The Kroger Co
Annual Report 2021

Plain-text annual report

Notice of 2022 Annual Meeting of Shareholders 2022 Proxy Statement and 2021 Annual Report on Form 10-K Dear Fellow Shareholders: 2021 was a year marked by new victories, new obstacles to be overcome and new milestones achieved. COVID-19 vaccines restored hope in defeating the pandemic; rising inflation presented new challenges; and momentum behind environmental, social, and governance (ESG) trends continued to motivate companies and citizens toward building a better future. Against this backdrop, Kroger remained focused on our purpose, To Feed the Human Spirit, and our brand promise, Fresh for Everyone™, by providing America with access to fresh, affordable, high-quality food. I’m proud of the way our associates came together to deliver for our customers during a highly dynamic year. As a team, we navigated an evolving operating environment featuring continued shifts in customer behaviors — including enthusiasm for e-commerce and a renewed excitement for at-home eating. Our competitive moats enabled us to convert these structural changes in customer behavior into lasting competitive advantages that will enable us to drive sustainable growth and profitability for the long term. Continued execution of our overarching strategy — Leading with Fresh and Accelerating with Digital — helped us to achieve a second consecutive year of record performance in 2021. During the year, we: • Achieved positive year-over-year identical (ID) sales excluding fuel against very strong ID sales last year, and a two-year ID sales stack of 14.3%; • Deepened our four competitive moats: Fresh, Our Brands, Personalization and Seamless, through productivity, technology and our focus on sustainability; • Reached $1 billion in annual Home Chef sales, reinforcing our ability to meet the growing demand for satisfying, restaurant-quality meal options at home that we forecasted years ago; • Achieved cost savings greater than $1 billion for the fourth consecutive year. • Invested in our associates to raise our average hourly wage to $17 and our average hourly rate including comprehensive benefits to over $22; and • Launched our first three customer fulfillment centers powered by Ocado in Groveland, FL (Orlando), Monroe, OH (Cincinnati), and Forest Park, GA (Atlanta). Our strong results are a testament to Kroger’s proven value creation model, which enables us to invest in our associates, provide fresh, affordable food for our customers and support our communities — and all of this allows us to deliver for our shareholders. The foundation of our value creation model is our market-leading omnichannel position in food retail, built on Kroger’s unique assets, which, combined with our competitive moats, deliver an unmatched value proposition for our customers. By using our free cash flow to invest in our core retail supermarket business, we drive additional traffic into our stores and digital channels. In turn, we generate data that enables us to diversify with fast-growing alternative profit streams. This flywheel effect creates incredible long-term, sustainable value for shareholders. It gives us confidence to consistently grow earnings of 3% to 5% per year, return capital to shareholders through our dividend and share repurchases, and supports our goal to deliver total shareholder returns of between 8%-11% over time. Our priorities today reflect our long-term focus. We make decisions on a five-to-ten-year horizon. This is true for our investments and our approach to ESG topics like responsible sourcing. Four years ago, we were dissatisfied with our average hourly wage rate for associates. We decided to take proactive steps to identify cost reductions that would allow us to invest in our associates. We’ve since raised associate wages by $1.2 billion while also keeping the price of food affordable for our customers. The sections below highlight the progress we have made across our key priorities and how we intend to continue building on this positive momentum going forward. Leading with Fresh As one of our core competitive moats, fresh — and our Fresh for Everyone™ brand promise — fuels our business every day. We know that our customers love Kroger because they crave fresh foods: it is the number one determinant of store choice, with 70% of all customers deciding where to shop based on fresh products. Today, nearly 100% of our customers buy fresh products from Kroger, demonstrating just how critical this area of the business is for us and our customers. Throughout the past year, Kroger’s fresh departments have delivered tremendous success, outpacing total company identical sales excluding fuel during the fourth quarter of 2021. Our fresh sales have increased 15.6% since 2019, demonstrating our ability to lead with the freshest, highest quality products. In 2022, we aim to widen our competitive moat in fresh. We’ll leverage data-driven insights and food science to improve sourcing, ensuring products are always at the peak of their flavor and quality; reduce transit time from distribution centers; ensure optimum assortment, price, and promotion of merchandise; simplify store operations; and more effectively market the freshness of our products to Kroger customers. We’ll also work to optimize our supply chain, partnering with our suppliers to improve the distribution process and launching new vendor accountability tools to keep our operations seamless. Creating a Seamless Customer Experience We are focused on delivering a seamless experience that requires zero compromise by our customers. And what that means is leading with the freshest products at competitive prices and flexible lead times. Our brick-and-mortar model leverages our existing assets to provide fresh products and meal solutions with proximity and immediacy, while our dedicated facilities can offer a wide assortment of choices alongside scale and reach to target new customers. We have intentionally structured our seamless ecosystem to leverage both of these models, forming a dynamic network encompassing our stores and automated customer fulfillment centers. This approach allows us to capture more trips — from the planned weekly shop to the unexpected and time-sensitive dinner — as we engage with more customers, on more occasions, and in both existing and new geographies. During the year, we expanded our loyalty and personalization platform, successfully generating over two trillion relevant recommendations, resulting in 50% of items added to baskets because of personalized search. And, with partners like Ocado, we continue to innovate and bring cutting-edge and industry-leading technology to improve both the customer and associate experience. In 2021, we set an ambitious goal of doubling digital sales by the end of 2023 and doubling our profitability pass-through rate. We’re successfully on track to accomplish these goals thanks to the hard work of our technology teams and associates, alongside strategic and impactful initiatives that continue to help us deliver this seamless experience. Feeding the Human Spirit There are many ways companies approach ESG matters today. At Kroger, driving sustainability and social good are not just things that happen alongside our business, they are embedded in the fabric of our business. Nowhere is this more evident than in Zero Hunger | Zero Waste, our social and environmental impact plan established in 2017, through which we are helping create a more resilient and sustainable future food system. In 2021 alone Kroger directed nearly 500 million meals to feed hungry families across America, reaching a cumulative 2.3 billion meals toward our goal of providing 3 billion meals to people in need by 2025. We’ve also delivered on our core 2025 impact goals under Zero Hunger | Zero Waste, including: 93% of Kroger-operated stores actively donating surplus food (goal: 100%); 87% of stores have active food waste recycling programs (goal: 100%); and company-wide waste diversion rate of 79% (goal: 95%+). We have also continued to prioritize fostering an environment of inclusion in the workplace, workforce and our communities where the diversity of cultures, backgrounds, experiences, perspectives, and ideas are valued and appreciated. We continue to make solid progress on our 10-point Framework for Action: Diversity, Equity & Inclusion (DEI), which reflects our desire to redefine, deepen, and advance our commitment by mobilizing our people, passion, scale, and resources. One area we are especially proud of our progress on is in supplier inclusion. We are nearly halfway toward achieving our goal in the Framework for Action to spend over $10 billion dollars annually with diverse suppliers by 2030. We also made progress in attracting diverse talent from Historically Black Colleges and Universities and Hispanic-Serving Institutions, increasing from six to 17 our partnerships with these institutions. Related to our DEI commitments, our Kroger Health practitioners have played an extraordinary role in administering more than 10 million COVID vaccines to communities of every race, age and economic background. We take great pride in the role we play in creating accessible healthcare and helping advance health equity and improved health outcomes for all, including our associates and customers. Responsible Sourcing As the nation’s largest supermarket retailer, Kroger has an extensive supply chain that is constantly evolving to meet the needs of our customers and communities. This work is guided by our Responsible Sourcing Framework, which includes 13 policies that embed responsible procurement practices throughout our value chain, including policies related to respecting human rights and advancing animal welfare. We implement comprehensive programs to not only hold our suppliers accountable for meeting Kroger’s high standards, but also to support their continual improvement. We also rely on the deep knowledge of our category sourcing leaders; the latest data, insights and audit results; and input from our investors, industry groups, NGOs and subject matter experts. Kroger’s Responsible Sourcing Framework includes our Animal Welfare Policy, which expresses our belief that animals should receive proper welfare. Our policy reflects the Five Freedoms, which is the international standard for higher welfare. We are not directly involved in raising or processing any animal. Kroger requires animal protein suppliers to adopt industry-accepted animal welfare standards. Investing in Our Associates I’m consistently in awe of the patience, generosity, and spirit of our associate community across the nation. As someone who started my career as an hourly Kroger store associate, I know better than anyone that providing a superior associate experience empowers us to deliver a better customer experience every time. In fact, around 70% of our store leaders start out as part time associates. Kroger has provided an incredible number of people with their first job, new beginnings, and lifelong careers, and we’re proud to play this role in our communities. When we talk about uplifting our associates, it certainly includes compensation. In the past four years, we’ve raised our average hourly wage by 25.9%, in addition to the comprehensive benefits we offer such as healthcare and retirement plans, customized training and advancement opportunities. Continuing this growing investment in our associates is a priority for 2022 and beyond, and we expect continued upward movement in the hourly wages in our business model. We’re also tremendously proud of our continued improvement in workplace safety. We believe our leading safety results make our stores, manufacturing plants and distribution centers among the safest places to work in the U.S. As part of our commitment to safe workplaces and a healthy workforce, we’ve made considerable investments in safeguarding our associates’ overall wellbeing, including increasing access to mental health resources and providing personal safety training as well as COVID-19 vaccines administered by our Kroger Health experts. To 2022 and Beyond 2021 was an incredible year for Kroger, characterized by impressive growth, big change, and restored hope. As we look ahead to 2022 and beyond, I want to take a moment to express my gratitude — for our associates, customers, and all of you. The community that we have built at and around Kroger is one of support, respect, innovation, and inspiration. Any victories or successes we achieve are shared by all. I believe that one of Kroger’s greatest strengths is our focus on learning and improving every day. As we embrace a new year and resolve to “expect the unexpected,” the knowledge and wisdom we’ve gained from these past years will help us continue delivering excellence for our associates, customers, communities, and shareholders. I’m incredibly optimistic about the future of Kroger and our ability to deliver for all stakeholders, I look forward to seeing all we can accomplish together, and thank you for continuing with us on this journey. Sincerely, Rodney McMullen Chairman and CEO, The Kroger Co. 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 sustainable net earnings growth, strategic capital deployment, strong and attractive total shareholder return, strong free cash flow and ability to increase the dividend, ability to achieve certain operational goals, 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 “will,” “aim,” “model,” “driving,” “enable,” “expect,” “goal,” “advancing,” “plan,” “continue,” “on track,” “confidence,” and “believe,” 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, including the specific risk factors identified in “Risk Factors” in Kroger’s most recent Annual Report on Form 10-K and any subsequent filings with the Securities and Exchange Commission. Kroger assumes no obligation to update the information contained herein, unless required to do so by applicable law. Zero Hunger | Zero Waste: Associate Fundraising Heroes The Kroger Co. Zero Hunger | Zero Waste Foundation is a nonprofit public charity designed to help align philanthropy with the company’s Zero Hunger | Zero Waste social and environmental impact plan. We invite customers of the Kroger Family of Companies to join our journey by rounding up their purchase to the nearest dollar at checkout to benefit the Zero Hunger | Zero Waste Foundation. Associate cashiers across the country are leading the way in activating donations through Round Up. Dollars raised are directed to nonprofit partners that help end hunger and waste in our communities. These are our 2021 Zero Hero fundraisers: Atlanta Division Sandra Branch Betalhem Tolla Central Division Selma Bektas Carol Dietz Angela Walker Cincinnati-Dayton Division Jen Tudor Columbus Division Colleen Burrows Christy Liff Beth Tipton Dallas Division Anna Louise Fowler Shah Navin Candice Peterson Delta Division Rickie Hill Michael McInvale Sherbert Ware Dillons Division Shannon Haley Pam Meyer James Moulden Fred Meyer Division Anatoliy Bondarchuk Pat Sears Fry’s Division Marlene Hoffman Dawn Lechner Houston Division Debra Van Matre Gina Wynn King Soopers Division Christopher Freeby Chris Vellos Louisville Division Stacey Harrison Mariano’s Division Arlene Glazier Loran Henderson Cher Herlache Michigan Division Falishea Taylor Steve Strachn Margie Yankovitch Mid-Atlantic Division Dee Dee Hamby Nashville Division Linda McMillan Linda Whitfield Ralphs Division John Dailey Ethelene Scurlark Roundy’s Division Sharon Dammann Nancy Johnson QFC Division Amber Brask Kurt Mincin Smith’s Division Sylvia Cronin Sara Jane Bobbie Tremayne (cid:11)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:69)(cid:79)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:17)(cid:12) Proxy Summary This summary highlights information contained elsewhere in this Proxy Statement. It does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting. Overview of Voting Matters and Board Recommendations Proposals No. 1 Election of Directors No. 2 Advisory Vote to Approve Executive Compensation No. 3 Ratification of Independent Auditors No. 4 Approval of additional shares under the 2019 Long-Term Incentive Plan Nos. 5 – 8 Shareholder Proposals Corporate Governance Highlights Board Recommendation FOR each Director Nominee recommended by your Board FOR FOR FOR AGAINST Each Proposal 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. ✓ Strong experienced independent Lead Director with clearly defined role and responsibilities. ✓ Commitment to Board refreshment and diversity. ✓ 5 of 11 director nominees are women. ✓ The chairs of the Audit, Finance, and Public Responsibilities Committees are women. ✓ Annual evaluation of the Chairman and CEO by the independent directors, led by the independent Lead Director. ✓ All director nominees are independent, except for the CEO. ✓ All five Board Committees are fully independent ✓ Annual Board and Committee self-assessments conducted by independent Lead Director or an independent third party. ✓ Regular executive sessions of the independent directors, at the Board and Committee level. ✓ High degree of Board interaction with management to ensure successful oversight and succession planning. ✓ Balanced tenure. ✓ Robust shareholder engagement program. ✓ Robust code of ethics. 1 Environmental, Social & Governance (ESG) Practices ✓ Long-standing Board Committee dedicated to ESG oversight — Public Responsibilities Committee — formed in 1977. • Amended the Committee Charter in 2021 to more specifically reflect the Committee’s focused and prioritized approach to material ESG topics related to environmental issues, sustainability, and social impact. ✓ Annual ESG report, sharing progress on our goals for Zero Hunger | Zero Waste, Just & Inclusive Economy, Food Waste, Operational Waste, Water, Packaging, Climate Impact, and Responsible Sourcing. • The 2021 ESG report represented the 15th year of describing our progress and initiatives regarding sustainability and other ESG matters. ✓ Committed to transparency in our disclosure, informed by frameworks consistent with shareholder expectations: • SASB’s Food Retailers and Distributors Standard. • GRI Global Sustainability Reporting Standards. • Task Force on Climate-related Financial Disclosures (TCFD) framework. ✓ Established formal Diversity, Equity & Inclusion (DE&I) Framework for Action to: • Create a more inclusive culture. • Develop diverse talent. • Advance diverse partnerships. • Advance equitable communities. • Listen deeply and report progress. ✓ Specifically include diverse candidates in every external executive officer and Board director search. ✓ Disclose EEO-1 data annually. Shareholder Rights ✓ Annual director election. ✓ Simple majority standard for uncontested director elections and plurality in contested elections. ✓ No poison pill. ✓ Shareholders have the right to call a special meeting. ✓ Robust, long-standing shareholder engagement program with regular engagements, including with independent directors, to better understand shareholders’ perspectives and concerns on a broad array of topics, such as corporate governance and ESG matters. ✓ 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 ✓ Robust clawback and recoupment policy. ✓ Pay program tied to performance and business strategy. 2 ✓ 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. ESG Highlights In 2021, Kroger introduced our Environmental, Social & Governance (ESG) Strategy: Thriving Together. Our objective is to achieve positive, lasting change through a shared-value framework that benefits people and our planet and creates more resilient systems for the future. The centerpiece of Kroger’s ESG strategy is our Zero Hunger | Zero Waste social and environmental impact plan. Introduced four years ago, Zero Hunger | Zero Waste is an industry-leading platform for collective action and systems change at global, national and local levels. Our ESG strategy aims to address material topics of importance to our business and key stakeholders, including our associates, customers, shareholders, and others. Key ESG topics — informed by a structured materiality assessment and engagement with our shareholders and NGOs — align to three strategic pillars: People, Planet and Systems. Please see more details here in Kroger’s annual ESG Report: https://www.thekrogerco.com/wp-content/uploads/2021/07/Kroger-2021-ESG-Report.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement. 3 Director Nominee Highlights Name Age* Primary Occupation Independent Nora A. Aufreiter Kevin M. Brown Elaine L. Chao Anne Gates Karen M. Hoguet 62 59 69 62 65 W. Rodney McMullen 61 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Director Emeritus of McKinsey & Company Executive Vice President and Chief Supply Chain Officer of Dell Technologies Former U.S. Secretary of Transportation and U.S. Secretary of Labor Former President of MGA Entertainment, Inc. Former Chief Financial Officer of Macy’s, Inc. Chairman of the Board and Chief Executive Officer of The Kroger Co. Clyde R. Moore Ronald L. Sargent † J. Amanda Sourry Knox (Amanda Sourry) Mark S. Sutton Ashok Vemuri 68 66 58 60 54 Former Chairman of First Service Networks (cid:2) Former Chairman and Chief Executive Officer of Staples, Inc. Former President of North America for Unilever Chairman and Chief Executive Officer of International Paper Former Chief Executive Officer and Director of Conduent Incorporated (cid:2) (cid:2) (cid:2) Standing Committee Membership Other Public Company Boards PR • • • Director Since 2014 A C&T CG F • 2021 • 2021 2015 2019 2003 1997 2006 2021 2017 2019 $ $ • $ $ • • • • • • • • • 2 — 3 2 1 1 — 2 1 1 — A Audit Committee C&T Compensation & Talent Development Committee CG Corporate Governance Committee F PR Public Responsibilities Committee Finance Committee Member Committee Chair Financial Expert *Age as of record date Lead Director 4 2022 Director Nominee Snapshot Diversity and Tenure Gender Diversity Ethnic Diversity 45% Women 36% of Board is ethnically diverse Tenure of Director Nominees 3 1 7 directors <5 years 1 director 5-10 years 3 directors 10+ years 7 Average Tenure is 8.1 years Skills and Experience Key Attributes and Skills of All Director Nominees • High integrity and business ethics • Knowledge of corporate governance matters • Strength of character and judgment • Understanding of the advisory and proactive • Ability to devote significant time to Board duties • Desire and ability to continually build expertise in emerging areas of strategic focus for our Company • Demonstrated focus on promoting equality • Business and professional achievements • Ability to represent the interests of all shareholders oversight responsibility of our Board • Comprehension of their role as a public company director and the fiduciary duties owed to shareholders • Intellectual and analytical skills 5 Nora Aufreiter Kevin Brown Elaine Chao Anne Gates Karen Hoguet Rodney McMullen Clyde Moore Ronald Sargent Amanda Sourry Mark Sutton Ashok Vemuri Total (of 11) Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG Manufacturing • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 11 6 8 11 10 10 11 4 2021 Compensation Highlights Executive Compensation Philosophy Executive Summary We delivered record performance results in 2021. By connecting with customers through our expanded seamless digital ecosystem and consistent delivery of full, fresh and friendly customer experience, we successfully navigated dynamic operational environment, labor and supply chain challenges and achieved record revenue and profitability as demonstrated by our financial performance results of ID sales of 0.2%, two year stack increased 14.3%, and adjusted FIFO operating profit of $4.3 Billion1. Our executive compensation program aligns with long-term shareholder value creation. 91% of the CEO’s target total direct compensation and, on average, 83% of the other NEOs’ compensation is at risk and performance based, tied to achievement of performance targets that are important to our shareholders or our long-term share price performance. Annual incentive program design reflected volatile market environment. Our 2021 annual incentive program consisted of two performance periods to maintain the program rigor amid uncertain business outlook at the start of the year, with more challenging sales performance goals implemented in the second half of the year. Annual and long-term performance incentives were earned above target in alignment with our 2021 performance. The annual cash incentive program that included identical sales (excluding fuel) and adjusted FIFO operating profit (including fuel) paid out at approximately 186% of target. Long-term performance unit equity awards granted in 2019 and tied to Restock Kroger savings and benefits, free cash flow and ROIC were earned at 120% of target. We prioritized investment in our people. We strive to create a culture of opportunity for more than 450,000 associates and take seriously our role as a leading employer in the United States. In 2021, we invested more than ever before in our associates by continuing to raise our average hourly wage to $17 and our average hourly rate to over $22, inclusive of industry-leading benefits such as continuing education and tuition reimbursement, training and development, health and wellness. In addition, we continued to invest significantly in the restructure of pension plans to protect future benefits for our hourly associates. 1 See pages 33-34 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC on March 29, 2022, for a reconciliation of GAAP operating profit to adjusted FIFO operating profit. 6 In response to our shareholder feedback, we incorporated an ESG metric focused on diversity and inclusion into our 2022 individual performance management program. Our core values of Diversity, Equity & Inclusion are incorporated into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our senior officers. Summary of Key Compensation Practices 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, significant 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 and progress toward our corporate ESG priorities. • Compensation plans should provide a direct line of sight to company performance. • Compensation programs should be aligned with market practices. • Compensation programs should serve to both motivate and retain talent. 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 executive 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. Named Executive Officers (NEOs) for 2021 For the 2021 fiscal year ended January 29, 2022, the NEOs were: Name Title W. Rodney McMullen Chairman and Chief Executive Officer Gary Millerchip Stuart W. Aitken Yael Cosset Timothy A. Massa Senior Vice President and Chief Financial Officer Senior Vice President and Chief Merchandising & Marketing Officer Senior Vice President and Chief Information Officer Senior Vice President and Chief People Officer 7 Fellow Kroger Shareholders: Notice of 2022 Annual Meeting of Shareholders We are pleased to invite you to join us for Kroger’s 2022 Annual Meeting of Shareholders on June 23, 2022 at 11:00 a.m. eastern time. The 2022 Annual Meeting of Shareholders will once again be a completely virtual meeting conducted via webcast. We believe this is the most effective approach for enabling the highest possible attendance while also protecting the health and safety of our shareholders, associates, and community. You will be able to participate in the virtual meeting online, vote your shares electronically, and submit questions during the meeting by visiting www.cesonlineservices.com/kr22_vm. When: Where: June 23, 2022, at 11:00 a.m. eastern time. Webcast at www.cesonlineservices.com/kr22_vm Items of Business: 1. 2. 3. 4. 5. 6. To elect 11 director nominees. To approve our executive compensation, on an advisory basis. To ratify the selection of our independent auditor for fiscal year 2022. To approve additional shares under the 2019 Long-Term Incentive Plan To vote on 4 shareholder proposals, if properly presented at the meeting. To transact other business as may properly come before the meeting. Barberry Corp., an activist investment firm affiliated with Carl Icahn (together with their affiliates, the “Icahn Group”), has notified us of its intention to propose two director nominees for election at the Annual Meeting in opposition to the nominees recommended by our Board of Directors. As a result, you may receive solicitation materials, including a colored proxy card, from the Icahn Group seeking your proxy to vote for the Icahn Group’s nominees. The Board of Directors urges you NOT to sign or return or vote any color proxy card sent to you by the Icahn Group. If you have already voted using a proxy card sent to you by the Icahn Group, you can revoke it by: (i) executing and delivering the WHITE proxy card or voting instruction form, (ii) voting via the Internet using the Internet address on the WHITE proxy card or voting instruction form, (iii) voting by telephone using the toll-free number on the WHITE proxy card or voting instruction form or (iv) voting virtually at the Annual Meeting. Only your latest dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described herein. Who can Vote: How to Vote: Holders of Kroger common shares at the close of business on the record date April 25, 2022 are entitled to notice of and to vote at the meeting. YOUR VOTE IS EXTREMELY IMPORTANT NO MATTER HOW MANY SHARES YOU OWN! Please vote your WHITE proxy in one of the following ways: 1. By the internet, you can vote by the Internet by following the instructions on the enclosed WHITE proxy card or WHITE voting instruction form. 8 2. 3. 4. By telephone, you can vote by telephone by following the instructions on the WHITE proxy card or WHITE voting instruction form. By mail, you can vote by mail by signing and dating the enclosed WHITE proxy card or WHITE voting instruction form and returning it in the postage-paid envelope provided with this proxy statement. By attending and voting electronically during the virtual Annual Meeting at www.cesonlineservices.com/kr22_vm. Shareholders holding shares at the close of business on the record date may attend the virtual meeting. You will be able to attend the Annual Meeting, vote and submit your questions real-time during the meeting via a live audio webcast by visiting www.cesonlineservices.com/kr22_vm and following the instructions below. There is no physical location for the Annual Meeting. You may only attend the Annual Meeting virtually. Attending the Meeting: Our Board of Directors unanimously recommends that you vote “FOR ALL” of Kroger’s director nominees on the WHITE proxy card and “FOR” the management proposals 2 through 4 and “AGAINST” the shareholder proposals 5 through 8. We appreciate your continued confidence in Kroger, and we look forward to your participation in our virtual meeting. If you have any questions or require any assistance, please contact our proxy solicitor: D.F. King & Co., Inc. 48 Wall Street, 22nd Floor New York, New York 10005 Brokers and Banks Call Collect: (212) 269-5550 All Others Call Toll-Free: (800) 992-3086 Email: KR@dfking.com May 2, 2022 Cincinnati, Ohio By Order of the Board of Directors, Christine S. Wheatley, Secretary 9 Proxy Statement May 2, 2022 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 23, 2022, at 11:00 a.m. eastern time, and at any adjournments thereof. The Annual Meeting will be held virtually and can be accessed online at www.cesonlineservices.com/kr22_vm. There is no physical location for the 2022 Annual Meeting of Shareholders. 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 WHITE proxy card are first being sent or given to shareholders on or about May 2, 2022. Questions and Answers about the Annual Meeting Why are you holding a virtual meeting? We believe a virtual meeting is the most effective approach for enabling the highest possible attendance while also protecting the health and safety of our shareholders, associates and community. Therefore, our 2022 Annual Meeting is being held on a virtual-only basis with no physical location. Our goal for the Annual Meeting is to enable the broadest number of shareholders to participate in the meeting, while providing substantially the same access and exchange with the Board and Management as an in-person meeting. We believe that we are observing best practices for virtual shareholder meetings, including by providing a support line for technical assistance and addressing as many shareholder questions as time allows. Who can vote? You can vote if, as of the close of business on April 25, 2022, the record date, you were a shareholder of record of Kroger common shares. Who is the Icahn Group? How are they involved in the Annual Meeting? Barberry Corp., an activist investment firm affiliated with Carl Icahn (together with their affiliates, the “Icahn Group”), has notified us of its intention to propose two director nominees for election at the Annual Meeting in opposition to the nominees recommended by our Board. You may receive proxy solicitation materials from the Icahn Group. We are not responsible for the accuracy of any information contained in any proxy solicitation materials filed or disseminated by, or on behalf of, the Icahn Group or any of its affiliates or any other statements that they may otherwise make. The Board does not endorse any of the Icahn Group’s nominees and unanimously recommends that you vote “FOR ALL” of Kroger’s director nominees and “FOR” each of the management proposals 2 through 4 and “AGAINST” the shareholder proposals 5 through 8 on the enclosed WHITE proxy card. The Board urges you to disregard any materials and NOT to sign, return or vote using any color proxy card sent to you by or on behalf of the Icahn Group. Voting to “withhold” with respect to any of the Icahn Group’s director nominees on any color proxy card sent to you by the Icahn Group is not the same as voting for our director nominees, because a vote to “withhold” with respect to any of the Icahn Group’s director nominees on the Icahn Group’s proxy card will revoke any WHITE proxy you may have previously submitted. To support our director nominees, you should vote “FOR ALL” of our director nominees on the WHITE proxy card. If you have already voted using a proxy card sent to you by the Icahn Group, you can revoke it by: (i) executing and delivering the WHITE proxy card or voting instruction form, (ii) voting via the Internet using the Internet address on the WHITE proxy card or voting instruction form, (iii) voting by telephone 10 using the toll-free number on the WHITE proxy card or voting instruction form or (iv) voting virtually at the Annual Meeting. Only your latest dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described herein. Who is asking for my vote, and who pays for this proxy solicitation? Kroger will pay the cost of the solicitation of proxies by the Company. Kroger’s Board of Directors and certain of the Company’s regular officers and employees in the ordinary course of their employment may solicit proxies by mail, Internet, telephone, facsimile, advertisements, personal contact, email, or other online methods. We will reimburse their expenses for doing this. 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. Other proxy solicitation expenses that we will pay include those for preparing, mailing, returning, and tabulating the proxies. As a result of the potential proxy solicitation by the Icahn Group, we will incur additional costs in connection with our solicitation of proxies. We have hired D.F. King & Co., Inc. (“D.F. King”) to assist us in soliciting proxies for a fee estimated not to exceed $4 million. D.F. King expects that approximately 125 of its associates will assist in the solicitation. The total amount to be spent for our solicitation of proxies from shareholders for the Annual Meeting in excess of that normally spent for an annual meeting is estimated to be approximately $10 million, approximately $1.5 million of which has been accrued to date. 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 2022 Annual Meeting. What is the difference between a “shareholder of record” and a “beneficial shareholder” of shares held in street name? You are the “shareholder of record” for any Kroger common shares that you own directly in your name in an account with Kroger’s stock transfer agent, EQ Shareowner Services. You are a “beneficial shareholder” of shares held in street name if your Kroger common shares are held in an account with a broker, bank, or other nominee as custodian on your behalf. The broker, bank, or other nominee is considered the shareholder of record of these shares. As the beneficial owner, you have the right to instruct the broker, bank, or other nominee on how to vote your Kroger common shares. How do I vote my shares held in street name? If your shares are held by a bank, broker, or other holder of record, you will receive voting instructions from the holder of record. Your broker is required to vote your shares in accordance with your instructions. In most cases, you may vote by telephone or over the internet as instructed. How do I vote my proxy? You can vote your proxy in one of the following ways: 1. By the internet, you can vote by the Internet by following the instructions on the enclosed WHITE proxy card or WHITE voting instruction form. 2. By telephone, you can vote by telephone by following the instructions on the WHITE proxy card or WHITE voting instruction form. 3. By mail, you can vote by mail by signing and dating the enclosed WHITE proxy card or WHITE voting instruction form and returning it in the postage-paid envelope provided with this proxy statement. 11 4. By voting electronically during the virtual Annual Meeting at www.cesonlineservices.com/kr22_vm. If you vote by telephone, via the Internet or by signing, dating, and returning the WHITE proxy card, your shares will be voted at the Annual Meeting as you direct. If you sign your WHITE proxy card but do not specify how you want your shares to be voted, they will be voted as the Board recommends. Why have I received different color proxy cards? The Icahn Group has notified us that it intends to propose two alternative director nominees for election at the Annual Meeting in opposition to the nominees recommended by the Board. We have provided you with the enclosed WHITE proxy card. The Icahn Group may send you a proxy card that is a different color. The Board unanimously recommends using the enclosed WHITE proxy card to vote “FOR ALL” of Kroger’s director nominees. The Board recommends that you simply DISREGARD the Icahn Group’s proxy card. If the Icahn Group proceeds with its previously announced nominations, we will likely conduct multiple mailings prior to the date of the meeting to ensure that shareholders have our latest proxy information and materials to vote. We will send you a new WHITE proxy card with each mailing, regardless of whether you have previously voted. We encourage you to vote every WHITE proxy card you receive. The latest dated proxy you submit will be counted, and, if you wish to vote as recommended by our Board, then you should only submit WHITE proxy cards. What documentation must I provide to be admitted to the virtual Annual Meeting and how do I attend? In order to attend, you (or your authorized representative) must register in advance at https://www.cesonlineservices.com/kr22_vm prior to the deadline of June 22, 2022 at 11:00 a.m. eastern time. Registering to Attend the Annual Meeting — Shareholders of record. If you were a shareholder of record as of the close of business on the record date, you may register to attend the Annual Meeting by accessing https://www.cesonlineservices.com/kr22_vm and entering the control number provided on your WHITE proxy card. On the following screen, you should click on the link titled “Click here to pre- register for the online meeting” at the top of the page. If you do not have your WHITE proxy card, you may still register to attend the Annual Meeting by accessing https://www.cesonlineservices.com/kr22_vm, but you will need to provide proof of ownership of our common shares as of the record date during the registration process. Such proof of ownership may include a copy of your proxy card received either from the Company or the Icahn Group or a statement showing your ownership as of the record date. Registering to Attend the Annual Meeting — Beneficial Owners. If you were the beneficial owner of shares (that is, you held your shares in street name through an intermediary such as a broker, bank or other nominee) as of the record date, you may register to attend the Annual Meeting by accessing https://www.cesonlineservices.com/kr22_vm and providing evidence during the registration process that you beneficially owned our common shares as of the record date, which may consist of a copy of the voting instruction form provided by your broker, bank or other nominee, an account statement or a letter or legal proxy from such broker, bank or other nominee. After registering, you will receive a confirmation email prior to the Annual Meeting with a link and instructions for entering the virtual Annual Meeting. Although the meeting webcast will begin at 11:00 a.m. eastern time on June 23, 2022, we encourage you to access the meeting site prior to the start time to allow ample time to log into the meeting webcast and test your computer system. Accordingly, the Annual Meeting site will first be accessible to registered shareholders beginning at 10:30 a.m. eastern time on the day of the meeting. 12 Whether or not you plan to attend the Annual Meeting, we urge you to sign, date and return the enclosed WHITE proxy card in the postage-paid envelope provided, or vote via the Internet or by telephone, as instructed on the WHITE proxy card. Additional information and our proxy materials can also be found at www.viewourmaterial.com/KR. If you have any difficulty following the registration process, please email KR@dfking.com. What if I have technical or other “IT” problems logging into or participating in the Annual Meeting webcast? All shareholders who register to attend the Annual Meeting will receive an email prior to the Annual Meeting containing the contact details of technical support in the event they encounter difficulties accessing the virtual meeting or during the meeting. Shareholders are encouraged to contact technical support if they encounter any technical difficulties with the meeting webcast. In the event of any technical disruptions that prevent the chair from hosting the Annual Meeting within 30 minutes of the date and time set forth above, the meeting may be adjourned or postponed. What documentation must I provide to vote online at the Annual Meeting? Shareholders that pre-register for the meeting may also vote during the meeting by clicking on the “Shareholder Ballot” link that will be available on the meeting website during the meeting. Shareholders of record may vote directly by simply accessing the available ballot on the meeting website. Beneficial owners of shares are encouraged to vote in advance of the meeting. If you intend to vote during the meeting, as a beneficial shareholder you must obtain a legal proxy from your brokerage firm or bank. Most brokerage firms or banks allow a shareholder to obtain a legal proxy either online or by mail. Follow the instructions provided by your brokerage firm or bank. If you have requested a legal proxy online, and you have not received an email with your legal proxy within two business days of your request, contact your brokerage firm or bank. If you have requested a legal proxy by mail, and you have not received it within five business days of your request, contact your brokerage firm or bank. You may submit your legal proxy either (i) in advance of the meeting by attaching the legal proxy (or an image thereof in PDF, JPEG, GIF or PNG file format) in an email to proxy@firstcoastresults.com or (ii) along with your voting ballot during the meeting. We must have your legal proxy in order for your vote submitted during the meeting to be valid. To avoid any technical difficulties on the day of the meeting, we encourage you to submit your legal proxy in advance by email to proxy@firstcoastresults.com to ensure that your vote is counted, rather than wait to upload the legal proxy during the meeting. Multiple legal proxies must be combined into one document for purposes of uploading them to the meeting website. How should I submit my question at the Annual Meeting? Each year at the Annual Meeting, we hold a question-and-answer session following the formal business portion of the meeting during which shareholders may submit questions to us. We anticipate having such a question-and-answer session at the 2022 Annual Meeting. You may submit a question at the Annual Meeting by typing in the “Ask a Question” box and clicking the “Send” button that will be available on the meeting website during the meeting, up until the time we indicate that the question-and- answer session is concluded. 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 at any time before it is exercised at the Annual Meeting by Internet, telephone, or mail or by voting your shares while logged in and participating in the 2022 Annual Meeting of Shareholders. If you have already voted using a proxy card sent to you by the Icahn Group, you can revoke it by: (i) executing and delivering the WHITE proxy card or voting instruction form, (ii) voting via the Internet 13 using the Internet address on the WHITE proxy card or voting instruction form, (iii) voting by telephone using the toll-free number on the WHITE proxy card or voting instruction form or (iv) voting virtually at the Annual Meeting. Only your latest dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described herein. Submitting an Icahn Group proxy card — even if you withhold your vote on the Icahn Group nominees — will revoke any vote you previously made via our WHITE proxy card. If you wish to vote pursuant to the recommendation of the Board, you should disregard any proxy card that you receive that is not a WHITE proxy card and not return any color proxy card that you may receive from the Icahn Group. How many shares are outstanding? As of the close of business on April 25, 2022, the record date, our outstanding voting securities consisted of 720,938,109 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? With respect to the election of directors, you may instruct the proxies to vote “For All” or “Withhold All” for the nominees, or “For All Except” and specify the nominees from whom you withhold your vote. For all other proposals, 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, 2, 4, and 5 - 8. 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 3, ratification of auditors, is usually considered a routine matter and, therefore, in an uncontested election, your broker may vote your shares according to your broker’s discretion. However, given the contested nature of the election, if the Icahn Group mails proxy materials to a beneficial owner, the rules of the New York Stock Exchange (“NYSE”) governing brokers’ discretionary authority generally do not permit brokers to exercise discretionary authority regarding any of the proposals to be voted on at the Annual Meeting, whether “routine” or not. Thus, if you receive proxy materials from the Icahn Group and you do not give instructions to the organization holding your shares, then we do not expect that organization to be able to vote your shares and, consequently, the shares held by that organization would not be entitled to vote on any matter to be considered at the Annual Meeting. Accordingly, we urge you to give instructions to your bank or broker as to how you wish your shares to be voted so that you may participate in voting on these important matters. 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. 14 What are the voting requirements and voting recommendation for each of the proposals? Proposals No. 1 Election of Directors Board Recommendation FOR each Director Nominee recommended by your Board No. 2 Advisory Vote to Approve Executive Compensation No. 3 Ratification of Independent Auditors No. 4 Approval of additional shares under the 2019 Long-Term Incentive Plan FOR FOR FOR Nos. 5 – 8 Shareholder Proposals AGAINST Each Proposal Voting Approval Standard Effect of Abstention Effect of broker Non-vote Plurality of votes cast in a contested election If the Icahn Group proceeds with its alternative nominations, the number of director nominees will be 13, which exceeds the number of directors to be elected. As provided in our Amended Articles of Incorporation, in such a situation, the 11 nominees who receive the greatest number of votes cast will be elected. Affirmative vote of the majority of shares participating in the voting Affirmative vote of the majority of shares participating in the voting Affirmative vote of the majority of shares participating in the voting Affirmative vote of the majority of shares participating in the voting No Effect No Effect No Effect No Effect No Effect No Effect No Effect No Effect No Effect No Effect What can I do if I have questions? If you have any questions, please contact D.F. King & Co., Inc., our proxy solicitor assisting us in connection with the Annual Meeting, by calling toll free (800) 992-3086 or emailing KR@dfking.com. 15 Background of the Solicitation The Kroger Board and management team maintain regular communications with shareholders and other stakeholders on a range of matters, including those related to environmental, social and governance (ESG), and welcome open engagement. On Friday, March 25, 2022, Carl Icahn called Rodney McMullen, Chairman and Chief Executive Officer of the Company, and voiced his concerns regarding animal welfare and the use of gestation crates in pork production. During the conversation, Mr. Icahn shared his views on Kroger’s commitments with respect to those issues and indicated that he planned to nominate directors for election to the Kroger Board at its upcoming Annual Meeting to address such matters. On Tuesday, March 29, 2022, the Company received correspondence from the Icahn Group indicating its intent to nominate two director candidates — Alexis C. Fox and Margarita Paláu- Hernández — for election to the Board at the Annual Meeting. Later that day, the Company issued a press release of a statement regarding the Icahn Group’s intent to nominate director candidates to the Kroger Board. On April 7, 2022, the Company’s outside counsel contacted a representative of the Icahn Group to inquire about the availability of the Icahn Group’s director nominees to be interviewed by members of the Corporate Governance Committee of Kroger’s Board of Directors and to request that the director nominees complete the Company’s prospective director questionnaire. On April 13, 2022, members of the Corporate Governance Committee, as well as Mr. McMullen, interviewed each of the Icahn Group’s director nominees. On April 15, 2022, the Corporate Governance Committee met and discussed the background and experience of the Icahn Group’s nominees while taking into account the Company’s criteria for evaluating nominations of candidates for election to the Board as well as the background, skills and experience of the Company’s nominees for election to the Board and determined not to recommend that either of the Icahn Group’s nominees be included in the Company’s slate of director nominees at the Annual Meeting. The Corporate Governance Committee then reported to the full Board on its review of, and recommendation with respect to, the Icahn Group’s nominees and the Board unanimously determined not to include the Icahn Group’s nominees in the Company’s slate of director nominees at the Annual Meeting. On April 19, 2022, Kroger filed its preliminary Proxy Statement with the SEC. On May 2, 2022, Kroger filed its definitive Proxy Statement with the SEC. 16 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. ✓ Strong experienced independent Lead Director with clearly defined role and responsibilities. ✓ Commitment to Board refreshment and diversity. ✓ 5 of 11 director nominees are women. ✓ The chairs of the Audit, Finance, and Public Responsibilities Committees are women. ✓ Annual evaluation of the Chairman and CEO by the independent directors, led by the independent Lead Director. ✓ All director nominees are independent, except for the CEO. ✓ All five Board Committees are fully independent. ✓ Annual Board and Committee self-assessments conducted by independent Lead Director or an independent third party. ✓ Regular executive sessions of the independent directors, at the Board and Committee level. ✓ High degree of Board interaction with management to ensure successful oversight and succession planning. ✓ Balanced tenure. ✓ Robust shareholder engagement program. ✓ Robust code of ethics. Environmental, Social & Governance (ESG) Practices ✓ Long-standing Board Committee dedicated to ESG oversight — Public Responsibilities Committee — formed in 1977. • Amended the Committee Charter in 2021 to more specifically reflect the Committee’s focused and prioritized approach to material ESG topics related to environmental issues, sustainability, and social impact. ✓ Annual ESG report, sharing progress on our goals for Zero Hunger | Zero Waste, Just & Inclusive Economy, Food Waste, Operational Waste, Water, Packaging, Climate Impact, and Responsible Sourcing. • The 2021 ESG report represented the 15th year of describing our progress and initiatives regarding sustainability and other ESG matters. ✓ Committed to transparency in our disclosure, informed by frameworks consistent with shareholder expectations: • SASB’s Food Retailers and Distributors Standard. • GRI Global Sustainability Reporting Standards. • Task Force on Climate-related Financial Disclosures (TCFD) framework. ✓ Established formal Diversity, Equity & Inclusion (DE&I) Framework for Action to: • Create a more inclusive culture. 17 • Develop diverse talent. • Advance diverse partnerships. • Advance equitable communities. • Listen deeply and report progress. ✓ Specifically include diverse candidates in every external executive officer and Board director search. ✓ Disclose EEO-1 data annually. Shareholder Rights ✓ Annual director election. ✓ Simple majority standard for uncontested director elections and plurality in contested elections. ✓ No poison pill. ✓ Shareholders have the right to call a special meeting. ✓ Robust, long-standing shareholder engagement program with regular engagements, including with independent directors, to better understand shareholders’ perspectives and concerns on a broad array of topics, such as corporate governance and ESG matters. ✓ 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 ✓ Robust clawback and recoupment policy. ✓ 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. Environmental, Social & Governance Strategy In 2021, Kroger introduced our Environmental, Social & Governance Strategy: Thriving Together. Our objective is to achieve positive, lasting change through a shared-value framework that benefits people and our planet and creates more resilient systems for the future. The centerpiece of Kroger’s ESG strategy is our Zero Hunger | Zero Waste social and environmental impact plan. Introduced four years ago, Zero Hunger | Zero Waste is an industry-leading platform for collective action and systems change at global, national and local levels. Our ESG strategy aims to address material topics of importance to our business and key stakeholders, including our associates, customers, shareholders, and others. Key ESG topics — informed by a structured materiality assessment and engagement with our shareholders and NGOs — align to three strategic pillars: People, Planet and Systems. Please see more details here in Kroger’s annual ESG Report: https://www.thekrogerco.com/wp-content/uploads/2021/07/Kroger-2021-ESG-Report.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement. 18 People — Our Aspiration: Help billions live healthier, more sustainable lifestyles Food Access, Health & Nutrition Kroger’s brand promise, Fresh for Everyone, reflects our belief that everyone should have access to affordable, fresh food. We are committed to food and product safety and to improving food access, food security, and health and nutrition for all. Protecting our associates’ and customers’ health and safety and enhancing our shopping experience are also key focus areas. • Kroger associates rescued nearly 500 million pounds of wholesome surplus food to help end hunger in the past five years through our Zero Hunger | Zero Waste Food Rescue program. • In the same period, Kroger directed a total of $1 billion in charitable giving for hunger relief in our communities. • With food and funds combined, Kroger directed 2.3 billion meals to our communities since 2017, well ahead of our goal of 3 billion meals by 2025. Just & Inclusive Economy We offer access to employment, benefits and more, providing good jobs for individuals ages 15 to 95 with a wide range of experience, skills and career aspirations. In 2020, Kroger introduced our Framework for Action: Diversity, Equity and Inclusion, a 10-point plan with short- and long-term steps to accelerate and promote greater change in the workplace and communities we serve. • Since 2020, Kroger has trained 500,000 leaders and associates in diversity, equity and inclusion, including Unconscious Bias training. • We achieved more than $4 billion in diverse supplier spend annually, on track to our goal of $10 billion annually by 2030. • Kroger achieved a perfect score of 100 on the Human Rights Campaign Corporate Equality Index for the fourth consecutive year and was listed among the Best Places to work for Disability Inclusion by the Diversity Equality Index. • The Kroger Co. Foundation established a $5 million Racial Equity Fund subsequently increased to $10M to support organizations driving change at national and local levels. A first round of Build It Together grants totaling $3 million supported four organizations: Black Girl Ventures, Everytable, LISC and the Thurgood Marshall College Fund. A second round of Changemaker grants totaling $1.1 million will help build black wealth and improve racial health equity with key partners in Ohio and Tennessee. Planet — Our Aspiration: Protect and restore natural resources for a brighter future Climate Impact Kroger is committed to reducing the impact of our business on our changing climate and assessing the potential future risk of a changing climate to our business operations. We also support the transition to a lower-carbon economy by investing in energy efficiency and renewable energy and by reducing refrigerant emissions and food waste. • Kroger’s current commitment is to reduce Scope 1 and 2 greenhouse gas (GHG) emissions by 30% by 2030 using a 2018 baseline. Reflecting updated guidance from the Intergovernmental Panel on Climate Change and the Science Based Targets initiative, Kroger will begin work to reset this target in 2022 to be more ambitious and align to a 1.50C scenario. • In addition, Kroger committed to set a new Scope 3 target to reduce GHG emissions in our value chain. We expect to complete the goal-setting process in 2023. • Reducing food waste is another way Kroger is helping reduce climate impacts. In 2020, we reduced retail food waste generated and improved retail food waste diversion from landfill to 48.3% through our Zero Hunger | Zero Waste plan, on track to achieving 95%+ diversion by 2025. 19 Resource Conservation As a responsible business, we conserve natural resources to help safeguard people and our planet. We remain committed to diverting 90% or more of waste from landfill by 2025 and to identifying alternative methods of waste management. • We have a comprehensive set of sustainable packaging goals that include seeking to achieve 100% recyclable, reusable or compostable packaging for Our Brands products by 2030. • Kroger partnered with TerraCycle to launch a first-of-its-kind recycling program for flexible plastic packaging across the Our Brands portfolio. Now Kroger customers can collect flexible snack and chip bags, pouches, pet food packaging and more — items typically not eligible for curbside recycling — for easy and free mail-in recycling. • As the exclusive U.S. grocery retail partner for Loop, Kroger helped introduce this innovative reusable consumer product packaging platform to our shoppers. Loop items are currently available in a pilot at 25 Fred Meyer stores in the Portland, Oregon, area. • To support more sustainable agriculture, Kroger offers an expanding selection of natural, organic, free-from and plant-based products, including our popular Simple Truth® product line. Systems — Our Aspiration: Build more responsible and inclusive global systems Business Integration Kroger is committed to strong corporate and ESG governance. Business and functional leaders are engaged in our ESG strategy and accountable for results. Operationalizing ESG is a journey; however, we believe our centralized structure, vertical integration and commitment to responsible sourcing enables our progress. • In the past year, Kroger updated its Board of Directors Committee charters to reflect the priority that the Board places on ESG topics. • We are committed to Board refreshment and diversity, with five of 11 directors being women, including the chairs of the Audit, Finance, and Public Responsibilities Committees and four of 11 directors identifying as racially/ethnically diverse. • A core ESG team leads internal cross-functional working groups focused on policy, issues management and strategy implementation for key ESG topics, including animal welfare, climate impacts, food access, responsible sourcing, and sustainable packaging. Responsible & Resilient Systems As a grocery retailer, Kroger is part of and dependent on an interconnected global food system and consumer goods supply chain. A renewed focus on these natural systems and the policies and practices governing them will help protect our planet and workers whose livelihoods depend on a resilient and responsible supply chain. • Kroger committed to align our policy to respect human rights with the UN Guiding Principles on Business and Human Rights and create a comprehensive human rights due diligence framework and roadmap for implementation. • We continue to increase the volume of Fair Trade Certified ingredients and finished products sourced for Our Brands products to support communities around the world. • Kroger updated its animal welfare policy to support the five freedoms of animal welfare, continued to engage in open dialogue with animal welfare stakeholders on chicken, sow and dairy cow welfare, and joined the Global Coalition for Animal Welfare, which convenes food retailers, food service providers, producers, and animal welfare experts to improve standards at scale and promote good welfare. • Our long-standing commitment to seafood sustainability includes partnerships and programs aimed at improving marine ecosystems through conservation and fishery improvement practices. • Kroger’s No-Deforestation Commitment for Our Brands aims to address deforestation impacts in higher-risk supply chains, such as palm oil, pulp and paper, soy, and beef. 20 Proposals to Shareholders Item No. 1. Election of Directors You are being asked to elect 11 director nominees for a one-year term. FOR The Board of Directors unanimously recommends that you vote “FOR ALL” of Kroger’s director nominees. Standing Committee Membership Other Public Company Boards Name Age* Primary Occupation Independent Nora A. Aufreiter Kevin M. Brown Elaine L. Chao Anne Gates Karen M. Hoguet 62 59 69 62 65 W. Rodney McMullen 61 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Director Emeritus of McKinsey & Company Executive Vice President and Chief Supply Chain Officer of Dell Technologies Former U.S. Secretary of Transportation and U.S. Secretary of Labor Former President of MGA Entertainment, Inc. Former Chief Financial Officer of Macy’s, Inc. Chairman of the Board and Chief Executive Officer of The Kroger Co. Clyde R. Moore Ronald L. Sargent † J. Amanda Sourry Knox (Amanda Sourry) Mark S. Sutton Ashok Vemuri 68 66 58 60 54 Former Chairman of First Service Networks (cid:2) Former Chairman and Chief Executive Officer of Staples, Inc. Former President of North America for Unilever Chairman and Chief Executive Officer of International Paper Former Chief Executive Officer and Director of Conduent Incorporated (cid:2) (cid:2) (cid:2) PR • • • Director Since 2014 A C&T CG F • 2021 • 2021 2015 2019 2003 1997 2006 2021 2017 2019 $ $ • $ $ • • • • • • • • • A Audit Committee C&T Compensation & Talent Development Committee CG Corporate Governance Committee F PR Public Responsibilities Committee Finance Committee Member Committee Chair Financial Expert *Age as of record date Lead Director 21 2 — 3 2 1 1 — 2 1 1 — As of the date of this proxy statement, Kroger’s Board of Directors consists of 11 members. All nominees, if elected at the 2022 Annual Meeting, will serve until the annual meeting in 2023, or until their successors have been elected by the shareholders or by the Board pursuant to Kroger’s Regulations, and qualified. Each of our director nominees identified in this proxy statement has consented to being named as a nominee in our proxy materials and has accepted the nomination and agreed to serve as a director if elected by Kroger’s shareholders. 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. However, in a contested election where there are more nominees for election than positions on the Board to be filled, the vote required for election of a director nominee is a plurality of the votes cast. The Icahn Group notified Kroger that it intends to nominate two candidates for election as directors at the Annual Meeting. If the Icahn Group proceeds with its alternative nomination, the number of director nominees will exceed the number of directors to be elected and, as a result, the 11 nominees who receive the greatest number of votes cast will be elected. The Board does NOT endorse any of the Icahn Group’s nominees and recommends that you simply DISREGARD any materials, including any color proxy card, that may be sent to you by the Icahn Group and only vote using the enclosed WHITE proxy card. Please note that voting to “withhold” with respect to any of the Icahn Group’s nominees on any color proxy card sent to you by the Icahn Group is not the same as voting for the Board’s nominees, because a vote to “withhold” with respect to any of the Icahn Group’s nominees on the Icahn Group’s proxy card will revoke any WHITE proxy you may have previously submitted. To support the Board’s nominees, you should vote “FOR ALL” Kroger’s director nominees on the WHITE proxy card. If you have already voted using a proxy card sent to you by the Icahn Group, you can revoke it by: (i) executing and delivering the WHITE proxy card or voting instruction form, (ii) voting via the Internet using the Internet address on the WHITE proxy card or voting instruction form, (iii) voting by telephone using the toll-free number on the WHITE proxy card or voting instruction form or (iv) voting virtually at the Annual Meeting. Only your latest dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described herein. If you have any questions, please contact D.F. King & Co., Inc., our proxy solicitor assisting us in connection with the Annual Meeting, by calling toll free (800) 992-3086 or emailing KR@dfking.com. The Committee memberships stated below are those in effect as of the date of this proxy statement. 