, the mere fact that a Committee member shall fail to qualify under any of the foregoing requirements
shall not invalidate any Award made by the Committee which Award is otherwise validly made under the Plan. The
Board may exercise all powers of the Committee hereunder and may directly administer the Plan. Neither the
Company nor any member of the Board or Committee shall be liable for any action or determination made in good
faith by the Board or Committee with respect to the Plan or any Award thereunder.

3.2 Committee Authority. The Committee shall have all powers and discretion necessary or appropriate to

administer the Plan and to control its operation, including, but not limited to, the power to (i) determine the Eligible
Persons to whom Awards shall be granted under the Plan, (ii) prescribe the restrictions, terms and conditions of all
Awards, (iii) interpret the Plan and terms of the Awards, (iv) adopt rules for the administration, interpretation and
application of the Plan as are consistent therewith, and interpret, amend or revoke any such rules, (v) make all
determinations with respect to a Participant’s Service and the termination of such Service for purposes of any
Award, (vi) correct any defect(s) or omission(s) or reconcile any ambiguity(ies) or inconsistency(ies) in the Plan or
any Award thereunder, (vii) make all determinations it deems advisable for the administration of the Plan,
(viii) decide all disputes arising in connection with the Plan and to otherwise supervise the administration of the
Plan, (ix) subject to the terms of the Plan, amend the terms of an Award in any manner that is not inconsistent with
the Plan, (x) accelerate the vesting or, to the extent applicable, exercisability of any Award upon termination of
Service under certain circumstances, as set forth in the Award Agreement or otherwise, and (xi) adopt such
procedures, modifications or subplans as are necessary or appropriate to permit participation in the Plan by Eligible
Persons who are foreign nationals or employed outside of the United States. The Committee’s determinations
under the Plan need not be uniform and may be made by the Committee selectively among Participants and
Eligible Persons, whether or not such persons are similarly situated. The Committee shall, in its discretion, consider
such factors as it deems relevant in making its interpretations, determinations and actions under the Plan including,
without limitation, the recommendations or advice of any officer or employee of the Company or such attorneys,
consultants, accountants or other advisors as it may select. All interpretations, determinations, and actions by the
Committee shall be final, conclusive, and binding upon all parties.

3.3 Delegation of Authority. The Committee shall have the right, from time to time, to delegate in writing to

one or more officers of the Company the authority of the Committee to grant and determine the terms and
conditions of Awards granted under the Plan, subject to such limitations as the Committee shall determine. In no
event shall any such delegation of authority be permitted with respect to Awards granted to any member of the
Board or to any Eligible Person who is subject to Rule 16b-3 under the Exchange Act. The Committee shall also be
permitted to delegate, to any appropriate officer or employee of the Company, responsibility for performing certain
ministerial functions under the Plan. In the event that the Committee’s authority is delegated to officers or
employees in accordance with the foregoing, all provisions of the Plan relating to the Committee shall be
interpreted in a manner consistent with the foregoing by treating any such reference as a reference to such officer
or employee for such purpose. Any action undertaken in accordance with the Committee’s delegation of authority
hereunder shall have the same force and effect as if such action was undertaken directly by the Committee and
shall be deemed for all purposes of the Plan to have been taken by the Committee.

Shares Subject to the Plan.

4.1 Number of Shares Reserved. Subject to adjustment as provided in Section 4.4 hereof, the total number

of Common Shares that are reserved for issuance under the Plan (the ‘‘Share Reserve’’) shall equal 38,000,000,
plus (i) 23,783,636 Common Shares authorized for issuance but not yet issued under the Kroger Co. 2011 Long-
Term Incentive and Cash Bonus Plan (the ‘‘2011 Plan’’) and the Kroger Co. 2014 Long-Term Incentive and Cash
Bonus Plan (the ‘‘2014 Plan’’), and (ii) up to a maximum of 26,311,950 Common Shares subject to outstanding
awards under the 2011 Plan and the 2014 Plan that would have been available to be re-granted under the terms of
the 2011 Plan and the 2014 Plan, as applicable (including shares subject to cancelled or forfeited awards). Within
the Share Reserve, the total number of Common Shares available for issuance as Incentive Stock Options shall
equal 10,000,000. Each Common Share subject to an Award shall reduce the Share Reserve by the applicable
number of shares set forth in Section 4.3; provided, however, that Awards that are required to be paid in cash

pursuant to their terms shall not reduce the Share Reserve. Any Common Shares delivered under the Plan shall
consist of authorized and unissued shares or treasury shares.

4.2 Share Replenishment. To the extent that an Award granted under this Plan is canceled, expired,
forfeited, surrendered, settled by delivery of fewer Common Shares than the number underlying the Award, as
applicable, or otherwise terminated without delivery of the Common Shares or payment of consideration to the
Participant under the Plan, the Common Shares retained by or returned to the Company will (i) not be deemed to
have been delivered under the Plan, as applicable, (ii) be available for future Awards under the Plan, and
(iii) increase the Share Reserve by the applicable number of shares set forth in Section 4.3 for each share that is
retained by or returned to the Company. Notwithstanding the foregoing, Common Shares that are (a) withheld from
an Award in payment of the exercise, base or purchase price or taxes relating to such an Award or (b) not issued or
delivered as a result of the net settlement of an outstanding Stock Option, Share Appreciation Right or other Award
under the Plan, as applicable, will be deemed to have been delivered under the Plan and will not be available for
future Awards under the Plan.

4.3 Fungible Share Pool. Subject to adjustment under Section 4.4, any Award that is not a Full-Value Award

(as defined below) shall be counted against the Share Reserve as one share for each Common Share subject to
such Award and any Award that is a Full-Value Award shall be counted against the Share Reserve as 2.83 shares
for each Common Share subject to such Full-Value Award. ‘‘Full-Value Award’’ means any Restricted Share Award,
Award of Restricted Share Units (including Performance Units) or Share Award. To the extent a Common Share
that was subject to an Award that counted as one share is returned to the Share Reserve, the Share Reserve will
be credited with one share. To the extent that a Common Share that was subject to an Award that counts as
2.83 shares is returned to the Share Reserve, the Share Reserve will be credited with 2.83 shares.

4.4 Adjustments. If there shall occur any change with respect to the outstanding Common Shares by reason

of any recapitalization, reclassification, share dividend, extraordinary dividend, share split, reverse share split or
other distribution with respect to the Common Shares or any merger, reorganization, consolidation, combination,
spin-off or other corporate event or transaction or any other change affecting the Common Shares (other than
regular cash dividends to shareholders of the Company), the Committee shall, in the manner and to the extent it
considers appropriate and equitable to the Participants and consistent with the terms of the Plan, cause an
adjustment to be made to (i) the maximum number and kind of Common Shares provided in Section 4.1 hereof,
(ii) the number and kind of Common Shares, units or other securities or rights subject to then outstanding Awards,
(iii) the exercise, base or purchase price for each share or unit or other security or right subject to then outstanding
Awards, (iv) other value determinations applicable to the Plan and/or outstanding Awards, and/or (v) any other
terms of an Award that are affected by the event. Notwithstanding the foregoing, (a) any such adjustments shall, to
the extent necessary, be made in a manner consistent with the requirements of Section 409A of the Code and (b) in
the case of Incentive Stock Options, any such adjustments shall, to the extent practicable, be made in a manner
consistent with the requirements of Section 424(a) of the Code, unless otherwise determined by the Committee.

Eligibility and Awards.

5.1 Designation of Participants. Any Eligible Person may be selected by the Committee to receive an Award
and become a Participant. The Committee has the authority, in its discretion, to determine and designate from time
to time those Eligible Persons who are to be granted Awards, the types of Awards to be granted, the number of
Common Shares or units subject to Awards to be granted and the terms and conditions of such Awards consistent
with the terms of the Plan. In selecting Eligible Persons to be Participants, and in determining the type and amount
of Awards to be granted under the Plan, the Committee shall consider any and all factors that it deems relevant or
appropriate. Designation of a Participant in any year shall not require the Committee to designate such person to
receive an Award in any other year or, once designated, to receive the same type or amount of Award as granted to
such Participant in any other year.

5.2 Determination of Awards. The Committee shall determine the terms and conditions of all Awards granted
to Participants in accordance with its authority under Section 3.2 hereof. An Award may consist of one type of right
or benefit hereunder or of two or more such rights or benefits granted in tandem.

5.3 Award Agreements. Each Award granted to an Eligible Person shall be represented by an Award
Agreement. The terms of the Award, as determined by the Committee, will be set forth in the applicable Award
Agreement as described in Section 16.2 hereof.

5.4 Minimum Vesting Period. Notwithstanding anything in the Plan or any Award Agreement to the contrary,
no equity-based Award may vest in less than one (1) year from its Date of Grant, and no equity-based Award that
vests upon the attainment of performance goals shall have a performance period that is less than twelve (12)
months, in each case, except for (i) Awards in respect of up to 5% of the Share Reserve; and (ii) Awards that vest
upon the death or Disability of the Participant, or upon a Change in Control.

Stock Options.

6.1 Grant of Stock Options. A Stock Option may be granted to any Eligible Person selected by the

Committee, except that an Incentive Stock Option may only be granted to an Eligible Person satisfying the
conditions of Section 6.7(a) hereof. Each Stock Option shall be designated on the Date of Grant, in the discretion of
the Committee, as an Incentive Stock Option or as a Nonqualified Stock Option. All Stock Options granted under
the Plan are intended to comply with or be exempt from the requirements of Section 409A of the Code, to the
extent applicable.

6.2 Exercise Price. The exercise price per share of a Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of a Common Share on the Date of Grant. The Committee may in its
discretion specify an exercise price per share that is higher than the Fair Market Value of a Common Share on the
Date of Grant.

6.3 Vesting of Stock Options. Subject to Section 5.4, the Committee shall, in its discretion, prescribe in an
award agreement the time or times at which or the conditions upon which, a Stock Option or portion thereof shall
become vested and/or exercisable. The requirements for vesting and exercisability of a Stock Option may be based
on the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or
periods), on the attainment of a specified performance goal(s) and/or on such other terms and conditions as
approved by the Committee in its discretion. If the vesting requirements of a Stock Option are not satisfied, the
Award shall be forfeited.

6.4 Term of Stock Options. The Committee shall in its discretion prescribe in an Award Agreement the period

during which a vested Stock Option may be exercised; provided, however, that the maximum term of a Stock
Option shall be ten (10) years from the Date of Grant. The Committee may provide that a Stock Option will cease to
be exercisable upon or at the end of a specified time period following a termination of Service for any reason as set
forth in the Award Agreement or otherwise. A Stock Option may be earlier terminated as specified by the Committee
and set forth in an Award Agreement upon or following the termination of a Participant’s Service with the Company
or any Subsidiary, including by reason of voluntary resignation, death, Disability, termination for Cause or any other
reason. Subject to Section 409A of the Code and the provisions of this Section 6, the Committee may extend at any
time the period in which a Stock Option may be exercised.

6.5 Stock Option Exercise; Tax Withholding. Stock Options may be granted on a basis that allows for the

exercise of the right by the Participant, or that requires the Stock Options to be exercised or surrendered for
payment of the right upon a specified date or event. Subject to such terms and conditions as specified in an Award
Agreement (including applicable vesting requirements), a Stock Option may be exercised in whole or in part at any
time during the term thereof by notice in the form required by the Company, together with payment of the aggregate
exercise price and applicable withholding tax. Payment of the exercise price may be made: (i) in cash or by cash
equivalent acceptable to the Committee, or, (ii) to the extent permitted by the Committee in its sole discretion in an
Award Agreement or otherwise (A) in Common Shares valued at the Fair Market Value of such shares on the date
of exercise, (B) through an open-market, broker-assisted sales transaction pursuant to which the Company is
promptly delivered the amount of proceeds necessary to satisfy the exercise price, (C) by reducing the number of
Common Shares otherwise deliverable upon the exercise of the Stock Option by the number of Common Shares
having a Fair Market Value on the date of exercise equal to the exercise price, (D) by a combination of the methods
described above or (E) by such other method as may be approved by the Committee. In accordance with
Section 16.11 hereof, and in addition to and at the time of payment of the exercise price, the Participant shall pay to
the Company the full amount of any and all applicable income tax, employment tax and other amounts required to
be withheld in connection with such exercise, payable under such of the methods described above for the payment
of the exercise price as may be approved by the Committee and set forth in the Award Agreement.

6.6 Limited Transferability of Nonqualified Stock Options. All Stock Options shall be nontransferable except

(i) upon the Participant’s death, in accordance with Section 16.3 hereof or (ii) in the case of Nonqualified Stock
Options only, for the transfer of all or part of the Stock Option to a Participant’s ‘‘family member’’ (as defined for
purposes of the Form S-8 registration statement under the Securities Act), in each case as may be approved by the
Committee in its discretion at the time of proposed transfer. The transfer of a Nonqualified Stock Option may be

subject to such terms and conditions as the Committee may in its discretion impose from time to time. Subsequent
transfers of a Nonqualified Stock Option shall be prohibited other than in accordance with Section 16.3 hereof.

6.7 Additional Rules for Incentive Stock Options.

(a) Eligibility. An Incentive Stock Option may only be granted to an Eligible Person who is considered an

employee for purposes of Treasury Regulation Section 1.421-1(h) with respect to the Company or any
Subsidiary that qualifies as a ‘‘subsidiary corporation’’ with respect to the Company for purposes of
Section 424(f) of the Code.

(b) Annual Limits. No Incentive Stock Option shall be granted to a Participant as a result of which the

aggregate Fair Market Value (determined as of the Date of Grant) of the Common Shares with respect to
which incentive Stock Options under Section 422 of the Code are exercisable for the first time in any calendar
year under the Plan and any other Stock Option plans of the Company, would exceed $100,000, determined in
accordance with Section 422(d) of the Code. This limitation shall be applied by taking Stock Options into
account in the order in which granted. Any Stock Option grant that exceeds such limit shall be treated as a
Nonqualified Stock Option.

owns, either directly or indirectly (taking into account the attribution rules contained in Section 424(d) of the
Code), shares possessing more than ten percent (10%) of the total combined voting power of all classes of
shares of the Company or any Subsidiary, the exercise price shall not be less than one hundred ten percent
(110%) of the Fair Market Value of a Common Share on the Date of Grant and the maximum term shall be
five (5) years.

(d) Termination of Service. An Award of an Incentive Stock Option may provide that such Stock Option
may be exercised not later than (i) three (3) months following termination of Service of the Participant with the
Company and all Subsidiaries (other than as set forth in clause (ii) of this Section 6.7(d)) or (ii) one year
following termination of Service of the Participant with the Company and all Subsidiaries due to death or
permanent and total disability within the meaning of Section 22(e)(3) of the Code, in each case as and to the
extent determined by the Committee to comply with the requirements of Section 422 of the Code.

(e) Other Terms and Conditions; Nontransferability. Any Incentive Stock Option granted hereunder shall

contain such additional terms and conditions, not inconsistent with the terms of the Plan, as are deemed
necessary or desirable by the Committee, which terms, together with the terms of the Plan, shall be intended
and interpreted to cause such Incentive Stock Option to qualify as an ‘‘incentive stock option’’ under
Section 422 of the Code. A Stock Option that is granted as an Incentive Stock Option shall, to the extent it fails
to qualify as an ‘‘incentive stock option’’ under the Code, be treated as a Nonqualified Stock Option. An
Incentive Stock Option shall by its terms be nontransferable other than by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of a Participant only by such Participant.

(f) Disqualifying Dispositions. If Common Shares acquired by exercise of an Incentive Stock Option are

disposed of within two years following the Date of Grant or one year following the transfer of such shares to
the Participant upon exercise, the Participant shall, promptly following such disposition, notify the Company in
writing of the date and terms of such disposition and provide such other information regarding the disposition
as the Company may reasonably require.

6.8 Repricing Prohibited. Subject to the adjustment provisions contained in Section 4.4 hereof, without the

prior approval of the Company’s shareholders, neither the Committee nor the Board shall cancel a Stock Option
when the exercise price per share exceeds the Fair Market Value of one Common Share in exchange for cash or
another Award (other than in connection with a Change in Control) or cause the cancellation, substitution or
amendment of a Stock Option that would have the effect of reducing the exercise price of such a Stock Option
previously granted under the Plan or otherwise approve any modification to such a Stock Option, that would be
treated as a ‘‘repricing’’ under the then applicable rules, regulations or listing requirements adopted by the New
York Stock Exchange or other principal exchange on which the Common Shares are then listed.

6.9 Dividend Equivalent Rights. Dividends and dividend equivalent rights shall not be paid or granted with

respect to Stock Options.

6.10 No Rights as Shareholder. The Participant shall not have any rights as a shareholder with respect to

the shares underlying a Stock Option until such time as Common Shares are delivered to the Participant pursuant
to the terms of the Award Agreement.

Share Appreciation Rights.

7.1 Grant of Share Appreciation Rights. Share Appreciation Rights may be granted to any Eligible Person
selected by the Committee. Share Appreciation Rights may be granted on a basis that allows for the exercise of the
right by the Participant, or that provides for the automatic exercise or payment of the right upon a specified date or
event. Share Appreciation Rights shall be non-transferable, except as provided in Section 16.3 hereof. All Share
Appreciation Rights granted under the Plan are intended to comply with or otherwise be exempt from the
requirements of Section 409A of the Code, to the extent applicable.

7.2 Terms of Share Appreciation Rights. Subject to Section 5.4, the Committee shall in its discretion provide

in an Award Agreement the time or times at which or the conditions upon which, a Share Appreciation Right or
portion thereof shall become vested and/or exercisable. The requirements for vesting and exercisability of a Share
Appreciation Right may be based on the continued Service of a Participant with the Company or a Subsidiary for a
specified time period (or periods), on the attainment of a specified performance goal(s) and/or on such other terms
and conditions as approved by the Committee in its discretion. If the vesting requirements of a Share Appreciation
Right are not satisfied, the Award shall be forfeited. A Share Appreciation Right will be exercisable or payable at
such time or times as determined by the Committee; provided, however, that the maximum term of a Share
Appreciation Right shall be ten (10) years from the Date of Grant. The Committee may provide that a Share
Appreciation Right will cease to be exercisable upon or at the end of a period following a termination of Service for
any reason. The base price of a Share Appreciation Right shall be determined by the Committee in its discretion;
provided, however, that the base price per share shall not be less than one hundred percent (100%) of the Fair
Market Value of a Common Share on the Date of Grant.

7.3 Payment of Share Appreciation Rights. A Share Appreciation Right will entitle the holder, upon exercise
or other payment of the Share Appreciation Right, as applicable, to receive an amount determined by multiplying:
(i) the excess of the Fair Market Value of a Common Share on the date of exercise or payment of the Share
Appreciation Right over the base price of such Share Appreciation Right, by (ii) the number of shares as to which
such Share Appreciation Right is exercised or paid. Payment of the amount determined under the foregoing may
be made, as approved by the Committee and set forth in the Award Agreement, in Common Shares valued at their
Fair Market Value on the date of exercise or payment, in cash or in a combination of Common Shares and cash,
subject to applicable tax withholding requirements.

7.4 Repricing Prohibited. Subject to the adjustment provisions contained in Section 4.4 hereof, without the

prior approval of the Company’s shareholders, neither the Committee nor the Board shall cancel a Share
Appreciation Right when the base price per share exceeds the Fair Market Value of one Common Share in
exchange for cash or another Award (other than in connection with a Change in Control) or cause the cancellation,
substitution or amendment of a Share Appreciation Right that would have the effect of reducing the base price of
such a Share Appreciation Right previously granted under the Plan or otherwise approve any modification to such
Share Appreciation Right that would be treated as a ‘‘repricing’’ under the then applicable rules, regulations or
listing requirements adopted by the New York Stock Exchange or other principal exchange on which the Common
Shares are then listed.

7.5 Dividend Equivalent Rights. Dividends and dividend equivalent rights shall not be paid or provided with

respect to Share Appreciation Rights.

7.6 Dividends shall not be paid with respect to Share Appreciation Rights. Dividend equivalent rights may be

granted with respect to the Common Shares subject to Share Appreciation Rights to the extent permitted by the
Committee and set forth in the Award Agreement. Any dividend equivalent rights accumulated with respect to a
Share Appreciation Right shall not be paid until, and only to the extent that, the Award vests, unless otherwise
provided in the Award Agreement. Dividend equivalent rights may be subject to forfeiture under the same
conditions as apply to the underlying Share Appreciation Rights.

Restricted Share Awards.

8.1 Grant of Restricted Share Awards. A Restricted Share Award may be granted to any Eligible Person

selected by the Committee.

8.2 Vesting Requirements. Subject to Section 5.4, the restrictions imposed on shares granted under a
Restricted Share Award shall lapse in accordance with the vesting requirements specified by the Committee in the
Award Agreement. The requirements for vesting of a Restricted Share Award may be based on the continued
Service of the Participant with the Company or a Subsidiary for a specified time period (or periods), on the
attainment of a specified performance goal(s) and/or on such other terms and conditions as approved by the

Committee in its discretion. If the vesting requirements of a Restricted Share Award are not satisfied, the Award
shall be forfeited and the Common Shares subject to the Award shall be returned to the Company.

8.3 Transfer Restrictions. Shares granted under any Restricted Share Award may not be transferred,
assigned or subject to any encumbrance, pledge or charge until all applicable restrictions are removed or have
expired, except as provided in Section 16.3 hereof. Failure to satisfy any applicable restrictions shall result in the
subject shares of the Restricted Share Award being forfeited and returned to the Company. The Committee may
require in an Award Agreement that certificates (if any) representing the shares granted under a Restricted Share
Award bear a legend making appropriate reference to the restrictions imposed, and that certificates (if any)
representing the shares granted or sold under a Restricted Share Award will remain in the physical custody of an
escrow holder until all restrictions are removed or have expired.

8.4 Rights as Shareholder. Subject to the foregoing provisions of this Section 8 and the applicable Award

Agreement, the Participant shall have all rights of a shareholder with respect to the shares granted to the
Participant under a Restricted Share Award, including the right to vote the shares and receive all dividends and
other distributions paid or made with respect thereto, unless the Committee determines otherwise at the time the
Restricted Share Award is granted.

8.5 Section 83(b) Election. If a Participant makes an election pursuant to Section 83(b) of the Code with
respect to a Restricted Share Award, the Participant shall file, within thirty (30) days following the Date of Grant, a
copy of such election with the Company and with the Internal Revenue Service, in accordance with the regulations
under Section 83 of the Code. The Committee may provide in an Award Agreement that the Restricted Share
Award is conditioned upon the Participant’s making or refraining from making an election with respect to the Award
under Section 83(b) of the Code.

9. Restricted Share Units (including Performance Units).

9.1 Grant of Restricted Share Units and Performance Units. A Restricted Share Unit or Performance Unit

may be granted to any Eligible Person selected by the Committee. The value of each Restricted Share Unit or
Performance Unit is equal to the Fair Market Value of a Common Share on the applicable date or time period of
determination, as specified by the Committee. Restricted Share Units and Performance Units shall be subject to
such restrictions and conditions as the Committee shall determine. Restricted Share Units and Performance Units
shall be non-transferable, except as provided in Section 16.3 hereof.

9.2 Vesting. The Subject to Section 5.4, the Committee shall, in its discretion, determine any vesting
requirements with respect to Restricted Share Units and Performance Units, which shall be set forth in the Award
Agreement. If the vesting requirements of a Restricted Share Unit Award or Performance Unit Award are not
satisfied, the Award shall be forfeited.

(a) Restricted Share Units. The requirements for vesting of a Restricted Share Unit may be based on

the continued Service of the Participant with the Company or a Subsidiary for a specified time period (or
periods) and/or on such other terms and conditions as approved by the Committee in its discretion.

(b) Performance Units. The requirements for vesting of a Performance Unit may be based on the

continued Service of the Participant with the Company or a Subsidiary for a specified time period (or periods),
on the attainment of a specified performance goal(s) and/or on such other terms and conditions as approved
by the Committee in its discretion.

9.3 Payment of Restricted Share Units and Performance Units. Restricted Share Units and Performance

Units shall become payable to a Participant at the time or times determined by the Committee and set forth in the
Award Agreement, which may be upon or following the vesting of the Award. Payment of a Restricted Share Unit or
Performance Unit may be made, as approved by the Committee and set forth in the Award Agreement, in cash or in
Common Shares or in a combination thereof, subject to applicable tax withholding requirements. Any cash payment
of a Restricted Share Unit or Performance Unit shall be made based upon the Fair Market Value of a Common
Share, determined on such date or over such time period as determined by the Committee.

9.4 Dividend Equivalent Rights. Restricted Share Units and Performance Units may be granted together with

a dividend equivalent right with respect to the Common Shares subject to the Award, which may be accumulated
and may be satisfied in additional Restricted Share Units and Performance Units that are subject to the same terms
and conditions of the applicable Restricted Share Units and Performance Units or may be accumulated in cash, as
determined by the Committee in its discretion. Any dividend equivalent rights accumulated with respect to a
Restricted Share Unit or Performance Unit shall not be paid until, and only to the extent that, the Award vests,

unless otherwise provided in the Award Agreement. Dividend equivalent rights may be subject to forfeiture under
the same conditions as apply to the underlying Restricted Share Units and Performance Units.

9.5 No Rights as Shareholder. The Participant shall not have any rights as a shareholder with respect to the
shares subject to a Restricted Share Unit or Performance Unit until such time as Common Shares are delivered to
the Participant pursuant to the terms of the Award Agreement.

10.

Cash Incentive Awards.

10.1 Grant of Cash Incentive Awards. A Cash Incentive Award may be granted to any Eligible Person

selected by the Committee. A Cash Incentive Award may be evidenced by an Award Agreement specifying the
performance period and such other terms and conditions as the Committee, in its discretion, shall determine. Cash
Incentive Awards shall be non-transferable, except as provided in Section 16.3 hereof.

10.2 Payment. Payment amounts may be based on the attainment of specified levels of performance goals,

including, if applicable, specified threshold, target and maximum performance levels, and performance falling
between such levels. The requirements for payment may be also based upon the continued Service of the
Participant with the Company or a Subsidiary during the respective performance period and on such other
conditions as determined by the Committee. The Committee shall determine the attainment of the performance
goals, the level of vesting or amount of payment to the Participant pursuant to Cash Incentive Awards, if any. Cash
Incentive Awards may be paid, at the discretion of the Committee, in any combination of cash or Common Shares,
based upon the Fair Market Value of such shares at the time of payment.

11.

Share Awards.

11.1 Grant of Share Awards. A Share Award may be granted to any Eligible Person selected by the
Committee. A Share Award may be granted for past Services, in lieu of bonus or other cash compensation, as
directors’ compensation or for any other valid purpose as determined by the Committee. The Committee shall
determine the terms and conditions of such Awards, and, subject to Section 5.4, the such Awards may be made
without vesting requirements. In addition, the Committee may, in connection with any Share Award, require the
payment of a specified purchase price.

11.2 Rights as Shareholder. Subject to the foregoing provisions of this Section 11 and the applicable Award

Agreement, upon the issuance of Common Shares under a Share Award the Participant shall have all rights of a
shareholder with respect to the Common Shares, including the right to vote the shares and receive all dividends
and other distributions paid or made with respect thereto.

12.

Change in Control.

12.1 Effect on Awards. Upon the occurrence of a Change in Control, all outstanding Awards shall either
(a) be continued or assumed by the Company (if it is the surviving company or corporation) or by the surviving
company or corporation or its parent (with such continuation or assumption including conversion into the right to
receive securities, cash or a combination of both), or (b) substituted by the surviving company or corporation or its
parent of awards (with such substitution including conversion into the right to receive securities, cash or a
combination of both), with substantially similar terms for outstanding Awards (with appropriate adjustments to the
type of consideration payable upon settlement of the Awards or other relevant factors, and with any applicable
performance conditions adjusted pursuant to Section 13 or deemed achieved at the greater of the target level or
actual performance, as determined by the Committee (with the Award remaining subject only to time vesting),
unless otherwise provided in an Award Agreement).

12.2 Certain Adjustments. To the extent that outstanding Awards are not continued, assumed or substituted
pursuant to Section 12.1 upon or following a Change in Control, the Committee is authorized (but not obligated) to
make adjustments in the terms and conditions of outstanding Awards, including without limitation the following (or
any combination thereof):

(a) acceleration of exercisability, vesting and/or payment under outstanding Awards immediately prior to

the occurrence of such event or upon or following such event;

(b) upon written notice, providing that any outstanding Stock Options and Share Appreciation Rights are

exercisable during a period of time immediately prior to the scheduled consummation of the event or such
other period as determined by the Committee (contingent upon the consummation of the event), and at the
end of such period, such Stock Options and Share Appreciation Rights shall terminate to the extent not so
exercised within the relevant period; and

(c)

cancellation of all or any portion of outstanding Awards for fair value (in the form of cash, Common

Shares, other property or any combination thereof) as determined in the sole discretion of the Committee;
provided, however, that, in the case of Stock Options and Share Appreciation Rights or similar Awards, the fair
value may equal the excess, if any, of the value or amount of the consideration to be paid in the Change in
Control transaction to holders of Common Shares (or, if no such consideration is paid, Fair Market Value of the
Common Shares) over the aggregate exercise or base price, as applicable, with respect to such Awards or
portion thereof being canceled, or if there is no such excess, zero; provided, further, that if any payments or
other consideration are deferred and/or contingent as a result of escrows, earn-outs, holdbacks or any other
contingencies, payments under this provision may be made on substantially the same terms and conditions
applicable to, and only to the extent actually paid to, the holders of Common Shares in connection with the
Change in Control.

12.3 Certain Terminations of Service. Notwithstanding the provisions of Section 12.1 and Section 12.2, if a
Participant’s Service with the Company and its Subsidiaries is terminated upon or within twenty four (24) months
following a Change in Control by the Company without Cause or by the Participant for Good Reason, the unvested
portion (if any) of all outstanding Awards held by the Participant shall immediately vest (and, to the extent
applicable, become exercisable) and be paid in full upon such termination, with any applicable performance
conditions deemed achieved at the greater of the target level or actual performance, as determined by the
Committee, unless otherwise provided in an Award Agreement.

