# Kroger Co: Form 10-K for the period ended Jan 30, 2021 - Company: [Kroger Co](/companies/kr.md) (CIK 56873) - Form: 10-K - Filed: 2021-03-30 - Accepted by EDGAR: Mar 30, 2021, 18:54 ET - Period: 2021-01-30 - Accession: 0001558370-21-003706 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/56873/000155837021003706/kr-20210130x10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/56873/000155837021003706/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2021-01-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2020-11-08 to 2021-01-30 | $30.74bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Revenue | 12 months, 2020-02-02 to 2021-01-30 | $132.50bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Operating income | 3 months, 2020-11-08 to 2021-01-30 | −$158.0m | us-gaap:OperatingIncomeLoss | | Operating income | 12 months, 2020-02-02 to 2021-01-30 | $2.78bn | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2020-11-08 to 2021-01-30 | $106.0m | us-gaap:InterestExpense | | Interest expense | 12 months, 2020-02-02 to 2021-01-30 | $544.0m | us-gaap:InterestExpense | | Income tax | 3 months, 2020-11-08 to 2021-01-30 | −$34.0m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 12 months, 2020-02-02 to 2021-01-30 | $782.0m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2020-11-08 to 2021-01-30 | −$77.0m | us-gaap:NetIncomeLoss | | Net income | 12 months, 2020-02-02 to 2021-01-30 | $2.58bn | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2020-11-08 to 2021-01-30 | −$0.10 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 12 months, 2020-02-02 to 2021-01-30 | $3.27 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2020-11-08 to 2021-01-30 | −$0.10 | us-gaap:EarningsPerShareBasic | | Basic EPS | 12 months, 2020-02-02 to 2021-01-30 | $3.31 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2020-11-08 to 2021-01-30 | 761,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 12 months, 2020-02-02 to 2021-01-30 | 781,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2020-02-02 to 2021-01-30 | $6.82bn | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2020-02-02 to 2021-01-30 | $2.87bn | us-gaap:PaymentsToAcquireProductiveAssets | | Dividends paid | 12 months, 2020-02-02 to 2021-01-30 | $534.0m | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 12 months, 2020-02-02 to 2021-01-30 | $1.32bn | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2021-01-30 | $1.69bn | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2021-01-30 | $12.50bn | us-gaap:AssetsCurrent | | Total assets | at 2021-01-30 | $48.66bn | us-gaap:Assets | | Current liabilities | at 2021-01-30 | $15.37bn | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2021-01-30 | $39.11bn | us-gaap:Liabilities | | Long-term debt | at 2021-01-30 | $11.57bn | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2021-01-30 | $844.0m | us-gaap:LongTermDebtCurrent | | Shareholders' equity | at 2021-01-30 | $9.58bn | us-gaap:StockholdersEquity | ## Business As filed, 25,273 characters. The Kroger Co. (the “Company” or “Kroger”) was founded in 1883 and incorporated in 1902. As of January 30, 2021, we are one of the largest retailers in the world based on annual sales. We also manufacture and process some of the food for sale in our supermarkets. We maintain a web site (www.thekrogerco.com) that includes 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. Our revenues are predominately earned and cash is generated as consumer products are sold to customers in our stores, fuel centers and via our online platforms. We earn income predominantly by selling products at price levels that produce revenues in excess of the costs to make these products available to our customers. Such costs include procurement and distribution costs, facility occupancy and operational costs and overhead expenses. Our fiscal year ends on the Saturday closest to January 31. All references to 2020, 2019 and 2018 are to the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively, unless specifically indicated otherwise. ### STORES As of January 30, 2021, Kroger operated, either directly or through its subsidiaries, 2,742 supermarkets under a variety of local banner names, of which 2,255 had pharmacies and 1,596 had fuel centers. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™— personalized, order online, pick up at the store services — at 2,223 of our supermarkets and provide home delivery service to substantially all of Kroger households. Approximately 51% 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. 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. ### SEGMENTS We operate supermarkets and multi-department stores throughout the United States. Our retail operations, which represent 97% of our consolidated sales, is our only reportable segment. We aggregate our operating divisions into one reportable segment due to the operating divisions having similar economic characteristics with similar long-term financial performance. In addition, our operating divisions offer customers similar products, have similar distribution methods, operate in similar regulatory environments, purchase the majority of the merchandise for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve similar types of customers, and are allocated capital from a centralized location. Our operating divisions are organized primarily on a geographical basis so that the operating division management team can be responsive to local needs of the operating division and can execute company strategic plans and initiatives throughout the locations in their operating division. This geographical separation is the primary differentiation between these retail operating divisions. The geographical basis of organization reflects how the business is managed and how our Chief Executive Officer, who acts as our chief operating decision maker, assesses performance internally. All of our operations are domestic. Revenues, profits and losses and total assets are shown in our Consolidated Financial Statements set forth in Item 8 below. ### MERCHANDISING AND MANUFACTURING *Our Brands* products play an important role in our merchandising strategy. Our supermarkets, on average, stock over 15,000 private label items. *Our Brands* products are primarily produced and sold in three “tiers.” Private Selection® is one of our premium quality brands, offering customers culinary foods and ingredients that deliver amazing eating experiences. The Kroger® brand, which represents the majority of our private label items, is designed to consistently satisfy and delight customers with quality products that exceed or meet the national brand in taste and efficacy, as well as with unique and differentiated products. Big K®, Check This Out…® and Heritage Farm® are some of our value brands, designed to deliver good quality at a very affordable price. In addition 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 40% 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 30, 2021, we operated 35 food production plants. These plants consisted of 16 dairies, 9 deli or bakery plants, five grocery product plants, two beverage plants, one meat plant and two cheese plants. ### SEASONALITY The majority of our revenues are generally not seasonal in nature. However, revenues tend to be higher during the major holidays throughout the year. Additionally, 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 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. As of January 30, 2021, Kroger employed approximately 465,000 full- and part-time employees. With these nearly half a million associates serving more than nine million customers 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 have long been guided by our core values – Honesty, Integrity, Respect, Safety, Diversity and Inclusion. #### 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. During the past decade, Kroger has added 100,000 new jobs in communities across America. 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 2021, we expect to spend approximately $125 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. Kroger has invested more than $15 million in this program since it launched in 2018. #### Rewarding Our Associates We care about our associates’ overall well-being — physical, financial and emotional — and provide wages and benefits that help associates take care of themselves and their families. Between 2018 and 2020, we invested an incremental $800 million in associate wages. Since 2018, Kroger’s average retail hourly wage increased to over $15 per hour. Including benefit equivalents, the average rate surpasses $20 per hour. #### 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. During the past year, 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 new *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; 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 March of 2020, we have made significant investments to reward and safeguard our associates and customers. At the onset of the COVID-19 pandemic, we activated our *Pandemic Preparedness Plan* and *Business Resilience Plan* to help protect frontline associates, stay open to serve our customers and communities, and anticipate and adapt to critical needs in a rapidly changing situation. Since then, we have enacted more than 30 policy changes to help keep our associates safe, including offering paid emergency leave to those most directly affected by COVID-19, providing personal protective equipment, offering free testing through our COVID-19 at-home test kits, and promoting physical distancing in our locations. We are committed to supporting the health and well-being of our associates by providing a robust range of physical and mental health benefits and offering an incentive to associates who choose to get the COVID-19 vaccine. 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 350 such agreements, usually with terms of three to five years. Our objective in every negotiation is to find a fair and reasonable balance on compensation packages that provide solid wages as well as good quality, affordable health care and retirement benefits while also keeping our family of companies competitive in the market. ### 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 | ​ | 45 | ​ | Ms. Adcock was elected Senior Vice President effective May 1, 2019 and is responsible for retail operations as well as the oversight of several Kroger retail divisions. From June 2016 to April 2019, she served as Group Vice President of Retail Operations. Prior to that, she served as Vice President of Operations for Kroger’s Columbus Division from November 2015 to May 2016 and as Vice President of Merchandising for the Columbus Division from March 2014 to November 2015. From February 2012 to March 2014, Ms. Adcock served as Vice President of Natural Foods Merchandising and from October 2009 to February 2012, she served as Vice President of Deli/Bakery Manufacturing. Prior to that, Ms. Adcock 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 | ​ | 49 | ​ | Mr. Aitken was named Senior Vice President and Chief Merchant and Marketing 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 from July 2010 to June 2015. 