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. In addition, all of our Director Nominees demonstrate the following qualities: Key Attributes and Skills of All Kroger Director Nominees • High integrity and business ethics • Knowledge of corporate governance matters • Strength of character and judgement • Understanding of the advisory and proactive oversight responsibility of our Board • Comprehension of their role as a public company director and the fiduciary duties owed to shareholders • Intellectual and analytical skills • Ability to devote significant time to Board duties • Desire and ability to continually build expertise in emerging areas of strategic focus for our Company • Demonstrated focus on promoting equality • Business and professional achievements • Ability to represent the interests of all shareholders 22 Board Nominees for Directors for Terms of Office Continuing until 2023 Age 62 Director Since 2014 Committees: Finance Public Responsibilities* Qualifications: Busines Management Retail Consumer Financial Expertise Operations & Technology ESG Nora A. Aufreiter 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 and is chair of the Board of Directors of MYT Netherlands Parent B.V., the parent company of MyTheresa.com, an e-commerce retailer. She is also on the board of a privately held company, Cadillac Fairview, a subsidiary of Ontario Teachers Pension Plan, which is 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. In addition, during her tenure with McKinsey, the firm advised consulting clients on a variety of matters, including ESG topics and setting and achieving sustainability goals which is of value to the Board and the Public Responsibilities Committee. Ms. Aufreiter has served on our Public Responsibilities Committee for seven years, the last two as chair. In 2021, she led the Board’s review of ESG accountability to clarify committee oversight of ESG topics and led the revision of the Committee’s charter to reflect the Committee’s increasing focus on material environmental sustainability and social impact topics. She also brings to the Board valuable insight on commercial real estate. In her role as Chair of the Corporate Governance Committee of Bank of Nova Scotia, Ms. Aufreiter has responsibility for overseeing shareholder engagement, the composition of its Board of Directors, including diversity, the effectiveness of the diversity policy of its Board of Directors, ESG strategy and priorities, and the Bank’s statement on human rights. This experience is of particular value to the Board and to her role as the Chair of the Public Responsibilities Committee. 23 Kevin M. Brown Mr. Brown is the Executive Vice President and Chief Supply Chain Officer at Dell Technologies, a leading global technology company. His previous roles at Dell include senior leadership roles in procurement, product quality, and manufacturing. Mr. Brown joined Dell in 1998 and has held roles of increasing responsibility throughout his career, including Chief Procurement Officer and Vice President, ODM Fulfillment & Supply Chain Strategy before being named Chief Supply Chain Officer in 2013. Before Dell, he spent 10 years in the shipbuilding industry, directing U.S. Department of Defense projects. Mr. Brown currently serves on the National Committee of the Council on Foreign Relations and on the Boards of the Congressional Black Caucus Foundation and the Howard University Center for Supply Chain Excellence. He is also a member of the Executive Leadership Council. Mr. Brown is a global leader with over twenty years of leadership experience and supply chain innovation experience. His efforts led Dell to be recognized as having one of the most efficient, sustainable, and innovative supply chains. Mr. Brown has established himself as an authority on sustainable business practices. His combined deep global supply chain and procurement expertise and track record of sustainability and resilience leadership, as well as his experience in circular economic business practices, are of value to the Board in his role as director and member of the Public Responsibilities Committee. His deep expertise in all matters related to supply chain, supply chain resilience, and risk and crisis management are of particular value to the Board. Age 59 Director Since 2021 Committees: Audit Public Responsibilities Qualifications: Business Management Consumer Financial Expertise Risk Management Operations & Technology ESG Manufacturing 24 Age 69 Director Since 2021 Committees: Corporate Governance Public Responsibilities Qualifications: Business Management Consumer Financial Expertise Risk Management Operations & Technology ESG Elaine L. Chao Ms. Chao served as the 18th U.S. Secretary of Transportation from January 2017 until January 2021. Prior thereto, she served as the 24th U.S. Secretary of Labor from January 2001 until January 2009, and was the first woman of Asian American & Pacific Islander heritage to serve in a President’s cabinet in history. Previously, Ms. Chao was President and CEO of United Way of America, Director of the Peace Corps and a banker with Citicorp and BankAmerica Capital Markets Group. She earned her M.B.A. from Harvard Business School and has served on a number of Fortune 500 and nonprofit boards. She currently serves on the Board of Directors of ChargePoint Holdings, Inc., Embark Technology, Inc., and Hyliion Holdings Corp., all of which are new economy technology companies in the mobile sector focusing on sustainable and environmentally friendly transportation. Recognized for her extensive record of accomplishments and public service, she is also the recipient of 37 honorary doctorate degrees. In her capacity as a director on numerous public boards while out of government, she has advocated for innovation and business transformations. She has also been a director on many private and nonprofit boards, including Harvard Business School Board of Dean’s Advisors and Global Advisory Board, and a trustee of the Kennedy Center for the Performing Arts. Ms. Chao brings to the Board extensive experience in the public, private and non-profit sectors. In her two cabinet positions, she led high-profile organizations, navigating complex regulatory and public policy environments, and she provides the Board with valuable insight on strategy, logistics, transportation, and workforce issues. Under her leadership, the Department of Labor set up a record number of health and safety partnerships with labor unions. While she was Director of the Peace Corps, she launched the first Peace Corps programs in the newly independent Baltic states, Ukraine, and the former republics of the former Soviet Union. This experience leading social impact at scale is of value to the Board in her role as an independent director and member of the Public Responsibilities Committee. Ms. Chao’s leadership and governance expertise gained from her government service, nonprofits and public company boards is of value to the Board. 25 Age 62 Director Since 2015 Committees: Audit* Corporate Governance Qualifications: Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG Manufacturing Anne Gates 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 Chief Financial Officer for Disney Consumer Products (DCP) and Managing Director, DCP, Europe and emerging markets. She is currently a director of Tapestry, Inc., where she serves as Chair of the Board, Chair of the Governance Committee, and is on the Tapestry Foundation Board. She is also a director of Raymond James Financial, Inc., where she is the Chair of the Corporate Governance ESG Committee. She is also a member of the Boards of the Salzburg Global Seminar, PBS SoCal, and the Packard Foundation, one of the largest global foundations focused on environmental and other key ESG issues. 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. As the chair of the Corporate Governance and ESG Committee at Raymond James Financial, Inc., she oversees their code of ethics, Board composition, including diversity, environmental policies and programs, sustainability targets and ESG reporting which are aligned with SASB, shareholder proposals, and shareholder engagements efforts, including social justice, community relations and charitable giving. Ms. Gates is also Chair of the Tapestry Governance Committee, which also includes oversight of ESG responsibilities. These experiences are of particular value to the Board in her role as an independent director and member of the Corporate Governance Committee. Her financial leadership and consumer products expertise is of particular value to the Board. Ms. Gates has been designated an Audit Committee financial expert and serves as Chair of the Audit Committee. 26 Age 65 Director Since 2019 Committees: Audit Finance* Qualifications: Business Management Retail Consumer Financial Expertise Risk Management ESG Karen M. Hoguet Ms. Hoguet served as the Chief Financial Officer of Macy’s, Inc. from October 1997 until July of 2018 when she became a strategic advisor to the Chief Executive Officer until her retirement in 2019. Ms. Hoguet serves on the Board of Directors of Nielsen Holdings plc. Previously, she served on the boards of The Chubb Corporation and Cincinnati Bell as a member of the Audit and Finance Committees and the Audit Committee, respectively. She also serves on the boards of Hebrew Union College and UCHealth. Ms. Hoguet has over 35 years of broad financial and operational leadership experience within the omnichannel retail sector. She has a proven track record of success in driving transformations, delivering strong financial performance, and forming strong relationships with investors and industry analysts. She has extensive knowledge across all areas of finance, including financial planning, investor relations, M&A, accounting, treasury and tax, as well as strategic planning, credit card services and real estate. Ms. Hoguet played a critical role in the successful turnaround of Federated Department Stores, from bankruptcy to an industry leading omnichannel retailer, which was accomplished through acquisitions, divestiture and other strategic changes including building an omnichannel model and developing a new strategic approach to real estate. Her long tenure as a senior executive of a publicly traded company with financial, audit, strategy, and risk oversight experience is of value to the Board as is her public company experience, both as a long serving executive, and as a board member. In addition, her strong business acumen, understanding of diverse cross-functional issues, and ability to identify potential risks and opportunities are also of value to the Board. Ms. Hoguet has been designated an Audit Committee financial expert and serves as Chair of the Finance Committee. 27 W. Rodney McMullen 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 VF Corporation. In the past five years, he also served as a director of Cincinnati Financial 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 previous 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 governance and corporate responsibilities committees of VF Corporation, adds depth to his extensive retail experience. Age 61 Director Since 2003 Qualifications: Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG 28 Age 68 Director Since 1997 Committees: Compensation & Talent Development* Corporate Governance Qualifications: Business Management Financial Expertise Risk Management Operations & Technology ESG Manufacturing Clyde R. Moore Mr. Moore was Chairman and Chief Executive Officer of First Service Networks, a national provider of facility and maintenance repair services, from 2000 to 2014, and Chairman until his retirement in 2015. Previously, Mr. Moore was President and CEO of Thomas & Betts, a global manufacturer of electric connectors and components, and President and COO of FL Industries, Inc., an electrical component manufacturing company. Mr. Moore is currently President and CEO of Gliocas LLC, a management consulting firm serving small businesses and non-profits. Mr. Moore was a leader in the founding of the Industry Data Exchange Association (IDEA), which standardized product identification data for the electrical industry, allowing the industry to make the successful transition to digital commerce. Mr. Moore was Chairman of the National Electric Manufacturers Association and served on the Executive Committee of the Board of Governors. He served on the advisory board of Mayer Electrical Supply for over 20 years, including time as lead director, until the sale of the company in late-2021. Mr. Moore has over 30 years of general management experience in public and private companies. He has extensive 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, and he has a wealth of Fortune 500 experience in implementing technology transformations. Additionally, his expertise and leadership as Chair of the Compensation Committee is of particular value to the Board. Mr. Moore presided over the Compensation Committee during the company’s introduction of its Framework for Action: Diversity, Equity and Inclusion plan. Additionally, he was Chair of the Compensation Committee and led the inclusion of talent development into the Committee’s name and charter. 29 Ronald L. Sargent 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 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. Previously, he served as a director of The Home Depot, Inc. and Mattel, Inc. Currently, Mr. Sargent is a member of the board of governors of the Boys & Girls Clubs of America, the board of directors of City of Hope, and the board of trustees of Northeastern University. He is also chairman of the board of directors of the John F. Kennedy Library Foundation. 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. In his role as Chair of the Wells Fargo Human Resources Committee, he oversees human capital management, including diversity, equity, and inclusion, human capital risk, and culture and ethics. In his role as a member of the Five Below Nominating and Corporate Governance Committee, he oversees social and environmental governance, including corporate citizenship. These committee experiences are of value to the Board in his role as a member of the Public Responsibilities Committee and Lead Director of the Board. His understanding of retail operations, consumer insights, and e-commerce are also of value to the Board. Mr. Sargent has been designated an Audit Committee financial expert and serves as Chair of the Corporate Governance Committee and Lead Director of the Board. Mr. Sargent’s strong insights into corporate governance and his executive leadership experience serve as the basis for his leadership role as Lead Director. Age 66 Director Since 2006 Committees: Audit Corporate Governance* Public Responsibilities Qualifications: Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG 30 Age 58 Director Since 2021 Committees: Compensation & Talent Development Finance Qualifications: Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG J. Amanda Sourry Knox (Amanda Sourry) Ms. Sourry was President of North America for Unilever, a personal care, foods, refreshment, and home care consumer products company, from 2018 until her retirement in December 2019. She held leadership roles of increasing responsibility during her more than 30 years at Unilever, both in the U.S. and Europe, including president of global foods, executive vice president of global hair care, and executive vice president of the firm’s UK and Ireland business. From 2015 to 2017, she served as President of their Global Foods Category. Ms. Sourry currently serves on the board for PVH Corp., where she chairs the Compensation Committee and serves on the Nominating, Governance & Management Development Committee. She is also a non-executive director of OFI, a provider of on-trend, natural and plant-based products, focused on delivering sustainable and innovative solutions to consumers across the world, and a member of their Remuneration and Talent Committee and the Audit and Risk Committee. She is also a supervisory director of Trivium Packaging, a sustainable packaging company. Ms. Sourry has over thirty years of experience in the CPG and retail industry. As a member of PVH Corp.’s Nominating, Governance & Management Development Committee, her experience with monitoring issues of corporate conduct and culture, and providing oversight of diversity, equity and inclusion policies and programs as it relates to management development, talent assessment and succession planning programs and processes is of particular value to her role as a member of the Compensation & Talent Development Committee and the Board. She brings to the Board her extensive global marketing and business experience in consumer-packaged goods as well as customer development, including overseeing Unilever’s digital efforts. Ms. Sourry was actively involved in Unilever’s global diversity, gender balance, and sustainable living initiatives which is of value to the Board and to the Compensation & Development Committee. She also has a track record of driving sustainable, profitable growth across scale operating companies and global categories across both developed and emerging markets. Ms. Sourry’s history in profit and loss responsibility and oversight, people and ESG leadership and capabilities development is of value to the Board. 31 Mark S. Sutton 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 in 2014, he served as President and Chief Operating Officer with responsibility for running International Paper’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. Mr. Sutton is a member of The Business Council, serves on the American Forest & Paper Association board of directors, and the Business Roundtable board of directors. He also serves on the board of directors of Memphis Tomorrow. Mr. Sutton has over thirty years of leadership experience with increasing levels of responsibility and leadership at International Paper. At International Paper, he oversees their robust ESG disclosures which are aligned with GRI, and their Vision 2030, which sets forth ambitious forest stewardship targets and plans to transition to renewable solutions and sustainable operations. He also oversees International Paper’s Vision 2030 goals pertaining to diversity and inclusion. He brings to the Board the critical thinking that comes with an electrical engineering background as well as his experience leading a global company with labor unions. His strong strategic planning background, manufacturing and supply chain and experience, and his ESG leadership are of value to the Board. Age 60 Director Since 2017 Committees: Compensation & Talent Development Finance Qualifications: Business Management Financial Expertise Risk Management Operations & Technology ESG Manufacturing 32 Ashok Vemuri Mr. Vemuri was Chief Executive Officer and a Director of Conduent Incorporated, a global digital interactions company, from its inception as a result of the spin-off from Xerox Corporation in January 2017 to 2019. 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. In the past five years, he served as a director of Conduent Incorporated. 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 as well as his experience with cyber security and risk oversight are of value to the Board as he brings a unique operational, financial, and client experience perspective. Additionally, Mr. Vemuri served on our Public Responsibilities Committee which gives him additional perspectives on risk oversight that he brings to the Audit Committee. Mr. Vemuri has been designated an Audit Committee financial expert. Age 54 Director Since 2019 Committees: Audit Finance Qualifications: Business Management Financial Expertise Risk Management Operations & Technology ESG 33 YOUR VOTE IS EXTREMELY IMPORTANT. The Board of Directors unanimously recommends a vote “FOR ALL” of Kroger’s director nominees. In addition to the information above, Appendix B sets forth information relating to our directors, nominees for directors, and certain of our officers and associates who may be considered “participants” in our solicitation under the applicable Securities and Exchange Commission’s rules by reason of their position as directors of Kroger or as nominees for directors or because they may be soliciting proxies on our behalf. Board Succession Planning and Refreshment Mechanisms 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 including as a result of our Board retirement policy, which requires directors to retire at the annual meeting following their 72nd birthday. Outside Board Service No director who is an officer of the Company may serve as a director of another company without the approval of the Corporate Governance Committee. Directors who are not officers of the Company may not serve as a director of another company if in so doing such service would interfere with the director’s ability to properly perform his or her responsibilities on behalf of the Company and its shareholders, as determined by the Corporate Governance Committee. None of our current directors serve on more than four public company Boards, including Kroger’s Board. Board Diversity 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, which reflects an appropriate balance of institutional knowledge and fresh perspectives about Kroger due to the varied length of tenure on the Board. We believe this blend of qualifications, attributes, and tenure enables 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. When evaluating potential nominees to our 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, including by considering their geographic locations to align directors’ physical locations with Kroger’s operating areas where possible. In connection with the use of a third-party search firm to identify candidates for Board positions, the Corporate Governance Committee instructs the third-party search firm to include in its initial list qualified female and racially/ ethnically diverse candidates. Four of our 11 director nominees self-identify as racially/ethnically diverse: Mr. Brown and Ms. Gates self-identify as Black/African American and Ms. Chao and Mr. Vemuri self- identify as Asian. The Corporate Governance Committee believes that it has been successful in its efforts to promote gender and ethnic diversity on our Board. Further, the Board aims to foster a diverse and inclusive culture throughout the Company and believes that the Board nominees are well suited to do so. The Corporate Governance Committee and Board believe that our director nominees for election at our 2022 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 34 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: Nora Aufreiter Kevin Brown Elaine Chao Anne Gates Karen Hoguet Rodney McMullen Clyde Moore Ronald Sargent Amanda Sourry Mark Sutton Ashok Vemuri Total (of 11) Business Management Retail Consumer Financial Expertise Risk Management Operations & Technology ESG Manufacturing • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 11 6 8 11 10 10 11 4 Gender Diversity Ethnic Diversity 45% Women 36% of Board is ethnically diverse Tenure of Director Nominees 3 1 7 directors <5 years 1 director 5-10 years 3 directors 10+ years 7 Average Tenure is 8.1 years 35 Information Concerning the Board of Directors Board Leadership Structure and Independent Lead Director Kroger has a governance structure in which independent directors exercise meaningful and rigorous oversight. The Board’s leadership structure, in particular, is designed with those principles in mind and to allow the Board to evaluate its needs and determine, from time to time, who should lead the Board. Our Corporate Governance Guidelines (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. In order to promote thoughtful oversight, independence and overall effectiveness, the Board’s leadership includes Mr. McMullen, our Chairman and CEO, and an independent Lead Director designated by the Board among the independent directors. 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 independent Lead Director carries out these responsibilities in numerous ways, including by: • facilitating communication and collegiality among the Board members; • soliciting direct feedback from independent directors; • overseeing the succession planning process, including meeting with a wide range of associates including corporate and division management associates; • meeting with the CEO frequently to discuss strategy; • serving as a sounding Board and advisor to the CEO; • leading annual CEO evaluation process; 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 appointed as our Board’s independent Lead Director in June 2018. Mr. Sargent is an effective Lead Director for Kroger due to, among other things, his: • independence; • deep strategic and operational understanding of Kroger obtained while serving as a Kroger director; • insight into corporate governance; • experience as the CEO of an international ecommerce and brick and mortar retailer; • experience on the Boards of other large publicly traded companies; and 36 • 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 its shareholders for the roles to be combined. The Board exercises this judgment as it deems appropriate in light of prevailing circumstances. 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. Our CEO’s strong background in finance, operations, and strategic partnerships is particularly important to the Board given Kroger’s current growth strategy. Our CEO’s consistent leadership, deep industry expertise, and extensive knowledge of the Company are also especially critical in the midst of the rapidly evolving retail and digital landscape. 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, including in consideration of director succession planning. Every year, the Board’s goal is to increase the effectiveness of the Board and the results of these evaluations are used for this purpose. 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 either the Lead Independent Director or an independent third party. Each director completes a detailed annual evaluation of the Board and the Committees on which he or she serves and the Lead Director or an independent third party conducts interviews with each of the directors. This year, the annual evaluation was conducted by an independent third party who held interviews with every director. Topics covered include, among others: • The effectiveness of the Board and Board Committees and the active participation of all directors • The Board and Committees’ skills and experience and whether additional skills or experience are needed • The effectiveness of Board and Committee meetings, including the frequency of the meetings • Board interaction with management, including the level of access to management, and the responsiveness of management • The effectiveness of the Board’s evaluation of management performance • Additional subject matters the Board would like to see presented at their meetings or Committee meetings • Board’s governance procedures • The culture of the Board to promote participation in a meaningful and constructive way 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. Over the past several years, this evaluation process has contributed to various enhancements in the way the Board and the Committees operate, including increased focus on continuous Board refreshment and diversity of its members as well as ensuring that Board and Committee agendas are appropriately focused on strategic priorities and provide adequate time for director discussion and input 37 Director Onboarding and Engagement All directors are expected to invest the time and energy required to gain an in-depth understanding of our business and operations in order to enhance his or her strategic value to our Board. We develop tailored onboarding plans for each new director. We arrange meetings for each new director with appropriate officers and associates in order to familiarize him or her with the Company’s strategic plans, financial statements, and key policies and practices. We also provide training on fiduciary obligations of board members and corporate governance topics, as well as committee-specific onboarding. From time to time, the Company will provide Board members with presentations from experts within and outside of the Company on topics relevant to the Board’s responsibilities. Any member of the Board may attend accredited third-party training and the expenses will be paid by the Company. Board meetings are periodically held at a location away from our home office in a geography in which we operate. In connection with these Board meetings, our directors learn more about the local business environment through meetings with our regional business leaders and visits to our stores, competitors’ stores, manufacturing facilities, distribution facilities, and/or customer fulfillment centers. 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, Finance, and Public Responsibilities. All Committees are composed exclusively of independent directors, as determined under the NYSE listing standards. Each Committee has the responsibilities set forth in its respective charter, each of which has been approved by the Board. The current charter of each Board Committee is available on our website at ir.kroger.com under Investors — Governance — Corporate Governance Guidelines. The current membership, 2021 meetings, and responsibilities of each Committee are summarized below. Name of Committee, Number of Meetings, and Current Members Audit Committee Meetings in 2021: 5 Members: Anne Gates, Chair Kevin M. Brown Karen M. Hoguet Ronald L. Sargent Ashok Vemuri Primary Committee Responsibilities • 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 enterprise risk assessment and risk management, including review of cybersecurity risks and regular reports received from management and independent third parties • Review of significant legal and regulatory matters • Reviews and monitors the Company’s operational and third-party compliance programs and updates thereto • Reviews Ethics Hotline reports and discusses material matters • Reviews and approves related party transactions • Conducts executive sessions with independent registered public accounting firm and Vice President, 38 Name of Committee, Number of Meetings, and Current Members Primary Committee Responsibilities Internal Audit at each meeting • Conducts executive sessions with the Group Vice President, Secretary and General Counsel, Vice President and Chief Ethics & Compliance Officer, and Senior Vice President and Chief Financial Officer individually at least once per year Compensation Committee • Recommends for approval by the independent directors Meetings in 2021: 5 Members: Clyde R. Moore, Chair Amanda Sourry Mark S. Sutton the compensation of the CEO and approves the compensation of senior officers • Administers the Company’s executive compensation policies and programs, including determining grants of equity awards under the plans • Reviews annual incentive plans and long-term incentive plan metrics and plan design • Reviews emerging legislation and governance issues and retail compensation trends • Reviews the Company’s executive compensation peer group • Reviews CEO pay analysis • Reviews Human Capital Management, including Diversity, Equity and Inclusion • Has sole authority to retain and direct the Committee’s compensation consultant • Assists the full Board with senior management succession planning • Conducts executive sessions with Senior Vice President and Chief People Officer and independent compensation consultant Name of Committee, Number of Meetings, and Current Members Committee Functions Corporate Governance Committee • Oversees the Company’s corporate governance Meetings in 2021: 2 Members: Ronald L. Sargent, Chair Elaine L. Chao Anne Gates Clyde R. Moore policies and 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 • Oversees and administers Board evaluation process • Reviews the Board’s performance • Establishes and reviews the practices and procedures by which the Board performs its functions • Reviews director independence, financial literacy, and designation of financial expertise • Administers director nomination process • Interviews and nominates candidates for director election • Reviews compliance with share ownership guidelines • Reviews and participates in shareholder engagement • Reviews and establishes independent director compensation 39 Name of Committee, Number of Meetings, and Current Members Finance Committee Meetings in 2021: 4 Members: Karen M. Hoguet, Chair Nora A. Aufreiter Amanda Sourry Mark Sutton Ashok Vemuri Committee Functions • Oversees the annual CEO evaluation process conducted by the full Board • Oversees the Company’s financial affairs and management of the Company’s financial resources • Reviews the Company’s annual and long-term financial plans, capital spending plans, capital allocation strategy, and use of cash • Reviews the Company’s dividend policy and share buybacks • Reviews strategic transactions, and capital structure, including potential issuance of debt or equity securities, credit agreements, and other financing transactions • Monitors the investment management of assets held in pension and profit-sharing plans administered by the Company • Oversees the Company’s policies and procedures on hedging, swaps, risk management and other derivative transactions • Oversees the Company’s engagement and relationships with, and standing in, the financial community Public Responsibilities Committee • Reviews the practices of the Company affecting its Meetings in 2021: 3 Members: Nora A. Aufreiter, Chair Kevin M. Brown Elaine L. Chao Ronald L. Sargent responsibility as a corporate citizen • Examines and reviews the Company’s practices related to environmental sustainability, and social impact, including but not limited to ✓ climate impacts ✓ packaging ✓ food and operational waste ✓ food access, ✓ responsible sourcing, ✓ supplier diversity, ✓ people safety, food safety, and pharmacy safety • Examines and reviews the Company’s ESG strategy • Reviews the Company’s community engagement and philanthropy • Reviews the Company’s advocacy and public policy • Reviews the Company’s communications and Corporate Brand stewardship • Assesses the Company’s effort in evaluating and responding to changing public expectations and public issues that affect the business 40 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 and through our investor relations program and our year-round governance outreach program, including participation for our independent directors. In 2021, we requested off-season engagement meetings with 27 shareholders representing 42% of our outstanding shares and subsequently met with 17 shareholders representing 34% of our outstanding shares. Some investors we contacted either did not respond or confirmed that a discussion was not needed at that time. ENGAGEMENT COMMUNICATION FEEDBACK Executive management, Investor Relations, Corporate Affairs, and the General Counsel engage on a regular basis with shareholders to solicit feedback on a variety of corporate governance matters, including, but not limited to, executive compensation, corporate governance policies and ESG practices. We proactively manage relationships to foster open dialogue with, and capture feedback from, more than 70 organizations on over 40 ESG topics. Kroger has a robust investor relations program, routinely interacting and communicating with shareholders through a number of other forums, including quarterly earnings presentations, SEC filings, and the Annual Report and Proxy Statement, the annual shareholder meeting, investor meetings and conferences and web communications. We also publish our Sustainability Report sharing our ESG strategy, and progress and achievements. We share our shareholder feedback and trends and developments about corporate governance matters with our Board and its Committees as we seek to enhance our governance and ESG practices and improve our disclosures. We conduct shareholder outreach throughout the year to engage with shareholders on issues that are important to them and us. During these engagements we discussed and solicited feedback on a range of topics, which informed Board discussions and decisions, including but not limited to: Business Strategy • Kroger’s growth strategy and track record of innovation • Our strong value creation model and recent performance ESG Practices & Disclosures • Discussions with socially conscious investors and NGOs helped inform our new ESG strategy and long-term commitments • Thriving Together, Kroger’s ESG strategy, including long-term environmental sustainability, social impact, and responsible sourcing commitments, progress updates, and steps being taken to achieve our ambitious goals • Board oversight of ESG strategy and updated Committee responsibilities • Kroger’s ESG reporting and disclosures, including our alignment with the TCFD, SASB, and GRI reporting frameworks • The centerpiece of our ESG strategy is Zero Hunger | Zero Waste, an industry-leading platform for collective action and systems change to end hunger in our communities and eliminate waste across our company Human Capital Management • Our DE&I Framework for Action and steps we are taking to ensure our workforce reflects the communities we serve and are a member of • Our focus on our associates’ well-being, including increasing our increased average hourly associate wage, comprehensive benefits, and opportunities for internal progression and leadership development training 41 • Workforce diversity reporting, including EEO-1 demographic disclosure • Robust Board oversight of human rights in our supply chain Compensation Structure • Overview of compensation program design and alignment of pay and performance • Consideration of short and long-term metrics, including financial and non-financial metrics, such as ESG metrics • The balance of equity and cash compensation, as well as fixed versus at risk compensation Board and Board Oversight • Our Board’s approach to board refreshment considering diversity, balance of tenure, and alignment of board skills and experience with Kroger’s current and long-term business strategies • Board and committee responsibilities for oversight of ESG priorities, and approach to risk management Discussions with socially conscious investors and NGOs helped inform our new ESG strategy and long-term commitments. Overall shareholders expressed appreciation for the opportunity to have an ongoing discussion and were complementary of Kroger’s ESG practices. Specifically, shareholders recognized the actions Kroger took to formalize our ESG strategy, Thriving Together, and how our Board oversees this strategy, including our ESG targets and initiatives. These conversations provided valuable insights into our shareholders’ evolving perspectives, which were shared with our full Board. Board’s Response to Shareholder Proposals Accountability to our shareholders continues to be an important component of our success. We actively engage with our shareholder proponents. Every year, following our Annual Shareholders’ Meeting, our Corporate Governance Committee considers the voting outcomes for shareholder proposals. In addition, our Corporate Governance Committee and other Committees, as appropriate, consider proposed courses of action in light of the voting outcomes for shareholder proposals under their oversight, as well as feedback provided directly from our shareholders. 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 retains an independent, third-party 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, including business management, retail, consumer, operations, technology, financial, sustainability, manufacturing, public service, education, science, 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 fulfil 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. 42 Additionally, in connection with the use of an independent, third-party search firm to identify director candidates, the Corporate Governance Committee will instruct the firm to include in its initial list qualified female and racially/ethnically diverse candidates. The Corporate Governance Committee also considers diversity, as discussed in detail under “Board Diversity” above, and 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 criteria for Board membership applied by the Corporate Governance Committee in its evaluation of potential Board members does not vary based on whether a candidate is recommended by our directors, a third-party search firm, or shareholders. Identifying Director Candidates Review of Candidate Pool In-Depth Candidate Review Recommend Director Nominee Slate Potential candidates for director may be identified by our directors, third-party search firm or shareholders. The Governance Committee reviews candidates to determine whether candidates warrant further consideration. Candidates will meet with Governance Committee members and be evaluated for independence and potential conflicts, skills and experience and diversity. The Governance Committee recommends candidates for appointment or election to the 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 2023 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 18, 2023. 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.” Additionally, to comply with the universal proxy rules (once effective), shareholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice to Kroger’s Secretary that sets forth the information required by Rule 14a-19 of the Exchange Act no later than April 24, 2023. Eligible shareholders have the ability to submit director nominees for inclusion in our proxy statement for the 2023 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 are able to aggregate for this purpose. Nominations must be submitted to our Corporate Secretary at our principal executive offices no earlier than December 3, 2022 and no later than January 2, 2023. Corporate Governance Guidelines The Board has adopted the Guidelines, which provide a framework for the Board’s governance and oversight of the Company. The Guidelines are available on our website at ir.kroger.com under Investors — Governance — Corporate Governance Guidelines. Shareholders may also obtain a copy of the Guidelines, at no cost, by making a written request to Kroger’s Secretary at our executive offices. Certain key principles addressed in the Guidelines are summarized below. Independence The Board has determined that all of the current independent directors and nominees have no material relationships with Kroger and satisfy the criteria for independence set forth in Rule 303A.02 of 43 the NYSE Listed Company Manual. Therefore, all independent directors and nominees are independent for purposes of the NYSE listing standards. The Board made its determination based on information furnished to the Company by each of the directors 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 • no directors had any material relationships with Kroger other than serving on our Board. Audit Committee Independence and Expertise The Board has determined that Anne Gates, Karen M. Hoguet, Ronald L. Sargent, and Ashok Vemuri, independent directors, each of whom is a member 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, associates and directors, including Kroger’s principal executive, financial and accounting officers. The Policy on Business Ethics 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 on Business Ethics 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 website (ethicspoint.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. 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. Executive Officer Succession Planning The Guidelines provide that the Compensation Committee will review Company policies and programs for talent development and evaluation of executive officers, and will review management succession planning. In connection with the use of a third-party search firm to identify external candidates for executive officer positions, including the chief executive officer, the Board and/or the Company, as the case may be, will instruct the third-party search firm to include in its initial list qualified female and racially/ethnically diverse candidates. Attendance The Board held 7 meetings in fiscal year 2021. During fiscal 2021, 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 Board members attended last year’s virtual annual meeting. 44 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 (US) (“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 2021, Kroger paid Korn Ferry $387,392 for work performed for the Compensation Committee. Kroger, on management’s recommendation, retained Korn Ferry to provide other services for Kroger in fiscal 2021 for which Kroger paid $31,677. These other services primarily related to salary surveys and benchmarking. 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 associate of Kroger during fiscal 2021, 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 2021, 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. The Board’s Role in Risk Oversight 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. We believe that our approach to risk oversight 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 oversight 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’s identification of risk and implementation of effective risk management policies and controls. The Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks, including newly identified and evolving high priority risks, such as those presented by the COVID-19 pandemic. When new risks are identified, such as those presented by the COVID-19 pandemic, management conducts, and either the full Board or the appropriate Board committee reviews and discusses, an enterprise risk assessment related to such new risks which may include human capital, supply chain, associate and customer health and safety, legal, regulatory, and other risks. Management and the Board then discuss the relative severity of each category of risk as well as mitigating actions. At each Board meeting, the CEO addresses matters of particular importance or concern, including any significant areas of risk, such as newly identified risks, 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 45 management subject matter experts to each Committee on risks within the scope of their charters. Each Committee reports to the full Board at each meeting, including any areas of risk discussed by the Committee. 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. 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. 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. In addition, the Audit Committee is charged with oversight of data privacy and cybersecurity risks. Protection of our customers’ data is a fundamental priority for our Board and management team. Our Chief Information Officer and our Chief Information Security Officer provide updates at each quarterly Committee meeting on our cybersecurity risks and actions taken to mitigate that risk to the Audit Committee and meet with the full Board at least annually. The Chief Information Security Officer reports on compliance and regulatory issues, continuously evolving threats and mitigating actions, and presents a NIST Cybersecurity Framework Scorecard to the Audit Committee. In overseeing cybersecurity risks, the Audit Committee focuses on thematic issues within an aggregated strategic lens and uses a risk based approach. Oversight of cybersecurity risk incorporates strategy metrics, third party assessments and internal audit and controls. Finally, an independent third party also regularly reports to the Audit Committee/Board on cybersecurity and outside counsel advises the Board about best practices for cybersecurity oversight by the Board, and the evolution of that oversight over time. Management also reports on strategic key risk indicators, ongoing initiatives, and significant incidents and their impact. Environmental, Sustainability, and Governance Oversight We are aligned with the desire of our customers, associates, and shareholders to engage in our communities and reduce our impacts on the environment while continuing to create positive economic value over the long-term. Given the breadth of topics and their importance to us, four of our Board Committees have direct oversight of environmental, social, and governance topics. ESG topics our Board Committees oversee are as follows: Audit Compensation & Talent Development Corporate Governance • Legal & Regulatory • Ethics • Operational and Third Party Compliance • Data Privacy & Cyber Security • Financial Integrity • Human Capital Management • Talent Development • Executive Compensation • Diversity, Equity & Inclusion • Board recruitment/diversity • Board succession • Shareholder engagement program • Shareholder advisory votes & shareholder proposals • Independent director compensation 46 Public Responsibilities • Environmental Sustainability • Climate Impacts • Packaging • Food Waste (Zero Waste) • Social Impact • Food Access (Zero Hunger) • Community Engagement • Philanthropy • Responsible Sourcing • Human Rights • Animal Welfare • Safety • Food • People • Pharmacy • Advocacy & Public Policy • Government Relations • Political action (KroPAC) • Communications & Brand Stewardship • Associate & External Communications • Stakeholder Relations Our commitment to ESG matters is not new. Our Public Responsibilities Committee was established in 1977. For the past fifteen years, our Company has prepared and produced an annual report describing our progress and initiatives regarding sustainability and other ESG matters. For the most recent information regarding our ESG initiatives and related matters, please visit http://sustainability.kroger.com. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement. In addition, our full Board oversees issues related to diversity and inclusion within the Kroger workplace. Diversity and inclusion have been deeply rooted in Kroger’s values for decades. We are committed to fostering an environment of inclusion in the workplace, marketplace, and workforce where the diversity of cultures, backgrounds, experiences, perspectives and ideas are valued and appreciated. Kroger’s corporate team and retail divisions have strategic partnerships with universities, educational institutions, and community partners to improve how we attract candidates from all backgrounds and ethnicities for jobs at all levels. Diversity and inclusion will continue to be a key ingredient in feeding Kroger’s innovation, long-term sustainability, and the human spirit. The Kroger family of companies provides inclusion training to all management and many hourly associates. Most work locations (stores, plants, distribution centers, and offices) have an inclusion- focused team, called Our Promise team. The teams work on projects that reflect Kroger’s values, offer leaders valuable feedback and suggestions on improving diversity and inclusion, and facilitate communication to champion business priorities. Our Commitment to Diversity, Equity & Inclusion Kroger’s Chief People Officer leads Human Resources & Labor Relations, which includes our Diversity, Equity & Inclusion team. This function — with human resources professionals in place across our lines of business and retail divisions — advocates for and fosters an associate experience that reflects our Values. It also monitors and measures progress on current goals and identifies potential opportunities for improvement. Kroger publicly affirmed our commitment with our Framework for Action: Diversity, Equity & Inclusion, a 10-point plan outlining short- and longer-term steps developed with associates and leaders to promote greater change in the workplace and the communities we serve. This framework outlines five focus areas: Create More Inclusive Culture, Develop Diverse Talent, Advance Diverse Partnerships, Advance Equitable Communities, and Deeply Listen and Report Progress. More details about the 47 plan are available here: https://www.thekrogerco.com/community/standing-together/. The information on, or accessible through, this website is not part of, or incorporated by reference into, this proxy statement. Enabling Connections As part of the framework, we committed to provide inclusion training for our associates. To date, more than 500,000 leaders and associates have completed diversity and inclusion training. To promote ongoing open dialogue, we also created and shared several Allyship Guides, which aim to help leaders and associates move from awareness of diversity, equity and inclusion to advocacy. In 2020, Kroger formed an internal Diversity, Equity & Inclusion Advisory Council comprised of leaders from across the organization. The new Council works closely with our executive leadership team and other business leaders to identify opportunities and action steps for improvement. We also created an Associate Influencer Group of hourly associates to facilitate representation and input from all levels of the company. Kroger also operates 12 internal Associate Resource Groups (ARGs), or affinity groups, some of which also have local chapters. These groups enable stronger connections across our family of companies, lift up shared experiences, promote personal and professional growth, and influence business decisions. Kroger leaders sponsor and personally engage with the ARGs. Workplace Equity Kroger strives to attract, retain and develop diverse leaders and associates who reflect the communities we serve. We offer accessible employment for a wide range of people across the country. Because of our unique business model, we help unlock economic opportunity for 420,000 people of all ages and aspirations, from those wanting an entry-level part-time job to graduate-degree specialists across corporate functions. Kroger strategically invests in our associates’ growth and movement across levels, lines of business, and geographies. Our goal is to shift the demographic representation of women and people of color at company-wide and local levels to reflect our changing country, communities, and neighborhoods. The Diversity, Equity & Inclusion Advisory Council helps define aspirations for our workforce of the future. Community Engagement As part of our Framework for Action, the Company also pledged to help advance equitable communities. In 2020, Kroger committed an initial $5 million to establish The Kroger Co. Foundation’s Racial Equity Fund. The Foundation directed the first $3 million in grants to four organizations driving change at national and local levels: Black Girl Ventures, Everytable, the Local Initiatives Support Corporation (LISC), and the Thurgood Marshall College Fund. Earlier this year, the Foundation directed $1.1 million in grants to help build black wealth and improve racial health equity in Ohio and Tennessee. Ohio partners — The Urban League of Greater Southwestern Ohio, The National Underground Railroad Freedom Center, and FundNOIRE — received grants totaling $600,000. In Tennessee, a $500,000 grant supports the Next Generation scholarship program in partnership with Memphis-based LeMoyne-Owen College, part of the network of Historically Black Colleges and Universities (HBCU), and the Women’s Foundation for a Greater Memphis. Kroger recently pledged an additional $5 million to expand the Racial Equity Fund’s work and positive impacts. 48 Director Compensation 2021 Director Compensation The following table describes the fiscal year 2021 compensation for independent directors. Mr. McMullen does not receive compensation for his Board service. Name Nora A. Aufreiter Kevin M. Brown Elaine L. Chao Anne Gates Karen M. Hoguet Susan J. Kropf(4) Clyde R. Moore Ronald L. Sargent Amanda Sourry Mark S. Sutton Ashok Vemuri Fees Earned or Paid in Cash Stock Awards(1)(2) $110,499 $186,197 $105,507 $186,197 $ 49,464 $169,589 $130,445 $186,197 $120,467 $ 37,742 $115,486 $157,866 $ 95,539 $ 95,539 $102,149 $186,197 0 $ $186,197 $186,197 $186,197 $186,197 $186,197 Change in Pension Value And Nonqualified Deferred Compensation Earnings(3) $ $ $ $ $ $ 0 0 0 0 0 0 $ — $4,837 0 $ $ $ 0 0 Total $296,696 $291,704 $219,053 $316,642 $306,664 $ 37,742 $301,683 $348,900 $281,736 $281,736 $288,346 (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 14, 2021, each independent director then serving received 4,859 incentive shares with a grant date fair value of $186,197, except Ms. Chao, who received a pro-rated grant of 4,062 incentive shares on the day of her election to the Board, August 6, 2021, with a grant date fair value of $169,589. (2) Options are no longer granted to independent directors. The aggregate number of previously granted stock options that remained unexercised and outstanding at fiscal year-end was as follows: Mr. Sargent held 13,000 options. (3) The amount reported for Mr. Sargent represents preferential earnings on nonqualified deferred compensation. For a complete explanation of preferential earnings, please refer to footnote 5 to the Summary Compensation Table. Mr. Moore’s pension value decreased by $69,477 which represents the change in actuarial present value of his accumulated benefit under the pension plan for independent directors. This change in value of accumulated pension benefits is not included in the Director Compensation Table because the value decreased. 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 decrease in the actuarial present value of his accumulated pension benefit for 2021 is primarily due to the increase in the discount rate as well as the change in value due to aging, partially offset by the change in value of the benefit due to mortality project scale updates. (4) Ms. Kropf retired from the Board on June 24, 2021. Annual Compensation Each independent director receives an annual cash retainer of $100,000. 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 the Compensation Committee receives an additional annual retainer of $20,000; and the Chair of each of the other Committees receives an additional annual retainer of $15,000. Each independent director also receives an annual grant of incentive shares (Kroger common shares) with a value of approximately $185,000. 49 The Board has determined that compensation of independent directors must be competitive on an ongoing basis to attract and retain directors who meet the qualifications for service on the Board. Independent director compensation was adjusted in 2021 and will be reviewed from time to time as the Corporate Governance Committee deems appropriate. Pension Plan Independent 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 independent 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. Director Stock Ownership Guidelines Independent directors are required to own shares equivalent to five times their annual base cash retainer. For more details on the Stock Ownership Guidelines, see page 69. 50 Beneficial Ownership of Common Stock The following table sets forth the common shares beneficially owned as of April 25, 2022 by Kroger’s directors, the NEOs, and the directors and executive officers as a group. The percentage of ownership is based on 720,938,109 of Kroger common shares outstanding on April 25, 2022. 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 June 24, 2022. 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 Stuart Aitken(2) Nora A. Aufreiter(3) Kevin M. Brown Elaine L. Chao Yael Cosset Anne Gates(3) Karen M. Hoguet(4) Timothy A. Massa W. Rodney McMullen Gary Millerchip Clyde R. Moore Ronald L. Sargent(3) Amanda Sourry Mark S. Sutton(3) Ashok Vemuri Directors and executive officers as a group (22 persons, Amount and Nature of Beneficial Ownership(1) (a) Options Exercisable on or before June 24, 2022 — included in column (a) (b) 331,920 44,450 7,117 4,062 302,626 39,005 15,665 430,581 5,852,633 428,714 117,536 175,851 7,117 34,423 21,013 166,695 — — 162,149 — — 266,625 2,494,750 255,402 — — — — — including those named above) 8,882,633 3,870,473 (1) No director or officer owned as much as 1% of Kroger common shares. The directors and executive officers as a group beneficially owned 1.23% of Kroger common shares. (2) This amount includes 3,018 shares held by Mr. Aitken’s spouse. He disclaims beneficial ownership of these shares. (3) This amount includes incentive share awards that were deferred under the deferred compensation plan for independent directors in the following amounts: Ms. Aufreiter, 9,831; Ms. Gates, 7,980; Mr. Sargent, 50,940 and Mr. Sutton, 6,767. (4) This amount includes 2,075 shares held by Ms. Hoguet’s spouse. She 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 25, 2022 based on reports on Schedule 13G filed with the SEC. 51 Name Berkshire Hathaway Inc. BlackRock, Inc. State Street Corporation Vanguard Group Inc. Address Amount and Nature of Ownership Percentage of Class 3555 Farnam Street Omaha, NE 68131 55 East 52nd Street New York, NY 10055 One Lincoln Street Boston, MA 02111 100 Vanguard Blvd. Malvern, PA 19355 61,412,910(1) 8.4% 74,484,953(2) 10.1% 37,394,528(3) 5.09% 78,978,401(4) 10.74% (1) Reflects beneficial ownership by Berkshire Hathaway Inc. as of December 31, 2021, as reported on Schedule 13G filed with the SEC on February 14, 2022, reporting shared voting power with respect to 61,412,910 common shares, and shared dispositive power with regard to 61,412,910 common shares. (2) Reflects beneficial ownership by BlackRock Inc., as of February 28, 2022, as reported on Amendment No. 14 to Schedule 13G filed with the SEC on March 9, 2022, reporting sole voting power with respect to 64,194,514 common shares, and sole dispositive power with regard to 74,484,953 common shares. (3) Reflects beneficial ownership by State Street Corporation as of December 31, 2021 as reported on Schedule 13G filed with the SEC on February 11, 2022, reporting shared voting power with respect to 30,585,152 common shares, and shared dispositive power with respect to 37,186,340 common shares. (4) Reflects beneficial ownership by Vanguard Group Inc. as of December 31, 2021, as reported on Amendment No. 7 to Schedule 13G filed with the SEC on January 10, 2022, reporting shared voting power with respect to 1,111,168 common shares, sole dispositive power of 76,158,064 common shares, and shared dispositive power of 2,820,337 common shares. 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. 52 Compensation Discussion and Analysis This Compensation Discussion and Analysis provides an overview of the elements and philosophy of our executive compensation program as well as how and why the Compensation Committee and our Board of Directors make specific compensation decisions and policies with respect to our Named Executive Officers (“NEOs”), as defined below. Executive Summary We delivered record performance results in 2021. By connecting with customers through our expanded seamless digital ecosystem and consistent delivery of full, fresh and friendly customer experience, we successfully navigated a dynamic operational environment, labor and supply chain challenges and achieved record revenue and profitability as demonstrated by our financial performance results of ID sales of 0.2%, two year stack increased 14.3%, and adjusted FIFO operating profit of $4.3 Billion2. Our executive compensation program aligns with long-term shareholder value creation. 91% of the CEO’s target total direct compensation and, on average, 83% of the other NEOs’ compensation is at risk and performance based, tied to achievement of performance targets that are important to our shareholders or our long-term share price performance. Annual incentive program design reflected volatile market environment. Our 2021 annual incentive program consisted of two performance periods to maintain the program rigor amid uncertain business outlook at the start of the year, with more challenging sales performance goals implemented in the second half of the year. Annual and long-term performance incentives were earned above target in alignment with our 2021 performance. The annual cash incentive program that included identical sales (excluding fuel) and adjusted FIFO operating profit (including fuel) paid out at approximately 186% of target. Long-term performance unit equity awards granted in 2019 and tied to Restock Kroger savings and benefits, free cash flow and ROIC were earned at 120% of target. We prioritized investment in our people. We strive to create a culture of opportunity for more than 450,000 associates and take seriously our role as a leading employer in the United States. In 2021, we invested more than ever before in our associates by continuing to raise our average hourly wage to $17 and our average hourly rate to over $22, inclusive of industry-leading benefits such as continuing education and tuition reimbursement, training and development, health and wellness. In addition, we continued to invest significantly in the restructure of pension plans to protect future benefits for our hourly associates. In response to our shareholder feedback, we incorporated an ESG metric focused on diversity and inclusion into our 2022 individual performance management program. Our core values of Diversity, Equity & Inclusion are incorporated into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our senior officers. 2 See pages 33 – 34 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2022, filed with the SEC on March 29, 2022, for a reconciliation of GAAP operating profit to adjusted FIFO operating profit. 