12.4 Definition of Change in Control. Unless otherwise defined in an Award Agreement, ‘‘Change in Control’’

means, and shall be deemed to have occurred, if:

(a) any Person, excluding the Company, any of its Affiliates and any employee benefit plan of the
Company or any of its Affiliates, is or becomes the ‘‘beneficial owner’’ (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the
combined voting power of the then outstanding voting securities entitled to vote generally in the election of
directors;

(b) consummation of a reorganization, merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a ‘‘Business Combination’’), in each case, unless, following
such Business Combination, individuals and entities that were the beneficial owners of outstanding voting
securities entitled to vote generally in the election of directors of the Company immediately prior to such
Business Combination beneficially own, directly or indirectly, at least 60% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of directors resulting from such
Business Combination (including, without limitation, an entity which, as a result of such transaction, owns all or
substantially all of the Company or its assets either directly or through one or more Subsidiaries or Affiliates) in
substantially the same proportions as their ownership of such securities immediately prior to such Business
Combination;

(c) during any period of twenty-four (24) consecutive months, individuals who, at the beginning of such
period, constitute the Board (the ‘‘Incumbent Directors’’) cease for any reason (including without limitation, as a
result of a tender offer, proxy contest, merger or similar transaction) to constitute at least a majority thereof;
provided that, any individual becoming a director of the Company whose appointment or election by the Board
or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least
two-thirds of the Incumbent Directors shall also be considered an Incumbent Director; or

(d)

the consummation of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing, to the extent necessary to comply with Section 409A of the Code with respect to the
payment of ‘‘nonqualified deferred compensation,’’ ‘‘Change in Control’’ shall be limited to a ‘‘change in control
event’’ as defined under Section 409A of the Code.

12.5 Definition of Person. ‘‘Person’’ means an individual, corporation, partnership, association, trust,

unincorporated organization, limited liability company or other legal entity. All references to Person shall include an
individual Person or a group (as defined in Rule 13d-5 under the Exchange Act) of Persons.

13. Adjustment of Performance Goals. The Committee may provide for the performance goals to which an

Award is subject, or the manner in which performance will be measured against such performance goals, to be
adjusted in such manner as it deems appropriate, including, without limitation, adjustments to reflect charges for
restructurings, non-operating income, the impact of corporate transactions or discontinued operations, events that
are unusual in nature or infrequent in occurrence and other non-recurring items, currency fluctuations, litigation or

claim judgements, settlements, and the effects of accounting or tax law changes. In addition, with respect to a
Participant hired or promoted following the beginning of a performance period, the Committee may determine to
prorate the performance goals in respect of such Participant’s Awards for the partial performance period.

14.

Forfeiture Events.

14.1 General. The Committee may specify in an Award Agreement at the time of the Award that the

Participant’s rights, payments and benefits with respect to an Award are subject to reduction, cancellation, forfeiture
or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or
performance conditions of an Award. Such events may include, without limitation, termination of Service for Cause,
violation of laws, regulations or material Company policies, breach of noncompetition, non-solicitation,
confidentiality or other restrictive covenants that may apply to the Participant or other conduct by the Participant
that is detrimental to the business or reputation of the Company.

14.2 Termination for Cause; Treatment of Awards. Unless otherwise provided by the Committee and set forth

in an Award Agreement, if (i) a Participant’s Service with the Company or any Subsidiary shall be terminated for
Cause or (ii) after termination of Service for any other reason, the Committee determines in its discretion either
that, (1) during the Participant’s period of Service, the Participant engaged in an act or omission which would have
warranted termination of Service for Cause or (2) after termination, the Participant engages in conduct that violates
any continuing obligation or duty of the Participant in respect of the Company or any Subsidiary, such Participant’s
rights, payments and benefits with respect to an Award shall be subject to cancellation, forfeiture and/or
recoupment, as provided in Section 14.3 below. The Company shall have the power to determine whether the
Participant has been terminated for Cause, the date upon which such termination for Cause occurs, whether the
Participant engaged in an act or omission which would have warranted termination of Service for Cause or
engaged in conduct that violated any continuing obligation or duty of the Participant in respect of the Company or
any Subsidiary. Any such determination shall be final, conclusive and binding upon all persons. In addition, if the
Company shall reasonably determine that a Participant has committed or may have committed any act which could
constitute the basis for a termination of such Participant’s Service for Cause or violates any continuing obligation or
duty of the Participant in respect of the Company or any Subsidiary, the Company may suspend the Participant’s
rights to exercise any Stock Option or Share Appreciation Right, receive any payment or vest in any right with
respect to any Award pending a determination by the Company of whether an act or omission could constitute the
basis for a termination for Cause as provided in this Section 14.2.

14.3 Right of Recapture.

(a) General. If at any time within one (1) year (or such longer time specified in an Award Agreement or
other agreement with a Participant or policy applicable to the Participant) after the date on which a Participant
exercises a Stock Option or Share Appreciation Right or on which a Share Award, Restricted Share Award, or
Restricted Share Unit (including Performance Units) vests, is settled in shares or otherwise becomes payable
or on which a Cash Incentive Award is paid to a Participant, or on which income otherwise is realized or
property is received by a Participant in connection with an Award, (i) a Participant’s Service is terminated for
Cause, (ii) the Committee determines in its discretion that the Participant is subject to any recoupment of
benefits pursuant to the Company’s compensation recovery, ‘‘clawback’’ or similar policy, as may be in effect
from time to time, or (iii) after a Participant’s Service terminates for any other reason, the Committee
determines in its discretion either that, (1) during the Participant’s period of Service, the Participant engaged in
an act or omission which would have warranted termination of the Participant’s Service for Cause or (2) after a
Participant’s termination of Service, the Participant engaged in conduct that violated any continuing obligation
or duty of the Participant in respect of the Company or any Subsidiary, then, at the sole discretion of the
Committee, any gain realized by the Participant from the exercise, vesting, payment, settlement or other
realization of income or receipt of property by the Participant in connection with an Award, shall be repaid by
the Participant to the Company upon notice from the Company, subject to applicable law. Such gain shall be
determined as of the date or dates on which the gain is realized by the Participant, without regard to any
subsequent change in the Fair Market Value of a Common Share. To the extent not otherwise prohibited by
law, the Company shall have the right to offset the amount of such repayment obligation against any amounts
otherwise owed to the Participant by the Company (whether as wages, vacation pay or pursuant to any benefit
plan or other compensatory arrangement).

(b) Accounting Restatement. If a Participant receives compensation pursuant to an Award under the

Plan based on financial statements that are subsequently restated in a way that would decrease the value of
such compensation, the Participant will, to the extent not otherwise prohibited by law, upon the written request

of the Company, forfeit and repay to the Company the difference between what the Participant received and
what the Participant should have received based on the accounting restatement, in accordance with (i) any
compensation recovery, ‘‘clawback’’ or similar policy, as may be in effect from time to time to which such
Participant is subject and (ii) any compensation recovery, ‘‘clawback’’ or similar policy made applicable by law
including the provisions of Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
and the rules, regulations and requirements adopted thereunder by the Securities and Exchange Commission
and/or any national securities exchange on which the Company’s equity securities may be listed (the ‘‘Policy’’).
By accepting an Award hereunder, the Participant acknowledges and agrees that the Policy, whenever
adopted, shall apply to such Award, and all incentive-based compensation payable pursuant to such Award
shall be subject to forfeiture and repayment pursuant to the terms of the Policy.

15. Transfer, Leave of Absence, Etc. For purposes of the Plan, except as otherwise determined by the
Committee, the following events shall not be deemed a termination of Service: (a) a transfer to the service of the
Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an
approved leave of absence for military service or sickness, a leave of absence where the employee’s right to re-
employment is protected either by a statute or by contract or under the policy pursuant to which the leave of
absence was granted, a leave of absence for any other purpose approved by the Company or if the Committee
otherwise so provides in writing.

16. General Provisions.

16.1 Status of Plan. The Committee may authorize the creation of trusts or other arrangements to meet the

Company’s obligations to deliver Common Shares or make payments with respect to Awards.

16.2 Award Agreement. An Award under the Plan shall be evidenced by an Award Agreement in a written or
electronic form approved by the Committee setting forth the number of Common Shares, units, or other amounts or
securities subject to the Award, the exercise price, base price or purchase price of the Award, the time or times at
which an Award will become vested, exercisable or payable and the term of the Award. The Award Agreement also
may set forth the effect on an Award of a Change in Control and/or a termination of Service under certain
circumstances. The Award Agreement shall be subject to and incorporate, by reference or otherwise, all of the
applicable terms and conditions of the Plan, and also may set forth other terms and conditions applicable to the
Award as determined by the Committee consistent with the limitations of the Plan. The grant of an Award under the
Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such
conditions, as are specified in the Plan as being applicable to such type of Award (or to all Awards) or as are
expressly set forth in the Award Agreement. The Committee need not require the execution of an Award Agreement
by a Participant, in which case, acceptance of the Award by the Participant shall constitute agreement by the
Participant to the terms, conditions, restrictions and limitations set forth in the Plan and the Award Agreement as
well as the administrative guidelines of the Company in effect from time to time. In the event of any conflict between
the provisions of the Plan and any Award Agreement, the provisions of the Plan shall prevail.

16.3 No Assignment or Transfer; Beneficiaries. Except as provided in Section 6.6 hereof, Awards under the

Plan shall not be assignable or transferable by the Participant, and shall not be subject in any manner to
assignment, alienation, pledge, encumbrance or charge. Notwithstanding the foregoing, in the event of the death of
a Participant, except as otherwise provided by the Committee in an Award Agreement, an outstanding Award may
be exercised by or shall become payable to the Participant’s beneficiary as determined under the Company 401(k)
retirement plan or other applicable retirement or pension plan. In lieu of such determination, a Participant may, from
time to time, name any beneficiary or beneficiaries to receive any benefit in case of the Participant’s death before
the Participant receives any or all of such benefit. Each such designation shall revoke all prior designations by the
same Participant and will be effective only when filed by the Participant in writing (in such form or manner as may
be prescribed by the Committee) with the Company during the Participant’s lifetime. In the absence of a valid
designation as provided above, if no validly designated beneficiary survives the Participant or if each surviving
validly designated beneficiary is legally impaired or prohibited from receiving the benefits under an Award, the
Participant’s beneficiary shall be the legatee or legatees of such Award designated under the Participant’s last will
or by such Participant’s executors, personal representatives or distributees of such Award in accordance with the
Participant’s will or the laws of descent and distribution. The Committee may provide in the terms of an Award
Agreement or in any other manner prescribed by the Committee that the Participant shall have the right to
designate a beneficiary or beneficiaries who shall be entitled to any rights, payments or other benefits specified
under an Award following the Participant’s death.

16.4 Deferrals of Payment. The Committee may in its discretion permit a Participant to defer the receipt of

payment of cash or delivery of Common Shares that would otherwise be due to the Participant by virtue of the
exercise of a right or the satisfaction of vesting or other conditions with respect to an Award; provided, however,
that such discretion shall not apply in the case of a Stock Option or Share Appreciation Right that is intended to
satisfy the requirements of Treasury Regulations Section 1.409A-1(b)(5)(i)(A) or (B). If any such deferral is to be
permitted by the Committee, the Committee shall establish rules and procedures relating to such deferral in a
manner intended to comply with the requirements of Section 409A of the Code, including, without limitation, the
time when an election to defer may be made, the time period of the deferral and the events that would result in
payment of the deferred amount, the interest or other earnings attributable to the deferral and the method of
funding, if any, attributable to the deferred amount.

16.5 No Right to Employment or Continued Service. Nothing in the Plan, in the grant of any Award or in any

Award Agreement shall confer upon any Eligible Person or any Participant any right to continue in the Service of
the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any of its
Subsidiaries to terminate the employment or other service relationship of an Eligible Person or a Participant for any
reason or no reason at any time.

16.6 Rights as Shareholder. A Participant shall have no rights as a holder of Common Shares with respect

to any unissued securities covered by an Award until the date the Participant becomes the holder of record of such
securities. Except as provided in Section 4.4 hereof, no adjustment or other provision shall be made for dividends
or other shareholder rights, except to the extent that the Award Agreement provides for dividend payments or
dividend equivalent rights. The Committee may determine in its discretion the manner of delivery of Common
Shares to be issued under the Plan, which may be by delivery of share certificates, electronic account entry into
new or existing accounts or any other means as the Committee, in its discretion, deems appropriate. The
Committee may require that the share certificates (if any) be held in escrow by the Company for any Common
Shares or cause the shares to be legended in order to comply with the securities laws or other applicable
restrictions. Should the Common Shares be represented by book or electronic account entry rather than a
certificate, the Committee may take such steps to restrict transfer of the Common Shares as the Committee
considers necessary or advisable.

16.7 Trading Policy and Other Restrictions. Transactions involving Awards under the Plan shall be subject to

the Company’s insider trading and Regulation FD policy and other restrictions, terms and conditions, to the extent
established by the Committee or by applicable law, including any other applicable policies set by the Committee,
from time to time.

16.8 Section 409A Compliance. To the extent applicable, it is intended that the Plan and all Awards

hereunder comply with, or be exempt from, the requirements of Section 409A of the Code and the Treasury
Regulations and other guidance issued thereunder, and that the Plan and all Award Agreements shall be
interpreted and applied by the Committee in a manner consistent with this intent in order to avoid the imposition of
any additional tax under Section 409A of the Code. In the event that any (i) provision of the Plan or an Award
Agreement, (ii) Award, payment, transaction or (iii) other action or arrangement contemplated by the provisions of
the Plan is determined by the Committee to not comply with the applicable requirements of Section 409A of the
Code and the Treasury Regulations and other guidance issued thereunder, the Committee shall have the authority
to take such actions and to make such changes to the Plan or an Award Agreement as the Committee deems
necessary to comply with such requirements; provided, however, that no such action shall adversely affect any
outstanding Award without the consent of the affected Participant. No payment that constitutes deferred
compensation under Section 409A of the Code that would otherwise be made under the Plan or an Award
Agreement upon a termination of Service will be made or provided unless and until such termination is also a
‘‘separation from service,’’ as determined in accordance with Section 409A of the Code. Notwithstanding the
foregoing or anything elsewhere in the Plan or an Award Agreement to the contrary, if a Participant is a ‘‘specified
employee’’ as defined in Section 409A of the Code at the time of termination of Service with respect to an Award,
then solely to the extent necessary to avoid the imposition of any additional tax under Section 409A of the Code,
the commencement of any payments or benefits under the Award shall be deferred until the date that is six
(6) months plus one (1) day following the date of the Participant’s termination of Service or, if earlier, the
Participant’s death (or such other period as required to comply with Section 409A). For purposes of Section 409A of
the Code, a Participant’s right to receive any installment payments pursuant to this Plan or any Award granted
hereunder shall be treated as a right to receive a series of separate and distinct payments. For the avoidance of
doubt, each applicable tranche of Common Shares subject to vesting under any Award shall be considered a right
to receive a series of separate and distinct payments. In no event whatsoever shall the Company be liable for any

additional tax, interest or penalties that may be imposed on a Participant by Section 409A of the Code or any
damages for failing to comply with Section 409A of the Code.

16.9 Securities Law Compliance. No Common Shares will be issued or transferred pursuant to an Award
unless and until all then applicable requirements imposed by Federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any exchanges upon which the Common
Shares may be listed, have been fully met. As a condition precedent to the issuance of Common Shares pursuant
to the grant or exercise of an Award, the Company may require the Participant to take any action that the Company
determines is necessary or advisable to meet such requirements. The Committee may impose such conditions on
any Common Shares issuable under the Plan as it may deem advisable, including, without limitation, restrictions
under the Securities Act, under the requirements of any exchange upon which such shares of the same class are
then listed, and under any blue sky or other securities laws applicable to such shares. The Committee may also
require the Participant to represent and warrant at the time of issuance or transfer that the Common Shares are
being acquired solely for investment purposes and without any current intention to sell or distribute such shares.

16.10 Substitution or Assumption of Awards in Corporate Transactions. The Committee may grant Awards
under the Plan in connection with the acquisition, whether by purchase, merger, consolidation or other corporate
transaction, of the business or assets of any corporation or other entity, in substitution for awards previously
granted by such corporation or other entity or otherwise. The Committee may also assume any previously granted
awards of an employee, director, consultant or other service provider of another corporation or entity that becomes
an Eligible Person by reason of such corporation transaction. The terms and conditions of the substituted or
assumed awards may vary from the terms and conditions that would otherwise be required by the Plan solely to the
extent the Committee deems necessary for such purpose. To the extent permitted by applicable law and the listing
requirements of the New York Stock Exchange or other exchange or securities market on which the Common
Shares are listed, any such substituted or assumed awards shall not reduce the Share Reserve.

16.11 Tax Withholding. The Participant shall be responsible for payment of any taxes or similar charges
required by law to be paid or withheld from an Award or an amount paid in satisfaction of an Award. Any required
withholdings shall be paid by the Participant on or prior to the payment or other event that results in taxable income
in respect of an Award. The Award Agreement may specify the manner in which the withholding obligation shall be
satisfied with respect to the particular type of Award, which may include permitting the Participant to elect to satisfy
the withholding obligation by tendering Common Shares to the Company or having the Company withhold a
number of Common Shares having a value in each case up to the maximum statutory tax rates in the applicable
jurisdiction or as the Committee may approve in its discretion (provided that such withholding does not result in
adverse tax or accounting consequences to the Company), or similar charge required to be paid or withheld. The
Company shall have the power and the right to require a Participant to remit to the Company the amount necessary
to satisfy federal, state, provincial and local taxes, domestic or foreign, required by law or regulation to be withheld,
and to deduct or withhold from any Common Shares deliverable under an Award to satisfy such withholding
obligation.

16.12 Unfunded Plan. The adoption of the Plan and any reservation of Common Shares or cash amounts by

the Company to discharge its obligations hereunder shall not be deemed to create a trust or other funded
arrangement. Except upon the issuance of Common Shares pursuant to an Award, any rights of a Participant under
the Plan shall be those of a general unsecured creditor of the Company, and neither a Participant nor the
Participant’s permitted transferees or estate shall have any other interest in any assets of the Company by virtue of
the Plan. Notwithstanding the foregoing, the Company shall have the right to implement or set aside funds in a
grantor trust, subject to the claims of the Company’s creditors or otherwise, to discharge its obligations under the
Plan.

16.13 Other Compensation and Benefit Plans. The adoption of the Plan shall not affect any other share
incentive or other compensation plans in effect for the Company or any Subsidiary, nor shall the Plan preclude the
Company from establishing any other forms of share incentive or other compensation or benefit program for
employees of the Company or any Subsidiary. The amount of any compensation deemed to be received by a
Participant pursuant to an Award shall not constitute includable compensation for purposes of determining the
amount of benefits to which a Participant is entitled under any other compensation or benefit plan or program of the
Company or a Subsidiary, including, without limitation, under any pension or severance benefits plan, except to the
extent specifically provided by the terms of any such plan.

16.14 Plan Binding on Transferees. The Plan shall be binding upon the Company, its transferees and
assigns, and the Participant, the Participant’s executor, administrator and permitted transferees and beneficiaries.

16.15 Severability. If any provision of the Plan or any Award Agreement shall be determined to be illegal or

unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other
jurisdiction.

16.16 Governing Law; Jurisdiction. The Plan and all rights hereunder shall be governed by and interpreted in

accordance with the laws of the State of Ohio, without reference to the principles of conflicts of laws, and to
applicable federal laws.

16.17 No Fractional Shares. No fractional Common Shares shall be issued or delivered pursuant to the Plan

or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or
transferred in lieu of any fractional Common Shares or whether such fractional shares or any rights thereto shall be
canceled, terminated or otherwise eliminated.

16.18 No Guarantees Regarding Tax Treatment. Neither the Company nor the Committee make any
guarantees to any person regarding the tax treatment of Awards or payments made under the Plan. Neither the
Company nor the Committee has any obligation to take any action to prevent the assessment of any tax on any
person with respect to any Award under Section 409A of the Code, Section 4999 of the Code or otherwise and
neither the Company nor the Committee shall have any liability to a person with respect thereto.

16.19 Data Protection. By participating in the Plan, each Participant consents to the collection, processing,

transmission and storage by the Company, its Subsidiaries and any third party administrators of any data of a
professional or personal nature for the purposes of administering the Plan.

16.20 Awards to Non-U.S. Participants. To comply with the laws in countries other than the United States in
which the Company or any of its Subsidiaries operates or has employees, Non-Employee Directors or consultants,
the Committee, in its sole discretion, shall have the power and authority to (i) modify the terms and conditions of
any Award granted to Participants outside the United States to comply with applicable foreign laws, (ii) take any
action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary
local government regulatory exemptions or approvals and (iii) establish subplans and modify exercise procedures
and other terms and procedures, to the extent such actions may be necessary or advisable.

17.

Term; Amendment and Termination; Shareholder Approval.

17.1 Term. The Plan shall be effective as of the date of its approval by the shareholders of the Company (the

‘‘Effective Date’’). Subject to Section 17.2 hereof, the Plan shall terminate on the tenth anniversary of the Effective
Date.

17.2 Amendment and Termination. The Board may from time to time and in any respect, amend, modify,
suspend or terminate the Plan; provided, however, that no amendment, modification, suspension or termination of
the Plan shall materially and adversely affect any Award theretofore granted without the consent of the Participant
or the permitted transferee of the Award. The Board may seek the approval of any amendment, modification,
suspension or termination by the Company’s shareholders to the extent it deems necessary in its discretion for
purposes of compliance with Section 422 of the Code or for any other purpose, and shall seek such approval to the
extent it deems necessary in its discretion to comply with applicable law or listing requirements of the New York
Stock Exchange or other exchange or securities market. Notwithstanding the foregoing, the Board shall have broad
authority to amend the Plan or any Award under the Plan without the consent of a Participant to the extent it deems
necessary or desirable in its discretion to comply with, take into account changes in, or interpretations of, applicable
tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations.

——————

2018 ANNUAL REPORT

——————

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

FINANCIAL REPORT 2018

The management of The Kroger Co. has the responsibility for preparing the accompanying financial statements

and for their integrity and objectivity. The statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and are not misstated due to material error or fraud. The
financial statements include amounts that are based on management’s best estimates and judgments.
Management also prepared the other information in the report and is responsible for its accuracy and consistency
with the financial statements.

Kroger’s financial statements have been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, whose selection has been ratified by the shareholders. Management has made available to
PricewaterhouseCoopers LLP all of Kroger’s financial records and related data, as well as the minutes of the
shareholders’ and directors’ meetings. Furthermore, management believes that all representations made to
PricewaterhouseCoopers LLP during its audit were valid and appropriate.

Management also recognizes its responsibility for fostering a strong ethical climate so that Kroger’s affairs are

conducted according to the highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in The Kroger Co. Policy on Business Ethics, which is publicized throughout Kroger and
available on Kroger’s website at ir.kroger.com. The Kroger Co. Policy on Business Ethics addresses, among other
things, the necessity of ensuring open communication within Kroger; potential conflicts of interests; compliance with
all domestic and foreign laws, including those related to financial disclosure; and the confidentiality of proprietary
information. Kroger maintains a systematic program to assess compliance with these policies.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting

for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, our
management conducted an evaluation of the effectiveness of our internal control over financial reporting based on
the framework and criteria established in Internal Control — Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has
concluded that the Company’s internal control over financial reporting was effective as of February 2, 2019.

W. Rodney McMullen
Chairman of the Board and
Chief Executive Officer

J. Michael Schlotman
Executive Vice President and
Chief Financial Officer

A-1

SELECTED FINANCIAL DATA

Fiscal Years Ended

February 2,

February 3,

January 28, January 30, February 1,

2019
(52 weeks)

2018
(53 weeks)

2017
(52 weeks)

2016
(52 weeks)

2015
(52 weeks)

Sales
Net earnings including noncontrolling interests
Net earnings attributable to The Kroger Co.
Net earnings attributable to The Kroger Co. per

$ 121,162
3,078
3,110

(In millions, except per share amounts)
$ 115,337 $ 109,830
2,049
2,039

$ 122,662
1,889
1,907

1,957
1,975

$ 108,465
1,747
1,728

diluted common share

Total assets

3.76
38,118

2.09
37,197

2.05
36,505

2.06
33,897

1.72
30,497

Long-term liabilities, including obligations under

capital leases and financing obligations

Total shareholders’ equity — The Kroger Co.
Cash dividends per common share

16,009
7,886
0.530

16,095
6,931
0.490

16,935
6,698
0.450

14,128
6,820
0.395

13,663
5,412
0.340

Our common stock is listed on the New York Stock Exchange under the symbol “KR.” As of March 28, 2019,

there were 27,037 shareholders of record.

During 2018, we paid two quarterly cash dividends of $0.125 per share and two quarterly cash dividends of $0.14
per share. During 2017, we paid two quarterly cash dividends of $0.12 per share and two quarterly cash dividends
of $0.125 per share. On March 1, 2019, we paid a quarterly cash dividend of $0.14 per share. On March 14, 2019,
we announced that our Board of Directors declared a quarterly cash dividend of $0.14 per share, payable on
June 1, 2019, to shareholders of record at the close of business on May 15, 2019. We currently expect to continue
to pay comparable cash dividends on a quarterly basis, that will increase over time, depending on our earnings and
other factors, including approval by our Board.

A-2

PERFORMANCE GRAPH

Set forth below is a line graph comparing the five-year cumulative total shareholder return on our common

shares, based on the market price of the common shares and assuming reinvestment of dividends, with the
cumulative total return of companies in the Standard & Poor’s 500 Stock Index and a peer group composed of food
and drug companies.

Company Name/Index
The Kroger Co.
S&P 500 Index
Peer Group

Base
Period

INDEXED RETURNS
Years Ending

2013 2014
100
100
100

194.06
114.22
125.06

2015 2016

2017

2018

192.09 172.11
220.52
113.46 137.14 168.46
114.76 148.26
116.69

167.77
168.36
143.99

Kroger’s fiscal year ends on the Saturday closest to January 31.

Data supplied by Standard & Poor’s.

The foregoing Performance Graph will not be deemed incorporated by reference into any other filing, absent an

express reference thereto.

* Total assumes $100 invested on February 1, 2014, in The Kroger Co., S&P 500 Index, and the Peer Group,

with reinvestment of dividends.

** The Peer Group consists of Costco Wholesale Corp., CVS Caremark Corp, Etablissements Delhaize Freres Et
Cie Le Lion (“Groupe Delhaize”, which is included through July 22, 2016 when it merged with Koninklijke Ahold),
Koninklijke Ahold Delhaize NV (changed name from Koninklijke Ahold after merger with Groupe Delhaize),
Safeway, Inc. (included through January 29, 2015 when it was acquired by AB Acquisition LLC), Supervalu Inc.
(included through October 19, 2018 when it was acquired by United Natural Foods), Target Corp., Wal-Mart Stores
Inc., Walgreens Boots Alliance Inc. (formerly, Walgreen Co.), Whole Foods Market Inc. (included through August
28, 2017 when it was acquired by Amazon.com, Inc.).

A-3

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of Maximum Dollar
Value of Shares
Shares
that May Yet Be
Purchased as
Part of Publicly Purchased Under

Period (1)
First period - four weeks
November 11, 2018 to December 8, 2018
Second period - four weeks
December 9, 2018 to January 5, 2019
Third period — four weeks
January 6, 2019 to February 2, 2019
Total

Total Number
of Shares
Purchased (2)

Average
Price Paid
Per Share

Announced
Plans or
Programs (3)

the Plans or
Programs (4)
(in millions)

211,696

147,050

196,646
555,392

$
$

30.41

192,716 $

28.84

28.54
29.33

128,189 $

165,094 $
485,999 $

546

546
546

(1) The reported periods conform to our fiscal calendar composed of thirteen 28-day periods. The fourth quarter of

2018 contained three 28-day periods.

(2) Includes (i) shares repurchased under a program announced on December 6, 1999 to repurchase common

shares to reduce dilution resulting from our employee stock option and long-term incentive plans, under which
repurchases are limited to proceeds received from exercises of stock options and the tax benefits associated
therewith (“1999 Repurchase Program”) and (ii) 69,393 shares that were surrendered to the Company by
participants under our long term incentive plans to pay for taxes on restricted stock awards.

(3) Represents shares repurchased under the 1999 Repurchase Program.

(4) The amounts shown in this column reflect the amount remaining under the March 2018 Repurchase Program
as of the specified period end dates. Amounts available under the 1999 Repurchase Program are dependent
upon option exercise activity. The March 2018 Repurchase Program and the 1999 Repurchase Program do not
have an expiration date but may be suspended or terminated by our Board of Directors at any time.

A-4

BUSINESS

The Kroger Co. (the “Company” or “Kroger”) was founded in 1883 and incorporated in 1902. As of February 2,

2019, we are one of the largest retailers in the world based on annual sales. We also manufacture and process
some of the food for sale in our supermarkets. We maintain a web site (www.thekrogerco.com) that includes
additional information about the Company. We make available through our web site, free of charge, our annual
reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and our interactive data
files, including amendments. These forms are available as soon as reasonably practicable after we have filed them
with, or furnished them electronically to, the SEC.

Our revenues are predominately earned and cash is generated as consumer products are sold to customers in

our stores, fuel centers and via our online platforms. We earn income predominantly by selling products at price
levels that produce revenues in excess of the costs to make these products available to our customers. Such costs
include procurement and distribution costs, facility occupancy and operational costs and overhead expenses. Our
fiscal year ends on the Saturday closest to January 31. All references to 2018, 2017 and 2016 are to the fiscal
years ended February 2, 2019, February 3, 2018 and January 28, 2017, respectively, unless specifically indicated
otherwise.

EMPLOYEES

As of February 2, 2019, Kroger employed approximately 453,000 full- and part-time employees. A majority of
our employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of
several different international unions. There are approximately 360 such agreements, usually with terms of three to
five years.

STORES

As of February 2, 2019, Kroger operated, either directly or through its subsidiaries, 2,764 supermarkets under a

variety of local banner names, of which 2,270 had pharmacies and 1,537 had fuel centers. We offer Pickup (also
referred to as ClickList®) and Harris Teeter ExpressLane™— personalized, order online, pick up at the store
services — at 1,581 of our supermarkets and provide home delivery service to 91% of Kroger households.
Approximately 54% of our supermarkets were operated in Company-owned facilities, including some Company-
owned buildings on leased land. Our current strategy emphasizes self-development and ownership of real
estate. Our stores operate under a variety of banners that have strong local ties and brand recognition.
Supermarkets are generally operated under one of the following formats: combination food and drug stores
(“combo stores”); multi-department stores; marketplace stores; or price impact warehouses.