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. | | ​ | ​ | ​ | ​ | ​ | 6 | | | | | | | --- | --- | --- | --- | --- | | Gabriel Arreaga | ​ | 46 | ​ | 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 | ​ | 47 | ​ | 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 ͦ LLC and Kroger Personal Finance. Prior to that, Mr. Cosset served as Group Vice President and Chief Digital Officer from January 2017 to April 2019. Before that, he served as Chief Commercial Officer and Chief Information Officer of 84.51° LLC from April 2015 to December 2016. Prior to joining Kroger, Mr. Cosset served in several leadership roles at dunnhumby USA, LLC from 2009 to 2015, including Executive Vice President of Consumer Markets and Global Chief Information Officer. | | ​ | ​ | ​ | ​ | ​ | | Michael J. Donnelly | ​ | 62 | ​ | Mr. Donnelly was elected Executive Vice President and Chief Operating Officer in December 2017. Prior to that, he was Executive Vice President of Merchandising from September 2015 to December 2017, and Senior Vice President of Merchandising from July 2011 to September 2015. Before that, Mr. Donnelly held a variety of key management positions with Kroger, including President of Ralphs Grocery Company, President of Fry’s Food Stores, and Senior Vice President, Drug/GM Merchandising and Procurement. Mr. Donnelly joined Kroger in 1978 as a clerk. Mr. Donnelly has announced his plan to retire in Spring of 2021. | | ​ | ​ | ​ | ​ | ​ | | Carin L. Fike | ​ | 52 | ​ | Ms. Fike was elected Vice President and Treasurer effective April 2017. Prior to that, she served as Assistant Treasurer from March 2011 to April 2017. Before that, Ms. Fike served as Director of Investor Relations from December 2003 to March 2011. Ms. Fike began her career with Kroger in 1999 as a manager in the Financial Reporting department after working with PricewaterhouseCoopers from 1995 to 1999, where most recently she was an audit manager. | | ​ | ​ | ​ | ​ | ​ | | Todd A. Foley | ​ | 51 | ​ | Mr. Foley was elected Vice President and Corporate Controller effective April 2017. Before that, he served as Vice President and Treasurer from June 2013 to April 2017. Prior to that, Mr. Foley served as Assistant Corporate Controller from March 2006 to June 2013, and Controller of Kroger’s Cincinnati/Dayton division from October 2003 to March 2006. Mr. Foley began his career with Kroger in 2001 as an audit manager in the Internal Audit Department after working for PricewaterhouseCoopers from 1991 to 2001, where most recently he was a senior audit manager. | | ​ | ​ | ​ | ​ | ​ | | ​ | ​ | ​ | ​ | ​ | 7 | | | | | | | --- | --- | ---: | --- | --- | | Calvin J. Kaufman | ​ | 58 | ​ | Mr. Kaufman was elected Senior Vice President in June 2017, and is responsible for the oversight of several Kroger retail divisions. From July 2013 to June 2017, he served as President of the Louisville division. Prior to that, he served as President of Kroger Manufacturing and Our Brands from June 2008 to June 2013, and Group Vice President of Fred Meyer Logistics from September 2005 to May 2008. Mr. Kaufman held various positions in Logistics after joining Kroger in the Fred Meyer division in September 1994. | | ​ | ​ | ​ | ​ | ​ | | Timothy A. Massa | ​ | 54 | ​ | 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. | | ​ | ​ | ​ | ​ | ​ | | Stephen M. McKinney | ​ | 64 | ​ | Mr. McKinney was elected Senior Vice President in March 2018, and is responsible for the oversight of several Kroger retail divisions. From October 2013 to March 2018, he served as President of Kroger’s Fry’s Food Stores division. Prior to that, he served as Vice President of Operations for the Ralphs division from October 2007 to September 2013, and Vice President of Operations for the Southwest division from October 2006 to September 2007. From 1988 to 1998, Mr. McKinney served in various leadership positions in the Fry’s Food Stores division, including store manager, deli director, and executive director of operations. From 1981 to 1998, Mr. McKinney held several roles with Florida Choice Supermarkets, a former Kroger banner, including store manager, buyer, and field representative. He started his career with Kroger in 1981 as a clerk with Florida Choice. | | ​ | ​ | ​ | ​ | ​ | | W. Rodney McMullen | ​ | 60 | ​ | 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 was elected Vice Chairman in June 2003, Executive Vice President, Strategy, Planning and Finance in January 2000, Executive Vice President and Chief Financial Officer in May 1999, Senior Vice President in October 1997, and Group Vice President and Chief Financial Officer in June 1995. Before that he was appointed Vice President, Control and Financial Services in March 1993, and Vice President, Planning and Capital Management in December 1989. Mr. McMullen joined Kroger in 1978 as a part-time stock clerk. | | ​ | ​ | ​ | ​ | ​ | | Gary Millerchip | ​ | 49 | ​ | Mr. Millerchip was elected Senior Vice President and Chief Financial Officer effective April 2019. Prior to this, he served as Chief Executive Officer for Kroger Personal Finance since joining Kroger in 2008. Before coming to Kroger he 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. | | ​ | ​ | ​ | ​ | ​ | 8 | | | | | | | --- | --- | ---: | --- | --- | | Erin S. Sharp | ​ | 63 | ​ | Ms. Sharp has served as Group Vice President of Manufacturing since June 2013. She joined Kroger in 2011 as Vice President of Operations for Kroger’s Manufacturing division. Before joining Kroger, Ms. Sharp served as Vice President of Manufacturing for the Sara Lee Corporation. In that role, she led the manufacturing and logistics operations for the central region of their U.S. Fresh Bakery Division. Ms. Sharp has over 30 years of experience supporting food manufacturing operations. Ms. Sharp has announced her plan to retire in Spring of 2021. | | ​ | ​ | ​ | ​ | ​ | | Mark C. Tuffin | ​ | 61 | ​ | Mr. Tuffin has served as Senior Vice President since January 2014, and is responsible for the oversight of several of Kroger’s retail divisions. Prior to that, he served as President of Kroger’s Smith’s division from July 2011 to January 2014. From September 2009 to July 2011, Mr. Tuffin served as Vice President of Transition, where he was responsible for implementing an organizational restructuring initiative for Kroger’s retail divisions. He joined Kroger’s Smith’s division in 1996 and served in a series of leadership roles, including Vice President of Merchandising from September 1999 to September 2009. Mr. Tuffin held various positions with other supermarket retailers before joining Smith’s in 1996. | | ​ | ​ | ​ | ​ | ​ | | Christine S. Wheatley | ​ | 50 | ​ | Ms. Wheatley was elected Group Vice President, Secretary and General Counsel in May 2014. She joined Kroger in February 2008 as Corporate Counsel, and became Senior Attorney in 2010, Senior Counsel in 2011, and Vice President in 2012. 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.” ## Risk factors As filed, 29,225 characters. 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 intense price competition, expansion, increasing fragmentation of retail and online formats, entry of non-traditional competitors and market consolidation. 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. 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 generate customer loyalty and sustainable growth momentum. We believe our plans to deepen and strengthen our competitive moats provide a balanced approach that 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 enhanced customer experience. We are using our assets in new ways through these fast-growing, asset-light and margin rich businesses. We may be unsuccessful in implementing our alternative profit strategy, which could adversely affect our market share and 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 enhance 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 impacted. 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 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, and through customer fulfillment centers powered by Ocado. ### 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 project liability claims, product recalls, or other health and safety issues. 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 350 collective bargaining agreements. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur 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. We are 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 could result in increased associate costs, or in our failure 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. 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. 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, 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 or those with whom we share information fail to comply with laws and regulations, such as the California Consumer Privacy Act (CCPA) or the Health Insurance Portability and Accountability Act (HIPAA), 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. ### 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 a material adverse effect on our financial condition, results of operations or cash flows. Please also refer to the “Litigation” section in Note 13 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. ### 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 that the present value of actuarially accrued liabilities in most of these multi-employer plans substantially exceeds the value of the assets held in trust to pay benefits, and we expect that Kroger’s contributions to those 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 market 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 1,596 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 terrorism, disruptions to the economy, including but not limited to the COVID-19 pandemic, and other matters that may 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. ### ECONOMIC CONDITIONS Our operating results could be materially impacted by changes in overall economic conditions that impact consumer confidence and spending, including discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, the availability of credit, interest rates, tax rates and other matters could reduce consumer spending. Increased fuel prices could also have an effect on consumer spending and on our costs of producing and procuring products that we sell. 