53 Our Named Executive Officers for Fiscal 2021 Name W. Rodney McMullen Gary Millerchip Stuart W. Aitken Yael Cosset Timothy A. Massa Title Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer Senior Vice President and Chief Merchandising & Marketing Officer Senior Vice President and Chief Information Officer Senior Vice President and Chief People Officer Fiscal 2021 Financial and Strategic Performance Highlights Driven by our unwavering purpose to Feed the Human Spirit, throughout 2021, we leveraged technology and innovation to continue to provide fresh, affordable food for our customers, invest in our associates, create value for our shareholders and support our communities. Our ID sales performance resulted in a two-year stacked growth rate of 14.3%. Accelerated efforts to digitize the shopping experience demonstrated our ability to meet our customers’ needs no matter how they choose to engage with us, resulting in digital sales two-year stacked growth of 113%. Our Home Chef business surpassed $1 billion in sales in 2021, becoming the newest billion-dollar brand in our portfolio. We also advanced our fresh strategy and strengthened our fresh offerings in 2021 by launching our Go Fresh & Local Supplier Accelerator, supporting our commitment to small businesses. Continued strategic efforts to streamline our operations allowed us to achieve cost savings greater than $1 billion for the fourth consecutive year to balance these investments without compromising food affordability for our customers across our communities. As part of our Zero Hunger | Zero Waste social and environmental impact plan, in 2021, we donated 499 million meals to feed families across America. We also administrated almost 11 million doses of the COVID-19 vaccine through Kroger Health. We are proud of our management team that led an agile effort in navigating supply chain conditions and evolving operating and inflationary environment throughout 2021, building an agile ecosystem and momentum to support our long-term growth. We have started 2022 with a great outlook and are positioned to support sustained shareholder value creation, while staying true to our Promise to provide fresh affordable food to our customers and uplift our communities. 2021 Advisory Vote to Approve Executive Compensation and Shareholder Engagement At the 2021 annual meeting, we held our tenth annual advisory vote on executive compensation. Approximately 90% of the votes cast were in favor of the advisory vote in 2021. As part of our ongoing dialogue with our shareholders regarding governance matters, in 2021, we requested meetings with 27 shareholders representing 42% of our outstanding shares during proxy season and off-season engagement and 17 shareholders representing 34% of our outstanding shares accepted our invitation to share feedback. Some investors we contacted either did not respond or confirmed that a discussion was not needed at that time. Conversations with our shareholders in these meetings included discussions about our compensation program, with our shareholders providing feedback that they appreciated the pay for performance nature of our program’s structure. The Compensation Committee considers both the general and specific feedback received from shareholders, and with the guidance of our independent compensation consultant, incorporates that input. For example, prior to 2019, Kroger’s long term performance-based compensation included both a cash and an equity component. As of 2019, in response to feedback from shareholders and market practices, our Compensation Committee determined that all long-term compensation is equity-based as follows: 50% of equity granted under the program is performance-based and the remaining 50% of equity is time-based, consisting of 30% in the form of restricted stock and 20% in the form of stock options. During our fall 2021 off-season engagement program, we specifically discussed ESG metrics in executive compensation programs with our shareholders. All of our investors were supportive of 54 companies’ decisions to incorporate ESG metrics, but none were prescriptive about how to do so. Our investors shared our view that a range of ESG matters are essential to our current and future success, and acknowledged that ESG priorities are embedded into our strategic and operational priorities. Management collected and reported the feedback to the Compensation Committee, and the Committee decided to integrate our core values of Diversity, Equity & Inclusion into compensation decisions made for our associates who supervise a team of others, which range from store department leaders through our senior officers. Specifically, one of several performance goals established for these associates and senior officers relate to improvement in the Diversity, Equity and Inclusion category score as measured by our annual Associate Insights Survey and active mentorship and development of at least one other associate with a different background. These performance goals will be factored into compensation decisions for these associates and senior officers, including salary increases and the amount of the annual grant of equity awards, consistent with our program design as described herein. 2021 Compensation Program Overview The fixed and at-risk pay elements of the NEO compensation program are reflected in the following table and charts. Element Form Description M R E T - T R O H S / L A U N N A I E V T N E C N I I E V T N E C N I M R E T - G N O L Base Salary Cash • Attract, Incentivize, retain talented executives • Benchmarked to peer group median • Fixed Cash component • Reviewed annually • No automatic or guaranteed increases • Based on individual performance and experience 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 perfor- mance on key financial and operational metrics • Benchmarked to peer group median Performance- Based Equity Performance Units • Performance units are equity grants which are paid out in Kroger common shares, dependent upon company performance against each goal, at the end of the 3-year performance period • Measures performance on key financial and operational metrics over a 3-year period • Designed to create shareholder value, foster executive retention, and align NEO and shareholder interests Time-Based Equity Restricted Stock Stock Options • Stock options and restricted stock for NEOs vest ratably 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 long-term business objectives and providing Incentives for the creation of shareholder value D E X F I I K S R - T A / E L B A R A V I Fiscal Year 2021 CEO Compensation The Compensation Committee establishes Mr. McMullen’s target direct compensation such that only 9% of his compensation is fixed. The remaining 91% of target compensation is at-risk, meaning that the actual compensation Mr. McMullen receives will depend on the extent to which the Company achieves the performance metrics set by the Compensation Committee, and with respect to all of the equity vehicles, the future value of Kroger common shares. The table below compares fiscal 2021 to 2020 target direct compensation. Target total direct compensation is a more accurate reflection of how the Compensation Committee benchmarks and establishes CEO compensation than the disclosure provided in the Summary Compensation Table, which table includes a combination of actual base salaries and annual incentive compensation earned in the fiscal year, the grant date fair market value of at-risk equity compensation to be earned in future fiscal years, and the actuarial value of future pension benefits. 55 Increases to Mr. McMullen’s pay elements shown below were based on our independent compensation consultant’s examination of pay levels and the Committee’s intention to achieve median pay levels among our peer group. Target total compensation, which is the sum of target annual compensation and target long term compensation is positioned around market median. The increase in target long term compensation reflects the first increase in long term compensation since 2019. ($000s) Year 2021 2020 Annual Long-Term Target Annual Incentive Total Annual Salary Performance Units Restricted Stock Stock Options Total LTI Target TDC $1,355 $2,500 $1,355 $2,500 $3,855 $3,855 $5,500 $5,250 $3,300 $2,200 $11,000 $14,855 $3,150 $2,100 $10,500 $14,355 Increase +3.5% CEO and Named Executive Officer Target Pay Mix The amounts used in the charts below are based on 2021 target total direct compensation for the CEO and the average of other Named Executive Officers. As illustrated below, 91% of the CEO’s target total direct compensation is at-risk. On average, 83% of the other Named Executive Officers’ compensation is at risk. CEO Pay Mix Performance Units 37% Stock Options 15% Base Salary 9% Average of Other NEOs Target Annual Incentive 17% Performance Units 33% 83% At Risk 91% At Risk Restricted Stock 22% Stock Options 13% Base Salary 17% Target Annual Incentive 17% Restricted Stock 20% 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 associates to achieve our business and financial goals. Kroger’s incentive plans are designed to reward the actions that lead to long-term value creation. We believe our strategy creates value for shareholders in a manner consistent with Kroger’s purpose: To Feed the Human Spirit. 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 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, significant 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 and progress toward our corporate ESG priorities. • Compensation plans should provide a direct line of sight to company performance. 56 • Compensation programs should be aligned with market practices. • Compensation programs should serve to both motivate and retain talent. 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 executive 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. Summary of Key Compensation Practices What we do: What we do not do: ✓ Alignment of pay and performance ✓ Stock ownership guidelines for executives ✓ Multiple performance metrics under our short- and long-term performance-based plans discourage excessive risk taking and align with our long-term value creation strategy ✓ Double-trigger change in control provisions in all equity awards beginning in 2019 ✓ All long-term compensation is equity-based ✓ Engagement of an independent compensation consultant ✓ Robust clawback policy ✓ Ban on hedging, pledging, and short sales of Kroger securities ✓ Minimal perquisites × No employment contracts with executive officers × No special severance or change in control programs applicable only to executive officers × No single trigger cash severance benefits upon a change in control × No cash component in long-term incentive plans × No tax gross-up payments for executives × No special executive life insurance benefit × No re-pricing or backdating of options without shareholder approval × No guaranteed salary increases or bonuses × No payment of dividends or dividend equivalents until performance units are earned × No evergreen or reload feature; no shares added to stock plan without shareholder approval Establishing Each Component of Executive Compensation The Compensation Committee recommends, and the independent members of the Board determine, each component of the CEO’s compensation. The CEO recommends, and the Compensation Committee determines, each component of the other NEOs’ compensation. The Compensation Committee and the Board determined compensation in March of 2021. Equity awards were granted in March and salary and annual incentive plan increases were effective as of April 1, 2021. The Compensation Committee determines the amount of NEO’s salary, annual cash incentive plan target, and long-term equity compensation by taking into consideration numerous factors including: • An assessment of individual contribution and performance; • Benchmarking with comparable positions at peer group companies; • Level in organization and tenure in role; and 57 • Internal equity among executives. The assessment of individual contribution and performance is a qualitative determination, based on the following factors: • Leadership; • Contribution to the executive officer group; • Achievement of established performance objectives; • Decision-making abilities; • Performance of the areas or groups directly reporting to the NEO; • Support of company culture; • Strategic thinking; and • Demonstrated commitment to Kroger’s Values: Safety, Honesty, Integrity, Respect, Diversity, and Inclusion. At the end of each year, individual performance is evaluated based on the NEO’s performance objectives listed above, and the results of that evaluation are used in the determination of salary increases and the grant amount of all annual equity awards: restricted stock and stock options, which are time based, and performance units granted under the long-term incentive plan, which are performance based. Elements of Compensation Salary Our philosophy with respect to salary is to provide a sufficient and stable source of fixed cash compensation that is competitive with the market to attract and retain a high caliber leadership team. NEO salaries, effective April 1, 2020 and April 1, 2021, were as follows: W. Rodney McMullen Gary Millerchip Stuart W. Aitken Yael Cosset Timothy A. Massa 2021 Annual Incentive Plan 2020 Base Salary 2021 Base Salary $1,355,000 $ 625,000 $ 860,000 $ 701,000 $ 700,000 $1,355,000 $ 750,000 $ 885,000 $ 750,000 $ 800,000 The NEOs participate in a corporate performance-based annual cash incentive plan. The value of annual cash incentive awards that the NEOs earn each year is based upon Kroger’s overall company performance compared to goals established by the Compensation Committee based on the business plan adopted by the Board of Directors. A minimum level of performance must be achieved before any payout is earned, while a payout of up to 210% of target incentive potential can be achieved for superior performance on the corporate plan metrics. There are no guaranteed or minimum payouts; if none of the performance goals are achieved, then none of the incentive amount is earned and no payout is made. The annual cash incentive 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. 58 The corporate annual cash incentive plan is a broad-based plan used across the Kroger enterprise. Approximately 53,190 associates are eligible to receive incentive payouts based all or in part on the incentive plan described below. NEO target incentive potentials for fiscal years 2020 and 2021, were as follows: W. Rodney McMullen Gary Millerchip Stuart W. Aitken Yael Cosset Timothy A. Massa 2020 Target Annual Incentive 2021 Target Annual Incentive $2,500,000 $ 700,000 $ 700,000 $ 700,000 $ 600,000 $2,500,000 $ 825,000 $ 825,000 $ 825,000 $ 650,000 2021 Annual Incentive Plan Metrics Metric Rationale for Use ID Sales, excluding Fuel Sales and Profit Grid, maximum payout of 200% • Adjusted FIFO Operating Profit, including Fuel • • • Identical Sales (“ID Sales”) represent sales, excluding fuel, at our supermarkets that have been open without expansion or relocation for five full quarters, plus sales growth at all other customer-facing non-supermarket businesses, including Kroger Specialty Pharmacy and ship to home solutions. We believe that ID Sales are the best measure of real growth of our sales across the enterprise. A key driver of our model is ID Sales growth. This financial metric equals gross profit, excluding the LIFO charge, minus OG&A, minus rent, and minus depreciation and amortization. Adjusted FIFO Operating Profit, including fuel, is a key measure of company success as it tracks our earnings from operations, and it measures our day-to-day operational effectiveness. It is a useful measure to investors because it reflects the revenue and expense that a company can control. Produce Kicker Kicker, worth an additional 10% • Produce is a primary driver of where customers choose to shop, and it is a key component of our ability to be Fresh for Everyone. An additional 10% is earned if Kroger achieves certain pre-determined goals with respect to produce share. • Since the start of the COVID-19 pandemic, Kroger’s most urgent priority was to provide a safeguarded environment with open stores, stocked shelves, comprehensive digital solutions and an efficiently-operating supply chain, so that our communities continued to have access to fresh, affordable food and essentials during the pandemic. Customer behavior changed dramatically during 2020 as shoppers started stockpiling food and essentials, shifted from food away from home to food at home, consolidated trips, spent more per transaction, and added new categories of items to their Kroger basket. 59 We believe that ID Sales are the best measure of real growth of our sales across the enterprise. Identical Sales is a year over year comparison representing sales, excluding fuel, at our supermarkets that have been open without expansion or relocation for five full quarters, plus sales growth at all other customer-facing non-supermarket businesses. To illustrate the effect of the pandemic on our business, Kroger reported 2020 ID sales, without fuel, of an unprecedented 14.1% compared to 2019 ID sales, without fuel, of 2.0% and 2018 ID sales, without fuel, of 1.8%. We knew going into 2021 how difficult it would be to cycle the tough comparisons from 2020, with its 14.1% ID sales growth. Because ID sales is a year over year measure, and we had extraordinary results in 2020, we expected our ID sales to turn negative in 2021. Accordingly, internally and in our public disclosures, we evaluated our performance using a 2-year period to more accurately measure our underlying momentum. Our fiscal year 2021 guidance provided both an ID sales, without fuel, range of negative 3% to negative 5% and on a 2-year stacked basis, a range of 9% to 11%. Going into 2021, there remained an extraordinary number and degree of unknowns that could have impacted our results. The Compensation Committee considered, among other factors, the course of the pandemic, including new COVID variants, availability and outcomes of vaccine programs, continuing sales trends, food at home and food away from home trends, inflation/deflation, and other potential market influencing events. To account for these unknowns, the Compensation Committee designed the annual incentive plan with a first half performance period and a second half performance period, with a mechanism to evaluate at mid-year whether the assumptions underlying the performance goals were still applicable for the second half of the year. The Compensation Committee undertook that analysis mid-year and determined that the assumptions underlying the plan had changed meaningfully. Therefore, the Committee decided to adopt a more stringent ID sales, without fuel, goal for the second half performance period. Potential payouts under the plan are based on Company performance on two primary metrics, ID Sales, excluding Fuel, and Adjusted FIFO Operating Profit, including Fuel. The performance objectives for both the First Half 2021 and Second Half 2021 Corporate Incentive Plan are shown in the grids below, with payouts interpolated for actual performance between levels. The goals established by the Compensation Committee for First Half 2021, consisting of 7 fiscal periods, and Second Half 2021, consisting of 6 fiscal periods, the actual results, and the incentive percentage earned for the performance metrics of the First Half 2021 and Second Half 2021 Corporate Incentive Plan were as follows. Although the plan was designed with two performance periods, there was one payout in March 2022. First Half 2021 (7 fiscal periods) Corporate Incentive Plan Metrics Grid ID Sales, excluding Fuel and Adjusted FIFO Operating Profit, including Fuel Adjusted FIFO Operating Profit, including Fuel ($ in millions) ID Sales, excluding Fuel -8.10% -7.10% -5.10% -3.10% -2.10% ≥1,719 ≥1,829 ≥1,939 ≥2,049 ≥2,159 0% 12% 20% 32% 40% 20% 50% 80% 100% 115% 40% 80% 100% 120% 160% 70% 100% 120% 150% 180% 110% 120% 140% 180% 200% 60 Second Half 2021 (6 fiscal periods) Corporate Incentive Plan Metrics Grid ID Sales, excluding Fuel and Adjusted FIFO Operating Profit, including Fuel Adjusted FIFO Operating Profit, including Fuel ($ in millions) ID Sales, excluding Fuel -1.50% -0.50% 1.50% 3.50% 4.50% ≥1,580 ≥1,670 ≥1,760 ≥1,850 ≥1,940 0% 12% 20% 32% 40% 20% 50% 80% 100% 115% 40% 80% 100% 120% 160% 70% 100% 120% 150% 180% 110% 120% 140% 180% 200% 2021 Corporate Incentive Plan — Actual Results and Payout Percentages Corporate Plan Metric Identical Sales, excluding fuel Adjusted FIFO Operating Profit, including fuel Percentage Earned Annual Payout Earned Produce Kicker(2) (1) See grids above. First Half 2021 Performance(1) (7 of 13 periods) Second Half 2021 Performance(1) (6 of 13 periods) -2.62% $2.32B 189.6% +3.58% $1.99B 181.6% (189.6% x 7/13) + (181.6% x 6/13) =185.91% 0% (2) An additional 10% would have been earned if Kroger had achieved a certain goal with respect to gain in produce share. That challenging goal was established by the Compensation Committee but was not achieved. The goal is not disclosed because it is competitively sensitive. Following the close of the 2021 fiscal 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. Our performance compared to the goals established by the Compensation Committee resulted in a payout of 185.91% of the participant’s incentive plan target for all of the participants, including the NEOs with the exception of Mr. Aitken. Mr. Aitken’s annual bonus payout of 189.51% of his bonus potential included the corporate annual plan described above and a team metric as follows. The merchandising team metric measured supermarket ID sales excluding pharmacy and fuel, and supermarket selling gross dollars less shrink dollars for all departments excluding pharmacy and fuel. Corporate Annual Bonus Plan Merchandising Team Metric Total Earned Payout Percentage 185.91% 194.91% Weight 60% 40% (185.91% x 0.6) + (194.91% x 0.4%) = 189.51% The Compensation Committee maintains the ability to reduce the annual cash incentive payout for all executive officers, including the NEOs, and the independent directors retain that discretion for the CEO’s incentive payout if they determine for any reason that the incentive payouts were not appropriate given their assessment of Company performance. However, no adjustments were made in 2021. As described above, the corporate annual cash incentive payout percentage is applied to each NEO’s incentive plan target which is determined by the Compensation Committee, and the independent directors in the case of the CEO. The actual amounts of performance-based annual incentive paid to the NEOs for 2021 are reported in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column. 61 The annual and long-term performance-based compensation awards described herein were made pursuant to our 2019 Long-Term Incentive Plan, which was approved by our shareholders in June 2019. Long-Term Compensation Program 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 NEO compensation is dependent on the achievement of the Company’s long-term goals. 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 long-term incentive program is structured to be a combination of performance- and time-based compensation that reflects elements of financial and common share performance to provide both retention value and alignment with company performance. As of 2019, in response to feedback from shareholders and market practices, our Compensation Committee determined that all long-term compensation would be equity-based as follows: 50% of equity granted under the program would be performance-based and the remaining 50% of equity would be time-based, consisting of 30% in the form of restricted stock and 20% in the form of stock options. Each year, NEOs receive grants under the long-term compensation program, which is structured as follows: • Performance-Based (50% of NEO long-term target compensation) • Long-term performance-based compensation is provided under a Long-Term Incentive Plan adopted by the Compensation Committee. The Committee adopts a new plan every year, measuring improvement on the Company’s long-term goals over successive three-year periods. Accordingly, at any one time there are three plans outstanding, which are summarized below. • Under the Long-Term Incentive Plans, NEOs receive grants of equity called performance units. A fixed number of performance units based on level and individual performance is awarded to each participant at the beginning of the three-year performance period. • Payouts under the plan 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. • The payout percentage, based on the extent to which the performance metrics are achieved, is applied to the number of performance units awarded. • Performance units are paid out in Kroger common shares based on actual performance, along with dividend equivalents for the performance period on the number of issued common shares. • Time-Based (50% of NEO long-term target compensation) • Long-term time-based compensation consists of stock options and restricted stock, which are linked to common share performance, creating alignment between the NEOs’ and our shareholders’ interests. Grants vest rateably over four years. • Stock options have no initial value and recipients only realize benefits if the value of our common shares increases following the date of grant, further aligning the NEOs’ and our shareholders’ interests. Amounts of long-term compensation awards issued and outstanding for the NEOs are set forth in the Executive Compensation Tables section. Summary of Three Long-Term Incentive Plans Outstanding During 2021 The Compensation Committee adopts a new Long-Term Incentive Plan each year, which provides for overlapping three-year performance periods. Additional detail regarding each of the three plans is provided below, and a summary of the design of the plans outstanding during 2021 is as follows: 62 Performance Units and Dividend Equivalents Performance Metrics Determination of Payout Maximum Payout Payout Date 2019 – 2021 LTIP 2020 – 2022 LTIP 2021 – 2023 LTIP Performance units are equity grants which are paid out in Kroger common shares, based on actual performance at the end of the 3-year performance period, along with dividend equivalents for the performance period on the number of issued common shares ultimately earned. Restock Kroger metrics + ROIC multiplier • Total Sales without Fuel + Fuel Gallons; • Growth in Adjusted FIFO Operating Profit, including Fuel • Cumulative Adjusted Free Cash Flow; • Fresh Equity metric; and • Relative Total Shareholder Return modifier The payout percentage, based on the extent to which the performance metrics are achieved, is applied to number of performance units awarded. 120% March 2022 187.5% March 2024 125% March 2023 2019-2021 Long-Term Incentive Plan — Results The 2019-2021 Long-Term Incentive Plan reflects Restock Kroger metrics for the final two years of the 2018-2020 Restock Kroger financial plan, along with an ROIC component for fiscal year 2021. Each of the following plan components account for 50% of the potential payout percentage, and then an ROIC multiplier was applied. The Restock Kroger metrics are calculated as follows: • Cumulative Restock Savings & Benefits is an internal calculation that is a combination of cost savings generated under our Kroger Way Plans; incremental profits from ID sales growth; and incremental net operating profit from our alternative profit streams. • Adjusted Free Cash Flow is an adjusted free cash flow measure calculated as net cash provided by operating activities minus payments for property and equipment, including payments for lease buyout, plus or minus adjustments for certain items. Plan Components Plan Component 2019 – 2020 Cumulative Restock Savings & Benefits Threshold = 50% payout Target = 100% payout Threshold = 50% payout Target = 100% payout Cumulative Adjusted Free Cash Flow $2.050B $3.434B $3.675B $4.640B After the calculation of the two metrics above, a 2021 Return on Invested Capital multiplier was applied, as follows: Less than 12.12% 12.12% – 12.32% Greater than 12.32% ROIC Modifier Component FY 2021 ROIC Results 63 Payout Modifier -20% No change +20% Results and Payout Plan Component Goal Result Payout Percentage Weight Payout Amount Cumulative Restock Savings & Benefits Cumulative Adjusted Free Cash Flow(1) Unadjusted Payout ROIC Modifier(2) Total Payout $3.43B $4.14B 100% 50% 50% $4.64B $5.64B 100% 50% Greater than 12.32% 13.17% 50% 100% +20% 120% (1) Cumulative Adjusted Free Cash Flow is a non-GAAP measure calculated as net cash provided by operating activities minus payments for property and equipment, including payments for lease buyouts plus, in this case, an amount equal to cash taxes paid on the gain on the sale of Turkey Hill Dairy and You Technology. (2) Return on invested capital is a non-GAAP measure. We calculate return on invested capital (“ROIC”) by dividing adjusted ROIC operating profit for the prior four quarters by the average invested capital. Adjusted operating profit for ROIC purposes is calculated by excluding certain items included in operating profit, and adding back our LIFO charge (credit), 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, and (iii) the average accumulated depreciation and amortization; 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, (v) certain other adjustments. 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. Final Payout. The actual 2021 ROIC result is 13.17%. Accordingly, the unadjusted payout percentage of 100% was modified to 120%. The NEOs were issued the number of Kroger common shares equal to 120% of the number of performance units awarded to that executive, along with dividend equivalents for the three-year performance period on the number of issued common shares. The dividend equivalents paid on common shares earned under the 2019 – 2021 Long-Term Incentive Plan are reported in the “All Other Compensation” column of the Summary Compensation Table and footnote 5 to that table, and the common shares issued under the plan are reported in the 2021 Option Exercises and Stock Vested Table and footnote 2 to that table. 2020 – 2022 Long-Term Incentive Plan and 2021 – 2023 Long-Term Incentive Plan Metrics With respect to our long-term performance-based compensation, from 2018 to 2020, Kroger’s metrics in its Long-Term Incentive Plans focused on key Restock Kroger metrics. With the three-year financial targets of the 2018-2020 Restock Kroger plan concluding in 2020, the Compensation Committee reconsidered the long-term incentive plan framework. In November 2019, Kroger committed to investors an 8 – 11% Total Shareholder Return (TSR) target. The Compensation Committee determined that going forward, Long-Term Incentive Plan metrics should align with Kroger’s long-term business plans and growth model that we communicated to shareholders. Accordingly, the 2020 – 2022 Long-Term Incentive Plan and 2021 – 2023 Long-Term Incentive Plan have the following components which support our long-term business plans, each accounting for 25% of the payout calculation: 64 Metric Rationale for Use Total Sales without Fuel + Fuel Gallons • This metric represents total revenue Weighting 25% Growth in Adjusted FIFO Operating Profit, including Fuel Cumulative Adjusted Free Cash Flow dollars without fuel + the number of fuel gallons sold over the three-year term of the plan. It represents the important metric of top line growth of the business from all channels. • This financial metric equals gross profit, 25% excluding the LIFO charge, minus OG&A, minus rent, and minus depreciation and amortization. • Adjusted FIFO Operating Profit, including fuel, is a key measure of company success as it tracks our earnings from operations, and it measures our day-to-day operational effectiveness. It is a useful measure to investors because it reflects the revenue and expense that a company can control. It is particularly important to focus on growth of this financial measure over time. • Adjusted Free Cash Flow is an adjusted free cash flow measure calculated as net cash provided by operating activities minus payments for property and equipment, including payments for lease buyout, plus or minus adjustments for certain items. • It is an important measure for the business because it reflects the cash left over after the company pays for operating expenses and capital expenditures. 25% Fresh Equity metric • Fresh is a key element of how people 25% decide where to shop. It drives trips and therefore delivers business results. Fresh is the core focus of how we differentiate and drive great engagement with customers and it will be a key driver of our growth. After the calculation of the four metrics above, a modifier based on Relative Total Shareholder Return compared to the S&P 500 will be applied, as follows, interpolated for actual results between thresholds: TSR Relative to S&P 500 25th percentile 50th percentile 75th percentile Modifier -25% No change +25% The payout percentage, as modified by the Relative TSR modifier, will be applied to the number of performance units granted under the plan to determine the payout amount. The maximum payout under the 2020-2022 Long-Term Incentive Plan is 125%. 65 Additional Features of the 2021-2023 Long-Term Incentive Plan As described above, going into 2021, there remained an extraordinary number and degree of unknowns that could have impacted our financial results. The Compensation Committee considered, among other factors, the course of the pandemic, including new COVID variants, availability and outcomes of vaccine programs, continuing sales trends, food at home and food away from home trends, inflation/deflation, and other potential market influencing events. To account for these unknowns, the Compensation Committee designed the 2021 long-term plan with an incremental goal setting approach due to our inability to forecast reliable long-term performance targets against the background of the current market uncertainty. The Committee designed the plan to take into account the extraordinary uncertainties going into the three-year plan, while aligning to our identical sales and operating profit growth and productivity improvement goals, all in support of our long-term value creation model. Under the incremental goal setting approach, the plan was designed with clearly defined financial performance goals for 2021, and a mechanism for setting the 2022-2023 goals based on actual 2021 results. This approach does not change the timing of the payout. The payout for the three-year plan will be calculated following the close of fiscal year 2023 and, if earned, will be paid out to participants in the form of common shares, and corresponding accrued dividend equivalents, in March of 2024. For the 2021-2023 Long-Term Incentive Plan, the Compensation Committee aligned the plan with market practices, increasing the maximum payout potential on the four metrics from 100% to 150%. If each of the three financial metrics achieves 100% for years 2 and 3 of the plan and the company achieves a specified 2 year compounded annual growth rate on the total sales without fuel and fuel gallons measure, participants will have the ability to earn a total payout of up to 150% on the four metrics, and with a potential application of the relative TSR modifier, an total maximum payout of 187.5% 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. Kroger historically has distributed time-based equity awards widely, aligning the interests of associates 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 2021, the Compensation Committee granted to the NEOs stock options and restricted stock, each with a four-year ratable vesting schedule. Restricted stock awards are reported in the “Stock Awards” column of the Summary Compensation Table and footnote 1 to the table and the 2021 Grants of Plan Based Awards Table. Stock option awards are reported in the “Stock Awards” column of the Summary Compensation Table and the 2021 Grants of Plan Based Awards Table. 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 associates. 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 66 “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 5 to the Summary Compensation Table and the 2021 Pension Benefits Table and the accompanying narrative. Kroger also maintains an executive deferred compensation plan in which the CEO participates. 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 2021 Nonqualified Deferred Compensation Table and the accompanying narrative. Kroger also maintains The Kroger Co. Employee Protection Plan (“KEPP”), which covers all of our management associates 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 has a double trigger change in control provision and it 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 associate 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 annual incentive target. 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. With respect to awards prior to 2019, stock option and restricted stock grant agreements with award recipients provide that those awards “vest,” with options becoming immediately exercisable, and restrictions on restricted stock lapsing upon a change in control as described in the grant agreements. Grants made in 2019 and thereafter have double trigger change in control provisions and the “vesting” described above is only triggered if an associate is actually or constructively terminated without cause within two years following a change in control of Kroger (as defined in the grant agreement, and consistent with KEPP). None of the NEOs are party to an employment agreement. Perquisites Our NEOs receive limited perquisites as 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. 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 and to advise with respect to the unique circumstances of the 2021 compensation 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 incentive; • target annual cash compensation (the sum of salary and annual cash incentive potential); • long-term incentive compensation, comprised of performance units, stock options and restricted stock; and 67 • total direct compensation (the sum of target annual cash compensation and 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 2021, our peer group consisted of: AmerisourceBergen Best Buy Cardinal Health Costco Wholesale CVS Health Home Depot Johnson & Johnson Lowe’s Procter & Gamble Sysco Target TJX Companies Walgreens Boots Alliance Walmart The make-up of the compensation peer group is reviewed annually and modified as circumstances warrant. 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 peer group includes a combination of food and drug retailers, other large retailers based on revenue size, and large consumer-facing companies. Median 2021 revenue for the peer group was $107 billion, compared to our 2021 revenue of $138 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 incentive potential to our NEOs around the market median. Actual payouts may be as low as zero if performance does not meet the baselines established by the Compensation Committee while superior financial performance is rewarded with compensation falling above the median. 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 incentive plan, the independent directors make two determinations: (1) the annual cash incentive potential that will be multiplied by the corporate annual cash incentive payout percentage earned that is applicable to the NEOs and (2) the annual cash incentive amount paid to the CEO by retaining discretion to reduce the annual cash incentive 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 including a summary for each NEO of salary; performance-based annual cash incentive; and long-term performance-based equity comprised of performance units, stock options and restricted stock. • 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 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. 68 • Takes into account a recommendation from the CEO for salary, annual cash incentive 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. 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 independent directors, executive officers, and other key executives to acquire and hold a minimum dollar value of Kroger common shares as set forth below: Position Multiple Chief Executive Officer President and Chief Operating Officer Executive Vice Presidents and Senior Vice Presidents 5 times base salary 4 times base salary 3 times base salary Independent Directors 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) Under the 2019 Long-Term Incentive Plan (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 Compensation Committee determines either that (i) prior to termination, the participant engaged in an act or omission that would have warranted termination for cause or (ii) after termination, the participant violates any continuing obligation or duty of the participant with respect to Kroger, any gain realized by the participant from the exercise, vesting or payment of any award may be cancelled, forfeited or recouped in the sole discretion of the Committee. Under the 2019 Plan, any gain realized by the participant from the exercise, vesting or payment of any award may also be recouped if, within one year after such exercise, vesting or payment, (i) a participant is terminated for cause, (ii) the Compensation Committee determines that the participant is subject to recoupment pursuant to any Kroger policy, or (iii) after a participant’s termination for any reason, the Compensation Committee determines either that (1) prior to termination the participant engaged in an act or omission that would have warranted termination for cause, or (2) after termination the participant violates any continuing obligation or duty of the participant with respect to Kroger. Unless otherwise defined under 2019 Plan award agreement, “cause” has the meaning as defined in The Kroger Co. Employee Protection Plan, as amended from time to time. Additionally, if an award based on financial statements that are subsequently restated in a way that would decrease the value of such award, the participant will, to the extent not otherwise prohibited by law, upon the written request of Kroger, forfeit and repay to Kroger the difference between what was received and what should have been received based on the accounting restatement, which will be repaid in accordance with any applicable Kroger policy or applicable law, including Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations adopted thereunder. 69 Kroger also has a recoupment policy, which provides that 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 incentive or a long-term cash incentive 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 associates are designed to, among other things, attract and retain high quality and engaged associates. 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. 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 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 $1 million other than qualified performance- based compensation pursuant to a written binding contract in effect on November 2, 2017 or earlier which was not modified in any material respect on or after such date (the legislation providing for such transition rule, the “Transition Rule”). As a result, performance-based compensation that the Compensation Committee structured with the intent of qualifying as performance-based compensation under Section 162(m) prior to the change in the law may or may not be fully deductible, depending on the application of the Transition Rule. In addition, compensation arrangements structured following the change in law will be subject to the Section 162(m) limitation (without any exception for performance-based compensation). Consistent with its past practice, the Committee will continue to retain flexibility to design compensation programs that are in the best long-term interests of the Company and our shareholders, with deductibility of compensation being one of a variety of considerations taken into account. 70 Compensation Committee Report The Compensation Committee has reviewed and discussed with Kroger’s management the Compensation Discussion and Analysis contained in this proxy statement. Based on its review and discussions with management, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in Kroger’s proxy statement and incorporated by reference into its Annual Report on Form 10-K. Compensation Committee: Clyde R. Moore, Chair Amanda Sourry Mark Sutton Summary Compensation Table Executive Compensation Tables The following table and footnotes provide information regarding the compensation of the NEOs for the fiscal years presented. Name and Principal Position Fiscal Year Salary ($) Bonus ($) Stock Awards ($)(1) Option Awards ($)(2) Non-Equity Incentive Plan Compensation ($)(3) Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) All Other Compensation ($)(5) Total ($) W. Rodney McMullen 2021 $1,351,358 $ 8,800,023 $2,199,162 $4,647,750 $ 159,640 $1,010,797 $18,168,730 Chairman and Chief Executive Officer 2020 $1,341,060 $769,231 $10,900,041 $2,101,581 $4,888,929 $1,795,455 $ 577,277 $22,373,574 2019 $1,311,849 $ 8,400,002 $2,100,170 $2,006,450 $6,962,485 $ 348,692 $21,129,648 Gary Millerchip 2021 $ 726,815 $ 2,800,022 $ 699,735 $1,498,006 Senior Vice President and Chief Financial Officer 2020 $ 601,050 $312,426 $ 2,498,469 $ 540,409 $1,092,959 2019 $ 472,561 $ 2,350,034 $ 775,042 $ 442,755 Stuart Aitken 2021 $ 878,387 $ 2,800,022 $ 699,735 $1,527,013 Senior Vice President and Chief Merchandising & Marketing Officer 2020 $ 849,484 $323,077 $ 3,010,038 $ 540,409 $1,586,363 2019 $ 822,460 $ 2,225,025 $ 600,051 $ 830,446 Yael Cosset 2021 $ 739,685 $ 2,800,022 $ 699,735 $1,498,006 Senior Vice President and Chief Information Officer 2020 $ 689,567 $312,426 $ 2,998,473 $ 540,409 $1,338,239 2019 $ 638,519 $ 1,825,016 $ 500,042 $ 572,191 Timothy A. Massa 2021 $ 780,914 $ 1,760,033 $ 439,836 $1,194,114 $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 $ 261,842 $ 5,986,420 $ 122,377 $ 5,167,690 $ 101,888 $ 4,142,280 $ 300,214 $ 6,205,371 $ 177,900 $ 6,487,271 $ 134,801 $ 4,612,783 $ 265,342 $ 6,002,790 $ 121,168 $ 6,000,282 $ 110,044 $ 3,645,812 $ 210,350 $ 4,385,247 Senior Vice President and Chief People Officer (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. The following table reflects the value of each type of award granted to the NEOs in 2021: 71 Name Mr. McMullen Mr. Millerchip Mr. Aitken Mr. Cosset Mr. Massa Restricted Stock Performance Units $3,300,013 $1,050,017 $1,050,017 $1,050,017 $ 660,017 $5,500,010 $1,750,005 $1,750,005 $1,750,005 $1,100,016 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 11 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2021. Assuming that the highest level of performance conditions is achieved, the aggregate fair value of the 2021 performance unit awards at the grant date is as follows: Name Mr. McMullen Mr. Millerchip Mr. Aitken Mr. Cosset Mr. Massa Value of Performance Units Assuming Maximum Performance $10,312,519 $ 3,281,259 $ 3,281,259 $ 3,281,259 $ 2,062,530 (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 11 to the consolidated financial statements in Kroger’s Form 10-K for fiscal year 2021. (3) Non-equity incentive plan compensation earned for 2021 consists of amounts earned under the 2021 Corporate Incentive Plan. The 2021 Corporate Incentive Plan was calculated at 185.91% and was applied to each NEO’s annual incentive plan target, except for Mr. Aitken. Mr. Aitken’s payout of 189.51% of his annual incentive target was calculated based on the Corporate Incentive Plan metrics and the merchandising team metrics. See “2021 Corporate Incentive Plan Results” in the CD&A for more information on this plan. (4) For 2021, 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) and preferential earnings on nonqualified deferred compensation, which only applies to Mr. McMullen. The remainder of the NEOs do not participate in a defined benefit pension plan or in a nonqualified deferred compensation plan. Change in Pension Value. The aggregate change in the actuarial present value of Mr. McMullen’s accumulated pension benefits decreased by $695,910. This change in value of accumulated pension benefits is not included in the Summary Compensation Table because the value decreased. The value of accrued benefits decreased primarily due to the increase in discount rates. The Company froze the compensation and service periods used to calculate pension benefits for active associates who participate in the affected pension plans, including Mr. McMullen’s, as of December 31, 2019. Beginning January 1, 2020, the affected active associates will no longer accrue additional benefits for future service and eligible compensation received under these plans. Please see the 2021 Pension Benefits section for further information regarding the assumptions used in calculating pension benefits. Preferential Earnings on Nonqualified Deferred Compensation. Mr. McMullen participates in The Kroger Co. Executive Deferred Compensation Plan (the “Deferred Compensation Plan”) and 72 received preferential earnings of $159,640. Under the plan, deferred compensation earns interest at a rate representing Kroger’s cost of ten-year debt, as determined by the CFO, 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 eighteen of the twenty-seven 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. (5) Amounts reported in the “All Other Compensation” column for 2021 include Company contributions to defined contribution retirement plans, dividend equivalents paid on earned performance units, and dividends paid on unvested restricted stock. In 2021, the total amount of perquisites and personal benefits for each of the NEOs was less than $10,000. The following table identifies the value of each element of compensation. Name Mr. McMullen Mr. Millerchip Mr. Aitken Mr. Cosset Mr. Massa Payment of Dividend Equivalents on Earned Performance Units $524,363 $ 99,879 $124,848 $ 99,879 $ 74,909 Dividends Paid on Unvested Restricted Stock $291,684 $ 72,735 $ 76,824 $ 75,602 $ 49,797 Retirement Plan Contributions(a) $194,750 $ 89,228 $ 98,542 $ 89,861 $ 85,644 (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 associates. 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. 73 2021 Grants of Plan-Based Awards The following table provides information about equity and non-equity incentive awards granted to the NEOs in 2021. Estimated Possible Payouts Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under Equity Incentive Plan Awards Grant Date Target ($)(1) Maximum ($)(1) Target (#)(2) Maximum (#)(2) All Other Stock Awards: Number of Shares of Stock or Units (#)(3) All Other Option Awards: Number of Securities Underlying Options (#)(4) Exercise or Base Price of Option Awards ($/Sh) Grant Date Fair Value of Stock and Option Awards Name W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 $2,500,000 $5,250,000 $ 825,000 $1,732,500 157,413 295,149 $ 825,000 $1,732,500 50,086 93,911 $ 825,000 $1,732,500 50,086 93,911 50,086 93,911 94,448 $3,300,013 260,973 $34.94 $2,199,162 $5,500,010 $1,050,017 83,037 $34.94 $ 699,735 $1,750,005 $1,050,017 83,037 $34.94 $ 699,735 $1,750,005 $1,050,017 83,037 $34.94 $ 699,735 $1,750,005 $ 660,017 30,052 30,052 30,052 18,890 Timothy A. Massa $ 650,000 $1,365,000 3/11/2021 3/11/2021 3/11/2021 31,483 59,031 $1,100,016 52,195 $34.94 $ 439,836 (1) These amounts relate to the 2021 performance-based annual cash incentive plan. The amount listed under “Target” represents the annual cash incentive potential of the NEO. By the terms of the plan, payouts are limited to no more than 210% of a participant’s annual cash incentive potential; accordingly, the amount listed under “Maximum” is 210% of that officer’s annual cash incentive potential amount. The amounts actually earned under this plan were paid out in March 2022; are described in the Compensation Discussion and Analysis; and are included in the Summary Compensation Table for 2021 the “Non-Equity Incentive Plan Compensation” column, and described in footnote 3 to that table. See “2021 Annual Cash Incentive Plan” in CD&A for more information about the program for 2021. (2) These amounts represent performance units awarded under the 2021 Long-Term Incentive Plan, which covers performance during fiscal years 2021, 2022, and 2023. The amount listed under “Maximum” represents the maximum number of common shares that can be earned by the NEO under the award or 187.5% 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 2021 in the “Stock Awards” column and described in footnote 2 to that table. 74 (3) These amounts represent the number of shares of restricted stock granted in 2021. 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 2021 in the “Stock Awards” column and described in footnote 1 to that table. (4) These amounts represent the number of stock options granted in 2021. 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 2021 in the “Option Awards” column and described in footnote 2 to that table. 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”) and the number of performance units awarded for the long-term 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 210% of the target amount. The potential values for performance units awarded under the 2021- 2023 Long-Term Incentive Plan 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 associate. Any dividends declared on Kroger common shares are payable on unvested restricted stock. 75 2021 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 2021. 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 $43.47 on January 28, 2022, the last trading day of fiscal 2021. Option Awards Stock Awards Name W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) 194,880 194,880 300,000 235,415 358,091 458,501 261,969 174,129 82,288 9,600 13,992 27,972 26,178 22,688 33,167 11,056 25,558 21,160 22,326 34,828 44,593 24,843 41,459 11,056 21,160 13,992 18,130 6,632 8,488 — — — — — $10.98 7/12/2022 $18.88 7/15/2023 53,830(8) 63,637(9) $2,339,990 $2,766,300 $24.67 7/15/2024 81,131(10) $3,526,765 $38.33 7/15/2025 94,448(11) $4,105,655 $37.48 7/13/2026 71,552(12) $3,110,365 114,626(1) 87,324(1) 174,130(2) 246,866(3) 260,973(4) $22.92 7/13/2027 $28.05 7/13/2028 $24.75 3/14/2029 $29.12 3/12/2030 $34.94 3/11/2031 — — — 8,727(1) 7,563(1) 33,168(2) 5,528(5) 25,558(6) 63,480(3) 83,037(4) — — 11,149(1) 8,281(1) 41,460(2) 5,528(5) 63,480(3) 83,037(4) $24.67 7/15/2024 5,156(8) $ 224,131 $38.33 7/15/2025 12,122(9) $ 526,943 $37.48 7/13/2026 3,031(13) $ 131,758 $22.92 7/13/2027 11,889(14) $ 516,815 $28.05 7/13/2028 20,862(10) $ 906,871 $24.75 3/14/2029 30,052(11) $1,306,360 $24.75 3/14/2029 9,687(12) $ 421,094 $22.08 7/15/2029 $29.12 3/12/2030 $34.94 3/11/2031 $38.33 7/15/2025 6,558(8) $ 285,076 $37.48 7/13/2026 15,152(9) $ 658,657 $22.92 7/13/2027 3,031(13) $ 131,758 $28.05 7/13/2028 20,862(10) $ 906,871 $24.75 3/14/2029 10,254(15) $ 445,741 $24.75 3/14/2029 30,052(11) $1,306,360 $29.12 3/12/2030 10,018(12) $ 435,482 $34.94 3/11/2031 — — — $38.33 7/15/2025 1,110(16) $ 48,252 $37.48 7/13/2026 7,066(8) $ 307,159 $31.25 9/15/2026 12,122(9) $ 526,943 2,123(7) $28.83 3/9/2027 3,031(13) $ 131,758 76 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 ($) 180,288(17) 110,189(18) $8,251,781 $5,060,981 46,360(17) 35,060(18) $2,121,897 $1,610,306 46,360(17) 35,060(18) $2,121,897 $1,610,306 Name Timothy A. Massa Option Awards Stock Awards Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) 34,812 22,124 33,167 11,056 21,160 16,000 46,000 29,970 25,889 36,052 30,420 24,876 11,056 15,674 8,704(1) 7,375(1) 33,168(2) 5,528(5) 63,480(3) 83,037(4) — — — — 9,013(1) 10,141(1) 24,876(2) 5,528(5) 47,022(3) 52,195(4) $22.92 7/13/2027 20,862(10) $ 906,871 $28.05 7/13/2028 10,254(15) $ 445,741 $24.75 3/14/2029 30,052(11) $1,306,360 $24.75 3/14/2029 9,687(12) $ 421,094 $29.12 3/12/2030 $34.94 3/11/2031 $18.88 7/15/2023 $24.67 7/15/2024 7,840(8) 9,091(9) $ 340,805 $ 395,186 $38.33 7/15/2025 3,031(13) $ 131,758 $37.48 7/13/2026 15,454(10) $ 671,785 $22.92 7/13/2027 18,890(11) $ 821,148 $28.05 7/13/2028 8,477(12) $ 368,495 $24.75 3/14/2029 $24.75 3/14/2029 $29.12 3/12/2030 $34.94 3/11/2031 Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) 46,360(17) 35,060(18) $2,121,897 $1,610,306 34,341(17) 22,038(18) $1,571,787 $1,012,206 (1) Stock options vest on 7/13/2022. (2) Stock options vest in equal amounts on 3/14/2022 and 3/14/2023. (3) Stock options vest in equal amounts on 3/12/2022, 3/12/2023, and 3/12/2024. (4) Stock options vest in equal amounts on 3/11/2022, 3/11/2023, 3/11/2024, and 3/11/2025. (5) Stock options vest on 3/14/2022. (6) Stock options vest in equal amounts on 7/15/2022, and 7/15/2023. (7) Stock options vest on 3/9/2022. (8) Restricted stock vests on 7/13/2022. (9) Restricted stock vests in equal amounts on 3/14/2022 and 3/14/2023. (10) Restricted stock vests in equal amounts on 3/12/2022, 3/12/2023, and 3/12/2024. (11) Restricted stock vests in equal amounts on 3/11/2022, 3/11/2023, 3/11/2024, and 3/11/2025. (12) Restricted stock vests on 3/11/2022. (13) Restricted stock vests on 3/14/2022. (14) Restricted stock vests in equal amounts on 7/15/2022, and 7/15/2023. (15) Restricted stock vests in equal amounts on 9/17/2022 and 9/17/2023. (16) Restricted stock vests on 3/9/2022. (17) Performance units granted under the 2020 long-term incentive plan are earned as of the last day of fiscal 2022, 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 a representative amount based on performance through 2021, including cash payments equal to projected dividend equivalent payments. 77 (18) Performance units granted under the 2021 long-term incentive plan are earned as of the last day of fiscal 2023, 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 a representative amount based on performance through 2021, including cash payments equal to projected dividend equivalent payments. 2021 Option Exercises and Stock Vested The following table provides information regarding 2021 stock options exercised, restricted stock vested, and common shares issued pursuant to performance units earned under long-term incentive plans. Name W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset Timothy A. Massa Option Awards(1) Stock Awards(2) Number of Shares Acquired on Exercise (#) 182,880 — — — 32,000 Value Realized on Exercise ($) $4,839,005 — — — $ 946,394 Number of Shares Acquired on Vesting (#) 387,247 77,354 91,990 79,508 58,707 Value Realized on Vesting ($) $19,430,312 $ 3,829,752 $ 4,623,666 $ 3,919,821 $ 2,893,402 (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 W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset Timothy A. Massa Vested Restricted Stock Earned Performance Units Number of Shares Value Realized Number of Shares Value Realized 132,702 28,869 31,384 31,023 22,343 $4,898,338 $1,061,743 $1,163,669 $1,151,812 $ 817,381 254,545 48,485 60,606 48,485 36,364 $14,531,974 $ 2,768,009 $ 3,459,997 $ 2,768,009 $ 2,076,021 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 2019-2021 Long-Term Incentive Plan were awarded performance units that were earned based on performance criteria established by the Compensation Committee as described in “2019-2021 Long-Term Incentive Plan — Results” in 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 $57.09 on March 10, 2022, the date of deemed delivery of the shares, are reflected in the table above. 2021 Pension Benefits The following table provides information regarding pension benefits for the NEOs as of the last day of fiscal 2021. Only Mr. McMullen participates in a pension plan. 78 Name W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset Timothy A. Massa Number of Years Credited Service (#) Present Value of Accumulated Benefit ($)(1) Payments during Last fiscal year ($) 34 34 — — — — — — — — $ 1,953,804 $22,062,474 — — — — — — — — — — — — — — — — — — Plan Name Pension Plan Excess Plan 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 3.18% for The Kroger Consolidated Retirement Benefit Plan Spin Off (the “Pension Plan”) and 3.16% for 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 14 to the consolidated financial statements in Kroger’s 10-K for fiscal year 2021. Pension Plan and Excess Plan In 2021, Mr. McMullen was a participant in the Pension Plan, which is a qualified defined benefit pension plan. Mr. McMullen also participates 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 Mr. McMullen, 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. Mr. McMullen is 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. As a “grandfathered participant,” Mr. McMullen 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 incentive) 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 1% for each of the first 24 months and by 1/2 of 1% for each of the next 60 months by which the commencement of benefits precedes age 62. 79 In 2018, we announced changes to these company-sponsored pension plans. The Company froze the compensation and service periods used to calculate pension benefits for active associates who participate in the affected pension plans, including the NEO participants, as of December 31, 2019. Beginning January 1, 2020, the affected active associates 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, Mr. McMullen currently is eligible for a reduced early retirement benefit, as he 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 receives 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. 2021 Nonqualified Deferred Compensation The following table provides information on nonqualified deferred compensation for the NEOs for 2021. Only Mr. McMullen participates in a nonqualified deferred compensation plan. Name W. Rodney McMullen Gary Millerchip Stuart Aitken Yael Cosset Timothy A. Massa Executive Contributions in Last FY Aggregate Earnings in Last FY(1) Aggregate Balance at Last FYE(2) — — — — — $835,503 — — — — $13,211,343 — — — — (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 2021 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 2021: Mr. McMullen, $159,640. (2) The following amounts in the Aggregate Balance column were reported in the Summary Compensation Tables covering fiscal years 2006 – 2020: Mr. McMullen, $3,853,131. Executive Deferred Compensation Plan Mr. McMullen participates 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 incentive 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 CFO 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. 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 associates” 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 associate dies prior to or during the distribution period, the remainder of the account 80 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 that provide for payments to the NEOs in connection with a termination of employment or a change in control of Kroger. However, KEPP and award agreements for stock options, restricted stock and performance units 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 plans 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 2021 Pension Benefits section and the 2021 Nonqualified Deferred Compensation section, respectively. The Kroger Co. Employee Protection Plan KEPP applies to all management associates 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 associates, 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 incentive 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 six 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 associate 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 associate receiving the greatest aggregate amount on an after-tax basis. 81 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. Stock Options Restricted Stock Performance Units Triggering Event 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 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 one 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 Forfeit all unvested shares Forfeit all rights to units 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 Unvested shares held greater than one year continue vesting on the original schedule Pro rata portion(2) of units 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 units 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 Disability Change in Control(3) • For awards prior to March 2019 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 Unvested shares immediately vest 82 Triggering Event Change in Control(4) • For awards in March 2019 and thereafter Stock Options Restricted Stock Performance Units Unvested options only vest and become exercisable upon an actual or constructive termination of employment within two years following a change in control Unvested shares only vest upon an actual or constructive termination of employment within two years following a change in control 50% of the units granted at the beginning of the performance period earned upon an actual or constructive termination of employment within two years following a change in control (1) The minimum age requirement is age 62 for stock options and restricted stock and age 55 for performance units. (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. (4) These benefits are payable upon an actual or constructive termination of employment within two years after a change in control, as defined in the applicable agreements. 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, January 29, 2022, 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 ($43.47 on January 28, 2022). 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. 83 Name W. Rodney McMullen Accrued and Banked Vacation Severance Continued Health and Welfare Benefits(1) Stock Options(2) Restricted Stock(3) Performance Units(4) Executive Group Life Insurance Gary Millerchip Accrued and Banked Vacation Severance Continued Health and Welfare Benefits(1) Stock Options(2) Restricted Stock(3) Performance Units(4) Executive Group Life Insurance Stuart Aitken Accrued and Banked Vacation Severance Continued Health and Welfare Benefits(1) Stock Options(2) Restricted Stock(3) Performance Units(4) Executive Group Life Insurance Yael Cosset Accrued and Banked Vacation Severance Continued Health and Welfare Benefits(1) Stock Options(2) Restricted Stock(3) Performance Units(4) Executive Group Life Insurance Timothy A. Massa Accrued and Banked Vacation Severance Continued Health and Welfare Benefits(1) Stock Options(2) Restricted Stock(3) Performance Units(4) Executive Group Life Insurance Involuntary Termination Voluntary Termination/ Retirement Death Disability Change in Control without Termination Change in Control with Termination $638,750 $ 638,750 $ 638,750 $ 638,750 $ 638,750 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ $ 0 $6,821,386 $12,730,441 $12,730,441 $3,702,100 $15,849,075 $15,849,075 $2,339,990 $ 6,821,386 $ 6,821,386 $ 0 $ 2,000,000 $ $ $ $ $ $ $ $ $ $ $ $ $ 0 $ 0 $ 0 $ 0 0 0 0 $ 3,186,280 $ 3,186,280 $ 295,961 $ 4,033,972 $ 4,033,972 $ 224,131 $ 1,851,535 $ 1,851,535 $ 0 $ 1,125,000 0 $ 0 $ 0 $ 0 0 0 0 $ 2,855,664 $ 2,855,664 $ 356,805 $ 4,169,945 $ 4,169,945 $ 285,076 $ 1,851,535 $ 1,851,535 $ 0 $ 1,327,500 0 $ 0 $ 0 $ 0 0 0 0 $ 2,667,304 $ 2,667,304 $ 323,671 $ 4,094,178 $ 4,094,178 $ 355,411 $ 1,851,535 $ 1,851,535 $ 0 $ 1,125,000 0 $ 0 $ 0 $ 0 0 $ $ 0 $1,314,534 $ 2,030,743 $ 2,030,743 $ 341,591 $ 2,729,177 $ 2,729,177 $ 340,805 $ 1,314,534 $ 1,314,534 $ 0 $ 1,200,000 $ 638,750 $ 7,710,000 $ 50,792 $12,730,441 $15,849,075 $ 7,339,931 $ 0 $ 3,018,750 $ 57,389 $ 3,186,280 $ 4,033,972 $ 2,096,254 $ 0 $ 3,420,000 $ 59,065 $ 2,855,664 $ 4,169,945 $ 2,096,254 $ 0 $ 3,150,000 $ 44,423 $ 2,667,304 $ 4,094,178 $ 2,096,254 $ 0 $ 2,779,182 $ 46,735 $ 2,030,743 $ 2,729,177 $ 1,430,685 (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 January 28, 2022. 