The combo store is the primary food store format. They typically draw customers from a 2 — 2.5 mile

radius. We believe this format is successful because the stores are large enough to offer the specialty departments
that customers desire for one-stop shopping, including natural food and organic sections, pharmacies, general
merchandise, pet centers and high-quality perishables such as fresh seafood and organic produce.

Multi-department stores are significantly larger in size than combo stores. In addition to the departments
offered at a typical combo store, multi-department stores sell a wide selection of general merchandise items such
as apparel, home fashion and furnishings, outdoor living, electronics, automotive products and toys.

Marketplace stores are smaller in size than multi-department stores. They offer full-service grocery, pharmacy
and health and beauty care departments as well as an expanded perishable offering and general merchandise area
that includes apparel, home goods and toys.

Price impact warehouse stores offer a “no-frills, low cost” warehouse format and feature everyday low prices
plus promotions for a wide selection of grocery and health and beauty care items. Quality meat, dairy, baked goods
and fresh produce items provide a competitive advantage. The average size of a price impact warehouse store is
similar to that of a combo store.

A-5

SEGMENTS

We operate supermarkets and multi-department stores throughout the United States. Our retail operations,

which represent 97% of our consolidated sales, is our only reportable segment. We aggregate our operating
divisions into one reportable segment due to the operating divisions having similar economic characteristics with
similar long-term financial performance. In addition, our operating divisions offer customers similar products, have
similar distribution methods, operate in similar regulatory environments, purchase the majority of the merchandise
for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location,
serve similar types of customers, and are allocated capital from a centralized location. Our operating divisions are
organized primarily on a geographical basis so that the operating division management team can be responsive to
local needs of the operating division and can execute company strategic plans and initiatives throughout the
locations in their operating division. This geographical separation is the primary differentiation between these retail
operating divisions. The geographical basis of organization reflects how the business is managed and how our
Chief Executive Officer, who acts as our chief operating decision maker, assesses performance internally. All of
our operations are domestic. Revenues, profits and losses and total assets are shown in our Consolidated
Financial Statements set forth in Item 8 below.

MERCHANDISING AND MANUFACTURING

Our Brands products play an important role in our merchandising strategy. Our supermarkets, on average,
stock over 15,000 private label items. Our Brands products are primarily produced and sold in three “tiers.” Private
Selection® is one of our premium quality brands, offering customers culinary foods and ingredients that deliver
amazing eating experiences. The Kroger® brand, which represents the majority of our private label items, is
designed to consistently satisfy and delight customers with quality products that exceed or meet the national brand
in taste and efficacy, as well as with unique and differentiated products. Big K®, Check This Out…® and Heritage
Farm® are some of our value brands, designed to deliver good quality at a very affordable price. In addition, we
continue to grow natural and organic Our Brands offerings with Simple Truth® and Simple Truth Organic®. Both
Simple Truth and Simple Truth Organic are free from a defined list of artificial ingredients that customers have told
us they do not want in their food, and the Simple Truth Organic products are USDA certified organic.

Approximately 32% of Our Brands units and 43% of the grocery category Our Brands units sold in our
supermarkets are produced in our food production plants; the remaining Our Brands items are produced to our
strict specifications by outside manufacturers. We perform a “make or buy” analysis on Our Brands products and
decisions are based upon a comparison of market-based transfer prices versus open market purchases. As of
February 2, 2019, we operated 37 food production plants. These plants consisted of 17 dairies, 10 deli or bakery
plants, five grocery product plants, two beverage plants, one meat plant and two cheese plants.

SEASONALITY

The majority of our revenues are generally not seasonal in nature. However, revenues tend to be higher during

the major holidays throughout the year. Additionally, significant inclement weather systems, particularly winter
storms, tend to affect our sales trends.

EXECUTIVE OFFICERS OF THE REGISTRANT

The disclosure regarding executive officers is set forth in Item 10 of Part III of this Form 10-K under the heading

“Executive Officers of the Company,” and is incorporated herein by reference.

COMPETITIVE ENVIRONMENT

For the disclosure related to our competitive environment, see Item 1A under the heading “Competitive

Environment.”

A-6

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUR BUSINESS

The Kroger Co. was founded in 1883 and incorporated in 1902. As of February 2, 2019, Kroger is one of the
world’s largest retailers, as measured by revenue, operating 2,764 supermarkets under a variety of local banner
names in 35 states and the District of Columbia. Of these stores, 2,270 have pharmacies and 1,537 have fuel
centers. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™ — personalized, order
online, pick up at the store services — at 1,581 of our supermarkets and provide home delivery service to 91% of
Kroger households. We also operate an online retailer.

We operate 37 food production plants, primarily bakeries and dairies, which supply approximately 32% of Our

Brands units and 43% of the grocery category Our Brands units sold in our supermarkets; the remaining Our
Brands items are produced to our strict specifications by outside manufacturers.

Our revenues are predominately earned and cash is generated as consumer products are sold to customers in

our stores, fuel centers and via our online platforms. We earn income predominately by selling products at price
levels that produce revenues in excess of the costs we incur to make these products available to our
customers. Such costs include procurement and distribution costs, facility occupancy and operational costs, and
overhead expenses. Our retail operations, which represent 97% of our consolidated sales, is our only reportable
segment.

On June 22, 2018, we closed our merger with Home Chef by purchasing 100% of the ownership interest in
Home Chef, for $197 million net of cash and cash equivalents of $30 million, in addition to future earnout payments
of up to $500 million over five years that are contingent on achieving certain milestones. Home Chef is included in
our ending Consolidated Balance Sheet for 2018 and in our Consolidated Statements of Operations from June 22,
2018 through February 2, 2019.

On April 20, 2018, we completed the sale of our convenience store business unit for $2.2 billion. The

convenience store business is included in our ending Consolidated Balance Sheet for 2017 and in our Consolidated
Statements of Operations in all periods in 2016 and 2017 and through April 19, 2018.

On September 2, 2016, we closed our merger with Modern HC Holdings, Inc. (“ModernHEALTH”) by

purchasing 100% of the outstanding shares of ModernHEALTH for $407 million. ModernHEALTH is included in our
ending Consolidated Balance Sheet for 2016, 2017 and 2018 and in our Consolidated Statements of Operations
from September 2, 2016 through January 28, 2017 and all periods in 2017 and 2018.

See Note 2 to the Consolidated Financial Statements for more information related to our mergers with Home

Chef and ModernHEALTH.

USE OF NON-GAAP FINANCIAL MEASURES

The accompanying Consolidated Financial Statements, including the related notes, are presented in

accordance with generally accepted accounting principles (“GAAP”). We provide non-GAAP measures, including
First-In, First-Out (“FIFO”) gross margin, FIFO operating profit, adjusted operating net earnings, adjusted operating
net earnings per diluted share and Restock cash flow because management believes these metrics are useful to
investors and analysts. These non-GAAP financial measures should not be considered as an alternative to gross
margin, operating profit, net earnings, net earnings per diluted share and net cash provided or used by operating or
investing activities or any other GAAP measure of performance. These measures should not be reviewed in
isolation or considered as a substitute for our financial results as reported in accordance with GAAP.

A-7

We calculate FIFO gross margin as FIFO gross profit divided by sales. FIFO gross profit is calculated as sales

less merchandise costs, including advertising, warehousing, and transportation expenses, but excluding the Last-
In, First-Out (“LIFO”) charge. Merchandise costs exclude depreciation and rent expenses. FIFO gross margin is an
important measure used by management as management believes FIFO gross margin is a useful metric to
investors and analysts because it measures our day-to-day merchandising and operational effectiveness.

We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an

important measure used by management as management believes FIFO operating profit is a useful metric to
investors and analysts because it measures our day-to-day operational effectiveness.

The adjusted operating net earnings and adjusted operating net earnings per diluted share metrics are

important measures used by management to compare the performance of core operating results between periods.
We believe adjusted operating net earnings and adjusted operating net earnings per diluted share are useful
metrics to investors and analysts because they present more accurate year-over-year comparisons for our net
earnings and net earnings per diluted share because adjusted items are not the result of our normal operations.
Net earnings for 2018 include the following, which we define as the “2018 Adjusted Items:”

(cid:120) Charges to operating, general and administrative expenses (“OG&A”) of $155 million, $121 million net of
tax, for obligations related to withdrawal liabilities for certain local unions of the Central States multi-
employer pension fund; $33 million, $26 million net of tax, for the revaluation of contingent consideration;
and $42 million, $33 million net of tax, for an impairment of financial instrument (the “2018 OG&A Adjusted
Items”). We had initially received the financial instrument in 2016 with no cash outlay as part of the
consideration for entering into agreements with a third party.

(cid:120) A reduction to depreciation and amortization expenses of $14 million, $11 million net of tax, related to held

for sale assets (the “2018 Depreciation Adjusted Item”).

(cid:120) Gains in other income (expense) of $1.8 billion, $1.4 billion net of tax, related to the sale of our

convenience store business unit and $228 million, $174 million net of tax, for the mark to market gain on
Ocado Group plc (“Ocado”) securities.

Net earnings for 2017 include the following, which we define as the “2017 Adjusted Items:”

(cid:120) Charges to OG&A of $550 million, $360 million net of tax, for obligations related to withdrawing from and

settlements of withdrawal liabilities for certain multi-employer pension funds; $184 million, $117 million net
of tax, related to the voluntary retirement offering (“VRO”); and $110 million, $74 million net of tax, related
to the Kroger Specialty Pharmacy goodwill impairment (the “2017 OG&A Adjusted Items”).

(cid:120) A reduction to depreciation and amortization expenses of $19 million, $13 million net of tax, related to held

for sale assets (the “2017 Depreciation Adjusted Item”).

(cid:120) A reduction to income tax expense of $922 million primarily due to the re-measurement of deferred tax

liabilities and the reduction of the statutory rate for the last five weeks of the fiscal year from the Tax Cuts
and Jobs Act ("Tax Act") (the “2017 Tax Expense Adjusted Item”).

(cid:120) A charge in other income (expense) of $502 million, $335 million net of tax, related to a company-

sponsored pension plan termination.

In addition, net earnings for 2017 include $119 million, $79 million net of tax, due to a 53rd week in fiscal year

2017 (the “Extra Week”).

Net earnings for 2016 include $111 million, $71 million net of tax, of charges to OG&A related to the

restructuring of certain pension obligations to help stabilize associates’ future benefits (the “2016 Adjusted Items”).

A-8

OVERVIEW

Notable items for 2018 are:

(cid:120) Net earnings per diluted share of $3.76.

(cid:120) Adjusted operating net earnings per diluted share of $2.11.

(cid:120)

Identical sales, excluding fuel, increased 1.8% in 2018.

(cid:120) Digital revenue grew over 58% in 2018, driven by Pickup. Digital revenue primarily includes revenue

from all curbside pickup locations and online sales delivered to customer locations.

(cid:120) Alternative profit increased in 2018, including third party media and our Kroger Personal Finance

business, which had combined operating profit growth of approximately 20% in 2018.

(cid:120) Sold our convenience store business unit for $2.2 billion.

(cid:120) Announced Ocado partnership and completed our merger with Home Chef.

(cid:120) Announced we had entered into a definitive agreement to sell our You Technology business to Inmar.
On March 13, 2019, we completed the sale of our You Technology business for $565 million, which
includes a long-term service agreement for Inmar to provide us digital coupon services.

(cid:120) During 2018, we announced we had decided to explore strategic alternatives for our Turkey Hill Dairy
business, including a potential sale. On March 19, 2019, we announced a definitive agreement for the
sale of our Turkey Hill Dairy business to an affiliate of Peak Rock Capital.

(cid:120) During 2018, we returned $2.4 billion to shareholders from share repurchases and dividend payments,
which includes $1.2 billion repurchased under a $1.2 billion accelerated stock repurchase (“ASR”)
program using after tax proceeds from the sale of our convenience store business unit.

(cid:120) Net cash provided by operating activities was $4.2 billion in 2018 compared to $3.4 billion in 2017.

(cid:120) Restock cash flow was $1.9 billion in 2018 and $735 million in 2017.

A-9

The following table provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted operating

net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per
diluted common share to adjusted operating net earnings attributable to The Kroger Co. per diluted common share,
excluding the 2018, 2017 and 2016 Adjusted Items.

Net Earnings per Diluted Share excluding the Adjusted Items
($ in millions, except per share amounts)

Net earnings attributable to The Kroger Co.
Adjustments for pension plan agreements (1)(2)
Adjustment for voluntary retirement offering (1)(3)
Adjustment for Kroger Specialty Pharmacy goodwill impairment (1)(4)
Adjustment for company-sponsored pension plan termination (1)(5)
Adjustment for gain on sale of convenience store business (1)(6)
Adjustment for mark to market gain on Ocado securities (1)(7)
Adjustment for depreciation related to held for sale assets (1)(8)
Adjustment for contingent consideration (1)(9)
Adjustment for impairment of financial instrument (1)(10)
Adjustment for Tax Act (1)(11)
Total Adjusted Items

2018

2017

$ 3,110 $ 1,907
360
117
74
335
—
—
(13)
—
—
(922)
(49)

121
—
—
—
(1,360)
(174)
(11)
26
33
—
(1,365)

2016
$ 1,975
71
—
—
—
—
—
—
—
—
—
71

Net earnings attributable to The Kroger Co. excluding the Adjusted Items

$ 1,745 $ 1,858

$ 2,046

Extra Week adjustment (1)(12)

—

(79)

—

Net earnings attributable to The Kroger Co. excluding the Adjusted Items and the

Extra Week adjustment

Net earnings attributable to The Kroger Co. per diluted common share
Adjustments for pension plan agreements (13)
Adjustment for voluntary retirement offering (13)
Adjustment for Kroger Specialty Pharmacy goodwill impairment (13)
Adjustment for company-sponsored pension plan termination (13)
Adjustment for gain on sale of convenience store business (13)
Adjustment for mark to market gain on Ocado securities (13)
Adjustment for depreciation related to held for sale assets (13)
Adjustment for contingent consideration (13)
Adjustment for impairment of financial instrument (13)
Adjustment for Tax Act (13)
Total Adjusted Items

Net earnings attributable to The Kroger Co. per diluted common share excluding

the Adjusted Items

Extra Week adjustment(13)

$ 1,745 $ 1,779

$ 2,046

3.76 $ 2.09
0.40
0.15
0.13
—
0.08
—
0.37
—
—
(1.65)
—
(0.21)
(0.01)
(0.01)
—
0.03
—
0.04
(1.02)
—
(0.05)
(1.65)

$ 2.05
0.07
—
—
—
—
—
—
—
—
—
0.07

$ 2.11 $ 2.04

$ 2.12

—

(0.09)

—

Net earnings attributable to The Kroger Co. per diluted common share excluding

the Adjusted Items and the Extra Week adjustment

$ 2.11 $ 1.95

$ 2.12

Average numbers of common shares used in diluted calculation

818

904

958

A-10

Net Earnings per Diluted Share excluding the Adjusted Items (continued)
($ in millions, except per share amounts)

(1) The amounts presented represent the after-tax effect of each adjustment.
(2) The pre-tax adjustments for the pension plan agreements were $155 in 2018, $550 in 2017, and $111 in 2016.
(3) The pre-tax adjustment for the voluntary retirement offering was $184.
(4) The pre-tax adjustment for Kroger Specialty Pharmacy goodwill impairment was $110.
(5) The pre-tax adjustment for the company-sponsored pension plan termination was $502.
(6) The pre-tax adjustment for gain on sale of convenience store business was ($1,782).
(7) The pre-tax adjustment for mark to market gain on Ocado securities was ($228).
(8) The pre-tax adjustment for depreciation related to held for sale assets was ($14) in 2018 and ($19) in 2017.
(9) The pre-tax adjustment for contingent consideration was $33.
(10) The pre-tax adjustment for impairment of financial instrument was $42.
(11) Due to the re-measurement of deferred tax liabilities and the reduction of the statutory income tax rate for the

last few weeks of the fiscal year.

(12) The pre-tax Extra Week adjustment was ($119).
(13) The amount presented represents the net earnings per diluted common share effect of each adjustment.

RESULTS OF OPERATIONS

Sales

Total Sales
($ in millions)

2018

Percentage
Change (1)

2017

Percentage

2017

Adjusted (2) Change (3)

2016

Total sales to retail customers without

fuel (4)

Supermarket fuel sales
Convenience stores (5)
Other sales (6)
Total sales

$ 104,486
14,903
944
829
$ 121,162

15.5 %
(78.7)%
10.1 %

2.1 % $ 104,207 $ 102,290
12,906
13,177
4,434
4,515
753
763
0.6 % $ 122,662 $ 120,383

3.1 % $ 99,243
11,286
14.4 %
4,096
8.3 %
5.8 %
712
4.4 % $ 115,337

(1) This column represents the percentage change in 2018 compared to 2017 adjusted sales, which removes the

Extra Week.

(2) The 2017 Adjusted column represents the items presented in the 2017 column adjusted to remove the Extra

Week.

(3) This column represents the percentage change in 2017 adjusted sales compared to 2016.
(4) Digital sales, primarily including Pickup, Delivery and pharmacy e-commerce sales, grew approximately 58% in
2018, 90% in 2017 and 49% in 2016, adjusted to remove the Extra Week. These sales are included in the
“total sales to retail customers without fuel” line above.

(5) We completed the sale of our convenience store business during the first quarter of 2018.
(6) Other sales primarily relate to external sales at food production plants, data analytic services, third party media

revenue and digital coupon services.

Total sales decreased in 2018, compared to 2017, by 1.2%. The decrease in total sales in 2018, compared to

2017, is due to the Extra Week in 2017, partially offset by the increase in 2018 sales, compared to 2017 adjusted
sales. Total sales increased in 2018, compared to 2017 adjusted sales, by 0.6%. This increase was primarily due
to our increases in total sales to retail customers without fuel and supermarket fuel sales, partially offset by a
reduction in convenience store sales due to the sale of our convenience store business unit. The increase in total
sales to retail customers without fuel for 2018, compared to 2017 adjusted sales to retail customers without fuel,
was primarily due to our merger with Home Chef and our identical sales increase, excluding fuel, of 1.8%. Identical
sales, excluding fuel, for 2018, compared to 2017, increased primarily due to changes in product mix, including
higher quality products at a higher price point, and Kroger Specialty Pharmacy sales growth, partially offset by our
continued investments in lower prices for our customers. Total supermarket fuel sales increased 15.5% in 2018,
compared to 2017 adjusted supermarket fuel sales, primarily due to an increase in the average retail fuel price of
13.6% and an increase in fuel gallons sold of 1.5%. The increase in the average retail fuel price was caused by an
increase in the product cost of fuel.

A-11

Total sales increased in 2017, compared to 2016, by 6.4%. The increase in total sales in 2017, compared to

2016, is due to the increase in adjusted sales and the Extra Week. Total adjusted sales increased in 2017,
compared to 2016, by 4.4%. This increase was primarily due to our increases in total sales to retail customers
without fuel and supermarket fuel sales. The increase in total sales to retail customers without fuel for 2017,
adjusted for the Extra Week, compared to 2016, was primarily due to our merger with ModernHEALTH, identical
sales increase, excluding fuel, of 0.9%, and an increase in supermarket square footage. Identical sales, excluding
fuel, for 2017, compared to 2016, increased primarily due to an increase in the number of households shopping
with us, changes in product mix, Kroger Specialty Pharmacy sales growth and product cost inflation of 0.7%,
partially offset by our continued investments in lower prices for our customers. Excluding mergers, acquisitions and
operational closings, total supermarket square footage at the end of 2017 increased 1.9% over the end of 2016.
Total adjusted supermarket fuel sales increased 14.4% in 2017, compared to 2016, primarily due to an increase in
the average retail fuel price of 12.3% and an increase in fuel gallons sold of 1.9%. The increase in the average
retail fuel price was caused by an increase in the product cost of fuel.

We calculate identical sales, excluding fuel, as sales to retail customers, including sales from all departments at

identical supermarket locations, Kroger Specialty Pharmacy businesses and ship-to-home solutions. We define a
supermarket as identical when it has been in operation without expansion or relocation for five full quarters.
Additionally, sales from all acquired businesses are treated as identical as if they were part of the Company in the
prior year. Although identical sales is a relatively standard term, numerous methods exist for calculating identical
sales growth. As a result, the method used by our management to calculate identical sales may differ from methods
other companies use to calculate identical sales. We urge you to understand the methods used by other companies
to calculate identical sales before comparing our identical sales to those of other such companies. Certain
pharmacy fees recorded as a reduction of sales have been comparatively reflected in the identical sales
calculation. Our identical sales results are summarized in the following table. We used the identical sales dollar
figures presented below to calculate percentage changes for 2018.

Identical Sales
($ in millions)

Excluding fuel
Excluding fuel

2018 (1)
$ 101,928

2017 (2)
$ 100,153

1.8 %

0.9 %

(1) Identical sales for 2018 were calculated on a 52 week basis by excluding week 1 of fiscal 2017 in our 2017

identical sales base.

(2) Identical sales for 2017 were calculated on a 53 week basis by including week 1 of fiscal 2017 in our 2016

identical sales base.

Gross Margin, LIFO and FIFO Gross Margin

We define gross margin as sales minus merchandise costs, including advertising, warehousing, and

transportation. Rent expense, depreciation and amortization expense, and interest expense are not included in
gross margin.

Our gross margin rates, as a percentage of sales, were 21.68% in 2018, 22.01% in 2017 and 22.40% in 2016.

The decrease in 2018, compared to 2017, resulted primarily from continued investments in lower prices for our
customers, a higher LIFO charge, a change in product sales mix and increased transportation and advertising
costs, as a percentage of sales, partially offset by growth in Our Brands products which have a higher gross margin
compared to national brand products, improved merchandise costs, decreased shrink, as a percentage of sales,
and a higher gross margin rate on fuel sales.

The decrease in 2017, compared to 2016, resulted primarily from continued investments in lower prices for our

customers and our merger with ModernHEALTH due to its lower gross margin rate, and increased warehousing,
transportation and shrink costs, as a percentage of sales, partially offset by improved merchandise costs, a lower
LIFO charge, a change in our product sales mix, including higher gross margin perishable departments growing
their percentage share of sales to total sales, growth in Our Brands products which have a higher gross margin
compared to national brand products, decreased advertising costs, as a percentage of sales, and a higher gross
margin rate on fuel sales.

A-12

Our LIFO charge for 2018 was $29 million, compared to a LIFO credit of $8 million in 2017 and a LIFO charge
of $19 million in 2016. In 2018, our LIFO charge primarily resulted from annualized product cost inflation, primarily
related to pharmacy. Our LIFO credit in 2017 was primarily due to a reduction of pharmacy inventory in 2017
compared to 2016. In 2016, our LIFO charge primarily resulted from annualized product cost inflation related to
pharmacy, and was partially offset by annualized product cost deflation in other departments.

Our FIFO gross margin rates, which exclude the LIFO charges and credit, were 21.70% in 2018, 22.01% in
2017 and 22.42% in 2016. Our fuel sales lower our FIFO gross margin rate due to the very low FIFO gross margin
rate, as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel and the Extra
Week, our FIFO gross margin rate decreased 55 basis points in 2018, compared to 2017. This decrease resulted
primarily from our lower gross margin rate, excluding the effect of the LIFO charge and fuel, which has been
described above.

Excluding the effect of fuel, the Extra Week and ModernHEALTH, our FIFO gross margin rate decreased 19

basis points in 2017, compared to 2016. This decrease resulted primarily from our lower gross margin rate,
excluding the effect of the LIFO credit and charge, fuel and ModernHEALTH which has been described above.

Operating, General and Administrative Expenses

OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs and
retirement plan costs; and utility and credit card fees. Certain other income items are classified as a reduction of
OG&A expenses. These items include gift card and lottery commissions, coupon processing and vending machine
fees, check cashing, money order and wire transfer fees, and baled salvage credits. Rent expense, depreciation
and amortization expense, and interest expense are not included in OG&A.

OG&A expenses, as a percentage of sales, were 16.76% in 2018, 17.15% in 2017 and 16.61% in 2016. The

decrease in 2018, compared to 2017 resulted primarily from effective cost controls due to process changes,
decreased utilities, the 2017 OG&A Adjusted Items, and our incremental contribution of $111 million, $69 million net
of tax, to the United Food and Commercial Workers (“UFCW”) Consolidated Pension Plan in 2017 (“2017 UFCW
Contribution”), partially offset by the 2018 OG&A Adjusted Items, investments in our digital strategy and increased
incentive plan costs. Our fuel sales lower our OG&A rate, as a percentage of sales, due to the very low OG&A rate,
as a percentage of sales, of fuel sales compared to non-fuel sales. Excluding the effect of fuel, the Extra Week, the
2018 OG&A Adjusted Items, the 2017 OG&A Adjusted Items, and the 2017 UFCW Contribution, our OG&A rate
increased 14 basis points in 2018, compared to 2017. This increase resulted primarily from investments in our
digital strategy and increased incentive plan costs, partially offset by effective cost controls due to process changes
and decreased utilities.

The increase in 2017, compared to 2016, resulted primarily from the 2017 OG&A Adjusted Items, investing in

our digital strategy, increases in store wages attributed to investing in incremental labor hours and higher wages to
improve retention, employee engagement and customer experience, the 2017 UFCW Contribution, increases in
incentive plan and healthcare costs, partially offset by savings from the VRO, effective cost controls, higher fuel
sales, the 2016 Adjusted Items and our merger with ModernHEALTH due to its lower OG&A rate, as a percentage
of sales. Excluding the effect of fuel, the Extra Week, the 2017 UFCW Contribution, the 2017 OG&A and 2016
Adjusted Items and ModernHEALTH, our OG&A rate increased 21 basis points in 2017, compared to 2016. This
increase resulted primarily from investing in our digital strategy, increases in store wages attributed to investing in
incremental labor hours and higher wages to improve retention, employee engagement and customer experience,
increases in incentive plan and healthcare costs, partially offset by savings from the VRO and effective cost
controls.

Rent Expense

Rent expense decreased, as a percentage of sales, in 2018 compared to 2017, due to decreased closed store

liabilities. Rent expense decreased as a percentage of sales in 2017, compared to 2016, due to our continued
emphasis on owning rather than leasing, whenever possible, and higher fuel sales, which decreases our rent
expense, as a percentage of sales, partially offset by increased closed store liabilities.

A-13

Depreciation and Amortization Expense

Depreciation and amortization expense increased as a percentage of sales in 2018, compared to 2017, due to
the Extra Week and additional depreciation on capital investments, excluding mergers and lease buyouts, of $3.0
billion, during 2018, partially offset by higher fuel sales, which decreases our depreciation expense as a percentage
of sales.

Depreciation and amortization expense decreased as a percentage of sales in 2017, compared to 2016, due to

higher fuel sales, which decreases our depreciation expense as a percentage of sales, the Extra Week and the
2017 Depreciation Adjusted Item, partially offset by additional depreciation on capital investments, excluding
mergers and lease buyouts, of $3.0 billion, during 2017.

Operating Profit and FIFO Operating Profit

Operating profit was $2.6 billion in 2018, $2.6 billion in 2017 and $3.5 billion in 2016. Operating profit, as a
percentage of sales, was 2.16% in 2018, 2.13% in 2017 and 2.99% in 2016. Operating profit, as a percentage of
sales, increased 3 basis points in 2018, compared to 2017, due to decreased OG&A and rent expenses, as a
percentage of sales, partially offset by a lower gross margin rate, increased depreciation and amortization
expenses and a higher LIFO charge, as a percentage of sales.

Operating profit, as a percentage of sales, decreased 86 basis points in 2017, compared to 2016, due to a
lower gross margin and increased OG&A expense, as a percentage of sales, partially offset by lower depreciation
and amortization and rent expenses and a lower LIFO charge, as a percentage of sales.

FIFO operating profit was $2.6 billion in 2018, $2.6 billion in 2017 and $3.5 billion in 2016. FIFO operating

profit, as a percentage of sales, was 2.18% in 2018, 2.12% in 2017 and 3.01% in 2016. Fuel sales lower our
operating profit rate due to the very low operating profit rate, as a percentage of sales, of fuel sales compared to
non-fuel sales. FIFO operating profit, as a percentage of sales excluding fuel, the Extra Week, the 2017 UFCW
Contribution and the 2018 and 2017 Adjusted Items, decreased 68 basis points in 2018, compared to 2017, due to
a lower gross margin and increased OG&A and depreciation and amortization expenses, as a percentage of sales,
partially offset by lower rent expense, as a percentage of sales.

FIFO operating profit, as a percentage of sales excluding fuel, the Extra Week, the 2017 UFCW Contribution,

the 2017 and 2016 Adjusted Items and ModernHEALTH, decreased 45 basis points in 2017, compared to 2016,
due to a lower gross margin and increased OG&A and depreciation and amortization expenses, as a percentage of
sales.

Specific factors of the above operating trends under operating profit and FIFO operating profit are discussed

earlier in this section.

Interest Expense

Interest expense totaled $620 million in 2018, $601 million in 2017 and $522 million in 2016. The increase in
interest expense in 2018, compared to 2017, resulted primarily from a higher weighted average interest rate. The
increase in interest expense in 2017, compared to 2016, resulted primarily from additional borrowings used for
share repurchases, the Extra Week, the $1.2 billion we contributed to company-sponsored and company-managed
pension plans in 2017, a $467 million pre-tax payment to satisfy withdrawal obligations for certain local unions of
the Central States Pension Fund, partially offset by a lower weighted average interest rate.