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. ### WEATHER, NATURAL DISASTERS AND OTHER EVENTS A large number of our stores and distribution facilities are geographically located in areas that are susceptible to hurricanes, tornadoes, floods, droughts and earthquakes. Weather conditions and natural disasters could 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, geo-political 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 the novel coronavirus, 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. ### COVID-19 The global COVID-19 pandemic continues to affect our business. A full year 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 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 and timely rollout of vaccinations for COVID-19; - 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, 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. In addition, we cannot predict with certainty the extent of the impact that COVID-19 will have on our customers, suppliers, vendors, and other business partners, and each of their financial conditions; however, any material 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. ### GOVERNMENT REGULATION Our stores are subject to various laws, regulations, and administrative practices that affect our business. 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. ### SUPPLY CHAIN Disruption in our global supply chain could negatively impact 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 impact 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, quality control issues, a supplier’s financial distress, natural disasters or health crises, 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 a material adverse impact on our business, financial condition, results of operations or cash flows. ## Properties As filed, 1,562 characters. As of January 30, 2021, 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 30, 2021, was $46.0 billion while the accumulated depreciation was $23.6 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 10 to the Consolidated Financial Statements. ## Legal proceedings As filed, 293 characters. Incorporated by reference herein is information regarding certain legal proceedings in which we are involved as set forth under “Litigation” contained in Note 13 – “Commitments and Contingencies” in the notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report. ## Management's discussion and analysis As filed, 81,567 characters. 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 February 1, 2020, which provides additional information on comparisons of fiscal years 2019 and 2018. ### EXECUTIVE SUMMARY – OUR PATH TO DELIVERING CONSISTENT AND ATTRACTIVE TOTAL SHAREHOLDER RETURN We are proud of our results in 2020 and the balance achieved in delivering for all our key stakeholders – our Associates, Customers, Communities and Investors. We gained market share and exceeded guidance that we gave in the second half of 2020. We committed more than $2.5 billion to safeguard the environment our associates and customers work and shop in and to reward associates, including a $1 billion commitment to a UFCW pension fund. Identical sales, without fuel, were 14.1% for 2020, as customers continued to consolidate trips and spend more per transaction. We grew digital sales triple digits in 2020, 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 strong performance in digital is also a testament to the proactive investments we made over the last several years in our network, which positioned us to respond with agility during this critical time. We were disciplined in balancing investments in our customers and associates with cost savings. For the third year in a row, our operations and sourcing teams delivered over $1 billion in incremental cost savings. These savings continue to be focused in areas that take complexity out of the business and allow our associates to provide a better customer experience. Strong execution by our team and accelerated investments in our competitive moats – Fresh, *Our Brands*, Data & Personalization and Seamless, during the pandemic allowed us to create significant value for shareholders and strengthen our balance sheet, including accelerated growth in our alternative profit business. The momentum we see in our business, which started pre-pandemic and accelerated during the pandemic, places us in an even better position to grow sales and profitability in the future and deliver on our total shareholder return commitments. Our financial model is underpinned by our leading position in food. We continue to invest in areas of the business that matter most to our customers and deepen our competitive moats, to drive sales growth in our retail supermarket business, including fuel and pharmacy. This in turn generates the data and traffic that enables our fast-growing alternative profit streams. Our financial strategy is to continue to use our free cash flow to invest in the business to drive long-term sustainable net earnings growth, through the identification of high-return projects that support our strategy. Capital allocation is a core element of our value creation model, and we will allocate capital towards driving profitable sales growth, accelerating digital, expanding margin as well as maintaining the business. We will continue to be disciplined in deploying capital towards projects that exceed our hurdle rate of return and prioritize the highest return opportunities to drive 3% to 5% net earnings growth. At the same time, we are committed to maintaining our net debt to adjusted EBITDA range of 2.30 to 2.50 in order to keep our current investment grade debt rating. Our resilient cash flow will allow us to continue to grow our dividend over time and continue to return excess cash to investors via share repurchases, resulting in consistently strong and sustainable total shareholder return of between 8% and 11%. The following table provides highlights of our financial performance: ### Financial Performance Data ($ in millions, except per share amounts) | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Fiscal Year ​ 2020 ​ | ​ ​ Percentage Change ​ | ​ ​ ​ ​ ​ ​ 2019 ​ | | --- | --- | --- | ---: | --- | | Sales | ​ | $132,498 ​ | 8.4% | $122,286 ​ | | Sales without fuel | ​ | ​ 123,012 ​ | 13.7% | ​ 108,234 ​ | | Net earnings attributable to The Kroger Co. | ​ | ​ 2,585 ​ | 55.8% | ​ 1,659 ​ | | Adjusted net earnings attributable to The Kroger Co. | ​ | 2,740 ​ | 53.4% | 1,786 ​ | | Net earnings attributable to The Kroger Co. per diluted common share | ​ | 3.27 ​ | 60.3% | 2.04 ​ | | Adjusted net earnings attributable to The Kroger Co. per diluted common share | ​ | ​ 3.47 ​ | 58.4% | 2.19 ​ | | Operating profit | ​ | ​ 2,780 ​ | 23.5% | ​ 2,251 ​ | | Adjusted FIFO operating profit | ​ | ​ 4,056 ​ | 35.4% | ​ 2,995 ​ | | Dividends paid | ​ | ​ 534 ​ | 9.9% | ​ 486 ​ | | Dividends paid per common share | ​ | ​ 0.68 ​ | 13.3% | ​ 0.60 ​ | | Identical sales excluding fuel | ​ | ​ 14.1% | N/A ​ | ​ 2.0% | | FIFO gross margin rate, excluding fuel, bps increase (decrease) | ​ | ​ 0.14 ​ | N/A ​ | ​ (0.23) ​ | | OG&A rate, excluding fuel and Adjusted Items, bps decrease | ​ | ​ 0.06 ​ | N/A ​ | ​ 0.29 ​ | | Reduction in total debt, including obligations under finance leases compared to prior fiscal year end | ​ | ​ 663 ​ | N/A ​ | ​ 1,153 ​ | | Share repurchases | ​ | ​ 1,324 ​ | N/A ​ | ​ 465 ​ | ### OVERVIEW Notable items for 2020 are: #### Shareholder Return - Net earnings attributable to The Kroger Co. per diluted common share of $3.27. - Adjusted net earnings attributable to The Kroger Co. per diluted common share of $3.47. - Achieved operating profit of $2.8 billion. - Achieved adjusted FIFO operating profit of $4.1 billion. - Generated cash from operations of $6.8 billion. - Increased cash and temporary cash investments by $1.3 billion, reflecting improved operating performance, significant improvements in working capital and the deferral of 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. - Returned $1.9 billion to shareholders through share repurchases and dividend payments. - Decreased total debt, including obligations under finance leases, by $663 million. #### Other Financial Results - Identical sales, excluding fuel, increased 14.1% in 2020. - Digital revenue grew 116% in 2020. Digital revenue primarily includes Pickup, Delivery, Ship and pharmacy e-commerce sales. - Alternative profit streams contributed an incremental $150 million of operating profit in 2020 fueled by our retail media business – Kroger Precision Marketing. - Cost savings for 2020 exceeded $1 billion. #### Significant Events - During the fourth quarter of 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”). We incurred a withdrawal liability charge of $962 million, on a pre-tax basis, to fulfill obligations for past service for associates and retirees in the National Fund. We also made a $27 million 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 total $754 million (collectively, the “National Fund Commitment”). The withdrawal liability will be satisfied by payments to the National Fund over the next three years. - During 2020, we invested over $1.5 billion to support and safeguard associates, customers and communities during the COVID-19 pandemic. These investments primarily relate to items within OG&A such as associate appreciation awards, expanded sick and emergency leave pay and investments in associate and customer safety during the pandemic (collectively, the “COVID-19 Investments”). Supported by our strong performance and cash position, we committed more than $2.5 billion to safeguard the environment our associates and customers work and shop in and to reward associates, including the National Fund Commitment. - During the first quarter of 2020, in addition to the recurring multi-employer pension contributions we make in the normal course of business, we contributed an incremental $236 million, $180 million net of tax, to multi-employer pension plans, helping stabilize future associate benefits (the “First Quarter 2020 Multi-Employer Pension Contribution”). #### COVID-19 On March 11, 2020, the World Health Organization announced that infections of COVID-19 had become a pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. The impact on our financial condition, results of operations, and cash flows was material in fiscal year 2020. 