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. 84 (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 2020 and 2021, based on performance through the last day of fiscal 2021 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 2020 and 2021. Awards under the 2019 Long-Term Incentive Plan were earned as of the last day of 2021 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 2021 Option Exercises and Stock Vested Table. 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 associate. As reported in the Summary Compensation Table, our CEO had annual total compensation for 2021 of $18,168,730. Using this Summary Compensation Table methodology, the annual total compensation of our median associate for 2021 was $26,763. As a result, we estimate that the ratio of our CEO’s annual total compensation to that of our median associate for fiscal 2021 was 679 to 1. Our median employee is a part-time associate in the Midwest region. Over half of Kroger’s associates are part-time workers. 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 associate and calculating the pay ratio based on that associate’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 then determined the median associate’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 2021, to arrive at the pay ratio disclosed above. Due to a material increase in salary of our median associate, we identified a substitute median associate as permitted under SEC rules because we reasonably believed that continuing to use the prior median associate would have significantly affected our CEO pay ratio disclosure and the CEO pay ratio would not reflect the actual ratio that was used to calculate the pay ratio. 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. FOR The Board recommends a 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. 85 As discussed earlier in the CD&A, our compensation philosophy is to attract and retain the best management talent and to motivate these associates 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, significant equity ownership to align the interests of executives 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; • Compensation plans should provide a direct line of sight to company performance; • Compensation programs should be aligned with market practices; and • Compensation programs should serve to both motivate and retain talent. 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 2023 Annual Meeting. Item No. 3 Ratification of the Appointment of Kroger’s Independent Auditor You are being asked to ratify the appointment of Kroger’s independent auditor, PricewaterhouseCoopers LLC. FOR The Board recommends a 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 2021. 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 86 applicable NYSE rules. On March 9, 2022, the Audit Committee appointed PricewaterhouseCoopers LLP as Kroger’s independent auditor for the fiscal year ending January 28, 2023. 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 participate in 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 2021 and 2020, and for audit-related, tax and all other services performed in 2021 and 2020. 87 Audit Fees(1) Audit-Related Fees Tax Fees(2) All Other Fees(3) Total Fiscal Year Ended January 29, 2022 January 30, 2021 $5,427,500 0 $ 25,000 $ 3,150 $ $5,294,700 0 $ $ 900 $5,455,650 $5,295,600 (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. (2) Includes pre-approved assistance with tax compliance and assistance in connection with tax audits. (3) Includes use of accounting research tool. The Audit Committee requires that it approve in advance all audit and non-audit work performed by PricewaterhouseCoopers LLP. Pursuant to the Audit Committee audit and non-audit service pre-approval 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 the SEC; and 88 • 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 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 January 29, 2021, as filed with the SEC. This report is submitted by the Audit Committee. Anne Gates, Chair Kevin M. Brown Karen M. Hoguet Ronald L. Sargent Ashok Vemuri 89 Item No. 4 Approval of additional shares under the 2019 Long-Term Incentive Plan You are being asked to vote to approve the Amended and Restated Kroger 2019 Long-Term Incentive Plan (the “Amended Plan”). FOR The Board recommends a vote FOR the approval of additional shares under the 2019 Long-Term Incentive Plan Under this Item No. 4, the Board is recommending that our shareholders approve the Amended Plan. The Amended Plan was adopted, subject to shareholder approval, by the Board of Directors on April 18, 2022, upon the recommendation of our Compensation and Talent Development Committee (the “Compensation Committee”). If approved by shareholders, the Amended Plan will increase the number of shares authorized for issuance under the plan by 46,239,000 shares to 59,922,931. The increase in the shares reserved for issuance is the only modification contemplated by the Amended Plan and all other terms and conditions of the Plan are proposed to remain unchanged. The 2019 Plan has 13,683,931 shares available for grant as of April 1, 2022. We believe that increasing the share reserve is critical for us to meet our estimated near-term equity compensation needs. We operate in a highly competitive industry and geography for employee talent and do not expect required rates of compensation to decline. If the Amended 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 Amended Plan are set forth in the section entitled “Summary of the Amended Plan” beginning on page 94 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 Amended 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 2019 Plan would be depleted. If the Amended Plan is not approved, the Company will continue to grant awards under the 2019 Plan until there are no longer any shares available for grant. Once the shares are depleted, if shareholders do not approve the Amended Plan, we will be unable to issue stock-settled equity awards and would be reliant on cash-settled awards. An inability to grant equity-based awards would have significant negative consequences to us and our shareholders including the following: • Inhibit Pay for Performance and Alignment with Shareholders. As described above, with respect to our named executive officers and other senior employees of the Company, a key element of our compensation philosophy is to pay a meaningful portion of variable compensation in the form of stock-based awards as we believe that aligns employee and shareholder interests and drives long-term value creation. • Result in Increased Cash Compensation. In order to attract and retain qualified personnel, we would likely be compelled to alter our compensation programs to increase the cash-based components, which would not provide the same benefits as equity awards and would limit cash available for other purposes. If the Amended Plan is approved by our shareholders, it will become effective as of the date of the Annual Meeting. Background The Kroger Co. 2019 Long-Term Incentive Plan (“2019 Plan”) was approved by shareholder on June 27, 2019. The 2019 Plan is the Company’s only compensation plan under which equity-based awards may be made. As described above in the section entitled “Compensation Discussion and Analysis” beginning on page 53 above, the Compensation Committee of the Board of Directors has long 90 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. We are requesting approval of 46,239,000 additional shares for awards under the Amended Plan. Awards may also be made under the Amended Plan with respect to an estimated 13,683,931 shares that, as of April 1, 2022, remain available for grant under the 2019 Plan which has previously been approved by our shareholders. 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 additional shares to request under the Amended Plan, we evaluated our share availability under the 2019 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 of the Plan are Unchanged • The Amended Plan has a ten-year term; • The Amended 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; • An estimated 13,683,931 shares that remain available for grant under the 2019 Plan as of April 1, 2022 may also be granted under the Amended 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; • All types of equity awards granted under the Amended 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 Amended Plan will be administered by the Compensation Committee, which is comprised entirely of independent 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 Amended 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. 91 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 January 28, 2022. 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)) Plan Category Equity compensation plans approved by security holders 29,683,904 $28.15 19,319,196 Equity compensation plans not approved by security holders Total — 29,683,904 — $28.15 — 19,319,196 The total number of securities reported includes the maximum number of common shares, 8,541,763, 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 the definitive 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. 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 2019 through 2021 and earned in 2021 the actual payout percentage, our best estimate of the number of common shares that will be issued under the performance unit grants is approximately 4,504,253. Equity Compensation Plan Information as of April 1, 2022 The information included in this Proxy Statement and our Annual Report on Form 10-K for the fiscal year ending January 28, 2022 is updated by the following information regarding all existing equity compensation plans as of April 1, 2022: • Total number of stock options outstanding: 18,919,590 • Weighted-average exercise price of stock options outstanding: $29.89 • Weighted-average remaining contractual term of stock options outstanding: 5.68 years • Total number of full value awards outstanding (including performance units): 10,322,224 • Total number of shares of common stock outstanding: 722,421,584 • Total number of shares that were available for grant under the 2019 Plan: 13,683,931 Key Shareholder Considerations Shareholders should consider the following in determining whether to approve the Amended Plan: • Our burn rate is reasonable. As detailed in the table below, our three-year average adjusted burn rate is 1.79%, which we define as the number of options granted as well as the number of full- value awards granted 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. It is our intention to remain within the burn rate guidelines established by ISS for our industry. 92 Fiscal Year 2021 2020 2019 Options Granted 2,110,654 2,881,317 3,137,452 Full-Value Shares Granted 3,949,493 3,986,765 5,479,074 Total Granted (full-value shares adjusted)* Weighted Average # of Common Shares Outstanding 11,984,387 12,848,230 16,835,137 743,885,421 773,023,519 799,137,250 Burn Rate 1.61% 1.66% 2.11% *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 1, 2022, 29,241,814 shares were subject to outstanding equity awards under our 2019 Plan, and we are requesting an additional 46,239,000 shares for grant under the Amended Plan, which based on 722,421,584 shares outstanding on April 1, 2022, results in a total potential dilution of 12.3%. This overhang is reasonable compared to that of our peers. • Clawbacks. Awards granted under the Amended 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 Amended Plan for a period of one (1) year following after the settlement of an award under the Amended Plan or may be subject to Kroger’s clawback policy as described on page 69 above in the section entitled “Executive Compensation Recoupment Policy (Clawback)” in the “Compensation Discussion & Analysis”. • The Amended Plan follows best market practices. The Amended Plan has been designed consistent with the qualitative standards of proxy advisory firms and equity plan best practices. As a result, the Amended 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 Amended Plan may be subject to awards that do not meet such minimum vesting requirement; • does not permit the repricing of awards granted under the Amended 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;” • generally provides for a minimum vesting period of one year and minimum performance period of 12 months, 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 of the Company; • 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 Amended 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 93 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. As described above, the 2019 Plan has 13,683,931 shares available for grant as of April 1, 2022. We believe additional shares should be reserved for issuance to meet our estimated near-term equity compensation needs. We operate in a highly competitive industry and geography for employee talent and do not expect required rates of compensation to decline. One alternative to using equity awards would be to significantly increase cash compensation. We do not believe this would be practical or advisable. As a high-growth company, we believe that a combination of equity and cash compensation is better for attracting, retaining and motivating employees. Any significant increase in cash compensation in lieu of equity awards would reduce the cash otherwise available for operations and investment in our business. Furthermore, we do not believe a more cash-oriented program would have the same long-term retention value or serve to align employees’ interests to those of our shareholders as well as a program that includes equity. Summary of the Amended Plan The principal features of the Amended Plan are summarized below. The summary does not purport to be a complete statement of the terms of the Amended Plan and is qualified in its entirety by reference to the full text of the Amended Plan, a copy of which is attached as Appendix A to this Proxy Statement. Purpose The purpose of the Amended 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 Amended Plan is to advance Kroger’s interests and increase shareholder value by attracting, retaining and motivating key personnel. Administration Pursuant to its terms, the Amended Plan may be administered by the Compensation Committee of the Board, such other Committee of the Board appointed by the Board to administer the Amended Plan or the Board, as determined by the Board (such administrator of the Amended Plan, the “Committee”). The Committee has the power and discretion necessary to administer the Amended Plan, with such powers including, but not limited to, the authority to select persons to participate in the Amended Plan, determine the form and substance of awards under the Amended 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 Amended Plan are binding on the Company, the participants in the Amended Plan and all other parties. Generally, the Amended 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 Amended Plan. Eligibility Any employee, officer, independent director, consultant or advisor to the Company or any of its subsidiaries or affiliates can participate in the Amended 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, 420,000 associates, 12 officers, 10 independent directors, and no consultants or advisors are eligible to participate in the Amended Plan. 94 Awards The types of awards available under the Amended 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 Amended Plan will be represented by an award agreement. No award granted to participants under the Amended 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 Amended 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 Amended 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 Amended 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 95 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 Amended 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 Amended 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 Amended Plan. Share Awards Share awards may be granted to eligible participants under the Amended 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 Amended 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, 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 judgments, settlements, and the effects of accounting or tax law changes. 96 Plan Amendments or Termination The Board may amend, modify, suspend or terminate the Amended 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 Amended 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 Amended 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 Amended 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 Amended 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 Amended Plan, in the event of a change in control of the Company, as defined in the Amended Plan, all outstanding awards shall either (a) be continued or assumed by the surviving company or its parent, or (b) be 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 Amended 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 97 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 Amended Plan if the Committee deems it necessary. The assumed awards will not reduce the total number of shares available for awards under the Amended Plan. Shares Available 59,922,931 Shares are available for awards under the Amended Plan, subject to shareholder approval at the Annual Meeting. Awards may also be made under the Amended Plan with respect to an estimated 13,683,931 shares that, as of April 1, 2021, remain available for grant under the Plan, which was previously approved by our shareholders at our 2019 Annual Meeting of Shareholders. We refer to the aggregate number of shares available for awards under the Amended 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 Amended 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 Amended Plan and be available for future awards under the Amended 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 Amended Plan nor available for future awards under the Amended 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 98 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. 99 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 Amended Plan may be subject to the requirements of Section 409A. It is intended that the Amended 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 Amended 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 Amended 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 Amended 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 Amended 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 Amended Plan will be at the discretion of the Committee. In addition, the benefit of any awards granted under the Amended 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 100 to any individual in the future. For information regarding awards granted to our NEOs under the 2019 Plan during the 2021 fiscal year, please refer to the Grants of Plan-Based Awards table on page 74 made to our NEOs in fiscal 2021. 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. Items 5 — 8 SHAREHOLDER PROPOSALS Included in this proxy statement are 4 separate shareholder proposals that have been submitted under SEC rules by shareholders who notified the company of their intention to present the proposals for voting at the 2022 Annual Shareholders’ Meeting. Some shareholder proposals and supporting statements may contain assertions about Kroger that we believe are incorrect, and we have not tried to refute all such inaccuracies in the company’s responses. All statements and citations contained in a shareholder proposal and its supporting statements are the sole responsibility of the proponent of that shareholder proposal. Our company will provide the names, addresses, and shareholdings (to our company’s knowledge) of the proponents of any shareholder proposal upon oral or written request made to Corporate Secretary, The Kroger Co., 1014 Vine Street, Cincinnati, Ohio 45202-1100. AGAINST The Board recommends a vote AGAINST each of the following shareholder proposals, in each case if properly presented at the meeting, for the reasons stated in Kroger’s statements in opposition following each shareholder proposal. Item No. 5 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: The growing plastic pollution crisis poses increasing risks to our company. Corporations using plastic packaging could collectively face an annual financial risk of approximately $100 billion should governments require them to cover the waste management costs of the packaging they use, a policy that is increasingly being enacted around the globe.1 Pew Charitable Trusts released a groundbreaking study, Breaking the Plastic Wave (Pew Report), concluding that if all current industry and government commitments were met, ocean plastic deposition would be reduced by only 7%. Without immediate and sustained new commitments throughout the plastics value chain, annual flows of plastic into oceans could nearly triple by 2040. The Pew report also finds that improved recycling must be coupled with reductions in use, materials redesign, and substitution. It concludes that plastic demand should be reduced by at least 1/3, stating that reducing plastic production is the most attractive solution from environmental, economic, and social perspectives. The European Union has already banned 10 single-use plastic products commonly found in ocean cleanups and enacted a $1/kg tax on non-recycled plastic packaging waste. More than 250 companies have committed to take a variety of actions to reduce plastic pollution through the Ellen MacArthur Foundation Global Commitment. Some brand signatory companies appear to have reached “peak plastic” and set absolute virgin plastic reduction goals projected to result in a 1 https://www.pewtrusts.org/-/media/assets/2020/07/breakingtheplasticwave_report.pdf 101 19% reduction in total plastic use by 2025. Kroger is notably absent from this historic corporate coordination and has no virgin plastic reduction goal. Global commitment signatory Unilever has taken the most significant corporate action to date, agreeing to cut virgin plastic packaging by 50% by 2025, including absolute elimination of 100,000 tons of plastic packaging. At least seventeen other publicly traded consumer goods companies have virgin plastic reduction goals, including Procter & Gamble, Colgate-Palmolive, Nestlé, and Target.2 Kroger has received a score of “D” in two consecutive reports by As You Sow on plastic packaging solutions, demonstrating the company lags its peers. Our company could avoid regulatory, environmental, and competitive risks, and keep up with peers by undertaking additional actions to reduce plastic pollution from its products, including, for example, decoupling business growth from its consumption of virgin plastics. RESOLVED: Shareholders request that the Kroger Board issue a report, at reasonable expense and excluding proprietary information, describing how the company could reduce its plastics use in alignment with the 1/3 reduction findings of the Pew Report, or other authoritative sources, to reduce its contribution to ocean plastics pollution. SUPPORTING STATEMENT: The report should, at Board discretion: • Evaluate the benefits of dramatically reducing the amount of plastics used in our packaging; • Assess and disclose the reputational, financial, and operational risks associated with continuing to use substantial amounts of plastic packaging despite the global plastic pollution problem; and • Describe any necessary reduction strategies or goals, materials redesign, transition to reusables goals, substitution, or reductions in use of virgin plastic.” The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: As America’s grocer, the Kroger family of companies is committed to protecting people and our planet by advancing positive change in our company and our communities. Through our Zero Hunger | Zero Waste social and environmental impact plan, we are on a journey to help create communities free of hunger and waste. Reducing single-use plastics in nature is part of our vision for a zero-waste future. Kroger has focused on improving the environmental attributes of product packaging for many years through a series of 2020 and 2030 sustainable packaging goals. Our goals demonstrate the company’s continued commitment to help create a more circular economy and reduce plastics found in nature by using more sustainable packaging options where feasible; supporting reusable packaging models; using recyclable packaging and incorporating recycled content; and increasing consumer awareness about reuse and recycling. We are also committed to upholding the highest standards of food safety and quality for our customers. Decisions about Our Brands food packaging consider critical attributes needed to protect and preserve food safety, quality and freshness, as well as to reduce greenhouse gas emissions related to the manufacture and transportation of items. Kroger’s 2030 sustainable packaging commitments include the following elements: • Complete an Our Brands baseline product packaging footprint to fully understand current packaging impacts. • Seek to achieve 100% recyclable, compostable and/or reusable packaging for Our Brands products. • Increase recycled content in packaging so that the Our Brands product portfolio collectively contains at least 10% recycled content in packaging. 2 https://www.asyousow.org/report-page/plastic-pollution-scorecard-2021/ 102 • Reduce unnecessary packaging. • Increase awareness among Kroger customers about how to properly manage Our Brands product packaging at end of life. Kroger is currently developing our baseline packaging footprint with guidance from a consultant and input from our suppliers and internal subject matter experts. The data captured from co- manufacturing suppliers will build on the initial data about items produced in our manufacturing plants. With this information, we will build a roadmap to achieving our goals by 2030 and prioritize opportunities to adjust our packaging and/or support infrastructure changes. The packaging baseline will also inform any adjustments or refinements to our current goals. We have committed to publish information about our packaging baseline and key action steps in our 2022 Environmental, Social & Governance (ESG) report. At the same time, we continue to evaluate and implement opportunities to reduce plastic use and improve end-of-life management opportunities for product packaging. Examples include: Plastic Reduction & Circularity: • In 2021, we transitioned Kroger-brand egg cartons from expanded polystyrene foam to molded fiberBoard, which includes 100% post-consumer recycled content and aligns with most curbside recycling programs. Kroger also transitioned two fresh tomato products from plastic clamshells to paper-based cartons that enable a significant part of the packaging to be more widely recyclable. The Our Brands team continues to evaluate opportunities for similar packaging changes to reduce plastic use and improve recyclability. • Kroger-operated manufacturing plants continue to reduce plastic use and packaging weights for Our Brands items where feasible. Last year, we: • Reduced the amount of plastic used in a popular peanut butter product package, saving approximately 100,000 pounds of plastic annually; and • Transitioned to a new, thinner shrink wrap in our plants and distribution centers, enabling a 30% reduction in the amount of plastic used for pallet wrap. • Kroger is the first and primary U.S. grocery retail partner for the innovative Loop reusable packaging platform. In February 2022, Kroger launched a pilot for Loop at 25 Fred Meyer stores in the Portland, OR, area. The in-store Loop assortment includes 20 items representing popular brands, including Arbor Teas, Cascade, Clorox, Gerber, Nature’s Heart, Nature’s Path, Pantene, Seventh Generation, and Stubb’s as well as Kroger’s own Simple Truth brand. Customers can purchase Loop items in reusable packaging in stores and bring empty packages back for pickup, cleaning and refill to ‘close the loop.’ End-of-Life Solutions: • In 2021, we expanded the Kroger Our Brands packaging recycling program so our customers can collect flexible plastic packaging and mail it free of charge to TerraCycle for recycling. Kroger is the first retailer to offer this type of recycling program across an entire private-label portfolio. Program engagement and recycling volume continues to grow. • Kroger added the How2Recycle logo to several Our Brands items in 2021, including bread bags, Comforts diapers and training pants, feminine hygiene products, and some of our household tissue products. Several of these items include plastic film packaging that now features the How2Recycle label for Store Drop-off recycling programs, helping increase our customers’ awareness of our front-of-store plastic film recycling program. • The Kroger Co. Zero Hunger | Zero Waste Foundation supports the multi-stakeholder Polypropylene Recycling Coalition, facilitated by The Recycling Partnership, which aims to improve community-level infrastructure to enable curbside polypropylene collection and recycling. • Kroger is the Grocery Sector Lead partner for Closed Loop Partners’ Beyond the Bag Initiative, launched by the Consortium to Reinvent the Retail Bag. This multi-year collaboration across retail 103 sectors aims to identify, test and implement innovative new design solutions to replace the single- use plastic retail shopping bag. For the foregoing reasons, we urge you to vote AGAINST this proposal. Item No. 6 Shareholder Proposal — Report on Protection of Farmworkers We have been notified by two 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: “WHEREAS: The pandemic has disproportionately harmed farmworkers1 and exacerbated existing risks of human rights violations in agriculture, including slavery,2 sexual assault,3 and unsafe working conditions (including climate change induced heat exhaustion4). For example, in October 2021, U.S. Customs and Border Protection (CBP) banned imports of tomatoes from certain Mexican farms with indications of forced labor, possibly Kroger suppliers.5 In November 2021, U.S. prosecutors indicated 24 defendants for a forced labor conspiracy involving over 70,000 farmworkers.6 Kroger claims to address human rights risks through a Supplier Code of Conduct and “social compliance audits” by two auditors, SGS and UL.7 Both have weak track records, such as approval of factories that subsequently collapsed8 or burned down,9 resulting in deaths. CBP itself published guidance noting traditional social audits are “ineffective at identifying and reducing forced labor” in supply chains, instead recommending “worker-driven solutions” including “the Fair Food Program” (FFP).10 Yet Kroger is an outlier — compared to peers like Walmart, Whole Foods, Ahold, Fresh Market, and Trader Joe’s — in not having joined the FFP. The FFP enforces COVID-19 safety protocols,11 heat stress protections,12 and a zero-tolerance policy for forced labor and sexual assault,13 through worker- centered audit and complaint mechanisms backed by mandatory market consequences. It is the 1 2 3 4 5 6 7 8 9 10 11 12 13 https://www.cidrap.umn.edu/news-perspective/2021/09/study-farmworkers-4-times-risk-covid-19 https://polarisproject.org/wp-content/uploads/2021/06/Polaris_Labor_Exploitation_and_Trafficking_ of_Agricultural_Workers_During_the_Pandemic.pdf https://www.theatlantic.com/business/archive/2018/01/agricultire-sexual-harassment/550109 https://www.bloomberg.com/news/articles/2021-08-12/farmworkers-overheat-on-frontlines-of- climate-change https://www.cbp.gov/newsroom/national-media-release/cbp-issues-withhold-release-order- tomatoes-produced-farm-mexico; https://www.latimes.com/california/story/2021-12-31/u-s-blocks- tomato-shipments-from-mexican-farms-accused-of-abusing-workers https://ciw-online.org/blog/2021/11/breaking-u-s-doj-busts-sprawling-modern-day-slavery- operation-in-fields-of-south-georgia/ https://www.thekrogerco.com/wp-content/uploads/2017/09/faqs.pdf https://cleanclothes.org/file-repository/figleaf-for-fashion.pdf https://www.tandfonline.com/doi/full/10.1080/14747731.2017.1304008 https://www.cbp.gov/sites/default/files/assets/documents/2021-Aug/CBP%202021%20VTW% 20FAQs%20%28Forced%20Labor%29.pdf https://www.nytimes.com/live/2021/01/05/dining/food-industry-coronavirus https://naplesnews.com/story/news/environment/2021/09/03/coalition-immokalee-farmworkers- protects-workers-rising-temperatures-climate-change/5699013001/ https://www.fairfoodprogram.org/wp-content/uploads/2021/11/Attachable-Size-SOTP-2021- Report.pdf 104 recognized “gold standard” for monitoring human rights in supply chains,14 lauded by the United Nations,15 the Obama-Biden administration,16 and others.17 In May 2021, Kroger adopted a Statement on Human Rights that relies on social audits, worker surveys, and limited impact assessments.18 Failing to join the FFP may nevertheless allow legal,19 reputational, and supply chain risks to persist. RESOLVED: Shareholders request the Board issue a report, at reasonable cost and omitting proprietary information, addressing the extent to which, during the pandemic, Kroger’s Statement on Human Rights (“Statement”) has effectively protected farmworkers in its North American supply chain from human rights violations, including forced labor, sexual assault, heat exhaustion, and COVID-19. This report should detail any mechanisms similar to the Fair Food Program, including: • Whether Kroger has required its North American produce suppliers (“Suppliers”) to implement COVID-19 worker safety and heat stress prevention protocols (“Safety Protocols”), and, if so, the content of those Safety Protocols; • The number of times Kroger suspended a Supplier for violating the Statement or Safety Protocols, and the specific grounds for each such suspension; • A list of the total number of Supplier locations purchased from, how often Kroger social compliance audits were conducted on-site at each such location, and the number of farmworkers personally interviewed there by the auditor; • Whether Kroger ensured its Suppliers’ farmworkers had access to a third-party grievance mechanism, with the authority to order a remedy, for reporting Statement or Safety Protocol violations, and, if so, the required procedures, number of such grievances filed, and outcomes of all such grievances.” The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: Kroger recognizes that respecting human rights is a fundamentally important topic. We uphold high standards and expectations for respecting human rights in our own operations and global supply chain. In 2021, we committed to establish and share a human rights due diligence (HRDD) framework that aligns with the United Nations Guiding Principles (UNGPs) on Business and Human Rights. Our commitment includes providing more details on our new HRDD framework, including a three- year implementation roadmap, in our upcoming ESG Report and supplemental human rights reporting. Our Human Rights Policy expects all suppliers, including those sourcing from the Immokalee region of Florida, to comply with our Responsible Sourcing Framework and Vendor Code of Conduct. If we find evidence that any supplier is not following our requirements or implementing agreed-upon corrective actions to resolve issues, we stop doing business with them. At this time, the amount of product sourced from this region for Kroger is small and, to date, we have not found severe issues that violate our Code of Conduct. Suppliers who continue to source from the region have made a great deal of progress in the past few years, partly due to the success of the 14 15 16 17 18 19 https://www.msi-integrity.org/wp-content/uploads/2020/07/MSI_Not_Fit_For_Purpose_FORWEBSITE.FINAL_.pdf https://www.ohchr.org/Documents/Issues/Business/UNGPs10/Stocktaking-reader-friendly.pdf https://www.news-press.com/story/news/local/amy-williams/2015/01/30.coalition-i,,okalee-workers- gets-presidential-medal/22623915/ https://www.fairfoodprogram.org/recognition https://www.thekrogerco.com/wp-content/uploads/2021/05/Kroger-Statement-on-Human-Rights.pdf h t t p s : / / s t a t i c 1 . s q u a r e s p a c e. c o m / s t a t i c / 5 8 1 0 d d a 3 e 3 d f 2 8 c e 3 7 b 5 8 3 5 7 / t / 6181623e5f967e246dd8c416/1635869247075/RFA+and+Hershey+Press+Release+FINAL+no+ logo.docx.pdf 105 Fair Food Program. Kroger’s policies reflect our belief that our responsibility to our customers and shareholders is to negotiate pricing directly with our suppliers, and not with third-party organizations like the Fair Food Program. We updated our Human Rights Policy earlier this year to express our expanded commitment to respecting human rights in our operations and supply chain. The updated policy is available here: https://www.thekrogerco.com/wp-content/uploads/2022/02/Kroger-Human-Rights-Policy-Feb-2022.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into this proxy statement. We also shared an interim Human Rights Progress Update to outline key milestones completed so far and next steps for 2022 and beyond. This update is available here: https://www.thekrogerco.com/wp- content/uploads/2022/02/Kroger-Human-Rights-Progress-Update-Policy-Feb-2022.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into this proxy statement. Key achievements in 2021 and to date in 2022 include the following: • Kroger completed a human rights policy gap analysis to review existing company policies, commitments and governance compared to the UNGP recommendations. • We benchmarked human rights policies and third-party scoring methodologies to review the landscape of human rights commitments, expectations and disclosures. We also reviewed areas of focus for relevant human rights impact assessments (HRIA) conducted to date. • Our third-party consultant ELEVATE conducted a series of stakeholder interviews with investors, nongovernmental organizations, representatives of our associates, and trade associations to inform our updated policy and new HRDD framework. The Kroger team did not participate in these calls to enable candid, confidential feedback on potential human rights risks. • Kroger updated a supply chain risk assessment to identify and map sourcing countries and commodities based on potential risk of human rights impacts. This assessment used ELEVATE’s EiQ supply chain analytics to assign risk scores to product categories using 2020 sourcing data and geographies. • We engaged internal cross-functional leaders and subject matter experts to review the risk assessment and identify and prioritize Kroger’s most salient human rights risks. We will share more details on these salient risks in our upcoming ESG Report. Next Steps Kroger will complete and publish our HRDD framework in 2022. This will include a three-year implementation roadmap to support and embed the HRDD framework across the organization through meaningful actions, roles and responsibilities. As part of this process, we are also updating our Vendor Code of Conduct and supplier-focused implementation guidelines to communicate enhanced expectations for managing and monitoring human rights risks in the global supply chain. Kroger expects tier-one suppliers to respect human rights and work directly with their suppliers to address issues and risks in sourcing regions. We will publish the updated Code of Conduct in 2022. This year, Kroger will also begin our first human rights impact assessment (HRIA), which will focus on risks for agricultural workers in mixed greens produced in California. This assessment and focused stakeholder engagement, done in partnership with ELEVATE, will provide additional perspectives on human rights risks for farm and migrant workers as outlined in this shareholder proposal. The HRIA and comprehensive stakeholder engagement process will inform future steps to further respect human rights and provide access to remedy where needed. As part of this process, the Kroger team will visit the Coalition of Immokalee Workers and the Fair Food Program to learn more about best practices for respecting human rights among vulnerable workers in our agricultural supply chains. 106 We believe the above steps and additional details provided in our upcoming ESG Report fulfill the request for additional reporting on human rights at this time. For the foregoing reasons, we urge you to vote AGAINST this proposal. 107 Item No. 7 Shareholder Proposal — Report on Elimination of HFCs 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: Hydrofluorcarbons (HFCs) are potent greenhouse gases, with a high global warming potential (GWP) making them hundreds to thousands of times more potent that carbon dioxide (CO2) in contributing to climate change per unit of mass. Refrigeration systems utilized by Kroger contain HFCs. The Company’s reporting indicates refrigerant emissions may account for 63% of its Scope 1 emissions. Kroger has taken steps to reduce refrigerant leakage in its stores. However, refrigerant emissions cannot be eliminated by reducing leaks alone. As long as companies continue to utilize HFCs, there is reason to believe that their production, usage and ultimate disposal will continue to release HFCs to the environment. That is why Kroger’s peers are moving to refrigerants with much lower GWP. The potential impact on reducing climate change is profound. A recent U.N. report estimates that phasing down HFCs globally will reduce their future warming impact from 0.5° C to less than 0.1° C.1 In fact, scientists have found we must accelerate the global phasedown of HFCs in order to achieve the goal of limiting global warming to 1.5° C.2 The Board of Consumer Goods Forum (CGF), a group of major consumer goods retailers and manufacturers of which Kroger is a member, approved a 2016 resolution to mobilize resources towards transitioning away from HFCs. The resolution stated that member companies committed to “install new equipment that utilize only natural refrigerants or alternative ultra-low GWP refrigerants effective immediately.”3 The CGF defined “ultra-low GWP” as less than 150. The resolution promised individual targets and action plans toward implementation. Kroger’s 2021 ESG report does not reference any strategy for adopting ultra-low GWP technologies. Instead, Kroger’s report specifies GWPs of “1,500 or less.”4 Kroger lags peers such as ALDI US, which has installed ultra-low GWP refrigeration systems in over 420 stores, and in all new self-contained equipment.5 Target and Whole Foods have also adopted ultra-low GWP technologies more widely than Kroger.6 Negative media attention on HFCs is increasing,7 while peer companies receive a reputational boost.8 Proactive adoption of ultra-low GWP technologies would not only reduce Scope 1 emissions but may ultimately be more cost-effective, since trends in Europe indicate HFC prices may rise by up to 1300%. RESOLVED: Shareholders request that Kroger issue a report, at reasonable cost and omitting proprietary information, describing how it can adopt strategies above and beyond legal compliance to curtail the predominant source of its operational (Scope 1) GHG emissions, by deploying the best available technological options for eliminating the use of hydrofluorocarbons (HFCs) in refrigeration. 1 2 3 4 5 6 7 8 SAP-2018-Assessment-report.pdf_(unep.org) https://www.ipcc.ch/sr15/ CGF Refrigerant Resolution #2: https://www.theconsumergoodsforum.com/wp-content/uploads/ 2017/11/2018-CGF-Resolutions-and-Commitments.pdf https://thekrogerco.com/wp-content/uploads/2021/07/Kroger-2021-ESG-Report.pdf https://hydrocarbons21.com/articles/10105/aldi_us_testing_all_propane_stores_in_addition_to_ transcritical_co2 https://climatefriendlysupermarkets.org/scorecard https://www.washingtonpost.com/climate-environment/2021/02/15/these-gases-your-grocerys- freezer-are-fueling-climate-change-biden-wants-fix-that/ https://corporate.aldi.us/fileadmin/fm-dam/newsroom/Press_Releases/ALDI_GreenChill_Press_Release.pdf 108 The report should describe the extent to which the Company will act consistent with the Consumer Goods Forum commitments on ultra-low GWP refrigerants, including any related capital spending commitments, or explain why the Company is not acting consistent with those commitments.” The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: At Kroger, our Environmental, Social and Governance (ESG) Strategy: Thriving Together aims to protect and conserve natural resources, build more responsible and inclusive systems, and help people live healthier, more sustainable lifestyles. The company has a long history of reducing the impacts of our business on the climate, including significant reductions in energy and electricity consumption and responsible refrigerant management. Kroger’s current climate impact commitment is to reduce greenhouse gas (GHG) emissions from stationary and mobile fuel consumption and refrigerants (Scope 1) and purchased electricity (Scope 2) by 30% by 2030 from a 2018 baseline. We are actively developing the roadmap to achieving this goal with input from subject matter experts and senior leadership and oversight from the Public Responsibilities Committee. By the end of fiscal 2022, Kroger will publish a Climate Roadmap Plan to further outline our approach to meeting the current 2030 GHG reduction goal, including refrigerant management. This plan will include information about our goal development process, goal governance, and the types of projects and opportunities under consideration. We will update this plan over time as climate science and our approach to climate mitigation evolves. In addition, given the latest guidance from the Intergovernmental Panel on Climate Change and the Science-Based Targets initiative (SBTi), Kroger has committed to reset the current Scope 1 and 2 GHG reduction target for 2030 — to align with a 1.5°C scenario — and set a new Scope 3 target to reduce emissions in our value chain. We expect to complete this work and share publicly in 2023. As shared in Kroger’s 2021 ESG Report, we have a strong history of actively managing and reducing refrigerant emissions. We consider many factors in our refrigerant management approach, including workplace safety, retrofit and replacement costs, leak management, and GHG reduction potential. In recent years, we have transitioned some manufacturing and logistics facilities to lower- GWP refrigerants, including several manufacturing plants that currently use ammonia. In our retail stores, we actively manage refrigeration equipment to minimize leaks, as outlined in our Refrigerant Management Policy: https://www.thekrogerco.com/wp-content/uploads/2021/07/ Kroger_Refrigerant_Management_Policy_July-2021_vF.pdf. The information on, or accessible through, this website is not part of, or incorporated by reference into this proxy statement. Kroger-operated stores have used refrigerant leak detection systems for more than two decades, including sensors and alarms to identify leaks for repair. We are actively transitioning stores to use new infrared detectors that identify lower concentrations of leaked refrigerants, with the goal of transitioning all stores. To date, approximately 1,650 stores use this new technology, and we plan to transition 50 more stores in 2022. Kroger continues to transition to lower-GWP refrigerants as they become commercially available and economically viable to meet our GHG reduction target and state and federal requirements. Between 2022 and 2024, we plan to build seven new retail stores using carbon dioxide (CO2) refrigerant technology. Transitioning to this ultra-low GWP refrigerant has the potential to reduce per-store emissions by more than 200 tons CO2-e annually. For the foregoing reasons, we urge you to vote AGAINST this proposal. 109 Item No. 8 Shareholder Proposal — Report on Workforce Strategy We have been notified by two (2) 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: Shareholders of The Kroger Co. ask the Board of Directors to analyze and report on the risks of increasing labor market pressures to its business plan. The report should address to what extent the Company’s workforce strategy includes competitive wage, benefit, and safety conditions for all its associates across all racial and gender demographics. WHEREAS: As countries recover from the Covid-19 pandemic, America’s labor-force participation rate remains below pre-pandemic levels.1 In 2021, the U.S. Bureau of Labor Statistics recorded historic numbers of job openings2, and studies are showing that most turnover is in low-wage jobs.3 Experts say that employment conditions, including low wages and insufficient benefits, are key factors driving the low participation rates. A report from Mercer4 reveals that “frontline workers, low wage, minority and lower-level employees are more likely to be looking to leave — at rates significantly higher than historical norms.” The impact of poor labor conditions is felt especially by workers of color: nearly half of black workers are concentrated in healthcare, retail, and accommodation and food service industries, primarily in lower-paying service roles rather than professional roles.5 Labor shortages are influencing a dynamic policy debate at the federal, state, and local levels regarding their minimum wage regulations. There has been public support for the proposed Raise the Wage Act which would help eliminate poverty-level wages by raising the national minimum wage to $15 an hour and positively impact approximately 4.7 million retail workers.6 A large number of retailers have already raised their minimum wage above legal minimums7.. CEO, Rodney McMullen, said staff shortage and “finding talented people” is one of Kroger’s biggest challenges with over 20,000 job openings8. While the company raised wages and expanded benefits for associates in 2021, Kroger’s average hourly wage is only $15.50,9 with no disclosure of the number, or demographics, of associates earning at or above this amount. This puts the company behind an increasing number of retailer peers who have raised their starting wages to at least $15 an hour.10 The 2021 total compensation of Kroger’s median associate was $24,617.11 The Economic Policy 1 2 3 4 5 6 7. 8 9 10 11 https://www.brookings.edu/blog/up-front/2021/12/14/labor-market-exits-and-entrances-are- elevated-who-is-coming-back/ https://www.bls.gov/news.release/jolts.nr0.html https://www.nytimes.com/2022/01/04/business/economy/job-openings-coronavirus.html https://www.mercer.us/content/dam/mercer/attachments/private/us-2021-inside-employees-minds- report.pdf https://www.mckinsey.com/featured-insights/diversity-and-inclusion/the-economic-state-of-black- america-what-is-and-what-could-be https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2025-would-lift-the- pay-of-32-million-workers/ https://www.yahoo.com/news/retail-chains-increased-minimum-wage-105832606.html https://www.cnbc.com/2021/09/14/kroger-ceo-says-hiring-is-a-big-challenge-as-it-teams-up-with- instacart.html https://www.npr.org/2020/05/15/857105173/grocery-store-chain-kroger-is-planning-to-end-hero- pay https://www.cnbc.com/2021/12/29/minimum-wage-employers-moving-faster-than-states-to-raise- hourly-pay.html https://d18rn0p25nwr6d.cloudfront.net/CIK-0000056873/638cf5c4-bc98-48d2-95bc- e236a21fec76.html 110 Institute found that a single adult without children needs at least $31,200 to achieve a modest but secure standard of living.12 Additionally, Kroger is cited as one of the top employers of Medicaid and Supplemental Nutrition Assistance Program enrollees,13 and a recent report found “more than two-thirds of Kroger workers struggle to afford food, housing or other basic needs due to low wages and part- time work schedules.”14 Paying a living wage has shown benefits for both businesses and employees, including higher average profits, organizational growth, reduced turnover and lower poverty rates among workers. Investors seek further clarity on how the company is assessing and responding to the evolving regulatory and competitive landscape to sustain long-term growth, and consumer and public trust.” The Board of Directors Recommends a Vote Against This Proposal for the Following Reasons: Kroger’s commitment to Human Capital Management is rooted in our purpose, To Feed the Human Spirit. As America’s grocer, we are committed to advancing positive change and social mobility for our diverse associate population. Kroger’s culture of opportunity and advancement has created an environment where people from any walk of life can come for a job and stay for a career. More than 70% of our store directors started working for our company as part-time associates. Kroger has provided an incredible number of people with first jobs, new beginnings, and lifelong careers and we take seriously our role as a leading employer in the United States. Kroger consistently discloses and discusses its workforce strategy — including competitive wages, benefits, and safe working conditions for all associates, as well as competitive and labor market pressures — in the company’s quarterly earnings results commentary and in associated 10Q filings. These factors have always factored into our financial model and business plan, and future investments in associate wages will also be transparently addressed. Kroger provides a detailed discussion of our workforce strategy and total rewards and benefits approach in our Annual Report and 10K filings as well. The company also discusses Human Capital Management in its annual ESG report. Last year’s report, available on www.thekrogerco.com, includes disclosures related to associate health and safety and measures to safeguard associates and customers during the COVID-19 pandemic; Kroger’s Framework for Action: Diversity, Equity and Inclusion plan; talent attraction and retention; and labor relations. The information on, or accessible through, this website is not part of, or incorporated by reference into this proxy statement. Kroger invested an incremental $1.2 billion in associate wages and training over the last four years. This has raised our average hourly rate of pay from $13.66 to $17, reflecting an increase of more than $3 per hour. Kroger’s average hourly rate grows to more than $22 when health care and retirement benefits are factored in, which many of our non-unionized competitors do not offer. Our aim has been and will continue to be to strike the delicate balance between significantly increasing wages for our associates over time while keeping food affordable for our customers. We also have an obligation to maintain a financially sustainable and growing business over time, which allows us to drive additional social and economic benefits, most notably the creation of more jobs and growth opportunities for more people. Continuing this investment in our associates is a priority in 2022 and beyond. We expect continued upward movement in hourly wages in our business model. Investing in our associates to build retention and engagement is part of our strategy in every market we operate. 12 13 14 https://www.epi.org/publication/our-deeply-broken-labor-market-needs-a-higher-minimum-wage- epi-testimony-for-the-senate-budget-Committee/; https://livingwage.mit.edu/articles/85-15-an-hour- isn-t-enough-u-s-workers-need-a-living-wage https://www.gao.gov/assets/gao-21-45.pdf https://www.latimes.com/business/story/2022-01-11/2-out-of-3-kroger-workers-struggle-to-afford- food-housing-survey-finds 111 In addition to market-competitive wages, our associates have access to a wide variety of benefits that provide value in their lives today and in the future. We invest in the whole person with a benefits package that includes: quality, affordable healthcare; retirement savings plans and pension plans; on- demand access mental health assistance and free counseling to support emotional wellness; career advancement opportunities; financial education programs to help associates manage their day-to-day lives; an industry-leading continuing education benefit that provides up to $21,000 for all associates, part- time and full-time alike which, along with scholarships for children of associates — most of whom are first-generation college attendees — provide pathways to social mobility to any associate who chooses to participate. We also offer associates a variety of volunteer opportunities, grocery discounts, and other perks and rewards. In summary, we are proud to be one of America’s largest employers. We will continue to proactively invest in our workforce, raising wages while also providing industry-leading health and retirement benefits and rewards so our associates can thrive and advance, no matter where they are in their career, and consistently and transparently discuss with shareholders our Human Capital Management strategy. For the foregoing reasons, we urge you to vote AGAINST this proposal. Shareholder Proposals and Director Nominations — 2023 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 2023 should be addressed to Kroger’s Secretary and must be received at our executive offices not later than January 2, 2023. 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 2023 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 than 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 2023 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 18, 2023 and comply with the requirements of the Regulations. Furthermore, in addition to the requirements of SEC Rule 14a-8 or our Regulations, as applicable, as described above, to comply with the universal proxy rules (once effective), shareholders who intend to solicit proxies in support of director nominees other than our nominees must provide notice to Kroger’s Secretary that sets forth the information required by Rule 14a-19 of the Exchange Act no later than April 24, 2023. Eligible shareholders may also submit director nominees for inclusion in our proxy statement for the 2023 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 3, 2022 and no later than January 2, 2023. 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. 112 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 proxy 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 proxy 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. Available Information The Company files Annual Reports on Form 10-K with the Securities and Exchange Commission. A copy of the Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (except for certain exhibits thereto), including our audited financial statements and financial statement schedules, may be obtained, free of charge, upon written request by any shareholder to Kroger’s Secretary at 1014 Vine Street, Cincinnati, Ohio 45202 or via telephone at 513-762-4000. Copies of all exhibits to the Annual Report on Form 10-K are available upon a similar request, subject to reimbursing the Company for its expenses in supplying any exhibit. By order of the Board of Directors, Christine S. Wheatley, Secretary 113 (cid:11)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:69)(cid:79)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:17)(cid:12) APPENDIX A THE KROGER CO. 2019 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN 1. Purpose. The purpose of The Kroger Co. 2019 Amended and Restated 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. A-1 “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 Amended and Restated 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. A-2 “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. 3. 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 A-3 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. 4. 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 59,922,931. 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. A-4 5. 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. 6. 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 A-5 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. (c) Additional Limitations. In the case of any Incentive Stock Option granted to an Eligible Person who 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 A-6 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. 7. 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 A-7 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. 8. 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. A-8 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. A-9 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 A-10 (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. A-11 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 A-12 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 A-13 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 A-14 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 A-15 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. A-16 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. A-17 (cid:11)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:69)(cid:79)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:17)(cid:12) Appendix B Supplemental Information Regarding Participants in the Solicitation Under applicable SEC rules and regulations, members of the Board of Directors, the Board’s nominees, and certain officers and other employees of the Company are “participants” with respect to the Company’s solicitation of proxies in connection with the 2022 Annual Meeting. The following sets forth certain information about the persons who are “participants.” Directors and Director Nominees The names of our Directors and Director nominees are set forth below, and the principal occupations of our Directors and nominees are set forth under Item No. 1 of this proxy statement, titled “Election of Directors.” Name Nora A. Aufreiter Kevin M. Brown Elaine L. Chao Anne Gates Karen M. Hoguet W. Rodney McMullen Clyde R. Moore Ronald L. Sargent J. Amanda Sourry Knox (Amanda Sourry) Mark S. Sutton Ashok Vemuri Certain Officers and Other Employees Business Address c/o The Kroger Co. 1014 Vine Street Cincinnati, OH 45202 The following table sets forth the name and principal occupation of the Company’s officers and employees who are “participants.” The principal occupation refers to such person’s position with the Company, and the principal business address of each such person is 1014 Vine Street, Cincinnati, OH 45202. Name of Participant(a) W. Rodney McMullen Gary Millerchip Stuart W. Aitken Christine S. Wheatley Keith G. Dailey Robinson C. Quast Principal Occupation Chairman of the Board and Chief Executive Officer Senior Vice President and Chief Financial Officer Senior Vice President and Chief Merchandising & Marketing Officer Group Vice President, Secretary & General Counsel Group Vice President, Corporate Affairs Director of Investor Relations (a) ”Participant” is defined to include: (i) any Director and any Director nominee for whose election proxies are solicited; (ii) any committee or group which solicits proxies, any of the irrespective members, and any person whether or not named as a member who, acting alone or with one or more other persons, directly or indirectly, takes the initiative, or engages, in organizing, directing or arranging for the financing of any such committee or group; (iii) any person who finances or joins with another to finance the solicitation of proxies, except persons who contribute not more than $500 and who are not otherwise participants; (iv) any person who lends money or furnishes creditor enters into any other arrangements, pursuant to any contract or understanding with a participant, for the purpose of financing or otherwise inducing the purchase, sale, holding or voting of our B-1 Company’s securities by any participant or other persons, in support of or in opposition to a participant; except that such terms do not include a bank, broker or dealer who, in the ordinary course of business, lends money or executes orders for the purchase or sale of securities and who is not otherwise a participant; and (v) any person who solicits proxies. Information Regarding Ownership of the Company’s Securities by Participants The number of Company securities beneficially owned by directors and named executive officers as of April 25, 2022 is set forth under the “Beneficial Ownership of Common Stock” section of this proxy statement. The number of Company securities beneficially owned as of April 25, 2022 by the Company’s other officers and employees who are “participants” is set forth below. 