A-14

Income Taxes

Our effective income tax rate was 22.6% in 2018, (27.3)% in 2017 and 32.8% in 2016. The 2018 tax rate

differed from the federal statutory rate primarily due to the effect of state income taxes and an IRS audit that
resulted in a reduction of prior year tax deductions at pre-Tax Act rates and an increase in future tax deductions at
post-Tax Act rates. These 2018 items were partially offset by the utilization of tax credits and deductions, the
remeasurement of uncertain tax positions and adjustments to provisional amounts that increased prior year
deductions at pre-Tax Act rates and decreased future deductions at post-Tax Act rates. The 2017 tax rate differed
from the federal statutory rate primarily as a result of remeasuring deferred taxes due to the Tax Act, the Domestic
Manufacturing Deduction and other changes, partially offset by non-deducible goodwill impairment charges and the
effect of state income taxes. The 2016 tax rate differed from the federal statutory rate primarily as a result of the
recognition of excess tax benefits related to share-based payments after the adoption of Accounting Standards
Update (“ASU”) 2016-09, the utilization of tax credits, the Domestic Manufacturing Deduction and other changes,
partially offset by the effect of state income taxes.

Net Earnings and Net Earnings Per Diluted Share

Our net earnings are based on the factors discussed in the Results of Operations section.

Net earnings of $3.76 per diluted share in 2018 represented an increase of 79.9% from net earnings of $2.09

per diluted share in 2017. Adjusted operating net earnings of $2.11 per diluted share in 2018 represented an
increase of 8.2% from adjusted operating net earnings of $1.95 per diluted share in 2017. The 8.2% increase in
adjusted operating net earnings per diluted share resulted primarily from lower income tax expense, higher fuel
earnings and lower weighted average common shares outstanding due to common share repurchases, partially
offset by lower non-fuel FIFO operating profit, a higher LIFO charge and increased interest expense.

Net earnings of $2.09 per diluted share in 2017 represented an increase of 2.0% from net earnings of $2.05 per
diluted share in 2016. Adjusted operating net earnings of $1.95 per diluted share in 2017 represented a decrease of
8.0% from adjusted operating net earnings of $2.12 per diluted share in 2016. The 8.0% decrease in adjusted
operating net earnings per diluted share resulted primarily from lower non-fuel FIFO operating profit and increased
interest expense, partially offset by higher fuel earnings, a lower LIFO charge, decreased income tax expense and
lower weighted average common shares outstanding due to common share repurchases.

COMMON SHARE REPURCHASE PROGRAMS

We maintain share repurchase programs that comply with Rule 10b5-1 of the Securities Exchange Act of 1934
and allow for the orderly repurchase of our common shares, from time to time. The share repurchase programs do
not have an expiration date but may be suspended or terminated by our Board of Directors at any time. We made
open market purchases of our common shares totaling $727 million in 2018, $1.6 billion in 2017 and $1.7 billion in
2016. On April 20, 2018, we entered and funded a $1.2 billion ASR program to reacquire shares in privately
negotiated transactions.

In addition to these repurchase programs, we also repurchase common shares to reduce dilution resulting from

our employee stock option plans. This program is solely funded by proceeds from stock option exercises, and the
tax benefit from these exercises. We repurchased approximately $83 million in 2018, $66 million in 2017 and $105
million in 2016 of our common shares under the stock option program.

The shares repurchased in 2018 were reacquired under two separate share repurchase programs. The first is

a series of Board of Director authorizations:

(cid:120) On June 22, 2017, our Board of Directors approved a $1.0 billion share repurchase program (the “June

2017 Repurchase Program”). This program was exhausted during the first quarter of 2018.

(cid:120) On March 15, 2018, our Board of Directors approved a $1.0 billion share repurchase program, to

supplement the June 2017 Repurchase Program, to reacquire shares via open market purchase or
privately negotiated transactions, including accelerated stock repurchase transactions, block trades, or
pursuant to trades intending to comply with rule 10b5-1 of the Securities Exchange Act of 1934 (the
“March 2018 Repurchase Program”).

A-15

(cid:120) On April 19, 2018, our Board of Directors approved a $1.2 billion ASR program to reacquire shares in
privately negotiated transactions. This program was exhausted during the second quarter of 2018.

As of February 2, 2019, there was $546 million remaining under the March 2018 Repurchase Program.

The second share repurchase program is a program that uses the cash proceeds from the exercises of stock

options by participants in Kroger’s stock option, long-term incentive plans and the associated tax benefits.

During the first quarter through March 28, 2019, we repurchased an additional $9 million of our common shares
under the stock option program and no additional shares under the March 2018 Repurchase Program. As of March
28, 2019, we have $546 million remaining under the March 2018 Repurchase Program.

CAPITAL INVESTMENTS

Capital investments, including changes in construction-in-progress payables and excluding mergers and the

purchase of leased facilities, totaled $3.0 billion in 2018, $3.0 billion in 2017 and $3.7 billion in 2016. Capital
investments for mergers totaled $197 million in 2018, $16 million in 2017 and $401 million in 2016. We merged
with Home Chef in 2018 and ModernHEALTH in 2016. Refer to Note 2 to the Consolidated Financial Statements
for more information on these mergers. Capital investments for the purchase of leased facilities totaled $5 million in
2018, $13 million in 2017 and $5 million in 2016. The table below shows our supermarket storing activity and our
total supermarket square footage:

Beginning of year
Opened
Opened (relocation)
Acquired
Closed (operational)
Closed (relocation)
End of year

Supermarket Storing Activity

2018
2,782

2017
2,796
24
15
3
(41)
(15)
2,782

10
4
10
(38)
(4)
2,764

2016
2,778
50
21
—
(32)
(21)
2,796

Total supermarket square footage (in millions)

179

178

RETURN ON INVESTED CAPITAL

We calculate return on invested capital (“ROIC”) by dividing adjusted operating profit for the prior four quarters

by the average invested capital. Adjusted operating profit is calculated by excluding certain items included in
operating profit, and adding back our LIFO charge, depreciation and amortization and rent to our U.S. GAAP
operating profit of the prior four quarters. Average invested capital is calculated as the sum of (i) the average of our
total assets, (ii) the average LIFO reserve, (iii) the average accumulated depreciation and amortization and (iv) a
rent factor equal to total rent for the last four quarters multiplied by a factor of eight; minus (i) the average taxes
receivable, (ii) the average trade accounts payable, (iii) the average accrued salaries and wages, (iv) the average
other current liabilities, excluding accrued income taxes and (v) the average liabilities held for sale. Averages are
calculated for ROIC by adding the beginning balance of the first quarter and the ending balance of the fourth
quarter, of the last four quarters, and dividing by two. We use a factor of eight for our total rent as we believe this is
a common factor used by our investors, analysts and rating agencies. ROIC is a non-GAAP financial measure of
performance. ROIC should not be reviewed in isolation or considered as a substitute for our financial results as
reported in accordance with GAAP. ROIC is an important measure used by management to evaluate our
investment returns on capital. Management believes ROIC is a useful metric to investors and analysts because it
measures how effectively we are deploying our assets.

Although ROIC is a relatively standard financial term, numerous methods exist for calculating a company’s

ROIC. As a result, the method used by our management to calculate ROIC may differ from methods other
companies use to calculate their ROIC. We urge you to understand the methods used by other companies to
calculate their ROIC before comparing our ROIC to that of such other companies.

A-16

The following table provides a calculation of ROIC for 2018 and 2017 on a 52 week basis ($ in millions). The
2018 calculation of ROIC excludes the financial position and results of operations of Home Chef, due to the merger
in 2018, and the convenience store business, due to the sale in 2018.

Return on Invested Capital
Numerator

Operating profit (53 week basis in fiscal year 2017)
Extra Week operating profit adjustment
LIFO charge (credit)
Depreciation and amortization
Rent (53 week basis in fiscal year 2017)
Extra Week rent adjustment
Adjustment for merger with Home Chef
Adjustment for disposal of convenience store business
Adjustment for contingent consideration
Adjustment for impairment of financial instrument
Adjustment for Kroger Specialty Pharmacy goodwill impairment
Adjustments for pension plan agreements
Adjustment for depreciation related to held for sale assets
Adjustments for voluntary retirement offering
Adjusted operating profit on a 52 week basis

Denominator

Average total assets
Average taxes receivable (1)
Average LIFO reserve
Average accumulated depreciation and amortization
Average trade accounts payable
Average accrued salaries and wages
Average other current liabilities (2)
Average liabilities held for sale
Adjustment for merger with Home Chef
Adjustment for disposal of convenience store business
Rent x 8
Average invested capital
Return on Invested Capital

Fiscal Year Ended

February 2,
2019

February 3,
2018

$ 2,614
—
29
2,465
884
—
28
(21)
33
42
—
155
(14)
—
$ 6,215

$ 37,658
(115)
1,263
21,703
(5,959)
(1,163)
(3,571)
(155)
(145)
(198)
7,072
$ 56,390

$ 2,612
(131)
(8)
2,436
911
(17)
—
—
—
—
110
550
(19)
184
$ 6,628

$ 36,851
(181)
1,270
20,287
(5,838)
(1,167)
(3,363)
(130)
—
—
7,152
$ 54,881

11.02 %

12.08 %

(1) Taxes receivable were $229 as of February 3, 2018 and $132 as of January 28, 2017. We did not have any

taxes receivable as of February 2, 2019.

(2) Other current liabilities included accrued income taxes of $60 as of February 2, 2019 and $1 as of January 28,
2017. We did not have any accrued income taxes as of February 3, 2018. Accrued income taxes are removed
from other current liabilities in the calculation of average invested capital.

RESTOCK CASH FLOW

Restock cash flow is an adjusted free cash flow measure calculated as net cash provided by operating activities

minus net cash used by investing activities plus or minus adjustments for certain items. We updated our definition
of Restock cash flow during 2018 to more closely align with the performance metrics under our Restock Kroger
plan. Restock cash flow is an important measure used by management to evaluate available funding for dividends,
managing debt levels, share repurchases and other strategic investments. Management believes Restock cash
flow is a useful metric to investors and analysts to demonstrate our available funding for dividends, managing debt
levels, share repurchases and other strategic investments.

A-17

The following table provides a calculation of Restock cash flow for 2018 and 2017 ($ in millions).

Net cash provided by operating activities

Net cash used by investing activities

Difference

Adjustment for payments for lease buyouts
Adjustment for purchases of Ocado securities
Adjustment for purchases of stores
Adjustment for net proceeds from sale of business, net of tax
Adjustment for payments for acquisitions, net of cash acquired

Restock cash flow

CRITICAL ACCOUNTING POLICIES

Fiscal Year Ended

February 2,
2019

February 3,
2018

4,164

3,413

(1,186)

(2,707)

2,978

706

5
392
44
(1,709)
197

13
—
—
—
16

1,907

735

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our
operating results and financial position, and we apply those accounting policies in a consistent manner. Our
significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements.

The preparation of financial statements in conformity with GAAP requires us to make estimates and

assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures
of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to
be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ
from those estimates.

We believe the following accounting policies are the most critical in the preparation of our financial statements

because they involve the most difficult, subjective or complex judgments about the effect of matters that are
inherently uncertain.

Impairments of Long-Lived Assets

We monitor the carrying value of long-lived assets for potential impairment each quarter based on whether
certain triggering events have occurred. These events include current period losses combined with a history of
losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a
triggering event occurs, we perform an impairment calculation, comparing projected undiscounted cash flows,
utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for
those stores. If we identify impairment for long-lived assets to be held and used, we compare the assets’ current
carrying value to the assets’ fair value. Fair value is determined based on market values or discounted future cash
flows. We record impairment when the carrying value exceeds fair market value. With respect to owned property
and equipment held for disposal, we adjust the value of the property and equipment to reflect recoverable values
based on our previous efforts to dispose of similar assets and current economic conditions. We recognize
impairment for the excess of the carrying value over the estimated fair market value, reduced by estimated direct
costs of disposal. We recorded asset impairments in the normal course of business totaling $56 million in 2018,
$71 million in 2017 and $26 million in 2016. We record costs to reduce the carrying value of long-lived assets in
the Consolidated Statements of Operations as “Operating, general and administrative” expense.

The factors that most significantly affect the impairment calculation are our estimates of future cash flows. Our
cash flow projections look several years into the future and include assumptions on variables such as inflation, the
economy and market competition. Application of alternative assumptions and definitions, such as reviewing long-
lived assets for impairment at a different level, could produce significantly different results.

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Business Combinations

We account for business combinations using the acquisition method of accounting. All the assets acquired,

liabilities assumed and amounts attributable to noncontrolling interests are recorded at their respective fair values
at the date of acquisition once we obtain control of an entity. The determination of fair values of identifiable assets
and liabilities involves estimates and the use of valuation techniques when market value is not readily available.
We use various techniques to determine fair value in such instances, primarily including the income approach.
Significant estimates used in determining fair value include, but are not limited to, the amount and timing of future
cash flows, growth rates, discount rates and useful lives. The excess of the purchase price over fair values of
identifiable assets and liabilities is recorded as goodwill. See Note 3 for further information about goodwill.

Goodwill

Our goodwill totaled $3.1 billion as of February 2, 2019. We review goodwill for impairment in the fourth quarter

of each year, and also upon the occurrence of triggering events. We perform reviews of each of our operating
divisions and other consolidated entities (collectively, “reporting units”) that have goodwill balances. Generally, fair
value is determined using a multiple of earnings, or discounted projected future cash flows, and we compare fair
value to the carrying value of a reporting unit for purposes of identifying potential impairment. We base projected
future cash flows on management’s knowledge of the current operating environment and expectations for the
future. We recognize goodwill impairment for any excess of a reporting unit's carrying value over its fair value, not
to exceed the total amount of goodwill allocated to the reporting unit.

Our annual evaluation of goodwill is performed for our reporting units during the fourth quarter. In 2017, we
recorded goodwill impairment for our Kroger Specialty Pharmacy (“KSP”) reporting unit totaling $110 million, $74
million net of tax, resulting in a remaining goodwill balance of $243 million. The 2018 fair value of our KSP
reporting unit was estimated primarily based on a discounted cash flow model resulting in a percentage of excess
fair value over carrying value of approximately 3%. The annual evaluation of goodwill performed in 2018 and 2016
did not result in impairment for any of our reporting units. Based on current and future expected cash flows, we
believe additional goodwill impairments are not reasonably likely. A 10% reduction in fair value of our reporting
units would not indicate a potential for impairment of our goodwill balance except for our KSP reporting unit.

For additional information relating to our results of the goodwill impairment reviews performed during 2018,

2017 and 2016, see Note 3 to the Consolidated Financial Statements.

The impairment review requires the extensive use of management judgment and financial

estimates. Application of alternative estimates and assumptions could produce significantly different results. The
cash flow projections embedded in our goodwill impairment reviews can be affected by several factors such as
inflation, business valuations in the market, the economy, market competition and our ability to successfully
integrate recently acquired businesses.

Multi-Employer Pension Plans

We contribute to various multi-employer pension plans based on obligations arising from collective bargaining

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

We recognize expense in connection with these plans as contributions are funded or when commitments are
probable and reasonably estimable, in accordance with GAAP. We made cash contributions to these plans of $358
million in 2018, $954 million in 2017 and $289 million in 2016. The increase in 2017, compared to 2018 and 2016
is due to the $467 million pre-tax payment we made in 2017 to satisfy withdrawal obligations for certain local unions
of the Central States Pension Fund and the 2017 UFCW Contribution.

A-19

We continue to evaluate and address our potential exposure to under-funded multi-employer pension plans as
it relates to our associates who are beneficiaries of these plans. These under-fundings are not our liability. When
an opportunity arises that is economically feasible and beneficial to us and our associates, we may negotiate the
restructuring of under-funded multi-employer pension plan obligations to help stabilize associates’ future benefits
and become the fiduciary of the restructured multi-employer pension plan. The commitments from these
restructurings do not change our debt profile as it relates to our credit rating since these off-balance sheet
commitments are typically considered in our investment grade debt rating. We are currently designated as the
named fiduciary of the UFCW Consolidated Pension Plan and the International Brotherhood of Teamsters (“IBT”)
Consolidated Pension Fund and have sole investment authority over these assets. We became the fiduciary of the
IBT Consolidated Pension Fund in 2017 due to the ratification of a new labor contract with the IBT that provided for
the withdrawal of certain local unions from the Central States Pension Fund. Significant effects of these
restructuring agreements recorded in our Consolidated Financial Statements are:

(cid:120)

In 2018, we incurred a $155 million charge, $121 million net of tax, for obligations related to withdrawal
liabilities for certain local unions of the Central States multi-employer pension fund.

In 2017, we incurred a $550 million charge, $360 million net of tax, for obligations related to
withdrawing from and settlements for withdrawal liabilities for certain multi-employer pension plan
obligations, of which $467 million was contributed to the Central States Pension Fund in 2017.

In 2017, we contributed an incremental $111 million, $71 million net of tax, to the UFCW Consolidated
Pension Plan.

In 2016, we incurred a charge of $111 million, $71 million net of tax, due to commitments and
withdrawal liabilities arising from the restructuring of certain multi-employer pension plan obligations, of
which $28 million was contributed to the UFCW Consolidated Pension Plan in 2016.

As we continue to work to find solutions to under-funded multi-employer pension plans, it is possible we could

incur withdrawal liabilities for certain funds.

Based on the most recent information available to us, we believe that the present value of actuarially accrued
liabilities in most of the multi-employer plans to which we contribute substantially exceeds the value of the assets
held in trust to pay benefits. We have attempted to estimate the amount by which these liabilities exceed the
assets, (i.e., the amount of underfunding), as of December 31, 2018. Because we are only one of a number of
employers contributing to these plans, we also have attempted to estimate the ratio of our contributions to the total
of all contributions to these plans in a year as a way of assessing our “share” of the underfunding. Nonetheless,
the underfunding is not a direct obligation or liability of ours or of any employer.

As of December 31, 2018, we estimate our share of the underfunding of multi-employer pension plans to which
we contribute, or as it relates to certain funds, an estimated withdrawal liability, was approximately $3.1 billion, $2.4
billion net of tax. This represents an increase in the estimated amount of underfunding of approximately $800
million, $600 million net of tax, as of December 31, 2018, compared to December 31, 2017. The increase in the
amount of underfunding is primarily attributable to lower expected returns on assets in the funds. Our estimate is
based on the most current information available to us including actuarial evaluations and other data (that include
the estimates of others), and such information may be outdated or otherwise unreliable.

We have made and disclosed this estimate not because, except as noted above, this underfunding is a direct

liability of ours. Rather, we believe the underfunding is likely to have important consequences. In the event we
were to exit certain markets or otherwise cease making contributions to these plans, we could trigger a substantial
withdrawal liability. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists
and can be reasonably estimated, in accordance with GAAP.

A-20

The amount of underfunding described above is an estimate and could change based on contract negotiations,

returns on the assets held in the multi-employer pension plans, benefit payments or future restructuring
agreements. The amount could decline, and our future expense would be favorably affected, if the values of the
assets held in the trust significantly increase or if further changes occur through collective bargaining, trustee action
or favorable legislation. On the other hand, our share of the underfunding could increase and our future expense
could be adversely affected if the asset values decline, if employers currently contributing to these funds cease
participation or if changes occur through collective bargaining, trustee action or adverse legislation. We continue to
evaluate our potential exposure to under-funded multi-employer pension plans. Although these liabilities are not a
direct obligation or liability of ours, any commitments to fund certain multi-employer pension plans will be expensed
when our commitment is probable and an estimate can be made.

See Note 16 to the Consolidated Financial Statements for more information relating to our participation in these

multi-employer pension plans.

RECENTLY ADOPTED ACCOUNTING STANDARDS

During the fourth quarter of 2017, we adopted ASU 2017-04 "Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the subsequent measurement of goodwill by
eliminating the second step from the goodwill impairment test. ASU 2017-04 requires applying a one-step
quantitative test and recording the amount of goodwill impairment as the excess of the reporting unit's carrying
value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04
does not amend the optional qualitative assessment of goodwill impairment. We performed our annual evaluation
of goodwill in accordance with this standard, which resulted in a goodwill impairment charge in 2017 of $110
million, $74 million net of tax, related to our Kroger Specialty Pharmacy reporting unit.

On February 4, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” which
superseded previous revenue recognition guidance. Topic 606 is a comprehensive new revenue recognition model
that requires a company to recognize revenue when goods and services are transferred to the customer in an
amount that is proportionate to what has been delivered at that point and that reflects the consideration to which the
company expects to be entitled for those goods or services. We adopted the standard using a modified
retrospective approach with the adoption primarily involving the evaluation of whether we act as principal or agent
in certain vendor arrangements where the purchase and sale of inventory are virtually simultaneous. We will
continue to record revenue and related costs on a gross basis for the arrangements. The adoption of the standard
did not have a material effect on our Consolidated Statements of Operations, Consolidated Balance Sheets or
Consolidated Statements of Cash Flows.

In March 2017, the Financial Accounting Standard’s Board (“FASB”) issued ASU "Compensation - Retirement

Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost (ASU 2017-07).” ASU 2017-07 requires an employer to report the service cost component of retiree
benefits in the same line item or items as other compensation costs arising from services rendered by the pertinent
employees during the period. The other components of net benefit cost are required to be presented separately
from the service cost component and outside a subtotal of income from operations. We adopted ASU 2017-07 on
February 4, 2018 and retrospectively applied it to all periods presented. As a result, retiree benefit plan interest
expense, investment returns, settlements and other non-service cost components of retiree benefit expenses are
excluded from our operating profit subtotal as reported in our Consolidated Statements of Operations, but remain
included in net earnings before income tax expense. Due to the adoption, we reclassified $527 million for 2017 and
$16 million for 2016, of non-service company-sponsored pension plan costs from operating profit to other income
(expense) on our Consolidated Statements of Operations. Information about retiree benefit plans' interest expense,
investment returns and other components of retiree benefit expenses can be found in Note 15 to our Consolidated
Financial Statements.

In January 2016, the FASB issued “Financial Instruments–Overall (Topic 825),” which updates certain aspects
of recognition, measurement, presentation and disclosure of financial instruments (ASU 2016-01). We adopted this
ASU on February 4, 2018. As a result of the adoption, we recorded a mark to market gain on Ocado securities, for
those securities we owned as of the end of 2018, within the Consolidated Statements of Operations as opposed to
a component of Other Comprehensive Income on our Consolidated Statements of Comprehensive Income.

A-21

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, “Leases,” which provides guidance for the recognition of
lease agreements. The standard’s core principle is that a company will now recognize most leases on its balance
sheet as lease liabilities with corresponding right-of-use assets. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense recognition in the income statement. This guidance
will be effective for us in the first quarter of our fiscal year ending February 1, 2020. We will apply the transition
package of practical expedients permitted within the standard, which allows us to carryforward our historical lease
classification, and will apply the transition option which does not require application of the guidance to comparative
periods in the year of adoption. We estimate adoption of the standard will result in recognition of right of use assets
and lease liabilities of approximately $6.7 billion as of February 3, 2019. When combined with our existing capital
leases, our total lease assets will be approximately $7.4 billion and our total lease liabilities will be approximately
$7.6 billion as of February 3, 2019. We do not expect adoption to have a material impact on our consolidated net
earnings or cash flows. We believe our current off-balance sheet leasing commitments are reflected in our
investment grade debt rating.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects From Accumulated
Other Comprehensive Income.” ASU 2018-02 amends ASC 220, “Income Statement - Reporting Comprehensive
Income,” to allow a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act. In addition, under ASU 2018-02, we may be required
to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are
currently evaluating the effect of this standard on our Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Information

Net cash provided by operating activities

We generated $4.2 billion of cash from operations in 2018, compared to $3.4 billion in 2017 and $4.3 billion in
2016. The increase in net cash provided by operating activities in 2018, compared to 2017, resulted primarily from
an increase in net earnings including noncontrolling interests, a decrease in the non-cash adjustment for deferred
income taxes, positive changes in working capital and reduced contributions to the company sponsored pension
plans, partially offset by non-cash adjustments for the expense for company-sponsored pension plans, the gain on
sale of our convenience store business unit and the mark to market gain on Ocado securities.

The decrease in net cash provided by operating activities in 2017, compared to 2016, resulted primarily from a
decrease in net earnings including noncontrolling interests, the $1.0 billion contribution to the company-sponsored
defined benefit plans and deferred taxes, partially offset by an increase in non-cash expenses and changes in
working capital. Deferred taxes changed in 2017, compared to 2016, as a result of remeasuring deferred taxes due
to the Tax Act.

Cash provided (used) by operating activities for changes in working capital was $580 million in 2018, ($164)

million in 2017 and ($492) million in 2016. The increase in cash provided by operating activities for changes in
working capital in 2018, compared to 2017, was primarily due to the following:

(cid:120) A lower increase, over the prior year, of store deposits in-transit in 2018, compared to 2017;

(cid:120) A decrease in prepaid medical benefit costs at the end of 2018, compared to 2017;

(cid:120)

Increases in accrued incentive plan costs; and

(cid:120) Positive working capital related to income taxes receivable and payable as a result of an overpayment

of our fourth quarter 2017 estimated taxes and our estimated taxes on the gain on sale of our
convenience store business unit; partially offset by

A-22

(cid:120) Higher third-party payor receivables due to increasing pharmacy sales and the timing of third-party

payments; and

(cid:120)

Increased inventory purchases due to change in inventory mix and new distribution centers.

The decrease in cash used by operating activities for changes in working capital in 2017, compared to 2016,

was primarily due to the following:

(cid:120) A lower amount of cash used for inventory purchases due to decreased capital investments related to

store growth,

(cid:120)

Increased cash collections due to our emphasis on better receivables management, and

(cid:120) A lower increase, over the prior year, of prepaid benefit costs in 2017, compared to 2016; partially

offset by

(cid:120) An overpayment of our fourth quarter 2017 estimated income taxes, and

(cid:120) An increase in store deposits in-transit due to increased sales in the last few days of 2017.

Cash paid for taxes increased in 2018, compared to 2017, primarily due to the payment of estimated taxes on

the gain on sale of our convenience store business unit and lower estimated tax payments in 2017 due to the $1
billion, $650 million net of tax, pension contribution made in 2017.

Net cash used by investing activities

Cash used by investing activities was $1.2 billion in 2018, $2.7 billion in 2017 and $3.9 billion in 2016. The
amount of cash used by investing activities decreased in 2018 compared to 2017 primarily due to the net proceeds
from the sale of our convenience store business unit, partially offset by the payment for our merger with Home Chef
and the purchases of Ocado securities. The amount of cash used by investing activities decreased in 2017
compared to 2016 primarily due to reduced cash payments for capital investments and lower payments for
mergers.

Net cash used by financing activities

Cash used by financing activities was $2.9 billion in 2018, $681 million in 2017 and $352 million in 2016. The

increase in the amount of cash used for financing activities in 2018 compared to 2017 was primarily due to
increased payments on long-term debt and commercial paper and increased share repurchases, partially offset by
an increase in proceeds from issuance of long-term debt. We used a portion of the proceeds from the sale of our
convenience store business unit to pay down outstanding commercial paper borrowings and fund a $1.2 billion
ASR program, which was completed in the second quarter of 2018. The increase in the amount of cash used for
financing activities in 2017 compared to 2016 was primarily due to lower net long-term borrowings, partially offset
by lower treasury stock purchases and higher net commercial paper borrowings.

Debt Management

Total debt, including both the current and long-term portions of capital leases and lease-financing obligations,
decreased $360 million to $15.2 billion as of year-end 2018 compared to 2017. The decrease in 2018, compared to
2017, resulted primarily from net payments on commercial paper borrowings of $1.3 billion and payments of $1.3
billion on maturing long-term debt obligations, partially offset by the issuance of (i) $600 million of senior notes
bearing an interest rate of 4.50%, (ii) $600 million of senior notes bearing an interest rate of 5.40% and (iii) our $1.0
billion term loan that has a variable interest rate. The variable interest rate on the term loan was 3.37% as of
February 2, 2019. The combined $1.2 billion senior notes issuance has a higher weighted average interest rate
than the $1.3 billion maturing long-term debt obligations it replaced. As a result, we expect a higher weighted
average interest rate in 2019 which may contribute to increased interest expense. The sale of our convenience
store business unit allowed us to pay down debt and fund our ASR program.

A-23

Total debt, including both the current and long-term portions of capital lease and lease-financing obligations,
increased $1.5 billion to $15.6 billion as of year-end 2017 compared to 2016. The increase in 2017, compared to
2016, resulted from the issuance of (i) $400 million of senior notes bearing an interest rate of 2.80%, (ii) $600
million of senior notes bearing an interest rate of 3.70%, (iii) $500 million of senior notes bearing an interest rate of
4.65% and (iv) increases in commercial paper borrowings, partially offset by payments of $700 million on maturing
long-term debt obligations.

Liquidity Needs

We estimate our liquidity needs over the next twelve-month period to approximate $6.4 billion, which includes

anticipated requirements for working capital, capital investments, interest payments and scheduled principal
payments of debt and commercial paper, offset by cash and temporary cash investments on hand at the end of
2018. We generally operate with a working capital deficit due to our efficient use of cash in funding operations and
because we have consistent access to the capital markets. Based on current operating trends, we believe that cash
flows from operating activities and other sources of liquidity, including borrowings under our commercial paper
program and bank credit facility, will be adequate to meet our liquidity needs for the next twelve months and for the
foreseeable future beyond the next twelve months. We have approximately $1.3 billion of senior notes, $800
million of commercial paper and the $1.0 billion term loan maturing in the next twelve months, which are included in
the $6.4 billion of estimated liquidity needs. We expect to satisfy these obligations using cash generated from
operations, proceeds from the sale of our You Technology and Turkey Hill Dairy businesses and through issuing
additional senior notes, a term loan or commercial paper. On March 15, 2019, we repaid our $1.0 billion term loan
through increased commercial paper borrowings, which have a lower interest rate. We believe we have adequate
coverage of our debt covenants to continue to maintain our current investment grade debt ratings and to respond
effectively to competitive conditions.

Factors Affecting Liquidity

We can currently borrow on a daily basis approximately $2.75 billion under our commercial paper program. At

February 2, 2019, we had $800 million of commercial paper borrowings outstanding. Commercial paper
borrowings are backed by our credit facility, and reduce the amount we can borrow under the credit facility. If our
short-term credit ratings fall, the ability to borrow under our current commercial paper program could be adversely
affected for a period of time and increase our interest cost on daily borrowings under our commercial paper
program. This could require us to borrow additional funds under the credit facility, under which we believe we have
sufficient capacity. However, in the event of a ratings decline, we do not anticipate that our borrowing capacity
under our commercial paper program would be any lower than $500 million on a daily basis. Although our ability to
borrow under the credit facility is not affected by our credit rating, the interest cost and applicable margin on
borrowings under the credit facility could be affected by a downgrade in our Public Debt Rating. “Public Debt
Rating” means, as of any date, the rating that has been most recently announced by either S&P or Moody’s, as the
case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Company. As of
March 28, 2019, we had $810 million of commercial paper borrowings outstanding.