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, including safety partitions and physical distancing floor decals, implementation of customer capacity limits, and providing personal protective equipment like masks for our associates. All of which are described in our *Blueprint for Businesses –* an open source guide we created to help other companies navigate the complexities of safely operating during a pandemic. As the pandemic has evolved, we have experienced unusually strong sales. 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 2020 results. The pandemic brought to the forefront the importance to the customer of fresh and digital. We continued to invest and grow our capabilities in these areas, leading to gains in both digital and total food at home market share. Identical sales, without fuel, were 14.1% for 2020, as customers continued to consolidate trips and spend more per transaction. Digital revenue grew 116% in 2020, 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 OG&A expenses include significant incremental costs related to investments in pay and benefits for our associates and measures to safeguard our associates and customers. Supported by our strong performance and cash position, in 2020 we committed more than $2.5 billion to safeguard the environment our associates and customers work and shop in and to reward associates, including committing nearly $1 billion to better secure pensions for over 30,000 associates. This was in addition to paid emergency leave, financial assistance through our *Helping Hands* program and more. As a percentage of sales, these incremental costs were partially offset by sales leverage resulting from strong sales growth due to the COVID-19 pandemic. On March 18, 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. Strong execution by our team and accelerated investments in our competitive moats during the pandemic allowed us to strengthen our balance sheet. During 2020, we fully repaid the $1 billion borrowed under the revolving credit facility and $1.2 billion in outstanding commercial paper obligations, as of year-end 2019, using cash generated by operations. For additional information about our debt activity in 2020, including the drawdown and repayments under our revolving credit facility, forward-starting interest rate swap agreements and our senior note issuances, see Note 6 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. was founded in 1883 and incorporated in 1902. As of January 30, 2021, Kroger is one of the world’s largest retailers, as measured by revenue, operating 2,742 supermarkets under a variety of local banner names in 35 states and the District of Columbia. Of these stores, 2,255 have pharmacies and 1,596 have fuel centers. We offer Pickup (also referred to as ClickList®) and Harris Teeter ExpressLane™ — personalized, order online, pick up at the store services — at 2,223 of our supermarkets and provide home delivery service to substantially all of Kroger households. We also operate an online retailer. We operate 35 food production plants, primarily bakeries and dairies, which supply approximately 29% of *Our Brands* units and 40% of the grocery category *Our Brands* units sold in our supermarkets; the remaining *Our Brands* items are produced to our strict specifications by outside manufacturers. Our revenues are predominately earned and cash is generated as consumer products are sold to customers in our stores, fuel centers and via our online platforms. We earn income predominately by selling products at price levels that produce revenues in excess of the costs we incur to make these products available to our customers. Such costs include procurement and distribution costs, facility occupancy and operational costs, and overhead expenses. Our retail operations, which represent 97% of our consolidated sales, is our only reportable segment. On 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 in all periods in 2018 and through January 26, 2020. Refer to Note 17 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 in all periods in 2018 and 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 in all periods in 2018 and through March 12, 2019. On June 22, 2018, we closed our merger with Home Chef by purchasing 100% of the ownership interest in Home Chef, for $197 million net of cash and cash equivalents of $30 million, in addition to future earnout payments of up to $500 million over five years that are contingent on achieving certain milestones. Home Chef is included in our ending Consolidated Balance Sheet for 2019 and 2020 and in our Consolidated Statements of Operations from June 22, 2018 through February 2, 2019 and all periods in 2019 and 2020. See Note 2 to the Consolidated Financial Statements for more information related to our merger with Home Chef. On April 20, 2018, we completed the sale of our convenience store business unit for $2.2 billion. The convenience store business is included in our Consolidated Statements of Operations through April 19, 2018. ### 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 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 as management believes FIFO gross margin is a useful metric to investors and analysts because it measures our day-to-day merchandising and operational effectiveness. We calculate FIFO operating profit as operating profit excluding the LIFO charge. FIFO operating profit is an important measure used by management as management believes FIFO operating profit is a useful metric to investors and analysts because it measures our day-to-day operational effectiveness. The adjusted net earnings and adjusted net earnings per diluted share metrics are important measures used by management to compare the performance of core operating results between periods. We believe adjusted net earnings and adjusted net earnings per diluted share are useful metrics to investors and analysts because they present more accurate year-over-year comparisons for our net earnings and net earnings per diluted share because adjusted items are not the result of our normal operations. Net earnings for 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 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 mark to market gain on Ocado Group plc (“Ocado”) securities (the “2019 Other Income (Expense) Adjusted Items”). Net earnings for 2018 include the following, which we define as the “2018 Adjusted Items:” - Charges to OG&A of $155 million, $121 million net of tax, for obligations related to withdrawal liabilities for certain local unions of the Central States multi-employer pension fund; $33 million, $26 million net of tax, for the revaluation of Home Chef contingent consideration; and $42 million, $33 million net of tax, for an impairment of financial instrument (the “2018 OG&A Adjusted Items”). We had initially received the financial instrument in 2016 with no cash outlay as part of the consideration for entering into agreements with a third party. - A reduction to depreciation and amortization expenses of $14 million, $11 million net of tax, related to held for sale assets (the “2018 Depreciation Adjusted Item”). - Gains in other income (expense) of $1.8 billion, $1.4 billion net of tax, related to the sale of our convenience store business unit and $228 million, $174 million net of tax, for the mark to market gain on Ocado securities. The following table provides a reconciliation of net earnings attributable to The Kroger Co. to adjusted net earnings attributable to The Kroger Co. and a reconciliation of net earnings attributable to The Kroger Co. per diluted common share to adjusted net earnings attributable to The Kroger Co. per diluted common share, excluding the 2020, 2019 and 2018 Adjusted Items. ### Net Earnings per Diluted Share excluding the Adjusted Items ($ in millions, except per share amounts) | ​ ​ | ​ | ​ ​ 2020 | ​ | ​ ​ 2019 | ​ | ​ ​ 2018 | ​ | | --- | --- | --- | --- | --- | --- | --- | --- | | Net earnings attributable to The Kroger Co. | ​ | $2,585 | ​ | $1,659 | ​ | $3,110 | ​ | | (Income) expense adjustments | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Adjustments for pension plan withdrawal liabilities(1)(2) | ​ | 754 | ​ | 104 | ​ | 121 | ​ | | Adjustment for gain on sale of convenience store business(1)(3) | ​ | ​ — | ​ | ​ — | ​ | ​ (1,360) | ​ | | Adjustment for gain on sale of Turkey Hill Dairy(1)(4) | ​ | ​ — | ​ | ​ (80) | ​ | ​ — | ​ | | Adjustment for gain on sale of You Technology(1)(5) | ​ | ​ — | ​ | ​ (52) | ​ | ​ — | ​ | | Adjustment for gain on investments(1)(6) | ​ | ​ (821) | ​ | ​ (119) | ​ | ​ (174) | ​ | | Adjustment for depreciation related to held for sale assets(1)(7) | ​ | ​ — | ​ | ​ — | ​ | ​ (11) | ​ | | Adjustment for severance charge and related benefits(1)(8) | ​ | ​ — | ​ | ​ 61 | ​ | ​ — | ​ | | Adjustment for deconsolidation and impairment of Lucky's Market attributable to The Kroger Co.(1)(9) | ​ | ​ — | ​ | ​ 225 | ​ | ​ — | ​ | | Adjustment for Home Chef contingent consideration(1)(10) | ​ | ​ 141 | ​ | ​ (49) | ​ | ​ 26 | ​ | | Adjustment for impairment of financial instrument(1)(11) | ​ | ​ — | ​ | ​ — | ​ | ​ 33 | ​ | | Adjustment for transformation costs(1)(12) | ​ | ​ 81 | ​ | ​ 37 | ​ | ​ — | ​ | | Total Adjusted Items | ​ | ​ 155 | ​ | ​ 127 | ​ | ​ (1,365) | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Net earnings attributable to The Kroger Co. excluding the Adjusted Items | ​ | $2,740 | ​ | $1,786 | ​ | $1,745 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Net earnings attributable to The Kroger Co. per diluted common share | ​ | $3.27 | ​ | $2.04 | ​ | $3.76 | ​ | | (Income) expense adjustments | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Adjustments for pension plan withdrawal liabilities(13) | ​ | 0.95 | ​ | 0.13 | ​ | 0.15 | ​ | | Adjustment for gain on sale of convenience store business(13) | ​ | ​ — | ​ | ​ — | ​ | ​ (1.65) | ​ | | Adjustment for gain on sale of Turkey Hill Dairy(13) | ​ | ​ — | ​ | ​ (0.10) | ​ | ​ — | ​ | | Adjustment for gain on sale of You Technology(13) | ​ | ​ — | ​ | ​ (0.06) | ​ | ​ — | ​ | | Adjustment for gain on investments(13) | ​ | ​ (1.05) | ​ | ​ (0.15) | ​ | ​ (0.21) | ​ | | Adjustment for depreciation related to held for sale assets(13) | ​ | ​ — | ​ | ​ — | ​ | ​ (0.01) | ​ | | Adjustment for severance charge and related benefits(13) | ​ | ​ — | ​ | ​ 0.08 | ​ | ​ — | ​ | | Adjustment for deconsolidation and impairment of Lucky's Market attributable to The Kroger Co.