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 Christine S. Wheatley Keith G. Dailey Robinson C. Quast Amount and Nature of Beneficial Ownership (a) Options Exercisable on or before June 24, 2022 — included in column (a) (b) 247,409 75,978 8,345 118,408 44,522 1,665 Information Regarding Transactions of the Company’s Securities by Participants The following table sets forth purchases and sales of the Company’s securities during the period from April 1, 2020 through April 1, 2022 by the persons listed above under “Directors and Director Nominees” and “Certain Officers and Other Employees.” None of the purchase price or market value of the securities listed below is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities. Name Nora A. Aufreiter Kevin M. Brown Elaine L. Chao Anne Gates Transaction Date Number of Company Securities Transaction Description 6/01/2020 7/15/2020 9/01/2020 12/01/2020 3/01/2021 6/02/2021 7/14/2021 9/01/2021 12/01/2021 3/01/2022 1/27/2021 7/14/2021 8/06/2021 6/01/2020 7/15/2020 9/01/2020 12/01/2020 3/01/2021 6/01/2021 7/14/2021 B-2 46.524 5,111 48.273 52.032 52.506 46.577 4,859 44.502 50.856 42.515 2,258 4,859 4,062 37.766 5,111 39.186 42.238 42.623 37.809 4,859 1 2 1 1 1 1 2 1 1 1 2 2 2 1 2 1 1 1 1 2 Name Transaction Date Number of Company Securities Transaction Description Karen M. Hoguet W. Rodney McMullen Clyde R. Moore 36.126 41.283 34.512 5,111 4,859 140,000 85,381 775.0512 73,840 32,635 17,219 7,610 809.5729 872.4019 94,448 71,552 260,973 112,590 46,381 157,413 58,861 26,014 1,127.5655 182,880 111,658 783.2476 73,841 32,635 748.5718 825.0272 60,431 142,858 254,545 112,494 100,718 122,208 54,010 31,818 14,062 894.5786 5,111 13,000 9/01/2021 12/01/2021 3/01/2022 7/15/2020 7/14/2021 6/23/2020 6/23/2020 6/30/2020 7/13/2020 7/13/2020 7/15/2020 7/15/2020 9/30/2020 12/31/2020 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/12/2021 3/12/2021 3/31/2021 5/11/2021 5/11/2021 6/30/2021 7/13/2021 7/13/2021 9/30/2021 12/31/2021 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/11/2022 3/11/2022 3/14/2022 3/14/2022 3/31/2022 7/15/2020 7/21/2020 B-3 1 1 1 2 2 3 4 5 6 4 6 4 5 5 7 7 8 9 4 10 6 4 5 3 4 5 6 4 5 5 7 8 9 4 10 6 4 6 4 5 2 3 Name Transaction Date Number of Company Securities Transaction Description Ronald L. Sargent J. Amanda Sourry Knox (Amanda Sourry) Mark S. Sutton 13,000 13,000 13,000 13,000 13,000 4,859 192.696 13,000 1,318 1,184.8951 5,111 225.929 1,129.9348 243.522 3,200 1,159.2277 245.742 13,000 4,609 1,125.4317 217.991 1,026.7708 4,859 230.591 1,034.2413 263.510 962.6303 220.291 13,000 13,000 791.6983 2,258 4,859 32.024 5,111 33.228 35.815 36.142 32.061 4,859 30.633 7/21/2020 7/23/2020 7/23/2020 1/27/2021 1/27/2021 7/14/2021 6/01/2020 6/29/2020 6/29/2020 6/30/2020 7/15/2020 9/01/2020 9/30/2020 12/01/2020 12/30/2020 12/31/2020 3/01/2021 3/08/2021 3/08/2021 3/31/2021 6/01/2021 6/30/2021 7/14/2021 9/01/2021 9/30/2021 12/01/2021 12/31/2021 3/01/2022 3/15/2022 3/15/2022 3/31/2022 1/27/2021 7/14/2021 6/01/2020 7/15/2020 9/01/2020 12/01/2020 3/01/2021 6/01/2021 7/14/2021 9/01/2021 B-4 11 3 11 3 11 2 1 3 4 12 12 1 12 1 13 12 1 3 4 12 1 12 12 1 12 1 12 1 3 11 12 2 2 1 2 1 1 1 1 2 1 Name Transaction Date Number of Company Securities Transaction Description Ashok Vemuri Gary Millerchip Stuart Aitken 35.006 29.265 5,111 4,859 23,240 10,448 6,958 3,128 50,086 83,037 30,052 9,687 8,312 3,783 16,045 7,213 6,879 3,094 5,945 2,673 32,843 46,584 19,706 48,485 21,808 24,154 10,859 9,092 4,088 44,976 25,059 11,266 1,618 728 15,380 50,086 83,037 30,052 10,018 30,640 10,079 17,560 12/01/2021 3/01/2022 7/15/2020 7/14/2021 7/13/2020 7/13/2020 7/15/2020 7/15/2020 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 7/13/2021 7/13/2021 7/15/2021 7/15/2021 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/11/2022 3/11/2022 3/14/2022 3/14/2022 3/22/2022 7/13/2020 7/13/2020 7/15/2020 7/15/2020 9/17/2020 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/12/2021 B-5 1 1 2 2 6 4 6 4 10 8 7 7 9 4 6 4 6 4 6 4 10 8 7 9 4 6 4 6 4 11 6 4 6 4 7 10 8 7 7 9 4 6 Name Transaction Date Number of Company Securities Transaction Description Christine S. Wheatley 7,894 8,698 3,912 5,126 2,305 20,000 22,326 22,326 34,828 34,828 32,843 46,584 19,706 60,606 27,243 24,485 11,008 10,607 4,769 52,678 24,846 11,170 2,260 1,017 20,034 33,215 12,021 7,046 8,556 3,890 7,136 3,208 8,483 3,814 25,322 14,013 19,876 8,408 30,304 11,298 13,399 6,024 3/12/2021 7/13/2021 7/13/2021 9/17/2021 9/17/2021 12/17/2021 3/08/2022 3/08/2022 3/08/2022 3/08/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/11/2022 3/11/2022 3/14/2022 3/14/2022 3/21/2022 7/13/2020 7/13/2020 7/15/2020 7/15/2020 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 7/13/2021 7/13/2021 10/07/2021 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/11/2022 3/11/2022 B-6 4 6 4 6 4 11 3 11 3 11 10 8 7 9 4 6 4 6 4 11 6 4 6 4 10 8 7 7 9 4 6 4 6 4 11 10 8 7 9 4 6 4 Name Transaction Date Number of Company Securities Transaction Description Keith G. Dailey Robinson C. Quast 3,788 1,703 115,869 115,869 2,027 609 290 87 94 29 1,418 425 9,545 5,727 15,825 1,330 669 2,532 1,200 169 75 2,028 913 94 43 1,419 638 7,010 4,206 9,945 6,521 3,011 3,149 1,417 814 366 170 77 .9503 1,038 354 701 3/14/2022 3/14/2022 3/18/2022 3/18/2022 7/13/2020 7/13/2020 7/15/2020 7/15/2020 12/08/2020 12/08/2020 12/11/2020 12/11/2020 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/11/2021 3/12/2021 3/12/2021 3/15/2021 3/15/2021 7/13/2021 7/13/2021 12/08/2021 12/08/2021 12/10/2021 12/10/2021 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/10/2022 3/11/2022 3/11/2022 3/14/2022 3/14/2022 3/15/2022 3/15/2022 6/01/2020 7/13/2020 7/13/2020 7/15/2020 B-7 6 4 3 11 6 4 6 4 6 4 6 4 10 7 8 9 4 6 4 6 4 6 4 6 4 6 4 10 7 8 9 4 6 4 6 4 6 4 5 6 4 6 Name Transaction Date Number of Company Securities Transaction Description 7/15/2020 9/01/2020 12/20/2020 12/22/2020 3/11/2021 3/12/2021 3/12/2021 7/13/2021 7/13/2021 7/15/2021 7/15/2021 9/15/2021 9/29/2021 12/13/2021 3/07/2022 3/07/2022 3/10/2022 3/11/2022 3/11/2022 215 .9971 1.0671 197.8098 1,477 531 196 1,038 318 701 217 584 240 285 680 680 904 901 320 4 5 5 11 7 6 4 6 4 6 4 7 11 11 3 11 7 6 4 Transaction Descriptions 1 2 3 4 5 6 7 8 9 10 11 12 13 Phantom stock acquired under Directors’ Deferred Compensation Plan through dividend reinvestment Grant of incentive share award Exercise or conversion of stock options Shares withheld or sold for taxes or costs Shares acquired in Company employee benefit plans Vesting of restricted stock Grant of restricted stock Grant of stock options Shares granted upon settlement of performance-based units Grant of performance-based units Open market sale Phantom stock acquired under Directors’ Deferred Compensation Plan through deferral of cash compensation Open market purchase Miscellaneous Information Regarding Participants Except as described in this Appendix B or in this proxy statement, neither any participant nor any of their respective associates or affiliates (together, the “Participant Affiliates”) is either a party to any transaction or series of transactions since January 31, 2021, or has knowledge of any current proposed transaction (i) to which the Company or any of its subsidiaries was or is to be a participant, (ii) in which the amount involved exceeds $120,000 and (iii) in which any participant or Participant Affiliate had, or will have, a direct or indirect material interest. Furthermore, except as described in this Appendix B B-8 or in this proxy statement, (a) no participant or Participant Affiliate, directly or indirectly, beneficially owns any securities of the Company or any securities of any subsidiary of the Company, and (b) no participant owns any securities of the Company of record but not beneficially. Except as described in this Appendix B or in this proxy statement, no participant or Participant Affiliate has entered into any agreement or understanding with any person with respect to any future employment by the Company or any of its affiliates or any future transactions to which the Company or any of its affiliates will or may be a party. Except as described in this Appendix B or in this proxy statement, there are no contracts, arrangements or understandings by any participant or Participant Affiliate since January 31, 2021 with any person with respect to any securities of the Company, including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of losses or profits, or the giving or withholding of proxies. Except as described in this Appendix B or in this proxy statement, and excluding any Director or executive officer of the Company acting solely in that capacity, no person who is a party to an arrangement or understanding pursuant to which a nominee for election as director is proposed to be elected has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon at the Annual Meeting. Except as described in this Appendix B or this proxy statement, there are no material legal proceedings to which any participant or Participant Affiliate or any of their associates is a party adverse to, or has a material interest adverse to, the Company or any of its subsidiaries. B-9 (cid:11)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:74)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:79)(cid:72)(cid:73)(cid:87)(cid:3)(cid:69)(cid:79)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:17)(cid:12) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) FORM 10-K (cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 29, 2022. OR (cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-303 THE KROGER CO. (Exact name of registrant as specified in its charter) Ohio (State or Other Jurisdiction of Incorporation or Organization) 31-0345740 (I.R.S. Employer Identification No.) 1014 Vine Street, Cincinnati, OH (Address of Principal Executive Offices) 45202 (Zip Code) Registrant’s telephone number, including area code (513) 762-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common, $1.00 Par Value Trading Symbol KR Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1407) No (cid:1409) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1409) No (cid:1407) Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1409) No (cid:1407) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:1409) Non-accelerated filer (cid:1407) Accelerated filer (cid:1407) Smaller reporting company (cid:1407) Emerging growth company (cid:1407) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407) Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:1409) Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409) The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (August 14, 2021). $31.8 billion. The number of shares outstanding of the registrant's common stock, as of the latest practicable date. 723,308,230 shares of Common Stock of $1 par value, as of March 23, 2022. Documents Incorporated by Reference: Portions of Kroger’s definitive proxy statement for its 2022 annual meeting of shareholders, which shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates, are incorporated by reference into Part III of this Report. The Kroger Co. Form 10 - K For the Fiscal Year Ended January 29, 2022 Table of Contents Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Reserved Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Evaluation of Disclosure Controls and Procedures Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules Form 10 - K Summary Signatures Page 2 3 11 19 19 19 20 20 20 22 23 49 51 96 96 96 96 97 97 97 97 98 98 99 99 101 102 Part I Item 1 Item 1A Item 1B Item 2 Item 3 Item 4 Part II Item 5 Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B Item 9C Part III Item 10 Item 11 Item 12 Item 13 Item 14 Part IV Item 15 Item 16 FORWARD LOOKING STATEMENTS. PART I This Annual Report on Form 10-K contains forward-looking statements about our future performance. These statements are based on our assumptions and beliefs in light of the information currently available to us. These statements are subject to a number of known and unknown risks, uncertainties and other important factors, including the risks and other factors discussed in “Risk Factors” below, that could cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward looking statements. Such statements are indicated by words such as “achieve,” “affect,” “anticipate,” “believe,” “committed,” “continue,” “could,” “deliver,” “effect,” “estimate,” “expects,” “future,” “growth,” “intends,” “likely,” “may,” “model,” “objective,” “plan,” “position,” “range,” “result,” “strategy,” “strive,” “strong,” “target,” “trend,” “will” and “would,” and similar words or phrases. Moreover, statements in the sections entitled Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), and elsewhere in this report 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. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include: • 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 global pandemics, including the ongoing COVID-19 pandemic (including any variant), 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. 2 • Our ability to achieve sales, earnings and incremental FIFO operating profit goals may be affected by: COVID- 19 pandemic related factors, risks and challenges, including among others, the length of time that the pandemic continues, future variants, mutations or related strains of the virus and the effectiveness of vaccines against variants, continued efficacy of vaccines over time and availability of vaccine boosters, the extent of vaccine refusal, and global access to vaccines, as well as the effect of vaccine and/or testing mandates and related regulations, the potential for additional future spikes in infection and illness rates including breakthrough infections among the fully vaccinated, and the corresponding potential for disruptions in workforce availability and customer shopping patterns, re-imposed restrictions as a result of resurgence and the corresponding future easing of restrictions, and interruptions in domestic and global supply chains or capacity constraints; whether and when the global pandemic will become endemic, the pace of recovery when the pandemic subsides or becomes endemic, which may vary materially over time and among the different regions we serve; labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; 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 current inflationary environment and future potential inflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; 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 uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which we operate; 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 effect of public health crises or other significant catastrophic events; 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 our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic moats of fresh, Our Brands, personalization, and seamless; and the successful integration of merged companies and new partnerships. • 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. • Our effective tax rate may differ from the expected rate due to changes in tax 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. Other factors and assumptions not identified above, including those discussed in Part 1, Item 1A of this Annual 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. ITEM 1. BUSINESS. The Kroger Co. (the “Company” or “Kroger”) was founded in 1883 and incorporated in 1902. We are one of the world’s largest retailers, as measured by revenue. Our retail business is built on the foundation of our market leading position in food retail which includes the added convenience of our retail pharmacies and fuel centers. Our market leading position in food retail reflects the strength of our competitive moats of Fresh, Our Brands, Data & Personalization and Seamless, and our unique combination of assets. We also leverage the data and traffic generated by our retail business to deliver incremental value and services for our customers that generates alternative profit streams. These alternative profit streams would not exist without our core retail business. 3 Kroger is diversified across brands, product categories, channels of distribution, geographies and consumer demographics. Our unique combination of assets include the following: Stores As of January 29, 2022, Kroger operates supermarkets under a variety of local banner names in 35 states and the District of Columbia. As of January 29, 2022, Kroger operated, either directly or through its subsidiaries, 2,726 supermarkets, of which 2,252 had pharmacies and 1,613 had fuel centers. Approximately 50% of our supermarkets were operated in Company-owned facilities, including some Company-owned buildings on leased land. Our stores operate under a variety of banners that have strong local ties and brand recognition. We connect with customers through our expanding seamless ecosystem and the consistent delivery of a full, fresh, and friendly customer experience. Fuel sales are an important part of our revenue, net earnings and loyalty offering. Our fuel strategy is to include a fuel center at each of our supermarket locations when it is feasible and it is expected to be profitable. Each fuel center typically includes 5 to 10 islands of fuel dispensers and storage tanks with capacity for 40,000 to 50,000 gallons of fuel. 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. Seamless Digital Ecosystem Our digital ecosystem provides a fresh and seamless offering for our customers. Through investment and innovation, we continue to improve our seamless ecosystem to ensure it remains relevant. We offer a convenient shopping experience for our customers regardless of how they choose to shop with us, including Pickup, Delivery and Ship. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 2,257 of our supermarkets and provide home delivery services, which allows us to offer digital solutions to 98% of our customers. We provide relevant customer-facing apps and interfaces that have the features customers want that are also reliable, easy to use and deliver a seamless customer experience across our store and digital channels. 4 Merchandising and Manufacturing Our Brands products play an important role in our merchandising strategy and represented nearly $28 billion of our sales in 2021. Our supermarkets, on average, stock over 14,000 private label items. Our Brands products are primarily produced and sold in three “tiers.” Private Selection® is our main premium quality brand, 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 to our three “tiers,” Our Brands offers customers a variety of natural and organic products 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 29% of Our Brands units and 41% 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 January 29, 2022, we operated 33 food production plants. These plants consisted of 14 dairies, 9 deli or bakery plants, five grocery product plants, two beverage plants, one meat plant and two cheese plants. Our Data We are evolving from a traditional food retailer into a more diverse, food first business. The traffic and data generated by our retail supermarket business, including pharmacies and fuel centers, is enabling this transformation. Kroger serves over 60 million households annually and because of our market leading rewards program, 96% of customer transactions are tethered to a Kroger loyalty card. Our 20 years of investment in data science capabilities is allowing us to leverage this data to create personalized experiences and value for our customers and is also enabling our fast-growing, high operating margin alternative profits, including data analytic services and third party media revenue. Our retail media business – Kroger Precision Marketing – provides best in class media capabilities for our consumer packaged goods partners and is a key driver of our digital profitability and alternative profit. 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 fiscal year ends on the Saturday closest to January 31. All references to 2021, 2020 and 2019 are to the fiscal years ended January 29, 2022, January 30, 2021 and February 1, 2020, respectively, unless specifically indicated otherwise. We maintain a web site (www.thekrogerco.com) that includes the Kroger Fact Book and other additional information about the Company. Kroger’s website and any reports or other information made available by Kroger through its website are not part of or incorporated by reference into this Annual Report on Form 10-K. 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. 5 SEGMENTS We operate supermarkets, multi-department stores and fulfillment centers 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. 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, certain significant events including inclement weather systems, particularly winter storms, tend to affect our sales trends. HUMAN CAPITAL MANAGEMENT Our People We want Kroger to be a place where our customers love to shop and associates love to work. This is why we create working environments where associates feel encouraged and supported to be their best selves every day. Our people are essential to our success, and we focus intentionally on attracting, developing and engaging a diverse workforce that represents the communities we serve. We strive to create a culture of opportunity and take seriously our role as a leading employer in the United States. Kroger has provided a large number of people with first jobs, new beginnings and lifelong careers. We have long been guided by our core values – Honesty, Integrity, Respect, Safety, Diversity and Inclusion. As of January 29, 2022, Kroger employed over 420,000 full- and part-time employees. The number of associates decreased in 2021, compared to 2020, as sales normalized following the peak of the COVID-19 pandemic and we continue to achieve operational efficiencies in our business. Attracting & Developing Our Talent We recognize that our people are our most important asset. To deliver on our customers’ experiences, we continually improve how we attract and retain talent. In addition to competitive wages, quality benefits and a safe work environment, we offer a broad range of employment opportunities for workers of all ages and aspirations. Many supermarket roles offer opportunities to learn new skills, grow and advance careers — inside or outside our family of companies. Associates at all levels of the Company have access to training and education programs to build their skills and prepare for the roles they want. In 2022, we expect to spend approximately $145 million on training our associates through onboarding, leadership development programs, and programs designed to upskill associates across the Company. We continue to invest in new platforms and applications to make learning more accessible to our associates. Beyond our own programs, associates can take advantage of our tuition reimbursement benefit, which offers up to $3,500 annually — $21,000 over the course of employment — toward continuing education. These funds can be applied to education programs like certifications, associate or graduate degrees. More than 3,000 associates, 90% of whom are hourly, have taken advantage of our tuition reimbursement program in 2021. Kroger has invested more than $40 million in this program since it launched in 2018. 6 Rewarding Our Associates As we continue to operate in a challenging labor market, we are dedicated to attracting and retaining the right talent across the organization to be able to continue delivering for our customers. We are investing in our associates by expanding our industry-leading benefits, including continuing education and tuition reimbursement, training and development, health, and wellness. During 2021, we invested more than ever before in our associates to raise our average hourly wage to $17 and our average hourly rate to over $22 with comprehensive benefits included. Over the last four years, Kroger has invested an incremental $1.2 billion in associate wages and training and our average hourly rate has increased 20%. In addition, we have committed to invest over $1.8 billion during the same time period to help address underfunding and better secure pensions for tens of thousands of associates. Promoting Diversity, Equity & Inclusion Diversity and inclusion have been among Kroger’s values for decades. We strive to reflect the communities we serve and foster a culture that empowers everyone to be their true self, inspires collaboration, and feeds the human spirit. We have taken a very thoughtful and purposeful approach to enact meaningful change and develop what we believe are the right actions to achieve true and lasting equality. Our Framework for Action: Diversity, Equity & Inclusion plan reflects our desire to redefine, deepen, and advance our commitment, mobilizing our people, passion, scale and resources. The following summarizes our framework: Create a More Inclusive Culture; Develop Diverse Talent; Advance Diverse Partnerships; Advance Equitable Communities; and Deeply Listen and Report Progress. Creating a Safe Environment Our associates’ safety is a top priority and it is one of our core values. Since the beginning of the pandemic, our most urgent priority has been to safeguard our associates and customers. We’ve implemented dozens of new safety and cleanliness processes and procedures in our stores and other facilities. Beyond the pandemic, we prioritize providing the right safety training and equipment, safe working conditions and resources to maintain and improve associates’ well- being. Through our strategy to set clear expectations, routine monitoring, and regular communication and engagement, we reduce the number of injuries and accidents that happen in our workplace. We track health and safety metrics centrally for an enterprise-wide view of issues, trends and opportunities and monitor associate injury performance including total injuries, Occupational Safety and Health Administration (“OSHA”) injury rates, and lost-time injuries, as well as customer injury metrics like slip-and-fall injuries. We also track the completion of required training for associates and we regularly share these metrics with leaders and relevant team members to inform management decisions. Supporting Labor Relations 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 310 such agreements, usually with terms of three to five years. Wages, health care and pensions are included in all of these collective bargaining agreements that cover approximately 65% of our associates. Our objective is to negotiate contracts that balance competitive wage increases and affordable healthcare for associates with keeping groceries affordable for the communities we serve. Our obligation is to do this in a way that maintains a financially sustainable business. MANAGING CLIMATE IMPACTS Managing climate change impacts is an important part of Thriving Together, Kroger’s Environmental, Social & Governance (“ESG”) strategy, and has been a focus for our business for many years. With a large portfolio of supermarkets, distribution warehouses and food production plants, as well as a complex supply chain, we recognize Kroger’s impact on our climate. We continue to explore opportunities and take steps to reduce the impacts of our operations on the environment and to reduce the potential risk of a changing climate on our operations. This includes increasing our usage of renewable energy, investments in new technologies and enhancing our operational efficiency. The key elements of our ESG strategy are included below. 7 Governance Climate impacts are managed by leadership with input from several departments across the business. The Public Responsibilities Committee of the Board of Directors oversees our responsibilities as a corporate citizen and the Company’s practices related to environmental sustainability, including climate impacts, along with other environmental and social topics of material importance. Kroger discloses detailed energy and emissions data, as well as our approach to managing climate effects, in our annual ESG Report, which can be found on our sustainability web site at www.thekrogerco.com/esgreport. The information in our ESG report is not part of or incorporated by reference into this Annual Report on Form 10-K. Risk assessment To help identify and manage climate-related risks to our business, we conducted both qualitative and quantitative risk assessments that have assessed the effect and vulnerability of climate risk on our operations. We have also assessed the likelihood and extent to which different climate risks, such as extreme precipitation, drought and heat stress, would affect different types of facilities and geographies. As a result of our risk assessments, we do not currently anticipate the modeled physical risks to adversely affect our financial condition, results of operations or cash flows for the foreseeable future. We plan to continue these qualitative and quantitative risk assessments moving forward. Kroger also acknowledges that current and emerging climate-related legislation could affect our business. As a result of forthcoming state and federal requirements regarding the phase down of hydrofluorocarbon (HFC) refrigerants, we anticipate steadily replacing our refrigerant infrastructure to reach required levels, which could incur significant costs to the business. If legislation required an accelerated timeline regarding the phase down of HFC refrigerants, we could incur higher costs. This legislation will affect all retailers using refrigerants in their operations. Climate adaptation To help prepare for and manage a variety of risk scenarios, including natural disasters and business disruptions to our supply chain, we maintain more than 200 business continuity plans. We have installed technologies and processes to ensure our supermarkets, food production plants, fulfillment centers and supply chain can respond quickly and remain operational. We also monitor energy availability and costs to help anticipate how changing climate patterns, like increasing temperatures, could affect our energy-sourcing costs and activities. Our teams also monitor transition risks due to climate change, including the effect possible new legislation may have on our business. Climate mitigation For many years, Kroger has implemented emission reduction projects, including energy efficiency improvements, refrigerant leak detection and mitigation measures, renewable energy installations and procurement and fleet efficiencies. In 2020, we set a new goal to reduce absolute greenhouse gas emissions from our operations (scope 1 and 2 emissions) by 30% by 2030, against a 2018 baseline. The goal was developed using climate science and is aligned with the Paris Agreement, specifically supporting a well-below 2°C climate scenario according to the absolute contraction method. Kroger anticipates resetting our current greenhouse gas reduction target to meet with the requirements of the Science Based Target Initiative, which would include aligning with the 1.5°C scenario and setting a new Scope 3 target. Additional discussion about our approach to managing climate effects is included in Kroger’s annual ESG report. 8 INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following is a list of the names and ages of the executive officers and the positions held by each such person. Except as otherwise noted, each person has held office for at least five years. Each officer will hold office at the discretion of the Board for the ensuing year until removed or replaced. Name Age Recent Employment History Mary E. Adcock 46 Ms. Adcock was elected Senior Vice President effective May 1, 2019 and is responsible for retail operations as well as the oversight of all Kroger retail divisions. From June 2016 to April 2019, she served as Group Vice President of Retail Operations. Prior to that, Ms. Adcock held leadership roles in Kroger’s Columbus Division, including Vice President of Operations and Vice President of Merchandising. Prior to that, Ms. Adcock served as Vice President of Natural Foods Merchandising and as Vice President of Deli/Bakery Manufacturing and held several leadership positions in the manufacturing department, including human resources manager, general manager and division operations manager. Ms. Adcock joined Kroger in 1999 as human resources assistant manager at the Country Oven Bakery in Bowling Green, Kentucky. Stuart W. Aitken 50 Mr. Aitken was named Senior Vice President and Chief Merchant and Marketing Gabriel Arreaga 47 Officer in August 2020. He was elected Senior Vice President in February 2019 and served as Group Vice President from June 2015 to February 2019. He is responsible for sales, pricing, promotional and category planning for fresh foods, center store and general merchandise categories, as well as analytics & execution, e-commerce and Digital Merchandising, and Our Brands. Prior to joining Kroger, he served as the chief executive officer of dunnhumby USA, LLC. Mr. Aitken has over 15 years of marketing, academic and technical experience across a variety of industries, and held various leadership roles with other companies, including Michaels Stores and Safeway, Inc. Mr. Arreaga was elected Senior Vice President of Supply Chain in December 2020. He is responsible for the company’s industry-leading Supply Chain organization, Logistics, Inventory & Replenishment, Manufacturing, and Fulfillment Centers. Prior to Kroger, Mr. Arreaga served as Senior Vice President of Supply Chains for Mondelez, where he was responsible for all operations and functions from field to consumer, internal and external factories, fulfillment centers, direct to store branches, Logistics and product development. He was also Global Vice President of Operations for Stanley Black and Decker and held numerous leadership roles at Unilever including Vice President of Food and Beverage Operations. Yael Cosset 48 Mr. Cosset was elected Senior Vice President and Chief Information Officer in May 2019 and is responsible for leading Kroger’s digital strategy, focused on building Kroger’s presence in the marketplace in digital channels, personalization and e-commerce. In August 2020, he also assumed responsibility for Kroger’s alternative profit businesses, including Kroger’s data analytics subsidiary, 84.51 (cid:2195) LLC and Kroger Personal Finance. Prior to that, Mr. Cosset served as Group Vice President and Chief Digital Officer, and also as Chief Commercial Officer and Chief Information Officer of 84.51° LLC. Prior to joining Kroger, Mr. Cosset served in several leadership roles at dunnhumby USA, LLC, including Executive Vice President of Consumer Markets and Global Chief Information Officer. 9 Carin L. Fike 53 Ms. Fike was elected Vice President and Treasurer effective April 2017. Prior to that, she served as Assistant Treasurer and also as Director of Investor Relations. Ms. Fike began her career with Kroger in 1999 as a manager in the Financial Reporting department after working with PricewaterhouseCoopers in various roles, including audit manager. Todd A. Foley 52 Mr. Foley was named Group Vice President, Corporate Controller on October 1, 2021. From April 2017 to September 2021, he served as Vice President and Corporate Controller. Before that, he held several leadership roles, including Vice President and Treasurer, Assistant Corporate Controller, and Controller of Kroger’s Cincinnati/Dayton division. Mr. Foley began his career with Kroger in 2001 as an audit manager in the Internal Audit Department after working for PricewaterhouseCoopers in various roles, including senior audit manager. Valerie L. Jabbar 53 Ms. Jabbar was elected Senior Vice President effective August 19, 2021 and is Kenneth C. Kimball responsible for the oversight of several Kroger retail divisions. From July 2020 to August 2021, she served as Group Vice President of Center Store Merchandising, and from September 2018 to June 2020, as Group Vice President of Merchandising. Prior to that, she served as President of the Ralphs Division from July 2016 to August 2018. Before that, Ms. Jabbar served as Vice President of Merchandising for the Ralphs Division and as Vice President of Merchandising for the Mid-Atlantic Division. She also held several leadership roles, including assistant store director, category manager, Drug/GM coordinator, G.O. Seasonal manager, assistant director of Drug/GM and director of Drug GM, and district manager in the Fry’s Division. She joined the Company in 1987 as a clerk in the Fry’s Division. 56 Mr. Kimball was elected Senior Vice President in March 2022 and is responsible for the oversight of several Kroger retail divisions. From April 2016 to March 2022, he served as President of the Smith’s Division. Prior to that, he held several leadership roles with the Ralphs Division, including Vice President of Operations and Vice President of Merchandising. Prior to that, he held leadership roles, including store manager, district manager, and director in the Smith’s Division as well as Senior Vice President of Sales and Merchandising and Group Vice President of Retail Operations. Mr. Kimball joined the Company in 1984 as a clerk in the Smith’s Division. Timothy A. Massa 55 Mr. Massa was elected Senior Vice President of Human Resources and Labor Relations in June 2018. Prior to that, he served as Group Vice President of Human Resources and Labor Relations from June 2014 to June 2018. Mr. Massa joined Kroger in October 2010 as Vice President, Corporate Human Resources and Talent Development. Prior to joining Kroger, he served in various Human Resources leadership roles for 21 years at Procter & Gamble, most recently serving as Global Human Resources Director of Customer Business Development. 10 W. Rodney McMullen 61 Mr. McMullen was elected Chairman of the Board effective January 1, 2015, and Chief Executive Officer effective January 1, 2014. Prior to that, he served as President and Chief Operating Officer from August 2009 to December 2013. Prior to that he held numerous leadership roles, including Vice Chairman, Executive Vice President of Strategy, Planning and Finance, Executive Vice President and Chief Financial Officer, Senior Vice President, Group Vice President and Chief Financial Officer, Vice President, Control and Financial Services, and Vice President, Planning and Capital Management. Mr. McMullen joined Kroger in 1978 as a part-time stock clerk. Gary Millerchip 50 Mr. Millerchip was elected Senior Vice President and Chief Financial Officer effective April 2019. He joined Kroger in 2008, serving as Chief Executive Officer for Kroger Personal Finance. Before coming to Kroger, Mr. Millerchip was responsible for the Royal Bank of Scotland (RBS) Personal Credit Card business in the United Kingdom. He joined RBS in 1987 and held leadership positions in Sales & Marketing, Finance, Change Management, Retail Banking Distribution Strategy and Branch Operations during his time there. Christine S. Wheatley 51 Ms. Wheatley was elected Group Vice President, Secretary and General Counsel in May 2014. She joined Kroger in February 2008 as Corporate Counsel, and thereafter served as Senior Attorney, Senior Counsel, and Vice President. Before joining Kroger, Ms. Wheatley was engaged in the private practice of law for 11 years, most recently as a partner at Porter Wright Morris & Arthur in Cincinnati. COMPETITIVE ENVIRONMENT For the disclosure related to our competitive environment, see Item 1A under the heading “Competitive Environment.” ITEM 1A. RISK FACTORS. There are risks and uncertainties that can affect our business. The significant risk factors are discussed below. The following information should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which includes forward-looking statements and factors that could cause us not to realize our goals or meet our expectations. COMPETITIVE ENVIRONMENT The operating environment for the food retailing industry continues to be characterized by the fragmentation of local, regional, and national retailers, including both retail and digital formats, market consolidation, intense competition and entry of non-traditional competitors. Customer behavior shifted quickly and considerably during the pandemic, including a shift from food away from home to food at home. We see three major trends shaping the industry post- pandemic: e-commerce, cooking at home and prepared foods to go. If we do not appropriately or accurately anticipate customer preferences or fail to quickly adapt to these changing preferences, or if trends shift more quickly to food away from home, our sales and profitability could be adversely affected. If we fail to meet the evolving needs of our customers, our ability to compete and our financial condition, results of operations or cash flows could be adversely affected. 11 We are continuing to enhance the customer connection with investments in our four competitive moats – Seamless, Personalization, Fresh, and Our Brands. Each of these are strategic differentiators and each one is designed to better serve our customers and to generate customer loyalty and sustainable growth momentum. We believe our plans to continue to improve these four strategic differentiators will enable us to meet the wide-ranging needs and expectations of our customers. If we are unable to continue to enhance the foregoing key elements of our connection with customers, or they fail to strengthen customer loyalty, our ability to compete and our financial condition, results of operations or cash flows could be adversely affected. Our ecosystem monetizes the traffic and data insights generated by our retail supermarket business to create fast-growing, asset-light and margin rich revenue streams. We may be unsuccessful in implementing our alternative profit strategy, which could adversely affect our business growth and our financial condition, results of operations or cash flows. The nature and extent to which our competitors respond to the evolving and competitive industry by developing and implementing their competitive strategies could adversely affect our profitability. In addition, evolving customer preferences and the advancement of online, delivery, ship to home, and mobile channels in our industry increase the competitive environment. We must anticipate and meet these evolving customer preferences and continue to implement technology, software and processes to be able to conveniently and cost- effectively fulfill customer orders. Providing flexible fulfillment options and implementing new technology is complex and may not meet customer preferences. If we are not successful in reducing or offsetting the cost of fulfilling orders outside of our traditional in-store channel with efficiencies, cost-savings, expense reductions, or alternative revenues, our financial condition, results of operations or cash flows could be adversely affected. In addition, if we do not successfully develop and maintain a relevant digital experience for our customers, our business, financial condition, results of operations or cash flows could be adversely affected. Digital retailing is rapidly evolving, and we must keep pace with new developments by our competitors as well as the evolving needs and preferences of our customers. Our digital business has accelerated significantly during the COVID-19 pandemic including Pickup, Delivery and Ship. We must compete by offering a convenient shopping experience for our customers regardless of how they choose to shop with us, and by investing in, providing and maintaining relevant customer-facing apps and interfaces that have the features customers want that are also reliable and easy to use. The future success of the digital business will also depend on the efficiency and cost effectiveness of fulfilling orders across our modalities, whether in store, in pickup-only locations, or through customer fulfillment centers powered by Ocado Group plc. PRODUCT SAFETY Customers count on Kroger to provide them with safe food and drugs and other merchandise. Concerns regarding the safety of the products that we sell could cause shoppers to avoid purchasing certain products from us, or to seek alternative sources of supply even if the basis for the concern is outside of our control. Any lost confidence on the part of our customers would be difficult and costly to reestablish. We could be adversely affected by personal injury or product liability claims, product recalls, or other health and safety issues, which occur from time to time. If we sell products that cause illness or injury to customers, resulting from product contamination or spoilage, the presence of certain substances, or damage caused in handling, storage or transportation, we could be exposed to claims or litigation. Any issue regarding the safety of items, whether Our Brands items manufactured by the Company or for the Company or CPG products we sell, regardless of the cause, could have a substantial and adverse effect on our reputation, financial condition, results of operations or cash flows. EMPLOYEE MATTERS A majority of our associates are covered by collective bargaining agreements with unions, and our relationship with those unions, including a prolonged work stoppage affecting a substantial number of locations, could have a material adverse effect on our financial condition, results of operations or cash flows. We are a party to approximately 310 collective bargaining agreements. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur (and have occurred in the past) if we are unable to negotiate new contracts with labor unions. In addition, changes to national labor policy could affect labor relations with our associates and relationships with unions. Further, if we are unable to control health care, pension and wage costs, or if we have insufficient operational flexibility under our collective bargaining agreements, we may experience increased operating costs and an adverse effect on our financial condition, results of operations or cash flows. 12 We have committed to paying fair wages and providing the benefits that were collectively bargained with the United Food and Commercial Workers (“UFCW”) and other labor unions representing associates. Our ability to control labor and benefit costs is subject to numerous internal and external factors, including regulatory changes, wage rates, and healthcare and other insurance costs. Changes to wage regulations, including further increases in the minimum wage and extra pay ordinances enacted by local governments, could have an impact on our future financial condition, results of operations or cash flows. Our ability to meet our labor needs, while controlling wages and other costs, is subject to numerous external factors, including the available qualified workforce in each area where we are located, unemployment levels within those areas, wage rates, and changes in employment and labor laws. Our continued success depends on the ongoing contributions of our associates, including members of our senior management and other key personnel. We must recruit, hire, develop and retain qualified associates with an increasingly large range of skills to meet the needs of our evolving and complex business. We compete with other retail and non- retail businesses for these associates and invest significant resources in training and motivating them. Competition among potential employers has resulted, and may in the future result, in increased associate costs and has from time to time affected our ability to recruit and retain associates. There is no assurance that we will be able to attract or retain sufficient highly qualified associates in the future, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. DATA AND TECHNOLOGY Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations, resulting in an expansion of our technological presence and corresponding risk exposure. If we were to experience difficulties maintaining or operating existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations. Through our sales and marketing activities, we collect and store some personal information that our customers provide to us. We also gather and retain information about our associates in the normal course of business. Under certain circumstances, we may share information with vendors that assist us in conducting our business, as required by law, or otherwise in accordance with our privacy policy. Our technology systems are vulnerable to disruption from circumstances beyond our control, and we regularly defend against and respond to data security incidents. Cyber-attackers have targeted and accessed, and may in the future again attempt to target and access, information stored in our or our vendors’ systems in order to misappropriate confidential customer or business information. Due to the political uncertainty involving Russia and Ukraine, there is a possibility that the escalation of tensions could result in cyberattacks that could either directly or indirectly affect our operations. Although we have implemented procedures to protect our information, and require our vendors to do the same, we cannot be certain that our security systems will successfully defend against, or be able to effectively respond to, rapidly evolving, increasingly sophisticated cyber-attacks as they become more difficult to detect and defend against. Further, a Kroger associate, a contractor or other third party with whom we do business may in the future circumvent our security measures in order to obtain information or may inadvertently cause a breach involving information. In addition, hardware, software or applications we may use may have inherent defects, vulnerabilities, or could be inadvertently or intentionally applied or used in a way that could compromise our information security. 13 Our cybersecurity program, continued investment in our information technology systems, and our processes to evaluate and select vendors with reasonable information security controls may not effectively insulate us from potential attacks, data breaches or disruptions to our business operations, which could result in a loss of customers or business information, negative publicity, damage to our reputation, and exposure to claims from customers, financial institutions, regulatory authorities, payment card associations, associates and other persons. Any such events could have an adverse effect on our business, financial condition, results of operations or cash flows and may not be covered by our insurance. In addition, compliance with privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes and may require us to devote significant management resources to address these issues. The costs of attempting to protect against the foregoing risks and the costs of responding to cyber-attacks are significant. Following a cyber-attack, our and/or our vendors’ remediation efforts may not be successful, and a cyber-attack could result in interruptions, delays or cessation of service, and loss of existing or potential customers. In addition, breaches of our and/or our vendors’ security measures and the unauthorized dissemination of sensitive personal information or confidential information about us or our customers could expose our customers’ private information and our customers to the risk of financial or medical identity theft, or expose us or other third parties to a risk of loss or misuse of this information, and result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers and business relationships, litigation or other actions which could have a material adverse effect on our brands, reputation, business, financial condition, results of operations or cash flows. Data governance failures can adversely affect our reputation and business. Our business depends on our customers’ willingness to entrust us with their personal information. Events that adversely affect that trust, including inadequate disclosure to our customers of our uses of their information, failures to honor new and evolving data privacy rights, failing to keep our information technology systems and our customers’ sensitive information secure from significant attack, theft, damage, loss or unauthorized disclosure or access, whether as a result of our action or inaction (including human error) or that of our business associates, vendors or other third parties, could adversely affect our brand and reputation and operating results and also could expose and/or has exposed us to mandatory disclosure to the media, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, and/or injunctive relief, any of which could adversely affect our businesses, financial condition, results of operations or cash flows. Large scale data breaches at other entities, including supply chain security vulnerabilities, increase the challenge we and our vendors face in maintaining the security of our information technology systems and proprietary information and of our customers’ information. There can be no assurance that such failures will not occur, or if any do occur, that we will detect them or that they can be sufficiently remediated. The use of data by our business and our business associates is highly regulated. Privacy and information-security laws and regulations change, and compliance with them may result in cost increases due to, among other things, systems changes and the development of new processes. If we, our third party service providers, or those with whom we share information fail to comply with laws and regulations, or self-regulatory regimes, that apply to all or parts of our business, such as section 5 of the FTC Act, the California Consumer Privacy Act (CCPA), the Health Insurance Portability and Accountability Act (HIPAA), or applicable international laws such as the EU General Data Protection Regulation (GDPR), our reputation could be damaged, possibly resulting in lost business, and we could be subjected to additional legal risk or financial losses as a result of non-compliance. 14 PAYMENT SYSTEMS We accept payments using a variety of methods, including cash and checks, select credit and debit cards, and Kroger Pay, a mobile payment solution. As we offer new payment options to our customers, we may be subject to additional rules, regulations, compliance requirements, and higher fraud losses. For certain payment methods, we pay interchange and other related acceptance fees, along with additional transaction processing fees. We rely on third parties to provide payment transaction processing services for credit and debit cards. It could disrupt our business if these companies become unwilling or unable to provide these services to us, including due to short term disruption of service. We are also subject to evolving payment card association and network operating rules, including data security rules, certification requirements and rules governing electronic funds transfers. For example, we are subject to Payment Card Industry Data Security Standards (“PCI DSS”), which contain compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data. If our payment card terminals or internal systems are breached or compromised, we may be liable for card re-issuance costs and other costs, subject to fines and higher transaction fees, and lose our ability to accept card payments from our members, or if our third-party service providers’ systems are breached or compromised, our business, financial condition, results of operations or cash flows could be adversely affected. INDEBTEDNESS Our indebtedness could reduce our ability to obtain additional financing for working capital, mergers and acquisitions or other purposes and could make us vulnerable to future economic downturns as well as competitive pressures. If debt markets do not permit us to refinance certain maturing debt, we may be required to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness. Changes in our credit ratings, or in the interest rate environment, could have an adverse effect on our financing costs and structure. LEGAL PROCEEDINGS AND INSURANCE From time to time, we are a party to legal proceedings, including matters involving personnel and employment issues, personal injury, contract disputes, regulatory claims and other proceedings. Other legal proceedings purport to be brought as class actions on behalf of similarly situated parties. Some of these proceedings could result in a substantial loss to Kroger. We estimate our exposure to these legal proceedings and establish accruals for the estimated liabilities, where it is reasonably possible to estimate and where an adverse outcome is probable. Assessing and predicting the outcome of these matters involves substantial uncertainties. Adverse outcomes in these legal proceedings, or changes in our evaluations or predictions about the proceedings, could have an adverse effect on our financial condition, results of operations or cash flows. Please also refer to the “Litigation” section in Note 12 to the Consolidated Financial Statements. We use a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile and general liability, property, director and officers’ liability, cyber risk exposure and associate health care benefits. Any actuarial projection of losses is subject to a high degree of variability. With respect to insured matters, we are liable for retention amounts that vary by the nature of the claim, and some losses may not be covered by insurance. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers, and changes in discount rates could all affect our financial condition, results of operations or cash flows. 15 MULTI-EMPLOYER PENSION OBLIGATIONS As discussed in more detail below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Multi-Employer Pension Plans,” Kroger contributes to several multi-employer pension plans based on obligations arising under collective bargaining agreements with unions representing associates covered by those agreements. We believe the present value of actuarially accrued liabilities in most of these multi- employer plans exceeds the value of the assets held in trust to pay benefits, and we expect that Kroger’s contributions to most of these funds will increase over the next few years. A significant increase to those funding requirements could adversely affect our financial condition, results of operations or cash flows. Despite the fact that the pension obligations of these funds are not the liability or responsibility of the Company, except as noted below, there is a risk that the agencies that rate our outstanding debt instruments could view the underfunded nature of these plans unfavorably, or adjust their current views unfavorably, when determining their ratings on our debt securities. Any downgrading of our debt ratings likely would adversely affect our cost of borrowing and access to capital. We also currently bear the investment risk of two multi-employer pension plans in which we participate. In addition, we have been designated as the named fiduciary of these funds with sole investment authority of the assets of these funds. If investment results fail to meet our expectations, we could be required to make additional contributions to fund a portion of or the entire shortfall, which could have an adverse effect on our business, financial condition, results of operations or cash flows. INTEGRATION OF NEW BUSINESS AND STRATEGIC ALLIANCES We enter into mergers, acquisitions and strategic alliances with expected benefits including, among other things, operating efficiencies, procurement savings, innovation, sharing of best practices and increased share that may allow for future growth. Achieving the anticipated or desired benefits may be subject to a number of significant challenges and uncertainties, including, without limitation, whether unique corporate cultures will work collaboratively in an efficient and effective manner, the coordination of geographically separate organizations, the possibility of imprecise assumptions underlying expectations regarding potential synergies, capital requirements, and the integration process, unforeseen expenses and delays, and competitive factors in the marketplace. We could also encounter unforeseen transaction and integration-related costs or other circumstances such as unforeseen liabilities or other issues. Many of these potential circumstances are outside of our control and any of them could result in increased costs, decreased revenue, decreased synergies and the diversion of management time and attention. If we are unable to achieve our objectives within the anticipated time frame, or at all, the expected benefits may not be realized fully or at all, or may take longer to realize than expected, which could have an adverse effect on our business, financial condition, results of operations or cash flows. FUEL We sell a significant amount of fuel in our 1,613 fuel centers, which could face increased regulation, including due to climate change or other environmental concerns, and demand could be affected by concerns about the effect of emissions on the environment as well as retail price increases. We are unable to predict future regulations, environmental effects, political unrest, acts of war or terrorism, disruptions to the economy, including but not limited to the COVID-19 pandemic, the recent invasion of Ukraine by Russia, and other matters that affect the cost and availability of fuel, and how our customers will react to such factors, which could adversely affect our financial condition, results of operations or cash flows. 16 ECONOMIC CONDITIONS Our operating results could be materially impacted by changes in overall economic conditions and other economic factors that impact consumer confidence and spending, including discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, overall economic slowdown or recession, changes in housing market conditions, changes in government benefits such as SNAP/EBT or child care credits, the availability of credit, interest rates, inflation or deflation, tax rates and other matters could reduce consumer spending. Inflation could materially affect our operating results through increases to our cost of goods, supply chain costs and labor costs. In addition, the economic factors listed above, or any other economic factors or circumstances resulting in higher transportation, labor, insurance or healthcare costs or commodity prices, and other economic factors can increase our merchandise costs and operating, general and administrative expenses and otherwise adversely affect our financial condition, results of operations or cash flows. Increased fuel prices also have an effect on consumer spending and on our costs of producing and procuring products that we sell. A deterioration in overall economic conditions, the likelihood of which is made more uncertain by the recent increases in the inflation rate, could adversely affect our business in many ways, including slowing sales growth, reducing overall sales and reducing gross margins. We are unable to predict how the global economy and financial markets will perform. If the global economy and financial markets do not perform as we expect, it could adversely affect our financial condition, results of operations or cash flows. COVID-19 The global COVID-19 pandemic continues to affect our business. Two full years into the pandemic, many factors and uncertainties remain, including: • • • • • the continuing concerns about the health of, and the effect on our associates, and our ability to meet staffing needs in our stores, distribution facilities, corporate offices and other critical functions; the ultimate duration of the pandemic, including whether there will be additional spikes in the number of COVID-19 cases, future variants, mutations or related strains of the virus; the duration, degree and effectiveness of governmental measures, such as access to unemployment compensation, stimulus payments, and other fiscal policy changes; the timing and availability of, and prevalence of access to and utilization of, effective medical treatments for COVID-19; the effectiveness of vaccines against variants and efficacy of vaccines over time, vaccine availability for young children, global vaccine access, and the percentage of fully vaccinated individuals in the US and the corresponding effect on the duration of the pandemic; • whether and when the global pandemic will become endemic; • • • • evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures; the impact of the pandemic on economic activity and the pace and extent of recovery when the pandemic subsides or becomes endemic, which may vary materially over time and among the different regions and markets we serve; the extent and duration of the effect on consumer confidence, economic well-being, spending, customer demand, buying patterns and shopping behaviors, including spend on discretionary categories, which often include higher margin products, and increased utilization of online sales channels, both during and after the pandemic; and the long-term impact of the pandemic on our business, including consumer behaviors. 17 In addition, we cannot predict with certainty the extent of the effect that COVID-19 will have on our customers, suppliers, vendors, and other business partners, and each of their financial conditions; however, any adverse effect on these parties could materially and adversely impact us. To the extent that COVID-19 continues to affect the U.S. and global economy and our business, it may also heighten other risks described in this section, including but not limited to those related to consumer behavior and expectations, competition, implementation of strategic initiatives, cybersecurity threats, payment-related risks, supply chain disruptions, labor availability and cost, litigation and operational risk as a result of regulatory requirements. LEGAL AND GOVERNMENT REGULATION We are subject to various laws, regulations, and administrative practices that affect our business, including laws and regulations involving antitrust and competition, privacy, data protection, environmental, healthcare, anti-bribery, anti- corruption, tax, accounting, and financial reporting or other matters. These and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, create challenges for the Company, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely affect our financial condition, results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, it could negatively affect our reputation and our business results. Additionally, we are currently, and in the future may be, subject to a number of inquiries, investigations, claims, proceeding, and requests for information from governmental agencies or private parties, the adverse outcomes of which could harm our business. Failure to successfully manage these new or pending regulatory and legal matters and resolve such matters without significant liability or damage to our reputation may adversely affect our financial condition, results of operations and cash flows. Furthermore, if new or pending legal or regulatory matters result in fines or costs in excess of the amounts accrued to date, that may also materially affect our financial condition, results of operations or cash flows. In addition, increasing governmental and societal attention to environmental, social, and governance (ESG) matters, including expanding voluntary reporting, diligence, and disclosure on topics such as climate change, waste production, water usage, human capital, labor, and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess, and report and could negatively affect the Company’s reputation. Additionally, we must comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling and safety, equal employment opportunity, minimum wages, licensing for the sale of food, drugs, and alcoholic beverages, and new provisions relating to the COVID-19 pandemic. We cannot predict future laws, regulations, interpretations, administrative orders, or applications, or the effect they will have on our operations. They could, however, significantly increase the cost of doing business. They also could require the reformulation of some of the products that we sell (or manufacture for sale to third parties) to meet new standards. We also could be required to recall or discontinue the sale of products that cannot be reformulated. These changes could result in additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, or scientific substantiation. Any or all of these requirements could have an adverse effect on our financial condition, results of operations or cash flows. WEATHER, NATURAL DISASTERS AND OTHER EVENTS A large number of our stores, distribution facilities and fulfillment centers are geographically located in areas that are susceptible to hurricanes, tornadoes, floods, droughts, ice and snow storms and earthquakes. Weather conditions and natural disasters have, and may again in the future, disrupt our operations at one or more of our facilities, interrupt the delivery of products to our stores, substantially increase the cost of products, including supplies and materials and substantially increase the cost of energy needed to operate our facilities or deliver products to our facilities. Moreover, the effects of climate change, including those associated with extreme weather events, may affect our ability to procure needed commodities at costs and in quantities that are optimal for us or at all. Adverse weather, natural disasters, geopolitical and catastrophic events, such as war, civil unrest, acts of terrorism or other acts of violence, including active shooter situations (which have occurred in the past at our locations), or pandemics, such as the spread of COVID-19, or other future pandemics and other matters that could reduce consumer spending, could materially affect our financial condition, results of operations or cash flows. 