Our credit facility requires the maintenance of a Leverage Ratio and a Fixed Charge Coverage Ratio (our
“financial covenants”). A failure to maintain our financial covenants would impair our ability to borrow under the
credit facility. These financial covenants are described below:

(cid:120) Our Leverage Ratio (the ratio of Net Debt to Adjusted EBITDA, as defined in the credit facility) was 2.64 to
1 as of February 2, 2019. If this ratio were to exceed 3.50 to 1, we would be in default of our credit facility
and our ability to borrow under the facility would be impaired.

(cid:120) Our Fixed Charge Coverage Ratio (the ratio of Adjusted EBITDA plus Consolidated Rental Expense to

Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facility)
was 4.17 to 1 as of February 2, 2019. If this ratio fell below 1.70 to 1, we would be in default of our credit
facility and our ability to borrow under the facility would be impaired.

Our credit facility is more fully described in Note 6 to the Consolidated Financial Statements. We were in

compliance with our financial covenants at year-end 2018.

A-24

The tables below illustrate our significant contractual obligations and other commercial commitments, based on

year of maturity or settlement, as of February 2, 2019 (in millions of dollars):

Contractual Obligations (1)(2)
Long-term debt (3)
Interest on long-term debt (4)
Capital lease obligations
Operating lease obligations
Financed lease obligations
Self-insurance liability (5)
Construction commitments (6)
Purchase obligations (7)
Total

Other Commercial Commitments
Standby letters of credit
Surety bonds
Total

2019

$ 3,103
529
103
948
5
228
672
566
$ 6,154

349
406
755

2020

2021

2022

2023

Thereafter

Total

720
475
89
880
6
142
—
277
$ 2,589

793
441
86
773
5
98
—
149
$ 2,345

896
412
82
649
5
64
—
55
$ 2,163

$ 595 $ 8,244
4,952
766
3,197
17
122
—
12
$ 1,713 $ 17,310

392
81
556
5
42
—
42

$ 14,351
7,201
1,207
7,003
43
696
672
1,101
$ 32,274

$ — $ — $ — $
—
$ — $ — $ — $

—

— $
—
— $

349
406
755

(1) The contractual obligations table excludes funding of pension and other postretirement benefit obligations,

which totaled approximately $218 million in 2018. This table also excludes contributions under various multi-
employer pension plans, which totaled $358 million in 2018.

(2) The liability related to unrecognized tax benefits has been excluded from the contractual obligations table

because a reasonable estimate of the timing of future tax settlements cannot be determined.

(3) As of February 2, 2019, we had $800 million of commercial paper and no borrowings under our credit facility.
(4) Amounts include contractual interest payments using the interest rate as of February 2, 2019, and stated fixed

and swapped interest rates, if applicable, for all other debt instruments.

(5) The amounts included in the contractual obligations table for self-insurance liability related to workers’

compensation claims have been stated on a present value basis.

(6) Amounts include funds owed to third parties for projects currently under construction. These amounts are

reflected in other current liabilities in our Consolidated Balance Sheets.

(7) Amounts include commitments, many of which are short-term in nature, to be utilized in the normal course of

business, such as several contracts to purchase raw materials utilized in our food production plants and several
contracts to purchase energy to be used in our stores and food production plants. Our obligations also include
management fees for facilities operated by third parties and outside service contracts. Any upfront vendor
allowances or incentives associated with outstanding purchase commitments are recorded as either current or
long-term liabilities in our Consolidated Balance Sheets.

As of February 2, 2019, we maintained a $2.75 billion (with the ability to increase by $1 billion), unsecured

revolving credit facility that, unless extended, terminates on August 29, 2022. Outstanding borrowings under the
credit facility, the commercial paper borrowings, and some outstanding letters of credit, reduce funds available
under the credit facility. As of February 2, 2019, we had $800 million of outstanding commercial paper and no
borrowings under our revolving credit facility. The outstanding letters of credit that reduce funds available under our
credit facility totaled $3 million as of February 2, 2019.

In addition to the available credit mentioned above, as of February 2, 2019, we had authorized for issuance

$1.3 billion of securities remaining under a shelf registration statement filed with the SEC and effective on
December 14, 2016.

A-25

We also maintain surety bonds related primarily to our self-insured workers’ compensation claims. These
bonds are required by most states in which we are self-insured for workers’ compensation and are placed with
predominately third-party insurance providers to insure payment of our obligations in the event we are unable to
meet our claim payment obligations up to our self-insured retention levels. These bonds do not represent liabilities
of ours, as we already have reserves on our books for the claims costs. Market changes may make the surety
bonds more costly and, in some instances, availability of these bonds may become more limited, which could affect
our costs of, or access to, such bonds. Although we do not believe increased costs or decreased availability would
significantly affect our ability to access these surety bonds, if this does become an issue, we would issue letters of
credit, in states where allowed, against our credit facility to meet the state bonding requirements. This could
increase our cost and decrease the funds available under our credit facility.

We also are contingently liable for leases that have been assigned to various third parties in connection with

facility closings and dispositions. We could be required to satisfy obligations under the leases if any of the
assignees are unable to fulfill their lease obligations. Due to the wide distribution of our assignments among third
parties, and various other remedies available to us, we believe the likelihood that we will be required to assume a
material amount of these obligations is remote. We have agreed to indemnify certain third-party logistics operators
for certain expenses, including multi-employer pension plan obligations and withdrawal liabilities.

In addition to the above, we enter into various indemnification agreements and take on indemnification
obligations in the ordinary course of business. Such arrangements include indemnities against third party claims
arising out of agreements to provide services to us; indemnities related to the sale of our securities; indemnities of
directors, officers and employees in connection with the performance of their work; and indemnities of individuals
serving as fiduciaries on benefit plans. While our aggregate indemnification obligation could result in a material
liability, we are not aware of any current matter that could result in a material liability.

OUTLOOK

This discussion and analysis contains certain forward-looking statements about our future performance. These
statements are based on management’s assumptions and beliefs in light of the information currently available to it.
Such statements are indicated by words such as “achieve,” “affect,” “believe,” “committed,” “continue,” “could,”
“effect,” “estimate,” “expects,” “future,” “growth,” “intends,” “likely,” “may,” “plan,” “range,” “result,” “strategy,”
“strong,” “trend,” “vision,” “will, and “would,” and similar words or phrases. These forward-looking statements are
subject to uncertainties and other factors that could cause actual results to differ materially.

Statements elsewhere in this report and below regarding our expectations, projections, beliefs, intentions or

strategies are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. While we believe that the statements are accurate, uncertainties about the general economy,
our labor relations, our ability to execute our plans on a timely basis and other uncertainties described below could
cause actual results to differ materially.

(cid:120) We are targeting identical sales growth, excluding fuel, to range from 2.0% to 2.25% in 2019.

(cid:120) We expect net earnings to range from $2.15 to $2.25 per diluted share for 2019.

(cid:120) We expect FIFO operating profit to range from $2.9 billion to $3.0 billion for 2019.

(cid:120) We expect capital investments, excluding mergers, acquisitions, and purchases of leased facilities, to

range between $3.0 and $3.2 billion in 2019.

(cid:120) We expect our 2019 tax rate to be approximately 22%.

(cid:120) We expect a higher weighted average interest rate in 2019 which may contribute to increased interest

expense.

A-26

Various uncertainties and other factors could cause actual results to differ materially from those contained in the

forward-looking statements. These include:

(cid:120) The extent to which our sources of liquidity are sufficient to meet our requirements may be affected by the

state of the financial markets and the effect that such condition has on our ability to issue commercial paper
at acceptable rates. Our ability to borrow under our committed lines of credit, including our bank credit
facilities, could be impaired if one or more of our lenders under those lines is unwilling or unable to honor
its contractual obligation to lend to us, or in the event that natural disasters or weather conditions interfere
with the ability of our lenders to lend to us. Our ability to refinance maturing debt may be affected by the
state of the financial markets.

(cid:120) Our ability to achieve sales, earnings, incremental FIFO operating profit, and free cash flow goals may be
affected by: labor negotiations or disputes; changes in the types and numbers of businesses that compete
with us; pricing and promotional activities of existing and new competitors, including non-traditional
competitors, and the aggressiveness of that competition; Our response to these actions; the state of the
economy, including interest rates, the inflationary and deflationary trends in certain commodities, changes
in tariffs, and the unemployment rate; the effect that fuel costs have on consumer spending; volatility of fuel
margins; changes in government-funded benefit programs; manufacturing commodity costs; diesel fuel
costs related to our logistics operations; trends in consumer spending; the extent to which our customers
exercise caution in their purchasing in response to economic conditions; the uncertain pace of economic
growth; changes in inflation or deflation in product and operating costs; stock repurchases; our ability to
retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy
benefit managers; our ability to negotiate modifications to multi-employer pension plans; natural disasters
or adverse weather conditions; the potential costs and risks associated with potential cyber-attacks or data
security breaches; the success of our future growth plans; the ability to execute on Restock Kroger; and the
successful integration of merged companies and new partnerships.

(cid:120) Our ability to achieve these goals may also be affected by our ability to manage the factors identified

above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

(cid:120) Our effective tax rate may differ from the expected rate due to changes in laws, the status of pending items

with various taxing authorities, and the deductibility of certain expenses.

We cannot fully foresee the effects of changes in economic conditions on our business. We have assumed

economic and competitive situations will not change significantly in 2019.

Other factors and assumptions not identified above, including those discussed in Item 1A of this Report, could

also cause actual results to differ materially from those set forth in the forward-looking information. Accordingly,
actual events and results may vary significantly from those included in, contemplated or implied by forward-looking
statements made by us or our representatives. We undertake no obligation to update the forward-looking
information contained in this filing.

A-27

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Kroger Co. and its subsidiaries (the
“Company”) as of February 2, 2019 and February 3, 2018, and the related consolidated statements of operations,
comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period
ended February 2, 2019, including the related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of February 2, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of February 2, 2019 and February 3, 2018, and the results of its operations
and its cash flows for each of the three years in the period ended February 2, 2019 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of February 2, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 19 to the consolidated financial statements, the Company changed the manner in which it
accounts for revenues from contracts with customers in 2018.

Basis for Opinions

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

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

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

A-28

Definition and Limitations of Internal Control over Financial Reporting

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

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

Cincinnati, Ohio
April 2, 2019

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

A-29

THE KROGER CO.
CONSOLIDATED BALANCE SHEETS

(In millions, except par amounts)
ASSETS
Current assets

Cash and temporary cash investments
Store deposits in-transit
Receivables
FIFO inventory
LIFO reserve
Assets held for sale
Prepaid and other current assets

Total current assets

Property, plant and equipment, net
Intangibles, net
Goodwill
Other assets

Total Assets

LIABILITIES
Current liabilities

Current portion of long-term debt including obligations under capital leases and

financing obligations
Trade accounts payable
Accrued salaries and wages
Liabilities held for sale
Other current liabilities
Total current liabilities

Long-term debt including obligations under capital leases and financing obligations
Deferred income taxes
Pension and postretirement benefit obligations
Other long-term liabilities

Total Liabilities

Commitments and contingencies see Note 13

SHAREHOLDERS’ EQUITY

February 2, February 3,

2019

2018

429
1,181
1,589
8,123
(1,277)
166
592
10,803

21,635
1,258
3,087
1,335

347
1,161
1,637
7,781
(1,248)
604
835
11,117

21,071
1,100
2,925
984

38,118

37,197

3,157
6,059
1,227
51
3,780
14,274

12,072
1,562
494
1,881

3,560
5,858
1,099
259
3,421
14,197

12,029
1,568
792
1,706

30,283

30,292

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 2018

—

and 2017

Additional paid-in capital
Accumulated other comprehensive loss
Accumulated earnings
Common shares in treasury, at cost, 1,120 shares in 2018 and 1,048 shares in 2017

Total Shareholders’ Equity - The Kroger Co.

Noncontrolling interests

Total Equity

Total Liabilities and Equity

1,918
3,245
(346)
19,681
(16,612)

7,886
(51)

7,835

1,918
3,161
(471)
17,007
(14,684)

6,931
(26)

6,905

38,118

37,197

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

A-30

THE KROGER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended February 2, 2019, February 3, 2018 and January 28, 2017

(In millions, except per share amounts)
Sales

Operating expenses

Merchandise costs, including advertising, warehousing, and
transportation, excluding items shown separately below

Operating, general and administrative
Rent
Depreciation and amortization

Operating profit

Other income (expense)

2017
2018
(52 weeks)
(53 weeks)
$ 121,162 $ 122,662

2016
(52 weeks)
$ 115,337

94,894
20,305
884
2,465

95,662
21,041
911
2,436

89,502
19,162
881
2,340

2,614

2,612

3,452

Interest expense
Non-service component of company-sponsored pension plan costs
Mark to market gain on Ocado securities
Gain on sale of business

(620)
(26)
228
1,782

(601)
(527)
—
—

(522)
(16)
—
—

Net earnings before income tax (benefit) expense

3,978

1,484

2,914

Income tax (benefit) expense

900

(405)

957

Net earnings including noncontrolling interests
Net loss attributable to noncontrolling interests

Net earnings attributable to The Kroger Co.

Net earnings attributable to The Kroger Co. per basic common share

3,078
(32)

1,889
(18)

3,110 $

1,907

3.80 $

2.11

Average number of common shares used in basic calculation

810

895

1,957
(18)

1,975

2.08

942

Net earnings attributable to The Kroger Co. per diluted common share

3.76 $

2.09

2.05

Average number of common shares used in diluted calculation

818

904

958

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

A-31

THE KROGER CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended February 2, 2019, February 3, 2018 and January 28, 2017

(In millions)
Net earnings including noncontrolling interests

2018

2017

(52 weeks) (53 weeks)
$ 3,078 $ 1,889

2016
(52 weeks)
$ 1,957

Other comprehensive income (loss)

Realized gains and losses on available for sale securities, net of income tax (1)
Change in pension and other postretirement defined benefit plans, net of income

tax(2)

Unrealized gains and losses on cash flow hedging activities, net of income tax(3)
Amortization of unrealized gains and losses on cash flow hedging activities, net

of income tax (4)

(4)

147
(23)

214
23

(20)

(64)
47

Total other comprehensive income (loss)

125

244

(35)

Comprehensive income
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to The Kroger Co.

3,203

2,133
(18)
$ 3,235 $ 2,151

(32)

1,922
(18)
$ 1,940

(1) Amount is net of tax expense (benefit) of $(1) in 2018, $1 in 2017 and $(16) in 2016.
(2) Amount is net of tax expense (benefit) of $45 in 2018, $83 in 2017 and $(39) in 2016.
(3) Amount is net of tax expense (benefit) of $(8) in 2018, $0 in 2017 and $27 in 2016.
(4) Amount is net of tax expense of $3 in 2018 and $3 in 2017 and $0 in 2016.

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

A-32

THE KROGER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended February 2, 2019, February 3, 2018 and January 28, 2017

(In millions)
Cash Flows from Operating Activities:

Net earnings including noncontrolling interests

Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by

operating activities:
Depreciation and amortization
LIFO (credit) charge
Stock-based employee compensation
Expense for company-sponsored pension plans
Goodwill impairment charge
Deferred income taxes
Gain on sale of business
Mark to market gain on Ocado securities
Other
Changes in operating assets and liabilities net of effects from mergers and disposals of businesses:

Store deposits in-transit
Receivables
Inventories
Prepaid and other current assets
Trade accounts payable
Accrued expenses
Income taxes receivable and payable
Contribution to company-sponsored pension plans
Other

2018
(52 weeks)

2017
(53 weeks)

2016
(52 weeks)

3,078 $

1,889

1,957

2,465
29
154
76
—
(45)
(1,782)
(228)
116

(20)
(208)
(354)
244
213
416
289
(185)
(94)

2,436
(8)
151
591
110
(694)
—
—
79

(265)
61
(23)
41
158
(40)
(96)
(1,000)
23

2,340
19
141
94
—
201
—
—
(2)

13
(110)
(382)
(172)
16
(118)
261
—
14

Net cash provided by operating activities

4,164

3,413

4,272

Cash Flows from Investing Activities:

Payments for property and equipment, including payments for lease buyouts
Proceeds from sale of assets
Proceeds on settlement of financial instrument
Payments for acquisitions, net of cash acquired
Purchases of stores
Net proceeds from sale of business
Purchases of Ocado securities
Other

Net cash used by investing activities

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt
Payments on long-term debt
Net (payments) borrowings on commercial paper
Dividends paid
Proceeds from issuance of capital stock
Treasury stock purchases
Other

Net cash used by financing activities

Net increase in cash and temporary cash investments

Cash and temporary cash investments:

Beginning of year
End of year

Reconciliation of capital investments:

Payments for property and equipment, including payments for lease buyouts
Payments for lease buyouts
Changes in construction-in-progress payables

Total capital investments, excluding lease buyouts

Disclosure of cash flow information:

Cash paid during the year for interest
Cash paid during the year for income taxes

(2,967)
85
235
(197)
(44)
2,169
(392)
(75)

(2,809)
138
—
(16)
—
—
—
(20)

(3,699)
132
—
(401)
—
—
—
93

(1,186)

(2,707)

(3,875)

2,236
(1,372)
(1,321)
(437)
65
(2,010)
(57)

1,523
(788)
696
(443)
51
(1,633)
(87)

2,781
(1,355)
435
(429)
68
(1,766)
(86)

(2,896)

(681)

(352)

347
429

322
347

(2,967) $
5
(56)
(3,018)

(2,809)
13
(188)
(2,984)

614 $
$
600

656
348

277
322

(3,699)
5
72
(3,622)

505
557

$
$

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

A-33

THE KROGER CO.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Years Ended February 2, 2019, February 3, 2018 and January 28, 2017

Additional

Accumulated

Other

Common Stock

Paid-In
Capital Shares

Treasury Stock

Amount

Comprehensive Accumulated Noncontrolling
Earnings

Gain (Loss)

Interest

Total

1,918 $ 1,918 $ 2,980

951

$ (11,409) $

(680) $

14,011 $

(22) $ 6,798

(In millions, except per share amounts) Shares Amount
Balances at January 30, 2016
Issuance of common stock:
Stock options exercised
Restricted stock issued

—
—

(1)
(116)

(5)
(3)

68
57

Treasury stock activity:

Treasury stock purchases, at

cost

Stock options exchanged

Share-based employee

compensation

Other comprehensive loss net of

income tax of $(28)

Other
Cash dividends declared ($0.465 per

common share)

Net earnings (loss) including non-

controlling interests

—
—

—

—
—

—

—
—

—

—
—

—

—
—

141

—
66

—

47
4

—

—
—

—

(1,661)
(105)

—

—
(68)

—

—
—

—

(35)
—

—
—

—

—
—

—

(443)

—
—

—

—
52

—

67
(59)

(1,661)
(105)

141

(35)
50

(443)

—

1,975

(18)

1,957

Balances at January 28, 2017
Issuance of common stock:
Stock options exercised
Restricted stock issued

Treasury stock activity:

Treasury stock purchases, at

cost

Stock options exchanged

Share-based employee

compensation

Other comprehensive gain net of

income tax of $87

Other
Cash dividends declared ($0.495 per

common share)

Net earnings (loss) including non-

controlling interests

Balances at February 3, 2018
Issuance of common stock:
Stock options exercised
Restricted stock issued

Treasury stock activity:

Treasury stock purchases, at

cost

Stock options exchanged

Share-based employee

compensation

Other comprehensive gain net of

income tax of $39

Other
Cash dividends declared ($0.545 per

common share)

Net earnings (loss) including non-

controlling interests

1,918 $ 1,918 $ 3,070

994

$ (13,118) $

(715) $

15,543 $

$ 6,710

—
—

—

—
—

—

—
—

—

—
—

—

—
(119)

(4)
(2)

51
85

—
—

151

—
59

—

58
2

—

—
—

—

(1,567)
(66)

—

—
(69)

—

—
—

—

244
—

—
—

—

—
—

—

(443)

—
—

—

—
(20)

—

51
(34)

(1,567)
(66)

151

244
(30)

(443)

—

1,907

(18)

1,889

1,918 $ 1,918 $ 3,161

1,048

$ (14,684) $

(471) $

17,007 $

(26) $ 6,905

—
—

—

—
—

—

—
—

—

—
—

—

—
(119)

(4)
(3)

65
74

—
—

154

—
49

—

76
3

—

—
—

—

(1,927)
(83)

—

—
(57)

—

—
—

—

125

—

—
—

—

—
—

—

(436)

—
—

—

—
7

—

65
(45)

(1,927)
(83)

154

125
(1)

(436)

—

3,110

(32)

3,078

Balances at February 2, 2019

1,918 $ 1,918 $ 3,245

1,120

$ (16,612) $

(346) $

19,681 $

(51) $ 7,835

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

A-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. ACCOUNTING POLICIES

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

statements.

Description of Business, Basis of Presentation and Principles of Consolidation

The Kroger Co. (the “Company”) was founded in 1883 and incorporated in 1902. As of February 2, 2019, the

Company was one of the largest retailers in the world based on annual sales. The Company also manufactures
and processes food for sale by its supermarkets. The accompanying financial statements include the consolidated
accounts of the Company, its wholly-owned subsidiaries and other consolidated entities. Intercompany
transactions and balances have been eliminated.

Refer to Note 19 for a description of changes to the Consolidated Statements of Operations for a recently
adopted accounting standard regarding the presentation of the non-service component of company-sponsored
pension plan costs.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest January 31. The last three fiscal years consist of the

52-week period ended February 2, 2019, 53-week period ended February 3, 2018 and 52-week period ended
January 28, 2017.

Pervasiveness of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”)

requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities. Disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and
the reported amounts of consolidated revenues and expenses during the reporting period is also required. Actual
results could differ from those estimates.

Cash, Temporary Cash Investments and Book Overdrafts

Cash and temporary cash investments represent store cash and short-term investments with original maturities

of less than three months. Book overdrafts are included in “Trade accounts payable” and “Accrued salaries and
wages” in the Consolidated Balance Sheets.

Deposits In-Transit

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

Inventories

Inventories are stated at the lower of cost (principally on a last-in, first-out “LIFO” basis) or market. In total,
approximately 90% of inventories in 2018 and 93% of inventories in 2017 were valued using the LIFO method. The
remaining inventories, including substantially all fuel inventories, are stated at the lower of cost (on a FIFO basis) or
net realizable value. Replacement cost was higher than the carrying amount by $1,277 at February 2, 2019 and
$1,248 at February 3, 2018. The Company follows the Link-Chain, Dollar-Value LIFO method for purposes of
calculating its LIFO charge or credit.

A-35

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

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

Property, Plant and Equipment

Property, plant and equipment are recorded at cost or, in the case of assets acquired in a business
combination, at fair value. Depreciation and amortization expense, which includes the depreciation of assets
recorded under capital leases, is computed principally using the straight-line method over the estimated useful lives
of individual assets. Buildings and land improvements are depreciated based on lives varying from 10 to 40
years. All new purchases of store equipment are assigned lives varying from three to nine years. Leasehold
improvements are amortized over the shorter of the lease term to which they relate, which generally varies from
four to 25 years, or the useful life of the asset. Food production plant and distribution center equipment is
depreciated over lives varying from three to 15 years. Information technology assets are generally depreciated
over five years. Depreciation and amortization expense was $2,465 in 2018, $2,436 in 2017 and $2,340 in 2016.

Interest costs on significant projects constructed for the Company’s own use are capitalized as part of the costs

of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related accumulated
depreciation and amortization are removed from the balance sheet and any gain or loss is reflected in net earnings.
Refer to Note 4 for further information regarding the Company’s property, plant and equipment.

Deferred Rent

The Company recognizes rent holidays, including the time period during which the Company has access to the

property for construction of buildings or improvements and escalating rent provisions on a straight-line basis over
the term of the lease. The deferred amount is included in “Other current liabilities” and “Other long-term liabilities”
on the Company’s Consolidated Balance Sheets.

Goodwill

The Company reviews goodwill for impairment during the fourth quarter of each year, and also upon the
occurrence of a triggering event. The Company performs reviews of each of its operating divisions and other
consolidated entities (collectively, “reporting units”) that have goodwill balances. Generally, fair value is determined
using a multiple of earnings, or discounted projected future cash flows, and is compared to the carrying value of a
reporting unit for purposes of identifying potential impairment. Projected future cash flows are based on
management’s knowledge of the current operating environment and expectations for the future. Goodwill
impairment is recognized for any excess of the reporting unit’s carrying value over its fair value, not to exceed the
total amount of goodwill allocated to the reporting unit. Results of the goodwill impairment reviews performed
during 2018, 2017 and 2016 are summarized in Note 3.

A-36

Impairment of Long-Lived Assets

The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on

whether certain triggering events have occurred. These events include current period losses combined with a
history of losses or a projection of continuing losses or a significant decrease in the market value of an
asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted
future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the
carrying value for those stores. If the Company identifies impairment for long-lived assets to be held and used, the
Company compares the assets’ current carrying value to the assets’ fair value. Fair value is based on current
market values or discounted future cash flows. The Company records impairment when the carrying value exceeds
fair market value. With respect to owned property and equipment held for disposal, the value of the property and
equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and
current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair
market value, reduced by estimated direct costs of disposal. The Company recorded asset impairments in the
normal course of business totaling $56, $71 and $26 in 2018, 2017 and 2016, respectively. Costs to reduce the
carrying value of long-lived assets for each of the years presented have been included in the Consolidated
Statements of Operations as Operating, general and administrative (“OG&A”) expense.

Accounts Payable

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.

Contingent Consideration

Certain Company business combinations involve potential payment of future consideration that is contingent
upon the achievement of certain performance milestones. The Company records contingent consideration at fair
value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability-
weighted future cash flows, discounted back to present value using a discount rate determined in accordance with
accepted valuation methods. The liability for contingent consideration is remeasured to fair value at each reporting
period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized
in earnings until the contingency is resolved. In 2018, an adjustment to increase the contingent consideration
liability as of year-end 2018 was recorded for $33 in OG&A expense.

Store Closing Costs

The Company provides for closed store liabilities relating to the present value of the estimated remaining non-
cancellable lease payments after the closing date, net of estimated subtenant income. The Company estimates the
net lease liabilities using a discount rate to calculate the present value of the remaining net rent payments on
closed stores. The closed store lease liabilities usually are paid over the lease terms associated with the closed
stores, which generally have remaining terms ranging from one to 20 years. Adjustments to closed store liabilities
primarily relate to changes in subtenant income and actual exit costs differing from original estimates. Adjustments
are made for changes in estimates in the period in which the change becomes known. Store closing liabilities are
reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs is adjusted to
income in the proper period.

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

The current portion of the future lease obligations of stores is included in “Other current liabilities,” and the long-

term portion is included in “Other long-term liabilities” in the Consolidated Balance Sheets.

A-37

Interest Rate Risk Management

The Company uses derivative instruments primarily to manage its exposure to changes in interest rates. The
Company’s current program relative to interest rate protection and the methods by which the Company accounts for
its derivative instruments are described in Note 7.

Benefit Plans and Multi-Employer Pension Plans

The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets.
Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized
as part of net periodic benefit cost are required to be recorded as a component of Accumulated Other
Comprehensive Income (“AOCI”). The Company has elected to measure defined benefit plan assets and
obligations as of January 31, which is the month-end that is closest to its fiscal year-ends, which were February 2,
2019 for fiscal 2018 and February 3, 2018 for fiscal 2017.

The determination of the obligation and expense for company-sponsored pension plans and other post-

retirement benefits is dependent on the selection of assumptions used by actuaries and the Company in calculating
those amounts. Those assumptions are described in Note 15 and include, among others, the discount rate, the
expected long-term rate of return on plan assets, mortality and the rates of increase in compensation and health
care costs. Actual results that differ from the assumptions are accumulated and amortized over future periods and,
therefore, generally affect the recognized expense and recorded obligation in future periods. While the Company
believes that the assumptions are appropriate, significant differences in actual experience or significant changes in
assumptions may materially affect the pension and other post-retirement obligations and future expense.

The Company also participates in various multi-employer plans for substantially all union employees. Pension

expense for these plans is recognized as contributions are funded or when commitments are probable and
reasonably estimable, in accordance with GAAP. Refer to Note 16 for additional information regarding the
Company’s participation in these various multi-employer pension plans.

The Company administers and makes contributions to the employee 401(k) retirement savings accounts.
Contributions to the employee 401(k) retirement savings accounts are expensed when contributed or over the
service period in the case of automatic contributions. Refer to Note 15 for additional information regarding the
Company’s benefit plans.

Share Based Compensation

The Company accounts for stock options under fair value recognition provisions. Under this method, the
Company recognizes compensation expense for all share-based payments granted. The Company recognizes
share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the
award. In addition, the Company records expense for restricted stock awards in an amount equal to the fair market
value of the underlying stock on the grant date of the award, over the period the awards lapse. Excess tax benefits
related to share-based payments are recognized in the provision for income taxes. Refer to Note 12 for additional
information regarding the Company’s stock based compensation.

Deferred Income Taxes

Deferred income taxes are recorded to reflect the tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting basis. Refer to Note 5 for the types of differences that give rise to
significant portions of deferred income tax assets and liabilities.

Uncertain Tax Positions

The Company reviews the tax positions taken or expected to be taken on tax returns to determine whether and
to what extent a benefit can be recognized in its consolidated financial statements. Refer to Note 5 for the amount
of unrecognized tax benefits and other related disclosures related to uncertain tax positions.

A-38

Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions

regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of
income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions,
including state and local taxes, the Company records allowances for probable exposures. A number of years may
elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. As of
February 2, 2019, the Internal Revenue Service had concluded its examination of our 2012 and 2013 federal tax
returns.

The assessment of the Company’s tax position relies on the judgment of management to estimate the

exposures associated with the Company’s various filing positions.