(13) | ​ | ​ — | ​ | ​ 0.28 | ​ | ​ — | ​ | | Adjustment for Home Chef contingent consideration(13) | ​ | ​ 0.18 | ​ | ​ (0.07) | ​ | ​ 0.03 | ​ | | Adjustment for impairment of financial instrument(13) | ​ | ​ — | ​ | ​ — | ​ | ​ 0.04 | ​ | | Adjustment for transformation costs(13) | ​ | ​ 0.12 | ​ | ​ 0.04 | ​ | ​ — | ​ | | Total Adjusted Items | ​ | ​ 0.20 | ​ | ​ 0.15 | ​ | ​ (1.65) | ​ | | ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Net earnings attributable to The Kroger Co. per diluted common share excluding the Adjusted Items | ​ | $3.47 | ​ | $2.19 | ​ | $2.11 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Average numbers of common shares used in diluted calculation | ​ | 781 | ​ | 805 | ​ | 818 | ​ | (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 $989 in 2020, $135 in 2019 and $155 in 2018. (3) The pre-tax adjustment for gain on sale of convenience store business was ($1,782). (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 gain on investments was ($1,105) in 2020, ($157) in 2019 and ($228) in 2018. (7) The pre-tax adjustment for depreciation related to held for sale assets was ($14) in 2018. (8) The pre-tax adjustment for severance charge and related benefits was $80. (9) The pre-tax adjustment for deconsolidation and impairment of Lucky’s Market was $412 including $305 attributable to The Kroger Co. (10) The pre-tax adjustment for Home Chef contingent consideration was $189 in 2020, ($69) in 2019 and $33 in 2018. (11) The pre-tax adjustment for impairment of financial instrument was $42. (12) The pre-tax adjustment for transformation costs was $111 in 2020 and $52 in 2019. Transformation costs primarily include costs related to store and business closures and third-party professional consulting fees associated with business transformation and cost saving initiatives. (13) The amount presented represents the net earnings per diluted common share effect of each adjustment. ### RESULTS OF OPERATIONS #### Sales ### Total Sales ($ in millions) | ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ 2020 | ​ ​ | ​ ​ Percentage Change(1) ​ | ​ ​ ​ 2019 | ​ ​ | ​ ​ Percentage Change(2) ​ | ​ ​ ​ ​ 2018 | ​ ​ ​ | | --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | | Total sales to retail customers without fuel(3) | ​ | $122,134 | ​ | 13.6% | $107,487 | ​ | 2.2% | $105,123 | ​ | | Supermarket fuel sales | ​ | ​ 9,486 | ​ | (32.5)% | 14,052 | ​ | (5.7)% | 14,903 | ​ | | Convenience stores(4) | ​ | — | ​ | —% | — | ​ | —% | 944 | ​ | | Other sales(5) | ​ | 878 | ​ | 17.5% | 747 | ​ | (15.3)% | 882 | ​ | | Total sales | ​ | $132,498 | ​ | 8.4% | $122,286 | ​ | 0.4% | $121,852 | ​ | (1) This column represents the percentage change in 2020 compared to 2019. (2) This column represents the percentage change in 2019 compared to 2018. (3) Digital sales, primarily including Pickup, Delivery, Ship and pharmacy e-commerce sales, grew approximately 116% in 2020, 29% in 2019 and 58% in 2018. These sales are included in the “total sales to retail customers without fuel” line above. (4) We completed the sale of our convenience store business unit during the first quarter of 2018. (5) Other sales primarily relate to external sales at food production plants, data analytic services and third-party media revenue. 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. The decrease in 2019, compared to 2018, is primarily due to the disposal of Turkey Hill Dairy and You Technology in the first quarter of 2019, partially offset by an increase in data analytic services and third-party media revenue. 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. Total sales increased in 2019, compared to 2018, by 0.4%. The increase was due to an increase in total sales to retail customers without fuel, partially offset by decreased supermarket fuel sales, a reduction in convenience store sales due to the sale of our convenience store business unit in the first quarter of 2018 and decreased sales due to the disposal of Turkey Hill Dairy and You Technology in the first quarter of 2019. Total sales, excluding fuel, dispositions and the merger with Home Chef increased 2.3% in 2019, compared to 2018. The increase in total sales to retail customers without fuel for 2019, compared to 2018, was primarily due to our merger with Home Chef and our identical sales increase, excluding fuel, of 2.0%. Identical sales, excluding fuel, for 2019, compared to 2018, increased primarily due to growth of loyal households, a higher customer basket value including retail inflation and Kroger Specialty Pharmacy sales growth, partially offset by continued investments in lower prices for our customers. Total supermarket fuel sales decreased 5.7% in 2019, compared to 2018, primarily due to a decrease in fuel gallons sold of 4.8% and a decrease in the average retail fuel price of 1.0%. 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. 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 2020 and 2019. ### Identical Sales ($ in millions) | ​ ​ | ​ | ​ ​ ​ 2020 | ​ ​ ​ 2019 | | --- | --- | ---: | ---: | | Excluding fuel | ​ | $120,762 ​ | $105,806 ​ | | Excluding fuel | ​ | 14.1% | 2.0% | #### Gross Margin, LIFO and FIFO Gross Margin We define gross margin as sales minus merchandise costs, including advertising, warehousing, and transportation. Rent expense, depreciation and amortization expense, and interest expense are not included in gross margin. Our gross margin rates, as a percentage of sales, were 23.32% in 2020 and 22.07% in 2019. The increase in 2020, compared to 2019, resulted primarily from decreased fuel sales, which have a lower gross margin rate, an increase in our fuel gross margin, growth in our alternative profit stream portfolio, effective negotiations to achieve savings on the cost of products sold and decreased shrink, transportation and advertising costs, as a percentage of sales, reflecting the significant increase in sales volumes, partially offset by continued investments in lower prices for our customers and a change in our product sales mix, including lower relative sales in higher gross margin categories such as deli/bakery. Our LIFO credit was $7 million in 2020 compared to a LIFO charge of $105 million in 2019. Our LIFO credit was primarily driven by fourth quarter 2020 working capital improvements in pharmacy inventory and dairy deflation. Our FIFO gross margin rate, which excludes the LIFO charge, was 23.32% in 2020, compared to 22.16% in 2019. 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 increased 14 basis points in 2020, compared to 2019. This increase resulted primarily from growth in our alternative profit stream portfolio, effective negotiations to achieve savings on the cost of products sold and decreased shrink, transportation and advertising costs, as a percentage of sales, reflecting the significant increase in sales volumes, partially offset by continued investments in lower prices for our customers and a change in our product sales mix, including lower relative sales in higher gross margin categories such as deli/bakery. #### 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 18.49% in 2020 and 17.34% in 2019. The increase in 2020, compared to 2019, resulted primarily from the First Quarter 2020 Multi-Employer Pension Contribution, the 2020 OG&A Adjusted Items, the COVID-19 Investments, growth in our digital channel as a result of heightened demand during the pandemic, increased incentive plan costs and the effect of decreased fuel sales, which increases our OG&A rate, as a percentage of sales, partially offset by the effect of increased sales due to the pandemic which decreases our OG&A rate, as a percentage of sales, the 2019 OG&A Adjusted Items and broad based improvement from cost savings initiatives that drive administrative efficiencies, store productivity and sourcing cost reductions. 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 2020 OG&A Adjusted Items and the 2019 OG&A Adjusted Items, our OG&A rate decreased 6 basis points in 2020, compared to 2019. This decrease resulted primarily from the effect of increased sales due to the pandemic 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 the First Quarter 2020 Multi-Employer Pension Contribution, the COVID-19 Investments, growth in our digital channel as a result of heightened demand during the pandemic and increased incentive plan costs. Excluding the $236 million First Quarter 2020 Multi-Employer Pension Contribution from the above calculation, which we proactively made to cover future funding requirements for certain multi-employer pension plans, our OG&A rate improved 25 basis points. #### Rent Expense Rent expense was $874 million, or 0.66% of sales, for 2020, compared to $884 million, or 0.72% of sales, for 2019. Rent expense, as a percentage of sales, decreased 6 basis points in 2020, compared to 2019, primarily due to the effect of increased sales due to the pandemic which decreases our rent expense, as a percentage of sales. #### Depreciation and Amortization Expense Depreciation and amortization expense was $2.7 billion, or 2.07% of sales, for 2020, compared to $2.6 billion, or 2.17% of sales, for 2019. Depreciation and amortization expense, as a percentage of sales, decreased 10 basis points in 2020, compared to 2019. This decrease resulted primarily from the effect of increased sales due to the pandemic which decreases our depreciation expense, as a percentage of sales, partially offset by decreased fuel sales, which increases our depreciation expense, as a percentage of sales, additional depreciation on capital investments, excluding mergers and lease buyouts, of $3.2 billion during 2020 and a decrease in the average useful life on these capital investments. Our strategy includes initiatives to enhance the customer experience in stores, improve our process efficiency and integrate our digital shopping experience through technology developments. As such, the percentage of capital investments related to digital and technology has grown compared to the prior year, which has caused a decrease in the average depreciable life of our capital portfolio. #### Operating Profit and FIFO Operating Profit Operating profit was $2.8 billion, or 2.10% of sales, for 2020, compared to $2.3 billion, or 1.84% of sales, for 2019. Operating profit, as a percentage of sales, increased 26 basis points in 2020, compared to 2019, due to improved sales to retail customers without fuel, a higher gross margin rate, decreased rent and depreciation and amortization expenses, as a percentage of sales, and increased fuel earnings, partially offset by increased OG&A expense with fuel, as a percentage of sales. FIFO operating profit was $2.8 billion, or 2.09% of sales, for 2020, compared