18 CLIMATE IMPACT The long-term effects of global climate change present both physical risks, such as extreme weather conditions or rising sea levels, and transition risks, such as regulatory or technology changes, which are expected to be widespread and unpredictable. These changes could over time affect, for example, the availability and cost of products, commodities and energy including utilities, which in turn may impact our ability to procure goods or services required for the operation of our business at the quantities and levels we require. In addition, many of our operations and facilities are in locations that may be affected by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to stores, distribution or fulfillment centers, loss or spoilage of inventory and business interruption caused by such events. We also use natural gas, diesel fuel, gasoline and electricity in our operations, all of which could face increased regulation and cost increases as a result of climate change or other environmental concerns. Transitioning to alternative energy sources, such as renewable electricity or electric vehicles, could incur higher costs. Regulations limiting greenhouse gas emissions and energy inputs will also increase in coming years, which may increase our costs associated with compliance, tracking, reporting, and sourcing. These events and their impacts could otherwise disrupt and adversely affect our operations and could have an adverse effect on our financial condition, results of operations or cash flows. SUPPLY CHAIN Disruption in our global supply chain could negatively affect our business. The products we sell are sourced from a wide variety of domestic and international vendors, and any future disruption in our supply chain or inability to find qualified vendors and access products that meet requisite quality and safety standards in a timely and efficient manner could adversely affect our business. The loss or disruption of such supply arrangements for any reason, labor disputes, loss or impairment of key manufacturing sites, acts of war or terrorism, disruptive global political events, for example, the recent invasion of Ukraine by Russia, quality control issues, a supplier’s financial distress, natural disasters or health crises, including the COVID-19 pandemic, regulatory actions or ethical sourcing issues, trade sanctions or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have an adverse effect on our business, financial condition, results of operations or cash flows. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. As of January 29, 2022, we operated approximately 2,800 owned or leased supermarkets, distribution warehouses and food production plants through divisions, subsidiaries or affiliates. These facilities are located throughout the United States. We generally own store equipment, fixtures and leasehold improvements, as well as processing and food production equipment. The total cost of our owned assets and finance leases at January 29, 2022, was $49.9 billion while the accumulated depreciation was $26.1 billion. We lease certain store real estate, warehouses, distribution centers, office space and equipment. We operate in leased facilities in approximately half of our store locations. Lease terms generally range from 10 to 20 years with options to renew for varying terms at our sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain properties or portions thereof are subleased to others for periods generally ranging from one to 20 years. For additional information on lease obligations, see Note 9 to the Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS. Incorporated by reference herein is information regarding certain legal proceedings in which we are involved as set forth under “Litigation” contained in Note 12 – “Commitments and Contingencies” in the notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report. 19 ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is listed on the New York Stock Exchange under the symbol “KR.” As of March 23, 2022, there were 25,466 shareholders of record. During 2021, we paid two quarterly cash dividends of $0.18 per share and two quarterly cash dividends of $0.21 per share. During 2020, we paid two quarterly cash dividends of $0.16 per share and two quarterly cash dividends of $0.18 per share. On March 1, 2022, we paid a quarterly cash dividend of $0.21 per share. On March 10, 2022, we announced that our Board of Directors declared a quarterly cash dividend of $0.21 per share, payable on June 1, 2022, to shareholders of record at the close of business on May 13, 2022. 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. For information on securities authorized for issuance under our existing equity compensation plans, see Item 12 under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 20 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. COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL RETURN* Among The Kroger Co., the S&P 500, and Peer Group** 250 200 150 100 50 0 01/28/17 02/03/18 02/02/19 02/01/20 01/30/21 01/29/22 The Kroger Co. S&P 500 Peer Group Company Name/Index The Kroger Co. S&P 500 Index Peer Group Base Period 2016 100 100 100 2017 89.60 122.83 129.19 Kroger’s fiscal year ends on the Saturday closest to January 31. Data supplied by Standard & Poor’s. INDEXED RETURNS Years Ending 2019 85.54 149.23 151.40 2018 87.34 122.76 125.47 2020 2021 112.22 144.28 174.97 211.72 186.24 219.91 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 January 28, 2017, in The Kroger Co., S&P 500 Index, and the Peer Group, with reinvestment of dividends. ** The Peer Group consists of Albertsons Companies, Inc. (included from June 26, 2020 when it began trading), Costco Wholesale Corp., CVS Health Corporation, Koninklijke Ahold Delhaize N.V., Supervalu Inc. (included through October 19, 2018 when it was acquired by United Natural Foods), Target Corp., Walgreens Boots Alliance Inc., Walmart Inc., Whole Foods Market Inc. (included through August 28, 2017 when it was acquired by Amazon.com, Inc.). 21 The following table presents information on our purchases of our common shares during the fourth quarter of 2021: ISSUER PURCHASES OF EQUITY SECURITIES Period(1) First four weeks Total Number of Shares Purchased(2) Total Number of Shares Purchased as Part of Publicly Price Paid Per Announced Plans Average Share(2) or Programs(3) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(4) (in millions) November 7, 2021 to December 4, 2021 2,710,844 $ 42.15 2,710,600 $ Second four weeks December 5, 2021 to January 1, 2022 6,239,527 $ 44.64 6,220,863 $ Third four weeks January 2, 2022 to January 29, 2022 Total 4,368,946 $ 13,319,317 $ 47.28 45.00 4,368,946 $ 13,300,409 $ 387 140 821 821 (1) The reported periods conform to our fiscal calendar composed of thirteen 28-day periods. The fourth quarter of 2021 contained three 28-day periods. (2) Includes (i) shares repurchased under the June 2021 Repurchase Program and the December 2021 Repurchase Program described below in (4), (ii) 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 (iii) 18,908 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 June 2021 Repurchase Program, the December 2021 Repurchase Program and the 1999 Repurchase Program. (4) On June 16, 2021, our Board of Directors approved a $1.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “June 2021 Repurchase Program”). On December 30, 2021, our Board of Directors approved a $1.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “December 2021 Repurchase Program”). The December 2021 Repurchase Program authorization replaced the existing June 2021 Repurchase Program. The amounts shown in this column reflect the amount remaining under the June 2021 Repurchase Program or the December 2021 Repurchase Program as of the specified period end dates. Amounts available under the 1999 Repurchase Program are dependent upon option exercise activity. The December 2021 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. ITEM 6. RESERVED. Not applicable. 22 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of financial condition and results of operations of The Kroger Co. should be read in conjunction with the “Forward-looking Statements” section set forth in Part I and the “Risk Factors” section set forth in Item 1A of Part I. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 8 of this report, as well as Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended January 30, 2021, which provides additional information on comparisons of fiscal years 2020 and 2019. Significant fluctuations occurred in our business during 2020 due to the COVID-19 pandemic. As a result, management compares current year identical sales without fuel, adjusted FIFO operating profit and adjusted net earnings per diluted share results to the same metrics for the comparable period in 2019, in addition to comparisons made to 2020. This enables management to evaluate results of the business and our financial model over a longer period of time, and to better understand the state of the business after the height of the pandemic compared to the period of time prior to the pandemic. OUR VALUE CREATION MODEL – DELIVERING CONSISTENT AND ATTRACTIVE TOTAL SHAREHOLDER RETURN Kroger has developed multiple levers within our business model to ensure we deliver net earnings growth and consistent and attractive total shareholder return (“TSR”). Our execution of this model is allowing us to deliver today and invest for the future. The foundation of our value creation model is our market leading omnichannel position in food retail, which is built on Kroger’s unique assets: our stores, digital ecosystem, Our Brands and our data. These unique assets, when combined with our go-to-market strategy, deliver an unmatched value proposition for our customers. We continue to invest in areas of the business that matter most to our customers and deepen our competitive moats of Fresh, Our Brands, Data & Personalization and Seamless, to drive sustainable sales growth in our retail supermarket business, including fuel and health & wellness. This, in turn, generates the data and traffic that enables our fast-growing, high operating margin alternative profits. We are evolving from a traditional food retailer into a more diverse, food first business that we expect will consistently deliver net earnings growth in the future. This will be achieved by: • Growing identical sales without fuel. A key component of our growth plan is to double digital sales and our digital profitability rate by 2023. Our plan also involves maximizing growth levers in our supermarket business and is supported by continued strategic investments in our customers, associates, and our Seamless eco-system to ensure we deliver a full, friendly and fresh experience for every customer, every time; and • Expanding operating margin, through a balanced model where strategic price investments for our customers and investments in our associates and seamless ecosystem are offset by our cost savings program, which has delivered $1 billion in cost savings annually for the past four years, and sustained growth in our alternative profit streams. We expect to continue to generate strong free cash flow and are committed to being disciplined with capital deployment in support of our value creation model and stated capital allocation priorities. Our first priority is to invest in the business through attractive high return organic and inorganic opportunities that drive long-term sustainable net earnings growth. We are committed to maintaining our current investment grade debt rating and our net total debt to adjusted EBITDA ratio target range of 2.30 to 2.50. We also expect to continue to grow our dividend over time and return excess cash to shareholders via stock repurchases. We expect our value creation model will result in total shareholder return over the long-term within our target range of 8% to 11%. 23 2021 EXECUTIVE SUMMARY Our strategic priorities of leading with fresh and accelerating with digital propelled Kroger to record performance in 2021, on top of record results in 2020. These results demonstrate the strength of our go-to-market strategy, which led to achieving positive identical sales without fuel against very strong identical sales without fuel last year, resulting in a two-year stacked growth rate of 14.3%. Digital sales two-year stacked growth was 113% for 2021 and has grown triple digits since the beginning of 2019. We connected with customers through our expanding seamless ecosystem and the consistent delivery of a full, fresh, and friendly customer experience. We invested more than ever before in our associates to raise our average hourly wage to $17 and our average hourly rate to over $22 with comprehensive benefits included. We balanced these investments by achieving cost savings greater than $1 billion for the fourth consecutive year and alternative profits contributed an incremental $150 million of operating profit. Our agility and the commitment from our associates is allowing us to navigate a more volatile inflationary environment, current labor and supply chain conditions, and provide fresh food at affordable prices across our seamless ecosystem. The following graphic illustrates our go-to-market strategy: As we look to 2022, we expect the momentum in our business to continue and have confidence in our ability to navigate a rapidly changing operating environment. Our 2022 guidance reaffirms that we are creating a new, higher base from which we expect to grow. Our adjusted FIFO operating profit guidance for 2022 is $900 million higher than our TSR model would have projected when we announced it in 2019. Our guidance also highlights the flexibility and multiple levers that exist within our model today, which will allow us to deliver adjusted net earnings per diluted share growth in 2022, while cycling COVID-19 effects and investing for future growth. We are leveraging technology, innovation, and our competitive moats to build lasting competitive advantages. Our balanced model is allowing us to deliver for shareholders, invest in our associates, continue to provide fresh affordable food to our customers and uplift our communities. We remain confident in our value creation model and we expect to deliver total shareholder return over the long-term within our target range of 8% to 11%. 24 The following table provides highlights of our financial performance: Financial Performance Data ($ in millions, except per share amounts) Sales Sales without fuel Net earnings attributable to The Kroger Co. Adjusted net earnings attributable to The Kroger Co. Net earnings attributable to The Kroger Co. per diluted common share Adjusted net earnings attributable to The Kroger Co. per diluted common share Operating profit Adjusted FIFO operating profit Dividends paid Dividends paid per common share Identical sales excluding fuel FIFO gross margin rate, excluding fuel, bps increase (decrease) OG&A rate, excluding fuel and Adjusted Items, bps decrease Reduction in total debt, including obligations under finance leases compared to prior fiscal year end Share repurchases OVERVIEW Notable items for 2021 are: Shareholder Return 2021 137,888 123,210 1,655 2,802 2.17 3.68 3,477 4,310 589 0.78 0.2 % (0.43) 0.61 49 1,647 $ $ $ $ $ $ $ $ $ $ $ $ Fiscal Year Percentage Change 4.1 % $ 0.2 % $ (36.0)% $ 2.3 % $ (33.6)% $ 6.1 % $ 25.1 % $ 6.3 % $ 10.3 % $ 14.7 % $ N/A N/A N/A 2020 132,498 123,012 2,585 2,740 3.27 3.47 2,780 4,056 534 0.68 14.1 % 0.14 0.06 N/A N/A $ $ 663 1,324 • Net earnings attributable to The Kroger Co. per diluted common share of $2.17, which results in a two-year compounded annual growth rate of 3.1%. • Adjusted net earnings attributable to The Kroger Co. per diluted common share of $3.68, which results in a two-year compounded annual growth rate of 29.6%. • Achieved operating profit of $3.5 billion, which results in a two-year compounded annual growth rate of 24.3%. • Achieved adjusted FIFO operating profit of $ 4.3 billion, which results in a two-year compounded annual growth rate of 20.0%. • Generated cash flows from operations of $6.2 billion. • Returned $2.2 billion to shareholders through share repurchases and dividend payments. • Achieved cost savings greater than $1 billion for the fourth consecutive year. Other Financial Results • Identical sales, excluding fuel, increased 0.2%, which results in a two-year stacked growth rate of 14.3%. • Digital sales two-year stacked growth was 113%. Digital sales include products ordered online and picked up at our stores and products delivered or shipped directly to a customer’s home. • Our Home Chef business surpassed $1 billion in sales in 2021, becoming the newest Our Brands billion dollar brand in our portfolio. 25 • Alternative profit streams contributed an incremental $150 million of operating profit for 2021 fueled by our digital media business – Kroger Precision Marketing (“KPM”) and Kroger Personal Finance. • We are currently operating in a more volatile inflationary environment and we experienced higher product cost inflation in most departments during 2021. Our LIFO charge for 2021 was $197 million, compared to a credit of $7 million in 2020. This increase of $204 million was attributable to higher inflation in most categories, with grocery and meat being the largest contributors. Significant Events • During 2021, we settled certain company-sponsored pension plan obligations using existing assets of the plans. We recognized a non-cash settlement charge of $87 million, $68 million net of tax, associated with the settlement of our obligations for the eligible participants’ pension balances that were distributed out of the plans via a lump sum distribution or the purchase of an annuity contract, based on each participant’s election. The settlement charge is included in “Non-service component of company-sponsored pension plan costs” in the Consolidated Statements of Operations. The effect of this transaction on net earnings per diluted share was $0.09 for 2021 and is excluded from adjusted net earnings per diluted share results. • During 2021, Fred Meyer and QFC and four local unions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the United Food and Commercial Workers (“UFCW”) Consolidated Pension Plan. The agreement transferred $449 million, $344 million net of tax, in net accrued pension liabilities and prepaid escrow funds, to fulfill obligations for past service for associates and retirees. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and are expected to be paid evenly over seven years. The impact of this transaction on net earnings per diluted share was $0.45 for 2021 and is excluded from adjusted net earnings per diluted share results. • During 2021, we opened our first three Kroger Delivery customer fulfillment centers powered by Ocado Group plc in Monroe, Ohio, Groveland, Florida, a new Kroger geography, and Forest Park, Georgia. COVID-19 The COVID-19 pandemic has had, and is continuing to have, a significant impact on our business and results of operations. We expect the ultimate significance will be dictated by the length of time that such circumstances continue, which will depend on the currently unknowable extent and duration of the COVID-19 pandemic and any governmental and public actions taken in response. Since the beginning of the pandemic, our most urgent priority has been to safeguard our associates and customers. We’ve implemented dozens of new safety and cleanliness processes and procedures in our stores and other facilities. As the pandemic has evolved, we have experienced unusually strong sales beginning in 2020 and continuing throughout 2021. We continue to see people eat and work more from home and prioritize health and cleanliness. The change in customer behavior caused by COVID-19 was a major factor in our results over the past two years. The pandemic brought to the forefront the importance to the customer of fresh and a seamless digital offering. We continued to invest and grow our capabilities in these areas, which led to achieving positive identical sales without fuel in 2021 against very strong identical sales results last year, which results in a two-year stacked growth rate of 14.3%. Digital sales two-year stacked growth was 113% for 2021, enabled by our team’s ability to pivot quickly and effectively in the first stage of the pandemic to ensure that we were meeting our customers’ demand for safe, low-touch or touchless shopping modalities. Our operating, general and administrative (“OG&A”) expenses for 2021 reflected a reduction of the significant COVID related costs we incurred in 2020. Our OG&A expenses for 2020 included significant incremental costs related to investments in pay and benefits for our associates and measures to safeguard our associates and customers. As a percentage of sales, these incremental costs in 2020 were partially offset by sales leverage resulting from strong sales growth due to the COVID-19 pandemic. 26 Strong execution by our team and accelerated investments in our competitive moats over the past two fiscal years allowed us to strengthen our balance sheet. At the onset of the pandemic in March 2020, we proactively borrowed $1 billion under the revolving credit facility. This was a precautionary measure in order to preserve financial flexibility, reduce reliance on the commercial paper market and maintain liquidity in response to the COVID-19 pandemic. During 2020, we fully repaid the $1 billion borrowed under the revolving credit facility in addition to $1.2 billion of commercial paper obligations outstanding as of year-end 2019, using cash generated by operations. We maintain a temporary cash investment balance of $1.5 billion as of year-end 2021. For additional information about our debt activity in 2021 and 2020, including the drawdown and repayments under our revolving credit facility, forward-starting interest rate swap agreements and our senior note issuances, see Note 5 to the Consolidated Financial Statements. For additional information about our business results, including the impact of the COVID-19 pandemic, see our Results of Operations and Liquidity and Capital Resources sections within MD&A. OUR BUSINESS The Kroger Co. (the “Company” or “Kroger”) was founded in 1883 and incorporated in 1902. We are one of the world’s largest retailers, as measured by revenue. Our retail business is built on the foundation of our market leading position in food retail which includes the added convenience of our retail pharmacies and fuel centers. Our market leading position in food retail reflects the strength of our competitive moats of Fresh, Our Brands, Data & Personalization and Seamless, and our unique combination of assets. We also leverage the data and traffic generated by our retail business to deliver incremental value and services for our customers that generates alternative profit streams. These alternative profit streams would not exist without our core retail business. Kroger is diversified across brands, product categories, channels of distribution, geographies and consumer demographics. Our unique combination of assets include the following: Stores As of January 29, 2022, Kroger operates supermarkets under a variety of local banner names in 35 states and the District of Columbia. As of January 29, 2022, Kroger operated, either directly or through its subsidiaries, 2,726 supermarkets, of which 2,252 had pharmacies and 1,613 had fuel centers. We connect with customers through our expanding seamless ecosystem and the consistent delivery of a full, fresh, and friendly customer experience. Fuel sales are an important part of our revenue, net earnings and loyalty offering. Our fuel strategy is to include a fuel center at each of our supermarket locations when it is feasible and it is expected to be profitable. Seamless Digital Ecosystem Our digital ecosystem provides a fresh and seamless offering for our customers. Through investment and innovation, we continue to improve our seamless ecosystem to ensure it remains relevant. We offer a convenient shopping experience for our customers regardless of how they choose to shop with us, including Pickup, Delivery and Ship. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 2,257 of our supermarkets and provide home delivery services, which allows us to offer digital solutions to 98% of our customers. We provide relevant customer-facing apps and interfaces that have the features customers want that are also reliable, easy to use and deliver a seamless customer experience across our store and digital channels. Merchandising and Manufacturing Our Brands products play an important role in our merchandising strategy and represented nearly $28 billion of our sales in 2021. We operate 33 food production plants, primarily bakeries and dairies, which supply approximately 29% of Our Brands units and 41% 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. 27 Our Data We are evolving from a traditional food retailer into a more diverse, food first business. The traffic and data generated by our retail supermarket business, including pharmacies and fuel centers, is enabling this transformation. Kroger serves over 60 million households annually and because of our market leading rewards program, 96% of customer transactions are tethered to a Kroger loyalty card. Our 20 years of investment in data science capabilities is allowing us to leverage this data to create personalized experiences and value for our customers and is also enabling our fast-growing, high operating margin alternative profits, including data analytic services and third party media revenue. Our retail media business – Kroger Precision Marketing – provides best in class media capabilities for our consumer packaged goods partners and is a key driver of our digital profitability and alternative profit. 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. Other Events Affecting our Business On January 27, 2020, Lucky’s Market filed a voluntary petition in the Bankruptcy Court seeking relief under the Bankruptcy Code. Lucky’s Market is included in our Consolidated Statements of Operations through January 26, 2020. Refer to Note 16 to the Consolidated Financial Statements for additional information. On April 26, 2019, we completed the sale of our Turkey Hill Dairy business for total proceeds of $225 million. Turkey Hill Dairy is included in our Consolidated Statements of Operations through April 25, 2019. On March 13, 2019, we completed the sale of our You Technology business to Inmar for total consideration of $565 million, including $396 million of cash and $64 million of preferred equity received upon closing. We are also entitled to receive other cash payments of $105 million over five years. The transaction includes a long-term service agreement for Inmar to provide us digital coupon services. You Technology is included in our Consolidated Statements of Operations through March 12, 2019. 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 FIFO operating profit, adjusted net earnings and adjusted net earnings per diluted share 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 and net earnings per diluted share 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. 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 and management believes FIFO gross margin is a useful metric to investors and analysts because it measures the merchandising and operational effectiveness of our go-to-market strategy. We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an important measure used by management and management believes FIFO operating profit is a useful metric to investors and analysts because it measures the operational effectiveness of our financial model. 28 The adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit metrics are important measures used by management to compare the performance of core operating results between periods. We believe adjusted net earnings, adjusted net earnings per diluted share and adjusted FIFO operating profit are useful metrics to investors and analysts because they present more accurate year-over-year comparisons of our net earnings, net earnings per diluted share and FIFO operating profit because adjusted items are not the result of our normal operations. Net earnings for 2021 include the following, which we define as the “2021 Adjusted Items:” • Charges to OG&A of $449 million, $344 million net of tax, for obligations related to withdrawal liabilities for a certain multi-employer pension fund, $66 million, $50 million net of tax, for the revaluation of Home Chef contingent consideration and $136 million, $104 million net of tax, for transformation costs (the “2021 OG&A Adjusted Items”). • Losses in other income (expense) of $87 million, $68 million net of tax, related to company-sponsored pension plan settlements and $821 million, $628 million net of tax, for the unrealized loss on investments (the “2021 Other Income (Expense) Adjusted Items”). • A reduction to income tax expense of $47 million primarily due to the completion of income tax audit examinations covering multiple years. Net earnings for 2020 include the following, which we define as the “2020 Adjusted Items:” • Charges to OG&A of $989 million, $754 million net of tax, for commitments to certain multi-employer pension funds, $189 million, $141 million net of tax, for the revaluation of Home Chef contingent consideration and $111 million, $81 million net of tax, for transformation costs (the “2020 OG&A Adjusted Items”). • Gains in other income (expense) of $1.1 billion, $821 million net of tax, for the unrealized gain on investments (the “2020 Other Income (Expense) Adjusted Item”). Net earnings for 2019 include the following, which we define as the “2019 Adjusted Items:” • Charges to OG&A of $135 million, $104 million net of tax, for obligations related to withdrawal liabilities for certain multi-employer pension funds; $80 million, $61 million net of tax, for a severance charge and related benefits; $412 million including $305 million attributable to The Kroger Co., $225 million net of tax, for impairment of Lucky’s Market; $52 million, $37 million net of tax, for transformation costs, primarily including 35 planned store closures; and a reduction to OG&A of $69 million, $49 million net of tax, for the revaluation of Home Chef contingent consideration (the “2019 OG&A Adjusted Items”). • Gains in other income (expense) of $106 million, $80 million net of tax, related to the sale of Turkey Hill Dairy; $70 million, $52 million net of tax, related to the sale of You Technology; and $157 million, $119 million net of tax, for the unrealized gain on investments (the “2019 Other Income (Expense) Adjusted Items”). The following table provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per diluted common share to adjusted net earnings attributable to The Kroger Co. per diluted common share excluding the 2021, 2020 and 2019 Adjusted Items: 29 Net Earnings per Diluted Share excluding the Adjusted Items ($ in millions, except per share amounts) Net earnings attributable to The Kroger Co. (Income) expense adjustments Adjustment for pension plan withdrawal liabilities(1)(2) Adjustment for gain on sale of Turkey Hill Dairy(1)(3) Adjustment for gain on sale of You Technology(1)(4) Adjustment for company-sponsored pension plan settlement charges(1)(5) Adjustment for loss (gain) on investments(1)(6) Adjustment for severance charge and related benefits(1)(7) Adjustment for deconsolidation and impairment of Lucky's Market attributable to The Kroger Co.(1)(8) Adjustment for Home Chef contingent consideration(1)(9) Adjustment for transformation costs(1)(10) Adjustment for income tax audit examinations(1) Total Adjusted Items 2021 1,655 $ 2020 2,585 $ 2019 1,659 $ 344 — — 68 628 — — 50 104 (47) 1,147 754 — — — (821) — — 141 81 — 155 104 (80) (52) — (119) 61 225 (49) 37 — 127 Net earnings attributable to The Kroger Co. excluding the Adjusted Items $ 2,802 $ 2,740 $ 1,786 Net earnings attributable to The Kroger Co. per diluted common share (Income) expense adjustments Adjustment for pension plan withdrawal liabilities(11) Adjustment for gain on sale of Turkey Hill Dairy(11) Adjustment for gain on sale of You Technology(11) Adjustment for company-sponsored pension plan settlement charges(11) Adjustment for loss (gain) on investments(11) Adjustment for severance charge and related benefits(11) Adjustment for deconsolidation and impairment of Lucky's Market attributable to The Kroger Co.(11) Adjustment for Home Chef contingent consideration(11) Adjustment for transformation costs(11) Adjustment for income tax audit examinations(11) Total Adjusted Items $ 2.17 $ 3.27 $ 2.04 0.45 — — 0.09 0.83 — — 0.07 0.14 (0.07) 1.51 0.95 — — — (1.05) — — 0.18 0.12 — 0.20 0.13 (0.10) (0.06) — (0.15) 0.08 0.28 (0.07) 0.04 — 0.15 Net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items $ 3.68 $ 3.47 $ 2.19 Average numbers of common shares used in diluted calculation 754 781 805 (1) The amounts presented represent the after-tax effect of each adjustment, which was calculated using discrete tax rates. (2) The pre-tax adjustment for pension plan withdrawal liabilities was $449 in 2021, $989 in 2020 and $135 in 2019. (3) The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106). (4) The pre-tax adjustment for gain on sale of You Technology was ($70). (5) The pre-tax adjustment for company-sponsored pension plan settlement charges was $87. (6) The pre-tax adjustment for loss (gain) on investments was $821 in 2021, ($1,105) in 2020 and ($157) in 2019. (7) The pre-tax adjustment for severance charge and related benefits was $80. (8) The pre-tax adjustment for deconsolidation and impairment of Lucky’s Market was $412 including a $107 net loss attributable to the minority interest of Lucky’s Market. (9) The pre-tax adjustment for Home Chef contingent consideration was $66 in 2021, $189 in 2020 and ($69) in 2019. (10) The pre-tax adjustment for transformation costs was $136 in 2021, $111 in 2020 and $52 in 2019. Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. (11) The amount presented represents the net earnings per diluted common share effect of each adjustment. 30 Key Performance Indicators We evaluate our results of operations and cash flows using a variety of key performance indicators, such as sales, identical sales, excluding fuel, FIFO gross margin, adjusted FIFO operating profit, adjusted net earnings, adjusted net earnings per diluted share and return on invested capital. We use these financial metrics and related computations to evaluate our operational effectiveness and our results of operations from period to period and to plan for near and long- term operating and strategic decisions. These key performance indicators should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. These measures, which are described in more detail in this Annual Report on Form 10-K, may not be comparable to similarly-titled performance indicators used by other companies. RESULTS OF OPERATIONS Sales Total Sales ($ in millions) Total sales to retail customers without fuel(3) Supermarket fuel sales Other sales(4) Total sales 2021 $ 122,293 14,678 917 $ 137,888 Percentage Change(1) Percentage Change(2) 2020 2019 0.1 % $ 122,134 9,486 54.7 % 4.4 % 878 4.1 % $ 132,498 13.6 % $ 107,487 14,052 (32.5)% 17.5 % 747 8.4 % $ 122,286 (1) This column represents the percentage change in 2021 compared to 2020. (2) This column represents the percentage change in 2020 compared to 2019. (3) Digital sales are included in the “total sales to retail customers without fuel” line above. Digital sales include products ordered online and picked up at our stores and products delivered or shipped directly to a customer’s home. Digital sales decreased approximately 3% in 2021 and grew approximately 116% in 2020 and 29% in 2019. The change in results for 2021 compared to 2020 is primarily due to cycling COVID-19 trends. While digital sales decreased 3% during 2021, almost all customers who reduced their online spend during the year continued to shop with us in store, highlighting the power of our seamless ecosystem and our ability to create a meaningful customer experience across channels. (4) Other sales primarily relate to external sales at food production plants, data analytic services and third party media revenue. The increase in 2021, compared to 2020, is primarily due to an increase in data analytic services and third- party media revenue, partially offset by decreased external sales at food production plants due to the closing of a plant. The increase in 2020, compared to 2019, is primarily due to growth in third-party media revenue, partially offset by decreased sales due to the disposal of Turkey Hill Dairy and You Technology in the first quarter of 2019. Total sales increased in 2021, compared to 2020, by 4.1%. The increase was primarily due to an increase in supermarket fuel sales. Total sales, excluding fuel, increased 0.2% in 2021, compared to 2020, which was primarily due to our identical sales increase, excluding fuel, of 0.2%. Identical sales, excluding fuel, increased in 2021 on top of record sales results in 2020, which was primarily caused by unprecedented demand due to the COVID-19 pandemic during 2020. Our two-year identical sales, excluding fuel, stacked growth was 14.3%. Total supermarket fuel sales increased 54.7% in 2021, compared to 2020, primarily due to an increase in fuel gallons sold of 7.9% and an increase in the average retail fuel price of 43.6%. The increase in the average retail fuel price was caused by an increase in the product cost of fuel. 31 Total sales increased in 2020, compared to 2019, by 8.4%. The increase was due to an increase in total sales to retail customers without fuel, partially offset by a reduction in supermarket fuel sales and decreased sales due to the disposal of Turkey Hill Dairy and You Technology in the first quarter of 2019. Total sales to retail customers without fuel increased 13.6% in 2020, compared to 2019. The increase was primarily due to our identical sales increase, excluding fuel, of 14.1%, partially offset by decreased sales due to the deconsolidation of Lucky’s Market in the fourth quarter of 2019. Total sales excluding fuel and dispositions increased 14.2% in 2020 compared to 2019. The significant increase in identical sales, excluding fuel, was caused by unprecedented demand due to the COVID-19 pandemic, digital sales growth and growth in market share. Market share growth contributed to our identical sales increase, excluding fuel, as our sales outpaced the general growth in the food retail industry during 2020. The increase in identical sales, excluding fuel, was broad based across all supermarket divisions and remained heightened throughout 2020. During the pandemic, customers reduced trips while significantly increasing basket value. Total supermarket fuel sales decreased 32.5% in 2020, compared to 2019, primarily due to a decrease in fuel gallons sold of 17.5% and a decrease in the average retail fuel price of 18.2%. The decrease in fuel gallons sold was reflective of the national trend, which decreased due to the COVID-19 pandemic. The decrease in the average retail fuel price was caused by a decrease 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. We define Kroger Specialty Pharmacy businesses as identical when physical locations have been in operation continuously for five full quarters; discontinued patient therapies are excluded from the identical sales calculation starting in the quarter of transfer or termination. 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. Our identical sales, excluding fuel, results are summarized in the following table. We used the identical sales, excluding fuel, dollar figures presented below to calculate percentage changes for 2021 and 2020. Excluding fuel Excluding fuel Gross Margin, LIFO and FIFO Gross Margin Identical Sales ($ in millions) $ 2021 120,802 $ 0.2 % 2020 120,575 14.1 % 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 22.01% in 2021 and 23.32% in 2020. The decrease in rate in 2021, compared to 2020, resulted primarily from increased fuel sales, which have a lower gross margin rate, a decrease in our fuel gross margin, continued strategic investments in lower prices for our customers, a COVID-19-related inventory write down for personal protective equipment donated to community partners, a higher LIFO charge and increased shrink and transportation costs, as a percentage of sales, partially offset by growth in our alternative profit streams and effective negotiations to achieve savings on the cost of products sold. Our LIFO charge was $197 million in 2021 compared to a LIFO credit of $7 million in 2020. The increase in our LIFO charge was attributable to higher inflation in most categories, with grocery and meat being the largest contributors. Our FIFO gross margin rate, which excludes the LIFO charge, was 22.15% in 2021, compared to 23.32% in 2020. 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, our FIFO gross margin rate decreased 43 basis points in 2021, compared to 2020. This decrease resulted primarily from continued strategic investments in lower prices for our customers, a COVID-19-related inventory write down for personal protective equipment donated to community partners and increased shrink and transportation costs, as a percentage of sales, partially offset by growth in our alternative profit streams and effective negotiations to achieve savings on the cost of products sold. 32 Operating, General and Administrative Expenses OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Rent expense, depreciation and amortization expense, and interest expense are not included in OG&A. OG&A expenses, as a percentage of sales, were 16.83% in 2021 and 18.49% in 2020. The decrease in 2021, compared to 2020, resulted primarily from decreased COVID-19-related costs, lower contributions to multi-employer pension plans, decreased incentive plan costs, the 2020 OG&A Adjusted Items, the effect of increased fuel sales, which decreases our OG&A rate, as a percentage of sales, and broad-based improvement from cost savings initiatives that drive administrative efficiencies, store productivity and sourcing cost reductions, partially offset by significant investments in our associates and the 2021 OG&A Adjusted Items. 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 2021 OG&A Adjusted Items and the 2020 OG&A Adjusted Items, our OG&A rate decreased 61 basis points in 2021, compared to 2020. This decrease resulted primarily from decreased COVID-19-related costs, lower contributions to multi-employer pension plans, decreased incentive plan costs and broad-based improvement from cost savings initiatives that drive administrative efficiencies, store productivity and sourcing cost reductions, partially offset by significant investments in our associates. Rent Expense Rent expense was $845 million, or 0.61% of sales, for 2021, compared to $874 million, or 0.66% of sales, for 2020. Rent expense, as a percentage of sales, decreased 5 basis points in 2021, compared to 2020, primarily due to the completion of a property transaction related to 28 previously leased properties that we are now accounting for as owned locations and therefore recognizing depreciation and amortization expense over their useful life. For additional information about this transaction, see Note 5 to the Consolidated Financial Statements. Depreciation and Amortization Expense Depreciation and amortization expense was $2.8 billion, or 2.05% of sales, for 2021, compared to $2.7 billion, or 2.07% of sales, for 2020. Depreciation and amortization expense remained consistent, as a percentage of sales, in 2021, compared to 2020. Operating Profit and FIFO Operating Profit Operating profit was $3.5 billion, or 2.52% of sales, for 2021, compared to $2.8 billion, or 2.10% of sales, for 2020. Operating profit, as a percentage of sales, increased 42 basis points in 2021, compared to 2020, due to decreased OG&A expense, as a percentage of sales, partially offset by an increased LIFO charge and a lower FIFO gross margin rate. Fuel earnings also contributed to our operating profit growth for 2021, compared to 2020. FIFO operating profit was $3.7 billion, or 2.66% of sales, for 2021, compared to $2.8 billion, or 2.09% of sales, for 2020. FIFO operating profit, as a percentage of sales, excluding the 2021 and 2020 Adjusted Items, increased 7 basis points in 2021, compared to 2020, due to decreased OG&A expense, as a percentage of sales, partially offset by a lower FIFO gross margin rate. Fuel earnings also contributed to our FIFO operating profit growth for 2021, compared to 2020. Specific factors contributing to the trends driving operating profit and FIFO operating profit identified above are discussed earlier in this section. 33 The following table provides a reconciliation of operating profit to FIFO operating profit, and to Adjusted FIFO operating profit, excluding the 2021 and 2020 Adjusted Items: Operating Profit excluding the Adjusted Items ($ in millions) Operating profit LIFO charge (credit) FIFO Operating profit Adjustment for pension plan withdrawal liabilities Adjustment for Home Chef contingent consideration Adjustment for transformation costs(1) Other 2021 and 2020 Adjusted items 2021 2020 $ 3,477 197 $ 2,780 (7) 3,674 2,773 449 66 136 (15) 636 989 189 111 (6) 1,283 Adjusted FIFO operating profit excluding the adjustment items above $ 4,310 $ 4,056 (1) Transformation costs primarily include costs related to store and business closure costs and third-party professional consulting fees associated with business transformation and cost saving initiatives. Interest Expense Interest expense totaled $571 million in 2021 and $544 million in 2020. The increase in interest expense in 2021, compared to 2020, resulted primarily from the completion of a property transaction related to 28 previously leased properties that we are now accounting for as owned locations. The structure used to complete this transaction requires our liability to be shown as debt. As a result of this transaction, rent expense decreased with a corresponding increase in interest expense and depreciation and amortization expense. For additional information about this transaction, see Note 5 to the Consolidated Financial Statements. Income Taxes Our effective income tax rate was 18.8% in 2021 and 23.2% in 2020. The 2021 tax rate differed from the federal statutory rate due to a discrete benefit of $47 million which was primarily from the favorable outcome of income tax audit examinations covering multiple years, the benefit from share-based payments and the utilization of tax credits, partially offset by the effect of state income taxes. The 2020 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions. 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 $2.17 per diluted share for 2021 represented a decrease of 33.6% compared to net earnings of $3.27 per diluted share for 2020. Adjusted net earnings of $3.68 per diluted share for 2021 represented an increase of 6.1% compared to adjusted net earnings of $3.47 per diluted share for 2020. The increase in adjusted net earnings per diluted share resulted primarily from increased FIFO operating profit, excluding fuel, increased fuel earnings and lower weighted average common shares outstanding due to common share repurchases, partially offset by a higher LIFO charge. 34 RETURN ON INVESTED CAPITAL We calculate return on invested capital (“ROIC”) by dividing adjusted ROIC operating profit for the prior four quarters by the average invested capital. Adjusted operating profit for ROIC purposes is calculated by excluding certain items included in operating profit, and adding back our LIFO charge (credit), 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 and (iii) the average accumulated depreciation and amortization; 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. 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. 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. The following table provides a calculation of ROIC for 2021 and 2020 on a 52 week basis ($ in millions): Return on Invested Capital Numerator Operating profit LIFO charge (credit) Depreciation and amortization Rent Adjustment for Home Chef contingent consideration Adjustment for pension plan withdrawal liabilities Adjustment for transformation costs Adjusted ROIC operating profit 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 invested capital Return on Invested Capital Fiscal Year Ended January 29, 2022 January 30, 2021 $ $ 3,477 197 2,824 845 66 449 136 7,994 $ $ 2,780 (7) 2,747 874 189 989 111 7,683 $ 48,874 (54) 1,472 24,868 (6,898) (1,575) (5,976) $ 60,711 $ 46,959 (74) 1,377 24,161 (6,514) (1,291) (4,926) $ 59,692 13.17 % 12.87 % (1) Taxes receivable were $42 as of January 29, 2022, $66 as of January 30, 2021 and $82 as of February 1, 2020. (2) Other current liabilities included accrued income taxes of $9 as of January 30, 2021. We did not have any accrued income taxes as of January 29, 2022 and February 1, 2020. Accrued income taxes are removed from other current liabilities in the calculation of average invested capital. 35 CRITICAL ACCOUNTING ESTIMATES 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 estimates 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 $64 million in 2021 and $70 million in 2020. We record costs to reduce the carrying value of long-lived assets in the Consolidated Statements of Operations as OG&A 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. 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, 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 2 for further information about goodwill. 36 Goodwill Our goodwill totaled $3.1 billion as of January 29, 2022. 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. The 2021 fair value of our Kroger Specialty Pharmacy reporting unit was estimated using multiple valuation techniques: a discounted cash flow model (income approach), a market multiple model and a comparable mergers and acquisition model (market approaches), with each method weighted in the calculation. The income approach relies on management’s projected future cash flows, estimates of revenue growth rates, margin assumptions and an appropriate discount rate. The market approaches require the determination of an appropriate peer group, which is utilized to derive estimated fair values based on selected market multiples. The annual evaluation of goodwill performed in 2021, 2020 and 2019 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. For additional information relating to our results of the goodwill impairment reviews performed during 2021, 2020 and 2019, see Note 2 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 $1.1 billion in 2021, $619 million in 2020 and $461 million in 2019. The increase in 2021, compared to 2020, is due to the contractual payments we made in 2021 related to our commitments established for certain ratification agreements. The increase in 2020, compared to 2019, is due to incremental contributions we made in 2020 to multi-employer pension plans, helping stabilize future associate benefits. 37 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. Significant effects of these restructuring agreements recorded in our Consolidated Financial Statements are: • • • In 2021, we incurred a $449 million charge, $344 million net of tax, for obligations related to withdrawal liabilities for a certain multi-employer pension fund. In 2020, we incurred a $989 million charge, $754 million net of tax, for commitments to certain multi-employer pension funds. In 2019, we incurred a $135 million charge, $104 million net of tax, for obligations related to withdrawal liabilities for certain multi-employer pension funds. 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 the present value of actuarially accrued liabilities in most of these multi-employer plans exceeds the value of the assets held in trust to pay benefits, and we expect that our contributions to most of these funds will increase over the next few years. We have attempted to estimate the amount by which these liabilities exceed the assets, (i.e., the amount of underfunding), as of December 31, 2021. 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, 2021, we estimate our share of the underfunding of multi-employer pension plans to which we contribute was approximately $1.1 billion, $850 million net of tax. This represents a decrease in the estimated amount of underfunding of approximately $600 million, $450 million net of tax, as of December 31, 2021, compared to December 31, 2020. The decrease in the amount of underfunding is primarily attributable to higher expected returns on assets in the funds during 2021 and the restructuring of the Sound Retirement Trust, helping stabilize future associate benefits. 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. 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. 38 See Note 15 to the Consolidated Financial Statements for more information relating to our participation in these multi-employer pension plans. NEW ACCOUNTING STANDARDS Refer to Note 17 and Note 18 to the Consolidated Financial Statements for recently adopted accounting standards and recently issued accounting standards not yet adopted as of January 29, 2022. LIQUIDITY AND CAPITAL RESOURCES Cash Flow Information The following table summarizes our net increase in cash and temporary cash investments for 2021 and 2020: Net cash provided by (used in) Operating activities Investing activities Financing activities Net increase in cash and temporary cash investments Net cash provided by operating activities 2021 2020 $ $ 6,190 (2,611) (3,445) 134 $ $ 6,815 (2,814) (2,713) 1,288 We generated $6.2 billion of cash from operations in 2021, compared to $6.8 billion in 2020. Net earnings including noncontrolling interests, adjusted for non-cash items, generated approximately $6.4 billion of operating cash flow in 2021 compared to $5.2 billion in 2020. Cash provided (used) by operating activities for changes in operating assets and liabilities, including working capital, was ($229) million in 2021 compared to $1.6 billion in 2020. The decrease in cash provided by operating activities for changes in operating assets and liabilities, including working capital, was primarily due to the following: • A decrease in the current portion of our commitments due to the National Fund as a result of a contractual payment; and • An increase in long-term liabilities at the end of 2020, primarily due to an increase in the noncurrent portion of the deferral of the employer portion of social security tax payments as a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which was enacted in the first quarter of 2020; • Partially offset by a decrease in prepaid and other current assets due to the transfer of prepaid escrow funds to fulfill obligations related to the restructuring of multi-employer pension plans. Cash paid for taxes decreased in 2021, compared to 2020, primarily due to lower taxable income in 2021, compared to 2020. Net cash used by investing activities Investing activities used cash of $2.6 billion in 2021, compared to $2.8 billion in 2020. The amount of cash used by investing activities decreased in 2021, compared to 2020, primarily due to decreased payments for property and equipment in 2021 due to timing of payments. 39 Net cash used by financing activities We used $3.4 billion of cash for financing activities in 2021, compared to $2.7 billion in 2020. The amount of cash used for financing activities increased in 2021, compared to 2020, primarily due to the following: • Decreased proceeds from issuance of long-term debt; • • Increased payments on long-term debt including obligations under finance leases; and Increased treasury stock purchases; • Partially offset by decreased net payments on commercial paper; and • Increased proceeds from financing arrangement. Capital Investments Capital investments, including changes in construction-in-progress payables and excluding the purchase of leased facilities, totaled $3.2 billion in 2021 and 2020. Capital investments for the purchase of leased facilities totaled $58 million in 2020. We did not purchase any leased facilities in 2021. Our capital priorities align directly with our value creation model and our target to consistently grow net earnings. Our capital program includes initiatives to enhance the customer experience in stores, improve our process efficiency and enhance our digital capabilities through technology developments. As such, we increased our allocation of capital investments related to digital and technology compared to prior years. These investments are expected to drive digital sales growth and improve operating efficiency by removing cost and waste from our business. The table below shows our supermarket storing activity and our total supermarket square footage for 2021, 2020 and 2019: Beginning of year Opened Opened (relocation) Acquired Closed (operational) Closed (relocation) End of year Supermarket Storing Activity 2021 2,742 4 4 — (20) (4) 2,726 2020 2,757 5 6 — (20) (6) 2,742 2019 2,764 10 9 6 (19) (13) 2,757 Total supermarket square footage (in millions) 179 179 180 Debt Management Total debt, including both the current and long-term portions of obligations under finance leases, decreased $49 million to $13.4 billion as of year-end 2021 compared to 2020. The decrease in 2021, compared to 2020, resulted from the payments of $300 million of senior notes bearing an interest rate of 2.60%, $500 million of senior notes bearing an interest rate of 2.95% and $500 million of senior notes bearing an interest rate of 3.40%, partially offset by an increase in debt primarily from the completion of a property transaction and a net increase in obligations under finance leases of $616 million primarily related to our three Kroger Delivery customer fulfillment center openings. We purchased and then immediately sold a portfolio of 28 of our existing stores, allowing us to secure long-term access to these locations at favorable lease rates. The structure used to complete this transaction requires our liability to be shown as debt. 40 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 $1.4 billion in 2021 and $1.2 billion in 2020. 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 $225 million in 2021 and $128 million in 2020 of our common shares under the stock option program. On September 11, 2020, our Board of Directors approved a $1.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “September 2020 Repurchase Program”). The September 2020 Repurchase Program was exhausted on June 11, 2021. On June 16, 2021, our Board of Directors approved a $1.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “June 2021 Repurchase Program”). On December 30, 2021, our Board of Directors approved a $1.0 billion share repurchase program to reacquire shares via open market purchase or privately negotiated transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “December 2021 Repurchase Program”). The December 2021 Repurchase Program authorization replaced the existing June 2021 Repurchase Program. The shares repurchased in 2021 were reacquired under the following share repurchase programs: • The September 2020 Repurchase Program. • The June 2021 Repurchase Program. • The December 2021 Repurchase Program. • 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”). As of January 29, 2022, there was $821 million remaining under the December 2021 Repurchase Program. During the first quarter through March 23, 2022, we repurchased an additional $92 million of our common shares under the stock option program and $287 million additional shares under the December 2021 Repurchase Program. As of March 23, 2022, we have $534 million remaining under the December 2021 Repurchase Program. 41 Dividends The following table provides dividend information for 2021 and 2020 ($ in millions, except per share amounts): Cash dividends paid Cash dividends paid per common share Liquidity Needs 2021 2020 $ $ 589 0.78 $ $ 534 0.68 We held cash and temporary cash investments of $1.8 billion, as of the end of 2021, which reflects our elevated operating performance and significant improvements in working capital. We actively manage our cash and temporary cash investments in order to internally fund operating activities, support and invest in our core businesses, make scheduled interest and principal payments on our borrowings and return cash to shareholders through cash dividend payments and share repurchases. Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to changes in economic and market conditions. We remain committed to our dividend and share repurchase programs and we will evaluate the optimal use of any excess free cash flow, consistent with our previously stated capital allocation strategy. 42 The table below summarizes our short-term and long-term material cash requirements, based on year of maturity or settlement, as of January 29, 2022 (in millions of dollars): 2022 2023 2024 2025 2026 Thereafter Total Contractual Obligations(1)(2) Long-term debt(3) Interest on long-term debt(4) Finance lease obligations Operating lease obligations Self-insurance liability(5) Construction commitments(6) CARES Act(7) Purchase obligations(8) Total $ 5 $ 451 $ 1,130 $ 494 159 920 236 542 311 894 8,688 $ 11,745 7,126 4,918 2,100 1,323 9,915 5,961 721 126 542 — 311 — 4,425 2,163 $ 4,007 $ 3,208 $ 1,796 $ 1,734 $ 2,961 $ 23,179 $ 36,885 84 $ 1,387 $ 422 152 717 65 — — 294 399 152 664 40 — — 319 471 158 862 152 — — 435 422 156 791 102 — — 320 (1) The contractual obligations table excludes funding of pension and other postretirement benefit obligations, which totaled approximately $36 million in 2021. For additional information about these obligations, see Note 14 to the Consolidated Financial Statements. This table also excludes contributions under various multi-employer pension plans, which totaled $1.1 billion in 2021. For additional information about these multi-employer pension plans, see Note 15 to the Consolidated Financial Statements. (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 January 29, 2022, we had no outstanding commercial paper and no borrowings under our credit facility. (4) Amounts include contractual interest payments using the interest rate as of January 29, 2022 and stated fixed and swapped interest rates, if applicable, for all other debt instruments. (5) The amounts included 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) The CARES Act, which was enacted on March 27, 2020, includes measures to assist companies in response to the COVID-19 pandemic. These measures include deferring the due dates of tax payments and other changes to income and non-income-based tax laws. As permitted under the CARES Act, we are deferring the remittance of the employer portion of the social security tax. The social security tax provision requires that the deferred employment tax be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. During 2020, we deferred the employer portion of social security tax of $622 million. Of the total, $311 million was paid during 2021 and $311 million is included in “Other current liabilities” in our Consolidated Balance Sheets. (8) 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. We included our future commitments for customer fulfillment centers for which we have placed an order as of January 29, 2022. We did not include our commitments associated with additional customer fulfillment centers that have not yet been ordered. We expect our future commitments for customer fulfillment centers will continue to grow as we place orders for additional customer fulfillment centers. 43 We expect to meet our short-term and long-term liquidity needs with cash and temporary cash investments on hand at the end of 2021, cash flows from our operating activities and other sources of liquidity, including borrowings under our commercial paper program and bank credit facility. Our short-term and long-term liquidity needs include anticipated requirements for working capital to maintain our operations, pension plan commitments, interest payments and scheduled principal payments of debt and commercial paper, servicing our lease obligations, self-insurance liabilities, capital investments, payments deferred under the CARES Act and other purchase obligations. We may also require additional capital in the future to fund organic growth opportunities, additional customer fulfilment centers, joint ventures or other business partnerships, property development or acquisitions, dividends and share repurchases. In addition, 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. 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. For additional information about our debt activity in 2021, see Note 5 to the Consolidated Financial Statements. Factors Affecting Liquidity We can currently borrow on a daily basis approximately $2.75 billion under our commercial paper program. At January 29, 2022, we had no outstanding commercial paper. 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. Factors that could affect our credit rating include changes in our operating performance and financial position, the state of the economy, the current inflationary environment, conditions in the food retail industry and changes in our business model. Further information on the risks and uncertainties that can affect our business can be found in the “Risk Factors” section set forth in Item 1A of Part I of this Annual Report on Form 10-K. 