Self-Insurance Costs

The Company is primarily self-insured for costs related to workers’ compensation and general liability

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

The following table summarizes the changes in the Company’s self-insurance liability through February 2,

2019.

Beginning balance
Expense
Claim payments
Ending balance
Less: Current portion
Long-term portion

2018
$ 695
229
(228)
696
(228)
$ 468

2017

2016
$ 682 $ 639
263
247
(220)
(234)
682
695
(229)
(234)
$ 461 $ 453

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

is included in “Other long-term liabilities” in the Consolidated Balance Sheets.

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

The Company is similarly self-insured for property-related losses. The Company maintains stop loss coverage

to limit its property loss exposures including coverage for earthquake, wind, flood and other catastrophic events.

A-39

Revenue Recognition

Sales

The Company recognizes revenues from the retail sale of products, net of sales taxes, at the point of sale.

Pharmacy sales are recorded when the product is provided to the customer. Digital channel originated sales are
recognized either upon pickup in store or upon delivery to the customer and may include shipping revenue.
Discounts provided to customers by the Company at the time of sale, including those provided in connection with
loyalty cards, are recognized as a reduction in sales as the products are sold. Discounts provided by vendors,
usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are
redeemable at any retailer that accepts coupons. The Company records a receivable from the vendor for the
difference in sales price and cash received. For merchandise sold in one of the Company’s stores or online, tender
is accepted at the point of sale. The Company acts as principal in certain vendor arrangements where the
purchase and sale of inventory are virtually simultaneous. The Company records revenue and related costs on a
gross basis for these arrangements. Effective February 4, 2018, the Company prospectively reclassified certain
pharmacy fees of $250 for 2018 from merchandise costs to be recorded as a reduction to sales on the Company’s
Consolidated Statements of Operations. For pharmacy sales, collection of third party receivables is typically
expected within three months or less from the time of purchase. The third-party receivables from pharmacy sales
are recorded in Receivables in the Company’s Consolidated Balance Sheets and were $645 as of February 2, 2019
and $571 as of February 3, 2018.

Gift Cards and Gift Certificates

The Company does not recognize a sale when it sells its own gift cards and gift certificates (collectively “gift
cards”). Rather, it records a deferred revenue liability equal to the amount received. A sale is then recognized
when the gift cards are redeemed to purchase the Company’s products. The Company’s gift cards do not expire.
While gift cards are generally redeemed within 12 months, some are never fully redeemed. The Company
recognizes gift card breakage under the proportional method, where recognition of breakage income is based upon
the historical run-off rate of unredeemed gift cards. The Company’s gift card deferred revenue liability was $100
as of February 2, 2019 and $90 as of February 3, 2018.

Disaggregated Revenues

The following table presents sales revenue by type of product for the year-ended February 2, 2019, February 3,

2018, and January 28, 2017:

Non Perishable (1)(5)
Fresh (2)(5)
Supermarket Fuel
Pharmacy (5)
Convenience Stores (3)
Other (4)(5)

2018

2017

2016

Amount

% of total

Amount

% of total

Amount

% of total

$ 60,649
29,089
14,903
10,617
944
4,959

50.1 % $ 60,872
29,141
24.0 %
13,177
12.3 %
10,724
4,515
4,233

8.8 %
0.8 %
4.0 %

49.6 % $ 58,828
23.8 %
27,666
10.7 % 11,286
10,421
4,096
3,040

8.7 %
3.7 %
3.5 %

51.0 %
24.0 %
9.8 %
9.0 %
3.6 %
2.6 %

Total Sales

$ 121,162

100 % $ 122,662

100 % $ 115,337

100 %

(1) Consists primarily of grocery, general merchandise, health and beauty care and natural foods.
(2) Consists primarily of produce, floral, meat, seafood, deli, bakery and fresh prepared.
(3) The Company completed the sale of its convenience store business unit during the first quarter of 2018.
(4) Consists primarily of sales related to food production plants to outside parties, data analytic services, third party

media revenue, other consolidated entities, specialty pharmacy, in-store health clinics, digital coupon services
and other online sales not included in the categories above.

(5) Digital sales, primarily including Pickup, Deliver and pharmacy e-commerce sales, grew approximately 58%,
90% and 49% in 2018, 2017 and 2016, respectively, adjusted to remove the impact of the 53rd week in 2017.
These sales are included in the non perishable, fresh, pharmacy, and other line items above.

A-40

Merchandise Costs

The “Merchandise costs” line item of the Consolidated Statements of Operations includes product costs, net of

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

Warehousing and transportation costs include distribution center direct wages, transportation direct wages,

repairs and maintenance, utilities, inbound freight and, where applicable, third party warehouse management
fees. These costs are recognized in the periods the related expenses are incurred.

The Company believes the classification of costs included in merchandise costs could vary widely throughout

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

The Company recognizes all vendor allowances as a reduction in merchandise costs when the related product

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

Advertising Costs

The Company’s advertising costs are recognized in the periods the related expenses are incurred and are
included in the “Merchandise costs” line item of the Consolidated Statements of Operations. The Company’s
advertising costs totaled $752 in 2018, $707 in 2017 and $717 in 2016. The Company does not record vendor
allowances for co-operative advertising as a reduction of advertising expense.

Operating, General and Administrative Expenses

OG&A expenses include all operating costs of the Company, except merchandise costs, as described above,

and rent and depreciation and amortization. Certain other income items are classified as a reduction of OG&A
costs. These include items such as gift card and lottery commissions, coupon processing and vending machine
fees, check cashing, money order and wire transfer fees, and baled salvage credits.

Consolidated Statements of Cash Flows

For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt

instruments purchased with an original maturity of three months or less to be temporary cash investments.

A-41

Segments

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

2. MERGERS AND PARTNERSHIP AGREEMENTS

Merger Agreement

On June 22, 2018, the Company finalized the merger with Home Chef, a meal kit delivery company. The
merger will allow the Company to increase the availability of meal kits and expand its offerings to customers. The
Company completed the merger by purchasing 100% of the ownership interest in Home Chef, for $197 net of cash
and cash equivalents of $30, in addition to future earnout payments of up to $500 over five years that are
contingent on achieving certain milestones. The contingent consideration is based on future performance of both
the online and offline business and the related customer engagement. The fair value of the earnout liability in the
amount of $91 recognized on the acquisition date was measured using unobservable (Level 3) inputs and is
included in “Other long-term liabilities” within the Consolidated Balance Sheet. The Company estimated the fair
value of the earnout liability by applying a Monte-Carlo simulation method using the Company’s projection of future
operating results for both the online and offline businesses related to the Home Chef merger and the estimated
probability of achievement of the earnout target metrics. The Monte-Carlo simulation is a generally accepted
statistical technique used to generate a defined number of valuation paths in order to develop a reasonable
estimate of the fair value of the earnout liability. Changes in the fair value of the earnout liability in future periods
will be recorded in the Company’s results in the period of the change.

The merger was accounted for under the purchase method of accounting and was financed through the
issuance of commercial paper. In a business combination, the purchase price is allocated to assets acquired and
liabilities assumed based on their fair values, with any excess of purchase price over fair value recognized as
goodwill. In addition to recognizing assets and liabilities on the acquired company’s balance sheet, the Company
reviews supply contracts, leases, financial instruments, employment agreements and other significant agreements
to identify potential assets or liabilities that require recognition in connection with the application of acquisition
accounting under Accounting Standards Codification (“ASC”) 805. Intangible assets are recognized apart from
goodwill when the asset arises from contractual or other legal rights, or are separable from the acquired entity such
that they may be sold, transferred, licensed, rented or exchanged either on a standalone basis or in combination
with a related contract, asset or liability.

A-42

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the

acquisition date.

ASSETS
Total current assets

Property, plant and equipment
Other assets
Intangibles

Total Assets, excluding Goodwill

LIABILITIES
Total current liabilities

Other long-term liabilities

Total Liabilities

Total Identifiable Net Assets

Goodwill

Total Purchase Price

June 22,
2018

6
1
143

186

(28)

(94)

(122)

64
163
227

The preliminary purchase price allocation for the Home Chef acquisition is based upon a preliminary valuation
which is subject to change as the Company obtains additional information with respect to income taxes during the
measurement period. The allocation will be completed by the second quarter of 2019.

Of the $143 allocated to intangible assets, the Company recorded $99 and $44 related to customer

relationships and the trade name, respectively. The Company will amortize the customer relationships, using the
cash flow trended method over seven years. The goodwill recorded as part of the merger was attributable to the
assembled workforce of Home Chef and operational synergies expected from the merger. The merger was treated
as a 30% stock purchase and 70% partnership interest purchase for income tax purposes. The tax basis of the
assets acquired and liabilities assumed for the portion of the transaction treated as a partnership interest purchase
was stepped up, and the related goodwill is deductible for tax purposes. The assets acquired and liabilities
assumed for the portion treated as a stock purchase did not result in a step up of tax basis, and goodwill is not
expected to be deductible for tax purposes. The Company determined the Home Chef results of operations are not
material. Therefore the pro forma information is not required for fiscal year 2018 and 2017.

On September 2, 2016, the Company closed its merger with Modern HC Holdings, Inc. (“ModernHEALTH”) by

purchasing 100% of the outstanding shares of ModernHEALTH for $407. This merger allows the Company to
expand its specialty pharmacy services by significantly increasing geographic reach and patient therapies. The
merger was accounted for under the purchase method of accounting and was financed through the issuance of
commercial paper.

The Company’s purchase price allocation was finalized in the third quarter of 2017. The changes in the fair
values assumed from the preliminary amounts determined as of September 2, 2016 were a decrease in goodwill of
$2, a decrease in current liabilities of $2. The table below summarizes the final fair value of the assets acquired and
liabilities assumed:

A-43

ASSETS
Total current assets

Property, plant and equipment
Intangibles

Total Assets, excluding Goodwill

LIABILITIES

Total current liabilities

Fair-value of long-term debt including obligations under capital leases and financing obligations
Deferred income taxes

Total Liabilities

Total Identifiable Net Assets

Goodwill

Total Purchase Price

September 2,

2016

8
136

226

(68)

(1)
(33)

(102)

124
283
407

Of the $136 allocated to intangible assets, the Company recorded $131 and $5 related to pharmacy

prescription files and distribution agreements, respectively. The Company will amortize the pharmacy prescription
files and distribution agreements, using the straight line method, over 10 years. The goodwill recorded as part of
the merger was attributable to the assembled workforce of ModernHEALTH and operational synergies expected
from the merger, as well as any intangible assets that did not qualify for separate recognition. The merger was
treated as a stock purchase for income tax purposes. The assets acquired and liabilities assumed as part of the
merger did not result in a step up of tax basis and goodwill is not expected to be deductible for tax purposes.

Partnership Agreement

On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International
Holdings Limited and Ocado Group plc (“Ocado”). 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. As part
of the agreement, the Company provided a letter of credit for $180, which supports its commitment to contract with
Ocado to build a number of fulfilment centers. The balance of the letter of credit will reduce over time with the
construction of each fulfilment center.

In addition, on May 17, 2018, the Company entered into a Share Subscription Agreement with Ocado, pursuant

to which the Company agreed to purchase 33.1 million ordinary shares of Ocado for an aggregate purchase price
of $243. The Company completed the purchase of these 33.1 million shares on May 29, 2018. This is in addition
to 8.1 million Ocado shares purchased earlier in the first quarter of 2018, and 6.5 million additional shares
purchased in the second quarter of 2018. The equity investment in Ocado is measured at fair value through
earnings. The fair value of all shares owned, which is measured using Level 1 inputs, was $620 at February 2,
2019 and is included in “Other assets” in the Company’s Consolidated Balance Sheets. The Company recorded an
unrealized gain of $228 in 2018, none of which was realized during the period as the Company did not sell any
Ocado securities.

A-44

3. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the changes in the Company’s net goodwill balance through February 2, 2019.

Balance beginning of year

Goodwill
Accumulated impairment losses

Subtotal

Activity during the year

Mergers
Impairment losses
Held for sale adjustment

Balance end of year

Goodwill
Accumulated impairment losses

Total Goodwill

2018

2017

$ 5,567 $ 5,563
(2,532)
3,031

(2,642)
2,925

163
—
(1)

18
(110)
(14)

5,729
(2,642)

5,567
(2,642)
$ 3,087 $ 2,925

In 2018, the Company acquired all of the outstanding shares of Home Chef (see Note 2) resulting in additional

goodwill totaling $163. Certain assets and liabilities including goodwill totaling $1 and $14, respectively for 2018
and 2017 were classified as held for sale in the Consolidated Balance Sheet (see Note 17).

Testing for impairment must be performed annually, or on an interim basis upon the occurrence of a triggering

event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its
carrying amount. The annual evaluation of goodwill and indefinite-lived intangible assets was performed during the
fourth quarter of 2018 and 2016 and did not result in impairment.

Based on the results of the Company’s impairment assessment in the fourth quarter of 2017, the Kroger
Specialty Pharmacy reporting unit was the only reporting unit for which there was a potential impairment. In the
fourth quarter of 2017, the operating performance of the Kroger Specialty Pharmacy reporting unit began to be
affected by reduced margins as a result of compression in reimbursement by third party payers and a reduction of
certain types of revenue. As a result of this decline, particularly in future expected cash flows, along with
comparable fair value information, management concluded that the carrying value of goodwill for Kroger Specialty
Pharmacy reporting unit exceeded its fair value, resulting in a pre-tax impairment charge of $110 ($74 after-tax).
The pre-impairment goodwill balance for Kroger Specialty Pharmacy was $353, as of the fourth quarter 2017.

The following table summarizes the Company’s intangible assets balance through February 2, 2019.

2018

2017

Definite-lived favorable leasehold interests
Definite-lived pharmacy prescription files
Definite-lived customer relationships
Definite-lived other
Indefinite-lived trade name
Indefinite-lived liquor licenses

amount

amortization(1)
$

Gross carrying Accumulated Gross carrying Accumulated
amortization(1)
(53)
$
(70)
(67)
(44)
—
—

(47) $
(92)
(88)
(55)
—
—

174
238
93
99
641
89

160
316
186
103
685
90

Total

1,540

(282) $

1,334

(234)

(1) Favorable leasehold interests are amortized to rent expense, pharmacy prescription files are amortized to

merchandise costs, customer relationships are amortized to depreciation and amortization expense and other
intangibles are amortized to OG&A expense and depreciation and amortization expense.

A-45

In 2018, the Company acquired definite and indefinite lived intangible assets totaling approximately $143,

excluding goodwill, as a result of the merger with Home Chef (see Note 2). Additionally, the majority of the
Company’s pharmacy prescription file purchases for 2018 were completed in a single transaction for $75.

Amortization expense associated with intangible assets totaled approximately $80, $59 and $63, during fiscal
years 2018, 2017 and 2016, respectively. Future amortization expense associated with the net carrying amount of
definite-lived intangible assets for the years subsequent to 2018 is estimated to be approximately:

2019
2020
2021
2022
2023
Thereafter

87
83
67
59
47
140

Total future estimated amortization associated with definite-lived intangible assets

483

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consists of:

Land
Buildings and land improvements
Equipment
Leasehold improvements
Construction-in-progress
Leased property under capital leases and financing obligations

2017

2018
3,254 $ 3,201
12,072
13,635
9,773
2,050
1,000

12,245
14,277
10,306
2,716
1,066

Total property, plant and equipment
Accumulated depreciation and amortization

43,864
(22,229)

41,731
(20,660)

Property, plant and equipment, net

$ 21,635 $ 21,071

Accumulated depreciation and amortization for leased property under capital leases was $345 at February 2,

2019 and $354 at February 3, 2018.

Approximately $169 and $177, net book value, of property, plant and equipment collateralized certain

mortgages at February 2, 2019 and February 3, 2018, respectively.

A-46

5. TAXES BASED ON INCOME

The provision for taxes based on income consists of:

Federal

Current
Deferred

Subtotal federal

State and local
Current
Deferred

Subtotal state and local

Total

2018 2017

2016

$ 775
(3)

$ 309 $ 721
158

(747)

772

(438)

879

108
20

128

15
18

51
27

$ 900

$ (405) $ 957

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

2018

2017 2016

Statutory rate
State income taxes, net of federal tax benefit
Credits
Resolution of issues
Domestic manufacturing deduction
Excess tax benefits from share-based payments
Effect of Tax Cuts and Jobs Act
Impairment of goodwill
Other changes, net

21.0 % 33.7 % 35.0 %
1.7
(2.5)
—
(1.1)
(0.4)
(60.8)
2.3
(0.2)

1.6
(1.1)
(0.5)
(0.7)
(1.6)
—
—
0.1

2.6
(1.3)
0.5
—
(0.3)
—
—
0.1

22.6 % (27.3)% 32.8 %

The 2018 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes and
an IRS audit that resulted in a reduction of prior year tax deductions at pre-Tax Act rates and an increase in future
tax deductions at post-Tax Act rates. These 2018 items were partially offset by the utilization of tax credits and
deductions, the remeasurement of uncertain tax positions and adjustments to provisional amounts that increased
prior year deductions at pre-Tax Act rates and decreased future deductions at post-Tax Act rates. In accordance
with SAB 118, the Company has completed accounting for the Tax Act resulting in no measurement period
adjustments.

The 2017 tax rate differed from the federal statutory rate primarily as a result of remeasuring deferred taxes
due to the Tax Act, the Domestic Manufacturing Deduction and other changes, partially offset by non-deducible
goodwill impairment charges and the effect of state income taxes. The 2016 tax rate differed from the federal
statutory rate primarily as a result of the recognition of excess tax benefits related to share-based payments after
the adoption of Accounting Standards Update (“ASU”) 2016-09, the utilization of tax credits, the Domestic
Manufacturing Deduction and other changes, partially offset by the effect of state income taxes.

A-47

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

Deferred tax assets:

Compensation related costs
Lease accounting
Closed store reserves
Net operating loss and credit carryforwards
Other

Subtotal
Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Depreciation and amortization
Insurance related costs
Inventory related costs

Total deferred tax liabilities

Deferred taxes

2018

2017

350 $
81
41
110
55

637
(54)

348
78
45
146
54

671
(62)

583

609

(1,850)
(38)
(257)

(1,892)
(32)
(253)

(2,145)

(2,177)

$ (1,562) $ (1,568)

At February 2, 2019, the Company had net operating loss carryforwards for state income tax purposes of
$1,208. These net operating loss carryforwards expire from 2019 through 2038. The utilization of certain of the
Company’s state net operating loss carryforwards may be limited in a given year. Further, based on the analysis
described below, the Company has recorded a valuation allowance against some of the deferred tax assets
resulting from its state net operating losses.

At February 2, 2019, the Company had state credit carryforwards of $47, most of which expire from 2019
through 2027. The utilization of certain of the Company’s credits may be limited in a given year. Further, based on
the analysis described below, the Company has recorded a valuation allowance against some of the deferred tax
assets resulting from its state credits.

At February 2, 2019, the Company had federal net operating loss carryforwards of $2. These net operating loss
carryforwards expire from 2036 through 2037. The utilization of certain of the Company’s federal net operating loss
carryforwards may be limited in a given year. Further, based on the analysis described below, the Company has
not recorded a valuation allowance against the deferred tax assets resulting from its federal net operating losses.

The Company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate whether

these assets are more likely than not to be realized based on all available evidence. This evidence includes
historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary
differences and the implementation of tax planning strategies. Projected future taxable income is based on
expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of
the reversals of existing temporary differences is based on current tax law and the Company’s tax methods of
accounting. Unless deferred tax assets are more likely than not to be realized, a valuation allowance is established
to reduce the carrying value of the deferred tax asset until such time that realization becomes more likely than not.
Increases and decreases in these valuation allowances are included in "Income tax expense" in the Consolidated
Statements of Operations. As of February 2, 2019, February 3, 2018 and January 28, 2017, the total valuation
allowance was $54, $62 and $50, respectively.

A-48

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including positions impacting

only the timing of tax benefits, is as follows:

Beginning balance
Additions based on tax positions related to the current year
Reductions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Lapse of statute
Ending balance

2018 2017 2016
$ 180 $ 177 $ 204
10
(1)
3
(30)
(2)
(7)
$ 174 $ 180 $ 177

7
(1)
23
(22)
(10)
(3)

11
(1)
6
(8)
—
(5)

The Company does not anticipate that changes in the amount of unrecognized tax benefits over the next twelve

months will have a significant impact on its results of operations or financial position.

As of February 2, 2019, February 3, 2018 and January 28, 2017, the amount of unrecognized tax benefits that,

if recognized, would impact the effective tax rate was $72, $88 and $73 respectively.

To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income

tax, such amounts have been accrued and classified as a component of income tax expense. During the years
ended February 2, 2019, February 3, 2018 and January 28, 2017, the Company recognized approximately $2, $8
and $(1), respectively, in interest and penalties (recoveries). The Company had accrued approximately $30, $28
and $20 for the payment of interest and penalties as of February 2, 2019, February 3, 2018 and January 28, 2017,
respectively.

As of February 2, 2019, the Internal Revenue Service had concluded its examination of our 2012 and 2013

federal tax returns.

6. DEBT OBLIGATIONS

Long-term debt consists of:

1.50% to 8.00% Senior Notes due through 2048
5.63% to 12.75% Mortgages due in varying amounts through 2027
1.68% to 2.63% Commercial paper borrowings due through

February 2019

3.37% Term Loan due 2019
Other

Total debt, excluding capital leases and financing obligations

Less current portion

February 2, February 3,

2019

2018

$ 12,097 $ 12,201
22

800
1,000
440

2,121
—
443

14,351
(3,103)

14,787
(3,509)

Total long-term debt, excluding capital leases and financing

obligations

$ 11,248 $ 11,278

A-49

In 2018, the Company issued $600 of senior notes due in fiscal year 2029 bearing an interest rate of 4.50%
and $600 of senior notes due in fiscal year 2049 bearing an interest rate of 5.40%. In connection with the senior
note issuances, the Company also terminated forward-starting interest rate swap agreements with an aggregate
notional amount of $750. These forward-starting interest rate swap agreements were hedging the variability in
future benchmark interest payments attributable to changing interest rates on the forecasted issuance of fixed-rate
debt issued during the fourth quarter of 2018. Since these forward-starting interest rate swap agreements were
classified as cash flow hedges, the unamortized gain of $39, $30 net of tax, has been deferred in Accumulated
Other Comprehensive Loss and will continue to amortize to earnings as the interest payments are made. The
Company also repaid, upon maturity, $300 of senior notes bearing an interest rate of 6.80%, $300 of senior notes
bearing an interest rate of 2.00%, $200 of senior notes bearing an interest rate of 7.00% and $500 of senior notes
bearing an interest rate of 2.30%, with proceeds from the senior notes issuances.

In 2017, the Company issued $400 of senior notes due in fiscal year 2022 bearing an interest rate of 2.80%,
$600 of senior notes due in fiscal year 2027 bearing an interest rate of 3.70% and $500 of senior notes due in fiscal
year 2048 bearing an interest rate of 4.65%. In connection with the senior note issuances, the Company also
terminated forward-starting interest rate swap agreements with an aggregate notional amount of $600. These
forward-starting interest rate swap agreements were hedging the variability in future benchmark interest payments
attributable to changing interest rates on the forecasted issuance of fixed-rate debt issued during the second
quarter of 2017. Since these forward-starting interest rate swap agreements were classified as cash flow hedges,
the unamortized loss of $20, $12 net of tax, has been deferred in Accumulated Other Comprehensive Loss and will
continue to amortize to earnings as the interest payments are made. The Company also repaid, upon maturity,
$600 of senior notes bearing an interest rate of 6.40%, with proceeds from the senior notes issuances.

In 2018, the Company obtained a $1,000 term loan with a maturity date of March 16, 2019. The funds were
drawn on March 26, 2018 and were used to reduce outstanding commercial paper borrowings. Under the terms of
the agreement, interest rates are adjusted monthly based on the Company’s Public Debt Rating and prevailing
LIBOR rates. On March 15, 2019, the Company paid the $1,000 term loan through increased commercial paper
borrowings.

On August 29, 2017, the Company entered into an amended, extended and restated $2,750 unsecured
revolving credit facility (the “Credit Agreement”), with a termination date of August 29, 2022, unless extended as
permitted under the Credit Agreement. This Credit Agreement amended the Company’s $2,750 credit facility that
would otherwise have terminated on June 30, 2019. The Company has the ability to increase the size of the Credit
Agreement by up to an additional $1,000, subject to certain conditions.

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

The Credit Agreement contains covenants, which, among other things, require the maintenance of a Leverage
Ratio of not greater than 3.50:1.00 and a Fixed Charge Coverage Ratio of not less than 1.70:1.00. The Company
may repay the Credit Agreement in whole or in part at any time without premium or penalty. The Credit Agreement
is not guaranteed by the Company’s subsidiaries.

As of February 2, 2019, the Company had $800 of commercial paper borrowings, with a weighted average
interest rate of 2.63% and no borrowings under the Credit Agreement. As of February 3, 2018, the Company had
$2,121 of commercial paper borrowings, with a weighted average interest rate of 1.68%, and no borrowings under
the Credit Agreement.

As of February 2, 2019, the Company had outstanding letters of credit in the amount of $363, of which $3
reduces funds available under the Credit Agreement. The letters of credit are maintained primarily to support
performance, payment, deposit or surety obligations of the Company.

A-50

Most of the Company’s outstanding public debt is subject to early redemption at varying times and premiums,

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

The aggregate annual maturities and scheduled payments of long-term debt, as of year-end 2018, and for the

years subsequent to 2018 are:

2019
2020
2021
2022
2023
Thereafter

Total debt

$ 3,103
720
793
896
595
8,244

$ 14,351

7. DERIVATIVE FINANCIAL INSTRUMENTS

GAAP requires that derivatives be carried at fair value on the balance sheet, and provides for hedge accounting

when certain conditions are met. The Company’s derivative financial instruments are recognized on the balance
sheet at fair value. Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the
extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects. Ineffective
portions of cash flow hedges, if any, are recognized in current period earnings. Other comprehensive income or
loss is reclassified into current period earnings when the hedged transaction affects earnings. Changes in the fair
value of derivative instruments designated as “fair value” hedges, along with corresponding changes in the fair
values of the hedged assets or liabilities, are recorded in current period earnings. Ineffective portions of fair value
hedges, if any, are recognized in current period earnings.

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives used

as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged
items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the
Company discontinues hedge accounting prospectively.

Interest Rate Risk Management

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

The Company reviews compliance with these guidelines annually with the Financial Policy Committee of the

Board of Directors. These guidelines may change as the Company’s needs dictate.

A-51

Fair Value Interest Rate Swaps

The table below summarizes the outstanding interest rate swaps designated as fair value hedges as of

February 3, 2018. We have no outstanding interest rate derivatives classified as fair value hedges as of February
2, 2019.

2017

Notional amount
Number of contracts
Duration in years
Average variable rate
Average fixed rate
Maturity

Pay
Floating

Pay

Fixed
$ —
100
—
2
0.88
—
7.23 % —
6.80 % —

December 2018

The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged items
attributable to the hedged risk is recognized in current earnings as “Interest expense.” These gains and losses for
2018 and 2017 were as follows:

Consolidated Statements of Operations Classification
Interest Expense

Year-To-Date

February 2, 2019

February 3, 2018

Gain/(Loss) on Gain/(Loss) on Gain/(Loss) on Gain/(Loss) on

Swaps

Borrowings

Swaps

— $

Borrowings
—

The following table summarizes the location and fair value of derivative instruments designated as fair value

hedges on the Company’s Consolidated Balance Sheets:

Derivatives Designated as Fair Value Hedging Instruments
Interest Rate Hedges

2019

2018

— $

(1)

Balance Sheet Location
Other long-term liabilities

Fair Value
February 2, February 3,

Asset Derivatives

Cash Flow Forward-Starting Interest Rate Swaps

As of February 2, 2019, the Company had five forward-starting interest rate swap agreements with a maturity
date of January 2020 with an aggregate notional amount totaling $250. 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 issuance of debt in January 2020.
Accordingly, the forward-starting interest rate swaps were designated as cash-flow hedges as defined by GAAP.
As of February 2, 2019, the fair value of the interest rate swaps was recorded in other assets for $33 and
accumulated other comprehensive income for $20 net of tax.

As of February 3, 2018, the Company had nine forward-starting interest rate swap agreements with a maturity
date of January 2019 with an aggregate notional amount totaling $750 and five forward-starting interest rate swap
agreements with maturity dates of January 2020 with an aggregate notional amount totaling $250. The Company
entered into these forward-starting interest rate swaps in order to lock in fixed interest rates on its forecasted
issuance of debt in January 2019 and January 2020. Accordingly, the forward-starting interest rate swaps were
designated as cash-flow hedges as defined by GAAP. As of February 3, 2018, the fair value of the interest rate
swaps was recorded in other assets for $103 and accumulated other comprehensive income for $73 net of tax.

During 2018, the Company terminated nine forward-starting interest rate swaps with maturity dates of January
2019 with an aggregate notional amount totaling $750. These forward-starting interest rate swap agreements were
hedging the variability in future benchmark interest payments attributable to changing interest rates on the
forecasted issuance of fixed-rate debt issued during the fourth quarter of 2018. Since these forward-starting
interest rate swap agreements were classified as cash flow hedges, the unamortized gain of $39, $30 net of tax,
has been deferred in AOCI and will be amortized to earnings as the interest payments are made.

A-52

During 2017, the Company terminated eleven forward-starting interest rate swaps with maturity dates of August

2017, with an aggregate notional amount totaling $600. These forward-starting interest rate swap agreements
were hedging the variability in future benchmark interest payments attributable to changing interest rates on the
forecasted issuance of fixed-rate debt issued during the third quarter of 2017. Since these forward-starting interest
rate swap agreements were classified as cash flow hedges, the unamortized loss of $20, $12 net of tax, has been
deferred in AOCI and will be amortized to earnings as the interest payments are made.

The following table summarizes the effect of the Company’s derivative instruments designated as cash flow

hedges for 2018 and 2017:

Derivatives in Cash Flow Hedging

Relationships
Forward-Starting Interest Rate Swaps,

Year-To-Date

Amount of Gain/(Loss) in
AOCI on Derivative
(Effective Portion)

Amount of Gain/(Loss)

Reclassified from AOCI into Location of Gain/(Loss)
Income (Effective Portion) Reclassified into Income

2018

2017

2018

2017

(Effective Portion)

net of tax*

(5)

(3)

Interest expense

* The amounts of Gain/(Loss) in AOCI on derivatives include unamortized proceeds and payments from forward-
starting interest rate swaps once classified as cash flow hedges that were terminated prior to end of 2018 and
2017, respectively.