to $2.4 billion, or 1.93% of sales, for 2019. FIFO operating profit, excluding the 2020 and 2019 Adjusted Items, increased 64 basis points in 2020, compared to 2019, due to improved sales to retail customers without fuel, a higher gross margin rate, decreased rent and depreciation and amortization expenses, as a percentage of sales, and increased fuel earnings, partially offset by increased OG&A expense with fuel, as a percentage of sales. Specific factors contributing to the trends driving operating profit and FIFO operating profit identified above are discussed earlier in this section. The following table provides a reconciliation of operating profit to FIFO operating profit, excluding the 2020 and 2019 Adjusted Items. ### Operating Profit excluding the Adjusted Items ($ in millions) | ​ ​ | ​ | ​ ​ 2020 | ​ | ​ ​ 2019 | ​ ​ | | --- | --- | --- | --- | --- | --- | | Operating profit | ​ | $2,780 | ​ | $2,251 | ​ | | LIFO (credit) charge | ​ | ​ (7) | ​ | ​ 105 | ​ | | ​ | ​ | ​ | ​ | ​ ​ | ​ | | FIFO Operating profit | ​ | 2,773 | ​ | 2,356 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Adjustment for pension plan withdrawal liabilities | ​ | ​ 989 | ​ | ​ 135 | ​ | | Adjustment for Home Chef contingent consideration | ​ | ​ 189 | ​ | ​ (69) | ​ | | Adjustment for severance charge and related benefits | ​ | ​ — | ​ | ​ 80 | ​ | | Adjustment for transformation costs(1) | ​ | ​ 111 | ​ | ​ 52 | ​ | | Adjustment for deconsolidation and impairment of Lucky's Market(2) | ​ | ​ — | ​ | ​ 412 | ​ | | Other | ​ | ​ (6) | ​ | ​ 29 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | 2020 and 2019 Adjusted items | ​ | ​ 1,283 | ​ | ​ 639 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Adjusted FIFO operating profit excluding the adjustment items above | ​ | $4,056 | ​ | $2,995 | ​ | (1) Transformation costs primarily include costs related to store and business closures 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 million net loss attributable to the minority interest of Lucky’s Market. #### Interest Expense Interest expense totaled $544 million in 2020 and $603 million in 2019. The decrease in interest expense in 2020, compared to 2019, resulted primarily from decreased borrowings. Over the last 12 months, we decreased total debt, including obligations under finance leases, by $663 million. #### Income Taxes Our effective income tax rate was 23.2% in 2020 and 23.7% in 2019. 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. #### 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 were $3.27 per diluted share for 2020 compared to net earnings of $2.04 per diluted share for 2019. Adjusted net earnings of $3.47 per diluted share for 2020 represented an increase of 58.4% compared to adjusted net earnings of $2.19 per diluted share for 2019. The increase in adjusted net earnings per diluted share resulted primarily from increased FIFO operating profit without fuel, the decrease in the LIFO charge, increased fuel earnings and lower weighted average common shares outstanding due to common share repurchases, partially offset by a higher income tax expense. ### 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 $1.2 billion in 2020 and $400 million in 2019. 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 $128 million in 2020 and $65 million in 2019 of our common shares under the stock option program. On November 5, 2019, 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 “November 2019 Repurchase 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 authorization replaced the existing November 2019 Repurchase Program. The shares repurchased in 2020 were reacquired under the following share repurchase programs: - The November 2019 Repurchase Program. - The September 2020 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 30, 2021, there was $400 million remaining under the September 2020 Repurchase Program. During the first quarter through March 24, 2021, we repurchased an additional $36 million of our common shares under the stock option program and $191 million additional shares under the September 2020 Repurchase Program. As of March 24, 2021, we have $209 million remaining under the September 2020 Repurchase Program. ### CAPITAL INVESTMENTS Capital investments, including changes in construction-in-progress payables and excluding mergers and the purchase of leased facilities, totaled $3.2 billion in 2020 and $3.0 billion in 2019. Capital investments for the purchase of leased facilities totaled $58 million in 2020 and $82 million in 2019. The table below shows our supermarket storing activity and our total supermarket square footage: ### Supermarket Storing Activity | ​ ​ | ​ | ​ 2020 | ​ | ​ 2019 | ​ | ​ 2018 | ​ | | --- | --- | ---: | --- | ---: | --- | ---: | --- | | Beginning of year | | 2,757 | | 2,764 | | 2,782 | ​ | | Opened | | 5 | | 10 | | 10 | ​ | | Opened (relocation) | | 6 | | 9 | | 4 | ​ | | Acquired | | — | | 6 | | 10 | ​ | | Closed (operational) | | (20) | | (19) | | (38) | ​ | | Closed (relocation) | | (6) | | (13) | | (4) | ​ | | End of year | | 2,742 | | 2,757 | | 2,764 | ​ | | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | | Total supermarket square footage (in millions) | | 179 | | 180 | | 179 | ​ | ### 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, (iii) the average accumulated depreciation and amortization and (iv) for 2019, an adjustment due to the adoption of ASU 2016-02, “Leases,” at the beginning of 2019 as further described in Notes 10 and 18 to the Consolidated Financial Statements; 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) the average liabilities held for sale and (vi) 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. 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 2020 and 2019 on a 52 week basis ($ in millions). The 2019 calculation of ROIC excludes the financial position and results of operations of You Technology and Turkey Hill Dairy, due to the sales in 2019, and Lucky’s Market, due to the deconsolidation in 2019. | ​ ​ ​ ​ Return on Invested Capital Numerator | ​ ​ ​ ​ ​ | ​ ​ ​ Fiscal Year Ended January 30, ​ 2021 ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ February 1, ​ 2020 ​ ​ ​ ​ ​ ​ | | --- | --- | ---: | ---: | | Operating profit | ​ | $2,780 ​ | $2,251 ​ | | LIFO charge (credit) | ​ | (7) ​ | 105 ​ | | Depreciation and amortization | ​ | 2,747 ​ | 2,649 ​ | | Rent | ​ | 874 ​ | 884 ​ | | Adjustment for Home Chef contingent consideration | ​ | ​ 189 ​ | ​ (69) ​ | | Adjustment for pension plan withdrawal liabilities | ​ | ​ 989 ​ | ​ 135 ​ | | Adjustment for severance charge and related benefits | ​ | ​ — ​ | ​ 80 ​ | | Adjustment for transformation costs | ​ | ​ 111 ​ | ​ 52 ​ | | Adjustment for deconsolidation and impairment of Lucky's Market | ​ | ​ — ​ | ​ 412 ​ | | Adjustment for operating losses of Lucky's Market | ​ | ​ — ​ | ​ 75 ​ | | Adjustment for disposal of You Technology | ​ | — ​ | (49) ​ | | Adjusted ROIC operating profit | ​ | $7,683 ​ | $6,525 ​ | | ​ | ​ | ​ ​ ​ | ​ ​ ​ | | Denominator | ​ | ​ ​ ​ | ​ ​ ​ | | Average total assets | ​ | $46,959 ​ | $41,687 ​ | | Average taxes receivable(1) | ​ | (74) ​ | (41) ​ | | Average LIFO reserve | ​ | 1,377 ​ | 1,329 ​ | | Average accumulated depreciation and amortization | ​ | 24,161 ​ | 23,404 ​ | | Average trade accounts payable | ​ | (6,514) ​ | (6,204) ​ | | Average accrued salaries and wages | ​ | (1,291) ​ | (1,198) ​ | | Average other current liabilities(2) | ​ | (4,926) ​ | (3,942) ​ | | Average liabilities held for sale | ​ | — ​ | (26) ​ | | Adjustment for disposal of Turkey Hill Dairy | ​ | ​ — ​ | ​ (45) ​ | | Adjustment for disposal of You Technology | ​ | ​ — ​ | ​ (13) ​ | | Adjustment for deconsolidation of Lucky's Market | ​ | ​ — ​ | ​ (25) ​ | | Initial operating lease assets at adoption of ASU 2016-02, “Leases” (see Notes 10 and 18) | ​ | — ​ | 3,406 ​ | | Average invested capital | ​ | $59,692 ​ | $58,332 ​ | | Return on Invested Capital | ​ | 12.87% | 11.19% | (1) Taxes receivable were $66 as of January 30, 2021 and $82 as of February 1, 2020. We did not have any taxes receivable as of February 2, 2019. (2) Other current liabilities included accrued income taxes of $9 as of January 30, 2021 and $60 as of February 2, 2019. We did not have any accrued income taxes as of February 1, 2020. Accrued income taxes are removed from other current liabilities in the calculation of average invested capital. ### CRITICAL ACCOUNTING POLICIES We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. We base our estimates on historical experience and other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We believe the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain. #### Impairments of Long-Lived Assets We monitor the carrying value of long-lived assets for potential impairment each quarter based on whether certain triggering events have occurred. These events include current period losses combined with a history of losses or a projection of continuing losses or a significant decrease in the market value of an asset. When a triggering event occurs, we perform an impairment calculation, comparing projected undiscounted cash flows, utilizing current cash flow information and expected growth rates related to specific stores, to the carrying value for those stores. If we identify impairment for long-lived assets to be held and used, we compare the assets’ current carrying value to the assets’ fair value. Fair value is determined based on market values or discounted future cash flows. We record impairment when the carrying value exceeds fair market value. With respect to owned property and equipment held for disposal, we adjust the value of the property and equipment to reflect recoverable values based on our previous efforts to dispose of similar assets and current economic conditions. We recognize impairment for the excess of the carrying value over the estimated fair market value, reduced by estimated direct costs of disposal. We recorded asset impairments in the normal course of business totaling $70 million in 2020. In 2019, we recognized an impairment charge related to Lucky’s Market totaling $238 million. The Lucky’s Market impairment charge consisted of property, plant and equipment of $200 million; goodwill of $19 million; operating lease assets of $11 million; and other charges of $8 million. Additionally, we recorded asset impairments totaling $120 million in 2019, including $70 million of operating lease assets. This 2019 impairment charge included the 35 planned store closures across our footprint in 2020 related to our transformation efforts. 