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 23, 2022, we had no commercial paper borrowings outstanding. Our credit facility requires the maintenance of a Leverage Ratio (our “financial covenant”). A failure to maintain our financial covenant would impair our ability to borrow under the credit facility. This financial covenant is described below: • Our Leverage Ratio (the ratio of Net Debt to Adjusted EBITDA, as defined in the credit facility) was 1.46 to 1 as of January 29, 2022. 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. Our credit facility is more fully described in Note 5 to the Consolidated Financial Statements. We were in compliance with our financial covenant at year-end 2021. As of January 29, 2022, we maintained a $2.75 billion (with the ability to increase by $1.25 billion), unsecured revolving credit facility that, unless extended, terminates on July 6, 2026. Outstanding borrowings under the credit facility, commercial paper borrowings, and some outstanding letters of credit reduce funds available under the credit facility. As of January 29, 2022, we had no 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 $2 million as of January 29, 2022. In addition to the available credit mentioned above, as of January 29, 2022, we had authorized for issuance $3.3 billion of securities remaining under a shelf registration statement filed with the SEC and effective on May 24, 2019. 44 We 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, to meet the state bonding requirements. This could increase our cost or decrease the funds available under our credit facility if the letters of credit were issued against our credit facility. We had $412 million of outstanding surety bonds as of January 29, 2022. These surety bonds expire during fiscal year 2022 and are expected to be renewed. We have standby letters of credit outstanding as part of our insurance program and for other business purposes. The letters of credit for our insurance program collateralize obligations to our insurance carriers in connection with the settlement of potential claims. We have also provided a letter of credit which supports our commitment to build a certain number of fulfillment centers. The balance of this letter of credit reduces primarily upon the construction of each fulfillment center. If we do not reach our total purchase commitment, we will be responsible for the balance remaining on the letter of credit. We had $363 million of outstanding standby letters of credit as of January 29, 2022. These standby letters of credit expire during fiscal year 2022 and are expected to be renewed. Letters of credit do not represent liabilities of ours and are not reflected in the Company’s Consolidated Balance Sheets. 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. TWO-YEAR FINANCIAL RESULTS Significant fluctuations occurred in our business during 2020 due to the COVID-19 pandemic. As a result, management compares current year identical sales without fuel, adjusted FIFO operating profit and adjusted net earnings per diluted share results to the same metrics for the comparable period in 2019, in addition to comparisons made to 2020. This enables management to evaluate results of the business and our financial model over a longer period of time, and to better understand the state of the business after the height of the pandemic compared to the period of time prior to the pandemic. The purpose of the following tables is to better illustrate comparable two-year growth from our ongoing business for 2021 for identical sales without fuel, adjusted FIFO operating profit and adjusted net earnings per diluted share compared to 2019. Two year financial results for these measures are useful metrics to investors and analysts because they present more accurate comparisons of results and trends over a longer period of time to demonstrate the effect of COVID-19 on our results. The tables provide the two-year stacked results or compounded annual growth rate for each measure presented and how it was calculated. Items identified in these tables should not be considered alternatives to any other measure of performance. These items should not be reviewed in isolation or considered substitutes for the Company's financial results including those measures reported in accordance with GAAP. Due to the nature of these items, as further described below, it is important to identify these items and to review them in conjunction with the Company's financial results reported in accordance with GAAP. 45 Identical Sales Two-Year Stacked ($ in millions) Excluding fuel Individual year identical sales result Two-year stacked identical sales result 2021 2020 2020 2019 $ 120,802 $ 120,575 $ 120,762 $ 105,806 0.2 % 14.3 % 14.1 % Operating Profit Excluding the Adjusted Items Two-Year CAGR ($ in millions) Operating profit LIFO charge FIFO Operating profit Adjustment for pension plan withdrawal liabilities Adjustment for Home Chef contingent consideration Adjustment for severance charge and related benefits Adjustment for transformation costs(1) Adjustment for deconsolidation and impairment of Lucky's Market(2) Other 2021 and 2019 Adjusted items 2021 2019 $ 3,477 197 $ 3,674 449 66 — 136 — (15) 636 2,251 105 2,356 135 (69) 80 52 412 29 639 Adjusted FIFO operating profit excluding the adjusted items above $ 4,310 $ 2,995 Two-year operating profit CAGR(3) Two-year adjusted FIFO operating profit excluding the adjusted items above CAGR(3) 24.3 % 20.0 % (1) Transformation costs primarily include costs related to store and business closure costs and third-party professional consulting fees associated with business transformation and cost saving initiatives. (2) The adjustment for impairment of Lucky’s Market includes a $107 net loss attributable to the minority interest of Lucky’s Market. (3) CAGR represents the compounded annual growth rate. 46 2021 2019 $ 1,655 $ 1,659 104 — (80) (52) (119) 225 (49) 37 61 — 127 1,786 2.04 0.13 — (0.10) (0.06) (0.15) 0.28 (0.07) 0.04 0.08 — 0.15 2.19 805 Net Earnings per Diluted Share Excluding the Adjusted Items Two-Year CAGR ($ in millions, except per share amounts) Net earnings attributable to The Kroger Co. (Income) expense adjustments Adjustment for pension plan withdrawal liabilities(1)(2) Adjustment for company-sponsored pension plan settlement charges(1)(3) Adjustment for gain on sale of Turkey Hill Dairy(1)(4) Adjustment for gain on sale of You Technology(1)(5) Adjustment for loss (gain) on investments(1)(6) Adjustment for deconsolidation and impairment of Lucky's Market attributable to the Kroger Co.(1)(7) Adjustment for Home Chef contingent consideration(1)(8) Adjustment for transformation costs(1)(9) Adjustment for severance charge and related benefits(1)(10) Adjustment for income tax audit examinations(1) 2021 and 2019 Adjusted Items Net earnings attributable to The Kroger Co. excluding the Adjusted Items Net earnings attributable to The Kroger Co. per diluted common share (Income) expense adjustments Adjustment for pension plan withdrawal liabilities(11) Adjustment for company-sponsored pension plan settlement charges(11) Adjustment for gain on sale of Turkey Hill Dairy(11) Adjustment for gain on sale of You Technology(11) Adjustment for loss (gain) on investments(11) Adjustment for deconsolidation and impairment of Lucky's Market attributable to the $ $ Kroger Co.(11) Adjustment for Home Chef contingent consideration(11) Adjustment for transformation costs(11) Adjustment for severance charge and related benefits(11) Adjustment for income tax audit examinations(11) 2021 and 2019 Adjusted Items 344 68 — — 628 — 50 104 — (47) 1,147 2,802 2.17 0.45 0.09 — — 0.83 — 0.07 0.14 — (0.07) 1.51 $ $ Net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items $ 3.68 $ Average number of common shares used in diluted calculation Two-year net earnings attributable to The Kroger Co. per diluted common share CAGR(12) Two-year net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items CAGR(12) 754 3.1 % 29.6 % 47 Net Earnings per Diluted Share Excluding the Adjusted Items Two-Year CAGR (continued) ($ in millions, except per share amounts) (1) The amounts presented represent the after-tax effect of each adjustment, which was calculated using discrete tax rates. (2) The pre-tax adjustment for pension plan withdrawal liabilities was $449 in 2021 and $135 in 2019. (3) The pre-tax adjustment for company-sponsored pension plan settlement charges was $87. (4) The pre-tax adjustment for gain on sale of Turkey Hill Dairy was ($106). (5) The pre-tax adjustment for gain on sale of You Technology was ($70). (6) The pre-tax adjustment for loss (gain) on investments was $821 in 2021 and ($157) in 2019. (7) The pre-tax adjustment for deconsolidation and impairment of Lucky’s Market was $412 including a $107 net loss attributable to the minority interest of Lucky’s Market. (8) The pre-tax adjustment for Home Chef contingent consideration was $66 in 2021 and ($69) in 2019. (9) The pre-tax adjustment for transformation costs was $136 in 2021 and $52 in 2019. Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives. (10) The pre-tax adjustment for severance charge and related benefits was $80. (11) The amount presented represents the net earnings per diluted common share effect of each adjustment. (12) CAGR represents the compounded annual growth rate. 48 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. FINANCIAL RISK MANAGEMENT In addition to the risks inherent in our operations, we are exposed to market risk from a variety of sources, including changes in interest rates, commodity prices, the fair value of certain equity investments and defined benefit pension and other post-retirement benefit plans. Our market risk exposures are discussed below. Interest Rate Risk We manage our exposure to interest rates and changes in the fair value of our debt instruments primarily through the strategic use of our commercial paper program, variable and fixed rate debt, and interest rate swaps. Our 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, we use 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 our 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. When we use derivative financial instruments, it is primarily to manage our exposure to fluctuations in interest rates. We do not enter into derivative financial instruments for trading purposes. As a matter of policy, all of our derivative positions are intended to reduce risk by hedging an underlying economic exposure. Because of the high correlation between the hedging instrument and the underlying exposure, fluctuations in the value of the instruments generally are offset by reciprocal changes in the value of the underlying exposure. The interest rate derivatives we use are straightforward instruments with liquid markets. We had no forward-starting interest rate swap agreements outstanding as of January 29, 2022 or January 30, 2021. Annually, we review with the Financial Policy Committee of our Board of Directors compliance with the guidelines described above. The guidelines may change as our business needs dictate. The tables below provide information about our underlying debt portfolio as of January 29, 2022 and January 30, 2021. The amounts shown for each year represent the contractual maturities of long-term debt, excluding finance leases, as of January 29, 2022 and January 30, 2021. Interest rates reflect the weighted average rate for the outstanding instruments. The variable rate debt is based on a reference rate using the forward yield curve as of January 29, 2022 and January 30, 2021. The Fair Value column includes the fair value of our debt instruments as of January 29, 2022 and January 30, 2021. We had no outstanding interest rate derivatives classified as fair value hedges as of January 29, 2022 or January 30, 2021. See Notes 5, 6 and 7 to the Consolidated Financial Statements. 2022 2023 2024 2025 2026 Thereafter Total Fair Value (in millions) January 29, 2022 Expected Year of Maturity Debt Fixed rate Average interest rate Variable rate Average interest rate Debt Fixed rate Average interest rate Variable rate Average interest rate $ (416) $ (1,107) 4.38 % $ (35) $ 1.86 % $ $ (3) (5) 4.50 % 1.51 % 3.53 % — (23) $ $ $ (81) 0.12 % — 2.61 % $ (1,387) $ 4.27 % — $ — (8,688) $ (11,606) $ (13,050) 4.46 % — — $ (139) $ (139) 2021 2022 2023 2024 2025 Thereafter Total Fair Value (in millions) January 30, 2021 Expected Year of Maturity $ (802) $ (894) $ (1,093) $ (9,475) $ (12,264) $ (14,534) $ 4.20 % (42) $ 1.87 % 4.29 % — $ — $ 4.53 % (23) $ 2.62 % — $ — — — — $ (81) — $ 0.08 % 4.36 % — — $ (146) $ (146) Based on our year-end 2021 variable rate debt levels, a 10 percent change in interest rates would be immaterial. See Note 6 to the Consolidated Financial Statements for further discussion of derivatives and hedging policies. 49 Commodity Price Risk We are subject to commodity price risk generated by our purchases of meat, seafood and dairy products, among other food items. We purchase, manufacture and sell various commodity related food products and risk arises from the price volatility of these commodities. The price and availability of these commodities directly impacts our results of operations. To help manage or minimize the effect of commodity price risk exposure on our operations, we use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts, and have the ability to increase or decrease retail prices to our customers as commodity prices change. We are exposed to changes in the prices of diesel and unleaded fuel. The majority of our fuel contracts utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. We expect to take delivery of these commitments in the normal course of business, and, as a result, these contracts qualify as normal purchases. While many of the indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for fuel. Because of this, our operating results may be affected should the market price of fuel suddenly change by a significant amount, which can affect our operating results either positively or negatively in the short-term. We have entered into fixed price contracts to purchase electricity and natural gas for a portion of our energy needs. We expect to take delivery of these commitments in the normal course of business, and, as a result, these contracts qualify as normal purchases. As of January 29, 2022 and January 30, 2021, we had no commodity derivative contracts outstanding. Equity Investment Risk We are exposed to market price volatility for our investment in Ocado Group plc (“Ocado”), which is measured at fair value through net earnings. Fair value adjustments flow through “(Loss) gain on investments” in the Company’s Consolidated Statements of Operations. The change in fair value of this investment resulted in an unrealized (loss) gain on investments of ($821) million in 2021, $1.0 billion in 2020 and $157 million in 2019. As of January 29, 2022, the value of our investment in Ocado was $987 million. As of January 29, 2022, a 10% change in the fair value of this investment would be approximately $100 million. For additional details on this investment, see Note 7 to the Consolidated Financial Statements. Company-Sponsored Benefit Plans We sponsor defined benefit pension plans and post-retirement healthcare plans for certain eligible employees. Changes in interest rates affect our liabilities associated with these retirement plans, as well as the amount of expense recognized for these retirement plans. Increased interest rates could result in a lower fair value of plan assets and increased pension expense in the following years. The target plan asset allocations are established based on our LDI strategy. An LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. As of January 29, 2022, our defined benefit pension plans had total investment assets of $3.1 billion. Declines in the fair value of plan assets could diminish the funded status of our defined benefit pension plans and potentially increase our requirement to make contributions to these plans. For additional details, see Note 14 to the Consolidated Financial Statements. 50 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated Financial Statements of The Kroger Co. For the Fiscal Year Ended January 29, 2022 Table of Contents Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Cash Flows Consolidated Statements of Changes in Shareholders’ Equity Notes to Consolidated Financial Statements Page 52 55 56 57 58 59 60 51 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 January 29, 2022 and January 30, 2021, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders' equity and of cash flows for each of the three years in the period ended January 29, 2022, 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 January 29, 2022, 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 January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2022 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 January 29, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 52 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill Impairment Assessment – Kroger Specialty Pharmacy (“KSP”) Reporting Unit As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated goodwill balance was $3.1 billion as of January 29, 2022 and the goodwill associated with the KSP reporting unit was $242 million. Management reviews goodwill annually for impairment in the fourth quarter of each year, and also upon the occurrence of triggering events. The fair value of a reporting unit is compared to its carrying value for purposes of identifying potential impairment. Goodwill impairment is recognized for any excess of the reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. As disclosed by management, the fair value of the Company's KSP reporting unit was estimated using multiple valuation techniques, a discounted cash flow model (income approach), a market multiple model and comparable mergers and acquisition model (market approaches), with each method weighted in the calculation. The income approach relies on management’s estimates of revenue growth rates, margin assumptions, and discount rate to estimate future cash flows. The market approaches require the determination of an appropriate peer group, which is utilized to derive estimated fair values based on selected market multiples. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the KSP reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s cash flow projections and significant assumptions related to revenue growth rates, margin assumptions, discount rate, peer group determination, and market multiple selection; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 53 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s KSP reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate, evaluating the appropriateness of the income and market approach models, testing the completeness, accuracy, and relevance of the underlying data used in the models and evaluating the significant assumptions used by management related to the revenue growth rates, margin assumptions, discount rate, peer group determination, and market multiple selection. Evaluating management’s assumptions relating to revenue growth rates and margin assumptions involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Evaluating the Company’s peer group determinations included evaluating the appropriateness of the identified peer companies. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow and market models, and certain significant assumptions related to the discount rate, peer group determination, and market multiples. /s/ PricewaterhouseCoopers LLP Cincinnati, Ohio March 29, 2022 We have served as the Company’s auditor since 1929. 54 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 Prepaid and other current assets Total current assets Property, plant and equipment, net Operating lease assets Intangibles, net Goodwill Other assets Total Assets LIABILITIES Current liabilities Current portion of long-term debt including obligations under finance leases Current portion of operating lease liabilities Trade accounts payable Accrued salaries and wages Other current liabilities Total current liabilities Long-term debt including obligations under finance leases Noncurrent operating lease liabilities Deferred income taxes Pension and postretirement benefit obligations Other long-term liabilities Total Liabilities Commitments and contingencies see Note 12 SHAREHOLDERS’ EQUITY January 29, January 30, 2022 2021 $ $ 1,821 1,082 1,828 8,353 (1,570) 660 12,174 23,789 6,695 942 3,076 2,410 1,687 1,096 1,781 8,436 (1,373) 876 12,503 22,386 6,796 997 3,076 2,904 $ 49,086 $ 48,662 $ $ 555 650 7,117 1,736 6,265 16,323 12,809 6,426 1,562 478 2,059 911 667 6,679 1,413 5,696 15,366 12,502 6,507 1,542 535 2,660 39,657 39,112 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 2021 and 2020 Additional paid-in capital Accumulated other comprehensive loss Accumulated earnings Common shares in treasury, at cost, 1,191 shares in 2021 and 1,160 shares in 2020 — 1,918 3,657 (467) 24,066 (19,722) 9,452 (23) — 1,918 3,461 (630) 23,018 (18,191) 9,576 (26) 9,429 9,550 $ 49,086 $ 48,662 Total Shareholders’ Equity - The Kroger Co. Noncontrolling interests Total Equity Total Liabilities and Equity The accompanying notes are an integral part of the consolidated financial statements. 55 THE KROGER CO. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended January 29, 2022, January 30, 2021 and February 1, 2020 (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) Interest expense Non-service component of company-sponsored pension plan (costs) benefits (Loss) gain on investments Gain on sale of businesses 2021 (52 weeks) 2019 2020 (52 weeks) (52 weeks) $ 137,888 $ 132,498 $ 122,286 107,539 23,203 845 2,824 101,597 24,500 874 2,747 95,294 21,208 884 2,649 3,477 2,780 2,251 (571) (544) (603) (34) (821) — 29 1,105 — — 157 176 Net earnings before income tax expense 2,051 3,370 1,981 Income tax expense Net earnings including noncontrolling interests Net income (loss) attributable to noncontrolling interests 385 782 469 1,666 11 2,588 3 1,512 (147) Net earnings attributable to The Kroger Co. $ 1,655 $ 2,585 $ 1,659 Net earnings attributable to The Kroger Co. per basic common share $ 2.20 $ 3.31 $ 2.05 Average number of common shares used in basic calculation 744 773 799 Net earnings attributable to The Kroger Co. per diluted common share $ 2.17 $ 3.27 $ 2.04 Average number of common shares used in diluted calculation 754 781 805 The accompanying notes are an integral part of the consolidated financial statements. 56 THE KROGER CO. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended January 29, 2022, January 30, 2021 and February 1, 2020 (In millions) Net earnings including noncontrolling interests 2020 2021 (52 weeks) (52 weeks) $ 1,666 $ 2,588 2019 (52 weeks) $ 1,512 Other comprehensive income (loss) Change in pension and other postretirement defined benefit plans, net of income tax(1) Unrealized gains and losses on cash flow hedging activities, net of income tax(2) Amortization of unrealized gains and losses on cash flow hedging activities, net of income tax(3) Cumulative effect of accounting change(4) Total other comprehensive income (loss) 156 — 7 — 22 (14) 2 — (105) (47) 4 (146) 163 10 (294) Comprehensive income Comprehensive income (loss) attributable to noncontrolling interests Comprehensive income attributable to The Kroger Co. 1,829 11 2,598 3 $ 1,818 $ 2,595 1,218 (147) $ 1,365 (1) Amount is net of tax expense (benefit) of $48 in 2021, $7 in 2020 and ($33) in 2019. (2) Amount is net of tax benefit of ($8) in 2020 and ($17) in 2019. (3) Amount is net of tax expense of $3 in 2021, $2 in 2020 and $3 in 2019. (4) Related to the adoption of Accounting Standards Update (“ASU”) 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (See Note 17 for additional details). The accompanying notes are an integral part of the consolidated financial statements. 57 Years Ended January 29, 2022, January 30, 2021 and February 1, 2020 THE KROGER CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (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 Asset impairment charges Operating lease asset amortization LIFO charge (credit) Share-based employee compensation Company-sponsored pension plans expense (benefits) Deferred income taxes Gain on sale of businesses Gain on the sale of assets Loss (gain) on investments Loss on deconsolidation and impairment of Lucky's Market Other Changes in operating assets and liabilities net of effects from mergers and disposals of business: Store deposits in-transit Receivables Inventories Prepaid and other current assets Trade accounts payable Accrued expenses Income taxes receivable and payable Operating lease liabilities Proceeds from contract associated with sale of business Other 2021 (52 weeks) 2020 (52 weeks) 2019 (52 weeks) $ 1,666 $ 2,588 $ 1,512 2,824 64 605 197 203 50 (31) — (44) 821 — 64 13 (61) 80 232 438 331 16 (618) — (660) 2,747 70 626 (7) 185 (9) 73 — (59) (1,105) — 165 83 (90) 7 (342) 330 1,382 24 (552) — 699 2,649 120 640 105 155 39 (56) (176) (158) (157) 412 (109) 3 (36) (351) (33) 342 302 (142) (639) 295 (53) Net cash provided by operating activities 6,190 6,815 4,664 Cash Flows from Investing Activities: Payments for property and equipment, including payments for lease buyouts Proceeds from sale of assets Net proceeds from sale of businesses Other Net cash used by investing activities Cash Flows from Financing Activities: Proceeds from issuance of long-term debt Payments on long-term debt including obligations under finance leases Net (payments) proceeds on commercial paper Dividends paid Proceeds from issuance of capital stock Treasury stock purchases Proceeds from financing arrangement Other Net cash used by financing activities Net increase (decrease) 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 (2,614) 153 — (150) (2,865) 165 — (114) (3,128) 273 327 (83) (2,611) (2,814) (2,611) 56 (1,442) — (589) 172 (1,647) 166 (161) 1,049 (747) (1,150) (534) 127 (1,324) — (134) 813 (2,304) 350 (486) 55 (465) — (46) (3,445) (2,713) (2,083) 134 1,288 (30) 1,687 1,821 $ $ $ (2,614) — (542) (3,156) $ $ 607 513 399 1,687 (2,865) 58 (359) (3,166) 564 659 $ $ $ $ $ 429 399 (3,128) 82 2 (3,044) 523 706 $ $ $ $ $ The accompanying notes are an integral part of the consolidated financial statements 58 l a t o T t s e r e t n I s g n i n r a E ) s s o L ( e m o c n I t n u o m A 5 3 8 , 7 $ ) 1 5 ( $ 1 8 6 , 9 1 $ ) 6 4 3 ( $ ) 2 1 6 , 6 1 ( $ 0 2 1 , 1 s e r a h S g n i l l o r t n o c n o N d e t a l u m u c c A e v i s n e h e r p m o C k c o t S y r u s a e r T d e t a l u m u c c A r e h t O l a n o i t i d d A n I - d i a P l a t i p a C 5 4 2 , 3 $ k c o t S n o m m o C t n u o m A 8 1 9 , 1 $ 8 1 9 , 1 s e r a h S 5 5 ) 6 3 ( ) 0 0 4 ( ) 5 6 ( 5 5 1 ) 4 9 2 ( 6 4 1 8 6 1 — ) 3 0 5 ( 2 1 5 , 1 — — — — — — — 1 — 8 6 1 ) 7 4 1 ( — — — — — — ) 5 ( — 6 4 1 ) 3 0 5 ( 9 5 6 , 1 — — — — — — — — — — ) 4 9 2 ( 5 5 2 9 ) 5 6 ( ) 0 0 4 ( — — — — ) 1 6 ( — — ) 3 ( ) 3 ( 2 4 1 — — — — — — — — ) 8 2 1 ( — — 5 5 1 — — — 5 6 — — — — — — — — — — — — — — — — — — — — — — — — ) 3 6 ( 7 2 1 ) 8 2 1 ( 5 8 1 ) 6 9 1 , 1 ( ) 1 ( 0 1 ) 5 4 5 ( 8 8 5 , 2 — — — — — — — — 3 — — — — — — — ) 5 4 5 ( 5 8 5 , 2 — — — — — 0 1 — — — 1 7 7 2 1 ) 8 2 1 ( ) 6 9 1 , 1 ( — — ) 4 7 ( — — ) 7 ( ) 3 ( 4 6 3 — — — — — — ) 4 3 1 ( — — 5 8 1 — 3 7 — — — — — — — — — — — — — — — — — — — — 3 7 5 , 8 $ ) 9 2 ( $ 8 7 9 , 0 2 $ ) 0 4 6 ( $ ) 1 9 9 , 6 1 ( $ 0 3 1 , 1 7 3 3 , 3 $ 8 1 9 , 1 $ 8 1 9 , 1 0 5 5 , 9 $ ) 6 2 ( $ 8 1 0 , 3 2 $ ) 0 3 6 ( $ ) 1 9 1 , 8 1 ( $ 0 6 1 , 1 1 6 4 , 3 $ 8 1 9 , 1 $ 8 1 9 , 1 ) 4 6 ( 2 7 1 ) 5 2 2 ( ) 2 2 4 , 1 ( ) 7 ( 3 0 2 3 6 1 ) 7 0 6 ( 6 6 6 , 1 — — — — — — ) 8 ( — 1 1 — — — — — — — ) 7 0 6 ( 5 5 6 , 1 — — — — — — — — 3 6 1 3 7 2 7 1 ) 5 2 2 ( ) 2 2 4 , 1 ( — — ) 9 2 1 ( — — ) 7 ( ) 3 ( 6 5 3 — — — — — — ) 7 3 1 ( — — 3 0 2 — 0 3 1 — — — — — — — — — — — — — — — — — — — — ) 7 1 e t o n e e s ( e g n a h c g n i t n u o c c a f o t c e f f e e v i t a l u m u C t e k r a M ' s y k c u L f o n o i t a d i l o s n o c e D ) 7 4 $ ( f o x a t f o t e n s s o l e v i s n e h e r p m o c r e h t O n o i t a s n e p m o c e e y o l p m e d e s a b - e r a h S r e h t O s t s e r e t n i g n i l l o r t n o c - n o n g n i d u l c n i ) s s o l ( s g n i n r a e t e N ) e r a h s n o m m o c r e p 2 6 . 0 $ ( d e r a l c e d s d n e d i v i d h s a C ) s t n u o m a e r a h s r e p t p e c x e , s n o i l l i m n I ( 9 1 0 2 , 2 y r a u r b e F t a s e c n a l a B : k c o t s n o m m o c f o e c n a u s s I d e s i c r e x e s n o i t p o k c o t S d e u s s i k c o t s d e t c i r t s e R : y t i v i t c a k c o t s y r u s a e r T t s o c t a , s e s a h c r u p k c o t s y r u s a e r T d e g n a h c x e s n o i t p o k c o t S ) e r a h s n o m m o c r e p 0 7 . 0 $ ( d e r a l c e d s d n e d i v i d h s a C s t s e r e t n i g n i l l o r t n o c - n o n g n i d u l c n i s g n i n r a e t e N r e h t O 1 $ f o x a t f o t e n e m o c n i e v i s n e h e r p m o c r e h t O t s o c t a , s e s a h c r u p k c o t s y r u s a e r T d e g n a h c x e s n o i t p o k c o t S n o i t a s n e p m o c e e y o l p m e d e s a b - e r a h S 59 0 2 0 2 , 1 y r a u r b e F t a s e c n a l a B : k c o t s n o m m o c f o e c n a u s s I d e s i c r e x e s n o i t p o k c o t S d e u s s i k c o t s d e t c i r t s e R : y t i v i t c a k c o t s y r u s a e r T ) e r a h s n o m m o c r e p 1 8 . 0 $ ( d e r a l c e d s d n e d i v i d h s a C s t s e r e t n i g n i l l o r t n o c - n o n g n i d u l c n i s g n i n r a e t e N 1 5 $ f o x a t f o t e n e m o c n i e v i s n e h e r p m o c r e h t O t s o c t a , s e s a h c r u p k c o t s y r u s a e r T d e g n a h c x e s n o i t p o k c o t S n o i t a s n e p m o c e e y o l p m e d e s a b - e r a h S r e h t O 1 2 0 2 , 0 3 y r a u n a J t a s e c n a l a B : k c o t s n o m m o c f o e c n a u s s I d e s i c r e x e s n o i t p o k c o t S d e u s s i k c o t s d e t c i r t s e R : y t i v i t c a k c o t s y r u s a e r T 9 2 4 , 9 $ ) 3 2 ( $ 6 6 0 , 4 2 $ ) 7 6 4 ( $ ) 2 2 7 , 9 1 ( $ 1 9 1 , 1 7 5 6 , 3 $ 8 1 9 , 1 $ 8 1 9 , 1 2 2 0 2 , 9 2 y r a u n a J t a s e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T . O C R E G O R K E H T Y T I U Q E ’ S R E D L O H E R A H S N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C 0 2 0 2 , 1 y r a u r b e F d n a 1 2 0 2 , 0 3 y r a u n a J , 2 2 0 2 , 9 2 y r a u n a J d e d n E s r a e Y 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 January 29, 2022, 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 and online. The accompanying financial statements include the consolidated accounts of the Company, its wholly-owned subsidiaries and other consolidated entities. Intercompany transactions and balances have been eliminated. Refer to Note 17 for a description of changes to the Consolidated Financial Statements for recently adopted accounting standards regarding the implementation costs of cloud computing arrangements. Fiscal Year The Company’s fiscal year ends on the Saturday nearest January 31. The last three fiscal years consist of the 52- week periods ended January 29, 2022, January 30, 2021 and February 1, 2020. 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 91% of inventories in 2021 and 92% of inventories in 2020 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 $1,570 at January 29, 2022 and $1,373 at January 30, 2021. The Company follows the Link-Chain, Dollar-Value LIFO method for purposes of calculating its LIFO charge or credit. During 2020, the Company had a LIFO liquidation primarily related to pharmacy inventory. The liquidated inventory was carried at lower costs prevailing in prior years as compared with current costs. The effect of this reduction in inventory decreased “Merchandise costs” by approximately $76, $58 net of tax. 60 The item-cost method of accounting to determine inventory cost before the LIFO adjustment is followed for substantially all store inventories at the Company’s supermarket divisions. This method involves counting each item in inventory, assigning costs to each of these items based on the actual purchase costs (net of vendor allowances and cash discounts) of each item and recording the cost of items sold. The item-cost method of accounting allows for more accurate reporting of periodic inventory balances and enables management to more precisely manage inventory. In addition, substantially all of the Company’s inventory consists of finished goods and is recorded at actual purchase costs (net of vendor allowances and cash discounts). The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the financial statement date. Property, Plant and Equipment Property, plant and equipment are recorded at cost or, in the case of assets acquired in a business combination, at fair value. Depreciation and amortization expense, which includes the depreciation of assets recorded under finance leases, is computed principally using the straight-line method over the estimated useful lives of individual assets. Buildings and land improvements are depreciated based on lives varying from 10 to 40 years. All new purchases of store equipment are assigned lives varying from three to nine years. Leasehold improvements are amortized over the shorter of the lease term to which they relate, which generally varies from four to 25 years, or the useful life of the asset. Food production plant, fulfillment center and distribution center equipment is depreciated over lives varying from three to 15 years. Information technology assets are generally depreciated over three to five years. Depreciation and amortization expense was $2,824 in 2021, $2,747 in 2020 and $2,649 in 2019. Interest costs on significant projects constructed for the Company’s own use are capitalized as part of the costs of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and any gain or loss is reflected in net earnings. Refer to Note 3 for further information regarding the Company’s property, plant and equipment. Leases The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company determines if an arrangement is a lease at inception. Finance and operating lease assets and liabilities are recognized at the lease commencement date. Finance and operating lease liabilities represent the present value of minimum lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, lease incentives and impairment, if any. To determine the present value of lease payments, the Company estimates an incremental borrowing rate which represents the rate used for a secured borrowing of a similar term as the lease. Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Operating lease payments are charged on a straight-line basis to rent expense over the lease term and finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Assets under finance leases are amortized in accordance with the Company’s normal depreciation policy for owned assets or over the lease term, if shorter. The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. For additional information on leases, see Note 9 to the Consolidated Financial Statements. 61 Goodwill The Company reviews goodwill for impairment during the fourth quarter of each year, or earlier upon the occurrence of a triggering event. The Company performs reviews of each of its operating divisions and other consolidated entities (collectively, “reporting units”) that have goodwill balances. Generally, fair value is determined using a market multiple model, or discounted projected future cash flows, and is compared to the carrying value of a reporting unit for purposes of identifying potential impairment. Projected future cash flows are based on management’s knowledge of the current operating environment and expectations for the future. Goodwill impairment is recognized for any excess of the reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Results of the goodwill impairment reviews performed during 2021, 2020 and 2019 are summarized in Note 2. Impairment of Long-Lived Assets The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a triggering event occurs, an impairment calculation is performed, comparing projected undiscounted future cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores. If the Company identifies impairment for long-lived assets to be held and used, the Company compares the assets’ current carrying value to the assets’ fair value. Fair value is based on current market values or discounted future cash flows. The Company records impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for disposal, the value of the property and equipment is adjusted to reflect recoverable values based on previous efforts to dispose of similar assets and current economic conditions. Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. The Company recorded asset impairments totaling $64, $70 and $120 in 2021, 2020 and 2019, respectively. The decrease in the 2021 and 2020 impairment charges, compared to 2019, was the result of 35 planned store closures in 2020 recognized in 2019. Costs to reduce the carrying value of long-lived assets for each of the years presented have been included in the Consolidated Statements of Operations as Operating, general and administrative (“OG&A”) expense. Accounts Payable Financing Arrangement The Company has an agreement with a third party to provide an accounts payable tracking system which facilitates participating suppliers’ ability to finance payment obligations from the Company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not affected by suppliers’ decisions to finance amounts under this arrangement. These obligations are included in “Other current liabilities” in the Consolidated Balance Sheets. Contingent Consideration The Company’s Home Chef business combination involves potential payment of future consideration that is contingent upon the achievement of certain performance milestones. The Company recorded contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred, estimated as the probability- weighted future cash flows, discounted back to present value using a discount rate determined in accordance with accepted valuation methods. The liability for contingent consideration is remeasured to fair value at each reporting period using Level 3 inputs, and the change in fair value, including accretion for the passage of time, is recognized in earnings until the contingency is resolved. In 2021 and 2020, adjustments to increase the contingent consideration liability as of year-end were recorded for $66 and $189, respectively, in OG&A expense. In 2019, an adjustment to decrease the contingent consideration liability as of year-end 2019 was recorded for ($69) in OG&A expense. 62 Store Closing Costs The Company regularly evaluates the performance of its stores and periodically closes those stores that are underperforming. Related liabilities arise, such as severance, contractual obligations and other accruals associated with store closings. The Company records a liability for costs associated with an exit or disposal activity when the liability is incurred, usually in the period the store closes. Adjustments to closed store liabilities primarily relate to actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Owned stores held for disposal are reduced to their estimated net realizable value. Costs to reduce the carrying values of property, plant, equipment and operating lease assets are accounted for in accordance with the Company’s policy on impairment of long-lived assets. Inventory write-downs, if any, in connection with store closings, are classified in the Consolidated Statements of Operations as “Merchandise costs”. Costs to transfer inventory and equipment from closed stores are expensed as incurred. Interest Rate Risk Management The Company uses derivative instruments primarily to manage its exposure to changes in interest rates. The Company’s current program relative to interest rate protection and the methods by which the Company accounts for its derivative instruments are described in Note 6. Benefit Plans and Multi-Employer Pension Plans The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized as part of net periodic benefit cost are required to be recorded as a component of Accumulated Other Comprehensive Income (“AOCI”). The Company has elected to measure defined benefit plan assets and obligations as of January 31, which is the month-end that is closest to its fiscal year-ends, which were January 29, 2022 for fiscal 2021 and January 30, 2021 for fiscal 2020. The determination of the obligation and expense for company-sponsored pension plans and other post-retirement benefits is dependent on the selection of assumptions used by actuaries and the Company in calculating those amounts. Those assumptions are described in Note 14 and include, among others, the discount rate, the expected long- term rate of return on plan assets, mortality and the rates of increase in compensation and health care costs. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense and recorded obligation in future periods. While the Company believes that the assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the pension and other post-retirement obligations and future expense. The Company also participates in various multi-employer plans for substantially all union employees. Pension expense for these plans is recognized as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. Refer to Note 15 for additional information regarding the Company’s participation in these various multi-employer pension plans. The Company administers and makes contributions to the employee 401(k) retirement savings accounts. Contributions to the employee 401(k) retirement savings accounts are expensed when contributed or over the service period in the case of automatic contributions. Refer to Note 14 for additional information regarding the Company’s benefit plans. 63 Share Based Compensation The Company recognizes compensation expense for all share-based payments granted under fair value recognition provisions. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award based on the fair value at the date of the grant. The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the stock option at the date of grant. Stock options typically expire 10 years from the date of grant. Stock options vest between one and five years from the date of grant. In addition to stock options, the Company awards restricted stock to employees and nonemployee directors under various plans. The restrictions on these awards generally lapse between one and five years from the date of the awards. The Company determines the fair value for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award. Deferred Income Taxes Deferred income taxes are recorded to reflect the tax consequences of differences between the tax basis of assets and liabilities and their financial reporting basis. Refer to Note 4 for the types of differences that give rise to significant portions of deferred income tax assets and liabilities. Uncertain Tax Positions The Company reviews the tax positions taken or expected to be taken on tax returns to determine whether and to what extent a benefit can be recognized in its consolidated financial statements. Refer to Note 4 for the amount of unrecognized tax benefits and other related disclosures related to uncertain tax positions. Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. As of January 29, 2022, the Internal Revenue Service had concluded its examination of all federal tax returns up to and including the return for the year ended February 3, 2018. 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 January 29, 2022: Beginning balance Expense Claim payments Ending balance Less: Current portion Long-term portion 2019 2020 2021 $ 731 $ 689 $ 696 209 262 (216) (220) 689 731 (216) (220) $ 485 $ 511 $ 473 226 (236) 721 (236) 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. 64 The Company maintains surety bonds related to self-insured workers’ compensation claims. These bonds are required by most states in which the Company is self-insured for workers’ compensation and are placed with third-party insurance providers to insure payment of the Company’s obligations in the event the Company is unable to meet its claim payment obligations up to its self-insured retention levels. These bonds do not represent liabilities of the Company, as the Company has recorded reserves for the claim costs. The Company also maintains insurance coverages for some risks, including cyber exposure and property-related losses. The Company’s insurance coverage begins for these exposures ranging from $25 to $50. Revenue Recognition Sales The Company recognizes revenues from the retail sale of products, net of sales taxes, at the point of sale. Pharmacy sales are recorded when the product is provided to the customer. Digital channel originated sales are recognized either upon pickup in store or upon delivery to the customer. Amounts billed to a customer related to shipping and delivery represent revenues earned for the goods provided and are classified as sales. When shipping is discounted, it is recorded as an adjustment to sales. Discounts provided to customers by the Company at the time of sale, including those provided in connection with loyalty cards, are recognized as a reduction in sales as the products are sold. Discounts provided by vendors, usually in the form of coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons. The Company records a receivable from the vendor for the difference in sales price and cash received. For merchandise sold in one of the Company’s stores or online, tender is accepted at the point of sale. The Company acts as principal in certain vendor arrangements where the purchase and sale of inventory are virtually simultaneous. The Company records revenue and related costs on a gross basis for these arrangements. For pharmacy sales, collection of third-party receivables is typically expected within three months or less from the time of purchase. The third-party receivables from pharmacy sales are recorded in Receivables in the Company’s Consolidated Balance Sheets and were $774 as of January 29, 2022 and $672 as of January 30, 2021. Gift Cards and Gift Certificates The Company does not recognize revenue when it sells its own gift cards and gift certificates (collectively “gift cards”). Rather, it records a deferred revenue liability equal to the amount received. A sale is then recognized when the gift cards are redeemed to purchase the Company’s products. The Company’s gift cards do not expire. While gift cards are generally redeemed within 12 months, some are never fully redeemed. The Company recognizes gift card breakage under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. The Company’s gift card deferred revenue liability was $185 as of January 29, 2022 and $160 as of January 30, 2021. 65 Disaggregated Revenues The following table presents sales revenue by type of product for the year-ended January 29, 2022, January 30, 2021, and February 1, 2020: Non Perishable(1) Fresh(2) Supermarket Fuel Pharmacy Other(3) Total Sales Amount $ 69,648 33,972 14,678 12,401 7,189 2021 2020 2019 % of total Amount % of total Amount % of total 50.6 % $ 71,434 24.6 % 33,449 9,486 10.6 % 9.0 % 11,388 6,741 5.2 % 53.9 % $ 61,464 25.2 % 29,452 7.2 % 14,052 8.6 % 11,015 6,303 5.1 % 50.3 % 24.1 % 11.5 % 9.0 % 5.1 % $ 137,888 100 % $ 132,498 100 % $ 122,286 100 % (1) Consists primarily of grocery, general merchandise, health and beauty care and natural foods. (2) Consists primarily of produce, floral, meat, seafood, deli, bakery and fresh prepared. (3) Consists primarily of sales related to food production plants to outside parties, data analytic services, third-party media revenue, other consolidated entities, specialty pharmacy, in-store health clinics, digital coupon services and other online sales not included in the categories above. Merchandise Costs The “Merchandise costs” line item of the Consolidated Statements of Operations includes product costs, net of discounts and allowances; advertising costs (see separate discussion below); inbound freight charges; warehousing costs, including receiving and inspection costs; transportation costs; and food production and operational costs. Warehousing, transportation and manufacturing management salaries are also included in the “Merchandise costs” line item; however, purchasing management salaries and administration costs are included in the OG&A line item along with most of the Company’s other managerial and administrative costs. Shipping and delivery costs associated with the Company’s digital offerings originating from non-retail store locations are included in the “Merchandise costs” line item. Rent expense and depreciation and amortization expense are shown separately in the Consolidated Statements of Operations. Warehousing and transportation costs include distribution center direct wages, transportation direct wages, repairs and maintenance, utilities, inbound freight and, where applicable, third-party warehouse management fees. These costs are recognized in the periods the related expenses are incurred. The Company believes the classification of costs included in merchandise costs could vary widely throughout the industry. The Company’s approach is to include in the “Merchandise costs” line item the direct, net costs of acquiring products and making them available to customers. The Company believes this approach most accurately presents the actual costs of products sold. The Company recognizes all vendor allowances as a reduction in merchandise costs when the related product is sold. When possible, vendor allowances are applied to the related product cost by item and, therefore, reduce the carrying value of inventory by item. When the items are sold, the vendor allowance is recognized. When it is not possible, due to systems constraints, to allocate vendor allowances to the product by item, vendor allowances are recognized as a reduction in merchandise costs based on inventory turns and, therefore, recognized as the product is sold. Advertising Costs The Company’s advertising costs are recognized in the periods the related expenses are incurred and are included in the “Merchandise costs” line item of the Consolidated Statements of Operations. The Company’s advertising costs totaled $984 in 2021, $888 in 2020 and $854 in 2019. The Company does not record vendor allowances for co-operative advertising as a reduction of advertising expense. 66 Operating, General and Administrative Expenses OG&A expenses consist primarily of employee-related costs such as wages, healthcare benefit costs, retirement plan costs, utilities, and credit card fees. Shipping and delivery costs associated with the Company's digital offerings originating from retail store locations, including third-party delivery fees, are included in the “OG&A” line item of the Consolidated Statements of Operations. Rent expense, depreciation and amortization expense and interest expense are shown separately in the Consolidated Statement of Operations. Consolidated Statements of Cash Flows For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be temporary cash investments. Segments The Company operates supermarkets, multi-department stores and fulfillment centers throughout the United States. The Company’s retail operations, which represent 97% of the Company’s consolidated sales, are its only reportable segment. The Company aggregates its operating divisions into one reportable segment due to the operating divisions having similar economic characteristics with similar long-term financial performance. In addition, the Company’s operating divisions offer customers similar products, have similar distribution methods, operate in similar regulatory environments, purchase the majority of the merchandise for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve similar types of customers, and are allocated capital from a centralized location. Operating divisions are organized primarily on a geographical basis so that the operating division management team can be responsive to local needs of the operating division and can execute company strategic plans and initiatives throughout the locations in their operating division. This geographical separation is the primary differentiation between these retail operating divisions. The geographical basis of organization reflects how the business is managed and how the Company’s Chief Executive Officer, who acts as the Company’s chief operating decision maker, assesses performance internally. All of the Company’s operations are domestic. 2. GOODWILL AND INTANGIBLE ASSETS The Company’s goodwill balance as of January 29, 2022 and January 30, 2021 was $3,076. Gross goodwill and accumulated impaired losses were $5,737 and $2,661, respectively, as of January 29, 2022 and January 30, 2021. Testing for impairment is performed annually, or on an interim basis upon the occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual evaluation of goodwill and indefinite-lived intangible assets was performed during the fourth quarter of 2021, 2020 and 2019 and did not result in impairment. The following table summarizes the Company’s intangible assets balance through January 29, 2022: 2021 2020 Definite-lived pharmacy prescription files Definite-lived customer relationships Definite-lived other Indefinite-lived trade name Indefinite-lived liquor licenses $ amount amount amortization(1) Gross carrying Accumulated Gross carrying Accumulated amortization(1) (167) (143) (78) — — (199) $ (160) (88) — — 317 $ 186 111 685 90 315 $ 186 110 685 89 Total $ 1,389 $ (447) $ 1,385 $ (388) (1) Pharmacy prescription files are amortized to merchandise costs, customer relationships are amortized to depreciation and amortization expense and other intangibles are amortized to OG&A expense and depreciation and amortization expense. 67 Amortization expense associated with intangible assets totaled approximately $59, $67 and $85, during fiscal years 2021, 2020 and 2019, respectively. Future amortization expense associated with the net carrying amount of definite- lived intangible assets for the years subsequent to 2021 is estimated to be approximately: 2022 2023 2024 2025 2026 Thereafter $ 51 39 34 31 10 2 Total future estimated amortization associated with definite-lived intangible assets $ 167 3. 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 finance leases 2021 3,395 $ $ 13,996 15,951 10,775 3,831 1,939 2020 3,373 13,149 14,928 10,516 2,892 1,165 Total property, plant and equipment Accumulated depreciation and amortization 49,887 (26,098) 46,023 (23,637) Property, plant and equipment, net $ 23,789 $ 22,386 Accumulated depreciation and amortization for leased property under finance leases was $414 at January 29, 2022 and $321 at January 30, 2021. Approximately $136 and $152, net book value, of property, plant and equipment collateralized certain mortgages at January 29, 2022 and January 30, 2021, respectively. 68 4. TAXES BASED ON INCOME The provision for taxes based on income consists of: 2021 2020 2019 Federal Current Deferred Subtotal federal State and local Current Deferred Subtotal state and local Total A reconciliation of the statutory federal rate and the effective rate follows: Statutory rate State income taxes, net of federal tax benefit Credits Resolution of tax audit examinations Excess tax benefits from share-based payments Impairment losses attributable to noncontrolling interest Non-deductible executive compensation Other changes, net $ 349 $ 577 $ 454 (50) (46) 75 303 652 404 67 15 133 (3) 70 (5) 82 130 65 $ 385 $ 782 $ 469 2021 2020 2019 21.0 % 21.0 % 21.0 % 3.0 (0.7) — (0.8) — 0.3 0.4 3.2 (1.3) (3.1) (1.3) — 0.6 (0.3) 2.6 (1.5) (0.1) (0.2) 1.2 0.3 0.4 18.8 % 23.2 % 23.7 % The Company’s effective income tax rates were 18.8% in 2021 and 23.2% in 2020. The 2021 tax rate differed from the federal statutory rate primarily due to a discrete benefit of $47 which was primarily from the favorable outcome of income tax audit examinations covering multiple years, the benefit from share-based payments and the utilization of tax credits, partially offset by the effect of state income taxes. The 2020 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes, partially offset by the utilization of tax credits and deductions. The 2019 tax rate differed from the federal statutory rate primarily due to the effect of state income taxes and Lucky’s Market losses attributable to the noncontrolling interest, which reduced pre-tax income but did not impact tax expense. 69 The tax effects of significant temporary differences that comprise tax balances were as follows: 2021 2020 Deferred tax assets: Compensation related costs Lease liabilities Closed store reserves Net operating loss and credit carryforwards Deferred income Allowance for uncollectible receivables Other Subtotal Valuation allowance Total deferred tax assets Deferred tax liabilities: Depreciation and amortization Operating lease assets Insurance related costs Inventory related costs Equity investments in excess of tax basis Total deferred tax liabilities Deferred taxes $ 560 $ 1,926 46 98 126 36 25 766 1,932 38 86 149 23 46 2,817 (72) 3,040 (53) 2,745 2,987 (2,006) (1,790) (54) (310) (147) (2,115) (1,794) — (264) (356) (4,307) (4,529) $ (1,562) $ (1,542) At January 29, 2022, the Company had net operating loss carryforwards for state income tax purposes of $1,259. These net operating loss carryforwards expire from 2022 through 2041. The utilization of certain of the Company’s state net operating loss carryforwards may be limited in a given year. Further, the Company has recorded a valuation allowance against certain deferred tax assets resulting from its state net operating losses. At January 29, 2022, the Company had state credit carryforwards of $37. These state credit carryforwards expire from 2022 through 2035. The utilization of certain of the Company’s credits may be limited in a given year. Further, the Company has recorded a valuation allowance against certain deferred tax assets resulting from its state credits. The Company regularly reviews all deferred tax assets on a tax filer and jurisdictional basis to estimate whether these assets are more likely than not to be realized based on all available evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies. Projected future taxable income is based on expected results and assumptions as to the jurisdiction in which the income will be earned. The expected timing of the reversals of existing temporary differences is based on current tax law and the Company’s tax methods of accounting. Unless deferred tax assets are more likely than not to be realized, a valuation allowance is established to reduce the carrying value of the deferred tax asset until such time that realization becomes more likely than not. Increases and decreases in these valuation allowances are included in "Income tax expense" in the Consolidated Statements of Operations. As of January 29, 2022, January 30, 2021 and February 1, 2020 the total valuation allowance was $72, $53 and $55, respectively. 70 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 Additions for tax positions of prior years Reductions for tax positions of prior years Settlements Lapse of statute Ending balance 2021 2020 2019 $ 193 $ 174 $ 174 13 8 (1) (19) (1) $ 100 $ 193 $ 174 10 9 (108) — (4) 7 16 — — (4) As of January 29, 2022, January 30, 2021 and February 1, 2020, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $73, $85 and $74 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 January 29, 2022, January 30, 2021 and February 1, 2020, the Company recognized approximately $(15), $7 and $7, respectively, in interest and penalties (recoveries). The Company had accrued approximately $22, $38 and $30 for the payment of interest and penalties as of January 29, 2022, January 30, 2021 and February 1, 2020. As of January 29, 2022, the Internal Revenue Service had concluded its examination of all federal tax returns up to and including the return for the year ended February 3, 2018. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, includes measures to assist companies in response to the COVID-19 pandemic. These measures include deferring the due dates of tax payments and other changes to income and non-income-based tax laws. As permitted under the CARES Act, the Company deferred the remittance of the employer portion of the social security tax. The social security tax provision requires that the deferred employment tax be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half to be paid by December 31, 2022. During 2020, the Company deferred the employer portion of social security tax of $622. Of the total, $311 was paid during 2021 and $311 is included in “Other current liabilities” in the Company’s Consolidated Balance Sheets. 5. DEBT OBLIGATIONS Long-term debt consists of: 1.70% to 8.00% Senior Notes due through 2049 Other Total debt, excluding obligations under finance leases Less current portion January 29, January 30, 2022 2021 $ 10,607 $ 11,899 511 1,138 11,745 (451) 12,410 (844) Total long-term debt, excluding obligations under finance leases $ 11,294 $ 11,566 In 2021, the Company repaid $300 of senior notes bearing an interest rate of 2.60%, $500 of senior notes bearing an interest rate of 2.95%, and $500 of senior notes bearing an interest rate of 3.40%, all using cash on hand. 71 Additionally in 2021, the Company acquired 28, previously leased, properties for a purchase price of $455. Separately, the Company also entered into a transaction to sell those properties to a third party for total proceeds of $621. Total cash proceeds received as a result of the transactions was $166. The sale transaction did not qualify for sale- leaseback accounting treatment. As a result, the Company recorded property, plant and equipment for the $455 price paid and recorded a $621 financing obligation. The leases have a base term of 25 years and twelve option periods of five years each. The Company has the option to purchase the individual properties for fair market value at the end of the base term or at the end of any option period. The Company is obligated to repurchase the properties at the end of the base term for $300 if the lessor exercises its put option. In 2020, the Company issued $500 of senior notes due in fiscal year 2030 bearing an interest rate of 2.20% and $500 of senior notes due in fiscal year 2030 bearing interest rate of 1.70%. In connection with the senior note issuances, the Company also terminated forward-starting interest rate swap agreements with an aggregate notional amount of $450 due in fiscal year 2030. 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 2020. Since these forward-starting interest rate swap agreements were classified as cash flow hedges, the unamortized loss of $41, $31 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 repaid $700 of senior notes bearing an interest rate of 3.30% with proceeds from the senior notes issuances. On March 18, 2020, the Company proactively borrowed $1,000 under the revolving credit facility. This was a precautionary measure in order to preserve financial flexibility, reduce reliance on the commercial paper market and maintain liquidity in response to the COVID-19 pandemic. During 2020, the Company fully repaid the $1,000 borrowed under the revolving credit facility and the entire $1,150 in outstanding commercial paper obligations, as of February 1, 2020, using cash generated by operations. On July 6, 2021, the Company entered into an amended, extended and restated $2,750 unsecured revolving credit facility (the “Credit Agreement”), with a termination date of July 6, 2026, unless extended as permitted under the Credit Agreement. The Company has the ability to increase the size of the Credit Agreement by up to an additional $1,250, subject to certain conditions. Borrowings under the Credit Agreement bear interest, at the Company’s option, at either (i) 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) 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 includes fallback language related to the transition from LIBOR to alternative reference rates. The Company does not expect a significant change to its cost of debt as a result of the transition from LIBOR to an alternative reference rate. The Credit Agreement contains a covenant, which, among other things, requires the maintenance of a Leverage Ratio of not greater than 3.50:1.00. 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 January 29, 2022, and January 30, 2021, the Company had no commercial paper borrowings and no borrowings under the Credit Agreement. As of January 29, 2022, the Company had outstanding letters of credit in the amount of $363, of which $2 reduces funds available under the Credit Agreement. As of January 30, 2021, the Company had outstanding letters of credit in the amount of $381, of which $2 reduces funds available under the Credit Agreement. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. 72 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 2021, and for the years subsequent to 2021 are: 2022 2023 2024 2025 2026 Thereafter Total debt $ 451 1,130 5 84 1,387 8,688 $ 11,745 6. DERIVATIVE FINANCIAL INSTRUMENTS GAAP requires that derivatives be carried at fair value on the balance sheet and provides for hedge accounting when certain conditions are met. The Company’s derivative financial instruments are recognized on the balance sheet at fair value. Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects. Ineffective 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. 73 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. Fair Value Interest Rate Swaps The Company did not have any outstanding interest rate derivatives classified as fair value hedges as of January 29, 2022 and January 30, 2021. Cash Flow Forward-Starting Interest Rate Swaps The Company did not have any outstanding forward-starting interest rate swap agreements as of January 29, 2022 and January 30, 2021. During 2020, the Company terminated nine forward-starting interest rate swaps with maturity dates of January 2021 with an aggregate notional amount totaling $450. 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 2020. Since these forward-starting interest rate swap agreements were classified as cash flow hedges, the unamortized loss of $41, $31 net of tax, has been deferred in AOCI and will be amortized to earnings as the interest payments are made. In addition, the Company terminated and discontinued hedge accounting for one forward-starting interest rate swap with a maturity date of January 2021 with an aggregate notional amount totaling $50. The gain of $7 from the termination of this forward starting interest rate swap was record in interest income in the fourth quarter of 2020. The following table summarizes the effect of the Company’s derivative instruments designated as cash flow hedges for 2021, 2020 and 2019: Derivatives in Cash Flow Hedging Relationships Year-To-Date Amount of Gain/(Loss) Amount of Gain/(Loss) in AOCI on Derivative (Effective Portion) Reclassified from AOCI into Location of Gain/(Loss) Income (Effective Portion) Reclassified into Income 2021 2020 2019 2021 2020 2019 (Effective Portion) Forward-Starting Interest Rate Swaps, net of tax* $ (47) $ (54) $ (42) $ (7) $ (2) $ (4) 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 the end of 2020. 