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

Collateral is generally not required of the counterparties or of the Company under these master netting
agreements. As of February 2, 2019 and February 3, 2018, no cash collateral was received or pledged under the
master netting agreements.

The effect of the net settlement provisions of these master netting agreements on the Company’s derivative
balances upon an event of default or termination event is as follows as of February 2, 2019 and February 3, 2018:

Gross Amount Gross Amounts Offset Presented in the Financial

Recognized

in the Balance Sheet

Balance Sheet

Instruments

Cash Collateral Net Amount

Net Amount

Gross Amounts Not Offset in the
Balance Sheet

33 $

— $

February 2, 2019
Assets
Cash Flow Forward-
Starting Interest
Rate Swaps

A-53

Gross Amount Gross Amounts Offset Presented in the Financial

Recognized

in the Balance Sheet

Balance Sheet

Instruments

Cash Collateral Net Amount

Net Amount

Gross Amounts Not Offset in the
Balance Sheet

103 $

— $

103

— $

103

February 3, 2018
Assets
Cash Flow Forward-
Starting Interest
Rate Swaps

Liabilities
Fair Value Interest

Rate Swaps

1 $

— $

8. FAIR VALUE MEASUREMENTS

GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels

of the fair value hierarchy defined in the standards are as follows:

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

Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either

directly or indirectly observable;

Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to

develop its own assumptions about the assumptions that market participants would use in pricing an asset or
liability.

For items carried at (or adjusted to) fair value in the consolidated financial statements, the following tables

summarize the fair value of these instruments at February 2, 2019 and February 3, 2018:

February 2, 2019 Fair Value Measurements Using

Trading Securities
Other Investment
Interest Rate Hedges
Total

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

671
—
—
671

— $
—
33
33

—
22
—
22 $

Total

671
22
33
726

A-54

February 3, 2018 Fair Value Measurements Using

Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Trading Securities
Available-For-Sale Securities
Interest Rate Hedges
Total

64
25
—
89

— $
—
102
102

—
—
—
— $

In 2018, realized gains on Level 1, available-for-sale securities totaled $5.

Total

64
25
102
191

The Company values interest rate hedges using observable forward yield curves. These forward yield curves

are classified as Level 2 inputs.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the

impairment analysis of goodwill, other intangible assets, long-lived assets and in the valuation of store lease exit
costs. The Company reviews goodwill and indefinite-lived intangible assets for impairment annually, during the
fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 3 for
further discussion related to the Company’s carrying value of goodwill. Long-lived assets and store lease exit costs
were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy.
See Note 1 for further discussion of the Company’s policies and recorded amounts for impairments of long-lived
assets and valuation of store lease exit costs. In 2018, long-lived assets with a carrying amount of $85 were written
down to their fair value of $29, resulting in an impairment charge of $56. In 2017, long-lived assets with a carrying
amount of $98 were written down to their fair value of $27, resulting in an impairment charge of $71. In 2018, the
Company entered into an agreement with a third party. As part of the consideration for entering the agreement, the
Company received a financial instrument of $22.

Mergers are accounted for using the acquisition method of accounting, which requires that the purchase price

paid for a merger be allocated to the assets and liabilities acquired based on their estimated fair values as of the
effective date of the merger, with the excess of the purchase price over the net assets being recorded as goodwill.
See Note 2 for further discussion related to accounting for mergers.

Fair Value of Other Financial Instruments

Current and Long-term Debt

The fair value of the Company’s long-term debt, including current maturities, was estimated based on the
quoted market prices for the same or similar issues adjusted for illiquidity based on available market evidence. If
quoted market prices were not available, the fair value was based upon the net present value of the future cash
flow using the forward interest rate yield curve in effect at respective year-ends. At February 2, 2019, the fair value
of total debt was $14,190 compared to a carrying value of $14,351. At February 3, 2018, the fair value of total debt
was $15,167 compared to a carrying value of $14,787.

Contingent Consideration

As a result of the Home Chef merger, the Company recognized a contingent liability of $91 on the acquisition
date. The contingent consideration was measured using unobservable (Level 3) inputs and is included in “Other
long-term liabilities” within the Consolidated Balance Sheet. The liability is remeasured to fair value at each
reporting period, and the change in fair value, including accretion for the passage of time, is recognized in net
earnings until the contingency is resolved. In 2018, an adjustment to increase the contingent consideration liability
as of year-end 2018 was recorded for $33 in OG&A expense.

A-55

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

The carrying amounts of these items approximated fair value.

Other Assets

In 2016, the Company entered into agreements with a third party. As part of the consideration for entering

these agreements, the Company received a financial instrument that derives its value from the third party’s
business operations. The Company used the Monte-Carlo simulation method to determine the fair value of this
financial instrument. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a
defined number of valuation paths in order to develop a reasonable estimate of the fair value of this financial
instrument. The assumptions used in the Monte-Carlo simulation are classified as Level 3 inputs. The financial
instrument was valued at $335 and recorded in “Other assets” within the Consolidated Balance Sheets. As the
financial instrument was obtained in exchange for certain obligations, the Company also recognized offsetting
deferred revenue liabilities in “Other current liabilities” and “Other long-term liabilities” within the Consolidated
Balance Sheets. The deferred revenue will be amortized to “Sales” within the Consolidated Statements of
Operations over the term of the agreements. Post inception, the Company received a distribution of $58, which
was recorded as a reduction of the cost method investment. In the fourth quarter of 2018, a transaction occurred
that resulted in the settlement of the financial instrument. As a result of the settlement, the Company received cash
proceeds of $235. The Company recognized an impairment of financial instrument of $42 in OG&A in the fourth
quarter of 2018.

The fair values of certain investments recorded in “other assets” within the Consolidated Balance Sheets were
estimated based on quoted market prices for those or similar investments, or estimated cash flows, if appropriate.
At February 2, 2019 and February 3, 2018, the carrying and fair value of long-term investments for which fair value
is determinable was $155 and $176, respectively. At February 2, 2019 and February 3, 2018, the carrying value of
notes receivable for which fair value is determinable was $146 and $170, respectively.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table represents the changes in AOCI by component for the years ended February 2, 2019 and

February 3, 2018:

Balance at January 28, 2017
OCI before reclassifications(2)
Amounts reclassified out of AOCI(3)
Net current-period OCI
Balance at February 3, 2018

Balance at February 3, 2018
OCI before reclassifications(2)
Amounts reclassified out of AOCI(3)
Net current-period OCI
Balance at February 2, 2019

Cash Flow
Hedging
Activities(1)

Available for sale
Securities(1)

Pension and
Postretirement
Defined Benefit
Plans(1)

Total(1)

(2) $
23
3
26
24

24
(23)
5
(18)
6

— $
4
—
4
4

4
(4)
—
(4)
— $

(713) $
165
49
214
(499) $

(499) $
104
43
147
(352) $

(715)
192
52
244
(471)

(471)
77
48
125
(346)

(1) All amounts are net of tax.
(2) Net of tax of $0, $1 and $63 for cash flow hedging activities, available for sale securities and pension and

postretirement defined benefit plans, respectively, as of February 3, 2018. Net of tax of $(8), $(1) and $32 for
cash flow hedging activities, available for sale securities and pension and postretirement defined benefit plans,
respectively, as of February 2, 2019.

(3) Net of tax of $20 and $3 for pension and postretirement defined benefit plans and cash flow hedging activities,

respectively, as of February 3, 2018. Net of tax of $13 and $3 for pension and postretirement defined benefit
plans and cash flow hedging activities, respectively, as of February 2, 2019.

A-56

The following table represents the items reclassified out of AOCI and the related tax effects for the years

ended February 2, 2019, February 3, 2018 and January 28, 2017:

For the year ended For the year ended For the year ended
February 2, 2019 February 3, 2018 January 28, 2017

Cash flow hedging activity items

Amortization of gains and losses on cash flow hedging

activities (1)
Tax expense
Net of tax

Available for sale security items

Realized gains on available for sale securities (2)
Tax expense
Net of tax

Pension and postretirement defined benefit plan items
Amortization of amounts included in net periodic

pension expense (3)

Tax expense
Net of tax

Total reclassifications, net of tax

8
(3)
5

—
—
—

56
(13)
43
48

6 $
(3)
3

—
—
—

69
(20)
49
52 $

2
—
2

(27)
13
(14)

53
(20)
33
21

(1) Reclassified from AOCI into interest expense.
(2) Reclassified from AOCI into operating, general and administrative expense.
(3) Reclassified from AOCI into non-service component of company-sponsored pension plan costs. These

components are included in the computation of net periodic pension expense.

10. LEASES AND LEASE-FINANCED TRANSACTIONS

While the Company’s current strategy emphasizes ownership of store real estate, the Company operates
primarily in leased facilities. Lease terms generally range from 10 to 20 years with options to renew for varying
terms. Terms of certain leases include escalation clauses, percentage rent based on sales or payment of executory
costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation
clauses or other lease concessions are accounted for on a straight-line basis beginning with the earlier of the lease
commencement date or the date the Company takes possession. Portions of certain properties are subleased to
others for periods generally ranging from one to 20 years.

Rent expense (under operating leases) consists of:

Minimum rentals
Contingent payments
Tenant income

Total rent expense

2018
$ 967
19
(102)

2017

2016
$ 1,005 $ 973
16
(108)

19
(113)

$ 884

$ 911 $ 881

A-57

Minimum annual rentals and payments under capital leases and lease-financed transactions for the five years

subsequent to 2019 and in the aggregate are listed below. Amounts in the table only include payments through the
noncancelable lease term.

2019
2020
2021
2022
2023
Thereafter

Total

Lease-
Financed

Capital Operating
Leases
$ 103

Leases Transactions
5
$
6
5
5
5
17

948 $
880
773
649
556
3,197

89
86
82
81
766

$1,207 $ 7,003 $

Less estimated executory costs included in capital leases

—

Net minimum lease payments under capital leases
Less amount representing interest

Present value of net minimum lease payments under capital
leases

1,207
372

$ 835

Total future minimum rentals under noncancellable subleases at February 2, 2019 were $183.

11. EARNINGS PER COMMON SHARE

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

For the year ended

February 2, 2019

For the year ended

February 3, 2018

For the year ended

January 28, 2017

Earnings

Share Earnings

Per

(in millions, except per share amounts) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Net earnings attributable to The

Kroger Co. per basic
common share

$ 3,076

810 $ 3.80 $ 1,890

895 $ 2.11 $ 1,959

Dilutive effect of stock options

942 $ 2.08
16

Net earnings attributable to The

Kroger Co. per diluted
common share

$ 3,076

818 $ 3.76 $ 1,890

904 $ 2.09 $

1,959

958 $ 2.05

The Company had combined undistributed and distributed earnings to participating securities totaling $34, $17

and $16 in 2019, 2018 and 2017, respectively.

The Company had stock options outstanding for approximately 10.1 million, 15.6 million and 7.1 million shares,
respectively, for the years ended February 2, 2019, February 3, 2018, and January 28, 2017, which were excluded
from the computations of net earnings per diluted common share because their inclusion would have had an anti-
dilutive effect on net earnings per diluted share.

A-58

12.

STOCK OPTION PLANS

The Company grants options for common shares (“stock options”) to employees under various plans at an
option price equal to the fair market value of the stock option at the date of grant. The Company accounts for stock
options under the fair value recognition provisions. Under this method, the Company recognizes compensation
expense for all share-based payments granted. The Company recognizes share-based compensation expense,
net of an estimated forfeiture rate, over the requisite service period of the award.

Stock options typically expire 10 years from the date of grant. Stock options vest between one and five years

from the date of grant. At February 2, 2019, approximately 22 million common shares were available for future
option grants under the 2011 and 2014 Long-Term Incentive Plans (the “Plans”).

In addition to the stock options described above, the Company awards restricted stock to employees and non-

employee directors under various plans. The restrictions on these awards generally lapse between one and five
years from the date of the awards. The Company records expense for restricted stock awards in an amount equal
to the fair market value of the underlying shares on the grant date of the award, over the period the awards lapse.
As of February 2, 2019, approximately 6 million common shares were available under the Plans for future restricted
stock awards or shares issued to the extent performance criteria are achieved. The Company has the ability to
convert shares available for stock options under the Plans to shares available for restricted stock awards. Under
the Plans, four shares available for option awards can be converted into one share available for restricted stock
awards.

Equity awards granted are based on the aggregate value of the award on grant date. This can affect the
number of shares granted in a given year as equity awards. Excess tax benefits related to equity awards are
recognized in the provision for income taxes. Equity awards may be approved at one of four meetings of its Board
of Directors occurring shortly after the Company’s release of quarterly earnings. The 2018 primary grant was made
in conjunction with the June meeting of the Company’s Board of Directors.

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

Stock Options

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

Shares
subject
to option
(in millions)

Weighted-

average
exercise
price

Outstanding, year-end 2015

Granted
Exercised
Canceled or Expired

Outstanding, year-end 2016

Granted
Exercised
Canceled or Expired

Outstanding, year-end 2017

Granted
Exercised
Canceled or Expired

Outstanding, year-end 2018

A-59

34.9 $ 18.26
4.8 $ 37.10
(4.9) $ 14.20
(0.5) $ 28.35

34.3 $ 21.32
7.0 $ 23.00
(3.8) $ 14.08
(0.8) $ 28.29

36.7 $ 22.23
2.7 $ 27.88
(4.4) $ 15.34
(0.9) $ 28.05

34.1 $ 23.42

A summary of options outstanding, exercisable and expected to vest at February 2, 2019 follows:

Number of shares

Weighted-average
remaining
contractual life

Weighted-average
exercise price

Aggregate
intrinsic
value

(in millions)

(in years)

34.1
22.7
11.2

5.73
4.50
8.14

$
$
$

(in millions)
229
201
27

23.42
20.95
28.33

Options Outstanding
Options Exercisable
Options Expected to Vest

Restricted stock

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

Restricted

Outstanding, year-end 2015

Granted
Lapsed
Canceled or Expired

Outstanding, year-end 2016

Granted
Lapsed
Canceled or Expired

Outstanding, year-end 2017

Granted
Lapsed
Canceled or Expired

Outstanding, year-end 2018

Weighted-average

shares
outstanding
(in millions)

grant-date
fair value

28.01
37.03
28.52
30.70

32.09
23.04
31.05
29.26

26.78
27.99
25.93
26.57

$
7.6
3.6 $
(3.5) $
(0.3) $

7.4 $
$
5.8
(3.6) $
(0.4) $

$
9.2
4.6 $
(4.4) $
(0.6) $

8.8 $

27.86

The weighted-average grant date fair value of stock options granted during 2018, 2017 and 2016 was $6.78,
$4.71 and $7.48, respectively. The fair value of each stock option grant was estimated on the date of grant using
the Black-Scholes option-pricing model, based on the assumptions shown in the table below. The Black-Scholes
model utilizes accounting judgment and financial estimates, including the term option holders are expected to retain
their stock options before exercising them, the volatility of the Company’s share price over that expected term, the
dividend yield over the term and the number of awards expected to be forfeited before they vest. Using alternative
assumptions in the calculation of fair value would produce fair values for stock option grants that could be different
than those used to record stock-based compensation expense in the Consolidated Statements of Operations. The
increase in the fair value of the stock options granted during 2018, compared to 2017, resulted primarily from an
increase in the Company’s share price, which decreased the expected dividend yield, an increase in the weighted
average expected volatility and the weighted average risk-free interest rate also contributed to the increase in fair
value. The decrease in the fair value of the stock options granted during 2017, compared to 2016, resulted
primarily from a decrease in the Company’s share price, which increased the expected dividend yield, partially
offset by an increase in the weighted average expected volatility and the weighted average risk-free interest rate.

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

Weighted average expected volatility
Weighted average risk-free interest rate
Expected dividend yield
Expected term (based on historical results)

2018
24.50 %

2.82 %
2.00 %

2017
22.78 %
2.21 %
2.20 %

2016
21.40 %

1.29 %
1.40 %

7.2 years

A-60

The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date,

continuously compounded, which matures at a date that approximates the expected term of the options. The
dividend yield was based on our history and expectation of dividend payouts. Expected volatility was determined
based upon historical stock volatilities; however, implied volatility was also considered. Expected term was
determined based upon historical exercise and cancellation experience.

Total stock compensation recognized in 2018, 2017 and 2016 was $154, $151 and $141, respectively. Stock
option compensation recognized in 2018, 2017 and 2016 was $25, $32 and $28, respectively. Restricted shares
compensation recognized in 2018, 2017 and 2016 was $129, $119 and $113, respectively.

The total intrinsic value of stock options exercised was $58, $55 and $105 in 2018, 2017 and 2016,
respectively. The total amount of cash received in 2018 by the Company from the exercise of stock options
granted under share-based payment arrangements was $65. As of February 2, 2019, there was $214 of total
unrecognized compensation expense remaining related to non-vested share-based compensation arrangements
granted under Plans. This cost is expected to be recognized over a weighted-average period of approximately two
years. The total fair value of options that vested was $30, $29 and $28 in 2018, 2017 and 2016, respectively.

Shares issued as a result of stock option exercises may be newly issued shares or reissued treasury shares.

Proceeds received from the exercise of options, and the related tax benefit, may be utilized to repurchase the
Company’s common shares under a stock repurchase program adopted by the Company’s Board of Directors.
During 2018, the Company repurchased approximately three million common shares in such a manner.

13. 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 suits charging
violations of certain antitrust, wage and hour, or civil rights laws, as well as product liability cases, are pending
against the Company. Some of these suits purport or have been determined to be class actions and/or seek
substantial damages. Any damages that may be awarded in antitrust cases will be automatically trebled. Although
it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of
success, the Company is of the belief that any resulting liability will not have a material effect on the Company’s
financial position, results of operations, or cash flows.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened
litigation and believes it has made provisions where it is reasonably possible to estimate and 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.

A-61

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.

14. STOCK

Preferred Shares

The Company has authorized five million shares of voting cumulative preferred shares; two million shares were

available for issuance at February 2, 2019. The shares have a par value of $100 per share and are issuable in
series.

Common Shares

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

Common Stock Repurchase Program

The Company maintains stock repurchase programs that comply with Rule 10b5-1 of the Securities Exchange

Act of 1934 to allow for the orderly repurchase of The Kroger Co. common shares, from time to time. The
Company made open market purchases totaling $727, $1,567 and $1,661 under these repurchase programs in
2018, 2017 and 2016, respectively. On April 20, 2018 the Company entered and funded a $1,200 accelerated
stock repurchase (“ASR”) program to reacquire shares in privately negotiated transactions. The final delivery under
the ASR program occurred during the second quarter of 2018, which included the settlement of the remaining 2.3
million Kroger Common shares. In total, the Company invested $1,200 to repurchase 46.3 million Kroger common
shares at an average price of $25.91 per share.

In addition to these repurchase programs, in December 1999, the Company began a program to repurchase
common shares to reduce dilution resulting from its employee stock option plans. This program is solely funded by
proceeds from stock option exercises and the related tax benefit. The Company repurchased approximately $83,
$66 and $105 under the stock option program during 2018, 2017 and 2016, respectively.

15. COMPANY- SPONSORED BENEFIT PLANS

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

In addition to providing pension benefits, the Company provides certain health care benefits for retired

employees. The majority of the Company’s employees may become eligible for these benefits if they reach normal
retirement age while employed by the Company. Funding of retiree health care benefits occurs as claims or
premiums are paid.

The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets.
Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized
as part of net periodic benefit cost are required to be recorded as a component of AOCI. The Company has
elected to measure defined benefit plan assets and obligations as of January 31, which is the month-end that is
closest to its fiscal year-ends, which were February 2, 2019 for fiscal 2018 and February 3, 2018 for fiscal 2017.

A-62

Amounts recognized in AOCI as of February 2, 2019 and February 3, 2018 consists of the following (pre-tax):

Net actuarial loss (gain)
Prior service credit

Total

Pension Benefits
2017
$ 1,040
—

2018
$ 837
—

Other Benefits
2018 2017

2018
$ (130) $ (130) $ 707
(66)

(77)

(66)

Total

2017

$ 910
(77)

$ 837

$ 1,040

$ (196) $ (207) $ 641

$ 833

Amounts in AOCI expected to be recognized as components of net periodic pension or postretirement benefit

costs in the next fiscal year are as follows (pre-tax):

Net actuarial loss (gain)
Prior service credit

Total

Pension Benefits Other Benefits

2019

Total

2019

53 $
—

(10) $
(11)

43
(11)

53 $

(21) $

Other changes recognized in other comprehensive income (loss) in 2018, 2017 and 2016 were as follows (pre-

tax):

Pension Benefits

Other Benefits

Total

Incurred net actuarial loss (gain)
Amortization of prior service credit
Amortization of net actuarial gain

(loss)

Settlement recognition of net

actuarial loss

Other
Total recognized in other

2018

2017
$ (126) $ 322
—
—

2016 2018 2017 2016 2018

2017
$ (10) $ (20) $ (9) $ (136) $ 302
8
8

$ 165
—

2016
$ 156
8

(77)

(88)

(71)

—
—

(502)
—

—
—

(67)

(77)

(61)

—
(28) —

—

—
—

(502)
(28)

—
—

(29)

(192)

(297)

103

—
—

comprehensive income (loss)

(203)

(268)

Total recognized in net periodic

benefit cost and other
comprehensive income (loss)

$ (127) $ 323

$ 188

$ (30) $ 10 $ (122) $ 293

$ 198

A-63

Information with respect to change in benefit obligation, change in plan assets, the funded status of the plans

recorded in the Consolidated Balance Sheets, net amounts recognized at the end of fiscal years, weighted average
assumptions and components of net periodic benefit cost follow:

Pension Benefits

Qualified Plans

Non-Qualified Plans

Other Benefits

2018

2017

2018 2017

2018

2017

Change in benefit obligation:
Benefit obligation at beginning of fiscal year

Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain) loss
Plan curtailments
Plan settlements
Benefits paid
Other

$ 3,235
35
124
—
(134)
(92)
—
(174)
—

$ 4,140
53
163
—
126
—
(1,040)
(202)
(5)

$ 328 $ 316 $ 202
7
8
13
(9)
—
—
(21)
—

2
13
—
15
—
—
(21)
3

2
12
—
(13)
(6)
—
(24)
(1)

$ 243
8
9
12
(20)
—
—
(23)
(27)

Benefit obligation at end of fiscal year

$ 2,994

$ 3,235

$ 298 $ 328 $ 200

$ 202

Change in plan assets:
Fair value of plan assets at beginning of fiscal year

Actual return on plan assets
Employer contributions
Plan participants’ contributions
Plan settlements
Benefits paid
Other

Fair value of plan assets at end of fiscal year
Funded status and net asset and liability recognized at

$ 2,943
46
185
—
—
(174)
10

$ 3,138
210
1,000
—
(1,198)
(202)
(5)

$ — $
—
25
—
—
(24)
(1)

— $ — $ —
—
—
11
21
12
—
—
—
(23)
(21)
—
—

—
8
13
—
(21)
—

$ 3,010

$ 2,943

$ — $

— $ — $ —

end of fiscal year

(292) $ (298) $ (328) $ (200) $ (202)

As of February 2, 2019, other assets and other current liabilities include $47 and $35, respectively, of the net
asset and liability recognized for the above benefit plans. As of February 3, 2018, other current liabilities include
$30 of net liability recognized for the above benefit plans.

In 2018, the Company contributed $185, $117 net of tax, to the company-sponsored pension plan. This
contribution was designated to the 2017 tax year in order to deduct the contributions at the previous year tax rate.
The Company announced changes to certain non-union company-sponsored pension plans. The Company will
freeze the compensation and service periods used to calculate pension benefits for active employees who
participate in the affected pension plans as of December 31, 2019. Beginning January 1, 2020, the affected active
employees will no longer accrue additional benefits for future service and eligible compensation received under
these plans. The financial effects of these changes are not material to the financial statements for the year ended
February 2, 2019.

In 2017, the Company settled certain company-sponsored pension plan obligations using existing assets of the

plan and a $1,000 contribution made to the plan in the third quarter of 2017. The Company recognized a
settlement charge of approximately $502, $335 net of tax, associated with the settlement of the Company’s
obligations for the eligible participants’ pension balances that were distributed out of the plan via a transfer to other
qualified retirement plan options, a lump sum payout, or the purchase of an annuity contract, based on each
participant’s election.

A-64

As of February 2, 2019 and February 3, 2018, pension plan assets do not include common shares of The

Kroger Co.

Weighted average assumptions
Discount rate — Benefit obligation
Discount rate — Net periodic benefit

Pension Benefits

2018

2017

2016

Other Benefits
2018 2017 2016

4.23 % 4.00 % 4.25 % 4.19 % 3.93 % 4.18 %

cost

4.00 % 4.25 % 4.62 % 3.93 % 4.18 % 4.44 %

Expected long-term rate of return on

plan assets

5.90 % 7.50 % 7.40 %

Rate of compensation increase —

Net periodic benefit cost

3.03 % 3.07 % 2.71 %

Rate of compensation increase —

Benefit obligation

3.04 % 3.03 % 3.07 %

The Company’s discount rate assumptions were intended to reflect the rates at which the pension benefits
could be effectively settled. They take into account the timing and amount of benefits that would be available under
the plans. The Company’s policy is to match the plan’s cash flows to that of a hypothetical bond portfolio whose
cash flow from coupons and maturities match the plan’s projected benefit cash flows. The discount rates are the
single rates that produce the same present value of cash flows. The selection of the 4.23% and 4.19% discount
rates as of year-end 2018 for pension and other benefits, respectively, represents the hypothetical bond portfolio
using bonds with an AA or better rating constructed with the assistance of an outside consultant. A 100 basis point
increase in the discount rate would decrease the projected pension benefit obligation as of February 2, 2019, by
approximately $362.

The Company’s 2018 assumed pension plan investment return rate was 5.90% compared to 7.50% in 2017

and 7.40% in 2016. The value of all investments in the company-sponsored defined benefit pension plans during
the calendar year ended December 31, 2018, net of investment management fees and expenses, decreased 2.4%
and for fiscal year 2018 investments increased 1.9%. Historically, the Company’s pension plans’ average rate of
return was 8.1% for the 10 calendar years ended December 31, 2018, net of all investment management fees and
expenses. For the past 20 years, the Company’s pension plans’ average annual rate of return has been 6.10%. At
the beginning of 2018, to determine the expected rate of return on pension plan assets held by the Company for
2018, the Company considered current and forecasted plan asset allocations as well as historical and forecasted
rates of return on various asset categories.

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

On February 2, 2019, the Company adopted an updated assumption for generational mortality improvement,

based on additional years of published mortality experience.

The funded status increased in 2018, compared to 2017, due to the $185 contribution made in 2018 to the
qualified plans, the increase in discount rate from 2017 to 2018 and the announced plan freeze to certain non-union
company-sponsored pension plans as of December 31, 2019.

A-65

The following table provides the components of the Company’s net periodic benefit costs for 2018, 2017 and

2016:

Pension Benefits

Qualified Plans

Non-Qualified Plans

Other Benefits

2018

2017

2016

2018 2017 2016 2018 2017 2016

Components of net periodic benefit
cost:

Service cost
Interest cost
Expected return on plan assets
Amortization of:

Prior service credit
Actuarial (gain) loss
Settlement loss recognized
Other

Net periodic benefit cost

35
124
(174)

53
163
(233)

68
177
(238)

2
12
—

—
69
—
—
54

—
79
502
—
$ 564

—
60
—
3
70

—
8
—
—
$ 22

2
13
—

—
9
—
3
$ 27

2 $ 7 $

8
9
8
— —

9
10
—

14
—

—
8
—
—

(8)
(11)
(10)
(11)
— —
1
—
$ 24 $ (6) $ (1) $

(8)
(10)
—
—
1

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

PBO at end of fiscal year
ABO at end of fiscal year
Fair value of plan assets at end of year

Qualified Plans

Non-Qualified Plans

2018
$ 295
$ 293
$ 263

2017
$ 3,051
$ 2,916
$ 2,755

2018 2017
$ 298
$ 328
$ 291 $ 313
$ —
$ —

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

2019
2020
2021
2022
2023

2024 —2028

Pension Other

Benefits
Benefits
13
$ 193
$
14
$ 199 $
15
$ 204
$
15
$ 212 $
16
$
$ 205

$ 1,074 $

The following table provides information about the target and actual pension plan asset allocations as of

February 2, 2019.

Target allocations

Actual
Allocations

2018

2017

2.0 %
1.0
80.0
4.0
10.0
—
3.0
—

4.2 %
2.3
73.2
3.5
9.5
4.5
2.8
—

2.2 %
1.7
53.3
3.7
9.6
17.4
3.2
8.9

100.0 % 100.0 % 100.0 %

Pension plan asset allocation
Global equity securities
Emerging market equity securities
Investment grade debt securities
High yield debt securities
Private equity
Hedge funds
Real estate
Other

Total

A-66

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

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

The target allocations shown for 2018 were established in 2018 in conjunction with the continuation of the
Company’s transition to a LDI strategy, which began in 2017. A LDI strategy focuses on maintaining a close to fully-
funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan
assets in fixed income instruments to more closely match the duration of the plan liability. This LDI strategy will be
phased in over time as the Company is able to transition out of illiquid investments. During this transition, the
Company’s target allocation will change by increasing the Company’s fixed income instruments. Cash flow from
employer contributions and redemption of plan assets to fund participant benefit payments can be used to fund
underweight asset classes and divest overweight asset classes, as appropriate. The Company expects that cash
flow will be sufficient to meet most rebalancing needs.