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 3 for further information about goodwill. #### Goodwill Our goodwill totaled $3.1 billion as of January 30, 2021. 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 2020 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 2020, 2019 and 2018 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 2020, 2019 and 2018, see Note 3 to the Consolidated Financial Statements. The impairment review requires the extensive use of management judgment and financial estimates. Application of alternative estimates and assumptions could produce significantly different results. The cash flow projections embedded in our goodwill impairment reviews can be affected by several factors such as inflation, business valuations in the market, the economy, market competition and our ability to successfully integrate recently acquired businesses. #### Multi-Employer Pension Plans We contribute to various multi-employer pension plans based on obligations arising from collective bargaining agreements. These multi-employer pension plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed in equal number by employers and unions. The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans. We recognize expense in connection with these plans as contributions are funded or when commitments are probable and reasonably estimable, in accordance with GAAP. We made cash contributions to these plans of $619 million in 2020, $461 million in 2019 and $358 million in 2018. The increase in 2020, compared to 2019 and 2018 is due to the First Quarter 2020 Multi-Employer Pension Contribution. 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 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. - In 2018, we incurred a $155 million charge, $121 million net of tax, for obligations related to withdrawal liabilities for certain local unions of the Central States multi-employer pension fund. As we continue to work to find solutions to under-funded multi-employer pension plans, it is possible we could incur withdrawal liabilities for certain funds. Based on the most recent information available to us, we believe that the present value of actuarially accrued liabilities in most of the multi-employer plans to which we contribute substantially exceeds the value of the assets held in trust to pay benefits. We have attempted to estimate the amount by which these liabilities exceed the assets, (i.e., the amount of underfunding), as of December 31, 2020. 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, 2020, we estimate our share of the underfunding of multi-employer pension plans to which we contribute was approximately $1.7 billion, $1.3 billion net of tax. This represents a decrease in the estimated amount of underfunding of approximately $600 million, $500 million net of tax, as of December 31, 2020, compared to December 31, 2019. The decrease in the amount of underfunding is primarily attributable to higher expected returns on assets in the funds during 2020, restructuring of the National Fund and the First Quarter 2020 Multi-Employer Pension Contribution. 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. See Note 16 to the Consolidated Financial Statements for more information relating to our participation in these multi-employer pension plans. ### NEW ACCOUNTING STANDARDS Refer to Note 18 and Note 19 to the Consolidated Financial Statements for recently adopted accounting standards and recently issued accounting standards not yet adopted as of January 30, 2021. ### LIQUIDITY AND CAPITAL RESOURCES #### Cash Flow Information #### Net cash provided by operating activities We generated $6.8 billion of cash from operations in 2020 compared to $4.7 billion in 2019. Net earnings including noncontrolling interests, adjusted for non-cash items and other impacts, generated approximately $5.3 billion of operating cash flow in 2020 compared to $5.0 billion in 2019. Cash provided (used) by operating activities for changes in operating assets and liabilities, including working capital, net of effects from mergers and disposals of businesses was $1.5 billion in 2020 compared to ($312) million in 2019. The increase in cash provided by operating activities for changes in operating assets and liabilities, including working capital, net of effects from mergers and disposals of businesses, was primarily due to the following: - A decrease in FIFO inventory at the end of 2020 due to accelerated timing of inventory sell-through resulting from elevated demand for our products during the pandemic; - An increase in accrued expenses at the end of 2020 primarily due to the following: - An increase in the current portion of the deferral of the employer portion of social security tax payments as a result of the CARES Act; - An increase in accrued incentive plan costs at the end of 2020; and - An increase in the current portion of our commitments due to the National Fund; and - An increase in long-term liabilities at the end of 2020, primarily due to the following: - An increase in the noncurrent portion of the deferral of the employer portion of social security tax payments as a result of the CARES Act; and - An increase in the noncurrent portion of our commitments due to the National Fund; - Partially offset by an increase in prepaid and other current assets due to escrow deposits related to the restructuring of multi-employer pension plans; and - Proceeds from a contract associated with the sale of a business that benefited 2019. Cash paid for taxes decreased in 2020, compared to 2019, primarily due to the payment of taxes on the gain on sale of the You Technology and Turkey Hill Dairy businesses in 2019. Cash paid for interest increased in 2020, compared to 2019, primarily due to the timing of certain semi-annual senior note interest payments that were paid during the first quarter of 2020 which were accrued as of the end of fiscal year 2019. #### Net cash used by investing activities Investing activities used cash of $2.8 billion in 2020 compared to $2.6 billion in 2019. The amount of cash used by investing activities increased in 2020, compared to 2019, primarily due to the following: - Decreased proceeds from the sale of assets in 2020 compared to 2019; and - Proceeds from the sale of businesses that benefited 2019, partially offset by - Payments for property and equipment continued at a slower pace in 2020 due to disruptions from the pandemic. However, increased purchase activity near the end of the year resulted in an increase in construction-in-progress payables as of year-end 2020 compared to 2019. #### Net cash used by financing activities We used $2.7 billion of cash for financing activities in 2020 compared to $2.1 billion during 2019. The amount of cash used for financing activities for 2020, compared to 2019, increased primarily due to increased payments on commercial paper and share repurchases, partially offset by increased proceeds from the issuance of long-term debt and decreased payments on long-term debt. #### Debt Management Total debt, including both the current and long-term portions of obligations under finance leases, decreased $663 million to $13.4 billion as of year-end 2020 compared to 2019. The decrease in 2020, compared to 2019, resulted primarily from net payments on commercial paper borrowings of $1.2 billion and payment of $700 million of senior notes bearing an interest rate of 3.30%, partially offset by the issuance of $500 million of senior notes bearing an interest rate of 2.20%, the issuance of $500 million of senior notes bearing an interest rate of 1.70% and a net increase in obligations under finance leases of $183 million. #### Dividends The following table provides dividend information ($ in millions, except per share amounts): | ​ ​ | ​ ​ 2020 | ​ ​ | ​ ​ 2019 | | --- | ---: | --- | ---: | | Cash dividends paid | $534 | ​ | $486 | | Cash dividends paid per common share | $0.68 | ​ | $0.60 | #### Liquidity Needs Based on current operating trends, we believe that cash flows from operating activities and other sources of liquidity, including borrowings under our commercial paper program and bank credit facility, will be adequate to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months. Our liquidity needs include anticipated requirements for working capital, capital investments, pension plan commitments, interest payments and scheduled principal payments of debt and commercial paper, offset by cash and temporary cash investments on hand at the end of 2020. 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 have approximately $800 million of senior notes maturing in the next twelve months, $311 million of the employer portion of social security tax payments we have deferred under the CARES act that is required to be paid by December 31, 2021 and expect to pay approximately $307 million in the first half of 2021 to satisfy a portion of the National Fund commitment. We expect to satisfy these obligations using cash generated from operations, temporary cash investments on hand, or through the issuance of additional senior notes or commercial paper. 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. We held cash and temporary cash investments of $1.7 billion as of the end of 2020 which reflects our elevated operating performance and significant improvements in working capital. We remain committed to our dividend and share repurchase program and we will evaluate the optimal use of any excess free cash flow, consistent with our previously stated capital allocation strategy. 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 is included in “Other current liabilities” and $311 million is included in “Other long-term liabilities” in our Consolidated Balance Sheets. For additional information about our debt activity in 2020, including the drawdown and repayments under our revolving credit facility, forward-starting interest rate swap agreements and our senior notes issuances, see Note 6 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 30, 2021, 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. 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 24, 2021, we had no commercial paper borrowings outstanding. Our credit facility requires the maintenance of a Leverage Ratio and a Fixed Charge Coverage Ratio (our “financial covenants”). A failure to maintain our financial covenants would impair our ability to borrow under the credit facility. These financial covenants are described below: - Our Leverage Ratio (the ratio of Net Debt to Adjusted EBITDA, as defined in the credit facility) was 1.63 to 1 as of January 30, 2021. 