7. FAIR VALUE MEASUREMENTS GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the fair value hierarchy defined in the standards are as follows: Level 1 - Quoted prices are available in active markets for identical assets or liabilities; Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable; Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing an asset or liability. 74 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 January 29, 2022 and January 30, 2021: January 29, 2022 Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Marketable Securities $ 1,054 January 30, 2021 Fair Value Measurements Using Marketable Securities Other Investment Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Unobservable Inputs (Level 3) $ $ 1,882 — 1,882 $ $ — 160 160 $ $ Total 1,882 160 2,042 Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of goodwill, other intangible assets, long-lived assets and in the valuation of store lease exit costs. The Company reviews goodwill and indefinite-lived intangible assets for impairment annually, during the fourth quarter of each fiscal year, and as circumstances indicate the possibility of impairment. See Note 2 for further discussion related to the Company’s carrying value of goodwill. Long-lived assets and store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. See Note 1 for further discussion of the Company’s policies for impairments of long-lived assets and valuation of store lease exit costs. In 2021, long-lived assets with a carrying amount of $74 were written down to their fair value of $10, resulting in an impairment charge of $64. In 2020, long-lived assets with a carrying amount of $72 were written down to their fair value of $2, resulting in an impairment charge of $70. 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 January 29, 2022, the fair value of total debt excluding obligation under finance leases was $13,189 compared to a carrying value of $11,745. At January 30, 2021, the fair value of total debt excluding obligation under finance leases was $14,680 compared to a carrying value of $12,410. 75 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 was included in “Other long-term liabilities” within the Consolidated Balance Sheet. The Company estimated the fair value of the earnout liability by applying a Monte-Carlo simulation method using the Company’s projection of future operating results for both the online and offline businesses related to the Home Chef merger and the estimated probability of achievement of the earnout target metrics. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the fair value of the earnout liability. The liability is remeasured to fair value using the Monte-Carlo simulation method at each reporting period, and the change in fair value, including accretion for the passage of time, is recognized in net earnings until the contingency is resolved. In 2020, the Company amended the contingent consideration agreement including the performance milestones to align with the Company’s current business strategies. In 2021 and 2020, the Company recorded adjustments to increase the contingent consideration liability for $66 and $189, respectively, in OG&A. 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 due to their short term nature. Other Assets The equity investment in Ocado Group plc is measured at fair value through net earnings. The fair value of all shares owned, which is measured using Level 1 inputs, was $987 and $1,808 as of January 29, 2022 and January 30, 2021, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. The unrealized gain (loss) for this Level 1 investment was approximately ($821) and $1,032 for 2021 and 2020, respectively, and is included in “(Loss) Gain on investments” in the Company’s Consolidated Statements of Operations. The Company held other equity investments without a readily determinable fair value. These investments are measured initially at cost and remeasured for observable price changes to fair value through net earnings. The value of these investments was $309 and $189 as of January 29, 2022 and January 30, 2021, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. During 2020, certain of these investments with a carrying value of $87 were remeasured to their fair value of $160, resulting in an unrealized gain of $73. The gain was measured using Level 3 inputs and is included in “(Loss) Gain on investments” in the Company’s Consolidated Statements of Operations. There were no observable price changes or impairments for these investments during 2021, and as such, they are excluded from the fair value measurements table above for January 29, 2022. The following table presents the Company’s remaining other assets as of January 29, 2022 and January 30 2021: Other Assets Equity method and other long-term investments Notes receivable Prepaid deposits under certain contractual arrangements Implementation costs related to cloud computing arrangements Funded asset status of pension plans Other Total January 29, 2022 January 30, 2021 $ $ 282 191 214 151 156 120 1,114 $ $ 250 240 186 81 21 129 907 76 8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table represents the changes in AOCI by component for the years ended January 29, 2022 and January 30, 2021: Balance at February 1, 2020 OCI before reclassifications(2) Amounts reclassified out of AOCI(3) Net current-period OCI Balance at January 30, 2021 Balance at January 30, 2021 OCI before reclassifications(2) Amounts reclassified out of AOCI(3) Net current-period OCI Balance at January 29, 2022 Cash Flow Hedging Activities(1) Pension and Postretirement Defined Benefit Plans(1) Total(1) (42) (14) 2 (12) (54) (54) — 7 7 (47) $ $ $ $ (598) 8 14 22 (576) (576) 82 74 156 (420) $ $ $ $ (640) (6) 16 10 (630) (630) 82 81 163 (467) $ $ $ $ (1) All amounts are net of tax. (2) Net of tax of ($8) and $2 for cash flow hedging activities and pension and postretirement defined benefit plans, respectively, as of January 30, 2021. Net of tax of $25 for pension and postretirement defined benefit plans as of January 29, 2022. (3) Net of tax of $5 and $2 for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of January 30, 2021. Net of tax of $23 and $3 for pension and postretirement defined benefit plans and cash flow hedging activities, respectively, as of January 29, 2022. The following table represents the items reclassified out of AOCI and the related tax effects for the years ended January 29, 2022, January 30, 2021 and February 1, 2020: Cash flow hedging activity items Amortization of gains and losses on cash flow hedging activities(1) Tax expense Net of tax Pension and postretirement defined benefit plan items Amortization of amounts included in net periodic pension cost(2) Tax expense Net of tax Total reclassifications, net of tax For the year ended For the year ended For the year ended January 29, 2022 January 30, 2021 February 1, 2020 $ $ 10 $ (3) 7 97 (23) 74 81 $ 4 $ (2) 2 19 (5) 14 16 $ 7 (3) 4 38 (9) 29 33 (1) Reclassified from AOCI into interest expense. (2) Reclassified from AOCI into non-service component of company-sponsored pension plan costs. These components are included in the computation of net periodic pension expense. 77 9. LEASES AND LEASE-FINANCED TRANSACTIONS The Company leases certain store real estate, warehouses, distribution centers, fulfillment centers, office space and equipment. The Company operates in leased facilities in approximately half of its store locations. Lease terms generally range from 10 to 20 years with options to renew for varying terms at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Certain leases include escalation clauses or payment of executory costs such as property taxes, utilities or insurance and maintenance. Rent expense for leases with escalation clauses or other lease concessions are accounted for on a straight-line basis over the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain properties or portions thereof are subleased to others for periods generally ranging from one to 20 years. The following table provides supplemental balance sheet classification information related to leases: Assets Operating Finance Total leased assets Liabilities Current Operating Classification Operating lease assets Property, plant and equipment, net(1) Current portion of operating lease liabilities Current portion of long-term debt including obligations Finance under finance leases January 29, 2022 January 30, 2021 6,695 $ 1,525 6,796 844 8,220 $ 7,640 650 $ 104 667 67 $ $ $ Noncurrent Operating Finance Noncurrent operating lease liabilities Long-term debt including obligations under finance leases 6,426 1,515 6,507 936 Total lease liabilities $ 8,695 $ 8,177 (1) Finance lease assets are recorded net of accumulated amortization of $414 and $321 as of January 29, 2022 and January 30, 2021. The following table provides the components of lease cost: Classification Lease Cost Operating lease cost(1) Rent Expense Sublease and other rental income Rent Expense Finance lease cost Amortization of leased assets Interest on lease liabilities Depreciation and Amortization Interest Expense Net lease cost Year-To-Date January 29, 2022 Year-To-Date January 30, 2021 $ $ 954 (109) $ 95 52 992 $ 981 (107) 55 45 974 (1) Includes short-term leases and variable lease costs, which are immaterial. 78 Maturities of operating and finance lease liabilities are listed below. Amounts in the table include options to extend lease terms that are reasonably certain of being exercised. 2022 2023 2024 2025 2026 Thereafter Operating Leases Finance Leases Total $ $ 920 862 791 717 664 5,961 $ 159 158 156 152 152 1,323 1,079 1,020 947 869 816 7,284 Total lease payments 9,915 2,100 $ 12,015 Less amount representing interest 2,839 481 Present value of lease liabilities(1) $ 7,076 $ 1,619 (1) Includes the current portion of $650 for operating leases and $104 for finance leases. Total future minimum rentals under non-cancellable subleases at January 29, 2022 were $256. The following table provides the weighted-average lease term and discount rate for operating and finance leases: Weighted-average remaining lease term (years) Operating leases Finance leases Weighted-average discount rate Operating leases Finance leases January 29, 2022 January 30, 2021 14.9 14.7 4.1 % 3.7 % 15.3 16.2 4.2 % 4.4 % The following table provides supplemental cash flow information related to leases: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Leased assets obtained in exchange for new operating lease liabilities Leased assets obtained in exchange for new finance lease liabilities Net gain recognized from sale and leaseback transactions(1) Impairment of operating lease assets Impairment of finance lease assets $ Year-To-Date January 29, 2022 Year-To-Date January 30, 2021 $ 897 52 127 669 753 35 8 4 849 45 37 679 190 39 4 2 (1) In 2021, the Company entered into sale leaseback transactions related to seven properties, which resulted in total proceeds of $79. In 2020, the Company entered into sale leaseback transactions related to seven properties, which resulted in total proceeds of $78. 79 On May 17, 2018, the Company entered into a Partnership Framework Agreement with Ocado International Holdings Limited and Ocado Group plc (“Ocado”), which has since been amended. Under this agreement, Ocado will partner exclusively with the Company in the U.S., enhancing the Company’s digital and robotics capabilities in its distribution networks. The Company opened its first three Kroger Delivery customer fulfillment centers in Monroe, Ohio, Groveland, Florida and Forest Park, Georgia. The Company determined the arrangement with Ocado contains a lease of the robotic equipment used to fulfill customer orders. As a result, the Company established a finance lease when each facility began fulfilling orders to customers and used its 10-year incremental borrowing rate to calculate the lease liability. The base term of each lease is 10 years with options to renew at the Company’s sole discretion. The Company elected to combine the lease and non-lease elements in the contract. As a result, it will account for all payments to Ocado as lease payments. In 2021, the Company recorded finance lease assets of $401 and finance lease liabilities of $372 related to these location openings. 10. EARNINGS PER COMMON SHARE Net earnings attributable to The Kroger Co. per basic common share equals net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding. Net earnings attributable to The Kroger Co. per diluted common share equals net earnings attributable to The Kroger Co. less income allocated to participating securities divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options. The following table provides a reconciliation of net earnings attributable to The Kroger Co. and shares used in calculating net earnings attributable to The Kroger Co. per basic common share to those used in calculating net earnings attributable to The Kroger Co. per diluted common share: (in millions, except per share amounts) Net earnings attributable to The Kroger Co. per basic common share Dilutive effect of stock options Net earnings attributable to The Kroger Co. per For the year ended January 29, 2022 For the year ended January 30, 2021 For the year ended February 1, 2020 Earnings (Numerator) Shares (Denominator) Per Share Amount Earnings (Numerator) Shares (Denominator) Per Share Amount Earnings (Numerator) Shares Share (Denominator) Amount Per $ 1,639 744 $ 2.20 $ 2,556 10 $ 3.31 $ 1,640 773 8 $ 2.05 799 6 diluted common share $ 1,639 754 $ 2.17 $ 2,556 781 $ 3.27 $ 1,640 805 $ 2.04 The Company had combined undistributed and distributed earnings to participating securities totaling $16, $29 and $19 in 2021, 2020 and 2019, respectively. The Company had stock options outstanding for approximately 2.4 million, 9.1 million and 18.4 million shares, respectively, for the years ended January 29, 2022, January 30, 2021, and February 1, 2020, which were excluded from the computations of net earnings per diluted common share because their inclusion would have had an anti-dilutive effect on net earnings per diluted share. 11. STOCK-BASED COMPENSATION The Company recognizes compensation expense for all share-based payments granted. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award based on the fair value at the date of the grant. The Company grants options for common shares (“stock options”) to employees under various plans at an option price equal to the fair market value of the stock option at the date of grant. The Company accounts for stock options under the fair value recognition provisions. Stock options typically expire 10 years from the date of grant. Stock options vest between one and five years from the date of grant. In addition to the stock options described above, the Company awards restricted stock to employees and nonemployee directors under various plans. The restrictions on these awards generally lapse between one and five years from the date of the awards. The Company determines the fair value for restricted stock awards in an amount equal to the fair market value of the underlying shares on the grant date of the award. 80 At January 29, 2022, approximately 19 million common shares were available for future options or restricted stock grants under the 2011, 2014, and 2019 Long-Term Incentive Plans (the “Plans”). Options granted reduce the shares available under the Plans at a ratio of one to one. Restricted stock grants reduce the shares available under the Plans at a ratio of 2.83 to one. Equity awards granted are based on the aggregate value of the award on the grant date. This can affect the number of shares granted in a given year as equity awards. Excess tax benefits related to equity awards are recognized in the provision for income taxes. Equity awards may be approved at one of four meetings of its Board of Directors occurring shortly after the Company’s release of quarterly earnings. The 2021 primary grants were made in conjunction with the March and June meetings of the Company’s Board of Directors. All awards become immediately exercisable upon certain changes of control of the Company. Stock Options Changes in options outstanding under the stock option plans are summarized below: Outstanding, year-end 2018 Granted Exercised Canceled or Expired Outstanding, year-end 2019 Granted Exercised Canceled or Expired Outstanding, year-end 2020 Granted Exercised Canceled or Expired Outstanding, year-end 2021 Weighted- Shares subject to option (in millions) average exercise price 23.42 24.63 14.17 28.87 24.52 29.31 17.72 30.53 26.65 35.45 24.70 28.88 34.1 $ 3.1 $ (4.0) $ (1.0) $ 32.2 $ 2.9 $ (7.3) $ (1.0) $ 26.8 $ 2.1 $ (7.1) $ (0.7) $ 21.1 $ 28.15 A summary of options outstanding, exercisable and expected to vest at January 29, 2022 follows: Options Outstanding Options Exercisable Options Expected to Vest Weighted-average Number of shares (in millions) remaining contractual life (in years) Weighted-average exercise price Aggregate intrinsic value (in millions) 21.1 14.6 6.4 5.31 4.19 7.79 $ $ $ 28.15 27.58 29.35 $ $ $ 324 232 90 81 Restricted stock Changes in restricted stock outstanding under the restricted stock plans are summarized below: Outstanding, year-end 2018 Granted Lapsed Canceled or Expired Outstanding, year-end 2019 Granted Lapsed Canceled or Expired Outstanding, year-end 2020 Granted Lapsed Canceled or Expired Outstanding, year-end 2021 Restricted shares outstanding (in millions) Weighted-average grant-date fair value 27.86 22.72 28.07 25.68 24.85 31.99 24.69 26.71 28.46 37.29 29.58 31.31 8.8 $ 5.4 $ (4.1) $ (0.8) $ 9.3 $ 4.0 $ (4.9) $ (0.6) $ 7.8 $ 3.9 $ (4.0) $ (0.5) $ 7.2 $ 32.52 The weighted-average grant date fair value of stock options granted during 2021, 2020 and 2019 was $8.54, $6.43 and $6.00, 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 2021, compared to 2020, resulted primarily from increases in the Company’s share price and the weighted-average expected volatility. The increase in the fair value of the stock options granted during 2020, compared to 2019, resulted primarily from increases in the Company’s share price and the weighted-average expected volatility, partially offset by a decrease in the 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) 2021 28.52 % 1.21 % 2.00 % 2020 2019 26.96 % 0.82 % 2.00 % 25.37 % 2.54 % 2.00 % 7.2 years 7.2 years 7.2 years The weighted-average risk-free interest rate was based on the yield of a treasury note as of the grant date, continuously compounded, which matures at a date that approximates the expected term of the options. The dividend yield was based on our history and expectation of dividend payouts. Expected volatility was determined based upon historical stock volatilities; however, implied volatility was also considered. Expected term was determined based upon historical exercise and cancellation experience. Total stock compensation recognized in 2021, 2020 and 2019 was $203, $185 and $155, respectively. Stock option compensation recognized in 2021, 2020 and 2019 was $20, $22 and $24, respectively. Restricted shares compensation recognized in 2021, 2020 and 2019 was $183, $163 and $131, respectively. 82 The total intrinsic value of stock options exercised was $121, $115 and $51 in 2021, 2020 and 2019, respectively. The total amount of cash received in 2021 by the Company from the exercise of stock options granted under share-based payment arrangements was $172. As of January 29, 2022, there was $194 of total unrecognized compensation expense remaining related to non-vested share-based compensation arrangements granted under the Plans. This cost is expected to be recognized over a weighted-average period of approximately two years. The total fair value of options that vested was $20, $23 and $26 in 2021, 2020 and 2019, 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 2021, the Company repurchased approximately five million common shares in such a manner. 12. COMMITMENTS AND CONTINGENCIES The Company continuously evaluates contingencies based upon the best available evidence. The Company believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from the Company’s estimates, future earnings will be charged or credited. The principal contingencies are described below: Insurance — The Company’s workers’ compensation risks are self-insured in most states. In addition, other workers’ compensation risks and certain levels of insured general liability risks are based on retrospective premium plans, deductible plans, and self-insured retention plans. The liability for workers’ compensation risks is accounted for on a present value basis. Actual claim settlements and expenses incident thereto may differ from the provisions for loss. Property risks have been underwritten by a subsidiary and are all reinsured with unrelated insurance companies. Operating divisions and subsidiaries have paid premiums, and the insurance subsidiary has provided loss allowances, based upon actuarially determined estimates. Litigation — Various claims and lawsuits arising in the normal course of business, including personal injury, contract disputes, employment discrimination, wage and hour and other regulatory claims are pending against the Company. Some of these suits purport or have been determined to be class actions and/or seek substantial damages. Although it is not possible at this time to evaluate the merits of all of these claims and lawsuits, nor their likelihood of success, the Company is of the belief that any resulting liability will not have a material effect on the Company’s financial position, results of operations, or cash flows. The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made provisions where it is reasonably possible to estimate and when an adverse outcome is probable. Nonetheless, assessing and predicting the outcomes of these matters involves substantial uncertainties. Management currently believes that the aggregate range of loss for the Company’s exposure is not material to the Company. It remains possible that despite management’s current belief, material differences in actual outcomes or changes in management’s evaluation or predictions could arise that could have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. On February 9, 2022, a putative shareholder filed a derivative action in the Court of Common Pleas, Hamilton County, Ohio against certain current and former directors of The Kroger Co. and The Kroger Co., as a nominal defendant, alleging among other things, that the defendants breached their fiduciary duties in connection with the data incident involving the Company’s former third party secure file transfer vendor, Accellion. 83 The Company is one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to create a public nuisance through the distribution and dispensing of opioids. At present, the Company is named in a significant number of lawsuits pending in various state courts as well as in the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation ("MDL") pursuant to 28 U.S.C. §1407 in a case entitled In re National Prescription Opiate Litigation. Most of these cases have been stayed but Kroger entities have been named in five bellwether cases that are proceeding on a staggered discovery schedule before Judge Polster, the MDL judge. Once discovery is completed, those cases will be remanded to the originating federal court for trial. The Company is vigorously defending these matters and believes that these cases are without merit. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any. Assignments — The Company is contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees is unable to fulfill its lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of these obligations is remote. 13. STOCK Preferred Shares The Company has authorized five million shares of voting cumulative preferred shares; two million shares were available for issuance at January 29, 2022. 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 $1,422, $1,196 and $400 under these repurchase programs in 2021, 2020 and 2019, respectively. In addition to these repurchase programs, in December 1999, the Company began a program to repurchase common shares to reduce dilution resulting from its employee stock option plans. This program is solely funded by proceeds from stock option exercises and the related tax benefit. The Company repurchased approximately $225, $128 and $65 under the stock option program during 2021, 2020 and 2019, respectively. 14. COMPANY- SPONSORED BENEFIT PLANS The Company administers non-contributory defined benefit retirement plans for some non-union employees and union-represented employees as determined by the terms and conditions of collective bargaining agreements. These include several qualified pension plans (the “Qualified Plans”) and non-qualified pension plans (the “Non-Qualified Plans”). The Non-Qualified Plans pay benefits to any employee that earns in excess of the maximum allowed for the Qualified Plans by Section 415 of the Internal Revenue Code. The Company only funds obligations under the Qualified Plans. Funding for the company-sponsored pension plans is based on a review of the specific requirements and on evaluation of the assets and liabilities of each plan. In addition to providing pension benefits, the Company provides certain health care benefits for retired employees. Based on employee’s age, years of service and position with the Company, the employee may be eligible for retiree health care benefits. Funding of retiree health care benefits occurs as claims or premiums are paid. 84 The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheets. Actuarial gains or losses and prior service credits that have not yet been recognized as part of net periodic benefit cost are required to be recorded as a component of AOCI. The Company has elected to measure defined benefit plan assets and obligations as of January 31, which is the month-end that is closest to its fiscal year-ends, which were January 29, 2022 for fiscal 2021 and January 30, 2021 for fiscal 2020. Amounts recognized in AOCI as of January 29, 2022 and January 30, 2021 consist of the following (pre-tax): Net actuarial loss (gain) Prior service credit Pension Benefits Other Benefits Total 2021 2020 2021 2020 2021 2020 $ 715 $ 951 $ (127) $ (147) $ — — (43) (55) 588 $ (43) 804 (55) Total $ 715 $ 951 $ (170) $ (202) $ 545 $ 749 Other changes recognized in other comprehensive income (loss) in 2021, 2020 and 2019 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) Other Total recognized in other comprehensive 2020 2019 2021 2020 2019 2021 2021 2020 2019 $ (109) $ 36 $ 179 $ 2 $ (46) $ 9 $ (107) $ (10) $ 188 11 13 (49) 8 (13) — — (126) — 12 (109) — 11 12 (12) — (61) (1) 13 (32) — — (40) — 12 17 — income (loss) $ (235) $ (4) $ 117 $ 31 $ (25) $ 20 $ (204) $ (29) $ 137 Total recognized in net periodic benefit cost and other comprehensive income (loss) $ (164) $ (4) $ 165 $ 10 $ (34) $ 11 $ (154) $ (38) $ 176 85 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 2020 2021 Non-Qualified Plans 2021 2020 Other Benefits 2020 2021 Change in benefit obligation: Benefit obligation at beginning of fiscal year Service cost Interest cost Plan participants’ contributions Actuarial (gain) loss Plan settlements Benefits paid Other $ 3,615 $ 3,518 $ 351 $ 328 $ 152 $ 198 7 6 12 (47) — (24) — 12 92 — (125) (442) (172) (3) 13 104 — 175 (16) (171) (8) 4 4 13 2 — (25) — — 10 — 35 — (21) (1) — 9 — (12) — (24) 1 Benefit obligation at end of fiscal year $ 2,977 $ 3,615 $ 325 $ 351 $ 150 $ 152 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 $ 3,569 $ 3,422 $ 141 — — (442) (172) — 342 — — (16) (171) (8) — $ — 24 — — (24) — — $ — 21 — — (21) — — $ — 12 13 — (25) — — — 12 12 — (24) — Fair value of plan assets at end of fiscal year Funded status and net asset and liability recognized at end of $ 3,096 $ 3,569 $ — $ — $ — $ — fiscal year $ 119 $ (46) $ (325) $ (351) $ (150) $ (152) As of January 29, 2022, other assets and other current liabilities include $156 and $34, respectively, of the net asset and liability recognized for the above benefit plans. As of January 30, 2021, other assets and other current liabilities include $21 and $35, respectively, of the net asset and liability recognized for the above benefit plans. Pension plan assets do not include common shares of The Kroger Co. In 2021, the Company settled certain company-sponsored pension plan obligations using existing assets of the plans. The Company recognized a non-cash settlement charge of $87, $68 net of tax, associated with the settlement of its obligations for the eligible participants’ pension balances that were distributed out of the plans via a lump sum distribution or the purchase of an annuity contract, based on each participant’s election. The settlement charge is included in “Non-service component of company-sponsored pension plan costs” in the Consolidated Statements of Operations. Weighted average assumptions Discount rate — Benefit obligation Discount rate — Net periodic benefit Pension Benefits Other Benefits 2021 2020 2019 2021 2020 2019 3.17 % 2.72 % 3.01 % 3.01 % 2.43 % 2.97 % cost 2.72 % 3.01 % 4.23 % 2.43 % 2.97 % 4.19 % Expected long-term rate of return on plan assets 5.50 % 5.50 % 6.00 % Rate of compensation increase — Net periodic benefit cost 3.03 % 3.03 % 3.04 % Rate of compensation increase — Benefit obligation 3.05 % 3.03 % 3.03 % Cash Balance plan interest crediting rate 3.30 % 3.30 % 3.60 % 86 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 3.17% and 3.01% discount rates as of year-end 2021 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 January 29, 2022, by approximately $316. The Company’s 2021 assumed pension plan investment return rate was 5.50% compared to 5.50% in 2020 and 6.00% in 2019. The value of all investments in the company-sponsored defined benefit pension plans during the calendar year ended December 31, 2021, net of investment management fees and expenses, increased 5.9% and for fiscal year 2021 investments increased 4.2%. Historically, the Company’s pension plans’ average rate of return was 8.2% for the 10 calendar years ended December 31, 2021, net of all investment management fees and expenses. For the past 20 years, the Company’s pension plans’ average annual rate of return has been 7.8%. To determine the expected rate of return on pension plan assets held by the Company, the Company considers current and forecasted plan asset allocations as well as historical and forecasted rates of return on various asset categories. The Company calculates its expected return on plan assets by using the market-related value of plan assets. The market-related value of plan assets is determined by adjusting the actual fair value of plan assets for gains or losses on plan assets. Gains or losses represent the difference between actual and expected returns on plan investments for each plan year. Gains or losses on plan assets are recognized evenly over a five-year period. Using a different method to calculate the market-related value of plan assets would provide a different expected return on plan assets. The pension benefit unfunded status decreased in 2021, compared to 2020, due primarily to an increase in discount rates, reducing the benefit obligation. The following table provides the components of the Company’s net periodic benefit costs for 2021, 2020 and 2019: Pension Benefits 2021 Qualified Plans 2020 2019 Non-Qualified Plans Other Benefits 2021 2020 2019 2021 2020 2019 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 $ 13 $ $ 12 $ 92 (168) 104 (168) 32 $ — $ — $ 9 — 10 — 124 (182) 1 $ 12 — 4 $ 4 — 7 $ 6 — 6 8 — — 33 87 (1) 55 $ (15) $ — 35 — 1 — 6 — 1 — — (11) 55 6 (12) — — — — — — 29 $ 16 $ 15 $ 19 $ (21) $ (9) $ (9) (13) (8) — (1) (12) (17) — — — 5 — — The following table provides the projected benefit obligation (“PBO”) and the fair value of plan assets for those company-sponsored pension plans with projected benefit obligations in excess of plan assets: Qualified Plans 2020 Non-Qualified Plans 2021 2020 2021 $ 244 $ 3,415 $ 325 $ 351 — $ 207 $ 3,349 $ — $ PBO at end of fiscal year Fair value of plan assets at end of year 87 The following table provides the accumulated benefit obligation (“ABO”) and the fair value of plan assets for those company-sponsored pension plans with accumulated benefit obligations in excess of plan assets: ABO at end of fiscal year Fair value of plan assets at end of year Qualified Plans 2021 2020 2020 $ 244 $ 3,415 $ 325 $ 351 — $ 207 $ 3,349 $ Non-Qualified Plans 2021 — $ The following table provides information about the Company’s estimated future benefit payments: 2022 2023 2024 2025 2026 2027 —2031 Pension Other Benefits Benefits $ 207 $ 12 $ 204 $ 12 $ 207 $ 13 $ 209 $ 13 $ 209 $ 13 $ 1,009 $ 58 The following table provides information about the target and actual pension plan asset allocations as of January 29, 2022: 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 Total Target allocations Actual Allocations 2021 2021 2020 2.0 % 1.0 80.0 4.0 10.0 — 3.0 7.0 % 1.7 73.6 2.5 10.6 2.9 1.7 6.0 % 1.6 77.9 2.7 8.1 2.2 1.5 100.0 % 100.0 % 100.0 % Investment objectives, policies and strategies are set by the Retirement Benefit Plan Management Committee (the “Committee”). The primary objectives include holding and investing the assets and distributing benefits to participants and beneficiaries of the pension plans. Investment objectives have been established based on a comprehensive review of the capital markets and each underlying plan’s current and projected financial requirements. The time horizon of the investment objectives is long-term in nature and plan assets are managed on a going-concern basis. Investment objectives and guidelines specifically applicable to each manager of assets are established and reviewed annually. Derivative instruments may be used for specified purposes, including rebalancing exposures to certain asset classes. Any use of derivative instruments for a purpose or in a manner not specifically authorized is prohibited, unless approved in advance by the Committee. The target allocations shown for 2021 were established in 2020 based on the Company’s LDI strategy. An LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. The Company did not make any contributions to its company-sponsored pension plans in 2021, and the Company is not required to make any contributions to these plans in 2022. If the Company does make any contributions in 2022, 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 2022 net periodic benefit costs for company-sponsored pension plans to be approximately ($38). 88 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The Company used a 5.30% 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. The following tables, set forth by level within the fair value hierarchy, present the Qualified Plans’ assets at fair value as of January 29, 2022 and January 30, 2021: Assets at Fair Value as of January 29, 2022 Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs (Level 1) (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 $ $ 80 $ 98 — — 265 — — — — — 443 $ — $ — 1,070 144 — — — — — 101 1,315 $ — — — — — — 39 — 37 — 76 $ $ — — — — — 871 49 326 16 — 1,262 Assets at Fair Value as of January 30, 2021 Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs (Level 1) (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 $ $ 120 $ 89 — — 329 — — — — — 538 $ — $ — 1,240 225 — — — — — 127 1,592 $ — — — — — — 35 — 39 — 74 $ $ — — — — — 1,014 46 289 16 — 1,365 Total 80 98 1,070 144 265 871 88 326 53 101 3,096 Total 120 89 1,240 225 329 1,014 81 289 55 127 3,569 $ $ $ $ Certain investments that are measured at fair value using the NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented for these investments in the preceding tables are intended to permit reconciliation of the fair value hierarchies to the total fair value of plan assets. 89 For measurements using significant unobservable inputs (Level 3) during 2021 and 2020, a reconciliation of the beginning and ending balances is as follows: Ending balance, February 1, 2020 Contributions into Fund Realized gains Unrealized gains Distributions Ending balance, January 30, 2021 Contributions into Fund Realized gains Unrealized gains Distributions Ending balance, January 29, 2022 Hedge Funds Real Estate 43 43 $ $ 1 2 4 — (6) — (3) (10) 35 — 2 7 (5) 39 1 2 6 (11) $ 39 $ 37 See Note 7 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement. The following is a description of the valuation methods used for the Qualified Plans’ assets measured at fair value in the above tables: • Cash and cash equivalents: The carrying value approximates fair value. • Corporate Stocks: The fair values of these securities are based on observable market quotations for identical assets and are valued at the closing price reported on the active market on which the individual securities are traded. • Corporate Bonds: The fair values of these securities are primarily based on observable market quotations for similar bonds, valued at the closing price reported on the active market on which the individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flow approach using current yields on similar instruments of issuers with similar credit ratings, including adjustments for certain risks that may not be observable, such as credit and liquidity risks. • U.S. Government Securities: Certain U.S. Government securities are valued at the closing price reported in the active market in which the security is traded. Other U.S. government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for similar securities, the security is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. • Mutual Funds: The fair values of these securities are based on observable market quotations for identical assets and are valued at the closing price reported on the active market on which the individual securities are traded. • Collective Trusts: The collective trust funds are public investment vehicles valued using a Net Asset Value (NAV) provided by the manager of each fund. These assets have been valued using NAV as a practical expedient. • Hedge Funds: The Hedge funds classified as Level 3 include investments that are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3. Certain other hedge funds are private investment vehicles valued using a NAV provided by the manager of each fund. These assets have been valued using NAV as a practical expedient. 90 • Private Equity: Private Equity investments are valued based on the fair value of the underlying securities within the fund, which include investments both traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager to value investments. Fair values of all investments are adjusted annually, if necessary, based on audits of the private equity fund financial statements; such adjustments are reflected in the fair value of the plan’s assets. • Real Estate: Real estate investments include investments in real estate funds managed by a fund manager. These investments are valued using a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches. The valuations for these investments are not based on readily observable inputs and are classified as Level 3 investments. Certain other real estate investments are valued using a NAV provided by the manager of each fund. These assets have been valued using NAV as a practical expedient. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement. The Company contributed and expensed $289, $294 and $264 to employee 401(k) retirement savings accounts in 2021, 2020 and 2019, 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. In 2019, the Company approved and implemented a plan to reorganize certain portions of its division management structure. This reorganization increased operational effectiveness and reduced overhead costs while maintaining a high quality customer experience. The Company recorded a charge for severance and related benefits of $80, $61 net of tax, in 2019, which is included in the OG&A caption within the Consolidated Statements of Operations. Of the total charge, $42 was unpaid as of February 1, 2020 and was included in Other Current Liabilities within the Consolidated Balance Sheet and the remaining balance was paid in 2020. 15. MULTI-EMPLOYER PENSION PLANS The Company contributes to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These multi-employer pension plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed in equal number by employers and unions. The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans. The Company recognizes expense in connection with these plans as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. The Company made cash contributions to these plans of $1,109 in 2021, $619 in 2020 and $461 in 2019. The increase in 2021, compared to 2020, is due to the contractual payments made in 2021 related to our commitments established for certain ratification agreements. The increase in 2020, compared to 2019, is due to incremental contributions we made in 2020 to multi-employer pension plans, helping stabilize future associate benefits. 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. 91 The Company is currently designated as the named fiduciary of the United Food and Commercial Workers (“UFCW”) Consolidated Pension Plan and the International Brotherhood of Teamsters (“IBT”) Consolidated Pension Fund and has sole investment authority over these assets. Due to opportunities arising, the Company has restructured certain multi-employer pension plans. The significant effects of these restructuring agreements recorded in our Consolidated Financial Statements are: • • • In 2021, associates within the Fred Meyer and QFC divisions ratified an agreement for the transfer of liabilities from the Sound Retirement Trust to the UFCW Consolidated Pension Plan. The Company transferred $449, $344 net of tax, in net accrued pension liabilities and prepaid escrow funds to fulfill obligations for past service for associates and retirees. The agreement will be satisfied by cash installment payments to the UFCW Consolidated Pension Plan and will be paid evenly over seven years. In 2020, certain of the Company’s associates ratified an agreement with certain UFCW local unions to withdraw from the UFCW International Union-Industry Pension Fund (“National Fund”). Due to the ratification of the agreement, the Company incurred a withdrawal liability charge of $962, on a pre-tax basis, to fulfill obligations for past service for associates and retirees in the National Fund. The Company also incurred an additional $27 commitment to a transition reserve in the new variable annuity pension plan. On an after-tax basis, the withdrawal liability and commitment to the transition reserve totaled $754. As of January 30, 2021, the current portion of the commitment of $523 was included in “Other current liabilities” and the long-term portion of the commitment of $466 was included in “Other long-term liabilities” in the Company’s Consolidated Balance Sheets. In 2021, the Company paid $523 of these commitments. As of January 29, 2022, the current portion of the commitment of $233 is included in “Other current liabilities” and the long-term portion of the commitment of $233 is included in “Other long-term liabilities” in the Company’s Consolidated Balance Sheets. The original commitment of $962 on a pre-tax basis, will be satisfied by payment to the National Fund over three years. The long-term portion, from January 30, 2021, is included in “Other” within “Changes in operating assets and liabilities net of effects from mergers and disposals of businesses” in the Company’s Consolidated Statements of Cash Flows. In 2019, the Company incurred a $135 charge, $104 net of tax, for obligations related to withdrawal liabilities for certain multi-employer pension plan funds. 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. b. c. 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. 92 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 2021 and 2020 is for the plan’s year-end at December 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019. The multi-employer contributions listed in the table below are the Company’s multi-employer contributions made in fiscal years 2021, 2020 and 2019. The following table contains information about the Company’s multi-employer pension plans: Pension Protection EIN / Pension Act Zone Status Plan Number 2021 FIP/RP Status Pending/ 2020 Implemented Multi-Employer Contributions Surcharge Imposed(5) 2019 2020 2021 95-1939092 - 001 Yellow Yellow Implemented $ 83 $ 86 $ 75 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 and Employers Pension Plan(1) Oregon Retail Employees Pension Plan(1) Bakery and Confectionary Union & Industry International Pension Fund(1) 84-6277982 - 001 Green Green No 91-6069306 – 001 Yellow Yellow Implemented 84-6045986 - 001 Green Green 93-6074377 - 001 Green Green No No 52-6118572 - 001 Red Red Implemented Retail Food Employers & UFCW Local 711 Pension(1) 51-6031512 - 001 Yellow Yellow Implemented United Food & Commercial Workers Intl Union — Industry Pension Fund(1)(4) Western Conference of Teamsters 51-6055922 - 001 Green Green Pension Plan 91-6145047 - 001 Green Green Central States, Southeast & Southwest Areas Pension Plan UFCW Consolidated Pension Plan(1) IBT Consolidated Pension Plan(1)(6) Other Total Contributions 36-6044243 - 001 58-6101602 – 001 Green Green 82-2153627 - 001 N/A N/A Red Red No No Implemented No No 22 24 29 10 8 11 550 37 37 243 29 26 19 29 28 9 8 11 29 35 12 321 18 14 619 $ 19 25 23 9 10 10 32 34 — 174 33 17 461 $ 1,109 $ No No No No No No No No No No No No (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, 2021 and March 31, 2020. (3) The information for this fund was obtained from the Form 5500 filed for the plan's year-end at September 30, 2020 and September 30, 2019. (4) The information for this fund was obtained from the Form 5500 filed for the plan's year-end at June 30, 2020 and June 30, 2019. (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 January 29, 2022, the collective bargaining agreements under which the Company was making contributions were in compliance with rehabilitation plans adopted by the applicable pension fund. (6) The plan was formed after 2006, and therefore is not subject to zone status certifications. 93 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 SO CA UFCW Unions & Food Employers Joint Pension Trust Fund UFCW Consolidated Pension Plan Desert States Employers & UFCW Unions Pension Plan Sound Retirement Trust (formerly Retail Clerks Pension Plan) Rocky Mountain UFCW Unions and Employers Pension Plan Oregon Retail Employees Pension Plan Bakery and Confectionary Union & Industry International Pension Fund Retail Food Employers & UFCW Local 711 Pension United Food & Commercial Workers Intl Union — Industry Pension Fund Western Conference of Teamsters Pension Plan International Brotherhood of Teamsters Consolidated Pension Expiration Date of Collective Bargaining Agreements Most Significant Collective Bargaining Agreements(1) Expiration Count March 2022 to June 2024 April 2020(2) to August 2026 October 2023 to June 2025 April 2022 to September 2024 January 2025 to February 2025 August 2024 to March 2026 May 2021(2) to July 2024 March 2022 to January 2024 April 2020(2) to June 2025 April 2022 to September 2025 2 4 1 4 1 3 3 1 2 4 March 2022 to June 2024 April 2020(2) to August 2026 October 2023 May 2022 to August 2022 January 2025 August 2024 to July 2025 October 2021(2) to June 2024 March 2022 July 2023 to August 2023 April 2022 to September 2025 Fund September 2022 to September 2024 3 September 2022 to September 2024 (1) This column represents the number of significant collective bargaining agreements and their expiration date for each of the Company’s pension funds listed above. For the purposes of this table, the “significant collective bargaining agreements” are the largest based on covered employees that, when aggregated, cover the majority of the employees for which we make multi-employer contributions for the referenced pension fund. (2) Certain collective bargaining agreements for each of these pension funds are operating under an extension. In 2020, the Company held escrow deposits amounting to $271 due to certain restructuring agreements. These payments were included in “Prepaid and other current assets” in the Company’s Consolidated Balance Sheets. These escrow deposits were paid in 2021. Based on the most recent information available to it, the Company believes the present value of actuarial accrued liabilities in most of these multi-employer plans exceeds the value of the assets held in trust to pay benefits. Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these funds, the Company could trigger a withdrawal liability. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and it can be reasonably estimated. The Company also contributes to various other multi-employer benefit plans that provide health and welfare benefits to active and retired participants. Total contributions made by the Company to these other multi-employer health and welfare plans were approximately $1,197 in 2021, $1,262 in 2020, and $1,252 in 2019. 16. DISPOSAL OF BUSINESS On March 13, 2019, the Company completed the sale of its You Technology business to Inmar for total consideration of $565, including $396 of cash and $64 of preferred equity received upon closing. The Company is also entitled to receive other cash payments of $105 over five years. The transaction includes a long-term service agreement for Inmar to provide the Company digital coupon services. The sale resulted in a gain of $70, $52 net of tax, which is included in “Gain on sale of businesses” in the Consolidated Statement of Operations. The Company recorded the fair value of the long-term service agreement of $358 in “Other current liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets and such amount is being recorded as sales over the 10-year agreement. On April 26, 2019, the Company completed the sale of its Turkey Hill Dairy business to an affiliate of Peak Rock Capital for total proceeds of $225. The sale resulted in a gain of $106, $80 net of tax, which is included in “Gain on sale of businesses” in the Consolidated Statements of Operations. 94 In the third quarter of 2019, as a result of a portfolio review, the Company decided to divest its interest in Lucky’s Market. The Company recognized an impairment charge of $238 in the third quarter of 2019, which is included in OG&A in the Consolidated Statements of Operations. The impairment charge consists of property, plant and equipment of $200, which includes $40 of finance lease assets; goodwill of $19; operating lease assets of $11; and other charges of $8. The amount of the impairment charge attributable to The Kroger Co. is $131, $100 net of tax, with the remaining amount attributable to the minority interest. Subsequently, the decision was made by Lucky’s Market to file for bankruptcy in January 2020, which led the Company to fully write off the value of its investment and deconsolidate Lucky’s Market from the consolidated financial statements. This resulted in an additional non-cash charge of $174, $125 net of tax, in the fourth quarter of 2019, which is included in OG&A in the Consolidated Statements of Operations. The amount of the total 2019 charge attributable to The Kroger Co. is $305, $225 net of tax. The Company maintains liabilities associated with certain property related guarantees that will result in the Company making payments to settle these over time. 17. RECENTLY ADOPTED ACCOUNTING STANDARDS In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-02, "Income Statement— Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This amendment allows companies to reclassify stranded tax effects resulting from the Tax Act from accumulated other comprehensive income (AOCI) to retained earnings. The Company adopted ASU 2018-02 on February 3, 2019, which resulted in a decrease to AOCI and an increase to accumulated earnings of $146, primarily related to deferred taxes previously recorded for pension and other postretirement benefits and cash flow hedges. The adoption of this standard did not have an effect on the Company’s consolidated results of operations or cash flows. In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” Under the new standard, implementation costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs. The new standard also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense. The Company adopted this guidance on a prospective basis in the first quarter of 2020. Capitalized implementation costs of $151, net of accumulated amortization of $15, and $81, net of accumulated amortization of $2, are included in “Other assets” in the Company’s Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021, respectively. The corresponding cash flows related to these arrangements are included in “Net cash provided by operating activities” in the Company’s Consolidated Statements of Cash Flows. 18. RECENTLY ISSUED ACCOUNTING STANDARDS In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides optional expedients and exceptions for applying GAAP to certain contract modifications and hedging relationships that reference LIBOR or other reference rates expected to be discontinued. This guidance is effective upon issuance and can be applied through December 31, 2022. The Company may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The adoption of the standard is not expected to have a material effect on the Company’s Consolidated Statements of Operations, Consolidated Balance Sheets or Consolidated Statements of Cash Flows. 95 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. As of January 29, 2022, our Chief Executive Officer and Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated the Company’s disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of January 29, 2022. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING The Company is in the process of implementing a broad, multi-year, technology transformation project to modernize mainframe, middleware and legacy systems to achieve better process efficiencies across customer service, merchandising, sourcing, payroll and accounting through the use of various solutions. Implementation of new accounting ERP modules for general ledger, accounts receivable, accounts payable, fixed assets and a new indirect procurement module were implemented at the beginning of the first quarter of 2021. Additional phases of the project will continue to be implemented over the next several years. As of January 29, 2022, there have been no material additional implementations of modules since the beginning of the first quarter of 2021. As the Company’s technology transformation project continues, the Company continues to emphasize the maintenance of effective internal controls and assessment of the design and operating effectiveness of key control activities throughout development and deployment of each phase and will evaluate as additional phases are deployed. There were no changes in Kroger’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, Kroger’s internal control over financial reporting during the quarter ended January 29, 2022. 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 January 29, 2022. The effectiveness of the Company’s internal control over financial reporting as of January 29, 2022, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which can be found in Item 8 of this Form 10-K. ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 96 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Our board of directors 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 on Business Ethics is available on our website at ir.kroger.com under Investors – Governance – Policy on Business Ethics. A copy of the Code of Ethics is available in print free of charge to any shareholder who requests a copy. Shareholders may make a written request to Kroger’s Secretary at our executive offices at 1014 Vine Street, Cincinnati, Ohio 45202. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the Policy on Business Ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website. The information required by this Item 10 with respect to executive officers is included within Item 1 in Part I of this Annual Report on Form 10-K under the caption “Information about our Executive Officers.” The information required by this Item not otherwise set forth in Part I above or in this Item 10 of Part III is set forth under the headings Election of Directors, Information Concerning the Board of Directors- Committees of the Board, Information Concerning the Board of Directors- Audit Committee and Delinquent 16(a) Reports in the definitive proxy statement to be filed by the Company with the Securities and Exchange Commission within 120 days after the end of the fiscal year 2021 (the “2022 proxy statement”) and is hereby incorporated by reference into this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is set forth in the sections entitled Compensation Discussion and Analysis, Compensation Committee Report, and Compensation Tables in the 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table provides information regarding shares outstanding and available for issuance under our existing equity compensation plans: Equity Compensation Plan Information Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total (a) (b) (c) Number of securities Number of securities to Weighted-average exercise price of be issued upon exercise of outstanding options, outstanding options, warrants and rights(1) warrants and rights(1) remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 29,683,904 $ 28.15 19,319,196 — $ 29,683,904 $ — 28.15 — 19,319,196 (1) The total number of securities reported includes the maximum number of common shares, 8,541,763, 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 the definitive 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. 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 2019 through 2021 and earned in 2021 the actual payout percentage, our best estimate of the number of common shares that will be issued under the performance unit grants is approximately 4,504,253. 97 The remainder of the information required by this Item is set forth in the section entitled Beneficial Ownership of Common Stock in the 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required by this Item is set forth in the sections entitled Related Person Transactions and Information Concerning the Board of Directors-Independence in the 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information required by this Item is set forth in the section entitled Ratification of the Appointment of Kroger’s Independent Auditor in the 2022 proxy statement and is hereby incorporated by reference into this Form 10-K. 98 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. PART IV (a)1.† Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID 238) Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021 Consolidated Statements of Operations for the years ended January 29, 2022, January 30, 2021 and February 1, 2020 Consolidated Statements of Comprehensive Income for the years ended January 29, 2022, January 30, 2021and February 1, 2020 Consolidated Statements of Cash Flows for the years ended January 29, 2022, January 30, 2021 and February 1, 2020 Consolidated Statement of Changes in Shareholders’ Equity for the years ended January 29, 2022, January 30, 2021 and February 1, 2020 Notes to Consolidated Financial Statements (a)2. Financial Statement Schedules: There are no Financial Statement Schedules included with this filing for the reason that they are not applicable or are not required or the information is included in the financial statements or notes thereto. (a)3.(b) Exhibits 3.1 Amended Articles of Incorporation are hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 22, 2010, as amended by the Amendment to Amended Articles of Incorporation, which is hereby incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 23, 2015. 3.2 The Company’s Regulations are hereby incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on June 27, 2019. 4.1 Instruments defining the rights of holders of long-term debt of the Company and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10% of the consolidated assets of the Company. The Company undertakes to file these instruments with the SEC upon request. 4.2 Description of Securities. Incorporated by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. 10.1* The Kroger Co. Deferred Compensation Plan for Independent Directors. Incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2016. 10.2* The Kroger Co. Executive Deferred Compensation Plan. Incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005. 10.3* The Kroger Co. 401(k) Retirement Savings Account Restoration Plan. Incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2007. 10.4* The Kroger Co. Supplemental Retirement Plans for Certain Retirement Benefit Plan Participants. Incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2007. 10.5* The Kroger Co. Employee Protection Plan dated January 13, 2017. Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017. 10.6 Amended and Restated Credit Agreement dated July 6, 2021, among The Kroger Co., the initial lenders named therein, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co- administrative agents, Citibank, N.A., as syndication agent, and Mizuho Bank, Ltd. and U.S. Bank National Association, as co-documentation agents, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 7, 2021. 99 10.7* 10.8* 10.9* The Kroger Co. 2008 Long-Term Incentive and Cash Bonus Plan. Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed with the SEC on June 26, 2008. The Kroger Co. 2011 Long-Term Incentive and Cash Bonus Plan. Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed with the SEC on June 23, 2011. The Kroger Co. 2014 Long-Term Incentive and Cash Bonus Plan. Incorporated by reference to Exhibit 4.2 of the Company’s Form S-8 filed with the SEC on July 29, 2014. 10.10* The Kroger Co. 2019 Long-Term Incentive Plan. Incorporated by reference to Exhibit 99.1 of the Company’s Form S-8 filed with the SEC on June 28, 2019. 10.11* Form of Restricted Stock Grant Agreement under Long-Term Incentive Cash Bonus Plans. Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. 10.12* Form of Restricted Stock Grant Agreement under Long-Term Incentive and Cash Bonus Plans. Incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2007. 10.13* 10.14* Form of Non-Qualified Stock Option Grant Agreement under Long-Term Incentive and Cash Bonus Plan. Incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. Form of Non-Qualified Stock Option Grant Agreement under Long-Term Incentive and Cash Bonus Plans. Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended May 24, 2008. 10.15* Form of Performance Unit Award Agreement under Long-Term Incentive and Cash Bonus Plans. Incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. 10.16* Form of Restricted Stock Grant Agreement under Long-Term Incentive and Cash Bonus Plan. Incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Powers of Attorney. 31.1 Rule 13a-14(a)/15d-14(a) Certification. 31.2 Rule 13a-14(a)/15d-14(a) Certification. 32.1 Section 1350 Certifications. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. 100 104 Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. * Management contract or compensatory plan or arrangement. † Filed herewith. ITEM 16. FORM 10-K SUMMARY. Not Applicable. 101 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Dated: March 29, 2022 THE KROGER CO. /s/ W. Rodney McMullen W. Rodney McMullen Chairman of the Board and Chief Executive Officer (principal executive officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on the 29th March 2022. /s/ Gary Millerchip Gary Millerchip /s/ Todd A. Foley Todd A Foley * Nora A. Aufreiter * Kevin M. Brown * Elaine L. Chao * Anne Gates * Karen M. Hoguet * W. Rodney McMullen * Clyde R. Moore * Ronald L. Sargent * J. Amanda Sourry Knox * Mark S. Sutton * Ashok Vemuri * By: /s/ Christine S. Wheatley Christine S. Wheatley Attorney-in-fact Senior Vice President and Chief Financial Officer (principal financial officer) Group Vice President & Corporate Controller (principal accounting officer) Director Director Director Director Director Chairman of the Board and Chief Executive Officer Director Director Director Director Director 102 ____________________________________________________________________________________ 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 requests for forms available on the Internet should be directed to: www.shareowneronline.com. 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 PO Box 505039 Louisville, KY 40233-5039 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 Stuart Aitken Senior Vice President Gabriel Arreaga Senior Vice President E X E C U T I V E O F F I C E R S Todd A. Foley Group Vice President, Controller Valerie L. Jabbar Senior Vice President Kenneth C. Kimball Senior Vice President Yael Cosset Senior Vice President and Chief Information Officer Timothy A. Massa Senior Vice President and Chief People Officer Carin L. Fike Vice President and Treasurer O P E R A T I N G U N I T H E A D S W. Rodney McMullen Chairman of the Board and Chief Executive Officer Gary Millerchip Senior Vice President and Chief Financial Officer Christine S. Wheatley Group Vice President, Secretary and General Counsel Micheal E. Cristal Delta Division Tammy DeBoer Harris Teeter Ken DeLuca Michigan Division Steve Dreher Dillons Food Stores Monica Garnes Fry’s Food & Drug Dennis R. Gibson Fred Meyer Stores Laura Gump Houston Division Scott Hays Cincinnati Division Sonya Hostetler Nashville Division Colleen Juergensen Central Division Bryan H. Kaltenbach Food 4 Less Joe Kelley King Soopers/City Market Kenneth C. Kimball Smith’s Colleen R. Lindholz Kroger Health Michael Marx Roundy’s Lori Raya Mid-Atlantic Division Ann M. Reed Louisville Division David W. Richard QFC Thomas L. Schwilke Ralphs Keith Shoemaker Dallas Division Victor Smith Atlanta Division Nicholas Tranchina Murray’s Cheese Kate Ward Kroger Personal Finance Dana Zurcher Columbus Division www.thekrogerco.com The Kroger Co. 1014 Vine Street · Cincinnati, Ohio 45202 · 513-762-4000 

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