In 2018, the Company contributed $185, $117 net of tax, to the company-sponsored defined benefit plans and

the Company is not required to make any contributions to these plans in 2019. If the Company does make any
contributions in 2019, the Company expects these contributions will decrease its required contributions in future
years. Among other things, investment performance of plan assets, the interest rates required to be used to
calculate the pension obligations, and future changes in legislation, will determine the amounts of any contributions.
The Company expects 2019 expense for company-sponsored pension plans to be approximately $41.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care

plans. The Company used a 5.80% initial health care cost trend rate, which is assumed to decrease on a linear
basis to a 4.50% ultimate health care cost trend rate in 2037, to determine its expense. A one-percentage-point
change in the assumed health care cost trend rates would have the following effects:

1% Point 1% Point
Decrease
(2)
(17)

Increase
$
$

2 $
19 $

Effect on total of service and interest cost components
Effect on postretirement benefit obligation

A-67

The following tables, set forth by level, within the fair value hierarchy, the Qualified Plans’ assets at fair value as

of February 2, 2019 and February 3, 2018:

Assets at Fair Value as of February 2, 2019

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets
Measured
at NAV

Cash and cash equivalents
Corporate Stocks
Corporate Bonds
U.S. Government Securities
Mutual Funds/Collective
Trusts
Hedge Funds
Private Equity
Real Estate
Other
Total

126
66
—
—

257

—
—
—
—
449

— $
—
896
240

—

—
—
—
115
1,251

— $
—
—
—

—

49
—
67
—
116

— $
—
—
—

805

85
285
19
—
1,194 $

Assets at Fair Value as of February 3, 2018

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets
Measured
at NAV

Cash and cash equivalents
Corporate Stocks
Corporate Bonds
U.S. Government Securities
Mutual Funds/Collective

Trusts

Partnerships/Joint Ventures
Hedge Funds
Private Equity
Real Estate
Other
Total

414
61
—
—

—
—
—
—
—
476

— $
—
900
222

—

—
—
—
—
—
1,122

— $
—
—
—

—

—
56
—
68
—
124

— $
—
—
—

—

271
545
278
22
105
1,221 $

Total

126
66
896
240

1,062

134
285
86
115
3,010

Total

414
61
900
222

271
601
278
90
105
2,943

A-68

The fair value of asset groupings changed significantly beginning in 2017 and continuing into 2018 due to the

LDI transition that began in 2017 as described above.

For measurements using significant unobservable inputs (Level 3) during 2018 and 2017, a reconciliation of

the beginning and ending balances is as follows:

Ending balance, January 28, 2017
Contributions into Fund
Realized gains
Unrealized losses
Distributions

Ending balance, February 3, 2018
Contributions into Fund
Realized gains
Unrealized gains
Distributions
Other

Ending balance, February 2, 2019

Hedge Funds Real Estate
65
11
3
8
(19)

67
13
1
5
(30)

56
—
1
4
(16)
4

68
9
12
(5)
(15)
(2)

See Note 8 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level

above is based on the lowest level of any input that is significant to the fair value measurement.

The following is a description of the valuation methods used for the Qualified Plans’ assets measured at fair

value in the above tables:

(cid:120) Cash and cash equivalents: The carrying value approximates fair value.

(cid:120) Corporate Stocks: The fair values of these securities are based on observable market quotations for

identical assets and are valued at the closing price reported on the active market on which the individual
securities are traded.

(cid:120) Corporate Bonds: The fair values of these securities are primarily based on observable market quotations

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

(cid:120) U.S. Government Securities: Certain U.S. Government securities are valued at the closing price reported
in the active market in which the security is traded. Other U.S. government securities are valued based on
yields currently available on comparable securities of issuers with similar credit ratings. When quoted
prices are not available for similar securities, the security is valued under a discounted cash flow
approach that maximizes observable inputs, such as current yields of similar instruments, but includes
adjustments for certain risks that may not be observable, such as credit and liquidity risks.

(cid:120) Mutual Funds/Collective Trusts: The mutual funds/collective trust funds are public investment vehicles

valued using a Net Asset Value (NAV) provided by the manager of each fund. The NAV is based on the
underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV’s unit
price is quoted on a private market that is not active. However, the NAV is based on the fair value of the
underlying securities within the fund, which are traded on an active market, and valued at the closing
price reported on the active market on which those individual securities are traded.

A-69

(cid:120) Partnerships/Joint Ventures: These funds consist primarily of U.S. government securities, Corporate

Bonds, Corporate Stocks, and derivatives, which are valued in a manner consistent with these types of
investments, noted above.

(cid:120) Hedge Funds: Hedge funds are private investment vehicles valued using a Net Asset Value (NAV)

provided by the manager of each fund. The NAV is based on the underlying net assets owned by the
fund, divided by the number of shares outstanding. The NAV’s unit price is quoted on a private market
that is not active. The NAV is based on the fair value of the underlying securities within the funds, which
may be traded on an active market, and valued at the closing price reported on the active market on
which those individual securities are traded. For investments not traded on an active market, or for which
a quoted price is not publicly available, a variety of unobservable valuation methodologies, including
discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager
to value investments. Fair values of all investments are adjusted annually, if necessary, based on audits
of the Hedge Fund financial statements; such adjustments are reflected in the fair value of the plan’s
assets.

(cid:120) Private Equity: Private Equity investments are valued based on the fair value of the underlying securities

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

(cid:120) Real Estate: Real estate investments include investments in real estate funds managed by a fund

manager. These investments are valued using a variety of unobservable valuation methodologies,
including discounted cash flow, market multiple and cost valuation approaches.

The methods described above may produce a fair value calculation that may not be indicative of net realizable

value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a different fair value measurement.

The Company contributed and expensed $263, $219 and $215 to employee 401(k) retirement savings
accounts in 2018, 2017 and 2016, respectively. The 401(k) retirement savings account plans provide to eligible
employees both matching contributions and automatic contributions from the Company based on participant
contributions, compensation as defined by the plan and length of service.

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16. MULTI-EMPLOYER PENSION PLANS

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

The Company recognizes expense in connection with these plans as contributions are funded or when

commitments are probable and reasonably estimable, in accordance with GAAP. The Company made cash
contributions to these plans of $358 in 2018, $954 in 2017 and $289 in 2016. The increase in 2017, compared to
2018 and 2016, is primarily due to the $467 pre-tax payment to satisfy withdrawal obligations of certain local unions
of the Central States Pension Fund and the 2017 United Food and Commercial Workers (“UFCW”) Contribution.

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

The Company is currently designated as the named fiduciary of the UFCW Consolidated Pension Plan and the
International Brotherhood of Teamsters (“IBT”) Consolidated Pension Fund and has sole investment authority over
these assets. The Company became the fiduciary of the IBT Consolidated Pension Fund in 2017 due to the
ratification of a new labor contract with the IBT that provided certain local unions of the Company to withdraw from
the Central States Pension Fund. Significant effects of these restructuring agreements recorded in our
Consolidated Financial Statements are:

(cid:120)

In 2018, the Company incurred a $155 charge, $121 net of tax, for obligations related to withdrawal
liabilities for certain local unions of the Central States multi-employer pension plan fund.

In 2017, the Company incurred a $550 charge, $360 net of tax, for obligations related to withdrawals
from and settlements of withdrawal liabilities for certain multi-employer pension plan funds, of which
$467 was contributed to the Central States Pension Plan in 2017.

In 2017, the Company contributed $111, $71 net of tax, to the UFCW Consolidated Pension Plan.

In 2016, the Company incurred a charge of $111, $71 net of tax, due to commitments and withdrawal
liabilities arising from the restructuring of certain multi-employer pension plan obligations, of which $28
was contributed to the UFCW Consolidated Pension Plan in 2016.

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

employer pension plans in the following respects:

a. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to

employees of other participating employers.

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

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

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The Company’s participation in multi-employer plans is outlined in the following tables. The EIN / Pension Plan
Number column provides the Employer Identification Number (“EIN”) and the three-digit pension plan number. The
most recent Pension Protection Act Zone Status available in 2018 and 2017 is for the plan’s year-end at
December 31, 2017 and December 31, 2016, respectively. Among other factors, generally, plans in the red zone
are less than 65 percent funded, plans in the yellow zone are less than 80 percent funded and plans in the green
zone are at least 80 percent funded. The FIP/RP Status Pending / Implemented Column indicates plans for which
a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented.
Unless otherwise noted, the information for these tables was obtained from the Forms 5500 filed for each plan’s
year-end at December 31, 2017 and December 31, 2016. The multi-employer contributions listed in the table below
are the Company’s multi-employer contributions made in fiscal years 2018, 2017 and 2016.

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

Pension Protection

EIN / Pension
Plan Number

Act Zone Status
2017
2018

FIP/RP
Status
Pending/
Implemented

Multi-Employer Contributions
2017

2018

2016

95-1939092 - 001

Yellow

Implemented

84-6277982 - 001 Green

Green

91-6069306 – 001

Green

Implemented

and Employers Pension Plan(1) 84-6045986 - 001 Green

Green

93-6074377 - 001 Green

Green

Pension Fund
SO CA UFCW Unions & Food

Employers Joint Pension Trust
Fund(1) (2)

Desert States Employers &

UFCW Unions Pension Plan(1)
Sound Retirement Trust (formerly
Retail Clerks Pension Plan)(1) (3)

Rocky Mountain UFCW Unions

Oregon Retail Employees

Pension Plan(1)

Bakery and Confectionary

Union & Industry International
Pension Fund(1)

Retail Food Employers & UFCW

Local 711 Pension(1)

Denver Area Meat Cutters and
Employers Pension Plan (9)

United Food & Commercial

Workers Intl Union — Industry
Pension Fund(1)(4)
Western Conference of

Teamsters Pension Plan
Central States, Southeast &

Southwest Areas Pension Plan
(7)

UFCW Consolidated Pension
Plan(1)
IBT Consolidated Pension
Plan(1) (6) (7)
Other (8)
Total Contributions

52-6118572 - 001

Red

Implemented

51-6031512 - 001

Yellow

Implemented

84-6097461 - 001 Green

Green

51-6055922 - 001 Green

Green

91-6145047 - 001 Green

Green

36-6044243 - 001

Red

Implemented

58-6101602 – 001 Green

Green

82-2153627 - 001

N/A

Surcharge
Imposed (5)

—

37
19
358

492

201

—
41
954

—
20
289

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

pension funds.

(2) The information for this fund was obtained from the Form 5500 filed for the plan's year-end at March 31, 2018 and March 31, 2017.
(3) The information for this fund was obtained from the Form 5500 filed for the plan's year-end at September 30, 2017 and September 30,

2016.

(4) The information for this fund was obtained from the Form 5500 filed for the plan's year-end at June 30, 2017 and June 30, 2016.
(5) Under the Pension Protection Act, a surcharge may be imposed when employers make contributions under a collective bargaining

agreement that is not in compliance with a rehabilitation plan. As of February 2, 2019, the collective bargaining agreements under which
the Company was making contributions were in compliance with rehabilitation plans adopted by the applicable pension fund.

(6) The information for this fund was obtained from the Form 5500 filed for the plan's first year beginning February 20, 2017 and year-end

(7)

December 31, 2017.
In 2017, the Company ratified a new contract with the IBT that provided certain local unions to withdraw from this pension fund and form
the IBT consolidated pension fund.

(8) The increase in 2017, compared to 2018 and 2016, in the "Other" funds is due primarily to withdrawal settlement payments for certain

multi-employer funds in 2017.

(9) As of June 30, 2016, the Denver Area Meat Cutters and Employers Pension Plan merged with the Rocky Mountain UFCW Unions and

Employers Pension Plan. The final Form 5500 for this plan was for the period of January 1, 2016 through June 30, 2016 (the date of the
Merger). Prior to the merger, the Company's multi-employer contributions to this fund represented more than 5% of the total contributions
received by the pension fund.

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The following table describes (a) the expiration date of the Company’s collective bargaining agreements and

(b) the expiration date of the Company’s most significant collective bargaining agreements for each of the material
multi-employer funds in which the Company participates.

Pension Fund

Expiration Date

of Collective

Bargaining

Agreements

Most Significant Collective
Bargaining Agreements(1)

(not in millions)

Count

Expiration

SO CA UFCW Unions & Food Employers Joint Pension Trust Fund

March 2019 to June 2020

UFCW Consolidated Pension Plan

January 2019 (2) to August 2022

Desert States Employers & UFCW Unions Pension Plan

October 2020 to February 2022

Sound Retirement Trust (formerly Retail Clerks Pension Plan)

April 2019 to April 2020

Rocky Mountain UFCW Unions and Employers Pension Plan

January 2019 (2) to February 2019

Oregon Retail Employees Pension Plan

August 2018 (2) to April 2022

Bakery and Confectionary Union & Industry International Pension

Fund

Retail Food Employers & UFCW Local 711 Pension

July 2018 (2) to July 2022

June 2017 (2) to April 2020

Denver Area Meat Cutters and Employers Pension Plan

January 2019 (2) to February 2019

United Food & Commercial Workers Intl Union — Industry Pension

Fund

Western Conference of Teamsters Pension Plan

February 2019 to August 2022

April 2019 to July 2021

International Brotherhood of Teamsters Consolidated Pension Fund September 2019 to September 2022

March 2019 to June 2020

February 2019 to August 2021

October 2020

May 2019 to August 2019

January 2019 (2)

August 2018 (2) to June 2019

August 2019 to June 2021

March 2019

January 2019 (2)

April 2019 to March 2021

April 2019 to July 2021

September 2019 to September 2022

(1) This column represents the number of significant collective bargaining agreements and their expiration date for

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

(2) Certain collective bargaining agreements for each of these pension funds are operating under an extension.

Based on the most recent information available to it, the Company believes the present value of actuarial

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

The Company also contributes to various other multi-employer benefit plans that provide health and welfare
benefits to active and retired participants. Total contributions made by the Company to these other multi-employer
health and welfare plans were approximately $1,282 in 2018, $1,247 in 2017 and $1,143 in 2016.

17. HELD FOR SALE AND DISPOSAL OF BUSINESS

During the second quarter of 2018, the Company announced that as a result of a review of its assets, the
Company has decided to explore strategic alternatives for its Turkey Hill Dairy business, including a potential sale.
Additionally during the fourth quarter of 2018, the Company announced that it had entered into a definitive
agreement to sell its You Technology business.

A-73

The following table presents information related to the major classes of assets and liabilities of all business that
were classified as assets and liabilities held for sale in the Consolidated Balance Sheet as of February 2, 2019 and
February 3, 2018:

(In millions)
Assets held for sale:

Cash and temporary cash investments
Store deposits in transit
Receivables
FIFO inventory
LIFO reserve
Prepaid and other current assets
Property, plant and equipment, net
Intangibles, net
Goodwill
Other assets

Total assets held for sale

Liabilities held for sale:

Trade accounts payable
Accrued salaries and wages
Other current liabilities
Other long-term liabilities
Total liabilities held for sale

February 2,
2019

February 3,
2018

1
-
64
21
(1)
3
77
-
1
-
166

26
8
17
-
51

1
15
49
95
(36)
13
441
11
14
1
604

119
14
85
41
259

Subsequent to February 2, 2019, the Company completed the sale of its You Technology business unit and
announced a definitive agreement for its Turkey Hill Dairy business unit. The businesses classified as held for sale
will not be reported as discontinued operations as the dispositions do not represent a strategic shift that will have a
major effect on the Company’s operations and financial results.

As of February 3, 2018, certain assets and liabilities, primarily those related to the Company’s convenience
store business, were classified as held for sale in the Consolidated Balance Sheet. On April 20,2018, the Company
completed the sale of its convenience store business unit for $2,169. The Company recognized a net gain on this
sale for $1,782, $1,360 net of tax, in 2018.

18. VOLUNTARY RETIREMENT OFFERING

In 2016, the Company announced a Voluntary Retirement Offering (“VRO”) for certain non-store

associates. Approximately 1,300 associates irrevocably accepted the VRO in the first quarter of 2017. Due to the
employee acceptances, the Company recognized a VRO charge of $184, $117 net of tax, in the first quarter of
2017, which was comprised of $165 for severance and other benefits, as well as $19 of other non-cash
charges. This charge was recorded in the OG&A caption within the Consolidated Statements of Operations for
2017. The Company paid $162 of the severance and other benefits in 2017.

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19. RECENTLY ADOPTED ACCOUNTING STANDARDS

During the fourth quarter of 2017, the Company adopted ASU 2017-04 "Intangibles - Goodwill and Other (Topic

350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the subsequent measurement of
goodwill by eliminating the second step from the goodwill impairment test. ASU 2017-04 requires applying a one-
step quantitative test and recording the amount of goodwill impairment as the excess of the reporting unit's carrying
value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04
does not amend the optional qualitative assessment of goodwill impairment. The Company performed its annual
evaluation of goodwill in accordance with this standard, which resulted in a goodwill impairment charge in 2017 of
$110, $74 net of tax, related to the Kroger Specialty Pharmacy reporting unit.

On February 4, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic

606)” which superseded previous revenue recognition guidance. Topic 606 is a comprehensive new revenue
recognition model that requires a company to recognize revenue when goods and services are transferred to the
customer in an amount that is proportionate to what has been delivered at that point and that reflects the
consideration to which the company expects to be entitled for those goods or services. The Company adopted the
standard using a modified retrospective approach with the adoption primarily involving the evaluation of whether the
Company acts as principal or agent in certain vendor arrangements where the purchase and sale of inventory are
virtually simultaneous. The Company will continue to record revenue and related costs on a gross basis for the
arrangements. The adoption of the standard did not have a material effect on the Company’s Consolidated
Statements of Operations, Consolidated Balance Sheets or Consolidated Statements of Cash Flows.

In March 2017, the Financial Accounting Standard’s Board (“FASB”) issued ASU "Compensation - Retirement

Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost (ASU 2017-07).” ASU 2017-07 requires an employer to report the service cost component of retiree
benefits in the same line item or items as other compensation costs arising from services rendered by the pertinent
employees during the period. The other components of net benefit cost are required to be presented separately
from the service cost component and outside a subtotal of income from operations. The Company adopted ASU
2017-07 on February 4, 2018 and retrospectively applied it to all periods presented. As a result, retiree benefit plan
interest expense, investment returns, settlements and other non-service cost components of retiree benefit
expenses are excluded from the Company’s operating profit subtotal as reported in the Company’s Consolidated
Statements of Operations, but remain included in net earnings before income tax expense. Due to the adoption,
the Company reclassified $527 for 2017 and $16 for 2016, of non-service company-sponsored pension plan costs
from operating profit to other income (expense) on its Consolidated Statements of Operations. Information about
retiree benefit plans' interest expense, investment returns and other components of retiree benefit expenses can be
found in Note 15 to the Company’s Consolidated Financial Statements.

In January 2016, the FASB issued “Financial Instruments–Overall (Topic 825),” which updates certain aspects

of recognition, measurement, presentation and disclosure of financial instruments (ASU 2016-01). The Company
adopted this ASU on February 4, 2018. As a result of the adoption, the Company recorded a mark to market gain
on Ocado securities, for those securities the Company owned as of the end of 2018, within the Consolidated
Statements of Operations as opposed to a component of Other Comprehensive Income on the Company’s
Consolidated Statements of Comprehensive Income.

A-75

20. RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, “Leases,” which provides guidance for the recognition of
lease agreements. The standard’s core principle is that a company will now recognize most leases on its balance
sheet as lease liabilities with corresponding right-of-use assets. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense recognition in the income statement. This guidance
will be effective for the Company in the first quarter of its fiscal year ending February 1, 2020. The Company will
apply the transition package of practical expedients permitted within the standard, which allows the Company to
carryforward its historical lease classification, and will apply the transition option which does not require application
of the guidance to comparative periods in the year of adoption. The Company estimates adoption of the standard
will result in right of use assets and lease liabilities of approximately $6,700 as of February 3, 2019. When
combined with the Company’s existing capital leases, the Company’s total lease assets and liabilities will be
approximately $7,400 and $7,600, respectively, as of February 3, 2019. The Company does not expect adoption to
have a material impact on the Company’s consolidated net earnings or cash flows.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects From Accumulated
Other Comprehensive Income.” ASU 2018-02 amends ASC 220, “Income Statement - Reporting Comprehensive
Income,” to allow a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act. In addition, under ASU 2018-02, the Company may
be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The
Company is currently evaluating the effect of this standard on the Company’s Consolidated Financial Statements.

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21. QUARTERLY DATA (UNAUDITED)

The two tables that follow reflect the unaudited results of operations for 2018 and 2017.

Quarter

2018
Sales

First
(16 Weeks)
$ 37,530

Second

(12 Weeks)
$ 27,869

Fourth

Third
(12 Weeks)

(12 Weeks)
$ 27,672 $ 28,091

Total Year

(52 Weeks)
$ 121,162

Operating Expenses

Merchandise costs, including advertising,

warehousing, and transportation, excluding items
shown separately below

Operating, general and administrative
Rent
Depreciation and amortization

29,362
6,122
276
741

21,930
4,612
204
574

21,699
4,556
200
570

21,902
5,013
204
581

94,894
20,305
884
2,465

Operating profit

1,029

549

647

391

2,614

Other income (expense)

Interest expense
Non-service component of company sponsored

pension plan costs

Mark to market gain (loss) on Ocado securities
Gain on sale of business

Net earnings before income tax expense

Income tax expense

Net earnings including noncontrolling interests
Net loss attributable to noncontrolling interests

(192)

(144)

(142)

(620)

(10)
36
1,771

2,634

616

2,018
(8)

(4)
216
11

628

127

501
(7)

(6)
(100)
—

399

308
(9)

(7)
75
—

317

251
(8)

(26)
228
1,782

3,978

900

3,078
(32)

Net earnings attributable to The Kroger Co.

$ 2,026

508

317 $

259

3,110

Net earnings attributable to The Kroger Co. per

basic common share

2.39

0.63

0.39 $

0.32

3.80

Average number of shares used in basic calculation

839

797

798

810

Net earnings attributable to The Kroger Co. per

diluted common share

2.37

0.62

0.39 $

0.32

3.76

Average number of shares used in diluted
calculation

846

805

807

806

818

Dividends declared per common share

$ 0.125

0.140

0.140 $ 0.140

0.545

Annual amounts may not sum due to rounding.

Net earnings for the first quarter of 2018 include a reduction to OG&A expenses of $13, $10 net of tax, for

adjustments to obligations related to certain local unions withdrawing from the Central States multi-employer
pension fund, a reduction to depreciation and amortization expenses of $14, $11 net of tax, related to held for sale
assets, gains in other income (expense) of $1,771, $1,352 net of tax, related to the sale of the convenience store
business unit and $36, $27 net of tax, for the mark to market gain on Ocado securities.

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Net earnings for the second quarter of 2018 include gains in other income (expense) of $11, $8 net of tax,
related to the sale of the convenience store business unit and $216, $164 net of tax, for the mark to market gain on
Ocado securities.

Net earnings for the third quarter of 2018 include a loss in other income (expense) of $100, $77 net of tax, for

the mark to market loss on Ocado securities.

Net earnings for the fourth quarter of 2018 include charges to OG&A expenses of $168, $131 net of tax, for
obligations related to certain local unions withdrawing from the Central States multi-employer pension fund, $33,
$26 net of tax, for the revaluation of contingent consideration and $42, $33 net of tax, for an impairment of financial
instrument, a gain in other income (expense) of $75, $59 net of tax, for the mark to market gain on Ocado
securities.

Quarter

2017
Sales

First
(16 Weeks)
$ 36,285

Second
(12 Weeks)
$ 27,597

Fourth

Third
(12 Weeks)
(13 Weeks)
$ 27,749 $ 31,031

Total Year
(53 Weeks)
$ 122,662

Operating Expenses

Merchandise costs, including advertising,

warehousing, and transportation, excluding items
shown separately below

Operating, general and administrative
Rent
Depreciation and amortization

28,281
6,367
270
736

21,609
4,517
225
562

21,532
4,701
196
573

24,240
5,456
220
565

95,662
21,041
911
2,436

Operating profit

631

684

747

550

2,612

Other income (expense)

Interest expense
Non-service component of company sponsored

pension plan costs

Net earnings (loss) before income tax (benefit) expense

Income tax expense (benefit)

Net earnings including noncontrolling interests
Net loss attributable to noncontrolling interests

(177)

(138)

(136)

(148)

(9)

445

148

297
(6)

(6)

540

189

351
(2)

(601)

(527)

(7)

(506)

604

(104)

1,484

215

(957)

(405)

389
(8)

853
(1)

1,889
(18)

Net earnings attributable to The Kroger Co.

303

353

397 $

854

1,907

Net earnings attributable to The Kroger Co. per basic

common share

0.33

0.39

0.44 $

0.97

2.11

Average number of shares used in basic calculation

914

897

887

875

895

Net earnings attributable to The Kroger Co. per diluted

common share

0.32

0.39

0.44 $

0.96

2.09

Average number of shares used in diluted calculation

925

905

893

884

904

Dividends declared per common share

$ 0.120

$ 0.125

$ 0.125 $ 0.125

0.495

Annual amounts may not sum due to rounding.

Net earnings for the first quarter of 2017 include $199, $126 net of tax, related to the withdrawal liability for

certain multi-employer pension funds and $184, $117 net of tax, related to the voluntary retirement offering.

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Net earnings for the fourth quarter of 2017 include charges to OG&A expenses of $351, $234 net of tax, related

to obligations from withdrawing from and settlements of withdrawal liabilities for certain multi-employer pension
funds, $110, $74 net of tax, related to the Kroger Specialty Pharmacy goodwill impairment and $502, $335 net of
tax, related to a company-sponsored pension plan termination.

Net earnings for the fourth quarter of 2017 include a reduction to depreciation and amortization expenses of

$19, $13 net of tax, related to held for sale assets, a reduction to income tax expense of $922 primarily due to the
re-measurement of deferred tax liabilities and the reduction of the statutory rate for the last five weeks of the fiscal
year from the Tax Cuts and Jobs Act. In addition, net earnings include $119, $79 net of tax, due to a 53rd week in
fiscal year 2017.

22. SUBSEQUENT EVENTS

On March 13, 2019, the Company completed the sale of its You Technology business to Inmar for total
consideration of $565, including $400 received upon closing. The transaction includes a long-term service
agreement for Inmar to provide the Company digital coupon services. The sale resulted in a gain and will be
included in “Gain on sale of business” in the Consolidated Statements of Operations in the first quarter of 2019.

On March 22, 2019, the Company announced a definitive agreement for the sale of its Turkey Hill Dairy
business to an affiliate of Peak Rock Capital, subject to customary closing conditions and any regulatory reviews.
The transaction will result in a gain and it is expected to close in the first quarter of 2019.

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_____________________________________________________________________________________________

SHAREHOLDERS: EQ Shareowner Services is Registrar and Transfer Agent for Kroger’s common shares. For
questions concerning payment of dividends, changes of address, etc., individual shareholders should contact:

EQ Shareowner Services
P. O. Box 64854
Saint Paul, MN 55164-0854
Toll Free 1-855-854-1369

Shareholder questions and
www.shareowneronline.com.

requests

for

forms available on

the

Internet should be directed

to:

FINANCIAL INFORMATION: Call (513) 762-1220 (option “1”) to request printed financial information, including
Kroger’s most recent report on Form 10-Q or 10-K, or press release. Written inquiries should be addressed to
Shareholder Relations, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100. Information also is
available on Kroger’s corporate website at ir.kroger.com.
_____________________________________________________________________________________________

Kroger has a variety of plans under which employees may acquire common shares of Kroger. Employees of Kroger
and its subsidiaries own shares through a profit sharing plan, as well as 401(k) plans and a payroll deduction plan
called the Kroger Stock Exchange. If employees have questions concerning their shares in the Kroger Stock
Exchange, or if they wish to sell shares they have purchased through this plan, they should contact:

Computershare Plan Managers
P.O. Box 43021
Providence, RI 02940
Phone 800-872-3307

Questions regarding Kroger’s 401(k) plans should be directed to the employee’s Human Resources Department
or 1-800-2KROGER. Questions concerning any of the other plans should be directed to the employee’s Human
Resources Department.
_____________________________________________________________________________________________

Mary Ellen Adcock
Senior Vice President

Jessica C. Adelman
Group Vice President

Stuart Aitken
Senior Vice President

Robert W. Clark
Senior Vice President

Yael Cosset
Senior Vice President and
Chief Information Officer

Michael J. Donnelly
Executive Vice President
and Chief Operating Officer

Carin L. Fike
Vice President and Treasurer

Rodney C. Antolock
Harris Teeter

Timothy F. Brown
Atlanta Division

Jerry Clontz
Mid-Atlantic Division

Zane Day
Nashville Division

Ken DeLuca
Michigan Division

Peter M. Engel
Fred Meyer Jewelers

Liz Ferneding
Ruler Foods

Monica Garnes
Fry’s Food & Drug

E X E C U T I V E O F F I C E R S

Todd A. Foley
Vice President and Controller

Joseph A. Grieshaber, Jr.
Senior Vice President

Christopher T. Hjelm
Executive Vice President

Calvin J. Kaufman
Senior Vice President

Timothy A. Massa
Senior Vice President

Stephen M. McKinney
Senior Vice President

W. Rodney McMullen
Chairman of the Board and
Chief Executive Officer

Gary Millerchip
Senior Vice President and
Chief Financial Officer

J. Michael Schlotman
Executive Vice President

Erin S. Sharp
Group Vice President

Alessandro Tosolini
Senior Vice President

Mark C. Tuffin
Senior Vice President

Christine S. Wheatley
Group Vice President, Secretary
and General Counsel

O P E R A T I N G U N I T H E A D S

Dennis R. Gibson
Fred Meyer Stores

Scott Hays
Cincinnati Division

Colleen Juergensen
Dillons Food Stores

Bryan H. Kaltenbach
Food 4 Less

Kenneth C. Kimball
Smith’s

Domenic A. Meffe
Specialty Pharmacy

Suzy Monford
QFC

Michael R. Murphy
Ralphs

Ann M. Reed
Louisville Division

Tom Schwilke
Dallas Division

Victor Smith
Delta Division

Colleen R. Lindholz
Pharmacy and The Little Clinic

Nicholas Tranchina
Murray’s Cheese

Pamela J. Matthews
Central Division

Kate Ward
Kroger Personal Finance

Michael Marx
Roundy’s

Dana Zurcher
Columbus Division

Daniel C. De La Rosa
King Soopers/City Market

Joe Kelley
Houston Division

(cid:3)

www.thekrogerco.com

The Kroger Co.

1014 Vine Street · Cincinnati, Ohio 45202 · 513-762-4000