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 Fixed Charge Coverage Ratio (the ratio of Adjusted EBITDA plus Consolidated Rental Expense to Consolidated Cash Interest Expense plus Consolidated Rental Expense, as defined in the credit facility) was 5.37 to 1 as of January 30, 2021. If this ratio fell below 1.70 to 1, we would be in default of our credit facility and our ability to borrow under the facility would be impaired. Our credit facility is more fully described in Note 6 to the Consolidated Financial Statements. We were in compliance with our financial covenants at year-end 2020. The tables below illustrate our significant contractual obligations and other commercial commitments, based on year of maturity or settlement, as of January 30, 2021 (in millions of dollars): | ​ ​ Contractual Obligations(1)(2) | ​ ​ | ​ ​ 2021 ​ ​ | ​ ​ | ​ ​ 2022 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ | ​ ​ 2024 ​ ​ | ​ ​ | ​ ​ 2025 ​ ​ | ​ ​ | ​ ​ Thereafter ​ ​ | ​ ​ | ​ ​ Total ​ ​ | ​ ​ | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Long-term debt(3) | ​ | $844 | ​ | $894 | ​ | $617 | ​ | $494 | ​ | $575 | ​ | $8,986 | ​ | $12,410 | ​ | | Interest on long-term debt(4) | ​ | ​ 491 | ​ | ​ 474 | ​ | ​ 439 | ​ | ​ 427 | ​ | ​ 407 | ​ | ​ 5,001 | ​ | ​ 7,239 | ​ | | Finance lease obligations | ​ | ​ 109 | ​ | ​ 97 | ​ | ​ 95 | ​ | ​ 93 | ​ | ​ 92 | ​ | ​ 935 | ​ | ​ 1,421 | ​ | | Operating lease obligations | ​ | ​ 947 | ​ | ​ 865 | ​ | ​ 790 | ​ | ​ 717 | ​ | ​ 653 | ​ | ​ 6,260 | ​ | ​ 10,232 | ​ | | Self-insurance liability(5) | ​ | ​ 220 | ​ | ​ 156 | ​ | ​ 107 | ​ | ​ 70 | ​ | ​ 45 | ​ | ​ 133 | ​ | ​ 731 | ​ | | Construction commitments(6) | ​ | ​ 1,030 | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 1,030 | ​ | | Purchase obligations(7) | ​ | ​ 742 | ​ | ​ 378 | ​ | ​ 365 | ​ | ​ 257 | ​ | ​ 240 | ​ | ​ 1,950 | ​ | ​ 3,932 | ​ | | **Total** | ​ | $4,383 | ​ | $2,864 | ​ | $2,413 | ​ | $2,058 | ​ | $2,012 | ​ | $23,265 | ​ | $36,995 | ​ | | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | **Other Commercial Commitments** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | | Standby letters of credit | ​ | $368 | ​ | $— | ​ | $— | ​ | $— | ​ | $— | ​ | $— | ​ | $368 | ​ | | Surety bonds | ​ | ​ 408 | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 408 | ​ | | **Total** | ​ | $776 | ​ | $— | ​ | $— | ​ | $— | ​ | $— | ​ | $— | ​ | $776 | ​ | (1) The contractual obligations table excludes funding of pension and other postretirement benefit obligations, which totaled approximately $33 million in 2020. This table also excludes contributions under various multi-employer pension plans, which totaled $619 million in 2020. (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 30, 2021, 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 30, 2021 and stated fixed and swapped interest rates, if applicable, for all other debt instruments. (5) The amounts included in the contractual obligations table for self-insurance liability related to workers’ compensation claims have been stated on a present value basis. (6) Amounts include funds owed to third parties for projects currently under construction. These amounts are reflected in “Other current liabilities” in our Consolidated Balance Sheets. (7) Amounts include commitments, many of which are short-term in nature, to be utilized in the normal course of business, such as several contracts to purchase raw materials utilized in our food production plants and several contracts to purchase energy to be used in our stores and food production plants. Our obligations also include management fees for facilities operated by third parties and outside service contracts. Any upfront vendor allowances or incentives associated with outstanding purchase commitments are recorded as either current or long-term liabilities in our Consolidated Balance Sheets. We included our future commitments for customer fulfillment centers for which we have placed an order. We did not include our commitments associated with additional customer fulfillment centers that have not yet been ordered. We have provided a letter of credit which supports our commitment to build a certain number of fulfillment centers. The balance of the 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. This letter of credit balance is included in the “Standby letters of credit” line above. As of January 30, 2021, we maintained a $2.75 billion (with the ability to increase by $1 billion), unsecured revolving credit facility that, unless extended, terminates on August 29, 2022. Outstanding borrowings under the credit facility, commercial paper borrowings, and some outstanding letters of credit reduce funds available under the credit facility. As of January 30, 2021, 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 30, 2021. In addition to the available credit mentioned above, as of January 30, 2021, 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. We also maintain surety bonds related primarily to our self-insured workers’ compensation claims. These bonds are required by most states in which we are self-insured for workers’ compensation and are placed with predominately third-party insurance providers to insure payment of our obligations in the event we are unable to meet our claim payment obligations up to our self-insured retention levels. These bonds do not represent liabilities of ours, as we already have reserves on our books for the claims costs. Market changes may make the surety bonds more costly and, in some instances, availability of these bonds may become more limited, which could affect our costs of, or access to, such bonds. Although we do not believe increased costs or decreased availability would significantly affect our ability to access these surety bonds, if this does become an issue, we would issue letters of credit, in states where allowed, against our credit facility to meet the state bonding requirements. This could increase our cost and decrease the funds available under our credit facility. We also are contingently liable for leases that have been assigned to various third parties in connection with facility closings and dispositions. We could be required to satisfy obligations under the leases if any of the assignees are unable to fulfill their lease obligations. Due to the wide distribution of our assignments among third parties, and various other remedies available to us, we believe the likelihood that we will be required to assume a material amount of these obligations is remote. We have agreed to indemnify certain third-party logistics operators for certain expenses, including multi-employer pension plan obligations and withdrawal liabilities. In addition to the above, we enter into various indemnification agreements and take on indemnification obligations in the ordinary course of business. Such arrangements include indemnities against third-party claims arising out of agreements to provide services to us; indemnities related to the sale of our securities; indemnities of directors, officers and employees in connection with the performance of their work; and indemnities of individuals serving as fiduciaries on benefit plans. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that could result in a material liability. ## Market risk As filed, 4,363 characters. #### Financial Risk Management 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. As of January 30, 2021, we had no forward-starting interest rate swap agreements outstanding. 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 30, 2021 and February 1, 2020. The amounts shown for each year represent the contractual maturities of long-term debt, excluding finance leases, as of January 30, 2021 and February 1, 2020. Interest rates reflect the weighted average rate for the outstanding instruments. The variable rate debt is based on U.S. dollar LIBOR using the forward yield curve as of January 30, 2021 and February 1, 2020. The Fair Value column includes the fair value of our debt instruments as of January 30, 2021 and February 1, 2020. We have no outstanding interest rate derivatives classified as fair value hedges as of January 30, 2021 or February 1, 2020. See Notes 6, 7 and 8 to the Consolidated Financial Statements. *(in millions)* | ​ ​ ​ ​ ​ Debt | ​ ​ ​ ​ ​ | ​ ​ ​ January 30, 2021 Expected Year of Maturity 2021 ​ ​ ​ | ​ ​ ​ 2022 ​ ​ ​ | ​ ​ ​ 2023 ​ ​ ​ | ​ ​ ​ 2024 ​ ​ ​ | ​ ​ ​ 2025 ​ ​ ​ | ​ ​ ​ Thereafter ​ ​ ​ | ​ ​ Total ​ ​ | ​ ​ | ​ ​ Fair Value ​ ​ | ​ ​ | | --- | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- | ---: | --- | | Fixed rate | ​ | $(802) ​ | $(894) ​ | $(594) ​ | $(494) ​ | $(494) ​ | $(8,986) ​ | $(12,264) | ​ | $(14,534) | ​ | | Average interest rate | ​ | 4.20% | 4.29% | 4.41% | 4.55% | 4.58% | 4.40% | ​ ​ | ​ | ​ ​ | ​ | | Variable rate | ​ | $(42) ​ | $— ​ | $(23) ​ | $— ​ | $(81) ​ | $— ​ | $(146) | ​ | $(146) | ​ | | Average interest rate | ​ | 1.87% | — ​ | 2.62% | — ​ | 0.08% | —% | ​ ​ | ​ | ​ ​ | ​ | *(in millions)* | ​ ​ ​ ​ ​ Debt | ​ ​ ​ ​ ​ | ​ ​ ​ February 1, 2020 Expected Year of Maturity 2020 ​ ​ ​ | ​ ​ ​ 2021 ​ ​ ​ | ​ ​ ​ 2022 ​ ​ ​ | ​ ​ ​ 2023 ​ ​ ​ | ​ ​ ​ 2024 ​ ​ ​ | ​ ​ ​ Thereafter ​ ​ ​ | ​ ​ Total ​ ​ | ​ ​ | ​ ​ Fair Value ​ ​ | ​ ​ | | --- | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- | ---: | --- | | Fixed rate | ​ | $(705) ​ | $(804) ​ | $(894) ​ | $(594) ​ | $(495) ​ | $(8,462) ​ | $(11,954) | ​ | $(13,347) | ​ | | Average interest rate | ​ | 4.39% | 4.56% | 4.47% | 4.69% | 4.86% | 4.65% | ​ ​ | ​ | ​ ​ | ​ | | Variable rate | ​ | $(1,221) ​ | $— ​ | $— ​ | $— ​ | $— ​ | $(81) ​ | $(1,302) | ​ | $(1,302) | ​ | | Average interest rate | ​ | 1.88% | — ​ | — ​ | — ​ | — ​ | 1.65% | ​ ​ | ​ | ​ ​ | ​ | Based on our year-end 2020 variable rate debt levels, a 10 percent change in interest rates would be immaterial. See Note 7 to the Consolidated Financial Statements for further discussion of derivatives and hedging policies. ## Controls and procedures As filed, 1,706 characters. As of January 30, 2021, 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 30, 2021. ### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change in our internal control over financial reporting during the fiscal quarter ended January 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ### 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 30, 2021. The effectiveness of the Company’s internal control over financial reporting as of January 30, 2021, 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. Filed Mar 30, 2021. Source: SEC EDGAR, the filing index for accession 0001558370-21-003706. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.